Miscellaneous technical amendments

Technical amendments from the Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 and Taxation (Annual Rates of Income Tax Act 2004-05) Act 2004.

A number of miscellaneous technical amendments have been made to the tax Acts. Unless otherwise indicated, the amendments apply from the date of enactment.

Removal of references to "assessable"

Sections CG 25, GC 14 and HH 3of the Income Tax Act 1994

The references to "assessable" in the headings of sections CG 25 (cases where assessable income calculation cannot be undertaken), GC 14 (income assessable to beneficiaries) and HH 3 (gross income assessable to beneficiaries) of the Income Tax 1994 have been removed because they are redundant. This is consistent with the removal of references to "assessable" by the self-assessment amendments enacted in 2001.

Expenditure on leases of personal property

Section EO 2 of the Income Tax Act 1994

Section EO 2 of the 1994 Act provides a straight line spreading rule for expenditure on leases of personal property. It is intended that finance leases be excluded from the ambit of this provision because the timing of finance lease expenditure is governed by the accrual rules. A clarifying amendment has been made to achieve this policy intent. This amendment applies from 20 May 1999, when the finance lease rules were implemented.

Definition of "lessee's acquisition cost"

Sections FC 10 and OB 1 of the Income Tax Act 1994 and Income Tax Act 2004

The drafting of the definition of "lessee's acquisition cost" in sections FC 10(8)(a) and OB 1 has been clarified by following the approach used in the definition of "lessor's disposition value" in section OB 1. In particular, it has been made clear in the definition of "lessee's acquisition cost" that the consideration is provided to the lessee under the finance lease or the hire purchase agreement.

Further dividend withholding payment correction

Section MG 9 of the Income Tax Act 1994 and Income Tax Act 2004

Section MG 9(5C), relating to further dividend withholding payment payable by a company, was enacted recently by the Taxation (GST, Trans-Tasman Imputation and Miscellaneous Provisions) Act 2003, with application from the 1998-1999 imputation year. The reference to "income tax" in this provision was a drafting error and has been replaced by a reference to "dividend withholding payment", with the same application date as new section MG 9(5C).

Amounts of PAYE tax deductions

Sections NC 6 and NC 12 of the Income Tax Act 1994 and the Income Tax Act 2004

Section NC 6, which relates to amounts of PAYE tax deductions, referred to tax deductions fixed by an annual taxing Act. These references were redundant because the annual taxing Act is not used to fix amounts of PAYE deductions. Instead, the amounts of PAYE deductions are generally the amounts of the basic tax deductions specified in Schedule 19 of the Income Tax Act 1994 and the Income tax Act 2004. Accordingly, the annual taxing Act references in section NC 6 have been omitted, which has simplified the wording of the provision and assisted in highlighting the central role played by the basic tax deductions specified in Schedule 19. Section NC 12 has been consequentially amended to remove its reference to amounts of PAYE deductions being changed by annual taxing Act.

Fringe benefit tax rules - insertion of an omitted section reference

Section ND12 of the Income Tax Act 1994 and the Income Tax Act 2004

An omitted reference to section ND 10(3) of the Income Tax Act 1994 and the Income Tax Act 2004 has been inserted into section ND 12 of those Acts. Employers who use the multi-rate method for calculating their fringe tax liability and cease to employ staff in the first three quarters of the income year must treat the quarter in which employment ceases as the final quarter of the year and undertake the multi-rate calculation in relation to that quarter. Section ND 12 is intended to modify the return filing and payment dates for that quarter. The omitted reference to section ND 10(3) meant that only the provisions relating to the payment of the fringe benefit liability were modified, not the return filing provision. The amendment to the 1994 Act applies to fringe benefits provided or granted by an employer on or after 1 April 2000 (being the application date of the multi-rate FBT rules), unless the employer has filed a return before 29 March 2004 (date of introduction of the bill) and relied on section ND 12, as that section applied before the enactment of this amendment. The amendment to the 2004 Act applies to the 2004-05 and subsequent tax years.

Dividend withholding payments by local authorities

Section NH 1 of the Income Tax Act 1994 and Income Tax Act 2004

From the 1997-98 income year, local authorities have been exempted from the liability, under section NH 1, to pay 33% dividend withholding payments on dividends from foreign companies.

In principle, dividend withholding payments are paid on behalf of shareholders, but local authorities have no shareholders. Local authorities are not liable to tax on any other investment income, although they do pay tax on income derived from their trading enterprises. In 2002, the legislation was amended to exempt charities from a dividend withholding payment obligation.

Timing of expenditure on leases of land and buildings

Section OB 1 of the Income Tax Act 1994 and Income Tax Act 2004

A drafting error at the time the finance lease rules were enacted in 1999 resulted in expenditure on leases of land and buildings being excluded inadvertently from the definition of "accrual expenditure" in section OB 1, which in turn meant that such expenditure was not covered by the timing rule in section EF 1. An unintended consequence was that a taxpayer could have claimed an upfront deduction for the entire amount of a lease prepayment, instead of spreading the prepayment over the term of the lease, as intended. Before the finance lease rules were implemented the timing of expenditure on leases of land and buildings was covered by the timing rule in section EF 1. An amendment has therefore been made to ensure that expenditure on leases of real property continues to be covered by section EF 1 of the 1994 Act (section EA3 of the 2004 Act). This has been achieved by including the term "operating lease" in the list of provisions to which paragraph (f) of the definition of "lease" in section OB 1 applies. This amendment applies from 20 May 1999, the inception of the new finance lease rules, unless a taxpayer filed a return before 29 March 2004 which was based on the previous law.

Definition of "land tax"

Section OB 1 of the Income Tax Act 1994

The definition of "land tax" in section OB 1 was redundant and has been repealed.

