Introducing changes coming in 2022

Introducing changes coming in 2022

Slide 1 

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Introducing the other changes coming in 2022

For Community groups

March 2022 

The information in this presentation is current as at 23 March 2022 

Slide 2 

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Purpose 

Introducing the 2022 annual changes

For:

• Community groups
• Communities

Topics:

• Child support
• Working for Families
• Bright-line
• Trusts
• Other changes

Audio 

Kia ora Koutou,

Greetings everyone, my name is Rata Kamau and I am an Account Manager for Inland Revenue.

Last year, the Minister of Revenue introduced the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Bill.

The Bill includes an assortment of proposed changes which are expected to take effect on or before the 1st of April 2022. There are also a number of other legislative changes which come into effect, or are proposed to come into effect from April too.

While most of these are minor changes, some of them will be of interest to our communities. We’ll be looking at some of these changes today. For more of a detailed information on the range of upcoming changes, visit www.ird.govt.nz/2022-changes

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Title: Social products

Audio 

Let’s start by taking a look at the changes coming for child support and Working for Families.

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Title: Policy changes 

The Child Support Amendment Act was passed in March 2021.

The Act aims to simplify penalty rules, increase compliance, and provide more certainty for child support customers. 

Some changes have already gone live. The remaining changes are being introduced from 1 April 2022 and include changes to:

• Definition of income
• Child expenditure calculations
• Estimations

Audio 

There are several changes coming into effect for child support.

The Child Support Amendment Act was passed in March 2021. The Act aims to simplify penalty rules, increase compliance, and provide more certainty for child support customers. 

Some of these changes have already been implemented over the past year or so, with the remaining changes expected to be introduced from the 1st of April 2022. 

These changes include:

Changes to definition of income 

• Investment income will now be included in child support income for salary and wage customers.  This means they will have their interest or dividends earned included in their child support income.   
• Child support will move to a ‘net’ income base – net income is gross income less any allowable deductions. It excludes any losses you have to bring forward from a previous year

Also changing is child expenditure calculations 

• The use of the mixed age expenditure table will be repealed. Instead, the expenditure table used for each child will be based on their appropriate age bracket.  
• Inland Revenue will have the discretion to modify child expenditure calculations in exceptional circumstances such as in situations where complex care arrangements for children in the same calculation are not adequately accounted for by the usual method. 

And finally, changes to estimations 

• With these changes, when a person joins the child support scheme, an estimation can be backdated to the start of the assessment if received on or before the 28th day after notification of the assessment. 
• If a customer submits a second re-estimation for a previous year within the first 28 days Inland Revenue will have the ability to decline this
• The end of year reconciliation rules for estimations have been updated and a reconciliation period will be introduced for estimations. Income used in the square up will reflect the income received during the reconciliation period. This means when a person estimates more than once, each of their estimations will be squared up separately to reflect the income received in the period to which the estimate applied. 

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Title: Remedial changes

The Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Bill includes several proposed remedial changes for child support.

These changes are expected to be passed on or before 31 March 2022.

Included are changes to the estimations, time bar and offsetting provisions.  

Audio 

The Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Bill includes several proposed remedial changes for child support. These changes are expected to be passed on or before the 31st of March 2022. 

These proposed changes mean: 

• Customers will need to provide proof when advising of existing circumstances in the first 28 days after the notification of their assessments. 
• There is an adjustment to the time bar provision introduced by the Child Support Amendment Act - this will restrict child support reassessments to a four year period from the beginning of the relevant child support period. 
• We will be asking for further evidence from those applying for a temporary exemption under the long-term injury/illness category to show they can’t engage in paid work due to the long-term illness/injury.
• Debt offsetting will be extended to voluntary agreements. 

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Title: Combined MSD applications

We’ve been working to make it easier for sole parents to apply for child support through MSD.

From 11 April, MSD will be incorporating the child support application into their online benefit form.

MSD will support their clients with any queries they have relating to the combined application form.

Audio 

In addition to the policy and remedial changes, we have been working with the Ministry of Social Development, MSD, to make it easier for sole parents to meet their obligation to apply for child support.

