Income Tax Act 2004

CB 24 Income equalisation schemes

CB 24B Environmental restoration accounts

Minerals

CB 25 Disposal of minerals

Intellectual property

CB 26 Sale of patent applications or patent rights

Transfer of business

CB 27 Sale of business: transferred employment income obligations

Stolen property

CB 28 Property obtained by theft

Subpart CC—Income from holding property (excluding equity)

Land use

CC 1 Land

CC 2 Non-compliance with covenant for repair

Financial instruments

CC 3 Financial arrangements

CC 4 Payments of interest

CC 5 Annuities

CC 6 Prizes received under Building Societies Act 1965

CC 7 Consideration other than in money

CC 8 Use of money interest payable by Commissioner

Royalties

CC 9 Royalties

CC 10 Films

Subpart CD—Income from equity

Income

CD 1 Dividend

CD 1B Distribution excluded from being dividend

What is a dividend?

CD 2 Meaning of dividend

CD 3 Transfers of value generally

CD 4 What is a transfer of value?

CD 5 When is a transfer caused by a shareholding relationship?

CD 6 Bonus issues in lieu of dividend

CD 7 Elections to make bonus issue into dividend

CD 7B Interests in money or property of foreign unit trust

CD 7C Bonus issue by foreign unit trust instead of money or property

CD 8 Notional distributions of producer boards and co-operative companies

CD 9 Tax credits linked to dividends

CD 10 Certain dividends not increased by tax credits

CD 10B Credit transfer notice

CD 10C Dividend reduced if foreign tax paid on company's income

CD 11 Foreign tax credits and refunds linked to dividends

CD 12 Benefits of shareholder-employees or directors

CD 13 Attributed repatriations from controlled foreign companies

What is not a dividend?

CD 14 Returns of capital: off-market share cancellations

CD 15 Ordering rule and slice rule

CD 16 Returns of capital: on-market share cancellations

CD 17 Treasury stock acquisitions

CD 18 Capital distributions on liquidation or emigration

CD 19 Property made available intra-group

CD 20 Transfers of certain excepted financial arrangements within wholly-owned groups

CD 21 Non-taxable bonus issues

CD 21B Transfer by unit trust of legal interest after beneficial interest vests

CD 22 Flat-owning companies

CD 23 Employee benefits

CD 24 Payments corresponding to notional distributions of producer boards and co-operative companies

CD 24B Distribution to member of co-operative company based on member's transactions

CD 25 Qualifying amalgamations

CD 26 Foreign investment fund income

Calculation rules

CD 27 General calculation rule for transfers of value

CD 28 Calculation of amount of dividend when property made available

CD 29 Adjustment if dividend recovered by company

CD 30 Adjustment if amount repaid later

CD 31 Adjustment if additional consideration paid

CD 32 Available subscribed capital amount

CD 33 Available capital distribution amount

CFC attributed repatriation calculation rules

CD 34 When does a person have attributed repatriation from a CFC?

CD 35 New Zealand repatriation amount

CD 36 New Zealand property amount

CD 37 Cost of tangible property

CD 38 Cost of associated party equity

CD 39 Outstanding balances of financial arrangements

CD 40 Property transfers between associated persons

CD 41 Unrepatriated income balance

Prevention of double taxation

CD 42 Prevention of double taxation of share cancellation dividends

Returning share transfers

CD 43 Replacement payments

Subpart CE—Employee or contractor income

Employment income

CE 1 Amounts derived in connection with employment

CE 2 Value and timing of benefits under share purchase agreements

CE 3 Restrictions on disposal of shares under share purchase agreements

CE 4 Adjustments to value of benefits under share purchase agreements

CE 5 Meaning of expenditure on account of an employee

CE 6 Meaning of share: when share acquired

CE 7 Meaning of share purchase agreement

Attributed income

CE 8 Attributed income from personal services

Restrictive covenants and exit inducement payments

CE 9 Restrictive covenants

CE 10 Exit inducements

Income protection insurance

CE 11 Proceeds from claims under policies of income protection insurance

Tax credits

[Not in force]

CE 12 Tax credits under section LD 1B added to caregiver's income [Not in force]

Subpart CF—Income from living allowances, compensation, and government grants

CF 1 Benefits, pensions, compensation, and government grants

CF 2 Remission of specified suspensory loans

Subpart CG—Recoveries

CG 1 Amount of depreciation recovery income

CG 2 Remitted amounts

CG 3 Bad debt repayment

CG 4 Recovered expenditure or loss

CG 5 Recoveries or receipts by employers from superannuation schemes

CG 6 Receipts from insurance, indemnity, or compensation for trading stock

Subpart CH—Adjustments

Matching rules: revenue account property, prepayments, and deferred payments

CH 1 Adjustment for closing values of trading stock, livestock, and excepted financial arrangements

CH 2 Adjustment for prepayments

CH 3 Adjustment for deferred payment of employment income

CH 4 Adjustment for change to accounting practice

GST

CH 5 Adjustment for GST

Subpart CP—Income from portfolio investment entities

CP 1 Portfolio investor allocated income

Subpart CQ—Attributed income from foreign equity

Attributed controlled foreign company income

CQ 1 Attributed controlled foreign company income

CQ 2 When attributed CFC income arises

CQ 3 Calculation of attributed CFC income

Foreign investment fund income

CQ 4 Foreign investment fund income

CQ 5 When FIF income arises

CQ 6 Calculation of FIF income

Subpart CR—Income from life insurance

CR 1 Income of life insurer

CR 2 Amount of income of life insurer

Subpart CS—Superannuation funds

Withdrawals

CS 1 Withdrawals

Exclusions

CS 2 Exclusions of withdrawals of various kinds

CS 3 Exclusion of withdrawal on grounds of hardship

CS 4 Exclusion of withdrawal to settle division of relationship property

CS 5 Exclusion of withdrawal paid as annuity or pension

CS 6 Exclusion of withdrawal on partial retirement

CS 7 Exclusion of withdrawal when member ends employment

CS 8 Exclusion of withdrawal when member ends employment: lock-in rule

CS 9 Exclusion of withdrawal from defined benefit fund when member ends employment

CS 10 When member treated as not ending employment

Transfers to or from superannuation funds and superannuation schemes

CS 11 Transfer by superannuation fund to another superannuation fund

CS 12 Transfer from superannuation scheme to superannuation fund

CS 13 Investment by superannuation fund in another superannuation fund

Treatment of amounts when superannuation fund becomes superannuation scheme or vice versa

CS 14 Superannuation fund becomes superannuation scheme

CS 15 Superannuation fund becomes foreign superannuation scheme

CS 16 Superannuation scheme becomes superannuation fund

Treatment of distributions when superannuation fund wound up

CS 17 Superannuation fund wound up

Subpart CT—Income from petroleum mining

CT 1 Disposal of exploratory material or petroleum mining asset

CT 2 Damage to assets

CT 3 Exploratory well used for commercial production

CT 4 Partnership interests and disposal of part of asset

CT 5 Petroleum mining operations outside New Zealand

CT 6 Meaning of petroleum miner

CT 7 Meaning of petroleum mining asset

Subpart CU—Income from mineral mining

CU 1 Mining company's 2 kinds of income

Income from mining

CU 2 Mining company that processes or manufactures

CU 3 Disposal of assets

CU 4 Compensation for lost, destroyed, or damaged assets

CU 5 Compensation and scrap payment: income from mining

CU 6 Compensation and scrap payment: use to replace or repair asset

CU 7 Compensation and scrap payment: not income from mining

CU 8 Compensation and scrap payment: more than expenditure

CU 9 Previous deduction for income appropriated

CU 10 Mining asset used to derive income other than income from mining

CU 11 Meaning of asset for sections CU 3 to CU 10

CU 12 Application of sections to resident mining operators

CU 13 Application of sections to non-resident mining operators

CU 14 Recovery of reinvestment profit on disposal of mining shares

CU 15 Recovery of reinvestment profit not used for mining purposes

CU 16 Recovery of reinvestment profit on repayment of loans

CU 17 Repayment by mining company of amount written off

CU 18 Amount treated as repayment for purposes of section CU 17: excess

CU 19 Amount treated as repayment for purposes of section CU 17: net income

CU 20 Mining company or mining holding company liquidated

CU 21 Meaning of income from mining

CU 22 Meaning of mining company

CU 23 Meaning of mining development expenditure

CU 24 Meaning of mining exploration expenditure

CU 25 Meaning of mining operations

CU 26 Meaning of mining venture

CU 27 Meaning of resident mining operator

CU 28 Meaning of specified mineral

CU 29 Other definitions

Subpart CV—Income specific to certain entities

CV 1 Group companies

CV 2 Crown Research Institutes

CV 3 Australian wine producer rebate

CV 4 Regulations: Australian wine producer rebate

Subpart CW—Exempt income

Income from business or trade-like activities

CW 1 Forestry companies established by Crown, Maori owners, and holding companies buying land with standing timber from founders

CW 2 Forestry encouragement agreements

CW 3 Forestry companies and Maori investment companies

Income from holding property (excluding equity)

CW 4 Annuities under life insurance policies

CW 5 Payments of interest: post-war credits

CW 6 Payments of interest: farm mortgages

CW 7 Foreign-sourced interest

CW 8 Money lent to government of New Zealand

Income from equity

CW 9 Dividend derived by company from overseas

CW 10 Dividend within New Zealand wholly-owned group

CW 11 Dividend of conduit tax relief holding company

CW 11B Proceeds of share disposal by qualified foreign equity investor

CW 11C Proceeds from share or option acquired under venture investment agreement

Employee or contractor income

CW 12 Income of Governor-General

CW 13 Expenditure on account, and reimbursement, of employees

CW 14 Allowance for additional transport costs

CW 15 Amounts derived during short-term visits

CW 16 Amounts derived by visiting entertainers (including sportspersons)

CW 17 Amounts derived by visiting crew of pleasure craft

CW 18 Amounts derived by overseas experts and trainees in New Zealand by government arrangement

CW 19 Income for military or police service in operational area

CW 20 Deferred military pay for active service

CW 21 Value of board for religious society members

CW 22 Jurors' and witnesses' fees

Certain income of transitional resident

CW 22B Certain income derived by transitional resident

Income from living allowances, compensation, and government grants

CW 23 Pensions

CW 23B Reinvested amount from foreign superannuation scheme in Australia

CW 24 Annuities from Crown Bank Accounts

CW 25 Services for members of Parliament

CW 26 Maintenance payments

CW 27 Allowances and benefits

CW 28 Compensation payments

CW 28B Payment to claimant of certain accident compensation payments [Not in force]

CW 29 Scholarships and bursaries

CW 30 Film production grants

Income of certain entities

CW 31 Public authorities

CW 32 Local authorities

CW 33 Local and regional promotion bodies

CW 34 Charities: non-business income

CW 35 Charities: business income

CW 36 Charitable bequests

CW 37 Friendly societies

CW 38 Funeral trusts

CW 39 Bodies promoting amateur games and sports

CW 40 TAB and racing clubs

CW 40B Income from conducting gaming-machine gambling

CW 41 Bodies promoting scientific or industrial research

CW 42 Veterinary services bodies

CW 43 Herd improvement bodies

CW 44 Community trusts

Income from certain activities

CW 45 Non-resident aircraft operators

CW 45B Non-resident company involved in exploration and development activities

CW 46 Disposal of companies' own shares

CW 47 New Zealand companies operating in Niue

CW 48 Stake money

CW 49 Providing standard-cost household service

CW 49B Interest paid under KiwiSaver Act 2006

Income exempt under other Acts

CW 50 Exemption under other Acts

Income exempt under Parts F to I

CW 51 Exemption under Parts to be rewritten

Subpart CX—Excluded income

Goods and services tax

CX 1 GST

KiwiSaver and complying superannuation fund tax credits

CX 1B KiwiSaver and complying superannuation fund tax credits

CX 2 Meaning of fringe benefit

CX 3 Excluded income

CX 4 Relationship with assessable income

CX 5 Relationship with exempt income

CX 6 Private use of motor vehicle

CX 6B Employer or associated person treated as having right to use vehicle under arrangement

CX 7 Private use of motor vehicle: use by more than 1 employee

CX 8 Subsidised transport

CX 9 Employment-related loans

CX 10 Employment-related loans: loans by life insurers

CX 11 Services for members of Parliament

CX 12 Contributions to superannuation schemes

CX 13 Contributions to sickness, accident, or death benefit funds

CX 14 Contributions to funeral trusts

CX 15 Contributions to life or health insurance

CX 16 Benefits provided to employees who are shareholders or investors

Exclusions and limitations

CX 17 Benefits provided instead of allowances

CX 18 Benefits to enable performance of duties

CX 18B Business tools

CX 19 Benefits to non-executive directors

CX 20 Benefits provided on premises

CX 20B Benefits related to health or safety

CX 21 Benefits provided by charitable organisations

CX 22 Non-liable payments

CX 23 Assistance with tax returns

CX 24 Accommodation

CX 25 Entertainment

CX 26 Distinctive work clothing

CX 26B Contributions to income protection insurance

CX 27 Services provided to superannuation fund

CX 27B Goods provided at discount by third parties

CX 28 Meaning of emergency call

CX 29 Meaning of employee share loan

CX 30 Meaning of private use

CX 31 Meaning of unclassified benefit

CX 32 Meaning of work-related vehicle

Insurance

CX 33 Life insurers and fully reinsured persons

CX 34 Superannuation fund deriving amount from life insurance policy

CX 35 Resident insurance underwriters

CX 36 Disposal of ownership interests in controlled petroleum mining entities

CX 37 Farm-out arrangements for petroleum mining

Mineral mining

CX 38 Disposal of mining shares

CX 39 Disposal of mining shares acquired with reinvestment profit

CX 40 Repayment of loans made from reinvestment profit

Government grants

CX 41 Government grants to businesses

CX 41B Amounts remitted as condition of new start grant

CX 42 Employer's superannuation contributions

CX 43 Income equalisation schemes

CX 43B Refund from environmental restoration account

Inflation-indexed instruments

CX 44 Credits for inflation-indexed instruments

CX 44B Share-lending collateral under share-lending arrangements

CX 44C Proceeds from disposal of certain shares by portfolio investment entities or New Zealand Superannuation Fund

CX 44D Portfolio investor allocated income and distributions of income by portfolio investment entities

CX 44E Rebates of certain fees by portfolio tax rate entities

Income excluded under Parts F to I

CX 45 Exclusion under Parts to be rewritten

Subpart CY—Income under Parts F to I

CY 1 Amounts that are income under Parts to be rewritten

Subpart CZ—Terminating provisions

CZ 1 Share purchase agreement income before 19 July 1968

CZ 2 Mining company's 1970-71 tax year

CZ 3 Exchange variations on 8 August 1975

CZ 4 Mineral mining: company making loan before 1 April 1979

CZ 5 Exempt interest: overseas money lent to government or local or public authority before 29 July 1983

CZ 6 Commercial bills before 31 July 1986

CZ 7 Primary producer co-operative companies: 1987-88 income year

CZ 8 Farm-out arrangements for petroleum mining before 16 December 1991

CZ 9 Available capital distribution amount: 1965 and 1985 to 1992

CZ 10 Transitional relief for calculation of attributed repatriation dividends: 2 July 1992

CZ 11 Recovery of deductions for software acquired before 1 April 1993

CZ 12 General insurance with risk period straddling1 July 1993

CZ 13 Treatment of units and interests in unit trusts and group investment funds on issue as at 1 April 1996

CZ 14 Treatment of superannuation fund interests in group investment funds on 1 April 1999

CZ 15 Accident insurance contracts before 1 July 2000

CZ 16 Interest payable to exiting company: 2001

CZ 17 Dividend of exiting company: 2001

CZ 18 Benefit provider approved within 6 months of 25 November 2003

CZ 19 Community trust receipts in 2004-05 or 2005-06 tax year

CZ 20 Geothermal wells between 31 March 2003 and 17 May 2006

Subpart CA—General rules

CA 1 Amounts that are income

CA 2 Amounts that are exempt income or excluded income

CA 1 Amounts that are income

Amounts specifically identified

(1) An amount is income of a person if it is their income under a provision in this Part.

Ordinary meaning

(2) An amount is also income of a person if it is their income under ordinary concepts.

Defined in this Act: amount, income,

Compare: 1994 No 164 ss BD 1(1), CD 5

CA 2 Amounts that are exempt income or excluded income

What this section does

(1) This section identifies the subparts in this Act that deal with exempt income and excluded income.

Exempt income

(2) An amount of income of a person is exempt income if it is their exempt income under a provision in subpart CW (Exempt income) or CZ (Terminating provisions).

Excluded income
(3) An amount of income of a person is excluded income if—
- (a) it is their excluded income under a provision in subpart CX (Excluded income) or CZ (Terminating provisions); and
- (b) it is not their non-residents' foreign-sourced income.
Defined in this Act: amount, excluded income, exempt income, non-residents' foreign-sourced income,

Subpart CB—Income from business or trade-like activities

Business generally

CB 1 Amounts derived from business

Schemes for profit

CB 2 Profit-making undertaking or scheme

Personal property

CB 3 Personal property acquired for purpose of disposal

CB 4 Business of dealing in personal property

CB 4B Disposals of certain shares by portfolio investment entity after declaration of dividend

Land

CB 5 Disposal: land acquired for purpose or with intention of disposal

CB 6 Disposal: land acquired for purposes of business relating to land

CB 6B Disposal: Land used for landfill, if notice of election

CB 7 Disposal within 10 years: land dealing business

CB 8 Disposal within 10 years: land development or subdivision business

CB 9 Disposal within 10 years of improvement: building business

CB 10 Disposal: schemes for development or division begun within 10 years

CB 11 Disposal: amount from major development or division and not already in income

CB 12 Disposal: amount from land affected by change and not already in income

CB 13 Transactions between associated persons

Exclusions for residential land

CB 14 Residential exclusion from sections CB 5 to CB 9

CB 15 Residential exclusion from sections CB 10 and CB 11

CB 16 Residential exclusion from section CB 12

Exclusions for business premises

CB 17 Business exclusion from sections CB 5 to CB 9

CB 18 Business exclusion from section CB 10

Exclusions for farm land

CB 19 Farm land exclusion from sections CB 10 and CB 11

CB 20 Farm land exclusion from section CB 12

Exclusion for investment land

CB 21 Investment exclusion from section CB 10

Timber

CB 22 Disposal of timber or right to take timber

CB 23 Disposal of land with standing timber

CB 24 Income equalisation schemes

CB 24B Environmental restoration accounts

Minerals

CB 25 Disposal of minerals

Intellectual property

CB 26 Sale of patent applications or patent rights

Transfer of business

CB 27 Sale of business: transferred employment income obligations

Stolen property

CB 28 Property obtained by theft

Business generally

CB 1 Amounts derived from business

Income

(1) An amount that a person derives from a business is income of the person.

Exclusion

(2) Subsection (1) does not apply to an amount that is of a capital nature.

Defined in this Act: amount, business, income,

Compare: 1994 No 164 s CD 3

Schemes for profit

CB 2 Profit-making undertaking or scheme

An amount that a person derives from carrying on or carrying out an undertaking or scheme entered into or devised for the purpose of making a profit is income of the person.

Defined in this Act: amount, income,

Compare: 1994 No 164 s CD 4

Personal property

CB 3 Personal property acquired for purpose of disposal

An amount that a person derives from disposing of personal property is income of the person if they acquired the property for the purpose of disposing of it.

Defined in this Act: amount, income, personal property,

Compare: 1994 No 164 s CD 4

CB 4 Business of dealing in personal property

An amount that a person derives from disposing of personal property is income of the person if their business is to deal in property of that kind.

Defined in this Act: amount, business, income, personal property,

Compare: 1994 No 164 s CD 4

CB 4B Disposals of certain shares by portfolio investment entity after declaration of dividend

When this section applies
(1) This section applies to a portfolio investment entity who disposes of a share in a company if—
- (a) section CX 44C (Proceeds from disposal of certain shares by portfolio investment entities or New Zealand Superannuation Fund) applies to the income from the disposal; 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.
Assessable income
(2) The portfolio investment entity is treated as deriving an amount of income equal to—
- (a) the amount of the dividend that is not fully imputed as that term is defined in section NG 2(3) (Application of NRWT rules), if the share is issued by a company that has an imputation credit account; or
- (b) the amount of the dividend, if paragraph (a) does not apply.
Defined in this Act: amount, , company, , dividend, , double tax agreement, , income, , non-participating redeemable share, , portfolio investment entity, , resident in New Zealand, , share, .

Section CB 4B: inserted, on 1 October 2007, by section 4 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section CB 4B(1)(a): amended, on 1 October 2007, by section 4 of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Land

CB 5 Disposal: land acquired for purpose or with intention of disposal

Income
(1) An amount that a person derives from disposing of land is income of the person if they acquired the land—
- (a) for 1 or more purposes that included the purpose of disposing of it:
- (b) with 1 or more intentions that included the intention of disposing of it.
Exclusions

(2) Subsection (1) is overridden by the exclusions for residential land in section CB 14 and for business premises in section CB 17.

Defined in this Act: amount, business, dispose, income, land,

Compare: 1994 No 164 s CD 1(2)(a)

Subsection (1)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.

CB 6 Disposal: land acquired for purposes of business relating to land

Income
(1) An amount that a person (person A) derives from disposing of land is income of person A if—
- (a) both the following apply:
  - (i) at the time person A acquired the land they, or an associated person, carried on a business of dealing in land; and
  - (ii) person A acquired the land for the purpose of the business; or
- (b) both the following apply:
  - (i) at the time person A acquired the land they, or an associated person, carried on a business of developing land or dividing land into lots; and
  - (ii) person A acquired the land for the purpose of the business; or
- (c) all the following apply:
  - (i) at the time person A acquired the land they, or an associated person, carried on a business of erecting buildings; and
  - (ii) person A acquired the land for the purpose of the business; and
  - (iii) before or after acquiring the land person A, or the associated person, made improvements to it.
Exclusions

(2) Subsection (1) is overridden by the exclusions for residential land in section CB 14 and for business premises in section CB 17.

Defined in this Act: amount, associated person, business, dispose, improvements, income, land,

Compare: 1994 No 164 s CD 1(2)(b)(i), (c)(i), (d)(i)

CB 6B Disposal: Land used for landfill, if notice of election

An amount that a person derives from disposing of land is income of the person if—
- (a) the person uses the land as a landfill before disposing of the land; and
- (b) at the time of disposal, the land is not being used as a landfill; and
- (c) the person acquiring the land is not an associated person under section OD 7; and
- (d) the person gives written notice to the Commissioner of an election that the land be subject to this section by the day that is the later of the following:
  - (i) the day that is 12 months after the day on which the person acquires the land:
  - (ii) 24 June 2006; and
- (e) the person makes an election under paragraph (d) for all land that the person acquires and uses as a landfill; and
- (f) any person associated with the person makes an election under paragraph (d) for all land that the associated person acquires and uses as a landfill.
Defined in this Act: associated person, Commissioner, dispose,

Section CB 6B was inserted, as from 1 October 2005, by section 4 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

CB 7 Disposal within 10 years: land dealing business

Income
(1) An amount that a person derives from disposing of land is income of the person if—
- (a) they dispose of the land within 10 years of acquiring it; and
- (b) at the time they acquired the land, they carried on a business of dealing in land, whether or not the land was acquired for the purpose of the business.
Income: associated person in business of dealing in land
(2) An amount that a person (person A) derives from disposing of land within 10 years of acquiring it is income of person A if a person (person B) associated with them at the time the land was acquired carried on a business of dealing in land, whether or not—
- (a) person A carried on a business of dealing in land; or
- (b) the land was acquired for the purpose of person B's business.
Exclusions

(3) Subsections (1) and (2) are overridden by the exclusions for residential land in section CB 14 and for business premises in section CB 17.

Defined in this Act: amount, associated person, business, dispose, income, land, year,

Compare: 1994 No 164 s CD 1(2)(b)(ii)

CB 8 Disposal within 10 years: land development or subdivision business

Income
(1) An amount that a person derives from disposing of land is income of the person if—
- (a) they dispose of the land within 10 years of acquiring it; and
- (b) at the time they acquired the land, they carried on a business of developing land or dividing land into lots, whether or not the land was acquired for the purpose of the business.
Income: associated person in business of developing or subdividing land
(2) An amount that a person (person A) derives from disposing of land within 10 years of acquiring it is income of person A if a person (person B) associated with them at the time the land was acquired carried on a business of developing land or dividing land into lots, whether or not—
- (a) person A carried on a business of developing land or dividing land into lots:
- (b) the land was acquired for the purpose of person B's business.
Exclusions

(3) Subsections (1) and (2) are overridden by the exclusions for residential land in section CB 14 and for business premises in section CB 17.

Defined in this Act: amount, associated person, business, dispose, income, land, year,

Compare: 1994 No 164 s CD 1(2)(c)(ii)

Subsection (2)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.

CB 9 Disposal within 10 years of improvement: building business

Income
(1) An amount that a person derives from disposing of land is income of the person if—
- (a) they dispose of the land within 10 years of completing improvements to it; and
- (b) at the time they began the improvements, they carried on a business of erecting buildings, whether or not the land was acquired for the purpose of the business.
Income: associated person in business of erecting buildings
(2) An amount that a person (person A) derives from disposing of land within 10 years of completing improvements on it is income of person A if another person (person B) associated with person A at the time the improvements were begun carried on a business of erecting buildings, whether or not—
- (a) person A carried on a business of erecting buildings; or
- (b) the land was acquired for the purpose of person B's business.
Exclusions

(3) Subsections (1) and (2) are overridden by the exclusions for residential land in section CB 14 and for business premises in section CB 17.

Defined in this Act: amount, associated person, business, dispose, improvements, income, land, year,

Compare: 1994 No 164 s CD 1(2)(d)(ii)

CB 10 Disposal: schemes for development or division begun within 10 years

Income
(1) An amount that a person derives from disposing of land is income of the person if the amount is derived in the following circumstances:
- (a) an undertaking or scheme, which is not necessarily in the nature of a business, is carried on; and
- (b) the undertaking or scheme involves the development of the land or the division of the land into lots; and
- (c) the person, or another person for them, carries on development or division work on or relating to the land; and
- (d) the development or division work is not minor; and
- (e) the undertaking or scheme was begun within 10 years of the date on which the person acquired the land.
Exclusions

(2) Subsection (1) is overridden by the exclusions for residential land in section CB 15, for business premises in section CB 18, for farm land in section CB 19, and for investment land in section CB 21.

Defined in this Act: amount, business, dispose, income, land, year,

Compare: 1994 No 164 s CD 1(2)(f)

CB 11 Disposal: amount from major development or division and not already in income

Income
(1) An amount that a person derives from disposing of land is income of the person if—
- (a) the amount is not income under any of sections CB 5 to CB 10 and CB 12; and
- (b) the amount is derived in the following circumstances:
  - (i) an undertaking or scheme, which is not necessarily in the nature of a business, is carried on; and
  - (ii) the undertaking or scheme involves the development of the land or the division of the land into lots; and
  - (iii) the person, or another person for them, carries on development or division work on or relating to the land; and
  - (iv) the development or division work involves significant expenditure on channelling, contouring, drainage, earthworks, kerbing, levelling, roading, or any other amenity, service, or work customarily undertaken or provided in major projects involving the development of land for commercial, industrial, or residential purposes.
Exclusions

(2) Subsection (1) is overridden by the exclusions for residential land in section CB 15 and for farm land in section CB 19.

Relationship with section DB 20

(3) Section DB 20 (Amount from major development or division and not already in income) deals with a deduction for the value of the land.

Defined in this Act: amount, business, deduction, dispose, income, land,

Compare: 1994 No 164 s CD 1(2)(g)

CB 12 Disposal: amount from land affected by change and not already in income

Income
(1) An amount that a person derives from disposing of land is income of the person if—
- (a) the amount is not income under any of sections CB 5 to CB 10; and
- (b) the person disposed of the land within 10 years of acquiring it; and
- (c) the total amount that they derive from its disposal is more than the cost of the land; and
- (d) at least 20% of the excess arises from a factor, or more than 1 factor, that—
  - (i) relates to the land; and
  - (ii) is described in subsection (2); and
  - (iii) occurs after the person acquired the land, for the factors described in subsection (2)(c), (e), (g), and (i).
Factors for purposes of subsection (1)(d)
(2) The factors referred to in subsection (1)(d) are—
- (a) the rules of an operative district plan under the Resource Management Act 1991:
- (b) the likelihood of the imposition of rules:
- (c) a change to the rules:
- (d) the likelihood of a change to the rules:
- (e) a consent granted under the Resource Management Act 1991:
- (f) the likelihood of a consent being granted:
- (g) a decision of the Environment Court made under the Resource Management Act 1991:
- (h) the likelihood of a decision being made:
- (i) the removal of a condition, covenant, designation, heritage order, obligation, prohibition, or restriction under the Resource Management Act 1991:
- (j) the likelihood of the removal of a condition, covenant, designation, heritage order, obligation, prohibition, or restriction:
- (k) an occurrence of a similar nature to any of the occurrences described in any of paragraphs (a) to (j):
- (l) the likelihood of an occurrence of a similar nature to any of the occurrences described in any of paragraphs (a) to (j).
Exclusions

(3) Subsection (1) is overridden by the exclusions for residential property in section CB 16 and for farm land in section CB 20.

Defined in this Act: amount, dispose, income, land, year,

Compare: 1994 No 164 s CD 1(2)(e)

Subsection (2)(a) to (k) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.

CB 13 Transactions between associated persons

Income
(1) An amount that a person (transferee) derives from disposing of land is income of the transferee under whichever is applicable of sections CB 5 to CB 12 if—
- (a) the land has been transferred to the transferee from another person (transferor); and
- (b) the transferor and the transferee are associated persons at the time of the transfer; and
- (c) the amount derived is more than the cost of the land to the transferee; and
- (d) the amount derived would have been income of the transferor under any of sections CB 5 to CB 12 if the transferor had retained and disposed of the land.
Date on which some transferees acquire land

(2) For the purposes of sections CB 6 to CB 10 and CB 12, if the transferor and transferee are associated persons at the time of the transfer, the transferee is treated as having acquired the land on the date on which the transferor acquired it.

Defined in this Act: amount, associated person, dispose, income, land,

Compare: 1994 No 164 ss CD 1(11), GD 9(1)

Exclusions for residential land

CB 14 Residential exclusion from sections CB 5 to CB 9

Exclusion
(1) Sections CB 5 to CB 9 do not apply if—
- (a) the person—
  - (i) acquired the land with a dwellinghouse on it; or
  - (ii) acquired the land and erected a dwellinghouse on it; and
- (b) the dwellinghouse was occupied mainly as a residence by—
  - (i) the person and any member of their family living with them; or
  - (ii) if the person is a trustee, 1 or more beneficiaries of the trust.
What exclusion applies to
(2) The exclusion applies to the land that has the dwellinghouse on it. It also applies to land related to the land that has the dwellinghouse on it if the total area of the related land is—
- (a) 4,500 square metres or less; or
- (b) more than 4,500 square metres, if the larger area is required for the reasonable occupation and enjoyment of the dwellinghouse.
Who exclusion does not apply to

(3) The exclusion does not apply to a person who has engaged in a regular pattern of acquiring and disposing, or erecting and disposing, of dwellinghouses.

Defined in this Act: dispose, land, trustee,

Compare: 1994 No 164 s CD 1(3)(b)

CB 15 Residential exclusion from sections CB 10 and CB 11

Exclusion: developing or dividing land for residential use
(1) Section CB 10 does not apply if—
- (a) the work involved in the undertaking or scheme is to create or effect a development, division, or improvement; and
- (b) the development, division, or improvement is for use in, and for the purposes of, the residing on the land of the person or any member of their family living with them.
Exclusion: dividing residential land
(2) Sections CB 10 and CB 11 do not apply if—
- (a) the land is a lot that came out of a larger area of land that the person divided into 2 or more lots; and
- (b) the larger area of land—
  - (i) was 4,500 square metres or less immediately before it was divided; and
  - (ii) was occupied by the person mainly as residential land for themselves and a member of their family living with them.
Defined in this Act: land,

Compare: 1994 No 164 s CD 1(2)(f)(iv), (6)

CB 16 Residential exclusion from section CB 12

Exclusion
(1) Section CB 12 does not apply if—
- (a) the person acquired the land and used it or intended to use it for residential purposes; and
- (b) they disposed of the land to another person who acquired it for residential purposes.
Purpose of acquisition for purposes of subsection (1)(b)

(2) For the purposes of subsection (1)(b), the purpose of the acquisition by the other person is ascertained from the circumstances of the disposal and other relevant matters.

Meaning of residential purposes
(3) In this section, residential purposes —
- (a) means a purpose that the person has of using the land or intending to use the land mainly as a residence for themselves and members of their family living with them; and
- (b) includes the purpose of erecting a dwellinghouse on the land to be occupied as such a residence.
Defined in this Act: dispose, land, residential purposes,

Compare: 1994 No 164 s CD 1(4)(a)(ii), (b)(ii)

Exclusions for business premises

CB 17 Business exclusion from sections CB 5 to CB 9

Exclusion
(1) Sections CB 5 to CB 9 do not apply to a disposal of land if—
- (a) the land is the premises of a business; and
- (b) the person acquired and occupied, or erected and occupied, the premises mainly to carry on a substantial business from them.
Who exclusion does not apply to

(2) The exclusion does not apply to a person who has engaged in a regular pattern of acquiring and disposing, or erecting and disposing, of premises for businesses.

Meaning of land
(3) In this section, land includes land that—
- (a) is reserved, with the premises, for the use of the business; and
- (b) is of an area no greater than that required for the reasonable occupation of the premises and the carrying on of the business.
Defined in this Act: business, dispose, land,

Compare: 1994 No 164 s CD 1(3)(a)

CB 18 Business exclusion from section CB 10

Section CB 10 does not apply if—
- (a) the work involved in the undertaking or scheme is to create or effect a development, division, or improvement; and
- (b) the development, division, or improvement is for use in, and for the purposes of, the carrying on of a business by the person on the land; and
- (c) the business does not consist of the undertaking or scheme.
Defined in this Act: business, land,

Compare: 1994 No 164 s CD 1(2)(f)(iii)

Exclusions for farm land

CB 19 Farm land exclusion from sections CB 10 and CB 11

Exclusion
(1) Sections CB 10 and CB 11 do not apply if—
- (a) the land is a lot resulting from the division of a larger area of land into 2 or more lots; and
- (b) immediately before the land was divided, the larger area of land was occupied or used by the person, their spouse, civil union partner or de facto partner, or both of them, mainly for the purposes of a farming or agricultural business carried on by either or both of them; and
- (c) the area and nature of the land disposed of mean that it is then capable of being worked as an economic unit as a farming or agricultural business; and
- (d) the land was disposed of mainly for the purpose of using it in a farming or agricultural business.
Circumstances for purposes of subsection (1)(d)
(2) The circumstances of the disposal of the land are relevant to the decision on whether the land was disposed of mainly for the purpose of using it in a farming or agricultural business. The circumstances include—
- (a) the consideration for the disposal of the land:
- (b) current prices paid for land in that area:
- (c) the terms of the disposal:
- (d) a zoning or other classification relating to the land:
- (e) the proximity of the land to any other land being used or developed for uses other than farming or agricultural uses.
Defined in this Act: business, dispose, land,

Compare: 1994 No 164 s CD 1(7)

Subsection (1)(b) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.

Subsection (1)(b) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

Subsection (2)(a) to (d) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

CB 20 Farm land exclusion from section CB 12

Exclusion
(1) Section CB 12 does not apply if—
- (a) the person (person A) acquired the land, and they, their spouse, civil union partner or de facto partner, or both of them used or intended to use the land mainly for the purposes of a farming or agricultural business carried on by them, their spouse, civil union partner or de facto partner, or both of them; and
- (b) they disposed of the land to another person (person B) mainly for the purposes of the continuing use of the land in a farming or agricultural business.
Purposes of acquisition for purposes of subsection (1)(b)

(2) For the purposes of subsection (1)(b), person B's purposes in acquiring the land are ascertained from circumstances of the disposal arising after person A acquired the land and other relevant matters, not including the factors described in section CB 12(1).

Defined in this Act: business, dispose, land,

Compare: 1994 No 164 s CD 1(4)(a)(i), (b)(i), (c)

Subsection (1)(a) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse” in both places it appears.

Subsection (1)(a) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner” in both places it appears.

Exclusion for investment land

CB 21 Investment exclusion from section CB 10

Section CB 10 does not apply if—
- (a) the work involved in the undertaking or scheme is to create or effect a development, division, or improvement; and
- (b) the development, division, or improvement is for use in, and for the purposes of, the person's deriving from the land income of the kind described in section CC 1 (Land).
Defined in this Act: income, land,

Compare: 1994 No 164 s CD 1(2)(f)(v)

Timber

CB 22 Disposal of timber or right to take timber

Income
(1) An amount is income of a person if they derive it from—
- (a) disposing of timber; or
- (b) disposing of a right to take timber.
Whether or not person owns land

(2) Subsection (1) applies whether or not the person owns the land on which the timber is situated.

Defined in this Act: amount, dispose, income, own, right to take timber,

Compare: 1994 No 164 s CJ 1(1)

CB 23 Disposal of land with standing timber

When this section applies

(1) This section applies when a person disposes of land with standing timber on it.

Exclusions
(2) This section does not apply when the standing timber is of 1 of the following kinds:
- (a) trees that are ornamental or incidental, as evidenced by a certificate given under section 44C of the Tax Administration Act 1994; or
- (b) trees in a crop subject to a forestry right, as defined in section 2 of the Forestry Rights Registration Act 1983, registered under the Land Transfer Act 1952; or
- (c) trees subject to a right to take a benefit (in the form of a profit à prendre) granted before 1 January 1984.
Income

(3) The amount that the person derives from disposing of the standing timber is income of the person.

Defined in this Act: amount, dispose, income, standing timber,

Compare: 1994 No 164 s CJ 1(2)(a)-(d), (e)(i)

Farming, forestry, or fishing

CB 24 Income equalisation schemes

Income derived by a person, as timed and quantified under any of the following provisions, is income of the person:
- (a) sections EH 11, EH 14, EH 16, EH 18, EH 20 to EH 22, EH 24, and EH 26 (which relate to the main income equalisation scheme):
- (b) sections EH 47, EH 49, EH 51 to EH 53, EH 55, and EH 57 (which relate to the adverse event income equalisation scheme):
- (c) sections EH 74, EH 76, and EH 78 (which relate to the thinning operations income equalisation scheme).
Defined in this Act: adverse event income equalisation scheme, income, main income equalisation scheme, person, thinning operations income equalisation scheme,

Paragraphs (a) and (b) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.

Environmental restoration

This heading was inserted, as from 21 June 2005, by section 5 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79).

CB 24B Environmental restoration accounts

Income from refund

(1) A person who receives a refund for a tax year under section EK 12 (Refund on request) derives for the person's corresponding income year an amount of income calculated using the formula—

Income from transfer from environmental restoration account

(2) If there is a transfer from a person's environmental restoration account under section EK 15 (Transfer on request), EK 16 (Transfer on death, bankruptcy, or liquidation), or EK 19 (Environmental restoration account of amalgamating company), the person derives for the corresponding income year an amount of income calculated using the formula—

Definitions of items in formulas

(3) The items in the formulas are defined in subsections (4) to (6).

Refund

(4) Refund is the amount of the refund.

Tax rate
(5) Tax rate is the highest rate of income tax on taxable income that—
- (a) is stated in schedule 1; and
- (b) would apply to the person for the tax year if the person had sufficient taxable income.
Transfer

(6) Transfer is the amount in the environmental restoration account that is transferred.

Income arising from renewal of resource consent
(7) A person who incurs expenditure of a type listed in schedule 6B, part A, paragraphs 2 to 5 (Expenditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant) and not in schedule 6B, part C derives income under subsection (8) if—
- (a) the deduction under section DB 37 (Avoiding, remedying, or mitigating effects of discharge of contaminant) for the expenditure is determined by the period for which a resource consent is granted; and
- (b) the period of the grant of the resource consent is extended by more than 50% in a later income year or a new resource consent is granted for a period that is more than 50% of the total period of the resource consent.
Amount of income
(8) The person derives for the income year in which the period of the resource consent is extended, or the new resource consent is granted, an amount of income equal to the greater of zero and the difference between—
- (a) the total deduction under section DB 37 (Avoiding, remedying, or mitigating effects of discharge of contaminant) for the person for the period from the grant of the resource consent to the beginning of the income year:
- (b) the total deduction for the expenditure that the person would have had under section DB 37 for the period referred to in paragraph (a), if the period of the resource consent at the time of the grant had been 35 years.
Defined in this Act: corresponding income year, environmental restoration account, income, income tax, taxable income, tax year.,

Section CB 24B was inserted, as from 1 October 2005, by section 5 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Minerals

CB 25 Disposal of minerals

Income

(1) An amount that a person derives from disposing of minerals taken from land is income of the person.

Whether or not person owns land

(2) Subsection (1) applies whether or not the person owns the land from which the minerals are taken.

Defined in this Act: amount, dispose, income, mineral, own,

Compare: 1994 No 164 s CJ 1(1)

Intellectual property

CB 26 Sale of patent applications or patent rights

If a person derives an amount from the sale of a patent application with a complete specification or from the sale of patent rights, the amount is income of the person.

Defined in this Act: amount, income, patent rights.,

Section CB 26 was substituted, as from 1 October 2005, by section 6(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application to patent applications lodged for the first time after 21 June 2005.

Transfer of business

CB 27 Sale of business: transferred employment income obligations

When this section applies

(1) This section applies when section DC 9 (Sale of business: transferred employment income obligations) applies and the reduction in the consideration is more than the amount the buyer actually pays for the transferred obligation.

Income

(2) The excess is income of the buyer.

Timing of income

(3) The income is allocated to the income year in which the reduction of the transferred provision is required to be recognised by the buyer under generally accepted accounting practice.

Defined in this Act: amount, generally accepted accounting practice, income, income year,

Compare: 1994 No 164 s CD 3A

Stolen property

CB 28 Property obtained by theft

Income

(1) If a person obtains possession or control of property without claim of right, an amount equal to the market value of the property is income of the person.

Timing of income

(2) The income is allocated to the income year in which the person obtains possession or control of the property.

Whether or not constructive trust

(3) Subsection (1) applies whether or not the person holds the property as a trustee under a constructive trust.

Defined in this Act: amount, claim of right, income, income year, possession, property, trustee,

Compare: 1994 No 164 ss CD 6(1), (2), EN 5(1), (2)

Subpart CC—Income from holding property (excluding equity)

Land use

CC 1 Land

Income
(1) An amount described in subsection (2) is income of the owner of land if they derive the amount from—
- (a) a lease, licence, or easement affecting the land; or
- (b) the grant of a right to take the profits of the land.
Amounts
(2) The amounts are—
- (a) rent:
- (b) a fine:
- (c) a premium:
- (d) a payment for the goodwill of a business:
- (e) a payment for the benefit of a statutory licence:
- (f) a payment for the benefit of a statutory privilege; or
- (g) other revenues.
Relationship with section GD 10

(3) The treatment of leases of property to related parties for less than an adequate rent is dealt with in section GD 10 (Leases for inadequate rent).

Defined in this Act: amount, business, income, lease, own,

Compare: 1994 No 164 s CE 1(1)(e)

Subsection (2)(a) to (e) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.

CC 2 Non-compliance with covenant for repair

When this section applies
(1) This section applies when a person who is a lessor of land derives an amount for non-compliance by the lessee with an obligation under a lease of the land—
- (a) to maintain the land; or
- (b) to make repairs to improvements on the land.
Income

(2) The amount is income of the lessor.

Timing of income

(3) The income is allocated to the income year in which the lessor receives the amount.

Relationship with sections EI 4 and EI 5

(4) Subsection (3) is overridden by sections EI 4 (Amount paid to lessor for non-compliance with covenant for repair) and EI 5 (Amount paid for non-compliance: when lessor ceases to own land).

Defined in this Act: amount, income, income year, lease, repairs,

Compare: 1994 No 164 s EN 1(1), (2)

Financial instruments

CC 3 Financial arrangements

Income: party to financial arrangement

(1) If a person who is a party to a financial arrangement is treated as deriving an amount of income under the financial arrangement under subpart EW (Financial arrangements rules), the amount is income of the person.

Income: trustee

(2) Income derived by a trustee in the circumstances described in section EW 51 (Income when debt forgiven to trustee) is income of the trustee.

Defined in this Act: amount, financial arrangement, income, trustee,

Compare: 1994 No 164 s CE 1(1)(c)

CC 4 Payments of interest

Income

(1) Interest derived by a person is income of the person.

Apportionment

(2) Interest due but unpaid on the date on which a person disposes of a security is apportioned between the person disposing of the security and the person acquiring it.

Defined in this Act: income, interest, pay,

Compare: 1994 No 164 s CE 1(1)(a)

CC 5 Annuities

Income

(1) An annuity derived by a person is income of the person.

Apportionment

(2) Income under an annuity due but unpaid on the date on which a person disposes of the annuity is apportioned between the person disposing of the annuity and the person acquiring it.

Relationship with sections CW 4 and CW 24

(3) This section is overridden by sections CW 4 (Annuities under life insurance policies) and CW 24 (Annuities from Crown Bank Accounts).

Defined in this Act: income,

Compare: 1994 No 164 s CE 1(1)(a)

CC 6 Prizes received under Building Societies Act 1965

Income

(1) A prize received by a person under section 31A of the Building Societies Act 1965 is income of the person, whether they take it as cash or as an advance.

Timing of income
(2) The income is allocated as follows:
- (a) a cash prize is allocated to the day on which the bonus ballot giving rise to the prize is held; and
- (b) an advance is allocated to the day on which the advance is made or, if the advance is made in a series of advances, to the first day on which an advance is made.
Defined in this Act: income,

Compare: 1994 No 164 s CE 1(2)(d)

CC 7 Consideration other than in money

When this section applies
(1) This section applies when—
- (a) a lender provides money to a borrower for use in a business that the borrower carries on in New Zealand; and
- (b) the borrower provides to the lender, as some or all of the consideration, a tangible or intangible benefit that—
  - (i) is not interest; and
  - (ii) may or may not be relief from an obligation; and
  - (iii) may or may not be convertible into money; and
- (c) the borrowing is a commercial transaction under which the borrower would have been liable to pay interest at the current commercial rate, given the nature and term of the loan, if the borrower had not provided the benefit (whether or not the contract between the borrower and the lender provides for the payment of interest if the benefit is not provided).
Income

(2) The amount described in subsection (3) is income of the lender.

Amount of income

(3) The amount is the interest that the borrower would have been liable to pay if the lender had lent the money to the borrower in consideration of the payment of interest at the current commercial rate, given the nature and term of the loan, reduced by the amount of any interest that the borrower pays.

Defined in this Act: amount, business, income, interest, New Zealand, pay, payment,

Compare: 1994 No 164 s CE 1(1)(b), (2)(a)-(c)

CC 8 Use of money interest payable by Commissioner

Income

(1) Interest payable by the Commissioner to a person under Part 7 of the Tax Administration Act 1994 is income of the person.

Timing of income

(2) Interest to which this section applies is allocated under section EF 4 (Use of money interest payable by Commissioner).

Relationship with financial arrangements rules

(3) Interest to which this section applies is disregarded for the purposes of the financial arrangements rules.

Defined in this Act: Commissioner, financial arrangements rules, income, interest, pay,

Compare: 1994 No 164 s ED 5

Royalties

CC 9 Royalties

Income

(1) A royalty derived by a person is income of the person.

Meaning of royalty
(2) Royalty includes a payment of any kind derived as consideration for—
- (a) the use of, or right to use, a copyright, patent, plant variety rights, trademark, design or model, plan, secret formula or process, or other similar property or right:
- (b) the use of, or right to use, a mine or quarry:
- (c) the extraction, removal, or other exploitation of standing timber or a natural resource:
- (d) the right to extract, remove, or otherwise exploit standing timber or a natural resource:
- (e) the use of, or right to use, a film, a videotape, or a tape in connection with radio broadcasting:
- (f) the supply of scientific, technical, industrial, or commercial knowledge or information:
- (g) the total or partial forbearance of the use of, or the grant of a right to use, property or a right referred to in any of paragraphs (a) to (e):
- (h) the supply of assistance that enables the application or use of anything in any of paragraphs (a) to (f):
- (i) the total or partial forbearance of the supply of knowledge or information or assistance referred to in paragraph (f) or (h).
Relevance of description of payment
(3) For the purposes of subsection (2), none of the following is relevant:
- (a) how the payment is described or computed:
- (b) whether the payment is periodical or otherwise:
- (c) whether the payment is an instalment of the purchase price of real property:
- (d) whether the payment is an instalment of the purchase price of personal property.
Defined in this Act: income, royalty, standing timber,

Compare: 1994 No 164 ss CD 2, OB 1 royalty

Subsection (2)(a) was amended, as from 1 October 2005, by section 7 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “patent, plant variety rights,” for the expression “patent,” with application as from the 2005–06 income year.

Subsections (2)(a) to (h) and (3)(a) to (c) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.

CC 10 Films

When this section applies
(1) This section applies when a person has a right or interest of any of the kinds described in subsection (2) in or to—
- (a) a film; or
- (b) a print of the film; or
- (c) publicity material for the film; or
- (d) any other tangible asset relating to the film.
Right or interest
(2) The right or interest is a right or interest, including a future or contingent right or interest, of any of the following kinds:
- (a) copyright in the film:
- (b) a licence relating to the copyright:
- (c) an equitable right in the copyright:
- (d) an equitable right in a licence relating to the copyright:
- (e) any other right existing in or attaching to the film:
- (f) a right to income, or a share of income, from the rental, sale, use, or other exploitation of the film.
Income
(3) The following amounts are income of the person:
- (a) an amount received or receivable by the person for—
  - (i) the use of, or the right to use, the film or a right or interest in a right in the film:
  - (ii) the granting of a licence for a future right in the film:
  - (iii) the disposal of some or all of a right or interest in a right in the film:
  - (iv) the assignment of a right or an interest in a right:
  - (v) the assignment of a right to derive income from the use of a right or interest; and
- (b) an amount derived by the person from the rental, sale, use, or other exploitation of the film.
Relationship with section FC 21

(4) This section is overridden by section FC 21 (Amounts derived by non-residents from renting films).

Defined in this Act: amount, film, income,

Compare: 1994 No 164 s CJ 2

Subsection (2)(a) to (e) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.

Subsection (3)(a)(i) to (iv) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.

Subpart CD—Income from equity

Income

CD 1 Dividend

CD 1B Distribution excluded from being dividend

What is a dividend?

CD 2 Meaning of dividend

CD 3 Transfers of value generally

CD 4 What is a transfer of value?

CD 5 When is a transfer caused by a shareholding relationship?

CD 6 Bonus issues in lieu of dividend

CD 7 Elections to make bonus issue into dividend

CD 7B Interests in money or property of foreign unit trust

CD 7C Bonus issue by foreign unit trust instead of money or property

CD 8 Notional distributions of producer boards and co-operative companies

CD 9 Tax credits linked to dividends

CD 10 Certain dividends not increased by tax credits

CD 10B Credit transfer notice

CD 10C Dividend reduced if foreign tax paid on company's income

CD 11 Foreign tax credits and refunds linked to dividends

CD 12 Benefits of shareholder-employees or directors

CD 13 Attributed repatriations from controlled foreign companies

What is not a dividend?

CD 14 Returns of capital: off-market share cancellations

CD 15 Ordering rule and slice rule

CD 16 Returns of capital: on-market share cancellations

CD 17 Treasury stock acquisitions

CD 18 Capital distributions on liquidation or emigration

CD 19 Property made available intra-group

CD 20 Transfers of certain excepted financial arrangements within wholly-owned groups

CD 21 Non-taxable bonus issues

CD 21B Transfer by unit trust of legal interest after beneficial interest vests

CD 22 Flat-owning companies

CD 23 Employee benefits

CD 24 Payments corresponding to notional distributions of producer boards and co-operative companies

CD 24B Distribution to member of co-operative company based on member's transactions

CD 25 Qualifying amalgamations

CD 26 Foreign investment fund income

Calculation rules

CD 27 General calculation rule for transfers of value

CD 28 Calculation of amount of dividend when property made available

CD 29 Adjustment if dividend recovered by company

CD 30 Adjustment if amount repaid later

CD 31 Adjustment if additional consideration paid

CD 32 Available subscribed capital amount

CD 33 Available capital distribution amount

CFC attributed repatriation calculation rules

CD 34 When does a person have attributed repatriation from a CFC?

CD 35 New Zealand repatriation amount

CD 36 New Zealand property amount

CD 37 Cost of tangible property

CD 38 Cost of associated party equity

CD 39 Outstanding balances of financial arrangements

CD 40 Property transfers between associated persons

CD 41 Unrepatriated income balance

Prevention of double taxation

CD 42 Prevention of double taxation of share cancellation dividends

Returning share transfers

CD 43 Replacement payments

Income

CD 1 Dividend

A dividend derived by a person is income of the person.

Defined in this Act: dividend, income,

Compare: 1994 No 164 ss CE 1(1)(a), CF 1

The heading to section CD 1 was substituted, as from 1 October 2006, by section 5 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

CD 1B Distribution excluded from being dividend

A distribution, derived by a member of a co-operative company, that is excluded by section CD 24B from being a dividend is income of the member.

Defined in this Act: co-operative company, dividend, income,

Section CD 1B was inserted, as from 3 April 2006, by section 6(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

What is a dividend?

CD 2 Meaning of dividend

Sections CD 3 to CD 13 define what is a dividend.

Defined in this Act: dividend,

CD 3 Transfers of value generally

Transfers of value from company
(1) A transfer of value from a company to a person is a dividend if—
- (a) the cause of the transfer is a shareholding in the company, as described in section CD 5; and
- (b) none of the exclusions in sections CD 14 to CD 26 applies to the transfer.
Calculation rules

(2) Sections CD 27 to CD 31 apply for the purposes of calculating the amount of the dividend.

Defined in this Act: company, dividend, transfer of value,

Compare: 1994 No 164 s CF 2(1)(a)-(e), (g)-(l), (1A), (3), (7), (10)

CD 4 What is a transfer of value?

General test
(1) A transfer of value from a company to a person occurs when—
- (a) the company provides money or money's worth to the person; and
- (b) if the person provides any money or money's worth to the company under the same arrangement, the market value of what the company provides is more than the market value of what the person provides.
Release of debt

(2) A company provides money's worth to a person if the person is released from an obligation to pay money to the company, either by agreement or by operation of law.

Provision of services for less than market value

(3) Despite subsection (1), a transfer of value does not occur to the extent to which the money's worth provided by the company is only the provision of services.

Limit to subsection (3)

(4) Subsection (3) does not apply to the provision of services by a company that is a close company, if the provision is the benefit of expenditure of the company.

Defined in this Act: arrangement, close company, company, pay, services, transfer of value,

Compare: 1994 No 164 s CF 2(1)(a)-(e), (g)-(l), (1A), (3), (10)

CD 5 When is a transfer caused by a shareholding relationship?

General test
(1) A transfer of value from a company to a person (recipient) is caused by a shareholding in the company if—
- (a) the recipient at any relevant time—
  - (i) holds shares in the company; or
  - (ii) is associated with a shareholder; or
  - (iii) is the trustee of a trust, and a beneficiary of the trust is either a shareholder or the spouse, civil union partner or de facto partner of a shareholder; and
- (b) the company makes the transfer because of that shareholding of the relevant shareholder.
Indication that test met

(2) One indication that a transfer is caused by a shareholding is if the terms of the arrangement that results in the transfer are different from the terms on which the company would enter into a similar arrangement if no shareholding were involved.

Deductible distributions of producer boards
(3) Despite subsection (1), a transfer of value by a statutory producer board to a member is not caused by a shareholding if—
- (a) the transfer is a cash distribution; and
- (b) the distribution is a deduction under section HF 1 (Profits of mutual associations in respect of transactions with members) or any other provision of this Act; and
- (c) the board does not choose to treat the distribution as a dividend under section ME 30 (Statutory producer board may determine to attach imputation credit to certain distributions).
Deductible distributions of co-operative companies
(4) Despite subsection (1), a transfer of value by a co-operative company to a shareholder is not caused by a shareholding if—
- (a) the transfer is a cash distribution; and
- (b) the distribution is a deduction under section HF 1 (Profits of mutual associations in respect of transactions with members) or any other provision of this Act; and
- (c) the company does not choose to treat the distribution as a dividend under section ME 35 (Co-operative company may make annual determination to attach imputation credit to certain distributions).
Defined in this Act: arrangement, associated person, company, co-operative company, deduction, share, shareholder, statutory producer board, transfer of value, trustee,

Compare: 1994 No 164 s CF 2(1)(g), (k), (l), (2), (7)

Subsection (1)(a)(iii) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.

Subsection (1)(a)(iii) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

CD 6 Bonus issues in lieu of dividend

Bonus issues in lieu

(1) A bonus issue in lieu is a dividend.

Amount of dividend

(2) The amount of the dividend is the money or money's worth offered as an alternative, minus any resident withholding tax payable in relation to the dividend.

Defined in this Act: amount, bonus issue in lieu, dividend, pay, resident withholding tax,

Compare: 1994 No 164 s CF 2(1)(f), (6)(a)

CD 7 Elections to make bonus issue into dividend

Treating bonus issues as dividends
(1) A bonus issue that is not a bonus issue in lieu is a dividend if—
- (a) the bonus issue—
  - (i) is issued fully paid from reserves of the company:
  - (ii) if a dividend, would not be exempt income under section CW 10 (Dividend within New Zealand wholly-owned group) or CW 11 (Dividend of conduit tax relief holding company); and
- (b) the company chooses under this section to treat the bonus issue as a dividend.
Form of election
(2) A company chooses to treat a bonus issue as a dividend by—
- (a) resolving, when it makes the bonus issue, that it is a dividend; and
- (b) resolving, when it makes the bonus issue, the amount to be treated as a dividend, which must be more than zero; and
- (c) giving notice to the Commissioner under section 63 of the Tax Administration Act 1994 of the election and the amount.
Amount of dividend

(3) The amount of the dividend is the amount chosen by the company.

Defined in this Act: amount, bonus issue, bonus issue in lieu, Commissioner, company, dividend, notice,

Compare: 1994 No 164 ss CF 2(1)(f), (6)(b), CF 8

Subsection (1) (excluding the heading) was substituted, as from 1 October 2005, by section 8(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for an issue of shares made on or after 16 November 2004.

CD 7B Interests in money or property of foreign unit trust

Interest absolutely vested in unit holder

(1) If a beneficial interest in money or property of a unit trust that is a foreign company vests absolutely in a unit holder, the money or property is a dividend for the unit holder.

Amount of dividend

(2) The amount of the dividend is the value of the money or property.

Defined in this Act: dividend, foreign company, unit holder, unit trust,

Section CD 7B was inserted, as from 1 October 2005, by section 168 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

CD 7C Bonus issue by foreign unit trust instead of money or property

Interest absolutely vested in unit holder

(1) A bonus issue made to a unit holder by a unit trust that is a foreign company is a dividend for the unit holder if the issue is made under an arrangement or decision that the unit trust will make the bonus issue instead of causing a beneficial interest in money or property of the unit trust to vest absolutely in the unit holder.

Amount of dividend

(2) The amount of the dividend is the value of the money or property in which a beneficial interest would have vested in the unit holder if the bonus issue had not been made.

Defined in this Act: bonus issue, dividend, foreign company, unit holder, unit trust,

Section CD 7C was inserted, as from 1 October 2005, by section 168 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

CD 8 Notional distributions of producer boards and co-operative companies

Notional distributions of producer boards

(1) A notional distribution of a statutory producer board is a dividend if the board determines to attach an imputation credit to the notional distribution under section ME 30 (Statutory producer board may determine to attach imputation credit to certain distributions).

Calculation: section ME 33

(2) The amount of the dividend is calculated under section ME 33 (Notional distribution deemed to be dividend).

Notional distributions of co-operative companies

(3) A notional distribution of a co-operative company is a dividend if the company determines to attach an imputation credit to the notional distribution under section ME 35 (Co-operative company may make annual determination to attach imputation credit to certain distributions).

Calculation: section ME 38

(4) The amount of the dividend is calculated under section ME 38 (Notional distribution deemed to be dividend or taxable Maori authority distribution).

Corresponding payments not dividends

(5) Section CD 24 means that a payment that corresponds to a notional distribution may not be a dividend.

Defined in this Act: amount, co-operative company, dividend, imputation credit, statutory producer board,

Compare: 1994 No 164 s CF 2(1)(l)

CD 9 Tax credits linked to dividends

Imputation and dividend withholding payment credits
(1) The amount of a dividend is increased by—
- (a) an imputation credit attached to the dividend:
- (b) a dividend withholding payment credit attached to the dividend.
Relationship with section CD 10

(2) Subsection (1) is overridden by sections CD 10 and CD 10B.

When subsection (1) does not apply
(3) Subsection (1) does not apply in—
- (a) Part L (Credits), except for subpart LE (Non-resident investors); or
- (b) Part M (Tax payments); or
- (c) Part N (Withholding taxes and taxes on income of others).
Defined in this Act: amount, dividend, dividend withholding payment credit, imputation credit, tax,

Compare: 1994 No 164 s CF 6(1)

Subsection (1)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.

Subsection (2) was amended, as from 1 July 2006, by section 7 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “sections CD 10 and CD 10B” for “section CD 10”.

CD 10 Certain dividends not increased by tax credits

When this section applies
(1) This section applies when a unit trust manager, in the ordinary course of their management activities for a unit trust,—
- (a) acquires units from unit holders under the terms on which the units were offered to potential unit holders; and
- (b) derives a dividend from the redemption or other cancellation of units in the unit trust.
Credit not included

(2) For the purposes of Parts B, C, E, and F, the dividend derived does not include an amount of imputation credit attached to it to the extent to which the dividend (exclusive of the imputation credit) recovers the price paid by the unit trust manager to acquire the units.

