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Income Tax Act 1959

No. 24 of 1959.

Income Tax Act 1959.

Certified on: / /20 .


INDEPENDENT STATE OF PAPUA NEW GUINEA.

No. 24 of 1959.

Income Tax Act 1959.

ARRANGEMENT OF SECTIONS.

1. Short title.
[2 - 3. Repealed]
4. Interpretation.
4A. Application to off-shore area.
4B. Cost of certain shares.
4C. Source of royalty income derived by non-resident.
[5. Repealed]
6. Commissioner General of Internal Revenue.
6A. Removal of Commissioner General from office.
6B. Commissioner of Taxation.
7. Delegation.
8. Report by Commissioner General.
9. Officers to observe secrecy.
9A. Communication of information where taxpayer has engaged in transfer pricing manipulation.
10. Officers not to assist in preparation of tax returns, etc.
11. Imposition of income tax.
12. Accounting period.
12A. Accounting periods.
13. Money credited, reinvested, etc., to be income.
14. Income to be expressed in Papua New Guinea currency.
15. Where consideration not in cash.
16. Non-profit companies.
17. Minimum tax.
[18. Repealed]
19. Exemption of certain official salaries.
19A. Exemption of prescribed personnel.
19B. Exemption of Peace Corps personnel.
19C. Exemption of non Papua New Guinea income.
20. Exemption of remuneration paid to non-resident member of Commission of Inquiry.
21. Exemption of income of representatives of clubs, etc.
22. Exemption of income of persons under technical co-operation agreement.
22A. Exemption of institutions.
23. Exemption of the Disciplined Forces Institutional Housing Project.
24. Exemption of public authorities, etc.
25. Exemption of religious institutions, hospitals, etc.
25A. Exemption of charitable bodies.
26. Exemption of trade unions, etc.
27. Exemption of certain non-profit bodies.
28. Exemption of certain funds.
29. Exemption of pension, etc.
30. Alimony exempt in certain cases.
31. Exemption of international trade financial institutions.
[32 - 34. Repealed]
35. Exemption of certain interest income.
35A. Exemption of certain income from fishing operations.
36. Exemption of income derived by non-resident out of Papua New Guinea.
[36A. Repealed]
36B. Exemption of income from sale of shares on Port Moresby Stock Exchange.
37. Exemption of certain pay and allowances of members of Defence Force, etc.
38. Exemption of income of persons assisting in defence of Australia or Papua New Guinea.
39. Exemption of international organizations, etc.
40. Exemption of scholarships, etc.
40AA. Exemption of certain travel benefits.
40A. Exemption of Savings and Loan Societies.
[40B - 41. Repealed]
42. Exemption of certain dividends.
[43. Repealed]
43A. Redemption of premium securities redeemable at a premium.
44. Limitation of exemption.
45. Liability to furnish returns not affected by exemption.
45A. Interpretation.
45B. Exemption related to export sales.
45C. Exemption in respect of restricted period.
45D. Calculation where goods qualify for part period only.
45E. Arrangements to increase exemptions.
45F. Modification of tax information.
45G. Deductions in calculating exemption.
45H. Gaining improper advantages, etc.
45I. Interpretation.
45J. Rural development income.
45K. Gaining improper advantage, etc.
45L. Tax exemption period.
45M. Losses incurred during the tax exemption period.
45N. Interpretation.
45O. Tax exemption period.
45P. Losses incurred during the tax exemption period.
45Q. Gaining improper advantage.
45R. Offence.
46AA. Interpretation.
46AB. Tax exemption and losses.
46AC. Suitable business and accounting records.
46AD. Gaining improper advantage.
46AE. Offence.
46BA. Interpretation.
46BB. Tax exemption period.
46BC. Losses incurred during the exemption period.
46BD. Gaining improper advantage, etc.

Subdivision A – Assessable income generally.

46A. Non-application of subdivision.
46B. Capital amount of allowance, etc, deemed salary or wages.
46C. Income other than salary or wages taxable.
46. Assessable income.
47. Certain items of assessable income.
47A. Assessable income–premium for lease.
47B. Assessable incomes–superannuation fund contributions.
47C. Assessable income–Deduction of payments under lease.
47D. Assessable income–accounting for value added tax.
48. Dividends.
49. Assessable income–annuities.
50. Insurance recoveries on losses of livestock and trees.

Subdivision B – Trading Stock.

51. Trading stock to be taken into account.
52. Value at beginning of year of income.
53. Value of trading stock at end of year of income.
53A. Purchase of trading stock not at arm’s length.
54. Value of livestock at end of year of income.
55. Changes in basis of valuation of livestock.
56. Cost price of natural increase.
57. Disposal of trading stock.
57A. Compensation for death or compulsory destruction of livestock.
58. Disposal of change of ownership or interests.
59. Devolution on death.

Subdivision C – Business Carried on Partly in and Partly out of Papua New Guinea.

60. Sales by manufacturers.
61. Sales by merchants.
62. Determination of profit by Commissioner General.
63. Goods deemed to be sold in Papua New Guinea.
64. Source of profits.
65. Assessable income to include certain profits.
65A. Interpretation.
[65B. Repealed]
65C. Gratuity under new contract.
65CA. Objects.
65CB. Interpretation.
[65CC. Repealed]
65CD. Gratuity under new or existing contracts.
65D. Interpretation.
65E. Income applicable.
65F. Non-application in special circumstances.
65G. Liability to pay tax.
65H. Payment of salary or wages tax.
65I. Assessment of salary or wages tax.
65J. Income upon which salary or wages tax paid not otherwise assessable.

Subdivision A – General.

66. Allowable deductions.
66A. Non-application of this Division.
67. Successive deductions.
68. Losses and outgoings.
68A. Special deductions–solar heating.
[68AA. Repealed]
68AB. Club fees and expenditure relating to leisure facilities.
68AC. Prepaid expenses.
68AD. Management fees.
68AE. Lease payments.
69. Deductions for gifts to political parties.
69A. Deduction for gifts to sporting bodies.
69B. Double deduction for gifts to South Pacific Games (1991) Foundation.
69C. Deductions for gifts to the Foundation for Law, Order and Justice.
69D. Double deduction for gifts to certain World Expositions.
69E. Deduction for gifts to charitable bodies.
69F. Donations by companies for the 3rd Global Conference on National Youth Service.
69G. Donations to the Seventh South Pacific Festival of Arts.
69H. Double deductions for donations to law and order.
69I. Double deduction for gifts to national day celebrations.
69J. Donations to PNG Sports Commission Olympic 2000 Project.
69K. Double deduction for gifts to PNG Sports Federation Inc.
[70. Repealed]
70A. Deduction for education expenses.
71. Loss on property acquired for profit-making.
71A. Certain amounts disregarded in ascertaining taxable income.
72. Repairs.
72A. Double deduction for staff training.
[72B. Repealed]
72C. Double deduction for export market development costs.
73. Depreciation.
74. Basis of depreciation.
75. Calculation of depreciation.
76. Exercise of option.
77. Alteration of method of calculation.
78. Disposal, loss or destruction of depreciated property.
78A. Adjustment of deductions on the sale of a right to occupy real property.
79. Disposal of depreciated property on change of ownership or interest.
80. Notional income where assessable income includes consideration receivable on disposal, loss or destruction of depreciated property.
81. Acquisition of depreciated property.
82. Property used partly for producing assessable income.
83. Definition of depreciated value.
84. Notional cost in certain circumstances.
85. Bad debts.
86. Commission.
87. Payments to relatives.
88. Contributions to fund for benefit of employees of taxpayer.
89. Expenses of borrowing.
90. Expenses of preparing lease.
91. Expenses relating to grant of patents, etc.
92. Losses by embezzlement, etc.
[93. Repealed]
94. Subscriptions to associations.
95. Expenditure on scientific research.
96. Election expenses of candidates in national elections.
97. Certain expenditure on land used for primary production.
97A. Deduction of agricultural development expenditure.
97B. Deduction for the provision of agricultural extension services.
98. Loss in deriving exempt income.
[99. Repealed]
100. Pensions, etc.
101. Losses of previous years.
101A. Losses of previous years incurred in engaging in primary production.
101B. Order in which deductions allowable in respect of losses of previous years are to be taken into account.
101C. Limitations on net exempt income to be taken into account in respect of deductions under Section 101A.
101D. Losses of previous years not to be taken into account unless there is substantial continuity of ownership of shares in company.
101E. Special provisions relating to beneficial ownership of, or rights attached to, shares.
101F. Losses of previous years of subsidiary not to be taken into account unless there is substantial continuity of beneficial ownership of shares in holding company.
101G. Losses of previous years may be taken into account where company carries on same business.
101H. Amendment of assessments.
[102. Repealed]
103. Double deductions.

[Subdivision B – Repealed]

104 - 115A. Repealed]
116 - 122. Repealed]
123. Definitions.
124. Partnerships.
125. Income of partner.
126. Options of partners in respect of livestock.
127. Partner not in receipt and control of share.
128. Interpretation.
129. Incorporation of trust estate.
130. Trustees.
131. Assessable income of beneficiaries.
132. Assessable income to include entitlements to income.
133. Credits.
134. Exercise of discretion by trustee.
135. Non-resident beneficiaries.
136. Assessment of income of deceased persons.
136A. Interpretation.
136B. Unit trust deemed to be a company.
136C. Taxation of unit trust.
137. Declaration of trust as landowner resources trust.
138. Declaration of projects as landowner resources projects.
139. Landowner resources trusts to be taxed as resource company.
140. Landowner resources trusts deriving dividends from landowner resources trust.
141. Derivation of other income by landowner resources trust.
142. Distributions from landowner resources trusts.

[Subdivision A – Repealed]

143. Repealed]

Subdivision B – Payments and Loans to Certain Persons.

144. Interpretation.
144A. Deemed dividends.
144AB. Deemed dividends outside the country.
144B. Repayment of loans.
144C. Loans to associated persons and shareholder companies.
144D. Loans, etc. to persons associated with shareholders.
144E. Nominee shareholders.
144F. Dividend as satisfaction for loan, etc.
145. Payments to shareholders and directors.
145A. Interpretation.
145B. Notice of amalgamation.
145C. Tax consequences specified.
145D. Cancellation of shares held by amalgamating company on amalgamation.
145E. Deduction to amalgamated company for bad debts, expenditure, etc., on qualifying amalgamation.
145F. Amalgamated company to assume unexpired accrual expenditure and income of amalgamating company on qualifying amalgamation.
145G. Transfer of property or obligation.
145H. Transfer of financial arrangement on qualifying amalgamation.
145I. Losses of previous years of amalgamating company on qualifying amalgamation.
145J. Transfer of retained profits to amalgamated company.
145K. Amalgamated company to assume rights and obligations of amalgamating company.
145L. Transfer of infrastructure tax credits.
146. Definitions.
147. Premiums, etc., not assessable income.
148. Deductions.
149. Calculated liabilities.
150. Co-operative companies.
151. Company not co-operative if less than 90% of business with members.
152. Sums received to be taxed.
153. Deductions allowable to co-operative company.
154. Mutual insurance associations.
154A. Interpretation.
154B. Application of Section 154C.
154C. Tax liability of qualifying corporation.
154D. Election by certain corporations.

Subdivision A – Subdivision A.-General Provisions Applicable To Mining, Petroleum And Designated Gas Projects.

155. Interpretation.
155A. Allowable exploration expenditure.
155B. Residual exploration expenditure.
155C. Deduction for residual exploration expenditure.
155D. Allowable capital expenditure.
155E. Deduction for allowable capital expenditure.
155F. Election that this Division does not apply to certain plant.
155G. Deduction or income in respect of disposal or loss of property.
155H. Restriction on interest deduction.
155I. Immediate deduction for certain capital items.
155J. Double deductions.
155K. Transactions not at arms length.
155L. Adjustment of deductions on disposal of right or information.
155M. Limitation on deduction of management fees.
155N. Additional deduction for exploration expenditure incurred outside the resource project.
155O. Joint Venture financial statement.
155P. Resource operations by contractors profit sharing arrangements, etc.
155Q. Change of interests in property.
155R. Taxation arrangements for interest paid by resource projects.
155S. Partnerships.

Subdivision B – Specific Provisions Applicable To Mining.

156. Application.
156A. Project basis of assessment.
156B. Additional allowable capital expenditure.
156C. Additional allowable exploration expenditure.
156D. Additional deduction for exploration expenditure incurred outside the mining project.
156E. Double deduction of exploration expenditure.
156F. Additional provisions for deduction of allowable capital expenditure.
156G. Modification of the Act in relation to Porgera Parties.

Subdivision C – Specific Provisions Applicable To Petroleum.

157. Application.
157A. Project basis of assessment.
157B. Additional provisions, allowable exploration expenditure.
157C. Additional allowable capital expenditure.
157D. Petroleum used in petroleum operations.
157E. Adjustments pursuant to redeterminations.
157F. Effect of conversion of a petroleum project to a designated gas project.

Subdivision D – Specific Provisions Applicable To Designated Gas Projects.

158. Application.
158A. Project basis of assessment.
158B. Conversion of petroleum project to designated gas project.
158C. Additional provisions, allowable exploration expenditure.
158D. Additional allowable capital expenditure.
158E. Operating expenditure.
158F. Related corporations.
158G. Petroleum used in gas operations.
158H. Adjustments pursuant to redeterminations.
158I. Apportionment of income and expenditure.

Subdivision E – Additional Profits Tax.

159. Application.
159A. Interpretation.
159B. Accumulated value of net project receipts.
159C. Liability for additional profits tax.
159D. Related corporations.
159E. Transfer between related corporations.
159F. Consequences of a petroleum project converting to a gas project.

Subdivision F – Mining Levy.

160. Mining Levy.
160A. Payment of mining levy.
160B. Notice of assessment.
160C. Amendment of assessment.
160D. Deduction of levy.

Subdivision G – Tax Credits for Royalty and Development Levy paid.

161. Interpretation.
161A. Tax credit allowable.
166. Definitions.
167. Deduction of expenditure.
167A. Election that deduction not be made.
168. Disposal, destruction or termination of use of property.
169. Acquisition of property.
170. Timber felled upon acquired land or under right.
170A. Elections.
170B. Deductions not allowable under other provisions.
171. Definitions.
172. Application.
173. Annual deductions.
174. Deductions on the disposal or lapse of a unit of industrial property.
175. Amount to be included in assessable income on disposal of a unit of industrial property.
176. Disposal of part of a unit of industrial property.
177. Cost of a unit of industrial property.
178. Residual value.
179. Consideration receivable on disposal.
180. Effective life.
181. Interest by licence in patent, etc.
182. Disposal of unit of industrial property on change of partnership, etc.
183. Use of patent by the State.
184. Damages for infringement.
185. Benefit from overseas rights.
185A. Application of Division.
185B. Interpretation.
185C. Liability to withholding tax.
185D. Payment of Prescribed Product (Withholding) Tax.
186. Liability to Interest (Withholding) Tax.
187. Payment of Interest (Withholding) Tax.
[188 - 189. Repealed]
189AA. Application of Division.
189A. Interpretation.
189B. Liability to dividend (withholding) tax.
189C. Payment of Dividend (withholding) tax.
189D. Certain income not included in assessable income.
189E. Refund of dividend (withholding) tax.
190. Taxable income of shipowner or charterer.
190. Taxable income of shipowner or charterer.
191. Master or agent to make return.
192. Determination by Commissioner General.
193. Assessment of tax.
194. Master liable to pay.
195. Notice of assessment.
196. Clearance of ship.
196A. Definitions.
196B. Source of income.
196C. Liability of foreign contractor.
196D. Taxable income of foreign contractors.
196E. Notice of deemed assessment.
196F. Liability of agent.
196G. Definitions.
196GA. Non-application of this Division.
196H. Liability.
196I. Limitation.
196J. Liability of agents.
196K. Notification of sale.
196L. Deduction by purchaser.
196M. Rebate of tax paid.
196N. Offences.
196O. Notice of assessment.
196P. Interpretation.
196Q. Application.
196R. Liability to management fee (withholding) tax.
196S. Taxable management fee.
196T. Payment of management fee (withholding) tax.
196U. Deductions from management fees.
196V. Payment to Commissioner General.
196W. Liability of person who fails to make deductions, etc.
196X. Recovery of amounts by Commissioner General.
196Y. Interpretation.
196Z. Training Levy.
196ZA. Notice of assessment.
196ZB - 196ZF. Repealed]
[197. Repealed]
197A. Interpretation.
197B. Operation of Division.
197C. International agreements.
197D. Arm’s length consideration deemed to be received or given.
197E. Determination of source of income.
197F. Consequential adjustments to assessable income and allowable deductions.
197G. Modified application of Part III.2.C.
198 - 201. Repealed]
202. Definitions.
203. Income derived by non-resident insurer.
204. Taxable income of non-resident insurer.
205. Liability of agents of insurer.
206. Deduction of premiums.
207. Exporter to furnish information.
208. Rate in special circumstances.
209. Reinsurance with non-residents.
210. Application of Division.
211. Abnormal income.
212. Determination of notional income.
213. Joint authors and inventors.
213A. Interpretation of Division 18A.
213B. Rebate allowable to resident only. .
213C. Non-application of Division.
213D. Entitlement to rebate for dependants.
213E. Limit to rebate entitlement.
213F. Calculation of rebate.
214. Rebate of salary or wages tax.
[214A. Repealed]
214B. Rebate of education expenses.
[215. Repealed]
216. Rebate on dividends.
[217. Repealed]
217A. Liability for additional amount.
218. Maximum amount of rebates.
219. Credits.
219A. Credits in respect of deductions made from dividends.
219B. Credits in respect of deductions of Prescribed Product (Withholding) Tax.
219BB. Credits in respect of deduction of Interest (Withholding) Tax.
219C. Credits in respect of prescribed infrastructure developments.
219D. Credits in respect of bank community service obligations.
[219E. Repealed]
220. Application of credit.
221. Determination of claims for credits.
222. Recovery of overpayment of credits.
223. Annual returns.
224. Further returns, etc.
225. Special returns.
226. Returns deemed to be duly made.
227. Certificate of sources of information.
228. Assessments.
229. Default assessments.
230. Special assessments.
231. Assessments on all persons liable to tax.
232. Amendment of assessments.
233. Where no notice of assessment served.
234. Refund of taxes overpaid.
235. Amended assessment to be an assessment.
236. Notice of assessment.
237. Validity of assessment.
238. Judicial notice of signatures.
239. Evidence.
240. Appointment of Review Tribunal.
241. Illness, suspension or absence of Tribunal.
242. Tribunal may not be sued.
243. Removal or suspension of person constituting Tribunal.
244. Vacation of office.
245. Objections.
246. Decision of Commissioner General.
247. Application for review or appeal.
248. Reference to tribunal.
[249. Repealed]
250. Grounds of objection and burden of proof.
251. Reduced assessments.
252. Review by Tribunal.
253. Powers of Tribunal.
254. Decision of Tribunal.
255. Appeal or reference to National Court.
256. Order of National Court on appeal.
257. Pending appeal not to delay payment of tax.
258. Adjustment of tax after appeal.
258A. Interpretation.
259. When tax payable.
260. Taxpayer leaving Papua New Guinea.
261. Extension of time and payment by instalments.
262. Penalty for unpaid tax.
263. Tax a debt due to the State.
264. Recovery of tax.
264A. Recovery of costs.
265. Issue of tax clearance certificates.
266. Tax clearance certificates to be produced to shipowner, etc.
267. Temporary business.
268. Substituted service.
269. Liquidators, etc.
270. When tax not paid during lifetime.
271. Provision for payment of tax by trustees of deceased person.
272. Commissioner General may collect tax from person owing money to taxpayer.
273. Consolidation assessments.
274. Where no administration.
275. Insolvency and companies being wound up.
275AA. Application.
275A. Definitions.
275B. Liability to pay notional tax.
275C. Amount of notional tax.
275D. Amount of instalment of tax.
275E. When instalment of tax payable.
275F. Estimated income tax.
275G. Notice of alteration of amount of instalment.
275H. Application of payments of notional tax.
275I. Notice of notional tax to be prima facie evidence.
275J. Application.
275K. Definitions.
275L. Liability to pay company provisional tax.
275M. Amount of company provisional tax.
275N. Notice of company provisional tax payable.
275O. Under estimation of company provisional tax.
275P. Application of payments of provisional tax.
275Q. Notice of company provisional tax to be prima facie evidence.
275R. Transitional provisions.
276A. Application.
276. Interpretation.
277. Registration of paying authorities.
278. Cancellation of paying authority registration.
[279. Repealed]
280. Duties of paying authority.
281. Payee to forward income tax deduction certificate, etc.
282. Credits in respect of deductions.
283. Failure to make deductions from eligible payments.
284. Failure to pay amounts deducted to Commissioner General.
285. Paying authority not accounting for deductions.
286. Person discharged from liability.
287. Recovery of amounts by Commissioner General.
288. Moneys received under this Division form part of public revenues, etc.
289. Nil deduction authority.
290. Revocation of certificates.
291. Notification and review of decisions.
292. Offences.
293. Joinder of charges under this Division.
294. Power of Commissioner General to obtain information.
295. Declarations.
296. Special provisions relating to partnerships.
297. Prosecutions.
[298. Repealed]
299A. Non-application and transitional provision.
299B. Object of Division.
299C. Interpretation.
299D. Deduction by employer from salary or wages.
299DA. Calculation of deduction for part of a fortnight.
299E. Variation of deductions.
299F. Certificate of exemption.
299G. Group employers.
299H. Statement of earnings to be forwarded with return.
299I. Powers of Commissioner General in relation to certificates.
299J. Recovery of amounts not deducted.
299K. Employer not accounting for deductions.
299L. Recovery of amounts by Commissioner General.
299M. Payments to and from Public Revenue.
299N. Offences.
299O. Joinder of charges under this Division.
299P. Offences by partners.
299Q. Prosecutions.
299R. Non-application.
300. Interpretation.
301. Liability to provisional tax.
302. Amount of provisional tax.
303. When provisional tax payable.
304. Provisional tax on estimated income.
305. Provisional tax in respect of first year to which this Act applies.
306. Penalty where income underestimated.
307. Reduction of provisional tax.
308. Provisional tax to be credited against tax assessed.
309. Provisional tax not to be notified where income tax assessed.
310. Alteration of notice of provisional tax.
311. Notice of provisional tax to be evidence.
311AA. Non-application and transitional provision.
311AB. Interpretation.
311AC. Liability to provisional tax.
311AD. Amount of provisional tax.
311AE. When provisional tax payable.
311AF. Provisional tax on estimated income.
311AG. Penalty where income underestimated.
311AH. Reduction of provisional tax.
311AI. Provisional tax to be credited against tax assessed.
311AJ. Provisional tax not to be notified where income tax assessed.
311AK. Alteration of notice of provisional tax.
311AL. Notice of provisional tax to be evidence.
311AM. Object.
311AN. Interpretation.
311AO. Taxpayer to estimate income.
311AP. Determination of tax payable.
311AQ. Payment of tax.
311AR. Recovery of amounts by Commissioner General.
311AS. Variation of estimate.
311AT. Increased tax.
311AU. Refunds.
311AV. Unpaid instalments.
311AW. Penalty for late payment.
311AX. Transitional arrangements.
311A. Object of Division 4.
311B. Interpretation.
311C. Deductions from dividends.
311D. Exemptions and variations.
311E. Deductions to be forwarded to the Commissioner General.
311F. Dividends not in money not to be paid until payment made to Commissioner General on account of tax.
311G. Liability of person who fails to make deductions, etc.
311H. Recovery of amounts by Commissioner General.
311I. Credits in respect of deductions made from dividends.
[311IA. Repealed]
311J. Application of credits.
311K. Liability of trustee to pay deductions to Commissioner General.
311L. Persons discharged from liability in respect of deductions.
311M. Payments to and from General Revenue.
311N. Time for prosecutions.
311O. Joinder of charges under this Division.
312A. Object of Division 5.
312B. Interpretation.
312C. Deduction from gross income.
312D. Exemptions and variations.
312E. Deductions to be forwarded to the Commissioner General.
312F. Liability of person who fails to make deductions, etc.
312G. Recovery of amounts by Commissioner General.
312H. Credits in respect of deductions from gross income.
312AA. Object of Division 5A.
312AB. Interpretation.
312AC. Deduction from gross income.
312AD. Exemptions and variations.
312AE. Deductions to be forwarded to the Commissioner General.
312AF. Liability of person failing to make deduction.
312AG. Recovery of amounts by Commissioner General.
312. Taxation prosecution.
313. Failure to furnish returns or information, etc.
314. Refusal to give evidence.
315. Order to comply with requirement.
316. Additional tax in certain cases.
317. False returns or statements.
318. Failure to sign or false certificate.
319. False declarations.
320. Understating income.
321. Fraudulent avoidance of tax.
322. Obstructing officers.
323. Taxation prosecutions.
324. Defendant to have right of trial in National Court.
325. Mode of trial.
326. Appeal.
327. Prosecution in accordance with practice rules.
328. Information, etc., to be valid if in words of Act.
329. No objection for informality.
330. Conviction not to be quashed.
331. Place where offence committed.
332. Protection to witnesses.
333. Averment of prosecutor sufficient.
334. Evidence of authority to institute proceedings.
335. Appearance by Commissioner General.
336. Minimum penalties.
337. Treatment of convicted offenders.
338. Release of offenders.
339. Enforcement of orders for payment.
340. Costs.
341. Penalties not to relieve from tax.
342. Definitions.
343. Registrar of Tax Agents.
344. Registrar not to be sued.
345. Summoning of witnesses, etc.
346. Registration of tax agents.
347. Annual notice by tax agents.
348. Cancellation of registration of tax agents.
349. Unregistered tax agents not to charge fees.
350. Negligence of registered tax agents, etc.
351. Preparation of returns, etc., on behalf of registered tax agent.
352. Advertising, etc., by persons other than registered tax agents.
353. Offences by partnerships.
354. Public officer of company.
354A. Interpretation.
354B. Application for issue of certificate.
354C. Issue of certificates.
354D. Grounds on which issue of certificates may be refused.
354E. Objections.
354F. References to the Review Tribunals and appeals and references to courts.
354G. Commissioner General may obtain information or evidence.
354H. Offences.
354I. Object.
354J. Application.
354K. Interpretation.
354L. Power to issue certificates.
354M. Duty to obtain compliance certificate.
354N. Duties of a paying authority.
354O. Registration paying authorities.
354P. Variation.
354Q. Revocation of certificates.
354R. Cancellation of paying authority registration.
354S. Notification and review of decisions.
354T. Offences.
354U. Joinder of charges under this Division.
354V. Power of the Commissioner General to obtain information.
354W. Declarations.
354X. Taxpayer to keep records.
354Y. Trustee.
354Z. Special provisions relating to partnerships.
354ZA. Prosecutions.
355. Agents and trustees.
356. Person in receipt or control of money for non-resident.
357. Person paying royalty to non-resident.
358. Payment of tax by banker.
359. Recovery of tax paid on behalf of another person.
360. Contribution from joint taxpayers.
361. Contracts or arrangements to evade tax.
362. Covenant by mortgagor to pay tax.
363. Periodical payments in the nature of income.
364. Taxpayer to keep records.
365. Access, etc., to books, etc.
366. Commissioner General may obtain information and evidence.
367. Hardship Relief.
[368. Repealed]
369. Regulations.

INDEPENDENT STATE OF PAPUA NEW GUINEA.

AN ACT

entitled

Income Tax Act 1959,

Being an Act to impose a tax upon incomes and to provide for its assessment and collection.

PART I. – PRELIMINARY.

1. SHORT TITLE.

This Act may be cited as the Income Tax Act 1959.

2 - 3. [REPEALED.]
4. INTERPRETATION.

(1)[1] In this Act, unless the contrary intention appears–

“accumulated liability” means the State’s liability to the taxpayer arising from the carried interest of the State or the State’s nominee under an agreement between the State and the taxpayer relating to gas operations or petroleum operations carried on by the taxpayer as part of a gas project or a petroleum project, as the case may be;
“adopted child”, in relation to a person means a person adopted by the first-mentioned person–
(a) under the laws of Papua New Guinea relating to the adoption of children; or
(b) under the laws of any other place relating to the adoption of children, if the validity of the adoption would be recognised under the laws of Papua New Guinea;
“agent” includes–
(a) a person who in Papua New Guinea, for or on behalf of any person out of Papua New Guinea, holds or has the control, receipt or disposal of any money belonging to that person; and
(b) a person declared by the Commissioner General to be an agent or the sole agent of a person for any of the purposes of this Act;
“allowable deduction” means a deduction allowable under this Act;
“assessable income” means all the amounts that, under the provisions of this Act, are included in the assessable income;
“assessable income from gas operations”, in relation to a taxpayer means–
(a)[2] assessable income from the sale of petroleum at a price ascertained by reference to the provisions of Section 158 of the Oil and Gas Act 1998;
(b) assessable income derived from the carrying out of gas operations including rents or interest (other than interest exempted under Section 35) derived by the taxpayer in the course of those operations; and
(c) assessable income from royalties, other forms of profit-sharing income and any other income derived by the taxpayer from or in connection with the carrying on of those gas operations by the taxpayer or another person; and
(d)[3] assessable income from the sale of petroleum or gas, at a price ascertained by reference to the provisions of Section 158 of the Oil and Gas Act 1998, deemed to be assessable income from those operations pursuant to Section 157B(7);
but does not include the proceeds of the sale of petroleum which the State has agreed to forego in favour of a taxpayer to meet the State’s accumulated liability (other than for interest) under an agreement between the State and the taxpayer relating to gas operations carried on by the taxpayer;
“assessable income from mining operations”, in relation to a taxpayer, means–
(a) assessable income derived by the taxpayer from the sale or other disposition of minerals obtained from mining operations carried on by him; and
(b) assessable income from rents and interest (other than interest exempted under Section 35) derived by the taxpayer in the course of carrying on those operations; and
(c) assessable income from royalties, other forms of profit-sharing income and any other income derived by the taxpayer from or in connection with the carrying on of those operations by him or by another person;
“assessable income from petroleum operations”, in relation to a taxpayer, means–
(a)[4] assessable income from the sale of petroleum or gas, at a price ascertained by reference to the provisions of Section 158 of the Oil and Gas Act 1998, or in the case of petroleum operations by reference to the fair market value of those products obtained from petroleum operations carried on by him;
(b) assessable income derived from the carrying out of petroleum operations including rents or interest (other than interest exempted under Section 35) derived by the taxpayer in the course of carrying out those operations;
(c) assessable income from royalties, other forms of profit-sharing income and any other income derived by the taxpayer from or in connection with the carrying on of those operations by him or by another person; and
(d)[5] assessable income from the sale of petroleum or gas, at a price ascertained by reference to the provisions of Section 158 of the Oil and Gas Act 1998, deemed to be assessable income from those operations pursuant to Section 157B(7) or 158I;
but does not include the proceeds of sale of petroleum which the State has agreed to forgo in favour of a taxpayer to meet the State’s accumulated liability (other than for interest) under an agreement between the State and the taxpayer relating to petroleum operations carried on by the taxpayer;
“assessment” means the ascertainment of the amount of taxable income and of the tax payable on that income;
[6]“Assistant Commissioner” means an Assistant Commissioner of Taxes appointed under Section 6;
“associate”, in relation to a person (in this definition referred to as the “taxpayer”) means–
(a) where the taxpayer is a natural person, other than a taxpayer in the capacity of a trustee–

(i) a relative of the taxpayer; or

(ii) a partner of the taxpayer or a partnership in which the taxpayer is a partner; or

(iii) if a person who is an associate of the taxpayer by virtue of Subparagraph (ii) is a natural person–the spouse or a child of that person; or

(iv) a trustee of a trust estate where the taxpayer or another person who is an associate of the taxpayer by virtue of another subparagraph of this paragraph benefits or is capable (whether by the exercise of a power of appointment or otherwise) of benefiting under the trust, either directly or through any interposed companies, partnerships or trusts; or

(v) a company where–

(A) the company is, or its directors are, accustomed or under an obligation, whether formal or informal, to act in accordance with the directions, instructions or wishes of the taxpayer, of another person who is an associate of the taxpayer by virtue of another subparagraph of this paragraph, of a company that is an associate of the taxpayer by virtue of another application of this subparagraph or of any two or more such persons; or

(B) the taxpayer is, the persons who are associates of the taxpayer by virtue of Clause (A) and the preceding subparagraphs are, or the taxpayer and the persons who are associates of the taxpayer by virtue of that Clause and those subparagraphs are, in a position to cast, or control the casting of, more than 50% of the maximum number of votes that might be cast at a general meeting of the company; and

(b) where the taxpayer is a company, other than a taxpayer in the capacity of a trustee–

(i) a partner of the taxpayer or a partnership in which the taxpayer is a partner; or

(ii) if a person who is an associate of the taxpayer by virtue of Subparagraph (i) is a natural person–the spouse or a child of that person; or

(iii) a trustee of a trust estate where the taxpayer or another person who is an associate of the taxpayer by virtue of another subparagraph benefits or is capable (whether by the exercise of a power of appointment or otherwise) of benefiting under the trust, either directly or through any interposed companies, partnerships or trusts; or

(iv) another person where–

(A) the taxpayer company is, or its directors are, accustomed or under an obligation, whether formal or informal, to act in accordance with the directions, instructions or wishes of that person, or of that person and another person or other persons, whether those directions, instructions or wishes are communicated directly to the taxpayer company or its directors, or through any interposed companies, partnerships or trusts; or

(B) that person is, or that person and the persons who, if that person were the taxpayer would be associates of that person by virtue of Paragraph (a), by virtue of Clause (A), by virtue of another subparagraph of this paragraph or by virtue of Paragraph (c) are in a position to cast, or control the casting of, more than 50% of the maximum number of votes that might be cast at a general meeting of the taxpayer company; or

(v) another company where–

(A) the other company is, or its directors are, accustomed or under an obligation, whether formal or informal, to act in accordance with the directions, instructions or wishes of the taxpayer company, of a person who is an associate of the taxpayer company by virtue of another subparagraph, of a company that is an associate of the taxpayer company by virtue of another application of this subparagraph or of any two or more such persons; or

(B) the taxpayer company is, the persons who are associates of the taxpayer company by virtue of Clause (A) and the other subparagraphs are, or the taxpayer company and the persons who are associates of the taxpayer company by virtue of that Clause and those subparagraphs are, in a position to cast, or control the casting of, more than 50% of the maximum number of votes that might be cast at a general meeting of the other company; or

(vi) any other persons who, if a third person who is an associate of the taxpayer company by virtue of Subparagraph (iv) were the taxpayer, would be an associate of that third person by virtue of Paragraph (a), by virtue of another subparagraph of this paragraph or by virtue of Paragraph (c); and

(c) where the taxpayer is a trustee of a trust estate–

(i) any person who benefits or is capable (whether by the exercise of a power of appointment or otherwise) of benefiting under that trust estate, either directly or through any interposed companies, partnerships or trusts; or

(ii) where a person who is an associate of the taxpayer by virtue of Subparagraph (i) is a natural person–any person who, if that natural person were a taxpayer, would be an associate of that natural person by virtue of Paragraph (a) or this paragraph; or

(iii) where a person who is an associate of the taxpayer by virtue of Subparagraph (i) or (ii) is a company–any person who, if that company were the taxpayer, would be an associate of that company by virtue of Paragraph (b) or this paragraph; or

(d) where the taxpayer is a partnership–

(i) a partner in the partnership; or

(ii) where any partner in the partnership is a natural person–any person who, if that natural person were the taxpayer, would be an associate of that natural person by virtue of Paragraph (a) or (c); or

(iii) where any partner in the partnership is a company–any person who, if the company were the taxpayer, would be an associate of the company by virtue of Paragraph (b) or (c);

[7]“Authorized Superannuation Fund” means: –
(a) a superannuation fund authorized by the Bank of Papua New Guinea pursuant to Section 8 of the Superannuation (General Provision) Act 2000; and
(b) until the end of the fifth year after the coming into operation of the Superannuation (General Provision) Act 2000, an Existing Small Superannuation Fund as defined in that Act, providing the Commissioner General, in consultation with the Central Bank, is satisfied that the rights of the employees or dependents to receive the benefits, pensions or allowance payable by that fund are fully secured.
“business” includes any profession, trade, employment, vocation or calling, but does not include occupation as an employee;
“child”, in relation to a person, includes an adopted child, a step-child or an ex-nuptial child of that person;
“Commissioner General” means the Commissioner General of Internal Revenue appointed under Section 6;
“Commissioner of Taxation” means the Commissioner of Taxation appointed under Section 6;
“Commonwealth country” means–
(a) any of the following countries (other than a country declared by the regulations not to be a Commonwealth country) namely, Australia, Barbados, Republic of Botswana, Canada, Sri Lanka, Republic of Cyprus, Fiji, Republic of the Gambia, Republic of Ghana, Guyana, Republic of India, Jamaica, Republic of Kenya, Kingdom of Lesotho, Republic of Malawi, Malaysia, Malta, Mauritius, Republic of Nauru, New Zealand, Federal Republic of Nigeria, Sierra Leone, Republic of Singapore, Kingdom of Swaziland, United Republic of Tanzania, Independent State of Western Samoa, Kingdom of Tonga, Trinidad and Tobago, Republic of Uganda, United Kingdom of Great Britain and Northern Ireland, Republic of Zambia; and
(b) any other country declared by the regulations to be a Commonwealth country,
and includes–
(c) a colony, overseas territory or protectorate of a country specified in paragraph (a) of this definition or of a country declared to be a Commonwealth country under Paragraph (b) of this definition; and
(d) a territory for the international relations of which a country so specified or declared is responsible;
“company” includes all bodies or associations corporate or unincorporate and superannuation funds and the Motor Vehicles Insurance Fund, but does not include partnerships;
“concessional rebates” means the rebates allowable under Division III.18A;
[8]“court of summary jurisdiction” means a Court of Petty Sessions or a District Court;
“date of commencement of commercial operation” in relation to a gas project or a petroleum project means the date on which, in the opinion of the Departmental Head of the Department responsible for petroleum matters, the commercial operation of the gas project or petroleum project (being more than merely incidental to the development of the project) commenced;
“daughter”, in relation to a person, includes an adopted child, a step-child or an ex-nuptial child, being a female, of that person;
“debenture”, in relation to a company, includes debenture stock, bonds, notes and any other securities of the company, whether constituting a charge on the assets of the company or not;
[9]“designated gas project” has the meaning given in Section 158A(1);
“dividend” includes–
(a) any distribution made by a company to any of its shareholders, whether in money or other property; and
(b) any amount credited by a company to any of its shareholders as shareholders; and
(c) the paid-up value of shares issued by a company to any of its shareholders to the extent to which the paid-up value represents a capitalization of profits,
but does not include–
(d) moneys paid or credited by a company to a shareholder or any other property distributed by a company to shareholders (not being moneys or other property to which this paragraph, by reason of Subsection (6), does not apply), where the amount of the moneys paid or credited, or the amount of the value of the property, is debited against an amount standing to the credit of a share premium account of the company; or
(e) moneys paid or credited, or property distributed, by the company by way of repayment by the company of moneys paid up on a share, except to the extent that–

(i) if the share is cancelled or redeemed–the amount of those moneys or the value of that property, as the case may be, is greater than the amount to which the share was paid up immediately before the cancellation or redemption; or

(ii) in any other case–the amount of those moneys or the value of that property, as the case may be, is greater than the amount by which the repayment exceeds the amount to which the share is paid up immediately after the payment; or

(f) a reversionary bonus on a policy of life-assurance; or
(g) any distribution by a unit trust or property unit trust;
“dividend (withholding) tax” means tax payable under Section 189B;
“employee” means a person who receives, or is entitled to receive, salary or wages, and includes a member of the National Parliament a person employed in the Public Service and a person employed by an authority constituted by or under a law of Papua New Guinea;
“entertainment allowance” is an allowance provided to an employee for expenditure incurred by the employee for entertainment which is wholly and exclusively for the purpose of the business of the employer;
“exempt income” means income that is exempt from income tax or salary or wages tax and includes income that is not assessable income;
“fiscal year” means the fiscal year as provided for by the Fiscal Year (Change) Act 1977;
“fishing operations” means–
(a) operations relating directly to the taking or catching of fish, turtles, dugong, crustacea or oysters or other shellfish; or
(b) pearling operations,
and includes oyster farming, but does not include whaling and also does not include operations conducted otherwise than for the purposes of a business;
“fortnight” means a period of two weeks consisting of 14 consecutive calendar days and includes the first and last days of such a period;
“fully taxed salary or wages” means salaries or wages taxed at the rates prescribed by Schedule 1 of the Income Tax (Salary or Wages Tax) (Rates) Act 1979 or Schedule 1 of the Income Tax (Rates) Act as in force from time to time prior to 1 January 1980;
“gas agreement” means a gas agreement as defined in the Oil and Gas Act 1998, as such gas agreement may be amended from time to time;
[10]“gas field” means a field producing petroleum under a petroleum development licence, which, by reason of the application of a gas to oil ratio in the manner prescribed, constitutes a gas field;
[11]“gas income tax” means income tax on taxable income from gas operations, but does not include additional profits tax payable under Section 159C;
[12]“gas operations” means petroleum operations relating to the recovery of, processing, transportation or sale of petroleum recovered from a gas field;
“housing allowance” is any allowance paid or provided to an employee, whether directly or indirectly, for the purpose of subsidising residential accommodation to be occupied by the employee;
“housing expenditure” means expenditure (including rental (at arms length) in the case of rented premises) and amounts deductible by way of depreciation on the house (not being a boat) and its fittings, incurred by an employee deriving a housing allowance (which shall include, where the housing occupied by that employee is jointly owned with his or her spouse, net expenditure incurred by the spouse in respect of that housing) for the provision of housing (not being a boat) occupied by the employee as his or her sole or principal residence in Papua New Guinea and shall be an amount equal to the amount which would be deductible pursuant to the provisions of this Act, if at all times that property had been income-producing in his or her hands, provided that–
(a) the amount deductible cannot exceed the amount of the allowance; and
(b) prescribed expenditure of a personal nature is not deductible;
“income tax” means income tax imposed as such by this Act as assessed under this Act, but does not include dividend (withholding) tax or salary or wages tax and includes specific gains tax;
[13]“joint venture” means an enterprise carried on by two or more persons in common otherwise than as a partnership;
“landowner resources trust” means a trust which is declared to be a landowner resources trust in accordance with Section 137;
“liquidator” means the person who, whether or not appointed as liquidator, is the person required by law to carry out the winding-up of a company;
“livestock” does not include animals used as beasts of burden or working beasts in a business other than a business of primary production;
[14]“Management fee” means a payment of any kind to any person, other than to an employee of the person making the payment and other than in the way of royalty, in consideration for any services of a technical or managerial nature and includes payments for consultancy services, to the extent the Commissioner is satisfied those consultancy services are of a managerial nature;
[15]“mine products” has the same meaning as it has in Part X of the Mining Act (Amalgamated) 1977;
“mineral” has the same meaning as it has in the Mining Act (Amalgamated) 1977, and includes gold as defined in that Act;
[16]“mining income tax” means income tax on taxable income from mining but does not include additional profits tax payable under subdivision III.10.E;
[17]“mining operations” means the extraction of minerals in Papua New Guinea from their natural site and includes the construction and operation of facilities–
(a) to produce the first saleable product from a mine; and
(b) to transport the first saleable product to a point of delivery;
“mortgage” includes any charge lien or encumbrance to secure the repayments of money;
“motor vehicle allowance” is an allowance provided to an employee, whether directly or indirectly, for the acquisition or use of a motor vehicle in Papua New Guinea;
“motor vehicle excess benefit tax” is deemed to be an income tax for the purposes of any provision in this Act dealing with the assessment or collection of income tax;
“motor vehicle expenditure” means expenditure and amounts deductible by way of depreciation, incurred in connection with the use of a motor vehicle in Papua New Guinea where such use is substantially in relation to the employment of the user and the expenditure incurred is of a type that would have been deductible under Division III.3;
“non-profit company” means a company that is not carried on for the purposes of profit or gain to its individual members and is, by the terms of the memorandum or articles of association, rules or other document constituting the company or governing its activities, prohibited from making any distribution, whether in money, property or otherwise, to its members;
“non-resident” means a person who is not a resident of Papua New Guinea;
“paid”, in relation to dividends or unit trust dividends, includes credited or distributed;
“partnership” means an association of persons carrying on business as partners or in receipt of income jointly, but does not include a company;
“pearling operations” means operations, relating directly to the taking of pearl shell or the culture of pearls or pearl shell, and includes operations relating directly to the taking or catching of trochus, beche-de-mer or green snails, but does not include operations conducted otherwise than for the purposes of a business;
“permanent establishment”, in relation to a person (including the State or an authority of the State), means a place at or through which the person carries on any business and, without limiting the generality of the foregoing, includes–
(a) a place where the person is carrying on business through an agent; and
(b) a place where the person has, is using or is installing, substantial machinery or substantial equipment; and
(c) a place where the person is engaged in a construction project; and
(d) where the person is engaged in selling goods manufactured, assembled, processed, packed or distributed by another person for, or at or to the order of, the first-mentioned person and either of those persons participates in the management, control or capital of the other person or another person participates in the management, control or capital of both of those persons–the place where the goods are manufactured, assembled, processed, packed or distributed,
but does not include–
(e) a place where the person is engaged in business dealings through a bona fide commission agent or broker who, in relation to those dealings, acts in the ordinary course of his business as a commission agent or broker and does not receive remuneration otherwise than at a rate customary in relation to dealings of that kind, not being a place where the person otherwise carries on business; or
(f) a place where the person is carrying on business through an agent who does not have or does not habitually exercise, a general authority to negotiate and conclude contracts on behalf of the person;
“person” includes a company, an authority of the State or public authority constituted by or under an Act, a Provincial Government or a Local-level Government or a local level government body, by whatever name known, established by or under a Provincial law;
“petroleum” has the same meaning as it has in the Oil and Gas Act 1998;
[18]“petroleum income tax” means income tax on taxable income from petroleum operations, but does not include additional profits tax payable under Section 159C;
“petroleum operations” means all or any of the following:–
(a) operations in Papua New Guinea for the purposes of recovering petroleum, including the construction or acquisition of facilities for that purpose;
(b) operations for or related to the processing or transporting of petroleum prior to–

