Tax credits and losses

Issue: Formation loss available – reference to basic tax rates in schedule 1

Submission

(35 – PricewaterhouseCoopers)

The definition of “rate” for the purpose of the formula used to calculate the amount of formation loss available for allocation to an investor class in section HL 30(7)(c) should be amended to correct an incorrect clause of schedule 1. It should be amended to refer to “the rate of tax for companies set out in schedule 1, part A, clause 2”.

Comment

Officials agree that the definition of “rate” for the purpose of the formula used to calculate the amount of formation loss available for allocation to an investor class in section HL 30(7)(c) should be amended to correct an incorrect clause of schedule 1. It should be amended to refer to “the rate of tax for companies set out in schedule 1, part A, clause 2”.

The amendment should apply from 1 April 2008, when the Income Tax Act 2007 came into effect.

Recommendation

That the submission be accepted.

Issue: Tax credits allocated to a zero-rated investor with income from a portfolio tax rate entity

Submission

(20 – BDO Spicers)

The 2004 and 2007 legislation should clarify that a zero-rated company investor can claim a tax credit (other than a foreign tax credit) in its imputation credit account that is allocated to it by a portfolio tax rate entity.

Comment

Officials consider that the 2004 and 2007 legislation is already sufficiently clear that tax credits can be claimed by company investors in portfolio tax rate entities. The only situation where this is not currently the case is for imputation credits, and the amendments contained in the bill will ensure that imputation credits allocated by a portfolio tax rate entity to a company investor can be recorded in the company’s imputation credit account.

Recommendation

That the submission be declined.