Relationship with section FC 3

(3) To the extent to which subsection (2) applies, section FC 3 (Share dealing) does not apply.

Some definitions
(4) In this section,—

imputation credit includes a dividend withholding payment credit
unit trust manager includes—
- (a) a person nominated by the unit trust manager; or
- (b) a trustee or a manager of a group investment fund that derives category A income; or
- (c) a person nominated by the trustee or the manager of the group investment fund.
Defined in this Act: amount, cancellation, dividend, dividend withholding payment credit, imputation credit, pay, tax, unit trust, unit trust manager,

Compare: 1994 No 164 s CF 7A

CD 10B Credit transfer notice

When this section applies
(1) This section applies if a share user under a share-lending arrangement—
- (a) derives a dividend for the original share, with an imputation credit attached; and
- (b) issues a credit transfer notice for the dividend.
Credit not included

(2) The dividend derived by the share user does not include the amount of the imputation credit.

Income

(3) The amount of the imputation credit is income derived by the share supplier when the credit transfer notice is issued.

Definition

(4) In this section, imputation credit includes a dividend with-holding payment credit.

Defined in this Act: amount, credit transfer notice, dividend, dividend withholding payment credit, imputation credit, original share, share-lending arrangement, share supplier, share user.,

Section CD 10B was inserted, as from 1 July 2006, by section 8(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

CD 10C Dividend reduced if foreign tax paid on company's income

When this section applies
(1) This section applies if a person—
- (a) derives a dividend from a company that is a foreign company; and
- (b) has a liability under the laws of a country or territory outside New Zealand for income tax on income of the company corresponding to the liability that the person would have under the laws of New Zealand for income tax on income of the company if the company were a partnership in which the person were a partner; and
- (c) pays the income tax; and
- (d) provides to the Commissioner upon request, within the time allowed by the Commissioner, sufficient information to satisfy the Commissioner as to the amount of income tax paid.
Amount of dividend reduced

(2) The amount of the dividend is reduced by the greater of zero and the amount calculated using the formula—

total tax paid – earlier reductions.

Definition of items in formula
(3) In the formula,—
- (a) total tax paid is the total amount of income tax on income of the company that the person has paid in the country by the time that the person derives the dividend:
- (b) earlier reductions is the total amount of reductions under this section that, by the time that the person derives the dividend, have affected other dividends derived by the person from the company.
Defined in this Act: branch equivalent method, Commissioner, company, controlled foreign company, dividend, FIF income or loss, foreign company, foreign investment fund, income, income tax,

Section CD 10C was inserted, as from 1 April 2006, by section 8(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

CD 11 Foreign tax credits and refunds linked to dividends

Foreign tax credits

(1) If a double tax agreement gives a person a tax credit in a foreign country when they derive a dividend from that country, the amount of the dividend is increased by the tax credit.

Foreign tax refunds
(2) When a person who has derived a dividend from outside New Zealand also derives a refund of income tax of a foreign country, the refund is treated as a dividend if—
- (a) the company paying the dividend was entitled to deduct the tax from the dividend; and
- (b) the person was not personally liable to pay the tax.
Defined in this Act: amount, company, dividend, double tax agreement, income tax, New Zealand, pay, tax,

Compare: 1994 No 164 ss CF 6(2), CF 7

CD 12 Benefits of shareholder-employees or directors

Unclassified fringe benefits
(1) A non-cash benefit provided by a company to an employee is a dividend if—
- (a) the benefit is an unclassified benefit; and
- (b) the employee is a shareholder in the company; and
- (c) the company chooses, under section CX 16(2) (Benefits provided to employees who are shareholders or investors), to treat the benefit as a dividend.
Non-executive directors' non-cash benefits

(2) A non-cash benefit provided by a company to a non-executive director of the company is a dividend if the director is a shareholder in the company, even if the benefit is provided solely because the director is a non-executive director.

Other shareholder-employee benefits
(3) In any other case of a non-cash benefit provided by a company to a person who is both an employee and a shareholder, the benefit is not a dividend if—
- (a) the application of section CX 16(2) (Benefits provided to employees who are shareholders or investors) means it is a fringe benefit; and
- (b) section CD 23 accordingly excludes it from being a dividend.
Meaning of non-executive director

(4) In this section, non-executive director means a person whose only services to the company as an employee are the formal statutory obligations.

Defined in this Act: company, director, dividend, employee, fringe benefit, non-executive director, shareholder, unclassified benefit,

Compare: 1994 No 164 ss CF 2(1A), CI 2A(1), (2), OB 1 non-executive director shareholder

CD 13 Attributed repatriations from controlled foreign companies

Attributed repatriations

(1) An amount of attributed repatriation of a person who has an income interest in a CFC is a dividend.

Calculation: sections CD 34 to CD 41

(2) The amount of the dividend is calculated under sections CD 34 to CD 41.

Timing of income
(3) The dividend is treated as having been paid by the CFC to the person, and as having been derived by the person,—
- (a) 6 months after the end of the accounting period of the CFC for which the attributed repatriation is calculated, if the person is a company for which the dividend is exempt income under section CW 9 (Dividend derived by company from overseas); and
- (b) at the end of the accounting period, in any other case.
New Zealand residents

(4) The dividend of a person who has ceased to be a New Zealand resident is treated as being derived while the person is a New Zealand resident.

Defined in this Act: accounting period, amount, attributed repatriation, CFC, company, dividend, exempt income, income interest, New Zealand resident, pay,

Compare: 1994 No 164 ss CF 2(16), CG 8(13)

What is not a dividend?

CD 14 Returns of capital: off-market share cancellations

Application of this section

(1) This section applies if a company pays an amount to a shareholder because of the off-market cancellation of a share in the company, other than on liquidation of the company.

Ordering rule
(2) The amount is not a dividend to the extent to which it is less than or equal to the available subscribed capital per share calculated under the ordering rule, if—
- (a) 1 of the bright line tests in subsection (3) is met; and
- (b) the company is not an unlisted trust that has chosen the slice rule for the share under subsection (4); and
- (c) the anti-avoidance rule in subsection (6) does not apply.
Bright line tests
(3) The bright line tests referred to in subsection (2)(a) are as follows:
- (a) the cancellation is part of a pro rata cancellation that results in a fifteen percent capital reduction for the company:
- (b) the cancellation is part of a pro rata cancellation that results in a ten percent capital reduction for the company and the Commissioner has given a notice under subsection (8):
- (c) the cancellation is not part of a pro rata cancellation and results in the shareholder suffering a fifteen percent interest reduction:
- (d) the company is an unlisted trust and the cancellation is not part of a pro rata cancellation:
- (e) the share is a non-participating redeemable share.
Unlisted trusts choosing slice rule

(4) If the company is an unlisted trust, it may issue a share on terms that the ordering rule does not apply and that instead the slice rule applies to the cancellation. If this happens, the amount paid is not a dividend to the extent to which it is less than or equal to the available subscribed capital per share calculated under the slice rule (but still subject to the antiavoidance rule in subsection (6)).

Calculation concessions for foreign unlisted widelyheld trusts
(5) If a company is an unlisted widely-held trust not resident in New Zealand and a shareholder cannot obtain sufficient information to calculate the available subscribed capital per share under the ordering rule,—
- (a) the share is treated as if it were issued under subsection (4) on terms that the slice rule applies; and
- (b) the available subscribed capital under the slice rule is—
  - (i) the amount paid for the issue of the share, if subparagraph (ii) does not apply; or
  - (ii) the value of the money or property in which a beneficial interest would have vested in the share-holder had the share not been issued, if the share is a taxable bonus issue under paragraph (d) of the definition of the term.
Overriding anti-avoidance rule

(6) Neither subsection (2) nor (4) excludes an amount paid by a company on cancellation of a share from being a dividend if any part of the payment is in lieu of the payment of a dividend.

Factors relevant in applying anti-avoidance rule
(7) For the purposes of applying subsection (6), the following factors must be considered:
- (a) the nature and amount of dividends paid by the company before or after the cancellation; and
- (b) the issue of shares in the company after the cancellation; and
- (c) the expressed purpose or purposes of the cancellation; and
- (d) any other relevant factor.
Commissioner notifying view

(8) If no part of a payment on cancellation of a share is in lieu of the payment of a dividend, the Commissioner may give notice to the company that subsection (6) does not apply to the cancellation.

Some definitions
(9) In this section,—
counted associate means—
- (a) a person associated with the shareholder other than merely by virtue of being a relative; or
- (b) a spouse, civil union partner, de facto partner or minor child of the shareholder, or a trustee of a trust under which a spouse, civil union partner, de facto partner or minor child of the shareholder is a beneficiary
counted associate: paragraph (b) of this definition was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner” for “spouse” in both places it occurs.

counted associate: paragraph (b) of this definition was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner, de facto partner” for “spouse, civil union partner” in both places it occurs.
fifteen percent capital reduction means the circumstance in which the total amount paid by the company on account of the cancellation (or on account of any other pro rata cancellation of participating shares in the company occurring at the same time) is at least 15% of the market value of all participating shares in the company at the time the company first gave notice to shareholders of the cancellation
fifteen percent interest reduction means the circumstance in which, immediately after and as a result of the cancellation (together with any other cancellation of participating shares in the company occurring at the same time),—
- (a) the total direct voting interests in the company of the shareholder and any counted associates is 85% or less of their total direct voting interests in the company immediately before the cancellation; and
- (b) if at the time of the cancellation a market value circumstance exists, the total direct market value interests in the company of the shareholder and any counted associates is 85% or less of their total direct market value interests immediately before the cancellation
non-participating redeemable share means a share that meets the following conditions
- (a) the share is issued, under the company's constitution or establishing legislation, on terms that involve the share being required or allowed to be redeemed or repaid before the company is liquidated; and
- (b) the share is—
  - (i) a redeemable share under section 68 of the Companies Act 1993 or an equivalent provision of foreign law; or
  - (ii) issued under 1 of New Zealand's Acts relating to co-operative companies; or
  - (iii) subject to section FC 1 (Floating rate of interest on debentures) or FC 2 (Interest on debentures issued in substitution for shares); or
  - (iv) a unit in a unit trust that is not a widely-held trust; and
- (c) the share is either a fixed rate share or a share for which the amount payable on cancellation is no more than the available subscribed capital per share calculated under the slice rule; and
- (d) the shareholder does not have shareholder decisionmaking rights in relation to the share except—
  - (i) a protective right; or
  - (ii) if the company is subject to 1 of New Zealand'sActs relating to co-operative companies
participating share means a share that is not a non-participating redeemable share
protective right means a shareholder decision-making right that—
- (a) arises only if the shareholder's position may be altered to the shareholder's detriment or if the company defaults on its obligations under the terms of the share; and
- (b) is granted to the shareholder only to assist the shareholder to prevent the alteration or to remedy the default; and
- (c) when the share is issued is not expected to arise
ten percent capital reduction means the circumstance in which the total amount paid by the company on account of the cancellation (or paid on account of any other pro rata cancellation of participating shares in the company occurring at the same time) is at least 10% of the market value of all participating shares in the company at the time the company first gave notice to shareholders of the cancellation

unlisted trust means a unit trust or group investment fund, the units or interests in which are not quoted on the official list of a recognised exchange.
Defined in this Act: amount, associated person, available subscribed capital, cancellation, Commissioner, company, co-operative company, counted associate, direct market value interest, direct voting interest, dividend, fifteen percent capital reduction, fifteen percent interest reduction, fixed rate share, group investment fund, liquidation, market value circumstance, New Zealand, non-participating redeemable share, notice, off-market cancellation, ordering rule, participating share, pay, pro rata cancellation, protective right, recognised exchange, relative, resident in New Zealand, share, shareholder, shareholder decision-making rights, slice rule, ten percent capital reduction, trustee, unit trust, unlisted trust, unlisted widely-held trust, widely-held trust,

Compare: 1994 No 164 s CF 3(1)(b), (2)(c), (14)

Subsection (3)(a) to (d) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for “; or”.

Subsection (5) (excluding the heading) was substituted, as from 1 October 2005, by section 9 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

CD 15 Ordering rule and slice rule

Ordering rule

(1) Under the ordering rule, the available subscribed capital per share is calculated for a share using the formula—

Definition of items in formula
(2) In the formula,—
- (a) available subscribed capital of class is the available subscribed capital, of all shares of the same class as the share, at the relevant time for the calculation:
- (b) shares being cancelled of class is the number of shares of the same class as the share (including the share) being cancelled at the time.
Slice rule

(3) Under the slice rule, the available subscribed capital per share is calculated for a share using the formula—

Definition of items in formula
(4) In the formula,—
- (a) available subscribed capital of class is the available subscribed capital, of all shares of the same class as the share, at the relevant time for the calculation:
- (b) shares of class is the number of shares of the same class as the share (including the share) on issue at the time.
Amount when foreign company information inadequate
(5) Despite subsections (2) to (4), the available subscribed capital per share calculated under the ordering rule is zero if—
- (a) the company is not resident in New Zealand; and
- (b) the relevant shareholder cannot obtain sufficient information to calculate the actual available subscribed capital per share using the relevant rule.
Defined in this Act: available subscribed capital, cancellation, foreign company, ordering rule, resident in New Zealand, share, shareholder, shares of the same class, slice rule,

Compare: 1994 No 164 ss CF 3(2)(b), OB 1 available subscribed capital per share, available subscribed capital per share cancelled

CD 16 Returns of capital: on-market share cancellations

Companies acquiring own shares

(1) An amount paid by a company in acquiring any of its shares in an on-market cancellation is not a dividend.

When excess amount relevant
(2) Despite subsection (1), any excess of the amount paid over the available subscribed capital per share calculated under the ordering rule—
- (a) is treated as a dividend and not a return of capital when applying—
  - (i) section CD 29:
  - (ii) section CD 32(2)(c):
  - (iii) section GB 1(3) (Agreements purporting to alter incidence of tax to be void); and
- (b) gives rise to an imputation credit account debit under section ME 5(1)(c) and (2)(c) (Debits arising to imputation credit account).
Defined in this Act: amount, available subscribed capital, company, dividend, imputation credit account, on-market cancellation, ordering rule, pay, share,

Compare: 1994 No 164 ss CF 3(1)(e), (f), OB 1 available subscribed capital

Subsection (2)(a)(i) and (ii) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for “; and”.

CD 17 Treasury stock acquisitions

Treasury stock generally
(1) An amount paid by a company in acquiring any of its shares is not a dividend if—
- (a) the acquisition is treated as not resulting in the cancellation of the share, under section 67A(1) of the Companies Act 1993 or section 24 of the Co-operative Companies Act 1996 (each of which relates to treasury stock); and
- (b) the acquisition is not part of a pro rata cancellation or something that is in substance a pro rata cancellation.
Reversion to on-market cancellation treatment
(2) Subsections (4) to (6) apply in the case of an acquisition of a share to which subsection (1) or section CF 3(1)(d) or (da) of the Income Tax Act 1994 applies if,—
- (a) before the first anniversary of the acquisition, the company cancels the share; or
- (b) at the first anniversary, the company has failed to transfer a share of the same class in an arm's length transfer, except if the company is established under New Zealand co-operative company legislation; or
- (c) after the first anniversary, the company, which is established under New Zealand co-operative company legislation, cancels the share.
Requirement for arm's length transfers
(3) When subsection (2)(b) is applied,—
- (a) a transfer is arm's length only if it is—
  - (i) to a person not associated with the company; or
  - (ii) in a transaction that occurs on a recognised exchange, through a broker or some other agent independent of the company, and that is not preceded by any arrangement between the transferee and the company for the transfer; and
- (b) each arm's length transfer of a share is taken into account only in relation to a single share acquisition to which subsection (1) has applied.
Reduction of available subscribed capital

(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 available subscribed capital per share calculated under the ordering rule as at the date of the cancellation or first anniversary.

Imputation credit account debit

(5) If subsection (2) applies, then, with effect from the date of the acquisition by the company, section ME 5(1)(c) and (2)(c) (Debits arising to imputation credit account) apply as if the original acquisition were an on-market cancellation but item “a” of the formula in section ME 5(1)(c) were equal to only the excess of the amount received by the shareholder over the reduction described in subsection (4).

Relief from imputation penalty tax

(6) No imputation penalty tax is imposed under section 140B of the Tax Administration Act 1994 (nor any late payment penalty imposed under that Act in relation to the imputation penalty tax) if it would not have arisen had subsection (5) applied only with effect from the date of cancellation or first anniversary (depending on which first causes subsection (2) to apply).

Defined in this Act: agent, amount, arrangement, associated person, available subscribed capital, cancellation, company, co-operative company, dividend, imputation credit account, imputation penalty tax, New Zealand, on-market cancellation, ordering rule, pay, pro rata cancellation, recognised exchange, share, shareholder,

Compare: 1994 No 164 s CF 3(1)(d), (da), (3), (3A)

CD 18 Capital distributions on liquidation or emigration

Application of this section
(1) This section applies if a shareholder—
- (a) is paid an amount in relation to a share on the liquidation of the company:
- (b) is treated under section FCB 2 (Emigrating company treated as paying distribution to shareholders) as being paid an amount in relation to a share in the company.
Return of subscribed capital or capital gains
(2) The amount paid is a dividend only to the extent to which it is more than—
- (a) the available subscribed capital per share calculated under the ordering rule; and
- (b) the available capital distribution amount calculated under section CD 33.
Statutory producer board capital levies

(3) If the company is a statutory producer board, the amount is not a dividend to the extent to which it is a return of a levy charged specifically for capital development.

Non-deductible capital

(4) An amount that is not a dividend as a result of subsection (3) is nevertheless treated as a return of capital for the purposes of the capital limitation.

Defined in this Act: amount, available capital distribution amount, available subscribed capital, capital limitation, company, dividend, emigrating company, levy, liquidation, ordering rule, pay, share, shareholder, statutory producer board,

Compare: 1994 No 164 s CF 3(1)(c), (i), (4)

The heading to section CD 18 was amended, as from 3 April 2006, by section 9(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “or emigration” after “liquidation” with application as from the income year corresponding to the 2005–06 tax year.

Subsection (1) (excluding the heading) was substituted, as from 3 April 2006, by section 9(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

The list of defined terms was amended, as from 3 April 2006, by section 9(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “emigrating company” with application as from the income year corresponding to the 2005–06 tax year.

CD 19 Property made available intra-group

Application of this section
(1) This section applies if—
- (a) a transfer of value is made by a company (first company) to another company (associated company); and
- (b) if this section did not exist, the transfer would be a dividend under section CD 5(1)(a)(ii) (because the associated company is associated with a shareholder in the first company) or under section CD 5(1)(a)(iii) (because the associated company is the trustee of a trust of which a shareholder in the first company, or a shareholder's spouse, civil union partner or de facto partner, is a beneficiary).
Intra-group property arrangements worth $10,000 or less
(2) The transfer of value is not a dividend if—
- (a) the transfer consists of making property available for less than market value; and
- (b) the transfer is not a loan; and
- (c) in the tax year of the first company in which the transfer occurs, the total amount of transfers of value by the first company to the associated company that would be dividends for the year if this section did not exist is $10,000 or less.
Downward transfers of value
(3) The transfer of value is also not a dividend if—
- (a) either—
  - (i) the first company has a voting interest in the associated company; or
  - (ii) the first company is associated with a company (parent company) that has a voting interest in the associated company and that could have received the transfer of value without it being assessable income, non-resident withholding income, or a gain subject to dividend withholding payment for the parent company; and
- (b) the associated company does not have a voting interest in the first company; and
- (c) no person, other than the parent company, has both—
  - (i) a voting interest or (if there is a market value circumstance in respect of either the first company or the associated company) a market value interest in the first company; and
  - (ii) a voting interest, or (if there is a market value circumstance in respect of either the first company or the associated company) a market value interest in the associated company, of more than 10%.
Relationship with section FC 3

(4) Subsection (3) does not apply to a transfer of value that is subject to section FC 3 (Share dealing).

Rules for identifying voting interests
(5) For the purposes of subsection (3)(a) and (b),—
- (a) for the purposes of determining if a company has a voting interest in another company, the look-through rule in section OD 3(3)(d) (Voting interests) does not apply to treat the initial company's voting interest as held by its shareholders or anyone else; and
- (b) a zero voting interest is not a voting interest.
Rules for identifying voting and market value interests
(6) For the purposes of subsection (3)(c),—
- (a) for the purposes of determining the extent to which a person, other than the parent company, has a voting interest or market value interest in the first company or the associated company, the look-through rules in sections OD 3(3)(d) (Voting interests) and OD 4(3)(d) (Market value interests) do not apply to treat the person's voting interest or market value interest as held by the person's shareholders or anyone else unless the person treated as holder is the parent company; and
- (b) for the purposes of determining the extent to which a person, other than the parent company, has a voting interest or market value interest of more than 10% in the associated company, the look-through rules in sections OD 3(3)(d) (Voting interests) and OD 4(3)(d) (Market value interests) do not apply to treat a voting interest or market value interest of the first company or the parent company in the associated company as held by their respective shareholders or anyone else; and
- (c) a zero voting interest is not a voting interest and a zero market value interest is not a market value interest.
Defined in this Act: amount, assessable income, associated person, company, dividend, dividend withholding payment, loan, market value circumstance, market value interest, non-resident withholding income, shareholder, tax year, transfer of value, trustee, voting interest,

Compare: 1994 No 164 s CF 2(13)-(14)

Subsection (1)(b) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.

Subsection (1)(b) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

CD 20 Transfers of certain excepted financial arrangements within wholly-owned groups

When section ED 2 (Transfers of certain excepted financial arrangements within wholly-owned groups) applies to a transfer of an excepted financial arrangement within a whollyowned group of companies, the transfer does not give rise to a dividend.

Defined in this Act: dividend, excepted financial arrangement, wholly-owned group of companies,

Compare: 1994 No 164 s EE 14(4)

CD 21 Non-taxable bonus issues

A non-taxable bonus issue is not a dividend.

Defined in this Act: dividend, non-taxable bonus issue,

Compare: 1994 No 164 s CF 3(1)(a)

CD 21B Transfer by unit trust of legal interest after beneficial interest vests

Transfer of legal interest in money or property that is dividend

If money or property of a unit trust is a dividend under section CD 7B for a unit holder, a transfer to the unit holder of the legal interest in the money or property is not a dividend.

Defined in this Act: dividend, unit holder, unit trust,

Section CD 21B was inserted, as from 1 October 2005, by section 169 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

CD 22 Flat-owning companies

Occupation rights

(1) If a flat-owning company makes residential property available to a person, that is not a dividend.

Meaning of flat-owning company
(2) In this section, flat-owning company means a company—
- (a) whose constitution provides that every registered shareholder is entitled to the use of a specific residential property in New Zealand owned by the company; and
- (b) whose only significant assets are residential properties available for use by specific shareholders and funds reserved for meeting the company's costs.
Defined in this Act: company, dividend, flat-owning company, New Zealand, shareholder,

Compare: 1994 No 164 s CF 2(1)(e), (21)

CD 23 Employee benefits

FBT rules

(1) A fringe benefit subject to fringe benefit tax is not a dividend.

Board

(2) An amount that is employment income under section CE 1(c) (Amounts derived in connection with employment) is not a dividend.

Defined in this Act: amount, dividend, employment income, FBT rules, fringe benefit, fringe benefit tax,

Compare: 1994 No 164 s CF 3(1)(g), (h)

CD 24 Payments corresponding to notional distributions of producer boards and co-operative companies

Statutory producer board payments
(1) An amount paid by a statutory producer board to a person in relation to a tax year is not a dividend if—
- (a) the person was a member of the board at some time during the tax year; and
- (b) unless the Commissioner allows otherwise, the amount is calculated on the basis of the member's share of—
  - (i) the total produce transactions of members with the board during the tax year; or
  - (ii) the total levies payable by members to the board for the tax year; and
- (c) the amount corresponds to a notional distribution amount treated as a dividend under section CD 8(1).
Co-operative company payments
(2) An amount paid by a co-operative company to a person in relation to a tax year is not a dividend if—
- (a) the person was a shareholder of the company at some time during the tax year; and
- (b) the amount is calculated on the basis of the shareholder's share of the total produce transactions of shareholders with the company during the tax year; and
- (c) the amount corresponds to a notional distribution amount treated as a dividend under section CD 8(3).
Non-deductible capital

(3) An amount that is not a dividend as a result of this section is nevertheless treated as a return of capital for the purposes of the capital limitation.

Defined in this Act: amount, capital limitation, Commissioner, co-operative company, dividend, levy, member, pay, produce transactions, producer board, shareholder, statutory producer board, tax year,

Compare: 1994 No 164 s CF 3(1)(ia), (j), (4)

CD 24B Distribution to member of co-operative company based on member's transactions

Election by co-operative company that distribution not be dividend
(1) A co-operative company may choose that an amount of a distribution (trading distribution) to a member of the co-operative company is not a dividend if—
- (a) the trading distribution is made by the co-operative company, or by a company (subsidiary company) in which the co-operative company owns voting interests equal to 100%; and
- (b) the requirements of subsection (2) are met.
Further requirements for election
(2) A co-operative company may make an election under subsection (1) if—
- (a) the co-operative company is resident in New Zealand for the period to which the trading distribution relates; and
- (b) the company making the distribution is resident in New Zealand for the period to which the trading distribution relates; and
- (c) the co-operative company believes on reasonable grounds that the member at the time of the distribution—
  - (i) is resident in New Zealand:
  - (ii) has a fixed establishment in New Zealand; and
- (d) the value of the trading distribution is determined by the value for the period of transactions between the member and the co-operative company or subsidiary company that satisfy subsection (3); and
- (e) the number of shares in the co-operative company held by the member determines the value of the transactions with the co-operative company or subsidiary company that the member has a right to enter.
Transactions must involve trading stock
(3) A transaction must—
- (a) be the sale and purchase of trading stock of the vendor that is not intangible property; and
- (b) not be subject to section FB 3 (Disposal of trading stock) or FB 4(1) (Income derived from disposal of trading stock together with other assets of business).
Amount excluded from being dividend
(4) The amount of a trading distribution that is excluded under subsection (1) from being a dividend for a member is the lesser of the following:
- (a) the amount of the trading distribution:
- (b) the amount of the trading distribution relating to shares in the co-operative company that the member acquires for the purpose of obtaining the right to enter transactions with the co-operative company or subsidiary company.
Form of election

(5) The co-operative company makes an election under subsection (1) for an income year containing the period to which a trading distribution relates by giving the Commissioner notice of the election when providing the company's return of income for the tax year to which the income year corresponds.

Period of election

(6) The election applies for distributions in the income year referred to in subsection (5) and for distributions in later income years.

Defined in this Act: company, co-operative company, foreign-sourced amount, resident in New Zealand, shareholder,

Section CD 24B was inserted, as from 3 April 2006, by section 10(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for distributions made as from 3 April 2006.

CD 25 Qualifying amalgamations

An amount derived by an amalgamated company on a qualifying amalgamation from an amalgamating company that ceases to exist on the amalgamation is not a dividend if it arises from—
- (a) the amalgamated company acquiring property of the amalgamating company; or
- (b) the amalgamated company being relieved of an obligation owed to the amalgamating company.
Defined in this Act: amalgamated company, amalgamating company, amalgamation, amount, dividend, qualifying amalgamation,

Compare: 1994 No 164 s CF 5(a)

CD 26 Foreign investment fund income

An amount paid by a company to a person is not a dividend if,—
- (a) at the time the person derives the amount, the person's interest in the company is an attributing interest (or would have been if the company had not been liquidated); and
- (b) the person calculates their FIF income or loss in relation to the interest and the period in which the amount is paid under the comparative value method, the deemed rate of return method, the cost method, or the fair dividend rate method.
Defined in this Act: amount, attributing interest, company, comparative value method, cost method, deemed rate of return method, dividend, FIF income, fair dividend rate method, foreign investment fund, loss, liquidation, pay,

Compare: 1994 No 164 s CF 3(1)(k)

Paragraph (b) was amended, as from 1 April 2007, by section 5(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “comparative value method, the deemed rate of return method, the cost method, or the fair dividend rate method” for “comparative value method or the deemed rate of return method”. See section 5(3) of that Act as to the application of this amendment for income years beginning on or after 1 April 2007.

The list of defined terms was amended, as from 1 April 2007, by section 5(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “cost method” and “fair dividend rate method”. See section 5(3) of that Act as to the application of this amendment for income years beginning on or after 1 April 2007.

Calculation rules

CD 27 General calculation rule for transfers of value

Difference in value

(1) The amount of a dividend that is a transfer of value from a company to a person is calculated using the formula—

value from company – value from person.

Definition of items in formula
(2) In the formula,—

(a) value from company is the market value of the money or money's worth that the company provides to the person
(b) value from person —
- (i) is the market value of the money or money's worth (if any) that the person provides to the company as consideration for the transfer; and
- (ii) excludes any amount that is attributable merely to the holding or giving up of rights as a shareholder in the company.
Relationship with sections CD 28 to CD 31

(3) This section is overridden by sections CD 28 to CD 31.

Defined in this Act: amount, company, dividend, shareholder, transfer of value,

Compare: 1994 No 164 s CF 2(1)(c)-(e)

CD 28 Calculation of amount of dividend when property made available

How this section applies

(1) This section applies to determine the amount of a dividend that arises under section CD 3 because a company makes property available to a person.

Amounts calculated quarterly

(2) The amount of the dividend is calculated for each quarter during which the property is made available.

Date when amounts treated as paid

(3) The amount of the dividend calculated for a quarter is treated as being paid by the company to the person and as being derived by the person 6 months after the end of the company's income year. However, if the company gives notice to the shareholder on an earlier date of the amount of the dividend for that quarter, the amount is treated as being paid and derived on that earlier date instead.

Using FBT rules
(4) Unless the property made available is a loan, the amount of the dividend for each quarter is the value of the fringe benefit for that quarter calculated under the FBT rules as if—
- (a) making the property available were the provision of a fringe benefit by the company to an employee in relation to employment, despite anything in sections CX 6 to CX 32 (which relate to fringe benefits); and
- (b) the company were not to choose to pay fringe benefit tax on an income year basis under section ND 14 (Payment of fringe benefit tax on income year basis for shareholder-employees).
Using difference from benchmark rate

(5) If the property made available is a loan, the amount of the dividend for each quarter is the excess (if any) of interest, calculated for the quarter on the basis of the daily balance of the loan and the benchmark rate specified in subsections (6) to (8), over the actual amount of interest accruing on the loan in the quarter. However, the company may choose instead to calculate the dividend as the excess of the benchmark interest rate amount over the amount of income accruing to the company in the quarter calculated under the yield to maturity method.

Benchmark rate: fringe benefit tax rate for certain loans
(6) For the purposes of subsection (5), the benchmark rate of interest is the prescribed rate of interest if—
- (a) all amounts payable to the company for the loan are expressed in New Zealand dollars; and
- (b) either the borrower is not a company or, if the borrower is another company, the company making the loan notifies the Commissioner that this subsection is to apply to the loan and the quarter.
Setting benchmark rate
(7) For the purposes of subsection (5), the benchmark rate is the rate set by the Commissioner if—
- (a) all amounts payable to the company in relation to the loan are payable in a single currency other than New Zealand dollars; and
- (b) the Commissioner has set a benchmark rate for that currency and the quarter; and
- (c) either the borrower is not a company or, if the borrower is another company, the company making the loan notifies the Commissioner that this subsection is to apply to the loan and the quarter.
Default benchmark rate

(8) For the purposes of subsection (5), if neither subsection (6) nor (7) applies, the benchmark rate of interest is a market rate determined at the end of the quarter for a loan made on the same terms between persons at arm's length.

Daily loan balance: certain repayments backdated
(9) For the purposes of subsection (5), in determining the daily balance of a loan during a tax year, an amount repaid during the tax year is treated as having been applied in repayment of the loan at the start of the company's tax year or, if later, the day the loan was made, if—
- (a) the amount is repaid by applying any salary, wages, extra pay, dividends, or interest payable by the company to the borrower; and
- (b) the amount payable by the company is income of the borrower in the tax year or a previous tax year; and
- (c) the amount payable by the company is payable without any tax deduction under the PAYE rules, the RWT rules, or the NRWT rules.
Daily loan balance: company nominating amount
(10) Subject to subsection (9), for the purposes of subsection (5), the daily balance of the loan for a tax year is treated as being equal to the notional balance chosen under subsection (11) by the company making the loan if—
- (a) the borrower is a company; and
- (b) the loan is a variable principal debt instrument; and
- (c) the company making the loan notifies the Commissioner that this subsection applies for the loan and the tax year; and
- (d) the amount of the dividend calculated as a result for the loan, the borrower, and the tax year is no more than 30% greater or less than the amount that would be calculated if this section did not apply.
Notional balance options
(11) The notional balance referred to in subsection (10) is whichever of the following is chosen by the company making the loan and notified to the Commissioner:
- (a) the average of the outstanding balances of the loan at the end of each month in the company's tax year:
- (b) the average of—
  - (i) the outstanding balance of the loan at the start of the tax year or the first time during the tax year at which the loan exists, whichever is later; and
  - (ii) the outstanding balance of the loan at the end of the tax year or the last time during the tax year at which the loan exists, whichever is earlier.
Notice generally by tax returns
(12) Reference in this section to a company notifying the Commissioner is a reference to—
- (a) a notice given to the Commissioner with the company's return of income for the relevant tax year; or
- (b) if no return is required, a notice given by the date on which a return would be required to be filed for the tax year if a return had been required.
Attributed repatriation dividends
(13) No amount of dividend arises under section CD 3 as a result of any difference between the interest (if any) payable by a person to a CFC in an accounting period of the CFC under a loan and the benchmark rate of interest specified in any of subsections (6) to (8) if—
- (a) the outstanding balance of the loan at the end of the accounting period is taken into account under sections CD 35 to CD 41 in calculating the New Zealand repatriation amount of the CFC for the accounting period; and
- (b) as a result, the person derives a dividend under section CD 13.
When loan disregarded
(14) Subsection (13) does not apply to the extent to which the loan is a loan to which—
- (a) section CD 39(11) applies, meaning that the loan is disregarded for the accounting period; or
- (b) section CZ 10(4) (Transitional relief for calculation of attributed repatriation dividends: 2 July 1992) applies, meaning that the loan is effectively disregarded for the accounting period.
Defined in this Act: accounting period, amount, attributed repatriation, CFC, Commissioner, company, dividend, employee, extra pay, FBT rules, fringe benefit, fringe benefit tax, income, income year, interest, loan, New Zealand, New Zealand repatriation amount, notice, notify, NRWT rules, pay, PAYE rules, prescribed rate of interest, quarter, return of income, RWT rules, shareholder, tax deduction, tax year, variable principal debt instrument,

Compare: 1994 No 164 s CF 2(11), (12), (19)

Subsection (11)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for “; or”.

CD 29 Adjustment if dividend recovered by company

When dividends recovered
(1) If a company recovers a dividend from a shareholder under section 56 of the Companies Act 1993 or an equivalent provision of foreign law, this section applies to the extent necessary to ensure that—
- (a) the recovered dividend and any attached imputation credit or dividend withholding payment credit are disregarded for the purposes of this Act; and
- (b) the resulting refunds are made.
Amendment of assessments

(2) Section 113B of the Tax Administration Act 1994 requires the Commissioner to amend assessments if given notice of the recovery.

Refunds
(3) If the Commissioner is given notice of the recovery, the Commissioner must refund any relevant—
- (a) income tax, dividend withholding payment, or dividend withholding payment penalty tax of the shareholder; and
- (b) non-resident withholding tax or resident withholding tax of the company.
Relationship with sections MD 1 and NH 4

(4) The refund is made despite sections MD 1 (Refund of excess tax) and NH 4 (Refund for overpayment and to company in loss), but subject to the other provisions of this Act.

Adjustments to accounts
(5) A credit or debit (as applicable) arises as at the date of recovery, and must be recorded in—
- (a) the imputation credit account of the company; or
- (b) if the shareholder is an imputation credit account company or dividend withholding payment account company, the imputation credit account or dividend withholding payment account of the shareholder.
Defined in this Act: assessment, Commissioner, company, dividend, dividend withholding payment, dividend withholding payment account, dividend withholding payment account company, dividend withholding payment credit, dividend withholding payment penalty tax, imputation credit, imputation credit account, imputation credit account company, income tax, non-resident withholding tax, notice, resident withholding tax, shareholder,

Compare: 1994 No 164 s CF 2(8)

Subsection (2) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “113B” for “113A”.

CD 30 Adjustment if amount repaid later

When released debt repaid
(1) If the release by a company of a shareholder's obligation to pay money to the company has been treated as a dividend and the released amount is later repaid to the company, this section applies to the extent necessary to ensure that—
- (a) the dividend is disregarded for the purposes of this Act; and
- (b) the resulting refunds are made.
When close company expenditure repaid
(2) If any expenditure of a close company that shareholders in the company believed on reasonable grounds was only for the benefit of the company is nevertheless a dividend and the expenditure is later repaid to the company, this section applies to the extent necessary to ensure that—
- (a) the dividend is disregarded for the purposes of this Act; and
- (b) the resulting refunds are made.
Amendment of assessments

(3) Section 113B of the Tax Administration Act 1994 requires the Commissioner to amend assessments if given notice of the repayment.

Refunds

(4) If the Commissioner is given notice of the repayment, the Commissioner must refund any relevant tax of the shareholder.

Relationship with section MD 1

(5) The refund is made despite section MD 1 (Refund of excess tax), but subject to the other provisions of this Act.

Repayment of pre-1992 loans

(6) Subsection (1) also applies to the repayment of an amount treated as a dividend under section 4(1)(b) of the Income Tax Act 1976 (as it applied before 1 April 1992 to give the Commissioner a discretion to treat loans as dividends), as if the amount repaid were a released amount that is repaid.

Defined in this Act: amount, assessment, close company, Commissioner, company, dividend, notice, pay, shareholder, tax,

Compare: 1994 No 164 s CF 2(9), (10)

Subsection (3) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “113B” for “113A”.

CD 31 Adjustment if additional consideration paid

Differences from market value

(1) If a dividend from a company arises because of a difference between the market value of property provided by or to the company and the consideration paid for it, the dividend is disregarded for the purposes of this Act if the conditions in subsections (2) to (4) are met.

Market value

(2) The consideration paid must have been an amount that the company considered was the market value, having taken reasonable steps at the time of the transaction to ascertain a market value.

Difference paid
(3) The recipient of the dividend must have later paid to the company—
- (a) sufficient additional consideration to reflect the actual market value of the property at the time of the transaction; or
- (b) a refund of any excess consideration paid by the company.
Accounts adjusted

(4) Any necessary adjustments must have been made to the accounts of the company and the recipient for the additional consideration or refund.

Defined in this Act: amount, company, dividend, pay,

Compare: 1994 No 164 s CF 2(9A)

CD 32 Available subscribed capital amount

Formula for calculating amount of available subscribed capital

(1) For a share (share) in a company at any relevant time (calculation time), the amount of available subscribed capital is calculated using the formula—

1 July 1994 balance + subscriptions – returns.

Definition of items in formula
(2) In the formula,—
- (a) 1 July 1994 balance is,—
  - (i) if the company existed before 1 July 1994, the amount calculated under subsection (3); and
  - (ii) in any other case, zero:
- (b) subscriptions, subject to subsections (6) to (20), is the total amount of consideration that the company received, after 30 June 1994 and before the calculation time, for the issue of shares of the same class (the class) as the share:
  - (c) returns, subject to subsections (21) to (24), is the total amount of consideration that the company paid, after 30 June 1994 and before the calculation time, on the cancellation of shares in the relevant class and that was not a dividend because of section CD 14 or CD 16 or a corresponding provision of an earlier Act.
1 July 1994 balance

(3) The 1 July 1994 balance is calculated using the formula

Definition of items in formula
(4) In the formula,—
- (a) paid-up capital, subject to subsection (5) relating to bonus issues, is the total amount of capital paid up before 1 July 1994 for shares in the class:
- (b) premiums is the total amount of qualifying share premium paid to the company before 1 July 1994 for shares in the class, but not including amounts applied before 1 July 1994 in paying up capital:
- (c) all shares issued is the number of shares in the class ever issued at the end of 30 June 1994:
- (d) 30 June 1994 shares is the number of shares in the class on issue at the end of 30 June 1994.
1 July 1994 balance: bonus issues after 30 September 1988
(5) The capital amount included in calculating the 1 July 1994 amount does not include an amount paid up by way of a bonus issue made after 30 September 1988, unless—
- (a) the bonus issue was a taxable bonus issue; or
- (b) the amount was paid up by application of an amount of qualifying share premium.
Subscriptions amount: taxable bonus issues and debt capitalisations
(6) The subscriptions amount includes,—
- (a) in the case of a bonus issue in lieu, the amount offered as an alternative to the bonus issue; and
- (b) in the case of a taxable bonus issue that is not a bonus issue in lieu, the amount of the dividend arising from the taxable bonus issue; and
- (c) in the case of shares issued on conversion of, or as consideration for the release of, a debt claim against the company, the amount of debt converted or released.
Subscriptions amount: non-taxable and exempt bonus issues
(7) The subscriptions amount does not include—
- (a) an amount for a bonus issue if neither subsection (6)(a) nor (b) applies; or
- (b) an amount for a taxable bonus issue made to a shareholder to whom the bonus issue was exempt income under section CW 9 (Dividend derived by company from overseas) or CW 10 (Dividend within New Zealand wholly-owned group) (or under a corresponding repealed provision) except to the extent to which the taxable bonus issue is fully credited.
Subscriptions amount: reinvested exempt dividends
(8) The subscriptions amount does not include—
- (a) an amount received by the company that is mainly attributable, directly or indirectly, to the company paying a dividend to a shareholder,—
  - (i) if the dividend was exempt income of the shareholder under section CW 9 (Dividend derived by company from overseas) or CW 10 (Dividend within New Zealand wholly-owned group) (or a corresponding provision of an earlier Act); and
  - (ii) if the shareholder was not required to deduct an amount of dividend withholding payment from the dividend by section NH 1 (Liability to make deduction in respect of foreign withholding payment dividend); and
  - (iii) to the extent to which the dividend is not fully credited; or
- (b) an amount received by the company that is mainly attributable, directly or indirectly, to the company paying a dividend at a time when the company is a controlled foreign company to another controlled foreign company (regardless of whether either company is resident in a grey list country).
Subscriptions amount: share-for-share exchanges
(9) Subsection (10) applies if—
- (a) the company receives an amount, directly or indirectly, for the issue of shares in the class that is in the form of shares in another company; and
- (b) immediately after the issue there are 1 or more persons whose common voting interests (or common market value interests), as defined in section IG 1(5) (Companies included in group of companies), in the company and the other company total 10% or greater; and
- (c) the receipt is not on an amalgamation.
Subscriptions amount: no uplift for share-for-share exchanges

(10) If subsection (9) applies, the subscriptions amount does not include the amount received to the extent to which it is more than the total available subscribed capital per share, calculated under the slice rule and calculated after deducting any ineligible capital amount described in subsections (13) and (14) of the shares in the other company at the date on which the amount is received.

Subscriptions amount: company share capital reorganisation
(11) Subsection (12) applies if a company receives an amount for the issue of shares in the class in the form of—
- (a) a shareholder giving up rights of membership in the company; or
- (b) a shareholder giving up rights of membership in a company associated with the company or that is in substance the same company.
Subscriptions amount: no uplift for share capital reorganisation
(12) If subsection (11) applies, the subscriptions amount does not include the amount received to the extent to which it is more than the total available subscribed capital per share of the rights given up at the date they are given up, calculated—
- (a) under the slice rule; and
- (b) after deducting any ineligible capital amount described in subsections (13) and (14); and
- (c) as if the rights given up were shares, if they are not shares.
Subscriptions amount: when ineligible capital arises
(13) For the purposes of subsections (10) and (12), an ineligible capital amount arises if—
- (a) a company (acquiring company) issues shares in consideration for acquiring, directly or indirectly, shares in another company (acquired company); and
- (b) the acquired company has issued shares in anticipation of the shares being acquired by the acquiring company; and
- (c) those shares issued in anticipation are not a fully credited taxable bonus issue; and
- (d) the acquiring company pays an amount in consideration for acquiring the shares in the acquired company in addition to issuing shares in the acquiring company.
Subscriptions amount: amount of ineligible capital
(14) The ineligible capital amount is the lesser of—
- (a) the total of the available subscribed capital per share calculated under the slice rule of the shares in the acquired company that is attributable to the shares issued in anticipation (except to the extent to which the shares issued in anticipation are a fully credited taxable bonus issue); and
- (b) the total additional amount paid by the acquiring company referred to in subsection (13)(d).
Subscriptions amount: amalgamated company
(15) The subscriptions amount for a company that is an amalgamated company resulting from an amalgamation—
- (a) includes an amount, as if it were consideration received at the time of the amalgamation for the issue of the amalgamated company's shares, equal to the available subscribed capital, at the time of the amalgamation, of all shares in the amalgamating companies that are—
  - (i) of an equivalent class to the class; and
  - (ii) not held directly or indirectly by an amalgamating company; and
  - (iii) not shares in the amalgamated company:
- (b) does not include any other amount for the agreement of shareholders of an amalgamating company to the amalgamation and the resulting property acquisitions by the amalgamated company.
Subscriptions amount: emigrating company

(15B) If a company has been treated under section FCB 2 (Emigrating company treated as paying distribution to shareholders) as paying a distribution to shareholders, the subscriptions amount includes the amount of the distribution that is a dividend.

Subscriptions amount: Maori authority

(16) If the company is a Maori authority, the subscriptions amount includes the taxable income derived by the Maori authority in the 2003-04 tax year or an earlier tax year.

Subscriptions amount: no double counting

(17) The subscriptions amount does not include amounts included in calculating the 1 July 1994 balance.

Subscriptions amount: treasury stock sales excluded

(18) The subscriptions amount does not include the amount of consideration received by a company for disposing of a share if the disposal is taken into account under section CD 17 to determine that the amount paid by the company on a previous share acquisition is not subject to section CD 17(4) to (6).

Subscriptions amount: superannuation fund's interest in GIF

(19) The subscriptions amount of a company that is a group investment fund includes the value of the interest of a superannuation fund in the group investment fund at the end of 31 March 1999.

1 July 1994 and subscriptions amount: foreign currency conversions

(20) If an amount of consideration that a company receives for the issue of shares is payable in a foreign currency, the amount paid is treated, for the purposes of this section, as if it were converted into New Zealand currency at the calculation time.

Returns amount: on-market cancellations by associate

(21) If the acquisition of a share by an associate of the company is treated under section ME 5(5) (Debits arising to imputation credit account) as if it were an on-market cancellation by the company, it is treated in the same way for the purposes of calculating the returns amount.

Returns amount: recovered amounts

(22) The returns amount does not include any amount recovered by the company before the calculation time under section 56 of the Companies Act 1993 or an equivalent provision of foreign law.

Returns amount: shares cancelled on amalgamation

(23) If shares in an amalgamated company held by an amalgamating company are cancelled on the amalgamation, the returns amount included in calculating the available subscribed capital amount of a share in the amalgamated company that is of the same class as the cancelled shares is increased by the amount calculated using the formula—

cancelled shares x asc per share.

Definition of items in formula
(24) In the formula,—
- (a) cancelled shares is the number of cancelled shares:
- (b) asc per share is the available subscribed capital per share calculated under the slice rule of each cancelled share immediately before the amalgamation.
Meaning of fully credited

(25) In this section, the part of a dividend that is fully credited is the part that is calculated using the formula—

Definition of items in formula
(26) In the formula,—
- (a) dividend excluding credits is the dividend excluding any attached imputation credit or dividend withholding payment credit:
- (b) actual ratio is the total of the imputation ratio and dividend withholding payment ratio of the dividend:
- (c) maximum ratio is the maximum imputation ratio specified in section ME 8(1) (Allocation rules for imputation credits).
Meaning of qualifying share premium
(27) In this section, qualifying share premium means an amount of premium paid to a company for the issue of a share by the company if—
- (a) the amount was credited to a share premium account in the company's books; and
- (b) the issue of shares was not in consideration for the acquisition, directly or indirectly, of shares in another company.
Defined in this Act: amalgamated company, amalgamating company, amalgamation, amount, associated person, available subscribed capital, bonus issue, bonus issue in lieu, cancellation, common market value interest, common voting interest, company, controlled foreign company, dividend, dividend withholding payment, dividend withholding payment credit, dividend withholding payment ratio, exempt income, fully credited, grey list, group investment fund, imputation credit, imputation ratio, Maori authority, New Zealand, on-market cancellation, pay, qualifying share premium, share, shareholder, shares of the same class, slice rule, superannuation fund, tax year, taxable bonus issue, taxable income,

Compare: 1994 No 164 ss CF 3(2)(a), (14), CF 4, OB 1 available subscribed capital, fully credited, ineligible capital amount, qualifying share premium, transitional capital amount

Subsection (15) (excluding the heading) was substituted, as from 1 April 2005, by section 11(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

Subsection (15B) was inserted, as from 3 April 2006, by section 11(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

CD 33 Available capital distribution amount

Formula for calculating amount of available capital distribution

(1) For a share (the share) on the liquidation of the company, the available capital distribution amount is calculated using the formula—

Definition of items in formula
(2) In the formula,—
- (a) receipt is the amount received by the shareholder on the liquidation for the share:
- (b) asc per share is the available subscribed capital per share calculated under the ordering rule for the share at the time of the liquidation:
- (c) capital gains is the total of the capital gain amounts available for distribution to shareholders in the company on the liquidation, but excluding any gain occurring when the company distributes property to a shareholder on the liquidation:
- (d) capital property distributed is the total market value of capital property of the company distributed to shareholders on the liquidation:
- (e) cost is the total cost to the company of the capital property included in the capital property distributed item:
- (f) capital losses is the total of capital loss amounts of the company arising in the 1992-93 or a later tax year, but excluding any loss occurring when the company distributes property to shareholders on the liquidation:
- (g) total receipts is the total of all amounts received by shareholders on the liquidation:
- (h) total asc is the total of the available subscribed capital of all shares in the company at the time of the liquidation.
Positive amounts

(3) Despite subsection (1), the available capital distribution amount per share is zero if either multiplier in the formula is negative.

When foreign company information inadequate
(4) Despite subsection (1), the available capital distribution amount is zero if—
- (a) the company is not resident in New Zealand; and
- (b) the shareholder cannot obtain sufficient information to calculate the actual available capital distribution amount.
Capital gain amount: bonus issued capital gains
(5) A capital gain amount is treated as still being available for distribution to the extent to which—
- (a) it has been applied to pay up a bonus issue made after 30 September 1988; and
- (b) the bonus issue is a non-taxable bonus issue; and
- (c) the bonus issued share is still on issue at the time of the company's liquidation.
This subsection is overridden by subsection (6).
Capital gain amount: capital gains after 31 March 1988 and before 1992-93

(6) A capital gain amount, derived after 31 March 1988 and before the 1992-93 tax year, is not available for distribution to the extent to which a capital loss amount has arisen for the company in the tax year in which the capital gain amount was derived or in a later tax year before the 1992-93 tax year. Capital loss amounts are offset against capital gain amounts in the chronological order in which each arose and, to the extent offset, are then disregarded for the purposes of this subsection.

Capital gain amount: when capital gain amounts arise
(7) For the purposes of this section, a company derives a capital gain amount if,—
- (a) after 31 March 1988, it disposes of capital property for an amount of consideration that is more than the cost of the property to the company, including a disposal that the company is treated as making under section DB 19 (Amount from profit-making undertaking or scheme and not already in income) or DB 20 (Amount from major development or division and not already in income); the capital gain amount is the excess; or
- (b) after 31 March 1988, it receives a capital gain, including a gift, and no part is assessable income of the company; the capital gain amount is the amount of the capital gain; or
- (c) an amount is derived by the company from another company on liquidation of the other company that is excluded from being a dividend as a result of section CD 18(2)(b) and this section; or
- (d) an amount is derived by the company that is attributable to a revaluation of livestock in the 1992-93 or a later tax year under section 86D of the Income Tax Act 1976 or section EC 16 (Valuation under herd scheme) or EC 20 (Herd livestock disposed of before values determined); or
- (e) the amount is described in section CZ 9(1) (Available capital distribution amount: 1965 and 1985 to 1992).
Capital gain amount: amalgamated company inheriting gain
(8) An amalgamated company is treated as deriving a capital gain amount at the time of the amalgamation equal to a capital gain amount of an amalgamating company to the extent to which—
- (a) the amalgamating company ceases to exist on the amalgamation; and
- (b) the amalgamating company's capital gain amount was available for distribution at the time and was not distributed to anyone other than the amalgamated company.
Capital losses amount: when capital losses arise

(9) For the purposes of this section, a company incurs a capital loss if it disposes of capital property for an amount of consideration less than the cost of the property to the company. The capital loss amount is the deficit.

Capital losses amount: company existing before 1 April 1988
(10) In the case of a company that existed before 1 April 1988, the capital losses amount cannot be more than the total of—
- (a) the amount of the capital gains item in the formula in subsection (1) to the extent derived after 31 March 1988; and
- (b) the amount of the capital property distributed item, minus the amount of the cost item, in the formula.
Related person transactions

(11) No capital gain amount is derived or capital loss amount is incurred by a company after 31 March 1988 on disposing of property under an arrangement with a related person. This subsection is overridden by subsection (12).

Close companies liquidations
(12) Subsection (11) 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 on the liquidation of the company.
Reinvested exempt dividends

(13) When a capital gain amount, a capital loss amount, or the cost of capital property is determined, the cost of any shares subscribed for by the company in another company does not include any consideration for the subscribed shares that is excluded from the available subscribed capital of the other company under section CD 32(7)(b) or (8).

Amounts written up
(14) When a capital gain amount, a capital loss amount, or the cost of capital property is determined, the cost of the relevant capital property is increased to the extent to which—
- (a) the value of the property is written up in the company's books; and
- (b) because it was attributed to the write-up,—
  - (i) an amount paid before 11 June 1965 is treated as described in section CZ 9(2)(a) (Available capital distribution amount: 1965 and 1985 to 1992); or
  - (ii) an issue of a share before 1 April 1988 is treated as described in section CZ 9(2)(b) (Available capital distribution amount: 1965 and 1985 to 1992).
Meaning of related person
(15) In subsections (11) and (12), related person means a person related to a company (first company) because 1 of the following applies to the person and the 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
(16) For the purposes of subsection (15), 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
(17) For the purposes of subsection (15)(e), if shares or voting rights in a company are owned or controlled by another company, a look-through approach must be applied. The lookthrough 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.
Meaning of capital property

(18) In this section, capital property means property of the company that is not revenue account property.

Defined in this Act: amalgamated company, amalgamating company, amalgamation, amount, available capital distribution amount, available subscribed capital, bonus issue, capital property, close company, company, dividend, income, liquidation, nominee, non-taxable bonus issue, ordering rule, pay, related person, relative, resident in New Zealand, revenue account property, share, shareholder, tax year, trustee,

Compare: 1994 No 164 ss CF 3(2)(b), (6)-(12), (14) excess return amount, CF 5(b), OB 1 capital gain amount

Subsection (2)(c) was amended, as from 1 April 2005, by section 12(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “capital gain amounts available” for “capital gain available” with application as from the income year corresponding to the 2005–06 tax year.

Subsection (7)(b) was substituted, as from 1 April 2005, by section 12(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

Subsection (16)(a) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.

Subsection (16)(a) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

Subsection (16)(c) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.

Subsection (16)(c) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

Subsection (16)(d) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.

Subsection (16)(d) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “a child of their spouse or civil union partner” for “their spouse's child”.

Subsection (16)(d) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

Subsection (16)(d) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “a child of their spouse, civil union partner or de facto partner” for “a child of their spouse or civil union partner”.

CFC attributed repatriation calculation rules

CD 34 When does a person have attributed repatriation from a CFC?

General rule
(1) A person has an amount of attributed repatriation from a CFC if—
- (a) the person has an income interest under sections EX 8 to EX 13 (which relate to the calculation of a person's income interest) in the CFC in 1 of the CFC's accounting periods; and
- (b) the person's income interest is 10% or more for the accounting period, under sections EX 14 to EX 16 (which relate to the 10% threshold); and
- (bb) at any time in the accounting period, the person is a New Zealand resident who is not a transitional resident; and
- (c) the CFC has a New Zealand repatriation amount for the accounting period, under sections CD 35 to CD 41.
Formula

(2) The amount of the person's attributed repatriation for the accounting period is calculated using the formula—

Definition of items in formula
(3) In the formula,—
- (a) income interest is the income interest of the person for the period in the accounting period during which the person is a New Zealand resident who is not a transitional resident:
- (b) repatriation is the New Zealand repatriation amount for the CFC and the accounting period:
- (c) days is the number of days in the accounting period during which the person is a New Zealand resident who is not a transitional resident:
- (d) days in accounting period is the number of days in the accounting period.
Defined in this Act: accounting period, amount, attributed repatriation, CFC, income interest, New Zealand repatriation amount, New Zealand resident, transitional resident,

Compare: 1994 No 164 s CG 8(1)

Subsection (1)(bb) was inserted, as from 1 October 2005, by section 13(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 13(5) and (6) of that Act as to the application of this amendment.

Subsection (2) formula was substituted, as from 1 October 2005, by section 13(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 13(5) and (6) of that Act as to the application of this amendment.

Subsection (3) was inserted, as from 1 October 2005, by section 13(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 13(5) and (6) of that Act as to the application of this amendment.

The list of defined terms was amended, as from 1 October 2005, by section 13(4)(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “New Zealand resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 13(5) and (6) of that Act as to the application of this amendment.

The list of defined terms was amended, as from 1 October 2005, by section 13(4)(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “transitional resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 13(5) and (6) of that Act as to the application of this amendment.

CD 35 New Zealand repatriation amount

Formula

(1) The New Zealand repatriation amount of a CFC for an accounting period is calculated using the formula—

closing New Zealand property – opening New Zealand property.

Definition of items in formula
(2) In the formula,—
- (a) closing New Zealand property is the amount of New Zealand property of the CFC at the end of the accounting period calculated under the rules in sections CD 36 to CD 40:
- (b) opening New Zealand property is the amount of New Zealand property of the CFC at the start of the accounting period, calculated under the rules in sections CD 36 to CD 40.
Positive amounts

(3) The New Zealand repatriation amount can never be negative.

CFC's unrepatriated income balance

(4) The New Zealand repatriation amount can never be more than the unrepatriated income balance of the CFC for the accounting period, calculated under section CD 41.

Defined in this Act: accounting period, amount, CFC, New Zealand, New Zealand repatriation amount,

Compare: 1994 No 164 s CG 8(2)

CD 36 New Zealand property amount

Formula

(1) The amount of New Zealand property of a CFC at any time is calculated using the formula—

tangible property + associated party equity + associated party debt.

Definition of items in formula
(2) In the formula,—
- (a) tangible property is the total amount of tangible property (including real property), measured at cost, held by the CFC and situated in New Zealand:
- (b) associated party equity is the total amount of shares or options over shares, measured at cost, held by the CFC in companies that are at the time both—
  - (i) resident in New Zealand; and
  - (ii) associated with the CFC:
- (c) associated party debt is the total amount of balances outstanding, measured under section CD 39, but never totalling less than zero, of all financial arrangements, to which both—
  - (i) the CFC is a party; and
  - (ii) a New Zealand resident associated with the CFC at the time is a party.
Acquisitions from associates below market value

(3) If the CFC acquires any property from a person who is associated (at the time of acquisition) with the CFC for a cost that is less than the market value of the property at the time, the cost to the CFC of acquiring the property is treated as being equal to the market value at the time.

Specific calculation rules in sections CD 37 to CD 40

(4) There are specific calculation rules in sections CD 37 to CD 40, which apply, despite anything in this section, when the amount of New Zealand property is being calculated.

Defined in this Act: amount, associated person, CFC, company, financial arrangement, New Zealand, New Zealand resident, resident in New Zealand, share,

Compare: 1994 No 164 s CG 8(3), (5), (14) tangible property

CD 37 Cost of tangible property

Capital expenditure
(1) The cost of any item of tangible property (except trading stock) includes each of the following expenditures if no deduction would have been allowed under this Act for it (except for an amount of depreciation loss) had the CFC been a New Zealand resident:
- (a) the original purchase price of the property:
- (b) other expenditure incurred on purchasing the property:
- (c) expenditure incurred before the relevant time in improving the property:
- (d) expenditure incurred before the relevant time in establishing or improving the CFC's legal right to the property.
Outstanding third party funding
(2) The cost of any item of tangible property is reduced (but not to less than zero) by the balance outstanding at the time of a loan to the extent to which—
- (a) the loan is secured over the property; and
- (b) the lender is not associated at the time with the CFC; and
- (c) the balance is attributable to expenditure on the property included in the cost under subsection (1) (including any refinancing of an amount that is attributable to such expenditure).
Temporary New Zealand property
(3) Subject to section CD 40(3) and (4), the amount of the tangible property item in the formula in section CD 36(1) excludes the cost of any property that is—
- (a) situated in New Zealand for less than 365 days in total; or
- (b) disposed of by the CFC—
  - (i) by the later of 364 days after its acquisition and 9 months after the end of the CFC's accounting period in which it was acquired; and
  - (ii) to a person that is either a New Zealand resident or is not associated with the CFC at the time of the disposal.
CFC's business operations assets excluded

(4) The amount of the tangible property item in the formula in section CD 36(1) excludes the cost of any property that is acquired or used by the CFC in the course of carrying on a substantial business, unless subsection (5) applies.

What exclusion does not apply to
(5) Subsection (4) does not apply if the business—
- (a) is carried on solely or mainly for the purpose of defeating the application of section CD 13; or
- (b) is of the same nature as a business also carried on in New Zealand at the time of the acquisition by a person that is—
  - (i) a New Zealand resident; and
  - (ii) associated at the time with the CFC; and
  - (iii) not a company in which the CFC holds at the time shares that are excluded from the New Zealand repatriation amount measurement by section CD 38(1).
Defined in this Act: accounting period, associated person, business, CFC, company, deduction, depreciation loss, New Zealand, New Zealand repatriation amount, New Zealand resident, share, trading stock,

Compare: 1994 No 164 s CG 8(6), (14) qualified transitory property

Subsection (1)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for “; and”.

