Venture capital exemption

2009 legislation relating to venture capital exemptions updates definitions of 'foreign exempt entity', 'foreign exempt partnership' and 'foreign exempt person'.

Section CW 12 of the Income Tax Act 2007

A remedial amendment has been made to section CW 12 of the Income Tax Act 2007 to ensure consistency with changes previously made to the equivalent section in the predecessor Act, the Income Tax Act 2004.

Background

The predecessor to section CW 12, section CW 11B of the Income Tax Act 2004, was introduced, with effect from 1 October 2005, to facilitate increased offshore venture capital investment into New Zealand. It was to have achieved this by removing a potentially significant tax obstacle to in-bound venture capital investment - the risk that a qualifying non-resident venture capital investor selling shares in an eligible New Zealand company could be subject to New Zealand income tax on any gain arising from the sale.

One of the requirements of section CW 11B was that the investor must be from a jurisdiction approved by the Governor-General by Order in Council. Broadly, a jurisdiction would be approved only if effective exchange of information arrangements were in place with New Zealand. Section CW 11B was amended in 2008 to ensure that it would operate as intended regardless of whether the exchange of information arrangements were established by means of a double tax agreement or a tax information exchange agreement.

At the same time as the amendment was being made, a replacement Act, the Income Tax Act 2007, entered into force. The amendments made to section CW 11B of the Income Tax Act 2004 were not correctly reflected in the equivalent section of the Income Tax Act 2007, section CW 12. A remedial amendment has therefore been made to ensure that the amendments made to section CW 11B are now also reflected in section CW 12.

Key features

The definitions of "foreign exempt entity", "foreign exempt partnership" and "foreign exempt person" in section CW 12(4) of the Income Tax Act 2007 have been updated for consistency with changes previously made to its equivalent predecessor section, section CW 11B of the Income Tax Act 2004.

Application date

The amendments apply from 1 April 2008.