current amount is the amount of income, for the person’s owner’s interest in financial arrangements as debtor from the application of section HB 4 that the person returned for income years before the 2017–18 income year. – (Clauses 98 and 262) Summary of proposed amendment The bill proposes that qualifying company (QC) status will cease if there is a change in control of the company. Application date The amendment will apply for the 2017–18 and later income years. Key features A change of control will be measured using a continuity test. The proposed new shareholder continuity limitation in section HA 6 of the Income Tax Act requires a “minimum continuity interest” of at least 50 percent for the “QC continuity period”. The continuity period will extend from the date the bill receives Royal assent to the last day in the relevant income year. The “minimum QC interest” is defined to mean the lowest voting interest or market value interest during the continuity period. A breach of this requirement will trigger the loss of QC status under the standard QC rules. For the purposes of the shareholder continuity measurement, changes to shareholding resulting from property relationship settlements or the death of a shareholder will be ignored when measuring a change of control. To ease compliance, the proposed continuity test will apply prospectively to changes in shareholding from the date of enactment. Background Qualifying companies are partial look-through vehicles that allow for the profits of the company to be taxed in the same way as a standard company but, unlike a standard company, capital gains and un-imputed dividends can be distributed tax-free to shareholders during the course of business. QCs in place when the new LTC regime came into force on 1 April 2011 were allowed to continue, pending an ultimate decision on the future of QCs. There are still around 70,000 QCs.
New subpart FG and changes to the NRWT rules will apply NRWT or AIL (to the extent it is not already) to a notional interest payment from a New Zealand branch of a bank to its head office. This interest payment will be equal to the amount already included in the branch’s financial statements and claimed as a deduction against New Zealand income of the branch. Application date For existing arrangements, the branch amendments will apply to interest payments on or after the date shown in the table below. For all other arrangements, the branch amendments will apply to interest payments on or after the day the bill is enacted. Scenario Borrower Lender Application date Clause Intended regime Onshore branches Related party NZ Corporate Foreign associate with NZ Branch Royal assent 5(5) NRWT Intra-bank Group NZ Bank Sub Foreign parent with NZ Branch 5 5(4)(b) NRWT or AIL Entity NZ Bank Branch Foreign head office 2 years 83(2) NRWT or AIL Corporate NZ Corporate including NZ Bank Third Party with NZ Branch 5 5(4)(a) NRWT or AIL party bank NZ borrower Foreign bank with NZ Branch No change 247(1) - RF 2(1)(d) Net income tax Offshore branches Wholesale funding NZ Bank Sub branch Third parties or Foreign parent 5 years 5(6) NRWT or AIL The ability for a member of a banking group to pay AIL on an interest payment to an associated party will apply from the date of enactment. Further detail is provided on application dates under Key features below. Key features Offshore branch exemption (Clauses 5, 269, 270, 279 and 333) NRPI includes only income that has a New Zealand source. One of the exclusions from having a New Zealand source is the offshore branch exemption. This applies when the interest is derived from money lent outside New Zealand to a New Zealand resident that uses that money for the purposes of a business it carries on through a fixed establishment offshore. This exemption is intended to apply to a New Zealand resident operating an active business through a branch in another country. If that offshore branch borrows money
262(21) YA 1 “distant workplace” Correction of drafting 4 September 2010 262(65) YA 1 active FIF” Correction of drafting error 262(71)-(73) YA 1 “out of town secondment” Correction of drafting error 4 September 2010 262(76)-(78) YA 1 “PCA” “PCA company” “PCA person” Repeal redundant 262(79)-(81) YA 1 “period of continuous work” Correction of drafting error 4 September 2010 262(83)-(85) YA 1 “project of limited duration” Correction of drafting error 4 September 2010 262(194) YA 1 “tax-base property” Correction of terminology 265 YC 10(1)(a) Correction of grammar 1 April 2008 272(1)-(3) Schedule 32 Remove from the list a charity that has been wound up 3 December 2015 262(32)-(40) Consequential amendments after repeal of subpart LH Repeal of redundant cross-references and defined terms 1 April 2009