Skip to main content
Inland Revenue
Inland Revenue
Inland Revenue

Tax Policy

Search tips
Taxation Transformation First Phase Simplification and Other Measures Bill

Other policy matters

FIF EXEMPTION SIMPLIFICATION FOR ASX

(Clause 35)

Summary of proposed amendment

The bill amends the exemption contained in section EX 31 which operates to exclude certain share investments listed on the Australian Stock Exchange (ASX) from attribution under the foreign investment fund (FIF) rules.

Currently the ASX exemption broadly applies to shares in certain Australian-resident companies that are listed on an approved index under the ASX Operating Rules.

The requirement that the shares must be listed on an approved index creates considerable uncertainty for investors and administrative cost for Inland Revenue as companies move on or off an approved index from period to period.

To relieve the uncertainty, as well as reduce the administration cost for Inland Revenue, the bill amends the exemption to apply to shares in companies listed on the ASX irrespective of whether they are also listed on an ASX approved index.

Application date

This proposal takes effect from the beginning of the 2016–17 income year.

Key features

The bill amends section EX 31(2)(c) to remove the requirement that shares must be listed on an approved index under the ASX Operating Rules, and replace this with a requirement that the shares are in a company listed on the ASX.

As a result of this amendment all shares in companies listed on the ASX which meet the remaining criteria contained in section EX 31 – including the requirement that the company is Australian tax resident and maintains a franking account for example – will qualify for the exemption whether or not these companies are also listed on an approved ASX index.

Background

Investments that qualify for the ASX exemption are not taxed under the FIF rules but are treated in the same way as New Zealand investments (i.e. they are taxable on dividends if the investment is held on capital account or on dividends and realised gains if held on revenue account).

Dividend-only taxation, as compared to an attribution method under the FIF rules, is a reasonable approach for Australian-resident listed companies because the Australian tax system encourages dividend distributions, as the New Zealand tax system does.

The drafting of the current section EX 31(2)(c) restricts the application of the ASX exemption to shares included in an index that is an approved index under the ASX Operating Rules.

The broadest equity index on the ASX for ordinary and preferred equity stocks is the Standard & Poor’s All Ordinaries index which consists of the top 500 securities measured by market capitalization. This index is re-balanced regularly so that it includes what is, at the re-balance date, the top 500 listed companies based on capitalisation (i.e. share price multiplied by number of shares). As a result companies can drop off or appear on the index from time to time.

The periodic re-balancing of indexes, such as the All Ordinaries index, creates uncertainty for taxpayers as the tax treatment of the same investment changes with the re-balancing of the index from one period to the next.

The amended ASX exemption, which applies to shares in all companies listed on the ASX irrespective of whether they are also listed on an ASX approved index, relieves the uncertainty and reduces the administration cost for Inland Revenue.

It also better supports the policy that the ASX exemption is intended to capture the majority of New Zealanders' FIF investments in Australia.

This amendment makes it easier for taxpayers to self-assess their compliance with the ASX exemption, as it is much simpler to check whether share investments are listed on the ASX (this information is publicly available) as compared to listed on an approved index (information generally only available from specialist market information providers such as Bloomberg).

Further the amendment allows for more accurate and timely information access for taxpayers, as the ASX listings are updated more regularly than the indexes which are typically balanced quarterly.

Improved certainty and information accuracy is likely to reduce compliance time and costs for affected taxpayers.

SUPPORTING CO-LOCATION

(Clause 117 and 122)

Summary of proposed amendment

To increase efficiency in the delivery of government services and to achieve cost reductions across the public service, government agencies are increasingly co-locating. In this situation, Inland Revenue employees are exposed to the risk of inadvertently disclosing taxpayer information to other government agencies at the co-located sites in the normal course of duties. Such disclosures would be a breach by the relevant employee of the current secrecy provisions in the Tax Administration Act 1994, and they could face severe penalties. This acts as a barrier to co-locating with other government agencies. The proposed amendment supports co-location by providing that an employee does not breach the secrecy provisions when they unintentionally disclose tax secret information in a co-location environment.

Application date

The amendments apply from the date of enactment.

Background

The current secrecy provisions in the Tax information Act 1994 do not allow Inland Revenue employees to pass taxpayer information on to other government agencies except in limited, defined circumstances. There are severe penalties for any Inland Revenue employee who knowingly breaches secrecy provisions. Further, under section 6 of the Tax Administration Act 1994 every Inland Revenue employee must use their best endeavours at all times to protect the integrity of the tax system (including the rights of the taxpayers to have their individual affairs kept confidential).

