Home > Publications > 2021 > Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Bill > Contents

Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Bill

Officials' report to the Finance and Expenditure Committee on submissions received on the Bill

February 2001

Contents

• Annual rates for 2020–21
• Feasibility expenditure
• Land
• Purchase price allocation
• Unclaimed monies
• Other policy and remedial changes
• Remedials
• General support for proposed amendments
• Items raised by officials
• Maintenance items
• Summary of recommendations

Annual rates for 2020–21

• Annual rates of income tax
  • Issue: Support annual rates

Feasibility expenditure

• Overview
• Application date
  • Issue: Proposal should be backdated
  • Issue: Timing of deduction
• Pre-commencement expenditure
  • Issue: Deductibility of pre-commencement feasibility expenditure
  • Issue: Support for retaining general permission
• Gap between proposal and cost base for depreciation
  • Issue: Indirect expenditure
  • Issue: Asymmetry between feasibility proposals and depreciation
• Clawback
  • Issue: Scope of clawback provision
  • Issue: Clawback of deductions – technical/interpretation issues
  • Issue: Clawback – requirement to return income in period of reinstatement
  • Issue: Lack of time limit for clawback
  • Issue: Interaction between clawback and deductibility proposals
• Other scope and technical issues
  • Issue: Abandonment costs
  • Issue: Partial abandonment
  • Issue: Improvements to farmland
  • Issue: Costs of assessing feasibility of takeover/merger activities
  • Issue: Property depreciated at a rate of zero percent
  • Issue: Guidance and examples are needed
  • Issue: Clarification of example in commentary
  • Issue: Drafting issue
  • Issue: De minimis should be increased
  • Issue: Separately identifiable assets and goodwill

Land

• Overview
• Habitual buying and selling of land
  • Issue: Support for the amendments
  • Issue: Support for purpose of disposal limitation
  • Issue: Amendment to business premises exclusion not necessary
  • Issue: Group of persons – clarify “significant involvement or control”
  • Issue: Group of persons – “significant involvement” is not necessary
  • Issue: Group of persons – better to use associated person test
  • Issue: Meaning of “regular pattern” – term does not achieve policy intent
  • Issue: Group of persons – minor clarification
  • Issue: Sale and leaseback transactions
  • Issue: Guidance
• Cost of revenue account property
  • Issue: Support for the amendment
• Land transfer tax statement
  • Issue: Direct information sharing between LINZ and Statistics NZ
  • Issue: Support for the amendment to move LTTS content to regulations
• Other issues
  • Issue: Definition of “dwelling” and related terms
  • Issue: Future amendments 

