Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill

  • enacted

Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill

Government Bill

233—2

As reported from the Finance and Expenditure Committee

Commentary

Recommendation

The Finance and Expenditure Committee has examined the Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill and recommends that it be passed with the amendments shown.

Introduction

The Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill introduces changes to many areas of the current tax laws. The bill provides for the reform of the international tax rules, among other measures introducing a tax exemption for the foreign active income of controlled foreign companies1 (CFCs), and exempting most foreign dividends received by New Zealand companies from tax. This reform aims to allow New Zealand residents with active businesses in overseas markets to compete on an equal footing with their competitors.

The bill would align life insurance taxation rules more closely with the actual profits of term life insurance business, and extend portfolio investment entity rules to life insurers’ savings products. It includes changes to the income tax rules for petroleum mining, such as ring-fencing deductions for petroleum mining undertaken in a foreign country through a branch, removing the distinction between onshore and offshore development, and introducing a reserve depletion method for deductions.

The bill would introduce a voluntary payroll giving scheme, which would allow employees to make regular payroll donations from their pay and to enjoy the relevant tax benefit immediately rather than at the end of the tax year. It contains specific tax rules for the treatment of honoraria and payments to reimburse expenditure incurred in voluntary activities. It would also clarify the tax treatment of relocation payments and overtime meal allowances for employees.

This bill would amend the Goods and Services Tax Act 1985 so that loyalty programme operators could defer the imposition of Goods and Services Tax (GST) until loyalty points were redeemed. The amendments to the Goods and Services Tax Act 1985 would also allow certain exported second-hand goods, which were not to be re-imported into New Zealand, to be zero-rated if the exporter had claimed a second-hand goods deduction.

The bill includes remedial amendments to the tax pooling rules in the Income Tax Act 2007, the tax rules for portfolio investment entities (PIEs), and the tax rules for offshore portfolio investment in shares. They aim to ensure that the legislation reflects the original intent of the rules.

Numerous other changes are also proposed in this bill. For example, the bill would reform the definitions of “associated persons” in the Income Tax Act, and provide for the taxation of emission units arising under the Climate Change Response Act 2002 and of grants made from the Screen Production Incentive Fund announced in Budget 2008.

In addition to these changes, the Minister of Revenue released Supplementary Order Paper 224 to the bill and asked us to consider it. Supplementary Order Paper 224 provides for new rules relating to stapled debt securities’ tax treatment, which would not apply to debt securities stapled before 25 February 2008. We agreed to consider this supplementary order paper alongside the main bill, and have incorporated in our recommended amendments those portions of the supplementary order paper with which we agree.

The depth and breadth of the bill

The proposals contained in the bill are significant and complex, and cover a wide range of taxation issues. The size of the bill, and the depth and breadth of the material it covers, have made our consideration more difficult than it might have been otherwise. In trying to meet the report due date for the bill, we and our committee consideration processes have been put under considerable pressure. We do not consider it desirable to put a number of very distinct and significant proposals into one bill simply because they relate to one area of law. In future, we would prefer to see such proposals introduced to the House as separate, more manageable bills. If such proposals are not divided sensibly, the House might wish to accord significantly more than the usual consideration time to committees charged with considering such bills. Ministers should remain mindful that if departmental advisers are appointed to advise committees on such bills, they will need to meet committee deadlines and information needs under pressure.

We wish to thank our independent specialist advisers for the significant role they have played in our consideration. We have relied heavily upon them for assurance about certain aspects of the bill and the amendments we are proposing.

Technical amendments and focus of our commentary

The bill proposes a raft of technical amendments, on which we make no comment in this report. We understand that tax practitioners and Inland Revenue Department field staff frequently propose such amendments as they recognise the need for them in the course of using tax legislation.

This commentary sets out only the key amendments we propose and addresses the main issues that we considered. It does not cover minor or technical amendments.

Application dates

We recommend amendments to change the application dates for provisions proposed in the bill. The bill as introduced sets dates that do not allow sufficiently for the progress of the bill through Parliament.

We considered this matter very carefully. We received communications from the Minister of Revenue, and sought advice and options from advisers on appropriate application dates for various provisions. We appreciate that there are trade-offs between the various options. On balance, we agree with the recommendations from the department.

The key changes we recommend to the application dates of specific provisions in the bill are set out below.

International taxation provisions

We recommend that the new international tax rules apply to all taxpayers from the 2010–2011 income year. We also recommend that, for the 2009–2010 income year, the new international tax rules apply to taxpayers with balance dates on or after 30 June, while the existing international tax rules continue to apply to taxpayers with balance dates before 30 June.

Our recommended application date for the new international tax rules would provide certainty for all taxpayers for the 2009–2010 income year, while allowing at least some taxpayers to benefit from the new rules at the earliest opportunity.

Life insurance

We recommend that the new rules on the taxation of life insurance business apply from 1 July 2010 generally. This application date is intended to allow all life insurers sufficient time to develop adequate systems to comply with the new rules.

We recommend that life insurers be given the option of applying the new rules on the taxation of life insurance business from the beginning of their income year, if that year includes 1 July 2010. This flexible arrangement would allow life insurers with balance dates earlier than 30 June 2010 to provide extended PIE benefits to their policyholders at an earlier date. It might also reduce the compliance costs for such life insurers.

To complement the previous recommendation, we recommend that a life insurer who elects to apply the new rules on the taxation of life insurance business from the beginning of their income year be permitted to choose to apply the new grandparenting provisions from the beginning of the same income year rather than from 1 July 2010.

Associated persons

To ensure that the amendments to the definitions of “associated persons” would not have a retrospective effect, we recommend that the general application date for these amendments (excluding those in the land provisions) be deferred to the 2010–2011 income year and the subsequent years. We recommend that the amendments in the land provisions, except for section CB 11, apply to land acquired on or after the date of enactment. We recommend that the amendments in section CB 11, which relates to disposal of land within 10 years of completing improvements, apply to land on which improvements started on or after the date of enactment.

Portfolio investment entity rules

We recommend amending clause 2 to defer the application date for the rewritten PIE rules from 1 April 2009 to 1 April 2010 generally. This would prevent these rules from being applied retrospectively.

Film production and Government funding

We recommend that amendments be made to defer the application date of the proposed changes to the tax treatment of the Large Budget Screen Production Grant payment. We recommend providing that the proposed changes apply if the final application for the grant is made on or after 1 October 2009, except when the project incurred at least $3 million of film-related expenditure by 1 July 2008. We believe that deferring the application date would give the film industry sufficient notice of the proposed changes, and would prevent an unnecessary erosion of the revenue base of film projects that have already incurred significant expenditure.

We recommend amending clause 2(18) to defer the application date of the scheme for deducting Screen Production Incentive Fund payments to 1 January 2010. This deferred application date would prevent existing film productions that have received such payments from being caught by the new tax deduction rules, giving them certainty about their tax treatment.

We recommend that the application date of the proposed information-sharing and secrecy provisions between the Inland Revenue Department and the New Zealand Film Commission be deferred from 1 July 2008 to the date of the enactment of this bill. We consider it inappropriate to apply these provisions retrospectively.

Payroll giving

We recommend that the application date for the proposed provisions for the payroll giving scheme be postponed from 1 April 2009 to three months after the enactment of the bill. We believe this would give employers and the Inland Revenue Department sufficient time to roll out the systems for implementing the scheme.

Other commencement dates

We recommend amendments to change the proposed commencement dates of other provisions in the bill, such as those relating to KiwiSaver, Niue development, recognised seasonal workers, tax pooling, and transitional ICA penalties, to ensure that these provisions would operate effectively and be applied appropriately. Most would come into effect on the date of Royal assent. We have not recommended changes to the commencement dates of provisions relating to stapled stock, petroleum mining, emissions trading, general insurance, banking continuity, charitable donee status, tax recovery arrangements, tax depreciation rules, relocation payments and overtime meal allowances, reimbursements and honoraria paid to volunteers, research and development tax credits, and GST and remedial amendments. We consider that the application dates contained in the bill as introduced are appropriate in respect of these provisions.

Raising certain tax thresholds

We recommend deleting provisions regarding changes to tax thresholds for small and medium-sized enterprises (SMEs) from this bill. We examined these provisions when considering the Taxation (Business Tax Measures) Bill, which was subsequently enacted in March 2009. The Taxation (Business Tax Measures) Act 2009 has rendered the similar provisions in this bill redundant.

Income Tax Act definitions of “associated persons”

The bill proposes changes to the definitions of “associated persons” in the Income Tax Act. The changes introduced in this bill are intended to address weaknesses in the current definition (which is used mainly in an anti-avoidance capacity), which primarily affect its application to land sales. The bill proposes the implementation of a tripartite test, which would associate two persons if they were each associated with the same third person. It also introduces new tests for the application of the definition in relation to trusts, and sets out new rules for aggregating the interests of associates to prevent the tests for associating two companies and a company and a person other than a company being circumvented by the fragmentation of interests and their distribution among close associates.

We recommend a number of amendments to reduce uncertainty and narrow the scope of the proposed tests. We are concerned that the tests contained in the bill as introduced could inadvertently capture those involved in truly arm’s-length transactions. The amendments we propose are meant to give effect to the policy intention of capturing non-arm’s-length transactions, whilst not applying more widely than necessary to protect the tax base. We examined these amendments in detail, and tested examples against the proposed amendments, to ensure that the policy intent of the provisions is being given effect without capturing circumstances or individuals that are not intended to be captured. The amendments we recommend would ensure, for example, that person A and person B would not automatically be associated persons where person B was a property developer and they both held a 50 percent interest in a company, but each person would be associated with the company itself (new section YB 14 in clause 414). An adult child would not be associated with a parent’s spouse or the spouse’s company under compliance cost savings provisions (new sections YB 3 and YB 4 in clause 414). The key amendments we recommend are described below.

Limitation of tripartite test

We recommend narrowing the scope of the tripartite test in proposed section YB 14 of the Income Tax Act (clause 414) to make it apply to two persons only if they are each associated with the same third person under different associated persons tests in clause 414. Furthermore, we recommend amendments to ensure that the tripartite test would not apply if two persons were both associated with the same third person under any of the companies-related associated persons tests in proposed section YB 2 or YB 3.

We note that narrowing the scope of the tripartite test would complement amendments we recommend to proposed sections YB 2, YB 3, YB 5, and YB 6 of the Income Tax Act (clause 414).

Limitation of the test associating relatives

We recommend amending proposed section YB 4(4) (in clause 414) to ensure that a person would not be associated with another person where that person could not be reasonably expected to have knowledge of the existence of the other party and/or their relationship to that party. We consider it undesirable for such people to be captured by the definition of “associated persons”.

Companies as associated persons

We recommend creating an additional exception to the test in proposed section YB 2 of the Income Tax Act (clause 414), which determines whether two companies are associated persons. This exception would provide that the test would not apply to a company that is a PIE or that is eligible to become one, for the purposes of the land provisions in the Income Tax Act. This amendment would prevent a widely held fund from being adversely affected by the test in proposed section YB 2 because of the personal land dealings of the directors of the fund.

Trustee-for-relative test

We recommend that the associated persons test in proposed section YB 5 of the Income Tax Act (clause 414), known as the “trustee-for-relative test”, not apply for the purposes of the land provisions. This would align it with the other beneficiary-related associated persons tests in proposed sections YB 6 and YB 9, neither of which would apply for the purposes of the land provisions.

We recommend that energy consumer trusts established under the Energy Companies Act 1992 and unit trusts administering bonus bonds be excluded from the trustee-for-relative test in proposed section YB 5 of the Income Tax Act (clause 414), and the trustee-and-beneficiary test in proposed section YB 6 (clause 414). These trusts are public in nature and do not pose a risk to the tax base. The tests in proposed sections YB 5 and YB 6 are aimed at private rather than public trusts.

Charitable purposes

We recommend not treating “charitable organisations” (as defined in section YA 1 of the Income Tax Act) as beneficiaries for the purposes of proposed sections YB 6 and YB 9 (section YB 16(2) in clause 414). This would ensure that trustees and settlors of trusts would not be treated as associated persons simply because the same charity was a beneficiary of their trusts. We recommend that proposed section YB 7 of the Income Tax Act (clause 414) be amended to treat two persons who are in a marriage, a civil union, or a de facto relationship as the same person for the purpose of identifying a common settlor. We consider this amendment necessary to preclude the possibility of circumventing the proposed definition of “associated persons” by the use of “mirror trusts”. A “mirror trust” is a family trust settled by one spouse for the benefit of his or her spouse while the latter settles another family trust for the former.

We recommend that an exception be created exempting charitable trusts from the associated persons test for a trustee and a settlor in proposed section YB 8 of the Income Tax Act (section YB 8(2) in clause 414). This would prevent donors to charitable trusts from being treated as being associated with each other. We consider such an assumption of association would be impractical and inappropriate, and do not consider that excluding charitable trusts from the test would pose a risk to the tax base.

Employee trusts

For consistency, we recommend amending proposed section YB 15 of the Income Tax Act (clause 414) so that the test in proposed section YB 11, which provides that a trustee of a trust and a person who has the power of appointment or removal of the trustee are associated persons, is subject to an exception for certain employee trusts. We note that the other trust-related associated persons tests in clause 414 are subject to similar exceptions.

Partnerships

We recommend that proposed section YB 13 of the Income Tax Act in clause 414 be deleted to ensure that, in general, a partner could not be associated with the associates of the other partners in the partnership. However, we note that an associate of a partner, such as the spouse of a partner, would still be associated with the partnership under the tripartite test in proposed section YB 14 (clause 414), which associates two persons if both of them are associated with the same third person. For example, a partner’s spouse, who was associated with the partner under the proposed section YB 4, and the partnership, which was associated with the partner under YB 12, would be associated under the tripartite test.

We recommend that proposed section YB 12(2) of the Income Tax Act (clause 414), which creates an exception to the primary test for associating a partnership and a partner in proposed subsection (1), be amended to limit the exception to limited partners only and not general partners in a limited partnership. We consider that this would render proposed section YB 12(2) consistent with current section YB 16(1B) of the Income Tax Act.

We recommend that the proposed removal of the associated persons requirement from the dividend and fringe benefit tax rules, as set out mainly in clauses 11, 41, and 183 of the bill as introduced, not proceed. We are concerned that such a removal could have far-reaching consequences for various arrangements that are neither shareholding nor employment relationships, such as an agreement between a plumber and a bricklayer to use each other’s tools without making payments. Under existing rules, if a person is not a shareholder or associated with a shareholder, he or she does not need to be concerned with the dividend rules. Conversely, the proposed amendment in clause 11 would make it uncertain whether a person would have tax obligations in relation to dividends if he or she received free services from an unassociated person. We consider that this uncertainty outweighs the potential advantages of the proposed amendment.

International tax rules

The bill introduces a new approach to taxing foreign companies that are controlled by New Zealand residents. The key features of the new approach include an active income exemption for controlled foreign companies (CFCs), interest allocation rules for CFCs, repeal of the grey list exemption, and repeal of the conduit rules, which exempt from tax the proportion of a CFC’s income that is attributable to foreign shareholders.

Signposting provision

We recommend the inclusion of new clause 116B, which would insert new section EX 18A into the Income Tax Act. Our recommended amendment would ensure that key provisions relating to the CFC rules (including the application of formulae for the calculation of “attributable CFC income” and of “attributed CFC income or loss”, and the rules for determining whether a CFC is a “non-attributing active CFC”) were set out clearly in one place in the legislation.

The provisions in the bill relating to CFCs are complex, and would be contained in a number of separate sections in the Income Tax Act. Our amendment is intended to make the CFC rules more accessible by providing clear guidance on where relevant rules can be found. We encourage the use of such “sign-posting” provisions in any legislation that proposes the introduction of a complex set of rules located in multiple provisions.

Exemptions from requirement to attribute (active business test)

We recommend some technical amendments to the accounting-based active business test for CFCs in proposed section EX 21E of the Income Tax Act (clause 123), to reduce the cost of applying the test. We note that accounting information would have to be adjusted before it could be used in the test proposed in the bill as introduced, and are concerned that such adjustments might not be straightforward in certain circumstances. In our view, if our recommended amendments were made, taxpayers would be able to make more use of unadjusted summary financial reporting information when applying the test.

We recommend amendments to sections EX 21C(9) and EX 21E(13) (clause 123) to ensure that taxpayers are able to rely upon detailed information taken from a financial report prepared in accordance with International Financial Reporting Standards (IFRS) or their equivalent (IFRSE) or Generally Accepted Accounting Principles (GAAP) as correct for the purposes of the accounting-based active income test. We recommend that an unqualified audit opinion be taken as evidence of compliance with the applicable accounting standards, unless there is a reasonable suspicion of fraud, intent to mislead, auditor incompetence, or lack of auditor independence. We also recommend that the accounting-based active business test be allowed to be used only for accounts that have received an unqualified audit opinion. The combined effect of these recommendations would be that taxpayers using the accounting-based active business test should normally be able to rely on accounting information that had been used to prepare audited financial reports. These recommendations are intended to reduce the compliance costs for taxpayers who use the accounting-based active business test, as they would not normally have to undertake detailed calculations to ensure that detailed information taken from the audited accounts indeed complied with the applicable accounting standards.

We recommend that an anti-avoidance rule be introduced and apply only to prevent taxpayers from manipulating the accounting-based active business test. We recommend that this rule apply only when an arrangement was entered into with a purpose, not merely incidental, of enabling a CFC to satisfy the accounting-based active business test (section EX 21E of the Income Tax Act (clause 123)). The proposed amendment reflects language linked (through the definition of “tax avoidance arrangement”) to the general anti-avoidance provisions in section BG 1 of the Income Tax Act. The amendment we propose is general and would capture, for example, situations where taxpayers use loans (or make financial arrangements) between related parties with different functional currencies to shelter passive income.

Consolidation in the active business test

Under proposed section EX 21D of the Income Tax Act (clause 123), taxpayers would be allowed to consolidate certain CFCs for the purpose of the tax-based active business test. In the bill as introduced, consolidation would be permitted only when the taxpayer had a voting interest of more than 50 percent in each of the CFCs that were to be consolidated. However, we consider that the term “income interest” would be more appropriate than “voting interest” in this context because it is income interest that gives rise to attribution of CFC income, not voting interest. We therefore recommend that, for the purpose of the tax-based active business test, consolidation be permitted only when the taxpayer has an income interest of more than 50 percent in each of the CFCs to be consolidated (section EX 21D of the Income Tax Act (clause 123)).

We recommend that proposed sections EX 21D(1)(a)(ii) and EX 21E(2)(b)(ii) of the Income Tax Act (clause 123) be removed. This amendment would ensure that consolidation for the purposes of the active business test would be allowed only for CFCs that were liable to tax in the same jurisdiction.

We also recommend amending proposed section EX 21D(1)(c) of the Income Tax Act (clause 123) to clarify that taxpayers would not be required to produce consolidated financial accounts in order to group CFCs for the purpose of the tax-based active business test.

Personal services income

We recommend amendments that provide that income from personal services which are not essential support for a product supplied by the CFC are attributed, but then disregarded for the purposes of the active business test (clauses 25, 66, 119, and 123). These amendments would ensure that entities that were set up to shelter personal services income earned by New Zealand residents from New Zealand taxation would always be subject to attribution on that income, but would still be able to qualify as a non-attributing active CFC in respect of their other income. We considered recommending that a CFC fail to pass the active business test if it received any income from personal services, but considered that the cost for businesses to comply with such a measure would be too great.

Currency rules for the active business test

We recommend that proposed section EX 21 of the Income Tax Act (clause 122) be amended so that the currency conversion rules in existing section EX 21(4) would also apply to section EX 21D. The effect of this recommendation would be that, for the purposes of the tax-based active business test, taxpayers would be given the option of calculating the gain in a foreign currency and converting it into New Zealand dollars in accordance with the rules applicable to section EX 21. In the bill as introduced, taxpayers would instead be required to use the functional currency of the CFC concerned, but we consider that more flexibility is desirable. This amendment would also reduce fiscal risk and ensure more consistency between the calculation of passive income in the tax-based active business test and in attribution of income.

Attributable income

Under the proposed rules, if a CFC failed the active business test, its passive income must be attributed to the New Zealand shareholders.

We recommend that a royalty payment received by an upper-tier CFC from a lower-tier CFC be treated as active income, as long as the royalty payment was derived from a non-related third party (section EX 20B(5)(d), clause 119). We acknowledge that there might be valid commercial reasons for using a CFC as a vehicle for repatriating the third-party royalty payments to the New Zealand resident company, for example, where a company had structured itself in such a way that its intellectual property was held in a separate subsidiary.

We recommend amending proposed sections EX 20B(5)(c), (7)(c), and (12)(a) of the Income Tax Act (clause 119) and the definition of “associated non-attributing active CFC” under proposed section YA 1 (clause 408). These amendments would allow an active CFC to pay royalties, interest, and rent to an associated CFC (such as a holding company) without the associated CFC having to recognise any passive income only if the CFC and the associated CFC were liable for tax in the same jurisdiction. This would prevent the possibility that income of an active business might not be taxed in any jurisdiction. For the same reason, we recommend amending proposed section EX 20B(7)(a) and paragraph (b) of the Income Tax Act (clause 119) to ensure that the exemption for rent from property in the CFC’s jurisdiction would be available only to CFCs that were liable to tax in the same jurisdiction.

We recommend amending proposed section EX 20B(3)(k) of the Income Tax Act (clause 119) to clarify the policy intent, which is that passive income should include income derived from the disposal of revenue account property held by a CFC that is used to derive attributable income.

We recommend amending proposed section EX 20B(3) so that income from the disposal of share options held on revenue account would be treated as an attributable CFC amount. We note that this would be consistent with the treatment of income from the disposal of shares held on revenue account, as provided for in proposed section EX 20B(3)(i).

Net attributable CFC income or loss

We recommend allowing a full deduction for the interest paid by a CFC for a loan that is on-lent to associated CFCs (clause 119). Without this amendment, the rules on interest expenditure incurred by CFCs (sections EX 20C to EX 20E) would mean that multinational companies controlled from New Zealand could be liable for more tax if they borrowed loans for the group and on-lent them to operating subsidiaries than if their operating subsidiaries borrowed directly.

We recommend amendments to the rules for excessively debt-funded CFCs in clause 119 (proposed sections EX 20D and EX 20E of the Income Tax Act), to reflect the policy intent of these provisions. It is intended that, when a CFC is excessively debt-funded, its interest deductions should be capped at the amount that would be determined by apportionment by reference to the assets of all the CFCs of the interest holder. Therefore, if a CFC with mainly attributable assets were excessively debt-funded, interest deductions would be limited by reference to the offshore asset mix of the group as a whole.

Interest allocation rules

In the bill as introduced, the proposed interest allocation rules have features intended to mitigate any adverse effects of the provisions on SMEs. For example, there is a minimum threshold of $250,000 for interest deductions, below which the interest allocation provisions would not apply (proposed section FE 5(1B)(b)(i) of the Income Tax Act, clause 158).

We recommend that the minimum threshold for interest deductions be raised to $1 million. We also recommend that the impact of the interest allocation rules be mitigated for firms that breach the 75-percent-debt-percentage safe harbour and have interest deductions of between $1 million and $2 million. These changes would be achieved by the proposed amendments to section FE 6 (clause 159). These extensions of the concessions are recommended as a result of discussions between our specialist advisers, the Inland Revenue Department, and accounting firms. We understand that they are designed to mitigate much of the adverse effect of the interest allocation provisions on SMEs as they expand overseas.

Foreign dividend exemption

We recommend that fixed-rate foreign dividends and deductible foreign dividends be treated as non-exempt dividends (clause 32), rather than as interest or financial arrangement income, as proposed in the bill as introduced. We consider that, if our recommendation is not adopted, compliance costs could be increased and existing commercial arrangements jeopardised.

Transitional and consequential matters

To reduce compliance costs and make the rules easier to apply, we recommend that the transitional rules for historical losses and historical foreign tax credits (clauses 220, 220B, and 253) be amended.

To reduce complexity, we recommend that there be no requirement for historical losses and historical foreign tax credits to be used first against non-attributable income or notional tax on such income. To reduce compliance costs, taxpayers would be allowed to elect to convert all historical losses and historical foreign tax credits into new losses and credits, using figures from the two preceding years, subject to certain constraints. Such an election would be irrevocable, would be made on a jurisdiction-by-jurisdiction basis, and would apply to all New Zealand companies in the same wholly-owned group.

At any time, a taxpayer would be allowed to elect not to carry forward historical losses and credits from a particular jurisdiction.

In addition, taxpayers would be able to use information from CFC accounts for the purposes of calculating the appropriate reduction in historical losses and credits, rather than being required to calculate the old measure of branch equivalent income for entities covered by the active income exemption. This would further reduce compliance costs.

Repeal of the grey list exemption

We support the repeal of the grey list exemption. We considered carefully whether this exemption should be retained, as on its face it is a simple and straightforward way of dealing with the passive income of CFCs. However, New Zealand and the eight grey-list countries all have different tax treatments for passive income. We are therefore concerned that, if the grey list exemption were retained, there would be a high risk of taxpayers using various structures or instruments to avoid tax on passive income. We do not consider it feasible for the Inland Revenue Department to allocate resources to keeping continuous watch on the tax arrangements of these other jurisdictions.

Regarding the repeal of the grey list exemption, we recommend only one minor amendment, to correct a drafting error in clause 425.

Taxation of life insurance business

This bill would introduce new rules for the taxation of life insurance business in New Zealand. These new rules are designed to tax life-risk business on actual profits in a manner similar to the way that other businesses are taxed, and extend the tax benefits of the PIE rules to all savers in life insurance products. Under the proposed new rules, life insurers would be taxed on two bases: a shareholder base (representing income derived for the benefit of shareholders), and a policyholder base (representing income derived for the benefit of policyholders).

We have considered issues arising from the proposed provisions for the taxation of life insurance business, such as the appropriateness of the application date, the allocation of life-insurance income and expenditure between shareholder and policyholder bases, the calculation of various reserves, the allocation of income in relation to participating policies, the use of actuarial concepts (particularly for the application of the premium smoothing reserve), and the coverage of the transitional rules. In view of these issues, we recommend a number of amendments to make the proposed provisions clearer and more flexible.

Bases of taxation

We recommend an amendment to section EY 20 of the Income Tax Act (clause 143) and the inclusion of new section DR 2 (clause 68) to clarify that all direct and indirect expenditure incurred by a life insurer would be deductible in the shareholder base. In our view, new section EY 20 as introduced could be taken to imply that some expenditure incurred by the life insurer but not directly incurred in relation to the gross income on the shareholder base might not be deductible. This would be contrary to the policy intent.

Reserves

We recommend amendments to proposed sections CR 4 and DW 4 of the Income Tax Act (clauses 29 and 79 respectively) to provide that, in relation to non-life insurance policies (such as insurance policies for disability income protection), life insurers are able to claim a deduction for movements in the outstanding claims reserve. Under the bill as introduced, life insurers could make such a deduction in relation to life insurance policies, and general insurers could also do so in relation to general insurance policies. Our recommended amendment would ensure consistent tax treatment of all life insurance and general insurance policies.

Transitional rules

We recommend amendments to ensure that, under section OA 7(1) of the Income Tax Act, where a life insurer has overpaid tax on the life office base under the existing rules, the overpayments would be carried into the new rules and could be used to satisfy tax liabilities arising on both shareholder and policyholder bases, whether or not there was a balance in the company’s imputation credit account. In particular, we recommend amendments to clause 225 to provide that the new rules would not apply to old credit balances; to clause 372 to ensure that policyholder credits would be brought forward correctly (as imputation credits) into the new rules; and to the transitional part-year rules contained in clause 140. In our view, it would be equitable to allow these overpayments to be used to satisfy both shareholder-base and policyholder-base tax liabilities. These amendments are also intended to address concerns raised by some members of the industry.

We recommend an amendment to clause 143 to ensure that the rules for the transitional tax treatment of term insurance products, as contained in section EY 30 of the Income Tax Act, apply to life insurance policies that are reinstated after the application date of the proposed life insurance provisions, provided that they were originally entered into before that date, had lapsed for no more than 90 days before their reinstatement, and the insurer concerned did not treat the reinstated policy as a new policy. We consider that such reinstated policies should not be treated differently from policies that were entered into before the application date of the proposed life insurance provisions and had never lapsed. In addition, we recommend an amendment to section EY 30 (clause 143) which provides that transitional rules would apply to master policies on a look through basis, as they apply to other policies.

General insurance and risk margins

The bill introduced amendments to clarify that general insurers could claim a tax deduction for movements in the outstanding claims reserves calculated under the New Zealand International Financial Reporting Standards (IFRS). We recommend further amendments to make the provisions in question clearer and more taxpayer-friendly.

We recommend amendments to clauses 29(2) and 79(2) to allow an insurer to opt not to apply the proposed provisions for movements in its general insurer’s outstanding claims reserve retrospectively from the 2009 income year. The bill as introduced does not provide such a choice. We were advised by the Inland Revenue Department that allowing these provisions to be applied retrospectively is intended to benefit the taxpayers, as they clarify that movement in reserves calculated for the purposes of IFRS could be deducted for tax purposes. However, we are concerned that applying these provisions retrospectively might not be taxpayer-friendly where a general insurer has filed income tax returns adopting a different approach for tax purposes than for accounting purposes. Therefore, we consider it desirable to allow taxpayers to choose whether to apply these provisions retrospectively.

