NEW ZEALAND Law and Practice Contributed by: Greg Neill, Fred Ward and Callum Burnett, Russell McVeagh
cable overheads, the cost of consumables and depre - ciation of eligible assets. A person who is entitled to an R&D tax credit must seek pre-approval from Inland Revenue and also make certain annual filings with their tax return. Where an R&D tax credit is available, it can be used to satisfy a person’s income tax liability. To the extent they have remaining R&D tax credits after the satis - faction of their income tax liability, a person may be able to obtain a refund of the credit in certain cases, or can otherwise carry the credits forward to a subse - quent income year. If credits are eligible to be carried forward, the rules permitting a person to do so are the same as those for tax losses (ie, they must satisfy 49% continuity of ownership or meet a substantially- similar business test). 2.3 Special Incentives New Zealand’s tax system is broadly neutral across industries. Nonetheless, there are industry and transaction-specific rules that take into account the unique needs or circumstances of certain taxpay - ers. Industries that are the subject of specific rules include petroleum mining, forestry, horticulture and agriculture, racing (ie bloodstock), the film industry and certain types of financing transactions (for exam - ple, securitisation). For investment funds (targeting real property, finan - cial or securities based investments), New Zealand’s “portfolio investment entity” (PIE) regime offers inves - tors concessionary (capped or, in some cases, nil) investor tax rates. Strict criteria apply to the types of entity that can be a PIE and the types of investors who can hold PIE interests. The PIE regime is commonly used in listed fund, retirement savings and property investment industries. 2.4 Loss Relief Carrying Tax Losses Forward Under the Income Tax Act, a company may carry for - ward any unused tax losses to a subsequent income year if certain shareholding continuity tests are sat - isfied. A tax loss may be carried forward and offset against net income in a subsequent income year if at least 49% of the company’s voting interests (or market
value interests) are held by the same persons across the income years. Market value interests are essen - tially a person’s total market value of shares and share options in a company, and become relevant where substantive control or economic interests in a com - pany may not be fully represented by voting interests. Despite a breach of this ownership continuity test, a company may still be eligible to carry forward its unused tax losses in circumstances where there has been no major change in the nature of the business activities carried on by the company. This alternative test was introduced in 2020 as part of the govern - ment’s COVID-19 relief measures. Despite the intro - duction of this alternative “business continuity” test, value is seldom attributed to tax losses in the M&A context where the transaction would result in a breach of the ownership continuity test. This is because of the largely subjective and to-date untested nature of the “business continuity” test. A company’s unused tax losses may also be made available to another company in circumstances where a group of persons holds common voting interests (or market value interests) of at least 66% in respect of each company over the applicable “continuity period”. Carry Back of Tax Losses As part of the COVID-19 relief measures, the gov - ernment also enacted a temporary loss carry back scheme for the 2020 and 2021 years. However, this is no longer applicable and New Zealand does not have any general rules that allow for the carrying back of income tax losses. 2.5 Deduction of Interest As a general rule, the Income Tax Act allows most companies (other than qualifying companies and LTCs) to deduct interest expenditure regardless of whether it is incurred in deriving assessable income or relates to capital expenditure. New Zealand has a global interest deductibility test for companies, such that there is no requirement for a nexus with the derivation of gross income. The pur - pose of this global approach to interest deductibil - ity is that the use of the particular funds borrowed should be irrelevant to the question of deductibility
377 CHAMBERS.COM
Powered by FlippingBook