Rewriting the Income Tax Act: Exposure Draft
List of contents
List of contents of draft legislation
Part A – Purpose and application
AA1Purpose of Act
AA2Interpretation
AA3Definitions
Part B – Core provisions
BA – Purpose
BA1Purpose
BB – Income tax and resulting obligations
BB1Imposition of tax
BB2Principal obligations
BB3Overriding effect of certain matters
BC – Calculating and satisfying income tax liabilities
BC1Non-filing and filing taxpayers
BC2Gross income
BC3Gross deduction
BC4Net income and net loss
BC5Taxable income
BC6Income tax liability of filing taxpayer
BC7Income tax liability of person with schedular income
BC8Surplus rebates
BC9Satisfaction of income tax liability
BC10Surplus credits
BD – Income, deductions, and timing
BD1Income, exempt income, excluded income, and counted income
BD2Deductions
BD3Allocation of income to particular income years
BD4Allocation of deductions to particular income years
BE – Withholding liabilities
BE1Withholding liabilities
BF – Other obligations
BF1Other obligations
BG - Avoidance
BG1Tax avoidance
BH – Double tax agreements
BH1Double tax agreements
Part C - Income
CA – General rules
CA1Amountsthat are income
CA2Amounts that are exempt or excluded income
CB – Income from business or trade-like activities
Business generally
CB1Amounts derived from business
Profit-making schemes
CB2Carrying on or carrying out profit-making schemes
Personal property
CB3Personal propertyacquired for purpose of disposal
CB4Business of dealing in personal property
Land
CB5Disposal of land acquired for purpose or with intention of disposal
CB6Disposal within 10 years: land dealing business
CB7Disposal within 10 years: land development or subdivision business
CB8Disposal within10 years of improvement: building business
CB9Disposal: development or division begun within 10 years
CB10Disposal: major development or division begun after 10 years
CB11Disposal of landaffected by changes in permitted use
CB12Disposal of land after transfer between associated persons
Exclusions for residential land
CB13Residential exclusion: land acquired for disposal or when certain businesses carriedon
CB14Residential exclusion: land development
CB15Residential exclusion: land affected by changes in permitted use
Exclusions for business premises
CB16Business exclusion: land acquired for disposal or when certain businesses carried on
CB17Business exclusion: land development begun within 10 years
(Land)
Exclusions for farmland
CB18Farmlandexclusion: land division
CB19Farmland exclusion: land affected by changes in permitted use
Exclusion for investment land
CB20Investment exclusion: land development begun within 10 years
Definitions
CB21Definitionsfor sections CB5 to CB21
Timber
CB22Disposal of timber or right to take timber
CB23Disposal of land with standing timber
CB24Insurance or other compensation for forestry-related loss or destruction
CB25Certificates as to nature of trees
Farming, forestry, or fishing
CB26Refundsunder income equalisation scheme
Minerals
CB27Disposal of minerals
Intellectual property
CB28Disposal of patent rights
Stolen property
CB29Obtaining property by theft
Trading stock, livestock, and excepted financial arrangements
CB30Disposal: cross references to relevant sections inPartF and PartG
CB31Receipts from insurance or other compensation
CC – Income from holding property (excluding equity)
Land use
CC1Revenue from land
CC2Payments for non-compliance with covenant for repair
Financial instruments
CC3Financial arrangements
CC4Payments of interest
CC5Investment society dividends
CC6Annuities
CC7Commercial bills
CC8Prizes received under Building Societies Act 1965
CC9Consideration other than in money
CC10Use of money interest payable by Commissioner
Royalties
CC11Royalties
CC12Films
CD – Income from equity
Income
CD1Income
What is a dividend?
CD2What is a dividend?
CD3Transfers of value generally
CD4What is a transfer of value?
CD5When is a transfer caused by a shareholding relationship?
CD6Bonus issues in lieu of dividend
CD7Elections to make bonus issue a dividend
CD8Notional distributions of producer boards and cooperative companies
CD9Tax credits linked to dividends
CD10Non-cash benefits of shareholder-employees or directors
CD11Attributed repatriations from controlled foreign companies
What is not a dividend?