Payroll giving

We recommend an amendment to clause 447 to make it clear that payroll donations would be held in trust for employees until those donations were transferred to the relevant recipient organisations. This amendment addresses our concern about the risk that employers might fail to transfer employees’ payroll donations for any reason. Our recommended amendment would give employees the right to claim compensation or redress from their employer for any payroll donations that had not been transferred.

Tax treatment of petroleum mining

The bill includes provisions to amend the tax treatment of petroleum mining. They seek to ensure that New Zealand receives its proper share of the benefits from New Zealand petroleum resources, and to remove disincentives to investment in oil and gas exploration and development in New Zealand. We recommend some amendments to clarify the new rules, such as an amendment to new section DT 1A(2) of the Income Tax Act in clause 71 to clarify that petroleum mining losses incurred through a foreign branch could be offset against petroleum mining income from any country other than New Zealand.

Issues not leading to amendments

We considered whether there should be any change to the law for offshore branch operations of petroleum mining companies, especially when such a change would compromise the operations of existing offshore branches. In the bill as introduced, the proposal to ring-fence foreign branch expenditure would apply only to expenditure incurred on or after 4 March 2008, so the tax treatment for expenditure incurred before that date would not be changed.

However, we understand that the proposal would affect the tax treatment of future foreign branch expenditure incurred pursuant to binding contracts entered into before 4 March 2008. While grandparenting provisions could be introduced to exempt such expenditure from the proposed tax rules, we were advised that this would not be desirable, as the fiscal costs involved could be very large since contracts for petroleum exploration are often open-ended.

We therefore recommend that the proposal to ring-fence foreign branch expenditure proceed without exempting future foreign branch expenditure incurred pursuant to binding contracts entered into before 4 March 2008. We note that some petroleum mining companies might have difficulty fulfilling their obligations under these binding contracts when this bill is enacted, but emphasise that this should be an issue only where expenditure is incurred pursuant to a binding contract entered into before 4 March 2008. The Inland Revenue Department has assured us that it intends to monitor this situation, and may consider recommending legislation in future to remedy any unintended consequences.

Tax pooling rules

The bill introduces changes that would extend the tax pooling regime to additional tax payable as a result of a reassessment for all types of tax. We recommend some amendments regarding access to funds in tax pooling accounts, the depositing of funds, the transfer of funds, interest on deposits, and the application date of the tax pooling provisions.

We recommend that proposed section RP 17B of the Income Tax Act in clause 405 be amended so that a taxpayer who owed additional tax as a result of the resolution of his or her dispute with the Commissioner of Inland Revenue could access funds from a tax pooling intermediary within 60 days of the date of the resolution. We believe this would provide sufficient time for taxpayers who initiated dispute proceedings against the Inland Revenue Department to make financial arrangements for any additional tax payable as a result of the resolution of their disputes.

We recommend amending new section RP 17B(1) of the Income Tax Act in clause 405 to reflect the extension of the tax pooling rules to reassessments of all taxes, and to enable any person, not just provisional taxpayers, to deposit money into a tax pooling account. We also recommend amending proposed section RB 17B(1) of the same Act to clarify that the amount held in a tax pooling account on behalf of a person might be refunded to the person, or used to satisfy the person’s liability for terminal tax, provisional tax, or an increased amount of tax resulting from a reassessment, voluntary disclosure, or the resolution of a dispute.

We recommend that clause 406 be amended to enable an intermediary to instigate the transfer of tax pooling funds between intermediaries when one of them starts or ceases its business. The clause as drafted would incur an unnecessary compliance cost because intermediaries would have to arrange for each taxpayer who had money invested in the pool to request separately a transfer to another intermediary. For clarification, we recommend that section 120 OE(1) of the Tax Administration Act 1994 be amended to specify that interest is payable on deposits in a tax pooling intermediary’s account from the date on which the deposits were made to the date on which the amount is refunded or transferred.

Issues not leading to amendments

We considered at length whether taxpayers should be allowed to access tax pooling funds to make tax payments, such as regular GST payments, other than provisional tax payments. We concluded that taxpayers should not be allowed to access tax pooling funds to make regular tax payments, where the amount of tax payable is certain. We consider that if tax pooling were allowed in these circumstances, the Crown would have to bear all the risk of taxpayers defaulting on tax payments. Under the tax pooling regime, if a taxpayer failed to pay the tax pooling intermediary concerned within a certain period, the intermediary would be entitled to withdraw from the tax pool the amount of tax payable on behalf of the taxpayer, and therefore would not bear the risk of the taxpayer’s default. The Inland Revenue Department would then have to begin recovery action for the overdue amount. In our view, it would not be prudent for the Government to carry all the risks of non-payment of tax.

Income tax treatment of emissions trading units

The bill contains provisions for the income tax treatment of transactions under the Emissions Trading Scheme, which was introduced by the Climate Change Response (Emissions Trading) Amendment Act 2008. We recommend some changes to improve the operation of these provisions.

Issues not leading to amendments

We considered whether the legislation should be amended to provide expressly for deductions for emissions liability accruals. We were advised that it is clear that a properly calculated amount for an emissions liability at the end of an income year is deductible, even when the requirement to surrender the relevant emissions units arises in a subsequent year. While we accept, on advice, that the legislation does not need to be amended to clarify this point, we believe it would be useful for the Inland Revenue Department to give taxpayers some guidance on deductibility for emissions liability accruals. We expect the Inland Revenue Department to issue guidance to taxpayers on this matter, and have received assurance that it will be addressed in a Tax Information Bulletin shortly after this bill is passed.

GST treatment of transactions relating to emissions units

We recommend deleting provisions regarding the GST treatment of transactions relating to emissions units (clause 524). These provisions have been superseded by the GST amendments introduced by the Climate Change Response (Emissions Trading) Amendment Act 2008.

GST treatment for non-Kyoto emissions units

We recommend that the existing zero-rating GST treatment of Kyoto emissions units be extended to include non-Kyoto emissions units with effect from 1 April 2010. We consider that it would be confusing to apply different GST treatments to different types of emissions units.

Non-disclosure right

We recommend amendments to clauses 437 to 441 to provide that the new provisions for non-disclosure rights would apply to current disputes that had not advanced to the first conference required under the High Court rules or the Taxation Review Authority regulations as at the date of Royal assent, as well as future disputes as provided for in the bill as introduced. We consider that, where a challenge has not yet advanced to conference stage, the non-disclosure right can be applied effectively, regardless of the date upon which the challenge was filed. We see no reason that the new non-disclosure right should not be applied in these conditions.

However, we consider it desirable for taxpayers to be subject to similar non-disclosure rights in similar circumstances. We therefore recommend amendments to clauses 437 to 441 to provide that the non-disclosure right will not apply to challenges that raise substantially similar issues already being considered by the courts.

Tax treatment of reimbursements and honoraria paid to volunteers

Proposed section CW 62B of the Income Tax Act in clause 39 provides that reimbursement payments that are based on actual expenses incurred by volunteers in undertaking voluntary activities will be treated as exempt income, if they are made separately from honoraria, which are treated as schedular payments subject to the PAYE rules.

We recommend amending proposed section CW 62B of the Income Tax Act (clause 39) to provide that, where a payer makes a combined payment of reimbursement and honorarium to a volunteer, the payer is not required to treat the whole payment as a schedular payment and withhold tax, as long as the payer can identify clearly which portion of the payment is honorarium and which portion is reimbursement. In this case, the portion of the payment that is reimbursement would be treated as exempt income, while the portion of the payment that is honorarium would be treated as a schedular payment and subject to withholding tax. The volunteer would have to include the honorarium in their tax return. We consider that this amendment would reduce the compliance costs for both the volunteers and the organisations that pay them, as it would allow organisations to arrange payments to volunteers more flexibly.

We recommend that the requirement for a “volunteer” to be a New Zealand resident, as defined in section CW 62B(4) of the Income Tax Act (clause 39), be removed.

We asked the Inland Revenue Department to clarify the tax status of people who are in New Zealand subject to the conditions of a temporary entry class visa. The department advised us that non-residents2 who earn New Zealand-sourced income are required to furnish a return of income for a tax year (sections 33A(2) and 33A(3) of the Tax Administration Act). At present, if a non-resident receives a reimbursement for voluntary services, the payment must be declared as income and the expenditure incurred claimed as a deduction. The amendment that we recommend would ensure that filing a tax return is no longer necessary in such circumstances, unless there is other income.

General recommendations regarding the bill

Special bulletin and Tax Information Bulletin

We consider it vital that tax law be clear and accessible for taxpayers, and considered whether further amendment for certainty and clarity would be desirable in particular areas of the bill. We were advised that, in some areas, it would not be possible to recommend amendments for clarity or certainty without posing a risk to the tax base.

We sought assurance from the Inland Revenue Department that it would provide clear guidance to taxpayers in these areas. The department assured us that it would publish a special report explaining some of the new rules introduced by this bill as soon as practicable after the bill is passed, and that this information would also be set out in a Tax Information Bulletin by the end of this year. The special report and the Tax Information Bulletin will be free and available on the department’s website.

We have asked the department to explain the following issues in the special report and upcoming bulletin as comprehensively as possible:

  • active income exemption for royalties

  • the interest allocation rules, particularly in relation to the measurement of debt and assets of associated persons

  • the non-prescriptive and voluntary nature of the payroll giving scheme

  • the donee organisation list for the administration of the payroll giving scheme

  • record-keeping requirements for payroll giving

  • the definition of “regularly engaged” in relation to the exemption for the development of intellectual property by a CFC

  • the definition of “linked to New Zealand” in relation to intellectual property acquired by a CFC

  • the definition of “person” in the context of partnerships

  • deductibility of emissions liability accruals

  • tax treatment of non-resident partners

  • process for correcting error in PAYE resulting from the extinguishment of the payroll giving tax credit

  • the application of the penalty and use-of-money interest rules to payroll giving

  • the new design costs rule for the research and development tax credits

  • corroborating material for the purposes of claiming overpaid tax on past allowances

We encourage the Inland Revenue Department to publish this explanatory material as quickly as possible, and expect the material to include working examples to demonstrate the operation of the new rules wherever possible.

Review of the PIE rules rewrite

We note that the bill would make remedial amendments to the tax rules for PIEs to ensure that they reflect the intended policy. It also rewrites the PIE rules in the plain-language drafting style that has been adopted for other parts of the Income Tax Act. As most of the amendments in the bill are technical in nature, we do not make any comment on them, but comment only on the general application date of the rewritten PIE rules.

However, we are concerned that unintended consequences could result from this rewrite of the PIE provisions. Such consequences occurred when most of the income tax legislation was rewritten in plain-language drafting style in the Income Tax Act. As a result, the Rewrite Advisory Panel was given the tasks of considering submissions on the unintended legislative changes, and recommending amendments to remedy them. We recommend that the panel be given the same tasks in relation to the PIE provisions contained in this bill.

Inland Revenue Department website

We note that the payroll giving scheme requires donations to be given to donee organisations. When we tested the accessibility of information about donee organisations, we were disappointed that this information did not appear to be readily available or easily accessible to the public.

We understand that changes are to be made to the Inland Revenue Department’s website to make this information more accessible. We encourage the department to complete this work as soon as possible, and to communicate the changes to employers and employees. We would like to see information on these changes also set out in the special report and the Tax Information Bulletin that the department has assured us it will be publishing regarding this bill.

Appendix

Committee process

The Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill was referred to the previous committee on 6 August 2008. The closing date for submissions was 15 January 2009. We received and considered 78 submissions from interested groups and individuals. We heard 51 submissions.

We received advice from the Inland Revenue Department, the Treasury, our independent specialist adviser on tax issues, Therese Turner (Chartered Accountant), and an independent specialist adviser on legislative drafting, David McLay (Barrister). We would like to extend our thanks to all who provided assistance to us in our considerations on this bill.

Committee membership

Craig Foss (Chairperson)

Amy Adams

David Bennett

John Boscawen

Brendon Burns

Hon David Cunliffe

Raymond Huo

Rahui Katene

Peseta Sam Lotu-Iiga

Stuart Nash

Dr Russel Norman

Chris Tremain

Key to symbols used in reprinted bill

As reported from a select committee

text inserted unanimously

text deleted unanimously


Hon Peter Dunne

Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill

Government Bill

233—2

Contents

Introductory provisions

Entry rules

Requirements

Exceptions

Exit rules

Rules for multi-rate PIEs

Introductory provisions

Attributing income to investors

Calculating and paying tax liability

Adjusting investors’ interests

Using tax credits

Prescribed and notified rates for investors in multi-rate PIEs

Exit levels and periods

Treatment of losses by PIEs

Losses of certain multi-rate PIEs

Formation losses

Elections and consequences

Income Tax Act 1994

Income Tax Act 1976

Estate and Gift Duties Act 1968

Stamp and Cheque Duties Act 1971

Taxation Review Authorities Act 1994

Taxation (Business Taxation and Remedial Matters) Act 2007

Acts referring to associated person

Companies Act 1993

Insolvency Act 2006

Income Tax (Depreciation Determinations) Regulations 1993

Goods and Services Tax (Grants and Subsidies) Order 1992

KiwiSaver Regulations 2006


The Parliament of New Zealand enacts as follows:

1 Title
  • This Act is the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2008.

2 Commencement
  • (1) This Act comes into force on the day on which it receives the Royal assent, except as provided in this section.

    (2) Section 519(4) is treated as coming into force—

    • (a) in relation to the Parliamentary Service, on 1 October 1986:

    • (b) in relation to the Office of the Clerk of the House of Representatives, on 1 August 1988.

    (3) Sections 621 and 622 are treated as coming into force on 1 April 1993.

    (4) Sections 618 and 620 are treated as coming into force on 1 April 1995.

    (5) Section 623 is treated as coming into force on 1 April 1997.

    (6) Sections 485, 616, 617, 619 are treated as coming into force on 1 October 2001.

    (7) Sections 436(1), 463(1), 478(1), 479(1) and (3), 544, 545, 547, 548, 549, 556, 557, 613(2), (11), and (14), 614, and 625 are treated as coming into force on 1 April 2005.

    (8) Section 479(2) is treated as coming into force on 1 October 2005.

    (9) Sections 546, 555, 613(3), (5), (6), and (10) are treated as coming into force on 1 April 2006.

    (10) Sections 478(2) and 479(4) are treated as coming into force on 3 April 2006.

    (11) Sections 543, 563, 564, 565(1), (3), and (4), 566, 567, 568, 569, 570, 571, 572, 573, 574, 575, 576, 577, 578, 589(2), 610, and 613(9) are treated as coming into force on 1 April 2007.

    (12) Sections 533, 540, and 613(4) are treated as coming into force on 1 July 2007.

    (13) Sections 449, 460, 463(3), 579, 580, 581, 582, 583, 584, 585, 586, 587, 588, 589(1), 590, 591, 592, 593, 594, 595, 596, 597, 598, 602, 603, 604, 605, 606, 607, 608, 609, 611, 612, and 613(13) are treated as coming into force on 1 October 2007.

    (14) Section 552 is treated as coming into force on 1 December 2007.

    (15) Sections 470(2), 502(2), 550, 599, and 600 are treated as coming into force on 19 December 2007.

    (16) Section 551 is treated as coming into force on 4 March 2008.

    (17) Sections 14, 15(1) to (3) and (5), 20, 21, 27, 29, 33, 34, 35, 37, 38, 42, 43, 47, 49, 70, 71, 72, 73, 74, 75, 76(1), (3), and (5), 77(1) and (3), 78(1) and (3), 79, 86, 87, 93, 94, 95, 96, 97, 100, 101, 102(1), 103, 104, 107, 108, 116(1), 122(9) and (16), 127, 128, 129, 130, 131, 132(1) to (3), (5) to (7), and (9), 133, 134, 135(1) to (3) and (5) to (9), 136(1) to (3) and (5) to (9), 137, 138(1), 139(1), (2), and (4), 148, 151, 153, 159(3), 161(1) and (2), 166(1), (3), and (4), 177(4), 179, 180, 181(1), 182(1), 185, 186(1), 194, 196, 197, 198, 201(1), 204, 205(3), 206, 207, 208, 209, 210, 211, 212, 213, 215, 216(2), 219, 223(1), 224, 226, 227, 231, 234, 237(1), (2), and (4), 242, 243, 244, 245, 246, 247, 248, 250, 251(1), (3), and (4), 252, 258(1), 259, 262, 263, 268(1) and (2), 270, 273(2), 275, 279(2), 280(2), 281, 282, 284, 286(1), 287(2), 296, 307(1), 325, 326, 327, 328, 329, 331(2), 336(3), 337, 339, 343(2), 349, 371, 377, 380, 381, 382, 385, 386, 387(1) to (4) and (6), 388, 394, 397, 399, 400, 401, 408(5), (7), (28), (32), (37), (40), (42), (57), (59), (63), (67), (78), (88), (93), (94), (95), (96), (97), (98), (100), (107), (111), (115), (117), (118), (128), (133), (134), (136), (138), (141), (142), and (152), 410, 411, 412, 413, 416, 417(1) and (3), 418, 419, 420, 423, 424, 428, 429, 430, 433(3), 434(4), 435, 446, 451, 455, 459, 462, 463(2), 466, 467, 472, 474, 475, 476, 478(3), 479(5), 480, 481, 482, 483(1), 490, 491, 495, 498, 499, 508, 509, 511, 516, 517, 530, 535, 536, 537, 538, 553, 554, 558, 559, 560, 561, 562, 565(2), 613(7), (8), and (12), and 626 are treated as coming into force on 1 April 2008.

    (18) Sections 22, 46, 62, 64, 65, 69, 89, 90, 91, 92, 229, 230, 408(58), 470(1), 471, 473, and 541 are treated as coming into force on 1 July 2008.

    (19) Sections 5, 6, 13(2) and (3), 16, 17, 19, 25, 26, 30, 32, 53, 54, 55, 60, 66, 67, 80, 98(3) and (4), 102(2), 116(2), 117, 118, 119, 121, 122(1) to (8), (11) to (15), and (17), 123, 124, 125, 126, 132(8) and (11), 138(2) and (3), 147, 154(1) and (2), 155(1) and (2), 156, 157, 158, 159(1), (2), (4), and (5), 160, 161(3) and (4), 162, 163, 164, 165, 166(2), 167(1) and (2), 168(1) to (10), 169(1), 170, 171(1) to (3), 172, 173, 174, 175, 176, 177(1) to (3), (5), and (6), 178, 184, 189, 190, 191, 192, 193, 195, 199, 200, 220, 221, 251(2) and (5), 253, 254, 255, 269, 273(3) and (4), 277, 286(3), 287(3), 288(2), 290, 291, 292, 293, 294, 295, 299, 300, 301, 302, 303, 304, 306, 308, 309, 310, 311, 312, 313, 314, 315, 316, 317, 318, 319, 320, 321, 322, 330(1), 332, 340, 342(1), 343(3), 344(1), 345, 346, 347, 348, 350, 352, 353(1), 354, 355, 356, 357, 358, 359, 360, 361, 362, 363, 364, 365, 366, 367, 370, 373, 374, 375, 376(2) and (3), 391, 392, 396, 398, 408(8), (9), (10), (13), (15), (20), (21), (24), (27), (29), (30), (31), (33), (39), (43), (44), (47), (48), (49), (50), (51), (52), (53), (60), (64), (80), (83), (86), (87), (123), (124), (132), (137), (143), (144), (145), (146), and (147), 409, 421(2), 425, 426, 433(4), 434(1) to (3) and (5), 442(2), 452, 468, 469, 483(2), 484, 486, 487, 488, 489, 496, 497, 500, 501, 505, 506, 507, 512, 514, 515, and 531 are treated as coming into force on 1 October 2008.

    (20) Sections 9, 31, 48, 61, 81(2) and (3), 84, 85, 98(1) and (5), 187, 408(26), (36), (55), (71), (85), (108), (109), (122), (125), and (139), 519(2), and 524 are treated as coming into force on 1 January 2009.

    (21) Sections 150, 222, and 372 come into force on 31 March 2009.

    (22) Sections 4, 7, 8, 10, 11, 12, 13(1), 15(4) and (6), 18, 23, 24, 28, 36, 39, 40, 41, 44, 45, 50, 51, 52, 56, 57, 58, 59, 63, 68, 76(2), (4), and (6), 77(2) and (4), 78(2) and (4), 81(1), 82, 83, 88, 98(2) and (6), 99, 105, 106, 109, 110, 111, 112, 113, 114, 115, 120, 122(10), 132(4) and (10), 135(4) and (10), 136(4) and (10), 139(3) and (5), 140, 141, 142, 143, 144, 145, 146, 149, 152, 154(3), 155(3), 167(3), 168(11), 169(2), 171(4), 182(2), 183, 186(2) and (3), 188, 201(2), 202, 203, 205(1) and (2), 214, 216(1) and (3) to (5), 217, 218, 223(2), 225, 228, 232, 233, 235, 236, 237(3) and (5), 238, 239, 240, 241, 249, 256, 257, 258(2), 260, 261, 264, 265, 266, 267, 268(3), 271, 272, 273(1) and (5), 274, 276, 278, 279(1) and (3), 280(1), 283, 285, 286(2) and (4), 287(1) and (4), 288(1) and (3), 289, 297, 298, 305, 307(2), 323, 324, 330(2) and (3), 331(1) and (3), 333, 334, 335, 336(1), (2), and (4), 338, 341, 342(2), 343(1) and (4), 344(2), 351, 353(2), 368, 369, 376(1), 378, 379, 383, 384, 387(5), 389, 390, 393, 395, 402, 403, 404, 405, 407, 408(2), (3), (4), (6), (11), (12), (14), (16), (17), (18), (19), (22), (23), (25), (34), (35), (38), (41), (45), (46), (54), (56), (61), (62), (65), (66), (68), (69), (70), (72), (73), (74), (75), (76), (77), (79), (81), (82), (84), (89), (90), (92), (99), (101), (102), (103), (104), (105), (106), (110), (112), (113), (114), (119), (120), (121), (126), (127), (129), (130), (131), (135), (140), (148), (149), (150), (151), and (153), 414, 415, 417(2) and (4), 421(1), 422, 431, 436(2), 442(1) and (3), 443, 444, 445, 447, 448, 450, 453, 454, 456, 457, 458, 461, 463(4), 464, 477, 492, 493, 494, 502(1), 503, 504, 510, 526, 527, 528, and 624 come into force on 1 April 2009.

    (23) Section 181(2) comes into force on 1 April 2010.

    (24) Section 181(3) comes into force on 1 April 2011.

2 Commencement
  • (1) This Act comes into force on the day on which it receives the Royal assent, except as provided in this section.

    (2) Sections 56B, 78D, 232, 233, 235, 236, 379, 384, 402, 403, 408(23), (35B), (38), (89), (98C), and (99), 442(1) and (3), 443, 447, 504, 624B, and 624C are treated as coming into force 3 months after this Act receives the Royal assent.

    (3) Section 519(4) is treated as coming into force—

    • (a) in relation to the Parliamentary Service, on 1 October 1986:

    • (b) in relation to the Office of the Clerk of the House of Representatives, on 1 August 1988.

    (4) Section 621 is treated as coming into force on 1 April 1993.

    (5) Section 618 is treated as coming into force on 1 April 1995.

    (6) Sections 618B and 623 are treated as coming into force on 1 April 1997.

    (7) Sections 485, 616, 617, 619, 619B, 620, and 622 are treated as coming into force on 1 October 2001.

    (8) Sections 463(1), 478(1) and (4), 479(1), (3), and (6), 526B, 542B, 542C, 542E, 544, 545, 545B, 547, 548, 548B, 549, 549B, 549C, 549F, 550C, 550D, 550E, 552(1B), 554B, 555B, 555C, 556, 557, 557B, 568B(2) and (4), 601, 613(2), (4D), (6B), (11), (12B), (14), and (16), 614, 622C(1) and (3), and 625 are treated as coming into force on 1 April 2005.

    (9) Section 479(2) is treated as coming into force on 1 October 2005.

    (10) Sections 546, 555, and 613(3), (5), (6), (10), and (15) are treated as coming into force on 1 April 2006.

    (11) Sections 478(2) and 479(4) are treated as coming into force on 3 April 2006.

    (12) Sections 520B, 543, 562B, 563, 564, 565, 566, 566B, 566C, 566D, 567, 568, 568B(1) and (3), 569, 570, 571, 572, 573, 574, 575, 576, 577, 578, 589(2), 610, and 613(4C), (6E), (9), and (18) are treated as coming into force on 1 April 2007.

    (13) Section 504C is treated as coming into force on 17 May 2007.

    (14) Sections 449, 540, 541B(2), and 613(4) and (6D) are treated as coming into force on 1 July 2007.

    (15) Sections 460, 499B, 500B, 549H, 579, 580, 581, 582, 583, 584, 585, 586, 587, 588, 589(1), 590, 591, 592, 592B, 593, 594, 595, 596, 597, 598, 602, 603, 604, 605, 606, 607, 608, 609, 611, 612, and 613(13) are treated as coming into force on 1 October 2007.

    (16) Section 552(1) and (2) is treated as coming into force on 1 December 2007.

    (17) Sections 470(2), 550, 599, and 600 are treated as coming into force on 19 December 2007.

    (18) Section 550B is treated as coming into force on 1 January 2008.

    (19) Sections 542D, 543B, 549G, 550F, 568C, 568D, 568E, 578B, 578C, 578D, 578E, 578F, 580B, and 613(3B), (3C), (4B), (4E), (4F), (6C), and (13B) to (13E) are treated as coming into force on 25 February 2008.

    (20) Section 551 is treated as coming into force on 4 March 2008.

    (21) Sections 5(1), (2), (4), (5), and (7), 9B, 10B, 12(1)(b), 12B, 14, 15(1), (2), (3), and (5), 17(3), 20, 21, 22, 23, 27, 29, 29B, 29C, 29D, 29E, 32(1) and (2), 33, 33B, 34, 35, 37, 38, 39, 40B, 42, 43, 45(1A) and (3), 47, 49, 52C, 55B, 56(3), 57B, 61C, 61D, 61E, 61F, 67C, 70(1) and (3), 71, 72(1) to (4), 73, 74, 75, 76(1), (3), (5), and (7), 77(1), (3), and (5), 77B(1) and (3), 78(1), (3), and (5), 78B(1), (3), and (5), 78C, 79, 80B, 85B, 86, 87, 87B, 87C, 93, 94, 95, 96, 97, 99B, 99C, 100, 101(1), 102(1), (2), and (4), 103, 104, 105B, 105C, 105D, 107, 108, 108B, 115B, 115C, 116(1), 122(9) and (16), 127, 127B, 128, 128B, 129, 130, 131, 132(1) to (3), (5) to (7), and (10), 133, 134(1), 135(1A), (1) to (3), and (5) to (9), 136(1A) to (3) and (5) to (9), 137, 138(1), 139(1), (2), and (4), 139B, 139C, 141C, 148, 148B, 151, 151B, 151C, 153, 153B(1), (4), and (5), 157(2), (3), and (5), 159(3) and (6), 163(1) and (3), 166(1), (2B), (3), (4), and (4C), 174B, 177(4), 178B, 179, 179B, 179C, 180, 181(1) and (4), 182(1), 185, 186(1), 194, 195B, 195C, 195D, 196, 197, 198, 200B, 201(1), 201B, 202(2) and (4), 202B, 202C, 203B, 203C, 203D, 203E, 203F, 203G, 203H, 203I, 204, 206, 207, 207B, 208(1), (2), (4), and (6), 209, 210, 211, 211B, 212, 213, 213B, 214B, 216(1B), (2), and (7), 217(1B) and (4), 218(1) and (4), 219, 219B, 220(1B) and (3), 220C, 221B, 223(1), 224, 226, 227, 228B, 230B, 231, 234, 237(1), (2), (4), and (6), 242, 243, 244, 245, 245B, 247, 248, 249, 249B, 249C, 250, 251(1), (3), (4), and (7), 252, 254B, 254C, 256B, 256C, 257B, 257C, 257D, 257E, 257F, 257G, 257H, 257I, 257J(1) and (3), 257K, 257L, 257M, 257N, 257O, 258, 260B, 262, 263, 263B, 268, 271(1), (2), (4), (5), and (7), 271B, 273(2) and (6), 275, 278B, 279(2) and (5), 281, 282, 284, 284B, 285B, 285C, 286(1), (4), and (8), 287(2) and (6), 296, 307(1) and (3), 308(1A) and (1B), 308B, 311B, 315(1A) and (1B), 325, 326, 327, 328, 329, 330B, 331(2) and (5), 336(3) and (6), 337, 339, 340B, 343(2), (4), and (7), 349, 353B, 371, 373B, 374(2), (3), and (5), 375(1), (3), and (5), 376(1A) and (3B), 376B, 376C, 377, 377B, 377C, 378B, 379B(2), (3), and (4), 380, 381, 382, 382B, 383B, 384B, 385, 386, 387(1) to (4), (7), and (9) to (11), 388B, 389(1) and (3) to (5), 390(1) and (3) to (5), 390B(1) to (6) and (8) to (13), 390C, 390D, 390E, 390F, 390G, 390H, 390I, 392B, 392C, 393(1), (2), (4), (5), (7), and (8), 393B, 393C, 394, 397, 399, 400, 401, 401B, 401C, 402B, 402C, 405, 406, 407, 407B, 407C, 408(5), (7), (9B), (22B), (23C), (23D), (28), (29B), (32), (36B), (37B), (37C), (37D), (38B), (38C), (38E), (38F), (38G), (40), (40B), (40C), (42), (49), (56B), (57), (59), (63), (64B), (67), (67B), (74B), (78), (80B), (80C), (88), (90B), (92B), (93), (94), (95), (96), (97), (98), (98B), (98D), (100), (107), (107B), (107C), (110C), (111), (111B), (115), (115B), (117), (118), (128), (129B), (130B), (132), (133), (134), (134B), (136B), (138), (142), (145B), (149), (152), (154), (155), and (158), 182(1), 201(1), 410, 411, 412, 413, 414B, 415B, 415C, 415D, 416, 417(1) and (3), 417B, 418, 419, 420, 420B, 422B(3) to (8), 422C, 423, 423B, 424, 425B, 428, 429, 429B, 430, 433(2B), (3), (5B), and (6), 434(4), 435(1), and (3), 446, 450B, 450C, 451(2), 455, 459, 462, 463(2) to (3), 465(1), 466, 467, 467B, 469B, 469C, 472, 474, 475, 476, 478(3) and (5), 479(5) and (7), 480, 481, 482, 483(1), 485B, 490, 490B, 493B, 495, 496B, 498, 498C, 498D, 499, 502B, 504B, 508, 509, 510, 511, 516, 517, 530(1) to (3), 531B, 532B, 535, 536, 537, 538, 539B, 539C, 541B(3) and (4), 553, 554, 559, 560, 561, 562, 613(7), (8), (12), and (17), 622C(2) and (4), 622D, and 626 are treated as coming into force on 1 April 2008.

