Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1698840832525.pdf (New Zealand)
Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Government Bill Explanatory note General policy statement This bill introduces important changes to current taxation law.

The bill provides for the reform of the international tax rules, with the intention of allowing New Zealand residents with active businesses in overseas markets to compete on an equal footing with their com­ petitors.

The reform of the taxation of life insurance business is also provided for in this bill.
The reform aligns life insurance taxation rules closer to the accounting treatment of life insurance proﬁts, and at the same time extends portfolio investment entity rules to life insurer’s savings products.

The bill provides for payroll giving, so as to enable employers, em­ ployees, and donee organisations to establish a system that is ﬂexible and meets their needs, and allows compliance costs, especially for employers, to be managed.
The taxation of emissions units arising under the Climate Change Response Act 2002 is provided for.

233—1 2 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note The deﬁnitions of associated persons in the Income Tax Act 2007 are being reformed.

The reform provides for a more robust “associated persons” concept, as a tax base maintenance measure.
The bill provides for raising tax thresholds, so that compliance costs for small­ and medium­sized enterprises are reduced.

The tax treatment of relocation payments and overtime meal allow­ ances for employees is clariﬁed.

The bill includes changes to the income tax rules for petroleum min­ ing.

Deductions for petroleum mining undertaken in a foreign coun­ try through a branch are ringfenced.
The distinction between on­ shore and offshore development is removed, and the reserve deple­ tion method is introduced for deductions.

The bill provides for the new ﬁlm grant – the Screen Production In­ centive Fund grant – announced in Budget 2008.

The bill introduces speciﬁc tax rules for the treatment of honoraria and payments that reimburse expenditure incurred in undertaking voluntary activities.

Numerous other changes are also included in this bill.
Reform of international tax rules This bill gives effect to a major package of reforms to the inter­ national tax rules by introducing a tax exemption for offshore com­ panies owned by New Zealand businesses, and by exempting most foreign dividends received by New Zealand companies from tax.
The New Zealand tax system plays an important role in fostering a com­ petitive business environment and it is therefore important that New Zealand’s international tax rules are not out of line with systems in comparable jurisdictions.

The current rules impose additional tax costs on globally connected ﬁrms that are not faced by ﬁrms resident in other countries.

This difference has become more pronounced over time creating an incentive for New Zealand ﬁrms to migrate, in par­ ticular to Australia.
New Zealand currently taxes New Zealand residents on their world­ wide income.

This includes any income earned by a foreign company that is controlled by New Zealand residents, known as a controlled foreign company or CFC.
The only exceptions are that all income of a CFC in 1 of 8 “grey list” countries, including Australia, is exempt and Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 3 that “conduit” companies can get tax relief on their foreign­sourced income to the extent that they are owned by non­residents.

The proposals for reform introduced in this bill represent a funda­ mental overhaul of New Zealand’s international tax rules.
The pro­ posals follow the release of the government discussion document New Zealand’s International Tax Review: a direction for change in December 2006 and the government’s in­principle decisions an­ nounced in Budget 2007.

These in­principle decisions were subject to extensive consultation and further development.

Detailed design features were released in the form of 2 ofﬁcials’ issues papers in Oc­ tober and December of 2007.

Final proposals reﬂect the detailed sub­ missions to the issues papers.
The proposals have 3 objectives: • allowing ﬁrms to get on with legitimate business activity by removing tax­based impediments to offshore investment; minimising compliance costs; and maintaining a level of protection for the domestic tax base.

• • The proposals include a tax exemption for the foreign active income of CFCs, the exemption of most foreign dividends from tax when paid to New Zealand companies, and related reforms to contain the associated risks to the New Zealand tax base.
CFC active income exemption Under an active income exemption only passive income earned by a CFC will be taxed in New Zealand; all other income will be exempt from New Zealand tax.

Passive income will be limited mainly to interest, dividends, royalties, and rents, and some income from ser­ vices performed in New Zealand (“base company income”).
There are a number of important exclusions from passive income: • Payments from a CFC with an active business to another CFC in the same jurisdiction will generally not be passive.

Rents from land or property in the CFC’s jurisdiction will not be passive.

Most royalties derived from property developed by the CFC will not be passive, as long as the CFC is regularly engaged in similar development and the property does not have a connec­ tion to New Zealand.
• • 4 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note Businesses that have passive income that is less than 5% of gross in­ come will qualify for an “active business exemption” and will not be required to attribute any passive income at all.

Eligibility for the ac­ tive business exemption can be determined using ﬁnancial account­ ing information, including consolidated information within a juris­ diction, to minimise compliance costs.
Most active businesses are expected to be eligible.

Foreign dividend exemption Most foreign dividends received by companies will be exempted from income tax.

This differs from the current rules, under which dividends from CFCs and non­portfolio foreign investment funds (FIFs) are taxed.

Despite the general exemption, dividends from ﬁxed­rate shares and dividends which are deductible in a foreign jurisdiction will continue to be taxed.
To prevent double New Zealand taxation, these payments will be treated as interest and the CFC will be allowed a deduction against any attributed passive income.

Other changes The introduction of an active income exemption and a foreign divi­ dend exemption represents fundamental reform and requires a basic redesign of the international tax system, resulting in a number of sig­ niﬁcant consequential changes.
First, the “grey list” exemption for CFCs, which currently exempts CFCs in 8 countries from accrual taxation, is replaced by the active business exemption, regardless of where the company is located, and by a general exemption for CFCs in Australia.

The purpose of the Australian exemption to limit the possible compliance costs for small to medium enterprises, for which Australia is typically the ﬁrst port of call when expanding offshore.
Secondly, the conduit relief mechanism will be repealed, although conduit companies will be given the option to retain existing credit balances for 2 years.

Active income will effectively receive conduit treatment because of the active income and foreign dividend exemp­ tions.

The policy arguments for relief from taxation for active income do not extend to passive income.
Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 5 Thirdly, the interest allocation rules that currently apply to inbound investments are proposed to be extended to outbound investment to prevent excessive interest deductions being used to shelter domes­ tic income.
These measures are essential for the protection of the domestic tax base from arrangements to artiﬁcially shift domestic in­ come into a CFC, particularly given that neither offshore active in­ come nor most foreign dividends will be subject to New Zealand tax (Australia has similar rules).

Fourthly, the interest allocation rules that currently apply to inbound investments are proposed to be extended to outbound investment to prevent excessive interest deductions being used to shelter domes­ tic income.
These measures are essential for the protection of the domestic tax base from arrangements to artiﬁcially shift domestic in­ come into a CFC, particularly given that neither offshore active in­ come nor most foreign dividends will be subject to New Zealand tax (Australia has similar rules).

Because of the risk that some interest costs may not be tax deductible, generous safe harbours and de minimis rules are provided.
The effect of the proposed rules will be that interest deductions will be denied only when the New Zealand company’s debt to asset ratio exceeds 75% and 110% of the worldwide group’s debt to asset ratio.

Even then, only debt in excess of these thresholds would be subject to in­ terest denial.

Moreover, ﬁrms with more than 90% of their assets in New Zealand or interest deductions of less than $250,000 would generally be exempt from applying the rules.
As there is a signiﬁcant risk that ﬁxed­rate shares could be used to undermine the interest allocation rules, ﬁxed­rate shares issued to New Zealand taxpayers will be treated as debt.

These shares can be economic substitutes for debt and an after­tax ﬁnancing beneﬁt relative to debt can be obtained by their issue in circumstances where the interest on the debt will be denied by the interest allocation rules.
Insurance companies The income of ﬁnancial institutions is generally treated as passive income, so they would not receive the beneﬁts of the active income exemption under the current proposals.

Consideration is being given to extending the active income exemption to ﬁnancial institutions in a second phase of the international tax review.
In the meantime, transi­ tional arrangements are proposed for insurance companies, allowing 6 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note them to apply for a Commissioner’s determination qualifying them for the active income exemption if they can demonstrate that they are active in nature.
Reform of life insurance The comprehensive changes to the taxation of life insurance in this bill introduce an integrated framework extending many portfolio in­ vestment entity (PIE) beneﬁts to all savers in life products.

They also tax life insurers on their actual proﬁts from term insurance rather than on the basis of the present artiﬁcial formulas that give unintended tax concessions.
The proposals also provide a lead­in period of up to 5 years for existing term policies (without renewal other than certain minor adjustments) though this grandfathering can extend beyond this period for single premium policies or to the extent a level term premium is ﬁxed.
Under the new rules, life insurers will be taxed on 2 bases: the share­ holder base (representing income net of certain reinsurance derived for the beneﬁt of shareholders) and the policyholder base (represent­ ing income derived for the beneﬁt of policyholders).

Detailed provi­ sions apply to taxing participating policy income between the share­ holder and policyholder bases.

The shareholder base will be taxed at the corporate rate.
The share­ holder base will be subject to standard provisions relating to tax losses carried forward, group company loss offsets, and imputation credit accounts.

Policyholder base income will be taxed at 30%, though life insurers will be permitted to elect to attribute investment income from invest­ ment­linked products to policyholders at their PIE marginal tax rates.

Imputation credits apportioned to policyholder income are debited from the shareholder base imputation credit account.
The PIE exclusion of Australasian equity trading gains will be ex­ tended to all policyholder base investment income with investments held by life insurers on behalf of policyholders treated as sold and re­acquired at the market value on the last day of the income year prior to the life insurer being subject to the new rules.
Policyholder base losses (including losses arising from the gross­up of excess imputation credits) at the end of the income year can be car­ Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 7 ried forward without restriction.

Shareholder base income (or losses) cannot be offset against policyholder base losses (or income).
Reinsurance contracts entered into for the ﬁrst time on or after 1 April 2009 which do not meet a number of conditions will be subject to tax under the ﬁnancial arrangement rules rather than included in the shareholder base tax calculation.

For reinsurance contracts entered into before that date, existing rules will apply for the greater of the duration of the contract (without renewal) or to 31 March 2014.
The total life ofﬁce base tax loss determined under current rules, af­ ter any offsets, existing at the end of the life insurer’s income year that ends on or includes 31 March 2009 can be carried forward by the life insurer for application against the shareholder base and the policyholder base in subsequent income years, subject to shareholder continuity and other conditions being met.
Other than for provisions consequent on the cancellation of the policyholder credit account and policyholder net losses determined under the current rules, existing memorandum account and other tax balances are carried forward into the new rules.

These changes will take effect from the life insurer’s ﬁrst income year beginning on or after 1 April 2009.
Reforming the deﬁnitions of “associated persons” in the Income Tax Act 2007 The income tax deﬁnitions of “associated persons” are mainly used in an anti­avoidance capacity to counter non­arm’s length transactions that could undermine the intent of our tax laws.

There are a number of major weaknesses in the general associated persons deﬁnitions and, in particular, the deﬁnition which applies to land sales.
The legislative intent of the land sale tax rules is that property dealers, developers, builders, and their associated entities are generally taxed on all gains on property sold within 10 years of acquisition, and that they cannot claim to hold non­taxable investment portfolios.

The existing weaknesses represent a signiﬁcant risk to the tax base and the bill proposes amendments to the law.

The main changes will: address the weaknesses in the current deﬁnitions in relation • to trusts.
In particular, there will be new tests focussing on a trust’s settlor (that is, the person who provides the trust prop­ erty); 8 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note • • provide more robust rules aggregating the interests of asso­ ciates to prevent the tests for associating 2 companies and a company and an individual being circumvented by the frag­ mentation of interests among close associates; provide a tripartite test associating 2 persons if they are each associated with the same third person, thereby making the as­ sociated persons tests as a whole more difﬁcult to circumvent.
The changes are consistent with a key theme of the government’s tax policy work programme, which is ensuring that the income tax system is robust.

The current income tax deﬁnitions of associated persons and other income tax provisions employing a similar concept are to be ratio­ nalised.

Most of the proposed reforms will apply from the 2009–10 income year.

In the case of land sales, the new rules apply to land acquired on or after 1 April 2009.
Goods and services tax The bill amends the Goods and Services Tax Act 1985 for the fol­ lowing purposes: • Allowing certain loyalty programme operators to defer the im­ position of GST until the redemption of loyalty points to en­ sure that no GST is being paid on the provision of international travel, which is normally a zero­rated supply.
Amending an anti­avoidance rule to allow certain exported second­hand goods, which will not be re­imported into New Zealand, to be zero­rated if the exporter has claimed a sec­ ond­hand goods deduction.

Currently, zero­rating is generally denied if such a deduction is claimed.

Conﬁrming the application of GST to Parliamentary appro­ priations received by the Ofﬁce of the Clerk of the House of Representatives and the Parliamentary Service, and validating GST paid by these bodies in earlier taxable periods.
• • Tax treatment of reimbursements and honoraria paid to volunteers The bill introduces speciﬁc tax rules for the treatment of payments that reimburse expenditure incurred in undertaking voluntary activ­ Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 9 ities.

Reimbursement payments received by people who meet the qualifying criteria for being considered a volunteer will be treated as exempt income under the new provisions.
The rules also make it clear that a payment characterised as an honorarium, even if it includes an element of reimbursement for expenditure incurred, is treated as a schedular payment and the PAYE rules apply to the whole payment.

• • Relocation payments and overtime meal allowances To resolve uncertainty as to the tax treatment of payments by employ­ ers in relocating their employees and providing them with overtime meal allowances, various amendments are proposed to the income tax law.
Relocation payments will be exempt from income tax and, where relevant, fringe beneﬁt tax if: • the employee’s relocation is as a result of taking up new em­ ployment with a new employer, taking up new duties at a new location with the existing employer, or continuing in the cur­ rent job, but at a new location; the employee’s existing residence could not be within reason­ able travelling distance of the new workplace, except when accommodation is provided as an integral part of the job, such as for church clergy; the expense is on the proposed list of eligible relocation ex­ penses; the payment reﬂects the expenditure incurred; the expenditure has been incurred within certain time limits.
• • For an overtime meal allowance to be exempt from income tax and, where relevant, fringe beneﬁt tax: • Either the employee’s employment contract will need to spe­ cify that he or she is eligible for a payment in relation to over­ time hours worked, or the employer must have a policy or prac­ tice of paying an overtime meal allowance.

The allowance will need to reﬂect either the actual expenditure incurred by the employee or a reasonable estimate of the ex­ pected costs likely to be incurred.
• 10 • Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note “Overtime” is deﬁned as the time worked on the day beyond the person’s ordinary hours of work as set out in the employ­ ment agreement when the employee has worked more than 2 hours of overtime beyond the ordinary hours on that day.

These changes will apply from the 2002–03 income year.
Payroll giving scheme The bill introduces a voluntary payroll giving scheme that will allow employees to make regular payroll donations from their pay.

It will also enable employees to receive the tax beneﬁt of their payroll do­ nations each payday in real­time without the need to have donation receipts.

People who make donations other than through payroll giv­ ing will continue to claim the charitable donation tax credit at the end of the tax year.
The proposed payroll giving scheme results from options canvassed in the government’s November 2007 discussion document, Payroll giving: providing a real­time beneﬁt for charitable giving.

The changes will apply from 1 April 2009.

The new scheme will have the following key features: • Participation in payroll giving will be voluntary for employers and employees.

Payroll giving is available only to employees whose employ­ ers ﬁle their employer monthly schedules electronically.
Employees who choose to make payroll donations will receive a tax credit on the amount of those donations each payday.

The tax credit is calculated on a set rate of 33⅓% of the donation made.

The tax credit is offset against the PAYE calculated on the employee’s gross pay, thereby reducing the amount of PAYE payable for that period.

The maximum tax credit permitted is limited to the employee’s PAYE deduction on the salary or wages each pay period.
Payroll donations must be made to a society, institution, as­ sociation, organisation, trust, or fund as described in section LD 3(2) of the Income Tax Act 2007 or listed in Schedule 32.

Employers are responsible for ensuring that payroll donations are transferred to those organisations.

• • • • Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 11 • • Any payroll donations must be transferred within a 3­month period.
Employees who donate through payroll giving are not eligible for the end of year tax credit on those donations.
Changes to tax thresholds for small and medium enterprises Following completion of the ﬁrst phase of a review intended to re­ duce the tax compliance costs of SMEs, the government has decided to introduce the following changes to tax thresholds: • the threshold for PAYE once­a­month ﬁling and payment in­ creases from $100,000 to $250,000 (based on annual PAYE deductions); the threshold for FBT annual return ﬁling increases from $100,000 to $250,000 (based on annual PAYE deductions); owner­employees of closely held businesses will be allowed to ﬁle FBT returns annually, regardless of their annual PAYE deductions, when their FBT liability is for no more than 2 ve­ hicles; the safe harbour threshold for provisional tax use of money interest (UOMI) increases from $35,000 to $50,000 (based on annual residual income tax); the GST registration threshold increases from $40,000 to $50,000 (based on annual GST turnover); the GST six­monthly return ﬁling threshold increases from $250,000 to $500,000 (based on annual turnover); non­individuals will be allowed to return income tax for ﬁnan­ cial arrangements on a cash accounting basis, and the threshold for the straight­line basis of accounting for ﬁnancial arrange­ ments is increased from $1.5 million to $1.85 million (based on the total level of ﬁnancial arrangements); the low value trading stock threshold for the exemption for adjustments is increased from $5,000 to $10,000 (based on the value of trading stock).
• • • • • • • These amendments will apply from 1 April 2009.

The second phase of the review, which relates to more complex compliance cost reduc­ tion initiatives, is currently under way.

12 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note Minor, remedial, or consequential matters Included in the bill are minor or remedial amendments relating to the following aspects of tax law and administration.
Tax pooling Provisional taxpayers do not always know how much their tax liabil­ ity will be for the year and therefore how much to pay in provisional tax.

Provisional tax pooling allows taxpayers to reduce their expos­ ure to use of money interest as a result of uncertainty about provi­ sional tax payments by purchasing funds from a tax pooling inter­ mediary with a backdated effective date.
The tax pooling rules are not available for regular tax payments, like GST, where the tax liabil­ ity is known with certainty at time of payment.

Some taxpayers have accessed pooling funds with a backdated effect­ ive date to pay outstanding GST liabilities in order to remove their exposure to penalties as well as use of money interest.

This was not the intent of the tax pooling rules.


Accordingly, a number of remed­ ial amendments are made to the tax pooling rules in the Income Tax Act 2007 to ensure the legislation reﬂects the original intent of the rules and that the only regular payments the tax pooling rules apply to are provisional tax.
A further amendment will assist taxpayers who are facing uncertainty about their tax liability by extending tax pooling to the additional tax payable as a result of a reassessment (including voluntary disclosures and the resolution of a dispute) for all tax types.

Where the taxpayer is reassessed and is liable for penalties, the tax pooling funds will only reduce exposure to use of money interest, not any penalties imposed.
Taxpayers will only be able to access pooling funds with a back­ dated effective date for the difference between the amount originally payable and the amount payable as a result of a reassessment.

Tax­ payers will have 60 days from the date the Commissioner issues a no­ tice of assessment to access tax pooling funds to pay the re­assessed amount.

This is in keeping with the period for payment before penal­ ties are imposed for late payment.
The legislation will also be clariﬁed to allow transfers of excess tax from all tax types for deposit into a tax pooling account and to ensure that where a taxpayer transfers money to pay provisional or terminal tax with an effective date after the taxpayer’s terminal tax date, the Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 13 payment should be applied ﬁrst to the interest outstanding and then to the outstanding tax liability.
This is consistent with the treatment of other payments made after the taxpayer’s terminal tax date.

In order to foster competition between tax pooling intermediaries, a new provision will enable the free transfer of tax pooling funds between intermediaries while retaining the original effective date.

This will be available to both new and existing deposits.
Migrant workers Several remedial amendments are being introduced, to reduce the compliance costs incurred by migrant workers, who come to New Zealand to work under the recognised seasonal employer policy.

The compliance costs will be reduced by correctly deducting tax from migrant workers during the year and removing the requirement for these workers to ﬁle end of year tax returns.

The amendments apply from 1 April 2009.


General insurance The amendments clarify that movements in a general insurer’s Out­ standing Claims Reserve (OCR) determined under the requirements of International Financial Reporting Standard (IFRS) 4 will be de­ ductible, provided the amount of the movement and how it is deter­ mined is well documented, reﬂects the company’s business experi­ ence, and is made for sound commercial or business reasons and not for income tax purposes.
The amendments apply from the ﬁrst in­ come year that the insurer adopts IFRS 4.

Banking continuity The bill introduces changes to ensure shareholder continuity is pre­ served for certain restructuring arrangements that result in no change of economic ownership of a group of companies.

The preservation of shareholder continuity will ensure that no unintended consequences of the continuity rules as they apply to imputation credits and losses will arise as a result of the restructuring.
In the absence of the amend­ ments the concessionary continuity rules would not provide continu­ ity, and the core continuity rule could not be readily applied.

The amendments will apply from 1 April 2008.

14 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note Petroleum mining tax rules This bill contains a number of proposed amendments that relate to the tax treatment of petroleum mining.
The bill contains the following proposals for the petroleum mining rules: • Deductions for expenditure on petroleum mining undertaken via a branch in another country will be allowed to be allocated only against petroleum mining income from foreign branch operations.

The amendment ensures that New Zealand re­ ceives its proper share of beneﬁt from New Zealand petroleum resources by preventing foreign branch petroleum mining ex­ penditure being offset against income from petroleum mining in New Zealand.
A series of amendments will remove disincentives that may affect investment in oil and gas exploration and development in New Zealand.

These amendments apply to expenditure in­ curred on or after 1 April 2008.

A remedial amendment ensures that a petroleum mining anti­ avoidance provision does not inappropriately reduce a tax­ payer’s deductions.

• • KiwiSaver The bill contains several remedial amendments relating to Kiwi­ Saver.
There are 2 substantial amendments, 1 relating to the employer tax credit and the other relating to employers liability to pay compulsory employer contributions in cases of belated automatic enrolment.

Section 13 of the KiwiSaver Act 2006 is also removed, so that automatic enrolment will not occur for employees who transfer between schools.
A number of other KiwiSaver amendments that are minor in nature are included in the bill and are needed to give full effect to initial policy decisions or to rectify technical deﬁciencies in the legislation.

The application dates of these amendments range from retrospective application from 1 July 2007 to application from the date of enact­ ment.
Employer tax credit annual square­up The ﬁrst substantial amendment introduces an annual square­up to ensure that employers receive their full entitlement to the employer Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 15 tax credit.

This amendment is necessary as the existing formula in the KiwiSaver Act 2006 does not provide all eligible employers with the full entitlement to the tax credit.
The square­up process means that employers are able to claim up to $1,042.86 each year for each employee and do not have to keep track of when extra pays and there­ fore tax credit shortfalls occur during the year.

This proposed amend­ ment will apply from 1 April 2009 (relating to employer contribu­ tions made from 1 April 2008).
Liability to pay compulsory employer contributions in cases of belated automatic enrolment The second substantial amendment limits employers’ liability to pay compulsory employer contributions in cases where the employer has failed to comply with the automatic enrolment provisions of the KiwiSaver Act 2006.
The liability is limited to the lesser of the duration of the current employment relationship or a time period of the ﬁrst year of current employment (provided the employee becomes a KiwiSaver member during either of those periods).

The amendment is necessary as, currently, employers are liable to back pay any unpaid compulsory employer contributions from the time automatic enrolment should have occurred without any limitation.
The amendment strikes a balance between the employer’s obligation to automatically enrol (and make employer contributions) and the employee’s obligations to make contributions from their salary or wages in order to receive employer contributions by becoming a member of KiwiSaver.

This proposed amendment will apply retrospectively from 1 April 2008.

Removal of section 13 An amendment removes section 13 of the KiwiSaver Act.
As a re­ sult, automatic enrolment will not occur for employees who trans­ fer between schools.

The amendment is necessary as to date auto­ matic enrolment has not applied because the Boards of Trustees of a school (the employer for KiwiSaver purposes) are exempt from automatically enrolling new employees.
This exemption will be re­ voked from 1 October 2008, when the State Sector Retirement Sav­ ings Scheme and the Teachers Retirement Savings Scheme, the ve­ hicles which provided the exempt employer status, are closed to new enrolments.
The Boards of Trustees’ exemption for automatic en­ 16 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note rolment will therefore be revoked, creating compliance problems for Boards of Trustees and the Education Service Payroll, particularly for transferring employees and employees in multiple employment across the education sector.

This amendment will therefore apply retrospectively from 1 October 2008.
Niue joint ventures This amendment allows the 66% common ownership requirement for loss grouping to be varied by an Order in Council in relation to Niue development projects.

The purpose of the concession is to assist in the development of the Niuean economy.

The proposed amendment allows the percentage thresholds in sec­ tions IC 2(2), IC 3 and IC 5(1)(a) of the Income Tax Act 2007 to be varied by an Order in Council in relation to Niue development com­ panies.
An order may be made if the Governor­General is satisﬁed that the company is carrying on a business that has been or is carried on wholly or mainly for the development of Niue or has been or is important to the development of Niue.

Alternatively, an order may be made if the Governor­General is satisﬁed that the company has in­ curred expenditure wholly or mainly in deriving income from Niue or in the course of carrying on a business in Niue for the purpose of deriving income.
The amendment comes into force on 1 April 2008 and has effect for the 2008­09 and subsequent income years.

Tax recovery arrangements An amendment is made to the Tax Administration Act 1994 to clar­ ify that bilateral tax recovery arrangements entered into in double tax agreements (DTAs) may provide for charges associated with a col­ lectible foreign tax debt to also be collected.
The change is aimed at resolving uncertainty over what charges, such as penalties, inter­ est, and costs of collection, New Zealand can collect on behalf of other countries under a DTA arrangement.

The amendment will ap­ ply from 1 April 2008.


Right of non­disclosure The right of non­disclosure in sections 20B to 20G of the Tax Ad­ ministration Act 1994 is being amended to allow the right to apply to documents that the Commissioner has sought to be disclosed during Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 17 litigation.
The amendment will allow the Courts to have access to the facts (the tax contextual information), but not to the tax advisor’s view of the facts.

Currently, the ability of the Commissioner or taxpayer to challenge the claim that a book or document is a “tax advice document” subject to the non­disclosure right is determined by a District Court Judge.

This can create difﬁculties if the matter is being heard in another court.
A further amendment is being made to allow the determination to be made by the court hearing the matter.

The amendment will apply to challenge proceedings ﬁled on or after the date of enactment.

Portfolio investment entity tax rules The bill makes a number of remedial amendments to the new tax rules for portfolio investment entities (“PIEs”) that are consistent with their policy intent.

The most signiﬁcant of these amendments concerns land­owning companies.
As well as holding shares and debt investments, PIEs can also directly own land; passive investments in land are a core element of a diversiﬁed investment portfolio.

However, land­rich active businesses could potentially use this ability to their advantage by restructuring themselves as PIEs.

This is contrary to the policy intent of the PIE rules, which were designed to be used by widely held passive savings vehicles.
In particular, the loopholes allow a land­rich active business to be effectively split up into a land­owning PIE and an operating com­ pany, using a structure that ensures the operating company does not “taint” the land­owning company and prevent it from being a PIE.
This could be done by: • stapling shares in the land­owning PIE to shares in the operat­ ing company; or leasing the PIE’s land and buildings to an associated operating company and ensuring that the operating company does not represent a signiﬁcant portion of the PIE’s overall investments.
The PIE rules are amended so that rental income received by a PIE from an associated company (which includes companies that are sta­ pled to the PIE) does not count as qualifying income when applying the PIE eligibility criteria.

• 18 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note In September 2007 the government announced that it would act to close these loopholes.
Accordingly, the amendments will apply from 1 October 2007, in line with the start date of the PIE rules.

Offshore portfolio share investment rules A number of remedial amendments are made to the new tax rules for offshore portfolio investment in shares.

These amendments are to ensure that the new rules achieve their intended policy effect.

New tax rules for offshore portfolio investment in shares were en­ acted by the Taxation (Savings, Investment, and Miscellaneous Pro­ visions) Act 2006.
The new rules apply for income years beginning on or after 1 April 2007.

The new rules generally apply to an in­ vestment by a New Zealand resident in a foreign company when the investor owns less than 10% of the company.

Under the new rules, offshore portfolio investment in shares is taxed consistently, regard­ less of the country where the investment is located and whether the investment is made by an individual directly or through a collective investment vehicle.
The new tax rules for offshore portfolio investment in shares mainly relate to the foreign investment fund rules.

The main changes were that the “grey list” exemption in the foreign investment fund rules has been removed and the new fair dividend rate method, which broadly taxes 5% of a person’s offshore share portfolio’s opening value each year, has been introduced.
The amendments in the bill are of a remedial nature and address tech­ nical problems that have been identiﬁed with the new rules or amend the rules to cater for different circumstances; all the amendments are consistent with the policy intent of the new tax rules for offshore port­ folio investment in shares.

The amendments contained in the Income Tax Act 2007 are effect­ ive from 1 April 2008.

The smaller number of amendments to the Income Tax Act 2004 are effective from 1 April 2007.
Research and development The following amendments are proposed with effect from the com­ mencement date of the new R&D rules, that is, the beginning of the 2008–09 income year.

The amendments are minor and technical in nature.

Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 19 Eligibility of deferred salary expenditure and deferred overseas expenditure The current legislation denies the credit for salary expenditure ac­ crued but not paid out in a year.
However, the credit is not given when the salary is subsequently paid out either.

The same issue arises for overseas expenditure which is not eligible to be claimed in the year in which it is incurred, and ought to become eligible in a later year.

To address this, the legislation will be amended to enable the credit to be claimed in the year the salary is paid out, and the year in which the overseas expenditure ought to become eligible.
Alignment of eligibility rules for “process” R&D with normal rules Certain types of R&D may consist of “process” testing.

For example, once an experimental production plant has been constructed, it will need to be tested.

The R&D provisions include speciﬁc rules which deal with the costs incurred in this kind of R&D.

These rules are dif­ ferent from those that apply to other types of R&D expenditure.
The legislation will be amended to bring the eligibility requirements for process R&D expenditure into line with that for other R&D expend­ iture.

Individual ﬁling by partners in a partnership Current legislation allows partnerships to ﬁle an R&D statement on behalf of all partners.

This approach raises issues because it is difﬁ­ cult to deﬁne what amounts ought to be included, and administrative complexities arise when dealing with partners who are in multiple partnerships.
The legislation will therefore be amended to require all partners to ﬁle R&D statements individually.

Supporting information required before processing While current legislation requires information supporting the R&D claim to be provided, that information may not be provided at the same time as the claim is initially made.
Because there are questions about Inland Revenue’s legal ability to defer processing the R&D claim until the supporting information is received the legislation will be amended to enable Inland Revenue to defer processing an R&D claim until all of the supporting information has been received.

20 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note Alignment of dates There are inconsistencies in the basis for calculating various key dates under the R&D rules.
Amendments are proposed so that the basis for calculating these key dates will be aligned to a common reference point of the due date for ﬁling the initial claim.

Minor administrative amendments The legislation will be amended to deal with the following minor administrative matters so as to conﬁrm existing policy: • The imputation rules will be clariﬁed to ensure that when an R&D credit is refunded it leads to a debit in the imputation credit account (or Maori authority credit account).
The R&D tax credit will not automatically be applied to exist­ ing liabilities under the Inland Revenue Acts where the tax­ payer is complying with an existing instalment arrangement.

This is consistent with the policy intent of the instalment rules.

Where the R&D tax credit is used to offset liabilities under other Inland Revenue Acts, the effective date of transfer will be the same date as is currently used for excess resident with­ holding tax credits.
For most taxpayers this will be an earlier date than the current effective date.

The legislation will expressly state that the R&D tax credit is not itself taxable income, and that any amount of overpaid R&D tax credit is recoverable as if it were an income tax li­ ability.

• • • Application of the non­disclosure right to discovery The non­disclosure right was introduced in 2005.
It gives tax advi­ sors the ability to not disclose tax advice documents which the Com­ missioner has sought under his statutory powers to obtain informa­ tion.

The bill proposes that the right of non­disclosure apply to dis­ covery and similar processes that occur during litigation.

The proposed amendment will apply to challenges commenced on or after the date the bill received the Royal assent.
Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 21 Emissions trading scheme—some tax consequences The Climate Change (Emissions Trading and Renewable Preference) Bill will, if enacted in substantially its current form, create: • an obligation on certain businesses, which are treated as cre­ ating greenhouse gas emitters, to surrender emission units to the government; a structure under which certain businesses may be awarded emission units, as assistance for their increased expenses; a mechanism for the issue of New Zealand Units (NZUs) by the government.
• • GST treatment of emission units The Government proposes to zero­rate supplies of emission units.

This addresses the issues arising from participation in international markets, as all supplies are zero­rated, whether to purchasers inside or outside New Zealand.

The claiming of input tax credits is also straightforward, as all input tax credits can be claimed when supplies are zero­rated.
While the emission units issued by the government will be NZUs, emission obligations under the Climate Change Response Act 2002 may be also be satisﬁed using certain Kyoto units or approved over­ seas units.

As New Zealand businesses will potentially be trading in all of these different types of units (and potentially, other Kyoto units which may be determined not to be eligible for surrender) it is rec­ ommended that the zero­rating treatment be extended to all of these classes of units.
Any actual supply of services in exchange for emission units, such as the supply of the service of carbon capture in forests, will also be zero­rated.

Income tax treatment of emission units for the non­forestry sector Income tax issues to be addressed are: • Does the allocation of emission units by the government give rise to income, and if so, when?

Does the requirement to surrender emission units when carbon is treated as being emitted give rise to a tax deduction, and if so, when?
• 22 • Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note How are purchases, sales, and emission units carried forward from 1 tax year to the next to be dealt with?

The policy intention is that the allocation of emission units to busi­ nesses outside the forestry sector is to assist them in relation to the increased costs they will face following the introduction of the emis­ sions trading scheme.
As these costs will generally be on revenue account, and therefore deductible, it is appropriate that the alloca­ tion of emission units generally be on revenue account.

Allocation of emission units will therefore give rise to taxable income.
Income arising from the allocation of units by the government will ordinarily be treated as arising on a basis which matches the under­ lying obligation to surrender the units, or pay the increased costs, which the awarded emission units are intended to provide compen­ sation for.

Where such matching is not possible, income from the receipt of units be evenly spread over the time period to which the allocation relates.
An exception to this rule is provided where any emission units al­ located by government are disposed of by the recipient.

To the ex­ tent their value has not already been recognised as income, it will be recognised as arising on the date of sale.

The liability to surrender emission units is in principle another cost of operating a business.

This event will be treated as a revenue account matter, and a tax deduction will arise for these costs.
This tax deduc­ tion will be treated as arising by reference to the liability emerging over the relevant period, multiplied by the relevant price of emission units.

Under existing law, the relevant price of emission units will be the cost of any emission units held, and where insufﬁcient units are held, the market value of units at balance date.
It will be straight­ forward to ascertain market value once markets exist, and there are a number of proposals to establish markets in New Zealand, in add­ ition to markets which already operate internationally.

Purchases and sales of emission units are to be treated as being on revenue account.

They are ordinary costs of doing business.


The ﬁnancial arrangement rules will not apply, and FIFO or weighted average cost must be used to value any units on hand at balance date, in following the normal rules for excluded ﬁnancial arrangements.

Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 23 Minor depreciation matters The bill contains a number of minor amendments to the tax depreci­ ation rules, mostly dealing with remedial matters.
The other amend­ ments add 2 categories to the list of depreciable land improvements.

The amendments clarify current tax depreciation policy settings.

Rewriting of the portfolio investment entity rules In the second half of 2007, while the Income Tax Bill 2006 (now the Income Tax Act 2007) was in its ﬁnal Parliamentary stages, the “PIE Rules” (then known as Subpart HL of the 2004 Act) were in the course of extensive further development.
To assist users of those rules and generally to avoid confusion, it was decided not to rewrite the rules for inclusion in the Income Tax Act 2007 at that time.

Undertakings were however given to re­enact these rules in “rewrite” style and to consult with representatives of the tax profes­ sions to ensure that the rewritten rules correctly reﬂect the law as it was to stand at the end of 2007.
The rules have now been rewritten and limited consultations have taken place and the comments and suggestions of the various reviewers have been taken into account.

The rewritten portfolio investment entity rules appear in this bill as an amendment to insert new Subpart HM of the Income Tax Act 2007.
Amendments to correct drafting and printing errors An unfortunate but inevitable consequence of the enactment of nearly 3500 pages of tax legislation in 2007 is the need for remedial legis­ lation to address drafting and printing issues that occurred in the last 3 months of the year.

This bill contains over 100 amendments of this type.
The amendments are to correct cross­references, replace incor­ rect formulae with correct formulae, replace incorrect terminology with correct terminology, and correct commencement dates.

These amendments affect the Income Tax Act 2007, the Tax Administration Act 1994, and the KiwiSaver Act 2006.
Pending enactment of this bill, the effect of section ZA 3 of the Income Tax Act 2007 (the tran­ sitional provision) is generally considered to be that the meanings of the comparable provisions of the Income Tax Act 2004 apply to the currently deﬁcient successor provisions of the 2007 Act.

24 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note Clause by clause analysis Clause 1 gives the title of the Act.
Clause 2 gives the commencement dates for provisions in the Act.

Part 1 Amendments to Income Tax Act 2007 Clauses 4 to 431 amend the Income Tax Act 2007.

Clause 4 amends section BC 7, consequential to the rewriting of the portfolio investment entity rules.

Clause 5 amends section BE 1, and removes references to FDP and FDP rules on the repeal of the FDP rules as part of international tax­ ation reform.
Clause 6 amends section BF 1, and removes a reference to further FDP on the repeal of the FDP rules as part of international taxation reform.

Clause 7 amends section CB 8, consequentially on the changes to the deﬁnition of associated person.

Clause 8 replaces section CB 26, consequential to the rewriting of the portfolio investment entity rules.
Clause 9 inserts a new heading and a new section CB 36, to provide for the tax treatment of emissions units that arise under the Climate Change Response Act 2002 as income other than in certain circum­ stances.

Clause 10 amends section CD 4, consequentially on the changes to the deﬁnition of associated person.

Clause 11 amends section CD 6, consequentially on the changes to the deﬁnition of associated person.
Clause 12 amends section CD 22, to amend the deﬁnition of counted associate consequentially on the changes to the deﬁnition of associ­ ated person.

Clause 13 amends section CD 27, to remove a reference to FDP on the repeal of the FDP rules as part of international taxation reform, and consequentially on the changes to the deﬁnition of associated person.

Clause 14 amends section CD 32, to update a cross­reference.
Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 25 Clause 15 amends section CD 36, to clarify the application of the rule to certain managed funds, and consequentially on the rewriting of the portfolio investment entity rules.

Clause 16 inserts a new section CD 36B, to implement the inter­ national taxation reform in relation to certain foreign distributions.
Clause 17 amends section CD 43, to implement the international tax­ ation reform in relation to the calculation of subscription amounts under the ASC rules for dividends.

Clause 18 amends section CD 44, consequentially on the changes to the deﬁnition of associated person.

Clause 19 amends section CD 53, and removes references to FDP and FDP credit, consequential to the repeal of the FDP and conduit rules as part of international taxation reform.
Clause 20 amends section CE 1, inserts a deﬁnition of accommoda­ tion as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 21 amends section CE 5, consequentially on the clariﬁcation of certain exempt payments for employees for relocation expenses and overtime meals.

Clause 22 amends section CF 1, to ensure personal services rehabili­ tation payments are included in accident compensation payments.
Clause 23 inserts a new subpart CO, to provide tax rules for the re­ imbursement of volunteers.

Clause 24 replaces section CP 1, consequential to the rewriting of the portfolio investment entity rules.

Clause 25 amends section CQ 2, to implement the international tax­ ation reform relating to CFCs.

Clause 26 amends section CQ 5, to implement the international tax­ ation reform relating to FIFs owned by CFCs.

Clause 27 replaces the heading to subpart CR, as part of the reforms to life insurance taxation.
Clause 28 replaces sections CR 1 and CR 2, as part of reforming life insurance taxation, by providing income related to policyholder and shareholder bases.

Clause 29 adds a new section CR 4, to give income on account of outstanding claims reserves for general insurance.

26 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note Clause 30 repeals section CV 10, consequential to the repeal of the FDP and conduit rules as part of international taxation reform.
Clause 31 inserts a new section CW 3B, to provide for the tax treat­ ment of emissions units that arise under the Climate Change Re­ sponse Act 2002 as exempt income in certain circumstances.

Clause 32 replaces section CW 9, to implement the international tax­ ation reform in relation to certain foreign dividends.

Clause 33 amends section CW 12, as a remedial matter arising from the process of rewriting the Income Tax Act.
Clause 34 amends section CW 17, consequentially to clarify the re­ lationship between expenditure on account of employees and certain payments for employees for relocation and overtime meals.

Clause 35 inserts new sections CW 17B and CW 17C, to clarify the tax treatment of relocation payments for employees and payments for employees’ overtime meals.

Clause 36 repeals section CW 37, to remove an exemption for large budget screen production grants.
Clause 37 amends section CW 40, and changes references to associ­ ated persons as a remedial matter arising from the process of rewrit­ ing the Income Tax Act.

Clause 38 amends section CW 42, to correct a cross­reference.

Clause 39 inserts a new section CW 62B, to provide tax rules for the reimbursement of volunteers.

Clause 40 amends section CX 2, consequentially on the changes to the deﬁnition of associated person.
Clause 41 replaces section CX 18, consequential to changes to the deﬁnition of associated person, and to clarify the nature of employ­ ment and shareholding relationships.

Clause 42 amends section CX 19, to exclude relocation payments for employees from the FBT rules.

Clause 43 replaces section CX 28, to clarify the treatment of accom­ modation for the FBT rules as a remedial matter arising from the process of rewriting the Income Tax Act.
Clause 44 repeals section CX 39, as part of the reform of the life insurance rules.

Clause 45 amends section CX 47, to remove an exemption for large budget screen production grants.

Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 27 Clause 46 inserts a new heading and a new section CX 48B, to ex­ clude certain additional screen production payments from income.
Clause 47 inserts a new heading and a new section CX 48C, to pro­ vide for research and development tax credits as excluded income.

Clause 48 inserts a new heading and a new section CX 51B, to pro­ vide for the tax treatment of emissions units that arise under the Cli­ mate Change Response Act 2002 as excluded income.

Clause 49 amends section CX 55, as a remedial matter arising from the process of rewriting the Income Tax Act.
Clause 50 replaces section CX 55, consequential to the rewriting of the portfolio investment entity rules.

Clause 51 replaces section CX 56, and inserts new sections CX 56B and CX 56C consequential to the rewriting of the portfolio invest­ ment entity rules.

Clause 52 replaces section CX 57, consequential to the rewriting of the portfolio investment entity rules.

Clause 53 repeals section DB 6(3), consequential to the repeal of the FDP and conduit rules as part of international taxation reform.
Clause 54 repeals section DB 7(7), consequential to the repeal of the FDP and conduit rules as part of international taxation reform.

Clause 55 repeals section DB 8(7), consequential to the repeal of the FDP and conduit rules as part of international taxation reform.

Clause 56 amends section DB 23, consequential to the rewriting of the portfolio investment entity rules, and as a remedial matter.

Clause 57 amends section DB 42, as part of the changes to the def­ inition of associated person.
Clause 58 replaces section DB 53, consequential to the rewriting of the portfolio investment entity rules.

Clause 59 replaces section DB 54, consequential to the rewriting of the portfolio investment entity rules.

Clause 60 amends section DB 55, consequential to the repeal of the FDP and conduit rules as part of international taxation reform.
Clause 61 inserts a new heading and a new section DB 60, to provide for the tax treatment of emissions units that arise under the Climate Change Response Act 2002 for amounts allowed as deductions.

Clause 62 amends the heading to subpart DF, to insert a reference to government funding.

28 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note Clause 63 repeals section DF 1(6), to remove the exclusion for large budget screen production grants.
Clause 64 amends section DF 4, to correct a cross­reference.

Clause 65 inserts a new section DF 5, to provide for the tax treatment of certain additional funding for screen productions.

Clause 66 amends section DN 2, consequential to the repeal of the FDP and conduit rules as part of international taxation reform.

Clause 67 amends section DN 6, consequential to the repeal of the FDP and conduit rules as part of international taxation reform.
Clause 68 replaces sections DR 1 to DR 3, as part of reforming life in­ surance taxation, by providing for deductions related to policyholder and shareholder bases.

Clause 69 amends section DS 2, to provide for the allocation of de­ ductions for government screen production payments.

Clause 70 amends section DS 4, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 71 inserts a new section DT 1A, to clarify the treatment of deductions for petroleum mining expenditure.
Clause 72 amends section DT 2, as a remedial matter arising from the process of rewriting the Income Tax Act, and to clarify material excluded from petroleum mining arrangements.

Clause 73 amends section DT 5, to clarify the timing of certain pet­ roleum mining deductions.

Clause 74 amends section DT 9, to clarify the timing of certain pet­ roleum mining deductions.

Clause 75 amends section DU 12, as a remedial matter arising from the process of rewriting the Income Tax Act.
Clause 76 amends section DV 2, to provide for transfers of expend­ iture to certain portfolio investment entities, and consequentially on the rewriting of the portfolio investment entity rules.

Clause 77 amends section DV 4, to provide for transfers of expend­ iture to certain portfolio investment entities, and consequentially on the rewriting of the portfolio investment entity rules.
Clause 78 amends section DV 5, to provide for transfers of expend­ iture to certain portfolio investment entities, and consequentially on the rewriting of the portfolio investment entity rules.

Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 29 Clause 79 inserts a new section DW 4, as part of the reforms to life insurance taxation, to provide for deductions for outstanding claims reserves.
Clause 80 repeals section DX 2, consequential to the repeal of the FDP and conduit rules as part of international taxation reform.

Clause 81 amends section EB 2, consequentially on the rewriting of the portfolio investment entity rules, and to provide for the tax treatment of emissions units that arise under the Climate Change Re­ sponse Act 2002 as an exclusion from trading stock.

Clause 82 amends section EB 13, consequentially on the changes to the deﬁnition of associated person.
Clause 83 amends section EB 23, to increase the threshold for low value trading stock.

Clause 84 amends section ED 1, to provide for the tax treatment of emissions units that arise under the Climate Change Response Act 2002 to prevent pooling with excepted ﬁnancial arrangements.

Clause 85 inserts a new section ED 1B, to provide for the valuation of certain emissions units that arise under the Climate Change Response Act 2002.
Clause 86 amends section EE 30, to clarify the basis on which the percentage is based.

Clause 87 amends section EE 31, to provide for the setting of eco­ nomic depreciation rates, special rates, and provisional rates.

Clause 88 repeals section EG 3, consequentially on the rewriting of the portfolio investment entity rules.

Clause 89 amends section EJ 4, replacing the reference to large budget screen production grants with government screen production payments.
Clause 90 amends section EJ 5, replacing the reference to large budget screen production grants with government screen production payments.