From 11 April, MSD will be incorporating the child support application into their online benefit form so that when a sole parent applies for a benefit online, they can apply for child support at the same time. This will reduce the need for customers to duplicate their information in separate forms.

MSD will support their clients with any queries they have relating to their child support application.

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Title: Rate changes

Audio

Now, Working for Families.

There will be increases to the family tax credit, Best Start tax credit and minimum family tax credit annual entitlement rates. 

For the family tax credit:

• The annual entitlement for the eldest child is increasing from $5,878 to $6,642.  
• The annual entitlement for any additional dependent child is increasing from $4,745 to $5,412. 
• This will result in an increase of up to $14 per week for the eldest child and up to $12 per week for any subsequent children. 

The Best Start tax credit entitlement is increasing from $3,120 to $3,388 per year. This means an increase from $60 to approximately $65 per week, per eligible child. 

The amount that minimum family tax credit tops up a family’s after tax annual income to is increasing from $31,096 to $32,864.

The income abatement rate that applies to the family tax credit and in-work tax credit entitlement is increasing from 25% to 27%. 

Notice of entitlements showing customers what they’ll receive for the new year, starting 1 April 2022, were sent out in late February.

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Title: Bright-line

Audio

Next we’ll look into the changes to the bright-line property rule, which is for people who sell a residential property who may need to pay income tax on any profit.

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Title: 10-year bright-line rule

Bright-line property rule has been extended to 10 years.

Applies to properties purchased on or after 27 March 2021.

Residential properties may be subject to income tax on any profit made, if sold within 10 years.

Audio

The bright-line property rule has been extended to 10 years for properties purchased on or after the 27th March 2021.

This means residential properties may be subject to income tax on any profit made on the sale of the property if sold within 10 years of being acquired.

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Title: 5-year bright-line rules

A shorter bright-line period of 5 years is expected to be introduced for new builds.

Applies for the initial owners.

New builds purchased off the plans and new builds constructed on land already owned will also qualify for the 5 year bright-line period.

Audio

However, a shorter bright-line period of 5 years is expected to be introduced for new builds.

This means if someone purchases a new build property, a bright-line period of 5 years will apply – as opposed to the recently enacted 10 year bright-line period I just spoke about. 

The 5-year bright-line period applies for the initial owners who have acquired the completed new build within 12 months after the Code Compliance Certificate (CCC) is issued under the Building Act 2004.

New builds purchased off plans and new builds constructed on land already owned will also qualify for the 5 year bright-line period, provided these new builds receive their CCCs by the time the land is disposed of.

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Title: Main home exclusion

There are changes to the main home exclusion where a main home and rental property are on the same land:

• If the main home is >50% of the land, it will be excluded from the bright-line property rule.
• If the main home is <50% of the land, any gain on sale will be apportioned between the main home (untaxed) and the rental property (taxed).

Audio

There are changes to the way bright-line applies to the main home when there is another dwelling for investment purposes on the same land as the main home.

Where the main home is over 50% of the land, the existing main home exclusion continues to apply in the same way. 

If the main home is under 50% of the land, any gain made on the sale of the property is apportioned between the main home and the rental property. The main home portion will not be taxed. 

When a property is not used as the main home for periods of more than 12 consecutive months, the time apportionment rule applies regardless of whether the main home takes up more or less than half the land. This rule ensures that tax is paid on those periods of non-main home use.

To find out whether a property is likely to be taxable under any of the property rules, you can use the property tax decision tool on myIR – this will be updated once the legislation has passed. 

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Title: Making bright-line easier

Bright-line residential property sale information - IR833 form will be pre-populated with property information. 

A new bright-line guide is in development and is expected to be published in April 2022.

Audio

We’re working to make it easier for customers to meet their bright-line obligations.

Everyone filing in myIR – and tax agents filing in Gateway – will now be able to complete the bright-line residential property sale information - IR833 form with their return.

This form will show in the return if we think the customer has a bright-line sale or if you indicate this when filing.

The IR833 form will also come pre-populated with property information including title number, address, date of purchase and date of sale.

