Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009

Reprint
as at 8 December 2009

Crest

Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009

Public Act2009 No 34
Date of assent6 October 2009
Commencementsee section 2

Note

Changes authorised by section 17C of the Acts and Regulations Publication Act 1989 have been made in this reprint.

A general outline of these changes is set out in the notes at the end of this reprint, together with other explanatory material about this reprint.

This Act is administered by the Inland Revenue Department.


Contents

1 Title

2 Commencement

Part 1
Amendments to Income Tax Act 2007

3 Income Tax Act 2007

4 Income tax liability of person with schedular income

5 Withholding liabilities

6 Other obligations

7 Disposal: land used for landfill, if notice of election

8 Section CB 26 replaced

9 Section CB 27B repealed

10 Heading and section CB 36 replaced

Emissions units under Climate Change Response Act 2002

11 New section CC 8B inserted

12 What is a transfer of value?

13 When is a transfer caused by a shareholding relationship?

14 Section CD 21 repealed

15 Returns of capital: off-market share cancellations

16 Treasury stock acquisitions

17 Property made available intra-group

18 Employee benefits

19 Foreign investment fund income

20 Available subscribed capital (ASC) amount

21 Available capital distribution amount

22 Heading and sections CD 45 to CD 52 repealed

23 Prevention of double taxation of share cancellation dividends

24 Amounts derived in connection with employment

25 Meaning of expenditure on account of an employee

26 Benefits, pensions, compensation, and government grants

27 New subpart CO inserted

28 Section CP 1 replaced

29 When attributed CFC income arises

30 When FIF income arises

31 Section CQ 7 repealed

32 Heading to subpart CR replaced

33 Sections CR 1 and CR 2 replaced

34 New section CR 4 added

35 Withdrawals

36 Exclusions of withdrawals of various kinds

37 Exclusion of withdrawal on partial retirement

38 Exclusion of withdrawal when member ends employment

39 Section CV 10 repealed

40 Section CW 3B repealed

41 Dividend derived by company from overseas

42 Proceeds of share disposal by qualifying foreign equity investor

43 Dividends paid by qualifying companies

44 Expenditure on account, and reimbursement, of employees

45 New sections CW 17B and CW 17C inserted

46 Section CW 37 repealed

47 Local and regional promotion bodies

48 Charities: business income

49 New section CW 59C inserted

50 New section CW 62B inserted

51 Meaning of fringe benefit

52 Contributions to superannuation schemes

53 Benefits provided instead of allowances

54 Section CX 28 replaced

55 Section CX 39 repealed

56 Government grants to businesses

57 Amounts remitted as condition of new start grant

58 Section CX 48B repealed

59 New heading and section CX 48C inserted

Government funding of film and television

60 New heading and section CX 48D inserted

Research and development

61 New heading and section CX 51B inserted

Emissions units under Climate Change Response Act 2002

62 Proceeds from certain disposals by portfolio investment entities or New Zealand Superannuation Fund

63 Section CX 55 replaced

64 Portfolio investor allocated income and distributions of income by portfolio investment entities

65 Section CX 56 replaced

66 Section CX 57 replaced

67 New section CZ 9B inserted

68 Determining tax liabilities

69 Interest: not capital expenditure

70 Interest: most companies need no nexus with income

71 Interest: money borrowed to acquire shares in group companies

72 New section DB 10B inserted

73 Cost of revenue account property

74 Charitable or other public benefit gifts by company

75 Property misappropriated by employees or service providers

76 Portfolio investment entities: zero-rated portfolio investors and allocated losses

77 Section DB 53 replaced

78 Section DB 54 replaced

79 Expenditure incurred in deriving exempt dividend

80 Heading and section DB 60 replaced

Emissions units and liabilities under Climate Change Response Act 2002

81 New section DB 60B inserted

82 Contributions to employees' superannuation schemes

83 Criteria for approval of share purchase schemes: before period of restriction ends

84 Employment-related activities

85 Interpretation: reimbursement and apportionment

86 Heading to subpart DF

87 Government grants to businesses

88 Payments for social rehabilitation

89 New section DF 5 added

90 When attributed CFC loss arises

91 When FIF loss arises

92 Section DO 11B repealed

93 Forestry business on land bought from the Crown, Maori owners, or holding company: no deduction

94 Sections DR 1 to DR 3 replaced

95 Film production expenditure

96 Meaning of film reimbursement scheme

97 New section DT 1A inserted

98 Arrangement for petroleum exploration expenditure and sale of property

99 Petroleum development expenditure

100 Disposal of petroleum mining asset to associate

101 Amount written off by holding company

102 Transfer of expenditure to master fund

103 Carry forward of expenditure

104 New section DV 4B inserted and replaced

105 Investment funds: transfer of expenditure to master funds

106 Formula for calculating maximum deduction

107 Carry forward of expenditure

108 Maori authorities: donations

109 New section DW 4 added

110 Section DX 2 repealed

111 Prepayments

112 Meaning of trading stock

113 Low-turnover valuation

114 New heading and section EC 26B inserted

Partnerships: cost price and national standard cost scheme

115 Valuation of excepted financial arrangements

116 New section ED 1B inserted

117 Pool method: calculating amount of depreciation

118 Economic rate for plant, equipment, or building, with high residual value

119 Annual rate for item acquired in person's 1995–96 or later income year

120 Meaning of adjusted tax value

121 Employer's superannuation contribution tax

122 Section EG 3 repealed

123 Expenditure incurred in acquiring film rights in feature films

124 Expenditure incurred in acquiring film rights in films other than feature films

125 Film production expenditure for New Zealand films having no large budget screen production grant

126 Film production expenditure for other films having no large budget screen production grant

127 Section EJ 12 replaced

128 Relinquishing petroleum mining permit

129 New sections EJ 13B and EJ 13C inserted

130 Disposal of petroleum mining asset

131 Sections EJ 19 and EJ 20 replaced

132 What is an excepted financial arrangement?

133 What spreading methods do

134 Applying IFRSs to financial arrangements

135 IFRS financial reporting method

136 Determination alternatives

137 Expected value method

138 Modified fair value method

139 Mandatory use of some determinations

140 Mandatory use of yield to maturity method for some arrangements

141 New section EW 21 inserted

142 Default method

143 Failure to use method for financial reporting purposes

144 Consistency of use of IFRS method

145 Change of spreading method

146 When calculation of base price adjustment required

147 Base price adjustment formula

148 Consideration when debtor released as condition of new start grant

149 Meaning of controlled foreign company

150 Direct control interests

151 Direct income interests

152 Associates and 10% threshold

153 New section EX 18A inserted

154 Formula for calculating attributed CFC income or loss

155 Taxable distribution from non-complying trust

156 New heading and sections EX 20B to EX 20E inserted

Attributable CFC amount and net attributable CFC income or loss

157 Attributable CFC amount

158 Net attributable CFC income or loss

159 Adjustment of fraction for excessively debt funded CFC

160 Heading repealed

161 Branch equivalent income or loss: calculation rules

162 New heading and sections EX 21B to EX 21E inserted

Non-attributing active CFCs

Tests for non-attributing active CFCs

163 Heading and section EX 22 replaced

Non-attributing Australian CFCs

164 Section EX 23 repealed

165 Change of CFC's balance date

166 Attributing interests in FIFs

167 Direct income interests in FIFs

168 Exemption for ASX-listed Australian companies

169 Exemption for Australian unit trusts with adequate turnover or distributions

170 CFC rules exemption

171 Grey list company owning New Zealand venture capital company: 10-year exemption

172 Exemption for employee share purchase scheme of grey list company

173 Limits on choice of calculation methods

174 Section EX 47 replaced

175 Branch equivalent method

176 Comparative value method

177 Fair dividend rate method: usual method

178 Fair dividend rate method for unit-valuing funds and others by choice

179 Cost method

180 Additional FIF income or loss if CFC owns FIF

181 Codes: comparative value method, deemed rate of return method, fair dividend rate method, and cost method

182 Limits on changes of method

183 Changes in application of FIF exemptions

184 New section EX 66B inserted

185 Sections EY 1 to EY 5 replaced

186 Section EY 6 replaced

187 Meaning of claim

188 Superannuation schemes providing life insurance

189 Meaning of life reinsurance

190 Sections EY 15 to EY 47 replaced

Policyholder base

Non-participation policies

Profit participation policies

Shareholder base

Non-participation policies

Profit participation policies

Non-participation policies: reserves

Shareholder base other profit: profit participation policies

Transitional adjustments and annuities

191 Policyholder income formula: FDR adjustment

192 Policyholder income formula: PILF adjustment

193 Non-resident life insurers with life insurance policies in New Zealand

194 Deductions for disposal of property: 1982–83 and 1989–90 income years

195 Section EZ 31 repealed

196 Section EZ 32B repealed

197 Income and expenditure where financial arrangement redeemed or disposed of

198 New section EZ 52B added

199 New headings and sections EZ 53 to EZ 62 added

Life insurance transitional adjustment: expected death strain

Expected death strain formulas

Actuarial reserves

Entry to new life insurance regime: transitional and miscellaneous provisions

200 New section EZ 63 inserted

201 Recharacterisation of certain debentures

202 New section FA 2B inserted

203 Financial arrangements rules

204 Transfer at market value

205 Property transferred to charities or to close relatives and others

206 What this subpart does

207 When this subpart applies

208 Section FE 3 replaced

209 Some definitions

210 Thresholds for application of interest apportionment rules

211 Apportionment of interest by excess debt entity

212 Calculation of debt percentages

213 Financial arrangements entered into with persons outside group

214 Consolidation of debts and assets

215 Total group debt

216 Total group assets

217 Measurement of debts and assets of worldwide group

218 Banking group's New Zealand net equity

219 New Zealand group for excess debt entity that is a company

220 Identifying New Zealand parent

221 Section FE 28 replaced

222 Section FE 29 replaced

223 Ownership interests in companies outside New Zealand group

224 Worldwide group for corporate excess debt entity

225 New sections FE 31B and FE 31C inserted

226 Section FE 32 replaced

227 Identifying members of New Zealand banking group

228 Subpart FF repealed

229 Consolidation rules

230 Some general rules for treatment of consolidated groups

231 Heading and sections FM 24 to FM 26 repealed

232 Eligibility rules

233 Imputation rules

234 Trans-Tasman imputation groups and resident imputation subgroups

235 Amortising property

236 Treatment of interest payable under debentures issued before certain date

237 New sections GB 15B and GB 15C inserted

238 Attribution rule for income from personal services

239 Interpretation of terms used in section GB 27

240 Section GB 39 repealed

241 Arrangements involving money not at risk

242 Defined terms for sections GB 45 and GB 46

243 Disposals of trading stock at below market value

244 Section GC 4B repealed

245 Leases for inadequate rent

246 Insufficient amount receivable by person

247 Compensating arrangement: person receiving more than arm's length amount

248 Requests for matching treatment

249 Section GC 12 replaced

250 New section GZ 2 inserted

251 Shareholding requirements

252 New section HA 8B inserted

253 Limit on foreign non-dividend income

254 When requirements no longer met

255 Dividends paid by qualifying companies

256 Fully imputed distributions

257 Section HA 16 replaced

258 Credit accounts and dividend statements

259 Calculating qualifying company election tax

260 Corpus of trust

261 Trustee income

262 Taxable distributions from non-complying and foreign trusts

263 Distributions from community trusts

264 Who is a settlor?

265 Liability of trustee as agent

266 Beneficiary income of minors

267 Trusts and minor beneficiary rule

268 Companies issuing debentures

269 General provisions relating to disposals

270 Section HG 4 replaced

271 Disposal of partner's interests

272 Disposal of trading stock

273 Disposal of depreciable property

274 Disposal of financial arrangements and certain excepted financial arrangements

275 Disposal of short-term agreements for the sale and purchase of property or services

276 Section HG 10 replaced

277 Limitation on deductions by partners in limited partnerships

278 Scheme of subpart

279 Eligibility requirements for entities

280 Effect of failure to meet eligibility requirements for entities

281 Meaning of investor and portfolio investor class

282 Investor membership requirement

283 Investor return adjustment requirement: portfolio tax rate entity

284 Investor interest size requirement

285 Further eligibility requirements relating to investments

286 Unlisted company choosing to become portfolio listed company

287 Becoming portfolio investment entity

288 Treatment of income from interest when entitlement conditional or lacking

289 Portfolio class taxable income and portfolio class taxable loss for portfolio allocation period

290 Credits received by portfolio tax rate entity or portfolio investor proxy

291 Portfolio entity formation loss

292 Subpart HL replaced by subpart HM

Introductory provisions

Entry rules

Requirements

Exceptions

Exit rules

Rules for multi-rate PIEs

Introductory provisions

Attributing income to investors

Calculating and paying tax liability

Adjusting investors’ interests

Using tax credits

Prescribed and notified rates for investors in multi-rate PIEs

Exit levels and periods

Treatment of losses by PIEs

Losses of certain multi-rate PIEs

Formation losses

Elections and consequences

293 Transitional residents

294 New heading and sections HR 9 and HR 10 added

RMBS special purpose vehicles

295 New sections HZ 5 and HZ 6 added

296 Restrictions relating to ring-fenced tax losses

297 Restrictions relating to schedular income

298 Common ownership: group of companies

299 New section IC 13 added

300 Pre-consolidation losses: use by group companies

301 When this subpart applies

302 Ring-fencing cap on attributed CFC net losses

303 New section IQ 2B inserted

304 Ring-fencing cap on FIF net losses

305 Group companies using attributed CFC net losses

306 Group companies using FIF net losses

307 Subpart IT replaced

308 Remaining refundable credits: PAYE, RWT, and certain other items

309 Remaining refundable credits: tax credits for families

310 New section LA 8B inserted

311 Use of tax credits

312 Section LB 1 replaced

313 Tax credits for resident withholding tax

314 Tax credits for families

315 Tax credits related to personal service rehabilitation payments: providers

316 Tax credits related to personal service rehabilitation payments: payers

317 Tax credits for transitional circumstances

318 Tax credits for housekeeping

319 Subpart LD heading replaced

320 New heading inserted

321 Tax credits for charitable or other public benefit gifts

322 Exclusions

323 New heading and sections LD 4 to LD 8 added

Payroll donations

324 Tax credits for imputation credits

325 Use of remaining credits by companies and trustees

326 New section LE 2B inserted

327 Use of remaining credits by others

328 Tax credits for FDP credits

329 Subpart LH—Tax credits for expenditure on research and development

330 Who this subpart applies to

331 Tax credits relating to expenditure on research and development

332 Requirements

333 Adjustments to eligible expenditure

334 New section LH 14B inserted

335 What this subpart does

336 Tax credits for foreign income tax

337 Section LJ 3 replaced

338 Calculation of New Zealand tax

339 Section LJ 7 replaced by new sections LJ 7 and LJ 8

340 Tax credits relating to attributed CFC income

341 Calculation of amount of credit

342 New section LK 5B inserted

343 Subpart LL repealed

344 Use of remaining credits

345 Continuity rules for carrying credits forward

346 Sections LQ 1 to LQ 4 repealed

347 Tax credits for certain investors in portfolio tax rate entities

348 Subpart LS replaced

349 Meaning of full-time earner for family scheme

350 Some definitions for family scheme

351 Adjustments for calculation of family scheme income

352 Family scheme income of major shareholders in close companies

353 What this subpart does

354 Third requirement: residence

355 When person does not qualify

356 Continuing requirements

357 Principal caregiver

358 Second requirement: principal care

359 Third requirement: residence

360 Fifth requirement: full-time earner

361 Calculation of in-work tax credit

362 Meaning of employment for this subpart

363 Meaning of net family scheme income

364 Recovery of overpaid tax credit

365 Section MF 6 replaced

366 Tax credits for superannuation contributions

367 Eligibility requirements

368 When short payment and unpaid compulsory employer contributions found after tax credit used

369 What this subpart does

370 Section ML 2 replaced

371 New section MZ 3 added

372 Memorandum accounts

373 Credits

374 Debits

375 Opening balances of memorandum accounts

376 Shareholder continuity requirements for memorandum accounts

377 Section OA 12 repealed

378 General rules for companies with imputation credit accounts

379 Australian companies with imputation credit accounts

380 New section OB 3B inserted

381 ICA payment of tax

382 ICA resident withholding tax withheld

383 New section OB 9B inserted

384 Section OB 9B replaced

385 Section OB 11 repealed

386 Section OB 17 repealed

387 ICA transfer to master fund

388 ICA refund of income tax

389 ICA amount applied to pay other taxes

390 ICA refund from tax pooling account

391 ICA transfer within tax pooling account

392 New section OB 35B inserted

393 ICA refund of tax credit

394 ICA transfer for net foreign attributed income

395 Section OB 39 repealed

396 Section OB 47 replaced

397 ICA benchmark dividend rules

398 Imputation additional tax on leaving wholly-owned group

399 Table O1: imputation credits

400 Table O2: imputation debits

401 General rules for companies with FDP accounts

402 New section OC 2B inserted

403 When company chooses to stop being FDPA company

404 When company emigrates

405 Section OC 6 repealed

406 Section OC 8 repealed

407 Section OC 9 repealed

408 Section OC 10 repealed

409 FDPA refund of tax credit

410 Section OC 20 replaced

411 Section OC 23 repealed

412 Heading before section OC 30 replaced

413 Payment of further FDP for closing debit balance

414 Payment of further FDP when company no longer New Zealand resident

415 Reduction of further FDP

416 Section OC 33 replaced

417 Section OC 34 replaced

418 Heading and sections OC 35 to OC 39 repealed

419 Table O3: FDP credits

420 Table O4: FDP debits

421 General rules for companies with CTR accounts

422 Choosing to become CTR company

423 When company stops being CTR company

424 Section OD 5 repealed

425 Section OD 8 repealed

426 Section OD 11 repealed

427 CTRA increase in resident shareholding

428 Section OD 23 repealed

429 Section OD 24 repealed

430 Table O5: conduit tax relief credits

431 Table O6: conduit tax relief debits

432 Branch equivalent tax accounts of companies

433 Heading and sections OE 12 and OE 13 repealed

434 Sections OE 14 to OE 16 repealed

435 New heading and section OE 16B inserted

Debit if credit balance at beginning of first affected income year

436 Table O7: branch equivalent tax credits

437 Table O8 repealed

438 General rules for companies with ASC accounts

439 Subpart OJ repealed

440 MACA payment of tax

441 MACA refund of income tax

442 MACA payment of other taxes

443 New section OK 14B inserted

444 Table O18: Maori authority debits

445 When credits and debits arise only in consolidated imputation group accounts

446 Provisions applying to consolidated imputation groups

447 Consolidated ICA payment of tax

448 Section OP 14 repealed

449 Consolidated ICA resident withholding tax withheld

450 Section OP 20 repealed

451 Section OP 21 repealed

452 Consolidated ICA refund of income tax

453 Consolidated ICA amount applied to pay other taxes

454 New section OP 33B inserted

455 Consolidated ICA refund of tax credit

456 Section OP 38 repealed

457 Consolidated ICA transfer to policyholder credit account

458 Section OP 44 replaced

459 Table O19: imputation credits of consolidated imputation groups

460 Table O20: imputation debits of consolidated imputation groups

461 When credits and debits arise only in consolidated FDP group accounts

462 Section OP 56 repealed

463 Section OP 57 repealed

464 Section OP 61 repealed

465 Section OP 62 repealed

466 Consolidated FDPA refund of tax credit

467 Section OP 74 replaced

468 Table O21: FDP credits of consolidated FDP groups

469 Table O22: FDP debits of consolidated FDP groups

470 CTR accounts of consolidated groups

471 When credits and debits arise only in CTR group accounts

472 Section OP 81 repealed

473 Section OP 82 repealed

474 Section OP 88 repealed

475 Section OP 95 repealed

476 Table O23: conduit tax relief credits of consolidated groups

477 Table O24: conduit tax relief debits of consolidated groups

478 Section OP 99 repealed

479 Heading and sections OP 105 to OP 108 repealed

480 New heading and section OP 108B inserted

Debit if credit balance at beginning of first affected income year

481 Table O25: branch equivalent tax credits of consolidated BETA groups

482 Table O26 repealed

483 Headings and sections OP 109 to OP 116 repealed

484 Tables O27 and O28 repealed

485 ASCA lost excess available subscribed capital

486 Modifying ratios for imputation credits and FDP credits

487 New section OZ 18 added

488 What this Part does

489 Tax obligations for employment-related taxes

490 Withholding and payment obligations for passive income

491 When obligations not met

492 Payment dates for interim and other tax payments

493 Amalgamation of companies

494 Regulations

495 Application of other provisions for purposes of ESCT rules and NRWT rules

496 Payment of terminal tax

497 Schedular income tax liability for filing taxpayers for non-resident passive income

498 Who is required to pay provisional tax?

499 Estimation method

500 Attribution rule for income from personal services

501 Section RC 36 repealed

502 PAYE rules and their application

503 PAYE income payments

504 Salary or wages

505 Certain benefits and payments

506 Schedular payments

507 Reduction in certain circumstances

508 Multiple payments of salary or wages

509 Advance payments of salary or wages

510 New section RD 13B inserted

511 Payments of extra pay with other PAYE income payments

512 Schedular payments without notification

513 Schedular payments to non-resident entertainers

514 PAYE income payment forms for amounts of tax paid to Commissioner

515 Calculation of all-inclusive pay

516 Value of and payments towards fringe benefits

517 Close company option

518 Small business option

519 Employer's superannuation contributions

520 Calculating amounts of tax for employer's superannuation contributions

521 Choosing to have amount treated as salary or wages

522 Choosing different rates for employer's superannuation contributions

523 Calculating amounts on failure to withhold

524 Amounts of tax treated as paid to and received by superannuation funds

525 Resident passive income

526 Obligation to withhold RWT

527 Persons who have withholding obligations

528 Agents' or trustees' obligations in relation to certain dividends

529 Notification by companies

530 Interest

531 Non-resident passive income

532 Certain dividends

533 When dividends fully imputed or fully credited

534 Non-cash dividends

535 Dividends paid to companies under control of non-residents

536 Section RF 12 replaced by sections RF 12 to RF 12C

537 Credit balance in branch equivalent tax account

538 Using loss balances

539 Reduction of payments for conduit tax relief

540 Subpart RG repealed

541 Refunds for overpaid tax

542 Overpayment on income statements

543 Using refund to satisfy tax liability

544 Operation of PAYE intermediaries' trust accounts

545 General responsibility of employers

546 Information required from employers

547 Employer's superannuation contributions

548 General responsibilities of PAYE intermediaries

549 Collection, payment, and information requirements

550 Tax pooling intermediaries

551 New section RP 17B inserted

552 Deposits in tax pooling accounts

553 Transfers from tax pooling accounts

554 Standard method: 2008–09 and 2009–10 income years

555 GST ratio method: 2008–09 and 2009–10 income years

556 New section RZ 11 added

557 Definitions

558 Meaning of income tax varied

559 Treatment of qualifying company election tax, FBT, FDP penalty tax, imputation penalty tax, and withdrawal tax

560 Two companies with common control

561 Two companies with common control: 1988 version provisions

562 Some definitions

563 Table, heading, and sections YB 1 to YB 20 replaced

Associated persons

564 Transparency of nominees

565 Heading for subpart YC

566 Heading and section YC 1 repealed

567 Look-through rule for corporate shareholders

568 Disregarding certain securities

569 Reverse takeovers

570 New section YC 18B inserted

571 Residence of natural persons

572 Country of residence of foreign companies

573 Classes of income treated as having New Zealand source

574 Apportionment of income derived partly in New Zealand

575 General rules for currency conversion

576 New section YZ 2 inserted

577 Schedule 1—Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe benefits

578 Schedule 2—Basic tax rates for PAYE income payments

579 Schedule 4—Rates of tax for schedular payments

580 Schedule 5—Fringe benefit values for motor vehicles

581 Schedule 13—Depreciable land improvements

582 Schedule 20—Expenditure on farming, horticultural, aquacultural, and forestry improvements

583 Schedule 21—Expenditure and activities related to research and development

584 Schedule 24—International tax rules: grey list countries

585 Schedule 25—Foreign investment funds

586 Schedule 27—Countries and types of income with unrecognised tax

587 Schedule 28––Requirements for complying fund rules

588 New schedule 29—Portfolio investment entities: listed investors

589 Schedule 32—Recipients of charitable or other public benefit gifts

590 Schedule 49—Enactments amended

591 Schedule 50—Amendments to Tax Administration Act 1994

592 Schedule 51—Identified changes in legislation

593 Schedule 52—Comparative tables of old and rewritten provisions

594 Consequential amendments: associated person and list of defined terms

Part 2
Amendments to Tax Administration Act 1994

595 Tax Administration Act 1994

596 Interpretation

597 Construction of certain provisions

598 Part 2B replaced

PAYE intermediaries

RWT proxies

Tax pooling intermediaries

599 Information to be furnished on request of Commissioner

600 No requirement to disclose tax advice document

601 Treatment of book or document

602 Claim that book or document is tax advice document

603 Person must disclose tax contextual information from tax advice document

604 Challenge to claim that book or document is tax advice document

605 Keeping of business and other records

606 Records to be kept by employer or PAYE intermediary

607 PAYE tax codes

608 Special tax code certificates

609 Variation of requirements

610 New heading and section 24Q inserted

Payroll donations

611 Section 28B replaced

612 Portfolio tax rate entity to give statement to investors and request information

613 Section 31B replaced

614 Records to be provided by employer who contributes to superannuation fund

615 Certification requirements for withdrawals subject to section CS 1 of Income Tax Act 2007

616 Applications for RWT exemption certificates

617 Heading and section 32N repealed

618 Returns of income

619 Annual returns of income not required

620 Electronic format of employer monthly schedule and PAYE payment form

621 Section 36AB replaced

622 Returns to annual balance date

623 Returns by persons with tax credits for housekeeping payments and charitable or other public benefit gifts

624 Return by person claiming rebate on redundancy payment

625 Portfolio tax rate entities and portfolio investor proxies to make returns, file annual reconciliation statement

626 Section 57B replaced

627 Disclosure of trust particulars

628 Disclosure of interest in foreign company or foreign investment fund

629 Section 66 repealed

630 Tax credit relating to KiwiSaver and complying superannuation fund members: member credit form

631 Statements in relation to research and development tax credits: single persons

632 Section 68E replaced

633 New section 68F inserted

634 Section 78E repealed

635 Section 78F repealed

636 New section 80KLB inserted

637 Effect of extra instalment on entitlement to tax credit

638 Officers to maintain secrecy

639 Disclosure of information for verification of large budget screen production grant entitlement

640 Disclosure of information in relation to Working for Families tax credits

641 Further secrecy requirements

642 New section 89AB inserted

643 Taxpayers and others with standing may issue notices of proposed adjustment

644 Taxpayer may issue notice of proposed adjustment for taxpayer assessment

645 Completing the disputes process

646 Determination on economic rate

647 Determination on special rates and provisional rates

648 Commissioner may decline to issue special rate or provisional rate

649 Notice of setting of economic rate

650 Applications for determinations

651 Determination on type of interest in FIF and use of fair dividend rate method

652 New heading and section 91AAQ inserted

Determinations relating to non-attributing active CFCs

653 New heading and section 91AAR inserted

Determinations relating to relocation payments

654 Assessment of shortfall penalties

655 Section 102 repealed

656 Section 103 repealed

657 Section 103A repealed

658 Section 104 repealed

659 Time bar for amendment of income tax assessment

660 Extension of time bars

661 Amended assessments for research and development tax credits

662 Definitions

663 Section 120EA repealed

664 Provisional tax instalments in transitional years

665 Where provisional tax paid by company does not count as overpaid tax

666 Variation to definition of date interest starts

667 Interest paid on deposits in tax pooling accounts

668 Section 120R repealed

669 Certain rights of objection not conferred

670 Certain rights of challenge not conferred

671 Non-electronic filing penalty

672 Late payment penalty

673 Imposition of late payment penalties when financial relief sought

674 Imputation penalty tax payable where end of year debit balance

675 Imputation penalty tax payable in some circumstances

676 Section 140C repealed

677 FDP penalty tax payable in some circumstances

678 Section 140CA repealed

679 Tax shortfalls

680 Unacceptable tax position

681 Abusive tax position

682 Evasion or similar act

683 Not paying employer monthly schedule amount

684 Limitation on reduction of shortfall penalty

685 New date for payment of tax that is not a penalty

686 Due dates for payment of imputation penalty tax, FDP penalty tax, and underestimation penalty tax

687 Knowledge offences

688 Evasion or similar offence

689 Recovery of civil penalties

690 Taxes that may be recovered

691 Transfer of excess tax within taxpayer's accounts

692 Transfer of excess tax to another taxpayer

693 Instalment arrangements

694 Relief to taxpayers to whom new start grants payable

695 Section 181 repealed

696 Section 183 repealed

697 Remission for reasonable cause

698 Section 183ABA replaced

699 Small amounts of penalties and interest not to be charged

700 Remission on application

701 Payments into, and out of, Listed PAYE Intermediary Bank Account

702 Power to make interim payments of WFF tax credit

Part 3
Amendments to Goods and Services Tax Act 1985

703 Goods and Services Tax Act 1985

704 Interpretation

705 Meaning of term supply

706 Supply of certain imported services

707 Time of supply

708 Value of supply of goods and services

709 Zero-rating of goods

710 Zero-rating of services

711 New section 11C inserted

712 Fringe benefits and entertainment expenses

713 Group of companies

Part 4
Amendments to KiwiSaver Act 2006

714 KiwiSaver Act 2006

715 Interpretation

716 Section 13 repealed

717 Other situations when automatic enrolment rules do not apply

718 Eligibility to be exempt employer

719 Involuntary transfers

720 What happens when initial back-dated validation ends, with no confirmed back-dated validation?

721 Contribution rate

722 Interest rate

723 How and when interest is paid on refunds

724 Refunds of employer contribution by Commissioner if employee opts out

725 General

726 Compulsory employer contribution amount: general rule

727 New sections 101FB and 101FC inserted

728 Rules: providers

729 Terms relating to members' tax credits implied into trust deed

730 Terms relating to lump sum payments by complying superannuation funds

731 Crown contribution

732 Regulations relating to mortgage diversion facility

733 Schedule 1––KiwiSaver scheme rules

Part 5
Amendments to Income Tax Act 2004

734 Income Tax Act 2004

735 New section CC 8B inserted

736 What is a transfer of value?

737 Returns of capital: off-market share cancellations

738 Treasury stock acquisitions

739 Foreign investment fund income

740 Available subscribed capital amount

741 Amounts derived in connection with employment

742 Meaning of expenditure on account of an employee

743 Benefits, pensions, compensation, and government grants

744 New section CR 3 added

745 Section CW 3B repealed

746 Expenditure on account, and reimbursement, of employees

747 New sections CW 13B and CW 13C inserted

748 Local and regional promotion bodies

749 Benefits provided instead of allowances

750 Section CX 24 replaced

751 Government grants to businesses

752 New heading inserted

753 New section CX 44G inserted

754 Determining tax liabilities

755 New section DB 8B inserted

756 Cost of revenue account property

757 Gifts of money by company [Repealed]

758 New section DB 46B inserted

759 Criteria for approval of share purchase schemes: before period of restriction ends

760 Employment-related activities

761 Interpretation: reimbursement and apportionment

762 Forestry business on land bought from the Crown, Maori owners, or holding company: no deduction

763 New section DT 1A inserted

764 Arrangement for petroleum exploration expenditure and sale of property

765 Petroleum development expenditure

766 Disposal of petroleum mining asset to associate

767 Amount written off by holding company

768 New section DW 3 added

769 Prepayments

770 Pool method: calculating amount of depreciation

771 Economic rate for plant, equipment, or building, with high residual value

772 Annual rate for item acquired in person's 1995–96 or later income year

773 Meaning of adjusted tax value

774 Section EJ 11 replaced

775 Relinquishing petroleum permit

776 New sections EJ 12B and EJ 12C inserted

777 Disposal of petroleum mining asset

778 Sections EJ 17 and EJ 18 replaced

779 What spreading methods do

780 IFRS taxpayer method

781 IFRS method

782 Determination alternatives to IFRS

783 Expected value method and equity-free fair value method

784 New section EW 21 inserted

785 Default method

786 Failure to use method for financial reporting purposes

787 Change of spreading method

788 When calculation of base price adjustment required

789 Base price adjustment formula

790 Direct control interests

791 Direct income interests

792 Direct income interests in FIFs

793 Exemptions: direct income interests in FIF in grey list country

794 Use of particular calculation methods required

795 Comparative value method

796 Fair dividend rate method: usual method

797 Fair dividend rate method: method for unit valuers and persons valuing interests daily

798 Cost method

799 Codes: comparative value method, deemed rate of return method, fair dividend rate method, and cost method

800 Measurement of cost

801 Transitional rule for IFRS financial reporting method

802 New sections EZ 51 and EZ 52 added

803 Floating rate of interest on debentures

804 Interest on debentures issued in substitution for shares

805 New section FC 2B inserted

806 Rules for calculating New Zealand group debt percentage

807 New Zealand net equity of New Zealand banking group

808 Section GC 14EB repealed

809 Dividends from qualifying company

810 Modification of agency provisions in respect of income from company debentures

811 Effect of failure to meet eligibility requirements for entities

812 Investor membership requirement

813 Investor interest size requirement

814 Further eligibility requirements relating to investments

815 Unlisted company may choose to become portfolio listed company

816 Becoming portfolio investment entity

817 Credits received by portfolio tax rate entity or portfolio investor proxy

818 Determination of amount of credit in certain cases

819 Credit of tax for imputation credit

820 Credit of tax for dividend withholding payment credit in hands of shareholder

821 Credits in respect of dividends to non-resident investors

822 Special rules for holding companies

823 Credits arising to imputation credit account

824 Allocation rules for imputation credits

825 Amount of imputation credit to be attached to cash distribution

826 Notional distribution deemed to be dividend

827 Amount of imputation credit to be attached to cash distribution

828 Notional distribution deemed to be dividend or taxable Maori authority distribution

829 Branch equivalent tax account of company

830 Credits and debits arising to branch equivalent tax account of company

831 Debits and credits arising to group branch equivalent tax account

832 Use of consolidated group credit to reduce dividend withholding payment, or use of group or individual debit to satisfy income tax liability

833 Allocation rules for dividend withholding payment credits

834 Dividend with both imputation credit and dividend withholding payment credit attached

835 Conduit tax relief account

836 Credits arising to conduit tax relief account

837 Debits arising to conduit tax relief account

838 Consolidated group conduit tax relief account

839 Credits arising to group conduit tax relief account

840 Debits arising to group conduit tax relief account

841 Retirement scheme contributors

842 Application of RWT rules

843 Resident withholding tax deductions from dividends deemed to be dividend withholding payment credits

844 Definitions

845 Schedule 16—Depreciable land improvements

Part 6
Amendments to other Acts and regulations

Income Tax Act 1994

846 Income Tax Act 1994 amended

847 Exempt income—employee allowances and expenditure on account of employee

848 Meaning of fringe benefit

849 Accrual expenditure

850 Special and provisional economic rates

851 Use of consolidated group credit to reduce dividend withholding payment, or use of group or individual debit to satisfy income tax liability

852 Definitions

853 Schedule 6A—Specified types of entertainment

854 Schedule 16—Depreciable land improvements

Income Tax Act 1976

855 Special and provisional economic rates

856 Schedule 21—Depreciable land improvements

Estate and Gift Duties Act 1968

857 Interpretation

Stamp and Cheque Duties Act 1971

858 Interpretation

Taxation Review Authorities Act 1994

859 Hearing of objections by an Authority

Taxation (Business Taxation and Remedial Matters) Act 2007

860 Use of consolidated group credit to reduce dividend withholding payment or use of group or individual debit to satisfy income tax liability

Acts referring to associated person

861 Consequential amendments to other Acts: associated person

Companies Act 1993

862 Schedule 7—Preferential claims

Insolvency Act 2006

863 Priority of payments to preferential creditors

Income Tax (Depreciation Determinations) Regulations 1993

864 Income Tax (Depreciation Determinations) Regulations 1993

Goods and Services Tax (Grants and Subsidies) Order 1992

865 Schedule—Non-taxable grants and subsidies

KiwiSaver Regulations 2006

866 KiwiSaver Regulations 2006 amended

867 What member of KiwiSaver scheme must do next to participate in mortgage diversion facility

868 What scheme provider must do to participate in mortgage diversion facility

Schedule 1
Consequential amendments to lists of defined terms: associated person

Schedule 2
Consequential amendments to other Acts: associated person


1 Title
  • This Act is the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009.

2 Commencement

Part 1
Amendments to Income Tax Act 2007

3 Income Tax Act 2007
4 Income tax liability of person with schedular income
  • (1) After section BC 7(3), the following is added:

    Income tax liability of multi-rate PIEs
    • (4) The income tax liability for a tax year of a multi-rate PIE is determined under subpart HM (Portfolio investment entities).