CD 38 Cost of associated party equity

Shares in subsidiaries engaged in same business
(1) The cost of associated party equity at any time excludes the cost of shares or options over shares acquired in a company if—
- (a) the CFC and the company are a wholly-owned group of companies at the time; and
- (b) the company carries on a business of the same nature as a substantial business carried on by the CFC before the acquisition; and
- (c) the CFC (or another CFC associated with it at the time) has a significant involvement in managing the company's business; and
- (d) neither the company's business nor the CFC's business is carried on solely or mainly for the purpose of defeating the application of section CD 13; and
- (e) neither the company's business nor the CFC's business is of the same nature as a business also carried on in New Zealand at the time of the acquisition by a person that is—
  - (i) a New Zealand resident; and
  - (ii) associated at the time with the CFC; and
  - (iii) not a company in which the CFC holds at the time shares that are excluded from the New Zealand repatriation amount measurement by this subsection.
Currency conversions

(2) If any shares or options are not denominated in New Zealand dollars, the cost is calculated by converting the amount in the relevant foreign currency at the rate of exchange applying on the date the shares or options were acquired.

Defined in this Act: associated person, business, CFC, company, New Zealand, New Zealand resident, New Zealand repatriation amount, share, wholly-owned group of companies,

Compare: 1994 No 164 s CG 8(7)

CD 39 Outstanding balances of financial arrangements

Rules for attributed repatriation calculation only

(1) The rules in this section apply only for the purposes of calculating the amount of the associated party debt item in the formula in section CD 36(1).

Balance: amounts due

(2) The outstanding balance of a financial arrangement to which the CFC is a party is the amount due to or by the CFC under the financial arrangement, whether or not payable at the time.

Calculation under CFC rules

(3) The amount due is calculated by applying section EX 21 (Branch equivalent income or loss: calculation rules) and 1 of the spreading methods under the financial arrangements rules as if calculating the branch equivalent income or loss of the CFC.

Currency conversion

(4) If the amount is not due in New Zealand dollars, the amount is converted by applying the exchange rate between the foreign currency and New Zealand dollars that applies on the date the financial arrangement is entered into.

All arrangements with same associate

(5) In calculating the net outstanding balance of a financial arrangement to which the CFC and an associated person are parties, all financial arrangements entered into by those parties are treated as a single financial arrangement, with outstanding balances aggregated and netted off.

Short-term financial arrangements

(6) No account is taken of a financial arrangement that, on the date it is entered into, is reasonably expected to and does mature within 365 days of the day on which it was entered into.

Aggregation of consecutive or successive arrangements

(7) For the purposes of subsection (6), if 2 or more consecutive or successive financial arrangements may, having regard to the tenor of this section, fairly be regarded as 1 financial arrangement, those financial arrangements are to be regarded as 1 financial arrangement.

Accruing amounts
(8) For the purposes of subsections (6) and (10)(c)(i), an amount accrued (including interest and discount on issue) on a financial arrangement is treated as—
- (a) a new financial arrangement entered into on the date of accrual; and
- (b) having been paid only when previous accruals on the financial arrangement have been paid.
Temporary adjustments

(9) A temporary reduction or increase in the outstanding balance, at the end of an accounting period of the CFC, of any financial arrangement is disregarded if it has a purpose or effect of defeating the application of section CD 13.

When financial arrangement matures within 5 years or is remitted
(10) Subsections (11) and (12) apply if—
- (a) a CFC is party to a financial arrangement; and
- (b) the outstanding balance of the financial arrangement has been or, but for subsection (11), would be taken into account in calculating the New Zealand repatriation amount of the CFC for an accounting period; and
- (c) either—
  - (i) the financial arrangement matures within 5 years of the date on which it was entered into; or
  - (ii) an amount owing under the financial arrangement is remitted or released and, as a result, a person derives a dividend; and
- (d) section CZ 10(4) (Transitional relief for calculation of attributed repatriation dividends: 2 July 1992) does not apply to the financial arrangement.
Retrospective exclusion of amounts
(11) If a person with an income interest in the CFC notifies the Commissioner in writing of the maturity or dividend, for the purposes of calculating the dividend amount which the person has derived under section CD 13 from the CFC,—
- (a) the financial arrangement is disregarded, if subsection (10)(c)(i) applies; or
- (b) the amount remitted or released is disregarded, if subsection (10)(c)(ii) applies.
Amendment of assessments and refunds
(12) In order to give effect to subsection (11), the Commissioner must—
- (a) amend any relevant assessment under section 113C of the Tax Administration Act 1994; and
- (b) refund any income tax, dividend withholding payment, dividend withholding payment penalty tax, or late payment penalty, despite section MD 1 (Refund of excess tax) but otherwise subject to this Act.
Substitution of financial arrangements
(13) For the purposes of subsection (10)(c)(i), a financial arrangement (first financial arrangement) to which a CFC is a party is not treated as maturing within 5 years of the date on which it was entered into if—
- (a) on or after the date of maturity, another financial arrangement (second financial arrangement) is entered into by the CFC or a CFC associated with the first CFC at any time during the term of the second financial arrangement; and
- (b) the second financial arrangement is a substitute, in whole or part, for the first financial arrangement; and
- (c) the second financial arrangement was entered into with a purpose of ensuring that subsections (11) and (12) apply.
Defined in this Act: accounting period, amount, associated person, attributed repatriation, branch equivalent income, CFC, Commissioner, dividend, dividend withholding payment, dividend withholding payment penalty tax, financial arrangement, financial arrangements rules, income interest, income tax, interest, loss, maturity, New Zealand, New Zealand repatriation amount, pay, year,

Compare: 1994 No 164 ss CF 2(17), (18), CG 8(8)

Subsection (12)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “113C” for “113B”.

CD 40 Property transfers between associated persons

Transfers between associated CFCs
(1) Subsection (2) applies if—
- (a) a CFC disposes of any property to another CFC; and
- (b) the first CFC held the property at the start of the accounting period in which the disposal occurs; and
- (c) the 2 CFCs are associated persons at the time of the disposal.
Calculation as if property held by second CFC for whole period

(2) A person can choose to calculate their attributed repatriation from both CFCs as if the disposal had occurred at the start of each CFC's accounting period in which the disposal in fact occurs. The election is made by the person preparing their return of income accordingly.

Transfers to non-residents with mismatching accounting periods
(3) Subsection (4) applies if—
- (a) a CFC disposes of property to an associated person who is not a New Zealand resident during an accounting period (transfer period); and
- (b) the CFC did not own the property at the end of the previous accounting period; and
- (c) the associated person has an accounting period that ends on a later date than the CFC's transfer period ends; and
- (d) the associated person holds the property at the end of the CFC's transfer period; and
- (e) the associated person does not hold the property at the end of its own accounting period in which the disposal occurs.
Calculation as if CFC holding property at the end of period

(4) For the purposes of calculating the CFC's New Zealand repatriation amount, it is treated as if it still held the property at the end of the transfer period.

Defined in this Act: accounting period, associated person, attributed repatriation CFC, New Zealand repatriation amount, New Zealand resident, return of income,

Compare: 1994 No 164 s CG 8(4), (10)

CD 41 Unrepatriated income balance

Formula

(1) The unrepatriated income balance of a CFC for an accounting period is calculated using the formula—

shareholders' funds – available subscribed capital – previous New Zealand repatriation amounts.

Definition of items in formula
(2) In the formula,—
- (a) shareholders' funds is the total shareholders' funds of the CFC at the end of the accounting period, measured under generally accepted accounting practice:
- (b) available subscribed capital is the CFC's available subscribed capital at the end of the accounting period, excluding any amount resulting from—
  - (i) a bonus issue by the CFC derived by a person who is not a resident of New Zealand; or
  - (ii) direct or indirect reinvestment of a distribution by the CFC after 2 July 1992 to a person not resident in New Zealand:
- (c) previous New Zealand repatriation amounts is the total of any—
  - (i) New Zealand repatriation amount of the CFC for a previous accounting period, reduced under any amended assessment under section CD 39(12); and
  - (ii) specified repatriation amount of the CFC for a previous accounting period ending after 2 July 1992 and before the 2003-04 tax year calculated under section CG 8 of the Income Tax Act 1994 as it applied before the 2003-04 tax year and reduced under any amended assessment under section CF 2(17) of the Income Tax Act 1994 as it similarly applied.
Positive amounts

(3) The unrepatriated income balance can never be negative.

Defined in this Act: accounting period, assessment, available subscribed capital, bonus issue, CFC, generally accepted accounting practice, New Zealand repatriation amount, resident in New Zealand, resident of New Zealand, tax year,

Compare: 1994 No 164 s CG 8(11)

Prevention of double taxation

CD 42 Prevention of double taxation of share cancellation dividends

Application of this section
(1) This section applies if—
- (a) a person derives an amount from the cancellation of a share in a company; and
- (b) the amount is income of the person under 1 of the following provisions (other rules):
  - (i) section CB 1 (Amounts derived from business); or
  - (ii) section CB 2 (Profit-making undertaking or scheme); or
  - (iii) section CB 3 (Personal property acquired for purpose of disposal); or
  - (iv) section CB 4 (Business of dealing in personal property); or
  - (v) any other provision of this Act outside this subpart.
Treatment of amount

(2) For the purposes of the other rules, the amount derived by the person from the company is treated as if it were reduced (but not below zero) by the amount of any dividend derived by the person in relation to the cancellation (excluding any attached imputation credit or dividend withholding payment credit).

Non-taxable dividends
(3) Subsection (2) does not apply to the extent to which—
- (a) the dividend is exempt income of the person under sections CW 9 to CW 11 (which relate to income from equity); and
- (b) section NH 1 (Liability to make deduction in respect of foreign withholding payment dividend) does not require the person to deduct a dividend withholding payment from the dividend.
Subsection (3)(b): formula

(4) For the purposes of subsection (3)(b), the extent to which a person is required to deduct a dividend withholding payment is calculated using the formula—

Definition of items in formula
(5) In the formula,—
- (a) dividend withholding payment is any dividend withholding payment that must be deducted from the dividend under section NH 2(1) (Amount of dividend withholding payment to be deducted):
- (b) tax rate is the basic rate of income tax for companies, expressed as a decimal, stated in schedule 1, part A, clause 5 (Basic rates of income tax and specified superannuation contribution withholding tax), that applies for the tax year in which the dividend is paid.
Relationship of dividend exclusions to other provisions

(6) Subject to subsection (2), the amount derived by the person from the company may be income of the person despite the fact that the amount is excluded from being a dividend by any of sections CD 14 to CD 19.

Relationship with section FC 3

(7) This section is overridden by section FC 3 (Share dealing).

Defined in this Act: amount, cancellation, company, dividend, dividend withholding payment, dividend withholding payment credit, exempt income, imputation credit, income, income tax, share, tax year,

Compare: 1994 No 164 s CF 2(15)

Returning share transfers

This heading was inserted, as from 1 July 2006, by section 14 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

CD 43 Replacement payments

The amount of a replacement payment derived by a person under a returning share transfer is income of the person when it is paid to the person.

Defined in this Act: income, pay, replacement payment, returning share transfer,

Section CD 43 was inserted, as from 1 July 2006, by section 14 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subpart CE—Employee or contractor income

Employment income

CE 1 Amounts derived in connection with employment

The following amounts derived by a person in connection with their employment or service are income of the person:
- (a) salary or wages or an allowance, bonus, extra pay, or gratuity:
- (b) expenditure on account of an employee that is expenditure on account of the person:
- (c) the market value of board that the person receives in connection with their employment or service:
- (d) a benefit received under a share purchase agreement:
- (e) directors' fees:
- (f) compensation for loss of employment or service:
- (g) any other benefit in money.
Defined in this Act: amount, expenditure on account of an employee, extra pay, income, salary or wages, share purchase agreement,

Compare: 1994 No 164 ss CH 3, OB 1 monetary remuneration

Paragraphs (a) to (f) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for “; and”.

CE 2 Value and timing of benefits under share purchase agreements

What this section does

(1) This section determines the value of a benefit that an employee receives under a share purchase agreement and the allocation of the benefit to a particular tax year. If restrictions apply to the disposal of shares received under a share purchase agreement, section CE 3 applies.

If employees acquire shares

(2) If an employee acquires shares under a share purchase agreement, the value of the benefit to the employee is the amount by which the value of the shares when they were acquired is more than the amount paid or payable for them. The employee receives the benefit in the tax year in which they acquire the shares.

If employees dispose of rights to non-associates

(3) If an employee disposes of their rights under a share purchase agreement to a person who is not associated with them, the value of the benefit is the consideration for the disposal of the rights. The employee receives the benefit in the tax year in which they dispose of the rights.

If associates acquire shares

(4) If, following 1 or more transactions between associated persons, an associated person acquires the shares under a share purchase agreement, the value of the benefit is the difference between the value of the shares on the date of acquisition by the associated person and the amount paid or payable for them. If the difference is negative, the value is zero. The employee receives the benefit in the tax year in which the associated person acquires the shares.

If associates dispose of rights to non-associates

(5) If, following 1 or more transactions between associated persons, a person who is not an associated person acquires the rights under a share purchase agreement, the value of the benefit is the consideration paid for that disposal. The employee receives the benefit in the tax year in which the last associated person disposes of the rights.

If shares transferred when employees end employment or die

(6) The value of the benefit is zero if a share purchase agreement provides unconditionally that, when the employee ends their employment or service or dies, the shares must be transferred to the employer or to the person from whom they were acquired, either without consideration or for a consideration no more than that paid by the employee.

If benefits arise under approved schemes

(7) The value of the benefit is zero if the benefit arises under a share purchase scheme.

Disposal of rights under share purchase option

(8) For the purposes of subsection (3), a disposal of rights under a share purchase agreement includes the cancellation of a share option in return for a cash payment.

Reduction of value of benefit in circumstances relating to non-resident
(9) The value of a benefit arising from a period of employment is reduced, from the value that the benefit would have in the absence of this subsection,—
- (a) if, when the employee acquires the shares under the share purchase agreement or disposes of the rights under the share purchase agreement, the employee is a transitional resident; and
- (b) by an amount given by the following formula:
Defined in this Act: amount, associated person, employee, employer, non-resident, share, share purchase agreement, share purchase scheme, tax year, transitional resident,

Compare: 1994 No 164 s CH 2(2), (3) first proviso, second proviso

Subsection (8) was inserted, as from 1 April 2006, by section 15(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for income years beginning as from 1 April 2006.

Subsection (9) was inserted, as from 1 October 2005, by section 15(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 15(5) and (6) of that Act as to the application of this amendment.

The list of defined terms was amended, as from 1 October 2005, by section 15(3)(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting the word “non-resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 15(5) and (6) of that Act as to the application of this amendment.

The list of defined terms was amended, as from 1 October 2005, by section 15(3)(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “transitional resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 15(5) and (6) of that Act as to the application of this amendment.

CE 3 Restrictions on disposal of shares under share purchase agreements

Effect of restrictions

(1) When the benefit to an employee under a share purchase agreement is being valued, a restriction in the agreement on the disposal of the shares is taken into account only if the restriction is of a kind described in subsection (2) or (3).

First restriction
(2) The first restriction is one that applies for a period that ends—
- (a) at least 8 years after the end of the tax year in which the employee receives the benefit; or
- (b) with the date of the employee's death.
Second restriction
(3) The second restriction is one that—
- (a) applies for a period that ends—
  - (i) at least 8 years after the end of the tax year in which the employee receives the benefit; or
  - (ii) with the date of the employee's death; and
- (b) provides that an employee who ends their employment or service before the end of the period must unconditionally transfer some or all of the shares to the employer or to the person from whom the employee acquired them, either without consideration or for a consideration that is no more than that paid by the employee.
Transfers of shares under relationship agreements

(4) If a share purchase agreement does not restrict an employee from transferring the shares under a relationship agreement, but the disposal of the shares by the person to whom the shares are transferred is restricted for a period that ends at least 8 years after the end of the tax year in which the employee would otherwise have received the benefit or after the death of the employee, then the restriction is treated as applying to the employee.

Defined in this Act: employee, employer, matrimonial agreement, share, share purchase agreement, tax year, year,

Compare: 1994 No 164 s CH 2(3)(a), (b), third proviso

The heading to subsection (4) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreements” for “matrimonial agreements”.

Subsection (4) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreements” for “matrimonial agreements”.

CE 4 Adjustments to value of benefits under share purchase agreements

The Commissioner may at any time adjust the previously determined value of a benefit under a share purchase agreement if the value is reduced because—
- (a) a restriction on disposal exists when the employee disposes of the shares that was not taken into account in valuing the benefit; or
- (b) further consideration is required for the shares; or
- (c) the shares are reacquired either without consideration or for a consideration no more than that paid by the employee.
Defined in this Act: Commissioner, employee, share, share purchase agreement,

Compare: 1994 No 164 s CH 2(4)

Definitions

CE 5 Meaning of expenditure on account of an employee

Meaning

(1) Expenditure on account of an employee means a payment made by an employer relating to expenditure incurred by an employee.

Inclusion

(2) Expenditure on account of an employee includes a premium that an employer pays on a life insurance policy taken out for the benefit of the employee (or their spouse, civil union partner or de facto partner or their child). This subsection is overridden by subsection (3)(f) to (i).

Exclusions
(3) Expenditure on account of an employee does not include—
- (a) expenditure for the benefit of an employee, or a payment made to reimburse an employee, under section CW 13 (Expenditure on account, and reimbursement, of employees):
- (b) an allowance for additional transport costs under section CW 14 (Allowance for additional transport costs):
- (c) expenses that an employee pays in connection with their employment or service to the extent to which the expenditure is their employer's liability, if the employee undertakes to discharge the liability in consideration of the making of the payment by the employer:
- (d) expenditure on an employment-related loan to which the FBT rules apply:
- (e) an employer's superannuation contribution:
- (f) a premium that an employer pays on a life insurance policy taken out for the benefit of the employee (or their spouse, civil union partner or de facto partner or their child) if—
  - (i) the premium cannot be refunded to, or converted to cash by, the employee or an associated person; and
  - (ii) the only benefits that are payable under the policy are those payable on the death of the employee (or their spouse, civil union partner or de facto partner or their child) or those payable because of accident, disease, or sickness of the employee (or their spouse, civil union partner or de facto partner or their child):
- (g) a premium that an employer that is a close company pays on a life insurance policy taken out for the benefit of the employee (or their spouse, civil union partner or de facto partner or their child), to the extent to which the expenditure is treated as a dividend under subpart CD (Income from equity):
- (h) a premium that an employer pays on a life insurance policy taken out for the benefit of the employee (or their spouse, civil union partner or de facto partner or their child) if the policy is, or is included in, a superannuation category 1 scheme, a superannuation category 2 scheme, or a superannuation category 3 scheme:
- (i) a premium that an employer pays on a life insurance policy taken out for the benefit of the employee (or their spouse, civil union partner or de facto partner or their child) if the policy is held by or for the trustees of a superannuation category 3 scheme:
- (j) a premium for income protection insurance that an employer is liable to pay or make a contribution towards for the benefit of an employee.
Defined in this Act: additional transport costs, associated person, close company, contribution, dividend, employee, employer, employer's superannuation contribution, employment-related loan, expenditure on account of an employee, FBT rules, life insurance policy, premium, superannuation category 1 scheme, superannuation category 2 scheme, superannuation category 3 scheme, trustee,

Compare: 1994 No 164 s OB 1 expenditure on account of an employee, specified fund

Subsection (2) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.

Subsection (2) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

Subsection (3)(a) to (h) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (3)(f) before subpara (i) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.

Subsection (3)(f) before subpara (i) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

Subsection (3)(f)(ii) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse” in both places it occurs.

Subsection (3)(f)(ii) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner” in both places it occurs.

Subsection (3)(g) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.

Subsection (3)(g) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

Subsection (3)(h) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.

Subsection (3)(h) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

Subsection (3)(i) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.

Subsection (3)(i) was amended, as from 1 April 2006, by section 16(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “scheme:” for “scheme.”.

Subsection (3)(i) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

Subsection (3)(j) was inserted, as from 1 April 2006, by section 16(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

The list of defined terms was amended, as from 1 April 2006, by section 16(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “contribution”.

CE 6 Meaning of share: when share acquired

Meaning

(1) In sections CE 2 to CE 4 and CE 7, share includes a convertible note.

Use in sections CE 2 to CE 4 and CE 7
(2) For the purposes of sections CE 2 to CE 4 and CE 7,—
- (a) shares are treated as having been acquired on the date on which the right or option to buy them is exercised; and
- (b) if shares or rights are acquired or transferred under an agreement by a trustee for the benefit of an employee to whom section CE 2 applies, the employee is treated as having acquired or transferred the shares or rights.
Defined in this Act: convertible note, employee, share, trustee,

Compare: 1994 No 164 s CH 2(5), (6), (8)

The heading to section CE 6 was amended, as from 1 April 2005, by section 6 Taxation (Savings Investment and Miscellaneous Provisions Act 2006 (2006 No 81) by adding “: when share acquired”.

CE 7 Meaning of share purchase agreement

In sections CE 1 to CE 4, share purchase agreement means an agreement to sell or issue shares in a company to an employee that is entered into in connection with the employee's employment or service, whether or not an employment relationship exists when the employee receives a benefit under the agreement.

Defined in this Act: company, employee, share, share purchase agreement,

Compare: 1994 No 164 s CH 2(1), (7)

Attributed income

CE 8 Attributed income from personal services

When this section applies

(1) This section applies when, under sections GC 14B to GC 14E (which relate to the attribution rule), a person is required to attribute an amount to another person.

Income

(2) The amount attributed is income of the person to whom it is attributed.

Timing of income

(3) The amount is allocated to the income year in which it is attributed.

Defined in this Act: amount, income, income year,

Compare: 1994 No 164 ss CD 7, EN 8

Restrictive covenants and exit inducement payments

CE 9 Restrictive covenants

When this section applies
(1) This section applies when—
- (a) a person (person A) gives an undertaking that restricts, or is intended to restrict, their ability to perform services as an employee, office holder, or independent contractor, whether or not the undertaking is legally enforceable; and
- (b) a person, whether or not person A, derives an amount for the undertaking.
Income

(2) The amount is income of person A.

Exclusion
(3) Subsection (2) does not apply if—
- (a) person A derives the amount because person A or an associated person sells a business to another person (person B); and
- (b) person A or the associated person and person B agree in writing that the transaction is the sale of a business; and
- (c) person A derives the amount as consideration for an undertaking by person A not to provide goods or services in competition with the goods or services that person B provides from the business; and
- (d) person A does not provide services to person B after the sale of the business, other than temporarily providing services incidental to the sale.
Sale of all shares in company
(4) For the purposes of subsection (3),—
- (a) the sale of a business includes the sale of shares in a company, but only if the sale is of all the shares in the company and the company—
  - (i) carries on a business; or
  - (ii) directly or indirectly wholly owns another company that carries on a business; and
- (b) in that case, the words “person B” in subsection (3)(c) and (d) mean the company that carries on the business, whether the company referred to in paragraph (a)(i) or the company referred to in paragraph (a)(ii).
Sale of part of business

(5) For the purposes of subsection (3), the sale of a business includes the sale of part of a business, if the part can be operated separately.

Defined in this Act: amount, associated person, business, company, employee, income, share,

Compare: 1994 No 164 s CHA 1

CE 10 Exit inducements

An amount is income of a person if they derive it for—
- (a) the loss of a vocation; or
- (b) the loss of a position; or
- (c) leaving a position; or
- (d) loss of status.
Defined in this Act: amount, income,

Compare: 1994 No 164 s CHA 2

Income protection insurance

This heading was inserted, as from 1 April 2006, by section 17 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

CE 11 Proceeds from claims under policies of income protection insurance

When this section applies

(1) This section applies if an employer is liable to pay, or contribute to the payment of, a premium under a policy of income protection insurance for the benefit of a person who is their employee.

Income

(2) An amount that is or would be derived under the policy is income of the person.

Defined in this Act: amount, employee, employer, income, pay,

Section CE 11 was inserted, as from 1 April 2006, by section 17 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Tax credits

CE 12 Tax credits under section LD 1B added to caregiver's income

Subpart CF—Income from living allowances, compensation, and government grants

CF 1 Benefits, pensions, compensation, and government grants

CF 2 Remission of specified suspensory loans

CF 1 Benefits, pensions, compensation, and government grants

Income
(1) The following amounts are income:
- (a) an accident compensation payment:
- (b) an education grant:
- (c) an income-tested benefit:
- (d) a living alone payment:
- (e) a New Zealand superannuation payment:
- (f) a parental leave payment paid under Part 7A of the Parental Leave and Employment Protection Act 1987:
- (g) a pension:
- (h) a veteran's pension.
Some definitions
(2) In this section,—
accident compensation payment means—
- (a) a payment under the Accident Compensation Act 1982 of earnings-related compensation that is not recovered or recoverable by, or refunded to, to the chief executive of the department currently responsible for administering the Social Security Act 1964:
- (b) a payment under section 80(4) of the Accident Compensation Act 1982 that is not recovered or recoverable by, or refunded to, to the chief executive of the department currently responsible for administering the Social Security Act 1964:
- (c) a payment of any of the following kinds under the Accident Rehabilitation and Compensation Insurance Act 1992, none of which is recovered or recoverable:
  - (i) a vocational rehabilitation allowance under section 25; or
  - (ii) compensation for loss of earnings under any of sections 38, 39, and 43; or
  - (iii) compensation for loss of potential earning capacity under section 45 or 46; or
  - (iv) weekly compensation under any of sections 58, 59, and 60; or
  - (v) continued compensation under section 138; or
- (d) a payment under the Accident Insurance Act 1998 of weekly compensation that is not recovered or recoverable:
- (e) a payment under a policy of personal accident or sickness insurance under section 188(1)(a) of the Accident Insurance Act 1998 (as it was immediately before its repeal by section 7 of the Accident Insurance Amendment Act 2000) of compensation for loss of earnings or loss of potential earning capacity as it relates to workrelated personal injury:
- (f) a payment under the Injury Prevention, Rehabilitation, and Compensation Act 2001 by the Corporation of weekly compensation that is not recovered or recoverable under section 248 of that Act
accident compensation payment: paragraphs (a), (b), (d), and (e) of this definition were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
education grant means a basic grant or an independent circumstances grant under regulations made under section 303 of the Education Act 1989
pension—
- (a) includes a gratuitous payment made to a person in return for services that the person (or their parent, child, spouse, civil union partner or de facto partner, former spouse, civil union partner or de facto partner, or dependant) provided to the payer when the payment would not have been made if the services had not been provided; and
- (b) does not include a payment made to the person because of, and within 1 year after, the death of that parent, child, spouse, civil union partner or de facto partner, former spouse, civil union partner or de facto partner, or dependant.
pension: this definition was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse” in each place it occurs.

pension: this definition was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner” in each place it occurs.
Defined in this Act: accident compensation payment, amount, chief executive of the department currently responsible for administering the Social Security Act 1964, education grant, income, income-tested benefit, living alone payment, New Zealand superannuation, pension, veteran's pension, year,

Compare: 1994 No 164 s CC 1

Subsection (1)(a) to (g) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

CF 2 Remission of specified suspensory loans

When this section applies
(1) This section applies when a public authority—
- (a) grants a loan to a person for a business that the person carries on; and
- (b) designates the loan as a specified suspensory loan.
Income

(2) An amount remitted on the specified suspensory loan is income of the person.

Timing of income

(3) The amount is allocated in equal parts to the income year of remission and the following 2 income years. However, the person may choose to allocate some or all of the amount in the following 2 income years to a previous income year that is 1 of the 3 income years.

Business ceasing

(4) If the person ceases to carry on the business for which the specified suspensory loan was granted, an amount remitted that is allocated to a later income year is allocated to the income year in which the person ceases business.

Defined in this Act: amount, business, income, income year, public authority,

Compare: 1994 No 164 s DC 2

Subpart CG—Recoveries

CG 1 Amount of depreciation recovery income

CG 2 Remitted amounts

CG 3 Bad debt repayment

CG 4 Recovered expenditure or loss

CG 5 Recoveries or receipts by employers from superannuation schemes

CG 6 Receipts from insurance, indemnity, or compensation for trading stock

CG 1 Amount of depreciation recovery income

An amount of depreciation recovery income that a person has is income of the person.

Defined in this Act: amount, depreciation recovery income, income,

CG 2 Remitted amounts

When this section applies
(1) This section applies when—
- (a) a person is allowed a deduction in an income year of an amount that the person is liable to pay; and
- (b) the person's liability for the amount is later remitted or cancelled, wholly or partly; and
- (c) the remission or cancellation is not a dividend; and
- (d) the person is not required to calculate a base price adjustment by section EW 29 (When calculation of base price adjustment required).
Income

(2) The amount to which the remission or cancellation applies is income of the person.

Timing of income

(3) The income is allocated to the income year in which the remission or cancellation occurs.

How remission or cancellation occurs
(4) Remission or cancellation occurs, for the purposes of this section, in 1 of the following ways:
- (a) a liability is remitted to the extent to which the person is discharged from it without fully adequate consideration in money or money's worth:
- (b) a liability is cancelled to the extent to which the person is released from it under the Insolvency Act 2006 or the Companies Act 1993 or the laws of a country or territory other than New Zealand:
- (c) a liability is cancelled to the extent to which the person is released from it by a deed or agreement of composition with the person's creditors:
- (d) a liability is cancelled to the extent to which it is irrecoverable or unenforceable through lapse of time.
Defined in this Act: amount, deduction, dividend, income, income year, New Zealand,

Compare: 1994 No 164 ss CE 4(1), (2), IE 1(4)(d)

Subsection (4)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for “; or”.

Section CG 2(4)(b): amended, on 3 December 2007, by section 445 of the Insolvency Act 2006 (2006 No 55).

CG 3 Bad debt repayment

An amount received by a person for a bad debt for which the person has been allowed a deduction is income of the person.

Defined in this Act: amount, deduction, income,

Compare: 1994 No 164 s CE 1(1)(d)

CG 4 Recovered expenditure or loss

When this section applies
(1) This section applies when—
- (a) a person is allowed a deduction for expenditure or loss; and
- (b) the person recovers some or all of the expenditure or loss, whether through insurance, indemnity, or otherwise; and
- (c) the amount recovered, to the extent of the deduction, is not income of the person under any other provision of this Act.
Income

(2) The amount recovered is, to the extent of the deduction, income of the person.

Timing of income

(3) The income is allocated to the income year in which the amount is recovered.

Defined in this Act: amount, deduction, income year, loss,

Compare: 1994 No 164 ss DJ 1(c), DJ 5(2), DJ 7, DJ 8(1), DL 1(6), (12), DL 4

The list of defined terms was amended, as from 1 October 2005, by section 10 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by inserting “, loss” after “income year” with application as from the 2005–06 income year.

CG 5 Recoveries or receipts by employers from superannuation schemes

When this section applies
(1) This section applies when—
- (a) an employer makes an employer's superannuation contribution to a superannuation scheme for their employee's benefit; and
- (b) the employer is allowed a deduction for the contribution; and
- (c) the employer—
  - (i) recovers the contribution from the superannuation scheme; or
  - (ii) receives a benefit in money or money's worth from the superannuation scheme, other than an amount paid to the employer under the scheme in return for contributions made by or for the employer in a personal capacity.
Income

(2) The amount recovered or received is, to the extent of the deduction, income of the employer.

Timing of income

(3) The income is allocated to the income year in which the amount is recovered or received.

Defined in this Act: amount, deduction, employee, employer, employer's superannuation contribution, income, income year, superannuation scheme,

Compare: 1994 No 164 s DF 3(3), (4)

CG 6 Receipts from insurance, indemnity, or compensation for trading stock

When this section applies
(1) This section applies when a person receives an amount of insurance, indemnity, or compensation for the loss or destruction of, or damage to,—
- (a) trading stock:
- (b) anything acquired, manufactured, or produced for a purpose ancillary to a business of manufacturing or producing goods for sale or exchange.
Income
(2) The part of the insurance, indemnity, or compensation that is attributable to the asset is income if—
- (a) the person is allowed a deduction in a tax year for the cost of the asset; and
- (b) the deduction is not for an amount of depreciation loss.
Timing of income

(3) The income is allocated to the income year in which the amount is received.

Defined in this Act: amount, business, deduction, depreciation loss, income, income year, tax year, trading stock,

Compare: 1994 No 164 s EE 19

Subsection (1)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subpart CH—Adjustments

Matching rules: revenue account property, prepayments, and deferred payments

CH 1 Adjustment for closing values of trading stock, livestock, and excepted financial arrangements

CH 2 Adjustment for prepayments

CH 3 Adjustment for deferred payment of employment income

CH 4 Adjustment for change to accounting practice

GST

CH 5 Adjustment for GST

Matching rules: revenue account property, prepayments, and deferred payments

CH 1 Adjustment for closing values of trading stock, livestock, and excepted financial arrangements

When this section applies
(1) This section applies when a person has some or all of the following at the end of an income year:
- (a) trading stock valued under subpart EB (Valuation of trading stock (including dealer's livestock)):
- (b) livestock valued under subpart EC (Valuation of livestock):
- (c) excepted financial arrangements that are revenue account property valued under subpart ED (Valuation of excepted financial arrangements):
- (d) a share supplier's share-lending right, if the original shares that relate to the right are excepted financial arrangements described in paragraph (c).
Income: closing value of trading stock

(2) The value of the trading stock, calculated under section EB 3 (Valuation of trading stock), is income of the person in the income year.

Income: closing value of livestock

(3) The value of the livestock, calculated under section EC 2 (Valuation of livestock), is income of the person in the income year.

Income: closing value of excepted financial arrangements

(4) The value of the excepted financial arrangements or share-lending right, calculated under section ED 1 (Valuation of excepted financial arrangements), is income of the person in the income year.

Defined in this Act: excepted financial arrangement, income, income year, original share, revenue account property, share-lending right, share supplier, trading stock,

Compare: 1994 No 164 s EE 2(4)

Subsection (1)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (1)(c) was amended, as from 1 July 2006, by section 20(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “arrangements):” for “arrangements).”.

Subsection (1)(d) was inserted, as from 1 July 2006, by section 20(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (4) was amended, as from 1 July 2006, by section 20(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “arrangements or share-lending right,” for “arrangements,”.

The list of defined terms was amended, as from 1 July 2006, by section 20(3)(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “original share”..

The list of defined terms was amended, as from 1 July 2006, by section 20(3)(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “share-lending right”..

The list of defined terms was amended, as from 1 July 2006, by section 20(3)(c) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “share supplier”..

CH 2 Adjustment for prepayments

When this section applies

(1) This section applies when a person has, under section EA 3 (Prepayments), an unexpired amount of expenditure at the end of an income year.

Income

(2) The unexpired amount is income of the person in the income year.

Defined in this Act: amount, income, income year,

Compare: 1994 No 164 s EF 1(1)(b)

CH 3 Adjustment for deferred payment of employment income

When this section applies

(1) This section applies when a person has, under section EA 4 (Deferred payment of employment income), an unpaid amount of expenditure on employment income that is to be treated as income in an income year.

Income

(2) The unpaid amount is income of the person in the income year.

Defined in this Act: amount, employment income, income, income year,

Compare: 1994 No 164 s EF 1(1)(b)

Change to accounting practice

CH 4 Adjustment for change to accounting practice

When this section applies

(1) This section applies when a person has, under section EG 2(2)(a) or (3)(a) (Adjustment for changes to accounting practice), an amount owing to them or an amount owed by them as quantified in those paragraphs.

Income

(2) An amount quantified and allocated under section EG 2(2)(a) or (3)(a) (Adjustment for changes to accounting practice) is income of the person.

Defined in this Act: amount, income,

Compare: 1994 No 164 s EC 1

GST

CH 5 Adjustment for GST

Income

(1) An amount calculated under sections 21F and 21G of the Goods and Services Tax Act 1985 relating to the application of goods and services is income of a person.

Exclusion
(2) This section does not apply to an amount that relates to the application of a capital asset—
- (a) for the principal purpose of making taxable supplies, when the asset was acquired or produced other than for the principal purpose of making taxable supplies:
- (b) other than for the principal purpose of making taxable supplies, when the asset was acquired or produced for the principal purpose of making taxable supplies:
- (c) other than for the purpose of deriving income.
Timing of income

(3) The income is allocated to the income year in which the amount is calculated.

Defined in this Act: amount, income, income year, taxable supply,

Compare: 1994 No 164 s ED 4(3)

Subsection (2)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subpart CP—Income from portfolio investment entities

Subpart CP: inserted, on 1 October 2007, by section 7 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

CP 1 Portfolio investor allocated income

The amount of portfolio investor allocated income of a person who is an investor in a portfolio tax rate entity is income of the person in the income year that includes the end of the entity's income year for which the person is allocated the amount.

Defined in this Act: income, , income year, , investor, , portfolio investor allocated income, , portfolio tax rate entity, .

Section CP 1: substituted, on 1 October 2007, by section 5 of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section CP 1: inserted, on 1 October 2007, by section 7 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Subpart CQ—Attributed income from foreign equity

Attributed controlled foreign company income

CQ 1 Attributed controlled foreign company income

CQ 2 When attributed CFC income arises

CQ 3 Calculation of attributed CFC income

Foreign investment fund income

CQ 4 Foreign investment fund income

CQ 5 When FIF income arises

CQ 6 Calculation of FIF income

Attributed controlled foreign company income

CQ 1 Attributed controlled foreign company income

Attributed CFC income of a person is income.

Defined in this Act: attributed CFC income, income,

Compare: 1994 No 164 s CG 1(a)

CQ 2 When attributed CFC income arises

General rule
(1) A person has attributed CFC income from a foreign company in an income year if—
- (a) the foreign company is a CFC at any time during 1 of its accounting periods, under sections EX 1 to EX 7 (which relate to the definition of a controlled foreign company); and
- (b) the accounting period ends during the income year; and
- (c) the person has an income interest in the foreign company for the accounting period, under sections EX 8 to EX 13 (which relate to calculating a person's income interest); and
- (d) at any time in the accounting period, the person is a New Zealand resident who is not a transitional resident; and
- (e) the person's income interest is 10% or more for the part of the accounting period during which the person is a New Zealand resident who is not a transitional resident, under sections EX 14 to EX 17 (which relate to the 10% threshold); and
- (f) either—
  - (i) the CFC has branch equivalent income for the accounting period under section EX 21 (Branch equivalent income or loss: calculation rules); or
  - (ii) the special rule in section EX 19 (Taxable distribution from non-qualifying trust) applies because the CFC gets a distribution from a non-qualifying trust; and
- (g) the CFC is not an unqualified grey list CFC for the accounting period, under section EX 22 (Unqualified grey list CFCs).
Special rule: branch equivalent FIF with taxable distribution
(2) A person also has attributed CFC income if section EX 43(5) (Branch equivalent method) applies because—
- (a) the person has an attributing interest in a FIF; and
- (b) the person is using the branch equivalent method to calculate FIF income; and
- (c) the FIF receives a taxable distribution from a non-qualifying trust.
Treated as derived while person New Zealand resident

(3) Attributed CFC income of a person who has ceased to be a New Zealand resident is treated as being derived while the person was a New Zealand resident.

Dividend income can arise

(4) A person with an income interest of 10% or more in a CFC can also have dividend income under section CD 13 (Attributed repatriations from controlled foreign companies) to the extent to which any attributed repatriation is calculated for the person and the CFC under sections CD 34 to CD 41 (which relate to CFC attributed repatriation calculation rules).

Defined in this Act: accounting period, attributed CFC income, attributed repatriation, attributing interest, branch equivalent income, branch equivalent method, CFC, distribution, dividend, FIF, FIF income, foreign company, grey list, income, income interest, income year, New Zealand resident, non-qualifying trust, taxable distribution, transitional resident,

Compare: 1994 No 164 ss CG 6(1)(a), CG 7(1), (6), CG 13(1), CG 21(2)(a)

Subsection (1)(d) was substituted, as from 1 October 2005, by section 21(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 21(4) and (5) of that Act as to the application of this amendment.

Subsection (1)(e) was amended, as from 1 October 2005, by section 170 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “EX 17” for “EX 16” with application as from the 2005–06 income year.

Subsection (1)(e) was amended, as from 1 October 2005, by section 21(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “part of the accounting period during which the person is a New Zealand resident who is not a transitional resident” for “accounting period” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 21(4) and (5) of that Act as to the application of this amendment.

The list of defined terms was amended, as from 1 October 2005, by section 21(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “transitional resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 21(4) and (5) of that Act as to the application of this amendment.

CQ 3 Calculation of attributed CFC income

The amount of attributed CFC income is calculated under the rules in sections EX 18 to EX 20 (which relate to the calculation of attributed CFC income or loss).

Defined in this Act: amount, attributed CFC income,

Foreign investment fund income

CQ 4 Foreign investment fund income

FIF income of a person is income.

Defined in this Act: FIF income, income,

Compare: 1994 No 164 s CG 1(b)

CQ 5 When FIF income arises

General rule
(1) A person has FIF income in an income year if—
- (a) at any time in the year, the person has—
  - (i) rights in a foreign company, or a foreign superannuation scheme, or an entity listed in schedule 4, part A (Foreign investment funds); or
  - (ii) rights under a life insurance policy issued by a non-resident; and
- (b) at that time, the rights are an attributing interest in a FIF under sections EX 30 (Attributing interests in FIFs) and EX 31 (Direct income interests in FIFs); and
- (c) at that time, the rights are not exempt from being an attributing interest in a FIF under any of—
  - (i) the CFC rules exemption in section EX 32 (CFC rules exemption):
  - (ii) the grey list exemption in section EX 33 (Exemptions: direct income interests in FIF in grey list country):
  - (iib) the exemptions limited by income years in section EX 33B (Exemptions limited by income years: shares in certain grey list companies):
  - (iic) the exemption for shares in a listed Australian company in section EX 33C (Exemption: shares in listed Australian company):
  - (iid) the exemption for units in certain Australian unit trusts in section EX 33D (Exemption: units in certain Australian unit trusts):
  - (iie) the Australian superannuation fund exemption in section EX 33E (Australian superannuation fund exemption):
  - (iii) the foreign exchange control exemption in section EX 34 (Foreign exchange control exemption):
  - (iv) the exemption for a non-resident or transitional resident in section EX 35 (Income interest of non-resident or transitional resident):
  - (v) the immigrant's accrued superannuation entitlement exemption in section EX 36 (Immigrant's accrued superannuation entitlement exemption):
  - (vi) the non-resident's annuity or pension exemption in section EX 37 (Non-resident's pension or annuity exemption); and
- (d) if the person is a natural person and not acting as a trustee, the person holds, at any time during the income year when the person is a New Zealand resident, attributing interests in FIFs for which the total of the following amounts is more than $50,000:
  - (i) if subparagraph (ii) does not apply to the interest, the cost of the interest calculated under section EX 56 (Measurement of cost):
  - (ii) if the person acquired the interest before 1 January 2000 and chooses, for the year or an earlier year, that this subparagraph and section DN 6(1)(d)(ii) (When FIF loss arises) apply to all interests acquired before 1 January 2000, half of the market value of the interest on 1 April 2007; and
- (db) if the person is acting as a trustee of a trust that meets the requirements of subsection (5), the person holds attributing interests in FIFs for which the total of the following amounts is more than $50,000:
  - (i) if subparagraph (ii) does not apply to the interest, the cost of the interest calculated under section EX 56 (Measurement of cost):
  - (ii) if the person acquired the interest before 1 January 2000 and chooses, for the year or an earlier year, that this subparagraph and section DN 6(1)(d)(ii) apply to all interests acquired before 1 January 2000, half of the market value of the interest on 1 April 2007; and
- (e) at any time in the year, the person is a New Zealand resident who is not a transitional resident and holds the attributing interest; and
- (f) under the relevant calculation method chosen by the person, an income amount is calculated for the year under sections EX 38 to EX 45B (which relate to the calculation of FIF income or loss).
Look-through calculation methods
(2) Despite subsection (1), if the calculation method is the accounting profits method or branch equivalent method,—
- (a) FIF income arises in the income year only if the relevant accounting period of the FIF ends during the year; and
- (b) the tests in subsection (1)(a), (b), (c), and (e) are applied on the basis that references in subsection (1)(a), (b), (c), and (e) to any time in the year are read as references to any time in the relevant accounting period.
Special rule: CFC with FIF interest

(3) A person with an income interest of 10% or more in a CFC can also have FIF income in an income year under the special rule in section EX 46 (Additional FIF income or loss if CFC owns FIF), which applies when the CFC has an attributing interest in a FIF (whether or not the CFC is an unqualified grey list CFC under section EX 22 (Unqualified grey list CFCs)).

Treated as derived while person New Zealand resident

(4) FIF income of a person who has ceased to be a New Zealand resident is treated as being derived while the person was a New Zealand resident.

When application of subsection (1) affected by subsection (1)(db)
(5) Subsection (1)(db) applies to the trustee of a trust for an income year if—
- (a) the settlor of the trust—
  - (i) is a relative or legal guardian of a beneficiary of the trust, or a person associated with a relative or legal guardian of a beneficiary of the trust under section OD 7 (Defining when 2 persons are associated persons); and
  - (ii) is required by a court order to pay damages or compensation to the beneficiary:
- (b) the settlor of the trust—
  - (i) is the estate of a deceased person; and
  - (ii) is required by a court order to settle on the trust the proceeds of damages or compensation for the beneficiaries of the trust:
- (c) the settlor of the trust is the Accident Compensation Corporation:
- (d) the trust is of the estate of a deceased person and the income year begins on or before the day that is 5 years after the person's death.
Defined in this Act: accounting period, accounting profits method, amount, associated person, attributing interest, branch equivalent method, calculation method, CFC, FIF, FIF income, foreign company, foreign superannuation scheme, grey list, income, income interest, income year, life insurance policy, New Zealand resident, non-resident, relative, transitional resident, trustee,

Compare: 1994 No 164 ss CG 7(5), CG 15(1), (2), CG 16(2), (5)

Subsection (1)(c)(i) to (v) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (1)(c)(ii) was amended, as from 18 December 2006, by section 8(1)(a) Taxation (Savings Investment and Miscellaneous Provisions Act 2006 (2006 No 81) by substituting “(Exemptions: direct income interests in FIF in grey list country)” for “(Grey list exemption)” with application as from the 2006–07 income year.

Subsection (1)(c)(iib) to (iie) was inserted, as from 18 December 2006, by section 8(1)(b) Taxation (Savings Investment and Miscellaneous Provisions Act 2006 (2006 No 81) with application as from the 2006–07 income year.

Subsection (1)(c)(iv) was substituted, as from 1 October 2005, by section 22(1)(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 22(3) and (4) of that Act as to the application of this amendment.

Subsection (1)(d) was substituted, as from 1 April 2007, by section 8(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) . See section 8(7) of that Act as to the application of this amendment for income years beginning on or after 1 April 2007.

Subsection (1)(db) was inserted, as from 1 April 2007, by section 8(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) . See section 8(7) of that Act as to the application of this amendment for income years beginning on or after 1 April 2007.

Subsection (1)(e) was substituted, as from 1 October 2005, by section 22(1)(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 22(3) and (4) of that Act as to the application of this amendment.

Subsection (1)(f) was substituted, as from 1 April 2007, by section 8(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) . See section 8(7) of that Act as to the application of this amendment for income years beginning on or after 1 April 2007.

Subsection (5) and the preceding heading were inserted, as from 1 April 2007, by section 8(4) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) . See section 8(7) of that Act as to the application of this amendment for income years beginning on or after 1 April 2007.

The list of defined terms was amended, as from 1 October 2005, by section 22(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “transitional resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 22(3) and (4) of that Act as to the application of this amendment.

The list of defined terms was amended, as from 1 April 2007, by section 8(5) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “associated person” and “relative”.

CQ 6 Calculation of FIF income

The amount of any FIF income is calculated, using the relevant calculation method, under sections EX 38 to EX 49 (which relate to the calculation of FIF income or loss).

Defined in this Act: amount, calculation method, FIF income,

Section CQ 6 was amended, as from 1 October 2005, by section 171 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “EX 38” for “EX 42”.

Subpart CR—Income from life insurance

CR 1 Income of life insurer

CR 2 Amount of income of life insurer

CR 1 Income of life insurer

Income: premium loading

(1) The premium loading that a life insurer has in an income year is income of the life insurer in the income year.

Income: mortality profit

(2) The mortality profit that a life insurer has in an income year is income of the life insurer in the income year.

Income: discontinuance profit

(3) The discontinuance profit that a life insurer has in an income year is income of the life insurer in the income year.

Income: policyholder income

(4) The policyholder income that a life insurer has in an income year is income of the life insurer in the income year.

Income: disposal amount

(5) An amount that a life insurer derives from disposing of any property of their life insurance business is income of the life insurer.

Defined in this Act: amount, business, discontinuance profit, income, income year, life insurance, life insurer, mortality profit, policyholder income, premium loading, property,

Compare: 1994 No 164 ss CM 5(1), CM 6(1), CM 7(1), CM 10, CM 15(3)

CR 2 Amount of income of life insurer

Premium loading

(1) The premium loading that a life insurer has in an income year is quantified under sections EY 14 to EY 23 (which relate to premium loading).

Mortality profit

(2) The mortality profit that a life insurer has in an income year is quantified under sections EY 24 to EY 33 (which relate to mortality profit).

Discontinuance profit

(3) The discontinuance profit that a life insurer has in an income year is quantified under sections EY 34 to EY 40 (which relate to discontinuance profit).

Policyholder income

(4) The policyholder income that a life insurer has in an income year is quantified under sections EY 41 to EY 44 (which relate to policyholder income).

Disposal of property

(5) The amount of income that a life insurer derives from disposing of any property of their life insurance business is quantified under section EY 45 (Income from disposal of property).

Defined in this Act: amount, business, discontinuance profit, income, income year, life insurance, life insurer, mortality profit, policyholder income, premium loading, property,

Subpart CS—Superannuation funds

Withdrawals

CS 1 Withdrawals

Exclusions

CS 2 Exclusions of withdrawals of various kinds

CS 3 Exclusion of withdrawal on grounds of hardship

CS 4 Exclusion of withdrawal to settle division of relationship property

CS 5 Exclusion of withdrawal paid as annuity or pension

CS 6 Exclusion of withdrawal on partial retirement

CS 7 Exclusion of withdrawal when member ends employment

CS 8 Exclusion of withdrawal when member ends employment: lock-in rule

CS 9 Exclusion of withdrawal from defined benefit fund when member ends employment

CS 10 When member treated as not ending employment

Transfers to or from superannuation funds and superannuation schemes

CS 11 Transfer by superannuation fund to another superannuation fund

CS 12 Transfer from superannuation scheme to superannuation fund

CS 13 Investment by superannuation fund in another superannuation fund

Treatment of amounts when superannuation fund becomes superannuation scheme or vice versa

CS 14 Superannuation fund becomes superannuation scheme

CS 15 Superannuation fund becomes foreign superannuation scheme

CS 16 Superannuation scheme becomes superannuation fund

Treatment of distributions when superannuation fund wound up

CS 17 Superannuation fund wound up

Withdrawals

CS 1 Withdrawals

When this section applies
(1) This section applies when a withdrawal is made from a superannuation fund if—
- (a) the fund is—
  - (i) a fund to which the member's employer has made specified superannuation contributions for the member's benefit; or
  - (ii) a fund that has received a transfer from another superannuation fund for the member; and
- (b) the withdrawal is related to the member's membership of the fund; and
- (c) the application of this section to the withdrawal is not excluded by any of sections CS 2 to CS 9.
Income of superannuation fund from withdrawal

(2) The superannuation fund derives from the withdrawal an amount of assessable income that is given by the following formula:

Definition of items in formula

(3) The items in the formula are defined in subsections (4) to (5).

Withdrawal
(4) Withdrawal is the total of—
- (a) the amount of money that is withdrawn from the superannuation fund:
- (b) the market value of the part of the withdrawal that is not an amount of money, on the date of the withdrawal.
Other contributions

(4B) Other contributions is the part of the withdrawal that the trustee of the superannuation fund establishes is not employer's contributions to superannuation savings.

Tax rate

(5) Tax rate is the basic rate of income tax stated in schedule 1, part A, clause 4 (Basic rates of income tax and specified superannuation contribution withholding tax).

Reduction of income
(6) The superannuation fund may reduce the income by 25% for each tax year to which both the following apply:
- (a) the tax year is 1 of the 4 tax years before the tax year in which the withdrawal is made; and
- (b) in the tax year, the total of the member's taxable income and the employer's specified superannuation contributions to the fund for the member's benefit is less than $60,000.
Timing of income
(7) The income is allocated as follows:
- (a) if the superannuation fund is wound up or becomes a foreign superannuation scheme, the income is allocated to the tax year in which the withdrawal is made:
- (b) in any other case, the income is allocated to the tax year following the tax year in which the withdrawal is made.
Application of Tax Administration Act 1994

(8) Sections 32A to 32C of the Tax Administration Act 1994 apply when this section applies.

Defined in this Act: amount, employer, employer's contributions to superannuation savings, foreign superannuation scheme, income, income tax, member, specified superannuation contribution, superannuation fund, tax year, taxable income, trustee, withdrawal,

Compare: 1994 No 164 ss CL 4, EN 6

Subsection (2) was substituted, as from 1 October 2005, by section 172(1) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) with application as from the 2005–06 income year.

Subsection (2) formula was amended, as from 18 December 2006, by section 9(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “withdrawal” for “withdrawn” with application as from the 2005–06 income year.

Subsection (3) was amended, as from 1 October 2005, by section 172(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “subsections (4) to (5)” for “subsections (4) and (5)” with application as from the 2005–06 income year.

Subsection (4) was substituted, as from 1 October 2005, by section 172(3) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subsection (4B) was inserted, as from 1 October 2005, by section 172(3) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) with application as from the 2005–06 income year.

Subsection (7)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Exclusions

CS 2 Exclusions of withdrawals of various kinds

Withdrawal of member's contributions

(1) Section CS 1 does not apply to a withdrawal of a member's contributions.

Withdrawal of employer's contributions
(2) Section CS 1 applies to a withdrawal of the employer's contributions to superannuation savings for a member's benefit only if—
- (a) the employer increases the level of the employer's specified superannuation contributions on and after 1 April 2000, as compared with the level in the last pay period ending before 1 April 2000; and
- (b) the employer does not come within any of subsection (3)(a) to (c).
Increase not treated as such
(3) An employer who increases the level of specified superannuation contributions is treated as not doing so—
- (a) to the extent to which the employer increases the level by making additional specified superannuation contributions for the member's benefit to compensate for underpaying specified superannuation contributions for the member's benefit; or
- (b) if the increase is required by a trust deed or a contract, or an amendment to a trust deed or a contract, and the requirement existed before 1 April 2000; or
- (c) if the level of specified superannuation contributions does not change as a percentage of salary as between the level on and after 1 April 2000 and the level in the last pay period ending before 1 April 2000.
Superannuation fund administration costs

(4) Section CS 1 does not apply to a withdrawal for fees and expenses associated with the management and marketing of the superannuation fund.

Withdrawals from KiwiSaver schemes for purpose of purchase of first home

(4B) Section CS 1 does not apply to a withdrawal from a KiwiSaver scheme under clause 8 of the KiwiSaver scheme rules in the KiwiSaver Act 2006.

Life, health, sickness, or accident insurance
(5) Section CS 1 does not apply to—
- (a) a withdrawal for the payment of premiums for life insurance, health insurance, sickness insurance, or accident insurance held by or for a member of the superannuation fund, whether the insurance is group insurance or individual insurance; or
- (b) a withdrawal to pay an amount claimed under insurance described in paragraph (a).
Transfer between funds

(6) Section CS 1 does not apply to a withdrawal that takes the form of a direct transfer of an amount from a superannuation fund to another superannuation fund.

Transfer from wound-up fund

(7) Section CS 1 does not apply to a withdrawal that takes the form of a direct transfer to another superannuation fund of an amount from a superannuation fund that is wound up.

Amount in fund on certain dates
(8) Section CS 1 does not apply to a withdrawal of an amount, or earnings on it, that is in the superannuation fund—
- (a) on the fund's balance date that precedes 1 April 2000, if a trustee of the fund calculates the amount in the fund on the balance date; or
- (b) at the close of business on 31 March 2000, in any other case.
Interpretation of subsection (8)
(9) For the purposes of subsection (8),—
- (a) the amount that is in the superannuation fund is calculated according to market value:
- (b) an amount in a superannuation fund includes specified superannuation contributions received after the fund's balance date that precedes 1 April 2000 or 31 March 2000, as applicable, if the contributions relate to a pay period ending on or before the fund's balance date or 31 March 2000, as applicable.
Application of Tax Administration Act 1994

(10) Section 32C of the Tax Administration Act 1994 applies when this section applies.

Defined in this Act: amount, employer, employer's contributions to superannuation savings, life insurance, member, member's contribution, pay, pay period, premium, specified superannuation contribution, superannuation fund, trustee, withdrawal,

Compare: 1994 No 164 ss CL 3, CL 21

Subsection (4B) and the heading were inserted, as from 1 December 2006, by section 231 KiwiSaver Act 2006 (2006 No 40). See section 232 of that Act as to the transitional provision requiring all KiwiSaver contributions to be paid to the Commissioner in the first 3 months. See clause 2(2) KiwiSaver Act Commencement Order 2006 (SR 2006/357).

Subsection (9)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

CS 3 Exclusion of withdrawal on grounds of hardship

Significant financial hardship

(1) Section CS 1 does not apply to a withdrawal to the extent to which the withdrawal is necessary to alleviate significant financial hardship.

Meaning of significant financial hardship
(2) In this section, significant financial hardship includes significant financial difficulties that arise because of—
- (a) a member's inability to meet minimum living expenses; or
- (b) a member's inability to carry out their usual occupation because of their temporary or permanent illness, injury, or disability; or
- (c) a member's inability to meet mortgage repayments on their principal family residence resulting in the mortgagee seeking to enforce the mortgage on the residence; or
- (d) the cost of modifying a residence to meet special needs arising from a disability of a member or a member's dependant; or
- (e) the cost of medical treatment for an illness or injury of a member or a member's dependant; or
- (f) the cost of palliative care for a member or a member's dependant; or
- (g) the cost of a funeral for a deceased member or a member's deceased dependant.
Defined in this Act: member, mortgage, significant financial hardship, withdrawal,

Compare: 1994 No 164 s CL 5

CS 4 Exclusion of withdrawal to settle division of relationship property

Section CS 1 does not apply to a withdrawal to the extent that the withdrawal is necessary to settle the division of relationship property under the Property (Relationships) Act 1976 upon the ending of a marriage, civil union or de facto relationship for the purpose of whichever is applicable of sections 2A(2), 2AB(2) and 2D(4) of that Act.

Section CS 4 was substituted, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2004 No 11).

CS 5 Exclusion of withdrawal paid as annuity or pension

Section CS 1 does not apply to a withdrawal if the amount withdrawn is—
- (a) used to buy an annuity that is payable for life or over 10 or more years; or
- (b) payable as an annuity for life or over 10 or more years; or
- (c) payable as a pension for life or over 10 or more years.
Defined in this Act: amount, withdrawal, year,

Compare: 1994 No 164 s CL 7

CS 6 Exclusion of withdrawal on partial retirement

Partial retirement
(1) Section CS 1 does not apply to a withdrawal made on or after the date on which a member partially retires, if, on the date the withdrawal is made,—
- (a) the member is employed for 30 hours per week or less; and
- (b) the member has reduced their working hours because they are nearing full retirement; and
- (c) the member stops contributing to the superannuation fund; and
- (d) the member's employer stops making specified superannuation contributions to the superannuation fund for the member's benefit; and
- (e) the member gives a notice as described in subsection (2) to the trustees of the superannuation fund.
Notice
(2) The member's notice to the trustees of the superannuation fund must—
- (a) state that the member does not intend to increase their hours in paid employment in the future; and
- (b) state that the member's employer understands that the member's hours in paid employment will not increase in the future; and
- (c) be signed by the employer to acknowledge that the employer's understanding is as described in paragraph (b).
Later withdrawals

(3) A member who makes a withdrawal after giving notice as required by subsection (2) is not required to give notice for each later withdrawal if their intention has not changed.

Defined in this Act: employer, member, notice, specified superannuation contribution, superannuation fund, trustee, withdrawal,

Compare: 1994 No 164 s CL 12

CS 7 Exclusion of withdrawal when member ends employment

Ending employment because of injury, disability, or death

(1) Section CS 1 does not apply to a withdrawal made on or after the date on which a member ends their employment with an employer if the member ends their employment because the member is injured or disabled or dies.