CD12Returns of capital: off-market share cancellations
CD13Ordering rule and slice rule
CD14Returns of capital: on-market share cancellations
CD15Treasury stock acquisitions
CD16Capital distributions on liquidation
CD17Property made available intra-group
CD18Non-taxable bonus issues
CD19Flat-owning companies
CD20Employee benefits
CD21Payments corresponding to notional distributions of producer boards
and cooperative companies
CD22Qualifying amalgamations
CD23Foreign investment fund (FIF) income amounts
CD24Group investment fund management fees
Calculation rules
CD25General calculation rule for transfers of value
CD26Calculation ofdividend amount of property made available
CD27Adjustment if dividend recovered by company
CD28Adjustment if amount repaid later
CD29Adjustment if additional consideration paid
CD30Availablesubscribed capital amount
CD31Available capital distribution amount
CFC attributed repatriation calculation rules
CD32Whendoes a person have attributed repatriation from a CFC?
CD33New Zealand repatriation amount
CD34Amount of New Zealand property
CD35Cost of tangible property
(CFC attributed repatriation calculation rules)
CD36Cost of associated party equity
CD37Outstanding balances of financial arrangements
CD38Property transfers between associated persons
CD39Unrepatriated income balance
Prevention of double taxation
CD40Prevention of double taxation of share cancellation dividends
CE – Employee or contractor income
Employment income
CE1Amountsderived in connection with employment
CE2‘Expenditure on account of an employee’ defined
CE3‘Share purchase agreement’ defined
CE4Value andallocation of benefits under share purchase agreements
CE5Restrictions on disposal of shares
CE6Adjustments to value of benefits under share purchase agreements
CE7‘Share’ defined
Attributed income
CE8Attributed income from personal services
Restrictive covenant and exit inducement payments
CE9Restrictive covenants
CE10Exit inducements
CF – Income from living allowances, compensation, and government grants
CF1Benefits,pensions, compensation, and government grants
CF2Remission of specified suspensory loans
CG – Recoveries and adjustments
Recoveries
CG1Depreciation recovery income
CG2Remitted amounts
CG3Baddebt repayment
CG4Recovered expenditure: determining tax liabilities
CG5Recovered expenditure: when employees misappropriate property
CG6Recoveredexpenditure: making good loss when partners misappropriate property
CG7Benefits received by employers from superannuation schemes
CG8Recovered forestry expenditure
CG9Forestry expenditure of holding company
Adjustments
CG10Trading stock, livestock, and excepted financial arrangements
CG11Prepayments for services and some goods and deferred payments
CG12Exploratory well expenditure
(Adjustments)
CG13Repayment by mining company of amount written off
CG14Amount treated as repayment: excess
CG15Amount treated as repayment: net income
CQ – Attributed income from foreign equity
Attributed controlled foreign company income
CQ1Attributed controlled foreign company income
CQ2When attributed CFC income arises
CQ3Calculation of attributed CFC income
Foreign investment fund income
CQ4Foreign investment fund income
CQ5When FIF income arises
CQ6Calculation of FIF income
CR – Income fromlife insurance
CR1Income of life insurer
CR2How income of life insurer quantified
CS – Superannuation funds
Withdrawals
CS1Withdrawals
Exceptions
CS2Exceptions for withdrawals of various kinds
CS3Exceptions for withdrawal on grounds of hardship
CS 4Exception for withdrawal to settle division of matrimonial property
CS5Exception for withdrawal paid as annuity or pension
CS6Exception for withdrawal on partial retirement
CS7Exception for withdrawal when member ends employment
CS8Exception for withdrawal when member ends employment: lock-in rule
CS9Exception for withdrawal from defined benefit fund when member
ends employment
CS10When member treated as not ending employment
Transfers to or from superannuation funds and superannuation schemes
CS11Transfer by superannuation fund to another superannuation fund
CS12Transfer from superannuation scheme to superannuation fund
CS13Investment by superannuation fund in another superannuation fund
Treatment of amounts when superannuation fund becomes superannuation scheme or vice versa