    (2) In section BC 7, in the list of defined terms, multi-rate PIE is inserted.

    (3) Subsection (1) applies for the 2010–11 and later income years.

5 Withholding liabilities
  • (1) Section BE 1(1) is replaced by the following:

    PAYE income payments
    • (1) A person who makes a PAYE income payment must withhold an amount from the payment under the PAYE rules.

    (2) Section BE 1(5) is replaced by the following:

    Employer's superannuation cash contributions
    • (5) A person who makes an employer's superannuation cash contribution must pay ESCT under the ESCT rules.

    (3) Section BE 1(6) is repealed.

    (4) In section BE 1, in the list of defined terms, retirement savings scheme, retirement scheme contribution, RSCT, and RSCT rules are inserted.

    (5) In section BE 1, in the list of defined terms,—

    • (a) employer's superannuation contribution and PAYE payment are omitted:

    • (b) employer's superannuation cash contribution and PAYE income payment are inserted.

    (6) In section BE 1, in the list of defined terms, FDP and FDP rules are omitted.

    (7) Subsections (1) and (2) apply for the 2008–09 and later income years.

    (8) Subsection (3) applies for all income years beginning on or after 1 July 2009.

6 Other obligations
  • (1) Section BF 1(d) is repealed.

    (2) In section BF 1, in the list of defined terms, further FDP is omitted.

    (3) Subsection (1) applies for all income years beginning on or after 1 July 2009.

7 Disposal: land used for landfill, if notice of election
  • (1) Section CB 8(c) is replaced by the following:

    • (c) the person acquiring the land is not an associated person; and.

    (2) Subsection (1) applies for the 2010–11 and later income years.

8 Section CB 26 replaced
  • (1) Section CB 26 is replaced by the following:

    CB 26 Disposal of certain shares by portfolio investment entities
    • When this section applies

      (1) This section applies when—

      • (a) the income from the disposal by a person (the entity) of the share is excluded income under section CX 55 (Proceeds from disposal of investment shares); and

      • (b) a dividend from the share is—

        • (i) declared before the disposal; and

        • (ii) paid to a holder of the share who, after the disposal, becomes entitled to the dividend.

      Income

      (2) The entity is treated as deriving an amount of income calculated using the formula—

       (shares at declaration – shares on distribution) × dividend. 
      Definition of items in formula

      (3) In the formula,—

      • (a) shares at declaration is the number of shares held by the entity when the dividend is declared:

      • (b) shares on distribution is the number of shares for which the entity derives a dividend:

      • (c) dividend is the amount of the dividend per share or, for a share issued by an ICA company, the amount of the dividend per share that is not fully imputed.

      Positive result

      (4) The result of the formula must be a positive amount.

      Defined in this Act: amount, company, dividend, excluded income, fully imputed, ICA company, income, pay, portfolio investment entity, share

      Compare: 2007 No 97 s CB 26.

    (2) Subsection (1) applies for the 2010–11 and later income years.

9 Section CB 27B repealed
  • (1) Section CB 27B is repealed.

    (2) Subsection (1) applies for the 2009–10 and later income years.

10 Heading and section CB 36 replaced
  • The heading before section CB 36 and section CB 36 are replaced by the following:

    Emissions units under Climate Change Response Act 2002

    CB 36 Disposal of emissions units
    • When this section applies

      (1) This section applies when a person disposes of an emissions unit.

      Income

      (2) The amount that the person derives on the disposal is income.

      Surrender of unit: deemed sale at given value

      (3) If the disposal is by surrender under the Climate Change Response Act 2002, the person is treated as having sold the unit, at the time of the surrender, to an unrelated person for an amount equal to—

      • (a) the unit's cost, if none of paragraphs (b) to (f) applies; or

      • (b) the unit's value under section ED 1(7B) (Valuation of excepted financial arrangements), if that subsection applies and none of paragraphs (c) to (f) apply; or

      • (c) zero, if subsection (4) applies; or

      • (d) zero, if subsection (5) applies; or

      • (e) the unit's market value, if subsection (6) applies; or

      • (f) the unit's market value, if subsection (7) applies.

      Surrender of unit: emissions relating to post-1989 forest land

      (4) The person is treated as selling the unit for an amount of zero if the person surrenders the emissions unit for emissions in relation to post-1989 forest land.

      Surrender of unit: deforestation of some pre-1990 forest land

      (5) The person is treated as selling the unit for an amount of zero if—

      • (a) the person surrenders the emissions unit in relation to the deforestation of pre-1990 forest land; and

      • (b) the person would derive income, other than exempt income or excluded income, from a disposal of the land without timber at the time of the surrender.

      Surrender of post-1989 forest land unit: emissions not relating to post-1989 forest land

      (6) The person is treated as selling a post-1989 forest land emissions unit for an amount equal to the unit's market value if the person surrenders the emissions unit other than for emissions in relation to post-1989 forest land.

      Surrender of unit: free unit other than forest land unit

      (7) The person is treated as selling a unit that is not a forest land unit for an amount equal to the unit's market value if—

      • (a) the person surrenders the unit before the period of the emissions to which the unit relates; and

      • (b) the unit was transferred to the person under Part 4, subpart 2 of the Climate Change Response Act 2002 at a price of zero.

      Converted unit treated as sold

      (8) If a person converts a New Zealand emissions unit, other than a forest land emissions unit, into a Kyoto unit as defined in section 4(1) of the Climate Change Response Act 2002, the person is treated as having sold the converted unit for an amount equal to—

      • (a) the unit's value under section ED 1(7B), if that subsection applies; or

      • (b) the unit's cost, otherwise.

      Excluded income: post-1989 forest land emissions unit

      (9) Section CX 51B (Disposal of pre-1990 forest land emissions units) applies to the disposal to another person of a pre-1990 forest land emissions unit.

      Defined in this Act: amount, convert, emissions unit, forest land emissions unit, income, Kyoto emissions unit, New Zealand emissions unit, pre-1990 forest land emissions unit, post-1989 forest land emissions unit, surrender.

11 New section CC 8B inserted
  • (1) After section CC 8, the following is inserted:

    CC 8B Certain commercial bills: non-resident holders
    • When this section applies

      (1) This section applies when a non-resident holder of a commercial bill who is required to calculate and allocate income and expenditure under neither the financial arrangements rules nor the old financial arrangements rules because of the application of section EW 9(2) to (4) or EZ 45(e) (which relate to the application of the rules)—

      • (a) disposes of the commercial bill other than by redemption; or

      • (b) redeems a commercial bill whose issuer is an associated person of the non-resident.

      Income: disposal

      (2) The value of the commercial bill on the day the non-resident holder disposes of it is income of the person.

      Income: redemption

      (3) The amount that the non-resident holder receives on redemption is income of the person.

      Defined in this Act: amount, commercial bill, financial arrangements rules, income, non-resident, old financial arrangements rules

      Compare: 2004 No 35 s CZ 8.

    (2) Subsection (1) applies for the 2008–09 and later income years.

12 What is a transfer of value?
  • (1) After section CD 5(2), the following is added:

    When shares are cancelled
    • (2B) The market value of any transfer from the shareholder to the company on the cancellation of a share of the shareholder's rights as a shareholder is zero.

    (2) In section CD 5, in the list of defined terms, market value, share, and shareholder are inserted.

    (3) Subsection (1) applies for the 2008–09 and later income years.

13 When is a transfer caused by a shareholding relationship?
  • (1) In section CD 6(1)(a)(ii), shareholder; or is replaced by shareholder; and, and section CD 6(1)(a)(iii) is repealed.

    (2) Subsection (1) applies for the 2010–11 and later income years.

14 Section CD 21 repealed
  • (1) Section CD 21 is repealed.

    (2) Subsection (1) applies for all income years beginning on or after 1 July 2009.

15 Returns of capital: off-market share cancellations
  • (1) In section CD 22(9),—

    • (a) in the definition of counted associate, paragraph (b), is a beneficiary is replaced by has benefited or is eligible to benefit:

    • (b) in the definition of non-participating redeemable share, paragraph (b)(iii), ; or is replaced by or section FA 2B(2) (Stapled debt securities); or.

    (2) Subsection (1)(a) applies for the 2010–11 and later income years.

16 Treasury stock acquisitions
  • (1) Section CD 25(4), other than the heading, is replaced by the following:

    • (4) If subsection (2) applies, then, with effect from the cancellation or the first anniversary, depending on which first causes subsection (2) to apply, the available subscribed capital of the class of the share is reduced by the lesser of—

      • (a) the amount paid to the shareholder on the acquisition; and

      • (b) the available subscribed capital per share calculated under the ordering rule and, in the case of the first anniversary, calculated as if the share and any other shares to which this subsection applies on that date were cancelled on that date.

    (2) Subsection (1) applies for the 2008–09 and later income years.

17 Property made available intra-group
  • (1) Section CD 27(1)(b) is replaced by the following:

    • (b) in the absence of this section, the transfer would be a dividend under section CD 6(1)(a)(ii) because the associated company is associated with a shareholder in the first company.

    (2) Section CD 27(3)(a)(ii) is replaced by the following:

    • (ii) the first company is associated with a company (the parent company) that has a voting interest in the associated company and that could have received the transfer of value without the transfer being assessable income or non-resident passive income; and.

    (3) In section CD 27, in the list of defined terms, FDP is omitted.

    (4) Subsection (1) applies for the 2010–11 and later income years.

    (5) Subsection (2) applies for all income years beginning on or after 1 July 2009.

18 Employee benefits
19 Foreign investment fund income
  • (1) In section CD 36, after the heading, Amount not dividend is inserted as a subsection heading.

    (2) In section CD 36(b)(iv), method; and is replaced by method., and paragraph (c) is repealed.

    (3) After section CD 36(b), the following are inserted as subsections (2) and (3):

    Exclusion for interests in grey list companies
    • (2) Subsection (1)(b)(iv) does not apply if—

      • (a) the FIF is a grey list company; and

      • (b) the person holds a direct income interest of 10% or more in the FIF at the beginning of the income year in which the period falls.

    Application of rule for certain managed funds
    • (3) Subsection (2) does not apply if—

      • (a) the person is a portfolio investment entity, an entity eligible to be a portfolio investment entity, or a life insurance company; and

      • (b) the FIF is a foreign investment vehicle.

    (4) Section CD 36(3)(b), is replaced by the following:

    • (b) the FIF is a foreign PIE equivalent.

    (5) In section CD 36, in the list of defined terms, direct income interest, foreign investment vehicle, life insurance, and portfolio investment entity are inserted.

    (6) In section CD 36, in the list of defined terms, foreign investment vehicle is omitted and foreign PIE equivalent is inserted.

    (7) Subsection (4) applies for the 2010–11 and later income years.

20 Available subscribed capital (ASC) amount
  • (1) Section CD 43(8)(b) is replaced by the following:

    • (b) an amount received by the company if the amount is mainly attributable, directly or indirectly, to the payment by the company of a dividend to a controlled foreign company at a time when the company is also a controlled foreign company, regardless of whether either company is a grey list company or non-attributing Australian CFC.

    (2) In section CD 43, in the list of defined terms, non-attributing Australian CFC is added.

    (3) In section CD 43, in the list of defined terms, consideration is inserted.

    (4) Subsection (1) applies for all income years beginning on or after 1 July 2009.

21 Available capital distribution amount
  • (1) After section CD 44(10) the following is inserted:

    Associated persons transactions
    • (10B) No capital gain amount is derived or capital loss amount incurred by a company after 31 March 2010 on disposing of property under an arrangement with an associated person. This subsection is overridden by subsection (10C).

    Close company liquidations
    • (10C) Subsection (10B) does not apply if—

      • (a) the company is a close company; and

      • (b) the associated person is not a company; and

      • (c) the disposal is on the liquidation of the company.

    (2) Section CD 44(11) and (12) is repealed.

    (3) After section CD 44(14), the following is inserted:

    Relationship with section CZ 9B
    • (14B) For capital gain amounts derived or capital loss amounts incurred between 1 April 1988 and 31 March 2010, see section CZ 9B (Available capital distribution amount: 1988 to 2010).

    (4) Section CD 44(15) to (17) is repealed.

    (5) Subsections (1) to (4) apply for the 2010–11 and later income years.

22 Heading and sections CD 45 to CD 52 repealed
23 Prevention of double taxation of share cancellation dividends
  • (1) Section CD 53(3), is replaced by the following:

    Non-taxable dividends
    • (3) Subsection (2) does not apply to the extent to which the dividend is exempt income of the person under sections CW 9 to CW 11 (which relate to income from equity).

    (2) Section CD 53(4) and (5) are repealed.

    (3) In section CD 53, in the list of defined terms, FDP and FDP credit are omitted.

    (4) Subsections (1) and (2) apply for all income years beginning on or after 1 July 2009.

24 Amounts derived in connection with employment
  • (1) After the heading to section CE 1, Income is inserted as a subsection heading.

    (2) Section CE 1(c) is replaced by the following:

    • (c) the market value of accommodation that the person receives in connection with their employment or service other than an amount paid under section CW 17B (Relocation payments):.

    (3) After section CE 1(g), the following is inserted as subsection (2):

    Meaning of accommodation
    • (2) For the purposes of this section and section CX 28 (Accommodation), accommodation means board or lodging, or the use of a house or living premises, or the use of part of a house or living premises.

    (4) In section CE 1, in the list of defined terms, accommodation is inserted.

    (5) Subsections (1) to (3) apply for the 2008–09 and later income years.

25 Meaning of expenditure on account of an employee
  • After section CE 5(3)(b), the following is inserted:

    • (bb) an amount paid under section CW 17B (Relocation payments) or section CW 17C (Payments for overtime meals and certain other allowances):.

26 Benefits, pensions, compensation, and government grants
  • In section CF 1(2), in the definition of accident compensation payment, paragraph (f) and subsequent paragraphs are replaced by the following:

    • (f) a payment under the Injury Prevention, Rehabilitation, and Compensation Act 2001 paid by the Corporation as defined in that Act, of weekly compensation that is not recovered or recoverable under section 248 of that Act:

    • (g) a payment under section 81(1)(b) of the Injury Prevention, Rehabilitation, and Compensation Act 2001 paid by the Corporation as defined in that Act, for attendant care as defined in schedule 1, clause 12 of that Act:

    • (h) a personal service rehabilitation payment for a person under the Injury Prevention, Rehabilitation, and Compensation Act 2001.

27 New subpart CO inserted
  • (1) After section CH 10, the following is inserted:

    Subpart COIncome from voluntary activities

    CO 1 Income from voluntary activities
    • Income

      (1) An amount derived by a person in undertaking a voluntary activity is income of the person.

      Relationship with section CW 62B

      (2) This section is overridden by section CW 62B (Voluntary activities).

      Defined in this Act: amount, income.

    (2) Subsection (1) applies for the 2009–10 and later income years.

28 Section CP 1 replaced
  • (1) Section CP 1 is replaced by the following:

    CP 1 Attributed income of investors in multi-rate PIEs
    • When this section applies

      (1) This section applies when a multi-rate PIE attributes an amount of income for an income year calculated under section HM 36 (Calculating amounts attributed to investors) to a person who is an investor in the PIE.

      Income

      (2) The amount is income of the person in the income year of the person in which the PIE’s income year ends.

      Defined in this Act: amount, income, income year, investor, multi-rate PIE, PIE

      Compare: 2007 No 97 s CP 1.

    (2) Subsection (1) applies for the 2010–11 and later income years.

29 When attributed CFC income arises
  • (1) Section CQ 2(1)(f)(i) is replaced by the following:

    • (i) the CFC has net attributable CFC income for the accounting period under section EX 20C (Net attributable CFC income or loss); or.

    (2) In section CQ 2(1), paragraph (g) is repealed and the following is added:

    • (h) the CFC is not a non-attributing active CFC for the accounting period, under section EX 21B (Non-attributing active CFCs); and

    • (i) the CFC is not a non-attributing Australian CFC for the accounting period, under section EX 22 (Non-attributing Australian CFCs).

    (3) After section CQ 2(2), the following is inserted:

    Special rule: attributed CFC amount from personal services
    • (2B) If a person and a non-attributing active CFC or non-attributing Australian CFC meet the requirements of subsection (1)(a) to (e) and the CFC derives income from personal services that is an attributable CFC amount under section EX 20B(3)(h) (Attributable CFC amount), the person has attributed CFC income from the CFC equal to the product of—

      • (a) the person's income interest in the CFC:

      • (b) the amount by which the CFC's income from personal services exceeds the expenditure incurred by the CFC in deriving the income from personal services.

    (4) Section CQ 2(4) is repealed.

    (5) In section CQ 2, in the list of defined terms,—

    • (a) branch equivalent income is omitted:

    • (b) attributable CFC amount, net attributable CFC income, non-attributing active CFC, and non-attributing Australian CFC are inserted.

    (6) Subsections (1) to (4) apply for all income years beginning on or after 1 July 2009.

30 When FIF income arises
  • (1) Section CQ 5(3) is replaced by the following:

    FIF income from CFC with FIF interest
    • (3) FIF income also includes an additional amount that a person with an income interest of 10% or more in a CFC has in an income year under section EX 58 (Additional FIF income or loss if CFC owns FIF), whether or not the CFC is a non-attributing Australian CFC under section EX 22 (Non-attributing Australian CFCs).

    (2) In section CQ 5, in the list of defined terms, non-attributing Australian CFC is inserted.

    (3) Subsection (1) applies for all income years beginning on or after 1 July 2009.

31 Section CQ 7 repealed
32 Heading to subpart CR replaced
  • In subpart CR, the heading is replaced by Income from insurance.

33 Sections CR 1 and CR 2 replaced
  • (1) Sections CR 1 and CR 2 are replaced by the following:

    CR 1 Policyholder base income of life insurer
    • If, but for this section, a life insurer has an amount of policyholder base income for an income year, and that amount is not income under this Part, the amount is income of the life insurer for the income year.

      Defined in this Act: amount, income, income year, life insurer, policyholder base income

    CR 2 Shareholder base income of life insurer
    • If, but for this section, a life insurer has an amount of shareholder base income for an income year, and that amount is not income under this Part, the amount is income of the life insurer for the income year.

      Defined in this Act: amount, income, income year, life insurer, shareholder base income.

    (2) Subsection (1) applies––

    • (a) on and after 1 July 2010, unless paragraph (b) applies:

    • (b) for an income year that includes 1 July 2010 and later income years, if the life insurer chooses to apply the new life insurance rules in this Act in a return of income for the tax year corresponding to the first relevant income year.

34 New section CR 4 added
  • (1) After section CR 3, the following is added:

    CR 4 Income for general insurance outstanding claims reserve
    • What this section applies to

      (1) This section applies for—

      • (a) an insurer who––

        • (i) uses IFRS 4, Appendix D for general insurance contracts:

        • (ii) is a life insurer who has general insurance contracts; and

      • (b) general insurance contracts, excluding contracts having premiums to which section CR 3 (Income of non-resident general insurer) applies.

      Formula for insurer's OCR income

      (2) For an income year (the current year), an insurer has income of the amount by which zero is less than the amount calculated using the formula—

      opening outstanding claims reserve
      − closing outstanding claims reserve.
       
      Definition of items in formula

      (3) In the formula,—

      • (a) opening outstanding claims reserve is—

        • (i) the amount of the insurer’s closing outstanding claims reserve for the income year before the current year (the prior year); or

        • (ii) the amount of the insurer's reserve for outstanding claims liability, calculated at the end of the prior year, using the basis the insurer used for tax purposes in that prior year, if the current year is the first year that this section applies to the insurer:

      • (b) closing outstanding claims reserve is the amount of the insurer’s outstanding claims reserve, calculated at the end of the current year.

      Defined in this Act: amount, general insurance contract, IFRS 4, income, income year, insurer, life insurer, outstanding claims reserve.

    (2) Subsection (1) applies—

    • (a) for an insurer who uses IFRS 4,––

      • (i) for the 2009–10 and later income years, unless subparagraph (ii) applies:

      • (ii) for the first income year for which an insurer adopts IFRSs for the purposes of financial reporting and later income years, if that first income year is before the 2009–10 income year and the person chooses to use IFRS 4 in a return of income for that first year:

    • (b) for a life insurer,––

      • (i) on and after 1 July 2010, unless subparagraph (ii) applies:

      • (ii) for an income year that includes 1 July 2010 and later income years, if the life insurer chooses to apply the new life insurance rules in this Act in a return of income for the tax year corresponding to the first relevant income year.

35 Withdrawals
  • (1) Section CS 1(1)(a)(i) is replaced by the following:

    • (i) a fund to which the member's employer has made for the member's benefit an employer's superannuation cash contribution; or.

    (2) Section CS 1(7)(b) is replaced by the following:

    • (b) in the corresponding tax year, the total of the member's taxable income and the employer's superannuation cash contributions made for the member's benefit is less than $60,000.

    (3) In section CS 1, in the list of defined terms, employer's superannuation contribution is replaced by employer's superannuation cash contribution.

    (4) Subsections (1) and (2) apply for the 2008–09 and later income years.

36 Exclusions of withdrawals of various kinds
  • (1) In section CS 2(2), (3), and (10), employer's superannuation contributions is replaced by employer's superannuation cash contributions in each place where it appears.

    (2) In section CS 2, in the list of defined terms, employer's superannuation contribution is replaced by employer's superannuation cash contribution.

    (3) Subsection (1) applies for the 2008–09 and later income years.

37 Exclusion of withdrawal on partial retirement
  • (1) In section CS 6(1)(d), employer's superannuation contributions is replaced by employer's superannuation cash contributions.

    (2) In section CS 6, in the list of defined terms, employer's superannuation contribution is replaced by employer's superannuation cash contribution.

    (3) Subsection (1) applies for the 2008–09 and later income years.

38 Exclusion of withdrawal when member ends employment
  • (1) In section CS 7(2) to (5), employer's superannuation contributions is replaced by employer's superannuation cash contributions in each place where it appears.

    (2) In section CS 7, in the list of defined terms, employer's superannuation contribution is replaced by employer's superannuation cash contribution.

    (3) Subsection (1) applies for the 2008–09 and later income years.

39 Section CV 10 repealed
  • (1) Section CV 10 is repealed.

    (2) Subsection (1) applies for all income years beginning on or after 1 July 2009.

40 Section CW 3B repealed
41 Dividend derived by company from overseas
  • (1) Section CW 9(1), except for the heading, is replaced by the following:

    • (1) A dividend from a foreign company is exempt income if derived by a company that is resident in New Zealand.

    (2) After section CW 9(2), the following is added:

    Non-application to dividends derived by certain PIEs
    • (3) This section does not apply to a dividend derived by a portfolio tax rate entity.

    (3) Section CW 9 is replaced by the following:

    CW 9 Dividend derived from foreign company
    • Exempt income

      (1) A dividend from a foreign company is exempt income if derived by a company that is resident in New Zealand.

      Exclusions

      (2) Subsection (1) does not apply to a dividend if the dividend is paid in relation to rights that are—

      • (a) a direct income interest of less than 10% in a foreign company described in—

        • (i) section EX 31 (Exemption for ASX-listed Australian companies):

        • (ii) section EX 32 (Exemption for Australian unit trusts with adequate turnover or distributions):

        • (iii) section EX 36 (Venture capital company emigrating to grey list country: 10-year exemption):

        • (iv) section EX 37 (Grey list company owning New Zealand venture capital company: 10-year exemption):

        • (v) section EX 37B (Share in grey list company acquired under venture investment agreement):

        • (vi) section EX 39 (Terminating exemption for grey list company with numerous New Zealand shareholders):

      • (b) a fixed-rate foreign equity:

      • (c) rights to a deductible foreign equity distribution.

      Non-application to dividends derived by certain PIEs

      (3) This section does not apply to a dividend derived by a portfolio tax rate entity.

      Defined in this Act: company, dividend, deductible foreign equity distribution, exempt income, fixed-rate foreign equity, portfolio tax rate entity, resident in New Zealand.

    (4) Section CW 9(3), except for the heading, is replaced by the following:

    • (3) This section does not apply to a dividend derived by a multi-rate PIE.

    (5) In section CW 9, in the list of defined terms, multi-rate PIE is inserted.

    (6) Subsection (3) applies for all income years beginning on or after 1 July 2009.

    (7) Subsection (4) applies for the 2010–11 and later income years.

42 Proceeds of share disposal by qualifying foreign equity investor
  • Section CW 12(4), other than the heading, is replaced by the following:

    • (4) In this section,—

      foreign exempt entity means a person who—

      • (a) is established as a legal entity under the laws of a territory that is approved for the purposes of this section by the Governor-General by an Order in Council or under the laws of a part of such a territory; and

      • (b) has persons (the members) who hold interests in the capital of the legal entity and who are entitled to shares of the income of the legal entity; and

      • (c) under the laws of the territory or part of the territory is not subject to a tax on income other than as a body that handles income of the members; and

      • (d) is resident in no territory that has laws that treat the legal entity as being subject to a tax on income other than as a body that handles income of the members; and

      • (e) does not have a member who—

        • (i) has, when treated as holding the interests of any person who is associated with the member, an interest of 10% or more in the capital of the legal entity; and

        • (ii) is resident in no territory that is approved for the purpose of this section by the Governor-General by an Order in Council; and

      • (f) does not have a member who, when treated as holding the interests of any person who is associated with the member, has an interest of 10% or more in the capital of the legal entity and who would—

        • (i) be entitled to receive an amount derived from a disposal to which this section would apply; and

        • (ii) receive an amount referred to in subparagraph (i) that, in the absence of this section, would have been reduced by a tax imposed by the Act on the amount or on the proceeds of the disposal in the hands of the legal entity; and

        • (iii) in any circumstances under the laws of the territory in which the member is resident or under the laws of part of the territory be entitled to receive from the government of the territory or part of the territory a financial benefit in the form of a payment, credit, rebate, forgiveness, or other compensation for the reduction referred to in subparagraph (ii); and

      • (g) does not have a holder of a direct or indirect interest in the capital of the legal entity who,—

        • (i) is resident in New Zealand:

        • (ii) when treated as holding the interests of a person associated with the resident, holds a total direct or indirect interest of 10% or more

      foreign exempt partnership means an unincorporated body that—

      • (a) is established under the laws of a territory that is approved for the purposes of this section by the Governor-General by an Order in Council or under the laws of a part of such a territory; and

      • (b) consists of persons (the partners); and

      • (c) under the laws of the territory or part of the territory is not subject to a tax on income other than as a body that handles income of the partners; and

      • (d) has at least 1 partner (the general partner) who is liable for all debts of the unincorporated body and who has significant involvement in, and control of, the business activities of the unincorporated body; and

      • (e) has at least 1 partner (the special partner) whose liability for debts of the unincorporated body is limited and who has limited involvement in, and control of, the business activities of the unincorporated body; and

      • (f) does not have a general partner who is resident in no territory that is approved for the purposes of this section by the Governor-General by an Order in Council; and

      • (g) does not have a partner who—

        • (i) has, when treated as holding the interests of any person who is associated with the partner, an interest of 10% or more in the capital of the unincorporated body; and

        • (ii) is resident in no territory that is approved for the purpose of this section by the Governor-General by an Order in Council; and

      • (h) does not have a partner who, when treated as holding the interests of any person who is associated with the partner, has an interest of 10% or more in the capital of the unincorporated body and who—

        • (i) would under the Act in the absence of this section, be subject to tax on an amount derived from a disposal to which this section would apply; and

        • (ii) would in any circumstances under the laws of the territory in which the partner is resident or under the laws of part of the territory be entitled to receive from the government of the territory or part of the territory a financial benefit in the form of a payment, credit, rebate, forgiveness, or other compensation for a payment of the tax referred to in subparagraph (i); and

      • (i) does not have a holder of a direct or indirect interest in the capital of the unincorporated body who,—

        • (i) is resident in New Zealand:

        • (ii) when treated as holding the interests of a person associated with the resident, holds a total direct or indirect interest of 10% or more

      foreign exempt person means a person who—

      • (a) is resident in a territory that is approved for the purposes of this section by the Governor-General by an Order in Council; and

      • (b) is not a legal entity that meets the requirements of paragraphs (a) to (c) of the definition of foreign exempt entity; and

      • (c) is not part of an unincorporated body that meets the requirements of paragraphs (a) to (c) of the definition of foreign exempt partnership; and

      • (d) under the laws of the territory or part of the territory derives the proceeds from a disposal of shares or options that are held by the person; and

      • (e) is not a person who—

        • (i) would under the Act in the absence of this section, be subject to tax on an amount derived from a disposal to which this section would apply; and

        • (ii) would in any circumstances under the laws of the territory in which the person is resident or under the laws of part of the territory be entitled to receive from the government of the territory or part of the territory a financial benefit in the form of a payment, credit, rebate, forgiveness, or other compensation for a payment of the tax referred to in subparagraph (i); and

      • (f) does not have a holder of a direct or indirect interest in the capital of the legal entity who,—

        • (i) is resident in New Zealand:

        • (ii) when treated as holding the interests of a person associated with the resident, holds a total direct or indirect interest of 10% or more.

43 Dividends paid by qualifying companies
  • (1) Section CW 15(1), other than the heading, is replaced by the following:

    • (1) To the extent to which the amount of a dividend that a qualifying company pays to a person resident in New Zealand is more than a fully imputed distribution, the amount is exempt income of the person.

    (2) In section CW 15, in the list of defined terms, fully imputed is inserted.

44 Expenditure on account, and reimbursement, of employees
  • (1) After section CW 17(3), the following is added:

    Depreciation loss included
    • (4) In this section, expenditure includes an amount of depreciation loss.

    Relationship with sections CW 17B and CW 17C
    • (5) This section does not apply to an amount referred to in section CW 17B (Relocation payments) or CW 17C (Payments for overtime meals and certain other allowances).

    (2) In section CW 17, in the list of defined terms, depreciation loss is inserted.

    (3) Subsection (1) does not apply in relation to a tax position taken by a person—

    • (a) in the period from 1 April 2008 to the date on which this Act receives the Royal assent; and

    • (b) in relation to a deduction for an amount of depreciation loss; and

    • (c) relying on section CW 17 in the absence of the amendment made by subsection (1).

45 New sections CW 17B and CW 17C inserted
  • After section CW 17, the following are inserted:

    CW 17B Relocation payments
    • Exempt income

      (1) An amount that an employer pays to or on behalf of an employee in connection with the expenses of the employee in a work-related relocation is exempt income of the employee.

      Actual expenditure

      (2) The amount paid must be no more than the actual cost incurred by or on behalf of the employee on an expense that the Commissioner lists as an eligible relocation expense in a determination made under subsection (6).

