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
Feasibility expenditure
- Overview
- Application date
- Pre-commencement expenditure
- Gap between proposal and cost base for depreciation
- Clawback
- 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
- Land transfer tax statement
- Other issues
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
- 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
- Amortisable improvements rule
- Allocation timeframes
- Denial of purchaser deductions
- 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
- 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
- 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
- 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
Remedials
- General comments
- Definition of eligible R&D expenditure
- Mining development activity exclusion
- Tangible depreciable property expenditure exclusion
- Other expenditure exclusions
- Administration
- Other R&D submissions
- 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
- Confirming Housing New Zealand build limited subject to income tax
- Changing the due date for locked-in portfolio investment entities
- Application of the minors’ income tax exemption to minor beneficiary income
- Nominee treatment for trustee of exempt employee share scheme (ESS)
- Disposal of company’s own shares by employee share scheme trustee
- GST compulsory zero rating of commercial land leases
- 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
- Thin capitalisation remedials
- Tax rules relating to custodial institutions
- Beneficiaries as settlors
- Migrating settlor of a trust
- Restricted transfer pricing
- NZ superannuitants and the end-of-year auto-calculation process
- 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
- 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
- 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
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