Purchase price allocation

• Overview
• Comments on proposal as a whole
  • Issue: Support for proposal
  • Issue: Support for requirement that parties follow agreement in tax returns
  • Issue: Legislative changes are unnecessary and disproportionate to mischief; operational approach is more appropriate
  • Issue: Lack of evidence for applying rules to business sales
  • Issue: Stakeholder feedback should have greater bearing on proposed amendments
  • Issue: Tax not the only driver of purchase price allocation
  • Issue: Impact of proposals on commercial transactions in COVID-19 context
  • Issue: Amendment of disputes regime in the Tax Administration Act to enable three-way dispute would be a better way to achieve consistency
  • Issue: Degree of acceptable asymmetry should be allowed
  • Issue: Lack of international precedent for approach
  • Issue: Rules will create issues in competitive bids and auctions
  • Issue: Operation of rules unclear where there is foreign purchaser
  • Issue: GST implications of proposals have not been considered
  • Issue: Rules need to accommodate price adjustments
  • Issue: Inland Revenue should educate taxpayers about new rules
  • Issue: Time required for taxpayer education and update of standard form agreements
• Level of allocation
  • Issue: Required level of allocation unclear
• Vendor’s power to determine allocation
  • Issue: Proposal gives vendor incentive not to agree to an allocation
  • Issue: Purchaser allocation would be more appropriate
  • Issue: Safeguard allowing purchaser to allocate if vendor does not is illusory
  • Issue: Some vendors may be difficult to engage with post-transaction
  • Issue: Default allocation to depreciable property in absence of agreement should be tax book value
  • Issue: Purchaser may ignore vendor’s allocation if outcome unrealistic or inequitable
• Tax book value floor on vendor’s unilateral allocation
  • Issue: Tax book value floor on vendor’s allocation should be omitted
• Amortisable improvements rule
  • Issue: Rule for allocation to amortisable improvements unnecessary / problematic
• Allocation timeframes
  • Issue: Timeframe for vendor allocation insufficient
  • Issue: Timeframe for purchaser allocation unclear
  • Issue: Vendor could be left with no way to comply with rules
  • Issue: Rules will increase divergence between tax and accounting
• Denial of purchaser deductions
  • Issue: Denying purchaser deductions if it does not make/notify an allocation is overly punitive
  • Issue: Purchaser’s acquisition for nil not symmetrical with vendor
  • Issue: Timing of deductions unclear where purchaser makes late allocation
• Market value and commissioner challenge
  • Issue: Unclear whether discounts permissible
  • Issue: Agreed allocation should not be challenged absent sham or avoidance
  • Issue: Pro-rata based on vendor’s tax book values should be market
  • Issue: Unclear how fluctuation in market value during negotiation dealt with
  • Issue: Commissioner should issue guidance on market value
  • Issue: Interaction of proposed rules with existing market value provisions unclear
  • Issue: Unclear whether tax-accounting divergence indicative of non-market transaction
  • Issue: Commissioner currently not required to notify other party of challenge
  • Issue: Transfers within wholly owned groups exposed to risk
• De minimis/safe harbour thresholds
  • Issue: Consistency de minimis incomplete
  • Issue: Consistency thresholds too low
  • Issue: Low-value depreciable property threshold incorrectly based on tax book value
  • Issue: Low-value depreciable property threshold should also apply to purchaser
  • Issue: Low-value depreciable property threshold should be relative or increased
• Application date
  • Issue: Application date too early
• Various drafting issues
  • Issue: Provisions not appropriately located in legislation
  • Issue: Unilateral allocations should be worded as optional and not mandatory
  • Issue: Term “respective market value” ambiguous
  • Issue: Tax book value floor for vendor should apply as if section EE 11 did not apply
  • Issue: Phrase “to which other income or deduction provisions of this Act apply or don’t apply at all” unclear
  • Issue: Heading to section GC 21 unclear
  • Issue: Use of word “disposes” misleading
  • Issue: Standard of identicality in phrase “materially identical” unclear

Unclaimed monies

• General submissions
  • Issue: Support for reforms
  • Issue: Application of the Unclaimed Money Act 1971 to crypto assets
  • Issue: Extension of binding rulings regime
  • Issue: Transitional period
  • Issue: Reduction of de minimis threshold of $100 to one cent
  • Issue: Retention of an alternative use proviso for amounts under $100
  • Issue: Institutional approach to “account activity”
  • Issue: Incorporation of portfolio investment entities
  • Issue: Information exchange with holders
  • Issue: Minor drafting amendment
  • Issue: Length of deeming period
  • Issue: Guidance on “reasonable efforts”
  • Issue: Data collection amendment
  • Issue: Definition of unclaimed money
• Matters raised by officials
  • Issue: Commencement date of clause 83B
  • Issue: Gender-neutral drafting
  • Issue: Repeal of secrecy provision
  • Issue: Publication of unclaimed money data
  • Issue: Allowing use of unclaimed money to offset a liability
  • Issue: Alignment of KiwiSaver Act 2006 with proposed reforms
  • Issue: Withdrawal of minor data collection requirement proposal
  • Issue: Flexible filing and payment regime
  • Issue: Definition of unclaimed money
  • Issue: Consolidation of deeming period under KiwiSaver Act 2006

