In my first AWIR for 2021, I mentioned the release for discussion and feedback, of three documents which provide the Commissioners view on the correct interpretation of the general anti-avoidance provisions contained in sections BG 1 and GA 1 of the Income Tax Act 2007, and then some commentary as to those provisions’ application to a number of specific scenarios.
All three documents are in essence an updated version to earlier releases, with the previous conclusions reached unchanged. Out-of-date legislative references have been amended naturally.
The original deadline for comment was 18th February 2021, however this date has now been extended to 31st March 2021.
In case you missed my first edition for the year, the three documents are:
- PUB00305: Tax avoidance and the interpretation of the general anti-avoidance provisions ss BG 1 and GA 1 of the Income Tax Act 2007 – explains the Commissioner’s view of the law on tax avoidance in New Zealand and when finalised will replace the current interpretation statement IS 13/01, “Tax avoidance and the interpretation of sections BG 1 and GA 1 of the Income Tax Act 2007”.
- PUB00305 QB 1: Income tax: scenarios on tax avoidance — reissue of QB 14/11 scenario 1 and QB 15/11 scenario 2: This QWBA addresses the scenarios of ‘interest deductions where shareholder loans are replaced’ – a family trust has in essence made interest free and upon demand advances to a wholly owned company over the years, those advances used by the company for the purpose of deriving assessable income, the trust demands repayment of the advances which has the consequence of the company borrowing from a third-party lender and claiming interest deductions in respect of the interest paid on the new debt, while the family trust uses the repaid funds to acquire a holiday home for the use of the trust beneficiaries, and, ‘interest deductions and use of a PIE’ – individual taxpayer on a 33% marginal tax rate borrows funds from a bank to invest in its PIE, PIE income then used by bank to satisfy interest obligations, PIE income taxed at 28% while taxpayer claims the interest deductions against their other income sources which are subject to the 33% tax rate.
- PUB00305 QB 2: Income tax: scenarios on tax avoidance — reissue of QB 15/11 — scenarios 1 and 3: This QWBA addresses the scenarios of ‘use of a limited partnership’ – a scenario where a tax loss company wholly owns a profit company, the tax loss company forms a limited partnership with an unassociated company, and the profit company subsidiary then proceeds to sell its business to the limited partnership, thereby paving the way for the loss company to now receive 50% of the profits to offset its tax losses, and ‘use of a discretionary trust’ – a useful read in my view if you are wanting to allocate beneficiary income to a client’s tax loss company and you are nervous of upsetting the Revenue should they ever review the file.
If you have any questions or would like a second opinion on any national or international tax issues, please contact me firstname.lastname@example.org