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Remedial matters

Rewrite amendments

Amendment Act 2009 with remedial changes to the 2007 and 2004 Income Tax Acts and Tax Administration Act at the recommendation of the Rewrite Advisory Panel.

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. 

Rewrite remedial items also include:

  • Minor drafting matters that have been brought to the attention of the Rewrite Advisory Panel. In general, these amendments consist of corrections of cross-references, spelling, punctuation, terminology, formulas, and consistency of drafting. The Rewrite Advisory Panel publishes lists of these maintenance items on its website.
  • Consequential amendments arising from the amendments as recommended by the Rewrite Advisory Panel, and the minor drafting items referred to above.

Background

At the time of reporting back the Income Tax Bill 2002, the Finance and Expenditure Committee expressed concern that the new, rewritten, legislation could contain unintended policy changes.

To alleviate that concern, the committee recommended that a panel of taxation specialists review any submission that rewritten income legislation contains an unintended policy change. An unintended policy change is regarded as a change in the drafting of a provision that results in a different legislative outcome from its corresponding provision in earlier income tax legislation. For example, to determine the corresponding provision for a provision in the Income Tax Act 2007, it is necessary at times to trace the legislation back to the Income Tax Act 1976, by examining the history of the provision through the Income Tax Act 2004, The Income Tax Act 1994 and the Taxation (Core Provisions) Act 1996.

The Rewrite Advisory Panel performs this review function. The process for making a submission to the Panel is set out in its statement, RAP 001. This statement is published on the Panel's website.

In general, the Panel considers whether a change in outcome has occurred, and then recommends that a provision is:

  • amended to counter the effect of an unintended change;
  • identified in schedule 51 of the 2007 Act as an intended change; or
  • contains no change in outcome when compared with its corresponding provision in the earlier Act.

The Finance and Expenditure Committee also noted in its commentary on the Income Tax Bill 2002 that there may be a situation in which:

  • … the Government of the day decides to retain the rewritten law without retrospective amendment.

The Committee went on to say:

  • Such a decision would be a change in policy, and the Inland Revenue Department would be obliged to require taxpayers to meet any increased tax. The department has advised us that it intends to inform taxpayers through an appropriate publication that, in such cases, where taxpayers rely on the transitional provisions, they will be required to meet the tax obligation but will not be subject to penalties, and any use-of-money interest incurred will be remitted. The taxpayer must have taken reasonable care and adopted a reasonable tax position under the old law. We agree with this approach.

Inland Revenue has published two standard practice statements setting out how it will apply the penalty and interest rules within the context of the comments of the Finance and Expenditure committee referred to above. Those two statements are SPS 08/03, issued in relation to the 2007 Act (published in the Tax Information Bulletin Vol. 20, No. 10, December 2008) and SPS 05/02, issued in relation to the 2004 Act (published in the Tax Information Bulletin Vol. 17, No. 5, July 2005).

Application dates

Unless otherwise stated, the following amendments apply from the beginning of the 2008–09 income year.

Detailed analysis

The Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 amends the following provisions of the Income Tax Act 2007, the Income Tax Act 2004, and the Tax Administration Act 1994.

2007 Act - recommendations of the Rewrite Advisory Panel

Section CC 8B

The Panel considered that the marginal notes for section CZ 6 of the 2007 Act could be read to suggest that the provision does not apply to commercial bills acquired after 31 July 1986. This amendment clarifies the marginal text, and relocates the provision to subpart CC.

The provision has been amended to clarify that the rule applies to non-residents owning commercial bills if the financial arrangement rules do not apply to the commercial bill, irrespective of the date of acquisition of the commercial bill

Section CD 5

Under the 1994 Act, amounts derived on the buy-back of shares or share reduction by a company were treated expressly as a dividend, unless the buy-back or share reduction came within one of the specified exclusions. The Panel considered this outcome is less clear in the 2007 Act and recommended that the dividend rules be clarified to assist the reader.

New subsection CD 5(2B) ensures that, in calculating the value given by shareholders to the company in a share buyback or share reduction or share cancellation, the market value for the surrender of shareholding interests is treated as zero. This ensures that payments to shareholders for a buy-back of shares or a share reduction comes within the meaning of transfer of value.

Section CD 25(4)

The Panel considered that section CD 17(4) of the 2004 Act (and subsequently section CD 25(4) of the 2007 Act) would result in the available subscribed capital (ASC) of a company being be reduced to zero in relation to a company's acquisition of treasury stock. The Panel concluded this was an unintended change in outcome and recommended the 1994 Act position be restored.

Section CD 25(4) has been amended to ensure that the ASC should only be reduced by the amount paid for shares that are held as treasury stock for more than 12 months or cancelled within 12 months (subject to the amount paid for the shares not exceeding the ASC per share calculated under the ordering rule).

Section CE 1, section YA 1 - definition of "accommodation"

In section CE 1 of the 2004 Act (and section CE 1 of the 2007 Act), it was unclear whether the provision included in a person's income, the value of accommodation provided by way of board or lodgings. The concept of "board or lodgings" in the 1994 Act was considered to include accommodation provided for employees on long-term projects, where the employee was required to live away from home.

Section CE 1 of the 2007 Act has been amended to clarify that the meaning of accommodation in this section covers a wide range of living arrangements provided by the employer, including the value of board or lodgings provided in connection with employment or the provision of services.

Section CW 9(1), (3)

In the 2004 Act, section CW 9 provided that dividends derived from a foreign company by a portfolio tax rate entity were excluded from the exempt income rule under section CW 9. That amendment was not correctly reflected in section CW 9 of the 2007 Act.

This amendment ensures that the 2007 Act provides that dividends derived by a portfolio tax rate entity from a foreign company are not exempt income.

