Income and deduction provisions specifically related to financial arrangements

EW 49 Income and deduction when debt disposed of at discount to associate of debtor
When this section applies

(1)

This section applies when a creditor disposes of a debt on or after 20 May 1999 to a person associated with the debtor and at a discount.

At a discount

(2)

A creditor disposes of a debt at a discount if the creditor disposes of it for 80% or less of the market value of the debt.

Market value

(3)

The market value of a debt affected by any of the following factors is determined as if its market value were not affected by the factor. The factors are—

(a)

the occurrence of an event reducing or cancelling the debtor’s obligations under the debt; or

(b)

the occurrence of 1 of the following between the date on which the debt was entered into and the date of the disposal:

(i)

a decline in the debtor’s creditworthiness; or

(ii)

an increase in the possibility that the debtor will not meet an obligation under the debt.

Original debt replaced with interest-free loan

(4)

The associated person is treated as having provided the debtor with an interest-free loan for the amount paid for the debt.

Repayment: income and deduction

(5)

If the debtor later repays the person associated with the debtor more than the amount the associated person paid for the debt, the excess amount paid by the debtor is—

(a)

income, under section CC 3(1) (Financial arrangements), of the person associated with the debtor; and

(b)

a deduction that the debtor is allowed under section DB 13(1) (Repayment of debt in certain circumstances).

Defined in this Act: amount, associated person, deduction, income, pay

Compare: 2004 No 35 s EW 50

Section EW 49 heading: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).

Section EW 49(1): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).

Section EW 49(1): amended, on 1 April 2010, by section 22 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

Section EW 49(2): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).

Section EW 49(5)(b): amended, on 1 April 2017, by section 77 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).

Section EW 49 list of defined terms 1988 version provisions: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).