Taxation (Annual Rates, GST, Trans-Tasman Imputation and Miscellaneous Provisions) Bill Government Bill Commentary As reported from the Finance and Expenditure Committee Recommendation The Finance and Expenditure Committee has examined the Taxation (Annual Rates, GST, Trans-Tasman Imputation and Miscellaneous Provisions) Bill and recommends that it be passed with the amendments shown. Introduction The Taxation (Annual Rates, GST, Trans-Tasman Imputation and Miscellaneous Provisions) Bill amends the Income Tax Act 1994, the Tax Administration Act 1994, the Goods and Services Tax Act 1985, the Student Loan Scheme Act 1992, and the Personal Property Securities Act 1999. The bill: o confirms annual income tax rates for the 2003-04 year o allows zero-rating of business-to-business supplies of financial services o introduces a reverse charge mechanism to impose GST on certain imports of services o reforms the imputation laws to reduce double taxation of trans-Tasman investments, as part of an agreement with Australia o introduces a deferred deduction rule to combat aggressive tax arrangements o introduces progressive rates of specified superannuation contribution withholding tax on an employer's contribution, to match the employee's marginal tax rate o provides community trusts with an income tax exemption o removes the income tax exemption for sick, accident or death benefit funds o allows for the removal of a double-incidence of shortfall penalties on loss attributing qualifying companies and their shareholders for what is effectively a single offence o makes a number of other amendments to the revenue Acts. During our consideration we were asked by the Minister of Revenue to consider several proposed amendments to the bill. These amendments seek to: o clarify that contributions of money or land sought by local authorities under the Resource Management Act 1991 and the Local Government Act 2002 are subject to GST o clarify that late payment penalties for overdue rates are exempt from GST o clarify that transportation services supplied to a non-resident for the movement of household goods in New Zealand are zero-rated o address an issue relating to the information requirements under the rules governing interests in controlled foreign companies o provide for a 15 percent specified superannuation contribution withholding tax rate for employees with incomes below $9,500 o correct drafting errors contained in the Gaming Duties Act 1971 as amended by the Racing Act 2003 and the Gambling Act 2003 o include an additional charitable donee organisation in the list contained in section KC 5(1) of the Income Tax Act. This commentary addresses the major issues we focused on, and outlines the main amendments we recommend. We also recommend a number of technical amendments not covered in this report. Amendments to Goods and Services Tax Act 1985 Zero-rating supplies of financial services Under the Goods and Services Tax Act, business-to-business supplies of financial services are exempt from GST, meaning that GST is not charged on the supply and the financial service providers are therefore unable to claim input tax credits. This treatment has resulted in distortions due to the potential for over-taxation of the supply of financial services to businesses. The bill introduces new provisions, allowing the supply of financial services from providers to business customers to be zero-rated if the customer is GST- registered and makes taxable supplies that equal or exceed 75 percent of total supplies in a 12-month period. The proposal is optional, and financial services may be treated as exempt if the provider does not wish to incur the compliance costs associated with zero-rating. We heard concerns that these provisions could potentially impose significant compliance costs on a supplier. A provider of financial services would be required to obtain information from any recipient of financial services about the level of taxable supplies made by that recipient, imposing significant compliance costs on the supplier. The submitters note that the zero-rating provisions are mandatory, and require the provider to elect out of the rules. We recommend omitting clause 111 containing new section 11C, and amending clause 114 to insert new section 20F into the Act, to provide that taxpayers must elect into the zero-rating rules rather than elect out. This will allow providers of financial services to assess the benefit of providing zero-rated services to their customers against the compliance cost of determining a customer's eligibility to receive zero-rated services, and to also consider the benefit of an increased entitlement to input tax credits. We recommend that clause 119, which inserts new section 26B, be omitted. Section 26B is intended to address a situation where the accuracy of a taxpayer's return has been affected by an inaccuracy in the determination of supplies made by another person. Several submitters expressed concern that this provision could require providers to continually adjust previous GST periods as new information was learned about the status of a recipient of supply, and would be unworkable in practice. We share this concern, and note that removing section 26B generally would mean that the zero-rating provisions have been complied with if the taxpayer has applied a method of estimation that has been approved by the Commissioner. The bill currently prohibits financial institutions from obtaining a second-hand goods tax credit for the purchase of second-hand goods from unregistered persons. The intention of the prohibition was to prevent institutions from gaining large one-off tax credits for the transfer of second-hand goods between associated entities. We are concerned that this prohibition would prevent institutions from gaining the appropriate tax credits for the acquisition of goods from a genuine arm's-length party. We therefore recommend amending clause 104 to restrict the scope of the prohibition to goods that were previously owned or used by the financial institution or an associated party. We recognise that financial service providers may gain considerable tax advantage by overvaluing supplies of financial services to associated parties. To avoid this, we recommend amending clause 108(2) to specify that financial services between associated persons are to be valued at market value if the financial services provider is entitled to zero-rate the supply under proposed section 11A(1)(q) or (r) or is entitled to a deduction under proposed section 20C. Clause 2(15) states that the provisions relating to the zero-rating of financial services will come into force on a date, not less than 1 year after the date on which this Act receives the Royal assent, that is to be appointed by the Governor-General by Order in Council. We agree with the deferred application date, as it allows affected registered persons time to implement systems changes to reflect the new rules. However, we recommend specifying that the commencement date should coincide with the start of a financial quarter, to ensure ease of transition. Some submitters requested that the definition of `financial services' in the Goods and Services Tax Act be amended, as it fails to capture a variety of other services, such as services in relation to equity transactions. We considered this point but do not consider this bill to be the appropriate mechanism to make this change. We understand that the definition and treatment of financial services is an area of considerable confusion and inconsistency, and is in need of urgent review. The Inland Revenue Department informs us that such a review is currently on Inland Revenue's work programme. Reverse charge on imported services Imported services are not currently subject to GST, which creates a distortion in favour of imported services compared with taxed domestically supplied services. This bill introduces a `reverse charge' mechanism on certain imports of services, requiring GST registered recipients in certain circumstances to add GST to the price of the service and pay the GST to Inland Revenue. The recipient must be GST registered, the services must be services that would be subject to GST if they had been made in New Zealand, and the level of taxable supplies made by the recipient must be less than 95 percent of total supplies in a 12-month period. This change will bring the GST taxation of imported services in line with the treatment of imported goods. This change also aligns New Zealand's GST system with other countries that have a VAT or GST system. Some submitters argued for a lower threshold for the recipient's turnover test, suggesting that the supply should be exempt from the reverse charge if taxable supplies exceed either 75 or 90 percent of total supplies. We do not consider this appropriate, and recommend no change to the bill. The reverse charge is intended to apply to all recipients of imported services except for those making, in effect, solely taxable supplies, and this threshold is intended to capture the majority of such recipients. We consider that reducing the threshold to a lower level would capture a number of entities that are not making solely taxable supplies, and such a change would therefore be inconsistent with the bill's intention. We note that this is also consistent with similar thresholds in other provisions. We heard arguments for the introduction of a de minimis threshold provision, exempting supplies of imported services from the reverse charge if the supply is valued under $10,000. We consider that a dollar figure de minimis is impractical, as it could result in recipients breaking a larger supply into component supplies falling under the threshold, and would also increase compliance and administration costs, as supplies would have to be measured against the threshold. We also believe the proposed threshold of $10,000 would have been too large, as such a supply would be a significant transaction for small and medium sized entities. We are of the view that the 5 percent allowance for non-taxable supplies currently in the bill fulfils a similar function to a de minimis threshold, and we therefore recommend no change to the bill. Businesses are not required to be registered for GST if their taxable supplies are below $40,000. We note that an unregistered business with supplies otherwise below the threshold may be required to register and pay GST on all supplies if imported services cause supplies to exceed the threshold. Inland Revenue informs us that it intends to inform people about the various implications of the reverse charge, including highlighting issues surrounding the GST threshold. We recommend amending clause 106(2) to ensure that private individuals importing more than $40,000 of services are subject to the reverse charge. Some submitters sought for the bill to expressly exclude private individuals from the reverse charge, but we do not consider such an approach to be appropriate. We consider the $40,000 threshold is generous and the number of individuals importing over $40,000 of services will be small. Such individuals are likely to be acting in a manner similar to businesses, and it is therefore appropriate to require them to register and pay GST on imported services when the threshold is exceeded. We recommend including in clause 106 a new provision treating as a taxable supply of services an allocation of costs to a New Zealand resident by a non- resident in respect of goods and services provided to the non-resident. We are aware that an overseas parent company may on occasions contract for the provision of particular services for the benefit of its subsidiaries and then allocate a proportion of the costs for these services to each subsidiary. Such a charge would frequently be charged as a global sum, rather than for separately identified services. In such circumstances, it would be appropriate for the global charge to be treated as a taxable supply. The bill does, however, exclude salary and interest costs from the charge. We note that branch operations are treated as a single entity under general law and the Income Tax Act 1994, and as a result, any transfers of goods and services between a non-resident parent and a New Zealand branch would usually not be recognised as a supply. We consider that inter-branch supplies should be treated in the same manner as intra-group supplies under the reverse charge, and recommend inserting new section 10(3BB) of the Goods and Services Tax Act, contained in clause 108, to ensure consistency of treatment under that section for branches and subsidiary companies. It is important that the bill ensure that any imported services be zero-rated if that same service would be zero-rated if it had been supplied in New Zealand. For this reason, we recommend amending clause 109 providing that section 11A, with the exception of section 11A(1)(j), apply to zero-rate imported supplies of services subject to the reverse charge. We consider that section 11A(1)(j) should be excluded, as that provision zero-rates services that are physically performed outside New Zealand. Many services of an intangible nature could be performed offshore but be received and used by the recipient in New Zealand. However, in circumstances where the service is both performed and wholly consumed or received offshore, clause 11A(1)(j) should apply and we recommend that the amendments to clause 109 clarify this point. Telecommunications services The Taxation (Maori Organisations, Taxpayer Compliance and Miscellaneous Provisions) Act 2003 contained amendments to the Goods and Services Tax Act intended to clarify the GST treatment of cross-border supplies of telecommunications services, including a code for determining the place of supply for cross-border telecommunication services. These amendments also provided for the zero-rating of supplies of telecommunications link services by New Zealand resident suppliers to non-resident suppliers where the initiator of the relevant call is a non-resident physically in New Zealand. The operation of these provisions depends on establishing which party has initiated the supply, as the supply will be subject to GST if it was initiated by a person in New Zealand, but will be zero-rated if the supply was initiated by a person outside New Zealand. Section 8(9) of the Goods and Services Tax Act outlines factors that will assist in determining which party has initiated the supply, but does not contain a hierarchy to assist in determining the question in cases where two different persons fulfil the factors. We recommend including new clause 106(6), containing a new section 8(9) of the Goods and Services Tax Act. The new section should specify that the factors should be considered under this order: 1 The person who controls the commencement of the supply 2 The person who pays for the services 3 The person who contracts for the supply. Section 8(9) currently contains a fourth factor for consideration, asking who terminates the supply. We recommend this be omitted from new section 8(9), as we understand the termination factor has been found in implementation to be confusing and unnecessary. Section 11AB(b) of the Goods and Services Tax Act zero-rates supplies of telecommunications services to a person outside New Zealand, other than an overseas telecommunications supplier, for a telecommunications service that is initiated outside New Zealand. Submitters expressed concern about the interpretation of the phrase `of a person outside New Zealand' as they believe the interpretation of that phrase may negate the intention to zero-rate services that are initiated outside New Zealand. This situation arises particularly in cases where a New Zealand company contracts with a New Zealand telecommunications company for the supply of cellular roaming services, and an employee then uses the phone outside New Zealand. The intended policy was for the phone call to be zero-rated, as it was initiated outside New Zealand. However, the agreement between the New Zealand company and telecommunications provider may raise an unintended issue about whether the supply is to a person outside New Zealand. To rectify this problem, we recommend inserting clause 110(2) to delete the phrase `to a person outside New Zealand' from section 11AB(b) of the Goods and Services Tax Act. Trans-Tasman imputation The bill changes the imputation laws to address the problem of triangular tax, which involves the double-taxation of certain trans-Tasman investments. It allows Australian companies to allocate imputation credits (for New Zealand tax paid) to their shareholders in proportion to their ownership of the company. This arrangement is reciprocal and requires both countries to pass the relevant legislation. The necessary legislation was introduced in Australia on 29 May 2003 as the Taxation Laws Amendment Bill (No 6). This bill also seeks to mitigate a problem that imputation credits cannot pass through companies resident in neither Australia nor New Zealand by introducing a new form of grouping for imputation purposes that Australian companies may also join. Submitters were largely supportive of these measures, but wished to see the proposals expanded beyond those contained in the bill. We accept submitters' desire to see this area developed, but as this is a reciprocal arrangement with Australia we are unable to make substantive changes to this proposal beyond the agreement. We are recommending a number of amendments to the provisions, largely technical or relating to the implementation of the provisions, which we will not detail in this commentary. One submitter suggested that the bill should specify that an imputation credit account maintained by an Australian company should be held in New Zealand dollars, and not in Australian dollars converted at the exchange rate. We agree with the submitter's concerns, but we are informed that Inland Revenue is reluctant to include such a legislative provision. Tax legislation works on the assumption that all tax is paid in New Zealand dollars, and including a specific provision stating this in relation to one area of tax law might have broader ramifications for this assumption as a whole. We understand Inland Revenue intends to issue a Tax Information Bulletin clarifying the issue of currency as an administrative requirement. We therefore recommend no change. Deferred deduction rule The bill introduces a new deferred deduction rule, which is intended to target aggressive tax arrangements that offer investors more tax deductions than the money invested, regardless of the success of the arrangement. The rule will apply to arrangements where there is no real risk that the investor will be required to repay loans under the arrangement, provided the arrangement meets particular criteria, and will defer deductions to the extent that the loans are outstanding and the investor continues to be unlikely to have to repay them. The proposal will be limited to arrangements that have a promoter, will produce losses in the first three years, where the money not at risk constitutes 50 percent or more of the net arrangement assets of the investor and associated persons, and the arrangement's net assets consist of less than 70 percent of tangible property that comprises land, buildings, or plant or machinery. A number of submitters noted the wide definition of the term `promoter' in clause 14, identifying a number of issues and uncertainties that arise with the wider definition, and suggested that the definition should be narrowed. We agree, and recommend amending the definition of `promoter' to limit it to persons who sell, issue or promote an arrangement. This new definition provides the narrower scope sought by submitters, simplifies the definition, and ensures that the exclusions currently in the definition are no longer necessary. Some submitters claimed that these provisions are unnecessary, as Inland Revenue currently has sufficient powers to target these schemes under existing anti- avoidance legislation. However, while Inland Revenue acknowledges that it has so far succeeded in challenging a number of aggressive tax arrangements in court, it is concerned that some of the targeted arrangements may not constitute tax avoidance under current provisions, and the potential fiscal risk of these arrangements is high. Specific provisions are therefore required to target these arrangements. We agree with the department, and recommend no change to the bill. We note that this rule will prevent the general anti-avoidance rules from applying to targeted arrangements because the taxpayer will not take an inappropriate position to start with. This is a significant advantage because the general anti- avoidance rule can only apply after a tax position has been taken and the cost of applying it to both taxpayers and the administration can be very high. We recommend amending clause 14 to add an arrangement for the acquisition of a portfolio investment in a listed company to the list of excluded assets contained in new section ES 1(1)(e)(ii). We are informed that the funding arrangements for some investment products relating to such acquisitions may meet the definition of `money that is not at risk', and the deferred deduction rule was not intended to capture such arrangements. We understand employee share purchase schemes may also be within the scope of the rule, although the bill does not target these schemes. We recommend new section ES 1(1)(e)(ii) exclude sales of shares where section CH 2 of the Income Tax Act applies to the arrangement. The bill requires the use of a consolidated approach to measuring the total cost of property held by the investor and any affected associated persons. This approach is intended to ensure all relevant assets are counted, avoid double counting of intra- group assets, liabilities and equity, and address issues of indirect ownership of property. To ensure that the consolidation proposals are implemented correctly, we consider that a number of issues should be clarified: o The assets and liabilities of the arrangement should be consolidated on a proportionate basis determined by the investor's percentage interest. o The term `affected associated persons' should include all shareholders and their loss attributing qualifying companies, as the losses of those companies are attributed to all shareholders. o The date when the assets and liabilities and money not at risk are consolidated should be the latest balance date adopted by the investor or affected associated person. We recommend amending clause 14 to clarify these points in new section ES 1(2) and (3). Income tax exemption for community trusts Clauses 5 and 17 contain provisions giving community trusts, which are established under the Trustee Banks Restructuring Act 1988, an exemption from income tax. This exemption will apply from the 2004/05 tax year. Any distributions made by the community trusts will still attract income tax when appropriate. Submitters generally support this proposal, which is intended to reduce compliance costs for the trusts. We are aware that some community trusts have established charitable subsidiary companies and sub-trusts to assist in distributing any income that the trust itself would previously have been unable to distribute. These subsidiaries are no longer required, and we recommend amending the bill to provide a transitional period when community trusts can transfer funds from charitable companies and sub-trusts back to the main trust without tax consequences, to allow the trust to wind up the subsidiaries. Some submitters said that these community trusts should be deemed to be charitable for the purposes of the income they derive. We considered this approach, but do not consider it appropriate. Community trusts do not qualify for the charitable income tax exemption, as their purposes are usually wider than those of charities. It would therefore be incorrect to include these trusts under that exemption. Sick, accident or death benefit funds Currently, the Income Tax Act provides an exemption from income tax for any income earned by a trustee of a sick, accident or death benefit fund. These funds are established for the benefit of the employees of any employer, or the members of an incorporated society, along with surviving spouses and dependants. The Committee of Experts on Tax Compliance expressed concern in 1998 about this exemption and recommended it be repealed. Many of these funds are used as savings vehicles where the savings income is exempt from tax. This tax exemption is also inconsistent with the treatment of polices for insurance against sickness, accident or death, where earnings would be taxable. The bill therefore seeks to remove this income tax exemption for sick, accident or death funds. We heard from a number of funds who expressed concern at the impact these changes would have on their operations. Those funds that made submissions have mutuality characteristics that resemble friendly societies, which are exempt from income tax. They could potentially restructure themselves as friendly societies to access the relevant tax exemption, but would incur significant compliance costs in the process. To reduce compliance costs to these entities, we recommend amending the bill to exempt any sick, accident or death funds from income tax if the fund meets certain criteria. These criteria should require exempt entities to: o provide health, accident, or life insurance or other health and welfare benefits to members o have previously been approved by the Commissioner of Inland Revenue as a sick, accident or death fund o be separately approved by the Commissioner for this exemption within 6 months of the bill's enactment. Most sick, accident or death funds should become aware of these law changes as part of Inland Revenue's process for updating the entitlement to resident withholding tax exemption certificates. However, we are concerned that some funds may be unaware of the relevant law changes. We recommend the bill also provide the Commissioner with discretion to extend the six-month approval period, to ensure that any entities that would qualify for this exemption are able to access it if they are unaware of these changes and therefore miss the six-month period. Specified superannuation contribution withholding tax Employer contributions to superannuation funds for employees are currently subject to a specified superannuation contribution withholding tax (SSCWT) rate of 33 percent for all employees. This results in an overtaxation of the contribution for employees earning under $38,000, who would otherwise be subject to a lower marginal tax rate. The bill is intended to address this issue by introducing progressive tax rates, providing for employer contributions to be taxed at 21 percent when the employee's annual salary or wages and superannuation contribution total less than $38,000. The measure is voluntary, and employers must choose to use the progressive rate. If an employer decides not to offer the progressive rate, the flat rate of 33 percent will apply. During our consideration of the bill, the Minister wrote to us requesting that we consider an amendment to these provisions allowing the use of a 15 percent rate superannuation contributions for employees with incomes below $9,500. We agree with the Minister's amendment, as it will ensure that employees on the lowest marginal tax rate do not have their employer contribution overtaxed. We therefore recommend amending clause 71 to provide for a 15 percent progressive SSCWT rate for employees earning under $9,500. It was proposed by the Green member that the progressive tax rates be amended to extend the current six percent SSCWT rate concession enjoyed by employees earning over $60,000 to middle- and low-income earners. This would reduce the 15 percent rate to 9 percent, the 21 percent rate to 15 percent, and for those earning salaries between $38,000 and $60,000, the 33 percent rate to 27 percent. However, the majority of the committee did not agree. The bill provides for employers to estimate the level of salary and wages and specified superannuation contribution for an employee if that employee has been employed for less than a year. Section NE 2AB(2), to be inserted by clause 58, states that the estimate must be based on the initial rate of salary, wages, and contribution, and assumes that the employee will receive that assumed rate consistently through the year. However, the fluctuations that are inherent in seasonal employment means that the prescriptive formula is likely to result in an inaccurate estimation in the case of seasonal employees. We recommend amending new section NE 2AB of the Income Tax Act, contained in clause 58, to allow employers to use best estimates if the process contained in subsection (2) would give an inaccurate estimate in certain circumstances. This should allow employers with seasonal employees to make a more realistic estimate of an employee's likely wages and superannuation contribution. We are aware of concerns regarding the over-taxation of employer contributions in the case of employees whose income is slightly below the tax rate margin. Should the employer contribution cause the employee's total income to move into the higher tax bracket, the entire contribution would be taxed at the higher rate, rather than taxing it at the appropriate marginal rate. We considered the possibility of including truly progressive rates in this bill. Inland Revenue informed us that further consultation would be preferable before truly progressive rates could be introduced. The committee agreed that this is a desirable course of action, and Inland Revenue informed us that consideration will be given to advancing this issue to legislation at the first opportunity. Some submitters expressed concern that the bill is unclear as to whether these rules apply to defined benefit schemes. We consider it is important that employers sponsoring defined benefit schemes should be able to use the progressive rates in the same way as defined contribution schemes. Inland Revenue informs us that the rules contained in clause 58 for determining salary should be easily applied to defined benefit schemes. We understand this will be clarified in Inland Revenue publications such as Tax Information Bulletins. Loss attributing qualifying companies In the case of Chapman v Commissioner of Inland Revenue, the High Court held that where a loss attributing qualifying company has overstated its loss, leading to a tax shortfall for both the company and its shareholders, both the company and its shareholders are subject to shortfall penalties. This is not appropriate, as this is effectively a double imposition of penalties for the same underlying offence, and the bill is intended to remedy this issue by allowing the shareholder to receive an offset to his or her penalty if the loss attributing qualifying company pays its penalty in full. The bill requires a shareholder, before receiving the offset, to have held the shares for the whole of the period from the start of the income year where the shortfall occurred to the date when the penalty was imposed. However, we recommend omitting section 141FC(3) from clause 95 to remove this restriction, to ensure that former shareholders are not still liable to pay the penalty, and therefore only one penalty is imposed for one offence. For reasons of taxpayer confidentiality, Inland Revenue would be unable to inform a former shareholder that applied for remission of the penalty why the application was denied, if the application failed because the company had not paid its penalty. It was proposed that the bill could be amended to require shareholders to show that the company penalty had been paid before they apply for remission. We are concerned by this approach, as we question whether former shareholders will be aware whether the company has paid the penalty and therefore will still be liable to pay the penalty. We considered other possible approaches to addressing this issue that involved the charging of one penalty, either to the company with payment guaranteed by the shareholder, or to the shareholder directly. However, such an amendment would require changing the law on which the Chapman case was based, and this would be inappropriate given the case is still being appealed. We received a commitment from Inland Revenue that this issue of information will be revisited at a later date when it would be more appropriate to change the law. We therefore recommend amending section 141FC in clause 95 to allow former shareholders to apply for relief from payment of the shortfall penalty, but allowing the Commissioner to decline relief without providing reasons if the company has not paid the penalty. Gross carelessness Clause 94 amends section 141C of the Tax Administration Act, making it clear that when a taxpayer makes a mistake, and the mistake is of such magnitude that the taxpayer breaches the gross carelessness standard, the shortfall penalty should be imposed. Submitters expressed concern with this provision, noting that a genuine mistake is inconsistent with the definition of `gross carelessness', and that the existing rules should be sufficient to determine whether a taxpayer is guilty of gross carelessness. We agree with submitters, and recommend clause 94 be omitted. PAYE by intermediaries The PAYE by intermediaries rules, which will apply from 1 April 2004, allow employers to use accredited intermediaries to assume the employer's PAYE obligations. We received a submission from one submitter expressing concern with certain elements of the rules. We consider some of the issues raised by the submitter are valid and should be addressed before the rules come into force. We note that this bill contains provisions relating to PAYE intermediaries, but the issues raised by the submitter are not directly related to those provisions. Currently, PAYE intermediaries are unable to assume responsibility for an employer's SSCWT obligations. If employers use an intermediary to cover their PAYE obligations, but are still required to meet their SSCWT obligations, they will be subject to significant additional compliance and administrative costs, reducing the likely use of intermediaries by employers. We therefore recommend that clauses 54G to 54L, 54N, and 80B be inserted, extending the rules governing PAYE intermediaries to allow them to assume an employer's SSCWT obligations. The current rules only allow for payments of tax to be refunded to an intermediary if the intermediary paid PAYE to Inland Revenue but the payment by the employer to the intermediary was dishonoured. The rules do not provide for refunds in circumstances where an overpayment may occur due to an external error, potentially subjecting the intermediary to considerable risk. We consider that the scope for refunds of PAYE overpayments to intermediaries should be widened, and recommend this amendment be included in clause 54M. The current rules require an employer to deposit the net pay of their employees into an intermediary's trust account. The submitter considers that there should not be a requirement to deposit net salary or wages into the trust account. The submitter also noted that the rules would not cover payments outside the normal pay period of an employee, for example, where an employer pays the employee in cash but requires the intermediary to handle the PAYE. We note that the rules also do not allow for any third party deductions, which may be deducted by the employer from the employee's pay before the funds are transferred to the intermediary. We do not recommend removing the requirement that the net pay of employees be deposited into a PAYE intermediary's trust account, as there is a risk that with the removal of this safeguard insufficient funds may be available for meeting PAYE obligations. We recommend clause 54J(3) and (7) provides an exemption from the use of a PAYE intermediary's trust account for net salary or wages paid by an employer to an employee in cash or cheque outside the normal payment date for salary and wages, and another exemption for specified deductions retained by the employer. Personal Property Securities Act 1999 We recommend including new clause 134 to provide that Inland Revenue can register charges under the Personal Property Securities Act 1999 over the property of persons who default in the payment of child support. Clauses 98, 132, and 133 allow for charges over property for unpaid tax to be included in the Personal Property Securities Register. We consider that similar provisions should apply for unpaid child support. Qualifying trust status We are aware of an issue regarding the definition of `qualifying trust' in the Income Tax Act that can result in trust beneficiaries being subject to disproportionate penalties for a small underpayment of income tax by the trust. The current definition of `qualifying trust' specifies that the trust must have met all its income tax obligations since its beginning. If a trust has underpaid income tax in the past, that trust is not a qualifying trust for the period until it rectifies the underpayment. During that period, any distributions will be taxable at the rate of 45 percent. This is a significant penalty, as all distributions by a qualifying trust (except for beneficiary income) would usually not be taxable, and the level of underpayment giving rise to this penalty could potentially be very small. This rule was originally intended to provide an incentive for the trustee to comply with the trust taxation rules. However, as use of money interest and penalty provisions have since been introduced, we consider these offer a more appropriate mechanism for ensuring compliance. We recommend including new clause 66(22B), specifying that a non-qualifying trust can become a qualifying trust retrospectively if all income tax obligations, including any use of money interest and penalties, are satisfied. This amendment will result in any taxable distributions made during the period of underpayment being unwound. Ministerial amendments During consideration of the bill, we received a number of letters from the Minister of Revenue proposing amendments to the bill. Interested parties were invited to make submissions on the proposed amendments. GST and local authorities The Minister proposed an amendment to the Goods and Services Tax Act to clarify that contributions of money or land paid to local authorities under the Resource Management Act 1991 are subject to GST. Under the Resource Management Act, a local authority is able to seek a contribution from a person applying for resource consent. Such a contribution can be used in connection with the work allowed under the resource consent, or to address additional costs that may arise due to increased pressures on existing infrastructure. We understand that it was always intended that such payments would be subject to GST, as the payments are for the provision of goods and services by local authorities. However, in the light of the decisions in the Commissioner of Inland Revenue v New Zealand Refining and Chatham Islands Enterprise Trust v Commissioner of Inland Revenue cases, Inland Revenue issued a draft ruling stating that contributions to local authorities for resource consents would not be subject to GST. This was because the cases emphasised the need for reciprocal obligations between parties before a GST obligation occurs, and because there is no direct and identifiable supply made reciprocal to the financial contribution. The proposed amendment seeks to maintain the law as it was previously understood, confirming that financial contributions are subject to GST, and applies this amendment retrospectively to financial contributions made from 1 October 1991. The amendment contains a savings provision exempting payments made before the enactment of the bill where the local authority did not charge GST. We recommend that the amendments proposed by the Minister in new clauses 104B and 110B be included in the bill, subject to some amendments. We note that the term `contribution' is not defined in either the Resource Management Act or the Local Government Act. We are aware that local authorities may on occasions seek contributions such as covenants, undertakings and information disclosures. In such circumstances, the proposed amendment would require the local authority to account for GST on the contribution. We recommend the proposed amendment should be redrafted to clarify that it applies only to contributions made in the form of money, land, or both. The proposal requires the value of the contribution to be ascertained in order to value the supply of goods and services, and then calculate the GST payable on the supply. However, there may be difficulty in determining the value of goods and services supplied by the local authority when they are made in relation to land, as the land may have differing values for different parties, depending on its use. We consider the best approach to resolve this issue is to zero-rate both the local authority's supply of goods and services for a contribution in the form of land, and the supply of the land