This week the new Taxation (Annual Rates for 2016-17, Closely Held Companies, and Remedial Matters) Bill (130-1) was introduced.
Otherwise known as the Omnibus Tax Bill, this large and wide ranging bill introduces amended rules for closely held companies, as well as a number of amendments to the GST rules, both of which were outlined in official’s papers last year.
Focusing on the changes to closely held companies, key impacts include changes to:
- The changes focus on ensuring LTC’s are being used by the right target groups, and situations of under and over taxation are minimised in relation to the entry tax and debt remission. It also removes the deduction limitation rule for most LTC’s from 2017-2018 income year, although deductions previously restricted and carried forward will remain available.
- From the date of enactment, QC’s will be subject to a continuity test, and will require 50 percent continuity of ownership, to maintain their QC status. This is a gentle nudge to decrease the number of QC’s, a regime which officials want to eventually disappear.
- Also of interest are changes to narrow the scope for the tainted capital gains rules. The current rules which apply to asset sales between associated companies will be replaced with a rule that measures commonality of ownership interest both at the time the asset is sold and at the time of the liquidation distribution.
- A company will be able to elect to pay a fully imputed dividend without RWT to a corporate shareholder, and a new treatment is available to deal with the potential over-taxation of cash and non-cash dividends paid at the same time.
- Finally, some amendments have been made to allow a shareholder employee to split their income to allow PAYE to be deducted on a “base salary” and any variable amounts to be paid out pre-tax. This will be an irrevocable decision to prevent an “inappropriate” use.
There is a lot more to look at in the Omnibus tax bill, including some changes for NRWT and AIL, the related parties debt remission changes, loss grouping and imputation credits, Charities and GST. No doubt we will be making our way through these and reporting to you in the weeks to come.