Clause 91 amends section EJ 7, replacing the reference to large budget screen production grants with government screen production payments.

Clause 92 amends section EJ 8, replacing the reference to large budget screen production grants with government screen production payments.
30 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note Clause 93 repeals section EJ 12 and inserts new sections EJ 12 and EJ 12B, to clarify the timing of certain petroleum mining deductions.

Clause 94 amends section EJ 13, consequentially on the clariﬁcation of the calculation and allocation of certain petroleum mining deduc­ tions.
Clause 95 inserts new sections EJ 13B and EJ 13C, to clarify the tax treatment of deductions relating to dry and non­producing wells.

Clause 96 amends section EJ 15, consequentially on the clariﬁcation of the calculation and allocation of certain petroleum mining deduc­ tions.

Clause 97 replaces sections EJ 19 and EJ 20, to remove the distinc­ tion between onshore and offshore development for petroleum min­ ing.
Clause 98 amends section EW 5, to provide for the tax treatment of certain emissions units that arise under the Climate Change Response Act 2002 as excepted ﬁnancial arrangements, and consequentially as part of the reforms to international taxation and life insurance.

Clause 99 amends section EW 13, consequentially on the changes to the deﬁnition of cash­basis person.

Clause 100 amends section EW 15D, as part of the remedial amend­ ments to the use of the IFRS ﬁnancial reporting method.
Clause 101 amends section EW 15E, as part of the remedial amend­ ments to the use of the IFRS ﬁnancial reporting method.

Clause 102 amends section EW 15F, as part of the remedial amend­ ments to the use of the IFRS ﬁnancial reporting method.

Clause 103 amends section EW 15G, as part of the remedial amend­ ments to the use of the IFRS ﬁnancial reporting method.

Clause 104 amends section EW 15I, as part of the remedial amend­ ments to the use of the IFRS ﬁnancial reporting method.
Clause 105 amends section EW 17, to increase the threshold for using the straight­line method to value ﬁnancial arrangements.

Clause 106 amends section EW 25, to increase the threshold for using the straight­line method to value ﬁnancial arrangements.

Clause 107 amends section EW 26, as part of the remedial amend­ ments to the use of the IFRS ﬁnancial reporting method.

Clause 108 amends section EW 29, as part of the remedial amend­ ments to the use of the IFRS ﬁnancial reporting method.
Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 31 Clause 109 replaces section EW 54, to redeﬁne a cash­basis person, removing the reference to natural persons.

Clause 110 repeals section EW 56, consequentially on the amend­ ment to the deﬁnition of cash­basis person.

Clause 111 amends section EW 57, to change cross­references con­ sequential to the amendment to the deﬁnition of cash­basis person, and to provide for increases by Order in Council.
Clause 112 amends section EW 58, consequentially on the amend­ ment to the deﬁnition of cash­basis person.

Clause 113 replaces section EW 59, to provide for associated persons.

Clause 114 amends section EW 60, to change cross­references con­ sequential to the amendment to the deﬁnition of cash­basis person.

Clause 115 amends section EX 1, consequentially on the rewriting of the portfolio investment entity rules.

Clause 116 amends section EX 15, to correct cross­references.
Clause 117 amends section EX 18, consequential to the repeal of the FDP and conduit rules as part of international taxation reform.

Clause 118 amends section EX 19, consequential to the repeal of the FDP and conduit rules as part of international taxation reform.

Clause 119 inserts a new heading and new sections EX 20B, EX 20C, and EX 20D, as part of international taxation reform, to provide def­ initions of attributable CFC amount, net attributable CFC income, and net attributable CFC loss.
The sections also provide for the cal­ culations of the amounts and adjustments to them if the CFC is ex­ cessively debt funded.

Clause 120 amends section EX 20B, consequentially as part of the changes to the deﬁnition of associated person.

Clause 121 repeals the heading before section EX 21, consequentially to the repeal of the FDP and conduit rules as part of international taxation reform.
Clause 122 amends section EX 21, as part of international taxation reform, to provide calculation rules for attributable CFC income and net attributable CFC income or loss, and some consequential changes related to the currency to be used.

The section also contains a change to the reference to associated persons as a remedial matter arising from the process of rewriting the Income Tax Act.
32 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note Clause 123 inserts a new heading and new sections EX 21B to EX 21E, to provide a deﬁnition of non­attributing CFC and the tests for determining whether a CFC is a non­attributing active CFC as part of international taxation reform.

Clause 124 replaces a heading and section EX 22, to provide for non­ attributing Australian CFCs as part of international taxation reform.
Clause 125 repeals section EX 23, removing tax concession grey list CFCs as part of international taxation reform.

Clause 126 amends section EX 25, consequentially to the repeal of the FDP and conduit rules as part of international taxation reform.

Clause 127 amends section EX 29, to correct a cross­reference.

Clause 128 amends section EX 31, to include a requirement related to the cancellation of shares.

Clause 129 amends section EX 34, to correct a cross­reference.
Clause 130 amends section EX 37, to clarify the company in which voting interests are held.

Clause 131 amends section EX 38, as a remedial matter arising from the process of rewriting the Income Tax Act.
Clause 132 amends section EX 46, to remove the references to a share treated as equivalent to debt and replace them with the concept of a non­ordinary share, to exclude a trustee that is a superannuation scheme, and to include consequential changes on the rewriting of the portfolio investment entity rules.

Clause 133 replaces section EX 47, to remove the reference to a share treated as equivalent to debt and replace them with the concept of a non­ordinary share.
Clause 134 amends section EX 51, to replace the item opening value, and to remove the reference to a share treated as equivalent to debt and replace them with the concept of a non­ordinary share.

Clause 135 amends section EX 52, to provide for FDR interests, to exclude certain managed funds from the operation of the rule, and to provide for returning share transfers.
Clause 136 amends section EX 53, to provide for FDR interests, to exclude certain managed funds from the operation of the rule, and to provide for returning share transfers, and to include consequential changes on the rewriting of the portfolio investment entity rules.

Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 33 Clause 137 amends section EX 56, to correct a formula and to provide a limit for the attributing interest taken into account.
Clause 138 amends section EX 58, to correct a cross­reference and to provide for non­attributing Australian CFCs as part of international taxation reform.

Clause 139 amends section EX 59, to exclude grey list companies, override the exclusion for certain managed funds, and to include con­ sequential changes on the rewriting of the portfolio investment entity rules.

Clause 140 repeals sections EY 1 to EY 5, and inserts new sections EY 1 to EY 4, as part of reforming life insurance taxation.
Section EY 1 describes the structure of subpart EY and other provisions around 2 bases, namely shareholder base and policyholder base.

Section EY 2 describes income and expenditure or loss for the policyholder base.

Section EY 3 describes income and expenditure or loss for the shareholder base.

Section EY 4 provides for apportionment using the 2 bases.

Clause 141 replaces section EY 6, as part of reforming life insurance taxation, by providing for actuarial advice for the Commissioner.
Clause 142 amends section EY 12, as part of reforming life insurance taxation, by providing for the redeﬁning of life reinsurance and for the correct taxation of life ﬁnancial reinsurance.

Clause 143 repeals sections EY 15 to EY 47, and inserts new sections EY 15 to EY 30, as part of reforming life insurance taxation.

Section EY 15 describes income for the policyholder base, for certain poli­ cies.

Section EY 16 describes expenditure or loss for the policyholder base, for certain policies.
Section EY 17 describes income for the policyholder base, for proﬁt participation policies.

Section EY 18 de­ scribes expenditure or loss for the policyholder base, for certain proﬁt participation policies.

Section EY 19 describes income for the share­ holder base, for certain policies.

Section EY 20 describes expend­ iture or loss for the shareholder base, for certain policies.

Section EY 21 describes income for the shareholder base, for proﬁt participation policies.
Section EY 22 describes expenditure or loss for the share­ holder base, for proﬁt participation policies.

Section EY 23 provides the structure for reserving amounts for the shareholder base.

Section EY 24 provides for the outstanding claims reserving amount.

Sec­ tion EY 25 provides for the premium smoothing reserving amount.

34 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note Section EY 26 provides for the unearned premium reserving amount.
Section EY 27 provides for the capital guarantee reserving amount.

Section EY 28 describes income for certain proﬁts from proﬁt par­ ticipation policies.

Section EY 29 provides for effective full grand­ parenting or 5 years of concessionary deductions, for certain life risk policies, as transitional matters.

Section EY 30 provides for annu­ ities.

Clause 144 amends section EY 43B, consequentially on the rewriting of the portfolio investment entity rules.
Clause 145 amends section EY 43C, consequentially on the rewriting of the portfolio investment entity rules.

Clause 146 amends section EY 48, as part of the reform of life insur­ ance taxation, to include reference to policyholder base and share­ holder base.

Clause 147 repeals section EZ 31, consequentially to the repeal of the FDP and conduit rules as part of international taxation reform.
Clause 148 repeals section EZ 32B, as part of the remedial amend­ ments to the use of the IFRS ﬁnancial reporting method.

Clause 149 adds a new heading and new sections EZ 53 to EZ 60, as part of reforming life insurance taxation.

Section EZ 53 describes how expected death strain is calculated, for the transitional matters provided in section EY 29.

Section EZ 54 provides expected death strain formulas, for the transitional matters provided in section EY 29.
Section EZ 55 modiﬁes the expected death strain formulas.

Sec­ tion EZ 56 modiﬁes the expected death strain formulas.

Section EZ 57 modiﬁes the expected death strain formulas.

Section EZ 58 modi­ ﬁes the expected death strain formulas.

Section EZ 59 deﬁnes actu­ arial reserves for the purposes of the expected death strain formulas.

Section EZ 60 calculates actuarial reserves for the purposes of the expected death strain formulas.
Clause 150 adds a new heading and new sections EZ 61 to EZ 63, as part of reforming life insurance taxation.

Section EZ 61 provides for a clearing disposal and re­acquisition upon entry into the new life insurance rules.

Section EZ 62 allows a ringfenced deduction in relation to certain amounts cancelled upon entry into the new life insurance rules.

Section EZ 63 allows limited grandparenting for life ﬁnancial reinsurance.
Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 35 Clause 151 amends section FA 2, as a remedial matter arising from the process of rewriting the Income Tax Act, and to provide new deﬁnitions of proﬁt­related debenture and substituting debenture.

Clause 152 amends section FC 1, to remove the reference to section CD 6 as part of the changes to the deﬁnition of associated person.

Clause 153 amends section FC 2, to correct a cross­reference.
Clause 154 amends section FE 1, as part of international taxation reform.

Clause 155 amends section FE 2, as part of international taxation reform.

Clause 156 replaces section FE 3, as part of international taxation reform.

Clause 157 amends section FE 4, to insert a deﬁnition of excess debt outbound company, as part of international taxation reform.
Clause 158 amends section FE 5, as part of international taxation reform, to provide an exception to the thresholds for the interest ap­ portionment rules for excess debt outbound companies.

Clause 159 amends section FE 6, as part of international taxation reform, to apportion interest deductions for outbound investments.

Clause 160 amends section FE 12, as part of international taxation reform, to provide for excess debt outbound companies.
Clause 161 amends section FE 13, as a remedial matter arising from the process of rewriting the Income Tax Act, and consequentially as part of international taxation reform.

Clause 162 amends section FE 14, consequentially as part of inter­ national taxation reform.

Clause 163 amends section FE 15, as part of international taxation reform, to provide a new deﬁnition of total group debt.
Clause 164 amends section FE 16, as part of international taxation reform, to exclude certain CFC investments and the treatment of as­ sets when the member is not resident.

Clause 165 amends section FE 18, as a remedial matter arising from the process of rewriting the Income Tax Act, and consequentially as part of international taxation reform.

Clause 166 amends section FE 21, as a remedial matter arising from the process of rewriting the Income Tax Act.
36 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note Clause 167 amends section FE 25, consequentially as part of inter­ national taxation reform.

Clause 168 amends section FE 26, as part of international taxation reform to provide for excess debt outbound companies, certain source and residence requirements, and for associated persons.
Clause 169 replaces section FE 28, as part of international taxation reform, to provide for excess debt outbound companies and for cer­ tain special rules.

Clause 170 replaces section FE 29, as part of international taxation reform, to replace rules about holding companies with a rule for com­ bining groups owned by natural persons and trustees.

Clause 171 amends section FE 30, as part of international taxation reform, to provide for excess debt outbound companies.
Clause 172 amends section FE 31, as part of international taxation reform, to provide for excess debt outbound companies.

Clause 173 inserts new sections FE 31B and FE 31C, as part of inter­ national taxation reform, to provide for worldwide groups for excess debt outbound companies.

Clause 174 replaces section FE 32, as part of international taxation reform, to provide for joint venture parties.
Clause 175 repeals subpart FF, on the repeal of the FDP and conduit rules as part of international taxation reform.

Clause 176 amends section FM 2, to correct a cross­reference arising from the international taxation reform.

Clause 177 amends section FM 6, to correct cross­references arising from the international taxation reform and as a remedial matter aris­ ing from the process of rewriting the Income Tax Act.
Clause 178 repeals sections FM 24 to FM 26, on the repeal of the FDP and conduit rules as part of international taxation reform.

Clause 179 amends section FN 2, to correct a cross­reference.

Clause 180 amends section FZ 1, consequentially to remove a cross­ reference.

Clause 181 amends section GB 27, to increase the $60,000 income threshold in the personal services attribution rule, consequential to the new personal tax rate structure enacted as part of Budget 2008 legislation.
Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 37 Clause 182 amends section GB 28, as a remedial matter arising from the process of rewriting the Income Tax Act, and as part of the changes to the deﬁnition of associated person.

Clause 183 amends section GB 32, as part of the changes to the def­ inition of associated person to replace the reference to employee’s associates with the concept of an employment relationship.
Clause 184 repeals section GB 39, on the repeal of the FDP and con­ duit rules as part of international taxation reform.

Clause 185 amends section GB 45, consequentially to change a cross­ reference.

Clause 186 amends section GB 48, as a remedial matter arising from the process of rewriting the Income Tax Act, and as part of the changes to the deﬁnition of associated person.
Clause 187 inserts section GC 4B, to provide for the tax treatment of emissions units that arise under the Climate Change Response Act 2002 and are disposed of at below market value.

Clause 188 amends section GC 5, to replace the deﬁnition of related company as part of the changes to the deﬁnition of associated person.

Clause 189 amends section GC 8, consequentially on the repeal of the FDP and conduit rules as part of international taxation reform.
Clause 190 amends section GC 10, consequentially on the repeal of the FDP and conduit rules as part of international taxation reform.

Clause 191 amends section GC 11, consequentially on the repeal of the FDP and conduit rules as part of international taxation reform.

Clause 192 replaces section GC 12, consequentially on the repeal of the FDP and conduit rules as part of international taxation reform.
Clause 193 inserts a new section GZ 2, on the repeal of the FDP and conduit rules as part of international taxation reform, to include a terminating provision for arrangements involving the cancellation of conduit tax relief credits.

Clause 194 amends section HA 7, to insert a reference to shareholder continuity requirements in section OA 8.

Clause 195 inserts a new section HA 8B, as part of international tax­ ation reform, to add a further requirement to qualifying company sta­ tus.
38 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note Clause 196 amends section HA 15, as a remedial matter arising from the process of rewriting the Income Tax Act, and to clarify the rela­ tionship with other sections in the subpart.

Clause 197 replaces section HA 16, as a remedial matter arising from the process of rewriting the Income Tax Act.
Clause 198 amends section HA 19, consequentially as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 199 amends section HA 41, consequentially on the repeal of the FDP and conduit rules as part of international taxation reform.

Clause 200 amends section HC 4, consequentially on the repeal of the FDP and conduit rules as part of international taxation reform.
Clause 201 amends section HC 15, as a remedial matter arising from the process of rewriting the Income Tax Act, and as part of the changes to the deﬁnition of associated person.

Clause 202 amends section HC 27, consequentially to correct a cross­ reference as part of the changes to the deﬁnition of associated person.

Clause 203 amends section HC 36, to replace the deﬁnition of as­ sociated person or person associated as part of the changes to the deﬁnition of associated person.
Clause 204 amends section HG 11, to remove a cross­reference.

Clause 205 amends section HL 3, as a remedial matter arising from the process of rewriting the Income Tax Act and as part of the reform of life insurance taxation.

Clause 206 amends section HL 4, as a remedial matter for the port­ folio investment entity rules to correct a cross­reference, and to clar­ ify the timing on failure to meet a requirement.
Clause 207 amends section HL 6, as a remedial matter for the port­ folio investment entity rules to insert a reference to Auckland Re­ gional Holdings, and consequentially to change cross­references, and as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 208 amends section HL 9, as a remedial matter for the port­ folio investment entity rules to insert a reference to Auckland Re­ gional Holdings, and consequentially to change cross­references.
Clause 209 amends section HL 10, as a remedial matter for the port­ folio investment entity rules to insert a reference to associated per­ sons.

Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 39 Clause 210 amends section HL 12, as a remedial matter for the port­ folio investment entity rules to provide a minimum number of share­ holders.
Clause 211 amends section HL 13, as a remedial matter for the port­ folio investment entity rules to clarify the timing on failure to meet a requirement.

Clause 212 amends section HL 20, as a remedial matter arising from the process of rewriting the Income Tax Act to replace the formula.

Clause 213 amends section HL 29, to correct a cross­reference, and as a remedial matter for the portfolio investment entity rules to add a reference to an exiting investor.
Clause 214 repeals subpart HL and inserts subpart HM, as the rewrit­ ten portfolio investment entity (PIE) rules.

Section HM 1 provides an outline of the subpart.

Section HM 2 deﬁnes a portfolio investment entity.

Section HM 3 deﬁnes a foreign PIE equivalent.

Section HM 4 sets out who is an investor.

Section HM 5 deﬁnes a portfolio class.

Section HM 6 sets out the intended effects for multi­rate PIEs and investors in them.
Sections HM 7 to HM 20 set out the entry rules for PIEs and multi­rate PIEs in particular, and sections HM 21 to HM 23 set out the exceptions to those rules.

The exit rules are set out in sections HM 24 to HM 30.
Sections HM 31 to HM 60 are the rules for multi­rate PIEs, requiring the attribution of income to investors and payment of tax on their behalf, providing the methods for calcu­ lating tax liabilities, requiring the adjustment of investors’ interests, the ways in which tax credits are treated, and the prescribed and no­ tiﬁed tax rates for investors.

Sections HM 61 and HM 62 provide for exit levels and exit periods for investors in multi­rate PIEs.
Sections HM 63 to HM 69 deal with losses and their treatment.

Elections to become, and to stop being, a PIE are contained in section HM 70.

Certain transitional provisions are set out in sections HL 72 to HM 75.

Clause 215 amends section IA 2, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 216 amends section IA 7, as part of the reform of life insurance taxation, and as a remedial matter for the portfolio investment entity rules.
Clause 217 amends section IA 8, as part of the reform of life insurance taxation, to insert a reference to schedular policyholder base income.

40 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note Clause 218 amends section IC 3, on the rewriting of the portfolio investment entity rules.

Clause 219 inserts a new section IC 13, to provide a variation of the requirements of the subpart for development companies in Niue.
Clause 220 amends section IQ 2, to provide transitional provisions for attributed CFC net losses, as part of the international taxation reform.

Clause 221 amends section IQ 4, to limit the amount of tax loss that may be made available.

Clause 222 replaces subpart IT, as part of the reform of life insurance taxation, to provide for the cancellation of a life insurer’s losses.

Sec­ tion IT 1 cancels policyholder net losses.


Section IT 2 cancels losses when policyholder base expenditure or loss is taken, as a transitional matter for the reform of life insurance taxation.

Clause 223 amends section LA 6, as a remedial matter for the port­ folio investment entity rules to provide for certain refundable credits, and consequentially on the rewriting of the portfolio investment en­ tity rules.
Clause 224 amends section LA 7, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 225 inserts a new section LA 8B, as part of the reform of life insurance taxation, to provide general rules for life insurers’ tax credits.

Clause 226 amends section LA 9, to remove a cross­reference.

Clause 227 replaces section LB 1, as a remedial matter arising from the process of rewriting the Income Tax Act.
Clause 228 amends section LB 3, consequentially on the rewriting of the portfolio investment entity rules.

Clause 229 amends section LB 7, to correct a cross­reference.

Clause 230 amends section LB 8, to correct a cross­reference.

Clause 231 amends section LC 6, consequentially to change a cross­ reference.

Clause 232 amends the heading to subpart LD, consequentially to provide for payroll donations.
Clause 233 inserts a cross heading before section LD 1, consequen­ tially to provide for payroll donations.

Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 41 Clause 234 amends section LD 1, consequentially to change a cross­ reference.

Clause 235 amends section LD 2, consequentially to provide for pay­ roll donations.

Clause 236 inserts a new heading and new sections LD 4 to LD 7, to provide for tax credits for payroll donations.
Clause 237 amends section LE 1, to remove a cross­reference, and as a remedial matter for the portfolio investment entity rules to clarify the treatment of imputation credits allocated to investors, and conse­ quentially on the rewriting of the portfolio investment entity rules.
Clause 238 amends section LE 2, as part of the reform of life in­ surance taxation, to provide for the application of the section to life insurers in relation to the shareholder base, and consequentially to correct a cross­reference.

Clause 239 inserts a new section LE 2B, as part of the reform of life insurance taxation, to provide for the use of remaining credit by life insurers in relation to the policyholder base.
Clause 240 amends section LE 3, consequentially to correct a cross­ reference as part of the reform of life insurance taxation.

Clause 241 amends section LF 1, consequentially on the rewriting of the portfolio investment entity rules.

Clause 242 repeals the compare notes in subpart LH, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 243 amends section LH 1, to clarify the status of a tax credit under the subpart.
Clause 244 amends section LH 2, to clarify how a tax credit is treated once used, and to require certain statements to be provided before a tax credit arises.

Clause 245 amends section LH 3, to signal the modiﬁcation of the requirements of the section in relation to certain activities and items of expenditure.
Clause 246 inserts new sections LH 5B and LH 5C, to modify the rules relating to the timing of research and development activities and allocation of expenditure in relation to which a person has a tax credit.

Clause 247 inserts a new section LH 14B, to enable the Commis­ sioner to recover overpaid tax credits.

42 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note Clause 248 amends section LJ 1, to set out the relationship with sec­ tion YD 5.
Clause 249 amends section LJ 2, consequentially on the rewriting of the portfolio investment entity rules.

Clause 250 amends section LJ 7, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 251 amends section LK 1, as a remedial matter arising from the process of rewriting the Income Tax Act and consequentially on the repeal of the conduit rules as part of international tax reform.
Clause 252 amends section LK 2, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 253 inserts a new section LK 5B, to provide carry­forward rules for foreign tax credits, as part of the transition for the inter­ national taxation reform.

Clause 254 repeals subpart LL, on the repeal of the FDP and conduit rules as part of international taxation reform.
Clause 255 repeals sections LQ 1 to LQ 4, on the repeal of the FDP and conduit rules as part of international taxation reform.

Clause 256 replaces subpart LS, consequentially on the rewriting of the portfolio investment entity rules.

Clause 257 amends section MB 1, consequentially on the rewriting of the portfolio investment entity rules.

Clause 258 amends section MK 1, to provide an annual recalculation of a tax credit for an employer when certain conditions are met.
Clause 259 amends section MK 2, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 260 inserts new sections MK 12B to MK 12D, to provide the eligibility requirements for an annual recalculation of a tax credit for an employer and calculation and use of the amount of the tax credit.

Clause 261 amends section MK 14, as a remedial matter arising from the process of rewriting the Income Tax Act.
Clause 262 amends section ML 1, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 263 replaces section ML 2, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 264 amends section OA 2, consequentially as part of the re­ form of life insurance taxation.
Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 43 Clause 265 amends section OA 5, consequentially as part of the re­ form of life insurance taxation.

Clause 266 amends section OA 6, consequentially as part of the re­ form of life insurance taxation.

Clause 267 amends section OA 7, consequentially as part of the re­ form of life insurance taxation.
Clause 268 amends section OA 8, to correct a cross­reference, and to insert an exclusion for qualifying companies as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 269 repeals section OA 12, on the repeal of the FDP and con­ duit rules as part of international taxation reform.

Clause 270 amends section OA 18, as a remedial matter arising from the process of rewriting the Income Tax Act.
Clause 271 amends section OB 1, consequentially on the rewriting of the portfolio investment entity rules.

Clause 272 inserts a new section OB 3B, as part of the reform of life insurance taxation to provide a general rule for the treatment of imputation credits arising to the policyholder base.
Clause 273 amends section OB 4, as part of the reform of life insur­ ance taxation to provide for a life insurer’s schedular policyholder base income, as a remedial matter arising from the process of rewrit­ ing the Income Tax Act, and consequentially on the repeal of BETA rules as part of international tax reform.

Clause 274 amends section OB 8, as part of the reform of life in­ surance taxation to provide an exclusion for policyholder base gross income.
Clause 275 inserts a new section OB 9B, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 276 replaces section OB 9B, consequentially on the rewriting of the portfolio investment entity rules.

Clause 277 repeals section OB 11, consequentially on the repeal of the FDP and conduit rules as part of international taxation reform.

Clause 278 repeals section OB 17, consequentially as part of the re­ form of life insurance taxation.
Clause 279 amends section OB 32, consequentially as part of the re­ form of life insurance taxation to provide for a life insurer’s schedular 44 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note income tax liability, and to clarify the relationship with section OB 37.

Clause 280 amends section OB 33, as a remedial matter arising from the process of rewriting the Income Tax Act, and to clarify the rela­ tionship with section OB 37.
Clause 281 amends section OB 34, as a remedial matter arising from the process of rewriting the Income Tax Act, to provide debit dates for companies other than qualifying companies, and for qualifying companies.

Clause 282 amends section OB 35, as a remedial matter arising from the process of rewriting the Income Tax Act.
Clause 283 inserts a new section OB 35B, as part of the reform of life insurance taxation to provide for a life insurer’s imputation credit related to its schedular policyholder base income or as a portfolio investment entity.

Clause 284 amends section OB 37, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 285 replaces section OB 47, as part of the reform of life insur­ ance taxation to provide for a life insurer’s imputation debit related to its policyholder base.
Clause 286 amends table O1, to insert appropriate cross­references.

Clause 287 amends table O2, to insert appropriate cross­references.

Clause 288 amends section OC 1, consequentially on the rewriting of the portfolio investment entity rules and consequentially on the repeal of the FDP rules as part of international taxation reform.

Clause 289 inserts a new section OC 2B, as part of the reform of life insurance taxation, to provide a general rule for FDP credits for a life insurer’s policyholder base.
Clause 290 amends section OC 4, as a remedial matter arising from the process of rewriting the Income Tax Act and consequentially on the repeal of the FDP rules as part of international taxation reform.

Clause 291 amends section OC 5, as a remedial matter arising from the process of rewriting the Income Tax Act and consequentially on the repeal of the FDP rules as part of international taxation reform.
Clause 292 repeals section OC 6, on the repeal of the FDP and con­ duit rules as part of international taxation reform.

Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 45 Clause 293 repeals section OC 8, on the repeal of the FDP and con­ duit rules as part of international taxation reform.

Clause 294 repeals section OC 9, on the repeal of the FDP and con­ duit rules as part of international taxation reform.
Clause 295 repeals section OC 10, on the repeal of the FDP and con­ duit rules as part of international taxation reform.

Clause 296 amends section OC 16, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 297 replaces section OC 20, as part of the reform of life in­ surance taxation, to provide an FDP debit related to a life insurer’s policyholder base.

Clause 298 repeals section OC 23, as part of the reform of life insur­ ance taxation.
Clause 299 amends the heading before section OC 30, to remove a reference to FDP consequentially on the repeal of the FDP and conduit rules as part of international taxation reform.

Clause 300 amends section OC 30, to remove references to FDP con­ sequentially on the repeal of the FDP and conduit rules as part of international taxation reform.

Clause 301 amends section OC 31, to remove references to FDP con­ sequentially on the repeal of the FDP and conduit rules as part of international taxation reform.
Clause 302 amends section OC 32, to remove references to FDP con­ sequentially on the repeal of the FDP and conduit rules as part of international taxation reform.

Clause 303 replaces section OC 33, to remove references to FDP consequentially on the repeal of the FDP and conduit rules as part of international taxation reform.

Clause 304 replaces section OC 34, to remove references to FDP consequentially on the repeal of the FDP and conduit rules as part of international taxation reform.
Clause 305 repeals a heading and sections OC 35 to OC 39, removing certain deﬁnitions as part of the reform of life insurance taxation.

Clause 306 amends table O3, to repeal rows 2, 3, 5, 6, and 7, on the repeal of the FDP and conduit rules as part of international taxation reform.

46 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note Clause 307 amends table O4, to replace rows 5 and 9, as part of the reform of life insurance taxation.
Clause 308 amends section OD 1, consequentially on the repeal of the FDP and conduit rules as part of international taxation reform.

Clause 309 repeals section OD 5, on the repeal of the FDP and con­ duit rules as part of international taxation reform.

Clause 310 repeals section OD 8, on the repeal of the FDP and con­ duit rules as part of international taxation reform.

Clause 311 repeals section OD 11, on the repeal of the FDP and con­ duit rules as part of international taxation reform.
Clause 312 repeals section OD 23, on the repeal of the FDP and conduit rules as part of international taxation reform.

Clause 313 repeals section OD 24, on the repeal of the FDP and conduit rules as part of international taxation reform.

Clause 314 amends table O5, to repeal rows 2 and 5, consequentially on the repeal of the FDP and conduit rules as part of international taxation reform.
Clause 315 amends table O6, to repeal row 3, consequentially on the repeal of the FDP and conduit rules as part of international taxation reform.

Clause 316 amends section OE 2, consequentially on the repeal of the FDP and conduit rules as part of international taxation reform.

Clause 317 repeals section OE 6, on the repeal of the FDP and conduit rules as part of international taxation reform.
Clause 318 amends section OE 7, on the repeal of the FDP and conduit rules as part of international taxation reform to specify the amount of debit balance that must be recorded.

Clause 319 repeals a heading and sections OE 12 to OE 16, on the repeal of the FDP and conduit rules as part of international taxation reform.

Clause 320 inserts a new heading and a new section OE 16B, as a transitional measure on the repeal of the FDP and conduit rules as part of international taxation reform.
Clause 321 amends table O7, to repeal row 2, consequentially on the repeal of the FDP and conduit rules as part of international taxation reform.

Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 47 Clause 322 repeals table O8, consequentially on the repeal of the FDP and conduit rules as part of international taxation reform.

Clause 323 amends section OF 1, consequentially on the rewriting of the portfolio investment entity rules.
Clause 324 repeals subpart OJ, as part of the reform of life insurance taxation.

Clause 325 amends section OK 2, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 326 amends section OK 12, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 327 amends section OK 13, as a remedial matter arising from the process of rewriting the Income Tax Act.
Clause 328 inserts a new section OK 14B, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 329 amends table O18, to insert a reference to section OK 14B consequentially as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 330 amends section OP 5, consequentially on the repeal of the FDP and conduit rules as part of international taxation reform, and as part of the reform of life insurance taxation.
Clause 331 amends section OP 7, consequentially as part of the re­ form of life insurance taxation, and as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 332 repeals section OP 14, on the repeal of the FDP and con­ duit rules as part of international taxation reform.

Clause 333 amends section OP 17, consequentially as part of the reform of life insurance taxation.

Clause 334 repeals section OP 20, as part of the reform of life insur­ ance taxation.
Clause 335 repeals section OP 21, as part of the reform of life insur­ ance taxation.

Clause 336 amends section OP 30, as part of the reform of life insur­ ance taxation to provide for schedular policyholder base income, and as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 337 amends section OP 31, as a remedial matter arising from the process of rewriting the Income Tax Act.
48 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note Clause 338 inserts a new section OP 33B, as part of the reform of life insurance taxation, to provide for a transfer from a tax pooling account for policyholder base liability.

Clause 339 amends section OP 35, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 340 repeals section OP 38, on the repeal of the FDP and con­ duit rules as part of international taxation reform.
Clause 341 replaces section OP 44, as part of the reform of life in­ surance taxation, to provide for policyholder base imputation credits for consolidated imputation groups.

Clause 342 amends table O19, to repeal rows 9, 15, and 16, conse­ quentially as part of international taxation reform, and as part of the reform of life insurance taxation.
Clause 343 amends table O20, to insert appropriate cross­references, repeal row 12, and replace row 18, consequentially as part of the reform of life insurance taxation, and as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 344 amends section OP 54, removing references to FDP con­ sequentially as part of international taxation reform, and inserting a certain debit as part of the reform of life insurance taxation.
Clause 345 repeals section OP 56, on the repeal of the FDP and con­ duit rules as part of international taxation reform.

Clause 346 repeals section OP 57, on the repeal of the FDP and con­ duit rules as part of international taxation reform.

Clause 347 repeals section OP 61, on the repeal of the FDP and con­ duit rules as part of international taxation reform.

Clause 348 repeals section OP 62, on the repeal of the FDP and con­ duit rules as part of international taxation reform.
Clause 349 amends section OP 68, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 350 repeals section OP 70, on the repeal of the FDP and con­ duit rules as part of international taxation reform.

Clause 351 replaces section OP 74, as part of the reform of life in­ surance taxation to provide for FDP debits for a life insurer’s policy­ holder base for consolidated FDP groups.
Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 49 Clause 352 amends table O21, to repeal rows 2, 3, 7, and 8, con­ sequentially on the repeal of the FDP and conduit rules as part of international taxation reform.

Clause 353 amends table O22, to repeal row 8 and replace row 12, consequentially as part of the reform of life insurance taxation.

Clause 354 amends section OP 79, removing references to FDP con­ sequentially as part of international taxation reform.
Clause 355 repeals section OP 81, on the repeal of the FDP and con­ duit rules as part of international taxation reform.

Clause 356 repeals section OP 82, on the repeal of the FDP and con­ duit rules as part of international taxation reform.

Clause 357 repeals section OP 88, on the repeal of the FDP and con­ duit rules as part of international taxation reform.

Clause 358 repeals section OP 95, on the repeal of the FDP and con­ duit rules as part of international taxation reform.
Clause 359 amends table O23, to repeal rows 2 and 3, consequen­ tially on the repeal of the FDP and conduit rules as part of inter­ national taxation reform.

Clause 360 amends table O24, to repeal row 3, on the repeal of the FDP and conduit rules as part of international taxation reform.

Clause 361 repeals section OP 99, on the repeal of the FDP and con­ duit rules as part of international taxation reform.
Clause 362 repeals section OP 100, on the repeal of the FDP and conduit rules as part of international taxation reform.

Clause 363 amends section OP 101, consequentially on the repeal of the FDP and conduit rules as part of international taxation reform, to specify the amount of debit balance that must be recorded.

Clause 364 repeals a heading and sections OP 105 to OP 108, on the repeal of the FDP and conduit rules as part of international taxation reform.
Clause 365 inserts a new heading and a new section OP 108B, as a transitional measure on the repeal of the FDP and conduit rules as part of international taxation reform.

Clause 366 amends table O25, to repeal row 2, consequentially on the repeal of the FDP and conduit rules as part of international taxation reform.
50 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note Clause 367 repeals table O26, consequentially on the repeal of the FDP and conduit rules as part of international taxation reform.

Clause 368 repeals a heading and sections OP 109 to OP 116, as part of the reform of life insurance taxation.

Clause 369 repeals tables O27 and O28, consequentially as part of the reform of life insurance taxation.
Clause 370 amends section OZ 5, consequentially on the repeal of the FDP and conduit rules as part of international taxation reform, to remove references to foreign dividends and FDP.

Clause 371 amends section OZ 10, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 372 inserts a new section OZ 18, as part of the reform of life insurance taxation to provide for a credit for a PCA balance.
Clause 373 amends section RA 1, consequentially on the repeal of the FDP and conduit rules as part of international taxation reform, to remove a reference to FDP.

Clause 374 amends section RA 6, consequentially on the repeal of the FDP and conduit rules as part of international taxation reform to remove a reference to foreign dividends and FDP.

Clause 375 amends section RA 10, consequentially on the repeal of the FDP and conduit rules as part of international taxation reform to remove a reference to FDP.
Clause 376 amends section RA 15, as a remedial matter arising from the process of rewriting the Income Tax Act and consequentially on the repeal of the FDP rules as part of international taxation reform.

Clause 377 amends section RA 23, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 378 amends section RC 3, consequentially on the rewriting of the portfolio investment entity rules.
Clause 379 amends section RD 2, to insert a cross­reference for the payroll donations provisions.

Clause 380 amends section RD 5, to insert a reference to the tax treat­ ment of accommodation beneﬁts, and to update a cross­reference.

Clause 381 amends section RD 6, to insert a reference to the tax treat­ ment of accommodation beneﬁts, and to update a cross­reference.

Clause 382 amends section RD 8, as a remedial matter arising from the process of rewriting the Income Tax Act.
Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 51 Clause 383 amends section RD 12, to insert a reference to non­resi­ dent seasonal workers.

Clause 384 inserts a new section RD 13B, as part of the payroll do­ nations provisions to provide for adjustments for tax credits.

Clause 385 amends section RD 18, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 386 amends section RD 19, as a remedial matter.
Clause 387 amends section RD 22, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 388 amends section RD 51, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 389 amends section RD 60, to increase the threshold applying to close companies for the calculation and payment of FBT.
Clause 390 amends section RD 61, to increase the threshold applying to small businesses for the calculation and payment of FBT Clause 391 amends section RE 4, consequentially on the repeal of the FDP and conduit rules as part of international taxation reform, to remove a reference to FDP.

Clause 392 amends section RE 9, consequentially on the repeal of the FDP and conduit rules as part of international taxation reform, to remove a reference to the FDP rules.
Clause 393 amends section RF 2, to correct a cross­reference conse­ quentially on the rewriting of the portfolio investment entity rules.

Clause 394 amends section RF 10, to replace the formula as a remed­ ial matter arising from the process of rewriting the Income Tax Act.

Clause 395 amends section RF 11, as part of the changes to the def­ inition of associated person.

Clause 396 repeals subpart RG, on the repeal of the FDP and conduit rules as part of international taxation reform.
Clause 397 amends section RH 4, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 398 amends section RM 1, consequentially on the repeal of the FDP and conduit rules as part of international taxation reform, to remove a reference to a foreign dividend.

Clause 399 amends section RM 2, as a remedial matter arising from the process of rewriting the Income Tax Act.
52 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note Clause 400 amends section RM 5, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 401 amends section RM 10, to update a cross­reference, and as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 402 amends section RP 8, to provide for information on pay­ roll donations to be provided by employers.
Clause 403 amends section RP 14, to provide for the transfer of pay­ roll donations by employers.

Clause 404 amends section RP 17, to extend the responsibilities of tax pooling intermediaries to tax other than provisional tax.

Clause 405 inserts a new section RP 17B, to extend the tax pooling provisions to tax other than provisional tax, and to deﬁne tax pooling account.

Clause 406 amends section RP 18, consequentially as part of the extension of tax pooling.
Clause 407 amends section RP 19, as part of the extension of tax pooling to provide for the treatment of transferred amounts.

Clause 408 amends section YA 1, to provide, amend, or repeal def­ initions relating to the substantive provisions amending the Income Tax Act 2007.

Clause 409 amends section YA 2, consequentially on the repeal of the FDP and conduit rules as part of international taxation reform.
Clause 410 repeals section YA 3, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 411 amends section YB 2, to correct a cross­reference as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 412 amends section YB 3, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 413 amends section YB 20, to correct a cross­reference.
Clause 414 repeals table Y1, a heading, and sections YB 1 to YB 20, and inserts a new heading and new sections YB 1 to YB 15, to provide a new deﬁnition of associated person.

Section YB 1 provides an out­ line of the subpart.

Section YB 2 provides the test for the association of 2 companies.

Section YB 3 provides the test for a company and a person other than a company.
Section YB 4 provides the test for 2 Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 53 relatives.

Section YB 5 provides the test for a person and a trustee for a relative.

Section YB 6 provides the test for a trustee and a bene­ ﬁciary.

Section YB 7 provides the test for trustees with a common settlor.

Section YB 8 provides the test for a trustee and a settlor.

Sec­ tion YB 9 provides the test for a settlor and a beneﬁciary.
Section YB 10 deﬁnes settlor for association purposes.

Section YB 11 provides the test for a trustee and a person with a power of appointment or re­ moval.

Section YB 12 provides the test for a partnership and a partner.

Section YB 13 provides the test for a partnership and an associate of a partner.

Section YB 14 provides the test for a tripartite relationship.

Section YB 15 provides exceptions for employee trusts.
Clause 415 repeals section YC 1, to remove the deﬁnition of control as part of the changes to the deﬁnition of associated person.

Clause 416 inserts a new section YC 18B, as part of international tax­ ation reform to provide for the tax treatment of economic ownership on corporate reorganisations.

Clause 417 amends section YD 1, to remove concessions for transi­ tional residents and to insert a provision for the treatment of non­resi­ dent seasonal workers.
Clause 418 amends section YD 4, to correct a compare note.

Clause 419 amends section YD 5, to set out the relationship of the section with the source rules.

Clause 420 amends section YF 1, to correct a cross­reference.

Clause 421 amends schedule 1, to provide for schedular policyholder base income as part of the reform of life insurance taxation, and to correct shoulder references.

Clause 422 amends schedule 2, to insert a provision for the tax treat­ ment of non­resident seasonal workers.
Clause 423 amends schedule 13, to insert 2 items.

Clause 424 amends schedule 21, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 425 amends schedule 24, to correct shoulder references.

Clause 426 amends schedule 27, to correct shoulder references.

Clause 427 amends schedule 32, to omit 1 recipient and insert certain new recipients.

Clause 428 amends schedule 49, as a remedial matter arising from the process of rewriting the Income Tax Act.
54 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note Clause 429 amends schedule 50, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 430 amends schedule 52, to correct cross­references.

Clause 431 inserts schedule 1, for consequential amendments to lists of deﬁned terms as part of the changes to the deﬁnition of associated person and the removal of the deﬁnition of control.
Part 2 Amendments to Tax Administration Act 1994 Clauses 433 to 517 amend the Tax Administration Act 1994.

Clause 433 amends section 3, to provide, amend, and repeal certain deﬁnitions relating to substantive provisions amending the Tax Ad­ ministration Act 1994.

Clause 434 amends section 4A, as a remedial matter arising from the process of rewriting the Income Tax Act, and consequentially to update some cross­references as a result of changes made on the reform of international taxation.
Clause 435 inserts a new Part 2B, relating to intermediaries for PAYE, provisional tax, and resident passive income, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 436 amends section 17, to correct a cross­reference, and rem­ edy references to associated persons.

Clause 437 amends section 20B, as part of changes allowing the right of non­disclosure to apply to discovery and similar processes that occur during litigation.
Clause 438 amends section 20C, as part of changes allowing the right of non­disclosure to apply to discovery and similar processes that occur during litigation.

Clause 439 amends section 20D, as part of changes allowing the right of non­disclosure to apply to discovery and similar processes that occur during litigation.

Clause 440 amends section 20F, as part of changes allowing the right of non­disclosure to apply to discovery and similar processes that occur during litigation.
Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 55 Clause 441 amends section 20G, extending the right of the Commis­ sioner or a taxpayer to apply for a court order relating to the status of a book or document in relation to disclosure.

Clause 442 amends section 22, to provide for records for payroll donations and consequential changes as a result of changes made on the reform of international taxation.
Clause 443 amends section 24, to provide for records for payroll donations.

Clause 444 amends section 24B, to provide a code for non­resident seasonal workers.

Clause 445 amends section 24F, to exclude special codes for non­ resident seasonal workers.

Clause 446 amends section 24P, to correct a cross­reference.

Clause 447 inserts a new heading and a new section 24Q, to require transfers of payroll donations by employers.
Clause 448 replaces section 28B, consequentially on the rewriting of the portfolio investment entity rules.

Clause 449 amends section 31B, as a remedial matter for the portfolio entity rules, and to correct a cross­reference.

Clause 450 repeals section 31B, and inserts new sections 31B and 31C, consequentially on the rewriting of the portfolio investment en­ tity rules.

Clause 451 amends section 32E, as a remedial matter arising from the process of rewriting the Income Tax Act.
Clause 452 repeals section 32N, as a result of changes made on the reform of international taxation.

Clause 453 amends section 33, consequentially on the rewriting of the portfolio investment entity rules.

Clause 454 amends section 33A, to provide for non­resident seasonal workers.

Clause 455 amends section 36A, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 456 replaces section 36AB, consequentially on the rewriting of the portfolio investment entity rules.
Clause 457 amends section 38, consequentially on the rewriting of the portfolio investment entity rules.

Clause 458 amends section 41A, to update cross­references.

56 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note Clause 459 amends section 41B, to correct a cross­reference, and to update terminology as a remedial matter arising from the process of rewriting the Income Tax Act.
Clause 460 amends section 57B, as a remedial matter for the portfolio entity rules.

Clause 461 replaces section 57B, consequentially on the rewriting of the portfolio investment entity rules.

Clause 462 amends section 59, to correct a cross­reference.
Clause 463 amends section 61, as a remedial matter arising from the process of rewriting the Income Tax Act, providing a time limit for providing a return, as a remedial matter for the portfolio entity rules, and consequentially on the rewriting of the portfolio investment en­ tity rules.

Clause 464 repeals section 66, as part of the reform of life insurance taxation.
Clause 465 amends section 68C, to remove the requirement for ﬁling a claim form by a member of a KiwiSaver or complying superannu­ ation fund.

Clause 466 amends section 68D, as a remedial matter related to re­ search and development tax credits.

Clause 467 replaces section 68E, as a remedial matter related to re­ search and development tax credits.

Clause 468 repeals section 78E, as part of the reform of international taxation.
Clause 469 repeals section 78F, as part of the reform of international taxation.

Clause 470 amends section 81, to incorporate requirements related to ﬁlm schemes and research and development tax credits.

Clause 471 amends section 85F, to remove references to large budget screen production grants and replace them with government screen production payments, and to clarify the ambit of the disclosure re­ quirement.

Clause 472 amends section 85G, to correct cross­references.
Clause 473 amends section 87, to incorporate requirements related to ﬁlm schemes.

Clause 474 inserts a new section 89AB, to rationalise and update the deﬁnition of response period.

Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 57 Clause 475 amends section 89D, to provide for statements related to research and development tax credits.
Clause 476 amends section 89DA, to provide for statements related to research and development tax credits before notices may be issued.

Clause 477 amends section 89N, as part of the changes to the deﬁn­ ition of associated person.