Ending employment after period of specified superannuation contributions
(2) Section CS 1 does not apply to a withdrawal from a superannuation fund of specified superannuation contributions that have been made for the member by the employer, or another employer, if—
- (a) the member has been in employment throughout the period that—
  - (i) starts on the 1st day of the tax year that starts 2 tax years before the start of the tax year in which the member ends their employment; and
  - (ii) ends on the day on which the member ends their employment; and
- (b) the specified superannuation contributions are made to the superannuation fund or to a superannuation fund that has transferred, whether directly or indirectly, the funds relating to its members to the superannuation fund; and
- (c) the specified superannuation contributions have not been part of a withdrawal, other than a transfer between superannuation funds that is referred to in paragraph (b); and
- (d) the withdrawal—
  - (i) satisfies subsections (3) and (4):
  - (ii) satisfies subsection (4B):
  - (iii) does not include employer contributions to superannuation savings of more than the amount found by multiplying $5,000 by the number of income years for which the specified superannuation contributions were made on behalf of the member; and
- (e) the withdrawal is made at the time described in subsection (5).
Limited increase in employer contributions between income years
(3) A withdrawal satisfies this subsection if, at the time of the withdrawal, specified superannuation contributions have been made for the member by the employer, or another employer, such that—
- (a) the contributions relate to some or all of a period of employment that—
  - (i) starts on the 1st day of the tax year that starts 2 tax years before the tax year in which the member ends their employment; and
  - (ii) ends on the day on which the member ends their employment; and
- (b) in each of the first 2 tax years in the period referred to in paragraph (a), the contributions—
  - (i) are in total less than 150% of the total of specified superannuation contributions made for the member in the previous tax year:
  - (ii) satisfy subparagraph (i) after the application of subsection (4); and
- (c) in the tax year in which the member ends their employment, the contributions—
  - (i) have an annualised value that is less than 150% of the specified superannuation contributions made for the member in the previous tax year:
  - (ii) satisfy subparagraph (i) after the application of subsection (4).
Increases disregarded under subsection (3)(b)(i) or (c)(i)
(4) For the purposes of subsection (3), specified superannuation contributions to a superannuation fund that are 150% or more of the specified superannuation contributions made in the previous tax year are treated as not being so—
- (a) to the extent to which the employer increases the level by making additional specified superannuation contributions for the member's benefit to compensate for underpaying specified superannuation contributions for the member's benefit; or
- (b) if the increase occurs before 1 April 2000; or
- (c) if the increase is required by a trust deed or a contract, or an amendment to a trust deed or a contract, and the requirement existed before 1 April 2000; or
- (d) if the employer starts making specified superannuation contributions for a member's benefit under a contract, or an amendment to a contract, that was signed before 1 April 2000; or
- (e) if the level of specified superannuation contributions does not change as a percentage of salary as between the level on and after 1 April 2000 and the level in the last pay period ending before 1 April 2000.
Increases in employer contributions considered consistent by Commissioner
(4B) A withdrawal satisfies this subsection if, at the time of the withdrawal, specified superannuation contributions have been made for the member by the employer, or another employer, such that—
- (a) the contributions relate to some or all of the period that—
  - (i) starts on the 1st day of the tax year that starts 2 tax years before the tax year in which the member ends their employment; and
  - (ii) ends on the day on which the member ends their employment; and
- (b) the Commissioner considers that the contributions are consistent in size and frequency with the employer's specified superannuation contributions for other employees in comparable positions; and
- (c) the Commissioner considers that the contributions are consistent in size and frequency during the period or periods to which the employer's specified superannuation contributions for the member relate.
Time for purposes of subsection (2)
(5) For the purposes of subsection (2), the times are—
- (a) on or after the date on which a member ends their employment with an employer; or
- (b) shortly before the date on which the member ends their employment, in anticipation of the member's ending their employment.
Ending employment in any other case

(6) If a withdrawal is made on or after the date on which a member ends their employment with an employer and the application of section CS 1 is not excluded by subsection (1) or (2), section CS 1 applies only to the withdrawal of an amount equal to the employer's contributions to superannuation savings calculated for the period starting on the first day of the tax year that starts 2 tax years before the date on which the member ends their employment and ending on the date of withdrawal.

What is not ending employment

(7) Section CS 10 describes a case in which a member is treated as not ending their employment for the purposes of this section.

Defined in this Act: amount, employer, employer's contributions to superannuation savings, member, pay period, specified superannuation contribution, superannuation fund, tax year, withdrawal,

Compare: 1994 No 164 s CL 8(1)-(6)

Subsections (2) and (3) were substituted, as from 1 October 2005, by section 173(1) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) with application as from the 2005–06 income year.

The heading to subsection (4) was substituted, as from 1 October 2005, by section 173(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) with application as from the 2005–06 income year.

The heading to subsection (4B) was inserted, as from 1 October 2005, by section 173(3) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) with application as from the 2005–06 income year.

Subsection (4B) was substituted, as from 1 October 2005, by section 23(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the 2005–06 income year.

CS 8 Exclusion of withdrawal when member ends employment: lock-in rule

Deferral of withdrawal

(1) Section CS 1 does not apply to a withdrawal of an amount made 2 years after the date on which a member ends their employment with an employer if, when the member ends their employment, the member defers the withdrawal for 2 years after the date of ending their employment.

What is not ending employment

(2) Section CS 10 describes a case in which a member is treated as not ending their employment for the purposes of this section.

Defined in this Act: amount, employer, member, withdrawal, year,

Compare: 1994 No 164 s CL 9

CS 9 Exclusion of withdrawal from defined benefit fund when member ends employment

Defined benefit fund
(1) Section CS 1 does not apply to a withdrawal made from a defined benefit fund—
- (a) on or after the date on which a member ends their employment with an employer, irrespective of the member's length of service; or
- (b) shortly before the date on which a member ends their employment with an employer, in anticipation of the member's ending their employment, irrespective of the member's length of service.
What is not ending employment

(2) Section CS 10 describes a case in which a member is treated as not ending their employment for the purposes of this section.

Defined in this Act: defined benefit fund, employer, member, withdrawal,

Compare: 1994 No 164 s CL 10(1)

CS 10 When member treated as not ending employment

When this section applies

(1) This section applies for the purposes of sections CS 7 to CS 9.

Transfer to related employer

(2) A member is treated as not ending their employment with an employer (employer A) if the member transfers from employer A to another employer (employer B) and employer B is a related employer of employer A.

Related employer
(3) Employer B is a related employer of employer A if employer B—
- (a) is treated as a separate employer from employer A; and
- (b) is—
  - (i) a branch or division of employer A; or
  - (ii) associated with employer A.
Defined in this Act: associated person, employer, member,

Compare: 1994 No 164 s CL 11

Transfers to or from superannuation funds and superannuation schemes

CS 11 Transfer by superannuation fund to another superannuation fund

Notification of nature of amount transferred
(1) An amount transferred by a superannuation fund (transferor fund) to another superannuation fund (transferee fund) retains its nature in the transferee fund if—
- (a) the transferee fund is not a defined benefit fund; and
- (b) the trustees of the transferor fund, the member's past employer, or the member's present employer give notice to the transferee fund of the nature of the amount transferred.
No notification of nature of amount transferred

(2) If the trustees of the transferor fund, the member's past employer, or the member's present employer do not give notice to the transferee fund of the nature of the amount transferred, the amount transferred is treated as being, in the transferee fund, the employer's contributions to superannuation savings.

Notification of nature of amounts transferred to defined benefit fund

(3) Amounts to which section CS 2(1) or (8) apply that are transferred by a superannuation fund to a defined benefit fund retain their nature in the defined benefit fund if the trustees of the superannuation fund give notice to the defined benefit fund of the nature of the amounts.

No notification of nature of amounts transferred to defined benefit fund

(4) If the trustees of the superannuation fund do not give notice to the defined benefit fund of the nature of the amounts to which section CS 2(1) or (8) apply, section CS 1 applies to the amount transferred when it is withdrawn from the defined benefit fund unless the application of section CS 1 is excluded by any of sections CS 2 to CS 9.

Defined in this Act: amount, defined benefit fund, employer, employer's contributions to superannuation savings, member, notice, notify, superannuation fund, trustee,

Compare: 1994 No 164 s CL 14

CS 12 Transfer from superannuation scheme to superannuation fund

An amount transferred directly from a superannuation scheme to a superannuation fund is treated as being, in the superannuation fund, the member's contribution.

Defined in this Act: amount, member's contribution, superannuation fund, superannuation scheme,

Compare: 1994 No 164 s CL 15

CS 13 Investment by superannuation fund in another superannuation fund

Superannuation fund investing in another superannuation fund
(1) If a superannuation fund (superannuation fund A) is a member of another superannuation fund (superannuation fund B),—
- (a) superannuation fund A's investment in superannuation fund B is not a transfer; and
- (b) a withdrawal of an amount related to superannuation fund A's investment in superannuation fund B is not a transfer; and
- (c) a withdrawal of an amount related to superannuation fund A's investment in superannuation fund B is not a withdrawal to which section CS 2 applies.
Superannuation fund investing in superannuation scheme
(2) If a superannuation fund is a member of a superannuation scheme,—
- (a) the fund's investment in the scheme is not a transfer; and
- (b) a withdrawal by the fund related to the investment is not a transfer.
Defined in this Act: amount, member, superannuation fund, superannuation scheme, withdrawal,

Compare: 1994 No 164 s CL 16

Treatment of amounts when superannuation fund becomes superannuation scheme or vice versa

CS 14 Superannuation fund becomes superannuation scheme

Effect of change
(1) If a superannuation fund becomes a superannuation scheme, other than a foreign superannuation scheme,—
- (a) an amount in the fund at the time it becomes a superannuation scheme retains its nature; and
- (b) the following sections apply to a withdrawal from the superannuation scheme as if the scheme were a superannuation fund:
  - (i) sections CS 1 to CS 17 and NEA 1 (Recovery of tax paid by superannuation fund); and
  - (ii) sections 32A, 32B, and 32C of the Tax Administration Act 1994.
Market value of amounts

(2) The amount in the superannuation fund at the time it becomes a superannuation scheme is calculated according to market value.

Defined in this Act: amount, foreign superannuation scheme, superannuation fund, superannuation scheme, withdrawal,

Compare: 1994 No 164 s CL 17

CS 15 Superannuation fund becomes foreign superannuation scheme

If a superannuation fund becomes a foreign superannuation scheme, every amount in the superannuation fund is treated as if it had been withdrawn immediately before the fund became a foreign superannuation scheme.

Defined in this Act: amount, foreign superannuation scheme, superannuation fund,

Compare: 1994 No 164 s CL 18

CS 16 Superannuation scheme becomes superannuation fund

If a superannuation scheme becomes a superannuation fund, every amount in the superannuation scheme at the time it becomes a superannuation fund is treated as being a member's contribution to the superannuation fund.

Defined in this Act: amount, member's contribution, superannuation fund, superannuation scheme,

Compare: 1994 No 164 s CL 19

Treatment of distributions when superannuation fund wound up

CS 17 Superannuation fund wound up

When a superannuation fund is wound up, a distribution related to a member's membership is treated as being a withdrawal.

Defined in this Act: member, superannuation fund, withdrawal,

Compare: 1994 No 164 s CL 20

Subpart CT—Income from petroleum mining

CT 1 Disposal of exploratory material or petroleum mining asset

CT 2 Damage to assets

CT 3 Exploratory well used for commercial production

CT 4 Partnership interests and disposal of part of asset

CT 5 Petroleum mining operations outside New Zealand

CT 6 Meaning of petroleum miner

CT 7 Meaning of petroleum mining asset

CT 1 Disposal of exploratory material or petroleum mining asset

Income: disposal of exploratory material

(1) The consideration that a petroleum miner derives from disposing of exploratory material is income of the petroleum miner.

Income: disposal of petroleum mining asset

(2) The consideration that a petroleum miner derives from disposing of a petroleum mining asset is income of the petroleum miner.

Relationship with section CX 37

(3) This section is overridden by section CX 37 (Farm-out arrangements for petroleum mining).

Defined in this Act: consideration, dispose, exploratory material, income, petroleum miner, petroleum mining asset,

Compare: 1994 No 164 s CJ 3

CT 2 Damage to assets

The consideration that a petroleum miner derives for damage to an asset of the kind described in section CT 7(1)(b) or (c) is income of the petroleum miner.

Defined in this Act: consideration, income, petroleum miner,

Compare: 1994 No 164 s CJ 5

CT 3 Exploratory well used for commercial production

When this section applies

(1) This section applies when a petroleum miner uses an exploratory well for commercial production of petroleum, whether or not the well has been sealed and abandoned previously.

Income

(2) An amount equal to the amount of expenditure described in subsection (3) is treated as income of the petroleum miner.

Exploratory well expenditure
(3) The expenditure is exploratory well expenditure to which all the following apply:
- (a) it is directly attributable to drilling or acquiring the exploratory well; and
- (b) the petroleum miner or a holder of a previous interest in the well is or has been allowed a deduction for it as petroleum exploration expenditure; and
- (c) it is incurred in relation to the permit held currently by the petroleum miner, or a previous permit surrendered in exchange for the permit currently held under section 32(3) of the Crown Minerals Act 1991.
Timing of income

(4) The amount is allocated to the income year in which commercial production from the well starts.

Part interest

(5) If the petroleum miner has a part interest in the exploratory well when that well is first used for commercial production, the amount of expenditure treated as income under this section must bear the same proportion to the exploratory well expenditure specified in subsection (3) as that part interest bears to all interests in the well.

Defined in this Act: amount, commercial production, deduction, exploratory well, exploratory well expenditure, income, income year, permit, petroleum, petroleum exploration expenditure, petroleum miner, seal and abandonment,

Compare: 1994 No 164 s DM 1(9)(a)

CT 4 Partnership interests and disposal of part of asset

In this subpart, and in sections CX 36 (Disposal of ownership interests in controlled petroleum mining entities) and CX 37 (Farm-out arrangements for petroleum mining), unless the context requires otherwise,—
- (a) a partner is treated as having a share or interest in a petroleum permit or other property of a partnership to the extent of their interest in the income of the partnership:
- (b) references to the disposal of an asset apply equally to the disposal of part of an asset.
Defined in this Act: income, petroleum permit,

Compare: 1994 No 164 ss DM 9, DM 10

Paragraph (a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

CT 5 Petroleum mining operations outside New Zealand

This subpart, and sections CX 36 (Disposal of ownership interests in controlled petroleum mining entities) and CX 37 (Farm-out arrangements for petroleum mining), apply, with any necessary modifications, to a petroleum miner who undertakes petroleum mining operations that are—
- (a) outside New Zealand and undertaken through a branch or a controlled foreign company; and
- (b) substantially the same as the petroleum mining activities governed by this subpart and sections CX 36 and CX 37.
Defined in this Act: controlled foreign company, New Zealand, petroleum miner, petroleum mining operations,

Compare: 1994 No 164 s DM 7(1)

Definitions

CT 6 Meaning of petroleum miner

Meaning

(1) Petroleum miner means a person who undertakes an activity described in subsection (3) in a permit area for which the person has a petroleum permit.

Exclusion
(2) Petroleum miner does not include a person who undertakes an activity described in subsection (3) for consideration that is not in the form of, or contingent on,—
- (a) the production of petroleum from the permit area; or
- (b) profits from the production of petroleum from the permit area; or
- (c) an interest or a right to an interest in the petroleum permit.
Activities: inclusions
(3) The activities are those carried out in connection with—
- (a) prospecting or exploring for petroleum:
- (b) developing a permit area for producing petroleum:
- (c) producing petroleum:
- (d) processing, storing, or transmitting petroleum before its dispatch to a buyer, consumer, processor, refinery, or user:
- (e) removal or restoration operations.
Activities: exclusions
(4) 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: consideration, permit area, petroleum, petroleum miner, petroleum permit, removal or restoration operations,

Compare: 1994 No 164 s OB 1 development operations, further processing, petroleum miner

Subsection (3)(a) to (d) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

CT 7 Meaning of petroleum mining asset

Meaning
(1) Petroleum mining asset means—
- (a) a petroleum permit:
- (b) an asset that—
  - (i) is acquired by a petroleum miner for the purpose of carrying on an activity described in subsection (3) in a permit area or areas; and
  - (ii) has an estimated useful life that depends on, and is no longer than, the remaining life of the petroleum permit for the area or areas:
- (c) a share or partial interest in an asset described in paragraph (a) or (b).
Exclusion

(2) Petroleum mining asset does not include land.

Activities: inclusions
(3) 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
(4) 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: land, permit area, petroleum, petroleum miner, petroleum mining asset, petroleum permit, removal or restoration operations,

Compare: 1994 No 164 s OB 1 development operations, further processing, permit specific asset, petroleum mining asset

Subsection (1)(a) and (b)(ii) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (3)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subpart CU—Income from mineral mining

CU 1 Mining company's 2 kinds of income

Income from mining

CU 2 Mining company that processes or manufactures

CU 3 Disposal of assets

CU 4 Compensation for lost, destroyed, or damaged assets

CU 5 Compensation and scrap payment: income from mining

CU 6 Compensation and scrap payment: use to replace or repair asset

CU 7 Compensation and scrap payment: not income from mining

CU 8 Compensation and scrap payment: more than expenditure

CU 9 Previous deduction for income appropriated

CU 10 Mining asset used to derive income other than income from mining

CU 11 Meaning of asset for sections CU 3 to CU 10

CU 12 Application of sections to resident mining operators

CU 13 Application of sections to non-resident mining operators

CU 14 Recovery of reinvestment profit on disposal of mining shares

CU 15 Recovery of reinvestment profit not used for mining purposes

CU 16 Recovery of reinvestment profit on repayment of loans

CU 17 Repayment by mining company of amount written off

CU 18 Amount treated as repayment for purposes of section CU 17: excess

CU 19 Amount treated as repayment for purposes of section CU 17: net income

CU 20 Mining company or mining holding company liquidated

CU 21 Meaning of income from mining

CU 22 Meaning of mining company

CU 23 Meaning of mining development expenditure

CU 24 Meaning of mining exploration expenditure

CU 25 Meaning of mining operations

CU 26 Meaning of mining venture

CU 27 Meaning of resident mining operator

CU 28 Meaning of specified mineral

CU 29 Other definitions

Introductory provision

CU 1 Mining company's 2 kinds of income

Income derived by a mining company is either income from mining or income other than income from mining.

Defined in this Act: income, income from mining, mining company,

Compare: 1994 No 164 s DN 1(2)

Income from mining

CU 2 Mining company that processes or manufactures

When this section applies
(1) This section applies when—
- (a) a mining company—
  - (i) obtains specified minerals from its mining operations; or
  - (ii) through a combination of its mining operations and its associated mining operations, brings specified minerals to the stage at which they are ready to be processed or used in a manufacturing operation; and
- (b) the company produces products by processing the specified minerals or using them in a manufacturing operation; and
- (c) the company disposes of the products.
Income classified

(2) For the income year in which the mining company disposes of the products, the Commissioner must classify the mining company's income from the disposal as income from mining or income other than income from mining. The Commissioner must classify the income by apportioning it under subsection (3) or by making a decision under subsection (4).

Apportionment
(3) In apportioning the income, the Commissioner must make an appropriate apportionment of the value of the stock of products on hand at the start and end of the income year and must take into account the matters the Commissioner considers relevant and appropriate, including—
- (a) the capital employed, or the expenditure or losses incurred, in the mining operations, associated mining operations, and processing of the specified minerals or the use of the specified minerals in a manufacturing operation:
- (b) the extent of the steps involved in the mining operations, associated mining operations, and processing of the specified minerals or the use of the specified minerals in a manufacturing operation.
Decision
(4) In making a decision, the Commissioner must take into account the amount that would have been—
- (a) the value received or receivable for the specified minerals if they had been disposed of in the income year to a wholly independent person in the state in which they resulted from the mining operations or the combination of mining operations and associated mining operations; and
- (b) the value of the products on hand at the end of the income year if the specified minerals from which they came had been valued for the purposes of subpart EB (Valuation of trading stock (including dealer's livestock)) in the state in which they resulted from the mining operations or the combination of mining operations and associated mining operations.
Defined in this Act: amount, associated mining operations, Commissioner, income, income from mining, income year, mining company, mining operations, specified mineral,

Compare: 1994 No 164 s DN 1(4)

Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

CU 3 Disposal of assets

When this section applies
(1) This section applies when—
- (a) a mining company acquires an asset, including mining prospecting information or a mining or prospecting right, by incurring mining exploration expenditure or mining development expenditure; and
- (b) the company, whether or not still a mining company, disposes of the asset.
Exclusion
(2) This section does not apply when—
- (a) a mining company acquires an asset, including mining prospecting information or a mining or prospecting right, by incurring mining exploration expenditure or mining development expenditure; and
- (b) the company, whether or not still a mining company, passes the ownership of the asset to another person; and
- (c) the passing of ownership is not because the asset is sold to the other person; and
- (d) the company does not receive, and is not entitled to receive, consideration for the passing of ownership; and
- (e) the company and the other person deal with each other over the passing of ownership at arm's length, even if they are associated persons at a time relevant to the passing of ownership.
Income
(3) The following are income from mining of the mining company:
- (a) the consideration that the company derives from the disposal of the asset, unless paragraph (b) applies:
- (b) in the cases described in subsections (4) to (7), the consideration specified in subsection (4) or (5) or (7).
Consideration other than in cash

(4) If some or all of the consideration for the disposal is other than in cash, and the disposal is not to an associated person, the consideration that is not in cash has the value agreed between the company and the person to whom the asset is disposed of. If the company and the person do not agree, or if the Commissioner considers that the value agreed is unreasonable, the consideration that is not in cash has the value that the Commissioner decides.

Disposal to associated person

(5) If the disposal is to an associated person, the consideration for the disposal is the market value that the asset has on the date of the disposal.

When subsection (7) applies
(6) Subsection (7) applies when—
- (a) the company disposes of the asset to a person acquiring it for use in carrying on their mining operations or associated mining operations or a mining venture; and
- (b) the company and the person give notice to the Commissioner that they have agreed to apply subsection (7); and
- (c) the notice is given to the Commissioner within 1 of the following times:
  - (i) the time within which the company is required to file a return of income for the income year in which it disposes of the asset:
  - (ii) a further time allowed by the Commissioner; and
- (d) the notice specifies an amount that—
  - (i) is no more than the market value that the asset has at the date of the disposal; and
  - (ii) is not less than the amount of any part of the consideration that is in cash.
Amount specified by parties to disposal

(7) The consideration for the disposal is the amount that the company and the person specify in the notice.

Defined in this Act: amount, asset, associated mining operations, associated person, Commissioner, company, income year, mining company, mining development expenditure, mining exploration expenditure, mining operations, mining or prospecting right, mining prospecting information, mining venture, notice, return of income,

Compare: 1994 No 164 s DN 1(9)-(12)(b)

Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (6)(c)(i) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

CU 4 Compensation for lost, destroyed, or damaged assets

When sections CU 5 to CU 8 apply
(1) Sections CU 5 to CU 8 apply when—
- (a) a mining company acquires an asset by incurring mining exploration expenditure or mining development expenditure; and
- (b) the company is allowed a deduction for the expenditure under—
  - (i) section DU 1 (Mining exploration expenditure and mining development expenditure); or
  - (ii) section DZ 12(1)(a) (Mineral mining: 1954 to 2005); and
- (c) the asset is lost, destroyed, or damaged; and
- (d) the company, whether or not still a mining company,—
  - (i) is paid insurance, indemnity, or compensation for the loss, destruction, or damage; or
  - (ii) is entitled to receive payment for any scrap of the asset that it disposes of.
What sections CU 5 to CU 8 apply to

(2) Sections CU 5 to CU 8 apply to any asset (asset A) that a mining company acquires by incurring mining exploration expenditure or mining development expenditure, except for an asset (asset B) used to derive income other than income from mining to which section CU 10 is applied. Sections CU 5 to CU 8 apply to asset B only if it is later used to derive income from mining and section DU 5 (Non-mining asset used to derive income from mining) is applied to it.

Defined in this Act: asset, company, deduction, income, income from mining, mining company, mining development expenditure, mining exploration expenditure,

Compare: 1994 No 164 s DN 1(13)

CU 5 Compensation and scrap payment: income from mining

Income
(1) When, under section CU 4, this section applies, the total of the following amounts is income from mining of the mining company:
- (a) the amount of insurance, indemnity, or compensation paid; and
- (b) the amount (if any) payable to the company for the disposal of any scrap of the asset.
Timing of income

(2) The income from mining is allocated to the income year in which the insurance, indemnity, or compensation is paid.

Relationship with sections CU 6 to CU 8

(3) This section is overridden by sections CU 6 to CU 8.

Defined in this Act: amount, asset, income from mining, income year, mining company,

Compare: 1994 No 164 s DN 1(13), (14)

CU 6 Compensation and scrap payment: use to replace or repair asset

Choice between section CU 5 and sections CU 7 and CU 8

(1) If the mining company wants sections CU 7 and CU 8 to apply instead of section CU 5, it must comply with subsection (2).

Choice of sections CU 7 and CU 8
(2) The company must—
- (a) give notice to the Commissioner that the insurance, indemnity, or compensation will be used to replace or repair the asset; and
- (b) give the notice within the time within which the company must file a return of income for the income year in which the loss, destruction, or damage occurred; and
- (c) start the replacement or repair by the end of the second income year after the income year in which the loss, destruction, or damage occurred.
Defined in this Act: asset, Commissioner, income year, mining company, notice, return of income,

Compare: 1994 No 164 s DN 1(14)

CU 7 Compensation and scrap payment: not income from mining

When, under sections CU 4 and CU 6, this section applies, neither of the following amounts is income from mining of the mining company:
- (a) the amount of insurance, indemnity, or compensation paid; or
- (b) the amount (if any) payable to the company for the disposal of any scrap of the asset.
Defined in this Act: amount, asset, income from mining, mining company,

Compare: 1994 No 164 s DN 1(14)(a), (b)

CU 8 Compensation and scrap payment: more than expenditure

When this section applies
(1) This section applies when—
- (a) the mining company complies with section CU 6(2); and
- (b) the company incurs expenditure in replacing or repairing the asset; and
- (c) the company has an excess amount because the expenditure is less than the total of the following:
  - (i) the amount of insurance, indemnity, or compensation paid; and
  - (ii) the amount (if any) payable to the company for the disposal of any scrap of the asset.
Income

(2) The excess amount is income from mining of the company, whether or not the company is still a mining company when the excess amount is determined.

Timing of income

(3) The income from mining is allocated to the income year in which the replacement or repair of the asset is completed or is treated as completed.

When replacement or repair treated as completed
(4) The replacement or repair, even if not completed, is treated as completed—
- (a) on the last day of the period (if any) considered by the Commissioner to be a reasonable period within which to complete the replacement or repair; or
- (b) on the day on which work on the replacement or repair stops; or
- (c) on the day on which the asset is transferred from the company's mining operations and used, wholly or mainly, to derive income other than income from mining; or
- (d) on the day on which the company disposes of the asset other than for scrap; or
- (e) on the day on which the company stops being a mining company.
Limitation on calculation of excess amount

(5) Expenditure incurred after the day on which the work is treated as completed is not taken into account to determine the existence or amount of an excess amount for the purposes of subsection (1)(c).

Defined in this Act: mount, asset, Commissioner, company, income, income from mining, income year, mining company, mining operations,

Compare: 1994 No 164 s DN 1(14)(e), (g), (i)

CU 9 Previous deduction for income appropriated

Income

(1) An amount equal to the amount for which a mining company is allowed a deduction under section DU 4 (Income appropriated to expenditure) is income from mining of the mining company.

Timing of income

(2) The income is allocated to the income year following the income year in which the mining company is allowed the deduction.

Company stops mining

(3) A mining company that stops being a mining company before the end of the income year to which the income is allocated is treated as if it were still a mining company in the income year.

Defined in this Act: amount, deduction, income from mining, income year, mining company,

Compare: 1994 No 164 s DN 1(6)

CU 10 Mining asset used to derive income other than income from mining

When this section applies
(1) This section applies when—
- (a) a mining company acquires an asset by incurring mining exploration expenditure or mining development expenditure; and
- (b) the company uses the asset, wholly or mainly, to derive income other than income from mining.
Income

(2) An amount equal to the market value that the asset has on the first day of each period in which it is used, wholly or mainly, to derive income other than income from mining is income from mining of the mining company.

Timing of income

(3) The income is allocated to the income year in which each first day falls.

Company stops mining

(4) A mining company that stops being a mining company before the end of the income year to which the income is allocated is treated as if it were still a mining company in the income year.

Defined in this Act: asset, income, income from mining, income year, mining company, mining development expenditure, mining exploration expenditure,

Compare: 1994 No 164 s DN 1(8)

CU 11 Meaning of asset for sections CU 3 to CU 10

Mining company's share or interest in asset
(1) Sections CU 3 to CU 10 apply to a share or interest that a mining company has in an asset—
- (a) to the extent to which the mining company acquired the share or interest by incurring—
  - (i) mining exploration expenditure or mining development expenditure; or
  - (ii) the exploration expenditure or development expenditure referred to in section DZ 12(2)(a) (Mineral mining: 1954 to 2005); and
- (b) to the extent to which the mining company uses the share or interest for the purpose of deriving income from mining.
Partner's share or interest in asset

(2) For the purposes of sections CU 3 to CU 10, a partner's share or interest in each asset of the partnership is the same as the partner's interest in the totality of the assets of the partnership.

Replaced or repaired asset
(3) For the purposes of sections CU 3 to CU 10,—
- (a) an asset that a mining company acquires by incurring expenditure in replacing or repairing the asset is the same asset as the one that was lost, destroyed, or damaged:
- (b) part of an asset that a mining company acquires by incurring expenditure in repairing the asset is part of the asset that was damaged.
Defined in this Act: asset, income from mining, mining company, mining development expenditure, mining exploration expenditure,

Compare: 1994 No 164 s DN 1(14)(f), (16), (17)

Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

CU 12 Application of sections to resident mining operators

Sections in this subpart applying to resident mining operators

(1) Sections CU 1 to CU 8, CU 10, and CU 11 apply, with any necessary modifications, to resident mining operators as if resident mining operators were mining companies.

Additional modification of sections CU 4 and CU 11
(2) For the purposes of subsection (1),—
- (a) section CU 4(1)(b)(ii) applies as described in section DZ 12(1)(b) (Mineral mining: 1954 to 2005); and
- (b) section CU 11(1)(a)(ii) applies as described in section DZ 12(2)(b) (Mineral mining: 1954 to 2005).
Defined in this Act: mining company, resident mining operator,

Compare: 1994 No 164 s DN 4(1), (5), (7)

CU 13 Application of sections to non-resident mining operators

Sections in this subpart applying to non-resident mining operators

(1) Sections CU 3 to CU 11 apply, with any necessary modifications, to non-resident mining operators as if non-resident mining operators were mining companies, income from mining were income from a mining venture, mining operations were mining ventures, and associated mining operations were mining ventures.

Additional modification of sections CU 4 and CU 11
(2) For the purposes of subsection (1),—
- (a) section CU 4(1)(b)(ii) applies as described in section DZ 12(1)(b) (Mineral mining: 1954 to 2005); and
- (b) section CU 11(1)(a)(ii) applies as described in section DZ 12(2)(b) (Mineral mining: 1954 to 2005).
Defined in this Act: associated mining operations, income from mining, mining company, mining operations, mining venture, non-resident mining operator,

Compare: 1994 No 164 s DN 5(2)(a), (c)

CU 14 Recovery of reinvestment profit on disposal of mining shares

When this section applies
(1) This section applies when—
- (a) a company derives an amount from disposing of a mining share, including a disposal described in section CU 20; and
- (b) an amount of the company's reinvestment profit is used in calculating the deduction for the cost of the mining share under section DU 11(2)(b) (Disposal of mining shares by company).
Income
(2) The lesser of the following amounts is income of the company:
- (a) the amount derived from the disposal of the mining share minus the deduction for the cost of the mining share; and
- (b) the amount of reinvestment profit used in calculating the deduction for the cost of the mining share.
Timing of income

(3) The income is allocated to the income year in which the mining share is disposed of.

Relationship with sections CX 38 and CX 39

(4) This section is overridden by sections CX 38 (Disposal of mining shares) and CX 39 (Disposal of mining shares acquired with reinvestment profit).

Defined in this Act: amount, company, deduction, income, income year, mining share, reinvestment profit,

Compare: 1994 No 164 s DN 2(7), (8)(c)

CU 15 Recovery of reinvestment profit not used for mining purposes

When subsections (2) and (3) apply
(1) Subsections (2) and (3) apply when some or all of a company's reinvestment profit—
- (a) is used for purposes other than mining purposes within the prescribed period; and
- (b) will not be used for mining purposes within the prescribed period.
Income

(2) The amount of reinvestment profit described by subsection (1) is income of the company.

Timing of income

(3) The income is allocated to the income year in which the amount is used for purposes other than mining purposes.

When subsections (5) and (6) apply

(4) Subsections (5) and (6) apply when some or all of a company's reinvestment profit is not used for mining purposes within the prescribed period.

Income

(5) The reinvestment profit is income of the company.

Timing of income

(6) The income is allocated to the last income year of the prescribed period.

No longer reinvestment profit

(7) The amount referred to in subsection (2) and the reinvestment profit referred to in subsection (5) cease to be reinvestment profit.

Defined in this Act: amount, company, income, income year, mining purposes, prescribed period, reinvestment profit,

Compare: 1994 No 164 s DN 2(3), (4)

CU 16 Recovery of reinvestment profit on repayment of loans

When this section applies
(1) This section applies when—
- (a) a company (lender company) makes a loan to a mining company or a mining holding company; and
- (b) the loan is made wholly or partly out of the lender company's reinvestment profit; and
- (c) the loan is wholly or partly repaid.
Income

(2) The amount calculated using the formula in subsection (3) is income of the lender company.

Formula

(3) The formula is—

Definition of items in formula
(4) In the formula,—
- (a) reinvestment profit amount is the amount of the loan made out of the lender company's reinvestment profit:
- (b) loan amount is the amount of the loan:
- (c) repayment is the amount repaid.
Timing of income

(5) The income is allocated to the income year in which the repayment is made.

Relationship with section CX 40

(6) This section is overridden by section CX 40 (Repayment of loans made from reinvestment profit).

Defined in this Act: amount, company, income, income year, mining company, mining holding company, reinvestment profit,

Compare: 1994 No 164 s DN 2(5)

CU 17 Repayment by mining company of amount written off

When this section applies
(1) This section applies when—
- (a) a holding company of a mining company is allowed, under section DU 12 (Amount written off by holding company) or an earlier Act, a deduction for an amount it has written off a loan it made to the mining company; and
- (b) the mining company—
  - (i) repays, to the holding company or any other person, some or all of the amount written off; or
  - (ii) is treated, under section CU 18 or CU 19, as having repaid to the holding company some or all of the amount written off.
Income

(2) The amount repaid, to the extent of the deduction, is income of the holding company.

Timing of income

(3) The income is allocated to the income year in which the mining company repays the amount or is treated as repaying the amount.

Defined in this Act: amount, deduction, holding company, income, income year, loan, mining company,

Compare: 1994 No 164 s DN 3(7), (8)

CU 18 Amount treated as repayment for purposes of section CU 17: excess

When this section applies
(1) This section applies when,—
- (a) in a tax year, a holding company of a mining company is allowed, under section DU 12 (Amount written off by holding company) or an earlier Act, a deduction for an amount it has written off a loan it made to the mining company; and
- (b) in a later tax year, the holding company disposes of shares in the mining company or an interest in shares in the mining company; and
- (c) the holding company has an excess amount because the amount it derives from the disposal is more than the amount paid up in cash on the shares.
Repayment amount

(2) For the purposes of section CU 17, the excess amount is treated as repayment by the mining company of the amount written off.

Defined in this Act: amount, deduction, holding company, loan, mining company, share, tax year,

Compare: 1994 No 164 s DN 3(6), (8)

CU 19 Amount treated as repayment for purposes of section CU 17: net income

When this section applies
(1) This section applies when—
- (a) a holding company of a mining company is allowed, under section DU 12 (Amount written off by holding company) or an earlier Act, a deduction for an amount it has written off a loan it made to the mining company; and
- (b) the deduction is allocated to an income year; and
- (c) the mining company would have had net income in a later tax year if—
  - (i) the situation described in subsection (2) had existed; and
  - (ii) the situation described in subsection (3) had existed.
First situation

(2) The first situation is that in the later tax year no person is allowed a deduction for the mining company's mining exploration expenditure or mining development expenditure.

Second situation

(3) The second situation is that in the later tax year the mining company disposes of an asset in circumstances to which section CU 3 or CZ 2(1)(b) (Mining company's 1970-71 tax year) applies and the amount received or receivable for the asset is the amount determined under subsection (4) or (5).

Amount for which asset disposed of: most cases

(4) If any of section CU 3(3)(a), (4), or (5) applies to the disposal of the asset, the amount is the consideration determined under whichever one of the provisions applies.

Amount for which asset disposed of: election of section CU 3(7)
(5) If section CU 3(7) applies to the disposal of the asset, the amount is the greater of the following up to the limit of the market value that the asset has on the date of disposal:
- (a) the part of the amount specified in the notice under section CU 3(7) that is in cash (which may be zero); and
- (b) the total amount of loans made on or before the date of disposal by all holding companies of the mining company to the mining company to the extent to which the loans—
  - (i) relate to the asset (including a part not disposed of); and
  - (ii) have been written off and allowed as a deduction under section DU 12 (Amount written off by holding company) or an earlier Act; and
  - (iii) have not been repaid, and have not been treated as repaid under this section or section CU 18 or an earlier Act, on or before the date of disposal.
Asset
(6) For the purposes of subsections (3) to (5),—
- (a) a reference to an asset means the part of the asset that is disposed of, which may be some of it or all of it, and a reference to an amount received or receivable for an asset means the amount for the part that is disposed of:
- (b) a reference to an asset includes a reference to a share or interest in the asset:
- (c) a partner's share or interest in each asset of the partnership is the same as the partner's interest in the totality of the assets of the partnership:
- (d) every member of any other association of persons who receive income jointly or carry on activities jointly has a share or interest in each asset of the association that is the same as the member's interest in the totality of the assets of the association.
Amount of net income

(7) For the purposes of section CU 17, the prescribed proportion of the amount that would have been the net income of the mining company is treated as repayment by the mining company of the amount written off. The repayment is treated as having been made on the day following the end of the tax year in which the mining company would have had net income.

Defined in this Act: amount, deduction, holding company, income, income year, loan, mining company, mining development expenditure, mining exploration expenditure, net income, notice, prescribed proportion, tax year,

Compare: 1994 No 164 s DN 3(4), (5), (8), (9)

Subsection (6)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

CU 20 Mining company or mining holding company liquidated

Treatment of shares
(1) If a mining company or a mining holding company is liquidated,—
- (a) a mining share held in the company is treated as disposed of to the company; and
- (b) a distribution received for the share on the liquidation is treated as an amount received for the disposal.
Relationship with section CU 14

(2) Section CU 14 deals with the recovery of reinvestment profit on the disposal of mining shares.

Defined in this Act: amount, liquidation, mining company, mining holding company, mining share, reinvestment profit,

Compare: 1994 No 164 s DN 2(8)

Definitions

CU 21 Meaning of income from mining

Meaning

(1) Income from mining means the part of the income of a mining company that is derived in a tax year from the company's mining operations or associated mining operations in the tax year.

Resident mining operators and non-resident mining operators

(2) This definition applies to resident mining operators as if they were mining companies, and to non-resident mining operators as if they were mining companies, mining operations were mining ventures, and associated mining operations were mining ventures.

Defined in this Act: associated mining operations, income, income from mining, mining company, mining operations, mining venture, non-resident mining operator, resident mining operator, tax year,

Compare: 1994 No 164 ss DN 4(4), DN 5(1), OB 1 gross income from mining

CU 22 Meaning of mining company

Meaning
(1) Mining company means a New Zealand company to which 1 of the following applies:
- (a) the company's only source of income is the business described in subsection (2); or
- (b) the company's main source of income is the business described in subsection (2); or
- (c) the company's only activity is 1 of the activities described in subsection (3); or
- (d) the company's main activity is 1 of the activities described in subsection (3); or
- (e) the company proposes that its only activity or its main activity be 1 of the activities described in subsection (3).
Business

(2) The business referred to in subsection (1)(a) and (b) is the business of mining a specified mineral in New Zealand.

Activities
(3) The activities referred to in subsection (1)(c), (d), and (e) are—
- (a) exploring, searching, or mining for a specified mineral in New Zealand; or
- (b) performing development work for exploring, searching, or mining for a specified mineral in New Zealand.
Service for reward
(4) An activity described in subsection (3) does not include an activity done or to be done as a service to another person for reward unless the reward—
- (a) is wholly or mainly related to and dependent on the production of the specified mineral; or
- (b) arises wholly or mainly through participation in profits from the production of the specified mineral.
Defined in this Act: business, income, mining company, New Zealand, New Zealand company, specified mineral,

Compare: 1994 No 164 s DN 1(1)

CU 23 Meaning of mining development expenditure

Meaning

(1) Mining development expenditure means development expenditure that a mining company incurs in its mining operations or associated mining operations.

Inclusions
(2) Mining development expenditure includes expenditure that the company incurs—
- (a) on acquiring land as a site for its mining operations or associated mining operations:
- (b) on preparing the site for its mining operations or associated mining operations:
- (c) on restoring the site during or after its mining operations or associated mining operations:
- (d) on any of the following for its mining operations or associated mining operations:
  - (i) buildings, mineshafts, platforms, tunnels, wells, or other improvements:
  - (ii) plant or machinery, including vehicles:
  - (iii) production equipment or facilities:
  - (iv) storage facilities:
- (e) on vessels or aircraft for use wholly or mainly in its mining operations or associated mining operations:
- (f) on providing, or contributing to the cost of providing, communication equipment, fuel, light, power, or water for the site of its mining operations or associated mining operations:
- (g) on buildings or facilities that—
  - (i) are situated at, or adjacent to, the site of any of its mining operations or associated mining operations; and
  - (ii) are for use in the education, housing, or welfare of, or the supply of meals to, its employees in or connected with its mining operations or associated mining operations or in the education, housing, or welfare of, or the supply of meals to, the employees' dependants:
- (h) on providing, or contributing to the cost of providing, communication equipment, fuel, light, power, or water for the buildings or facilities described in paragraph (g).
Exclusions
(3) Mining development expenditure does not include expenditure that the company incurs—
- (a) on a building or facility provided for the purpose of deriving income; or
- (b) on or in relation to an office building that is not situated at, or adjacent to, the site of any of its mining operations or associated mining operations.
Resident mining operators and non-resident mining operators

(4) This definition applies to resident mining operators as if they were mining companies, and to non-resident mining operators as if they were mining companies, mining operations were mining ventures, and associated mining operations were mining ventures.

Defined in this Act: associated mining operations, employee, income, mining company, mining development expenditure, mining operations, mining venture, non-resident mining operator, resident mining operator,

Compare: 1994 No 164 ss DN 4(4), DN 5(1), OB 1 development expenditure (d)

Subsection (2)(a) to (c), (d)(i) to (iv), (e), (f) and (g)(ii) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

CU 24 Meaning of mining exploration expenditure

Meaning

(1) Mining exploration expenditure means expenditure that a mining company incurs in exploring or searching in New Zealand for a specified mineral.

Inclusions
(2) Mining exploration expenditure includes expenditure that the company incurs—
- (a) on acquiring mining prospecting information:
- (b) on acquiring a mining or prospecting right:
- (c) on geological mapping and geophysical surveys:
- (d) on systematic searches for areas containing specified minerals:
- (e) on searching by drilling in areas containing specified minerals:
- (f) on searching for ore containing a specified mineral within or in the vicinity of an ore body by crosscuts, drilling, drives, rises, shafts, or winzes.
Exclusions
(3) Mining exploration expenditure does not include—
- (a) mining development expenditure:
- (b) expenditure on operations in the course of working a mining property.
Resident mining operators and non-resident mining operators

(4) This definition applies to resident mining operators as if they were mining companies, and to non-resident mining operators as if they were mining companies, mining operations were mining ventures, and associated mining operations were mining ventures.

Defined in this Act: associated mining operations, mining company, mining development expenditure, mining exploration expenditure, mining operations, mining or prospecting right, mining prospecting information, mining venture, New Zealand, non-resident mining operator, resident mining operator, specified mineral,

Compare: 1994 No 164 ss DN 4(4), DN 5(1), OB 1 exploration expenditure (c)

Subsection (2)(a) to (e) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

CU 25 Meaning of mining operations

Meaning
(1) Mining operations means operations that—
- (a) are carried on by a mining company on a mining property in New Zealand for the purpose of deriving income; and
- (b) consist of—
  - (i) exploring, searching, or mining for 1 or more specified minerals; or
  - (ii) performing development work for exploring, searching, or mining for 1 or more specified minerals.
Resident mining operators and non-resident mining operators

(2) This definition applies to resident mining operators as if they were mining companies, and to non-resident mining operators as if they were mining companies, mining operations were mining ventures, and associated mining operations were mining ventures.

Defined in this Act: associated mining operations, income, mining company, mining operations, mining venture, New Zealand, non-resident mining operator, resident mining operator, specified mineral,

Compare: 1994 No 164 ss DN 4(4), DN 5(1), OB 1 mining operations

CU 26 Meaning of mining venture

Meaning
(1) Mining venture means a venture that—
- (a) is carried on, or is proposed to be carried on,—
  - (i) in New Zealand; and
  - (ii) as a business; and
  - (iii) under an exploration permit, prospecting permit, or mining permit granted under the Crown Minerals Act 1991 or under an existing privilege as defined in section 106 of the Act; and
- (b) consists, or is proposed to consist, wholly or mainly of—
  - (i) exploring, searching, or mining for a specified mineral in New Zealand; or
  - (ii) performing development work for exploring, searching, or mining for a specified mineral in New Zealand.
Service for reward
(2) An activity described in subsection (1)(b) does not include an activity done or to be done as a service to another person for reward unless the reward—
- (a) is wholly or mainly related to and dependent on the production of the specified mineral; or
- (b) arises wholly or mainly through participation in profits from the production of the specified mineral.
Activities not carried on jointly

(3) If 2 or more persons carry on, or propose to carry on, a joint mining venture, but 1 or more of them carries on an activity of the kind described in subsection (1)(b) outside the joint mining venture, the carrying on of the activity is not part of the joint mining venture.

Defined in this Act: business, mining venture, New Zealand, specified mineral,

Compare: 1994 No 164 s OB 1 mining venture

CU 27 Meaning of resident mining operator

Meaning
(1) Resident mining operator means a person who—
- (a) is resident in New Zealand; and
- (b) is not a mining company or a petroleum mining company; and
- (c) carries on, or proposes to carry on, the activities of—
  - (i) exploring, searching, or mining for a specified mineral in New Zealand; or
  - (ii) performing development work for exploring, searching, or mining for a specified mineral in New Zealand.
How activities carried on
(2) The person must carry on the activities described in subsection (1)(c), or propose to carry them on,—
- (a) personally and actively in the field; and
- (b) as a business; and
- (c) under an exploration permit, prospecting permit, or mining permit granted under the Crown Minerals Act 1991 or under an existing privilege as defined in section 106 of the Act.
Service for reward
(3) An activity described in subsection (1)(c) does not include an activity done or to be done as a service to another person for reward unless the reward—
- (a) is wholly or mainly related to and dependent on the production of the specified mineral; or
- (b) arises wholly or mainly through participation in profits from the production of the specified mineral.
Defined in this Act: business, mining company, New Zealand, petroleum mining company, resident in New Zealand, specified mineral,

Compare: 1994 No 164 s OB 1 active miner, resident mining operator

CU 28 Meaning of specified mineral

Meaning
(1) Specified mineral—
- (a) means alumina minerals (for example, bauxite, corundum, diaspore, and gibbsite), aluminous refractory clays containing over 30% alumina in the fired state, aluminous refractory fireclays containing over 30% alumina in the fired state, andalusite, antimony, asbestos, barite, bentonite (except bentonite mined in the area formerly known as Malvern County), bituminous shale, chromite, copper, diatomite, dolomite, feldspar, fluorite, gold, halloysite, kaolin, kyanite, lead, magnesite, manganese, mercury, mica, molybdenite, nickel, perlite, phosphate, platinum group, pyrite, silica in lump form used only in producing silicon carbide or silicon metal or ferro silicon, silica in sand form used only in producing silicon carbide, sillimanite, silver, sodium chloride, sulphur, talc, tin, titanium, titanomagnetite, tungsten, uranium, wollastonite, zeolite, zinc, and zircon:
- (b) includes a mineral that is declared to be a specified mineral in a Gazette notice given by the Minister.
Minister to consider
(2) Before giving a Gazette notice about a particular mineral, the Minister must consider whether the mineral is or is likely to be of importance—
- (a) in the industrial development of New Zealand:
- (b) as a means of reducing the quantity of industrial minerals or industrial rock required to be imported into New Zealand:
- (c) as an item of export from New Zealand.
Defined in this Act: mineral, Minister, New Zealand,

Compare: 1994 No 164 s OB 1 specified mineral

Subsection (1)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (2)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

CU 29 Other definitions

In this Act,—
associated mining operations means operations that—
- (a) are carried on in New Zealand in association with mining operations; and
- (b) consist of the accumulation, initial treatment, and transport of specified minerals, up to the stage at which the minerals—
  - (i) are in a saleable form and in a location suitable for a person to acquire them; or
  - (ii) are ready to be processed beyond the initial treatment or to be used in a manufacturing operation
holding company, for a mining company, means a New Zealand company that holds shares, or for which shares are held, in the mining company
initial treatment, for a specified mineral,—
- (a) means—
  - (i) breaking, cleaning, crushing, grading, grinding, leaching, screening, or sizing; or
  - (ii) a treatment that is applied before concentration or, for a specified mineral not requiring concentration, that would have been applied before concentration if the specified mineral had required concentration; or
  - (iii) concentration; and
- (b) does not include—
  - (i) calcining or sintering; or
  - (ii) the production of, or processes carried on in connection with the production of, alumina, or pellets or other agglomerated forms of iron
loan, for a holding company and a mining company, means a loan by the holding company to the mining company made when the holding company is a holding company of the mining company
mining holding company means a New Zealand company that is engaged wholly or mainly in—
- (a) holding shares in a mining company or a petroleum mining company; or
- (b) investing money in a mining company or a petroleum mining company; or
- (c) making loans to a mining company or a petroleum mining company
mining or prospecting right—
- (a) means an authority, concession, easement, lease, licence, option, permit, privilege, right, or title relating to exploring, searching, or mining for, or carrying on an operation to recover, a specified mineral; and
- (b) includes a share or interest in any such authority, concession, easement, lease, licence, option, permit, privilege, right, or title
mining prospecting information means geological, geophysical, or technical information—
- (a) that is about the presence, absence, extent, or volume of specified minerals in an area; or
- (b) that is likely to assist in determining the presence, absence, extent, or volume of specified minerals in an area
mining purposes means—
- (a) subscribing for shares in a mining company or in a mining holding company; or
- (b) paying calls on shares in a mining company or in a mining holding company; or
- (c) making loans to a mining company to enable it—
  - (i) to finance its mining exploration expenditure or mining development expenditure; or
  - (ii) to carry on its mining operations or associated mining operations; or
- (d) making, to a mining holding company, loans that are to be used—
  - (i) to finance a mining company's mining exploration expenditure or mining development expenditure; or
  - (ii) to finance a mining company's mining operations or associated mining operations
mining share means a share in a mining company or a mining holding company
non-resident mining operator means a person who—
- (a) is not resident in New Zealand; and
- (b) carries on, personally and actively in the field, a mining venture
prescribed period means,—
- (a) for an amount derived from a disposal of a mining share, the tax year in which the disposal occurs and the next 6 tax years; or
- (b) for an amount repaid for a loan made to a mining company or a mining holding company, the tax year in which the amount is repaid and the next 6 tax years
prescribed proportion means the proportion that an amount (amount A) bears to another amount (amount B), when—
- (a) amount A is the amount owing on all loans made by a holding company to a mining company; and
- (b) amount B is the amount owing on all loans by all holding companies to the mining company
reinvestment profit means an amount that—
- (a) is excluded income of a company under any of sections CX 38 to CX 40 (which relate to mineral mining) or under a corresponding provision of an earlier Act; and
- (b) has not ceased to be reinvestment profit under section CU 15(7).
Defined in this Act: amount, associated mining operations, company, excluded income, holding company, initial treatment, lease, loan, mining company, mining development expenditure, mining exploration expenditure, mining holding company, mining operations, mining share, mining venture, New Zealand, New Zealand company, petroleum mining company, resident in New Zealand, share, specified mineral, tax year,

Compare: 1994 No 164 ss DN 2(10), DN 3(12), OB 1

Subpart CV—Income specific to certain entities

CV 1 Group companies

CV 2 Crown Research Institutes

CV 3 Australian wine producer rebate

CV 4 Regulations: Australian wine producer rebate

CV 1 Group companies

An amount that a company derives in an income year and that would not otherwise be income of the company is treated as its income if—
- (a) the company is for that income year a member of a wholly-owned group of companies; and
- (b) had the group of companies been a single company, the amount would have been income of that single company.
Defined in this Act: amount, company, income, income year, wholly-owned group of companies,

Compare: 1994 No 164 s CK 1

CV 2 Crown Research Institutes

An amount that a Crown Research Institute derives is income of the institute if the amount is for the purpose of producing outputs relating to public good science and technology, as defined in section 2 of the Foundation for Research, Science, and Technology Act 1990.

Defined in this Act: amount, Crown Research Institute, income,

Compare: 1994 No 164 s CK 4(1)

CV 3 Australian wine producer rebate

An amount of Australian wine producer rebate derived by a New Zealand resident wine producer is income of the wine producer.

Defined in this Act: amount, Australian wine producer rebate, income, New Zealand resident,

Sections CV 3 and CV 4 were inserted, as from 21 December 2005, by section 4 Taxation (Urgent Measures) Act 2005 (2005 No 121).

CV 4 Regulations: Australian wine producer rebate

Order in Council
(1) For the purpose of enabling the Commissioner to administer the entitlement of New Zealand resident wine producers to Australian wine producer rebates in respect of wine produced in New Zealand, the Governor-General may from time to time, by Order in Council, make regulations relating to—
- (a) the claim by a New Zealand resident wine producer for payment of an Australian wine producer rebate in respect of wine produced in New Zealand that is sold in Australia:
- (b) the approval or verification of the entitlement of a New Zealand resident wine producer to a payment of an Australian wine producer rebate:
- (c) any matter necessary to give effect to a provision relating to Australian wine producer rebates in the agreement for the time being in force between the Government of New Zealand and the Government of Australia for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.
Force and effect
(2) An Order in Council under subsection (1)—
- (a) has force and effect despite any provision in this Act or any other Inland Revenue Act:
- (b) may come into force On or after 1 July 2005:
- (c) may apply for Australian financial years commencing on or after 1 July 2005.
Definitions

(3) In this section,—

Australian financial year means a year starting on and including 1 July

wine has the meaning given in section 31-1 of A New Tax System (Wine Equalisation Tax) Act 1999 (Aust), as amended from time to time, and regulations made under that Act.

Defined in this Act: amount, Australian financial year, Australian wine producer rebate, Inland Revenue Acts, New Zealand resident, wine,

Sections CV 3 and CV 4 were inserted, as from 21 December 2005, by section 4 Taxation (Urgent Measures) Act 2005 (2005 No 121).

Subpart CW—Exempt income

Income from business or trade-like activities

CW 1 Forestry companies established by Crown, Maori owners, and holding companies buying land with standing timber from founders

CW 2 Forestry encouragement agreements

CW 3 Forestry companies and Maori investment companies

Income from holding property (excluding equity)

CW 4 Annuities under life insurance policies

CW 5 Payments of interest: post-war credits

CW 6 Payments of interest: farm mortgages

CW 7 Foreign-sourced interest

CW 8 Money lent to government of New Zealand

Income from equity

CW 9 Dividend derived by company from overseas

CW 10 Dividend within New Zealand wholly-owned group

CW 11 Dividend of conduit tax relief holding company

CW 11B Proceeds of share disposal by qualified foreign equity investor

CW 11C Proceeds from share or option acquired under venture investment agreement

Employee or contractor income

CW 12 Income of Governor-General

CW 13 Expenditure on account, and reimbursement, of employees

CW 14 Allowance for additional transport costs

CW 15 Amounts derived during short-term visits

CW 16 Amounts derived by visiting entertainers (including sportspersons)

CW 17 Amounts derived by visiting crew of pleasure craft

CW 18 Amounts derived by overseas experts and trainees in New Zealand by government arrangement

CW 19 Income for military or police service in operational area

CW 20 Deferred military pay for active service

CW 21 Value of board for religious society members

CW 22 Jurors' and witnesses' fees

Certain income of transitional resident

CW 22B Certain income derived by transitional resident

Income from living allowances, compensation, and government grants

CW 23 Pensions

CW 23B Reinvested amount from foreign superannuation scheme in Australia

CW 24 Annuities from Crown Bank Accounts

CW 25 Services for members of Parliament

CW 26 Maintenance payments

CW 27 Allowances and benefits

CW 28 Compensation payments

CW 28B Payment to claimant of certain accident compensation payments [Not in force]

CW 29 Scholarships and bursaries

CW 30 Film production grants

Income of certain entities

CW 31 Public authorities

CW 32 Local authorities

CW 33 Local and regional promotion bodies

CW 34 Charities: non-business income

CW 35 Charities: business income

CW 36 Charitable bequests

CW 37 Friendly societies

CW 38 Funeral trusts

CW 39 Bodies promoting amateur games and sports

CW 40 TAB and racing clubs

CW 40B Income from conducting gaming-machine gambling

CW 41 Bodies promoting scientific or industrial research

CW 42 Veterinary services bodies

CW 43 Herd improvement bodies

CW 44 Community trusts

Income from certain activities

CW 45 Non-resident aircraft operators

CW 45B Non-resident company involved in exploration and development activities

CW 46 Disposal of companies' own shares

CW 47 New Zealand companies operating in Niue

CW 48 Stake money

CW 49 Providing standard-cost household service

CW 49B Interest paid under KiwiSaver Act 2006

Income exempt under other Acts

CW 50 Exemption under other Acts

Income exempt under Parts F to I

CW 51 Exemption under Parts to be rewritten

Income from business or trade-like activities

CW 1 Forestry companies established by Crown, Maori owners, and holding companies buying land with standing timber from founders

When this section applies

(1) This section applies when a forestry company buys land with standing timber on it from a seller who is the Crown, the Maori owners, or a holding company of the forestry company.

Land sold by Maori Trustee, trustee for Maori owners, or Maori incorporation
(2) For the purposes of subsection (1),—
- (a) land sold to the forestry company by the Maori Trustee or by a trustee for a Maori owner is treated as if it had been sold by the beneficial owners:
- (b) land sold to the forestry company by a Maori incorporation is treated as if it had been sold by the members of the incorporation.
Exempt income

(3) The amount described in section CB 23(3) (Disposal of land with standing timber) is exempt income of the seller.

Relationship with section DP 8

(4) Section DP 8 (Cost of acquiring timber: forestry business on land bought from Crown, Maori owners, or holding company) deals with the cost to the forestry company of acquiring the timber.

Defined in this Act: amount, exempt income, forestry company, holding company, Maori incorporation, Maori owners, standing timber, trustee,

Compare: 1994 No 164 s DL 5(1)(d)(i)-(iii)

Subsection (2)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

CW 2 Forestry encouragement agreements

When this section applies

(1) This section applies when a person makes a forestry encouragement agreement under the Forestry Encouragement Act 1962.

Exempt income: advance

(2) An amount of income advanced to the person under the agreement is exempt income, even if the person is later relieved from some or all of their liability to repay the principal.

Exempt income: interest

(3) The amount from which the person is relieved in the circumstances described in subsection (4) is exempt income.

Circumstances for purposes of subsection (3)
(4) The circumstances are that—
- (a) the person is liable to pay interest on an advance made under the agreement; and
- (b) the interest has not been paid; and
- (c) the person has been denied a deduction for the interest; and
- (d) the person is relieved from some or all of their liability to pay the interest.
Defined in this Act: amount, deduction, exempt income, income, interest,

Compare: 1994 No 164 s DL 6(2)(a), (3)

CW 3 Forestry companies and Maori investment companies

When this section applies

(1) This section applies when a forestry company or a Maori investment company issues a qualifying debenture.

Exempt income

(2) Interest derived from the qualifying debenture is exempt income to the extent to which it is paid by the issue of a further qualifying debenture.

Defined in this Act: exempt income, forestry company, interest, Maori investment company, pay, qualifying debenture,

Compare: 1994 No 164 s DL 5(1)(a)

Income from holding property (excluding equity)

CW 4 Annuities under life insurance policies

When this section applies
(1) This section applies when—
- (a) a person is paid an annuity under a life insurance policy offered or entered into in New Zealand by a life insurer; or
- (b) a person is paid an annuity under a life insurance policy offered or entered into outside New Zealand by a life insurer resident in New Zealand.
Exempt income

(2) The annuity is exempt income.

Excluded annuities

(3) An annuity that is excluded income of a superannuation fund under section CX 34 (Superannuation fund deriving amount from life insurance policy) is not also exempt income of the fund under this section.

Defined in this Act: excluded income, exempt income, life insurance policy, life insurer, New Zealand, offered or entered into in New Zealand, resident in New Zealand, superannuation fund,

Compare: 1994 No 164 s CB 9(f)

CW 5 Payments of interest: post-war credits

Interest derived by a person under section 2 of the Income Tax (Repayment of Post-War Credits) Act 1959 of the United Kingdom Parliament is exempt income.

Defined in this Act: exempt income, interest,

Compare: 1994 No 164 s CB 1(1)(b)

CW 6 Payments of interest: farm mortgages

Exempt income
(1) Fifty percent of the interest that a person derives from a mortgage securing a loan made by a seller of a farm is exempt income, if—
- (a) the Rural Banking and Finance Corporation of New Zealand approves the mortgage; and
- (b) the Corporation gives the Commissioner notice of the approval and each variation.
Exclusions
(2) This section does not apply if the person is—
- (a) an absentee; or
- (b) a company; or
- (c) a Maori authority; or
- (d) a public authority; or
- (e) a trustee liable for income tax under sections HH 3 to HH 6 (which relate to trustee income) and HZ 2 (Trusts that may become qualifying trusts); or
- (f) an unincorporated body.
Relationship with section KE 1

(3) A person who derives interest that is exempt income under this section is not entitled to a rebate for the interest under section KE 1 (Rebate for interest on home vendor mortgages).

