October 2012


Proposed Changes to Taxation of Lease Inducement Payments

In late July the IRD released an issues paper proposing to tax inducement payments to enter into leases or acquire other interests in land.  It anticipates that legislation will be included in a tax bill to be introduced in Parliament later this year, with the change to be applied to lease arrangements entered into from 1 April 2013.

The IRD claims that the proposed change is necessary because of the asymmetric tax treatment of inducement payments, which are usually capital to the tenant while deductible to the landlord.  It points to the 2010 changes which made landlord contributions for fitout costs taxable and says that it is not sensible for cash lease inducement payments which could be used for fitout, to be treated differently for tax purposes from payments that are contractually required to be spent on fitout.

The proposal is that an amount “derived by a person as an inducement to enter into, or in connection with, an arrangement that grants an estate or interest in, or right over, land” would be taxable.  Arrangements involving a sale of land would be specifically excluded, and residential tenancies would also not be affected.

Payments which would be taxable include:

  • inducement payments in respect of subleases, licences and easements
  • inducement payments to assignees of leases
  • lease arrangements with the option to purchase
  • non-cash benefits eg. forgiveness of a tenant’s liabilities,
  • contributions to a tenant’s start-up or relocation costs
  • covering a tenant’s rent or break costs with an old lease

An “arrangement” is something less than a contract, and can include informal plans or understandings.  The payment can be made by or to parties associated with either party – ie it doesn’t have to be made by the landlord or received by the tenant.

The government has announced that the changes will come into effect on 1 April 2012.  What is not clear is whether that date applies to the commencement date of a lease or the date that documentation is entered into.  No doubt this will be clarified once the legislation is introduced.



New Zealand companies to be required to have a New Zealand director or agent

New Zealand’s company registration system is a comparatively simple and speedy online process, but concerns that its simplicity may lead to misuse have led to the proposal that all New Zealand registered companies should have a director or agent who lives in New Zealand.

The proposal would mean that all New Zealand incorporated companies are required to have either:

  • A director resident in New Zealand or an approved jurisdiction; or
  • An agent resident in New Zealand, who will be responsible for the company’s and directors’ compliance with their statutory obligations.

The agent must be a natural person, and there may be only one registered agent for a company.  Companies which are already registered and which do not have a New Zealand resident director will be required to appoint a resident agent within 6 months of commencement of the new rules.  If a company doesn’t have a resident director or agent then the Registrar may insert a warning against the company’s entry in the register, and then the company may be struck off the register.

Similar rules are proposed for limited partnerships, which will be required to have a resident agent if the limited partnership does not have general partner that is either:

  • A natural person living in New Zealand or an approved jurisdiction; or
  • A partnership that has at least 1 partner who is a natural person living in New Zealand or an approved jurisdiction; or
  • A New Zealand registered company.

Related proposed reforms include increased powers for the Registrar to investigate and deal with non-compliance under the Companies Act, including flagging companies under investigation and the ability for the Registrar to deregister companies for persistent non-compliance.

It is expected that these changes will come into effect in the first half of 2013.

Shareholders can now attend meetings by internet and vote electronically

The Companies Act 1993 has been amended to take into account the use of e-technology, with new provisions allowing shareholders to participate in meetings via the internet, and providing for company information and notices to be served on shareholders by email.

Until now, shareholder meetings could only be held in person or, subject to a company’s constitution, by audio or audio and visual communication.  Shareholder votes (other than polls) at meetings conducted by audio or audio and visual communication were only allowed by voice.

From 31 August 2012 this has changed, with boards now having the power to allow meetings of shareholders by electronic means, and for shareholders participating electronically to form part of the quorum.  A board may impose conditions in relation to the method used (for example the board may want to put in place identification and/or authentication procedures). 

Voting on resolutions (other than polls) may be by any method permitted by the chairperson of the meeting, which would include electronic voting.  The rules in relation to postal votes have been amended to include electronic votes as part of the postal vote process, so that shareholders can choose to vote electronically.

