Amendments to tax status of New Zealand Superannuation Fund

2011 legislative amendments show that the NZ Superannuation Fund is part of the Crown and not a separate entity, and clarify it is an NZ resident for tax purposes.

Sections HR 4B and YD 3B, and schedule 1 of the Income Tax Act 2007; section 76 of the New Zealand Superannuation and Retirement Income Act 2001 

The New Zealand Superannuation Fund (NZSF) is a Government investment fund that was set up to pre-fund a portion of New Zealand's future superannuation requirements. The NZSF is not a separate legal entity, but a pool of funds owned by the New Zealand Government.

Amendments to the Income Tax Act 2007 and the New Zealand Superannuation and Retirement Income Act 2001 (NZSRIA 2001) have been made to better reflect the fact that the NZSF is an integral part of the Crown, and not a separate entity. Under the new legislation, tax on income derived by the Crown through the NZSF continues to be calculated in the same way that it was previously.

Amendments also clarify that the NZSF, as part of the New Zealand Government, is a resident of New Zealand for tax purposes.

Background

The NZSF was set up in 2001 to pre-fund a portion of New Zealand's future superannuation requirements. The NZSF is intended to smooth the future amount spent on New Zealand superannuation on a 40-year rolling horizon.

Part 2 of the NZSRIA 2001 governs the operation of the NZSF.

The NZSF is not (and never has been) a separate legal entity. Rather, it is a pool of funds that remains the property of the Crown (section 40 of the NZSRIA 2001). Earnings from the NZSF are taxed using the company tax rate. The NZSRIA 2001 is generally clear on this point.

The Guardians of the NZSF are charged with managing and administering the NZSF, in accordance with the NZSRIA 2001. However, the Guardians are not a trustee of the NZSF (section 51(2) of the NZSRIA 2001), and the legal owner of the NZSF is the Crown, not the Guardians of the NZSF or any other entity.

The NZSRIA 2001 and the Income Tax Act 2007 were amended to better reflect the status of the NZSF - that the NZSF is a pool of funds owned by the Crown and is not a separate legal entity.

An amendment also clarifies that the Crown is a resident of New Zealand. This will ensure that domestic law is consistent with the position under New Zealand's tax treaties. Double tax agreements (DTAs) usually specify that the Government is to be treated as a resident for the purposes of the DTAs. This ensures the Crown, including its various pools of funds (such as NZSF) obtain the benefits of these DTAs, including lower withholding rates.

Key features

Section 76 of the NZSRIA 2001 has been repealed. A transitional provision ensures that the effect of this amendment does not result in the liquidation or creation of any entity or person.

Section HR 4B clarifies that although the NZSF is part of the Crown, the amount of tax on the Crown's income relating to the NZSF will be calculated using the company tax rules.

The provision specifies that the company tax rules apply to the amount of income to be calculated. This means therefore that rules such as the basic tax rate that applies to companies applies to Crown income derived through the NZSF. It also applies to provisions such as section DB 7, which provides that no nexus with income is needed for interest incurred by most companies to be deductible.

Because the NZSF is not deemed to be a body corporate, the obligations that are specifically imposed on companies, such as the obligation to maintain an imputation credit account, do not apply.

Schedule 1 has been amended to ensure that the tax rate applicable to the NZSF is the same as the company tax rate.

Section YD 3B clarifies, for the avoidance of doubt, that the Crown is a resident of New Zealand.

Application date

The amendments apply from 1 April 2011.