Section CW 12(4)

The amendments insert the meaning of defined terms that are used in the section:

  • "foreign exempt entity";
  • "foreign exempt partnership"; and
  • "foreign exempt person".

This amendment comes into force on 1 April 2008.

Section DB 3(4)

The amendment clarifies that section DB 3 overrides the capital limitation (section DA 2).

Section DC 13(5)

The Panel considered that section DC 12(5) of the 2004 Act (section DC 13(5) of the 2007 Act) contained a change in law, when compared with its corresponding provision of the 1994 Act (section DF 7(3)(h)(iii)). Under the rule as drafted, it prohibited employees from putting any dividends derived from a share purchase scheme towards the repayment of their share purchase loan.

The Panel recommended that the 2004 and 2007 Acts be amended to provide that the rule prohibited the trustee of a share purchase scheme from appropriating any dividends, derived under the share purchase scheme, for the repayment of the employee's share purchase loan rather than preventing the employee from putting dividends received towards repayment of the employee's share purchase loan.

Section DU 12(3)

The Panel considered a submission that section DU 12(3) in the 2004 and 2007 Acts contained a different outcome from that given by the corresponding provision in the 1994 Act (section DN 3(3)(b)). The Panel noted that section DU 12 of the 2004 Act had been re-enacted, unamended in the 2007 Act.

The Panel concluded that the 1994 Act provision provided that the amount of the deduction should be calculated by reference to the difference between:

  • the prescribed proportion of the aggregate amount of exploration and development expenditure incurred by the mining company before the end of the income year in which the holding company's mining loan is written off; and
  • the aggregate deductions allowed to the holding company under the section in all income years before the current income year.

The amendment restores to the 2007 Act the effect of the corresponding provisions from the 1994 Act.

Section EE 21

The Panel considered that section EE 21(7) and (8) of the 2004 Act contained an unintended legislative change, which has been carried over to the Income Tax Act 2007. 

An amendment to section EE 21 ensures that the amount of depreciation loss for an income year in relation to a pool of assets is calculated by reference to the number of months the pool is used in the taxpayer's income year. That number of months of use may be more or less than 12 months if the taxpayer begins to use the pool in the income year.

Section EW 31(7), (9)(a)

The amendment clarifies that the base price adjustment for a cash-basis holder of a financial arrangement takes into account all income derived relating to the financial arrangement. This ensures that a cash basis holder will include cash-basis income (that income is usually determined outside the financial arrangement rules) in the base price adjustment calculation.

Section FA 2

Section FA 2 has been amended to clarify that a profit-related debenture includes debentures determined by a fixed relationship to banking interest rates, general commercial rates of interest or other published indices. This amendment also relocates the content of section FA 2(3) to section FA 2(4).

Section FA 2(5) restores the rule in the 2004 Act that the provision does not apply to a convertible note. In addition, the content of section FA 2(6) has been relocated to section FA 2(5) for drafting consistency.

The amendment comes into force on 1 April 2008.

Section FC 4

The amendment contains a rewrite amendment and a policy change (non-rewrite).

The rewrite amendment to section FC 4(1) restores the effect of section FI 5(1) of the 2004 Act so that section FC 4(1) applies to distributions made from a deceased person's estate to a charity, if section CW 43 applies to that charity.

The policy change limits the application of section FC 4(1) to distributions by the executors or the administrators or the trustees of a deceased person's estate to a "qualifying" beneficiary who is beneficially entitled to receive the property under the will or the rules governing intestacy. The change means that the transfer or transmission of the revenue base property to the executor or administrator of the deceased person's estate following the death of the taxpayer is treated, under section FC 2, as a disposal at market value for income tax purposes.

The provision comes into force on the date of Royal assent, being 6 October 2009. This has the effect that the notified change for section FC 4 in schedule 51 is effective, from the beginning of the 2008–09 income year, until the amendment comes into force.

Section FE 36(3)

The Panel concluded that section FE 36 of the 2007 Act provides that a resident entity could be included in a New Zealand banking group if:

  • the entity was required to consolidate with the registered bank or the ultimate foreign parent of the bank for the purposes of generally accepted accounting practice (GAAP); and
  • the entity was also part of the same group of companies as the registered bank.

The Panel concluded that this outcome was not the same as the outcome given by section FG 8C of the 2004 Act. Under the 2004 Act provision, a resident entity operating in New Zealand could be in a New Zealand banking group if:

  • it was in the same group of companies as the registered bank; or
  • it was required to consolidate with the registered bank or the ultimate foreign parent of the registered bank, for the purposes of generally accepted accounting practice (GAAP).

The amendment restores section FE 36 of the 2007 Act to give the same outcome as provided by its corresponding provision in the 2004 Act. 

Section FM 31

The Panel concluded that section FM 31 resulted in a change in outcome, when compared with the corresponding provision in the 2004 Act (the definition of "eligible company" in section OB 1 of the 2004 Act).

The amendment restores the effect of the 2004 Act definition of "eligible company" in relation to a grandparented consolidated company, ensuring that the grandparented consolidated company is eligible to remain a member of a consolidated group of companies.

Section FN 8

Under section FDA 3(1) of the 2004 Act, New Zealand subsidiaries of a trans-Tasman imputation group were required to form a resident imputation subgroup.

The amendment restores the requirement that if a New Zealand company is a member of a trans-Tasman imputation group, the New Zealand company must form or become part of a resident imputation subgroup. The amendment also clarifies that a resident imputation subgroup continues even if only one company remains in the resident imputation subgroup.

Section FO 16

The Panel considered that section FO 10 in the 2007 Act was not clear that, under a resident's restricted amalgamation (formerly a "qualifying amalgamation"), an amalgamating company does not derive income, or have allowable deductions for the transfer of property in the course of the resident's restricted amalgamation.

The amendments to section FO 16 clarify that an amalgamating company will not derive income or have deductions from the disposal of depreciable property in the course of a resident's restricted amalgamation.