      Time limit

      (3) Subsection (1) applies only to expenditure incurred to the end of the tax year following that in which the relocation occurs. For the purposes of this subsection, a temporary move that has not been treated as a work-related relocation under this section is ignored.

      Meaning of work-related relocation

      (4) Work-related relocation means a relocation of the place where an employee lives that is required—

      • (a) because the employee's workplace is not within reasonable daily travelling distance of their residence; and

      • (b) as a result of the employee—

        • (i) taking up new employment with a new employer; or

        • (ii) taking up new duties at a new location with their existing employer; or

        • (iii) continuing in their current position but at a new location.

      Exemption from distance test

      (5) The requirement in subsection (4)(a) for a person's workplace to be beyond reasonable travelling distance of their residence does not apply to a person whose accommodation forms an integral part of their work.

      Determinations

      (6) The Commissioner may issue a determination for the purposes of this section under section 91AAR of the Tax Administration Act 1994 to provide a list of eligible relocation expenses, and may extend or modify the list from time to time as required. The Commissioner must give at least 30 days' notice of the implementation date of any alteration.

      Defined in this Act: amount, Commissioner, employee, employer, exempt income, tax year, work-related relocation

    CW 17C Payments for overtime meals and certain other allowances
    • Exempt income: overtime meals

      (1) An amount that an employer pays to or on behalf of an employee for a meal for the employee when the employee is working overtime is exempt income of the employee.

      Exempt income: certain sustenance allowances

      (2) An amount that an employer pays to an employee as a sustenance allowance for the employee for a day is exempt income of the employee if—

      • (a) the employee works a minimum of 7 hours on the day; and

      • (b) their employment requires them—

        • (i) to work outdoors and away from their employment base for most of the day; and

        • (ii) to undertake a long period of physical activity in travelling through a neighbourhood or district on foot or by bicycle; and

      • (c) it is not practicable for the employer to provide sufficient sustenance on the day for the period when the employee is working outdoors; and

      • (d) the allowance recognises—

        • (i) the arduous physical nature of the employee's work as described in paragraph (b); and

        • (ii) that the employer would normally provide tea, coffee, water, or similar refreshments at the employment base in the course of their business.

      Eligibility requirements: overtime meals

      (3) Subsection (1) applies only if—

      • (a) the employee has worked at least 2 hours' overtime on the day of the meal; and

      • (b) either—

        • (i) the employee's employment agreement provides for pay for overtime hours worked; or

        • (ii) the employer has an established policy or practice of paying for overtime meals.

      Eligibility requirements: sustenance allowances

      (4) Subsection (2) applies only if the employer has an established policy or practice of paying a sustenance allowance.

      Actual cost or reasonable estimate

      (5) The amount paid must be—

      • (a) the actual cost to the employee, and for an overtime meal referred to in subsection (1), with documentation required for amounts over $20 per meal; or

      • (b) a reasonable estimate of the expenditure likely to be incurred by the employee or a group of employees for whom an amount is payable.

      Meaning of overtime

      (6) For the purposes of this section, overtime, for a person and a day, means time worked for an employer on the day beyond the person's ordinary hours of work as set out in their employment agreement.

      Defined in this Act: amount, employee, employer, exempt income, overtime, pay.

46 Section CW 37 repealed
  • (1) Section CW 37 is repealed.

    (2) Subsection (1) applies for an amount derived by a company as a large budget screen production grant if—

    • (a) the final application for the large budget screen production grant is made on or after 1 October 2009; and

    • (b) the company does not incur before 1 July 2008 an amount of $3,000,000 or more in expenditure on the project to which the large budget screen production grant relates.

47 Local and regional promotion bodies
  • In section CW 40, in the list of defined terms, associated person is omitted.

48 Charities: business income
49 New section CW 59C inserted
  • (1) After section CW 59B, the following is inserted:

    CW 59C Life reinsurance outside New Zealand
    • An amount of life reinsurance claim derived by a life insurer is exempt income to the extent to which, for the relevant life reinsurance policy, deductions for premiums are denied under section DR 3 (Life reinsurance outside New Zealand).

      Defined in this Act: amount, claim, deduction, exempt income, income, life insurer, life reinsurance, life reinsurance policy, New Zealand, premium.

    (2) Subsection (1) applies––

    • (a) on and after 1 July 2010, unless paragraph (b) applies:

    • (b) for an income year that includes 1 July 2010 and later income years, if the life insurer chooses to apply the new life insurance rules in this Act in a return of income for the tax year corresponding to the first relevant income year.

50 New section CW 62B inserted
  • (1) After section CW 62, the following is inserted:

    CW 62B Voluntary activities
    • Exempt income

      (1) When a volunteer, in undertaking a voluntary activity, derives an amount that is a reimbursement payment to cover actual expenses incurred by them, the amount is exempt income of the volunteer.

      Estimated expenditure

      (2) For the purposes of subsection (1)—

      • (a) a person may make a reasonable estimate of the amount of expenditure likely to be incurred by the volunteer for which reimbursement is payable; and

      • (b) the amount estimated is treated as if it were the amount incurred.

      Payments partly reimbursement and partly honorarium

      (3) If the person paying the amount to the volunteer makes a payment to them that is only partly a reimbursement of expenses, the person must identify the portion of the amount that is the reimbursement, and treat the remainder as an honorarium, being a schedular payment to which the PAYE rules apply.

      Who is a volunteer?

      (4) For the purposes of this section, a volunteer means a person who freely undertakes an activity in New Zealand—

      • (a) chosen either by themselves or by a group of which they are a member; and

      • (b) that provides a benefit to a community or another person; and

      • (c) for which there is no purpose or intention of private pecuniary profit for the person.

      Honoraria

      (5) For the purposes of this section, and schedule 4, part B (Rates of tax for schedular payments), an honorarium means an amount that a person receives for providing services that—

      • (a) is paid at a rate that is less than the market rate for providing the services; and

      • (b) is an amount for which, in the normal course, no payment is fixed for the services provided.

      Nature of reimbursement payment

      (6) For the purposes of this section, it does not matter whether—

      • (a) an amount of a reimbursement payment is paid in 1 sum or not:

      • (b) the amount is paid during an income year or at the end of an income year.

      Relationship with section RD 8(3)

      (7) A determination made by the Commissioner under section RD 8(3) (Schedular payments) may apply to modify an amount of expenditure under this section.

      Defined in this Act: amount, exempt income, honorarium, income year, New Zealand, pay, PAYE rules, schedular payment, volunteer.

    (2) Subsection (1) applies for the 2009–10 and later income years.

51 Meaning of fringe benefit
  • (1) In section CX 2(5), the words before paragraph (a) are replaced by the following:

    • (5) A benefit may be treated for the purposes of the FBT rules as being provided by an employer to an employee under—.

    (2) In section CX 2, in the list of defined terms, FBT rules is inserted.

    (3) Subsections (1) and (2) apply for the 2010–11 and later income years.

52 Contributions to superannuation schemes
  • (1) Section CX 13(2), other than the heading, is replaced by the following:

    • (2) This section does not apply if the contribution is an employer's superannuation cash contribution.

    (2) In section CX 13, in the list of defined terms, employer's superannuation contribution is replaced by employer's superannuation cash contribution.

    (3) Subsection (1) applies for the 2008–09 and later income years.

53 Benefits provided instead of allowances
  • In section CX 19(1)(b), transport costs). is replaced by transport costs); or and the following is added:

    • (c) an amount that, if it had been paid, would have been exempt income under section CW 17B (Relocation payments).

54 Section CX 28 replaced
  • (1) Section CX 28 is replaced by the following:

    CX 28 Accommodation
    • The value of accommodation that an employer provides to an employee in connection with the employment or services is not a fringe benefit.

      Defined in this Act: accommodation, employee, employer, employment, fringe benefit.

    (2) Subsection (1) applies for the 2008–09 and later income years.

55 Section CX 39 repealed
  • (1) Section CX 39 is repealed.

    (2) Subsection (1) applies––

    • (a) on and after 1 July 2010, unless paragraph (b) applies:

    • (b) for an income year that includes 1 July 2010 and later income years, if the life insurer chooses to apply the new life insurance rules in this Act in a return of income for the tax year corresponding to the first relevant income year.

56 Government grants to businesses
  • (1) Section CX 47(1)(d)(i) is replaced by the following:

    • (i) expenditure that they incur and for which they would be allowed a deduction in the absence of section DF 1 (Government grants to businesses):.

    (2) Section CX 47(3) is replaced by the following:

    Exclusion
    • (3) This section does not apply to a grant made under the Agriculture Recovery Programme for the Lower North Island and Eastern Bay of Plenty, to the extent to which the grant relates to expenditure—

      • (a) incurred by the recipient before the grant; and

      • (b) for which the recipient would be allowed a deduction in the absence of section DF 1.

    (3) In section CX 47, in the list of defined terms, large budget screen production grant is omitted.

    (4) Subsection (1) applies for the 2008–09 and later income years.

    (5) Subsection (2) applies for an amount derived by a company as a large budget screen production grant if—

    • (a) the final application for the large budget screen production grant is made on or after 1 October 2009; and

    • (b) the company does not incur before 1 July 2008 an amount of $3,000,000 or more in expenditure on the project to which the large budget screen production grant relates.

57 Amounts remitted as condition of new start grant
  • (1) Section CX 48(1), other than the heading, is replaced by the following:

    • (1) This section applies when in an income year of a person—

      • (a) the person carries on a business of—

        • (i) animal husbandry:

        • (ii) poultry-keeping:

        • (iii) beekeeping:

        • (iv) breeding horses other than bloodstock:

        • (v) horticulture:

        • (vi) cropping; and

      • (b) the person is paid a new start grant for the business for an event that is declared to be an emergency event; and

      • (c) the person in carrying on the business—

        • (i) incurs a liability for expenditure or loss before the declaration of the emergency event; and

        • (ii) before the date that is 3 months after the end of the period for which the declaration applies, takes the liability into account in calculating the person’s taxable income for an income year; and

      • (d) the liability referred to in paragraph (c)(i) is forgiven or otherwise remitted—

        • (i) as a prerequisite for the payment of the new start grant; and

        • (ii) before the date that is 18 months after the end of the period for which the declaration applies; and

      • (e) the amount of the remitted liability is income of the person under section CG 2 (Remitted amounts).

    (2) In section CX 48, in the list of defined terms,––

    • (a) qualifying event is omitted:

    • (b) emergency event is inserted.

58 Section CX 48B repealed
59 New heading and section CX 48C inserted
  • Before section CX 49, the following is inserted:

    Government funding of film and television

    CX 48C Government funding additional to government screen production payments
    • When this section applies

      (1) This section applies when a public authority makes a payment to a person for a project if—

      • (a) the payment is not in the nature of a grant or subsidy; and

      • (b) the payment is not a grant-related suspensory loan; and

      • (c) the person receives a government screen production payment for the project in addition to the payment.

      Excluded income

      (2) The payment is excluded income of the person.

      Defined in this Act: excluded income, government screen production payment, grant-related suspensory loan, pay, public authority.

60 New heading and section CX 48D inserted
  • (1) After section CX 48C, the following is inserted:

    Research and development

    CX 48D Tax credits for expenditure on research and development
    • The amount of a tax credit that a person has under subpart LH (Tax credits for expenditure on research and development) is excluded income of the person.

      Defined in this Act: amount, excluded income, tax credit.

    (2) Subsection (1) applies for the 2008–09 and later income years.

61 New heading and section CX 51B inserted
  • After section CX 51, the following is inserted:

    Emissions units under Climate Change Response Act 2002

    CX 51B Disposal of pre-1990 forest land emissions units
    • Who this section applies to

      (1) This section applies to a person who disposes of a pre-1990 forest land emissions unit other than by surrender.

      Excluded income: disposal

      (2) An amount of income that the person derives from the disposal is excluded income if, at the time of the disposal, the person would not derive income, other than exempt income or excluded income, from a disposal without timber of the pre-1990 forest land to which the emissions unit relates.

      Defined in this Act: amount, emissions unit, excluded income, income, pre-1990 forest land, pre-1990 forest land emissions unit, surrender.

62 Proceeds from certain disposals by portfolio investment entities or New Zealand Superannuation Fund
  • Section CX 55(1)(b) is replaced by the following:

    • (b) resident in Australia and—

      • (i) not treated as resident in a country other than Australia under an agreement between Australia and the other country that would be a double tax agreement if negotiated between New Zealand and the other country; and

      • (ii) included in an index that is an approved index under the ASX Market Rules, made under Chapter 7 of the Corporations Act 2001 (Aust); and

      • (iii) required under the Income Tax Assessment Act 1997 (Aust) and Income Tax Assessment Act 1936 (Aust) to maintain a franking account.

63 Section CX 55 replaced
  • (1) Section CX 55 is replaced by the following:

    CX 55 Proceeds from disposal of investment shares
    • What this section applies to

      (1) This section applies in an income year to the following entities unless the entity is assured, under an arrangement with another person, of having a gain on the disposal:

      • (a) a portfolio investment entity other than a life fund PIE:

      • (b) the New Zealand Superannuation Fund:

      • (c) a life insurer.

      Excluded income

      (2) An amount that the entity derives from the disposal in the income year of a share issued by a company referred to in subsection (3) is—

      • (a) excluded income of the entity for the income year, if the entity is described in subsection (1)(a) or (b); or

      • (b) excluded income of the entity for the income year to the extent to which the amount is actuarially determined to be policyholder base income, if the entity is a life insurer.

      Particular company

      (3) The company referred to in subsection (2) is,—

      • (a) at all times in the income year, a company resident in New Zealand and not treated under and for the purposes of a double tax agreement as not resident in New Zealand; or

      • (b) a company that meets the following requirements:

        • (i) a company that, at all times in the income year, is resident in Australia and not treated as resident in a country other than Australia under an agreement between Australia and the other country, that would be a double tax agreement if negotiated between New Zealand and the other country; and

        • (ii) a company that, at the start of the income year or at the time the shares are first acquired in the income year, is included in an approved index under the ASX Market Rules made under Chapter 7 of the Corporations Act 2001 (Aust); and

        • (iii) a company that, at all times in the income year, is required under the Income Tax Assessment Act 1997 (Aust) and the Income Tax Assessment Act 1936 (Aust) to maintain a franking account.

      Non-participating redeemable shares

      (4) This section does not apply to a non-participating redeemable share.

      Defined in this Act: actuarially determined, amount, arrangement, company, double tax agreement, excluded income, income year, life fund PIE, life insurer, non-participating redeemable share, policyholder base income, portfolio investment entity, resident in Australia, resident in New Zealand, share.

    (2) Subsection (1) applies—

    • (a) for a portfolio investment entity, including a life fund PIE, and the New Zealand Superannuation Fund, for the 2010–11 and later income years:

    • (b) for a life insurer, other than in relation to a life fund PIE,—

      • (i) on and after 1 July 2010, unless subparagraph (ii) applies:

      • (ii) for an income year that includes 1 July 2010 and later income years, if the life insurer chooses to apply the new life insurance rules in this Act in a return of income for the tax year corresponding to the first relevant income year.

    Section 63(2)(b)(i): amended (with effect on 7 October 2009), on 8 December 2009, by section 166 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).

64 Portfolio investor allocated income and distributions of income by portfolio investment entities
  • After section CX 56(3), the following is added:

    When trustees choose 19.5% portfolio investor rate
    • (4) Subsection (1) does not apply in relation to portfolio investor allocated income derived by a trustee who has chosen a portfolio investor rate of 19.5%.

65 Section CX 56 replaced
  • (1) Section CX 56 is replaced by the following:

    CX 56 Attributed income of certain investors in multi-rate PIEs
    • When this section applies

      (1) This section applies when an investor in a multi-rate PIE derives income attributed under section CP 1 (Attributed income of investors in multi-rate PIEs) in an income year, and—

      • (a) the prescribed investor rate for the investor in the relevant calculation period is more than zero; and

      • (b) that rate is not more than the tax rate notified under section HM 60 (Notified rates) in relation to the investor when the PIE calculates—

        • (i) its income tax liability under section HM 47 (Calculation of tax liability or tax credit of multi-rate PIEs) in relation to the income; or

        • (ii) a voluntary payment under section HM 45 (Voluntary payments) that is intended to be a final payment of its income tax liability in relation to the income.

      When this section does not apply

      (2) This section does not apply when—

      • (a) the PIE calculates its income tax liability using the quarterly calculation option under section HM 43 (Quarterly calculation option) and the amount is attributed to an investor who is treated under section HM 61 (Certain exiting investors zero-rated) as zero-rated:

      • (b) an amount of attributed PIE income is derived by a trustee who has chosen an investor rate of 19.5% under section HM 58 (Optional investor rates for trustees: 30%, 19.5%).

      Excluded income

      (3) The amount is excluded income of the investor.

      Defined in this Act: amount, attribution period, calculation period, excluded income, income, income tax liability, income year, investor, multi-rate PIE, pay, PIE, prescribed investor rate, quarter

    CX 56B Distributions to investors in multi-rate PIEs
    • An amount of income derived by an investor in a multi-rate PIE as a distribution of or dividend of the PIE is excluded income of the investor.

      Defined in this Act: amount, dividend, excluded income, income, investor, multi-rate PIE

    CX 56C  Distributions to investors by listed PIEs
    • Resident investors

      (1) If an investor in a listed PIE derives an amount in an income year as a distribution by or dividend of the PIE, the amount is excluded income of the investor if they—

      • (a) are resident; and

      • (b) are a natural person or a trustee; and

      • (c) do not include the amount as income in a return of income for the income year.

      Imputed dividends

      (2) If subsection (1)(a) to (c) does not apply to the investor, the amount is excluded income to the extent to which the amount of the distribution or dividend is more than the amount that is fully credited as described in section CD 43(26) (Available subscribed capital amount).

      Defined in this Act: amount, dividend, excluded income, income year, investor, listed PIE, PIE, resident, return of income, trustee.

    (2) Subsection (1) applies for the 2010–11 and later income years.

66 Section CX 57 replaced
  • (1) Section CX 57 is replaced by the following:

    CX 57  Credits for investment fees
    • When this section applies

      (1) This section applies when—

      • (a) a multi-rate PIE includes a credit for fees in the calculation of its tax liability under section HM 47 (Calculation of tax liability or tax credit of multi-rate PIEs) in relation to an investor in an investor class of the PIE; and

      • (b) an amount of the credit is attributed to the investor as a member of the class.

      Excluded income

      (2) The amount allocated is excluded income of the investor.

      Defined in this Act: amount, excluded income, investor, investor class, multi-rate PIE, PIE.

    (2) Subsection (1) applies for the 2010–11 and later income years.

67 New section CZ 9B inserted
  • After section CZ 9, the following is inserted:

    CZ 9B Available capital distribution amount: 1988 to 2010
    • When this section applies

      (1) This section applies for the purposes of section CD 44 (Available capital distribution amount) in relation to capital gain amounts derived or capital loss amounts incurred in the period that starts on 1 April 1988 and ends on 31 March 2010.

      Related person transactions

      (2) No capital gain amount is derived or capital loss amount incurred by a company disposing of property under an arrangement with a related person. But this subsection does not apply if—

      • (a) the company is a close company; and

      • (b) the related person is not a company; and

      • (c) the disposal is not on the liquidation of the company.

      Meaning of related person

      (3) In this section, related person means a person related to a company (the first company) because 1 of the following applies to the person and the first company:

      • (a) the person owns, can control, directly or indirectly, or has the right to acquire 20% or more of the first company's ordinary shares; or

      • (b) the person owns, can control, directly or indirectly, or has the right to acquire 20% or more of the voting rights of shareholders in the first company; or

      • (c) the person is a company and the first company owns, can control, directly or indirectly, or has the right to acquire 20% or more of the ordinary shares in the person; or

      • (d) the person is a company and the first company owns, can control, directly or indirectly, or has the right to acquire 20% or more of the voting rights of shareholders in the company; or

      • (e) the person is a company and 20% or more of the shares or voting rights in the person are owned or controlled by persons that also own, control, or have the right to acquire 20% or more of the shares or voting rights in the first company; or

      • (f) the person is a partner or co-venturer of the first company; or

      • (g) the person is the trustee of a trust and the first company, or a person who is a related person of the first company under this subsection, benefits or can benefit under the trust, directly or indirectly; or

      • (h) the person is a partnership and 1 or more persons, that are related persons of the first company under this subsection, are entitled to 50% or more of the partnership's assets or profits or are able to control the partnership.

      Look-through relatives and nominees

      (4) For the purposes of subsection (3), a person is treated as holding anything held by—

      • (a) their spouse, civil union partner, or de facto partner; or

      • (b) their child; or

      • (c) a child of their spouse, civil union partner, or de facto partner; or

      • (d) a spouse, civil union partner, or de facto partner of their child, or of a child of their spouse, civil union partner, or de facto partner.

      Look-through interposed companies

      (5) For the purposes of subsection (3)(e), if shares or voting rights in a company are owned or controlled by another company, a look-through approach must be applied. The look-through approach requires that—

      • (a) the shares or voting rights are treated as if owned or controlled by the shareholders in the other company; and

      • (b) if a shareholder in the other company is a company, that shareholder's portion of the shares or voting rights are treated as if owned or controlled by the shareholders in the shareholder company; and

      • (c) the approach is applied in the same way to any chain of companies, whatever the length of the chain.

      Defined in this Act: amount, close company, company, liquidation, related person, share, shareholder, trustee.

68 Determining tax liabilities
  • (1) Section DB 3(4), other than the heading, is replaced by the following:

    • (4) This section supplements the general permission and overrides the capital limitation, the private limitation, and the employment limitation. The other general limitations still apply.

    (2) In section DB 3, in the list of defined terms, capital limitation is inserted.

    (3) Subsection (1) applies for the 2008–09 and later income years.

69 Interest: not capital expenditure
  • (1) Section DB 6(3) is repealed.

    (2) Subsection (1) applies for all income years beginning on or after 1 July 2009.

70 Interest: most companies need no nexus with income
  • (1) Section DB 7(7) is repealed.

    (2) Subsection (1) applies for all income years beginning on or after 1 July 2009.

71 Interest: money borrowed to acquire shares in group companies
  • (1) Section DB 8(7) is repealed.

    (2) Subsection (1) applies for all income years beginning on or after 1 July 2009.

72 New section DB 10B inserted
  • After section DB 10, the following is inserted:

    DB 10B Interest or expenditure connected to stapled debt security
    • No deduction

      (1) A company that issues a stapled debt security is denied, while section FA 2B(2) (Stapled debt securities) applies to the security, a deduction for—

      • (a) interest payable under the security:

      • (b) expenditure or loss incurred in connection with the security:

      • (c) expenditure or loss incurred in borrowing the money secured by or owing under the security.

      Relationship with sections DB 5 to DB 8

      (2) This section overrides sections DB 5 to DB 8.

      Link with subpart DA

      (3) This section overrides the general permission.

      Defined in this Act: deduction, general permission, interest, pay, stapled debt security.

73 Cost of revenue account property
  • (1) Section DB 23(2)(a) is repealed.

    (2) In section DB 23(2)(b), Proceeds from certain disposals by portfolio investment entities or New Zealand Superannuation Fund is replaced by Proceeds from disposal of investment shares.

    (3) In section DB 23, in the list of defined terms, portfolio investment entity is omitted.

    (4) Subsections (1) and (2) apply for the 2010–11 and later income years.

74 Charitable or other public benefit gifts by company
  • (1) In section DB 41(2), a society, institution, association, organisation, trust, or fund of any of the kinds described in section LD 3(2) (Meaning of charitable or other public benefit gift) or set out in schedule 32 (Recipients of charitable or other public benefit gifts) is replaced by a donee organisation.

    (2) In section DB 41, in the defined terms list,—

    • (a) close company, company, recognised exchange, and share are omitted:

    • (b) donee organisation is inserted.

75 Property misappropriated by employees or service providers
  • (1) Section DB 42(2), other than the heading, is replaced by the following:

    • (2) This section does not apply when a person who misappropriates property is associated with the person who carries on the business.

    (2) Subsection (1) applies for the 2010–11 and later income years.

76 Portfolio investment entities: zero-rated portfolio investors and allocated losses
  • (1) Section DB 53(1), other than the heading, is replaced by the following:

    • (1) This section applies in relation to an investor in a portfolio investor class of a portfolio tax rate entity when—

      • (a) either—

        • (i) the entity pays tax under section HL 22 (Payments of tax by portfolio tax rate entity making no election) and the investor exits from the entity during a portfolio calculation period; or

        • (ii) the investor is a zero-rated portfolio investor for the period; and

      • (b) the period includes a portfolio allocation period for which the investor is allocated an amount of portfolio investor allocated loss under subpart HL (Portfolio investment entities).

    (2) Subsection (1) applies for the 2008–09 and later income years.

77 Section DB 53 replaced
  • (1) Section DB 53 is replaced by the following:

    DB 53  Attributed PIE losses of certain investors
    • When this section applies

      (1) This section applies to an investor in a multi-rate PIE when—

      • (a) an amount of attributed PIE loss is attributed under section HM 36 (Calculating amounts attributed to investors) to an investor for an attribution period in a tax year; and

      • (b) either the investor is—

        • (i) a zero-rated investor; or

        • (ii) treated under section HM 61 (Certain exiting investors zero-rated) as zero-rated.

      Deduction

      (2) The investor is allowed a deduction for the amount allocated to the investor's income year in which the PIE's tax year ends.

      Link with subpart DA

      (3) This section supplements the general permission. The general limitations still apply.

      Defined in this Act: amount, attributed PIE loss, attribution period, deduction, exit period, general limitation, general permission, income tax liability, income year, investor, multi-rate PIE, PIE, quarter, tax year, zero-rated investor

      Compare: 2007 No 97 s DB 53.

    (2) Subsection (1) applies for the 2010–11 and later income years.

78 Section DB 54 replaced
  • (1) Section DB 54 is replaced by the following:

    DB 54  Treatment of credits for investment fees
    • When this section applies

      (1) This section applies when an investor in an investor class of a multi-rate PIE incurs expenses in relation to their investor interest, and the entity includes the amount in the calculation of its tax liability under section HM 47 (Calculation of tax liability or tax credit of multi-rate PIEs) in relation to the investor.

      No deduction

      (2) The investor is denied a deduction for the amount.

      Link with subpart DA

      (3) This section overrides the general permission.

      Defined in this Act: amount, deduction, general permission, investor, investor class, investor interest, multi-rate PIE

      Compare: 2007 No 97 s DB 54.

    (2) Subsection (1) applies for the 2010–11 and later income years.

79 Expenditure incurred in deriving exempt dividend
  • (1) Section DB 55(1) and (2) are replaced by the following:

    Deduction
    • (1) A company that derives a dividend that is exempt income of the company under section CW 9 (Dividend derived from foreign company) is allowed a deduction of the amount of the expenditure incurred by the company in deriving the dividend.

    (2) In section DB 55, in the list of defined terms, CTR company is omitted.

    (3) Subsection (1) applies for all income years beginning on or after 1 July 2009.

80 Heading and section DB 60 replaced
  • The heading after section DB 59 and section DB 60 are replaced by the following:

    Emissions units and liabilities under Climate Change Response Act 2002

    DB 60 Acquisition of emissions units
    • When this section applies

      (1) This section applies when a person is transferred an emissions unit under section 64, or Part 4 subpart 2, of the Climate Change Response Act 2002 for a price of zero.

      No deduction

      (2) The person is denied a deduction for an amount of expenditure or loss incurred as consideration for the emissions unit.

      Link with subpart DA

      (3) Subsection (2) overrides the general permission.

      Defined in this Act: amount, emissions unit, general permission, loss.

81 New section DB 60B inserted
  • (1) After section DB 60, the following is inserted:

    DB 60B Liabilities for emissions
    • When this section applies

      (1) This section applies when a person incurs a liability under the Climate Change Response Act 2002 for emissions relating to post-1989 forest land or pre-1990 forest land.

      No deduction

      (2) The person is denied a deduction for the liability.

      Link with subpart DA

      (3) Subsection (2) overrides the general permission.

      Defined in this Act: amount, deduction, general permission, post-1989 forest land, pre-1990 forest land.

    (2) Subsection (1) applies for deductions accrued on or after 1 January 2008.

82 Contributions to employees' superannuation schemes
  • (1) In section DC 7(1), for a contribution is replaced by for a superannuation contribution.

    (2) In section DC 7(1B), for a contribution is replaced by for a superannuation contribution.

    (3) In section DC 7, in the list of defined terms, superannuation contribution is inserted.

    (4) Subsections (1) and (2) apply for the 2008–09 and later income years.

83 Criteria for approval of share purchase schemes: before period of restriction ends
  • (1) Section DC 13(5)(d) is replaced by the following:

    • (d) the trustee to be prohibited from applying the amount of any dividend to the repayment of a sum owing to the company or to the trustee; and.

    (2) Subsection (1) applies for the 2008–09 and later income years.

84 Employment-related activities
  • (1) The heading to section DD 4(3) is replaced by Relocation expenses, employees' meals, and sustenance allowances.

    (2) Section DD 4(3)(a) is replaced by the following:

    • (a) an amount that is exempt income of an employee under sections CW 17B and CW 17C (which relate to relocation expenses, expenditure on overtime meals, and sustenance allowances):.

    (3) In section DD 4, in the list of defined terms, amount is inserted.

85 Interpretation: reimbursement and apportionment
  • In section DD 10(a), section CW 17 (Expenditure on account, and reimbursement of employees) is replaced by sections CW 17, CW 17B, and CW 17C (which relate to expenditure and reimbursement of employees).

86 Heading to subpart DF
  • In the heading to subpart DF, , funding, is inserted after grants.

87 Government grants to businesses
  • (1) Section DF 1(6) is repealed.

    (2) In section DF 1, in the list of defined terms, large budget screen production grant is omitted.

    (3) Subsection (1) applies for an amount derived by a company as a large budget screen production grant if—

    • (a) the final application for the large budget screen production grant is made on or after 1 October 2009; and

    • (b) the company does not incur before 1 July 2008 an amount of $3,000,000 or more in expenditure on the project to which the large budget screen production grant relates.

88 Payments for social rehabilitation
89 New section DF 5 added
  • After section DF 4, the following is added:

    DF 5 Government funding additional to government screen production payments
    • When this section applies

      (1) This section applies when a public authority makes a payment (the funding payment) to a person for expenditure incurred in a project if—

      • (a) the funding payment is not in the nature of a grant or subsidy; and

      • (b) the funding payment is not a grant-related suspensory loan; and

      • (c) the person receives a government screen production payment for the project in addition to the funding payment; and

      • (d) the person would be allowed a deduction for the expenditure in the absence of this section; and

      • (e) the payment is excluded income under section CX 48C (Government funding additional to government screen production payments).

      No deduction for expenditure

      (2) The person is denied, to the extent of the amount of the funding payment, the deduction for the expenditure that would be allowed in the absence of this section.

      Deduction for payments to public authority

      (3) The person is allowed a deduction for the amount of a payment (the return payment) made to the public authority to the extent to which the return payment is required by the arrangement under which the funding payment is made.

      Links with subpart DA

      (4) In this section—

      • (a) subsection (2) overrides the general permission; and

      • (b) subsection (3) supplements the general permission and overrides the capital limitation; the other general limitations still apply.

      Defined in this Act: capital limitation, deduction, excluded income, general limitation, general permission, government screen production payment, grant-related suspensory loan, pay, public authority.

90 When attributed CFC loss arises
  • (1) After the heading to section DN 2, General rule is inserted as a subsection heading.

    (2) Section DN 2(f) and (g) are replaced by the following:

    • (f) the CFC has a net attributable CFC loss for the accounting period under section EX 20C (Net attributable CFC income or loss); and

    • (h) the CFC is not a non-attributing active CFC for the accounting period, under section EX 21B (Non-attributing active CFCs); and

    • (i) the CFC is not a non-attributing Australian CFC for the accounting period, under section EX 22 (Non-attributing Australian CFCs).

    (3) After section DN 2(i), the following is added as subsection (2):

    Special rule: Attributable CFC amount from personal services
    • (2) If a person and a non-attributing active CFC or non-attributing Australian CFC meet the requirements of subsection (1)(a) to (e) and the CFC derives income from personal services that is an attributable CFC amount under section EX 20B(3)(h) (Attributable CFC amount), the person has attributed CFC loss from the CFC equal to the product of—

      • (a) the person's income interest in the CFC:

      • (b) the amount by which the CFC's expenditure incurred in deriving the income from personal services exceeds the income from personal services.

    (4) In section DN 2, in the list of defined terms,—

    • (a) branch equivalent loss is omitted:

    • (b) attributable CFC amount, net attributable CFC loss, non-attributing active CFC, and non-attributing Australian CFC are inserted.

    (5) Subsections (2) and (3) apply for all income years beginning on or after 1 July 2009.

91 When FIF loss arises
  • (1) Section DN 6(3) is replaced by the following:

    FIF loss from CFC with FIF interest
    • (3) FIF loss also includes an amount of additional FIF loss that a person with an income interest of 10% or more in a CFC has in an income year under section EX 58 (Additional FIF income or loss if CFC owns FIF), whether or not the CFC is a non-attributing Australian CFC under section EX 22 (Non-attributing Australian CFCs).

    (2) In section DN 6, in the list of defined terms, non-attributing Australian CFC is inserted.

    (3) Subsection (1) applies for all income years beginning on or after 1 July 2009.

92 Section DO 11B repealed
  • (1) Section DO 11B is repealed.

    (2) Subsection (1) applies for the 2009–10 and later income years.

93 Forestry business on land bought from the Crown, Maori owners, or holding company: no deduction
  • (1) In the heading to section DP 8(3), section FA 2 is replaced by sections FA 2 and FA 2B.