The new bright-line guide is in development and is expected to be published in April 2022.

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Title: Interest deductibility

Audio

Another change in the property space is the introduction of the interest limitation rule.

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Title: Limiting interest deductibilityAbility to claim interest on loans for residential property as an expense is being phased out.

For residential property acquired on or after 27 March 2021, interest will be denied as an expense from 1 October 2021, unless an exclusion or exemption applies.

For property acquired before 27 March 2021, the ability to deduct interest on existing loans is being phased out over 4 years, ending 31 March 2025.

Audio

The ability to claim interest on loans for residential property as an expense is being phased out with the introduction of an interest limitation rule.

The new interest limitation rule is expected to be passed into law by the 31st of March 2022 and will be backdated to apply from the 1st of October 2021, as outlined by the Government in March 2021.

For residential property acquired on or after the 27th March 2021, interest will be denied as an expense from the 1st of October 2021, unless an exclusion or exemption applies.

For property acquired before the 27th of March 2021, the ability to deduct interest on existing loans is being phased out over 4 years, ending the 31st of March 2025.

Slide 15

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Title: Phasing out interest deductions

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This table shows how the phasing will work.

As you can see interest is fully deductible until the 30th of September 2021,

Then from the 1st of October 2021 to 31st of March 2023 only 75% of interest is deductible, and so on.

And then finally from the 1st of April 2025, no interest will be deductible.

The interest limitation rules apply to properties that are suitable to be used for long-term residential accommodation, so some types of residential accommodation will be excluded. Full information on the rules and exclusions will be available on the IRD website from the 1st of April.

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Title: Trusts

Audio

There are changing coming to the reporting requirements for trusts to help Inland Revenue understand how trusts are being used to accumulate and distribute income

For the 2022 tax year and beyond, more information will be required about a trust’s earnings, settlements and settlors, beneficiaries and distributions, and persons with powers of appointment. 

Any trust that makes income in a year will be required to provide additional disclosures for that year. However, some exclusions apply

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Title: Additional reporting requirements

Trustees will be required to provide:

• financial summaries as part of their annual IR6 returns.

• information about settlements, settlors, beneficiaries, distributions and persons with power of appointment for the trust. 

Audio

From 1 April 2021, trusts will be required to provide financial summaries as part of their IR6 annual returns. 

Trusts will also be required to provide information about settlements, settlors, beneficiaries, distributions and persons with power of appointment for the Trust.  

This includes: 

• Financial summaries with a statement of profit or loss as well as a statement of financial position. 
• The details of any person who has made a settlement on a Trust, as well as the amount and nature of any settlement made from the 1st of April 2021. 
• The details of any person who has received a distribution from a Trust and the amount and nature of the distribution. 
• The details of people who have the power to appoint or dismiss a trustee, to add or remove a beneficiary, or to amend the trust deed. 

The new requirements apply from the 2021-22 tax year onwards.

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Title: Exemptions

Any trust that makes income in a year must provide additional disclosures, unless they fall under one of the following categories:

• Non-active trust 
• Foreign trust 
• Charitable trust 
• Eligible to be a Māori authority 
• Widely-held superannuation fund 
• Employee share scheme 
• Debt funding special purpose vehicle 
• Energy lines trust 

Audio

If the trust falls under one of the following categories, they will not be required to provide additional disclosures for that year: 

• Non-active trust 
• Foreign trust 
• Charitable trust 
• Eligible to be a Māori authority 
• Widely-held superannuation fund 
• Employee share scheme 
• Debt funding special purpose vehicle, and
• Energy lines trust 

Slide 19

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Title: Exemptions

Trusts that do not derive income are encouraged to complete a non-active trust declaration. 

An Estate that has estate property held on trust will be required to comply with the new rules.

Audio

Trusts that do not derive income are encouraged to complete a non-active declaration to remove the requirement to provide an income tax return. 

This can be submitted through myIR, or you can fill in our Non-active trust declaration form (the IR633).

Estates are not Trusts by definition. However, an Estate that has progressed to a point that estate property is held on trust will be required to comply with the new disclosure rules. 