Section HA 11(5)

A submission to the Panel considered that section HA 11(5) does not require that the dividends be distributed as beneficiary income after a company attained qualifying company status, as was previously required under section OB 3(3A) of the Income Tax Act 2004. The Panel concluded that section HA 11(5) did not contain an unintended change, but recommended that the drafting be improved.

The amendment improves the drafting consistency and clarifies that section HA 11(5) applies because of the application of the general law to the trustee's obligations, in relation to distributions of dividends from the trust.

Sections HA 14, 15(1), (9), HA 16 and HA 19

The amendment restores the outcome in section HG 13 of the 2004 Act which stated that, to the extent imputation and FDP credits are available, they must be attached to a dividend paid by a qualifying company at the maximum permitted ratio. The rule applied irrespective of whether the shareholder was resident in New Zealand or not. The amendment also restores the rule that the portion of the dividend in excess of the fully-imputed amount is:

  • exempt income of a resident shareholder; or
  • non-resident withholding income of a non-resident shareholder.

The amendments to sections HA 14 and HA 16 remove an overlap, where sections HA 14 and HA 16 also provided for outcomes given by section HA 15.

The amendment to section HA 19 is consequential to the amendments to sections HA 14 to HA 16.

The amendment to section HA 19 comes into force on 1 April 2008.

Section HC 27(3)

The amendment clarifies that an employer is not a settlor in relation to settlements made to a trust that is established mainly to provide retirement benefits to natural persons, other than trusts that are foreign superannuation schemes or superannuation funds. The amendment ensures that section HC 27(3) has the same outcome as that given by section HH 1(10) of the 2004 Act.

Section HR 8

Amendments to section HR 8(1) clarify that:

  • a transitional resident is taxed on the same basis as a non-resident for certain provisions, despite being a resident of New Zealand for income tax purposes; and
  • the period referred to in section HR 8(3) begins on the day the person satisfies either:
    • the permanent place of abode test in YD 1(2); or
    • the day-count test in section YD 1(3); and
    • in relation to the permanent place of abode test and the day-count test, section YD 1(4) is ignored/not taken into account;
  • a person who is not in receipt of tax credits for families is able to elect to be a transitional resident; and
  • the effect of section FC 24(6)(b) of the 2004 Act is restored, to provide a time limit under which a person can give the Commissioner notice that they wish to cease being a transitional resident.
Section ID 3

The Panel considered that section ID 3 does not reflect the corresponding provisions of section IG 6(6) of the 2004 Act. The provision is concerned with the extent to which a loss company within a consolidated group may make its losses available to the group, to subtract from the consolidated group income in calculating the taxable income of the group.

The Panel concluded that section IG 6(6) of the 2004 Act permitted the loss company to make its losses available to the consolidated group, to the extent the loss company satisfies the commonality rules with every member company of the consolidated group throughout the continuity period.

The amendment restores the outcome given by section IG 6(6) of the 2004 Act.

Section IP 1(1)

The amendment to section IP clarifies that the part-year loss rules in subpart IP are to apply to a company entering or leaving a group of companies during the tax year, whether the entry or exit is caused by a breach of the continuity or commonality rules or otherwise. A typical example of a company entering a group of companies during an income year would be for a newly formed company that joins the group of companies.

Section IQ 2(3)

Section IQ 2 has been amended to clarify how section IQ 2(3) applies when a person is unable to use their maximum permitted amount of a carried forward attributed CFC net loss to subtract from the person's net income, because the person has insufficient net income.

The amendment clarifies that the unused portion of the "maximum permitted amount" is treated as an ordinary tax loss component from, and including, that income year. This ensures that the person is able to carry forward the unused amount in the person's loss balance, and not as a carried forward attributed CFC net loss.

Sections IQ 3(1), (3) and IQ 5(3)

Sections IQ 3 and IQ 5 have been amended to:

  • set out the method for calculating the maximum permitted amount of brought-forward FIF net losses that persons are able to subtract from their net income (or a group company under section IQ 5 for the current income year). The rule ensures that the maximum amount available to subtract from net income is determined by reference to attributed CFC income or FIF income calculated using the branch equivalent method that arises in the same country as that in which the CFC or FIF is resident; and
  • clarify that, if the taxpayer has insufficient net income to fully use the maximum permitted amount, the unused portion of the "maximum permitted amount" of a person's carried forward FIF net loss is treated as an ordinary tax loss component from and including that income year. This ensures that the person is able to carry forward that unused amount in the person's loss balance, and not as a carried-forward FIF net loss.

The amendment restores the effect of the rule in section IE 4(4) of the 2004 Act. The drafting approach reverts to the explicit wording set in sections IE 4(2), (3) and (6) of the 2004 Act, before their repeal in 2006.

Section LA 7(1)

Section LA 7 has been amended to clarify that the provision applies to the tax credit for both charitable and public benefit donations. 

The amendment comes into force on 1 April 2008.

Section LB 1

Section LB 1 has been amended to clarify at what time a person's tax credit arises for tax withheld from wages and salaries, or other payments subject to the PAYE rules. Under this rule, the tax credit arises even if the employer has not paid PAYE to the Commissioner. However, the tax credit is available only if the amount withheld is correctly set out on the employer monthly schedule.

In addition, the provision clarifies that, for an employee that is an associated person of a close company, the tax credit is limited to the amount withheld (as shown on the employer monthly schedule) from the wages and salaries only if the amount withheld has been paid to the Commissioner. The rule also applies if the employee's spouse, civil union partner, or de facto partner is an associated person of the close company.

This amendment comes into force on 1 April 2008.