Defined in this Act: absentee, Commissioner, company, exempt income, income tax, interest, Maori authority, mortgage, notice, public authority, trustee,

Compare: 1994 No 164 s CB 1(1)(c), (2)

CW 7 Foreign-sourced interest

Interest that a person derives from a country or territory outside New Zealand is exempt income if—
- (a) the person was not resident in New Zealand during the period for which the interest was payable; and
- (b) the interest was exempt under the laws of the overseas country or territory from a tax that is substantially the same as income tax imposed under this Act.
Defined in this Act: exempt income, income tax, interest, New Zealand, pay, resident in New Zealand,

Compare: 1994 No 164 s CB 2(1)(e)

CW 8 Money lent to government of New Zealand

What this section applies to
(1) This section applies to—
- (a) interest derived from money lent under a binding contract entered into on or after 29 July 1983; and
- (b) a redemption payment made on a commercial bill to which both the following apply; issue is defined in section 2 of the Bills of Exchange Act 1908:
  - (i) it was issued on or after 29 July 1983; and
  - (ii) it was not issued under a binding contract entered into before that date.
Exempt income
(2) Interest or a redemption payment that is payable outside New Zealand is exempt income if—
- (a) it is derived by a person who is a non-resident; and
- (b) it is derived from or in relation to money lent to—
  - (i) the government of New Zealand; or
  - (ii) a local authority or a public authority; and
- (c) in the case of money lent to a local or public authority,—
  - (i) it is lent for the purposes of a non-commercial activity carried on in New Zealand by the local or public authority; and
  - (ii) the government of New Zealand has approved the exempt status of the interest or redemption payment.
Defined in this Act: commercial bill, exempt income, interest, local authority, money lent, New Zealand, non-resident, pay, public authority, redemption payment,

Compare: 1994 No 164 ss CB 2(1)(b), CZ 2

Income from equity

CW 9 Dividend derived by company from overseas

Exempt income
(1) A dividend from a foreign company is exempt income if derived by a company that is—
- (a) resident in New Zealand; and
- (b) not a portfolio tax rate entity.
Dividend withholding payment rules apply

(2) The dividend withholding payment rules apply to the dividend.

Defined in this Act: company, , dividend, , dividend withholding payment rules, , exempt income, , foreign company, , portfolio tax rate entity, resident in New Zealand

Compare: 1994 No 164 s CB 10(1)

Section CW 9(1): substituted, on 1 October 2007, by section 10(1) of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section CW 9 list of defined terms portfolio tax rate entity: inserted, on 1 October 2007, by section 10(2) of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

CW 10 Dividend within New Zealand wholly-owned group

Exempt income
(1) A dividend is exempt income if—
- (a) it is derived by a company (recipient) that is resident in New Zealand; and
- (b) it is derived from a company (payer) that is in the same wholly-owned group of companies as the recipient at the time the dividend is derived; and
- (c) the payer is not a foreign company; and
- (d) the payer is not a company that can derive only exempt income; and
- (e) the requirements in subsections (2) to (7) are met.
Aligned balance dates
(2) At the time the dividend is derived,—
- (a) the recipient and the payer have income years that end on the same date; or
- (b) a difference in balance dates—
  - (i) is necessary to avoid a material distortion in the net income of 1 of them because aspects of a single business cycle would otherwise be split between 2 income years; and
  - (ii) is not part of a tax avoidance arrangement.
Exclusion: dividends from council-controlled organisations
(3) The dividend must not be derived by a local authority from—
- (a) a council-controlled organisation; or
- (b) a port company, subsidiary company of a port company, or energy company that would be a council-controlled organisation if section 6(4) of the Local Government Act 2002 did not exist.
Exclusion: debt release dividends

(4) The dividend must not be the release of an obligation to repay an amount lent, treated as a dividend under section CD 4(2) (What is a transfer of value?).

Exclusion: certain friendly society dividends

(5) The dividend must not be derived by a friendly society from a company registered as an insurer under the Accident Insurance Act 1998 that is under the control of the society.

Exclusion: certain sickness, accident, or death benefit fund dividends

(6) The dividend must not be derived by a trustee in trust for a sickness, accident, or death benefit fund from a company registered as an insurer under the Accident Insurance Act 1998 that is under the control of the trustee.

Relationship with section FZ 1

(7) This dividend must not be a dividend for which a deduction arises under section FZ 1 (Deduction for dividends paid on certain preference shares).

Defined in this Act: amount, company, council-controlled organisation, deduction, dividend, exempt income, foreign company, friendly society, income year, local authority, net income, New Zealand, resident in New Zealand, sickness, accident, or death benefit fund, tax avoidance arrangement, trustee, wholly-owned group of companies,

Compare: 1994 No 164 s CB 10(2), (3)

CW 11 Dividend of conduit tax relief holding company

Exempt income: credit

(1) If a conduit tax relief holding company derives a dividend with a conduit tax relief credit attached, the dividend is exempt income to the extent to which it is fully conduit tax relief credited.

Exempt income: additional dividend

(2) If a conduit tax relief holding company derives a conduit tax relief additional dividend, the conduit tax relief additional dividend is exempt income.

Defined in this Act: conduit tax relief additional dividend, conduit tax relief credit, conduit tax relief holding company, dividend, exempt income, fully conduit tax relief credited,

Compare: 1994 No 164 s CB 10(4), (5)

CW 11B Proceeds of share disposal by qualified foreign equity investor

(1) An amount that a person derives from the sale or other disposal by a qualifying foreign equity investor of a share, or option to buy a share, in a company (called the resident company) is exempt income if—
- (a) the resident company is resident in New Zealand; and
- (b) the share or option, or an option or convertible note relating to the share, is bought on a day that is 12 months or more before the day of the sale or other disposal; and
- (c) the person who buys the share or option, or the option or convertible note relating to the share, and disposes of the share or option is a qualifying foreign equity investor from the time of the purchase to the time of the disposal; and
- (d) at some time in the 12-month period that starts from the time of the purchase referred to in paragraph (b), the shares of the resident company are quoted on no official list of a recognised exchange; and
- (e) the resident company satisfies either or both of subsections (2) and (3).
Requirements relating to main activity of resident company
(2) A resident company satisfies this subsection if, throughout the period referred to in subsection (1)(c), the resident company does not have as a main activity 1 or more of—
- (a) land development:
- (b) land ownership:
- (c) mining:
- (d) provision of financial services:
- (e) insurance:
- (f) construction of public infrastructure assets:
- (g) acquisition of public infrastructure assets:
- (h) investing with a main aim of deriving, from the investment, income in the form of interest, dividends, rent, or personal property lease payments that are not royalties.
Requirements relating to resident company that provides capital to others
(3) A resident company that has a main activity of providing capital in the form of debt or equity funding to other companies satisfies this subsection if—
- (a) throughout the period referred to in subsection (1)(c), each other company that is resident in New Zealand—
  - (i) does not have, as a main activity, an activity that is referred to in subsection (2)(a) to (c) and (e) to (g); and
  - (ii) does not have, as a main activity, an activity that is referred to in subsection (2)(d) and (h) and is not the provision of capital to other companies; and
  - (iii) does not provide capital, directly or indirectly, to a company that is resident in New Zealand and has, as a main activity, an activity that is referred to in subsection (2)(a) to (c) and (e) to (g); and
  - (iv) does not provide capital, directly or indirectly, to a company that is resident in New Zealand and has, as a main activity, an activity that is referred to in subsection (2)(d) and (h) and is not the provision of capital to other companies; and
- (b) throughout the period referred to in subsection (1)(c), each other company that is not resident in New Zealand does not provide capital, directly or indirectly, to a company that is resident in New Zealand and has, as a main activity, an activity that is referred to in subsection (2)(a) to (h); and
- (c) for each other company there is a time in the period referred to in subsection (1)(c) at which—
  - (i) the shares of the other company are quoted on no official list of a recognised exchange; and
  - (ii) the shares of the resident company are quoted on no official list of a recognised exchange.
Some definitions
(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 (called in this definition 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) is treated by the taxation laws of the territory referred to in paragraph (a), or by the taxation laws of the part of the territory, as not being 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 under section OD 8(1) (Further definitions of associated persons), 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 under section OD 8(1) (Further definitions of associated persons), has an interest of 10% or more in the capital of the legal entity and who—
  - (i) would be entitled to receive an amount derived from a disposal to which this section would apply; and
  - (ii) would 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) would in any circumstances, under the taxation laws of the territory in which the member is resident or under the taxation laws of part of the territory, be entitled to receive from the government of the territory or of the 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)
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 (called in this definition partners); and
- (c) is treated by the taxation laws of the territory, or by the taxation laws of the part of the territory, as not being subject to a tax on income other than as a body that handles income of the partners; and
- (d) has at least 1 partner (called in this definition a 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 (called in this definition a 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 under section OD 8(1) (Further definitions of associated persons), 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 under section OD 8(1) (Further definitions of associated persons), 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 taxation laws of the territory in which the partner is resident or under the taxation laws of part of the territory, be entitled to receive from the government of the territory or of the 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)
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 part of an unincorporated body that satisfies paragraphs (a) to (c) of the definition of foreign exempt partnership; and
- (c) is not a legal entity that satisfies paragraphs (a) to (c) of the definition of foreign exempt entity; and
- (d) is treated by the taxation laws of the territory, or by the taxation laws of a part of the territory, as the person who 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 taxation laws of the territory in which the person is resident or under the taxation laws of part of the territory, be entitled to receive from the government of the territory or of the 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)
qualifying foreign equity investor means a person who is not resident in New Zealand and who is 1 or more of the following
- (a) a foreign exempt entity:
- (b) a person who is part of a foreign exempt partnership:
- (c) a foreign exempt person.
Residency of territory
(5) For the purpose of this section, whether a person is resident in a territory other than New Zealand is determined—
- (a) in the presence of a double tax agreement between New Zealand and the territory that is in force under the terms of the double tax agreement, under the double tax agreement:
- (b) in the absence of a double tax agreement between New Zealand and the territory that is in force under the terms of the double tax agreement, under the laws of the territory.
Approval and withdrawal of approval for territory
(6) The Governor-General may, from time to time by Order in Council—
- (a) approve a territory for the purpose of this section:
- (b) withdraw the approval of a territory for the purpose of this section.
Defined in this Act: amount, business, company, dividend, double tax agreement, exempt income, foreign exempt entity, foreign exempt partnership, foreign exempt person, income, insurance, interest, land, payment, personal property lease payment, qualifying foreign equity investor, recognised exchange, resident in New Zealand, royalty, share, tax,

Section CW 11B was inserted, as from 1 October 2005, by section 174 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

CW 11C Proceeds from share or option acquired under venture investment agreement

Exempt income: proceeds from share or option

(1) An amount of income that a non-resident derives from the sale or other disposal of a share, or option to buy a share, in a company is exempt income if the requirements of subsections (2) to (5) are satisfied.

Requirement relating to company at time of acquisition
(2) The first requirement is that, when the non-resident first acquires a share, or option to buy a share, in the company in a way that satisfies subsection (3), the company must have in New Zealand—
- (a) more than 50% in value of the company's assets; and
- (b) more than 50% in number of the company's employees.
Requirement relating to acquisition of first share or option
(3) The second requirement is that, when the non-resident first acquires a share or option to buy a share (first interest) in the company, a person (venture capital manager) must acquire, at the same time and on the same terms,—
- (a) the first interest, on behalf of the non-resident; and
- (b) another share or option that confers the same rights and imposes the same obligations as the first interest—
  - (i) on behalf of the Venture Investment Fund or a company owned by the Venture Investment Fund; and
  - (ii) under a venture investment agreement.
Continuing requirement relating to company
(4) The third requirement is that, while the non-resident holds the share or option, the company must not have 1 or more of the following as a main activity:
- (a) land development:
- (b) land ownership:
- (c) mining:
- (d) provision of financial services:
- (e) insurance:
- (f) construction of public infrastructure assets:
- (g) acquisition of public infrastructure assets:
- (h) investing with a main aim of deriving, from the investment, income in the form of interest, dividends, rent, or personal property lease payments that are not royalties.
Requirement relating to situation at disposition of share or option
(5) The fourth requirement is that, when the non-resident disposes of the share or option,—
- (a) the venture capital manager must have complied with the venture capital manager's obligations under the venture investment agreement; and
- (b) the non-resident must have complied with the non-resident's obligations under any agreement between the non-resident and the Venture Investment Fund or a company owned by the Venture Investment Fund; and
- (c) no person who is resident in New Zealand and no group of associated persons who are resident in New Zealand has a direct or indirect interest of more than 10% in the share or option.
Venture investment agreement
(6) In this section, venture investment agreement means an agreement that—
- (a) is an agreement, relating to investment in companies, between parties that include—
  - (i) a venture capital manager; and
  - (ii) the Venture Investment Fund or a company owned by the Venture Investment Fund; and
- (b) provides for investments under the agreement to be managed by the venture capital manager; and
- (c) provides that an investment under the agreement must be in a company that, when the first investment in the company under the agreement is made, has in New Zealand—
  - (i) more than 50% in value of the company's assets; and
  - (ii) more than 50% in number of the company's employees.
Defined in this Act: employee, income, interest, non-resident, resident in New Zealand, share, venture investment agreement, Venture Investment Fund,

Section CW 11C was inserted, as from 3 April 2006, by section 24(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for shares or options purchased for a non-resident by a venture capital manager in relation to a venture investment agreement made on or before 31 March 2010.

Employee or contractor income

CW 12 Income of Governor-General

The following are exempt income:
- (a) the salary and allowance of the Governor-General paid under section 3 of the Civil List Act 1979:
- (b) the salary of a person acting as the Administrator of the Government paid under section 8 of the Civil List Act 1979.
Defined in this Act: exempt income,

Compare: 1994 No 164 s CB 7(a), (b)

Paragraph (a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

CW 13 Expenditure on account, and reimbursement, of employees

Exempt income: expenditure on account

(1) Expenditure on account of an employee incurred by an employer in connection with the employee's employment or service is exempt income of the employee to the extent to which the expenditure is expenditure for which the employee would be allowed a deduction if they incurred the expenditure and if the employment limitation did not exist.

Exempt income: reimbursement

(2) An amount that an employer pays to an employee in connection with the employee's employment or service is exempt income of the employee to the extent to which it reimburses the employee for expenditure for which the employee would be allowed a deduction if the employment limitation did not exist.

Estimated expenditure of employees
(3) For the purposes of subsection (2),—
- (a) the employer may make, for a relevant period, a reasonable estimate of the amount of expenditure likely to be incurred by the employee or a group of employees for which reimbursement is payable; and
- (b) the amount estimated is treated as if it were the amount incurred during the period to which the estimate relates.
Defined in this Act: amount, deduction, employee, employer, employment limitation, exempt income, expenditure on account of an employee,

Compare: 1994 No 164 s CB 12(1), (3), (3B), (3C)

CW 14 Allowance for additional transport costs

Exempt income

(1) An allowance that an employee receives from an employer to reimburse the employee's additional transport costs is exempt income to the extent to which the employee incurs the costs in connection with their employment and for the employer's benefit or convenience.

Estimated expenditure of employees
(2) For the purposes of subsection (1),—
- (a) the employer may make, for a relevant period, a reasonable estimate of the amount of expenditure likely to be incurred by the employee or a group of employees for which reimbursement is payable; and
- (b) the amount estimated is treated as if it were the amount incurred during the period to which the estimate relates.
Meaning of additional transport costs
(3) In this section, additional transport costs means the costs to an employee of travelling between their home and place of work that are more than would ordinarily be expected. The costs must be attributable to 1 or more of the following factors:
- (a) the day or time of day when the work duties are performed:
- (b) the need to transport any goods or material for use or disposal in the course of the employee's work:
- (c) the requirement to fulfil a statutory obligation:
- (d) a temporary change in the employee's place of work while in the same employment:
- (e) any other condition of the employee's work:
- (f) the absence of an adequate public passenger transport service that operates fixed routes and a regular timetable for the employee's place of work.
Quantifying additional transport costs
(4) Additional transport costs are quantified as follows:
- (a) when the additional transport costs are attributed to a factor described in any of subsection (3)(a) to (e), the amount by which the costs are more than the employee's ordinarily expected travel costs without reference to that factor:
- (b) when the additional transport costs are attributed to the factor described in subsection (3)(f), the amount by which the costs are more than $5 for each day on which the employee attends work:
- (c) except in special circumstances, the costs of travelling any distance over 70 kilometres in 1 day are not taken into account in calculating additional transport costs.
Defined in this Act: additional transport costs, amount, employee, employer, exempt income,

Compare: 1994 No 164 s CB 12(2)-(4)

Subsection (3)(a) to (e) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (4)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

CW 15 Amounts derived during short-term visits

Exempt income
(1) Income that a non-resident person derives in a tax year from performing personal or professional services in New Zealand during a visit is exempt income if—
- (a) the visit is for 92 or fewer days (counting the days of arrival and departure as a whole day each); and
- (b) the total number of days on which the person is present in New Zealand in the tax year is 92 or fewer; and
- (c) the services are performed for or on behalf of a person who is not resident in New Zealand; and
- (d) the amount derived from the personal or professional services is chargeable in the country or territory in which the person is resident with a tax that is substantially the same as income tax imposed under this Act.
Exclusion

(2) This section does not apply to the income of a public entertainer.

Meaning of public entertainer
(3) In this section, public entertainer includes—
- (a) circus performers, dancers, lecturers, motion picture artists, musicians, radio artists, singers, television artists, and theatre artists; and
- (b) athletes, boxers, wrestlers, and other professional sportspersons.
Defined in this Act: amount, exempt income, income, income tax, New Zealand, non-resident, public entertainer, resident in New Zealand, tax year,

Compare: 1994 No 164 s CB 2(1)(c)

CW 16 Amounts derived by visiting entertainers (including sportspersons)

Exempt income: cultural activities
(1) Income that a non-resident entertainer derives from carrying out their activity or performance in New Zealand during a visit is exempt income if—
- (a) the activity or performance occurs under a cultural programme of the New Zealand government or an overseas government; or
- (b) the activity or performance occurs under a cultural programme wholly or partly sponsored by the New Zealand government or an overseas government; or
- (c) the activity or performance occurs as part of a programme of an overseas foundation, trust, or other organisation that—
  - (i) exists wholly or partly to promote cultural activity; and
  - (ii) is not carried on for the private pecuniary profit of any member, proprietor, or shareholder.
Exempt income: sporting activities

(2) Income that a non-resident entertainer derives from carrying out an activity or performance that relates to a game or sport in New Zealand during a visit is exempt income if the participants are the official representatives of a body that administers the game or sport in an overseas country.

Exempt income: employer of non-resident entertainer
(3) If income derived from an activity or performance of a non-resident entertainer would be exempt income under this section if derived by the non-resident entertainer, that amount is exempt income if derived by a person who—
- (a) provides the services of the non-resident entertainer during the visit to New Zealand; and
- (b) is 1 of the following:
  - (i) the entertainer's employer; or
  - (ii) a company of which the entertainer is an officer; or
  - (iii) a firm of which the entertainer is a principal.
Meaning of non-resident entertainer
(4) In this section, non-resident entertainer means a non-resident person, as defined in subpart OE (Source of income and residence), who carries out an activity or performance in connection with—
- (a) a solo or group performance by actors, compères, dancers, entertainers, musicians, singers, or other artists, whether for cultural, educational, entertainment, religious, or other purposes; or
- (b) lectures, speeches, or talks for any purpose; or
- (c) a sporting event or sporting competition of any nature.
Defined in this Act: amount, company, employer, exempt income, income, New Zealand, non-resident, non-resident entertainer,

Compare: 1994 No 164 s CB 2(1)(a)

CW 17 Amounts derived by visiting crew of pleasure craft

Exempt income
(1) Income that a non-resident crew member derives from performing services in New Zealand relating to a pleasure craft while it is in New Zealand is exempt income if—
- (a) the services are performed for a person who is not resident in New Zealand; and
- (b) the pleasure craft is the subject of a security given under section 116 of the Customs and Excise Act 1996; and
- (c) the pleasure craft is not owned, wholly or partly or directly or indirectly, by—
  - (i) a resident of New Zealand; or
  - (ii) a controlled foreign company.
Some definitions
(2) In this section,—

non-resident crew member means a person who—
- (a) is a crew member of a pleasure craft; and
- (b) is a non-resident, a matter determined without applying section OE 1(2) (Determination of residence of person other than company); and
- (c) is not present in New Zealand on more than 365 days in any 2 year period that starts on or after 28 May 2002; and
- (d) is not in New Zealand unlawfully under the Immigration Act 1987
pleasure craft is defined in section 2 of the Maritime Transport Act 1994.
Defined in this Act: amount, controlled foreign company, exempt income, income, New Zealand, non-resident, non-resident crew member, pleasure craft, resident in New Zealand, year,

Compare: 1994 No 164 s CB 2(1)(f), (3B), (4)

CW 18 Amounts derived by overseas experts and trainees in New Zealand by government arrangement

Exempt income: personal services
(1) Income that a non-resident person derives from performing personal services, including professional services, in New Zealand during a visit is exempt income if—
- (a) the services are performed for or on behalf of a non-resident employer; and
- (b) the purpose of the visit is all or any of the following:
  - (i) providing professional or expert advice or assistance:
  - (ii) teaching or lecturing:
  - (iii) making investigations:
  - (iv) receiving education, training, or experience; and
- (c) the visit occurs under an arrangement for assistance entered into by the government of New Zealand.
Exempt income: maintenance or bursaries
(2) An amount of income that a non-resident person derives from a payment of maintenance or of an allowance, or from a bursary or scholarship, provided for or paid to the person during or in relation to their presence in New Zealand during a visit, is exempt income if—
- (a) the purpose of the visit is all or any of the following:
  - (i) providing professional or expert advice or assistance:
  - (ii) teaching or lecturing:
  - (iii) making investigations:
  - (iv) receiving education, training, or experience; and
- (b) the visit occurs under an arrangement for assistance entered into by the government of New Zealand.
Some definitions
(3) In this section,—
arrangement for assistance entered into by the government of New Zealand means an arrangement entered into by the government of New Zealand—
- (a) in relation to or under—
  - (i) the Commonwealth Education Scheme; or
  - (ii) a programme of the United Nations, or any specialised agency of the United Nations, for cultural, economic, educational, expert, professional, or technical assistance; or
- (b) for the purpose of providing education, training, or experience for officers of the Samoan, Cook Islands, Niuean, or Tokelauan public services, or for persons resident in Samoa, the Cook Islands, Niue, or Tokelau; or
- (c) with the government of any other country or with any international organisation, if it is an arrangement that—
  - (i) is for the purpose of providing cultural, economic, educational, expert, professional, or technical assistance, or administrative or other training, or the means or facilities for making investigations, whether upon a bilateral, co-operative, multilateral, mutual, or unilateral basis; and
  - (ii) is in principle similar to any arrangement to which paragraph (a) or (b) applies
international organisation means an organisation whose members are sovereign powers, whether countries of the Commonwealth or foreign sovereign powers, or the governments of those countries or powers

non-resident person means a person who would not be resident in New Zealand if they were not present in New Zealand under an arrangement for assistance entered into by the government of New Zealand. The residence of the person is determined without applying section OE 1(2) (Determination of residence of person other than company).
Defined in this Act: amount, arrangement, arrangement for assistance entered into by the government of New Zealand, Commonwealth, employer, exempt income, income, international organisation, New Zealand, non-resident person, resident in New Zealand,

Compare: 1994 No 164 s CB 2(1)(d), (3), (4)

Subsection (1)(b)(i) to (iii) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (2)(a)(i) to (iii) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

CW 19 Income for military or police service in operational area

When this section applies

(1) This section applies if a member of the New Zealand Defence Force or the police (the member) derives an amount of income for serving in an operational area.

Exempt income
(2) The following amounts are exempt income of the member:
- (a) an amount of operational allowance:
- (b) an amount exempted by a decision of the ministerial committee under subsection (3).
Ministerial committee

(3) A ministerial committee that includes the Prime Minister, the Minister of Defence, the Minister of Police, the Minister of Finance, and the Minister of Foreign Affairs may, for the purposes of subsection (2)(b), decide to exempt an amount of income derived by a member for being in an operational area.

Some definitions
(4) In this section,—
operational allowance, for a member, means an allowance payable by the Government of New Zealand that—
- (a) is paid directly and solely for being in an operational area; and
- (b) is not—
  - (i) a regular force gratuity:
  - (ii) a bonus or bounty for re-engagement in a regular force
operational area means an area—
- (a) to which the Minister of Defence has ordered the deployment of New Zealand Defence Force members for a specific mission authorised by the Government; and
- (b) that the Chief of Defence Force delineates for that mission.
Defined in this Act: amount, exempt income, income, New Zealand, operational allowance, operational area,

Section CW 19 was substituted, as from 18 March 2007, by section 11 Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

CW 20 Deferred military pay for active service

Exempt income

(1) Deferred military pay that is granted or paid under the Defence Act 1990 to a person for service in the New Zealand armed forces in an active service area is exempt income.

Some definitions

(2) In this section,—

active service area means an area outside New Zealand that is designated as an active service area by the Minister of Defence, with the agreement of the Minister of Finance

deferred military pay means pay declared to be deferred by the Minister of Defence, with the agreement of the Minister of Finance.

Defined in this Act: active service area, deferred military pay, exempt income, New Zealand,

Compare: 1994 No 164 s CB 9(b)

CW 21 Value of board for religious society members

The value of personal board and lodging and other basic personal necessities received by a member of a religious society or order is exempt income if—
- (a) the member's sole occupation is service in a religious society or order; and
- (b) it is in the nature of the service that members are not paid for their work and do not receive a reward for it, other than those necessities.
Defined in this Act: exempt income,

Compare: 1994 No 164 s CB 6(b)

CW 22 Jurors' and witnesses' fees

Fees paid by the Crown to jurors and to witnesses, other than expert witnesses, are exempt income.

Defined in this Act: exempt income,

Compare: 1994 No 164 s CB 6(c)

Certain income of transitional resident

This heading was inserted, as from 1 October 2005, by section 25(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 25(2) and (3) of that Act as to the application of this amendment.

CW 22B Certain income derived by transitional resident

Income derived by a person who is a transitional resident is exempt income if the income is a foreign-sourced amount that is none of the following:
- (a) employment income of a type described in section CE 1 (Amounts derived in connection with employment) in connection with employment or service performed while the person is a transitional resident:
- (b) income from a supply of services.
Defined in this Act: employment income, exempt income, foreign-sourced amount, income, transitional resident,

Section CW 22B was inserted, as from 1 October 2005, by section 25(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 25(2) and (3) of that Act as to the application of this amendment.

Income from living allowances, compensation, and government grants

CW 23 Pensions

Exempt income
(1) The following are exempt income:
- (a) a pension or allowance under the War Pensions Act 1954, other than a veteran's pension:
- (b) a pension or allowance of any other kind granted in New Zealand or overseas by any government relating to any war or to disability attributable to or aggravated by service in the armed forces or the police:
- (c) a payment of portable New Zealand superannuation:
- (d) a payment of portable veteran's pension:
- (e) an overseas pension.
Meaning of overseas pension
(2) In this section, overseas pension means—
- (a) an overseas pension, to the extent of sums subtracted under section 70 of the Social Security Act 1964, by the department currently responsible for administering the Act, from—
  - (i) a monetary benefit paid under Part 1 of the Act; or
  - (ii) a monetary benefit, other than New Zealand superannuation or a veteran's pension, paid under the Social Welfare (Transitional Provisions) Act 1990:
- (b) an overseas pension to the extent to which it is subject to an arrangement under section 70(3) of the Social Security Act 1964 but not to the extent of the equivalent amount of New Zealand superannuation, veteran's pension, or income-tested benefit paid under section 70(3)(b) of the Act.
Defined in this Act: amount, exempt income, income-tested benefit, New Zealand superannuation, overseas pension, portable New Zealand superannuation, portable veteran's pension, veteran's pension,

Compare: 1994 No 164 s CB 5(1)(a), (f), (fa), (o)

Subsection (1)(a) to (d) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (2)(a)(ii) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

CW 23B Reinvested amount from foreign superannuation scheme in Australia

An amount of income derived in an income year by a natural person as a withdrawal from a foreign superannuation scheme is exempt income if—
- (a) the person in the income year invests the amount in another foreign superannuation scheme; and
- (b) each foreign superannuation scheme is constituted in Australia and is—
  - (i) an Australian approved deposit fund:
  - (ii) an Australian exempt public sector superannuation scheme:
  - (iii) an Australian regulated superannuation fund:
  - (iv) an Australian retirement savings account.
Defined in this Act: Australian approved deposit fund, Australian exempt public sector superannuation scheme, Australian regulated superannuation fund, Australian retirement savings account, exempt income, foreign superannuation scheme, income, income year,

Section CW 23B was inserted, as from 1 April 2005, by section 12(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2006–07 income year.

CW 24 Annuities from Crown Bank Accounts

An annuity is exempt income if—
- (a) it is granted by the Executive Council of New Zealand; and
- (b) it is paid from the Crown Bank Account; and
- (c) it is not designated as being subject to tax.
Defined in this Act: exempt income, New Zealand, tax,

Compare: 1994 No 164 s CB 7(c)

CW 25 Services for members of Parliament

Travel, accommodation, attendance, and communication services, as defined in section 20A(7) of the Civil List Act 1979, are exempt income if they—
- (a) are—
  - (i) referred to in section 20A of the Act:
  - (ii) paid under section 25 of the Act; and
- (b) are provided to—
  - (i) a person to whom any of section 25(1)(b) to (e) of the Act applies:
  - (ii) a member of the family of a person described in subparagraph (i).
Defined in this Act: exempt income,

Compare: 1994 No 164 s CB 7(d)

Paragraphs (a)(i) and (b)(i) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

CW 26 Maintenance payments

The following are exempt income:
- (a) child support or spousal maintenance under the Child Support Act 1991:
- (b) a payment in the nature of maintenance out of money belonging to a person's spouse, civil union partner, de facto partner, former spouse, former civil union partner or former de facto partner.
Defined in this Act: exempt income,

Compare: 1994 No 164 s CB 9(a)

Paragraph (a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Paragraph (b) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner, former spouse or former civil union partner” for “spouse or former spouse”.

Paragraph (b) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner, de facto partner, former spouse, former civil union partner or former de facto partner” for “spouse, civil union partner, former spouse or former civil union partner”.

CW 27 Allowances and benefits

Exempt income
(1) The following are exempt income:
- (a) a monetary benefit under the Social Security Act 1964, except an income-tested benefit:
- (b) a payment under Part 5 or 13 of the Accident Insurance Act 1998, or under Part 11 of the Injury Prevention, Rehabilitation, and Compensation Act 2001, of any of the following kinds:
  - (i) a payment to an insured person for treatment or rehabilitation:
  - (ii) an independence allowance:
  - (iii) a funeral grant:
  - (iv) a survivor's grant:
  - (v) a childcare payment:
- (c) a participation allowance under regulations made under the Social Security Act 1964:
- (d) a disabled workshop payment:
- (e) an amount derived by a trustee of a trust created for the benefit of persons harmed by thalidomide, or a distribution to a beneficiary from the trust:
- (f) an amount derived by a trustee of the New Zealand Agent Orange Trust that represents the settlement fund and income attributable to the fund, or a distribution to a beneficiary from the trust.
Meaning of disabled workshop payment

(2) In this section, disabled workshop payment means a payment to a disabled person for undertaking therapeutic activities in a sheltered workshop, as defined in the Disabled Persons Employment Promotion Act 1960, or in a similar workshop, if the average amount paid in a tax year is $50 or less per week.

Defined in this Act: amount, disabled workshop payment, exempt income, income, income-tested benefit, tax year, trustee,

Compare: 1994 No 164 ss CB 5(1)(e), (l), (m), (q), CB 6(a), (e)

Subsection (1)(a), (b)(v), and (c) to (e) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (1)(b)(i) to (iv) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

CW 28 Compensation payments

Exempt income
(1) An amount of income from the following payments is exempt income:
- (a) a payment relating to incapacity for work:
- (b) a payment under the Workers Compensation Act 1956:
- (c) a payment under the Criminal Injuries Compensation Act 1963:
- (d) a distribution from funds approved by the Minister in charge of War Pensions to ex-prisoners of war held in German concentration camps in World War 2:
- (e) a payment under the laws of a State of the Federal Republic of Germany or the Republic of Austria to the victims of National Socialist persecution:
- (f) payments under schedule 1 of the Crown Forest Assets Act 1989 (except clause 3(b)):
- (g) payments of compensation, solatium payments, or payments to lessors for the purchase of leases under the Maori Reserved Land Amendment Act 1997 (but not interest paid under section 23 of the Act).
Some definitions
(2) In this section,—

accident insurance contract is defined in section 13 of the Accident Insurance Act 1998
payment relating to incapacity for work means a payment of 1 of the following kinds made to a person because they are, or another person is, incapacitated for work
- (a) a payment under section 25 of the National Provident Fund Act 1950:
- (b) a payment by a friendly society, but not a payment referred to in paragraph (d) or (e) of the definition of the term accident compensation payment in section CF 1(2) (Benefits, pensions, compensation, and government grants):
- (c) a payment from a sickness, accident, or death benefit fund to which the person was a contributor when the period of incapacity began, but not a payment referred to in paragraph (d) or (e) of the definition of the term accident compensation payment in section CF 1(2) (Benefits, pensions, compensation, and government grants):
- (d) a payment under a policy of personal sickness or accident insurance, or an accident insurance contract, but neither a payment referred to in paragraph (d) or (e) or
- (f) of the definition of the term accident compensation payment in section CF 1(2) (Benefits, pensions, compensation, and government grants) nor a payment calculated according to loss of earnings or profits.
payment relating to incapacity for work: paragraphs (a) to (c) of this definition were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.
Defined in this Act: accident insurance contract, exempt income, friendly society, interest, lease, payment relating to incapacity for work, sickness, accident, or death benefit fund,

Compare: 1994 No 164 s CB 5(1)(b), (c), (g), (h), (j), (k), (n), (p)

Subsection (1)(a) to (f) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

CW 28B Payment to claimant of certain accident compensation payments

CW 29 Scholarships and bursaries

A basic grant or an independent circumstances grant under regulations made under section 303 of the Education Act 1989 is not exempt income, but any other scholarship or bursary for attendance at an educational institution is exempt income.

Defined in this Act: exempt income,

Compare: 1994 No 164 s CB 9(d)

CW 30 Film production grants

An amount derived by a company as a large budget screen production grant is exempt income.

Defined in this Act: company, exempt income, large budget screen production grant,

Compare: 1994 No 164 s CB 9(i)

Income of certain entities

CW 31 Public authorities

Exempt income

(1) An amount of income derived from sinking funds relating to the debt of a public authority is exempt income.

Exempt income

(2) Any other amount of income derived by a public authority is exempt income.

Exclusion: amounts received in trust

(3) Subsection (2) does not apply to an amount of income that a public authority derives as a trustee.

Exclusion: superannuation schemes

(4) Subsection (2) does not apply to a public authority to the extent to which it is a superannuation scheme.

Exclusion: certain public authorities
(5) Subsection (2) does not apply to an amount of income derived by the following public authorities:
- (a) Public Trust:
- (b) State enterprises:
- (c) Crown Research Institutes:
- (d) the department or ministry that is currently responsible for administering the Marketing Act 1936, if the amount is derived for a function that the department or ministry exercises under the Act.
Meaning of public authority

(6) In this section, public authority includes the Reserve Bank of New Zealand.

Defined in this Act: amount, Crown Research Institute, exempt income, income, public authority, State enterprise, superannuation scheme, trustee,

Compare: 1994 No 164 s CB 3(a), (c), (e)

Subsection (5)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

CW 32 Local authorities

Exempt income

(1) An amount of income derived from sinking funds relating to the debt of a local authority is exempt income.

Exempt income

(2) Any other amount of income derived by a local authority is exempt income.

Exclusion: amounts received in trust

(3) Subsection (2) does not apply to an amount of income that a local authority derives as a trustee.

Exclusion: certain amounts from commercial undertakings
(4) Subsection (2) does not apply to an amount of income that—
- (a) is derived by a local authority; and
- (b) is not rates; and
- (c) is derived from—
  - (i) a council-controlled organisation; or
  - (ii) an organisation that is a port company, a subsidiary of a port company, or an energy company and that would be a council-controlled organisation if section 6(4) of the Local Government Act 2002 did not exist.
Exclusion: local authority as port operator

(5) Subsection (2) does not apply to an amount of income derived by a local authority in its capacity as a port operator from a port-related commercial undertaking. Port operator and port-related commercial undertaking are defined in section 38(4) of the Port Companies Act 1988.

Defined in this Act: amount, council-controlled organisation, exempt income, income, local authority, trustee,

Compare: 1994 No 164 s CB 3(b), (c)

CW 33 Local and regional promotion bodies

Exempt income: beautification societies
(1) An amount of income derived by an association or society is exempt income if—
- (a) the association or society is established mainly to—
  - (i) advertise, beautify, or develop a city or other district so as to attract population, tourists, trade, or visitors:
  - (ii) create, develop, or increase amenities for the general public in a city or other district; and
- (b) none of the funds of the association or society is used, or is or may become available to be used, for any other purpose that is not a charitable purpose.
Exclusion: council-controlled organisation
(2) Subsection (1) does not apply to an amount of income derived—
- (a) by a council-controlled organisation:
- (b) by a local authority from a council-controlled organisation.
Exempt income: trustees of Cornwall Park

(3) An amount of income that the trustees of Cornwall Park, Auckland, derive from the property of the trust is exempt income.

Defined in this Act: amount, associated person, charitable purpose, council-controlled organisation, exempt income, income, local authority, trustee,

Compare: 1994 No 164 s CB 4(1)(j), (l), (3)

Subsections (1)(a)(i) and (2)(a) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

CW 34 Charities: non-business income

Exempt income
(1) The following are exempt income:
- (a) an amount of income derived by a trustee in trust for charitable purposes:
- (b) an amount of income derived by a society or institution established and maintained exclusively for charitable purposes and not carried on for the private pecuniary profit of any individual.
Exclusion: trustees, society, or institution not registered

(1B)

Exclusion: business income

(2) This section does not apply to an amount of income derived from a business carried on by, or for, or for the benefit of a trust, society, or institution of a kind referred to in subsection (1).

Exclusion: council-controlled organisation income
(3) This section does not apply to income derived by—
- (a) a council-controlled organisation; or
- (b) a local authority from a council-controlled organisation.
Defined in this Act: amount, business, charitable purpose, council-controlled organisation, exempt income, income, local authority, trustee,

Compare: 1994 No 164 s CB 4(1)(c), (e), (3)

Subsection (1)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

CW 35 Charities: business income

Exempt income
(1) Income derived directly or indirectly from a business carried on by, or for, or for the benefit of a trust, society, or institution of a kind referred to in section CW 34(1) is exempt income if—
- (a) the trust, society, or institution carries out its charitable purposes in New Zealand; and
- (ab)
- (b) no person with some control over the business is able to direct or divert, to their own benefit or advantage, an amount derived from the business.
Subsections (3) to (8) expand on this subsection.
Exclusion
(2) This section does not apply to income derived by—
- (a) a council-controlled organisation; or
- (b) a local authority from a council-controlled organisation.
Carrying on a business: trustee
(3) For the purposes of subsection (1), a trustee is treated as carrying on a business if—
- (a) the trustee derives rents, fines, premiums, or other revenues from an asset of the trust; and
- (b) the asset was disposed of to the trust by a person of a kind described in subsection (5)(b); and
- (c) either—
  - (i) the person retains or reserves an interest in the asset; or
  - (ii) the asset will revert to the person.
Charitable purposes in New Zealand and overseas

(4) For the purposes of subsection (1)(a), if the charitable purposes of the trust, society, or institution are not limited to New Zealand, income derived from the business in a tax year is apportioned reasonably between those purposes in New Zealand and those outside New Zealand. Only the part apportioned to the New Zealand purposes is exempt income.

Control over business
(5) For the purposes of subsection (1)(b) for a tax year, a person is treated as having some control over the business, and as being able to direct or divert amounts from the business to their own benefit or advantage if, in the tax year,—
- (a) they are, in any way, whether directly or indirectly, able to determine, or materially influence the determination of,—
  - (i) the nature or extent of a relevant benefit or advantage; or
  - (ii) the circumstances in which a relevant benefit or advantage is, or is to be, given or received; and
- (b) their ability to determine or influence the benefit or advantage arises because they are—
  - (i) a settlor or trustee of the trust by which the business is carried on; or
  - (ii) a shareholder or director of the company by which the business is carried on; or
  - (iii) a settlor or trustee of a trust that is a shareholder of the company by which the business is carried on; or
  - (iv) a person associated with a settlor, trustee, shareholder, or director referred to in any of subparagraphs (i) to (iii).
Control: settlor asset disposed of to trust
(6) For the purposes of subsection (5), a person is treated as a settlor of a trust, and as gaining a benefit or advantage in the carrying on of a business of the trust, if—
- (a) they have disposed of an asset to the trust, and the asset is used by the trust in the carrying on of the business; and
- (b) they retain or reserve an interest in the asset, or the asset will revert to them.
No control
(7) For the purposes of subsection (1)(b), a person is not treated as having some control over the business merely because—
- (a) they provide professional services to the trust or company by which the business is carried on; and
- (b) their ability to determine, or materially influence the determination of, the nature or extent of a relevant benefit or advantage arises because they—
  - (i) provide the services in the course of and as part of carrying on, as a business, a professional public practice; or
  - (ii) are a trustee company; or
  - (iii) are Public Trust; or
  - (iv) are the Maori Trustee.
Benefit or advantage
(8) For the purposes of subsection (1)(b), a benefit or advantage to a person—
- (a) may or may not be something that is convertible into money:
- (b) unless excluded under paragraph (d), includes deriving an amount that would be income of the person under 1 or more of the following provisions:
  - (i) section CA 1(2) (Amounts that are income):
  - (ii) sections CB 1 to CB 21 (which relate to income from business or trade-like activities):
  - (iii) section CB 28 (Property obtained by theft):
  - (iv) sections CC 1 (Land), CC 3 to CC 8 (which relate to income from financial instruments), and CC 9 (Royalties):
  - (v) section CD 1 (Dividend):
  - (vi) sections CE 1 (Amounts derived in connection with employment) and CE 8 (Attributed income from personal services):
  - (vii) section CF 1 (Benefits, pensions, compensation, and government grants):
  - (viii) section CG 3 (Bad debt repayment):
  - (ix) sections CQ 1 (Attributed controlled foreign company income) and CQ 4 (Foreign investment fund income):
- (c) includes retaining or reserving an interest in an asset in the case described in subsection (3), if the person has disposed of the asset to the trust or the asset will revert to them; and
- (d) does not include earning interest on money lent, if the interest is payable at no more than the current commercial rate, given the nature and term of the loan.
Non-exempt business income

(9) If an amount derived from the carrying on of a business by or for a trust is not exempt income because of a failure to comply with subsection (1)(b), the amount is trustee income.

Defined in this Act: amount, associated person, business, charitable purpose, company, council-controlled organisation, director, exempt income, income, interest, local authority, money lent, New Zealand, shareholder, tax year, trustee, trustee company, trustee income,

Compare: 1994 No 164 s CB 4(1)(e), (3)

Subsection (8)(a), (b)(ix), and (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (8)(b)(i) to (viii) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (8)(b)(v) was amended, as from 1 April 2005, by section 13(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “Dividend” for “Income” with application as from the 2005–06 income year.

CW 36 Charitable bequests

Exempt income
(1) An amount of income derived by a deceased's executor or administrator is exempt income to the extent to which the requirements in subsections (2) and (3) are met, having regard to all relevant matters including—
- (a) the terms of the deceased's will, including the rights of annuitants, legatees, and other beneficiaries; and
- (b) the nature and extent of the debts and liabilities of, and other charges against, the estate and their likely effect on the income and assets available for distribution to the beneficiaries; and
- (c) the shares and prospective shares of the beneficiaries in the income and assets of the estate.
Gift to charity

(2) The first requirement is that the amount arises from or is attributable to assets of the estate that have been left to a trust, society, or institution of a kind referred to in section CW 34(1).

Exempt in hands of charity

(3) The second requirement is that the amount, if derived by the trust, society, or institution or by a business carried on by, or for, or for the benefit of it, would be exempt income under section CW 34 or CW 35.

Registration as charitable entity not required until end of income year that follows income year in which deceased died

(4)

(5)

(6)

Defined in this Act: amount, business, distribution, exempt income, income, New Zealand,

Compare: 1994 No 164 s CB 4(1)(d)

CW 37 Friendly societies

An amount of income derived by a friendly society is exempt income, except to the extent to which the amount is derived from—
- (a) a business carried on beyond the membership of the friendly society; or
- (b) a company registered as an insurer under the Accident Insurance Act 1998.
Defined in this Act: amount, business, company, exempt income, friendly society, income,

Compare: 1994 No 164 s CB 4(1)(a)

CW 38 Funeral trusts

Interest or a dividend derived by a trustee in trust for a fund is exempt income if, when the interest or dividend is derived by the trustee,—
- (a) the sole purpose of the fund is the payment of the expenses associated with the funerals of—
  - (i) employees of an employer:
  - (ii) spouses, civil union partners, de facto partners and dependants of employees of the employer:
  - (iii) surviving spouses, civil union partners and de facto partners and surviving dependants of deceased employees of the employer; and
- (b) the employer has at least 10 employees; and
- (c) all persons eligible for benefits from the fund are eligible equally for benefits from the fund; and
- (d) no contributions to the fund are made by a person who is not the employer or an employee of the employer; and
- (e) the fund is approved by the Commissioner.
Defined in this Act: Commissioner, dividend, employee, employer, exempt income, interest, trustee,

Compare: 1994 No 164 s CB 5(1)(ib)

Paragraph (a)(i) and (ii) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Paragraph (a)(ii) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouses, civil union partners” for “spouses”.

Paragraph (a)(ii) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouses, civil union partners, de facto partners” for “spouses, civil union partners”.

Paragraph (a)(iii) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouses and civil union partners” for “spouses”.

Paragraph (a)(iii) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouses, civil union partners and de facto partners” for “spouses and civil union partners”.

CW 39 Bodies promoting amateur games and sports

An amount of income derived by a club, society, or association is exempt income if—
- (a) the club, society, or association is established mainly to promote an amateur game or sport; and
- (b) the game or sport is conducted for the recreation or entertainment of the general public; and
- (c) no part of the funds of the club, society, or association is used or is available to be used for the private pecuniary profit of a member, proprietor, shareholder, or associate of any of them.
Defined in this Act: amount, associated person, exempt income, income,

Compare: 1994 No 164 s CB 4(1)(h), (2)

CW 40 TAB and racing clubs

Exempt income: racing organisations
(1) An amount of income derived by any of the following bodies is exempt income:
- (a) the New Zealand Racing Board:
- (b) New Zealand Thoroughbred Racing:
- (c) Harness Racing New Zealand:
- (d) the New Zealand Greyhound Racing Association (Incorporated).
Exempt income: racing clubs

(2) An amount of income derived by a racing club, as defined in section 5 of the Racing Act 2003, is exempt income, if none of the club's funds is used or is available to be used for the private pecuniary profit of a member of the club or an associate of a member.

Defined in this Act: amount, associated person, exempt income, income,

Compare: 1994 No 164 s CB 4(1)(i), (2)

Subsection (1)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

CW 40B Income from conducting gaming-machine gambling

An amount of income derived by a person that is gross gambling proceeds from gaming-machine gambling is exempt income if—
- (a) the person is authorised to conduct the gaming-machine gambling under the Gambling Act 2003 by a gaming-machine operator's licence and a gaming-machine venue licence; and
- (b) the person complies with the Gambling Act 2003 in applying and distributing the net gambling proceeds from the gaming-machine gambling.
Defined in this Act: exempt income, gaming-machine gambling, gaming-machine operator's licence, gaming -machine venue licence, gross gambling proceeds, net gambling proceeds.,

Section CW 40B was inserted, as from 3 April 2006, by section 27 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

CW 41 Bodies promoting scientific or industrial research

Exempt income
(1) An amount of income derived by a society or association established mainly to promote or encourage scientific or industrial research is exempt income if—
- (a) the society or association is approved by the Royal Society of New Zealand; and
- (b) none of its funds is used or available to be used for the private pecuniary profit of a member, proprietor, shareholder, or associate of any of them.
Exclusion

(2) This section does not apply to a Crown Research Institute.

Defined in this Act: amount, associated person, Crown Research Institute, exempt income, income,

Compare: 1994 No 164 ss CB 4(1)(b), (2), CK 4(2)

CW 42 Veterinary services bodies

Exempt income: veterinary clubs
(1) An amount of income derived by a veterinary association, club, or society is exempt income if—
- (a) the association, club, or society was established mainly to promote efficient veterinary services in New Zealand; and
- (b) none of its funds is used or available to be used for the private pecuniary profit of a member, proprietor, shareholder, or associate of any of them.
Exempt income: Veterinary Council

(2) An amount of income derived by the Veterinary Council of New Zealand is exempt income.

Defined in this Act: amount, associated person, exempt income, income, New Zealand,

Compare: 1994 No 164 s CB 4(1)(f), (2)

CW 43 Herd improvement bodies

An amount of income derived by a herd improvement association or society is exempt income if—
- (a) the association or society was established mainly to promote the improvement of the standard of dairy cattle in New Zealand; and
- (b) none of its funds is used or available to be used for the private pecuniary profit of a member, proprietor, shareholder, or associate of any of them.
Defined in this Act: amount, associated person, exempt income, income, New Zealand,

Compare: 1994 No 164 s CB 4(1)(g), (2)

CW 44 Community trusts

An amount of income derived by the trustee of a community trust is exempt income.

Defined in this Act: amount, community trust, exempt income, income, trustee,

Compare: 1994 No 164 s CB 4(1)(m)

Income from certain activities

CW 45 Non-resident aircraft operators

Exempt income

(1) An amount of income derived by a non-resident aircraft operator from air transport from New Zealand is exempt income to the extent to which the Commissioner determines that an aircraft operator resident in New Zealand is, in circumstances corresponding to the circumstances of the non-resident aircraft operator, exempt from, or not liable to, income tax imposed by the laws of the country or territory in which the non-resident aircraft operator is resident.

Determination

(2) A determination by the Commissioner for the purposes of subsection (1) may relate to a class of non-resident aircraft operators or a class of resident aircraft operators.

Some definitions
(3) In this section,—
air transport from New Zealand —
- (a) means the carriage outside New Zealand by an aircraft of cargo, mail, or passengers emplaned or embarked on the aircraft at an airport in New Zealand; and
- (b) if the aircraft calls at another airport in New Zealand before leaving New Zealand on the flight for which the emplaning or embarking occurred, includes that New Zealand portion of the flight
non-resident aircraft operator means a person who—
- (a) is engaged in the business of operating an aircraft for air transport from an airport; and
- (b) is resident in a country or territory outside New Zealand and is not resident in New Zealand.
Defined in this Act: air transport from New Zealand, amount, business, Commissioner, exempt income, income, income tax, New Zealand, non-resident aircraft operator, resident in New Zealand,

Compare: 1994 No 164 s CB 14

CW 45B Non-resident company involved in exploration and development activities

Exempt income
(1) An amount of income derived by a non-resident company from exploration and development activities in an offshore permit area is exempt income if it is derived in the period that—
- (a) starts on the beginning of the 2005-06 income year for the non-resident company; and
- (b) ends on 31 December 2009.
Some definitions
(2) In this section,—
exploration and development activities means the following activities undertaken for the purposes of identifying and developing exploitable petroleum deposits or occurrences in an offshore permit area
- (a) operating a ship to provide seismic survey readings:
- (b) drilling an exploratory well or other well
offshore permit area means an area of land that is—
- (a) in New Zealand; and
- (b) on the seaward side of the mean high-water mark; and
- (c) a permit area or part of a permit area.
Defined in this Act: amount, exempt income, exploration and development activities, exploratory well, New Zealand. non-resident company, offshore permit area, permit area.,

Section CW 45B was inserted, as from 1 October 2005, by section 11 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

CW 46 Disposal of companies' own shares

An amount of income derived by a company from disposing of shares in the company is exempt income if—
- (a) the company acquired the shares; and
- (b) the acquisition was treated under section 67A(1) of the Companies Act 1993 as not resulting in the cancellation of the shares.
Defined in this Act: amount, cancellation, company, exempt income, income, share,

Compare: 1994 No 164 s CB 15

CW 47 New Zealand companies operating in Niue

Exempt income: income wholly or mainly from Niue

(1) An amount of income derived in a tax year by a New Zealand company that derives its income wholly or mainly from Niue is exempt income.

Exclusion

(2) Subsection (1) does not apply if the company, if it were a foreign company, would at any time during the tax year be a controlled foreign company.

Exempt income: dividends
(3) A dividend derived in a tax year from a New Zealand company that derives its income wholly or mainly from Niue is exempt income, unless the dividend is derived by—
- (a) a person who is resident in New Zealand; or
- (b) a company that is a controlled foreign company at any time during the tax year; or
- (c) a trustee of a trust of which a settlor or beneficiary is resident in New Zealand during the tax year.
Exempt income: Niue development projects
(4) An amount of income derived by a New Zealand company from a business or enterprise that the company carries on in Niue is exempt income if—
- (a) the business or enterprise is declared by an Order in Council made under subsection (7) to be a development project for the purposes of this section; and
- (b) the company's income is derived wholly or mainly from that business or enterprise; and
- (c) the amount is derived from sources in Niue; and
- (d) the amount is derived while the Order in Council is in force.
Exclusions
(5) Subsections (1), (3), and (4) do not apply to—
- (a) an amount of income derived from sources in New Zealand; or
- (b) a dividend, to the extent to which it constitutes distribution of an amount derived by the company from sources in New Zealand.
Attributed CFC income and FIF income

(6) This section does not restrict the application of section CQ 1 (Attributed controlled foreign company income), or CQ 4 (Foreign investment fund income), or the FIF rules. For the purposes of the FIF rules, a company that derives its income wholly or mainly from Niue and has exempt income under subsection (1) is treated as a foreign company.

Order in Council declaring Niue development project
(7) The Governor-General may make an Order in Council declaring a business or enterprise to be a development project for the purposes of this section if satisfied that the business or enterprise—
- (a) has been or will be entered upon wholly or mainly for the purpose of developing Niue; or
- (b) is or will be important in the development of Niue.
Defined in this Act: amount, attributed CFC income, business, company, controlled foreign company, dividend, exempt income, FIF, FIF rules, foreign company, income, New Zealand company, resident in New Zealand, settlor, source in New Zealand, tax year, trustee,

Compare: 1994 No 164 s CB 8

CW 48 Stake money

Stake or prize money for a dog race, horse race, or trotting race is exempt income if—
- (a) it is paid by a club that is licensed to use the totalisator under the Racing Act 2003; or
- (b) the race is held outside New Zealand.
Defined in this Act: exempt income, New Zealand,

Compare: 1994 No 164 s CB 9(c), (ca)

CW 49 Providing standard-cost household service

An amount of income derived in an income year by a natural person from providing a standard-cost household service is exempt income if—
- (a) the amount is exempt income under a determination made under section 91AA(2)(a) of the Tax Administration Act 1994:
- (b) the person—
  - (i) may be treated, under a determination made under section 91AA of the Tax Administration Act 1994, as incurring an amount of costs that is greater than or equal to the amount of income; and
  - (ii) in calculating the person's income tax liability for the income year, elects to include in the taxpayer's annual total deduction no amount that, in the absence of this paragraph, would be a deduction incurred by the taxpayer in providing the standard-cost household service.
Defined in this Act: amount, annual total deduction, exempt income, income, income tax liability, income year, standard-cost household service,

Section CW 49 was substituted, as from 1 October 2005, by section 175 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

CW 49B Interest paid under KiwiSaver Act 2006

Interest paid by the Commissioner under section 84 of the KiwiSaver Act 2006 is exempt income.

Section CW 49B was inserted, as from 1 December 2006, by section 231 KiwiSaver Act 2006 (2006 No 40). See section 232 of that Act as to the transitional provision requiring all KiwiSaver contributions to be paid to the Commissioner in the first 3 months. See clause 2(2) KiwiSaver Act Commencement Order 2006 (SR 2006/357).

Income exempt under other Acts

CW 50 Exemption under other Acts

An amount of income expressly exempted from income tax by any other Act is exempt income.

Defined in this Act: amount, exempt income, income, income tax,

Compare: 1994 No 164 s CB 9(e)

Income exempt under Parts F to I

CW 51 Exemption under Parts to be rewritten

An amount of income is exempt income if it is exempt under a provision in any of Parts F to I.

Defined in this Act: amount, exempt income, income,

Compare: 1994 No 164 s BD 1(2)(a)

Subpart CX—Excluded income

Goods and services tax

CX 1 GST

KiwiSaver and complying superannuation fund tax credits

CX 1B KiwiSaver and complying superannuation fund tax credits

CX 2 Meaning of fringe benefit

CX 3 Excluded income

CX 4 Relationship with assessable income

CX 5 Relationship with exempt income

CX 6 Private use of motor vehicle

CX 6B Employer or associated person treated as having right to use vehicle under arrangement

CX 7 Private use of motor vehicle: use by more than 1 employee

CX 8 Subsidised transport

CX 9 Employment-related loans

CX 10 Employment-related loans: loans by life insurers

CX 11 Services for members of Parliament

CX 12 Contributions to superannuation schemes

CX 13 Contributions to sickness, accident, or death benefit funds

CX 14 Contributions to funeral trusts

CX 15 Contributions to life or health insurance

CX 16 Benefits provided to employees who are shareholders or investors

Exclusions and limitations

CX 17 Benefits provided instead of allowances

CX 18 Benefits to enable performance of duties

CX 18B Business tools

CX 19 Benefits to non-executive directors

CX 20 Benefits provided on premises

CX 20B Benefits related to health or safety

CX 21 Benefits provided by charitable organisations

CX 22 Non-liable payments

CX 23 Assistance with tax returns

CX 24 Accommodation

CX 25 Entertainment

CX 26 Distinctive work clothing

CX 26B Contributions to income protection insurance

CX 27 Services provided to superannuation fund

CX 27B Goods provided at discount by third parties

CX 28 Meaning of emergency call

CX 29 Meaning of employee share loan

CX 30 Meaning of private use

CX 31 Meaning of unclassified benefit

CX 32 Meaning of work-related vehicle

Insurance

CX 33 Life insurers and fully reinsured persons

CX 34 Superannuation fund deriving amount from life insurance policy

CX 35 Resident insurance underwriters

CX 36 Disposal of ownership interests in controlled petroleum mining entities

CX 37 Farm-out arrangements for petroleum mining

Mineral mining

CX 38 Disposal of mining shares

CX 39 Disposal of mining shares acquired with reinvestment profit

CX 40 Repayment of loans made from reinvestment profit

Government grants

CX 41 Government grants to businesses

CX 41B Amounts remitted as condition of new start grant

CX 42 Employer's superannuation contributions

CX 43 Income equalisation schemes

CX 43B Refund from environmental restoration account

Inflation-indexed instruments

CX 44 Credits for inflation-indexed instruments

CX 44B Share-lending collateral under share-lending arrangements

CX 44C Proceeds from disposal of certain shares by portfolio investment entities or New Zealand Superannuation Fund

CX 44D Portfolio investor allocated income and distributions of income by portfolio investment entities

CX 44E Rebates of certain fees by portfolio tax rate entities

Income excluded under Parts F to I

CX 45 Exclusion under Parts to be rewritten

Goods and services tax

CX 1 GST

The following are excluded income of a registered person:
- (a) output tax on goods and services they supply:
- (b) GST payable to them by the Commissioner.
Defined in this Act: Commissioner, excluded income, goods, GST payable, output tax, registered person, services,

Compare: 1994 No 164 s ED 4(1), (3)(b), (g), (7)

Paragraph (a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

KiwiSaver and complying superannuation fund tax credits

This heading was inserted, as from 1 July 2007, by section 6 Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

CX 1B KiwiSaver and complying superannuation fund tax credits

A payment by the Commissioner of an amount of a tax credit under subpart KJ (KiwiSaver scheme and complying superannuation fund tax credits) is excluded income of the person deriving the payment.

Defined in this Act: amount, Commissioner, excluded income,

Section CX 1B was inserted, as from 1 July 2007, by section 6 Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Fringe benefits

Introductory provisions

CX 2 Meaning of fringe benefit

Meaning
(1) A fringe benefit is a benefit that—
- (a) is provided by an employer to an employee in connection with their employment; and
- (b) either—
  - (i) arises in a way described in any of sections CX 6, CX 8, CX 9, or CX 11 to CX 15; or
  - (ii) is an unclassified benefit; and
- (c) is not a benefit excluded from being a fringe benefit by any provision of this subpart.
Arrangement to provide benefit

(2) A benefit that is provided to an employee through an arrangement made between their employer and another person for the benefit to be provided is treated as having been provided by the employer.

Past, present, or future employment

(3) It is not necessary to the existence of a fringe benefit that an employment relationship exists when the employee receives the benefit.

Relationship with subpart ND

(4) Subpart ND (Fringe benefit tax) deals with the calculation of the taxable value of fringe benefits.

Defined in this Act: arrangement, employee, employer, employment, fringe benefit, unclassified benefit,

Compare: 1994 No 164 ss CI 1, CI 2(1)

CX 3 Excluded income

A fringe benefit is excluded income of the employee.

Defined in this Act: employee, excluded income, fringe benefit,

CX 4 Relationship with assessable income

To the extent to which a benefit that an employer provides to an employee in connection with their employment is assessable income, the benefit is not a fringe benefit.

Defined in this Act: assessable income, employee, employer, employment, fringe benefit,

Compare: 1994 No 164 s CI 1(o)(i)

CX 5 Relationship with exempt income

Exempt income not fringe benefit

(1) To the extent to which a benefit that an employer provides to an employee in connection with their employment is exempt income, the benefit is not a fringe benefit.

Exclusions
(2) Subsection (1) does not apply to—
- (a) a payment of a premium on a life insurance policy that is excluded from being expenditure on account of an employee under section CE 5(3)(f) to (i) (Meaning of expenditure on account of an employee):
- (b) an allowance that is exempt income under section CW 13 (Expenditure on account, and reimbursement, of employees) to the extent to which it is made to enable the employee to provide a benefit to another person.
Exempt cash payment not fringe benefit

(3) To the extent to which a benefit that an employer provides to an employee in connection with their employment would have been exempt income if it had been paid in cash, the benefit is not a fringe benefit.