CS14Superannuation fund becomes superannuation scheme
CS15Superannuation fund becomes foreign superannuation scheme
CS16Superannuation scheme becomes superannuation fund
Treatment of distributions when superannuation fund winds up
CS17Superannuation fund winds up
CT – Income from petroleum mining
CT1Disposal of exploratory material or petroleum mining asset
CT2Damage to permit-specific assets
CT3Disposal of interests in controlled petroleum mining entities
CT4Disposalofinterests in controlled petroleum mining entities by
longer-term holders
CT5Petroleum mining operations outside New Zealand
CT6Partnership interests and disposal of part of asset
CT7‘Petroleum miner’ defined
CT8‘Petroleum mining asset’ defined
CU – Income from mineral mining
Introductory provision
CU1Mining company’s two kinds of income
Income from mining
CU2Mining company that processes or manufactures
CU3Disposalof assets
CU4Compensation for lost, destroyed, or damaged assets
CU5Compensation and scrap payment: income from mining
CU6Compensation and scrap payment: use to replace or repair asset
CU7Compensation and scrap payment: not income from mining
CU8Compensation and scrap payment: more than expenditure
CU9Previous deduction for income appropriated
CU10Mining asset used to derive income other than income from mining
CU11‘Asset’ defined for sections CU3 to CU10
CU12Resident mining operators
CU13Non-resident mining operators
CU14Disposal of mining shares acquired with reinvestment profit
CU15Reinvestment profit not used for mining purposes
CU16Repayment of loans made from reinvestment profit
CU17Miningcompany or mining holding company liquidated
Definitions
CU18Income from mining
CU19Mining company
CU20Mining development expenditure
CU21Mining exploration expenditure
CU22Miningoperations
CU23Mining venture
CU24Resident mining operator
CU25Other definitions
CV – Income specific to certain entities
CV1Companies within wholly-owned groups
CV2Primary producer cooperative companies
CV3Crown ResearchInstitutes
CW – Exempt income
Income from business or trade-like activities
CW1Forestry companies buying land with standing timber from Crown,
Maori owners, or holding company
CW2Forestry encouragement agreements
CW3Forestry companies and Maori investment companies
Income from holding property (excluding equity)
CW4Annuities under life insurance policies
CW5Payments of interest: post-war credits
CW6Payments of interest: farm mortgages
CW7Overseas interest payable during non-resident period
CW8Money lent to government of New Zealand
Income from equity
CW9Dividend derived by a company from offshore
CW10Dividend within New Zealand wholly-owned group
CW11Dividend of conduit tax relief holding company
Employee or contractor income
CW12Income of Governor-General
CW13Reimbursement of employees and expenditure for their benefit
CW14Allowance for additional transport costs
CW15Amounts derived during short-term visits
CW16Amounts derived by visiting entertainers (including sportspersons)
CW17Amounts derived by overseas experts and trainees in New Zealand
by government arrangement
CW18Income for military service in operational area
CW19Deferred pay for active military service
CW20Value of board for religious society members
CW21Jurors’ and witnesses’ fees
Income from living allowances, compensation, and government grants
CW22Pensions
CW23Annuities
CW24Maintenance payments
CW25Scholarships and bursaries
CW26Allowances and benefits
CW27Compensation payments
Income of certain entities
CW28Public authorities
CW29Local authorities
CW30Charities: non-business income
CW31Charities: business income
CW32Charitable bequests
CW33Friendly societies
CW34Sick, accident, or death benefit fund
CW35Bodies promoting amateur games and sports
CW36TAB and racing clubs
CW37Local andregional promotion bodies
CW38Bodies promoting scientific or industrial research
CW39Veterinary services bodies
CW40Herd improvement societies
Income from certain activities
CW41Non-resident aircraft operators
CW42Disposal of companies’ own shares
CW43New Zealand companies operating in Niue
CW44Stake money
General exemption under other Acts
CW45Exemption under other Acts
Income exempt under Parts F to I
CW 46Exemption under Parts to be rewritten
CX – Excluded income
Goods and services tax
