Other policy matters

Annual setting of income tax rates
Demergers – company splits by listed Australian companies
Bank account requirement for IRD numbers
Petroleum mining decommissioning
Recipients of charitable or other public benefit gifts
- Issue: Against Malaria Foundation (New Zealand)
- Issue: Child Rescue Charitable Trust
Trustee capacity amendments
PHARMAC rebates and GST
Lloyd’s of London – tax simplification
Extending the financial arrangement reporting method concessions
Transfer of overpaid tax from AIM taxpayer to shareholders – extension of the agency mechanism
FBT due date under close company option during the co-existence of two Inland Revenue software platforms

ANNUAL SETTING OF INCOME TAX RATES

Clause 3

Submission

(Corporate Taxpayers Group)

The annual income tax rates should be set in advance of the tax year commencing and not in arrears, so that there is certainty about the rate(s) of income tax that will apply for a tax year, prior to its commencement. This Bill should also confirm the annual income tax rates for the 2018–19 tax year.

Comment

Section BB 1 of the Income Tax Act 2007 provides that the income tax rates must be fixed by an annual taxing Act. The section does not provide that they must be set in advance of the tax year’s commencement. The practice has been for the annual income tax rates to be confirmed by legislation enacted during the tax year to which the rates relate. Setting the annual tax rates in advance of a tax year’s commencement would not provide taxpayers with the certainty suggested by the submitter because, in accordance with the fundamental constitutional principle of Parliamentary sovereignty, a Parliament cannot bind its successors. Thus, if Parliament set the annual tax rates in advance of a tax year’s commencement, they could still be altered by Parliament during that tax year, before income tax assessments for that year are made.

Recommendation

That the submission be declined.

DEMERGERS – COMPANY SPLITS BY LISTED AUSTRALIAN COMPANIES

Clauses 8, 45, 63, 172(3) and 182

Introduction

The Bill proposes that certain transfers of shares received by New Zealand shareholders as a result of a company split (demerger) by a listed Australian company are not treated as a dividend. Current law views the full value of the shares in the demerged company to be treated as a dividend. Demergers, which do not involve a distribution of income, should not, in principle, give rise to taxation consequences.

What is a “demerger”?

A “demerger”, or company split, describes the situation when a company (or a group of companies) splits off part of itself and distributes that part to its shareholders. The effect of the demerger is that shareholders, instead of having one shareholding in the company, have two different shareholdings in separate companies and the shares can be traded separately. A demerger is generally undertaken by a company when its value is less than the sum of its constituent parts.

The current tax treatment

Under the Income Tax Act 2007, the full value of the shares in the demerged company is a dividend for the shareholder. This is because the Income Tax Act defines a dividend as generally any transfer of value from a company to a shareholder that is caused by the shareholding. A demerger involves the transfer of value from the company to its shareholders (being the distribution of the shares in the demerged company); as such, the shares that result from the demerger because of the shareholding are treated as a dividend for tax purposes.

Furthermore, the amount of the dividend is usually very large, as it will equal a significant percentage of the corporate group’s total market value.

The problem with the current tax treatment

The current tax treatment is a problem if the demerger is, in substance, the division of a corporate group rather than a distribution of income. Following the demerger, the shareholders still have the same proportionate interests in the same underlying assets. Therefore a demerger can be thought of as akin to a share split, with the assets of the corporate group divided between the split shares.

This means, in substance, there is no distribution of income or underlying assets by the corporate group on a demerger that should be taxed as a dividend. A shareholder’s economic ownership has not changed.

Scope of the problem

The current tax treatment raises potential issues for demergers of both New Zealand and foreign companies and is particularly acute for demergers by listed Australian resident companies. This is because:

New Zealand companies can often structure their demergers so that no dividend arises; and
shares in other foreign companies are more commonly subject to the foreign investment fund (FIF) rules (which ignore dividends).

Shareholders will generally not be subject to the FIF rules in respect of listed Australian shares or if they are natural persons whose total offshore shareholdings cost $50,000 or less.

Listed Australian companies, however, often have several thousand New Zealand shareholders that are taxable on any dividends received, but they do not structure their demergers to be efficient for New Zealand tax purposes. Furthermore, dividend taxation for Australian demergers can seem particularly unfair for New Zealand shareholders, as Australian shareholders are not usually taxable on a demerger.

The proposal in the Bill removes from the dividend rules in the Income Tax Act the receipt of shares by a New Zealand taxpayer when those shares are the result of a demerger by a listed Australian resident company, provided the shares received as a result of the demerger are not treated as a dividend under Australian tax law. The focus on Australian-listed companies is based on the need to develop a solution that addresses the greatest need, primarily “mum and dad” shareholdings in ASX-listed Australian companies.

Submitters have raised concerns that the proposals could have the effect of creating in investors’ minds a preference for ASX-listed stocks over NZX-listed stocks. Officials note that the amendments in the Bill are intended to respond to situations where New Zealand shareholders incur taxation liabilities as a result of company governance decisions by Australian companies. In the cases that have been brought to officials’ attention, the New Zealand shareholding base represents a minority and no steps have been taken by the Australian company to mitigate the New Zealand tax effect on New Zealand shareholders. To this end, the proposed amendments respond directly to this concern only and are not intended to create a preference.

Issue: Support for the proposal, with some reservations

Submission

(Chapman Tripp, Chartered Accountants Australia and New Zealand, Corporate Taxpayers Group, FNZ, Glendinnings, KPMG, New Zealand Law Society, New Zealand Media and Entertainment, New Zealand Shareholders Association Inc, NZX Limited, PwC, Roger Wallis, Russell McVeagh)

Submitters support the proposed changes subject to issues discussed in this part.

Recommendation

That the submitters’ support be noted.

Issue: Proposed demerger rules should also apply to New Zealand companies and other company demergers generally

Submissions

(Chapman Tripp, Chartered Accountants Australia and New Zealand, Corporate Taxpayers Group, FNZ, New Zealand Law Society, New Zealand Shareholders Association Inc, NZX Limited, PwC, Roger Wallis, Russell McVeagh)

The proposed demerger rules should apply to New Zealand companies and company demergers generally.

The Government is encouraged to carry out further work on the tax treatment of company demergers generally as part of the tax policy work programme.