(i) entry of the petroleum into a facility which is located in Papua New Guinea for the refining of petroleum or liquefaction of natural gas; or

(ii) export of the petroleum,

whichever occurs first;
(c) the refining of petroleum or petroleum products where such refining is solely for the purpose of or incidental to the operations in Papua New Guinea for recovering petroleum or the construction of facilities used in those operations or where the Commissioner General considers the refining is required in order for the taxpayer to be able to conduct those operations;
(d) exploration activities within the area of and pursuant to a development licence,
but does not include exploration or gas operations;
[19]“petroleum project” has the meaning given in Section 157A;
“Prescribed Product (Withholding) Tax” is an instalment of income tax payable under Part III.12A;
“primary production” means production resulting directly from–
(a) the cultivation of land;
(b) the maintenance of animals or poultry for the purpose of selling them or their bodily produce, including natural increase; or
(c) fishing operations,
and includes the manufacture of dairy produce by the person who produced the raw material used in that manufacture;
“property unit trust” means an inter vivos trust the interest of each beneficiary under which is prescribed by reference to units of the trust, and–
(a) issued units of the trust include–

(i) units having conditions attached thereto that include conditions requiring the trust to accept, at the demand of the holder thereof and at prices determined and payable in accordance with the conditions, the surrender of the units, or fractions or parts thereof, that are fully paid; or

(ii) units qualified in accordance with the prescribed conditions relating to the redemption of units by the trust,

and the fair market value of such units as have conditions attached thereto that include such conditions or are so qualified, as the case may be, is not less than 95% of the fair market value of all assessed units for the trust (determined without any regards to any voting rights attaching to units of the trust); and
(b) throughout the relevant year the trust complied with the following conditions:–

(i) it was resident in Papua New Guinea;

(ii) its only undertaking was investing the funds of the trust in Papua New Guinea;

(iii) funds invested by the trust were not less than K10 million at any time;

(iv) not less than 80% of funds were invested in real property;

(v) where there were prescribed for the purposes of this definition conditions relating to the number of its unit holders, dispersal of ownership of its units or public trading of its units, all holdings of and transactions in its units accorded with these conditions; and

(c) where by virtue of the preceding provisions, a trust would be deemed not to be a property unit trust, and the Commissioner General is of the opinion that having regard to–

(i) the length of period, or the aggregate of the lengths of periods the trust failed to comply with the preceding conditions; or

(ii) any other matters the Commissioner General considers relevant,

it is reasonable that the trust should be treated as a property unit trust, the trust shall notwithstanding any default be deemed to be a property unit trust for that year of income;
“provincial law” means a law made or adopted by a provincial legislature, and includes a subordinate legislative enactment made under any such law;
“public utility allowance” means an allowance provided to an employee in connection with his electricity, gas, water or garbage expenses;
“redetermination” means a determination or redetermination pursuant to a co-ordinated development agreement of the rights and obligations of a Co-ordinated Development Participant as to the costs of gas operations or petroleum operations in respect of the petroleum pools to which that co-ordinated development agreement relates or production of petroleum therefrom or both;
“relative” in relation to a person, means any of the following, namely:–
(a) the parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendant or adopted child of that person or of his or her spouse; and
(b) the spouse of that person or of any other person specified in Paragraph (a) of this definition;
“resident” or “resident of Papua New Guinea”
(a) in relation to a person, other than a company, means a person who resides in Papua New Guinea, and includes a person–

(i) whose domicile is in Papua New Guinea, unless the Commissioner General is satisfied that his permanent place of abode is outside Papua New Guinea; and

(ii) who has actually been in Papua New Guinea, continuously or intermittently, during more than one-half of the year of income, unless the Commissioner General is satisfied that his usual place of abode is outside Papua New Guinea, and that he does not intend to take up residence in Papua New Guinea; or

(iii) who is a contributor to a prescribed superannuation fund or who is the spouse, or a child under 16 years of age, of such a contributor; and

(b) in relation to a company other than a superannuation fund, means a company which is incorporated in Papua New Guinea, or which, not being incorporated in Papua New Guinea, carries on business in Papua New Guinea, and has either its central management and control in Papua New Guinea, or its voting power controlled by shareholders who are residents of Papua New Guinea; and
(c) in relation to a superannuation fund, means a superannuation fund which is established or managed in Papua New Guinea;
[20]“retirement savings account” means moneys allocated by the trustee of an Authorised Superannuation Fund to a member for the purpose of paying that member’s entitlement to a distribution by the fund in the form of periodic payments.
[21]“royalty” or “royalties” includes any payment whether periodical or not, and however described or computed, to the extent to which it is paid or credited as consideration for–
(a) the use of, or the right to use, any copyright, patent, design or model, plan, secret formula or process, trademark or other like property or right; or
(b) [Repealed.]
(c) the supply of scientific, technical, industrial or commercial knowledge or information; or
(d) the supply of any assistance that is ancillary and subsidiary to, and is furnished as a means of enabling the application or enjoyment of, any such property or right as is mentioned in Paragraph (a), or any such knowledge or information as is mentioned in Paragraph (c); or
(e) the use of, the right to use–

(i) motion picture films; or

(ii) films or video tapes for use in connection with television; or

(iii) tapes for use in connection with radio broadcasting; or

(f) total or partial forbearance in respect of the use of a property or right referred to in this definition,
but does not include so much of any payment as Section 155L authorizes the vendor and purchaser referred to in those sections respectively to agree to designate as expenditure of a particular class or classes;
“salary or wages” in relation to any person means–
(a) salary, wages, commission, bonus, remuneration of any kind or allowances (whether paid in cash or otherwise) paid (whether at piece-work rates or otherwise) in respect of or in relation to the employment of that person as an employee; or
(b) any remuneration by way of fees or otherwise for professional services or services as an adviser, consultant or manager (whether at piece-work rates or otherwise) where such remuneration is paid wholly or substantially for personal services rendered by that person in Papua New Guinea,
and without limiting the generality of the foregoing, includes any payments made–
(c) under a contract that is wholly or substantially for the labour of the person to whom the payments are made; or
(d) by a company by way of remuneration to a director of that company; or
(e) by way of superannuation, pension or retiring allowances; or
(f) by way of commission to an insurance or time-payment canvasser or collector,
but does not include payments of exempt income;
“salary or wages tax” means the fortnightly deduction of tax from the salary or wages of an employee representing a final tax on that income;
“shareholder” includes member or stockholder;
“share premium account”, in relation to a company, means an account, whether called a share premium account or not, to which the company has, in respect of premiums received by the company on shares issued by it, credited amounts, being amounts not exceeding the respective amounts of the premiums, but does not include–
(a) where any other amount is included in the amount standing to the credit of such an account–that account; or
(b) where an amount that has been credited to such an account in respect of a premium received by the company on a share issued by it (not being an amount that has been so credited immediately after the receipt by the company of the premium) could not, at any time before it was so credited, be identified in the books of the company as such a premium–that account;
“specific gains tax” means tax payable under Division 14B; or
[22]“superannuation fund” has the same meaning as in the Superannuation (General Provision) Act 2000;
“tax” means income tax;
[23]“taxable additional profits from resource operations” has the meaning given in Section 159A;
[24]“taxable income from mining operations” means the taxable income that comprises the amount remaining after deducting from the assessable income from mining operations all the deductions allowable under this Act relating to such income;
“taxable gain” means that amount of the consideration from sale of shares received or receivable in accordance with the provisions of Division 14B;
“taxable income” means the amount remaining after deducting from assessable income all allowable deductions and includes taxable additional profits from mining operations and taxable additional profits from petroleum operations;
“taxable income from gas operations” means the taxable income that comprises the amount remaining after deducting from the assessable income from gas operations all the deductions allowable under this Act relating to such income;
“taxable income from petroleum operations” means the taxable income that comprises the amount remaining after deducting from the assessable income from petroleum operations all the deductions allowable under this Act relating to such income;
“taxpayer” means a person deriving income;
“trading stock” includes anything produced, manufactured, acquired or purchased for purposes of manufacture, sale or exchange, and also includes livestock;
“training levy” is deemed to be an income tax for the purposes of any provision in this Act dealing with the assessment or collection of income tax;
“trustee” means a person appointed or constituted trustee by act of parties, by order or declaration of a court or by operation of law, and includes–
(a) an executor, administrator, guardian, committee, receiver or liquidator; and
(b) a person having or taking upon himself the administration or control of income affected by an express or implied trust, or acting in a fiduciary capacity, or having the possession, control or management of the income of a person under a legal or other disability;
“unit trust” means an inter vivos trust the interest of each beneficiary under which is described by reference to units of the trust, and–
(a) issued units of the trust include–

(i) units having conditions attached thereto that include conditions requiring the trust to accept, at the demand of the holder thereof and at prices determined and payable in accordance with the conditions, the surrender of the units, or fractions or parts thereof, that are fully paid; or

(ii) units qualified in accordance with the prescribed conditions relating to the redemption of units by the trust,

and the fair market value of such of the units as have conditions attached thereto that include such conditions or are so qualified, as the case may be, is not less than 95% of the fair market value of all the issued units for the trust (determined without any regard to any voting rights attaching to units of the trust); and
(b) throughout the relevant year the trust complied with the following conditions:–

(i) it was resident in Papua New Guinea;

(ii) its only undertaking was the investing of funds of the trust;

(iii) at no time in the year did more than 10% of its property consist of shares, bonds or securities of any one company or debtor other than the Government of Papua New Guinea;

(iv) where there were prescribed for the purposes of this definition conditions relating to the number of its unit holders, dispersal of ownership of its units or public trading of its units all holdings of and transactions in its units accorded with those conditions; and

(c) where, by virtue of the preceding conditions, a trust would be deemed not to be a unit trust and the Commissioner General is of the opinion that, having regard to–

(i) the length of period, or the aggregate of the lengths of periods the trust failed to comply with the preceding conditions; or

(ii) any other matters the Commissioner General considers relevant,

it is reasonable that the trust should be treated as a unit trust, the trust shall notwithstanding any default be deemed to be a unit trust for that year of income;
“year of income” means–
(a) in the case of a company (other than a company in the capacity of a trustee:

(i) in relation to a year of tax ending prior to 31 December 1986–the fiscal year next preceding that year of tax or the accounting period (if any) adopted under this Act in lieu of any such fiscal year, as the case requires; and

(ii) in relation to any subsequent year of tax–the fiscal year (being a year ended 31 December) immediately preceding that year of tax; and

(b) in the case of any other person–

(i) in relation to a fiscal year ending prior to 31 December 1985, the fiscal year for which tax is levied, or the accounting period (if any) adopted under this Act in lieu of that fiscal year, as the case requires; and

(ii) in relation to any subsequent fiscal year, the fiscal year (being a year ended 31 December) for which income tax is levied;

“year of tax” means the financial year for which income tax is levied.

(2) Unless the contrary intention appears, a reference in this Act to any year of income shall be deemed to include, in relation to a taxpayer who has adopted, or who is deemed to have adopted, under this Act, an accounting period in lieu of that year of income, a reference to that accounting period.

(3) A reference in this Act to the Commissioner General shall, in respect of a matter as to which a person has exercised a power or performed a function delegated to him by the Commissioner General, be deemed to include a reference to the delegate.

(4) Where, in this Act, reference is made to an Act, and that Act is subsequently amended, the reference shall, from the date of the amendment, be deemed to be to the amended Act.

(5) For the purposes of this Act, the average rate of tax payable by a company for a year of tax shall be deemed to be an amount per kina being the amount ascertained by dividing the amount of income tax that would be assessed in respect of the taxable income derived by the company in the year of income if the company was not entitled to any rebate of tax or credit against its liability to tax, by a number equal to the whole number of kina in that taxable income.

(6) Subject to Subsection (7), where, in pursuance of or as part of an agreement or an arrangement, whether oral or in writing, being an agreement or arrangement which, in the opinion of the Commissioner General, has the purpose or effect of tax avoidance as defined in Section 361 and which was made after the commencement of this subsection–

(a) a company issues shares at a premium, being a premium in respect of which the company credits an amount to a share premium account of the company; and
(b) the company pays or credits any moneys, or distributes any other property, to shareholders in the company and the amount of the moneys so paid or credited or the amount of the value of the property so distributed is debited against an amount standing to the credit of that share premium account,

paragraph (d) of the definition of “dividend” in Subsection (1) does not apply to the moneys so paid or credited or to the property so distributed.

(7) Where moneys so credited are, in pursuance of or as part of the agreement or arrangement, applied or to be applied in paying up an amount on a share issued or to be issued by the company, the credit shall be disregarded for the purposes of Subsection (6) unless, in pursuance of or as part of the agreement or arrangement, the company, by means of the redemption or cancellation, or of a reduction in the paid-up value, of that share or any other share in the company, is to pay or transfer to, or pay, transfer or apply on behalf of or at the direction of, the holder of the share, any money or other property other than shares in the company.

(8) The Regulations may prescribe activities to be ancillary activities for the purposes of the definition of “mining operation” in Subsection (1) and may make different provision in relation to the mining of different classes of minerals.

(9) The express references in this Act to companies do not imply that references to persons do not include references to companies.

(10) In a provision in this Act providing an exemption from income tax, a reference to income shall include, unless the contrary intention appears, a reference to an amount that is a taxable gain for the purposes of Division 14B.

(11) A reference in this Act to the Chief Collector shall be read as a reference to the Commissioner General.

4A. APPLICATION TO OFF-SHORE AREA.

(1) In this section, “the off-shore area” has the same meaning as it has in the Petroleum (Submerged Lands) Act 1975.

(2) For all purposes of this Act related directly or indirectly to–

(a) the exploration of the off-shore area for minerals and petroleum, or the exploitation of the natural resources, being minerals and petroleum, of the off-shore area, whether by the taxpayer concerned or by another person; or
(b) anything concerning, arising out of or connected with any such exploration or exploitation,

including purposes–

(c) in relation to the application of this Act in respect of income or profits derived from any such exploration, exploitation or thing; or
(d) in respect of dividends paid wholly or partly out of any such profits,

the provisions of this Act have effect, subject to this section, as if the whole of the offshore area were and had at all times been a part of Papua New Guinea.

(3) Where a company carries on business in the off-shore area that–

(a) consists of exploration or exploitation of a kind referred to in Subsection (2); or
(b) arises out of or is connected with any such exploration or exploitation (whether by the company or by another person),

the company shall, for the purpose of the definition “resident” or “resident of Papua New Guinea” in Section 4(1), be deemed to be carrying on business in Papua New Guinea.

4B. COST OF CERTAIN SHARES.

(1) Where–

(a) an amount (in this section referred to as the “relevant amount”) is payable to a taxpayer by a company in respect of shares (in this section referred to as the “original shares”) in the company; and
(b) the company issues other shares (in this section referred to as the “bonus shares”) to the taxpayer; and
(c) the relevant amount is applied by the company, in whole or in part, in payment or part payment of the moneys payable by the taxpayer in respect of the bonus shares or the liability of the company to pay the relevant amount to the taxpayer is otherwise satisfied, in whole or in part, by the issue of the bonus shares,

then the following provisions have effect for the purposes of this Act.

(2) For the purpose of this section, an amount credited to a taxpayer by a company shall be taken to be an amount payable to the taxpayer by the company whether or not the taxpayer has a right to demand payment of the amount.

(3) Subject to Subsections (5), (6) and (7) no part of the relevant amount that is applied by the company in payment or part payment of the moneys payable by the taxpayer in respect of the bonus shares or the liability of the company to pay which is otherwise satisfied by the issue of the bonus shares shall be treated as being an amount paid or payable by the taxpayer in respect of the bonus shares or as in any other way constituting any part of the cost to the taxpayer of the bonus shares.

(4) In determining–

(a) where any of the original shares or any of the bonus shares are articles of trading stock of the taxpayer and the taxpayer opts, under Section 53, in respect of all or any of the shares that are articles of trading stock, to adopt the cost price of those shares as being the value of those articles of trading stock–the value of those articles of trading stock; and
(b) where any of the original shares or any of the bonus shares are not articles of trading stock of the taxpayer–the amount of any profit or loss arising on the sale or disposal of any of those shares,

any amounts paid or payable by the taxpayer in respect of the original shares (whether on purchase of the shares, on application for or allotment of the shares, to meet calls or otherwise) shall be deemed to have been paid or to be payable by the taxpayer in respect of the original shares and the bonus shares in such proportions as the Commissioner General considers appropriate in the circumstances.

(5) Subject to Subsection (7), where the taxpayer is–

(a) a partnership that is being treated as a taxpayer in the capacity of a trustee of a trust estate; or
(b) a partnership that is being treated as a taxpayer for the purposes of Section 123; or
(c) a taxpayer (other than a taxpayer referred to in paragraph (a) or (b)) not being a company that is a resident,

Subsection (3) does not apply in relation to any part of the relevant amount that has been or will be included in the assessable income of the taxpayer of any year of income.

(6) Where the taxpayer, not being a trustee of a trust estate, is a company that is a resident, Subsection (3) does not apply in relation to any part of the relevant amount that has been or will be included in the assessable income of the taxpayer of any year of income to the extent that that part is not constituted by a dividend.

(7) Where–

(a) the taxpayer is a taxpayer in the capacity of a trustee of a trust estate or a partnership that is being treated as a taxpayer for the purposes of Section 123; and
(b) by the application of Subsection (5), Subsection (3) would not, apart from this subsection, apply in relation to an amount that has been or will be included in the assessable income of the taxpayer of a year of income; and
(c) the amount referred to in Paragraph (b) is constituted, in whole or in part, by a dividend; and
(d) an amount attributable to the dividend is included, through the taxpayer or through the taxpayer and any interposed partnerships or trusts, in the assessable income of any year of income (in this subsection referred to as the “relevant year of income”) of a company being a resident but not being a trustee of a trust estate,

then, for the purpose of making an assessment of that company of the relevant year of income–

(e) Subsection (3) shall be taken to have applied in relation to the amount referred to in Paragraph (b) to the extent that that amount is a dividend; and
(f) the net income of the taxpayer of the relevant year of income shall be taken to be such amount as would have been the net income of the taxpayer of the relevant year of income if Subsection (3) had applied in relation to the amount referred to in Paragraph (b) to the extent that that amount is a dividend; and
(g) the amount of the net income of the relevant year of income of any interposed partnership or trust shall be taken to be such amount as might reasonably be expected to have been the net income of the relevant year of income of that partnership or trust if Subsection (3) had applied in relation to the amount referred to in Paragraph (b) to the extent that that amount is a dividend.

(8) For the purposes of Subsections (5), (6) and (7), where an amount that is payable to a taxpayer in respect of shares in a company has been or will be taken into account in determining the amount of any profit arising or loss incurred on the disposal by the taxpayer of those shares or other shares in the company, that amount shall be taken to be an amount that has been or will be included in the assessable income of the taxpayer of a year of income.

(9) For the purposes of determining whether a deduction is allowable to a taxpayer under Section 101(3) in respect of the year of income that commenced on 1 January 1979 or in respect of a subsequent year of income and for the purpose of ascertaining the amount of any such deduction, there shall be disregarded so much of the amount of any loss as would not have been deemed, for the purpose of Section 101, to have been incurred by the taxpayer by virtue of the operation of this section.

4C. SOURCE OF ROYALTY INCOME DERIVED BY NON-RESIDENT.

(1) This section applies to income that is derived on or after 1 January 1980 by a non-resident and consists of royalty that–

(a) is paid or credited to the non-resident by the State, by an authority of the State or a public authority constituted by or under an Act, a Provincial Government, Local-level Government or a local level government body by whatever name known established by a provincial law, or by a person who is, or by persons at least one of whom is, a resident and is not an outgoing wholly incurred by the State, the authority of the State or public authority, Provincial Government, Local-level Government or local level government body or those persons in carrying on business in a country outside Papua New Guinea at or through a permanent establishment of the State, the authority or public authority, Provincial Government, Local-level Government or local level government body or that person or those persons in that country; or
(b) is paid or credited to the non-resident by a person who is, or by persons each of whom is, a non-resident and is, or is in part, an outgoing incurred by that person or those persons in carrying on business in Papua New Guinea at or through a permanent establishment of that person or those persons in Papua New Guinea.

(2) For the purposes of Part III.5 and 6 but subject to Subsections (4) and (5), income to which this section applies shall be deemed to be attributable to sources in Papua New Guinea.

(3) For the purposes of Sections 36, 46 and 356 but subject to Subsections (4) and (5), income to which this section applies shall be deemed to have been derived from a source in Papua New Guinea.

(4) Where–

(a) income to which this section applies is paid or credited to the non-resident by whom it is derived by the State, by an authority of the State, or a public authority constituted by or under an Act, a Provincial Government, Local-level Government or local government body by whatever name known established by a provincial law, or by a person who is, or by persons at least one of whom is, a resident; and
(b) the royalty of which the income consists is, in part, an outgoing incurred by the State, the authority of the State or public authority, a Provincial Government, Local-level Government or local government body or that person or those persons in carrying on business in a country outside Papua New Guinea at or through a permanent establishment of the State, the authority of the State or public authority, Provincial Government, Local-level Government or local government body or those persons in that country,

Subsection (3) has effect in relation to so much only of the income as is attributed to so much of the royalty as is not an outgoing so incurred.

(5) Where–

(a) income to which this section applies is paid or credited to the non-resident by whom it is derived by a person who, or by persons each of whom, is a non-resident; and
(b) the royalty of which the income consists is, in part only, an outgoing incurred by the person or persons by whom it is paid in carrying on business in Papua New Guinea at or through a permanent establishment of that person or those persons in Papua New Guinea,

Subsection (3) has effect in relation to so much only of the income as is attributable to so much of the royalty as is an outgoing so incurred.

(6) In Subsection (7), a reference to a relevant person is a reference to the State, an authority of the State, a public authority constituted by or under an Act, a Provincial Government, Local-level Government or local government body, a local level government body, by whatever name known established by a provincial law, or a person who is, or persons at least one of whom is, a resident.

(7) For the purposes of Subsections (1)(a) and (4)(b), where–

(a) royalty is paid or credited, after the commencement of this subsection, to a non-resident by a relevant person carrying on business in a country outside Papua New Guinea; and
(b) the royalty or a part of the royalty–
(i) is incurred by the relevant person in gaining or producing income that is derived by the relevant person otherwise than in carrying on business in a country outside Papua New Guinea at or through a permanent establishment of the relevant person in that country or is incurred by the relevant person for the purpose of gaining or producing income to be so derived; or
(ii) is incurred by the relevant person in carrying on business for the purpose of gaining or producing income and is reasonably attributable to income that is derived, or may be derived, by the relevant person otherwise than in so carrying on business at or through a permanent establishment of the relevant person in a country outside Papua New Guinea,

the royalty or the part of the royalty, as the case may be, is not an outgoing incurred by the relevant person in carrying on business in a country outside Papua New Guinea at or through a permanent establishment of the relevant person in that country.

(8) For the purposes of Subsections (1)(b) and (5)(b), where–

(a) royalty is paid or credited, after the commencement of this subsection, to a non-resident by another person or other persons (in this subsection referred to as “the payer”) being–
(i) another person who is carrying on business in Papua New Guinea and is a non-resident; or
(ii) other persons who are carrying on business in Papua New Guinea and each of whom is a non-resident; and
(b) the royalty or a part of the royalty–
(i) is incurred by the payer in gaining or producing income that is derived by the payer in carrying on business in Papua New Guinea through a permanent establishment of the payer in Papua New Guinea or is incurred by the payer for the purpose of gaining or producing income to be so derived; or
(ii) is incurred by the payer in carrying on a business for the purpose of gaining or producing income and is reasonably attributable to income that is derived, or may be derived, by the payer in so carrying on business at or through a permanent establishment of the payer in Papua New Guinea,

the royalty, or the part of the royalty, as the case may be is an outgoing incurred by the payer in carrying on business in Papua New Guinea at or through a permanent establishment of the payer in Papua New Guinea.

5. [REPEALED.]

PART II. – ADMINISTRATION.

6. COMMISSIONER GENERAL OF INTERNAL REVENUE.

[25](1) There shall be a Commissioner General of Internal Revenue who shall–

(a) be appointed by the Head of State, acting on advice, by notice in the National Gazette; and
(b) be appointed for such period, of not less than five years or more than seven years, as the Head of State, acting on advice, determines; and
(c) be eligible for re-appointment; and
(d) subject to this Act, not otherwise be subject to the direction and control of any person.

(2) The office of Commissioner General of Internal Revenue is hereby declared to be an office to and in relation to which Division III.2 (leadership code) of the Constitution applies.

(3) The salary, allowances and benefits (financial and otherwise) of the Commissioner General shall be fixed by the National Parliament following consideration of a recommendation by the Salaries and Remuneration Commission in accordance with Section 216A (The Salaries and Remuneration Commission) of the Constitution.

6A. REMOVAL OF COMMISSIONER GENERAL FROM OFFICE.

[26](1) The Commissioner General may be removed from office only by–

(a) the Head of State, acting with or in accordance with the recommendation of an independent tribunal established under the Organic Law on the Duties and Responsibilities of Leadership; or
(b) the Head of State, acting on advice, in accordance with the provisions of this section.

(2) The Head of State, acting on advice, shall remove the Commissioner General from office 21 days after a determination of the National Executive Council that the Commissioner General should be removed from office where the determination is reached after the process and procedure specified in Subsections (4), (5) and (6).

(3) In this section, “Committee” means the Committee formed for the purpose of this section comprising–

(a) the Chief Secretary to Government, who shall be chairman; and
(b) the Departmental Head of the Department responsible for personnel management matters; and
(c) the Departmental Head of the Department responsible for planning matters; and
(d) the Attorney–General.

(4) Where, in the reasonable opinion of the Committee, the Commissioner General is guilty of conduct prejudicial to the performance of his duties under this Act, the Committee may make a recommendation (which recommendation shall contain full reasons for the recommendation), to the Minister that the Commissioner General be removed from office.

(5) The Minister upon receiving the recommendation and reasons of the Committee pursuant to Subsection (4) shall–

(a) place the recommendation of the Committee and reasons before the National Executive Council; and
(b) advise the Commissioner General that the Commissioner General may by a particular date (such date being not less than 21 days from the date the Commissioner General is advised of the recommendation of the Committee and reasons) submit reasons to the National Executive Council why the Commissioner General should not be removed from office; and
(c) provide the Commissioner General with full copies of the recommendation of the Committee and the reasons for the recommendation.

(6) The National Executive Council shall on the earlier of the date it receives the submission of the Commissioner General or the date stipulated for such submission–

(a) consider the reasons for the recommendation of the Committee and the submission of the Commissioner General, if any; and
(b) where, in the reasonable opinion of the National Executive Council–
(i) the Commissioner General is not guilty of conduct prejudicial to the performance of his duties under this Act; or
(ii) the Commissioner General should not be removed from office,

the National Executive Council shall notify the Commissioner General in writing and the Commissioner General shall continue in office; and

(c) where in the reasonable opinion of the National Executive Council–
(i) the Commissioner General is guilty of conduct prejudicial to the performance of his duties under this Act; and
(ii) the Commissioner General should be removed from office,

the National Executive Council shall–

(iii) give the Commissioner General written notice of its decision as soon as possible; and
(iv) not earlier than 21 days thereafter, or where, within such 21 days, a decision of the National Executive Council is reviewed or appealed under Subsection (7), until a decision is handed down, advise the Head of State to remove the Commissioner General from office.

(7) A decision by the Committee or the National Executive Council is a decision that may be fully reviewed (including on its merits) by any competent court.

6B. COMMISSIONER OF TAXATION.

[27](1) There shall be a Commissioner of Taxation who shall–

(a) be appointed by notice in the National Gazette by the National Executive Council after considering a recommendation from the Commissioner General; and
(b) be appointed for such period, being not less than five years or more than seven years, as the National Executive Council determines; and
(c) be eligible for re-appointment.

(2) The office of Commissioner of Taxation is hereby declared to be an office to and in relation to which Division III.2 (leadership code) of the Constitution applies.

7. DELEGATION.

(1) The Commissioner General may, either generally or in relation to a matter or class of matters and either in relation to the whole or part of Papua New Guinea, by writing under his hand, delegate all or any of his powers and functions (except this power of delegation) under this Act or any other Act that is an Act with respect to taxation.

(2) A power or function delegated under Subsection (1) may be exercised or performed by the delegate in accordance with the instrument of delegation.

(3) Where under this Act or any other Act that is an Act relating to taxation, the exercise of a power or the performance of a function by the Commissioner General is dependent upon the opinion, belief or state of mind of the Commissioner General in relation to a matter and that power or function has been delegated under this section, that power or function may be exercised or performed by the delegate upon the opinion, belief or state of mind of the delegate in relation to the matter.

(4) A delegation under this section is revocable at will and does not prevent the exercise of a power or performance of a function by the Commissioner General.

(5) A delegation under this section may be made subject to a power of review and alteration by the Commissioner General, within a period specified in the instrument of delegation, of acts done under the delegation and a decision given upon such a review or alteration shall be deemed to be a decision of the Commissioner General.

8. REPORT BY COMMISSIONER GENERAL.

(1) The Commissioner General shall furnish to the Minister annually, for presentation to the Parliament, a report on the working of this Act.

(2) In the report referred to in Subsection (1), the Commissioner General shall draw attention to any breaches or evasions of this Act that have come to his notice.

9. OFFICERS TO OBSERVE SECRECY.

(1) In this section, “officer” means a person who is or has been appointed to or employed in the Public Service, and who, by reason of that appointment or employment, or in the course of that employment, may acquire or has acquired information respecting the affairs of any other person disclosed or obtained under the provisions of this Act.

(2) Subject to this section, an officer shall not, either directly or indirectly except in the performance of a duty as an officer, and either while he is or after he ceases to be an officer, make a record of, or divulge or communicate to any person, any such information so acquired by him.

(3) An officer shall not be required to produce in any court a return, assessment or notice of assessment, or to divulge or communicate to any court any matter or thing coming under his notice in the performance of his duties as an officer, except when it is necessary to do so for the purpose of carrying into effect the provisions of this Act.

(4) Nothing in this section prevents the Commissioner General or an Assistant Commissioner, or a person authorized by the Commissioner General or an Assistant Commissioner, from communicating any information to–

(a) a person performing, in pursuance of any appointment or employment in the Public Service, any duty arising under any Act administered by the Commissioner General, for the purpose of enabling that person to carry out that duty; or
(b) the Review Tribunal constituted under Section 240; or
(c) the Board referred to in Section 367; or
(d) the Commissioner of Taxation for Australia, a Second Commissioner of Taxation for Australia and any Deputy Commissioner of Taxation for Australia if the Commissioner, Second Commissioner and any Deputy Commissioner is authorized by a law of Australia to afford similar information to the Commissioner General; or
(e) the person, known as the Controller of Foreign Exchange, acting under and in accordance with Section 61 or 61A of the Central Banking Act 2000; or
(f) a Review Tribunal appointed under Section 12(1) of the Industrial Development (Wage Subsidy) Act 1984; or
(g) the Tribunal established under Section 69.
(h)[28] the Bank of Papua New Guinea, or any officer thereof, exercising powers and functions of the Bank of Papua New Guinea pursuant to Section 7 of the Superannuation (General Provision) Act 2000.

(5) A person to whom information is communicated under Subsection (4), and any person or employee under his control, is, in respect of that information, subject to the same rights, privileges obligations and liabilities under Subsection (2) and (3), as if he were an officer.

(6) For the purposes of Subsections (2) and (5), an officer or other person shall be deemed to have communicated the information referred to in those subsections to another person in contravention of those subsections if he communicates that information to any Minister.

(7) An officer shall, if and when required by the Commissioner General or an Assistant Commissioner to do so, make an oath or declaration, in the manner and form prescribed, to maintain secrecy in conformity with the provisions of this section.

Penalty: [29]For the breach of any of the provisions of this section, a fine of K10,000.00 or imprisonment for a term of 12 months.

9A. COMMUNICATION OF INFORMATION WHERE TAXPAYER HAS ENGAGED IN TRANSFER PRICING MANIPULATION.

(1) In this section, “transfer pricing manipulation” includes the practice of directly or indirectly obscuring the actual value of any transaction whether it relates to goods, services or otherwise.

(2) Notwithstanding any other provision in this Act, where the Commissioner General has reasonable grounds to believe that a taxpayer has deliberately engaged in transfer pricing manipulation, which has or is likely to have the effect of evading liability for taxation under this Act, he may, at his absolute discretion, make a record of, or divulge or communicate only such information acquired or obtained under the provisions of this Act as the Commissioner General is satisfied is necessary to enable any officer, who has responsibility for the administration of any other Act that has application to the taxpayer, to take any action that is required to be taken against the taxpayer under such other Act.

(3) Whenever it is practical to do so, the communication of such information under Subsection (2) shall be made only to the Departmental Head of the relevant Department.

(4) The provision of Section 9 shall have no application to any recipient of information under Subsection (2).

(5) If no action is taken under any other Act, the recipient of information under Subsection (2) shall take all reasonable precautions to ensure such information received from the Commissioner General remains confidential.

10. OFFICERS NOT TO ASSIST IN PREPARATION OF TAX RETURNS, ETC.

(1) In this section, “officer” means a person who is an officer for the purposes of Section 9, other than a person whose appointment to, or employment in, the Public Service, has ceased.

(2) An officer shall not, except in the performance of a duty as an officer–

(a) prepare a return or objection under this Act for any other person; or
(b) advise or assist any person in relation to the preparation of such a return or objection.

Penalty: [30]A fine of not less than K200.00 and not exceeding K2,000.00.

PART III. – LIABILITY TO TAXATION.

Division 1.

General.

11. IMPOSITION OF INCOME TAX.

(1) Subject to this Act, a tax by the name of income tax is imposed and shall be levied and paid, at such rates as are declared by Act, for the fiscal year that commenced on 1 July 1975, and for each subsequent fiscal year, on the taxable income derived during the year of income by any person, whether a resident or a non-resident.

(2) Notwithstanding anything in this Act, income tax is not imposed on a taxable income that does not exceed K4,000.00 derived by–

(a) a resident person other than a company; or
(b) a non-profit company.
12. ACCOUNTING PERIOD.

Where, prior to 4 March 1986, a person had–

(a) with the leave of the Commissioner General adopted an accounting period ending on a date other than 31 December; and
(b) the taxable income of any year of income was decreased or increased by the Commissioner General for a reason connected with the adoption of that accounting period; and
(c) the Commissioner General is of the opinion that, by reason of the repeal of the provisions which allowed the adoption of an accounting period other than the year ended 31 December, the taxable incomes of that person as assessed total a greater or lesser amount than they would have totalled had that person used an accounting period ended 31 December at all times,

the Commissioner General may make such adjustments to the taxable incomes or assessments of any of the years of income ending not later than 31 December 1986 as, in his opinion, are required to ensure that neither a greater nor a lesser amount of income is assessed to that person than would have been assessed had that person used an accounting period ended 31 December at all times.

12A. ACCOUNTING PERIODS.

(1) With the leave of the Commissioner General and subject to such conditions as he determines, a person may adopt for the purposes of this Act, in place of a fiscal year, an accounting period that is a period of 12 months ending on some date other than 31 December.

(2) Where a person adopts an accounting period under Subsection (1), his accounting period in each succeeding year shall end on the corresponding date of that year, unless with the leave of the Commissioner General some other date is adopted.

(3) Where the Commissioner General is of the opinion that, by reason of the adoption of an accounting period by a person, his taxable income of a year of income is liable to be greater or less than the amount that it otherwise would have been, the conditions on which the Commissioner General grants leave to him to adopt the accounting period may include a condition that his taxable income of the year of income shall be decreased or increased by an amount to be determined in accordance with the terms of the condition.

13. MONEY CREDITED, REINVESTED, ETC., TO BE INCOME.

Income shall be deemed to have been derived by a person although it is not actually paid over to him but is reinvested, accumulated, capitalised, carried to any reserve, sinking fund or insurance fund, however designated, or otherwise dealt with on his behalf or as he directs.

14. INCOME TO BE EXPRESSED IN PAPUA NEW GUINEA CURRENCY.

(1) Subject to Subsections (2), (3) and (4), for the purposes of this Act, income wherever derived and any expenses wherever incurred shall be expressed in terms of Papua New Guinea currency.

(2) The Commissioner General may by notice in writing consent to a person reporting income and expenses in a currency other than Papua New Guinea currency subject to any conditions that the Commissioner General considers appropriate.

(3) A notice issued under Subsection (2) shall specify the currency or currencies in which the income and expenses are to be reported, and may apply to all or to any specified activities of that person.

(4) The Commissioner General may at any time cancel a notice under Subsection (2), but such cancellation is effective only from the year next following that in which the cancellation is made.

(5) A notice issued under Subsection (2) does not affect the liability of the person granted consent to pay income tax in Papua New Guinea currency or in any other currency as prescribed by law.

15. WHERE CONSIDERATION NOT IN CASH.

[31]Subject to Section 155P, where, upon any transaction, any consideration is paid or given otherwise than in cash, the money value of that consideration shall, for the purposes of this Act, be deemed to have been paid or given.

16. NON-PROFIT COMPANIES.

Where the taxable income of a non-profit company does not exceed K6,000.00, the maximum amount of tax payable is 50% of the amount by which taxable income exceeds K4,000.00.

17. MINIMUM TAX.

Where, but for this section, the amount of income tax that a person would be liable to pay under this Act, after deducting all rebates to which that person is entitled in his assessment, is less than K1.00 the income tax payable by that person is K1.00.

18[32]. [REPEALED.]
19. EXEMPTION OF CERTAIN OFFICIAL SALARIES.

The official salary of, and the income derived from sources out of the country by, any of the following persons are exempt from income tax or salary or wages tax:–

(a) the representative in Papua New Guinea of the government of any country (not being a person in relation to whom any of the provisions of the Vienna Conventions on Diplomatic and Consular Relations, as having the force of law by virtue of the Diplomatic and Consular Privileges and Immunities Act 1975, apply) or a member of the official staff of such a representative if the representative or member, as the case may be, is domiciled in the country represented by the representative, is temporarily resident in Papua New Guinea by direction of the government of the country so represented for the purposes of performing his official duties and that country grants exemptions from taxes upon income, corresponding to the exemptions granted to that country’s representative by virtue of this paragraph, to officials of the State temporarily resident in that country for similar purposes;
(b) any officer of the government of a Commonwealth country, who is temporarily in Papua New Guinea to render service on behalf of that country or the State in accordance with an arrangement between the government of that country and the State, if the salaries of officers of the State in that country for similar purposes in accordance with a similar arrangement are exempted from income tax by that country.
19A. EXEMPTION OF PRESCRIBED PERSONNEL.

The–

(a) official emoluments; and
(b) income derived from a source or sources outside Papua New Guinea,

of a person who is in Papua New Guinea, are, to the prescribed extent and subject to the prescribed conditions, exempt from income tax or salary or wages tax where–

(c) that person is an employee or an officer of a government of a country, which is a prescribed donor of agreed international aid; and
(d) the official emoluments and income of that person are not exempt from income tax or salary or wages tax in the country where that person is ordinarily resident.
19B. EXEMPTION OF PEACE CORPS PERSONNEL.

The official salary of, and any other income derived from a source or sources outside Papua New Guinea by an officer of, or citizen of the United States of America employed by, Peace Corps and who is temporarily in Papua New Guinea to render services under the Peace Corps Understanding is exempt from income tax or salary or wages tax.

19C. EXEMPTION OF NON PAPUA NEW GUINEA INCOME.

The income derived from a source or sources outside Papua New Guinea by a person who–

(a) is in Papua New Guinea solely to render assistance to a prescribed aid organisation; and
(b) derives no remuneration for rendering that service; and
(c) derives no income from a source in Papua New Guinea,

is exempt from income tax.

20. EXEMPTION OF REMUNERATION PAID TO NON-RESIDENT MEMBER OF COMMISSION OF INQUIRY.

The remuneration paid by the State to a non-resident as a Commissioner under the Commissions of Inquiry Act 1951 is exempt from income tax or salary and wages tax.

21. EXEMPTION OF INCOME OF REPRESENTATIVES OF CLUBS, ETC.

Income derived–

(a) in the capacity of representative of an association or club established in any country for the control of any out-door athletic sport or game in that country by any person visiting Papua New Guinea in that capacity for the purpose of engaging in contests in Papua New Guinea in that sport or game; or
(b) by any association or club in any Commonwealth country as its share of the proceeds of cricket, football or similar matches played in Papua New Guinea by a team controlled by that association or club visiting Papua New Guinea from that Commonwealth country and recognised by the authority controlling that class of match in Papua New Guinea as being representative of that Commonwealth country; or
(c) by the representative of any government, visiting Papua New Guinea on behalf of that government, or by any member of the entourage of that representative, in his official capacity as such a representative or member; or
(d) in the capacity of representative of any society or association established for educational, scientific, religious or philanthropic purposes, by any person visiting Papua New Guinea in that capacity for the purpose of attending international conferences or for the purpose of carrying on investigation or research for that society or association; or
(e) in the capacity of representative of the press outside Papua New Guinea, by any person visiting Papua New Guinea in that capacity for the purpose of reporting the proceedings relating to any matters referred to in the preceding paragraphs of this section,

is exempt from income tax or salary or wages tax.

22. EXEMPTION OF INCOME OF PERSONS UNDER TECHNICAL CO-OPERATION AGREEMENT.

(1) Income derived by a person from an occupation carried on by him, or by a company from business carried on by it, in Papua New Guinea is exempt from income tax or salary or wages tax, as the case may be, where–

(a) the income is derived from work carried out under a prescribed technical assistance agreement and paid wholly under that agreement from a source outside Papua New Guinea from funds which do not require repayment from within Papua New Guinea; and
(b) that person is carrying on that occupation or that company is carrying on business in Papua New Guinea in accordance with the terms of a prescribed technical assistance agreement.

