The bill would make several remedial amendments designed to ensure that tax legislation works as intended. We have recommended further changes of a similar nature. We do not discuss minor and technical amendments in this commentary.¹

We agree with submitters that “the first day of the emergency event” would not necessarily be the date that a state of emergency was declared. Some emergency events, such as earthquakes, have a clearly identifiable start date. Other emergency events, such as cyclones, flooding, and coastal erosion, may have less obvious start dates.

We recommend amending clause 118 (proposed new section 6J(1)) to require the relevant Order in Council to specify the start date of the emergency event.

Proposed new subpart FP would provide a five-year window for resolving insurance and recovery activities. However, submitters noted that some emergency events (such as the Canterbury earthquakes) take much longer than five years to resolve insurance and recovery activities.

We recommend amending clause 117, which amends section 3 of the Tax Administration Act 1994, to specify that the end of an “emergency event period” refers to the last day of the income year that is 5 income years after the period begins unless a later date is specified by Order in Council (new subclause (6B), paragraph (b)). This would remove the potential complications and time pressures that could arise from trying to enact an extension through primary legislation.

Proposed new section FP 16, inserted by clause 53, would enable the income arising from culling livestock destroyed by an emergency event to be spread over six years. For clarity, we recommend defining “mixed-age female breeding animals” (new clause 53B, section FP 23(8)).

In our view, the original drafting of clause 53 was complex and difficult to understand. We have recommended redrafting it (as new clause 53B) to simplify the provisions relating to tax relief for emergencies. Although the changes look substantial, most are just simplifying the drafting.

However, in considering this redrafting, four new issues arose:

• We considered whether to add a “purpose” clause for this regime in proposed new section FP 1. We ultimately decided that it would be difficult to codify a purpose and be sufficiently prescriptive while allowing flexibility and ministerial discretion. However, we want to reiterate that the purpose of this regime is to provide tax relief to people affected by emergency events and help them recover.

• We considered whether taxpayer’s “intangible property” should be included in proposed section FP 1. We did not have time to reach a conclusion on this and recommend that Inland Revenue consider, in future legislation if necessary, how the regime accounts for intangible property.

• Proposed new section FP 14 sets out when a property would be deemed uneconomic to repair. This might require time and judgement, with the potential for income to be backdated to an earlier income year. Inland Revenue assured us that it would act in a taxpayer-friendly way when applying interest and penalties if the “uneconomic” decision is made in a later income year.

• Inland Revenue has looked at the land, buildings, and depreciable property provisions set out in section FP 4(5) and notified us that a minor drafting change is necessary. We recommend amending section FP 4(5) to include the underlined wording:

  When the replacement property is subsequently disposed of, the extent to which the difference between the cost for tax purposes and the sale proceeds is taxable is determined by normal tax rules.

When transferring their UK pension to a New Zealand QROPS, some migrants need to pay the tax on the transfer in New Zealand by withdrawing funds from their pension. However, this results in UK tax charges. The bill proposes a “scheme pays” option that would allow a migrant in this situation to elect to have their QROPS provider pay the New Zealand taxes on the transfer. This avoids UK tax charges because the scheme is then obligated to withhold and pay the tax, and no funds would flow to the migrant personally.

For equity reasons, the bill also proposes that “scheme pays” would be available when transferring pension funds from countries other than the UK. Importantly, the bill as introduced would mandate that QROPS and KiwiSaver schemes are required to provide a “scheme pays” option.

We note that the policy intent for requiring QROPS to offer “scheme pays” is to address a problem with tax on UK pension transfers. However, requiring KiwiSaver providers whose target market is not migrants to offer “scheme pays” could impose unnecessary regulation and compliance costs that are then passed on to the client, for minimal benefit. We therefore recommend amending clause 105(33) to make “scheme pays” optional for KiwiSaver providers.

Under “scheme pays”, the QROPS provider would report monthly to Inland Revenue on its overseas pension transfers. To help this reporting, the bill proposes that migrants would be responsible for providing accurate information to their QROPS. This includes a requirement to calculate and notify the QROPS provider of the “assessable withdrawal amount” (in other words, the taxable part of the funds transferred) under proposed new section 31D of the Tax Administration Act 1994.