Slide 20

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Title: Other changes

Audio

And now we’ll look at some of the other changes expected to be introduced on or before 1 April 2022.

Slide 21

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Title: Relief of use of money interest

Extend the relief of use of money interest (UOMI) to 8 April 2024. 

Audio

If customers are unable to pay their tax on time because they have been significantly adversely impacted by COVID-19, they can ask us to remit penalties and interest. 

  The relief of use of money interest, or UOMI, is being extended. We will be able to remit penalties and interest for tax payments that were due on or after the 14th of February 2020 up until the 8th of April 2024 (including provisional tax). 

  If customers have already notified IR that they are impacted by COVID-19, they won’t need to do anything.  

If customers become significantly adversely impacted by COVID-19, they can notify Inland Revenue through myIR or other regular communication channels.  

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Title: Provisional tax: Safe Harbour

Requirement for customers to pay in full and on time will be removed.

UOMI will be charged for unpaid amounts after the terminal tax due date.

Existing qualification requirements and late payment penalties will still apply

Audio

Also, the requirement for customers to pay provisional tax instalments in full and on time will be removed for customers using the safe harbour option. 

Use of money interest, or UOMI, will only be charged if an amount remains unpaid after the terminal tax due date. 

All other existing qualifications will remain and late payment penalties will still apply.

Also, billing will still occur based on the information we hold including reminder notices and alerts in myIR.   

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Title: Rate changes

Audio

Next, here are some rates changes to be aware that will take effect from 1 April 2022:

The ACC earners levy (GST included) will increase to $1.46. Also, the ACC Earners' levy deducted will increase to earnings up to a minimum of $42,465 and a maximum of $136,544.

New student loan changes will apply for the period ending 31 March 2023. 

• The student loan repayment threshold will increase from $20,280 to $21,268.  
• The student loan interest rate for overseas based borrowers will decrease from 3% to 2.8%
• The late re-payment interest rate will decrease from 7% to 6.8%, and
• The reduced late payment interest rate will decrease from 5% to 4.8%

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Title: KiwiSaver employee contributions

New ways for employees to request contribution rate changes: myIR and their KiwiSaver scheme provider.

Employers are not required to make a contribution rate change more than once every 3 months. 

Audio

Starting 1 April, KiwiSaver members who make contributions through deductions from their salaries and wages will have more ways to request changes to their KiwiSaver contribution rate. 

In addition to requesting a contribution rate through their employer, they will be able to request a change to their contribution rate through their myIR account or by contacting their Kiwisaver scheme provider.

Some key things to note are:

Employees can submit as many rate changes as they like – If they submit multiple in one week, we will only send employers the latest request received for the week.  

Employers are not required to make a change more than once every 3 months unless they have agreed to a shorter timeframe. 

If an employee is on a savings suspension, they can only choose a new rate directly with their employers.

Employees will see their current KiwiSaver contribution rate in myIR. The rate is based on the latest information provided to us from their employer.

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Title: Other legislative changes

Definition of an election day worker

Updated overseas donee list

Audio

And to finish off today’s presentation, here are a couple more legislative changes that may be of interest to community groups:

• The definition of an election day worker will be extended to allow for the tax code to be used for all election day-related work. For example, advance voting work.
• Since you can claim tax credits for donations over $5 that you make to approved charities and organisations, you may want to know that the overseas donee list will be updated. The organisations that will be added take effect starting the 1st of April 2021 and those removed will take effect from the 1st of April 2022.

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Title: Thank you

To view our other webinars, visit www.ird.govt.nz/2022-changes.

If you have any questions about our webinar, please email [email protected]

Audio

That brings us to the end of our presentation.

As I mentioned at the beginning, this has been an overview of some of the changes likely to be of interest to our communities and community groups. If you’d like to find out more about the full range of upcoming changes, go to www.ird.govt.nz/2022-changes.

If you have any questions about our webinars, please send them to [email protected]

Thank you for taking time out of your day to listen to this presentation. Ka kite ano. Bye for now.