Rewrite amendments
The amending Act includes a number of remedial changes to the Income Tax Act 2007, at the recommendation of the Rewrite Advisory Panel. The Panel sets out submissions relating to these changes on its website (www.rewriteadvisory.govt.nz). It also lists its conclusions and recommendations for each submission. Unless otherwise stated, the following amendments apply from the beginning of the 2008-09 income year.
Mutual associations and the mutuality principle
Sections CB 33 and DV 19 of the Income Tax Act 2007 Act have been amended retrospectively. Section CB 33 of the 2007 Act contained an unintended change.
Accumulated tax depreciation and mothballed assets
Sections EE 60(3B) of the Income Tax Act 2007 and EE 51(3B) of the Income Tax Act 2004 have been amended.
Meaning of "controlled foreign company"
The amendment restores the meaning of "controlled foreign company", as given by section CG 4(2)(b) of the 1994 Act. The amendment has been made to section EX 1(1)(b) in both the 2004 and 2007 Acts.
Interest deductions for consolidated groups
Section FM 12(2) of the Income Tax Act 2007 has been amended retrospectively to disallow a deduction for interest incurred on money borrowed from another company, when both companies are members of the same consolidated group of companies.
Excessive remuneration paid by a close company to a shareholder, director or relative
Section GB 25(3) of the Income Tax Act 2007 has been amended retrospectively to ensure that it does not apply to a director, shareholder or a relative of the director or shareholder who is employed substantially full-time and is participating in the administration of the business.
Disposal of trading stock for less than market value
Sections GC 1 and EB 24(1) of the Income Tax Act 2007 have been amended to correct an unidentified change in legislation, as identified by the High Court in Foodstuffs (Wellington) Co-Operative Society Limited v CIR (2010) 24 NZTC 23,959 (CIV 2009-485-1224). Section GC 2(3) has been consequentially amended to update the cross-reference to the correct subsection in section GC 1. The amendments are retrospective to the commencement of the 2007 Act.
Qualifying companies and exempt income
Section HA 1(1)(a) of the Income Tax Act 2007 has been amended retrospectively to replace the term "tax paid" with a phrase that is consistent with the treatment of dividends paid by a qualifying company as being fully imputed or as exempt income.
Loss attributing qualifying companies
Section HA 11(4) of the Income Tax Act 2007 has been repealed and its provisions relocated to new section HA 11B. Cross references in section HA 6(2)(c) have been updated.
Loss carry forward and loss attributing qualifying companies
Section HA 24(5) of the Income Tax Act 2007 has been amended to ensure that a loss attributing qualifying company is able to carry forward a loss balance arising in an earlier income year in which the company was a qualifying company, but prior to the company becoming a loss attributing qualifying company.
Loss attributing qualifying companies - section HA 26
Section HA 26 of the Income Tax Act 2007 has been retrospectively amended to permit a shareholder in a loss attributing qualifying company to elect, in the same circumstances provided for in section HG 16(2) of the Income Tax Act 2004, to defer the transfer of the net loss of a loss attributing qualifying company to the shareholders of the company.
Tax credits of trustees
Section HC 24(2) has been amended to ensure that a trustee may use tax credits, such as imputation credits, to satisfy the trustee’s income tax liability in relation to trustee income.
Commonality of shareholding for groups of companies and tax losses
Section IC 3(3) of the Income Tax Act 2007 has been amended retrospectively to ensure that the commonality of shareholding rules are not applied in a similar manner to the shareholder continuity rules.
Loss carry-forward and grouping: bad debts and share losses
Section IC 12 of the Income Tax Act 2007 has been amended retrospectively to permit a company to carry forward tax losses arising from bad debts or share losses from one year to another, and then use that carried forward loss to offset against the company’s own net income for that later income year.
Carrying forward losses and part-year rules
Section IP 5 of the Income Tax Act 2007 has been amended retrospectively to ensure that in a year in which a company breaches the shareholder commonality or continuity requirements, section IP 5(2) does not prevent the company’s tax losses from earlier tax years being carried forward to the year in which the breach of commonality or continuity occurs.
Tax credits - absentees
Sections LC 3(1) and LC 6(1) of the Income Tax Act 2007 have been amended to make it easier for taxpayers to understand that neither the child income tax credit (section LC 3) nor the housekeeping tax credit (LC 6) are available for a person who is an absentee for income tax purposes.
Maximum amount of total deduction for a supplementary dividend holding company
Section LP 10(1) of the Income Tax Act 2007 has been amended to correct an unintended change in the formula in section LP 10(1), in which the parameter "company’s income" was incorrectly included in the numerator in the formula.
Timing of imputation credits and debits - tax pooling
The Rewrite Advisory Panel agreed with a submission that section OB 6 of the Income Tax Act 2007 contained an unintended change in law. The Panel considered that the change produced a different timing for the imputation credit on the transfer of an entitlement to funds in a tax pooling account, when compared to the outcome given by section ME 4(2)(ad) of the 2004 Act.
Imputation debit breach of continuity adjustment
Section OB 32(2)(b) of the Income Tax Act 2007 has been amended retrospectively to ensure that the debit to an imputation credit account for a breach in shareholder continuity is correctly adjusted if the company has also received a debit to its imputation credit account for income tax refunded to the company before the breach in shareholder continuity occurred.
Payments by RWT proxies
The definition "tax rate" in section RE 18(2) of the Income Tax Act 2007 has been amended to refer to clause 3 of clause 2, of schedule 1, part D. This amendment corrects the incorrect cross-reference to clause 2 of schedule 1, Part D.
Definition of "revenue account property"
The Rewrite Advisory Panel considered the drafting of the definition of "revenue account property" in the Income Tax Acts 2004 and 2007 were ambiguous as they could be read as requiring a factual test to be applied.
Currency conversion rules
The amendment to section YF 1 codifies the Commissioner's practice of permitting alternative currency conversion methods and alternative rates to the actual exchange rates at the time a transaction occurs. This administrative practice permitted alternative rates or currency conversion methods to that stipulated in the Privy Council's decision in Payne v The Deputy Federal Commissioner of Taxation [1936] AC 497; [1936] 2 All ER 793.
Definition of "cultivation contract work"
In schedule 4, part C, clause 2 of the Income Tax Act 2007, the definition of "cultivation contract work" has been amended to clarify that the schedular payments rules only apply to works or services provided under a contract or arrangement for the supply of labour, or substantially for the supply of labour in relation to land that is intended to be used for the cultivation of fruit crops, vegetables, orchards or vineyards.
Exemption certificates
The amendment corrects section 24M(5) of the Tax Administration Act 1994, as recommended by the Rewrite Advisory Panel. The Panel’s concern was that section 24M(5) could be read as being in conflict with section 24M(1), effectively negating the use of an exemption certificate issued under section 24M(1). This exemption certificate relieves the payer of schedular payments of the obligation to withhold tax from the payment.
Minor maintenance items referred to the Rewrite Advisory Panel
The following minor maintenance items were referred to the Rewrite Advisory Panel.
Date published: 05 Nov 2010
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