Sections LB 4 and MF 6 of the Income Tax Act 2007 and section 80 KLB of the Tax Administration Act 1994

Under the family scheme, the amount of a person's family scheme tax credit referred to in section LB 4 is determined under sections MD 1 and ME 1, and is refundable under section LA 7. Subpart MF permits the Working for Families (WFF) tax credit to be paid by instalment, with an end-of-year "wash-up" calculation required under section MD 1.

If the "wash-up" calculation indicates that the instalments of the tax credit paid to the person exceed the person's actual WFF tax credit, the excess amount is recoverable from the taxpayer in an end-of-year assessment (sections MF 5 and MF 6).

Section MD 1(3A) of the 2004 Act permitted the Commissioner to recover the overpayment of the previous year's overpaid instalments from the current year's instalments. This provision was omitted from the 2007 Act. This amendment restores the effect of section MD 1(3A) of the 2004 Act, and ensures that the amounts of prior year's overpaid instalments of the family tax credit that are recovered from the current year's instalments, are taken into account in the end-of-year assessment in:

  • determining whether the current year's instalments of the family scheme credits are over- or underpaid; and
  • determining the correct amount to be refunded if the entitlement is underpaid (and instalments have been used to satisfy a previous year's recovery of overpaid instalments).

The amendment to sections MF 6 and 80KLB of the Tax Administration Act clarify how the Commissioner is to deal with over- or underpayments of instalments of family tax credits.

Sections LB 7 and LB 8

These two provisions clarify how the amount of a person's tax credit is determined in relation to personal services rehabilitation payments when the payer or provider has been supplied with a special tax rate certificate, or the no-declaration rate applies.

The amendments come into force on 1 July 2008, the commencement date for the rules relating to personal services rehabilitation payments.

Sections LJ 1(3) and LJ 2(2), (6) and (7)

Section LJ 2(2) has been amended to clarify that the amount allowed as a foreign tax credit relating to foreign tax paid on foreign-sourced income derived from a particular source is limited to the amount of New Zealand tax payable on that foreign-sourced income (as calculated under section LJ 5).

The content of section LJ 1(3) has been relocated to section LJ 3(6) and (7).

Section LJ 3

The definition of "foreign income tax" has been replaced. The amendment clarifies that the term refers to an amount that is treated as income tax in another country or territory (other than New Zealand).

Section LJ 5

The amendment to section LJ 5(4) clarifies that the denominator in the formula in subsection (4) refers to New Zealand tax payable on all sources or types of income, irrespective of whether the amount of income is derived from New Zealand or from foreign sources. The effect of the amendment is to ensure that any excess of expenditure over the related income types (segmental losses) are spread across all sources of income, both domestic and foreign sourced, and that the calculation of the New Zealand tax under section LJ 5(2) appropriately pro-rates these losses across all classes of income.

The amendment to section LJ 5(6)(b) corrects the meaning of "losses" to ensure that the term is defined by reference to the loss balance carried forward from the prior income year.

Section LJ 7

Section LJ 7 has been amended and replaced by new sections LJ 7 and LJ 8. The amendments:

  • clarify to which year the payment for the foreign income tax relates; and
  • to which year the amount of the refund, amount or benefit for the person relates; and
  • restores to the 2007 Act, the effect of sections LC 1(3A)(b), LC 3(1)(c)(ii) and LC 3(2) of the 2004 Act.

These provisions provide for an adjustment to the calculation of the amount of FDP payable on receipt of a dividend from a foreign company, if the taxpayer has recovered excess foreign tax credits previously allowed to the taxpayer.

Section LK 1

Section LK 1 has been amended to clarify that the tax credit is in relation to income tax, (including foreign income tax) paid by a controlled foreign company and withholding taxes withheld from distributions made by the CFC. The amendment is to ensure that the provision more closely reflects the effect of its 2004 Act corresponding provision, section LC 4(1).

In addition, the effect of subsections LC 4(10) and (11) of the 2004 Act have been restored to the Act as subsection LC 4(5) to (9) of the 2007 Act.

Section LK 2(2)(b)

Section LK 2(2) has been amended to remove the words "in relation to the person's attributed CFC income". This amendment removes an ambiguity that potentially would double count the section EX 18 income interest in the formula in section LK 2(1).

Section LP 4(2)

The amendment addresses the Panel's recommendation that section LP 4(2) be amended to clarify that a market value circumstance must exist before a person is required to calculate a market value interest.

Section MB 4(1)

The amendment clarifies that a dividend from a close company is not taken into account in determining a person's family scheme income. The amendment reinstates the 2004 Act rule that ensured the calculation of family scheme income does not double count dividends that represent distributions of net income of a close company that has also been included in the determination of family scheme income.

Section MC 6(b)(ii), schedule 51

The amendment is a policy change to correct a drafting error in the 2004 Act. The amendment repeals subsection MC 6(b)(ii) to clarify that a person in receipt of the veteran's pension does not preclude a person from being entitled to the in-work tax credit, the parental tax credit or the minimum family tax credit. 

This amendment applies from the beginning of the 2008–09 income year, and is listed in schedule 51 to confirm this is an intended policy change.

Section MD 9

The amendment clarifies that recipients of parental leave payments are not precluded from entitlement to the in-work tax credit if they meet the necessary full-time work test before receiving paid parental leave.

The amendment to section MD 9(2) ensures that the "qualifying" PAYE income payment test is satisfied if the income derived from a work activity is not of the types listed in section MD 9(3), and the person does not derive income of any type described in section MD 8. The amendment applies even if the person also derives income of the types listed in section MD 9(3) (after the amendment to section MD 9(3)).

Section ME 3(2), (3)

The amendment corrects the formula, that applies for partial periods in an income year, for determining the annualised amount of net income for the purposes of determining, under section MB 1, a person's family scheme income.