    (22) Sections 64, 229, 230, 257J(2), 379B(1), 408(99B), 541, 628, and 629 are treated as coming into force on 1 July 2008.

    (23) Sections 31, 45B, 48, 546B, 549D, and 549E are treated as coming into force on 26 September 2008.

    (24) Section 102(3) and (5) is treated as coming into force on 1 October 2008.

    (25) Sections 9, 61, 61B, 81(2) and (3), 84, 85, 98(2) and (4), 132(8), (12), and (14), 133B, 134(1), 186B, 187, 408(26), (36), (38H), (55), (71), (85), (108), (109), (122), (125), and (139), and 519(2) and (3B) are treated as coming into force on 1 January 2009.

    (26) Sections 8B, 67B, 83B, 101(2) to (6), 103B, 132(9) and (11), 134(2) and (3), 139(3B) and (7), 139D, 148C, 203J, 204B, 205, 206B, 208(3), (5), (7), and (8), 219C, 255B, 286(2) and (6), 287(3) and (7), 288(1), (3), and (4), 330(1) and (4), 345, 346, 347, 348, 376(1), 383, 387(5), (6), and (8), 389(2), 390(2), 390B(7), 395B, 395C, 395D, 395E, 404, 408(62), (125B), and (141), 417(2), (4), and (5), 422, 426B, 444, 445, 454, 458, 528, 530(4), and 533B are treated as coming into force on 1 April 2009.

    (27) Sections 5(3), (6), and (8), 6, 13(2) to (5), 17(1), (2), and (4), 18B, 19, 25, 26, 30, 32(3) and (6), 53, 54, 55, 60, 66, 67, 80, 116B, 117, 119, 121, 122(1) to (8),(11) to (15), (17), and (18), 123, 124, 125, 126, 138(2) to (4), 147, 154, 155, 156, 157(1) and (4), 158, 159(1), (2), (4), (5), and (7), 160, 161, 162, 163(2), (4), and (5), 164, 165, 166(2) and (5), 167, 168, 169, 170, 171, 172, 173, 174, 175, 176, 177(1) to (3) and (5) to (7), 178, 180B, 181(2), (3), and (5), 184, 189, 190, 191, 192, 193, 195, 199, 200, 220(1) and (2), 220B, 221, 251(2), (5), and (6), 253, 254, 255, 269, 273(3), (4), and (8), 277, 286(3) and (7), 288(2) and (5), 290, 291, 292, 293, 294, 295, 299, 300, 301, 302, 303, 304, 306, 308(1) and (2), 308C, 309, 310, 311, 312, 313, 314, 315(1) and (2), 316, 317, 319, 319B, 320, 321, 322, 332, 340, 342(1) and (3), 343(3) and (8), 344(1) and (3), 352, 353(1) and (3), 354, 355, 356, 357, 358, 359, 360, 361, 362, 364, 365, 366, 367, 370, 373, 374(1) and (4), 375(2), (4), and (6), 376(2), (3), and (4), 391, 392, 396, 408(8), (9), (10), (13), (15), (20), (21), (24), (27), (29), (30), (31), (33), (39), (43), (44), (47), (48), (50), (51), (52), (53), (60), (64), (65), (70B), (80), (83), (86), (87), (123), (123B), (124), (137), (140B), (143), (144), (145), (146), (147), and (159), 409, 421(2) and (4), 425, 426, 433(4) and (7), 434(1) to (3), (5), and (6), 442(2), 452, 468, 469, 483(2) and (5), 484, 486, 487, 488, 489, 496, 497, 500, 501, 505, 506, 507, 512, 514, and 515 are treated as coming into force on 30 June 2009.

    (27B) Sections 36, 45(1), (2), and (4), 46, 62, 63, and 65 come into force on 1 October 2009.

    (28) Sections 69, 89, 90, 91, 92, 408(74), (75), and (82B) come into force on 1 January 2010.

    (29) Sections 4, 7, 8, 11, 12(1)(a) and (2), 13(1), 15(4), (6), and (7), 18, 24, 32(4), (5), and (7), 40, 50, 50B, 51, 52, 52B, 56(1), (2), and (4), 57, 58, 59, 70(2), (4), and (5), 72(5) and (6), 76(2), (4), (6), and (8), 77(2), (4), and (6), 77B(2) and (4), 78(2), (4), and (6), 78B(2), (4), and (6), 81(1), 82, 88, 115, 116(2) and (3), 120, 122(10) and (19), 132(4) and (13), 135(4), (10), and (11), 136(4), (10), and (11), 139(3), (5), and (6), 144, 145, 166(1B), (3B), (4B), and (6), 182(2) and (3), 186(2) to (4), 188, 201(2) and (3), 202(1) and (3), 203, 214, 214C, 216(3), (5), and (8), 218(2), (3), and (5), 223(2) and (3), 228, 237(3), (5), and (7), 241, 256, 257, 271(3), (6) and (8), 276, 289, 323, 344(2) and (4), 378, 393(3), (6), and (9), 395, 408(2), (3), (4), (12), (14), (16), (17), (18), (19B), (22), (25), (35), (41), (46), (54), (56), (61), (66), (68), (68B), (69), (70), (72), (73), (76), (78B), (79), (82), (84), (90), (92), (101), (105), (106), (112), (119), (120), (121), (129), (131), (150), (151), (153), and (157), 414, 414C, 415, 422B(1) and (2), 426C, 431, 448, 450, 453, 456, 457, 461, 463(4) and (5), 477, 502, 503, 524(3), and 624 come into force on 1 April 2010.

    (30) Sections 150 and 372 come into force on 30 June 2010.

    (31) Sections 28, 38B, 44, 68, 98(1), (3), (5), and (6), 140, 141, 141B, 142, 143, 146, 149, 216(1), (4), and (6), 217(1), (2), and (3), 222, 225, 238, 239, 240, 264, 265, 266, 267, 272, 273(1), (5), and (7), 274, 278, 279(1), (3), and (4), 283, 285, 286(5) and (9), 287(1), (4), and (5), 297, 298, 305, 307(2) and (4), 324, 330(2), (3), and (5), 331(1), (3), and (4), 333, 334, 335, 336(1), (2), (4), and (5), 338, 341, 342(2) and (4), 343(1), (5), and (6), 351, 353(2) and (4), 368, 369, 408(6), (11), (19), (23B), (26B), (27B), (35C), (38D), (40D), (41B), (45), (58B), (60B), (77), (77B), (81), (83B), (102), (103), (104), (109B), (110), (110B), (113), (114), (115C), (119B), (126), (127), (130), (135), (138B), (140), (148), and (156), 421(1) and (3), 464, and 493 come into force on 1 July 2010.

Part 1
Amendments to Income Tax Act 2007

3 Income Tax Act 2007
  • This Part amends the Income Tax Act 2007.

4 Income tax liability of person with schedular income
  • (1) After section BC 7(3), the following is added:

    Income tax liability of multi-rate PIEs
    • (4) The income tax liability for a tax year of a multi-rate PIE is determined under subpart HM (Portfolio investment entities).

    (2) In section BC 7, in the list of defined terms, multi-rate PIE is inserted.

    (3) Subsections (1) and (2) apply for the 2009–10 and later income years.

    (3) Subsection (1) applies for the 2010–11 and later income years.

5 Withholding liabilities
  • (1) Section BE 1(6) is repealed.

    (2) In section BE 1, in the list of defined terms, FDP and FDP rules are omitted.

    (3) Subsections (1) and (2) apply for the 2009–10 and later income years.

    (1) Section BE 1(1) is replaced by the following:

    PAYE income payments
    • (1) A person who makes a PAYE income payment must withhold an amount from the payment under the PAYE rules.

    (2) A person who makes an employer's superannuation cash contribution must pay ESCT under the ESCT rules.

    (3) Section BE 1(6) is repealed.

    (4) In section BE 1, in the list of defined terms, retirement savings scheme, retirement scheme contribution, RSCT, and RSCT rules are inserted.

    (5) In section BE 1, in the list of defined terms,—

    • (a) employer's superannuation contribution and PAYE payment are omitted:

    • (b) employer's superannuation cash contribution and PAYE income payment are inserted.

    (6) In section BE 1, in the list of defined terms, FDP and FDP rules are omitted.

    (7) Subsections (1) and (2) apply for the 2008–09 and later income years.

    (8) Subsection (3) applies for—

    • (a) the 2009–10 and later income years, for persons having a balance date on or after 30 June; or

    • (b) the 2010–11 and later income years, for persons having a balance date before 30 June.

6 Other obligations
  • (1) Section BF 1(d) is repealed.

    (2) In section BF 1, in the list of defined terms, further FDP is omitted.

    (3) Subsections (1) and (2) apply for the 2009–10 and later income years.

    (3) Subsection (1) applies for—

    • (a) the 2009–10 and later income years, for persons having a balance date on or after 30 June; or

    • (b) the 2010–11 and later income years, for persons having a balance date before 30 June.

7 Disposal: land used for landfill, if notice of election
  • (1) Section CB 8(c) is replaced by the following:

    • (c) the person acquiring the land is not an associated person; and.

    (2) Subsection (1) applies for the 2009–10 and later income years.

    (2) Subsection (1) applies for the 2010–11 and later income years.

8 Section CB 26 replaced
  • (1) Section CB 26 is replaced by the following:

    CB 26 Disposal of certain shares by portfolio investment entities
    • When this section applies

      (1) This section applies when—

      • (a) the income from the disposal by a person (the entity) of the share is excluded income under section CX 55 (Proceeds from disposal of investment shares); and

      • (b) a dividend from the share is—

        • (i) declared before the disposal; and

        • (ii) paid to a holder of the share who, after the disposal, becomes entitled to the dividend.

      Income

      (2) The entity is treated as deriving an amount of income calculated using the formula—

       (shares at declaration – shares on distribution) × dividend. 
      Definition of items in formula

      (3) In the formula,—

      • (a) shares at declaration is the number of shares held by the entity when the dividend is declared:

      • (b) shares on distribution is the number of shares for which the entity derives a dividend:

      • (c) dividend is the amount of the dividend or, for a share issued by an ICA company, the amount of the dividend that is not fully imputed as described in section RF 9(2) (When dividends fully imputed or fully credited).

      • (c) dividend is the amount of the dividend per share or, for a share issued by an ICA company, the amount of the dividend per share that is not fully imputed.

      Positive result

      (4) The result of the formula must be a positive amount.

      Defined in this Act: amount, company, dividend, excluded income, ICA company, income, pay, portfolio investment entity, shareamount, company, dividend, excluded income, fully imputed, ICA company, income, pay, portfolio investment entity, share

      Compare: 2007 No 97 s CB 26.

    (2) Subsection (1) applies for the 2009–10 and later income years.

    (2) Subsection (1) applies for the 2010–11 and later income years.

8B Section CB 27 repealed
  • (1) Section CB 27 is repealed.

    (2) Subsection (1) applies for the 2009–10 and later income years.

9 New heading and section CB 36 added
  • After section CB 35, the following is added:

    Emissions units under Climate Change Response Act 2002

    CB 36 Disposal of emissions units
    • When this section applies

      (1) This section applies when a person disposes of an emissions unit.

      Income

      (2) The amount that the person derives on the disposal is income.

      Surrender of unit: generally no income

      (3) If the disposal is by surrender under the Climate Change Response Act 2002, the person is treated as having sold the unit, at the time of the surrender, to an unrelated person for an amount equal to the unit's cost, except if 1 of subsections (4) and (5) applies.

      Surrender of unit: post-1989 forest land deforestation

      (4) Despite subsection (3), the person is treated as deriving income of zero if the person surrenders the emissions unit in relation to the deforestation of post-1989 forest land.

      Surrender of unit: deforestation of some pre-1990 forest land

      (5) Despite subsection (3), the person is treated as deriving income of zero if—

      • (a) the person surrenders the emissions unit in relation to the deforestation of pre-1990 forest land; and

      • (b) the person would derive income, other than exempt income or excluded income, from a disposal of the land without timber at the time of the surrender.

      Converted unit treated as sold

      (6) If a person converts a New Zealand emissions unit, other than a forest land emissions unit, into a Kyoto emissions unit under the Climate Change Response Act 2002, the person is treated as having sold the converted unit for an amount equal to the unit's cost.

      Exempt income: pre-1990 forest land unit

      (7) Section CW 3B (Pre-1990 forest land emissions units) applies to the disposal to another person of a pre-1990 forest land emissions unit.

      Disposal at below market value

      (8) Section GC 4B (Disposals of emissions units at below market value) may apply to treat a disposal, other than a surrender, as being for market value.

      Defined in this Act: amount, convert, emissions unit, forest land emissions unit, income, Kyoto emissions unit, New Zealand emissions unit, pre-1990 forest land emissions unit, post-1989 forest land emissions unit, surrender.

9 Heading and section CB 36 replaced
  • The heading before section CB 36 and section CB 36 are replaced by the following:

    Emissions units under Climate Change Response Act 2002

    CB 36 Disposal of emissions units
    • When this section applies

      (1) This section applies when a person disposes of an emissions unit.

      Income

      (2) The amount that the person derives on the disposal is income.

      Surrender of unit: deemed sale at given value

      (3) If the disposal is by surrender under the Climate Change Response Act 2002, the person is treated as having sold the unit, at the time of the surrender, to an unrelated person for an amount equal to—

      • (a) the unit's cost, if none of paragraphs (b) to (f) applies; or

      • (b) the unit's value under section ED 1(7B) (Valuation of excepted financial arrangements), if that subsection applies and none of paragraphs (c) to (f) apply; or

      • (c) zero, if subsection (4) applies; or

      • (d) zero, if subsection (5) applies; or

      • (e) the unit's market value, if subsection (6) applies; or

      • (f) the unit's market value, if subsection (7) applies.

      Surrender of unit: emissions relating to post-1989 forest land

      (4) The person is treated as selling the unit for an amount of zero if the person surrenders the emissions unit for emissions in relation to post-1989 forest land.

      Surrender of unit: deforestation of some pre-1990 forest land

      (5) The person is treated as selling the unit for an amount of zero if—

      • (a) the person surrenders the emissions unit in relation to the deforestation of pre-1990 forest land; and

      • (b) the person would derive income, other than exempt income or excluded income, from a disposal of the land without timber at the time of the surrender.

      Surrender of post-1989 forest land unit: emissions not relating to post-1989 forest land

      (6) The person is treated as selling a post-1989 forest land emissions unit for an amount equal to the unit's market value if the person surrenders the emissions unit other than for emissions in relation to post-1989 forest land.

      Surrender of unit: free unit other than forest land unit

      (7) The person is treated as selling a unit that is not a forest land unit for an amount equal to the unit's market value if—

      • (a) the person surrenders the unit before the period of the emissions to which the unit relates; and

      • (b) the unit was transferred to the person under Part 4, subpart 2 of the Climate Change Response Act 2002 at a price of zero.

      Converted unit treated as sold

      (8) If a person converts a New Zealand emissions unit, other than a forest land emissions unit, into a Kyoto emissions unit under the Climate Change Response Act 2002, the person is treated as having sold the converted unit for an amount equal to—

      • (a) the unit's value under section ED 1(7B), if that subsection applies; or

      • (b) the unit's cost, otherwise.

      Excluded income: post-1989 forest land emissions unit

      (9) Section CX 51B (Disposal of pre-1990 forest land emissions units) applies to the disposal to another person of a pre-1990 forest land emissions unit.

      Defined in this Act: amount, convert, emissions unit, forest land emissions unit, income, Kyoto emissions unit, New Zealand emissions unit, pre-1990 forest land emissions unit, post-1989 forest land emissions unit, surrender.

9B New section CC 8B inserted
  • (1) After section CC 8, the following is inserted:

    CC 8B Certain commercial bills: non-resident holders
    • When this section applies

      (1) This section applies when a non-resident holder of a commercial bill who is required to calculate and allocate income and expenditure under neither the financial arrangements rules nor the old financial arrangements rules because of the application of section EW 9(2) to (4) or EZ 45(e) (which relate to the application of the rules)—

      • (a) disposes of the commercial bill other than by redemption; or

      • (b) redeems a commercial bill whose issuer is an associated person of the non-resident.

      Income: disposal

      (2) The value of the commercial bill on the day the non-resident holder disposes of it is income of the person.

      Income: redemption

      (3) The amount that the non-resident holder receives on redemption is income of the person.

      Defined in this Act: amount, commercial bill, financial arrangements rules, income, non-resident, old financial arrangements rules

      Compare: 2004 No 35 s CZ 8.

    (2) Subsection (1) applies for the 2008–09 and later income years.

10 Transfers of value generally
  • (1) Section CD 4(1)(a) is replaced by the following:

    • (a) the cause of the transfer is a shareholding in the company, whether or not the person holds shares in the company; and.

    (2) Subsection (1) applies for the 2009–10 and later income years.

10B What is a transfer of value?
  • (1) After section CD 5(2), the following is added:

    When shares are cancelled
    • (2B) The market value of any transfer from the shareholder to the company on the cancellation of a share of the shareholder's rights as a shareholder is zero.

    (2) In section CD 5, in the list of defined terms, market value, share, and shareholder are inserted.

    (3) Subsection (1) applies for the 2008–09 and later income years.

11 When is a transfer caused by a shareholding relationship?
  • (1) The section heading to section CD 6 is replaced by Certain shareholding relationships.

    (2) Section CD 6(1) is repealed.

    (3) The heading to section CD 6(2) is replaced by Indication that transfer caused by shareholding relationship.

    (4) In section CD 6(3), the words before paragraph (a) are replaced by the following:

    • (3) A transfer of value by a statutory producer board to a member is not caused by a shareholding if—.

    (5) In section CD 6(4), the words before paragraph (a) are replaced by the following:

    • (4) A transfer of value by a co-operative company to a shareholder is not caused by a shareholding if—.

    (6) Subsections (1) to (5) apply for the 2009–10 and later income years.

11 When is a transfer caused by a shareholding relationship?
  • (1) In section CD 6(1)(a)(ii), shareholder; or is replaced by shareholder; and, and section CD 6(1)(a)(iii) is repealed.

    (2) Subsection (1) applies for the 2010–11 and later income years.

12 Returns of capital: off-market share cancellations
  • (1) In section CD 22(9), in the definition of counted associate, paragraph (b), is a beneficiary is replaced by has benefited or is eligible to benefit.

    (2) Subsection (1) applies for the 2009–10 and later income years.

12 Returns of capital: off-market share cancellations
  • (1) In section CD 22(9),—

    • (a) in the definition of counted associate, paragraph (b), is a beneficiary is replaced by has benefited or is eligible to benefit:

    • (b) in the definition of non-participating redeemable share, paragraph (b)(iii), ; or is replaced by or section FA 2B(2) (Stapled debt securities); or.

    (2) Subsection (1)(a) applies for the 2010–11 and later income years.

12B Treasury stock acquisitions
  • (1) Section CD 25(4), other than the heading, is replaced by the following:

    • (4) If subsection (2) applies, then, with effect from the cancellation or the first anniversary, depending on which first causes subsection (2) to apply, the available subscribed capital of the class of the share is reduced by the lesser of—

      • (a) the amount paid to the shareholder on the acquisition; and

      • (b) the available subscribed capital per share calculated under the ordering rule and, in the case of the first anniversary, calculated as if the share and any other shares to which this subsection applies on that date were cancelled on that date.

    (2) Subsection (1) applies for the 2008–09 and later income years.

13 Property made available intra-group
  • (1) Section CD 27(1)(b) is replaced by the following:

    • (b) the associated company is associated with a shareholder in the first company.

    • (b) in the absence of this section, the transfer would be a dividend under section CD 6(1)(a)(ii) because the associated company is associated with a shareholder in the first company.

    (2) Section CD 27(3)(a)(ii) is replaced by the following:

    • (ii) the first company is associated with a company (the parent company) that has a voting interest in the associated company and that could have received the transfer of value without the transfer being assessable income or non-resident passive income; and.

    (3) In section CD 27, in the list of defined terms, FDP is omitted.

    (4) Subsections (1) to (3) apply for the 2009–10 and later income years.

    (4) Subsection (2) applies for—

    • (a) the 2009–10 and later income years, for persons having a balance date on or after 30 June; or

    • (b) the 2010–11 and later income years, for persons having a balance date before 30 June.

14 Employee benefits
  • In section CD 32(2), CE 1(c) is replaced by CE 1(1)(c).

15 Foreign investment fund income
  • (1) In section CD 36, after the heading, Amount not dividend is inserted as a subsection heading.

    (2) In section CD 36(b)(iv), method; and is replaced by method., and paragraph (c) is repealed.

    (3) After section CD 36(b), the following are inserted as subsections (2) and (3):

    Exclusion for interests in grey list companies
    • (2) Subsection (1)(b)(iv) does not apply if—

      • (a) the FIF is a grey list company; and

      • (b) the person holds a direct income interest of 10% or more in the FIF at the beginning of the income year in which the period falls.

    Application of rule for certain managed funds
    • (3) Subsection (2) does not apply if—

      • (a) the person is a portfolio investment entity, an entity eligible to be a portfolio investment entity, or a life insurance company; and

      • (b) the FIF is a foreign investment vehicle.

    (4) Section CD 36(3)(b), is replaced by the following:

    • (b) the FIF is a foreign PIE equivalent.

    (5) In section CD 36, in the list of defined terms, direct income interest, foreign investment vehicle, life insurance, and portfolio investment entity are inserted.

    (6) In section CD 36, in the list of defined terms, foreign investment vehicle is omitted and foreign PIE equivalent is inserted.

    (7) Subsections (4) and (6) apply for the 2009–10 and later income years.

    (7) Subsection (4) applies for the 2010–11 and later income years.

16 New section CD 36B inserted
  • (1) After section CD 36, the following is inserted:

    CD 36B Distributions to resident company for deductible foreign equity and fixed-rate foreign equity
    • Certain distributions not dividends

      (1) A distribution by a foreign company in relation to an interest in the company of a company resident in New Zealand (the resident) is not a dividend if, at the time of the distribution,—

      • (a) the distribution is a deductible foreign equity distribution:

      • (b) the resident's interest in the company is a fixed-rate foreign equity.

      Distributions treated as payments of interest

      (2) An amount that is not a dividend as a result of subsection (1) is treated as a payment of interest for money lent to the company by the resident.

      Defined in this Act: amount, company, deductible foreign equity distribution, dividend, fixed-rate foreign equity, interest, money lent.

    (2) Subsection (1) applies for the 2009–10 and later income years.

17 Available subscribed capital (ASC) amount
  • (1) Section CD 43(8)(b) is replaced by the following:

    • (b) an amount received by the company if the amount is mainly attributable, directly or indirectly, to the payment by the company of a dividend to a controlled foreign company at a time when the company is also a controlled foreign company, regardless of whether either company is a grey list company or non-attributing Australian CFC.

    (2) In section CD 43, in the list of defined terms, non-attributing Australian CFC is added.

    (3) Subsections (1) and (2) apply for the 2009–10 and later income years.

    (3) In section CD 43, in the list of defined terms, consideration is inserted.

    (4) Subsection (1) applies for—

    • (a) the 2009–10 and later income years, for persons having a balance date on or after 30 June; or

    • (b) the 2010–11 and later income years, for persons having a balance date before 30 June.

18 Available capital distribution amount
  • (1) Section CD 44(11) and (12) are replaced by the following:

    Associated person transactions
    • (11) No capital gain amount is derived or capital loss amount is incurred by a company after 31 March 1988 on disposing of property under an arrangement with an associated person. This subsection is overridden by subsection (12).

    Close company liquidations
    • (12) Subsection (11) does not apply if—

      • (a) the company is a close company; and

      • (b) the associated person is not a company; and

      • (c) the disposal is on the liquidation of the company.

    (2) Section CD 44(15) to (17) are repealed.

    (3) In section CD 44, in the list of defined terms, related person and relative are omitted.

    (4) Subsections (1) to (3) apply for the 2009–10 and later income years.

18 Available capital distribution amount
  • (1) After section CD 44(10) the following is inserted:

    Associated persons transactions
    • (10B) No capital gain amount is derived or capital loss amount incurred by a company after 31 March 2010 on disposing of property under an arrangement with an associated person. This subsection is overridden by subsection (10C).

    Close company liquidations
    • (10C) Subsection (10B) does not apply if—

      • (a) the company is a close company; and

      • (b) the associated person is not a company; and

      • (c) the disposal is on the liquidation of the company.

    (2) Section CD 44(11) and (12) is repealed.

    (3) After section CD 44(14), the following is inserted:

    Relationship with section CZ 9B
    • (14B) For capital gain amounts derived or capital loss amounts incurred between 1 April 1988 and 31 March 2010, see section CZ 9B (Available capital distribution amount: 1988 to 2010).

    (4) Section CD 44(15) to (17) is repealed.

    (5) Subsections (1) to (4) apply for the 2010–11 and later income years.

18B Heading and sections CD 45 to CD 52 repealed
  • (1) The heading before section CD 45 and sections CD 45 to CD 52 are repealed.

    (2) Subsection (1) applies for—

    • (a) the 2009–10 and later income years, for persons having a balance date on or after 30 June; or

    • (b) the 2010–11 and later income years, for persons having a balance date before 30 June.

19 Prevention of double taxation of share cancellation dividends
  • (1) Section CD 53(3), is replaced by the following:

    Non-taxable dividends
    • (3) Subsection (2) does not apply to the extent to which the dividend is exempt income of the person under sections CW 9 and CW 10 (which relate to income from equity).

    • (3) Subsection (2) does not apply to the extent to which the dividend is exempt income of the person under sections CW 9 to CW 11 (which relate to income from equity).

    (2) Section CD 53(4) and (5) are repealed.

    (3) In section CD 53, in the list of defined terms, FDP and FDP credit are omitted.

    (4) Subsections (1) to (3) apply for the 2009–10 and later income years.

    (4) Subsections (1) and (2) apply for—

    • (a) the 2009–10 and later income years, for persons having a balance date on or after 30 June; or

    • (b) the 2010–11 and later income years, for persons having a balance date before 30 June.

20 Amounts derived in connection with employment
  • (1) After the heading to section CE 1, Income is inserted as a subsection heading.

    (2) Section CE 1(c) is replaced by the following:

    • (c) the market value of accommodation that the person receives in connection with their employment or service:

    • (c) the market value of accommodation that the person receives in connection with their employment or service other than an amount paid under section CW 17B (Relocation payments):.

    (3) After section CE 1(g), the following is inserted as subsection (2):

    Meaning of accommodation
    • (2) For the purposes of this section, accommodation means board or lodging, or the use of a house or part of a house.

    • (2) For the purposes of this section and section CX 28 (Accommodation), accommodation means board or lodging, or the use of a house or living premises, or the use of part of a house or living premises.

    (4) In section CE 1, in the list of defined terms, accommodation is inserted.

    (5) Subclauses (1) to (3) apply for the 2008–09 and later income years.

21 Meaning of expenditure on account of an employee
  • After section CE 5(3)(b), the following is inserted:

    • (bb) an amount paid under section CW 17B (Relocation payments) or section CW 17C (Payments for overtime meals):

    • (bb) an amount paid under section CW 17B (Relocation payments) or section CW 17C (Payments for overtime meals and certain other allowances):.

