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Inland Revenue

Tax Policy


The thin capitalisation rules form part of New Zealand’s international tax rules and are designed to protect our tax base.

The thin capitalisation rules have generally been operating effectively. However, Inland Revenue’s investigators, through their normal audit work, have come across some situations where the rules appear deficient. The bill proposes changes to the rules that will address these deficiencies.

Two primary changes are proposed in the bill. The first expands the thin capitalisation rules so they apply when a group of non-residents appear to be acting as a group and own 50 percent or more of a New Zealand investment. This will address the fact that the rules currently only apply when a single non-resident controls a New Zealand investment, even though groups of investors can often act together in a way that mimics control by a single investor.

The second change proposed is to ignore shareholder-linked debt when taxpayers are calculating their allowable level of New Zealand debt under the rules. This will prevent non-residents from excessively gearing their New Zealand investments when they have excessively geared their worldwide operations with shareholder debt.

The bill also proposes three further changes:

  • expanding the rules so they apply more broadly to trusts that have been settled by non-residents;
  • ignoring revaluations in asset values where the revaluation is generally not permitted under accounting standards; and
  • requiring individuals and trustees to exclude their indirect interests in offshore companies if their interest is held through a company they are associated with.

Ten submissions were received in relation to the thin capitalisation proposals included in the bill. Most generally supported the changes but raised a number of issues. As a result, officials are recommending changes to clarify when the rules apply and to reduce the compliance costs of the proposed amendments. Officials are also recommending a number of drafting and technical changes.