Land and Income Tax Amendment Act (No. 2) 1967

This commentary item was published in Public Information Bulletin Volume 42, September/October 1967

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Land and Income Tax Amendment Act (No. 2) 1967

This Act sets out the amendments arising from the Minister of Finance's statement of 4 May and from the Budget. It also has other miscellaneous amendments.

Application of Act

Section 2. Except when otherwise stated, this Act applies to tax on income for the year that began on 1 April 1967.

Definition of New Zealand

Section 3 extends the definition of New Zealand for tax purposes to include the continental shelf. It will be important to mining industries, particularly petroleum, which may extend their activities off shore.

The special codes of assessment at present applying to activities in New Zealand have been extended accordingly and any income derived from the continental shelf is deemed to have a source in New Zealand.

Abridged Notices of Assessment

Sections 4 and 5 are connected with the machine preparation of assessment notices.

Section 5 allows the Commissioner to issue an abridged notice of assessment in certain cases, for example, where the taxpayer makes a self calculation of his tax.

Approved Charitable Donations

Section 6 includes the Commonwealth Foundation in the list of approved organisations to which charitable donations are allowed for tax purposes.

Life Insurance Exemption

Section 7 extends the scope of the special exemption for Life Insurance Premiums to include policies of personal accident or sickness, whether the person insured is the taxpayer or the spouse or a dependent child of the taxpayer.

Policies of Life Insurance which provide additional benefits for accident or sickness are also included.

The amendment applies from the income year which commenced on 1 April 1966.

Retirement From Farming

Section 8 clarifies what constitutes retirement from farming. In future a person who sells his farm will not be considered as having retired if he continues to carry on a farming business or to do farm work to a substantial degree on a farm owned by a member of his immediate family or a family trust or company. This restriction applies for a period of three years after the end of the income year during which the farm is sold.

This will mean that he may still spread any inflated income over past years but not future years.

Incentives for the Fishing Industry

Section 9 gives a right of election to the taxpayer to deduct revenue expenditure arising from a compulsory survey of a fishing boat either in the year incurred or to spread it forward over the four succeeding years.

This will allow him to smooth out income fluctuations and to use all his special exemptions each year.

The section will apply to expenditure incurred on or after 15 October 1965.

Section 11 provides a further incentive for the fishing industry.

When the expenditure on surveys is of a capital nature it is at present subject to the allowance of special depreciation at 20% of the expenditure and ordinary depreciation at lesser rates.

This section will allow the taxpayer an alternative. He may now claim total depreciation at the rate of 25% in the year of expenditure and the three following years.

The capital cost of the survey may be written off over a period of four income years. This section also applies to expenditure incurred on or after 15 October 1965.

Section 14 provides that the capital cost of new buildings or extensions to existing buildings which are for the processing or storing of fish or fish products, and which meet hygiene standards for export, will qualify for additional depreciation allowance of 30%. An apportionment will be made in the case of multi-purpose buildings.

In general the allowance will be at the rate of 20% in the year of expenditure and 10% in the following year.

Depreciation

Section 10 brings the wording of section 113 in line with sections 113B and 114A of the Act. The Commissioner may refuse to allow depreciation where he is not satisfied either that proper records have been kept or that sufficient depreciation has been written off.

Special Depreciation

Section 12

1. Extends the allowance of special depreciation by a further year to 31 March 1969.
2. Introduces a new incentive designed to promote the installation of more tourist facilities in existing hotels. Special depreciation at the rate of 20% will be allowed on the cost of installing private bathrooms, shower-boxes and water closet facilities in existing licensed hotels.
3. Provides that when a taxpayer has embarked on a development plan within his business which involves the acquisition of capital assets, he will, in general, be able to claim the allowance of special depreciation irrespective of whether the legislation is withdrawn before the development plan is completed. The plan to be approved by the Commissioner.

Special Depreciation on Meat Export Slaughter Houses and Meat-Packing Houses

Section 13 extends the expiry date of the 30% additional depreciation allowance allowed on the cost of new buildings and on capital alterations to existing buildings required to meet export hygiene standards to 31 March 1970.

Initial Depreciation

Section 15

1. Extends the 20% depreciation allowance for a further year to 31 March 1969.
2. Provides that buildings specified under a development plan, approved by the Commissioner, will qualify for the allowance irrespective of whether the legislation is withdrawn before the development plan is completed.

Investment Allowance — West Coast South Island

Section 16 extends the West Coast South Island redevelopment allowance to 31 March 1969.

It also makes provision for continuing development plans in the same manner as sections 12 and 15.

Farm Development Expenditure

Section 17. Certain classes of farm development expenditure previously restricted to a deduction of $500 (400) in an income year nave qualified lot unlimited deduction in years to 31 March 196S. This is extended to 31 March 1969.

It also makes provision for continuing development plans in the same manner as previous sections.

Export and Tourist Promotion Incentives

Section 18 extends the incentive deduction of 150% of the amount of qualifying expenditure for a further year to 31 March 1969.

Increased Exports Incentive

Section 19 extends the special deduction for qualifying increases in export sales for a further year to the income year ending 31 March 1969.

For the 1967/68 income year only, the rate of the incentive deduction is 20% of the increase.

Tarawera Valley Forestry Venture

Section 20 provides certain taxation adjustments which will allow the Tarawera Valley Forestry Venture to get under way.

The tax provisions include -

1. The selling value of the land transferred to the Forestry Company will be satisfied by the issue of debentures. To the extent that interest on these debentures is capitalised it will be exempt from income
2. This capitalised interest which would normally be deductible by the Forestry Company, will not be deductible for tax purposes.
3. The excess over cost of the value of the standing timber at the date of transfer to the Forestry Company will not be assessed at that date. Likewise it will not be allowed as a deduction when the timber is milled.
4. Exemption will also be provided for stamp duties on the documents concerned.

Source of Income

Section 21 deals with cases where income from money lent is deemed to have a source in New Zealand. The section extends the meaning of "money lent" to include any form of credit given whether on current account or otherwise.