CA ANZ acknowledges Inland Revenue’s concerns regarding the build-up of debt owed by shareholders where: it could impact the on-going viability of the company; and/or there is limited likelihood that it will ever be repaid.

However, CA ANZ is concerned that the proposals included in Chapters 6 and 7 are wide ranging and will result in significant overreach, unduly impacting shareholder loans and legitimate commercial arrangements in the SME sector. They risk imposing disproportionate compliance costs and punitive outcomes as a result of this overreach. The arbitrary nature of the proposals and resultant wide capture will not enhance the integrity of the tax system. Shareholder loans included in the proposals cover a wide continuum from traditional shareholder current accounts to fully documented loans provided on commercial terms.

CA ANZ’s submissions recommend that:

• A clear problem definition should first be established (such as, to design a brightline test for asset stripping).
• The proposals must target the arrangements where there is genuine mischief, for example, an anti-avoidance rule focused on only the most egregious cases and drafted as a rebuttable presumption to allow for genuine commercial arrangements.
• Regard should be had to existing legislative provisions before seeking to impose new and additional rules (resulting in increased complexity).
• Inland Revenue concerns in part appear to stem from SME compliance capability, not structural avoidance. A targeted education campaign should be considered.
• A Base Price Adjustment (BPA) be deemed to occur in some circumstances when a company ceases to exist. The current law requires this now in many situations, but we acknowledge Inland Revenue’s desire to establish certainty in relation to timing.
• Record keeping requirements for ASC and ACDA accounts be optional rather than mandatory. If mandatory filing were to be required, this should be on a prospective basis only with statute bar protection for each year’s movement.