Issued
07 Oct 2015

Commissioner’s operational position on "development or division work" not of a minor nature for section CB 12 purposes

CIR's operational position on 'development or division work' not of a minor nature for section CB 12 purposes.

The purpose of this item is to inform taxpayers of the operational position being adopted by the Commissioner in relation to this matter.

The Commissioner of Inland Revenue has released QB 15/02 Income tax - major development or division - what is "significant expenditure" for section CB 13 purposes? (Tax Information Bulletin Vol 27, No 4 (May 2015)).

QB 15/02 qualifies IG0010 "Work of a minor nature" (Tax Information Bulletin Vol 17, No 1 (February 2005)) to the extent that it suggests that only physical work can be "development" work. QB 15/02 clarifies that non-physical work can be "development" work, and any expenditure on non-physical development work is to be taken into account for the purposes of section CB 13 of the Income Tax Act 2007.

This change in the Commissioner's view is also relevant in applying section CB 12 of the Income Tax Act 2007, in that any non-physical development work needs to be taken into account in determining whether the work undertaken is minor or not.

As the Commissioner's view has changed from the previous view expressed in IG0010, with regards to what is considered to be "development" work, and therefore what expenditure would need to be taken into account for section CB 12 purposes, the Commissioner will apply the following transitional operational position:

  1. Where a taxpayer has incurred expenditure on non-physical development work before 1 April 2015 in reliance on IG0010, that taxpayer may rely on the Commissioner's previous position in IG0010, for that portion of the expenditure on the undertaking or scheme, provided the land is disposed of prior to 1 April 2017 (i.e. expenditure for non-physical development work prior to 1 April 2015 will not be taken into account for the purposes of section CB 12).
  2. The position described above in (a) does not apply to any expenditure on non-physical development work incurred after 1 April 2015 (i.e. expenditure incurred on or after 1 April 2015 will be taken into account for the purposes of section CB 12).

    For example, if expenditure for non-physical development work was incurred between June 2014 and June 2016, provided the land is disposed of before 1 April 2017, the expenditure on non-physical work incurred before 1 April 2015 will not be taken into account for the purposes of section CB 12. However, the expenditure on non-physical development work incurred from 1 April 2015 will be taken into account.
  3. If the land is not disposed of within the two year transitional period (1 April 2015 to 31 March 2017) the Commissioner's view set out in QB 15/02 will apply, resulting in all expenditure on non-physical development work being taken into account for the purposes of section CB 12 regardless of whether or not the expenditure was incurred prior to 1 April 2015.
  4. Where a taxpayer incurs expenditure on non-physical development work on or after 1 April 2015, the new position set out in QB 15/02 will apply - the expenditure will be taken into account for the purposes of section CB 12