Section MZ 3

Section MZ 3 restores the effect of section KD 1(1)(e)(i), (vi) of the 2004 Act. The rule ensures that the determination of family scheme income is appropriately adjusted for withdrawals from the main income equalisation account or the adverse event equalisation account to the extent those withdrawals related to deposits made to those equalisation accounts in the 2002–03 income year, or an earlier income year.

Sections OB 1(1), (2)(a)(i) and (3) and OB 2(1)

The amendments relate to recommendations made by the Panel to clarify that:

  • a non-resident company is required to maintain an imputation credit account (ICA) unless the company is also resident in another country and is treated as not being resident in New Zealand for the purposes of a double tax agreement; and
  • an Australian ICA company is not required to be resident in New Zealand, consistent with the amendment to section ME 2(1A) of the 2004 Act by section 155(1) of the Taxation (Business Taxation and Remedial Provisions) Act 2007.
Section OB 34

The amendment corrects an unintended change in outcome relating to the timing of the debit to a company's ICA for a refund made to the company from a tax pooling account. The 2007 Act inadvertently drafted the timing rule as a single common rule for all companies. In contrast, the 2004 Act distinguished between the timing of the debit for qualifying companies and the timing of the debit for other companies.

For a company that is not a qualifying company, the amendment restores the effect of section ME 5(1)(ea), (2)(ea), (eb), to provide that a refund from a tax pooling account is debited to the company's ICA in the following order, until the amount of the refund is fully debited:

  • firstly, to the tax year before the refund, to the extent the ICA has a credit balance; and then
  • to the tax year of the refund; and then
  • to the tax year before the refund.

Although the amendment applies from the beginning of the 2008–09 income year, a savings provision applies for taxpayers who relied on the drafting of section OB 34 in the 2007 Act to determine the date of the debit. The savings provision applies to refunds of income tax made before 2 July 2008 (the date that the Taxation (International Taxation, Life Insurance and Remedial Matters) Bill 2008 was introduced.

Section OB 71

Section OB 71 has been amended to ensure that it applies to a company ceasing to be part of a wholly owned group because of changes in the ultimate ownership of the company, irrespective of the balance in the company's ICA. This rule corresponds to section ME 9B(3), (4) of the 2004 Act.

The 2007 Act provision was drafted on the basis that it applied only if the company ceasing to be a group member had a debit balance in its ICA at the time it left the group. The Panel concluded that the 2004 Act did not require the leaving company to have a debit balance, and recommended the 2004 Act outcome be restored. The amendment corrects section OB 71 to ensure that it applies irrespective of whether the leaving company has a debit balance in its ICA.

Section OD 3

The amendments to section OD 3(1) and (2) address ambiguity in the provision by clarifying:

  • the time by which the company must elect to become a CTR account; and
  • that a company must maintain a conduit tax relief account on a continuous basis from the beginning of the tax year in which the election is made.
Section OP 6

As originally enacted in the 2007 Act, this provision did not permit a group company that did not have a credit balance in its imputation credit account to receive refunds of income tax to which it is entitled under section RM 2 of the Income Tax Act 2007.

Under the corresponding provisions of the 2004 Act (section ME 14), a company that is a member of an imputation group was able to receive a refund to which it was entitled, provided the imputation group (of which the refund company was a member) has a credit balance as at the end of the previous imputation year. The amendment corrects the 2007 Act to restore the effect of section ME 14 of the 2004 Act.

The amendment also ensures that the effect of sections 14(3B) to ME 14(6) of the 2004 Act are more clearly reflected in section OP 6.

Section OP 44(6) to (8)

The amendments to section OP 44 ensure that the content of sections ME 14(1A), (4) to (6) of the 2004 Act is appropriately reflected in section OP 44. These amendments clarify that a consolidated group of companies that has a non-standard balance date must transfer part of its credit balance (if any) from ICA to its PCA account to the extent necessary to satisfy provisional tax or foreign dividend payment (FDP) obligations.

Sections RA 5(2) and RA 6(4)

The amendments clarify that tax is to be withheld is at the time the related PAYE income payment is made.

Section RA 15(2)

The Panel concluded that in section RA 15(2)(c), it was unclear to which quarter the section referred. The Panel recommended that section RA 15 be amended retrospectively to clarify how the reference to "quarter" should apply for foreign dividend payments (FDP) and fringe benefit tax (FBT). The Panel also recommended that the retrospective amendment should not apply to those taxpayers who had adopted a tax position for payment of FDP or FBT for quarters ending before the remedial legislation was enacted.

The amendments to section RA 15 clarify that if an amount of tax or FDP is payable on a quarterly basis, the amount must be paid to Inland Revenue by the 20th of the following month. The amendments also clarify the circumstances when 31 May is the due date for payment, and that the due date of payment for FBT determined on an income-year basis is the terminal tax date of the taxpayer.

A savings provision applies to taxpayers who have relied on the original wording of section RA 15(2) in determining their due date for payments of tax or FDP to Inland Revenue before the date of assent of the amending Act.

Section RA 20

The amendment clarifies that, in a resident's amalgamation, the amalgamated company is treated as having paid the PAYE that was paid by the amalgamating company in the preceding income year. This ensures that an amalgamated company that is a close company takes into account the amalgamating company's circumstances in determining whether the amalgamated company qualifies for the monthly basis for paying PAYE and filing the employer monthly schedule.

Section RD 3(3) and (4)

The amendment corrects an unintended change in law.

The amendment restores the effect of section OB 2(2) of the Income Tax Act 2004, (PAYE income payments and shareholder-employees of close companies). This rule provided that, if a shareholder-employee of a close company meets the requirements of section RD 3(2), that employee is able to elect that all of the income from employment derived from the close company is not subject to PAYE. The amendment also restores the effect that, in electing to not have the PAYE rules apply to these wages and salaries, the employee's income derived from that close company is liable for provisional tax.

