Other amendments - Income Tax Act 2004

Amendments have been made to various sections of the Income Tax Act 2004 to ensure that the New Zealand Superannuation Fund receives the same treatment as a portfolio investment entity.  These include amendments to sections CX 44C(1) and (2) to ensure that the New Zealand Superannuation Fund is not taxed on proceeds from the disposal of shares in New Zealand-resident companies and certain Australian-resident listed companies.

• Section CX 44D(3)(a)(i) has been amended to remove the reference to zero-rated portfolio investors as this term is not relevant in relation to portfolio listed companies.  The amendment ensures that a natural person, other than a trustee, can elect to treat a distribution from a portfolio listed company as a taxable amount.
• Section CX 44D(3)(b) has been amended to provide that distributions from portfolio listed companies are not treated as excluded income if the distributions are fully dividend withholding payment credited.  This ensures that non-resident investors in portfolio listed companies are still subject to non-resident withholding tax on dividends which carry full dividend withholding payment credits.  Section NG 1(2)(a) has been consequentially amended to remove a redundant reference.
• Section HL 8 has been amended to ensure that only portfolio listed companies must attach full imputation credits (to the extent available) to distributions.  The previous wording of section HL 8 could have been interpreted to include other portfolio investment entities, which were not intended to be covered by the provision.
• Section HL 10(2) has been amended to ensure that portfolio investment entities that derive portfolio investor allocated income from investments in other portfolio investment entities and/or distributions from superannuation funds meet the income type requirement under the eligibility rules.
• Sections HL 10(3) and (5) have been amended so that they refer to the market value of the underlying investment held, rather than voting interests, in the case of investments in unit trusts.  Before this change, there was an argument that the entity and class shareholding investment requirements could be circumvented for an investment by a portfolio investment entity in a unit trust.
• Section HL 10(4) has been amended to remove investments in a life insurer from the exception to the entity shareholding investment requirement for a portfolio investment entity.
• Section HL 12 has been amended to ensure that failures to meet the eligibility requirements under section HL 4 are considered when an entity becomes a portfolio investment entity.
• Section HL 15 has been amended to allow portfolio tax rate entities that have a portfolio calculation period of a quarter to elect a portfolio allocation period of a month by giving notice to the Commissioner before the start of a tax year or when the entity chooses to become a portfolio tax rate entity.
• Section HL 16 has been amended to clarify that a portfolio tax rate entity can allocate a portfolio investor interest to an investor for a portfolio allocation period if the investor has an unconditional entitlement to the interest at the end of a vesting period.  The maximum duration of a vesting period, under section HL 16(2)(e)(ii), has also been increased to five years (from three years previously) to align with vesting periods for certain KiwiSaver funds.  
• Section HL 31 has been amended to require a portfolio investor proxy to provide information to a portfolio investment entity concerning whether the portfolio investor proxy would cause the portfolio investment entity to breach the eligibility criteria.  As a consequence of this amendment, section HL 6(1)(a)(ii) has been removed.
• Section IG 1(2) has been amended to clarify that the rules for determining which companies are treated as a group of companies do not apply for portfolio tax rate entities, rather than portfolio investment entities generally.  In particular, a portfolio listed company can be included in a group of companies.
• New section LD 10B is being added to allow a credit to a zero-rated portfolio investor for any income tax paid by a portfolio tax rate entity in relation to the investor's portfolio investor allocated income. 
• Sections LD 10(2) and LD 11(2) have been amended to ensure that a taxpayer receives as a tax credit the amount of any income tax actually paid by the portfolio tax rate entity, in relation to an amount of portfolio investor allocated income that is not excluded income under section CX 44D(1)(b) or where the income relates to a portfolio investor exit period under section HL 21(5). 
• Section NG 1(2)(f) has been amended to ensure that distributions from portfolio tax rate entities to non-residents are not subject to further tax through deduction of non-resident withholding tax. 
• The definition of "income tax liability" has been amended to include income tax that is calculated under subpart HL for a portfolio tax rate entity.
• The definition of "portfolio investor rate" in section OB 1 has been amended to allow portfolio tax rate entities to apply an updated rate that the investor has provided before the end of the year and use that rate for amounts that the entity has not yet calculated a liability for the purposes of the rules.  The definition has also been amended so the top rate of tax in a portfolio tax rate entity is 30% (instead of 33%).  The latter amendment applies from the 2008-09 and later income years.   
• The definition of "portfolio land company" has been amended to clarify that a company is considered a portfolio land company if the company owns land or shares in a portfolio land company that comprises 90 percent of the gross assets of the company on 80 percent or more of the days in the income year in which the company has gross assets of more than $100,000.
• The definition of "portfolio tax rate entity" has been amended so that it refers to a portfolio defined benefit fund and not a defined benefit fund.
• The definition of "prescribed investor rate" has been amended to clarify that the $60,000 threshold in paragraph (b)(ii) is calculated taking into account both an investor's portfolio investor allocated income and loss.  A further clarification to the definition has been made to provide that the 0% rate applies if the investor is a portfolio investment entity, other than a portfolio investment entity or superannuation fund which has a trustee that has elected a 33% tax rate.  

Amendments to the Tax Administration Act 1994

• Section 31B has been amended to ensure that investors in portfolio tax rate entities that pay tax under section HL 21 and have a portfolio investor exit period, are issued with information that the Commissioner considers relevant to the exit period, at the end of the month following the quarter in which the exit period ends.  Section 31B has also been amended to provide that portfolio tax rate entities must give a statement to zero-rated portfolio investors on an annual basis only.  References to "income year" have also been changed to "tax year" to better align with core provisions.
• Section 33A(1)(b) has been amended to ensure that zero-rated portfolio investors (or investors in portfolio tax rate entities that pay tax under section HL 21, and have a portfolio investor exit period) receiving small amounts of portfolio investor allocated income do not have to file a return where these amounts, combined with other types of income which have not been correctly taxed at source, is $200 or less.
• The return filing date for portfolio tax rate entities and portfolio investor proxies in section 57B has been amended to cater for non-standard balance dates.

Amendments to other statutes

• Section 53(2) of the Companies Act 1993 has been amended to correct a cross-referencing error.
• The Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 has been amended to ensure that entities can make an election to be a portfolio investment entity from 1 April 2007 (although the date that the election is effective will be on or after 1 October 2007).