Remedial matters

Definition of revenue account property - non-Kyoto greenhouse gas units

A remedial amendment is made to add non-Kyoto greenhouse gas units to the definition of revenue account property.

Amendments to the PIE rules

Several amendments have been made to the portfolio investment entity (PIE) rules to ensure they operate as originally intended. The most significant of these is a change to how prescribed investor rates for recent migrants are set to more accurately reflect their income.

Attributable CFC amount

New sections EX 20B(3)(o) and EX 21E(8)(e) have been inserted to ensure that a controlled foreign company's (CFC's) portfolio investment entity (PIE) income is accounted for correctly in determining its passive income.

Amendments to tax status of New Zealand Superannuation Fund

The New Zealand Superannuation Fund (NZSF) is a Government investment fund that was set up to pre-fund a portion of New Zealand's future superannuation requirements. The NZSF is not a separate legal entity, but a pool of funds owned by the New Zealand Government.

Fair dividend rate method: quick sale gain amount

The fair dividend rate ("FDR") rules in the Income Tax Act 2007 have been amended to ensure that the formula for calculating the "quick sale gain amount", ie, the gain on shares purchased and disposed of within the same income year, takes into account share reorganisations between the date the shares were purchased and when they were sold.

Dividends paid within a New Zealand wholly owned group

The amendment (section 8 of Taxation (Tax Administration and Remedial Matters) Act 2011) removes the common balance date requirement from section CW 10.

Rewrite remedial items

Remedial changes have been made to the Income Tax Act 2007 and the Income Tax Act 2004 on the recommendation of the Rewrite Advisory Panel. The Panel lists the submissions and their recommendations on its websites.

Disposal of petroleum mining assets to related parties

Sections 19 and 197 of the Taxation (Tax Administration and Remedial Matters) Act 2011 amend section DT 9 of the Income Tax Act 2007 and the Income Tax Act 2004 to address an ambiguity identified by the Rewrite Advisory Panel and correct a cross-reference.

Base price adjustment calculation

Section 34 of the Taxation (Tax Administration and Remedial Matters) Act 2011 improves the cross-referencing for sections EW 31(4) in both the 2004 and 2007 Acts and ensures that the outcome from the interaction between section EW 31(4) and the related interest deduction rules in Part D gives the same outcome as under the corresponding provisions in the 1994 Act.

Apportioning interest deductions and wholly owned groups

Section 45(3) Taxation (Tax Administration and Remedial Matters) Act 2011) amends section FE 6(3) of the Income Tax Act 2004 and ensures that the interest apportionment provided for under section FE 6 is able to be allocated, electively, across companies within a wholly-owned group of companies.

Thin capitalisation - on-lending concession

Section 46 of the Taxation (Tax Administration and Remedial Matters) Act 2011 amends section FE 12(1) of the Income Tax Act 2007 to ensure that a financial institution is able to utilise the on-lending concession in determining whether the thin capitalisation rules apply.

Foreign tax credits and income with multiple sources

Section 100 of the Tax (Tax Administration and Remedial Matters) Act 2011 amends section LJ 1(2)(a) of the Income Tax Act 2007 to ensure a taxpayer has a foreign tax credit for foreign tax paid on income sourced outside New Zealand, even if that income also has a source in New Zealand.

Foreign tax credit - calculation of New Zealand tax payable on foreign sourced income

Section 101 of the Taxation (Tax Administration and Remedial Matters) Act 2011 amends section LJ 5 of the Income Tax Act 2007 to ensure that a taxpayer, when determining the amount of their foreign tax credits for foreign sourced income, must take into account any excess of deductions over income from any source (including New Zealand sourced income). This adjustment is made to ensure that the foreign tax credits allowed do not exceed the amount of New Zealand tax payable calculated in relation to the taxpayer's notional income tax liability.

Imputation credit for overpaid provisional tax transferred within a group

Section 112 of the Taxation (Tax Administration and Remedial Matters) Act 2011 amends section OB 4 of the Income Tax Act 2007 to clarify the timing for an imputation credit arising for a company on the transfer of overpaid provisional tax by one company within a wholly owned group of companies to another company in the same group. The timing of this imputation credit is the date the notice of the transfer of the tax is given to the Commissioner.

Further income tax payable for debit balance in imputation credit account

Section 113 of the Taxation (Tax Administration and Remedial Matters) Act 2011 amends section OB 67 of the Income Tax Act 2007 to ensure that an amount of a debit balance of an ICA at the end of one tax year is not counted twice in debit balances of the ICA for the immediately following tax year.

BETA debit rules

Sections 115, 116, 119 and 120 of the Taxation (Tax Administration and Remedial Matters) Act 2011 correct an unintended change in law in sections OE 8 and OP 102 and clarify sections OE 7 and OP 101, all being provisions of the Income Tax Act 2007.

Meaning of employee

Section 130 of the Taxation (Tax Administration and Remedial Matters) Act 2011 amends the definition of "employee" in section YA 1 of the Income Tax Act 2007 to ensure that a shareholder-employee who elects that their employment income not be subject to PAYE is an employee for the purposes of the FBT rules.

Tracing of shareholder interests

Section 131 of the Taxation (Tax Administration and Remedial Matters) Act 2011 amends section YC 11(3) of the Income Tax Act 2007 to clarify that the market value interest referred to is the market value interest in the issuing company.

Lump sum payments on the occasion of retirement

The Rewrite Advisory Panel considered a submission that the rewrite of section DF 5 of the 1994 Act into section DC 1 of the 2004 Act contained an unintended change. After consideration, the Panel agreed there is an intended change in the law, and this should be indicated in schedule 22A of the 2004 Act.

Rewrite maintenance items

Provisions, most of which come into force on 1 April 2008, are amended.

Gains on liabilities of controlled foreign companies

New and temporary provisions have been added to the Income Tax Act 2007. These provide relief to investors in controlled foreign companies who have been taxed on foreign exchange rate gains on liabilities, if certain requirements are met.

Thin capitalisation - concession for groups with low interest deductions

Section FE 6, which includes a concession for groups of companies with low deductions for interest paid, has been amended to ensure it works as intended.

Ring-fenced losses of controlled foreign companies - losses incurred prior to active income exemption

Section IQ 2 has been substantially redrafted as part of an exercise to improve the clarity of subpart IQ in the rewritten Income Tax Act.

Fixed-rate share remedial amendment

Section EX 46(10)(a) has been amended to fix an error that affects foreign fixed-rate shares held by individuals and trustees. Persons who have already filed tax returns will not face any additional tax, whether they had been applying the rules as they were intended to be applied or applied them in accordance with the unintended change.

Integral fees where the modified fair value method applies

The modified fair value spreading method is based on the fair value method and the consideration for the latter method is defined to ignore non-integral fees (an IFRS GAAP term). The consideration for the modified fair value method should also ignore non-integral fees. This was an oversight in the original legislation which has been amended by the Taxation (Tax Administration and Remedial Matters) Act 2011.

Anti-arbitrage rules for the use of the fair value method

The anti-arbitrage rules were amended in 2009 to get them working as they were originally proposed, being to prevent income and expenditure being deferred/advanced on two financial arrangements which are in an IFRS designated hedging relationship.

Date published: 01 Nov 2011

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