CX1Goods and services tax
Fringe benefits
Introductory provisions
CX2When sections CX2 to CX34 apply and relationship with subpart ND
CX3Past, present, or future employment
CX4Arrangement to provide benefits
CX5Employment income: relationship with subpartCE
CX6Exempt income: relationship with subpartCW
Fringe benefits
CX7When fringe benefits arise
CX8Private use of motor vehicle
CX9Private use of motor vehicle: use of work-related vehicle
CX10Private use of motor vehicle: ‘private use’ defined
CX11Private use of motor vehicle: ‘emergency call’ defined
CX12Private use of motor vehicle: ‘work-related vehicle’ defined
CX13Private use of motor vehicle: use by more than one employee
CX14Subsidised transport in course of employer’s business
(Fringe benefits)
CX15Employment-related loans
CX16Employment-related loans: ‘employee share loan’ defined
CX17Employment-related loans: loans by life insurers
CX18Contributions to superannuation schemes
CX19Contributions to sick, accident, or death benefit funds
CX20Contributions to insurance funds
CX21‘Specified insurance premium’ defined
CX22Benefits provided to employees who are shareholders or investors
CX23Unclassified benefits
Exclusions and limitations
CX24Benefits provided instead of allowances
CX25Benefits to enable performance of duties
CX26Benefits to non-executive director shareholders
CX27Benefits provided on the premises
CX28Benefits provided by charitable organisations
CX29Non-liable payments
CX30Assistance with tax returns
CX31Accommodation
CX32Entertainment
CX33Distinctive work clothing
CX34Services provided to superannuation fund
Insurance industry
CX35Life insurers and fully reinsured persons
CX36Superannuation fund deriving amount from life insurance policy
CX37Resident insurance underwriters
Petroleum mining industry
CX38Farm-out arrangements for petroleum mining
Mineral mining industry
CX39Disposal of mining shares
CX40Disposal of mining shares acquired with reinvestment profit
CX41Repayment of loans made from reinvestment profit
Government grants
CX42Government grants to businesses
Superannuation contributions
CX43Employer’s superannuation contributions
Income equalisation schemes
CX44Income equalisation schemes
Inflation-indexed instruments
CX45Credits for inflation-indexed instruments
Income excluded under Parts F to I
CX46Income excluded under Parts F to I
CY – Income under Parts F to I
CY1Amounts that are income under Parts to be rewritten
CZ – Terminatingprovisions
CZ1Recovery of deductions for software acquired before 1April 1993
CZ2General insurance with risk period straddling 1 July 1993
CZ3Exempt interest: overseas money lent to government or local or public authority before 29 July 1983
CZ4Income from certain money lent or redemption payments
CZ5Mineral mining: company making loan before 1 April 1979
CZ6Mining company’s 1970-71 income year
CZ7Treatment of superannuation fund interests in group investment funds
on 1 April 1999
CZ8Treatment of units and interests in unit trusts and group investment funds
on issue as at 1 April 1996
CZ9Repayment of loans: exchange variations
CZ10Transitional relief for calculation of attributed repatriation dividends
Part D – Deductions
DA – General rules
DA1General permission
DA2General limitations
DA3Effect of specific rules on general rules
DA4Treatment of depreciation loss
DB – Specific rules for expenditure types
Taxes
DB1Taxes and penalties (other than goods and services tax)
DB2Goods and services tax
DB3Determining tax liabilities
DB4Chatham Islands dues
Financing costs
DB5Transaction costs: borrowing money for use as capital
DB6Interest
DB7Repayment of debt sold at discount to associate of debtor
DB8Money borrowed to buy shares in group companies
Security arrangements
DB9Security payment
DB10Sureties
Premises costs
DB11Transaction costs: leases
DB12Destruction oftemporary building
DB13Payments for non-compliance with covenant for repair
DB14Lessors’ offsetting deduction: payments for non-compliance and change in use
Revenue account property
DB15Cost of revenue account property
DB16Acquiring commercial bills
DB17Acquisition of companies’ own shares
DB18Share losses
DB19Undertakings or schemes involving personal property
DB20Land on revenue account
DB21Major land development begun after 10 years