Definition of "premium"

Section OB 1 of the Income Tax Act 1994 and section FC 13 of the Income Tax Act 2004

The definition of "premium" in section OB 1 was amended in 1999 as part of amendments to ensure that guarantee fees paid to non-residents are subject to an effective tax rate of 3.3% on the gross amount under section CN 4. However, some of the wording of the 1999 amendment may have inadvertently taken certain insurance premiums outside the ambit of section CN 4. In particular, the addition of a reference to a premium being payable "to an insurer" may have made it more difficult to apply section CN 4 in the situation where a non-resident parent of a New Zealand company enters into a contract of insurance with a non-resident insurer to cover risks faced by the New Zealand company and the New Zealand company reimburses its non-resident parent for premiums paid on the contract of insurance. These reimbursing payments should come within the section OB 1 definition of "premium" and therefore be subject to section CN 4 (sections FC 13 to FC 17 of the 2004 Act). The amendment's removal of the insurer reference in the definition of "premium" facilitates this. The lists of provisions to which the definitions of "premium" and "insurer" apply have also been corrected.

Requisition of information held by offshore entities

Section 17 of the Tax Administration Act 1994

Section 17(1C), which relates to the Commissioner's information-gathering powers, was amended recently by the Taxation (GST, Trans-Tasman Imputation and Miscellaneous Provisions) Act 2003. The amendment involved replacing "held by" with "in the knowledge, possession or control of". However, because this provision refers essentially to ownership-type interests, it has been amended to revert to references to "held by" as it is not accurate to refer to ownership interests being "in the knowledge of" a person. The use of "held by" is also consistent with the approach used in similar associated persons and nominee provisions in the Income Tax Act 1994.

Secrecy of restricted information

Section 81 of the Tax Administration Act 1994

When section 81(4) of the Tax Administration Act was last amended to authorise Inland Revenue's disclosure of information to the Department of Internal Affairs and the Ministry of Health, a corresponding amendment was not made to section 87 to require the officers of the Department of Internal Affairs and the Ministry of Health to maintain the secrecy of that restricted information.

Section 87 of the Tax Administration Act 1994 has been amended to require the officers of the Department of Internal Affairs and the Ministry of Health to maintain the secrecy of all restricted information communicated to them. This is the same requirement that is imposed on Inland Revenue officials.

Matters that cannot be challenged

Section 138E of the Tax Administration Act 1994

Former section 40(c) of the GST Act listed certain decisions of the Commissioner under the GST Act that could not be disputed under the former objection provisions in that Act. These provisions were replaced in 1996 by the current challenge provisions in the Tax Administration Act. However, the effect of former section 40(c) of the GST Act was not replicated in section 138E of the Tax Administration Act, which lists certain matters that cannot be challenged. A remedial amendment to section 138E has been made to correct this oversight and restore the previous position.

Reduction of penalties for good behaviour

Section 141FB of the Tax Administration Act 1994

Section 141FB, which allows shortfall penalty rates to be halved if a taxpayer has a past record of good behaviour, has been rewritten to improve its comprehensibility. The only significant policy change is that offences under sections 143 to 145 are now taken into account in determining whether a taxpayer has a sufficient track record of good behaviour.

Change-in-use deductions

Section 21E of the Goods and Services Tax Act 1985

Section 21E(4) facilitates the obtaining of a change-in-use deduction in respect of goods and services acquired for the principal purpose other than that of making taxable supplies which are then applied for a purpose of making taxable supplies. This provision is intended to replicate the effect of the first proviso to former section 21(5) and former section 21(6) of the GST Act. Two minor clarifying amendments have been made to section 21E(4) to ensure that the effect of the previous provisions is continued as was intended. In particular, the reference to "if" has been replaced with "to the extent that", and the reference to "sections 21 and 21I" has been replaced with "sections 21 or 21I". The amendments have the same application date as sections 21 and 21I, meaning they apply to goods and services treated as being supplied on and after 10 October 2000.

Improving interface with Tax Administration Act

Former sections 31, 50, 61B, 80 and 81 of the Goods and Services Tax Act 1985 and sections 185, 225 and 226 of the Tax Administration Act 1994

The general approach to tax administration provisions in the Inland Revenue Acts is that if they apply generically to a number of different taxes they should be aggregated and contained in the Tax Administration Act rather than replicated in the various other Inland Revenue Acts. Consistent with this approach, sections 50 (appropriation authority for refunds), 80 (authorising the making of regulations to extend statutory deadlines) and 81 (concerning general regulation-making powers) of the GST ACT have been repealed as their functions can be performed by sections 185, 226 and 225 respectively of the Tax Administration Act. These Tax Administration Act provisions have been consequentially amended to include references to the GST Act. Sections 31 and 61B of the GST Act, concerning the application of the disputes and penalties provisions in the Tax Administration Act 1994, were no longer necessary and have therefore been repealed.

Transitional provision for supplies of imported services

Section 84B of the Goods and Services Tax Act 1985

The transitional provisions in new section 84B for the reverse charge on imported services have been corrected to refer to the time of performance of the services, with the same application date as these provisions (25 November 2003).

Determinations in relation to financial arrangements

Sections 90, 90AC, 90AD, 90AE and 90A of the Tax Administration Act 1994

The determinations rules have been amended to allow the Commissioner to cancel a determination before issuing a replacement determination. It became apparent that, contrary to the intent of the legislation, this was not allowed under the previous rules.

Sections 90(6), 90AC(6) and 90AE of the Tax Administration Act 1994 allow the Commissioner to "vary, rescind, restrict, or extend a determination" made under sections 90(1) and 90AC(1) by replacing the determination or by making a new determination. The determination does not have to be used for a financial arrangement which was entered into before the new determination was published until four years after the date of publication of the new determination.