    (2) In section DP 8(3),as it applies to substituting debentures, does is replaced by , as it applies to substituting debentures, and section FA 2B (Stapled debt securities) do.

94 Sections DR 1 to DR 3 replaced
  • (1) Sections DR 1 to DR 3 are replaced by the following:

    DR 1 Policyholder base allowable deduction of life insurer
    • Deduction

      (1) If, but for this section, a life insurer has an amount of policyholder base allowable deduction for an income year and that amount is neither a deduction under this Part nor denied as a deduction under this Part, the amount is a deduction of the life insurer for the income year.

      No cross-deducting: section EY 2

      (2) A policyholder base allowable deduction is not allowed against shareholder base income. Section EY 2 (Policyholder base) deals with allowing policyholder base allowable deductions against policyholder base income, and deals with deductions that relate to the life insurer's schedular income derived by their life fund PIE that is a multi-rate PIE.

      Link with subpart DA

      (3) Subsections (1) and (2) override the general permission.

      Defined in this Act: amount, deduction, general permission, income year, life fund PIE, life insurer, multi-rate PIE, policyholder base allowable deduction, policyholder base income, shareholder base income

    DR 2 Shareholder base allowable deduction of life insurer
    • Deduction

      (1) If, but for this section, a life insurer has an amount of shareholder base allowable deduction for an income year and that amount is neither a deduction under this Part nor denied as a deduction under this Part, the amount is a deduction of the life insurer for the income year.

      No cross-deducting

      (2) A shareholder base allowable deduction is not allowed against policyholder base income.

      Link with subpart DA

      (3) Subsections (1) and (2) override the general permission.

      Defined in this Act: amount, deduction, general permission, income year, life insurer, policyholder base income, shareholder base allowable deduction

    DR 3 Life reinsurance outside New Zealand
    • No deduction

      A life insurer is denied a deduction for life reinsurance premiums they incur if the relevant life reinsurance policy,––

      • (a) was not offered in New Zealand:

      • (b) was not entered into in New Zealand.

      Defined in this Act: amount, deduction, general permission, income year, life insurer, life reinsurance, life reinsurance policy, New Zealand

    DR 4 Life insurers' claims reserves
    • No deduction on account of claims

      (1) For a life insurer's life insurance policies, the life insurer is denied a deduction relating to the life insurer's outstanding claims or for a claim's expenditure or loss for an income year, except as provided by––

      • (a) section EY 24 (Outstanding claims reserving amount: non-participation policies not annuities):

      • (b) subsection (2).

      Deduction for payments of current claims

      (2) The life insurer is allowed a deduction for the amount of expenditure or loss of a claim paid under a life insurance policy for the income year.

      Link with subpart DA

      (3) This section supplements the general permission. The general limitations still apply.

      Defined in this Act: claim, deduction, general limitation, general permission, life insurance policy, life insurer.

    (2) Subsection (1) applies––

    • (a) on and after 1 July 2010, unless paragraph (b) applies:

    • (b) for an income year that includes 1 July 2010 and later income years, if the life insurer chooses to apply the new life insurance rules in this Act in a return of income for the tax year corresponding to the first relevant income year.

95 Film production expenditure
  • (1) Section DS 2(4) is replaced by the following:

    Timing of deduction
    • (4) The deduction is allocated under—

      • (a) section EJ 4 or EJ 5 (which relate to expenditure incurred in acquiring film rights) if the film is one for which a government screen production payment is made; or

      • (b) section EJ 7 or EJ 8 (which relate to film production expenditure) if the film is not one for which a government screen production payment is made.

    (2) In section DS 2, in the list of defined terms—

    • (a) large budget screen production grant is omitted:

    • (b) government screen production payment is inserted.

96 Meaning of film reimbursement scheme
  • (1) Section DS 4(5), other than the heading, is replaced by the following:

    • (5) For the purposes of subsection (3), a shareholder in a loss-attributing qualifying company and the company are associated persons, in addition to the associated persons described in the provisions of subpart YB (Associated persons and nominees) that apply for the purposes of the whole Act (excluding the 1973, 1988, and 1990 version provisions) or in the 1988 version provisions.

    (2) Section DS 4(5), other than the heading, is replaced by the following:

    • (5) For the purposes of subsection (3), a shareholder in a loss-attributing qualifying company and the company are associated persons, in addition to the associated persons described in subpart YB (Associated persons and nominees).

    (3) In section DS 4, in the list of defined terms, 1973 version provisions, 1988 version provisions, and 1990 version provisions are inserted.

    (4) In section DS 4, in the list of defined terms, 1973 version provisions, 1988 version provisions, and 1990 version provisions are omitted.

    (5) Subsection (2) applies for the 2010–11 and later income years.

97 New section DT 1A inserted
  • (1) Before section DT 1, the following is inserted:

    DT 1A Ring-fenced allocations
    • When this section applies

      (1) This section applies to an amount of a person's deductions for expenditure and loss for an income year to the extent to which it is—

      • (a) petroleum exploration expenditure:

      • (b) petroleum development expenditure:

      • (c) residual expenditure.

      Basis for allocation of deductions

      (2) If, but for this subsection, an amount that relates to petroleum mining operations undertaken outside New Zealand would be allocated to an income year (the current year), including an amount carried forward and allocated to the current year, the amount that is allocated to the current year is no more than the amount of the person's income derived for the current year from all petroleum mining operations undertaken outside New Zealand.

      Excess allocations: carried forward and re-instated next year

      (3) Any excess not allocated to the current year because of subsection (2) is carried forward and treated as—

      • (a) relating to petroleum mining operations undertaken outside New Zealand for the next income year; and

      • (b) allocated to that next income year.

      Restriction on reinstating excess allocations

      (4) Despite subsection (3), the excess is not allocated to the next income year, and no deduction is allowed or allocated to any income year for the excess, if sections IA 5 and IP 3 (which relate to the carrying forward of tax losses for companies) would not have allowed the excess to be carried forward to that next income year in a loss balance, treating the excess as a tax loss component arising on the last day of the current year.

      Defined in this Act: deduction, income year, loss balance, New Zealand, petroleum development expenditure, petroleum exploration expenditure, petroleum mining operation, residual expenditure, tax loss component.

    (2) Subsection (1) applies for expenditure incurred on or after 4 March 2008.

98 Arrangement for petroleum exploration expenditure and sale of property
  • (1) In section DT 2(1)(b), the words before subparagraph (i) are replaced by the following:

    • (b) the person or a person associated with them under the provisions of subpart YB (Associated persons and nominees) that apply for the purposes of the whole Act (excluding the 1973, 1988, and 1990 version provisions) or the 1988 version provisions may dispose of property—.

    (2) In section DT 2(1)(b), the words before subparagraph (i) are replaced by the following:

    • (b) the person or a person associated with them may dispose of property—.

    (3) In section DT 2(1)(c), subparagraphs (ii) and (iii) are replaced by the following:

    • (ii) a petroleum permit; or

    • (iii) material or a permit that relates to petroleum mining operations undertaken outside New Zealand, and that material or permit are substantially the same as those described in subparagraphs (i) or (ii), with necessary modifications made to this subpart and the Crown Minerals Act 1991.

    (4) In section DT 2, in the list of defined terms, 1973 version provisions, 1988 version provisions, and 1990 version provisions are inserted.

    (5) In section DT 2, in the list of defined terms, 1973 version provisions, 1988 version provisions, and 1990 version provisions are omitted.

    (6) Subsection (2) applies for the 2010–11 and later income years.

99 Petroleum development expenditure
  • (1) Section DT 5(1) and (2) is replaced by the following:

    Deduction
    • (1) A petroleum miner is allowed a deduction for petroleum development expenditure incurred by them.

    Timing of deduction
    • (2) For an income year, an amount of the deduction is allocated to that year, as provided by—

      • (a) section EJ 12 (Petroleum development expenditure: default allocation rule); or

      • (b) section EJ 12B (Petroleum development expenditure: reserve depletion method).

    (2) Subsection (1) applies for expenditure incurred on or after 1 April 2008.

100 Disposal of petroleum mining asset to associate
  • (1) In section DT 9(1)(b), section EJ 12 (Petroleum development expenditure) is replaced by section EJ 12 or EJ 12B (which relate to petroleum development expenditure).

    (2) Section DT 9(2)(b) is replaced by the following:

    • (b) the amount of the deduction allocated under section EJ 12 or EJ 12B to the income years after the income year in which the miner disposes of the asset.

    (3) Subsections (1) and (2) apply for expenditure incurred on or after 1 April 2008.

101 Amount written off by holding company
  • (1) In section DU 12(3)(a), tax year is replaced by income year.

    (2) Section DU 12(3)(b) is replaced by the following:

    • (b) the prescribed proportion of the total amount of mining exploration expenditure and mining development expenditure incurred by the mining company before the end of the income year in which the amount referred to in subsection (1) is written off, reduced by the total amount of deductions the holding company is allowed under this section in all income years before the income year in which that amount is written off.

    (3) Subsection (2) applies for the 2008–09 and later income years.

102 Transfer of expenditure to master fund
  • (1) Section DV 2(6), other than the heading, is replaced by the following:

    • (6) The expenditure is treated as being incurred by the master superannuation fund as follows:

      • (a) for a master fund that is a portfolio tax rate entity, in the income year in which the expenditure is transferred by the member superannuation fund; or

      • (b) for other master funds, in the same income year as that in which it was incurred by the member superannuation fund.

    (2) Section DV 2(6), other than the heading, is replaced by the following:

    • (6) The expenditure is treated as being incurred by the master superannuation fund as follows:

      • (a) for a master fund that is a multi-rate PIE, in the income year in which the expenditure is transferred by the member superannuation fund; or

      • (b) for other master funds, in the same income year as that in which it was incurred by the member superannuation fund.

    (3) After section DV 2(8), the following is inserted:

    Amount of deduction when master fund is portfolio tax rate entity
    • (8B) Despite subsection (8), a master superannuation fund that is a portfolio tax rate entity is allowed a deduction for expenditure transferred to it by a member superannuation fund. However, the maximum amount transferred must be no more than the member fund's share of the entity's taxable income for the income year in which the amount is transferred, any excess being treated as not transferred.

    (4) Section DV 2(8B), other than the heading, is replaced by the following:

    • (8B) Despite subsection (8), a master superannuation fund that is a multi-rate PIE is allowed a deduction for expenditure transferred to it by a member superannuation fund. However, the maximum amount transferred must be no more than the member fund's share of the taxable income of the PIE for the income year in which the amount is transferred, any excess being treated as not transferred.

    (5) In section DV 2, in the list of defined terms, portfolio investor interest and portfolio tax rate entity are inserted.

    (6) In section DV 2, in the list of defined terms,—

    • (a) portfolio investor interest and portfolio tax rate entity are omitted:

    • (b) investor interest and multi-rate PIE are inserted.

    (7) Subsections (1) and (3) apply for the 2008–09 and 2009–10 income years.

    (8) Subsections (2) and (4) apply for the 2010–11 and later income years.

103 Carry forward of expenditure
  • (1) After section DV 4(1), the following is inserted:

    What this section does not apply to
    • (1B) This section does not apply to a transfer of expenditure to a master superannuation fund that is a portfolio tax rate entity.

    (2) Section DV 4(1B) is replaced by the following:

    What this section does not apply to
    • (1B) This section does not apply to a transfer of expenditure to a master superannuation fund that is a multi-rate PIE.

    (3) In section DV 4, in the list of defined terms, portfolio tax rate entity is inserted.

    (4) In section DV 4, in the list of defined terms,—

    • (a) portfolio tax rate entity is omitted:

    • (b) multi-rate PIE is inserted.

    (5) Subsection (1) applies for the 2008–09 and 2009–10 income years.

    (6) Subsection (2) applies for the 2010–11 and later income years.

104 New section DV 4B inserted and replaced
  • (1) After section DV 4, the following is inserted:

    DV 4B Carry forward of expenditure by member funds investing in portfolio investment entities
    • When this section applies

      (1) This section applies when—

      • (a) a master fund that is a portfolio tax rate entity has a deduction under section DV 2(8B) for an income year for expenditure transferred to it by a member fund; and

      • (b) the amount of the expenditure that meets the tests set out in section DV 2(2) is more than the amount transferred for the income year, so there is surplus expenditure for the member fund.

      Member fund carrying expenditure forward

      (2) The member fund may carry forward the surplus expenditure for transfer under section DV 2(8B) in a later income year.

      Expenditure as loss balance

      (3) If the member fund carries forward surplus expenditure in an income year, the member fund may treat some or all of the expenditure as a loss balance for the corresponding tax year.

      Defined in this Act: amount, deduction, income year, loss balance, master fund, portfolio tax rate entity, tax year.

    (2) Section DV 4B is replaced by the following:

    DV 4B Carry forward of expenditure by member funds investing in portfolio investment entities
    • When this section applies

      (1) This section applies when—

      • (a) a master fund that is a multi-rate PIE has a deduction under section DV 2(8B) for an income year for expenditure transferred to it by a member fund; and

      • (b) the amount of the expenditure that meets the tests set out in section DV 2(2) is more than the amount transferred for the income year, so there is surplus expenditure for the member fund.

      Member fund carrying expenditure forward

      (2) The member fund may carry forward the surplus expenditure for transfer under section DV 2(8B) in a later income year.

      Expenditure as loss balance

      (3) If the member fund carries forward surplus expenditure in an income year, the member fund may treat some or all of the expenditure as a loss balance for the corresponding tax year.

      Defined in this Act: amount, deduction, income year, loss balance, master fund, multi-rate PIE, tax year.

    (3) Subsection (1) applies for the 2008–09 and 2009–10 income years.

    (4) Subsection (2) applies for the 2010–11 and later income years.

105 Investment funds: transfer of expenditure to master funds
  • (1) After section DV 5(7), the following is inserted:

    Amount of deduction when master fund is portfolio tax rate entity
    • (7B) Despite subsection (7), a master fund that is a portfolio tax rate entity is allowed a deduction for expenditure transferred to it by a member fund. However, the maximum amount transferred must be no more than the member fund's share of the entity's taxable income for the income year in which the amount is transferred, any excess being treated as not transferred.

    (2) Section DV 5(7B) is replaced by the following:

    Amount of deduction when master fund is multi-rate PIE
    • (7B) Despite subsection (7), a master fund that is a multi-rate PIE is allowed a deduction for expenditure transferred to it by a member fund. However, the maximum amount transferred must be no more than the member fund's share of the taxable income of the PIE for the income year in which the amount is transferred, any excess being treated as not transferred.

    (3) In section DV 5, in the list of defined terms, portfolio investor interest and portfolio tax rate entity are inserted.

    (4) In section DV 5, in the list of defined terms,—

    • (a) portfolio investor interest and portfolio tax rate entity are omitted:

    • (b) investor interest and multi-rate PIE are inserted.

    (5) Subsection (1) applies for the 2008–09 and 2009–10 income years.

    (6) Subsection (2) applies for the 2010–11 and later income years.

106 Formula for calculating maximum deduction
  • (1) After section DV 6(4), the following is added:

    Portfolio tax rate entities
    • (5) This section does not apply to an amount of expenditure transferred to a master fund that is a portfolio tax rate entity.

    (2) Section DV 6(5) is replaced by the following:

    Multi-rate PIEs
    • (5) This section does not apply to an amount of expenditure transferred to a master fund that is a multi-rate PIE.

    (3) In section DV 6, in the defined terms list, portfolio tax rate entity is inserted.

    (4) In section DV 6, in the defined terms list,—

    • (a) portfolio tax rate entity is omitted:

    • (b) multi-rate PIE is inserted.

    (5) Subsection (1) applies for the 2008–09 and 2009–10 income years.

    (6) Subsection (2) applies for the 2010–11 and later income years.

107 Carry forward of expenditure
  • (1) Section DV 7(1) is replaced by the following:

    When this section applies
    • (1) This section applies when a member superannuation fund incurs expenditure that is more than—

      • (a) the member fund and master fund agree can be transferred; or

      • (b) the maximum amount that can be transferred.

    Member fund carrying expenditure forward
    • (1B) The member fund may carry forward the expenditure for transfer in a later income year.

    (2) Subsection (1) applies for the 2008–09 and later income years.

108 Maori authorities: donations
  • (1) In section DV 12(1)(b), a society, institution, association, organisation, trust, or fund to which section LD 3(2) (Meaning of charitable or other public benefit gift) or schedule 32 (Recipients of charitable or other public benefit gifts) applies is replaced by a donee organisation.

    (2) In section DV 12, in the defined terms list, donee organisation is inserted.

109 New section DW 4 added
  • (1) After section DW 3, the following is added:

    DW 4 Deduction for general insurance outstanding claims reserve
    • When this section applies

      (1) This section applies for—

      • (a) an insurer who––

        • (i) uses IFRS 4, Appendix D for general insurance contracts:

        • (ii) is a life insurer who has general insurance contracts; and

      • (b) general insurance contracts, excluding contracts having premiums to which section CR 3 (Income of non-resident general insurer) applies.

      No deduction on account of claims

      (2) For an insurer's general insurance contracts, the insurer is denied a deduction relating to the insurer's outstanding claims liability or for a claim's expenditure or loss, except as provided by this section.

      Formula for insurer's OCR deduction

      (3) For an income year (the current year), an insurer is allowed a deduction for the amount by which zero is greater than the amount calculated using the formula—

      opening outstanding claims reserve
      − closing outstanding claims reserve.
       
      Definition of items in formula

      (4) In the formula,—

      • (a) opening outstanding claims reserve is—

        • (i) the amount of the insurer's closing outstanding claims reserve for the income year before the current year (the prior year); or

        • (ii) the amount of the insurer's reserve for outstanding claims liability, calculated at the end of the prior year, using the basis the insurer used for tax purposes in that prior year, if the current year is the first year that this section applies to the insurer:

      • (b) closing outstanding claims reserve is the amount of the insurer’s outstanding claims reserve, calculated at the end of the current year.

      Deduction for payments of current claims

      (5) The insurer is allowed a deduction for the amount of expenditure or loss of a claim paid to an insured under a general insurance contract for the income year.

      Link with subpart DA

      (6) This section supplements the general permission. The general limitations still apply.

      Defined in this Act: amount, deduction, general insurance contract, general limitation, general permission, IFRS 4, income year, insurer, life insurer, outstanding claims reserve.

    (2) Subsection (1) applies—

    • (a) for an insurer who uses IFRS 4,––

      • (i) for the 2009–10 and later income years, unless subparagraph (ii) applies:

      • (ii) for the first income year for which an insurer adopts IFRSs for the purposes of financial reporting and later income years, if that first income year is before the 2009–10 income year and the person chooses to use IFRS 4 in a return of income for that first year:

    • (b) for a life insurer,––

      • (i) on and after 1 July 2010, unless subparagraph (ii) applies:

      • (ii) for an income year that includes 1 July 2010 and later income years, if the life insurer chooses to apply the new life insurance rules in this Act in a return of income for the tax year corresponding to the first relevant income year.

110 Section DX 2 repealed
  • (1) Section DX 2 is repealed.

    (2) Subsection (1) applies for all income years beginning on or after 1 July 2009.

111 Prepayments
  • In section EA 3(7), sections CW 17 (Expenditure on account, and reimbursement, of employees) and CW 18 (Allowance for additional transport costs) is replaced by sections CW 17, CW 17B, CW 17C, and CW 18 (which relate to expenditure, reimbursement, and allowances of employees).

112 Meaning of trading stock
  • (1) In section EB 2(3)(e), Proceeds from certain disposals by portfolio investment entities or New Zealand Superannuation Fund is replaced by Proceeds from disposal of investment shares.

    (2) Section EB 2(3)(i) is replaced by the following:

    • (i) an emissions unit:

    • (j) a non-Kyoto greenhouse gas unit.

    (3) In section EB 2, in the list of defined terms,—

    • (a) ETS unit is omitted:

    • (b) emissions unit and non-Kyoto greenhouse gas unit are inserted.

113 Low-turnover valuation
  • (1) In section EB 13(2), YB 8 is replaced by YB 3.

    (2) Subsection (1) applies for the 2010–11 and later income years.

114 New heading and section EC 26B inserted
  • (1) After section EC 26, the following is inserted:

    Partnerships: cost price and national standard cost scheme

    EC 26B Entering partners' cost base
    • When this section applies

      (1) This section applies when an entering partner has acquired specified livestock that includes female breeding livestock for which section HG 10 (Disposal of livestock) applies, and the partners use the cost price method or the national standard cost scheme.

      Existing cost base

      (2) For the specified livestock, the entering partner is treated as having the same existing cost base that the exiting partner would have had for the purposes of the cost price method or national standard cost scheme for an income year, if they had not disposed of the interests.

      Addition to cost base

      (3) For the purposes of determining the value of the specified livestock at the end of an income year for the purposes of section EC 2, the entering partner must add to the existing cost base, described in subsection (2), the amount for the income year (the current year) calculated using the following formula:

       livestock cost base difference × current year count  
       allowed years. 
      Definition of items in formula

      (4) In the formula,––

      • (a) livestock cost base difference is the cost base that the entering partner would have for the specified livestock at the end of the income year in which the acquisition of the specified livestock occurred, ignoring subsection (2) reduced by the entering partner's existing cost base for the specified livestock at the end of that year, described in subsection (2). It must be a positive number:

      • (b) current year count,––

        • (i) is the allowed years reduced by the number of years between the current year and the income year in which the entering partner's acquisition of the specified livestock occurred, ignoring years in which the partners do not use the cost price method or national standard cost scheme (for example: current year count is 1, if the allowed years is 4, and the acquisition of the specified livestock occurred in the 2010–11 income year, and the current year is the 2013–14 income year, and the relevant method or scheme was used for all relevant income years):

        • (ii) may equal the allowed years (for example: the current year is the same year as the income year in which the entering partner's acquisition of the specified livestock occurred), but must not be a negative number:

      • (c) allowed years is––

        • (i) 4, if the partners acquire or dispose of any partnership interests that include any livestock after the entering partner's acquisition of the specified livestock and before the end of the income year in which that acquisition occurred; or

        • (ii) 5, if the partners do not acquire or dispose of any partnership interests that include any livestock after the entering partner's acquisition of the specified livestock and before the end of the income year in which that acquisition occurred.

      Defined in this Act: amount, cost price, dispose, income year, national standard cost scheme, partner, partner's interest, specified livestock.

    (2) Subsection (1) applies for the 2009–10 and later income years.

115 Valuation of excepted financial arrangements
  • (1) Section ED 1(5B) is replaced by the following:

    Certain emissions units not pooled with other types of emissions unit
    • (5B) No emissions unit described in 1 of the following paragraphs may be pooled for the purposes of subsection (5) with an emissions unit described in another of the paragraphs:

      • (a) pre-1990 forest land emissions units relating to pre-1990 forest land, if the holder of the units would derive income, other than exempt income and excluded income, from a disposal of the land without timber:

      • (b) post-1989 forest land emissions units:

      • (c) replacement forest land emissions units:

      • (d) pre-1990 forest land emissions units relating to pre-1990 forest land, if the holder of the units would derive no income other than exempt income and excluded income from a disposal of the land without timber:

      • (e) emissions units issued for no consideration—

        • (i) to which section ED 1B applies; and

        • (ii) that have not been assigned a cost under section ED 1B(3)(a).

    Exceptions: types of emissions units pooled with other types
    • (5C) Despite subsection (5B), emissions units described in paragraphs (a) to (c) of that subsection may be pooled for the purposes of subsection (5).

    (2) After section ED 1(7), the following is inserted:

    Valuation of emissions units issued for zero price
    • (7B) Despite subsection (1),—

      • (a) an emissions unit transferred under section 64, or Part 4 subpart 2, of the Climate Change Response Act 2002 for no payment of a price has a value of zero during the period beginning with the day of the transfer and ending before the end of the income year in which the transfer occurs:

      • (b) a forest land emissions unit has a value of zero at the end of each income year:

      • (c) a replacement forest land emissions unit has a value of zero at the end of each income year:

      • (d) an emissions unit to which section ED 1B applies has the value at the end of each income year that is given by that section.

    (3) Section ED 1(8B) is repealed.

    (4) In section ED 1, in the list of defined terms,—

    • (a) replacement ETS unit is omitted:

    • (b) emissions unit, excluded income, exempt income, forest land emissions unit, post-1989 forest land emissions unit, pre-1990 forest land, pre-1990 forest land emissions unit, and replacement forest land emissions unit are inserted.

116 New section ED 1B inserted
  • After section ED 1, the following is inserted:

    ED 1B Valuation of emissions units issued for zero price
    • What this section applies to

      (1) This section applies to emissions units, held by a person at the end of an income year, that—

      • (a) are transferred to the person under section 64, or Part 4, subpart 2 of the Climate Change Response Act 2002 for a price of zero; and

      • (b) are held continuously by the person to the end of the income year; and

      • (c) relate to a quantity (the unit-related quantity) of emissions, or emissions-related costs, of the person in a period (the emissions unit period) that ends in or after the income year; and

      • (d) are not forest land emissions units; and

      • (e) are not replacement forest land emissions units; and

      • (f) are not assigned a cost under subsection (3)(a) for an earlier income year.

      Value at end of income year

      (2) The value under section ED 1(7B) of the emissions units at the end of the income year is—

      • (a) zero, if the emissions unit period begins after the end of the income year; or

      • (b) the amount determined under subsection (3), if paragraph (a) does not apply and the emissions unit period ends after the end of the income year; or

      • (c) the market value of the emissions units at the end of the income year, if the emissions unit period ends in or at the end of the income year.

      Value if emissions unit period ends after end of income year

      (3) The value under section ED 1(7B) of the emissions units at the end of an income year referred to in subsection (2)(b) is,—

      • (a) for the number of the emissions units given by subsection (4), the market value of the emissions units at the end of the income year; or

      • (b) for the balance of the units, zero.

      Formula based on emissions

      (4) The number of units referred to in subsection (3)(a) is the number, treating negative numbers as equal to zero and ignoring fractions, calculated using the formula—

       held units – ﴾issued units × remaining quantity  ﴿.
       total quantity
      Definition of items in formula

      (5) The items in the formula are defined in subsections (6) to (9).

      Held units

      (6) Held units is the number of the issued units that have not been assigned a value under subsection (3)(a) for an earlier income year.

      Issued units

      (7) Issued units is the number of emissions units transferred under section 64, or Part 4 subpart 2, of the Climate Change Response Act 2002 in relation to the unit-related quantity for the emissions unit period.

      Remaining quantity

      (8) Remaining quantity is—

      • (a) if the total unit-related quantity for the person can be determined for each part of the emissions unit period included in an income year, the greater of the following amounts:

        • (i) the part of the total expected unit-related quantity for the emissions unit period that was not emitted or incurred before the end of the income year:

        • (ii) zero; or

      • (b) if paragraph (a) does not apply, the number of days in the emissions unit period after the end of the income year.

      Total quantity

      (9) Total quantity is,—

      • (a) if the total unit-related quantity for the person can be determined for each part of the emissions unit period included in an income year, the total unit-related quantity that was expected to be emitted or incurred for the emissions unit period; or

      • (b) if paragraph (a) does not apply, the number of days in the emissions unit period.

      Defined in this Act: emissions unit, income year.

117 Pool method: calculating amount of depreciation
  • (1) Section EE 21(5) to (8) are replaced by the following:

    Starting adjusted tax value
    • (5) Starting adjusted tax value is—

      • (a) the pool's adjusted tax value at the start of the income year, increased as applicable by the amount referred to in section EE 22(2)(b); or

      • (b) zero, if the pool did not exist at the start of the income year.

    Ending adjusted tax value
    • (6) Ending adjusted tax value is the pool's adjusted tax value at the end of the income year before the deduction of an amount of depreciation loss for the pool for the income year. The value is, as applicable,—

      • (a) increased by the amounts referred to in section EE 22(1) and (2)(a):

      • (b) decreased by the amount referred to in section EE 22(3).

    Months
    • (7) Months, for a person, is the number of whole or part months in their income year, and the number may be more or less than 12.

    (2) Subsection (1) applies for the 2008–09 and later income years.

118 Economic rate for plant, equipment, or building, with high residual value
119 Annual rate for item acquired in person's 1995–96 or later income year
  • (1) Section EE 31(2)(a) is replaced by the following:

    • (a) the item's economic rate, special rate, or provisional rate, for an item not described in either paragraph (b) or (c):.

    (2) In section EE 31(2)(b), the words before subparagraph (i) are replaced by the following:

    • (b) the item's economic rate, special rate, or provisional rate, multiplied by 1.2, for an item that—.

120 Meaning of adjusted tax value
  • (1) Section EE 55(1)(b) is replaced by the following:

    • (b) for a pool, the total adjusted tax value determined under section EE 21.

    (2) Subsection (1) applies for the 2008–09 and later income years.

121 Employer's superannuation contribution tax
  • (1) In section EF 2, employer's superannuation contributions is replaced by employer's superannuation cash contributions.

    (2) In section EF 2, in the list of defined terms, employer's superannuation contribution is replaced by employer's superannuation cash contribution.

    (3) Subsection (1) applies for the 2008–09 and later income years.

122 Section EG 3 repealed
  • (1) Section EG 3 is repealed.

    (2) Subsection (1) applies for the 2010–11 and later income years.

123 Expenditure incurred in acquiring film rights in feature films
  • (1) Section EJ 4(1)(b) is replaced by the following:

    • (b) the deduction is allowed under section DS 2 (Film production expenditure) and the film is one for which a government screen production payment is made.

    (2) In section EJ 4, in the list of defined terms, government screen production payment is inserted.

124 Expenditure incurred in acquiring film rights in films other than feature films
  • (1) Section EJ 5(1)(b) is replaced by the following:

    • (b) the deduction is allowed under section DS 2 (Film production expenditure) and the film is one for which a government screen production payment is made.

    (2) In section EJ 5, in the list of defined terms, government screen production payment is inserted.

125 Film production expenditure for New Zealand films having no large budget screen production grant
  • (1) In the heading to section EJ 7, large budget screen production grant is replaced by government screen production payment.

    (2) Section EJ 7(1)(a) is replaced by the following:

    • (a) the film is not one for which a government screen production payment is made; and.

    (3) In section EJ 7, in the list of defined terms, government screen production payment is inserted.

126 Film production expenditure for other films having no large budget screen production grant
  • (1) In the heading to section EJ 8, large budget screen production grant is replaced by government screen production payment.

    (2) Section EJ 8(1)(a) is replaced by the following:

    • (a) the film is not one for which a government screen production payment is made; and.

    (3) In section EJ 8, in the list of defined terms, government screen production payment is inserted.

127 Section EJ 12 replaced
  • (1) Section EJ 12 is replaced by the following:

    EJ 12 Petroleum development expenditure: default allocation rule
    • When this section applies

      (1) This section applies to a petroleum miner's petroleum development expenditure that relates to petroleum mining developments in a permit area and that is incurred on or after 1 April 2008, when section EJ 12B does not apply to the expenditure.

      Default allocation rule

      (2) For the purposes of section DT 5(2)(a) (Petroleum development expenditure), a deduction for the petroleum development expenditure is allocated in equal amounts over a period of 7 income years. The period of 7 years starts with the income year in which the expenditure is incurred.

      Relationship with other petroleum mining provisions

      (3) Sections EJ 13 to EJ 16 override subsection (2). Sections DT 7, DT 8, DT 10, DT 11, DT 16, and IS 5 (which relate to petroleum miners) override this section.

      Defined in this Act: amount, deduction, income year, permit area, petroleum development expenditure, petroleum miner, petroleum mining development

    EJ 12B Petroleum development expenditure: reserve depletion method
    • When this section applies

      (1) This section applies to a petroleum miner's petroleum development expenditure that relates to petroleum mining developments in a permit area, when the expenditure is incurred––

      • (a) on or after 1 April 2008; and

      • (b) an election to apply this section, described in subsection (2), is made for the permit area.

      Choice: first year of commercial production and later years

      (2) An election to apply this section may be made by a petroleum miner for a permit area, in a return of income for an income year, only if that income year is the first one in which petroleum is produced in commercial quantities in the permit area. The election is irrevocable, and applies this section to petroleum development expenditure that relates to petroleum mining developments in the relevant permit area for the income year and later income years.

      Reserve depletion method expense allocation rule

      (3) For the purposes of section DT 5(2)(b) (Petroleum development expenditure), the deduction allocated to an income year for the petroleum development expenditure that relates to a petroleum mining development in the relevant permit area is the amount calculated using the following formula, if the amount is positive:

      (reserve expenditure − previous expenditure)×reserve depletion for the year
      probable reserves.
      Definition of items in formula

      (4) The items in the formula are defined in subsections (5) to (8).

      Reserve expenditure

      (5) Reserve expenditure is the total petroleum development expenditure that relates to the petroleum mining development for the income year or an earlier income year to which this section applied.

      Previous expenditure

      (6) Previous expenditure is the total petroleum development expenditure that relates to the petroleum mining development and that has been allocated to an earlier income year to which this section applied.

      Reserve depletion for the year

      (7) Reserve depletion for the year is the amount, expressed in barrels of oil equivalent, of petroleum produced from the petroleum mining development for the income year.

      Probable reserves

      (8) Probable reserves is the amount, expressed in barrels of oil equivalent, of the reserves of petroleum for the petroleum mining development that are not yet proven but are estimated, at the beginning of the income year, to have a better than 50% chance of being technically and commercially producible.

      Relationship with other petroleum mining provisions

      (9) Sections EJ 13 to EJ 16 override subsection (3). Sections DT 7, DT 8, DT 10, DT 11, DT 16, and IS 5 (which relate to petroleum miners) override this section.

