TalkTax

Yesterday the Government announced that the new Australia/New Zealand double tax agreement has entered into force. This means that both countries have completed their domestic law requirements for incorporating the treaty into their respective laws. The way is clear for the provisions of the treaty to apply.

The application dates are different for different types of tax. The first relevant application date is the provisions relating to Fringe Benefit Tax (“FBT”).  Briefly the Article provides that FBT will follow the taxing rights of salary and wages, thereby reducing the possibility of double FBT. The provisions apply from 1 April 2010, and is slightly different compared with the 1995 treaty position.

The second part of the treaty to apply relates to withholding taxes. These provisions will apply from 1 May 2010. A brief reminder that the Australia/New Zealand treaty is a departure from New Zealand’s normal rates, and provides for lower withholding taxes in certain cases. For dividends the rates go to 0%, 5% and 15%, for interest to 10%, 0% and 2% (taking into account the affect of approved issuer levy), and for royalties to 5%.

Finally, the rest of the treaty will apply to income years starting after 1 April 2010 (note that there are different dates for Australia and New Zealand). Although there are some innovative new provisions in the treaty, it does not significantly depart from New Zealand’s other treaties, or indeed our usual variances with the OECD Model Treaty.

Although it is great to have an updated treaty, one has to ask whether it has missed its calling in a major area of our international taxation regime. That is, it does not deal with the problems caused by the lack of mutual recognition of imputation credits. On the other hand one could argue that such an important policy change is best made through the usual amendments to the domestic law, rather than by way of treaty.

Perhaps mutual recognition will be something that the Australian Government takes into account in their response to the Henry Review. As far as I know no announcements have been made in relation to the Henry Review, and we will have to wait and see whether there will be any development on this front.

For other articles relating to New Zealand law refer to our firm’s New Zealand Lawyers blog.