Section RD 11(3)

The amendment relates to the former rule in Regulation 6(3) of the Income Tax (Withholding Payments) Regulations 1979. Regulation 6(3) provided that the amount of withholding tax to be withheld from a schedular payment would be calculated by reference to the difference between:

  • the gross amount of a class of income subject to the withholding payments rules; and
  • the amount of expenditure that the Commissioner determined under the former Regulation 7 as relating to that income.

This amendment restores the effect of Regulation 6 in section RD11(4).

Section RD 17(1)

The amendment ensures that the section cannot be read to include the amount of extra pay twice in determining the rate of tax to apply for the withholding of PAYE from an extra pay. The amendment reflects the Panel's recommendation for correcting the drafting in the provision.

Section RD 18(3)

The amendment corrects an unintended legislative change arising from rewriting section NC 7(2) of the 2004 Act. Section NC 7(2) applied when a person entitled to receive a withholding payment (now termed a schedular payment) did not provide to the payer a withholding declaration. That section provided for a no-declaration rate of 15% in addition to the rate of withholding required under the Income Tax (Withholding Payments) Regulations 1979.

The amendment to section RD 18(3) reinstates the no-declaration rate to be applied to the withholding from a schedular payment if the recipient of the schedular payment fails to provide the payer with the appropriate schedular tax code form (section 24L of the Tax Administration Act 1994). The no-declaration rate is 15%, in addition to the relevant rate of withholding set out in schedule 4.

Sections RD 19(2) and YA 1, Definitions of non-filing taxpayer and non-resident entertainer, schedule 4: part F

The amendment corrects an unintended change in law relating to non-resident entertainers. Under the 2004 Act, a person, whose only income derived from New Zealand was as a non-resident entertainer, could elect to be a non-filing taxpayer.

Section RD 19(2) and the definitions of non-filing taxpayer in section YA 1 have been amended to clarify that a person whose only New Zealand-sourced income is in the capacity of a non-resident entertainer may elect to be a non-filing taxpayer. The definition of "non-resident entertainer" has been amended to clarify the types of activities that are activities of a non-resident entertainer. This list of activities is relocated to new part F of schedule 4.

Section RD 22(3) and (3B)

Section RD 22 has been amended to clarify when the due date occurs for:

  • the payment of PAYE withheld from PAYE income payments; and
  • the filing of the employer's monthly schedule, which contains the details of PAYE income payments and withholdings made by the employer from PAYE income payments.
Section RD 65(1), (2), (3), (4), (7) and (11)

The definition of "employer's superannuation contribution" has been replaced by the term "employer's superannuation cash contribution". This amendment clarifies that the ESCT applies to superannuation contributions paid in cash, which better reflects the application of the 2004 Act SSCWT rules to a "specified superannuation contribution".

Section RE 2

The amendment corrects an unintended change in law and clarifies that the RWT rules apply to interest paid in New Zealand, including interest paid to a fixed establishment of a non-resident.

A savings provision applies to protect payers of resident passive income, who had not withheld RWT from those payments made from the commencement of the 2007 Act, until the date of assent of the amending Act, in reliance on the unamended wording of the original section RE 2.

Section RE 3

The amendment corrects an unintended change in law and clarifies that a person paying resident passive income to person who holds a Certificate of Exemption, is not required to withhold RWT.

Section RF 2(5)

The amendment corrects an unintended change in law and ensures that a royalty paid to a non-resident is subject to non-resident withholding tax (NRWT).

A savings provision applies to protect payers of royalties who had not withheld NRWT from non-resident passive income paid between the commencement of the 2007 Act and the enactment of the amending Act in reliance on the unamended wording of section RF 2. 

Section RF 10

The amendment corrects an unintended change in law and ensures that, to the extent a non-cash dividend derived by a non-resident is fully imputed, a zero rate of NRWT is applied to the dividend.

Section RF 12

The amendment corrects an unintended change in law and ensures that a zero rate of NRWT applies to:

  • interest, which is subject to the approved issuer levy, is derived by a non-resident provided that:
    • the non-resident is not an associated person of the payer; and
    • the non-resident does not derive the interest jointly with a New Zealand resident.
  • Interest paid by a transitional resident in relation to money borrowed while the transitional resident was a non-resident of New Zealand, provided that:
    • the interest is not paid in relation to a business carried on through a fixed establishment in New Zealand; and
    • the person deriving the interest is not an associated person of the transitional resident, and the interest is not derived jointly with a New Zealand resident.
Section RF 12C

The amendment corrects an unintended change in law and ensures that a zero rate of NRWT applies to payments made by a New Zealand branch of a non-resident life insurer, if the life insurer has elected that the New Zealand branch is treated as a New Zealand resident company for income tax purposes.

Section YA 1 – definitions

Agricultural, horticultural, or viticultural company

The definition of "agricultural, horticultural or viticultural company" has been amended to ensure that withholding is required from payments to companies that carry out the agricultural, horticultural or viticultural work described in the definition of horticultural contract work in schedule 4, part C.

Employee, Employer

The amendment corrects an unintended change in law and clarifies that the definitions of "employee" and "employer" includes payments of a "schedular payment", ensuring that the FBT rules apply to a person who pays a "schedular payment".

Employer's superannuation cash contribution

The 2004 Act required a withholding of tax from "specified superannuation contributions" (employer superannuation contributions to superannuation funds made in cash). The distinction between "specified superannuation contributions" and "employer superannuation contributions" was not clearly separated in the 2007 Act.

The new term "employer's superannuation cash contribution" has been inserted and used throughout the Act to ensure that the effect of the 2004 Act is correctly reflected in the 2007 Act in relation to any provision that relates to the employer's superannuation contributions made in cash (specified superannuation contribution in the 2004 Act).

