Rewriting the Income Tax Act: Exposure Draft
Part C: Income
Part C – Income
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CB – Income from business or trade-like activities
Rewriting the Income Tax Act: Exposure Draft
Part C: Income
CA – General rules
Index
CA1Amounts that are income
CA2Amounts that are exempt or excluded income
CA1Amounts that are income
Amounts specifically identified
(1)An amount is income of a person if it is their income under any provision in subpartsCB to CV, CY, or CZ.
Ordinary meaning of ‘income’
(2)An amount is also income of a person if it is their income according to the ordinary meaning of the word.
Origin:(1) new.
(2) CD 5.
Defined terms:amount, income, person.
Comment:Draft subsection(2) attempts to reflect some of the Committee of Experts’ comments.
CA2Amounts that are exempt or excluded income
Exempt income
(1)An amount of income is exempt income of a person if it is their exempt income under any provision in subpartCW (Exempt income).
Excluded income
(2)An amount of income is excluded income of a person if it is their excluded income under any provision in subpartCX (Excluded income).
Origin:(1) new.
(2) new.
Defined terms:amount, excluded income, exempt income, income, person.
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CB – Income from business or trade-like activities
Rewriting the Income Tax Act: Exposure Draft
Part C: Income
CB – Income from business or trade-like activities
Index
Business generally
CB1Amounts derived from business
Profit-making schemes
CB2Carrying on or carrying out profit-making schemes
Personal property
CB3Personal property acquired 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 within 10 years of improvement: building business
CB9Disposal: development or division begun within 10 years
CB10Disposal: major development or division begun after 10 years
CB11Disposal of land affected 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 carried on
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
Exclusions for farmland
CB18Farmland exclusion: land division
CB19Farmland exclusion: land affected by changes in permitted use
Exclusion for investment land
CB20Investment exclusion: land development begun within 10 years
Definitions
CB21Definitions for sections CB5 to CB21
Timber
CB22Disposal of timber or right to take timber
CB23Disposal of land with standing timber
Index continued
CB24Insurance or other compensation for forestry-related loss or destruction
CB25Certificates as to nature of trees
Farming, forestry, or fishing
CB26Refunds under 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 in PartF and PartG
CB31Receipts from insurance or other compensation
Business generally
CB1Amounts derived from business
An amount that a person derives from a business is income of the person.
Origin:CD 3.
Defined terms:amount, business, derived, income, person.
Profit-making schemes
CB2Carrying on or carrying out profit-making schemes
An amount that a person derives from carrying on or carrying out an undertaking or scheme entered into or devised for the purpose of making a profit is income of the person.
Origin:CD 4.
Defined terms:amount, derived, income, person.
Comment:Amounts derived from undertakings and schemes entered into for profit are identified as income in current section CD4 (Personal property). This is misleading, as a scheme may involve a disposal of land or even a
supply of services. Further, the rule is obscured by being grouped with rules about disposals of personal property by dealers and disposals of personal property acquired for the purpose of disposal. Amounts from undertakings and schemes have therefore been identified in this separate section.
Personal property
CB3Personal property acquired for purpose of disposal
An amount that a person derives from the disposal of personal property is income of the person if they acquired the property for the purpose of disposing of it.
Origin:CD 4.
Defined terms:amount, derived, income, person.
Comment:See comment on draft section CB 2.
CB4Business of dealing in personal property
An amount that a person derives from the disposal of personal property is income of the person if their business is to deal in property of that type, whether or not the property was acquired for the purpose of the business.
Origin:CD 4.
Defined terms:amount, business, derived, income, person.
Comment:Amounts derived from disposals of personal property by dealers in such property are identified as income in current section CD4 (Personal property), but the rule is obscured by being grouped with rules about disposals of personal property acquired for the purpose of disposal and amounts derived from schemes and undertakings. The original policy underlying the provision has also been clarified.
Land
CB5Disposal of land acquired for purpose or with intention of disposal
Amount derived from disposal of land
(1)An amount that a person derives from the disposal of land is income of the person if they acquired the land for the purpose or with the intention of disposing of it. If the person acquires the land with more than one purpose or intention, but has as one purpose or intention the disposal of the land, the amount derived from the disposal is income of the person.
Exclusions
(2)Subsection(1) is overridden by the exclusions for residential land in sectionCB13 and for business premises in sectionCB16.
Origin:(1) CD 1(1), (2)(a).
(2) CD 1(3).
Defined terms:amount, derived, disposal of land, income, land, person.
Comment:The rule about disposals of land acquired for the purpose or intention of disposal is grouped with other land disposal rules in current sectionCD1(2) (Land transactions). It is now expressed in this separate section to enable readers to access the rule more easily. A separate subsection tells readers immediately that there are exclusions for residential and business premises and refers them to the detailed rules.
CB6Disposal within 10years: land dealing business
Business of dealing in land
(1)An amount that a person derives from the disposal of land is income of the person if—
(a)they dispose of the land within 10years of acquiring it; and
(b)at the time they acquired the land, they carried on a business of dealing in land, whether or not the land was acquired for the purpose of the business.