Comment

The proposed amendments are intended to be a targeted response to deal with the tax problems for those that are currently most affected, being New Zealand shareholders in ASX-listed companies. While there is an argument that the demerger rules should be extended to New Zealand companies, New Zealand companies have available to them a number of mechanisms in the Income Tax Act to prevent demergers giving rise to a taxable dividend for their shareholders. For example:

Share repurchases: In this case an amount equal to a company’s paid-up share capital (referred to as “available subscribed capital”, or ASC, for tax purposes) is excluded from being a dividend.
Liquidation: In this case an amount equal to any net capital gains (realised and unrealised) plus the ASC of the distributing company is excluded from being a dividend.

Further, a dividend arising from a demerger will only be taxable if the demerging company is a New Zealand resident, or if the demerging company is a non-resident and the shareholder is not subject to the FIF rules. In the latter situation, this is the case if:

the shareholder is a natural person whose total offshore shareholdings cost $50,000 or less; or
the shares are held in an Australian listed company (which is the focus of the proposed amendments in the Bill).

Officials note that Australian companies are less inclined to take into account the tax treatment of their minority New Zealand shareholders to prevent dividend treatment when carrying out a demerger. Australian shareholders are generally not taxed on these transactions under Australian tax law, subject to specific anti-avoidance rules not applying.

The Bill addresses, in a timely manner, the problem in practice.

A comprehensive and robust set of rules for company demergers, including demergers by New Zealand companies, could not be developed in time for inclusion in the Bill. In particular, there is a need to protect the integrity of the tax system to ensure that any exclusion from dividend taxation for demergers is not abused. In this regard, Australia, the United Kingdom, the United States and Canada all have rules which exempt qualifying demergers from dividend taxation. These rules are generally subject to numerous restrictions to ensure that they apply to company demergers when there is no economic change in shareholder ownership (a genuine demerger). They do not apply if the demerger is used to effect a tax-free distribution of income to shareholders or a sale of the companies.

The private sector has focused on the tax treatment of Australian demergers as the main problem and requested an urgent solution. The proposed amendments in the Bill are the response to the problem. The amendments are limited to demergers by Australian-listed companies when Australian tax law does not treat the shares received as a result of the demerger as a dividend (thus incorporating the protective aspects of Australia’s anti-avoidance measures).

Officials acknowledge the submissions requesting additional work be done to extend the scope of the demergers proposal in the Bill to New Zealand company demergers (and other demergers, generally). This issue can be considered when the Government’s tax policy work programme is refreshed.

Recommendation

That the submissions be declined.

Issue: Application date

Submission

(Chartered Accountants Australia and New Zealand, Corporate Taxpayers Group, Glendinnings, New Zealand Media and Entertainment, New Zealand Shareholders Association Inc)

Submitters have suggested a number of dates from which the proposed amendments should apply, including the income years:

2013–14 (Chartered Accountants Australia and New Zealand)
2015–16 (Corporate Taxpayers Group, Glendinnings)
2016–17 (as proposed in the Bill) (New Zealand Media and Entertainment, New Zealand Shareholders Association Inc)

The New Zealand Shareholders Association Inc would prefer an earlier application date but appreciate it may not be administratively feasible.

Comment

The Bill provides that the amendments apply from the start of the 2016–17 and later income years. Shareholders will not have filed tax returns for this income year until sometime after May 2017.

Applying the change from 1 April 2016 allows for taxpayers to take advantage of the proposal for the current income year and does not disturb existing tax positions. This application date reduces compliance costs and the need for Inland Revenue to reconsider earlier taxpayer tax positions. The fiscal impact of applying the change from 1 April 2016 is not likely to be material.

Backdating the application of the proposed solution from an earlier date would have compliance implications (and administration impacts on Inland Revenue) if taxpayers were to reverse earlier tax positions. There would also be an associated (but unquantifiable) revenue cost.

Inland Revenue has insufficient information to assess taxpayer compliance on returning dividend income from demerger transactions. The exact revenue cost and number of taxpayers affected varies from year to year depending on the number of demerger transactions in the income year. Inland Revenue does not specifically record such income. Officials are aware from consultation in November 2016 that some custodial service providers have paid RWT (by redeeming units) on previous demergers to meet unitholder tax obligations. A retrospective application date would mean that these tax positions would need to be unwound, including the need for custodial providers to reverse earlier unitholder tax payments.

Recommendation

That the submissions be declined.

Issue: Treatment of ASC

Submission

(Bell Gully, Chartered Accountants Australia and New Zealand, Corporate Taxpayers Group, EY, New Zealand Media and Entertainment, PwC, Roger Wallis)

The proposed amendments should allow taxpayers to calculate the available subscribed capital (ASC) of the new company, if practical.

If it is not practical, the ASC of the demerged company should be zero as proposed by the Bill, provided that the original company’s ASC remains unaffected.

Comment

The Bill proposes that the ASC of the demerged company has a nil balance. The ASC of the original company, if it exists, would remain unchanged following the demerger.

Australian-listed companies are generally not resident for New Zealand tax purposes and there is no requirement to keep records for ASC for New Zealand income tax purposes. Following consultation in November 2016 on the proposal in the Bill, officials considered that creating a requirement to ascribe an ASC amount to the demerged company would be impractical as the information to support such a value would not be readily available.

Submitters have argued that if taxpayers are able to calculate and attribute relevant ASC values to the original company and the demerged company, those values should be recognised for income tax purposes.

Provided that information is available, and it is practical for the splitting company and the subsidiary to allocate ASC between the companies immediately after the demerger, officials recommend that proposed section ED 2B should recognise the allocation of ASC to the demerged company and a corresponding reduction in the ASC balance of the splitting company. If calculating the ASC of the demerged company is not practical, taking into account the information available to the taxpayer, and the costs connected with collating and calculating the ASC value, the proposed amendments in the Bill should continue to apply.

Recommendation

That the submission be accepted, subject to officials’ comments.

Issue: Proportion of shareholding requirements

Submission

(Bell Gully, Chapman Tripp, Corporate Taxpayers Group, KPMG, New Zealand Media and Entertainment, New Zealand Shareholders Association Inc, PwC)

The Bill proposes that shareholders’ interests in the demerged company must be exactly the same proportion as the shareholding immediately before the demerger. This requirement is not practical and does not recognise situations where a small number of shareholders are ineligible to participate in the demerger.

Comment

The Bill contemplates situations where shareholdings in the original and demerged companies would be commensurate. Officials agree that the proposed amendment imposes too strict a test and should provide a tolerance for rounding, and not count shareholdings that are ineligible to participate in the demerger.

