Summary of recommendations

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

Summary of recommendations

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

Summary of recommendations

Feasibility Expenditure

Rec #	Recommendation description	Submitter	Page #
1.	Provide guidance on deductibility of pre-commencement feasibility expenditure	4 submitters	28
2.	Provide guidance on indirect expenditure	3 submitters	31
3.	Enlarge the scope of the clawback provision	Officials	33
4.	Provide guidance on the clawback of deductions	5 submitters	33
5.	Impose a seven-year time limit on the clawback provision	6 submitters	36
6.	Improve the interaction between clawback and deductibility proposals	Officials	36
7.	Provide guidance on feasibility expenditure	2 submitters	41
8.	Clarify example 3 in the commentary	Corporate Taxpayers Group	41
9.	Resolve the de minimis drafting issue	Corporate Taxpayers Group	42
10.	List expenditure that would not be deductible	Officials	43

Land

Rec #	Recommendation description	Submitter	Page #
11.	Amend the definition of a “group of persons”	Officials	53
12.	Provide guidance on the proposed amendments through a Tax Information Bulletin	2 submitters	54
13.	Allow direct information sharing between LINZ and Stats NZ	Officials	56
14.	Amend the definition of “dwelling” and related terms	Officials	58

Purchase Price Allocation

Rec #	Recommendation description	Submitter	Page #
15.	Educate taxpayers about new PPA rules	3 submitters	73
16.	Inform and educate relevant organisations on the amendments	nsaTax Limited	74
17.	Clarify the required level of allocation	3 submitters	75
18.	Pro rate tax book value where total purchase price is less than total tax book value	4 submitters	81
19.	Remove the rule for allocation to amortisable improvements	3 submitters	83
20.	Extend the timeframe for vendor allocation to three months post-settlement	3 submitters	84
21.	Clarify the timeframe for purchaser allocation	2 submitters	85
22.	Clarify the provisions only delay purchaser deductions	6 submitters	88
23.	Reframe the provisions only delay purchaser deductions to ensure the result will be symmetrical	nsaTax Limited	89
24.	Clarify the timing of deductions for purchasers making late allocations	2 submitters	90
25.	Amend the wording related to discounted asset values	Corporate Taxpayers Group	91
26.	Clarify the interaction of proposed rules with existing market value provisions	NZ Law Society	93
27.	Address the drafting error relating to the consistency of de minimis	3 submitters	96
28.	Correct the low-value depreciable property threshold	Officials	97
29.	The safe harbour for low-value depreciable property should apply to both vendor and purchaser	2 submissions	98
30.	Express unilateral allocation rules as optional	Deloitte	101
31.	Change the term “respective market value” to “relative market value”	Deloitte	102
32.	Clarify the phrase “to which other income or deduction provisions of this Act apply or don’t apply at all”	EY	103
33.	Clarify the heading to section GC 21	EY	103
34.	Clarify that the rules apply to disposals for consideration	nsaTax Limited	104

Unclaimed Monies

Rec #	Recommendation description	Submitter	Page #
35.	Extend the binding rulings regime to the Unclaimed Money Act 1971	Russell McVeagh	109
36.	Include a transitional variation provision	2 submitters	110
37.	Include an alternative use proviso to allow holders to submit any amount of money as unclaimed money to the Commissioner	New Zealand Law Society	110
38.	Retain an alternative use proviso to the de minimis threshold of $100	2 submitters	111
39.	Take an institutional approach to “account activity”	3 submitters	112
40.	Amend section 8(1) to avoid the circular reference	KPMG	114
41.	Provide guidance on what constitutes “reasonable efforts” when attempting to locate the owner of unclaimed money	Financial Services Council of New Zealand Incorporated	115
42.	Limit the data collection requirements in subsection 4(7) to those which are in “readily retrievable electronic format”	BNZ	116
43.	Clarify the definition of unclaimed money in relation to term deposits	BNZ	116
44.	Amend clause 83B so that the effective date that the Unclaimed Money Act 1971 becomes an Inland Revenue Act is 1 March 2021	Officials	118
45.	Update the drafting of the Unclaimed Money Act 1971 to include gender-neutral language	Officials	118
46.	Repeal the secrecy provision of the Unclaimed Money Act 1971	Officials	119
47.	Allow for the publication of unclaimed money data	Officials	119
48.	Allow the use of unclaimed money to offset a liability	Officials	120
49.	Align the deeming period in the Kiwisaver Act 2006 with proposed reforms	Officials	120
50.	Withdraw the minor data collection requirement proposal	Officials	121
51.	Allow for a more flexible filing and payment regime	Officials	121
52.	Redraft the definition of unclaimed money to focus on “money” rather than on “an amount”	Officials	122
53.	Consolidate the deeming period under the Kiwisaver Act 2006	Officials	122