DB22Changes in permitted use of land
Bad debts
DB23Bad debts
DB24Bad debts owed to estates
Research and development
DB25Scientific research
DB26Patent expenses
DB27Patent rights: devising patented inventions
DB28Patent rights acquired before 1 April 1993
DB29Patent rights acquired on or after 1 April 1993
Marketing
DB30Gifts of money by company
Theft
DB31Property misappropriated by employees or service providers
DB32Making good loss from misappropriation by partners
DB33Restitution of stolen property
Pollution control
DB34Preventing pollution of environment
Repayments
DB35Payments for remitted amounts
DB36Restrictive covenant breached
Timing adjustments: stock and prepayments
DB37Trading stock, livestock, and excepted financial arrangements
DB38Adjustment for prepayments and deferred payments
DB39Adjustment for change to accounting practice
DC – Employee or contractor expenditure
DC1Lump sum payments on retirement
DC2Pension payments to former employees
DC3Payments to working partners
(DC – Employee or contractor expenditure)
DC4Loans to employees under share purchase schemes
DC5Criteria for approval of share purchase schemes
DC6Definitions for sections DC4 to DC6
DC7Contributions to employees’ benefit funds
DC8Contributions to employees’ superannuation schemes
DC9Attribution of personal services
DC10Restrictive covenants or exit inducements
DD – Entertainment expenditure
DD1Entertainment expenditure generally
DD2Limitation rule
DD3When limitation rule does not apply
DD4Employment-related activities
DD5Promoting goods or services
DD6Entertainment as business or for charitable purpose
DD7Entertainment outside New Zealand
DD8Entertainment that is income or fringe benefit
DD9Interpretation: reimbursement, apportionment
DD10Definitions for this subpart
DE – Motor vehicle expenditure
Introductory provisions
DE1When this subpart applies
DE2Methods for calculating proportion of business use
DE3Deductions on default
Actual records
DE4 Actual records
Logbook period
DE5Using logbook for test period
DE6Logbook requirements
DE7Logbook term
DE8Inadequate logbook
DE9Variance during logbook term
DE10Replacement vehicles
Mileage rates
DE11Mileage rate method
DE12Setting mileage rates
DF – Government grants
DF1Government grants to businesses
DF2Repayment of grant-related suspensory loans
DN – Attributed losses from foreign equity
Attributed controlled foreign company loss
DN1Deduction for attributed controlled foreign company loss
DN2When attributed CFC loss arises
DN3Calculation of attributed CFC loss
DN4Ring-fencing cap on deduction
Foreign investment fund loss
DN5Foreign investment fund loss
DN6When FIF loss arises
DN7Calculation of FIF loss
DN8Ring-fencing cap on deduction: not branch equivalent method
DN9Ring-fencing cap on deduction: branch equivalent method
DO – Farming, agricultural, and aquacultural business expenditure
Farming and agriculture
DO1Enhancementsto land, except trees
DO2Shelter belts
DO3Trees on farms
DO4Improvements to land
DO5Farming expenditure of lessor or sublessor
DO6Certificates as to purposes of planting
Aquaculture
DO7Improvements
DP – Forestry expenditure
DP1Cost of timber
DP2Cost of acquiring timber, or right to take timber, in certain cases
DP3Specific kinds of forestry expenditure
DP4Plant or machinery
DP5Improvements to land
DP6Land contouring
DP7Forestry encouragement agreement: deductions
DP8Forestry encouragement agreement: no deduction
DP9Forestry business on land bought from Crown, Maori owners,
or holding company
DP10Forestry business on land bought from Crown, Maori owners,
or holding company: cost of timber
DQ – Income equalisation schemes
DQ1Main income equalisation scheme
DQ2Adverse event income equalisation scheme
DQ 3Thinning operations income equalisation scheme
DR – Life insurance business expenditure
DR1Mortality profit formula: negative result
DR2Disposal of property
DR3Specific deductions not allowed to life insurers and fully reinsured persons
DS – Film industry expenditure
DS1When this subpart applies
DS2Acquiring rights in films
DS3Film production expenditure
DS4Clawback of deductions for film reimbursement schemes
DS5Calculation of clawback amounts on film reimbursement schemes
DS6Deductions for film expenditure if amount not at risk
DS7Method of subtracting loan amounts from deductions