22 Benefits, pensions, compensation, and government grants
  • Section CF 1(2)(g) is replaced by the following:

    • (g) a payment under section 81(1)(b) of the Injury Prevention, Rehabilitation, and Compensation Act 2001 paid by the Corporation as defined in that Act, for attendant care as defined in schedule 1, clause 12 of that Act:

    • (h) a personal service rehabilitation payment for a person under the Injury Prevention, Rehabilitation, and Compensation Act 2001.

22 Benefits, pensions, compensation, and government grants
  • In section CF 1(2), in the definition of accident compensation payment, paragraph (f) and subsequent paragraphs are replaced by the following:

    • (f) a payment under the Injury Prevention, Rehabilitation, and Compensation Act 2001 paid by the Corporation as defined in that Act, of weekly compensation that is not recovered or recoverable under section 248 of that Act:

    • (g) a payment under section 81(1)(b) of the Injury Prevention, Rehabilitation, and Compensation Act 2001 paid by the Corporation as defined in that Act, for attendant care as defined in schedule 1, clause 12 of that Act:

    • (h) a personal service rehabilitation payment for a person under the Injury Prevention, Rehabilitation, and Compensation Act 2001.

23 New subpart CO inserted
  • After section CH 10, the following is inserted:

    Subpart COIncome from voluntary activities

    CO 1 Income from voluntary activities
    • An amount that a person derives under section CW 62B (Voluntary activities) as a reimbursement payment for expenditure that they incur in undertaking a voluntary activity is income of the person.

      Defined in this Act: amount, income

    CO 1 Income from voluntary activities
    • Income

      (1) An amount derived by a person in undertaking a voluntary activity is income of the person.

      Relationship with section CW 62B

      (2) This section is overridden by section CW 62B (Voluntary activities).

      Defined in this Act: amount, income.

24 Section CP 1 replaced
  • (1) Section CP 1 is replaced by the following:

    CP 1 Attributed income of investors in multi-rate PIEs
    • When this section applies

      (1) This section applies when a multi-rate PIE attributes an amount of income for an income year calculated under section HM 36 (Calculating amounts attributed to investors) to a person who is an investor in the PIE.

      Income

      (2) The amount is income of the person in the income year of the person in which the PIE’s income year ends.

      Defined in this Act: amount, income, income year, investor, multi-rate PIE, PIE

      Compare: 2007 No 97 s CP 1.

    (2) Subsection (1) applies for the 2009–10 and later income years.

    (2) Subsection (1) applies for the 2010–11 and later income years.

25 When attributed CFC income arises
  • (1) Section CQ 2(1)(f)(i) is replaced by the following:

    • (i) the CFC has net attributable CFC income for the accounting period under section EX 20C (Net attributable CFC income or loss); or.

    (2) Section CQ 2(1)(g) is replaced by the following:

    • (fb) the CFC is not a non-attributing active CFC for the accounting period, under section EX 21B (Non-attributing active CFCs); and

    • (g) the CFC is not a non-attributing Australian CFC for the accounting period, under section EX 22 (Non-attributing Australian CFCs); and.

    (3) In section CQ 2, in the list of defined terms,—

    • (a) branch equivalent income is omitted:

    • (b) net attributable CFC income, non-attributing active CFC, and non-attributing Australian CFC are inserted.

    (4) Subsections (1) to (3) apply for the 2009–10 and later income years.

    (2) In section CQ 2(1), paragraph (g) is repealed and the following is added:

    • (h) the CFC is not a non-attributing active CFC for the accounting period, under section EX 21B (Non-attributing active CFCs); and

    • (i) the CFC is not a non-attributing Australian CFC for the accounting period, under section EX 22 (Non-attributing Australian CFCs).

    (3) After section CQ 2(2), the following is inserted:

    Special rule: attributed CFC amount from personal services
    • (2B) If a person and a non-attributing active CFC or non-attributing Australian CFC meet the requirements of subsection (1)(a) to (e) and the CFC derives income from personal services that is an attributable CFC amount under section EX 20B(3)(h) (Attributable CFC amount), the person has attributed CFC income from the CFC equal to the product of—

      • (a) the person's income interest in the CFC:

      • (b) the amount by which the CFC's income from personal services exceeds the expenditure incurred by the CFC in deriving the income from personal services.

    (4) In section CQ 2, in the list of defined terms,—

    • (a) branch equivalent income is omitted:

    • (b) attributable CFC amount, net attributable CFC income, non-attributing active CFC, and non-attributing Australian CFC are inserted.

    (5) Subsections (1) to (3) apply for—

    • (a) the 2009–10 and later income years, for persons having a balance date on or after 30 June; or

    • (b) the 2010–11 and later income years, for persons having a balance date before 30 June.

26 When FIF income arises
  • (1) Section CQ 5(3) is replaced by the following:

    FIF income from CFC with FIF interest
    • (3) FIF income also includes an additional amount that a person with an income interest of 10% or more in a CFC has in an income year under section EX 58 (Additional FIF income or loss if CFC owns FIF), whether or not the CFC is a non-attributing Australian CFC under section EX 22 (Non-attributing Australian CFCs).

    (2) In section CQ 5, in the list of defined terms, non-attributing Australian CFC is inserted.

    (3) Subsections (1) and (2) apply for the 2009–10 and later income years.

    (3) Subsection (1) applies for—

    • (a) the 2009–10 and later income years, for persons having a balance date on or after 30 June; or

    • (b) the 2010–11 and later income years, for persons having a balance date before 30 June.

26B Section CQ 7 repealed
  • Section CQ 7 is repealed.

27 Heading to subpart CR replaced
  • In subpart CR, the heading is replaced by Income from insurance.

28 Sections CR 1 and CR 2 replaced
  • (1) Sections CR 1 and CR 2 are replaced by the following:

    CR 1 Policyholder base income of life insurer
    • Policyholder base gross income

      (1) The amount of policyholder base gross income that a life insurer has for an income year is income of the life insurer for that year, to the extent to which it is not used to calculate their schedular policyholder base income under section EY 2(3) to (6) (Policyholder base).

      Schedular income

      (2) The amount of schedular policyholder base income that a life insurer has for an income year is schedular income of the life insurer for the year.

      Defined in this Act: amount, income, income year, life insurer, policyholder base gross income, schedular policyholder base income

    CR 2 Shareholder base gross income of life insurer
    • The amount of shareholder base gross income that a life insurer has for an income year is income of the life insurer for that year.

      Defined in this Act: amount, income, income year, life insurer, shareholder base gross income

    CR 1 Policyholder base income of life insurer
    • If, but for this section, a life insurer has an amount of policyholder base income for an income year, and that amount is not income under this Part, the amount is income of the life insurer for the income year.

      Defined in this Act: amount, income, income year, life insurer, policyholder base income

    CR 2 Shareholder base income of life insurer
    • If, but for this section, a life insurer has an amount of shareholder base income for an income year, and that amount is not income under this Part, the amount is income of the life insurer for the income year.

      Defined in this Act: amount, income, income year, life insurer, shareholder base income.

    (2) Subsection (1) applies for income years beginning on and after 1 April 2009.

    (2) Subsection (1) applies––

    • (a) on and after 1 July 2010, unless paragraph (b) applies:

    • (b) for an income year that includes 1 July 2010 and later income years, if the life insurer chooses to apply the new life insurance rules in this Act in a return of income for the tax year corresponding to the first relevant income year.

29 New section CR 4 added
  • (1) After section CR 3, the following is added:

    CR 4 Income for general insurance outstanding claims reserve
    • When this section applies

      (1) This section applies for—

      • (a) an insurer who uses IFRS 4, Appendix D for general insurance contracts; and

      • (b) general insurance contracts, excluding contracts having premiums to which section CR 3 applies.

      Formula for insurer's income

      (2) For an income year (the current year), an insurer has income of the amount by which the amount calculated using the following formula is more than zero:

      opening outstanding claims reserve − closing outstanding claims reserve.
       
      Definition of items in formula

      (3) In the formula,—

      • (a) opening outstanding claims reserve is—

        • (i) the amount of the insurer’s closing outstanding claims reserve for the income year before the current year; or

        • (ii) the amount of the insurer’s outstanding claims reserve for general insurance contracts, calculated at the beginning of the current year, if the insurer has no closing outstanding claims reserve for the income year before the current year:

      • (b) closing outstanding claims reserve is the amount of the insurer’s outstanding claims reserve for general insurance contracts, calculated at the end of the current year.

      Defined in this Act: amount, general insurance contract, IFRS 4, income, income year, insurer.

    (2) Subsection (1) applies for—

    • (a) the 2009–10 and later income years, unless paragraph (b) applies:

    • (b) the first income year for which a person adopts IFRSs for the purposes of financial reporting and later income years, if that first income year is before the 2009–10 income year.

29 New section CR 4 added
  • After section CR 3, the following is added:

    CR 4 Income for general insurance outstanding claims reserve
    • What this section applies to

      (1) This section applies for—

      • (a) an insurer who––

        • (i) uses IFRS 4, Appendix D for general insurance contracts:

        • (ii) is a life insurer who has general insurance contracts:

      • (b) general insurance contracts, excluding contracts having premiums to which section CR 3 (Income of non-resident general insurer) applies.

      Formula for insurer's OCR income

      (2) For an income year (the current year), an insurer has income of the amount by which zero is less than the amount calculated using the formula—

      opening outstanding claims reserve
      − closing outstanding claims reserve.
       
      Definition of items in formula

      (3) In the formula,—

      • (a) opening outstanding claims reserve is—

        • (i) the amount of the insurer’s closing outstanding claims reserve for the income year before the current year (the prior year); or

        • (ii) the amount of the insurer's reserve for outstanding claims liability, calculated at the end of the prior year, using the basis the insurer used for tax purposes in that prior year, if the current year is the first year that this section applies to the insurer:

      • (b) closing outstanding claims reserve is the amount of the insurer’s outstanding claims reserve, calculated at the end of the current year.

      Defined in this Act: amount, general insurance contract, IFRS 4, income, income year, insurer, life insurer, outstanding claims reserve.

    (2) Subsection (1) applies—

    • (a) for an insurer who uses IFRS 4,––

      • (i) for the 2009–10 and later income years, unless subparagraph (ii) applies:

      • (ii) for the first income year for which an insurer adopts IFRSs for the purposes of financial reporting and later income years, if that first income year is before the 2009–10 income year and the person chooses to use IFRS 4 in a return of income for that first year:

    • (b) for a life insurer,––

      • (i) on and after 1 July 2010, unless subparagraph (ii) applies:

      • (ii) for an income year that includes 1 July 2010 and later income years, if the life insurer chooses to apply the new life insurance rules in this Act in a return of income for the tax year corresponding to the first relevant income year.

29B Withdrawals
  • (1) Section CS 1(1)(a)(i) is replaced by the following:

    • (i) a fund to which the member's employer has made for the member's benefit an employer's superannuation cash contribution; or.

    (2) Section CS 1(7)(b) is replaced by the following:

    • (b) in the corresponding tax year, the total of the member's taxable income and the employer's superannuation cash contributions made for the member's benefit is less than $60,000.

    (3) In section CS 1, in the list of defined terms, employer's superannuation contribution is replaced by employer's superannuation cash contribution.

    (4) Subsections (1) and (2) apply for the 2008–09 and later income years.

29C Exclusions of withdrawals of various kinds
  • (1) In section CS 2(2), (3), and (10), employer's superannuation contributions is replaced by employer's superannuation cash contributions in each place where it appears.

    (2) In section CS 2, in the list of defined terms, employer's superannuation contribution is replaced by employer's superannuation cash contribution.

    (3) Subsection (1) applies for the 2008–09 and later income years.

29D Exclusion of withdrawal on partial retirement
  • (1) In section CS 6(1)(d), employer's superannuation contributions is replaced by employer's superannuation cash contributions.

    (2) In section CS 6, in the list of defined terms, employer's superannuation contribution is replaced by employer's superannuation cash contribution.

    (3) Subsection (1) applies for the 2008–09 and later income years.

29E Exclusion of withdrawal when member ends employment
  • (1) In section CS 7(2) to (5), employer's superannuation contributions is replaced by employer's superannuation cash contributions in each place where it appears.

    (2) In section CS 7, in the list of defined terms, employer's superannuation contribution is replaced by employer's superannuation cash contribution.

    (3) Subsection (1) applies for the 2008–09 and later income years.

30 Section CV 10 repealed
  • (1) Section CV 10 is repealed.

    (2) Subsection (1) applies for the 2009–10 and later income years.

    (2) Subsection (1) applies for—

    • (a) the 2009–10 and later income years, for persons having a balance date on or after 30 June; or

    • (b) the 2010–11 and later income years, for persons having a balance date before 30 June.

31 New section CW 3B inserted
  • After section CW 3, the following is inserted:

    CW 3B Pre-1990 forest land emissions units
    • Who this section applies to

      (1) This section applies to a person and a pre-1990 forest land emissions unit of the person.

      Exempt income: disposal

      (2) An amount of income that the person derives from the disposal of the pre-1990 forest land emissions unit is exempt income if—

      • (a) the disposal is not by surrender under the Climate Change Response Act 2002; and

      • (b) at the time of the disposal, the person would not derive income, other than exempt income or excluded income, from a disposal of the pre-1990 forest land without timber to which the emissions unit relates.

      Defined in this Act: amount, emissions unit, exempt income, income, pre-1990 forest land, pre-1990 forest land emissions unit, surrender.

31 Section CW 3B repealed
  • Section CW 3B is repealed.

32 Section CW 9 replaced
  • (1) Section CW 9 is replaced by the following:

    CW 9 Dividend derived from foreign company
    • Exempt income

      (1) A dividend from a foreign company is exempt income if derived by a company that is resident in New Zealand.

      Exclusions

      (2) Subsection (1) does not apply to a dividend if the dividend is paid in relation to rights that are a direct income interest of less than 10% in a foreign company and are described in—

      • (a) section EX 31 (Exemption for ASX-listed Australian companies):

      • (b) section EX 32 (Exemption for Australian unit trusts with adequate turnover or distributions):

      • (c) section EX 36 (Venture capital company emigrating to grey list country: 10-year exemption):

      • (d) section EX 37 (Grey list company owning New Zealand venture capital company: 10-year exemption):

      • (e) section EX 37B (Share in grey list company acquired under venture investment agreement):

      • (f) section EX 39 (Terminating exemption for grey list company with numerous New Zealand shareholders.

      Defined in this Act: company, dividend, exempt income, resident in New Zealand.

    (2) Subsection (1) applies for the 2009–10 and later income years.

32 Dividend derived by company from overseas
  • (1) Section CW 9(1), except for the heading, is replaced by the following:

    • (1) A dividend from a foreign company is exempt income if derived by a company that is resident in New Zealand.

    (2) After section CW 9(2), the following is added:

    Non-application to dividends derived by certain PIEs
    • (3) This section does not apply to a dividend derived by a portfolio tax rate entity.

    (3) Section CW 9 is replaced by the following:

    CW 9 Dividend derived from foreign company
    • Exempt income

      (1) A dividend from a foreign company is exempt income if derived by a company that is resident in New Zealand.

      Exclusions

      (2) Subsection (1) does not apply to a dividend if the dividend is paid in relation to rights that are—

      • (a) a direct income interest of less than 10% in a foreign company described in—

        • (i) section EX 31 (Exemption for ASX-listed Australian companies):

        • (ii) section EX 32 (Exemption for Australian unit trusts with adequate turnover or distributions):

        • (iii) section EX 36 (Venture capital company emigrating to grey list country: 10-year exemption):

        • (iv) section EX 37 (Grey list company owning New Zealand venture capital company: 10-year exemption):

        • (v) section EX 37B (Share in grey list company acquired under venture investment agreement):

        • (vi) section EX 39 (Terminating exemption for grey list company with numerous New Zealand shareholders):

      • (b) a fixed-rate foreign equity:

      • (c) rights to a deductible foreign equity distribution.

      Non-application to dividends derived by certain PIEs

      (3) This section does not apply to a dividend derived by a portfolio tax rate entity.

      Defined in this Act: company, dividend, deductible foreign equity distribution, exempt income, fixed-rate foreign equity, portfolio tax rate entity, resident in New Zealand.

    (4) Section CW 9(3), except for the heading, is replaced by the following:

    • (3) This section does not apply to a dividend derived by a multi-rate PIE.

    (5) In section CW 9, in the list of defined terms, multi-rate PIE is inserted.

    (6) Subsection (3) applies for—

    • (a) the 2009–10 and later income years, for persons having a balance date on or after 30 June; or

    • (b) the 2010–11 and later income years, for persons having a balance date before 30 June.

    (7) Subsection (4) applies for the 2010–11 and later income years.

33 Proceeds of share disposal by qualifying foreign equity investor
  • Section CW 12(4), other than the heading, is replaced by the following:

    • (4) In this section,—

      foreign exempt entity means a person who—

      • (a) is established as a legal entity under the laws of a territory that is approved for the purposes of this section by the Governor-General by an Order in Council or under the laws of a part of such a territory; and

      • (b) has persons (the members) who hold interests in the capital of the legal entity and who are entitled to shares of the income of the legal entity; and

      • (c) under the laws of the territory or part of the territory is not subject to a tax on income other than as a body that handles income of the members; and

      • (d) is resident in no territory that has laws that treat the legal entity as being subject to a tax on income other than as a body that handles income of the members; and

      • (e) does not have a member who—

        • (i) has, when treated as holding the interests of any person who is associated with the member, an interest of 10% or more in the capital of the legal entity; and

        • (ii) is resident in no territory that is approved for the purpose of this section by the Governor-General by an Order in Council; and

      • (f) does not have a member who, when treated as holding the interests of any person who is associated with the member, has an interest of 10% or more in the capital of the legal entity and who would—

        • (i) be entitled to receive an amount derived from a disposal to which this section would apply; and

        • (ii) receive an amount referred to in subparagraph (i) that, in the absence of this section, would have been reduced by a tax imposed by the Act on the amount or on the proceeds of the disposal in the hands of the legal entity; and

        • (iii) in any circumstances under the laws of the territory in which the member is resident or under the laws of part of the territory be entitled to receive from the government of the territory or part of the territory a financial benefit in the form of a payment, credit, rebate, forgiveness, or other compensation for the reduction referred to in subparagraph (ii); and

      • (g) does not have a holder of a direct or indirect interest in the capital of the legal entity who,—

        • (i) is resident in New Zealand:

        • (ii) when treated as holding the interests of a person associated with the resident, holds a total direct or indirect interest of 10% or more

      foreign exempt partnership means an unincorporated body that—

      • (a) is established under the laws of a territory that is approved for the purposes of this section by the Governor-General by an Order in Council or under the laws of a part of such a territory; and

      • (b) consists of persons (the partners); and

      • (c) under the laws of the territory or part of the territory is not subject to a tax on income other than as a body that handles income of the partners; and

      • (d) has at least 1 partner (the general partner) who is liable for all debts of the unincorporated body and who has significant involvement in, and control of, the business activities of the unincorporated body; and

      • (e) has at least 1 partner (the special partner) whose liability for debts of the unincorporated body is limited and who has limited involvement in, and control of, the business activities of the unincorporated body; and

      • (f) does not have a general partner who is resident in no territory that is approved for the purposes of this section by the Governor-General by an Order in Council; and

      • (g) does not have a partner who—

        • (i) has, when treated as holding the interests of any person who is associated with the partner, an interest of 10% or more in the capital of the unincorporated body; and

        • (ii) is resident in no territory that is approved for the purpose of this section by the Governor-General by an Order in Council; and

      • (h) does not have a partner who, when treated as holding the interests of any person who is associated with the partner, has an interest of 10% or more in the capital of the unincorporated body and who—

        • (i) would under the Act in the absence of this section, be subject to tax on an amount derived from a disposal to which this section would apply; and

        • (ii) would in any circumstances under the laws of the territory in which the partner is resident or under the laws of part of the territory be entitled to receive from the government of the territory or part of the territory a financial benefit in the form of a payment, credit, rebate, forgiveness, or other compensation for a payment of the tax referred to in subparagraph (i); and

      • (i) does not have a holder of a direct or indirect interest in the capital of the unincorporated body who,—

        • (i) is resident in New Zealand:

        • (ii) when treated as holding the interests of a person associated with the resident, holds a total direct or indirect interest of 10% or more

      foreign exempt person means a person who—

      • (a) is resident in a territory that is approved for the purposes of this section by the Governor-General by an Order in Council; and

      • (b) is not a legal entity that meets the requirements of paragraphs (a) to (c) of the definition of foreign exempt entity; and

      • (c) is not part of an unincorporated body that meets the requirements of paragraphs (a) to (c) of the definition of foreign exempt partnership; and

      • (d) under the laws of the territory or part of the territory derives the proceeds from a disposal of shares or options that are held by the person; and

      • (e) is not a person who—

        • (i) would under the Act in the absence of this section, be subject to tax on an amount derived from a disposal to which this section would apply; and

        • (ii) would in any circumstances under the laws of the territory in which the person is resident or under the laws of part of the territory be entitled to receive from the government of the territory or part of the territory a financial benefit in the form of a payment, credit, rebate, forgiveness, or other compensation for a payment of the tax referred to in subparagraph (i); and

      • (f) does not have a holder of a direct or indirect interest in the capital of the legal entity who,—

        • (i) is resident in New Zealand:

        • (ii) when treated as holding the interests of a person associated with the resident, holds a total direct or indirect interest of 10% or more.

    (2) In section CW 12, in the list of defined terms, 1990 version provisions is omitted.

33B Dividends paid by qualifying companies
  • (1) Section CW 15(1), other than the heading, is replaced by the following:

    • (1) To the extent to which the amount of a dividend that a qualifying company pays to a person resident in New Zealand is more than a fully imputed distribution, the amount is exempt income of the person.

    (2) In section CW 15, in the list of defined terms, fully imputed is inserted.

34 Expenditure on account, and reimbursement, of employees
  • (1) After section CW 17(3), the following is added:

    Depreciation loss included
    • (4) In this section, expenditure includes an amount of depreciation loss.

    Relationship with sections CW 17B and CW 17C
    • (5) This section does not apply to an amount referred to in section CW 17B (Relocation payments) or CW 17C (Payments for overtime meals).

    (2) In section CW 17, in the list of defined terms, depreciation loss is inserted.

    (3) Subsection (1) does not apply in relation to a tax position taken by a person—

    • (a) in the period from 1 April 2008 to the date on which this Act receives the Royal assent; and

    • (b) in relation to a deduction for an amount of depreciation loss; and

    • (c) relying on section CW 17 in the absence of the amendment made by subsection (1).

35 New sections CW 17B and CW 17C inserted
  • After section CW 17, the following are inserted:

    CW 17B Relocation payments
    • Exempt income

      (1) An amount that an employer pays to or on behalf of an employee in connection with the expenses of the employee in a work-related relocation is exempt income of the employee.

      Actual expenditure

      (2) The amount paid must be no more than the actual cost incurred by or on behalf of the employee on an expense that the Commissioner lists as an eligible relocation expense in a determination made under subsection (6).

      Time limit

      (3) Subsection (1) applies only to expenditure incurred for the period from the start of the income year in which the employee relocates or undertakes work at the new location to the end of the next income year. However, this subsection does not apply in the case of a temporary move when—

      • (a) an employee moves temporarily to a new location and then relocates permanently to that place; and

      • (b) the temporary move was not treated as a work-related relocation under this section.

      (3) Subsection (1) applies only to expenditure incurred to the end of the tax year following that in which the relocation occurs. For the purposes of this subsection, a temporary move that has not been treated as a work-related relocation under this section is ignored.

      Meaning of work-related relocation

      (4) Work-related relocation means a relocation of the place where an employee lives that is required—

      • (a) because the employee's workplace is not within reasonable daily travelling distance of their residence; and

      • (b) as a result of the employee—

        • (i) taking up new employment with a new employer; or

        • (ii) taking up new duties at a new location with their existing employer; or

        • (iii) continuing in their current position but at a new location.

      Exemption from distance test

      (5) The requirement in subsection (4)(a) for a person's workplace to be beyond reasonable travelling distance of their residence does not apply to a person whose accommodation forms an integral part of their work.

      Determinations

      (6) The Commissioner may issue a determination for the purposes of this section under section 91AAR of the Tax Administration Act 1994 to provide a list of eligible relocation expenses, and may extend or modify the list from time to time as required. The Commissioner must give at least 30 days' notice of the implementation date of any alteration.

      Defined in this Act: amount, Commissioner, employee, employer, exempt income, income year,tax year, work-related relocation

    CW 17C Payments for overtime meals
    • Exempt income

      (1) An amount that an employer pays to or on behalf of an employee for a meal for the employee when the employee is working overtime is exempt income of the employee.

      Eligibility: agreement or established practice

      (2) Subsection (1) applies only if—

      • (a) the employee's employment agreement provides for pay for overtime hours worked; or

      • (b) the employer has an established policy or practice of paying for overtime meals.

      Actual cost or reasonable estimate

      (3) The amount paid must be—

      • (a) the actual cost to the employee, with documentation required for amounts over $20 per meal; or

      • (b) a reasonable estimate of the expenditure likely to be incurred by the employee or a group of employees for whom an amount is payable.

      Meaning of overtime

      (4) For the purposes of this section, overtime, for a person and a day, means time worked for an employer on the day beyond the person's ordinary hours of work as set out in their employment agreement when the employee has worked more than 2 hours beyond their ordinary hours on that day.

      Defined in this Act: amount, employee, employer, exempt income, overtime, pay

    CW 17C Payments for overtime meals and certain other allowances
    • Exempt income: overtime meals

      (1) An amount that an employer pays to or on behalf of an employee for a meal for the employee when the employee is working overtime is exempt income of the employee.

      Exempt income: certain sustenance allowances

      (2) An amount that an employer pays to an employee as a sustenance allowance for the employee for a day is exempt income of the employee if—

      • (a) the employee works a minimum of 7 hours on the day; and

      • (b) their employment requires them—

        • (i) to work outdoors and away from their employment base for most of the day; and

        • (ii) to undertake a long period of physical activity in travelling through a neighbourhood or district on foot or by bicycle; and

      • (c) it is not practicable for the employer to provide sufficient sustenance on the day for the period when the employee is working outdoors; and

      • (d) the allowance recognises—

        • (i) the arduous physical nature of the employee's work as described in paragraph (b); and

        • (ii) that the employer would normally provide tea, coffee, water, or similar refreshments at the employment base in the course of their business.

      Eligibility requirements: overtime meals

      (3) Subsection (1) applies only if—

      • (a) the employee has worked at least 2 hours' overtime on the day of the meal; and

      • (b) either—

        • (i) the employee's employment agreement provides for pay for overtime hours worked; or

        • (ii) the employer has an established policy or practice of paying for overtime meals.

      Eligibility requirements: sustenance allowances

      (4) Subsection (2) applies only if the employer has an established policy or practice of paying a sustenance allowance.

      Actual cost or reasonable estimate

      (5) The amount paid must be—

      • (a) the actual cost to the employee, and for an overtime meal referred to in subsection (1), with documentation required for amounts over $20 per meal; or

      • (b) a reasonable estimate of the expenditure likely to be incurred by the employee or a group of employees for whom an amount is payable.

      Meaning of overtime

      (6) For the purposes of this section, overtime, for a person and a day, means time worked for an employer on the day beyond the person's ordinary hours of work as set out in their employment agreement.

      Defined in this Act: amount, employee, employer, exempt income, overtime, pay.

36 Section CW 37 repealed
  • (1) Section CW 37 is repealed.

    (2) Subsection (1) applies for an amount derived by a company as a large budget screen production grant if—

    • (a) the final application for the large budget screen production grant is made on or after 1 October 2009; and

    • (b) the company does not incur before 1 July 2008 an amount of $3,000,000 or more in expenditure on the project to which the large budget screen production grant relates.

37 Local and regional promotion bodies
  • In section CW 40, in the list of defined terms, associated person is omitted.

38 Charities: business income
  • In section CW 42(5), (7), (8), and (9), subsection (1)(b) is replaced by subsection (1)(c).

38B New section CW 59C inserted
  • (1) After section CW 59B, the following is inserted:

    CW 59C Life reinsurance outside New Zealand
    • An amount of life reinsurance claim derived by a life insurer is exempt income to the extent to which, for the relevant life reinsurance policy, deductions for premiums are denied under section DR 3 (Life reinsurance outside New Zealand).

      Defined in this Act: amount, claim, deduction, exempt income, income, life insurer, life reinsurance, life reinsurance policy, New Zealand, premium.

    (2) Subsection (1) applies––

    • (a) on and after 1 July 2010, unless paragraph (b) applies:

    • (b) for an income year that includes 1 July 2010 and later income years, if the life insurer chooses to apply the new life insurance rules in this Act in a return of income for the tax year corresponding to the first relevant income year.

39 New section CW 62B inserted
  • After section CW 62, the following is inserted:

    CW 62B Voluntary activities
    • Exempt income

      (1) When a volunteer, in undertaking a voluntary activity, derives an amount that is a reimbursement payment to cover actual expenses incurred by them, the amount is exempt income of the volunteer.

      Estimated expenditure

      (2) For the purposes of subsection (1)

      • (a) a person may make a reasonable estimate of the amount of expenditure likely to be incurred by the volunteer for which reimbursement is payable; and

      • (b) the amount estimated is treated as if it were the amount incurred.

