A tax bill aligning New Zealand’s venture capital tax rules more closely with those of Australia went before the nation’s parliament on Monday. Ministers hope that it will enable New Zealand to compete more effectively with its neighbour for venture capital.
“The amendments target foreign investors who are tax-exempt in their own countries and therefore cannot claim or make use of credits for any tax they pay in New Zealand,” explained Revenue Minister, Michael Cullen.
He continued:
“They will be exempted from New Zealand income tax on the sale of shares in certain unlisted New Zealand companies. The change will apply to foreign investors who are resident in most of the countries with which New Zealand has a double tax agreement and who are tax-exempt at home."
“The exemption will also apply to foreign funds from countries representing our main investment partners that invest on behalf of foreign venture capital investors who are generally tax-exempt in their own countries."
“Other important changes in the bill include amendments to the legislative framework governing the resolution of disputes between taxpayers and Inland Revenue, to improve the process for both parties."
The bill also introduces a 6.7 per cent rebate, or 'discount', to encourage people who begin receiving self-employed or partnership income to make voluntary payments of income tax in their first year of business, rather than wait to pay tax on year-one income in year two.
“The change is designed to reduce the financial strain that individuals in business face in their first three years of business," Dr Cullen noted.
In addition, the Revenue Minister announced that a loophole involving the sale and leaseback of intangibles such as trademarks and newspaper mastheads will be closed through provisions in the taxation bill.
"The proposed changes do not affect normal sale and leaseback transactions that are entered into for commercial reasons - only those that could result in participants claiming tax deductions for what are, in substance, repayments of loan principal,” he explained.
The full text of the New Zealand Taxation (Annual Rates, Venture Capital And Miscellaneous Provisions) Bill can be found in the Tax-News Resources Section.
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