itself, where made by a GST registered person. We note that this approach also clarifies that the registered property developer can claim input tax credits for the GST incurred in purchasing the land, and also minimises the cash flow problems that would otherwise arise from local authorities paying GST on a non-liquid contribution. We therefore recommend the proposed amendment be further amended to provide that contributions in the form of land, and the corresponding supply of goods and services by the local authority, are be treated as consideration for zero-rated supplies. GST and late payment penalties for overdue rates The Minister proposed amending the Goods and Services Tax Act to clarify that penalties imposed for late payment of rates are to be treated as consideration for an exempt supply, and not subject to GST. Following an amendment to the Goods and Services Tax Act, penalty interest imposed under statute is treated as an exempt supply. However, Inland Revenue considers that these provisions do not apply to penalties for late payment of rates as the penalties are not in the nature of interest. This approach is contrary to the policy intent of the original amendment, and the proposed amendments should ensure the penalties are treated appropriately. We recommend the proposed amendment to clause 111B be included in the bill. We note that local authorities are able to charge a fee when postponing rates, which is intended to cover the administrative and financial costs involved. Currently the postponement fee would be subject to GST, but the finance cost component of the fee should be treated as `financial services' and exempt from GST. We recommend further amending the proposed amendments to clarify that the administrative charge component of a rates deferment payment is subject to GST, and any financing component is to be treated as GST exempt. We understand Local Government New Zealand and the Society of Local Government Managers support this amendment. These changes would apply retrospectively from 1 July 2003. GST and domestic transport services for non-residents We understand the GST treatment of domestic transport services is uncertain when the services are supplied to a non-resident for the movement of household goods in New Zealand. The correct policy outcome would be to zero-rate such supplies, but the current legislation will not give that result in many cases. The proposed amendment will zero-rate the transport of household goods within New Zealand, including ancillary transport activities, provided that: o the services are supplied to a non-resident outside New Zealand at the time the service is performed o the goods are entered for home consumption o the supply arrangement is made before the goods are entered o the services are expected to be completed within 28 days of the goods being entered. We recommend the Minister's proposed amendments to clause 109 be included in the bill. Controlled foreign companies We received proposed amendments inserting new clauses 9B, 9C and 9D into the bill. These clauses are intended to address an issue regarding the operation of the controlled foreign company tax rules. The amendments relate to a New Zealand shareholder of a listed controlled foreign company in a grey list country, where that company has an interest in a company in a non-grey list country. A New Zealand resident is not required to attribute their share from a foreign company's income if the company is resident in a `grey list' country. (The grey list contains countries with similar tax rules to New Zealand, and currently lists Australia, Canada, Germany, Japan, the United Kingdom, and Norway.) Any income from a non-grey list company will be required to attribute their income. However, in cases where the grey list company has interests in a subsidiary company in a non-grey list country, the income from the subsidiary company must be attributed to the New Zealand resident. To comply with this requirement, the resident must obtain information on the subsidiary from the controlled foreign company. However, in cases where the controlled foreign company is a listed company, the resident will be unable to obtain the necessary information as the grey list company would then be required to provide that information to the whole market. The amendments proposed by the Minister provide that the attributed foreign income or loss, or foreign investment fund income or loss, of the New Zealand resident is nil if the interest arises as a result of an interest in a controlled foreign company, provided that company is unable to disclose the required information due to stock exchange rules or the laws of that country. The provisions are retrospective and apply to the 2001/02 and 2002/03 income years. We recommend that the Minister's amendments relating to controlled foreign companies be included in the bill. We are recommending a few minor changes to the proposed provisions relating to the application date and clarifying an uncertainty in drafting. These provisions are intended to provide an interim solution to this problem, and will apply only until the 2005/06 tax year. In the meantime, Inland Revenue will consider the most appropriate long-term solution to this issue, to be contained in a future tax bill. Gaming Duties Act 1971 and Gambling Act 2003 The Minister requested that we consider several amendments to the Gaming Duties Act 1971. Some of these amendments are required to correct drafting errors arising out of the Racing Act 2003. One amendment adjusts the totaliser duty formula in section 4 of the Racing Duties Act, to define `betting profits' as `8/9 (amounts received less refunds less winning dividends less fractions)'. The other amendment expressly excludes GST from the calculation of `betting profits' for sports betting and fixed odds racing betting, and is consistent with the previous treatment of GST for such betting. We understand the New Zealand Racing Board supports these amendments. In addition, the Minister requested we amend Schedule 6 of the Gambling Act 2003 to correct the definition of the term `lottery' inserted in the Gaming Duties Act. The Gambling Act 2003 replaced the definition of `lottery' with `New Zealand lottery'. However, the Gaming Duties Act continues to use the now undefined term `lottery'. The proposed amendment will insert a new definition for `lottery'. We recommend new clauses 136 and 138, containing these amendments, be included in the bill. Charitable donee organisations Clause 22 adds nine organisations to the list of charitable donee organisations contained in the Income Tax Act 1994. The Minister requested that the St Stanislas Charitable Trust of New Zealand be included in this list. We agree with this request, and recommend amending clause 22 to include that organisation. United Future minority view United Future believes that the basic rates of income tax should have been adjusted, with effect from 1 April 2003, to take account of cumulative inflation since the rates were originally established on 1 April 2000. We also believe that as a matter of policy adjustments to the base rates of tax should be made at regular intervals. We believe that unless this is done then, in real dollar terms, tax rates are steadily increasing to the detriment of New Zealand taxpayers. An adjustment for inflation would have seen the tax bands altered approximately as follows: o The 15 percent low income rebate from $9,500 to $10,500 o The 19.5 percent rate from $38,000 to $42,000 o The 33 percent rate from $60,000 to $65,000 o The 39 percent rate from above $60,000 to above $65,000. Appendix Committee process The Taxation (Annual Rates, GST, Trans-Tasman Imputation and Miscellaneous Provisions) Bill was referred to the committee on 26 June 2003. The closing date for submissions was 15 August 2003. We received and considered 50 submissions from interested groups and individuals. We heard 21 submissions. Hearing of evidence took 4 hours 36 minutes and consideration took 4 hours 33 minutes. We received advice from the Inland Revenue Department, the Treasury, and Therese Turner, our specialist tax adviser. Committee membership Clayton Cosgrove (Chairperson) Gordon Copeland (Deputy Chairperson) Dr Don Brash (until 4 November 2003) Rod Donald Mark Gosche Rodney Hide John Key (from 5 November 2003) Luamanuvao Winnie Laban Janet Mackey Craig McNair David Parker Rt Hon Winston Peters Dr the Hon Lockwood Smith (until 4 November 2003) Pansy Wong (from 5 November 2003) Hon Dr Michael Cullen Taxation (Annual Rates, GST, Trans-Tasman Imputation and Miscellaneous Provisions) Bill Government Bill Contents 1 Title 2 Commencement Part 1 Annual Rates of Income Tax for 2003-04 3 Rates of income tax for 2003-04 income year Part 2 Amendments to Income Tax Act 1994 4 Income Tax Act 1994 5 Non-profit bodies' and charities' exempt income 6 Certain pensions, benefits, and other compensation exempt 7 Other exempt income 8 Exclusions from term dividends 9B Persons not required to calculate attributed foreign income and loss 9C Attribution of income and losses using branch equivalent method 9D New section CG 7B inserted CG 7B No attribution of income and losses arising from interests of certain controlled foreign companies 10 Meaning of fringe benefit 11 Value of fringe benefit 12 Expenditure by group investment fund 13 Limitation of deduction for certain film expenditure to amount at risk 13B Year in which non-competitive levies and premiums under Accident Insurance Act 1998 or Injury Prevention, Rehabilitation, and Compensation Act 2001 payable 14 New subpart S inserted into Part E Subpart S---Arrangements involving money not at risk ES 1 Application of subpart ES 2 Defined terms for subpart ES 3 Deferral of surplus allowable deductions from arrangement 15 New subpart DB inserted into Part F Subpart DB---Imputation Group of Companies FDB 1 Companies that may constitute imputation group FDB 2 Formation, entry and combination of imputation groups FDB 3 Membership of groups FDB 4 Liability of members of imputation group FDB 5 Nominated company FDB 6 Leaving an imputation group 16 Group investment funds 17 Gross income assessable to beneficiaries 18 Trustee income 19 Consequences of change in entity status for purpose of Maori authority rules 20 No offset in calculating some schedular income tax liabilities 21 Net loss offset between group companies 22 Rebate for gifts of money 23 Calculation of Part KD credit 24 Calculation of family tax credit 25 Rates for interim instalments for period ending on or after 1 July 1998 26 New section KD 7B inserted KD 7B Effect of extra interim instalment on entitlement to tax credit 27 Foreign tax credits---controlled foreign companies 28 Tax deductions to be credited against tax assessed 29 Underlying foreign tax credits generally, and interpretation 30 Refund of overpaid provisional tax 31 Payments to be set off within wholly-owned group 32 Tax pooling account 33 Transfers from tax pooling account 34 Section MBB 9 replaced MBB 9 Tax treatment of payments of interest 35 Refund of excess tax 36 Limits on refunds of tax 37 Application of income tax or dividend withholding payments not refunded 38 New section MD 5 inserted MD 5 Application of income tax or dividend withholding payments not refunded 39 New sections ME 1B and 1C inserted ME 1B Companies electing to maintain imputation credit account ME 1C Amount of dividend for imputation rules if paid in Australian currency 41 Credits arising to imputation credit account 42 Debits arising to imputation credit account 43 Further tax payable where end of year debit balance, or when company ceases to be imputation credit account company 44 Heading replaced 45 Consolidated group to maintain separate imputation credit account 47 Credits arising to imputation credit account of group 48 Debits arising to imputation credit account of group 49 Debiting and crediting between consolidated group and individual companies 50 Application of specific imputation provisions to consolidated groups 50B Credits and debits arising to policyholder credit account of company 50C Use of credit balance to credit against company's policyholder base income tax liability, or transfer of credit balance to company's imputation credit account 50D Determinations by Commissioner as to credits and debits arising to policyholder credit account 50E Credits and debits arising to group policyholder credit account 50F Application of policyholder credit account provisions to consolidated group, etc. 50G Debits and credits arising to imputation credit account or policyholder credit account on amalgamation 51 Credits and debits arising to branch equivalent tax account of company 52 Credits and debits arising to branch equivalent tax account of company 52B Use of credit to reduce dividend withholding payment or use of debit to satisfy income tax liability 53 Debits and credits arising to group branch equivalent tax account 54 Debits and credits arising to group branch equivalent tax account 54B Use of consolidated group credit to reduce dividend withholding payment, or use of group or individual debit to satisfy income tax liability 54C Credits arising to dividend withholding payment account 54D Further dividend withholding payment payable by company 54E Credits arising to group dividend withholding payment account 54F Debiting and crediting between group and individual dividend withholding payment accounts 54G Purpose 54H Accreditation requirements of PAYE intermediaries 54I Approval by Commissioner of employer arrangements with PAYE intermediary 54J Responsibilities and status under PAYE rules of employer in arrangement with PAYE intermediary 54K Responsibilities and status under PAYE rules of PAYE intermediary in arrangement with employer 54L Operation of trust account 54M Section NBB 7 replaced NBB 7 Refund by Commissioner of deductions 54N Termination of employer arrangements with PAYE intermediary 55 Applications of tax codes specified in tax code declarations or tax code certificates 55B Applications of other provisions to amounts payable under PAYE rules 56 Definition of cash remuneration 57 Specified superannuation contribution withholding tax imposed 57B Employee election that specified superannuation contributions be subject to higher rate of specified superannuation contribution withholding tax 58 New section NE 2AB inserted NE 2AB Employer election that progressive rates of specified superannuation contribution withholding tax apply 59 Section NE 3 replaced NE 3 Specified superannuation contribution withholding tax to be deducted 59B Payment period 59C Failure to deduct tax 59D Section NE 6 replaced NE 6 Tax deemed for certain purposes to have been received by superannuation fund 60 Application of RWT rules 60B Deduction of resident withholding tax 61 Refunds of deductions 62 Certificates of exemption 63 Non-resident withholding tax deducted in error 64 Amount of dividend withholding payment to be deducted 65 Payment and recovery of dividend withholding payment, etc. 65B Application of specific dividend withholding payment provisions to consolidated groups 66 Definitions 67 Meaning of source deduction payment---shareholder-employees of close companies 68 Modifications to measurement of voting and market value of interests in case of continuity provisions 69 Determination of residence of company 70 References to particular regimes in former Act, etc. 71 Schedule 1---Basic rates of income tax and specified superannuation contribution withholding tax Part C Rates referred to in clause 10(ab) of Part A 72 Schedule 12---Amount that, for purposes of section KD 5(6), is deemed to be equivalent of an annual amount Part 3 Amendments to Tax Administration Act 1994 73 Tax Administration Act 1994 74 Interpretation 75 Giving of notices 76 Information to be furnished on request of Commissioner 77 Shareholder dividend statement to be provided by company 78 Annual returns of income not required 79 New section 33B inserted 33B Return not required for certain schedular gross income 80 Non-active companies may be excused from filing returns 80B Employer to furnish statement of specified superannuation contribution withholding tax 81 Company dividend statement when imputation credit account company declares dividend 82 Annual imputation return 82B Imputation return to be furnished where Commissioner so requires or where company ceases to be an imputation credit account company 83 Annual imputation return to be furnished in respect of consolidated groups 84 Commissioner must issue income statement 85 Income statement deemed assessment 85B Officers to maintain secrecy 86 New section 91AA inserted 91AA Determinations in relation to standard-cost household service 87 Commissioner to make private rulings on request 88 Commissioner may make product rulings 89 Assessment of qualifying company election tax and late payment penalty 90 Assessment of non-resident withholding tax 91 Assessment where default made in furnishing returns 92 Definitions 92B Certain rights of objection not conferred 93 Late filing penalties 94B Promoter penalties 94C Reduction of penalties for previous behaviour 95 New section 141FC inserted 141FC Loss attributing qualifying companies---reduction of shortfall penalties 96 Due date for payment of late filing penalty 96B Absolute liability offences 96C Knowledge offences 97 Recovery of excess tax credits allowed 97B Recovery of tax deductions from employers or PAYE intermediaries 98 Unpaid tax deductions, etc., to constitute charge on employer's property 99 New section 181C inserted 181C Remission of late payment penalties and interest incurred due to obligation to pay further income tax Part 4 Amendments to other Acts Amendments to Goods and Services Tax Act 1985 100 Goods and Services Tax Act 1985 101 Interpretation 102 Meaning of associated persons 103 Meaning of term financial services 104 Meaning of input tax 104B Meaning of term supply 105 New section 5B inserted 5B Supply of certain imported services 106 Imposition of goods and services tax on supply 107 Time of supply 108 Value of supply of goods and services 109 Zero-rating of services 110 Zero-rating of telecommunications services 110B Zero-rating of supply by territorial authority 111B Exempt supplies 112 Other returns 113 Calculation of tax payable 114 New sections 20C to 20F inserted 20C Goods and services tax incurred in making certain supplies of financial services 20D Determining availability of deduction under section 20C from supplies by another person 20E Determining supplies charged at 0% under section 11A(1)(q) and (r) from supplies by another person 20F Election that sections 11A(1)(q) and (r) and 20C apply 115 Timing of deduction under section 21F 116 Application to make single deduction under section 21F 117 New section 24B inserted 24B Records to be kept by recipient of imported services 117B Credit and debit notes 118 New section 25AA inserted 25AA Consequences of change in contract for imported services 120 Commissioner's right to withhold payments 121 Persons making supplies in course of taxable activity to be registered 121B Cancellation of registration 122 Group of companies 123 New section 56B inserted 56B Branches and divisions in relation to certain imported services 123B Personal representative, liquidator, receiver, etc. 124 Agents and auctioneers 124B Effect of imposition or alteration of tax 124C New section 84B inserted 84B Supplies of services made before insertion of section 8(4B) Amendments to Student Loan Scheme Act 1992 125 Student Loan Scheme Act 1992 126 Interpretation 127 Borrowers to whom repayment deduction provisions of this Part apply 128 New section 17B inserted 17B Repayment codes for application of PAYE rules 129 Section 18 replaced 18 Borrower's notice to employer of requirement for repayment deductions 130 PAYE rules of Income Tax Act 1994 to apply to repayment deductions 131 Underestimation penalty where interim repayments underestimated as at final instalment date Amendment to Personal Property Securities Act 1999 132 Personal Property Securities Act 1999 133 When Act does not apply Amendments to Child Support Act 1991 134 Unpaid financial support to constitute charge on payer's property Amendment to Taxation (Maori Organisations, Taxpayer Compliance and Miscellaneous Provisions) Act 2003 135 Definitions Amendments to Gaming Duties Act 1971 136 Interpretation 137 Totalisator duty Amendment to Gambling Act 2003 138 Schedule 9---Amendments to other Acts The Parliament of New Zealand enacts as follows: 1 Title This Act is the Taxation (Annual Rates, GST, Trans-Tasman Imputation and Miscellaneous Provisions) Act 2003. 2 Commencement (1) This Act comes into force on the date on which it receives the Royal assent, except as provided in this section. (2) Section 103 is treated as coming into force on 1 July 1994. (3) Sections 51(2) and 53(2) are treated as coming into force on 20 December 1994. (4) Section 75 is treated as coming into force on 1 April 1995. (5) Sections 52({2} [1]) and 54({2} [1]) are treated as coming into force on 26 July 1996. (6) Section 90 is treated as coming into force on 1 October 1996. (7) Sections 130(1) and (3) are treated as coming into force on 1 April 1997. (8) Sections 43(1), 95 and 99 are treated as coming into force on 1 April 1998. New (unanimous) ----------------------------------------------------------------------- (8B) Section 13B(a) is treated as coming into force on 1 July 1999. ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- (8C) Section 13B(b) is treated as coming into force on 1 April 2002. ----------------------------------------------------------------------- (9) Sections 87 and 88 are treated as coming into force on 17 October 2002. (10) Sections 19, 66(16), {78(1) to (3) and 97} [66(28B), 78(1) to (3), 94B, 94C, 97, 97B, 130(2B) and 135] are treated as coming into force on 26 March 2003. (11) Sections {32 to 34, 37 to 42, 43(2), 44 to 50,} [15, 32 to 34, 37 to 39(1), 41, 42, 43(2), 44 to 50G,] 56, 60, 64, 66(1), 66(2), 66(6), 66(7), 66(10) to (13), {66(21), }66(23), 66(25), 66(27), 66(29), 67, 70(1), 77, {80 to 83} [80 to 82, 83], 93 and 96 are treated as coming into force on 1 April 2003. New (unanimous) ----------------------------------------------------------------------- (11B) Sections 106(5), 106(6) and 110(2) are treated as coming into force on 1 July 2003. ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- (11C) Section 137(2) to (4) are treated as coming into force on 1 August 2003. ----------------------------------------------------------------------- Struck out (unanimous) ======================================================================= (12) Section 15 is treated as coming into force--- (a) on 1 April 2003, except for the purpose of section ME 6 of the Income Tax Act 1994: (b) on 1 October 2003, for the purpose of section ME 6 of the Income Tax Act 1994. ======================================================================= (13) {Section 9 is } [Sections 39(2) and 60B are ]treated as coming into force on 1 October 2003. New (unanimous) ----------------------------------------------------------------------- (13B) Section 137(1) comes into force on the 1st day of the month that immediately follows the month in which this Act receives the Royal assent. ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- (13C) Sections 54G to 54N come into force on 15 January 2004. ----------------------------------------------------------------------- (14) Sections 55(2), 57 to 59, 71(3) and 71(4) come into force on 1 April 2004. (15) Sections 101(2), 102, 104(2), 105, 106(2), 106(3), 107, 108, 109(2), 109(3),{ 111, 113(1) to (3), 113(5), 113(6)} [ 109(5), 113(1)], 114, 115, 116(1), 117{ to 119, 122(1), } [, 118, 122(1) to (1C), ]122(4) and 123 come into force on a date{, not less than 1 year after the date on which this Act receives the Royal assent, that} [that is the first day of a January, April, July or October and is not less than 1 year after the date on which this Act receives the Royal assent and ]is to be appointed by the Governor-General by Order in Council. Part 1 Annual Rates of Income Tax for 2003-04 3 Rates of income tax for 2003-04 income year (1) Income tax imposed by section BB 1 of the Income Tax Act 1994 must, for the 2003-04 income year, be paid at the basic rates specified in Schedule 1 of that Act. (2) The Taxation (Annual Rates of Income Tax 2002-03) Act is repealed. Part 2 Amendments to Income Tax Act 1994 4 Income Tax Act 1994 This part amends the Income Tax Act 1994. 5 Non-profit bodies' and charities' exempt income New (unanimous) ----------------------------------------------------------------------- (1A) After section CB 4(1)(a), the following is inserted: "(ab) any amount derived by a person (called a provider) who is an incorporated body or a trustee and who provides health insurance, accident insurance, life insurance or other health and welfare benefits to natural persons (called recipients), if--- "(i) the amount is not derived from a business carried on by the provider beyond the circle of the recipients; and "(ii) each of the recipients is--- "(A) a beneficiary of the trust for which the provider is the trustee: "(B) a member of the provider: "(C) a member of an organisation that directly or indirectly controls the provider: "(D) a relative of a person described in subsubparagraphs (A) to (C); and "(iii) the provider, or a fund administered by the provider, was approved under section CB 5(2) as a sick, accident, or death benefit fund by the Commissioner before the repeal of section CB 5(1)(i) by section 6(1)(a) of the Taxation (Annual Rates, GST, Trans-Tasman Imputation and Miscellaneous Provisions) Act 2003; and "(iv) the Commissioner approves the provider, as an organisation that in the Commissioner's opinion operates on the principles of mutuality for recipients--- "(A) within 6 calendar months of the date on which the Taxation (Annual Rates, GST, Trans-Tasman Imputation and Miscellaneous Provisions) Act 2003 receives the Royal assent; or "(B) within a further period allowed by the Commissioner, if the provider satisfies the Commissioner that the provider was not aware of the requirement for the Commissioner's approval in sufficient time to obtain the approval under subsubparagraph (A):". ----------------------------------------------------------------------- (1) In section CB 4(1)(l), "trust." is replaced by "trust:" and the following is added: "(m) any amount derived by the trustee of a community trust: New (unanimous) ----------------------------------------------------------------------- "(n) any amount derived by a trustee or company, if--- "(i) the amount would be exempt under paragraph (c) or (e) but for a distribution, settlement or dividend made to a community trust in the 2004-05 or 2005-06 income year by the trustee or company on the winding up of the trust or company; and "(ii) the corpus of the trust was provided by the community trust or the company is wholly-owned by the community trust. ----------------------------------------------------------------------- " New (unanimous) ----------------------------------------------------------------------- (1B) Subsection (1A) applies to amounts that are derived after the date on which this Act receives the Royal assent. ----------------------------------------------------------------------- (2) Subsection (1) applies for the 2004-05 and subsequent income years. 6 Certain pensions, benefits, and other compensation exempt (1) In section CB 5(1)--- (a) paragraph (i) is repealed: (b) before paragraph (j), the following is inserted: "(ib) any interest or dividend derived by any trustee in trust for a fund, if when the interest or dividend is derived by the trustee--- "(i) the sole purpose of the fund is {for }the payment of the expenses associated with the funerals of employees of an employer, of spouses and dependants of employees of the employer, and of surviving spouses and surviving dependants of deceased employees of the employer; and "(ii) the employer has no fewer than 10 employees; and "(iii) all {potential beneficiaries of} [persons eligible for benefits from] the fund are equally eligible for benefits from the fund; and "(iv) No contributions to the fund are made by a person who is not the employer or an employee of the employer; and "(v) the fund is approved by the Commissioner:". New (unanimous) ----------------------------------------------------------------------- (1B) In section CB 5(2), "this section" is replaced by "this Act". ----------------------------------------------------------------------- (2) Subsection (1) applies to amounts that are derived after the date on which this Act receives the Royal assent. 7 Other exempt income In section CB 9(g), "grant." is replaced by "grant:" and the following is added: "(h) any amount derived by a natural person from providing a standard-cost household service, to the extent given by any determination under section 91AA of the Tax Administration Act 1994 that provides for the application of this paragraph." 8 Exclusions from term dividends (1) Section CF 3(1)(ga) is repealed. New (unanimous) ----------------------------------------------------------------------- (1B) In section CF 3(9), "subsection (11)" is replaced by "subsection (12)". ----------------------------------------------------------------------- (2) Subsection (1) applies for the 2004-05 and subsequent income years. Struck out (unanimous) ======================================================================= 9 New section CF 5B inserted After section CF 5, the following is inserted: "CF 5B Amount of dividend for imputation rules if paid in Australian currency For the purpose of the imputation rules, the amount of a dividend that is paid in Australian currency by an Australian imputation credit account company is given by--- a x b where--- a is the amount of the dividend expressed in Australian currency: b is the close of trading spot exchange rate for the Australian dollar--- (a) for the date on which the dividend is declared, if that date precedes the date of the payment of the dividend by 3 months or less: (b) for the date on which the dividend is paid, if that date follows the date of the declaration of the dividend by more than 3 months." ======================================================================= New (unanimous) ----------------------------------------------------------------------- 9B Persons not required to calculate attributed foreign income and loss (1) After section CG 6(1)(b), the following is added: "(c) section CG 7B applies." (2) Subsection (1) applies for the 2001-02 to 2005-06 income years. ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- 9C Attribution of income and losses using branch equivalent method (1) In section CG 7(5), "of any person," is replaced by "of any person and section CG 7B does not apply". (2) Subsection (1) applies for the 2001-02 to 2005-06 income years. ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- 9D New section CG 7B inserted (1) After section CG 7, the following is inserted: "CG 7B No attribution of income and losses arising from interests of certain controlled foreign companies "(1) The attributed foreign income or attributed foreign loss, or foreign investment fund income or foreign investment fund loss, of a person for an accounting period in respect of an interest of the person in a foreign company or fund is nil if--- "(a) the interest in the foreign company or fund arises from an income interest of the person in a controlled foreign company, called in this section the controlled foreign company, that--- "(i) is resident throughout the accounting period in a country or territory specified in Part A of Schedule 3; and "(ii) is quoted throughout the accounting period on the official list of a recognised exchange in the country or territory referred to in subparagraph (i); and "(b) throughout the accounting period the laws of the country or territory referred to in paragraph (a)(i), or the rules of the recognised exchange referred to in paragraph (a)(ii)--- "(i) prevent the controlled foreign company from disclosing to the person information that would be necessary for calculating the attributed foreign income or attributed foreign loss, or foreign investment fund income or foreign investment fund loss, of the person: "(ii) require the controlled foreign company, as a result of a disclosure of information that would be necessary for the calculation referred to in subparagraph (i), to make a further disclosure of information that would be harmful to the commercial interests of the controlled foreign company; and "(c) the person satisfies the Commissioner that an effect of the laws or rules that satisfy paragraph (b) is that the person is unable, in relation to the interest of the controlled foreign company in the foreign company or fund, to obtain information that would be necessary for the calculation under section CG 7 of the person's attributed foreign income or attributed foreign loss, or foreign investment fund income or foreign investment fund loss." (2) Subsection (1) applies for the 2001-02 to 2005-06 income years, subject to subsection (3). (3) Subsection (1) does not apply to a person for an income year if the person has, before 31 March 2003, filed a return of income for the income year. ----------------------------------------------------------------------- 10 Meaning of fringe benefit (1) After section CI 1(e), the following is inserted: "(eb) in relation to an employer of an employee, any contribution to a fund that satisfies sections CB 5(1)(ib)(i) to (v):". (2) Subsection (1) applies to contributions made after the date on which this Act receives the Royal assent. 11 Value of fringe benefit (1) In section CI 3(8), "as specified in paragraphs (e) and (f)" is replaced by "referred to in paragraph (e), (eb) or (f)". (2) Subsection (1) applies to contributions made after the date on which this Act receives the Royal assent. 12 Expenditure by group investment fund (1) Section DI 3A is repealed. (2) Subsection (1) applies for the 2004-05 and subsequent income years. 13 Limitation of deduction for certain film expenditure to amount at risk (1) Section DK 1 is repealed. (2) Unless subsection (3) applies, subsection (1) applies for the 2004-05 and subsequent income years. (3) Subsection (1) does not apply to a person who entered into an arrangement to which subpart ES of the Income Tax Act 1994, as inserted by this Act, applies if in an income year preceding the person's 2004-05 income year--- (a) the taxpayer can reasonably expect that 10 or more persons hold or will hold an interest in the arrangement; or (b) the circumstances described in section ES 1(1)(b) of the Income Tax Act 1994 (as inserted by this Act) exist and not less than 70% of the [amount of ]allowable deductions arising from the person's interest in the arrangement (calculated under section {ES 1(2)} [ES 1(1)(b)(i)] of the Income Tax 1994, as inserted by this Act) {arise} [arises] from the ownership of fixed life intangible property or software. New (unanimous) ----------------------------------------------------------------------- 13B Year in which non-competitive levies and premiums under Accident Insurance Act 1998 or Injury Prevention, Rehabilitation, and Compensation Act 2001 payable In section ED 1A(2)(ba)--- (a) "of the Accident Insurance Act 1998" is inserted after "section 300": (b) "or section 211" is inserted after "section 202". ----------------------------------------------------------------------- 14 New subpart S inserted into Part E (1) After subpart R of Part E, the following is inserted: "Subpart S---Arrangements involving money not at risk Struck out (unanimous) ======================================================================= "ES 1 Application of subpart "(1) This subpart applies to a person and an arrangement if--- "(a) the arrangement has a promoter at any time; and "(b) the arrangement results, for the person and any affected associated persons, when considered together, in a total amount of allowable deductions which exceeds the total amount of gross income--- "(i) for the income year in which the person or any affected associated person first acquired an interest in the arrangement; or "(ii) for the period from the start of the income year to which subparagraph (i) refers to the end of the next following income year; or "(iii) for the period from the start of the income year to which subparagraph (i) refers to the end of the second following income year; and "(c) at the end of a period for which paragraph (b) is satisfied, less than 70% of the property that is subject to the arrangement is tangible property that is land, buildings or major plant or machinery; and "(d) the arrangement involves money that is not at risk for the person or an affected associated person; and "(e) at the end of a period for which paragraph (b) is satisfied, the total of the money that is not at risk for the person and any affected associated persons is 50% or more of the total cost of the property held by those persons as part of the arrangement at that time. "(2) When subsection (1)(b) is applied--- "(a) it is assumed that the person and any affected associated person has no amount of allowable deductions or gross income other than that resulting from the arrangement; and "(b) a loss arising under section HG 16(1) is ignored to the extent necessary to prevent double counting; and "(c) it is assumed that no gross income or allowable deduction arises under this subpart. "(3) When subsection (1)(c) is applied--- "(a) property is measured at cost; and "(b) the person and any affected associated person are considered together as a group; and "(c) the cost of property subject to the arrangement is calculated on a consolidated basis for elimination of intra-group balances, equivalent to that used for companies under generally accepted accounting practice of New Zealand. "(4) When subsection (1)(e) is applied--- "(a) the person and any affected associated persons are considered together as a group; and "(b) the total cost of the property held by the group is calculated on a consolidated basis for elimination of intra-group balances, equivalent to that used for companies under generally accepted accounting practice of New Zealand. "ES 2 Definitions for subpart "(1) In this subpart--- "affected associated person means an associated person that is a party to or affected by the relevant arrangement "arrangement specific loan, in respect of an arrangement and a person, means a loan made to the person or an affected associated person as part of or for the purposes of the arrangement "arrangement specific person, in respect of an arrangement, means--- "(a) a person established or acquired as part of or for the purposes of the arrangement; but "(b) does not include a partnership only comprising natural persons or the trustees of a trust "associated person means an associated person as defined in any provision of section OD 7 or OD 8(3) "loan means a financial arrangement under which a person provides money to another person, but does not include an excepted financial arrangement "promoter means a person--- "(a) who is--- "(i) a party to, or is significantly involved in formulating, a plan or programme from which an arrangement is offered; or "(ii) aware of material and relevant aspects of the arrangement and who sells, issues or promotes the selling or issuing of, the arrangement, whether or not for remuneration; and "(b) who is not a person whose involvement with the arrangement is limited to: "(i) providing legal, accounting, clerical or secretarial services to a promoter; or "(ii) providing or locating finance in the ordinary course of the person's business. "(2) In this subpart, money that is not at risk means any outstanding obligation under--- "(a) an arrangement specific loan made on terms that have the effect of relieving the person to whom the loan is made from the obligation to repay all or some of the money provided under the loan, whether the relief is contingent or not; or "(b) an arrangement specific loan made on terms that have the effect of relieving the person to whom the loan is made from the obligation to make any material payment in respect of the loan for a period of 10 or more years from the date the loan is made; or "(c) an arrangement specific loan made to an arrangement specific person that is unsecured or is in substance secured only over assets that are employed in the arrangement; or "(d) a loan that is entered into as part of or for the purposes of the arrangement and that has the purpose or effect of achieving the same or a substantially similar economic effect as occurs under a loan described in any of subparagraphs (a) to (c). "(3) Despite subsection (2), the following financial arrangements are excluded from the definition of money that is not at risk--- "(a) a loan provided by one associated person to another, where the first associated person has not obtained any of the money necessary in order to make the loan under an arrangement to which this subpart might apply; or "(b) a loan made on arm's-length terms by a lender that--- "(i) regularly lends money to persons on arm's