Skip to main content
Inland Revenue
Inland Revenue
Inland Revenue

Tax Policy

Search tips
Other remedial matters

Rewrite Advisory panel amendments

The following amendments arise from recommendations of the Rewrite Advisory Panel’s following its consideration of submissions on the rewritten Income Tax Acts.

The Panel monitors the working of the Income Tax Act 2007 (2007 Act) and the Income Tax Act 2004 (2004 Act) and reviews submissions on what may be unintended changes in the law as a result of its having been rewritten. The Panel recommends legislative action, when appropriate, to correct any unintended changes in law.

Application date

The following rewrite-related amendments apply from the beginning of the 2008–09 income year, unless otherwise stated.

Key features

Clause 23: Section CD 24(2)(a)(i): Returns of capital: on-market share cancellations (rewrite remedial item)

The amendment corrects the cross-reference to section CD 29, to cross-refer instead to section CD 40.

Clauses 24 and 88: Section CE 1 (2007 and 2004 Acts): Market value of benefit of accommodation (rewrite remedial item)

The amendment to section CE 1 clarifies that:

  • for the market value of the benefit arising from accommodation to be income, it must arise in relation to an office or a position;
  • the amount of income is the measured by the market value of the benefit of accommodation; and
  • the market value of the benefit of accommodation allowances is included within the meaning of “accommodation”.

This amendment applies from the beginning of the 2005-06 income year.

Clause 40: Section FF 4(1)(a): Threshold for application of interest apportionment rule (rewrite remedial item)

This provision contains an unintended change in law, which results in section FF 4(1)(a) of the 2007 Act incorrectly providing that a conduit tax relief company is required to perform a “thin-cap” interest allocation (deductible/non-deductible interest) if its conduit tax credits exceed $50,000, even if the relevant debt percentage in the foreign group is less than or equal to 66 percent.

The amendment corrects this unintended change to ensure that a conduit tax relief company is not required to make this “thin-cap” interest allocation if the company’s debt percentage in the foreign group is less than or equal to 66 percent.

Clause 41: Section FO 18:Discharge of a financial arrangement on an amalgamation

Section FO 18 applies, on an amalgamation of companies, to determine that financial arrangements are deemed to be discharged by the lender immediately prior to the amalgamation. However, section FO 18 contains an unintended change in law, which incorrectly results in the value treated as being given by an insolvent borrower to be at market value in all cases.

The amendment ensures that, if an insolvent borrowing company is likely able to meet its financial obligations (for example, because property of the company fully secures the debt), the accrued value of the discharged financial arrangement is treated as being the amount of consideration given immediately prior to the amalgamation.

Clauses 31, 32, 44–45, 47–50, 52–56, and 62: Subpart HM: Portfolio investment entities (rewrite remedial item)

The amendments to sections HM 3, HM 5, HM 15, HM 23, HM 31, HM 35, HM 43, HM 47, HM 48, HM 61, HM 62, and consequential changes to sections DV 2, DV 5, and LS 4, clarify the circumstances in which the term “interests” is a reference to the defined term “investor interest”.

Clause 46: Section HM 6(2)(b): Intended effects for multi-rate PIEs and investors (rewrite remedial item)

The amendment corrects an unintended change in law in which section HM 6(2)(b) incorrectly provides that a portfolio investment entity (PIE) is liable for the income tax on investment returns for an investor who has elected to be “zero-rated” under the PIE rules.

The amendment clarifies that a PIE does not have an income tax liability in relation to an investor who has elected to be “zero-rated” under the PIE rules.

Clause 58: Section LC 4(1): Tax credits for transitional circumstances (rewrite remedial item)

The amendment corrects the cross-reference to subpart MB, to cross-refer instead to subparts MD, ME, and MZ.

Clause 60: Section LF 8(1): Credits for persons who are non-resident or receive exempt income (rewrite remedial item)

An unintended change in law results in section LF 8(1) of the Income Tax Act 2007 incorrectly preventing FDP credits from being refundable to tax-exempt shareholders (despite the heading to the provision referring to tax-exempt shareholders).

The amendment ensures that FDP credits are refundable to exempt shareholders.

Clause 63: Section ME 1(2): Minimum Family Tax Credit (rewrite remedial item)

This amendment corrects a printing error in section ME 1(2) of the 2007 Act, which inadvertently omitted the brackets around the expression “prescribed amount – net family scheme income”. The amendment reinserts the brackets.