Income from employment

For the purpose of section DA 2(4), the definition of "income from employment" has been amended to ensure that no deduction is available to an employee for expenditure incurred in deriving excluded income derived from or in connection with employment. For example, income from employment includes fringe benefits that are excluded income of an employee (section CX 3).

This amendment comes into force on 1 April 2008.

Section YZ 2

Section YZ 2 re-enacts section YA 5B of the 2004 Act, which was inadvertently omitted from the 2007 Act. This amendment restores a savings provision relating to certain imputation credits arising under section 394L(4A) of the 1976.

Schedule 20

Schedule 20, part A, clause 1 has been amended to insert the word "preparation" after the phrase "unless clause 2 applies".

Clause 2 (regrassing and fertilising etc) has been amended to correct the amortisation rate in column 2 from 6% to 45%.

2007 Act – rewrite maintenance items

The following provisions, most of which come into force on 1 April 2008, have been amended to correct:

  • cross-references;
  • grammar;
  • spelling;
  • punctuation;
  • terminology and definitions;
  • drafting consistency, including readers' aids – for example, the defined terms lists;
  • some defined terms; and
  • subsequential amendments arising from substantive rewrite amendments. An example is the correction to the term "employer's superannuation contribution", which has been amended where appropriate to refer to an "employer's superannuation cash contribution".
Part B

Section BE 1((2)

Part C

Section CD 32(2); Section CD 53, list of defined terms; Section CF 1(2); The heading to subpart CR; Section CS 1; Section CS 2; Section CS 6(1)(d); Section CS 7(2)–(5); Section CW 15(1); Section CW 40, defined terms list; Section CW 42(5), (7), (8), and (9); Section CX 13(2); Section CX 28; Section CX 47(1)(d)(i); Section DB 53(1)(a), (b); Section DC 7(1), (1B), defined terms list

Part D

Section DC 7; Section DF 4(3)(b); Section DS 4(5); Section DT 2(1)(b), (c), list of defined terms

Part E

Section EE 55(1)(b); Section EF 2 and list of defined terms; Section EW 31(9); Section EX 15(1); Section EX 29(1)(b); Section EX 32(9)(d); Section EX 34(b); Section EX 38(g); Section EX 46(6)(d), (8)(a), (10); Section EX 47; Section EX 51(5); Section EX 52(1)(a), (2), (13)(a), (c); Section EX 53(1)(a), (2), 15(a), (c); Section EX 56(6), (9); Section EX 58(1); Section EX 65(5)(b); Section EY 11(7), (11); Section EZ 38(6)

Part F

Section FB 9; Section FC 2(2); Section FE 4, definition of reporting bank; Section FE 6(3)(a) 

Section FE 13(1); Section FE 21(3)(d)(ii); Section FM 6(5); Section FN 2(i); Section FZ 1(3)

Part G

Section GB 28(2); Section GB 45(3); Section GB 48(1)(b)

Part H

Section HA 9(2); Section HC 7(2); Section HC 21(3); Section HC 32(2); Section HC 35(4)(a); Section HL 3(11); Sections HL 4(1)(a), HL 4(2)(b)(ii); Section HL 12(1)(a); Section HL 20(3); Section HL 29(6)(a)(ii), (11)(a)(i); Section HL 30(7)(c)

Part I

Section IA 7(5), (6); Section IA 8(1)(a)

Part L

Section LA 9; Section LC 4(4); Section LC 6(4); Heading for subpart LD; New heading before section LD 1; Section LD 1(5); Section LE 1(1); Section LP 3(5)

Part M

Section MA 7(2); Section MA 8; Section MC 1, compare note; Section MC 5(1); Section MC 6, compare note; Section MC 8(2); Section MC 10(4); Section MD 6(2); Section MD 7(1); Section MD 10(3)(d)(ii); Section ME 2, list of defined terms; Section MF 5(2); Section MK 1(1); Section MK 2(1)

Part O

Section OB 4(3)(e), (eb); Section OB 19(1); Section OB 32(7); Section OB 33(5); Section OB 35(4)(b); Section OB 37(1)(a), (b), 3(a), (b); Section OB 39(1); Section OB 61(7); Table O1, row 14; Table O2, row 9; Section OC 30, heading; Table O4, row 5; Section OD 1(2); Section OD 16(3)(b); Table O6, Row 2; Section OK 14B(1)(a), (b), (4)(a), (b); Table O18, row 6; Section OP 30(5); Section OP 31(4); Section OP 35(1)(a), (b), 3(a), (b); Section OP 78(1); Section OZ 10(2)

Part R

Section RA 5(1)(c); Section RA 10(1)(a); Section RA 21(4); Section RA 23(2); Section RB 1; Section RC 34(2)–(6); Section RD 5(1)(b)(ii), (c)(v) (6)(a), (c), (8), (9); Section RD 5(6)(a), (c); Section RD 6(1)(a), (b); Section RD 8(1)(b)(v); Section RD 13(1)(a); Section RD 51(3); RD 54, compare note; Section RD 60(1)(a), (3); Section RD 61(1)(a), (3); Section RD 67; Section RD 68; Section RD 69; Section RD 70; Section RD 71; Section RE 11(3); Section RE 12(3)(a); Section RF 2(2); Section RF 8, list of defined terms; Section RF 9(1); Section RF 12B, relocates the provisions of section RF 12(1) to (4); Section RG 5(2); Section RG 6(3)(a); Section RG 7(2)(b); Section RM 2; Section RB 5(1B); Section RM 10; Section RP 6; Section RP 7; Section RP 11; Section RP 13; Section RZ 3(3)

Part Y

Section YA 1

  • Consolidated FDPA group
  • Employee's superannuation accumulation
  • Employer monthly schedule
  • Employer sourced superannuation savings
  • Employer's superannuation cash contribution
  • Employer's superannuation contribution
  • ESCT
  • ESCT rate threshold amount
  • Lease
  • Member credit contribution
  • Part F activity
  • PAYE income payment form
  • Schedular income
  • Trading stock

Section YB 21; Section YC 4; Section YC 6(4); Section YD 3(4)(b); Section YD 4

Schedules

Schedule 5, clause 3(c); Schedule 20, clause 1; Schedule 25; Schedule 52

2004 Act - recommendations of the Rewrite Advisory Panel

Application dates

The amendments apply from the beginning of the 2005–06 income year.