length terms other than as part of arrangements to which this subpart applies; and "(ii) is resident in New Zealand under section OE 1 or OE 2 or carrying on business in New Zealand through a fixed establishment in New Zealand. "(4) When subsection (2)(b) is applied, a payment is treated as not being material to the extent it is made for a purpose of defeating the intent and application of this subpart. "ES 3 Deferral of net losses available for offset if money not at risk "(1) This section applies for an income year if--- "(a) there is an arrangement to which this subpart applies; and "(b) the arrangement results, for a person and any affected associated persons, when considered together, in a total amount of allowable deductions which exceeds the total amount of gross income for the income year (calculated under section ES 1(2) but including any allowable deduction arising under subsection (4)); and "(c) at the end of the income year, the arrangement involves an amount of money that is not at risk. "(2) The person and the affected associated persons are, jointly but not severally, treated as deriving an amount of gross income in the income year equal to the lesser of--- "(a) the amount of the excess referred to in subsection (1)(b); or "(b) the amount of money not at risk referred to in subsection (1)(c). "(3) If more than one person is subject to the same adjustment required by subsection (2), the amount of gross income is allocated amongst--- "(a) those persons in the group who individually have a total amount of allowable deductions which exceeds their total amount of gross income for the income year (calculated under section ES 1(2)); and "(b) in proportion to their respective excess allowable deductions. "(4) A person who has an amount of gross income under subsection (2) is treated as having an allowable deduction of an equal amount in the following income year. "(5) When subsection (1)(c) is applied, an amount repaid is treated as still being outstanding to the extent that--- "(a) the amount is repaid as a result of a transaction, involving the use of put or call options (excluding a contract for the sale for future delivery of goods at market value) or a contract of insurance or guarantee, that comprises part of the arrangement; and "(b) the transaction does not give rise to gross income." ======================================================================= Struck out (unanimous) ======================================================================= (2) Subsection (1) applies to the 2004-05 and subsequent income years but, in the case of a person who enters into the relevant arrangement before the 2004-05 income year, only if either--- (a) it can reasonably be expected that 10 or more persons have or will acquire an interest in the arrangement; or (b) in an income year for which section ES 1(1)(b) of the Income Tax Act 1994 (as inserted by this Act) is satisfied, 70% or more of the allowable deductions from the person's interest in the arrangement (calculated under section ES 1(2) of the Income Tax Act 1994, as inserted by this Act) arise from ownership of--- (i) fixed life intangible property; or (ii) software. ======================================================================= New (unanimous) ----------------------------------------------------------------------- "ES 1 Application of subpart "(1) This subpart applies to an arrangement and a person (called a participant), who is a taxpayer and is a party to the arrangement or affected by the arrangement, if at any time after the arrangement commences--- "(a) there is a person who sells or issues, or promotes the selling or issuing of, the arrangement, whether or not for remuneration; and "(b) the participant and any affected associates of the participant, considered together, have for a period--- "(i) allowable deductions or losses resulting from the arrangement, other than--- "(A) allowable deductions arising under this subpart: "(B) losses under section HG 16(1) that would produce the double counting of allowable deductions; and "(ii) gross income resulting from the arrangement, other than gross income arising under this subpart, that in total is less than the total amount of allowable deductions and losses referred to in subparagraph (i); and "(c) the period referred to in paragraph (b) for a participant, or a group consisting of a participant and the affected associates of the participant, is--- "(i) the earliest income year in which an interest in the arrangement was acquired by the participant or an affected associate of the participant; or "(ii) the income year referred to in subparagraph (i) together with the next following income year; or "(iii) the income year referred to in subparagraph (i) together with the next following income year and the second following income year; and "(d) as part of or for the purposes of the arrangement, the participant or an affected associate of the participant borrows a limited-recourse amount under a limited-recourse loan; and "(e) on the balance date, or the latest balance date, of the participant and affected associates of the participant that ends a period referred to in paragraph (c)(i) to (iii) for which paragraph (b) is satisfied, the participant and the affected associates of the participant hold, as part of the arrangement, property with a total cost that is--- "(i) less than twice the total of the limited-recourse amounts referred to in paragraph (d) that the participant and the affected associates of the participant borrowed on or before the balance date: "(ii) more than 142.85% of the total cost of the part of that property that is--- "(A) land: "(B) buildings: "(C) plant: "(D) machinery: "(E) shares in a listed company that in total represent a direct voting interest of 10% or less in the listed company: "(F) shares and options that are acquired or created with an intention that the shares or options will produce gross income that is monetary remuneration of a participant under section CH 2. "(2) The gross income, allowable deductions and losses resulting from an arrangement for each person in a group of persons, for the purpose of subsection (1)(b) and section ES 3, and the cost of property that is held by each person in the group as part of the arrangement, for the purpose of subsection (1)(e), are consolidated for the elimination of intra-group balances in accordance with generally accepted accounting practice. "(3) If a group of persons consists of persons who are a partnership and the partners in a partnership, a joint venture and the partners in the joint venture, or a loss attributing qualifying company and the shareholders in the loss attributing qualifying company, the gross income, allowable deductions and losses resulting from an arrangement for each person in the group for the purpose of subsection (1)(b) and section ES 3, and the cost of property that is held by each person in the group as part of the arrangement for the purpose of subsection (1)(e), are calculated using the proportionate method in accordance with generally accepted accounting practice for partnerships. "ES 2 Defined terms for subpart "(1) For the purpose of this subpart, a person is an affected associate, for the arrangement, of another person if each person is a party to the arrangement or is affected by the arrangement and--- "(a) one person is a loss attributing qualifying company and the other person is a shareholder in the loss attributing qualifying company: "(b) the persons are associated under a provision of section OD 7 or OD 8(3). "(2) For the purpose of this subpart, the limited-recourse amount for a limited-recourse loan means the total for the limited-recourse loan of the amounts for which the obligations of a borrower, as defined in subsection (3)(b), are affected in a way that is described in subsection (3)(c). "(3) For the purpose of this subpart, limited-recourse loan means a financial arrangement that--- "(a) is not an excepted financial arrangement; and "(b) involves the provision of money by a person (called a lender) to another person (called a borrower); and "(c) has an effect, or has a purpose or effect of achieving an economic effect that is substantially similar to the effect, of--- "(i) relieving the borrower under the financial arrangement from the obligation to repay all or some of the money, whether the relief is contingent or not: "(ii) requiring the borrower under the financial arrangement to make no repayment for a period of 10 or more years from the date on which the loan is made, other than repayments for the purpose of defeating the intent and application of this subpart: "(iii) providing that the repayment of the money is in substance secured solely against assets that are employed in the arrangement; and "(d) involves money that--- "(i) is not provided to the borrower on arm's-length terms: "(ii) is not provided by a lender who is--- "(A) a regular provider of money to persons on arm's-length terms under arrangements that do not satisfy paragraphs (a) to (c); and "(B) resident in New Zealand under section OE 1 or OE 2 or carrying on business in New Zealand through a fixed establishment in New Zealand: "(iii) if the lender is an associated person of the borrower under a provision of section OD 7 or OD 8(3), is obtained by the lender under an arrangement that satisfies paragraphs (a) to (c). "ES 3 Deferral of surplus allowable deductions from arrangement "(1) This section applies for an income year to a participant in an arrangement to which this subpart applies if--- "(a) the participant is not a loss attributing qualifying company and has from the arrangement for the income year--- "(i) allowable deductions, including any allowable deduction under subsection (3), or losses incurred under section HG 16 as a result of net losses of loss attributing qualifying companies that are participants; and "(ii) a total amount of gross income, other than under this section, that is less than the total amount of the allowable deductions and losses referred to in subparagraph (i); and "(b) the participant and the affected associates of the participant who are not a loss attributing qualifying company that has incurred a net loss from the arrangement for the income year, considered together, have from the arrangement for the income year--- "(i) allowable deductions, including any allowable deduction under subsection (3), or losses incurred under section HG 16 as a result of net losses of loss attributing qualifying companies that are participants; and "(ii) a total amount of gross income, other than under this section, that is less than the total amount of the allowable deductions and losses referred to in subparagraph (i); and "(c) on the balance date, or the latest balance date, of the participant and affected associates of the participant for the income year, the arrangement involves a limited-recourse loan for which the participant or an affected associate of the participant is a borrower. "(2) If this section applies to a participant for an income year and an arrangement, the participant is treated as deriving in the income year an amount of gross income that is given by the following formula: ( a ) ( --- ) x c ( b ) where--- a is the amount for the income year by which the allowable deductions, including any allowable deduction under subsection (3), and losses of the participant from the arrangement exceed the gross income of the participant, other than under this section, from the arrangement: b is the total amount for the income year by which the allowable deductions, including any allowable deduction under subsection (3), and losses from the arrangement exceed the gross income, other than under this section, from the arrangement, for the group that consists of--- (a) the participant; and (b) the affected associates of the participant who are not loss attributing qualifying companies and who each have for the income year allowable deductions, including any allowable deduction under subsection (3), and losses from the arrangement that in total exceed the gross income, other than under this section, from the arrangement: c is the lesser of--- (a) the total amount for the income year by which the allowable deductions, including any allowable deduction under subsection (3), and losses from the arrangement exceed the gross income, other than under this section, from the arrangement, for the group that consists of--- (i) the participant; and (ii) the affected associates of the participant who are not a loss attributing qualifying company that has incurred a net loss from the arrangement for the income year; and (b) the total of limited-recourse amounts that, on the balance date or the latest balance date of the participant and the affected associates of the participant, the participant and the affected associates of the participant have undischarged obligations to repay as part of or for the purposes of the arrangement. "(3) A participant who has an amount of gross income for an income year under subsection (2) has an allowable deduction of an equal amount for the next following income year. "(4) For the purpose of subsection (1) and of paragraph (b) of the definition of item c in subsection (2), an obligation to repay a limited-recourse amount is not discharged by a transaction to the extent that the transaction--- "(a) involves the use, as part of the arrangement, of--- "(i) a put or call option that is not a contract for the sale for future delivery of goods at market value: "(ii) a contract of insurance or guarantee; and "(b) does not give rise to gross income for the person who is the borrower of the limited-recourse amount under the limited-recourse loan." ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- (2) Subsection (1) applies for the 2004-05 and subsequent income years subject to subsection (3). (3) Subsection (1) does not apply to a participant for an arrangement that the participant enters before the 2004-05 income year unless--- (a) at the time of entering the arrangement, the participant could reasonably expect that 10 or more persons would acquire an interest in the arrangement; and (b) 70% or more of the allowable deductions of the participant from the arrangement for the income year, calculated on the same basis as for section ES 1(1)(b)(i) of the Income Tax Act 1994 as inserted by subsection (1), arise from an interest of the participant in--- (i) fixed life intangible property: (ii) software. ----------------------------------------------------------------------- 15 New subpart DB inserted into Part F After subpart D of Part F, the following is inserted: "Subpart DB---Imputation Group of Companies "FDB 1 Companies that may constitute imputation group "(1) A company [that is not a member of a consolidated group ]is eligible at a time to be a member of an imputation group with other companies if, assuming the company and the other companies to be members of the group, at the time--- "(a) each member of the group is a company that is resident in New Zealand or Australia and--- "(i) is not, for a purpose of taxation in Australia or New Zealand, treated by a double tax agreement as being resident in a country that is not Australia or New Zealand; and "(ii) is required by section ME 1 to maintain an imputation credit account or is subject to an election under section ME 1B to maintain an imputation credit account; and "(iii) is not a loss attributing qualifying company; and "(b) the members of the group are a wholly-owned group of companies; and "(c) No member of the group is a qualifying company or all members of the group are qualifying companies; and "(d) No member of the group is a mining company or all members of the group are mining companies; and "(e) No member of the group is a member of a consolidated group or all members of the consolidated group are members of the group; and "(f) No member of the group has shares that, for purposes including the purpose of enabling a company to be a member of the same imputation group as another member of the group so as to defeat the intent and application of the imputation rules, have--- "(i) been subject to an arrangement or series of related or connected arrangements: "(ii) had rights attaching to them that have been extinguished or altered, directly or indirectly, by any means whatever. New (unanimous) ----------------------------------------------------------------------- "(2) A company that is a member of a consolidated group is eligible at a time to be a member of an imputation group with other companies if, at the time--- "(a) all of the requirements of subsection (1)(a) to (f) are or would be satisfied by the imputation group; and "(b) the company and the other companies that are each a member of a consolidated group and are, or would be, members of the imputation group have been members of a single wholly-owned group of companies throughout the period that--- "(i) began on the earliest date on which there arose a credit that, at the time, remains uncancelled in the imputation credit account of a consolidated group or imputation group, all of whose members are or would be in the imputation group; and "(ii) ended at the time. ----------------------------------------------------------------------- Struck out (unanimous) ======================================================================= "FDB 2 Formation of imputation group ======================================================================= [FDB 2] [Formation, entry and combination of imputation groups] "(1) Any 2 or more companies that [are not members of a consolidated group and ]are eligible to be members of an imputation group may give to the Commissioner, in a form that is acceptable to the Commissioner, a notice of election to form the imputation group. Struck out (unanimous) ======================================================================= "(2) A notice given under subsection (1) must nominate one of the companies as agent of the imputation group for the purposes of the imputation rules. ======================================================================= New (unanimous) ----------------------------------------------------------------------- "(2) A company that is not a member of a consolidated group and is eligible to be a member of an existing imputation group may give to the Commissioner, in a form that is acceptable to the Commissioner, a notice of election to join the imputation group. ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- "(3) The nominated company of a consolidated group may give to the Commissioner, in a form that is acceptable to the Commissioner, a notice of election by all the members of the consolidated group to form an imputation group with companies that are not members of the consolidated group, or to join an existing imputation group, if the companies that are to be the members of the proposed imputation group are at the time of the election eligible under section FDB 1 to be members of the proposed imputation group. ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- "(4) A notice of election under subsection (1) or (3) to form an imputation group must nominate one of the companies as agent of the imputation group for the purposes of the imputation rules. ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- "(5) A notice of election under subsection (1), (2) or (3) has effect from the beginning of the imputation year that contains the date on which the Commissioner receives the notice. ----------------------------------------------------------------------- "FDB 3 Membership of groups "(1) A resident imputation subgroup is associated with a trans-Tasman imputation group and consists of the members of the trans-Tasman imputation group that are not Australian imputation credit account companies. "(2) An imputation group {or resident imputation subgroup } [may not be formed with 1 member company but ]may continue to exist if the number of its members is reduced to 1. New (unanimous) ----------------------------------------------------------------------- "(2B) A resident imputation subgroup may be formed and continue to exist with 1 member company. ----------------------------------------------------------------------- "(3) If at any time an imputation group or resident imputation subgroup has no member company, that imputation group or resident imputation subgroup ceases to exist. "FDB 4 Liability of members of imputation group A company that is a member of an imputation group is jointly and severally liable, with the other members of the imputation group, for further income tax, civil penalties, and interest under Part 7 of the Tax Administration Act 1994 arising from the operation of the imputation credit account of the imputation group. "FDB 5 Nominated company "(1) The nominated company for an imputation group at any time must be a member of the imputation group at the time. "(2) The nominated company for a trans-Tasman imputation group--- "(a) must not be an Australian imputation credit account company: "(b) is also the nominated company for the resident imputation subgroup that is associated with the trans-Tasman imputation group. "(3) {The } [For the purpose of the imputation rules, the ]nominated company for an imputation group at any time is the agent at that time of the imputation group {for the purpose of the imputation rules }and of each company that is at that time a member of the imputation group. "(4) A nominated company for an imputation group may at any time give notice to the Commissioner, in a form acceptable to the Commissioner, that {on a specified date the company is to cease to be the agent } [the company is to cease to be the nominated company ]for the imputation group and that another company is to become the nominated company for the imputation group. "(5) A notice under subsection (4) has effect from the date that is 30 days after the date on which the Commissioner receives the notice. "FDB 6 Leaving an imputation group "(1) A company that is a member of an imputation group ceases to be a member of that group if--- "(a) the company elects to cease to be a member of the group, by notice in writing to the Commissioner in a form acceptable to the Commissioner: "(b) the company ceases to be eligible to be a member of the group: "(c) the company is not the nominated company for the group and ceases to be {entitled } [eligible ]to be a member of the same imputation group as the nominated company: "(d) the company is a member of an imputation group that ceases to have a nominated company, subject to subsection (6). "(2) {A } [Subject to subsection (9), a ]company that elects to cease to be a member of an imputation group ceases to be a member of the group with effect from--- "(a) if the notice of election specifies a date on which the election is to take effect and on that date the company would otherwise be a member of the group, the beginning of the day specified in the notice of election: "(b) otherwise, the later of--- "(i) the beginning of the imputation year in which the notice of election is received by the Commissioner: "(ii) the time at which the company becomes a member of the group. "(3) {A } [Subject to subsection (9), a ]company that ceases to be eligible to be a member of an imputation group ceases to be a member of the group with effect from--- "(a) if subsection (7) is satisfied, the beginning of the day on which the company's eligibility ceases: "(b) otherwise, the later of--- "(i) the beginning of the imputation year in which the company's eligibility ceases: "(ii) the time at which the company becomes a member of the group. "(4) {A } [Subject to subsection (9), a ]company that is not the nominated company for a group and that ceases to be {entitled} [eligible ]to be a member of the same group as the nominated company ceases to be a member of the group with effect from--- "(a) if subsection (7) is satisfied in respect of the company, the beginning of the day on which the company's {entitlement } [eligibility ]ceases: "(b) otherwise, the later of--- "(i) the beginning of the imputation year in which the company's {entitlement } [eligibility ]ceases: "(ii) the time at which the company becomes a member of the group: "(5) If at any time during an imputation year there is no nominated company for an imputation group and a replacement nominated company is not appointed under subsection (6), {all }the companies in the group cease to be members of the group with effect from the beginning of the imputation year. "(6) If the nominated company for an imputation group is liquidated and the other companies of the group select another company as a replacement, the replacement company is the nominated company for the group from the date of the liquidation if the Commissioner is notified of the selection within 30 days after that date, or within such further period as the Commissioner may allow. Struck out (unanimous) ======================================================================= "(7) Despite subsection (3) or (4), if a company that ceases to be eligible to be a member of an imputation group, or ceases to be entitled to be a member of the same group as a nominated company, elects that this subsection should apply with respect to the company, the group and the imputation year, the company shall be treated for the purposes of this Act as ceasing to be a member of the imputation group with effect from the time at which the eligibility or entitlement ceases. ======================================================================= New (unanimous) ----------------------------------------------------------------------- "(7) If a company ceases to be eligible to be a member of an imputation group, or ceases to be eligible to be a member of the same group as the nominated company of an imputation group, and makes a valid election that this subsection apply, the company is treated for the purposes of this Act as ceasing to be a member of the imputation group with effect from the date on which the eligibility ceases. ----------------------------------------------------------------------- "(8) An election under subsection (7) is valid if--- "(a) the election is made by notice in writing to the Commissioner in a form that is acceptable to the Commissioner and is received by the Commissioner within--- "(i) 30 days after the {time at } [date on ]which the company ceases to be eligible to be a member of the group or ceases to be entitled to be a member of the same group as the nominated company: "(ii) such further period as the Commissioner may allow as reasonable in all the circumstances; and "(b) the Commissioner cannot reasonably conclude that an arrangement has been entered into for the purpose, or for purposes including the purpose, of enabling the company to meet the requirements of subsection (7) so as to defeat the intent and application of the imputation rules. "(9) If a company ceases to be a member of an imputation group by virtue only of being liquidated, nothing in subsections (2) to (4) applies to treat the company as having so ceased to be a member with effect from the beginning of the income year in which the liquidation occurred." 16 Group investment funds (1) In section HE 2(1A), "DI 3A," is omitted. (2) Subsection (1) applies for the 2004-05 and subsequent income years. 17 Gross income assessable to beneficiaries Struck out (unanimous) ======================================================================= (1) In section HH 3(2), "unless the trustee is the trustee of a community trust" is inserted after "agent of the beneficiary". ======================================================================= New (unanimous) ----------------------------------------------------------------------- (1) In section HH 3(2), "other than a beneficiary of a community trust" is inserted after "any beneficiary". ----------------------------------------------------------------------- (2) In section HH 3(5), ", subject to subsection (5B)" is inserted after "the beneficiary". (3) After section HH 3(5), the following is inserted: "(5B) If the trustee of a community trust makes in an income year a distribution to a person as a beneficiary of the trust and the distribution is not beneficiary income of the person, the distribution is gross income of the person in the income year to the extent that the distribution does not represent--- "(a) trustee income derived by the trustee of the trust in or before the 2003-04 income year: "(b) the corpus of the trust: "(c) capital profits or capital gains derived by the trustee of the trust: New (unanimous) ----------------------------------------------------------------------- "(d) a distribution, settlement or dividend that is made to the community trust in the 2004-05 or 2005-06 income year on the winding up of a trust or company, if--- "(i) the community trust provided the corpus of the trust and the trust would have been for charitable purposes but for the distribution, settlement or dividend: "(ii) the company is wholly-owned by the community trust and would have been established, maintained and carried on for exclusively charitable purposes but for the distribution, settlement or dividend." ----------------------------------------------------------------------- (4) Subsections (1) to (3) apply for the 2004-05 and subsequent income years. 18 Trustee income (1) In section HH 4(1), ", DI 3 and DI 3A" is replaced by "and DI 3". (2) Subsection (1) applies for the 2004-05 and subsequent income years. 19 Consequences of change in entity status for purpose of Maori authority rules In row 5 and row 6 of table HI 8, "HI 7" is replaced by "HI 9". 20 No offset in calculating some schedular income tax liabilities (1) In the heading to section ID 1, "schedular" is omitted. (2) In section ID 1, the following is added: "(2) A taxpayer who in an income year derives schedular gross income from an activity of providing a standard-cost household service must not take a net loss from the activity into account in calculating the income tax liability of the taxpayer for any income year if the net loss is obtained by using for an allowable deduction a figure that is, or a figure that is calculated using a method that is, given by a determination of the Commissioner under section 91AA of the Tax Administration Act 1994." 21 Net loss offset between group companies In section IG 2(11)(b)(i)--- (a) "an agreement" is replaced by "a double tax agreement": (b) "the agreement" is replaced by "the double tax agreement". 22 Rebate for gifts of money (1) In section KC 5(1)(cb), "Trust." is replaced by "Trust:" and the following is added: "(cc) Books for Africa: "(cd) Bright Hope International Trust: "(ce) Help a Child Foundation New Zealand: "(cf) Greater Mekong Subregion Tertiary Education Consortium Trust: "(cg) The Sir Edmund Hillary Trust: "(ch) Cheboche Area Trust Inc: "(ci) Sampoerna Foundation Limited: "(cj) Surf Aid International Incorporated: "(ck) Plan New Zealand: New (unanimous) ----------------------------------------------------------------------- "(cl) St Stanislas Charitable Trust of New Zealand." ----------------------------------------------------------------------- (2) Subsection (1) applies for the 2003-04 and subsequent income years. 23 Calculation of Part KD credit (1) In section KD 2(1), ", subject to section KD 7B" is inserted after "subsection (2)". (2) In section KD 2(6), in the definition of the item "abatement rate"--- (a) "$20,000", wherever it appears in paragraphs (a)(i) and (ii) and (b)(i) and (ii), is replaced by "$20,356": (b) "$27,000", wherever it appears in paragraphs (a)(ii) and (iii) and (b)(ii) and (iii), is replaced by "$27,481": (c) "$1,260", wherever it appears in paragraphs (a)(iii) and (b)(iii), is replaced by "$1,282.50". (3) Subsection (1) applies for the 2003-04 and subsequent income years. (4) Subsection (2) applies for the 2004-05 and subsequent income years. 24 Calculation of family tax credit (1) In section KD 3(2), ", subject to section KD 7B" is inserted after "subsection (3)". (2) Subsection (1) applies for the 2003-04 and subsequent income years. 25 Rates for interim instalments for period ending on or after 1 July 1998 (1) In the {heading for } [heading to ]section KD 5B, "ending" is replaced by "beginning". (2) In section KD 5B(5), in the definition of the item "f"--- (a) "$20,000", wherever it appears in paragraphs (a)(i) and (ii) and (b)(i) and (ii), is replaced by "$20,356": (b) "$27,000", wherever it appears in paragraphs (a)(ii) and (iii) and (b)(ii) and (iii), is replaced by "$27,481": (c) "$1,260", wherever it appears in paragraphs (a)(iii) and (b)(iii), is replaced by "$1,282.50". (3) Subsection (2) applies for the 2004-05 and subsequent income years. 26 New section KD 7B inserted (1) After section KD 7, the following is inserted: "KD 7B Effect of extra interim instalment on entitlement to tax credit "(1) This section applies to a person who--- "(a) is entitled to a Part KD credit or family tax credit for the whole or part of an income year; and "(b) receives in the income year--- "(i) a payment under section KD 7 of an interim instalment of the credit for each period of a fortnight in the income year; or "(ii) payments under section KD 6 of interim instalments of the credit for periods of a week in the income year and no payment under section KD 7 in the income year; and "(c) as a consequence of the calendar year not being divided into an exact number of fortnights or weeks--- "(i) receives in the income year 27 interim instalments corresponding to a period of a fortnight; or "(ii) may have received in the income year 53 interim instalments corresponding to a period of a week. "(2) For the purpose of section KD 4(2)(c), a person who has received payments under section KD 7 for the whole of an income year is entitled to a credit of tax for the income year of the amount given by the following formula: ( 13 ) a + ( (b - c) x ---- ) ( 14 ) where--- a is the amount of the credit of tax for the income year calculated for the person under--- (a) section KD 2, if the person is entitled to a Part KD credit of tax: (b) section KD 3, if the person is entitled to the family tax credit: b is the amount of the final interim instalment received by the person in the income year: c is the amount of any parental tax credit that is included in the final interim instalment received by the person in the income year. "(3) For the purpose of section KD 4(2)(c), a person who has received payments under section KD 6 for the whole of an income year and no payment under section KD 7 for the income year is entitled to a credit of tax for the income year of the amount given by the following formula: ( b ) a + (---) (53 ) where--- a is the amount of the credit of tax for the income year calculated for the person under--- (a) section KD 2, if the person is entitled to a Part KD credit of tax: (b) section KD 3, if the person is entitled to the family tax credit: b is the total amount of the interim instalments received by the person in the income year." (2) Subsection (1) applies for the {2004-05 } [2003-04] and subsequent income years. 27 Foreign tax credits---controlled foreign companies In section LC 4(11)(e), "notice of the assessment" is replaced by "notice of assessment". 28 Tax deductions to be credited against tax assessed (1) In section LD 1(2A), in the words preceding paragraph (a), "closed company" is replaced by "close company". (2) In section LD 1(6), in the words following paragraph (b), "the year to which the tax deductions were made" is replaced by "the year in which the tax deductions were made". (3) Subsections (1) and (2) apply to tax deductions from source deduction payments made on and after 1 April 1999. 29 Underlying foreign tax credits generally, and interpretation (1) In section LF 1(1)(a), "{New Zealand company's} [New Zealand company's dividend withholding payment liability]" is replaced by "{New Zealand resident company's} [ liability of a company resident in New Zealand to pay a dividend withholding payment]". (2) In section LF 1(1)(b)(i) "New Zealand company" is replaced by "{New Zealand resident company} [ company that is resident in New Zealand and is]". (3) Subsections (1) and (2) apply for the 1995-96 and subsequent income years. 30 Refund of overpaid provisional tax Struck out (unanimous) ======================================================================= (1) In section MB 8(1), in the words following paragraph (c), "or otherwise" is replaced by "or, in the absence of a request, in such order or manner as the Commissioner may determine". ======================================================================= Struck out (unanimous) ======================================================================= (2) In section MB 8(2), in the words following paragraph (c), "or otherwise" is replaced by "or, in the absence of a request, in such order or manner as the Commissioner may determine". ======================================================================= New (unanimous) ----------------------------------------------------------------------- (1) Section MB 8(1) and (2) are replaced by the following: "(1) If the amount of provisional tax payable by a provisional taxpayer for an income year is reduced by the taxpayer or by the Commissioner under section 119(2) of the Tax Administration Act 1994 and the taxpayer applies in writing for a refund of an amount of provisional tax already paid for the income year that, as a result of the reduction, exceeds the amount that would have been payable for the earlier instalment dates for the income year, the Commissioner must--- "(a) apply the excess amount, in accordance with a request under section 173T of the Tax Administration Act 1994 or in the absence of such a request in such order or manner as the Commissioner may determine, in payment of tax that is payable by the person: "(b) refund any balance of the excess amount. "(2) If the residual income tax of a provisional taxpayer for an income year is assessed as not exceeding $2,500 and the taxpayer applies in writing for the refund of an amount of provisional tax that has been determined under section MB 2(1)(b) and already paid for the first instalment date of the next succeeding income year or for the second instalment date of that next succeeding income year, the Commissioner must--- "(a) apply the amount, in accordance with a request under section 173T of the Tax Administration Act 1994 or in the absence of such a request in such order or manner as the Commissioner may determine, in payment of tax that is payable by the person: "(b) refund any balance of the amount." ----------------------------------------------------------------------- ({3} [2]) {Subsections (1) and (2) apply } [Subsection (1) applies ]for the 2002-03 and subsequent income years. 31 Payments to be set off within wholly-owned group In section MB 9(1), "This section" is replaced by "Subject to section MD 2, this section". 32 Tax pooling account Struck out (unanimous) ======================================================================= In section MBB 4(3), ", if the intermediary has not already given such notice to the taxpayer" is inserted after "Commissioner". ======================================================================= New (unanimous) ----------------------------------------------------------------------- In section MBB 4(3), "at the time of the payment, give notice to the taxpayer that the payment" is replaced by "at or before the time of the payment, give notice to the taxpayer that a payment". ----------------------------------------------------------------------- 33 Transfers from tax pooling account Section MBB 6(8) is repealed. 34 Section MBB 9 replaced Section MBB 9 is replaced by the following: "MBB 9 Tax treatment of payments of interest "(1) This section applies to a payment that is made by an intermediary to a client of an intermediary or by a client of an intermediary to the intermediary and that represents a difference between--- "(a) an amount of funds that has been held in a tax pooling account for a period of time; and "(b) an amount that is paid for the entitlement to the funds. "(2) The payment is treated as--- "(a) a payment of interest to the person who derives the payment, for the purposes of section CE 1, the RWT rules and the NRWT rules: "(b) expenditure incurred in deriving the gross income of the person who makes the payment." 35 Refund of excess tax Struck out (unanimous) ======================================================================= (1) In section MD 1(3)--- (a) ", in such order or manner as the Commissioner may determine or in accordance with a person's, or their agent's, request under section 173T of the Tax Administration Act 1994," is omitted: (b) "in accordance with a request under section 173T of the Tax Administration Act 1994 by a person or a person's agent, or, in the absence of a request, in such order or manner as the Commissioner may determine" is inserted after "other amount due". ======================================================================= New (unanimous) ----------------------------------------------------------------------- (1) Section MD 1(3) is replaced by the following: "(3) If, but for this subsection and after the application of sections MD 2, MD 2A, MD 2B, MD 3 and NH 4, a person would be entitled to an amount as a refund under this section, the Commissioner may apply the amount, in accordance with a request under section 173T of the Tax Administration Act 1994 or in the absence of such a request in such order or manner as the Commissioner may determine, in payment of--- "(a) an amount that is payable by the person under this Act: "(b) an amount that is payable by the person under another Inland Revenue Act. ----------------------------------------------------------------------- " (2) Subsection (1) applies for the 2002-03 and subsequent income years. 