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New Zealand Changes Finance Lease Tax Rules,
by Mary Swire, Tax-News.com, Hong Kong
Tuesday, December 11, 2007
New changes to the finance lease tax rules in the Income Tax Act have been added
to the taxation bill currently before Parliament, the New Zealand government announced
Tuesday.
The proposed legislation is intended to shut down tax schemes relating to leases
on overseas assets that result in a loss to New Zealand revenue. The schemes
involve New Zealand parties claiming depreciation deductions for assets in which
they have no economic interests that are leased to parties overseas, who are
not subject to New Zealand tax law.
“The government has listened to concerns about the proposed changes and
has come up with a new treatment for leases entered into before 20 June 2007,
when the changes were announced,” Finance Minister Michael Cullen and
Revenue Minister Peter Dunne stated.
“Our modifications to the transitional arrangements represent a pragmatic
compromise that deters aggressive tax minimisation schemes and recovers some
lost revenue while limiting the negative effects on existing commercial arrangements,"
they claimed.
As originally conceived, the changes would have required all operating leases
entered into before 20 June 2007 that met the amended definition of ‘finance
lease’ to be reclassified as such from the beginning of the next income
year. Parties who had entered into the affected leases would have had to pay
back excess depreciation they had previously claimed for the assets involved.
The modification announced on Tuesday reduces allowable depreciation deductions
over the whole term of affected leases by one-sixth. That means that the parties
involved will have to pay back one-sixth of the depreciation they claim for
the life of the leases.
The ministers continued:
“In the government’s view, this transitional arrangement achieves
a balance between the need to recognise that some of the affected schemes are
commercial realities that involve more than one party and the necessity of deterring
people from entering other tax-driven schemes."
“We are also recommending four minor modifications to the proposed legislation
to ensure it is correctly targeted and prevent unintended consequences."
Cullen and Dunne added:
“We are confident that these modifications to the proposed legislation
will allow a less disruptive transition to the new rules for parties involved
in leases that existed before 20 June, while allowing the previously announced
changes to achieve their intended purpose."
Announced on 20 June 2007, the proposed changes to the finance lease tax rules
were later withdrawn from the taxation bill to allow the government more time
to consider transitional concerns that had been raised in submissions to the
Finance and Expenditure Committee.
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