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Accounting News

Our accounting news seeks to cut through the clutter, boil down the issues, and keep you ahead of the game.

Business continuity test

The new business continuity test only applies to losses from the 2014 tax year onwards. Thus, assuming 31 March balance date, if there has been a change in shareholding of more than 51% on say 17 August 2013, the company may still be able to carry forward its losses. There must not be a major change in the business within five years following a change of ownership. However, certain changes are acceptable.

The Inland Revenue lists the following acceptable changes:

  • increase efficiency;
  • respond to advances in technology;
  • the scale of the business, including accessing different markets;
  • product or service range (excluding land), as long as the new products or services both; use existing assets to produce and are related to the products and services already being produced.

The department also states:

“Finance companies with losses mainly from writing off bad debts are excluded from the five year limit. The requirement to not undergo a major change is therefore ongoing beyond the five year limit.”

Bright line – important points to remember

The IRD are checking residential land transactions that occur within the bright-line period. A few important points to remember around bright-line dates include:

  • A company owning residential property becoming an LTC or exiting the LTC regime is considered to be a bright- line disposal and repurchase. This could mean a bright-line profit arising and definitely a new start date.
  • Changing shares in an LTC that owns residential property will be a partial transfer for bright-line purposes so the same issues above will apply. The $50,000 de minimis would apply if the deemed bright-line profit along with any other deemed income for the shareholder exiting or reducing their holding is less than $50,000.
  • The subdivision of land does not restart the bright-line acquisition date for the new title. It is still the original acquisition date for the land.
  • Changing the use of the land from private to arms-length rental does not restart the bright-line acquisition date.
  • There are special rollover relief provisions for the transfer of residential property via a relationship property agreement and for transfer from a deceased to their estate, to the estate to the beneficiary and for a transfer by the beneficiary.

There are no concessions for property sold within the bright-line period unless one of the specific exclusions apply no matter what the client’s circumstances are.

Main home exclusion - bright line test

The new rule applies if the 10 year bright line test applies. The main home exclusion applies so long as the property has been used predominantly (on a floor area basis) as a taxpayer’s main home. 


Any period of less than 12 months, for which the home has not been used as the main home, can be ignored. 

Residential rental property – interest deductibility

From 1 October 2021 the amount of interest, which will be tax deductible on money borrowed to buy residential rental property has been reduced to 75%. From 1 April 2023 the interest deduction will become 50% and will be reduced to 25% from 1 April 2024 and to nil from 1 April 2025.


There will be no tax deduction for interest on property acquired from 27 March 2021.


The IRD provides a good fact sheet on the changes at the following link "Interest - IRD"

Shifting GST liability to purchaser of land

Section 5 (23) of the GST Act 1985 allows Inland Revenue to claim GST from the purchaser of land, if the transaction was wrongly zero rated in terms of section 11 (1) (mb) of the GST act. 


The Commissioner of Inland Revenue has issued PUB00256 to clarify that if the vendor zero rates the transaction contrary to the contract between the parties, the GST liability will not be shifted to the purchaser.

Deemed dividend

Generally, any transfer of value to a shareholder for no consideration is a deemed dividend unless employment income or fringe benefit tax applies. 


PUB00362 is a draft interpretation statement which analyses this more closely. The statement also looks at other transactions which do not give rise to dividends.

IRD updates

R&D: Inland Revenue has issued COV 21/01. Its purpose is to grant extensions of time for filing Research and Development notices, methodologies and returns.


Depreciation: ED0228 sets out the proposed depreciation rates to be used for e-scooters and e-bicycles.


Online: PUB00365 looks at when income derived from online activities becomes taxable income.

Mycoplasma Bovis

Provided an election is made by the date of filing the tax return for the 2021 tax year, farmers affected by Mycoplasma Bovis will be permitted a six year income spreading option as an alternative to the investments made in the Income Equalisation Scheme or the Adverse Event Income Equalisation Scheme. 


The farmer will be entitled to reverse out of these schemes and substitute the spreading option.

Income tax treatment of accomodation provided to employees

ED0227 is a detailed look at what constitutes accommodation and whether it might be subject to any of the exemptions. 


There is a useful flowchart on page 7 to help you determine whether the employer has provided accommodation that is excluded. 


There is another flowchart on page 17 to help you determine whether the accommodation is exempt. Part two of the paper discusses “what is the value of the accommodation subject to tax?”

GST – CZR and commercial leases

Generally, CZR does not apply to a commercial lease. However certain situations exist where CZR does apply:

  1. a supply made under a commercial lease where the consideration includes a lump sum of more than 25% of the term consideration, and any subsequent supplies made under the same lease
  2. the assignment or surrender of a commercial lease;
  3. the reverse surrender of a commercial lease (where a lessee pays a lessor to take back a lease); and
  4. a supply of lease procurement services; that is, a supply made under an arrangement that involves the lessee’s surrender of a commercial lease and the grant of a new commercial lease by the lessor to another person.
The information supplied above has been provided with the assistance of the Small Business Institute Limited. The information has been researched with care. However, the author and company accept no responsibility to anyone for any error which may occur in the information provided. 

Readers are advised to consult with Hammond and Moir Limited before acting on anything above.

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