Land and Income Tax Amendment Act 1973

This commentary item was published in Public Information Bulletin Volume 76, December 1973

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Part I

Terminating Date of Taxation Incentives

Section 3 provides for the extension of certain taxation incentive concessions as announced in the Budget. A schedule giving the new terminating dates is set out in Appendix I to this bulletin. Those marked with an asterisk were not extended by this Act.

Approval of New Superannuation Funds

Section 4 provides that new superannuation funds for which approval for tax purposes is sought after 6 September 1973 will require the approval of the Minister or Finance.

Up to now superannuation funds have been approved for taxation purposes by the Commissioner of Inland Revenue. This change is an interim provision associated with the establishment of the New Zealand Superannuation Scheme and these new schemes will in general require to meet conditions referred to in the White Paper on the New Zealand Superannuation Scheme released on that date. However, inquiries should still be addressed to your local tax office.

United Kingdom Dividends

Section 5 makes an amendment to the definition of dividends in the tax Act consequent upon the change in the United Kingdom system of taxing companies and the dividends paid by those companies to their shareholders. On and after 6 April 1973 United Kingdom companies when paying dividends to shareholders will pay tax to the United Kingdom revenue authorities which is available for credit to the shareholders. For New Zealand tax purposes these gross tax credits will be treated as part of the dividend.

Under another provision in section 35 of this Act the net tax paid in the United Kingdom in respect of the dividend after deducting any refund available from the United Kingdom revenue authorities may be claimed as a credit for New Zealand tax purposes.

Non-Resident Companies Tax Rebate Repealed

There is a provision in the tax Act which allows a rebate to a non-resident company in respect of:

• the 15 percent withholding tax on any dividends it has received, and
• the additional 5 percent tax on other income derived from New Zealand,

when the non-resident company in turn pays dividends to New Zealand residents. No other country gives a similar rebate and it has been repealed.

Overtime and Shift Work Rebates

Section 7 provides for the rebates to individuals in respect of overtime and shift work. The overtime rebate is 10 cents for every hour of paid overtime worked. The shift work rebate is 40 cents for every qualifying shift worked.

A separate circular explaining these rebates has already been sent to employers. Copies are available at any Inland Revenue office on request.

Compensation for Loss of Office

Section 8 provides that payments of compensation for loss of office are to be given the same general treatment for tax purposes as retiring allowances or redundancy payments. In general when the employee has been employed for 10 years or more only 5 percent of a payment up to the average amount of the last three years' salary plus any excess over this figure is liable to tax.

Profits from Land Transactions

Section 9 refers to profits from land transactions including subdivisions. A separate explanatory pamphlet dealing in detail with this topic is available on request from any Inland Revenue office.

Repeal of Aggregation Provisions

Section 10 repeals the provisions of the tax Act dealing with the aggregation of the incomes of husband and wife.

Standard Deduction for Salary and Wage Earners

Section 11 provides that from 1 April 1974 a standard 2 percent (maximum $50) allowance will be given against "income from employment" in lieu of any actual expenses incurred. Ministers of religion, shearers and wool classers are excluded from this new provision.

Payroll Tax Repeal - Consequential Income Tax Changes

Section 12 makes the necessary consequential income tax amendment as result of the repeal with general effect from 1 October 1973, of the payroll tax.

Meat Export Firms - Cost of Demolition and Loss on all Buildings Demolished because of Hygiene Requirements

Section 13 provides that when an old building owned by a meat works has to be demolished because of hygiene requirements overseas the cost of demolishing plus the loss on the old building is to be added to the cost of the replacement building for depreciation purposes.

Government Assistance to Businesses

Sections 14 to 16 and 19 to 21 make the necessary consequential taxation adjustments when Government grants or suspensory loans are made to business taxpayers.

The general intent of the provisions taken together is -

1. If the grant is made in respect of expenditure which would otherwise be deductible for tax purposes the deduction will be reduced by the amount of the grant.
2. If the grant is made for the specific purpose of purchase of assets, the value of the assets for depreciation and investment allowance purposes will be reduced by the grant.
3. Where expenditure reduced as in (i) above would otherwise qualify for an export market development incentive the claims for those incentives will also be accordingly reduced.
4. With export suspensory loans, any amounts written off will be treated as assessable income in the year written off and the following two years.
5. As already noted regional development suspensory loans are treated as grants at the outset. However, if they subsequently have to be repaid the appropriate adjustments for tax purposes are made at that point.

Gifts to the NZ Medical Education Trust

Section 17 provides a deduction up to $400 for gifts made by doctors to this Trust.

Export Market Development Expenditure and Tourist Promotion Expenditure

Section 18 is a machinery amendment necessary because these two incentive concessions now have different terminating dates.

