Land and Income Tax Amendment Act 1966

This commentary item was published in Public Information Bulletin Volume 23, June 1965.

More information about Public Information Bulletins.

Application of Act

SECTION 2. Except when otherwise stated, this Act applies to tax on income for the year that started on 1 April 1966.

PART 1

Amendments to the main tax act

Housekeeper Exemption

SECTION 3. Allows a special exemption for a housekeeper employed for part of a month. In future the exemption will be allowed in part for each month or part month of employment.

The annual exemption of £156, or total paid in wages and allowances if lower, is unchanged.

Life Insurance Exemption

SECTION 4. Restates the type of life insurance policies on which the premiums paid are allowable as a special exemption for tax purposes.

Premiums on policies will now qualify if the policy is on the life of the taxpayer's spouse, his dependent children or foster children, or on the joint lives of husband and wife.

At the same time the SECTION makes it clear that a policy issued after 26 August 1966 will need to be for a period of time, defined in the SECTION, to qualify. Other conditions are-

1. That a substantial part of the total benefits is to be payable in the event of death at any time during the term of the policy.

• AND

2. That benefits other than for death are not to be paid in the early stages of the policy.

Those conditions are set out in detail in the SECTION. Special provisions allow premiums on children's deferred policies and on sub-standard lives.

The exemption limit of 20 percent of a taxpayer's assessable income has been removed.

No tax on servicemen's deferred pay

SECTION 5. Provides that deferred pay of the three services earned in an active service area for service on or after 15 July 1965, is to be exempt from income tax.

Life insurance companies

SECTION 6. Makes it clear that the exemption from social security income tax at present allowed to companies actively engaged in life insurance business in New Zealand is limited to the income actually derived from that business.

Increases in livestock

SECTION 7. Provides that certain increases in livestock be excluded from taxable income. The important features of the scheme are-

1. It is optional and commences for any year after 1 April 1966.
2. Itapplies to sheep, cattle and pigs in a farming business.
3. Livestock dealers are excluded.
4. The basic herd or flock is the greater of the numbers of each class on hand at either of the two years preceding the year of election.
5. The whole or any part of subsequent increases over this base may be given a nil value for tax purposes.
6. To provide for changes in the type of livestock carried from year to year equivalents based on 6 sheep or 4 pigs to 1 head of cattle are provided.

If the livestock are disposed of at death or by gifting, they are to brought in at normal standard values or, if desired, at market values. If the livestock are sold, relief is given by spreading excess income over the year of sale and, depending on circumstances the 3 preceding or 3 succeeding years.

Valuation of trading stock

SECTION 8. Allows an extra option in the valuation of trading stock, other than livestock. With the Commissioner's approval a taxpayer can use a special basis to value stock because of factors such as obsolescence.

Interest in trading stock

SECTION 9. Provides that the sale or disposition of an interest in trading stock is a sale of trading stock for tax purposes.

Consequential amendments

SECTIONs 10, 11 and 12. These are consequential amendments arising from SECTIONs 7 and 9.

Livestock disposals due to adverse event

SECTION 13. Extends the relief provisions which apply when livestock, disposed of because of adverse events affecting a farm, cannot be replaced because of a later similar event. The present two year period for spreading income forward is extended to three years.

A farmer may now qualify for relief when the adverse event is sickness or disease among his livestock, even though the disease has not had general effect over an area.

Advertising on "Pirate" radio or TV

SECTION 14. States that the cost of advertising over a so called "pirate" radio or TV station will not be deductible for tax purposes. The provisions cover transmission from any vessel whether inside or outside New Zealand territorial waters.

Incentive deductions

SECTIONs 15, 16 and 24. Extend the incentive deductions for special depreciation, initial depreciation and export market development expenditure to 31 March 1968.

Investment allowances

SECTIONs 17, 18 and 19. Suspend the investment allowances because of the need to restrict imports of plant and machinery.

Plant and machinery including such assets for the fishing industry, will still qualify for an allowance if bought or installed before 17 June 1966, or if a binding contract to buy the assets was entered into before that date in which case it must be completed in reasonable time.

Special features of the West Coast allowance are that in the absence of a contract before 17 June 1966 the allowance for plant and machinery is to continue at 10 percent until 31 March 1968. The 20 percent rate on buildings is to continue to that date.

Expenditure on fertiliser and lime

Previously a farmer who wanted to spread expenditure on fertiliser and lime over the 4 years following the year of expenditure, had to make a written election stating in advance how the expenditure was to be spread.

SECTION 20 now gives him the right to elect in each of the years concerned how much of the total expenditure is to be deducted in that year.