Other policy and remedial changes

• GST on outbound mobile roaming services
  • Issue: Opposition to the proposal
  • Issue: Alignment with the OECD’s VAT/GST Guidelines and overseas jurisdictions
  • Issue: Application date
  • Issue: GST revenue collected by the proposal
  • Issue: Proposals do not adhere to the destination principle and New Zealand’s GST system
  • Issue: The proposal should instead be included within the remove services rules
  • Issue: Definition of telecommunication services includes mobile roaming services
  • Issue: Definition of remote services includes mobile roaming services
  • Issue: Definition of “mobile roaming services”
  • Issue: Inbound mobile roaming services being zero-rated
  • Issue: Double taxation issues
  • Issue: Withdraw the proposal and reconsider post COVID-19
• Income tax treatment of leases subject to NZ IFRS 16
  • Issue: Alignment with accounting
  • Issue: Optional application
  • Issue: Timing of proposals
  • Issue: Adjustments should not be required
  • Issue: Adjustments for low-value assets and short-term leases
  • Issue: Carve out for real property
  • Issue: Irrevocable election
  • Issue: Transitional adjustment for early adopters
  • Issue: Certain leases should be excluded from wash-up calculation
  • Issue: Effect on thin capitalisation
  • Issue: Dedicated IFRS resource
  • Issue: Election process
  • Issue: Minor drafting improvements
• Schedule 32 Overseas donee status
  • Issue: Support for proposed additions
• GST credit notes
  • Issue: The proposed amendment to allow a supplier to issue a credit note when 15% GST was incorrectly charged is unnecessary
  • Issue: Supports proposal to allow a supplier to issue a credit note when 15% GST was incorrectly charged
  • Issue: Supports proposal, but further amendments are required to align provisions with modern business practices
  • Issue: Scope of the proposed provision should be broadened
  • Issue: Consequential amendments to similar provisions
  • Issue: Proposed time limit on issuing a credit note
• Portability of Australian unclaimed superannuation money
  • Issue: Support for proposed amendments
  • Issue: Commencement date
  • Issue: Implementation implications
• Mycoplasma bovis tax issue
  • Issue: Support for the proposal
  • Issue: Retrospective application
  • Issue: Generic provision
  • Issue: Unwinding of income equalisation deposits
  • Issue: Removal of reference to “owner” in proposed section EZ 4B(1)
  • Issue: Generally rewording proposed section EZ 4B(1)
  • Issue: Use of the word “choose” rather than “elect” in section EZ 4B(2)
  • Issue: Business cessation
  • Issue: Shareholder salaries
  • Issue: Amendment to spread formula term “number"
• Individual tax write-off threshold
  • Issue: Temporary increase to the automatically calculated individual income tax write-off threshold

Remedials

• General comments
  • Issue: General support
  • Issue: Changes appear more than merely remedial
  • Issue: Changes not based on evidence
  • Issue: Changes decrease certainty
  • Issue: Approach is counter to original intent
  • Issue: Retrospective application dates
• Definition of eligible R&D expenditure
  • Issue: Support the amendment
  • Issue: Amendment may overreach
  • Issue: Potential for government interference
• Mining development activity exclusion
  • Issue: Support the amendment
  • Issue: Changes not necessary
  • Issue: Further clarity needed on amendment’s scope
  • Issue: Amendment may impact New Zealand’s emissions targets
  • Issue: Amendment should be aligned with existing tax treatment
• Tangible depreciable property expenditure exclusion
  • Issue: Support the amendment
  • Issue: Scope of amendment should be expanded
  • Issue: Prototype exemption amendment
• Other expenditure exclusions
  • Issue: Support the amendments
  • Issue: Unclear why amendments are required
  • Issue: Better fit as activity exclusions
  • Issue: Further clarity needed
• Administration
  • Issue: Criteria and methodologies application due date change
  • Issue: Important that responses are timely
  • Issue: Discretion for companies with balance date changes
  • Issue: Timeframe for completing disputes process
• Other R&D submissions
  • Issue: Drafting corrections
  • Issue: Growth Grant exclusion – association test should be removed
  • Issue: Partnerships and receiving the credit
  • Issue: Meaning of “acquire” in R&D expenditure exclusions
  • Issue: Scope of grant-related expenditure exclusion should be narrowed
• Hybrid rules remedials
  • Issue: Non-resident group members should be able to group surplus assessable income
  • Issue: Payments made within a consolidated group should be included in SAI calculation
  • Issue: Hybrid financial instrument rule should not apply to income fully taxed in New Zealand
  • Issue: Transfer pricing deemed arm’s length amount – exception should be extended to deductions denied under the hybrid rules
  • Issue: Reverse hybrid rule should be clarified in how it applies to hybrid entities and branches
  • Issue: The disregarded payments rule should not apply where the end investor is exempt from tax
  • Issue: Definition of “hybrid mismatch” should clarify the payee
  • Issue: Reverse hybrid rule should only apply where a mismatch in tax outcome arises due to differences in tax treatment of relevant entities
  • Issue: Domestic transactions should not be denied by the imported hybrid mismatch rule
• Bringing KiwiSaver employer contributions into the penalties, recover and use-of-money interest regimes
  • Issue: General support for reform
• Confirming Housing New Zealand build limited subject to income tax
  • Issue: Support for the proposal
• Changing the due date for locked-in portfolio investment entities
  • Issue: Support for the proposal
  • Issue: Discretion when applying late filing penalties on income information filed by locked-in portfolio investment entities
• Application of the minors’ income tax exemption to minor beneficiary income
  • Issue: Support for the proposal
• Nominee treatment for trustee of exempt employee share scheme (ESS)
  • Issue: Support for amendment
  • Issue: Transitional effects of section CE 6 (trusts are nominees)
  • Issue: Typo in section CW 26C(7)(a)(ii) should be corrected
• Disposal of company’s own shares by employee share scheme trustee
  • Issue: Support for amendment
• GST compulsory zero rating of commercial land leases
  • Issue: Supports proposal
  • Issue: One of the proposed amendments is unnecessary
• When income is derived from a cash dividend
  • Issue: Support for the proposal
  • Issue: Replace “received” with “paid”
  • Issue: Clarify application to company paying dividend by resolution
  • Issue: Clarify interaction with investment income reporting rules
  • Issue: Availability of tax credits should be confirmed
  • Issue: Amendment more appropriate in Part E of the Income Tax Act 2007
  • Issue: Assurance that the Commissioner will not seek to review prior tax positions taken on basis of previous law
• NRFAI deferral calculation formula – hybrid deduction item
  • Issue: Amendment may result in formula producing an undefined outcome
• Thin capitalisation remedials
  • Issue: Support for carve out
  • Issue: Scope of carve out should be extended
  • Issue: Resident and non-resident trusts
  • Issue: Application date of section FE 2(4B)
  • Issue: Support for new apportionment formula
  • Issue: “Group world debt percentages” higher than 60%
  • Issue: Negative total assets
• Tax rules relating to custodial institutions
  • Issue: Extending the definition of custodial institutions
  • Issue: Clarifying the withholding obligations of custodial institutions
  • Issue: Foreign currency and resident withholding tax
  • Issue: Amending the definition of “end investor”
• Beneficiaries as settlors
  • Issue: Support for the proposal
  • Issue: Beneficiaries owed money by a trust should not be deemed settlors where they have no knowledge of the debt
• Migrating settlor of a trust
  • Issue: Electing to pay New Zealand tax on world-wide trustee income
  • Issue: Distributions from trusts – terminology used inconsistent with policy purpose
  • Issue: Taxation of trusts and interaction with Double Taxation Agreements
• Restricted transfer pricing
  • Issue: Support for proposal
  • Issue: Cross-border related borrowing with terms greater than five years
  • Issue: Notching for group credit rating
• NZ superannuitants and the end-of-year auto-calculation process
  • Issue: Support for the proposal
  • Issue: Clarification that clause 1(b) of Part B of schedule 8 is subject to the same limitation
• The committee’s assurance processes
  • Issue: The Committee’s assurance processes