A shareholder can also now require a company to serve notices and documents on the shareholder electronically, whether in relation to a specific type of notice or records, or for all documents to be served on a shareholder by the company.  This means notices calling meetings may be sent by email, provided that the shareholder has notified the company it wishes to be served by this method.

These changes will give shareholders more options for participation in company matters, and will be of particular interest to overseas based shareholders.



Commerce Commission to pursue trans-Tasman cartel case

The Court of Appeal has cleared the way for the Commerce Commission to pursue a claim against an Australian company for involvement in an alleged price-fixing cartel.

The case involves an Australian company, Visy Board Pty Limited, which admitted in earlier proceedings in the Federal Court of Australia brought by the Australian Competition and Consumer Commission (ACCC), that Visy Board and its competitor Amcor Limited were parties to a cartel in the corrugated fibreboard packaging market.  The Australian court imposed penalties of $36 million on Visy Board in relation to that matter.

The Commerce Commission has issued proceedings against Visy Board for contravention of the Commerce Act 1986, claiming that the cartel arrangements between Visy Board and Amcor Limited extended to the New Zealand market.  Amcor Limited was granted leniency by the Commission as it had reported the contraventions to the ACCC, which also granted leniency.

At issue is whether the New Zealand courts have jurisdiction to hear and determine the alleged contraventions of the Act.  Visy Board protested the jurisdiction of the New Zealand High Court with some success, resulting in the limitation of the Commission’s case.  The Commission appealed, and the Court of Appeal issued a ruling on 31 August 2012 overturning the High Court ruling and reinstating the Commission’s claims.  The Court of Appeal also upheld the High Court’s findings that the Commission can pursue certain claims against Visy Board’s Australian-based senior executive.

The Court of Appeal held that the Commerce Act enables the Commission to take enforcement action against a person who engages in conduct offshore, if that person is resident or carrying on business in New Zealand, and the conduct is targeted towards New Zealand.  The case remains before the courts.



Crafar Farm – update

In July’s NZ Law Update we discussed the long running bids by foreign investors to purchase land from the receivers of the Crafar dairy farms.  We outlined that in April 2012 the New Zealand Government had approved the sale to a subsidiary of Shanghai Pengxin Group Co. Limited, and that this had been challenged by the Independent Crafar Farms Purchase Group (whose offer for the farms had been rejected by the receivers).  The Group argued that the focus of the Overseas Investment Office’s appraisal of Shanghai Penxin’s relevant experience and acumen should be on the man in ultimate control of the corporation, billionaire Jiang Zhaobai,

Since then, the Court of Appeal has ruled that Shanghai Pengxin did have the sufficient business experience and acumen to run the farms, and upheld the OIO’s decision.  It found that the business experience and acumen requirement in the Overseas Investment Act was “broadly worded and flexible”, and that while Mr Jiang had no experience in dairy farming, the corporation had ensured that its local subsidiary had made appropriate arrangements with others to access industry specific experience.

The CA considered that the government ministers who had signed off the OIO’s decision earlier this year were entitled to conclude that the controlling individuals had business experience relevant to the proposed investment, and noted that even if the Court had found the ministers’ decision deficient due to Shanghai Pengxin’s lack of relevant experience, the Court was unlikely to have exercised its discretion to grant a remedy.

Two Maori trusts that were part of the Independent Crafar Farms Purchase Group, and who want to purchase 3 of the farms in the central North Island, have now filed an appeal against the Court of Appeal decision.  It is understood that the trusts are also in negotiations with Shanghai Pengxin to purchase the 3 farms.


This publication is necessarily brief and general in nature. You should seek further information before taking any action in relation to the matters dealt with in this publication. If you have any questions on the matters discussed in this update please contact the New Zealand Mackrell Partner, Brian Joyce at Clendons North Shore by email to brian.joyce@clendons-ns.co.nz or phone 64 9 377 8419