Canterbury earthquake tax measures
Issue: Comments on general earthquake-related provisions
SOP 257 – clauses 25B, 25C, 37B, 52B, 52C, 52D, 55B and 59B
Submission
(Corporate Taxpayer’s Group, Deloitte, KPMG, NZICA)
These submitters expressed their support for the broad direction of the earthquake-related relief measures, and the amendments that took into account the current state of play with the recovery and rebuild of the Canterbury region.
Recommendation
That the submissions be noted.
Issue: The bill extends the time limit for Canterbury Earthquake tax measures from 2015-16 to 2018-19.
SOP 257 – clauses 25C, 37B, 52B, 52C, 52D, 55B and 59B
Submission
(Deloitte, NZICA, KPMG)
The proposal to extend the time limit for the Canterbury Earthquake tax measures to 2018-19 is welcome. However, the Government should commit to reviewing the time limit again in 2017.
Comment
The bill does not preclude a review of the time limit in 2017. Nevertheless, the Government has not signalled an intention to review the time limit unless there is a compelling reason to do so. The progress of the rebuild of Canterbury will clearly have a bearing on this.
Recommendation
That the submission be declined.
Issue: The bill requires that a new property must be “acquired” by 2018-19 in order to qualify for the depreciation recovery income roll-over relief.
SOP 257 – clauses 52B and 52C
Submission
(Deloitte, NZICA)
To qualify for the roll-over relief a taxpayer must have either purchased or built a new property in the Canterbury area before 2018-19. This timeframe is unrealistic given the current pace of rebuilding in Canterbury. Obstacles to rebuilding in this timeframe include the time required for Christchurch council to grant occupancy certificates for new buildings or resource consent for the build. Submitters propose that “acquired” by 2018-19 refer to when construction of a new property has commenced. The test for when construction has commenced could be, for example, based on evidence of a binding contract and expenses already incurred in relation to the new building (similar to the provisions in EE 31 of the Income Tax Act).
Comment
The key concern of submitters is that the deadline for taxpayers to have purchased or built a new building by 2018-19 is too soon. Rather than introducing a lower threshold to qualify for the relief from depreciation recovery income (e.g. a commitment to rebuild rather than a new build itself), officials consider reviewing the deadline in 2017 if it becomes clear that there are some real obstacles to rebuilding that is preventing taxpayers from acquiring a new building within the 2018-19 timeframe. If taxpayers became eligible for relief from depreciation recovery income before the purchase or construction of a new building, this would require an estimate of the cost of the new building before the real cost has been finalised. The cost of the new building is critical to calculating the amount of depreciation recovery income relief. Officials consider this approach would add complexity (namely a new rule on how to estimate the cost of a building before it has been built and a reconciliation with the actual costs of the new building once the building has been finished) and uncertainty.
Recommendation
That the submission be declined.
Issue: To qualify for the roll-over relief for a replacement building a taxpayer is required to have applied to the appropriate authority for consent to build.
SOP 257 – clauses 52B and 52C
Submission
(Deloitte, Ernst & Young, NZICA)
The requirement for taxpayers to have applied for building consent by the end of the 2015-16 income year in order to access roll-over relief for the 2016-17 to 2018-19 income years is unduly onerous.
While it is preferable to have no “checkpoint” in the 2015-16 income year, if one is necessary, we suggest that it should involve the taxpayer having completed concept designs and plans by the end of the 2015-16 income year. Alternatively, the reference to consent should be clarified to mean resource consent as opposed to building consent. (Deloitte)
Comment
Officials agree that it is preferable to remove the requirement for taxpayers to have applied for building consent by the end of the 2015-16 income year in order to access roll-over relief for the 2016-17 to 2018-19 income years. This is because of the on-going uncertainty around current planning and rebuilding activities in Canterbury.
While, as noted above, there is no intention at this stage to review the 2018-19 time limit unless there is a compelling reason to do so, officials consider that any such review should consider whether it is appropriate to tighten the requirements for accessing roll-over relief. This would be to ensure that relief is targeted at taxpayers who can demonstrate a genuine commitment to rebuilding in Canterbury.
Recommendation
That the submission be accepted.
Issue: Making roll-over relief available to taxpayers who reinvest other than through a company.
SOP 257 – clause 52C
Submission
(Deloitte, Ernst & Young, NZICA)
Currently the proposed amendment only allows for the reinvestment into a replacement property in Canterbury through a company. The bill should be amended to allow for a replacement property to be constructed or purchased through other investment entities, such as a partnership, trust or look-through company.