36 Limits on refunds of tax New (unanimous) ----------------------------------------------------------------------- (1A) The heading for section MD 2 is replaced by "Limit on refunds and allocations of tax". ----------------------------------------------------------------------- (1) In section MD 2(1), the words preceding paragraph (a) are replaced by the following: "{When } [If ]an imputation credit account company becomes entitled at any time to a refund of income tax in accordance with section MD 1, or becomes entitled to make {a set off } [an allocation ]within a wholly-owned group in accordance with section MB 9, the refund to be paid to the company or the {set off } [allocation ]to be made in accordance with section MB 9 must not exceed the credit balance (if any) of the company's imputation credit account at the later of---. (2) Section MD 2(1A) to (4) are replaced by the following: "(1A) Despite subsection (1)(a), an imputation credit account company that furnishes its imputation return for an imputation year before the end of the next imputation year {due to } [within the time allowed under ]an extension of time for furnishing the imputation return may be refunded income tax in accordance with section MD 1 or {make a set off in accordance with section MB 9 if the refund or set off, or refund and set off, does not exceed the credit } [make an allocation in accordance with section MB 9 if the total amount that is refunded or allocated does not exceed the credit ]balance (if any) of the company's imputation credit account on the last day of the imputation year for which the imputation return was furnished. "(2) {When } [If ]a company that has ceased to be an imputation credit account company becomes entitled to a refund of income tax in accordance with section MD 1 or becomes entitled to make {a set off } [an allocation ]within a wholly-owned group in accordance with section MB 9 in respect of any income year during which it was an imputation credit account company, {the refund paid to the company, or the set off to be made by the company, or the refund and set off,} [the total amount that is refunded or allocated] must not exceed the credit balance (if any) of the company's imputation credit account that arose as a debit under section ME 5(1)(k) immediately before the company ceased to be an imputation credit account company. "(3) For the purposes of subsections (1), (1A) and (2), a credit balance {referred to in those subsections must be treated as reduced by an earlier refund paid to the company or a set off in accordance with section MB 9 during the same imputation year, being a refund of income tax or a refund of dividend withholding payment or set off under section MB 9 that may not, under this section or section NH 4, exceed that credit balance.} [referred to in those subsections is treated as being reduced by a refund under section MD 1, or an allocation under section MB 9, that is made earlier in the same imputation year if, under this section or section NH 4, the refund or allocation may not exceed the credit balance.] "(4) For the purposes of subsections (1), (1A) and (2), if the refund or {set off } [allocation ]referred to in those subsections is a refund of income tax for an income year made under section MD 1 or {a set off } [an allocation ]for an income year under section MB 9, the credit balance referred to in those subsections must be treated as [being ]increased by an amount equal to any debit to the company's imputation credit account {which arose under section ME 5(1)(i) } [that, under section ME 5(1)(i), arose ]after the date of payment of the first instalment of provisional tax for that income year and before the date on which the credit balance is to be determined in accordance with subsection (1)[, (1A)] or (2)." (3) In section MD 2(5), the words preceding paragraph (b) are replaced by the following: Struck out (unanimous) ======================================================================= If income tax paid in excess is not refunded to a company or set off within a wholly-owned group by a company by reason of subsections (1), (1A) or (2), the income tax not refunded or set off, or not refunded and not set off--- "(a) must be credited in payment of any income tax or provisional tax that is payable by the company for the income year during which the entitlement to the refund or set off, or refund and set off arose, or for an income year commencing after 31 March 1988, whether before or after the income year in which the entitlement to the refund, or set off, or refund and set off arose:". ======================================================================= New (unanimous) ----------------------------------------------------------------------- "If an effect of subsection (1), (1A) or (2) is that income tax paid in excess by a company is not refunded to the company or not allocated within a wholly-owned group by the company, the income tax that is neither refunded nor allocated--- "(a) must be credited in payment of any income tax or provisional tax that is payable by the company for--- "(i) the income year during which the company would, but for subsection (1), (1A) or (2), have become entitled to receive a refund or make an allocation: "(ii) an income year that commences after 31 March 1988, whether before or after the income year referred to in subparagraph (i):". ----------------------------------------------------------------------- (4) In section MD 2(5A), "or {set off } [allocated ]within a wholly-owned group in accordance with section MB 9" is inserted after "refunded". (5) In section MD 2(7), the words preceding paragraph (a) are replaced by the following: Struck out (unanimous) ======================================================================= Nothing in this section limits the amount of any refund or off set, or refund and off set of tax overpaid by a qualifying company unless---". ======================================================================= New (unanimous) ----------------------------------------------------------------------- "Nothing in this section limits the amount of tax overpaid by a qualifying company that may be refunded to the company or allocated by the company unless---". ----------------------------------------------------------------------- 37 Application of income tax or dividend withholding payments not refunded Section MD 4 is repealed. 38 New section MD 5 inserted After section MD 3, the following is inserted: Struck out (unanimous) ======================================================================= "MD 5 Application of income tax or dividend withholding payments not refunded "(1) This section applies to--- "(a) transfers of tax paid in excess that is not refunded to which section MD 2(5) applies; "(b) refunds of dividend withholding payments paid by a company and to which either section NH 4(2)(b) or NH 5(5)(b) applies. "(2) If this section applies, no credit or debit may arise to an imputation account or to a dividend withholding payment account that a company is required to maintain." ======================================================================= New (unanimous) ----------------------------------------------------------------------- "MD 5 No credits or debits for excess income tax or dividend withholding payments not refunded or allocated No credit or debit arises in an imputation credit account or dividend withholding payment account of a company from an amount of tax paid in excess by the company, or dividend withholding payment made by the company, that is--- "(a) credited under section MD 2 against an amount of income tax or provisional tax that is payable by the company: "(b) credited under section NH 4(2)(b) or NH 5(5)(b) in payment of a dividend withholding payment that is payable by the company." ----------------------------------------------------------------------- 39 New {section ME 1B } [sections ME 1B and 1C ]inserted (1) After section ME 1, the following is inserted: "ME 1B Companies electing to maintain imputation credit account "(1) A company that is excluded by section ME 1(2)(a) or (b), but not by section ME 1(2)(c) to (i), from the obligation under section ME 1 to establish and maintain an imputation credit account is eligible under this section to have an imputation credit account if the company is--- "(a) resident in Australia; and "(b) not treated by a double tax agreement as being resident in a country that is not Australia or New Zealand, for a purpose of taxation in Australia or New Zealand. "(2) A company that is eligible under this section to have an imputation credit account may make an election under this subsection by giving notice to the Commissioner in a form that is acceptable to the Commissioner. "(3) The Commissioner may decline to accept a notice under subsection (2) from a company if--- "(a) an election by the company under this section has been revoked previously by the Commissioner; and "(b) the company does not satisfy the Commissioner that the company has taken adequate steps to prevent the occurrence of situations of the type that gave rise to the revocation. "(4) A notice under subsection (2) [that is accepted by the Commissioner ]is effective--- "(a) for the purpose of section ME 6, from the later of--- "(i) the date that is 30 days after the date on which the Commissioner receives the notice; and "(ii) 1 October 2003: "(b) for the purpose of the other provisions in the imputation rules, from the beginning of the imputation year that contains the date {that is 30 days after the date }on which the Commissioner receives the notice. "(5) A company that makes an [effective ]election under subsection (2) in an imputation year must establish and maintain an imputation credit account--- "(a) until the date on which the company ceases to be eligible under subsection (1) or on which the election is revoked, for the purpose of section ME 6: "(b) for the imputation year and for each subsequent imputation year at the beginning of which the company is eligible under subsection (1) and the election has not been revoked, otherwise. "(6) A company that is in a wholly-owned group of companies with a company that makes an election under subsection (2), and is not prohibited by an independent regulatory body from having such liability, is jointly and severally liable with that company for further income tax, civil penalties and interest under Part 7 of the Tax Administration Act 1994 that arise from a breach of the imputation rules by the company that makes the election. "(7) A company that makes an election under subsection (2) may revoke the election by giving a notice to the Commissioner. "(8) A notice under subsection (7) is effective--- "(a) from the date that the Commissioner receives the notice, for the purpose of section ME 6: "(b) from the end of the imputation year in which the Commissioner receives the notice, otherwise. "(9) The Commissioner may give to a company a notice that revokes an election under subsection (2) by the company. "(10) A notice under subsection (9) is effective--- "(a) from the date given in the notice, for the purpose of section ME 6: "(b) from the end of the imputation year in which the date of the notice falls, otherwise. "(11) The revocation of an election does not affect the obligations of a company that arise while the company is an imputation credit account company." New (unanimous) ----------------------------------------------------------------------- (2) Before section ME 2, the following is inserted:" ME 1C Amount of dividend for imputation rules if paid in Australian currency For the purpose of the imputation rules, the amount of a dividend that is paid in Australian currency by an Australian imputation credit account company is given by--- a + b where--- a is the amount of the dividend expressed in Australian currency: b is the close of trading spot exchange rate for the Australian dollar--- (a) for the date on which the dividend is declared, if that date precedes the date of the payment of the dividend by 3 months or less: (b) for the date on which the dividend is paid, if that date follows the date of the declaration of the dividend by more than 3 months." ----------------------------------------------------------------------- Struck out (unanimous) ======================================================================= 40 New section ME 3B inserted After section ME 3, the following is inserted: "ME 3B Company may be pooling credit recorder "(1) An imputation credit account company may, when recording credits and debits in the company's imputation credit account for an imputation year, choose to distinguish between--- "(a) credits and debits that relate to funds in a tax pooling account; and "(b) other credits and debits. "(2) A company that chooses to record the distinction referred to in subsection (1) is a pooling credit recorder." ======================================================================= 41 Credits arising to imputation credit account New (unanimous) ----------------------------------------------------------------------- (1A) In section ME 4(1)(a)(vi), "section ME 9(5)" is replaced by "section ME 9(5B)". ----------------------------------------------------------------------- (1) After section ME 4(1)(a)(ix), the following is added: "(x) a payment that is made by means of a transfer from a tax pooling account to the company's account with the Commissioner{, subject to paragraph (ac)}:". (2) After section ME 4(1)(ab), the following is inserted: Struck out (unanimous) ======================================================================= "(ac) the amount of a transfer from an intermediary's tax pooling account to the company's account with the Commissioner, if the company is a pooling credit recorder: ======================================================================= "({ad} [ac]) the amount of any payment that is made by an intermediary into a tax pooling account from funds that are supplied by the company for that purpose{, if the company is not a pooling credit recorder}: "({ae} [ad]) the amount of any transfer by an intermediary to the company of an entitlement to funds that are held in a tax pooling account{, if the company is not a pooling credit recorder}:". (3) After section ME 4(1), the following is inserted: Struck out (unanimous) ======================================================================= "(1B) There shall arise as credits (called pooling imputation credits) to be recorded by a pooling credit recorder in the imputation credit account of the company for any imputation year the following amounts: "(a) the amount of any payment that is made by an intermediary into a tax pooling account from funds that are supplied by the company for that purpose: "(b) the amount of any transfer by an intermediary to the company of an entitlement to funds that are held in a tax pooling account. ======================================================================= New (unanimous) ----------------------------------------------------------------------- "(1B) If a company has been required by section ME 5(1)(i) to record in the company's imputation credit account an imputation debit that has the effect of cancelling a credit that arose from a deposit by the company into a tax pooling account, a credit that is equal to the imputation debit arises to be recorded in the company's imputation credit account if--- "(a) a further debit arises in the imputation credit account, on a date that is after the date on which the imputation debit under section ME 5(1)(i) arose, in relation to--- "(i) a refund to the company of the amount of the deposit: "(ii) a transfer to another taxpayer of the company's entitlement to the amount of the deposit: "(b) the amount of the deposit is transferred to the company's account with the Commissioner with an effective date under section MBB 6 that is after the date on which the imputation debit arose. ----------------------------------------------------------------------- "(1C) There {shall }arise as credits to be recorded by an Australian imputation credit account company in the imputation credit account of the company for any imputation year the following amounts: "(a) non-resident withholding tax that, under section NG 2, the company pays on non-resident withholding income: "(b) a payment of tax made under the Income Tax (Withholding Payments) Regulations 1979 from a withholding payment made to the company as a non-resident contractor: "(c) a payment of tax to meet the schedular income tax liability of the company for schedular gross income that the company derives under section CN 1, CN 2 or CN 4 in the income year corresponding to the imputation year. "(1D) No amount may create more than 1 credit under subsections (1) and (1C)." (4) After section ME 4(2)(ab), the following is inserted: Struck out (unanimous) ======================================================================= "(ac) in the case of a credit referred to in paragraph (ac) of that subsection, on the effective date of the transfer under section MBB 6(2): ======================================================================= "({ad} [ac]) in the case of a credit referred to in paragraph {(ad)} [(ac)] of that subsection, on the date of the payment into the tax pooling account: Struck out (unanimous) ======================================================================= "(ae) in the case of a credit referred to in paragraph (ae) of that subsection, on the date in the intermediary's books of account of the transfer of the credit for the funds:". ======================================================================= New (unanimous) ----------------------------------------------------------------------- "(ad) in the case of a credit referred to in paragraph (ad) of that subsection--- "(i) if the funds to which the entitlement relates are transferred to the company's account with the Commissioner, on the effective date under section MBB 6 of the transfer: "(ii) if the funds to which the entitlement relates are refunded to the company or the entitlement to the funds is transferred to another taxpayer, on the date of the refund or transfer:". ----------------------------------------------------------------------- (5) After section ME 4(2), the following is inserted: Struck out (unanimous) ======================================================================= "(2B) The credits referred to in subsection (1B) shall arise--- "(a) in the case of a credit referred to in paragraph (a) of that subsection, on the date of the payment into the tax pooling account: "(b) in the case of a credit referred to in paragraph (b) of that subsection, on the date in the intermediary's books of account of the transfer of the credit for the funds. ======================================================================= New (unanimous) ----------------------------------------------------------------------- "(2B) A credit referred to in subsection (1B) arises on the date of the refund or transfer. ----------------------------------------------------------------------- "(2C) The credits referred to in subsection (1C) {shall }arise--- "(a) in the case of {the } [a ]credit referred to in paragraph (a) of that subsection, on the date that the non-resident withholding tax is paid: "(b) in the case of {the } [a ]credit referred to in paragraph (b) of that subsection, on the date that the tax {payment is made} [is paid]: "(c) in the case of {the } [a ]credit referred to in paragraph (c) of that subsection, on the date that the schedular income tax is paid." 42 Debits arising to imputation credit account (1) After section ME 5(1)(e), the following is inserted: "(eb) {in the case of a company that is not a pooling credit recorder, }the amount of any refund that is made to the company by an intermediary from funds in a tax pooling account for which the company has received a credit under section{ ME 4(1)(ad) or (ae)} [ ME 4(1)(ac) or (ad)]: "(ec) {in the case of a company that is not a pooling credit recorder, }the amount of the funds involved in any transfer from the company to another taxpayer by an intermediary of an entitlement to funds in a tax pooling account for which the company has received a credit under section{ ME 4(1)(ad) or (ae)} [ ME 4(1)(ac) or (ad)]:". Struck out (unanimous) ======================================================================= (2) In section ME 5(1)(i), "not being a credit which has before the specified time been cancelled out by a prior or subsequent debit" is replaced by "not being a pooling imputation credit and not being a credit which has before the specified time been cancelled out by a prior or subsequent debit that is not a pooling imputation debit". ======================================================================= (3) After section ME 5(1), the following is inserted: Struck out (unanimous) ======================================================================= "(1B) There shall arise as debits (called pooling imputation debits) to be recorded by a pooling credit recorder in the imputation credit account of the company for any imputation year the following amounts: "(a) the amount of any refund that is made to the company by an intermediary from funds in a tax pooling account for which the company has received a credit under section ME 4(1B)(a) or (b): "(b) the amount of the funds involved in any transfer from the company to another taxpayer by an intermediary of an entitlement to funds in a tax pooling account for which the company has received a credit under section ME 4(1B)(a) or (b): "(c) the amount of any funds, for which the company has received a credit under section ME 4(1B)(a) or (b), that are transferred from an intermediary's tax pooling account into the company's account with the Commissioner. ======================================================================= "({1C} [1B]) There {shall }arise as debits to be recorded by an Australian imputation credit account company in the imputation credit account of the company for any imputation year the following amounts: "(a) any refund arising from an amount{ that}--- "(i) [that ]is an overpayment of non-resident withholding tax on non-resident withholding income; and "(ii) for which the company has received a credit under section ME 4(1C)(a): "(b) any refund arising from an amount{ that}--- "(i) [that ]is an overpayment of tax under the Income Tax (Withholding Payments) Regulations 1979 from a withholding payment made to the company as a non-resident contractor; and "(ii) for which the company has received a credit under section ME 4(1C)(b): "(c) any refund of tax arising from an amount{ that}--- "(i) [that ]is an overpayment of the company's schedular income tax liability for schedular gross income that the company derived under section CN 1, CN 2 or CN 4 [in the income year corresponding to the imputation year]; and "(ii) for which the company has received a credit under section ME 4(1C)(c)." (4) After section ME 5(2)(e), the following is inserted: Struck out (unanimous) ======================================================================= "(eb) in the case of a debit referred to in paragraph (eb) or (ec) of that subsection--- "(i) on the date on which the refund or transfer is made, if subparagraph (ii) does not apply: "(ii) at the end of the last imputation year that finished before the date on which the refund or transfer is made, if the company is not a qualifying company and the company's imputation credit account would, without the refund or transfer, be in credit by less than the amount of the debit--- "(A) on the date on which the refund or transfer is made; and "(B) at the end of the last imputation year that finished before the date on which the refund or transfer is made:". ======================================================================= New (unanimous) ----------------------------------------------------------------------- "(eb) in the case of a debit referred to in paragraph (eb) or (ec) of that subsection arising for a qualifying company, on the date on which the refund or transfer is made: ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- "(ec) in the case of a debit referred to in paragraph (eb) or (ec) of that subsection arising for a company that is not a qualifying company--- "(i) on the last day of the imputation year that immediately precedes the imputation year in which the refund or transfer is made, to the extent that the debit does not exceed the credit balance in the company's imputation credit account on that date: "(ii) on the date on which the refund or transfer is made, to the extent that, after the application of subparagraph (i), the amount of the debit that is not assigned a date under subparagraph (i) does not exceed the credit balance in the company's imputation credit account on the date of the refund or transfer: "(iii) on the last day of the imputation year that immediately precedes the imputation year in which the refund or transfer is made, to the extent that the debit is not assigned a date under subparagraphs (i) and (ii):". ----------------------------------------------------------------------- (5) After section ME 5(2), the following is inserted: Struck out (unanimous) ======================================================================= "(2B) The debits referred to in subsection (1B) shall arise--- "(a) in the case of a debit referred to in paragraph (a) or (b) of that subsection--- "(i) on the date on which the refund or transfer is made, if subparagraph (ii) does not apply: "(ii) at the end of the last imputation year that finished before the date on which the refund or transfer is made, if the company is not a qualifying company and the company's imputation credit account would, without the refund or transfer, be in credit by less than the amount of the debit--- "(A) on the date on which the refund or transfer is made; and "(B) at the end of the last imputation year that finished before the date on which the refund or transfer is made: "(b) in the case of a debit referred to in paragraph (c) of that subsection, on the effective date under section MBB 6(2) of the transfer. ======================================================================= Struck out (unanimous) ======================================================================= "(2C) The debits referred to in subsection (1C) shall arise on the date that the refund is paid." ======================================================================= New (unanimous) ----------------------------------------------------------------------- "(2B) A debit referred to in subsection (1B) arises on the date on which the refund is paid." ----------------------------------------------------------------------- 43 Further tax payable where end of year debit balance, or when company ceases to be imputation credit account company New (unanimous) ----------------------------------------------------------------------- (1A) In section ME 9(1), "subsection (7)" is replaced by "subsections (7) and (9)". ----------------------------------------------------------------------- (1) Section ME 9(5) is replaced by: Struck out (unanimous) ======================================================================= "(5B) A company which pays an amount of further income tax for which it is liable under this section may, in relation to a year in which the company was an imputation credit account company, specify the income tax liability (including provisional tax) to which the amount paid is to be credited, and the amount so paid must be credited in the manner specified from the date on which the payment was received. ======================================================================= Struck out (unanimous) ======================================================================= "(5C) A company that, after the end of an imputation year to which subsection (1) refers, pays an amount of income tax in relation to a year in which the company was an imputation credit account company may specify that the payment may also be used to satisfy or partially satisfy a further income tax liability. ======================================================================= Struck out (unanimous) ======================================================================= "(5D) In respect of further income tax charged in relation to the imputation years that commence between 1 April 1998 and 1 April 2002, a company to which subsections (5B) and (5C) would have applied if the insertion of those provisions by the Taxation (Annual Rates, GST, Trans-Tasman Imputation and Miscellaneous Provisions) Act 2003 had applied for those income years may, within 2 calendar months of the date of the Royal assent to that Act, specify--- "(a) the income tax liability to which a payment of further income tax is to be credited; or "(b) the further income tax liability to which a payment of income tax should be credited--- and the Commissioner must treat the payment as being a credit against the specified liability on the date on which the payment was received." ======================================================================= New (unanimous) ----------------------------------------------------------------------- (5B) If a company pays an amount of further income tax for which the company is liable under this section, the company may elect that the amount of the payment be also credited--- (a) in payment of a liability of the company to pay income tax, which may include a liability to pay provisional tax, in relation to an income year that corresponds to an imputation year in which the company was an imputation credit account company: (b) with effect on the date on which the Commissioner receives the payment of further income tax. ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- (5C) If a company is liable under this section to pay further income tax in relation to an imputation year and, after the end of the imputation year, pays an amount of income tax in relation to an income year that corresponds to an imputation year in which the company was an imputation credit account company, the company may elect that the amount of the payment of income tax be also credited--- (a) in payment of the liability of the company to pay the further income tax: (b) with effect on the date on which the Commissioner receives the payment of income tax." ----------------------------------------------------------------------- (2) Before section ME 9(6), the following is inserted: "({5E} [5D]) If an Australian imputation credit account company pays in an income year further income tax to which it is liable under this section and, at the time of the payment, there is no possibility that the company will have in the future an income tax liability against which the payment may be credited, the company may elect that the payment be treated for the income year, and for a company in the same wholly-owned group, as being an available net {less} [loss] of an amount given by the following formula: a --- b where--- a is the amount of further income tax that is paid by the company and not credited against an income tax liability: Struck out (unanimous) ======================================================================= b is the basic rate of income tax, expressed as a percentage, stated in--- (a) Schedule 1, Part A, clause 5 if the company is not a Maori authority; or (b) Schedule 1, Part A, clause 2 if the company is a Maori authority. ======================================================================= New (unanimous) ----------------------------------------------------------------------- b is the basic rate of income tax, expressed as a percentage, stated in Schedule 1, Part A, clause 5." ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- (3) After section ME 9(7), the following is added: "(8) A company that has a debit balance in the company's imputation credit account at the end of an imputation year may apply to the Commissioner by notice in writing for a reduction of the company's liability for further income tax relating to the imputation year if--- "(a) the company had a debit balance in the company's imputation credit account at the end of the immediately preceding imputation year; and "(b) the debit balance referred to in paragraph (a) exceeds the total of the credits that have arisen in the company's imputation credit account during the imputation year. "(9) If the Commissioner receives a notice under subsection (8) from a company, the company's liability for further income tax relating to the imputation year is reduced by an amount that equals the difference between--- "(a) the debit balance in the company's imputation credit account at the end of the immediately preceding imputation year; and "(b) the total of the credits that have arisen in the company's imputation credit account during the imputation year." (4) Subsections (1A), (1) and (3) apply for imputation years that begin on and after 1 April 1998. (5) Subsection (2) applies for imputation years that begin on and after 1 April 2003. ----------------------------------------------------------------------- 44 Heading replaced The heading before section ME 10 is replaced by the following: "Consolidated imputation groups". 45 Consolidated group to maintain separate imputation credit account (1) In section ME 10, including the heading, "consolidated group", wherever it occurs, is replaced by "consolidated imputation group". (2) After section ME 10(1), the following is inserted: Struck out (unanimous) ======================================================================= "(1B) The members of a consolidated group that is a consolidated imputation group and that become an imputation group must, as an imputation group and for the purpose of subsection (1), continue to use and maintain the imputation credit account formerly used by the consolidated group. ======================================================================= Struck out (unanimous) ======================================================================= "(1C) The members of an imputation group that cease to be an imputation group and become a consolidated group that is a consolidated imputation group must, as a consolidated group and for the purpose of subsection (1), continue to use and maintain the imputation credit account formerly used by the imputation group. ======================================================================= Struck out (unanimous) ======================================================================= "(1D) A resident imputation subgroup that is formed when the members of a consolidated group or an imputation group become a trans-Tasman imputation group must record in the imputation credit account of the resident imputation subgroup all of the debits and credits that, immediately before the resident imputation subgroup is formed, are recorded in the imputation credit account of the consolidated group or imputation group." ======================================================================= New (unanimous) ----------------------------------------------------------------------- "(1B) If the members of a consolidated group that is a consolidated imputation group elect to form an imputation group that includes no company that is a member of another consolidated group, the imputation group must, for the purpose of subsection (1), continue to use and maintain the imputation credit account formerly used by the consolidated group. ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- "(1C) If the members of a consolidated group that is a consolidated imputation group elect to form or join an imputation group that includes the members of another consolidated group, the imputation group that results from the election must record in its imputation credit account--- "(a) all of the debits and credits that, immediately before the election takes effect, are recorded in the imputation credit account of the consolidated group; and "(b) all of the debits and credits that, when or after the election takes effect, arise from transactions involving a member of the imputation group. ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- "(1D) The resident imputation subgroup that is associated with a trans-Tasman imputation group must record in its imputation credit account all of the debits and credits that--- "(a) are recorded in the imputation credit account of the trans-Tasman imputation group; and "(b) arise from transactions that--- "(i) occur before the formation of the resident imputation subgroup and involve a company that will be a member of the resident imputation subgroup: "(ii) occur at or after the formation of the resident imputation subgroup and involve a company that is a member of the resident imputation subgroup. ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- "(1E) If the members of an imputation group elect to cease to be an imputation group and to form a consolidated group that is a consolidated imputation group, the consolidated group must, for the purpose of subsection (1), continue to use and maintain the imputation credit account formerly used by the imputation group." ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- (3) Section ME 10(2)(a) is replaced by the following: "(a) nil, if the consolidated imputation group is formed during the imputation year and is not formed from the members of a consolidated imputation group that exists immediately before the time of the formation: "(ab) the amount given by the application of subsection (1B), (1C) or (1D), if the consolidated imputation group is formed during the imputation year and is formed from the members of a consolidated imputation group that exists immediately before the time of the formation:". ----------------------------------------------------------------------- Struck out (unanimous) ======================================================================= 46 New section ME 10B inserted After section ME 10, the following is inserted: "ME 10B Group may be pooling credit recorder "(1) A consolidated imputation group may, when recording credits and debits in the company's imputation credit account for an imputation year, choose to distinguish between--- "(a) credits and debits that relate to funds in a tax pooling account; and "(b) other credits and debits. "(2) A group that chooses to record the distinction referred to in subsection (1) is a pooling credit recorder." ======================================================================= 47 Credits arising to imputation credit account of group (1) In section{ ME 11(1)} [ME 11(1) other than paragraphs (e) to (g), and (k)], "consolidated group", wherever it occurs, is replaced by "consolidated imputation group". (2) In section ME 11(1)(a)(i), "and (x)" is inserted after "(viii)". (3) After section ME 11(1)(a), the following is inserted: Struck out (unanimous) ======================================================================= "(ab) the amount of a transfer from an intermediary's tax pooling account to the group's account with the Commissioner, if the group is a pooling credit recorder: ======================================================================= "({ac} [ab]) the amount of any payment that is made by an intermediary into a tax pooling account from funds that are supplied by the group for that purpose{, if the group is not a pooling credit recorder}: "({ad} [ac]) the amount of any transfer by an intermediary to the group of an entitlement to funds that are held in a tax pooling account{, if the group is not a pooling credit recorder}:". New (unanimous) ----------------------------------------------------------------------- (3B) Section ME 11(1)(e), (f) and (g) are replaced by the following: "(e) the amount of any dividend withholding payment credit that is attached to a dividend paid during the imputation year to a company, if, at the time of the payment, the company is a member of the consolidated imputation group and--- "(i) is a member of a consolidated group that does not have a dividend withholding payment account; or "(ii) is not a member of a consolidated group and does not have a dividend withholding payment account: "(f) the amount of any dividend withholding payment that is made during the imputation year by a company that is a member of the consolidated imputation group at the time of the payment, if--- "(i) the company at the time of the payment--- "(A) is a member of a consolidated group that does not have a dividend withholding payment account; or "(B) is not a member of a consolidated group and does not have a dividend withholding payment account; and "(ii) the company does not satisfy the obligation to make the dividend withholding payment by reducing a net loss under section NH 5(4): "(g) an amount forming all or part of a credit balance in the dividend withholding payment account of a consolidated group, if--- "(i) the nominated company of the consolidated group elects under section NH 6(6) during the imputation year that the amount be a credit to the imputation credit account of the consolidated imputation group; and "(ii) the members of the consolidated group are members of the consolidated imputation group at the time of the election:". ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- (3C) Section ME 11(1)(k) is replaced by the following: "(k) an amount forming all or part of a credit balance in the policyholder credit account of a consolidated group, if--- "(i) the nominated company of the consolidated group elects under section ME 28(3) during the imputation year that the amount be a credit to the imputation credit account of the consolidated imputation group; and "(ii) the members of the consolidated group are members of the consolidated imputation group at the time of the election:". ----------------------------------------------------------------------- (4) After section ME 11(1) the following is inserted: Struck out (unanimous) ======================================================================= "(1B) There shall arise as credits (called pooling imputation credits) to be recorded by a pooling credit recorder in the imputation credit account of the group for any imputation year the following amounts: "(a) the amount of any payment that is made by an intermediary into a tax pooling account from funds that are supplied by the group for that purpose: "(b) the amount of any transfer by an intermediary to the group of an entitlement to funds that are held in a tax pooling account. ======================================================================= New (unanimous) ----------------------------------------------------------------------- "(1B) If a group has been required by section ME 12(1)(h) to record in the group's imputation credit account an imputation debit that has the effect of cancelling a credit that arose from a deposit by the group into a tax pooling account, a credit that is equal to the imputation debit arises to be recorded in the group's imputation credit account if--- "(a) a further debit arises in the imputation credit account, on a date that is after the date on which the imputation debit under section ME 12(1)(h) arose, in relation to --- "(i) a refund to the group of the amount of the deposit: "(ii) a transfer to another taxpayer of the group's entitlement to the amount of the deposit: "(b) the amount of the deposit is transferred to the group's account with the Commissioner with an effective date under section MBB 6 that is after the date on which the imputation debit arose. ----------------------------------------------------------------------- "(1C) If a consolidated imputation group has a member that is an Australian imputation credit account company, there shall arise as credits to be recorded in the imputation credit account of the {consolidated imputation }group for any imputation year the following amounts: "(a) non-resident withholding tax that, under section NG 2, the company pays on non-resident withholding income derived by the company when the company is a member of the consolidated imputation group: "(b) a payment of tax made under the Income Tax (Withholding Payments) Regulations 1979 from a withholding payment made to the company as a non-resident contractor when the company is a member of the consolidated imputation group: "(c) a payment of tax to meet the schedular income tax liability of the company for schedular gross income that {the company derives under section CN 1, CN 2 or CN 4 when the company is a member of the consolidated imputation group.} [the company derives---] New (unanimous) ----------------------------------------------------------------------- "(i) under section CN 1, CN 2 or CN 4; and ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- "(ii) in the income year that corresponds to the imputation year; and ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- "(iii) when the company is a member of the consolidated imputation group. ----------------------------------------------------------------------- "(1D) No amount may create more than 1 credit under subsections (1) and (1C)." (5) After section ME 11(2)(a), the following is inserted: Struck out (unanimous) ======================================================================= "(ab) in the case of a credit referred to in paragraph (ab) of that subsection, on the effective date of the transfer under section MBB 6(2): ======================================================================= "({ac} [ab]) in the case of a credit referred to in paragraph {(ac)} [(ab) ]of that subsection, on the date of the payment into the tax pooling account: Struck out (unanimous) ======================================================================= "(ad) in the case of a credit referred to in paragraph (ad) of that subsection, on the date in the intermediary's books of account of the transfer of the credit for the funds:". ======================================================================= New (unanimous) ----------------------------------------------------------------------- "(ac) in the case of a credit referred to in paragraph (ac) of that subsection--- "(i) if the funds to which the entitlement relates are transferred to the group's account with the Commissioner, on the effective date under section MBB 6 of the transfer: "(ii) if the funds to which the entitlement relates are refunded to the group or the entitlement to the funds is transferred to another taxpayer, on the date of the refund or transfer:". ----------------------------------------------------------------------- (6) After section ME 11(2), the following is inserted: Struck out (unanimous) ======================================================================= "(2B) The credits referred to in subsection (1B) shall arise--- "(a) in the case of a credit referred to in paragraph (a) of that subsection, on the date of the payment into the tax pooling account: "(b) in the case of a credit referred to in paragraph (b) of that subsection, on the date in the intermediary's books of account of the transfer of the credit for the funds. ======================================================================= New (unanimous) ----------------------------------------------------------------------- "(2B) A credit referred to in subsection (1B) arises on the date of the refund or transfer. ----------------------------------------------------------------------- "(2C) The credits referred to in subsection (1C) shall arise--- "(a) in the case of {the credit } [a credit ]referred to in paragraph (a) of that subsection, on the date that the non-resident withholding tax is paid: "(b) in the case of {the credit } [a credit ]referred to in paragraph (b) of that subsection, on the date that the tax is paid: "(c) in the case of {the credit } [a credit ]referred to in paragraph (c) of that subsection, on the date that the schedular income tax is paid." 48 Debits arising to imputation credit account of group (1) In {section ME 12} [section ME 12(1), other than paragraphs (b), (f), (m) and (n), and section ME 12(2)], "consolidated group", wherever it occurs, is replaced by "consolidated imputation group". New (unanimous) ----------------------------------------------------------------------- (1B) Section ME 12(1)(b) is replaced by the following: "(b) an amount forming all or part of a credit balance in the imputation credit account of the consolidated imputation group, if--- "(i) the consolidated imputation group is not a resident imputation subgroup; and "(ii) the nominated company of the consolidated imputation group elects under section ME 14(1) during the imputation year that the amount be a credit to the policyholder credit account of a consolidated group; and "(iii) the members of the consolidated group are members of the consolidated imputation group at the time of the election:". ----------------------------------------------------------------------- (2) After section ME 12(1)(d), the following is inserted: "(db) {in the case of a group that is not a pooling credit recorder, }the amount of any refund that is made to the group by an intermediary from funds in a tax pooling account for which the group has received a credit under section{ ME 11(1)(ac) or (ad)} [ ME 11(1)(ab) or (ac)]: "(dc) {in the case of a group that is not a pooling credit recorder, }the amount of the funds involved in any transfer from the group to another taxpayer by an intermediary of an entitlement to funds in a tax pooling account for which the group has received a credit under section{ ME 11(1)(ac) or (ad)} [ ME 11(1)(ab) or (ac)]:". New (unanimous) ----------------------------------------------------------------------- (2B) Section ME 12(1)(f) is replaced by the following: "(f) the amount of a refund of a dividend withholding payment, or a refund of a credit of tax under section LD 8(1)(c), that is made in respect of a dividend that is derived during the imputation year by a member of the consolidated imputation group, if at the time of derivation the member--- "(i) is a member of a consolidated group that does not have a dividend withholding payment account; or "(ii) is not a member of a consolidated group and does not have a dividend withholding payment account:". ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- (2C) In section ME 12(1)(j), "exist" is replaced by "be a consolidated imputation group". ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- (2D) Section ME 12(1)(m) and (n) are replaced by the following: "(m) the overpaid amount of a dividend withholding payment that is made by a company in respect of a dividend derived by the company during the imputation year, if--- "(i) the company at the time of derivation--- "(A) is a member of a consolidated group that does not have a dividend withholding payment account; or "(B) is not a member of a consolidated group and does not have a dividend withholding payment account; and "(ii) the Commissioner applies the overpaid amount in satisfaction of an amount that--- "(A) is due and payable under an Inland Revenue Act by a member of the consolidated group; and "(B) is not a dividend withholding payment or income tax; and "(iii) the consolidated group does not have a dividend withholding payment account at the time of the application of the overpaid amount: "(n) the amount, calculated under subsection (3) or (4) for the income year corresponding to the imputation year, that is transferred on account of net foreign attributed income to the dividend withholding payment account of--- "(i) a consolidated group, the members of which are members of the consolidated imputation group; or "(ii) a member of the consolidated imputation group that is not a member of a consolidated group and has a dividend withholding payment account." ----------------------------------------------------------------------- (3) After section ME 12(1), the following is inserted: Struck out (unanimous) ======================================================================= "(1B) There shall arise as debits (called pooling imputation debits) to be recorded by a pooling credit recorder in the imputation credit account of the group for any imputation year the following amounts: "(a) the amount of any refund that is made to the group by an intermediary from funds in a tax pooling account for which the group has received a credit under section ME 11(1B)(a) or (b): "(b) the amount of the funds involved in any transfer from the group to another taxpayer by an intermediary of an entitlement to funds in a tax pooling account for which the group has received a credit under section ME 11(1B)(a) or (b): "(c) the amount of any funds, for which the group has received a credit under section ME 11(1B)(a) or (b), that are transferred from an intermediary's tax pooling account into the group's account with the Commissioner. ======================================================================= "({1C} [1B]) If a consolidated imputation group has a member that is an Australian imputation credit account company, there shall arise as debits to be recorded in the imputation credit account of the {consolidated imputation }group for any imputation year the following amounts: "(a) any refund arising from an amount{ that}--- "(i) [that ]is an overpayment of non-resident withholding tax on non-resident withholding income that {is derived by the company } [the company derives ]when the company is a member of the consolidated imputation group; and "(ii) for which the consolidated imputation group {receives } [has received] a credit under section ME 11(1C)(a): "(b) any refund arising from an amount{ that}--- "(i) [that] is an overpayment of tax under the Income Tax (Withholding Payments) Regulations 1979 from a withholding payment {that is }made to the company as a non-resident contractor when the company is a member of the consolidated imputation group; and "(ii) for which the consolidated imputation group {receives } [has received] a credit under section ME 11(1C)(b): "(c) any refund of tax arising from an amount{ that}--- "(i) [that] is an overpayment of the company's schedular income tax liability for schedular gross income {that the company derives under section CN 1, CN 2 or CN 4 when the company is a member of the consolidated imputation group; and} [ that the company derives---] New (unanimous) ----------------------------------------------------------------------- "(A) under section CN 1, CN 2 or CN 4; and ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- "(B) in the income year that corresponds to the imputation year; and ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- "(C) when the company is a member of the consolidated imputation group; and ----------------------------------------------------------------------- "(ii) for which the consolidated imputation group {receives } [has received] a credit under section ME 11(1C)(c)." (4) After section ME 12(2)(d), the following is inserted: Struck out (unanimous) ======================================================================= "(db) in the case of a debit referred to in paragraph (db) or (dc) of that subsection--- "(i) on the date on which the refund or transfer is made, if subparagraph (ii) does not apply: "(ii) at the end of the last imputation year that finished before the date on which the refund or transfer is made, if the group's imputation credit account would, without the refund or transfer, be in credit by less than the amount of the debit--- "(A) on the date on which the refund or transfer is made; and "(B) at the end of the last imputation year that finished before the date on which the refund or transfer is made:". ======================================================================= New (unanimous) ----------------------------------------------------------------------- "(db) in the case of a debit referred to in paragraph (db) or (dc) of that subsection--- "(i) on the last day of the imputation year that immediately precedes the imputation year in which the refund or transfer is made, to the extent that the debit does not exceed the credit balance in the group's imputation credit account on that date: "(ii) on the date of the refund or transfer, to the extent that, after the application of subparagraph (i), the amount of the debit that is not assigned a date under subparagraph (i) does not exceed the credit balance in the group's imputation credit account on the date of the refund or transfer: "(iii) on the last day of the imputation year that immediately precedes the imputation year in which the refund or transfer is made, to the extent that the debit is not assigned a date under subparagraphs (i) and (ii):". ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- (4B) In section ME 12(2)(i), "exist" is replaced by "be a consolidated imputation group". ----------------------------------------------------------------------- (5) After section ME 12(2), the following is inserted: Struck out (unanimous) ======================================================================= "(2B) The debits referred to in subsection (1B) shall arise--- "(a) in the case of a debit referred to in paragraph (a) or (b) of that subsection--- "(i) on the date on which the refund or transfer is made, if subparagraph (ii) does not apply: "(ii) at the end of the last imputation year that finished before the date on which the refund or transfer is made, if the group's imputation credit account would, without the refund or transfer, be in credit by less than the amount of the debit--- "(A) on the date on which the refund or transfer is made; and "(B) at the end of the last imputation year that finished before the date on which the refund or transfer is made: "(b) in the case of a debit referred to in paragraph (c) of that subsection, on the effective date under section MBB 6(2) of the transfer. ======================================================================= "({2C} [2B]) A debit referred to in subsection {(1C) shall arise } [(1B) arises ]on the date that the refund is paid." New (unanimous) ----------------------------------------------------------------------- (6) In section ME 12(3)--- (a) "or a company that is not a member of a consolidated group" is inserted after "a consolidated group": (b) "for the consolidated group or company" is inserted after "is calculated". ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- (7) In section ME 12(4)--- (a) "or a company that is not a member of a consolidated group" is inserted after "a consolidated group": (b) "for the consolidated group or company" is inserted after "is calculated": (c) "or the company" is inserted after "member of the group". ----------------------------------------------------------------------- 49 Debiting and crediting between consolidated group and individual companies Struck out (unanimous) ======================================================================= (1) In section ME 13, including the heading, "consolidated group", wherever it occurs, is replaced by "consolidated imputation group". ======================================================================= New (unanimous) ----------------------------------------------------------------------- (1) In section ME 13, including the heading--- (a) "consolidated group", wherever it occurs, is replaced by "consolidated imputation group": (b) "consolidated group's", wherever it occurs, is replaced by "consolidated imputation group's". ----------------------------------------------------------------------- (2) In section ME 13(1)(a), "payment into a tax pooling account," is inserted after "any tax paid,". (3) In section ME 13(1)(b), "refund of funds in a tax pooling account, transfer of an entitlement to funds in a tax pooling account," is inserted after "any tax refunded,". New (unanimous) ----------------------------------------------------------------------- (4) In section ME 13(6), "section ME 9(5)" is replaced, in both places that it occurs, by "section ME 9(5B)". ----------------------------------------------------------------------- 50 Application of specific imputation provisions to consolidated groups (1) In the {heading of} [heading to] section ME 14, "consolidated groups" is replaced by "consolidated imputation groups". New (unanimous) ----------------------------------------------------------------------- (1B) Section ME 14(1) is replaced by the following: "(1) If at any time there is a credit balance in the imputation credit account of a consolidated imputation group that is not a resident imputation subgroup and a member of the consolidated imputation group has a policyholder credit account, or a consolidated group whose members are members of the consolidated imputation group has a policyholder credit account, the nominated company of the consolidated imputation group may--- "(a) elect that an amount forming all or part of the credit balance be, at the time, a credit to the policyholder credit account of the member or consolidated group and a debit to the imputation credit account of the consolidated imputation group; and "(b) make an election under paragraph (a) by recording the debit in the imputation credit account. "(1B) If the members of a consolidated group that has a policyholder credit account are members of a consolidated imputation group and the consolidated group has a non-standard balance date, section ME 7(3) and (4) apply to the transfer of a credit balance from the imputation credit account of the consolidated imputation group to the policyholder credit account of the consolidated group as if--- "(a) each reference to a company were a reference to the consolidated imputation group or the consolidated group, as appropriate; and "(b) each reference to the provisions of the Act applicable to an individual company were a reference to the equivalent provision of this section or of sections ME 10 to ME 13 applicable to consolidated imputation groups with members that are the members of a consolidated group." ----------------------------------------------------------------------- (2) In {sections ME 14(1) } [section ME 14(2) ]to (4), "consolidated group", wherever it appears, is replaced by "consolidated imputation group". New (unanimous) ----------------------------------------------------------------------- (2B) In section ME 14(3)(b), "consolidated groups" is replaced by "consolidated imputation groups". ----------------------------------------------------------------------- (3) In section ME 14(5)(a)--- (a) in the words before subparagraph (i), "consolidated group" is replaced by "consolidated group that is a consolidated imputation group": (b) in subparagraph (ii), "exist" is replaced by "be a consolidated imputation group": New (unanimous) ----------------------------------------------------------------------- (c) in subparagraph (iii), "consolidated groups" is replaced by "consolidated imputation groups". ----------------------------------------------------------------------- (4) In section ME 14(5)(b), "member of a consolidated group" is replaced by "member of a consolidated group that is a consolidated imputation group". (5) After section ME 14(5), the following is added: "(6) If a company that is a member of an imputation group has an entitlement under section MD 1 to a refund of overpaid income tax--- "(a) the company must apply for the refund by a notice in writing to the Commissioner that is in a form acceptable to the Commissioner: "(b) section MD 2 applies to the entitlement as if--- "(i) the imputation credit account of the imputation group were the imputation credit account of the company: "(ii) the credit in the imputation credit account for the purpose of section MD 2 were reduced by each refund to a member of the imputation group." New (unanimous) ----------------------------------------------------------------------- 50B Credits and debits arising to policyholder credit account of company (1) Section ME 18(1)(a) is replaced by the following: "(a) any amount of a credit balance in an imputation credit account that is a debit to the imputation credit account and a credit to the policyholder credit account as a result of an election under section ME 7 by--- "(i) the nominated company for an imputation group to which the company belongs, if the company is a member of an imputation group and not a member of a consolidated group; or "(ii) the company, if the company is not a member of an imputation group or of a consolidated group that is a consolidated imputation group:". (2) Section ME 18(3)(b) is replaced by the following: "(b) the amount of any credit balance in the account that the company elects under section ME 19 to be a credit to the imputation credit account of--- "(i) the imputation group to which the company belongs, if the company is a member of an imputation group and not a member of a consolidated group; or "(ii) the company, if the company is not a member of an imputation group or of a consolidated group that is a consolidated imputation group:". ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- 50C Use of credit balance to credit against company's policyholder base income tax liability, or transfer of credit balance to company's imputation credit account (1) The heading to section ME 19 is replaced by "Election to use credit balance as credit against policyholder base income tax liability or as credit in imputation credit account". (2) Section ME 19(3) and (4) are replaced by the following: "(3) A policyholder credit account company may elect that all or part of any credit balance in its policyholder credit account at the time of the election be a debit to the company's policyholder credit account and a credit to the imputation credit account of--- "(a) the imputation group to which the company belongs, if the company is a member of an imputation group and not a member of a consolidated group; or "(b) the company, if the company is not a member of an imputation group or of a consolidated group that is a consolidated imputation group. "(4) An election of a company under subsection (3) is made by recording the amount that is subject to the election--- "(a) as a debit in the company's policyholder credit account; and "(b) as a credit in the imputation credit account--- "(i) of the imputation group to which the company belongs, if the company is a member of an imputation group and not a member of a consolidated group; or "(ii) of the company, if the company is not a member of an imputation group or of a consolidated group that is a consolidated imputation group." (3) In section ME 19(5), "the company's imputation credit account" is replaced by "the imputation credit account of the company, or of the company's imputation group,". ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- 50D Determinations by Commissioner as to credits and debits arising to policyholder credit account (1) In section ME 20(1)(b), "a company's imputation credit account" is replaced by "the imputation credit account of a company, or of a company's consolidated imputation group,". (2) In section ME 20(2)(b), "and the nominated company of any consolidated imputation group of which the company is a member shall make such corrections in the consolidated imputation group's imputation credit account," is inserted after "dividend withholding payment account". ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- 50E Credits and debits arising to group policyholder credit account (1) Section ME 26(2)(a) is replaced by the following: "(a) any amount forming all or part of a credit balance in the imputation credit account of an imputation group or of a consolidated group that is a consolidated imputation group if--- "(i) the members of the consolidated group are members of the consolidated imputation group; and "(ii) the nominated company for the consolidated imputation group elects under section ME 14(1)(a) that the credit balance be a credit to the policyholder credit account of the consolidated group:". (2) Section ME 26(4)(b) is replaced by the following: "(b) the amount of any credit balance in the policyholder credit account of the consolidated group if--- "(i) the consolidated group is a consolidated imputation group or the members of the consolidated group are members of an imputation group; and "(ii) the nominated company for the consolidated group elects under section ME 28(3) that the credit balance be a credit to the imputation credit account of the consolidated group or imputation group." ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- 50F Application of policyholder credit account provisions to consolidated group, etc. Section ME 28(3) is replaced by the following: "(3) The nominated company for a consolidated group that is a consolidated imputation group, or the members of which are members of an imputation group, may--- "(a) elect that all or any part of a credit balance in the policyholder credit account of the consolidated group at the time of the election be a credit balance in the imputation credit account of the consolidated group or imputation group; and "(b) record the election by recording the amount affected by the election as a debit in the policyholder credit account of the consolidated group." ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- 50G Debits and credits arising to imputation credit account or policyholder credit account on amalgamation (1) In section ME 29(2)(a), "a credit or debit exists in the consolidated group's imputation credit account" is replaced by "the consolidated group is a consolidated imputation group and a credit or debit exists in the group's imputation credit account". (2) In section ME 29(2)(a), "or in its policyholder credit account" is replaced by "or the consolidated group has a policyholder credit account and a credit or debit exists in that account". (3) In section ME 29(2)(b), is "consolidated" is omitted. ----------------------------------------------------------------------- 51 Credits and debits arising to branch equivalent tax account of company (1) This section amends section MF 4(1)(b) as it read before being amended by section 385 of the Taxation (Core Provisions) Act 1996. (2) The definition of item "e" is replaced by the following: "e is the amount of any attributed foreign income derived by the company during the income year that is offset against losses that are not foreign investment fund losses or attributed foreign losses; and". (3) Subsection (2) applies for the 1995-96 and 1996-97 income years, subject to subsection (4). (4) Subsection (2) does not apply to a taxpayer for an income year if--- (a) the taxpayer has filed before {16} [26] June 2003 a return of income for the income year; and (b) the return of income relies on the definition of item "e" in section MF 4(1)(b) of the Income Tax Act 1994 as the definition read before the enactment of section 385 of the Taxation (Core Provisions) Act 1996 and the enactment of this section. 52 Credits and debits arising to branch equivalent tax account of company Struck out (unanimous) ======================================================================= (1) This section amends section MF 4(1)(b). ======================================================================= Struck out (unanimous) ======================================================================= (2) Subparagraph (ii) of the definition of item "f" is replaced by the following: "(ii) the amount (including zero) of available net losses that are not foreign investment fund net losses or attributed foreign net losses and that are offset by the company against the company's net income for that income year; and". ======================================================================= New (unanimous) ----------------------------------------------------------------------- (1) Section MF 4(1)(a) and (b) are replaced by the following:" (a) an amount (not less than nil) calculated in accordance with the following formula: ((a − b) × c) &minus d − e where--- a is the attributed foreign income derived by the company in the income year: b is the total amount of any deductions and offsets for the income year that the company is allowed for attributed foreign losses, attributed foreign net losses, foreign investment fund losses and foreign investment fund net losses: c is the basic rate of income tax, expressed as a percentage, stated in--- (a) Schedule 1, Part A, clause 5 if the company is not a Maori authority; or (b) Schedule 1, Part A, clause 2 if the company is a Maori authority: d is the total amount of any foreign tax credits allowed under section LC 4 or LC 5 that are set off against the company's income tax liability for the income year: e is the total amount of credits against the company's income tax liability for the income year from debit balances in the branch equivalent tax accounts of the company and any other company:". ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- (2) Section MF 4(1B) is repealed. ----------------------------------------------------------------------- (3) {Subsection (2) applies } [Subsections (1) and (2) apply] for the 1997-98 and subsequent income years, subject to subsection (4). (4) {Subsection (2) does } [Subsections (1) and (2) do] not apply to a taxpayer for an income year if--- (a) the taxpayer has filed before {16} [26] June 2003 a return of income for the income year; and Struck out (unanimous) ======================================================================= (b) the return of income relies on the definition of item "f" in section MF 4(1)(b) of the Income Tax Act 1994 as the definition read before the enactment of this section. ======================================================================= New (unanimous) ----------------------------------------------------------------------- (b) the return of income relies on sections MF 4(1)(a) and (b) and MF 4(1B) of the Income Tax Act 1994 as those provisions were before the enactment of this section. ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- 52B Use of credit to reduce dividend withholding payment or use of debit to satisfy income tax liability (1) After section MF 5(6), the following is inserted: "(6B) If an election under subsection (4) relates to an amount that exceeds the income tax liability, for the income year, of the company that receives the credit under subsection (5), the excess is a net loss of the company for the purpose of Parts IF and IG." (2) Subsection (1) applies for the 1997-98 and subsequent income years, subject to subsection (3). (3) Subsection (1) does not apply to a taxpayer for an income year if--- (a) the taxpayer has filed before 26 June 2003 a return of income for the income year; and (b) the return of income relies on section MF 5 of the Income Tax Act 1994 as the section was before the enactment of this section. ----------------------------------------------------------------------- 53 Debits and credits arising to group branch equivalent tax account (1) This section amends section MF 8(2)(b) as it read after being amended by section 49 of the Income Tax Act 1994 Amendment Act (No 4) 1995 and before being amended by section 387 of the Taxation (Core Provisions) Act 1996. (2) The definition of item "f" is replaced by the following: "f is the amount of any attributed foreign income derived by the consolidated group during the income year that is offset against losses that are not foreign investment fund losses or attributed foreign losses; and". (3) Subsection (2) applies for the 1995-96 and 1996-97 income years, subject to subsection (4). (4) Subsection (2) does not apply to a taxpayer for an income year if--- (a) the taxpayer has filed before {16} [26] June 2003 a return of income for the income year; and (b) the return of income relies on the definition of item "f" in section MF 8(2)(b) of the Income Tax Act 1994 as the definition read before the enactment of section 387 of the Taxation (Core Provisions) Act 1996 and the enactment of this section. 54 Debits and credits arising to group branch equivalent tax account Struck out (unanimous) ======================================================================= (1) This section amends section MF 8(2)(b). ======================================================================= Struck out (unanimous) ======================================================================= (2) Subparagraph (ii) of the definition of item "f" is replaced by the following: "(ii) the amount (including zero) of available net losses that are not foreign investment fund net losses or attributed foreign net losses and that are offset by the consolidated group against the consolidated group's net income for the income year; and". ======================================================================= New (unanimous) ----------------------------------------------------------------------- (1) Section MF 8(2)(a) and (b) are replaced by the following:" (a) an amount (not less than nil) calculated in accordance with the following formula: ((a - b) x c) - d - e where--- a is the attributed foreign income derived by the consolidated group in the income year: b is the total amount of any deductions and offsets for the income year that the consolidated group is allowed for attributed foreign losses, attributed foreign net losses, foreign investment fund losses and foreign investment fund net losses: c is the basic rate of income tax, expressed as a percentage, stated in--- (a) Schedule 1, Part A, clause 5 if the consolidated group does not consist of Maori authorities; or (b) Schedule 1, Part A, clause 2 if the consolidated group consists of Maori authorities: d is the total amount of any foreign tax credits allowed under section LC 4 or LC 5 that are credited against the consolidated group's income tax liability for the income year: e is the total amount of credits against the consolidated group's income tax liability for the income year from debit balances in the branch equivalent tax accounts of the consolidated group and companies that are members of the consolidated group:". ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- (2) Section MF 8(2B) is repealed. ----------------------------------------------------------------------- (3) {Subsection (2) applies } [Subsections (1) and (2) apply] for the 1997-98 and subsequent income years, subject to subsection (4). (4) {Subsection (2) does } [Subsections (1) and (2) do] not apply to a taxpayer for an income year if--- (a) the taxpayer has filed before {16} [26] June 2003 a return of income for the income year; and Struck out (unanimous) ======================================================================= (b) the return of income relies on the definition of item "f" in section MF 8(2)(b) of the Income Tax Act 1994 as the definition read before the enactment of this section. ======================================================================= New (unanimous) ----------------------------------------------------------------------- (b) the return of income relies on sections MF 8(2)(a) and (b) and MF 8(2B) of the Income Tax Act 1994 as those provisions were before the enactment of this section. ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- 54B Use of consolidated group credit to reduce dividend withholding payment, or use of group or individual debit to satisfy income tax liability (1) After section MF 10(5), the following is inserted: "(5B) If an election under subsection (3) or (4) relates to an amount that exceeds the income tax liability, for the income year, of the company or group that receives the set off under subsection (5), the excess is a net loss of the company or group for the purpose of Parts IF and IG." (2) Subsection (1) applies for the 1997-98 and subsequent income years, subject to subsection (3). (3) Subsection (1) does not apply to a taxpayer for an income year if--- (a) the taxpayer has filed before 26 June 2003 a return of income for the income year; and (b) the return of income relies on section MF 10 of the Income Tax Act 1994 as the section was before the enactment of this section. ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- 54C Credits arising to dividend withholding payment account In section MG 4(1)(a), "section MG 9(5)" is replaced by "section MG 9(5B)". ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- 54D Further dividend withholding payment payable by company (1) In section MG 9(1), ", subject to subsection (7)" is inserted after "that debit balance". (2) Section MG 9(5) is replaced by the following: "(5B) If a company pays a further dividend withholding payment for which the company is liable under this section, the company may elect that the amount of the payment be also credited--- "(a) in payment of a liability of the company to pay a dividend withholding payment in relation to an income year that corresponds to an imputation year in which the company was a dividend withholding payment account company: "(b) with effect on the date on which the Commissioner receives the further dividend withholding payment. "(5C) If a company is liable under this section to pay a further dividend withholding payment in relation to an imputation year and, after the end of the imputation year, pays a dividend withholding payment in relation to an imputation year in which the company was a dividend withholding payment account company, the company may elect that the amount of the dividend withholding payment be also credited--- "(a) in payment of the liability of the company to pay the further dividend withholding payment: "(b) with effect on the date on which the Commissioner receives the payment of income tax." (3) After section MG 9(6), the following is inserted: "(7) A company that has a debit balance in the company's dividend withholding payment account at the end of an imputation year may apply to the Commissioner by notice in writing for a reduction of the company's liability to make a further dividend withholding payment relating to the imputation year if--- "(a) the company had a debit balance in the company's dividend withholding payment account at the end of the immediately preceding imputation year; and "(b) the debit balance referred to in paragraph (a) exceeds the total of the dividend withholding payments that the company has made during the imputation year. "(8) If the Commissioner receives a notice under subsection (7) from a company, the company's liability to make a further dividend withholding payment relating to the imputation year is reduced by the amount of the difference between--- "(a) the debit balance in the company's dividend withholding payment account at the end of the immediately preceding imputation year; and "(b) the total of the dividend withholding payments that the company has made during the imputation year." (4) Subsection (2) applies for imputation years that begin on and after 1 April 1998. (5) Subsections (1) and (3) apply for imputation years that begin on and after 1 April 2003. ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- 54E Credits arising to group dividend withholding payment account In section MG 14(1)(a)(i), "section MG 9(5)" is replaced by "section MG 9(5B)". ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- 54F Debiting and crediting between group and individual dividend withholding payment accounts In section MG 16(6), "section MG 9(5)" is replaced, in both places that it occurs, by "section MG 9(5B)". ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- 54G Purpose (1) In section NBB 1--- (a) in paragraph (a), "PAYE" is replaced by "PAYE and SSCWT": (b) in paragraph (b), "PAYE rules" is replaced by "PAYE rules and SSCWT rules". (2) In diagram NBB 1--- (a) "PAYE deductions" is replaced by "PAYE and SSCWT deductions": (b) "PAYE returns" is replaced by "PAYE and SSCWT returns": (c) "PAYE obligations" is replaced by "PAYE and SSCWT obligations": (d) "Gross salary or wages" is replaced by "Gross salary or wages and SSCs". ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- 54H Accreditation requirements of PAYE intermediaries (1) After section NBB 2(2)(a), the following is inserted: "(ab) the applicant will comply with the SSCWT rules if the applicant assumes an employer's obligations under the SSCWT rules; and". (2) After section NBB 2(4)(a), the following is inserted: "(ab) the person fails to comply with the SSCWT rules, if the person assumes an employer's obligations under the SSCWT rules:". ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- 54I Approval by Commissioner of employer arrangements with PAYE intermediary In section NBB 3(1)(c), "payments of the gross salary and wages of an employee." is replaced by "payments in relation to an employee; and" and the following is added: "(d) whether the proposed arrangement requires the person to make deductions under the SSCWT rules." ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- 54J Responsibilities and status under PAYE rules of employer in arrangement with PAYE intermediary (1) The heading to section NBB 4 is replaced by "Employer having PAYE intermediary---responsibilities and status under PAYE rules and SSCWT rules". (2) In section NBB 4(1), ", subject to subsection (4)" is inserted after "must". (3) Section NBB 4(1)(a) is replaced by the following: "(a) pay into the trust account established by the PAYE intermediary and identified in the employer's notice to the Commissioner under section NBB 3--- "(i) if subparagraph (ii) does not apply, the employee's gross salary or wages for the pay period after deduction of any amount that is owed by the employee to the employer and may be lawfully withheld by the employer from the salary or wages; or "(ii) if the employer has paid salary or wages to the employee in the way authorised by subsection (4), the amount that the employer is required by subsection (4)(d) to pay into the trust account; and "(ab) if the applicant has agreed to assume obligations of the employer under the SSCWT rules, pay into the trust account referred to in paragraph (a) the specified superannuation contributions made in the pay period by the employer on behalf of the employee; and". (4) In section NBB 4(1)(b), "pay the gross salary or wages" is replaced by "make the payments referred to in paragraphs (a) and (ab)". (5) In section NBB 4(1)(c), "and amounts withheld by the employer for the pay period" is inserted after "pay period". (6) In section NBB 4(2)(b)--- (a) "paragraph (a)" is replaced by "paragraph (a) and subsection (3)": (b) "or the making of specified superannuation contributions on behalf of the employee" is inserted after "pay period". (7) After section NBB 4(2), the following is added: "(3) If an employer is in an arrangement with a PAYE intermediary under which the PAYE intermediary agrees to assume obligations under the SSCWT rules in relation to an employee and a pay period and the employer satisfies the requirements of subsection (1), the employer is not subject to the requirements in relation to the employee and the pay period that the SSCWT rules impose on the PAYE intermediary. "(4) An employer who is in an arrangement with a PAYE intermediary that applies to an employee and a pay period may make a payment of salary or wages directly to the employee in cash or by cheque if--- "(a) the payment is made on a day in a pay period that is not the usual day for a payment of salary or wages for the pay period; and "(b) the payment is--- "(i) an advance of the employee's salary or wages: "(ii) salary or wages owed to the employee for an earlier pay period: "(iii) a payment on the termination of the employee's employment; and "(c) the employer makes from the gross salary or wages of the employee the deduction that the PAYE intermediary would have made if the gross salary or wages had been paid into the trust account of the PAYE intermediary; and "(d) the employer pays into the trust account of the PAYE intermediary the amount of the deduction referred to in paragraph (c) reduced by any amount that is owed by the employee to the employer and may be lawfully withheld by the employer from the salary or wages." ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- 54K Responsibilities and status under PAYE rules of PAYE intermediary in arrangement with employer (1) The heading to section NBB 5 is replaced by "PAYE intermediary---responsibilities and status under PAYE rules and SSCWT rules". (2) In section NBB 5(1), "section NBB 4 and that would otherwise" is replaced by "section NBB 4(1) and that would, but for this subsection,". (3) In section NBB 5(2)--- (a) "subsection (1)" is replaced by "subsections (1) and (2B)": (b) "or the making of specified superannuation contributions on behalf of the employee" is inserted after "pay period". (4) After section NBB 5(2), the following is inserted: "(2B) A PAYE intermediary who agrees to assume obligations under the SSCWT rules in relation to an employee and a pay period, in an arrangement with an employer who satisfies the requirements of section NBB 4(1), assumes the obligations for the employee and the pay period that--- "(a) are not imposed on the employer by section NBB 4(1); and "(b) would, but for this subsection, be the obligations of the employer under the SSCWT rules." ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- 54L Operation of trust account (1) After section NBB 6(2)(a), the following is inserted: "(ab) specified superannuation contributions paid by employers: "(ac) deductions under section NBB 4(4) made by employers from salary or wages:". (2) Section NBB 6(2)(b) is replaced by the following: "(b) refunds by the Commissioner under section NBB 7:". (3) After section NBB 6(3)(a), the following is inserted: "(ab) specified superannuation contributions paid by employers on behalf of employees: "(ac) deductions under section NBB 4(4) made by employers from salary or wages:". (4) Section NBB 6(3)(b) is replaced by the following: "(b) payments that the employer would be required to make, but for the arrangement with the PAYE intermediary, from--- "(i) a deduction from the salary or wages of an employee: "(ii) a deduction from a specified superannuation contribution made on behalf of an employee:". ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- 54M Section NBB 7 replaced Section NBB 7 is replaced by the following: "NBB 7 Refund by Commissioner of deductions The Commissioner must refund to a PAYE intermediary any payment of deductions that is made by the PAYE intermediary for an employer--- "(a) in reliance on a payment to the trust account of the PAYE intermediary that was--- "(i) made by the employer and later dishonoured by the employer: "(ii) made by a person because of a mistake and later recovered from the PAYE intermediary by the person: "(b) because of a mistake by the PAYE intermediary or another person and from funds that were not provided to the PAYE intermediary by the employer for the purpose of--- "(i) the payment to which the deductions relate: "(ii) the payment of the deductions." ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- 54N Termination of employer arrangements with PAYE intermediary In section NBB 8(3), "PAYE rules" is replaced by "PAYE rules and SSCWT rules". ----------------------------------------------------------------------- 55 Applications of tax codes specified in tax code declarations or tax code certificates New (unanimous) ----------------------------------------------------------------------- (1A) In section NC 8(1)(da), "clauses (5A) and (5B)" is replaced by "clauses 5A and 5B". ----------------------------------------------------------------------- (1) After section NC 8(1), the following is inserted: "(1AA) If other Acts require an employer to deduct amounts from a source deduction payment payable to an employee and to pay the amounts to the Commissioner, the tax code under subsection (1) that applies to the employee may be combined with codes that apply to the employee under the other Acts." (2) In section NC 8(1A), "either clause 8(b) or 8(c) of Schedule 19" is replaced by "clause 8(b) of Schedule 19, if the employee's taxable income for the year is expected to be no more than $60,000, or in clause 8(c) of Schedule 19, otherwise." (3) Section NC 8(4) is replaced by the following: "(4) {When an employee } [If an employee in a pay period ]delivers a tax code declaration or a tax code certificate to the employee's employer, the tax code applies to the employee in respect of all source deduction payments made by the employer to the employee--- Struck out (unanimous) ======================================================================= "(a) if the declaration or certificate relates to a change in a tax code previously provided for the employee and is delivered to the employer before the date on which the employer calculates the employer's payroll for the pay period in which the delivery is made, from the first day of that pay period and until the tax code ceases in accordance with subsection (7); or ======================================================================= Struck out (unanimous) ======================================================================= "(b) if the declaration or certificate relates to a change in a tax code previously provided for the employee and is delivered to the employer after the date on which the employer calculates the employer's payroll for the pay period in which the delivery is made, from the first day of the next pay period and until the tax code ceases in accordance with subsection (7); or ======================================================================= Struck out (unanimous) ======================================================================= "(c) if the employee has not previously provided the employer with a declaration or certificate for the employment of the employee, from the date on which the declaration or certificate is delivered to the employer." ======================================================================= New (unanimous) ----------------------------------------------------------------------- "(a) from the first day of the pay period until the tax code ceases in accordance with subsection (7), if the employer has not previously been provided with a tax code for the employee; or ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- "(b) from the first day of the pay period until the tax code ceases in accordance with subsection (7), if the declaration or certificate--- "(i) relates to a change in a tax code previously provided for the employee; and "(ii) is delivered to the employer before the date on which the employer calculates the employer's payroll for the pay period; or ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- "(c) from the first day of the next pay period until the tax code ceases in accordance with subsection (7), if the declaration or certificate--- "(i) relates to a change in a tax code previously provided for the employee; and "(ii) is delivered to the employer after the date on which the employer calculates the employer's payroll for the pay period." ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- (3B) Subsection (1A) applies to source deduction payments for pay periods ending on or after 1 July 1998. ----------------------------------------------------------------------- (4) Subsection (1) applies for pay periods ending on and after the date on which this Act receives the Royal assent. (5) Subsection (3) applies for pay periods ending on and after 1 April 2004. New (unanimous) ----------------------------------------------------------------------- 55B Applications of other provisions to amounts payable under PAYE rules (1) In section NC 20(1), as amended by section 66(1) of the Taxation (Maori Organisations, Taxpayer Compliance and Miscellaneous Provisions) Act 2003, "PAYE intermediary," is replaced by ", PAYE intermediary". (2) Subsection (1) applies for pay periods beginning on and after 1 April 2004. ----------------------------------------------------------------------- 56 Definition of cash remuneration In section ND 7(4)--- (a) in paragraph (d), "Withholding payments; and" is replaced by "withholding payments.": (b) paragraph (e) is repealed. 57 Specified superannuation contribution withholding tax imposed In section NE 2(1), "either section NE 2AA(2) or NE 2A(2)" is replaced by "section NE 2AA(2){ or NE 2AB(2)} [, NE 2AB] or NE 2A(2)". New (unanimous) ----------------------------------------------------------------------- 57B Employee election that specified superannuation contributions be subject to higher rate of specified superannuation contribution withholding tax (1) The heading to section NE 2AA is replaced by "Employee election that higher rate of specified superannuation contribution withholding tax apply". (2) In section NE 2AA(2), "the employer" is replaced by "the employer or PAYE intermediary". (3) Subsection (2) applies for pay periods beginning on and after 1 April 2004. ----------------------------------------------------------------------- 58 New section NE 2AB inserted After section NE 2AA, the following is inserted: "NE 2AB Employer election that progressive rates of specified superannuation contribution withholding tax apply Struck out (unanimous) ======================================================================= "(1) An employer who makes specified superannuation contributions on behalf of an employee for a year may pay specified ======================================================================= [If an employer makes specified superannuation contributions on behalf of an employee for a year, the employer or a PAYE intermediary may pay specified ]superannuation contribution withholding tax on the specified superannuation contributions at the rate specified in Schedule 1, Part A, clause 10(ab) that corresponds to the amount given by the following formula: a + b where--- a is the total amount of salary or wages that--- (a) is derived by the employee in the year that immediately precedes the year to which the specified superannuation contribution relates, if the employee was employed by the employer for all of that preceding year; or (b) the employer estimates will be derived by the employee in the year to which the specified superannuation contribution relates, otherwise: b is the total amount of specified superannuation contribution that--- (a) is contributed by the employer on behalf of the employee in the year that immediately precedes the year to which the specified superannuation contribution relates, if the employee was employed by the employer for all of that preceding year; or (b) the employer estimates will be contributed on behalf of the employee by the employer in the year to which the specified superannuation contribution relates, otherwise." Struck out (unanimous) ======================================================================= "(2) An estimate, of a figure for salary or wages or for specified superannuation contributions, that is required by subsection (1) for an income year must be made on the basis that--- "(a) the rate of salary or wages of the employee and the rate of specified superannuation contributions by the employer are the rates that relate to the first period in the year for which the employer makes a specified superannuation contribution on behalf of the employee; and "(b) the employee receives the assumed rate of salary or wages, and the employer makes specified superannuation contributions, for all of the year." ======================================================================= Struck out (unanimous) ======================================================================= 59 Specified superannuation contribution withholding tax to be deducted In section NE 3, "either section NE 2 or NE 2AA" is replaced by "section NE 2 or NE 2AA or NE 2AB". ======================================================================= New (unanimous) ----------------------------------------------------------------------- 59 Section NE 3 replaced (1) Section NE 3 is replaced by the following: "NE 3 Specified superannuation contribution withholding tax to be deducted If an employer or a PAYE intermediary pays to a superannuation fund an amount that represents a specified superannuation contribution, the employer or PAYE intermediary must, at the time of payment, deduct from the specified superannuation contribution an amount of specified superannuation contribution withholding tax determined in accordance with whichever is applicable of sections NE 2, NE 2AA and NE 2AB." (2) Subsection (1) applies for pay periods beginning on and after 1 April 2004. ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- 59B Payment period (1) In section NE 4, "or PAYE intermediary" is inserted after "Every employer". (2) In section NE 4(a), "or PAYE intermediary" is inserted after "where the employer". (3) In section NE 4(b), "or PAYE intermediary" is inserted after "where the employer". (4) In section NE 4(c), "or PAYE intermediary" is inserted after "where the employer". (5) Subsections (1) to (4) apply for pay periods beginning on and after 1 April 2004. ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- 59C Failure to deduct tax (1) In section NE 5, "or PAYE intermediary" is inserted after "an employer". (2) In section NE 5(b), "or PAYE intermediary" is inserted after "by the employer". (3) In section NE 5(b)(iii), "or PAYE intermediary" is inserted after "where the employer". (4) Subsections (1) to (3) apply for pay periods beginning on and after 1 April 2004. ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- 59D Section NE 6 replaced (1) Section NE 6 is replaced by the following: "NE 6 Tax deemed for certain purposes to have been received by superannuation fund In determining whether an employer has satisfied the employer's obligations or commitments to pay contributions to a superannuation fund--- "(a) the employer or the employer's PAYE intermediary is treated, in respect of any specified superannuation contribution that has been made on behalf of an employee, as having paid to the superannuation fund in satisfaction of the employer's obligations or commitments--- "(i) the amount of any specified superannuation contribution withholding tax payable in accordance with the SSCWT rules: "(ii) the amount of any PAYE payable in accordance with the PAYE rules as a result of an election by the employee under section NE 2A; and "(b) the superannuation fund is treated as having received the amount referred to in paragraph (a); and "(c) the payment referred to in paragraph (a) and the receipt referred to in paragraph (b) are treated as having occurred when the superannuation fund received the specified superannuation contribution referred to in paragraph (a)." (2) Subsection (1) applies for pay periods beginning on and after 1 April 2004. ----------------------------------------------------------------------- 60 Application of RWT rules After section NF 1(2)(a)(ix), the following is added: "(x) interest paid under section MBB 5(5) to an intermediary by the Commissioner." New (unanimous) ----------------------------------------------------------------------- 60B Deduction of resident withholding tax Section NF 2(3)(b) is replaced by the following: "(b) For the purposes of this Act and the Tax Administration Act 1994, in calculating in relation to the first person the amount of resident withholding tax deduction required to be paid to the Commissioner, the amount of resident withholding tax deduction made by the first person is converted into New Zealand currency at--- "(i) the close of trading spot exchange rate on the first working day of the month succeeding the month in which the resident withholding tax deduction is made, unless subparagraph (ii) applies; or "(ii) the conversion rate applicable under section ME 1C to the resident withholding income, if the resident withholding income is a dividend and the first person is an Australian imputation credit account company that chooses to use the rate referred to in that section." ----------------------------------------------------------------------- 61 Refunds of deductions Struck out (unanimous) ======================================================================= (1) In section NF 7(5), "or otherwise" is replaced by "or, in the absence of a request, in such order or manner as the Commissioner may determine". ======================================================================= New (unanimous) ----------------------------------------------------------------------- (1) Section NF 7(5) is replaced by the following: "(5) If, but for this subsection, a person would be entitled to an amount as a refund under this section, the Commissioner may apply the amount, in accordance with a request under section 173T of the Tax Administration Act 1994 or in the absence of such a request in such order or manner as the Commissioner may determine, in payment of--- "(a) an amount that is payable by the person under this Act: "(b) an amount that is payable by the person under the Tax Administration Act 1994." ----------------------------------------------------------------------- (2) Subsection (1) applies for the 2002-03 and subsequent income years. 62 Certificates of exemption (1) Section NF 9(1)(c) is repealed. (2) In section NF 9(1)(i), "section CB 5(1)(i)," is replaced by "section CB 5(1)(ib)". (3) In section NF 9(11), in both places where it appears, "additional tax" is replaced by "late payment penalty". (4) Subsection (2) applies to amounts that are derived after the date on which this Act receives the Royal assent. (5) Subsection (3) applies to late payment penalties that arise with respect to the 1997-98 and subsequent income years. 63 Non-resident withholding tax deducted in error Struck out (unanimous) ======================================================================= (1) In section NG 16(4), "or otherwise" is replaced by "or, in the absence of a request, in such order or manner as the Commissioner may determine". ======================================================================= New (unanimous) ----------------------------------------------------------------------- (1) Section NG 16(4) is replaced by the following: "(4) If, but for this subsection, a person would be entitled to an amount as a refund under this section, the Commissioner may apply the amount, in accordance with a request under section 173T of the Tax Administration Act 1994 or in the absence of such a request in such order or manner as the Commissioner may determine, in payment of--- "(a) an amount that is payable by the person under this Act: "(b) an amount that is payable by the person under the Tax Administration Act 1994." ----------------------------------------------------------------------- (2) Subsection (1) applies for the 2002-03 and subsequent income years. 64 Amount of dividend withholding payment to be deducted In section NH 2(1), the definition of item "c" is replaced by the following: "c is the amount of--- "(a) underlying foreign tax credit calculated with respect to the dividend under section LF 2, if that credit is not zero: "(b) any imputation credit attached to the dividend, otherwise; and". 65 Payment and recovery of dividend withholding payment, etc. (1) In section NH 3(7), "additional tax" is replaced by "late payment penalty". (2) Subsection (1) applies to late payment penalties that arise with respect to the 1997-98 and subsequent income years. New (unanimous) ----------------------------------------------------------------------- 65B Application of specific dividend withholding payment provisions to consolidated groups Section NH 6(6) is replaced by the following: "(6) If at the end of an imputation year there is a credit balance in the dividend withholding payment account of a consolidated group, the nominated company for the consolidated group may--- "(a) make an election that all or part of the credit balance be--- "(i) a credit to the imputation credit account of the consolidated group, or of the imputation group to which the members of the consolidated group belong; and "(ii) a debit to the dividend withholding account of the consolidated group; and "(b) make the election by recording the debit in the dividend withholding payment account of the consolidated group." ----------------------------------------------------------------------- 66 Definitions (1) This section amends section OB 1. New (unanimous) ----------------------------------------------------------------------- (1B) After the definition of adverse event income equalisation account, the following is inserted: "affected associate is defined in section ES 2(2) for the purpose of subpart ES". ----------------------------------------------------------------------- (2) After the definition of attributed repatriation, the following is inserted: "Australian imputation credit account company means a company that is required by section ME 1B to maintain an imputation credit account". (3) In the definition of certificate of exemption, "section NF 11" is replaced by "section NF 9". (4) In the definition of commercial bill, or bill, "and FF 5" is replaced by "DJ 16, FF 5 and GC 14A". (5) After the definition of communal home, the following is inserted: "community trust has the meaning given in section 2 of the Community Trusts Act 1999". (6) After the definition of consolidated group, the following is inserted: "consolidated imputation group means--- "(a) an imputation group: "(b) a resident imputation subgroup: "(c) a consolidated group, no member of which is a member of an imputation group". Struck out (unanimous) ======================================================================= (7) In paragraph (b) of the definition of continuity provisions in section OB 1(1)--- ======================================================================= New (unanimous) ----------------------------------------------------------------------- (7) In the definition of continuity provisions, in paragraph (b)--- ----------------------------------------------------------------------- (a) "MF 3(1)(d)," is omitted: (b) "MF 4(3)(d)," is inserted after "MF 4(1)(e),". (8) The definition of determination is repealed. New (unanimous) ----------------------------------------------------------------------- (8B) In the definition of direct voting interest, "subpart ES and" is inserted after "and in". ----------------------------------------------------------------------- (9) In the definition of emergency call, in paragraph (c), "paragraph (a)(iii)" is replaced by "paragraph (a)(iv)". Struck out (unanimous) ======================================================================= (10) In the definition of employment, after paragraph (d), the following is added: "(e) in this Act, includes the activities of the office of a judicial officer which, when performed by the judicial officer, give rise to an entitlement to the receipt of a source deduction payment in respect of that office:". ======================================================================= New (unanimous) ----------------------------------------------------------------------- (10) In the definition of employment, paragraph (d) is replaced by the following: "(d) includes the activities associated with the office of a member of Parliament that, when performed by the member of Parliament, give rise to an entitlement to receive a source deduction payment in respect of that office: "(e) includes the activities associated with the office of a judicial officer that, when performed by the judicial officer, give rise to an entitlement to receive a source deduction payment in respect of that office". ----------------------------------------------------------------------- (11) In the definition of imputation credit account, "or ME 1B" is inserted after "section ME 1". (12) In the definition of imputation credit account company, "or ME 1B" is inserted after "section ME 1". (13) After the definition of imputation credit account company, the following is inserted: "imputation group means, at any time, an imputation group formed under section FDB 2 as it is constituted at that time". (14) The definition of limited recourse loan is {repealed} [replaced by the following:] New (unanimous) ----------------------------------------------------------------------- "limited-recourse amount is defined in section ES 2(2) for the purpose of subpart ES ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- "limited-recourse loan is defined in section ES 2(2) for the purpose of subpart ES". ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- (14B) In the definition of listed company, "ES 1," is inserted after "sections". ----------------------------------------------------------------------- (15) The definition of management fees is repealed. (16) In the definition of Maori authority, "HI 1C"is replaced by "HI 3". (17) In the definition of money, after the expression "section EH 22(1)(b),", the expression "subpart ES[,]" is inserted. Struck out (unanimous) ======================================================================= (18) After the definition of money lent, the following is inserted: "money that is not at risk is defined in section ES 2 for the purposes of subpart ES". ======================================================================= (19) The definition of non-recourse loan is repealed. (20) In paragraph (b)(ii) of the definition of PAYE intermediary, "section NBB 7(3)" is replaced by "section NBB 8(3)". Struck out (unanimous) ======================================================================= (21) After the definition of poolable property, the following is inserted: "pooling credit recorder means--- "(a) a company that chooses under section ME 3B to be a pooling credit recorder: "(b) a consolidated imputation group that chooses under section ME 10B to be a pooling credit recorder". (22) After the definition of profit-sharing arrangement, the following is inserted: "promoter is defined in section ES 2 for the purpose of subpart ES". ======================================================================= New (unanimous) ----------------------------------------------------------------------- (22B) In the definition of qualifying trust--- (a) the words in paragraph (a) before subparagraph (i) are replaced by the following: "(a) for a trust that is not a superannuation fund and a distribution that is made by the trustee of the trust and a time, means a trust for which in all the income years commencing with the income year in which a settlement was first made---": (b) "have been satisfied" is replaced by "for those income years have been satisfied at that time". ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- (22C) In the definition of recognised exchange, "CG 7B," is inserted after "CF 3,". ----------------------------------------------------------------------- (23) After the definition of resident, the following is inserted: "resident imputation subgroup means, for a trans-Tasman imputation group, the group consisting of the members of the trans-Tasman imputation group that are not Australian imputation credit account companies "resident in Australia means, for a company and for the purpose of the imputation rules--- Struck out (unanimous) ======================================================================= "(a) incorporated in Australia: ======================================================================= Struck out (unanimous) ======================================================================= "(b) carrying on business in Australia and--- "(i) having its central management and control in Australia: "(ii) having its voting power controlled by Australian residents". ======================================================================= New (unanimous) ----------------------------------------------------------------------- "(a) being non-resident; and ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- "(b) being resident under section OE 2(1) if Australia were treated as being New Zealand for the purpose of that provision". ----------------------------------------------------------------------- (24) In the definition of resident in New Zealand, "and OE 2" is replaced by ", OE 2 and OE 3". (25) In the definition of salary or wages, after paragraph (ea), the following is inserted: "(eb) all payments of salary and principal allowances made to a judicial officer under a determination of the Remuneration Authority; and". (26) After paragraph (f) of the definition of schedular gross income, the following is added: "(g) gross income derived {in an income year} by a natural person from providing a standard-cost household service". New (unanimous) ----------------------------------------------------------------------- (26B) The definition of sick, accident, or death benefit fund is replaced by the following: "sick, accident, or death benefit fund has the meaning given in section CB 5(2)". ----------------------------------------------------------------------- (27) The definition of specified office holder is repealed. (28) After the definition of standard balance date, the following is inserted: "standard-cost household service means a service that is a standard-cost household service under a determination that is made by the Commissioner under section 91AA of the Tax Administration Act 1994". New (unanimous) ----------------------------------------------------------------------- (28B) After the definition of tax code declaration, the following is inserted: "tax credit account is defined in--- "(a) section GC 22(9) for the purpose of that section: "(b) section GC 27B(10) for the purpose of that section". ----------------------------------------------------------------------- (29) After the definition of transitional year, the following is inserted: "trans-Tasman imputation group means an imputation group that has--- "(a) at least one member that is not an Australian imputation credit account company; and "(b) at least one member that is an Australian imputation credit account company." New (unanimous) ----------------------------------------------------------------------- (29B) After paragraph (g) of the definition of unit trust, the following is inserted: "(gb) a fund that satisfies section CB 5(1)(ib)(i) to (v); or". ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- (29C) Subsection (22B) applies for the 1997-98 and subsequent income years. ----------------------------------------------------------------------- (30) Subsection (9) applies for the 2002-03 and subsequent income years. (31) {Subsections (5), (14), (15), (17), (18), (19) and (22) apply for the } [Subsections (1B), (5), (8B), (14), (14B), (15), (17), (19) and (28B) apply for the ]2004-05 and subsequent income years. (32) Subsection (20) applies for pay periods beginning on and after 1 April 2004. New (unanimous) ----------------------------------------------------------------------- (33) Subsection (22C) applies for the 2001-02 to 2005-06 income years. ----------------------------------------------------------------------- 67 Meaning of source deduction payment---shareholder-employees of close companies In section OB 2(1), "a payment made to a specified office holder in respect of the activities of a specified office," is omitted. 68 Modifications to measurement of voting and market value of interests in case of continuity provisions In section OD 5(3)--- (a) in paragraph (b), "That trustee" is replaced by "the trustee": (b) in paragraph (c), in both places where it occurs, "company" is omitted: (c) in the words after paragraph (c) and before paragraph (d)--- (i) "that trustee" is replaced by "the trustee": (ii) "the trustee company" is replaced by "the trustee". 69 Determination of residence of company In section OE 2(3), "liable to pay income tax" is replaced by "liable to income tax". 70 References to particular regimes in former Act, etc. (1) In section OZ 1(1), in the definition of imputation rules--- (a) "CF 6(1) and (2), FC 12," is replaced by "{CF 5B,} CF 6(1) and (2), FC 12, subpart FDB, sections": (b) "ME 9" is replaced by "ME 14". (2) In section OZ 1(1)--- (a) "[, ]139B, 143A(1)(d) and (e), 143B(1)(d)," is omitted from the definition of NRWT rules: (b) "[, ]139B, 143A(1)(d) and (e), 143B(1)(d)," is omitted from the definition of PAYE rules: (c) "[, ]139B, 143A(1)(d) and (e), 143B(1)(d)," is omitted from the definition of RWT rules: (d) ", 139B, 143A(1)(d) and (e), 143B(1)(d)" is omitted from the definition of SSCWT rules. (3) In section OZ 1(1), in the definition of trust rules, ", DI 3A" is omitted. (4) Subsection (2) applies for the 1997-98 and subsequent income years. (5) Subsection (3) applies for the 2004-05 and subsequent income years. 71 Schedule 1---Basic rates of income tax and specified superannuation contribution withholding tax (1) This section amends Schedule 1. (2) In clause 9 of Part A, "clauses 1 to 10" is replaced by "clauses 1 to 8". (3) In clause 10 of Part A, the following is inserted after paragraph (a): "(ab) the rate specified in Part C, if the employee has not made an election under section NE 2AA and the employer has made an election under section NE 2AB; and". (4) After Part B, the following is added:" "Part C "Rates referred to in clause {10} [10(ab)] of Part A "The amount given by the formula in section NE {2AB(2)} [2AB] "The rate of specified superannuation contribution withholding tax for every $1 of the gross amount of a specified superannuation contribution (being the amount of the contribution before deduction of specified superannuation contribution withholding tax) Cents Struck out (unanimous) ======================================================================= An amount that is not more than $38,000 21 ======================================================================= New (unanimous) ----------------------------------------------------------------------- An amount that is not more than $9,500 15 An amount that is more than $9,500 and not more than $38,000 21 ----------------------------------------------------------------------- An amount that is more than $38,000 33". (5) Subsection (2) applies for the 1997-98 and subsequent income years. 72 Schedule 12---Amount that, for purposes of section KD 5(6), is deemed to be equivalent of an annual amount (1) In Schedule 12, wherever it appears, "$20,000" is replaced by "$20,356". (2) Subsection (1) applies for the 2004-05 and subsequent income years. Part 3 Amendments to Tax Administration Act 1994 73 Tax Administration Act 1994 This Part amends the Tax Administration Act 1994. 74 Interpretation New (unanimous) ----------------------------------------------------------------------- (1) In section 3(1), "to which the property is subject" is omitted from the defined term "registration Act to which the property is subject". ----------------------------------------------------------------------- (2) In section 3(1), the following is inserted after the definition of specified dividends: "standard-cost household service means a service that is a standard-cost household service under a determination that is made by the Commissioner under section 91AA". 