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01 Nov 1968

Land and Income Tax Amendment Act 1968

Archived legislative commentary on the Land and Income Tax Amendment Act 1968 from PIB vol 47 Nov 1968.

This commentary item was published in Public Information Bulletin Volume 47, November 1968

More information about Public Information Bulletins.

Land and Income Tax Amendment Act 1968

This Act sets out some of the amendments arising from the Budget proposals.

Amendments to the Main Tax Act

Application Of Act

Section 2. Except when otherwise stated this Act applies to tax on income for the income year that began on 1 April 1968.


  1. New Definition of Relative

    Section 3 brings in a new definition of "relative" which will apply whenever it is used in the principal Act, except when a particular section has its own definition of the term. Broadly, "relative" will mean any person connected by blood to the fourth degree of relationship, marriage, or adoption, and includes a trustee for a relative.
  2. Dividends - Some Non-Deductible Expenditure Now Included

    Section 4 provides that non-deductible expenditure (other than donations) which is incurred by a proprietary company and benefits a shareholder, his wife or a trust in which either are beneficiaries, will be treated as a dividend in the hands of the shareholder.

    In broad terms, a proprietary company is one controlled by not more than four persons.

Time Limit For Amending Assessments Removed

Section 5 removes the ten year limit on -

  1. the altering of assessments made on or after 1 April 1958, when it is found the tax returns are fraudulent of wilfully misleading.
  2. the assessment or reassessment of penal tax relating to deficient tax for any year of assessment commencing on or after 1 April 1958.

The difference in the application provisions means, for instance, that although an income tax assessment for the 1956 year can be increased now, provided the original assessment was made on or after 1 April 1958, a penal tax assessment lot that year could not be made or altered.

Wider Objection Rights For Taxpayers

Section 6 gives taxpayers the right to object to assessments which involve the exercise of the Commissioner's discretion under sections 181,187 and 194 of the Tax Act. These sections all relate to assessments in special cases of agent and principal.

Bigger Land Tax Exemption

Section 7 increases the ordinary land tax exemption to $60,000. This reduces $1 for every $1 when the unimproved value exceeds $60,000 so as to cut out when the unimproved value is $120,000 or more. The increased exemption first applies to land held at noon on 31 March 1968.


Unimproved value of land $80,000
Less exemption ($60,000-$20,000) $40,000
Taxable amount $40,000

The existing mortgage exemption has been repealed as the new ordinary exemption will always exceed it.

Charitable Donations

Section 8 merely corrects a reference in section 84B(4)(a) of the main Act.

New Rules For Taxing Retiring Allowances

Taxing of retiring allowances is dealt with in two new sections -

Section 9 deals with how the employee is taxed, and

Section 22 with what the employer can deduct.

How employee is taxed

Section 9 brings in new rules for assessing retiring allowances paid after 19 July 1968.

Generally only 5 percent of a lump sum bonus, gratuity or retiring allowance paid in respect of an employee's full-time "employment or service" (see below) when he retires will be assessed, provided that -

  1. the payment does not exceed the "specified sum" (defined below). If it does the excess is fully assessable.
  2. the employee has reached the "appropriate retiring age" (also defined below).

Employment or Service

This is a widely drawn definition and means, for instance, that -

  1. Full time service in associated companies can be taken into account - for example, executives transferred from one company in a group to another.
  2. Continuing service to an employer, perhaps in several different businesses, is recognised.
  3. An employee who stays with a business which changes hands is not prejudiced.

Specified Sum Defined

The specified sum depends on the employee's length of service.


Period of Service Specified Sum
10 years or more 1/3rd of total remuneration for last 3 years of service
Less than 10 years Complete years   x 1/3rd of total remuneration for last 3 years of service

Appropriate Retiring Age Defined

This will generally be-

  1. For males - not less than 60 years.
  2. For females - not less than 55 years.

Provision has been made for earlier retirement because of-

  1. the arduous nature of the employment
  2. the general terms of employment (for example retirement alter 40 years' service)
  3. disability or serious illness
  4. redundancy.