Officials recommend that the scope of proposed section ED 2B ensure that non-participating, and immaterial deviations in participating shareholding proportions immediately before and immediately after the demerger arise, are ignored.

Recommendation

That the submission be accepted, subject to officials’ comments.

Issue: Scope of the proposed amendments

Submission

(Chapman Tripp, Corporate Taxpayers Group, Financial Services Council, FNZ, New Zealand Shareholders Association Inc, PwC)

A range of views have been expressed regarding the scope of the proposed amendment, including comments about the type of security involved in the demerger, and the manner in which the demerger is carried out.

The amendments should apply to listed-stapled securities. (New Zealand Shareholders Association Inc)
The amendments should apply to Australian unit trust redemptions. (Financial Services Council, FNZ)
The amendments should apply to unit trusts listed on the ASX, when it is part of a stapled-security structure. (Corporate Taxpayers Group)
The amendments in the Bill should also provide for other methods used by companies to demerge. (Chapman Tripp)
In section ED 2B(7)(b), the phrase “or New Zealand” should be added. (Chartered Accountants Australia and New Zealand)
Relief from dividend taxation should be available for redemptions of units in Australian unit trusts by de minimis investors (individuals and trusts holding foreign portfolio investments costing $50,000 or less and who choose not to apply the FIF rules). (Financial Services Council, FNZ, PwC)

Comment

Officials’ comments are below:

As noted earlier, the proposed amendments are intended to be narrow in focus to shareholding in listed Australian companies. New Zealand companies are not intended to be within scope for the reasons set out earlier.
Given the narrow focus of the amendments, wider arrangements used by companies to demerge as submitted by Chapman Tripp, are not within scope. These matters could be considered as part of any future work into the tax consequences of demergers.
Officials do not recommend extending the proposals to Australian unit trust redemptions. Unit trusts are treated differently in Australia and are taxed as trusts, rather than companies as is the case in New Zealand. This difference in tax treatment means it is possible – notwithstanding the comment from the Financial Services Council and FNZ – for distributions to be paid tax-free in Australia. In such cases, not taxing the distribution as a dividend in New Zealand could create a risk to the tax base. Further, officials consider a redemption of units in a unit trust involves the investor receiving cash from the unit trust, so there is a distribution that should be subject to New Zealand tax.
Officials note that stapled securities are intended to be within scope if the debt instrument is “stapled” to a share in an Australian ASX-listed company.
Officials consider that shareholdings other than in New Zealand companies or ASX-listed companies would, for the most part, be taxed under the foreign investment fund (FIF) rules. The FIF rules ignore dividends and, as a result, the problems with demergers do not arise. If, however, the cost of a natural person’s total offshore shareholdings is less than $50,000 the FIF rules do not apply and the dividend rules would apply. As the proposal does not apply to unlisted Australian companies, New Zealand natural person shareholders in such companies under the $50,000 de minimis would, in principle, continue to be affected by a demerger (although such shareholders can choose to apply the FIF rules and therefore not be subject to dividend taxation on demergers). However, officials expect very few New Zealand natural person shareholders would invest in Australian companies that are outside the ASX.
Officials accept submitters’ concern that the scope of the proposal is narrow. Resolving these wider concerns about scope would require a more complex solution that balances issues of fairness against potential risks to the tax base and the need for appropriate anti-avoidance measures. For example, the proposal in the Bill relies on existing anti-avoidance measures in Australian tax law to prevent company splits by ASX-listed companies being used to distribute tax-free income to shareholders.

These wider matters would be more appropriately considered as part of any work directed at developing a comprehensive set of rules for demergers generally by New Zealand and non-resident companies. This further work would be subject to being prioritised under the Government’s tax policy work programme.

Overall, officials consider the scope of the proposed change in the Bill deals with the main problem in practice with company demergers.

Recommendation

That the submissions be declined.

Issue: Technical matters

Submission

(Chapman Tripp, Chartered Accountants Australia and New Zealand, Corporate Taxpayers Group, KPMG, PwC, Roger Wallis)

Submissions have made a range of technical suggestions with the drafting of the proposal in the Bill:

The proposed ASX definition is confusing for taxpayers. Reference should instead be made to a company that is listed on the ASX. (Corporate Taxpayers Group)
Proposed section ED 2B does not consider the situation when part of the share transfer is not a dividend or a dividend that is not assessable under the Income Tax Assessment Act 1936. (Chartered Accountants Australia and New Zealand, Chapman Tripp, KPMG)
In proposed section ED 2B(1)(c) – the word “immediately” should be inserted at the start of the section. (Chartered Accountants Australia and New Zealand)
Proposed section ED 2B(1)(c) should align with the Australian demerger rules. (KPMG)
In proposed section ED 2B(1)(d) – the reference to the Australian Income Tax Assessment Act 1936 should be future proofed. (Chartered Accountants Australia and New Zealand)
Proposed section ED 2B(1)(d) should explicitly refer to the situations when a dividend would arise under the Income Tax Assessment Act 1936. (Chapman Tripp, KPMG)
Proposed section ED 2B(1)(d) should explicitly refer to the situations when a dividend is not assessable income or exempt income under the Income Tax Assessment Act 1936. (KPMG)
In proposed section EB 2B(5), confirm that if the ASC of the subsidiary company is zero, the ASC of the splitting company remains unaffected. (Roger Wallis)

Comment

Submitters’ comments will be taken into account as part of any recommended revisions to the Bill to remove ambiguities and uncertainties with the proposed amendments, subject to the changes being consistent with our earlier comments. For example, the definition of ASX-listed Australian company confirms the narrow focus of the proposed amendment.

Recommendation

That the submissions be accepted in part, subject to officials’ comments.

Issue: Inland Revenue to provide guidance to taxpayers

Submission

(Chapman Tripp, Corporate Taxpayers Group, FNZ)

It should be clarified that if an ASX exempt stock undertakes a demerger, if the new company is a FIF, there is a purchase in the calculation of the Comparative Value method of FIF income equal to the deemed cost base. (FNZ)

Inland Revenue should clarify if the shares in the demerged company are held on capital or revenue account. (Corporate Taxpayers Group)

If shareholders originally hold shares on revenue account, the shares in the demerged company should be held on a similar basis, with the proceeds taxed on sale. (Chapman Tripp)

Is it intended that section CQ 5 should be used by de minimis shareholders to use the FIF rules to remove the tax on dividends deemed to arise from a demerger? (PwC)

Comment

Officials will provide additional comments clarifying these points as part of the Tax Information Bulletin item on the Bill following its enactment.

