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Inland Revenue

Tax Policy

Dividend and fringe benefit tax rules – proposal to remove associated persons test should not proceed


(54 – Business New Zealand, 61 – Trustee Corporations Association of New Zealand, 68A – Corporate Taxpayers Group, 67 – New Zealand Institute of Chartered Accountants)

Removing the associated persons requirement from the dividend and fringe benefit tax (FBT) rules would undermine various arrangements outside the shareholding or employment relationship, including very common business practices that in most instances have no adverse effect on the New Zealand economy and which can be very important during times of recession when cash flow is short. For example, a plumber may lend a bricklayer some specialist tools without any payment made. They agree that when the plumber needs to borrow some tools used for bricklaying, he can do so without cost. Under the new rules this would be classified as a dividend and therefore taxable.

The proposed amendments could have wide-reaching and unintended consequences. There will be a greater perceived level of subjectivity in the dividends test and accordingly the potential for greater scrutiny in audit vis-à-vis considering dividends through an objective association test. The proposed amendments should not be made because of the compliance costs which will arise from needing to understand the new rules.


Officials acknowledge that the changes to the dividend and FBT rules would result in some situations being less certain than they are currently. Presently, if a person is not a shareholder or associated with a shareholder, they do not need to be concerned with the dividend rules. Under the proposed changes, the fact that they are neither a shareholder nor associated with one is not sufficient to provide certainty on the dividend issue. Officials consider this potential uncertainty outweighs the conceptual advantages of the proposed approach.


That the submission be accepted.