On past experience, most retiring allowances paid should fall within the specified sum, but here are some examples where the payment is in excess-

Example 1

Employee retires on 31 December 1968 after 35 years' service. Aggregate remuneration in 3 years ending 31.12. 68, $12,750. Actual retiring allowance paid $6,000.

Actual retiring allowance $6,000
Less specified sum (1/3rd x $12,750) $4,250
Excess $1,750
Employee will be assessable on $1,750
plus 5% x $4,250 $   212.50
*Taxable amount $1,962.50


Example 2

Employee retires on 28 February 1968 after 8 years' service. Aggregate remuneration in 3 years ended 28.2.68, $7,200. Actual retiring allowance paid $2,400.

Actual retiring allowance $2,400
Less specified sum (8/10 x 1/3 x $7,200) $1,920
Excess   $ 480
Employee will be assessable on $   480
plus 5% x $1,920 96
*Taxable amount 576

Retiring allowances are subject to PAYE tax as extra emoluments. The rate is 21 cents in each $ of the taxable amount.

The 5 percent basis does not apply to -

  1. armed forces gratuities, or
  2. payment to a company director under the company's Articles of Association.

There are also special provisions covering payments -

  1. between related parties.
  2. by a proprietary company to a shareholder or relative.

What the Employer can Deduct

Section 22 brings in new rules under which employers can deduct retiring allowances paid to employees on or after 19 July 1968.

In general all retiring allowances and lump sum redundancy payments will be deductible.

The exceptions are -

  1. Payments made to the husband or wife of the employer.
  2. Payments by an employer to any relative other than the husband wife.
  3. Payments by a proprietary company to any shareholder or any relative of any shareholder.

However, deductions may be allowed under (2) and (3) above up to the amount the Commissioner considers reasonable if the employee were not a relative or a shareholder. Any excess is not deductible.

If the employer is a proprietary company under (3) above, the excess is assessable as a dividend whether or not the recipient is a shareholder in the company. In other cases the excess is not assessable to the employee.

Standard Value May Be Used For Maturing Stocks Of Wine, Brandy And Whisky

Section 10 allows wine, brandy and whisky manufacturers to adopt a standard value for reserve stocks held for maturing. The wine, brandy or whisky must be manufactured in New Zealand.

Under certain conditions the standard value may be retained on the death of the taxpayer, as is the case with livestock.

Aggregation Of Income

Section 11 corrects a reference in section 104 of the main Act.

More Liberal Provisions For Expenditure Claims Or Losses

Section 12 substitutes new and more liberal provisions for the deduction of expenditure or loss incurred in producing income. Briefly, there are now two separate standards covering-

  1. Business expenditure or loss - needs only to be necessarily incurred in carrying on a business to gain or produce assessable income for any income year, not exclusively incurred as in the past.
  2. Other expenditure or loss - needs to be incurred by any taxpayer in gaining or producing assessable income for any income year and must not be private or capital expenditure.

Writing Off Depreciation In Accounts

Section 13 removes the requirement that sufficient depreciation must be provided for in the taxpayer's accounts. This means that business taxpayers will be able to provide in their accounts for whatever depreciation they consider necessary for the business but depreciation at scale rates will be allowable for tax purposes.

However, while the tax claim need no longer coincide with the provision in the accounts "full and satisfactory accounts" will still be required.

Incentive Allowances Extended

Sections 14, 17, 18, 23 and 24 extend the following incentive allowances

Special depreciation allowance to 31 March 1970
West Coast Investment Allowance
Farm capital development expenditure
Export market development expenditure to 31 March 1972
Tourist promotion expenditure
Increased exports incentive

New Allowance On Frozen Meat Storage

Section 15 provides for a 20 percent special depreciation allowance on new buildings or extensions to existing buildings to provide storage for frozen meat or meat products. The allowance is for companies engaged in killing and processing stock for export. It is additional to ordinary depreciation and applies to new buildings or extensions erected before 1 April 1972.

