Other matters
Issue: Use of the term “business”
Clause 29
Submissions
(Ernst & Young, New Zealand Law Society, Russell McVeagh)
For the purposes of the Income Tax Act 2007, a “business” includes any profession, trade, or undertaking carried on for profit. The reference to “business” in new section CW 42B may cause uncertainty and confusion in this context. We suggest references to activities or purposes should be sufficient to cover the intended entities, without having to consider whether or not there is any “profit” element. (Ernst & Young)
The term “business” may not be an appropriate term to cover the full range of community housing activity undertaken by the target community housing entities and it may be more appropriate to use wider or more neutral terms, such as “enterprise” or “activity”. (New Zealand Law Society)
The proposed exemption is aimed at community housing entities that operate under a non-profit model, but this aim may not be achieved because use of the term “business” suggests that the target community housing entity must have an intention to make a profit. The lack of intention to make a profit should not exclude a community housing entity from the proposed exemption. (Russell McVeagh)
Comment
We agree the use of the term “business” is confusing and may lead to unintended consequences. We support amending section CW 42B in line with the suggestions raised in submissions.
Recommendation
That the submissions be accepted.
Issue: Use of the terms “beneficiaries” and “clients”
Clause 29
Submissions
(New Zealand Law Society, Russell McVeagh)
New section CW 42B refers to “beneficiaries of the trust” or “clients of the company”. It may be preferable for section CW 42B to refer to “the only beneficiaries or clients of the entity, as the case may be …”. This is because trusts and companies may have either beneficiaries or clients. (New Zealand Law Society)
Limiting the beneficiaries of any trust and the clients of any company to classes of persons specified in new section CW 42B is too restrictive and uncertain. References to “beneficiaries of the trust” and “clients of the company” should be deleted. (Russell McVeagh)
Comment
We agree with the submission of the New Zealand Law Society, as it is consistent with the intended policy outcome. However, we disagree with the submission put forward by Russell McVeagh as it would remove an important design feature of the new exemption that ensures it is effectively targeted.
Recommendation
That the submission to amend new section CW 42B to refer to “the only beneficiaries or clients of the entity, as the case may be …” be accepted.
That the submission for Russell McVeagh be declined.
Issue: Scope of the exemption provision
Clause 29
Submissions
(New Zealand Law Society, Russell McVeagh)
New section CW 42B is limited to the income of a community housing entity from its housing business. This limitation might create some uncertainty as to the scope of the exemption in relation to income from other sources – for example, interest or dividends. (New Zealand Law Society)
The reference in new section CW 42B to income from a business may unintentionally limit the scope of the exemption or (in some cases) cause it not to apply at all. (Russell McVeagh)
Comment
We agree that new section CW 42B should exempt all income derived by the community housing entity, and not be limited to income from an entity’s housing activity.
Recommendation
That the submissions be accepted.
Issue: Scope of the donee status provision
Clause 29
Submission
(New Zealand Law Society)
As currently drafted, new section LD 3(2)(ac) would apply only if “the gift is made in a tax year that the entity derives exempt income under section CW 42B”. It may be preferable for the provision to refer to the donee as being an entity that is “eligible to derive” exempt income under new section CW 42B.
Comment
We agree with the submission as it will ensure that new section LD 3(2)(ac) achieves the intended policy.
Recommendation
That the submission be accepted.
Issue: Continuation of the tax-exempt status for already deregistered charities
Clause 29
Submissions
(New Zealand Law Society, Queenstown Lakes Community Housing Trust)
The amendments relating to community housing entities and deregistered charities do not address the specific issue of continuity of tax-exempt status for an entity if there has been a period of non-registration under the Charities Act 2005 (and no other general income tax exemption applies to the entity). Consideration should be given to including amendments in the bill to provide for continuity of tax-exempt status for community housing entities if continuity of tax-exempt status would otherwise be affected by deregistration under the Charities Act 2005. (New Zealand Law Society)
In a related submission, the Queenstown Lakes Community Housing Trust submitted that the Trust is the only community housing entity deregistered by Charities Services. The Trust commented that the proposed exemption for community housing entities will not restore tax exemption for the Trust and its activities and that it had received an assurance from the Minister for Housing that it would be covered by the proposed exemption. This matter was noted by the Committee. (Queenstown Lakes Community Housing Trust)
Comment
We do not agree with the submissions. The proposed exemption is intended to target those community housing entities that meet the proposed criteria. The exemption is not intended to cover all community housing entities.
Furthermore, we note that the Queenstown Lakes Community Housing Trust advised the Committee on 19 February 2014 that it was in discussions with the Government about its current tax liability.
Recommendation
That the submissions be declined.