Gov. to Clarify Tax for Brierley Shareholdes
Government to Clarify Tax Issues for Brierley Shareholders
Finance and Revenue Minister Sir William
Birch said today that the tax treatment of Brierley
Investments Limited shareholders would be clarified in law.
He said the clarification would be designed to ensure in
general that most individual Brierley investors would not be
affected by the proposed migration of Brierley.
“Investments into a number of countries can be subject
to New Zealand’s international tax rules including the
foreign investment fund (FIF) rules. Although the intent of
the FIF rules is clear, they do not cater explicitly for
companies that migrate.
“The key issue for shareholders
affected by the migration is the value at which their shares
become subject to these rules. The Government intends to
introduce legislation to clarify that, for migrating
companies, the shares enter the FIF rules at the market
value on the day the company migrates. This reflects the
policy as currently set out in the FIF
legislation.
“Individuals who hold shares in FIFs that
cost less than $20,000 in total are exempt from applying the
FIF rules. We will also clarify that, for migrating
companies, this cost will be measured with reference to
market value at the date of migration.
“The Government
understands that, of Brierley’s 107,000 shareholders, 90,000
own fewer than 10,000 shares. Most individuals have small
shareholdings that will make them exempt from the FIF rules.
“Their tax consequences will be unchanged. They will
continue to be taxed on dividends received. The only
difference will be that imputation credits will not be
available to them. Any gains that are capital under the
current law will continue to be tax-free.
“Those Brierley
shareholders who are affected by the migration will be able
to elect from four options to account for their income from
their shares. This allows them to choose the option best
for them. These options are described in the attached
annex.
“Inland Revenue has advised the Government that
there is no prospect under the current FIF rules of
shareholders being able to convert capital losses into tax
deductible losses as a result of the migration,” Sir William
said.
Ends
Accounting for income from FIFs under present law
The branch equivalent method
requires the income of a foreign entity to be re-cast as if
the foreign entity were a branch of a New Zealand company.
This requires shareholders to have access to sufficient
information to enable relevant calculations to be made, and
is likely to involve high compliance costs if it can be
used.
The accounting profits method attributes
to a shareholder their proportionate share of the foreign
investment fund's consolidated after-tax accounting
profits.
The comparative value method calculates
a taxpayer's foreign investment fund income as the amount of
any dividends received plus the change in the market value
of their investment over the year (adjusted for any capital
invested or withdrawn during the year).
The
deemed rate of return method calculates FIF income by
imputing a deemed rate of return on the foreign investment
fund’s opening book value, or cost if acquired during the
year. For the 1998-1999 income year the rate is 9.82
percent. This rate is adjusted
annually.
Ends