The Issues Log

Section / Provision Income Tax Act 2007

EX 21(26)

Section / Provision Income Tax Act 2004

Date Received

Section EX21(26) of the Income Tax Act 2007 ("ITA 2007") outlines the branch equivalent ("BE") income or loss for a controlled foreign company ("CFC") carrying on business of providing life insurance.  The following discussion outlines our understanding of the legislative position under the Income Tax Act 1994 ("ITA 1994") compared to the ITA 2007, concerning the calculation of the amount.  In particular, we consider that changes to the wording of section EX 21(26) result in the BE income or loss being recalculated pursuant to New Zealand tax rules whereas the equivalent provision of the ITA 1994 simply allowed the BE income or loss to be based on the actuarially determined accounting profit.  We consider that this is an unintended change from the ITA 1994 to the Income Tax Act 207 ("ITA 2004") and to the ITA 2007.  For completeness, our focus below is on the ITA 2007.

CG 11(19)

On balance there appears to be an unintended legislative change in respect of section EX 21(26) of the ITA 2004 which has been preserved in section EX 21(26) of the ITA 2007.

This item is referred to Policy Advice Division for retrospective legislative amendments.