Death and asset transfers
Sections FI 4, FI 6 and FI 7 of the Income Tax Act 2004 and 120C of the Tax Administration Act 1994
Remedial changes have been made to ensure that provisions relating to death and asset transfers in the Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 reflect their policy intention.
Distributions to spouse or de facto partner
Section fi 4 of the Income Tax Act 2004
The policy intention of section FI 4 was that roll-over relief should apply for distributions to a deceased's spouse or de facto partner, as long as no person outside the second degree of relationship to the deceased is entitled to property which is taxable. A remedial amendment has been made to ensure that section FI 4 reflects this.
The amendment is effective from 1 October 2005, the date subpart FI came into force.
Section FI 6 of the Income Tax Act 2004
The amendment ensures that roll-over relief applies for forestry assets held at the date of a taxpayer's death, irrespective of whether a life tenant is entitled to part of the trust property and irrespective of who the trustees of the estate are. The roll-over applies as long as a relative to the second degree of the deceased is beneficially entitled to the forest.
The amendment is effective from 1 October 2005.
10-year rule for land held on capital account
Section FI 7 of the Income Tax Act 2004
This section has been amended to correct a drafting error. A reference to section CB 10 has been changed to section CB 12.
Section CB 10 deals with situations where a development or subdivision of land began within 10 years of its acquisition. These sales are taxable, irrespective of when the sale occurred. Because a tax liability should always arise from a sale of land in these circumstances, there is no need to provide roll-over relief when an owner dies.
The reference to section CB 10 has been removed effective from 16 May 2006, the date of introduction of the Taxation (Annual Rates, Savings Investment, and Miscellaneous Provisions) Bill.
On the other hand, section CB 12 provides that if land is sold within 10 years of acquisition and the land has been enhanced by zoning or similar factors, the profit on sale is taxable. However, if the owner had held the land for 10 years, no tax liability would have arisen on the sale of the land. Therefore the taxpayer's death, in itself, should not trigger a tax liability.
The reference to section CB 12 has been included retrospectively from 1 October 2005.
Concessionary use-of-money interest
Section 120C of the Tax Administration Act 1994
The intention of changes to the definition of "date interest starts" in section 120C was that concessionary use-of-money interest rules should apply to any income tax liability arising in a period that ends with the taxpayer's death (subject to the condition that the relevant liabilities are paid on time). An amendment has been made, effective from 1 October 2005, to ensure the definition reflects this policy.