Download Views on News: 12/2011 and 06/2011
Welcome!

It is December 2011 at the time of writing this, and the Christmas holidays are nearly here. The big news in New Zealand recently is, of course, the hugely successful Rugby World Cup tournament, which we hosted and won. I think its fair to say that the tournament gave all New Zealanders a sense of belonging and camaraderie that had to be experienced to be believed. We have also had a general election recently, and views on the result vary depending on peoples' affiliations. The outcome is that we have no change in government. That should relieve some of the uncertainty that prevailed pre-election. The financial situation in Europe remains problematic but perhaps not quite as critical as it has been in past months. Hopefully the Canterbury reconstruction will prove to be a buffer for New Zealand against any deteriorating world financial conditions.

On the tax front, the Taxation (Tax Administration and Remedial Matters) Act 2011 was enacted in August, which contained among other things all of the earthquake-related tax depreciation concessions. The Taxation (Annual Rates, Returns Filing and Remedial Matters) Bill was introduced in September, with a number of further adjustments to the new GST and LTC regimes.

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CHANGES IN THE NEW TAX BILL: WINNERS AND LOSERS

There are winners and losers in the income tax changes that are proposed in the Annual Rates Tax Bill introduced on 14 September 2011. The winners: taxpayers with failed software development costs, and taxpayers who have incurred expenditure on account of an employee in respect of future employment-related expenditure to be incurred by employees. Both types of expenditure are to be deductible from 2008-09 onwards.
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TIDYING UP THE LTC RULES

The Annual Rates Tax Bill contains several changes designed to tidy up the LTC rules.

Tax elections, and valuation and timing methods adopted in relation to an LTC's income or property, are to be made or established by the LTC, not each owner. Fringe benefits provided to working owners will not be subject to FBT, and an LTC will be able to make use of the GST group-filing rules. These changes are to apply from 1 April 2011.
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QCs: ONLY RESIDENT'S RESTRICTED AMALGAMATIONS ALLOWED

An amendment proposed in the Annual Rates Tax Bill that was introduced on 14 September 2011 is designed to ensure that a new company cannot enter into the QC rules through an amalgamation that is not a resident's restricted amalgamation.

After an amalgamation between a non-QC company and a QC, the resulting amalgamated company will not be able to use the QC rules. The amendment is to apply to amalgamations on or after the date of enactment. For more on this refer to page 23 of the PDF attached in the Close Companies and Partnerships section.
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LIMITED PARTNERSHIPS: INVESTMENT TO INCLUDE LOANS

An amendment proposed in the Annual Rates Tax Bill clarifies that a limited partner's investment in a limited partnership will include loans by the limited partner to the limited partnership. Such loans will be taken into account when determining the limited partner's basis for the purposes of the loss limitation rules. For more on this refer to the Close Companies and Partnerships section.
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INTEREST DEDUCTIONS FOR THE INVESTMENT IN AN LTC

The Commissioner has released a draft "Questions We've Been Asked" (QWB0092) which, while not specifically on point, appears to clarify that an LTC owner is entitled to interest deductions on money borrowed to make the investment in the LTC. Such deductions should be regarded as separate from the deductions attributed from the LTC, and therefore should not be subject to the loss limitation rules. For more on this refer to "Deduction of an owner's interest expenditure" in the Close Companies and Partnerships section.
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2012 TRANSITION TIME EXTENSION FOR QCs AFFECTED BY EARTHQUAKE

An extension of the time within which a QC must elect to transition in the 2012 income year has been granted to QCs that were unable to comply with the legislated time limits as a result of the Canterbury earthquake.

The extension of time is for a period of 6 months (up to 31 March 2012) and there are specified requirements that will need to be satisfied. For more on this refer to the Close Companies and Partnerships section.
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GOVT AND IR DELIVER ON EARTHQUAKE DEPRECIATION RELIEF

The depreciation changes discussed in the Fact Sheet – Earthquake Depreciation Issues released by Inland Revenue in April 2011 have all been enacted. These include timing of derivation of insurance receipts, deductibility of disposal costs, deductible depreciation loss on certain buildings and rollover relief for revenue account and depreciable property. IR's discretion to remit interest on late payments due to the earthquake has been extended to 30 September 2012. The changes apply generally and not just to earthquake damage, except for interest remission and rollover relief. Refer to the Larger Companies section for more details.
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MAJORITY INTEREST SUFFICIENT FOR CORPORATE SPINOUT CONCESSION

From 1 May 2011 a majority interest (>50% interest) will be sufficient to trigger the application of the corporate spinout shareholding continuity concessions. Before that date, a 100% shareholding was required by a parent company in a spun-out company in order for the shareholding concessions available to apply.
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TAX POOLING FEES DEDUCTIBLE IN YEAR TAX IS TRANSFERRED

Enacted changes confirm that use of money interest is tax-deductible from the 2010-11 income year onwards. The deduction is allocated to the income year in which the use of money interest is paid.