      Payments partly honorarium and partly reimbursement

      (3) Subsection (1) does not apply to an amount that is partly a reimbursement and partly an honorarium that is treated as a schedular payment to which the PAYE rules apply.

      Payments partly reimbursement and partly honorarium

      (3) If the person paying the amount to the volunteer makes a payment to them that is only partly a reimbursement of expenses, the person must identify the portion of the amount that is the reimbursement, and treat the remainder as an honorarium, being a schedular payment to which the PAYE rules apply.

      Who is a volunteer?

      (4) For the purposes of this section, a volunteer means a person who—

      • (a) is resident in New Zealand under subpart YD (Residence and source in New Zealand); and

      • (b) freely undertakes an activity in New Zealand—

        • (i) chosen either by themselves or a group of which they are a member; and

        • (ii) that provides a benefit to another person; and

        • (iii) for which there is no purpose or intention of private pecuniary profit.

      (4) For the purposes of this section, a volunteer means a person who freely undertakes an activity in New Zealand—

      • (a) chosen either by themselves or by a group of which they are a member; and

      • (b) that provides a benefit to a community or another person; and

      • (c) for which there is no purpose or intention of private pecuniary profit for the person.

      Honoraria

      (5) For the purposes of this section, and schedule 4, part B (Rates of tax for schedular payments), an honorarium means an amount that a person receives for providing services that—

      • (a) is paid at a rate that is less than the market rate for providing the services; and

      • (b) is an amount for which, in the normal course, no payment is fixed for the services provided.

      Nature of reimbursement payment

      (6) For the purposes of this section, it does not matter whether—

      • (a) an amount of a reimbursement payment is paid in 1 sum or not:

      • (b) the amount is paid during an income year or at the end of an income year.

      Relationship with section RD 8(3)

      (7) A determination made by the Commissioner under section RD 8(3) (Schedular payments) may apply to modify an amount of expenditure under this section.

      Defined in this Act: amount, exempt income, honorarium, income year, New Zealand, pay, PAYE rules, resident in New Zealand, schedular payment, volunteeramount, exempt income, honorarium, income year, New Zealand, pay, PAYE rules, schedular payment, volunteer.

40 Meaning of fringe benefit
  • (1) In section CX 2(5), the words before paragraph (a) are replaced by the following:

    • (5) A benefit may be treated for the purposes of the FBT rules as being provided by an employer to an employee under—.

    (2) In section CX 2, in the list of defined terms, FBT rules is inserted.

    (3) Subsections (1) and (2) apply for the 2009–10 and later income years.

    (3) Subsections (1) and (2) apply for the 2010–11 and later income years.

40B Contributions to superannuation schemes
  • (1) Section CX 13(2), other than the heading, is replaced by the following:

    • (2) This section does not apply if the contribution is an employer's superannuation cash contribution.

    (2) In section CX 13, in the list of defined terms, employer's superannuation contribution is replaced by employer's superannuation cash contribution.

    (3) Subsection (1) applies for the 2008–09 and later income years.

41 Section CX 18 replaced
  • (1) Section CX 18 is replaced by the following:

    CX 18 Benefits provided when both employment and shareholding relationships exist
    • When this section applies

      (1) This section applies when—

      • (a) a benefit provided to a person would, in the absence of section CX 4, be treated as a fringe benefit under section GB 32 (Benefits provided through employment relationships) because of the existence of an employment relationship; and

      • (b) the employer is a company; and

      • (c) the benefit is also provided to the person because of the existence of a shareholding relationship; and

      • (d) the person is not a company; and

      • (e) the person is not a shareholder in the company; and

      • (f) the benefit would be a dividend if provided to a shareholder in the company.

      FBT rules apply, not dividend rules

      (2) The benefit is treated as—

      • (a) being provided through the employment relationship:

      • (b) being subject to the FBT rules:

      • (c) not being a dividend.

      Defined in this Act: company, dividend, employer, FBT rules, fringe benefit, shareholder.

    (2) Subsection (1) applies for the 2009–10 and later income years.

42 Benefits provided instead of allowances
  • In section CX 19(1)(b), transport costs). is replaced by transport costs); or and the following is added:

    • (c) an amount that, if it had been paid, would have been exempt income under section CW 17B (Relocation payments).

43 Section CX 28 replaced
  • (1) Section CX 28 is replaced by the following:

    CX 28 Accommodation
    • The value of accommodation that an employer provides to an employee in connection with the employment or services is a fringe benefit.

      Defined in this Act: accommodation, employee, employer, employment, fringe benefit

    CX 28 Accommodation
    • The value of accommodation that an employer provides to an employee in connection with the employment or services is not a fringe benefit.

      Defined in this Act: accommodation, employee, employer, employment, fringe benefit.

    (2) Subsection (1) applies for the 2008–09 and later income years.

44 Section CX 39 repealed
  • (1) Section CX 39 is repealed.

    (2) Subsection (1) applies for income years beginning on and after 1 April 2009.

    (2) Subsection (1) applies––

    • (a) on and after 1 July 2010, unless paragraph (b) applies:

    • (b) for an income year that includes 1 July 2010 and later income years, if the life insurer chooses to apply the new life insurance rules in this Act in a return of income for the tax year corresponding to the first relevant income year.

45 Government grants to businesses
  • (1A) Section CX 47(1)(d)(i) is replaced by the following:

    • (i) expenditure that they incur and for which they would be allowed a deduction in the absence of section DF 1 (Government grants to businesses):.

    (1) Section CX 47(3) is replaced by the following:

    Exclusion
    • (3) This section does not apply to a grant made under the Agriculture Recovery Programme for the Lower North Island and Eastern Bay of Plenty, to the extent to which the grant relates to expenditure—

      • (a) incurred by the recipient before the grant; and

      • (b) for which the recipient would be allowed a deduction in the absence of section DF 1 (Government grants to businesses).

      • (b) for which the recipient would be allowed a deduction in the absence of section DF 1.

    (2) In section CX 47, in the list of defined terms, large budget screen production grant is omitted.

    (3) Subsection (1A) applies for the 2008–09 and later income years.

    (4) Subsection (1) applies for an amount derived by a company as a large budget screen production grant if—

    • (a) the final application for the large budget screen production grant is made on or after 1 October 2009; and

    • (b) the company does not incur before 1 July 2008 an amount of $3,000,000 or more in expenditure on the project to which the large budget screen production grant relates.

45B Section CX 48B repealed
  • Section CX 48B is repealed.

46 New heading and section CX 48B insertedNew heading and section CX 48C inserted
  • After section CX 48, the following is inserted:Before section CX 49, the following is inserted:

    Government funding of film and television

    CX 48BCX 48C Government funding additional to government screen production payments
    • When this section applies

      (1) This section applies when a public authority makes a payment to a person for a project if—

      • (a) the payment is not in the nature of a grant or subsidy; and

      • (b) the payment is not a grant-related suspensory loan; and

      • (c) the person receives a government screen production payment for the project in addition to the payment.

      Excluded income

      (2) The payment is excluded income of the person.

      Defined in this Act: excluded income, government screen production payment, grant-related suspensory loan, pay, public authority.

47 New heading and section CX 48C insertedNew heading and section CX 48D inserted
  • (1) After section CX 48Bsection CX 48C, the following is inserted:

    Research and development

    CX 48CCX 48D Tax credits for expenditure on research and development
    • The amount of a tax credit that a person has under subpart LH (Tax credits for expenditure on research and development) is excluded income of the person.

      Defined in this Act: amount, excluded income, tax credit.

    (2) Subsection (1) applies for the 2008–09 and later income years.

48 New heading and section CX 51B inserted
  • After section CX 51, the following is inserted:

    Emissions units under Climate Change Response Act 2002

    CX 51B Issue of emissions units
    • When this section applies

      (1) This section applies when a person is issued an emissions unit.

      Excluded income: issue

      (2) An amount of income that the person is treated as deriving from the issue is excluded income.

      Defined in this Act: amount, emissions unit, excluded income, income, pre-1990 forest land emissions unit.

48 New heading and section CX 51B inserted
  • After section CX 51, the following is inserted:

    Emissions units under Climate Change Response Act 2002

    CX 51B Disposal of pre-1990 forest land emissions units
    • Who this section applies to

      (1) This section applies to a person who disposes of a pre-1990 forest land emissions unit other than by surrender.

      Excluded income: disposal

      (2) An amount of income that the person derives from the disposal is excluded income if, at the time of the disposal, the person would not derive income, other than exempt income or excluded income, from a disposal without timber of the pre-1990 forest land to which the emissions unit relates.

      Defined in this Act: amount, emissions unit, excluded income, income, pre-1990 forest land, pre-1990 forest land emissions unit, surrender.

49 Proceeds from certain disposals by portfolio investment entities or New Zealand Superannuation Fund
  • Section CX 55(1)(b) is replaced by the following:

    • (b) resident in Australia and—

      • (i) not treated as resident in a country other than Australia under an agreement between Australia and the other country that would be a double tax agreement if negotiated between New Zealand and the other country; and

      • (ii) included in an index that is an approved index under the ASX Market Rules, made under Chapter 7 of the Corporations Act 2001 (Aust); and

      • (iii) required under the Income Tax Assessment Act 1997 (Aust) and Income Tax Assessment Act 1936 (Aust) to maintain a franking account.

50 Section CX 55 replaced
  • (1) Section CX 55 is replaced by the following:

    CX 55 Proceeds from disposal of investment shares
    • What this section applies to

      (1) This section applies in an income year to the following entities unless the entity is assured, under an arrangement with another person, of having a gain on the disposal:

      • (a) a portfolio investment entity other than a life fund PIE:

      • (b) the New Zealand Superannuation Fund:

      • (c) a life insurer.

      Excluded income

      (2) An amount that the entity derives from the disposal in the income year of a share issued by a company referred to in subsection (3) is—

      • (a) excluded income of the entity for the income year, if the entity is described in subsection (1)(a) or (b); or

      • (b) excluded income of the entity for the income year to the extent to which the amount is actuarially determined to be policyholder base gross income, if the entity is a life insurer.

      • (b) excluded income of the entity for the income year to the extent to which the amount is actuarially determined to be policyholder base income, if the entity is a life insurer.

      Particular company

      (3) The company referred to in subsection (2) is,—

      • (a) at all times in the income year, a company resident in New Zealand and not treated under and for the purposes of a double tax agreement as not resident in New Zealand; or

      • (b) a company that meets the following requirements:

        • (i) a company that, at all times in the income year, is resident in Australia and not treated as resident in a country other than Australia under an agreement between Australia and the other country, that would be a double tax agreement if negotiated between New Zealand and the other country; and

        • (ii) a company that, at the start of the income year or at the time the shares are first acquired in the income year, is included in an approved index under the ASX Market Rules made under Chapter 7 of the Corporations Act 2001 (Aust); and

        • (iii) a company that, at all times in the income year, is required under the Income Tax Assessment Act 1997 (Aust) and the Income Tax Assessment Act 1936 (Aust) to maintain a franking account.

      Non-participating redeemable shares

      (4) This section does not apply to a non-participating redeemable share.

      Defined in this Act: actuarially determined, amount, arrangement, company, double tax agreement, excluded income, income year, life fund PIE, life insurer, non-participating redeemable share, policyholder base gross income, portfolio investment entity, resident in Australia, resident in New Zealand, shareactuarially determined, amount, arrangement, company, double tax agreement, excluded income, income year, life fund PIE, life insurer, non-participating redeemable share, policyholder base income, portfolio investment entity, resident in Australia, resident in New Zealand, share.

    (2) Subsection (1) applies—

    • (a) for a portfolio investment entity, including a life fund PIE, and the New Zealand Superannuation Fund, for the 2009–10 and later income years:

    • (b) for a life insurer, other than in relation to a life fund PIE, for income years beginning on or after 1 April 2009.

    • (a) for a portfolio investment entity, including a life fund PIE, and the New Zealand Superannuation Fund, for the 2010–11 and later income years:

    • (b) for a life insurer, other than in relation to a life fund PIE,—

      • (i) on and after 1 July 2010, unless paragraph (b) applies:

      • (ii) for an income year that includes 1 July 2010 and later income years, if the life insurer chooses to apply the new life insurance rules in this Act in a return of income for the tax year corresponding to the first relevant income year.

50B Portfolio investor allocated income and distributions of income by portfolio investment entities
  • (1) After section CX 56(3), the following is added:

    When trustees choose 19.5% portfolio investor rate
    • (4) Subsection (1) does not apply in relation to portfolio investor allocated income derived by a trustee who has chosen a portfolio investor rate of 19.5%.

    (2) Subsection (1) applies for the 2010–11 and later income years.

51 Section CX 56 replaced
  • (1) Section CX 56 is replaced by the following:

    CX 56 Attributed income of certain investors in multi-rate PIEs
    • When this section applies

      (1) This section applies when an investor in a multi-rate PIE derives income attributed under section CP 1 (Attributed income of investors in multi-rate PIEs) in an income year, and—

      • (a) the prescribed investor rate for the investor in the relevant calculation period is more than zero; and

      • (b) that rate is not more than the tax rate notified under section HM 59 (Notified rates) in relation to the investor when the PIE calculates—

        • (i) its income tax liability under section HM 47 (Calculation of tax liability or tax credit of multi-rate PIEs) in relation to the income; or

        • (ii) a voluntary payment under section HM 45 (Voluntary payments) that is intended to be a final payment of its income tax liability in relation to the income.

      When this section does not apply

      (2) This section does not apply if the PIE calculates its income tax liability using the quarterly calculation option under section HM 43 (Quarterly calculation option) and the amount is attributed to an investor who is treated under section HM 60 (Certain exiting investors zero-rated) as zero-rated.

      (2) This section does not apply when—

      • (a) the PIE calculates its income tax liability using the quarterly calculation option under section HM 43 (Quarterly calculation option) and the amount is attributed to an investor who is treated under section HM 60 (Certain exiting investors zero-rated) as zero-rated:

      • (b) an amount of attributed PIE income is derived by a trustee who has chosen an investor rate of 19.5% under section HM 57B (Optional investor rates for trustees: 30%, 19.5%).

      Excluded income

      (3) The amount is excluded income of the investor.

      Defined in this Act: amount, attribution period, calculation period, excluded income, income, income tax liability, income year, investor, multi-rate PIE, pay, PIE, prescribed investor rate, quarter

    CX 56B Distributions to investors in multi-rate PIEs
    • An amount of income derived by an investor in a multi-rate PIE as a distribution of or dividend of the PIE is excluded income of the investor.

      Defined in this Act: amount, dividend, excluded income, income, investor, multi-rate PIE

    CX 56C  Distributions to investors by listed PIEs
    • Resident investors

      (1) If an investor in a listed PIE derives an amount in an income year as a distribution by or dividend of the PIE, the amount is excluded income of the investor if they—

      • (a) are resident; and

      • (b) are a natural person or a trustee; and

      • (c) do not include the amount as income in a return of income for the income year.

      Imputed dividends

      (2) If subsection (1)(a) to (c) does not apply to the investor, the amount is excluded income to the extent to which the amount of the distribution or dividend is more than the amount that is fully credited as described in section CD 43(26) (Available subscribed capital amount).

      Defined in this Act: amount, dividend, excluded income, income year, investor, listed PIE, PIE, resident, return of income, trustee.

    (2) Subsection (1) applies for the 2009–10 and later income years.

    (2) Subsection (1) applies for the 2010–11 and later income years.

52 Section CX 57 replaced
  • (1) Section CX 57 is replaced by the following:

    CX 57  Credits for investment fees
    • When this section applies

      (1) This section applies when—

      • (a) a multi-rate PIE includes a credit for fees in the calculation of its tax liability under section HM 47 (Calculation of tax liability or tax credit of multi-rate PIEs) in relation to an investor in an investor class of the PIE; and

      • (b) an amount of the credit is attributed to the investor as a member of the class.

      Excluded income

      (2) The amount allocated is excluded income of the investor.

      Defined in this Act: amount, excluded income, investor, investor class, multi-rate PIE, PIE.

    (2) Subsection (1) applies for the 2009–10 and later income years.

    (2) Subsection (1) applies for the 2010–11 and later income years.

52B New section CZ 9B inserted
  • After section CZ 9, the following is inserted:

    CZ 9B Available capital distribution amount: 1988 to 2010
    • When this section applies

      (1) This section applies for the purposes of section CD 44 (Available capital distribution amount) in relation to capital gain amounts derived or capital loss amounts incurred in the period that starts on 1 April 1988 and ends on 31 March 2010.

      Related person transactions

      (2) No capital gain amount is derived or capital loss amount incurred by a company disposing of property under an arrangement with a related person. But this subsection does not apply if—

      • (a) the company is a close company; and

      • (b) the related person is not a company; and

      • (c) the disposal is not on the liquidation of the company.

      Meaning of related person

      (3) In this section, related person means a person related to a company (the first company) because 1 of the following applies to the person and the first company:

      • (a) the person owns, can control, directly or indirectly, or has the right to acquire 20% or more of the first company's ordinary shares; or

      • (b) the person owns, can control, directly or indirectly, or has the right to acquire 20% or more of the voting rights of shareholders in the first company; or

      • (c) the person is a company and the first company owns, can control, directly or indirectly, or has the right to acquire 20% or more of the ordinary shares in the person; or

      • (d) the person is a company and the first company owns, can control, directly or indirectly, or has the right to acquire 20% or more of the voting rights of shareholders in the company; or

      • (e) the person is a company and 20% or more of the shares or voting rights in the person are owned or controlled by persons that also own, control, or have the right to acquire 20% or more of the shares or voting rights in the first company; or

      • (f) the person is a partner or co-venturer of the first company; or

      • (g) the person is the trustee of a trust and the first company, or a person who is a related person of the first company under this subsection, benefits or can benefit under the trust, directly or indirectly; or

      • (h) the person is a partnership and 1 or more persons, that are related persons of the first company under this subsection, are entitled to 50% or more of the partnership's assets or profits or are able to control the partnership.

      Look-through relatives and nominees

      (4) For the purposes of subsection (3), a person is treated as holding anything held by—

      • (a) their spouse, civil union partner, or de facto partner; or

      • (b) their child; or

      • (c) a child or their spouse, civil union partner, or de facto partner; or

      • (d) a spouse, civil union partner, or de facto partner of their child, or a child of their spouse, civil union partner, or de facto partner.

      Look-through interposed companies

      (5) For the purposes of subsection (3)(e), if shares or voting rights in a company are owned or controlled by another company, a look-through approach must be applied. The look-through approach requires that—

      • (a) the shares or voting rights are treated as if owned or controlled by the shareholders in the other company; and

      • (b) if a shareholder in the other company is a company, that shareholder's portion of the shares or voting rights are treated as if owned or controlled by the shareholders in the shareholder company; and

      • (c) the approach is applied in the same way to any chain of companies, whatever the length of the chain.

      Defined in this Act: amount, close company, company, liquidation, related person, share, shareholder, trustee.

52C Determining tax liabilities
  • (1) Section DB 3(4), other than the heading, is replaced by the following:

    • (4) This section supplements the general permission and overrides the capital limitation, the private limitation, and the employment limitation. The other general limitations still apply.

    (2) In section DB 3, in the list of defined terms, capital limitation is inserted.

    (3) Subsection (1) applies for the 2008–09 and later income years.

53 Interest: not capital expenditure
  • (1) Section DB 6(3) is repealed.

    (2) Subsection (1) applies for the 2009–10 and later income years.

    (2) Subsection (1) applies for—

    • (a) the 2009–10 and later income years, for persons having a balance date on or after 30 June; or

    • (b) the 2010–11 and later income years, for persons having a balance date before 30 June.

54 Interest: most companies need no nexus with income
  • (1) Section DB 7(7) is repealed.

    (2) Subsection (1) applies for the 2009–10 and later income years.

    (2) Subsection (1) applies for—

    • (a) the 2009–10 and later income years, for persons having a balance date on or after 30 June; or

    • (b) the 2010–11 and later income years, for persons having a balance date before 30 June.

55 Interest: money borrowed to acquire shares in group companies
  • (1) Section DB 8(7) is repealed.

    (2) Subsection (1) applies for the 2009–10 and later income years.

    (2) Subsection (1) applies for—

    • (a) the 2009–10 and later income years, for persons having a balance date on or after 30 June; or

    • (b) the 2010–11 and later income years, for persons having a balance date before 30 June.

55B New section DB 10B inserted
  • After section DB 10, the following is inserted:

    DB 10B Interest or expenditure connected to stapled debt security
    • No deduction

      (1) A company that issues a stapled debt security is denied, while section FA 2B(2) (Stapled debt securities) applies to the security, a deduction for—

      • (a) interest payable under the security:

      • (b) expenditure or loss incurred in connection with the security:

      • (c) expenditure or loss incurred in borrowing the money secured by or owing under the security.

      Relationship with sections DB 5 to DB 8

      (2) This section overrides sections DB 5 to DB 8.

      Link with subpart DA

      (3) This section overrides the general permission.

      Defined in this Act: deduction, general permission, interest, pay, stapled debt security.

56 Cost of revenue account property
  • (1) Section DB 23(2)(a) is repealed.

    (2) In section DB 23(2)(b), Proceeds from certain disposals by portfolio investment entities or New Zealand Superannuation Fund is replaced by Proceeds from disposal of investment shares.

    (3) In section DB 23, in the list of defined terms, portfolio investment-linked life fund is omitted and life fund PIE, life insurer, and PIE are inserted.

    (4) Subsections (1) to (3) apply for the 2009–10 and later income years.

    (3) In section DB 23, in the list of defined terms, portfolio investment entity is omitted.

    (4) Subsections (1) and (2) apply for the 2010–11 and later income years.

56B Charitable or other public benefit gifts by company
  • (1) In section DB 41(2), a society, institution, association, organisation, trust, or fund of any of the kinds described in section LD 3(2) (Meaning of charitable or other public benefit gift) or set out in schedule 32 (Recipients of charitable or other public benefit gifts) is replaced by a donee organisation.

    (2) In section DB 41, in the defined terms list,—

    • (a) close company, company, recognised exchange, and share are omitted:

    • (b) donee organisation is inserted.

57 Property misappropriated by employees or service providers
  • (1) Section DB 42(2), other than the heading, is replaced by the following:

    • (2) This section does not apply when a person who misappropriates property is associated with the person who carries on the business.

    (2) Subsection (1) applies for the 2009–10 and later income years.

    (2) Subsection (1) applies for the 2010–11 and later income years.

57B Portfolio investment entities: zero-rated portfolio investors and allocated losses
  • (1) Section DB 53(1), other than the heading, is replaced by the following:

    • (1) This section applies in relation to an investor in a portfolio investor class of a portfolio tax rate entity when—

      • (a) either—

        • (i) the entity pays tax under section HL 22 (Payments of tax by portfolio tax rate entity making no election) and the investor exits from the entity during a portfolio calculation period; or

        • (ii) the investor is a zero-rated portfolio investor for the period; and

      • (b) the period includes a portfolio allocation period for which the investor is allocated an amount of portfolio investor allocated loss under subpart HL (Portfolio investment entities).

    (2) Subsection (1) applies for the 2008–09 and later income years.

58 Section DB 53 replaced
  • (1) Section DB 53 is replaced by the following:

    DB 53  Attributed PIE losses of certain investors
    • When this section applies

      (1) This section applies to an investor in a multi-rate PIE when—

      • (a) an amount of attributed PIE loss is attributed under section HM 36 (Calculating amounts attributed to investors) to an investor for an attribution period in a tax year; and

      • (b) either the investor is—

        • (i) a zero-rated investor; or

        • (ii) treated under section HM 60 (Certain exiting investors zero-rated) as zero-rated.

      Deduction

      (2) The investor is allowed a deduction for the amount allocated to the investor's income year in which the PIE's tax year ends.

      Link with subpart DA

      (3) This section supplements the general permission. The general limitations still apply.

      Defined in this Act: amount, attributed PIE loss, attribution period, deduction, exit period, general limitation, general permission, income tax liability, income year, investor, multi-rate PIE, PIE, quarter, tax year, zero-rated investor

      Compare: 2007 No 97 s DB 53.

    (2) Subsection (1) applies for the 2009–10 and later income years.

    (2) Subsection (1) applies for the 2010–11 and later income years.

59 Section DB 54 replaced
  • (1) Section DB 54 is replaced by the following:

    DB 54  Treatment of credits for investment fees
    • When this section applies

      (1) This section applies when an investor in an investor class of a multi-rate PIE incurs expenses in relation to their investor interest, and the entity includes the amount in the calculation of its tax liability under section HM 47 (Calculation of tax liability or tax credit of multi-rate PIEs) in relation to the investor.

      No deduction

      (2) The investor is denied a deduction for the amount.

      Link with subpart DA

      (3) This section overrides the general permission.

      Defined in this Act: amount, deduction, general permission, investor, investor class, investor interest, multi-rate PIE

      Compare: 2007 No 97 s DB 54.

    (2) Subsection (1) applies for the 2009–10 and later income years.

    (2) Subsection (1) applies for the 2010–11 and later income years.

60 Expenditure incurred in deriving exempt dividend
  • (1) Section DB 55(1) and (2) are replaced by the following:

    Deduction
    • (1) A company that derives a dividend that is exempt income of the company under section CW 9 (Dividend derived by company from overseas) is allowed a deduction of the amount of the expenditure incurred by the company in deriving the dividend.

    • (1) A company that derives a dividend that is exempt income of the company under section CW 9 (Dividend derived from foreign company) is allowed a deduction of the amount of the expenditure incurred by the company in deriving the dividend.

    (2) In section DB 55, in the list of defined terms, CTR company is omitted.

    (3) Subsections (1) and (2) apply for the 2009–10 and later income years.

    (3) Subsection (1) applies for—

    • (a) the 2009–10 and later income years, for persons having a balance date on or after 30 June; or

    • (b) the 2010–11 and later income years, for persons having a balance date before 30 June.

61 New heading and section DB 60 added
  • After section DB 59, the following is added:

    Emissions units under Climate Change Response Act 2002

    DB 60 Acquisition of emissions units
    • When this section applies

      (1) This section applies when a person is issued an emissions unit.

      No expenditure or loss on issue of emissions unit

      (2) The person is treated as incurring no expenditure or loss in the acquisition of the emissions unit.

      Link with subpart DA

      (3) Subsection (2) overrides the general permission.

      Defined in this Act: amount, capital limitation, convert, deduction, emissions unit, general limitation, general permission, Kyoto emissions unit, New Zealand emissions unit.

61 Heading and section DB 60 replaced
  • The heading after section DB 59 and section DB 60 are replaced by the following:

    Emissions units and liabilities under Climate Change Response Act 2002

    DB 60 Acquisition of emissions units
    • When this section applies

      (1) This section applies when a person is transferred an emissions unit under section 64, or Part 4 subpart 2, of the Climate Change Response Act 2002 for a price of zero.

      No deduction

      (2) The person is denied a deduction for an amount of expenditure or loss incurred as consideration for the emissions unit.

      Link with subpart DA

      (3) Subsection (2) overrides the general permission.

      Defined in this Act: amount, emissions unit, general permission, loss.

61B New section DB 61 added
  • (1) After section DB 60, the following is added:

    DB 61 Liabilities for emissions
    • When this section applies

      (1) This section applies when a person incurs a liability under the Climate Change Response Act 2002 for emissions relating to post-1989 forest land or pre-1990 forest land.

      No deduction

      (2) The person is denied a deduction for the liability.

      Link with subpart DA

      (3) Subsection (2) overrides the general permission.

      Defined in this Act: amount, deduction, general permission, post-1989 forest land, pre-1990 forest land.

    (2) Subsection (1) applies for deductions accrued on or after 1 January 2008.

61C Contributions to employees' superannuation schemes
  • (1) In section DC 7(1), for a contribution is replaced by for a superannuation contribution.

    (2) In section DC 7(1B), for a contribution is replaced by for a superannuation contribution.

    (3) In section DC 7, in the list of defined terms, superannuation contribution is inserted.

    (4) Subsections (1) and (2) apply for the 2008–09 and later income years.

61D Criteria for approval of share purchase schemes: before period of restriction ends
  • (1) Section DC 13(5)(d) is replaced by the following:

    • (d) the trustee to be prohibited from applying the amount of any dividend to the repayment of a sum owing to the company or to the trustee; and.

    (2) Subsection (1) applies for the 2008–09 and later income years.

61E Employment-related activities
  • (1) The heading to section DD 4(3) is replaced by Relocation expenses, employees' meals, and sustenance allowances.

    (2) Section DD 4(3)(a) is replaced by the following:

    • (a) an amount that is exempt income of an employee under sections CW 17B and CW 17C (which relate to relocation expenses, expenditure on overtime meals, and sustenance allowances):.

    (3) In section DD 4, in the list of defined terms, amount is inserted.

61F Interpretation: reimbursement and apportionment
  • In section DD 10(a), section CW 17 (Expenditure on account, and reimbursement of employees) is replaced by sections CW 17, CW 17B, and CW 17C (which relate to expenditure and reimbursement of employees).

62 Heading to subpart DF
  • In the heading to subpart DF, , funding, is inserted after grants.

63 Government grants to businesses
  • (1) Section DF 1(6) is repealed.

    (2) In section DF 1, in the list of defined terms, large budget screen production grant is omitted.

