Non-standard balance dates for managed funds and "as agent" returns (Apr 01) (WITHDRAWN)

Introduction

This Standard Practice Statement (SPS) extends operational practice relating to consent for the use of non-standard balance dates to recognise special taxpayer/administrator situations.

The SPS provides indicative examples of situations where Inland Revenue may consent to applications by taxpayers to adopt non-standard balance dates for managed funds (unit trusts, group investment funds and superannuation funds) and agents for non-resident insurers (in respect of "as agent" returns).

Application

This SPS applies from 1 May 2001.

This SPS applies only to applications by:

• managed funds to adopt a non-standard balance date in common with the manager or trustee if Inland Revenue recognises a parent-subsidiary like relationship between parties; and
• entities deemed to be agents of non-resident insurers to file "as agent" returns in terms of section CN 4(3) of the Income Tax Act 1994.

Summary

Inland Revenue's current practice in relation to providing consent for the use of non-standard balance dates is set out in Tax Information Bulletins Vol. 3 No.9 and Vol. 5 No.11.

This SPS extends the existing parent-subsidiary criteria to include analogous situations that exist between managed funds and the entities that are responsible for their administration.

Consent may be given for managed funds and agents for non-resident insurers to adopt a balance date other than 31 March if:

• Inland Revenue recognises that a parent-subsidiary like relationship exists between the parties e.g. the relationship between the managed fund and its trustee or manager.  This is demonstrated by the manager/trustee preparing accounts, promoting the entity, making strategic investment decisions and providing other administration services to the trust.
• An employer superannuation fund is established for the benefit of the employees and there is a close relationship between the employer and the superannuation fund.
• The agent of a non-resident insurer is required to file "as agent" returns on behalf of the non-resident.

The purpose of the SPS is to reduce compliance costs of taxpayers.

Background

Under current practice taxpayers may adopt a balance date other than 31 March (a "non-standard balance date") only if:

• the nature of their business makes a 31 March balance date inappropriate or
• a subsidiary wishes to align its balance date with its parent company or
• an estate wishes to adopt the deceased's date of death or
• a shareholder-employee wants the same balance date as the company.

Managed funds and agents for non-resident insurers do not qualify for a non-standard balance date under the existing practice statement.

Legislation

Section 38 of the Tax Administration Act 1994 reads:

38. RETURNS TO ANNUAL BALANCE DATE -
    1. Instead of furnishing a return in accordance with section 33 for any year ending with 31 March, a taxpayer (other than a taxpayer to whom [section 33A (1) or (5)] applies) may, with the consent of the Commissioner, elect to furnish a return for the year ending with the date of the annual balance of the person's accounts, and in any such case the taxable income for that year shall for the purposes of the Income Tax Act 1994 be deemed to be the taxable income for the year ending with the 31 March nearest to that date.
    2. For the purposes of this section and section 39, 30 September in any year shall be deemed to be nearer to the last preceding 31 March than to the next succeeding 31 March.
    3. Any election made by a taxpayer for the purposes of this section shall continue in force unless and until it is altered by the taxpayer with the prior approval in writing of the Commissioner.

Section OB 1 of the Income Tax Act 1994 defines group investment fund, superannuation fund, superannuation scheme and unit trust as follows:

"Group investment fund" means a Group Investment Fund established under the Trustee Companies Act 1967 or the Public Trust Office Act 1957:

"Superannuation fund" means any superannuation scheme, which is registered under the Superannuation Schemes Act 1989:

"Superannuation scheme" means –

1. Any trust or unit trust established by its trust deed principally for the purpose of providing retirement benefits to beneficiaries who are natural persons; or
   
2. Any company (not being a unit trust) that -
   
   1. Is not resident in New Zealand; and
      
   2. Has been established principally for the purpose of providing retirement benefits to members or relatives of members who are natural persons; or
      
3. Any arrangement constituted under an Act of Parliament of New Zealand, other than the Social Security Act 1964, principally for the purpose of providing retirement benefits to natural persons; or any similar arrangement constituted under the legislation of any country, territory, state, or local authority outside New Zealand;

and where the superannuation scheme is a trust, any reference in this Act to a superannuation scheme includes a reference to the trustees of that scheme:

"Unit trust" means any scheme or arrangement, whether made before or after the commencement of this Act, that is made for the purpose or has the effect of providing facilities for the participation, as beneficiaries under a trust, by subscribers, purchasers, or contributors, in income and gains (whether in the nature of capital or income) arising from the money, investments, and other property that are for the time being subject to the trust; but does not include -

1. a trust for the benefit of debenture holders; or
2. The Common Fund of the Public Trustee or any Group Investment Fund established by the Public Trustee; or
3. The Common Fund of the Maori Trustee; or
4. Any Group Investment Fund established under the Trustees Companies Act 1967; or
5. Any friendly society registered under the Friendly Societies and Credit Unions Act 1982; or
6. Any superannuation fund; or
7. Any employee share purchase scheme; or
8. Any other trust of any specified kind that is declared by the Governor-General, by Order in Council, not to be a unit trust for the purposes of HE 1: [the definition of trust].