Inland Revenue is co-locating with other government agencies in some offices and call centres across New Zealand. While some co-locations have been able to be achieved while still maintaining physical separation between agencies (which minimises secrecy risks) such separation is not always possible – for example, in post-earthquake Christchurch co-locations are “open-plan”.

Inland Revenue employees are exposed to the risk of inadvertently disclosing taxpayer information to other government agencies at co-located sites. This could arise if the other agency’s employees were to overhear conversations (between Inland Revenue staff discussing a case, and conversations with taxpayers themselves), or if they happen to see Inland Revenue correspondence, or as a result of shared office facilities and equipment.

Given that further co-location is planned (including in open-plan sites) this gives rise to the issue of proximity with other government employees and inadvertent disclosure of taxpayer information with those employees. It is considered that no amount of training or best practice guidelines or adopted behaviour is likely to adequately address the substantial risk of Inland Revenue employees inadvertently disclosing taxpayer information to other government employees in the co-location environment.

Detailed analysis

Under the proposed amendment to section 81 of the Tax Administration Act 1994, an Inland Revenue employee will not be considered to have breached the secrecy provision where:

  • the employee unintentionally discloses taxpayer secret information;
  • to an Inland Revenue employee or an employee of another government agency subject to same secrecy standards;
  • in a place in which the Commissioner of Inland Revenue expects Inland Revenue officers to perform their duties.

The proposal will only protect the employee where the disclosure is unintentional. Unless otherwise excused under section 81, an Inland Revenue employee will have breached section 81 when they intentionally disclose information to another Inland Revenue employee or an employee of another government agency.

Further, an Inland Revenue employee will only be protected where the disclosure is to an Inland Revenue employee or an employee of another government agency that has signed a secrecy certificate under section 87 of the Tax Administration Act 1994. A person who has signed a secrecy certificate under section 87 is subject to the same penalties for disclosing taxpayer secret information as an Inland Revenue employee. As a result, the proposed amendment to section 81 will align the approach to co-located staff working in open-plan areas, with the current approach to Inland Revenue staff working in open-plan areas. In other words, the proposal will apply the same high-level of protection for tax secret information to co-located areas as is currently imposed in open-plan Inland Revenue areas.

The amendment will only apply to places in which the Commissioner expects Inland Revenue officers to perform their duties. This will provide the Commissioner of Inland Revenue with some flexibility as to the types of co-locating arrangements that are entered into.

The amendment also confirms that employees of a government agency, required by their employer to perform their duties in a co-located environment, can sign a secrecy certificate under section 87.

SPECIAL TAX CODES

(Clauses 71, 83 to 87, 101 and 102)

Summary of proposed amendments

Amendments are being made to the Tax Administration Act 1994 to allow the Commissioner of Inland Revenue to provide special tax code certificates directly to the Ministry of Social Development (MSD) to help people receiving New Zealand Superannuation or a veterans’ pension to meet their income tax obligations. These amendments reduce the compliance costs imposed on superannuitants or veteran pension recipients in providing the certificate to MSD and remove any delay in the application of the correct tax deduction rate.

Application date

The amendments will come into force on the day of enactment.

Key features

Several amendments are being made to the Tax Administration Act 1994 to:

  • enable the Commissioner to provide a special tax code certificate directly to MSD when the superannuitant or veterans’ pension recipient has applied for a special tax code certificate and advised the Commissioner they want the certificate to apply to their New Zealand Superannuation income or veterans’ pension income;
  • require MSD to apply the special tax code to the next payment of New Zealand Superannuation or veterans’ pension, or when this payment has already been calculated by MSD, the certificate will commence from the payment following the next payment;
  • require the Commissioner, once the certificate has been sent to MSD, to notify the superannuitant of the special tax code and that it has been forwarded to MSD; and
  • reflect the introduction of new section 24IB. These amendments are made to section 24F(4) (special tax code certificates) and to the definition of “responsible department” in section 3 (interpretation).

Enabling Inland Revenue to send superannuitants’ special tax code certificates directly to MSD would reduce the compliance costs faced by New Zealand superannuitants or veterans’ pension recipients in complying with the special tax code certificate requirements and minimise delays in the application of the special tax code, thereby reducing the extent of any over- or under-deduction of tax at year-end.