Comment
The extension of the rollover relief provisions aims to ensure affected taxpayers continue to qualify for the relief in situations where they do not invest directly themselves but they invest through a company. The provisions strike a balance between catering for the situations where taxpayers may choose to invest with other investors rather than directly and keeping the rules as simple as possible. Companies are the most common vehicle for investment. As at June 2012 there were 548,000 registered companies in New Zealand compared to only 1,300 limited partnerships. Extending the eligibility of rollover relief to look-through companies and limited partnerships would require additional rules for these investment vehicles. Joint investment entities such as look-through companies and limited partnerships could easily establish a company to acquire a new property and the investors (look-through company shareholders and limited partners) could still remain eligible for the rollover relief.
Officials note that the rules cater for trustee shareholders; trusts themselves are unlikely to be used as joint investment entities.
Recommendation
That the submission be declined.
Issue: When tax liability is triggered at the end of the roll-over relief period, the liability should be spread over a ten year period following the end of the relief period.
SOP 257 – clauses 52B and 52C
Submission
(NZICA)
Taxpayers may not know whether roll-over relief applies until close to the 2018-19 income year deadline. If a taxpayer discovers in 2019 that the roll-over relief is not available to them, the tax liability may affect their business. Spreading any depreciation recovery income that might be triggered close to the time limit over ten years would lessen this impact. Further, a ten-year spreading provision would reduce uncertainty to taxpayers and minimise the impact on their investment decisions close to the 2018-19 time limit.
Comment
If by 2018/19 a taxpayer has not met the criteria for rollover relief, they will not have built or purchased a new building in the Canterbury region. Nevertheless, the taxpayer will still have benefited from a deferral of their tax liability from 2011. Providing further relief for taxpayers that are not rebuilding in the Canterbury region is not consistent with the intent of the relief policy and a ten-year spreading rule adds complexity to the existing rules.
Recommendation
That the submission be declined.
Issue: Amendment to s EE 23BB to allow for owners who are planning to acquire an interest in a reinvestment entity
SOP 257 – clause 52C
Submission
(Deloitte)
New section EZ 23BB should be expanded to allow for owners who are planning to, but have not yet, acquired an interest in the entity undertaking reinvestment (analogous to the requirement in s EZ 23B that a taxpayer must plan to acquire replacement property). Alternatively, if it is intended that taxpayers initially elect into roll-over relief through existing s EZ 23B and then elect into s EZ 23BB once they have acquired an interest in a reinvestment entity, s EZ 23B’s requirement for the original owner to plan to acquire replacement property should be expanded to include acquisition of replacement property through another entity.
Comment
Section EZ 23BB applies where a person receives insurance proceeds for earthquake-damaged depreciable property, would have depreciation recovery income and has an interest in an entity that will acquire replacement property. By contrast, existing s EZ 23B applies where a person receives insurance proceeds for earthquake-damaged depreciable property, would have depreciation recovery income and plans in the current year to acquire depreciable property.
Officials agree that some form of transitional rule is required for taxpayers who have initially elected into roll-over relief under existing s EZ 23B because they plan in the current year to acquire replacement property but will now be acquiring replacement property through a joint investment entity (and so meet the criteria for electing into new s EZ 23BB). This is discussed further below in relation to the submission “Clarifying the transition between ss EZ 23B and EZ 23BB”.
Recommendation
That the submission be noted subject to officials' comments.
Issue: Rename “suspended recovery income” in s EZ 23BB
SOP 257 – clause 52C
Submission
(Deloitte)
Under s EZ 23BB, both the short-term deferral of depreciation recovery income (which exists until the replacement asset is acquired) and the long-term deferral (which exists until the interest in the replacement asset is sold) are called “suspended recovery income”. The long-term deferral of depreciation recovery income under the section should be named something other than “suspended recovery income” for clarity.
Comment
The term “suspended recovery income” is used in s EZ 23BB to refer to the amount of depreciation recovery income that can be deferred until or unless specific events occur. Officials consider that the use of the term is sufficiently clear.
Recommendation
That the submission be declined.
Issue: Expansion of s EZ 23BB to cater for rebuilding occurring by an entity in the same group
SOP 257 – clause 52C
Submission
(Deloitte)
New s EZ 23BB should be expanded to cater for the situation where reinvestment occurs through a company which is in the same group of companies as the company that owns the destroyed property that is being replaced.