Recommendation

That the submissions be noted.

BANK ACCOUNT REQUIREMENT FOR IRD NUMBERS

Clause 244

The proposed amendment will give the Commissioner of Inland Revenue a discretion to issue IRD numbers to offshore persons without a New Zealand bank account where the Commissioner is satisfied with their identity and background.

Issue: Support for the proposed amendment

Submission

(New Zealand Law Society, ANZ, Chartered Accountants Australia and New Zealand, Corporate Taxpayers Group, New Zealand Law Society, New Zealand Bankers Association, Russell McVeagh, PwC, KPMG)

All submitters supported the proposed amendments. Some (Corporate Taxpayers Group, KPMG) strongly supported it, noting that the existing requirement has been a significant impediment to offshore businesses/persons trying to meet their New Zealand tax obligations. One submitter (ANZ) noted that “the administration required to open, maintain, monitor and close accounts for overseas persons is costly and resource intensive and creates operational, compliance and sanctions risks for banks”. One submitter (Chartered Accountants Australia and New Zealand) noted “the practical problems currently faced by offshore persons who wish to comply with their New Zealand tax obligations”, stating that “the discretion is therefore welcome”.

Recommendation

That the submitters’ support be noted.

Issue: Guidelines

Submission

(New Zealand Law Society, ANZ, Chartered Accountants Australia and New Zealand, Corporate Taxpayers Group, New Zealand Law Society, New Zealand Bankers Association, Russell McVeagh, PwC, KPMG)

All submitters have asked for detailed guidance on how an offshore person could satisfy the Commissioner of Inland Revenue of their identity and background. One submitter (ANZ) asked for clarification on what types of identification documents and background information from different types of applicants will be needed. The same submitter also asked for guidance in a schedular format so that the Commissioner can add scenarios to it when discretion was used. One submitter (Corporate Taxpayers Group) remarked that a dedicated email address or online application form needs to be created as IRD numbers often need to be obtained at short notice.

Corporate Taxpayers Group also noted that it is “important that taxpayers do not need to first establish that they cannot open a bank account”.

Two submitters (ANZ, New Zealand Bankers Association) requested that Inland Revenue work with the banking industry to develop guidance when the discretion will be applied, to ensure certainty of application.

Clauses 17–21, 33–38, 48–52, 57, 95, 99, 100, 102–104, 113, 172(8), (44), (45), (47) & (49), 265 and 266

The tax rules for petroleum mining currently include a “spread-back” process which allows prior income tax periods to be reopened to include losses arising from decommissioning expenditure incurred in the current year. This method ensures that decommissioning expenditure, which is a large cost incurred near or at the end of production, does not result in a loss carried forward that would be of little or no value to the petroleum miner unless it had income from another source.

As the current spread-back requires Inland Revenue to amend assessments for previous periods it involves high compliance and administration costs and is considered an outdated process. A number of other issues have also been identified where the current petroleum mining decommissioning rules are not sufficiently detailed or arrive at an incorrect outcome.

As well as correcting the identified issues, the spread-back mechanism for deducting decommissioning costs is proposed to be replaced with a refundable credit similar to other refundable credits already included in the Income Tax Act 2007, most relevantly the refundable credit for mineral mining rehabilitation expenditure.

Submitters were generally in favour of the proposals and submissions largely focused on clarifying some technical details.

Issue: Replacing spread-back with a refundable credit

Submission

(Chapman Tripp, Corporate Taxpayers Group, Tamarind, Petroleum Exploration & Production Association of New Zealand)

Chapman Tripp supports the proposal to replace the current spread-back mechanism for decommissioning losses with a refundable credit mechanism, to the extent that the proposed changes are consistent with the original policy intent and do not result in more adverse consequences for petroleum miners than what their position would have been if the current spread-back mechanism is retained. (Chapman Tripp)

The Group supports the amendments to the petroleum decommissioning rules contained in the Bill. In particular, the Group supports the proposal to replace the spread-back mechanism with a refundable credit. (Corporate Taxpayers Group)

Tamarind agrees with the vast majority of the proposed decommissioning amendments. (Tamarind)

Petroleum Exploration & Production Association of New Zealand supports the replacement of the current spread-back mechanism for decommissioning losses with the proposed refundable credit mechanism, so long as specific elements of it remain consistent with the original policy intent. They also welcome the correction of unintended errors and clarification of identified issues in the current legislation. (Petroleum Exploration & Production Association of New Zealand)

Comment

Officials acknowledge the support for the proposed refundable credit regime. Officials note that due to other changes in the proposals, such as the removal of the link with relinquishing a permit, there will be specific circumstances where a petroleum miner may qualify for a refundable credit where they did not qualify for a spread-back, or vice-versa; however, the proposed rules are intended to be broadly consistent with the current rules.

Recommendation

That the submitters’ support be noted.

Issue: Removal of link with relinquishing a permit

Submission

(Chapman Tripp, Petroleum Exploration & Production Association of New Zealand)

The submitters support the proposal to remove the requirement for decommissioning actions to be linked to the relinquishment of a permit.

Recommendation

That the submitters’ support be noted.

Issue: Planning for decommissioning

Submission

(Chapman Tripp, Petroleum Exploration & Production Association of New Zealand)

The proposed “decommissioning” definition should be amended to clarify, for the avoidance of doubt, that “decommissioning”, includes the planning, management and execution of the physical acts of decommissioning. (Chapman Tripp)

The decommissioning process requires extensive planning, technical and environmental assessments, stakeholder, community and regulatory engagement, regulatory approvals, as well as management support and ongoing monitoring. These activities are all a direct part of undertaking the decommissioning work, and the costs involved are significant and equally as unavoidable and necessary for the derivation of income as the costs of other more “physical” decommissioning activities. (Petroleum Exploration & Production Association of New Zealand)

Comment

Officials always intended for the definition of “decommissioning” to include necessary planning and management activities such as the examples provided by submitters. Officials agree that the definition should be clarified to ensure they are included.

Recommendation

That the submission be accepted.

Issue: Alignment with current “removal or restoration operations” definition

Submission

(Petroleum Exploration & Production Association of New Zealand)

The definition of “decommissioning” should, where possible, align with the current “removal or restoration operations” definition in order to eliminate the potential for any unintended change in meaning. For example, while the Petroleum Exploration & Production Association of New Zealand is not opposed to removing the reference to the defined term “petroleum mining asset” and replacing it with a description, that description should use the same terminology as used in the “petroleum mining asset” definition (such as “asset” rather than “equipment or structure”, and “acquired for the purpose of carrying on” rather than “used”).

