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Inland Revenue

Tax Policy

Deductible output tax

(Clause 88(3))

Summary of proposed amendments

The definition of “deductible output tax” in section YA 1 of the Income Tax Act 2007 is being amended to correct an oversight that occurred when the definition was introduced in 2011. The definition is relevant (in this context) to section DB 2 of the Act. Under the previous version of section DB 2, output tax payable in respect of a supply of fringe benefits under section 21I of the Goods and Services Tax Act 1985 was explicitly available as a deduction for income tax purposes. In expanding the provision to provide for the new apportionment rules in the GST Act, the reference to section 21I was inadvertently removed. There is no policy reason why such output tax should not be available as a deduction because it represents a real cost to the taxpayer.

Application date

The amendment will apply from 1 April 2011, to clarify that output tax charged under section 21I has always been available as a deduction.