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Inland Revenue

Tax Policy

Rationalisation of associated persons definitions


(39 – Russell McVeagh, 57 – Tomlinson Paull)

Officials consider that the current multiplicity of definitions creates unnecessary complexity in the Act which increases compliance and administrative costs. However, we consider that complexity per se is not objectionable, despite related compliance costs, if the outcome is an appropriately targeted base-maintenance measure. Removal of this flexibility and substitution with a one-size-fits-all universal test of association makes such an approach impossible and ignores the good policy reasons for having a range of tests.

The current definitions of associated persons should be consolidated into two definitions: a broad-based definition that would apply for some purposes (for example, for international tax purposes) and a narrow definition that would apply for certain other purposes (such as the taxation of land transactions).


An objective of the associated persons reforms is to rationalise the various income tax definitions of associated persons and make the tax law more coherent. Officials consider that the current multiplicity of definitions has mainly an historical origin: the specific definitions were mainly conceived in response to shortcomings in the general definition, and there are no convincing policy reasons for retaining the current multiple definitions, which can be significantly rationalised.

Officials consider the reform of the associated persons definitions retains sufficient flexibility. For example, a considerable number of modifications have been made to the associated persons tests for the purposes of the land provisions so they cover situations under the effective control of property dealers, developers and builders, but do not apply to other situations. In particular, the beneficiary-related tests in proposed sections YB 5, YB 6 and YB 9 will not apply for the purposes of the land provisions – this modification prevents cases where there would otherwise be potential overreach of the new rules.


That the submission be declined.