Comment
While officials recognise that investment to acquire replacement property may occur through a company that is in the same group as the company that owns the destroyed property being replaced, it is considered that expanding depreciation roll-over relief to group company situations would add significant complexity to the rules. This is because the rules would need to be modified to fit with the tax rules that apply to groups of companies e.g. loss grouping. This complexity is undesirable as it is at odds with the policy intent of ensuring that depreciation roll-over relief is clear and straightforward to apply.
Recommendation
That the submission be declined.
Issue: Clarification of timing of amendment to s EE 52
SOP 257 – clause 55B
Submission
(NZICA)
The amendment to s EE 52 should be drafted so that it is clear that it will not result in a taxpayer incurring a tax liability in a period earlier than the period in which the Bill is enacted.
Comment
Section EE 52 specifies the amount of depreciation recovery income that a person has when they receive insurance proceeds for damage to a depreciable asset. The amendment to s EE 52 contained in the bill seeks to clarify that if damaged property is disposed of before the insurance proceeds are received, the proceeds will be treated as being derived immediately before the disposal. This is in order to remedy a gap in the legislation. If a person receives insurance proceeds for a damaged building and the building is then sold, the owner is taxed on the insurance proceeds. However, if the damaged building is sold before the insurance proceeds are received by the owner, the proceeds are not taxable.
The amendment applies from 25 June 2013, which is the date that the Supplementary Order Paper on further Canterbury earthquake tax measures was released. The reason for this application date is that applying the amendment from the beginning of the 2014-15 income year may give taxpayers a window of opportunity to prevent their insurance proceeds from being taxable (by selling their buildings to associates before 1 April 2014, for example). Also, this approach is consistent with the approach taken in the past to the application date for generic (albeit Canterbury earthquake-related) amendments clarifying the treatment of insurance proceeds.
Recommendation
That the submission be declined.
Issue: Clarifying the transition between ss EZ 23B and EZ 23BB
SOP 257 – clauses 52B and 52C
Submission
(NZICA, Ernst & Young)
Many taxpayers who will wish to use new EZ 23BB to claim depreciation roll-over relief will have already relied on s EZ 23B in earlier income years to suspend recognition of depreciation recovery income. Accordingly, the legislation should explicitly provide for a transition for taxpayers from s EZ 23B to s EZ 23BB.
Alternatively, section EZ 23BB should apply from a future date and a transitional provision should be introduced for taxpayers who have elected under section EZ 23B (NZICA).
Comment
New s EZ 23BB applies from 4 September 2010, which is the date of the first Canterbury earthquake. However, many taxpayers seeking to claim relief from depreciation recovery income will have already done so under existing s EZ 23B. Officials agree that a transitional rule should be included to allow taxpayers who have claimed relief under s EZ 23B to claim relief under s EZ 23BB going forward.
Recommendation
That the submission be accepted, subject to officials’ comments.
Issue: Clarify maintenance of suspension of income beyond 2018-19 income year
SOP 257 – clause 52C
Submission
(Ernst & Young)
It should be clarified that there will be no claw-back of depreciation recovery income under the proposed s EZ 23BB after the 2018-19 income year, where taxpayers retain their interests in the company acquiring replacement property and the latter retains the replacement property.
Comment
The policy intent is that there will be no claw-back of depreciation recovery income unless:
i. no replacement property has been acquired by the end of the 2018-19 income year; or
ii. the taxpayer exits the company holding the replacement property;
iii. the taxpayer goes into liquidation or bankruptcy; or
ii. the replacement asset is disposed of.
Officials consider this is achieved by the current drafting of s EZ 23BB. Guidance on the application of the section will be provided through the Taxation Information Bulletin, once the bill is enacted.
Recommendation
That the submission be declined.
Issue: Ensure clear initial suspension of depreciation recovery income
SOP 257 – clause 52C
Submission
(Ernst & Young)
It is submitted that s EZ 23B(2) and new s EZ 23BB(2) should be amended to ensure there is a clear initial suspension of a taxpayer’s depreciation recovery income. The concern is that as each of these provisions currently refers to amounts which may be depreciation recovery income in or after the current year, describing them by reference to the excess recovery amounts “that remain at the beginning of the current year” after earlier adjustments and attributions, may mean that there is no clear initial suspension of the amount that would otherwise be depreciation recovery income.
