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Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 [2006 No 3]

The Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Bill was introduced into Parliament on 19 May 2005. The bill received its first reading on 9 June 2005, the second reading on 16 March 2006 and the third reading on 22 March 2006. The resulting Act received Royal assent on 3 April 2006. It amends the Income Tax Act 1994, Income Tax Act 2004, Tax Administration Act 1994 and the Goods and Services Tax Act 1985.

Depreciation rates

The Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 amends the previous tax depreciation rules. The most significant changes are to the way that economic rates are set by the Commissioner.

Aligning provisional tax payments with GST

The provisional tax rules have been amended to make paying provisional tax easier for small businesses. The changes will combine the payment of provisional tax with GST, thereby reducing the number of interactions taxpayers have with Inland Revenue. The changes will mean both tax payments can be made on the one form and will enable taxpayers who have a GST refund to offset the refund amount against their provisional tax liability.

PAYE subsidy for small businesses

Changes have been made to the Income Tax Act 2004 and the Tax Administration Act 1994 to enable Inland Revenue to subsidise the use of payroll agents to meet the PAYE obligations of small businesses.

Fringe benefit tax

Amendments to the Income Tax Act 2004 give effect to a set of changes to fringe benefit tax (FBT). The changes are designed to reduce compliance costs and remove anomalies in the rules while maintaining the objectives of FBT. Several changes also remove an FBT liability when the fringe benefits are small relative to the compliance costs involved. This means that fewer small businesses will need to file FBT returns on minor benefits that are part of normal business activities.

Taxation of share-lending transactions

The tax treatment of share-lending transactions has been clarified and reformed.

Allocation of research and development tax deductions

The Income Tax Act 2004 has been amended to allow companies that bring in new equity investors better access to tax deductions for research and development (R&D) expenditure.

Corporate migration

The Income Tax Act 2004 has been amended to ensure that companies that migrate from New Zealand pay tax on the worldwide income they earned while resident in New Zealand. The changes are intended to remove incentives for companies to migrate for tax reasons.

Venture capital investment alongside the Venture Investment Fund

The amendments introduce a tax exemption on realised gains for investments made by non-residents alongside the New Zealand Venture Investment Fund Ltd (VIF).

ACC attendant care payments

Changes have been made to the Income Tax Act 2004 and the Tax Administration Act 1994 to withhold tax on ACC attendant care payments made by the Accident Compensation Corporation (ACC).

Treatment of distributions from cooperatives

To remove uncertainty in the treatment of payouts made by cooperatives to their members, an amendment to the dividend rules ensures that certain payouts are not treated as dividends but remain deductible to the cooperative and taxable in the hands of members at their marginal tax rate.

New disclosure and recordkeeping rules for foreign trusts

New disclosure and record-keeping rules have been introduced for foreign trusts. A New Zealand-resident trustee of a foreign trust (referred to as a "resident foreign trustee") is required to disclose certain information to Inland Revenue and keep financial and other records relating to each foreign trust for New Zealand tax purposes. They are also obliged to provide these records to Inland Revenue, if requested.

Temporary exemption from tax on foreign income for new migrants and certain returning New Zealanders

New rules for temporary tax exemption for new migrants and certain returning New Zealanders have been introduced.

Exemption for rights to benefit from employment-related foreign superannuation schemes

The law has been clarified to allow people who invest in "foreign hybrids" to receive "grey list" treatment and foreign tax credits for tax they pay overseas on income earned by a foreign hybrid. The changes apply to foreign hybrids that are either a controlled foreign company (CFC) or a branch-equivalent foreign investment fund (FIF).

Tax consequences of natural disasters

Several amendments address problems which arose from the floods in February and July 2004.

Income tax exemption for gaming machine income of gaming trusts

The Income Tax 2004 has been amended to provide an exemption from income tax for the gaming machine income of gaming trusts. Under the previous rules, gaming trusts were able to apply for an exemption from RWT.

Increase in the child tax rebate

The child rebate was introduced so children are not required to pay tax on small amounts of income. As the child rebate has not been increased since 1983, its real value has eroded over time.

Increase in the child tax rebate

The child rebate was introduced so children are not required to pay tax on small amounts of income. As the child rebate has not been increased since 1983, its real value has eroded over time.

Reverse takeovers and continuity rules

The concessionary continuity rules, which apply to carrying forward losses and imputation credits when there is a change in a company's shareholding, have been extended to recognise that continuity can be maintained through reverse takeovers or mergers. The new rules apply when both companies involved in the takeover or merger are widely held or listed companies.

The addition of Spain to the grey list

The grey list is a list of countries whose tax systems are broadly similar to that of New Zealand's. Investments made in grey list countries are generally not subject to the controlled foreign company (CFC) and foreign investment fund (FIF) rules.

Regrassing and fertilising expenditure

The treatment of regrassing and fertilising expenditure has been realigned to clarify when it is fully deductible and when it is to be treated on capital account. The changes are designed to provide more certainty when accounting for such expenditure and to bring the tax treatment into line with modern short-rotation pasturemanagement practices.

Trans-Tasman imputation credit-streaming

The amendments prevent Australasian groups of companies from allocating imputation credits to dividends paid to a New Zealand investor if the payment results in a tax deduction in Australia.

GST on goods and services supplied to security holders

Changes have been made to the Goods and Services Tax Act to clarify the application of GST to supplies of financial services following the Court of Appeal decision Commissioner of Inland Revenue v Gulf Harbour Developments Ltd.

Duty on racing

The rate of duty and the formula for calculating duty on racing have been aligned with the rate and formula for casino gambling duty. Racing duty is set at 4% of gambling profits.

Bloodstock write-down rates

Write-down rates have been increased for stallions not previously used for breeding in New Zealand and for broodmares. Stallions not previously used for breeding in New Zealand will be written down over two years under the straight-line method, and the diminishing value rate will be 75%.

GST and credit contracts legislation

Changes have been made to sections 3 and 10 of the Goods and Services Tax Act to clarify the definition of "credit contracts" in relation to the Credit Contracts and Consumer Finance Act 2003 (CCCFA).

GST and international postage stamps

Section 5(11I) of the Goods and Services Tax Act has been amended by inserting a definition of "postage stamp".

GST and distributions from a trust made for no consideration between associated registered persons

Section 10 of the Goods and Services Tax Act has been clarified for valuing distributions from a trust and for valuing a gift between associated registered persons

GST on goods outside New Zealand at the time of supply

Section 11(1)(j) of the Goods and Services Tax Act has been amended and confirms that goods, such as motor vehicles, that are contracted for and used in New Zealand but located outside New Zealand at the time of supply are charged at the standard rate of GST. It is a base-maintenance measure designed to prevent GST avoidance by using third parties to import goods that are offshore at the time of supply.

Remedial amendments

Remedial changes have been made to the Income Tax Act 2004 on the recommendation of the Rewrite Advisory Panel.