Miscellaneous matters
Issue: Application of changes to Fisheries Act 1996
Submission
(49, 49A – Seafood Industry Council)
The current associated persons definition that applies for the purposes of the Fisheries Act 1996 should continue to apply after the enactment of the new associated persons definition in the Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill.
Comment
The Fisheries Act 1996 uses the associated persons definition in the Income Tax Act 2007. The proposals in the bill to strengthen the associated person definition have been developed for income tax purposes rather than fisheries’ purposes. Officials do not have a policy concern with the changes in the bill not applying for the purposes of the Fisheries Act. Therefore, from a policy perspective, officials agree with the submission to allow the current associated persons definition in the Income Tax Act to continue to apply for the purposes of the Fisheries Act.
The only concern that officials have with the submission is that it is not an ideal long-term situation because it requires users of the Fisheries Act to have access to old tax legislation. However, the Ministry of Fisheries has advised Inland Revenue officials that they intend to address this issue in the medium-term by amending the Fisheries Act so that it contains its own definition of associated persons. On this basis, officials consider it is appropriate to accept the submission.
Recommendation
That the submission be accepted, subject to officials’ comments.
Issue: Definition of “international tax rules”
Submission
(53 – Ernst & Young)
The reference to the new associated persons definitions in section YA 1 of the international tax rules should be refined or the subsection YB 2(6) exclusion should be qualified.
Comment
Officials agree that the reference to the new associated persons definitions in the section YA 1 definition of “international tax rules” (clause 404(68) of the bill) should be clarified. Because a general definition of associated persons will apply to the international tax rules from the application date of the associated persons reforms in the bill (expected to be the 2010–11 income year), paragraph (a)(xiv) of the “international tax rules” definition (which currently refers to the 1988 version provisions) should be omitted from that date. The current paragraph (a)(xiv) of the definition should be amended from “the commencement of the Income Tax Act 2007” to refer to “the parts of subpart YB that apply for the purposes of the 1988 version provisions”.
Recommendation
That the submission be accepted, subject to officials’ comments.
Issue: Associated persons for GST purposes
Submission
(35 – PricewaterhouseCoopers)
The test in section 2A(1)(h) of the Goods and Services Act 1985 associating the trustee of a trust with the trustee of another trust where the same person is settlor of both trusts should be amended so that it does not apply if the trust is a charitable or non-profit body.
Comment
The bill amends only the associated persons definitions in the Income Tax Act. The submission is seeking to amend the associated persons definition in the Goods and Services Act 1985 which is not the objective of these reforms. Therefore the submission is outside the scope of the bill.
Recommendation
That the submission be declined.
Issue: Clarification that trust tests do not apply to unit trusts
Submission
(62 – Minter Ellison Rudd Watts, 77 – Westpac)
It should be clarified that the trustee-related tests in sections YB 5 to YB 11 are not applicable to unit trusts because unit trusts are treated in all respects as companies for the purposes of the Income Tax Act.
Comment
The trustee-related tests would not apply to unit trusts because unit trusts are treated as companies for the purposes of the Income Tax Act. Therefore it would be the company-related tests in sections YB 2 and YB 3 that would apply to unit trusts. This position results from a unit trust being included in the definition of “company” in section YA 1 of the Income Tax Act 2007. Officials do not consider this treatment requires further clarification for the purposes of the associated persons tests.
The treatment of unit trusts has been subject to the Income Tax Act rewrite process. If a person wishes to raise an issue related to this rewrite process, it should be directed to the Rewrite Advisory Panel, which considers and advises the government on issues arising from the rewrite of the Income Tax Act.
Recommendation
That the submission be declined.
Issue: Application of voting and market value interest tests to fiscally transparent entities
Submission
(53 – Ernst & Young)
Further consideration should be given to clarifying and describing in the legislation how the voting and market value interest tests in subpart YC of the Income Tax Act 2007 should apply for associated persons and other purposes where fiscally transparent or hybrid entities (such as limited partnerships) are involved.
Comment
Officials note that this submission relates generally to how the voting and market value interest tests in subpart YC apply to fiscally transparent entities. Any consideration of this issue is distinct from the associated persons reforms in this bill and would be a separate exercise.
Recommendation
That the submission be declined.