Background

The PAYE tax deduction system requires employers to deduct tax from the salary and wages that employees earn during the year. There are standard tax rates that apply to the deduction of tax from salary and wages and these are accurate for most employees. However, for a group of taxpayers the standard tax rates are not accurate because of the employee’s particular circumstances. In these instances an employee can apply to the Commissioner of Inland Revenue for a special tax code certificate.

A special tax code is a personalised tax deduction rate that is calculated by the Commissioner to help the employee avoid an under- or over-deduction of tax at year-end by having the right amount of tax deducted during the year.

An over- or under-deduction of tax during the year can occur as a result of such things as an end-of-year tax refund, tax losses carried forward from previous years, changes in personal circumstances, fluctuating earnings or the PAYE deduction system not deducting the correct tax amount on an annual basis.

New Zealand superannuitants or recipients of a veterans’ pension, like any other PAYE income earner, can apply for a special tax code certificate and ask that it be applied against their New Zealand Superannuation or veterans’ pension income. The current legislation requires that the certificate be sent to the superannuitant and veterans’ pension recipient, who in turn, provides it to MSD. However, this imposes compliance costs on superannuitants and veterans’ pension recipients who, as part of the application process, would have already advised Inland Revenue that they want the certificate to be applied against their New Zealand Superannuation or veterans’ pension income. It would also delay the application of the special tax code, which increases any over- or under-deduction of tax at year end.

NOTICES OF DEDUCTIONS FROM SALARY OR WAGES

(Clauses 169, 185, 217, 219 and 221)

Summary of proposed amendment

The Tax Administration Act 1994 allows the Commissioner to require an employer to make additional deductions from an employee’s salary or wages when the employee has defaulted on tax, child support, gaming duty or student loan repayment obligations. To do this the Commissioner must first notify the employer and send a copy of the notice to the employee. Currently these additional deductions are prevented when the defaulter has failed to notify a change of address so Inland Revenue is unable to advise them of the intended additional deductions. This amendment is intended to correct an administrative problem so the proper intent of the rules – that people in default of their tax and social policy obligations should make restitution – are realised.

The TAA 1994 allows the CIR to require an employer to make additional deductions from an employee’s salary or wages when the employee has defaulted on tax, child support, gaming duty or student loan repayment obligations. To do this the CIR must first notify the employer and send a copy of the notice to the employee. Currently these additional deductions are prevented when the defaulter has failed to notify a change of address so Inland Revenue is unable to advise them of the intended additional deductions. This amendment is intended to correct this administrative problem so the proper intent of the rules – that people in default of their tax and social policy obligations should make restitution – are realised.

Application date

The amendments will come into force on the date of enactment.

Key features

When a defaulting taxpayer, liable parent, gaming machine operator or student loan borrower is already having PAYE, child support, gaming duty or student loan repayment deductions made from their salary or wages, Inland Revenue will be able to require the employer to make additional deductions from the person’s wages or salary to recover outstanding taxes, child support, gaming duty or student loan repayments, without concurrently notifying the employee.

This will be achieved through amendments to similar provisions in each of the following:

  • The Tax Administration Act 1994
  • The Goods and Services Tax Act 1985
  • The Child Support Act 1991
  • The Gaming Duties Act 1971
  • The Student Loan Scheme Act 2011.

Background

Deductions from wages or salary are one of the most efficient means of debt collection available to Inland Revenue. If they are imposed soon after a default is detected they have the effect of limiting the growth of late payment interest or penalties as well as ensuring early recovery of the debt.

Current law requires Inland Revenue to issue a notice to an employer when it requires deductions to be made from an employee’s wages or salary. Inland Revenue must also provide a copy of the notice to the employee at the same time.

This requirement can pose a problem if people do not advise Inland Revenue promptly that they have changed their address, as the returned correspondence creates an “invalid” address and prevents the issue of further correspondence to that address. This means that although Inland Revenue has confirmation of the person’s employer it cannot issue a notice to make deductions from the person’s wages or salary because it cannot issue the copy to the employee.

The proposed changes will help to ensure that people in default of their tax and social policy payment obligations repay their debts in the shortest possible time, minimising the application of late payment interest and penalties.