(2) For the purposes of this section, where the Commissioner General is satisfied in accordance with Subsection (1), the provisions of Part III.14A relating to Overseas Construction Contractors shall not apply.

22A. EXEMPTION OF INSTITUTIONS.

With effect on and from 1 January 1997, the income of–

(a) Kula Fund Limited, a company incorporated in Vanuatu; and
(b) Pacific Capital Partners (PNG) Pty Ltd, a company incorporated under the Companies Act 1997,

shall be exempt from income tax.

23. EXEMPTION OF THE DISCIPLINED FORCES INSTITUTIONAL HOUSING PROJECT.

The income derived by Syarikat Pembenaan Yeoh Tiong Lay Sdn Bhd and its non-citizen staff in the course of and arising out of, the construction of the Disciplined Forces Institutional Housing Project shall be exempt from any taxes imposed under this Act, to the extent the Commissioner General is satisfied that the State has agreed that such income shall be exempted in the Articles of Agreement signed by the representatives of Syarikat Pembenaan Yeoh Tiong Lay Sdn Bhd and the Independent State of Papua New Guinea on 15 December 1993.

24. EXEMPTION OF PUBLIC AUTHORITIES, ETC.

(1) The revenue of a public authority constituted by or under an Act (other than a public authority referred to in Subsection (2) or prescribed in the Regulations as being taxable) is exempt from income tax.

(2)[33] [34]All income of a Provincial Government or of a Local-level Government received pursuant to the Organic Law on Provincial Governments and Local-level Governments is exempt from income tax, except income received from a commercial enterprise conducted by a Provincial Government or a Local-level Government.

(3) In respect of–

(a) Papua New Guinea Electricity Commission; and
(b) Papua New Guinea Harbours Board; and
(c) Papua New Guinea Banking Corporation; and
(d) Niugini Insurance Corporation,

prescribed in the Regulations as being taxable, income tax is payable on income derived from 1 January 1979 and–

(e) Papua New Guinea Defence Force Retirement Fund; and
(f) Papua New Guinea Retirement Benefits Fund; and
(g) Public Officers Superannuation Fund; and
(h) National Provident Fund,

prescribed in the Regulations as being taxable, income tax is payable on income derived from 1 January 1981 and–

(i) Post and Telecommunication Corporation,

prescribed in the Regulations as being taxable, income tax is payable on income derived from 1 January 1984; and

(j) Investment Corporation of Papua New Guinea,

prescribed in the Regulations as being taxable, income tax is payable on income derived from 1 January 1985; and

(k) State Services and Statutory Authorities Superannuation Fund,

prescribed in the Regulations as being taxable, income tax is payable on income derived from 1 January 1991; and

(l) Motor Vehicles Insurance Fund,

prescribed in the Regulations as being taxable, income tax is payable on income derived from 1 January 1997.

25. EXEMPTION OF RELIGIOUS INSTITUTIONS, HOSPITALS, ETC.

The income of–

(a) a religious, scientific or public educational institution; or
(b) a public hospital or a hospital that is carried on by a society or association otherwise than for the purposes of profit or gain to the individual members of that society or association,
(c) [Repealed.]

is exempt from income tax.

25A. EXEMPTION OF CHARITABLE BODIES.

[35](1) In this section, “charitable purpose” means relief of the poor, education and medical relief or any other object of general public utility not involving an activity for profit.

(2) The income of an approved body or institution established for charitable purposes is exempt from income tax.

(3) An institution or body may be approved by the Commissioner General by a notice in the National Gazette where–

(a) it is evidenced by an irrevocable trust deed duly executed; and
(b) no benefit accrues to the settlor of the trust or the trustee; and
(c) not less than 80% of its income is utilized for the purpose for which the trust was established; and
(d) regular books of account are maintained.

(4) The Commissioner General may allow accumulation of income for a specified period where he is satisfied that the accumulation is necessary for achieving the main object for which the trust was established.

(5) An institution or body shall be allowed exemption under Subsection (2) for a period of five years.

(6) The Commissioner General may extend exemption to an institution or body from time to time for further periods of not more than five years at a time.

(7) The exemption granted to an already prescribed institution or body shall cease to have effect on expiry of five years from the date of exemption or on 31 December 2000 whichever is later, except where the institution has applied for the extension of exemption before the expiry of five years or before the specified date.

26. EXEMPTION OF TRADE UNIONS, ETC.

The income of a trade union, or of an association of employers or employees registered under any Act relating to the settlement of industrial disputes is exempt from income tax.

27. EXEMPTION OF CERTAIN NON-PROFIT BODIES.

The income of a society, association or club that is not carried on for the purposes of profit or gain to its individual members and is–

(a) a society, association or club established for musical purposes, or for the encouragement of music, art, science or literature; or
(b) a society, association or club established for the encouragement or promotion of an athletic game or athletic sport in which human beings are the sole participants; or
(c) a society, association or club established for the purpose of promoting the development of aviation or of the agricultural, pastoral, horticultural, viticultural, manufacturing, human or industrial resources of Papua New Guinea,

is exempt from income tax.

28. EXEMPTION OF CERTAIN FUNDS.

The income of a fund established for the purpose of enabling scientific research to be conducted by or in conjunction with a public university or public hospital is exempted from income tax if the fund is being applied for the purpose for which it was established.

29. EXEMPTION OF PENSION, ETC.

(1) The following pensions, allowances and other payments are exempt from income tax or salary or wages tax:–

(a) pensions and attendants’ allowances paid, and payments of a like nature made by the Government of Australia, under the Repatriation Act 1920-1958, the Repatriation (Far East Strategic Reserve) Act 1956 or the Seamen’s War Pensions and Allowances Act 1940-1958;
(b) pensions and allowances paid, and payments made, by the Government of Australia or by the Government of the United Kingdom, being pensions, allowances or payments that, in the opinion of the Commissioner General, are of a similar nature to pensions, allowances or payments specified in Paragraph (a);
(c) wounds and disability pensions of the kinds specified in Section 380(2) of the United Kingdom Income Tax Act 1952;
(d) pensions, allowances, endowments or benefits paid by the Government of Australia under the Social Services Act 1947-1958;
(e) allowances paid by the Government of Australia under the Tuberculosis Act 1948;
(f) allowances under Part III of the Public Service (Overseas Officers’ Allowances) Determination 1968 and child allowances paid by the State, a public authority or the Government of Australia which, in the opinion of the Commissioner General, are substantially analogous to such allowances;
(g) allowances and expenses to disabled persons paid by the Government of Australia under Part IV of the Re-establishment and Employment Act 1945-1958;
(h) re-employment allowances under Division VI.2 of the Re-establishment and Employment Act 1945-1958;
(i) any allowance or other amount provided by the State, a public authority or the Government of Australia in connection with the education of a person referred to in Section 213A(1), whether provided voluntarily, by agreement or by compulsion of law;
(j) pensions paid from 1 July 1974 to a person resident in Australia and who is not a resident of Papua New Guinea;
(k)[36] [Repealed.]
(l) allowances or expenses paid to meet the annual fees imposed by a school or college for the purpose of educating a student child of an employee but not including expenses of tertiary studies;
(m) pensions, benefits and lump sum payments paid under the Parliamentary Members’ Retirement Benefits Act 1997;
(n)[37] [Repealed.]
(o) distributions by a unit trust or property unit trust;
(p) benefits paid in cash as a substitute for benefits otherwise provided in kind (being benefits that, had they been provided in kind would not have been convertible into cash) pursuant to a determination of the Parliamentary Salaries and Remuneration Commission but not including, where there is a value prescribed for such benefit provided in kind or as an allowance for the purposes of Section 65E, the value so prescribed;
(q) benefits by way of a subsidy provided by an employer to an employee (being a citizen) towards the capital cost of purchasing a residential dwelling under a low cost housing scheme approved by the Commissioner General;
(r)[38] repayable amounts advanced to a first home owner for the purpose of purchasing property used for housing the cost of which was K75,000.00 or less where these advances have been debited against amounts owed in respect of recreation leave, furlough, superannuation or gratuity entitlements; and
(s)[39] distribution of an employee’s own contributions from an authorized superannuation fund from 1 January 1993.
(t)[40] income derived from investments held by a retirement savings account, to the extent prescribed;
(u)[41] amounts not exceeding the prescribed sum, drawn from a retirement savings account.

(2) The exemptions provided for in Subsection (1)(a) to (i), inclusive, apply only if such income is exempt from income tax, under the income tax laws of the country making the payment, when paid to a resident of that country.

30. ALIMONY EXEMPT IN CERTAIN CASES.

Income received by way of periodical payments in the nature of alimony or maintenance by a woman from her husband or former husband is exempt from income tax or salary or wages tax if, for the purpose of making the payments, the husband or former husband, as the case may be, has not divested himself of any income-producing assets or diverted from himself income upon which he would otherwise have been liable to tax.

31. EXEMPTION OF INTERNATIONAL TRADE FINANCIAL INSTITUTIONS.

The income of the following international trade financial institutions are exempt:–

(a) Multilateral Investment Guarantee Agency;
(b) Export Finance Insurance Corporation of Australia;
(c) European Investment Bank.
32 - 34[42]. [REPEALED.]
35. EXEMPTION OF CERTAIN INTEREST INCOME.

(1)[43] In this section–

[44][45]“financial institution” means the Bank of Papua New Guinea and a bank or financial institution licensed under the Banks and Financial Institutions Act 2000;
[46]“long term bond” means a fixed interest security approved by the Central Bank issued by the State or a resident corporation or society with a maturity date not less than five years from the date of issue.

(2) Interest income credited to a person shall be exempt from income tax to the following extent:–

(a)[47] interest income derived by any person from a long term bond issued on or before 16 November 2004;
(b)[48] [Repealed.]
(c) interest income derived by any person from a foreign currency deposit where–
(i) the Bank of Papua New Guinea has given its authority under the Central Banking (Foreign Exchange and Gold) Regulation 1973 for the placing of that deposit in a foreign currency with a financial institution appointed as an authorized dealer under Section 2(1) of that Regulation; and
(ii)[49] [Repealed.]
(d) interest derived by the New Ireland Trust Fund from Mineral Resources Development Corporation Pty Limited pursuant to a European Investment Bank Loan Agreement dated 28 December 1995;
(e)[50] interest derived by a non-resident lender from a company engaged in mining, petroleum or gas operations in Papua New Guinea, to the extent such interest is payable under a financial arrangement approved by the Bank of Papua New Guinea.

(3) Interest paid on an amount deposited on behalf of a person subject to a legal disability where the amount deposited was paid pursuant to an order of a court and the interest is not paid over to the person by reason of the person remaining under a legal disability is exempt from income tax.

35A. EXEMPTION OF CERTAIN INCOME FROM FISHING OPERATIONS.

(1) Subject to Subsection (2), income derived by a non-resident company or its employees from fishing operations in territorial waters or from other activities in relation to such fishing operations is exempt from income tax or salary or wages tax.

(2) Subsection (1) applies only to fishing operations or other activities in relation to such fishing operations carried out by a non-resident company under an Agreement with the State where the Agreement was signed on or before 25 May 1992 and the State receives or is entitled to receive fees in relation to the company’s operations in accordance with the Treaty on Fisheries between the State and the United States of America.

(3) The exemption under this section shall extend to income by way of fees from the charter of vessels to another person where the charterer is a person exempt under Subsections (1) and (2) and the Agreement referred to in Subsection (2) makes provision for such charter.

36. EXEMPTION OF INCOME DERIVED BY NON-RESIDENT OUT OF PAPUA NEW GUINEA.

Income derived by a non-resident from sources wholly out of Papua New Guinea is exempt from income tax or salary or wages tax.

36A[51]. [REPEALED.]
36B. EXEMPTION OF INCOME FROM SALE OF SHARES ON PORT MORESBY STOCK EXCHANGE.

[52]Income derived from the sale of shares on the Port Moresby Stock Exchange by a non-resident beneficial shareholder is exempt from income tax.

37. EXEMPTION OF CERTAIN PAY AND ALLOWANCES OF MEMBERS OF DEFENCE FORCE, ETC.

The pay and allowances earned in Papua New Guinea by a person enlisted in or appointed to the naval, military or air forces of the government of a country outside Papua New Guinea as a member of those forces are exempt from income tax or salary or wages tax if the pay and allowances are not paid, given or granted by Papua New Guinea or by Australia.

(2) . . . [Omitted]

(3) . . . [Omitted]

38. EXEMPTION OF INCOME OF PERSONS ASSISTING IN DEFENCE OF AUSTRALIA OR PAPUA NEW GUINEA.

Income derived by a person visiting Papua New Guinea from an occupation carried on by him while in Papua New Guinea is exempt from income tax or salary or wages tax if, in the opinion of the Minister, the visit and occupation are primarily and principally directed to assisting the government in the defence of Papua New Guinea and the Commissioner General is satisfied that the income is not exempt from income tax in the country where the person is ordinarily resident.

39. EXEMPTION OF INTERNATIONAL ORGANIZATIONS, ETC.

(1) The income of a prescribed organization of which Papua New Guinea and one or more other countries are members is exempt from income tax or salary or wages tax.

(2) The official salary and emoluments of an official of a prescribed organisation of which Papua New Guinea and one or more other countries are members are, to the prescribed extent and subject to the prescribed conditions, exempt from income tax or salary or wages tax.

40. EXEMPTION OF SCHOLARSHIPS, ETC.

(1) Income derived by way of a scholarship, bursary or other educational allowance by a student receiving full-time education at a school, college or university, other than an amount received by the student from a person or authority upon condition that the student will (or will, if required) render, or continue to render, services to that person or authority, is exempt from income tax or salary or wages tax.

(2) Income derived by way of an educational allowance in respect of a student, being an allowance paid by the State (other than an allowance paid upon condition that the student will, or will, if required, render or continue to render, services to the State), is exempt from income tax or salary or wages tax.

(3) Income derived by way of an education allowance (other than an allowance paid upon condition that the student shall, or shall if required, render or continue to render service to the person paying or incurring the allowance), being the cost of annual fees imposed by a school or college, other than for tertiary studies, to the extent that the allowance does not exceed the cost incurred, is exempt from income tax or salary or wages tax.

(4) Income derived by way of a scholarship, bursary or educational or living or other allowance (being a scholarship, bursary or allowance provided by the government of a country outside Papua New Guinea) by a person who is pursuing in a country outside Papua New Guinea a course of study or training, and who is in that country substantially for the purpose of pursuing that course, is exempt from income tax or salary or wages tax.

40AA. EXEMPTION OF CERTAIN TRAVEL BENEFITS.

[53]Income or any benefit assessable under this Act, derived by an employee by way of–

(a)  
(i) one annual leave fare for himself and his family paid from his place of employment to the employee’s place of origin or recruitment; and
(ii) additional leave fares for travel within Papua New Guinea to a person employed solely in, or in connection with a mining lease, special mining lease or mining project or prospecting authority granted under the Mining Act 1992, or a pipeline licence or a petroleum development licence granted under the Oil and Gas Act 1998; and
(iii) additional leave fares, where due to remoteness, or hardship as a result of being located in a remote area away from urban centres, and the Commissioner General is satisfied that the conditions warrant additional leave fares due to remoteness or hardship; or
(b) recreational fares and accommodation within Papua New Guinea, to a value not exceeding the total value of the benefit allowable under Paragraph (a),

is exempt from income tax or salary and wages tax provided that the income or benefit is applied exclusively for the purposes referred to in Paragraph (a) or (b).

40A. EXEMPTION OF SAVINGS AND LOAN SOCIETIES.

The income of Savings and Loan Societies is exempt from income tax.

40B - 41[54]. [REPEALED.]
42. EXEMPTION OF CERTAIN DIVIDENDS.

(1) The assessable income of a shareholder does not include dividends paid wholly and exclusively out of profits arising from the sale or revaluation of assets not acquired for the purpose of resale at a profit, if the dividends paid from those profits are satisfied by the issue of shares (other than redeemable shares) of the company declaring the dividends.

(2) For the purposes of Subsection (1), a share issued by a company shall be deemed to be a redeemable share if–

(a) the share is, or at the option of the company is to be, liable to be redeemed; or
(b) the share was issued in pursuance of, or as part of, an agreement or arrangement, whether oral or in writing and whether entered into before or after the commencement of this subsection, that had the purpose, or purposes that included the purpose, of enabling the company, by means of the redemption, purchase or cancellation, or of a reduction in the paid-up value, of that share or of any other share in the company, to pay, transfer or apply to, on behalf of or at the direction of the person to whom the share was issued or any other person, whether upon the exercise of an option by the company or by any other person or not, any money or other property other than shares in the company.

(3) The assessable income of a shareholder does not include the amount of any dividends paid directly or indirectly out of income that was assessable income from petroleum operations or assessable income from gas operations, but only to the extent that the Commissioner General is satisfied that they were so paid.

(4)[55] [Repealed.]

43[56]. [REPEALED.]
43A. REDEMPTION OF PREMIUM SECURITIES REDEEMABLE AT A PREMIUM.

(1) Subject to Subsection (2), no part of the amount received by a person upon the redemption of a Territory Premium Security, other than a part of that amount paid as accrued interest, shall, for any purpose of this Act, be taken to be income derived by that person.

(2) Subsection (1) does not affect the operation of this Act in relation to the redemption of a Territory Premium Security owned by a person where, if the bond had been sold by that person at the time of the redemption–

(a) the proceeds of the sale; or
(b) any profit arising from the sale,

would have been included in the assessable income of that person.

(3) In this section, “Territory Premium Security” means a security of Papua New Guinea issued under the Loan Securities Act 1960 and bearing on its face the words “Territory Premium Bond” or any other such security redeemable at a premium and declared by the Treasurer, by notice in the Gazette, to be a Territory Premium Security for the purposes of this section.

44. LIMITATION OF EXEMPTION.

Where any income is exempt from income tax or salary or wages tax, the exemption is limited to the specified or original recipient of the income and does not extend to persons receiving payments from that recipient, although the payments may be made wholly or in part out of that income.

45. LIABILITY TO FURNISH RETURNS NOT AFFECTED BY EXEMPTION.

The exemption of any income from income tax or salary or wages tax does not exempt a person from furnishing a return or information that is required by the Commissioner General or from including in his return such information as is prescribed or as is required by the Commissioner General.

Division 1A.

Export Incentives.

45A. INTERPRETATION.

(1) In this Division, unless the contrary intention appears–

“allowable deductions” means all deductions that would be allowable under this Act if no part of the income of the taxpayer was exempted from tax by the operation of this Division;
“average export sales” means an amount equal to the export sales of the base period divided by three;
“base period” means the three years of income immediately preceding the year of income in respect of which an exemption under this Division is claimed;
“consideration receivable”, in relation to a sale or other disposal of export goods, means–
(a) in the case of a sale or disposal other than one to which Paragraph (b) applies–the amount or value of the consideration for the sale or disposal; or
(b) where the sale or disposal is part of or is connected with a transaction in which any other assets are sold or disposed of–such part of the amount or value of the consideration as the Commissioner General is satisfied is attributable to the sale or disposal of the export goods,
reduced by any amounts paid or payable (otherwise than as an agent) by the person selling or disposing of the goods, by way of freight for carriage of the goods outside Papua New Guinea or by way of insurance or other outgoings in relation to the goods attributable to events or contingencies occurring or arising, or services performed, after the placing of the goods upon a ship or aircraft for export from Papua New Guinea;
“declared year of income” means the year in respect of which the taxpayer became entitled to the exemption offered under Section 45B;
“export goods” means goods exported from Papua New Guinea by the taxpayer, being goods–
(a) which were manufactured by the taxpayer in Papua New Guinea; and
(b) which were sold or disposed of by the taxpayer; and
(c) of which the taxpayer was the owner at the time of the sale or disposal; and
(d) which are not non-qualifying goods; and
(e) which are qualifying goods;
“export sales” means the consideration received by the taxpayer in relation to the sale or other disposal of export goods;
“new manufactured product” has the meaning ascribed to it in Section 1 of the Industrial Development (Wage Subsidy) Act 1984;
“non-qualifying goods”, in relation to export goods means–
(a) goods exported by way of gift; and
(b) goods taken or sent out of Papua New Guinea with the intention that they will at some later time be returned to Papua New Guinea otherwise than for repair or replacement;
(c) goods which are sold by retail to persons departing from Papua New Guinea; and
(d) such other goods as are prescribed as non-qualifying goods for the purposes of this Division; and
(e) goods (except new manufactured products) not prescribed as qualifying goods;
“qualifying goods”, in relation to export goods, means such goods, or goods included in such classes of goods, as are prescribed for the purposes of this Division, or new manufactured products.

(2) For the purposes of calculating the average export sales of a taxpayer, where during a year of income the taxpayer acquired, by purchase or otherwise, an existing business, the export sales of the taxpayer for the base period shall be deemed to be an amount equal to the sum of the export sales derived by the taxpayer during the base period and the export sales derived by each other person who owned that business during that period.

45B. EXEMPTION RELATED TO EXPORT SALES.

(1) Subject to Subsection (3) and Section 45C, where a taxpayer first derives income from export sales after 1 September 1984–

(a) 100% of the amount of the export sales made prior to the last day of the third year of income following the year in which export sales commenced; and
(b) 100% of the amount by which the export sales for each subsequent year exceeds the average export sales,

shall be exempt income.

(2) Subject to Subsection (3) and Section 45C, where a taxpayer derives income from export sales before 1 September 1984–

(a) in any year of income which commenced prior to 1 January 1982 or any approved substituted accounting period in lieu thereof, 50% of the amount by which the export sales for the year of income exceeds the average export sales; or
(b) in any year of income which commenced on or after 1 January 1982, but prior to 1 January 1984, or any approved substituted accounting period in lieu thereof, 100% of the amount by which the export sales for the year of income exceeds the average export sales; or
(c) in any year of income which commenced on or after 1 January 1984, or any approved substituted accounting period in lieu thereof–
(i) 100% of the amount by which the export sales made prior to 1 September 1984 exceed 75% of the average export sales; and
(ii) 100% of the amount derived from export sales made after 1 September 1984 but prior to the end of the third year of income following the date of the commencement of export sales; and
(iii) 100% of the amount by which the export sales for each subsequent year exceeds the average export sales,

shall be exempt income.

(3) The provisions of Subsections (1) and (2) shall apply to income derived from export sales during each of the seven years commencing with the declared year of income.

45C. EXEMPTION IN RESPECT OF RESTRICTED PERIOD.

Where, during a year of income, a taxpayer acquired, by purchase or otherwise, or disposed of, an existing business, the exempt income of the taxpayer under Section 45B in relation to that business shall be no greater than that which would have accrued to the previous owner had the business not been disposed of.

45D. CALCULATION WHERE GOODS QUALIFY FOR PART PERIOD ONLY.

(1) Where, during a year of income, goods in respect of which this Division would otherwise apply became non-qualifying goods, the calculation of the export sales for the base period shall be adjusted by excluding those goods, for the purposes of calculating any increase in export sales in accordance with this Division.

(2) Where, during a year of income, goods that were not qualifying goods became qualifying goods, calculation of export sales for the base period shall be adjusted by including those goods, for the purpose of calculating any increase in export sales in accordance with this Division.

45E. ARRANGEMENTS TO INCREASE EXEMPTIONS.

Notwithstanding anything in this Division, where the Commissioner General is of the opinion that arrangements have been made between a taxpayer and any other person with a view to the affairs of the taxpayer being so conducted to have the effect of obtaining for the taxpayer an improper advantage under this Division that he would not, but for that arrangement, have otherwise obtained, the amount of exempt income calculated under this Division in respect of that taxpayer shall not exceed the amount that, in the opinion of the Commissioner General, would have been calculated if that arrangement had not been made.

45F. MODIFICATION OF TAX INFORMATION.

(1) Subject to Subsection (2), where, after considering the information furnished or otherwise available to him as to the amount of export sales of a taxpayer for a year of income or for the base period, the Commissioner General is not satisfied as to the accuracy of that information, he is not required to determine the appropriate amount or the amount of income of the taxpayer that, but for this section, would have been exempt income under this Division.

(2) Where, in a case where Subsection (1) would otherwise apply, the Commissioner General is satisfied that the amount of export sales of the taxpayer for the year of income or the base period does not exceed a particular amount, but he is not satisfied that it is less than that particular amount, that particular amount shall be deemed to be the amount of the relevant export sales for the purpose of determining the exempt income of the taxpayer under this Division.

(3) Where, within the time within which he is required to furnish a return of his income for a year of income, or within such further time as the Commissioner General permits, a taxpayer makes application in writing to the Commissioner General for a reduction of the amount that would otherwise be the amount of his export sales for the base period for the purpose of determining exempt income under this Division, on the grounds that, by reasons of abnormal trading conditions or other extraordinary circumstances during the base period the amount of export sales for the base period is greater than it would otherwise have been and that he is, by reason of that fact, under an unfair disadvantage, the Commissioner General may, for the purposes of this Division, make such adjustments in respect of the amount of those export sales as he thinks fit.

45G. DEDUCTIONS IN CALCULATING EXEMPTION.

(1) Subject to Subsection (2), where, in a year of income a taxpayer derives any income which is exempt under this Division, the amount to be excluded from his allowable deductions for the year of income shall be the amount of the allowable deductions (excluding any amount allowable under Section 72C) relating to that exempt income or, where the Commissioner General is satisfied that the amount cannot accurately be determined, an amount which bears to that total allowable deduction relating to the business from which the exempt income arose the same ratio as the exempt income under this Division bears to the total income arising from carrying on that business during the year of income.

(2) The amount to be excluded under Subsection (1) from a taxpayer’s allowable deductions shall not exceed the amount of exempt income referred to in that subsection.

45H. GAINING IMPROPER ADVANTAGES, ETC.

(1) A taxpayer, or where the taxpayer is a company, the company, or a public officer or a director, servant or agent of the company, who or which, by any act, default or neglect, or by any fraud or contrivance whatever, gains or attempts to gain an improper advantage or an exemption to which he or it or his company would not lawfully be entitled under this Division, is guilty of an offence.

Penalty: [57]A fine of not less than K1,000.00 and not exceeding K50,000.00.

(2) In addition to any fine imposed under Subsection (1), the Court before which the action is brought may order the person or company, as the case may be, to pay to the Commissioner General a sum not exceeding double the amount of tax that, in the opinion of the court, was avoided or attempted to be avoided.

(3) Without derogating the provisions of any other law, where the court is satisfied that the commission of an offence against this section was counselled or assisted in any way by any other person (whether in a professional or other capacity) the court may order that person to be liable, or jointly and severally liable with any other person, for the payment of the additional tax under Subsection (2).

Division 1B.

Rural Development Incentive.

45I. INTERPRETATION.

(1) In this Division, unless the contrary intention appears–

“existing business” means a business or enterprise which, in the opinion of the Commissioner General, was carried on by the taxpayer or any other person at any time prior to 1 January 1988 and includes a business or enterprise which formed part of an existing business;
“rural development area” means a prescribed rural area but not including any such area in which is situated a Petroleum Development Licence issued under the Oil and Gas Act 1998 or a Special Mining Lease issued under the Mining Act 1992;
“rural development income” means the income, as defined in Section 45J, derived from carrying on a rural development industry in a rural development area;
“rural development industry” means a prescribed industry, which may include a service, primary or other industry but shall not include–
(a) an industry engaged in the exploitation, extraction, processing or transportation of the non-renewable natural resources of Papua New Guinea; or
(b) an industry that does not, through a fixed base located in the rural development area, carry on business on an ongoing basis in that rural development area.

(2) Notwithstanding Subsection (1), where the Commissioner General is satisfied that a business was established in a prescribed rural area prior to the later of–

(a) 7 November 1989; or
(b) the date of issue of a Special Mining Lease or a Petroleum Development Licence in the prescribed rural area,

this Division shall apply to the taxpayer as if the Special Mining Lease or Petroleum Development Licence had not been issued.

45J. RURAL DEVELOPMENT INCOME.

(1) The rural development income derived by a taxpayer is, subject to Subsection (2), the amount remaining after deducting from the assessable income derived from the assessable income derived from carrying on a rural development industry in a rural development area all allowable deductions relating to that income.

(2) Where the Commissioner General–

(a) having regard to any connection between a taxpayer carrying on a rural development industry and to a taxpayer carrying on any other industry or business, is satisfied that the parties were not dealing at arm’s length; or
(b) is satisfied that the rural development income derived by a taxpayer carrying on a rural development industry and any other industry or business is greater or less than would have been the case had that other industry or business not been carried on; or
(c) is of the opinion that arrangements have been made between the taxpayer and any other person with a view to the affairs of the taxpayer being so conducted as to have the effect of obtaining for the taxpayer an improper advantage under this Division, that he would not, but for those arrangements, have otherwise obtained,

then the amount of rural development income calculated under this Division in respect of that taxpayer shall not exceed the amount that, in the opinion of the Commissioner General, would have been calculated had–

(d) those dealings been at arm’s length; or
(e) the rural development industry been carried on as a separate and distinct enterprise; or
(f) those arrangements not been made,

and the Commissioner General may, for the purposes of this Act, make such adjustments to any rural development income or taxable income declared, or which should have been declared, by any taxpayer as, in his view, are necessary to give effect to that correction.

45K. GAINING IMPROPER ADVANTAGE, ETC.

(1) A taxpayer, or where the taxpayer is a company, the company, or a public officer or a director, servant or agent of the company, who or which, by any act, default or neglect, or by any fraud or contrivance whatever, gains or attempts to gain an improper advantage or an exemption to which he or it or his company would not lawfully be entitled under this Division, is guilty of an offence.

Penalty: [58]A fine of not less than K1,000.00 and not exceeding K50,000.00.

(2) In addition to any fine imposed under Subsection (1), the Court may order the person or company, as the case may be, to pay to the Commissioner General a sum not exceeding double the amount of tax that, in the opinion of the Court, was avoided or attempted to be avoided.

(3) Without derogating the provisions of any other law, where the Court is satisfied that the commission of an offence against this section was counselled or assisted in any way by another person (whether in a professional or other capacity) the Court may order that person to be liable, or jointly and severally liable with any other person, for payment of the additional tax under Subsection (2).

45L. TAX EXEMPTION PERIOD.

(1) The rural development income of the rural development industry other than the income of an existing business is exempt from income tax from the period commencing on the date on which the operations of that rural development industry commenced and ending on the last day of the tenth full year of income next following that date.

(2) Where a business qualifying for exemption under this Division is sold, the period of exemption available to the purchaser of that business shall be limited to the unexpired period of exemption available to the previous owner.

45M. LOSSES INCURRED DURING THE TAX EXEMPTION PERIOD.

If, in any year, the deductions which would have been allowable deductions but for rural development income being exempt income, exceed the amount of assessable income referred to in Section 45J(1), resulting in a loss, the loss shall be deemed to be a loss incurred in deriving assessable income and shall be deductible in accordance with the provisions of Section 101 or Section 101A, as appropriate.

Division 1C.

Bougainville Incentive.

45N. INTERPRETATION.

In this Division, unless the contrary intention appears–

“business enterprise” means any sole trader, company or other economic entity which, in the opinion of the Commissioner General, is based in and carries on all or the majority of its business in Bougainville Province;
“income” means the assessable income derived from a business enterprise less the allowable deductions relating to that income, but does not include salary or wages income;
“tax” means tax on income imposed under this Act and includes tax imposed under Part III.14D, but does not include taxes imposed under Parts III.2B, III.13A, III.14, III.14A, III.14B, III.14C, III.14E, III.17 and VI.2.
45O. TAX EXEMPTION PERIOD.

The income derived during the period 21 April 1993 to 31 December 2003 from any business enterprise, or where the business enterprise is a partnership the share of the money from that partnership, is exempt from tax.

45P. LOSSES INCURRED DURING THE TAX EXEMPTION PERIOD.

Where, in any year, the allowable deductions exceed assessable income so that the income referred to in Section 45O is a loss, the loss shall be deemed to be a loss incurred in deriving assessable income and shall be deductible in accordance with the provisions of Section 101 or 101A as appropriate.

45Q. GAINING IMPROPER ADVANTAGE.

Where the Commissioner General is of the opinion that arrangements have been made by a taxpayer individually or in conjunction with any other person, with a view to gaining an improper advantage under this Division, the amount of the exempt income calculated under this Division in respect of that taxpayer shall not exceed the amount that, in the opinion of the Commissioner General, would have been calculated if that arrangement had not been made.

45R. OFFENCE.

(1) A taxpayer, or where the taxpayer is a company, the company, or a public officer or a director, servant or agent of the company, who or which, by any act, default or neglect, or by any fraud or contrivance whatever, gains or attempts to gain an improper advantage or an exemption to which he or it or his company is not or would not lawfully be entitled under this Division, is guilty of an offence.

Penalty: [59]A fine of not less than K1,000.00 and not exceeding K50,000.00.

(2) In addition to any fine imposed under Subsection (1), the Court before which the action is brought may order the person or company, as the case may be, to pay to the Commissioner General a sum not exceeding double the amount of tax that, in the opinion of the Court, was avoided or attempted to be avoided.

(3) Without derogating the provisions of any other law, where the Court is satisfied that the commission of an offence against this section was counselled or assisted in any way by any other person (whether in a professional or other capacity) the Court may order that person to be liable, or jointly and severally liable with any other person, for the payment of the additional tax under Subsection (2).

Division 1D.

Volcano Affected Area Incentive.

46AA. INTERPRETATION.

In this Division, unless the contrary intention appears–

“forestry operations” means any operations, other than subsistence activities, of or pertaining to forestry;
“tax” means tax on income imposed under this Act and includes tax imposed under Part III.14D, but does not include taxes imposed under Parts III.2B, III.13A, III.14, III.14A, III.14C, III.14E, III.17 and VI.2;
“Volcano Affected Area” means–
(a) all that area of the Gazelle Peninsula north of a line 4 degrees 30 minutes south of the equator and east of the line 152 degrees east of Greenwich; and
(b) the area known as and forming the town of the Palmalmal;
“Volcano Affected Area Business Enterprise” means that part of a person’s business, trading or manufacturing operation or activity, (other than forestry operations or mining operations) whether comprising the entire or part only of that person’s operations or activities in Papua New Guinea, which the Commissioner General is satisfied, is based in and carried on in a Volcano Affected Area;
“Volcano Affected Area net assessable income” or “Volcano Affected Area net loss” (as the context requires) means the net assessable income or the net loss (assessable income less allowable deductions) incurred or suffered by a Volcano Affected Area Business Enterprise as if it were a separate taxpayer entity, but in this computation income shall exclude salary or wages income and income that is not substantially sourced in a Volcano Affected Area.
46AB. TAX EXEMPTION AND LOSSES.

Volcano Affected Area net assessable income for the period 16 September 1994 to 31 December 2000 is exempt from tax, or in the case of a Rabaul net loss, the loss shall be deemed to be a loss incurred in deriving assessable income and shall be deductable in accordance with the provisions of Section 101 or 101A as is appropriate.

46AC. SUITABLE BUSINESS AND ACCOUNTING RECORDS.

(1) For the purposes of this Division, the onus is on the person claiming exemption to keep suitable business and accounting records to enable the computation of the person’s Rabaul net assessable income or Rabaul net loss and to establish that the relevant income is substantially sourced in Rabaul.

(2) The Commissioner General shall have full and absolute discretion in determining whether the relevant income of a Rabaul Business Enterprise is substantially sourced in Rabaul.

46AD. GAINING IMPROPER ADVANTAGE.

Where the Commissioner General is of the opinion that arrangements have been made by a person individually or in conjunction with any other person, with a view to gaining an improper advantage under this Division, the amount of the exempt income calculated under this Division in respect of that person shall not exceed the amount that, in the opinion of the Commissioner General, would have been calculated if that arrangement had not been made.

46AE. OFFENCE.

(1) A person, or where the person is a company, or a public officer or a director, servant or agent of the company, who or which, by any act, default or neglect, or by any fraud or contrivance whatsoever, gains or attempts to gain an improper advantage or an exemption to which he or it or his company is not or would not lawfully be entitled under this Division, is guilty of an offence.

Penalty: [60]A fine of not less than K1,000.00 and not exceeding K50,000.00.

(2) In addition to any fine imposed under Subsection (1), the Court before which the action is brought may order the person or company, as the case may be, to pay to the Commissioner General a sum not exceeding double the amount of tax that, in the opinion of the Court, was avoided or attempted to be avoided.

(3) Without derogating the provisions of any other law, where the Court is satisfied that the commission of an offence against this section was counselled or assisted in any way by any other person (whether in a professional or other capacity) the Court may order that person to be liable, or jointly and severally liable with any other person, for the payment of the additional tax under Subsection (2).

Division 1E.

Lihir Incentive.

46BA. INTERPRETATION.

In this Division, unless the contrary intention appears–

“business enterprise” means a business carried on by a Lihirian corporation, which in the opinion of the Commissioner General is–
(a) based on and operates in the Lihir District; and
(b) derives its primary income from doing business related to the mining operation on Lihir; and
(c) commenced after 17 March 1995;
“Lihir District” means the administrative district defined by the New Ireland Provincial Authority;
“Lihirian” means a citizen who belongs to the Lihir District and has matrilineal rights;
“Lihirian Corporation” means–
(a) a business group registered under the Business Groups Incorporation Act 1974; or
(b) an incorporated land group recognised under the Land Groups Incorporation Act 1974; or
(c) a corporation incorporated under the Companies Act 1997,
and which was registered or incorporated after 17 March 1995 and is 100% Lihirian.
46BB. TAX EXEMPTION PERIOD.

The income derived during the period 26 April 1995 to 26 April 2000 by a business enterprise is exempt from tax.

46BC. LOSSES INCURRED DURING THE EXEMPTION PERIOD.

Where in any year, the allowable deductions exceeded assessable income so that the income referred to in Section 46BB is a loss shall be deemed to be a loss incurred in deriving assessable income and shall be deductible in accordance with the provisions of Section 101 or 101A as appropriate.

46BD. GAINING IMPROPER ADVANTAGE, ETC.

(1) A taxpayer, or where the taxpayer is a company, the company or a public officer or a director, servant or agent of the company, who or which, by an act, default or neglect, or by any fraud or contrivance whatever, gains or attempts to gain an improper advantage or an exemption to which he or it or his company would not lawfully be entitled under this Division, is guilty of an offence.

Penalty: [61]A fine of not less than K1,000.00 and not exceeding K50,000.00.

(2) In addition to any fine imposed under Subsection (1), the Court before which the action is brought may order the person or company, as the case may be, to pay to the Commissioner General a sum not exceeding double the amount of tax that, in the opinion of the Court, was avoided or attempted to be avoided.

(3) Without derogating the provisions of any other law, where the court is satisfied that the commission of an offence against this section was counselled or assisted in any way by another person (where in a professional or other capacity) the court may order that person to be liable, or jointly and severally liable with any other person, for payment of the additional tax under Subsection (2).

Division 2.

Income.

Subdivision A. – Assessable income generally.

46A. NON-APPLICATION OF SUBDIVISION.

This subdivision does not apply to or in relation to assessable income that is–

(a)[62] [Repealed.]
(b) a gratuity, as defined in Section 65A and Section 65CB; or
(c) subject to Sections 46B and 46C salary or wages in respect of which salary or wages tax has been deducted.
46B. CAPITAL AMOUNT OF ALLOWANCE, ETC, DEEMED SALARY OR WAGES.

(1) Subject to Sections 47(1)(d), 47(1)(e), 65E(1)(b) and 65F for the purpose of Section 46A, the capital amount of any allowances, gratuity, compensation or distribution from a superannuation fund being a prescribed sum (other than, subject to Section 145(3), any amount paid or credited by a private company that, under the provisions of this Act, is deemed to be a dividend paid to the recipient), where the first mentioned amount is paid in a lump sum in consequence of retirement from, or the termination of, an office or employment and whether so paid voluntarily, by agreement, or by compulsion of law, shall be deemed to be income assessable in accordance with Subsections (2), (3) and (4).

(2) Income referred to in Subsection (1) to the extent that it relates to a payment accrued before 1 January 1993 and does not exceed the total value of–

(a) payments in respect of annual accrued leave (provided that the annual leave entitlement does not exceed six weeks and the payment, being part of a termination payment, is made before 1 January 1994); and
(b) payments in respect of long service leave accrued before 1 January 1993 at a rate not exceeding six months per 15 years of service with an employer or an associated person of that employer where the employee had completed a minimum of six years’ continuous service; and
(c)[63] distribution from an authorized superannuation fund being a prescribed sum, and the amount accrued before 1 January 1993; and
(d)[64] [Repealed.]

shall be deemed to be salary or wages income taxable at the rate declared by Section 1 of the Income Tax (Salary or Wages Tax) (Rates) Act 1979.

(2A)[65] [66]Income referred to in Subsection (1), except where it relates to income covered by Subsection (2), to the extent it is a distribution from an authorised superannuation fund being a prescribed sum and –

(a) is made in respect of contributions made on behalf of that employee, where –
(i) the contributions have been made for not less than 15 years; or
(ii) the contributions have been made for not less than 7 years and the employee is either not less than 50 years of age or is subject to enforced early retirement; or
(iii) the distribution is made as the result of the death or permanent disablement of the employer,

shall be deemed to be salary or wages income taxable at the rate declared by Section 1(2) of the Income Tax (Salary or Wages Tax) (Rates) Act 1979; or

(b) in any other case, shall be deemed to be salary or wages income taxable at the rate declared by Section 1(3) of the Income Tax (Salary or Wages Tax) (Rates) Act 1979.

(3) Income referred to in Subsection (1) to the extent it exceeds income referred to in Subsections (2) and (2A) shall be deemed to be salary or wages paid in respect of a period of 26 fortnights preceding the date on which the payment was made.

(4) Income referred to in Subsections (1), (2) and (3) to the extent that it relates to a payment accrued from 1 January 1993 shall be deemed to be salary or wages paid in respect of a period of 26 fortnights preceding the date on which the payment was made.

46C. INCOME OTHER THAN SALARY OR WAGES TAXABLE.

Subject to Sections 65F and 145, where the assessable income of a taxpayer includes, in addition to salary or wages, any income other than salary or wages, or includes income other than salary or wages so deemed or otherwise includes income other than salary or wages, tax shall be payable at the rate declared by the Income Tax, Dividend (Withholding) Tax and Interest (Withholding) Tax Rates Act 1984.

46. ASSESSABLE INCOME.

(1) The assessable income of a taxpayer shall include–

(a) where the taxpayer is a resident–the gross income derived directly or indirectly from all sources whether in or out of Papua New Guinea; and
(b) where the taxpayer is a non-resident–the gross income derived directly or indirectly from all sources in Papua New Guinea,

but shall not include exempt income.

(2) Interest (except interest paid outside Papua New Guinea to a non-resident on debentures issued outside Papua New Guinea by a company) upon money secured by mortgage of any property in Papua New Guinea shall be deemed to be derived from a source in Papua New Guinea.

(3 - 4)[67] [Repealed.]

47. CERTAIN ITEMS OF ASSESSABLE INCOME.

(1) The assessable income of a taxpayer shall include–

(a) profit arising from the sale by the taxpayer of any property acquired by him for the purpose of profit-making by sale, or from the carrying on or carrying out of any profit-making undertaking or scheme; and
(b) beneficial interests in income derived under a will, settlement, deed of gift or instrument of trust; and
(c)[68] [Repealed.]
(d) allowances, gratuities, compensations, benefits, bonuses and premiums allowed, given or granted to him in respect of or for or in relation directly or indirectly to, any employment or services rendered by him where such benefit so allowed, given or granted would be a taxable benefit under Division III.2B; and
(e) any distribution made to a taxpayer from a superannuation fund being an amount in excess of the prescribed sum, except to the extent that the excess constitutes the return of the employee’s own contribution; and
(f) any amount received as or by way of royalty or royalties other than an amount that–
(i) but for the definition of “royalty” or “royalties” in Section 4(1) would not be such an amount; and
(ii) is not “income” within the ordinary meaning of that expression; and
(g) any bounty or subsidy received in or in relation to the carrying on of a business (which bounty or subsidy shall be deemed to be part of the proceeds of that business); and
(h) the amount of any fee or commission received for procuring a loan of money; and
(i) any amount received as or by way of bonus other than a reversionary bonus on a policy of life assurance; and
(j) any amount received by way of insurance or indemnity for or in respect of any loss–
(i) of trading stock that would have been taken into account in computing taxable income; or
(ii) of profit or income that would have been assessable income,

if the loss had not occurred, and any amount so received for or in respect of any loss or outgoing that is an allowable deduction; and

(k) realised foreign exchange gains, derived from debts incurred or borrowings made in a currency other than Papua New Guinea currency which debts were incurred or borrowings made on or after 11 November 1986 or, in the case of debts incurred or borrowings entered into for the purpose of reafforestation in Papua New Guinea, at any time.