Comment
Officials consider that the drafting of s EZ 23B(2) and new s EZ 23BB(2) ensures that there is an initial suspension of a taxpayer’s depreciation recovery income. This is achieved through the reference to an “amount that may be depreciation recovery income of the person in or after the current year”. However, guidance on the application of the sections will be provided in the Taxation Information Bulletin, once the bill is enacted.
Recommendation
That the submission be declined.
Issue: Calculation of suspended amounts under new s EZ 23BB
SOP 257 – clause 52C
Submission
(Ernst & Young)
The submitter states that the various calculation provisions in new s EZ 23BB need revising to ensure taxpayers have effective suspension of the full amount of their depreciation recovery income until the replacement property is fully acquired, which may occur over several years.
Comment
Officials consider that the various calculation provisions in new s EZ 23BB work as intended, which is to ensure taxpayers have effective suspension of the full amount of their depreciation recovery income until replacement property is fully acquired by the end of the 2018-19 income year. Further guidance on the application of the calculation provisions will be provided in the Taxation Information Bulletin, after the bill is enacted.
Recommendation
That the submission be declined.
Issue: Clarify meaning of “settlor” and quantification of settlements and trust corpus for the purposes of s EZ 23BB
SOP 257 – clause 52C
Submission
(Ernst & Young)
The submitter suggests clarifying the meaning of “settlor” as it is used in s EZ 23BB. Section EZ 23BB deals with taxpayers suspending recognition of their depreciation recovery income if they are the settlors of trusts of which the trustee(s) hold voting interests in an “owning company”. The submitter also suggests clarifying the quantification of settlements and trust corpus for the purposes of s EZ 23BB.
Comment
Officials agree that the meanings of “settlor”, “corpus” and “settlement” should be clarified in the context of s EZ 23BB. At present, these terms are defined only in relation to specific sections (which do not include ss EZ 23B or EZ 23BB). Officials consider that these definitions should instead be made generic – this will ensure that they apply in the context of s EZ 23BB.
Recommendation
That the submission be accepted, subject to officials’ comments.
Issue: Replacement of revenue account property
SOP No 257 – clause 25B
Submission
(NZICA)
Revenue account property (RAP) rollover relief should allow the taxpayer to claim the relief even if the replacement property is not revenue account property.
The issue arises where the original property only became RAP by virtue of a disposal within ten years of acquisition.
This is because the original property may be deemed to be held on revenue account because of associations or building development activities that the owner was involved with at the time of, or shortly following, the acquisition of the property.
If such a property is disposed of within ten years of its acquisition, or within ten years of the development activity, it will be treated as revenue account property, rather than a capital asset.
If the disposal is triggered or brought forward by the Canterbury earthquakes, this means the owner cannot retain the property for longer than the ten years – and so avoid the tax liability on the proceeds from disposal of revenue account property.
If these associations or activities no longer exist at the time the new property is acquired, they will not “taint” any replacement building. So it may not be possible for the replacement property to be treated as a revenue account property, and so the RAP roll-over relief at section CZ 25 of the Income Tax Act 2007 cannot be used.
Comment
The RAP roll-over relief has always required both the original and the replacement property to be held on revenue account. This is because the purpose of the roll-over relief is merely to delay the tax that would arise on the eventual sale of the replacement property; it does not remove the tax obligation altogether. However, this tax liability will only arise if the replacement property is RAP. If the replacement property is not or does not become RAP, there will be no “RAP income” arising in the future from the replacement’s disposal.
Officials note that the issue raised could theoretically, prevent an owner of property that was deemed to be RAP from accessing the RAP rollover relief going forward. However, in order to apply the RAP roll-over relief to property that is not, in and of itself, RAP at time of acquisition, would require some complex and potentially onerous tracing provisions. One possible option is to deem replacement property to be RAP if the roll-over relief is claimed, but this creates difficulties when the property is eventually sold, in determining how much of the profit from that sale should be subject to tax. That is, the question arises of how to restrict the liability to the profit that would have arisen on the original property, allowing also for interest value over time.
Officials note that there is no evidence that this issue is actually causing any difficulties for Canterbury taxpayers in practice, which would justify adding further complex rules and tracing provisions to this rollover relief option.
Further, section CZ 26 of the Income Tax Act 2007 contains an exemption for income from certain property disposals within 10 years of acquisition, so this not an issue for taxpayers whose RAP is acquired by the Crown, which would include many of the worst affected RAP owners in the Christchurch CBD area.
Recommendation
That the submission be declined.
