Taxation of Mining Companies in New Zealand

New Zealand's Land and Income Tax Act 1954 contains unique incentives for companies engaged in mining certain specified minerals or petroleum. Sections 152 and 153 provide for the taxable income of such companies to be based not on profits made but on dividends paid to shareholders. A significant saving in tax results, particularly where profits are not distributed: but the Act attempts to ensure that undistributed profits are used for further mineral exploration and development. To encourage investment in the mining industry, persons taking up shares in a company mining for the specified minerals or petroleum are entitled to a one-third deduction in respect of monies paid on the shares and used by the company for its purposes; and company shareholders may make loans to the company and write-off such loans for tax purposes to an amount of up to half their taxable income. Maximum utilisation of the tax incentives calls for careful consideration as to whether a mining or petroleum company should be financed by way of loan capital or share capital.