Detailed analysis

The bill proposes the following changes:

  • Section 157 of the Tax Administration Act 1994 will be amended by replacing current subsection (5) with a new subsection which maintains the same general requirement for Inland Revenue to issue a copy of a deduction notice to the affected taxpayer. However, new subsection (5B) will allow Inland Revenue to dispense with the requirement to send a copy to the taxpayer at the time the deduction notice is sent to the taxpayer’s employer for deductions to be made from the taxpayer’s wages or salary. New subsection (5B) will also first require Inland Revenue to make reasonable enquiries to find a valid address for the taxpayer.
  • Section 43 of the Goods and Services Tax Act 1985 will be amended by replacing current subsection (5) with a new subsection which maintains the same general requirement for Inland Revenue to issue a copy of a deduction notice to the affected taxpayer. However, new subsection (5B) will allow Inland Revenue to dispense with the copy to the taxpayer at the same time the deduction notice is going to the taxpayer’s employer for the deductions to be made from the taxpayer’s wages or salary. New subsection (5B) will also first require Inland Revenue to make reasonable enquiries to find a valid address for the taxpayer.
  • Section 50 of the Student Loan Scheme Act 2011 will be amended by inserting new subsection (2B), which will allow Inland Revenue to dispense with the copy of the deduction notice to the student loan borrower at the same time the deduction notice is going to the borrower’s employer for the deductions to be made from the borrower’s wages or salary. New subsection (2B) will also first require Inland Revenue to make reasonable enquiries to find a valid address for the borrower.
  • Section 12L of the Gaming Duties Act 1971 will be amended by inserting new subsection (4B), which will allow Inland Revenue to dispense with the copy of the deduction notice to the gaming machine operator at the same time the deduction notice is going to the operator’s employer for the deductions to be made from the operator’s wages or salary. New subsection (4B) will also first require Inland Revenue to make reasonable enquiries to find a valid address for the operator.
  • Section 156 of the Child Support Act 1991 will be amended by inserting new subsection (3), which will allow Inland Revenue to dispense with the copy of the deduction notice to the liable person at the same time the deduction notice is going to the liable person’s employer for the deductions to be made from the liable person’s wages or salary. New subsection (4B) will first require Inland Revenue to make reasonable enquiries to find a valid address for the liable person.

EXEMPTION FROM REQUIREMENT TO APPLY FOR CHILD SUPPORT

(Clauses 215 and 216)

Summary of proposed amendments

Amendments are proposed to section 9 of the Child Support Act 1991 to exclude some social security beneficiaries from the compulsory requirement to apply for child support when there is insufficient evidence to establish paternity, there is risk of violence or similar compelling circumstances to warrant an exemption.

The amendments, which reflect exemptions already contained in the Social Security Act 1964, will align the two pieces of legislation and result in greater certainty for beneficiaries, and administrative efficiencies for Work and Income and Inland Revenue.

Consequential changes are proposed for section 122 of the Child Support Act 1991.

Application date

The amendments will apply on the date of enactment.

Key features

Sole parent beneficiaries and recipients of the Unsupported Child Benefit are required to apply for a formula assessment of child support.

It is proposed that section 9 of the Child Support Act be amended to include exemptions from the requirement to file for a formula assessment of child support. The grounds for the exemptions would mirror the grounds in section 70A of the Social Security Act.

A social security beneficiary would not be required to apply if Work and Income is satisfied that:

  • There is insufficient evidence to establish who is, in law, the other parent.
  • The beneficiary or any of the beneficiary’s children (and the child’s immediate family where applicable) would be at risk of violence if the beneficiary makes an application for formula assessment or takes steps to make an application for formula assessment.
  • The potential liable parent died before an application for a social security benefit was made (they are widowed).
  • The qualifying child was conceived as a result of incest or sexual violation.
  • There is another compelling circumstance for the beneficiary not to apply.

Sections 9(6), 9(7) and 122(2) of the Child Support Act are also to be updated to reflect that section 70A of the Social Security Act 1964 only applies to sole parents and not to Unsupported Child Benefit recipients.

Background

The Social Security Act 1964 was amended in 2005 to increase the penalty that applied to a beneficiary for failure to apply to child support and to introduce new exemptions from the penalty. At the time, the responsible Minister indicated that if sole parents could prove such things as violence against them or their children, or it is proper that they are able to be exempted because they are refugees or asylum seekers or the other parent is deceased, they would not be required to establish paternity or apply for child support. However, the legislative changes only exempted beneficiaries from the penalty for not applying for child support – it did not amend the principal requirement to apply.