Tax pooling fees are also deductible from the 2010-11 income year onwards. The deduction in this case is allocated to the income year in which the tax is transferred into the person's tax account by the Commissioner to satisfy the taxpayers tax liability. This may not be the year in which the fees are paid. See the Larger Companies section for more on this.
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MIXED-USE ASSETS: DEDUCTIONS TO BE DENIED WHEN NOT IN USE

Tax deductions for the periods of non-use of mixed-use assets (those used for both income-earning and private purposes) are the subject of an Officials' Issues Paper released in August 2011. The proposals link tax deductions for periods of non-use to whether the use of the asset is income-focused (used for earning income for at least 2 months in a year) and to a threshold level of private use (less than 10% if non-use deductions are to be apportioned and less than 15% if non-use deductions are to be allowed in full). There would be corresponding limits on interest deductions for funding such assets and on GST input tax. See the Larger Companies section for more details.
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COMPANIES AND LIMITED PARTNERSHIPS TO BE MORE ACCOUNTABLE

The Companies and Limited Partnerships Bill was introduced on 13 October under which companies and limited partnerships must have a "resident agent": a natural person who will be held responsible for the entity's legal and regulatory compliance. Other measures to bolster shareholder and creditor protection include prohibiting code companies (i.e. listed companies or those with at least 50 shareholders) from merging via long-form amalgamations, and enhancing the Registrar's powers to remove companies for persistent non-compliance by its directors, officers or shareholders. See the Larger Companies section for more details.
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GIFT DUTY ABOLISHED FROM 1 OCTOBER 2011

It's finally happened! Gift duty is not payable on a gift made on or after 1 October 2011. Consequently, gift statements will not need to be filed for dispositions of property made on or after 1 October 2011.
Gift duty continues to apply to any gift made before 1 October 2011.
The Ministry of Justice will monitor the impact of the abolition of gift duty so as to inform the government-wide post-implementation review.
Read the PDF on gift duty attached in the Trusts section of this website.
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NON-RESIDENT FILM RENTERS' TAX HOLIDAY OVER

The concessional tax treatment that non-resident film renters have enjoyed is about to end. The Taxation (Annual Rates, Returns Filing and Remedial Matters) Bill contains proposed amendments that will repeal the current tax on deemed income of 10% of gross payments and replace it with non-resident withholding tax on royalties.
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DOUBLE TAX AGREEMENT WITH HONG KONG NOW IN FORCE

A new double tax agreement with Hong Kong came into force on 3 November 2011. This should make it considerably easier to do business with Hong Kong residents and companies. The agreement refers to Hong Kong and NZ as "Contracting Parties" rather than States and contains all the provisions of the latest double tax agreement model that NZ is using. The Non-residents section in this website has been fully updated for references to the Hong Kong agreement.
GST: TIGHTENING UP LAND ZERO-RATING AND APPORTIONMENT RULES

Amendments to the compulsory land zero-rating rules (CZR rules), proposed in the Taxation (Annual Rates, Returns Filing and Remedial Matters) Bill introduced on 14 September, will ensure that the assignment of a lease will be a transfer of land for zero-rating purposes, and that output tax must be accounted for on any non-taxable use of services acquired as part of a wider supply of land. Refer to the GST section for more details.
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GST: PROPOSED CHANGES TO THE APPORTIONMENT RULES

Proposed changes to the Apportionment rules contained in the Taxation (Annual Rates, Returns Filing and Remedial Matters) Bill include:
  • Making the new rules apply to acquisitions before 1 April 2011 if no input tax was claimed or no adjustments were made before 1 April.
  • The removal of the $5000 threshold to claim input tax on pre-registration acquisitions.
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GST: OTHER PROPOSED AMENDMENTS

Other GST amendments proposed in the Taxation (Annual Rates, Returns Filing and Remedial Matters) Bill are:
  • Late payment fees will be subject to GST with retrospective effect from 1 April 2003, subject to a concession for taxpayers who have adopted a regular practice of not charging GST on late payment fees.
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SPECTRE OF ANTI-AVOIDANCE LOOMS LARGE

Inland Revenue has routed the taxpayer in a spate of recent anti-avoidance cases, the most recent ones being the High Court decision in Alesco and the Supreme Court decision in Penny and Hooper. Inland Revenue's views on non-market salaries, and on avoidance and reconstruction generally, have been set out in Revenue Alert RA 11/02 and draft Interpretation Statement INS0121 respectively.
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