(2)[69] [70]The assessable income of a taxpayer shall not include so much of the income referred to in Sections 155A(6)(c), 155B(3), 155G(4) or 157B(8) as is applied to reduce the relevant expenditure.

47A. ASSESSABLE INCOME–PREMIUM FOR LEASE.

(1) In this section, “mining lease” means a lease of land granted under a law of Papua New Guinea related to mining and “premium” means a consideration payable in one amount, or each amount of a consideration payable on more than one amount, where the consideration is–

(a) in the nature of a premium, fine or foregift payable for or in connection with the grant or assignment of a lease; or
(b) for or in connection with an assent to the grant or assignment of a lease,

but does not include an amount in respect of goodwill or a licence.

(2) Where, in the year of income, a taxpayer receives a premium that relates to the grant or assignment of a lease of property that was not, at the date on which the agreement to grant or assign the lease was made or the assent to the grant or assignment of the lease was given, as the case may be, intended by the grantee or assignee to be used by the grantee or assignee or some other person wholly or partly for the purpose of gaining or producing assessable income, the assessable income of the taxpayer includes the premium.

(3) Where, in the year of income, a taxpayer receives a premium that relates to the grant or assignment of a lease of property that was, at the date on which the agreement to grant or assign the lease was made, or the assent to the grant or assignment of the lease was given, as the case may be, intended by the grantee or assignee to be used by the grantee or assignee or some other person partly for the purpose of gaining or producing assessable income and partly for other purposes, the assessable income of the taxpayer includes such part of the premium as the Commissioner General considers may reasonably be attributed to the intended use of the property for purposes other than gaining or producing assessable income.

(4) Where, in a case referred to in Subsection (2) or (3) the taxpayer satisfies the Commissioner General that, at the date on which the agreement to grant or assign the lease was made, or the assent to the grant or assignment of the lease was given, as the case may be, he believed on reasonable grounds that the grantee or assignee intended a particular use of the property by the grantee or assignee or some other person for the purpose of gaining or producing assessable income, the Commissioner General may apply this section on the basis that that intention existed.

(5) This section does not apply to–

(a) a premium received in consequence of the assignment of a mining lease; or
(b) a premium received in connection with the grant or assignment of a lease that is a grant or assignment for mining purposes; or
(c) a premium received in connection with the assignment of–
(i) a lease from the State of land used for primary production; or
(ii) a lease from the State, being a lease granted in perpetuity or for a term of not less than 99 years, a lease with a right of purchase or a lease granted for the purpose of effecting improvements to be used for residential purposes only; or
(iii) a development licence, a retention licence or a petroleum prospecting licence; or
(d) A premium received, to the extent that it is deemed to be expenditure incurred in the purchase of property by virtue of Section 78A.

(6) For the purpose of Subsection (5), a lease shall be deemed not to have been granted or assigned for mining purposes unless there appears, in a document signed by the parties before or at the time the grant or assignment was made, or before such later time as the Commissioner General determines, a statement to the effect that the purpose of the grant or assignment is to enable the person to whom the grant or assignment is made to carry on mining operations upon the land.

47B. ASSESSABLE INCOMES–SUPERANNUATION FUND CONTRIBUTIONS.

(1)[71] In this section–

[72][73]“contribution” means any amount paid to a superannuation fund;
“dependants” in relation to an employee, includes the spouse and any child of the employee;
“employee” in relation to a company includes a director of the company;
“person” includes a partnership.

(2) Where a superannuation fund receives contributions from an employer in respect of employees or, where contributions were not received but were due and payable within the year of income by the employer, such contributions shall be deemed to be assessable income of the superannuation fund to the extent that those contributions exceed the amount for which a deduction under Part III.3A is allowable to the employer.

47C. ASSESSABLE INCOME–DEDUCTION OF PAYMENTS UNDER LEASE.

(1) Where–

(a) a taxpayer leased, rented, or hired any asset, being any plant or machinery (including a motor vehicle) or other equipment or temporary building and the Commissioner General has allowed a deduction in calculating the assessable income of the taxpayer in any income year for the consideration paid or given in respect of that lease, rental or hire; and
(b) either–
(i) that taxpayer at any time purchased or otherwise acquired that asset and sold or otherwise disposed of it for a consideration in excess of the consideration for which that person purchased or otherwise acquired it; or
(ii) any other person, where the taxpayer and that other person are associated persons, at any time purchased or otherwise acquired that asset, whether or not from the taxpayer, and that other person sold or otherwise disposed of it for a consideration in excess of the consideration for which that other person purchased or otherwise acquired it,

the Commissioner General may include in the assessable income of the taxpayer derived in the year of income in which the asset was sold or otherwise disposed of an amount equal to the excess or the total amount of the deductions so allowed, whichever is the lesser.

(2) Subsection (1) shall apply whether or not there was any clause or condition in the lease, contract, agreement, or arrangement under which the asset was leased, rented, or hired, whereby that taxpayer or that other person was required to purchase or otherwise acquire that asset.

(3) For the purpose of this section–

(a) where any asset to which this section relates has been purchased or otherwise acquired, or sold or otherwise disposed of, together with other assets, the consideration attributable to that asset shall be determined by the Commissioner General, and the part of the consideration so determined shall be deemed to be the consideration for which that asset was purchased or otherwise acquired or, as the case may be, was sold or otherwise disposed of; and
(b) where any asset to which this section relates has been sold or otherwise disposed of without consideration or for a consideration which, in the opinion of the Commissioner General, is less than the market price of that asset at the date of the sale or other disposition, that asset shall be deemed to have been sold at or to have realised that market price or, if there is no market price, shall be deemed to have been sold and have realised such price as the Commissioner General determined.
47D. ASSESSABLE INCOME–ACCOUNTING FOR VALUE ADDED TAX.

[74](1) The income of a person registered under the Value Added Tax Act 1998 shall not include–

(a) any amount of value added tax, including additional tax and further additional tax charged, levied or calculated under the Value Added Tax Act 1998 in respect of a supply of goods and services made by that person; and
(b) any amount of value added tax refundable by the Commissioner General to that person.

(2) Subject to Subsection (3), no deduction shall be allowed to any person registered under the Value Added Tax Act 1998 for–

(a) any amount of value added tax, including additional tax and further additional tax charged, levied or calculated under the Value Added Tax Act 1998 in respect of a supply of goods and services made to that person; and
(b) any amount of value added tax payable by that person to the Commissioner General.

(3) Where a person registered under the Value Added Tax Act 1998 supplies exempt goods or services, he shall be entitled to a deduction of the value added tax paid by him on the purchase of goods or services, other than capital goods, to the extent he is not entitled to claim input credit for those purchases under the Value Added Tax Act 1998.

(4) For the purposes of this Act, where any deduction, including deductions for depreciation for any property, is calculated by reference to the cost price of that property, the cost price shall be reduced by the amount of input credit allowed to that person under the Value Added Tax Act 1998.

48. DIVIDENDS.

(1) Subject to Sections 42 and 189D, the assessable income of a taxpayer includes–

(a) if he is a resident–dividends received by him directly or indirectly from a company (whether the company is a resident or non-resident) out of profits derived by it from any source; and
(b) if he is a non-resident–
(i) dividends received by him directly or indirectly from a company which is a resident out of profits derived by it from any source; and
(ii) dividends which have been received by him directly or indirectly from a company which is a non-resident out of profits derived by it from a Papua New Guinea source that are not profits upon which Papua New Guinea dividend (withholding) tax has been directly or indirectly paid.

(1A) Where–

(a) the amount of the moneys or of the value of other property of which a dividend paid by a company consists is debited against an amount standing to the credit of a share premium account of the company; or
(b) a dividend paid by a company is a repayment by the company of moneys paid upon a share,

the dividend shall, for the purposes of this section, be deemed to have been paid by the company out of profits derived by it.

(2) Distributions to shareholders of a company by the company, or by a liquidator in the course of winding up the company, to the extent to which they represent–

(a) income derived by the company; or
(b) amounts that have been included in the assessable income of the company,

whether before or during liquidation, other than income that has been properly applied to replace a loss of paid-up capital, shall, for the purposes of this Act, be deemed to be dividends paid to the shareholders by the company out of profits derived by it.

(3) Those distributions shall, to the extent to which they are made out of any profits or income, be deemed to have been paid wholly and exclusively out of those profits or that income.

(3A) Where–

(a) the business of the company has been or is in the course of being discontinued otherwise than in the course of a winding-up of the company under any law relating to companies; and
(b) in connection with the discontinuance any moneys of the company have been, or other property of the company has been, distributed, otherwise than by the company, to shareholders of the company; and
(c) the moneys or other property so distributed are or is not, for the purposes of this Act, dividends,

the distribution shall, subject to Subsection (3B), be deemed to be, for the purpose of this section, a distribution to the shareholders by a liquidator in the course of winding-up the company.

(3B) Where–

(a) Subsection (3A) would, but for this subsection, apply in relation to any moneys or other property of a company distributed to shareholders of the company; and
(b) the company is not dissolved within a period of three years after the distribution, or within such further period as the Commissioner General allows,

Subsection (3A) does not apply, and shall be deemed never to have applied, in relation to those moneys or that other property, and those moneys or that other property so distributed shall, for the purposes of this Act, be deemed to be dividends paid by the company to the shareholders out of profits derived by it.

(3C) Where a resident company–

(a) has not lodged a return of income for three consecutive years; and
(b) has more than 75% of the assets which were listed in the accounts forming part of the last return of income lodged by the company located or invested outside the country; and
(c) is not carrying on business in the country,

the company shall,

(d) on the expiry of three years after the date of lodgement of the last return of income; or
(e) on commencement of this subsection,

whichever is the later, be deemed to have been dissolved, and the shareholders of the company as at that date shall, for the purposes of this section, be deemed to have received a distribution from a liquidator in the course of the winding up of the company.

(3D) For the purposes of Subsection (3C), the company is not carrying on business where–

(a) the only income it derives in the country is income from investments or property; or
(b) the Commissioner General is not satisfied that the business purported to be carried on by the company is a bona fide business carried on by the company for the purpose of earning a profit.

(3E) Where there has been a deemed distribution by a liquidator under this section to more than one shareholder, the distribution shall be deemed to be apportioned rateably among those shareholders in proportion to the paid-up value of the interest of each in the share capital of the company.

(4) For the purposes of Subsection (2), “paid up capital” does not include the paid-up value of shares that have been issued by the company in satisfaction of dividends that have been paid out of profits arising from the revaluation of assets not acquired for the purposes of re-sale at a profit, but includes capital that has been paid up in money or by other valuable consideration and that has been cancelled and has not been repaid by the company to the shareholders.

(5) Where–

(a) a dividend or a part of a dividend is or has been included in the assessable income of a taxpayer of the year of income or of any previous year; and
(b) under the law of any country outside Papua New Guinea, the company paying the dividend deducted or was authorized to deduct from the dividend income tax that the taxpayer was not personally liable to pay; and
(c) the taxpayer, in the year of income, receives a payment or is allowed a credit of an amount in respect of the income tax that the company deducted or was authorized to deduct,

his assessable income of the year of income shall include that amount, and that amount shall, for all purposes of this Act, be deemed to be a dividend.

49. ASSESSABLE INCOME–ANNUITIES.

(1) The assessable income of a taxpayer shall include the amount of any annuity, excluding, in the case of an annuity that has been purchased, that part of the amount of the annuity that represents the undeducted purchase price.

(2) Subject to Subsection (3), the amount to be excluded under Subsection (1) from the amount of an annuity derived by a taxpayer during a year of income is–

(a) in the case of an annuity payable until the death of the taxpayer or for a term that will not end before his death–an amount ascertained by dividing the undeducted purchase price of the annuity by the number of years in the complete expectation of life of the taxpayer, as ascertained by reference to the prescribed Life Tables, at the time when the annuity first commenced to be derived; and
(b) in the case of an annuity payable for a term of years certain–an amount ascertained by dividing the undeducted purchase price of the annuity by the number of years in the term.

(3) Where the amount of an annuity derived by the taxpayer during a year of income is more than, or less than, the amount payable for a whole year, the amount to be excluded from the amount so derived is the amount that bears to the amount that, but for this subsection, would be the amount to be so excluded the same proportion as the amount so derived bears to the amount payable for a whole year.

(4) For the purposes of this section, “the undeducted purchase price”, in relation to an annuity, means so much of the purchase price of the annuity paid by the taxpayer as has not been allowed and is not allowable as a deduction under this Act and has not been allowed as a deduction, and in respect of which a rebate of income tax has not been allowed, in assessments for income tax under an Act relating to income tax.

50. INSURANCE RECOVERIES ON LOSSES OF LIVESTOCK AND TREES.

(1) This section applies to an amount (in this section referred to as an insurance recovery) received, by a taxpayer or a partnership carrying on in Papua New Guinea a business of primary production, by way of insurance for or in respect of a loss of livestock or a loss of trees.

(2) Where a taxpayer receives an insurance recovery that is included in his assessable income of a year of income, he may elect that that assessable income shall be reduced by an amount equal to four-fifths of the insurance recovery.

(3) Where an insurance recovery is received by a partnership, each partner in the partnership may make an election under Subsection (2) in relation to that part of the insurance recovery that is included in his individual interest in the net income of the partnership.

(4) Where an insurance recovery is received by the trustee of a trust estate–

(a) the trustee may make an election under Subsection (2) in relation only to that part of the insurance recovery that is included in the net income of the trust estate in respect of which he is liable to be assessed and to pay tax under the provisions of Section 130; and .
(b) each resident beneficiary in the trust estate who is not under a legal disability and is presently entitled to a share of the net income of the trust estate, being a share that includes a part of the insurance recovery, may make an election under Subsection (2) in relation to that part.

(5) The election that a taxpayer may make under Subsection (2) shall be made in writing and lodged with the Commissioner General on or before the date of lodgment of the return of income of the year of income in which the insurance recovery is received, or within such further time as the Commissioner General allows.

(6) Where a taxpayer has made an election under Subsection (2), his assessable income of the year in which the insurance recovery is received shall be reduced by an amount equal to four-fifths of the insurance recovery, or the part of the insurance recovery to which his election relates, and there shall be included in his assessable income of each of the next four succeeding years an amount equal to one-fifth of the insurance recovery, or of that part of the insurance recovery, as the case may be.

(7) Where, in a year of income, a taxpayer who has made an election under Subsection (2)–

(a) appears to the Commissioner General to be about to leave Papua New Guinea; or
(b) dies; or
(c) is adjudicated insolvent, applies to take the benefit of a law for the relief of insolvent debtors, compounds with, or makes an assignment of any of his property for the benefit of, his creditors or has his affairs liquidated by arrangement; or
(d) being a company, commences to be wound up,

there shall, if the Commissioner General so determines, be included in the assessable income of the taxpayer of that year of income any amount that would otherwise be included, in pursuance of this section, in the assessable income of any subsequent year of income.

(8) An amount that, in accordance with either Subsection (6) or (7), is included in the assessable income of a taxpayer of any year shall, for all purposes of this Act, be deemed to be assessable income derived by him during that year from the carrying on by him in Papua New Guinea, during that year, of a business of primary production.

Subdivision B. – Trading Stock.

51. TRADING STOCK TO BE TAKEN INTO ACCOUNT.

(1) Where a taxpayer carries on any business, the value, ascertained under this Subdivision, of all trading stock on hand at the beginning of the year of income, and of all trading stock on hand at the end of that year, shall be taken into account in ascertaining whether the taxpayer has a taxable income.

(2) Where the value of all trading stock on hand at the end of the year of income exceeds the value of all trading stock on hand at the beginning of that year, the assessable income of the taxpayer shall include the amount of the excess.

(3) Where the value of all trading stock on hand at the beginning of the year of income exceeds the value of all trading stock on hand at the end of that year, the amount of the excess is an allowable deduction.

52. VALUE AT BEGINNING OF YEAR OF INCOME.

(1) Subject to Subsection (2), the value of livestock and of each article of other trading stock to be taken into account at the beginning of the year of income shall be its value as ascertained under this Act at the end of the year immediately preceding the year of income.

(2) The value of trading stock to be taken into account at the beginning of the first year of income to which this Act applies shall be–

(a) in the case of livestock–the market selling value of that livestock; and
(b) in the case of any other article of trading stock–the cost price of that article or such other value as is approved by the Commissioner General in a particular case.

(3) The regulations may prescribe the manner in which the cost price of an article shall be determined for the purposes of this section.

53. VALUE OF TRADING STOCK AT END OF YEAR OF INCOME.

(1) The value of each article of trading stock (not being livestock) to be taken into account at the end of the year of income shall be, subject to Subsection (4), at the option of the taxpayer, its cost price, its market selling price or the price at which it can be replaced.

(2) The option referred to in Subsection (1) shall be exercisable by the taxpayer–

(a) in respect of the year of income commencing 1 January 1981; or
(b) in respect of the first year of income for which a return is lodged,

whichever is the later, and shall not be varied at any time thereafter unless with the leave of the Commissioner General.

(3) Where no election is made by the taxpayer, the value of each article of trading stock to be adopted in the first return of income lodged after 31 December 1981 shall be the cost price of the stock.

(4) In respect of any return lodged disclosing income which is either fully or partially free from tax under the provisions of this Act, no variation of the method of valuation of trading stock shall be allowed in the last three years of income to which those provisions apply.

(5) Where the Commissioner General is satisfied in relation to any trading stock of a taxpayer, that by reason of obsolescence of or any other special circumstances relating to the trading stock, the value of the trading stock to be taken into account at the end of the year of income should be an amount, being less than the amount which is the lowest value that could be applicable under Subsection (1) determined by the Commissioner General to be the fair and reasonable value of the trading stock having regard to–

(a) the quantity of the trading stock on hand at the end of the year of income; and
(b) the quantity of the trading stock, exchanged or used in manufacture by the taxpayer after the end of the year of income and the prospects of sale, exchange or use in manufacture of further quantities of that trading stock; and
(c) the quantity of trading stock of the same kind sold, exchanged or used in manufacture by the taxpayer during the year of income and preceding years of income; and
(d) such other matters as the Commissioner General considers relevant,

the value of the trading stock to be so taken into account shall, notwithstanding any exercise of the option of the taxpayer under Subsection (1), be the value so determined by the Commissioner General.

(6) Subsection (5) does not apply in relation to a taxpayer unless, by a written notice designed by or on behalf of the taxpayer and lodged with the Commissioner General on or before the last day for the furnishing of the return of income of the taxpayer for the year of income, or within such further time as the Commissioner General allows, the taxpayer notifies the Commissioner General that he wishes that subsection to apply.

53A. PURCHASE OF TRADING STOCK NOT AT ARM’S LENGTH.

(1) Where–

(a) a person (in this section referred to as the “purchaser”) has, on or after the date of coming into operation of the Income Tax (Amendment No 3) Act 1979, purchased from another person (in this section referred to as the “vendor”) an article (in this subsection referred to as the “relevant article”) that, for the purposes of the application of this Act, in relation to the purchaser, was an article of trading stock; and
(b) the Commissioner General is satisfied that, having regard to any connection between the vendor and the purchaser or to any other relevant circumstances, those persons were not dealing with each other at arm’s length in relation to the transaction; and
(c) the Commissioner General is satisfied–
(i) that the purchase price is greater than the amount (in this section referred to as the “arm’s length price”) that, in the opinion of the Commissioner General, would have been the purchase price if the vendor and the purchaser had been dealing with each other at arm’s length in relation to the transaction; or
(ii) that–

(A) the purchaser could have purchased an identical article from another person and obtained delivery of the identical article at or about the time when the purchaser obtained delivery of the relevant article; and

(B) the cost to the purchaser of purchasing the relevant article from the vendor was greater than the amount that, in the opinion of the Commissioner General, would have been the cost to the purchaser of purchasing the identical article; and

(C) the purchase price of the relevant article is greater than the amount (in this section referred to as the “alternative price”) that, in the opinion of the Commissioner General, would have been the purchase price of the identical article,

the amount paid by the purchaser to the vendor in respect of the relevant article shall, for all purposes of the application of this Act in relation to the purchaser and the vendor, be deemed to be an amount ascertained in accordance with Subsection (2).

(2) The amount ascertained in relation to an article for the purpose of Subsection (1) is where the Commissioner General is satisfied as to the matter mentioned in–

(a) Subsection (1)(c)(i) but not as to the matters mentioned in Subsection (1)(c)(ii) an amount equal to the arm’s length price of the article; and
(b) Subsection (1)(c)(ii) but not as to the matter mentioned in Subsection (1)(c)(i)-an amount equal to the alternative price of the article increased, if the purchaser would have incurred expenditure (apart from payment of the purchase price) in obtaining delivery of an identical article from another person as mentioned in Subsection (1)(c)(ii) in excess of the expenditure (apart from payment of the purchase price) that the purchaser incurred in obtaining delivery of the relevant article, by such amount as the Commissioner General considers fair and reasonable; and
(c) Subsection (1)(c)(i) and also as to the matters mentioned in Subsection (1)(c)(ii) whichever of the following amounts is the lesser amount:–
(i) the arm’s length price of the article;
(ii) the amount that would be determined in relation to the article in accordance with Paragraph (b) if that paragraph were applicable.

(3) A reference in this section to the purchase by a person of an article of trading stock from another person shall be construed as including a reference to an acquisition of that article by the first-mentioned person from that other person that is deemed to have occurred for the purposes of Section 57 by reason of the operating of Section 58 or that would be so deemed to have occurred if Sections 57 and 58 applied in relation to a disposal of trading stock in the ordinary course of carrying on a business.

(4) In this section, a reference to the cost to a person of purchasing an article shall be construed as a reference to expenditure incurred by the person that is directly attributable to purchasing or obtaining delivery of the article.

(5) This section applies in relation to the purchase of an article of trading stock notwithstanding that the purchase was in the course of ordinary family or commercial dealing.

54. VALUE OF LIVESTOCK AT END OF YEAR OF INCOME.

(1) Subject to this section, the value of livestock to be taken into account at the end of the year of income shall be, at the option of the taxpayer, its cost price or its market selling value, or, where a taxpayer does not exercise his option within the time and in the manner prescribed, the value so to be taken into account shall be the cost price.

(2) Where, by virtue of–

(a) the exercise by a taxpayer of his option under Subsection (1); or
(b) the failure of a taxpayer to exercise that option,

the value of any livestock that was taken into account at the commencement of the first year of income to which this Act applies and is to be taken into account at the end of any year of income is the cost price of that livestock, the cost price of that livestock shall, for the purposes of this Subdivision, be deemed to be the value at which that livestock was taken into account at the commencement of that first year of income.

(3) Where a taxpayer satisfies the Commissioner General that there are circumstances that justify the adoption by him of a value other than cost price or market selling value for the whole or part of his livestock, he may, with the leave of the Commissioner General, adopt that other value.

55. CHANGES IN BASIS OF VALUATION OF LIVESTOCK.

A taxpayer shall not, except with the leave of the Commissioner General, adopt a basis of valuation of his livestock taken into account at the end of the year of income different from the basis on which the valuation of his livestock was made when it was last taken into account at the end of a previous year.

56. COST PRICE OF NATURAL INCREASE.

(1) The cost price per head of natural increase of any class of livestock of a taxpayer shall be–

(a) where the cost price of natural increase of that class has been previously taken into account under this Act by the taxpayer–the cost price per head at which natural increase of that class was last taken into account unless, with the leave of the Commissioner General, the taxpayer selects another cost price; and
(b) where the cost price of natural increase of that class has not been previously taken into account under this Act by the taxpayer–the cost price selected by him, not being less than the minimum cost price prescribed in respect of livestock of that class.

(2) Where a taxpayer does not so select within the time and in the manner prescribed, he shall be deemed to have selected, as the cost price, the prescribed minimum cost price.

57. DISPOSAL OF TRADING STOCK.

(1) Subject to this section, where–

(a) a taxpayer disposes, by sale, gift, or otherwise, of property being trading stock, standing or growing crops, crop-stools, or trees that have been planted and tended for the purpose of sale; and
(b) that property constitutes or constituted the whole or part of the assets of a business that is or was carried on by the taxpayer; and
(c) the disposal was not in the ordinary course of carrying on that business,

the value of that property shall be included in the assessable income of the taxpayer and the person acquiring that property shall be deemed to have purchased it at a price equal to that value.

(2) Where, in consequence of–

(a) the acquisition or resumption of land under the provisions of an Ordinance or Act that contains provisions for the compulsory acquisition or resumption of land; or
(b) the loss or destruction of pastures or fodder by reason of fire, drought or flood; or
(c) the taking of a lease of land by the State for the purposes of a campaign for the eradication of cattle tick,

a taxpayer, in a year of income, disposes, by sale or otherwise, of livestock being assets of a business of primary production carried on by him in Papua New Guinea, the taxpayer may elect that his assessable income of that year shall be reduced by an amount equal to four-fifths of the profit on the disposal of that livestock.

(3) Subject to Subsection (4), where a taxpayer has made an election under Subsection (2)–

(a) his assessable income of the year to which the election relates shall be reduced by an amount equal to four-fifths of the profit on the disposal of the livestock; and
(b) there shall be included in his assessable income of each of the next four succeeding years an amount equal to one-fifth of that profit, and the amount so included in the assessable income of any year shall, for the purposes of this Act, be deemed to be assessable income derived by the taxpayer during that year from the carrying on by him in Papua New Guinea, during that year, of a business of primary production.

(4) Where the disposal is in consequence of the loss or destruction of pastures or fodder by reason of fire, drought or flood, Subsection (3) applies only if the taxpayer establishes to the satisfaction of the Commissioner General that the proceeds (if any) of the disposal have been or will be applied by the taxpayer wholly or principally to the purchase of livestock in replacement of the livestock disposed of.

(5) Where livestock to which Subsection (2) applies is disposed of by a partnership, each partner in the partnership is entitled to make an election under that subsection in relation to that part of the profit on the disposal of the livestock that is included in his individual interest in the net income of the partnership.

(6) Where livestock to which Subsection (2) applies is disposed of by the trustee of a trust estate–

(a) the trustee is entitled to make an election under that subsection in relation only to that part of the profit on the disposal of the livestock included in the net income of the trust estate in respect of which the trustee is liable to be assessed and to pay tax under the provisions of Section 130; and
(b) each resident beneficiary in the trust estate who is not under a legal disability and who is presently entitled to a share of the net income of the trust estate, being a share that includes a part of the profit on the disposal of the livestock, is entitled to make an election under that subsection in relation to that part.

(7) Where, in any year of income, a taxpayer who has made an election under Subsection (2)–

(a) appears to the Commissioner General to be about to leave Papua New Guinea; or
(b) dies; or
(c) is adjudicated insolvent, applies to take the benefit of a law for the relief of insolvent debtors, compounds with, or makes an assignment of any of his property for the benefit of, his creditors or has his affairs liquidated by arrangement; or
(d) being a company, commences to be wound up,

there shall, if the Commissioner General so determines, be included in the assessable income of the taxpayer of that year of income any amount that would otherwise be included, in pursuance of this section, in the assessable income of any subsequent year of income.

(8) The election that a taxpayer may make under Subsection (2) shall be made in writing on or before the date of lodgment of the return of income of the year in which the disposal occurred or within such further time as the Commissioner General may allow.

(9) For the purposes of this section, the value of any property or livestock shall be–

(a) the market value of the property or livestock on the day of the disposal; or
(b) if, in the opinion of the Commissioner General, there is insufficient evidence of the market value on that day–the value that in his opinion is fair and reasonable.

(10) For the purposes of this section, the profit on the disposal of livestock shall be the amount remaining after deducting from the proceeds of the sale of the livestock or, where the livestock was disposed of together with any other assets or the disposal was otherwise than by sale, from the value of the livestock, the total of the following amounts:–

(a) In respect of such of the livestock as was on hand at the beginning of the year of income–the value at which that livestock was, for the purposes of this Act, taken into account at the beginning of that year;
(b) In respect of such of the livestock as was not on hand at the beginning of that year–
(i) in the case of livestock acquired by purchase–the purchase price of that livestock; and
(ii) in the case of livestock acquired otherwise than by purchase, but not including natural increase bred by the taxpayer during that year–the amount that, under this Act, is deemed to be the purchase price of that livestock.

(11) Notwithstanding Subsections (9) and (10), the value for the purposes of this section of any property disposed of by the taxpayer after the date of coming into operation of the Income Tax (Amendment No 3) Act 1979, shall, if the Commissioner General so determines, be such value as the Commissioner General considers reasonable, having regard to–

(a) the cost to the taxpayer of the property; and
(b) where, in any agreement entered into in connection with the disposal of the property, an amount was specified as the value of the property or as the consideration received or receivable in respect of the disposal–the amount so specified; and
(c) where, before the property was disposed of, an agreement or arrangement (whether or not enforceable by legal proceedings and whether or not intended to be so enforceable) was entered into, or an understanding was reached, as a result of which, at any time after the disposal took place, there has been, or there could reasonably be expected to be, a substantial reduction in the value of the property–that agreement, arrangement or understanding; and
(d) where, before the property was disposed of by the taxpayer, an agreement or arrangement (whether or not enforceable by legal proceedings and whether or not intended to be so enforceable) was entered into, or an understanding was reached, under which, or by reason of which, the person or persons who acquired the property from the taxpayer was or were under an obligation, or could reasonably be expected, to dispose of the property to another person or other persons (whether or not that other person was, or those other persons included, the taxpayer) for a consideration less than the market value of the property at the time when it was disposed of by the taxpayer–that agreement, arrangement or understanding; and
(e) where the disposal of the property by the taxpayer or the acquisition of the property by the person or persons who acquired the property arose out of, or was made in the course of, a transaction, operation, undertaking, scheme or arrangement that was entered into or carried out for the purpose, or for purposes that included the purpose, of securing that a person who, if the transaction, operation, undertaking, scheme or arrangement had not been entered into or carried out would have been liable to pay income tax in respect of a year of income would not be liable to pay income tax in respect of that year of income, or would be liable to pay less income tax in respect of that year of income than that person would have been liable to pay if the transaction, operation, undertaking, scheme or arrangement had not been entered into or carried out–that transaction, operation, undertaking, scheme or arrangement; and
(f) where the disposal of the property by the taxpayer or the acquisition of the property by the person or persons who acquired the property arose out of, or was made in course of, a transaction, operation, undertaking, scheme or arrangement that the Commissioner General is satisfied was by way of dividend stripping or was similar to a transaction, operation, undertaking, scheme or arrangement by way of dividend stripping–that transaction, operation, undertaking, scheme or arrangement; and
(g) any other matters that the Commissioner General considers relevant.

(12) A reference in Subsection (11) to property shall be read as a reference to property being trading stock, standing or growing crops, crop-stools or trees which have been planted and tended for the purposes of sale.

57A. COMPENSATION FOR DEATH OR COMPULSORY DESTRUCTION OF LIVESTOCK.

(1) Where–

(a) livestock being assets of a business of primary production carried on by a taxpayer in Papua New Guinea–
(i) dies by reason of a disease for the purpose of controlling or eradicating which provision is made by a law of Papua New Guinea for or in relation to the compulsory destruction of livestock; or
(ii) is destroyed in pursuance of a law of Papua New Guinea that makes provision for or in relation to the compulsory destruction of livestock for the purpose of controlling or eradicating a disease; and
(b) the proceeds of the death of the livestock would, apart from this section, be included in the assessable income of the taxpayer of a year or years of income; and
(c) there is a profit arising in respect of the death of the livestock,

the taxpayer may elect that this section shall apply in relation to the profit arising in respect of the death of the livestock.

(2) Where a taxpayer makes an election under Subsection (1)–

(a) the whole of the proceeds of the death of the livestock to which the election relates (whenever received) shall be included in the assessable income of the taxpayer of the year of income in which the livestock died or was destroyed, and no part of those proceeds shall be included in the assessable income of the taxpayer of any other year of income; and
(b) the assessable income of the taxpayer of the year of income in which the livestock died or was destroyed shall be reduced by an amount equal to four-fifths of the profit in relation to which the election is made; and
(c) there shall be included in the assessable income of the taxpayer of each of the next four succeeding years of income an amount equal to one-fifth of the profit in relation to which the election is made, and the amount so included in the assessable income of the taxpayer of any year of income shall, for the purposes of this Act, be deemed to be derived by the taxpayer during that year of income from the carrying on by him in Papua New Guinea, during that year of income, of a business of primary production.

(3) Where livestock is an asset of a partnership and, if that livestock were owned by a person other than as a partner or a trustee of a trust estate, that person would be entitled to make an election under Subsection (1) in relation to the livestock–

(a) any partner in the partnership may make an election under that subsection in relation to the part of the profit arising in respect of the death of the livestock that is included in his individual interest in the net income of the partnership; and
(b) where a partner makes such an election, Subsection (2)(a) does not apply, but for the purpose of assessments in respect of that partner the net income of the partnership shall be ascertained as if the proceeds of the death of the livestock to which the election relates (whenever received) had been received by the partnership in the year of income in which the livestock died or was destroyed.

(4) Where livestock referred to in Subsection (1) is owned by the trustee of a trust estate–

(a) the trustee may make an election under that subsection in relation only to that part of the profit arising in respect of the death of the livestock that is included in the net income of the trust estate in respect of which the trustee is liable to be assessed and to pay tax under the provisions of Section 130; and
(b) each resident beneficiary in the trust estate who is not under a legal disability and is presently entitled to a share of the net income of the trust estate, being a share that includes a part of the profit arising in respect of the death of the livestock, may make an election under that subsection in relation to that part and, where a beneficiary makes such an election, Subsection (2)(a) does not apply, but for the purpose of assessments in respect of that beneficiary the net income of the trust estate shall be ascertained as if the proceeds of the death of the livestock to which the election relates (whenever received) had been received by the trustee in the year of income in which the livestock died or was destroyed.

(5) Where, in a year of income, a taxpayer who has made an election under Subsection (1)–

(a) appears to the Commissioner General to be about to leave Papua New Guinea; or
(b) dies; or
(c) becomes bankrupt, applies to take the benefit of any law for the relief of bankrupt or insolvent debtors, compounds with his creditors or makes an assignment of any of his property for their benefit; or
(d) being a company, commences to be wound up,

there shall, if the Commissioner General so determines, be included in the assessable income of the taxpayer of that year of income any amount that would otherwise be included, in pursuance of this section, in the assessable income of any subsequent year of income, and the amount so included shall be deemed, for the purposes of this Act, to be derived by the taxpayer during that first-mentioned year of income from the carrying on by him in Papua New Guinea, during that year of income, of a business of primary production.

(6) An election by a taxpayer under Subsection (1) shall be made in writing and lodged with the Commissioner General on or before–

(a) the date of lodgment of the return of income of the taxpayer of the year of income in which the proceeds of the death of the livestock to which the election relates were received; or
(b) if the whole of those proceeds was not received in one year of income–the date of lodgment of the return of income of the taxpayer of the latest year of income in which any part of those proceeds was received,

or on or before such later date as the Commissioner General allows.

(7) In this section, a reference to the proceeds of the death of any livestock shall be read as a reference to the sum of–

(a) any amount received by the person who owned the livestock from the State, or from an authority constituted by or under a law of Papua New Guinea, by way of compensation for the death or destruction of the livestock; and
(b) any amount received by the person who owned the livestock as payment for the carcasses, or any part of the carcasses, of the livestock.

(8) In this section, a reference to profit arising in respect of the death of any livestock shall be read as a reference to the amount remaining after deducting from the proceeds of the death of the livestock the sum of–

(a) in respect of any of the livestock that was on hand at the beginning of the year of income in which the livestock died or was destroyed–the value at which that livestock is, for the purposes of this Act, to be taken into account at the beginning of that year of income; and
(b) in respect of any of the livestock that was not on hand at the beginning of that year of income–
(i) in the case of livestock acquired by purchase–the purchase price of that livestock; and
(ii) in the case of livestock acquired otherwise than by purchase, but not including natural increase bred during that year of income by the person who owned the livestock at the time of its death or destruction–the amount that, under this Act, is deemed to be the purchase price of that livestock
58. DISPOSAL OF CHANGE OF OWNERSHIP OR INTERESTS.

(1) Where, for any reasons, including–

(a) the formation or dissolution of a partnership; or
(b) a variation in the constitution of a partnership, or in the interests of the partners,

a change has occurred in the ownership of, or in the interests of persons, in, property constituting the whole or part of the assets of a business and being trading stock, standing or growing crops, crop-stools, or trees which have been planted and tended for the purposes of sale, and the person, or one or more of the persons, who owned the property before the change has or have an interest in the property after the change, Section 57 applies as if the person or persons who owned the property before the change had, on the day on which the change occurred, disposed of the whole of the property to the person, or all the persons, by whom the property is owned after the change.

(2) Where–

(a) property in relation to which Subsection (1) applies has become, upon the change in ownership or interests, an asset of a business carried on by the person or persons by whom the property is owned after the change; and
(b) the person or persons by whom the property was owned before the change holds or hold, after the change, an interest or interests in the property of a value equal to not less than one-quarter of the value of the property; and
(c) the value of the property as ascertained in accordance with Section 57(9)(a) is greater than the value (if any) that would have been taken into account at the end of the year of income if no disposal had taken place and the year of income had ended on the date of the change; and
(d) the person or persons by whom the property was owned before the change together with the person or persons by whom the property is owned after the change give notice to the Commissioner General, in accordance with this section, that they have agreed that this subsection shall apply in respect of the property,

the value of the property, for the purposes of Section 57, shall be, instead of the value specified in Section 57(9)(a), the value (if any) that would have been taken into account at the end of the year of income if no disposal had taken place and the year of income had ended on the date of the change.

(3) A notice in pursuance of Subsection (2) shall be in writing, signed by all the persons giving it, and lodged with the Commissioner General on or before the 28 February next succeeding the end of the fiscal year in which the change in ownership or interests occurred or on or before such later date as the Commissioner General determines.

(4) Where Subsection (1) applies in relation to property in consequence of the death of a member of a partnership the persons by whom a notice in pursuance of Subsection (2) may be given shall include, in lieu of the deceased person, the trustee of his estate and the beneficiaries (if any) who are liable to be assessed in respect of the whole or a share in the income of the business of which the property becomes an asset.

(5) A notice for the purposes of Subsection (2) given after the date of coming into operation of the Income Tax (Amendment No 3) Act 1979 in respect of a change in the ownership of, or in the interests of persons in, property, being a chose in action, does not have any effect unless the persons giving the notice establish to the satisfaction of the Commissioner General that the change in ownership or interests occurred on or before that date.

(6) Notwithstanding Subsection (2), a notice for the purposes of that subsection given after the date of coming into operation of the Income Tax (Amendment No 3) Act 1979 in respect of a change in the ownership of, or in the interests of persons in, property, not being a chose in action, does not have any effect if the value of the property for the purposes of Section 57 is determined by the Commissioner General under Section 57(11) unless–

(a) the value of the property applicable in accordance with Subsection (2) is less than the value determined by the Commissioner General in accordance with Section 57(11); or
(b) the persons giving the notice establish to the satisfaction of the Commissioner General that the change in ownership or interests occurred on or before that date.
59. DEVOLUTION ON DEATH.

(1) Where the assets of a business carried on by a taxpayer devolve by reason of his death and those assets include any property, being trading stock, standing or growing crops, crop-stools or trees that have been planted and tended for the purpose of sale, the value of that property shall, subject to this Act, be included in the assessable income derived by the deceased up to the date of his death and the person upon whom the property devolves shall be deemed to have purchased it at that value.

(2) For the purpose of Subsection (1), the value of the property is, subject to Subsection (3), the amount that, under Section 57, would have been included in respect of that property in the assessable income of the deceased taxpayer if he had not died but had disposed of the property, otherwise than in the ordinary course of his business, on the day of his death.

(3) Where–

(a) the property referred to in Subsection (1) has, immediately after its devolution by reason of the death of the taxpayer, become an asset of a business carried on by the trustee of the estate of the deceased taxpayer or by the persons who are beneficially entitled to that estate; and
(b) the trustee and the beneficiaries (if any) who are liable to be assessed in respect of the income of the business, or of a share in that income, unanimously so agree and give notice of their agreement to the Commissioner General at the time and in the manner prescribed,

the value of the property shall be, for the purpose of Subsection (1), the value, if any, at which that property would have been taken into account at the date of the death of the deceased taxpayer if he had not died and an assessment had been made in respect of the income derived by him up to that date.

Subdivision C. – Business Carried on Partly in and Partly out of Papua New Guinea.

60. SALES BY MANUFACTURERS.

Where goods manufactured out of Papua New Guinea are imported into Papua New Guinea and the goods are, either before or after importation, sold in Papua New Guinea by the manufacturer of the goods, the profit deemed to be derived in Papua New Guinea from the sale shall be ascertained by deducting from the sale price of the goods the amount for which, at the date the goods were shipped to Papua New Guinea, goods of the same nature and quality could be purchased by a wholesale buyer in the country of manufacture and the expenses incurred in transporting them to and selling them in Papua New Guinea.

61. SALES BY MERCHANTS.

Where goods that are imported into Papua New Guinea are, either before or after importation, sold in Papua New Guinea by a person, not being the manufacturer of the goods, the profit deemed to be derived in Papua New Guinea from the sale shall be ascertained by deducting from the sale price of the goods their purchase price and the expenses incurred in transporting them to and selling them in Papua New Guinea.

62. DETERMINATION OF PROFIT BY COMMISSIONER GENERAL.

Where the profit cannot be ascertained under either Section 60 or 61 to the satisfaction of the Commissioner General, it shall be deemed to be such amount as the Commissioner General determines.

63. GOODS DEEMED TO BE SOLD IN PAPUA NEW GUINEA.

(1) Where–

(a) a person sells goods by means of anything done by himself when in Papua New Guinea or by means of an agent or representative in Papua New Guinea; and
(b) those goods are in Papua New Guinea or are to be brought into Papua New Guinea for the purpose, or in pursuance or in consequence, of the sale,

he shall be deemed to have sold them in Papua New Guinea.

(2) For the purpose of Subsection (1), a sale is deemed to be made by means of a person or of something done when that person or thing done is instrumental in bringing about the sale.

64. SOURCE OF PROFITS.

In any case, not specified in the preceding sections of this Subdivision, where–

(a) by reason of the manufacture, production or purchase of goods in one country and their sale in another; or
(b) by reason of successive steps of production or manufacture in different countries; or
(c) by reason of the making of contracts in one country and their performance in another,

or for any other reason, a question arises whether the whole or any part (and, if a part, what part) of any profit is derived by a person from sources in Papua New Guinea, the question shall be determined in accordance with the regulations, or, if there is no regulation applying to the case, shall be determined by the Commissioner General.

65. ASSESSABLE INCOME TO INCLUDE CERTAIN PROFITS.

(1) The assessable income of a taxpayer shall include any profit derived by him in the year of income that, under the provisions of this Subdivision, is derived or deemed to be derived in Papua New Guinea, but does not otherwise include the proceeds of any sale to which this Subdivision applies.

(2) An amount taken into account in ascertaining such a profit, or the amount of any expenditure incurred directly or indirectly in or in relation to such a sale, is not an allowable deduction.

Division 2A.