The policy intent of the 2005 changes was that sole parents should apply for child support to ensure the other parent provides financial support for the child (or bear a financial penalty directly). In some special circumstances, however, it was accepted that involving the other parent was impracticable or inappropriate – for example, when taking steps to apply for child support would result in violence to the child or the beneficiary.

Detailed analysis

Currently, the Child Support Act 1991 requires all beneficiaries to apply for child support, while the Social Security Act 1964 implies that child support applications are not required when specified criteria are met. This creates uncertainty for beneficiaries over their legal requirements and inefficient administrative practices between Work and Income and Inland Revenue.

Section 9 of the Child Support Act 1991 requires all social security beneficiaries to apply for child support at the time they apply for a benefit if:

  • they are expected to meet the definition of “receiving carer” by providing at least 35 percent of the ongoing daily care of the child; and
  • they are not already a receiving carer in the child support system.

Social security beneficiaries are defined in the Child Support Act as sole parents in receipt of a main benefit and people receiving the Unsupported Child Benefit.

If they fail to apply, the Child Support Act says they will be subject to a penalty under section 70A of the Social Security Act 1964. The two agencies can share information to determine which beneficiaries have failed to apply and therefore are subject to the penalty.

There is no cross-reference in the Social Security Act 1964 to the requirement for a sole parent beneficiary or an Unsupported Child Benefit recipient to apply for child support. However, section 70A provides authority for a benefit to be reduced if a beneficiary has failed to meet certain obligations, including applying for child support in accordance with section 9 of the Child Support Act 1991.

Section 70A goes on to exempt beneficiaries from the penalty if Work and Income is satisfied that specified criteria apply. These criteria are:

  • there is insufficient evidence available to establish who is, in law, the other parent; or
  • the beneficiary is taking active steps to identify who is, in law, the other parent; or
  • the beneficiary or any of the beneficiary’s children would be at risk of violence if the beneficiary carried out or took steps to carry out any of the required actions (including making an application for child support); or
  • there is a compelling circumstance for the failure or refusal to carry out the required actions and even if the beneficiary did carry out the actions, there is no real likelihood of child support being collected in the foreseeable future from the other parent; or
  • the child was conceived as a result of incest or sexual violation.

Furthermore, section 70A only applies to benefits for sole parents – it does not provide authority to impose a penalty on Unsupported Child Benefit recipients.

While the Social Security Act provides grounds for when a sole parent need not meet the obligation to apply for child support, the Child Support Act indicates that applications are compulsory for all social security beneficiaries (as defined in the Child Support Act). The disconnect between the two pieces of legislation can lead to conflicting advice about whether a person needs to apply or not and creates uncertainty over the scope of the information-sharing powers between Work and Income and Inland Revenue.

CHANGES TO PERSONAL TAX SUMMARY REFUND THRESHOLDS

(Clauses 59 and 116)

Summary of proposed amendment

When a salary or wage earner (not a business taxpayer) needs an end of year assessment they are issued (or can request) a personal tax summary (PTS). If the result is a refund they can confirm the PTS and the refund will be issued. If the refund is less than $200 and they do not confirm their PTS, the refund will be automatically released to the individual after 30 days.

The bill proposes reducing the time delay and increasing the threshold so credits would be released 15 days after the PTS was issued if the refund is less than $600. Reducing the time delay to 15 days still gives the taxpayer sufficient time to receive, check and if necessary correct their PTS before any refund is released. Increasing the threshold to $600 will mean taxpayers who are entitled to the independent earner tax credit of up to $520 per year can receive this without having to contact the department. This tax credit is automatically calculated by Inland Revenue and does not require additional information from the taxpayer.

Application date

The amendment is proposed to come into force on 1 April 2016 and will apply to all PTSs issued from this date.

Key features

The proposed change to section RM 5(1) of the Income Tax Act 2007 raises the threshold at which a person must confirm their PTS before receiving their refund to $600.

The proposed change to section 80H(3)(c) of the Tax Administration Act 1994 provides that a PTS is considered an assessment on the 15th day after it is issued, if a refund showing on that PTS exceeds the threshold set in section RM 5(1) of the Income Tax Act 2007.

