2014 Rewrite Advisory Panel remedial items covering various topics relating to the Income Tax Act 2007.

Notice to leave a consolidated imputation group

Sections FM 40(5) and FN 12(5) of the Income Tax Act 2007

The Panel considered, and agreed with, a submission that the Income Tax Act 2007 contains an unintended change to the effective date that a company leaves a consolidated group of companies, if its notice to leave the consolidated group of companies is invalid.

Key features

Under the provisions of the Income Tax Act 2007, a company must provide a notice to the Commissioner that it has left a consolidated group if it is no longer entitled to continue as a member of that consolidated group of companies. Sections FN 12(5) and FM 40(5) apply to invalidate this notice as an anti-avoidance rule.

The amendments to sections FM 40(5) and FN 12(5) ensure that if the notice is invalidated, the company is treated as leaving the group from the start of the tax year in which the company is no longer entitled to be within the consolidated group.

Application date

The amendment applies from the beginning of the 2008-09 income year.

Withholding of tax from schedular payments

Section RD 10(4) of the Income Tax Act 2007

The Panel considered, and agreed with, a submission that the effect of section RD 10(3) of the Income Tax Act 2007 differs from the outcome given by that section's corresponding provision in the Income Tax Act 2004.

Key features

The amendment corrects the unintended change and ensures that the payer of a schedular payment to a GST-registered person must withhold tax under the PAYE rules based on the GST-exclusive amount. This is because GST charged by and paid to a registered person is not treated as income.

Application date

The amendment applies from the beginning of the 2008-09 income year.

Relief from obligation to withhold resident withholding tax

Section RE 4 of the Income Tax Act 2007

The Panel considered, and agreed with, a submission that the outcome given by section RE 4 of the Income Tax Act 2007 differs from the outcome given by that section's corresponding provision in the Income Tax Act 2004 on the requirement to withhold resident withholding tax from payments of dividends. This issue mainly relates to financial institutions operating through a branch in New Zealand that pay dividends to the branch's New Zealand shareholders in relation to shares issued by the foreign company.

Key features

Section RE 4 requires a person to withhold resident withholding tax from payments of dividends and interest, unless an exception applies.

The amendment correctly provides an exception from the obligation to withhold resident withholding tax. This ensures that a non-resident company carrying on a taxable activity in New Zealand through a branch is relieved from the obligation to withhold resident withholding tax from dividends paid to its New Zealand shareholders if the company is not required by generally accepted accounting practice, to express its financial statements in New Zealand dollars.

Application date

The amendment applies from the beginning of the 2008-09 income year. However, a "savings" provision applies to:

  • validate the tax position of a company that has withheld resident withholding tax from dividends paid to its New Zealand shareholders (based on the previous section RE 4 in the 2007 Act); and
  • ensure that self-assessments of shareholders that take into account the dividend paid from the company and the associated tax credit are not disturbed.

Refund limits for ICA companies

Section RM 13(3) of the Income Tax Act 2007

The Panel agreed with a submission that, for a company that has an extension of time to file its annual imputation credit account (ICA) return, the provisions of section RM 13(3) in the Income Tax Act 2007 do not correctly reflect the outcome given by the section's corresponding provision in the Income Tax Act 2004 (section MD 2(1A)).

Key features

The amendment corrects the unintended change and ensures that the amount of the refund or transfer must not exceed the balance of the company's imputation credit account on the last day of the tax year to which that imputation credit account return relates.

Application date

The amendment applies from the beginning of the 2008-09 income year.

Rewrite minor maintenance items

Remedial changes have been made to the Income Tax Act 2007 for a number of minor drafting matters that have been brought to the attention of the Rewrite Advisory Panel. In general, these amendments consist of corrections of cross-references, spelling, punctuation, terminology and consistency of drafting. The Rewrite Advisory Panel publishes lists of these maintenance items on its website.

Amendments to the Income Tax Act 2007 shown in the table below apply from the beginning of the 2008–09 income year (other than for section LD 3).

Section Act Amendment
CB 36 2007 Act Terminology corrected
CV 2(1) 2007 Act Correction to cross-reference
DP 11 2007 Act Terminology corrected
FM 31 2007 Act Clarifying eligibility to become, and to remain, a member of a consolidated group of companies
GB 32(2B)(a)(i) 2007 Act Terminology corrected
HA 4(2) 2007 Act Correction to cross-reference
HM 8 2007 Act Defined terms list
HM 11 2007 Act Defined terms list
HM 12 2007 Act Defined terms list
HM 13 2007 Act Defined terms list
HM 50(5)(a) 2007 Act Correction to cross-reference
HM 55FB(1)(b) 2007 Act Correction to cross-reference
HM 72(1) 2007 Act Correction of punctuation
Section Act Amendment
LD 3* 2007 Act Clarifying meaning of charitable and public benefit gift
After subpart LP 2007 Act
1 June 2009
Repeal redundant heading
OB 1, YA 1, ICA company 2007 Act Clarifying definition of ICA company and Australian ICA company
After section OP 77 2007 Act Repeal redundant heading
After section RC 35 2007 Act Repeal redundant heading
RD 5 2007 Act Terminology corrected
Section RZ 5D 2007 Act Defined terms list
YA 1, FDP rules 2007 Act Terminology corrected
YA 1 NZIAS references 2007 Act Terminology corrected
YA 1 partnership share 2007 Act Terminology corrected
Schedule 1, Part A, Clause 1 2007 Act Correction of cross-reference

* The change applies from the date of Royal assent, being 27 February 2014.