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Land and Income Tax Amendment Act 1965 (mining)

Archived legislative commentary on the Land and Income Tax Amendment Act 1965 (mining).

Companies Mining Specified Minerals - Section 152

Section 152 applies to -

New Zealand or overseas companies whose sole or main source of income is from mining in New Zealand minerals specified in the section.

The section does not apply when -

  • The company is a New Zealand company which gets most of its net income from sources other than mining for the specified minerals.
  • The greater part of an overseas company's net income is from sources outside New Zealand even though the New Zealand part comes from mining the specified minerals.

Individuals, partnerships, syndicates, or other unincorporated bodies are excluded by section 152. They are excluded because, under the section, assessable income is based on dividends paid during the year and not on the normal accounting basis of arriving at net profit for tax purposes.

Here are the specified minerals which, at present, qualify under section 152.

Antimony Asbestos Barite Bentonite
Bituminous shale Chromite Copper Dolomite
Feldspar Gold Halloysite Kaolin
Lead Magnesite Manganese Mercury
Mica Molybdenite Nickel Perlite
Phosphate Platinum group Pyrite Silver
Sulphur Talc Tin Titanium
Titanomagnetite Tungsten Uranium Wollastonite
Zinc Zircon    

There are more details about these minerals in the charts on pages 15 to 17.

The list of qualifying minerals can be extended when, in the opinion of the Minister of Finance, the mineral is, or will be, of importance -

  • To New Zealand's industrial development, or
  • In reducing the quantity of raw industrial mineral rock imported into New Zealand, or
  • As an export from this country.

The Minister of Finance will give notice in the "Gazette" of any additions to the list of qualifying minerals.

How the Mining Company is Taxed

Assessable income is -

  • One half of the dividends paid to shareholders during the year until total dividends paid since the company began exceed twice the amount of the company's capital as has been paid up by giving fully adequate consideration in money or money's worth.*

From then on assessable income is -

  • The full amount of dividends paid to shareholders during the year.
    • In determining the company's paid up capital for section 152 purposes contributions of property or other assets are taken into account, provided a true and fair value is placed on them when they are contributed. Bonus issues and other forms of capital issues which do not require payment of fully adequate consideration in money or money's worth are excluded.


This example is of a section 152 mining company incorporated in 1960 with a capital of £25,000 made up of 25,000 £1 shares fully paid up. The company's actual incomes were 1961 £10,000, 1962 £24,000, 1963 £46,000, 1964 £20,000, 1965 £24,000. Half of each year's income was paid out as dividends. For purposes of this example tax is assumed to be 10s in £.

Year 1961 1962 1963 1964 1965
Dividends paid £5,000 £12,000 £23,000 £10,000 £12,000
Assessable income £2,500 £ 6,000 £11,500 £ 5,000 £12,000
Tax payable £1,250 £ 3,000 £ 5,750 £ 2,500 £ 6,000

Valuable incentives

Under section 152 the mining company is able to recover its capital, tax free, before tax is payable on the full amount of dividends paid to shareholders during the year. In addition, any capital returned to shareholders, on winding up, is not treated as a dividend, and therefore, is not part of the company's assessable income.

Taxes - payable and not payable

  • Ordinary income tax - is levied on the company's notional assessable income - see above - at the normal rates for resident or non-resident companies.
  • Social Security Tax - is also payable on the company's notional assessable income.
  • Excess Retention Tax - is not payable by any company assessed under section 152 because their assessable income is based on dividends paid during the year.
  • Non-resident withholding tax - is not chargeable on interest, dividends and royalties paid to overseas companies which are assessed under section 152. However, any such payment made by a section 152 company to a non-resident to whom the section does not apply is liable to non-resident withholding tax.

Individual taxpayers who hold shares in a section 152 company will, of course, be liable to ordinary income tax, limited to 7/- in £, on dividends they receive from the company.

No Double Tax

A section 152 mining company may hold shares is a subsidiary mining company which also is assessable under that section. In such cases the possibility of double taxation on dividends -

  • Paid by the subsidiary to the holding company, and
  • Passed on to shareholders in the holding company,

is avoided by allowing the holding company a credit for the appropriate amount of tax paid on those dividends by the subsidiary.