Comment

Officials agree that the definition of “decommissioning” should align with “removal or restoration operations” where possible to reduce the potential for unintended changes. Officials consider that the definition of a “petroleum mining asset” could be reinserted into the proposed paragraph (a) of the “decommissioning” definition which should resolve the submitter’s concerns.

Recommendation

That the submission be accepted, subject to officials’ comments.

Issue: Definition of commercial wells

Submission

(Petroleum Exploration & Production Association of New Zealand)

The description of commercial wells in subparagraph (b)(i) of the definition of “decommissioning” requires minor revision to make clear that it covers all wells involved with the commercial production of petroleum, which includes producing wells as well as those that involved the injection of water and gas. For example, wells used for water injection, water disposal, gas reinjection and gas disposal can all be integral parts of a petroleum mining operation. The words “directly or indirectly” are proposed to make this clear.

Comment

Officials agree that wells used for water or gas, reinjection or disposal should be covered by the commercial wells part of the decommissioning definition as these wells can be an integral part of the production process. Expenditure on these wells would be petroleum development expenditure as the wells are a petroleum mining asset. The current wording in the decommissioning definition is “a well… used for the commercial production of petroleum” rather than an alternative such as a well that petroleum is extracted from. Officials consider the current wording is already sufficiently wide to include the types of wells referred to by the submitter. Including a “directly or indirectly” phrase would not increase certainty and would risk expanding the definition beyond that intended – for example, to an exploration well that discovered, or expanded knowledge of a reserve that was subsequently used for commercial production.

However, officials recommend that reinjection and disposal wells be specifically included within the commercial well paragraph to remove any uncertainty that these are intended to be included.

Recommendation

That the submission be accepted, subject to officials’ comments.

Issue: Exploration wells in a mining permit

Submission

(Tamarind)

The proposed definition of “decommissioning” should be amended so it is clear that all exploratory wells located in the relevant petroleum mining permit are eligible for the tax credit. Intentionally or unintentionally excluding any exploratory wells from the definition will encourage petroleum miners to incur the costs of plugging and abandoning those wells at the time they are drilled in order to ensure that tax relief can be obtained for the costs.

Comment

While officials acknowledge there could be timing and cashflow benefits to the petroleum miner from allowing exploration wells to access the refundable credit this would effectively allow a concession to petroleum miners that is not available to other industries.

Allowing a refundable credit for all exploration wells in a permit area would allow a tax credit for expenditure on plugging and abandoning an exploration well to be refunded against previous tax paid from a production well. This expenditure is analogous to expenditure in other industries incurred in a year where losses are incurred but tax has been paid in previous years – taxpayers in these industries cannot carry back losses to get a refund of income tax paid in previous years.

Recommendation

That the submission be declined.

Issue: Exploration wells used in the production process

Submission

(Tamarind, Petroleum Exploration & Production Association of New Zealand)

Exploratory wells that are, or could be, used in the petroleum production process in the mining permit should also qualify for the refundable credit. (Tamarind)

There is a drafting error with subparagraph (b)(ii) of the definition of “decommissioning” (that is, it is not possible for a well to be both within the permit area and in an area that is geologically contiguous to the permit area). The inclusion of certain exploration wells through this subparagraph is supported in principle as there are a range of logical reasons why it could be appropriate to plug and abandon such wells in conjunction with the decommissioning of petroleum mining activities. It is appropriate for this to be limited to wells in the same permit area. (Petroleum Exploration & Production Association of New Zealand)

Comment

The current legislation does not allow a spread-back for any exploration wells. The proposed legislation is intended to extend the refundable credit to cover certain exploration wells where there could be a commercial purpose for plugging and abandoning them as part of the same arrangement to decommission a development well. This is on the premise that these exploration wells may have been used, or suspended for potential future use, in the production process – for example as a water or gas injection well to increase production in a development well. It is not intended that the refundable credit be available to all exploration wells.

In order for an exploration well to be suitable for use for water or gas injection it needs to access the same oil reserve as a development well. It is for this reason the proposed legislation has two requirements for an exploration well to meet the definition of decommissioning. These are that:

the exploration well is in the same permit area as the development well; and
the exploration well is geologically contiguous to the development well.

Officials agree with the submitter that it would not be possible for an exploration well to be in both the same permit area and another permit area that was geologically contiguous to the permit area. Officials recommend drafting changes to clarify the scope of the decommissioning definition as it applies to exploration wells.

Recommendation

That the submission be accepted, subject to officials’ comments.

Issue: Part of an arrangement

Submission

(Petroleum Exploration & Production Association of New Zealand)

Petroleum Exploration & Production Association of New Zealand is comfortable with the use of “as part of an arrangement” in paragraph (b)(ii) of the definition of “decommissioning” based on the existing definition of “arrangement” provided elsewhere in the Act and recognising that decommissioning activities are commonly undertaken pursuant to decommissioning plans.

Comment

The submitter is suggesting that an exploration well (subject to the geologically contiguous issue referred to elsewhere in this officials’ report) should be included in paragraph (b)(ii) of the decommissioning definition even where the only arrangement concerning the abandoning of an exploration well and the decommissioning of a commercial well is a decommissioning plan submitted to the Government.

“Arrangement” is an existing defined term in the Income Tax Act 2007. This definition is very wide and means “an agreement, contract, plan, or understanding, whether enforceable or unenforceable, including all steps and transactions by which it is carried into effect”. Officials consider that a decommissioning plan would meet the definition of an arrangement.

Officials did not intend the relevant paragraph to be sufficiently wide to include a decommissioning plan agreed between a petroleum miner and the Government. The purpose was to cover agreements between a petroleum miner and another party undertaking the decommissioning of both an exploration well and a development well in that there may be economies of scale to decommission both wells at a similar time. If the only link between decommissioning an exploration well and a development well is they are covered by the same decommissioning plan these synergies are much less likely to exist.

Officials suggest this provision should be clarified to apply only when an agreement exists between a petroleum miner and another party undertaking the decommissioning. Within this confine officials agree that the existing definition of “arrangement” should apply.

Recommendation

That the submission be noted, and the officials’ suggested clarification be accepted.