Clause 478 amends section 91AAF, to provide for default rates for depreciable property, and the revocation of determinations setting economic rates.
Clause 479 amends section 91AAG, to extend the application of pro­ visional rates, and to clarify the Commissioner’s power to issue de­ terminations setting a special rate, and to provide for revocation of provisional determinations.

Clause 480 amends section 91AAH, to allow for the use of default rates.

Clause 481 amends section 91AAK, consequentially on the power to revoke determinations.

Clause 482 amends section 91AAM, consequentially on the power to revoke determinations.
Clause 483 amends section 91AAO, to correct and update cross­ref­ erences.

Clause 484 inserts a new heading and a new section 91AAQ, as part of the reform of international taxation to provide for a determination in relation to non­attributing active CFCs.

Clause 485 inserts a new heading and a new section 91AAR, to pro­ vide for a determination in relation to eligible expenses for work­re­ lated relocations of employees.

Clause 486 repeals section 102, as part of the reform of international taxation.
Clause 487 repeals section 103, as part of the reform of international taxation.

Clause 488 repeals section 103A, as part of the reform of international taxation.

Clause 489 repeals section 104, as part of the reform of international taxation.

Clause 490 amends section 108, to provide limits for returns for re­ search and development tax credits, with a temporary extension.
58 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note Clause 491 amends section 113D, to provide limits for amended as­ sessments for research and development tax credits.

Clause 492 amends section 120C, to replace the deﬁnition of tax paid, to take account of the extension of tax pooling.

Clause 493 repeals section 120EA, as part of the reform of life insur­ ance taxation.
Clause 494 amends section 120KE, to increase the threshold for a provisional taxpayer’s residual income tax.

Clause 495 amends section 120M, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 496 amends section 120O, as part of the reform of inter­ national taxation.

Clause 497 repeals section 120R, consequentially on the repeal of the FDP rules as part of the reform of international taxation.

Clause 498 amends section 125, to correct a cross­reference.
Clause 499 amends section 139BA, to correct a cross­reference.

Clause 500 repeals section 140C, as part of the reform of inter­ national taxation.

Clause 501 repeals section 140CA, as part of the reform of inter­ national taxation.

Clause 502 amends section 141, as part of the changes to the deﬁn­ ition of associated person.

Clause 503 amends section 141D, correcting a cross reference and as part of the changes to the deﬁnition of associated person.
Clause 504 amends section 141E, to provide for payroll donations.

Clause 505 repeals section 142E(2) and amends the section heading, as part of the reform of international taxation.

Clause 506 amends section 143A, as part of the reform of inter­ national taxation.

Clause 507 amends section 143B, as part of the reform of inter­ national taxation.

Clause 508 amends section 173D, to clarify that recovery of taxes includes the charges associated with the recovery.
Clause 509 amends section 173L, as remedial matters for research and development tax credits.

Clause 510 amends section 173M, to provide for the extension of the tax pooling rules.

Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 59 Clause 511 amends section 177B, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 512 repeals section 181, as part of the reform of international taxation.
Clause 513 repeals section 183, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 514 amends section 183A, as part of the reform of inter­ national taxation.

Clause 515 amends section 183H, as part of the reform of inter­ national taxation.

Clause 516 amends section 185D, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 517 amends section 225A, to correct a cross­reference.
Part 3 Amendments to Goods and Services Tax Act 1985 Clauses 519 to 528 amend the Goods and Services Tax Act 1985.

Clause 519 amends section 2, to provide deﬁnitions of emissions unit and loyalty programme for the purposes of substantive provisions amending the Goods and Services Tax Act, and to amend the deﬁn­ ition of public authority.

Clause 520 amends section 5, to update a cross­reference.
Clause 521 amends section 9, to provide a time of supply for a supply of services by operators of loyalty programmes.

Clause 522 amends section 10, to update a cross­reference.

Clause 523 amends section 11, to provide zero­rating for certain sup­ plies of reimported goods.

Clause 524 amends section 11A, to provide for zero­rating of certain services related to emissions units.
Clause 525 inserts a new section 11C, to provide for the tax treatment of supplies by operators of loyalty programmes who meet certain requirements.

Clause 526 amends section 15, to increase the threshold for taxable periods of 6 months.

60 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note Clause 527 amends section 51, to increase the threshold for registra­ tion.
Clause 528 amends section 55B, consequentially on the rewriting of the portfolio investment entity rules.

Part 4 Amendments to KiwiSaver Act 2006 Clauses 530 to 541 amend the KiwiSaver Act 2006.

Clause 530 amends section 4, to amend the deﬁnition of PAYE period.

Clause 531 repeals section 13, to change the enrolment requirements for teachers.

Clause 532 amends section 25, to modify a timing requirement for eligibility to be an exempt employer.
Clause 533 amends section 59D, to correct a cross­reference.

Clause 534 amends section 89, to remove the de minimis interest payment threshold for refunds.

Clause 535 amends section 100, to correct drafting, and make manda­ tory certain refunds.

Clause 536 amends section 101A, to provide a limitation on employ­ ers’ liability for compulsory employer contributions.

Clause 537 amends section 101D, to correct a cross­reference.
Clause 538 inserts new sections 101FB and 101FC, to provide a limitation on employers’ liability for compulsory employer contri­ butions.

Clause 539 amends section 101G, to provide for the administration of compulsory employer contributions.

Clause 540 amends section 226, to provide for the payment of Crown contribution to a person joining a KiwiSaver scheme for a second time when they were not paid the contribution as a member of the earlier scheme.
Clause 541 amends section 229, to change the requirements for mort­ gage diversion facilities.

Part 5 Amendments to Income Tax Act 2004 Clauses 543 to 614 amend the Income Tax Act 2004.

Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 61 Clause 543 amends section CD 26, to exclude grey list companies and to clarify the application of the rule to certain managed funds.
Clause 544 amends section CE 1, inserts a deﬁnition of accommo­ dation, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 545 amends section CE 5, consequentially on the clariﬁcation of certain exempt payments for employees for relocation expenses and overtime meals.

Clause 546 inserts a new section CR 3, to provide the calculation of income in relation to general insurers’ outstanding claims reserves.
Clause 547 amends section CW 13, consequentially to clarify the re­ lationship between expenditure on account of employees and certain payments for employees for relocation and overtime meals.

Clause 548 inserts new sections CW 13B and CW 13C, to clarify the tax treatment of relocation payments for employees and payments to employees for overtime meals.

Clause 549 amends section CX 17, to exclude relocation payments for employees from the FBT rules.
Clause 550 amends section DB 32, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 551 inserts a new section DT 1A, to clarify the treatment of deductions for petroleum mining expenditure.

Clause 552 amends section DT 2, as a remedial matter arising from the process of rewriting the Income Tax Act, and to clarify material excluded from petroleum mining arrangements.

Clause 553 amends section DT 5, to clarify the timing of certain petroleum mining deductions.
Clause 554 amends section DT 9, to clarify the timing of certain petroleum mining deductions.

Clause 555 inserts a new section DW 3, to provide for the calculation of deductions in relation to outstanding claims reserves for insurers using IFRS 4.

Clause 556 amends section EE 25E, to clarify the basis on which the percentage is based.

Clause 557 amends section EE 26, to provide for the setting of eco­ nomic depreciation rates, special rates, and provisional rates.
62 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note Clause 558 repeals section EJ 11 and inserts new sections EJ 11 and EJ 11B, to clarify the timing of certain petroleum mining deductions.

Clause 559 amends section EJ 12, to update a cross­reference.

Clause 560 inserts new sections EJ 12B and EJ 12C, to clarify the tax treatment of deductions relating to dry and non­producing wells.

Clause 561 amends section EJ 13, to update a cross­reference.
Clause 562 replaces sections EJ 17 and EJ 18, to remove the dis­ tinction between onshore and offshore development for petroleum mining.

Clause 563 amends section EW 15B, as part of the remedial amend­ ments to the use of the IFRS ﬁnancial reporting method.

Clause 564 amends section EW 15C, as part of the remedial amend­ ments to the use of the IFRS ﬁnancial reporting method.

Clause 565 amends section EW 15D, as part of the remedial amend­ ments to the use of the IFRS ﬁnancial reporting method.
Clause 566 amends section EW 15E, as part of the remedial amend­ ments to the use of the IFRS ﬁnancial reporting method.

Clause 567 amends section EW 26, as part of the remedial amend­ ments to the use of the IFRS ﬁnancial reporting method.

Clause 568 amends section EW 29, as part of the remedial amend­ ments to the use of the IFRS ﬁnancial reporting method.

Clause 569 amends section EX 33, to clarify the company in which voting interests are held.
Clause 570 amends section EX 40B, to clarify the time at which the market value is determined.

Clause 571 amends section EX 44, to replace the item opening value.

Clause 572 amends section EX 44C, to exclude certain managed funds from the operation of the rule.

Clause 573 amends section EX 44D, to exclude certain managed funds from the operation of the rule.
Clause 574 amends section EX 45B, as a remedial matter to provide a limit for the attributing interest taken into account in calculating FIF income or loss.

Clause 575 amends section EX 47, to exclude interests in grey list companies and override the exclusion for certain managed funds.

Clause 576 amends section EX 56, to remove items deﬁned in a re­ pealed formula.
Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 63 Clause 577 amends section EZ 50, to correct a cross­reference.

Clause 578 inserts new sections EZ 51 and EZ 52, as a transitional measure for ﬁnancial reporting requirements.

Clause 579 repeals section GC 14EB, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 580 amends section HG 13, to correct cross­references.
Clause 581 amends section HL 4, as a remedial matter for the port­ folio investment entity rules to correct a cross­reference, and to clar­ ify the timing on failure to meet a requirement.

Clause 582 amends section HL 6, as a remedial matter for the port­ folio investment entity rules to insert a reference to Auckland Re­ gional Holdings, and consequentially to change cross­references.
Clause 583 amends section HL 9, as a remedial matter for the port­ folio investment entity rules to insert a reference to Auckland Re­ gional Holdings, and consequentially to change cross­references.

Clause 584 amends section HL 10, as a remedial matter for the port­ folio investment entity rules to insert a reference to associated per­ sons.

Clause 585 amends section HL 11B, as a remedial matter for the port­ folio investment entity rules to provide a minimum number of share­ holders.
Clause 586 amends section HL 12, as a remedial matter for the port­ folio investment entity rules to clarify the timing on failure to meet a requirement.

Clause 587 amends section HL 27, as a remedial matter for the port­ folio investment entity rules to add a reference to an exiting investor.

Clause 588 amends section LB 1, to remove cross­references.

Clause 589 amends section LB 2, as a remedial matter.

Clause 590 amends section LD 8, as a remedial matter.
Clause 591 amends section LE 2, to remove a cross­reference.

Clause 592 amends section LE 3, to update a cross­reference in an item.

Clause 593 amends section ME 8, to remove a cross­reference.

Clause 594 amends section ME 31, to remove a cross­reference.

Clause 595 amends section ME 33, to remove a cross­reference.

Clause 596 amends section ME 36, to remove a cross­reference.
64 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note Clause 597 amends section ME 38, to remove a cross­reference.

Clause 598 amends section MF 3, to remove a cross­reference.

Clause 599 amends section MF 4, to remove a cross­reference.

Clause 600 amends section MF 8, to remove a cross­reference.

Clause 601 amends section MF 10, to ensure that the right amount of BETA credit is used in a consolidated group.
Clause 602 amends section MG 8, to remove a cross­reference.

Clause 603 amends section MG 10, to remove a cross­reference.

Clause 604 amends section MI 3, to remove a cross­reference.

Clause 605 amends section MI 4, to remove a cross­reference.

Clause 606 amends section MI 5, to remove a cross­reference.

Clause 607 amends section MI 15, to remove a cross­reference.

Clause 608 amends section MI 17, to remove a cross­reference.

Clause 609 amends section MI 18, to remove a cross­reference.
Clause 610 amends section NEB 6, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 611 amends section NF 1, as a remedial matter.

Clause 612 amends section NF 8, as a remedial matter arising from the process of rewriting the Income Tax Act.

Clause 613 amends section OB 1, to provide, amend, or repeal def­ initions relating to the substantive provisions amending the Income Tax Act 2004.

Clause 614 amends schedule 16, to insert pipes and conduits.
Part 6 Amendments to other Acts and regulations Clauses 616 to 626 amend the Income Tax Act 1994, Income Tax Act 1976, Taxation (Business Taxation and Remedial Matters) Act 2007, and miscellaneous other Acts and regulations.

Clause 616 amends section CB 12 of the Income Tax Act 1994, to clarify the tax treatment of certain employee allowances for work­ related relocations and overtime meals.
Clause 617 amends section CI 1 of the Income Tax Act 1994, to clarify the relationship between fringe beneﬁts and certain employee allow­ ances for work­related relocations and overtime meals.

Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 65 Clause 618 amends section EG 10 of the Income Tax Act 1994, to extend the application of provisional rates for depreciation.
Clause 619 amends section OB 1 of the Income Tax Act 1994, to provide and amend deﬁnitions relating to the provisions amending the Income Tax Act 1994.

Clause 620 amends schedule 16 of the Income Tax Act 1994, to insert pipes and conduits.

Clause 621 amends section 108I of the Income Tax Act 1976, to ex­ tend the application of provisional rates for depreciation.

Clause 622 amends schedule 21 of the Income Tax Act 1976, to insert pipes and conduits.
Clause 623 amends section 287 of the Taxation (Business Taxation and Remedial Matters) Act 2007, to correct a date.

Clause 624 makes consequential amendments to enactments listed in schedule 2 as a result of the changes to the deﬁnition of associated person.

Clause 625 amends the Income Tax (Depreciation Determinations) Regulations 1993, to correct cross­references.

Clause 626 amends the Goods and Services Tax (Grants and Subsi­ dies) Order 1992, to correct cross­references.
Schedule 1 provides for consequential amendments to lists of deﬁned terms in provisions of the Income Tax Act 2007, as part of the changes to the deﬁnition of associated person.

Schedule 2 provides for consequential amendments to other Acts, as part of the changes to the deﬁnition of associated person.

Regulatory impact statement An objective in developing tax laws is to ensure that costs associated with the functioning of the tax system are minimised.
This objective must necessarily be balanced by the need to protect the tax base, to treat taxpayers fairly, and to ensure an efﬁcient system.

International tax review: introducing an active income exemption Executive summary We propose to reform the taxation of international investments by New Zealanders, to remove impediments to offshore expansion of 66 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note New Zealand businesses.
This will involve a move away from the current system of comprehensive accrual taxation of controlled for­ eign companies (CFCs) and foreign dividends, to an exemption from accrual taxation for active income of CFCs and an exemption from income tax of foreign dividends.

This will allow CFCs engaged in active businesses to compete on a similar footing to other businesses in the same jurisdiction.

Measures will be necessary to protect the tax base.
The proposed policy is preferred to the status quo because it re­ moves impediments to overseas expansion by New Zealand busi­ nesses.

Compliance costs are reduced or maintained in many cases, and the policy has been designed to limit increases in other cases.

There should be an overall simpliﬁcation of the tax legislation be­ cause some complex mechanisms will be removed.
We have consulted extensively on the proposed policy and the ﬁnal policy incorporates a number of important changes suggested by sub­ mitters.

Adequacy statement The Regulatory Impact Analysis Unit (RIAU) in the Ministry of Eco­ nomic Development (MED), has reviewed this Regulatory Impact Statement, and considers that the statement is adequate according to the Regulatory Impact Analysis adequacy criteria.
Status quo and problem International equity investments by New Zealanders are currently taxed comprehensively on an accrual basis.

The income of controlled foreign companies (CFCs) is attributed back to New Zealand share­ holders who pay tax on that income (unless the CFC is resident in one of eight “grey list” countries).

Dividends received from overseas are also taxed, with an effective credit for tax previously paid on an ac­ crual basis.
This system of taxation, which involves a number of complex mechanisms (such as attribution rules, credits for foreign tax paid, dividend withholding payments, branch equivalent tax accounts, underlying foreign tax credits, conduit relief tax credits) promotes so­called capital export neutrality (CEN).
CEN means that a New Zealander should be indifferent, after accounting for tax, between Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 67 investing in a New Zealand business or a foreign business if they have the same pre­tax rate of return.

Unfortunately, other countries do not tax most income of CFCs in such a comprehensive manner, so that New Zealander businesses face additional tax costs relative to their competitors in overseas mar­ kets.
Other countries exempt the income of CFCs that are active businesses—businesses engaged in activities such as manufacturing or selling goods or providing services—from accrual taxation.

This, in contrast to CEN, promotes Capital Import Neutrality (CIN).

CIN means that a CFC faces the same effective tax rate as its competitors in the same jurisdiction.
New Zealand’s current preference for CEN and other countries’ preference for CIN are a barrier to the offshore expansion of New Zealand businesses and can create an incentive for New Zealand businesses to migrate to other countries as an alterna­ tive to expanding from a New Zealand base.
Objective The aim is to remove a barrier to offshore expansion by New Zealand businesses by reforming the taxation of international investments by New Zealanders, while minimising compliance costs and preserving the tax base.

Alternative options A single overall option has been considered (see the preferred op­ tion below) involving an exemption from accrual taxation for ac­ tive income of CFCs and an exemption from income tax for foreign dividends.
This is preferred to the status quo because it puts New Zealand businesses expanding into foreign jurisdictions on a similar footing, in relation to tax, to their competitors in those countries, re­ duces compliance costs for active businesses in many jurisdictions, and substantially limits increases in others.

It also does not involve excessive ﬁscal cost (foregone tax revenue).

At a more detailed level, there are a number of design options.
68 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note Transaction vs. entity approach The government could adopt 1 of 2 approaches to attributing the in­ come of a CFC to its resident shareholders: • The transactional approach examines each item of income de­ rived by a CFC to determine whether it produces passive in­ come or active income.

Accordingly, different income streams of the CFC attract different treatment depending upon their category.
The entity approach looks at whether the company is active or passive.

Once categorised, then all of the income of the company is taxed in the corresponding manner, regardless of the nature of the income derived.

• The transactional approach is more accurate in taxing only passive in­ come.
In contrast, under an entity approach the entity is either taxed on all its income or none, with the former being disadvantageous to ﬁrms with a mix of active and passive business and the latter al­ lowing some deferral of tax.

The transactional approach potentially involves higher compliance costs.

For example, if the CFC has paid tax in the foreign jurisdiction on all its income, those foreign taxes would need to be allocated between the active and passive income under the transactional approach.
The compliance costs of transac­ tion­based approach may be reduced signiﬁcantly without sacriﬁcing a great deal of accuracy by providing an exemption at an entity level where passive income is a small proportion of gross income (this is essentially a hybrid approach).

The preferred approach (see below) allows businesses that derive less than 5% of their income from pas­ sive sources, which we expect to be most active businesses, to be entirely exempt.
Active business test design An active business test is included in the policy.

CFCs that satisfy the active business test (less than 5% of their gross income is derived from passive transactions) will effectively not be taxed on accrual in New Zealand.

Having the 5% threshold will lower compliance and administrative costs as long as it is easy to apply, since ﬁrms that meet it do not need to calculate tax on an accrual basis.
We have allowed the use of existing ﬁnancial accounts to calculate the ratio, to make the test Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 69 easy to apply.

There are some adjustments required but these are kept to a minimum.

Firms have the option of using audited ﬁnancial ac­ counts that comply with International Financial Reporting Standards (IFRS) or New Zealand equivalents to those standards.
Nearly all New Zealand companies, with the exception of small entities, will be required to comply with these standards anyway for ﬁnancial re­ porting purposes, and where they own CFCs they will need to con­ solidate those CFCs into their accounts.

This means the necessary data should be available at low cost.

Some smaller companies will also be able use existing New Zealand Financial Reporting Standards until a government review of reporting requirements for these entities is complete.
Companies who are not required to comply with IFRS, or who cannot derive the required information from them, can use tax rules to calculate the ratio.

This will be relatively costly if the businesses involve complex transactions, but we expect a only small minority of (mostly) larger ﬁrms to be in the situation where they have complex transactions and cannot use the other methods based on accounting standards.
Choosing the level of the threshold involves a trade­off of compli­ ance costs against ability to defer tax.

A higher threshold means a lower compliance cost, since more businesses will qualify for the ac­ tive business exemption, but it also allows ﬁrms to defer signiﬁcant amounts of tax (a higher amount of passive income is not taxed on accrual).
Distinguishing active and passive income The general approach of many countries is to deﬁne passive income positively, with active income deﬁned by default as any income falling outside the passive income deﬁnition.

The challenge of using a positive deﬁnition of passive income is that any item which is inherently passive but is omitted from the list will not be passive income for the purposes of the CFC rules, and will therefore be exempt from attribution.
The alternative, a positive deﬁnition of active income, may provide legislators with less control and certainty over the scope of the ac­ tive income exemption than would occur under a positive deﬁnition of passive income.

That is because even a small amount of “activ­ ity” associated with an inherently passive transaction would bring the transaction within the active income net.
70 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note On balance, the government considers it preferable to deﬁne passive income positively.

The deﬁnition of passive income can be either narrow or broad.

A narrower deﬁnition lessens the likelihood that genuinely active busi­ ness will be misclassiﬁed as passive, but also allows more scope for tax on passive income to be deferred.
“Base company income”, which classiﬁes certain sales or service in­ come as passive income, is included in passive income in other juris­ dictions.

This is to prevent the interposition of CFCs in transactions to avoid domestic tax.

This does involve a compliance cost, since certain sales need to be identiﬁed and tracked.

Interest allocation If active CFC income is not taxed on an accrual, there may be incen­ tives for New Zealand owners to move debt held by CFCs into New Zealand entities.
Depending on the tax status of the CFC in its own jurisdiction, this could allow tax on New Zealand income to be tem­ porarily or permanently deferred.

Interest allocation rules deny interest deductions where an unusually high proportion of a New Zealand entity is funded by debt.

This limits the extent to which New Zealanders can exploit tax deferral by moving debt from CFCs into a New Zealand entity.
Interest allocation rules have a cost for ﬁrms in that the ratio of debt to assets may need to be calculated, and interest deductions may be denied.

However, de minimis thresholds can be used to make this cost apply only in unusual circumstances.

It is argued that interest allocation rules are unnecessary because of New Zealand’s imputation framework, which encourages New Zealand companies to pay tax in New Zealand.

However, there is still scope for domestic income tax to be deferred.
Australia also has both interest allocation rules and an imputation framework.

Grey list exemption CFCs in 8 “grey list” countries are exempt from tax on accrual under current rules.

It is proposed to abolish the grey list with the exception of Australia.
The abolition of the grey list, and its effective replacement with an active business exemption, will mean that active CFCs will not be Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 71 taxed on accrual in any jurisdiction.

This is a signiﬁcant advantage for those outside the current grey list countries (see costs and beneﬁts below for an estimate of the number of such ﬁrms).

The abolition of the list will reduce the scope for deferral of passive income.
The abolition of the list has a cost for ﬁrms currently in grey list coun­ tries (again, see costs and beneﬁts below).

For the majority of these businesses, that cost is just the cost of applying the active business test, which is small, but for some it will involve attribution.
Balanced against this, the Australian exemption is likely to prevent cost for most smaller entities (Australia is anecdotally the ﬁrst port of call for most smaller businesses) and most businesses not in grey list coun­ tries will now qualify for the active business exemption.

Dividend exemption Under the current rules, dividends from CFCs and non­portfolio for­ eign investment funds are taxed, but a credit is provided where the income has already been taxed on accrual.
Under the preferred ap­ proach, such dividends will be exempt from taxation.

Exemption of dividends will prevent double­taxation of income with­ out the need for complex apportionment accounts for companies, cur­ rently known as branch equivalent tax accounts and dividend with­ holding payment accounts.

However, there will be continued taxation where the dividend is from a ﬁxed rate share or is deductible to the CFC.
This extends the cur­ rent treatment and is required to prevent the loss of domestic tax rev­ enue.

In practice, the dividend will be treated as an interest payment with a deduction provided to the CFC for its payment, to prevent double­taxation.

The proposed taxation of the dividend will impose compliance costs.

Companies will need to check that, if a dividend has been paid, it is deductible to the CFC or paid on a ﬁxed rate share.
Given the low frequency of dividend payments (typically once a year or less), the relative simplicity of checking deductibility or the form of the underlying equity instrument, and the rarity of ﬁxed rate shares and deductible dividend payments, these costs are not expected to be signiﬁcant.
As an alternative to exempting most dividends and treating others as if they were taxable payments of interest, it would be possible to continue to tax the portion of dividends that is derived from passive 72 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note income, and to provide credit for any passive income taxed on ac­ crual.
This is not the favoured approach because it would require complex mechanisms to track tax paid on passive income and to ap­ portion dividends between active and passive income.

Preferred option The preferred option is to exempt from tax the income derived from active business of a CFC, and to exempt ordinary foreign dividends received by New Zealand companies from income tax.
Passive income of a CFC, being certain interest, rent, royalty, or divi­ dend income, and income from services performed in New Zealand, will continue to be taxable to the New Zealand owner of the CFC on an accrual basis.

Passive income has been narrowly deﬁned.


For example, there are exclusions from the deﬁnition of passive income for transactions be­ tween CFCs in the same jurisdiction, for rental income from property situated in the same jurisdiction, and for certain royalty income, even though these are typically passive sources of income.

The preferred option also limits “base company income” to only services performed in New Zealand.
In our view this targets schemes that would defer tax with minimal impact genuine transactions.

It would be unusual for a CFC of a New Zealand resident to perform services in New Zealand.

The narrow deﬁnition of passive income increases the like­ lihood that businesses will qualify for the active business exemption and the consequent reduction in compliance costs.
To reduce compliance costs, companies with a small amount of pas­ sive income in relation to their active income will be treated as having wholly active income.

This is achieved by an “active business test”, which calculates passive income as a percentage of gross income.

The calculation may be undertaken using audited ﬁnancial accounts that comply with international ﬁnancial reporting standards or exist­ ing New Zealand ﬁnancial reporting standards, or by using tax rules.
Where the ratio of passive income to gross income is less than 5%, the business will be treated as active.

The 5% ratio allows a signiﬁcant proportion of ﬁrms’ assets to be generating passive income (we estimate 25–30% for a typical busi­ ness, which is likely to be well above the actual ratio for most active businesses); 5% is also the value used in Australia and US.
Choos­ Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 73 ing a value of more than 5% risks undermining the accuracy of the transactional approach.

With the change in the tax system and the active business exemption, the need for the existing “grey list” exemption (which exempts CFCs in 8 countries from the need to attribute income) is much reduced and the list is effectively removed.
However, the “grey list” exemption is retained for CFCs in Australia because many smaller entities have CFCs in Australia and even the relatively small burden of the “active business test” might be challenging for them.

A number of other mechanisms are also being removed.

There is no further need for branch equivalent tax accounts for companies, for dividend withholding payments or for underlying foreign tax credits, and a much reduced need for conduit tax relief account.

All will be removed.


Some anti­avoidance rules are required as part of the proposed re­ forms, to ensure the level of tax revenue is broadly maintained, al­ though there is a ﬁscal cost of the active business exemption.

Interest allocation rules will be introduced, which prevent a New Zealand company shifting debt from CFCs that are exempt from tax, to New Zealand where they can obtain deductions for interest pay­ ments.
Interest allocation rules will only apply where the debt to assets ratio exceeds 75% (a commercially unwise ratio in many cir­ cumstances) and where there are signiﬁcant interest deductions.

In practice, we expect relatively few genuine arrangements will be any­ where near these thresholds.
An “on­lending” concession, in which a New Zealand company can borrow and on­lend to a CFC and not have this counted as debt for the purposes of the interest allocation rules, is also provided to help New Zealand entities remain within the threshold.

A further anti­avoidance measure is that the exemption from tax of foreign dividends will be restricted to dividends on ordinary shares and will not apply to dividends that are a deductible expense of the CFC or payable on ﬁxed rate shares.
Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note 74 Beneﬁts Tax burden: beneﬁt for some companies and beneﬁt overall The active business exemption puts New Zealand businesses expand­ ing into foreign jurisdictions on a similar footing, in relation to tax, to their competitors in those countries.

There will be no accrual tax­ ation of CFCs that are active businesses.
The ﬁscal cost of the active business exemption, excluding administrative costs ($12.5 million in 2008–09, $50 million in subsequent years) is indicative of the ex­ pected reduction in tax payable by New Zealand CFCs and their par­ ent companies.

Compliance burden Compliance costs for New Zealand residents with CFCs outside the 8 “grey list” countries will be signiﬁcantly reduced, provided those CFCs are mainly engaged in active business.
These residents cur­ rently need to pay tax on CFC income on an accrual basis, which requires calculating the CFC income under New Zealand tax princi­ ples.

Under the proposed rules, there is no requirement to pay tax on the income of active CFCs, and so the only compliance cost is verifying that the CFC qualiﬁes for the active business exemption.
The test for an active business has been designed so that existing ﬁ­ nancial accounts can be used for this purpose in most circumstances, with only a small number of adjustments required.

We estimate that approximately 50% of the 846 CFCs for which tax records were sub­ mitted in the 2005 year were in jurisdictions not on the grey list.

Some complex mechanisms, such as branch equivalent tax accounts for companies and dividend withholding payments, will be removed from the legislation.
This will reduce the costs of understanding the rules for taxpayers, particularly for those taxpayers who do not em­ ploy tax agents.
Costs Tax burden (cost for some companies) A minority of CFCs—those currently in “grey list” countries other than Australia and not engaged primarily in active business—will be taxed on passive income on an accrual basis under the preferred Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 75 policy, whereas this is not required at present.
Of 846 CFCs known to exist in 2005, approximately 20% were in “grey list” countries other than Australia, although the number is likely to be under­reported.

There is no information available about the proportion of these ﬁrms that were not engaged primarily in an active business, or the amount of tax that would have been paid if accrual taxation of passive income had been required.
New Zealand residents with high levels of debt may be denied some interest deductions under the preferred policy, leading to an increased domestic tax liability.

If the New Zealand group (combined New Zealand entities) has a debt to asset ratio of more than 75%, deduc­ tions for interest paid on debt above 75% of assets may be denied.

In most cases, a 75% debt to asset ratio is not a prudent level and it is expected to be rare in practice for active businesses to exceed this.
The proportion of New Zealand residents with CFCs who have a debt to asset ratio exceeding 75% is not currently available, but is expected to be small.

Where debt is on­lent by the New Zealand group to a CFC, this does not count towards the total, which further reduces the numbers affected, as do exclusions where total interest deductions are less than $250,000 or where the New Zealand com­ pany holds 90% or more of its assets in New Zealand.
Compliance burden All companies with CFCs or who receive foreign dividends will need to understand the new rules, update their internal practices, and understand new tax forms and tax reporting requirements.

This is a “one­off” cost rather than an ongoing cost.

In many cases, the direct cost to ﬁrms will be reduced because they will employ tax agents, who continuously monitor changing tax laws and can efﬁciently apply their knowledge to the affairs of many taxpayers.
New Zealand residents with CFCs in “grey list” countries other than Australia will experience a limited increase in compliance costs, be­ cause they will have to check that those CFCs meet the active busi­ ness test and, in the minority of cases where they do not, calculate the amount of income tax to pay on attributed CFC income.

As noted above, we estimate that approximately 20% of the 846 CFCs that re­ ported in 2005 are in this category.
As noted previously, existing ﬁ­ nancial accounts can be used for this purpose in most circumstances, reducing the time required to make the calculation.

New Zealand 76 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note residents with Australian CFCs (approximately 30% of CFCs, al­ though again likely to be under­reported) will experience no change in compliance costs because a “grey list” exemption is being retained for that country.
A minority of New Zealand residents will experience some increase in compliance costs as a result of the interest allocation rules (see the comments on interest allocation in the section on the tax burden above).

The ratio of debt to assets will need to be calculated.
The interest allocation rules have a parallel in the thin capitalisation rules for non­resident controlled New Zealand taxpayers so that the cal­ culations required are not a novel concept—some taxpayers (and/or advisors) will already have experience in complying with the rules and doing the calculations.

Stock of regulation The proposed policy will require legislation.

This will be added to the Income Tax Act 2007 (amendments to related legislation may also be required).
Some complex legislation will be redundant as a result of the policy and will be repealed and a consequent simpliﬁcation of the Act is expected.

However, an overall increase in the volume of legislation is expected.

Consultation A series of discussion documents were published (December 2006, October 2007, December 2007) inviting submissions on the inter­ national tax review process.
50 submissions were received on the December 2006 document, 24 on the October 2007 document and 9 on the December 2007 document.

The submissions were received from a range of accounting and legal ﬁrms, larger companies, professional bodies, and other businesses.

Numerous meetings with submitters were also conducted to discuss concerns raised and potential options for reducing those concerns.

The Government announced a series of in­principle decisions on the core policy framework in May 2007.
The central proposals were: • an exemption for owners of controlled foreign companies (CFCs) from the requirement to pay tax on income of the CFCs on an accrual basis, provided the CFCs are engaged in earning mainly active income from operations as opposed to Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 77 passive income such as interest, rents or royalties (to reduce compliance costs there is a test for an “active business”); and an exemption from income tax of ordinary foreign dividends received by New Zealand companies.
• Related to this were a number of other key proposals, including: • removal of the “grey list” (owners of CFCs in “grey list” coun­ tries are not required to pay tax on income of the CFCs on an accrual basis); the application of interest allocation rules to outbound in­ vestment (limiting the interest deductions available to a New Zealand company when the New Zealand company carries a signiﬁcantly greater percentage of debt than the CFCs it owns do); and the repeal of mechanisms which will no longer be as necessary because of the active business income and foreign dividend ex­ emptions, including branch equivalent tax accounts, dividend withholding payments, underlying foreign tax credits and con­ duit tax relief credits.
• • Consultation responses welcomed the proposed exemptions for ac­ tive income and foreign dividends.

Submitters also seemed com­ fortable with the design of the active business test and the proposed boundary between active and passive income, albeit that a number of detailed issues were raised.
There was criticism of the aspects of the package designed to prevent erosion of tax revenue, particularly the limitation of the dividend ex­ emption to ordinary (as opposed to ﬁxed­rate) dividends, repeal of the grey list and the extension of interest allocation rules.

We consider these measures to be essential for the protection of the domestic tax base, particularly given that neither offshore active income nor most foreign dividends will be subject to New Zealand tax under the new rules.
However, and in response to submissions, we have changed the policy so that the existing grey list exemption for CFCs in Australia will continue to apply.

This will help substantially in limiting the im­ pact of the reforms on small and medium­sized enterprises (SMEs), for which Australia is usually the ﬁrst point of offshore expansion.

There was also criticism of the decision to remove conduit tax relief credits.
Conduit relief is designed to relieve taxation of income de­ rived by a CFC and paid by the New Zealand owner of the CFC to 78 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note a foreign shareholder.
With the active income and foreign dividend exemptions, conduit relief is only necessary in relation to passive in­ come, and in that case there are signiﬁcant risks to the tax base (in the past the use of conduit tax relief has led to signiﬁcant erosion of the New Zealand tax base), so we consider the removal of conduit relief to be justiﬁable.
Other changes made in response to submissions included: • Allowing the active business test to be calculated using exist­ ing ﬁnancial reporting requirements rather than New Zealand International Financial Reporting Standards, for those small and medium sized ﬁrms that are temporarily exempt from complying with New Zealand IFRS while the government reviews reporting requirements for smaller entities.
Excluding related­party royalties from passive income of a CFC where the property to which the royalty applies is sub­ stantially developed by the CFC (this relaxes the original pro­ posal that all royalties received by a CFC from related parties in other jurisdictions be treated as passive income).

Narrowing proposed “base company rules”, which classify certain income that appears active in character as passive in­ come.
These rules now apply only where a CFC performs ser­ vices in New Zealand, rather than to any service performed outside the CFC’s jurisdiction.

Introducing temporary rules for insurance companies to ensure they can take advantage of the active business test until a more comprehensive solution is found.
• • • As part of a second phase of the international tax review, the govern­ ment has also announced that it will consider other matters raised in submissions: • the extension of the active income exemption to ﬁnancial in­ stitutions (including insurance companies); a relieving mechanism for NRWT on dividends paid to non­ residents if those dividends represent a distribution of foreign income.
• Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 79 Life insurance Executive summary The current taxation rules applying to life insurance business no longer reﬂect the market for which they were designed resulting in life insurance companies unintentionally being tax preferred compared to other companies because their tax liabilities do not adequately reﬂect their proﬁtability.
Some life insurance products have also been excluded from the recent tax changes to the taxation of portfolio investment entities (PIEs).

Under these rules, collective investment vehicles that satisfy cer­ tain legislative criteria are not taxed on realised gains made on New Zealand and listed Australian equity investments.

Qualifying PIE entities pay tax on investment income based on the tax rates of their investors (capped to 30%).
Changes in the bill will ensure that life insurance business is taxed on a basis that is close to actual proﬁts.

Life insurers will also be able to use the PIE rules to ensure that life products are taxed in a manner similar to other savings products.

Adequacy statement The Regulatory Impact Analysis Unit has reviewed the RIS and con­ siders the RIS is adequate according to the adequacy criteria.
The RIAU notes that it was not possible to obtain quantitative estimates of the level of costs (including impact on overall premium prices and compliance costs) and impact on the demand for life insurance as part of a formal quantitative cost­beneﬁt analysis.

It understands, how­ ever, that such quantitative estimates were not able to be produced because of industry and market structure issues and the impact of the transitional rules.
Status quo and problem The current rules, which were enacted in 1990, tax life insurers on a two­tier basis.

The life ofﬁce base (LOB), taxes the income earned for the beneﬁt of both shareholders and policyholders of the life in­ surer as a whole and consists of investment income less expenses, and underwriting income.
Underwriting income comprises mortal­ ity proﬁt, discontinuance proﬁt, and premium loading, determined by 80 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note a formula set out in tax legislation, which is intended to reﬂect the income from the provision of risk services.

Income accruing to policyholders is taxed to the life insurer on a proxy basis under the policyholder base (PHB).
Income is calculated by a formula to arrive at the before­tax amount necessary to pro­ vide the after­tax beneﬁt implicit in the policy.

Tax paid on the LOB generates imputation credits that can then be used to meet the PHB liability.

Problems presented by the current rules include: • Individuals who save through life insurance products face a higher tax burden than other savers who invest directly or through managed funds that become portfolio investment en­ tities (PIEs).
In connection with the tax exemption under the PIE rules for investment gains in Australasian equities, it is estimated that policyholders are in aggregate over taxed by about $21 million each year.

This effect may distort consumer decisions about the type of saving vehicle they use and place participating life polices at a competitive disadvantage.

Term insurance, which is now a major part of life insurance business but which was a minor part when the 1990 rules were enacted, is undertaxed.
The premium loading formula (which was not designed with term insurance products in mind) anomalously results in proﬁtable term insurance business generating artiﬁcial tax losses with, in many cases, a higher accounting proﬁt resulting in a larger tax loss.

Accounting proﬁt is measured using generally accepted accounting prin­ ciples and involves matching income from premiums against claims and expenses for the relevant income year.
It has been estimated by some in the life insurance industry that the level of undertaxation is about $75 million each year.

These tax beneﬁts were unintended and cannot be justiﬁed on tax policy grounds.

• To the extent that tax preferences are received by life insurers, this can distort the decisions by consumers and investors in terms of their choice of saving product or investment compared to other businesses and entities that are required to pay tax on their proﬁts.
Similar con­ cerns exist in relation to the overtaxation of policyholder investment gains in Australasian equities.

Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 81 Objectives Life insurance companies should be subject to tax under the same general framework that all other businesses in New Zealand are sub­ ject to tax.
The life tax rules therefore need to ensure that tax paid by life insurers corresponds to their proﬁtability and, in the case of sav­ ings products, incorporate them, where relevant and feasible, into the PIE rules.

Unit­linked life policies can currently beneﬁt from some of the reliefs provided under the PIE rules and the objective is to ensure that non­unit linked life policies are not tax disadvantaged relative to other equivalent investment vehicles that are subject to the PIE rules.
Any reform of the taxation rules applying to life insurance must therefore encompass both the shareholder and policyholder bases in an integrated and coherent manner.
Alternative options The review of the taxation of life insurance analysed a range of options, including the status quo, for their consistency with New Zealand’s tax policy environment—for example, whether the option could be fully integrated within the dividend imputation system, loss carry forward rules and the measurement of taxable income under the Income Tax Act generally.
The options were also measured, where practical, for their consis­ tency with generally accepted accounting practice and actuarial stan­ dards.

Option 1: technical changes Isolated technical changes to current legislation were considered, such as increasing the premium loading to better approximate the proﬁts made by life insurers.

These changes were considered too arbitrary and would create winners and losers on an artiﬁcial basis.
There is no accurate, objective basis on which to determine an ap­ propriate premium loading that covers all life products and all life insurers.

Incorporating savings products in the PIE rules without addressing the term insurance issue is inappropriate as it would exacerbate the undertaxation of life insurance income.

It would also mean that life insurance tax would develop in an ad hoc and arbitrary fashion and would further add to the complexity of the tax rules.
82 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note These ad hoc measures were considered to be inconsistent with New Zealand’s tax policy environment as they could not provide a coher­ ent or integrated platform and would not meet the desired objectives.
Option 2: adopt the practices and tax treatment used in other jurisdictions The taxation rules for life insurance that are applicable in other jur­ isdictions were examined, and while certain features from various countries were inﬂuential in the design of the preferred option (partic­ ularly, some aspects of the Australian rules), New Zealand’s unique tax policy and commercial environment precluded a wholesale adop­ tion of a foreign model.
Option 3: “premium taxation” Under a typical structure, the tax is applied to the total of the insurer’s premium revenue with certain alterations.

In this way it is similar to a levy, as opposed to income tax.

Usually, but not always, the life insurer is responsible for tax payments.
While premium taxation would be simple to administer for Inland Revenue and compliance by insurers would be relatively straightfor­ ward, there are less desirable features: • It is regressive in that it burdens lower­income purchasers of life insurance more than higher income persons, as unit costs for small policies (which are typically bought by the former) are higher than for larger policies.
Higher premium forms of life insurance will be subject to a greater level of tax, irrespective of the proﬁtability associated with that product.

It discriminates against those who must pay higher insurance premiums owing to their age, health or other difﬁculties and again imposes a tax burden that does not necessarily corres­ pond to the proﬁt earned by the life insurer in connection with the life product sold.
As the tax must be paid irrespective of life insurer proﬁtability, it does not adequately take into account costs incurred.

It is a direct tax on life savings products that is not applicable to other savings products and would therefore distort consumer choice.

• • • • Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 83 This alternative was not considered appropriate for tax policy reasons and would not achieve the desired objectives.
Option 4: “economic basis” One life insurer suggested life insurance should be taxed on an “eco­ nomic” equivalence basis incorporating taxation of the policyholder.

This would entail taxing insurance claims paid to policyholders while making premiums paid tax deductible.

This is not consistent with New Zealand’s tax policy that, except for certain income protection insurance, life insurance claims are not income to the policyholder.
Further, the insurer has suggested that a life insurer would deduct the premiums and recognise the claims as a “proxy” of the policyholders.

Effectively, its tax loss would be greater than that produced under the current rules as there would be no taxation of underwriting income.

It therefore would perpetuate the anomalous tax treatment of term insurance.

For these reasons, this option is not considered appropriate and would not achieve the desired objectives.
The option is likely to retain or increase the tax preferences for life insurers.

It is difﬁcult to estimate to what extent the option would affect premiums.

Preferred option Under the preferred option, life insurer income will be allocated on the basis of actuarial principles between income earned on behalf of shareholders (the shareholder base) and income earned on behalf of policyholders (policyholder income).
The shareholder base will comprise risk proﬁts, fees, share of par­ ticipating proﬁts, and investment income on shareholder funds, and other income accruing to the life company.

It will be taxed at the com­ pany rate, and be generally subject to ordinary rules for companies, including those for losses and memorandum account balances.
The policyholder base will comprise investment income less ex­ penses, including the policyholders’ share of net investment income from participating policies, allocated between shareholder and policyholder incomes according to the life insurer’s rules.

The PIE exclusion of realised New Zealand and listed Australian equity gains will be extended to policyholders in all life insurance savings products, which will then be taxed at the 30% tax rate.
How­ 84 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note ever, life insurers can elect to attribute income in investment­linked products to policyholders at their individual PIE rates (19.5% or 30%).

While policyholders will need to maintain certain memoran­ dum accounts and carry forward unutilised tax losses, these will not be subject to member continuity rules.

The new rules will apply from the insurer’s ﬁrst income year begin­ ning on or after 1 April 2009.
Policies sold before 1 April 2009 will be grandfathered for up to 5 years.

However, if a policy is single premium, level premium, or guaranteed premium, it could be grand­ fathered for the life of the policy or for the period for which the pre­ mium is guaranteed.

The preferred option corrects the underwriting anomaly in the current rules, by taxing the life insurer on its actual proﬁts and extends certain PIE tax base beneﬁts to all policyholder income.
It also ensures that life insurers are progressively taxed, as determined by the natural expiry of life products sold before 1 April 2009, on the basis of earned proﬁts as required by any other business taxpayer.

The correct taxation of underwriting income will be ﬁscally positive, but the impact will be gradual due to the transition rules.

The PIE beneﬁts, which are not subject to any transition, will incur an offset­ ting ﬁscal cost.
The initial annual net ﬁscal position on application of the new rules will be a loss, followed by a close to break even result.

There is an estimated small ﬁscal beneﬁt in the third year, increasing as more term insurance policies become subject to the new rules.

The overall ﬁscal effect is eventually expected to be positive, taking into account the proposed transition, and the net effect will depend on the extent to which life insurers adapt products that respond to the new taxation rules.
Impact on premiums It is not possible to determine how premiums may change as a result of the reforms.

This is because it is not known where the incidence of the tax beneﬁt of the current under taxation of life insurance rests.

In particular, different life insurance businesses operate under different structures, many within wider ﬁnancial service provider groups, and cross­subsidisation of products and business lines could occur.
Premiums payable for life insurance vary between insurers and are inﬂuenced by many factors, not the least being the type of life prod­ Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 85 uct purchased, the health of the policyholder and the insurers costs (including commissions and tax).
The degree to which tax inﬂuences increases in the premiums paid by policyholders cannot be measured with certainty as this will depend on a wide range of risk variables including the insured’s income, lifestyle, and age.

Any change from the status quo may result in an increase in life pre­ miums to the extent that the tax cost is directly passed on to policy­ holders.
The industry has asserted that any change from the status quo could result in premiums increasing, on an all things being equal basis, by 1 % to 30%.

The calculations supporting the industry’s ana­ lysis were not provided, and given the competitive market for life products such increases would seem to be at the extreme end of the scale.
The demand for life insurance, like any other product, is sensitive to price and the industry is concerned that any change to the current tax preferences will have a corresponding effect on life insurance pre­ miums and could result in a reduction in the demand for life policies.