    (3) Subsection (1) applies for an amount derived by a company as a large budget screen production grant if—

    • (a) the final application for the large budget screen production grant is made on or after 1 October 2009; and

    • (b) the company does not incur before 1 July 2008 an amount of $3,000,000 or more in expenditure on the project to which the large budget screen production grant relates.

64 Payments for social rehabilitation
  • In section DF 4(3)(b), part H, is replaced by part I,.

65 New section DF 5 added
  • After section DF 4, the following is added:

    DF 5 Government funding additional to government screen production payments
    • When this section applies

      (1) This section applies when a public authority makes a payment (the funding payment) to a person for expenditure incurred in a project if—

      • (a) the funding payment is not in the nature of a grant or subsidy; and

      • (b) the funding payment is not a grant-related suspensory loan; and

      • (c) the person receives a government screen production payment for the project in addition to the funding payment; and

      • (d) the person would be allowed a deduction for the expenditure in the absence of this section; and

      • (e) the payment is excluded income under section CX 48B (Government funding additional to government screen production payments).

      No deduction for expenditure

      (2) The person is denied, to the extent of the amount of the funding payment, the deduction for the expenditure that would be allowed in the absence of this section.

      Deduction for payments to public authority

      (3) The person is allowed a deduction for the amount of a payment (the return payment) made to the public authority to the extent to which the return payment is required by the arrangement under which the funding payment is made.

      Links with subpart DA

      (4) In this section—

      • (a) subsection (2) overrides the general permission; and

      • (b) subsection (3) supplements the general permission and overrides the capital limitation; the other general limitations still apply.

      Defined in this Act: capital limitation, deduction, excluded income, general limitation, general permission, government screen production payment, grant-related suspensory loan, pay, public authority.

66 When attributed CFC loss arises
  • (1) Section DN 2(f) and (g) are replaced by the following:

    • (f) the CFC has net attributable CFC loss for the accounting period under section EX 20C (Net attributable CFC income or loss); and

    • (fb) the CFC is not a non-attributing active CFC for the accounting period, under section EX 21B (Non-attributing active CFCs); and

    • (g) the CFC is not a non-attributing Australian CFC for the accounting period, under section EX 22 (Non-attributing Australian CFCs).

    (2) In section DN 2, in the list of defined terms,—

    • (a) branch equivalent loss is omitted:

    • (b) net attributable CFC loss, non-attributing active CFC, and non-attributing Australian CFC are inserted.

    (3) Subsections (1) and (2) apply for the 2009–10 and later income years.

    (1) After the heading to section DN 2, General rule is inserted as a subsection heading.

    (2) Section DN 2(f) and (g) are replaced by the following:

    • (f) the CFC has a net attributable CFC loss for the accounting period under section EX 20C (Net attributable CFC income or loss); and

    • (h) the CFC is not a non-attributing active CFC for the accounting period, under section EX 21B (Non-attributing active CFCs); and

    • (i) the CFC is not a non-attributing Australian CFC for the accounting period, under section EX 22 (Non-attributing Australian CFCs).

    (3) After section DN 2(g), the following is added as subsection (2):

    Special rule: Attributable CFC amount from personal services
    • (2) If a person and a non-attributing active CFC or non-attributing Australian CFC meet the requirements of subsection (1)(a) to (e) and the CFC derives income from personal services that is an attributable CFC amount under section EX 20B(3)(h) (Attributable CFC amount), the person has attributed CFC loss from the CFC equal to the product of—

      • (a) the person's income interest in the CFC:

      • (b) the amount by which the CFC's expenditure incurred in deriving the income from personal services exceeds the income from personal services.

    (4) In section DN 2, in the list of defined terms,—

    • (a) branch equivalent loss is omitted:

    • (b) attributable CFC amount, net attributable CFC loss, non-attributing active CFC, and non-attributing Australian CFC are inserted.

    (5) Subsections (2) and (3) apply for—

    • (a) the 2009–10 and later income years, for persons having a balance date on or after 30 June; or

    • (b) the 2010–11 and later income years, for persons having a balance date before 30 June.

67 When FIF loss arises
  • (1) Section DN 6(3) is replaced by the following:

    FIF loss from CFC with FIF interest
    • (3) FIF loss also includes an amount of additional FIF loss that a person with an income interest of 10% or more in a CFC has in an income year under section EX 58 (Additional FIF income or loss if CFC owns FIF), whether or not the CFC is a non-attributing Australian CFC under section EX 22 (Non-attributing Australian CFCs).

    (2) In section DN 6, in the list of defined terms, non-attributing Australian CFC is inserted.

    (3) Subsections (1) and (2) apply for the 2009–10 and later income years.

    (3) Subsection (1) applies for—

    • (a) the 2009–10 and later income years, for persons having a balance date on or after 30 June; or

    • (b) the 2010–11 and later income years, for persons having a balance date before 30 June.

67B Section DO 11B repealed
  • (1) Section DO 11B is repealed.

    (2) Subsection (1) applies for the 2009–10 and later income years.

67C Forestry business on land bought from the Crown, Maori owners, or holding company: no deduction
  • (1) In the heading to section DP 8(3), section FA 2 is replaced by sections FA 2 and FA 2B.

    (2) In section DP 8(3),as it applies to substituting debentures, does is replaced by , as it applies to substituting debentures, and section FA 2B (Stapled debt securities) do.

68 Sections DR 1 to DR 3 replaced
  • (1) Sections DR 1 to DR 3 are replaced by the following:

    DR 1 Policyholder base gross expenditure or loss of life insurer
    • Deduction

      (1) A life insurer is allowed a deduction for an income year for their policyholder base gross expenditure or loss for that year, to the extent to which it is not used to calculate their schedular policyholder base income under section EY 2(3) to (6) (Policyholder base). The deduction is allowed against the life insurer's policyholder base gross income described in section CR 1(1) (Policyholder base income of life insurer) for the income year.

      Prohibition on deduction against schedular policyholder base income and shareholder base gross income

      (2) The deduction in subsection (1) is not allowed against schedular policyholder base income or shareholder base gross income.

      Code for deductions

      (3) A life insurer is denied a deduction for any expenditure or loss in relation to their life insurance business that is not their policyholder base gross expenditure or loss, or their shareholder base gross expenditure or loss.

      Link with subpart DA

      (4) Subsections (2) and (3) override the general permission.

      Defined in this Act: deduction, general permission, income year, life insurance, life insurer, policyholder base gross expenditure or loss, policyholder base gross income, schedular policyholder base income, shareholder base gross expenditure or loss, shareholder base gross income

    DR 2 Shareholder base gross expenditure or loss of life insurer
    • Deduction

      (1) Subject to subsection (3), a life insurer is allowed a deduction for an income year for their shareholder base gross expenditure or loss. The deduction is allowed against the life insurer's shareholder base gross income described in section CR 2 (Shareholder base gross income of life insurer) for the income year.

      Prohibition on deduction against schedular policyholder base income and policyholder base gross income

      (2) The deduction in subsection (1) is not allowed against schedular policyholder base income or policyholder base gross income.

      No deduction for non-New Zealand life reinsurance

      (3) A life insurer is denied a deduction for life reinsurance policy premiums if, for the relevant policy, the life insurer––

      • (a) did not offer the policy in New Zealand:

      • (b) was not offered the policy in New Zealand:

      • (c) did not enter into the policy in New Zealand.

      Code for deductions

      (4) A life insurer is denied a deduction for any expenditure or loss in relation to their life insurance business that is not their shareholder base gross expenditure or loss, or their policyholder base gross expenditure or loss.

      Link with subpart DA

      (5) Subsections (2) to (4) override the general permission.

      Defined in this Act: deduction, general permission, income year, life insurance, life insurer, life reinsurance, life reinsurance policy, policyholder base gross expenditure or loss, policyholder base gross income, schedular policyholder base income, shareholder base gross expenditure or loss, shareholder base gross income

    DR 1 Policyholder base allowable deduction of life insurer
    • Deduction

      (1) If, but for this section, a life insurer has an amount of shareholder base allowable deduction for an income year and that amount is neither a deduction under this Part nor denied as a deduction under this Part, the amount is a deduction of the life insurer for the income year.

      No cross-deducting: section EY 2

      (2) A policyholder base allowable deduction is not allowed against shareholder base income. Section EY 2 (Policyholder base) deals with allowing policyholder base allowable deductions against policyholder base income, and deals with deductions that relate to the life insurer's schedular income derived by their life fund PIE that is a multi-rate PIE.

      Link with subpart DA

      (3) Subsections (1) and (2) override the general permission.

      Defined in this Act: amount, deduction, general permission, income year, life fund PIE, life insurer, multi-rate PIE, policyholder base allowable deduction, policyholder base income, shareholder base income

    DR 2 Shareholder base income of life insurer
    • Deduction

      (1) If, but for this section, a life insurer has an amount of shareholder base allowable deduction for an income year and that amount is neither a deduction under this Part nor denied as a deduction under this Part, the amount is a deduction of the life insurer for the income year.

      No cross-deducting

      (2) A shareholder base allowable deduction is not allowed against policyholder base income.

      Link with subpart DA

      (3) Subsections (1) and (2) override the general permission.

      Defined in this Act: amount, deduction, general permission, income year, life insurer, policyholder base income, shareholder base allowable deduction

    DR 3 Life reinsurance outside New Zealand
    • No deduction

      A life insurer is denied a deduction for life reinsurance premiums they incur if the relevant life reinsurance policy,––

      • (a) was not offered in New Zealand:

      • (b) was not entered into in New Zealand.

      Defined in this Act: amount, deduction, general permission, income year, life insurer, life reinsurance, life reinsurance policy, New Zealand

    DR 4 Life insurers' claims reserves
    • No deduction on account of claims

      (1) For a life insurer's life insurance policies, the life insurer is denied a deduction relating to the life insurer's outstanding claims or for a claim's expenditure or loss for an income year, except as provided by––

      • (a) section EY 24 (Outstanding claims reserving amount: non-participation policies not annuities):

      • (b) subsection (2).

      Deduction for payments of current claims

      (2) The life insurer is allowed a deduction for the amount of expenditure or loss of a claim paid to an insured under a life insurance policy for the income year.

      Link with subpart DA

      (3) This section supplements the general permission. The general limitations still apply.

      Defined in this Act: claim, deduction, general limitation, general permission, life insurance policy, life insurer.

    (2) Subsection (1) applies for income years beginning on or after 1 April 2009.

    (2) Subsection (1) applies––

    • (a) on and after 1 July 2010, unless paragraph (b) applies:

    • (b) for an income year that includes 1 July 2010 and later income years, if the life insurer chooses to apply the new life insurance rules in this Act in a return of income for the tax year corresponding to the first relevant income year.

69 Film production expenditure
  • (1) Section DS 2(4) is replaced by the following:

    Timing of deduction
    • (4) The deduction is allocated under—

      • (a) section EJ 4 or EJ 5 (which relate to expenditure incurred in acquiring film rights) if the film is one for which a government screen production payment is made; or

      • (b) section EJ 7 or EJ 8 (which relate to film production expenditure) if the film is not one for which a government screen production payment is made.

    (2) In section DS 2, in the list of defined terms—

    • (a) large budget screen production grant is omitted:

    • (b) government screen production payment is inserted.

70 Meaning of film reimbursement scheme
  • (1) Section DS 4(5), other than the heading, is replaced by the following:

    • (5) For the purposes of subsection (3), a shareholder in a loss-attributing qualifying company and the company are associated persons, in addition to the associated persons described in the parts of subpart YB (Associated persons and nominees) that apply for the purposes of the whole Act (excluding the 1973, 1988, and 1990 version provisions) or in the 1988 version provisions.

    • (5) For the purposes of subsection (3), a shareholder in a loss-attributing qualifying company and the company are associated persons, in addition to the associated persons described in the provisions of subpart YB (Associated persons and nominees) that apply for the purposes of the whole Act (excluding the 1973, 1988, and 1990 version provisions) or in the 1988 version provisions.

    (2) In section DS 4, in the list of defined terms, 1973 version provisions, 1988 version provisions, and 1990 version provisions are inserted.

    (2) Section DS 4(5), other than the heading, is replaced by the following:

    • (5) For the purposes of subsection (3), a shareholder in a loss-attributing qualifying company and the company are associated persons, in addition to the associated persons described in subpart YB (Associated persons and nominees).

    (3) In section DS 4, in the list of defined terms, 1973 version provisions, 1988 version provisions, and 1990 version provisions are inserted.

    (4) In section DS 4, in the list of defined terms, 1973 version provisions, 1988 version provisions, and 1990 version provisions are omitted.

    (5) Subsection (2) applies for the 2010–11 and later income years.

71 New section DT 1A inserted
  • (1) Before section DT 1, the following is inserted:

    DT 1A Ring-fenced allocations
    • When this section applies

      (1) This section applies to an amount of a person's deductions for expenditure and loss for an income year to the extent to which it is—

      • (a) petroleum exploration expenditure:

      • (b) petroleum development expenditure:

      • (c) residual expenditure.

      Basis for allocation of deductions

      (2) If, but for this subsection, an amount that relates to petroleum mining operations undertaken outside New Zealand is allocated to an income year (the current year), including an amount carried forward and allocated to the current year, the amount that is allocated to the current year is no more than the amount of the person's income derived from those operations for the current year.

      (2) If, but for this subsection, an amount that relates to petroleum mining operations undertaken outside New Zealand would be allocated to an income year (the current year), including an amount carried forward and allocated to the current year, the amount that is allocated to the current year is no more than the amount of the person's income derived for the current year from all petroleum mining operations undertaken outside New Zealand.

      Excess allocations: carried forward and re-instated next year

      (3) Any excess not allocated to the current year because of subsection (2) is carried forward and treated as—

      • (a) relating to petroleum mining operations outside New Zealand for the next income year; and

      • (a) relating to petroleum mining operations undertaken outside New Zealand for the next income year; and

      • (b) allocated to that next income year.

      Restriction on reinstating excess allocations

      (4) Despite subsection (3), the excess is not allocated to the next income year, and no deduction is allowed or allocated to any income year for the excess, if sections IA 5 and IP 3 (which relate to the carrying forward of tax losses for companies) would not have allowed the excess to be carried forward to that next income year in a loss balance, treating the excess as a tax loss component arising on the last day of the current year.

      Defined in this Act: deduction, income year, loss balance, New Zealand, petroleum development expenditure, petroleum exploration expenditure, petroleum mining operation, residual expenditure, tax loss component.

    (2) Subsection (1) applies for expenditure incurred on or after 4 March 2008.

72 Arrangement for petroleum exploration expenditure and sale of property
  • (1) In section DT 2(1)(b), the words before subparagraph (i) are replaced by the following:

    • (b) the person or a person associated with them under the parts of subpart YB that apply for the purposes of the whole Act (excluding the 1973, 1988, and 1990 version provisions) or under the 1988 version provisions may dispose of property—

    • (b) the person or a person associated with them under the provisions of subpart YB (Associated persons and nominees) that apply for the purposes of the whole Act (excluding the 1973, 1988, and 1990 version provisions) or the 1988 version provisions may dispose of property—.

    (2) In section DT 2(1)(c), subparagraphs (ii) and (iii) are replaced by the following:

    • (ii) a petroleum permit; or

    • (iii) material or a permit that relates to petroleum mining operations undertaken outside New Zealand, and that material or permit are substantially the same as those described in subparagraphs (i) or (ii), with necessary modifications made to this subpart and the Crown Minerals Act 1991.

    (3) In section DT 2, in the list of defined terms, 1973 version provisions, 1988 version provisions, and 1990 version provisions are inserted.

    (4) Subsections (1) and (3) are treated as coming into force on 1 April 2008.

    (2) In section DT 2(1)(b), the words before subparagraph (i) are replaced by the following:

    • (b) the person or a person associated with them may dispose of property—.

    (3) In section DT 2(1)(c), subparagraphs (ii) and (iii) are replaced by the following:

    • (ii) a petroleum permit; or

    • (iii) material or a permit that relates to petroleum mining operations undertaken outside New Zealand, and that material or permit are substantially the same as those described in subparagraphs (i) or (ii), with necessary modifications made to this subpart and the Crown Minerals Act 1991.

    (4) In section DT 2, in the list of defined terms, 1973 version provisions, 1988 version provisions, and 1990 version provisions are inserted.

    (5) In section DT 2, in the list of defined terms, 1973 version provisions, 1988 version provisions, and 1990 version provisions are omitted.

    (6) Subsection (2) applies for the 2010–11 and later income years.

73 Petroleum development expenditure
  • (1) Section DT 5(1) and (2) is replaced by the following:

    Deduction
    • (1) A petroleum miner is allowed a deduction for petroleum development expenditure incurred by them.

    Timing of deduction
    • (2) For an income year, an amount of the deduction is allocated to that year, as provided by—

      • (a) section EJ 12 (Petroleum development expenditure: default allocation rule); or

      • (b) section EJ 12B (Petroleum development expenditure: reserve depletion method).

    (2) Subsection (1) applies for expenditure incurred on or after 1 April 2008.

74 Disposal of petroleum mining asset to associate
  • (1) In section DT 9(1)(b), section EJ 12 (Petroleum development expenditure) is replaced by section EJ 12 or EJ 12B (which relate to petroleum development expenditure).

    (2) Section DT 9(2)(b) is replaced by the following:

    • (b) the amount of the deduction allocated under section EJ 12 or EJ 12B to the income years after the income year in which the miner disposes of the asset.

    (3) Subsections (1) and (2) apply for expenditure incurred on or after 1 April 2008.

75 Amount written off by holding company
  • (1) In section DU 12(3)(a), tax year is replaced by income year.

    (2) Section DU 12(3)(b) is replaced by the following:

    • (b) the prescribed proportion of the total amount of mining exploration expenditure and mining development expenditure incurred by the mining company before the end of the income year in which the amount referred to in subsection (1) is written off, reduced by the total amount of deductions the holding company is allowed under this section in all income years before the income year in which that amount is written off.

    (3) Subsection (2) applies for the 2008–09 and later income years.

76 Transfer of expenditure to master fund
  • (1) Section DV 2(6), other than the heading, is replaced by the following:

    • (6) The expenditure is treated as being incurred by the master superannuation fund as follows:

      • (a) for a master fund that is a portfolio tax rate entity, in the income year in which the expenditure is transferred by the member superannuation fund; or

      • (b) for other master funds, in the same income year as that in which it was incurred by the member superannuation fund.

    (2) Section DV 2(6), other than the heading, is replaced by the following:

    • (6) The expenditure is treated as being incurred by the master superannuation fund as follows:

      • (a) for a master fund that is a multi-rate PIE, in the income year in which the expenditure is transferred by the member superannuation fund; or

      • (b) for other master funds, in the same income year as that in which it was incurred by the member superannuation fund.

    (3) After section DV 2(8), the following is inserted:

    Amount of deduction when master fund is portfolio tax rate entity
    • (8B) Despite subsection (8), a master superannuation fund that is a portfolio tax rate entity is allowed a deduction only for expenditure transferred to it by a member superannuation fund—

      • (a) that is expenditure incurred by the member fund when it has a portfolio investor interest in the portfolio tax rate entity; and

      • (b) to the extent to which the member fund incurred the expenditure in relation to its portfolio investor interest in the portfolio tax rate entity.

    • (8B) Despite subsection (8), a master superannuation fund that is a portfolio tax rate entity is allowed a deduction for expenditure transferred to it by a member superannuation fund. However, the maximum amount transferred must be no more than the member fund's share of the entity's taxable income for the income year in which the amount is transferred, any excess being treated as not transferred.

    (4) Section DV 2(8B), other than the heading, is replaced by the following:

    • (8B) Despite subsection (8), a master superannuation fund that is a multi-rate PIE is allowed a deduction only for expenditure transferred to it by a member superannuation fund—

      • (a) that is expenditure incurred by the member fund when it has an investor interest in the PIE; and

      • (b) to the extent to which the member fund incurred the expenditure in relation to its investor interest in the PIE.

    • (8B) Despite subsection (8), a master superannuation fund that is a multi-rate PIE is allowed a deduction for expenditure transferred to it by a member superannuation fund. However, the maximum amount transferred must be no more than the member fund's share of the taxable income of the PIE for the income year in which the amount is transferred, any excess being treated as not transferred.

    (5) In section DV 2, in the list of defined terms, portfolio investor interest and portfolio tax rate entity are inserted.

    (6) In section DV 2, in the list of defined terms, portfolio investor interest and portfolio tax rate entity are omitted and investor interest and multi-rate PIE are inserted.

    (7) Subsections (1), (3), and (5) apply for the 2008–09 income year.

    (8) Subsections (2), (4), and (6) apply for the 2009–10 and later income years.

    (6) In section DV 2, in the list of defined terms,—

    • (a) portfolio investor interest and portfolio tax rate entity are omitted:

    • (b) investor interest and multi-rate PIE are inserted.

    (7) Subsections (1) and (3) apply for the 2008–09 and 2009–10 income years.

    (8) Subsections (2) and (4) apply for the 2010–11 and later income years.

77 Carry forward of expenditure
  • (1) After section DV 4(1), the following is inserted:

    What this section does not apply to
    • (1B) This section does not apply to a transfer of expenditure to a master superannuation fund that is a portfolio tax rate entity.

    (2) Section DV 4(1B) is replaced by the following:

    What this section does not apply to
    • (1B) This section does not apply to a transfer of expenditure to a master superannuation fund that is a multi-rate PIE.

    (3) In section DV 4, in the list of defined terms, portfolio tax rate entity is inserted.

    (4) In section DV 4, in the list of defined terms, portfolio tax rate entity is omitted and multi-rate PIE is inserted.

    (5) Subsections (1) and (3) apply for the 2008–09 income year.

    (6) Subsections (2) and (4) apply for the 2009–10 and later income years.

    (4) In section DV 4, in the list of defined terms,—

    • (a) portfolio tax rate entity is omitted:

    • (b) multi-rate PIE is inserted.

    (5) Subsection (1) applies for the 2008–09 and 2009–10 income years.

    (6) Subsection (2) applies for the 2010–11 and later income years.

77B New section DV 4B inserted and replaced
  • (1) After section DV 4, the following is inserted:

    DV 4B Carry forward of expenditure by member funds investing in portfolio investment entities
    • When this section applies

      (1) This section applies when—

      • (a) a master fund that is a portfolio tax rate entity has a deduction under section DV 2(8B) for an income year for expenditure transferred to it by a member fund; and

      • (b) the amount of the expenditure that meets the tests set out in section DV 2(2) is more than the amount transferred for the income year, so there is surplus expenditure for the member fund.

      Member fund carrying expenditure forward

      (2) The member fund may carry forward the surplus expenditure for transfer under section DV 2(8B) in a later income year.

      Expenditure as loss balance

      (3) If the member fund carries forward surplus expenditure in an income year, the member fund may treat some or all of the expenditure as a loss balance for the corresponding tax year.

      Defined in this Act: amount, deduction, income year, loss balance, master fund, portfolio tax rate entity, tax year.

    (2) Section DV 4B is replaced by the following:

    DV 4B Carry forward of expenditure by member funds investing in portfolio investment entities
    • When this section applies

      (1) This section applies when—

      • (a) a master fund that is a multi-rate PIE has a deduction under section DV 2(8B) for an income year for expenditure transferred to it by a member fund; and

      • (b) the amount of the expenditure that meets the tests set out in section DV 2(2) is more than the amount transferred for the income year, so there is surplus expenditure for the member fund.

      Member fund carrying expenditure forward

      (2) The member fund may carry forward the surplus expenditure for transfer under section DV 2(8B) in a later income year.

      Expenditure as loss balance

      (3) If the member fund carries forward surplus expenditure in an income year, the member fund may treat some or all of the expenditure as a loss balance for the corresponding tax year.

      Defined in this Act: amount, deduction, income year, loss balance, master fund, multi-rate PIE, tax year.

    (3) Subsection (1) applies for the 2008–09 and 2009–10 income years

    (4) Subsection (2) applies for the 2010–11 and later income years

78 Investment funds: transfer of expenditure to master funds
  • (1) After section DV 5(7), the following is inserted:

    Amount of deduction when master fund is portfolio tax rate entity
    • (7B) Despite subsection (7), a master superannuation fund that is a portfolio tax rate entity is allowed a deduction only for expenditure transferred to it by a member superannuation fund—

      • (a) that is expenditure incurred by the member fund when it has a portfolio investor interest in the portfolio tax rate entity; and

      • (b) to the extent to which the member fund incurred the expenditure in relation to its portfolio investor interest in the portfolio tax rate entity.

    • (7B) Despite subsection (7), a master superannuation fund that is a portfolio tax rate entity is allowed a deduction for expenditure transferred to it by a member superannuation fund. However, the maximum amount transferred must be no more than the member fund's share of the entity's taxable income for the income year in which the amount is transferred, any excess being treated as not transferred.

    (2) Section DV 5(7B) is replaced by the following:

    Amount of deduction when master fund is multi-rate PIE
    • (7B) Despite subsection (7), a master superannuation fund that is a multi-rate PIE is allowed a deduction only for expenditure transferred to it by a member superannuation fund—

      • (a) that is expenditure incurred by the member fund when it has an investor interest in the PIE; and

      • (b) to the extent to which the member fund incurred the expenditure in relation to its investor interest in the PIE.

    • (7B) Despite subsection (7), a master superannuation fund that is a multi-rate PIE is allowed a deduction for expenditure transferred to it by a member superannuation fund. However, the maximum amount transferred must be no more than the member fund's share of the taxable income of the PIE for the income year in which the amount is transferred, any excess being treated as not transferred.

    (3) In section DV 5, in the list of defined terms, portfolio investor interest and portfolio tax rate entity are inserted.

    (4) In section DV 5, in the list of defined terms, portfolio investor interest and portfolio tax rate entity are omitted, and investor interest and multi-rate PIE are inserted.

    (5) Subsections (1) and (3) apply for the 2008–09 income year.

    (6) Subsections (2) and (4) apply for the 2009–10 and later income years.

    (4) In section DV 5, in the list of defined terms,—

    • (a) portfolio investor interest and portfolio tax rate entity are omitted:

    • (b) investor interest and multi-rate PIE are inserted.

    (5) Subsection (1) applies for the 2008–09 and 2009–10 income years.

    (6) Subsection (2) applies for the 2010–11 and later income years.

78B Formula for calculating maximum deduction
  • (1) After section DV 6(4), the following is added:

    Portfolio tax rate entities
    • (5) This section does not apply to an amount of expenditure transferred to a master fund that is a portfolio tax rate entity.

    (2) Section DV 6(5) is replaced by the following:

    Multi-rate PIEs
    • (5) This section does not apply to an amount of expenditure transferred to a master fund that is a multi-rate PIE.

    (3) In section DV 6, in the defined terms list, portfolio tax rate entity is inserted.

    (4) In section DV 6, in the defined terms list,—

    • (a) portfolio tax rate entity is omitted:

    • (b) multi-rate PIE is inserted.

    (5) Subsection (1) applies for the 2008–09 and 2009–10 income years.

    (6) Subsection (2) applies for the 2010–11 and later income years.

78C Carry forward of expenditure
  • (1) Section DV 7(1) is replaced by the following:

    When this section applies
    • (1) This section applies when a member superannuation fund incurs expenditure that is more than—

      • (a) the member fund and master fund agree can be transferred; or

      • (b) the maximum amount that can be transferred.

    Member fund carrying expenditure forward
    • (1B) The member fund may carry forward the expenditure for transfer in a later income year.

    (2) Subsection (1) applies for the 2008–09 and later income years.

78D Maori authorities: donations
  • (1) In section DV 12(1)(b), a society, institution, association, organisation, trust, or fund to which section LD 3(2) (Meaning of charitable or other public benefit gift) or schedule 32 (Recipients of charitable or other public benefit gifts) applies is replaced by a donee organisation.

    (2) In section DV 12, in the defined terms list, donee organisation is inserted.

79 New section DW 4 added
  • (1) After section DW 3, the following is added:

    DW 4 Deduction for general insurance outstanding claims reserve
    • When this section applies

      (1) This section applies for—

      • (a) an insurer who uses IFRS 4, Appendix D for general insurance contracts; and

      • (b) general insurance contracts, excluding contracts having premiums to which section CR 3 (Income of non-resident general insurer) applies.

      Formula for insurer's deduction

      (2) For an income year, an insurer is allowed a deduction for the amount by which the amount calculated using the following formula is less than zero:

      opening outstanding claims reserve − closing outstanding claims reserve.
       
      Definition of items in formula

      (3) In the formula,—

      • (a) opening outstanding claims reserve is—

        • (i) the amount of the insurer’s closing outstanding claims reserve for the income year before the current year; or

        • (ii) the amount of the insurer’s outstanding claims reserve for general insurance contracts, calculated at the beginning of the current year, if the insurer has no closing outstanding claims reserve for the income year before the current year:

      • (b) closing outstanding claims reserve is the amount of the insurer’s outstanding claims reserve for general insurance contracts, calculated at the end of the current year.

      Link with subpart DA

      (4) This section supplements the general permission. The general limitations still apply.

