Non-standard balance dates for managed funds and "as agent" returns (May 05) (WITHDRAWN)

Introduction

1. This Standard Practice Statement (SPS) extends operational practice relating to consent for the use of non-standard balance dates to recognise special taxpayer/administrator situations.
   
   
2. The SPS provides indicative examples of situations where Inland Revenue may consent to applications by taxpayers to adopt non-standard balance dates for managed funds (unit trusts, group investment funds and superannuation funds) and agents for non-resident insurers (in respect of "as agent" returns).

Application

3. This SPS applies from the 2005-2006 and subsequent income years. Refer to SPS GNL-120 Non-standard balance dates for managed funds and "as agent" returns (SPS GNL-120) for periods prior to the 2005-2006 income year only. This SPS applies only to applications by:
   
   
   • managed funds to adopt a non-standard balance date in common with the manager or trustee if Inland Revenue recognises a parent-subsidiary like relationship between parties; and
     
     
   • entities deemed to be agents of non-resident insurers to file "as agent" returns in terms of section FC 16 of the Income Tax Act 2004.

Summary

4. Inland Revenue's practice in relation to providing consent for the use of non-standard balance dates is currently as set out in Tax Information Bulletins Vol 3, No 9 (June 1992) and Vol 5, No 11 (April 1994).
   
   
5. SPS GNL-120 extends the parent-subsidiary criteria to include analogous situations that exist between managed funds and the entities that are responsible for their administration.
   
   
6. Consent may be given for managed funds and agents for non-resident insurers to adopt a balance date other than 31 March if any of the following applies:
   
   
   • Inland Revenue recognises that a parent-subsidiary like relationship exists between the parties e.g. the relationship between the managed fund and its trustee or manager. This is demonstrated by the manager/trustee preparing accounts, promoting the entity, making strategic investment decisions and providing other administration services to the trust; or
     
     
   • an employer superannuation fund is established for the benefit of the employees and there is a close relationship between the employer and the superannuation fund; or
     
     
   • the agent of a non-resident insurer is required to file "as agent" returns on behalf of the non-resident.
   
   
7. In recognition of the equivalent of a parent-subsidiary relationship, Inland Revenue will consent to applications to adopt the following non-standard balance dates -

Background

8. Prior to the publication of SPS GNL-120, taxpayers might adopt a balance date other than 31 March (a "non-standard balance date") only if:
   
   
   • the nature of their business made a 31 March balance date inappropriate; or
     
     
   • a subsidiary wished to align its balance date with its parent company; or
     
     
   • an estate wished to adopt the deceased's date of death; or
     
     
   • a shareholder-employee wanted the same balance date as the company.
   
   
9. Managed funds and agents for non-resident insurers would not qualify for a non-standard balance date under the practice currently as set out in Tax Information Bulletins Vol 3, No 9 (June 1992) and Vol 5, No 11 (April 1994). SPS GNL-120 and this SPS therefore extend the previous practices, in respect of affected taxpayers, to reduce compliance costs.

Legislation

10. Section 38 of the Tax Administration Act 1994 reads:

    38. RETURNS TO ANNUAL BALANCE DATE
    
    

    1. Instead of furnishing a tax year return under section 33 on the basis of a corresponding income year that ends on 31 March, a taxpayer (other than a taxpayer to whom section 33A(1) or (5) applies) may, with the consent of the Commissioner, elect to furnish a return based on a corresponding income year that ends with the date of the annual balance of the taxpayer's accounts.
    2. (Repealed)
    3. Any election made by a taxpayer for the purposes of this section shall continue in force unless and until it is altered by the taxpayer with the prior approval in writing of the Commissioner.

11. Section OB 1 of the Income Tax Act 2004 defines group investment fund, superannuation fund, superannuation scheme and unit trust as follows:
    
    group investment fund means a group investment fund established under the-
    
    
    1. Public Trust Act 2001; or
    2. Trustee Companies Act 1967; or
    3. Public Trust Office Act 1957
    
    
    superannuation fund-
    
    
    1. means a superannuation scheme registered under the Superannuation Schemes Act 1989; and
    2. when referring to a superannuation fund that is a trust, means the trustees of the fund
    
    
    unit trust-
    
    
    1. means a scheme or arrangement, whether made before or after the commencement of this Act, that is made for the purpose or has the effect of providing facilities for subscribers, purchasers, or contributors to participate, as beneficiaries under a trust, in income and gains (whether in the nature of capital or income) arising from the money, investments, and other property that are for the time being subject to the trust; and
    2. does not include-
       1. a trust for the benefit of debenture holders:
       2. the Common Fund of Public Trust:
       3. a Group Investment Fund established by Public Trust:
       4. the Common Fund of the Maori Trustee:
       5. a Group Investment Fund established under the Trustee Companies Act 1967:
       6. a friendly society registered under the Friendly Societies and Credit Unions Act 1982:
       7. a superannuation fund:
       8. an employee share purchase scheme:
       9. a fund that satisfies section CW 38 (Funeral trusts):
       10. any other trust of any specified kind that is declared by the Governor-General, by Order in Council, not to be a unit trust for the purposes of section HE 1 (Unit trusts)

Definition of terms

12. "As agent" refers to obligations of a person as an agent of a non-resident insurer in accordance with section FC 16 of the Income Tax Act 2004.
    
