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Inland Revenue

Tax Policy

Reforms should not proceed


(15 – WHK Taylors, 39 – Russell McVeagh, 47 – Grant Thornton, 53 – Ernst & Young, 54 – Business New Zealand, 57 – Tomlinson Paull, 61 – Trustee Corporation Association of New Zealand, 62 – Minter Ellison Rudd Watts, 67 – New Zealand Institute of Chartered Accountants, 70 – Deloitte)

The proposed amendments are too extensive and result in unintended consequences.

Officials should undertake a comprehensive review of the current tests, the historical and policy reasons for their introduction (including in relation to developers/real property) and for their application to particular rules. Against that properly informed background, officials should then determine whether any fiscal concerns are already adequately addressed by the current levels of applicable “association” in the rules.

The changes to the associated persons tests would represent a significant barrier to business and should be withdrawn from the bill to allow further consideration.

The proposals need to be considered together with the wider land tax policies. If the government decided to review the associated persons rules, the proposals should be publicly consulted in a government discussion document. It is incumbent on Parliament to ensure that it limits the associated persons provisions to those persons who it considers should be subject to tax.


The bill contains amendments to strengthen and rationalise the definitions of “associated persons” in the Income Tax Act 2007. These definitions are mainly used in an anti-avoidance capacity to counter non-arm’s length transactions that could undermine the intent of the income tax legislation. There are a number of significant and generally recognised weaknesses in the definitions and, in particular, the definition which applies to land sales. The amendments in the bill will address these weaknesses.

The associated persons reforms in the bill have been developed in accordance with the generic tax policy framework. This has included a full consultation process and has involved a comprehensive review of the current definitions. In particular, an issues paper was released in March 2007 which allowed an opportunity for people to comment on the proposals. Significant modifications were made to the proposals in response to the extensive submissions on this issues paper. Officials have also continued to engage in discussions with interested parties since the 2007 issues paper. In response to submissions on the bill, further modifications have been recommended by officials.


That the submissions be declined.