Tax Bill receives its first reading

The Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Bill (No 2) (No 164-1) received its first reading on 21st September. The Bill has now been referred to the Finance and Expenditure Committee with a report-back date of 2 March 2023.

Mortgage offset arrangements

Some of you may have clients who have entered into a mortgage offset arrangement with their bank – where they can elect to use the balance of their transaction and savings accounts to offset against home loan accounts so that there is a reduction in interest payable.

In case you were wondering about the tax effects of such arrangements, Inland Revenue (IR) has recently released BR Prd 22/09, which confirms its present view of the tax consequences of Westpac’s mortgage offset arrangement.

The Binding Ruling concludes that, so long as the interest rates are offered at arm’s-length market rates, the tax consequences of the arrangement are as follows:

  • offsetting a credit balance from a deposit account against a debit balance of a loan account does not, of itself, give rise to any income or expenditure under the financial arrangements rules;
  • any fees payable by the customer to Westpac are “consideration” for the purposes of the financial arrangements rules;
  • as there is no payment of (or entitlement to) interest on the credit balance of these deposit accounts, there is no derivation of interest income for the account holder and no obligation on Westpac to deduct resident withholding tax (RWT) or non-resident withholding tax (NRWT), or pay approved issuer levies;
  • the arrangement is not an indirect associated funding arrangement under section RF 12I;
  • no income arises under section CC7 for either Westpac or its customers, and;
  • the tax avoidance provisions inside sections BG 1 and GB 21 have no application.

The ruling applies from 1 April 2022 to 31 March 2027.