Exclusion

(4) Subsection (3) does not apply to interest, dividends, or an allowance under subsection (2)(b).

Defined in this Act: dividend, employee, employer, employment, exempt income, expenditure on account of an employee, fringe benefit, interest, life insurance policy, premium,

Compare: 1994 No 164 s CI 1(o)(ii), (iii)

Subsection (2)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Fringe benefits

CX 6 Private use of motor vehicle

When fringe benefit arises
(1) A fringe benefit arises when—
- (a) a motor vehicle is made available to an employee for their private use; and
- (b) the person who makes the vehicle available to the employee—
  - (i) owns the vehicle:
  - (ii) leases or rents the vehicle:
  - (iii) has a right to use the vehicle under an agreement or arrangement with the employee or a person associated with the employee.
Exclusion: work-related vehicles

(2) Subsection (1) does not apply when the vehicle is a workrelated vehicle.

Exclusion: emergency calls

(3) Subsection (1) does not apply when the vehicle is used for an emergency call.

Exclusion: absences from home

(4) Subsection (1) does not apply when the employee is absent from home, with the vehicle, for a period of at least 24 hours continuously, if the employee is required, in the performance of their duties, to use a vehicle and regularly to be absent from home.

Use on part of day

(5) For the purposes of subsections (3) and (4), the whole of the day on which a motor vehicle is used as described in the applicable subsection is treated as a day on which the vehicle is not available for private use.

Defined in this Act: emergency call, employee, fringe benefit, lease, motor vehicle, private use, work-related vehicle,

Compare: 1994 No 164 ss CI 1(a), (b), CI 11(16), OB 1 private use or enjoyment

Subsection (1)(b) was substituted, as from 1 April 2006, by section 28 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

CX 6B Employer or associated person treated as having right to use vehicle under arrangement

When this section applies
(1) This section applies for the application of the FBT rules to an agreement or arrangement—
- (a) between an employer, or a person associated with the employer, and an employee, or a person associated with the employee; and
- (b) transferring to the employer or person associated with the employer a right to use a motor vehicle under terms agreed between the parties.
Person treated as having right to use vehicle
(2) The employer or associated person is treated as having a right to use the motor vehicle for a period during which the employee—
- (a) uses the vehicle privately:
- (b) has a right to use the vehicle privately.
Defined in this Act: employee, employer, FBT rules, lease, motor vehicle,

Section CX 6B was inserted, as from 1 April 2006, by section 29(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3). See section 29(2) of that Act as to the application of this amendment for a person and a period beginning as from 1 April 2006 for which the person or the person's employer is required to forward a return to the Commissioner under subpart ND (Fringe benefit tax).

CX 7 Private use of motor vehicle: use by more than 1 employee

If, on any day, a motor vehicle is made available by an employer for the private use of more than 1 employee, this availability is treated as a single instance. The taxable value of the fringe benefit is reduced by the total amount of any contributions paid by an employee or employees.

Defined in this Act: amount, contribution, employee, employer, fringe benefit, motor vehicle, private use,

Compare: 1994 No 164 s CI 2(4)

CX 8 Subsidised transport

A fringe benefit arises when an employer provides subsidised transport to an employee.

Defined in this Act: employee, employer, fringe benefit, subsidised transport,

Compare: 1994 No 164 s CI 1(d)

CX 9 Employment-related loans

When fringe benefit arises

(1) A fringe benefit arises when an employer provides a loan to an employee.

Exclusions
(2) Subsection (1) does not apply to a loan made—
- (a) as an employee share loan:
- (b) under a share purchase scheme:
- (c) by a superannuation fund to the extent to which the value of the loan constitutes income of the fund under section GD 6 (Value of loans provided by superannuation fund deemed to be income of fund):
- (d) as an advance of salary and wages, if,—
  - (i) in the period for which the employer is required to forward a return to the Commissioner under subpart ND (Fringe benefit tax), the total outstanding of such advances to the employee is not more than $2,000; and
  - (ii) the contract of employment does not require the employer to make the advance.
Loan owing

(3) The employer provides a fringe benefit in a tax year in which the loan is owing. The circumstances in which a loan is owing include a case in which, under the arrangement for the loan, an amount is payable in the future, or would be payable in the future if a particular event happened, and the employee or an associated person is or would be liable to pay the amount.

Defined in this Act: amount, arrangement, associated person, employee, employee share loan, employer, employment-related loan, fringe benefit, income, share purchase scheme, superannuation fund, tax year,

Compare: 1994 No 164 ss CI 1(c), (i), (ia), (j), OB 1 owing

Subsection (2)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (2)(c) was amended, as from 1 April 2006, by section 30(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “fund):” for “fund).”. See section 29(2) of that Act as to the application of this amendment for a person and a period beginning as from 1 April 2006 for which the person or the person's employer is required to forward a return to the Commissioner under subpart ND (Fringe benefit tax).

Subsection (2)(d) was inserted, as from 1 April 2006, by section 30(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3). See section 29(2) of that Act as to the application of this amendment for a person and a period beginning as from 1 April 2006 for which the person or the person's employer is required to forward a return to the Commissioner under subpart ND (Fringe benefit tax).

CX 10 Employment-related loans: loans by life insurers

When fringe benefit treated as arising
(1) A life insurer provides a benefit that is treated as an employment-related loan if—
- (a) the life insurer makes a loan to a person who holds a life insurance policy (person A) or to a person associated with person A; and
- (b) the life insurance policy is offered or entered into in New Zealand; and
- (c) either—
  - (i) the loan is made because of the capacity or status of person A as a policyholder; or
  - (ii) the interest charged on the loan depends on the capacity or status of person A as a policyholder.
Life insurer as employer

(2) For the purposes of the FBT rules, the life insurer is treated as an employer and person A or the person associated with them is treated as an employee.

Meaning of life insurer
(3) In this section, life insurer —
- (a) means a person who is the insurer under the life insurance policy:
- (b) includes—
  - (i) a person associated with the life insurer:
  - (ii) a person with whom the life insurer has entered into an arrangement relating to the making of the loan.
Defined in this Act: arrangement, associated person, employee, employer, employment-related loan, FBT rules, fringe benefit, interest, life insurance policy, life insurer, offered or entered into in New Zealand,

Compare: 1994 No 164 s CI 2(8), (9)

Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

CX 11 Services for members of Parliament

A fringe benefit arises when travel, accommodation, attendance, and communications services are exempt income under section CW 25 (Services for members of Parliament).

Defined in this Act: exempt income, fringe benefit,

Compare: 1994 No 164 s CI 1(ga)

CX 12 Contributions to superannuation schemes

When fringe benefit arises

(1) A fringe benefit arises when an employer contributes to a superannuation scheme for the benefit of an employee.

Exclusion

(2) This section does not apply if the contribution is a specified superannuation contribution.

Defined in this Act: contribution, employee, employer, fringe benefit, specified superannuation contribution, superannuation scheme,

Compare: 1994 No 164 s CI 1(g), (k)

CX 13 Contributions to sickness, accident, or death benefit funds

A fringe benefit arises when an employer makes a contribution for the benefit of an employee to a sickness, accident, or death benefit fund.

Defined in this Act: contribution, employee, employer, fringe benefit, sickness, accident, or death benefit fund,

Compare: 1994 No 164 s CI 1(e)

CX 14 Contributions to funeral trusts

A fringe benefit arises when an employer makes a contribution to a fund in the circumstances described in section CW 38 (Funeral trusts).

Defined in this Act: contribution, employer, fringe benefit,

Compare: 1994 No 164 s CI 1(eb)

CX 15 Contributions to life or health insurance

When fringe benefit arises

(1) A fringe benefit arises when an employer pays a specified insurance premium or makes a contribution to the insurance fund of a friendly society for the benefit of an employee.

Exclusion

(2) This section does not apply to a premium or contribution described in section CZ 15 (Accident insurance contracts before 1 July 2000).

Meaning of specified insurance premium

(3) In this section, specified insurance premium means a premium paid for the benefit of an employee, their spouse, civil union partner or de facto partner, or their child on a policy described in any of subsections (4) to (6).

Life insurance
(4) The first kind of policy referred to in subsection (3) is a policy of insurance on the life of the employee or their spouse, civil union partner or de facto partner or on their joint lives, or on the life of their child, to which all the following apply:
- (a) for policies other than whole of life policies, the minimum term is—
  - (i) 10 years; or
  - (ii) 5 years, for a policy whose maturity date is no earlier than the date on which a life assured reaches 60 years of age; and
- (b) the only benefits payable earlier than 10 years from the start of the policy or its maturity date, whichever is earlier, are—
  - (i) benefits payable for the death of a life assured; or
  - (ii) additional benefits payable for an accident to a life assured or disease or sickness of a life assured; and
- (c) the policy—
  - (i) provides for a payment on the death of a life assured of a benefit that is not a return of premiums, is substantially capital, and is not materially less than the total benefit payable under the policy otherwise than for death; or
  - (ii) is a policy on the life of a person who, because of ill health or physical disability, is unable to effect a policy of the kind described in subparagraph (i) at ordinary rates; or
  - (iii) is a deferred life assurance policy on the life of a child.
Life insurance: pension benefit
(5) The second kind of policy referred to in subsection (3) is a policy described in subsection (4), or that would be described if it satisfied subsection (4)(c)(i), and under which the only benefits payable are for a life assured and by way of—
- (a) a pension starting on or after the date on which the life assured reaches 60 years of age and continuing for the life of the employee, their spouse, civil union partner or de facto partner, or their child; or
- (b) on the death of the life assured,—
  - (i) the return of the part of the premiums paid for the assurance to secure the payment of a pension dependent on the life of the employee, their spouse, civil union partner or de facto partner, or their child; and
  - (ii) the payment of the part of each bonus declared on the policy attributable to the part of the premiums described in subparagraph (i).
Health insurance
(6) The third kind of policy referred to in subsection (3) is a policy of insurance under which the benefits are payable only for—
- (a) an accident, whether fatal or not, to the employee, their spouse, civil union partner or de facto partner, or their child; or
- (b) disease or sickness of the employee, their spouse, civil union partner or de facto partner, or their child.
Defined in this Act: contribution, employee, employer, friendly society, fringe benefit, life insurance, specified insurance premium, year,

Compare: 1994 No 164 ss CI 1(f), (ja), CI 3(8A), OB 1 policy of life insurance, policy of pension insurance, policy of personal accident or sickness insurance

Subsection (3) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.

Subsection (3) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

Subsection (4) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.

Subsection (4) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

Subsection (5)(a) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.

Subsection (5)(a) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

Subsection (5)(b)(i) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.

Subsection (5)(b)(i) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

Subsection (6)(a) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.

Subsection (6)(a) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

Subsection (6)(b) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.

Subsection (6)(b) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

CX 16 Benefits provided to employees who are shareholders or investors

Benefit provided in connection with employment

(1) If a company or a trustee of a group investment fund provides a non-cash benefit to an employee who holds shares in the company or who is an investor in the fund, the benefit is treated as having been provided in connection with the employment. The shares or investment may be held in the employee's own right or beneficially.

Whether fringe benefit or dividend

(2) A company or a trustee of a group investment fund that has provided a non-cash benefit to an employee who holds shares in the company or who is an investor in the fund may choose to treat the benefit as a fringe benefit or a dividend. If the company or trustee does not make an election, the benefit is treated as a fringe benefit. If the company or trustee chooses to treat the benefit as a dividend, the FBT rules do not apply.

Exclusion

(3) Neither subsection (1) nor subsection (2) applies to a non-cash benefit provided by a company to a non-executive director of the company.

Non-cash benefits
(4) Subsection (2) applies to non-cash benefits that would,—
- (a) if section CD 23 (Employee benefits) did not exist, be dividends under section CD 3 (Transfers of value generally) if provided to a person in their capacity as a shareholder:
- (b) if section CX 4 did not exist, be unclassified benefits if provided to a person in their capacity as an employee.
Notice of election

(5) The company or trustee must give notice to the Commissioner of the election referred to in subsection (2) within the time allowed for filing a fringe benefit tax return for the period in which the benefit was provided.

Defined in this Act: Commissioner, company, dividend, employee, employment, FBT rules, fringe benefit, fringe benefit tax, group investment fund, investor, non-executive director, notice, return, share, shareholder, trustee, unclassified benefit,

Compare: 1994 No 164 ss CI 2(2), (3), CI 2A

Subsection (4)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Exclusions and limitations

CX 17 Benefits provided instead of allowances

When not fringe benefit
(1) A benefit that an employer provides to an employee in connection with their employment is not a fringe benefit to the extent to which it removes the need that would otherwise exist for the employer to pay the employee an allowance of 1 of the following kinds:
- (a) an allowance that, if it had been paid,—
  - (i) would have been exempt income under section CW 13 (Expenditure on account, and reimbursement, of employees); and
  - (ii) would have been paid for reasons other than to enable the employee to provide a benefit to another person; or
- (b) an allowance that reimburses the employee for transport costs that—
  - (i) would have been incurred both in connection with their employment and for the benefit of the employer in travelling between home and work; and
  - (ii) would have been attributable to any 1 or more of the factors set out in section CW 14(3) (Allowance for additional transport costs).
Temporary change in workplace
(2) A benefit that an employer provides to an employee is not a fringe benefit if it—
- (a) is in substitution for an allowance described in subsection (1)(b); and
- (b) is brought about because the employee has a temporary change in their place of work while in the same employment; and
- (c) reimburses the employee for transport costs that would have been incurred relating to travel by one or more of the employee's spouse, civil union partner, or de facto partner, and relatives for the purpose of visiting the employee in the temporary place of work; and
- (d) has a value that is no more than the amount that would be provided under the allowance described in subsection (1)(b).
Defined in this Act: employee, employer, employment, exempt income, fringe benefit, relative,

Compare: 1994 No 164 s CI 1(o)(iv), (v)

The heading to subsection (1) was inserted, as from 1 April 2006, by section 31(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3). See section 31(3) of that Act as to the application of this amendment for a person and a period beginning as from 1 April 2006 for which the person or the person's employer is required to forward a return to the Commissioner under subpart ND (Fringe benefit tax).

Subsection (2) was inserted, as from 1 April 2006, by section 31(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3). See section 31(3) of that Act as to the application of this amendment for a person and a period beginning as from 1 April 2006 for which the person or the person's employer is required to forward a return to the Commissioner under subpart ND (Fringe benefit tax).

The list of defined terms was amended, as from 1 April 2006, by section 31(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by adding the expression “, relative”. See section 31(3) of that Act as to the application of this amendment for a person and a period beginning as from 1 April 2006 for which the person or the person's employer is required to forward a return to the Commissioner under subpart ND (Fringe benefit tax).

CX 18 Benefits to enable performance of duties

The taxable value of a benefit that an employer provides to an employee by way of subsidised transport, or in the form of expenditure that an employer incurs on accommodation or transport provided to an employee, is zero if the expenditure—
- (a) relates to travel by the employee in order for them to perform their employment duties; and
- (b) does not relate to the providing or taking of leave or a vacation; and
- (c) is not increased as a result of the benefit.
Defined in this Act: employee, employer, subsidised transport,

Compare: 1994 No 164 s CI 4(4)

CX 18B Business tools

When use of business tool not fringe benefit
(1) The private use of a business tool that an employer provides to an employee, and the availability for private use of such a business tool, is not a fringe benefit if—
- (a) the business tool is provided mainly for business use; and
- (b) the cost of the business tool to the employer, including the amount of any deduction for the cost of the business tool that the employer may make under section 20(3) of the Goods and Services Tax Act 1985, is not more than $5,000.
Use away from employer's premises

(2) For the purposes of subsection (1), a business tool that is not taken to and used on the employer's premises may nevertheless be provided mainly for business use if the employee performs a significant part of the employee's employment duties away from the premises.

Defined in this Act: business tool, business use, employee, employer, fringe benefit,

Section CX 18B was inserted, as from 1 April 2006, by section 32(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3). See section 32(2) of that Act as to the application of this amendment for a person and a period beginning as from 1 April 2006 for which the person or the person's employer is required to forward a return to the Commissioner under subpart ND (Fringe benefit tax).

CX 19 Benefits to non-executive directors

A transfer of value to a non-executive director that is a dividend under section CD 12(2) (Benefits of shareholderemployees or directors) is not a fringe benefit if it is made solely because of their capacity as a non-executive director.

Defined in this Act: dividend, fringe benefit, non-executive director, transfer of value,

Compare: 1994 No 164 s CI 1(na)

CX 20 Benefits provided on premises

When not fringe benefit
(1) A benefit, other than free, discounted, or subsidised travel, accommodation, or clothing, is not a fringe benefit if the benefit is—
- (a) provided to the employee by the employer of the employee and received or used by the employee on the premises of—
  - (i) the employer:
  - (ii) a company that is in the same group of companies as the employer:
- (b) provided to the employee by a company that is in the same group of companies as the employer of the employee and received or used by the employee on the premises of—
  - (i) the employer:
  - (ii) the company that provides the benefit.
Premises of person
(2) In this section, the premises of a person—
- (a) include premises that the person owns or leases:
- (b) include premises, other than those referred to in paragraph (a), on which an employee of the person is required to perform duties for the person:
- (c) do not include premises occupied by an employee of the person for residential purposes.
Defined in this Act: company, employee, employer, employer's premises, fringe benefit, group of companies, lease,

Compare: 1994 No 164 s CI 1(q)

Subsection (1) (excluding the heading) was substituted, as from 1 April 2006, by section 33(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3). See section 33(4) of that Act as to the application of this amendment for a person and a period beginning as from 1 April 2006 for which the person or the person's employer is required to forward a return to the Commissioner under subpart ND (Fringe benefit tax).

Subsection (2) was substituted, as from 1 April 2006, by section 33(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3). See section 33(4) of that Act as to the application of this amendment for a person and a period beginning as from 1 April 2006 for which the person or the person's employer is required to forward a return to the Commissioner under subpart ND (Fringe benefit tax).

The list of defined terms was amended, as from 1 April 2006, by section 33(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “company” and “group of companies”. See section 33(4) of that Act as to the application of this amendment for a person and a period beginning as from 1 April 2006 for which the person or the person's employer is required to forward a return to the Commissioner under subpart ND (Fringe benefit tax).

CX 20B Benefits related to health or safety

A benefit that an employer provides to an employee is not a fringe benefit to the extent to which it—
- (a) is related to the employee's health or safety; and
- (b) is aimed at hazard management in the workplace as contemplated in the Health and Safety in Employment Act 1992; and
- (c) would be excluded by section CX 20 from being a fringe benefit if provided on the employer's premises.
Defined in this Act: employee, employer, employment, fringe benefit,

Section CX 20B was inserted, as from 1 April 2006, by section 34(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3). See section 34(2) of that Act as to the application of this amendment for a person and a period beginning as from 1 April 2006 for which the person or the person's employer is required to forward a return to the Commissioner under subpart ND (Fringe benefit tax).

CX 21 Benefits provided by charitable organisations

When not fringe benefit
(1) A charitable organisation that provides a benefit to an employee does not provide a fringe benefit except to the extent to which—
- (a) the employee receives the benefit mainly in connection with their employment; and
- (b) the employment consists of the carrying on by the organisation of a business whose activity is outside its benevolent, charitable, cultural, or philanthropic purposes.
When employer provides charge facilities

(2) Subsection (1) does not apply, and the benefit provided is a fringe benefit, if a charitable organisation provides a benefit to an employee by way of short-term charge facilities and the value of the benefit from the short-term charge facilities for the employee in a tax year exceeds 5% of the employee's salary or wages for the tax year.

Meaning of short-term charge facilities
(3) For the purposes of the FBT rules, a short-term charge facility means an arrangement that—
- (a) enables an employee of a charitable organisation to obtain goods or services that have no connection with the organisation or its operations by buying or hiring the goods or services or charging the cost of the goods or services to an account; and
- (b) places the liability for some or all of the payment for the goods or services on the organisation; and
- (c) is not a fringe benefit under section CX 9.
Defined in this Act: business, charitable organisation, employee, employment, fringe benefit,

Compare: 1994 No 164 s CI 1(m)

The heading to subsection (1) was inserted, as from 1 April 2006, by section 35(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3). See section 35(2) of that Act as to the application of this amendment for a person and a period beginning as from 1 April 2006 for which the person or the person's employer is required to forward a return to the Commissioner under subpart ND (Fringe benefit tax).

Subsections (2) and (3) were inserted, as from 1 April 2006, by section 35(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3). See section 35(2) of that Act as to the application of this amendment for a person and a period beginning as from 1 April 2006 for which the person or the person's employer is required to forward a return to the Commissioner under subpart ND (Fringe benefit tax).

CX 22 Non-liable payments

A benefit received by an employee is not a fringe benefit to the extent to which it is received in a quarter or in an income year in which they derive 1 or more source deduction payments, all of which are not liable for income tax.

Defined in this Act: employee, fringe benefit, income tax, income year, quarter, source deduction payment,

Compare: 1994 No 164 s CI 1(n)

CX 23 Assistance with tax returns

An employer's assistance with the preparation of an employee's income statement or return of income is not a fringe benefit when the expenditure incurred in providing the assistance is expenditure for which the employee would have been allowed a deduction, if it had been incurred by the employee, under section DB 3 (Determining tax liabilities).

Defined in this Act: deduction, employee, employer, fringe benefit, income statement, return of income,

Compare: 1994 No 164 s CI 1(la)

CX 24 Accommodation

The value of board (or an allowance instead of accommodation) that an employer provides to an employee in connection with their employment or service is not a fringe benefit.

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

Compare: 1994 No 164 s CI 1(p)

CX 25 Entertainment

When not fringe benefit

(1) A benefit in a form of entertainment described in section DD 2 (Limitation rule) that an employer provides to an employee is not a fringe benefit. This subsection is overridden by subsection (2).

When is fringe benefit
(2) A benefit in a form of entertainment described in section DD 2 (Limitation rule) that an employer provides to an employee is a fringe benefit if—
- (a) the employee does not receive or use it in the course of employment; and
- (b) the employee does not receive or use it as a necessary consequence of their employment duties; and
- (c) either—
  - (i) the employee may choose when to receive or use the benefit; or
  - (ii) the entertainment is of a kind described in section DD 7 (Entertainment outside New Zealand).
Defined in this Act: employee, employer, employment, fringe benefit,

Compare: 1994 No 164 s CI 1(r)

CX 26 Distinctive work clothing

When not fringe benefit

(1) Distinctive work clothing that an employer provides to an employee is not a fringe benefit, whether provided by sale or otherwise.

Meaning of distinctive work clothing
(2) In this section, distinctive work clothing means clothing (including a single item of clothing) that—
- (a) is worn by an employee as, or as part of, a uniform that can be identified with the employer—
  - (i) through the permanent and prominent display of a name, logo, or other identification that the employer regularly uses in carrying on their activity or undertaking; or
  - (ii) because the colour scheme, pattern, or style is readily associated with the employer; and
- (b) is worn in the course, or as an incident, of employment; and
- (c) is not clothing that employees would normally wear for private purposes.
Defined in this Act: distinctive work clothing, employee, employer, employment, fringe benefit,

Compare: 1994 No 164 ss CI 1(s), OB 1 distinctive work clothing

CX 26B Contributions to income protection insurance

An employer who satisfies a liability to pay, or contribute to the payment of, a premium for income protection insurance for the benefit of an employee does not provide a fringe benefit to the employee if a payment of the insurance to the employee would be assessable income of the employee.

Defined in this Act: contribution, employee, employer, fringe benefit,

Section CX 26B was inserted, as from 1 April 2006, by section 36(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3). See section 36(2) of that Act as to the application of this amendment for a person and a period beginning as from 1 April 2006 for which the person or the person's employer is required to forward a return to the Commissioner under subpart ND (Fringe benefit tax).

CX 27 Services provided to superannuation fund

A fringe benefit does not arise if services are provided to a superannuation fund to the extent to which the superannuation fund would have been allowed a deduction for the expenditure incurred in providing the services if the expenditure had been incurred by the superannuation fund.

Defined in this Act: deduction, fringe benefit, superannuation fund,

Compare: 1994 No 164 s CI 1(l)

CX 27B Goods provided at discount by third parties

When this section applies

(1) This section applies if an employer and a person who is not associated with the employer have an arrangement through which goods are provided by the person at a discount.

When not fringe benefit
(2) A discount provided by the person to an employee in a group of employees is not a fringe benefit if—
- (a) the person offers a discount to a group of persons that—
  - (i) negotiates the discount on an arm's-length basis; and
  - (ii) does not include the group of employees; and
  - (iii) is comparable in number to the group of employees; and
- (b) the discount offered to the group of employees is the same or less than the discount offered to the group described in paragraph (a).
Defined in this Act: arrangement, associated person, employee, employer, fringe benefit,

Section CX 26B was inserted, as from 1 April 2006, by section 37(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3). See section 37(2) of that Act as to the application of this amendment for a person and a period beginning as from 1 April 2006 for which the person or the person's employer is required to forward a return to the Commissioner under subpart ND (Fringe benefit tax).

Definitions

CX 28 Meaning of emergency call

Emergency call means a visit that an employee is required to make, to which all the following apply:
- (a) the employee makes the visit from their home in the course of their employment; and
- (b) the purpose of the visit is to provide—
  - (i) essential services relating to the operation of the plant or machinery of the employer, or of their client or customer; or
  - (ii) essential services relating to the maintenance of services provided by a local authority or a public authority; or
  - (iii) essential services relating to the carrying on of a business for the supply of energy or fuel to the public; or
  - (iv) emergency services relating to the health or safety of any person; and
- (c) the employer, their client or customer, or a member of the public requests the services; and
- (d) except when paragraph (b)(iv) applies, the services are required to be performed between the hours of 6.00 pm and 6.00 am on days other than a Saturday, Sunday, or statutory public holiday, and at any time on other days.
Defined in this Act: business, emergency call, employee, employer, employment, local authority, public authority,

Compare: 1994 No 164 s OB 1 emergency call

CX 29 Meaning of employee share loan

Meaning
(1) Employee share loan means a loan made to an employee if—
- (a) the loan is made for the sole purpose of enabling the employee to acquire, under a scheme of acquisition,—
  - (i) shares, rights, or options in the company that is their employer:
  - (ii) shares, rights, or options in a company that is associated with their employer; and
- (b) the employee uses the loan only for the purpose of the acquisition; and
- (c) the employee beneficially owns the shares, rights, or options throughout the term of the loan; and
- (d) the employee must immediately repay the loan in full if they stop being the beneficial owner of any of the shares, rights, or options; and
- (e) the company issuing the shares, rights, or options must maintain a dividend-paying policy throughout the term of the loan.
Exclusions
(2) This section does not apply—
- (a) to shares, rights, or options in a qualifying company:
- (b) to a loan made under a share purchase scheme:
- (c) to an employer and an employee who are associated persons.
Defined in this Act: associated person, company, dividend, employee, employee share loan, employer, qualifying company, share,

Compare: 1994 No 164 s OB 1 employee share loan benefit

Subsections (1)(a)(i), and (2)(a) and (b) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

CX 30 Meaning of private use

Private use, for a motor vehicle, includes—
- (a) the employee's use of the vehicle for travel between home and work; and
- (b) any other travel that confers a private benefit on the employee.
Defined in this Act: employee, motor vehicle, private use,

Compare: 1994 No 164 s OB 1 private use or enjoyment

CX 31 Meaning of unclassified benefit

Unclassified benefit means a fringe benefit that arises if an employer provides an employee with a benefit in connection with their employment that is—
- (a) not a benefit referred to in any of sections CX 6 to CX 15; and
- (b) not a benefit excluded under this subpart.
Defined in this Act: employee, employer, employment, fringe benefit, unclassified benefit,

Compare: 1994 No 164 s CI 1(h)

CX 32 Meaning of work-related vehicle

Meaning
(1) Work-related vehicle, for an employer, means a motor vehicle that prominently and permanently displays on its exterior,—
- (a) if the employer owns the vehicle, the form of identification that the employer regularly uses in carrying on their undertaking or activity; or
- (b) if the employer rents the vehicle, the form of identification—
  - (i) that the employer regularly uses in carrying on their undertaking or activity; or
  - (ii) that the person from whom it is rented regularly uses in carrying on their undertaking or activity.
Exclusion: motorcar

(2) Subsection (1) does not apply to a motorcar.

Exclusion: private use
(3) A motor vehicle is not a work-related vehicle on any day on which the vehicle is available for the employee's private use, except for private use that is—
- (a) travel to and from their home that is necessary in, and a condition of, their employment; or
- (b) other travel in the course of their employment during which the travel arises incidentally to the business use.
Defined in this Act: business use, employee, employer, employment, motor vehicle, motorcar, work-related vehicle,

Compare: 1994 No 164 s OB 1 work related vehicle

Insurance

CX 33 Life insurers and fully reinsured persons

Persons to whom this section applies
(1) The amounts described in subsection (2) are excluded income of—
- (a) a life insurer:
- (b) a person who is carrying on a business of providing life insurance but who is treated as not carrying on a business of providing life insurance because they have full reinsurance.
Excluded income
(2) The amounts are—
- (a) a premium derived by the life insurer or the person under a life insurance policy; or
- (b) a claim receivable by the life insurer or the person under a life reinsurance policy.
Defined in this Act: amount, business, claim, excluded income, full reinsurance, life insurance, life insurance policy, life insurer, life reinsurance policy, premium,

Compare: 1994 No 164 ss CM 3, CM 12(c), (d)

Subsection (1)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

CX 34 Superannuation fund deriving amount from life insurance policy

When this section applies

(1) This section applies when a superannuation fund invests funds in a life insurance policy offered or entered into in New Zealand.

Excluded income

(2) An amount that the superannuation fund derives from the policy is excluded income.

Defined in this Act: amount, excluded income, life insurance policy, offered or entered into in New Zealand, superannuation fund,

Compare: 1994 No 164 s CL 2

CX 35 Resident insurance underwriters

When this section applies
(1) This section applies when a natural person or an unincorporated body of natural persons—
- (a) is resident in New Zealand; and
- (b) carries on a business of providing general insurance or guarantees against loss, damage, or risk; and
- (c) as part of the business, is liable under an insurance contract, whether or not named in it, to pay, or to contribute towards the payment of, some or all of an amount claimable by the person insured under the contract.
Excluded income

(2) Income that the natural person or persons derive from carrying on the business outside New Zealand is excluded income to the extent to which it is income not referred to in section OE 4(1)(e) or (f) or (g) or (h) or (l) or (m) or (n) (Classes of income treated as having source in New Zealand).

Defined in this Act: amount, business, excluded income, general insurance, income, insurance contract, New Zealand, payment, resident in New Zealand,

Compare: 1994 No 164 s CN 5

Petroleum mining

CX 36 Disposal of ownership interests in controlled petroleum mining entities

Excluded income

(1) The consideration that a person derives from disposing of shares or trust interests in a controlled petroleum mining entity is excluded income of the person.

Application of Tax Administration Act 1994

(2) Section 65 of the Tax Administration Act 1994 applies when this section applies.

Defined in this Act: consideration, controlled petroleum mining entity, dispose, excluded income, share,

Compare: 1994 No 164 s CJ 6

CX 37 Farm-out arrangements for petroleum mining

Farm-in expenditure under a farm-out arrangement is excluded income of a petroleum miner who is the farm-out party in the farm-out arrangement.

Defined in this Act: excluded income, farm-in expenditure, farm-out arrangement, farm-out party, petroleum miner,

Compare: 1994 No 164 s CJ 4(1)

Mineral mining

CX 38 Disposal of mining shares

When subsection (2) applies
(1) Subsection (2) applies when—
- (a) a mining company derives an amount from disposing of a mining share; and
- (b) the disposal is to a person other than a mining company or a mining holding company; and
- (c) the company has an excess amount because the amount derived from disposing of the share is more than the cost of the share calculated under section DU 11(2) (Disposal of mining shares by company); and
- (d) the excess amount would, if this section did not exist, be income of the company under any of sections CB 1 to CB 4 (which relate to income from business or tradelike activities).
Excluded income

(2) The excess amount is excluded income of the company to the extent to which it is, or is to be, used for mining purposes within the prescribed period.

When subsection (4) applies
(3) Subsection (4) applies when—
- (a) a mining company (seller) derives an amount from disposing of a mining share; and
- (b) the disposal is to a mining company or to a mining holding company (buyer); and
- (c) the seller has an excess amount because the amount derived from disposing of the share is more than the cost of the share calculated under section DU 11(2) (Disposal of mining shares by company); and
- (d) the excess amount would, if this section did not exist, be income of the seller under any of sections CB 1 to CB 4 (which relate to income from business or trade-like activities).
Excluded income

(4) The excess amount is excluded income of the seller to the extent to which it consists of mining shares issued to it in the buyer.

Defined in this Act: amount, excluded income, income, mining company, mining holding company, mining purposes, mining share, prescribed period,

Compare: 1994 No 164 s DN 2(2)

CX 39 Disposal of mining shares acquired with reinvestment profit

When subsection (2) applies
(1) Subsection (2) applies when—
- (a) a company derives an amount from disposing of a mining share; and
- (b) an amount of the reinvestment profit of the company is used in calculating the deduction for the cost of the mining share under section DU 11(2) (Disposal of mining shares by company); and
- (c) some or all of the amount derived from the disposal would, if this section did not exist, be income of the company under section CU 14 (Recovery of reinvestment profit on disposal of mining shares).
Excluded income

(2) The amount that would be income is excluded income of the company to the extent to which it is, or is to be, used for mining purposes within the prescribed period.

When subsection (4) applies
(3) Subsection (4) applies when—
- (a) a company (seller) derives an amount from disposing of a mining share; and
- (b) the disposal is to a mining company or to a mining holding company (buyer); and
- (c) an amount of the reinvestment profit of the seller is used in calculating the deduction for the cost of the mining share under section DU 11(2) (Disposal of mining shares by company); and
- (d) some or all of the amount derived from the disposal would, if this section did not exist, be income of the seller under section CU 14 (Recovery of reinvestment profit on disposal of mining shares).
Excluded income

(4) The amount that would be income is excluded income of the seller to the extent to which it consists of mining shares issued to it in the buyer.

When subsection (6) applies
(5) Subsection (6) applies when—
- (a) a company derives an amount from disposing of a mining share; and
- (b) the disposal is of the kind described in section CU 20 (Mining company or mining holding company liquidated); and
- (c) an amount of the reinvestment profit of the company is used in calculating the deduction for the cost of the mining share under section DU 11(2) (Disposal of mining shares by company); and
- (d) some or all of the amount derived from the disposal would, if this section did not exist, be income of the company under section CU 14 (Recovery of reinvestment profit on disposal of mining shares).
Excluded income

(6) The amount that would be income is excluded income of the company to the extent to which it consists of mining shares.

Defined in this Act: amount, company, deduction, excluded income, income, mining company, mining holding company, mining purposes, mining share, prescribed period, reinvestment profit,

Compare: 1994 No 164 s DN 2(9)

CX 40 Repayment of loans made from reinvestment profit

When this section applies

(1) This section applies when an amount would, if this section did not exist, be income of a company under section CU 16 (Recovery of reinvestment profit on repayment of loans).

Excluded income

(2) The amount is excluded income of the company to the extent to which it is, or is to be, used for mining purposes within the prescribed period.

Defined in this Act: amount, company, excluded income, income, mining purposes, prescribed period,

Compare: 1994 No 164 s DN 2(6)

Government grants

CX 41 Government grants to businesses

When this section applies
(1) This section applies when—
- (a) a local authority or a public authority makes a payment to a person for a business that the person carries on; and
- (b) the payment—
  - (i) is in the nature of a grant or subsidy; or
  - (ii) is a grant-related suspensory loan; and
- (c) the payment is not in the nature of an advance or loan; and
- (d) the payment is made to the person in relation to—
  - (i) expenditure that they incur and for which they are allowed a deduction; or
  - (ii) expenditure that they incur in acquiring, constructing, installing, or extending an asset for which they have an amount of depreciation loss.
Excluded income

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

Exclusions
(3) This section does not apply to—
- (a) a large budget screen production grant:
- (b) a grant made under the Agriculture Recovery Programme for the Lower North Island and Eastern Bay of Plenty, to the extent that the grant relates to expenditure—
  - (i) incurred by the recipient before the grant; and
  - (ii) for which the recipient would be allowed a deduction in the absence of section DF 1 (Government grants to businesses).
Defined in this Act: amount, business, deduction, depreciation loss, excluded income, grant-related suspensory loan, large budget screen production grant, local authority, public authority,

Compare: 1994 No 164 ss DC 1, DC 3(1)

Subsection (3) was substituted, as from 3 April 2006, by section 38(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

CX 41B Amounts remitted as condition of new start grant

When this section applies
(1) This section applies if 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 a qualifying event; and
- (c) the person in carrying on the business—
  - (i) incurs a liability for expenditure or loss before the declaration of the state of emergency that relates to the qualifying event; and
  - (ii) before the date that is 3 months after the end of the state of emergency, 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 state of emergency; and
- (e) the amount of the remitted liability is income of the person under section CG 2 (Remitted amounts).
Excluded income

(2) The remitted liability is excluded income of the person to the extent that is the greater of zero and the amount calculated under the formula—

remitted amount -- current loss -- available loss -- other loss

Definition of items in formula
(3) In the formula—
- (a) remitted amount is the amount of the remitted liability:
- (b) current loss is the net loss that the person would have for the income year in which the liability is remitted in the absence of this section:
- (c) available loss is the available net losses that are available to the person for offset against net income for the income year in which the liability is remitted:
- (d) other loss is a loss that—
  - (i) is incurred by a person associated with the person who receives the new start grant; and
  - (ii) satisfies subsection (4).
Loss incurred by associated person from business or land
(4) The loss referred to in subsection (3)(d)—
- (a) is incurred by a person who—
  - (i) carries on or has carried on the business for which the new start grant is paid or owns or has owned an estate in fee simple or leasehold estate in land used in the business; and
  - (ii) in the opinion of the Commissioner, is under a substantial degree of control by the person; and
  - (iii) in the opinion of the Commissioner, has a substantial identity of interests with the person; and
- (b) is incurred from—
  - (i) the business referred to in paragraph (a)(i):
  - (ii) land that is used in the business; and
- (c) is, for the income year in which the liability is remitted,—
  - (i) a net loss of the associated person:
  - (ii) an available net loss for the associated person; and
- (d) is included in the calculation in subsection (3) to an extent that the Commissioner determines, having regard to the interests of the associated person that are separate from those of the person.
Notice to associated person

(5) The Commissioner must give to the associated person written notice of a determination under subsection (4)(d).

Defined in this Act: business, capital limitation, deduction, diminished value, general limitation, general permission, income, income year, qualifying event,

Section CX 41B was inserted, as from 1 October 2005, by section 176 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Superannuation contributions

CX 42 Employer's superannuation contributions

An employer's superannuation contribution is excluded income of—
- (a) the employee for whose benefit the contribution is provided; and
- (b) the trustees of the superannuation scheme to whom the contribution is made.
Defined in this Act: employee, employer's superannuation contribution, excluded income, superannuation scheme, trustee,

Compare: 1994 No 164 ss CL 1, OB 1 monetary remuneration

Farming, forestry, or fishing

CX 43 Income equalisation schemes

A refund under section EH 8 (Refund of excess deposit), EH 43 (Refund of excess deposit), or EH 70 (Refund of excess deposit) is excluded income.

Defined in this Act: excluded income,

Compare: 1994 No 164 ss EI 1(4), EI 11(4), EI 17(2)

Environmental restoration

This heading was inserted, as from 1 October 2005, by section 12(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for a refund made to a person in an income year starting on or after 10 June 2005.

CX 43B Refund from environmental restoration account

A refund to a person under section EK 9 (Refund of payment if excess, lacking details) is excluded income of the person.

Defined in this Act: excluded income.,

Section CX 43B was inserted, as from 1 October 2005, by section 12(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for a refund made to a person in an income year starting on or after 10 June 2005.

Section CX 43B was amended, as from 1 October 2005, by section 14(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by omitting “, or after earlier payment or request for refund” with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

Inflation-indexed instruments

CX 44 Credits for inflation-indexed instruments

When this section applies
(1) This section applies when—
- (a) an amount payable to a person who is a lender for money lent is determined by a fixed relationship to 1 or more indices of general price inflation in New Zealand; and
- (b) an amount on account of an increase in the amount payable is credited to the lender's account by the borrower; and
- (c) the credit represents a recovery of a decrease, previously debited in account, in the amount payable over a previous period.
Excluded income

(2) The credit is excluded income of the lender.

Defined in this Act: amount, excluded income, money lent, New Zealand, pay,

Compare: 1994 No 164 s EB 5(1)

Share-lending arrangements

This heading was inserted, as from 1 July 2006, by section 39 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

CX 44B Share-lending collateral under share-lending arrangements

An amount of share-lending collateral derived by a person under a share-lending arrangement is excluded income of the person.

Defined in this Act: amount, excluded income, share-lending arrangement, share-lending collateral,

Section CX 44B was inserted, as from 1 July 2006, by section 39 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Portfolio investment entities

Heading: inserted, on 1 October 2007, by section 15 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

CX 44C Proceeds from disposal of certain shares by portfolio investment entities or New Zealand Superannuation Fund

When this section applies
(1) This section applies to income derived by a portfolio investment entity or the New Zealand Superannuation Fund from the disposal of a share if—
- (a) the share is issued by a company resident in New Zealand and not treated under a double tax agreement as not being resident in New Zealand or by a company—
  - (i) resident in Australia and not treated under a double tax agreement between Australia and another country as being resident in a country other than Australia or New Zealand; 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; and
- (b) the share is not a non-participating redeemable share.
Excluded income

(2) The income is excluded income of the portfolio investment entity or the New Zealand Superannuation Fund.

Defined in this Act: amount, , arrangement, , company, , dividend, , double tax agreement, , excluded income, , income, , non-participating redeemable share, , portfolio investment entity, , resident, , resident in Australia, , resident in New Zealand, , share,

Section CX 44C: inserted, on 1 October 2007, by section 15 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section CX 44C heading: amended, on 1 October 2007, by section 7(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section CX 44C(1): amended, on 1 October 2007, by section 7(2) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section CX 44C(2): amended, on 1 October 2007, by section 7(3) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

CX 44D Portfolio investor allocated income and distributions of income by portfolio investment entities

Portfolio investor allocated income
(1) Portfolio investor allocated income derived under section CP 1 (Portfolio investor allocated income) in a portfolio calculation period in an income year by an investor in a portfolio tax rate entity is excluded income of the investor if—
- (a) the prescribed investor rate for the investor is more than 0%; and
- (b) the investor does not, before the last day of the income year, provide to the portfolio investment entity a portfolio investor rate for the income year that is less than the prescribed investor rate for the income year; and
- (c) for a portfolio tax rate entity making payments of tax under section HL 21 (Payments of tax by portfolio tax rate entity making no election), the portfolio investor allocated income is not allocated to a portfolio allocation period that includes part of a portfolio investor exit period for the investor.
Distribution of income by portfolio tax rate entity

(2) An amount of income derived by an investor as a distribution by a portfolio tax rate entity is excluded income of the investor.

Distribution by portfolio investment entity that is not portfolio tax rate entity
(3) An amount of income derived in an income year by an investor as a distribution by a portfolio listed company is—
- (a) excluded income of the investor, if the investor is a resident who—
  - (i) is a natural person other than a trustee; and
  - (ii) does not include the distribution as income in a return of income for the income year:
- (b) excluded income of the investor, if paragraph (a) does not apply, to the extent to which the amount of the distribution exceeds the total of the following:
  - (i) the amount of the distribution that is fully imputed, as that term is defined in section NG 2(3) (Non-resident withholding tax imposed):
  - (ii) the amount of the distribution that is fully dividend withholding payment credited, as that term is defined in section NG 2(4).
Defined in this Act: amount, , distribution, , excluded income, , income, , income year, , investor, , New Zealand resident, , portfolio investment entity, , portfolio investor allocated income, , portfolio investor exit period, , portfolio investor rate, , portfolio listed company, , portfolio tax rate entity, , prescribed investor rate, , return of income, , zero-rated portfolio investor

Section CX 44D: inserted, on 1 October 2007, by section 15 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section CX 44D heading: amended, on 1 October 2007, by section 8(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section CX 44D(3)(a)(i): substituted, on 1 October 2007, by section 8(2) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section CX 44D(3)(b): substituted, on 1 October 2007, by section 8(3) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

CX 44E Rebates of certain fees by portfolio tax rate entities

A rebate of fees allocated to an investor as a member of a portfolio investor class by a portfolio tax rate entity is excluded income of the investor if the rebate is included in the calculation of the entity's portfolio entity tax liability under section HL 20 (Portfolio entity tax liability and rebates of portfolio tax rate entity for period) for the investor, the portfolio investor class, and a portfolio calculation period.

Defined in this Act: excluded income, , investor, , portfolio calculation period, , portfolio entity tax liability, , portfolio investor class, , portfolio tax rate entity

CX 44E: inserted, on 1 October 2007, by section 9 of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Income excluded under Parts F to I

CX 45 Exclusion under Parts to be rewritten

An amount of income is excluded income if it is excluded under a provision in any of Parts F to I.

Defined in this Act: amount, excluded income, income,

Compare: 1994 No 164 s BD 1(2)(b)

Subpart CY—Income under Parts F to I

CY 1 Amounts that are income under Parts to be rewritten

Start here An amount is income of a person if it is their income under a provision in any of Parts F to I.

Defined in this Act: amount, income,

Compare: 1994 No 164 s BD 1(1)

Subpart CZ—Terminating provisions

CZ 1 Share purchase agreement income before 19 July 1968

CZ 2 Mining company's 1970-71 tax year

CZ 3 Exchange variations on 8 August 1975

CZ 4 Mineral mining: company making loan before 1 April 1979

CZ 5 Exempt interest: overseas money lent to government or local or public authority before 29 July 1983

CZ 6 Commercial bills before 31 July 1986

CZ 7 Primary producer co-operative companies: 1987-88 income year

CZ 8 Farm-out arrangements for petroleum mining before 16 December 1991

CZ 9 Available capital distribution amount: 1965 and 1985 to 1992

CZ 10 Transitional relief for calculation of attributed repatriation dividends: 2 July 1992

CZ 11 Recovery of deductions for software acquired before 1 April 1993

CZ 12 General insurance with risk period straddling1 July 1993

CZ 13 Treatment of units and interests in unit trusts and group investment funds on issue as at 1 April 1996

CZ 14 Treatment of superannuation fund interests in group investment funds on 1 April 1999

CZ 15 Accident insurance contracts before 1 July 2000

CZ 16 Interest payable to exiting company: 2001

CZ 17 Dividend of exiting company: 2001

CZ 18 Benefit provider approved within 6 months of 25 November 2003

CZ 19 Community trust receipts in 2004-05 or 2005-06 tax year

CZ 20 Geothermal wells between 31 March 2003 and 17 May 2006

CZ 1 Share purchase agreement income before 19 July 1968

In sections CE 1 to CE 4 (which relate to employment income), share purchase agreement does not include any agreement entered into before 19 July 1968.

Defined in this Act: share purchase agreement,

Compare: 1994 No 164 s CH 2(1)

CZ 2 Mining company's 1970-71 tax year

When this section applies
(1) This section applies when—
- (a) section 152 or 153 of the Land and Income Tax Act 1954 (as in force before the commencement of section 153F of the Act) applied to a mining company for the 1970-71 tax year; and
- (b) the company acquires an asset by incurring the exploration expenditure or development expenditure referred to in section 27(3)(a) of the Land and Income Tax Amendment Act 1971.
Application of subpart CU
(2) The provisions of subpart CU (Income from mineral mining) apply, with any necessary modifications, as follows:
- (a) section CU 3 (Disposal of assets) applies to the company as if every reference in the section to an asset included a reference to an asset of the kind described in subsection (1)(b) that the company disposes of in the 1971-72 tax year or a later tax year:
- (b) section CU 3 (Disposal of assets) applies to a person who acquires an asset of the kind described in subsection (1)(b) from the company as if every reference in the section to an asset included a reference to such an asset that the person acquires in the 1971-72 tax year or a later tax year:
- (c) section CU 10 (Mining asset used to derive income other than income from mining) applies to the company as if every reference in the section to an asset included a reference to an asset of the kind described in subsection (1)(b) that the company uses, wholly or mainly, to derive income other than income from mining in the 1971-72 tax year or a later tax year.
Resident and non-resident mining operators

(3) This section applies, with any necessary modifications, to an asset of the kind referred to in paragraph (i) of item “a” of the formula in section 31(3) of the Land and Income Tax Amendment Act (No 2) 1972 that a resident mining operator acquires or that a non-resident mining operator acquires.

Defined in this Act: income, income from mining, mining company, non-resident mining operator, resident mining operator, tax year,

Compare: 1994 No 164 ss DN 1(15)(b), DN 4(6), DN 5(2)(b)

Subsection (2)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

CZ 3 Exchange variations on 8 August 1975

When this section applies
(1) This section applies when—
- (a) a person carrying on a business in New Zealand—
  - (i) receives a loan in 2 or more instalments for the purposes of the business; or
  - (ii) makes a loan in 2 or more instalments in the course of carrying on the business; and
- (b) an exchange variation arises in relation to the whole or partial repayment of the loan; and
- (c) the person derives an amount or incurs a loss through the exchange variation.
Income or deduction

(2) The amount derived is income of the person and the loss incurred is a deduction that they are allowed.

Instalments and repayments
(3) For the purposes of this section, unless the terms of the loan expressly provide otherwise,—
- (a) each instalment is treated as a separate loan; and
- (b) repayments are applied so that the separate loans are repaid in the order in which they were received.
Exclusion

(4) This section does not apply to a financial arrangement to which the financial arrangements rules apply.

Some definitions
(5) In this section,—

exchange variation, for the repayment of some or all of the loan, excluding interest, means a variation by virtue of a fluctuation in the value of the currency or currencies of 1 or more countries other than New Zealand in relation to New Zealand currency, that occurs between—
- (a) the amount of the repayment expressed in New Zealand currency at the time at which the repayment was made; and
- (b) the amount expressed in New Zealand currency that would have been required to make that repayment on or at the later of 8 August 1975 and the time at which the loan was first made
loan means,—
- (a) for money lent, to a person, on or after 1 January 1974 and on or before 22 January 1985, money that—
  - (i) was lent with the consent of the Minister under the Capital Issues (Overseas) Regulations 1965 or the Overseas Investment Regulations 1974 or with the consent of the Reserve Bank under the Exchange Control Regulations 1978, as applicable; and
  - (ii) was lent in a currency other than New Zealand currency; and
  - (iii) was expressed to be repayable in a currency other than New Zealand currency:
- (b) for money lent, by a person, on or after 1 January 1974 and on or before 22 January 1985, money that—
  - (i) was lent with the consent of the Reserve Bank under the Exchange Control Regulations 1978 if required; and
  - (ii) was expressed to be repayable in a currency other than New Zealand currency:
- (c) for money lent, to a person, on or after 23 January 1985, money that—
  - (i) is lent in a currency other than New Zealand currency; and
  - (ii) is expressed to be repayable in a currency other than New Zealand currency:
- (d) in relation to money lent, by a person, on or after 23 January 1985, money that is expressed to be repayable in a currency other than New Zealand currency.
Defined in this Act: amount, business, deduction, exchange variation, financial arrangement, financial arrangements rules, income, loan, money lent, New Zealand,

Compare: 1994 No 164 s CZ 1(1), (2), (4), (5)

Subsection (5)(a)(iii), (b)(ii) and (c)(ii) relating to the definition loan was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

CZ 4 Mineral mining: company making loan before 1 April 1979

Application of this section

(1) This section applies if sections CU 17 to CU 19 (which relate to the repayment by a mining company of an amount written off) would have applied to a loan by a company to another company made on or before 31 March 1979 if the Income Tax Amendment Act 1979 had not been enacted.

Application of sections CU 17 to CU 19

(2) The sections apply, as far as applicable, to such a loan as if section 45 of the Income Tax Amendment Act 1979 were the only provision of it that had been enacted.

Defined in this Act: company, mineral,

Compare: 1994 No 164 s DN 3(11)

CZ 5 Exempt interest: overseas money lent to government or local or public authority before 29 July 1983

Exempt income
(1) Amounts that a non-resident derives are exempt income if they are derived from—
- (a) stock or debentures issued before 29 July 1983 by the government of New Zealand or by a local authority or a public authority, the interest on which is payable out of New Zealand; or
- (b) loans entered into before 29 July 1983, the interest on which was to be exempt from income tax in New Zealand under an agreement or arrangement made with the government of New Zealand.
Application posted or received before 29 July 1983

(2) For the purposes of subsection (1)(b), a loan entered into on or after 29 July 1983 is treated as having been entered into before that date if an exemption of a kind referred to in that provision was authorised as a result of an application received by or posted to the government of New Zealand before 29 July 1983.

Defined in this Act: amount, arrangement, debentures, exempt income, income tax, interest, local authority, money lent, New Zealand, non-resident, pay, public authority,

Compare: 1994 No 164 ss CB 2(5), CZ 2

CZ 6 Commercial bills before 31 July 1986

Income: redemption

(1) The amount that a person receives on the redemption of a commercial bill owned by the person is income of the person.

Income: disposal

(2) The value of a commercial bill on the day its owner disposes of it is income of the owner. This subsection does not apply if the disposal is a transfer under a relationship agreement.

(3) [Repealed]

Defined in this Act: amount, commercial bill, income, matrimonial agreement,

Compare: 1994 No 164 s CE 3

Subsection (2) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

Subsection (3) was repealed, as from 1 October 2005, by section 13 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

CZ 7 Primary producer co-operative companies: 1987-88 income year

Income: sale of asset
(1) If a primary producer co-operative company disposes of an asset for which the company was allowed a deduction under section 200 of the Income Tax Act 1976 for the 1987-88 or a previous income year, the company is treated as deriving income in the income year of disposal of an amount equal to the lesser of—
- (a) the total of all deductions relating to the asset that were allowed under section 200; and
- (b) the amount that the company derived from the disposal of the asset.
Income: payments to shareholders

(2) If a primary producer co-operative company has been allowed a deduction under section 200 for the 1987-88 or a previous income year, and a payment has been made to a shareholder of the company either on the surrender of any of their shares or on the liquidation of the company, part of the payment is treated as income of the shareholder. The part that is income is determined under subsection (3).

Amounts attributable to deductions
(3) The part of the payment that is treated as income is only such part as—
- (a) is more than the available subscribed capital per share calculated under the slice rule of the shares surrendered or held on liquidation by the shareholder; and
- (b) is attributable to an increase in the value of the company's assets that was caused by the company applying or appropriating a deduction allowed under section 200.
Some definitions
(4) In this section,—
primary producer co-operative company means a company that, at the end of the 1987-88 income year,—
- (a) was a primary producer co-operative company, as defined in section 200(1) and (9); and
- (b) could qualify for a deduction under section 200(4)
section 200 means section 200 of the Income Tax Act 1976 as it was in force before it was repealed by section 41(1) of the Income Tax Amendment Act (No 5) 1988 (which, in general, allowed primary producer co-operative companies to claim a deduction for profits that were reinvested in certain defined primary produce activities and assets).
Defined in this Act: amount, available subscribed capital, income, income year, liquidation, primary producer co-operative company, section 200, share, shareholder, slice rule,

Compare: 1994 No 164 s CK 3

CZ 8 Farm-out arrangements for petroleum mining before 16 December 1991

Excluded income

(1) Excess expenditure under a farm-out arrangement entered into before 16 December 1991 is excluded income of the transferor.

Some definitions

(2) In subsection (1), excess expenditure, farm-out arrangement, and transferor have the same meanings as in section 214D of the Income Tax Act 1976 immediately before its repeal by section 15 of the Income Tax Amendment Act (No 5) 1992.

Defined in this Act: excess expenditure, excluded income, farm-out arrangement, transferor,

Compare: 1994 No 164 s CJ 4(2)

CZ 9 Available capital distribution amount: 1965 and 1985 to 1992

Section CD 33(7)(e)
(1) For the purposes of section CD 33(7)(e) (Available capital distribution amount), a company derives a capital gain amount if—
- (a) before 1 April 1988, a net profit or gain was derived by the company to which section 4(5) of the Income Tax Act 1976, and not section 4(5A) of the Income Tax Act 1976, applied immediately before those provisions were repealed by section 31(1) of the Income Tax Amendment Act (No 5) 1988; or
- (b) an amount is derived by the company that is attributable to—
  - (i) a deduction allowed in the 1985-86 or 1986-87 tax year for livestock under section 86E of the Income Tax Act 1976; or
  - (ii) a revaluation of livestock in any of the 1986-87 to 1991-92 tax years under section 86A of the Income Tax Act 1976; or
  - (iii) a deduction allowed in the 1988-89 tax year for the revaluation of trading stock of wine, brandy, and whisky under section 87A of the Income Tax Act 1976 or section EZ 2 of the Income Tax Act 1994.
Section CD 33(14)(b)
(2) For the purposes of section CD 33(14)(b) (Available capital distribution amount),—
- (a) the amount has been excluded by section 4(3) of the Land and Income Tax Act 1954 from treatment as a dividend; or
- (b) the issue has been excluded by section 3(3) of the Income Tax Act 1976 from treatment as a bonus issue.
Defined in this Act: amount, bonus issue, company, dividend, trading stock,

Compare: 1994 No 164 ss CF 3(6), OB 1 capital gain amount

CZ 10 Transitional relief for calculation of attributed repatriation dividends: 2 July 1992

Loans made by CFC to intermediary before 2 July 1992
(1) Subsection (2) applies for the purposes of calculating attributed repatriation from a CFC to the extent to which—
- (a) the CFC made a loan before 8.00 pm New Zealand standard time on 2 July 1992; and
- (b) the loan enabled another person (intermediary) to make a loan to a New Zealand resident associated with the CFC; and
- (c) the loan is not a loan that is an arrangement subject to section GC 8 (Arrangement to defeat application of CFC attributed repatriation provisions); and
- (d) the New Zealand resident associated person repays the intermediary and the intermediary repays the CFC; and
- (e) the CFC uses the proceeds to make a loan directly to the New Zealand resident associated person.
Loan to associate: treated as existing for whole accounting period

(2) The loan to the New Zealand resident associated person is treated as if it were in existence at the start of the accounting period of the CFC in which it is in fact made.

Property acquired under contract binding before 2 July 1992
(3) Subsection (4) applies for the purposes of calculating attributed repatriation from a CFC if the CFC—
- (a) acquires any property (including an amount accruing on a financial arrangement) under a binding contract entered into before 8.00 pm New Zealand standard time on 2 July 1992; and
- (b) the acquisition is not as a result of any voluntary action taken by the CFC after that time.
Acquired property: treated as existing for whole accounting period

(4) The property is treated as if it were held by the CFC at the start of the accounting period of the CFC in which it is in fact acquired.

Defined in this Act: accounting period, arrangement, associated person, attributed repatriation, CFC, financial arrangement, New Zealand, New Zealand resident,

Compare: 1994 No 164 s CG 8(9), (12)

CZ 11 Recovery of deductions for software acquired before 1 April 1993

What this section applies to
(1) This section applies to any of the following items for the acquisition of which a person was allowed a deduction before 1 April 1993:
- (a) the copyright in software:
- (b) the right to use the copyright in software:
- (c) the right to use software.
Income

(2) An amount derived from the disposal of the item is income.

Relationship with sections EE 37 to EE 44 and EZ 19

(3) Sections EE 37 to EE 44 (which relate to disposals and similar events) apply to the item. Section EZ 19 (Adjusted tax value for software acquired before 1 April 1993) deals with the adjusted tax value of the item.

Defined in this Act: adjusted tax value, amount, income,

Compare: 1994 No 164 s EG 19(1)(a)(ii)

Subsection (1)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

CZ 12 General insurance with risk period straddling1 July 1993

When this section applies
(1) This section applies when—
- (a) a company carries on a business of providing general insurance or guarantees against loss, damage, or risk, immediately before and on 1 July 1993; and
- (b) the company holds a reinsurance contract for the general insurance that covers a period of risk starting before 1 July 1993 and ending after 1 July 1993; and
- (c) the company pays the premiums under the contract outside New Zealand.
Income

(2) An amount derived by the company from a claim under the reinsurance contract is income of the company if the event giving rise to the claim occurs on or after 1 July 1993.

Timing

(3) The income is allocated to the income year in which the event giving rise to the claim occurs.

Defined in this Act: amount, business, company, general insurance, income, income year, New Zealand, pay, reinsurance contract,

Compare: 1994 No 164 s CZ 6(d)(i)-(iii), (vi), (vii)

CZ 13 Treatment of units and interests in unit trusts and group investment funds on issue as at 1 April 1996

Units and interests in unit trusts and group investment funds

(1) All units in a unit trust and interests in a group investment fund on issue on 1 April 1996 are treated, on and from that date, as not having been issued on terms that their redemption would be subject to the slice rule.

Election made for units or interests

(2) All units or interests to which subsection (1) applies and for which an election has been made relying on paragraph (c) of the definition of the term shares of the same class in section OB 1 (Definitions) are treated on and from 1 April 1996 as if the election made in reliance upon paragraph (c) had never been made.

Exclusion

(3) This section does not apply to a unit or interest if the manager or trustee of the unit trust or group investment fund so chooses, by giving notice to the Commissioner before 1 April 1996, in which case the relevant unit or interest is treated, on and from 1 April 1996, as having been issued on terms that its redemption would be subject to the slice rule.

Defined in this Act: Commissioner, group investment fund, notice, shares of the same class, slice rule, trustee, unit trust,

Compare: 1994 No 164 s CZ 4(3)-(5)

CZ 14 Treatment of superannuation fund interests in group investment funds on 1 April 1999

When this section applies

(1) This section applies when a superannuation fund has an interest in a group investment fund on 1 April 1999.

Exclusions from dividends

(2) Section CD 14(4) (Returns of capital: off-market share cancellations) does not apply to the interest.