Other Policy and Remedial Changes

Rec #	Recommendation description	Submitter	Page #
54.	Make adjustments for low-value assets and short-term leases	Jim Gordon Tax Ltd	138
55.	Allow taxpayers to apply the new rules on a lease-by-lease basis	Officials	142
56.	Apply minor drafting improvements	Officials	143
57.	Broaden the scope of the provision relating to incorrect GST treatment	2 submitters	147
58.	Amend similar provisions to align with the broadened scope of the provision relating to incorrect GST treatment	PwC	147
59.	Amend the wording of section EZ 4B(1(a)(i) to better reflect the criteria for spreading	2 submitters	154
60.	Clarify the wording of section EZ 4B(4) in relation to business cessation	2 submitters	155
61.	Allow the use of the spreading method in relation to shareholder salaries under the circumstances specified in the Standard Practice Statement	CAANZ	156
62.	Amend the spread formula term “number”	CAANZ	157

Remedials

Rec #	Recommendation description	Submitter	Page #
63.	Align the amendment with existing tax treatment	Officials	170
64.	Include contracted labour costs in the scope of the amendment	5 submitters	172
65.	Allow Commissioner discretion on timeframes when taxpayers face balance date changes	EY	178
66.	Correct drafting errors	EY	180
67.	Clarify the meaning of “acquire” in R&D expenditure exclusions	Officials	182
68.	Narrow the scope of the grant-related expenditure exclusion	Officials	183
69.	Remove the requirement that companies eligible to group SAI must be resident in New Zealand	PwC	184
70.	Amend the SAI calculation formula to include payments made within a New Zealand consolidated group, where certain conditions are satisfied	PwC	185
71.	Amend the hybrid financial instrument rule	PwC	186
72.	Transfer pricing deemed arm’s length amount exception	PwC	187
73.	Clarify how the reverse hybrid rule applies to hybrid entities and branches	PwC	188
74.	Amend a transitional effect of section CE 6	Russell McVeagh	196
75.	Correct a typo in section CW 26C(7)(a)(ii)	Officials	197
76.	Narrow section FE 2(1)(d)(i)	Chapman Tripp	206
77.	Retroactively apply section FE 2(4B) from 1 April 2015	2 submitters	207
78.	Amend the formula for group world debt percentages when higher than 60%	5 submitters	209
79.	Clarify meaning of negative total assets	KPMG	209
80.	Correct the terminology surrounding distributions from trusts	Wallis Tax Advisory Ltd	215
81.	Simplify the cross-border related borrowing feature in the restricted transfer pricing rule	PwC	217
82.	Address the inconsistency in the notching for group credit rating	EY	218
83.	Amend clause 84 to include clause (1)(b) of Part B of Schedule 8 of the Income Tax Act 2007	Officials	219

Items Raised by Officials

Rec #	Recommendation description	Submitter	Page #
84.	Amend section EE 40 relating to restrictions on depreciation rates	Officials	231
85.	Repeal the building fit-out transitional rule from the 2020-21 income year	Officials	231
86.	Simplify the PIE schedular income year-end adjustment calculation	Officials	233
87.	Clarify that PIE losses and loss tax credits are incorporated when calculating a person’s income tax adjustment	Officials	233
88.	Clarify that a natural person investor is a New Zealand resident	Officials	234
89.	Clarify that the adjustment does not apply to a trustee of a trust	Officials	234
90.	Limit the removal of excluded income status for multi-rate PIE income	Officials	235
91.	Include tax adjustments for under- and over-payments of tax on PIE income when calculating residual income tax	Officials	235
92.	Allow transfer tax refunds to an amount borrowed under the Small Business Cashflow (Loan) Scheme	Officials	237
93.	Add a transitional provision to the definition of “initial provisional tax liability”	Officials	238
94.	Retrospectively carve foreign trust registration and annual return fees out of the definition of “tax”	Officials	238
95.	Allow the use of passport numbers in the student loan customs information match	Officials	239
96.	Treat all distributions by an approved unit trust as trustee income	Officials	240
97.	Include the Problem Gambling Levy within the meaning of “tax”	Officials	240
98.	Allow temporary loss carry-back to enable loss grouping for groups that are not wholly owned	Officials	241

Maintenance items

Rec #	Recommendation description	Submitter	Page #
99.	Correct a drafting error in the maintenance item in clause 83	CAANZ	245