Issue: Application of revenue account property rollover relief
SOP No 257 – clause 25B
Submission
(NZICA)
The revenue account property (RAP) rollover relief at section CZ 25 should apply to an amount of income arising from the disposal of RAP under the following provisions, because the earthquakes will have triggered the provision:
- Section CB 6 – disposal: land acquired for purpose or with intention of disposal
- Section CB 7 – disposal: land acquired for purposes of business relating to land
- section CB 9 – disposal within 10 years: land dealing business
- section CB10 – disposal within 10 years: land development or subdivision business
- section CB 11 – disposal within 10 years of improvement: building business
- section CB 12 – disposal: schemes for development or division begun within 10 years
- section CB 14 – disposal: amount from land affected by change and not already in income
Comment
RAP roll-over relief was introduced in 2011, and initially applied only to income arising from the disposal of buildings held on revenue account, if the building was rendered useless or destroyed by the earthquake.
This income arises under section CG 6, which applies when a person receives an amount for the loss or destruction of, or damage to, trading stock. As noted in the submission, buildings are defined as ‘trading stock’ for the purposes of section CG 6 if their disposal creates income under section CB 6 to CB 15.
The RAP relief was extended in 2012 to apply to land. It was also extended to apply to buildings which were not necessarily rendered useless or destroyed, but were being purchased by the Government under its compensation package, under the recovery/rebuild plan. However when the section was extended, it still only applied to income that was considered to arise under section CG 6. For some of the buildings, because they had not actually been destroyed, the income could arise not under section CG 6, but under the provisions at sections CB 6 to CB 14.
The amendments proposed in the supplementary order paper 257 already amend section CZ 25 to include sections CB 6 and CB 7.
Income arising under sections CB 9 to CB 11 and CB 14 from the disposal of buildings which are not necessarily rendered useless or destroyed, but are purchased by the Government under a compensation package, are addressed by the exemption at section CZ 26. So these sections should not be included in the RAP rollover relief rule at section CZ 25.
Recommendation
That the submission be declined.
Issue: Revenue account property rollover relief formula
SOP No 257 – clause 25B
Submission
(NZICA, Ernst and Young)
The formula for calculating the amount of the revenue account property (RAP) roll-over relief is circular, because section CZ 25(3)(a)(i) is based on the result of section CZ 25(3)(a)(ii), and vice versa.
The formula leads to unexpected results in circumstances where the cost of the replacement property exceeds the costs of the previous property (worked examples provided).
More guidance should be provided on how the formula should be applied.
Comment
The purpose of the RAP roll-over relief is to delay the tax that would arise on the disposal of the original RAP, until the eventual sale of the replacement property; it does not remove the tax obligation altogether. When the replacement RAP is eventually sold on, the “profit” will be taxed at that later stage.
RAP rollover relief allows for an equivalently valued RAP to be purchased with the receipts from the original RAP by deferring the payment of the associated tax. If The formula provides for the RAP income amount derived to be pro-rata If not all of the receipts from disposal of the original RAP are used to purchase replacement RAP, there is no deferral of tax on the unused remainder, that is, there is a pro rata approach, which is achieved through the formula. The three main situations and outcomes can be summarised as:
i. The cost of replacement RAP is less than the insurance proceeds and less than the cost of the original RAP.
In this situation no rollover relief will be due, because the tax liability arising on the sale of the original RAP can be met without affecting the taxpayers’ ability to purchase the new RAP.
ii. The cost of replacement RAP is less than the insurance proceeds but more than the cost of the original RAP.
In this situation a portion of the insurance proceeds received is taxable as income (under either section CB 6, CB 7, CB 12, CB 13 or CG 6) immediately in the year of receipt, because it is not all needed to purchase the replacement RAP.
The formula in section CZ 25(3) requires a pro-rata approach.
The remainder of the income that is not taxed immediately is still rolled-over to reduce the cost price (for the purposes of section EA 2) of the replacement property.
iii. The cost of replacement RAP is equal to or more than the insurance proceeds, and more than the cost of the original RAP.
In this situation all the proceeds are put towards the replacement RAP. There is no pro-rata, and the full amount of taxable income will be rolled over.
The previous drafting in section CZ 25(3) meant that the formula simply did not apply in the third situation. The proposed amendments re-draft this formula to cover all three scenarios.
No change in outcome was intended; however officials agree that the calculation of one of the elements (‘excess recovery’) is unclear. This term “excess recovery” was intended to mean the excess (difference) between the amount received for the disposal of the original property and the cost of the replacement property. Officials agree that the derivation of this element of the calculation should be clarified in the drafting, and the drafting of the formula could be simplified to avoid any apparent circularity.