75 Giving of notices (1) After section 14(1)(b), the following is inserted: "(bb) sent to the person by post addressed to the person at a place given by the person as an address for communications in writing; or". (2) In section 14(1)(d), "business." is replaced by "business; or" and the following is added: "(e) sent to that other person by post addressed to the person or that other person at a place given by that other person as an address for communications in writing." 76 Information to be furnished on request of Commissioner Struck out (unanimous) ======================================================================= In section 17(1B), "and sections 143(2) and 143A(2)" is inserted after "subsection (1)". ======================================================================= New (unanimous) ----------------------------------------------------------------------- (1) Section 17(1B) is replaced by the following: "(1B) For the purpose of subsection (1), information or a book or document is treated as being in the knowledge, possession or control of a New Zealand resident if--- "(a) the New Zealand resident controls, directly or indirectly, a non-resident; and "(b) the information or book or document is in the knowledge, possession or control of the non-resident." ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- (2) In section 17(1C)--- (a) "and sections 143(2) and 143A(2)" is inserted after "subsection (1B)": (b) "held by", in both places that it appears in paragraph (a)(i), is replaced by "in the knowledge, possession or control of". ----------------------------------------------------------------------- 77 Shareholder dividend statement to be provided by company After section 29(1), the following is inserted: "(1B) An Australian imputation credit account company must use, in a shareholder dividend statement, the term `New Zealand imputation credit' to describe the quantity referred to in subsection (1)(g)." 78 Annual returns of income not required (1) After section 33A(1)(a)(iii), the following is inserted: "(iiib) a taxable Maori authority distribution; or". (2) Section 33A(1)(a)(iv), as inserted by section 90(1) of the Taxation (Maori Organisations, Taxpayer Compliance and Miscellaneous Provisions) Act 2003, is repealed. (3) In section 33A(1)(a)(iv), as inserted by section 75(2) of the Taxation (Relief, Refunds and Miscellaneous Provisions) Act 2002, "subparagraphs (i) to (iii)" is replaced by "subparagraphs (i) to (iiib)". (4) After section 33A(2)(c), the following is inserted: "(cb) received a total of more than $200 of gross income that included--- "(i) a withholding payment, not being an amount or proportion of a withholding payment in respect of which the Commissioner has made a determination under regulation 7 of the Income Tax (Withholding Payments) Regulations 1979: "(ii) interest or a dividend that did not have a New Zealand source and from which a withholding tax was not deducted at source: "(iii) beneficiary income; or". (5) Sections 33A(2)(d), (e) and (g) are repealed. (6) Section 33A(2)(h) is repealed. (7) Subsections (1) to (3) apply for the 2004-05 and subsequent income years. (8) Subsections (4) and (5) apply for the 2002-03 and subsequent income years. (9) Subsection (6) applies for the 2003-04 and subsequent income years. 79 New section 33B inserted After section 33A, the following is inserted: "33B Return not required for certain schedular gross income A natural person who derives schedular gross income in an income year from providing a standard-cost household service is not required to furnish a return of income for the schedular gross income if the person's schedular income tax liability for the income year in respect of the schedular gross income is zero and is calculated using no figure for an allowable deduction incurred by the taxpayer in providing the standard-cost household service that is not--- "(a) a figure that has been determined by the Commissioner under section 91AA of the Tax Administration Act 1994 to be appropriate for the taxpayer; or "(b) calculated using a method that has been determined by the Commissioner under section 91AA of the Tax Administration Act 1994 to be appropriate for the taxpayer." 80 Non-active companies may be excused from filing returns (1) In section 43A(4), "that is resident in New Zealand" is inserted after "A company". (2) In section 43A(5), "that is resident in New Zealand" is inserted after "A company". New (unanimous) ----------------------------------------------------------------------- 80B Employer to furnish statement of specified superannuation contribution withholding tax (1) In section 47(1), "or PAYE intermediary" is inserted after "Every employer". (2) In section 47(1)(a), "or PAYE intermediary" is inserted after "where the employer". (3) In section 47(1)(b), "or PAYE intermediary" is inserted after "where the employer". (4) In section 47(1)(c), "or PAYE intermediary" is inserted after "where the employer". (5) Subsections (1) to (4) apply for pay periods beginning on and after 1 April 2004. ----------------------------------------------------------------------- 81 Company dividend statement when imputation credit account company declares dividend After section 67(1)(e), the following is inserted: "(eb) if the dividend was paid in Australian currency by an Australian imputation credit account company, the exchange rate between the New Zealand dollar and the Australian dollar that was used to calculate the imputation ratio:". 82 Annual imputation return (1) In section 69(1), the words before paragraph (a) are replaced by {the following}: {Every imputation credit account company shall} [An imputation credit account company must] furnish to the Commissioner an annual imputation return in the prescribed form for each imputation year, showing---". (2) After section 69(1), the following is {inserted} [added]: "(1B) The annual imputation return required by subsection (1) must be furnished to the Commissioner not later than--- "(a) the last day of the July that next follows the imputation year, if the imputation credit account company [is an Australian imputation credit account company that ]is not required to file a return of income for the income year that corresponds to the imputation year: "(b) the last day on which the imputation credit account company is permitted by section 37 to file a return of income for the income year that corresponds to the imputation year, otherwise." New (unanimous) ----------------------------------------------------------------------- 82B Imputation return to be furnished where Commissioner so requires or where company ceases to be an imputation credit account company (1) The heading to section 70 is replaced by "Imputation return to be furnished if: required by Commissioner; requirement for imputation credit account ceases; or balance retrospectively reduced to debit or to less than refund". (2) After section 70(2), the following is inserted: "(2B) An imputation credit account company or consolidated imputation group that is affected by a refund or transfer relating to an amount in a tax pooling account, and occurring after the end of an imputation year, must furnish to the Commissioner a revised return for the imputation year within 2 calendar months of the date of the refund or transfer if, as a result of the application of section ME 5(2)(ec) or ME 12(2)(db) of the Income Tax Act 1994, the refund or transfer causes the balance of the imputation credit account of the company or group for the end of the imputation year to become--- "(a) a debit balance: "(b) a balance that is less than the amount of a refund that the company would anticipate receiving but for section MD 2 of the Income Tax Act 1994." ----------------------------------------------------------------------- 83 Annual imputation return to be furnished in respect of consolidated groups (1) In the {title of} [heading to] section 74, "consolidated groups" is replaced by "consolidated imputation group". (2) The words before paragraph (a) of section 74 are replaced by the following: "(1) A nominated company for a consolidated imputation group must, subject to subsection (2), comply in respect of the group with sections 69 and 70 as if---". (3) In section 74(b), "consolidated group ceasing to exist" is replaced by the following: "consolidated imputation group--- "(i) ceasing to be a consolidated imputation group; or "(ii) ceasing to be an imputation group and becoming a consolidated group that is a consolidated imputation group; or "(iii) ceasing to be a consolidated group that is a consolidated imputation group and becoming an imputation group". (4) In section 74(c), "consolidated groups" is replaced by "a consolidated imputation group". (5) The following is added to section 74: "(2) The nominated company for a resident imputation subgroup is not required to furnish an annual imputation return under section 69 in respect of the group for an imputation year if the group has no liability to make a payment under section ME 14(3) for the imputation year." 84 Commissioner must issue income statement (1) Section 80D(1) is replaced by the following: "(1) For each income year, the Commissioner must issue an income statement to a person who the Commissioner considers--- "(a) derived in the income year gross income that was--- "(i) income from employment: "(ii) interest: "(iii) dividends; and "(b) did not derive in the income year any gross income that is not referred to in paragraph (a); and "(c) is a person--- "(i) to whom section 33A(1) does not apply: "(ii) to whom section 33A(1) does apply and who requests the Commissioner to issue an income statement: "(iii) to whom section 33A(1) does apply and who is required by section NC 16 of the Income Tax Act 1994 to furnish the Commissioner with an employer monthly schedule relating to a source deduction payment that the person derived in the income year." (2) Subsection (1) applies for the 2003-04 and subsequent income years. 85 Income statement deemed assessment (1) Section 80H(2) is repealed. (2) In section 80H(3), "or (5)" is replaced by "or (6)". (3) Subsection (2) applies for the 2002-03 and subsequent income years. New (unanimous) ----------------------------------------------------------------------- 85B Officers to maintain secrecy (1) After section 81(4)(e), the following is inserted: "(eb) communicating to a person who is an employee of the Department of Internal Affairs or the Ministry of Health information that--- "(i) the person is authorised by the Department or Ministry to receive; and "(ii) the Commissioner considers is not undesirable to disclose and is essential to enable the person to carry out any duty lawfully conferred on the person relating to the determination of the problem gambling levy rate:". (2) Section 81(4)(n), as inserted by section 23(2) of the Taxation (Simplification and Other Remedial Matters) Act 1998, is repealed and the following is added: "(o) communicating, for the purpose of section 82A, information to a person who is an officer, employee, or agent of the department for the time being responsible for the administration of the Social Security Act 1964 and who is authorised to receive the information by the chief executive of the department for the time being responsible for the administration of the Social Security Act 1964." ----------------------------------------------------------------------- 86 New section 91AA inserted After section 91, the following is {added} [inserted]: "91AA Determinations in relation to standard-cost household service "(1) For the purpose of the Inland Revenue Acts, the Commissioner may determine that a service is a standard-cost household service if--- "(a) the activity of providing the service is carried on by taxpayers who are natural persons; and "(b) the activity of providing the service requires the use of each taxpayer's domestic accommodation in activities that commonly occur in a family household; and "(c) the Commissioner considers that the determination would result in a significant reduction in compliance costs for providers of the service without inappropriate--- "(i) risk to the revenue of the Crown: "(ii) demands on the resources of the Commissioner as a result of the administrative and enforcement duties that would be associated with the determination: "(iii) inaccuracy, for a significant number of providers, of any determination by the Commissioner of the costs of providing the service. "(2) For the purpose of calculating the income tax liability of natural persons who derive gross income in an income year from a standard-cost household service, the Commissioner may determine for the income year and the standard-cost household service--- "(a) requirements for the exemption under section CB 9(h) of income that a taxpayer derives from providing the standard-cost household service: "(b) a figure for a cost or costs that for the purpose of this Act may be treated as being incurred by a taxpayer in deriving exempt income from providing the standard-cost household service: "(c) a method that a taxpayer may use to calculate a figure for a cost or costs that for the purpose of this Act may be treated as being incurred by a taxpayer in deriving exempt income from providing the standard-cost household service: "(d) a figure for a cost or costs that for the purpose of this Act may be treated as being incurred by a taxpayer in deriving gross income from providing the standard-cost household service: "(e) a method that a taxpayer may use to calculate a figure for a cost or costs that for the purpose of this Act may be treated as being incurred by the taxpayer in deriving gross income from providing the standard-cost household service: "(f) requirements for the application of a determination under paragraphs (a) to (e). "(3) A taxpayer who in an income year derives gross income from providing a standard-cost household service may, in calculating the taxpayer's income tax liability for the income year, elect to use a figure for a cost or costs or a method of calculating such a figure that the Commissioner has determined under subsection (2) to be appropriate for the taxpayer. "(4) A taxpayer who makes an election under subsection (3) to use a figure or method must not use, in calculating the taxpayer's income tax liability for the income year, any figure for an additional cost of providing the standard-cost household service if the figure or method in the Commissioner's determination relates to a type of cost that includes the additional cost. "(5) If the Commissioner is satisfied that a determination that is made under this section should be varied or rescinded, or restricted or extended in scope, the Commissioner may make a fresh determination that varies, rescinds, restricts or extends that determination. "(6) A determination that is made by the Commissioner under this section must be published in the Gazette within 30 days of the making of the determination. "(7) A determination that is made by the Commissioner under this section may apply for income years that are specified in the determination." 87 Commissioner to make private rulings on request In section 91E(4)(j), "generally accepted accounting principle" is replaced by "generally accepted accounting practice". 88 Commissioner may make product rulings In section 91F(4)(h), "generally accepted accounting principle" is replaced by "generally accepted accounting practice". 89 Assessment of qualifying company election tax and late payment penalty (1) In section 94(2), in paragraph (a), "additional tax" is replaced by "late payment penalty". (2) Subsection (1) applies to late payment penalties that arise with respect to the 1997-98 and subsequent income years. 90 Assessment of non-resident withholding tax In section 100(2), "on objection" is replaced by "in proceedings challenging the assessment". 91 Assessment where default made in furnishing returns Struck out (unanimous) ======================================================================= (1) In section 106(1B)--- (a) "this subsection" is replaced by "subsection (1A)": (b) "a return or an amended income statement under section 89D(2)" is replaced by "a return under section 89D(2) or an amended income statement under section 89D(2B)". ======================================================================= Struck out (unanimous) ======================================================================= (2) Subsection (1)(a) applies for the 1999-2000 and subsequent income years. ======================================================================= New (unanimous) ----------------------------------------------------------------------- (1) In section 106(1B), "this subsection" is replaced by "subsection (1A)". ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- (1B) Section 106(1B) is replaced by the following: "(1B) Tax assessed under subsection (1A) in respect of a person is payable by the person unless the person disputes the assessment and complies with the requirements of section 89D." ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- (2) Subsection (1) applies for the 1999-2000 to 2001-02 income years. ----------------------------------------------------------------------- (3) Subsection {(1)(b)} [(1B)] applies for the 2002-03 and subsequent income years. 92 Definitions (1) In section 120C(1), in paragraph (b)(iii) of the definition of interest period, "has overpaid tax of $50 or more" is replaced by "is required by section MD 1(1A) of the Income Tax Act 1994 to confirm an income statement as correct before the Commissioner may make the refund to the taxpayer". (2) Subsection (1) applies to refunds that arise from income statements that--- (a) are issued on or after 15 May 2003; and (b) relate to the 2002-03 or a subsequent income year. New (unanimous) ----------------------------------------------------------------------- 92B Certain rights of objection not conferred In section 125(d), "CB 5(1)(g) and (i)" is replaced by "CB 5(1)(g)". ----------------------------------------------------------------------- 93 Late filing penalties (1) In section 139A(1), "the annual imputation return required to be furnished under {section 69(1B)(a) by a company } [section 69(1) and (1B)(a) by an Australian imputation credit account company ]that is not required to furnish a return of income for an income year," is inserted before "the reconciliation statement". (2) Section 139A(2)(a), is replaced by the following: "(a) the taxpayer does not complete and provide on time--- "(i) an annual tax return: "(ii) an annual imputation return required to be furnished under{ section 69(1B)(a)} [section 69(1) and (1B)(a)]: "(iii) a reconciliation statement: "(iv) an employer monthly schedule; and". (3) In section 139A(4), "a" is replaced by "an annual imputation return or". (4) In section 139A(5), "annual imputation return or" is inserted before "employer monthly schedule". Struck out (unanimous) ======================================================================= 94 Gross carelessness (1) After section 141C(4), the following is added: "(5) Subsection (4) and section 141B(1B) do not exclude a taxpayer who makes a mistake in the calculation or recording of numbers in a return from being liable for a penalty for gross carelessness." (2) Subsection (1) applies for--- (a) a tax position that a taxpayer takes for the 2004-05 or a subsequent income year, if the tax position relates to income tax: (b) a tax position that a taxpayer takes on or after 1 April 2004, otherwise. ======================================================================= New (unanimous) ----------------------------------------------------------------------- 94B Promoter penalties (1) In section 141EB(4)(b), "taken the tax position that the arrangement produced" is replaced by "taken a tax position under which the arrangement is treated as producing". (2) Subsection (1) applies to arrangements entered into on and after 26 March 2003. ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- 94C Reduction of penalties for previous behaviour Section 141FB(2)(b)(i) is repealed. ----------------------------------------------------------------------- 95 New section 141FC inserted (1) After section 141FB, the following is inserted: "141FC Loss attributing qualifying companies---reduction of shortfall penalties "(1) This section applies if, as a consequence of the attribution of a net loss [for an income year] by a loss attributing qualifying company to a shareholder of the company and the subsequent disallowance of one or more deductions, shortfall penalties are imposed on the company and a shareholder of {that} [the] company. "(2) If a loss attributing qualifying company to which this section applies pays in full the amount of a shortfall penalty referred to in subsection (1) and the shareholder gives a written notice to the Commissioner, requesting the application of this section, a shortfall penalty imposed on the shareholder must be reduced {by an amount that bears to the shortfall penalty paid by the company the same ratio as the shares held by the shareholder bear to the total shares in the company that are on issue on the date of the tax shortfall.} New (unanimous) ----------------------------------------------------------------------- by the lesser of--- "(a) the amount of the shortfall penalty imposed on the shareholder, before the application of this section; and "(b) the amount given by the following formula: ( b ) a x ( --- ) ( c ) where--- a is the amount of the shortfall penalty imposed on the company: b is the amount of the net loss that was attributed to the shareholder by the company: c is the amount of the net loss for the income year that was attributed to shareholders by the company." ----------------------------------------------------------------------- Struck out (unanimous) ======================================================================= (3) In this section, a share held by a shareholder in a loss attributing qualifying company means a share in that company held by the shareholder for the duration of the period commencing on the first day of the income year or period in which the tax shortfall occurred and ending on the date the penalty was imposed." ======================================================================= (2) Subsection (1) applies to shortfall penalties imposed on and after 1 April 1998. 96 Due date for payment of late filing penalty In section 142(1)(c), "reconciliation statement." is replaced by "reconciliation statement; or" and the following is added: "(d) for an annual imputation return required to be furnished under {section 69(1B)(a) by a company } [section 69(1) and (1B)(a) by an Australian imputation credit account company ]that is not required to furnish a return of income for an income year, the date by which the company is required to furnish the annual imputation return." New (unanimous) ----------------------------------------------------------------------- 96B Absolute liability offences Section 143(2) is replaced by the following: "(2) No person may be convicted of an offence against subsection (1)(b) for not providing information (other than tax returns and tax forms) to the Commissioner if the person proves that, as and when the person was required by the Commissioner to provide the information--- "(a) the person did not have the information in the person's knowledge, possession or control; and "(b) No non-resident, who under section 17(1C) was controlled directly or indirectly by the person, had the information in the non-resident's knowledge, possession or control." ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- 96C Knowledge offences Section 143A(2) is replaced by the following: "(2) No person may be convicted of an offence against subsection (1)(b) for knowingly not providing information (other than tax returns and tax forms) to the Commissioner if the person proves that, as and when the person was required by the Commissioner to provide the information--- "(a) the person did not have the information in the person's knowledge, possession or control; and "(b) No non-resident, who under section 17(1C) was controlled directly or indirectly by the person, had the information in the non-resident's knowledge, possession or control." ----------------------------------------------------------------------- 97 Recovery of excess tax credits allowed In section 165A(2), "of the Income Tax Act 1994" is inserted after "sections LC 3, LC 4(11) and LD 1(6)". New (unanimous) ----------------------------------------------------------------------- 97B Recovery of tax deductions from employers or PAYE intermediaries (1) After section 167(2), the following is inserted: "(2B) This section applies to a person instead of an employer if--- "(a) the person is acting as a PAYE intermediary for the employer in relation to an employee and a pay period; and "(b) the employer, for the pay period, has--- "(i) paid to the person the salary or wages relating to the employee as required by section NBB 4(1)(b) of the Income Tax Act 1994: "(ii) provided the information required by the person as required by section NBB 4(1)(d) of the Income Tax Act 1994. "(2C) For the purpose of applying this section to a person acting as a PAYE intermediary, a reference to an `employer' is to be read as a reference to a `person acting as a PAYE intermediary'." (2) Section 167(3) and (4) as inserted by section 142(2) of the Taxation (Maori Organisations, Taxpayer Compliance and Miscellaneous Provisions) Act 2003 are repealed. (3) Subsections (1) and (2) apply for pay periods beginning on and after 1 April 2004. ----------------------------------------------------------------------- 98 Unpaid tax deductions, etc., to constitute charge on employer's property (1) Section 169(3) to (5) are replaced by the following: "(3) Despite section 23(b) of the Personal Property Securities Act 1999, if a charge affects property of a particular kind and the provisions of a registration Act applicable to the property provide for the registration of charges or security interests over property of that kind, the Commissioner may have particulars of that charge recorded on the register without payment of any fee. "(4) Particulars recorded under subsection (3) are to operate and take priority according to the provisions of the applicable registration Act. "(4B) If a mortgage that affects the same property is registered before the registration of the charge under this section {, and further} [and] money secured by the mortgage is advanced [after the registration of the charge under this section], the charge has priority over the mortgage in respect of that money. "(5) On the satisfaction of a registered charge, the Commissioner must release the charge in the manner required by the Act under which it was registered, with such modifications as may be necessary, and without being required to pay a fee." (2) In section 169(9), "and the order shall be subject to stamp duty accordingly;" is omitted. Struck out (unanimous) ======================================================================= (3) In section 169(11)--- (a) the words preceding paragraph (a) are replaced by--- In this section, registration Act applicable to the property, in relation to any property, includes---": ======================================================================= Struck out (unanimous) ======================================================================= (b) in paragraph (a), "The Land Transfer Act 1952 or the Deeds Registration Act 1908, as the case may require," is replaced by "the Statutory Land Charges Registration Act 1928,": (c) paragraph (b) is replaced by--- ======================================================================= Struck out (unanimous) ======================================================================= "(b) the Personal Property Securities Act 1999, in every case where a security interest over the property would require registration in order to be perfected under that Act." ======================================================================= New (unanimous) ----------------------------------------------------------------------- (3) Section 169(11) is replaced by the following: "(11) In this section, registration Act, in relation to any property, includes--- "(a) the Statutory Land Charges Registration Act 1928, in every case where the property is land or an interest in land (including a mortgage): "(b) the Personal Property Securities Act 1999." ----------------------------------------------------------------------- 99 New section 181C inserted After section 181B, the following is inserted: "181C Remission of late payment penalties and interest incurred due to obligation to pay further income tax "(1) This section applies to a company that is liable--- "(a) under section ME 9(1) of the Income Tax Act 1994 to pay an amount of tax by way of further income tax of an amount equal to a debit balance in the company's imputation credit account at the end of an imputation year; and "(b) under section 139B to pay a late payment penalty on unpaid income tax [that relates to a payment due in the imputation year]. "(2) {Subject to subsection (3), the} [The] Commissioner must remit any interest under section 120D payable by the company and the late payment penalty relating to the further income tax, to the extent that the amount of further income tax charged in relation to that imputation year is equal to or is less than the amount of unpaid income tax referred to in subsection (1)(b)." Struck out (unanimous) ======================================================================= "(3) The Commissioner must not make a remission under subsection (2) for an imputation year that commences between 1 April 1998 and 1 April 2002 if the company does not apply for the remission by a notice in writing that is received by the Commissioner within 2 calendar months of the date on which the Taxation (Annual Rates, GST, Trans-Tasman Imputation and Miscellaneous Provisions) Act 2003 receives the Royal assent." ======================================================================= Part 4 Amendments to other Acts Amendments to Goods and Services Tax Act 1985 100 Goods and Services Tax Act 1985 Sections 101 to 124 amend the Goods and Services Tax Act 1985. 101 Interpretation (1) This section amends section 2[(1)]. (2) In the definition of goods, "or money" is replaced by ", money or a product that is transmitted by a non-resident to a resident by [means of ]a wire, cable, radio, optical or other electromagnetic system or by [means of ]a similar technical system". (3) After the definition of non-profit body, the following is inserted: "non-resident means a person {who } [to the extent that the person ]is not resident in New Zealand". 102 Meaning of associated persons After section 2A(1)(b), the following is inserted: "(bb) a person, or a branch or division of the person that is treated as a separate person under section 56B, and another branch or division of the person that is treated as a separate person under section 56B:". 103 Meaning of term financial services In section 3(3)(c), "(as defined in section 2(1) of the Companies Amendment Act 1964)" is replaced by "(as defined in section 121A of the Land Transfer Act 1952)". 104 Meaning of input tax (1) Section 3A(2)(b)(i) is replaced by--- "(i) is a non-resident; and". Struck out (unanimous) ======================================================================= (2) In section 3A(2)(c), "taxable supplies" is replaced by "taxable supplies that are not charged with tax at the rate of 0% under section 11A(1)(q) or (r)". ======================================================================= New (unanimous) ----------------------------------------------------------------------- (2) Section 3A(2)(c) is replaced by the following: "(c) the goods are acquired for the principal purpose of making taxable supplies and--- "(i) the taxable supplies are not charged with tax at the rate of 0% under section 11A(1)(q) or (r); or "(ii) the taxable supplies are charged with tax at the rate of 0% under section 11A(1)(q) or (r) and the goods have never, before the acquisition, been owned or used by the registered person or by a person associated with the registered person." ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- 104B Meaning of term supply (1) After section 5(7), the following is inserted: "(7B) For the purposes of this Act, a local authority is treated as supplying goods and services to a person if the local authority requires a contribution from the person as--- "(a) a financial contribution that is a condition of a resource consent under the Resource Management Act 1991: "(b) a development contribution under the Local Government Act 2002. "(7C) For the purposes of this Act, a person who makes a contribution to a local authority is treated as supplying goods and services to the local authority to the extent that the contribution consists of land and is--- "(a) a financial contribution that is a condition of a resource consent under the Resource Management Act 1991: "(b) a development contribution under the Local Government Act 2002." (2) Subsection (1) applies to a financial contribution that is a condition of a resource consent under the Resource Management Act 1991 if--- (a) the requirement for the contribution is imposed on or after the date on which this Act receives the Royal assent: (b) the requirement for the contribution is imposed on or after 1 October 1991, and before the date on which this Act receives the Royal assent, and the local authority treated--- (i) the contribution as being made in relation to a taxable supply; and (ii) the taxable supply as being charged with tax at a rate other than 0%. (3) Subsection (1) applies to a development contribution under the Local Government Act 2002 if the requirement for the contribution is imposed on or after the date on which this Act receives the Royal assent. ----------------------------------------------------------------------- 105 New section 5B inserted After section 5, the following is inserted: "5B Supply of certain imported services For the purpose of the definition of output tax and sections 8(1), 15, 15A, 19A, 20(4), 20B, 25AA, 51, 52, 57, 75, 76(6), {78, }78B, 78BA and 78C, a supply of services that is treated by section 8(4B) as being made in New Zealand is treated as being made by the recipient of the supply in the course or furtherance of a taxable activity carried on by the recipient." 106 Imposition of goods and services tax on supply (1) In section 8(2), (3) and (4), "not resident in New Zealand" is replaced by "a non-resident". (2) After section 8(4), the following is inserted: "(4B) Despite subsection (2), a supply of services that is not treated as being made in New Zealand by subsections (3)(b) and (4) is treated as being made in New Zealand if--- "(a) the services are supplied by a non-resident to a resident; and Struck out (unanimous) ======================================================================= "(b) the services are acquired by a person who, in a 12-month period that includes the date of the supply of services, makes supplies of which less than 95% in total value are taxable supplies; and ======================================================================= Struck out (unanimous) ======================================================================= "(c) the supply, if made in New Zealand by a registered person in the course or furtherance of a taxable activity carried on by the person--- "(i) would be a taxable supply; and "(ii) would not be charged with tax at the rate of 0% under section 11A(1)(q) or (r)." ======================================================================= New (unanimous) ----------------------------------------------------------------------- "(b) the recipient of the supply--- "(i) does not, in the 12-month period that ends with the month in which the supply of the services is made, make supplies of which at least 95% in total value are taxable supplies; and "(ii) does not at the time of the supply have reasonable grounds for believing that the recipient of the supply will, in the 12-month period that begins with the month in which the supply of the services is made, make supplies of which at least 95% in total value are taxable supplies; and ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- "(c) the supply would be a taxable supply if made in New Zealand by a registered person in the course or furtherance of a taxable activity carried on by the registered person. ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- "(4C) An allocation of costs by a non-resident to a resident is treated as being a supply of services that satisfies section 8(4B)(a) and (c), and the amount provided to the non-resident by the resident under the allocation is treated as being the consideration for the supply." ----------------------------------------------------------------------- (3) In section 8(5), "Subsections (3) and (4)" is replaced by "Subsections (3), (4) and (4B)". (4) In section 8(6), "not resident in New Zealand" is replaced by "a non-resident". (5) In section 8(8), "a telecommunications supplier who is not resident in New Zealand" is replaced by "a non-resident". New (unanimous) ----------------------------------------------------------------------- (6) Section 8(9) is replaced by the following: "(9) For the purposes of subsection (6) and section 11AB, the person who initiates a supply of telecommunications services is the person who--- "(a) is identified by the supplier of the services as being--- "(i) the person who controls the commencement of the supply: "(ii) the person who pays for the services: "(iii) the person who contracts for the supply; and "(b) if more than 1 person satisfies paragraph (a), is the person who appears highest on the list in that paragraph." ----------------------------------------------------------------------- 107 Time of supply In section 9(2)(a)(iii), "performed:" is replaced by "performed, unless subparagraph (iv) applies; and" and the following is inserted: "(iv) in the case of a supply of services that is treated by section 8(4B) as being made in New Zealand, at the end of the taxable period that includes the date that is 2 months after the first balance date of the recipient {after } [that follows the completion of ]the performance of the services:". 108 Value of supply of goods and services (1) In section 10(3), "subsections (3A)" is replaced by "subsections (3A),{ (3B)} [ (3AB), (3B), (3BB)]". Struck out (unanimous) ======================================================================= (2) After section 10(3A), the following is inserted: ======================================================================= New (unanimous) ----------------------------------------------------------------------- (2) Section 10(3A) is replaced by the following: "(3A) Subsection (3) does not apply to a supply if--- "(a) the recipient acquired the supply for the principal purpose of making taxable supplies; and "(b) the recipient is entitled to make a deduction under section 20(3) in respect of the supply, or would be entitled to make such a deduction if--- "(i) the amount of the deduction were determined under section 3A(3)(e) instead of under section 3A(3)(a): "(ii) there were consideration for the supply: "(iii) the supplier were a registered person who had complied with the requirements of the Act; and "(c) the supply is not a supply of financial services to which subsection (3AB) applies. ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- "(3AB) If a supply of financial services is charged with tax at a rate of 0% under section 11A(1)(q) or (r) or gives rise to a deduction for the supplier under section 20C--- "(a) subsection (3) does not apply to the supply; and "(b) the consideration for the supply is treated as being the open market value of the supply if--- "(i) the supply is made by a person for consideration that is more than the open market value of the supply; and "(ii) the supplier and the recipient are associated persons. ----------------------------------------------------------------------- "(3B) Subsection (3) does not apply to a supply of services that is treated by section 8(4B) as being made in New Zealand if--- "(a) the amount of the consideration for the supply is a deduction under the Income Tax Act 1994 for the recipient of the supply; or "(b) the amount of the consideration for the supply would have been a deduction under the Income Tax Act 1994 for the recipient of the supply if the recipient had given any consideration for the supply. New (unanimous) ----------------------------------------------------------------------- "(3BB) Subsection (3) does not apply to a supply of services that is treated by section 8(4B) as being made in New Zealand if--- "(a) the recipient of the supply is a branch or division that is treated by section 56B as being a separate person; and "(b) the amount of the consideration for the supply would have been a deduction under the Income Tax Act 1994 for the branch or division if--- "(i) the branch or division were entitled to deductions under the Income Tax Act 1994: "(ii) the branch or division had given any consideration for the supply. ----------------------------------------------------------------------- "(3C) The value of a supply of services that is treated by section 8(4B) as being made in New Zealand is the amount that, before the addition of the tax charged, is equal to the amount of the consideration for the supply." (3) After section 10(15B), the following is inserted: "(15C) If a non-resident makes a supply of services to a resident who is a member of the same group of companies under {section 55} [section IG 1 of the Income Tax Act 1994] as the supplier, or who is treated by section 56B as being a separate person from the supplier, and the supply is treated by sections 5B and 8(4B) as being made in New Zealand by the recipient of the supply, the value of the supply is determined as if the consideration for the supply did not include--- "(a) the amount of the consideration for the supply that represents salary or wages paid to an employee of--- "(i) the non-resident: "(ii) a company that is in a wholly-owned group with the non-resident under section IG 1 of the Income Tax Act 1994; and "(b) the amount of the consideration for the supply that represents interest incurred by--- "(i) the non-resident: "(ii) a company that is in a wholly-owned group with the non-resident under section IG 1 of the Income Tax Act 1994." 