      Defined in this Act: amount, deduction, general insurance contract, general limitation, general permission, IFRS 4, income year, insurer.

    (2) Subsection (1) applies for—

    • (a) the 2009–10 and later income years, unless paragraph (b) applies:

    • (b) the first income year for which a person adopts IFRSs for the purposes of financial reporting and later income years, if that first income year is before the 2009–10 income year.

79 New section DW 4 added
  • (1) After section DW 3, the following is added:

    DW 4 Deduction for general insurance outstanding claims reserve
    • When this section applies

      (1) This section applies for—

      • (a) an insurer who––

        • (i) uses IFRS 4, Appendix D for general insurance contracts:

        • (ii) is a life insurer who has general insurance contracts:

      • (b) general insurance contracts, excluding contracts having premiums to which section CR 3 (Income of non-resident general insurer) applies.

      No deduction on account of claims

      (2) For an insurer's general insurance contracts, the insurer is denied a deduction relating to the insurer's outstanding claims liability or for a claim's expenditure or loss, except as provided by this section.

      Formula for insurer's OCR deduction

      (3) For an income year (the current year), an insurer is allowed a deduction for the amount by which zero is greater than the amount calculated using the formula—

      opening outstanding claims reserve
      − closing outstanding claims reserve.
       
      Definition of items in formula

      (4) In the formula,—

      • (a) opening outstanding claims reserve is—

        • (i) the amount of the insurer's closing outstanding claims reserve for the income year before the current year (the prior year); or

        • (ii) the amount of the insurer's reserve for outstanding claims liability, calculated at the end of the prior year, using the basis the insurer used for tax purposes in that prior year, if the current year is the first year that this section applies to the insurer:

      • (b) closing outstanding claims reserve is the amount of the insurer’s outstanding claims reserve, calculated at the end of the current year.

      Deduction for payments of current claims

      (5) The insurer is allowed a deduction for the amount of expenditure or loss of a claim paid to an insured under a general insurance contract for the income year.

      Link with subpart DA

      (6) This section supplements the general permission. The general limitations still apply.

      Defined in this Act: amount, deduction, general insurance contract, general limitation, general permission, IFRS 4, income year, insurer, life insurer, outstanding claims reserve.

    (2) Subsection (1) applies—

    • (a) for an insurer who uses IFRS 4,––

      • (i) for the 2009–10 and later income years, unless subparagraph (ii) applies:

      • (ii) for the first income year for which an insurer adopts IFRSs for the purposes of financial reporting and later income years, if that first income year is before the 2009–10 income year and the person chooses to use IFRS 4 in a return of income for that first year:

    • (b) for a life insurer,––

      • (i) on and after 1 July 2010, unless subparagraph (ii) applies:

      • (ii) for an income year that includes 1 July 2010 and later income years, if the life insurer chooses to apply the new life insurance rules in this Act in a return of income for the tax year corresponding to the first relevant income year.

80 Section DX 2 repealed
  • (1) Section DX 2 is repealed.

    (2) Subsection (1) applies for the 2009–10 and later income years.

    (2) Subsection (1) applies for—

    • (a) the 2009–10 and later income years, for persons having a balance date on or after 30 June; or

    • (b) the 2010–11 and later income years, for persons having a balance date before 30 June.

80B Prepayments
  • In section EA 3(7), sections CW 17 (Expenditure on account, and reimbursement, of employees) and CW 18 (Allowance for additional transport costs) is replaced by sections CW 17, CW 17B, CW 17C, and CW 18 (which relate to expenditure, reimbursement, and allowances of employees).

81 Meaning of trading stock
  • (1) In section EB 2(3)(e), Proceeds from certain disposals by portfolio investment entities or New Zealand Superannuation Fund is replaced by Proceeds from disposal of investment shares.

    (2) In section EB 2(3)(h), exchange. is replaced by exchange: and the following is added:

    • (i) an emissions unit.

    (3) In section EB 2, in the list of defined terms, emissions unit is inserted.

    (2) Section EB 2(3)(i) is replaced by the following:

    • (i) an emissions unit.

    (3) In section EB 2, in the list of defined terms,—

    • (a) ETS unit is omitted:

    • (b) emissions unit is inserted.

82 Low-turnover valuation
  • (1) In section EB 13(2), YB 8 is replaced by YB 3.

    (2) Subsection (1) applies for the 2009–10 and later income years.

    (2) Subsection (1) applies for the 2010–11 and later income years.

83 Valuing closing stock under $5000
  • (1) In the heading to section EB 23, $5,000 is replaced by $10,000.

    (2) In section EB 23(1)(b), $5,000 is replaced by $10,000.

83B New heading and section EC 26B inserted
  • (1) After section EC 26, the following is inserted:

    Partnerships: cost price and national standard cost scheme

    EC 26B Entering partners' cost base
    • When this section applies

      (1) This section applies when an entering partner has acquired specified livestock that includes female breeding livestock for which section HG 10 (Disposal of livestock) applies, and the partners use the cost price method or the national standard cost scheme.

      Existing cost base

      (2) For the specified livestock, the entering partner is treated as having the same existing cost base that the exiting partner would have had for the purposes of the cost price method or national standard cost scheme for an income year, if they had not disposed of the interests.

      Addition to cost base

      (3) For the purposes of determining the value of the specified livestock at the end of an income year for the purposes of section EC 2, the entering partner must add to the existing cost base, described in subsection (2), the amount for the income year (the current year) calculated using the following formula:

       livestock cost base difference × current year count  
       allowed years. 
      Definition of items in formula

      (4) In the formula,––

      • (a) livestock cost base difference is the cost base that the entering partner would have for the specified livestock at the end of the income year in which the acquisition of the specified livestock occurred, ignoring subsection (2) reduced by the entering partner's existing cost base for the specified livestock at the end of that year, described in subsection (2). It must be a positive number:

      • (b) current year count,––

        • (i) is the allowed years reduced by the number of years between the current year and the income year in which the entering partner's acquisition of the specified livestock occurred, ignoring years in which the partners do not use the cost price method or national standard cost scheme (for example: current year count is 1, if the allowed years is 4, and the acquisition of the specified livestock occurred in the 2010–11 income year, and the current year is the 2013–14 income year, and the relevant method or scheme was used for all relevant income years):

        • (ii) may equal the allowed years (for example: the current year is the same year as the income year in which the entering partner's acquisition of the specified livestock occurred), but must not be a negative number:

      • (c) allowed years is––

        • (i) 4, if the partners acquire or dispose of any partnership interests that include any livestock after the entering partner's acquisition of the specified livestock and before the end of the income year in which that acquisition occurred; or

        • (ii) 5, if the partners do not acquire or dispose of any partnership interests that include any livestock after the entering partner's acquisition of the specified livestock and before the end of the income year in which that acquisition occurred.

      Defined in this Act: amount, cost price, dispose, income year, national standard cost scheme, partner, partner's interest, specified livestock.

    (2) Subsection (1) applies for the 2009–10 and later income years.

84 Valuation of excepted financial arrangements
  • (1) After subsection ED 1(5), the following is inserted:

    Certain emissions units not pooled with other types of excepted financial arrangement
    • (5B) No emissions unit described in 1 of the following paragraphs may be pooled for the purposes of subsection (5) with another emissions unit except if both emissions units are described in the same paragraph of the following:

      • (a) emissions units that are—

        • (i) pre-1990 forest land emissions units relating to pre-1990 forest land, if the holder of the units would derive income other than exempt income and excluded income from a disposal of the land without timber:

        • (ii) post-1989 forest land emissions units:

        • (iii) replacement forest land emissions units:

      • (b) pre-1990 forest land emissions units relating to pre-1990 forest land, if the holder of the units would derive no income other than exempt income and excluded income from a disposal of the land without timber:

      • (c) emissions units issued for no consideration—

        • (i) to which section ED 1B applies; and

        • (ii) that have not been assigned a cost under section ED 1B(3)(a).

    (2) After section ED 1(7), the following is inserted:

    Valuation of emissions units issued for no consideration
    • (7B) For the purposes of subsection (1),—

      • (a) a forest land emissions unit has a cost of zero at the end of each income year:

      • (b) a replacement forest land emissions unit has a cost of zero at the end of each income year:

      • (c) an emissions unit to which section ED 1B applies has the cost at the end of each income year that is given by that section.

    (3) In section ED 1, in the list of defined terms, emissions unit is inserted.

84 Valuation of excepted financial arrangements
  • (1) Subsection ED 1(5) is replaced by the following:

    Certain emissions units not pooled with other types of emissions unit
    • (5B) No emissions unit described in 1 of the following paragraphs may be pooled for the purposes of subsection (5) with an emissions unit described in another of the paragraphs:

      • (a) pre-1990 forest land emissions units relating to pre-1990 forest land, if the holder of the units would derive income, other than exempt income and excluded income, from a disposal of the land without timber:

      • (b) post-1989 forest land emissions units:

      • (c) replacement forest land emissions units:

      • (d) pre-1990 forest land emissions units relating to pre-1990 forest land, if the holder of the units would derive no income other than exempt income and excluded income from a disposal of the land without timber:

      • (e) emissions units issued for no consideration—

        • (i) to which section ED 1B applies; and

        • (ii) that have not been assigned a cost under section ED 1B(3)(a).

    Exceptions: types of emissions units pooled with other types
    • (5C) Despite subsection (5B), emissions units described in paragraphs (a) to (c) of that subsection may be pooled for the purposes of subsection (5).

    (2) After section ED 1(7), the following is inserted:

    Valuation of emissions units issued for zero price
    • (7B) Despite subsection (1),—

      • (a) an emissions unit transferred under section 64, or Part 4 subpart 2, of the Climate Change Response Act 2002 for no payment of a price has a value of zero during the period beginning with the day of the transfer and ending before the end of the income year in which the transfer occurs:

      • (b) a forest land emissions unit has a value of zero at the end of each income year:

      • (c) a replacement forest land emissions unit has a value of zero at the end of each income year:

      • (d) an emissions unit to which section ED 1B applies has the value at the end of each income year that is given by that section.

    (3) Section ED 1(8B) is repealed.

    (4) In section ED 1, in the list of defined terms,—

    • (a) replacement ETS unit is omitted:

    • (b) emissions unit, excluded income, exempt income, forest land emissions unit, post-1989 forest land emissions unit, pre-1990 forest land, pre-1990 forest land emissions unit, and replacement forest land emissions unit are inserted.

85 New section ED 1B inserted
  • After section ED 1, the following is inserted:

    ED 1B Valuation of emissions units issued for no consideration
    • What this section applies to

      (1) This section applies to emissions units, held by a person at the end of an income year, that—

      • (a) are issued to the person for no consideration; and

      • (b) are held continuously by the person to the end of the income year; and

      • (c) relate to a quantity (the unit-related quantity) of emissions, or emissions-related costs, of the person in a period (the emissions unit period) that ends in or after the income year; and

      • (d) are not forest land emissions units; and

      • (e) are not replacement forest land emissions units; and

      • (f) are not assigned a cost under subsection (3)(a) for an earlier income year.

      Cost at end of income year

      (2) The cost under section ED 1 of the emissions units at the end of the income year is—

      • (a) zero, if the emissions unit period begins after the end of the income year; or

      • (b) the amount determined under subsection (3), if paragraph (a) does not apply and the emissions unit period ends after the end of the income year; or

      • (c) the amount that a willing purchaser would pay for an emissions unit in an arm's length transaction at the end of the income year, if the emissions unit period ends in or at the end of the income year.

      Cost if emissions unit period ends after end of income year

      (3) The cost under section ED 1 of the emissions units at the end of an income year referred to in subsection (2)(b) is,—

      • (a) for the number of the emissions units given by subsection (4), the amount that a willing purchaser would pay for an emissions unit in an arm's length transaction at the end of the income year; or

      • (b) for the balance of the units, zero.

      Formula based on emissions

      (4) The number of units referred to in subsection (3)(a) is the number, treating negative numbers as equal to zero and ignoring fractions, calculated using the formula—

       held units – ﴾issued units × remaining quantity﴿.
       total quantity
      Definition of items in formula

      (5) The items in the formula are defined in subsections (6) to (9).

      Held units

      (6) Held units is the number of the issued units that have not been assigned a value under subsection (3)(a) for an earlier income year.

      Issued units

      (7) Issued units is the number of emissions units issued in relation to the unit-related quantity for the unit-related period.

      Remaining quantity

      (8) Remaining quantity is—

      • (a) if the total unit-related quantity for the person can be determined for each part of the emissions unit period included in an income year, the greater of the following amounts:

        • (i) the part of the total expected unit-related quantity for the emissions unit period that was not emitted or incurred before the end of the income year:

        • (ii) zero; or

      • (b) if paragraph (a) does not apply, the number of days in the emissions unit period after the end of the income year.

      Total quantity

      (9) Total quantity is,—

      • (a) if the total unit-related quantity for the person can be determined for each part of the emissions unit period included in an income year, the total unit-related quantity that was expected to be emitted or incurred for the emissions unit period; or

      • (b) if paragraph (a) does not apply, the number of days in the emissions unit period.

      Defined in this Act: emissions unit, income year

    ED 1B Valuation of emissions units issued for zero price
    • What this section applies to

      (1) This section applies to emissions units, held by a person at the end of an income year, that—

      • (a) are transferred to the person under section 64, or Part 4, subpart 2 of the Climate Change Response Act 2002 for a price of zero; and

      • (b) are held continuously by the person to the end of the income year; and

      • (c) relate to a quantity (the unit-related quantity) of emissions, or emissions-related costs, of the person in a period (the emissions unit period) that ends in or after the income year; and

      • (d) are not forest land emissions units; and

      • (e) are not replacement forest land emissions units; and

      • (f) are not assigned a cost under subsection (3)(a) for an earlier income year.

      Value at end of income year

      (2) The value under section ED 1(7B) of the emissions units at the end of the income year is—

      • (a) zero, if the emissions unit period begins after the end of the income year; or

      • (b) the amount determined under subsection (3), if paragraph (a) does not apply and the emissions unit period ends after the end of the income year; or

      • (c) the market value of the emissions units at the end of the income year, if the emissions unit period ends in or at the end of the income year.

      Value if emissions unit period ends after end of income year

      (3) The value under section ED 1(7B) of the emissions units at the end of an income year referred to in subsection (2)(b) is,—

      • (a) for the number of the emissions units given by subsection (4), the market value of the emissions units at the end of the income year; or

      • (b) for the balance of the units, zero.

      Formula based on emissions

      (4) The number of units referred to in subsection (3)(a) is the number, treating negative numbers as equal to zero and ignoring fractions, calculated using the formula—

       held units – ﴾issued units × remaining quantity﴿.
       total quantity
      Definition of items in formula

      (5) The items in the formula are defined in subsections (6) to (9).

      Held units

      (6) Held units is the number of the issued units that have not been assigned a value under subsection (3)(a) for an earlier income year.

      Issued units

      (7) Issued units is the number of emissions units transferred under section 64, or Part 4 subpart 2, of the Climate Change Response Act 2002 in relation to the unit-related quantity for the emissions unit period.

      Remaining quantity

      (8) Remaining quantity is—

      • (a) if the total unit-related quantity for the person can be determined for each part of the emissions unit period included in an income year, the greater of the following amounts:

        • (i) the part of the total expected unit-related quantity for the emissions unit period that was not emitted or incurred before the end of the income year:

        • (ii) zero; or

      • (b) if paragraph (a) does not apply, the number of days in the emissions unit period after the end of the income year.

      Total quantity

      (9) Total quantity is,—

      • (a) if the total unit-related quantity for the person can be determined for each part of the emissions unit period included in an income year, the total unit-related quantity that was expected to be emitted or incurred for the emissions unit period; or

      • (b) if paragraph (a) does not apply, the number of days in the emissions unit period.

      Defined in this Act: emissions unit, income year.

85B Pool method: calculating amount of depreciation
  • (1) Section EE 21(5) to (8) are replaced by the following:

    Starting adjusted tax value
    • (5) Starting adjusted tax value is—

      • (a) the pool's adjusted tax value at the start of the income year, increased as applicable by the amount referred to in section EE 22(2)(b); or

      • (b) zero, if the pool did not exist at the start of the income year.

    Ending adjusted tax value
    • (6) Ending adjusted tax value is the pool's adjusted tax value at the end of the income year before the deduction of an amount of depreciation loss for the pool for the income year. The value is, as applicable,—

      • (a) increased by the amounts referred to in section EE 22(1) and (2)(a):

      • (b) decreased by the amount referred to in section EE 22(3).

    Months
    • (7) Months, for a person, is the number of whole or part months in their income year, and the number may be more or less than 12.

    (2) Subsection (1) applies for the 2008–09 and later income years.

86 Economic rate for plant, equipment, or building, with high residual value
  • In section EE 30(1)(b), of cost is inserted after 13.5%.

87 Annual rate for item acquired in person's 1995–96 or later income year
  • (1) Section EE 31(2)(a) is replaced by the following:

    • (a) the item's economic rate, special rate, or provisional rate, for an item not described in either paragraph (b) or (c):.

    (2) In section EE 31(2)(b), the words before subparagraph (i) are replaced by the following:

    • (b) the item's economic rate, special rate, or provisional rate, multiplied by 1.2, for an item that—.

87B Meaning of adjusted tax value
  • (1) Section EE 55(1)(b) is replaced by the following:

    • (b) for a pool, the total adjusted tax value determined under section EE 21.

    (2) Subsection (1) applies for the 2008–09 and later income years.

87C Employer's superannuation contribution tax
  • (1) In section EF 2, employer's superannuation contributions is replaced by employer's superannuation cash contributions.

    (2) In section EF 2, in the list of defined terms, employer's superannuation contribution is replaced by employer's superannuation cash contribution.

    (3) Subsection (1) applies for the 2008–09 and later income years.

88 Section EG 3 repealed
  • (1) Section EG 3 is repealed.

    (2) Subsection (1) applies for the 2009–10 and later income years.

    (2) Subsection (1) applies for the 2010–11 and later income years.

89 Expenditure incurred in acquiring film rights in feature films
  • (1) Section EJ 4(1)(b) is replaced by the following:

    • (b) the deduction is allowed under section DS 2 (Film production expenditure) and the film is one for which a government screen production payment is made.

    (2) In section EJ 4, in the list of defined terms, government screen production payment is inserted.

90 Expenditure incurred in acquiring film rights in films other than feature films
  • (1) Section EJ 5(1)(b) is replaced by the following:

    • (b) the deduction is allowed under section DS 2 (Film production expenditure) and the film is one for which a government screen production payment is made.

    (2) In section EJ 5, in the list of defined terms, government screen production payment is inserted.

91 Film production expenditure for New Zealand films having no large budget screen production grant
  • (1) In the heading to section EJ 7, large budget screen production grant is replaced by government screen production payment.

    (2) Section EJ 7(1)(a) is replaced by the following:

    • (a) the film is not one for which a government screen production payment is made; and.

    (3) In section EJ 7, in the list of defined terms, government screen production payment is inserted.

92 Film production expenditure for other films having no large budget screen production grant
  • (1) In the heading to section EJ 8, large budget screen production grant is replaced by government screen production payment.

    (2) Section EJ 8(1)(a) is replaced by the following:

    • (a) the film is not one for which a government screen production payment is made; and.

    (3) In section EJ 8, in the list of defined terms, government screen production payment is inserted.

93 Section EJ 12 replaced
  • (1) Section EJ 12 is replaced by the following:

    EJ 12 Petroleum development expenditure: default allocation rule
    • What this section applies to

      (1) This section applies to petroleum development expenditure that relates to a petroleum mining development and that is incurred after 1 April 2008 when, for that development, the petroleum miner has not chosen to apply section EJ 12B to any petroleum development expenditure for the development.

      Default allocation rule

      (2) For the purposes of section DT 5(2)(a) (Petroleum development expenditure), a deduction for the petroleum development expenditure is allocated in equal amounts over a period of 7 income years. The period of 7 years starts with the income year in which the expenditure is incurred.

      Relationship with other petroleum mining provisions

      (3) Sections EJ 13 to EJ 16 override subsection (2). Sections DT 7, DT 8, DT 10, DT 11, DT 16, and IS 5 (which relate to petroleum miners) override this section.

      Defined in this Act: amount, deduction, income year, petroleum development expenditure, petroleum mining development

    EJ 12B Petroleum development expenditure: reserve depletion method
    • What this section applies to

      (1) This section applies to petroleum development expenditure that relates to a petroleum mining development and that is incurred after 1 April 2008, if the petroleum miner has chosen to apply this section for the first income year in which the petroleum mining development first produces petroleum in commercial quantities.

      Choice

      (2) The choice described in subsection (1) is made in a return of income, and applies this section to petroleum development expenditure that relates to a petroleum mining development for the income year of the return and for all subsequent income years.

      Reserve depletion method expense allocation rule

      (3) For the purposes of section DT 5(2)(b) (Petroleum development expenditure), the deduction allocated to an income year for the petroleum development expenditure is calculated using the formula—

      (reserve expenditure − previous deductions)×reserve depletion for the year
      probable reserves.
      Definition of items in formula

      (4) The items in the formula are defined in subsections (5) to (8).

      Reserve expenditure

      (5) Reserve expenditure is the total of petroleum development expenditure to which this section applies for the income year or an earlier income year.

      Previous deductions

      (6) Previous deductions is the total amount of petroleum development expenditure that relates to the relevant petroleum mining development and that has been allocated to an earlier income year.

      Reserve depletion for the year

      (7) Reserve depletion for the year is the amount, expressed in barrels of oil equivalent, of petroleum produced from the relevant petroleum mining development for the income year.

      Probable reserves

      (8) Probable reserves is the amount, expressed in barrels of oil equivalent, of the reserves of petroleum for the petroleum mining development that are not yet proven but are estimated, at the beginning of the income year, to have a better than 50% chance of being technically and commercially producible.

      Relationship with other petroleum mining provisions

      (9) Sections EJ 13 to EJ 16 override subsection (3). Sections DT 7, DT 8, DT 10, DT 11, DT 16, and IS 5 (which relate to petroleum miners) override this section.

      Defined in this Act: amount, deduction, income year, petroleum development expenditure, petroleum mining development

    EJ 12 Petroleum development expenditure: default allocation rule
    • When this section applies

      (1) This section applies to a petroleum miner's petroleum development expenditure that relates to petroleum mining developments in a permit area and that is incurred on or after 1 April 2008, when section EJ 12B does not apply to the expenditure.

      Default allocation rule

      (2) For the purposes of section DT 5(2)(a) (Petroleum development expenditure), a deduction for the petroleum development expenditure is allocated in equal amounts over a period of 7 income years. The period of 7 years starts with the income year in which the expenditure is incurred.

      Relationship with other petroleum mining provisions

      (3) Sections EJ 13 to EJ 16 override subsection (2). Sections DT 7, DT 8, DT 10, DT 11, DT 16, and IS 5 (which relate to petroleum miners) override this section.

      Defined in this Act: amount, deduction, income year, permit area, petroleum development expenditure, petroleum miner, petroleum mining development

    EJ 12B Petroleum development expenditure: reserve depletion method
    • When this section applies

      (1) This section applies to a petroleum miner's petroleum development expenditure that relates to petroleum mining developments in a permit area, when the expenditure is incurred––

      • (a) on or after 1 April 2008; and

      • (b) an election to apply this section, described in subsection (2), is made for the permit area.

      Choice: first year of commercial production and later years

      (2) An election to apply this section may be made by a petroleum miner for a permit area, in a return of income for an income year, only if that income year is the first one in which petroleum is produced in commercial quantities in the permit area. The election is irrevocable, and applies this section to petroleum development expenditure that relates to petroleum mining developments in the relevant permit area for the income year and later income years.

      Reserve depletion method expense allocation rule

      (3) For the purposes of section DT 5(2)(b) (Petroleum development expenditure), the deduction allocated to an income year for the petroleum development expenditure that relates to a petroleum mining development in the relevant permit area is the amount calculated using the following formula, if the amount is positive:

      (reserve expenditure − previous expenditure)×reserve depletion for the year
      probable reserves.
      Definition of items in formula

      (4) The items in the formula are defined in subsections (5) to (8).

      Reserve expenditure

      (5) Reserve expenditure is the total petroleum development expenditure that relates to the petroleum mining development for the income year or an earlier income year to which this section applied.

      Previous expenditure

      (6) Previous expenditure is the total petroleum development expenditure that relates to the petroleum mining development and that has been allocated to an earlier income year to which this section applied.

      Reserve depletion for the year

      (7) Reserve depletion for the year is the amount, expressed in barrels of oil equivalent, of petroleum produced from the petroleum mining development for the income year.

      Probable reserves

      (8) Probable reserves is the amount, expressed in barrels of oil equivalent, of the reserves of petroleum for the petroleum mining development that are not yet proven but are estimated, at the beginning of the income year, to have a better than 50% chance of being technically and commercially producible.

      Relationship with other petroleum mining provisions

      (9) Sections EJ 13 to EJ 16 override subsection (3). Sections DT 7, DT 8, DT 10, DT 11, DT 16, and IS 5 (which relate to petroleum miners) override this section.

      Defined in this Act: amount, deduction, income year, permit area, petroleum development expenditure, petroleum miner, petroleum mining development.

    (2) Subsection (1) applies for expenditure incurred on or after 1 April 2008.

94 Relinquishing petroleum mining permit
  • (1) In section EJ 13(2)(b), section EJ 12(1) is replaced by section EJ 12(2) or EJ 12B(3).

    (2) Subsection (1) applies for expenditure incurred on or after 1 April 2008.

95 New sections EJ 13B and EJ 13C inserted
  • (1) After section EJ 13, the following is inserted:

    EJ 13B Dry well drilled
    • When this section applies

      (1) This section applies when—

      • (a) the petroleum miner has petroleum development expenditure for a well, the drilling of which is completed in an income year, and, from the time of completion, the well—

        • (i) will never produce petroleum in commercial quantities; and

        • (ii) is abandoned; and

      • (a) the petroleum miner has petroleum development expenditure for a well, the drilling of which stops in an income year, and, from the time of stopping, the well—

        • (i) will never produce petroleum in commercial quantities; and

        • (ii) is abandoned; and

      • (b) part of a deduction under section DT 5 (Petroleum development expenditure) for the petroleum development expenditure described in paragraph (a) has not been allocated under section EJ 12 or EJ 12B.

      Allocation

      (2) The part of the deduction described in subsection (1) is allocated to the income year.

      Defined in this Act: amount, deduction, income year, petroleum development expenditure

    EJ 13C Well not producing
    • When this section applies

      (1) This section applies when—

      • (a) the petroleum miner has petroleum development expenditure for a well that, in an income year—

        • (i) stops producing petroleum in commercial quantities; and

        • (ii) is abandoned; and

      • (b) the petroleum miner has elected to apply section EJ 12B for the petroleum development expenditure described in paragraph (a) before the start of the income year; and

      • (c) part of a deduction under section DT 5 (Petroleum development expenditure) for the petroleum development expenditure described in paragraphs (a) and (b) has not been allocated under section EJ 12B.

      Allocation

      (2) The part of the deduction described in subsection (1) is allocated to the income year.

      Defined in this Act: amount, deduction, income year, petroleum development expenditure.

    (2) Subsection (1) applies for expenditure incurred on or after 1 April 2008.

96 Disposal of petroleum mining asset
  • (1) Section EJ 15(2)(b) is replaced by the following:

    • (b) it has not been allocated under section EJ 12 or EJ 12B to the income year in which the miner disposes of the asset or to an earlier income year.

    (2) Subsection (1) applies for expenditure incurred on or after 1 April 2008.

97 Sections EJ 19 and EJ 20 replaced
  • (1) Sections EJ 19 and EJ 20 are replaced by the following:

    EJ 20 Meaning of petroleum mining development
    • Meaning

      (1) In sections EJ 12 and EJ 12B, petroleum mining development means a place where 1 or more of the activities described in subsection (2) is carried out.

      Activities: inclusions

      (2) The activities are those carried out in connection with—

      • (a) developing a permit area for producing petroleum:

      • (b) producing petroleum:

      • (c) processing, storing, or transmitting petroleum before its dispatch to a buyer, consumer, processor, refinery, or user:

      • (d) removal or restoration operations.

      Activities: exclusions

      (3) The activities do not include further treatment to which all the following apply:

      • (a) it occurs after the well stream has been separated and stabilized into crude oil, condensate, or natural gas; and

      • (b) it is done—

        • (i) by liquefaction or compression; or

        • (ii) for the extraction of constituent products; or

        • (iii) for the production of derivative products; and

      • (c) it is not treatment at the production facilities.

      Defined in this Act: permit area, petroleum, removal or restoration operations.

    (2) Subsection (1) applies for expenditure incurred on or after 1 April 2008.

98 What is an excepted financial arrangement?
  • (1) After section EW 5(3), the following is inserted:

    Emissions unit
    • (3B) An emissions unit is an excepted financial arrangement.

    (2) In section EW 5(8), insurance contract is replaced by insurance contract that is not life financial reinsurance.

    (3) In section EW 5(13), the second sentence is replaced by This subsection does not apply to a withdrawable share, to an option to acquire or dispose of withdrawable shares, or to a fixed-rate foreign equity.

    (4) In section EW 5, in the list of defined terms, fixed-rate foreign equity is inserted.

