Income tax: Payments after an employee passes away
IRD has clarified the income tax treatment of payments made by employers after an employee dies. An interpretation statement covers when payments made to an executor, family members, or third parties are taxable income, who is responsible for the tax and if employers should deduct PAYE, make KiwiSaver contributions or apply student loan deductions.
Payments can include unpaid salary and wages, holiday pay, death benefits, funeral contributions, and compassionate payments. It also explains when employers can claim a tax deduction for the payments and the obligations of executors to file any required tax returns.
Court of Appeal upholds award of indemnity costs to Commissioner
A recent Court of Appeal decision upheld a High Court order requiring the payment of indemnity costs of just over $50k to IRD. The taxpayer had attempted to use judicial review proceedings to challenge earlier court decisions about tax assessments and debt recovery, after failing to appeal through the appropriate channels.
The Court found the High Court had correctly exercised its discretion in awarding indemnity costs, and the proceedings were effectively a delaying tactic. The decision reinforces the high threshold for indemnity costs, confirms the principles governing appeals of discretionary decisions, and highlights that relying on legal advice does not necessarily protect a litigant from an indemnity costs award.
Income tax: Amalgamation
IRD have summarised a private ruling on the tax consequences of a group company amalgamation to simplify a corporate structure and reduce compliance costs. It concluded the amalgamation was a resident’s restricted amalgamation, allowing assets, shares, amortising property, and certain intra-group loans to transfer to the amalgamated company without triggering taxable income, losses, depreciation recovery income, or deductions.
Certain co-owners also weren’t operating as a partnership for tax purposes so the general anti-avoidance provision did not apply. The case was treated as largely tax-neutral, with the affected company stepping into the tax position of the amalgamating companies.
GST: Amalgamation
Another private ruling was made on the GST consequences of amalgamating several commonly owned companies. It concluded the companies were eligible to form a GST group before the amalgamation and the transfer of assets and activities to the affected company could occur without triggering GST liabilities.
Certain co-owners were also not considered to be carrying on a tax law partnership. Accordingly, the general anti avoidance provision did not apply. The amalgamation was treated as largely tax neutral, with the amalgamated company inheriting the tax positions of the amalgamating companies.