      Defined in this Act: amount, deduction, income year, permit area, petroleum development expenditure, petroleum miner, petroleum mining development.

    (2) Subsection (1) applies for expenditure incurred on or after 1 April 2008.

128 Relinquishing petroleum mining permit
  • (1) In section EJ 13(2)(b), section EJ 12(1) is replaced by section EJ 12(2) or EJ 12B(3).

    (2) Subsection (1) applies for expenditure incurred on or after 1 April 2008.

129 New sections EJ 13B and EJ 13C inserted
  • (1) After section EJ 13, the following is inserted:

    EJ 13B Dry well drilled
    • When this section applies

      (1) This section applies when—

      • (a) the petroleum miner has petroleum development expenditure for a well, the drilling of which stops in an income year, and, from the time of stopping, the well—

        • (i) will never produce petroleum in commercial quantities; and

        • (ii) is abandoned; and

      • (b) part of a deduction under section DT 5 (Petroleum development expenditure) for the petroleum development expenditure described in paragraph (a) has not been allocated under section EJ 12 or EJ 12B.

      Allocation

      (2) The part of the deduction described in subsection (1) is allocated to the income year.

      Defined in this Act: amount, deduction, income year, petroleum development expenditure

    EJ 13C Well not producing
    • When this section applies

      (1) This section applies when—

      • (a) the petroleum miner has petroleum development expenditure for a well that, in an income year—

        • (i) stops producing petroleum in commercial quantities; and

        • (ii) is abandoned; and

      • (b) the petroleum miner has elected to apply section EJ 12B for the petroleum development expenditure described in paragraph (a) before the start of the income year; and

      • (c) part of a deduction under section DT 5 (Petroleum development expenditure) for the petroleum development expenditure described in paragraphs (a) and (b) has not been allocated under section EJ 12B.

      Allocation

      (2) The part of the deduction described in subsection (1) is allocated to the income year.

      Defined in this Act: amount, deduction, income year, petroleum development expenditure.

    (2) Subsection (1) applies for expenditure incurred on or after 1 April 2008.

130 Disposal of petroleum mining asset
  • (1) Section EJ 15(2)(b) is replaced by the following:

    • (b) it has not been allocated under section EJ 12 or EJ 12B to the income year in which the miner disposes of the asset or to an earlier income year.

    (2) Subsection (1) applies for expenditure incurred on or after 1 April 2008.

131 Sections EJ 19 and EJ 20 replaced
  • (1) Sections EJ 19 and EJ 20 are replaced by the following:

    EJ 20 Meaning of petroleum mining development
    • Meaning

      (1) In sections EJ 12 and EJ 12B, petroleum mining development means a place where 1 or more of the activities described in subsection (2) is carried out.

      Activities: inclusions

      (2) The activities are those carried out in connection with—

      • (a) developing a permit area for producing petroleum:

      • (b) producing petroleum:

      • (c) processing, storing, or transmitting petroleum before its dispatch to a buyer, consumer, processor, refinery, or user:

      • (d) removal or restoration operations.

      Activities: exclusions

      (3) The activities do not include further treatment to which all the following apply:

      • (a) it occurs after the well stream has been separated and stabilised into crude oil, condensate, or natural gas; and

      • (b) it is done—

        • (i) by liquefaction or compression; or

        • (ii) for the extraction of constituent products; or

        • (iii) for the production of derivative products; and

      • (c) it is not treatment at the production facilities.

      Defined in this Act: permit area, petroleum, removal or restoration operations.

    (2) Subsection (1) applies for expenditure incurred on or after 1 April 2008.

132 What is an excepted financial arrangement?
  • (1) In section EW 5(2), financial arrangement is replaced by financial arrangement to the extent to which it is not life financial reinsurance.

    (2) Section EW 5(3B) is replaced by the following:

    Emissions unit
    • (3B) An emissions unit is an excepted financial arrangement.

    Non-Kyoto greenhouse gas unit
    • (3C) A non-Kyoto greenhouse gas unit is an excepted financial arrangement.

    (3) In section EW 5(8), insurance contract is replaced by insurance contract to the extent to which it is not life financial reinsurance.

    (4) In section EW 5, in the list of defined terms,—

    • (a) ETS unit is omitted:

    • (b) emissions unit and non-Kyoto greenhouse gas unit are inserted.

    (5) In section EW 5, in the list of defined terms, life financial reinsurance is inserted.

    (6) Subsections (1) and (3) apply—

    • (a) on and after 1 July 2010, unless paragraph (b) applies; or

    • (b) for an income year that includes 1 July 2010 and later income years, if the life insurer chooses to apply the new life insurance rules in this Act in a return of income for the tax year corresponding to the first relevant income year.

133 What spreading methods do
  • After section EW 14(2)(d), the following is inserted:

    • (e) a financial reporting method, to which sections EW 21 and EW 23 are relevant; or.

134 Applying IFRSs to financial arrangements
  • After section EW 15B(2), the following is added:

    Functional currency
    • (3) Even if another currency may be used as the functional currency under IFRSs, the methods must be applied using New Zealand dollars.

    Financial statements
    • (4) Unless the context otherwise requires, references to IFRSs in sections EW 15D to EW 15I are references to IFRS rules used to prepare the person's financial statements.

135 IFRS financial reporting method
  • (1) In section EW 15D(2)(a), income year is replaced by income year. However, when the fair value method is used, adjustments for financial arrangements held by the person are excluded from this paragraph, if the financial arrangements are not derivative instruments and the person's business includes dealing in those financial arrangements:.

    (2) After section EW 15D(2)(a), the following is inserted:

    • (ab) borrowing costs are not capitalised under NZIAS 23:.

    (3) After section EW 15D(2), the following is inserted:

    Fair value method not used for certain financial arrangements
    • (2B) A person must not use the fair value method for a financial arrangement if—

      • (a) the financial arrangement is treated under IFRSs by the person as a hedge of another financial arrangement; and

      • (b) the person uses a method other than the IFRS financial reporting method for the other financial arrangement.

    (4) In section EW 15D, in the list of defined terms, derivative instrument and NZIAS 23 are inserted.

    (5) Subsection (2) does not apply for a taxpayer and an income year if the taxpayer has,—

    • (a) before 30 June 2009, filed a return of income for the income year; and

    • (b) taken a tax position in the return which ignores subsection (2).

136 Determination alternatives
  • (1) Section EW 15E(1)(c) is replaced by the following:

    • (c) the financial arrangement––

      • (i) is not treated under IFRSs by the person as a hedge; or

      • (ii) is treated under IFRSs by the person as a hedge of other financial arrangements, for each of which the person does not use the fair value method.

    (2) In section EW 15E(2), the words before paragraph (a) are replaced by the following:

    • (2) The person must use 1 of the following methods modified, as applicable, under subsection (3) or (3B):.

    (3) Before section EW 15E(2)(a), the following is inserted:

    • (aa) Determination G3: Yield to maturity, but only if the financial arrangement is denominated in New Zealand currency and is not a derivative instrument. When applying Determination G3, Determination G25: Variation in the terms of a financial arrangement must be used:.

    (4) After section EW 15E(3), the following is added:

    Modifications
    • (3B) For a determination alternative that is Determination G27, the allocation is modified as follows:

      • (a) method C must be used, and not methods A, B, or D:

      • (b) for method C, if relevant, Determination G9C and not Determination G9A must be used.

    (5) In section EW 15E, in the list of defined terms, derivative instrument and New Zealand are inserted.

    (6) Subsections (2) and (4) apply for the 2009–10 and later income years.

137 Expected value method
  • (1) Section EW 15F(1)(c) is replaced by the following:

    • (c) the financial arrangement––

      • (i) is not treated under IFRSs by the person as a hedge; or

      • (ii) is treated under IFRSs by the person as a hedge of other financial arrangements, for each of which the person does not use the fair value method; and.

    (2) Section EW 15F(1)(d) is replaced by the following:

    • (d) the person and all companies in a group of companies to which the person belongs have chosen to use the expected value method and have notified the Commissioner at the time of filing a return of income.

    (3) After section EW 15F(1), the following is inserted:

    Exception for some group members and financial arrangements
    • (1B) A person who is a member of a group of companies and has notified an election under subsection (1)(d) is not required under this section to use the expected value method for a financial arrangement if—

      • (a) the person does not have a business of a substantially similar nature to a business of another company in the group; and

      • (b) the financial arrangement is with other parties, of which—

        • (i) none are associated with the person or a member of the group; or

        • (ii) all are associated with the person and use the method used by the person for the arrangement.

    (4) Section EW 15F(3) is repealed.

    (5) In section EW 15F, in the list of defined terms, associated person is inserted.

    (6) Subsection (4) applies for the 2009–10 and later income years.

138 Modified fair value method
  • (1) Section EW 15G(1)(c) is replaced by the following:

    • (c) the financial arrangement––

      • (i) is not treated under IFRSs by the person as a hedge; or

      • (ii) is treated under IFRSs by the person as a hedge of other financial arrangements, for each of which the person does not use the fair value method; and.

    (2) Section EW 15G(1)(d) is replaced by the following:

    • (d) the person and all companies in a group of companies to which the person belongs have chosen to use the modified fair value method and have notified the Commissioner at the time of filing a return of income.

    (3) After section EW 15G(1), the following is inserted:

    Exception for some group members and financial arrangements
    • (1B) A person who is a member of a group of companies and has notified an election under subsection (1)(d) is not required under this section to use the modified fair value method for a financial arrangement if—

      • (a) the person does not have a business of a substantially similar nature to a business of another company in the group; and

      • (b) the financial arrangement is with other parties, of which—

        • (i) none are associated with the person or a member of the group; or

        • (ii) all are associated with the person and use the method used by the person for the arrangement; and

      • (c) subsection (3) does not require the person to use the modified fair value for the financial arrangement.

    (4) Section EW 15G(2), other than the heading, is replaced by the following:

    • (2) The person must use the fair value method, modified so that the following are not required to be allocated to an income year:

      • (a) an amount allocated by the person to equity reserves under IFRSs for the financial arrangement:

      • (b) an amount not allocated by the person to equity reserves under IFRSs for the financial arrangement, if—

        • (i) the person and another person (the other person) are members of the same wholly-owned group; and

        • (ii) the person and the other person are members of the same group consolidated under IFRSs; and

        • (iii) the financial arrangement is related to an arrangement (the other arrangement) of the other person; and

        • (iv) the other person does not use the fair value method for the other arrangement; and

        • (v) the group consolidated under IFRSs makes an allocation, to equity reserves under IFRSs, corresponding to the amount.

    (5) After section EW 15G(2), the following is inserted:

    Some financial arrangements with amounts allocated to equity reserves
    • (3) A person who is a member of a wholly-owned group and of a group consolidated under IFRSs (the consolidated group) must use the modified fair value method for a financial arrangement if—

      • (a) the person or the consolidated group allocates an amount to equity reserves under IFRSs for the financial arrangement; and

      • (b) a member of the consolidated group, under subsection (2)(b), does not allocate to the income year an amount for a financial arrangement.

    (6) In section EW 15G, in the list of defined terms, wholly-owned group is inserted.

139 Mandatory use of some determinations
  • (1) In section EW 15H(1)(d), expenditure: is replaced by expenditure. However, when applying Determination G29, Determination G9C, and not Determination G9A, must be used:.

    (2) Subsection (1) applies for the 2009–10 and later income years.

140 Mandatory use of yield to maturity method for some arrangements
  • (1) After section EW 15I(1)(b)(ii), the following is inserted:

    • (iib) is, under NZIAS 17 and in the person's financial statements, classified as an operating lease; or.

    (2) In section EW 15I, in the list of defined terms, NZIAS 17 is inserted.

141 New section EW 21 inserted
  • After section EW 20, the following is inserted:

    EW 21 Financial reporting method
    • A person who is a party to a financial arrangement may use a financial reporting method if––

      • (a) the person cannot use the yield to maturity method or an alternative; and

      • (b) the person––

        • (i) may not use the straight-line method or a market valuation method; or

        • (ii) may use the straight-line method or a market valuation method but chooses not to do so; and

      • (c) the person is not required to use a method under section EW 15B; and

      • (d) the Commissioner has not made a determination for the financial arrangement under section 90AC(1)(d) of the Tax Administration Act 1994; and

      • (e) the method conforms with commercially acceptable practice; and

      • (f) the method is also used by the person for financial reporting purposes for financial arrangements that are the same as, or similar to, the arrangement (although section EW 23 may apply if the method is not used in this way); and

      • (g) the method allocates a reasonable amount to each income year over the financial arrangement's term.

      Defined in this Act: amount, Commissioner, financial arrangement, income year.

142 Default method
  • In section EW 22(c), alternative is replaced by alternative, or a financial reporting method.

143 Failure to use method for financial reporting purposes
  • (1) In section EW 23(1), and EW 20(2)(f) is replaced by EW 20(2)(f), and EW 21(f).

    (2) In section EW 23(2), and EW 20(2)(f) is replaced by EW 20(2)(f), and EW 21(f).

144 Consistency of use of IFRS method
  • (1) In section EW 25B(3), the last sentence is replaced by the following:

    • “However, those sections do not apply if the change is—

      • (a) from the fair value method; and

      • (b) in respect of a financial arrangement that is not subject to a creditor workout.

    (2) After section EW 25B(3), the following is added:

    Modification
    • (4) Section EZ 52B (Consistency of use of IFRS method: Determination G3 change allowed) modifies subsection (2).

    (3) In section EW 25B, in the list of defined terms, “creditor workout” is inserted.

145 Change of spreading method
  • (1) Section EW 26(1) is replaced by the following:

    Requirements for change from straight-line and market value method
    • (1) A person may change from the straight-line method or the market value method if they change to a method that is not a method for IFRS under section EW 15B, and the Commissioner has given written authorisation for the change.

    (2) In section EW 26(2), the first sentence is replaced by A person may change from any spreading method to any other method if the Commissioner's written authorisation under subsection (1) is not required for the change, and they have a sound commercial reason for the change.

    (3) Section EW 26(6), other than the heading, is replaced by the following:

    • (6) Section EW 29(13) applies, and subsections (3) and (4) do not apply, to a financial arrangement, if the person’s change of spreading method involves a change—

      • (a) from the fair value method and the financial arrangement is not subject to a creditor workout:

      • (b) from the market value method to a method for IFRS under section EW 15B.

    (4) Section EW 26(7)(a) is replaced by the following:

    • (a) starting or stopping the use of IFRSs to prepare financial statements at the same time as starting or stopping the use of a method for IFRS under section EW 15B:.

    (5) In section EW 26, in the list of defined terms, “creditor workout” is inserted.

146 When calculation of base price adjustment required
  • (1) Section EW 29(13), other than the heading, is replaced by the following:

    • (13) A party to a financial arrangement must calculate a base price adjustment, at the date of a change for the financial arrangement, where that change involves a change—

      • (a) from the fair value method and the financial arrangement is not subject to a creditor workout:

      • (b) from the market value method to a method for IFRS under section EW 15B.

    (2) In section EW 29, in the list of defined terms, “creditor workout” is inserted.

147 Base price adjustment formula
  • (1) In section EW 31(7), in the words before the paragraphs,––

    • (a) ignoring non-contingent fees, is omitted:

    • (b) , ignoring–– is replaced by . For the purposes of this subsection, the following are ignored:.

    (2) In section EW 31(9)(a), , under section CC 3, is omitted.

    (3) Subsections (1) and (2) apply for the 2008–09 and later income years.

148 Consideration when debtor released as condition of new start grant
  • (1) Section EW 46(1), other than the heading, is replaced by the following:

    • (1) This section applies when in an income year of a person—

      • (a) the person carries on a business of—

        • (i) animal husbandry:

        • (ii) poultry-keeping:

        • (iii) beekeeping:

        • (iv) breeding horses other than bloodstock:

        • (v) horticulture:

        • (vi) cropping; and

      • (b) the person is paid a new start grant for the business for an event that is declared to be an emergency event; and

      • (c) the person incurs a liability to make a payment under a financial arrangement—

        • (i) in carrying on the business; and

        • (ii) before the declaration of the emergency event; and

      • (d) the liability is forgiven or otherwise remitted—

        • (i) as a prerequisite for the payment of the new start grant; and

        • (ii) before the date that is 18 months after the end of the period for which the declaration applies; and

      • (e) in the absence of this section, the amount of the remitted liability would be income of the person.

    (2) In section EW 46, in the list of defined terms,––

    • (a) qualifying event is omitted:

    • (b) emergency event is inserted.

149 Meaning of controlled foreign company
  • (1) In section EX 1(2)(a), foreign investment vehicle is replaced by foreign PIE equivalent.

    (2) Section EX 1(2)(b)(ii) is replaced by the following:

    • (ii) an entity that qualifies for PIE status:.

    (3) Subsections (1) and (2) apply for the 2010–11 and later income years.

150 Direct control interests
  • In section EX 5(5)(c), debentures) is replaced by debentures), FA 2B (Stapled debt securities),.

151 Direct income interests
  • In section EX 9(6)(c), debentures) is replaced by debentures), FA 2B (Stapled debt securities),.

152 Associates and 10% threshold
  • (1) In section EX 15(1), section EX 14 is replaced by sections CD 45, CQ 2, EX 14, EX 21, EX 34, EX 58, and LL 9.

    (2) In section EX 15(1), EX 34, EX 58, and LL 9. is replaced by EX 34, and EX 58.

    (3) Subsection (2) applies for all income years beginning on or after 1 July 2009.

153 New section EX 18A inserted
  • (1) After the heading before section EX 18, the following is inserted:

    EX 18A Scheme for finding person's attributed CFC income or loss
    • Formula and rules for calculation

      (1) The attributed CFC income or loss of a person (an interest holder) holding an income interest in a CFC, for the purposes of the general rules in sections CQ 2(1) and DN 2(1) (which relate to attributed CFC income or loss), is found for the CFC and an accounting period from—

      • (a) the formula in section EX 18, which uses the interest holder's income interest and the CFC's net attributable CFC income or loss determined as described in subsection (2):

      • (b) the interest holder's additional CFC attributed income under section EX 19:

      • (c) the reduction in the interest holder's attributed CFC loss under section EX 20.

      Determination of attributed CFC income or loss from attributable CFC amount

      (2) An interest holder with an income interest of a fraction (the fraction) in a CFC with an attributable CFC amount under section EX 20B for an accounting period has under section EX 18, for the CFC and accounting period,—

      • (a) attributed CFC income or loss equal to the fraction of the CFC's net attributable CFC income or loss under sections EX 20C to EX 20E and the rules in sections EX 21 and EX 24 to EX 27, if paragraph (b) does not apply:

      • (b) no attributed CFC income or attributed CFC loss, if the CFC is—

        • (i) a non-attributing active CFC under section EX 21B, determined as described in subsection (3):

        • (ii) a non-attributing Australian CFC under section EX 22.

      Non-attributing active CFCs

      (3) Whether a CFC is a non-attributing active CFC is determined under section EX 21B using—

      • (a) a test in—

        • (i) section EX 21D, if the interest holder does not use a test referred to in subparagraph (ii); or

        • (ii) section EX 21E, if the CFC has accounts prepared to a standard meeting the requirements of section EX 21C and the interest holder chooses to use a test in that section based on those accounts; and

      • (b) the rules in sections EX 21 and EX 24 to EX 27.

      Defined in this Act: accounting period, attributable CFC amount, attributed CFC income, attributed CFC loss, CFC, non-attributing active CFC, non-attributing Australian CFC.

    (2) Subsection (1) applies for all income years beginning on or after 1 July 2009.

154 Formula for calculating attributed CFC income or loss
  • (1) In the formula in section EX 18, branch equivalent income is replaced by net attributable CFC income.

    (2) In section EX 18, in the list of defined terms,—

    • (a) branch equivalent income is omitted:

    • (b) net attributable CFC income is inserted.

    (3) Subsection (1) applies for all income years beginning on or after 1 July 2009.

155 Taxable distribution from non-complying trust
  • (1) In section EX 19(1)(b), branch equivalent income is replaced by net attributable CFC income.

    (2) In section EX 19(2), branch equivalent income is replaced by net attributable CFC income.

    (3) Section EX 19(5) is repealed.

    (4) In section EX 19, in the list of defined terms,—

    • (a) branch equivalent income is omitted:

    • (b) net attributable CFC income is inserted.

    (5) Subsections (1) to (3) apply for all income years beginning on or after 1 July 2009.

156 New heading and sections EX 20B to EX 20E inserted
  • (1) After section EX 20, the following is inserted:

    Attributable CFC amount and net attributable CFC income or loss

    EX 20B Attributable CFC amount
    • Attributable CFC amount

      (1) Attributable CFC amount, for an accounting period and a CFC, means the amount calculated under the rules in section EX 21 using the formula—

       gross + arrangement. 
      Definition of items in formula

      (2) The items in the formula in subsection (1) are defined in subsections (3) and (4).

      Gross

      (3) Gross is the total amount of income derived in the accounting period by the CFC that is 1 or more of the following:

      • (a) a dividend that is paid in relation to rights that are a direct income interest of less than 10% in a foreign company and are described in—

        • (i) section EX 31:

        • (ii) section EX 32:

        • (iii) section EX 36:

        • (iv) section EX 37:

        • (v) section EX 37B:

        • (vi) section EX 39:

      • (b) a dividend that is paid by a company resident in New Zealand to the extent to which the dividend is not fully imputed:

      • (c) an amount that is a deductible foreign equity distribution or a distribution for fixed-rate foreign equity:

      • (d) a royalty of a type referred to in subsection (5):

      • (e) rent of a type referred to in subsection (6):

      • (f) income from a business of general insurance or life insurance that is a premium under an insurance contract or reinsurance contract:

      • (g) income from a life insurance policy of a type referred to in subsection (8):

      • (h) income from the supply of personal services of a type referred to in subsection (9):

      • (i) income from the disposal of revenue account property that is a share, other than a share referred to in subsection (10):

      • (j) income from the disposal of revenue account property that is an option to acquire or dispose of a share:

      • (k) income from the disposal of revenue account property that is—

        • (i) not a share, financial arrangement, or life insurance policy; and

        • (ii) used by the CFC with a purpose or effect of giving rise to income of the CFC referred to in another paragraph of this subsection:

      • (l) income from a service, other than a telecommunications service, to the extent to which the service is physically performed in New Zealand:

      • (m) income from a service relating to the use of equipment to provide a telecommunications service, to the extent to which the equipment is at the time—

        • (i) physically located outside any country or territory; and

        • (ii) owned by the CFC or by another CFC that is associated with the CFC; and

        • (iii) not a mobile telephone handset or a radio receiver and transmitter for a ship or aircraft:

      • (n) income from a telecommunications service to the extent to which the service is physically performed in New Zealand and is not described in subsection (11).

      Arrangement income

      (4) Arrangement is the total for the CFC and the accounting period of amounts of income under section CC 3 (Financial arrangements) for—

      • (a) an arrangement that—

        • (i) is a financial arrangement, or a short-term agreement for sale and purchase for which the CFC has made an election under section EW 8 (Election to treat certain excepted financial arrangements as financial arrangements); and

        • (ii) is not a derivative instrument; and

        • (iii) is not referred to in subsection (12):

      • (b) a derivative instrument—

        • (i) that is held in the course of a business of the CFC for the purpose of dealing with the derivative instrument:

        • (ii) that is not entered in the ordinary course of a business of the CFC:

        • (iii) to the extent that the income is from a hedging relationship, of a type referred to in NZIAS 39, with income of the CFC referred to in subsection (3) or paragraph (a) or with a transaction producing such income of the CFC.

      Attributable CFC amount: royalties

      (5) A royalty derived by a CFC is included in an attributable CFC amount under subsection (3)(d) if none of the following are satisfied:

      • (a) the CFC is regularly engaged in creating, developing, or adding value to property that produces royalties and the royalty is—

        • (i) paid by a person who is not associated with the CFC under section YB 2 (Two companies with common control); and

        • (ii) from property that is not linked to New Zealand under subsection (13); and

        • (iii) from property that the CFC has created or developed or to which the CFC has added substantial value:

      • (b) the CFC is regularly engaged in creating, developing, or adding value to property that produces royalties and the royalty is—

        • (i) paid by a person who is associated with the CFC under section YB 2; and

        • (ii) from property that is not linked to New Zealand under subsection (13); and

        • (iii) from property that the CFC has created or developed, or to which the CFC has added substantial value; and

        • (iv) an arm's length amount determined under section GC 13 (Calculation of arm's length amounts) for the arrangement between the CFC and the associated person:

      • (c) the royalty is—

        • (i) paid by a person who would be an associated non-attributing active CFC in the absence of this paragraph and subsections (7)(c) and (12)(a); and

        • (ii) from property that is not linked to New Zealand under subsection (13):

      • (d) the royalty is—

        • (i) paid to the CFC by a person who is not associated with the CFC under section YB 2, or by a CFC associated with the CFC under section YB 2 that has received a corresponding royalty payment from such a person; and

        • (ii) from property owned by a New Zealand resident who is not treated as a non-resident under a double tax agreement; and

        • (iii) from property licensed to the CFC by the New Zealand resident for an arm's length amount determined under section GC 13 for the arrangement between the CFC and the New Zealand resident.

      Attributable CFC amount: rent

      (6) Rent derived by a CFC is included in an attributable CFC amount under subsection (3)(e) if the rent is not of a type referred to in subsection (7) and is from—

      • (a) a lease or sublease of land:

      • (b) a lease or sublease of personal property:

      • (c) a licence to use intangible property:

      • (d) a hire or bailment.

      Attributable CFC amount: exclusions from rent

      (7) Rent derived by a CFC from a source referred to in subsection (6) is not included in an attributable CFC amount under subsection (3)(e) if the rent is—

      • (a) from land in a country or territory under the laws of which the CFC is liable to income tax on the CFC's income because of its domicile, residence, place of incorporation, or centre of management:

      • (b) from property other than land, to the extent to which the rent relates to the use of the property in a country or territory referred to in paragraph (a):

      • (c) paid by a person who would be an associated non-attributing active CFC in the absence of this paragraph and subsections (5)(c) and (12)(a):

      • (d) a payment under a hire purchase agreement:

      • (e) a payment under a finance lease:

      • (f) a royalty:

      • (g) a payment under a licence to use intangible property that—

        • (i) is not a royalty; and

        • (ii) would not be included in an attributable CFC amount under subsection (5) if treated as a royalty for the purposes of that subsection.

      Attributable CFC amount: income from life insurance contract

      (8) Income from a life insurance policy is included in an attributable CFC amount under subsection (3)(g) if the income is not included in a calculation of FIF income or loss and is—

      • (a) a distribution, if the life insurance policy is not intended to compensate the CFC for financial losses arising from the death or extended incapacity of a specified employee or member involved in the CFC's business:

      • (b) a distribution that is not intended to compensate the CFC for financial losses arising from the death or extended incapacity of a specified employee or member involved in the CFC's business, if the life insurance policy is intended to compensate the CFC for such losses:

      • (c) income from a disposal of the life insurance policy, if the policy is revenue account property.

      Attributable CFC amount: income from personal services

      (9) Income derived by a CFC from the supply of personal services is included in an attributable CFC amount under subsection (3)(h) if the personal services are performed by another person (the working person) and—

      • (a) the working person is a New Zealand resident; and

      • (b) the personal services are not essential support for a product supplied by the CFC; and

      • (c) the working person is associated with the CFC under section YB 5 (Company and non-corporate 25% interest holder) at the time the services are performed or is a relative, at the beginning of the accounting period, of a person associated with the CFC under section YB 5; and

      • (d) 80% or more of the CFC's total income in the accounting period from supplying personal services is derived through personal services meeting the requirements of paragraph (a) performed by working persons meeting the requirements of paragraph (b); and

      • (e) to derive the income, the CFC uses a business structure that requires depreciable property having, at the end of the accounting period, a total cost under section GB 28(7) (Interpretation of terms used in section GB 27) less than or equal to the greater of $75,000 and 25% of the CFC's total income from personal services performed in the accounting period.

      Exclusions from attributable CFC amount: shares

      (10) Income derived by a CFC from the disposal of a share that is revenue account property is not included in an attributable CFC amount under subsection (3)(i) if the CFC's FIF income or loss from the share in the period ending with the disposal is calculated using—

      • (a) the comparative value method:

      • (b) the deemed rate of return method:

      • (c) the fair dividend rate method:

      • (d) the cost method.

      Exclusions from attributable CFC amount: telecommunications services in New Zealand

      (11) Income of a CFC from a telecommunications service physically performed in New Zealand is not included in an attributable CFC amount under subsection (3)(n) if—

      • (a) the service is the transmission, emission, or reception of information between New Zealand and the country or territory in which the CFC is liable to income tax on its income because of its domicile, residence, place of incorporation, or centre of management; and

      • (b) the CFC is a network operator under the Telecommunications (Interception Capability) Act 2004 or—

        • (i) a person who is such a network operator holds an income interest of 50% or more in the CFC:

        • (ii) a person who holds a voting interest of 50% or more in such a network operator holds an income interest of 50% or more in the CFC; and

      • (c) the service is not performed using equipment that at the time is physically located in New Zealand and is in the possession of the CFC or of another CFC that is associated with the CFC; and

      • (d) the service is not performed by a person who at the time is physically located in New Zealand and is an employee or contractor of the CFC or of another CFC that is associated with the CFC.

      Exclusions from attributable CFC amount: income from financial arrangements other than derivative instruments

      (12) Income of a CFC from a financial arrangement or excepted financial arrangement that is referred to in subsection (4)(a)(i) is not included in an attributable CFC amount under subsection (4)(a) if the financial arrangement or agreement is—

      • (a) an agreement by the CFC to lend money to a person who would be an associated non-attributing active CFC in the absence of this paragraph and subsections (5)(c) and (7)(c):

      • (b) an agreement for the sale or purchase of property or services or a hire purchase agreement—

        • (i) entered in the ordinary course of business by the CFC:

        • (ii) for property or services produced or used by the CFC in business.

      Royalties: property linked to New Zealand

      (13) Property giving rise to a royalty is linked to New Zealand at a time in an accounting period for the purposes of subsection (5) if the property meets the requirements of subsection (14) at a time in the period—

      • (a) beginning—

        • (i) at the time the property was created, if the property has not since met the requirements of subsection (15); or

        • (ii) from the time the property most recently met the requirements of subsection (15); and

      • (b) ending at the time in the accounting period.

      Situations creating link with New Zealand

      (14) Property owned by a CFC has a link with New Zealand if the property—

      • (a) has been owned by a New Zealand resident:

      • (b) has been owned by a non-resident for the purposes of a business carried on in New Zealand through a fixed establishment in New Zealand:

      • (c) was created or developed in New Zealand:

      • (d) has had substantial value added in New Zealand:

      • (e) has been acquired by a person who had a deduction for expenditure or loss incurred in the acquisition:

      • (f) is based on knowledge acquired by a person who—

        • (i) acquired the knowledge with a purpose or intention of creating the property; and

        • (ii) had a deduction for expenditure or loss incurred in the acquisition:

      • (g) is created or developed from activities, or from the extension, continuation, development, or completion of activities, if the activities produced knowledge acquired by a person who had a deduction for expenditure or loss incurred in the acquisition.

      Situations breaking link with New Zealand

      (15) There is no link between property and New Zealand for a CFC when the property is owned by a non-resident who—

      • (a) is not a CFC and is not associated with the CFC; and

      • (b) is not associated with a person who has owned the property while it had a link with New Zealand.

      Defined in this Act: accounting period, agreement for the sale or purchase of property or services, associated, associated non-attributing active CFC, attributable CFC amount, business, CFC, comparative value method, deductible foreign equity distribution, deduction, deemed rate of return method, depreciable property, derivative instrument, dividend, exempt income, fair dividend rate method, finance lease, financial arrangement, fixed-rate foreign equity, fully imputed, general insurance, hire purchase agreement, income, insurance contract, interest, land, life insurance, life insurance policy, loan, loss, money lent, New Zealand, New Zealand resident, non-attributing active CFC, non-resident, reinsurance contract, relative, resident in New Zealand, revenue account property, royalty, share, short-term agreement for sale and purchase, telecommunications service

    EX 20C Net attributable CFC income or loss
    • CFC's net attributable CFC income or loss

      (1) For the purpose of calculating the attributed CFC income or loss for an accounting period of a person (the interest holder) with an income interest in a CFC,—

      • (a) the CFC's net attributable CFC income for the accounting period is the greater of zero and the amount calculated using the formula in subsection (2):

      • (b) the CFC's net attributable CFC loss for the accounting period is—

        • (i) the absolute value of the amount calculated using the formula in subsection (2), if that amount is less than zero:

        • (ii) zero, if subparagraph (i) does not apply.

      Formula for net attributable CFC income or loss

      (2) The amount of a CFC's net attributable CFC income or loss for an accounting period is calculated using the rules in section EX 21 and the formula—

       attributable CFC – (limited funding costs × fraction) – other deductions. 
      Definition of items in formula

      (3) The items in the formula in subsection (2) are defined in subsections (4) to (6), (8), and (9).

      Attributable CFC

      (4) Attributable CFC is the CFC's attributable CFC amount for the accounting period.

      Limited funding costs

      (5) Limited funding costs is—

      • (a) if paragraph (b) does not apply, the amount of the item funding costs in subsection (6)(a); or

      • (b) if the item funding in subsection (6)(b) is not zero and the interest holder chooses to rely on this paragraph, the amount calculated using the formula—

         funding costs ×funding – group funding 
         funding. 
      Definition of items in formula

      (6) In the formula in subsection (5)(b),—

      • (a) funding costs is the total of amounts in the accounting period—

        • (i) for which the CFC would have a deduction relating to a financial arrangement referred to in subsection (7)(a):

        • (ii) that are distributions relating to fixed-rate foreign equity or deductible foreign equity distributions of the CFC and paid by the CFC to companies resident in New Zealand or to CFCs:

      • (b) funding is the total amount of outstanding balances for financial arrangements referred to in subsection (7)(a) and of shares referred to in subsection (7)(b):

      • (c) group funding is the lesser of the item funding and the total amount of outstanding balances for financial arrangements—

        • (i) under which the CFC provides funds to another CFC associated with the CFC under section YB 2 (Two companies with common control); and

        • (ii) which produce for the CFC an amount included in the item arrangement income under section EX 20B(4).

