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Credit to: Tax Avoidance News : Debt remission changes get green light
Your thoughts guys?
Revenue Minister Todd McClay announced today that Cabinet has given its approval to a set of proposals intended to address the current inequitable situation where debt remission between related parties can, under certain circumstances, result in an incorrect taxation outcome.
At present, in cases when such debt is forgiven by the creditor, and no longer has to be repaid, it becomes taxable income for the debtor. However, because the arrangement is between related parties, the creditor does not receive a tax deduction for the bad loan.
“This will result in over-taxation in some situations and can affect mum and dad partnerships right through to corporate groups” says Mr McClay.
The main proposal is that there should be no debt remission income for the debtor when the debtor is in the New Zealand tax base. This would include controlled foreign companies and New Zealand subsidiaries of foreign companies.
At present, in cases when such debt is forgiven by the creditor, and no longer has to be repaid, it becomes taxable income for the debtor. However, because the arrangement is between related parties, the creditor does not receive a tax deduction for the bad loan.
“This will result in over-taxation in some situations and can affect mum and dad partnerships right through to corporate groups” says Mr McClay.
The main proposal is that there should be no debt remission income for the debtor when the debtor is in the New Zealand tax base. This would include controlled foreign companies and New Zealand subsidiaries of foreign companies.
