The IRD has recently changed their position on subvention payments. Historically the IRD’s view with subvention payments was that the payments had to be physically paid no later than 31 March of the following income year; a “payment” only recorded by way of intercompany journal was considered insufficient.
The IRD has reconsidered its view and decided, in the absence of any statutory definition in the context of a subvention payment, that payment should be given its ordinary meaning.
The IRD states that “In the context of subvention payment agreements, “payment” will be satisfied when the obligation has been discharged. There are a number of ways an obligation may be discharged, including a cash payment or equivalent or by certain accounting entries. An obligation will generally be discharged where the payee can no longer sue the payer for the payment” [Agents Answers March 2011].
This means taxpayers can now record subvention payments through intercompany accounts without having to make physical payment.
The IRD has not put a date on when this change applies from, therefore it would be fair to assume the change is retrospective.