      Financial arrangements and shares contributing to funding costs

      (7) A financial arrangement to which a CFC is a party, or a share issued by the CFC, contributes to the item funding costs under subsection (6)(a) for the CFC if it is—

      • (a) a financial arrangement that provides funds for the CFC:

      • (b) a share that is—

        • (i) held by a company that is a New Zealand resident or a CFC; and

        • (ii) a fixed-rate foreign equity or a share giving a right to a deductible foreign equity distribution.

      Fraction

      (8) Fraction is,—

      • (a) if the CFC is not excessively debt funded under section EX 20D, the amount calculated under subsection (10); or

      • (b) if the CFC is excessively debt funded under section EX 20D, the lesser of—

        • (i) the amount calculated under subsection (10):

        • (ii) the amount calculated under section EX 20D.

      Other deductions

      (9) Other deductions is the amount of expenditure and loss incurred in the accounting period by the CFC to the extent to which the expenditure and loss,—

      • (a) if not consisting of deductions relating to financial arrangements and shares, is—

        • (i) incurred for the purpose of deriving an attributable CFC amount; and

        • (ii) not incurred for the purpose of deriving an amount that is not an attributable CFC amount; and

        • (iii) a deduction of the CFC:

      • (b) if consisting of deductions relating to financial arrangements and shares referred to in subsection (7)(a) and (b), exceeds the amount of the item limited funding costs referred to in subsection (5):

      • (c) if consisting of deductions relating to financial arrangements not referred to in subsection (7)(a), relates to a financial arrangement referred to in section EX 20B(4).

      Proportion by value of assets producing attributable CFC amount

      (10) The amount referred to in subsection (8)(a) and (b)(i) is calculated using the formula—

       attributable CFC's assets – group funding 
       total CFC's assets – group funding. 
      Definition of items in formula

      (11) In the formula in subsection (10),—

      • (a) attributable CFC's assets is the total value of the CFC's assets, to the extent to which each asset is used for the purpose of deriving an attributable CFC amount and not used for the purpose of deriving an amount that is not an attributable CFC amount:

      • (b) group funding is zero or, if subsection (5)(b) applies for the interest holder and the CFC, the amount of the item group funding referred to in subsection (6)(c):

      • (c) total CFC's assets is the total value of the CFC's assets.

      Determining debts and assets of CFC

      (12) For the items referred to in subsection (11), the debts and assets of the CFC are determined under sections FE 8 to FE 11 (which contain rules for determining the apportionment of interest) as if the CFC were—

      • (a) an excess debt outbound company; and

      • (b) the only member of the CFC's New Zealand group.

      Defined in this Act: accounting period, attributable CFC amount, CFC, deductible foreign equity distribution, deduction, financial arrangement, fixed-rate foreign equity, generally accepted accounting practice, income interest, interest, loss, net attributable CFC income, net attributable CFC loss, share

    EX 20D Adjustment of fraction for excessively debt funded CFC
    • When this section applies

      (1) This section applies for the purposes of section EX 20C(8) to a CFC that is excessively debt funded under subsection (2) in relation to a person (the interest holder) with an income interest in the CFC.

      Excessive debt funding

      (2) A CFC is excessively debt funded under this section if—

      • (a) the amount (the CFC's debt-asset ratio) calculated using the formula in subsection (4) is more than 0.75; and

      • (b) the amount (the CFC's relative debt-asset ratio) given by section EX 20E is more than 1.10.

      Calculations for CFC

      (3) For the purposes of subsections (4) to (8), the debts and assets of the CFC are determined under sections FE 8 to FE 11 (which contain rules for determining the apportionment of interest) as if the CFC were—

      • (a) an excess debt outbound company; and

      • (b) the only member of the CFC's New Zealand group.

      Formula for debt-asset ratio of CFC

      (4) The formula for the CFC's debt-asset ratio referred to in subsection (2)(a) is—

       total CFC's debts – group funding 
       total CFC's assets – group funding. 
      Definition of items in formula

      (5) The items in the formula in subsection (4) are defined in subsections (6) to (8).

      Total CFC's debts

      (6) Total CFC's debts is the total amount for the CFC and the accounting period, determined under generally accepted accounting practice, of the outstanding balances of—

      • (a) financial arrangements entered by the CFC, each of which—

        • (i) provides funds to the CFC; and

        • (ii) gives rise to an amount for which the CFC would have a deduction:

      • (b) fixed-rate foreign equity issued by the CFC and held by a company that is a New Zealand resident or another CFC:

      • (c) shares issued by the CFC in relation to which the CFC makes deductible foreign equity distributions to a company that is a New Zealand resident or another CFC.

      Group funding

      (7) Group funding is—

      • (a) if paragraph (b) does not apply, zero; or

      • (b) if the interest holder chooses to rely on this paragraph and the item total CFC's assets is greater than the item total CFC's debts, the lesser of the item total CFC's debts and the total amount of outstanding balances for financial arrangements—

        • (i) under which the CFC provides funds to another CFC associated with the CFC under section YB 2 (Two companies with common control); and

        • (ii) which produce for the CFC an amount included in the item arrangement income under section EX 20B(4).

      Total CFC's assets

      (8) Total CFC's assets is the total value of the CFC's assets determined under generally accepted accounting practice.

      Fraction for excessively debt funded CFC

      (9) For a CFC that is excessively debt funded, the item fraction for the purposes of this section is the amount calculated using the formula in subsection (10) and determining the debts and assets of a CFC under sections FE 8 to FE 11 as if the CFC were—

      • (a) an excess debt outbound company; and

      • (b) the only member of the CFC's New Zealand group.

      Formula for fraction

      (10) The formula for the CFC's fraction is—

       attributable CFC assets 
       total CFC assets. 
      Definition of items in formula

      (11) The items in the formula in subsection (10) are defined in subsections (12) and (13).

      Attributable CFC assets

      (12) Attributable CFC assets is the total value of assets, consolidated under generally accepted accounting practice for all the interest holder's CFCs and the accounting period, to the extent to which each asset is—

      • (a) used for the purpose of deriving an attributable CFC amount; and

      • (b) not used for the purpose of deriving an amount that is not an attributable CFC amount.

      Total CFC assets

      (13) Total CFC assets is the total value of assets, consolidated under generally accepted accounting practice, for all the interest holder's CFCs and the accounting period.

      Defined in this Act: accounting period, CFC, deductible foreign equity distribution, deduction, excess debt outbound company, financial arrangement, fixed-rate foreign equity, New Zealand resident

    EX 20E Relative debt-asset ratio for CFC
    • What this section does

      (1) This section determines the relative debt-asset ratio of a CFC for the purposes of section EX 20D(2)(b) by determining an amount (the group debt-asset ratio) for the CFC's group and comparing that amount with the debt-asset ratio of the CFC determined under section EX 20D(4).

      Members of CFC's group and calculations for group

      (2) For the purposes of subsections (3) to (8),—

      • (a) the members of a CFC's group are—

        • (i) the CFC:

        • (ii) if the interest holder is a company, the members of the worldwide group that the interest holder would have under sections FE 31B, FE 31C, and FE 32 (which relate to the determination of groups) if the interest holder were an excess debt outbound company:

        • (iii) if the interest holder is a trustee, the members of the trustee's worldwide group under section FE 3(1)(b) (Interest apportionment for individuals):

        • (iv) if the interest holder is a natural person, the person's worldwide group referred to in section FE 5(1C)(a) to (c) (Thresholds for application of interest apportionment rules):

      • (b) the debts and assets of the CFC's group are determined under sections FE 8 to FE 11 and FE 18 (Measurement of debts and assets of worldwide group) as if the interest holder, if a company, were an excess debt outbound company.

      Formula for CFC's group debt-asset ratio

      (3) The formula for the CFC's group debt-asset ratio is—

       total group debts 
       total group assets. 
      Definition of items in formula

      (4) The items in the formula in subsection (3) are defined in subsections (5) and (6).

      Total group debts

      (5) Total group debts is the total amount, consolidated under generally accepted accounting practice for the CFC's group and the accounting period, of the outstanding balances of—

      • (a) financial arrangements entered by the group's members, each of which—

        • (i) provides funds to a group member; and

        • (ii) gives rise to an amount for which a group member would have a deduction:

      • (b) fixed-rate foreign equity issued by a member of the group and held by a company that is a New Zealand resident or a CFC:

      • (c) equity interests issued by a member of the group in relation to which the member makes deductible foreign equity distributions to a company that is a New Zealand resident or a CFC.

      Total group assets

      (6) Total group assets is the total value, consolidated under generally accepted accounting practice for the accounting period, of the assets of the CFC's group.

      Formula for CFC's relative debt-asset ratio

      (7) The formula for the CFC's relative debt-asset ratio is—

       CFC's debt-asset ratio 
       group debt-asset ratio. 
      Definition of items in formula

      (8) In the formula in subsection (7),—

      • (a) CFC's debt-asset ratio is the CFC's debt-asset ratio under section EX 20D(4):

      • (b) group debt-asset ratio is the CFC's group debt-asset ratio under subsection (3).

      Defined in this Act: accounting period, CFC, deductible foreign equity distribution, deduction, excess debt outbound company, financial arrangement, fixed-rate foreign equity, New Zealand resident.

    (2) Subsection (1) applies for all income years beginning on or after 1 July 2009.

157 Attributable CFC amount
  • (1) Section EX 20B(5)(a)(i) is replaced by the following:

    • (i) paid by a person who is not associated with the CFC under section YB 2 (Two companies); and.

    (2) Section EX 20B(9)(c) is replaced by the following:

    • (c) the working person is associated with the CFC under section YB 3 (Company and person other than company) at the time the services are performed or is a relative, at the beginning of the accounting period, of a person associated with the CFC under section YB 3; and.

    (3) Subsections (2) and (3) apply for the 2010–11 and later income years.

158 Net attributable CFC income or loss
  • (1) In section EX 20C(6)(c)(i), with common control is omitted.

    (2) Subsection (1) applies for the 2010–11 and later income years.

159 Adjustment of fraction for excessively debt funded CFC
  • (1) In section EX 20D(7)(b)(i), with common control is omitted.

    (2) Subsection (1) applies for the 2010–11 and later income years.

160 Heading repealed
161 Branch equivalent income or loss: calculation rules
  • (1) In the heading to section EX 21, Branch equivalent income or loss is replaced by Attributable CFC amount and net attributable CFC income or loss.

    (2) Section EX 21(1) is replaced by the following:

    Calculation rules for CFC
    • (1) The rules in this section apply for the purposes of—

      • (a) calculating the attributable CFC amount for a CFC under section EX 20B:

      • (b) calculating the net attributable CFC income or loss for a CFC under section EX 20C:

      • (c) determining under section EX 21D whether a CFC is a non-attributing active CFC.

    Calculation rules for test group of CFCs
    • (1B) For the purpose of determining under section EX 21D whether a member of a group of CFCs is a non-attributing active CFC,—

      • (a) the consolidated annual gross income of the group is calculated under the rules in this section; and

      • (b) the consolidated attributable CFC amount of the group is calculated under the rules in this section.

    (3) Section EX 21(2), except for the heading, is replaced by the following:

    • (2) The rules in this Act are applied as if the CFC were always a New Zealand resident.

    (4) In section EX 21(5), branch equivalent income or loss for is replaced by attributable CFC amount and net attributable CFC income or loss attributable to.

    (5) In section EX 21(7), branch equivalent income or loss attributable to is replaced by attributable CFC amount and net attributable CFC income or loss arising from.

    (6) After section EX 21(13)(d), the following is inserted:

    • (db) section CW 9 (Dividend derived from foreign company):

    • (dc) section CW 10 (Dividend within New Zealand wholly-owned group:.

    (7) In section EX 21(15), the sentence after paragraph (d) is replaced by Also, when sections GC 6 to GC 14 are applied, the associated persons include persons associated under the parts of subpart YB (Associated persons and nominees) that apply for the purposes of the whole Act (excluding the 1973, 1988, and 1990 version provisions) or the 1988 version provisions.

    (8) In section EX 21(15), the sentence following paragraph (d) is omitted.

    (9) Section EX 21(16) and (17) are replaced by the following:

    Dividends
    • (16) Dividends that are not part of the CFC's attributable CFC amount are exempt income of the CFC.

    (10) Section EX 21(24)(b) is replaced by the following:

    • (b) it is a deduction if—

      • (i) paid by the CFC to a person who is resident in the same country as the CFC and not a non-attributing active CFC; and

      • (ii) deductible under the taxation law of that country.

    (11) In section EX 21(26),—

    • (a) branch equivalent income or loss is replaced by net attributable CFC income or loss:

    • (b) net income or loss is replaced by net attributable CFC income or loss.

    (12) In section EX 21(32)(b), branch equivalent income or loss is replaced by net attributable CFC income or loss.

    (13) In section EX 21(33)(b), branch equivalent income is replaced by net attributable CFC income.

    (14) Section EX 21(35) is repealed.

    (15) In section EX 21, in the list of defined terms, 1973 version provisions, 1988 version provisions, and 1990 version provisions are inserted.

    (16) In section EX 21, in the list of defined terms,—

    • (a) branch equivalent income is omitted:

    • (b) annual gross income, attributable CFC amount, net attributable CFC income, net attributable CFC loss, and non-attributing active CFC are inserted.

    (17) Subsections (1) to (6) and (9) to (14) apply for all income years beginning on or after 1 July 2009.

    (18) Subsection (8) applies for the 2010–11 and later income years.

162 New heading and sections EX 21B to EX 21E inserted
  • (1) After section EX 21, the following is inserted:

    Non-attributing active CFCs

    EX 21B Non-attributing active CFCs
    • Non-attributing active CFC

      (1) Non-attributing active CFC, for an accounting period and a person (the interest holder), means a CFC that, alone or as part of a test group of companies under section EX 21D or EX 21E, meets the requirements of subsection (2) or (3).

      CFC meeting test in section EX 21D or EX 21E

      (2) A CFC is a non-attributing active CFC—

      • (a) under section EX 21D, if the CFC meets the requirements of that section and paragraph (b) does not apply:

      • (b) under section EX 21E, if—

        • (i) the CFC meets the requirements of section EX 21C for the use of an applicable accounting standard in the application of section EX 21E; and

        • (ii) the person chooses to use the applicable accounting standard in applying section EX 21E; and

        • (iii) the CFC meets the requirements of section EX 21E.

      Insurer meeting requirements of determination

      (3) A CFC that is an insurer meeting the requirements of a determination made by the Commissioner under section 91AAQ of the Tax Administration Act 1994 is a non-attributing active CFC.

      Defined in this Act: accounting period, CFC, non-attributing active CFC

    Tests for non-attributing active CFCs

    EX 21C Applicable accounting standards for section EX 21E
    • Applicable accounting standards

      (1) In applying section EX 21E to determine whether a CFC is a non-attributing active CFC for a person (the interest holder) with an interest in the CFC, the interest holder may use as an accounting standard (the applicable accounting standard) 1 of the standards given by subsections (2) to (7) if section GB 15C (Arrangements related to accounting test for non-attributing active CFC) does not apply.

      Generally accepted accounting practice with IFRS for CFC

      (2) The interest holder may use generally accepted accounting practice in New Zealand including IFRSs and the framework for differential reporting for entities applying the New Zealand equivalents to the international financial standards reporting regime (the generally accepted accounting practice with IFRS) for the CFC, if the interest holder or another person has accounts that—

      • (a) include the accounts of the CFC; and

      • (b) comply with generally accepted accounting practice with IFRS; and

      • (c) meet the audit requirements of subsection (8).

      Generally accepted accounting practice with IFRS for test group

      (3) The interest holder may use generally accepted accounting practice with IFRS for the CFC's test group under section EX 21E(2), if the interest holder or another person has accounts that—

      • (a) include the accounts of the members of the test group; and

      • (b) comply with generally accepted accounting practice with IFRS; and

      • (c) meet the audit requirements of subsection (8).

      IFRSEs for CFC

      (4) The interest holder may use IFRSEs for the CFC, if the interest holder or another person has accounts that—

      • (a) include the accounts of the CFC; and

      • (b) comply with the relevant IFRSEs; and

      • (c) meet the audit requirements of subsection (8).

      IFRSEs for test group

      (5) The interest holder may use IFRSEs for the CFC's test group under section EX 21E(2), if the interest holder or another person has accounts that—

      • (a) include the accounts of the members of the test group; and

      • (b) comply with the relevant IFRSEs; and

      • (c) meet the audit requirements of subsection (8).

      Generally accepted accounting practice without IFRS for CFC

      (6) The interest holder may use generally accepted accounting practice in New Zealand for persons not required to use IFRS but required to comply with standards, other than IFRSs, approved by the Accounting Standards Review Board under the Financial Reporting Act 1993 (the generally accepted accounting practice without IFRS) for the CFC, if the interest holder or another person is a company resident in New Zealand that—

      • (a) has no revenue under Financial Reporting Standard 34 and Financial Reporting Standard 35; and

      • (b) is an issuer under section 4 of the Financial Reporting Act 1993 in neither of the current and preceding accounting periods; and

      • (c) is not required by section 19 of the Financial Reporting Act 1993 to file its accounts with the Registrar of Companies; and

      • (d) is not a large company under section 19A(1)(b) of the Financial Reporting Act 1993; and

      • (e) does not have accounts that are prepared and audited under generally accepted accounting practice with IFRS; and

      • (f) is not a subsidiary of a company having accounts that—

        • (i) include the accounts of the subsidiary; and

        • (ii) are prepared and audited, or required to be prepared, under generally accepted accounting practice with IFRS; and

      • (g) has accounts that—

        • (i) include the accounts of the CFC; and

        • (ii) comply with generally accepted accounting practice without IFRS; and

        • (iii) meet the audit requirements of subsection (8).

      Generally accepted accounting practice without IFRS for CFC's test group

      (7) The interest holder may use generally accepted accounting practice without IFRS for the CFC's test group under section EX 21D(1), if the interest holder or another person is a company resident in New Zealand that—

      • (a) has no revenue under Financial Reporting Standard 34 and Financial Reporting Standard 35; and

      • (b) is an issuer under section 4 of the Financial Reporting Act 1993 in neither of the current and preceding accounting periods; and

      • (c) is not required by section 19 of the Financial Reporting Act 1993 to file its accounts with the Registrar of Companies; and

      • (d) is not a large company under section 19A(1)(b) of the Financial Reporting Act 1993; and

      • (e) does not have accounts that are prepared and audited under generally accepted accounting practice with IFRS; and

      • (f) is not a subsidiary of a company having accounts that—

        • (i) include the accounts of the subsidiary; and

        • (ii) are prepared and audited, or required to be prepared, under generally accepted accounting practice with IFRS; and

      • (g) has accounts that—

        • (i) include the accounts of the members of the CFC's test group; and

        • (ii) comply with generally accepted accounting practice without IFRS; and

        • (iii) meet the audit requirements of subsection (8).

      Audit requirements

      (8) Accounts meet the audit requirements of this subsection if they—

      • (a) are audited by an accountant who is—

        • (i) a chartered accountant or an accountant of equivalent professional standard in the country in which the accounts are prepared; and

        • (ii) independent of the CFC and the person; and

      • (b) are given an unqualified opinion or an opinion of equivalent standard in the country in which the accounts are prepared.

      Compliance with accounting standards

      (9) For the purposes of subsections (2) to (7), accounts are treated as complying with the accounting standard relevant to the subsection if—

      • (a) the accounts state that they comply with the accounting standard; and

      • (b) the accounts meet the audit requirements of subsection (8); and

      • (c) the Commissioner does not have reasonable grounds to suspect—

        • (i) fraudulent activity by the interest holder, the CFC, a CFC in the CFC's test group, or the auditor:

        • (ii) preparation of the accounts with an intent to mislead:

        • (iii) incompetence of the auditor.

      Defined in this Act: accounting period, annual gross income, associated, attributable CFC amount, CFC, generally accepted accounting practice, IFRS, IFRSE, insurer, New Zealand resident, non-attributing active CFC, rent, royalty

    EX 21D Non-attributing active CFC: default test
    • CFC as part of test group

      (1) A person (the interest holder) with an interest in a CFC may choose to apply this section for the CFC as a member of a group (a test group) if the group consists of companies—

      • (a) each subject to the laws of the same country or territory under which the company is liable to income tax on its income because of its domicile, residence, place of incorporation, or centre of management; and

      • (b) in each of which the interest holder holds an income interest of more than 50%; and

      • (c) each of which is required to use the same currency under section EX 21(4); and

      • (d) that are consolidated for the purposes of this section—

        • (i) using like tax treatments for like transactions and for other events in similar circumstances; and

        • (ii) eliminating in full all balances, transactions, income, and expenses arising between members of the test group.

      Threshold ratio

      (2) A CFC is a non-attributing active CFC under section EX 21B(2)(a) for an accounting period and a person if the amount calculated under subsection (3) using the formula in subsection (4)—

      • (a) is less than 0.05; and

      • (b) is not zero under subsection (3)(f).

      Application of formula

      (3) In using the formula in subsection (4)—

      • (a) each item in the formula is determined—

        • (i) for the CFC's consolidated test group, if the interest holder chooses to apply the formula to the test group; or

        • (ii) for the CFC, if subparagraph (i) does not apply; and

      • (b) each item in the formula is determined for a test group after amounts included in the item are adjusted to remove amounts corresponding to income interests not held by the interest holder; and

      • (c) a reference to a company that is associated is treated as being a reference to a company that is—

        • (i) associated with a member of the CFC's test group, although not a member of the CFC's test group, if the interest holder chooses to apply the formula to the test group; or

        • (ii) associated with the CFC, if subparagraph (i) does not apply; and

      • (d) a reference to a company that is in the same group of companies is treated as being a reference to a company that is—

        • (i) in the same group of companies as a member of the CFC's test group, although not a member of the CFC's test group, if the interest holder chooses to apply the formula to the test group; or

        • (ii) in the same group of companies as the CFC, if subparagraph (i) does not apply; and

      • (e) a numerator or denominator that is a negative number is treated as being zero; and

      • (f) the amount calculated using the formula is zero if the denominator is zero.

      Formula

      (4) The amount that determines whether the CFC is a non-attributing active CFC is calculated using the formula—

        attributable − attributable adjustments  
       gross – gross adjustments. 
      Definition of items in formula

      (5) The items in the formula are defined in subsections (6) to (9).

      Attributable

      (6) Attributable is the attributable CFC amount for the accounting period.

      Attributable adjustments

      (7) Attributable adjustments is the total of amounts included in the item attributable, in subsection (6), that are—

      • (a) if the interest holder chooses that this paragraph apply, income derived from the supply of personal services—

        • (i) included in an attributable CFC amount under section EX 20B(3)(h); and

        • (ii) not included in an attributable CFC amount under another paragraph of section EX 20B(3) and (4):

      • (b) if the interest holder chooses that this paragraph apply, the cost of revenue account property producing an amount (the included amount) included in the attributable CFC amount under section EX 20B(3)(k) to the extent, not exceeding the included amount, that—

        • (i) the cost is treated as a deduction of the CFC in the accounting period; and

        • (ii) the deduction exceeds the amount of any income under subpart CH (Adjustments) relating to the deduction.

      Gross

      (8) Gross is the annual gross income for the accounting period in the absence of income under subpart CQ (Attributed income from foreign equity).

      Gross adjustments

      (9) Gross adjustments is the total of the following amounts for the accounting period:

      • (a) the amount of the item attributable adjustments in subsection (7):

      • (b) expenditure or loss that is included in the calculation of the attributable CFC amount under section EX 20B:

      • (c) income derived from a company that would meet the requirements of subsection (1)(a) to (c) for a member of a test group with the CFC:

      • (d) income from a supply that meets the requirements of section GB 15B (Supplies affecting default test for non-attributing active CFC).

      Defined in this Act: accounting period, annual gross income, associated non-attributing active CFC, attributable CFC amount, CFC, company, group of companies, income, interest, non-attributing active CFC, resident in New Zealand, royalty

    EX 21E Non-attributing active CFC: test based on accounting standard
    • Applicable accounting standard

      (1) A person (the interest holder) who chooses to determine under this section whether a CFC is a non-attributing active CFC for the person for an accounting period must use an accounting standard (the applicable accounting standard) permitted by section EX 21C.

      CFC as part of test group

      (2) The interest holder may choose to apply this section for the CFC as a member of a group (a test group) if—

      • (a) the group consists of companies required under the applicable accounting standard to consolidate, whether or not with companies that are not in the group; and

      • (b) each company is subject to the laws of the same country or territory under which the company is liable to income tax on its income because of its domicile, residence, place of incorporation, or centre of management; and

      • (c) the interest holder holds an income interest of more than 50% in each company; and

      • (d) each company has the same functional currency; and

      • (e) there are audited and consolidated financial statements that—

        • (i) include the accounts of the companies in the group, whether or not with accounts of companies that are not in the group; and

        • (ii) comply with the applicable accounting standard.

      Threshold ratio

      (3) A CFC is a non-attributing active CFC under section EX 21B(2)(b) for an accounting period and an interest holder if, under subsection (4),—

      • (a) the amount calculated using the formula in subsection (5) is less than 0.05; and

      • (b) the amount calculated using the numerator in the formula in subsection (5) is equal to or more than zero; and

      • (c) the amount calculated using the denominator in the formula in subsection (5) is more than zero.

      Application of formula

      (4) In using the formula in subsection (5),—

      • (a) each item in the formula is—

        • (i) determined under the applicable accounting standard; and

        • (ii) adjusted so that no amount is included in the item more than once; and

      • (b) each item in the formula is determined—

        • (i) from amounts consolidated for the CFC's test group under the applicable accounting standard, if the interest holder chooses to apply the formula to the test group; or

        • (ii) from amounts for the CFC, if subparagraph (i) does not apply; and

      • (c) each item in the formula is determined after adjustment of amounts included in the item by removing amounts corresponding to minority interests not held by the interest holder; and

      • (d) a reference to a company that is associated is treated as being a reference to a company that is—

        • (i) associated with a member of the CFC's test group, although not a member of the CFC's test group, if the interest holder chooses to apply the formula to the test group; or

        • (ii) associated with the CFC, if subparagraph (i) does not apply; and

      • (e) a reference to a company that is in the same group of companies is treated as being a reference to a company that is—

        • (i) in the same group of companies as a member of the CFC's test group, although not a member of the CFC's test group, if the person chooses to apply the formula to the test group; or

        • (ii) in the same group of companies as the CFC, if subparagraph (i) does not apply; and

      • (f) amounts determined for a CFC other than as part of a test group are—

        • (i) determined in the functional currency of the CFC; and

        • (ii) converted between currencies under the applicable accounting standard, but ignoring exchange differences arising on a monetary item that forms part of a net investment of the CFC in a foreign operation; and

      • (g) amounts determined for a test group are—

        • (i) converted from the functional currency of the CFC to the presentation currency of the consolidated accounts for the test group using the average conversion rate for the accounting period; and

        • (ii) otherwise converted between currencies under the applicable accounting standard.

      Formula

      (5) The amount that determines whether the CFC is a non-attributing active CFC is calculated using the formula—

        reported passive + added passive – removed passive  
       reported revenue + added revenue – removed revenue. 
      Definition of items in formula

      (6) The items in the formula are defined in subsections (7) to (12).

      Reported passive

      (7) Reported passive is the total amount of—

      • (a) income from a dividend:

      • (b) income from interest:

      • (c) income from a royalty:

      • (d) income from rent:

      • (e) income, other than rent or interest, from a finance lease or operating lease:

      • (f) income or loss from a financial asset, other than a derivative as defined in NZIAS 39 or a share that is not revenue account property, in the form of—

        • (i) a change in the reported fair value of the asset:

        • (ii) a gain or loss on the derecognition, as defined in NZIAS 39, of the asset:

        • (iii) a foreign exchange gain or loss on the asset:

      • (g) income or loss from a derivative instrument, as defined in NZIAS 39, and included in the CFC's statement of income—

        • (i) if the instrument is held in the course of a business of the CFC for the purpose of dealing with the derivative instrument:

        • (ii) if the instrument is not entered in the ordinary course of a business of the CFC:

        • (iii) to the extent that the income or loss is from a hedging relationship, of a type referred to in NZIAS 39, with an amount that would change the numerator of the formula in subsection (5) or with a transaction producing such an amount of income or gain:

      • (h) income or gains from a business of insurance, including income or gains from property used to back insurance assets.

      Added passive

      (8) Added passive is the total of amounts not included in the item reported passive for the accounting period that are 1 or more of the following:

      • (a) income from a life insurance policy that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(g):

      • (b) income from the disposal of revenue account property that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(k), if the property is—

        • (i) not a share, financial arrangement, or life insurance policy; and

        • (ii) used by the CFC in a way giving rise to income or gains that increase the numerator of the formula in subsection (5):

      • (c) income from a supply of services performed in New Zealand that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(l):

      • (d) income from a supply of telecommunications services that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(m) or (n).

      Removed passive

      (9) Removed passive is zero if the interest holder does not choose to include an amount for this item or is the total of amounts that are included in the item reported passive or added passive for the accounting period and are in a category included in categories chosen by the interest holder from the following:

      • (a) a dividend that is not included in the attributable CFC amount for the accounting period under section EX 20B(3)(a) to (c):

      • (b) a royalty that would be included in the attributable CFC amount for the accounting period but for section EX 20B(5)(a) to (d):

      • (c) rent that would be included in the attributable CFC amount for the accounting period but for section EX 20B(7)(a) to (c):

      • (d) the cost of revenue account property producing an amount (the included amount) included in the attributable CFC amount under section EX 20B(3)(k) to the extent, not exceeding the included amount, that—

        • (i) the cost would be a deduction of the CFC in the accounting period if the CFC were a resident of New Zealand; and

        • (ii) the deduction would exceed the amount of any income arising under subpart CH (Adjustments) relating to the deduction.

      Reported revenue

      (10) Reported revenue is the total amount that is—

      • (a) included under the applicable accounting standard in—

        • (i) operating revenue, if the applicable accounting standard is generally accepted accounting practice without IFRS; or

        • (ii) revenue, if subparagraph (i) does not apply:

      • (b) income, other than rent, from a finance lease or operating lease:

      • (c) a gain or loss on a financial asset, other than a derivative as defined in NZIAS 39 or a share not on revenue account, in the form of—

        • (i) a change in the reported fair value of the asset:

        • (ii) a gain or loss on the derecognition, as defined in NZIAS 39, of the asset:

        • (iii) a foreign exchange gain or loss on the asset:

      • (d) a gain or loss from a derivative instrument, as defined in NZIAS 39, and included in the CFC's statement of income—

        • (i) if the derivative instrument is held in the course of a business of the CFC for the purpose of dealing with the derivative instrument:

        • (ii) if the derivative instrument is not entered in the ordinary course of a business of the CFC:

        • (iii) to the extent that the gain or loss is from a hedging relationship, of a type referred to in NZIAS 39, with an amount that would change the denominator of the formula in subsection (5) or with a transaction producing such an amount of income or gain:

      • (e) income or a gain from a business of insurance, including from property used to back insurance assets, if the applicable accounting standard is not generally accepted accounting practice without IFRS.

      Added revenue

      (11) Added revenue is zero if the interest holder does not choose to include an amount for this item or is the total of amounts that are not included in the item reported revenue for the accounting period and are either or both of the following:

      • (a) income from a life insurance policy that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(g):

      • (b) income from the disposal of revenue account property that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(k), if the property is—

        • (i) not a share, financial arrangement, or life insurance policy; and

        • (ii) used by the CFC in a way giving rise to income or gains that increase the numerator of the formula in subsection (5).

      Removed revenue

      (12) Removed revenue is the total of amounts that are included under the applicable accounting standard in the item reported revenue or added revenue for the accounting period and are 1 or more of the following:

      • (a) an amount included in the item removed passive under subsection (9)(d):

      • (b) a dividend to the extent to which it is included in the item removed passive, under subsection (9)(a):

      • (c) income from a supply of personal services that is included in the item reported revenue, and in the attributable CFC amount for the accounting period under section EX 20B(3)(h):

      • (d) income or loss from a share that is not revenue account property under this Act in the form of—

        • (i) a change in the reported fair value of the share:

        • (ii) income or loss on the derecognition, as defined in NZIAS 39, of the share:

        • (iii) a foreign exchange gain or loss on the share:

      • (e) income derived from another CFC that—

        • (i) is subject to the laws of the country or territory under which the CFC is liable to income tax on the CFC's income because of the CFC's domicile, residence, place of incorporation, or centre of management; and

        • (ii) is liable to tax on its income in that country or territory because of its domicile, residence, place of incorporation, or centre of management; and

        • (iii) could be consolidated with the CFC for the purposes of this section if appropriate audited accounts were prepared:

      • (f) if the applicable standard is generally accepted accounting practice without IFRS, income from a liability, other than income derived in the normal course of business from a sale or supply of services, in the form of—

        • (i) a reduction in the liability:

        • (ii) a gain on the disposal or other derecognition of the liability:

        • (iii) a foreign exchange gain on the liability:

      • (g) if the applicable standard is generally accepted accounting practice without IFRS, income from an asset that is not a financial asset under NZIAS 32 and not revenue account property as defined in section YA 1 (Definitions) in the form of—

        • (i) an increase in the fair value of the asset:

        • (ii) a gain on the disposal of the asset:

        • (iii) a foreign exchange gain on the asset.