Trustee's election
(3) If a trustee of a group investment fund chose on or before 31 March 1999 to treat a superannuation fund interest in a group investment fund as subject to section CD 14(4) (Returns of capital: off-market share cancellations),—
- (a) subsection (2) does not apply to the interest; and
- (b) section CD 14(2) applies to the interest on and after 1 April 1999.
Defined in this Act: dividend, group investment fund, interest, superannuation fund, trustee,

Compare: 1994 No 164 ss CZ 4A(1), (2), CZ 4B(1), (2)

Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

CZ 15 Accident insurance contracts before 1 July 2000

A premium or contribution referred to in section CX 15(2) (Contributions to life or health insurance) is—
- (a) a premium or contribution paid for an accident insurance contract, as defined in section 13 of the Accident Insurance Act 1998, that was in force before 1 July 2000; or
- (b) a premium or contribution paid for a contract to which section 188(1)(a) of the Act applied, to the extent to which it related to cover and entitlements for workrelated personal injury, that was in force before 1 July 2000.
Defined in this Act: contribution,

Compare: 1994 No 164 s CI 1(ja)

CZ 16 Interest payable to exiting company: 2001

Interest payable under schedule 4, clause 12 of the Dairy Industry Restructuring Act 2001 to an exiting company (as defined in section 5 of the Act) as a result of a buy-out of the company's interests in the New Zealand Dairy Board is exempt income.

Defined in this Act: exempt income, interest, pay,

Compare: 1994 No 164 s CB 1(1)(d)

CZ 17 Dividend of exiting company: 2001

If an exiting company (as defined in section 5 of the Dairy Industry Restructuring Act 2001) derives a dividend as a result of a buy-out of the company's interests in the New Zealand Dairy Board under schedule 4 of the Act, the dividend is exempt income.

Defined in this Act: dividend, exempt income,

Compare: 1994 No 164 s CB 10(6)

CZ 18 Benefit provider approved within 6 months of 25 November 2003

When this section applies
(1) This section applies when a person (provider)—
- (a) is—
  - (i) an incorporated body; or
  - (ii) a trustee; and
- (b) provides accident insurance, health insurance, life insurance, or other health and welfare benefits to natural persons (recipients); and
- (c) either—
  - (i) was approved as a sickness, accident, or death benefit fund by the Commissioner on or before 24 November 2003; or
  - (ii) administers a fund that was approved as a sickness, accident, or death benefit fund by the Commissioner on or before 24 November 2003; and
- (d) has been approved by the Commissioner as an organisation that the Commissioner considers operates on the principles of mutuality for recipients—
  - (i) within the 6 months starting on 25 November 2003; or
  - (ii) within a further period allowed by the Commissioner, if the provider satisfies the Commissioner that the provider was not aware of the requirement for the Commissioner's approval in sufficient time to obtain the approval under subparagraph (i).
Exempt income
(2) An amount derived by a provider is exempt income if—
- (a) the amount is not derived from a business carried on by the provider beyond the circle of the recipients; and
- (b) each of the recipients is—
  - (i) a beneficiary of the trust for which the provider is the trustee; or
  - (ii) a member of the provider; or
  - (iii) a member of an organisation that directly or indirectly controls the provider; or
  - (iv) a relative of a person described in any of subparagraphs (i) to (iii).
Defined in this Act: amount, business, Commissioner, exempt income, life insurance, relative, sickness, accident, or death benefit fund, trustee,

Compare: 1994 No 164 s CB 4(1)(ab)

CZ 19 Community trust receipts in 2004-05 or 2005-06 tax year

An amount of income derived by a trustee or company is exempt income if—
- (a) the amount would be exempt income under section CW 34 (Charities: non-business income) or CW 35 (Charities: business income) but for the trustee or company making a dividend, distribution, or settlement to a community trust in the 2004-05 or 2005-06 tax year on the winding up of the trust or company; and
- (b) either—
  - (i) the corpus of the trust was provided by the community trust; or
  - (ii) the company is wholly owned by the community trust.
Defined in this Act: amount, community trust, company, corpus, dividend, exempt income, income, tax year, trustee,

Compare: 1994 No 164 s CB 4(1)(n)

CZ 20 Geothermal wells between 31 March 2003 and 17 May 2006

When this section applies
(1) This section applies to a person's geothermal well, if—
- (a) the well is—
  - (i) both started and completed between 31 March 2003 and 17 May 2006:
  - (ii) acquired between 31 March 2003 and 17 May 2006; and
- (b) the person—
  - (i) uses the well, or has the well available for use, after the end of the well's geothermal energy proving period, in deriving assessable income or carrying on a business for the purpose of deriving assessable income:
  - (ii) disposes of the well.
Income
(2) The person has, for the first income year in which this section applies, income equal to,—
- (a) if subsection (1)(b)(i) applies, the total amount of deductions that the person is allowed for the well under section DZ 7 of the Income Tax Act 1994 and section DZ 15 (Geothermal wells between 31 March 2003 and 17 May 2006) for all income years; or
- (b) if subsection (1)(b)(ii) applies, the lesser of—
  - (i) the amount derived from disposing of the well; and
  - (ii) the total amount of deductions that the person is allowed for the well under section DZ 7 of the Income Tax Act 1994 and section DZ 15 for all income years.
Defined in this Act: amount, business, deduction, dispose, geothermal energy proving period, geothermal well, income, income year .,

Section CZ 20 was inserted, as from 1 April 2005, by section 16(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005–06 income year.

Part D
Deductions

Subpart DA—General rules

DA 1 General Permission

DA 2 General limitations

DA 3 Effect of specific rules on general rules

DA 4 Treatment of amount of depreciation loss

Subpart DB—Specific rules for expenditure types

Taxes

DB 1 Taxes, other than GST, and penalties

DB 2 GST

DB 3 Determining tax liabilities

DB 4 Chatham Islands dues

Financing costs

DB 5 Transaction costs: borrowing money for use as capital

DB 6 Interest: not capital expenditure

DB 7 Interest: most companies need no nexus with income

DB 8 Interest: money borrowed to acquire shares in group companies

Financial arrangements adjustments

DB 9 Negative base price adjustment

DB 9B Base price adjustment under old financial arrangements rules

DB 10 Repayment of debt sold at discount to associate of debtor

DB 11 Security payment

DB 12 Sureties

DB 12B Share-lending collateral under share-lending arrangements

DB 12C Replacement payments and imputation credits under share-lending arrangements

Premises or land costs

DB 13 Transaction costs: leases

DB 13B Expenses of failed or withdrawn application for resource consent

DB 14 Destruction of temporary building

DB 15 Amounts paid for non-compliance with covenant for repair

DB 16 Amounts paid for non-compliance and change in use

Revenue account property

DB 17 Cost of revenue account property

DB 18 Share losses

DB 19 Amount from profit-making undertaking or scheme and not already in income

DB 20 Amount from major development or division and not already in income

DB 21 Amount from land affected by change and not already in income

DB 22 Cost of non-specified mineral

Bad debts

DB 23 Bad debts

DB 24 Bad debts owed to estates

Research and development

DB 25 Scientific research

DB 26 Research or development

DB 27 Some definitions

DB 28 Patent expenses

DB 28B Expenses of failed or withdrawn patent application

DB 29 Patent rights: devising patented inventions

DB 30 Patent rights acquired before 1 April 1993

DB 31 Patent applications or patent rights acquired on or after 1 April 1993

Marketing

DB 32 Gifts of money by company

Theft and bribery

DB 33 Property misappropriated by employees or service providers

DB 34 Making good loss from misappropriation by partners

DB 35 Restitution of stolen property

DB 36 Bribes paid to public officials

Pollution control

DB 37 Avoiding, remedying, or mitigating effects of discharge of contaminant

Repayments

DB 38 Payments for remitted amounts

DB 39 Restrictive covenant breached

Matching rules: revenue account property, prepayments, and deferred payments

DB 40 Adjustment for opening values of trading stock, livestock, and excepted financial arrangements

DB 41 Adjustment for prepayments

DB 42 Adjustment for deferred payment of employment income

DB 43 Adjustment for change to accounting practice

DB 43B Certain investors have deduction for portfolio investor allocated loss

DB 43C Certain fees charged by portfolio tax rate entities to investors not allowed as deductions

Exempt income

DB 44 Expenditure incurred in deriving exempt dividend

Use of motor vehicle under certain arrangements

DB 45 Expenditure incurred in operating motor vehicle under agreement or arrangement affected by section CX 6B

Subpart DC—Employee or contractor expenditure

DC 1 Lump sum payments on retirement

DC 2 Pension payments to former employees

DC 3 Pension payments to former partners

DC 4 Payments to working partners

DC 5 Contributions to employees' benefit funds

DC 6 Contributions to employees' superannuation schemes

DC 7 Attribution of personal services

DC 8 Restrictive covenants or exit inducements

DC 9 Sale of business: transferred employment income obligations

DC 10 Transfers of employment income obligations to associates

DC 11 Loans to employees under share purchase schemes

DC 12 Criteria for approval of share purchase schemes: before period of restriction ends

DC 13 Criteria for approval of share purchase schemes: when period of restriction ends

DC 14 Some definitions

Subpart DD—Entertainment expenditure

DD 1 Entertainment expenditure generally

DD 2 Limitation rule

DD 3 When limitation rule does not apply

DD 4 Employment-related activities

DD 5 Promoting businesses, goods, or services

DD 6 Entertainment as business or for charitable purpose

DD 7 Entertainment outside New Zealand

DD 8 Entertainment that is income or fringe benefit

DD 9 Relationship with FBT rules

DD 10 Interpretation: reimbursement and apportionment

DD 11 Some definitions

Subpart DE—Motor vehicle expenditure

DE 1 What this subpart does

DE 2 Deductions for business use

DE 3 Methods for calculating proportion of business use

DE 4 Default method for calculating proportion of business use

Actual records

DE 5 Actual records

Logbook

DE 6 Using logbook for test period

DE 7 Logbook requirements

DE 8 Logbook term

DE 9 Inadequate logbook

DE 10 Variance during logbook term

DE 11 Replacement vehicles

Mileage rates

DE 12 Mileage rate method

Subpart DF—Government grants

DF 1 Government grants to businesses

DF 2 Repayment of grant-related suspensory loans

DF 3 Identifying expenditure for purposes of sections DF 1 and DF 2

DF 4 Payment for attendant care by claimant receiving type of accident compensation payments [Not in force]

Subpart DN—Attributed losses from foreign equity

Attributed controlled foreign company loss

DN 1 Attributed controlled foreign company loss

DN 2 When attributed CFC loss arises

DN 3 Calculation of attributed CFC loss

DN 4 Ring-fencing cap on deduction

Foreign investment fund loss

DN 5 Foreign investment fund loss

DN 6 When FIF loss arises

DN 7 Calculation of FIF loss

DN 8 Ring-fencing cap on deduction: not branch equivalent method [Repealed]

DN 9 Ring-fencing cap on deduction: branch equivalent method

Subpart DO—Farming and aquacultural business expenditure

Farming

DO 1 Enhancements to land, except trees

DO 2 Erosion and shelter plantings

DO 3 Trees on farms

DO 4 Improvements to farm land

DO 4B Expenditure on land: planting of listed horticultural plants

DO 4C Expenditure on land: horticultural replacement planting

DO 4D Accounting for expenditure on listed horticultural plants under sections DO 4B and DO 4C

DO 4E Some definitions

DO 5 Farming or horticulture expenditure of lessor or sublessor

DO 5B Improvement destroyed or made useless

Aquaculture

DO 6 Improvements to aquacultural business

DO 7 Improvement destroyed or made useless

Subpart DP—Forestry expenditure

DP 1 Expenditure of forestry business

DP 2 Plant or machinery

DP 3 Improvements to forestry land

DP 3B Improvement destroyed or made useless

DP 4 Forestry encouragement agreement: deductions

DP 5 Forestry encouragement agreement: no deduction

DP 6 Land contouring: no deduction

DP 7 Forestry business on land bought from Crown, Maori owners, or holding company: no deduction

DP 8 Cost of acquiring timber: forestry business on land bought from Crown, Maori owners, or holding company

DP 9 Cost of acquiring timber or right to take timber: other cases

DP 10 Cost of timber

Subpart DQ—Income equalisation schemes and environmental restoration accounts scheme

DQ 1 Main income equalisation scheme

DQ 2 Adverse event income equalisation scheme

DQ 3 Thinning operations income equalisation scheme

DQ 4 Environmental restoration accounts scheme

Subpart DR—Life insurance business expenditure

DR 1 Mortality profit formula: negative result

DR 2 Disposal of property

DR 3 Specific deductions denied to life insurers and fully reinsured persons

Subpart DS—Film industry expenditure

DS 1 Acquiring film rights

DS 2 Film production expenditure

DS 3 Clawback of deductions for film reimbursement schemes

DS 4 Meaning of film reimbursement scheme

Subpart DT—Petroleum mining expenditure

Petroleum exploration expenditure

DT 1 Petroleum exploration expenditure

DT 2 Arrangement for petroleum exploration expenditure and sale of property

DT 3 Acquisition of licences and permits

DT 4 Acquisition of exploratory material

Petroleum development expenditure

DT 5 Petroleum development expenditure

DT 6 Expenditure on petroleum mining assets

DT 7 Exploratory well expenditure

DT 8 Acquisition of certain petroleum mining assets

DT 9 Disposal of petroleum mining asset to associate

DT 10 Disposal of petroleum mining asset outside association

DT 11 Association ending

Other expenditure

DT 12 Damage to assets

DT 13 Disposal of ownership interests in controlled petroleum mining entities

DT 14 Farm-out arrangements

DT 15 Persons associated with petroleum miner

DT 16 Removal or restoration operations

General provisions

DT 17 Attribution of expenditure

DT 18 Replacement permits

DT 19 Partnership interests and disposal of part of asset

DT 20 Petroleum mining operations outside New Zealand

Subpart DU—Mineral mining expenditure

DU 1 Mining exploration expenditure and mining development expenditure

DU 2 Mining exploration expenditure or mining development expenditure on acquisition of asset

DU 3 Replacing or repairing asset

DU 4 Income appropriated to expenditure

DU 5 Non-mining asset used to derive income from mining

DU 6 Depreciation

DU 7 Limit on deduction

DU 8 Meaning of asset for sections DU 1 to DU 7

DU 9 Application of sections to resident mining operators

DU 10 Application of sections to non-resident mining operators

DU 11 Disposal of mining shares by company

DU 12 Amount written off by holding company

Subpart DV—Expenditure specific to certain entities

Superannuation funds

DV 1 Publicising superannuation funds

DV 2 Transfer of expenditure to master fund

DV 3 Formula for calculating maximum deduction

DV 4 Carry forward of expenditure

Other entities

DV 5 Investment funds: transfer of expenditure to master funds

DV 6 Formula for calculating maximum deduction

DV 7 Carry forward of expenditure

DV 8 Non-profit organisations

DV 9 Trusts

DV 10 Building societies

DV 10B Distribution to member of co-operative company, excluded from being dividend

DV 11 Maori authorities: donations

DV 12 Group companies

DV 13 Amalgamated company: expenditure on improvements for farming, horticultural, aquacultural, and forestry businesses

Subpart DW—Expenditure specific to certain industries

DW 1 Airport operators

DW 2 Bloodstock racing

Subpart DX—Other expenditure

DX 1 Testamentary annuities

Subpart DY—Deductions under Parts F to I

DY 1 Amounts that are deductions under Parts to be rewritten

DY 2 Amounts that are not deductions under Parts to be rewritten

Subpart DZ—Terminating provisions

DZ 1 Commercial bills before 31 July 1986

DZ 2 Life insurers acquiring property before 1 April 1988

DZ 3 Petroleum mining: development expenditure from 1 October 1990 to 15 December 1991

DZ 4 Expenditure on abandoned exploratory well before 16 December 1991

DZ 5 Farm-out arrangements for petroleum mining before 16 December 1991

DZ 6 Partnership interests and disposal of part of asset before 16 December 1991

DZ 7 Petroleum mining operations outside New Zealand before 16 December 1991

DZ 8 Buying patent rights before 1 April 1993

DZ 9 Premium paid on land leased before 1 April 1993

DZ 10 General insurance with risk period straddling 1 July 1993

DZ 11 Film reimbursement scheme on or before 30 June 2001

DZ 12 Mineral mining: 1954 to 2005

DZ 13 Enhancements to land unamortised at end of 2004-05 year

DZ 14 Patent applications before 1 April 2005

DZ 15 Geothermal wells between 31 March 2003 and 17 May 2006

DZ 16 Expenditure on improvements to aquacultural business before 1995-96 income year

DZ 17 Expenditure on improvements to forestry land before 1995-96 income year

Subpart DA—General rules

DA 1 General Permission

DA 2 General limitations

DA 3 Effect of specific rules on general rules

DA 4 Treatment of amount of depreciation loss

DA 1 General Permission

Nexus with income
(1) A person is allowed a deduction for an amount of expenditure or loss (including an amount of depreciation loss) to the extent to which the expenditure or loss is—
- (a) incurred by them in deriving—
  - (i) their assessable income; or
  - (ii) their excluded income; or
  - (iii) a combination of their assessable income and excluded income; or
- (b) incurred by them in the course of carrying on a business for the purpose of deriving—
  - (i) their assessable income; or
  - (ii) their excluded income; or
  - (iii) a combination of their assessable income and excluded income.
General permission

(2) Subsection (1) is called the general permission.

Defined in this Act: amount, assessable income, business, deduction, depreciation loss, excluded income, general permission, loss,

Compare: 1994 No 164 s BD 2(1)(b)(i), (ii)

DA 2 General limitations

Capital limitation

(1) A person is denied a deduction for an amount of expenditure or loss to the extent to which it is of a capital nature. This rule is called the capital limitation.

Private limitation

(2) A person is denied a deduction for an amount of expenditure or loss to the extent to which it is of a private or domestic nature. This rule is called the private limitation.

Exempt income limitation

(3) A person is denied a deduction for an amount of expenditure or loss to the extent to which it is incurred in deriving exempt income. This rule is called the exempt income limitation.

Employment limitation

(4) A person is denied a deduction for an amount of expenditure or loss to the extent to which it is incurred in deriving income from employment. This rule is called the employment limitation.

Withholding tax limitation

(5) A person is denied a deduction for an amount of expenditure or loss to the extent to which it is incurred in deriving schedular income subject to final withholding. This rule is called the withholding tax limitation.

Non-residents' foreign-sourced income limitation

(6) A person is denied a deduction for an amount of expenditure or loss to the extent to which it is incurred in deriving non-residents' foreign-sourced income. This rule is called the non-residents' foreign-sourced income limitation.

Relationship of general limitations to general permission

(7) Each of the general limitations in this section overrides the general permission.

Defined in this Act: amount, capital limitation, deduction, employment limitation, exempt income, exempt income limitation, general limitation, general permission, income from employment, loss, non-residents' foreign-sourced income, non-residents' foreign-sourced income limitation, private limitation, schedular income subject to final withholding, withholding tax limitation,

Compare: 1994 No 164 s BD 2(2)

DA 3 Effect of specific rules on general rules

Supplements to general permission

(1) A provision in any of subparts DB to DZ may supplement the general permission. In that case, a person to whom the provision applies does not have to satisfy the general permission to be allowed a deduction.

Express reference needed to supplement

(2) A provision in any of subparts DB to DZ takes effect to supplement the general permission only if it expressly states that it supplements the general permission.

Relationship of general limitations to supplements to general permission

(3) Each of the general limitations overrides a supplement to the general permission in any of subparts DB to DZ, unless the provision creating the supplement expressly states otherwise.

Relationship between other specific provisions and general permission or general limitations

(4) A provision in any of subparts DB to DZ may override any 1 or more of the general permission and the general limitations.

Express reference needed to override
(5) A provision in any of subparts DB to DZ takes effect to override the general permission or a general limitation only if it expressly states—
- (a) that it overrides the general permission or the relevant limitation; or
- (b) that the general permission or the relevant limitation does not apply.
Part E

(6) No provision in Part E (Timing and quantifying rules) supplements the general permission or overrides the general permission or a general limitation.

Defined in this Act: deduction, general limitation, general permission, supplement,

Compare: 1994 No 164 s BD 2(1)(b)(iii), (2)(e)

DA 4 Treatment of amount of depreciation loss

The capital limitation does not apply to an amount of depreciation loss merely because the item of property is itself of a capital nature.

Defined in this Act: amount, capital limitation, depreciation loss,

Compare: 1994 No 164 s BD 2(1)(a)

Subpart DB—Specific rules for expenditure types

Taxes

DB 1 Taxes, other than GST, and penalties

DB 2 GST

DB 3 Determining tax liabilities

DB 4 Chatham Islands dues

Financing costs

DB 5 Transaction costs: borrowing money for use as capital

DB 6 Interest: not capital expenditure

DB 7 Interest: most companies need no nexus with income

DB 8 Interest: money borrowed to acquire shares in group companies

Financial arrangements adjustments

DB 9 Negative base price adjustment

DB 9B Base price adjustment under old financial arrangements rules

DB 10 Repayment of debt sold at discount to associate of debtor

DB 11 Security payment

DB 12 Sureties

DB 12B Share-lending collateral under share-lending arrangements

DB 12C Replacement payments and imputation credits under share-lending arrangements

Premises or land costs

DB 13 Transaction costs: leases

DB 13B Expenses of failed or withdrawn application for resource consent

DB 14 Destruction of temporary building

DB 15 Amounts paid for non-compliance with covenant for repair

DB 16 Amounts paid for non-compliance and change in use

Revenue account property

DB 17 Cost of revenue account property

DB 18 Share losses

DB 19 Amount from profit-making undertaking or scheme and not already in income

DB 20 Amount from major development or division and not already in income

DB 21 Amount from land affected by change and not already in income

DB 22 Cost of non-specified mineral

Bad debts

DB 23 Bad debts

DB 24 Bad debts owed to estates

Research and development

DB 25 Scientific research

DB 26 Research or development

DB 27 Some definitions

DB 28 Patent expenses

DB 28B Expenses of failed or withdrawn patent application

DB 29 Patent rights: devising patented inventions

DB 30 Patent rights acquired before 1 April 1993

DB 31 Patent applications or patent rights acquired on or after 1 April 1993

Marketing

DB 32 Gifts of money by company

Theft and bribery

DB 33 Property misappropriated by employees or service providers

DB 34 Making good loss from misappropriation by partners

DB 35 Restitution of stolen property

DB 36 Bribes paid to public officials

Pollution control

DB 37 Avoiding, remedying, or mitigating effects of discharge of contaminant

Repayments

DB 38 Payments for remitted amounts

DB 39 Restrictive covenant breached

Matching rules: revenue account property, prepayments, and deferred payments

DB 40 Adjustment for opening values of trading stock, livestock, and excepted financial arrangements

DB 41 Adjustment for prepayments

DB 42 Adjustment for deferred payment of employment income

DB 43 Adjustment for change to accounting practice

DB 43B Certain investors have deduction for portfolio investor allocated loss

DB 43C Certain fees charged by portfolio tax rate entities to investors not allowed as deductions

Exempt income

DB 44 Expenditure incurred in deriving exempt dividend

Use of motor vehicle under certain arrangements

DB 45 Expenditure incurred in operating motor vehicle under agreement or arrangement affected by section CX 6B

Taxes

DB 1 Taxes, other than GST, and penalties

No deduction
(1) A person is denied a deduction for the following:
- (a) income tax; and
- (b) a civil penalty under Part 9 of the Tax Administration Act 1994; and
- (c) a tax, a penalty, or interest on unpaid tax that is—
  - (i) payable under the laws of a country or territory outside New Zealand; and
  - (ii) substantially the same as a civil penalty as defined in section 3(1) of the Tax Administration Act 1994, or a criminal penalty under Part 9 of the Act, or interest imposed under Part 7 of the Act.
Meaning of income tax
(2) In this section, income tax—
- (a) includes—
  - (i) further income tax:
  - (ii) a tax imposed in a country or territory outside New Zealand that is substantially the same as income tax:
  - (iii) imputation penalty tax:
  - (iv) a dividend withholding payment, further dividend withholding payment, and dividend withholding payment penalty tax:
  - (v) qualifying company election tax:
- (b) does not include—
  - (i) fringe benefit tax:
  - (ii) specified superannuation contribution withholding tax.
Link with subpart DA

(3) This section overrides the general permission.

Defined in this Act: deduction, dividend withholding payment, dividend withholding payment penalty tax, fringe benefit tax, further dividend withholding payment, further income tax, general permission, GST, imputation penalty tax, income tax, New Zealand, qualifying company election tax, specified superannuation contribution withholding tax, tax,

Compare: 1994 No 164 s DB 1

Subsections (1)(a) and (b), and (2)(a)(i) to (v) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.

Subsection (2)(b)(i) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.

DB 2 GST

No deduction
(1) A registered person is denied a deduction for the following:
- (a) input tax on a supply of goods or services to them:
- (b) GST payable by them to the Commissioner.
Deduction
(2) A registered person is allowed a deduction for output tax on a supply of goods or services that section 21 or 21I(1) to 21I(3) of the Goods and Services Tax Act 1985 treats them as making, but only to the extent to which—
- (a) they are allowed a deduction for expenditure that they incur in acquiring or producing the goods or services; or
- (b) they are allowed a deduction for an amount of depreciation loss for the goods or services.
Exclusion
(3) Subsection (2) does not apply to an amount that relates to the application of a capital asset—
- (a) for the principal purpose of making taxable supplies, when the asset was acquired or produced other than for the principal purpose of making taxable supplies; or
- (b) other than for the principal purpose of making taxable supplies, when the asset was acquired or produced for the principal purpose of making taxable supplies; or
- (c) other than for the purpose of deriving income.
Depreciable property

(4) The provisions that apply when an amount of depreciation loss is quantified by reference to the cost of an item of depreciable property to a person are in section EE 45 (Cost: GST).

Link with subpart DA
(5) The link between this section and subpart DA (General rules) is as follows:
- (a) subsection (1) overrides the general permission:
- (b) subsection (2) supplements the general permission. The general limitations still apply.
Defined in this Act: amount, Commissioner, deduction, depreciable property, depreciation loss, general limitation, general permission, goods, GST, GST payable, income, input tax, output tax, registered person, services, supplement, taxable supply,

Compare: 1994 No 164 s ED 4(2), (3), (7)

Subsection (5)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.

DB 3 Determining tax liabilities

Deduction
(1) A person is allowed a deduction for expenditure that they incur in connection with the following matters:
- (a) calculating or determining their income tax liability for a tax year:
- (b) calculating or determining the GST payable by them in a taxable period:
- (c) preparing, instituting, or presenting an objection or challenge to, or an appeal following, a determination or assessment made under this Act or an earlier Act, the Tax Administration Act 1994, or the Goods and Services Tax Act 1985:
- (d) making a contribution towards the expenditure incurred by another person if—
  - (i) the other person is allowed a deduction for that expenditure; and
  - (ii) the expenditure relates to a matter affecting the determination of the first person's liability for income tax or GST; and
  - (iii) the first person has objected to, challenged, or appealed against an assessment or determination made in relation to the matter under this Act or an earlier Act, the Tax Administration Act 1994, or the Goods and Services Tax Act 1985.
Exclusions
(2) This section does not apply to expenditure that a person incurs in connection with the following matters:
- (a) a matter arising from a return of income or a return under the Goods and Services Tax Act 1985 that was fraudulent or wilfully misleading:
- (b) an offence under any of the Inland Revenue Acts:
- (c) a shortfall penalty assessed under this Act or an earlier Act, the Tax Administration Act 1994, or the Goods and Services Tax Act 1985 (but not an assessment that is later cancelled):
- (d) an objection, challenge, or appeal that is inconsequential or frivolous:
- (e) a matter arising under the Goods and Services Tax Act 1985 to the extent to which it relates to a taxable activity that does not constitute a business for the purposes of this Act.
Some definitions
(3) In this section,—
GST payable—
- (a) means an amount of GST calculated under sections 19 to 19D and 20 of the Goods and Services Tax Act 1985; and
- (b) includes—
  - (i) an amount refundable under those sections; and
  - (ii) an amount referred to in section 17(2) or 51B of the Goods and Services Tax Act 1985
GST payable: paragraph (b)(ii) of this definition was substituted, as from 1 October 2005, by section 177 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).
taxable activity is defined in section 6 of the Goods and Services Tax Act 1985

taxable period is defined in section 2 of the Goods and Services Tax Act 1985
Link with subpart DA

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

Defined in this Act: amount, assessment, business, deduction, employment limitation, general limitation, general permission, GST, GST payable, income tax liability, Inland Revenue Acts, private limitation, return of income, supplement, tax year, taxable activity, taxable period,

Compare: 1994 No 164 s DJ 5(1), (3), (4)

Subsection (1)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.

Subsection (2)(a) to (d) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.

DB 4 Chatham Islands dues

Deduction

(1) A person is allowed a deduction for expenditure incurred on dues levied under the Chatham Islands Council Act 1995 that relate to goods that the person uses in connection with carrying on a business.

Timing of deduction

(2) The deduction is allocated to the income year in which the dues are paid.

Exclusion of expenditure: other deductions

(3) Expenditure to which subsection (1) applies must not be taken into account in calculating the cost of the goods for the purpose of a deduction relating to the goods under any other provision of this Act.

Link with subpart DA
(4) The link between this section and subpart DA (General rules) is as follows:
- (a) subsection (1) supplements the general permission and overrides the capital limitation. The other general limitations still apply:
- (b) subsection (3) overrides the general permission.
Defined in this Act: business, capital limitation, deduction, general permission, general limitation, income year, supplement,

Compare: 1994 No 164 s DJ 3

Subsection (4)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.

Financing costs

DB 5 Transaction costs: borrowing money for use as capital

Deduction

(1) A person is allowed a deduction for expenditure incurred in borrowing money that is used as capital in deriving their income.

Link with subpart DA

(2) This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.

Defined in this Act: capital limitation, deduction, general limitation, general permission, income,

Compare: 1994 No 164 s DJ 11

DB 6 Interest: not capital expenditure

Deduction

(1) A person is allowed a deduction for interest incurred.

Exclusion

(2) Subsection (1) does not apply to interest for which a person is denied a deduction under section DB 1.

Link with subpart DA

(3) This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.

Defined in this Act: capital limitation, deduction, general limitation, general permission, interest,

Compare: 1994 No 164 s DD 1(1)(b)(i), (ii)

DB 7 Interest: most companies need no nexus with income

Deduction

(1) A company is allowed a deduction for interest incurred.

Exclusion: qualifying company

(2) Subsection (1) does not apply to a qualifying company.

Exclusion: exempt income
(3) If a company (company A) derives exempt income or another company (company B) in the same wholly-owned group of companies derives exempt income, subsection (1) applies to company A only if all the exempt income is 1 or more of the following:
- (a) dividends; or
- (b) income exempted under section CW 46 (Disposal of companies' own shares); or
- (c) income exempted under section CW 48 (Stake money) and ancillary to the company's business of breeding.
Exclusion: non-resident company

(4) If a company is a non-resident company, subsection (1) applies only to the extent to which the company incurs interest in the course of carrying on a business through a fixed establishment in New Zealand.

Exclusion: interest related to tax

(5) Subsection (1) does not apply to interest for which a person is denied a deduction under section DB 1.

Link with subpart DA

(6) This section supplements the general permission and overrides the capital limitation, the exempt income limitation, and the withholding tax limitation. The other general limitations still apply.

Defined in this Act: business, capital limitation, company, deduction, dividend, exempt income, exempt income limitation, fixed establishment, general limitation, general permission, income, interest, New Zealand, non-resident company, qualifying company, supplement, wholly-owned group of companies, withholding tax limitation,

Compare: 1994 No 164 ss BD 2A, DD 1(3), (4)

DB 8 Interest: money borrowed to acquire shares in group companies

Deduction: borrowing to acquire group company shares

(1) A company is allowed a deduction for interest incurred on money borrowed to acquire shares in another company in the same group of companies.

Exclusion: group not in existence at tax year end

(2) Subsection (1) does not apply if the 2 companies are not in the same group of companies at the end of the tax year for which the deduction is claimed.

Deduction: interest after qualifying amalgamation

(3) A company is allowed a deduction for interest incurred on money borrowed to acquire shares in another company that has ceased to exist on a qualifying amalgamation.

Exclusion: group not in existence immediately before qualifying amalgamation

(4) Subsection (3) does not apply if the 2 companies were not in the same group of companies immediately before the qualifying amalgamation.

Application from tax year of qualifying amalgamation

(5) Subsection (3) applies in the tax year in which the qualifying amalgamation occurs and in later tax years.

Link with subpart DA

(6) This section supplements the general permission and overrides the capital limitation, the exempt income limitation, and the withholding tax limitation. The other general limitations still apply.

Defined in this Act: company, deduction, exempt income limitation, general limitation, general permission, group of companies, interest, qualifying amalgamation, share, supplement, tax year, withholding tax limitation,

Compare: 1994 No 164 ss DD 1(1)(b)(iii), (2), DD 3

Financial arrangements adjustments

DB 9 Negative base price adjustment

Deduction

(1) A person who has a negative base price adjustment under section EW 31(4) (Base price adjustment formula) is allowed a deduction for the expenditure to the extent to which it arises from assessable income, under section CC 3 (Financial arrangements), derived by the person under the financial arrangement in previous income years.

Link with subpart DA

(2) This section supplements the general permission and overrides all the general limitations.

Defined in this Act: assessable income, deduction, financial arrangement, general limitation, general permission, income year, supplement,

Compare: 1994 No 164 s EH 47(4)

DB 9B Base price adjustment under old financial arrangements rules

(1) A person is allowed a deduction for an amount that is a deduction under section EZ 34(6) (Cash basis holder) or EZ 35(3) or (4) (Income and expenditure where financial arrangement redeemed or disposed of).

Link with subpart DA

(2) This section supplements the general permission and overrides all the general limitations.

Defined in this Act: amount, deduction, general limitation, general permission, supplement,

Section DB 9B was inserted, as from 1 April 2005, by section 40(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

Subsection (2) was inserted, as from 1 April 2005, by section 17(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005–06 income year.

The list of defined terms was inserted, as from 1 April 2005, by section 17(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005–06 income year.

DB 10 Repayment of debt sold at discount to associate of debtor

Deduction

(1) When section EW 50(6)(b) (Income and deduction when debt sold at discount to associate of debtor) applies, the debtor is allowed a deduction for the amount quantified in that subsection.

Link with subpart DA

(2) This section supplements the general permission and overrides all the general limitations.

Defined in this Act: amount, associated person, deduction, general limitation, general permission, supplement,

Compare: 1994 No 164 s EH 53(1), (7)

DB 11 Security payment

When subsection (2) applies
(1) Subsection (2) applies when—
- (a) a person receives a security payment for a loss; and
- (b) no other provision of this Act allows the person a deduction for the loss.
Deduction: loss

(2) The person is allowed a deduction for the loss quantified in section EW 52(2) (Deduction for security payment).

When subsection (4) applies
(3) Subsection (4) applies when—
- (a) a person receives a security payment for a share loss as described in section DB 18; and
- (b) the requirements of section DB 18 are met; and
- (c) no other provision of this Act allows the person a deduction for the loss.
Deduction: share loss

(4) The person is allowed a deduction for the share loss quantified in section EW 52(4) (Deduction for security payment).

Link with subpart DA

(5) This section supplements the general permission and overrides all the general limitations.

Defined in this Act: deduction, general limitation, general permission, loss, security payment, supplement,

Compare: 1994 No 164 s EH 55

DB 12 Sureties

When this section applies

(1) This section applies when a surety incurs expenditure or loss under a security arrangement.

No deduction (with exceptions)
(2) Neither the surety nor a person with whom the surety was an associated person over the security arrangement's term is allowed a deduction for the expenditure or loss to the extent to which the expenditure or loss is due to—
- (a) the actions of the surety or a person with whom the surety was an associated person over the arrangement's term; or
- (b) the occurrence of an event, if the occurrence could have been influenced by the surety or a person with whom the surety was an associated person over the arrangement's term; or
- (c) the non-occurrence of an event, if the non-occurrence could have been influenced by the surety or a person with whom the surety was an associated person over the arrangement's term.
Link with subpart DA

(3) This section overrides the general permission.

Defined in this Act: associated person, deduction, general permission, loss, security arrangement,

Compare: 1994 No 164 s EH 56

Share-lending arrangements

This heading was inserted, as from 1 July 2006, by section 41 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

DB 12B Share-lending collateral under share-lending arrangements

No deduction

(1) A person is denied a deduction for the amount of expenditure incurred as share-lending collateral under a share-lending arrangement.

Link with subpart DA and other subject matter
(2) This section overrides—
- (a) the general permission:
- (b) sections DB 17 to DB 19.
Defined in this Act: amount, deduction, general permission, share-lending arrangement, share-lending collateral,

Sections DB 12B and DB 12C were inserted, as from 1 July 2006, by section 41 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

DB 12C Replacement payments and imputation credits under share-lending arrangements

A person is allowed a deduction for—
- (a) the amount of expenditure incurred as a replacement payment under a share-lending arrangement:
- (b) the amount of imputation credit attached under sections ME 6B and NF 8B (which relate to imputation credits) to the replacement payment.
Defined in this Act: amount, deduction, imputation credit, replacement payment, share-lending arrangement,

Sections DB 12B and DB 12C were inserted, as from 1 July 2006, by section 41 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Premises or land costs

DB 13 Transaction costs: leases

Deduction

(1) A person is allowed a deduction for expenditure that they incur for the preparation and registration, or the renewal, of a lease of property.

Link with subpart DA

(2) This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.

Defined in this Act: capital limitation, deduction, general limitation, general permission, lease,

Compare: 1994 No 164 s DJ 11

DB 13B Expenses of failed or withdrawn application for resource consent

Deduction
(1) A person who applies for the grant of a resource consent under the Resource Management Act 1991 and is refused the grant or withdraws the application is allowed a deduction for expenditure—
- (a) that the person incurs in relation to the application; and
- (b) that would have been part of the cost of depreciable property, or otherwise a deduction, if the application had been granted; and
- (c) for which the person is not allowed a deduction under another provision.
Timing of deduction

(2) The deduction is allocated to the income year in which the grant is refused or the application is withdrawn.

Link with subpart DA

(3) This section overrides the capital limitation. The general permission and other general limitations still apply.

Defined in this Act: accounting year, capital limitation, deduction, general limitation, general permission, income year,

Section DB 13B was inserted, as from 1 October 2005, by section 178 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subsection (1)(b) was amended, as from 1 October 2005, by section 14 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “depreciable property, or otherwise a deduction,” for “a resource consent that is depreciable property” with application as from the 2005–06 income year.

DB 14 Destruction of temporary building

Deduction

(1) A person is allowed a deduction for a loss that they incur through the destruction of a temporary building.

Link with subpart DA

(2) This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.

Defined in this Act: capital limitation, deduction, general limitation, general permission, loss, supplement, temporary building,

Compare: 1994 No 164 s DD 1(c)

DB 15 Amounts paid for non-compliance with covenant for repair

When this section applies
(1) This section applies when—
- (a) a person who is a lessee of land uses it to derive income; and
- (b) the lease contains a covenant requiring the lessee to maintain the land or to make repairs to improvements on the land; and
- (c) the lessee does not comply with the covenant; and
- (d) the lessee is, consequently, liable to pay an amount to the lessor; and
- (e) either—
  - (i) the lessee, during the term of the lease or after it ends, pays the amount to the lessor; or
  - (ii) the lessor recovers the amount from the lessee during the term of the lease or after it ends.
Deduction

(2) The lessee is allowed a deduction for the amount paid to the extent to which it relates to maintenance or repairs and to the extent to which the lessee would have been allowed a deduction for the expenditure had the lessee incurred it during the term of the lease.

Timing of deduction

(3) The deduction is allocated to the income year in which the lessee pays the amount or the lessor recovers the amount.

Relationship with section EJ 10

(4) This section is overridden by section EJ 10 (Amount paid by lessee for non-compliance with covenant for repair).

Link with subpart DA

(5) This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.

Defined in this Act: capital limitation, deduction, general limitation, general permission, income, income year, lease, repairs, supplement, term of the lease,

Compare: 1994 No 164 s EO 5

DB 16 Amounts paid for non-compliance and change in use

When this section applies
(1) This section applies when—
- (a) a person who is a lessor receives an amount for non-compliance with a covenant for repair that is assessable income under section CC 2 (Non-compliance with covenant for repair); and
- (b) in the tax year in which the lessor receives the amount or in any of the following 4 tax years,—
  - (i) the lessor does not use the land to which the amount relates to derive assessable income, but continues to own the land; and
  - (ii) the lessor incurs expenditure in maintaining the land or in making repairs to improvements on the land, including painting and general maintenance; and
  - (iii) the lessor would have been allowed a deduction if the land had been used for the purpose of deriving assessable income; and
  - (iv) in the absence of section DB 37 (Avoiding, remedying, or mitigating effects of discharge of contaminant), no other provision of this Act would allow the lessor a deduction for the expenditure.
Deduction

(2) The lessor is allowed a deduction for the expenditure.

Amount of deduction
(3) The amount of the deduction is the lesser of—
- (a) the amount of the expenditure; and
- (b) the part of the amount that is assessable income derived by the lessor in the tax year in which the expenditure is incurred through the operation of—
  - (i) section CC 2 (Non-compliance with covenant for repair); or
  - (ii) section EI 4 (Amount paid to lessor for non-compliance with covenant for repair); or
  - (iii) section EI 5 (Amount paid for non-compliance: when lessor ceases to own land).
Link with subpart DA

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

Defined in this Act: amount, assessable income, deduction, general limitation, general permission, own, supplement, tax year,

Compare: 1994 No 164 s EN 1(6), (8)

Subsection (1)(b)(iv) was substituted, as from 1 October 2005, by section 15(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

Revenue account property

DB 17 Cost of revenue account property

When this section applies

(1) This section applies if a person incurs expenditure as the cost of revenue account property.

Deduction

(2) The person is allowed a deduction for the expenditure.

Exclusion for portfolio investment entities
(3) Subsection (2) does not apply to the expenditure if—
- (a) the person is a portfolio investment entity; and
- (b) section CX 44C (Proceeds from disposal of certain shares by portfolio investment entities or New Zealand Superannuation Fund) applies to income derived by the person from the disposal of the revenue account property.
Link with subpart DA
(4) The link between this section and subpart DA (General rules) is—
- (a) subsection (2) overrides the capital limitation but the general permission must still be satisfied; and
- (b) subsection (3) overrides the general permission; and
- (c) the other general limitations still apply.
Defined in this Act: capital limitation, , deduction, , general limitation, , general permission, , portfolio investment entity, revenue account property

Compare: 1994 No 164 s DJ 13

Section DB 17(1): amended, on 1 October 2007, by section 10(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section DB 17(1): substituted, on 1 October 2007, by section 18(1) of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section DB 17(2): substituted, on 1 October 2007, by section 18(1) of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section DB 17(3): added, on 1 October 2007, by section 18(1) of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section DB 17(3)(b): amended, on 1 October 2007, by section 10(2) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section DB 17(4): added, on 1 October 2007, by section 18(1) of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section DB 17 list of defined terms portfolio investment entity: inserted, on 1 October 2007, by section 18(2) of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

DB 18 Share losses

When this section applies
(1) This section applies when—
- (a) a company (company A) acquires a share in another company (company B); and
- (b) the share declines in value; and
- (c) because of the decline in value, company A incurs a loss (share loss), whether on a disposal of the share or a valuation of it under subpart ED (Valuation of excepted financial arrangements) or in any other way; and
- (d) company B—
  - (i) itself uses the amount subscribed for the share; or
  - (ii) uses it to fund directly or indirectly another company (company C); and
- (e) company B or company C has a net loss, in the calculation of which the amount used is taken into account; and
- (f) company A, or a company that is in the same group of companies as company A at any time in the income year in which company B or company C has the net loss, offsets an amount for the net loss under section IG 2 (Net loss offset between group companies); and
- (g) the offset is in a tax year before the tax year that corresponds to the income year in which company A incurs the share loss.
No deduction (with exception)

(2) Company A is denied a deduction for the share loss, except to the extent to which the share loss, as adjusted under subsection (3), is more than the amount offset under section IG 2 (Net loss offset between group companies), as adjusted under subsection (4).

Other denied deductions added
(3) When subsection (2) applies, the share loss is adjusted by adding every loss to which all the following apply:
- (a) company A incurs it as a result of the share's decline in value or the decline in value of another share if the use of the amount subscribed for the other share is taken into account in calculating the net loss; and
- (b) company A incurs it in a tax year before the tax year in which company A incurs the share loss; and
- (c) company A has been denied a deduction for it by the operation of subsection (2).
Other offsets added

(4) The amount offset under section IG 2 (Net loss offset between group companies) includes every amount that company A, or a company that is in the same group of companies as company A at any time in the income year in which company A has the net loss, has offset for the net loss under that section in a tax year before the tax year that corresponds to the income year in which the share loss is incurred.

Link with subpart DA

(5) This section overrides the general permission.

Defined in this Act: amount, company, deduction, general permission, group of companies, loss, net loss, share, tax year,

Compare: 1994 No 164 s DJ 1(b)

DB 19 Amount from profit-making undertaking or scheme and not already in income

When this section applies

(1) This section applies when a person derives income under section CB 2 (Profit-making undertaking or scheme) that is not their income under any other provision of this Act.

Deduction

(2) The person is allowed a deduction for the value of the property, as determined under subsection (3).

Determining amount of deduction
(3) For the purpose of determining the amount of the deduction, the person is treated as—
- (a) having disposed of the property to an unrelated third party immediately before the start of the undertaking or scheme; and
- (b) having reacquired the property immediately after the start of the undertaking or scheme at the market value of the property at the time.
Link with subpart DA

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

Defined in this Act: amount, deduction, general limitation, general permission, income, supplement,

Compare: 1994 No 164 s DJ 15

DB 20 Amount from major development or division and not already in income

When this section applies

(1) This section applies when a person derives income under section CB 11 (Disposal: amount from major development or division and not already in income) that is not their income under any other provision of this Act.

Deduction

(2) The person is allowed a deduction for the value of the land, as determined under subsection (3).

Determining amount of deduction
(3) For the purpose of determining the amount of the deduction, the person is treated as—
- (a) having disposed of the land to an unrelated third party immediately before the start of the undertaking or scheme; and
- (b) having reacquired it immediately after the start of the undertaking or scheme at the market value of the land at the time.
Link with subpart DA

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

Defined in this Act: amount, deduction, general limitation, general permission, income, land, supplement,

Compare: 1994 No 164 s DJ 14(3)

DB 21 Amount from land affected by change and not already in income

When this section applies

(1) This section applies when a person derives income under section CB 12 (Disposal: amount from land affected by change and not already in income) that is not their income under any other provision of this Act.

Deduction
(2) The person is allowed—
- (a) a deduction allowed under any other provision of this Act; and
- (b) a deduction to the extent described in subsection (3).
Calculation of deduction

(3) The maximum amount of the deduction is the greater of $1,000 and an amount calculated using the formula in subsection (4). However, the amount must not be more than the profit obtained from the disposal of the land.

Formula

(4) The formula is—

percentage of profit x years

Definition of items in formula
(5) In the formula,—
- (a) percentage of profit is 10% of the profit on the disposal of the land:
- (b) years is the number, up to and including 10, of consecutive years between the date on which the person acquired the land and the date on which they disposed of it, with the first year starting on the date on which the person acquired the land.
Meaning of profit

(6) In this section, profit means the excess of the amount derived over the cost of the land.

Link with subpart DA

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

Defined in this Act: amount, deduction, general limitation, general permission, income, land, profit, supplement, year,

Compare: 1994 No 164 s DJ 14(1), (2)

DB 22 Cost of non-specified mineral

When this section applies
(1) This section applies when—
- (a) an amount of cost of a mineral is treated by a person under generally accepted accounting practice as a cost of the mineral for the person and reported accordingly for financial reporting purposes; and
- (b) the mineral is not a specified mineral; and
- (c) no other provision of this Act allows the person a deduction for the amount; and
- (d) an amount derived by the person from disposing of the mineral would be income of the person under section CB 25 (Disposal of minerals).
Deduction

(2) The person is allowed a deduction for the amount.

Timing of deduction: trading stock

(3) If the amount is a cost of trading stock, the deduction is allocated to the income year in which the mineral first becomes trading stock of the person.

Timing of deduction: not trading stock

(4) If the amount is not a cost of trading stock, the deduction is allocated by section EA 2 (Other revenue account property).

Link with subpart DA

(5) This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.

Defined in this Act: amount, capital limitation, deduction, dispose, general limitation, general permission, generally accepted accounting practice, income, income year, mineral, specified mineral, trading stock,

Compare: 1994 No 164 s DJ 13A

Bad debts

DB 23 Bad debts

No deduction (with exception)
(1) A person is denied a deduction in an income year for a bad debt, except to the extent to which—
- (a) the debt is written off as bad in the income year; and
- (b) in the case of the bad debts described in subsections (2) to (5), the requirements of the relevant subsection are satisfied.
Deduction: financial arrangement debt: amount of income
(2) A person who derives assessable income from a financial arrangement to which the financial arrangements rules apply is allowed a deduction for an amount owing under the financial arrangement, but only to the extent to which—
- (a) the amount is a bad debt and subsection (1)(a) is satisfied; and
- (b) the amount is attributable to the income; and
- (c) subsection (5) does not limit the deduction.
Deduction: financial arrangement debt: dealers in arrangements
(3) A person is allowed a deduction for an amount owing under a financial arrangement to which the financial arrangements rules apply, but only to the extent to which—
- (a) the amount is a bad debt and subsection (1)(a) is satisfied; and
- (b) the person carries on a business for the purpose of deriving assessable income that includes dealing in or holding financial arrangements that are the same as, or similar to, the financial arrangement; and
- (c) the person is not associated with the person owing the amount written off; and
- (d) subsection (5) does not limit the deduction.
Deduction: financial arrangement debt: dealers in property or services sold
(4) A person is allowed a deduction for an amount owing under a financial arrangement to which the financial arrangements rules apply, but only to the extent to which—
- (a) the amount is a bad debt and subsection (1)(a) is satisfied; and
- (b) the financial arrangement is an agreement for the sale and purchase of property or services; and
- (c) the person carries on a business of dealing in the property or services that are the subject of the agreement; and
- (d) the person carries on the business for the purpose of deriving assessable income; and
- (e) subsection (5) does not limit the deduction.
Deduction: bad debt representing loss already offset
(5) A person is allowed a deduction for a bad debt only to the extent to which it is more than the total of the amounts offset under section IG 2 (Net loss offset between group companies) that are described in paragraphs (e) and (f) if—
- (a) the person writing off the amount of debt is a company (company A); and
- (b) the debt is owed to it by another company (company B); and
- (c) company B—
  - (i) itself uses the amount giving rise to the debt; or
  - (ii) uses it to fund directly or indirectly another company (company C) that uses the amount; and
- (d) company B or company C has a net loss, in the calculation of which the amount used is taken into account; and
- (e) company A, or a company that is in the same group of companies as company A at any time in the income year in which company B or company C has the net loss, offsets an amount for the net loss under section IG 2 (Net loss offset between group companies); and
- (f) the offset is in a tax year before the tax year that corresponds to the income year in which company A writes off the amount of debt (but not before the 1993-94 tax year).
Link with subpart DA
(6) The link between this section and subpart DA (General rules) is as follows:
- (a) subsection (1) overrides the general permission; and
- (b) for subsections (2) to (5),—
  - (i) they supplement the general permission, to the extent to which they allow a deduction that is denied under the general permission; and
  - (ii) they override the general permission, to the extent to which they deny a deduction that is allowed under the general permission; and
  - (iii) the other general limitations still apply.
Defined in this Act: agreement for the sale and purchase of property or services, amount, assessable income, associated person, business, company, deduction, financial arrangement, financial arrangements rules, general limitation, general permission, group of companies, income year, net loss, supplement, tax year,

Compare: 1994 No 164 ss DJ 1(a)(i), (iii), (iv), EH 54

DB 24 Bad debts owed to estates

When this section applies
(1) This section applies when—
- (a) a debt owing to a person at the date of their death is, in a tax year,—
  - (i) assessable income of the person; or
  - (ii) assessable income of the trustee of their estate; and
- (b) the trustee writes off some or all of the debt as bad because it is not recoverable.
Deduction
(2) The following persons, in the following order, are allowed a deduction for the amount of the debt written off:
- (a) first, the trustee, to the extent of assessable income derived as trustee income in the tax year; and
- (b) second, any beneficiary who has a vested interest in the capital of the estate, to the extent of assessable income derived in the tax year by or in trust for the beneficiary, and to the extent to which the amount is chargeable against the capital of the beneficiary; and
- (c) third, the trustee or a beneficiary denied a deduction for the balance in the tax year; each is allowed a deduction, as described in paragraph (a) or (b), in the next tax year, and so on.
Link with subpart DA

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

Defined in this Act: amount, assessable income, deduction, general limitation, general permission, supplement, tax year, trustee, trustee income,

Compare: 1994 No 164 s DJ 2

Research and development

DB 25 Scientific research

Deduction: scientific research

(1) A person is allowed a deduction for expenditure they incur in connection with scientific research that they carry on for the purpose of deriving their assessable income.

Exclusion
(2) Subsection (1) does not apply to expenditure that the person incurs on an asset that—
- (a) is not created from the scientific research; and
- (b) is an asset for which they have an amount of depreciation loss for which—
  - (i) they are allowed a deduction; or
  - (ii) they would have been allowed a deduction but for the Commissioner's considering that incomplete and unsatisfactory accounts were kept by or for them.
Link with subpart DA

(3) This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.

Defined in this Act: amount, assessable income, capital limitation, Commissioner, deduction, depreciation loss, general limitation, general permission, supplement,

Compare: 1994 No 164 s DJ 9

DB 26 Research or development

Deduction

(1) A person is allowed a deduction for expenditure they incur on research or development. This subsection applies only to a person described in any of subsections (2) to (5) and does not apply to the expenditure described in subsection (6).

Person recognising expenditure as expense

(2) Subsection (1) applies to a person who recognises the expenditure as an expense for financial reporting purposes under paragraph 5.1 or 5.2 of the reporting standard.

Person not recognising expenditure as asset

(3) Subsection (1) also applies to a person who does not recognise the expenditure as an asset for financial reporting purposes because of paragraph 5.4 of the reporting standard.

Person recognising expenditure otherwise
(4) Subsection (1) also applies to a person who—
- (a) recognises the expenditure as an expense for financial reporting purposes because of paragraph 2.3 of the reporting standard; and
- (b) would be required to recognise the expenditure as an expense for financial reporting purposes under paragraph 5.1 or 5.2, or because of paragraph 5.4, of the standard if—
  - (i) any 1 of those paragraphs were applied to the expenditure; and
  - (ii) the expenditure were material.
Person with minor expenditure
(5) Subsection (1) also applies to a person who—
- (a) incurs expenditure of $10,000 or less, in total, on research and development in an income year; and
- (b) has not treated the expenditure as material, as described in paragraph 2.3 of the reporting standard; and
- (c) has recognised the expenditure as an expense for financial reporting purposes.
Exclusion
(6) Subsection (1) does not apply to expenditure that the person incurs on property to which all the following apply:
- (a) the property is used in carrying out research or development; and
- (b) it is not created from the research or development; and
- (c) it is 1 of the following kinds:
  - (i) property for which the person is allowed a deduction for an amount of depreciation loss; or
  - (ii) property the cost of which is allowed as a deduction by way of amortisation under a provision of this Act outside subpart EE (Depreciation); or
  - (iii) land; or
  - (iv) intangible property, other than depreciable intangible property; or
- (v) property that its owner chooses, under section EE 8 (Election that property not be depreciable) to treat as not depreciable.
Choice for allocation of deduction
(6B) A person who is allowed a deduction under this section for expenditure that is not interest may choose to allocate all or part of the deduction—
- (a) to an income year after the income year in which the person incurs the expenditure; and
- (b) in the way required by section EJ 21 (Allocation of deductions for research, development, resulting market development).
Section need not be applied

(7) A person may return income and expenditure in their return of income on the basis that this section does not apply to expenditure incurred on research or development in the income year to which the return relates.

Relationship with section EA 2

(8) If expenditure to which this section applies is incurred in devising an invention that is patented, the expenditure is not treated as part of the cost of revenue account property for the purposes of section EA 2 (Other revenue account property).

Link with subpart DA

(9) This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.

Defined in this Act: amount, capital limitation, deduction, depreciable intangible property, depreciation loss, development, general limitation, general permission, income, income year, reporting standard, research, return of income, revenue account property, ,

Compare: 1994 No 164 s DJ 9A(1)-(5)

Subsection (5) was amended, as from 1 April 2005, by section 16(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “in an income year” for “for a tax year” with application as from the 2005–06 income year.

Subsection (6B) was inserted, as from 1 October 2006, by section 42(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

Subsection (7) was amended, as from 1 April 2005, by section 16(2) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “income year” for “tax year” with application as from the 2005–06 income year.

The defined terms were amended, as from 1 April 2005, by section 16(3)(a)Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by inserting the words “income year,” with application as from the 2005–06 income year.

The defined terms were amended, as from 1 April 2005, by section 16(3)(b) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by repealing the words “, tax year” with application as from the 2005–06 income year.

DB 27 Some definitions

Definitions

(1) In this section, and in sections DB 26, EE 1 (What this subpart does), EJ 20 (Deductions for market development-product of research, development), and EJ 21 (Allocation of deductions for research, development, resulting market development),—

development is defined in paragraphs 4.1 and 4.2 of the reporting standard as interpreted by paragraphs 4.3 to 4.7

Financial Reporting Standard No 13 1995 (Accounting for Research and Development Activities) means the standard approved under the Financial Reporting Act 1993, or an equivalent standard issued in its place, that applies in the tax year in which the expenditure is incurred

reporting standard means Financial Reporting Standard No 13 1995 (Accounting for Research and Development Activities)

research is defined in paragraphs 4.1 and 4.2 of the reporting standard, as interpreted by paragraphs 4.3 to 4.7.

Meaning of research or development: modification by Order in Council
(2) The Governor-General may make an Order in Council specifying—
- (a) a kind of expenditure that is not expenditure on research or development for the purposes of section DB 26:
- (b) an activity that is neither research nor development for the purposes of section DB 26:
- (c) the date from which the expenditure or the activity is excluded from being research or development.
Defined in this Act: development, Financial Reporting Standard No 13 1995 (Accounting for Research and Development Activities), reporting standard, research, tax year,

Compare: 1994 No 164 ss DJ 9A(6), (7), DJ 9B

Subsection (1) was amended, as from 1 October 2006, by section 43(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “sections DB 26, EE 1 (What this subpart does), EJ 20 (Deductions for market development-product of research, development), and EJ 21 (Allocation of deductions for research, development, resulting market development)” for the expression “section DB 26” with application for income years corresponding to the 2005–06 and subsequent tax years.

DB 28 Patent expenses

Deduction
(1) A person is allowed a deduction for expenditure that they incur in connection with the grant, maintenance, or extension of a patent if they—
- (a) acquired the patent before 23 September 1997; and
- (b) use the patent in deriving income in the tax year in which they incur the expenditure.
Link with subpart DA

(2) This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.

Defined in this Act: capital limitation, deduction, general limitation, general permission, income, tax year,

Compare: 1994 No 164 s DJ 6(1)

DB 28B Expenses of failed or withdrawn patent application

Deduction
(1) A person who applies for the grant of a patent and is refused the grant or withdraws the application is allowed a deduction for expenditure—
- (a) that the person incurs in relation to the application; and
- (b) that would have been part of the cost of fixed life intangible property if the application had been granted; and
- (c) for which the person is not allowed a deduction under another provision.
Timing of deduction

(2) The deduction is allocated to the income year in which the grant is refused or the application is withdrawn.

Link with subpart DA

(3) This section overrides the capital limitation. The general permission and other general limitations still apply.

Defined in this Act: capital limitation, deduction, fixed life intangible property, general limitation, general permission, income year,

Section DB 28B was inserted, as from 1 October 2005, by section 179 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

DB 29 Patent rights: devising patented inventions

When this section applies

(1) This section applies when a person incurs expenditure in devising an invention for which a patent has been granted. The section applies whether the person devised the invention alone or in conjunction with another person.

Deduction: expenditure before 1 April 1993

(2) When the person uses the patent in deriving income in a tax year, they are allowed a deduction for expenditure incurred before 1 April 1993, but not if a deduction has been allowed for the expenditure under any other provision of this Act or an earlier Act.

Deduction: devising invention

(3) If the person sells all the patent rights relating to the invention, they are allowed a deduction for the expenditure that they have incurred (whenever it is incurred) in connection with devising the invention to the extent to which a deduction has not already been allowed under subsection (2).

Deduction: devising invention: proportion of expenditure

(4) If the person sells some of the patent rights relating to the invention, they are allowed a deduction for part of the expenditure described in subsection (3). The part is calculated by dividing the amount derived from the sale by the market value of the whole of the patent rights on the date of the sale.

Link with subpart DA

(5) This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.

Defined in this Act: amount, capital limitation, deduction, general limitation, general permission, income, patent rights, tax year,

Compare: 1994 No 164 ss DJ 6(2), EN 2(3)(a)

DB 30 Patent rights acquired before 1 April 1993

When this section applies

(1) This section applies when a person sells patent rights that they acquired before 1 April 1993.

Deduction

(2) The person is allowed a deduction on the sale of the patent rights.

Amount of deduction

(3) The amount is calculated using the formula—

Link with subpart DA

(4) This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.

Defined in this Act: amount, capital limitation, general limitation, general permission, patent rights,

Compare: 1994 No 164 s EN 2(3)(b)

DB 31 Patent applications or patent rights acquired on or after 1 April 1993

When this section applies

(1) This section applies when a person sells a patent application with a complete specification or patent rights that they acquired on or after 1 April 1993.

Deduction

(2) The person is allowed a deduction on the sale of the patent application with a complete specification or patent rights.

