Issued
01 Jun 1978

Income Tax Amendment Act 1978

Archived legislative commentary on the Income Tax Amendment Act 1978 from PIB vol 93 Jun 1978.

This commentary item was published in Public Information Bulletin Volume 93, June 1978

More information about Public Information Bulletins.

Tax Credit Scheme for Exporters

The Hon. Hugh Templeton, Minister in Charge of the Inland Revenue Department, announced recently that a proposal had been made to introduce a tax credit scheme for exporters who, because of tax losses or insufficient assessable income, were not able to obtain the full benefit of the existing increased exports taxation incentive allowance.

Features of the Scheme will be:

  • It will be available to true exporters or true export houses who qualify for the deduction of the increased exports incentive allowance but who are unable to benefit either in full or in part from any resultant tax saving because of a loss situation or inadequate assessable income in the income year to which the allowance relates.
  • In these circumstances, to the extent the allowance of the increased exports incentive creates or increases a loss, taxpayers (both individuals and companies) can elect to convert the value of the incentive allowances for the income year to a tax credit at the flat rate of 45 cents in the dollar. The credit will then be paid in the same manner as a normal tax refund.
  • Where the incentive deduction is converted to a tax credit, any tax loss otherwise arising from the deduction of the export incentive allowances in that income year will be considered to be finally dealt with and will not be available as a carry forward against future years' profits.
  • The export incentive allowance will be regarded as the final increment of any taxable loss for the purpose of converting to a tax credit. The test is whether the taxpayer receives the full tax saving benefit of the export incentive allowances in the income year.
  • Previous years' tax losses arising from the export incentive allowances will not be available for the purposes of converting to a tax credit but will continue to be available as a carry forward against current and future years' profits in the normal manner.

Example:

Net profit before deducting incentive allowances     $100,000  
Less incentives:        
  • Investment Allowances
$4,000      
  • Export Market Development Expenditure
$10,000      
  • Increased Export Incentive
$96,000   $110,000  
  LOSS   $10,000  
Add Losses brought forward from previous years(includes $50,000 applicable to prior years' export incentive allowances)     $94,000  
ACCUMULATED LOSSES     $104,000  

 

Steps in Calculating Tax Credit
(1) Reduce current year's profit       $100,000
by        
  • Investment Allowances
  $4,000    
  • Export Market Development Expenditure Allowance
  $10,000    
  • Losses Brought Forward
  $94,000   $108,000
    BALANCE OF LOSSES   $8,000

(2) As increased exports incentive allowance ($96,000) does not result in any tax saving for the year, it is converted to a tax credit of 45 cents in the $1, i.e. $96,000 x 4.5% = $43,200

(3) The export tax credit of $43,200 would be refunded to the taxpayer after the annual return of income is furnished.

(4) Balance of loss available for carry forward = $8,000.

What is the Interpretation of a True Exporter or True Export House?

True Exporter

A true exporter is a person who manufactures or produces the goods and exports on his own account or arranges the export of goods on a commission basis through an agent but at all times he remains the owner of the goods at the point of export.

True Export House

This would be regarded as the person or firm that:

  • Purchases goods from the manufacturer or other supplier and directly contracts the sale of those goods with an overseas buyer.
  • The overseas buyer would make payment to and also look to in completing and fulfilling the terms of the contract for the overseas order.
  • Carries all the risks in terms of performance and delivery in relation to the sale of the goods. Generally the question of "risk" would be determined where the recourse lies with the overseas buyer for non-performance or disputed performance of the contract.
  • Is actively engaged in seeking out export opportunities for New Zealand products.

Third Party Arrangements

These arrangements which have been accepted up to 31 March 1978 will not be recognised for the purpose of incentive allowances in relation to export sales made after that date irrespective of the taxpayers' balance date.

Export Incentive Allowances that Qualify

These will cover only the following incentive allowances:

  • Increased Exports Incentive Allowance — Section 156 of the Income Tax Act 1976 (includes the Compensatory Export Incentive Allowance)
  • New Markets Exports Incentive Allowance — Section 157 of the Income Tax Act 1976

The new credit scheme does not apply to export market development expenditure or any of the other incentive deductions.

The scheme is subject to legislation and further details will be available only when the legislation is introduced into Parliament.