Māori authorities

Sections HI 3(3), HI 5, Table HI 8, new sections MD2B(1B), MD 2B(4B), MK 8(5) and MK 8(5B) of the Income Tax Act 1994 and Income Tax Act 2004 and new section 181D of the Tax Administration Act 1994

Introduction

The recently enacted Māori authority rules have been amended to align them with the recently amended company imputation rules, resolve minor technical problems and provide greater certainty with respect to the election start date for entities that wish to be taxed as a Māori authority.

Background

The amendments were required because:

• The company imputation rules, on which the Māori authority rules were based, were recently amended by the Taxation (GST, Trans-Tasman Imputation and Miscellaneous Provisions) Act 2003 and the Taxation (Relief, Refund and Miscellaneous Provisions) Act 2002, but no corresponding amendments were made to the Māori authority rules.
• There were two unintended omissions from the Māori authority rules when these rules were originally drafted.
• There was a need to provide greater certainty with respect to the election start date for entities wishing to be taxed as a Māori authority. Previously, the Commissioner had the ability to determine the start date but this did not give adequate certainty of tax treatment.

Key features

• Section HI 3(3) of the Income Tax Act 1994 and Income Tax Act 2004, which provided for the Commissioner of Inland Revenue to determine the effective start date of an election to become a Māori authority, has been replaced with a provision that sets an explicit start date for an election. The amendment requires that elections start from the beginning of the income year in which the election notice is provided to the Commissioner unless the authority wishes to start the election from the immediately following income year.
• Row 4 of Table HI 8 has been amended to ensure that when a Māori authority elects to be taxed as a trust, the income under the Māori authority rules which is still to be distributed is treated as trustee income and, therefore, can be distributed tax-free.
• Section HI 5 has been amended to include in the definition of "taxable Māori authority distribution" a taxable bonus issue made by a Māori authority that is a company.
• New section MD 2B(1B) clarifies that a Māori authority can be refunded income tax if there is a credit balance in its Māori authority credit account at the end of the relevant imputation year, without the need for multiple returns to be filed by the authority. The amendment is relevant to Māori authorities that have an extension of time for filing returns.
• New section MD 2B(4B) clarifies that any excess tax paid by a Māori authority can be credited as at a date on which there is no liability to pay provisional tax but from which use-of-money interest applies in relation to underpaid provisional tax.
• Section MK 8(5) has been replaced by new subsections, MK 8(5) and (5B). New subsection(5) provides that payments of further income tax may be credited to an income tax liability (including provisional tax) that arises at any time when the Māori authority is required to establish and maintain a Māori authority credit account. New subsection(5B) provides that payments of income tax may be credited against the further income tax liability as long as the payment was made after 31 March in the year when the Māori authority credit account debit caused the further income tax liability.
• New section 181D of the Tax Administration Act 1994 provides for the remission of use-of-money interest and late payment penalties on further income tax liabilities when income tax liabilities are outstanding at the same time. The remission will apply to the extent that the amount of further income tax charged is equal to or less than the amount of the unpaid income tax liability.

Application date

The amendments to the 1994 Act are effective from the 2004-05 income year, the application date of the new Māori authority rules. The amendments to the 2004 Act are effective from the 2005-06 tax year.