Remitted amounts on discharge from bankruptcy
(Ernst & Young)
Proposed section CG 2B should be amended to apply to an individual whose discharge from bankruptcy occurs in the same income year as enactment of the bill.
Proposed section CG 2B(2)(b)(ii) should be amended to ensure the amount calculated is relevant only if it is a positive amount.
The bill is likely to be enacted during the 2014–15 income year, and returns of income for this tax year are not required until July 2015. Therefore, adopting this application will provide consistent tax outcomes for all discharged bankrupts for the 2014–15 income year.
Officials do not agree with the second submission. The debt adjustment can completely extinguish the loss balance from the preceding tax year (giving a zero result in the formula). A zero result in the formula will result in the discharged bankrupt having no income under section CG 2B, as intended.
That the submission for the application date be accepted.
That the submission for section CG 2B(b)(ii) be declined.
(New Zealand Institute of Chartered Accountants)
We support this proposal as it is consistent with the “fresh start” principles of insolvency law. Where the Official Assignee has administered the bankruptcy, s/he has considered the bankrupt’s position in depth and it is therefore sensible and preferable for the tax legislation to “defer” to the Insolvency Act 2006.
We agree that any tax losses carried forward by a former bankrupt should be reduced by the lesser of the amounts remitted or the total losses carried forward.
Officials note the support for the amendments.
That the submission be noted.