Consequential and remedial amendments
- Definition of “land”
- Clarifying treatment of land transferred under a resident’s restricted amalgamation
- Non-active trusts may be excused from filing returns
DEFINITION OF “LAND”
(Clause 15(6) and (8))
Summary of proposed amendment
The proposed amendment clarifies the definition of “land” to make clear that “land” includes interests in land.
Application date
The amendment will come into force on 1 October 2015.
Key features
It is proposed that the definition of “estate” and “interest” in land are replaced with a definition of estate and interest in land that clearly includes interests in land. The definition of land clearly includes an interest in land prior to the rewrite of the definition.
In addition, the proposed new definition clarifies that an interest in land includes the right to possession of land.
Background
As a result of the rewrite of income tax legislation, there was an unintended change to the definition of “land”. This change created uncertainty over whether it included an interest in land.
CLARIFYING TREATMENT OF LAND TRANSFERRED UNDER A RESIDENT’S RESTRICTED AMALGAMATION
(Clause 13)
Summary of proposed amendment
The bill proposes to clarify the treatment of revenue account property transferred as a result of a resident’s restricted amalgamation when, at the time of the amalgamation, it is unclear whether the amalgamated company holds the property on revenue or capital account.
Application date
The proposed amendment will come into force on 1 October 2015.
Key features
The amendment applies so that property is deemed to be transferred at market value when:
- the land is held on revenue account for the amalgamating company; and
- the land is, or may be, revenue account property of the amalgamating company solely because of the 2-year bright-line test or a 10-year rule in any of sections CB 9 to CB 11, and CB 14.
When the two criteria above are met the property is deemed to be transferred at market value.
Background
When two companies merge under an amalgamation, the transfer of assets between the companies is generally exempt from tax. However, the transfer is not exempt from tax if the property leaves the tax base.
The amalgamation rules achieve this result by transferring property either at cost or at market value, depending on whether the amalgamating and amalgamated company hold the property on revenue or capital account. This is illustrated in Table 1.
| B | ||||
|---|---|---|---|---|
| Holds on capital account | Holds on revenue account (except if solely due to 10-year rule) | Holds on revenue account solely due to 10-year rule | ||
| A | Holds on capital account | Cost | Market | Market |
| Holds on revenue account (except if solely due to 10-year rule) | Market | Cost | ||
| Holds on revenue account solely due to 10-year rule | Cost | Cost | Cost | |
However, when the amalgamated company holds the property on revenue account, if it disposes of the property within 10 years, it is unclear for the amalgamating company whether they transfer the property at cost (and have no tax liability) or at market value (and have a tax liability).
NON-ACTIVE TRUSTS MAY BE EXCUSED FROM FILING RETURNS
(Clause 16)
Summary of proposed amendment
The amendment proposes to introduce a new section into the Tax Administration Act 1994. It will allow non-active trusts (which are currently required to file nil income tax returns) to be exempted from the obligation to file, thereby reducing their compliance costs.
Application date
The amendment will come into force on the date of enactment.
Key features
Trusts that are non-active will no longer be required to file annual income tax returns, if:
- throughout the tax year the trust is a non-active complying trust; and
- the trustee of the trust has filed a declaration that the trust is non-active (and the trust has not become active since making the declaration).
A trust will be non-active if it:
- has not derived or been deemed to have derived any income;
- has no deductions;
- has not disposed of, or been deemed to have disposed of, any assets of the trust; and
- has not been a party to, or perpetuated or continued with, any transactions with assets of the trust in the tax year, which give rise to income in any person’s hands, or fringe benefits to any employee or to any former employee.
Certain minimal amounts of income or deductions can be ignored in determining whether a trust is non-active.
The amendment sets out the process by which a non-active trust may make application for exemption from filing income tax returns. This process entails the completion of a declaration – first, that the trust is a non-active trust and secondly, that a trustee of the trust will inform the Commissioner if it ceases to be so. The trustees of the trust are thereby placed under a statutory obligation to inform the Commissioner upon the cessation.
The Commissioner will retain the power to request the trustees of a trust to furnish a return of income even if it holds an exemption under the proposed provision.
The proposed amendment is based on a similar provision for non-active companies in section 43A of the Tax Administration Act 1994.