Associated person in business of dealing in land
(2)An amount that a person derives from the disposal of land within 10years of acquiring it is income of the person if a person associated with them at the time the land was acquired carried on a business of dealing in land, whether or not—
(a)the first person carried on a business of dealing in land; or
(b)the land was acquired for the purpose of the associated person’s business.
Exclusions
(3)Subsections(1) and (2) are overridden by the exclusions for residential land in sectionCB13 and for business premises in sectionCB16.
Origin:(1) CD 1(2)(b).
(2) CD 1(2)(b), (11).
(3) CD 1(3).
Defined terms:amount, associated person, business, derived, disposal of land, income, land, person.
Comment:The rule about disposals of land acquired by land dealers or their associates is grouped with other land disposal rules in current sectionCD1(2) (Land transactions). It is now expressed in this separate section to enable readers to access the rule more easily.
The rewritten provision clarifies that the test of association between the principal business person and associate is to be applied at the time the land is acquired, not when the land is disposed of. The previous wording did not make this clear.
A separate subsection tells readers immediately that there are exclusions for residential and business premises and refers them to the detailed rules.
CB7Disposal within 10years: land development or subdivision business
Business of developing or subdividing land
(1)An amount that a person derives from the disposal of land is income of the person if—
(a)they dispose of the land within 10years of acquiring it; and
(b)at the time they acquired the land, they carried on a business of developing land or dividing land into lots, whether or not the land was acquired for the purpose of the business.
Associated person in business of developing or subdividing land
(2)An amount that a person derives from the disposal of land within 10years of acquiring it is income of the person if a person associated with them at the time the land was acquired carried on a business of developing land or dividing land into lots, whether or not—
(a)the first person carried on a business of developing land or dividing land into lots; or
(b)the land was acquired for the purpose of the associated person’s business.
Exclusions
(3)Subsections(1) and (2) are overridden by the exclusions for residential land in sectionCB13 and for business premises in sectionCB16.
Origin:(1) CD 1(2)(c).
(2) CD 1(2)(c), (11).
(3) CD 1(3).
Defined terms:amount, associated person, business, derived, disposal of land, income, land, person.
Comment:The rule about disposals of land acquired by land developers and dividers or their associates is grouped with other land disposal rules in current section CD1(2) (Land transactions). It is now expressed in this separate section to enable readers to access the rule more easily.
The rewritten provision clarifies that the test of association between the principal business person and associate is to be applied at the time the land is acquired, not when the land is disposed of. The previous wording did not make this clear.
A separate subsection tells readers immediately that there are exclusions for residential and business premises and refers them to the detailed rules.
CB8Disposal within 10years of improvement: building business
Business of erecting buildings
(1)An amount that a person derives from the disposal of land is income of the person if—
(a)they dispose of the land within 10years of completing improvements to it; and
(b)at the time they began the improvements, they carried on a business of erecting buildings, whether or not the land was acquired for the purpose of the business.
Associated person in business of erecting buildings
(2)An amount that a person derives from the disposal of land within 10years of completing improvements on it is income of the person if a person associated with them at the time the improvements were begun carried on a business of erecting buildings, whether or not—
(a)the first person carried on a business of erecting buildings; or
(b)the land was acquired for the purpose of the associated person’s business.
Exclusions
(3)Subsections(1) and (2) are overridden by the exclusions for residential land in sectionCB13 and for business premises in sectionCB16.
‘Improvements’ defined
(4)In this section, improvements means improvements to the land that—
(a)are not minor; and
(b)are made—
(i)in subsection(1), by the person by erecting a building or otherwise; or
(ii)in subsection(2), by the associated person by erecting a building or otherwise.
Origin:(1) CD 1(2)(d).
(2) CD 1(2)(d), (11).
(3) CD 1(3).
(4) CD 1(2)(d).
Defined terms:amount, associated person, business, derived, disposal of land, improvements, income, land, person.
Comment:The rule about disposals of land acquired by builders or their associates is grouped with other land disposal rules in current section CD1(2) (Land transactions). It is now expressed in this separate section to enable readers to access the rule more easily.
The rewritten provision clarifies that the test of association between the principal business person and associate is to be applied at the time the improvements are begun, not when the land is disposed of. The previous wording did not make this clear.
A separate subsection tells readers immediately that there are exclusions for residential and business premises and refers them to the detailed rules.
CB9Disposal: development or division begun within 10years
Amount derived from disposal of land
(1)An amount that a person derives from the disposal of land is income of the person if—
(a)an undertaking or scheme involving the development of the land or the division of the land into lots has been carried on or carried out, whether or not the activity of the undertaking or scheme has a business-like character; and
(b)the undertaking or scheme was begun within 10years of the date on which the person acquired the land; and
(c)the development or division work is not minor; and
(d)the development or division work has been carried out by the person or on their behalf.
Exclusions
(2)Subsection(1) is overridden by the exclusions for residential land in sectionCB14, for business premises in sectionCB17, for farmland in sectionCB18, and for investment land in sectionCB20.
Origin:(1) CD 1(2)(f)(i), (ii).