    (5) In section EW 5, in the list of defined terms, emissions unit is inserted.

    (6) In section EW 5, in the list of defined terms, life financial reinsurance is inserted.

    (7) Subsections (3) and (4) apply for the 2009–10 and later income years.

    (8) Subsections (2) and (6) apply for income years beginning on or after 1 April 2009.

    (1) In section EW 5(2), financial arrangement is replaced by financial arrangement to the extent to which it is not life financial reinsurance.

    (2) Section EW 5(3B) is replaced by the following:

    Emissions unit
    • (3B) An emissions unit is an excepted financial arrangement.

    (3) In section EW 5(8), insurance contract is replaced by insurance contract to the extent to which it is not life financial reinsurance.

    (4) In section EW 5, in the list of defined terms,—

    • (a) ETS unit is omitted:

    • (b) emissions unit is inserted.

    (5) In section EW 5, in the list of defined terms, life financial reinsurance is inserted.

    (6) Subsections (1) and (3) apply—

    • (a) on and after 1 July 2010, unless paragraph (b) applies; or

    • (b) for an income year that includes 1 July 2010 and later income years, if the life insurer chooses to apply the new life insurance rules in this Act in a return of income for the tax year corresponding to the first relevant income year.

99 When use of spreading method not required
  • Section EW 13(2), other than the heading, is replaced by the following:

    • (2) A trustee who holds a financial arrangement in trust to manage compensation paid for personal injury under the Injury Prevention, Rehabilitation, and Compensation Act 2001, the Accident Insurance Act 1988, any of the former Acts as defined in section 13 of the Accident Insurance Act 1998, the Workers' Compensation Act 1956, or a court order does not use any of the spreading methods for the financial arrangement if the trustee is a cash basis person.

99B What spreading methods do
  • After section EW 14(2)(d), the following is inserted:

    • (e) a financial reporting method, to which sections EW 21 and EW 23 are relevant; or.

99C Applying IFRSs to financial arrangements
  • After section EW 15B(2), the following is added:

    Functional currency
    • (3) Even if another currency may be used as the functional currency under IFRSs, the methods must be applied using New Zealand dollars.

    Financial statements
    • (4) Unless the context otherwise requires, references to IFRSs in sections EW 15D to EW 15I are references to IFRS rules used to prepare the person's financial statements.

100 IFRS financial reporting method
  • After section EW 15D(2)(a), the following is inserted:

    • (ab) even if another currency may be used as the functional currency under IFRSs, the IFRS financial reporting method must be applied using New Zealand dollars, except as required by section EX 21 (Attributable CFC income and net attributable CFC income or loss) for calculations under section EX 21D (Non-attributing active CFC: default test):.

100 IFRS financial reporting method
  • (1) In section EW 15D(2)(a), income year is replaced by income year. However, adjustments for financial arrangements held by the person are excluded from this paragraph, if the financial arrangements are not derivative instruments and the person's business includes dealing in those financial arrangements:.

    (2) After section EW 15D(2)(a), the following is inserted:

    • (ab) borrowing costs are not capitalised under NZIAS 23:.

    (3) In section EW 15D, in the list of defined terms, derivative instrument and NZIAS 23 are inserted.

    (4) Subsection (2) does not apply for a taxpayer and an income year if the taxpayer has,—

    • (a) before 30 June 2009, filed a return of income for the income year; and

    • (b) taken a tax position in the return which ignores subsection (2).

101 Determination alternatives
  • (1) In section EW 15E(1)(c), the words before subparagraph (i) are replaced by the following:

    • (c) the financial arrangement is not treated under IFRSs as a hedge of a financial arrangement, or is treated as a hedge of a financial arrangement (financial arrangement A) and—.

    (2) In section EW 15E(1)(c)(ii), fair value method is replaced by modified fair value method.

    (3) In section EW 15E(2), the words before paragraph (a) are replaced by the following:

    • (2) The person must use 1 of the following methods modified, as applicable, under subsection (3) or (3B):.

    (4) After section EW 15E(3), the following is added:

    Modifications
    • (3B) For a determination alternative that is Determination G27, the allocation is modified as follows:

      • (a) method C must be used, and not methods A, B, or D:

      • (b) for method C, if relevant, Determination G9C and not Determination 9A must be used.

    (1) Section EW 15E(1)(c) is replaced by the following:

    • (c) for a financial arrangement that is not a hedge of another financial arrangement under IFRSs, the financial arrangement—

      • (i) is not being hedged by another financial arrangement under IFRSs:

      • (ii) meets the requirements of paragraph (d); and

    • (d) for a financial arrangement that is a hedge of another financial arrangement under IFRSs, or is being hedged by another financial arrangement under IFRSs,—

      • (i) section EW 15D applies or has applied for the relevant other financial arrangement; and

      • (ii) the method used for the relevant other financial arrangement is not the fair value method; and

      • (iii) the method used does not account for gains and losses related to either financial arrangement.

    (2) In section EW 15E(2), the words before paragraph (a) are replaced by the following:

    • (2) The person must use 1 of the following methods modified, as applicable, under subsection (3) or (3B):.

    (3) Before section EW 15E(2)(a), the following is inserted:

    • (aa) Determination G3: Yield to maturity, but only if the financial arrangement is denominated in New Zealand currency and is not a derivative instrument:.

    (4) After section EW 15E(3), the following is added:

    Modifications
    • (3B) For a determination alternative that is Determination G27, the allocation is modified as follows:

      • (a) method C must be used, and not methods A, B, or D:

      • (b) for method C, if relevant, Determination G9C and not Determination G9A must be used.

    (5) In section EW 15E, in the list of defined terms, derivative instrument and New Zealand are inserted.

    (6) Subsections (2) to (4) apply for the 2009–10 and later income years.

102 Expected value method
  • (1) In section EW 15F(1)(c), the words before subparagraph (i) are replaced by the following:

    • (c) the financial arrangement is not treated under IFRSs as a hedge of a financial arrangement, or is treated as a hedge of a financial arrangement (financial arrangement A) and—.

    (2) Section EW 15F(3) is repealed.

    (3) Subsection (2) applies for the 2009–10 and later income years.

    (1) Section EW 15F(1)(c) is replaced by the following:

    • (c) for a financial arrangement that is not a hedge of another financial arrangement under IFRSs, the financial arrangement—

      • (i) is not being hedged by another financial arrangement under IFRSs:

      • (ii) meets the requirements of paragraph (cb); and

    • (cb) for a financial arrangement that is a hedge of another financial arrangement under IFRSs, or is being hedged by another financial arrangement under IFRSs,––

      • (i) section EW 15D applies or has applied for the relevant other financial arrangement; and

      • (ii) the method used for the relevant other financial arrangement is not the fair value method; and

      • (iii) the method used does not account for gains and losses related to either financial arrangement; and.

    (2) Section EW 15F(1)(d) is replaced by the following:

    • (d) the person and all companies in a group of companies to which the person belongs have chosen to use the expected value method and have notified the Commissioner at the time of filing a return of income. This paragraph is ignored if the person carries on a business that has a substantially different nature from other companies in the group, and––

      • (i) the person and the other parties to the financial arrangement are not associated; or

      • (ii) the person and the other parties to the financial arrangement are associated and use the same method for the arrangement.

    (3) Section EW 15F(3) is repealed.

    (4) In section EW 15F, in the list of defined terms, associated person is inserted.

    (5) Subsection (3) applies for the 2009–10 and later income years.

103 Modified fair value method
  • (1) In section EW 15G(1)(c), the words before subparagraph (i) are replaced by the following:

    • (c) the financial arrangement is not treated under IFRSs as a hedge of a financial arrangement, or is treated as a hedge of a financial arrangement (financial arrangement A) and—.

    (2) In section EW 15G(1)(d), fair value method is replaced by modified fair value method.

    (1) Section EW 15G(1)(c) is replaced by the following:

    • (c) for a financial arrangement that is not a hedge of another financial arrangement under IFRSs, the financial arrangement—

      • (i) is not being hedged by another financial arrangement under IFRSs:

      • (ii) meets the requirements of paragraph (cb); and

    • (cb) for a financial arrangement that is a hedge of another financial arrangement under IFRSs, or is being hedged by another financial arrangement under IFRSs,––

      • (i) section EW 15D applies or has applied for the relevant other financial arrangement; and

      • (ii) the method used for the relevant other financial arrangement is not the fair value method; and

      • (iii) the method used does not account for gains and losses related to either financial arrangement; and.

    (2) Section EW 15G(1)(d) is replaced by the following:

    • (d) the person and all companies in a group of companies to which the person belongs have chosen to use the modified fair value method and have notified the Commissioner at the time of filing a return of income. This paragraph is ignored if the person carries on a business that has a substantially different nature from other companies in the group, and––

      • (i) the person and the other parties to the financial arrangement are not associated; or

      • (ii) the person and the other parties to the financial arrangement are associated and use the same method for the arrangement.

    (3) In section EW 15G(2), the first sentence is replaced by The person must use a method that is the fair value method under section EW 15D.

103B Mandatory use of some determinations
  • (1) In section EW 15H(1)(d), expenditure: is replaced by expenditure. However, when applying Determination G29, Determination G9B, and not Determination G9A, must be used:.

    (2) Subsection (1) applies for the 2009–10 and later income years.

104 Mandatory use of yield to maturity method for some arrangements
  • (1) After section EW 15I(1)(b)(ii), the following is inserted:

    • (iib) is a lease that is a finance lease, and under NZIAS 17 and in the person's financial statements, the lease is classified as an operating lease:

    • (iib) is, under NZIAS 17 and in the person's financial statements, classified as an operating lease; or.

    (2) In section EW 15I, in the list of defined terms, finance lease and NZIAS 17 are inserted.

    (2) In section EW 15I, in the list of defined terms, NZIAS 17 is inserted.

105 Straight-line method
  • In section EW 17(1)(a), $1,500,000 is replaced by $1,850,000.

105B New section EW 21 inserted
  • After section EW 20, the following is inserted:

    EW 21 Financial reporting method
    • A person who is a party to a financial arrangement may use a financial reporting method if––

      • (a) the person cannot use the yield to maturity method or an alternative; and

      • (b) the person––

        • (i) may not use the straight-line method or a market valuation method; or

        • (ii) may use the straight-line method or a market valuation method but chooses not to do so; and

      • (c) the person is not required to use a method under section EW 15B; and

      • (d) the Commissioner has not made a determination for the financial arrangement under section 90AC(1)(d) of the Tax Administration Act 1994; and

      • (e) the method conforms with commercially acceptable practice; and

      • (f) the method is also used by the person for financial reporting purposes for financial arrangements that are the same as, or similar to, the arrangement (although section EW 23 may apply if the method is not used in this way); and

      • (g) the method allocates a reasonable amount to each income year over the financial arrangement's term.

      Defined in this Act: amount, Commissioner, financial arrangement, income year.

105C Default method
  • In section EW 22(c), alternative is replaced by alternative, or a financial reporting method.

105D Failure to use method for financial reporting purposes
  • (1) In section EW 23(1), and EW 20(2)(f) is replaced by EW 20(2)(f), and EW 21(f).

    (2) In section EW 23(2), and EW 20(2)(f) is replaced by EW 20(2)(f), and EW 21(f).

106 Consistency of use of straight-line method and market valuation method
  • (1) In the heading to section EW 25(3), $1,500,000 is replaced by $1,850,000.

    (2) In section EW 25(3), $1,500,000 is replaced by $1,850,000.

106B Consistency of use of IFRS method
  • (1) After section EW 25B(3), the following is inserted:

    Modification
    • (4) Section EZ 52B (Consistency of use of IFRS method: Determination G3 and 2009–10 income year) modifies subsection (2).

    (2) Subsection (1) applies for the 2009–10 income year.

107 Change of spreading method
  • (1) Section EW 26(1) is replaced by the following:

    Requirements for change from straight-line and market value method
    • (1) A person may change from the straight-line method or the market value method if they change to a method that is not a method for IFRS under section EW 15B, and the Commissioner has given written authorisation for the change.

    (2) In section EW 26(2), the first sentence is replaced by A person may change from any spreading method to any other method if the Commissioner's written authorisation under subsection (1) is not required for the change, and they have a sound commercial reason for the change.

    (3) Section EW 26(6), other than the heading, is replaced by the following:

    • (6) Subsections (3) and (4) and section EW 27 do not apply to a financial arrangement if the person's change of spreading method involves a change from the fair value method or a change from the market value method to a method for IFRS under section EW 15B, in which case section EW 29(13) applies.

    (4) Section EW 26(7)(a) is replaced by the following:

    • (a) starting or stopping the use of IFRSs to prepare financial statements at the same time as starting or stopping the use of a method for IFRS under section EW 15B:.

108 When calculation of base price adjustment required
  • Section EW 29(13), other than the heading, is replaced by the following:

    • (13) A party to the financial arrangement who changes from the fair value method to another method or from the market value method to a method for IFRS under section EW 15B must calculate a base price adjustment at the date of the change.

    • (13) A party to the financial arrangement who changes from the fair value method under section EW 15D to another method or from the market value method to a method for IFRS under section EW 15B must calculate a base price adjustment at the date of the change.

108B Base price adjustment formula
  • (1) In section EW 31(7), in the words before the paragraphs,––

    • (a) ignoring non-contingent fees, is omitted:

    • (b) , ignoring–– is replaced by . For the purposes of this subsection, the following are ignored:.

    (2) In section EW 31(9)(a), , under section CC 3, is omitted.

    (3) Subsections (1) and (2) apply for the 2008–09 and later income years.

109 Section EW 54 replaced
  • Section EW 54 is replaced by the following:

    EW 54 Meaning of cash basis person
    • Who is cash basis person

      (1) A person is a cash basis person for an income year if—

      • (a) 1 of the following applies in the person's case for the income year:

        • (i) section EW 57(1); or

        • (ii) section EW 57(2); and

      • (b) section EW 57(3) applies in the person's case for the income year.

      Persons excluded by Commissioner

      (2) A person may be excluded under section EW 59 from being a cash basis person for a class of financial arrangements.

      Defined in this Act: cash-basis person, financial arrangement, income year.

110 Section EW 56 repealed
  • Section EW 56 is repealed.

111 Thresholds
  • (1) In section EW 57(1), section EW 56(1)(a)(i) is replaced by section EW 54(1)(a)(i).

    (2) In section EW 57(2), section EW 56(1)(a)(ii) is replaced by section EW 54(1)(a)(ii).

    (3) In section EW 57(3), section EW 56(1)(b) is replaced by section EW 54(1)(b).

    (4) After section EW 57(9), the following is added:

    Increase in specified sums
    • (10) The Governor-General may make an Order in Council increasing a sum specified in any of subsections (1) to (3).

112 Financial arrangements, income, and expenditure relevant to criteria
  • (1) In section EW 58(1), the natural person is replaced by the person.

    (2) In section EW 58(2),—

    • (a) the subsection heading is replaced by Partner:

    • (b) A natural person is replaced by A person.

    (3) In section EW 58(3),—

    • (a) the subsection heading is replaced by Beneficiary of bare trust:

    • (b) A natural person is replaced by A person.

    (4) In section EW 58(4),—

    • (a) the subsection heading is replaced by Beneficiary of trust other than bare trust:

    • (b) a natural person is replaced by a person.

    (5) In section EW 58(5),—

    • (a) the subsection heading is replaced by Trustee:

    • (b) a natural person is replaced by a person.

113 Section EW 59 replaced
  • Section EW 59 is replaced by the following:

    EW 59 Exclusion by Commissioner
    • The Commissioner may treat a person who would otherwise be a cash basis person for a class of financial arrangements as not being a cash basis person for the class if—

      • (a) the person, or any other person, has structured and promoted the class to defer an income tax liability:

      • (b) the parties to a financial arrangement are associated, and the person's calculation of income and expenditure under the financial arrangement differs from that used by the associated person.

      Defined in this Act: associated person, cash-basis person, Commissioner, financial arrangement, income, income tax liability.

114 Trustee of deceased's estate
  • (1) In section EW 60(2) and (3), section EW 56(1)(a) and (b) is replaced by section EW 54(1)(a) and (b).

    (2) In section EW 60(4), to EW 56 are replaced by and EW 55.

115 Meaning of controlled foreign company
  • (1A) In section EX 1(2)(a), foreign investment vehicle is replaced by foreign PIE equivalent.

    (1) Section EX 1(2)(b)(ii) is replaced by the following:

    • (ii) an entity that qualifies for PIE status:.

    (2) Subsection (1) applies for the 2009–10 and later income years.

    (2) Subsections (1A) and (1) apply for the 2010–11 and later income years.

115B Direct control interests
  • In section EX 5(5)(c), debentures) is replaced by debentures), FA 2B (Stapled debt securities),.

115C Direct income interests
  • In section EX 9(6)(c), debentures) is replaced by debentures), FA 2B (Stapled debt securities),.

116 Associates and 10% threshold
  • (1) In section EX 15(1), section EX 14 is replaced by sections CD 45, CQ 2, EX 14, EX 21, EX 34, EX 58, and LL 9.

    (2) In section EX 15(1), EX 34, EX 58, and LL 9. is replaced by EX 34, and EX 58.

    (3) Subsection (2) applies for the 2009–10 and later income years.

    (3) Subsection (2) applies for—

    • (a) the 2009–10 and later income years, for persons having a balance date on or after 30 June; or

    • (b) the 2010–11 and later income years, for persons having a balance date before 30 June.

116B New section EX 18A inserted
  • (1) After the heading before section EX 18, the following is inserted:

    EX 18A Scheme for finding person's attributed CFC income or loss
    • Formula and rules for calculation

      (1) The attributed CFC income or loss of a person (an interest holder) holding an income interest in a CFC, for the purposes of the general rules in sections CQ 2(1) and DN 2(1) (which relate to attributed CFC income or loss), is found for the CFC and an accounting period from—

      • (a) the formula in section EX 18, which uses the interest holder's income interest and the CFC's net attributable CFC income or loss determined as described in subsection (2):

      • (b) the interest holder's additional CFC attributed income under section EX 19:

      • (c) the reduction in the interest holder's attributed CFC loss under section EX 20.

      Determination of attributed CFC income or loss from attributable CFC amount

      (2) An interest holder with an income interest of a fraction (the fraction) in a CFC with an attributable CFC amount under section EX 20B for an accounting period has under section EX 18, for the CFC and accounting period,—

      • (a) attributed CFC income or loss equal to the fraction of the CFC's net attributable CFC income or loss under sections EX 20C to EX 20E and the rules in sections EX 21 and EX 24 to EX 27, if paragraph (b) does not apply:

      • (b) no attributed CFC income or attributed CFC loss, if the CFC is—

        • (i) a non-attributing active CFC under section EX 21B, determined as described in subsection (3):

        • (ii) a non-attributing Australian CFC under section EX 22.

      Non-attributing active CFCs

      (3) Whether a CFC is a non-attributing active CFC is determined under section EX 21B using—

      • (a) a test in—

        • (i) section EX 21D, if the interest holder does not use a test referred to in subparagraph (ii); or

        • (ii) section EX 21E, if the CFC has accounts prepared to a standard meeting the requirements of section EX 21C and the interest holder chooses to use a test in that section based on those accounts; and

      • (b) the rules in sections EX 21 and EX 24 to EX 27.

      Defined in this Act: accounting period, attributable CFC amount, attributed CFC income, attributed CFC loss, CFC, non-attributing active CFC, non-attributing Australian CFC.

    (2) Subsection (1) applies for—

    • (a) the 2009–10 and later income years, for persons having a balance date on or after 30 June; or

    • (b) the 2010–11 and later income years, for persons having a balance date before 30 June.

117 Formula for calculating attributed CFC income or loss
  • (1) In the formula in section EX 18, branch equivalent income is replaced by net attributable CFC income.

    (2) In section EX 18, in the list of defined terms,—

    • (a) branch equivalent income is omitted:

    • (b) net attributable CFC income is inserted.

    (3) Subsections (1) and (2) apply for the 2009–10 and later income years.

    (3) Subsection (1) applies for—

    • (a) the 2009–10 and later income years, for persons having a balance date on or after 30 June; or

    • (b) the 2010–11 and later income years, for persons having a balance date before 30 June.

118 Taxable distribution from non-complying trust
  • (1) In section EX 19(1)(b), branch equivalent income is replaced by net attributable CFC income.

    (2) In section EX 19(2), branch equivalent income is replaced by net attributable CFC income.

    (3) Section EX 19(5) is repealed.

    (4) In section EX 19, in the list of defined terms,—

    • (a) branch equivalent income is omitted:

    • (b) net attributable CFC income is inserted.

    (5) Subsections (1) to (4) apply for the 2009–10 and later income years.

    (5) Subsections (1) to (3) apply for—

    • (a) the 2009–10 and later income years, for persons having a balance date on or after 30 June; or

    • (b) the 2010–11 and later income years, for persons having a balance date before 30 June.

119 New heading and sections EX 20B to EX 20D inserted
  • (1) After section EX 20, the following is inserted:

    Attributable CFC amount and net attributable CFC income or loss

    EX 20B Attributable CFC amount
    • Attributable CFC amount

      (1) Attributable CFC amount, for an accounting period and a CFC, means the amount calculated under the rules in section EX 21 using the formula—

       gross income + arrangement income. 
      Definition of items in formula

      (2) The items in the formula in subsection (1) are defined in subsections (3) and (4).

      Gross income

      (3) Gross income is the total amount of income derived in the accounting period by the CFC that is 1 or more of the following:

      • (a) a dividend that is paid in relation to rights that are a direct income interest of less than 10% in a foreign company and are described in—

        • (i) section EX 31:

        • (ii) section EX 32:

        • (iii) section EX 36:

        • (iv) section EX 37:

        • (v) in section EX 37B:

        • (vi) section EX 39:

      • (b) a dividend that is paid by a company resident in New Zealand to the extent to which the dividend is not fully imputed under section RF 9(2) (When dividends fully imputed or fully credited):

      • (c) an amount that is treated as a payment of interest under section CD 36B (Distributions to resident company for deductible foreign equity and fixed-rate foreign equity):

      • (d) a royalty, other than a royalty referred to in subsection (5):

      • (e) rent, other than rent referred to in subsection (6), from—

        • (i) a lease or sublease of land:

        • (ii) a lease or sublease of personal property:

        • (iii) a licence to use intangible property:

        • (iv) a hire or bailment:

      • (f) income from a business of general insurance or life insurance that is—

        • (i) a premium under an insurance contract or reinsurance contract:

        • (ii) income from a change in value of revenue account property used in the business:

      • (g) income from a life insurance policy that is not included in a calculation of FIF income or loss and is—

        • (i) a distribution under the life insurance policy:

        • (ii) income from an alienation of the life insurance policy, if the policy is revenue account property:

      • (h) income from the supply of personal services performed by another person (the working person) if—

        • (i) the personal services are not essential support for a product supplied by the CFC; and

        • (ii) the working person is associated with the CFC under section YB 5 (Company and non-corporate 25% interest holder) at the time the services are performed or is a relative, at the beginning of the accounting period, of a person associated with the CFC under section YB 5; and

        • (iii) 80% or more of the CFC's total income in the accounting period from supplying personal services is derived through personal services meeting the requirements of subparagraph (i) performed by working persons meeting the requirements of subparagraph (ii); and

        • (iv) to derive the income, the CFC uses a business structure that requires depreciable property having, at the end of the accounting period, a total cost under section GB 28(7) (Interpretation of terms used in section GB 27) less than or equal to the greater of $75,000 and 25% of the CFC's total income from personal services performed in the accounting period:

      • (i) income from the alienation of shares that are revenue account property, other than shares referred to in subsection (7):

      • (j) income from the alienation of revenue account property if the property is—

        • (i) not a share, financial arrangement, or life insurance policy; and

        • (ii) capable of giving rise to income of the CFC referred to in another paragraph of this subsection:

      • (k) income from a service physically performed wholly or partly in New Zealand, other than a telecommunications service:

      • (l) income from a service relating to the use of equipment to provide a telecommunications service, to the extent to which the equipment is at the time—

        • (i) physically located outside any country or territory; and

        • (ii) owned by the CFC or by another CFC that is associated with the CFC; and

        • (iii) not a mobile telephone handset or a radio receiver and transmitter for a ship or aircraft:

      • (m) income from a telecommunications service to the extent to which the service is physically performed in New Zealand, except if—

        • (i) the service is the transmission, emission, or reception of information between New Zealand and the country or territory in which the CFC is liable to income tax on its income because of its domicile, residence, place of incorporation, or centre of management; and

        • (ii) the CFC is a network operator under the Telecommunications (Interception Capability) Act 2004 or a person who is such a network operator owns an income interest of 50% or more in the CFC; and

        • (iii) the service is not performed using equipment that at the time is physically located in New Zealand and is in the possession of the CFC or of another CFC that is associated with the CFC; and

        • (iv) the service is not performed by a person who at the time is physically located in New Zealand and is an employee or contractor of the CFC or of another CFC that is associated with the CFC.

      Arrangement income

      (4) Arrangement income is the total for the CFC and the accounting period of amounts of income under section CC 3 (Financial arrangements) for—

      • (a) an arrangement that—

        • (i) is a financial arrangement, or a short-term agreement for sale and purchase for which the CFC has made an election under section EW 8 (Election to treat certain excepted financial arrangements as financial arrangements); and

        • (ii) is not a derivative instrument; and

        • (iii) is not referred to in subsection (8):

      • (b) a derivative instrument that—

        • (i) is held in the course of a business of the CFC for the purpose of dealing with the derivative instrument:

        • (ii) is not entered in the ordinary course of a business of the CFC:

        • (iii) is in a hedging relationship, of a type referred to in IFRS 39, with income of the CFC referred to in subsection (3) or paragraph (a) or with a transaction producing such income of the CFC.

      Exclusions from attributable CFC amount: royalties

      (5) A royalty derived by a CFC is not included in an attributable CFC amount under subsection (3)(d) if—

      • (a) the CFC has a pattern of activity involving creating, developing, or adding value to property that produces royalties and the royalty is—

        • (i) paid by a person who is not associated with the CFC under section YB 2 (Two companies with common control); and

        • (ii) from property that is not linked to New Zealand under subsection (9); and

        • (iii) from property that the CFC has created or developed or to which the CFC has added substantial value:

      • (b) the CFC has a pattern of activity involving creating, developing, or adding value to property that produces royalties and the royalty is—

        • (i) paid by a person who is associated with the CFC under section YB 2 and would not be an associated non-attributing active CFC if such royalties were attributable CFC amounts; and

        • (ii) from property that is not linked to New Zealand under subsection (9); and

        • (iii) from property that the CFC has created or developed or to which the CFC has added substantial value; and

        • (iv) an arm's length amount determined under section GC 13 (Calculation of arm's length amounts) for the arrangement between the CFC and the associated person:

      • (c) the royalty is—

        • (i) paid by a person who would be an associated non-attributing active CFC in the absence of this paragraph and subsections (6)(c) and (8)(a); and

        • (ii) from property that is not linked to New Zealand under subsection (9):

      • (d) the royalty is paid by a person who is not associated with the CFC under section YB 2 and is from property that is—

        • (i) owned by a New Zealand resident who is not treated as a non-resident under a double tax agreement; and

        • (ii) licensed to the CFC by the New Zealand resident for an arm's length amount determined under section GC 13 for the arrangement between the CFC and the New Zealand resident.

      Exclusions from attributable CFC amount: rent

      (6) Rent derived by a CFC is not included in an attributable CFC amount under subsection (3)(e) if the rent is—

      • (a) from land in a country or territory under the laws of which—

        • (i) the CFC is liable to income tax on the CFC's income because of its domicile, residence, place of incorporation, or centre of management:

        • (ii) persons holding income interests in the CFC are liable for the income tax on the CFC's income and the country or territory is the source of 80% or more of the CFC's income:

      • (b) from property other than land, to the extent to which the rent relates to the use of the property in a country or territory referred to in paragraph (a):

      • (c) paid by a person who would be an associated non-attributing active CFC in the absence of this paragraph and subsections (5)(c) and (8)(a):

      • (d) a payment under a hire purchase agreement:

      • (e) a payment under a finance lease:

      • (f) a royalty.

      Exclusions from attributable CFC amount: shares

      (7) Income derived by a CFC from the alienation of a share that is revenue account property is not included in an attributable CFC amount under subsection (3)(i) if the CFC's FIF income or loss from the share in the period ending with the alienation is calculated using—

      • (a) the comparative value method:

      • (b) the deemed rate of return method:

      • (c) the fair dividend rate method:

      • (d) the cost method.

      Exclusions from attributable CFC amount: income from financial arrangements other than derivative instruments

      (8) Income of a CFC from a financial arrangement or excepted financial arrangement that is referred to in subsection (4)(a)(i) is not included in an attributable CFC amount under subsection (4)(a) if the financial arrangement or agreement is—

      • (a) an agreement by the CFC to lend money to a person who would be an associated non-attributing active CFC in the absence of this paragraph and subsections (5)(c) and (6)(c):

      • (b) an agreement for the sale or purchase of property or services or a hire purchase agreement—

        • (i) entered in the ordinary course of business by the CFC:

        • (ii) for property or services produced or used by the CFC in business.

      Royalties: property linked to New Zealand