General support for proposed amendments

• Issue: PIE investor interest exemption for lines trusts
• Issue: Pre-consolidation imputation credits – Clarifying the imputation rules for the use of pre-consolidation imputation credits by corporate groups
• Issue: Amend the definition of deferrable tax
• Issue: Restricting the ability to challenge a tax position
• Issue: Spreading forward of fertiliser expenditure
• Issue: Non-resident contractors’ tax
• Issue: Removal of the three-yearly parental tax credit review
• Issue: Aligning the definition of benefit
• Issue: Clarifying the Commissioner’s powers to take copies of documents

Items raised by officials

• Depreciation on non-residential buildings
  • Issue: Restrictions on depreciation rates for depreciable property transferred to an associate
  • Issue: Application date of repeal for building fit-out transitional rule
• Portfolio investment entity schedular income
  • Issue: Simplifying the PIE schedular income year-end adjustment calculation
  • Issue: Clarifying that PIE losses and loss tax credits are incorporated when calculating a person’s income tax adjustment
  • Issue: Clarifying that a natural person investor is a New Zealand resident
  • Issue: Clarifying that the adjustment does not apply to a trustee of a trust
  • Issue: Limiting the removal of excluded income status for multi-rate PIE income
  • Issue: Tax adjustments for under- and over-payments of tax on PIE income are included when calculating residual income tax
• Small business cashflow (loan) scheme
  • Issue: Ability to transfer tax refunds to an amount borrowed under the Small Business Cashflow (Loan) Scheme
• Other matters
  • Issue: Initial provisional tax liability definition
  • Issue: Foreign trust registration and annual return fees
  • Issue: Using passport numbers in the student loan customs information match
  • Issue: Tax treatment of distributions on wind-up of an approved unit trust
  • Issue: Direct crediting of Problem Gambling Levy
  • Issue: Temporary loss carry-back remedial to enable loss grouping for groups that are not wholly owned

Maintenance items

• Maintenance items

Summary of recommendations

• Summary of recommendations
• Feasibility Expenditure
• Land
• Purchase Price Allocation
• Unclaimed Monies
• Other Policy and Remedial Changes
• Remedials
• Items Raised by Officials
• Maintenance items