RWT exemption for Tokelau and Niue international trust funds

Submission

(Matter raised by officials)

Section 32E(2) of the Tax Administration Act 1994 should be amended to include the Tokelau International Trust Fund and the Niue International Trust Fund so their trust income is not subject to resident withholding tax.

Comment

The Tokelau and Niue international trust funds were established by the New Zealand government in 2000 and 2004 respectively and trust deeds for the trust funds were subsequently executed, with the parties to the trust deeds agreeing to ensure that the trust funds would be exempt from all direct taxation.

Amendments were made to relevant tax legislation to ensure that the contributions received, income earned and distributions made by the Tokelau and Niue international trust funds would be exempt from taxation.

However, resident withholding tax (RWT) has continued to be deducted from interest income earned by the funds in New Zealand. This is because a bank is obliged to withhold RWT unless Inland Revenue issues a certificate of exemption from RWT to the trust fund and the bank establishes that the trust fund holds the certificate. To be granted an exemption certificate, the trust funds must be included in the list in section 32E(2) of the Tax Administration Act 1994. By an oversight, section 32E(2) was not amended to include the Tokelau and Niue International Trust Funds.

Officials therefore recommend an amendment be made so that the Tokelau International Trust Fund and the Niue International Trust Fund are listed in section 32E(2) of the Tax Administration Act 1994.

Recommendation

That the submission be accepted.