It is, however, impossible to estimate the extent, if any, that the tax preference allowed under the status quo has inﬂuenced the pricing and take up of life insurance in New Zealand.
International research suggests that while life insurance premium prices are a factor in de­ mand, other important factors such as income, age, education, and dependants are more inﬂuential.

There is no compelling evidence to suggest that tax preferences alone inﬂuence demand.

The transition rules provided for under the preferred option are de­ signed to reduce the impact of the new rules on premium prices.
It is expected that the changes to the taxation rules under the preferred option will mean that there should be minimal reason, taxation ef­ fects alone, to increase premiums on most existing term life insur­ ance policies until at least 2014–15.

The transition should apply to almost all existing term life insurance policies sold before 1 April 2009 whose premiums are determined annually.
Premiums for these policies, which represent the majority of term products sold, are typically calculated by taking into account the age of the policyholder and general economic and health factors.

These policies will be grandparented until the insurer’s 2014–15 in­ come year.

Restrictions will apply, however, to prevent new policies from being attached to current policies that are subject to the transi­ tional provisions.
86 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note The transition will also apply to premiums paid for certain term in­ surance sold before 1 April 2009 which provide that the premium amount is ﬁxed.

These policies are grandparented and will not be subject to the preferred option.
If a life insurer, considers that the costs of grandparenting policies under the current old rules exceeds the beneﬁts to policyholders, the life insurer can elect to have the new rules apply to those policies.

Elections are irreversible.

The preferred option will immediately apply to policies taken out on and after 1 April 2009.
Impact on savings To the extent that the tax treatment of policyholders under the status quo is a disincentive to saving using life insurance products com­ pared to other savings products taxed under the PIE rules, the pro­ posed changes should remove this disincentive.

Subject to the life insurer electing into the PIE rules, participating polices will be treated on an equivalent basis as unit­linked life savings products and man­ aged fund covered by the PIE rules.
Compliance costs The preferred option, to the greatest extent possible, uses the current procedures and actuarial standards used by life insurers for ﬁnancial reporting purposes when calculating income tax on risk­based life products.

In the long­run this is expected to reduce tax compliance costs, by removing the requirements to make tax speciﬁc calculations in addition to accounting and actuarial calculations.
Tax speciﬁc cal­ culations for grandparented participating products will be required, but these will be the same as those currently undertaken (albeit for fewer policies).

Therefore many of the calculations required under the new rules, un­ like those in the current rules, will already be required to be per­ formed for ﬁnancial accounting purposes using generally accepted accounting practice and actuarial standards, so the changes should not create additional tax compliance costs in this regard.
The proposed reform will, however, require life insurers to: • • understand the new rules; update their work programmes and spreadsheets; Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 87 understand new tax forms and tax reporting requirements.

• New products will also have to be priced on the basis of the rules.
The compliance costs associated with the preferred option were not identiﬁed as a particular concern by submissions, aside from those connected with re­pricing premiums for new life products sold on and after 1 April 2009 and implementing changes to ensure compliance with the PIE rules, such as paying tax on behalf of policyholders on the basis of their marginal tax rates.

Submissions did not provide any estimates of levels compliance costs.
It has not been possible to quantify the level of compliance costs re­ sulting solely from the proposed changes, as many of the proposed changes are similar to processes currently required for ﬁnancial ac­ counting purposes.

However, the proposed changes are highly spe­ cialised and apply to a relatively small number of large businesses which are already expert in life insurance taxation and actuarial prac­ tice.
Systems and processes set up at the start of the new rules may result in high initial costs for some insurers, but have low ongoing costs.

It is likely that the transitional rules for policies sold before 1 April 2009 will create on­going compliance costs arising from the need to have systems and procedures in place that identify that different taxation rules will apply.
This cost is considered a necessary trade­off in order to reduce the impact of the preferred option on premiums paid for policies taken out before 1 April 2009.

Life insurers will have the option of electing out of the transitional rules if they feel the beneﬁt is not worth the cost of compliance.

As the PIE rules are elective, life insurers should only elect into the rules if they consider that the beneﬁts to policyholders outweigh the costs.

There are no tax compliance requirements for policyholders.
Administration costs The preferred option is not anticipated to create any new additional administration costs (besides those associated with the transition in terms of staff training, developing new forms and reporting systems) from those currently incurred by Inland Revenue.

A specialist group with Inland Revenue’s audit and assurance function already exists that deals with taxation matters affecting life insurers.
88 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note Consultation An ofﬁcials’ paper, Life insurance tax reform: Ofﬁcials’ paper No 1 – scope of the reform, released in September 2006 outlined the current taxation rules and their apparent inadequacies.

The paper did not call for submissions but provided a framework for discussion with interested parties.
The product of these meetings helped form the content of a second ofﬁcials’ paper, Life insurance tax reform: Suggestions for reform, in February 2007.

Twenty­four submissions were received on this paper from a wide range of industry members, professionals, and industry associations.

Submitters were subsequently met.

A working group with the Investment, Savings and Insurance Asso­ ciation (ISI) was formed to work on details of the new rules based on the model proposed.
Ofﬁcials also consulted with other profession­ als and insurers.

In December 2007 the government released discussion document, Taxation of the life insurance business: proposed new rules.

Earlier drafts of the document were reviewed by a senior actuary from Price­ waterhouseCoopers for technical accuracy and commercial practical­ ity.

Eighteen submissions were received.


The preferred solution is based on the proposals in the discussion document modiﬁed, where considered appropriate, by the submissions and subsequent consult­ ation.

The main concerns raised by submissions were about the proposed transitional rules, in particular the duration of the transitional period and the application date for the changes, and the treatment of annu­ ities.
Where relevant, concerns about the speciﬁc details associated with transition from the status quo to the proposed new rules have been addressed.

An example is in the carry­forward of losses and recognition of reserves.

The taxation treatment of annuities has been included in the tax policy work programme for further consideration.

Loyalty programmes and GST Executive summary Goods and Services Tax (GST) is charged on goods and services con­ sumed in New Zealand.
Since exported goods and services are con­ sumed outside of New Zealand, as a general rule, exports of goods and services are zero­rated.

Zero­rating allows supplier of goods and Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 89 services not to charge GST, but still be able to claim input tax deduc­ tions.

There may be situations when supplies of what are normally consid­ ered zero­rated goods or services are essentially subject to GST at the normal rate.
This could happen when a person, for example, redeems loyalty points obtained through certain arrangements subject to GST at the usual rate for a supply that should be zero­rated.

This has led to GST being imposed on, for example, supplies of international travel, which is normally are zero­rated.
The proposed option is to amend the Goods and Services Tax Act 1985 (the GST Act) to allow certain loyalty programme operators to defer the imposition of GST until the redemption of the loyalty points to ensure that no GST is being paid on the provision of such supplies.

Adequacy statement Inland Revenue has reviewed this Regulatory Impact Statement (RIS) and considers the disclosure of information is adequate and the level of analysis is appropriate given the likely impacts of the proposal.
The Regulatory Impact Analysis Unit has not reviewed this RIS as the proposal under consideration does not signiﬁcantly impact on economic growth.

Status quo and problem As GST is based on the destination principle, in general, exported goods and services, including international travel, are zero­rated.

The destination principle is a design feature of the GST system which seeks to prevent double taxation.

International travel takes a consumer from New Zealand to an overseas destination.
Since the service in question is ultimately consumed outside of New Zealand, it is treated as an export.

The zero­rating of exported supplies might not be achieved when the supplies are not acquired directly for a monetary consideration but are acquired in exchange for certain loyalty points.
For example, an arrangement can be entered into by 2 parties, a loyalty programme operator and a loyalty points purchaser, whereby the loyalty point purchaser would pay consideration to the loyalty programme oper­ ator for crediting loyalty points to a customer.
Since GST is a tax on transactions, such an arrangement should be taxed at the normal rate, 90 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note when the loyalty programme operator issues the points to the cus­ tomer.

This is because the supply from the loyalty programme oper­ ator to a loyalty points purchaser is not of a supply of exported goods or services, but a supply of a service within New Zealand.
There­ fore, if the customer later redeems the loyalty points so acquired for what would normally be treated as a zero­rated supply, the ﬁrst sup­ ply would still be subject to GST.

Objectives The objective is to ensure that the GST liability on goods and ser­ vices that should be zero­rated will not depend on whether the goods and services were acquired for a monetary consideration or by using loyalty points.
There is no policy rationale in the same ultimate sup­ ply attracting a different GST treatment depending on the method by which it was acquired.

Alternative options Status quo Although the status quo could be retained by continuing to impose GST on loyalty points at the time they are issued, this is not the ideal option.

The purpose of loyalty points is to provide a method by which a cus­ tomer can acquire a future reward from a loyalty programme oper­ ator.
Loyalty points have no use unless they are redeemed for a re­ ward.

The fact that the customer might not know whether he or she will redeem airpoints and for what, does not change the reality that what the customer acquires is the promise of future goods or services.

Imposing GST on such supplies even though they might be redeemed for zero­rated supplies, may distort prices charged for supplies and is inconsistent with tax policy objectives.
Where rights are acquired for the future provision of goods and ser­ vices, the GST Act provides for a variety of outcomes for determin­ ing the basis and timing of taxation.

For example, vouchers may be taxed on either issue or redemption based on practical considerations.
In situations such as that under consideration, where it is not known whether and for what purpose redemption will occur, determining the Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 91 tax treatment at the time of redemption, and not at the time of issue, would be appropriate.
Targeted zero­rating One option proposed during consultation is to zero­rate the supply of points under an arrangement between a loyalty programme operator and a loyalty points purchaser, where and to the extent that those rights are redeemed for zero­rated goods and services.
Since this option requires the zero­rating to occur when points are be­ ing issued, the loyalty programme operator would have to use spec­ ulative estimations in order to apportion between loyalty points to be zero­rated and points to which the standard rate GST should apply.

This is inconsistent with the accuracy required of a tax on transaction.

Moreover, the GST Act does not apportion output tax in transactions where there is a single consideration and doing so would be inconsist­ ent with policy.
This option would also create additional compliance costs and administrative costs arising from the need to re­evaluate the GST apportioned on the issue of points in order to ensure that the ultimate GST liability was correct.

Voucher rules The GST Act contains special voucher rules that may allow a tax­ payer to impose GST on redemption in certain circumstances.
Under the voucher rules the supply of a voucher can be recognised for GST purposes at the time the voucher is issued, or where it is not practical, GST may be recognised when the voucher is redeemed for goods and services.

The voucher rules have wide application.

Therefore, making any amendments to the voucher rules to extend their application could have uncertain effects and costs, and thus should not be done without extensive consultation.
Preferred option To ensure that the same ultimate supply does not attract a different GST treatment depending on whether the customer buys goods or services directly or acquires them by using loyalty points, it is pro­ posed that GST on loyalty points sold under certain arrangements be deferred until the points are redeemed.
92 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note It is proposed that new rules are introduced for loyalty programme operators to apply where: • 25% or more of the loyalty programme operator’s or its asso­ ciated person’s business involves the provision of zero­rated goods or services.
The operator or its associated person has a business activ­ ity outside the activity of operating a loyalty programme (the main business activity) and the loyalty points are able to be re­ deemed for rewards supplied by the operator or its associated person as part of the main business activity.
The loyalty programme operator is able to identify, at the time of the redemption of loyalty points, whether or not GST has al­ ready been imposed on the points in question when they were issued or whether the GST liability was deferred until the re­ demption of points under proposed section.
• • If these conditions are satisﬁed, the loyalty programme operator will be able to choose to defer the GST liability in respect of transactions that would normally be subject to GST until the redemption of the loyalty points.

The standard rate of GST would therefore only be imposed on redemption if the points were being exchanged for goods or services that would not normally be zero­rated.
If the loyalty programme operator decides against utilising the pro­ posed rules, GST will be imposed as under the current rules.

Consultation Air New Zealand was consulted, supports the proposed changes, and has no signiﬁcant concerns with the preferred option.

Exported second­hand goods Executive summary Goods that are exported from New Zealand are generally not subject to GST.
This treatment reﬂects the policy that exported goods are zero­rated, subject to the supply meeting certain statutory require­ ments.

An exception applies to the export of second­hand goods if the ex­ porter has claimed an input tax deduction (sometimes referred to as an input tax credit) when the goods were acquired.
This exception is Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 93 an anti­avoidance measure that is designed to prevent arrangements that could create revenue leakage.

Exporters who deal with second­hand goods, such as scrap metal dealers, have commented that the current anti­avoidance rule is in­ consistent with the wider objectives of GST, in that it imposes GST on exported goods.
The proposed change to the Goods and Services Tax Act 1985 (the GST Act) deals with this concern in a way that allows certain ex­ ported second­hand goods to be zero­rated but does not put the GST base at risk.

Adequacy statement Inland Revenue has reviewed this Regulatory Impact Statement (RIS) and considers the disclosure of information is adequate and the level of analysis is appropriate given the likely impacts of the proposal.
The Regulatory Impact Analysis Unit has not reviewed this RIS as the proposal under consideration does not signiﬁcantly impact on economic growth.

Status quo and problem In general, exported goods are zero­rated and this reﬂects the policy that goods and services consumed outside New Zealand should not be subject to GST.
The general zero­rating rules that are applicable to exported goods require that: • the goods are entered for export under the Customs and Excise Act 1996; and leave New Zealand within 28 days of the goods being supplied, as determined by the earlier event of the recipient paying for the goods or the supplier issuing an invoice.

• An exception applies in connection with exported second­hand goods.
If the exporter, or an associate of the exporter, has deducted input tax when acquiring the second­hand goods from an unregis­ tered person, GST must be charged on the basis of the value of the second­hand goods when they were acquired.

This rule is an anti­avoidance measure.

The purpose of imposing GST on the export is to reverse the ori­ ginal input tax deduction claimed.
Any “added­value” that the sup­ plier provides in connection with the second­hand goods may still be 94 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note zero­rated.

In other words, zero­rating is denied to the extent of the second­hand goods input tax deduction claimed by the exporter.
In the absence of GST applying at a standard rate to exported sec­ ond­hand goods, it is possible that no GST would be collected but the government could suffer a revenue loss equal to the amount of the second­hand goods input tax deduction.

In situations where GST does not apply to certain imported goods, such as artwork, antiques, and heirlooms, it is possible that the goods could be repeatedly im­ ported to and exported from New Zealand to take advantage of the resulting input tax deductions.
The scrap metal industry is concerned that the current legislation forces them into a less competitive position than other New Zealand exporters and has a direct impact on their proﬁtability.
Objectives The objective is to ensure that the GST Act does not distort the export opportunities for second­hand goods that are consumed outside New Zealand but at the same time does not expose the GST base to leakage arising from transactions that repeatedly seek to exploit the deduction available on the purchase of second­hand goods.

Provided that GST has been paid at some stage during the lifecycle of the second­hand goods concerned, zero­rating should be allowed when they are exported.
Alternative options Status quo Other options have been considered, including the status quo.

One reason for maintaining the status quo is the administrative and com­ pliance cost concerns associated with tracing the exported goods once they leave New Zealand.

However, in terms of the decision to proceed with legislative change following the approach from the scrap metal industry, the economic cost of not zero­rating exported goods is considered to exceed these concerns.
The economic costs identiﬁed with not zero­rating exported second­ hand goods include the different tax treatment between exports of new goods compared to second­hand goods and the impact this could have on business decisions about whether or not to export scrap or Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 95 similar waste products.
The beneﬁt received by the government in terms of protecting the GST base imposes economic costs on ex­ porters of second­hand goods.

Because the problem affecting exporters of second­hand goods arises as a direct result of the GST Act, legislation is the only effective means for achieving the desired objective.

During consultation, 2 other legislative options were advanced by affected taxpayers for consideration.

The following describes why these 2 options were not considered suitable.
Commissioner discretion This option would give the Commissioner of Inland Revenue the power to identify speciﬁc second­hand goods which could be zero­ rated.

The concern with this option is that it is inconsistent with taxpayer self assessment in that a taxpayer’s determination of their tax pos­ ition would depend on the exercise of the Commissioner’s judge­ ment.

Consistency of application would also be a concern.

This op­ tion was not considered suitable.


Change for scrap metal only An alternative solution proposed that scrap metal, as deﬁned in the Secondhand Dealers and Pawnbrokers Act 2004, be speciﬁcally zero­ rated.

This option directly addressed the problem faced by scrap metal deal­ ers and did not allow the type of goods that would be of concern from being zero­rated.
However, its targeted application is problem­ atic and there is little policy rationale for distinguishing between sec­ ond­hand goods that are scrap metal and second­hand goods that are not scrap metal.

For this reason, this option was not considered suit­ able.

Of the legislative options considered, including the preferred option, the identiﬁed costs and beneﬁts were largely the same in terms of the systems necessary to support the decision to zero­rate the export.
96 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note Preferred option Under the preferred option, GST­registered persons will be able to zero­rate exported second­hand goods if the following requirements are met: • Consistent with the existing rules for zero­rating exported goods, the second­hand goods are entered for export, or will be entered for export as a condition of the supply, under the Customs and Excise Act 1996, and the supplier exports the goods within 28 days.
The overseas recipient does not anticipate that the goods will be exported back to New Zealand by the recipient, or a person associated with the recipient, in substantially the same form in they were received.

A written statement to this effect would be required at the time of supply.

Affected taxpayers consider this requirement can be easily achieved as part of the purchase agreement.
• To ensure that the change does not create a base maintenance risk, the current anti­avoidance rule will continue to have application if the exported goods are sold back to the exporter in substantially the same condition in which they were originally supplied.

To prevent the possibility of double taxation, the amended anti­avoid­ ance provision would not apply if GST is collected by the New Zealand Customs Service should the goods return to New Zealand.
The beneﬁt of the proposal is that the anti­avoidance provision is bet­ ter directed at those arrangements that are of concern to the govern­ ment and it also allows exported second­hand goods to be zero­rated.

The export requirements imposed by the proposal to support the de­ cision to zero­rate are a cost, but one that is generally borne by most exporters.
The additional documentation requirements created by the proposal are considered necessary to balance the government’s need to protect the GST base against the beneﬁt of zero­rating exported second­hand goods.

Consultation KPMG, Macaulay Metals and the Scrap Metal Dealers Association were consulted.

Those consulted support the proposed change and no signiﬁcant concerns were identiﬁed with the preferred option.
Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 97 Reducing tax compliance costs for SMEs—changes in certain tax thresholds Executive summary In Budget 2007, the government announced plans to look at meas­ ures aimed at reducing tax compliance costs for small and medium sized enterprises (SMEs).

This included the release of a discussion document for public consultation.
The discussion document, entitled Reducing tax compliance costs for small and medium­sized enterprises set out the scope of the review and explained that the Government retains a continued interest in ensuring tax compliance costs are minimised as SMEs represent a large portion of the economy and they tend to bear a disproportionate tax compliance cost burden.
While the focus of the potential initiatives contained within the dis­ cussion document was on SMEs, where appropriate, measures apply­ ing to businesses more widely have also been considered.

Submis­ sions were sought on the discussion document to ensure that mean­ ingful reductions in tax compliance costs are achieved.

The main recommendations and issues considered in the discussion document were in 2 parts.
The ﬁrst part, and the issues to which this particular regulatory impact statement relates, discussed increases to tax thresholds.

The second part related to issues that would represent more fundamental departures from the standard tax rules, and which will require a longer consultation period.

Views were therefore initially sought on certain tax thresholds.
Af­ ter receiving submissions and undergoing some further consultation, changes to the following tax thresholds are proposed: • • • • • • • pay as you earn (PAYE) once­a­month ﬁling and payment; fringe beneﬁt tax (FBT) annual return ﬁling; provisional tax use of money interest safe harbour; goods and services tax (GST) registration; GST six­monthly return ﬁling; those relating to accounting for ﬁnancial arrangements; and low­value trading stock.
98 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note Adequacy statement Inland Revenue and the Treasury have reviewed this Regulatory Im­ pact Statement (RIS), and consider that it is adequate according to the Regulatory Impact Analysis adequacy criteria.

Status quo and problem Compliance with tax laws can entail signiﬁcant time and costs for many businesses.
Compliance costs can arise because of the var­ iety of tax compliance activities involved (for example, performing tax calculations, seeking advice, record­keeping, ﬁling returns, and making tax payments) and the complexity of tax law and administra­ tive procedures.

These costs often have a disproportionate impact on SMEs, which make up approximately 96% of total businesses in our economy.

Minimising tax compliance costs is an important matter for all busi­ nesses.
However, research suggests that while SMEs do not bear higher compliance costs than larger businesses in absolute terms, they do bear higher relative costs.

Consequently, SMEs may bear a disproportionate burden of tax compliance costs.

Higher relative costs can be a barrier to economic growth for a group that consti­ tutes the majority of New Zealand businesses.
By making it easier for business to comply with their tax obligations, valuable economic resources are freed up and re­directed towards more productive ac­ tivities.

This should also improve voluntary compliance in the sector.

Objectives The purpose of the SME discussion document and associated review is to reduce tax compliance costs for businesses operating under New Zealand tax laws in order to assist productivity and competitiveness.

The emphasis is on measures that may reduce these costs for SMEs.
However, where appropriate and/or feasible, measures that might ap­ ply to businesses generally are also considered.

Ofﬁcials sought submissions on a number of possible measures aimed at reducing or eliminating, where possible, the activities that give rise to signiﬁcant tax compliance costs for SMEs.

It also looks at streamlining certain other tax compliance activities, having regard to issues such as the security of tax revenues, ﬁscal costs, and administrative feasibility.
Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 99 The ﬁrst part of this review, and the initiatives to which this particu­ lar RIS relates, deal with the variety of monetary thresholds used in deﬁning certain tax obligations faced by taxpayers.

These thresholds set limits for certain rules, generally with the aim of reducing tax compliance costs for taxpayers that fall below those limits.
Thresholds can be changed by increasing the level at which they are set and by extending the types of taxpayers that may elect to use them.

From a taxpayer’s perspective, changing a threshold may re­ duce compliance costs by reducing the number of tax returns that must be completed, by reducing the amount of information or the number of calculations required to complete each return, or by re­ ducing the number of payments the taxpayer must make to Inland Revenue.
The measures being proposed would reduce the number of interactions taxpayers have with Inland Revenue, and the amount of time taxpayers must spend on complying with tax rules.

Reducing the complexity of the tax rules means that taxpayers are less likely to require expert assistance, and are less likely to make errors.
As well as reducing tangible costs, such as hours spent and expenditure on accounting fees, reducing the complexity of the tax rules can reduce the stress associated with completing tax require­ ments.

Alternative options A range of threshold related options were considered, taking into ac­ count the number of businesses that fall within applicable thresholds, together with the need, where appropriate, to ensure that thresholds are kept in line with inﬂation.
Changes to the threshold for the change in use adjustment for GST were considered but, after taking into account the costs involved, sub­ missions made, and the relative beneﬁts likely to arise, these were not considered appropriate at this time.

A GST registration threshold of $60,000 was also considered, but it was felt that a lower threshold was more appropriate to the maintenance of a GST system that ap­ plies at a low rate to a very broad range of goods and services.
Other non­threshold related options for reducing compliance costs for SMEs are also still being considered.
These include: • consideration of a single threshold for certain concessions; 100 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note • • • • • • introducing a de minimis threshold under which legal ex­ penses are fully deductible; introducing a de minimis threshold under which deductions for entertainment expenses are allowed in full; introducing a category of restricted private­use motor vehicles for SMEs for FBT purposes by setting the basis for valuing private use at 10% of cost (rather than the current 20%) and phasing out the exemption for work­related vehicles; simplifying record­keeping requirements for recording private use of motor vehicles for FBT purposes; simplifying GST invoice disclosure and other requirements; and introducing various tax administration initiatives, such as changing certain processes including correcting minor errors in subsequent returns, using the GST ratio to pay provisional tax, and reviewing the PAYE intermediary subsidy.
Preferred option The preferred option is to as the following changes: • the threshold for PAYE once­a­month ﬁling and payment to increase from $100,000 to $250,000 (based on annual PAYE deductions); the threshold for FBT annual return ﬁling to increase from $100,000 to $250,000 (based on annual PAYE deductions); owner­employees of closely held businesses to ﬁle FBT re­ turns annually, regardless of their annual PAYE deductions, when their FBT liability is for no more than 2 vehicles; the safe harbour threshold for provisional tax use of money interest (UOMI) to increase from $35,000 to $50,000 (based on annual residual income tax); the GST registration threshold to increase from $40,000 to $50,000 (based on annual GST turnover); the GST six­monthly return ﬁling threshold to increase from $250,000 to $500,000 (based on annual turnover); non­individuals to be allowed to return income tax for ﬁnan­ cial arrangements on a cash accounting basis, and the thresh­ old for straight line accounting to increase from $1.5 million • • • • • • Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 101 • to $1.85 million (based on the total level of ﬁnancial arrange­ ments); and the threshold for the exemption from adjustments for low value trading stock to increase from $5,000 to $10,000 (based on the value of trading stock).
The application date for these measures is 1 April 2009.

Consultation Ofﬁcials from Inland Revenue, the Treasury and the Ministry of Eco­ nomic Development undertook preliminary consultation on the vari­ ous options included in the discussion document.

Those consulted included the Small Business Advisory Group, New Zealand Insti­ tute of Chartered Accountants, Business New Zealand, New Zealand Chambers of Commerce and Industry, and Tax Agents’ Institute of New Zealand.
Various submissions on the issues in the discussion document were also received from interested parties.

Tax treatment of reimbursements and honoraria paid to volunteers Executive summary In the absence of explicit rules on the tax treatment of reimburse­ ments paid to volunteers, a range of practices has developed, with the result that volunteers and organisations are confused about their tax obligations and are incurring unnecessary compliance costs.
To address these problems the following key changes are proposed: • Reimbursements that are based on actual costs incurred by a volunteer should be treated as exempt income with no limits.
This would include reimbursements based on a reasonable es­ timate of expenses likely to be incurred by the volunteer; re­ imbursements in non­cash form such as petrol vouchers, and reimbursement of transport costs incurred in the course of vol­ unteering, as well as transport costs incurred in getting to and from the place of volunteering.
Honoraria will continue to be taxable but if an organisation pays honoraria including reimbursements to a volunteer, that organisation would be required to pay the reimbursements sep­ arately from honoraria if the volunteer is to gain the advantage of the exempt income treatment of the reimbursements.
• 102 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note Adequacy statement Inland Revenue and the Treasury conﬁrm that the Code of Good Regulatory Practice and the regulatory analysis requirements, includ­ ing the consultation RIA requirements, have been complied with.

Status Quo and problem New Zealand income tax law does not explicitly address the issue of the taxation of reimbursement payments to volunteers.
However, under a strict interpretation, such payments are considered income and the relevant expenses deductible.

That means the income should be stated and expenses claimed in the person’s income tax return.

A number of pragmatic approaches have, however, developed in re­ spect of such payments when made to volunteers; from treating them as withholding payments and deducting tax at source, to ignoring them as if they were exempt income.
The latter treatment assumes that the costs incurred equal the reimbursement received so that the net effect is no tax to pay.

As a result of the lack of clarity and varied practices, volunteers and the organisations that use their services are confused and often anxious about their tax obligations, and are in­ curring unnecessary compliance costs.

Honoraria are withholding payments from which the payer, under current law, must deduct tax at the rate of 33 cents in the dollar.
How­ ever, a practice has developed over time of payments that are charac­ terised as honoraria sometimes including reimbursements along with a fee for service, or they may even be wholly reimbursement pay­ ments.

Since the tax deducted from honoraria is not a ﬁnal tax, recipients must still ﬁle a tax return and claim any expenses incurred as a de­ duction before their tax position can be ﬁnalised.
Objectives The objectives for reform of this area of tax law were to: • determine the appropriate tax treatment of reimbursement pay­ ments made to volunteers; ensure that the law is clear and simple to apply; • Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 103 • • minimise, as much as possible, the compliance costs associ­ ated with return ﬁling for volunteers and for the organisations for which they carry out their voluntary activities; and propose a basis on which payments to volunteers characterised as honoraria, which are actually reimbursements for costs incurred, can be removed from the withholding payments regime.
Alternative options Setting a threshold up to which reimbursements would be treated as exempt income Under this option, a threshold would be set that represents a “rea­ sonable” amount for the reimbursement of any actual costs incurred.

Reimbursement payments up to that level would be treated as exempt income and volunteers would not be required to include those pay­ ments in their income tax returns.
Payments in excess of the thresh­ old would have to be included in the volunteer’s income tax return and claimed expenses would have to be supported by documentary evidence of costs incurred before they would be allowed as a deduc­ tion.

This option would clarify the tax treatment.

However, while a thresh­ old would achieve the objective of minimising compliance costs for some individuals and organisations, it would not be effective for others.
This was the view of almost three quarters of the submit­ ters on the ofﬁcials’ issues paper The tax treatment of honoraria and reimbursements paid to volunteers.

It would also be difﬁcult to jus­ tify a different tax treatment of payments that have similar features purely on the basis of their cumulative monetary value over a tax year.
Treating reimbursements not based on actual costs as exempt income up to a threshold To mitigate the risks associated with reimbursements based on an estimation of costs that had been or would be incurred by volunteers the issues paper proposed that a cap could be imposed on that type of payment.
However, this was not widely supported and would have 104 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note been inequitable for volunteers when compared with the treatment of reimbursements paid to employees.
Claiming costs incurred as donations for the purposes of the donations rebate Under this option, volunteers would be able to claim costs incurred in the course of volunteering, which have not been reimbursed, as donations for the purposes of the donations rebate.

This option was suggested in some submissions on an earlier discussion document and is the approach taken in the USA.
However, it was not supported by ofﬁcials and not canvassed further in the issues paper because: • it would increase compliance costs for both volunteers and their organisations; there would be an incentive for organisations not to reimburse their volunteers so the volunteers would continue to be “out of pocket” until they could claim their rebate after the end of the tax year; and volunteers who were reimbursed would not be relieved of tax ﬁling obligations.
• • Honoraria to be tax­free up to a threshold of $1,000 per annum Under this option, volunteers and organisations would be relieved of the compliance costs associated with return ﬁling for honoraria pay­ ments until the total paid reached a threshold, which was proposed to be $1,000 per annum.

A partial tax exemption for honoraria would have to be implemented on a per volunteer per organisation basis as an organisation would not know what withholding tax was being deducted by another organisation.
This could have the effect of in­ creasing the exemption available to individual volunteers to above $1,000 if they were receiving honoraria from more than 1 organisa­ tion and was regarded as an unacceptable revenue risk.

In addition, as for the option of a threshold for reimbursements, it would also be difﬁcult to justify a different tax treatment of payments that have similar features purely on the basis of their cumulative mon­ etary value over a tax year.
Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 105 Withholding tax deducted from net honoraria paid to volunteers Under this option the payer of an honorarium would be required, on an individual basis, to calculate the portion of an honorarium that represents expenses that have been, or will be, incurred.

The payer would be required to deduct withholding tax only from the net amount.
This option would require payers to know in advance what expenses are likely to be incurred so they can correctly calculate the taxable portion of the honorarium, and the amount of withholding tax.

This would signiﬁcantly increase up­front compliance costs for payers of honoraria to volunteers.
On the other hand, this option would be likely to eliminate compliance costs for some volunteer recipients of honoraria because they would no longer need to ﬁle an income tax return solely to claim a deduction for their expenses.

All except 1 of the submissions on the issues paper that commented on this option were opposed to the option, with most citing compli­ ance costs as their main concern.
Preferred options • Reimbursements paid to volunteers Our preferred option for the treatment of reimbursements paid to vol­ unteers is that: • Reimbursement payments that are based on actual costs in­ curred by volunteers should be treated as exempt income with no limits.
If a paying organisation puts in place a process for making a reasonable estimate of the costs likely to be incurred by a vol­ unteer in a given period, then payments made to the volunteer based on that estimate would also be treated as exempt income.

This would include reimbursements in non­cash form such as petrol vouchers.
The proposed treatment would also include reimbursement of transport costs incurred in the course of vol­ unteering, as well as transport costs incurred in getting to and from the place of volunteering.

The proposed treatment would put volunteers in a no less advanta­ geous position than employees.
106 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note Some concern was expressed about the risk that ﬂat­rate reimburse­ ments could be used to re­characterise payments that should be treated as income.

The indications are that few, if any, organisations pay a regular ﬂat rate reimbursement amount based on an estimation of actual or expected costs.
It is to mitigate that risk that the payer of such reimbursements would be required to make, for a relevant period, a reasonable estimate of expenditure likely to be incurred by the volunteer for which reimbursement is payable.

The estimated amount, when paid, would then be treated as exempt income similar to reimbursements based on actual costs.
It should also be a matter for the paying organisation to have in place adequate controls and records on which to base reimbursement pay­ ments that will satisfy audit requirements.

There is no evidence of what, if any, tax is currently collected in re­ spect of pure reimbursement payments and the information gained through an independent survey is that almost invariably the costs in­ curred by volunteers far exceeded any reimbursement that they re­ ceived.
The estimated loss of future tax revenue would be outside the range of signiﬁcant ﬁscal impacts.

The proposed treatment will almost entirely eliminate compliance costs in relation to reimbursement for volunteers and minimise com­ pliance costs for the paying organisations.

Implementing the proposed changes will require amendments to the Income Tax Act 2007 and the Tax Administration Act 1994.
Honoraria paid to volunteers We propose that honoraria should continue to be treated as taxable income and subject to withholding tax at source.

However, if an organisation pays honoraria including reimburse­ ments to volunteers, that organisation would be required to pay the reimbursements separately from honoraria if the volunteers are to gain the advantage of the exempt income treatment of the reimbursements.
Under this option, volunteers would be able to receive the full value of the reimbursement of the costs they have incurred, rather than wait until they ﬁle a tax return at the end of the year.

The total revenue cost of the proposals relating to volunteer reim­ bursements and honoraria is estimated to be in the range of $2.3 mil­ Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 107 lion to $3.3 million.
This is based on an estimation of the portion of the tax currently withheld from honoraria that represents tax on re­ imbursements and that would not be collected in future under these proposals.

The total level of tax revenue collected through honoraria payments is estimated at $7 million per annum so this is the maxi­ mum exposure to the revenue base.
Consultation The following agencies were consulted in the development of the issues paper and presentation of policy proposals to Ministers: The State Services Commission, the Ofﬁce of the Community and Volun­ tary Sector, the Department of Internal Affairs, the Ministry of Edu­ cation, Sport and Recreation New Zealand, Te Puni Kokiri, the Min­ istry of Social Development, and the Department of Labour.
The ofﬁcials’ issues paper was published on the Inland Revenue Pol­ icy Advice Division’s website and widely promoted through key sec­ tor organisations.
The policy proposals were also informed by the ﬁndings of re­ searchers from Victoria University of Wellington, School of Accounting and Commercial Law published in their report Tax and volunteering: empirical evidence to support recommendations to solve the current problems surrounding the tax treatment of volunteers’ reimbursements and honoraria in New Zealand.
Payroll giving scheme Executive summary In Budget 2007, the government announced plans to look at several measures aimed at laying the foundation for a stronger culture of charitable giving in New Zealand.

Among those measures was the release of a discussion document on the implications of introducing a before­tax payroll giving scheme in New Zealand, for public con­ sultation.
The discussion document entitled Payroll giving: providing a real­ time beneﬁt for charitable giving, considers 2 options for implement­ ing a before­tax payroll giving in New Zealand, as well as possible measures for supporting employers to choose to offer payroll giving to their employees.
108 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note The preferred option (PAYE credit mechanism) would deliver an im­ mediate tax beneﬁt to the employee consistent with the current char­ itable rebate.

This option has the added advantage in that it does not alter the level of an employee’s taxable income and therefore does not impact on the employee’s social policy entitlements and obliga­ tions that use taxable income as the basis of their calculations.
Adequacy statement Inland Revenue and the Treasury have reviewed this Regulatory Im­ pact Statement (RIS), and consider that the Statement is adequate according to the Regulatory Impact Analysis adequacy criteria.

Status quo and problem In New Zealand, payroll giving is neither well known nor widely practised.

Even so, a small number of employers have established payroll­giving relationships with individual donee organisations and with United Way.
Donations are made from the after­tax pay of the employee.

Many employers that currently offer a post­tax payroll­ giving scheme are trans­Tasman employers.

Individual donee organ­ isations are also running, investigating, or developing payroll­giving programmes.
A donee organisation is an entity or trust whose activ­ ities are not carried out for the private pecuniary proﬁt of any indi­ vidual and whose funds are applied principally for charitable, ben­ evolent, philanthropic, or cultural purposes in New Zealand.

For donee organisations, payroll giving is an efﬁcient, low­cost way to raise funds and delivers the regular income support they need.
Under the current law, as long as they keep records, employees can claim the tax beneﬁt of payroll donations at the end of the year through the current rebate process, like any other charitable donation.

The government is interested in exploring the merits of a before­tax payroll giving system.
A before­tax payroll giving system enables employees to make regular ﬁnancial contributions from their gross pay to philanthropic and charitable causes and receive an immediate tax beneﬁt on their donations at each payday.

Such a system would remove the need for employees to retain receipts and ﬁle end of year rebate claim forms.

This type of scheme operates in the United King­ dom and Australia.
Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 109 Objectives The objective is to implement a before­tax payroll giving system that enables employees to make regular ﬁnancial contributions from their gross pay to philanthropic and charitable causes and receive an im­ mediate tax beneﬁt on their donations at each payday.
Such a system should not raise undue costs and should be easy to administer for em­ ployers who choose to offer payroll giving to their employees.

Any system of payroll giving should be equitable.

It is envisaged that any before­tax payroll giving system would be voluntary for employers and employees and would operate alongside the current rebate process.
Therefore, for employees who do not or are notable to give through payroll giving they can still claim tax relief on their charitable donations through the current rebate claim process.

Alternative options The alternative option is the tax deduction mechanism.

Under this option, payroll donations would be deducted from an employee’s gross pay each payday before the imposition of PAYE.
This would essentially reduce the amount of the employee’s taxable income by the amount of the donation, and the employee would receive an im­ mediate tax beneﬁt as no tax would be paid on the donation amount.

This would mean that the tax value of charitable donations to donors would be determined by the employee’s marginal tax rate.
For ex­ ample, if the employee is on a 19.5% tax rate, then the tax beneﬁt they would receive from the deduction would be 19.5% for every dollar donated to a donee organisation through payroll giving.

A person on a 39% tax rate would receive a tax beneﬁt of 39% for every dollar do­ nated to a donee organisation.

This delivers a different tax beneﬁt to the current rebate system which is a ﬂat rate of 33⅓% for all donors.
An employee’s social policy entitlements and obligations that use taxable income as the basis of their calculations would be affected by this option.

Deducting the donation amount from the employee’s gross pay would, in effect, reduce his or her taxable income.

For ex­ ample, a reduction in an employee’s taxable income could result in a decrease in their child support liabilities and student loan repayments, and an increase in their Working for Families tax credit entitlements.
110 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note In addition, the employee’s ACC earner premium would be reduced and the low income rebate would increase.

KiwiSaver employee contributions would also decrease as a result of donations made through payroll giving under this option.

KiwiSaver employer contributions would likewise decrease.
The compliance costs associated with this option for employers would be minimal as they would only be required to deduct the do­ nation amount from the employee’s gross pay.

No extra information would be required to be collected through the employer monthly schedule, instead relevant information would be collected at the end of the year through an additional form.

The extra form would contain information on the total amount of donations collected during the year through payroll giving.
Employees would not be required to retain donation receipts or ﬁle end of year rebate claim forms in order to claim the beneﬁt of their charitable donations.

Employees would also be able to receive the tax beneﬁt of their payroll donations each payday.

Preferred option The preferred option would require employers to calculate a PAYE credit of 33⅓% on the amount of the donation and would offset this amount against the PAYE calculated on the employee’s gross pay each payday.
Under this option, it is intended that all employees would receive a tax beneﬁt of 33⅓% for every dollar donated to a donee organisation through payroll giving, irrespective of their marginal tax rate.

This option would deliver an immediate tax beneﬁt to the employee con­ sistent with the current charitable rebate, without altering the level of their taxable income.
This option would have no impact on an employee’s current social policy entitlements and obligations that use taxable income as the basis of their calculation.

Similarly, as the employee’s PAYE is still calculated on their pre­donation gross pay amount there would be no impact on the PAYE calculation, the ACC earner premium, and the low­income rebate would not be affected.
The compliance costs for employers would be greater under this option, compared with the tax deduction mechanism, as employers would have extra calculations to perform at each pay period and Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 111 would need to supply the donation and/or PAYE credit amounts through the employer monthly schedule.

Anecdotal evidence suggests that this would be relatively easy for employers with computerised payroll systems.
The compliance costs for employees under option 2 would depend on their level of giving.

For most employees they would not be required to retain donation receipts or ﬁle end of year rebate claim forms in order to claim the beneﬁt of their charitable donations.

They would receive the tax beneﬁt of their payroll donations each payday.

How­ ever, under this option, it is possible that an employee might not re­ ceive the full beneﬁt of their payroll donations on each payday.
This would occur when the PAYE credit exceeds the PAYE amount calcu­ lated on the donor’s gross pay each pay day.

For example, a donor earns $400 each payday and gives more than 50% of their pay to char­ ity.

In this instance, the PAYE credit would exceed the actual PAYE calculated.

Similarly, for a donor earning $1,100 each payday, this problem would occur if the donor gave 76% of their pay to charity each payday.
In order to address this problem, the donor could be permitted to make a claim for any unused portion of the PAYE credit at the end of the year.

While this would ensure that the employee re­ ceives the full tax beneﬁt of their charitable donations made through payroll giving, it would increase the compliance costs for the affected employees.
Consultation The proposed system of payroll giving arose from the discussion document Payroll giving: providing a real­time beneﬁt for charitable giving, which was issued for public comment in November 2007.

A total of 36 submissions were received from a wide range of people and organisations.

These included individual donors, charities and other non­proﬁt organisations, sector advisors, tax specialists, Crown entities, and overseas organisations involved in the non­proﬁt sector.
Most of the submissions were from umbrella organisations from the non­proﬁt sector.

ANZ National Bank Ltd, Business NZ, and the New Zealand Manufacturers and Exporters Association provided the “employer perspective” in submissions.

Feedback from consultation on the discussion document conﬁrmed that there is strong support for the concept of a voluntary before­ 112 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note tax payroll giving system for New Zealand.
Submissions consid­ ered that payroll giving would make it much easier for employees to make regular, voluntary contributions to their favourite charities, and would also provide charities with a low cost, on­going source of funding.

Some businesses see the introduction of payroll giving as part of their corporate social responsibility work.

However, there was serious concern for the potential compliance cost burden on em­ ployers.
In preparing the Cabinet submission the following departments were consulted: Department of Internal Affairs, the Ministry of Culture and Heritage, the Ministry of Economic Development, the Ministry of Maori Development, the Ofﬁce of the Community and Voluntary Sector, Sport and Recreation New Zealand, and the Charities Com­ mission.

Those consulted were generally supportive of the concept of payroll giving.
Most of them preferred the alternative option for its simplic­ ity and its potential ability to encourage higher income earners to give more.
Removal of section 13 of the KiwiSaver Act 2006 Executive summary It is proposed that section 13 of the KiwiSaver Act be removed in order to: • avoid repeated automatic enrolment of individuals transferring between schools in the state and state integrated schools sec­ tor; alleviate KiwiSaver administration issues faced by state and state­integrated schools and the Ministry of Education.
This change to the Act results in minor reconﬁguration of business processes and reduces administrative processes and costs.

• Adequacy statement The Ministry of Education conﬁrms that the principles of the Code of Good Regulatory Practice and the regulatory impact analysis require­ ments, including the consultation requirements, have been complied with.
Formal review by the Regulatory Impact Assessment Unit of the Ministry of Economic Development has not been sought as the Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 113 regulatory impact is considered to be of a minor nature and does not substantially alter existing arrangements.

The changes deal with ad­ ministrative procedures between departments, and do not impact on business, consumers, or the public.
Status quo and problem The KiwiSaver Act 2006 (Act) section 13, currently establishes the Boards of Trustees for some 2500 state and state­integrated schools (schools) as the employer in terms of the Act.

This results in repeated automatic enrolment of staff transferring between schools and con­ sequential KiwiSaver administration workload.
Amendments to the Act that establish a single employer for staff in the state and state­integrated schools sector would avoid the repeated automatic enrolment of staff transferring between schools and reduce KiwiSaver administration workloads.

Objectives The objective of the proposed changes is to remove the necessity to automatically enrol staff transferring between schools.

Alternative options Option 1 Automatically enrol staff once as they enter the education sector for the ﬁrst time.
Automatic enrolment would not apply in the case of movement between schools.

This can be achieved by removing sec­ tion 13 from the Act and establishing the Ministry of Education as the designated single employer for KiwiSaver purposes.

Option 2 Split the employer status between Boards of Trustees and the Min­ istry of Education.
This can be achieved by amending section 13 of the Act to provide for Boards of Trustees to be deemed the employer for auto­enrolment purposes, and the Ministry of Education deemed to be the employer for all other purposes of the Act.

114 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note Preferred option Option 1, removal of section 13 from the Act, is the preferred option as it provides the least ambiguous and is most easily administered.
Removal of section 13 allows automatic enrolment within the state and state­integrated schools sector to function as it does in the wider employment community.

Implementation of the changes would be achieved in 3 stages: 1.

2.

3.

Securing Cabinet approval to remove section 13 from the Act.

Make needed legislative changes in this bill.

Undertake targeted communications to ensure schools under­ stand the purpose, nature, and extent of the changes.
Consultation Ofﬁcials from the Treasury, Inland Revenue, and Ministry of Educa­ tion have jointly developed advice to Ministers.

Reforming the deﬁnitions of associated persons Executive summary The income tax associated persons deﬁnitions are mainly used in an anti­avoidance capacity to counter non­arm’s length transactions that could undermine the intent of our tax laws.
There are a number of major weaknesses in the general associated persons deﬁnition and, in particular, the deﬁnition which applies for land sales.

The legislative intent of the land sale tax rules is that property developers and their associates are generally taxed on all gains on property sold within 10 years of acquisition, and that they cannot claim to hold non­taxable investment portfolios.
However, the deﬁnition of associated persons which applies to land sales contains some major loopholes which allow property developers to escape tax while still operating through closely connected entities.

The preferred option would involve changes to the income tax legis­ lation to address these weaknesses in the associated persons deﬁni­ tions.

The main changes would be: • Addressing the weaknesses in the current deﬁnitions in rela­ tion to trusts.
In particular, there would be new tests focussing on a trust’s settlor, that is, the person who provides the trust property.

Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 115 • • Having more robust rules aggregating the interests of associ­ ates, to prevent the tests for associating 2 companies and a company and an individual being circumvented by the frag­ mentation of interests among close associates.
Having a tripartite test associating 2 persons if they are each associated with the same third person, thereby making the as­ sociated persons tests as a whole more difﬁcult to circumvent.

The preferred option would also rationalise the current 4 income tax deﬁnitions of associated persons and other income tax deﬁnitions em­ ploying a similar concept.
Adequacy statement Inland Revenue has reviewed this Regulatory Impact Statement (RIS), and considers that the statement is adequate according to the Regulatory Impact Analysis adequacy criteria.

Status quo and problem New Zealand tax law often subjects transactions between associated persons to special scrutiny because these transactions can pose a sub­ stantial risk to the tax base.
Transactions between associated persons may involve tax practices that undermine the intent of our tax laws because such transactions are more likely to be non­arm’s length than other transactions.

There are 4 separate deﬁnitions of “associated persons” which are used extensively in the Income Tax Act 2007 (the Act), often in an anti­avoidance capacity.

There are also a number of other deﬁnitions, such as the “related persons” deﬁnition in the dividends rules, which employ a similar concept.
To date, there has been no comprehensive review of the associated persons deﬁnitions to ensure that the Act has a coherent overall approach to deﬁning “associated persons”.

The most important application of the associated persons deﬁnition in the Act is in the area of land sales.

Parliament decided in 1973, when it enacted the current land sale tax rules, that land dealers, de­ velopers, and builders cannot generally hold land on capital account.
This means that gains on land sold by these taxpayers within 10 years of acquisition are generally taxed.

This legislative intent is clear from the parliamentary debates.

116 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note The land sale tax rules are buttressed by associated persons rules to prevent developers escaping tax by structuring ownership of their property through close associates.
There are major weaknesses in the current general associated per­ sons deﬁnition and, in particular, the deﬁnition which applies for land sales.

For example, a property developer may arrange for the trust, settled by the developer and under which the developer is a beneﬁ­ ciary, to acquire land.

Under the current associated persons rules, the property developer is not associated with the trust so the trust is not automatically caught by the land sale provisions on the subsequent sale of the land.
The policy intent would be that such arrangements are caught.

However, due to weaknesses in the rules, they are not.

These weaknesses in the associated persons deﬁnitions affect the in­ tegrity of the tax system.

Taxpayer conﬁdence in the system is un­ dermined if there is a perception that others are not paying their fair share of tax by taking advantage of such loopholes.

This perception, in turn, may adversely affect taxpayer behaviour.
Objectives The main objective is to close the loopholes in the Act’s deﬁnitions of associated persons and thereby promote key themes of the Gov­ ernment’s tax policy work programme, which are ensuring that the income tax system is robust and that it does not unduly distort in­ vestment behaviour.

Another objective is to rationalise the various income tax deﬁnitions of associated persons and thereby make the tax law more coherent.
Alternative options There are no alternative options to the preferred legislative option.

Because the current income tax associated persons deﬁnitions are in legislation, legislative change is the only option available to achieve the desired policy objectives.
Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 117 Preferred option The preferred option involves a number of legislative changes to ad­ dress the current weaknesses in the associated persons deﬁnitions.

The main changes involve: • Addressing the current weaknesses in the current deﬁnitions in relation to trusts.

The new tests would focus on a trust’s settlor, that is, the person who provides the trust property.
Having more robust rules aggregating the interests of asso­ ciates to prevent the tests for associating 2 companies and a company and an individual being circumvented by the frag­ mentation of interests among close associates.

Having a tripartite test associating 2 persons if they are each associated with the same person, thereby making the new as­ sociated persons tests more difﬁcult to circumvent.
• • The preferred option would also involve rationalising the current 4 income tax deﬁnitions of associated persons and other income tax deﬁnitions employing a similar concept, such as the deﬁnition of “re­ lated persons” that is used in the dividend rules.

Consultation Inland Revenue and Treasury ofﬁcials released an issues paper on suggested changes to the deﬁnitions of associated persons in the Act in March this year.
A total of 812 submissions were received on the issues paper – 657 of these were template letters.

The focus of nearly all the submissions was on the impact of the proposals on land sales.

Further discussions have been held with a range of submitters.

The legislative changes under the preferred option include modiﬁcations arising from the consultation process which are designed, in particu­ lar, to prevent the changes applying more widely than intended.
Minor, remedial, or consequential matters Compliance cost implications Tax pooling There are currently 4 tax pooling intermediaries.

Some intermediar­ ies may have to incur compliance costs in changing their processes to ensure they comply with the original intent of the tax pooling rules.
118 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note They will also have to incur compliance costs in providing for the transfer of funds from a tax pooling intermediary to another inter­ mediary.

However, this change will facilitate competition amongst intermediaries, so the beneﬁts of the change will be considered by most to outweigh the compliance costs.
All tax pooling intermediaries will have to change their systems to enable taxpayers to access and use tax pooling funds for reassess­ ments, voluntary disclosures, or resolution of disputes for all tax types.

This change is supported by tax pooling intermediaries and that taxpayers will beneﬁt from the changes.

It is considered that the compliance costs faced by taxpayers will be outweighed by the bene­ ﬁts of the change.
Taxpayers who previously could not access tax pooling funds to pay tax outstanding as a result of a reassessment will now beneﬁt from being able to do so for future assessments.

Migrant workers There are not expected to be any additional compliance costs faced by employers who are currently complying with their PAYE obligations.

Migrant workers will beneﬁt from having the correct tax deducted during the year and not having to ﬁle a tax return.
Inland Revenue administrative systems will also be amended to make it easier for migrant workers to obtain an IRD number and to complete a tax code declaration.

General insurance The proposed reform will require general insurers to understand the new rules and update work programmes and spreadsheets.

However, these changes and their associated compliance costs are expected to be minor and apply to a relatively small number of large businesses which are already expert in general insurance taxation.
Banking continuity There is not expected to be any additional compliance costs as a result of the recommended amendments.

Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 119 Depreciation remedials and petroleum mining The amendments ring­fencing petroleum mining expenditure in­ curred through a foreign branch may impact on New Zealand petroleum miners undertaking operations in other countries.
Given the base maintenance concerns, the measure is warranted given the potential revenue risk.

The changes to the tax depreciation rules and to the remaining changes to the petroleum mining rules are considered to be of a minor or machinery nature.

There is not expected to be any addi­ tional compliance costs as a result of the recommended amendments.
Emission trading scheme Business’ compliance costs will increase as a result of the introduc­ tion of the emission trading scheme and the consequent need to ac­ quire and surrender emission units.

However, the tax proposals have been developed with a view to minimising compliance costs.
GST zero­rating Zero­rating the supply of emission units has the lowest compliance costs of any of the alternatives considered, as it will be relatively straightforward for businesses to implement and does not require any attribution of GST input tax.

Income tax treatment The additional compliance costs of the income tax proposals are not expected to be signiﬁcant, particularly once markets develop and in­ formation on the market value of units becomes readily available.

Two issues do arise.


First, the tax treatment of the award of “free” units, which is that the income is recognised over time, is likely to be different from the accounting treatment.

Unfortunately, the account­ ing standards bodies have not yet ﬁnally determined what the correct accounting treatment should be and a variety of approaches are being used internationally.
Secondly, the very small number of taxpayers who have both forestry and non­forestry activities will need to apply 2 different sets of tax rules.

120 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note Administrative cost implications Tax pooling The administrative costs of changing and extending the provisional tax pooling regime are estimated to be: $510,000 in the 2008–09 ﬁnancial year, with associated depreciation costs of $69,120 per an­ num in future years.
All administrative costs associated with this initiative were considered by joint Ministers at the Budget bilateral on 13 February.

A level of funding was approved for all Revenue initiatives including tax pooling.

Funding for this initiative will be applied through Inland Revenue’s internal funding process.

Migrant workers The administrative costs of implementing the changes in the 2008–09 ﬁnancial year are estimated to be $310,000.
There will be associ­ ated depreciation costs of $29,160 per annum in future years.

The administrative costs for the 2008–09 ﬁnancial year and future depre­ ciation were considered by joint Ministers at the Budget bilateral on 13 February.

A level of funding was approved for all Revenue ini­ tiatives including migrant workers.

Funding for this initiative will be applied through Inland Revenue’s internal funding process.
From the 2009–10 ﬁnancial year onwards the non­depreciating costs will be met from within Inland Revenue’s baseline funding.

General insurance, banking continuity, petroleum mining, and depreciable land improvements There is not expected to be any additional administrative costs asso­ ciated with these proposals.

R&D remedial matters Some minor reductions in administrative costs for Inland Revenue should result from these amendments.
Emission trading scheme There will be some inevitable marginal increases in administrative costs as a result of the introduction of the emissions trading scheme.

Administrative costs associated with this initiative will be funded through Inland Revenue’s internal funding process.
Explanatory note Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 121 Consultation Tax pooling In relation to the proposed changes to the provisional tax pooling regime, the Treasury, the New Zealand Institute of Chartered Ac­ countants, Tax Management New Zealand, Electronic Tax Exchange Ltd, and Provisional Tax Finance Ltd have been consulted.

Migrant workers The Department of Labour, the Treasury, and Horticulture New Zealand were consulted on this proposal.
General insurance The Treasury and the body that represents the majority of the gen­ eral insurance industry, the Insurance Council of New Zealand, were consulted on this proposal.

Banking continuity The Treasury was consulted on this proposal.

Petroleum mining The Treasury, the Ministry of Economic Development, and Crown Minerals were consulted on the proposed changes.

Depreciation remedials The Treasury and the New Zealand Institute of Chartered Account­ ants have been consulted on these proposals.
KiwiSaver Inland Revenue, the Treasury and the Ministry of Economic Devel­ opment have been consulted on these proposals.

Ofﬁcials will con­ sult with the superannuation industry in the development of the le­ gislation.

122 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Explanatory note Nuie joint ventures Inland Revenue, the Treasury, the Ministry of Foreign Affairs and Trade, and the Department of the Prime Minister and Cabinet have been consulted on this proposal.
Amendments to the PIE rules for land­owning companies Inland Revenue and the Treasury have been consulted on this pro­ posal.

Research and development remedial matters Inland Revenue, the Treasury, the Ministry of Science, Research and Technology, and the Corporate Taxpayers Group have been consulted on these proposals.
Emission trading scheme Tax policy ofﬁcials issued a paper titled Emissions Trading – Tax Issues in September 2007 which discussed both the potential GST and income tax treatment of emission units.

A number of submis­ sions on the proposals in that paper were received.

Those submis­ sions were considered in developing the proposals set out above.

Speciﬁc discussions have been held with the Institute of Chartered Accountants and some of the submitters.
The Treasury, Inland Revenue, and the Emissions Trading Group were consulted on the emissions trading proposals.

Application of the non­disclosure right to discovery The Crown Law Ofﬁce, the Ministry of Justice, the New Zealand Institute of Chartered Accountants, the New Zealand Law Society, Inland Revenue, and the Treasury were consulted on this proposal.
Hon Peter Dunne Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Government Bill Contents Title Commencement Part 1 Amendments to Income Tax Act 2007 Income Tax Act 2007 Income tax liability of person with schedular income Withholding liabilities Other obligations Disposal: land used for landﬁll, if notice of election Section CB 26 replaced CB 26 Disposal of certain shares by portfolio investment entities New heading and section CB 36 added Emissions units under Climate Change Response Act 2002 CB 36 Disposal of emissions units Transfers of value generally When is a transfer caused by a shareholding relationship?
Returns of capital: off­market share cancellations Property made available intra­group Employee beneﬁts Foreign investment fund income 233—1 Page 31 31 35 35 35 35 35 36 36 36 37 38 38 39 39 39 39 1 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill New section CD 36B inserted CD 36B Distributions to resident company for deductible foreign equity and ﬁxed­rate foreign equity Available subscribed capital (ASC) amount Available capital distribution amount Prevention of double taxation of share cancellation dividends Amounts derived in connection with employment Meaning of expenditure on account of an employee Beneﬁts, pensions, compensation, and government grants New subpart CO inserted Subpart CO—Income from voluntary activities Income from voluntary activities CO 1 Section CP 1 replaced CP 1 Attributed income of investors in multi­rate PIEs When attributed CFC income arises When FIF income arises Heading to subpart CR replaced Section CR 1 and CR 2 replaced CR 1 CR 2 New section CR 4 added CR 4 Policyholder base income of life insurer Shareholder base gross income of life insurer Income for general insurance outstanding claims reserve Section CV 10 repealed New section CW 3B inserted CW 3B Pre­1990 forest land emissions units Section CW 9 replaced CW 9 Dividend derived from foreign company Proceeds of share disposal by qualifying foreign equity investor Expenditure on account, and reimbursement, of employees New sections CW 17B and CW 17C inserted CW 17B Relocation payments CW 17C
 Payments for overtime meals Section CW 37 repealed Local and regional promotion bodies Charities: business income New section CW 62B inserted CW 62B Voluntary activities Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 40 41 42 43 44 45 46 47 Meaning of fringe beneﬁt Section CX 18 replaced CX 18 Beneﬁts
 provided when both employment and shareholding relationships exist Beneﬁts provided instead of allowances Section CX 28 replaced CX 28 Accommodation Section CX 39 repealed Government grants to businesses New heading and section CX 48B inserted Government funding of ﬁlm and television CX 48B Government funding additional to government screen production payments New heading and section CX 48C inserted Research and development CX 48C Tax credits for expenditure on research and development 48 New heading and section CX 51B inserted Emissions units under Climate Change Response Act 2002 CX 51B Issue of emissions units Proceeds from certain disposals by portfolio investment entities or New Zealand Superannuation Fund Section CX 55 replaced CX 55 Proceeds from disposal of investment shares Section CX 56 replaced CX 56 Attributed income of certain investors in multi­rate PIEs CX 56B Distributions to investors in multi­rate PIEs CX 56C Distributions to investors by listed PIEs Section CX 57 replaced CX 57 Credits for investment fees Interest: not capital expenditure Interest: most companies need no nexus with income Interest: money borrowed to acquire shares in group companies Cost of revenue account property Property misappropriated by employees or service providers Section DB 53 replaced Taxation (International Taxation, Life Insurance, and Remedial Matters)
 Bill DB 53 Attributed PIE losses of certain investors Section DB 54 replaced DB 54 Treatment of credits for investment fees Expenditure incurred in deriving exempt dividend New heading and section DB 60 added Emissions units under Climate Change Response Act 2002 DB 60 Acquisition of emissions units Heading to subpart DF Government grants to businesses Payments for social rehabilitation New section DF 5 added DF 5 Government funding additional to government screen production payments When attributed CFC
 loss arises When FIF loss arises Sections DR 1 to DR 3 replaced DR 1 Policyholder base gross expenditure or loss of life insurer Shareholder base gross expenditure or loss of life insurer DR 2 Film production expenditure Meaning of ﬁlm reimbursement scheme New section DT 1A inserted DT 1A Ring­fenced allocations Arrangement for petroleum exploration expenditure and sale of property Petroleum development expenditure Disposal of petroleum mining asset to associate Amount written off by holding company Transfer of expenditure to master fund Carry forward of expenditure Investment funds: transfer of expenditure to master funds New section DW 4 added DW 4 Deduction for general insurance outstanding claims reserve Section DX 2 repealed Meaning of trading stock Low­turnover valuation Valuing closing stock under $5000 Valuation of excepted ﬁnancial arrangements Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill New section ED 1B inserted ED 1B Valuation of emissions units issued for no consideration Economic rate for plant, equipment, or building, with high residual value Annual rate for item acquired in person’s 1995–96 or later income year Section EG 3 repealed Expenditure incurred in acquiring ﬁlm rights in feature ﬁlms
 Expenditure incurred in acquiring ﬁlm rights in ﬁlms other than feature ﬁlms Film production expenditure for New Zealand ﬁlms having no large budget screen production grant Film production expenditure for other ﬁlms having no large budget screen production grant Section EJ 12 replaced EJ 12 Petroleum development expenditure: default allocation rule EJ 12B Petroleum development expenditure: reserve depletion method Relinquishing petroleum mining permit New sections EJ 13B and EJ 13C inserted EJ 13B Dry well
 drilled EJ 13C Well not producing Disposal of petroleum mining asset Sections EJ 19 and EJ 20 replaced EJ 20 Meaning of petroleum mining development What is an excepted ﬁnancial arrangement?
When use of spreading method not required IFRS ﬁnancial reporting method Determination alternatives Expected value method 98 99 100 101 102 103 Modiﬁed fair value method 104 Mandatory use of yield to maturity method for some 105 106 arrangements Straight­line method Consistency of use of straight­line method and market valuation method Change of spreading method 107 108 When calculation of base price adjustment required 109 Section EW 54 replaced Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 110 111 112 113 114 115 116 117 118 119 EW 54 Meaning of cash basis person Section EW 56 repealed Thresholds Financial arrangements, income, and expenditure relevant to criteria Section EW 59 replaced EW 59 Exclusion by Commissioner Trustee of deceased’s estate Meaning of controlled foreign company Associates and 10% threshold Formula for calculating attributed CFC income or loss Taxable distribution from non­complying trust New heading and sections EX 20B to EX 20D inserted Attributable CFC amount and net attributable CFC income or loss EX 20B Attributable CFC amount EX 20C Net attributable CFC income or loss EX 20D Adjustment of fraction for excessively debt funded CFC 120 121 122 123 Attributable CFC amount Heading repealed Branch equivalent income or loss: calculation rules New heading and sections EX 21B to EX 21E inserted Non­attributing active CFCs EX 21B Non­attributing active CFCs Tests for
 non­attributing active CFCs EX 21C Applicable accounting standards for section EX 21E EX 21D Non­attributing active CFC: default test EX 21E Non­attributing active CFC: test based on accounting standard Heading and section EX 22 replaced Non­attributing Australian CFCs EX 22 Non­attributing Australian CFCs Section EX 23 repealed Change of CFC’s balance date Attributing interests in FIFs Exemption for ASX­listed Australian companies CFC rules exemption 124 125 126 127 128 129 6 91 92 92 92 92 93 93 93 93 93
Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 130 131 132 133 134 135 136 137 138 139 140 Grey list company owning New Zealand venture capital company: 10­year exemption Exemption for employee share purchase scheme of grey list company Limits on choice of calculation methods Section EX 47 replaced EX 47 Method required for certain non­ordinary shares Comparative value method Fair dividend rate method: usual method Fair dividend rate method for unit­valuing funds and others by choice Cost method Additional FIF income or loss if CFC owns FIF Codes: comparative value method, deemed rate of return method, fair dividend rate method, and cost method Sections EY 1 to EY 5 replaced EY 1 What this subpart does EY 2 EY 3 EY 4 Apportionment of income of particular source or Policyholder base Shareholder base nature, and of tax credits 141 Section EY 6 replaced EY 6 Actuarial advice and guidance 142 Meaning of life reinsurance 143 Section EY 15 to EY 47 replaced Policyholder base Non­participation policies EY 15 Policyholder base income: non­participation policies EY 16 Policyholder base gross expenditure or loss: non­participation policies Proﬁt participation policies EY 17 Policyholder base gross income: proﬁt participation policies 127 127 128 129 129 129 129 131 132 132 133 134 134 134 135 136 137 137 137 138 138 139 140 EY 18 Policyholder base gross expenditure or
 loss: proﬁt 141 participation policies Shareholder base Non­participation policies 7 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill EY 19 Shareholder base gross income: non­participation 141 policies EY 20 Shareholder base gross expenditure or loss: 142 non­participation policies Proﬁt participation policies EY 21 Shareholder base gross income: proﬁt 142 participation policies EY 22 Shareholder base gross expenditure or loss: proﬁt 143 participation policies Reserves:
 non­participation policies EY 23 Reserving amounts for life insurers: non­participation policies EY 24 Outstanding claims reserving amount: non­participation policies not annuities EY 25 Premium smoothing reserving amount: non­participation policies not annuities EY 26 Unearned premium reserving amount: non­participation policies not annuities EY 27 Capital guarantee reserving amount: non­participation policies not annuities 144 145 147 150 151 Shareholder base other proﬁt: proﬁt participation policies EY 28 Shareholder base other proﬁt: proﬁt participation 152 policies Transitional adjustments and annuities EY 29 Transitional adjustments: life risk EY 30 Annuities Policyholder income formula: FDR adjustment Policyholder income formula: PILF adjustment Non­resident life insurers with life insurance policies in New Zealand Section EZ 31 repealed Section EZ 32B repealed New headings and sections EZ 53 to EZ 60 added Life insurance transitional adjustment: expected death strain Expected death strain formulas 155 157 158 159 160 160 160 160 EZ 53 How expected death strain is calculated 161 144 145 146 147 148 149 8 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill EZ 54 Expected death strain formulas EZ 55 Expected death strain formulas: option when more than 1 life insured EZ 56 Expected death strain formula (life): when annuity payable on death EZ 57 Expected death strain formulas: when annuity payable on survival to date or age speciﬁed
 in policy 161 163 163 164 EZ 58 Expected death strain formula (life): when partial 164 reinsurance exists Actuarial reserves EZ 59 Meaning of actuarial reserves EZ 60 Actuarial reserves: calculation New heading and sections EZ 61 to EZ 63 added 150 Transitional and other miscellaneous provisions relating to entry into new life insurance regime EZ 61 Disposal and re­acquisition upon entry EZ 62 Allowance for cancelled amount: spreading EZ 63 Reinsurance transition: life ﬁnancial reinsurance may be life
 reinsurance Recharacterisation of certain debentures Transfer at market value 151 152 What this subpart does 153 154 What this subpart does 155 When this subpart applies 156 157 158 159 160 161 Interest apportionment for individuals Section FE 3 replaced FE 3 Some deﬁnitions Thresholds for application of interest apportionment rules Apportionment of interest by excess debt entity Calculation of debt percentages Financial arrangements entered into with persons outside group Consolidation of debts and assets Total group debt Total group assets 162 163 164 165 Measurement of debts and assets of worldwide group 166 167 Banking group’s New Zealand net equity New Zealand group for excess debt entity that is a company Identifying New Zealand parent 168 165 165 167 167 167 169 169 170 171 171 171 172 172 173 173 174 175 176 177 177 178 179 180 181 181 9 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 169 170 171 Section FE 28 replaced FE 28 Identifying members of New Zealand group Section FE 29 replaced FE 29 Combining New Zealand groups owned by natural persons and trustees Ownership interests in companies outside New Zealand group 172 Worldwide group for corporate excess debt entity New sections FE 31B and FE 31C inserted 173 FE 31B Worldwide group for excess debt outbound companies FE 31C CFCs in worldwide group for natural persons or trustees described in section FE 2(1)(g) Section FE 32 replaced FE 32 Joint venture parties Subpart FF
 repealed Consolidation rules Some general rules for treatment of consolidated groups Heading and sections FM 24 to FM 26 repealed Imputation rules Treatment of interest payable under debentures issued before certain date Attribution rule for income from personal services Interpretation of terms used in section GB 27 Beneﬁts provided to employee’s associates Section GB 39 repealed Arrangements involving money not at risk Deﬁned terms for sections GB 45 and GB 46 New section GC 4B inserted GC 4B Disposals of
 emissions units at below market value Leases for inadequate rent Insufﬁcient amount receivable by person Compensating arrangement: person receiving more than arm’s length amount Requests for matching treatment Section GC 12 replaced GC 12 Effect on person’s withholding obligations New section GZ 2 inserted GZ 2 Arrangements involving cancellation of conduit tax relief credits Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 194 195 196 197 198 199 200 201 Shareholding requirements New section HA 8B inserted HA 8B No CFC income interests or FIF direct income interests of 10% or more Fully imputed distributions Section HA 16 replaced HA 16 Dividends paid by qualifying companies to trustee shareholders Credit accounts and dividend statements Calculating qualifying company election tax Corpus of trust Taxable distributions from non­complying and foreign trusts 202 Who is a settlor?
203 204 Trusts and minor beneﬁciary rule Limitation on deductions by partners in limited partnerships Eligibility requirements for entities Effect of failure to meet eligibility requirements for entities Investor membership requirement Investor interest size requirement Further eligibility requirements relating to investments Unlisted company choosing to become portfolio listed company Becoming portfolio investment entity Portfolio class taxable income and portfolio class taxable loss for portfolio allocation period Credits received by portfolio tax rate entity or portfolio investor proxy Subpart HL replaced by subpart HM Subpart HM—Portfolio investment entities Introductory provisions HM 1 Outline of subpart and relationship with other Parts HM 2 What is a portfolio investment entity?
HM 3 Foreign PIE equivalents HM 4 Who is an investor?

HM 5 What is an investor class?
HM 6 Intended effects for multi­rate PIEs and investors Entry rules Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill HM 7 Requirements Requirements HM 8 Residence in New Zealand HM 9 Collective schemes HM 10 Exclusion: life insurance business HM 11 Investment types HM 12 Income sources HM 13 Maximum shareholdings in investments HM 14 Minimum number of investors HM 15 Maximum investors’ interests HM 16 Associates combined HM 17 Same rights to all investment proceeds HM 18 Requirements for listed PIEs: unlisted companies HM 19 Requirements for listed PIEs: fully crediting distributions HM 20 Re­entering as PIE: 5­year rule Exceptions HM 21 Exceptions for certain investors HM 22 Exceptions for certain funds HM 23 Exceptions for foreign PIE equivalents Exit rules HM 24 Ending of New Zealand residence HM 25 When entity no longer meets investment or investor requirements HM 26 Starting life insurance business HM 27 When multi­rate PIE no longer meets investor interest adjustment requirements HM 28 When listed PIE no longer meets crediting requirement HM 29 Choosing to cancel status HM 30 When foreign PIE equivalent no longer meets requirements Rules for multi­rate PIEs Introductory provisions HM 31 Rules for multi­rate PIEs HM 32 Rules for and treatment of investors in multi­rate PIEs HM 33 Proxies for PIE investors 205 205 205 206
 206 206 207 208 209 209 209 210 210 211 211 212 213 213 213 214 215 215 215 215 216 216 217 12 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Attributing income to investors HM 34 Attribution periods HM 35 Determining net amounts and taxable amounts HM 36 Calculating amounts attributed to investors HM 37 When income cannot be attributed HM 38 When superannuation fund investor has conditional entitlement HM 39 New investors in existing investor classes HM 40 Deductions for
 attributed PIE losses for zero­rated and exiting investors Calculating and paying tax liability HM 41 Options for calculation and payment of tax HM 42 Exit calculation option HM 43 Quarterly calculation option HM 44 Provisional tax calculation option HM 45 Voluntary payments HM 46 Calculation process HM 47 Calculation of tax liability or tax credit of multi­rate PIEs Adjusting investors’ interests HM 48 Adjustments to investors’ interests or to distributions Using tax credits HM 49 Tax credits: when sections HM 50 to HM 55 apply HM 50 Attributing credits to investors HM 51 Use of foreign tax credits by PIEs HM 52 Use of foreign tax credits by zero­rated and certain exiting investors HM 53 Use of tax credits other than foreign tax credits by PIEs HM 54 Use of tax credits other than foreign tax credits by investors HM 55 Tax credits for losses Prescribed and notiﬁed rates for investors in multi­rate PIEs 218 218 220 221 222 223 223 224 224 226 226 227 228 228 229 230 230 231 233 234 234 235 HM 56 Prescribed investor rates for investors, default 235 and optional: 30% 13 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill HM 57 Prescribed investor rates for certain natural person 236 investors: 19.5% HM 58 Prescribed investor rates for certain investors: 0% HM 59 Notiﬁed rates HM 60 Certain exiting investors zero­rated Exit levels and periods HM 61 Exit levels for investors HM 62 Exit periods Treatment of losses by PIEs Losses of certain
 multi­rate PIEs HM 63 Use of investor classes’ losses HM 64 Use of land losses of investor classes Formation losses HM 65 Formation losses carried forward to tax year HM 66 Formation losses carried forward to ﬁrst quarter HM 67 When formation losses carried forward are less than 5% of formation investment value HM 68 When formation losses carried forward are 5% or more of formation investment value: 3 year spread 236 237 238 238 238 239 240 241 241 241 242 HM 69 Allocation of formation losses of multi­rate
 PIEs 242 to investor classes Elections and consequences HM 70 Choosing to become PIE HM 71 When elections take effect HM 72 Transition: provisional tax HM 73 Transition: entities with non­standard income years HM 74 Transition: treatment of shares held in certain companies HM 75 Transition: FDPA companies Tax losses Restrictions relating to ring­fenced tax losses Restrictions relating to schedular income Common ownership: group of companies New section IC 13 added IC 13 Variation of requirements for development companies in Niue 243 243 244 245 245 247 247 247 248 248 248 248 215 216 217 218 219 14 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 220 221 222 Ring­fencing cap on attributed CFC net losses Group companies using attributed CFC net losses Subpart IT replaced Subpart IT—Cancellation of life insurer’s losses IT 1 IT 2 Cancellation of life insurer’s policyholder net losses Cancellation of life insurer’s tax loss when allowed into policyholder base Remaining refundable credits: PAYE, RWT, and certain other items Remaining refundable credits: tax credits for families LA 7 Remaining refundable credits: tax credits under social policy schemes Tax credits for PAYE income payments New section LA 8B LA 8B General rules particular to life insurers Use of credits Section LB 1 replaced LB 1 Tax credits for resident withholding tax Tax credits related to personal service rehabilitation payments: providers Tax credits related to personal
 service rehabilitation payments: payers Tax credits for housekeeping Subpart LD heading replaced New heading inserted Tax credits for charitable or other public beneﬁt gifts Exclusions New heading and sections LD 4 to LD 7 added Payroll donations LD 4 Tax credits for payroll donations LD 5 When tax credit incorrectly calculated LD 6 When donation is paid to ineligible recipient or not transferred LD 7 Meaning and ranking of payroll donation Tax credits for imputation credits Use of remaining credits by
 companies and trustees New section LE 2B inserted LE 2B Use of remaining credits by life insurer on policyholder base Use of remaining credits by others Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 241 242 Tax credits for FDP credits Subpart LH–Tax credits for expenditure on research and development 243 Who this subpart applies to 244 Tax credits relating to expenditure on research and development Requirements New sections LH 5B and LH 5C inserted LH 5B Modiﬁcation: timing of research and development activities LH 5C Modiﬁcation: allocation of expenditure New section LH 14B inserted LH 14B Recovery of overpaid tax credit 248 What this subpart does 249 250 251 252 253 Tax credits for foreign income tax Repaid foreign tax Tax credits relating to attributed CFC income Calculation of amount of credit New section LK 5B inserted LK 5B Effect of credits carried forward from tax year before 2009–10 tax year 254 255 256 Subpart LL repealed Sections LQ 1 to LQ 4 repealed Subpart LS replaced Subpart LS—Tax credits for multi­rate PIEs and investors Tax credits for multi­rate PIEs LS 1 Tax credits for investors in multi­rate PIEs LS 2 Tax credits for zero­rated investors LS 3 LS 4 Tax credits for certain exiting investors Adjustments for
 calculation of family scheme income Tax credits for superannuation contributions Eligibility requirements New sections MK 12B to MK 12D inserted MK 12B Eligibility requirements: end of year square­up credit 257 258 259 260 MK 12C Amount of credit: end of year square­up credit MK 12D Using tax credits: end of year square­up credit 261 Employees opting out 262 What this subpart does Section ML 2 replaced 263 16 261 262 262 262 262 263 263 264 265 265 265 265 266 266 267 267 267 269 269 269 269 270 271 272 273
 273 274 274 274 274 275 275 275 276 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill ML 2 Tax credit for redundancy payments 264 Memorandum accounts 265 266 267 268 Credits Debits Opening balances of memorandum accounts Shareholder continuity requirements for memorandum accounts Section OA 12 repealed Calculation of maximum permitted ratios General rules for companies with imputation credit accounts New section OB 3B OB 3B General rule for life insurer’s policyholder base ICA payment of tax ICA resident withholding tax withheld New section OB 9B inserted OB 9B ICA company allocated imputation credit with income from PTRE Section OB 9B replaced OB 9B ICA attributed PIE income with imputation credit Section OB 11 repealed Section OB 17 repealed ICA refund of income tax ICA amount applied to pay other taxes ICA refund from tax pooling account ICA transfer within tax pooling account New section OB 35B OB 35B ICA debit for transfer from tax pooling account for policyholder base liability ICA refund of tax credit Section OB 47 replaced OB 47 Debit for policyholder base imputation credits Table O1: imputation credits Table O2: imputation debits General rules for companies with FDP accounts New section OC 2B OC 2B General rule for life insurer’s policyholder base 290 When company chooses to stop being FDPA company 291 When company emigrates 292 293 294 Section OC 6 repealed Section OC 8 repealed Section OC 9 repealed 269 270 271 272 273 274 275
Section OC 9 repealed Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Section OC 10 repealed FDPA refund of tax credit Section OC 20 replaced OC 20 Debit for policyholder base FDP credits Section OC 23 repealed Heading before section OC 30 replaced Payment of further FDP for closing debit
 balance Payment of further FDP when company no longer New Zealand resident Reduction of further FDP Section OC 33 replaced OC 33 Income tax paid satisfying liability for further income tax Section OC 34 replaced OC 34 Further income tax paid satisfying liability for income tax Heading and sections OC 35 to OC 39 repealed Table O3: FDP credits Table O4: FDP debits General rules for companies with CTR accounts Section OD 5 repealed Section OD 8 repealed Section OD 11 repealed Section OD 23 repealed Section OD 24 repealed Table O5: conduit tax relief credits Table O6: conduit tax relief debits Branch equivalent tax accounts of companies Section OE 6 repealed BETA payment of income tax Heading and sections OE 12 to OE 16 repealed New heading and section OE 16B inserted 295 296 297 298 299 300 301 302 303 304 305 306 307 308 309 310 311 312 313 314 315 316 317 318 319 320 Debit if credit balance at beginning of 2009–10 tax year OE 16B Company with credit balance at beginning of 2009–10 tax year Table O7: branch equivalent tax credits Table O8 repealed General rules for companies with ASC accounts Subpart OJ repealed 321 322 323 324 325 MACA payment of tax 326 MACA refund of income tax Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 327 MACA payment of other taxes New section OK 14B inserted 328
 OK 14B MACA refund of tax credit Table O18: Maori authority debits 329 330 When credits and debits arise only in consolidated 331 332 333 334 335 336 337 338 339 340 341 342 343 imputation group accounts Consolidated ICA payment of tax Section OP 14 repealed Consolidated ICA resident withholding tax withheld Section OP 20 repealed Section OP 21 repealed Consolidated ICA refund of income tax Consolidated ICA amount applied to pay other taxes New section OP 33B OP 33B Consolidated ICA debit for transfer
 from tax pooling account for policyholder base liability Consolidated ICA refund of tax credit Section OP 38 repealed Section OP 44 replaced OP 44 Consolidated ICA debit for policyholder base imputation credits Table O19: imputation credits of consolidated imputation groups Table O20: imputation debits of consolidated imputation groups 344 When credits and debits arise only in consolidated FDP 345 346 347 348 349 350 351 group accounts Section OP 56 repealed Section OP 57 repealed Section OP 61 repealed Section OP 62 repealed Consolidated FDPA refund of tax credit Section OP 70 repealed Section OP 74 replaced OP 74 Consolidated FDPA debit for policyholder base FDP credits Table O21: FDP credits of consolidated FDP groups 352 353 Table O22: FDP debits of consolidated FDP groups 354 When credits and debits arise only in CTR group accounts 355 356 357 Sections OP 81 repealed Sections OP 82 repealed Section OP 88 repealed Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 358 359 360 361 362 363 364 365 Section OP 95 repealed Table O23: conduit tax relief credits of consolidated groups Table O24: conduit tax relief debits of consolidated groups Section OP 99 repealed Section OP 100 repealed Consolidated BETA payment of income tax Heading and sections OP 105 to OP 108 repealed New heading and section
 OP 108B inserted Debit if credit balance at beginning of 2009–10 tax year OP 108B Consolidated BETA group with credit balance at beginning of 2009–10 tax year 366 Table O25: branch equivalent tax credits of consolidated BETA groups Table O26 repealed 367 Headings and sections OP 109 to OP 116 repealed 368 Tables O27 and O28 repealed 369 370 ASCA lost excess available subscribed capital 371 Modifying ratios for imputation credits and FDP credits 372 New section OZ 18 OZ 18 Credit­back of PCA balance 373
 What this Part does 374 Withholding and payment obligations for passive income 375 When obligations not met 376 377 Payment dates for interim and other tax payments Application of other provisions for purposes of ESCT rules and NRWT rules 378 Who is required to pay provisional tax?
PAYE rules and their application 379 Salary or wages 380 Certain beneﬁts and payments 381 382 Schedular payments 383 Multiple payments of salary or wages New section RD 13B inserted 384 RD 13B Adjustments for payroll donations Schedular payments without notiﬁcation Schedular payments to non­resident entertainers PAYE income payment forms for amounts of tax paid to Commissioner Calculation of all­inclusive pay Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 389 390 391 392 393 394 395 Close company option Small business option Persons who have withholding obligations Agents’ or trustees’ obligations in relation to certain dividends Non­resident passive income Non­cash dividends Dividends paid to companies under control of non­residents Subpart RG repealed Retirement scheme contributors 396 397 398 What this subpart does 399 400 401 402 403 404 405 Refunds for overpaid tax Overpayment on income statements Using refund to satisfy tax liability Information required from employers Collection, payment, and information requirements Tax pooling intermediaries New section RP 17B inserted RP 17B Tax pooling accounts and their use Deposits in tax pooling accounts Transfers from tax pooling accounts Deﬁnitions 406 407 408 409 Meaning of income tax varied 410 Treatment of qualifying company election tax, FBT, FDP penalty tax, imputation
 penalty tax, and withdrawal tax Two companies with common control Two companies with common control: 1988 version provisions Some deﬁnitions Table, heading, and sections YB 1 to YB 20 replaced 411 412 413 414 Associated persons Person and trustee for relative YB 1 What this subpart does YB 2 Two companies YB 3 Company and person other than company YB 4 Two relatives YB 5 YB 6 Trustee and beneﬁciary YB 7 Two trustees with common settlor YB 8 Trustee and settlor YB 9 YB 10 Who is a settlor?
Settlor and beneﬁciary Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill YB 11 Trustee and person with a power of appointment or removal YB 12 Partnership and partner YB 13 Partnership and associate of partner YB 14 Tripartite relationship YB 15 Exceptions for employee trusts Section YC 1 repealed New section YC 18B inserted YC 18B Corporate reorganisations not affecting economic ownership Residence of natural persons Classes of income treated as having New Zealand source Apportionment of income derived partly in New Zealand General rules for currency conversion Schedule 1—Basic tax rates: income tax, ESCT, RWT, and attributed fringe beneﬁts Schedule 2—Basic tax rates for PAYE income payments Schedule 13—Depreciable land improvements Schedule 21—Expenditure and activities related to research and development Schedule 24—International tax rules: grey list countries Schedule 27—Countries and types of income with unrecognised tax Schedule 32—Recipients of charitable or other public beneﬁt gifts Schedule 49—Enactments amended Schedule 50—Amendments to Tax Administration Act 1994 Schedule 52—Comparative tables of old and rewritten provisions Consequential amendments: associated person and list of deﬁned terms Part 2 Amendments to Tax Administration Act 1994 Tax Administration Act 1994 Interpretation Construction of certain provisions New Part
 2B Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 2B Intermediaries for PAYE, provisional tax, and resident passive income PAYE intermediaries PAYE intermediaries and listed PAYE intermediaries Application for approval as PAYE intermediary Revocation of approval Fitness of
 applicants Application for approval as listed PAYE intermediary Grounds for revocation of listing Procedure for revocation of listing Employers’ arrangements with PAYE intermediaries Privacy requirements Amended monthly schedules 15C 15D 15E 15F 15G 15H 15I 15J 15K 15L 15M Subsidy claim forms Tax pooling intermediaries 15N 15O 15P 15Q 15R Establishing tax pooling accounts Role of Commissioner Applications to establish tax pooling accounts Fitness of applicants Requirements for applications to establish tax pooling accounts 15S Winding up tax pooling accounts RWT proxies RWT proxies 15T Information to be furnished on request of Commissioner No requirement to disclose tax advice document Treatment of book or document Claim that book or document is tax advice document Person must disclose tax contextual information from tax advice document Challenge to claim that book or document is tax advice document Keeping of business and other records Records to be kept by employer or PAYE intermediary PAYE tax codes Special tax code certiﬁcates Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 446 447 Variation of requirements New heading and section 24Q inserted Payroll donations Notiﬁcation of investors’ tax rates Transfer of payroll donations by employers Notiﬁcation requirements for PIEs
 Notiﬁcation requirements for multi­rate PIEs 24Q Section 28B replaced 28B Portfolio tax rate entity to give statement to investors and request information Section 31B replaced 31B 31C Applications for RWT exemption certiﬁcates Section 32N repealed Returns of income Annual returns of income not required Electronic format of employer monthly schedule and PAYE income payment form Section 36AB replaced 36AB Electronic return requirements for multi­rate PIEs Returns to annual balance date Returns by persons with tax
 credits for housekeeping payments and charitable or other public beneﬁt gifts Return by person claiming rebate on redundancy payment Portfolio tax rate entities and portfolio investor proxies to make returns, ﬁle annual reconciliation statement Section 57B replaced 57B Disclosure of trust particulars Disclosure of interest in foreign company or foreign investment fund Section 66 repealed Tax credit relating to KiwiSaver and complying superannuation fund members: member credit form Statements in relation to research and development tax credits: single persons Section 68E replaced 68E Return requirements for multi­rate PIEs Statements in relation to research and development tax credits: internal software development groups Section 78E repealed Section 78F repealed Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 470 471 472 473 474 475 476 477 478 479 480 481 482 483 484 Ofﬁcers to maintain secrecy Disclosure of information for veriﬁcation of large budget screen production grant entitlement Disclosure of information in relation to Working for Families tax credits Further secrecy requirements New section 89AB inserted 89AB Response periods Taxpayers and others with standing may issue notices of proposed adjustment Taxpayer may
 issue notice of proposed adjustment for taxpayer assessment Completing the disputes process Determination on economic rate Determination on special rates and provisional rates Commissioner may decline to issue special rate or provisional rate Notice of setting of economic rate Applications for determinations Determination on type of interest in FIF and use of fair dividend rate method New heading and section 91AAQ inserted Determinations relating to non­attributing active CFCs 91AAQ Determination on insurer
 as non­attributing active CFC 485 New heading and section 91AAR inserted Determinations relating to relocation payments 91AAR Determination relating to eligible relocation expenses 486 487 488 489 490 491 492 493 494 Section 102 repealed Section 103 repealed Section 103A repealed Section 104 repealed Time bar for amendment of income tax assessment Amended assessments for research and development tax credits Deﬁnitions Section 120EA repealed Instalments of and due dates for provisional tax 382 383 384 384 384 384 386 386 386 387 387 388 388 388 389 389 389 390 391 392 392 392 392 392 393 393 394 394 25 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 495 Where provisional tax paid by company does not count 496 497 498 499 500 501 502 503 504 505 506 507 508 509 510 511 512 513 514 515 516 517 as overpaid tax Variation to deﬁnition of date interest starts Section 120R repealed Certain rights of objection not conferred Imposition of late payment penalties when ﬁnancial relief sought Section 140C repealed Section 140CA repealed Tax shortfalls Abusive tax position Evasion or similar act Due dates for payment of imputation penalty tax, FDP penalty tax, and underestimation penalty tax Knowledge offences Evasion or similar offence Taxes that may be recovered Transfer of excess tax within taxpayer’s accounts Transfer of excess tax to another taxpayer Instalment arrangements Section 181 repealed Section 183 repealed Remission for reasonable cause
 Remission on application Payments into, and out of, Listed PAYE Intermediary Bank Account Power to make interim payments of WFF tax credit Part 3 Amendments to Goods and Services Tax Act 1985 Goods and Services Tax Act 1985 Interpretation 518 519 520 Meaning of term supply Time of supply 521 Value of supply of goods and services 522 Zero­rating of goods 523 Zero­rating of services 524 New section 11C inserted 525 11C Treatment of supplies by operators of loyalty programmes Taxable periods Persons making
 supplies in course of taxable activity to be registered Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 528 Group of companies Part 4 Amendments to KiwiSaver Act 2006 KiwiSaver Act 2006 Interpretation Section 13 repealed Eligibility to be exempt employer 529 530 531 532 533 What happens when initial back­dated validation ends, with no conﬁrmed back­dated validation?
How and when interest is paid on refunds Refunds of employer contribution by Commissioner if employee opts out General Compulsory employer contribution amount: general rule New sections 101FB and 101FC inserted 101FB Grace periods: employers 101FC De minimis: other contributions Rules: providers Crown contribution Regulations relating to mortgage diversion facility 534 535 536 537 538 539 540 541 Part 5 Amendments to Income Tax Act 2004 Income Tax Act 2004 Foreign investment fund income Amounts derived in connection with employment 542 543 544 545 Meaning of expenditure on account of an employee 546 New section CR 3 added CR 3 Income for general insurance outstanding claims reserve 547 548 549 550 551 552 Expenditure on account, and reimbursement, of employees New sections CW 13B and CW 13C inserted CW 13B Relocation payments CW 13C Payments for overtime meals Beneﬁts provided instead of allowances Gifts of money by company New section DT 1A inserted DT 1A Ring­fenced allocations Arrangement for petroleum exploration expenditure and sale of property Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Petroleum development expenditure Disposal of petroleum mining asset to associate New section DW 3 added DW 3 Deduction for general insurance outstanding claims reserve Economic rate for plant, equipment, or building, with
 high residual value Annual rate for item acquired in parson’s 1995–96 or later income year Section EJ 11 replaced EJ 11 Petroleum development expenditure: default allocation rule EJ 11B Petroleum development expenditure: reserve depletion method Relinquishing petroleum permit New sections EJ 12B and EJ 12C inserted EJ 12B Dry well drilled EJ 12C Well not producing Disposal of petroleum mining asset Sections EJ 17 and EJ 18 replaced EJ 18 Meaning of petroleum mining development IFRS taxpayer method IFRS method
 Determination alternatives to IFRS Expected value method and equity­free fair value method Change of spreading method 563 564 565 566 567 568 When calculation of base price adjustment required 569 Exemptions: direct income interests in FIF in grey list country Use of particular calculation methods required Comparative value method Fair dividend rate method: usual method Fair dividend rate method: method for unit valuers and persons valuing interests daily Cost method Codes: comparative value method, deemed rate of return method, fair dividend rate method, and cost method 570 571 572 573 574 575 576 Measurement of cost 577 578 Transitional rule for IFRS ﬁnancial reporting method New sections EZ 51 and EZ 52 added EZ 51 Transitional rule for ﬁnancial reporting method Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill EZ 52 Transitional rule for changes from the fair value method Section GC 14EB repealed Dividends from qualifying company Effect of failure to meet eligibility requirements for entities Investor membership requirement Investor interest size requirement Further eligibility requirements relating to investments Unlisted company may choose to become portfolio listed company Becoming portfolio investment entity Credits received by portfolio tax rate entity or portfolio investor proxy Determination of
 amount of credit in certain cases Credit of tax for imputation credit Credit of tax for dividend withholding payment credit in hands of shareholder Credits in respect of dividends to non­resident investors Special rules for holding companies Allocation rules for imputation credits Amount of imputation credit to be attached to cash distribution Notional distribution deemed to be dividend Amount of imputation credit to be attached to cash distribution Notional distribution deemed to be dividend or taxable
 Maori authority distribution Branch equivalent tax account of company Credits and debits arising to branch equivalent tax account of company Debits and credits arising to group branch equivalent tax account Use of consolidated group credit to reduce dividend withholding payment, or use of group or individual debit to satisfy income tax liability Allocation rules for dividend withholding credits Dividend with both imputation credit and dividend withholding payment credit attached Conduit tax relief account Credits arising to conduit tax relief account Debits arising to conduit tax relief account Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 607 608 609 610 611 612 613 614 615 616 Consolidated group conduit tax relief account Credits arising to group conduit tax relief account Debits arising to group conduit tax relief account Retirement scheme contributors Application of RWT rules Resident withholding tax deductions from dividends deemed to be dividend withholding payment credits Deﬁnitions Schedule 16—Depreciable land improvements Part 6 Amendments to other Acts and regulations Income Tax Act 1994 Income Tax Act 1994 amended Exempt income—Employee allowances and expenditure on account of employee 617 Meaning
 of “fringe beneﬁt” 618 619 620 Special and provisional economic rates Deﬁnitions Schedule 16—Depreciable land improvements Income Tax Act 1976 621 622 Special and provisional economic rates Schedule 21–Depreciable land improvements Taxation (Business Taxation and Remedial Matters) Act 2007 623 Use of consolidated group credit to reduce dividend withholding payment or use of group or individual debit to satisfy income tax liability Acts referring to associated person 624 Consequential amendments to other
 Acts: associated person Amendment to Income Tax (Depreciation Determinations) Regulations 1993 625 Income Tax (Depreciation Determinations) Regulations 1993 Amendment to Goods and Services Tax (Grants and Subsidies) Order 1992 626 Schedule—Non­taxable grants and subsidies 30 432 432 432 433 433 433 433 436 436 436 437 438 438 439 439 439 440 440 440 440 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Schedule 1 Consequential amendments to lists of deﬁned terms: associated person Schedule 2 Consequential amendments to other Acts: associated person cl 2 441 443 The Parliament of New Zealand enacts as follows: 1 2 (1) (2) (3) (4) (5) (6) (7) (8) (9) Title This Act is the Taxation (International Taxation, Life In­ surance, and Remedial Matters) Act 2008.
Commencement This Act comes into force on the day on which it receives the Royal assent, except as provided in this section.