      Compliance with accounting standards

      (13) If accounts meet the requirements of section EX 21C for the relevant accounting standard—

      • (a) the accounts are treated as complying with the relevant accounting standard for the purposes of subsection (2):

      • (b) amounts drawn from the accounts, or from information that is used to prepare the accounts and is consistent with them, are treated as complying with the relevant accounting standard for the purposes of subsection (4) if the Commissioner does not have reasonable grounds to suspect—

        • (i) fraudulent activity by the interest holder, the CFC, a CFC in the CFC's test group, or the auditor:

        • (ii) preparation of the accounts with an intent to mislead:

        • (iii) incompetence of the auditor.

      Defined in this Act: accounting period, associated non-attributing active CFC, attributable CFC amount, CFC, company, dividend, financial arrangement, finance lease, group of companies, IFRS, income, life insurance policy, non-attributing active CFC, operating lease, premium, revenue account property, royalty.

    (2) Subsection (1) applies for all income years beginning on or after 1 July 2009.

163 Heading and section EX 22 replaced
  • (1) The heading before section EX 22 and section EX 22 are replaced by the following:

    Non-attributing Australian CFCs

    EX 22 Non-attributing Australian CFCs
    • Criteria

      (1) A CFC is a non-attributing Australian CFC for an accounting period if—

      • (a) at all times in the accounting period the CFC is—

        • (i) resident in Australia; and

        • (ii) under Australian law, subject to income tax on its income or treated as part of the head company of a consolidated group subject to income tax on its income; and

        • (iii) treated as being resident in Australia under all agreements between the government of Australia and the governments of other countries or territories that would be a double tax agreement if between the government of New Zealand and the government of the other country or territory; and

      • (b) the CFC's liability for income tax has not been reduced by—

        • (i) an exemption from income tax for income derived from business activities carried on outside Australia:

        • (ii) a special allowance, relief, or exemption with respect to offshore banking units.

      No attributed CFC income or loss

      (2) Sections CQ 2(1)(i) (When attributed CFC income arises) and DN 2(1)(i) (When attributed CFC loss arises) provide that no attributed CFC income or attributed CFC loss arises from a non-attributing Australian CFC.

      CFCs with interest in FIF: look-through approach

      (3) This section does not prevent FIF income or FIF loss arising under section EX 58 from an interest of a non-attributing Australian CFC in a FIF.

      Defined in this Act: accounting period, attributed CFC income, attributed CFC loss, CFC, double tax agreement, FIF, FIF income, FIF loss, income tax, non-attributing Australian CFC, resident in Australia.

    (2) Subsection (1) applies for all income years beginning on or after 1 July 2009.

164 Section EX 23 repealed
  • (1) Section EX 23 is repealed.

    (2) Subsection (1) applies for all income years beginning on or after 1 July 2009.

165 Change of CFC's balance date
  • (1) Section EX 25(3)(d) is replaced by the following:

    • (d) whether the change would postpone liability to income tax on attributed CFC income or on attributed repatriation.

    (2) In section EX 25, in the list of defined terms, FDP is omitted.

    (3) Subsection (1) applies for all income years beginning on or after 1 July 2009.

166 Attributing interests in FIFs
167 Direct income interests in FIFs
  • In section EX 30(6)(c), debentures) is replaced by debentures) or FA 2B (Stapled debt securities).

168 Exemption for ASX-listed Australian companies
  • (1) In section EX 31(2)(c)(i), if subparagraph (ii) does not apply is replaced by if subparagraphs (ii) and (iii) do not apply.

    (2) In section EX 31(2)(c)(ii), earlier in the year; and is replaced by earlier in the year; or and the following is added:

    • (iii) at the beginning of the final month of the preceding income year if, in the first month of an income year, the shares are cancelled or transferred under a scheme of arrangement entered into under Part 5.1 of the Corporations Act 2001 (Aust); and.

    (3) In section EX 31, in the list of defined terms, cancellation is inserted.

169 Exemption for Australian unit trusts with adequate turnover or distributions
  • (1) In section EX 32(9)(d), contributions by investors by the unit trust is replaced by contributions by investors to the unit trust.

    (2) Subsection (1) applies for the 2008–09 and later income years.

170 CFC rules exemption
  • In section EX 34(b), the person has is replaced by the person has, under sections EX 14 to EX 17,.

171 Grey list company owning New Zealand venture capital company: 10-year exemption
  • (1) In section EX 37(e), the words before subparagraph (i) are replaced by the following:

    • (e) at all times in the year, the grey list company holds more than 50% of the voting interests in a company resident in New Zealand (the resident company) that, for 12 months or more, has—.

    (2) Section EX 37(f) is replaced by the following:

    • (f) the year begins less than 10 years after the grey list company first held more than 50% of the voting interests in the resident company; and.

    (3) In section EX 37, in the list of defined terms, voting interest is inserted.

172 Exemption for employee share purchase scheme of grey list company
  • Section EX 38(g) is replaced by the following:

    • (g) the share purchase agreement includes a restriction on the disposal of the shares; and.

173 Limits on choice of calculation methods
  • (1) In section EX 46(6)(b)(iii), charities): is replaced by charities); and and the following is inserted:

    • (iv) is not a superannuation scheme:.

    (2) Section EX 46(6)(d) is replaced by the following:

    • (d) the share is a non-ordinary share described in subsection (10).

    (3) Section EX 46(7)(b) is replaced by the following:

    • (b) the FIF is a foreign investment vehicle and the person is—

      • (i) a portfolio investment entity or an entity eligible to be a portfolio investment entity:

      • (ii) a life insurance company.

    (4) Section EX 46(7)(b) is replaced by the following:

    • (b) the FIF is a foreign PIE equivalent and the person is—

      • (i) a portfolio investment entity or an entity that qualifies for PIE status:

      • (ii) a life insurance company.

    (5) Section EX 46(8)(a) is replaced by the following:

    • (a) the share is a non-ordinary share described in subsection (10):.

    (6) The heading to section EX 46(10) is replaced by Certain non-ordinary shares.

    (7) In section EX 46(10), the words before paragraph (a) are replaced by the following:

    • (10) For the purposes of subsections (6)(d) and (8)(a), a non-ordinary share in a foreign company is—.

    (8) Section EX 46(10)(a) is replaced by the following:

    • (a) a fixed-rate foreign equity:.

    (9) After section EX 46(10)(c), the following is inserted:

    • (cb) an interest in a non-resident if––

      • (i) the non-resident holds directly or indirectly assets of which 80% or more by value at a time in the income year consist of fixed-rate shares or financial arrangements providing funds to a person ignoring financial arrangements between the non-resident and other members of a group of companies that it is a member of; and

      • (ii) the non-resident is not listed on a recognised exchange or is listed on a recognised exchange but is a foreign investment vehicle, ignoring section HL 10(4) (Further eligibility requirements relating to investments) for the purposes of this subparagraph; and

      • (iii) the interest is, under NZIAS 39, a hedged item having a value in New Zealand dollars governed by a hedging instrument that is highly effective:.

    (10) In section EX 46(10)(cb)(ii), foreign investment vehicle is replaced by foreign PIE equivalent.

    (11) In section EX 46, in the list of defined terms,—

    • (a) foreign PIE is omitted:

    • (b) foreign investment vehicle is inserted.

    (12) In section EX 46, in the list of defined terms,—

    • (a) foreign investment vehicle is omitted:

    • (b) foreign PIE equivalent and PIE are inserted.

    (13) In section EX 46, in the list of defined terms, fixed-rate foreign equity is inserted.

    (14) Subsections (4) and (10) apply for the 2010–11 and later income years.

    (15) Subsection (8) applies for all income years beginning on or after 1 July 2009.

174 Section EX 47 replaced
  • Section EX 47 is replaced by the following:

    EX 47 Method required for certain non-ordinary shares
    • A person must calculate FIF income or loss for an income year from an attributing interest that is a non-ordinary share described in section EX 46(10) using—

      • (a) the comparative value method; or

      • (b) the deemed rate of return method, if use of the comparative value method is not practical because the person cannot determine the market value of the attributing interest at the end of the income year.

      Defined in this Act: attributing interest, comparative value method, deemed rate of return method, fair dividend rate method, FIF income, FIF loss, income year, market value, share.

175 Branch equivalent method
  • (1) In section EX 50(3), section EX 21 of the CFC rules is replaced by section EX 21 of the CFC rules as that provision reads ignoring section 161(1) to (6), (9) to (14), (16), and (17) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009.

    (2) Subsection (1) applies for all income years beginning on or after 1 July 2009.

176 Comparative value method
  • (1) Section EX 51(5), other than the heading, is replaced by the following:

    • (5) Opening value is the market value of the person's interest in the FIF at the end of the previous income year, calculated using the exchange rate applying under section EX 57 for that previous year. The value is zero if the person did not hold the interest then or was then applying another calculation method to it.

    (2) Section EX 51(7) and (8) are replaced by the following:

    Losses from some attributing interests not subject to rule
    • (7) Subsection (8) applies to a person who calculates under subsection (1) an amount of FIF loss for an attributing interest in a FIF (the affected interest) that is neither of the following:

      • (a) a direct income interest in a foreign company equal to or more than 10% at all times in the relevant income year:

      • (b) a non-ordinary share described in section EX 46(10).

    No total FIF loss from other attributing interests
    • (8) If, in the absence of this subsection, the person would have under subsection (1) a total FIF loss for the income year from all the person's affected interests, the FIF loss for the income year for the person from each affected interest is reduced to the extent necessary for the total FIF loss from the affected interests to be zero.

    (3) Subsection (2) applies for the 2009–10 and later income years.

177 Fair dividend rate method: usual method
  • (1) In section EX 52(1)(a), “or loss” is omitted.

    (2) Section EX 52(2), other than the heading, is replaced by the following:

    • (2) The person's total FIF income for the income year from the attributing interests in FIFs (the FDR interests) for which the person uses the fair dividend rate method is calculated using the formula in subsection (3).

    (3) In section EX 52(5), the words before paragraph (a) are replaced by the following:

    • (5) Opening value is the total of the market values of the FDR interests that—.

    (4) After section EX 52(5), the following is inserted:

    Exclusion for certain managed funds
    • (5B) Subsection (5)(b) does not apply if—

      • (a) the person is a portfolio investment entity, an entity eligible to be a portfolio investment entity, or a life insurance company; and

      • (b) the FIF is a foreign investment vehicle.

    (5) Section EX 52(5B)(b) is replaced by the following:

    • (b) the FIF is a foreign PIE equivalent.

    (6) Section EX 52(6), other than the heading is replaced by the following:

    • (6) The quick sale adjustment is required, and is not zero, only if the person, in the income year,—

      • (a) acquires or increases an FDR interest to which this section applies; and

      • (b) later disposes of or reduces the FDR interest.

    (7) Section EX 52(7)(a) and (b) are replaced by the following:

    • (a) the total of the amounts (the peak holding method amount) calculated for each FDR interest using the formula in subsection (8):

    • (b) the total of the amounts (the quick sale gain amount) calculated for each FDR interest using the formula in subsection (12), treating a negative total as being zero.

    (8) In section EX 52(13),—

    • (a) in paragraph (a), during the income year is omitted:

    • (b) in paragraph (c), during the year is omitted.

    (9) After section EX 52(14B), the following is inserted:

    Treatment of attributing interests subject to returning share transfer
    • (14C) If an attributing interest in a FIF is an original share subject to a returning share transfer, for the purposes of a person using the fair dividend rate method to calculate FIF income, the attributing interest is treated as held by the share supplier.

    (10) In section EX 52, in the list of defined terms, foreign investment vehicle, life insurance, original share, portfolio investment entity, returning share transfer, share, and share supplier are inserted.

    (11) In section EX 52, in the list of defined terms,—

    • (a) foreign investment vehicle is omitted:

    • (b) foreign PIE equivalent is inserted.

    (12) Subsection (5) applies for the 2010–11 and later income years.

178 Fair dividend rate method for unit-valuing funds and others by choice
  • (1) In section EX 53(1)(a), “or loss” is omitted.

    (2) In section EX 53(1B)(a), or loss is omitted.

    (3) Section EX 53(2), other than the heading, is replaced by the following:

    • (2) The total FIF income for the income year of the fund or person (the interest holder) from the attributing interests in FIFs (the FDR interests) for which the fund or person uses the fair dividend rate method is the total of the amounts calculated using the formula in subsection (3) for each unit valuation period.

    (4) In section EX 53(5), the words before paragraph (a) are replaced by the following:

    • (5) Opening value is the total of the market values of the FDR interests that—.

    (5) After section EX 53(5), the following is inserted:

    Exclusion for certain managed funds
    • (5B) Subsection (5)(b) does not apply if—

      • (a) the interest holder is a portfolio investment entity, an entity eligible to be a portfolio investment entity, or a life insurance company; and

      • (b) the FIF is a foreign investment vehicle.

    (6) In section EX 53(5B)(b), foreign investment vehicle is replaced by foreign PIE equivalent.

    (7) Section EX 53(8), other than the heading, is replaced by the following:

    • (8) The quick sale adjustment is required, and is not zero, only if the interest holder has a unit valuation period of more than 1 day and, in the unit valuation period,—

      • (a) acquires or increases an FDR interest to which this section applies; and

      • (b) later disposes of or reduces the FDR interest.

    (8) Section EX 53(9)(a) and (b) are replaced by the following:

    • (a) the total of the amounts (the peak holding method amount) calculated for each FDR interest using the formula in subsection (10):

    • (b) the total of the amounts (the quick sale gain amount) calculated for each FDR interest using the formula in subsection (14), treating a negative total as being zero.

    (9) In section EX 53(15),—

    • (a) in paragraph (a), during the unit valuation period is omitted:

    • (b) in paragraph (c), during the period is omitted.

    (10) After section EX 53(16B), the following is inserted:

    Treatment of attributing interests subject to returning share transfer
    • (16C) If an attributing interest in a FIF is an original share subject to a returning share transfer, for the purposes of a person using the fair dividend rate method to calculate FIF income, the attributing interest is treated as held by the share supplier.

    (11) In section EX 53, in the list of defined terms, foreign investment vehicle, life insurance, original share, portfolio investment entity, returning share transfer, share, and share supplier are inserted.

    (12) In section EX 53, in the list of defined terms,—

    • (a) foreign investment vehicle is omitted:

    • (b) foreign PIE equivalent is inserted.

    (13) Subsection (6) applies for the 2010–11 and later income years.

179 Cost method
  • (1) In section EX 56(3)(ac)(ii), income year; or is replaced by income year; and and the following is added:

    • (iii) the interest was not an attributing interest for the income year before the relevant income year; or”.

    (2) In section EX 56(4), the formula is replaced by the following:

     1.05 × preceding opening. 

    (3) In section EX 56(5), the formula is replaced by the following:

     1.05 × preceding opening + (increase × average cost). 

    (4) In section EX 56(6), the formula is replaced by the following:

     opening shareholding× 1.05 × preceding opening. 
    preceding shareholding

    (5) Section EX 56(9) is repealed.

    (6) In section EX 56(15), the formula is replaced by the following:

     0.05 × peak holding differential × average cost. 

    (7) In section EX 56, in the list of defined terms, close of trading spot exchange rate is omitted.

180 Additional FIF income or loss if CFC owns FIF
  • (1) In section EX 58(1)(a), EX 8 is replaced by EX 14.

    (2) Section EX 58(6) is replaced by the following:

    Non-attributing Australian CFCs
    • (6) This section applies whether or not the CFC is a non-attributing Australian CFC under section EX 22 for the period.

    (3) Section EX 58(7) is repealed.

    (4) Subsections (2) and (3) apply for all income years beginning on or after 1 July 2009.

181 Codes: comparative value method, deemed rate of return method, fair dividend rate method, and cost method
  • (1) Section EX 59(1)(c) is replaced by the following:

    • (c) the fair dividend rate method:.

    (2) After section EX 59(1), the following is inserted:

    Exclusion for interests in grey list companies
    • (1B) Subsection (1)(c) does not apply if—

      • (a) the FIF is a grey list company; and

      • (b) the person holds a direct income interest of 10% or more in the FIF at the beginning of the income year in which the period falls.

    Application of rule for certain managed funds
    • (1C) Subsection (1B) does not apply if—

      • (a) the person is a portfolio investment entity, an entity eligible to be a portfolio investment entity, or a life insurance company; and

      • (b) the FIF is a foreign investment vehicle.

    (3) Section EX 59(1C)(b) is replaced by the following:

    • (b) the FIF is a foreign PIE equivalent.

    (4) After section EX 59(2), the following is inserted:

    Exception to subsection (2): fees rebate
    • (2B) An amount derived by the person from the interest is not disregarded under subsection (2) if—

      • (a) the amount is a rebate of fees; and

      • (b) the person was allowed a deduction for the payment of the fees.

    (5) In section EX 59, in the list of defined terms, company, direct income interest, foreign investment vehicle, grey list company, life insurance, and portfolio investment entity are inserted.

    (6) In section EX 59, in the list of defined terms,—

    • (a) foreign investment vehicle is omitted:

    • (b) foreign PIE equivalent is inserted.

    (7) Subsection (3) applies for the 2010–11 and later income years.

    (8) Subsection (4) applies for the 2009–10 and later income years.

182 Limits on changes of method
  • (1) In section EX 62(1), subsections (2) to (8) is replaced by subsections (2) to (9).

    (2) After section EX 62(8), the following is added:

    Change to fair dividend rate method in return for 2008–09, 2009–10 tax year
    • (9) A person may change to the fair dividend rate method from the branch equivalent method or the accounting profits method in the person's return of income for—

      • (a) the 2008–09 tax year, if the person has not furnished a return for that tax year before the date on which the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 receives the Royal assent; or

      • (b) the 2009–10 tax year, if the person has furnished a return for the 2008–09 tax year before the date on which that Act receives the Royal assent.

    (3) In section EX 62, in the list of defined terms, return, return of income, and tax year are inserted.

183 Changes in application of FIF exemptions
  • (1) In section EX 65(1)(b)(i), sections EX 34 to EX 43 is replaced by sections EX 31 to EX 43.

    (2) In section EX 65(5)(b)(i), sections EX 34 to EX 43 is replaced by sections EX 31 to EX 43.

    (3) Subsections (1) and (2) apply for the 2008–09 and later income years.

184 New section EX 66B inserted
  • (1) After section EX 66, the following is inserted:

    EX 66B Entities ceasing to be FIFs
    • When this section applies

      (1) This section applies when a person holds rights that cease to be an attributing interest in a FIF because an entity ceases to be a FIF.

      Treatment as sale and repurchase

      (2) The person is treated as having,—

      • (a) immediately before the change, disposed of the interest to an unrelated person; and

      • (b) immediately after the change, repurchased the interest; and

      • (c) received for the sale and paid for the repurchase an amount equal to the market value of the interest at the end of the business day on which the change occurred.

      Calculation of reduction in FIF income or loss

      (3) If the change occurs during an accounting period of the FIF and the person uses the accounting profits method or branch equivalent method to calculate FIF income or FIF loss from the rights for that period, section EX 24 does not apply and the FIF income or FIF loss is reduced by subtracting the amount calculated using the formula—

       FIF income or loss × days after change 
       days in period. 
      Definition of items in formula

      (4) In the formula,—

      • (a) FIF income or loss is the FIF income or FIF loss of the person from the rights for the period before allowing for the reduction:

      • (b) days after change is the number of complete days in the period after the change occurs:

      • (c) days in period is the number of days in the period.

      Defined in this Act: accounting period, accounting profits method, amount, attributing interest, branch equivalent method, FIF, FIF income, FIF loss, market value, pay.

    (2) Subsection (1) applies for the 2009–10 and later income years.

185 Sections EY 1 to EY 5 replaced
  • (1) Sections EY 1 to EY 5 are replaced by the following:

    EY 1 What this subpart does
    • Two bases

      (1) This subpart provides for the taxation of life insurers on 2 separate bases, the policyholder base and the shareholder base. Sections EY 2 and EY 3 describe the general apportionment of income and deductions between the 2 bases under this Part. Section LA 8B (General rules particular to life insurers) provides some general rules for tax credits relating to the 2 bases. Parts L and O include tax credit rules and memorandum account rules specific to the 2 bases.

      Schedular policyholder base income and PIE schedular income

      (2) Section EY 2 uses the assessable income in a life insurer's policyholder base income, and the life insurer's policyholder base allowable deductions, to calculate their schedular policyholder base income. A life insurer's schedular income derived by their life fund PIE that is a multi-rate PIE is excluded from their schedular policyholder base income, along with deductions for that income.

      Counting once

      (3) Income and deductions must be apportioned to either the policyholder base or the shareholder base. There is no double-counting.

      Defined in this Act: assessable income, deduction, income, life fund PIE, life insurance, life insurer, life reinsurance, memorandum account, multi-rate PIE, policyholder base, policyholder base income, schedular policyholder base income, shareholder base, tax credit

    EY 2 Policyholder base
    • Policyholder base income

      (1) A life insurer has policyholder base income,—

      • (a) for savings product policies that are not profit participation policies, under section EY 15:

      • (b) for profit participation policies, under section EY 17:

      • (c) under section EY 27(4).

      Policyholder base allowable deductions

      (2) A life insurer has policyholder base allowable deductions,—

      • (a) for savings product policies that are not profit participation policies, under section EY 16:

      • (b) for profit participation policies, under section EY 18:

      • (c) under section EY 27(4):

      • (d) under section EZ 61 (Allowance for cancelled amount: spreading):

      • (e) under section LE 2B (Use of remaining credits by life insurer on policyholder base).

      Schedular policyholder base income

      (3) A life insurer's schedular policyholder base income is the amount given by subtracting their policyholder base allowable deductions for an income year, and any amount carried forward to the income year under subsection (5), from the assessable income in their policyholder base income for the income year.

      Cap on subtracting: ring-fencing policyholder base allowable deductions

      (4) Despite subsection (3), the total amount that is subtracted under subsection (3), including an amount carried forward to the current year under subsection (5), is no more than the amount of the assessable income in the life insurer’s policyholder base income for the income year.

      Excess allocations: carrying forward and re-instating next year

      (5) Any excess not able to be subtracted in the current year because of subsection (4) is carried forward to the next income year.

      Exception

      (6) Despite subsections (3) to (5) a life insurer's schedular income derived by their life fund PIE that is a multi-rate PIE is excluded from their schedular policyholder base income, along with deductions for that income.

      Defined in this Act: amount, assessable income, income year, life fund PIE, life insurance, life insurer, multi-rate PIE, policyholder base allowable deduction, policyholder base income, profit participation policy, savings product policy, schedular income, schedular policyholder base income

    EY 3 Shareholder base
    • Shareholder base income

      (1) A life insurer has shareholder base income,—

      • (a) for policies that are not profit participation policies, under section EY 19: see also subsection (3), for reserves:

      • (b) for profit participation policies, under sections EY 21, EY 28, and EY 29:

      • (c) for annuities, under section EY 31.

      Shareholder base allowable deductions

      (2) A life insurer has shareholder base allowable deductions,—

      • (a) for policies that are not profit participation policies, under section EY 20: see also subsection (3), for reserves:

      • (b) for profit participation policies, under sections EY 22 and EY 28:

      • (c) for the period and policies described in section EY 30, under that section:

      • (d) for annuities, under section EY 31.

      Reserves

      (3) Under sections EY 23 to EY 27, a life insurer calculates reserving amounts for life insurance policies, other than annuities, that have a life risk component and are not profit participation policies. A reserving amount may be income included in their shareholder base income, or a deduction that is included in their shareholder base allowable deduction, as provided by the relevant sections.

      Defined in this Act: deduction, life insurance, life insurance policy, life insurer, life risk, profit participation policy, shareholder base allowable deduction, shareholder base income

    EY 4 Apportionment of income of particular source or nature, and of tax credits
    • Default basis

      (1) For a class of policies, income of a particular source or nature, and tax credits received, are apportioned between the policyholder base and shareholder base––

      • (a) in the same proportion as the policyholder base income relating to the particular source, nature, or credits bears to the life insurer's total gross gains relating to the particular source, nature, or credits, in the case of the policyholder base:

      • (b) in the same proportion as the shareholder base income relating to the particular source, nature, or credits bears to the life insurer's total gross gains relating to the particular source, nature, or credits, in the case of the shareholder base.

      More equitable or reasonable basis

      (2) For a class of policies, the life insurer may use a basis of apportionment that is different from the basis described in subsection (1), if that basis results in an amount, actuarially determined, that is more equitable and reasonable than an amount determined using the basis described in subsection (1).

      Defined in this Act: actuarially determined, amount, class of policies, income, life insurer, policyholder base, policyholder base income, shareholder base, shareholder base income, tax credit

    EY 5 Part-year tax calculations
    • Part-year tax calculations

      (1) For their life insurance and for their general insurance contracts outstanding claims reserve, a life insurer does part-year tax calculations, described in subsection (2), if they do not have an early life regime application day and 1 July 2010 is not the first day of their income year.

      First year part-year calculations: description

      (2) For calculating their income tax liability for the tax year that corresponds to the income year that includes 1 July 2010, where 1 July 2010 is not the first day of the income year, the life insurer treats references, in the new life insurance rules and in the rules they replace, to an income year or a tax year as if they are references to 2 separate tax years and corresponding income years (the part-years) within that first tax year, divided by 1 July 2010 (for example: a rule to calculate an amount of policyholder income for an income year under the replaced rules means the calculation is done for the relevant part-year before 1 July 2010. A rule to calculate an opening reserve amount under sections EY 23 to EY 27 at the beginning of an income year under the new rules means the calculation is done on 1 July 2010, at the beginning of the relevant part-year).

      First year part-year calculations: effect

      (3) The part-year calculations may give rise to income and deductions for the income year, but they do not create any part-year tax return obligations. The 2 part-year calculations compose 1 income tax liability for 1 income year.

      Part-year calculations for transfers

      (4) Where a life insurer (the transferor) transfers life insurance business to another life insurer (the transferee), the transferor does a part-year calculation, as described in subsection (2), for each class of policy in the transferred business, but only for their part-year ending on the day the transfer occurs. The transferee also does a part-year calculation for the transferred policies, as described in subsection (2), but only for their part-year starting on the day the transfer occurs. The transferee's relevant opening part-year reserve amounts under sections EY 23 to EY 27 equal the transferor's relevant closing part-year reserve amounts.

      Part-year calculations for transfers: effect

      (5) Transferor's and transferee's part-year calculations may give rise to income and deductions for the income year, but they do not create any part-year tax return obligations.

      Part-year calculations for transfers: adjustments

      (6) If life reinsurance, associated with a class of policies transferred, is assigned by the transferor to the transferee, then the transferor's relevant closing part-year reserve amounts and the transferee's relevant opening part-year reserve amounts are adjusted, by adding the life reinsurance's value to the transferee's opening, and subtracting it from the transferor's closing.

      Part-year calculations: end of transitional adjustments

      (7) Where, for relevant life insurance policies, the life insurer has a relevant period under section EY 30(5) that ends on 30 June 2015, and 1 July 2015 is not the first day of their income year, the life insurer does part-year tax calculations for the income year that includes 1 July 2015, as described in subsection (2), for the policies, but the income year is divided by 1 July 2015. The effect of the part-year calculations is described in subsection (3).

      Defined in this Act: amount, class of policies, deduction, early life regime application day, income, income tax liability, income year, life insurance, life insurance policies, life insurer, life reinsurance, outstanding claims reserve.

    (2) Subsection (1) applies––

    • (a) on and after 1 July 2010, unless paragraph (b) applies:

    • (b) for an income year that includes 1 July 2010 and later income years, if the life insurer chooses to apply the new life insurance rules in this Act in a return of income for the tax year corresponding to the first relevant income year.

186 Section EY 6 replaced
  • (1) Section EY 6 is replaced by the following:

    EY 6 Actuarial advice and guidance
    • The Commissioner may seek the advice of the Government Actuary or any other actuary on anything that is required to be actuarially determined, or any related matter.

      Defined in this Act: actuarially determined, actuary, Commissioner.

    (2) Subsection (1) applies––

    • (a) on and after 1 July 2010, unless paragraph (b) applies:

    • (b) for an income year that includes 1 July 2010 and later income years, if the life insurer chooses to apply the new life insurance rules in this Act in a return of income for the tax year corresponding to the first relevant income year.

187 Meaning of claim
  • (1) In section EY 7(1)(b), includes is replaced by excludes.

    (2) Subsection (1) applies––

    • (a) on and after 1 July 2010, unless paragraph (b) applies:

    • (b) for an income year that includes 1 July 2010 and later income years, if the life insurer chooses to apply the new life insurance rules in this Act in a return of income for the tax year corresponding to the first relevant income year.

188 Superannuation schemes providing life insurance
  • (1) In section EY 11(7), contributions is replaced by superannuation contributions in both places where it appears.

    (2) In section EY 11(11), contributions is replaced by superannuation contributions in both places where it appears.

    (3) In section EY 11, in the list of defined terms, superannuation contribution is inserted.

    (4) Subsections (1) and (2) apply for the 2008–09 and later income years.

189 Meaning of life reinsurance
  • (1) Section EY 12(1) is replaced by the following:

    Meaning
    • (1) Life reinsurance

      • (a) means a contract of insurance between a life insurer and another person (person C) under which the life insurer is secured, fully or partially, against a risk by person C:

      • (b) does not include a contract that—

        • (i) secures against financial risk unless, in the contract, it is incidental to securing against life risk:

        • (ii) is, or is part of, a tax avoidance arrangement.

    Fully and partially
    • (1B) The words fully and partially describe the extent to which the life insurer is secured against life risk; they do not describe the term for which the reinsurance is provided.

    (2) Section EY 12(4) is replaced by the following:

    Exclusion: financial arrangements and general insurance
    • (4) To the extent to which a contract is a financial arrangement or is insurance that secures a life insurer against liability that arises from insurable events other than death or survival of a human being, that contract is not life reinsurance.

    Other definitions
    • (5) In this Act,—

      life financial reinsurance is a contract that may be life reinsurance under subsection (1)(a), but is not included under subsection (1)(b)

      financial risk––

      • (a) means risk, whether or not specific to a party to the relevant arrangement relating to risk, that is contingent on a valuation or disposal of financial arrangements, or contingent on profitability or creditworthiness, or contingent on a variable such as future expenditure:

      • (b) does not include life risk

      life reinsurer means a person in the position of person C.

    Relationship with subject matter
    • (6) Section EZ 62 (Reinsurance transition: life financial reinsurance may be life reinsurance) overrides this section.

    (3) In section EY 12, in the list of defined terms, financial arrangement, financial risk, and life financial reinsurance are inserted.

    (4) Subsections (1) and (2) apply––

    • (a) on and after 1 July 2010, unless paragraph (b) applies:

    • (b) for an income year that includes 1 July 2010 and later income years, if the life insurer chooses to apply the new life insurance rules in this Act in a return of income for the tax year corresponding to the first relevant income year.

190 Sections EY 15 to EY 47 replaced
  • (1) Sections EY 15 to EY 47 are replaced by the following:

    Policyholder base

    Non-participation policies

    EY 15 Policyholder base income: non-participation policies
    • What is included

      (1) For an income year, a life insurer's income is included as their policyholder base income if it relates to life insurance policies that are not profit participation policies, and it––

      • (a) does not relate to life risk components of premiums and claims:

      • (b) is investment income that––

        • (i) is included in investment income gains or losses in the financial statements of the life insurer; and

        • (ii) is not a premium; and

        • (iii) is fairly attributable to savings product policies.

      Certain income: basis of apportionment

      (2) Despite subsection (1), if an amount of investment income is included in a life insurer's policyholder base income under subsection (1), but may also be shareholder base income under section EY 19, ignoring section EY 19(1)(d), then the investment income is included in policyholder base income to the extent provided by the formula—

       income × average surrender value 
       average savings assets. 
      Definition of items in formula

      (3) In the formula,—

      • (a) income is the income described in subsection (2):

      • (b) average surrender value is, for the savings product policies to which the income relates, the average surrender value of the policies for the income year. The life insurer may determine an equitable and reasonable basis for the measurement of the average:

      • (c) average savings assets is, for the savings product policies to which the income relates, the average market value of assets held by the life insurer for the policies for the income year. The life insurer may determine an equitable and reasonable basis for the measurement of the average.

      More equitable or reasonable basis of apportionment

      (4) Despite subsections (2) and (3), for investment income described in subsection (2), the life insurer may use a basis of apportionment that is different from the one described in subsections (2) and (3), if that basis results in an amount, actuarially determined, that is more equitable and reasonable than an amount determined using the basis described in subsections (2) and (3).

      Treatment of de minimis life risk component amounts

      (5) An amount of income in respect of a policy that, but for this subsection, is an amount related to the life risk of a premium or life reinsurance claim, is treated as not relating to the relevant life risk component for the purposes of subsection (1), if––

      • (a) the life insurer has actuarially determined that the life risk is 1% or less of the premium or life reinsurance claim; and

      • (b) chooses to apply this subsection for the policy.

      Defined in this Act: actuarially determined, amount, claim, income, income year, life insurance policy, life insurer, life reinsurance, life risk, life risk component, market value, premium, policyholder base income, profit participation policy, savings product policy, shareholder base income, surrender value

    EY 16 Policyholder base allowable deductions: non-participation policies
    • What is included

      (1) For an income year, a life insurer's deduction that relates to life insurance policies that are not profit participation policies is included as their policyholder allowable deduction to the extent to which it is incurred in relation to their policyholder base income under section EY 15.