    
13. "Non-standard balance date" means a balance date other than 31 March.

Standard Practice

14. Inland Revenue will consider consent to applications for non-standard balance dates from the following entities.
    
    
    • The trustee of a unit trust that wishes to align its balance date with that of its manager.
      
      
    • The trustee of a group investment fund that wishes to align its balance date with that of its manager.
      
      
    • The trustee of a superannuation fund that wishes to align its balance date with that of its trustee or, where the fund is administered by an employer for the benefit of its employees, the balance date of the employer.
      
      
    • A taxpayer (who is a resident for taxation purposes) required to file an "as agent" return that wishes to align the balance date of that return with the taxpayer's own non-standard balance date.

Indicative examples of recognised relationships

15. A taxpayer may change to non-standard balance dates if one of the following examples applies:
    
    
    • A unit trust wishes to align its balance date with that of its manager
      
      A unit trust may align its balance date to that of its manager. The manager is the entity with responsibility for the management of the unit trust and is appointed under the trust deed. Adoption of the manager's balance date is appropriate only if the manager has retained the responsibility for day-to-day administration of the unit trust.
      
      
    • A group investment fund wishes to align its balance date with that of its manager
      
      A group investment fund is administered and overseen by a manager. The fund may have a separate trustee, although there is no requirement that the trustee and manager be separate entities. Consent will only be granted to align the fund's balance date with that of the manager.
      
      As with unit trusts, the concession applies when the manager has retained the responsibility for day-to-day administration of the trust and for preparing the trust's accounts. When these functions have been contracted out to a third party, it is not appropriate to adopt the manager's balance date.
      
      
    • A managed fund wishes to align its tax balance date for financial reporting purposes
      
      A managed fund (including unit trusts, group investment funds and superannuation funds) may align its balance date with that for financial reporting purposes if it can be demonstrated that the alignment of balance dates helps reduce the managed fund's tax risks. The purpose of this concession is to promote voluntary compliance and good tax practices. Inland Revenue expects the managed fund to set out the reasons for changing their balance dates. These reasons will be examined on a case-by-case basis.
      
      However, this concession does not apply if:
      
      
      • the reason for changing the balance date is to improve the managed fund's administration of human resources (e.g. smoothing the workflows of their managers).
        
        
      • the managed fund cannot provide evidence of what the tax risks are and how the change of balance date helps to mitigate these risks.
        
        
      • the managed fund can identify some of its tax risks but the change of balance date is irrelevant to the mitigation of these risks.
      
      
      
    • Superannuation funds
      
      
      • An employer superannuation fund wishes to align its balance date with that of the employer
        
        A scheme established for the benefit of employees of an employer may apply to adopt the balance date of that employer.
        
        
      • Any other superannuation fund (e.g. a wholesale or retail fund) wishes to align its balance date with that of its trustee
        
        The trust deed under which a superannuation fund is established will appoint a trustee to supervise the fund. Consent will be given for a fund to align its balance date with that of the trustee, provided that the trustee's role has not been contracted out to a third party.
      
      
      
    • A taxpayer who is an agent of a non-resident insurer wishes to align the balance date of its "as agent" return to its own non-standard balance date
      
      A taxpayer who insures with a non-resident insurer is required to return part of the premiums paid as income in a return known as an "as agent" return (section FC 16 of the Income Tax Act 2004). This income is returned by the taxpayer "as agent" for the non-resident insurer.
      
      Taxpayers with an approved non-standard balance date for their own returns will be granted consent to align the balance dates of their "as agent" returns to this date.

Applications

16. Applications for consent to non-standard balance dates are to be in writing and should provide the following information:
    
    
    • full name of the entity seeking the non-standard balance date
      
      
    • name of tax agent
      
      
    • full details of the reason why consent should be given to the use of a non-standard balance date
      
      
    • details of the nature of the relationship between the entity applying for a change in balance date and the entity to which the balance date is being aligned
      
      
    • any other reasons to demonstrate why a proposed non-standard balance date is considered appropriate.
    
    
    
17. All requests for consent to non-standard balance date elections for unit trusts, group investment funds, superannuation funds and taxpayers required to file "as agent" returns should be sent to:
    
    Managed Funds Industry Desk
    Financial Sector
    Corporates Group, Inland Revenue
    P O Box 2198
    WELLINGTON

Indicative examples where consent will not be given for a non-standard balance date

18. Inland Revenue will not normally consent to a taxpayer's application for a non-standard balance date in the following situations.
    
    
    • The anniversary date of the commencement of the business is not a valid reason for a non-standard balance date. Inland Revenue will not consent to the use of a non-standard balance date if it is for the reasons of tax deferral or tax avoidance, or to take undue advantage of a tax incentive or concession.
      
      
    • Consent will not be given where the election is made to spread the balance dates of a number of funds in order to smooth the workflow of the manager or the trustee of those funds.
      
      
    • In cases where administrative functions have been contracted out to a third party (for example, a specialist administration manager) Inland Revenue will not provide consent to adopt the manager's balance date.
      
      
19. The adoption of a non-standard balance date will continue until the date is changed by a further election. The process for change of non-standard balance dates is the same as above.

This Standard Practice Statement is signed on 6 May 2005.

Graham Tubb
National Manager (Technical Standards)