Officials will consider the comments about the provision of more guidance by Inland Revenue on the application of this formula, including a worked example.
Recommendation
That the submission be accepted.
On enactment of the bill guidance on the amendments and the formula will be released in Inland Revenue’s Tax Information Bulletin, as usual.
Issue: Section CZ 26 exemption where income arises under section CB 12
SOP No 257 – clause 25C
Submission
(NZICA)
The exemption at section CZ 26 applies to income arising for the disposal of land and buildings purchased by the Government under its compensation. It should also apply to income arising under section CB 12.
Some taxpayers will be required to commence development or division work within ten years, as a result of the earthquakes, and should have access to the RAP rollover relief and/or the exemption provision.
Comment
The section CZ 26 exemption was designed for situations where the owner wished to take up the Government offer of purchase following the damage caused by the earthquake. However, taking up the offer would mean they could not retain the land for the requisite 10-year period, and so could not prevent income arising under sections CB 9 to CB 11.
It is not intended to provide extended relief for decisions around development and division which took place after the earthquake.
Section CB 12 taxes income from land in situations where work is commenced within ten years of acquisition. The time of disposal of the land is irrelevant.
Section CB 12 does not have an ‘end date’ – that is to say, if the person entered into non-minor developments within 10 years of acquisition they should always have known they were liable for income tax on disposal. Therefore the owner has not lost the ability to retain the land for a requisite period as there is no requisite period linked with disposal under section CB 12.
Recommendation
That the submission be declined.
Issue: Cross-reference in s EE 1(3)(d)
SOP 257
Submission
(Ernst & Young)
Section EE 1(3)(d) should be amended to include a reference to depreciation recovery income under the proposed new s EZ 23BB.
Comment
Officials agree that s EE 1(3)(d) should be consequentially amended to refer to depreciation recovery income calculated under s EZ 23BB.
Recommendation
That the submission be accepted.
Issue: Replacing “affected property” with “affected class” in s EZ 23B(4)(a)
SOP 257, clause 52B
Submission
(Deloitte)
There are only two instances in s EZ 23B(4)(a) where “property” should be changed to “class”. The second instance of the word which refers to “other replacement property” should not be changed to “other replacement class”.
Comment
Officials agree that there are only two instances in s EZ 23B(4)(a) where “property” should be changed to “class”. The existing reference to “other replacement property” should remain.
Recommendation
That the submission be accepted.
Issue: Unnecessary colon in s EZ 23B(5)(a)(i)
SOP 257, clause 52B
Submission
(Ernst & Young)
The amendment to s EZ 23B(5)(a)(i) appears to include an unnecessary colon.
Comment
Officials agree that there is an unnecessary colon in the amendment to s EZ 23B(5)(a)(i) – this should be corrected so that “cost of the affected property” is replaced with “cost of the affected class”.
Recommendation
That the submission be accepted.
Issue: Drafting amendments to s CZ 25
SOP No 257 – clause 25B
Submission
(NZICA, Deloitte)
1. The title of section CZ 25(5) should be updated to refer to the new 2018/19 income year deadline.
2. In section CZ 25(3)(a)(i) it should be clarified that the “total amount of deductions under sections DB 23 and DB 27” are referring to the original (affected) RAP and not the cost of acquiring the replacement RAP.
3. Section CZ 25(3)(a) and section CZ 26 should expressly override section CG 6, to ensure that income from the disposal of land and buildings held on revenue account, to which the RAP rollover relief applies, cannot also be considered to still arise under section CG 6.
Comment
1. Section CZ 25(5)(a) is being amended so that a taxpayer is liable to tax on amount of income equal to the amount of any remaining suspended recovery income at the end of the 2018-19 income year, not the 21015-16 year as currently. The title should be updated to reflect this extension.
2. Section CZ 25(3)(a)(i) should refer to total amount of deductions under sections DB 23 and DB 27 for the affected RAP.
3. Section CZ 25(3) already provides relief from section CG 6, if the taxpayer elects to use the RAP rollover provision under section CZ 25(1). Section CZ 26 prevents sections CB 9 to CB 11 from applying to a person, land or building. This means that section CG 6 cannot apply, as the land or building cannot become trading stock through the definition of trading stock at section YA 1 – which relies on income arising under sections CB 6 to CB 15.
Recommendation
That submissions 1 and 2 be accepted and submission 3 be declined.