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New foreign super and mineral mining bill introduced

On 20 May 2013, “The Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill was introduced into Parliament by the Minister of Revenue, Peter Dunne. This bill contains new rules for the taxation of foreign superannuation and repeals and replaces the rules for specified mineral mining. We have separate articles on both these topics elsewhere in this issue. The bill contains a few other issues as follows:

  • In certain situations notional adjustments (including notional payments or receipts of interest) are required when accounting for interest-free and reduced interest loans under IFRS. The bill amendment clarifies that these bookkeeping adjustments should have no tax effect. In other words, positive adjustments will not be taxable while negative ones will not be deductible. This change will apply from the beginning of the 2014 income year. Taxpayers that have been claiming deductions for notional adjustments (or paying tax on them) will need to perform a change of spreading adjustment in their 2015 income year.

  • There is a measure to address a situation that arises in relation to imputed dividends paid by Australian companies under the trans-Tasman imputation rules. Broadly the issue arises where a NZ resident shareholder receives a dividend with imputation credits attached to it from a closely held Australian company. As the investment will likely be an attributing interest under the Foreign Investment Fund (FIF) rules, the actual dividend is disregarded and income tax arises only on the FIF income. A mismatch arises because the imputation credits are calculated with reference to the actual dividend but tax arises only on the FIF income. With effect for tax years commencing on or after 1 April 2014, the tax credit arising in these situations will be limited where the dividend received exceeds the amount of FIF income.

  • There are two changes to the bad debt deduction rules:

    • A bad debt deduction will be allowed if a debt has been remitted by law (for example due to the liquidation or bankruptcy of the debtor company) or a debtor company has entered into a composition with creditors. In this case it won’t be necessary to satisfy the need to write a debt off as bad within the income year and before the financial arrangement ends. Currently the rules require that the debt be written off in the same income year and before the debtor is liquidated or bankruptcy takes place. This requirement can be difficult for the “mum and dad” investors in failed finance companies who would not have up-to-date knowledge of the financial state of the debtor to know when to take the bad debt deduction.

    • The other change is a base maintenance measure and applies to limit bad debt deductions for holders or dealers in certain situations for amounts owing where they have not suffered a cash loss.

The bill also contains changes to clarify the taxation of general and life insurance business and rewrite maintenance issues to fix terminology, cross referencing, punctuation and other matters. As we went to print, a submission date had not been set.

Tax Alert June 2013 contents:

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