109 Zero-rating of services New (unanimous) ----------------------------------------------------------------------- (1A) After section 11A(1)(c), the following is inserted: "(cb) the services, including ancillary activities such as loading, unloading, handling and storing, are the transport of household goods from a place in New Zealand to another place in New Zealand, if--- "(i) the services are supplied to a person who, at the time of the supply, is non-resident and outside New Zealand; and "(ii) the goods are entered for home consumption under the Customs and Excise Act 1996; and "(iii) the arrangement for the supply of the services is made before the goods are entered; and "(iv) the services are reasonably expected to be completed within the period of 28 days that begins on the date of entry of the goods; or". ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- (1AB) In section 11A(1)(d), "paragraphs (a) to (c)" is replaced by "paragraphs (a) to (cb)". ----------------------------------------------------------------------- (1) In section 11A(1)(k), (l){, (m)} and (ma)(ii), "not resident in New Zealand" is replaced by "a non-resident". New (unanimous) ----------------------------------------------------------------------- (1B) Section 11A(1)(m) is replaced by the following: "(m) the services are supplied--- "(i) directly in connection with goods, the supply of which was subject to any one of section 11(1)(a) to (e); and "(ii) to a recipient who, when the services are performed, is a non-resident and outside New Zealand; or". ----------------------------------------------------------------------- (2) In section 11A(1)(p), "New Zealand." is replaced by "New Zealand; or" and the following is inserted: "(q) the services are financial services that are supplied in respect of a taxable period, by a registered person who {has not made an election under section 11C} [has made an election under section 20F], to a registered person who makes supplies of goods and services such that taxable supplies that are not charged with tax at the rate of 0% under this paragraph or under paragraph (r) make up not less than 75% of the total value of the supplies in respect of--- "(i) a 12-month period that includes the taxable period; or "(ii) a period acceptable to the Commissioner; or "(r) the services are financial services that are supplied in respect of a taxable period, {by a person who has not made an election under section 11C} [by a registered person who has made an election under section 20F], to a person who is a member of a group of companies for the purposes of section IG 1 of the Income Tax Act 1994 and--- "(i) the members of the group make supplies of goods and services to persons who are not members of the group in respect of--- "(A) a 12-month period that includes the taxable period; or "(B) a period acceptable to the Commissioner; and "(ii) not less than 75% of the total value of the supplies referred to in subparagraph (i) consists of taxable supplies that are not charged with tax at the rate of 0% under this paragraph or under paragraph (q)." (3) After section 11A(1), the following is inserted: Struck out (unanimous) ======================================================================= "(1B) Subsection (1), other than subsections (1)(e) and (f), does not apply to supplies of services that are treated by section 8(4B) as being made in New Zealand." ======================================================================= New (unanimous) ----------------------------------------------------------------------- "(1B) Subsection (1)(j) does not apply to a supply of services that is treated by section 8(4B) as being made in New Zealand unless the nature of the services is such that the services are physically received at--- "(a) the time and place at which the services are physically performed; and "(b) No other time or place." ----------------------------------------------------------------------- (4) In section 11A(2) and (4), "not resident in New Zealand" is replaced by "a non-resident". New (unanimous) ----------------------------------------------------------------------- (5) After section 11A(4), the following is added: "(5) The availability of a deduction under subsection (1)(q) and (r) must be determined using a method allowed by section 20E." (6) Subsections (1A) and (1AB) apply to supplies made on or after the date on which this Act receives the Royal assent. ----------------------------------------------------------------------- 110 Zero-rating of telecommunications services (1) In section 11AB(a), "resident in New Zealand" is replaced by "who is a resident". New (unanimous) ----------------------------------------------------------------------- (2) In section 11AB(b), "person outside New Zealand" is replaced by "person". ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- 110B Zero-rating of supply by territorial authority (1) In the heading to section 11B, "supply by territorial authority" is replaced by "some supplies by territorial authorities, some supplies involving contributions to local authorities". (2) After section 11B(1), the following is added: "(1B) If a supply under section 5(7B) of goods and services by a local authority to a registered person is chargeable with tax under section 8, the supply must be charged at the rate of 0% to the extent that the contribution made by the registered person to the local authority consists of land. "(1C) If a supply under section 5(7C) of goods and services by a person to a local authority is chargeable with tax under section 8, the supply must be charged at the rate of 0% if the local authority is a registered person." (3) Subsection (2) applies to contributions that are made on or after the date on which this Act receives the Royal assent. ----------------------------------------------------------------------- Struck out (unanimous) ======================================================================= 111 New sections 11C and 11D inserted After section 11B, the following is inserted: "11C Election that sections 11A(1)(q) and (r) and 20C not apply "(1) A registered person may give written notice to the Commissioner of an election that the registered person not be subject to sections 11A(1)(q) and (r) and section 20C. "(2) An election under subsection (1)--- "(a) applies for the taxable period in which the Commissioner receives the notice and for subsequent taxable periods until the election is cancelled; and "(b) is cancelled from the end of the taxable period--- "(i) in which the registered person ceases to have a taxable activity, if subparagraphs (ii) and (iii) do not require an earlier cancellation; or "(ii) that is nominated in a written notice of cancellation that the Commissioner receives from the registered person, if the notice of cancellation nominates a taxable period after which the cancellation is to be effective; or "(iii) in which the Commissioner receives from the registered person a written notice of cancellation, if the notice of cancellation does not nominate a taxable period after which the cancellation is to be effective. "11D Amount relating to supplies by another person A person who makes a return, for a taxable period, based on an amount relating to supplies made by another person must use a figure for the amount that is obtained--- "(a) from the statistics of the supplies made by the other person; or "(b) by a method that is approved by the Commissioner." ======================================================================= New (unanimous) ----------------------------------------------------------------------- 111B Exempt supplies (1) Section 14(3) is replaced by the following: "(3) An amount is treated as being consideration for an exempt supply if it is--- "(a) penalty or default interest, or a charge in the nature of penalty or default interest, that is imposed--- "(i) under a contract for the supply of goods and services: "(ii) under an enactment: "(b) a penalty imposed on unpaid rates under the Local Government (Rating) Act 2002: "(c) a postponement fee, or a part of a postponement fee, that is imposed under section 88 of the Local Government (Rating) Act 2002 and that relates to financial costs of the local authority arising from a postponement of rates." (2) Subsection (1) applies to an amount of penalty, interest, charge or fee that is imposed on or after 1 July 2003. ----------------------------------------------------------------------- 112 Other returns In section 18, "and 19 of this Act" is replaced by "and 19B". 113 Calculation of tax payable New (unanimous) ----------------------------------------------------------------------- (1A) In the words before section 20(2)(a), "and no deduction calculated under section 25(2)(b) or 25(5)" is inserted after "input tax". ----------------------------------------------------------------------- (1) In section 20(2)(c), "relates:" is replaced by "relates; or" and the following is inserted: Struck out (unanimous) ======================================================================= "(d) sufficient records are maintained as required by section 24B, if the supply is a supply of services to which that section relates:". ======================================================================= New (unanimous) ----------------------------------------------------------------------- "(d) the supply is a supply of services that is treated by section 5B as being made by the recipient and the recipient has accounted for the output tax charged in respect of the supply:". ----------------------------------------------------------------------- Struck out (unanimous) ======================================================================= (2) Section 20(3)(a)(iii) is replaced by the following: "(iii) calculated in accordance with any one of sections 25(2)(b), 25(5), 25AA(2)(b), 25AA(3)(b), 26 or 26B(3); and". ======================================================================= Struck out (unanimous) ======================================================================= (3) In section 20(3)(b)(iv)--- (a) "section 25(2)(b) or section 25(5) of this Act" is replaced by "any one of sections 25(2)(b), 25(5), 25AA(2)(b) or 25AA(3)(b)": (b) "section 26 of this Act" is replaced by "section 26 or 26B(3)". ======================================================================= New (unanimous) ----------------------------------------------------------------------- (2) In section 20(3)(a)--- (a) in the words before subparagraph (i), "amount of input tax--- is replaced by "amount of the following:": (b) in subparagraph (i), "input tax" is inserted before "in relation to": (c) in subparagraph (ia), "input tax" is inserted before "in relation to": (d) in subparagraph (ii), "input tax" is inserted before "invoiced or paid": (e) subparagraph (iii) is replaced by the following: "(iii) any amount calculated in accordance with any one of sections 25(2)(b), 25(5), 25AA(2)(b) or 25AA(3)(b); and". ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- (3) In section 20(3)(b)--- (a) in the words before subparagraph (i), "amount of input tax--- is replaced by "amount of the following:": (b) in subparagraph (i), "input tax" is inserted before "in relation to": (c) in subparagraph (ii), "input tax" is inserted before "paid": (d) in subparagraph (iii), "input tax" is inserted before "in relation to": (e) subparagraph (iv) is replaced by the following: "(iv) any amount calculated in accordance with any one of sections 25(2)(b), 25(5), 25AA(2)(b) or 25AA(3)(b), to the extent that a payment has been made in respect of that amount; and". ----------------------------------------------------------------------- (4) In subparagraphs (iii) and (iva) of the proviso to section 20(3)(d), "not resident in New Zealand" is replaced by "a non-resident". (5) In section 20(3)(g), "period:" is replaced by "period; and" and the following is inserted: "(h) any amount calculated in accordance with section 20C in relation to supplies of financial services in respect of that taxable period: New (unanimous) ----------------------------------------------------------------------- "(i) any amount calculated in accordance with section 26:". ----------------------------------------------------------------------- (6) In section 20(4)(b)--- (a) in subparagraph (i), "or 25(4); or" is replaced by "25(4) {or 26B(2)} and is not treated by section 8(4B) as being made in New Zealand; or" and the following is inserted: "(ib) to the extent that payment for the supply has been made during the taxable period, if the supply is a supply of services that is treated as being made in New Zealand by section 8(4B) together with any one of sections 9(1), 9(3)(a), 9(3)(aa), 9(6), 9(8), 25AA(2)(a) or 25AA(3)(a); or": (b) subparagraph (ii) is replaced by the following: "(ii) if the supply of goods and services is made {or treated as being made} during the taxable period by the registered person and neither of subparagraphs (i) {or} [and] (ib) applies." 114 New section[s] 20C [to 20F] inserted After section 20B, the following is inserted: "20C Goods and services tax incurred in making certain supplies of financial services Subject to this section, a registered person who has {not made an election under section 11C} [made an election under section 20F] and who in respect of a taxable period supplies financial services to another supplier of financial services (called in this section a direct supplier) may make for each direct supplier a deduction under section 20(3)(h) of an amount given by the following formula: b d a x --- x --- c e where--- a is the total amount that the registered person would be able to deduct under section 20(3), other than under section 20(3)(h), in respect of the taxable period if all supplies of financial services by the registered person were taxable supplies: b is the total value of exempt supplies of financial services by the registered person to the direct supplier in respect of the taxable period: c is the total value of supplies by the registered person in respect of the taxable period: d is the total value of taxable supplies by the direct supplier in respect of the taxable period[, determined under section 20D]: e is the total value of supplies by the direct supplier in respect of the {taxable period} [taxable period, determined under section 20D]. New (unanimous) ----------------------------------------------------------------------- "20D Determining availability of deduction under section 20C from supplies by another person If a person makes a return that includes a figure for a deduction under section 20C based on the value of supplies made by the person to other persons, the availability of the deduction under section 20C for supplies made by the person to each other person must be determined on the basis of the statistics of the supplies made by the other person. ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- "20E Determining supplies charged at 0% under section 11A(1)(q) and (r) from supplies by another person If a person makes a return that includes a figure for the value of supplies charged with tax at a rate of 0% under section 11A(1)(q) and (r), that are made by the person to other persons, the effect of section 11A(1)(q) and (r) for supplies made by the person to each other person must be determined--- "(a) on the basis of the statistics of the supplies made by the other person; or "(b) using a method that is approved by the Commissioner. ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- "20F Election that sections 11A(1)(q) and (r) and 20C apply "(1) A registered person may give written notice to the Commissioner of an election that the registered person be subject to sections 11A(1)(q) and (r) and 20C. "(2) An election under subsection (1)--- "(a) applies for the taxable period in which the Commissioner receives the notice and for subsequent taxable periods until the the election is cancelled: "(b) is cancelled from the end of the taxable period--- "(i) in which the registered person ceases to have a taxable activity, if subparagraphs (ii) and (iii) do not require an earlier cancellation; or "(ii) that is nominated in a written notice of cancellation that the Commissioner receives from the registered person, if the notice of cancellation nominates a taxable period after which the cancellation is to be effective; or "(iii) in which the Commissioner receives from the registered person a written notice of cancellation, if the notice of cancellation does not nominate a taxable period after which the cancellation is to be effective." ----------------------------------------------------------------------- 115 Timing of deduction under section 21F (1) In section 21G(1A), "and subject to subsection (1B)" is inserted after "Despite subsection (1)". (2) After section 21G(1A), the following is inserted: "(1B) Subsection (1A) does not apply to a registered person if the goods referred to in section 21E are applied for a different purpose as a consequence of a change in this Act." 116 Application to make single deduction under section 21F (1) Section 21H(2) is replaced by the following: Struck out (unanimous) ======================================================================= "(2) The application of subsection (1) is restricted to goods and services that--- "(a) cost $18,000 or more; and "(b) are applied for a different purpose other than as a consequence of a change in this Act." ======================================================================= New (unanimous) ----------------------------------------------------------------------- "(2) Subsection (1) does not apply to goods and services that--- "(a) cost less than $18,000: "(b) are applied for a different purpose as a consequence of a change in this Act." ----------------------------------------------------------------------- (2) In section 21H(3)(d), "section 21" is replaced by "section 21(1)". (3) Subsection (2) applies to goods and services treated as being supplied on and after 10 October 2000. 117 New section 24B inserted After section 24, the following is inserted: "24B Records to be kept by recipient of imported services A registered person who receives a supply of services that is treated by section 8(4B) as being made in New Zealand must maintain sufficient records of the supply to enable the following particulars to be ascertained: "(a) the name and address of the supplier: "(b) the date on which, or the period during which, the supply was received: "(c) a description of the services supplied: "(d) the consideration for the supply: "(e) the time by which payment of the consideration for the supply is required: "(f) the amount of the consideration for the supply that the registered person has treated as not affecting the value of the supply in reliance on section 10(15C)(a): "(g) the amount of the consideration for the supply that the registered person has treated as not affecting the value of the supply in reliance on section 10(15C)(b)." New (unanimous) ----------------------------------------------------------------------- 117B Credit and debit notes (1) In section 25(2)(b), "deduction of input tax" is replaced by "deduction". (2) In section 25(5), "deduction of input tax pursuant to" is replaced by "deduction under". ----------------------------------------------------------------------- 118 New section 25AA inserted After section 25, the following is inserted: "25AA Consequences of change in contract for imported services "(1) Despite section 25, this section applies in relation to a supply of services by a non-resident that is treated by sections 5B and 8(4B) as being made in New Zealand by the recipient of the supply if--- "(a) any one of the following is satisfied: "(i) the supply of services has been cancelled: "(ii) the nature of the supply of services has been fundamentally varied or altered: "(iii) the previously agreed consideration for the supply of services has been altered, whether due to the offer of a discount or otherwise: "(iv) the services or part of the services supplied have been returned to the non-resident; and "(b) an incorrect return has been made for the taxable period for which output tax on the supply is attributable. "(2) A person who has accounted for an incorrect amount of output tax must make an adjustment to the calculation of tax payable in the return for the taxable period in which it becomes apparent that the amount of output tax was incorrect, and if the output tax properly charged on the supply is--- "(a) more than the output tax actually accounted for by the person, the amount of the excess is treated as being tax charged in relation to a taxable supply made by the person: "(b) less than the output tax actually accounted for by the person, the amount of the deficiency is a deduction under section 20(3) for the person. "(3) A person who has accounted for an incorrect amount of deductions must make an adjustment to the calculation of tax payable in the return for the taxable period in which it becomes apparent that the amount of deductions was incorrect, and if the deduction properly resulting from the supply is--- "(a) less than the deduction actually claimed by the {supplier} [person], the amount of the deficiency is treated as being tax charged in relation to a taxable supply made by the person: "(b) more than the deduction actually claimed by the {supplier} [person], the amount of the excess is a deduction under section 20(3) for the person." Struck out (unanimous) ======================================================================= 119 New section 26B inserted After section 26A, the following is inserted: "26B Adjustments to deduction based on amount relating to supplies by another person "(1) A registered person must make an adjustment under this section if--- "(a) the registered person has made a return, for a taxable period, based on an amount relating to the supplies made by another person for the purpose of section 11A(1)(q) or (r) or section 20C; and "(b) an inaccuracy in the figure for the amount has affected the accuracy of the return; and "(c) the Commissioner does not, under subsection (5), excuse the registered person from making the adjustment. "(2) If the effect of the inaccuracy is that the registered person claimed in the return a deduction that was greater than the deduction allowed by section 20(3) for the taxable period, the amount of the excess is treated as tax charged in relation to a taxable supply made by the registered person. "(3) If the effect of the inaccuracy is that the registered person claimed in the return a deduction that was less than the deduction allowed by section 20(3) for the taxable period, the amount of the deficiency is treated as a deduction under section 20(3) in relation to a taxable supply received by the registered person. "(4) An adjustment under subsection (2) or (3) must be made in a return for--- "(a) the taxable period in which the inaccuracy becomes apparent to the registered person; or "(b) a later taxable period that is acceptable to the Commissioner. "(5) The Commissioner may excuse a registered person from making an adjustment that would otherwise be required by this section if the registered person satisfies the Commissioner that the return for the taxable period gives, for deductions under section 20(3) that relate to supplies charged with tax at the rate of 0% under section 11A(1)(q) or (r) or that arise under section 20(3)(h), an overall result that is not significantly greater than the overall result for those deductions that would be produced by using figures found under section 11D(a)." ======================================================================= 120 Commissioner's right to withhold payments Struck out (unanimous) ======================================================================= (1) In section 46(6), in the words following paragraph (b), "or otherwise" is replaced by "or, in the absence of a request, in such order or manner as the Commissioner may determine". ======================================================================= Struck out (unanimous) ======================================================================= (2) Subsection (1) applies to goods and services tax paid in excess, being goods and services tax payable on supplies made in taxable periods beginning on or after 1 April 2002. ======================================================================= New (unanimous) ----------------------------------------------------------------------- (1) Section 46(6) to (9) are replaced by the following: "(6) If, but for this subsection, a registered person would be entitled to an amount as a refund under section 19C(8) or 20(5) or 45 or under the Tax Administration Act 1994, or as a payment of interest under Part 7 of the Tax Administration Act 1994, the Commissioner may apply the amount, in accordance with a request under section 173T of the Tax Administration Act 1994 or in the absence of a request in such order or manner as the Commissioner may determine, in payment of--- "(a) tax that is payable by the person: "(b) an amount that is payable by the person under another Inland Revenue Act. "(7) If, but for this subsection, a person who is a specified agent of an incapacitated person, as those terms are defined in section 58(1), would be allowed an amount as a deduction under section 20(3) by virtue of section 58(1C), the Commissioner may apply the amount in payment of--- "(a) tax that is payable by the incapacitated person: "(b) an amount that is payable by the incapacitated person under another Inland Revenue Act." (2) Subsection (1) applies to refunds, interest and deductions relating to supplies made in taxable periods beginning on or after 1 April 2002. ----------------------------------------------------------------------- 121 Persons making supplies in course of taxable activity to be registered In section 51(1)(e), "[not] resident in New Zealand" is replaced by "[non-]residents". New (unanimous) ----------------------------------------------------------------------- 121B Cancellation of registration (1) In section 52(2), "in writing" is replaced by "by notice in writing or by telephone". (2) In section 52(3), "notify the Commissioner of that fact" is replaced by "inform the Commissioner of that fact by notice in writing or by telephone". (3) Section 52(4) is replaced by the following: "(4) Any information provided by a registered person to the Commissioner under subsection (3) must include the date on which the person ceased to carry on all taxable activities and whether or not the person intends to carry on any taxable activity within 12 months from that date." ----------------------------------------------------------------------- 122 Group of companies (1) In section 55(7), "Where any companies" is replaced by "Subject to subsection (7B), where any companies". New (unanimous) ----------------------------------------------------------------------- (1B) In section 55(7)(d), in both places where it occurs, "by or to" is replaced by "by". ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- (1C) After section 55(7)(da), the following is inserted: "(dab) subject to paragraph (c), any supply of goods and services to a member of the group shall be deemed to be a supply to the representative member; and". ----------------------------------------------------------------------- (2) In section 55(7)(db)--- (a) "acquired or produced or" is inserted before "applied by any member"; and (b) "subsequently" is omitted; and (c) "first-mentioned" is replaced by "acquisition or production or". (3) In section 55(7)(dc), "subsequently" is omitted. (4) After section 55(7), the following is inserted: "(7B) Section 55(7), apart from {sections} [section] 55(7)(b) and (e) to (h), does not apply to a group of companies in relation to a supply of services that is treated by section 8(4B) as being made in New Zealand." 123 New section 56B inserted After section 56, the following is inserted: "56B Branches and divisions in relation to certain imported services "(1) This section applies to a supply of services that is treated by section 8(4B) as being made in New Zealand. "(2) If a person carries on activities both inside and outside New Zealand through branches or divisions--- "(a) each branch or division is treated as being a separate person; and "(b) a branch or division inside New Zealand is treated as being a resident; and "(c) a branch or division outside New Zealand is treated as being a non-resident; and "(d) an activity carried on by a branch or division is treated as being carried on separately by the branch or division. "(3) For the purpose of this section, a head office of a company is a branch or division of the company. "(4) This section applies whether or not a branch or division of the person is registered under section 56." New (unanimous) ----------------------------------------------------------------------- 123B Personal representative, liquidator, receiver, etc. (1) In section 58(1C), "section 46(8)" is replaced by "section 46(7)". (2) Subsection (1) applies to deductions relating to supplies made in taxable periods beginning on or after 1 April 2002. ----------------------------------------------------------------------- 124 Agents and auctioneers (1) In section 60(6)(a) and (7)(a), "not resident in New Zealand" is replaced by "a non-resident". (2) In section 60(7)(b), "resident in New Zealand" is replaced by "a resident". New (unanimous) ----------------------------------------------------------------------- 124B Effect of imposition or alteration of tax After section 78(5), the following is added: "(6) This section does not apply to a supply of services that is treated by section 8(4B) as being made in New Zealand." ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- 124C New section 84B inserted After section 84, the following is inserted: "84B Supplies of services made before insertion of section 8(4B) "(1) This section applies to a supply of services that is treated by section 8(4B) as being made in New Zealand if--- "(a) the supply has a time of performance under section 84(1) to (1B) that is, or would be if the supply were made by a registered person, before the date on which section 106(2) of the Taxation (Annual Rates, GST, Trans-Tasman Imputation and Miscellaneous Provisions) Act 2003 came into force and--- "(i) the supply would, but for this section, be treated by section 9 or sections 21 to 21H as taking place on or after that date; and "(ii) the value of the supply is ascertainable; or "(b) the supply has a time of performance under section 84(1) to (1B) that is, or would be if the supply were made by a registered person, on or after the date on which section 106(2) of the Taxation (Annual Rates, GST, Trans-Tasman Imputation and Miscellaneous Provisions) Act 2003 came into force and the supply would, but for this section, be treated by section 9 or sections 21 to 21H as taking place before that date. "(2) A supply of services that satisfies subsection (1)(a) is made at the time given by section 9 or sections 21 to 21H. "(3) A supply of services that satisfies subsection (1)(b) is made at the time given by--- "(a) section 9 or sections 21 to 21H, for the purpose of section 8: "(b) the date on which section 106(2) of the Taxation (Annual Rates, GST, Trans-Tasman Imputation and Miscellaneous Provisions) Act 2003 came into force, for the purpose of section 20. "(4) A payment that is in respect of a supply that satisfies subsection (1)(b), and is made or received by a person before the date on which section 106(2) of the Taxation (Annual Rates, GST, Trans-Tasman Imputation and Miscellaneous Provisions) Act 2003 came into force, is treated for the purpose of section 20(3)(b)(i) and (4)(b)(i) as having been made or received by the person on that date." ----------------------------------------------------------------------- Amendments to Student Loan Scheme Act 1992 125 Student Loan Scheme Act 1992 Sections 126 to 131 amend the Student Loan Scheme Act 1992. 126 Interpretation (1) In section 2, after the definition of primary employment earnings, the following is inserted: "repayment code means the repayment code specified in section 17B". (2) Subsection (1) applies for pay periods ending on and after the date on which this Act receives the Royal assent. 127 Borrowers to whom repayment deduction provisions of this Part apply (1) In section 17, "Sections 18 to 25" is replaced by "Sections 17B to 25". (2) Subsection (1) applies for pay periods ending on and after the date on which this Act receives the Royal assent. 128 New section 17B inserted (1) After section 17, the following is inserted: "17B Repayment codes for application of PAYE rules For the purpose of the application of the PAYE rules of the Income Tax Act 1994 under section 25 of this Act, the repayment code of any borrower in relation to any salary or wages is `SL'." (2) Subsection (1) applies for pay periods ending on and after the date on which this Act receives the Royal assent. 129 Section 18 replaced (1) Section 18 is replaced by the following: "18 Borrower's notice to employer of requirement for repayment deductions "(1) A person who is a borrower and is in the employment of an employer (including an employer from whom secondary employment earnings are received) must give written notice under this section to the employer as soon as practicable after the later of--- "(a) the time at which the person becomes an employee of the employer; and "(b) the time at which the person becomes a borrower. "(2) A notice under this section must inform the employer that--- "(a) the borrower is required to have repayment deductions made under this Part from any amount paid to the borrower by way of salary or wages; and "(b) the tax code prescribed by section NC 8(1) of the Income Tax Act 1994 for the borrower should be followed by the repayment code `SL' for the purpose of making a repayment deduction from salary or wages paid to the borrower." (2) Subsection (1) applies for pay periods ending on and after the date on which this Act receives the Royal assent. 130 PAYE rules of Income Tax Act 1994 to apply to repayment deductions (1) In section 25(1), "as defined in section OZ 1(1)" is inserted after "PAYE rules" where it first appears. (2) In section 25(1)(b), "deductions,--- is replaced by "deductions; and" and the following is added: "(c) every reference to a tax code were a reference to a repayment code,---". New (unanimous) ----------------------------------------------------------------------- (2B) In section 25(2), ", NC 16, and" is replaced by "and NC 16". ----------------------------------------------------------------------- (3) In section 25(2), "and sections 143A(1)(d) and (e) and 143B(1)(d), and Part 9 (except section 146) of the Tax Administration Act 1994" is omitted. (4) Subsection (2) applies for pay periods ending on and after the date on which this Act receives the Royal assent. New (unanimous) ----------------------------------------------------------------------- (5) Subsection (2B) applies for the 2002−03 and subsequent income years. ----------------------------------------------------------------------- 131 Underestimation penalty where interim repayments underestimated as at final instalment date (1) In section 44A(1)--- (a) in the words preceding paragraph (a), "interim" is inserted before "repayment": (b) in paragraph (a), "residual" is inserted before "repayment", where it first appears: (c) in paragraph (a), "interim" is inserted before "repayment", where it second appears: (d) in paragraph (b), "residual" is inserted before "repayment". (2) In the definition of item "a" in section 44A(2), "residual" is inserted before "repayment". (3) Subsections (1) and (2) apply to estimated interim repayment obligations arising in respect of the 1998-99 and subsequent income years. Amendment to Personal Property Securities Act 1999 132 Personal Property Securities Act 1999 Section 133 amends the Personal Property Securities Act 1999. 133 When Act does not apply In section 23(b), "(other than section 169 of the Tax Administration Act 1994 [and sections 169 and 184 of the Child Support Act 1991])" is inserted after "Act". New (unanimous) ----------------------------------------------------------------------- Amendments to Child Support Act 1991 134 Unpaid financial support to constitute charge on payer's property Section 169(4) to (7) of the Child Support Act 1991 are replaced by the following: "(4) Despite section 23(b) of the Personal Property Securities Act 1999, if a charge affects property against which charges may be registered under a registration Act, the Commissioner may register the charge under the registration Act. "(4B) The Commissioner is not required to pay a fee for the registration of a charge under a registration Act in reliance on this section. "(5) For the purpose of this section, registration Act, in relation to any property, includes--- "(a) the Statutory Land Charges Registration Act 1928 in every case where the property is land or an interest in land (including a mortgage): "(b) the Personal Property Securities Act 1999. "(6) Particulars recorded under subsection (4) are to operate and take priority according to the provisions of the applicable registration Act. "(6B) If the registration under this section of a charge over property occurs after the registration of a mortgage over the same property and before an advance of money secured by the mortgage, the charge has priority over the mortgage in respect of that money. "(7) On the satisfaction of a charge that is registered under a registration Act in reliance on this section, the Commissioner must release the charge in the manner required by the registration Act, with such modifications as may be necessary. "(7B) The Commissioner is not required to pay a fee for the release of a charge that is registered under a registration Act in reliance on this section." ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- Amendment to Taxation (Maori Organisations, Taxpayer Compliance and Miscellaneous Provisions) Act 2003 135 Definitions Section 75(24) of the Taxation (Maori Organisations, Taxpayer Compliance and Miscellaneous Provisions) Act 2003 is repealed. ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- Amendments to Gaming Duties Act 1971 136 Interpretation (1) In the definition of special investments in section 3 of the Gaming Duties Act 1971, as that section read before being amended by section 69(1) of the Racing Act 2003, "(excluding GST)" is inserted after "total amount". (2) Subsection (1) applies for the purpose of sections 4(3)(b) and 4(4)(a) and (b) of the Gaming Duties Act 1971 for the period from 1 January 1996 to 31 July 2003. ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- 137 Totalisator duty (1) In section 4(2) of the Gaming Duties Act 1971, the formula is replaced by the following: "8/9 x (amounts - refunds - winning dividends - fractions)". (2) In section 4(3) of the Gaming Duties Act 1971, "(excluding GST)" is inserted after "total of all amounts". (3) In section 4(3)(a) of the Gaming Duties Act 1971, "including GST" is replaced by "excluding GST". (4) In section 4(3)(b) of the Gaming Duties Act 1971, "(excluding GST, if any)" is inserted after "dividends". ----------------------------------------------------------------------- New (unanimous) ----------------------------------------------------------------------- Amendment to Gambling Act 2003 138 Schedule 9---Amendments to other Acts In Schedule 9 of the Gambling Act 2003, the item amending the definition of lottery in section 3 of the Gaming Duties Act 1971 is amended by replacing the definition of New Zealand lottery with the following: "lottery means a New Zealand lottery as that term is defined in section 4(1) of the Gambling Act 2003". ----------------------------------------------------------------------- Legislative history 23 June 2003 Introduction (Bill 60-1) 26 June 2003 First reading and referral to Finance and Expenditure Committee