2012 remedial changes to the Income Tax Act 2007 and the Income Tax Act 2004 covering livestock valuations rules, trustee income and minor drafting matters.
Remedial changes have been made to the Income Tax Act 2007 and the Income Tax Act 2004 on the recommendation of the Rewrite Advisory Panel. A number of minor drafting matters have also been corrected, including cross-references, punctuation and terminology, in the interests of consistency.
Livestock Valuation Rules
Section EC 1 of the Income Tax Act 2004 and Income Tax Act 2007 (sections 30 and 245 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012)
These sections restore the business nexus requirement to the livestock valuation rules set out in subpart EC for both the 2004 and 2007 Acts. The business nexus requirement was inadvertently omitted in rewriting the livestock valuation rules in subpart EE of the Income Tax Act 1994.
As part of the rewrite of the trading stock rules in subpart EE of the Income Tax Act 1994 into the Income Tax Act 2004, the livestock valuation rules were separated from the general trading stock rules (subpart EB). The livestock valuation rules were placed in a separate subpart (subpart EC). Subpart EC was re-enacted in the Income Tax Act 2007.
However, under section EE 1 of the 1994 Act, the trading stock valuation rules in subpart EE of the Income Tax Act 1994 applied to a person carrying on a business. Therefore in the 1994 Act, the livestock valuation rules applied only to a person carrying on a business and to their livestock held as part of the normal incident of carrying on that business. The Rewrite Advisory Panel agreed with a submission that the business nexus requirement was inadvertently omitted in rewriting the livestock valuation rules now set out in subpart EC of the Income Tax Act 2007.
This amendment restores the business nexus to subpart EC in both the 2004 and 2007 Acts. However, livestock held in a dealing business is valued under the general trading stock valuation rules in subpart EB (section EB 2(3)(f)). This distinction is also made explicit in this amendment by providing that the livestock valuation rules do not apply to a livestock dealing business.
The business nexus will normally be satisfied for livestock held over several years, such as dairy cattle, sheep, goats and the like, which are held for their fleece or their progeny (or both). The business nexus would normally be satisfied for this type of livestock because the disposal of these animals beyond their useful life is a normal event in a farming business.
The amendment is retrospective to the commencement of the 2005-06 income year. However, a savings provision applies in the event a taxpayer has taken a tax position on or before 31 May 2011, relying on the provisions of subpart EC prior to this amendment.
Section HC 25(1) of the Income Tax Act 2007 (section 84 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012)
The amendment resolves an ambiguity by clarifying that section HC 25(1) applies to a foreign-sourced amount derived by a trustee in an income year that is trustee income. The clarification ensures that section HC 25 does apply to a foreign-sourced amount that is distributed as beneficiary income.
The Rewrite Advisory Panel noted that section HC 25(1) contains an ambiguity and could be read as applying to income derived from a source outside Zealand by a non-resident trustee of a trust having a resident settlor even if that income is distributed as beneficiary income.
However, the Panel also identified that the Interpretation Act 1999 provided for headings to sections to be relevant indicators for statutory interpretation, and so the ambiguity can be resolved by normal interpretive approach. However, the provision is amended to ensure consistency with the rewrite objectives of clear, accessible legislation.
This amendment clarifies that section HC 25 applies to income derived by a trustee in an income year that is not also beneficiary income.
If income derived by a trustee for an income year is not distributed as beneficiary income, that income is included in the trustee's taxable income as trustee income. In most circumstances, trustees are taxed on income derived if it is either sourced from New Zealand or derived by a trust having a resident settlor.
Section HC 25 is essential to the settlor basis for taxing trusts as it ensures that a non-resident trustee of a trust having a resident settlor (and certain other types of trusts) is taxable on income derived from a source outside New Zealand.
The amendment applies from the 2008-09 income year.
Minor maintenance items
A number of minor maintenance items arising from the rewrite of income tax legislation have been referred to the Rewrite Advisory Panel. These may include:
- compilation errors;
- drafting consistency, including readers' aids, for example, the defined terms lists;
- consequential amendments arising from substantive rewrite amendments; or
- the consistent use of terminology and definitions.
The following amendments have been made:
|Section in Amending Act||Section||Amendment||Application date|
|Income Tax Act 2007||From beginning of 2008-09 income year|
|11||CE 5(1)||Improving the consistency of terminology|
|15||CW 15||Correction to defined terms list|
|16||CW 17(1)||Improving the consistency of terminology|
|23||DC 15(1) "employee" (a), (b)||Improving the consistency of terminology|
|39||EJ 2(1)||Correction to cross-reference|
|69||FE 8(4)||Improving the consistency of terminology|
|72||FM 8(3)(b)(ii)||Improving the consistency of terminology|
|82||HC 18||Correction to cross-reference|
|115||LD 3||Correction to defined terms list|
|117||LJ 7(3)||Improving the consistency of terminology|
|154(7)||YA 1 "dividend", para (b)||Correction to cross-reference|
|156||YC 18(6)||Improving the consistency of terminology|
|157||YC 18B(2)(c)||Correction of spelling|
|Income Tax Act 2004||From beginning of 2005-06 income year|
|241||CE 5(1)||Improving the consistency of terminology|
|242||CW 13(1)||Improving the consistency of terminology|
|244||DC 14(1) "employee" (a), (b)||Improving the consistency of terminology|
|247||EJ 2(1)||Correction to cross-reference|
|Income Tax Act 1994||From beginning of 1995-96 income year|
|251||DO 2||Correction to cross-reference|
|Tax Administration Act 1994||From beginning of 2005-06 income year|
|170||Section 3 "petroleum permit"||Correction to cross-reference|