Farm development expenditure

SECTION 21. Amends the law which allows claims for farm development expenditure. The changes are -

1. The unlimited deduction of certain classes of expenditure previously restricted to £400 a year is extended for a further year to 31 March 1968.
2. Expenditure after 1 April 1966 on building feeding platforms, plunge sheep dips and self-feeding ensilage pits will be allowed as a farm expense.
3. Expenditure may be spread over the year of expenditure and the 5 succeeding years. Now the taxpayer is to decide when he puts in his annual tax return for each year what part of the expenditure he will take away from that year's income.

Donations for research

SECTION 22. Widens the law which allows companies to deduct, within certain limits, a donation to a University for research.

Donations within those limits made after 16 June 1966 to -

1. The medical Research Council,

• OR

2. A research institution recommended by either the Medical Research Council or the National Research Advisory Council,

will qualify for the deduction.

Pensions to former employees

SECTION 23. Allows employers to deduct voluntary pension payments made to former employees. There are certain conditions detailed in the SECTION which merely state a long standing administrative practice and so give employers a legal right to the deduction in the appropriate circumstances.

Increased export sales

SECTION 25. Alters the way in which the incentive deduction for increased export sales is worked out. The calculation of base sales is now to be the average of the first 3 of the 5 years preceding the income year instead of the 4 preceding years.

The incentive deduction will now be 15 percent of increased sales instead of as worked out at present on a formula based on profit ratios.

Special provisions for the 1967 income year make sure that every qualifying exporter will get a deduction which is at least equal to the amount worked out on the previous formula.

Subscriptions and union fees

SECTION 26. Allows salary and wage earners a deduction for subscriptions, fees and levies incurred in connection with their employment. Payments to trade unions and professional bodies qualify and include trade and professional journals.

The annual limit is £10 for each taxpayer.

Farm income equalisation

SECTION 27, 28 and 29. Make changes to the Farm Income Equalisation scheme. These are -

1. A later deposit will be allowed for a year when there has been an earlier refund from the scheme, provided the refund is spent in developing or expanding the farming business.
2. The Commissioner may extend the time during which a farmer may elect to have a withdrawal from the fund assessed in the preceding year.
3. The tax payable on withdrawal of a deposit may not now exceed the tax which would have been paid had the deposit not been made.

Taxing insurance Cicompanies

SECTIONs 30, 31, 32, 33 and 35. Change the special code for taxing insurance companies. The main change is that dividends received by life companies which previously were deducted from reversionary bonuses before tax was charged are no longer deductible. This change will be phased in over 3 years, starting with the year ending 31 March 1967.

Income of non resident shipowners

SECTION 34. Provides that the income of non resident shipowners deemed to arise in New Zealand from shipping freight and passage money shall be 5 percent of the gross outward freight and fares. Further New Zealand may reciprocate in the case of nationals of another country which exempts New Zealand nationals from tax in similar circumstances.

SECTIONs Repealed

SECTIONs 36 and 39. Repeal SECTIONs 171, 188 and 189 of the Tax Act.

Excess Retention Tax

SECTIONs 37 and 38. Simplify and liberalise the excess retention tax provisions.

Excess retention tax applies only to privately controlled companies. Such companies are now included in the definition of "proprietary company".

Relief may be granted at present when tax paid profits are kept to buy fixed assets. In future relief may be granted when such profits are also kept to buy current assets such as trading stock, book debts and consumable aids.

Non Resident Traders

SECTION 40. Rewrites SECTION 201 of the Tax Act to combine the present SECTIONs 171 and 201.

When reciprocal exemption from New Zealand tax is granted to a non resident principal or class of principals, an Order-in-Council will no longer be necessary. The SECTION now falls in line with the law in most overseas countries by providing reciprocal exemption from tax.

Automatic Refunds

SECTION 41. Makes it clear it will no longer be necessary for a taxpayer to write in for a refund of overpaid tax. A refund will now be made automatically when a tax return is sent in. The 6 year statutory limit is still to apply.

Relief For Serious Hardship

SECTION 42. Extends the relief provision which allows a special exemption of £78 to widows or widowers with dependent children to include divorced and separated persons with dependent children.

PART 2

Amendments to the Assessment Act

Dependants For Tax Code Purposes/

SECTION 43. Extends dependency of a relative for a tax code. purposes from 1 April 1967. From then on a relative may be claimed as a dependant, provided the relative's income does not exceed £325 a year.

Automatic refunds of PAYE

SECTIONs 44, 45 and 46. Make similar amendments to those in SECTION 41 but these sections relate to over-payments of PAYE deductions and provisional tax.