Issue: Geologically contiguous

Issue: Alignment with royalty regime

Submission

(Tamarind)

Royalty relief is available for the decommissioning costs of all exploratory wells and Tamarind sees no reason why the tax rules should provide for a different outcome.

Comment

While there are many overlaps between the tax and royalty treatment of petroleum mining they do not achieve complete alignment.

The royalty regime allows a refund for the cost of decommissioning an exploration well as it reduces the total accounting profit of the petroleum miner over the entire life of the field. The tax regime also allows a deduction for the cost of decommissioning an exploration well as these costs reduce the tax profit of the petroleum miner.

The tax regime has never allowed a spread-back for the cost of decommissioning an exploration well as these costs are analogous with expenditure in other industries incurred in a year where losses are incurred but tax has been paid in previous years. The proposed refundable credit follows the same policy other than extending to include certain exploration wells where there is a commercial production reason to abandon at the same time. Allowing a spread-back/refundable credit for all exploration wells would provide a concession that is not available to other industries.

Recommendation

That the submission be declined.

Issue: Shareholder continuity

Submission

(Chapman Tripp, Petroleum Exploration & Production Association of New Zealand)

Section RM 15(2) should be amended to achieve the policy intent that the provision applies to refunds arising from the proposed refundable tax credit.

Section RM 15(2) is drafted with the classic refund scenario in mind, where a taxpayer wishes to reopen an earlier return to claim a refund of tax that was overpaid in that year, but there has been a shareholder continuity breach in the intervening period between the overpayment and the claiming of the refund.
For the purpose of the refund limitation in section RM 13, section RM 15(2) reinstates imputation credits that are lost on a shareholder continuity breach if the debit for loss of shareholder continuity arises “after a credit is made to the company’s imputation credit account for an amount that has satisfied the company’s income tax liability for the tax year”. This means that the imputation credits for the overpaid tax that is to be refunded must have arisen before the debit for the loss of shareholder continuity.
It is not clear whether the above timing requirement would be met where the refund in question arises from a refundable tax credit (that is, it is not clear which tax year is being referred to in the phrase “for the tax year” in section RM 15(2)). Although the decommissioning tax credit in proposed section LT 1 is calculated by reference to the amount of tax paid by the petroleum miner in previous years, the refundable tax credit itself arises in the year of decommissioning. Section RM 2(1B) deems the amount of refundable tax credit to be an amount of tax paid for the purpose of the operative refund provision in section RM 2, but it does not specify the year in which that deemed tax payment is made. Accordingly, it is not clear whether the relevant imputation credits could be said to have arisen before the debit for the loss of shareholder continuity as required by section RM 15(2).
This is an issue that applies not only to the decommissioning refundable credit under proposed section LT 1, but potentially to all refundable tax credits.

Comment

The tax system allows companies to pass on to shareholders the benefit of any New Zealand tax paid as an imputation credit to ensure that company profits are only taxed once. Subject to certain exceptions, imputation credits are lost if the company’s shareholders are not at least 66% the same as when the credit was generated. This is known as shareholder continuity and is intended to ensure the shareholders who bore the tax paid by the company get the benefit of it.

The objective of section RM 15(2) is that an imputation credit account (ICA) company is not prevented from receiving a refund of an overpayment of tax by a breach of shareholder continuity. This is what the submitter refers to as a “classic refund scenario”.

This provision works correctly when applied to the current spread-back as the petroleum miner would be receiving a refund of the tax paid in the year that the loss is spread-back to. However, the reference to the “company’s income tax liability for the tax year” does not make sense when applied to a refundable credit – as the company has paid tax in previous years but has no liability in the year the refundable credit arises.

There is no policy reason why a petroleum miner should not be eligible for a refundable credit if the only reason to not make that refund was a shortage of imputation credits caused by a breach of shareholder continuity.

The submitter states that this issue potentially applies to all refundable credits. The list of refundable credits is in section LA 6. This issue will not arise for most of these refundable credits as the credit arises due to tax paid during a tax year and/or does not apply to ICA companies. However, officials agree it could potentially also be an issue for a refundable credit of a mineral miner in section LU 1.

Officials recommend drafting changes to ensure that a petroleum miner or a mineral miner is not prevented from receiving a refundable credit solely due to a breach of shareholder continuity.

Recommendation

That the submission be accepted.

Issue: Imputation debits for refund

Submission

(Petroleum Exploration & Production Association of New Zealand)

The current legislation prevents a company from receiving a refund of a refundable tax credit where imputation credits have previously been lost by virtue of a shareholder continuity breach – the refund is available but creates a negative ICA balance that the company is required to restore. This effectively negates the refund. This issue applies to all refunds of refundable tax credits, not just petroleum mining tax credits under proposed section LT 1.

Section RM 15(2) merely “reinstates” imputation credits lost due to a shareholder continuity breach for the purpose of calculating the refund under section RM 13 but does not actually credit the company’s ICA. The refund of the refundable tax credit will create an ICA debit for the amount of a refund. The refund may therefore cause the company to go into an ICA debit balance.

In the context of a refund of overpaid income tax (as opposed to a refundable tax credit), the provisions work as intended. The reason is that, although an income tax refund normally also results in an ICA debit, specific carve-outs in sections OB 32(2)(b)/OP 30(2)(b) apply where income tax that was paid prior to the continuity breach is refunded. These carve-outs prevent a double debit arising for the same amount of tax (that is, where the tax has already been debited for the continuity breach, it should not also be debited for receipt of the refund).

Sections OB 37/OP 35 should contain similar carve-outs to the ones in section OB 32(2)(b)/OP 30(2)(b).

Comment

Officials agree that the current legislation could result in an imputation credit account debit balance where there has been a breach of shareholder continuity followed by a refund of a refundable credit. This is not intended and amendments should be made to ensure a refund is available in these circumstances.

The submitter considers this issue applies to all refundable credits, not just those relating to petroleum mining. This will only be the case to the extent the credit is available to an ICA company, which not all are.

Recommendation

That the submission be accepted, subject to officials’ comments.

