Tax Changes and Electricity Industry Reform

Treasurer Winston Peters, Revenue Minister Bill Birch, and Energy Minister Max Bradford today welcomed changes recommended for the tax provisions in the electricity reform legislation now before Parliament.

The changes were recommended by the Commerce Committee of the House when it reported back to Parliament on the Electricity Industry Reform Bill yesterday. "In general, normal tax laws will apply to the transfer of business when electricity lines and distribution activities are separated," the Ministers said.

"The select committee has recommended some adjustments to the draft legislation which the Government supports.

"We believe the recommended changes will make the tax rules applying to these situations more workable," they said.

The recommended changes are:

1. Assets transferred as part of the separation exercise will be exempt from stamp duty, given that the Government intends to review stamp duty generally, with a view to removing it when fiscal circumstances permit.

2. If a company subscribes for shares in another company for the purposes of corporate separation, any profit from a later sale of those shares will not be taxable.

The bill had already provided for a gift duty exemption.

"The committee did not recommend changes to the normal law covering depreciation recovery, as sought in some submissions," the Ministers said.

"Normal law is necessary to ensure that everyone gets the right depreciation rate. This best achieves the efficiency objectives of the reform.

"Nor did the committee recommend that power companies be deemed to have received available subscribed capital in 1992, as some submissions had urged.

"The Government agrees that it is inappropriate to address this wider issue in the bill. Inland Revenue is currently considering the technical issues associated with available subscribed capital for power companies," they said.

It was important to understand that mergers and takeovers - for example, those announced by energy companies last week - would have attracted tax liabilities, such as depreciation recovery, even in the absence of the Bill, the Ministers said.