The purpose of the older version of LC
14 in the ITA 1994 was to apportion the NZ tax between all
income segments, foreign and local : "(2) The amount of New
Zealand tax so payable in respect of that income shall be deemed
to be the amount that is ascertained by (a) Calculating the
amount of the income tax payable by the taxpayer on the taxable
income derived by the taxpayer in that income year; and (b)
Apportioning to the income in respect of which it is necessary
to ascertain the amount of New Zealand tax payable the same
proportion of the amount of the income tax so calculated as the
amount of so much of that income that is included in the
assessable income derived by the taxpayer in that income year
bears to the total of the assessable income so derived by the
taxpayer."
Using same principle, modified for the
change to the core provisions, the latest versions of LC 14(1)
and LC 14(2) did a very good job at apportioning the NZ tax over
all income segments, so that we could determine how NZ tax was
attributable to the foreign income segments.
Sections LJ 5 (2) in the ITA 2007, and
LJ 5(4) before the recent amendment, look only at the foreign
segments, which means that the NZ tax is not apportioned over
all segments, and LJ 5(4) was basically redundant. The amended
LJ 5(4) looks at all income from all sources, which reflects the
intention of the ITA 1994, but if LJ5 (2) cannot initially apply
to every segment, then the overall results from LJ 5 can be
bizarre. LJ 5(2) should be applicable to every segment, so that
we get sensible results.
By not taking into account unattributed
deductions (i.e. deductions not referred to in LJ 5(3)(b)), the
"trigger" is quite different in the ITA 2007. For example : UK
interest income = $3,000, Australian dividend income = $7,000,
unattributed expenses ( tax return fee) = $500, actual net
income =$9,500. The only income is from segments of
foreign-sourced income, and so the theoretical net income
determined to see whether LJ 5(4) is triggered is the same as
the actual net income. LJ 5(4) is not triggered, whereas under
the older Acts LJ 14(2) would have been triggered.