Submitters noted that the New Zealand Dollar value of the transfer (and therefore the taxable amount in New Zealand) would only be known on the date that the funds are transferred into the QROPS. Some were concerned that migrants would not have enough time to accurately assess their tax liability.

We accept this point and recommend amending clause 124 to extend the time frame for an individual to notify the QROPS provider of the assessable withdrawal amount to 10 working days from the date of transfer.

We propose a further amendment to the transfer rules, in new clause 145B, to ensure they work correctly.

Under section 143A of the Tax Administration Act 1994, it is an offence for a person to knowingly not withhold or pay tax to the Commissioner. However, there is an exception in section 143A(4) for circumstances where the person failed to pay the tax to the Commissioner within the prescribed time period due to factors beyond the person’s control. Section 143A(5) lists the taxes that are within the exception.

We recommend adding transfer scheme withholding tax to the list of taxes in section 143A(5) to ensure that the exception would apply to QROPS and KiwiSaver scheme providers in the relevant circumstances.

Clause 199 of the bill as introduced would amend section 86H of the Stamp and Cheque Duties Act 1971 to allow the Commissioner to backdate registration of a security when a delay in applying for registration is caused by an oversight. It outlines the factors the Commissioner could consider.

Submitters told us that the two-year limit for retrospective registration should be removed. We agree, given that retrospective registration is granted at the Commissioner’s discretion and not guaranteed, it would still be important to register promptly. However, the amount of time between the borrower’s first interest payment and their application for retrospective registration is still a relevant consideration.

We recommend amending the bill to remove the two-year time frame for retrospective registration. Instead, we recommend inserting “duration of the delay in applying for the registration” as a factor that the Commissioner may consider when determining whether the delay was caused by an oversight.

Submitters told us that the ability to accept retrospective AIL registrations should be extended to borrowers who have attempted to register on time but were unable to do so for reasons other than “oversight”, such as administrative delays on Inland Revenue’s part. They suggested that widening the provision would ensure borrowers who mistakenly failed to comply with their obligations do not receive more favourable treatment than borrowers who were unable to comply with their obligations for reasons beyond their control.

We recommend amending proposed section 86H(3) and (4), amended by clause 199, to expand the Commissioner’s discretion to allow retrospective registration so that it covers cases when the borrower made reasonable efforts to register the security on time but failed to do so.

One of the factors in proposed section 86H(4) is whether the applicant for retrospective registration is a “natural person”. We accept that this factor may not meaningfully help the Commissioner discern whether the borrower’s delay in registration was likely to have been unintentional. Genuine errors can occur regardless of whether the person is a natural person or an entity. We recommend removing “whether the person is a natural person” from the list of factors the Commissioner may consider in determining whether the delay was caused by an oversight.

Submitters suggested adding AIL to the list of taxes in section RP 17B(14) of the Income Tax Act 2007 so that tax pooling can be used to settle an AIL liability that arises when the Commissioner grants retrospective registration.

We agree that the Commissioner should have discretion to allow a borrower who is granted retrospective registration to use tax pooling to settle the resulting AIL liability. In our view, the Commissioner must be satisfied that the taxpayer was not deliberately non-compliant and did not show a lack of reasonable care. Also, the taxpayer must voluntarily disclose the new liability within a reasonable time after becoming aware of it.

We recommend inserting clause 104C, which would amend section RP 17B to add AIL to the list of taxes for which the Commissioner has the discretion to allow tax pooling to be used to satisfy new liabilities.

The Office of the Privacy Commissioner told us that, to uphold the requirements of the Privacy Act 2020 and ensure that the privacy regulator can provide effective oversight, agencies should collect data for a particular purpose and only use, retain, and share it in ways connected with that purpose. Its view is that clause 153, as introduced, is too broad and could enable Inland Revenue to share any contact information or tax file numbers of an unincorporated body with the Ministry of Business, Innovation and Employment (MBIE) to support any of that agency’s duties and functions. MBIE is the agency responsible for administration of New Zealand Business Numbers.

