The Issues Log

Issue: FE 12(1), FG 4(1)

Submission Number	139
Submitter	Deloitte
Section / Provision Income Tax Act 2007	FE 12(1) Calculation of debt percentage and FE 13(1) Financial arrangements entered into with persons outside group
Section / Provision Income Tax Act 2004	FG 4(1) and FG 5(1) Rules for calculating NZ group/ worldwide group debt percentage and FG 6 concessions for on-lending
Date Received	27/04/10
Description of issue	Section FE 13(1) of the Income Tax Act 2007 (the Act) allows a natural person, an excess debt entity, or a member of an entity's New Zealand Group or worldwide group a reduction in their debt percentage provided certain criteria is met. However, as s FE 12(1) makes a distinction between the rules applied to an excess debt entity and natural persons, it appears that only natural persons are allowed to apply s FE 13(1) when calculating their debt percentage. The rationale for s FE 13(1) (when originally introduced) was to allow financial institutions to borrow beyond the safe harbour ratio. This concession was made available to all taxpayers. The 2007 Act appears to only allow this concession to natural persons which is a change from the previous law.
Section / Provision Income Tax Act 1994
Status	Finalised
Outcome	The Panel concludes there is an unintended legislative change and recommend retrospective amendment of the Income Tax Act 2007.