Technical issues

The following matters deal with technical issues.

Issue: The word “active” is not required in the definition of “private days”

Submission

(New Zealand Law Society)

The word “active” is not required in the definition of “private days” because section DG 3(3) already defines “use” as “active use” for the purposes of subpart DG.

Comment

Officials agree with this submission.

Recommendation

That the submission be accepted.

Issue: Apportionment of costs of borrowing

Submission

(Matter raised by officials)

The mixed-use asset rules override the provision under which borrowing costs are deductible, but incorrectly refers to them as interest costs.

Recommendation

That the submission be accepted.

Issue: Assets acquired and disposed of in the same year

Submission

(Raised informally with officials)

The proposals include rules which pro-rate thresholds where the asset is acquired or disposed of during the year. These rules need to be amended to deal with situations when the asset is acquired and disposed of in the same year.

Recommendation

That the submission be accepted.

Issue: Early reference to “outstanding profit balance” unnecessary in the deduction quarantining rules

Submission

(Ernst & Young)

Given the expression “outstanding profit balance” is used in section DG 18, why is it necessary to refer to it in section DG 16?

Comment

“Outstanding profit balance” is a term used to refer to an excess of income over expenditure under the deduction quarantining rules. It is calculated under section DG 16 and subsequently referred to in section DG 18. Officials consider this to be a logical form of drafting these provisions.

Recommendation

That the submission be declined.

Issue: Use of outstanding profit balance

Submission

(Ernst & Young)

The reference in section DG 16 to the outstanding profit balance being used under section DG 18 should be a reference to it being used under section DG 19.

Comment

“Outstanding profit balance” is used in a formula in section DG 18, so officials prefer the cross-reference to remain as currently drafted.

Recommendation

That the submission be declined.

Issue: “Company A” and “Company B” concepts undefined

Submission

(New Zealand Law Society)

Section DG 18 uses the concepts of “Company A” and “Company B”, but they are not defined for the purposes of this section.

Comment

Company A and Company B are introduced in the interest apportionment rules to refer to the company which owns the mixed-use asset and other companies which are in the same group as the company which owns the mixed-use asset respectively.

Officials agree that they are not defined for the purpose of their subsequent use, but they should be.

Recommendation

That the submission be accepted.

Issue: Cross-reference in deduction quarantining provisions

Submission

(Ernst & Young)

Section DG 19(1) should include a cross-reference to section DG 16.

Comment

Section DG 16 deals with the deduction quarantining of the person who has the mixed-use asset. Section DG 17 provides rules for using that quarantined deduction in a subsequent year.

Section DG 19 deals with the subsequent use of quarantined deductions of group companies and shareholders. These quarantined deductions arise under section DG 18, not section DG 16.

Recommendation

That the submission be declined.