Non-resident film renters’ tax

(Clauses 5, 12, 19, 56, 68, 72, 84, 88, 91, 92 and 93)

Summary of proposed amendment

The rules for taxing non-resident film renters in the Income Tax Act 2007 are being replaced with non-resident withholding tax (NRWT) to rationalise and simplify the New Zealand income tax rules applying to non-residents.

Application date

NRWT will apply to amounts derived by non-residents from renting films in New Zealand from the date of enactment.

Key features

Currently, the Income Tax Act 2007 treats 10 percent of gross receipts derived by a non-resident company from renting films in New Zealand as income with no deductions, giving an effective tax rate of 2.8%. The bill will replace the current tax of 2.8% on gross film rentals with NRWT.

Practically all amounts currently subject to the non-resident film renters’ tax come within the “royalty” definitions in the Income Tax Act 2007 and in New Zealand’s double tax agreements (DTAs). Such amounts will therefore be subject to NRWT once provisions relating to non-resident film renters are repealed. Although the standard NRWT rate on royalties is 15%, the rate applying to most non-resident film renters would be 5% or 10% under New Zealand’s DTAs.

Background

The current rules for taxing non-resident film renters have existed in various forms since 1928. They were originally enacted because of the difficulties in accurately determining the net profit derived by non-residents from renting films in New Zealand.

The current rules are an historical anachronism for which there is no longer a sound policy rationale. It appears that the non-resident film renters’ tax was not replaced in 1964 when NRWT was introduced because of the 1948 DTA between the United States and New Zealand. That DTA prevented New Zealand taxing the income of United States film renters except to the extent allowed under the existing rules. The 1982 DTA between New Zealand and the United States (which replaced the 1948 DTA) and the current DTA (in force from November 2010) contain no similar restriction on New Zealand’s ability to tax income derived from New Zealand by the United States-resident film renters.