The building must be wholly or principally for storage of frozen meat or meat products. Therefore, an occasional use for other purposes will not mean that the company cannot claim the allowance.

Initial And Special Depreciation Merged

Section 16 simplifies existing depreciation provisions by amalgamating the special and initial depreciation allowances under one section. The allowance will be called Special Depreciation.

Rock Oyster Farmers Can Claim Some Capital Expenditure

Section 19 allows licensed rock oyster farmers to deduct certain items of capital expenditure. The deduction is similar to that for farm development expenditure.

Deduction For Goodwill Paid On Lease

Section 20 allows a deduction for goodwill paid on the grant or renewal of a lease. In effect. a lessee of land used for business purposes can claim the premium paid by spreading it equally over the term of the lease. If the land is not used for business purposes for the full year the claim for that year is reduced proportionately.

For example

"A" is granted a lease of premises on 1 October 1968. Premium paid $10,000, term of lease 10 years. Premises not used for business until 1 January 1968. Balance date 31 March.

Income year Deduction
1969 $   250
1970 $1,000
1971 $1,000
1972 $1,000
1973 $1,000
1974 $1,000
1975 $1,000
1976 $1,000
1977 $1,000
1978 $1,000
1979 $   500

The deduction for 1969 is reduced as the premises were used for business purposes for only three months.

Special provision is made for a lessee who is not the original lessee but has paid a premium on acquiring a lease by purchase, transfer or assignment. His claim each year will be limited to the amount the original lessee would have been able to deduct.

For instance, if in the previous example the lease was sold by "A" to "B" on 31 March 1975 for $7,000, the lease has 3 1/2 years to run and the position would be -

Income year "A's" unexpired deduction "B's" proportionate premium
1976 $1,000 $2,000
1977 $1,000 $2,000
1978 $1,000 $2,000
1979 $   500 $1,000

"B's" deduction is, of course, limited to "A's" unexpired portion.

Deduction For Chatham Islands Dues

Section 21 allows business taxpayers to deduct dues on business goods (whether capital or revenue) paid to the Chatham Island County Council.

No Time Limit On Losses Carried Forward

Section 25 -

  1. removes the 6 year time limit on carrying forward losses against assessable income.
  2. introduces new provisions for reducing the loss to the extent that it includes debts that have been remitted or cancelled, for example in bankruptcy.

The section applies to losses incurred in the year which began on 1 April 1962 and to later years to the extent that those losses have not been set off up to 31 March 1968.

New Rules For Taxing Co-operatives

Section 26 changes the basis for taxing cooperatives. The main change is that the deduction for rebates will be limited to the proportion of rebates attributable on a pro ram basis to the profits on members' transactions, for instance,

Total of members' transactions   $300,000  
Total of non members' transactions   $ 60,000  
Net profit before rebates   $ 30,000  
Rebates to members   $ 26,000  
  $300,000 x $30,000
Deductible rebates $360,000   1
  = $25,000  
Assessable income ($30,000-$25,000) = $ 5,000  

Some Rebates Taxed as Dividends

Cooperative dairy, milk marketing and pig marketing companies are not affected in respect of their principal activities.

Exemption From Payment Of Provisional Tax Increased

Section 27 provides that a taxpayer whose income was from salary, wages, superannuation (not Universal) with no other income or not more than $200 in total from dividends, rent, interest (after the $60 exemption) does not now have to pay provisional tax. Previously the limit was $100.

The change first applies to provisional tax payable this year.

Section 28 merely corrects a reference in the Land and Income Tax Amendment Act 1961.

Section 29 makes certain repeals and consequent amendments to the main Act on amalgamation of Initial and Special depreciation.