• Export Market Development Expenditure - 31 March 1977.
• Tourist Promotion Expenditure - 31 March 1976.

Deduction for Increased Export Sales

Section 22 provides for the Budget proposal to withdraw the increased export incentive for certain goods which are not considered to be sufficiently processed in New Zealand before export to justify the concession.

Except where a firm order as to price and quantity was received and accepted before 15 June 1973 the following cases will no longer qualify for the export incentive:

• Logs (however, newsprint and sawn timber will continue to qualify).
• Sales by duty free shops.
• Fish and frozen fish.
• Game meats, products and by-products of game.
• Poultry and products and by-products.
• Bees including products and by-products.
• Certain seeds.

The section also provides adjustment to the formula for arriving at the amount of the increased export incentive deduction by reason of certain goods no longer qualifying as export goods.

Income Equalisation Reserve Scheme

Sections 23 to 26 deal with the Income Equalisation Reserve Scheme. The amendments apply only to income derived from farming businesses and the main features are:

• Provision is made for an Order in Council to provide for an unlimited amount to be deposited.
• An adjustment is made to the guarantee scheme whereby the tax assessed, when a deposit is uplifted, will not be greater than the tax saved when the deposit was originally made. The existing provisions could produce an illogical result now that for the 1973 year deposits may exceed the actual farm income.
• Deposits for the 1973 year may be made by a farmer who has retired from business in that year or the "specified period" of six months after that year or in respect of a farmer who died during that year or specific period.
• The few remaining deposits in the Snow Loss Reserve Account are to be transferred on 1 December 1973 to the Farm Income Equalisation Reserve Account.

Losses Carried Forward

Section 27amends the losses carried forward provisions in three specific types of cases:

• Companies whose shares are traded on the Stock Exchange. Mining companies in specific circumstances.
• Where a loss previously allowed for income tax purposes is to be allowed for property speculation tax.

Assessment of Co-operative and Other Mutual Associations

Section 28 clarifies the existing law under which co-operatives and other mutual associations are taxed without altering the principles of those provisions.

The main points are:

• A deduction will be allowed for rebates to members provided it does not produce the assessable income below the income derived from non-members.
• The income of the mutual association can be apportioned on a more factual basis between members and non-members.
• Provision is made to secure the benefit of tax incentives such as the investment allowance and the increased exports incentive by allowing the incentive deductions in effect to be carried forward to the following year.

Life Insurance and Reinsurance Companies

Sections 29 and 30 clarify the conditions to be met before companies can be classified either as life insurance companies or life reinsurance companies to enable them to get the benefit of the special code of assessment.

Companies Holding Shares in Mining Companies

Section 31 deals with the situation when assets are transferred from a mining company which has received advances from its holding company. The full value of those assets up to the amount of the advances is to be taken into account in determining whether the mining company has derived sufficient profits with which to repay the advances from its holding company.

Maori Trustee

Section 32 provides that from 1 April 1974 the Maori Trustee in his capacity as collecting and distributing agent for rents or royalties is no longer to be classed as a Maori Authority for income tax purposes.

Accident Compensation Payments

Section 33 is a machinery provision giving earnings related payments under the Accident Compensation scheme a source in New Zealand.

Calculation of Tax on Dividends

Section 34 is a machinery amendment reinstating certain provisions dealing with the calculation of New Zealand tax on dividend income.

Section 35 - United Kingdom Tax on Dividends

See section 5 above.

Hardship Relief

Section 36 extends the classes of people who may claim special relief on hardship grounds to an unmarried person who has to care for a dependent child or children.

Metric Conversion

Section 37 provides for certain references in the tax Act to be converted to metrics.

Miscellaneous Amendments

Section 38 makes minor consequential tax changes.

Part II

Switch of Subsisting Companies and Other Taxpayers to PAYE Basis

This Part of the Act brings subsisting companies and the other classes of taxpayers not at present on a PAYE basis of paying income tax on to such a basis. Every company affected has received a circular explaining the switch and extra copies of that circular are available at local Inland Revenue offices.

The main features in Part II are -

• Subsisting companies and the other taxpayers concerned begin paying PAYE provisional tax in respect of the 1973/74 income year.
• Two instalments are payable each year. Special dates are fixed for 1973/74. For 1974/75 and future years the instalment dates for all provisional taxpayers are those set out in the schedule in Appendix II to this Bulletin.
• Income tax for 1972/73 (the last year on the old system) is to be payable in 14 equal instalments over seven years at the same time as provisional tax instalments are payable.
• A rebate of 7 1/2 percent with a maximum of $262.50 is allowable in any case where the total 1972/73 income tax is paid by 7 March 1974.
• The previous provision whereby the 10 percent late payment penalty was automatically reduced to 5 percent if tax was paid within three months of the due date is abolished. For 1973/74 and future years all additional tax for late payment is at a flat 10 percent.