Definition of terms

"As agent" is a person deemed to be an agent of a non-resident insurer in accordance with section CN 4(3) of the Income Tax Act 1994.

"Non-standard balance date" means a balance date other than 31 March.

Standard Practice

Inland Revenue will consider consent to applications for non-standard balance dates from the following entities:

• The trustee of a unit trust that wishes to align its balance date with that of its manager.
• The trustee of a group investment fund that wishes to align its balance date with that of its manager.
• The trustee of a superannuation fund that wishes to align its balance date with that of its trustee or, where the fund is administered by an employer for the benefit of its employees, the balance date of the employer.
• A resident required to file an "as agent" return that wishes to align the balance date of that return with the taxpayer's own non-standard balance date.

Indicative examples of Recognised Relationships

1. A unit trust wishes to align its balance date with that of its manager
   
   A unit trust may align its balance date to that of its manager.  The manager is the entity with responsibility for the management of the unit trust and is appointed in the trust deed.
   
   
2. A group investment fund wishes to align its balance date with that of its manager
   
   A group investment fund is administered and overseen by a manager.  The fund may have a separate trustee, although there is no requirement that the trustee and manager be separate entities.  Consent will only be granted to align the fund's balance date with that of the manager.
   
   As with unit trusts, the concession applies when the manager has retained the responsibility for day to day administration of the trust and for preparing the trust's accounts.  When these functions have been contracted out to a third party, it is not appropriate to adopt the manager's balance date.
   
   
3. Superannuation funds
   
   • An employer superannuation fund wishes to align its balance date with that of the employer
   A scheme established for the benefit of employees of an employer may apply to adopt the balance date of that employer.
   
   
   • Any other superannuation fund (e.g. a wholesale or retail fund) wishes to align its balance date with that of its trustee
   The trust deed under which a superannuation fund is established will appoint a trustee to supervise the fund.  Consent will be given for a fund to align its balance date with that of the trustee.
   
   
4. A taxpayer who is agent of a non-resident insurer wishes to align the balance date of its "as agent" return to its own non-standard balance date
   
   A taxpayer who insures with a non-resident insurer is required to return part of the premiums paid as income in a return known as an "as agent" return (Section CN 4(3) of the Income Tax Act 1994). This income is returned by the taxpayer "as agent" for the non-resident insurer.
   
   Taxpayers with an approved non-standard balance date for their own returns will be granted consent to align the balance dates of their "as agent" returns to this date.

Summary

In recognition of the equivalent of a parent-subsidiary relationship, Inland Revenue will consent to applications to adopt the following non-standard balance dates –

Applications

Applications for consent to non-standard balance dates are to be in writing and should provide the following information:

• Full name of the entity seeking the non-standard balance date
• Name of tax agent
• Full details of the reason why consent should be given to the use of a non-standard balance date
• Details of the nature of the relationship between the entity applying for a change in balance date and the entity to which the balance date is being aligned
• Any other reasons to demonstrate why a proposed non-standard balance date is considered appropriate.

Indicative examples where consent will not be given for a non-standard balance date

The anniversary date of the commencement of the business is not a valid reason for a non-standard balance date.  Inland Revenue will not consent to the use of a non-standard balance date if it is for the reasons of tax deferral or tax avoidance, or to take undue advantage of a tax incentive or concession.

Consent will not be given where the election is made to spread the balance dates of a number of funds in order to smooth the workflow of the manager or the trustee of those funds.

In cases where administrative functions have been contracted out to a third party (for example, a specialist administration manager) Inland Revenue will not provide consent to adopt the manager's balance date.

All requests for consent to non-standard balance date elections for unit trusts, group investment funds, superannuation funds and taxpayers required to file "as agent" returns should be sent to:

Managed Funds Industry Desk
Insurance Sector
Corporates Segment, Inland Revenue
P O Box 2198
WELLINGTON

The adoption of a non-standard balance date will continue until the date is changed by a further election.  The process for change of non-standard balance dates is the same as above.

This Standard Practice Statement was signed by me on April 2001.

Margaret Cotton
National Manager
Technical Standards