Clause 67: Sections OZ 7 to OZ 17: Memorandum accounts in a transitional period

The amendment omits the references (following the text of the sections) to comparative provisions in the 2004 Act. Sections OZ 7 to OZ 17 provide transitional treatment for memorandum accounts in the transition of the company tax rate from 33% to 30%, effective from the commencement of the 2007 Act, and have no comparative provisions in the 2004 Act.

Clause 68: Section RD 4(2): PAYE obligations when employer fails to withhold

The amendment corrects an intended change in law that potentially results in an employee being liable for PAYE on their PAYE income payments (that is, salary or wages, extra pay or a schedular payment) if the employer had withheld PAYE from the PAYE income payment but not remitted the PAYE to Inland Revenue.

The amendment ensures that an employee is liable to account for PAYE only if the employer has failed to withhold PAYE (in full or in part) at the time of paying a PAYE income payment.

Clause 70: Section RD 22(2, (2B)): Returns for amounts of tax paid to Commissioner (rewrite remedial item)

Section RD 22(2) contains an unintended change in law, which incorrectly requires an employer who remits PAYE to the Commissioner once a month to complete a form for the payment on both the 5th and 20th of the month.

The amendment ensures that an employer who remits PAYE to the Commissioner once a month, need only complete the PAYE form on one occasion each month.

Clauses 26, 27, 36, 38, 39, 42, 57, 59, 61, 72, 73, 74(3), 74(7): Section YA 1: Definition of “derived from New Zealand”

The definition of “derived from New Zealand” is repealed because it has substantively the same effect as the term “source in New Zealand”. Provisions referring to the term “derived from New Zealand” are consequentially amended to refer to the term “source in New Zealand”.

Clause 74(8): Section YA 1: Definition of “transfer of value” (rewrite remedial item)

In paragraph (b)(ii) of the definition of “transfer of value”, the cross-reference to paragraph (a) is replaced by a cross-reference to paragraph (b)(i). This amendment ensures the 2007 Act definition of “transfer of value” is consistent with the definition of “transfer of value” in the 2004 Act.

Clauses 76 and 93: Schedule 51 (2007 Act) and Schedule 22A (2004 Act)

The amendment relates to dividend and fringe benefit tax provisions which apply to low or nil interest loans applied to shareholder-employees. Under the Income Tax Act 1994, a shareholder-employee of a company could offset dividends derived from the company against the balance of a low or nil-interest loan if the dividend was assessable income but was not resident withholding income. In the 1994 Act, this offset was permitted by section CF 2(12)(b) (low interest loan was provided in the shareholder capacity) or by section CI 3(3)(b) (low interest loan provided in the employee capacity).

The Rewrite Advisory Panel concluded that sections CD 28(9(b) and NE 1E(2) of the 2004 Act contain an unintended change in law in that they permit fully imputed dividends and exempt dividends to be offset against the balance of low or nil interest loans provided to a shareholder-employee, if the dividend was an exempt dividend paid to a shareholder of a qualifying company or if the dividend was a fully imputed dividend. Those changes were re-enacted in the 2007 Act as sections CD 39(9)(b) and RD 36(2) respectively.

However, the Panel referred the matter to Policy Advice to consider retaining these drafting changes, on the basis that the outcomes are consistent with the policy. The policy intention is that shareholder-employees are able to reduce the balance of their low or nil-interest loans by applying their own funds in a reduction of the loan balance.

This amendment confirms the drafting changes as intended changes, by amending the respective “intended changes in legislation” schedules in both of the 2004 and 2007 Acts. The amendment applies from the beginning of the 2005-06 income year.

Tax Administration Act

Clause 78(3): Section 3(1): Definition of “tax payable”

The amendment places the definition of “tax payable” in the correct alphabetical order.

Clause 80: Section 39(5): Consequential adjustments on change in balance date (rewrite remedial item)

Section 39(5) of the Tax Administration Act 1994 contains an unintended change in law arising because, in the rewrite of Parts C, D, and E of the 2004 Act, the brackets in the formula were placed incorrectly.

The amendment ensures that the average tax rate for the taxpayer is determined by reference to the taxable income the person would have by adjusting that income by the ratio of the number of days in the “change period” to the number of days in a normal tax year (365 days).

Clause 82: Section 85F(3): Definition of “company”

In the definition of company in section 85F(3), the cross-reference to the definition of “large budget screen production grant” is corrected to refer to the definition of “government screen production payment”.

Other legislation and regulations

Clause 108: Health Entitlement Cards Regulations 1993

In the definition of “net income” in regulation 2, the cross-reference to section EX 37(2) and (3) of the Income Tax Act 2007 is corrected to refer to section EX 43(2) and (3) of the Income Tax Act 2007.