Gratuities and Transitional Payments to Non-Citizen Public Servants.

65A. INTERPRETATION.

In this Division, unless the contrary intention appears–

“gratuity” means a payment of a kind referred to as such in Part III of the document entitled ‘Summary of Terms and Conditions of Employment and Transitional Arrangements for Contract Employment of Non-citizens by the Independent State of Papua New Guinea’ published by the Public Services Commission in September 1977, or in any document from time to time amending or in substitution of that document, whether the payment is paid as a lump sum payment or by instalments;
“public servant” means an officer or employee of the Public Service who is entitled to receive a salary, wages or allowances under a contract of employment entered into in accordance with Section 8 of the Public Employment (Non-Citizens) Act 1978 and a person who, immediately before the commencement of Section 3 of the Income Tax (Amendment No 3) Act 1978, was a non-citizen to whom Part II of the Public Employment (Non-Citizens) Act 1978 applies by virtue of Section 3 of that Act;
“Public Service” means–
(a) the Public Service of Papua New Guinea; and
(b) the Parliamentary Service continued in establishment under Section 2 of the Parliamentary Service Act 1997; and
(c) the Teaching Service in so far as it relates to auxiliary members employed in educational institutions, as defined in the Teaching Service (Auxiliary Members) Act 1973, run by the State; and
(d) any body declared to be a public authority for the purposes of the Public Employment (Non-citizens) Act 1978; and
(e) any body prescribed as a public authority in the Regulations made under this Act;

[75]Division 2AB.

Gratuities and Transitional Payments to Contracted Employees.

65B[76]. [REPEALED.]
65C. GRATUITY UNDER NEW CONTRACT.

(1) Subject to Subsection (2), where a public servant who is a non-citizen enters into a contract of employment in accordance with Section 8 of the Public Employment (Non-Citizens) Act 1978 and that contract includes a condition for the payment of a gratuity, the value of that gratuity shall be deemed to be income derived by way of salary or wages for the year of income in which it is derived and shall be taxable at the rate declared in the Income Tax (Salary or Wages Tax) (Rates) Act 1979.

(2) Subsection (1) applies only to a payment accrued before 1 January 1993 and any payment accruing after that date shall be deemed to be salary or wages paid in respect of a period of 26 fortnights preceding the date on which the payment was made.

Division 2AB.

Gratuities and Transitional Payments to Contracted Employees.

65CA. OBJECTS.

(1) The object of this Division is to enable the payment, by one instalment after completion of each three years of continuous service, of gratuities, taxed at the rate declared by Section 1 of the Income Tax (Salary or Wages Tax) (Rates) Act 1979, provided that this subsection shall not apply to gratuities accruing from 1 January 1993.

(2) Notwithstanding the provisions of Subsection (1) and Section 65CD(1), the rate declared by Section 1 of the Income Tax (Salary or Wages Tax) (Rates) Act 1979 shall apply to the payment of a gratuity accrued before 1 January 1993 where the payment is made prior to a three year period.

(3) Gratuities accruing from 1 January 1993 shall be deemed to be salary or wages paid in respect of a period of 26 fortnights preceding the date on which payment was made.

65CB. INTERPRETATION.

In this Division unless the contrary intention appears–

“continuous service” means service with the current employer or an associate as defined in Section 4(1);
“contract” or “contract of employment” means a written agreement, duly stamped, for employment within Papua New Guinea;
“eligible employee” means a person, other than a public servant as defined in Section 65A, who is employed under a contract of employment and has completed at least three years continuous service with his current employer;
“gratuity” means an amount set aside under a contract or agreement for employment which would, but for the provisions of this Division, have been payable on termination of that employment, to the extent that it does not exceed 25% of the fully taxed salary or wages paid or payable;
[77]65CC[78]. [REPEALED.]
65CD. GRATUITY UNDER NEW OR EXISTING CONTRACTS.

(1) Where an eligible employee is employed under a contract of employment, which includes provision for the payment of a gratuity and such gratuity is paid on or after the completion of a three year period commencing from–

(a) 1 January 1984, if the employee was entitled to receive a transitional payment; or
(b) the date of entering into the initial contract, if the employee was not entitled to receive a transitional payment; or
(c) the date of payment of last gratuity, not being a transitional payment,

the amount of gratuity paid shall be taxable at the rate declared by Section 1 of the Income Tax (Salary or Wages Tax) (Rates) Act 1979.

(2) To the extent a payment is made purporting to be in the nature of a gratuity which exceeds 25% of the fully taxed salary or wages derived during the three year employment period, the excess shall be deemed to be salary or wages paid in respect of a period of 26 fortnights preceding the date on which the payment was made.

Division 2B.

Salary or Wages.

65D. INTERPRETATION.

For the purposes of this Division and subject to the provisions of Section 214 and the allowance of a rebate–

“assessable income” means the gross amount of salary or wages income derived or earned;
“assessment” means the ascertainment of salary or wages tax payable in respect of assessable income;
“taxable income” means the gross amount of salary or wages income earned or derived without reference to allowable deductions.
65E. INCOME APPLICABLE.

(1) Subject to Sections 46B, 46C, 65F, 145 and 299E, this Division applies to income consisting of–

(a) salary or wages; and
(b) the value to a taxpayer of all benefits or allowances given or granted in respect of or in relation to his employment whether so given or granted in money, goods, sustenance, the use of premises, or otherwise; and
(c) the net amount of an annuity after the exclusion of any amount of undeducted purchase price by virtue of Section 49; and
(d) the capital amount of any allowance, gratuity or compensation paid in a lump sum, by virtue of Section 46B,

provided that the benefit to an employee–

(e) subject to Section 40AA, of any air fares paid to or on his behalf by his employer or an associated person is the actual cost price of the air fares; and
(f) of a motor vehicle or housing provided to him free of charge or at a subsidised cost shall be the prescribed value thereof; and
(g) of a housing allowance shall be–
(i) when given to him under an approved Low Cost Housing Scheme–the prescribed value thereof; or
(ii) when given to him in respect of housing occupied by him–the amount of housing allowance in so far as it exceeds housing expenditure and the prescribed value of that housing as if the housing was provided directly to him by the employer; and
(h) of any benefit granted outside Papua New Guinea to the employee shall be an amount equal to the cost to the employer of the benefit; and
(i) of any meals provided by his employer or an associate of the employer shall be the prescribed value thereof; and
(j)[79] [Repealed.]
(k) of any discount on airline travel provided to an employee of an airline or related tourist business, by any airline company, shall be the prescribed value thereof.

(2) Subsection (1) does not apply to an employee who is a member of the disciplined forces in relation to the value of meals or sustenance provided in connection with the employment of that person.

(3) Salary or wages paid or payable by a foreign contractor in respect of an employment exercised in Papua New Guinea shall be deemed to be derived from a source in Papua New Guinea and for the purpose of a “foreign contractor” has the same meaning as in Division 14A.III.

(4) In determining, for the purposes of the application of Section 65E, the value to a taxpayer of a benefit granted in respect of or in relation to his employment, being a benefit by way of the grant of lease or licence in respect of residential accommodation, or the use of a motor vehicle, the Commissioner General shall have regard to all relevant matters, and in particular whether–

(a) in the case of residential accommodation–
(i) the residential accommodation is situated in a place that is remote from a major centre of population; or
(ii) it is customary for employers in the industry in which the taxpayer is employed to provide residential accommodation for their employees without charge or for a rent or for other consideration that is less than the market value of the right to occupy the accommodation concerned; or
(iii) the taxpayer has no reasonable alternative other than to occupy the residential accommodation by reason of the unavailability on reasonable terms and conditions of suitable alternative residential accommodation (other than accommodation provided by or on behalf of his employer) within a reasonable distance from his place of employment; or
(iv) the residential accommodation is of a higher standard than could reasonably be expected to be provided for the taxpayer or is of a larger size than is necessary to accommodate the taxpayer or the taxpayer and his family; or
(v) any onerous conditions are attached to the lease or licence; and
(b) in the case of motor vehicles–
(i) restrictions are imposed upon the private use of the vehicle; or
(ii) fuel is provided.
65F. NON-APPLICATION IN SPECIAL CIRCUMSTANCES.

(1) Where in the opinion of the Commissioner General income derived by way of salary or wages has not borne, or is not likely to bear, deductions of salary or wages tax by reason of special circumstances, that income to the extent it has not borne, or is unlikely to bear, deductions of salary or wages tax may be deemed to be income other than salary or wages and accordingly Section 46C shall apply.

(2) For the purpose of this section, “special circumstances” means–

(a) those special circumstances under which the Commissioner General may vary the amount of salary or wages tax to be deducted in respect of income by way of salary or wages or certain allowances by virtue of Section 299E; or
(b) the deeming of salary or wages to be a dividend for the purpose of Section 145 or under any other provisions of this Act; or
(c) the determination of liability to any tax on income derived by way of salary or wages which is non-Papua New Guinea income as defined in Section 219.
65G. LIABILITY TO PAY TAX.

A person who derives income to which this Division applies is liable to pay salary or wages tax upon that class of income at the rates declared by Act.

65H. PAYMENT OF SALARY OR WAGES TAX.

(1) Salary or wages tax payable by a person in accordance with this Division is in addition to any other tax payable by him on income to which this Division does not apply.

(2) Salary or wages tax when it becomes due and payable is a debt due to the State and payable to the Commissioner General.

(3) Subject to Subsection (4), if any salary or wages tax remains unpaid after the time when it became due and payable, additional tax is due and payable at the rate of 20% per annum on the amount unpaid.

(4) The Commissioner General may in cases, for reasons that he thinks sufficient, remit the additional tax or any part of the additional tax.

(5) Any unpaid salary or wages tax and any unpaid additional tax payable under this section may be sued for and recovered in a court of competent jurisdiction by the Commissioner General using his official name.

(6) For the purpose of protection of the Revenue, the provisions of Part VI, except those provisions contained in Sections 259, 261, 262, 263 and 264, shall have application.

65I. ASSESSMENT OF SALARY OR WAGES TAX.

(1) The ascertainment of the amount of any salary or wages tax shall be deemed to be an assessment within the meanings of all the provisions of this Act.

(2) For the purposes of this Division, the assessment of any liability to salary or wages tax shall be made at the end of each fortnight on the gross salary or wages earned or derived during that fortnight.

(3) The Commissioner General may serve on an employer or employee by post or otherwise a notice in writing in which is specified–

(a) the amount of the salary or wages tax that the Commissioner General has ascertained is payable by the employee; and
(b) the date on which that tax became due and payable.

(4) The production of a notice served under Subsection (3) or a document under the hand of the Commissioner General purporting to be a copy of such a notice is evidence that the amount of salary or wages tax specified in the notice or document became due and payable by the person on whom the notice was served on the date so specified.

65J. INCOME UPON WHICH SALARY OR WAGES TAX PAID NOT OTHERWISE ASSESSABLE.

Subject to Sections 46B, 46C and 65F income upon which salary or wages tax is payable or has been paid is not included in the assessable income of a person for the purposes of any other Division of this Act.

Division 3.

Deductions.

Subdivision A. – General.

66. ALLOWABLE DEDUCTIONS.

In calculating the taxable income of a taxpayer, the total assessable income derived by him during the year of income shall be taken as a basis and from it there shall be deducted all allowable deductions.

66A. NON-APPLICATION OF THIS DIVISION.

(1) Subject to Subsection (2) and (3), this Division does not apply to any deduction in relation to the assessable income of a taxpayer which consists solely of salary or wages in respect of which salary or wages tax has been paid or is payable except to the extent that deductions allowable under this Division shall be considered for the purpose of calculating a rebate in terms of Sections 214 and 214B.

(2) Where in a fiscal year a taxpayer’s assessable income includes, in addition to salary or wages, any income other than salary or wages, hereinafter called non-salary or wages income, and any deductions allowable by virtue of this Division from that non-salary or wages income exceed the sum of that income or if the taxpayer is entitled to a deduction under the provision of Section 68AA, 69, 69A, 69B, 69C, 69D, 69E, 96 or 97A, the amount of the excess in that year or the amount deductible under Section 68AA, 69, 69A, 69B, 69C, 69D, 69E, 96 or 97A, as the case may be, shall be deemed a non-salary or wages loss incurred by the taxpayer for the purposes of calculating a rebate in terms of Section 214(4).

(3) Notwithstanding anything in any other provisions of this Act, losses or outgoings, to the extent to which they–

(a) are incurred in gaining or producing assessable income from a source outside Papua New Guinea, or in the carrying on of a business outside Papua New Guinea other than export market development; and
(b) exceed the assessable income derived from a source outside Papua New Guinea,

shall not be an allowable deduction from the assessable income derived from sources within Papua New Guinea.

67. SUCCESSIVE DEDUCTIONS.

Where, by this Act, it is provided that any deduction shall be made successively from two or more classes of income, the deduction shall be set off against the income of the first of those classes and, if it exceeds the income of that class, the excess shall be set off against the income of the second class, and so on until either the deduction or the income of the last of those classes is exhausted.

68. LOSSES AND OUTGOINGS.

(1)[80] [81]Subject to Section 68A and Division III.10, all losses and outgoings, to the extent to which they are incurred in gaining or producing the assessable income or are necessarily incurred in carrying on a business for the purpose of gaining or producing that income, are allowable deductions except to the extent to which they are losses or outgoings of capital, or of a capital, private or domestic nature, or are incurred in relation to the gaining or production of exempt income.

(2) Expenditure incurred or deemed to have been incurred in the purchase of stock used by the taxpayer as trading stock shall be deemed not to be an outgoing of capital or of a capital nature.

(3) A deduction is not allowable under Subsection (1) in respect of long service leave, annual leave, sick leave or other leave except in respect of an amount paid to the person to whom the leave relates or, where that person is deceased, to the dependant or personal representative of that person and, for the purposes of that subsection, the amount paid shall be deemed to be a loss or outgoing incurred at the time when the payment is made.

(4) Foreign exchange losses incurred and realised in the repayment of a debt incurred or borrowings made in a currency other than Papua New Guinea currency shall be deemed not to be an outgoing of capital or of a capital nature to the extent they relate to debts incurred or borrowings entered into on or after 11 November 1986 or, in the case of debts incurred or borrowings entered into for the purpose of reafforestation in Papua New Guinea, at any time.

(5) Expenditure, including interest, incurred in connection with the construction or acquisition of an item of plant or capital asset, which would otherwise be an allowable deduction under this section, shall not be an allowable deduction to the extent it is incurred prior to the date on which the taxpayer–

(a) first derives assessable income; or
(b) first uses the plant or capital asset for the purpose of producing assessable income,

whichever is the later.

(6) Expenditure incurred in connection with the construction or acquisition of an item of plant or capital asset and not allowed as a deduction by virtue of Subsection (5) shall be deemed to form part of the cost of the unit of property for all the purposes of this Act.

(7 - 8)[82] [Repealed.]

(9) Expenditure incurred by the taxpayer in the year of income for the preparation by a registered tax agent of a return or information required by or under this Act to be furnished to the Commissioner General shall be an allowable deduction.

(10) Subject to Subsections (11) and (12), a deduction is not allowable for a loss or outgoing otherwise allowable under this section to the extent that it is a loss or outgoing incurred after 31 December 1994 in respect (directly or indirectly) of club subscription or fees, payment for domestic services, or expenditure on electricity, gas or security relating to an employee, or provision of entertainment.

(11) A reference in Subsection (10) to the provision of entertainment is a reference to the provision (whether to the taxpayer or to another person and whether gratuitously, pursuant to an arrangement or agreement or otherwise) of–

(a) entertainment by way of food, drink or recreation; or
(b) accommodation or travel in connection with, or for the purpose of facilitating, entertainment to which Paragraph (a) applies (whether or not the accommodation or travel is also in connection with something else or for another purpose),

whether or not–

(c) business discussions or business transactions occur; or
(d) in connection with the working of overtime or otherwise in connection with the performance of the duties of any office or employment; or
(e) for the purposes of promotion or advertising; or
(f) at or in connection with a work seminar.

(12) Subsection (10) does not apply to a loss or outgoing incurred by the taxpayer in a year of income to the extent to which–

(a) in a case where the taxpayer carried on a business that consists of, or includes the provision for payment of entertainment to clients or customers of that business–the loss or outgoing is in respect of the provision of that entertainment by the taxpayer for payment in the ordinary course of that business; or
(b) the loss or outgoing is incurred by the taxpayer for the purpose of specifically promoting or advertising to the public goods or services provided by a business carried on by the taxpayer, being a loss or outgoing incurred in providing or exhibiting those goods or services; or
(c) the loss or outgoing is in respect of entertainment provided by the taxpayer–
(i) for the purpose of generally promoting or advertising to the public–

(A) a business carried on by the taxpayer or another person; or

(B) goods or services provided by a business carried on by the taxpayer or another person; and

(ii) on the basis that the opportunities available to any of the following:–

(A) clients, customers or suppliers of the taxpayer or the other person;

(B) employees of the taxpayer or the other person;

(C) any other associates of the taxpayer or the other person;

(D) journalists;

(E) dignitaries;

(F) any other special class of persons,

to obtain the benefit of the entertainment are not greater than those of ordinary members of the public; or
(d) the loss or outgoing is incurred by the taxpayer in respect of–
(i) the provision of food and drink (not being food or drink provided at a party, reception or other social function) on working days in an in-house dining facility of the taxpayer–

(A) in any case–to employees of the taxpayer; or

(B) if the taxpayer is a company–to employees of the taxpayer or of a company that is related to the taxpayer,

and for the purpose of this provision an “in-house dining facility” shall include any external dining facility determined by the Commissioner General to be an “in-house dining facility” having regard to the special circumstances of each case; or
(ii) the provision of entertainment to a person (including the taxpayer) that–

(A) is reasonably incidental to the person’s attendance at a work seminar (held between 8am to 5pm on working days); and

(B) is not by way of, or in connection with, the recreation of the person; or

(iii) the provision of food or drink to an employee of the taxpayer pursuant to the provisions of an industrial instrument or award relating to overtime; or
(e) the loss or outgoing is incurred by the taxpayer in providing gratuitous entertainment to members of the public who are sick, disabled, poor or otherwise disadvantaged; or
(f) the loss or outgoing is incurred by the taxpayer in providing entertainment in ordinary course of his or her business for a purpose or activity prescribed by the Commissioner General from time to time.
68A. SPECIAL DEDUCTIONS–SOLAR HEATING.

Where expenditure is incurred for the cost, including installation, of plant or equipment for the use in heating by solar power and would, but for the capital nature of such expenditure, be an allowable deduction under Section 68, that expenditure shall be an allowable deduction.

68AA[83]. [REPEALED.]
68AB. CLUB FEES AND EXPENDITURE RELATING TO LEISURE FACILITIES.

(1) In this section–

“boat” includes any vessel;
“building” includes a part of a building;
“club” means a company or association that was established, or is carried on, solely or principally for the purpose of providing facilities for the use or benefit of its members in relation to any one or more of the following, namely–drinking, dining, recreation, entertainment, amusement or sport;
“excepted facility”, in relation to a year of income, means–
(a) a boat that, at all times during the year of income, is held for sale by the taxpayer as trading stock in the ordinary course of a business carried on by the taxpayer; or
(b) a boat that, at all times during the year of income, is used, or held for use, by the taxpayer principally for any one or more of the following purposes:–

(i) for the purpose of being let on hire in the ordinary course of a business of letting boats on hire carried on by the taxpayer;

(ii) for the purpose of transporting for reward members of the public, goods (including livestock) or substances in the ordinary course of a business carried on by the taxpayer;

(iii) for any other purpose in the ordinary course of a business carried on by the taxpayer if the taxpayer satisfies the Commissioner General that the use of such a boat for that purpose is essential to the efficient conduct of that business; or

(c) land that, at all times during the year of income, is held for sale by the taxpayer in the ordinary course of a business of selling land carried on by the taxpayer; or
(d) a building or other structure that, at all times during the year of income, is held for sale by the taxpayer in the ordinary course of a business of selling such buildings or other structures carried on by the taxpayer; or
(e) land or a building or other structure that, at all times during the year of income, is used or held for use by the taxpayer principally for any one or more of the following purposes:–

(i) the derivation by the taxpayer of income in the nature of rents, lease premiums, licence fees or similar charges;

(ii) the provision for reward of facilities for holidays, or for sport, recreation or similar leisure-time pursuits, in the ordinary course of a business of providing such facilities;

“land” includes land to which improvements have been made or upon which improvements have been erected;
“leisure facility” means–
(a) a boat, other than a boat that is an excepted facility in relation to the year of income; or
(b) land, other than land that is an excepted facility in relation to the year of income, used, or held for use, for or in connection with holidays or sport, recreation or similar leisure-time pursuits; or
(c) a building or other structure, other than a building or other structure that is an excepted facility in relation to the year of income, used, or held for use, for or in connection with holidays or sport, recreation or similar leisure-time pursuits.

(2) This section applies to a loss or outgoing to the extent to which it is incurred by a taxpayer–

(a) to secure or maintain, for the taxpayer or any other person, membership of a club or rights to enjoy, otherwise than as a member, facilities provided by a club for the use or benefit of its members; or
(b) for or in connection with–
(i) the acquisition of ownership of, or of rights to use, a leisure facility; or
(ii) the retention of ownership of, or of rights to use, a leisure facility; or
(iii) any obligations associated with ownership of, or with rights to use, a leisure facility; or
(iv) the use, operation, maintenance or repair of a leisure facility.

(3) Subject to Subsection (4), notwithstanding anything in any other provision of this Act, a loss or outgoing to which this section applies is not an allowable deduction.

(4) Where–

(a) a boat, land or a building or other structure is held for sale, or used or held for use, as mentioned in the definition of “excepted facility” in Subsection (1) at all times during part only of the year of income; and
(b) this section would, but for this subsection, prevent a loss or outgoing, or a part of a loss or outgoing, incurred by the taxpayer in relation to the boat, land or building or other structure from being an allowable deduction from the assessable income of the taxpayer of the year of income but would not prevent that loss or outgoing or that part of that loss or outgoing from so being an allowable deduction if the boat, land or building or other structure were held for sale, or used or held for use, as referred to in Paragraph (a) at all times during the whole of the year of income,

the Commissioner General may determine that this section shall not prevent so much of that loss or outgoing or of that part of that loss or outgoing, as the case may be, as he considers reasonable having regard to the circumstances of the case from so being an allowable deduction.

(5) Where the taxpayer owned, or had rights to use, a boat, land or a building or other structure during part of the year of income and neither owned, nor had rights to use, the boat, land or building or other structure during the remainder of the year of income, this section applies in relation to the boat, land or building or other structure as if that part of the year of income were the whole of the year of income.

68AC. PREPAID EXPENSES.

(1) In this section–

“benefit derived” includes–
(a) the taking possession of actual goods; or
(b) in the case of insurance the annual premium for the year in which the last day of the year of income falls; or
(c) in the case of rent, fees, charges, lease payment, royalty or any other similar service payment the pro rata value of the use or service provided during the year of income;
“expenditure” includes the payment or an obligation to pay for any goods or services the use of articles or property or the right to use such articles or property for which a deduction may be allowed under the provisions of this Act.

(2) Except where specifically provided to the contrary, where expenditure is incurred in respect of a benefit which is to be derived, either totally or in part, in a subsequent year of income, the deduction allowable in respect of that expenditure shall not exceed the value of the benefit derived during that year of income.

(3) Where, pursuant to Subsection (2), a deduction for an amount of expenditure was not allowed or only partially allowed the amount of expenditure disallowed shall be an allowable deduction in each subsequent year of income to the extent that the benefit of the expenditure is derived in that year.

68AD. MANAGEMENT FEES.

(1)[84] [Repealed.]

(2) This section applies to a loss or outgoing to the extent to which it is incurred by a taxpayer in the payment of management fees but does not apply where the Commissioner General is satisfied that–

(a) the payment was not made to an associate; or
(b) if the payment was made to an associate–
(i) the payment did not have the purpose or effect of avoiding tax or of altering the total tax which would otherwise be payable in Papua New Guinea by the two parties concerned; or
(ii) the payment was made to reimburse the associate for expenditure incurred and paid on behalf of the taxpayer, such expenditure being solely and absolutely for the taxpayer’s benefit and account and not by way of cost allocation or apportionment against the taxpayer (regardless of whether such cost allocation or apportionment might have a commercial or accounting basis or otherwise).

(3)[85] [86]Notwithstanding anything in any other provision of this Act, the deduction allowable under Section 68 in respect of management fees paid after 1 January 2005 shall not exceed the greater of –

(a) 2% of the assessable income derived from Papua New Guinea sources by the taxpayer; or
(b) 2% of the total allowable deductions, excluding management fees, incurred by the taxpayer in Papua New Guinea.

(4)[87] [88]To the extent management fees are deductible under this Section, the source country in which those management fees are derived shall be deemed to be Papua New Guinea.

68AE. LEASE PAYMENTS.

(1)[89] In this section–

“first prescribed lease”, in relation to a unit of property means the prescribed lease under which the taxpayer or an associate of the taxpayer first became entitled to the use or possession of the unit of property;
“lease fee” means an amount (other than a lease premium) paid or liable to be paid as consideration for the grant of any right in relation to a unit of property under a prescribed lease, but does not include a royalty;
[90]“notional depreciation”, in relation to a unit of property in relation to a year of income, means the depreciation (if any) on a diminishing value or, at the option of the taxpayer, prime cost basis that would be allowable under Section 73(1) (excluding such further depreciation as may be allowable under Section 73(3), (4), (5), (6), (7) or (9)) if–
(a) the taxpayer owned the unit of property that is the subject of the prescribed lease; and
(b) the unit of property was installed ready for use at the time the person first used or installed the property ready for use by him in producing assessable income; and
(c) the cost of the unit of property was an amount equal to the market value of the property as at the date the taxpayer first obtained the right to the use or possession of the unit of properly under the first prescribed lease;
“notional interest expense”, in relation to a unit of property in relation to a year of income, means the amount of interest that would have been incurred by the taxpayer during that year of income if the taxpayer entered into a notional loan;
“notional loan” in relation to a unit of property means a loan–
(a) taken out or drawn down at the date of commencement of the first prescribed lease; and
(b) of an amount equal to the value of the unit of property at that date as reduced by the sum of–

(i) any premium; or

(ii) the present value of any residual amount in relation to the prescribed lease; and

(c) with in interest rate equal to the notional rate; and
(d) for a term equal to the effective life of the unit of property (or units of property of that kind) determined under Section 74; and
(e) with repayment being payable by way of equal monthly instalments in arrears over the term of the loan;
“notional rate” means the rate prescribed by the regulations for the purposes of this section;
“prescribed lease” means an agreement under which a non-resident associate grants to a taxpayer a right to the use or possession of any unit of property whether situated in Papua New Guinea or elsewhere and whether entered into before or after the commencement of this section;
“present value of any residual amount” means the value as at the date of the first prescribed lease of any residual amount under that lease discounted by reference to the notional rate.

(2) This section applies to any lease fee incurred after 1 January 1989, and to any unit of property that is the subject of a prescribed lease.

(3) Notwithstanding anything in any other provision of this Act, the deduction allowable under Section 68 in respect of lease fees in relation to a year of income commencing on or after 1 January 1989 shall not exceed the lesser of A or B, where–

(a) A is the sum of any lease fees incurred under the prescribed lease during the year of income; and
(b) B is the sum of the notional depreciation and notional interest expense in relation to the property for the year of income.

(4) The total amount that is allowable as a deduction in relation to a taxpayer in relation to a year of income commencing on or after 1 January 1989 in relation to a unit of property to which this section applies shall not exceed the sum of–

(a) the value of the unit of property as at the date it is first used or installed ready for use for the purpose of gaining or producing assessable income; and
(b) the amount of notional interest expense under the notional loan in relation to the unit of property in relation to that year or a prior year,

as reduced by the sum of–

(c) any amount that has been allowed or is allowable as a deduction of the taxpayer by way of a lease fee in relation to the unit of property for a year of income commencing on or before 1 January 1988; and
(d) any amount allowed as a deduction in accordance with Subsection (3) in relation to the unit of property.
69. DEDUCTIONS FOR GIFTS TO POLITICAL PARTIES.

(1) In this section–

“national company” means a company incorporated in Papua New Guinea whose membership comprises no person other than–
(i) citizens; or
(ii) companies regarded as national companies by virtue of this definition; or
(iii) citizens holding shares in trust for national companies or organisations whose membership is comprised of none other than citizens;
“political party” means any national organisation recognised by the Tribunal as a political party;
“Tribunal” means the Tribunal established under Subsection (3).

(2) Gifts of the value of K2.00 and upwards of money, or of property other than money purchased by the taxpayer in the 12 months immediately preceding the making of the gift, made by a national company or a citizen to a political party, shall be an allowable deduction.

(3) For the purpose of deciding whether a national organisation be recognised as a political party, there is established a Tribunal consisting of–

(a) an Ombudsman, who shall be Chairman; and
(b) the Speaker; and
(c) a Judge of the National Court who is a citizen,

which, in reaching its decision, shall consider–

(d) the degree of popular support enjoyed by the national organisation; and
(e) the acceptance of the national organisation as a political party by the Parliament; and
(f) the number of candidates sponsored by the national organisation in national elections; and
(g) such other factors as it considers relevant,

and whose decision is final.

(4) A national organisation desiring to be recognised as a political party for the purposes of this section shall make application to the Commissioner General who shall refer the application to the Tribunal.

69A. DEDUCTION FOR GIFTS TO SPORTING BODIES.

(1) Subject to Subsection (2), a gift of money or property other than money, made by the taxpayer to a sporting body established in Papua New Guinea for the encouragement or promotion of an athletic game or athletic sport in which human beings are the sole participants, shall be an allowable deduction.

(2) Subsection (1) applies–

(a) to a gift whose value exceeds K50.00; and
(b) in the case of a gift of property other than money, where the property was acquired by the taxpayer in the 12 months immediately preceding the making of the gift.
69B. DOUBLE DEDUCTION FOR GIFTS TO SOUTH PACIFIC GAMES (1991) FOUNDATION.

(1) In this section, “tax saving” means the reduction of tax payable resulting from the allowance of a deduction under this section.

(2) An amount by way of a gift (the value which is equal to, or exceeds, K1,500.00) of money or of property (other than money) purchased by a taxpayer in the 12 months immediately preceding the making of the gift, made by the taxpayer on or after 29 March 1989 to the South Pacific Games (1991) Foundation established by the South Pacific Games (1991) Foundation Act 1989 shall be an eligible amount.

(3) An amount equal to twice the eligible amount shall be an allowable deduction under this section.

(4) Where a double deduction is allowable under this section the amount deductible shall be allowable only to the extent that the tax saving resulting from the allowance of the deduction does not exceed 75% of the eligible amount.

(5) Where an eligible amount (or part thereof) allowed under this section is recouped or recoupable, an amount shall be included in assessable income to the extent that a deduction has been allowed.

69C. DEDUCTIONS FOR GIFTS TO THE FOUNDATION FOR LAW, ORDER AND JUSTICE.

Gifts of money or property (other than money) purchased by the taxpayer in the 12 months immediately preceding the making of the gift to the Foundation for Law, Order and Justice shall be an allowable deduction.

69D. DOUBLE DEDUCTION FOR GIFTS TO CERTAIN WORLD EXPOSITIONS.

(1) In this section, “tax saving” means the reduction of tax payable resulting from the allowance of a deduction under this section.

(2) An amount by way of a gift (the value of which is equal to, or exceeds, K2.00) of money or of property (other than money) purchased by a taxpayer in the 12 months immediately preceding the making of the gift, made by the taxpayer on or after 1 January 1991 and before 31 December 1993 towards the cost of the participation by Papua New Guinea in the 1992 World Exposition in Seville, Spain shall be an eligible amount.

(3) An amount equal to twice the eligible amount shall be an allowable deduction under this section.

(4) Where a double deduction is allowable under this section the amount deductible shall be allowable only to the extent that the tax saving resulting from the allowance of the deduction does not exceed 75% of the eligible amount.

(5) Where an eligible amount (or part thereof) allowed under this section is recouped or recoupable, an amount shall be included in assessable income to the extent that a deduction has been allowed.

69E. DEDUCTION FOR GIFTS TO CHARITABLE BODIES.

(1) Subject to Subsection (2), a gift of money or property other than money to a charitable body approved by the Commissioner General shall be an allowable deduction.

(2) Section (1) applies–

(a) to a gift whose value exceeds K50.00; and
(b) in the case of a gift of property other than money, where the property was acquired by the taxpayer in the 12 months immediately preceding the making of the gift.
69F. DONATIONS BY COMPANIES FOR THE 3RD GLOBAL CONFERENCE ON NATIONAL YOUTH SERVICE.

(1) An amount by way of a gift (the value of which is equal to or exceeds K1,500.00) of money or property (other than money) purchased by the company in the 12 months immediately preceding the making of the gift, made by the company after 1 January 1996 for the 3rd Global Conference on National Youth Service in Papua New Guinea shall be an eligible amount.

(2) An amount equal to twice the eligible amount shall be an allowable deduction under this section.

(3) Where an eligible amount (or part thereof) allowed under this section is recouped or is recoupable, an amount shall be included in the assessable income to the extent that a deduction has been allowed.

69G. DONATIONS TO THE SEVENTH SOUTH PACIFIC FESTIVAL OF ARTS.

(1) An amount by way of a gift, which is equal to or exceeding K1,500.00, made after 1 January 1996 to the National Cultural Commission for the Papua New Guinea Contingent to the Seventh South Pacific Festival of Arts shall be an eligible amount.

(2) An amount equal to twice the eligible amount shall be an allowable deduction under this section.

(3) Where an eligible amount (or part thereof) allowed under this section is recouped or is recoupable, an amount shall be included in the assessable income to the extent that a deduction has been allowed.

69H. DOUBLE DEDUCTIONS FOR DONATIONS TO LAW AND ORDER.

(1) An amount by way of a gift (the value of which is equal to or exceeds K1,500.00) of money or property (other than money) made by a company after 1 November 1996 to a trust for special law and order projects in Papua New Guinea defined by the Police Commissioner shall be an eligible amount.

(2) An amount equal to twice the eligible amount shall be an allowable deduction under this section.

(3) Where an eligible amount (or part thereof) allowed under this section is recouped or is recoupable, an amount shall be included in the assessable income to the extent that a deduction has been allowed.

69I. DOUBLE DEDUCTION FOR GIFTS TO NATIONAL DAY CELEBRATIONS.

(1) An amount by way of gift (the value which is equal to or exceeds K5,000.00) of money or property (other than money) purchased by the company in the 12 months immediately preceding the making of the gift, made by the company to the National Events Council in respect of promotion of National Day celebrations shall be an eligible amount.

(2) An amount equal to twice the eligible amount shall be an allowable deduction under this section.

(3) Where an eligible amount (or part thereof) allowed under this section is recouped or recoupable, an amount shall be included in assessable income to the extent that a deduction has been allowed.

(4) This section shall apply to gifts made in the period 1 January 1997 to 31 December 2000.

69J. DONATIONS TO PNG SPORTS COMMISSION OLYMPIC 2000 PROJECT.

(1) An amount by way of gift (the value which is equal to or exceeds K5,000.00) of money, or property (other than money) purchased by a company in the 12 months immediately preceding the making of the gift, made by the company to the Papua New Guinea Sports Commission in respect of the PNG Sports Foundation 2000, shall be an eligible amount.

(2) An amount equal to twice the eligible amount shall be an allowable deduction under this section.

(3) Where an eligible amount (or part thereof) allowed under this section is recouped or recoupable, an amount shall be included in assessable income to the extent that a deduction has been allowed.

(4) This section shall apply to gifts made in the period 1 January 1997 to 31 December 2000.

69K. DOUBLE DEDUCTION FOR GIFTS TO PNG SPORTS FEDERATION INC.

[91](1) An amount by way of gift (the value of which is equal to or exceeds K5000.00) of money, or property (other than money) purchased by a taxpayer in the 12 months immediately preceding the making of the gift, made by the taxpayer to the Papua New Guinea Sports Federation Inc in respect of the 2003 South Pacific Games or the 204 Inaugural PNG National Games shall be an eligible amount.

(2) An amount equal to twice the eligible amount shall be an allowable deducted under this section.

(3) Where an eligible amount (or part thereof) allowable under this section is recouped or recoupable, an amount shall be included in assessable income to the extent that a deduction has been allowed.

(4) Where a double deduction is allowable under this section, th amount deductible shall be allowable only to the extent that the tax saving resulting from the allowance of the deduction does not exceed 75% of the eligible amount.

(5) This section applies to gifts made in the period 1 January 2003 to 31 December 2004.

70[92]. [REPEALED.]
70A. DEDUCTION FOR EDUCATION EXPENSES.

(1) In this section–

“dependant child” means a child or student wholly maintained by the taxpayer;
“net education expenses” means amounts of educational fees paid by the taxpayer to a non-governmental primary or high school, whether within or outside Papua New Guinea, less any subsidy, allowance or assistance received.

(2) The amount of net education expenses incurred by a resident taxpayer in connection with the education of a dependant child is an allowable deduction.

(3) The amount allowable under this section is the net education expenses incurred by the taxpayer.

71. LOSS ON PROPERTY ACQUIRED FOR PROFIT-MAKING.

(1) Subject to Subsection (2), a loss incurred by the taxpayer in the year of income upon the sale of any property or from the carrying on or carrying out of any undertaking or scheme, being a sale, undertaking or scheme any profit from which would have been included in his assessable income, is an allowable deduction.

(2) A deduction is not allowable under Subsection (1) (except where the Commissioner General, being satisfied that the property was acquired by the taxpayer for the purpose of profit-making by sale or for the carrying on or carrying out of a profit-making undertaking or scheme, otherwise directs) unless the taxpayer, not later than the date upon which he lodges his first return under this Act after having acquired the property, notifies the Commissioner General that the property has been acquired by him for the purpose of profit-making by sale or for the carrying on or carrying out of a profit-making undertaking or scheme.

71A. CERTAIN AMOUNTS DISREGARDED IN ASCERTAINING TAXABLE INCOME.

(1) Notwithstanding Section 68, losses or outgoings consisting of expenditure incurred by a taxpayer in the purchase or acquisition, after the date of coming into operation of the Income Tax (Amendment No 3) Act 1979, of any prescribed property as trading stock of the taxpayer shall, if the Commissioner General considers that it would be unreasonable that a deduction be allowable to the taxpayer in respect of the whole of those losses or outgoings, be allowable as a deduction to the taxpayer to the extent only that the Commissioner General considers that it is reasonable in the circumstances that a deduction be allowable to the taxpayer in respect of those losses or outgoings.

(2) Where–

(a) expenditure incurred by a taxpayer in the purchase or acquisition, after the date of coming into operation of the Income Tax (Amendment No 3) Act 1979, of any prescribed property that was purchased or acquired in the carrying on or carrying out of any profit-making undertaking or scheme would, but for this subsection, be taken into account for the purpose of ascertaining whether any profit arose, or any loss was incurred, from the carrying on or carrying out of the undertaking or scheme and for the purpose of ascertaining the amount of any such profit or loss; and
(b) the Commissioner General considers that it would be unreasonable that the whole of that expenditure be taken into account for those purposes,

that expenditure shall be taken into account for those purposes to the extent only that the Commissioner General considers that it is reasonable in the circumstances that the expenditure be taken into account for those purposes.

(3) Where–

(a) prescribed property that was acquired by a taxpayer after the date of coming into operation of the Income Tax (Amendment No 3) Act 1979 was or is treated or used by the taxpayer as an asset of a business carried on by the taxpayer; and
(b) but for this subsection, a deduction would be allowable to the taxpayer in respect of the value of that property; and
(c) the Commissioner General considers that it would be unreasonable that a deduction be allowable to the taxpayer in respect of the value of the property to the extent to which, but for this subsection, a deduction would be allowable to the taxpayer in respect of the value of the property,

a deduction shall be allowable to the taxpayer in respect of the value of the property to the extent only that the Commissioner General considers that it is reasonable in the circumstances that a deduction be allowable to the taxpayer in respect of that value.

(4) Where–

(a) the value of any prescribed property that–
(i) was acquired by a taxpayer after the date of coming into operation of the Income Tax (Amendment No 3) Act 1979; and
(ii) was or is used by the taxpayer in the carrying on or carrying out of any profit-making undertaking or scheme–

would, but for this subsection, be taken into account for the purpose of ascertaining whether or not any profit arose, or any loss was incurred, from the carrying on or the carrying out of the undertaking or scheme and for the purpose of ascertaining the amount of any such profit or loss; and

(b) the Commissioner General considers that it would be unreasonable that the value of the property be taken into account for those purposes to the extent to which the value would, but for this subsection, be taken into account for those purposes,

the value of the property shall be taken into account for those purposes to the extent only that the Commissioner General considers that it is reasonable in the circumstances that that value be taken into account for those purposes.

(5) In forming an opinion for the purposes of Subsection (1) or (3) as to the extent to which it is reasonable that a deduction be allowable to a taxpayer in respect of expenditure incurred in the purchase or acquisition of prescribed property or in respect of the value of prescribed property, as the case may be, or in forming an opinion for the purposes of Subsection (2) or (4) as to the extent to which it is reasonable that expenditure incurred by a taxpayer in the purchase or acquisition of prescribed property should be taken into account for the purposes referred to in Subsection (2) or that the value of prescribed property should be taken into account for the purposes referred to in Subsection (4), as the case may be–

(a) where the taxpayer expended moneys in purchasing or acquiring the prescribed property the Commissioner General shall have regard to the circumstances in which, and the person or persons from whom, the taxpayer obtained moneys–
(i) that were expended by the taxpayer in purchasing or acquiring the prescribed property; or
(ii) that, in the opinion of the Commissioner General, were obtained by, or paid to, the taxpayer to enable the prescribed property to be purchased or acquired; and
(b) where the taxpayer borrowed from another person (in this paragraph referred to as the “lender”) moneys that were expended by the taxpayer in purchasing or acquiring the prescribed property or moneys that, in the opinion of the Commissioner General, were obtained by, or paid to, the taxpayer to expend moneys in purchasing or acquiring the prescribed property–the Commissioner General shall have regard to–
(i) the circumstances in which, and the terms and conditions on which, the taxpayer borrowed those moneys from the lender; and
(ii) whether, in the opinion of the Commissioner General, the taxpayer and the lender were dealing with each other at arm’s length in connection with the borrowing of those moneys by the taxpayer; and
(c) where, either before or after the purchase or acquisition of the prescribed property by the taxpayer, an agreement or arrangement (whether or not enforceable by legal proceedings and whether or not intended to be so enforceable) was entered into, or an understanding was reached, as a result of which there has been, or there could reasonably be expected to be, a substantial reduction in the value of the prescribed property–the Commissioner General shall have regard to that agreement, arrangement or understanding; and
(d) where the purchase or acquisition of the prescribed property by the taxpayer arose out of, or was made in the course of, a transaction, operation, undertaking, scheme or arrangement that was entered into or carried out for the purpose, or for purposes that included the purpose, of securing that a person who, if the transaction, operation, undertaking, scheme or arrangement, had not been entered into or carried out, would have been liable to pay income tax in respect of a year of income would not be liable to pay income tax in respect of that year of income or would be liable to pay less income tax in respect of that year of income than that person would have been liable to pay if the transaction, operation, undertaking, scheme or arrangement had not been entered into or carried out–the Commissioner General shall have regard to that transaction, operation, undertaking, scheme or arrangement; and
(e) where the purchase or acquisition of the prescribed property by the taxpayer arose out of, or was made in the course of, a transaction, operation, undertaking, scheme or arrangement that the Commissioner General is satisfied was by way of dividend stripping or was similar to a transaction, operation, undertaking, scheme or arrangement by way of dividend stripping–the Commissioner General shall have regard to the transaction, operation, undertaking, scheme or arrangement; and
(f) where–
(i) the purchase or acquisition of the prescribed property by the taxpayer arose out of, or was made in the course of, a transaction, operation, undertaking, scheme or arrangement under which, or in the course of which, money was to be paid, or other property was to be transferred or made available by a person other than the taxpayer, whether before or after the purchase or acquisition of the prescribed property, to the taxpayer, to the taxpayer and a person or persons other than the taxpayer or to a person or persons other than the taxpayer; and
(ii) the Commissioner General is satisfied that the amount of money so to be paid, or the value of the property so to be transferred or made available, as the case may be, was to be not less than, or not substantially less than, the amount expended by the taxpayer in the purchase or acquisition of the prescribed property, the Commissioner General shall have regard to the fact that the purchase or acquisition of the prescribed property by the taxpayer arose out of, or was made in the course of such a transaction, operation, undertaking, scheme or arrangement; and
(g) where the purchase or acquisition of the prescribed property by the taxpayer arose out of, or was made in the course of, a transaction, operation, undertaking, scheme or arrangement under which, or in the course of which, other prescribed property was to be issued or allotted by a company (whether to the taxpayer or any other person or persons) and it could reasonably be expected that, as a result of the issue or allotment of that other prescribed property, the value of the prescribed property purchased or acquired by the taxpayer would be substantially reduced–the Commissioner General shall have regard to that transaction, operation, undertaking, scheme or arrangement; and
(h) where the purchase or acquisition of the prescribed property by the taxpayer arose out of, or was made in the course of, a transaction, operation, undertaking, scheme or arrangement under which, or in the course of which, rights in respect of the prescribed property or in respect of other prescribed property (whether that other prescribed property had been issued or allotted before the time of the purchase or acquisition by the taxpayer of the first-mentioned prescribed property or was to be issued or allotted at a later time) were to be withdrawn or varied and it would reasonably be expected, that as a result of a withdrawal or variation of those rights, the value of the prescribed property purchased or acquired by the taxpayer would be substantially reduced–the Commissioner General shall have regard to that transaction, operation, undertaking, scheme or arrangement; and
(i) the Commissioner General shall have regard to any other matters that he considers relevant.