Section 519(4) is treated as coming into force— (a) in relation to the Parliamentary Service, on 1 October 1986: in relation to the Ofﬁce of the Clerk of the House of Representatives, on 1 August 1988.

(b) 5 10 Sections 621 and 622 are treated as coming into force on 1 April 1993.

Sections 618 and 620 are treated as coming into force on 1 15 April 1995.
Section 623 is treated as coming into force on 1 April 1997.

Sections 485, 616, 617, 619 are treated as coming into force on 1 October 2001.

Sections 436(1), 463(1), 478(1), 479(1) and (3), 544, 20 545, 547, 548, 549, 556, 557, 613(2), (11), and (14), 614, and 625 are treated as coming into force on 1 April 2005.

Section 479(2) is treated as coming into force on 1 October 2005.

Sections 546, 555, 613(3), (5), (6), and (10) are treated as 25 coming into force on 1 April 2006.
31 cl 2 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill (10) Sections 478(2) and 479(4) are treated as coming into force on 3 April 2006.

(11) Sections 543, 563, 564, 565(1), (3), and (4), 566, 567, 568, 569, 570, 571, 572, 573, 574, 575, 576, 577, 578, 589(2), 610, and 613(9) are treated as coming into force on 5 1 April 2007.

(12) Sections 533, 540, and 613(4) are treated as coming into force on 1 July 2007.
(13) Sections 449, 460, 463(3), 579, 580, 581, 582, 583, 584, 585, 586, 587, 588, 589(1), 590, 591, 592, 593, 594, 595, 10 596, 597, 598, 602, 603, 604, 605, 606, 607, 608, 609, 611, 612, and 613(13) are treated as coming into force on 1 October 2007.

(14) Section 552 is treated as coming into force on 1 December 2007.

15 (15) Sections 470(2), 502(2), 550, 599, and 600 are treated as coming into force on 19 December 2007.

(16) Section 551 is treated as coming into force on 4 March 2008.
(17) Sections 14, 15(1) to (3) and (5), 20, 21, 27, 29, 33, 34, 35, 37, 38, 42, 43, 47, 49, 70, 71, 72, 73, 74, 75, 76(1), 20 (3), and (5), 77(1) and (3), 78(1) and (3), 79, 86, 87, 93, 94, 95, 96, 97, 100, 101, 102(1), 103, 104, 107, 108, 116(1), 122(9) and (16), 127, 128, 129, 130, 131, 132(1) to (3), (5) to (7), and (9), 133, 134, 135(1) to (3) and (5) to (9), 136(1) to (3) and (5) to (9), 137, 138(1), 139(1), (2), 25 and (4), 148, 151, 153, 159(3), 161(1) and (2), 166(1), (3), and (4), 177(4), 179, 180, 181(1), 182(1), 185, 186(1), 194, 196, 197, 198, 201(1), 204, 205(3), 206, 207, 208, 209, 210, 211, 212, 213, 215, 216(2), 219, 223(1), 224, 226, 227, 231, 234, 237(1), (2), and (4), 242, 243, 244, 30 245, 246, 247, 248, 250, 251(1), (3), and (4), 252, 258(1), 259, 262, 263, 268(1) and (2), 270, 273(2), 275, 279(2), 280(2), 281, 282, 284, 286(1), 287(2), 296, 307(1), 325, 326, 327, 328, 329, 331(2), 336(3), 337, 339, 343(2), 349, 371, 377, 380, 381, 382, 385, 386, 387(1) to (4) and 35 (6), 388, 394, 397, 399, 400, 401, 408(5), (7), (28), (32), (37), (40), (42), (57), (59), (63), (67), (78), (88), (93), (94), (95), (96), (97), (98), (100), (107), (111), (115), (117), 32 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill cl 2 (118), (128), (133), (134), (136), (138), (141), (142), and (152), 410, 411, 412, 413, 416, 417(1) and (3), 418, 419, 420, 423, 424, 428, 429, 430, 433(3), 434(4), 435, 446, 451, 455, 459, 462, 463(2), 466, 467, 472, 474, 475, 476, 478(3), 479(5), 480, 481, 482,
 483(1), 490, 491, 495, 5 498, 499, 508, 509, 511, 516, 517, 530, 535, 536, 537, 538, 553, 554, 558, 559, 560, 561, 562, 565(2), 613(7), (8), and (12), and 626 are treated as coming into force on 1 April 2008.
(18) Sections 22, 46, 62, 64, 65, 69, 89, 90, 91, 92, 229, 230, 10 408(58), 470(1), 471, 473, and 541 are treated as coming into force on 1 July 2008.
(19) Sections 5, 6, 13(2) and (3), 16, 17, 19, 25, 26, 30, 32, 53, 54, 55, 60, 66, 67, 80, 98(3) and (4), 102(2), 116(2), 117, 118, 119, 121, 122(1) to (8), (11) to (15), and (17), 15 123, 124, 125, 126, 132(8) and (11), 138(2) and (3), 147, 154(1) and (2), 155(1) and (2), 156, 157, 158, 159(1), (2), (4), and (5), 160, 161(3) and (4), 162, 163, 164, 165, 166(2), 167(1) and (2), 168(1) to (10), 169(1), 170, 171(1) to (3), 172, 173, 174, 175, 176, 177(1) to (3), (5), and 20 (6), 178, 184, 189, 190, 191, 192, 193, 195, 199, 200, 220, 221, 251(2) and (5), 253, 254, 255, 269, 273(3) and (4), 277, 286(3), 287(3), 288(2), 290, 291, 292, 293, 294, 295, 299, 300, 301, 302, 303, 304, 306, 308, 309, 310, 311, 312, 313, 314, 315, 316, 317, 318, 319, 320, 321, 25 322, 330(1), 332, 340, 342(1), 343(3), 344(1), 345, 346, 347, 348, 350, 352, 353(1), 354, 355, 356, 357, 358, 359, 360, 361, 362, 363, 364, 365, 366, 367, 370, 373, 374, 375, 376(2) and (3), 391, 392, 396, 398, 408(8), (9), (10), (13), (15), (20), (21), (24), (27), (29), (30), (31), 30 (33), (39), (43), (44), (47), (48), (49), (50), (51), (52), (53), (60), (64), (80), (83), (86), (87), (123), (124), (132), (137), (143), (144), (145), (146), and (147), 409, 421(2), 425, 426, 433(4), 434(1) to (3) and (5), 442(2), 452, 468, 469, 483(2), 484, 486, 487, 488, 489, 496, 497, 500, 501, 505, 35 506, 507, 512, 514, 515, and 531 are treated as coming into force on 1 October 2008.
(20) Sections 9, 31, 48, 61, 81(2) and (3), 84, 85, 98(1) and (5), 187, 408(26), (36), (55), (71), (85), (108), (109), 33 cl 2 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill (122), (125), and (139), 519(2), and 524 are treated as coming into force on 1 January 2009.

(21) Sections 150, 222, and 372 come into force on 31 March 2009.
(22) Sections 4, 7, 8, 10, 11, 12, 13(1), 15(4) and (6), 18, 23, 5 24, 28, 36, 39, 40, 41, 44, 45, 50, 51, 52, 56, 57, 58, 59, 63, 68, 76(2), (4), and (6), 77(2) and (4), 78(2) and (4), 81(1), 82, 83, 88, 98(2) and (6), 99, 105, 106, 109, 110, 111, 112, 113, 114, 115, 120, 122(10), 132(4) and (10), 135(4) and (10), 136(4) and (10), 139(3) and (5), 140, 10 141, 142, 143, 144, 145, 146, 149, 152, 154(3), 155(3), 167(3), 168(11), 169(2), 171(4), 182(2), 183, 186(2) and (3), 188, 201(2), 202, 203, 205(1) and (2), 214, 216(1) and (3) to (5), 217, 218, 223(2), 225, 228, 232, 233, 235, 236, 237(3) and (5), 238, 239, 240, 241, 249, 256, 257, 15 258(2), 260, 261, 264, 265, 266, 267, 268(3), 271, 272, 273(1) and (5), 274, 276, 278, 279(1) and (3), 280(1), 283, 285, 286(2) and (4), 287(1) and (4), 288(1) and (3), 289, 297, 298, 305, 307(2), 323, 324, 330(2) and (3), 331(1) and (3), 333, 334, 335, 336(1), (2), and (4), 338, 20 341, 342(2), 343(1) and (4), 344(2), 351, 353(2), 368, 369, 376(1), 378, 379, 383, 384, 387(5), 389, 390, 393, 395, 402, 403, 404, 405, 407, 408(2), (3), (4), (6), (11), (12), (14), (16), (17), (18), (19), (22), (23), (25), (34), (35), (38), (41), (45), (46), (54), (56), (61), (62), (65), (66), (68), 25 (69), (70), (72), (73), (74), (75), (76), (77), (79), (81), (82), (84), (89), (90), (92), (99), (101), (102), (103), (104), (105), (106), (110), (112), (113), (114), (119), (120), (121), (126), (127), (129), (130), (131), (135), (140), (148), (149), (150), (151), and (153), 414, 415, 417(2) 30 and
 (4), 421(1), 422, 431, 436(2), 442(1) and (3), 443, 444, 445, 447, 448, 450, 453, 454, 456, 457, 458, 461, 463(4), 464, 477, 492, 493, 494, 502(1), 503, 504, 510, 526, 527, 528, and 624 come into force on 1 April 2009.
(23) Section 181(2) comes into force on 1 April 2010.

(24) Section 181(3) comes into force on 1 April 2011.

35 34 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 7 Part 1 Amendments to Income Tax Act 2007 3 Income Tax Act 2007 This Part amends the Income Tax Act 2007.
Income tax liability of person with schedular income 4 (1) After section BC 7(3), the following is added: “Income tax liability of multi­rate PIEs 5 (2) “(4) The income tax liability for a tax year of a multi­rate PIE is de­ termined under subpart HM (Portfolio investment entities).” In section BC 7, in the list of deﬁned terms, “multi­rate PIE,” 10 is inserted.

Subsections (1) and (2) apply for the 2009–10 and later in­ come years.
(3) 5 (1) (2) (3) 6 (1) (2) (3) 7 (1) (2) Withholding liabilities Section BE 1(6) is repealed.

In section BE 1, in the list of deﬁned terms, “FDP” and “FDP rules” are omitted.

Subsections (1) and (2) apply for the 2009–10 and later in­ come years.

15 Other obligations Section BF 1(d) is repealed.

In section BF 1, in the list of deﬁned terms, “further FDP” is omitted.

Subsections (1) and (2) apply for the 2009–10 and later in­ come years.
20 25 Disposal: land used for landﬁll, if notice of election Section CB 8(c) is replaced by the following: “(c) the person acquiring the land is not an associated per­ son; and”.

Subsection (1) applies for the 2009–10 and later income 30 years.
35 Part 1 cl 8 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Section CB 26 replaced Section CB 26 is replaced by the following: 8 (1) “CB 26 Disposal of certain shares by portfolio investment entities “When this section applies “(1) This section applies when— “(a) “(b) the income from the disposal by a person (the entity) of the share is excluded income under section CX 55 (Proceeds from disposal of investment shares); and a dividend from the share is— “(i) “(ii) paid to a holder of the share who, after the dis­ posal, becomes entitled to the dividend.
declared before the disposal; and “Income 5 10 “(2) The entity is treated as deriving an amount of income calcu­ 15 lated using the formula— (shares at declaration – shares on distribution) × dividend.
“(3) “Deﬁnition of items in formula In the formula,— “(a) shares at declaration is the number of shares held by 20 the entity when the dividend is declared: shares on distribution is the number of shares for which the entity derives a dividend: “(b) “(c) dividend is the amount of the dividend or, for a share issued by an ICA company, the amount of the dividend 25 that is not fully imputed as described in section RF 9(2) (When dividends fully imputed or fully credited).
“Positive result “(4) The result of the formula must be a positive amount.

“Deﬁned in this Act: amount, company, dividend, excluded income, ICA com­ 30 pany, income, pay, portfolio investment entity, share “Compare: 2007 No 97 s CB 26”.

Subsection (1) applies for the 2009–10 and later income years.
New heading and section CB 36 added After section CB 35, the following is added: 35 (2) 9 36 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 9 “Emissions units under Climate Change Response Act 2002 “CB 36 Disposal of emissions units “When this section applies “(1) This section applies when a person disposes of an emissions 5 unit.

“Income “(2) The amount that the person derives on the disposal is income.
“(3) “Surrender of unit: generally no income If the disposal is by surrender under the Climate Change Re­ 10 sponse Act 2002, the person is treated as having sold the unit, at the time of the surrender, to an unrelated person for an amount equal to the unit’s cost, except if 1 of subsections (4) and (5) applies.
“Surrender of unit: post­1989 forest land deforestation “(4) Despite subsection (3), the person is treated as deriving in­ come of zero if the person surrenders the emissions unit in relation to the deforestation of post­1989 forest land.
“Surrender of unit: deforestation of some pre­1990 forest land “(5) Despite subsection (3), the person is treated as deriving in­ 15 20 come of zero if— “(a) “(b) the person surrenders the emissions unit in relation to the deforestation of pre­1990 forest land; and the person would derive income, other than exempt in­ 25 come or excluded income, from a disposal of the land without timber at the time of the surrender.
“(6) “Converted unit treated as sold If a person converts a New Zealand emissions unit, other than a forest land emissions unit, into a Kyoto emissions unit under 30 the Climate Change Response Act 2002, the person is treated as having sold the converted unit for an amount equal to the unit’s cost.
37 Part 1 cl 10 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill “Exempt income: pre­1990 forest land unit “(7) Section CW 3B (Pre­1990 forest land emissions units) ap­ plies to the disposal to another person of a pre­1990 forest land emissions unit.

“Disposal at below market value 5 “(8) Section GC 4B (Disposals of emissions units at below market value) may apply to treat a disposal, other than a surrender, as being for market value.
“Deﬁned in this Act: amount, convert, emissions unit, forest land emissions unit, income, Kyoto emissions unit, New Zealand emissions unit, pre­1990 for­ 10 est land emissions unit, post­1989 forest land emissions unit, surrender”.

10 (1) Transfers of value generally Section CD 4(1)(a) is replaced by the following: “(a) the cause of the transfer is a shareholding in the com­ pany, whether or not the person holds shares in the com­ 15 pany; and”.
(2) Subsection (1) applies for the 2009–10 and later income years.

11 When is a transfer caused by a shareholding relationship?

(1) The section heading to section CD 6 is replaced by “Certain 20 shareholding relationships”.

Section CD 6(1) is repealed.

The heading to section CD 6(2) is replaced by “Indication that transfer caused by shareholding relationship”.
In section CD 6(3), the words before paragraph (a) are replaced 25 by the following: (2) (3) (4) “(3) A transfer of value by a statutory producer board to a member (5) is not caused by a shareholding if—”.

In section CD 6(4), the words before paragraph (a) are replaced by the following: 30 “(4) A transfer of value by a co­operative company to a shareholder is not caused by a shareholding if—”.

Subsections (1) to (5) apply for the 2009–10 and later in­ come years.
(6) 38 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 15 12 (1) (2) 13 (1) Returns of capital: off­market share cancellations In section CD 22(9), in the deﬁnition of counted associate, paragraph (b), “is a beneﬁciary” is replaced by “has beneﬁted or is eligible to beneﬁt”.

Subsection (1) applies for the 2009–10 and later income 5 years.
Property made available intra­group Section CD 27(1)(b) is replaced by the following: “(b) the associated company is associated with a shareholder in the ﬁrst company.” 10 (2) Section CD 27(3)(a)(ii) is replaced by the following: “(ii) the ﬁrst company is associated with a company (the parent company) that has a voting interest in the associated company and that could have received the transfer of value without the transfer 15 being assessable income or non­resident passive income; and”.
In section CD 27, in the list of deﬁned terms, “FDP” is omitted.

Subsections (1) to (3) apply for the 2009–10 and later in­ come years.

20 Employee beneﬁts In section CD 32(2), “CE 1(c)” is replaced by “CE 1(1)(c)”.

Foreign investment fund income In section CD 36, after the heading, “ Amount not dividend” is inserted as a subsection heading.

In section CD 36(b)(iv), “method; and” is replaced by “method.”, and paragraph (c) is repealed.
(3) After section CD 36(b), the following are inserted as subsec­ tions (2) and (3): “Exclusion for interests in grey list companies “(a) “(b) “(2) Subsection (1)(b)(iv) does not apply if— the FIF is a grey list company; and the person holds a direct income interest of 10% or more in the FIF at the beginning of the income year in which the period falls.
39 25 30 35 (3) (4) 14 15 (1) (2) Part 1 cl 16 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill “Application of rule for certain managed funds “(3) Subsection (2) does not apply if— 5 “(a) the person is a portfolio investment entity, an entity eli­ gible to be a portfolio investment entity, or a life insur­ ance company; and “(b) the FIF is a foreign investment vehicle.” Section CD 36(3)(b), is replaced by the following: the FIF is a foreign PIE equivalent.” “(b) In section CD 36, in the list of deﬁned terms, “direct income interest”, “foreign investment vehicle”, “life insurance”, and 10 “portfolio investment entity” are inserted.
In section CD 36, in the list of deﬁned terms, “foreign invest­ ment vehicle ” is omitted and “foreign PIE equivalent” is in­ serted.

Subsections (4) and (6) apply for the 2009–10 and later in­ 15 come years.
(4) (5) (6) (7) New section CD 36B inserted 16 (1) After section CD 36, the following is inserted: “CD 36B Distributions to resident company for deductible foreign equity and ﬁxed­rate foreign equity 20 “Certain distributions not dividends “(1) A distribution by a foreign company in relation to an interest in the company of a company resident in New Zealand (the resident) is not a dividend if, at the time of the distribution,— “(a) the distribution is a deductible foreign equity distribu­ 25 tion: the resident’s interest in the company is a ﬁxed­rate for­ eign equity.
“(b) “Distributions treated as payments of interest “(2) An amount that is not a dividend as a result of subsection 30 (1) is treated as a payment of interest for money lent to the company by the resident.

“Deﬁned in this Act: amount, company, deductible foreign equity distribution, dividend, ﬁxed­rate foreign equity, interest, money lent”.

Subsection (1) applies for the 2009–10 and later income 35 years.
(2) 40 17 (1) (2) (3) 18 (1) Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 19 Available subscribed capital (ASC) amount Section CD 43(8)(b) is replaced by the following: “(b) an amount received by the company if the amount is mainly attributable, directly or indirectly, to the pay­ ment by the company of a dividend to a controlled for­ 5 eign company at a time when the company is also a controlled foreign company, regardless of whether ei­ ther company is a grey list company or non­attributing Australian CFC.” In section CD 43, in the list of deﬁned terms, “non­attributing 10 Australian CFC” is added.
Subsections (1) and (2) apply for the 2009–10 and later in­ come years.

Available capital distribution amount Section CD 44(11) and (12) are replaced by the following: “Associated person transactions “(11) No capital gain amount is derived or capital loss amount is incurred by a company after 31 March 1988 on disposing of property under an arrangement with an associated person.

This subsection is overridden by subsection (12).


“Close company liquidations “(12) Subsection (11) does not apply if— the company is a close company; and the associated person is not a company; and the disposal is on the liquidation of the company.” “(a) “(b) “(c) Section CD 44(15) to (17) are repealed.

In section CD 44, in the list of deﬁned terms, “related person” and “relative” are omitted.

Subsections (1) to (3) apply for the 2009–10 and later in­ come years.
Prevention of double taxation of share cancellation dividends Section CD 53(3), is replaced by the following: (2) (3) (4) 19 (1) 41 15 20 25 30 Part 1 cl 20 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill “Non­taxable dividends “(3) Subsection (2) does not apply to the extent to which the divi­ dend is exempt income of the person under sections CW 9 and CW 10 (which relate to income from equity).” Section CD 53(4) and (5) are repealed.
In section CD 53, in the list of deﬁned terms, “FDP” and “FDP credit” are omitted.

Subsections (1) to (3) apply for the 2009–10 and later in­ come years.

(2) (3) (4) 5 Amounts derived in connection with employment 20 (1) After the heading to section CE 1, “Income” is inserted as a 10 (2) subsection heading.

Section CE 1(c) is replaced by the following: “(c) the market value of accommodation that the person receives in connection with their employment or ser­ 15 vice:”.
(3) After section CE 1(g), the following is inserted as subsection (2): “Meaning of accommodation “(2) For the purposes of this section, accommodation means board 20 (4) or lodging, or the use of a house or part of a house.” In section CE 1, in the list of deﬁned terms, “accommodation” is inserted.
21 Meaning of expenditure on account of an employee After section CE 5(3)(b), the following is inserted: “(bb) an amount paid under section CW 17B (Relocation payments) or section CW 17C (Payments for overtime meals):”.
Beneﬁts, pensions, compensation, and government grants Section CF 1(2)(g) is replaced by the following: “(g) a payment under section 81(1)(b) of the Injury Preven­ tion, Rehabilitation, and Compensation Act 2001 paid by the Corporation as deﬁned in that Act, for attendant care as deﬁned in schedule 1, clause 12 of that Act: 22 42 25 30 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 25 “(h) a personal service rehabilitation payment for a person under the Injury Prevention, Rehabilitation, and Com­ pensation Act 2001.” 23 New subpart CO inserted After section CH 10, the following is inserted: 5 “Subpart CO—Income from voluntary activities “CO 1 Income from voluntary activities An amount that a person derives under section CW 62B (Vol­ untary activities) as a reimbursement payment for expenditure 10 that they incur in undertaking a voluntary activity is income of the person.
“Deﬁned in this Act: amount, income”.

Section CP 1 replaced Section CP 1 is replaced by the following: 24 (1) “CP 1 Attributed income of investors in multi­rate PIEs 15 “When this section applies “(1) This section applies when a multi­rate PIE attributes an amount of income for an income year calculated under sec­ tion HM 36 (Calculating amounts attributed to investors) to a 20 person who is an investor in the PIE.
“Income “(2) The amount is income of the person in the income year of the person in which the PIE’s income year ends.

“Deﬁned in this Act: amount, income, income year, investor, multi­rate PIE, 25 PIE “Compare: 2007 No 97 s CP 1”.

Subsection (1) applies for the 2009–10 and later income years.
(2) 25 When attributed CFC income arises (1) Section CQ 2(1)(f)(i) is replaced by the following: 30 43 Part 1 cl 26 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill “(i) the CFC has net attributable CFC income for the accounting period under section EX 20C (Net attributable CFC income or loss); or”.
(2) Section CQ 2(1)(g) is replaced by the following: “(fb) the CFC is not a non­attributing active CFC for the ac­ 5 “(g) counting period, under section EX 21B (Non­attribut­ ing active CFCs); and the CFC is not a non­attributing Australian CFC for the accounting period, under section EX 22 (Non­attribut­ ing Australian CFCs); and”.
In section CQ 2, in the list of deﬁned terms,— “branch equivalent income” is omitted: (a) “net attributable CFC income”, “non­attributing active (b) CFC”, and “non­attributing Australian CFC” are in­ serted.

(3) (4) Subsections (1) to (3) apply for the 2009–10 and later in­ come years.
26 When FIF income arises (1) Section CQ 5(3) is replaced by the following: “FIF income from CFC with FIF interest 10 15 20 “(3) FIF income also includes an additional amount that a person with an income interest of 10% or more in a CFC has in an in­ come year under section EX 58 (Additional FIF income or loss if CFC owns FIF), whether or not the CFC is a non­attributing Australian CFC under section EX 22 (Non­attributing Aus­ 25 tralian CFCs).” In section CQ 5, in the list of deﬁned terms, “non­attributing Australian CFC” is inserted.
Subsections (1) and (2) apply for the 2009–10 and later in­ come years.

(2) (3) 30 Heading to subpart CR replaced In subpart CR, the heading is replaced by “Income from in­ surance”.
Section CR 1 and CR 2 replaced Section CR1 and CR 2 are replaced by the following: 35 27 28 (1) 44 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 29 “CR 1 Policyholder base income of life insurer “Policyholder base gross income “(1) The amount of policyholder base gross income that a life in­ surer has for an income year is income of the life insurer for that year, to the extent to which it is not used to calculate their 5 schedular policyholder base income under section EY 2(3) to (6) (Policyholder base).
“Schedular income “(2) The amount of schedular policyholder base income that a life insurer has for an income year is schedular income of the life 10 insurer for the year.

“Deﬁned in this Act: amount, income, income year, life insurer, policyholder base gross income, schedular policyholder base income “CR 2 Shareholder base gross income of life insurer The amount of shareholder base gross income that a life in­ 15 surer has for an income year is income of the life insurer for that year.
“Deﬁned in this Act: amount, income, income year, life insurer, shareholder base gross income”.

Subsection (1) applies for income years beginning on and 20 after 1 April 2009.
(2) New section CR 4 added 29 (1) After section CR 3, the following is added: “CR 4 Income for general insurance outstanding claims reserve “When this section applies “(1) This section applies for— “(a) an insurer who uses IFRS 4, Appendix D for general insurance contracts; and “(b) general insurance contracts, excluding contracts having premiums to which section CR 3 applies.
“Formula for insurer’s income “(2) For an income year (the current year), an insurer has income of the amount by which the amount calculated using the fol­ lowing formula is more than zero: 25 30 45 Part 1 cl 30 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill opening outstanding claims reserve − closing out­ standing claims reserve.
“Deﬁnition of items in formula In the formula,— “(a) opening outstanding claims reserve is— “(i) “(ii) the amount of the insurer’s closing outstanding claims reserve for the income year before the 5 current year; or the amount of the insurer’s outstanding claims re­ serve for general insurance contracts, calculated at the beginning of the current year, if the insurer has no closing outstanding claims reserve for the 10 income year before the current year: “(b) closing outstanding claims reserve is the amount of the insurer’s outstanding claims reserve for general in­ surance contracts, calculated at the end of the current year.
“Deﬁned in this Act: amount, general insurance contract, IFRS 4, income, in­ come year, insurer”.

Subsection (1) applies for— (a) the 2009–10 and later income years, unless paragraph (b) applies: the ﬁrst income year for which a person adopts IFRSs for the purposes of ﬁnancial reporting and later income years, if that ﬁrst income year is before the 2009–10 income year.

(b) Section CV 10 repealed Section CV 10 is repealed.

Subsection (1) applies for the 2009–10 and later income years.
New section CW 3B inserted After section CW 3, the following is inserted: 15 20 25 30 “(3) (2) 30 (1) (2) 31 46 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 32 “CW 3B Pre­1990 forest land emissions units “Who this section applies to “(1) This section applies to a person and a pre­1990 forest land emissions unit of the person.
“Exempt income: disposal “(2) An amount of income that the person derives from the disposal of the pre­1990 forest land emissions unit is exempt income if— “(a) the disposal is not by surrender under the Climate Change Response Act 2002; and at the time of the disposal, the person would not derive income, other than exempt income or excluded income, from a disposal of the pre­1990 forest land without tim­ ber to which the emissions unit relates.
“(b) 5 10 “Deﬁned in this Act: amount, emissions unit, exempt income, income, pre­ 15 1990 forest land, pre­1990 forest land emissions unit, surrender”.

Section CW 9 replaced Section CW 9 is replaced by the following: 32 (1) “CW 9 Dividend derived from foreign company “Exempt income 20 “(1) A dividend from a foreign company is exempt income if de­ rived by a company that is resident in New Zealand.
“Exclusions “(2) Subsection (1) does not apply to a dividend if the dividend is paid in relation to rights that are a direct income interest of 25 less than 10% in a foreign company and are described in— “(a) section EX 31 (Exemption for ASX­listed Australian companies): section EX 32 (Exemption for Australian unit trusts with adequate turnover or distributions): section EX 36 (Venture capital company emigrating to grey list country: 10­year exemption): section EX 37 (Grey list company owning New Zealand venture capital company: 10­year exemption): section EX 37B (Share in grey list company acquired 35 under venture investment agreement): 30 “(b) “(c) “(d) “(e) 47 Part 1 cl 33 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill “(f) section EX 39 (Terminating exemption for grey list company with numerous New Zealand shareholders.
“Deﬁned in this Act: company, dividend, exempt income, resident in New Zealand”.

Subsection (1) applies for the 2009–10 and later income 5 years.
Proceeds of share disposal by qualifying foreign equity investor Section CW 12(4), other than the heading, is replaced by the following: In this section,— “foreign exempt entity means a person who— “(a) is established as a legal entity under the laws of a terri­ tory that is approved for the purposes of this section by the Governor­General by an Order in Council or under 15 the laws of a part of such a territory; and 10 “(c) “(b) has persons (the members) who hold interests in the capital of the legal entity and who are entitled to shares of the income of the legal entity; and under the laws of the territory or part of the territory is 20 not subject to a tax on income other than as a body that handles income of the members; and is resident in no territory that has laws that treat the legal entity as being subject to a tax on income other than as a body that handles income of the members; and does not have a member who— “(i) “(d) “(e) 25 has, when treated as holding the interests of any person who is associated with the member, an interest of 10% or more in the capital of the legal entity; and is resident in no territory that is approved for the purpose of this section by the Governor­General by an Order in Council; and 30 “(ii) “(f) does not have a member who, when treated as holding the interests of any person who is associated with the 35 member, has an interest of 10% or more in the capital of the legal entity and who would— (2) 33 (1) “(4) 48 Taxation (International Taxation, Life Insurance, and Remedial
 Matters) Bill Part 1 cl 33 “(i) “(ii) be entitled to receive an amount derived from a disposal to which this section would apply; and receive an amount referred to in subparagraph (i) that, in the absence of this section, would have been reduced by a tax imposed by the Act on the 5 amount or on the proceeds of the disposal in the hands of the legal entity; and “(iii) in any circumstances under the laws of the terri­ tory in which the member is resident or under the laws of part of the territory be entitled
 to receive 10 from the government of the territory or part of the territory a ﬁnancial beneﬁt in the form of a pay­ ment, credit, rebate, forgiveness, or other com­ pensation for the reduction referred to in sub­ paragraph (ii); and 15 “(g) does not have a holder of a direct or indirect interest in the capital of the legal entity who,— “(i) “(ii) when treated as holding the interests of a person is resident in New Zealand: associated with the resident, holds a total direct 20 or indirect interest of 10% or more “foreign exempt partnership means an unincorporated body that— “(a) is established under the laws of a territory that is ap­ proved for the purposes of this section by the Gov­ 25 ernor­General by an Order in Council or under the laws of a part of such a territory; and consists of persons (the partners); and under the laws of the territory or part of the territory is not subject to a tax on income other than as a body that 30 handles income of the partners; and “(b) “(c) “(d) has at least 1 partner (the general partner) who is liable for all debts of the unincorporated body and who has signiﬁcant involvement in, and control of, the business activities of the unincorporated body; and has at least 1 partner (the special partner) whose li­ ability for debts of the unincorporated body is limited and who has limited involvement in, and control of, the business activities of the unincorporated body; and “(e) 35 49 Part 1 cl 33 Taxation (International Taxation, Life
 Insurance, and Remedial Matters) Bill “(f) does not have a general partner who is resident in no territory that is approved for the purposes of this section by the Governor­General by an Order in Council; and “(g) does not have a partner who— “(i) “(ii) has, when treated as holding the interests of any 5 person who is associated with the partner, an in­ terest of 10% or more in the capital of the unin­ corporated body; and is resident in no territory that is approved for the purpose of this section by the
 Governor­General 10 by an Order in Council; and “(h) does not have a partner who, when treated as holding the interests of any person who is associated with the partner, has an interest of 10% or more in the capital of the unincorporated body and who— “(i) would under the Act in the absence of this sec­ tion, be subject to tax on an amount derived from a disposal to which this section would apply; and “(ii) would in any circumstances under the laws of 15 the territory in which the partner is resident or 20 under the laws of part of the territory be entitled to receive from the government of the territory or part of the territory a ﬁnancial beneﬁt in the form of a payment, credit, rebate, forgiveness, or other compensation for a payment of the tax referred to 25 in subparagraph (i); and “(i) is resident in New Zealand: does not have a holder of a direct or indirect interest in the capital of the unincorporated body who,— “(i) “(ii) when treated as holding the interests of a person 30 associated with the resident, holds a total direct or indirect interest of 10% or more “foreign exempt person means a person who— “(a) is resident in a territory that is approved for the purposes of this section by the Governor­General by an Order in 35 Council; and is not a legal entity that meets the requirements of para­ graphs (a) to (c) of the deﬁnition of foreign exempt entity; and “(b) 50 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 35
 “(c) is not part of an unincorporated body that meets the requirements of paragraphs (a) to (c) of the deﬁnition of foreign exempt partnership; and “(d) under the laws of the territory or part of the territory “(e) “(f) derives the proceeds from a disposal of shares or options 5 that are held by the person; and is not a person who— “(i) would under the Act in the absence of this sec­ tion, be subject to tax on an amount derived from a disposal to which this section would apply; and 10 “(ii) would in any
 circumstances under the laws of the territory in which the person is resident or under the laws of part of the territory be entitled to receive from the government of the territory or part of the territory a ﬁnancial beneﬁt in the form 15 of a payment, credit, rebate, forgiveness, or other compensation for a payment of the tax referred to in subparagraph (i); and is resident in New Zealand: does not have a holder of a direct or indirect interest in the capital of the legal entity who,— “(i) “(ii) when treated as holding the interests of a person associated with the resident, holds a total direct or indirect interest of 10% or more”.
20 In section CW 12, in the list of deﬁned terms, “1990 version 25 provisions” is omitted.
(2) 34 Expenditure on account, and reimbursement, of employees After section CW 17(3), the following is added: “Relationship with sections CW 17B and CW 17C “(4) This section does not apply to an amount referred to in section CW 17B (Relocation payments) or CW 17C (Payments for overtime meals).” 35 New sections CW 17B and CW 17C inserted After section CW 17, the following are inserted: 51 30 35 Part 1 cl 35 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill “CW 17B Relocation payments “Exempt income “(1) An amount that an employer pays to or on behalf of an em­ ployee in connection with the expenses of the employee in a work­related relocation is exempt income of the employee.
5 “Actual expenditure “(2) The amount paid must be no more than the actual cost incurred by or on behalf of the employee on an expense that the Com­ missioner lists as an eligible relocation expense in a determin­ ation made under subsection (6).

10 “Time limit “(3) Subsection (1) applies only to expenditure incurred for the period from the start of the income year in which the employee relocates or undertakes work at the new location to the end of the next income year.
However, this subsection does not apply 15 in the case of a temporary move when— “(a) an employee moves temporarily to a new location and then relocates permanently to that place; and the temporary move was not treated as a work­related relocation under this section.
“(b) “Meaning of work­related relocation “(4) Work­related relocation means a relocation of the place “(b) where an employee lives that is required— “(a) because the employee’s workplace is not within reason­ able daily travelling distance of their residence; and as a result of the employee— “(i) taking up new employment with a new employer; or taking up new duties at a new location with their existing employer; or “(ii) “(iii) continuing in their current position but at a new location.
“Exemption from distance test “(5) The requirement in subsection (4)(a) for a person’s work­ place to be beyond reasonable travelling distance of their resi­ 35 dence does not apply to a person whose accommodation forms an integral part of their work.
52 20 25 30 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 35 “Determinations “(6) The Commissioner may issue a determination for the purposes of this section under section 91AAR of the Tax Administra­ tion Act 1994 to provide a list of eligible relocation expenses, and may extend or modify the list from time to time as re­ 5 quired.

The Commissioner must give at least 30 days notice of the implementation date of any alteration.
“Deﬁned in this Act: amount, Commissioner, employee, employer, exempt in­ come, income year, work­related relocation “CW 17C Payments for overtime meals “Exempt income “(1) An amount that an employer pays to or on behalf of an em­ ployee for a meal for the employee when the employee is working overtime is exempt income of the employee.
“Eligibility: agreement or established practice “(2) Subsection (1) applies only if— “(a) “(b) the employee’s employment agreement provides for pay for overtime hours worked; or the employer has an established policy or practice of paying for overtime meals.
10 15 20 “Actual cost or reasonable estimate “(3) The amount paid must be— “(a) “(b) the actual cost to the employee, with documentation re­ quired for amounts over $20 per meal; or a reasonable estimate of the expenditure likely to be 25 incurred by the employee or a group of employees for whom an amount is payable.
“Meaning of overtime “(4) For the purposes of this section, overtime, for a person and a day, means time worked for an employer on the day beyond the 30 person’s ordinary hours of work as set out in their employment agreement when the employee has worked more than 2 hours beyond their ordinary hours on that day.

“Deﬁned in this Act: amount, employee, employer, exempt income, overtime, pay”.
35 53 Part 1 cl 36 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 36 37 38 39 Section CW 37 repealed Section CW 37 is repealed.

Local and regional promotion bodies In section CW 40, in the list of deﬁned terms, “associated per­ son” is omitted.

5 Charities: business income In section CW 42(5), (7), (8), and (9), “subsection (1)(b)” is replaced by “subsection (1)(c)”.
New section CW 62B inserted After section CW 62, the following is inserted: 10 “CW 62B Voluntary activities “Exempt income “(1) When a volunteer, in undertaking a voluntary activity, derives an amount that is a reimbursement payment to cover actual expenses incurred by them, the amount is exempt income of 15 the volunteer.
“Estimated expenditure “(2) For the purposes of subsection (1)— “(a) “(b) a person may make a reasonable estimate of the amount of expenditure likely to be incurred by the volunteer for 20 which reimbursement is payable; and the amount estimated is treated as if it were the amount incurred.
“Payments partly honorarium and partly reimbursement “(3) Subsection (1) does not apply to an amount that is partly a 25 reimbursement and partly an honorarium that is treated as a schedular payment to which the PAYE rules apply.

“Who is a volunteer?
“(4) For the purposes of this section, a volunteer means a person is resident in New Zealand under subpart YD (Resi­ dence and source in New Zealand); and freely undertakes an activity in New Zealand— who— “(a) “(b) 54 30 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 41 “(i) chosen either by themselves or a group of which they are a member; and that provides a beneﬁt to another person; and “(ii) “(iii) for which there is no purpose or intention of pri­ vate pecuniary proﬁt.
5 “Honoraria “(5) For the purposes of this section, and schedule 4, part B (Rates of tax for schedular payments), an honorarium means an amount that a person receives for providing services that— “(a) is paid at a rate that is less than the market rate for pro­ 10 viding the services; and is an amount for which, in the normal course, no pay­ ment is ﬁxed for the services provided.
“(b) “Nature of reimbursement payment “(6) For the purposes of this section it does not matter whether— 15 “(a) “(b) an amount of a reimbursement payment is paid in 1 sum or not: the amount is paid during an income year or at the end of an income year.

“Deﬁned in this Act: amount, exempt income, honorarium, income year, New 20 Zealand, pay, PAYE rules, resident in New Zealand, schedular payment, volun­ teer”.
40 Meaning of fringe beneﬁt (1) In section CX 2(5), the words before paragraph (a) are replaced by the following: “(5) A beneﬁt may be treated for the purposes of the FBT rules as 25 (2) (3) being provided by an employer to an employee under—”.

In section CX 2, in the list of deﬁned terms, “FBT rules” is inserted.

Subsections (1) and (2) apply for the 2009–10 and later in­ 30 come years.
41 (1) Section CX 18 replaced Section CX 18 is replaced by the following: 55 Part 1 cl 42 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill “CX 18 Beneﬁts provided when both employment and shareholding relationships exist “When this section applies “(1) This section applies when— “(a) “(b) “(c) “(d) “(e) “(f) a beneﬁt provided to a person would, in the absence of 5 section CX 4, be treated as a fringe beneﬁt under sec­ tion GB 32 (Beneﬁts provided through employment re­ lationships) because of the existence of an employment relationship; and the employer is a company; and the beneﬁt is also provided to the person because of the existence of a shareholding relationship; and the person is not a company; and the person is not a shareholder in the company; and the beneﬁt would be a dividend if provided to a share­ 15 holder in the company.
10 “FBT rules apply, not dividend rules “(2) The beneﬁt is treated as— (2) 42 being provided through the employment relationship: “(a) “(b) being subject to the FBT rules: “(c) not being a dividend.

“Deﬁned in this Act: company, dividend, employer, FBT rules, fringe beneﬁt, shareholder”.

Subsection (1) applies for the 2009–10 and later income years.
20 25 Beneﬁts provided instead of allowances In section CX 19(1)(b), “transport costs).” is replaced by “transport costs); or” and the following is added: “(c) an amount that, if it had been paid, would have been ex­ empt income under section CW 17B (Relocation pay­ 30 ments).” 43 Section CX 28 replaced Section CX 28 is replaced by the following: 56 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 46 “CX 28 Accommodation The value of accommodation that an employer provides to an employee in connection with the employment or services is a fringe beneﬁt.
“Deﬁned in this Act: accommodation, employee, employer, employment, 5 fringe beneﬁt”.

44 (1) (2) 45 (1) Section CX 39 repealed Section CX 39 is repealed.

Subsection (1) applies for income years beginning on and after 1 April 2009.
10 Government grants to businesses Section CX 47(3) is replaced by the following: “Exclusion “(3) This section does not apply to a grant made under the Agri­ culture Recovery Programme for the Lower North Island and 15 Eastern Bay of Plenty, to the extent to which the grant relates to expenditure— “(a) “(b) incurred by the recipient before the grant; and for which the recipient would be allowed a deduction in the absence of section DF 1 (Government grants to 20 businesses).” In section CX 47, in the list of deﬁned terms, “large budget screen production grant” is omitted.
New heading and section CX 48B inserted After section CX 48, the following is inserted: “Government funding of ﬁlm and television 25 (2) 46 “CX 48B Government funding additional to government screen production payments “When this section applies “(1) This section applies when a public authority makes a payment 30 to a person for a project if— “(a) the payment is not in the nature of a grant or subsidy; and the payment is not a grant­related suspensory loan; and “(b) 57 Part 1 cl 47 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill “(c) the person receives a government screen production payment for the project in addition to the payment.
“Excluded income “(2) The payment is excluded income of the person.

“Deﬁned in this Act: excluded income, government screen production pay­ 5 ment, grant­related suspensory loan, pay, public authority”.
47 New heading and section CX 48C inserted (1) After section CX 48B, the following is inserted: “Research and development “CX 48C Tax credits for expenditure on research and 10 development The amount of a tax credit that a person has under subpart LH (Tax credits for expenditure on research and development) is excluded income of the person.

“Deﬁned in this Act: amount, excluded income, tax credit”.

Subsection (1) applies for the 2008–09 and later income years.
15 New heading and section CX 51B inserted After section CX 51, the following is inserted: “Emissions units under Climate Change Response Act 2002 “CX 51B Issue of emissions units “When this section applies “(1) This section applies when a person is issued an emissions unit.

“Excluded income: issue “(2) An amount of income that the person is treated as deriving from the issue is excluded income.