We understand that the purpose of this provision is to facilitate a single transfer of data between agencies and that it would be repealed automatically by 1 April 2026. We recommend amending clause 153 to specify that the sharing and use of this information is limited to specific duties and functions of MBIE and that the sharing would be carried out as a single transfer of data (clause 153, section 23C(3B)).

Clause 159 would amend section 11A of the GST Act, which lists situations in which a supply of services must be taxed at 0 percent.

Clause 173 as introduced would amend section 21F of the GST Act to clarify that section 21F(6) applies to property developers that deal in land or erect buildings.

Submitters told us that this proposed amendment could potentially capture retirement village operators who develop their own villages. We understand that the policy intention is for the amendment to apply only to typical property developers. We recommend amending the provision to clarify that it would only apply to typical property development activities.

The proposed amendment that clause 59 would make to section HC 35 of the Income Tax Act would ensure that beneficiary income derived from a disabled beneficiary trust is not subject to the minor beneficiary rule. Disabled beneficiary trusts are excluded from the 39 percent trustee tax rate under section HC 39 and are subject to the 33 percent tax rate on trustee income.

A “disabled beneficiary” means a beneficiary of a trust who receives one or more relevant support payments in a tax year (a disability allowance or child disability allowance, a supported living payment, or at least six months of JobSeeker Support Health and Disability). For a trust to be taxed at the 33 percent rate, all beneficiaries must derive an eligible government support payment for the relevant income year.

Clause 10 as introduced would amend section CD 44 of the Income Tax Act 2007. This amendment would apply when a company is a beneficiary of a trust and derives income that is subject to the corporate beneficiary rule in section HC 38 of the Act. It would ensure that the amount the company can distribute to shareholders tax-free on liquidation is limited to the after-tax amount of the beneficiary income they receive.

Clause 16 as introduced would amend section CW 3C of the Income Tax Act 2007 to ensure that the bright-line period is not restarted when a co-owner acquires land from another co-owner on a partition or subdivision. Instead, the transferee’s bright-line start date is deemed to be the same as the transferor’s.

Submitters suggested that the start date of a co-owner acquiring land should be taken from the date that they acquired their first interest in the undivided land, rather than the date the transferor first acquired an interest in the land.

We agree that it is not appropriate for the transferee to take on the transferor’s bright-line start date if person A acquired the land, person B bought in as co-owner, and the land was subsequently partitioned. It is our view that person B’s bright-line start date should be the date they bought in as co-owner.

We recommend amending the bright-line start date on partition to the date the co-owner acquired their first interest in the undivided land.

We are aware that the Commissioner issued some binding rulings, before the bill was introduced, in relation to income spreading for disposals of land to the Crown. The bill seeks to amend the law relating to income spreading. To avoid retrospective application, we consider that the Income Tax Act should permit people who have relied on a binding ruling made before 26 August 2024 (the date of the bill’s introduction) to continue relying on those binding rulings. We recommend including a savings provision in section EZ 8B of the Income Tax Act 2007, as inserted by new clause 43B.

The bill as introduced would clarify that a dividend can arise from a transfer pricing adjustment without taxpayers requesting a corresponding adjustment. A transfer pricing adjustment is based on market value and will generate a deemed dividend as there is a transfer of value. The party to the transaction can request an adjustment that can reduce their taxable income. However, the dividend should arise and be maintained whether a corresponding adjustment is requested or not.

Submitters maintain that the proposed amendment to clarify that the transfer pricing and dividend rules apply concurrently, regardless of the matching treatment application, should not apply retrospectively or should at least protect positions taken under the current law. Given that this issue has been subject to several disputes in recent years, they think retrospective application would be inappropriate.

It is our understanding that the changes were initially proposed to apply retrospectively because they were intended merely to clarify the provisions and confirm the policy intent. Further, operationally Inland Revenue has been interpreting and applying the rule in a way that is consistent with the proposed amendment.

To address submitter concerns, we recommend amending the effective date of the amendment to the standard commencement date of the day after the Act receives the Royal assent (clause 2(1) and (5)).