(6) In this section, “prescribed property” means any chose in action.

(7) In the preceding provisions of this section, references to the value of any prescribed property shall, unless the contrary intention appears, be read as including references to part of the value of that prescribed property.

(8) For the purposes of this section–

(a) a person to whom prescribed property is issued or allotted by a company shall be taken to have acquired that prescribed property; and
(b) a person upon whom prescribed property devolves by reason of a death of a person shall be taken to have acquired that prescribed property; and
(c) a person in whom prescribed property vests by the operation of any trust or the exercise of any power under a trust shall be taken to have acquired that prescribed property.

(9) The reference in Subsection (5)(b) to terms and conditions shall be read as including a reference to implied terms and conditions and to terms and conditions that are not enforceable by legal proceedings whether or not they were intended to be so enforceable.

(10) Where, by virtue of the application of the preceding provisions of this section, the amount (in this subsection referred to as the “relevant amount”) of the deduction that is allowable to a taxpayer in respect of losses or outgoings incurred by the taxpayer in the purchase or acquisition of prescribed property is less than the amount of those losses and outgoings, the cost or cost price of that prescribed property shall, for the purposes of the application of Part III.2B in relation to that property in relation to the taxpayer, be taken to be an amount that is the same as the relevant amount.

(11) References in this section to expenditure incurred by a taxpayer in the purchase or acquisition of any prescribed property shall, in the case of prescribed property being a share or stock in the capital of a company, be read as including references to any payment made or other consideration given by the taxpayer to the company in respect of the prescribed property, whether as payment of a premium in respect of the prescribed property, as a payment of unpaid capital in respect of the prescribed property or otherwise and whether on application for an allotment of the prescribed property, to meet calls or otherwise.

72. REPAIRS.

(1) Expenditure incurred by the taxpayer in the year of income for repairs, not being expenditure of a capital nature, to any premises, or part of premises, plant, machinery, implements, utensils, rolling stock or articles held, occupied or used by him for the purpose of producing assessable income, or in carrying on a business for that purpose, is an allowable deduction.

(2) Expenditure incurred upon repairs to any premises or part of premises not so held, occupied or used is not an allowable deduction.

(3) Where the premises, part of premises, plant, machinery, implements, utensils, rolling stock or articles referred to in Subsection (1) were held, occupied or used by the taxpayer only partly for the purpose of producing assessable income, or only partly in carrying on a business for that purpose, so much only of the expenditure that, but for this Subsection, would be an allowable deduction under Subsection (1) as, in the opinion of the Commissioner General, is reasonable in the circumstances, shall be an allowable deduction.

72A. DOUBLE DEDUCTION FOR STAFF TRAINING.

(1) In this section, “tax saving” means the reduction of tax payable resulting from the allowance of a deduction under this section.

(2) Subject to this section, a deduction is allowable for expenditure incurred–

(a) from 1 January 1980 for the payment of salary and wages to a bona fide apprentice registered with the National Apprenticeship and Trade Testing Board under the Apprenticeship and Trade Testing Act 1986; and
(b) from 1 January 1983 for the payment of salary and wages to an employee, being an automatic citizen attending a full-time professional training course at–
(i) a Government Training Institute; or
(ii) a prescribed tertiary place of education; and
(c) from 1 January 1984 for the payment of salary and wages to training officers where they are engaged wholly and exclusively in training or educational activities and are not engaged directly in the derivation of the assessable income of the taxpayer.

(3) The amount allowable under this section shall be twice the amount that but for this section would be or would have been an allowable deduction.

(4) Where a double deduction is allowable under this section, the amount deductible shall be allowable only to the extent that the tax saving resulting from the allowance of the deduction does not exceed 75% of the expenditure actually incurred.

(5) Where an amount allowed under this section is recouped or recoupable, that amount shall be included in assessable income to the extent that a deduction has been allowed.

72B[93]. [REPEALED.]
72C. DOUBLE DEDUCTION FOR EXPORT MARKET DEVELOPMENT COSTS.

(1) In this section, unless the contrary intention appears–

“export” does not include the export of goods by way of gift or the taking or sending of goods out of Papua New Guinea with the intention that the goods will at some later time be brought or sent back to Papua New Guinea otherwise than for repair or replacement;
“export market development expenditure” means specified outgoings incurred primarily and principally for the purpose of seeking opportunities, or creating and increasing demand, for the export from Papua New Guinea of goods that have been manufactured in Papua New Guinea but does not include–
(a) specified outgoings incurred in promoting the sale of goods manufactured or produced outside Papua New Guinea, if the labour costs incurred in processing the goods in Papua New Guinea are less than 10% of the sale price; or
(b) so much of any outgoings incurred by a person as–

(i) has been, or is to be, paid or reimbursed to the taxpayer by another person; or

(ii) is incurred in or in connection with services or doing anything for which the taxpayer has been, or is to be, paid by another person;

“specified agent” in relation to a taxpayer means–
(a) in the case of a taxpayer not being a company, the taxpayer himself; or
(b) in the case of a taxpayer being a company, a director, or a member of the governing body, of the company; or
(c) in the case of a taxpayer being a partnership, one of the partners; or
(d) in any case an employee of the taxpayer;
“specified outgoings” means outgoings incurred by a taxpayer by way of–
(a) expenses incurred in respect of publicity and advertisements in any media outside Papua New Guinea; or
(b) expenses directly attributable to the provision of samples without charge to prospective customers outside Papua New Guinea including the cost of delivery of the samples; or
(c) expenses directly attributable to carrying out export market research or the obtaining of export marketing information; or
(d) expenses directly attributable to the preparation of tenders for the supply of goods to prospective customers outside Papua New Guinea; or
(e) expenses by way of fares in respect of travel to a country outside Papua New Guinea by a specified agent of the taxpayer, being travel necessarily undertaken for the purpose of negotiating or concluding contracts for sale of goods on behalf of the company or for the purposes of participating in trade fairs or trade or industrial exhibitions and actual expenses, subject to a maximum of K100 per day, for accommodation and sustenance for the whole of the period commencing with the specified agent’s departure from Papua New Guinea and ending with his return to Papua New Guinea; or
(f) expenses for giving technical information to persons outside Papua New Guinea relating generally to manufactured goods from Papua New Guinea offered for sale, excluding expenses for giving technical information to purchasers after purchase; or
(g) expenses directly attributable to the provision of exhibits for trade fairs or trade or industrial exhibits; or
(h) expenses for services rendered for public relations work connected with export; or
(i) expenses directly incurred for participation in trade fairs or trade or industrial exhibitions other than expenses specified in Paragraphs (e) and (g); or
(j) expenses for the cost of maintaining sales offices overseas for the promotion of exports from Papua New Guinea; or
(k) expenses incurred by a local manufacturer directly attributable to the costs of travel of bona fide buyers or potential buyers from a foreign country, where the purpose of the travel is to purchase, or investigate the possibilities of purchase, of locally manufactured goods in commercial quantities for export from Papua New Guinea;
“the tax saving” means the reduction in tax payable resulting from the allowance of a deduction under this section.

(2) No deduction shall be allowed under this section in respect of fares, accommodation expenses and other incidental expenses incurred in relation to travel outside Papua New Guinea to the extent that they relate to travel by a person other than the taxpayer, who was not at the time travel was undertaken, a specified agent.

(3) Where the amount of any outgoing constituting or forming part of any export market development expenditure exceeds the amount that, in the opinion of the Commissioner General, would reasonably be expected to be payable, in the ordinary course of business, for the services or goods upon which the outgoing was incurred, the Commissioner General may, for the purposes of this section, treat the outgoing as being reduced by the amount of the excess.

(4) Subject to this section, a deduction is allowable for expenditure incurred after 1 September 1984 for export market development.

(5) The amount allowable under this section shall be twice the amount that but for this section would be or would have been an allowable deduction.

(6) Where a double deduction is allowable under this section, the amount deductible shall be allowable only to the extent that the tax saving resulting from the allowance of the deduction does not exceed 75% of the expenditure actually incurred.

73. DEPRECIATION.

(1) Depreciation during the year of income of any property (other than buildings outside Papua New Guinea) being plant or articles owned by a taxpayer and–

(a) used by him during that year for the purpose of producing assessable income; or
(b) installed ready for use for that purpose and during that year held in reserve by him,

is, subject to this Act, an allowable deduction.

(2) In this section–

“acquired” means, in reference to the acquisition by a person of property being plant or articles, a reference to–
(a) the person becoming the owner of the property; or
(b) the commencement of construction of the property for the person;
“agricultural production” means production resulting directly from–
(a) the cultivation of land; or
(b) the maintenance of animals or poultry for the purpose of selling them or their bodily produce, including natural increase and includes the processing of vegetable and animal raw material produced by the cultivation of land or the maintenance of animals or poultry by the person who produced the raw material used in that manufacture;
“eligible property” means new capital plant or articles with an effective life determined in accordance with Section 74 exceeding five years acquired–
(a) on or after 1 January 1980 for the purposes of commercial activities within Papua New Guinea and falling within Tabulation Categories D (Manufacturing), F (Construction), I (Transport, Storage and Communication) and O (Other Community, Social and Personal Service Activities) of the International Standard Industrial Classification of all Economic Activities published in 1990 under Revision 3; or
(b) on or after 1 January 1981 for the purposes of commercial activities within Papua New Guinea and falling within Tabulation Categories J (Financial intermediation) and K (Real estate, renting and, business activities) of the International Standard Industrial Classification of all Economic Activities published in 1990 under Revision 3; or
(c) on or after 1 January 1982 for the purposes of agricultural production within Papua New Guinea,
but does not include–
(d) capital plant or articles leased to any one person for use in carrying on commercial activities not included above; or
(e) plant or articles (other than shipping vessels and aircraft) which rely upon imported petroleum products (including LPG) as its source of power; or
(f) plant or articles acquired after 9 November 1982 for commercial activities falling within Tabulation Categories J (Financial intermediation), K (Real estate, renting and business activities) and O (Other community, social and personal service activities) of the International Standard Industrial Classification of all Economic Activities published in 1990 under Revision 3,
but does not include residential dwellings acquired after 6 November 1984 with a cost price in excess of K100,000;
“industrial plant” means any plant or equipment with an effective life determined in accordance with Section 74 exceeding five years which is used by the taxpayer or any other person in a manufacturing process and includes buildings and other structural improvements used for the housing of such plant or equipment, the component parts of the product being manufactured or the product itself;
“initial year” means the year of income in which the taxpayer first becomes entitled to a deduction for depreciation by virtue of Section 73(1);
“new” means not having previously been either used by any person or acquired or held by any person for use by that person but does not include reconditioned or wholly or mainly reconstructed, or plant or articles in respect of which a deduction under this subdivision has either wholly or in part been previously allowed;
“non oil-fired plant” means energy conversion equipment principally powered by fuels other than imported petroleum products (including LPG) and includes internal combustion engines, heat raising equipment, turbines and Mini hydro schemes generating not more than 1 megawatt;
“oil-fired plant” means energy conversion equipment principally powered by imported petroleum products (including LPG);
“plant” includes–
(a) animals used as beasts of burden or working beasts in a business other than a business of primary production, and machinery, implements, utensils and rolling stock; and
(b) fences, dams and other structural improvements on land that is used for the purposes of agricultural or pastoral pursuits and structural improvements that are used wholly and exclusively for the purposes of pearling operations and are situated at or in the vicinity of a port or harbour from which those operations are conducted, other than–

(i) structural improvements used for domestic or residential purposes except where the improvements are provided for the accommodation of employees, tenants or share farmers engaged in or in connection with those pursuits of operations, as the case may be; or

(ii) structural improvements, bores or wells, expenditure on which has been allowed, or is or has been allowable, as a deduction under Section 97 from the assessable income of any year of income of the taxpayer or of any other person; and

(c) structural improvements used for the accommodation of employees and their families which the taxpayer is or was bound, by or under an Act in force or previously in force in Papua New Guinea or a part of Papua New Guinea, to provide for such employees or their families; and
(d) buildings and other structural improvements the construction of which was commenced after 31 December 1960, other than any such improvements used primarily and principally for the domestic or residential purposes of the taxpayer;
“residential dwelling” includes premises providing either single or family accommodation or such part of premises which the Commissioner General is satisfied constitutes a separate residence.

(3) Subject to Subsection (7), where new capital plant or articles, being eligible property, is acquired during the year of income, the amount of depreciation allowable in the initial year shall be increased by an amount totalling 20% of the cost price.

(4) Where existing plant is improved or extended for the purpose of conserving fuel input, (specifically insulation and waste heat recovery), and such capital expenditure is incurred within the year of income, the amount of depreciation allowable in respect of such extensions or improvements allowable in the year shall be increased by an amount totalling 20% of the capital cost.

(5) Where existing oil-fired plant is converted to a non oil-fired plant during the year of income, the amount of depreciation allowable in the year for the capital cost of the conversion shall be increased by an amount totalling 30% of the capital cost of conversion.

(6) Where new capital plant or articles, being non oil-fired plant is acquired during the year of income, the amount of depreciation allowable in the initial year shall be increased by an amount totalling 30% of the cost price.

(7) Where industrial plant not previously used in Papua New Guinea is installed ready for use after 1 September 1984, the taxpayer may in any year elect to increase the amount of depreciation otherwise allowable in respect of the industrial plant by an amount not exceeding the lesser of–

(a) the amount remaining after deducting from the taxpayer’s income all other allowable deductions (including deductions allowable under the subdivision otherwise than under this section) from that income; or
(b) the sum ascertained at the end of the year of income of depreciated value of that industrial plant.

(8) The election referred to in Subsection (7) shall–

(a) be made in writing, signed by the taxpayer and delivered to the Commissioner General with the taxpayer’s return of income for that year or within such further time as the Commissioner General allows; and
(b) specify the assets or classes of assets to which the election shall apply.

(9) The depreciation allowable as a deduction shall be increased to an amount totalling 100% for new plant or articles acquired after 4 March 1986 and failing within the following categories:–

(a) property, being plant or articles used directly for the purposes of agricultural production;
(b)  
(i) property, being plant or articles used solely for the purpose of fishing by residents engaged in fishing on a commercial basis and ancillary equipment fitted to those boats or ships;
(ii) notwithstanding anything in the Act, for the purposes of Subparagraph (i), property includes used property when first imported for use in PNG.
(b)[94] [Repealed.]
(c) plants or articles, being boats or ships and ancillary equipment fitted to those boats or ships where–
(i) those boats or ships are used solely as dive boats or ships by a person carrying on business as scuba diving and/or snorkelling tour operators and accredited as such by the Papua New Guinea Tourism Promotion Authority; and
(ii) a copy of the relevant accreditation certificate has been supplied to the Commissioner General.

(10) Plant or articles in respect of which a company has relinquished its right to a deduction for depreciation pursuant to Section 97A shall be deemed for all purposes of this Act to be plant or articles in respect of which depreciation has been allowed or is allowable.

(11) Depreciation of any property that is a leisure facility for the purposes of Section 68AB is not an allowable deduction.

(12) Subsection (11) does not prevent depreciation of any property from being an allowable deduction to the extent, if any, to which the depreciation took place during a part of the year of income referred to in Section 68AB(4)(a).

74. BASIS OF DEPRECIATION.

(1) In the first calculation of the depreciation to be allowed in respect of a unit of property, an estimate shall be made by the Commissioner General of the effective life of the unit assuming that it is maintained in reasonably good order and condition, and the annual depreciation per centum shall be fixed accordingly.

(2)[95] [Repealed.]

75. CALCULATION OF DEPRECIATION.

(1)[96] [97]Subject to this section and to Section 155J, the depreciation allowable under this Act in respect of a unit of property in relation to a year of income is–

(a) one and one-half times the percentage fixed by or under Section 74 of the depreciated value of that unit at the beginning of the year of income; or
(b) at the option of the taxpayer, to be exercised in accordance with Section 76, the percentage fixed by or under Section 74 of the cost of that unit.

(1A) Where the unit of property is dealt with by the taxpayer in the prescribed manner during part only of the year of income, the depreciation allowable to the taxpayer in accordance with Subsection (1) in respect of the property in relation to the year of income shall be reduced by so much of the amount of the depreciation applicable in accordance with Subsection (1) as bears to that amount the same proportion as the number of days during the year of income during which the property was not dealt with by the taxpayer in the prescribed manner bears to the number of days of income.

(1B) For the purposes of the application of Subsections (1) and (1A) in a case where the unit of property is not dealt with by the taxpayer in the prescribed manner on the first day of the year of income, the reference in Subsection (1)(a) to the depreciation value of the unit shall be read as a reference to the depreciated value of the unit of property at the time during the year of income when it is first dealt with by the taxpayer in the prescribed manner–

(a) the property is used by the taxpayer at that time for the purposes of producing assessable income; or
(b) the property is, at that time, installed ready for use for the purpose of producing assessable income and held in reserve by the taxpayer.

(2) The deduction allowable in respect of a unit of property shall not exceed the depreciated value of that unit.

(3) Where, in respect of a unit of property, an amount that would, but for this subsection, be part of the cost of the unit has been allowed or is allowable under this Act as a deduction (otherwise than on account of depreciation) from the assessable income of the taxpayer of any year of income, the cost of the unit shall be deemed to be the amount remaining after deducting from the cost of the unit to that taxpayer, as ascertained apart from this subsection, the sum of any amounts so allowed or allowable.

(4) For the purposes of any calculation made pursuant to this section, the cost of any unit of property shall be deemed to be reduced by that amount of the cost of that unit which has been relinquished by the taxpayer pursuant to an election under Section 97A.

76. EXERCISE OF OPTION.

(1) The option referred to in Section 75(1) is exercisable by a taxpayer in relation to either–

(a) all units of property in respect of which depreciation is or will be allowable to him in accordance with that section; or
(b) such of those units of property as have been, or will be–
(i) first used by him for the purpose of producing assessable income; or
(ii) installed ready for use by him for that purpose,

during the year of income in relation to which the option first applies or during a subsequent year.

(2) An option referred to in Subsection (1)–

(a) shall be exercised by notice in writing to the Commissioner General; and
(b) shall be expressed to apply in the first instance in relation to a year of income specified in the notice and has effect accordingly; and
(c) shall be lodged with the Commissioner General on or before the date of lodgment of the return of income of the taxpayer for the year of income referred to in the last preceding paragraph or within such further time as the Commissioner General allows.
77. ALTERATION OF METHOD OF CALCULATION.

Where depreciation has been allowed to a taxpayer in respect of a year before the year of income, the method of calculating the depreciation to be allowed to him in respect of the year of income is, unless altered with the leave of the Commissioner General or in the exercise of the option referred to in Section 75, the same as that applied in the last preceding calculation.

78. DISPOSAL, LOSS OR DESTRUCTION OF DEPRECIATED PROPERTY.

(1) Where any property of a taxpayer in respect of which depreciation has been allowed or is allowable under this Act is disposed of, lost or destroyed at any time in the year of income, the depreciated value of the property at that time, less the amount of any consideration receivable in respect of the disposal, loss or destruction, is an allowable deduction.

(2) If that consideration exceeds that depreciated value, the excess, to the extent of the sum of the amounts allowed and allowable in respect of depreciation in assessments of income tax under this Act, shall, subject to the succeeding provisions of this section, be included in his assessable income of that year.

(3) Where an amount, being the whole or a part of the consideration receivable in respect of the disposal, loss or destruction of a unit of property in the year of income (in this subsection referred to as “the balancing charge”) would, but for this subsection, be included in the assessable income of the taxpayer under Subsection (2), the Commissioner General shall, if the taxpayer so requests in writing when lodging the return of income of the year of income or within such further time as the Commissioner General allows, in lieu of including the balancing charge in the assessable income, successively reduce–

(a) the cost, for the purpose of calculating depreciation allowable under this Act, of any unit of property acquired by the taxpayer during the year of income to replace the unit of property so disposed of, lost or destroyed; and
(b) the cost, for the purpose of calculating depreciation allowable under this Act, of any other unit of property acquired by the taxpayer during the year of income; and
(c) the depreciated values, at the beginning of the year of income, of other units of property,

by such amounts as do not exceed, in the aggregate, the balancing charge.

(4) The cost or depreciated value of a unit of property shall not be reduced under Subsection (3) unless–

(a) at the end of the year of income the unit is used wholly for the purpose of producing assessable income or has been installed ready for use wholly for that purpose and is held in reserve; and
(b) depreciation under this Act is allowable to the taxpayer in respect of the unit.

(5) Where an amount that would, but for Subsection (3), be included in the assessable income of the taxpayer of the year of income under Subsection (2) exceeds the sum of reductions made under Subsection (3), the amount of that excess shall be included in his assessable income of the year of income.

(6) Where–

(a) during a year of income not later than the second year of income after the year of income in which a unit of property is disposed of, lost or destroyed, a taxpayer acquires, to replace that unit, a unit of property that, at the end of the year of income, is used wholly for the purpose of producing assessable income, or has been installed ready for use wholly for that purpose and is held in reserve; and
(b) the taxpayer has not made a request under Subsection (3) in relation to that disposal, loss or destruction,

the Commissioner General shall, if the taxpayer so requests in writing not later than the date of lodgment of the return of income of the first-mentioned year, or within such further time as the Commissioner General allows–

(c) exclude from the assessable income of the year of income in which the property was disposed of, lost or destroyed so much of the amount that would otherwise be included in that assessable income under Subsection (2) by reason of the disposal, loss or destruction as does not exceed the cost of the unit of property so acquired; and
(d) reduce by an amount equal to the amount so excluded the cost, for the purpose of calculating depreciation allowable under this Act, of the unit of property so acquired.

(7) An amount by which the cost or depreciated value of a unit of property has been reduced in pursuance of Subsection (3) or (6) shall, for the purposes of this Act, be deemed to be depreciation that has been allowed in respect of that unit in the assessment in which the reduction was made.

(8) The consideration receivable in respect of the disposal, loss or destruction means–

(a) in the case of a sale of the property–
(i) where the Commissioner General is satisfied that the sale price is fair and reasonable–the sale price less the expenses of the sale of the property; or
(ii) where the Commissioner General is not so satisfied–such amount as, in his opinion, is fair and reasonable; and
(b) in the case of loss or destruction of the property–the amount or value received or receivable under a policy of insurance or otherwise in respect of the loss or destruction; and
(c) in the case where the property is sold with other assets and a separate value is not allocated to the property–such amount as is determined by the Commissioner General; and
(d) in the case where property is disposed of otherwise than by sale–the value, if any, of the property at the date of disposal.

(9)[98] [99]If Section 155D(4) applies to property in respect of which a deduction has previously been allowed to a taxpayer under this section, that property shall for the purposes of this section be deemed to have been disposed of on the date upon which the taxpayer commences to use that property for the purpose referred to in those sections.

78A. ADJUSTMENT OF DEDUCTIONS ON THE SALE OF A RIGHT TO OCCUPY REAL PROPERTY.

(1) Subject to this section, where at any time before the end of a year of income–

(a) a person (in this section called “the vendor”) has an indefinitely continuing right to occupy or use Papua New Guinea real property; and
(b) a person (in this section called “the purchaser”) has incurred capital expenditure to acquire that right or a right to occupy or use part of that property; and
(c) the capital expenditure by the purchaser does not (except through an application of this section) confer ownership rights to him in respect of that property,

the vendor and the purchaser may agree that part or all of the expenditure incurred by the purchaser shall be deemed to be expenditure incurred in the purchase of that real property.

(2) Subject to Subsection (3), in an agreement referred to in Subsection (1), the deemed expenditure shall not exceed the lesser of–

(a) the amount of the capital payment referred to in Subsection (1)(b); or
(b) the total of–
(i) the depreciated value of that property or, where the right to occupy or use only part of that property has been purchased, the proportionate part of the depreciated value of that property; and
(ii) any amounts included in the assessable income of the vendor as a result of that sale.

(3) Subsection (2) does not apply where the Commissioner General is of the opinion that the circumstances are such that the deemed expenditure should be based on the actual consideration given for the purchase of those rights.

(4) An agreement referred to in Subsection (1) shall not have any effect unless the parties forward to the Commissioner General not later than the date on which the first return under this Act after the date of the transfer of the rights is lodged, or within such further time as the Commissioner General allows, a duly stamped notice signed by them or on their behalf which specifies the amount of deemed expenditure in accordance with Subsections (1) and (2).

(5) Where a notice is given under Subsection (4)–

(a) the purchaser shall be deemed, subject to Subsection (2), to have purchased that real property for the amount of expenditure specified in the notice; and
(b) the vendor shall be deemed to have sold that real property for that same amount.

(6) Where the transfer of rights occurred in a calendar year prior to 1986–

(a) the notice referred to in Subsection (4) shall be forwarded to the Commissioner General not later than the date on which the first return after the date on which the section came into force is lodged, or within such further time as the Commissioner General allows; and
(b) the date of transfer of the relevant rights referred to in Subsection (5)(b) shall be deemed to be the later of–
(i) 1 January 1986; or
(ii) the date on which the relevant rights were transferred.

(7)[100] [Repealed.]

79. DISPOSAL OF DEPRECIATED PROPERTY ON CHANGE OF OWNERSHIP OR INTEREST.

Where–

(a) for any reason (including the formation or dissolution of a partnership or a variation in the constitution of a partnership or in the interests of the partners) a change has occurred in the ownership of, or in the interests of persons in, property in respect of which depreciation has been allowed or is allowable under this Act; and
(b) the person, or one or more of the persons, who owned the property before the change has or have an interest in the property after the change,

the provisions of this Act relating to depreciation apply as if the person or persons who owned the property before the change had, on the day on which the change occurred, disposed of the whole of the property to the person, or all the persons, by whom the property is owned after the change for a consideration equal to the amount specified in the agreement in consequence of which the change occurred as the value of the property for the purposes of that agreement, or, if there is not such an agreement or an amount is not so specified or the Commissioner General is not satisfied that the amount so specified is a fair and reasonable value of the property, an amount determined by the Commissioner General.

80. NOTIONAL INCOME WHERE ASSESSABLE INCOME INCLUDES CONSIDERATION RECEIVABLE ON DISPOSAL, LOSS OR DESTRUCTION OF DEPRECIATED PROPERTY.

(1) This section applies to a taxpayer where–

(a) assets of a business carried on by–
(i) the taxpayer; or
(ii) a partnership in which a taxpayer is a partner; or
(iii) the trustee of a trust estate to a share of the net income of which a resident taxpayer (not being a person under a legal disability) is presently entitled,

are disposed of, lost or destroyed and, in consequence of their disposal, loss or destruction, that business ceases to be so carried on; and

(b) those assets include units of property in respect of which depreciation has been allowed or is allowable under this Act; and
(c) an amount (in this section referred to as “the balancing charge”) is included in the assessable income of the year of income of the taxpayer, partnership or trust estate, as the case may be, under Section 78(2) in consequence of the disposal, loss or destruction of those assets,

but does not apply where–

(d) the taxpayer is a company, except where, in respect of the whole or a part of the balancing charge, it is assessable as a trustee; or
(e) the taxpayer has, in relation to that disposal, loss or destruction, made a request in pursuance of Section 78(3) or (6).

(2) For the purposes of this section, a part of the assessable income of a taxpayer to whom this section applies shall be deemed to be abnormal income, and that part shall be ascertained as follows:–

(a) where the assets disposed of, lost or destroyed were assets of a business carried on by a taxpayer otherwise than in partnership or as the trustee of a trust estate, the abnormal income is the amount of the balancing charge;
(b) where the assets disposed of, lost or destroyed were assets of a business carried on by a partnership of which the taxpayer is a partner, the abnormal income is so much of the balancing charge as is included in the individual interest of the taxpayer in the net income of the partnership;
(c) where the assets disposed of, lost or destroyed were assets of a business carried on by the trustee of a trust estate, the abnormal income is–
(i) for the purposes of an assessment of the trustee under Section 130–so much of the balancing charge as is included in the amount of the net income of the trust estate to which the assessment relates; and
(ii) for the purposes of the assessment of a resident taxpayer who is a beneficiary in the trust estate–so much of the balancing charge as is included in the share of the net income of the trust estate to which he is presently entitled.

(3) A taxpayer to whom this section applies may, on or before the date of lodgment of his return of income in respect of the year of income or within such further time as the Commissioner General allows, apply in writing to the Commissioner General for the determination under this section of a notional income in respect of the year of income.

(4) Where a taxpayer makes an application to the Commissioner General in accordance with Subsection (3), the succeeding provisions of this section apply for the determination of a notional income for the purpose of any Act by which a rate of tax upon the taxable income of a taxpayer is fixed by reference to a notional income.

(5) Subject to Subsection (7), where the taxable income of the taxpayer exceeds his abnormal income, the notional income is the amount ascertained by deducting from the taxable income an amount equal to two-thirds of the abnormal income.

(6) Subject to Subsection (7), where the taxable income of the taxpayer does not exceed his abnormal income, the notional income is an amount equal to one-third of the taxable income.

(7) Where Section 117(2) or Section 212 applies, or both of those provisions apply, in respect of the taxpayer, the notional income is, in lieu of the notional income determined in accordance with either or both of those provisions–

(a) where the notional income determined in accordance with either or both of those provisions exceeds the abnormal income of the taxpayer–the amount ascertained by deducting from the notional income so determined an amount equal to two-thirds of the abnormal income; or
(b) where the notional income determined in accordance with either or both of those provisions does not exceed the abnormal income of the taxpayer–an amount equal to one-third of the notional income so determined.
81. ACQUISITION OF DEPRECIATED PROPERTY.

(1) Where a person acquires any property in respect of which depreciation has been allowed or is allowable under this Act, he is not, except as provided by Subsection (2), entitled to any greater deduction for depreciation than that which would have been allowed to the person from whom the property was acquired if that person had retained it.

(2) Where under Section 78 an amount is included in the assessable income of the person disposing of the property, the person acquiring the property shall be allowed depreciation calculated on the sum of that amount and the depreciated value of the property under this Act immediately before the time of the sale.

(3) For the purposes of Subsection (2), an amount that would, but for Section 78(3) or (6), be included in the assessable income of the person disposing of the property shall be deemed to have been so included.

(4) This section does not apply where the Commissioner General is of the opinion that the circumstances are such that depreciation based on the actual consideration given should be allowed.

82. PROPERTY USED PARTLY FOR PRODUCING ASSESSABLE INCOME.

Where the use of any property by a taxpayer has been only partly for the purpose of producing assessable income–

(a) only such part of a deduction otherwise allowable under Section 73 or Section 78 in respect of that property as in the opinion of the Commissioner General is proper is an allowable deduction; and
(b) only such part of any excess otherwise to be included in the assessable income of the taxpayer under Section 78 in respect of that property as in the opinion of the Commissioner General is proper shall be included in the assessable income.
83. DEFINITION OF DEPRECIATED VALUE.

(1)[101] [102]In this Division “depreciated value” of a unit of property, being plant and equipment, at anytime means, subject to Division III.10–

(a) in the case of a unit of property acquired by a person before the date on which that person derived income, which would be assessable under this Act, (and that unit of property was used by him as at that date for the purpose of producing exempt income or otherwise or installed ready for use for that purpose by him as at that date and held in reserve) the actual cost of the unit to that person less the sum of the amounts that, if–
(i) the Act had commenced to have effect at the commencement of the financial year in which that unit was acquired by that person and had applied to income in that year and each subsequent year before the first year of income to which the Act applies; and
(ii) the unit had been used during the whole of the period from the time of its acquisition by that person to the commencement of the first year of income to which the Act applies for the purpose of producing assessable income,

would have been allowed or allowable in respect of that unit as deductions by way of depreciation under Section 75(1)(a) or at the option of the taxpayer under Section 75(1)(b) from the assessable income of the taxpayer derived during those years; or

(b) in the case of a unit of property to which Paragraph (a) applies, where that unit is subsequently used for the purpose of producing assessable income the actual cost of the unit to that person less the sum of–
(i) the depreciation calculated under Paragraph (a) as allowed or allowable; and
(ii) the depreciation allowed or allowable in an assessment of income of a person under this Act by virtue of Section 75(1)(a) or at the option of the taxpayer under Section 75(1)(b); or
(c) in the case of any other unit of property, the cost of the unit to the person who owned the property at that time, less the amount of depreciation (if any) allowed or allowable in respect of that unit in assessments of the income of that person, for any period before that time, under this Act.

(2) The option referred to in Subsection (1)(a) or (b)–

(a) shall be exercised by notice in writing to the Commissioner General; and
(b) applies to all units of property to which that paragraph relates; and
(c) shall be lodged with the Commissioner General on or before the date of lodgement of the return of income for the first year of income to which this Act applies or within such further time as the Commissioner General allows.

(3) Where a taxpayer has, in relation to a unit or units of property, exercised an option under Subsection (1)(a) or (b), he shall be deemed also to have exercised the option referred to in Section 75(1)(b) in relation to that unit or those units of property.

(4) For the purposes of the calculation of depreciated value of a unit of property under Subsection (1), that amount of the cost of that unit which has been relinquished by the taxpayer pursuant to an election under Section 97A shall be deemed to be depreciation allowed or allowable to the taxpayer under this Act.

84. NOTIONAL COST IN CERTAIN CIRCUMSTANCES.

(1) For the purposes of Section 75(1)(b) and 83, in any case in which Section 81 applied or applies in relation to a unit of property, the person who acquired or acquires the unit shall be deemed to have acquired or to acquire it at a cost equal to the depreciated value of the unit immediately before the time of the acquisition, or, if the case is one in which Section 81(2) applied or applies, the sum of that depreciated value and the amount required to be added to that depreciated value for the purposes of that subsection.

(2)[103] [Repealed.]

85. BAD DEBTS.

(1) Debts that are bad debts and are written off as such during the year of income and–

(a) have been brought to account by the taxpayer as assessable income of any year; or
(b) are in respect of money lent in the ordinary course of the business of the lending of money by a taxpayer who carries on that business,

are allowable deductions, but no other bad debts are allowable deductions.

(2) Where, after a debtor incurs a debt so brought to account or a debt in respect of money so lent–

(a) the debtor is adjudicated insolvent; or
(b) the affairs of the debtor are liquidated by arrangement; or
(c) the debtor makes a composition with his creditors,

the debt (where, in the opinion of the Commissioner General, no amount will be paid on account of the debt), or the amount by which, in the opinion of the Commissioner General, the amount that will be received on account of the debt will be less than the debt, shall be deemed to be a bad debt.

(3) Where in the year of income a taxpayer receives an amount in respect of a debt for which a deduction has been allowed to him under this Act, his assessable income shall include that amount.

86. COMMISSION.

Expenditure incurred by the taxpayer in the year of income by way of commission for collecting his assessable income is an allowable deduction.

87. PAYMENTS TO RELATIVES.

(1) Subject to this section, payments becoming due in the year of income by a taxpayer to a relative are allowable deductions only to the extent to which, in the opinion of the Commissioner General, they are reasonable in amount and bona fide made in the production of assessable income.

(2) Expenditure incurred, and payments becoming due, by the taxpayer in the year of income in or for the maintenance of the spouse of the taxpayer or of any member of the family of the taxpayer under the age of 16 years, are not, whether or not the expenditure was incurred in the production of assessable income, allowable deductions.

88. CONTRIBUTIONS TO FUND FOR BENEFIT OF EMPLOYEES OF TAXPAYER.

(1)[104] [105]Where a taxpayer sets apart or pays in the year of income a sum to an Authorized Superannution Fund, an amount ascertained in accordance with the provisions of this section is an allowable deduction.

(1A)[106] In this Section–

“dependant”, in relation to an employee, includes the spouse and any child of the employee;
“person” includes a partnership;
[107][108]“fund” means an Authorized Superannuation Fund;

(2) For the purposes of this section, the Commissioner General shall determine, in respect of each sum so set apart or paid–

(a) the number of employees employed during the year of income who, or whose dependants, were eligible, or might become eligible, to receive benefits, pensions or retiring allowances from the fund; and
(b) the part, if any, of the sum so set apart or paid that is attributable to the provision of benefits, pensions or retiring allowances for, or for dependants of, employees other than employees engaged during the year of income in producing assessable income of the taxpayer; and
(c) where the taxpayer is a private company within the meaning of Division 7 of this Part and a part of the sum so set apart or paid is attributable to the provision of benefits, pensions or retiring allowances for a person, or for dependants of a person, who was, at any time during the year of income, both a shareholder and an employee of that company–the part (if any) of the sum set apart or paid that, in the opinion of the Commissioner General, would not have been set apart or paid if that person had not been a shareholder; and
(d) the amount included in the sum so set apart or paid that is attributable to the provision of benefits, pensions or retiring allowances for, or for dependants of, each employee included in the number determined under Paragraph (a) who is not an employee or one of a number of employees in relation to whom a part has been determined under Paragraph (b), excluding any part of any such amount that has been determined under Paragraph (c).

(3) The amount that is an allowable deduction under this section is the amount remaining after deducting from the sum so set apart or paid the total of–

(a) any amount determined by the Commissioner General under Subsection 2(b); and
(b) any amount determined by the Commissioner General under Subsection 2(c); and
(c) an amount equal to the sum of the respective amounts by which each of the amounts determined by the Commissioner General under Subsection 2(d) exceeds 15% of the fully taxed salary or wages paid by the taxpayer to the employee, in relation to whom the amount has been so determined, in respect of the year of income during which the sum was so set apart or paid.

(4) Where–

(a) the provisions of Subsection 3(c) result in a reduction of the amount otherwise allowable as a deduction under the preceding provisions of this section; and
(b) the Commissioner General is of opinion that the special circumstances of the case warrant the allowance of a higher amount as a deduction,

the Commissioner General shall allow as a deduction such higher amount (not exceeding the amount that would have been allowable if that paragraph did not apply) as he considers to be reasonable.

(5) In the application of this section–

(a) the aggregate of all sums set apart or paid in the year of income by the taxpayer as or to any one fund shall be deemed to be one sum so set apart or paid; and
(b) in the case of a taxpayer who has, in the year of income, set apart or paid sums as or to more than one fund, the deductions allowable under this section shall be ascertained in respect of the funds in such order as the Commissioner General thinks fit, and, in the application of this section in relation to such a fund, the amount specified in Subsection (3)(c) shall, in relation to any employee be reduced by the aggregate of any amounts determined in respect of that employee under Subsection (2)(d) in relation to any other funds, to the extent to which the amounts so determined have not been excluded in ascertaining the deductions allowable in relation to those other funds.

(6) A sum or part of a sum that is excluded in ascertaining the deduction under this section is not an allowable deduction under any other provision of this Act.

(7) Where a taxpayer who has been allowed a deduction of a sum, or part of a sum, set apart or paid as or to any such fund, receives from that fund a payment or other benefit that has a money value, his assessable income shall include that payment or the money value of that benefit.

(5) For the purposes of this section, a director of a company shall be deemed to be an employee of the company.

89. EXPENSES OF BORROWING.

(1) So much of the expenditure incurred by the taxpayer on or after 1 July 1959, in borrowing money used by him for the purpose of producing assessable income as bears to the whole of that expenditure the same proportion as that part of the period for which the money was borrowed that is in the year of income bears to the whole of that period is an allowable deduction.

(2) For the purposes of Subsection (1), if the period for which the money was borrowed is not fixed or exceeds five years, the period of five years from the date on which the money was borrowed shall be deemed to be the period for which the money was borrowed.

(3) Where the deduction allowable under Subsection (1) in a year of income would, but for this subsection, be less than K100.00, the deduction allowable is K100.00 or so much of the expenditure referred to in Subsection (1) as has not been allowed as a deduction in a previous year of income, whichever is the less.

90. EXPENSES OF PREPARING LEASE.

Expenditure incurred by the taxpayer in the year of income for the preparation, registration and stamping of a lease of property to be held by him for the purpose of producing assessable income is an allowable deduction.

91. EXPENSES RELATING TO GRANT OF PATENTS, ETC.

Expenditure incurred by the taxpayer (whether by payment of fees or otherwise) in the year of income in obtaining, or seeking to obtain for the purpose of producing assessable income–

(a) the grant, or the extension of the term, of a patent for an invention; or
(b) the registration, or the extension of the period of registration, of a design; or
(c) the registration of a copyright,

is an allowable deduction.

92. LOSSES BY EMBEZZLEMENT, ETC.

Where a loss incurred by the taxpayer through the embezzlement, fraudulent misappropriation or larceny, by a person employed in the taxpayer’s business, of money that is or has been included in the assessable income of the taxpayer, is ascertained in the year of income, that loss is an allowable deduction.

93[109]. [REPEALED.]
94. SUBSCRIPTIONS TO ASSOCIATIONS.

(1) Where the carrying on of a business from which assessable income is derived by the taxpayer is conditional upon membership of an association, a periodical subscription paid by him in the year of income in respect of that membership is an allowable deduction.

(2) Where an association carries out, on behalf of its members, in the year of income, an activity of such a nature that, if carried out by the taxpayer on his own behalf, its expense would be an allowable deduction to him, any subscriptions, levies or contributions, not exceeding in the aggregate K52.00, paid by him in that year in respect of membership of that association, are allowable deductions, and any such subscriptions, levies or contributions exceeding in the aggregate that amount, are allowable deductions to the extent only of the greater of the two following amounts:–

(a) K52.00;
(b) so much of the subscriptions, levies or contributions as bears to the whole the same proportion as the losses and outgoings (not being losses or outgoings of capital or of a capital nature) incurred by the association in that year in carrying out that activity bear to its total losses and outgoings in that year.

(3) A periodical subscription to which Subsections (1) and (2) do not apply that is paid by the taxpayer in the year of income in respect of his membership of a trade, business or professional association is an allowable deduction.

(4) The total deduction allowable under Subsection (3) in respect of subscriptions to any one association in the year of income shall not exceed K52.00.

95. EXPENDITURE ON SCIENTIFIC RESEARCH.

(1) The following payments made, and expenditure incurred, during the year of income (other than an amount that is allowable as a deduction under any other section of this Act) by a person carrying on a business for the purpose of gaining or producing assessable income are allowable deductions:–

(a) payments to–
(i) an approved research institute for scientific research related to that business; or
(ii) an approved research institute, the object of which is the undertaking of scientific research related to the class of business to which that business belongs;
(b) expenditure of a capital nature on scientific research related to that business (except to the extent that it is expenditure on plant, machinery, land or buildings or on alterations, additions or extensions to buildings or in the acquisition of rights in or arising out of scientific research).