Tax Advantages

Here are the advantages of the section 152 basis of assessment:-

  • The company is able to recover its capital, tax free, before tax is payable on the full amount of dividends paid to shareholders during the year. In addition, on winding up, the capital returned to shareholders is not treated as a dividend, and therefore, does not attract tax.
  • Although our tax law does not provide for a separate depletion allowance as such, the provisions of section 152 amount to a built-in depletion allowance of approximately 33 1/3 % of tax for companies paying tax at maximum tax rates. This allowance arises because, whereas an ordinary company is assessed on its total income, including the income it pays out in tax, a section 152 company is not assessed on the income required to pay its tax. An example follows:


    Company A
(Ordinary Company)
  Company B
(S. 152 Mining Company)
Real income   20,000

Amount available for dividend after providing for tax.




Tax on £20,000 9,460 on £13,964 6,306

Difference in tax is £9,460 less £6,306 = £3,154 or a 33 1/3% reduction.

In this example the full amount available is distributed to the shareholders. If a smaller amount were distributed the result would be in the some proportion.

Compared with the tax payable by companies assessed on profits worked out in the normal way, the section 152 mining company gets up to a 33 1/3% reduction in tax, - see example above.

Petroleum Mining Companies-Section 153J


The section applies only to -

  • New Zealand companies engaged solely or mainly in mining for petroleum in New Zealand.

It does not apply to -

  • An overseas company mining for petroleum in New Zealand.
  • A New Zealand company mining for petroleum but which gets most of its income from other sources.

These difficulties however can, be overcome if a separate New Zealand company is formed to mine for petroleum in New Zealand.

Taxable Income

In general the taxable income is the amount of dividends paid to shareholders during the income year. But section 153 makes it clear that no tax is to be levied until total dividends paid exceed the total amount of "irrecoverable expenditure" spent by the company.

The assessable income from petroleum mining in any year cannot be more than the amount by which -


exceed -





Year Capital paid up in cash Irrecoverable expenditure for year Dividends paid for year Total irrecoverable expenditure to date Total dividends paid to date Taxable income for year
1-5 10,000 - - 5,000 500 Nil
6 10,000 1,000 1,500 6,000 2,000 Nil
7 10,000 - 2,000 6,000 4,000 Nil
8 10,000 1,000 3,000 7,000 7,000 Nil
9 10,000 1,000 4,000 8,000 11,000 3,000
10 10,000 2,000 5,000 10,000 16,000 3,000


1. Irrecoverable expenditure defined - see page 9.

2. For year 9 "total dividends to date "exceed "aggregate irrecoverable expenditure" by £3,000. There has been no taxable income in earlier years. Therefore taxable income for the year is £3,000.

3. For year 10 "total dividends to date" exceed "total irrecoverable expenditure" PLUS "total taxable income" to date by £3,000 which is the taxable income for the year.


The term includes -

  • Bonus issues of shares made from the company's accumulated profits — either by the issue of fully paid up shares or, by giving credit far amounts unpaid on shares previously issued.
  • The value of any other class of property given by the company to its members.
  • Any other sums distributed among the shareholders.
  • Returns of share capital which are more than the amount by which the company's share capital paid up in cash by the end of the year exceeds:
  • total returns of share capital made up to the end of the previous year.


  • amounts of irrecoverable expenditure incurred up to the end of the current year.

Irrecoverable Expenditure

This expenditure is -

  • The total amount spent to date by the company on development in New Zealand on prospecting or mining for petroleum


  • The selling value of assets - excluding petroleum under the ground - resulting from such expenditure. For instance, the sale price of fixed assets bought for development work as well as the value of petroleum on hand which has been recovered from the earth will be taken into account.

"Development work" is not specifically defined. But the term is intended to cover expenditure on all aspects of prospecting, exploration and development normally associated with petroleum mining. Excluded from the term, however, is the cost of pipelines or other means of transport used to carry crude petroleum, casinghead spirit or natural gas from the oilfield.

Other Business Activities

There are special rules for assessing the petroleum mining company if it starts a business -

  • To refine, distribute or transport petroleum,


  • Starts a business not allied to petroleum mining in New Zealand.

For the year in which it starts that business, the company's income will be profits from other activities, calculated in the normal way, plus the excess of total receipts to date from mining activities less total irrecoverable expenditure and previous taxable incomes.

The following activities are incidental to a petroleum mining business and are not classed as other business activities:

  • Recovering casinghead spirit from natural gas.
  • Transporting crude petroleum or casinghead spirit from the oil well to storage tanks sited on the oilfield.
  • Transporting natural gas over the oilfield or land held by the company for prospecting.
  • Transporting crude petroleum, casinghead spirit, or natural gas by any means from the oilfield to a refinery, railway, port or other New Zealand terminal either for storage or for sale.
  • Storing crude petroleum, casinghead spirit or natural gas.
  • Selling those products to a refinery, bulk distributor or exporter.