“Deﬁned in this Act: amount, emissions unit, excluded income, income, pre­ 1990 forest land emissions unit”.
Proceeds from certain disposals by portfolio investment entities or New Zealand Superannuation Fund Section CX 55(1)(b) is replaced by the following: “(b) resident in Australia and— 49 58 20 25 30 (2) 48 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 50 “(i) “(ii) not treated as resident in a country other than Australia under an agreement between Australia and the other country that would be a double tax agreement if negotiated between New Zealand and the other country; and included in an index that is an approved index under the ASX Market Rules, made under Chap­ ter 7 of the Corporations Act 2001 (Aust); and 5 “(iii) required under the Income Tax Assessment Act 1997 (Aust) and Income Tax Assessment Act 10 1936 (Aust) to maintain a franking account.” Section CX 55 replaced 50 (1) Section CX 55 is replaced by the following: “CX 55 Proceeds from disposal of investment shares “What this section applies to “(1) This section applies in an income year to the following entities unless the entity is assured, under an arrangement with another person, of having a gain on the disposal: “(a) “(b) “(c) a portfolio investment entity other than a life fund PIE: the New Zealand Superannuation Fund: a life insurer.
“Excluded income “(2) An amount that the entity derives from the disposal in the in­ come year of a share issued by a company referred to in sub­ section (3) is— “(a) 15 20 25 “(b) excluded income of the entity for the income year, if the entity is described in subsection (1)(a) or (b); or excluded income of the entity for the income year to the extent to which the amount is actuarially determined to be policyholder base gross income, if the entity is a life 30 insurer.
“Particular company “(3) The company referred to in subsection (2) is,— “(a) at all times in the income year, a company resident in New Zealand and not treated under and for the pur­ 35 poses of a double tax agreement as not resident in New Zealand; or 59 Part 1 cl 51 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill “(b) a company that meets the following requirements: “(i) a company that, at all times in the income year, is resident in Australia and not treated as resi­ dent in a country other than Australia under an agreement between Australia and the other coun­ 5 try, that would be a double tax agreement if nego­ tiated between New Zealand and the other coun­ try; and a company that, at the start of the income year or at the time the shares are ﬁrst acquired in the 10 income year, is included in an approved index under the ASX Market Rules made under Chap­ ter 7 of the Corporations Act 2001 (Aust); and “(ii) “(iii) a company that, at all times in the income year, is required under the Income Tax Assessment Act 15 1997 (Aust) and the Income Tax Assessment Act 1936 (Aust) to maintain a franking account.
“Non­participating redeemable shares “(4) This section does not apply to a non­participating redeemable share.

(2) “Deﬁned in this Act: actuarially determined, amount, arrangement, company, double tax agreement, excluded income, income year, life fund PIE, life insurer, non­participating redeemable share, policyholder base gross income, portfolio investment entity, resident in Australia, resident in New Zealand, share”.
Subsection (1) applies— (a) for a portfolio investment entity, including a life fund PIE, and the New Zealand Superannuation Fund, for the 2009–10 and later income years: for a life insurer, other than in relation to a life fund PIE, for income years beginning on or after 1 April 2009.
(b) 20 25 30 51 (1) Section CX 56 replaced Section CX 56 is replaced by the following: 60 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 51 “CX 56 Attributed income of certain investors in multi­rate PIEs “When this section applies “(1) This section applies when an investor in a multi­rate PIE de­ rives income attributed under section CP 1 (Attributed in­ 5 come of investors in multi­rate PIEs) in an income year, and— the prescribed investor rate for the investor in the rele­ “(a) vant calculation period is more than zero; and that rate is not more than the tax rate notiﬁed under sec­ tion HM 59 (Notiﬁed rates) in relation to the investor 10 when the PIE calculates— “(i) “(b) its income tax liability under section HM 47 (Calculation of tax liability or tax credit of multi­ rate PIEs) in relation to the income; or a voluntary payment under section HM 45 (Vol­ 15 untary payments) that is intended to be a ﬁnal payment of its income tax liability in relation to the income.
“(ii) “When this section does not apply “(2) This section does not apply if the PIE calculates its income 20 tax liability using the quarterly calculation option under sec­ tion HM 43 (Quarterly calculation option) and the amount is attributed to an investor who is treated under section HM 60 (Certain exiting investors zero­rated) as zero­rated.

“Excluded income 25 “(3) The amount is excluded income of the investor.
“Deﬁned in this Act: amount, attribution period, calculation period, excluded income, income, income tax liability, income year, investor, multi­rate PIE, pay, PIE, prescribed investor rate, quarter “CX 56B Distributions to investors in multi­rate PIEs 30 An amount of income derived by an investor in a multi­rate PIE as a distribution of or dividend of the PIE is excluded income of the investor.
“Deﬁned in this Act: amount, dividend, excluded income, income, investor, multi­rate PIE 35 61 Part 1 cl 52 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill “CX 56C Distributions to investors by listed PIEs “(1) “(2) “Resident investors If an investor in a listed PIE derives an amount in an income year as a distribution by or dividend of the PIE, the amount is excluded income of the investor if they— “(a) “(b) “(c) are resident; and are a natural person or a trustee; and do not include the amount as income in a return of in­ come for the income year.
“Imputed dividends If subsection (1)(a) to (c) does not apply to the investor, the amount is excluded income to the extent to which the amount of the distribution or dividend is more than the amount that is fully credited as described in section CD 43(26) (Available subscribed capital amount).

“Deﬁned in this Act: amount, dividend, excluded income, income year, in­ vestor, listed PIE, PIE, resident, return of income, trustee”.

Subsection (1) applies for the 2009–10 and later income years.
(2) Section CX 57 replaced Section CX 57 is replaced by the following: 52 (1) “CX 57 Credits for investment fees “When this section applies “(1) This section applies when— 5 10 15 20 “(a) “(b) a multi­rate PIE includes a credit for fees in the calcu­ 25 lation of its tax liability under section HM 47 (Calcu­ lation of tax liability or tax credit of multi­rate PIEs) in relation to an investor in an investor class of the PIE; and an amount of the credit is attributed to the investor as a 30 member of the class.
“Excluded income “(2) The amount allocated is excluded income of the investor.

“Deﬁned in this Act: amount, excluded income, investor, investor class, multi­ rate PIE, PIE”.

35 62 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 57 Subsection (1) applies for the 2009–10 and later income years.

Interest: not capital expenditure Section DB 6(3) is repealed.

Subsection (1) applies for the 2009–10 and later income 5 years.
Interest: most companies need no nexus with income Section DB 7(7) is repealed.

Subsection (1) applies for the 2009–10 and later income years.

Interest: money borrowed to acquire shares in group companies Section DB 8(7) is repealed.

Subsection (1) applies for the 2009–10 and later income years.

10 15 Cost of revenue account property Section DB 23(2)(a) is repealed.
In section DB 23(2)(b), “Proceeds from certain disposals by portfolio investment entities or New Zealand Superannuation Fund” is replaced by “Proceeds from disposal of investment 20 shares”.

In section DB 23, in the list of deﬁned terms, “portfolio in­ vestment­linked life fund” is omitted and “life fund PIE”, “life insurer”, and “PIE” are inserted.

Subsections (1) to (3) apply for the 2009–10 and later in­ 25 come years.
Property misappropriated by employees or service providers Section DB 42(2), other than the heading, is replaced by the following: 30 (2) 53 (1) (2) 54 (1) (2) 55 (1) (2) 56 (1) (2) (3) (4) 57 (1) “(2) This section does not apply when a person who misappropri­ ates property is associated with the person who carries on the business.” 63 Part 1 cl 58 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill (2) Subsection (1) applies for the 2009–10 and later income years.
Section DB 53 replaced Section DB 53 is replaced by the following: 58 (1) “DB 53 Attributed PIE losses of certain investors “When this section applies 5 “(a) “(1) This section applies to an investor in a multi­rate PIE when— an amount of attributed PIE loss is attributed under section HM 36 (Calculating amounts attributed to in­ vestors) to an investor for an attribution period in a tax 10 year; and either the investor is— “(i) “(ii) a zero­rated investor; or treated under section HM 60 (Certain exiting investors zero­rated) as zero­rated.
“(b) 15 “Deduction “(2) The investor is allowed a deduction for the amount allocated to the investor’s income year in which the PIE’s tax year ends.

“Link with subpart DA “(3) This section supplements the general permission.

The general 20 limitations still apply.


“Deﬁned in this Act: amount, attributed PIE loss, attribution period, deduction, exit period, general limitation, general permission, income tax liability, income year, investor, multi­rate PIE, PIE, quarter, tax year, zero­rated investor “Compare: 2007 No 97 s DB 53”.

Subsection (1) applies for the 2009–10 and later income years.
(2) Section DB 54 replaced 59 (1) Section DB 54 is replaced by the following: “DB 54 Treatment of credits for investment fees “When this section applies 25 30 “(1) This section applies when an investor in an investor class of a multi­rate PIE incurs expenses in relation to their investor interest, and the entity includes the amount in the calculation of its tax liability under section HM 47 (Calculation of tax 35 64 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 61 liability or tax credit of multi­rate PIEs) in relation to the in­ vestor.
“No deduction “(2) The investor is denied a deduction for the amount.

“Link with subpart DA 5 “(3) This section overrides the general permission.

“Deﬁned in this Act: amount, deduction, general permission, investor, investor class, investor interest, multi­rate PIE “Compare: 2007 No 97 s DB 54”.

Subsection (1) applies for the 2009–10 and later income 10 years.
Expenditure incurred in deriving exempt dividend Section DB 55(1) and (2) are replaced by the following: “Deduction (2) 60 (1) “(1) A company that derives a dividend that is exempt income of 15 the company under section CW 9 (Dividend derived by com­ pany from overseas) is allowed a deduction of the amount of the expenditure incurred by the company in deriving the divi­ dend.” In section DB 55, in the list of deﬁned terms, “CTR company” 20 is omitted.
Subsections (1) and (2) apply for the 2009–10 and later in­ come years.

(3) (2) 61 New heading and section DB 60 added After section DB 59, the following is added: 25 “Emissions units under Climate Change Response Act 2002 “DB 60 Acquisition of emissions units “When this section applies “(1) This section applies when a person is issued an emissions unit.
30 “No expenditure or loss on issue of emissions unit “(2) The person is treated as incurring no expenditure or loss in the acquisition of the emissions unit.

65 Part 1 cl 62 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill “Link with subpart DA “(3) Subsection (2) overrides the general permission.

“Deﬁned in this Act: amount, capital limitation, convert, deduction, emissions unit, general limitation, general permission, Kyoto emissions unit, New Zealand emissions unit”.
5 62 63 (1) (2) 64 65 Heading to subpart DF In the heading to subpart DF, “, funding,” is inserted after “grants”.

Government grants to businesses Section DF 1(6) is repealed.

In section DF 1, in the list of deﬁned terms, “large budget screen production grant” is omitted.

10 Payments for social rehabilitation In section DF 4(3)(b), “part H,” is replaced by “part I,”.
New section DF 5 added After section DF 4, the following is added: 15 “DF 5 Government funding additional to government screen production payments “When this section applies “(1) This section applies when a public authority makes a payment 20 (the funding payment) to a person for expenditure incurred in a project if— “(a) the funding payment is not in the nature of a grant or subsidy; and the funding payment is not a grant­related suspensory 25 loan; and the person receives a government screen production payment for the project in addition to the funding payment; and the person would be allowed a deduction for the ex­ 30 penditure in the absence of this section; and “(b) “(c) “(d) 66 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 66 “(e) the payment is excluded income under section CX 48B (Government funding additional to government screen production payments).
“No deduction for expenditure “(2) The person is denied, to the extent of the amount of the fund­ 5 ing payment, the deduction for the expenditure that would be allowed in the absence of this section.

“Deduction for payments to public authority “(3) The person is allowed a deduction for the amount of a pay­ “(4) ment (the return payment) made to the public authority to 10 the extent to which the return payment is required by the ar­ rangement under which the funding payment is made.
“Links with subpart DA In this section— “(a) subsection (2) overrides the general permission; and “(b) subsection (3) supplements the general permission and overrides the capital limitation; the other general limitations still apply.

15 “Deﬁned in this Act: capital limitation, deduction, excluded income, general limitation, general permission, government screen production payment, grant­ 20 related suspensory loan, pay, public authority”.
66 When attributed CFC loss arises (1) Section DN 2(f) and (g) are replaced by the following: “(f) the CFC has net attributable CFC loss for the accounting period under section EX 20C (Net attributable CFC 25 income or loss); and “(fb) the CFC is not a non­attributing active CFC for the ac­ counting period, under section EX 21B (Non­attribut­ ing active CFCs); and the CFC is not a non­attributing Australian CFC for the 30 accounting period, under section EX 22 (Non­attribut­ ing Australian CFCs).” “(g) (2) In section DN 2, in the list of deﬁned terms,— “branch equivalent loss” is omitted: (a) 67 Part 1 cl 67 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill (b) “net attributable CFC loss”, “non­attributing active CFC”, and “non­attributing Australian CFC” are in­ serted.
(3) Subsections (1) and (2) apply for the 2009–10 and later in­ come years.
5 67 When FIF loss arises (1) Section DN 6(3) is replaced by the following: “FIF loss from CFC with FIF interest “(3) FIF loss also includes an amount of additional FIF loss that a person with an income interest of 10% or more in a CFC 10 has in an income year under section EX 58 (Additional FIF income or loss if CFC owns FIF), whether or not the CFC is a non­attributing Australian CFC under section EX 22 (Non­ attributing Australian CFCs).” In section DN 6, in the list of deﬁned terms, “non­attributing 15 Australian CFC” is inserted.
Subsections (1) and (2) apply for the 2009–10 and later in­ come years.
(2) (3) Sections DR 1 to DR 3 replaced 68 Sections DR 1 to DR 3 are replaced by the following: (1) “DR 1 Policyholder base gross expenditure or loss of life insurer 20 “Deduction “(1) A life insurer is allowed a deduction for an income year for their policyholder base gross expenditure or loss for that year, to the extent to which it is not used to calculate their schedu­ 25 lar policyholder base income under section EY 2(3) to (6) (Policyholder base).
The deduction is allowed against the life insurer’s policyholder base gross income described in section CR 1(1) (Policyholder base income of life insurer) for the in­ come year.

30 “Prohibition on deduction against schedular policyholder base income and shareholder base gross income “(2) The deduction in subsection (1) is not allowed against schedular policyholder base income or shareholder base gross income.
35 68 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 68 “Code for deductions “(3) A life insurer is denied a deduction for any expenditure or loss in relation to their life insurance business that is not their pol­ icyholder base gross expenditure or loss, or their shareholder base gross expenditure or loss.

5 “Link with subpart DA “(4) Subsections (2) and (3) override the general permission.
“Deﬁned in this Act: deduction, general permission, income year, life insur­ ance, life insurer, policyholder base gross expenditure or loss, policyholder base gross income, schedular policyholder base income, shareholder base gross ex­ 10 penditure or loss, shareholder base gross income “DR 2 Shareholder base gross expenditure or loss of life insurer “Deduction “(1) Subject to subsection (3), a life insurer is allowed a deduc­ tion for an income year for their shareholder base gross ex­ 15 penditure or loss.
The deduction is allowed against the life insurer’s shareholder base gross income described in section CR 2 (Shareholder base gross income of life insurer) for the income year.

“Prohibition on deduction against schedular policyholder base income and policyholder base gross income “(2) The deduction in subsection (1) is not allowed against schedular policyholder base income or policyholder base gross income.
“No deduction for non­New Zealand life reinsurance “(3) A life insurer is denied a deduction for life reinsurance policy premiums if, for the relevant policy, the life insurer–– “(a) did not offer the policy in New Zealand: “(b) was not offered the policy in New Zealand: “(c) did not enter into the policy in New Zealand.
“Code for deductions “(4) A life insurer is denied a deduction for any expenditure or loss in relation to their life insurance business that is not their share­ holder base gross expenditure or loss, or their policyholder base gross expenditure or loss.

20 25 30 35 69 Part 1 cl 69 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill “Link with subpart DA “(5) Subsections (2) to (4) override the general permission.
“Deﬁned in this Act: deduction, general permission, income year, life insur­ ance, life insurer, life reinsurance, life reinsurance policy, policyholder base gross expenditure or loss, policyholder base gross income, schedular policy­ 5 holder base income, shareholder base gross expenditure or loss, shareholder base gross income”.

Subsection (1) applies for income years beginning on or after 1 April 2009.
Film production expenditure Section DS 2(4) is replaced by the following: “Timing of deduction 10 (2) 69 (1) “(4) The deduction is allocated under— “(a) “(b) section EJ 4 or EJ 5 (which relate to expenditure in­ curred in acquiring ﬁlm rights) if the ﬁlm is one for 15 which a government screen production payment is made; or section EJ 7 or EJ 8 (which relate to ﬁlm production ex­ penditure) if the ﬁlm is not one for which a government screen production payment is made.” 20 (2) In section DS 2, in the list of deﬁned terms— (a) (b) “large budget screen production grant” is omitted: “government screen production payment” is inserted.
70 Meaning of ﬁlm reimbursement scheme (1) Section DS 4(5), other than the heading, is replaced by the 25 following: “(5) For the purposes of subsection (3), a shareholder in a loss­at­ tributing qualifying company and the company are associated persons, in addition to the associated persons described in the parts of subpart YB (Associated persons and nominees) that 30 apply for the purposes of the whole Act (excluding the 1973, 1988, and 1990 version provisions) or in the 1988 version pro­ visions.” In section DS 4, in the list of deﬁned terms, “1973 version pro­ visions”, “1988 version provisions”, and “1990 version provi­ 35 sions” are inserted.
(2) 70 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 71 New section DT 1A inserted Before section DT 1, the following is inserted: 71 (1) “DT 1A Ring­fenced allocations “When this section applies “(1) This section applies to an amount of a person’s deductions for 5 expenditure and loss for an income year to the extent to which it is— “(a) “(b) petroleum development expenditure: “(c) petroleum exploration expenditure: residual expenditure.
10 “(2) “Basis for allocation of deductions If, but for this subsection, an amount that relates to petrol­ eum mining operations undertaken outside New Zealand is al­ located to an income year (the current year), including an amount carried forward and allocated to the current year, the 15 amount that is allocated to the current year is no more than the amount of the person’s income derived from those operations for the current year.
“Excess allocations: carried forward and re­instated next year “(3) Any excess not allocated to the current year because of sub­ section (2) is carried forward and treated as— “(a) relating to petroleum mining operations outside New Zealand for the next income year; and allocated to that next income year.
“(b) 20 25 “Restriction on reinstating excess allocations “(4) Despite subsection (3), the excess is not allocated to the next income year, and no deduction is allowed or allocated to any income year for the excess, if sections IA 5 and IP 3 (which re­ late to the carrying forward of tax losses for companies) would 30 not have allowed the excess to be carried forward to that next income year in a loss balance, treating the excess as a tax loss component arising on the last day of the current year.
“Deﬁned in this Act: deduction, income year, loss balance, New Zealand, pet­ roleum development expenditure, petroleum exploration expenditure, petrol­ 35 eum mining operation, residual expenditure, tax loss component”.

71 Part 1 cl 72 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill (2) 72 (1) (2) (3) (4) 73 (1) Subsection (1) applies for expenditure incurred on or after 4 March 2008.
Arrangement for petroleum exploration expenditure and sale of property In section DT 2(1)(b), the words before subparagraph (i) are 5 replaced by the following: “(b) the person or a person associated with them under the parts of subpart YB that apply for the purposes of the whole Act (excluding the 1973, 1988, and 1990 version provisions) or under the 1988 version provisions may 10 dispose of property—”.
a petroleum permit; or In section DT 2(1)(c), subparagraphs (ii) and (iii) are replaced by the following: “(ii) “(iii) material or a permit that relates to petroleum min­ 15 ing operations undertaken outside New Zealand, and that material or permit are substantially the same as those described in subparagraphs (i) or (ii), with necessary modiﬁcations made to this subpart and the Crown Minerals Act 1991.” 20 In section DT 2, in the list of deﬁned terms, “1973 version pro­ visions”, “1988 version provisions”, and “1990 version provi­ sions” are inserted.
Subsections (1) and (3) are treated as coming into force on 1 April 2008.

Petroleum development expenditure Section DT 5(1) and (2) is replaced by the following: “Deduction “(1) A petroleum miner is allowed a deduction for petroleum de­ velopment expenditure incurred by them.
“Timing of deduction “(2) For an income year, an amount of the deduction is allocated to that year, as provided by— “(a) section EJ 12 (Petroleum development expenditure: default allocation rule); or 72 25 30 35 (2) 74 (1) (2) (3) 75 76 (1) Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 76 “(b) section EJ 12B (Petroleum development expenditure: reserve depletion method).” Subsection (1) applies for expenditure incurred on or after 1 April 2008.
5 Disposal of petroleum mining asset to associate In section DT 9(1)(b), “section EJ 12 (Petroleum develop­ ment expenditure)” is replaced by “section EJ 12 or EJ 12B (which relate to petroleum development expenditure)”.

Section DT 9(2)(b) is replaced by the following: “(b) the amount of the deduction allocated under section 10 EJ 12 or EJ 12B to the income years after the income year in which the miner disposes of the asset.” Subsections (1) and (2) apply for expenditure incurred on or after 1 April 2008.
Amount written off by holding company In section DU 12(3)(a), “tax year” is replaced by “income year”.
15 Transfer of expenditure to master fund Section DV 2(6), other than the heading, is replaced by the following: “(6) The expenditure is treated as being incurred by the master superannuation fund as follows: “(a) for a master fund that is a portfolio tax rate entity, in the income year in which the expenditure is transferred by the member superannuation fund; or for other master funds, in the same income year as that in which it was incurred by the member superannuation fund.” “(b) 20 25 (2) Section DV 2(6), other than the heading, is replaced by the following: 30 “(6) The expenditure is treated as being incurred by the master superannuation fund as follows: “(a) for a master fund that is a multi­rate PIE, in the income year in which the expenditure is transferred by the mem­ ber superannuation fund; or 35 73 Part 1 cl 77 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill “(b) for other master funds, in the same income year as that in which it was incurred by the member superannuation fund.” (3) After section DV 2(8), the following is inserted: “Amount of deduction when master fund is portfolio tax rate entity 5 “(8B) Despite subsection (8), a master superannuation fund that is a portfolio tax rate entity is allowed a deduction only for ex­ penditure transferred to it by a member superannuation fund— “(a) that is expenditure incurred by the member fund when it 10 has a portfolio investor interest in the portfolio tax rate entity; and to the extent to which the member fund incurred the
 expenditure in relation to its portfolio investor interest in the portfolio tax rate entity.” 15 “(b) (4) Section DV 2(8B), other than the heading, is replaced by the following: “(8B) Despite subsection (8), a master superannuation fund that is a multi­rate PIE is allowed a deduction only for expenditure transferred to it by a member superannuation fund— “(a) 20 “(b) that is expenditure incurred by the member fund when it has an investor interest in the PIE; and to the extent to which the member fund incurred the ex­ penditure in relation to its investor interest in the PIE.” In section DV 2, in the list of deﬁned terms, “portfolio investor 25 interest” and “portfolio tax rate entity” are inserted.
In section DV 2, in the list of deﬁned terms, “portfolio investor interest” and “portfolio tax rate entity” are omitted and “in­ vestor interest” and “multi­rate PIE” are inserted.

Subsections (1), (3), and (5) apply for the 2008–09 income 30 year.

Subsections (2), (4), and (6) apply for the 2009–10 and later income years.
(5) (6) (7) (8) Carry forward of expenditure 77 (1) After section DV 4(1), the following is inserted: 35 74 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 78 “What this section does not apply to “(1B) This section does not apply to a transfer of expenditure to a master superannuation fund that is a portfolio tax rate entity.” Section DV 4(1B) is replaced by the following: “What this section does not apply to (2) 5 (4) (3) “(1B) This section does not apply to a transfer of expenditure to a master superannuation fund that is a multi­rate PIE.” In section DV 4, in the list of deﬁned terms, “portfolio tax rate entity” is inserted.
In section DV 4, in the list of deﬁned terms, “portfolio tax rate 10 entity” is omitted and “multi­rate PIE” is inserted.

Subsections (1) and (3) apply for the 2008–09 income year.

Subsections (2) and (4) apply for the 2009–10 and later in­ come years.
(5) (6) Investment funds: transfer of expenditure to master funds 15 78 (1) After section DV 5(7), the following is inserted: “Amount of deduction when master fund is portfolio tax rate entity “(7B) Despite subsection (7), a master superannuation fund that is a portfolio tax rate entity is allowed a deduction only for ex­ 20 penditure transferred to it by a member superannuation fund— that is expenditure incurred by the member fund when it “(a) has a portfolio investor interest in the portfolio tax rate entity; and to the extent to which the member fund incurred the 25 expenditure in relation to its portfolio investor interest in the portfolio tax rate entity.” “(b) (2) Section DV 5(7B) is replaced by the following: “Amount of deduction when master fund is multi­rate PIE “(7B) Despite subsection (7), a master superannuation fund that is 30 a multi­rate PIE is allowed a deduction only for expenditure transferred to it by a member superannuation fund— “(a) that is expenditure incurred by the member fund when it has an investor interest in the PIE; and to the extent to which the member fund incurred the ex­ 35 penditure in relation to its investor interest in the PIE.” “(b) 75 Part 1 cl 79 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill (3) (4) (5) (6) In section DV 5, in the list of deﬁned terms, “portfolio investor interest” and “portfolio tax rate entity” are inserted.
In section DV 5, in the list of deﬁned terms, “portfolio investor interest” and “portfolio tax rate entity” are omitted, and “in­ vestor interest” and “multi­rate PIE” are inserted.

Subsections (1) and (3) apply for the 2008–09 income year.

Subsections (2) and (4) apply for the 2009–10 and later in­ come years.
New section DW 4 added 79 (1) After section DW 3, the following is added: “DW 4 Deduction for general insurance outstanding claims 5 10 reserve “When this section applies “(1) This section applies for— “(a) an insurer who uses IFRS 4, Appendix D for general 15 insurance contracts; and “(b) general insurance contracts, excluding contracts having premiums to which section CR 3 (Income of non­resi­ dent general insurer) applies.
“Formula for insurer’s deduction “(2) For an income year, an insurer is allowed a deduction for the amount by which the amount calculated using the following formula is less than zero: opening outstanding claims reserve − closing out­ standing claims reserve.
“Deﬁnition of items in formula In the formula,— “(a) opening outstanding claims reserve is— “(i) the amount of the insurer’s closing outstanding claims reserve for the income year before the current year; or the amount of the insurer’s outstanding claims re­ 30 serve for general insurance contracts, calculated at the beginning of the current year, if the insurer “(ii) 20 25 “(3) 76 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 82 has no closing outstanding claims reserve for the income year before the current year: “(b) closing outstanding claims reserve is the amount of the insurer’s outstanding claims reserve for general in­ surance contracts, calculated at the end of the current 5 year.
“Link with subpart DA “(4) This section supplements the general permission.

The general limitations still apply.

(2) “Deﬁned in this Act: amount, deduction, general insurance contract, general 10 limitation, general permission, IFRS 4, income year, insurer”.
Subsection (1) applies for— (a) the 2009–10 and later income years, unless paragraph (b) applies: the ﬁrst income year for which a person adopts IFRSs 15 for the purposes of ﬁnancial reporting and later income years, if that ﬁrst income year is before the 2009–10 income year.

(b) 80 (1) (2) Section DX 2 repealed Section DX 2 is repealed.

Subsection (1) applies for the 2009–10 and later income years.
20 81 Meaning of trading stock (1) In section EB 2(3)(e), “Proceeds from certain disposals by portfolio investment entities or New Zealand Superannuation 25 Fund” is replaced by “Proceeds from disposal of investment shares”.

In section EB 2(3)(h), “exchange.” is replaced by “exchange:” and the following is added: “(i) In section EB 2, in the list of deﬁned terms, “emissions unit” is inserted.

an emissions unit.” 30 (2) (3) 82 (1) Low­turnover valuation In section EB 13(2), “YB 8” is replaced by “YB 3”.
77 Part 1 cl 83 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill (2) 83 (1) (2) Subsection (1) applies for the 2009–10 and later income years.

Valuing closing stock under $5000 In the heading to section EB 23, “$5,000” is replaced by “$10,000”.

In section EB 23(1)(b), “$5,000” is replaced by “$10,000”.
5 Valuation of excepted ﬁnancial arrangements 84 (1) After subsection ED 1(5), the following is inserted: “Certain emissions units not pooled with other types of excepted ﬁnancial arrangement “(5B) No emissions unit described in 1 of the following paragraphs may be pooled for the purposes of subsection (5) with another emissions unit except if both emissions units are described in the same paragraph of the following: emissions units that are— “(a) “(i) pre­1990 forest land emissions units relating to pre­1990 forest land, if the holder of the units would derive income other than exempt income and excluded income from a disposal of the land without timber: 10 15 20 “(ii) post­1989 forest land emissions units: “(iii) replacement forest land emissions units: “(b) pre­1990 forest land emissions units relating to pre­ 1990 forest land, if the holder of the units would de­ rive no income other than exempt income and excluded 25 income from a disposal of the land without timber: emissions units issued for no consideration— to which section ED 1B applies; and “(i) that have not been assigned a cost under section “(ii) ED 1B(3)(a).” (2) After section ED 1(7), the following is inserted: “(c) 30 “Valuation of emissions units issued for no consideration “(7B) For the purposes of subsection (1),— “(a) a forest land emissions unit has a cost of zero at the end of each income year: 35 78 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 85 “(b) “(c) a replacement forest land emissions unit has a cost of zero at the end of each income year: an emissions unit to which section ED 1B applies has the cost at the end of each income year that is given by that section.” 5 In section ED 1, in the list of deﬁned terms, “emissions unit” is inserted.
New section ED 1B inserted After section ED 1, the following is inserted: (3) 85 “ED 1B Valuation of emissions units issued for no consideration 10 “What this section applies to “(1) This section applies to emissions units, held by a person at the end of an income year, that— “(a) “(b) are issued to the person for no consideration; and are held continuously by the person to the end of the 15 income year; and relate to a quantity (the unit­related quantity) of emis­ sions, or emissions­related costs, of the person in a period (the emissions unit period) that ends in or af­ ter the income year; and are not forest land emissions units; and are not replacement forest land emissions units; and are not assigned a cost under subsection (3)(a) for an earlier income year.
20 “Cost at end of income year 25 “(2) The cost under section ED 1 of the emissions units at the end of the income year is— “(a) zero, if the emissions unit period begins after the end of the income year; or the amount determined under subsection (3), if para­ 30 graph (a) does not apply and the emissions unit period ends after the end of the income year; or the amount that a willing purchaser would pay for an emissions unit in an arm’s length transaction at the end of the income year, if the emissions unit period ends in 35 or at the end of the income year.
“(c) “(d) “(e) “(f) “(b) “(c) 79 Part 1 cl 85 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill “Cost if emissions unit period ends after end of income year “(3) The cost under section ED 1 of the emissions units at the end of an income year referred to in subsection (2)(b) is,— “(a) for the number of the emissions units given by subsec­ tion (4), the amount that a willing purchaser would pay 5 for an emissions unit in an arm’s length transaction at the end of the income year; or for the balance of the units, zero.
“(b) “Formula based on emissions “(4) The number of units referred to in subsection (3)(a) is the 10 number, treating negative numbers as equal to zero and ignor­ ing fractions, calculated using the formula— held units – ﴾issued units × remaining quantity total quantity ﴿.

“Deﬁnition of items in formula “(5) The items in the formula are deﬁned in subsections (6) to (9).
“Held units 15 “(6) Held units is the number of the issued units that have not been assigned a value under subsection (3)(a) for an earlier in­ come year.

“(7) “Issued units Issued units is the number of emissions units issued in relation to the unit­related quantity for the unit­related period.
20 “Remaining quantity “(8) Remaining quantity is— “(a) if the total unit­related quantity for the person can be 25 determined for each part of the emissions unit period included in an income year, the greater of the following amounts: “(i) the part of the total expected unit­related quantity for the emissions unit period that was not emitted 30 or incurred before the end of the income year: zero; or “(ii) 80 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 89 “(b) if paragraph (a) does not apply, the number of days in the emissions unit period after the end of the income year.
“Total quantity “(9) Total quantity is,— “(a) “(b) if the total unit­related quantity for the person can be determined for each part of the emissions unit period included in an income year, the total unit­related quan­ tity that was expected to be emitted or incurred for the emissions unit period; or if paragraph (a) does not apply, the number of days in the emissions unit period.

“Deﬁned in this Act: emissions unit, income year”.


Economic rate for plant, equipment, or building, with high residual value In section EE 30(1)(b), “of cost” is inserted after “13.5%”.

5 10 15 Annual rate for item acquired in person’s 1995–96 or later income year Section EE 31(2)(a) is replaced by the following: “(a) the item’s economic rate, special rate, or provisional 20 rate, for an item not described in either paragraph (b) or (c):”.
In section EE 31(2)(b), the words before subparagraph (i) are replaced by the following: “(b) the item’s economic rate, special rate, or provisional 25 rate, multiplied by 1.2, for an item that—”.

Section EG 3 repealed Section EG 3 is repealed.

Subsection (1) applies for the 2009–10 and later income years.
30 Expenditure incurred in acquiring ﬁlm rights in feature ﬁlms Section EJ 4(1)(b) is replaced by the following: 81 86 87 (1) (2) 88 (1) (2) 89 (1) Part 1 cl 90 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill “(b) the deduction is allowed under section DS 2 (Film pro­ duction expenditure) and the ﬁlm is one for which a government screen production payment is made.” In section EJ 4, in the list of deﬁned terms, “government screen production payment” is inserted.
5 Expenditure incurred in acquiring ﬁlm rights in ﬁlms other than feature ﬁlms Section EJ 5(1)(b) is replaced by the following: “(b) the deduction is allowed under section DS 2 (Film pro­ duction expenditure) and the ﬁlm is one for which a 10 government screen production payment is made.” In section EJ 5, in the list of deﬁned terms, “government screen production payment” is inserted.
Film production expenditure for New Zealand ﬁlms having no large budget screen production grant In the heading to section EJ 7, “large budget screen produc­ tion grant” is replaced by “government screen production payment”.

Section EJ 7(1)(a) is replaced by the following: “(a) the ﬁlm is not one for which a government screen pro­ 20 duction payment is made; and”.

15 In section EJ 7, in the list of deﬁned terms, “government screen production payment” is inserted.
Film production expenditure for other ﬁlms having no large budget screen production grant In the heading to section EJ 8, “large budget screen produc­ tion grant” is replaced by “government screen production payment”.

Section EJ 8(1)(a) is replaced by the following: “(a) the ﬁlm is not one for which a government screen pro­ 30 duction payment is made; and”.

25 In section EJ 8, in the list of deﬁned terms, “government screen production payment” is inserted.
(2) 90 (1) (2) 91 (1) (2) (3) 92 (1) (2) (3) 82 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 93 Section EJ 12 replaced Section EJ 12 is replaced by the following: 93 (1) “EJ 12 Petroleum development expenditure: default allocation rule “What this section applies to “(1) This section applies to petroleum development expenditure that relates to a petroleum mining development and that is in­ curred after 1 April 2008 when, for that development, the pet­ roleum miner has not chosen to apply section EJ 12B to any petroleum development expenditure for the development.
5 10 “Default allocation rule “(2) For the purposes of section DT 5(2)(a) (Petroleum develop­ ment expenditure), a deduction for the petroleum development expenditure is allocated in equal amounts over a period of 7 in­ come years.

The period of 7 years starts with the income year 15 in which the expenditure is incurred.

“Relationship with other petroleum mining provisions “(3) Sections EJ 13 to EJ 16 override subsection (2).
Sections DT 7, DT 8, DT 10, DT 11, DT 16, and IS 5 (which relate to petroleum miners) override this section.
“Deﬁned in this Act: amount, deduction, income year, petroleum development expenditure, petroleum mining development “EJ 12B Petroleum development expenditure: reserve depletion method “What this section applies to 20 25 “(1) This section applies to petroleum development expenditure that relates to a petroleum mining development and that is in­ curred after 1 April 2008, if the petroleum miner has chosen to apply this section for the ﬁrst income year in which the pet­ roleum mining development ﬁrst produces petroleum in com­ 30 mercial quantities.
“Choice “(2) The choice described in subsection (1) is made in a return of income, and applies this section to petroleum development expenditure that relates to a petroleum mining development 35 83 Part 1 cl 93 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill for the income year of the return and for all subsequent income years.
“Reserve depletion method expense allocation rule “(3) For the purposes of section DT 5(2)(b) (Petroleum develop­ ment expenditure), the deduction allocated to an income year 5 for the petroleum development expenditure is calculated using the formula— (reserve expenditure − previous deductions) × reserve depletion for the year probable reserves.

“Deﬁnition of items in formula “(4) The items in the formula are deﬁned in subsections (5) to (8).
“Reserve expenditure “(5) Reserve expenditure is the total of petroleum development expenditure to which this section applies for the income year or an earlier income year.

“Previous deductions “(6) Previous deductions is the total amount of petroleum devel­ opment expenditure that relates to the relevant petroleum min­ ing development and that has been allocated to an earlier in­ come year.
“Reserve depletion for the year “(7) Reserve depletion for the year is the amount, expressed in barrels of oil equivalent, of petroleum produced from the rele­ vant petroleum mining development for the income year.
10 15 20 “Probable reserves “(8) Probable reserves is the amount, expressed in barrels of oil 25 equivalent, of the reserves of petroleum for the petroleum min­ ing development that are not yet proven but are estimated, at the beginning of the income year, to have a better than 50% chance of being technically and commercially producible.
84 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 95 “Relationship with other petroleum mining provisions “(9) Sections EJ 13 to EJ 16 override subsection (3).

Sections DT 7, DT 8, DT 10, DT 11, DT 16, and IS 5 (which relate to petroleum miners) override this section.

“Deﬁned in this Act: amount, deduction, income year, petroleum development 5 expenditure, petroleum mining development”.

Subsection (1) applies for expenditure incurred on or after 1 April 2008.
Relinquishing petroleum mining permit In section EJ 13(2)(b), “section EJ 12(1)” is replaced by “sec­ 10 tion EJ 12(2) or EJ 12B(3)”.

Subsection (1) applies for expenditure incurred on or after 1 April 2008.
(2) 94 (1) (2) 95 New sections EJ 13B and EJ 13C inserted (1) After section EJ 13, the following is inserted: “EJ 13B Dry well drilled “When this section applies “(1) This section applies when— 15 “(a) the petroleum miner has petroleum development ex­ penditure for a well, the drilling of which is completed 20 in an income year, and, from the time of completion, the well— “(i) will never produce petroleum in commercial quantities; and is abandoned; and “(ii) “(b) part of a deduction under section DT 5 (Petroleum de­ velopment expenditure) for the petroleum development expenditure described in paragraph (a) has not been allocated under section EJ 12 or EJ 12B.
“Allocation “(2) The part of the deduction described in subsection (1) is allo­ cated to the income year.
“Deﬁned in this Act: amount, deduction, income year, petroleum development expenditure 25 30 85 Part 1 cl 96 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill “EJ 13C Well not producing “When this section applies “(1) This section applies when— “(a) “(b) “(c) 5 the petroleum miner has petroleum development ex­ penditure for a well that, in an income year— “(i) stops producing petroleum in commercial quan­ tities; and is abandoned; and “(ii) the petroleum miner has elected to apply section EJ 12B for the petroleum development expenditure de­ 10 scribed in paragraph (a) before the start of the income year; and part of a deduction under section DT 5 (Petroleum de­ velopment expenditure) for the petroleum development expenditure described in paragraphs (a) and (b) has 15 not been allocated under section EJ 12B.
“Allocation “(2) The part of the deduction described in subsection (1) is allo­ cated to the income year.

(2) 96 (1) “Deﬁned in this Act: amount, deduction, income year, petroleum development 20 expenditure”.

Subsection (1) applies for expenditure incurred on or after 1 April 2008.
Disposal of petroleum mining asset Section EJ 15(2)(b) is replaced by the following: “(b) it has not been allocated under section EJ 12 or EJ 12B to the income year in which the miner disposes of the asset or to an earlier income year.” 25 (2) Subsection (1) applies for expenditure incurred on or after 1 April 2008.
30 97 (1) Sections EJ 19 and EJ 20 replaced Sections EJ 19 and EJ 20 are replaced by the following: 86 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 98 “EJ 20 Meaning of petroleum mining development “(1) “Meaning In sections EJ 12 and EJ 12B, petroleum mining develop­ ment means a place where 1 or more of the activities described in subsection (2) is carried out.
5 “Activities: inclusions “(2) The activities are those carried out in connection with— developing a permit area for producing petroleum: “(a) “(b) producing petroleum: “(c) processing, storing, or transmitting petroleum before its 10 dispatch to a buyer, consumer, processor, reﬁnery, or user: removal or restoration operations.
“(d) “Activities: exclusions “(3) The activities do not include further treatment to which all the 15 following apply: “(a) it occurs after the well stream has been separated and stabilized into crude oil, condensate, or natural gas; and it is done— “(i) “(ii) “(iii) for the production of derivative products; and it is not treatment at the production facilities.
by liquefaction or compression; or for the extraction of constituent products; or “(b) “(c) “Deﬁned in this Act: permit area, petroleum, removal or restoration oper­ ations”.

Subsection (1) applies for expenditure incurred on or after 1 April 2008.

(2) 98 What is an excepted ﬁnancial arrangement?


(1) After section EW 5(3), the following is inserted: “Emissions unit 20 25 30 “(3B) An emissions unit is an excepted ﬁnancial arrangement.” (2) In section EW 5(8), “insurance contract” is replaced by “in­ surance contract that is not life ﬁnancial reinsurance”.
In section EW 5(13), the second sentence is replaced by “This subsection does not apply to a withdrawable share, to an option 35 (3) 87 Part 1 cl 99 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill to acquire or dispose of withdrawable shares, or to a ﬁxed­rate foreign equity.” In section EW 5, in the list of deﬁned terms, “ﬁxed­rate foreign equity” is inserted.

In section EW 5, in the list of deﬁned terms, “emissions unit” 5 is inserted.
In section EW 5, in the list of deﬁned terms, “life ﬁnancial reinsurance” is inserted.

Subsections (3) and (4) apply for the 2009–10 and later in­ come years.

Subsections (2) and (6) apply for income years beginning on or after 1 April 2009.
10 (4) (5) (6) (7) (8) 99 When use of spreading method not required Section EW 13(2), other than the heading, is replaced by the following: 15 “(2) A trustee who holds a ﬁnancial arrangement in trust to manage compensation paid for personal injury under the Injury Pre­ vention, Rehabilitation, and Compensation Act 2001, the Ac­ cident Insurance Act 1988, any of the former Acts as deﬁned in section 13 of the Accident Insurance Act 1998, the Work­ 20 ers’ Compensation Act 1956, or a court order does not use any of the spreading methods for the ﬁnancial arrangement if the trustee is a cash basis person.” 100 IFRS ﬁnancial reporting method After section EW 15D(2)(a), the following is inserted: “(ab) even if another currency may be used as the functional currency under IFRSs, the IFRS ﬁnancial reporting method must be applied using New Zealand dollars, except as required by section EX 21 (Attributable CFC income and net attributable CFC income or loss) for 30 calculations under section EX 21D (Non­attributing active CFC: default test):”.
25 101 Determination alternatives (1) In section EW 15E(1)(c), the words before subparagraph (i) are replaced by the following: 35 88 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 103 “(c) the ﬁnancial arrangement is not treated under IFRSs as a hedge of a ﬁnancial arrangement, or is treated as a hedge of a ﬁnancial arrangement (ﬁnancial arrangement A) and—”.

(2) (3) In section EW 15E(1)(c)(ii), “fair value method” is replaced 5 by “modiﬁed fair value method”.
In section EW 15E(2), the words before paragraph (a) are re­ placed by the following: “(2) The person must use 1 of the following methods modiﬁed, as applicable, under subsection (3) or (3B):”.
(4) After section EW 15E(3), the following is added: “Modiﬁcations “(3B) For a determination alternative that is Determination G27, the allocation is modiﬁed as follows: “(a) method C must be used, and not methods A, B, or D: “(b) for method C, if relevant, Determination G9C and not Determination 9A must be used.” 102 Expected value method (1) In section EW 15F(1)(c), the words before subparagraph (i) are replaced by the following: “(c) the ﬁnancial arrangement is not treated under IFRSs as a hedge of a ﬁnancial arrangement, or is treated as a hedge of a ﬁnancial arrangement (ﬁnancial arrangement A) and—”.
(2) (3) Section EW 15F(3) is repealed.

Subsection (2) applies for the 2009–10 and later income years.

103 Modiﬁed fair value method (1) In section EW 15G(1)(c), the words before subparagraph (i) are replaced by the following: “(c) the ﬁnancial arrangement is not treated under IFRSs as a hedge of a ﬁnancial arrangement, or is treated as a hedge of a ﬁnancial arrangement (ﬁnancial arrangement A) and—”.
10 15 20 25 30 (2) In section EW 15G(1)(d), “fair value method” is replaced by 35 “modiﬁed fair value method”.
89 Part 1 cl 104 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill (3) In section EW 15G(2), the ﬁrst sentence is replaced by “The person must use a method that is the fair value method under section EW 15D.” 104 Mandatory use of yield to maturity method for some arrangements 5 (1) After section EW 15I(1)(b)(ii), the following is inserted: “(iib) is a lease that is a ﬁnance lease, and under NZIAS 17 and in the person’s ﬁnancial statements, the lease is classiﬁed as an operating lease:”.
In section EW 15I, in the list of deﬁned terms, “ﬁnance lease” 10 and“ NZIAS 17” are inserted.

(2) 105 Straight­line method In section EW 17(1)(a), “$1,500,000” is replaced by “$1,850,000”.

106 Consistency of use of straight­line method and market 15 (1) (2) valuation method In the heading to section EW 25(3), “$1,500,000” is replaced by “$1,850,000”.

In section EW 25(3), “$1,850,000”.
“$1,500,000” replaced by is 20 107 Change of spreading method (1) Section EW 26(1) is replaced by the following: “Requirements for change from straight­line and market value method “(1) A person may change from the straight­line method or the 25 market value method if they change to a method that is not a method for IFRS under section EW 15B, and the Commis­ sioner has given written authorisation for the change.” In section EW 26(2), the ﬁrst sentence is replaced by “A person may change from any spreading method to any other method if 30 the Commissioner’s written authorisation under subsection (1) is not required for the change, and they have a sound com­ mercial reason for the change”.
(2) 90 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 109 (3) Section EW 26(6), other than the heading, is replaced by the following: “(6) Subsections (3) and (4) and section EW 27 do not apply to a ﬁnancial arrangement if the person’s change of spreading method involves a change from the fair value method or a 5 change from the market value method to a method for IFRS under section EW 15B, in which case section EW 29(13) ap­ plies.” Section EW 26(7)(a) is replaced by the following: “(a) starting or stopping the use of IFRSs to prepare ﬁnancial 10 statements at the same time as starting or stopping the use of a method for IFRS under section EW 15B:”.
(4) 108 When calculation of base price adjustment required Section EW 29(13), other than the heading, is replaced by the following: 15 “(13) A party to the ﬁnancial arrangement who changes from the fair value method to another method or from the market value method to a method for IFRS under section EW 15B must calculate a base price adjustment at the date of the change.” 109 Section EW 54 replaced Section EW 54 is replaced by the following: “EW 54 Meaning of cash basis person “Who is cash basis person “(1) A person is a cash basis person for an income year if— 20 “(a) “(b) 1 of the following applies in the person’s case for the 25 income year: “(i) “(ii) section EW 57(3) applies in the person’s case for the income year.
section EW 57(1); or section EW 57(2); and 30 “Persons excluded by Commissioner “(2) A person may be excluded under section EW 59 from being a cash basis person for a class of ﬁnancial arrangements.