(2) Where, on or after 1 July 1959, a taxpayer carrying on a business for the purpose of gaining or producing assessable income incurs expenditure of a capital nature in the construction or acquisition of a building, or part of a building, or in making any alteration or addition to a building, in which scientific research related to that business is to be carried on by him or on his behalf, and the building, part of a building, alteration or addition, as the case may be, is of use for scientific research purposes only, an amount equal to one-third of that expenditure is an allowable deduction–

(a) from the assessable income of the year of income in which the building, part of a building, alteration or addition is first used by or on behalf of the taxpayer for that scientific research; and
(b) from the assessable income of each of the two years of income next succeeding that year of income, if he continues to carry on that business during the year in which that assessable income was derived.

(3) Where any expenditure or payment to which this section refers is incurred or made outside Papua New Guinea and the business in relation to which it is so incurred or made is carried on partly in and partly out of Papua New Guinea, the deduction allowable under this section is such part of the amount that would otherwise be allowable as the Commissioner General considers reasonable in the circumstances.

(4) Where any expenditure has been allowed or is allowable as a deduction under Subsection (2) and–

(a) the taxpayer sells, transfers or otherwise disposes of the building or any part of the building; or
(b) the building or any part of the building is destroyed,

the consideration received or receivable in respect of the disposal, loss or destruction shall, to the extent of the expenditure so allowed or allowable as a deduction, be included in the assessable income of the year of income in which the disposal, loss or destruction occurs, but, where the Commissioner General is of opinion that part only, or no part, of that consideration relates to the disposal, loss or destruction of any property that was acquired or created by that expenditure, that part only, or no part, as the case may be, of the consideration shall be taken into account for the purposes of this subsection.

(5) Notwithstanding anything contained in Section 74, the annual depreciation per centum in respect of plant used by the taxpayer for the purposes of scientific research only, being plant in respect of which depreciation is allowable under Section 73, shall be deemed to have been fixed under Section 74 as 33.

(6) In this section–

“an approved research institute” means any university, college, institute, association or organisation that is approved in writing for the purposes of this section by the Minister, as an institution, association or organisation for undertaking scientific research that is or may prove to be of value to the State;
“consideration received or receivable in respect of the disposal, loss or destruction” has the same meaning as that given to the expression “the consideration receivable in respect of the disposal, loss or destruction” by Section 78(8);
“scientific research” means any activities in the fields of natural or applied science for the extension of knowledge.

(7) An approval for the purposes of Subsection (6) may–

(a) operate as from a date, whether before or after the date of the approval, specified in the instrument of approval; and
(b) be withdrawn at any time.

(8) In this section, a reference to scientific research related to a business or class of business shall be read as including a reference to–

(a) any scientific research that may lead to or facilitate an extension, or an improvement in the technical efficiency, of that business, or, as the case may be, of businesses of that class; and
(b) any scientific research of a medical nature that is of special relation to the welfare of workers employed in that business, or as the case may be, in businesses of that class.

(9)[110] [111]Where scientific research is carried out as prescribed, the deduction allowable under Subsection (1) shall be increased to 150% of the expenditure incurred under the provisions of this section.

(10)[112] [113]The amount of the expenditure that would otherwise be deductible under Subsection (9) at a rate equal to 150% of the amount incurred shall be reduced by the amount (if any) of the expenditure that the taxpayer has been recouped or is entitled to recoup from the Government, an authority of the Government or any other person.

96. ELECTION EXPENSES OF CANDIDATES IN NATIONAL ELECTIONS.

(1) Expenditure incurred in the year of income by the taxpayer in being elected as a member, or in contesting an election for membership, of the National Parliament of Papua New Guinea is an allowable deduction.

(2) When a deduction has been allowed or is allowable under this section in respect of any expenditure and that expenditure or any part of it is reimbursed to the taxpayer or paid for him by any other person or by any organisation, the assessable income of the taxpayer of the year in which the amount is so reimbursed or paid shall include that amount.

97. CERTAIN EXPENDITURE ON LAND USED FOR PRIMARY PRODUCTION.

(1) Expenditure incurred in the year of income by a taxpayer engaged in primary production on any land in Papua New Guinea in–

(a) the eradication or extermination of animal or vegetable pests from the land; or
(b) the destruction and removal of timber, scrub or undergrowth indigenous to the land; or
(c) the destruction of weed or plant growth detrimental to the land; or
(d) the preparation of the land for agriculture; or
(e) ploughing and grassing the land for grazing purposes; or
(f) the draining of swamp or low-lying lands where that operation improves the agricultural or grazing value of the land; or
(g) preventing or combating soil erosion on the land, otherwise than by the erection of fences; or
(h) the construction of dams, earth tanks, underground tanks, irrigation channels or similar structural improvements, or the sinking of bores or wells, for the purpose of conserving or conveying water for use in carrying on primary production on the land; or
(i) the construction on the land of levee banks or similar improvements having like uses; or
(j) the construction on the land of roads, including bridges, culverts or similar works forming part of a road; or
(k) the planting of the land with trees, including the purchase of seed, seedlings, cuttings and similar material; or
(l) where the Commissioner General is satisfied that the land is in a district that is subject to the ravages of animal pests–the construction or alteration of fences on the land, being fences the sole purpose of which is to prevent animal pests entering upon the land or any part of the land; or
(m) the construction and improvement of plantation employees’ accommodation but not including the manager’s residence or housing for any other employee deriving salary or wages income exceeding K35.00 per week,

is an allowable deduction.

(2) The amount of the deduction that would otherwise be allowable under Subsection (1)(g), (h), (i), (j) and (l) shall be reduced by the amount (if any) of the expenditure that the taxpayer has been recouped or is entitled to be recouped by the State, by an authority constituted by or under a law of Papua New Guinea or by any other person, where the amount recouped or to be recouped is not or will not be included in assessable income.

97A. DEDUCTION OF AGRICULTURAL DEVELOPMENT EXPENDITURE.

(1) In this section–

“moneys paid on shares”, in relation to a primary production company, means moneys paid to the company (whether on application for or allotment of shares, to meet calls or otherwise) in respect of shares of the company by the owners of the shares, but does not include moneys paid to the company–
(a) before 1 January 1987; or
(b) in respect of a redeemable share; or
(c) to the extent of that excess, which exceed the nominal paid up value of the share;
“primary production company” means a resident company engaged in primary production in Papua New Guinea;
“primary production development expenditure” means expenditure which is or would be deductible–
(a) under the provisions of Section 97 of the Act; and
(b) by way of depreciation in respect of assets, being plant or articles used directly for the purposes of agricultural production, under the provisions of Section 73;
“qualifying share” means a share in a primary production company in respect of which a declaration under Subsection (2) is lodged, other than a share which is the subject of a notice under Subsection (3) and which was thereby excluded from that declaration;
“redeemable share” shall have the same meaning as is attributed to it in Section 42(2);
“shareholder”, means a person who is the owner of a share in a primary production company and in the case of any dispute, shall be the shareholder who was shown as such in the company register of shareholders at the end of the year in respect of which a declaration under Subsection (2) is lodged.

(2) A primary production company which has incurred primary production development expenditure may, before the expiration of two months after the end of the year of income of the company in which that primary production development expenditure was incurred or within such further time as the Commissioner General allows, lodge with the Commissioner General a declaration, in writing, signed by the public officer of the company–

(a) that the company–
(i) has expended as primary production development expenditure those amounts specified in the declaration; and
(ii) is relinquishing, wholly or in part, in favour of its shareholders its right to deduct from its income those amounts; and
(b) which shows the following details:–
(i) names and addresses of the shareholders in the company;
(ii) the number of shares held by each of those shareholders;
(iii) the moneys paid on shares by each shareholder;
(iv) the amount of primary production development expenditure applicable to each share;
(v) particulars of all shares in respect of which a notice has been lodged under Subsection (3);
(vi) copies of any notice, lodged under Subsection (3), which have not previously been supplied to the Commissioner General.

(3) A shareholder may elect, by notice in writing to the primary production company within one month after the end of the year of income, or within such further period as the Commissioner General allows, that part or all of his shareholding shall not be qualifying shares for the purposes of this section.

(4) A notice under Subsection (3) shall specify–

(a) the name and address of the shareholder; and
(b) the number of shares which the shareholder elects not to treat as qualifying shares; and
(c) the moneys paid on those shares by the shareholder; and
(d) the year of income to which this election will first apply,

and shall remain in force until such time as it is cancelled or varied pursuant to a further notice made under Subsection (3).

(5) Where a primary production company has lodged a declaration as specified in Subsection (2) the amount specified in the declaration shall, subject to Subsection (6)–

(a) not be allowable as a deduction from the assessable income of that primary production company to the extent to which it is applicable to qualifying shares; and
(b) be allowable as a deduction from the assessable income of the shareholder of any qualifying share in the company where–
(i) the amount deductible shall be calculated so that in respect of any one share that portion of the amount specified in the declaration is deductible which is proportionate to the amount that the moneys paid on the share bear to total moneys paid on shares; and
(ii) in respect of any one share the total of the amount deductible in that year and any amounts allowed as a deduction by virtue of this section in any prior year shall not exceed the total of the moneys paid on that share.

(6) If at any time the Commissioner General is not satisfied that moneys specified in a declaration lodged by a primary production company under the provisions of Subsection (2) were expended in accordance with the declaration the Commissioner General may inform the primary production company, by notice in writing, that he is not so satisfied and, upon the company being so informed, the declaration shall be deemed not to have specified the moneys as to which the Commissioner General is not satisfied.

(7) Notwithstanding any other provision of this Act, when the Commissioner General has issued a notice under the provisions of Subsection (6) he may at any time amend any assessment to give effect to that notice.

97B. DEDUCTION FOR THE PROVISION OF AGRICULTURAL EXTENSION SERVICES.

[114](1) Where a taxpayer engaged in primary production in Papua New Guinea provides, in the year of income, to smallholder primary producers, extension services as prescribed, he shall be entitled to a deduction equal to 150% of the expenditure incurred.

(2) The amount of the expenditure that would otherwise be deductible under Subsection (1) at a rate equal to 150% of the amount incurred shall be reduced by the amount (if any) of the expenditure that the taxpayer has been recouped or is entitled to recoup from the Government, an authority of the Government, an authority of the Government or any other person.

98. LOSS IN DERIVING EXEMPT INCOME.

(1) Where a loss is incurred in the year of income by a taxpayer in carrying on in Papua New Guinea a business the income from which, if any, would be exempt income (which business is, in this section, called “the exempt business”) that loss is an allowable deduction.

(2) In calculating the amount of that loss, no deduction may be made that would not have been an allowable deduction if the income (if any) had been assessable income.

(3) Notwithstanding any other provision of this Act, where a deduction allowable under this section has been made from the income of any of the three years immediately preceding the year of income, profits derived by the taxpayer from the exempt business in the year of income shall be included in his assessable income, but the amount so included shall not exceed the amount, if any, by which the deductions so made from the income of those three years exceed the profits included under this subsection in the assessable income of those years in respect of those deductions.

99[115]. [REPEALED.]
100. PENSIONS, ETC.

Sums that are not otherwise allowable deductions and are paid by the taxpayer during the year of income as pensions, gratuities or retiring allowances to persons who are or have been employees or dependants of employees, to the extent to which, in the opinion of the Commissioner General, those sums are paid in good faith in consideration of the past services of the employees in any business operations that were carried on by the taxpayer for the purpose of gaining or producing assessable income are allowable deductions.

101. LOSSES OF PREVIOUS YEARS.

(1) In this section–

“net exempt income” means–
(a) where the taxpayer is a resident–the amount by which his exempt income derived from all sources, except income exempt under Part III.1A, exceeds the sum of the expenses (not being expenses of a capital nature) incurred in deriving that income; and
(b) where he is a non-resident–the amount by which his exempt income derived from sources in Papua New Guinea (other than income, if any, to which Section 189D applied) exceeds the sum of the expenses (not being expenses of a capital nature) incurred in deriving that income;
“year of loss”, in relation to a taxpayer, means a year in which the taxpayer incurred a loss.

(2) For the purposes of this section, and subject to Section 66A, a loss shall be deemed to be incurred in any year when the allowable deductions (other than deductions under this section or Section 101A), from assessable income (other than income derived by way of salary or wages or deemed by this Act to be salary or wages), exceed the sum of that income and the net exempt income of that year, and the amount of the loss, subject to Subsections (8), shall be deemed to be the amount of the excess.

(3)[116] [117]Subject to Section 66A(3), so much of the losses incurred by a taxpayer in any of the 20 years immediately preceding the year of income as has not been allowed as a deduction from his income of any of those years is allowable as a deduction in accordance with the following provisions:–

(a) Where he has not in the year of income derived exempt income, the deduction shall be made from the assessable income.
(b) Where he has in that year derived exempt income, the deduction shall be made successively from the net exempt income and from the assessable income.
(c) Where a deduction is allowable under this section in respect of two or more losses, the losses shall be taken into account in the order in which they were incurred.
(d) Where a deduction is allowable under this section, it shall be taken into account after the allowance of all allowable deductions.

(4A)[118] [119]Notwithstanding any other provision of this section, no loss incurred on or before 31 December 2000 shall be deductible, that, under the provisions in force prior to 1 January 2001, would not have been deductible from income derived in the year ended 31 December 2000 or in a later year.

(4)[120] [121]Where a taxpayer has incurred a loss in any of the 20 years next preceding the year of income and, for the purposes of Section 101A, a loss in engaging in primary production is to be deemed to have been incurred by him in that preceding year, so much only of the first-mentioned loss as exceeds the second-mentioned loss shall be taken into account for the purposes of Subsection (3).

(5) Notwithstanding any other provision of this section, where, before the year of income, a taxpayer has become a bankrupt or been adjudicated insolvent, or, not having become a bankrupt or been adjudicated insolvent, has been released from any debts by the operation of the law of Papua New Guinea relating to bankruptcy or insolvency, no loss to which this section applies that was incurred by him before the date on which he became a bankrupt or was adjudicated insolvent, or the date on which he was so released, as the case may be, is an allowable deduction.

(6)[122] [123]Where, in the year of income, a taxpayer pays an amount in respect of a debt incurred by him in one of the 20 years immediately preceding the year of income, being a year in which the taxpayer incurred a loss to which Subsection (5) applies but not being a year before the first year of income to which this Act applies, the amount paid by the taxpayer in respect of the debt is, subject to Subsection (7), an allowable deduction to the extent that it does not exceed so much of the debt as the Commissioner General is satisfied was taken into account in ascertaining the amount of the loss.

(7) The aggregate of the deductions allowable under Subsection (6) from the income of the taxpayer of the year of income in relation to the payment of amounts in respect of debts incurred by the taxpayer in a year of loss shall not exceed the amount of the loss incurred in that year less the sum of–

(a) any deductions allowed under Subsection (6) from his income of a year or years of income preceding the year of income in relation to the payment of other amounts in respect of debts incurred by the taxpayer in the year of loss; and
(b) so much of the loss as has been allowed under Subsection (3) as a deduction or deductions from his income (including his net exempt income) of a year or years of income preceding the year of income; and
(c) so much of the loss as, but for Subsection (5), would have been allowed or allowable under Subsection (3) as a deduction or deductions from his net exempt income of the year of income or a year or years of income preceding that year; and
(d) so much of a loss that, for the purposes of Section 101A, is to be deemed to have been incurred by him in the year of loss as has been allowed under Subsection (4) of that section as a deduction or deductions from his income (including his net exempt income) of a year or years of income before the year of income; and
(e) so much of a loss that, for the purposes of Section 101A, is to be deemed to have been incurred by him in the year of loss as, but for Subsection (6) of that section, would have been allowed or allowable under Subsection (4) of that section as a deduction or deductions from his net exempt income of the year of income, or of a year or years of income before the year of income.

(8) This section does not apply to the amount of non-salary or wages loss for the purposes of Section 66A to the extent that that loss has been allowed by virtue of the calculation of a rebate under Section 214.

(9)[124] [Repealed.]

101A. LOSSES OF PREVIOUS YEARS INCURRED IN ENGAGING IN PRIMARY PRODUCTION.

(1) This section applies to losses incurred by a taxpayer in engaging in primary production in the year of income that commenced on 1 July 1959, and subsequent years.

(2) For the purposes of this section, a taxpayer who has engaged in primary production in any year shall be deemed to have incurred a loss in engaging in primary production in that year if–

(a) the deductions (other than the deductions allowable under this section or Section 101) allowable from so much of the assessable income of that year as was derived from engaging in primary production exceed that assessable income; and
(b) for the purposes of Section 101, a loss was incurred by the taxpayer in that year,

and the amount of the loss that the taxpayer is to be deemed to have incurred in engaging in primary production in that year shall be deemed to be–

(c) if the amount of the excess referred to in paragraph (a) is equal to the amount of the loss referred to in paragraph (b)–the amount of that excess; and
(d) in any other case–the amount of the excess referred to in paragraph (a) or the amount of the loss referred to in paragraph (b), whichever is the less.

(3) The reference in Subsection (2) to the deductions allowable from so much of the assessable income of a year as was derived from engaging in primary production shall be read as a reference to–

(a) any deductions allowable from the assessable income of that year that relate exclusively to engaging in primary production; and
(b) any other deductions allowable from the assessable income of that year to the extent to which they relate to engaging in primary production.

(4) Subject to Section 66A(3), so much of the losses to which this section applies incurred by a taxpayer in any of the years preceding the year of income as has not been allowed as a deduction from his income of any of those years under this section is allowable as a deduction accordance with the following provisions:–

(a) where he has not in the year of income derived exempt income, the deduction shall be made from the assessable income;
(b) where he has in that year derived exempt income, the deduction shall be made successively from the net exempt income and from the assessable income;
(c) where a deduction is allowable under this section in respect of two or more losses, the losses shall be taken into account in the order in which they were incurred; and
(d) where a deduction is allowable under this section, it shall be taken into account after the allowance of all allowable deductions.

(5) In this section, “net exempt income” has the same meaning as in Section 101.

(6) Notwithstanding any other provision of this section, where, before the year of income, a taxpayer has become a bankrupt or been adjudicated insolvent or, not having become a bankrupt or been adjudicated insolvent, has been released from any debts by the operation of the law of Papua New Guinea relating to bankruptcy or insolvency, no loss to which this section applies that was incurred by him before the date on which he became a bankrupt or was adjudicated insolvent, or the date on which he was so released, as the case may be, is an allowable deduction.

(7) Where, in the year of income, a taxpayer pays an amount in respect of a debt incurred by him in the course of engaging in primary production in a year in which he incurred a loss to which Subsection (6) applies, being a year not later than the eighth year next preceding the year of income, the amount paid by the taxpayer in respect of the debt is, subject to Subsection (8), an allowable deduction to the extent to which it does not exceed so much of the debt as the Commissioner General is satisfied was taken into account in ascertaining the amount of loss.

(8) The aggregate of the deductions allowable under Subsection (7) from the income of the taxpayer of the year of income in relation to the payment of amounts in respect of debts incurred by the taxpayer in a year in which he incurred a loss to which this section applies (in this subsection referred to as “the year of loss”) shall not exceed the amount of that loss less the sum of–

(a) the deductions, if any, allowed under Subsection (7) or under Section 101(6) from his income of a year or years of income before the year of income in relation to the payment of other amounts in respect of debts incurred by the taxpayer in the course of engaging in primary production in the year of loss; and
(b) so much, if any, of the loss as has been allowed under Subsection (4) as a deduction or deductions from his income (including his net exempt income) of a year or years of income before the year of income; and
(c) so much, if any, of the loss as, but for Subsection (6), would have been allowed or allowable under Subsection (4) as a deduction or deductions from his net exempt income of the year of income or of a year or years of income before the year of income; and,
(d) the amount, if any, by which the sum, of–
(i) the deductions, if any, allowed under Section 101(6) from his income of a year or years of income before the year of income in relation to the payment of amounts in respect of debts (other than debts incurred in the course of engaging in primary production) incurred by the taxpayer in the year of loss; and
(ii) the deductions, if any, allowed under Section 101(3) from his income (including his net exempt income) of a year or years of income before the year of income in respect of a loss that, for the purposes of that section, is to be deemed to have been incurred by him in the year of loss; and
(iii) the deductions, if any, that, but for Section 101(5), would have been allowed or allowable in respect of that loss under Section 101(3) from his net exempt income of the year of income or of a year or years of income before the year of income,

exceeds the difference, if any, between the amount of the loss that, for the purposes of Section 101 is to be deemed to have been incurred by him in the year of loss and the amount of the loss to which this section applies that was incurred by him in that year.

101B. ORDER IN WHICH DEDUCTIONS ALLOWABLE IN RESPECT OF LOSSES OF PREVIOUS YEARS ARE TO BE TAKEN INTO ACCOUNT.

Where deductions are allowable from the income of a taxpayer of the year of income under both Section 101(3) and Section 101A(4), any deductions allowable under Section 101(3) shall be taken into account before any deductions allowable under Section 101A(4).

101C. LIMITATIONS ON NET EXEMPT INCOME TO BE TAKEN INTO ACCOUNT IN RESPECT OF DEDUCTIONS UNDER SECTION 101A.

(1) Where, but for this section, the net exempt income of a taxpayer of the year of income would be taken into account both for the purpose of Section 101(3)(b) and for the purpose of Section 101A(4)(b), the amount of that net exempt income to be taken into account for the last-mentioned purpose shall not exceed the amount (if any) of that net exempt income that remains after deducting so much of the net exempt income as has been taken into account for the first-mentioned purpose.

(2) Where, but for this section, the net exempt income of a taxpayer of the year of income would be taken into account both for the purpose of Section 101(7)(c) and for the purpose of Section 101A(8)(c), the amount of that net exempt income to be taken into account for the last-mentioned purpose shall not exceed the amount (if any) of that net exempt income that remains after deducting so much of that net exempt income as has been taken into account for the first mentioned purpose.

101D. LOSSES OF PREVIOUS YEARS NOT TO BE TAKEN INTO ACCOUNT UNLESS THERE IS SUBSTANTIAL CONTINUITY OF OWNERSHIP OF SHARES IN COMPANY.

Notwithstanding Sections 101 and 101A, but subject to Sections 101E, 101F and 101G, a loss incurred by a taxpayer, being a company, in a year before the year of income shall not be taken into account for the purposes of Section 101 or 101A unless the company satisfies the Commissioner General that, at all times during the year of income, shares in the company carrying between them–

(a) the right to exercise not less than 50% of the voting power in the company; and
(b) the right to receive not less than 50% of any dividends that may be paid by the company; and
(c) the right to receive not less than 50% of any distribution of capital of the company in the event of the winding-up, or of a reduction in the capital, of the company,

were beneficially owned by persons who, at all times during the year in which the loss was incurred, beneficially owned shares in the company carrying rights of those kinds.

101E. SPECIAL PROVISIONS RELATING TO BENEFICIAL OWNERSHIP OF, OR RIGHTS ATTACHED TO, SHARES.

(1) For the purposes of the application of Section 101D in determining whether a loss incurred by a company in a year before the year of income is to be taken into account, the succeeding provisions of this section have effect.

(2) Where shares in the company were allotted after the commencement of the year in which the loss was incurred and the allotment took place in the year of income in which the company was incorporated or within a period of two years, or such further period of a year or years as the Commissioner General approves for the purpose of this subsection in relation to the company, after the end of that year of income, the shares shall be deemed to have been allotted at the commencement of the year in which the loss was incurred and to have been beneficially owned, at all times from the commencement of that year until the time when the shares were in fact allotted, by the persons who beneficially owned the shares immediately after that last-mentioned time.

(3) Shares in the company that were beneficially owned by a person at any time shall be deemed to have been beneficially owned by the same person at a later time if the person had died and, at that later time, the shares were owned by the trustee of his estate in his capacity as trustee of that estate, or were beneficially owned by a person who received the shares as a beneficiary in that estate.

(4) Where shares in the company that were beneficially owned by a person at any time have been transferred by that person to a company and, at a later time, shares in the last-mentioned company carrying between them–

(a) the right to exercise more than one-half of the voting power in the last-mentioned company; and
(b) the right to receive more than one-half of any dividends that might be paid by the last-mentioned company; and
(c) the right to receive more than one-half of any distribution of capital of the last-mentioned company in the event of the winding-up, or of a reduction in the capital, of that company,

were beneficially owned by that person or, if he has died, were owned by the trustee of his estate in his capacity as trustee of that estate or were beneficially owned by a person who received the shares as a beneficiary in that estate the Commissioner General may, if he considers that it is reasonable to do so, treat the shares in the first-mentioned company as having been beneficially owned by the first-mentioned person at that later time.

(5) Where–

(a) a person who beneficially owned any shares in the company at all times during the year in which the loss was incurred also beneficially owned shares in the company at any time (in this subsection referred to as “the relevant time”) during the year of income; and
(b) before or during the year of income, that person entered into a contract, agreement or arrangement, or granted or was granted a right, power or option (including a contingent right, power or option), that in any way, directly or indirectly, related to, affected, or depended for its operation on–
(i) the beneficial interest of that person in the last-mentioned shares, or the value of that interest;or
(ii) the right of that person to sell, or otherwise dispose of, that interest, or any such sale or other disposition; or
(iii) any rights carried by those shares, or the exercise of any such rights; or
(iv) any dividends that might be paid, or any distribution of capital that might be made, in respect of those shares, or the payment of any such dividends or the making of any such distribution of capital; and
(c) the contract, agreement or arrangement was entered into, or the right, power or option was granted, for the purpose, or for purposes that included the purpose, of enabling the company to take into account for the purposes of Section 101 or 101A a loss that the company had incurred in a year before the year in which the contract, agreement or arrangement was entered into or the right, power or option was granted, or a loss that the company might incur in the last-mentioned year,

the Commissioner General may, subject to the succeeding provisions of this section, treat those shares as not having been beneficially owned by that person at the relevant time.

(6) Where the Commissioner General is satisfied that, by virtue of a provision in the constituent document of the company as in force at any time during the year of income or by virtue of an agreement or arrangement made before the end of the year of income between persons who at the time when the agreement or arrangement was made were, or since that time have become, beneficial owners of shares in the company, shares in the company that–

(a) were beneficially owned at any time during the year of income by persons who beneficially owned any shares in the company at all times during the year in which the loss was incurred; and
(b) carried any rights at all times during the year of income,

have ceased, or will or may cease, at any time after the end of the year of income, to carry those rights, the shares shall be deemed not to have carried those rights at any time during the year of income.

(7) Where the Commissioner General is satisfied that by virtue of a provision of the constituent document of the company as in force at any time during the year of income or by virtue of an agreement or arrangement made before the end of the year of income between persons who at the time when the agreement or arrangement was made were, or since that time have become, beneficial owners of shares in the company, shares in the company have commenced, or will or may commence, at any time after the end of the year of income, to carry rights that those shares did not carry at a time during the year of income–

(a) if the shares were not beneficially owned at any time during the year of income by persons who beneficially owned any shares in the company at all times during the year in which the loss was incurred–the shares shall be deemed to have carried those rights at all times during the year of income; and
(b) in any other case–the Commissioner General may, if he considers that, having regard to all the circumstances, it is reasonable to do so, treat the shares as having carried those rights at all times during the year of income.

(8) In ascertaining whether a person, being a person who beneficially owned shares in the company at all times during the year in which the loss was incurred, beneficially owned any shares in the company, at all times during the year of income any shares (other than shares allotted by the company before the year in which the loss was incurred) that are, or at the option of the company are to be, liable to be redeemed, shall be disregarded.

101F. LOSSES OF PREVIOUS YEARS OF SUBSIDIARY NOT TO BE TAKEN INTO ACCOUNT UNLESS THERE IS SUBSTANTIAL CONTINUITY OF BENEFICIAL OWNERSHIP OF SHARES IN HOLDING COMPANY.

(1) Notwithstanding Sections 101, 101A and 101D, but subject to this section and to Section 101G, where a company in which no other company had a controlling interest (in this section referred to as “the holding company”) had a controlling interest in another company (in this section referred to as “the subsidiary company”) at any time during a year in which a loss was incurred by the subsidiary company, the loss shall not be taken into account for purposes of Section 101 or 101A unless the Commissioner General is satisfied that, at all times during the year of income of the subsidiary company–

(a) the holding company had a controlling interest in the subsidiary company; and
(b) shares in the holding company, carrying between them–
(i) the right to exercise not less than 50% of the voting power in the company; and
(ii) the right to receive not less than 50% of any dividends that may be paid by the company; and
(iii) the right to receive not less than 50% of any distribution of capital of the company in the event of the winding-up, or of a reduction in the capital, of the company,

were beneficially owned by persons who, at all times during the year in which the loss was incurred by the subsidiary company, beneficially owned shares in the holding company carrying rights of those kinds.

(2) For the purposes of the application of Subsection (1), the provisions of Section 101E(3) to (8), inclusive, apply in relation to the holding company and in relation to every company that was at any relevant time interposed between the holding company and the subsidiary company as if references in those subsections to the company were references to the holding company or to the interposed company, as the case may be.

101G. LOSSES OF PREVIOUS YEARS MAY BE TAKEN INTO ACCOUNT WHERE COMPANY CARRIES ON SAME BUSINESS.

(1) Subject to Subsection (2), where–

(a) the whole or part of a loss incurred by a taxpayer, being a company, in a year before the year of income would not, but for this section, by reason of Section 101D (including that section as affected by Section 101F) or Section 101F, be taken into account for the purposes of Section 101 or 101A; and
(b) the whole of the loss would, but for a change that has taken place in the beneficial ownership of shares in the company or in a company that had a controlling interest in the company, have been so taken into account; and
(c) the first-mentioned company carried on at all times during the year of income the same business as it carried on immediately before the change took place; and
(d) the first-mentioned company did not, at any time during the year of income, derive income from a business of a kind that it did not carry on, or from a transaction of a kind that it had not entered into in the course of its business operations, before the change took place,

Section 101D or 101F, as the case may be, does not operate to prevent the whole of the loss being so taken into account.

(2) Subsection (1) does not apply in respect of a loss incurred by a taxpayer being a company in a year before the year of income if–

(a) before the change took place, the company commenced to carry on a business that it had not previously carried on or entered into, in the course of its business operations, a transaction of a kind that it had not previously entered into; and
(b) the company commenced to carry on that business or entered into that transaction for the purpose, or for purposes that included the purpose, of enabling the company to take into account for the purposes of Section 101 or 101A a loss that the company had incurred in a year before the first-mentioned year or might incur in the first-mentioned year.
101H. AMENDMENT OF ASSESSMENTS.

Notwithstanding anything in any other provision of this Act, the Commissioner General may amend an assessment for the purpose of giving effect to the provisions of Section 101E(5), (6), (7) or (8) (including those provisions as applied by Section 101F(2)) if the amendment is made within six years after the date upon which the tax became due and payable under the assessment.

102[125]. [REPEALED.]
103. DOUBLE DEDUCTIONS.

(1) Where, in respect of any amount, a deduction would but for this section be allowable under more than one provision of this Act, and whether it would be so allowable from the assessable income of the same or different years, the deduction is allowable only under that provision which in the opinion of the Commissioner General is most appropriate.

(2)[126] [Repealed.]

(3) Where the profit arising from the sale of any property is included in the assessable income of any person, or where the loss arising from the sale is an allowable deduction, and any expenditure incurred by him in connection with that property is an allowable deduction under this Act, that expenditure shall not be deducted in ascertaining the amount of the profit or loss.

(4) The reference in Subsection (3) to expenditure incurred by a person in connection with property shall be read as not including a reference to expenditure that has been allowed or is allowable as a deduction under Section 97.

(5) Where expenditure incurred by a taxpayer in connection with property has been allowed or is allowable as a deduction or deductions in an assessment or assessments of the taxpayer under or by virtue of Section 97, that expenditure may be deducted in ascertaining the amount of any profit or loss arising from the sale of the property only to the extent that the deduction of the expenditure does not result in the tax payable by the taxpayer for the year or years of income in relation to which the deduction is made being reduced by an amount that is greater than the difference between–

(a) the amount of that expenditure; and
(b) the amount, or the sum of the amounts, by which tax payable by the taxpayer for the year of income and previous years of income will be or has been reduced by reason of the first-mentioned deduction or deductions.

Subdivision B.[127]. . . . . . . .

104 - 115A[128]. [Repealed.]

Division 4.[129]

. . . . . . . .

116 - 122[130]. [Repealed.]

Division 5.

Partnership.

123. DEFINITIONS.

In this Division–

“net income”, in relation to a partnership, means the assessable income of the partnership, calculated as if the partnership were a taxpayer, less all allowable deductions except the deductions allowable under Section 101 or 101A in respect of losses of previous years;
“partnership loss” means the excess, if any, of the allowable deductions, except the deductions allowable under Section 101 or 101A in respect of losses of previous years, over the assessable income of a partnership, calculated as if the partnership were a taxpayer.
124. PARTNERSHIPS.

A partnership shall furnish a return of the income of the partnership, but is not, except as provided in this Division, liable to pay tax on that income.

125. INCOME OF PARTNER.

(1) The assessable income of a partner shall include his individual interest in the net income of the partnership of the year of income, and his individual interest in a partnership loss incurred in the year of income is an allowable deduction.

(2) The exempt income of a partner shall include his individual interest in the exempt income of the partnership of the year of income.

126. OPTIONS OF PARTNERS IN RESPECT OF LIVESTOCK.

(1) In calculating the net income of a partnership or a partnership loss for the purpose of assessing a partner’s share, the partnership shall be deemed to have exercised or failed to exercise all options and rights to select a value for livestock under this Act in the same manner as the partner has in fact exercised or failed to exercise those options and rights, and the partnership is not, as a partnership, entitled to exercise any such option or right.

(2) The fact that a taxpayer has entered into a partnership, or that a variation has taken place in the membership of a partnership of which the taxpayer is a member does not–

(a) affect an option or a right to select a value for livestock previously exercised by him under this Act; or
(b) confer upon him any right to alter such an option or value without the leave of the Commissioner General.
127. PARTNER NOT IN RECEIPT AND CONTROL OF SHARE.

(1) Where a partnership is so constituted or controlled, or its operations are so conducted, that a partner has not the real and effective control and disposal of his share of the net income of the partnership, the Commissioner General may assess the additional amount of tax that would be payable if the share of that partner, or of all such partners if more than one–

(a) had been received by the partner who has the real and effective control of that share; or
(b) had been divided between such other partners as have the real and effective control of that share in proportion to the extent to which, in the opinion of the Commissioner General, they respectively have the real and effective control of that share,

(as the case may be) and had been added to and included in his or their assessable income, and the partnership is liable to pay the tax so assessed.

(2) Where the provisions of this section are applied to a share of the net income of a partnership, that share shall not be included in the assessable income of any partner.

(3) For the purpose of this section, but without limiting its application, a partner shall be deemed not to have the real or effective control and disposal of any money received by him that is applied to meet the private or domestic obligations of any other partner.

Division 6.

Trusts and Trustees.

128. INTERPRETATION.

In this Division–

“foreign trust estate” means a trust estate other than a Papua New Guinea trust estate;
“the net income of a trust estate” means the total assessable income of the trust estate calculated under this Act–
(a) in the case of a Papua New Guinea trust estate, as if the trust estate were a taxpayer resident in the country; and
(b) in the case of a foreign trust estate, as if the trust estate were a taxpayer not resident in the country,
in respect of that income, less all allowable deductions;
“Papua New Guinea trust estate” means a trust estate which is, or has been at any time, resident in the country;
“tax” for the purpose of calculating the average rate of tax payable by a taxpayer under Section 133 includes salary or wages tax.
129. INCORPORATION OF TRUST ESTATE.

(1) A trust estate is, for the purposes of this Division, a corporation (distinct from the persons who may from time to time be the trustees).

(2) A trust estate shall be deemed to be resident in the country unless evidence, to the satisfaction of the Commissioner General, is produced that–

(a) the general administration of the trust estate is ordinarily carried on outside the country; and
(b) the trustees or a majority of them, during the whole of the year of income, are not resident or ordinarily resident in the country; and
(c) the settlor was not, at the time of the creation of the trust, or where the trust arose by testamentary disposition or intestacy or partial intestacy, the person upon whose death the trust arose was not at the date of his death, domiciled or resident or ordinarily resident in the country; and
(d) the beneficiaries or a majority of them are not domiciled or resident or ordinarily resident in the country; and
(e) in all years of income, more than 50% of the income of the trust estate was derived from sources outside the country.
130. TRUSTEES.

(1) A trustee is liable to pay income tax upon the net income of the trust estate at such rates as are provided by Act and the trustee may deduct and retain for his own use so much of the net income of the trust estate as is necessary to pay the tax imposed by this section.

(2) For the purposes of this Division, neither the trustee nor the trust estate shall be entitled to any concessional rebate under Division 18A

131. ASSESSABLE INCOME OF BENEFICIARIES.

The assessable income of a person who is a resident shall include the net income of a trust estate (less the amount of any taxes paid by the trustee on that income) derived by him directly or indirectly from a resident trust estate whatever the source of income, notwithstanding that the trustee may have paid or may be liable to pay tax under this Division upon the income of the trust estate or estates from which such income was derived.

132. ASSESSABLE INCOME TO INCLUDE ENTITLEMENTS TO INCOME.

(1) Where a person who is a resident–

(a) is presently entitled to an undistributed share of the net income of a trust estate; or
(b) derives or is presently entitled to a share of the net income from a trust estate, where that trust was established by a Court or the Will of a deceased person,

wherever the trust is a resident and whatever the source of income, his assessable income shall include that share of the net income of the trust estate to which he is presently entitled notwithstanding that the trustee may have paid or may be liable to pay tax under this Division upon the income of that trust estate.

(2) The exempt income of any beneficiary to which Subsection (1) applies shall include his individual interest in the exempt income of the trust estate, except to the extent to which that exempt income is taken into account in calculating the net income of the trust estate.

133. CREDITS.

(1) Where the assessable income of a taxpayer includes income assessed under Section 132, the taxpayer is, subject to this Division, entitled to a credit ascertained in accordance with this section.

(2) The credit to which a taxpayer is entitled under Subsection (1) shall be–

(a) any tax which the trustee has paid or is liable to pay under Section 130 in respect of that taxpayer’s interest in the net income of the trust estate; or
(b) the amount ascertained by applying to the income assessed to the taxpayer under Section 132 the average rate of tax payable by the taxpayer for the year of tax,

whichever is the less.

(3) A credit shall only be allowed under this section where the Commissioner General is satisfied that the tax payable by the trustee under Section 130 has been or will be paid.

134. EXERCISE OF DISCRETION BY TRUSTEE.

For the purposes of this Division, where a trustee has a discretion to pay or apply income of a trust estate to or for the benefit of specified persons, a person in whose favour the trustee exercises his discretion shall be deemed to have derived the amount paid to him or applied for his benefit by the trustee in the exercise of that discretion.

135. NON-RESIDENT BENEFICIARIES.

(1) Where the trustee of a Papua New Guinea trust estate distributes income of the trust estate to a person who is not a resident of the country, the trustee is liable to pay, in addition to the income tax imposed upon the trustee by Section 130, income tax upon the amount so distributed at such rate as is declared by Act.

(2) Where a beneficiary who is not a resident of the country is presently entitled to an undistributed share of income of a Papua New Guinea trust estate, the trustee of that trust estate is liable to pay, in addition to the income tax imposed upon the trustee by Section 130, income tax upon that share of that beneficiary in the net income of the trust estate at such rate as is declared by Act.

(3) Where a trustee has paid or is liable to pay income tax under Subsection (2), the trustee shall not be liable to pay income tax under Subsection (1) upon a distribution of that share of that beneficiary in the net income of the trust estate to that beneficiary.

(4) Where income tax is imposed upon a trustee by this section, the trustee may deduct and retain for his own use so much of the net income of the trust estate as is necessary to pay the tax imposed by this section.

(5) Income upon which income tax is payable by a trustee under this section shall not be included in the assessable income of the beneficiary.

(6) In this section, “beneficiary” includes any person who at any time becomes presently entitled to a share in the net income of the trust estate, or to whom at any time a distribution of any part of the net income of the trust estate is made.

136. ASSESSMENT OF INCOME OF DECEASED PERSONS.

Where in the year of income the trustee of the estate of a deceased person receives an amount that would have been assessable income in the hands of the deceased person if it had been received by him during his lifetime, that amount shall be included in the assessable income of that year of the trust estate.

Division 6A.

Unit Trusts.

136A. INTERPRETATION.

In this Division and in Section 29, “unit trust” means unit trust or property unit trust as defined in Section 4.

136B. UNIT TRUST DEEMED TO BE A COMPANY.

In this Act–

(a) a reference to a company or corporation (other than a reference to a company in the capacity of a trustee) shall be deemed to include a reference to a unit trust; and
(b) a reference to a trust or trust estate shall be deemed not to include a reference to a unit trust; and
(c) a reference to a distribution by a trust shall be deemed not to include a distribution by a unit trust or any unit trust dividend,

for the purpose of Part III, Division 1 (other than Sections 42 and 48), 2, 6, 13, 19 (other than Section 216) and 20; and Part VI, Divisions 1A, 3 and 3A.

136C. TAXATION OF UNIT TRUST.

A unit trust shall pay tax on its assessable income at the rate provided by the Act.

Division 6B.

Landowner Resources Trusts.

137. DECLARATION OF TRUST AS LANDOWNER RESOURCES TRUST.

(1) This section applies to trusts–

(a) the trust property of which is or includes an interest in a landowner resources project in Papua New Guinea or a right to receive benefits (including royalties) derived from such a project; and
(b) the beneficiaries of which are–
(i) citizens of Papua New Guinea who derive their beneficial interest in the trust by reason of being landowners in the area of the project or being resident or born in or being part of a clan whose village is situated in the region of such a project or the province in which such a project is located; or
(ii) incorporated land groups representing such citizens of Papua New Guinea.

(2) The Minister may by regulation declare a trust to which this section applies to be a landowner resources trust.

138. DECLARATION OF PROJECTS AS LANDOWNER RESOURCES PROJECTS.

(1) For the purpose of this Division–

(a) designated gas projects, mining projects and petroleum projects; and
(b) any other natural resources project in Papua New Guinea in respect of which a declaration is made under Subsection (2),

are landowner resources projects.

(2) The Minister may by regulation declare a natural resources project in Papua New Guinea other than a designated gas project, mining project or petroleum project to be a landowner resources project for the purpose of this Division.

139. LANDOWNER RESOURCES TRUSTS TO BE TAXED AS RESOURCE COMPANY.

(1) In this section, a reference to a landowner resources trust includes a reference to the trustee of a landowner resources trust acting in that capacity.

(2) Notwithstanding any other provision of this Act, but subject to Subsection (4) and Section 140, where a landowner resources trust derives income from a landowner resources project in Papua New Guinea, either as an equity participant or through any other form of derivation of assessable income and whether carried on by the landowner resources trust or any other person, the landowner resources trust shall be taxed as though it were a company deriving that income.

(3)[131] [132]A landowner resources trust deriving assessable income from gas operations, mining operations or petroleum operations shall be liable to additional profits tax under Subdivision III.10E if applicable.

(4)[133] [134]A landowner resources trust deriving assessable income from a landowner resources project subject to assessment under Subdivisions III.10A, III.10B, III.10C or III.10D shall be assessed in relation to each such project as if the assessable income derived from that project was the only assessable income derived by the landowner resources trust and without limiting, by implication, the foregoing–

(a) all deductions that are allowable under this Act shall be deductible against assessable income from the landowner resources project only to the extent that the deductions are or are deemed to be attributable to the landowner resources project; and
(b) all deductions that are allowable under this Act and which are or are deemed to be attributable to the landowner resources project shall be allowed only against assessable income that is derived from the landowner resources project.