CHANGES TO RULINGS REGIME

(Clauses 130 to 131, 136 to 138, 145, 148 and 152)

Summary of proposed amendments

The purpose of the binding rulings regime is to provide certainty on a tax position for a taxpayer. The proposed amendments remove some unnecessary restrictions on Inland Revenue’s ability to provide a binding ruling and some unnecessary compliance costs by:

  • allowing the Commissioner of Inland Revenue to fix minor errors in financial arrangement determinations;
  • allowing the Commissioner of Inland Revenue to rule on issues that are not the same as the issues that are the subject of a dispute;
  • clarifying when a ruling ceases to apply when an assumption stated in the rulings proves to be incorrect; and
  • allowing the Commissioner of Inland Revenue to notify the publication of a status ruling in a publication other than the Gazette.

Application date

The amendment will come into force on the day of enactment.

Background

A binding ruling is Inland Revenue’s interpretation of how a tax law applies to a particular arrangement. If a binding ruling applies to a taxpayer and they follow it, Inland Revenue is bound by it (provided that the taxpayer has entered into the arrangement exactly as described in the ruling, and that they satisfy any stated assumptions or conditions). A taxpayer is not required to follow the approach in the ruling.

Binding rulings can provide certainty on the tax position for a wide range of transactions, from complex financing transactions to land subdivisions. Anyone can apply for a binding ruling on a transaction, but there are some restrictions on Inland Revenue’s ability to provide a binding ruling and some unnecessary compliance costs.

Key features

The proposed amendments remedy four problems with the current binding rulings regime.

First, the Commissioner does not have to withdraw and reissue a ruling to correct a typographical or minor error in a ruling. However, there is no provision allowing Inland Revenue to correct minor errors in a signed financial arrangement determination. Instead, even if there is only a minor or typographical error in a financial arrangement determination, the Commissioner must make a new determination to correct the original determination. The proposed amendment will allow the Commissioner to correct a typographical or minor error in a financial arrangement determination without having to withdraw and reissue it.

Secondly, the Commissioner is currently prevented from ruling on an arrangement where the same tax type is the subject of a notice of proposed adjustment (that is, it is going through the disputes process). This unnecessarily restricts the Commissioner from ruling on issues that are not the same as the issues that are the subject of the dispute. The proposed amendment will allow the Commissioner to rule on an issue unless a notice of proposed adjustment has been issued that relates to:

  • the person;
  • the arrangement; and
  • the same tax type or a separately identifiable issue.

Thirdly, there is currently a lack of clarity about when a ruling will cease to apply because an assumption listed in a ruling subsequently proves to be incorrect. The amendment clarifies that:

  • an assumption must be material to be included in a ruling; and
  • a breach of an assumption must be a material breach before the ruling ceases to apply.

Fourthly, there is currently a requirement that a status ruling be notified in the Gazette. In contrast, product rulings are only required to be notified in a publication chosen by the Commissioner and a publication of the department. The proposed amendment allows a status ruling to be notified in the same way as a product ruling. A similar amendment is also being made to allow the Commissioner to publish an extension of a public ruling in a publication chosen by the Commissioner and a publication of the department.

REPEAL OF SPECIAL HOME OWNERSHIP ACCOUNT PROVISIONS

(Clauses 4, 47, 67, 68, 71, 111, 153 and 169)

Summary of proposed amendment

The proposed amendment repeals the obsolete special home ownership account provisions in the Income Tax Act 2007 and the Tax Administration Act 1994. The amendment will allow an account to be closed without paying the withdrawal tax that would otherwise have applied.

Application date

The amendment will come into force on the date of enactment.

Key features

The proposed amendment repeals the special home ownership account provisions in the Income Tax Act 2007 and the Tax Administration Act 1994. Importantly, the amendment repeals section RZ 8, which requires a financial institution to withhold the withdrawal tax from an amount payable to a person when the money has not been withdrawn to purchase a house. The repeal of section RZ 8 will allow an account to be closed without paying the withdrawal tax that would otherwise have applied.

Background

Special home ownership savings accounts were introduced in 1974 to help people save to purchase a house. The amount of the annual increase in a person’s account (up to a maximum of $3,000 per annum) received a tax credit of 45%. This occurred until the account:

  • reached a maximum of $10,250;
  • was closed to purchase a house; or
  • was otherwise withdrawn.

When the account was closed and the money was withdrawn (and not used to purchase a house), a tax of 45% was imposed on the amount of the withdrawal.

No new home ownership accounts have been able to be opened on or after 1 August 1986, and no tax credits have been able to be generated since 1 August 1991. Although these accounts are now very old, under the current law withdrawal tax of 45% still applies to any withdrawals that are not used to purchase a house.