Section CC 8B

The Rewrite Advisory Panel considered that the marginal notes for section CZ 6 of the 2007 Act may suggest that the provision does not apply to commercial bills acquired after 31 July 1986. This amendment clarifies the marginal text, and relocates the provision to Part C, as the provision continues to apply to non-resident taxpayers if the commercial bill is not subject to the financial arrangement rules.

The provision is amended to clarify that the rule applies to non-residents owning commercial bills if the financial arrangement rules do not apply to the commercial bill, irrespective of the date of acquisition of the commercial bill.

Section CD 4

Under the 1994 Act, amounts derived on the buy-back of shares or share reduction by a company was treated expressly as a dividend unless the buy-back or share reduction came within one of the specified exclusions. This outcome is less clear in the 2004 Act.

Section CD 4(2B) has been inserted to ensure that the market value for the surrender of shareholding interests is treated as zero for the purpose of calculating the value given by shareholders to the company in a share buy-back, share reduction or share cancellation. This ensures that payments to shareholders for a buy-back of shares or a share reduction comes within the meaning of transfer of value.

Section CD 17(4)

The Panel considered that section CD 17(4) of the 2004 Act (and section CD 25(4) of the 2007 Act), in relation to a company acquiring treasury stock, provided that when shares are held for more than 12 months or cancelled within 12 months of acquisition, the available subscribed capital (ASC) of the company would be reduced to zero. The Panel agreed this was an unintended change in outcome and recommended the 1994 Act position be restored.

Section CD 17(4) has been amended to ensure that the ASC should only be reduced by the amount paid for shares that are held as treasury stock for more than 12 months or cancelled within 12 months (subject to the amount paid for the shares not exceeding the ASC per share calculated under the ordering rule).

Section CE 1

In the rewritten section CE 1 of the 2004 Act, it was unclear whether the provision included in a person's income the benefit of accommodation provided by way of board or lodgings, such as provided for employees on long-term projects. Section CE 1 has been amended to clarify that the meaning of "accommodation" in this section includes the value of board or lodgings provided in connection with employment or the provision of services.

Section DB 3(4)

The amendment clarifies that section DB 3 overrides the capital limitation.

Section DC 12(5)

A submission to the Rewrite Advisory Panel considered that the requirement in section DC 12(5) of the 2004 Act (section DC 13(5) of the 2007 Act) for a share purchase scheme to prohibit the employee from putting any dividends towards the repayment of his or her share purchase loan is an unintended change in outcome.

The Panel agreed and recommended that the provision be amended to ensure it prevented the trustee from appropriating the dividend towards the repayment of the employee's share purchase loan rather than preventing the employee from putting dividends received towards repayment of the employee's share purchase loan.

Section DU 12(3)

The Panel considered a submission that section DU 12(3) in the 2004 Act (section DN 3(3)(b)) contained a different outcome from that given by the corresponding provision in the 1994 Act. Section DU 12 of the 2004 Act had been re-enacted, unamended, in the 2007 Act.

The Panel concluded that the 1994 Act provided that the amount of a deduction for an income year exploration and development expenditure incurred by the taxpayer to the end of the current year was the difference between:

  • the prescribed proportion of the aggregate amount of exploration and development expenditure incurred by the mining company before the end of the income year in which the holding company's mining loan is written off; and
  • aggregate deductions allowed to the holding company under the section in all income years before the current income year.

The Panel agreed the outcome under the 2004 and 2007 Acts was different from the outcome in of the 1994 Act, (less all deductions allowed by the section in all tax years before the current one).

This amendment restores the correct policy outcome, as set out in section DN 3(3)(b) of the 1994 Act.

Section EE 21

The Panel considered that section EE 21(7) and (8) of the 2004 Act contained an unintended legislative change.

The amendment to section EE 21 ensures that the amount of depreciation loss for an income year in relation to a pool of asset is calculated by reference to the number of months the pool is used in the taxpayer's income year. That number of months of uses may be more or less than 12 months if the taxpayer starts to use the pool in the income year.

2004 Act - rewrite maintenance items

The following provisions are amended to correct:

  • cross-references;
  • grammar;
  • spelling;
  • punctuation;
  • terminology and definitions;
  • drafting consistency, including readers aids, for example the defined terms lists;
  • some defined terms; and
  • subsequential amendments arising from substantive rewrite amendments. An example is the correction to the term "employer's superannuation contribution", which has been amended where appropriate to refer to an "employer's superannuation cash contribution".
Part C

Section CD 32, defined terms list; Section CF 1(2); Subpart CR, heading; Section CW 12(4); Section CW 33, defined terms list; Section CW 40, defined terms list; Section CW 42(5), (7), (8), and (9); Section CX 41(1)(d)(i)

Part E

Section EE 46; Section EW 15D(1)(d)(ii)

Part O

Section OB 1, "income interest", para (b); Section OB 2, "portfolio investor rate"; Section OB 1 - definitions 

These amendments to the 2004 Act maintenance items come into force on 1 April 2005.

Tax Administration Act 1994 - rewrite maintenance items

Section 3; Subpart 2B reinserted; Section 4P; Section 32A; Section 32B; Section 36A(2); Section 68C(2); Section 85G(1)(c); Section 120KD; Section 138E(1)(e)(iv); Section 139AA(1)(a); Section 141B(8); Section 183F(1); Section 225A(2)(b)(iii), (iv)

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