How Company Is Taxed

Both ordinary and social security income tax is levied on the company's taxable income. Because taxable income is based on dividends paid, mining companies assessed under section 153 do not pay excess retention tax.

Petroleum mining companies are not liable for bonus issues tax on any bonus issues of shores made to either company or individual shareholders. The bonus issue is not income of the shareholder.

New Zealand Holding Companies With Shares In New Zealand Petroleum Exploration Companies - Section 153A

A New Zealand company which -

  • Holds shares in a New Zealand petroleum exploration company


  • Finances such a company.

can in certain circumstances claim against its assessable income for the year the amount written off during that year in respect of loans made to the exploration company.

Claim Limited

The deduction is limited to the smaller of -

  • 50% of the holding company's assessable income for the year,


  • The holding company's share of the residual cost of development expenditure incurred by the exploration company. When there is more than one holding company the shares of that expenditure are calculated on the respective proportion of the total loans (less repayments) made to the exploration company by the holding companies.



Holding company A's taxable income = £50,000
Holding company A's total loans (less repayments and amounts written off) to the ecploration company. = £30,000
Total loans made by all holding companies (less repayments and amounts written off) = £300,000
Exploration company's total development expenditure = £400,000

Maximum deduction to holding company A is the smallest of

  • 50% of £50,000

= £25,000
  • 30,000
x £400,000   = £40,000
300,000        1  
  • Holding company A's total loans (less repayments and amounts written off)
Deduction to company A = £25,000

Loan repayments

When loans written off by the holding company are later repaid or deemed to be repaid by the subsidiary, assessments may be amended by the Commissioner to reduce the deduction previously allowed by the amount repaid.

Advantages of section

A holding company can make advances to its subsidiary petroleum exploration company knowing that if the venture is unsuccessful, it can write-off as a bad debt, within the limits provided, and claim as a deduction for tax purposes, expenditure which in other cases would be regarded as a capital loss.

Persons mining other Mominerals - Section 91(b)

This section affects all taxpayers - companies, individuals, partnerships or syndicates - who mine minerals but are not assessed under sections 152 or 153.

Object of the section

Section 91(1)(b) allows a deduction, for tax purposes, of items which normally would be capital expenditure. The deduction allowed against the total receipts from extracting, removing or selling minerals is the cost of those minerals. This is not merely the cost of minerals at the site but the cost of minerals extracted. For instance, it includes expenditure on the mine site, mining rights, royalties for a mining property, exploration and development, and access roads, but excludes the cost of land.

Cost of minerals does not include the cost of assets on which depreciation is allowed as this cost can be written off over the estimated useful life of the assets. Valuable tax saving incentives, however, can be claimed on the cost of such assets see page 12.

If mining work continues for more than one year the proportion of total costs of the minerals extracted is based on the formula -

Quantity extracted during the year x Total prospecting, exploration and development cost to date less amounts already allowed as a deduction
Total estimated quantity in the block less previously extracted   1

Valuable Tax Incentives

Valuable tax saving incentives are also available to section 91(1)(b) taxpayers. These financial incentives are to encourage -

  • Increased capital investment.
  • Further prospecting, exploration and development of mineral resources.
  • Increased production.
  • An export trade of minerals surplus to New Zealand's needs.

They are explained, briefly, in the charts on page 13. The charts described the nature of the incentives and how to claim them under the headings:

The Information Pamphlets "Investment Allowances", "Export and Tourist Promotion incentives" and "Depreciation Allowances" issued by the Inland Revenue Department give full details of these incentives.

Mine Abandoned

When a commercially productive mine is abandoned before it is completely worked out, because further mining is uneconomic, the total costs to date of abandonment are allowed against the income from the mine. If necessary, assessments will be re-opened for the statutory six year period to give the taxpayer the greatest tax advantage.

Different rules apply when a mine has commercial potential but has been abandoned because of lack of funds. In these circumstances only a proportion of the total cost is deductible — based on the formula on page 11. This distinction is made because, in such cases, the sale price of the property or rights to the property would generally reflect the cost of work previously carried out by the vendor. Thus a double deduction for the same expenditure — one to the vendor and the other as part of the cost of the property or rights to the purchaser — would otherwise arise.

When a mine is abandoned on economic grounds or exhausted and any portion of prospecting, exploration or development expenditure has not been allowed as a deduction for tax purposes, past assessments will be amended for the statutory 6 year refund period to write off that balance equally over those years.

