Govt invites feedback on stapled stock tax legislation
The government is inviting feedback on draft legislation to amend the tax law on “stapled stock” instruments that have
debt components.
The draft legislation is published at www.taxpolicy.ird.govt .
“The government announced in February that the law would be updated to prevent a potential loss to the New Zealand
revenue base arising from the use of stapled stock instruments that consist of debt attached to a share,” Finance
Minister Michael Cullen and Revenue Minister Peter Dunne said today.
“At present, by using stapled stock instruments that have debt components, companies can pay tax-deductible interest to
shareholders as a substitute for dividends. That becomes a particular concern if the instruments are issued to foreign
investors in New Zealand companies, who can then claim tax deductions from New Zealand.
“Therefore the Income Tax Act is being amended to ensure that when a debt instrument that would normally give rise to
tax deductions is attached to a share it will be treated as equity for tax purposes. That means no deductions for
interest payments will be available when that happens.
“The government also announced that before the enabling legislation was introduced, tax policy officials would consult
with interested parties on the details of the proposed changes.
“That is now happening – interested parties are invited to comment on the two pages of draft legislation that have been
published today for consultation purposes. Of particular interest to the government are comments on the workability and
scope of the draft legislation and whether it might have unintended circumstances.
“Following consultation, the draft legislation will be included in the next available tax bill and, once enacted, will
apply to debt stapled on or after the date of announcement – 25 February 2008. Stapled securities that were already
issued at the time of announcement will not be affected by the legislative change,” they said.
The closing date for submissions is 30 May.
ends