Exposure draft of rewritten income tax legislation released

Hon Dr Michael Cullen
Minister of Revenue

MEDIA STATEMENT

Rewritten tax law released for comment

Revenue Minister Michael Cullen today welcomed the publication of an "exposure draft" of income tax law that has been rewritten to make it easier to use.

The draft, which covers parts A to E of the Income Tax Act, has been released for purposes of consultation.

"Law that is clear, plainly expressed and easy to use has obvious advantages for users," Dr Cullen said. "It saves time and money and gives users greater certainty that they have got it right. Tax is an inherently complex subject, so it is all the more important that the law governing it is clear and accessible as possible."

"New Zealand's income tax legislation dates back to the 19th century. It was rewritten in 1916 and has expanded significantly since then, in line with the many changes in the nature of business. As a result of this growth, much of it within the last 20 years, the Act is in need of a comprehensive overhaul, since its structure, presentation and mixture of styles now add to the difficulty of using it."

"New Zealand is not alone in seeing the need to modernise its income tax legislation, with the United Kingdom and Australia having embarked upon similar exercises."

"I hope the tax community and other interested members of the public will take advantage of the opportunity to express their views on this first draft of the rewritten legislation. This is vital to the consultative process and will help to influence the rewrite of this very important piece of legislation," Dr Cullen said.

The 3-volume exposure draft, "Rewriting the Income Tax Act 1994" is available at Bennetts' Government Bookshops and on-line at www.taxpolicy.ird.govt.nz and www.treasury.govt.nz.

Contact: Jenny Michie [press secretary] 04 471 9808 or 021 270 9195 or email: [email protected]

For technical inquiries contact Richard Poland at (04) 474 7157.

Report by the Policy Advice Division of Inland Revenue
27 September 2001

Samples of plain language drafting

The plain language style of law drafting includes presenting ideas clearly and directly, avoiding archaic terms, repetition and verbosity, and using words as close to their ordinary meaning as possible. We present here samples of rewritten legislation using these principles.

Breaking a 14-line sentence into 'digestible' pieces

Current legislation

DJ 2 Deduction from estate income of irrecoverable book debts

Where the amount of any debt owing to any person at the date of the person's death has been included in gross income of the person or of the trustee of the person's estate for any income year, and the debt or any part of it is proved to the satisfaction of the Commissioner to be irrecoverable and to have been actually written off by the trustee as a bad debt, the amount so written off shall be deemed to be a loss incurred by the trustee in the income year in which the amount was written off, and shall be allowed as a deduction, first to the trustee to the extent of any gross income derived by the trustee as trustee income, and then, as to any balance, to any beneficiary to the extent of any gross income derived in that year by or in trust for the beneficiary if that beneficiary has a vested interest in the capital of the estate to the extent that the loss is chargeable against the capital of that beneficiary; and any balance not allowed as a deduction in that year shall be allowed as a deduction in that same manner to the extent of gross income of the trustee or beneficiary derived in the next income year and so on.

Rewritten draft

DB 24 Bad debts owed to estates

When this section applies

(1) This section applies for an income year when a debt owing to a person at the date of their death is either counted income of the person or counted income of the trustee of their estate for any income year, and some or all of the debt is not recoverable and is written off as bad.

Bad debt

(2) The following persons, in the following order, are allowed a deduction for the amount of the debt written off:

(a) first, the trustee, to the extent of counted income derived as trustee income; and

(b) second, any beneficiary who has a vested interest in the capital of the estate, to the extent of counted income derived in the income year by or in trust for the beneficiary, and to the extent to which the amount is chargeable against the capital of the beneficiary; and

(c) third, for any balance for which a person is not allowed a deduction in the income year, a person is allowed a deduction in the same manner in the next income year, and so on.

Breaking up a long sentence covering three ideas into three separate sections

Current legislation

CD 4 Personal property

The gross income of any person includes, any amount derived from the sale or other disposition of any personal property or any interest in personal property (not being property or any interest in property which consists of land), if the business of the person comprises dealing in such property or if the property was acquired for the purpose of selling or otherwise disposing of it, and any amount derived from the carrying on or carrying out of any undertaking or scheme entered into or devised for the purpose of making a profit.

Rewritten draft

Profit-making schemes

CB 2 Carrying on or carrying out profit-making schemes

An amount that a person derives from carrying on or carrying out an undertaking or scheme entered into or devised for the purpose of making a profit is income of the person.

Personal property

CB 3 Personal property acquired for purpose of disposal

An amount that a person derives from the disposal of personal property is income of the person if they acquired the property for the purpose of disposing of it.

CB 4 Business of dealing in personal property

An amount that a person derives from the disposal of personal property is income of the person if their business is to deal in property of that type, whether or not the property was acquired for the purpose of the business.

Explaining what is rather than what isn't

Current legislation

DD 1 Certain deductions not allowed - rents, interest, and premises

Except as expressly provided in this Act, no deduction is allowed to a taxpayer in respect of any of the following sums or matters:

(a) .......

(b) Interest (not being interest of any of the kinds referred to in section DB 1(1)(e) and not being interest to which section LF 7 applies to prohibit a deduction), except so far as the Commissioner is satisfied that -

(i) It is payable in deriving the taxpayer's gross income; or

(ii) It is necessarily payable in carrying on a business for the purpose of deriving the taxpayer's gross income; or

(iii) ......

Rewritten draft

DB 6 Interest

Interest

(1) A person is allowed a deduction for expenditure that they incur on interest.

Link with subpart DA

(2) This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.

Terms used - some examples