|
2008 New Zealand Taxation Bill
of Likely 2009 Tax Law Changes
by Thomas Pippo
|
 |
|
Thomas Pippo |
September, 2008. In early July a taxation bill was tabled in the New Zealand Parliament,
the Taxation (International Taxation, Life Insurance and Remedial Matters
Bill ("the bill"). With 445 pages of legislation, 122 pages of explanatory
notes and 160 pages of commentary, the bill will take quite some time to
digest.
The bill contains some major reforms to the tax system, particularly New
Zealand's international tax rules.
While the substantive contents of the bill have not come as a surprise,
as there had been clear signals in advance on most material topics, issues
have already started to arise as to adequacy of the legislative drafting.
This is in addition to the pre-existing concerns around certain intended
policy outcomes.
The substantive areas of New Zealand tax reform contained within the bill include:
-
The introduction of an active income exemption for controlled foreign
companies, which is generally viewed positively. The repeal of the conduit
regime, the repeal of the grey list other than Australia and the
introduction of interest allocation rules for outbound investment, all
generally viewed negatively.
-
A new taxing regime for life insurers
-
A new payroll giving regime which will likely impact on all employers
in some way
-
Reform of the definition of "associated persons" which will have major
impacts for those involved in the development of property or building
industries – or anyone who now finds themselves associated with such a
person
-
Changes to the treatment of relocation allowances and overtime meal
allowances.
-
Rules governing the taxation of emissions trading units
-
Changes to the taxation of petroleum miners, particularly in relation
to their foreign branch operations
-
Changes to certain tax thresholds
-
Clarifications to the existing Tax Discloser Right protections
Arguably the most material changes in the bill are from an international
tax perspective. As noted above, New Zealand will soon see the introduction
of an active income exemption for controlled foreign companies. This move
will bring considerable relief to those domestic companies with global
operations outside of New Zealand's traditional trading partners that have
to integrate those operations within their New Zealand tax calculations so
as to claw back any tax preferences that may exist from operating in those
jurisdictions.
Conceptually the new regime should exempt from New Zealand tax any
controlled foreign company income regardless of country of origin, provided
that the level of passive income does not exceed 5% of the total income in
the foreign jurisdiction.
While this aspect of the bill is pleasing, it is offset for certain
taxpayers by the introduction of interest allocation rules. Mechanistically,
these rules will operate by extending the ambit of the existing thin
capitalisation rules to also capture all businesses investing offshore,
including New Zealand owned businesses (with some minimal thresholds to
ensure that SMEs are not unduly impacted).
Essentially the interest allocation rules will deny interest deductions
if New Zealand debt exceeds 75% of New Zealand assets so that in the future
domestic operations (and hence their tax base) will be limited as to the
extent to which they can fund global expansion.
This aspect of the international tax changes is concerning given the
disincentive that it provides for the limited number of large companies to
grow internationally while staying head quartered in New Zealand.
Due to the general election in the current calendar year it is not
expected that this bill will be enacted until April/May 2009 notwithstanding
that many measures are proposed to have effect from April 1 2009. It is also
expected that certain substantive matters will be actively debated within
the select committee process before the legislation being enacted such that
the final shape of reform will not be known to much closer to April/May
2009.
Thomas Pippos (tpippos@deloitte.co.nz)
Home Up 2009-NZ-Tax-Law-Changes NZ-Netherlands-Antilles-Agreement NZ-USA-Tax-Treaty
|