(5) Notwithstanding any other provision of this Act, where a landowner resources trust derives royalties from a related landowner resources project which have already been subject to prescribed royalty payments withholding tax under Subdivision VI.2, the net royalty shall be exempt income of the landowner resources trust.

140. LANDOWNER RESOURCES TRUSTS DERIVING DIVIDENDS FROM LANDOWNER RESOURCES TRUST.

(1) Notwithstanding any other provision of this Act, where–

(a) a landowner resources trust owns all of the issued shares of a company; and
(b) that company derives income of the type referred to in Section 139(2),

dividends paid to the landowner resources trust out of profits derived from such income are exempt from income tax in the hands of the landowner resources trust.

(2) This section shall not operate to prevent the company referred to in Subsection (1) from being liable in respect of any tax on its income or dividend withholding obligation imposed under this or any other Act.

141. DERIVATION OF OTHER INCOME BY LANDOWNER RESOURCES TRUST.

(1) Where a landowner resources trust derives any assessable income other than assessable income referred to in Sections 139 or 140, that assessable income shall be taxed in the hands of the landowner resources trust as though the landowner resources trust was a company.

(2) The provisions of this Act other than this Division shall apply to the assessment of all income of a landowner resources trust other than income referred to in Sections 139 and 140.

142. DISTRIBUTIONS FROM LANDOWNER RESOURCES TRUSTS.

All distributions of income and capital by a landowner resources trust to its beneficiaries shall be exempt from income tax in the hands of the beneficiaries.

Division 7.

Private Companies.

Subdivision A.[135]. . . . . . . .

143[136]. [Repealed.]

Subdivision B. – Payments and Loans to Certain Persons.

144. INTERPRETATION.

(1)[137] In this Subdivision, unless the contrary intention appears–

[138]“gift” includes a donation, settlement, a gift absolute and a disposition of property for (in the opinion of the Commissioner General) inadequate consideration, whether by way of conveyance, transfer or otherwise;
“loan” in relation to a shareholder, his relative or an associated person, includes an advance, a deposit, money otherwise let out and a credit given (including the forbearance of a debt), whether, in each case, on current account or otherwise;
“nominee”, in relation to any person, means any other person who may be required to exercise his voting power in relation to any company in accordance with the direction of that person, or who holds shares or debentures directly or indirectly on behalf of that person, and includes any relative of that person;
[139]“private company” means a private company in relation to a year of income where–
(a) at any time during the year of income, one person or persons not more than 20 in number held, or had the right to acquire or become the holder or holders of, shares representing not less than 50% of the paid up capital of the company, other than capital represented by shares entitled to a fixed rate of dividend only; or
(b) at any time during the year of income, not less than 50% of the voting the year of income, not less than 50%, of the amount of that dividend would have been paid to one person or to persons not more than 20 in number; or
(c) not less than 50% of–

(i) the amount of any dividend paid by the company during the year of income; or

(ii) where more than one dividend was paid by the company during the year of income, the total amount of all the dividends paid by the persons not more than 20 in number; or

(iii) a dividend was not paid by the company during the year of income but the Commissioner General is of the opinion that, if a dividend had been paid by the company at any time during the year of income, not less than 50%, of the amount of that dividend would have been paid to one person or to persons not more than 20 in number,

but does not include a company which is controlled by another company which does not satisfy any of the foregoing conditions.

(2) For the purposes of this Subdivision, unless the contrary intention appears, the following persons are associated persons in relation to each other:–

(a) any two companies that consist substantially of the same shareholders or are under the control of the same persons;
(b) any company and any person (other than a company) who holds paid up capital of the company;
(c) any two persons who are relatives;
(d) a partnership and any person, where that person and any partner in that partnership are, in accordance with this definition, associated persons;
(e) a Papua New Guinea trust estate or a foreign trust estate, as defined in Section 128, and any person, where that person and any trustee, setttlor or beneficiary of the Papua New Guinea or foreign trust estate are, in accordance with this definition, associated persons.
144A. DEEMED DIVIDENDS.

(1) Subject to Sections 144B and 144C, where amounts are paid or assets distributed by a private company to any of its shareholders by way of loans or gifts, or payments are made or expenditure is incurred by the company on behalf or for the benefit of any of its shareholders, (except gifts, payments or expenditure so incurred the amount of which is deductible, pursuant to this Act, in calculating the assessable income of the company), so much of the amount or value of those payments, assets distributed, loans, gifts, or that expenditure incurred that represent payments, distributions, loans, gifts or expenditure from either the income or the profits of the company shall, for all purposes of this Act (except, where a shareholder is other than a company, the purposes of Division III.13A and Division VI.4), be deemed to be dividends paid by the company out of taxable profits.

(2) Where, pursuant to Subsection (1), more than one shareholder is deemed to derive the same dividend, the dividend shall be deemed to be apportioned ratably among those shareholders in proportion to the paid-up value of the interest of each in the share capital of the company.

(3) Where a shareholder is deemed to have derived a dividend pursuant to Subsection (1), the dividend shall be deemed to have been paid by the company on the last day of the year of income of–

(a) the company in which the relevant transactions took place; or
(b) the shareholder,

whichever is the earlier.

144AB. DEEMED DIVIDENDS OUTSIDE THE COUNTRY.

(1) Where, in the opinion of the Commissioner General, a resident company–

(a) discontinues the business carried on by it; or
(b) is in the course of discontinuing the business carried on by it; or
(c) has substantially changed the nature of its business or the manner in which it conducts its business operations,

and that company (either directly or indirectly, including without limiting the foregoing through an associated person) makes an investment in property outside the country, that company shall be deemed to have paid a dividend to its shareholders on the date of the acquisition of the investment outside the country.

(2) Where there has been a deemed dividend under Subsection (1) the amount of the deemed dividend shall be the actual amount paid by the company in making the investment, and in the event that more than one payment is made, each such payment shall be deemed to be a separate dividend.

(3) The company shall, within 30 days after the making of the investment, have the right to apply in writing to the Commissioner General for a declaration that this section does not apply to the investment, and where the Commissioner General is satisfied that the investment is a bona fide business transaction which has been carried out at arms length, he shall declare that this section does not apply to such a transaction.

(4) For the purposes of this section “investment in property” shall (without limiting the meaning thereof) include the following:–

(a) purchasing any real or personal property;
(b) purchasing or acquiring an option to purchase or acquire any real or personal property;
(c) purchasing or acquiring shares, debentures or other securities;
(d) purchasing or acquiring an option to purchase or acquire shares, debentures or other securities;
(e) the making of loans;
(f) purchasing or acquiring any chose in action;
(g) purchasing or acquiring an option to purchase or acquire any chose in action.

(5) Where, pursuant to this section, more than one shareholder is deemed to derive the same dividend, the dividend shall be deemed to be apportioned rateably among those shareholders in proportion to the paid-up value of the interest of each in the share capital of the company.

144B. REPAYMENT OF LOANS.

Where an amount (other than the amount of a gift) that, pursuant to Section 144A (1), is deemed to be a dividend is subsequently repaid to the company and it is established to the satisfaction of the Commissioner General that the repayment is made bona fide and is not, either directly or indirectly, made subject to or conditional upon a subsequent or simultaneous withdrawal which would itself be deemed to be a dividend by virtue of Section 144A, either wholly or in part and either during, or within 12 months after the last day of the year of income in respect of which the amount is deemed to be a dividend, the Commissioner General may at his discretion and to the extent he considers fit, reduce the deemed dividend by the amount of any repayment and, notwithstanding anything in this Act, may amend in such manner as he considers necessary the assessment made in respect of income derived by a shareholder during the year of income in which the dividend was included.

144C. LOANS TO ASSOCIATED PERSONS AND SHAREHOLDER COMPANIES.

Section 144A does not apply to or in relation to amounts paid or assets distributed by way of loans by a private company to a resident of Papua New Guinea–

(a) who, in relation to that company, is an associated person; or
(b) that is a shareholder company,

where it is established, to the satisfaction of the Commissioner General, that such loans are in the nature of a bona fide investment or commercial transaction.

144D. LOANS, ETC. TO PERSONS ASSOCIATED WITH SHAREHOLDERS.

(1) Where a private company pays an amount or distributes an asset by way of loan or gift to, or makes a payment or incurs expenditure on behalf or for the benefit of, a person who is not a shareholder of the company but who, in relation to a shareholder, is an associated person, and which, if made or distributed to, or incurred on behalf or for the benefit of, that shareholder would, by virtue of Section 144A, be deemed to be a dividend paid to the shareholder, the amount or value of that payment, distribution, expenditure or benefit shall be deemed to be income of the shareholder as if made to, or on behalf or for the benefit of, the shareholder.

(2) For the purposes of this section, where there is, in the opinion of the Commissioner General, a person or entity interposed between a shareholder and an associated person, the Commissioner General may disregard the person or entity so interposed.

144E. NOMINEE SHAREHOLDERS.

For the purposes of this Subdivision, where a nominee of any person holds any shares, nominal capital, paid-up capital, or voting power in a company, or has by any other means any power of control in a company, or is entitled to a share of profits distributed by a company, those shares or that capital or that voting power or that power of control or that entitlement to profits, as the case may be, shall be deemed to be held by that person, and in every such case that person and his nominees shall be deemed to be one person.

144F. DIVIDEND AS SATISFACTION FOR LOAN, ETC.

Where an amount or value (other than the amount or value of a gift) is deemed by virtue of this Subdivision to be a dividend paid by a company to a shareholder, and the company subsequently sets off the whole or a part of a dividend distributed by it in satisfaction, in whole or in part, of that amount or value, that dividend shall, to the extent to which it is so set off, be deemed not to be a dividend for the purposes of this Act.

145. PAYMENTS TO SHAREHOLDERS AND DIRECTORS.

(1) So much of a sum paid or credited by a private company to a person who is or has been a shareholder or director of the company or a relative of a shareholder or director, being, or purporting to be–

(a) remuneration for services rendered by that person; or
(b) an allowance, gratuity or compensation in consequence of the retirement of that person from an office or employment held by him in that company, or upon the termination of any such office or employment,

as exceeds an amount that, in the opinion of the Commissioner General, is reasonable, is not an allowable deduction and shall, for all purposes of this Act (except, where the shareholder is other than a company, for the purposes of Division III.13A and Division VI.4) be deemed to be a dividend paid by the company.

(1A) Where a person is deemed to have derived a dividend, pursuant to Subsection (1), the dividend shall be deemed to have been paid by the company on the last day of the year of income of–

(a) the company in which the sum is paid or credited; or
(b) the person deemed to have derived the dividend,

whichever is the earlier.

(2) Where in a fiscal year an amount deemed a dividend under this section has borne salary or wages tax in accordance with Part III.2B or Part VI.2A (but not including amounts subject to Section 46B), then to that extent liability to tax in respect of that deemed dividend shall, for the purposes of this Act, be deemed to have been satisfied and, for the purpose of calculation of tax on income, other than salary or wages, under Section 46C, shall not be included as income other than salary or wages.

(3) Where in a fiscal year an amount deemed a dividend under this section has borne salary or wages tax by virtue of Section 46B, Section 232(1A)(d) shall apply and liability to tax shall be assessed in accordance with Section 46C as though that dividend so deemed was income other than salary or wages.

Division 7A.

Amalgamation of Companies.

145A. INTERPRETATION.

In this Division, unless the contrary intention appears–

[140]“accrual expenditure” means expenditure incurred by an amalgamating company prior to the amalgamation some or all of which would, but for the amalgamation, be an allowable deduction of the amalgamating company in the year of income and/or in a subsequent year of income and without limiting the generality of this term, includes expenditure to which the provisions of Divison 10 of III apply;
“amalgamated company” means a company which results from and continues after amalgamation, and may be one of the amalgamating companies or a new company;
“amalgamating company” means a company which amalgamates with one or more companies under an amalgamation and ceases to exist after amalgamation;
“amalgamation” means an amalgamation occurring under the Companies Act 1997;
“financial arrangement” means–
(a) any debt or debt instrument; or
(b) any arrangement whereby a person obtains money in consideration for a promise by any person to provide money to any person at some future time or times, or upon the occurrance or non-occurance of some future event or events (including the giving of, or failure to give, notice); or
(c) any arrangement which is of a substantially similar nature (including, without restricting the generality of the preceding provisions of this subparagraph, sell back and buy-back arrangements, debt defeasances, and assignments of income);
“qualifying amalgamation” means any amalgamation where each of the amalgamating companies and the amalgamated company is, at the time of the amalgamation, resident in Papua New Guinea and is not–
(a) a company which, under a double tax avoidance agreement, is treated as not being resident in Papua New Guinea for the purposes of the double tax avoidance agreement; or
(b) a company which derives only exempt income.
[141]“unexpired accrual expenditure” means the amount of accrual expenditure incurred by an amalgamating company prior to the date of amalgamation less the amount of that expenditure which has been or will be allowed as a deduction to the amalgamating company prior to the date of amalgamation and without limiting the generality of this term includes residual exploration expenditure and residual capital expenditure.
145B. NOTICE OF AMALGAMATION.

The amalgamated company shall give notice of amalgamation to the Commissioner General before the expiration of 30 days of the date of filing of the application for registration of amalgamation with Registrar of Companies as prescribed under Section 236 of the Companies Act 1997 enclosing therewith a copy of application with all accompanying documents.

145C. TAX CONSEQUENCES SPECIFIED.

Notwithstanding anything to the contrary contained in any other law for the time being in force, the tax consequences of the amalgamation of companies shall be governed by the express provisions of this Division.

145D. CANCELLATION OF SHARES HELD BY AMALGAMATING COMPANY ON AMALGAMATION.

Where shares in any amalgamating company are held by another amalgamating company or by the amalgamated company in a qualifying amalgamation and cancelled on amalgamation, then for the purposes of this Act, the shares shall be deemed to have been disposed of by the shareholder company immediately before the amalgamation for a consideration equal to–

(a) in the case of any shares held as trading stock by the shareholder company at the beginning of the income year in which the amalgamation takes place, at the election of the amalgamated company–
(i) the cost; or
(ii) the market selling price;

of the shares at the time of the amalgamation; and

(b) in any other case, the cost to the shareholder company of the shares.
145E. DEDUCTION TO AMALGAMATED COMPANY FOR BAD DEBTS, EXPENDITURE, ETC., ON QUALIFYING AMALGAMATION.

Where–

(a) the amalgamated company in any period writes off as a bad debt any debt acquired from the amalgamating company at the time of the amalgamation or incurs any expenditure or loss by virtue of anything done or not done by the amalgamating company; and
(b) the amount would have been allowed as a deduction to the amalgamating company but for the amalgamation,

the amount shall be allowed as a deduction to the amalgamated company for the period.

145F. AMALGAMATED COMPANY TO ASSUME UNEXPIRED ACCRUAL EXPENDITURE AND INCOME OF AMALGAMATING COMPANY ON QUALIFYING AMALGAMATION.

Where the amalgamated company assumes the unexpired accrual expenditure or income of the amalgamating company–

(a) the unexpired portion of any amount of accrual expenditure of the amalgamating company for the income year shall be deemed to be the unexpired portion of an amount of accrual expenditure of the amalgamated company for the income year; and
(b) any amount derived by the amalgamated company at any time after the amalgamation which would have been income of the amalgamating company but for the amalgamation, shall be income of the amalgamated company.
145G. TRANSFER OF PROPERTY OR OBLIGATION.

(1) Where an amalgamated company, on a qualifying amalgamation acquires–

(a) trading stock, the amalgamating company shall be deemed to have disposed of and the amalgamated company shall be deemed to have purchased it at cost price paid by the amalgamating company; and
(b) any obligation or any property other than a property on which depreciation has been allowed, it shall be deemed that the obligation or the property has been acquired by the amalgamated company at the same value at which it was acquired by the amalgamating company; and
(c) any property on which depreciation has been allowed to the amalgamating company, it shall be deemed to have been acquired by the amalgamated company at the cost of acquisition as reduced by the amount of depreciation allowed to the amalgamating company.

(2) In any cases other than those referred to in Subsection (1) the amalgamating company shall be treated as having disposed of the property or relieved itself of the obligation and the amalgamated company shall be treated as having acquired the property or assumed the obligations on the date of amalgamation for a consideration equal to the market value of the property, or market price for assuming such obligation.

145H. TRANSFER OF FINANCIAL ARRANGEMENT ON QUALIFYING AMALGAMATION.

(1) Where–

(a) the amalgamated company uses the same method of calculating income and expenditure under the financial arrangement as the amalgamating company used; and
(b) the amalgamated company elects to include the deemed income accrued or expenditure incurred by the amalgamating company in the year of amalgamation in its return of income for that year; and
(c) the amalgamating company does not include any deemed income accrued or expenditure incurred by it in the year of amalgamation in its return of income to the date of amalgamation; and
(d) the amalgamated company and the amalgamating company were members of a wholly owned group at all times in the income year of amalgamation,

then no tax consequences will arise in respect of transfer of a financial arrangement by the amalgamating company to the amalgamated company.

(2) Where the condition specified in Subsection (1)(a) is satisfied, but other conditions specified in Subsection (1) are not satisfied, the consideration for the transfer of the financial arrangement shall be a sum considered fair and reasonable to the satisfaction of the Commissioner General.

(3) Where the amalgamating company and the amalgamated company use different methods of calculating income and expenditure under the financial arrangement and other conditions specified in Subsection (1) are not satisfied, the transfer of a financial arrangement by the amalgamating company to the amalgamated company shall be deemed to have been made at the market price.

145I. LOSSES OF PREVIOUS YEARS OF AMALGAMATING COMPANY ON QUALIFYING AMALGAMATION.

Where an amalgamating company has incurred a loss, so much of the loss incurred in any of the seven years immediately preceding the year of amalgamation and during the year of amalgamation up to the date of amalgamation, as has not been allowed as a deduction from its income of any of those years, is allowable as a deduction to the amalgamated company in accordance with the following provisions:–

(a) in a case where the amalgamating company is a subsidiary of the amalgamated company, the loss would have been allowed as deduction during the year of amalgamation in accordance with the provisions of Section 101F;
(b) in a case where the amalgamation is not covered by Paragraph (a), the loss shall be allowed as deduction to the amalgamated company only if there is at least 50% shareholder continuity in the amalgamating company from the beginning of the year in which loss was incurred until the date of amalgamation;
(c) for the amalgamated company to offset the loss against its income, 50% shareholder continuity test must be met from the beginning of the year in which loss was incurred until the date of deduction.
145J. TRANSFER OF RETAINED PROFITS TO AMALGAMATED COMPANY.

Where retained profits of the amalgamating company are transferred to the amalgamated company under a qualifying amalgamation, the transfer shall not be treated as distribution of dividend.

145K. AMALGAMATED COMPANY TO ASSUME RIGHTS AND OBLIGATIONS OF AMALGAMATING COMPANY.

Subject to the provisions of this Division, the amalgamated company shall comply with all obligations of and meet all liabilities of, and be entitled to all rights, powers and privileges of, the amalgamating company under the laws pertaining to taxation with respect to the income year in which the amalgamation occurs and all preceding income years.

145L. TRANSFER OF INFRASTRUCTURE TAX CREDITS.

[142]Where at the time of amalgation an amalgamating company is entitled to carry forward expenditure or credits in accordance with the provisions of Section 219C, the amalgamating company shall be entitled to that expenditure or credit in the same way as the amalgamating company and the provisions of Section 219C shall apply to the amalgamated company in respect of that expenditure or credit as it would have applied to the amalgamating company if the amalgamation had not accurred.

Division 8.

Life Assurance Companies.

146. DEFINITIONS.

In this Division–

“future premiums” means such premiums as, according to the rate of interest and the rate of mortality assumed in the company’s actuarial valuation, are sufficient to provide for the risk incurred by the company in issuing the policies in force on the date in respect of which the valuation is made, exclusive of any addition thereto for office expenses and other charges;
“life assurance company” means a company the sole or principal business of which is life assurance;
“valuation of liabilities” means a valuation of the amount which, together with the future premiums payable, if accumulated at the rate of interest stated as assumed in the company’s actuarial valuation, would provide the amount required to pay in full on the respective dates of their maturity, according to the rates of mortality assumed in the valuation, the liabilities under policies in force on the date in respect of which the valuation is made.
147. PREMIUMS, ETC., NOT ASSESSABLE INCOME.

The assessable income of a life assurance company shall not include premiums received in respect of policies of life assurance or considerations received in respect of annuities granted.

148. DEDUCTIONS.

(1) Expenditure incurred by a life assurance company exclusively in gaining premiums or considerations referred to in Section 147 is not an allowable deduction.

(2) So much only of the expenditure incurred in the year of income in the general management of the business of a life assurance company as bears to that expenditure the same proportion as its assessable income bears to its total income is an allowable deduction.

(3) For the purposes of Subsection (2)–

(a) the expenditure exclusively incurred in gaining or producing assessable income, or exclusively incurred in gaining or producing income that is not assessable, shall be deemed not to be expenditure incurred in the general management of the business of the life assurance company; and
(b) the total income of the life assurance company shall include premiums and considerations referred to in Subsection (2).
149. CALCULATED LIABILITIES.

(1) Where an actuarial valuation of liabilities is made as at the end of the year of income, the “calculated liabilities” at that date shall be–

(a) where the basis of the valuation is compound interest at the rate of 4% per annum or over–the amount of that valuation; or
(b) where that basis is compound interest at a rate less than 4% and not less than 3½% per annum–95% of that valuation; or
(c) where that basis is compound interest at a rate less than 3½% and not less than 3% per annum–90% of that valuation; or
(d) where that basis is compound interest at a rate less than 3% per annum–85% of that valuation.

(2) Where an actuarial valuation of liabilities is not made as at the end of the year of income, a calculation shall be made of the proportion that the last preceding actuarial valuation of liabilities, as at some other date, bears to the value of all the assets of the company at that date and the amount which bears the proportion to the value of all the assets of the company at the end of the year of income shall be deemed to be an actuarial valuation of liabilities made as at the end of that year on the same basis as that last preceding valuation.

(3) An amount equal to 3% of that part of the calculated liabilities of a life assurance company at the end of the year of income that bears to the calculated liabilities the same proportion as the value at that date of the assets from which the company derives assessable income bears to the value at that date of all the assets of the company is an allowable deduction.

(4) When the calculated liabilities at the end of the year of income exceed the value at that date of all the assets of the company, the company is not liable to pay income tax in respect of the income derived in that year from the business of life assurance.

Division 9.

Co-operative and Mutual Companies.

150. CO-OPERATIVE COMPANIES.

In this Division, “co-operative company” means a company the rules of which limit the number of shares that may be held by, or by and on behalf of, any one shareholder, and prohibit the quotation of the shares for sale or purchase at any stock exchange or in any other public manner whatever, and includes a company that has no share capital, and that in either case is established for the purpose of carrying on any business having as its primary object or objects one or more of the following:–

(a) the acquisition of commodities or animals for disposal or distribution among its shareholders;
(b) the acquisition of commodities or animals from its shareholders for disposal or distribution;
(c) the storage, marketing, packing or processing of commodities of its shareholders;
(d) the rendering of services to its shareholders;
(e) the obtaining of funds from its shareholders for the purpose of making loans to its shareholders to enable them to acquire land or buildings to be used for the purpose of residence or of residence and business.
151. COMPANY NOT CO-OPERATIVE IF LESS THAN 90% OF BUSINESS WITH MEMBERS.

If, in the ordinary course of business of a company in the year of income, the value of commodities and animals disposed of to, or acquired from, its shareholders by the company, or the amount of its receipts from the storage, marketing, packing and processing of commodities of its shareholders, or from the rendering of services to them, or the amount lent by it to them, is less respectively than 90% of the total value of commodities and animals disposed of or acquired by the company, or of its receipts from the storage, marketing, packing and processing of commodities, or from the rendering of services, or of the total amount lent by it, that company shall in respect of that year be deemed not to be a co-operative company.

152. SUMS RECEIVED TO BE TAXED.

The assessable income of a co-operative company shall include all sums received by it, whether from shareholders or from other persons, for the storage, marketing, packing or processing of commodities, or for the rendering of services, or in payment for commodities or animals or land sold, whether on account of the company or on account of its shareholders.

153. DEDUCTIONS ALLOWABLE TO CO-OPERATIVE COMPANY.

(1) So much of the assessable income of a co-operative company as–

(a) is distributed among its shareholders as rebates or bonuses based on business done by shareholders with the company; or
(b) is distributed among its shareholders as interest or dividends on shares; or
(c) in the case of a company having as its primary object that specified in Section 150(b)–is applied by the company for or towards the repayment of any moneys loaned to the company by the State to enable the company to acquire assets that are required for the purpose of carrying on the business of the company or to pay the State for assets so required that the company has taken over from the State,

is an allowable deduction.

(2) The deduction under Subsection (1)(c) is not allowable unless shares representing not less than 90% of the paid-up capital of the company are held by persons who supply the company with the commodities or animals that the company requires for the purposes of its business.

(3) A rebate or bonus based on purchases made by a shareholder from the company shall not be included in his assessable income except where the price of those purchases is allowable as a deduction in ascertaining his taxable income of any year.

154. MUTUAL INSURANCE ASSOCIATIONS.

An association of persons formed for the purpose of insuring those persons against loss, damage or risk of any kind in respect of property shall, for the purposes of this Act, be deemed to be a company carrying on the business of insurance, and the assessable income of the company shall include all premiums derived by the company, whether from its shareholders or not, other than premiums received in respect of policies of life assurance or considerations received in respect of annuities granted.

Division 9A.

Incentive to Certain Corporations.

154A. INTERPRETATION.

In this Division, unless the context otherwise requires or some other meaning is clearly intended–

“benefit under Section 40B or 40C” means any reduction of income tax that arose out of the application of Section 40B or 40C, or 40B as in force immediately prior to the commencement of the Income Tax (Repeal and Replacement of Section 40B) Act 1976;
“qualifying corporation” means–
(a) a business group registered under the Business Groups Incorporation Act 1974; and
(b) an incorporated land group recognised under the Land Groups Incorporation Act 1974; and
(c) a corporation incorporated under the Companies Act 1997 the membership of which comprises none other than a resident who is–

(i) a citizen (other than a naturalised citizen); or

(ii) a qualifying corporation; or

(iii) a Provincial Government (including a provincial government body); or

(iv) a local government council, or a local level government body, by whatever name known, established by or under a provincial law as defined in Section Sch.1.2 of the Constitution; or

(v) the State or a statutory authority or statutory instrumentality of the State;

“share”, in relation to a corporation, includes the proprietory rights of a member of the corporation.
154B. APPLICATION OF SECTION 154C.

(1) Subject to Subsection (2), Section 154C only applies to a qualifying corporation where the Commissioner General is satisfied that–

(a) at all times during the year of income or, where a corporation is a qualifying corporation during part only of a year of income, at all times during that part–
(i) all its issued shares were of one class; and
(ii) all its issued shares conferred equal voting rights upon their holders; and
(iii) all its issued shares conferred equal rights on their holders in the event of a winding-up or dissolution of the corporation; and
(iv) the beneficial owners of each share had equal rights amongst themselves; and
(v) the beneficial owners of the shares had equal rights amongst themselves in proportion to their respective beneficial interests; and
(vi) no person who is not a person referred to in Paragraph (b) had obtained an unreasonable benefit from the conduct of the affairs of the corporation; and
(vii) the affairs of the corporation are being conducted in the best interest of the corporation; and
(b) no present or future legal or equitable right to or interest in any share in the corporation is beneficially owned by any person other than–
(i) a citizen (other than a naturalised citizen); or
(ii) a qualifying corporation; or
(iii) a Provincial Government (including a provincial government body); or
(iv) a local government body, or a local level government body, by whatever name known, established by or under a provincial law as defined in Section Sch.1.2 of the Constitution; or
(v) the State or a statutory authority or statutory instrumentality of the State.

(2) Section 154C does not apply to–

(a) a qualifying corporation that has gained or was entitled to have gained, in any year of income or part of a year of income, a benefit under Section 40B or 40C; or
(b) a qualifying corporation that has as a shareholder a person (other than the Rural Development Bank) who was a shareholder in a corporation where–
(i) 10% or more of the shares were beneficially owned by less than six shareholders; and
(ii) that corporation gained or was entitled to have gained a benefit under Section 40B or 40C; or
(ba) subject to Subsection (3) (but excluding a qualifying corporation of which Rural Development Bank is a shareholder) a qualifying corporation of which less than six shareholders are the beneficial owners of 10% or more of the shares of another qualifying corporation;
(bb) subject to Subsection (3) a qualifying corporation which, in the opinion of the Commissioner General, is one of two or more qualifying corporations carrying on the same business or sharing in the same business income; or
(bc) a qualifying corporation that is carrying on all or part of any business in respect of which another taxpayer has previously gained, in any year of income or part of a year of income, a benefit under Section 40B or 40C or has had Section 154C applied to him; or
(c) income derived by a qualifying corporation prior to the year of income that commenced on 1 January 1978 or the approved substituted accounting period of that corporation corresponding to that year of income; or
(d) income derived by a qualifying corporation after the year of income ending 31 December 1985 or the approved substituted accounting period of that corporation corresponding to that year of income.

(3) For the purposes of Subsection (2)(ba) and (bb), where more than one qualifying corporation referred to in the respective paragraphs would, but for this subsection, be a corporation to which Section 154C does not apply, that section applies only to the corporations respectively registered first on the appropriate register of incorporated companies kept by the Registrar of Companies under Section 395(1) of the Companies Act 1997.

154C. TAX LIABILITY OF QUALIFYING CORPORATION.

Subject to Section 154B, a qualifying corporation shall be liable to income tax on the taxable income derived while it was a qualifying corporation, at such rates as are declared by an Act.

154D. ELECTION BY CERTAIN CORPORATIONS.

(1) Where a corporation to which Section 40B or 40C applies has not gained or is not entitled to gain a benefit under Section 40B or 40C in relation to income derived during any year of income preceding the year of income that commenced on 1 January 1978, that corporation, where it is otherwise qualified, may elect to be a qualifying corporation, and by so doing shall forfeit any rights or benefits to which it may have been or may be entitled under those sections had such an election not been made, and thereupon those sections shall no longer apply to that corporation.

(2) Notwithstanding Section 154B(2)(a), where a corporation became a corporation to which Section 40B or 40C applies during the period commencing 1 July 1977 and ending 31 December 1977, that corporation, where it is otherwise qualified, may elect to be a qualifying corporation, and by so doing shall forfeit any rights or benefits to which it may have been or may be entitled under those sections had such an election not been made, and thereupon those sections shall no longer apply to that corporation.

(3) The election referred to in Subsections (1) and (2) shall be in writing and be lodged with the Commissioner General on or before the date on which the return of income of the year of income ended 31 December 1977 (or approved substituted accounting period of that corporation corresponding to that year of income) is to be furnished to the Commissioner General, or within such further time as the Commissioner General allows.

Division 10.[143]

Mining, Petroleum and Gas Projects.

Subdivision A. – Subdivision A.-General Provisions Applicable To Mining, Petroleum And Designated Gas Projects.

155. INTERPRETATION.

(1)[144] In this Division, unless the contrary intention appears–

“additional profits tax” means income tax on taxable profits from resource operations, determined and payable under Subdivision E;
“allowable capital expenditure” has the meaning given in Section 155D;
“allowable exploration expenditure” has the meaning given in Section 155A;
“amount recovered” means, in relation to a recoupment of expenditure of a capital nature–
(a) where property upon which such expenditure was made is sold (whether with or without other property) for a specified price and no part of the sale price of that property is consideration for expenditure transferred by the taxpayer to another person and specified in a notice given under Section 155L-the sale price of the property less–

(i) the expenses of the sale of the property; or

(ii) where the property is sold with other property, such part of the expenses of the joint sale as the Commissioner General determines; or

(b) where such property is sold with other property and a separate price is not allocated to the property and no part of the sale price of that property is consideration for expenditure transferred by the taxpayer to another person and specified in a notice given under Section 155L- such part of the total sale price, less the expenses of the joint sale, as the Commissioner General determines; or
(c) where such property is disposed of otherwise than by sale and no part of the consideration received for that property is consideration for expenditure transferred by the taxpayer to another person and specified in a notice given under Section 155L-the full value of the property at the date of disposal; or
(d) where such property is lost or destroyed- the amount or value received or receivable under a policy of insurance or otherwise in respect of the loss or destruction; or
(e) where such property is disposed of and consideration for the disposal is consideration for expenditure transferred by the taxpayer to another person and specified in a notice given under Section 155L-the amount of the consideration so specified; or
(f) where the use of such property in respect of the resource project is otherwise terminated, the full value of the property at the date of termination of use; or
(g) where such property is used by any other person-the value of any consideration or benefit derived by the taxpayer in respect of such use; or
(h) where a taxpayer otherwise recoups such expenditure-the value of the reimbursement or other form of recoupment of recovery of that expenditure;
[145]“co-ordinate development agreement” means –
(a) an agreement between the licensees of two or more development licenses which provides for the unit development or co-ordinated petroleum development of one or more petroleum pools underlying such development licenses, including agreements of the types referred to in Sections 64 and 65 of the Oil and Gas Act 1998; or
(b) any other agreement between the licensees of two or more petroleum rights whereby the licensees of one petroleum right agree to compensate the licensees of another petroleum right for expenditure incurred or income foregone;
“consideration”, in relation to the disposal, loss or destruction of property, means–
(a) where the property is sold (whether with or without other property) for a specified price-the sale price of the property less–

(i) the expenses of the sale of the property; or

(ii) where the property is sold with other property and a separate price is not allocated to the property-such part of the total price as the Commissioner General determines less the expenses of the joint sale; or

(b) where the property is sold with other property and a separate price is not allocated to the property- such part of the total price as the Commissioner General determines less the expenses of the joint sale; or
(c) where the property is disposed of otherwise than by sale-the full value of the property at the date of disposal; or
(d) where the property is lost or destroyed-the amount or value received or receivable under a policy of insurance or otherwise in respect of the loss or destruction;
[146]“conversion date” in relation to a field which is part of a petroleum project means the last day of the month prior to the date on which its production of gas exceeds the prescribed ratio of gas production to oil production.
[147]“debt” means indebtedness of the taxpayer (excluding bank overdraft balances maintained in the normal course of business), as it would have been shown in a balance sheet prepared in accordance with the standards published by the International Accounting Standards Committee drawn up as at the date at which the relevant calculation is being made, including–
(a) any indebtedness for borrowed money or arising out of any credit facility or financial accommodation or for the deferred purchase price of property or services (other than trade accounts payable arising in the ordinary course of business and on terms requiring payment in full within no more than 90 days); and
(b) all guarantees or other obligations which are the economic equivalent of a guarantee, including any obligation to purchase, to provide funds for payment, to supply funds to or otherwise to invest in any other entity in respect of the indebtedness of any other entity for borrowed money or arising out of any credit facility or financial accommodation of for the deferred purchase price or property or services (other than trade accounts payable arising in the ordinary course of business and on terms requiring payment in full within no more than 90 days); and
(c) all indebtedness or other obligations of any other entity for borrowed money or arising out of any credit facility or financial accommodation for the deferred purchase price of property or services (other than trade accounts payable arising in the ordinary course of business and on terms requiring payment in full within no more than 90 days) secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) any lien upon property (including, without limitation, accounts receivable and contract rights) owned by the taxpayer or one of its subsidiaries, whether or not the taxpayer or any of its subsidiaries has assumed or become liable for the payment of such indebtedness of obligations; and
(d) all obligations of the taxpayer and its subsidiaries in respect of Finance Leases (being the aggregate of the present value, determined in accordance with generally accepted financial practice, of the rental that will fall due thereunder and the specified residual value (if any),
but does not include so much of the indebtedness of the taxpayer as exists to fund the State’s accumulated liability to the taxpayer or any indebtedness owed by the taxpayer to another co-ordinated development participant pursuant to a co-ordinated development agreement in consequence of a redetermination;
“equity” means shareholders’ funds which shall include, without limiting the generality of the term–
(a) paid up capital and accumulated income as they would have been shown if a balance sheet, prepared in accordance with the standards published by the International Accounting Standards Committee, had been drawn up at the date at which the relevant calculation is being made; and
(b) any amount that is treated as equity or branch capital for the purpose of an agreement between the State and the taxpayer relating to a resource project carried on by the taxpayer,
after deducting therefrom the amount by which the book value of any tangible asset of the company or of any of its subsidiaries has been increased by a writing-up other than a writing-up made with the consent of the State;
“expenditure”, in relation to resource operations, means the net expenditure after taking into account any bounty or subsidy received in or in relation to the carrying on of resource operations and any rebates or returns in respect of such expenditure;
“exploration” means exploration activities, and does not include development drilling or operations conducted pursuant to a development licence;
[148][149]“exploration activities” means exploration activities for the purpose of discovering petroleum or minerals in Papua New Guinea, and includes geophysical analysis and geophysical surveys, exploration drilling and appraisal drilling and appraisal in relation to such petroleum or minerals, whether pursuant to a petroleum prospecting licence or a retention licence or a development licence or a mining exploration licence;
“exploration licence” means–
(a) a petroleum prospecting or petroleum retention licence issued under the Oil and Gas Act 1998; or
(b) an exploration licence issued under the Mining Act 1992;
[150]“field” means an area consisting of a single pool or multiple pools all grouped on or related to the same geological structural feature and/or stratigraphic condition including two or more reservoirs which may be separated vertically by intervening impervious strata or laterally by local geologic barriers or both, as variously described in either a Gas Agreement, a Petroleum Agreement, or the Approved Proposals of a Petroleum Development Licence;
[151]“mining development licence” means a mining lease or special mining lease issued under the Mining Act 1992;
“mining project” means mining operations conducted pursuant to a mining lease or a special mining lease;
“new resource project” means a resource project which did not, prior to 31 December 2000, derive assessable income from resource operations;
[152]“petroleum development licence” means a development licence, or a pipeline licence issued under the Oil and Gas Act 1998;
[153]“petroleum exploration licence” means a petroleum prospecting licence, or petroleum retention licence issued under the Oil and Gas Act 1998;
[154]“petroleum right” means a petroleum exploration licence or a petroleum development licence;
[155]“Producer Price Index of the United States” means the producer price index for the industry of the relevant resource project as published by the United States Government at internet web site “HTTP//STATS.BLS.GOV/PPIHOME.HTM”;
“recoupment” means, in relation to expenditure by a taxpayer of a capital nature–
(a) where the expenditure was incurred in respect of property which is disposed of, lost or destroyed, or which is used by any other person, or the use of which in relation to a resources project is otherwise terminated, the derivation of consideration or any other benefit (including compensation or insurance proceeds) as a consequence of such disposal, loss, destruction, use or termination; or
(b) the reimbursement or other form of recoupment or recovery of that expenditure,
and “recouped” or “recoups” have the corresponding meaning;
[156]“redetermination” means a determination or redemption pursuant to a co-ordinated development agreement of the rights and obligations of the parties to the agreement as to the costs of petroleum operations or gas operations in respect of the petroleum rights covered by the co-ordination development agreement and production of petroleum therefrom;
“related corporation” means, in relation to a taxpayer, a corporation which is–
(a) a wholly owned subsidiary of the taxpayer; or
(b) a corporation of which the taxpayer is a wholly owned subsidiary; or
(c) a wholly owned subsidiary of a corporation of which the taxpayer is a wholly owned subsidiary; and
for the purposes of this provision, “wholly owned” includes indirect full ownership through other corporations;
[157]“residual exploration expenditure” has the meaning given in Section 155B;
[158]“resource” or “resources” means recoverable reserves of minerals, petroleum or gas;
“resource agreement” means an agreement for the development of a resource made by the State and the developer under the provisions of the Oil and Gas Act 1998 or the Mining Act 1992;
“resource development licence” means–
(a) a mining lease or special mining lease issued under the Mining Act 1992, or
(b) a petroleum development licence or pipeline licence issued under the Oil and Gas Act 1998;
“resource information” means geological, geophysical or technical information that–
(a) relates to the presence, absence or extent of deposits of resources in an area of Papua New Guinea; or
(b) is likely to be of assistance in determining the presence, absence or extent of such deposits in an area of Papua New Guinea,
and that has been obtained from prospecting for or recovery of those resources;
[159]“resource operations” mean operations in Papua New Guinea by a resource project or holders of a resource right for the purposes of exploring for, or the development of, a resource;
“resource product” means minerals, petroleum or gas recovered by a resource project;
[160]“resource project” means a designated gas project, a mining project, a mining project or a petroleum project;
[161]“resource right” means a resource development licence or an exploration licence;

(2) For any purpose of this Act, the Commissioner General may determine the extent to which a deduction allowed or allowable under this Division is to be treated as attributable to particular expenditure that has been taken into account, or is to be taken into account, in the calculations by which the entitlement of the taxpayer to the deduction has been ascertained.

155A. ALLOWABLE EXPLORATION EXPENDITURE.

(1)[162] [163]This section shall be read together with the sections dealing with specific items of allowable exploration expenditure in Subdivisions B, C, and D.

(2)[164] [165]For the purposes of this Division, but subject to Section 155M, allowable exploration expenditure of a taxpayer in relation to a resource project is so much of the expenditure incurred by the taxpayer for the purpose of exploration in Papua New Guinea as, at the date of issue of a resource development licence included in the resource project, was incurred within the 20 years prior to that date and which was incurred –

(a) pursuant to an exploration licence from which the resource development licence was drawn; or
(b) in relation to the areas (including relinquished areas) of an exploration licence which has been surrendered or cancelled or has expired,

and includes allowable exploration expenditure deemed to have been incurred by the taxpayer under Section 155L.

(3) Subject to Subsection (6), where a taxpayer incurs allowable exploration expenditure in acquiring property in respect of which a deduction has been allowed or is allowable under this Division, the allowable exploration expenditure attributable to that property shall not exceed the cost of the property to the person disposing of the property.

(4) Subsection (3) shall not apply where the Commissioner General is of the opinion that the circumstances are such that the actual consideration given by the taxpayer should be allowed as allowable exploration expenditure.

(5) Interest incurred by a taxpayer shall not be allowable exploration expenditure.

(6) The allowable exploration expenditure of a taxpayer from time to time shall be reduced by–

(a) the amount of any allowable exploration expenditure of the taxpayer transferred by the taxpayer to another person and specified in a notice given under Section 155L; and
(b) the amount recovered in respect of any recoupment by the taxpayer of allowable exploration expenditure, other than amounts included in the assessable income of the taxpayer, where no part of that amount recovered is consideration for allowable exploration expenditure transferred by the taxpayer to another person and specified in a notice given under Section 155L; and
(c) rent, interest or other income derived by the taxpayer in the course of carrying out the exploration; and
(d)[166] [Repealed.]

(7) Expenditure which would otherwise be allowable exploration expenditure shall not be allowable exploration expenditure and shall be allowable capital expenditure if it is incurred after the issue of a resource development licence or is allowable capital expenditure of the taxpayer under Section 155D.

(8) Subject to Subsection (9), expenditure by a taxpayer which would otherwise be allowable exploration expenditure shall not be allowable exploration expenditure if the expenditure is consideration for the acquisition of an interest in all or part of a resource project which has already been the subject matter of allowable exploration expenditure or allowable capital expenditure of another person.

(9) Subsection (2) shall not apply to expenditure which is the subject of a notice given under Section 155L, to the extent specified in the notice.

(10)[167] [168]Notwithstanding the provisions of this division, no deduction is allowable for exploration expenses incurred by a resource development project on or before 31 December 2000, to the extent that such a deduction would not have been allowable under the tax provisions then in force, if a resource development licence for that project had been issued on 31 December 2000.

155B. RESIDUAL EXPLORATION EXPENDITURE.

(1)[169] [170]The balance of residual exploration expenditure of taxpayer in relation to a resource project on 31 December 2000 (as 2000) shall, for the purposes of this Section, be deemed to be allowable exploration incurred on 1 January 2001.

(2) Subject to this section, for the purposes of this Division the residual exploration expenditure as at the end of a year of income in relation to a resource project shall be ascertained by deducting from the amount of the allowable exploration expenditure of the taxpayer in relation to the project before the end of the year of income the sum of–