Applicability of this Ruling: Product Rulings are issued by the Tax Counsel Office and Customer & Compliance Services.
Product Rulings set out the Commissioner’s view on how tax laws apply to a particular “product” – which is an arrangement that a specified taxpayer is likely to enter into with a number of people on identical terms.
Taxpayers who enter into the arrangement described in a Product Ruling may apply the ruling but are not obliged to do so.
Product Rulings are binding on the Commissioner. This means that if you are entitled to apply a Product Ruling and you have calculated your tax liability in accordance with the ruling, the Commissioner must accept that assessment.
A Product Ruling applies only to the taxation laws and arrangement set out in the ruling, and only for the period specified in the ruling. It is important to note that a general similarity to an arrangement covered by a Product Ruling will not necessarily lead to the same tax result.
This Ruling has been applied for by StockCo Limited and StockCo Capital Limited
The Arrangement
The Arrangement is the leasing of livestock by either StockCo Limited or StockCo Capital Limited (both referred to as StockCo in this Ruling) to their customers to use solely in a farming business.
Each customer will be a “New Zealand resident” (as defined in s YA 1).
StockCo will purchase the livestock either from the customer and then lease them back to the customer or from a third party and then lease them to the customer.
The customer will lease the livestock over a period of usually four years.
The livestock will be progressively culled (or may go missing or die) over the period of the lease, with cull payments being returned to StockCo.
How the Taxation Laws apply to the Arrangement
The Taxation Laws apply to the Arrangement as follows:
The lease payments are deductible under s DA 1(1) and none of the general limitations in s DA 2 applies to prevent deductibility, provided that no provision in subparts DB to DZ applies to prevent a deduction under s DA 1(1).
At the end of an income year, unless the customer is excused from this requirement pursuant to a determination issued by the Commissioner, s EA 3 applies to require the unexpired portion of any lease payments to be included in the customer’s income in the current income year and to be an amount for which the customer is allowed a deduction in the following income year, provided the Lease is not the customer’s “revenue account property” or “trading stock” (within the meaning of s YA 1).
The financial arrangements rules in subpart EW do not apply to the Arrangement, because the lease is an excepted financial arrangement.
Section EJ 10 does not apply to the Arrangement.
Sections FA 6 to FA 11 do not apply to the Arrangement.
Section FA 12 does not apply to the Arrangement.
Sections BG 1 and GA 1 do not apply to negate or vary the above conclusions.
Note: The above is the Summary of the Ruling. Please refer ruling published by IRD to have a detailed idea
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