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Banks to pay more tax under new rules

16 November 2004

Banks to pay more tax under new rules

A bill introduced into Parliament today will ensure that foreign-owned banks operating in New Zealand pay sufficient tax on their New Zealand income.

“New rules specific to banks will ensure that their income cannot be sheltered by interest deductions arising from excessive debt,” said Revenue Minister Michael Cullen.

“Banks will be denied interest deductions if they do not hold capital equivalent to 4 per cent of their New Zealand banking assets, weighted for risk. They must also have enough capital in New Zealand, on which no interest is deductible, to fully fund their offshore investment.

“The changes, which will apply from 1 July next year, are expected on current levels of bank profitability to result in the payment of another $360 million a year in tax; revenue which has already been factored in to current budget planning.

“The bill also closes a loophole in the imputation and dividend rules to prevent inappropriate refunds of prepaid tax. Once enacted, the change will apply from today,” Dr Cullen said.

Other important changes in the bill include the introduction of statutory “privilege” to tax advice provided by tax advisors such as chartered accountants and changes to the tax depreciation rules to improve their operation and reduce compliance costs.

The bill also clarifies a number of tax rules, including those on tax deductibility for business environmental expenditure.

Information on these and other matters in the bill can be found in the commentary on the Taxation (Base Maintenance and Miscellaneous Provisions) Bill, available at


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