Part III

New Personal Income Tax 1974/75

This Part of the Act provides for the new system of personal tax rebates instead of special exemptions and the new income tax rates scale to be adopted for the 1974/75 income year. It also provides for the new PAYE tables to operate from 1 April 1974.

The main features are:

• The personal special exemption of $275 (allowed as a deduction from income) is to be replaced by a personal rebate of $125 to be allowed as a deduction from tax assessed.
• The married exemption of $275 is to be replaced by a married rebate of $125.
• The housekeeper exemption of $275 is to be replaced by a housekeeper rebate of $125.
• The dependent relative exemption of $135 is to be replaced by a dependent relative rebate of $60.
• The new income tax rate scale to apply from 1 April 1974 is reproduced as Appendix III to this Bulletin.

Appendix I

Terminating Bates of Taxation Incentives

Section of Act		General Description	Terminating Date
	114A (1)	Special depreciation on plant, machinery, and employee accommodation	31 March 1975
	114A (1A)	Special depreciation on farm buildings	31 March 1975
*	114A (1B)	Special depreciation on private bathroom facilities in hotels	31 March 1975
*	114A (1BB)	Special depreciation on export meat storage buildings (operator-owned)	31 March 1976
*	114A (1BC)	Special depreciation on export meat storage buildings; lessor-owned)	31 March 1976
*	114B	Additional depreciation on export meat hygiene improvements	31 March 1976
*	114C	Additional depreciation on export fish hygiene improvements	31 March 1976
*	114D	Special depreciation on new tourist hotels	31 March 1976
	117A	Investment allowance on plant and machinery	31 March 1975
*	117C	Investment allowance on West Coast redevelopment projects	31 March 1974
	119D	Development expenditure on farming or agricultural land	31 March 1975
	119G	Development expenditure on rock oyster or mussel farms	31 March 1975
	129A (2)	Export-market development expenditure	31 March 1977
*	129A (2A)	Tourist-promotion expenditure	31 March 1976
	129AA	Export-market development by self-employed persons	31 March 1977
*	129B	Increased exports	31 March 1978

*Terminating date has not been extended.

Appendix II

The Payment Dates for Instalments of 1974-75 Provisional Tax Are -

Month of Balance Date	1st Instalment Last Day	2nd Instalments Last Day	1975 Terminal Tax Last Day*
Oct 1974	7 Mar 1974	7 Sep 1974	7 Oct 1975
Nov 1974	7 Mar 1974	7 Sep 1974	7 Nov 1975
Dec 1974	7 Apr 1974	7 Oct 1974	7 Dec 1975
Jan 1975	7 May 1974	7 Nov 1974	7 Jan 1976
Feb 1975	7 Sep 1974	7 Mar 1975	7 Feb 1976
Mar 1975	7 Sep 1974	7 Mar 1975	7 Mar 1976
Apr 1975	7 Sep 1974	7 Mar 1975	7 Mar 1976
May 1975	7 Sep 1974	7 Mar 1975	7 Mar 1976
June 1975	7 Sep 1974	7 Mar 1975	7 Mar 1976
July 1975	7 Nov 1974	7 May 1975	7 Mar 1976
Aug 1975	7 Mar 1975	7 Sep 1975	7 Mar 1976
Sep 1975	7 Mar 1975	7 Sep 1975	7 Mar 1976
Subsequent years follow the same pattern.

* Companies only.

Other taxpayers' terminal tax is due on 7 February with last day 7 March.

Appendix III

New Rates of Income Tax to Apply from 1 April 1974

On so much of the income as-	The rate of tax for every $1 shall be- (cents)
Does not exceed $500	18.0
Exceeds $500 but does not exceed $1,000	18.5
Exceeds $1,000 but does not exceed $2,000	19.0
Exceeds $2,000 but does not exceed $2,500	22.5
Exceeds $2,500 but does not exceed $3,000	26.5
Exceeds $3,000 but does not exceed $3,500	28.5
Exceeds $3,500 but does not exceed $4,000	32.0
Exceeds $4,000 but does not exceed $4,500	34.5
Exceeds $4,500 but does not exceed $5,000	36.0
Exceeds $5,000 but does not exceed $5,500	39.0
Exceeds $5,500 but does not exceed $6,000	41.5
Exceeds $6,000 but does not exceed $6,500	44.5
Exceeds $6,500 but does not exceed $7,000	46.0
Exceeds $7,000 but does not exceed $8,000	47.0
Exceeds $8,000 but does not exceed $9,000	48.0
Exceeds $9,000 but does not exceed $10,000	48.5
Exceeds $10,000 but does not exceed $11,000	49.0
Exceeds $11,000 but does not exceed $12,000	49.5
Exceeds $12,000	50.0