DS8Deductions for repayments
DS9Interest on limited recourse loans
DS10Definitions for this subpart
DT – Petroleum mining expenditure
Introductory provision
DT1Expenditure generally
Petroleum exploration expenditure
DT2Petroleum exploration expenditure
DT3Arrangement for petroleum exploration expenditure and sale of property
DT4Licences and permits
DT5Exploratory material
DT6Amendment of assessment
Petroleum development expenditure
DT7Petroleum development expenditure
DT8Expenditure on petroleum permit or permit-specific asset
DT9Exploratory well expenditure
DT10Acquisitions of certain petroleum mining assets
Other expenditure
DT11Expenditure on abandoned exploratory well
DT12Farm-out arrangements
DT13Damaged assets
DT14Cost of shares or trust interests in petroleum mining entity
DT15Limited deduction for person associated with petroleum miner
DT16Disposals to associated persons
DT17Relinquishing petroleum permit or disposing of petroleum mining asset
DT18Removal or restoration operations
General provisions
DT19Acquiring permit-specific assets and petroleum permits
DT20Petroleum mining operations outside New Zealand
DT21Partnership interests and disposal of part of asset
DU – Mineral mining expenditure
DU1When mining company has mining outgoing excess
DU2Effect of mining company having mining outgoing excess
DU3Mining exploration expenditure and mining development expenditure
DU4Mining exploration expenditure or mining development expenditure on acquisition of asset
DU5Replacing or repairing asset
DU6Income appropriated to expenditure
DU7Non-mining asset used to derive income from mining
DU8Depreciation
DU9Resident mining operators
DU10Non-resident mining operators
DU11Disposal of mining shares by company
DU12Amount written off by holding company
DV – Expenditure specific to certain entities
Superannuation funds
DV1Publicising superannuation funds
DV2Transfer of expenditure
DV3Formula for calculating maximum deduction
DV4Transfer of surplus expenditure
Other entities
DV5Group investment funds
DV6Non-profit organisations
DV7Trusts
DV8Building societies
DV9Maori authorities: donations
DV10Group companies
DV11Amalgamated company: expenditure on improvements for forestry,
farming, agricultural, or aquacultural business
DW – Expenditure specific to certain industries
Accident insurance
DW1Private insurers under Accident Insurance Act 1998
Airport operations
DW2Airport operators
Bloodstock racing
DW3Bloodstock racing
DX – Other expenditure
DX1Testamentary annuities
DY – Specific deduction rules in Parts F to I
DY1Amounts that are deductions under Parts to be rewritten
DY2Amounts that are not deductions under Parts to be rewritten
DZ – Terminating provisions
DZ1Life insurers acquiring property before 1April 1988
DZ2General insurance with risk period straddling 1 July 1993
DZ3Film reimbursement scheme: when clawback rule does not apply
DZ4Petroleum mining: development expenditure from 1October 1990
to 15December 1991
DZ5Mineral mining: company making loan before 1 April 1979
DZ6Buying patent rights before 1 April 1993
DZ7Premium paid on lease of land
Part E – Timing and quantifying rules
EA – Income credited in account
EA1Matching rule for employment income of shareholder-employee
EA2Interest from inflation-indexed instruments
EB – Matching rules: revenue account property and prepayments
EB1Stock and excepted financial arrangements
EB2Other revenue account property
EB3Prepayments and certain deferred payments
EC – Valuation of trading stock (including dealer’s livestock)
Introductory provisions
EC1When this subpart applies
EC2‘Trading stock’ defined
EC3Valuation of trading stock
EC4Summary of valuation methods
Standard valuation
EC5Cost of trading stock
EC6Identifying trading stock
EC7Cost-flow methods of assigning costs
EC8Discounted selling price
(Standard valuation)
EC9Replacement price
EC10Market selling value
EC11Valuing closing stock consistently
Low-turnover valuation
EC12Low-turnover valuation
EC13Cost for low-turnover traders
EC14Costs of manufacturing orproducing trading stock
EC15Allocation of costs for manufactured or produced trading stock
EC16Costs of acquiring trading stock
EC17Discounted selling price for low-turnover traders
EC18Replacement price for low-turnover traders