Further enquiries on the above points should be made at the nearest tax office.

Inquiries And Correspondence

If you want more information on tax in the mining industry, visit, telephone or write to the nearest tax office. Telephone and personal interviews may be made between the hours of 8am and 4.35pm

Address correspondence to:

The District Commissioner of Taxes, Inland Revenue Department, Private Bag, (Location of District Office)*

*Offices are established at:

  Telephone   Telephone   Telephone
Auckland 49-700 Lower Hutt 65-083 Rotorua 2002
Blenheim 4040 Masterton 3089 Tauranga 85-049
Christchurch 71-869 Napier 4349 Te Aroha 420
Dunedin 70-400 Nelson 81-164 Timaru 89-164
Gisborne 6742 New Plymouth 6539 Wanganui 4044
Greymouth 7129 Oamaru 49-870 Wellington 56-450
Hamilton 83-099 Palmerston North 75-199 Whangarei 82-539
Invercargill 82-599

Tax Incentives for Section 91(1)(b) Taxpayers

Incentive What It Is How It Works What To Claim How to Claim
INVESTMENT ALLOWANCE General 10% An incentive to encourage the use of more modern equipment in mining. Grants an allowance of 10% of cost price (in addition to all other depreciation) on certain qualifying assets delivered on or after 1 August 1963 and on or before 31 March 1967 for use by the taxpayer in operations or processes used in mining or quarrying for metallic or non-metallic ore or coal 10% of the cost price of assets which are NEW, OWNED BY TAXPAYER MAKING THE CLAIM, and USED BY HIM mainly and directly in mining or quarrying operations or processes, including crushing, grinding, breaking, screening and sizing ore or coal, or maintaining them in a form or condition ready for sale or use. In tax return for year in which assets first used. Claim should be made outside books of account. Completed form IR39A needs to accompany tax return for year in which allowance is claimed.
(a) Initial
Designed to encourage better and more permanent employee accommodation. A 20% depreciation allowance on the cost of buildings acquired or erected for employee accommodation on or after 1 April 1961 and before 1 April 1967 and first used for that purpose during the income year. The full 20% is deductible in the year the building is first used unless optional claim for special depreciation is made (see (b) below). In tax return for year in which assets first used. Claims need to be supported by the details set out on page 4 of the IR3 Tax Return or page 4 or the IR4 Company Tax Return.
(b) Special An incentive to promote the use of modern equipment, plant and machinery. Also applies to employee accommodation (see (a) above). 20% depreciation is allowable on plant or machinery (excluding certain motor vehicles) acquired, installed, or extended on or after 1 April 1960 and before 1 April 1967. (i) On assets costing less than £400: 20% allowance in year first used.
(ii)On assets costing between £400-£1,000: 1st year 10%; 2nd year 10%.
(iii)On assets costing over £1,000: either 6%, 5%, 4%, 3% and 2% in consecutive years; or 10%, 5%, 3% and 2$ in consecutive years.
If election made, special depreciation may be claimed on employee accommodation erected or acquired on or after 1 April 1962 in lieu of initial depreciation.
Claim allowance or proportion thereof in tax return for each respective year. The first year's claim needs to be supported by a completed form IR39. If claiming both the investment allowance and special depreciation fill in form IR39A or 39B instead of form IR39.
(c) Research equipment A stimulant to ease the cost of research expenditure and to encourage up-to-date equipment. The cost of plant, machinery, and equipment acquired, installed, or extended on or after 1 April 1963 for scientific purposes directly relating to the business may be written off over five years. Depreciation at a rate to enable the assets to be written off over five years. In annual accounts for year concerned. Deduction needs to be written off in proper books of account and a copy sent in with the annual tax return.
EXPORT MARKET DEVELOPMENT An incentive to promote export of New Zealand goods and services overseas, and the overseas use of New Zealand trade marks, patents, designs, or copyright. An additional 50% deduction for income tax purposes for certain qualifying expenditure which must be ordinarily deductible. The following items of expenditure qualify (including fares, accommodation, and sustenance spent during trips overseas): research on marketing, packaging, and producing new lines, advertising, securing publicity, securing business, free samples, and so on.
Note. Certain items qualify for additional deduction if incurred between 1 April 1962 and 31 March 1967, others if incurred between 1 April 1963 and 31 March 1967.
Ordinary deduction: in annual accounts in year incurred.
50% incentive allowance: claim on tax return.