Issue: Minor drafting issues

Submission

(Petroleum Exploration & Production Association of New Zealand)

There are a number of minor drafting issues and cross-referencing errors that should be corrected:

Proposed section LT 1(10) should refer to subsection (8) rather than subsection (9).
The cross-referencing error in subsection IS 5(1)(a) has been corrected by replacing the incorrect reference to section DT 7 with section DT 5, but there is no express linkage between section DT 5 and the allocation provision in proposed section EJ 13.
Section IS 5 is being deleted, the cross references to section IS 5 in sections EJ 12B(9) and EX 21(14) should also be deleted.
As section EJ 14 is being repealed, sections DZ 5, EA 2, EA 3, EJ 17 and EJ 18(b) which currently refer to “sections EJ 12 to EJ [16, 17 or 20]” should also be amended.
As the definition of “petroleum mining operations” is being amended to exclude references to “removal or restoration operations” or “decommissioning”, “or decommissioning” should be added back in after the phrase “petroleum mining operations” in section LT 2(1), LT 2(3) and the header to section DT 20.
As the definition of “petroleum mining company” is being deleted, the “controlled petroleum mining holding company” definition should be amended to refer to “petroleum miners” instead.

Comment

Officials comment on each item as follows:

Section EJ 13 accelerates deductions that would have been claimed in future periods if the petroleum miner had not permanently ceased operations. Officials agree that a cross-reference should be included within existing section DT 5(2), which provides for the timing of deductions.
Officials agree.
Equivalent linkages to section DT 5 are already included within existing sections EJ 12(2) and EJ 12B(3). A similar provision should be inserted in proposed section EJ 13.
Officials agree.
Each of these provisions cross-references to a range of provisions that includes section EJ 14 but does not explicitly refer to it. Therefore, if section EJ 14 is repealed the cross-references will continue to operate correctly to the remaining provisions within that range. No change is required.
However, officials note that section EJ 18 includes two references to section EJ 19 which was repealed by the Taxation (International Taxation, Life Insurance and Remedial Matters) Act 2009. These references should be removed.
Officials agree that “or decommissioning” should be added to proposed section LT 2(1) and (3). Section DT 20 is already proposed to have “or decommissioning” added. While the heading may be considered in ascertaining the meaning of the provision, officials consider there is no ambiguity to be resolved in this provision and it would be simpler to retain the existing heading.
This issue was discussed on page 124 of the Bill Commentary. A “controlled petroleum mining holding company” is an existing defined term that refers to “shares in petroleum mining companies”. The Bill proposes to repeal the definition of a “petroleum mining company” and the sections that use it except for the controlled petroleum mining holding company definition – where it was never intended to be used. “Petroleum miner” is an existing defined term that is consistent with the intended application of paragraph (b)(i) of the definition of “controlled petroleum mining holding company” and officials agree that it should be included instead.

Recommendation

That the submission be accepted, subject to officials’ comments.

Issue: Notification requirements

Submission

(Matter raised by officials)

The Commissioner should not have to prescribe the manner in which taxpayers notify the Commissioner about the refundable credit.

Comment

Proposed section LT 1(1)(b) requires the petroleum miner to notify the Commissioner before they file the return of income for the income year in a manner prescribed by the Commissioner. This notification is very important as it will allow Inland Revenue to forecast the impact on government revenue as well as manage the administration requirements to facilitate the refund.

There are only a small number of petroleum miners who may qualify for a refundable credit and Inland Revenue will continue to interact with these businesses. It is not necessary for Inland Revenue to prescribe the manner in which they notify the Commissioner about the refundable credit. Most important is that these petroleum miners can be identified in a timely manner so that discussions can be held with the relevant staff.

Furthermore, the Commentary to the Bill refers to a specific email address intended for this notification. Due to the very small number of notifications expected to be received this is not seen as necessary. Notification should be made through normal communication channels.

Recommendation

That the submission be accepted.

RECIPIENTS OF CHARITABLE OR OTHER PUBLIC BENEFIT GIFTS

Clause 183

Issue: Against Malaria Foundation (New Zealand)

Submission

(Against Malaria Foundation)

The submitter has requested the reference to The World Swim for Malaria Foundation (New Zealand) in schedule 32 of the Income Tax Act 2007 be updated to read Against Malaria Foundation (New Zealand). The charity has been listed on the schedule since 1 April 2008. The trustees have advised that the charity’s name has been changed to Against Malaria Foundation (New Zealand) with effect from 3 July 2008.

Recommendation

That the submission be accepted.

Issue: Child Rescue Charitable Trust

Submission

(Matter raised by officials)

Destiny Rescue Charitable Aid Trust was added to the list of organisations on schedule 32 of the Income Tax Act 2007 with effect from 1 April 2016. The trustees have advised officials that the charity’s name has been changed to Child Rescue Charitable Trust with effect from 11 August 2017.

Recommendation

That the submission be accepted.

TRUSTEE CAPACITY AMENDMENTS

Clauses 77(1), (2) & (4), 172(5) & (35), 173, 175, 176, 185, 187(10), 264(1), 309 and schedule 1

The trustee capacity amendments introduce a new rule into the Income Tax Act 2007 which distinguishes between a trustee’s personal, body corporate, or other capacity, and their separate trustee capacity. The rule will clarify that when a person is acting in the capacity of trustee of a trust, they are treated, for income tax purposes, as acting in that capacity and not in their personal, body corporate, or other capacities. A number of exceptions to this general rule are proposed where it would be contrary to the policy intent of the provisions to exclude a corporate or natural person trustee. There are also a number of proposed consequential amendments to the Income Tax Act 2007, the Tax Administration Act 1994, and the Goods and Services Tax Act 1985, resulting from the general trustee capacity amendment.

Issue: General support for the trustee capacity amendments

Submission

Proposed section YA 5 (the general trustee capacity rule) should be inserted as section YB 22, and the heading of subpart YB should be changed to “Associated persons, nominees and trustees”. This is because section YB 21 deals with bare trustees so the position of trustees should logically be dealt with immediately after section YB 21.

Comment

Proposed section YA 5 is broad in its application, dealing with trustee capacity in general. The proposed amendment, in conjunction with the amendments to the definitions of “company” and “natural person”, clarify that (subject to any identified exceptions) any reference to:

“company” in the Income Tax Act 2007 does not include a corporate trustee; and
“natural person” in the Income Tax Act 2007 does not include a natural person trustee.

clause 172(5) should be worded: “(abc) does not include an entity that is acting in the capacity of trustee:”, or “(abc) does not include a person that is acting in the capacity of trustee:”
clause 172(35) should be worded: “(a) does not include an individual who is acting in the capacity of trustee:” or “(a) does not include a person who is acting in the capacity of trustee”.

Comment

A unit trust is a trust under general law. However, for tax purposes, a unit trust is treated as a company. The Income Tax Act 2007 definitions of “company”, “share”, and “shareholder” make it clear that for income tax purposes a unit trust is treated as a company, a “share” includes a unit in a unit trust, and “shareholder” includes a “holder of a share” – and therefore a holder of a unit in a unit trust.