(2) CD 1(2)(f) proviso, (3), (6), (7).
Defined terms:amount, derived, disposal of land, income, land, person.
Comment:The rule about development and division schemes begun within 10 years of land being acquired is grouped with other land disposal rules in current section CD1(2) (Land transactions). It is now expressed in this separate section to enable readers to access the rule more easily. A separate subsection tells readers immediately that there are exclusions for residential premises, business premises, farmland, and investment land, and refers them to the detailed rules.
CB10Disposal: major development or division begun after 10years
Amount derived from disposal of land
(1)An amount that a person derives from the disposal of land is income of the person if—
(a)the amount is derived from the carrying on or carrying out of an undertaking or scheme involving the development of the land or the division of the land into lots of land, whether or not the activity of the undertaking or scheme has a business-like character; and
(b)the amount is not income under sectionsCB5 to CB9 and section CB11.
Conditions attaching to development or division work
(2)For the purposes of subsection(1), the development or division work—
(a)must have been carried on or carried out by the person, or on their behalf; and
(b)must involve significant expenditure on work, a service, or an amenity customarily undertaken or provided in major projects involving the development of land for industrial, commercial, or residential purposes.
Exclusions
(3)Subsection(1) is overridden by the exclusions for residential land in sectionCB14 and for farmland in sectionCB18.
Origin:(1) CD 1(2)(g).
(2) CD 1(2)(g).
(3) CD 1(6), (7).
Defined terms:amount, derived, disposal of land, income, land, person.
Comment:The rule about major land development and division schemes begun 10 or more years after land is acquired is grouped with other land disposal rules in current section CD1(2) (Land transactions). It is now expressed in this separate section to enable affected users to access the rule more easily.
The application of the rule to disposals of land from major development and division schemes begun 10 or more years after land is acquired is signalled in the section heading. Previously, this was not signalled directly. Instead, the rule was expressed as not applying to amounts under current section CD1(2)(f), the rule about schemes begun within 10years.
A separate subsection tells readers immediately that there are exclusions for residential and farmland and refers them to the detailed rules.
CB11Disposal of land affected by changes in permitted use
Income from disposal of land
(1)An amount that a person derives from the disposal of land is income of the person if all the following apply:
(a)the amount is not income under sectionsCB5 to CB9; and
(b)the person disposed of the land within 10years of acquiring it; and
(c)the total amount that they derive from its disposal is more than the cost of the land; and
(d)at least 20% of the excess arises, after the person acquired the land, from one or more of the circumstances listed in subsection(2).
List of circumstances
(2)The circumstances referred to in subsection(1)(d) are, in relation to the land,—
(a)the imposition of the rules of an operative district plan under the Resource Management Act 1991 that relate to that land, or a change to those rules, when the changes were made after the person acquired the land, or the likely imposition of such rules:
(b)the granting of a consent under the Resource Management Act 1991 in relation to that land, when the consent was granted after the person acquired the land, or the likely grant of such a consent:
(c)the making of a decision of the Environment Court, when the decision was made after the person acquired the land, or the likely making of such a decision:
(d)the removal of any condition, obligation, restriction, prohibition, or covenant (including a designation or heritage order) imposed under the Resource Management Act 1991, if the removal occurred after the person acquired the land, or the likely removal of any of these:
(e)other similar circumstances.
Exclusions
(3)Subsection(1) is overridden by the exclusions for residential property in sectionCB15 and for farmland in sectionCB19.
Origin:(1) CD 1(2)(e).
(2) CD 1(2)(e).
(3) CD 1(4).
Defined terms:amount, derived, disposal of land, income, land, person.
Comment:The rule about disposals of land the value of which has been enhanced by changes or likely changes in permitted use is grouped with other land disposal rules in current section CD1(2) (Land transactions). It is now expressed in this separate section to enable readers to access the rule more easily. A separate subsection tells readers immediately that there are exclusions for residential land and farmland and refers them to the detailed rules.
CB12Disposal of land after transfer between associated persons
For the treatment of amounts derived on the disposal of land following a transfer of the land to an associated person, see sectionGD9 (Land transferred between associated persons).
Origin:new.
Defined terms:amount, associated person, derived, disposal of land, land.
Exclusions for residential land
CB13Residential exclusion: land acquired for disposal or when certain businesses carried on
Dwellinghouse occupied as residence
(1)SectionsCB5 to CB8 do not apply to the extent described in subsection(2) to an amount that a person derives from the disposal of land if—
(a)the person acquired the land with a dwellinghouse on it, or acquired the land and erected a dwellinghouse on it; and
(b)the dwellinghouse was occupied mainly as a residence by the person and any member of their family living with them or, if the person is a trustee, by one or more beneficiaries of the trust.
What the exclusion applies to
(2)The exclusion applies to the land that has the dwellinghouse on it, and the land related to it, if the total area of related land is not more than 4,500 square metres, or a larger area for the reasonable occupation and enjoyment of the dwellinghouse.
When the exclusion does not apply
(3)The exclusion does not apply when the person has engaged in a regular pattern of acquiring and disposing, or erecting and disposing, of dwellinghouses.