      Basis of apportionment

      (2) Despite subsection (1), if a deduction is included in a life insurer's policyholder base allowable deduction under subsection (1), but may also be a shareholder base allowable deduction under section EY 20, ignoring section EY 20(1)(d), the life insurer must use a basis of apportionment for the deduction which is––

      • (a) the same as in section EY 15(2) and (3) with necessary modifications; or

      • (b) is the same as in section EY 15(4) with necessary modifications.

      Defined in this Act: deduction, income year, life insurance policy, life insurer, policyholder base allowable deduction, policyholder base income, profit participation policy, shareholder base allowable deduction

    Profit participation policies

    EY 17 Policyholder base income: profit participation policies
    • What is included

      (1) For an income year, a life insurer has policyholder base income to the extent to which they have an amount for profit participation policies calculated using the formula—

       asset base gross income × (1 − retained earnings average − future shareholder transfers average) + net transfers. 
       
      Definition of items in formula

      (2) In the formula,—

      • (a) asset base gross income is the amount of annual gross income that the life insurer would have for the policies' asset base, if––

        • (i) the life insurer is treated as having no assets other than the asset base; and

        • (ii) amounts under sections EY 28 and EY 29 are ignored:

      • (b) retained earnings average is an actuarially determined amount that is the average of the following 2 proportions:

        • (i) the proportion of the value of the policies' asset base that is attributable to the life insurer's shareholders at the end of the year before the income year:

        • (ii) the proportion of the value of the policies' asset base that is attributable to the life insurer's shareholders at the end of the income year:

      • (c) future shareholder transfers average is an actuarially determined amount that is the average of the following 2 proportions:

        • (i) the proportion of the value of the policies' asset base that is attributable to the present value (net) of future transfers to the life insurer's shareholders for future bonus declarations that are able to be supported by the supporting asset base at the beginning of the income year:

        • (ii) the proportion of the value of the policies' asset base that is attributable to the present value (net) of future transfers to the life insurer's shareholders for future bonus declarations that are able to be supported by the supporting asset base at the end of the income year:

      • (d) net transfers is the amount transferred to the benefit of policyholders from shareholders in respect of participation policies.

      Meaning of supporting asset base

      (3) Supporting asset base means the asset base for relevant policies excluding—

      • (a) policyholder unvested liabilities:

      • (b) the value of assets attributable to the life insurer's shareholders.

      Defined in this Act: actuarially determined, amount, annual gross income, asset base, income year, life insurer, policyholder base income, present value (net), profit participation policy, supporting asset base

    EY 18 Policyholder base allowable deductions: profit participation policies
    • For an income year, a life insurer has policyholder base allowable deductions equal to the amount they would have, for profit participation policies, under the formula in section EY 17(1), if––

      • (a) the life insurer is treated as having no assets other than the asset base; and

      • (b) the item asset base gross income is treated as being the annual total deduction for the policies' asset base.

      Defined in this Act: amount, annual total deduction, asset base, income year, life insurer, policyholder base allowable deduction, profit participation policy

    Shareholder base

    Non-participation policies

    EY 19 Shareholder base income: non-participation policies
    • What is included

      (1) For an income year, a life insurer's income is included as their shareholder base income if it relates to life insurance policies that are not profit participation policies, and it––

      • (a) relates to life risk components of premiums and claims, other than for annuities, and is not described in paragraphs (b) to (d):

      • (b) relates to fees and commissions:

      • (c) relates to the life risk component of life reinsurance claims:

      • (d) is investment income that is not included as their policyholder base income under section EY 15:

      • (e) is not otherwise accounted for in this subpart, for the income year.

      Treatment of de minimis life risk component amounts

      (2) An amount of income in respect of a policy that, but for this subsection, is an amount related to the life risk of a premium or life reinsurance claim, is treated as not relating to the life risk component for the purposes of subsection (1), if––

      • (a) the life insurer has actuarially determined that the life risk is 1% or less of the premium or life reinsurance claim; and

      • (b) chooses to apply section EY 15(5) for the policy.

      No double-counting

      (3) If an amount is included as shareholder base income under sections EY 23 to EY 29, it is not included under this section.

      Defined in this Act: amount, actuarially determined, claim, income year, life insurer, life insurance policy, life reinsurance, life risk, life risk component, policyholder base income, premium, profit participation policy, shareholder base income

    EY 20 Shareholder base allowable deductions: non-participation policies
    • What is included

      (1) For an income year, a life insurer's deduction is included as their shareholder base allowable deduction if it relates to life insurance policies that are not profit participation policies, and it––

      • (a) relates to life risk components of premiums and claims, other than for annuities, and is not described in paragraphs (b) to (e):

      • (b) relates to fees and commissions:

      • (c) relates to the life risk component of life reinsurance premiums:

      • (d) is a deduction in relation to investment income that is not included as their policyholder base allowable deduction under section EY 16:

      • (e) is a premium payback amount, and––

        • (i) section EY 19 applies or has applied to include the original premium as shareholder base income; and

        • (ii) section EY 30(7) does not apply or has not applied to calculate a transitional amount for the original premium:

      • (f) is not otherwise accounted for in this subpart, for the income year.

      No double-counting

      (2) If an amount is included as shareholder base allowable deduction under sections EY 23 to EY 29, it is not included under this section.

      Defined in this Act: amount, claim, deduction, income year, life insurer, life insurance policy, life reinsurance, life risk component, policyholder base allowable deduction, premium, premium payback amount, profit participation policy, shareholder base allowable deduction, shareholder base income

    Profit participation policies

    EY 21 Shareholder base income: profit participation policies
    • What is included

      (1) For an income year, a life insurer has shareholder base income to the extent to which they have an amount for profit participation policies calculated using the formula—

       asset base gross income × (retained earnings average + future shareholder transfers average) − net transfers. 
       
      Definition of items in formula

      (2) In the formula,—

      • (a) asset base gross income is the amount of annual gross income that the life insurer would have for the profit participation policies' asset base, if––

        • (i) the life insurer is treated as having no assets other than the asset base; and

        • (ii) amounts under sections EY 28 and EY 29 are ignored:

      • (b) retained earnings average is an actuarially determined amount that is the average of the following 2 proportions:

        • (i) the proportion of the value of the policies' asset base that is attributable to the life insurer's shareholders at the end of the year before the income year:

        • (ii) the proportion of the value of the policies' asset base that is attributable to the life insurer's shareholders at the end of the income year:

      • (c) future shareholder transfers average is an actuarially determined amount that is the average of the following 2 proportions:

        • (i) the proportion of the value of the policies' asset base that is attributable to the present value (net) of future transfers to the life insurer's shareholders for future bonus declarations that are able to be supported by the supporting asset base at the beginning of the income year:

        • (ii) the proportion of the value of the policies' asset base that is attributable to the present value (net) of future transfers to the life insurer's shareholders for future bonus declarations that are able to be supported by the supporting asset base at the end of the income year:

      • (d) net transfers is the amount transferred to the benefit of policyholders from shareholders in respect of profit participation policies.

      Defined in this Act: actuarially determined, amount, annual gross income, asset base, income, income year, life insurer, present value (net), profit participation policy, shareholder base income, supporting asset base

    EY 22 Shareholder base allowable deductions: profit participation policies
    • For an income year, a life insurer has shareholder base allowable deductions equal to the amount they would have, for profit participation policies, under the formula in section EY 21(1) if––

      • (a) the life insurer is treated as having no assets other than the asset base; and

      • (b) the item asset base gross income is treated as being the annual total deduction for the policies' asset base.

      Defined in this Act: amount, annual total deduction, asset base, income year, life insurer, profit participation policy, shareholder base allowable deduction

    Non-participation policies: reserves

    EY 23 Reserving amounts for life insurers: non-participation policies
    • Reserves

      (1) Sections EY 24 to EY 27 apply to calculate a life insurer's reserving amounts for life insurance policies, other than annuities, that have a life risk component and that are not profit participation policies.

      Actuarial determination

      (2) All reserving amounts must be actuarially determined, for each class of policies.

      Positive and negative amounts: shareholder base income or shareholder base allowable deduction

      (3) If a reserving amount calculated under sections EY 24 to EY 27 is a positive amount, the life insurer has that amount as income included in their shareholder base income. If a reserving amount calculated under sections EY 24 to EY 27 is a negative amount, the life insurer has that amount as a deduction included in their shareholder base allowable deductions.

      Which reserve can be used when?

      (4) For an income year, for a relevant class of policies, a life insurer has a reserving amount described in—

      • (a) section EY 24, for outstanding claims reserves (the outstanding claims reserving amount):

      • (b) section EY 25, for premium smoothing reserves (the premium smoothing reserving amount) if the life insurer chooses to calculate a premium smoothing reserving amount and the PSR periods for policies in the class of policies begins, continues or ends in the income year:

      • (c) section EY 26, for unearned premium reserves (the unearned premium reserving amount), if the life insurer chooses to not calculate a premium smoothing reserving amount:

      • (d) section EY 27, for capital guarantee reserves (the capital guarantee reserving amount).

      Choice

      (5) Despite subsection (4)(b) and (c), a life insurer may not change between calculating a premium smoothing reserving amount and an unearned premium reserving amount for a class of policies once the premium smoothing reserving amount is used for the class of policies. If a policy in a class of policies does not meet the relevant requirements described in subsection (6), then a life insurer has an unearned premium reserving amount for that class of policy.

      Meaning of PSR period

      (6) PSR period means, for a policy in the relevant class of policies, a period beginning, continuing or ending in the income year for which––

      • (a) premiums payable are level or substantially level, and the period is 1 or more years; or

      • (b) there is a material mismatch between the incidence of life risk components and the timing of premiums payable, and the period is 1 or more years.

      Defined in this Act: actuarially determined, amount, class of policies, deduction, income year, life insurance policy, life insurer, life risk, life risk component, premium, profit participation policy, PSR period, shareholder base allowable deduction, shareholder base income

    EY 24 Outstanding claims reserving amount: non-participation policies not annuities
    • Calculation of reserving amount

      (1) For an income year (the current year), a life insurer has an outstanding claims reserving amount for a class of policies calculated using the formula—

       opening outstanding claims reserve
      − closing outstanding claims reserve.
      Definition of items in formula

      (2) In the formula in subsection (1),—

      • (a) opening outstanding claims reserve is—

        • (i) the amount of the life insurer’s closing outstanding claims reserve for the class of policies, for the income year before the current year (the prior year); or

        • (ii) if the life insurer has no closing outstanding claims reserve for the prior year, the amount of the life insurer's outstanding claims reserve under subsections (3) and (4) for the class of policies, calculated at the beginning of the current year, but excluding amounts that were included in the closing sum insured for the calculation of mortality profit for the prior year or an earlier income year:

      • (b) closing outstanding claims reserve is the amount of the life insurer’s outstanding claims reserve calculated under subsections (3) and (4) for the class of policies at the end of the current year.

      Outstanding claims reserve calculation

      (3) A life insurer’s outstanding claims reserve is calculated for the relevant policies using the formula—

      life risk claims incurred + life risk claims reported + risk margin.
      Definition of items in formula

      (4) In the formula in subsection (3),—

      • (a) life risk claims incurred is the actuarially determined estimate of present values (gross) for the life risk components of claims not yet reported to the life insurer before the end of the current year, but the insured-against event has occurred. The life risk components must take into account the probability of the claims being paid, and future expenses for administering the claims, but the present value (gross) of relevant life reinsurance claims must be subtracted from the total:

      • (b) life risk claims reported is the present values (gross) of the life risk components of claims reported but not yet paid. The life risk components must take into account the probability of the claims being paid, and future expenses for administering the claims, but the present values (gross) of relevant life reinsurance claims must be subtracted from the total:

      • (c) risk margin is the appropriate margin for the life risk components of claims described in paragraph (a) or (b), to the extent to which the margin is actuarially determined, reflects the uncertainty of the estimates that arise from the use of the relevant best estimate assumptions, and is not already included in the life risk components of the claims.

      Defined in this Act: amount, best estimate assumptions, claim, class of policies, income year, life insurer, life reinsurance, life risk, life risk component, mortality profit, present value (gross)

    EY 25 Premium smoothing reserving amount: non-participation policies not annuities
    • Calculation of reserving amount

      (1) For an income year (the current year), a life insurer has a premium smoothing reserving amount for a class of policies, during the policies' PSR periods, calculated using the formula––

       opening premium smoothing reserve
      − closing premium smoothing reserve.
      Definition of items in formula

      (2) In the formula,—

      • (a) opening premium smoothing reserve is––

        • (i) the amount of the life insurer’s closing premium smoothing reserve for the class of policies, for the income year (the prior year) before the current year; or

        • (ii) the amount of the life insurer’s premium smoothing reserve calculated under the principles in subsection (3) for the class of policies, calculated at the beginning of the current year, if the life insurer has no closing premium smoothing reserve for the prior year:

      • (b) closing premium smoothing reserve is the amount of the life insurer’s premium smoothing reserve calculated under the principles in subsection (3) for the class of policies, calculated at the end of the current year.

      Premium smoothing reserve calculation: principles

      (3) A premium smoothing reserve for policies in a class of policies, during their PSR periods, is calculated using the following principles:

      • (a) the premium smoothing reserve must allow the calculation of a reserving amount for an income year, such that the reserving amount plus the life risk component of premiums for the policies for the income year must equal the expected life risk proportion:

      • (b) the life risk component of premiums plus reserving amount recognised for tax purposes during the policies' PSR periods must equal the total life risk component of premiums recognised for financial reporting purposes during the PSR periods.

      Best estimate assumptions for PSR

      (4) Closing and opening premium smoothing reserve amounts must be actuarially determined, using best estimate assumptions.

      Special grouping rule for the purposes of best estimate assumptions

      (5) For the purposes of determining premium smoothing reserve amounts, life insurance policies may be grouped together if the policies have in common,––

      • (a) substantially the same contractual terms and conditions, other than their PSR periods; and

      • (b) substantially the same assumptions for pricing their life risk.

      Meaning of expected life risk proportion

      (6) In this section, expected life risk proportion means a proportion of the total life risk and life risk renewal expenses of premiums for life insurance policies in the relevant class during their PSR periods, where that proportion fairly reflects the life risk and an amount of life risk renewal expenses expected to be borne in that income year if the policies were still existing at the earlier of––

      • (a) the end of the income year:

      • (b) immediately before the end of the policies' PSR period.

      Defined in this Act: amount, actuarially determined, best estimate assumptions, class of policies, expected life risk proportion, income year, life insurance policy, life insurer, life risk, life risk component, premium, PSR period

    EY 26 Unearned premium reserving amount: non-participation policies not annuities
    • Calculation of reserving amount

      (1) For an income year (the current year), a life insurer has an unearned premium reserving amount for a class of policies calculated using the formula—

       opening unearned premium reserve
      − closing unearned premium reserve.
       
      Definition of items in formula

      (2) In the formula,—

      • (a) opening unearned premium reserve is—

        • (i) the amount of the life insurer’s closing unearned premium reserve for the class of policies, for the income year before the current year; or

        • (ii) the amount of the life insurer’s unearned premium reserve under subsection (3) for the class of policies, calculated at the beginning of the current year, if the life insurer has no closing unearned premium reserve for the income year before the current year:

      • (b) closing unearned premium reserve is the amount of the life insurer’s unearned premium reserve under subsection (3) for the class of policies, calculated at the end of the current year.

      Unearned premium reserve

      (3) A life insurer's unearned premium reserve is the amount of the premium in the current year or a prior year, for the relevant policies, that relates to life risk components and relevant costs, in income years after the current year, but subtracting relevant life reinsurance premiums.

      Defined in this Act: amount, class of policies, income year, life insurer, life reinsurance, life risk component

    EY 27 Capital guarantee reserving amount: non-participation policies not annuities
    • Calculation of reserving amount

      (1) For an income year (the current year), a life insurer has a reserving amount for a class of policies calculated using the formula—

      opening capital guarantee reserve − closing capital guarantee reserve.
      Definition of items in formula

      (2) In the formula,—

      • (a) opening capital guarantee reserve is—

        • (i) the amount of the life insurer’s closing capital guarantee reserve for the class of policies, for the income year before the current year; or

        • (ii) the amount of the life insurer’s capital guarantee reserve under subsection (3) for the class of policies, calculated at the beginning of the current year, if the life insurer has no closing capital guarantee reserve for the income year before the current year:

      • (b) closing capital guarantee reserve is the amount of the life insurer’s capital guarantee reserve under subsection (3) for the class of policies, calculated at the end of the current year.

      Capital guarantee reserve

      (3) A life insurer’s capital guarantee reserve is the net amount of credits and debits on account of a risk-linked provision for future obligations in relation to a guarantee, for the class of policies, by the life insurer that capital invested will be returned or that a minimum return on capital will be paid.

      Reflex in policyholder base

      (4) For the current year, if the reserving amount under this section is positive, the life insurer has that amount as a deduction included in their policyholder base allowable deductions. For the current year, if the reserving amount under this section is negative, the life insurer has that amount as income included in their policyholder base income.

      Reflex in policyholder base: exception

      (5) Despite subsection (4), for the current year, the life insurer does not have that amount as income included in their policyholder base income to the extent to which the amount represents payment on account of lost capital in the policyholder base.

      Defined in this Act: amount, class of policies, income year, life insurer, pay, policyholder base, policyholder base allowable deduction, policyholder base income

    Shareholder base other profit: profit participation policies

    EY 28 Shareholder base other profit: profit participation policies that are existing business
    • Calculation of income

      (1) For an income year, a life insurer has an amount, for profit participation policies that are existing business, that is calculated using the formula––

       other profit × gate  
      (1 + gate).
      Definition of items in formula

      (2) In the formula in subsection (1),—

      • (a) other profit is the amount calculated for the income year under subsection (4):

      • (b) gate is the proportion of a policyholder's share of profits from the asset base that is used in the formula that calculates a transfer to the benefit of the life insurer's shareholders from the profits of the asset base, as described in paragraph (a)(iii) of the definition of profit participation policy.

      Formula: negative amounts and positive amounts

      (3) If, for an income year, the formula in subsection (1) calculates a positive amount, that amount is included as income in the life insurer’s shareholder base income. If it is a negative amount, then that amount is included as a deduction in the life insurer’s shareholder base allowable deductions.

      Other profit

      (4) For the purposes of the item other profit in subsection (2), an amount is calculated, for the income year (the current year) for profit participation policies that are existing business, using the following formula:

      (premiums − premiums estimate) − (claims − claims estimate)
      − (closing policy liabilities − estimated closing policy liabilities).
      Definition of items in formula

      (5) In the formula in subsection (4),—

      • (a) premiums is the amount of premiums for policies for the current year, but subtracting relevant life reinsurance premiums:

      • (b) premiums estimate is the actuarially determined total amount of premiums that the life insurer expected, using best estimate assumptions, to receive in the current year for policies that were in force at the start of the current year or are first entered into in the current year, after subtracting the present value (net) of relevant life reinsurance premiums:

      • (c) claims is the amount of claims for the current year, after subtracting relevant life reinsurance claims:

      • (d) claims estimate is the actuarially determined total amount of claims that the life insurer expected, using best estimate assumptions, to receive in the current year for policies that were in force at the start of the current year or are first entered into in the current year, after subtracting the present value (net) of relevant life reinsurance claims:

      • (e) closing policy liabilities is the total amount of policy liabilities for policies determined at the end of the current year for vested benefits after the previous year's bonus declaration:

      • (f) estimated closing policy liabilities is the total estimated policy liabilities at the end of the current year for policies in force at the start of the current year and expected to be in force at the end of the current year, taking into account vested benefits after the previous year's bonus. The estimated policy liabilities must not take into account any future bonus declarations, and must use best estimate assumptions.

      Meaning of policy liabilities

      (6) For the purposes of subsection (5), policy liabilities means, for a policy, an actuarially determined amount that is the present value (net) of future claims, plus the present value (net) of future expenditure or loss, plus the present value (net) of future tax payments, less the present value (net) of future premiums. Relevant life reinsurance premiums and claims must be subtracted.

      Basis of best estimate assumptions in actuarially determining items

      (7) The same best estimate assumptions must be used for actuarially determining the items premiums estimate, claims estimate, and policy liabilities in this section. The assumptions may be appropriate for the start of the year, or for the end of the year, but once the choice is made between start of the year and end of the year, that basis may not be changed.

      Meaning of existing business

      (8) For the purposes of this section and section EY 29, existing business means, for a policy, that it is––

      • (a) issued on or before 30 June 2009; or

      • (b) issued after 30 June 2009, if––

        • (i) issued on the same substantial and material terms, conditions, and bonus entitlements as profit participation policies that the life insurer issued on or before 30 June 2009, ignoring any annual increase in life insurance cover that is less than 10% or less than annual percentage change in the consumer price index:

        • (ii) issued as the result of conversion rights in a policy issued on or before 30 June 2009.

      Defined in this Act: actuarially determined, amount, best estimate assumptions, claim, existing business, income year, life insurance, life insurance policy, life insurer, life reinsurance, premium, present value (net), profit participation policy

    EY 29 Shareholder base other profit: profit participation policies that are new business
    • Calculation of income

      (1) For an income year, a life insurer has an amount, for profit participation policies that are new business, that is calculated using the formula—

       other profit × gate– previous negative amount. 
      (1 + gate)
      Definition of items in formula

      (2) In the formula in subsection (1),—

      • (a) other profit is the amount calculated for the income year under subsections (5) to (9):

      • (b) gate is the proportion of a policyholder's share of profits from the asset base that is used in the formula that calculates a transfer to the benefit of the life insurer's shareholders from the profits of the asset base, as described in paragraph (a)(iii) of the definition of profit participation policy:

      • (c) previous negative amount is the amount from the previous year described in subsections (3) and (4).

      Formula: negative amounts and positive amounts

      (3) If, for an income year, the formula in subsection (1) calculates a positive amount, that amount is included as income in the life insurer’s shareholder base income. If it is a negative amount, then that amount is not included as a deduction in the life insurer’s shareholder base allowable deductions, but see subsection (4).

      Negative amounts: carry forward

      (4) The amount by which the amount calculated using the formula in subsection (1) is less than zero is carried forward to the next income year, to be used under this section in the formula as the item previous negative amount in that next year.

      Other profit

      (5) For the purposes of the item other profit in subsection (2), an amount is calculated, for the income year (the current year) for profit participation policies that are new business, using the following formula:

      (premiums − premiums estimate) − (claims − claims estimate)
      − (closing policy liabilities − estimated closing policy liabilities).
      Definition of items in formula

      (6) In the formula in subsection (5),—

      • (a) premiums is the amount of premiums for policies for the current year, but subtracting relevant life reinsurance premiums:

      • (b) premiums estimate is the amount of valuation premiums that the life insurer expected, using best estimate assumptions, to receive in the current year for policies that are in force at the start of the current year, or are first entered into in the current year, after subtracting the present value (net) of relevant life reinsurance premiums:

      • (c) claims is the amount of claims for the current year, after subtracting relevant life reinsurance claims:

      • (d) claims estimate is the actuarially determined amount of claims that the life insurer expected, using best estimate assumptions, to receive in the current year for policies that are in force at the start of the current year, or are first entered into in the current year, ignoring surrenders and after subtracting the present value (net) of relevant life reinsurance claims:

      • (e) closing policy liabilities is the amount of policy liabilities for policies determined at the end of the current year for vested benefits after the previous year's bonus declaration:

      • (f) estimated closing policy liabilities is the estimated policy liabilities at the end of the current year for policies in force at the start of the current year and expected to be in force at the end of the current year, taking into account vested benefits after the previous year's bonus. The estimated policy liabilities must not take into account any future bonus declarations, and must use best estimate assumptions.

      Meaning of valuation premiums

      (7) In this section, valuation premiums means the amount of premiums payable for a policy, actuarially determined by reference to the premium formula used when the policy was first entered into, or, if the premium formula is unavailable, by reference to mortality, expense, and other assumptions applicable to premiums for similar policies at the beginning of the income year in which the policy was first entered into. The valuation premiums must not include any allowance for future bonus declarations or future shareholder profits. The amount of the valuation premium for a policy must not change, unless significant changes to the policy justify changing the valuation premium.

      Meaning of policy liabilities

      (8) In this section, policy liabilities means, for a policy, an actuarially determined amount that is the present value (net) of future mortality and maturity claims, plus the present value (net) of future expenditure or loss, plus the present value (net) of future tax payments, less the present value (net) of future valuation premiums. The amount of policy liabilities must not include any allowance for surrenders or the payment of surrender values and relevant life reinsurance premiums and claims must be subtracted. The minimum amount of policy liabilities for a policy is the current surrender value of the policy.

      Basis of best estimate assumptions in actuarially determining items

      (9) The same best estimate assumptions must be used for actuarially determining the items premiums estimate, claims estimate, and policy liabilities in this section. The assumptions may be appropriate for the start of the year, or for the end of the year, but once the choice is made between start of the year and end of the year, the assumptions must not be changed.

      Meaning of new business

      (10) For the purposes of this section, new business means, for a policy, that it is not existing business under section EY 28.

      Defined in this Act: actuarially determined, amount, best estimate assumptions, claim, existing business, income year, life insurance policy, life insurer, life reinsurance, new business, premium, present value (net), profit participation policy, valuation premiums

    Transitional adjustments and annuities

    EY 30 Transitional adjustments: life risk
    • When this section applies: treatment of old and new policies

      (1) This section applies to life insurance policies described in subsections (2) to (4). For the purposes of this section, a policy (the new policy) is treated as being issued at the same time as another policy (the old policy) that the new policy replaces, if the replacement is caused by––

      • (a) reinstating the old policy due to a lapse by the insured in premium payments, if the new policy comes into force within 90 days of the lapse, and the life insurer treats the new policy and old policy the same; or

      • (b) the life insurer being sold, or the life insurer selling its rights and obligations under the old policy.

      Life insurance policies

      (2) This section applies to a life insurance policy, excluding an annuity, a group life master policy, credit card repayment insurance, and an employer sponsored group policy, if the policy is issued by the life insurer before the grandparenting start day or if the life insurer receives an application and a deposit in money before the grandparenting start day for the policy which is issued after that day, and––

      • (a) the life insurer has no policyholder base income or policyholder base allowable deduction for the policy; and

      • (b) the policy meets the relevant requirements for the relevant period described in subsection (5)(a) to (c); and

      • (c) the amount of life insurance cover does not increase for a cover review period that is wholly or partly in the relevant income year by more than the greater of––

        • (i) 10% of the insurance cover at the beginning of the cover review period; and

        • (ii) the percentage change in consumer price index for the cover review period.

      Group life master policies

      (3) This section applies to a group life master policy, if the policy is issued by the life insurer before the grandparenting start day or if the life insurer receives an application and a deposit in money before the grandparenting start day for the policy which is issued after that day, and––

      • (a) the life insurer has no policyholder base income or policyholder base allowable deduction for the policy; and

      • (b) the policy meets the requirements for the period described in subsection (5)(c), or, looking through to the individual lives covered, to the extent to which the policy meets the requirements of subsection (5)(a); and

      • (c) to the extent to which, looking through to the individual lives covered, the cover was first in place before the grandparenting start day; and

      • (d) the substantial and material terms and conditions of the policy do not change on or after the grandparenting start day; and

      • (e) the amount of life insurance cover, looking through to the individual lives covered, does not increase for a cover review period that is wholly or partly in the relevant income year by more than the greater of––

        • (i) 10% of the life insurance cover at the beginning of the cover review period; and

        • (ii) the percentage change in consumer price index for the cover review period.

      Credit card repayment insurance and employer sponsored group policies

      (4) This section applies to a credit card repayment insurance and to an employer sponsored group policy, if the policy is issued by the life insurer before the grandparenting start day or if the life insurer receives an application and a deposit in money before the grandparenting start day, and––

      • (a) the life insurer has no policyholder base income or policyholder base allowable deduction for the policy; and

      • (b) the policy meets the requirements for the period described in subsection (5)(c); and

      • (c) to the extent to which, looking through to the individual lives covered, the cover was first in place before the grandparenting start day, if the policy is an employer sponsored group policy; and

      • (d) the substantial and material terms and conditions of the policy do not change on or after the grandparenting start day.

      Requirements and periods for which this section applies

      (5) For the purposes of subsections (2)(b), (3)(b), and (4)(b), this section applies to a policy to the extent to which, for the following relevant period, it is described by the following relevant requirements:

      • (a) for a life insurance policy for which only 1 premium is ever payable, or for which the amount of each premium is the same, the period that––

        • (i) starts on the grandparenting start day; and

        • (ii) finishes on the day that the policy ceases to be in force:

      • (b) for a life insurance policy for which the premium is set for a continuous period beginning before the grandparenting start day and the premium does not go up in the period (the continuous rate period), the period that starts on the grandparenting start day and ends on the later of the following:

        • (i) the day that is the last day of the continuous rate period:

        • (ii) whichever day described in paragraph (c)(i) and (ii) is earlier:

      • (c) for a life insurance policy for which the premium may vary each year, the period that starts on the grandparenting start day and ends on the earlier of the following:

        • (i) the day that the policy expires:

        • (ii) the day that is before the 5 years anniversary of the grandparenting start day.

      When this section does not apply: once-only opt out

      (6) This section does not apply to a class of policies after the life insurer irrevocably chooses in a notice received by the Commissioner that this section does not apply for the class.

      Adjustment

      (7) For the income year, a life insurer has an amount of shareholder base allowable deduction calculated for a class of policies using the formula––

       premiums − total net reserving amounts
      − (1.2 × expected death strain).
      Definition of items in formula

      (8) In the formula,—

      • (a) premiums is the life insurer’s total premiums for the income year for the policies, but subtracting relevant life reinsurance premiums:

      • (b) total net reserving amounts is the total of reserving amounts for the income year under sections EY 24 to EY 27, but treating amounts that are shareholder base income as negative amounts, and amounts that are shareholder base allowable deductions as positive amounts:

      • (c) expected death strain is the amount calculated under the expected death strain formula (life) in accordance with sections EZ 53 to EZ 60 (which relate to the transitional adjustment for expected death strain) for the income year.

      Negative amounts

      (9) If subsection (7) gives a negative amount for a policy, it is ignored for that policy.

      Meaning of cover review period

      (10) Cover review period means––

      • (a) the relevant income year, if the life insurer has not chosen a different period under paragraph (b):

      • (b) a period of a year that has a starting and anniversary date that the life insurer irrevocably chooses, for a class of policies, in a return of income for the tax year corresponding to the income year in which the grandparenting start day is included.

      Meaning of credit card repayment insurance

      (11) Credit card repayment insurance means a life insurance policy with multiple individuals' life insurance cover grouped under it, if––

      • (a) the group of individuals is identified in the policy and the general public are excluded; and

      • (b) the benefits of the cover are for the repayment of an outstanding debt balance of a credit card.

      Meaning of employer sponsored group policies

      (12) Employer sponsored group policy means a life insurance policy with multiple individual's life insurance cover grouped under it, if––

      • (a) the group of individuals is identified in the policy as employees and the general public are excluded; and

      • (b) the benefits of the cover are determined by a calculation that is based on age, salary or wages, or employee seniority.

      Meaning of grandparenting start day

      (13) Grandparenting start day means––

      • (a) 1 July 2010, if paragraph (b) does not apply:

      • (b) a life insurer's early life regime application day, if the life insurer irrevocably chooses that day as their grandparenting start day.

      Meaning of group life master policies

      (14) Group life master policy means a life insurance policy with multiple individual's life insurance cover grouped under it, if the group of individuals is identified in the policy and the general public are excluded. Life reinsurance policies are group life master policies but credit card repayment insurance and employer sponsored group policies are not group life master policies.

      Defined in this Act: amount, Commissioner, cover review period, credit card repayment insurance, class of policies, early life regime application day, employer sponsored group policy, grandparenting start day, group life master policy, income year, life insurance, life insurer, life reinsurance, policyholder base allowable deduction, policyholder base income, shareholder base allowable deduction, shareholder base income

    EY 31 Annuities
    • When this section applies

      (1) This section applies when a life insurance policy is an annuity.

      Adjustment

      (2) For the income year, a life insurer has an amount calculated for the relevant annuities using the formula—

      closing actuarial reserves − (0.99 × expected death strain).
      Definition of items in formula

      (3) In the formula,—

      • (a) closing actuarial reserves is the life insurer’s closing actuarial reserves (active annuities), calculated in accordance with section EZ 59(2) (Meaning of actuarial reserves):

      • (b) expected death strain is the amount calculated under the expected death strain formula (active annuities) in accordance with sections EZ 53 to EZ 60 (which relate to the transitional adjustment for expected death strain) for the income year.

      Positive and negative amounts

      (4) If the formula in subsection (2) gives a positive amount, the life insurer has that amount as income included in their shareholder base income. If the formula in subsection (2) gives a negative amount, the life insurer has that amount as a deduction included in their shareholder base allowable deductions.

      Defined in this Act: amount, income year, life insurer, life insurance policy, shareholder base allowable deduction, shareholder base income.

    (2) Subsection (1) applies––

    • (a) on and after 1 July 2010, unless paragraph (b) applies:

    • (b) for an income year that includes 1 July 2010 and later income years, if the life insurer chooses to apply the new life insurance rules in this Act in a return of income for the tax year corresponding to the first relevant income year.

191 Policyholder income formula: FDR adjustment
  • (1) Section EY 43B(1)(a) and (b) are replaced by the following:

    • (a) property is an attributing interest in a FIF held by a life insurer or by a multi-rate PIE that the life insurer has invested in, directly or indirectly; and

    • (b) the life insurer or the multi-rate PIE uses the fair dividend rate method for the property; and.

    (2) Section EY 43B(2) is replaced by the following:

    When has life insurer indirectly invested in multi-rate PIE?
    • (2) For the purposes of subsection (1), a life insurer is treated as investing indirectly in a multi-rate PIE (PIE A