This means that when determining association for unit trusts, it is the company associated persons tests that apply. The proposed trustee capacity amendments clarify that any reference to “company” does not include a company acting in its capacity as trustee (a corporate trustee). As such, the look-through rules for corporate shareholders in section YC 4 do not apply to corporate trustees. The provision can therefore not be read as looking through to the shareholders of a unit trust’s corporate trustee.

Recommendation

That the officials’ comments be noted.

Issue: Further clarifying amendments

Submission

(KPMG)

Clarifying amendments may be needed in the future as it is difficult to be certain that the proposed law changes properly deal with all scenarios and with all provisions of the Inland Revenue Acts.

Comment

Best efforts have been made to identify all areas where amendments may be needed and all the relevant provisions of the Inland Revenue Acts. It is always possible, however, for new and unanticipated scenarios to arise. Officials will deal with these if and when they arise.

Recommendation

That the submission be noted.

Issue: Further guidance

Submission

(Corporate Taxpayers Group)

Inland Revenue should publish guidance for the trustee capacity amendments. The guidance should be illustrated with examples to clearly demonstrate the intended application of the new rules.

Comment

Officials will be providing guidance on the trustee capacity amendments in a Tax Information Bulletin article following the Bill’s enactment.

Recommendation

That the officials’ comments be noted.

PHARMAC REBATES AND GST

Clauses 308 and 310

Submission

(Chartered Accountants Australia and New Zealand)

The submitter supports the proposal but notes that the proposal is inconsistent with a comprehensive GST regime which requires all supplies to be taxed and appropriate input tax credits to be accounted for in a GST return. However, they also noted the compliance benefits of a single treatment.

Recommendation

That the submitter’s support and comment be noted.

LLOYD’S OF LONDON – TAX SIMPLIFICATION

Clauses 16, 43, 62, 76, 78, 91, 172(31), (33), (38), (55) & (69), 179 and 180(1)

Submission

(Chartered Accountants Australia and New Zealand)

The submitter supports the proposed changes.

Recommendation

That the submitter’s support be noted.

EXTENDING THE FINANCIAL ARRANGEMENT REPORTING METHOD CONCESSIONS

Submission

(Belmont Partners)

The methods for spreading income under financial arrangements in sections EW 15D and EW 15G should be extended to all taxpayers (not just non-IFRS companies).

Comment

Officials have discussed this with the submitter who agrees that this issue can be dealt with administratively outside the context of this Bill.

Recommendation

That the officials’ comments be noted.

TRANSFER OF OVERPAID TAX FROM AIM TAXPAYER TO SHAREHOLDERS – EXTENSION OF THE AGENCY MECHANISM

Submission

(Matter raised by officials)

The Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 introduced a new provisional tax method called the accounting income method (AIM) which allows certain taxpayers to pay tax as they earn their income using accounting software.

That Act contains a mechanism to allow an AIM entity to transfer to shareholder-employees overpaid provisional tax where shareholder-employee remuneration has not been permitted as a deduction to the company during the year.

This mechanism has the disadvantage of leaving the shareholders of an AIM entity in the provisional tax regime notwithstanding the tax owing on the income may have been fully paid by the entity as a result of the non-deductibility of the shareholder-employee provision.

Since the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 was enacted officials have continued to work on a better mechanism for achieving this transfer and removing taxpayers from the provisional tax regime by effectively having AIM entities act as agent for the shareholder-employee similar to the mechanism trustees have to pay tax on behalf of beneficiaries.

Officials recommend an amendment to allow an AIM company to act as agent for the shareholder-employees for the purpose of the definition of residual income tax only, rather than requiring a broad agency arrangement. This will enable a company using the AIM provisional tax method to make tax payments on behalf of shareholder-employees that will reduce their residual income tax for the year and as a consequence could remove them from provisional tax.

Officials recommend this amendment apply from the 2018–19 income year to align with the introduction of the AIM provisional tax method.

Recommendation

That the submission be accepted.

FBT DUE DATE UNDER CLOSE COMPANY OPTION DURING THE CO-EXISTENCE OF TWO INLAND REVENUE SOFTWARE PLATFORMS

Submission

(Matter raised by officials)

Under the close company option in section 46C(3) of the Tax Administration Act 1994, the due date for filing and paying fringe benefit tax is the employer’s income tax terminal tax date.

The employer is automatically given a two month later terminal tax date if their income tax return is linked to a tax agent and the tax agent has an extension of time arrangement with Inland Revenue for filing their clients’ income tax returns.

However, the Commissioner can refuse or cancel an extension of time arrangement for specific taxpayers and returns linked to the tax agent.

Some tax agents will have clients who have been refused an extension of time or had the extension of time cancelled. It is administratively complex to pinpoint those taxpayers amongst a tax agent’s clients. During the transition to Inland Revenue’s new software platform, fringe benefit tax and income tax will be administered through different platforms. The FBT administering platform will not be able to be informed that an employer has been refused or has had cancelled the benefit from their tax agent’s extension of time arrangement for income tax purposes.

As a transitional solution, section 46C of the Tax Administration Act 1994 should be amended to allow for a later due date for filing and paying of fringe benefit tax under the close company option for this specific circumstance during co-existence of the two platforms. This later due date would be aligned with the two month later terminal tax date that is generally given to employers linked to a tax agent with an extension of time arrangement.

Comment

The current process in Inland Revenue’s FIRST software platform of determining for fringe benefit tax purposes whether an employer has had their tax agent’s extension of time arrangement refused or cancelled for their personal income tax return(s) is very complex and involves numerous separate steps. The new START platform will have a simplified process once it administers both fringe benefit tax and income tax.

However, the administration of fringe benefit tax will be migrated to the new START platform ahead of income tax which is planned to follow about a year later. During this time co-existence will not allow the relevant information to determine the filing date and due date for fringe benefit purposes in these specific circumstances to be extracted from one system and applied in the other.

Officials recommend that section 46C of the Tax Administration Act 1994 be amended to allow for a two month later due date for return filing and paying of fringe benefit tax under the close company option for these specific circumstances during the transitional period of co-existence.

The proposal is likely to affect only a small number of employers but is taxpayer friendly.

Recommendation

That the submission be accepted.

14 “Migrants” are individuals entering New Zealand on a resident, work or student visa.