“Deﬁned in this Act: cash­basis person, ﬁnancial arrangement, income year”.

91 Part 1 cl 110 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill 110 Section EW 56 repealed Section EW 56 is repealed.
111 Thresholds (1) In section EW 57(1), “section EW 56(1)(a)(i)” is replaced by section “EW 54(1)(a)(i)”.

In section EW 57(2), “section EW 56(1)(a)(ii)” is replaced by “section EW 54(1)(a)(ii)”.

In section EW 57(3), “section EW 56(1)(b)” is replaced by “section EW 54(1)(b)”.
(4) After section EW 57(9), the following is added: “Increase in speciﬁed sums “(10) The Governor­General may make an Order in Council increas­ ing a sum speciﬁed in any of subsections (1) to (3).” 112 Financial arrangements, income, and expenditure relevant to criteria In section EW 58(1), “the natural person” is replaced by “the person”.

In section EW 58(2),— (a) (b) In section EW 58(3),— (a) the subsection heading is replaced by “Partner”: “A natural person” is replaced by “A person”.
the subsection heading is replaced by “Beneﬁciary of bare trust”: “A natural person” is replaced by “A person”.

(b) In section EW 58(4),— (a) (b) In section EW 58(5),— (a) (b) the subsection heading is replaced by “Beneﬁciary of trust other than bare trust”: “a natural person” is replaced by “a person”.

the subsection heading is replaced by “Trustee”: “a natural person” is replaced by “a person”.
(2) (3) (1) (2) (3) (4) (5) 113 Section EW 59 replaced Section EW 59 is replaced by the following: 92 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 117 “EW 59 Exclusion by Commissioner The Commissioner may treat a person who would otherwise be a cash basis person for a class of ﬁnancial arrangements as not being a cash basis person for the class if— “(a) the person, or any other person, has structured and pro­ 5 moted the class to defer an income tax liability: the parties to a ﬁnancial arrangement are associated, and the person’s calculation of income and expenditure under the ﬁnancial arrangement differs from that used by the associated person.
“(b) 10 “Deﬁned in this Act: associated person, cash­basis person, Commissioner, ﬁ­ nancial arrangement, income, income tax liability”.

114 Trustee of deceased’s estate (1) In section EW 60(2) and (3), “section EW 56(1)(a) and (b)” is replaced by “section EW 54(1)(a) and (b)”.

In section EW 60(4), “to EW 56” are replaced by “and EW 55”.

(2) 115 Meaning of controlled foreign company (1) Section EX 1(2)(b)(ii) is replaced by the following: an entity that qualiﬁes for PIE status:”.
“(ii) (2) Subsection (1) applies for the 2009–10 and later income years.

116 Associates and 10% threshold (1) In section EX 15(1), “section EX 14” is replaced by “sections CD 45, CQ 2, EX 14, EX 21, EX 34, EX 58, and LL 9.” In section EX 15(1), “EX 34, EX 58, and LL 9.” is replaced by “EX 34, and EX 58.” Subsection (2) applies for the 2009–10 and later income years.
(2) (3) 117 Formula for calculating attributed CFC income or loss (1) In the formula in section EX 18, “branch equivalent income” is replaced by “net attributable CFC income”.

In section EX 18, in the list of deﬁned terms,— (a) “branch equivalent income” is omitted: (2) 93 15 20 25 30 Part 1 cl 118 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill (3) “net attributable CFC income” is inserted.

(b) Subsections (1) and (2) apply for the 2009–10 and later in­ come years.
118 Taxable distribution from non­complying trust (1) In section EX 19(1)(b), “branch equivalent income” is re­ 5 placed by “net attributable CFC income”.

In section EX 19(2), “branch equivalent income” is replaced by “net attributable CFC income”.

Section EX 19(5) is repealed.

In section EX 19, in the list of deﬁned terms,— (a) (b) Subsections (1) to (4) apply for the 2009–10 and later in­ come years.

“branch equivalent income” is omitted: “net attributable CFC income” is inserted.
10 (2) (3) (4) (5) 119 New heading and sections EX 20B to EX 20D inserted (1) After section EX 20, the following is inserted: “Attributable CFC amount and net attributable CFC income or loss “EX 20B Attributable CFC amount “Attributable CFC amount “(1) Attributable CFC amount, for an accounting period and a CFC, means the amount calculated under the rules in section EX 21 using the formula— 15 20 gross income + arrangement income.
“Deﬁnition of items in formula “(2) The items in the formula in subsection (1) are deﬁned in 25 subsections (3) and (4).
“Gross income “(3) Gross income is the total amount of income derived in the ac­ counting period by the CFC that is 1 or more of the following: “(a) a dividend that is paid in relation to rights that are a di­ 30 rect income interest of less than 10% in a foreign com­ pany and are described in— 94 “(b) “(c) “(d) “(e) “(f) “(g) “(h) Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 119 in section EX 37B: section EX 31: “(i) “(ii) section EX 32: “(iii) section EX 36: “(iv) section EX 37: “(v) “(vi) section EX 39: a dividend that is paid by a company resident in New Zealand to the extent to which the dividend is not fully imputed under section RF 9(2) (When dividends fully imputed or fully credited): an amount that is treated as a payment of interest under section CD 36B (Distributions to resident company for deductible foreign equity and ﬁxed­rate foreign equity): a royalty, other than a royalty referred to in subsection (5): rent, other than rent referred to in subsection (6), from— “(i) “(ii) “(iii) a licence to use intangible property: “(iv) a hire or bailment: income from a business of general insurance or life in­ surance that is— “(i) a lease or sublease of land: a lease or sublease of personal property: a premium under an insurance contract or rein­ surance contract: income from a change in value of revenue ac­ count property used in the business: “(ii) income from a life insurance policy that is not included in a calculation of FIF income or loss and is— “(i) “(ii) a
 distribution under the life insurance policy: income from an alienation of the life insurance policy, if the policy is revenue account property: income from the supply of personal services performed by another person (the working person) if— “(i) “(ii) the personal services are not essential support for 35 a product supplied by the CFC; and the working person is associated with the CFC under section YB 5 (Company and non­corporate 25% interest holder) at the time the services are 95 Part 1
 cl 119 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill performed or is a relative, at the beginning of the accounting period, of a person associated with the CFC under section YB 5; and “(iii) 80% or more of the CFC’s total income in the “(iv) accounting period from supplying personal ser­ 5 vices is derived through personal services meet­ ing the requirements of subparagraph (i) per­ formed by working persons meeting the require­ ments of subparagraph (ii); and to derive the income, the CFC uses a business 10 structure that requires depreciable property hav­ ing, at the end of the accounting period, a total cost under section GB 28(7) (Interpretation of terms used in section GB 27) less than or equal to the greater of $75,000 and 25% of the CFC’s 15 total income from personal services performed in the accounting period: 20 “(ii) income from the alienation of shares that are revenue account property, other than shares referred to in sub­ section (7): income from the alienation of revenue account property if the property is— “(i) not a share, ﬁnancial arrangement, or life insur­ ance policy; and capable of giving rise to income of the CFC re­ 25 ferred to in another paragraph of this subsection: income from a service physically performed wholly or partly in New Zealand, other than a telecommunications service: income from a service relating to the use of equipment 30 to provide a telecommunications service, to the extent to which the
 equipment is at the time— “(i) physically located outside any country or terri­ tory; and “(ii) owned by the CFC or by another CFC that is 35 associated with the CFC; and “(iii) not a mobile telephone handset or a radio receiver and transmitter for a ship or aircraft: “(i) “(j) “(k) “(l) 96 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 119 “(m) income from a telecommunications service to the extent to which the service is physically performed in New Zealand, except if—
 “(i) the service is the transmission, emission, or re­ ception of information between New Zealand and 5 the country or territory in which the CFC is liable to income tax on its income because of its domi­ cile, residence, place of incorporation, or centre of management; and the CFC is a network operator under Telecommunications (Interception Capabil­ ity) Act 2004 or a person who is such a network operator owns an income interest of 50% or more in the CFC; and the 10 “(ii) “(iii) the service is not performed using equipment that 15 at the time is physically located in New Zealand and is in the possession of the CFC or of another CFC that is associated with the CFC; and the service is not performed by a person who at the time is physically located in New Zealand and 20 is an employee or contractor of the CFC or of another CFC that is associated with the CFC.
“(iv) “Arrangement income “(4) Arrangement income is the total for the CFC and the account­ ing period of amounts of income under section CC 3 (Financial 25 arrangements) for— “(a) an arrangement that— “(i) is a ﬁnancial arrangement, or a short­term agree­ ment for sale and purchase for which the CFC has made an election under section EW 8 (Election 30 to treat certain excepted ﬁnancial arrangements as ﬁnancial arrangements); and is not a derivative instrument; and “(ii) “(iii) is not referred to in subsection (8): a derivative instrument that— “(i) is held in the course of a business of the CFC for the purpose of dealing with the derivative instru­ ment: 35 “(b) 97 Part 1 cl 119 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill “(ii) is not entered in the ordinary course of a business of the CFC: “(iii) is in a hedging relationship, of a type referred to in IFRS 39, with income of the CFC referred to in subsection (3) or paragraph (a) or with a 5 transaction producing such income of the CFC.
“Exclusions from attributable CFC amount: royalties “(5) A royalty derived by a CFC is not included in an attributable CFC amount under subsection (3)(d) if— “(a) the CFC has a pattern of activity involving creating, 10 developing, or adding value to property that produces royalties and the royalty is— “(i) paid by a person who is not associated with the CFC under section YB 2 (Two companies with common control); and from property that is not linked to New Zealand under subsection (9); and “(ii) “(iii) from property that the CFC has created or devel­ oped or to which the CFC has added substantial value: 15 20 “(b) the CFC has a pattern of activity involving creating, developing, or adding value to property that produces royalties and the royalty is— “(i) paid by a person who is associated with the CFC under section YB 2 and would not be an associ­ 25 ated non­attributing active CFC if such royalties were attributable CFC amounts; and from property that is not linked to New Zealand under subsection (9); and “(ii) “(iii) from property that the CFC has created or devel­ 30 oped or to which the CFC has added substantial value; and “(iv) an arm’s length amount determined under section GC 13 (Calculation of arm’s length amounts) for the arrangement between the CFC and the asso­ 35 ciated person: “(c) the royalty is— “(i) paid by a person who would be an associated non­attributing active CFC in the absence of this 98 “(d) Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 119
 paragraph and subsections (6)(c) and (8)(a); and from property that is not linked to New Zealand under subsection (9): “(ii) the royalty is paid by a person who is not associated 5 with the CFC under section YB 2 and is from property that is— “(i) owned by a New Zealand resident who is not treated as a non­resident under a double tax agreement; and licensed to the CFC by the New Zealand resident for an arm’s length amount determined under section GC 13 for the arrangement between the CFC and the New Zealand resident.
“(ii) 10 15 “Exclusions from attributable CFC amount: rent “(6) Rent derived by a CFC is not included in an attributable CFC amount under subsection (3)(e) if the rent is— “(a) from land in a country or territory under the laws of which— “(i) the CFC is liable to income tax on the CFC’s 20 income because of its domicile, residence, place of incorporation, or centre of management: “(ii) persons holding income interests in the CFC are liable for the income tax on the CFC’s income and the country or territory is the source of 80% 25 or more of the CFC’s income: “(b) “(c) “(d) “(e) “(f) from property other than land, to the extent to which the rent relates to the use of the property in a country or territory referred to in paragraph (a): paid by a person who would be an associated non­at­ 30 tributing active CFC in the absence of this paragraph and subsections (5)(c) and (8)(a): a payment under a hire purchase agreement: a payment under a ﬁnance lease: a royalty.
35 “(7) “Exclusions from attributable CFC amount: shares Income derived by a CFC from the alienation of a share that is revenue account property is not included in an attributable 99 Part 1 cl 119 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill CFC amount under subsection (3)(i) if the CFC’s FIF income or loss from the share in the period ending with the alienation is calculated using— “(a) “(b) “(c) “(d) the comparative value method: the deemed rate of return method: the fair dividend rate method: the cost method.
5 “(8) “Exclusions from attributable CFC amount: income from ﬁnancial arrangements other than derivative instruments Income of a CFC from a ﬁnancial arrangement or excepted ﬁ­ 10 nancial arrangement that is referred to in subsection (4)(a)(i) is not included in an attributable CFC amount under subsec­ tion (4)(a) if the ﬁnancial arrangement or agreement is— “(a) an agreement by the CFC to lend money to a person who would be an associated non­attributing active CFC in 15 the absence of this paragraph and subsections (5)(c) and (6)(c): an agreement for the sale or purchase of property or services or a hire purchase agreement— “(i) entered in the ordinary course of business by the 20 CFC: for property or services produced or used by the CFC in business.
“(ii) “(b) “Royalties: property linked to New Zealand “(9) Property giving rise to a royalty is linked to New Zealand for 25 the purposes of subsection (5) if the property— “(a) has been owned by a New Zealand resident: “(b) has been owned by a non­resident for the purposes of a business carried on in New Zealand through a ﬁxed establishment in New Zealand: “(c) was created or developed in New Zealand: “(d) has had substantial value added in New Zealand: “(e) has been acquired by a person who had a deduction for expenditure or loss incurred in the acquisition: is based on knowledge acquired by a person who— “(i) acquired the knowledge with a purpose or inten­ tion of creating the property; and “(f) 100 30 35 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 119 “(ii) had a deduction for expenditure or loss incurred in the acquisition: “(g) is created or developed from activities, or from the ex­ tension, continuation, development, or completion of activities, if the activities produced knowledge acquired 5 by a person who had a deduction for expenditure or loss incurred in the acquisition.
“Deﬁned in this Act: accounting period, agreement for the sale or purchase of property or services, associated, associated non­attributing active CFC, at­ tributable CFC amount, business, CFC, comparative value method, deduction, 10 deemed rate of return method, depreciable property, derivative instrument, divi­ dend, exempt income, fair dividend rate method, ﬁnance lease, ﬁnancial ar­ rangement, general insurance, hire purchase agreement, income, insurance con­ tract, interest, land, life insurance, life insurance policy, loan, loss, money lent, New Zealand, New Zealand resident, non­attributing active CFC, non­resident, 15 reinsurance contract, relative, resident in New Zealand, revenue account prop­ erty, royalty, share, short­term agreement for sale and purchase, telecommuni­ cations service 20 25 “EX 20C Net attributable CFC income or loss “CFC’s net attributable CFC income or loss “(1) For the purpose of calculating the attributed CFC income or loss for an accounting period of a person with an income in­ terest in a CFC,— “(a) the CFC’s net attributable CFC income for the ac­ counting period is— “(i) the amount calculated using the formula in sub­ section (2) and the rules in section EX 21, if that amount is more than zero: zero, if subparagraph (i) does not apply: “(ii) the CFC’s net attributable CFC loss for the accounting 30 period is— “(i) the absolute value of the amount calculated using the formula in subsection (2) and the rules in section EX 21, if that amount is less than zero: zero, if subparagraph (i) does not apply.
“(ii) 35 “(b) 101 Part 1 cl 119 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill “Formula for net attributable CFC income or loss “(2) The amount of a CFC’s net attributable CFC income or loss for an accounting period is calculated using the formula— attributable CFC – (interest × fraction) – other deductions.

“Deﬁnition of items in formula in subsection (2) “(3) The items in the formula are deﬁned in subsections (4) to (7).
“Attributable CFC “(4) Attributable CFC is the CFC’s attributable CFC amount for the accounting period.

“(5) “Interest Interest is the total of amounts for which the CFC would have a deduction in the accounting period that— “(a) relate to ﬁnancial arrangements providing funds to the CFC: are a payment treated as a payment of interest under section CD 36B (Distributions to resident company for deductible foreign equity and ﬁxed­rate foreign equity).
“(b) “Fraction “(6) Fraction is the amount calculated under— “(a) subsection (8), if the CFC is not excessively debt funded under section EX 20D; or “(b) section EX 20D, if the CFC is excessively debt funded under that section.
“Other deductions “(7) Other deductions is the amount of expenditure and loss in­ curred in the accounting period by the CFC to the extent to which the expenditure and loss,— “(a) if not a deduction relating to a ﬁnancial arrangement, is— “(i) incurred for the purpose of deriving an at­ tributable CFC amount; and “(ii) not incurred for the purpose of deriving an amount that is not an attributable CFC amount; and “(iii) a deduction of the CFC: if a deduction relating to a ﬁnancial arrangement, is— “(b) 102 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 119 “(i) “(ii) not included in the calculation of the item ‘inter­ est’ referred to in subsection (5); and from a ﬁnancial arrangement meeting the re­ quirements of section EX 20B(4).
“(8) “Proportion by value of assets producing attributable CFC amount If the CFC is not excessively debt funded under section EX 20D, the item fraction referred to in subsection (6) is calcu­ lated using the formula— 5 attributable CFC assets total CFC assets.
“(9) “Deﬁnition of items in formula in subsection (8) In the formula,— “(a) 10 attributable CFC assets is the total value of the CFC’s assets determined under generally accepted accounting practice, to the extent to which each asset is used for the purpose of deriving an attributable CFC amount and not 15 used for the purpose of deriving an amount that is not an attributable CFC amount: total CFC assets is the total value of the CFC’s assets determined under generally accepted accounting prac­ tice.
20 “(b) “Deﬁned in this Act: accounting period, attributable CFC amount, CFC, deduc­ tion, income interest, interest, loss, net attributable CFC income, net attributable CFC loss “EX 20D Adjustment of fraction for excessively debt funded CFC “When this section applies “(1) This section applies for the purposes of section EX 20C(3) to a CFC that is excessively debt funded under subsection (2) in relation to a person (the interest holder) with an income interest in the CFC.
“Excessive debt funding “(2) A CFC is excessively debt funded under this section if— 25 30 103 Part 1 cl 119 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill “(a) “(b) the amount (the CFC’s debt­asset ratio) calculated us­ ing the formula in subsection (4) is more than 0.75; and the amount (the CFC’s relative debt­asset ratio) cal­ culated from the CFC’s group debt­asset ratio given by 5 subsection (9) and using the formula in subsection (13) is more than 1.10.
“Calculations for CFC “(3) For the purposes of subsections (4) to (7), the debts and assets of the CFC are determined under sections FE 8 to FE 10 11 (which contain rules for determining the apportionment of interest) as if the CFC were an excess debt outbound company.

“Formula for debt­asset ratio of CFC “(4) The formula for the CFC’s debt­asset ratio referred to in sub­ section (2)(a) is— 15 total CFC debts total CFC assets.
“Deﬁnition of items in formula in subsection (4) “(5) The items in the formula are deﬁned in subsections (6) and (7).
“Total CFC debts “(6) Total CFC debts is the total amount for the CFC and the 20 accounting period, determined under generally accepted ac­ counting practice, of the outstanding balances of—— “(a) ﬁnancial arrangements entered by the CFC, each of which— “(i) “(ii) gives rise to an amount for which the CFC would provides funds to the CFC; and have a deduction: “(b) ﬁxed­rate foreign equity issued by the CFC and held by a New Zealand resident.
“Total CFC assets 25 30 “(7) Total CFC assets is the total value of the CFC’s assets deter­ mined under generally accepted accounting practice.
104 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 119 “Members of CFC’s group and calculations for group “(8) For the purposes of subsections (9) to (14),— “(a) “(b) the members of a CFC’s group are determined under sections FE 31 and FE 32 (which relate to the determin­ ation of groups) as if the interest holder were an excess 5 debt outbound company; and the debts and assets of the CFC’s group are determined under sections FE 8 to FE 11 and FE 18 (Measurement of debts and assets of worldwide group) as if the interest holder were an excess debt outbound company.
10 “Formula for CFC’s group debt­asset ratio “(9) The formula for the CFC’s group debt­asset ratio referred to in subsection (2)(b) is— total group debts total group assets.

“Deﬁnition of items in formula in subsection (9) “(10) The items in the formula are deﬁned in subsections (11) and 15 (12).
“Total group debts “(11) Total group debts is the total amount, consolidated for the CFC’s group and the accounting period, of the outstanding balances of— “(a) ﬁnancial arrangements entered by the group’s members, each of which— “(i) “(ii) gives rise to an amount for which a group mem­ provides funds to a group member; and ber would have a deduction: “(b) ﬁxed­rate foreign equity issued by a member of the group and held by a New Zealand resident.
“Total group assets “(12) Total group assets is the total consolidated value for the ac­ counting period of the assets of the CFC’s group.

“Formula for CFC’s relative debt­asset ratio “(13) The formula for the CFC’s relative debt­asset ratio referred to in subsection (2)(b) is— 20 25 30 105 Part 1 cl 119 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill CFC debt­asset ratio group debt­asset ratio.
“Deﬁnition of items in formula in subsection (13) “(14) In the formula,— “(a) CFC debt­asset ratio is the CFC’s debt­asset ratio under subsection (4): “(b) group debt­asset ratio is the CFC’s group debt­asset 5 ratio under subsection (9).

“Fraction for excessively funded CFC “(15) For a CFC that is excessively funded, the item fraction for the purposes of section EX 20C(6) is the amount calculated using the formula in subsection (16).
10 “Formula for fraction deduction “(16) The formula for the CFC’s fraction deduction is— CFCs’ debts CFCs’ assets.

“Deﬁnition of items in formula in subsection (16) “(17) The items in the formula are deﬁned in subsections (18) and (19).
“CFCs’ debts 15 “(18) CFCs’ debts is the total amount, for all the interest holder’s CFCs and the accounting period, of the outstanding balances of— “(a) ﬁnancial arrangements entered by the CFCs, each of 20 which— “(i) “(ii) gives rise to an amount for which a CFC would provides funds to a CFC; and have a deduction: “(b) ﬁxed­rate foreign equity issued by a CFC and held by a 25 New Zealand resident.
106 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 122 “CFCs’ assets “(19) CFCs’ assets is the total for the accounting period of the as­ sets of the interest holder’s CFCs determined under generally accepted accounting practice.

“Deﬁned in this Act: accounting period, CFC, deduction, excess debt outbound 5 company, ﬁnancial arrangement, ﬁxed­rate foreign equity, New Zealand resi­ dent”.

Subsection (1) applies for the 2009–10 and later income years.
(2) 120 Attributable CFC amount (1) Section EX 20B(3)(h)(ii) is replaced by the following: 10 “(ii) the working person is associated with the CFC under section YB 3 (Company and person other than company) at the time the services are per­ formed or is a relative, at the beginning of the ac­ 15 counting period, of a person associated with the CFC under section YB 3; and”.
(2) Section EX 20B(5)(a)(i) is replaced by the following: “(i) paid by a person who is not associated with the CFC under section YB 2 (Two companies); 20 and”.

121 Heading repealed (1) (2) The heading before section EX 21 is repealed.

Subsection (1) applies for the 2009–10 and later income years.

122 Branch equivalent income or loss: calculation rules (1) In the heading to section EX 21, “Branch equivalent income or loss” is replaced by “Attributable CFC amount and net attributable CFC income or loss”.
Section EX 21(1) is replaced by the following: “Calculation rules for CFC (2) “(1) For the purposes of calculating an attributable CFC amount and attributed CFC income for a CFC and of determining under section EX 21D whether a CFC is a non­attributing 107 25 30 Part 1 cl 122 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill active CFC, the CFC’s attributable CFC amount and net attributable CFC income or loss are calculated under the rules in this section.
“Calculation rules for test group of CFCs “(1B) For the purpose of determining under section EX 21D 5 whether a member of a group of CFCs is a non­attributing active CFC,— “(a) the consolidated annual gross income of the group is calculated under the rules in this section; and the consolidated attributable CFC amount of the group 10 is calculated under the rules in this section.” “(b) (3) Section EX 21(2), except for the heading, is replaced by the following: “(2) The rules in this Act are applied as if the CFC were always a New Zealand resident.” 15 (4) After section EX 21(3), the following is inserted: “Determining currency of calculations “(3B) The currency used for calculations relating to a CFC is given by— “(a) subsection (4), except for calculations under section 20 EX 21D; or “(b) subsection (8B), for calculations under section EX 21D.” (5) (6) In section EX 21(5), “branch equivalent income or loss for” is replaced by “attributable CFC amount and net attributable 25 CFC income or loss attributable to”.
In section EX 21(7), “branch equivalent income or loss at­ tributable to” is replaced by “attributable CFC amount and net attributable CFC income or loss arising from”.

(7) After section EX 21(8), the following is inserted: “Currency for calculations under section EX 21D “(8B) For determining under section EX 21D whether a CFC is a non­attributing active CFC for the taxpayer, the taxpayer must use the currency (the functional currency) of the primary eco­ nomic environment in which the CFC operates.
“Factors in determining primary economic environment “(8C) The functional currency for the CFC is determined by— 30 35 108 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 122 “(a) “(b) the following factors (the primary factors), if they are sufﬁcient to identify the functional currency: “(i) the currency that mainly inﬂuences sales prices of goods and services for the CFC: the currency of the country or territory whose 5 competitive forces and regulations mainly deter­ mine the sales prices of goods and services for the CFC: “(ii) “(iii) the currency that mainly inﬂuences the costs for the CFC of providing goods and services, includ­ 10 ing labour and material costs; or the following factors (the additional factors) in add­ ition to the primary factors, if the primary factors are insufﬁcient to identify the currency: “(i) the currency in which funds from ﬁnancing ac­ 15 tivities are generated: the currency in which receipts from operating ac­ tivities are usually retained: “(ii) “(iii) whether or not the CFC is acting merely as an extension of a parent company, or operating with 20 substantial autonomy; or “(c) the Commissioner, if the primary factors and additional factors are insufﬁcient to identify the currency.
“Change of currency (9) (8) the consolidation rules:”.
“(8D) The taxpayer must notify the Commissioner of a change in 25 the currency used for calculations under section EX 21D for a CFC.” Section EX 21(13)(a) is replaced by the following: “(a) In section EX 21(15), the sentence after paragraph (d) is re­ 30 placed by “Also, when sections GC 6 to GC 14 are applied, the associated persons include persons associated under the parts of subpart YB (Associated persons and nominees) that apply for the purposes of the whole Act (excluding the 1973, 1988, and 1990 version provisions) or under the 1988 version 35 provisions.” In section EX 21(15), the sentence following paragraph (d) is omitted.
(10) 109 Part 1 cl 123 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill (11) Section EX 21(16) and (17) are replaced by the following: “Dividends “(16) Dividends that are not part of the CFC’s attributable CFC (12) amount are exempt income of the CFC.” In section EX 21(26),— (a) “branch equivalent income or loss” is replaced by “net attributable CFC income or loss”: “net income or loss” is replaced by “net attributable CFC income or loss”.
(b) 5 (13) (14) In section EX 21(32)(b), “branch equivalent income or loss” 10 is replaced by “net attributable CFC income or loss”.

In section EX 21(33)(b), “branch equivalent income” is re­ placed by “net attributable CFC income”.

(15) Section EX 21(35) is repealed.

(16) (17) In section EX 21, in the list of deﬁned terms, “1973 version 15 provisions”, “1988 version provisions”, and “1990 version provisions” are inserted.
In section EX 21, in the list of deﬁned terms,— (a) (b) “branch equivalent income” is omitted: “annual gross income”, “attributable CFC amount”, 20 “net attributable CFC income”, “net attributable CFC loss”, and “non­attributing active CFC” are inserted.

(18) Subsections (1) to (8), (11) to (15), and (17) apply for the 2009–10 and later income years.
(19) Subsection (10) applies, for the purposes of— 25 (a) (b) (c) provisions other than the land provisions, 2009–10 and later income years: the land provisions other than section CB 11, for land acquired on or after 1 April 2009: section CB 11, for land on which improvements are be­ 30 gun on or after 1 April 2009. for the 123 New heading and sections EX 21B to EX 21E inserted (1) After section EX 21, the following is inserted: 110 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 123 “Non­attributing active CFCs “EX 21B Non­attributing active CFCs “Non­attributing active CFC “(1) Non­attributing active CFC, for an accounting period and a person, means a CFC that meets the requirements, or is a 5 member of a group of companies that meets the requirements, of subsection (2) or (3).
“CFC meeting test in section EX 21D or EX 21E “(2) A CFC is a non­attributing active CFC if it meets the require­ ments of— “(a) section EX 21E, if— “(i) the CFC meets the requirements of section EX 21C for the use of an applicable accounting stan­ dard in the application of section EX 21E; and the person chooses to use the applicable account­ 15 ing standard in applying section EX 21E; or section EX 21D, if paragraph (a) does not apply.
“(ii) “(b) 10 “Insurer meeting requirements of determination “(3) A CFC that is an insurer meeting the requirements of a de­ termination made by the Commissioner under section 91AAQ 20 of the Tax Administration Act 1994 is a non­attributing active CFC.
“Deﬁned in this Act: accounting period, CFC, group of companies, non­at­ tributing active CFC “Tests for non­attributing active CFCs 25 “EX 21C Applicable accounting standards for section EX 21E “(1) “Applicable accounting standards In applying section EX 21E to determine whether a CFC is a non­attributing active CFC for a person, the person may use as an accounting standard (the applicable accounting standard) 30 1 of the standards given by subsections (2) to (7).
“Generally accepted accounting practice with IFRS for CFC “(2) The person may use generally accepted accounting practice in New Zealand including IFRSs and the framework for differ­ ential reporting for entities applying the New Zealand equiva­ 35 111 Part 1 cl 123 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill lents to international ﬁnancial standards reporting regime (the generally accepted accounting practice with IFRS) for the CFC, if the person or another person has accounts that— “(a) “(b) include the accounts of the CFC; and comply with generally accepted accounting practice 5 with IFRS; and are audited by a chartered accountant or by an account­ ant of equivalent professional standard in the country in which the accounts are prepared; and are given an unqualiﬁed opinion, a qualiﬁed opinion 10 other than an adverse opinion or disclaimer of opinion, or an opinion of equivalent standard in the country in which the accounts are prepared.
“(c) “(d) “Generally accepted accounting practice with IFRS for test group 15 “(3) The person may use generally accepted accounting practice with IFRS for the CFC’s test group, if the person or another person has accounts that— “(a) “(b) “(c) “(d) include the accounts of the members of the test group; and comply with generally accepted accounting practice with IFRS; and are audited by a chartered accountant or by an account­ ant of equivalent professional standard in the country in which the accounts are prepared; and are given an unqualiﬁed opinion, a qualiﬁed opinion other than an adverse opinion or disclaimer of opinion, or an opinion of equivalent standard in the country in which the accounts are prepared.
20 25 30 “IFRSEs for CFC “(4) The person may use IFRSEs for the CFC, if the person or an­ other person has accounts that— “(a) “(b) “(c) include the accounts of the CFC; and comply with the relevant IFRSEs; and are audited by a chartered accountant or by an account­ 35 ant of equivalent professional standard in the country in which the accounts are prepared; and 112 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 123 “(d) are given an unqualiﬁed opinion, a qualiﬁed opinion other than an adverse opinion or disclaimer of opinion, or an opinion of equivalent standard in the country in which the accounts are prepared.
“IFRSEs for test group 5 “(5) The person may use IFRSEs for the CFC’s test group, if the person or another person has accounts that— “(a) “(b) “(c) “(d) include the accounts of the members of the test group; and comply with the relevant IFRSEs; and are audited by a chartered accountant or by an account­ ant of equivalent professional standard in the country in which the accounts are prepared; and are given an unqualiﬁed opinion, a qualiﬁed opinion other than an adverse opinion or disclaimer of opinion, 15 or an opinion of equivalent standard in the country in which the accounts are prepared.
10 “Generally accepted accounting practice without IFRS for CFC “(6) The person may use generally accepted accounting practice 20 in New Zealand for persons not required to use IFRS but re­ quired to apply with standards, other than IFRSs, approved by the Accounting Standards Review Board under the Finan­ cial Reporting Act 1993 (the generally accepted accounting practice without IFRS) for the CFC, if the person or another 25 person is a company resident in New Zealand that— “(a) has no revenue under Financial Reporting Standard 34 and Financial Reporting Standard 35; and is an issuer under section 4 of the Financial Reporting Act 1993 in neither of the current and preceding ac­ 30 counting periods; and is not required by section 19 of the Financial Reporting Act 1993 to ﬁle its accounts with the Registrar of Com­ panies; and is not a large company under section 19A(1)(b) of the 35 Financial Reporting Act 1993; and “(b) “(c) “(d) 113 Part 1 cl 123 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill “(f) “(e) “(g) does not have accounts that are prepared and audited under generally accepted accounting practice in New Zealand with IFRS; and is not required to have accounts prepared under gener­ ally accepted accounting practice in New Zealand with 5 IFRS; and is not a subsidiary of a company having accounts that— include the accounts of the subsidiary; and “(i) are prepared and audited, or required to be pre­ “(ii) pared, under generally accepted accounting prac­ 10 tice in New Zealand with IFRS; and “(h) has accounts that include the accounts of the CFC, com­ ply with generally accepted accounting practice without IFRS, and are given by a chartered accountant an un­ qualiﬁed audit opinion or a qualiﬁed audit opinion other 15 than an adverse opinion or disclaimer of opinion.
“Generally accepted accounting practice without IFRS for CFC’s test group “(7) The person may use generally accepted accounting practice without IFRS for the CFC’s test group, if the person or another 20 person is a company resident in New Zealand that— “(a) has no revenue under Financial Reporting Standard 34 and Financial Reporting Standard 35; and is an issuer under section 4 of the Financial Reporting Act 1993 in neither of the current and preceding ac­ 25 counting periods; and is not required by section 19 of the Financial Reporting Act 1993 to ﬁle its accounts with the Registrar of Com­ panies; and is not a large company under section 19A(1)(b) of the 30 Financial Reporting Act 1993; and does not have accounts that are prepared and audited under generally accepted accounting practice in New Zealand with IFRS; and is not required to have accounts prepared under gener­ 35 ally accepted accounting practice in New Zealand with IFRS; and is not a subsidiary of a company having accounts that— include the accounts of the subsidiary; and “(i) “(b) “(c) “(d) “(e) “(f) “(g) 114 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 123 “(ii) are prepared and audited, or required to be pre­ pared, under generally accepted accounting prac­ tice in New Zealand with IFRS; and “(h) has accounts that include the accounts of the members of the CFC’s test group, comply with generally accepted 5 accounting practice without IFRS, and are given by a chartered accountant an unqualiﬁed audit opinion or a qualiﬁed audit opinion other than an adverse opinion or disclaimer of opinion.
“Deﬁned in this Act: accounting period, annual gross income, associated, at­ 10 tributable CFC amount, CFC, generally accepted accounting practice, IFRS, IFRSE, insurer, New Zealand resident, non­attributing active CFC, rent, roy­ alty “EX 21D Non­attributing active CFC: default test “CFC as part of test group “(1) A person may choose to apply this section for a CFC as a mem­ ber of a group (a test group) if the group consists of compan­ ies— “(a) each subject to the laws of the same country or territory under which— “(i) the company is liable to income tax on its income because of its domicile, residence, place of incor­ poration, or centre of management: 15 20 “(ii) persons holding income interests in the company are liable for the income tax on its income and the 25 country or territory is the source of 80% or more of that income; and “(b) “(c) in each of which the person holds voting interests, mea­ sured under section IC 3 (Common ownership: group of companies), of more than 50%; and that are consolidated— “(i) using uniform accounting policies for like trans­ actions and for other events in similar circum­ stances; and eliminating in full all balances, transactions, in­ 35 come, and expenses arising between members of the test group.
“(ii) 30 115 Part 1 cl 123 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill “Threshold ratio “(2) A CFC is a non­attributing active CFC under section EX 21B(2)(b) for an accounting period and a person if the amount calculated under subsection (3) using the formula in sub­ section (4)— “(a) “(b) is less than 0.05; and is not zero under subsection (3)(f).
5 10 15 “Application of formula to test group In using the formula in subsection (4)— “(a) each item in the formula is determined— “(i) if the for the CFC’s consolidated test group, person chooses to apply the formula to the test group; or for the CFC, if subparagraph (i) does not apply; and “(ii) “(b) “(c) “(d) each item in the formula is determined after amounts in­ cluded in the item are adjusted to remove amounts cor­ responding to minority interests not held by the person; and a reference to a company that is associated is treated as 20 being a reference to a company that is— “(i) associated with a member of the CFC’s test group, although not a member of the CFC’s test group, if the person chooses to apply the formula to the test group; or associated with the CFC, if subparagraph (i) does not apply; and “(ii) a reference to a company that is in the same group of companies is treated as being a reference to a company that is— “(i) in the same group of companies as a member of the CFC’s test group, although not a member of the CFC’s test group, if the person chooses to apply the formula to the test group; or in the same group of companies as the CFC, if 35 subparagraph (i) does not apply; and “(ii) 25 30 “(e) a numerator or denominator that is a negative number is treated as being zero; and “(3) 116 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 123 “(f) the amount calculated using the formula is zero if the denominator is zero.
“Formula “(4) The amount that determines whether the CFC is a non­attribut­ ing active CFC is calculated using the formula— 5 attributable annual gross – adjustments.
“(5) “Deﬁnition of items in formula In the formula,— “(a) attributable is the attributable CFC amount for the ac­ counting period: “(b) annual gross is the annual gross income for the ac­ 10 counting period in the absence of income under subpart CQ (Attributed income from foreign equity): adjustments is the total of the following amounts for the accounting period: “(i) “(c) expenditure or loss that is included in the calcu­ 15 lation of the attributable CFC amount under sec­ tion EX 20B: interest, rent, or royalties derived from a com­ pany that is not an attributable CFC amount but would be an attributable CFC amount in the ab­ 20 sence of section EX 20B(5)(c), (6)(c), and (8)(a): “(ii) “(iv) “(iii) income derived from a company that would meet the requirements of subsection (1)(a) and (b) for a member of a test group with the CFC: income from a supply, made for the purposes of increasing the amount given by paragraph (b), to a company that would not meet the require­ ments of subsection (1)(a) and (b) for a mem­ ber of a test group with the CFC.
25 30 “Deﬁned in this Act: accounting period, annual gross income, associated non­ attributing active CFC, attributable CFC amount, CFC, company, group of com­ panies, income, interest, non­attributing active CFC, resident in New Zealand, royalty 117 Part 1 cl 123 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill “EX 21E Non­attributing active CFC: test based on accounting standard “Applicable accounting standard “(1) A person who chooses to determine under this section whether a CFC is a non­attributing active CFC for the person for an ac­ 5 counting period must use an accounting standard (the applic­ able accounting standard) permitted by section EX 21C.
“CFC as part of test group “(2) A person may choose to apply this section for a CFC as a mem­ “(b) ber of a group (a test group) if the group consists of compan­ 10 ies— “(a) required to consolidate under the applicable accounting standard; and each subject to the laws of the same country or territory under which— “(i) the company is liable to income tax on its income because of its domicile, residence, place of incor­ poration, or centre of management: 15 “(ii) persons holding income interests in the company are liable for the income tax on its income and the 20 country or territory is the source of 80% or more of that income; and “(c) “(d) in each of which the person holds voting interests, mea­ sured under section IC 3 (Common ownership: group of companies), of more than 50%; and for which audited and consolidated ﬁnancial statements are prepared complying with the applicable accounting standard.
25 “Threshold ratio “(3) A CFC is a non­attributing active CFC under section EX 30 21B(2)(a) for an accounting period and a person if the amount calculated under subsection (4) using the formula in sub­ section (5) is less than 0.05.
“Application of formula to test group In using the formula in subsection (5)— each item in the formula is— “(a) “(i) determined under the applicable accounting stan­ dard; and 35 “(4) 118 “(b) “(c) “(d) “(e) “(f) Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 123 “(ii) adjusted so that no amount is included in the item more than once; and each item in the formula is determined— “(i) from amounts consolidated for the CFC’s test group under the applicable accounting standard, 5 if the person chooses to apply the formula to the test group; or from amounts for the CFC, if subparagraph (i) does not apply; and “(ii) each item in the formula is determined after adjustment 10 of amounts included in the item by removing amounts corresponding to minority interests not held by the per­ son; and a reference to a company that is associated is treated as being a reference to a company that is— “(i) associated with a member of the CFC’s test group, although not a member of the CFC’s test group, if the person chooses to apply the formula to the test group; or associated with the CFC, if subparagraph (i) 20 does not apply; and “(ii) 15 a reference to a company that is in the same group of companies is treated as being a reference to a company that is— “(i) in the same group of companies as a member of 25 the CFC’s test group, although not a member of the CFC’s test group, if the person chooses to apply the formula to the test group; or in the same group of companies as the CFC, if
 subparagraph (i) does not apply; and 30 “(ii) amounts determined for a CFC other than as part of a test group are— “(i) determined in the functional currency of the CFC; and converted between currencies under the applic­ 35 able accounting standard, but ignoring exchange differences arising on a monetary item that forms part of a net investment of the CFC in a foreign operation; and “(ii) 119 Part 1 cl 123 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill “(g) “(h) amounts determined for
 a test group are— “(i) converted from the functional currency of the CFC to the presentation currency of the consoli­ dated accounts for the test group using the aver­ age conversion rate for the accounting period; 5 and “(ii) otherwise converted between currencies under the applicable accounting standard; and the amount calculated using the formula is zero if the denominator equals zero.
10 “Formula “(5) The amount that determines whether the CFC is a non­attribut­ ing active CFC is calculated using the formula— reported passive + added passive – removed passive reported revenue + added revenue – removed revenue.

“Deﬁnition of items in formula “(6) The items in the formula are deﬁned in subsections (7) to 15 (12).
“Reported passive “(7) Reported passive is the total amount that is— “(a) “(b) “(c) “(d) “(e) “(f) 20 a dividend: interest: a royalty: rent: income, other than rent or interest, from a ﬁnance lease or operating lease: gains from a ﬁnancial asset that is not a derivative, as 25 deﬁned in NZIAS 39, in the form of— “(i) “(ii) an increase in the fair value of the asset: a gain on the derecognition, as deﬁned in NZIAS 39, of the asset: “(iii) a foreign exchange gain on the asset: 30 “(g) gains from a business of insurance, including gains from property used to back insurance assets.
120 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 123 “Added passive “(8) Added passive is the total of amounts not included in the item reported passive for the accounting period that are 1 or more of the following: “(a) 10 income from a life insurance policy that is included in 5 the attributable CFC amount for the accounting period under section EX 20B(3)(g): income from a supply of personal services that is in­ cluded in the attributable CFC amount for the account­ ing period under section EX 20B(3)(h): income from the alienation of revenue account property that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(j): income from a supply of services performed in New Zealand that is included in the attributable CFC amount 15 for the accounting period under section EX 20B(3)(k): income from a supply of telecommunications services that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(l) or (m): income from a derivative instrument that is included in 20 the attributable CFC amount for the accounting period under section EX 20B(4)(b).
“(b) “(c) “(d) “(e) “(f) “Removed passive “(9) Removed passive is the total of amounts included in the item reported passive or added passive for the accounting period 25 that are 1 or more of the following: “(a) in a category included in categories chosen by the per­ son from the following: “(i) a dividend that is not included in the attributable CFC amount for the accounting period under 30 section EX 20B(3)(a) or (b): a royalty that would be included in the at­ tributable CFC amount for the accounting period but for section EX 20B(5)(a) to (d): “(ii) “(iii) rent that would be included in the attributable 35 CFC amount for the accounting period but for section EX 20B(6)(a) to (c): income from a ﬁnancial arrangement that would be included in the attributable CFC amount “(iv) 121 Part 1 cl 123 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill for the accounting period but for section EX 20B(8)(a) and (b): “(b) gains on a share that is not revenue account property under the Act in the form of— “(i) “(ii) an increase in the fair value of the share: a gain on the derecognition, as deﬁned in NZIAS 39, of the share: 5 “(iii) a foreign exchange gain on the share.
“Reported revenue “(10) Reported revenue is the total amount that is— “(a) “(b) “(c) included under the applicable accounting standard in— operating revenue, if the applicable accounting “(i) standard is generally accepted accounting prac­ tice without IFRS; or revenue, if subparagraph (i) does not apply: “(ii) income, other than rent, from a ﬁnance lease or operat­ ing lease: gains on a ﬁnancial asset that is not a derivative, as deﬁned in NZIAS 39, in the form of— “(i) “(ii) an increase in the fair value of the asset: a gain on the derecognition, as deﬁned in NZIAS 39, of the asset: 10 15 20 “(iii) a foreign exchange gain on the asset: “(d) gains from a business of insurance, including gains from property used to back insurance assets, if the applicable 25 accounting standard is not generally accepted account­ ing practice without IFRS.
“Added revenue “(11) Added revenue is the total of amounts not included under the applicable accounting standard in the item reported revenue 30 for the accounting period that are 1 or more of the following: income from a life insurance policy that is included in “(a) the attributable CFC amount for the accounting period under section EX 20B(3)(g): income from the alienation of revenue account property 35 that is included in the CFC’s attributable CFC amount for the accounting period under section EX 20B(3)(j): “(b) 122 Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill Part 1 cl 123 “(c) income from a derivative instrument that is included in the attributable CFC amount for the accounting period under section EX 20B(4)(b).
“Removed revenue “(12) Removed revenue is the total of amounts that are included 5 under the applicable accounting standard in the item reported revenue or added revenue for the accounting period and are 1 or more of the following: “(a) gains on a derivative instrument that is— “(i) “(ii) not part of a hedging relationship of a type re­ not referred to in section EX 20B(4)(b); and ferred to in IFRS 39: “(b) gains on the ineffective portion of a derivative instru­ ment that is— “(i) “(ii) part of a hedging relationship of a type referred not referred to in section EX 20B(4)(b); and 10 15 “(c) “(d) “(e) “(f) to in IFRS 39: income from a derivative instrument referred to in sec­ tion EX 20B(4)(b), to the extent to which the income under the applicable standard exceeds the amount of in­ 20 come under section CC 3 (Financial arrangements): a dividend to the extent to which it is included in the item removed passive under subsection (9)(a)(i): a royalty that— “(i) would be included in the attributable CFC 25 amount for the accounting period but for sec­ tion EX 20B(5)(b) and (c); and is included in the item removed passive under subsection (9)(a)(ii): “(ii) rent that— “(i) is derived from a CFC that could be consolidated with the CFC for the purposes of this section; and “(ii) would be included in the attributable CFC amount for the accounting period but for sec­ tion EX 20B(6)(c); and “(iii) is included in the item removed passive under 30 35 subsection (9)(a)(iii): “(g) income from a ﬁnancial arrangement that— 123