Amount of deduction

(3) The amount is calculated using the formula—

total cost – total amounts of depreciation loss

Definition of items in formula
(4) In the formula,—
- (a) total cost is the total cost to the person of the patent application with a complete specification or of the patent rights, excluding any expenditure for which the person has been allowed a deduction under section DZ 14 (Patent applications before 1 April 2005):
- (b) total amounts of depreciation loss is the total of the amounts, for which the person is allowed a deduction, of depreciation loss for the patent application with a complete specification or for the patent rights and the patent application relating to the patent rights.
Link with subpart DA

(5) This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.

Defined in this Act: amount, capital limitation, deduction, depreciation loss, general limitation, general permission, patent rights,

Compare: 1994 No 164 s EN 2(3)(c)

The heading to section DB 31 was amended, as from 21 June 2005, by section 17(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “Patent applications or patent rights” for “Patent rights” with application for patent applications lodged for the first time on or after 21 June 2005.

Subsection (1) was amended, as from 21 June 2005, by section 17(2) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by inserting the words “a patent application with a complete specification or” before the words “patent rights” with application for patent applications lodged for the first time on or after 21 June 2005.

Subsection (2) was amended, as from 21 June 2005, by section 17(3) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by inserting the words “patent application with a complete specification or” before the words “patent rights” with application for patent applications lodged for the first time on or after 21 June 2005.

Subsection (4)(a) and (b) were amended, as from 21 June 2005, by section 17(4) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by inserting the words “patent application with a complete specification or” before the words “patent rights” in both places it appears with application for patent applications lodged for the first time on or after 21 June 2005.

Subsection (4)(a) and (b) was substituted, as from 21 June 2005, by section 19(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application to a patent application that is lodged for the first time on or after 21 June 2005.

Marketing

DB 32 Gifts of money by company

Who this section applies to
(1) This section applies to—
- (a) a company that is not a close company:
- (b) a close company that has its shares quoted on the official list of a recognised exchange.
Deduction

(2) The company is allowed a deduction for a gift of money that it makes to a society, institution, association, organisation, trust, or fund of any of the kinds described in section KC 5(1) (Rebate in respect of gifts of money).

Amount of deduction

(3) The deduction for the total of all gifts made in a tax year is limited to 5% of the amount that would be the company's net income in the tax year if this section did not exist.

Link with subpart DA

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

Defined in this Act: amount, close company, company, deduction, general limitation, general permission, net income, recognised exchange, share, supplement, tax year,

Compare: 1994 No 164 s DJ 4

Subsection (1)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.

Theft and bribery

DB 33 Property misappropriated by employees or service providers

When this section applies
(1) This section applies when—
- (a) a person carries on a business; and
- (b) an employee of the business, or a person who provides services to the business, misappropriates property; and
- (c) no other provision of this Act allows the person who carries on the business a deduction for the loss resulting from the misappropriation.
Exclusions
(2) This section does not apply when—
- (a) the person who misappropriates the property is a relative of the person who carries on the business; or
- (b) the business is carried on by a company, and—
  - (i) the company and the person who misappropriates the property are associated persons; or
  - (ii) the company and a relative of the person who misappropriates the property are associated persons; or
- (c) the person who carries on the business is a trustee of a trust, and the person who misappropriates the property either created the trust, settled property on the trust, or is a beneficiary of the trust.
Deduction

(3) The person is allowed a deduction for the loss that they incur in the course of the business as a result of the misappropriation of the property.

Timing of deduction

(4) The deduction is allocated to the income year in which the loss is ascertained, or in 1 or more earlier years if, in the circumstances, the Commissioner considers it would be fair.

Link with subpart DA

(5) This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.

Defined in this Act: associated person, business, capital limitation, Commissioner, company, deduction, employee, general limitation, general permission, income year, relative, supplement, trustee,

Compare: 1994 No 164 s DJ 8

DB 34 Making good loss from misappropriation by partners

When this section applies
(1) This section applies when a person carrying on a business in partnership pays an amount to make good a loss that arises from a partner, other than the person or the person's spouse, civil union partner or de facto partner, misappropriating property that—
- (a) belongs to another person who is neither a partner in the partnership nor the spouse, civil union partner or de facto partner of a partner; and
- (b) is received in the course of the business either by the partnership or 1 or more of its partners.
Deduction

(2) The person is allowed a deduction for the amount if the person is under a legal liability to make good the loss.

Timing of deduction

(3) The deduction is allocated to the income year in which the amount is paid.

Link with subpart DA

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

Defined in this Act: amount, business, capital limitation, deduction, general limitation, general permission, income year, supplement,

Compare: 1994 No 164 s DJ 7

Subsection (1) before paragraph (a) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.

Subsection (1) before paragraph (a) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

Subsection (1)(a) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.

Subsection (1)(a) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

DB 35 Restitution of stolen property

Deduction

(1) A person who derives income under section CB 28 (Property obtained by theft) is allowed a deduction for the amount of restitution that they make to a person who is beneficially entitled to property to which section CB 28 applies.

Timing of deduction

(2) The deduction is allocated to the income year in which the person makes restitution.

Meaning of restitution

(3) In this section, restitution includes restitution made to a person claiming through the person beneficially entitled to the property.

Link with subpart DA

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

Defined in this Act: amount, capital limitation, deduction, general limitation, general permission, income, income year, private limitation, property, restitution, supplement,

Compare: 1994 No 164 s DJ 18

DB 36 Bribes paid to public officials

When this section applies
(1) Subsection (2) applies when—
- (a) a person (person A) corruptly gives a bribe to another person; and
- (b) person A gives the bribe intending to influence a public official to act, or to fail to act, in their official capacity in order to—
  - (i) obtain or retain business for person A; or
  - (ii) obtain an improper advantage for person A in the conduct of business; and
- (c) the official either has or does not have the authority to act or to fail to act.
No deduction

(2) Person A is denied a deduction for the amount of the bribe.

Exclusions
(3) This section does not apply if—
- (a) the bribe is given outside New Zealand and, at the time it is given by person A, the bribe is not an offence under the laws of the foreign country in which is situated the principal office of the person, organisation or other body by whom the foreign public official is employed or for whom they provide services:
- (b) the bribe is paid wholly or mainly to ensure or expedite the performance by a foreign public official of a routine government action when the value of the benefit is small.
No deduction (with exception)

(4) [Repealed]

Some definitions
(5) In this section,—

benefit, foreign country, and foreign public official are defined in section 105C of the Crimes Act 1961

bribe is defined in section 99 of the Crimes Act 1961
public official means—
- (a) a member of Parliament or a Minister of the Crown; and
- (b) a judicial officer, a law enforcement officer, or an official, as those terms are defined in section 99 of the Crimes Act 1961; and
- (c) a foreign public official routine government action is defined in section 105C of the Crimes Act 1961.
Link with subpart DA

(6) This section overrides the general permission.

Defined in this Act: amount, benefit, bribe, business, deduction, foreign country, foreign public official, general permission, New Zealand, public official, routine government action,

Compare: 1994 No 164 s DJ 22

The heading to subsection (1) was substituted, as from 1 April 2005, by section 20(1)(a) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005–06 income year.

Subsection (1)(b) was amended, as from 18 December 2006, by section 20(1)(b) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by omitting “New Zealand” with application as from the 2005–06 income year.

Subsection (3) was substituted, as from 18 December 2006, by section 20(1)(c) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005–06 income year.

Subsection (4) was repealed, as from 18 December 2006, by section 20(1)(c) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005–06 income year.

Pollution control

DB 37 Avoiding, remedying, or mitigating effects of discharge of contaminant

When this section applies
(1) This section applies if a person—
- (a) carries on a business in New Zealand; and
- (b) the person incurs, in the business or in ending the operations of the business, expenditure that is—
  - (i) of a type listed in schedule 6B (Expenditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant) and not in schedule 6B, part C; and
  - (ii) not incurred in relation to revenue account property other than land that is subject to section CB 6B (Disposal: land used for landfill, if notice of election); and
- (c) no other provision allows a deduction for the expenditure.
Amount and timing of deduction
(2) The person is allowed for an income year a deduction for the expenditure of,—
- (a) if paragraphs (b) and (c) do not apply, an amount that is calculated using the formula—
  
  rate x value:
- (b) if the operations of the business for which the expenditure was incurred come to an end in the income year, the diminished value or adjusted tax value of the expenditure for the income year:
- (c) if an improvement on which the expenditure was incurred is destroyed, or is rendered useless for the purposes for which the expenditure was incurred, and paragraph (b) does not apply, the diminished value or adjusted tax value of the expenditure for the income year.
Definition of items in formula

(3) The items in the formula in subsection (2)(a) are defined in subsections (4) and (5).

Rate
(4) Rate is—
- (a) 100%, if the expenditure is of a type listed in schedule 6B, part A, item 1, or part B (Expenditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant) and the rate is not given by paragraph (b) or (c):
- (b) the appropriate rate given by subsection (5) if—
  - (i) the expenditure is of a type listed in schedule 6B, part A, items 2 to 5; and
  - (ii) no applicable rate is given by paragraph (c):
- (c) the rate for the type of expenditure, the income year, the valuation method adopted under subsection (6), and the person, determined by the Commissioner under section 91AAN of the Tax Administration Act 1994, if such a rate is determined.
Banded straight-line rate or corresponding diminishing value rate
(5) The rate for expenditure if subsection (4)(b) is satisfied is—
- (a) the straight-line rate given in schedule 11, column 2 that is nearest to the rate calculated for the expenditure using the formula in subsection (7), if the person elects to use the straight-line method:
- (b) the diminishing value rate given in schedule 11, column 1 that corresponds to the straight-line rate given by paragraph (a), if the person elects to use the diminishing value method.
Value
(6) Value is—
- (a) the adjusted tax value of the expenditure, if the person elects to use the straight-line method:
- (b) the diminished value of the expenditure for the income year, if the person elects to use the diminishing value method.
Formula for rate for expenditure with assumed life

(7) The formula for the straight-line rate for a type of expenditure to which subsection (4)(b) applies is—

Definition of item in formula
(8) In the formula in subsection (7), assumed life for expenditure and an income year is,—
- (a) for expenditure associated with a business activity that does not require a resource consent, 35:
- (b) for expenditure associated with a business activity that requires a resource consent, the lesser of 35 and the number of the years in the period of the resource consent that include or follow the time at which the expenditure is incurred.
Link with subpart DA

(9) This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.

Defined in this Act: amount, business, capital limitation, deduction, diminished value, general limitation, general permission. income year, New Zealand.,

Subsection (1)(b) was amended, as from 1 October 2005, by section 18(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “waste” for “industrial waste” with application for expenditure incurred by a person in the 2005–06 income year if the income year starts before 10 June 2005.

Section DB 37 was substituted, as from 1 October 2005, by section 19(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

Repayments

DB 38 Payments for remitted amounts

When this section applies
(1) This section applies when—
- (a) a person is allowed a deduction in an income year of an amount that the person is liable to pay; and
- (b) the person's liability for the amount is later remitted or cancelled, wholly or partly; and
- (c) the remission or cancellation is not a dividend; and
- (d) the person is not required to calculate a base price adjustment by section EW 29 (When calculation of base price adjustment required); and
- (e) the amount to which the remission or cancellation applies is assessable income of the person under section CG 2 (Remitted amounts); and
- (f) the person makes a payment for the amount to which the remission or cancellation applies.
Amount, and timing, of deduction

(2) The person is allowed a deduction for the amount of the payment in the income year in which it is made.

Link with subpart DA

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

Defined in this Act: amount, assessable income, deduction, dividend, general limitation, general permission, income year, supplement,

Compare: 1994 No 164 s IE 1(4)(g)

DB 39 Restrictive covenant breached

When this section applies
(1) This section applies when an employee (person A) makes a payment to another person (person B) in the following circumstances:
- (a) person A derives assessable income under section CE 9 (Restrictive covenants); and
- (b) person A breaches a term of the undertaking they gave to person B; and
- (c) person A is, consequently, required to make the payment to person B.
Deduction

(2) Person A is allowed a deduction for the payment.

Amount of deduction
(3) The amount of the deduction is the lesser of the following:
- (a) the assessable income that person A derives under section CE 9 (Restrictive covenants); and
- (b) the payment that person A makes to person B, excluding interest, punitive damages, exemplary damages, and person B's legal costs and other expenses.
Timing of deduction

(4) The deduction is allocated to the income year in which person A makes the payment to person B.

Link with subpart DA

(5) This section supplements the general permission and overrides the employment limitation. The other general limitations still apply.

Defined in this Act: amount, assessable income, deduction, employee, employment limitation, general limitation, general permission, income year, interest, supplement,

Compare: 1994 No 164 ss DJ 21, EO 7

Matching rules: revenue account property, prepayments, and deferred payments

DB 40 Adjustment for opening values of trading stock, livestock, and excepted financial arrangements

When this section applies
(1) This section applies when a person has some or all of the following at the start of an income year:
- (a) trading stock valued under subpart EB (Valuation of trading stock (including dealer's livestock)):
- (b) livestock valued under subpart EC (Valuation of livestock):
- (c) excepted financial arrangements that are revenue account property valued under subpart ED (Valuation of excepted financial arrangements):
- (d) a share supplier's share-lending right, if the original shares that relate to the right are excepted financial arrangements described in paragraph (c).
Deduction: opening value of trading stock

(2) The person is allowed a deduction in the income year for the value that the trading stock had at the end of the previous income year, as calculated under section EB 3 (Valuation of trading stock).

Deduction: opening value of livestock

(3) The person is allowed a deduction in the income year for the value that the livestock had at the end of the previous income year, as calculated under section EC 2 (Valuation of livestock).

Deduction: opening value of excepted financial arrangements

(4) The person is allowed a deduction in the income year for the value that the excepted financial arrangements or share-lending right had at the end of the previous income year, as calculated under section ED 1 (Valuation of excepted financial arrangements).

Link with subpart DA

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

Defined in this Act: deduction, excepted financial arrangement, general limitation, general permission, income year, original share, revenue account property, share-lending right, share supplier, supplement, trading stock,

Compare: 1994 No 164 s EE 2(4)

Subsection (1)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.

Subsection (1)(c) was amended, as from 1 July 2006, by section 44(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the expression “arrangements):” for the expression “arrangements).”.

Subsection (1)(d) was inserted, as from 1 July 2006, by section 44(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (4) was amended, as from 1 July 2006, by section 44(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “arrangements or share-lending right had” for “arrangements had”.

The list of defined terms was amended, as from 1 July 2006, by section 44(3)(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting the words “original share”..

The list of defined terms was amended, as from 1 July 2006, by section 44(3)(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting the words “share-lending right”..

The list of defined terms was amended, as from 1 July 2006, by section 44(3)(c) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting the words “share supplier”..

DB 41 Adjustment for prepayments

When this section applies

(1) This section applies when a person has, under section EA 3 (Prepayments), an unexpired amount of expenditure at the end of an income year.

Deduction

(2) The person is allowed a deduction for the unexpired amount for the following income year.

Link with subpart DA

(3) This section supplements the general permission. The general limitations still apply, but not to the extent to which any relevant general limitation was overridden by a provision that initially allowed a deduction for the expenditure, whether in this Act or an earlier Act.

Defined in this Act: amount, deduction, general limitation, general permission, income year, supplement,

Compare: 1994 No 164 s EF 1(1)(b)

DB 42 Adjustment for deferred payment of employment income

When this section applies

(1) This section applies when a person has, under section EA 4 (Deferred payment of employment income), an unpaid amount of expenditure on employment income in an income year for which the person is to be allowed a deduction in the following income year.

Deduction

(2) The person is allowed a deduction for the unpaid amount for the following income year.

Link with subpart DA

(3) This section supplements the general permission. The general limitations still apply, but not to the extent to which any relevant general limitation was overridden by a provision that initially allowed a deduction for the expenditure, whether in this Act or an earlier Act.

Defined in this Act: amount, deduction, employment income, general limitation, general permission, income year, supplement,

Compare: 1994 No 164 s EF 1(1)(b)

Change to accounting practice

DB 43 Adjustment for change to accounting practice

When this section applies

(1) This section applies when a person has, under section EG 2(2) or (3) (Adjustment for changes to accounting practice), an amount owed by them or an amount owing to them as quantified in those subsections.

Amount, and timing, of deduction

(2) The person is allowed a deduction of the amount as quantified and allocated under section EG 2 (Adjustment for changes to accounting practice).

Link with subpart DA

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

Defined in this Act: amount, deduction, general limitation, general permission, supplement,

Compare: 1994 No 164 s EC 1

Portfolio investment entities

Heading: inserted, on 1 October 2007, by section 21 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

DB 43B Certain investors have deduction for portfolio investor allocated loss

When this section applies
(1) This section applies to an investor in a portfolio investor class of a portfolio tax rate entity for a portfolio calculation period of the entity when—
- (a) the investor—
  - (i) is a zero-rated portfolio investor for the portfolio calculation period:
  - (ii) has all or part of a portfolio investor exit period included in the portfolio calculation period and the entity makes payments of tax under section HL 21 (Payments of tax by portfolio tax rate entity making no election); and
- (b) the portfolio calculation period includes a portfolio allocation period for which the person is allocated an amount of portfolio investor allocated loss under subpart HL (Portfolio investment entities).
Deduction
(2) The investor has a deduction for an income year for the amount of portfolio investor allocated loss if—
- (a) the portfolio tax rate entity makes payments of tax under section HL 21 or HL 22 (Payments of tax by portfolio tax rate entity choosing to pay provisional tax) and the investor's income year includes the end of the portfolio calculation period:
- (b) the portfolio tax rate entity makes payments of tax under section HL 23 (Payments of tax by portfolio tax rate entity choosing to make payments when investor leaves) and the investor's income year includes the end of the tax year in which the portfolio calculation period occurs.
Defined in this Act: deduction, , income year, , investor, , portfolio allocation period, , portfolio calculation period, , portfolio investor allocated loss, , portfolio investor class, , portfolio tax rate entity, , tax, , tax year, , zero-rated portfolio entity

Section DB 43B: substituted, on 1 October 2007, by section 11 of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section DB 43B: inserted, on 1 October 2007, by section 21 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

DB 43C Certain fees charged by portfolio tax rate entities to investors not allowed as deductions

When this section applies
(1) This section applies to an investor in a portfolio investor class of a portfolio tax rate entity when—
- (a) the investor incurs fees in relation to the investor's portfolio investor interest; and
- (b) the amount of the fees is included in the calculation of the entity's portfolio entity tax liability under section HL 20 (Portfolio entity tax liability and rebates of portfolio tax rate entity for period) for the investor, the portfolio investor class, and a portfolio calculation period.
No deduction

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

Link with subpart DA

(3) This section overrides the general permission.

Defined in this Act: deduction, , general permission, , investor, , portfolio calculation period, , portfolio entity tax liability, , portfolio investment entity, , portfolio investor class

Section DB 43C: inserted, on 1 October 2007, by section 12 of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Exempt income

This heading was inserted, as from 1 October 2005, by section 180 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

DB 44 Expenditure incurred in deriving exempt dividend

Deduction
(1) A company that derives a dividend that is exempt income of the company under section CW 9 is allowed a deduction of—
- (a) the amount of the expenditure incurred by the company in deriving the dividend, if the company is not a conduit tax relief company:
- (b) the amount calculated using the following formula, if the company is a conduit tax relief company:
  
  expenditure x (1 -- non-resident shareholding)
Definition of items in formula
(2) In the formula,—
- (a) expenditure is the amount of the expenditure incurred by the company in deriving the dividend:
- (b) non-resident shareholding is the fraction of the company's shareholders that are non-residents, calculated under section NH 7(2) and NH 7(4).
Link with subpart DA

(3) This section overrides the exempt income limitation. The general permission must still be satisfied and the other general limitations still apply.

Defined in this Act: company, conduit tax relief company, deduction, dividend, exempt income, exempt income limitation, general limitation, general permission, non-resident, shareholder,

Section DB 44 was inserted, as from 1 October 2005, by section 180 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Use of motor vehicle under certain arrangements

This heading was inserted, as from 1 April 2006, by section 45(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for expenditure incurred as from 1 April 2006.

DB 45 Expenditure incurred in operating motor vehicle under agreement or arrangement affected by section CX 6B

Deduction

(1) A party to an agreement or arrangement referred to in section CX 6B (Employer or associated person treated as having right to use vehicle under arrangement) is allowed a deduction for expenditure or depreciation loss incurred in operating a motor vehicle during a period for which an employer or associated person is treated under that section as having a right to use the vehicle.

Link with subpart DA

(2) This section overrides the private limitation and exempt income limitation. The general permission must still be satisfied and the other general limitations still apply.

Defined in this Act: arrangement, deduction, depreciation loss, exempt income limitation, FBT rules, general limitation, general permission, lease, loss, motor vehicle,

Section DB 45 was inserted, as from 1 April 2006, by section 45(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for expenditure incurred as from 1 April 2006.

Section DB 45 was substituted, as from 1 April 2006, by section 22(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application for expenditure or depreciation loss incurred on or after 1 April 2006.

Subpart DC—Employee or contractor expenditure

DC 1 Lump sum payments on retirement

Deduction

(1) A person who carries on a business is allowed a deduction for a lump sum paid as a bonus, gratuity, or retiring allowance to an employee on retirement.

Inclusions
(2) For the purposes of subsection (1), a lump sum paid on retirement includes a lump sum paid to—
- (a) an employee when they end their employment or service through redundancy, loss of office, or similar circumstances:
- (b) a former employee when they are unable to be reemployed in seasonal work in circumstances that would be considered the loss of employment or service through redundancy if they resulted in ending the seasonal work.
Exclusion

(3) This section does not apply to the extent to which the person has accepted a liability, as described in section DC 9(1)(c), to pay an amount of employment income.

Timing of deduction

(4) The deduction is allocated to the income year in which the lump sum is paid.

Link with subpart DA

(5) This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.

Defined in this Act: amount, business, capital limitation, deduction, employee, employment income, general limitation, general permission, income year, supplement,

Compare: 1994 No 164 s DF 5

Subsection (2)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.

DC 2 Pension payments to former employees

When subsection (2) applies
(1) Subsection (2) applies when—
- (a) a person, other than a close company, carries on a business; and
- (b) a former employee has retired from their employment in the business or their employment has ended through redundancy or similar circumstances; and
- (c) they are paid a pension in consideration of their past services in the business; and
- (d) they or their spouse, civil union partner or de facto partner has a right to receive the pension under a deed for a fixed period or for life or, in the case of the spouse, civil union partner or de facto partner, until the spouse, civil union partner or de facto partner enters a new marriage, civil union partner or de facto relationship.
Deduction: not close company

(2) The person is allowed a deduction for a reasonable amount paid as the pension to the former employee or their surviving spouse, civil union partner or de facto partner.

When subsection (4) applies
(3) Subsection (4) applies when—
- (a) a close company carries on a business; and
- (b) a former employee of the company is or has been a shareholder in it or has a relative who is or has been a shareholder in it; and
- (c) the former employee's employment in the company was genuine; and
- (d) they have retired from the employment or their employment has ended through redundancy or similar circumstances; and
- (e) they are paid a pension in consideration of their past services in the business; and
- (f) they or their spouse, civil union partner or de facto partner has a right to receive the pension under a deed for a fixed period or for life or, in the case of the spouse, civil union partner or de facto partner, until the spouse, civil union partner or de facto partner enters a new marriage, civil union or de facto relationship.
Deduction: close company

(4) The close company is allowed a deduction for the amount paid as the pension to the former employee or their surviving spouse, civil union partner or de facto partner.

Amount of deduction under subsection (4)

(5) The amount of the deduction allowed under subsection (4) is the amount that the company would have paid if the former employee or their relative were not, or had not been, a shareholder in the company.

Timing of deductions

(6) A deduction under this section is allocated to the income year in which the amount is paid.

Relationship with section FF 17(1)

(7) Section FF 17(1) (Pensions) expands on this section.

Link with subpart DA

(8) This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.

Defined in this Act: amount, business, capital limitation, close company, deduction, employee, general limitation, general permission, income year, relative, shareholder, supplement,

Compare: 1994 No 164 s DF 4

Subsection (1)(d) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse” in each place it occurs.

Subsection (1)(d) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “enters a new marriage or civil union” for “remarries”.

Subsection (1)(d) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner” in each place it occurs.

Subsection (1)(d) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “enters a new marriage, civil union partner or de facto relationship” for “enters a new marriage or civil union”.

Subsection (2) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.

Subsection (2) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

Subsection (3)(f) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse” in each place it occurs.

Subsection (3)(f) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “enters a new marriage or civil union” for “remarries”.

Subsection (3)(f) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner” in each place it occurs.

Subsection (3)(f) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “enters a new marriage, civil union or de facto relationship” for “enters a new marriage or civil union”.

Subsection (4) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.

Subsection (4) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

DC 3 Pension payments to former partners

When this section applies
(1) This section applies when—
- (a) a person is a partner in a partnership; or
- (b) a person who was a partner in a partnership is in business on their own account.
Exclusion

(2) This section does not apply to a partnership or a business that is engaged wholly or mainly in investing money or in holding, or dealing in, shares, securities, investments, or estates or interests in land.

Deduction
(3) The person is allowed a deduction for their share of an amount, to the extent to which the amount is reasonable, paid as a pension to a former partner, or to the spouse, civil union partner or de facto partner of a deceased former partner, if—
- (a) the partnership in which the former partner was a partner (old partnership) carried on the same business as that now carried on either by the partnership that is paying the pension or by the person in business who is paying the pension; and
- (b) the former partner retired from the old partnership or their employment ended through retirement; and
- (c) the former partner or their spouse, civil union partner or de facto partner has a right to receive the pension under a deed for a fixed period or for life or, in the case of the spouse, civil union partner or de facto partner, until the spouse, civil union partner or de facto partner enters a new marriage, civil union or de facto relationship; and
- (d) the pension is paid for the former partner's services in the old partnership.
Link with subpart DA

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

Defined in this Act: amount, business, capital limitation, deduction, estate, general limitation, general permission, interest, land, share, supplement,

Compare: 1994 No 164 ss DF 8A, DF 8B

Subsection (3) before paragraph (a) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.

Subsection (3) before paragraph (a) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

Subsection (3)(c) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse” in each place it occurs.

Subsection (3)(c) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “enters a new marriage or civil union” for “remarries”.

Subsection (3)(c) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner” in each place it occurs.

Subsection (3)(c) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “enters a new marriage, civil union or de facto relationship” for “enters a new marriage or civil union”.

DC 4 Payments to working partners

Deduction
(1) A person who is a partner in a partnership is allowed a deduction for their share of a payment made under a contract of service to a partner who personally and actively performs duties that—
- (a) are required to be performed in carrying on the business of the partnership; and
- (b) are performed by the partner during the currency of the contract of service.
Exclusion

(2) This section does not apply to a partnership that is engaged wholly or mainly in investing money or in holding, or dealing in, shares, securities, investments, or estates or interests in land.

Amount of deduction

(3) The amount of the deduction is limited to the amount of the payment authorised by the contract of service and any bonus, whether or not the payment of a bonus is authorised by the contract.

Relationship with section GD 3

(4) This section is overridden by section GD 3 (Payment of excessive salary or wages, or allocation of excessive share of profits or losses, to relative employed by or in partnership with taxpayer).

Meaning of contract of service
(5) In this section, contract of service, for a partner and a partnership, means an agreement that—
- (a) specifies the terms and conditions of the services to be performed by the partner; and
- (b) specifies the amount payable to the partner for the performance of the services; and
- (c) is entered into by all the partners in the partnership; and
- (d) is in writing.
Link with subpart DA

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

Defined in this Act: amount, business, contract of service, deduction, estate, general limitation, general permission, interest, land, share, supplement,

Compare: 1994 No 164 s DF 8

DC 5 Contributions to employees' benefit funds

Deduction
(1) An employer is allowed a deduction for an amount that they pay to, or set aside as, a fund to provide individual personal benefits to their employees if—
- (a) the fund is not a superannuation scheme; and
- (b) the employees' rights to receive benefits from the fund are fully secured.
Link with subpart DA

(2) This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.

Defined in this Act: amount, capital limitation, deduction, employee, employer, general limitation, general permission, superannuation scheme, supplement,

Compare: 1994 No 164 s DF 2

DC 6 Contributions to employees' superannuation schemes

Deduction

(1) An employer is allowed a deduction for a contribution to an employees' superannuation scheme.

Timing of deduction

(2) The deduction is allocated to the income year in which the employer makes the contribution.

Relationship with section EJ 19

(3) Subsection (2) is overridden by section EJ 19 (Contributions to employees' superannuation schemes).

Link with subpart DA

(4) This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.

Defined in this Act: capital limitation, deduction, employee, employer, general limitation, general permission, income year, superannuation scheme,

Compare: 1994 No 164 s DF 3(1)

DC 7 Attribution of personal services

When this section applies

(1) This section applies when, under sections GC 14B to GC 14E (which relate to the attribution rule), a person is required to attribute an amount to another person.

Deduction

(2) The person required to attribute the amount is allowed a deduction for the amount attributed.

Timing of deduction

(3) The deduction is allocated to the income year in which the amount is attributed to the other person.

Link with subpart DA

(4) This section supplements the general permission and overrides all the general limitations.

Defined in this Act: amount, deduction, general limitation, general permission, income year, supplement,

Compare: 1994 No 164 ss DJ 19, EO 6

DC 8 Restrictive covenants or exit inducements

Deduction

(1) A person is allowed a deduction for expenditure that they incur that is income of another person under section CE 9 (Restrictive covenants) or CE 10 (Exit inducements).

Exclusion
(2) This section does not apply if—
- (a) the other person performs services for the person; and
- (b) expenditure that the person would have incurred for the services, if the other person had not derived an amount that is income under section CE 9 (Restrictive covenants) or CE 10 (Exit inducements), would have been of a capital nature.
Link with subpart DA

(3) This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.

Defined in this Act: amount, capital limitation, general limitation, general permission, income,

Compare: 1994 No 164 s DJ 20

DC 9 Sale of business: transferred employment income obligations

When this section applies
(1) This section applies when—
- (a) a person (seller) sells a business, or a part of a business, to another person (buyer); and
- (b) an employee of the seller working in the business, or the part of the business, becomes an employee of the buyer under the sale arrangements; and
- (c) the seller and the buyer agree in writing, under the sale arrangements, that the buyer assumes the obligation to pay an amount of employment income to the employee.
Deduction: parties not associated
(2) If the seller and the buyer are not associated persons at the time of the sale,—
- (a) the seller is allowed a deduction, in the income year of the sale, for any part of the amount that remains contingent on the employee continuing in employment or any similar factor; and
- (b) the seller is treated under section EA 4(4) (Deferred payment of employment income) as having paid the amount at the time of sale.
Deduction: parties associated

(3) If the seller and the buyer are associated persons at the time of the sale, the buyer is allowed a deduction for the amount of employment income if the seller would have been allowed a deduction for the amount if the business, or the part of the business, had not been sold.

Link with subpart DA
(4) The link between this section and subpart DA (General rules) is as follows:
- (a) subsection (2)(a) supplements the general permission. The general limitations still apply:
- (b) subsection (3) overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.
Defined in this Act: amount, arrangement, associated person, business, capital limitation, deduction, employee, employment income, general limitation, general permission, income year, supplement, time of the sale,

Compare: 1994 No 164 s DF 10

Subsection (4)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.

DC 10 Transfers of employment income obligations to associates

When this section applies
(1) This section applies when—
- (a) an employee of a person (person A) becomes an employee of another person (person B); and
- (b) person A and person B are associated persons at the time; and
- (c) person B assumes person A's obligation to pay an amount of employment income to the employee; and
- (d) the employee's becoming an employee of person B does not result from the sale by person A of a business, or a part of a business, to person B.
Deduction

(2) Person B is allowed a deduction for the amount of employment income if person A would have been allowed a deduction for the amount if the transfer had not occurred.

Link with subpart DA

(3) This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.

Defined in this Act: amount, associated person, business, capital limitation, deduction, employee, employment income, general limitation, general permission,

Compare: 1994 No 164 s DF 11

DC 11 Loans to employees under share purchase schemes

Deduction
(1) An employing company that provides financial assistance to an employee by way of an interest-free loan under a share purchase scheme is allowed a deduction for providing the assistance, under the following conditions:
- (a) the scheme must have the Commissioner's approval, which must be given if the scheme meets all the criteria set out in sections DC 12 and DC 13; and
- (b) the deduction is allowed only for the 5 years after the date of the loan.
Amount, and timing, of deduction

(2) The amount of the deduction in each income year is equal to the interest that would have been payable by the employing company for the income year if the amount of the loan had been borrowed by the company at an interest rate of 10% annually with interest calculated with monthly rests, and as if repayments by the employee under the scheme were repayments of the notional loan by the company.

Group of companies

(3) If the employing company is part of a group of companies, and the share purchase scheme involves shares issued by another company in the group, the shares are treated as if they were issued by the employing company.

Link with subpart DA

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

Defined in this Act: amount, capital limitation, Commissioner, company, deduction, employee, employing company, general limitation, general permission, group of companies, income year, interest, share, share purchase scheme, supplement, year,

Compare: 1994 No 164 s DF 7(1)

DC 12 Criteria for approval of share purchase schemes: before period of restriction ends

What this section does

(1) This section sets out the criteria, relating to the provisions of a share purchase scheme on the period of restriction, that the Commissioner applies in determining whether or not to approve the scheme.

Purchase of shares
(2) The scheme must provide for—
- (a) the shares to be available for no more than their market value at the date of purchase or subscription; and
- (b) the amount that an employee spends on buying shares under the scheme or any similar scheme to be $2,340 or less in a 3 year period.
Eligibility
(3) The scheme must provide for—
- (a) employees to be eligible to participate equally in the scheme, that is,—
  - (i) every full-time permanent employee on an equal basis with every other full-time permanent employee; and
  - (ii) if the scheme applies to part-time employees and seasonal employees, every part-time employee on an equal basis with every other part-time employee and every seasonal employee on an equal basis with every other seasonal employee; and
- (b) any minimum period of employment or service before employees are eligible to participate,—
  - (i) for full-time employees, to be no more than 3 years' full-time work; and
  - (ii) for other employees, an accumulated period that is the equivalent of 3 years' full-time work.
Loans to employees
(4) The scheme must provide for—
- (a) a loan to an employee to buy shares to be free of interest and other charges; and
- (b) any minimum amount of loan to be $624 or less; and
- (c) employees to be able to repay the loan by regular equal instalments at intervals of 1 month or less over a period of between 3 years and 5 years from the date of the loan; and
- (d) employees to be able to choose to repay some or all of the loan before the due date for repayment.
Shares held on trust
(5) The scheme must provide for—
- (a) the trustee of the scheme to hold the shares in trust for the employee; and
- (b) the trustee to pay any dividends directly to the employee; and
- (c) the dividends to be treated as having been derived by the employee; and
- (d) the employee to be prohibited from putting any dividends towards the repayment of any sum that the employee owes to the company or to the trustee; and
- (e) the employee to be prohibited from charging or disposing of their rights or interests in the shares.
Hardship
(6) The scheme must provide for a trustee who is satisfied that the employee's continued participation in the scheme has resulted or would result in serious hardship,—
- (a) with the employee's agreement, to vary the terms of the repayment of a loan under the scheme; or
- (b) with the employee's agreement, to allow the employee to withdraw from the scheme as if they had ended their employment in the circumstances described in section DC 13(4).
Withdrawal from scheme
(7) The scheme must provide for—
- (a) an employee to be able to withdraw from the scheme on giving 3 months' notice to the trustee; and
- (b) the employee to be treated for the purposes of the scheme as if they ended their employment with the company on the date the notice takes effect, with the effect that section DC 13(4) and (5) then apply.
Defined in this Act: amount, Commissioner, company, dividend, employee, interest, notice, period of restriction, share, share purchase scheme, trustee, year,

Compare: 1994 No 164 s DF 7(2)(a)-(h), (j), (k)

DC 13 Criteria for approval of share purchase schemes: when period of restriction ends

What this section does

(1) This section sets out the criteria, relating to the provisions of a share purchase scheme on the period when the period of restriction ends, that the Commissioner applies in determining whether or not to approve the scheme.

General rule
(2) The scheme must provide for—
- (a) the trustee—
  - (i) to transfer the shares to the employee if the employee is still employed by the company; or
  - (ii) at the option of the employee, to buy the shares at their market value on the date of purchase; or
- (b) the trustee to apply subsection (3) or (4), if either applies, in priority to paragraph (a).
Death, accident, sickness, redundancy, or retirement at normal retiring age
(3) If the period of restriction ends because the employee ends their employment through death, accident, sickness, redundancy, or retirement at normal retiring age, the scheme must provide for—
- (a) the trustee to transfer the shares to the legal representative of the employee's estate or to the former employee; or
- (b) at the option of the legal representative or former employee, the trustee to buy the shares at their market value on the date of purchase, subject to the repayment of any outstanding loan under the scheme for the shares.
Employment ends for other reason

(4) If the period of restriction ends because the employee ends their employment for any reason other than one described in subsection (3), the scheme must provide for the trustee to buy the shares at their market value on the date on which the employee ends their employment, subject to the repayment of any outstanding loan under the scheme for the shares.

Purchase price when trustee buys shares

(5) If the trustee buys the shares when the period of restriction ends, the scheme must provide for the purchase price to be no more than the price paid for the shares by the employee.

Defined in this Act: Commissioner, company, employee, normal retiring age, period of restriction, share, share purchase scheme, trustee,

Compare: 1994 No 164 s DF 7(2)(i)

DC 14 Some definitions

Definitions
(1) In this section, and in sections DC 11 to DC 13,—
employee —
- (a) means a person employed by a company; and
- (b) does not include—
  - (i) a director of the company; or
  - (ii) a person who, with any associated person, holds 10% or more of the issued capital of the company; or
  - (iii) a company, a local authority, a public authority, or an unincorporated body of persons
employing company, for an employee, means the company that employs the employee
normal retiring age means,—
- (a) for an employee other than one to whom paragraph (b) applies, no less than 60 years of age:
- (b) for a female employee who is entitled under a contract of employment entered into before 1 April 1978 with the employing company to retire before 60 years of age, no less than 55 years of age:
- (c) for any employee, an age that is earlier than the age referred to in paragraph (a) or (b) and that the Commissioner considers reasonable given the nature of the employment or the general terms of employment in the business or occupation of the employee
normal retiring age: paragraphs (a) and (b) of this definition were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.
share, for a company whose shares are made available under a share purchase scheme, means a fully paid ordinary share that ranks equally with, and has the same designation as, an existing ordinary voting share in the company

trustee means a person or group of persons appointed to administer a share purchase scheme of an employing company, and to hold shares under that scheme on trust for an employee during the period of restriction.
Meaning of period of restriction
(2) In this section, and in sections DC 12 and DC 13,—
- (a) period of restriction is defined in subsections (3) and (4); and
- (b) for the purposes of this definition, if an employing company is part of a group of companies, and an employee is transferred to another company in the group, the employee is treated as continuing in their employment.
Shorter of 2 periods
(3) Period of restriction means the shorter of—
- (a) a period of 3 years starting on the date the employee buys or subscribes for the shares, or the period of repayment of a loan made to them under the scheme for this purpose, whichever is longer; and
- (b) a period starting on the date the employee buys or subscribes for the shares and ending on the date the employee ends their employment with the employing company.
This subsection is overridden by subsection (4).
Different period

(4) If the employee buys or subscribes for the shares at market value, and the rules of the scheme provide a period of restriction, that period applies, but it must be no shorter than the period of repayment of a loan made under the scheme for the purpose, and must be no longer than the period described in subsection (3) that would apply if this subsection did not exist.

Defined in this Act: associated person, company, director, employee, employing company, group of companies, group of persons, local authority, normal retiring age, period of restriction, public authority, share, share purchase scheme, trustee, year,

Compare: 1994 No 164 s DF 7(3)

Subpart DD—Entertainment expenditure

DD 1 Entertainment expenditure generally

When this subpart applies

(1) This subpart applies when, in deriving income, a person incurs expenditure on entertainment that provides both a private and a business benefit.

No deduction (with exception)

(2) The person is denied a deduction for expenditure that they incur on the forms of entertainment specified in section DD 2, except for 50% of the amount that they would have been allowed if this subsection had not existed.

Meaning of limitation rule

(3) Limitation rule means the rule described in subsection (2).

Link with subpart DA

(4) This section overrides the general permission.

Defined in this Act: amount, business, deduction, general permission, income, limitation rule,

Compare: 1994 No 164 s DG 1

DD 2 Limitation rule

What rule applies to

(1) The expenditure to which the limitation rule applies is expenditure on the forms of entertainment described in subsections (2) to (6).

Corporate boxes
(2) The limitation rule—
- (a) applies to deductions for expenditure on corporate boxes, corporate marquees or tents, or other exclusive areas, whether temporary or permanent, at—
  - (i) cultural, sporting, or other recreational events:
  - (ii) activities taking place off the person's business premises; and
- (b) applies to the cost of tickets or other rights of entry to the areas; and
- (c) applies to the cost of food and drink incidental to this form of entertainment.
Holiday accommodation
(3) The limitation rule—
- (a) applies to deductions for expenditure on accommodation in a holiday home, time-share apartment, or similar leisure venue; and
- (b) does not apply to accommodation that is merely incidental to business activities or employment duties; and
  - (c) applies to the cost of food and drink incidental to this form of entertainment.
Pleasure craft
(4) The limitation rule—
- (a) applies to deductions for expenditure on yachts or other pleasure craft; and
- (b) applies to the cost of food and drink incidental to this form of entertainment.
Entertainment off premises

(5) The limitation rule applies to deductions for expenditure on food and drink that a person provides off their business premises.

Entertainment on premises
(6) The limitation rule applies to deductions for expenditure on food and drink that a person provides, other than light refreshments such as a morning tea and whether or not guests are present,—
- (a) on their business premises at a celebration meal, party, reception, or other similar social function:
- (b) in an area of the premises that at the time is reserved for senior employees to use and is not open to all the person's employees working in the premises.
Meaning of expenditure
(7) Expenditure includes,—
- (a) in subsections (2) to (4),—
  - (i) an amount of depreciation loss; and
  - (ii) expenditure or loss on running costs and maintenance and similar matters; and
  - (iii) a deduction for a lease premium under section DZ 9 (Premium paid on land leased before 1 April 1993); and
- (b) in subsections (2) to (6), any incidental expenditure on matters such as hireage of crockery, glassware, or utensils, waiting staff, and music or other entertainment provided in association with the specified kind of entertainment.
Defined in this Act: amount, business, business premises, deduction, depreciation loss, expenditure, limitation rule,

Compare: 1994 No 164 s DG 1(1), (3), schedule 6A, part A, cls 1-4, part B, cl 4(a)

Subsection (2)(a)(i) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.

Subsection (6)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.

DD 3 When limitation rule does not apply

The limitation rule is either restricted in its application or does not apply to deductions for the expenditure described in sections DD 4 to DD 8.

Defined in this Act: deduction, limitation rule,

Compare: 1994 No 164 s DG 1(2)

DD 4 Employment-related activities

Business travel expenditure
(1) The limitation rule does not apply to a deduction for expenditure on food or drink consumed by a person while travelling in the course of business or for their employment duties. However, the limitation rule applies if—
- (a) the travel is mainly for the purpose of enjoying entertainment; or
- (b) the food or drink is consumed at a meal or function involving an existing or potential business contact as a guest; or
- (c) the food or drink is consumed at a celebration meal, party, reception, or other similar social function.
Conference expenditure

(2) The limitation rule does not apply to a deduction for expenditure on light refreshments at a conference or educational course or similar event, nor to food or drink consumed at such an event lasting for at least 4 consecutive hours (excluding meal times). However, the limitation rule applies if the event is mainly for the purpose of entertainment.

Expenditure on employees' meals
(3) The limitation rule does not apply to a deduction for expenditure on—
- (a) a reasonable amount of food or drink provided as a meal allowance, or the reimbursement of the cost of the food and drink, when an employee works overtime, if the allowance or reimbursement is exempt income under section CW 13 (Expenditure on account, and reimbursement, of employees):
- (b) a light meal consumed as part of the employee's employment duties in an area of the person's business premises that at the time is reserved for senior employees and their guests to use and is not open to all the person's employees working in the premises.
Defined in this Act: business, business contacts, business premises, deduction, employee, exempt income, limitation rule,

Compare: 1994 No 164 schedule 6A, part B, cls 1-5

Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.

DD 5 Promoting businesses, goods, or services

Sponsored promotions
(1) The limitation rule does not apply to a deduction for expenditure on entertainment if—
- (a) the entertainment is sponsored mainly to advertise or promote a person's business, goods, or services to the public; and
- (b) none of the following has a greater opportunity to enjoy the entertainment than the public generally:
  - (i) existing business contacts of the person or the person whose business, goods, or services are being advertised or promoted:
  - (ii) employees of the person or the person whose business, goods, or services are being advertised or promoted:
  - (iii) anyone associated with the person or the person whose business, goods, or services are being advertised or promoted.
Incidental costs of promotion
(2) The limitation rule does not apply to a deduction for expenditure on entertainment that is merely an incidental part of—
- (a) a trade display mainly held to advertise or promote a business, goods, or services:
- (b) a function open to the public and mainly held to advertise or promote a business, goods, or services.
Samples

(3) The limitation rule does not apply to a deduction for expenditure on samples that a person provides for promotion or advertising purposes to anyone who is not an employee of or associated with the person.

Entertainment for review

(4) The limitation rule does not apply to a deduction for expenditure on entertainment that a person provides to a person who is reviewing the entertainment for a book, magazine, paper, or other medium of communication.

Defined in this Act: associated person, business, business contacts, deduction, employee, limitation rule,

Compare: 1994 No 164 schedule 6A, part B, cls 6, 8, 10, 12

Subsections (1)(b)(i) and (ii), (2)(a) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.

DD 6 Entertainment as business or for charitable purpose

Entertainment as business

(1) The limitation rule does not apply to a deduction for expenditure on entertainment that a person provides for market value or in an arm's length transaction in the ordinary course of their business, if that business is to provide 1 or more of the forms of entertainment referred to in section DD 2.

Entertainment for charitable purposes

(2) The limitation rule does not apply to a deduction for expenditure on entertainment that a person provides to members of the public for charitable purposes.

Defined in this Act: business, charitable purpose, deduction, limitation rule,

Compare: 1994 No 164 schedule 6A, part B, cls 9, 11

DD 7 Entertainment outside New Zealand

The limitation rule does not apply to a deduction for expenditure on entertainment that is enjoyed or consumed outside New Zealand.

Defined in this Act: deduction, limitation rule, New Zealand,

Compare: 1994 No 164 schedule 6A, part B, cl 7

DD 8 Entertainment that is income or fringe benefit

The limitation rule does not apply to a deduction for expenditure on entertainment that is—
- (a) income of the person who consumes it; or
- (b) a fringe benefit to which fringe benefit tax applies.
Defined in this Act: deduction, fringe benefit, fringe benefit tax, income, limitation rule,

Compare: 1994 No 164 schedule 6A, part B, cls 13, 14

DD 9 Relationship with FBT rules

Sections DD 2 to DD 8 override the FBT rules. However, the FBT rules, as applied by section CX 25 (Entertainment), override sections DD 2 to DD 8 if an employee of the person providing the benefit—
- (a) may choose when to receive or use the benefit:
- (b) does not receive or use the benefit in the course of their employment duties.
Defined in this Act: employee, FBT rules,

Compare: 1994 No 164 s CI 1(r)

Paragraph (a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.

DD 10 Interpretation: reimbursement and apportionment

In sections DD 2 to DD 8,—
- (a) a person is treated as having incurred expenditure on entertainment described in section DD 2 if they pay an allowance for, or reimburse an employee's expenditure on, the entertainment, and the allowance or reimbursement is exempt income under section CW 13 (Expenditure on account, and reimbursement, of employees):
- (b) if a person incurs expenditure that relates only partly to the entertainment, the expenditure must be apportioned appropriately.
Defined in this Act: employee, exempt income,

Compare: 1994 No 164 s DG 1(3), (4)

Paragraph (a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.

DD 11 Some definitions

In this subpart,—

business includes any recurring income-earning activity
business contacts —
- (a) includes, for a person,—
  - (i) their clients, customers, shareholders, other financiers, and suppliers:
  - (ii) the clients, customers, shareholders, other financiers, and suppliers of an associated person:
- (b) if the person is in partnership, does not include other partners in the partnership
business contacts: paragraph (a)(i) and (ii) of this definition was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.
business premises —
- (a) means the normal business premises or a temporary workplace of the person (or an associate):
- (b) does not include premises or a workplace established mainly for the purpose of enjoying entertainment.
business premises: paragraph (a) of this definition was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.
Defined in this Act: associated person, business, business contacts, business premises, shareholder,

Compare: 1994 No 164 schedule 6A business, business contacts, business premises

Subpart DE—Motor vehicle expenditure

Introductory provisions

DE 1 What this subpart does

Apportions motor vehicle expenditure

(1) This subpart sets out the rules for determining the proportion of business use of a motor vehicle to its total use when a person uses a motor vehicle partly for business purposes and partly for other purposes.

Exclusions
(2) This subpart does not apply—
- (a) to a company:
- (b) to a person whose only income is income from employment:
- (c) to a motor vehicle that is used only—
  - (i) for the purpose of deriving income; or
  - (ii) for a purpose that constitutes a fringe benefit.
Defined in this Act: business purposes, business use, company, fringe benefit, income, income from employment, motor vehicle,

Compare: 1994 No 164 s DH 1

Subsection (2)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.

DE 2 Deductions for business use

Deduction
(1) A person is allowed a deduction for—
- (a) expenditure that they incur for the business use of a motor vehicle:
- (b) an amount of depreciation loss for the business use of a motor vehicle.
Amount, and timing, of deduction: expenditure

(2) The amount of the deduction allowed in an income year for the expenditure for the business use of the vehicle is calculated using the formula—

expenditure x business proportion

Definition of item in formula

(3) In the formula, business proportion is the proportion of business use of the motor vehicle for the income year (expressed as a decimal) calculated under sections DE 3 to DE 12.

Amount, and timing, of deduction: depreciation loss
(4) The amount of the deduction allowed in an income year for the amount of depreciation loss for the business use of the vehicle is calculated—
- (a) using the formula in subsection (5), except in a case to which paragraph (b) or (c) applies; or
- (b) using the formula in subsection (7), if that subsection applies to the depreciation loss; or
- (c) using the formula in subsection (8C), if that subsection applies to the depreciation loss.
Calculation of deduction: depreciation loss generally

(5) The formula referred to in subsection (4)(a) is—

standard calculation x business proportion

Definition of items in formula
(6) In the formula,—
- (a) standard calculation is the amount resulting from a calculation made for the motor vehicle under section EE 16 (Amount resulting from standard calculation):
- (b) business proportion is the proportion of business use of the motor vehicle for the income year (expressed as a decimal) calculated under sections DE 3 to DE 12.
When subsection (7) applies
(6B) Subsection (7) applies when—
- (a) the depreciation loss results from a calculation made for the motor vehicle under section EE 41(2) (Effect of disposal or event); and
- (b) the motor vehicle was, at any time during the period the person owned it, dealt with in subsection (5).
Calculation of deduction: depreciation loss on disposal

(7) The formula referred to in subsection (4)(b) is—

Definition of items in formula
(8) In the formula,—
- (a) disposal depreciation loss is the amount resulting from a calculation made for the vehicle under section EE 41(2) (Effect of disposal or event):
- (b) all deductions is all amounts of depreciation loss relating to the vehicle for which the person has been allowed a deduction in each of the income years in which the person has owned the vehicle:
- (c) base value has the applicable one of the meanings in sections EE 48 to EE 50 (which relate to base value):
- (d) adjusted tax value is the vehicle's adjusted tax value on the date on which the disposal or event occurs.
When subsection (8C) applies
(8B) Subsection (8C) applies when—
- (a) the depreciation loss results from a calculation made for the motor vehicle under section EE 41(2) (Effect of disposal or event); and
- (b) the motor vehicle starts to have a business use in the same income year as the year in which the depreciation loss arose.
Calculation of deduction: depreciation loss on disposal in certain circumstances

(8C) The formula referred to in subsection (4)(c) is—

disposal depreciation loss × business proportion.

Definition of items in formula
(8D) In the formula,—
- (a) disposal depreciation loss is the amount resulting from a calculation made for the motor vehicle under section EE 41(2):
- (b) business proportion is the proportion of business use of the motor vehicle for the income year (expressed as a decimal) calculated under sections DE 3 to DE 12.
Link with subpart DA

(9) This section supplements the general permission and overrides the private limitation. The other general limitations still apply.

Defined in this Act: adjusted tax value, amount, business use, deduction, depreciation loss, general limitation, general permission, income year, motor vehicle, own, private limitation, supplement,

Compare: 1994 No 164 ss DH 1(3), EG 2(1)(d), EG 19(4)

Subsection (1)(a) was amended, as from 3 April 2006, by section 46 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “:” for “; or”.

Subsection (4)(a) was amended, as from 18 December 2006, by section 23(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “paragraph (b) or (c)” for “paragraph (b)” with application as from the 2006-07 income year.

Subsection (4)(b) was substituted, as from 18 December 2006, by section 23(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2006-07 income year.

Subsection (4)(c) was inserted, as from 18 December 2006, by section 23(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2006-07 income year.

Subsection (6B) was inserted, as from 18 December 2006, by section 23(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2006-07 income year.

Subsections (8B) to (8D) were inserted, as from 18 December 2006, by section 23(4) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2006-07 income year.

DE 3 Methods for calculating proportion of business use

The 3 methods that may be used to calculate the proportion of business use of a motor vehicle are—
- (a) actual records (section DE 5):
- (b) a logbook (sections DE 6 to DE 11):
- (c) mileage rates (section DE 12).
Defined in this Act: business use, motor vehicle,

Compare: 1994 No 164 s DH 2

Paragraphs (a) and (b) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.

DE 4 Default method for calculating proportion of business use

When this section applies
(1) This section applies when—
- (a) a person has not maintained actual records to show the proportion of business use of a motor vehicle; or
- (b) a period is not a term to which a proportion of business use of a motor vehicle established by a logbook applies; or
- (c) a person cannot use the mileage rate method.
Amount of deduction
(2) The deduction under section DE 2 for expenditure or loss incurred is limited to the lesser of—
- (a) the proportion of actual business use of the vehicle; and
- (b) 25% of the total use of the vehicle.
Defined in this Act: amount, business use, deduction, motor vehicle,

Compare: 1994 No 164 s DH 4

Actual records

DE 5 Actual records

To determine the proportion of business use of a motor vehicle, a person may use actual records showing the reasons for and the distance of journeys by a motor vehicle for business purposes. However, when the period covered falls within a logbook term, actual records may be used only if the person and the Commissioner agree.

Defined in this Act: business purposes, business use, Commissioner, logbook term, motor vehicle,

Compare: 1994 No 164 s DH 2

Logbook

DE 6 Using logbook for test period

A person may keep a logbook for a test period for the purpose of establishing the proportion of the business use of a motor vehicle for an income year (or part of an income year) that falls within a logbook term. If a person uses a logbook as a method of establishing the proportion of business use, they must also record the total distance travelled in each income year (or part of an income year) that falls within a logbook term.

Defined in this Act: business use, income year, logbook term, motor vehicle,

Compare: 1994 No 164 s DH 3(1)

DE 7 Logbook requirements

Test period

(1) When a logbook is used to establish the proportion of business use of a motor vehicle, a person must select a start date, and keep the logbook for at least 90 consecutive days at a time that represents (or is likely to represent) the average proportion of travel by the vehicle for business purposes during the logbook term.

Record of reasons for, and distance of, journeys
(2) The logbook must record—
- (a) the start and end of the 90 day test period; and
- (b) the vehicle's odometer readings at the start and end of the test period; and
- (c) the distance of each business journey; and
- (d) the date of each business journey; and
- (e) the reason for each business journey; and
- (f) any other detail that the Commissioner may require.
Defined in this Act: business, business purposes, business use, Commissioner, logbook term, motor vehicle,

Compare: 1994 No 164 s DH 3(2)

DE 8 Logbook term

Meaning of logbook term

(1) A logbook term is a period to which the proportion of business use of a motor vehicle established by the logbook applies. The term lasts up to 3 years and starts and ends as described in subsections (2) and (3).

Start of term
(2) A logbook term starts on the date that is the latest of the following days:
- (a) the first day of the income year in which a person starts to keep a logbook:
- (b) the day that a person acquires the motor vehicle (unless the vehicle is a replacement vehicle, which is dealt with in section DE 11):
- (c) the day immediately after the last day of the previous logbook term:
- (d) a day that a person specifies.
End of term
(3) The logbook term ends on the date that is the earliest of the following days:
- (a) the day that a person disposes of the motor vehicle without replacing it:
- (b) the day that is 3 years after the first day of the income year in which the logbook term started:
- (c) a day that the Commissioner specifies under section DE 9:
- (d) a day that a person specifies.
Defined in this Act: business use, Commissioner, income year, logbook term, motor vehicle, year,

Compare: 1994 No 164 s DH 3(3)

Subsections (2)(a) to (c) and (3)(a) to (c) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.

DE 9 Inadequate logbook

Non-representative logbook proportion
(1) If the Commissioner considers that the proportion of business use recorded in a logbook does not, or does no longer, represent the average use of a motor vehicle for business purposes during an income year that falls within a logbook term, the Commissioner may,—
- (a) within the logbook term, direct a person to keep a further logbook and specify another 90 day period in the logbook term for keeping the logbook; or
- (b) treat a person as not having kept a logbook that applies to the logbook term.
Further logbook
(2) If the Commissioner directs a person to keep a further logbook, and the proportion of business use calculated under that logbook is less by at least 20% than the proportion under the first logbook, the Commissioner may find that the first logbook—
- (a) represented the average use of the motor vehicle for business purposes for only part of the logbook term; or
- (b) did not represent that use at all.
Partly representative logbook

(3) If subsection (2)(a) applies, the Commissioner may determine a date on which the application of the first logbook ended, and the further logbook applies to a new logbook term that starts on the day after that date.

Non-representative logbook

(4) If subsection (2)(b) applies, the Commissioner may direct that the further logbook applies for the logbook term to which the first logbook applied.

Defined in this Act: business purposes, business use, Commissioner, income year, logbook term, motor vehicle,

Compare: 1994 No 164 s DH 3(6), (7)

DE 10 Variance during logbook term

If, in any month during a logbook term, the proportion of business use in that month is less by at least 20% than the proportion established by the logbook, and the proportion of business use recorded in the logbook no longer represents the average use of the motor vehicle for business purposes, the logbook term must end on the last day of that month.

Defined in this Act: business purposes, business use, logbook term, motor vehicle,

Compare: 1994 No 164 s DH 3(4)

DE 11 Replacement vehicles

For the purpose of establishing the proportion of business use of a motor vehicle, a replacement vehicle is treated in the same way as the vehicle it replaces if—
- (a) the logbook is likely to be representative of the average travel for business purposes for the remainder of the logbook term; and
- (b) from the date of replacement, a person keeps a record of the total distance travelled by the replacement vehicle for each income year (or part of an income year) of the remaining logbook term.
Defined in this Act: business purposes, business use, income year, logbook term, motor vehicle,

Compare: 1994 No 164 s DH 3(5)

Mileage rates

DE 12 Mileage rate method

Using mileage rates

(1) If a person's business travel is 5,000 kilometres or less in an income year, they may use the mileage rate method to calculate the expenditure or loss on a motor vehicle that represents the proportion of business use of the vehicle.

Amount of deduction

(2) Under the mileage rate method, the person must keep details of the business use of the motor vehicle and calculate the mileage travelled for business purposes for the income year. The amount of the deduction under this method is found by multiplying the mileage rate by the distance that reflects the proportion of business use of the vehicle for the income year.

Setting mileage rates

(3) For the purposes of this section, the Commissioner must from time to time set and publish a mileage rate.

Defined in this Act: amount, business, business purposes, business use, Commissioner, deduction, income year, motor vehicle,

Subpart DF—Government grants

DF 1 Government grants to businesses

DF 2 Repayment of grant-related suspensory loans

DF 3 Identifying expenditure for purposes of sections DF 1 and DF 2

DF 4 Payment for attendant care by claimant receiving type of accident compensation payments [Not in force]

DF 1 Government grants to businesses

When subsection (2) applies
(1) Subsection (2) applies when—
- (a) a payment is granted by a local authority or a public authority to a person for a business carried on by the person; and
- (b) the payment is in the nature of a grant or subsidy, or is a grant-related suspensory loan, but is not otherwise a payment in the nature of an advance or loan; and
- (c) the payment is made to the person for expenditure that they incur, other than in a way described in subsection (3); and
- (d) the person would be allowed a deduction for the expenditure if this section did not exist; and
- (e) the payment is excluded income under section CX 41 (Government grants to businesses).
No deduction (with exception)

(2) The person is denied, to the extent of the amount of the payment, the deduction that they would have been allowed if this section did not exist.

When subsection (4) applies
(3) Subsection (4) applies when—
- (a) a payment is granted by a local authority or a public authority to a person for a business carried on by the person; and
- (b) the payment is in the nature of a grant or subsidy, or is a grant-related suspensory loan, but is not otherwise a payment in the nature of an advance or loan; and
- (c) the payment is made to the person for expenditure that they incur in acquiring, constructing, installing, or extending an item of depreciable property; and
- (d) the person owns the item; and
- (e) the person is allowed a deduction for an amount of depreciation loss for the item.
Amount of depreciation loss

(4) For the purpose of quantifying the amount of depreciation loss, the amount of the expenditure is reduced by the amount of the payment.

Amendment of assessment

(5) Despite the time bar, the Commissioner may amend an assessment at any time in order to give effect to this section.

Exclusion

(6) This section does not apply to a large budget screen production grant.

Link with subpart DA

(7) This section overrides the general permission.

Defined in this Act: amount, assessment, business, Commissioner, deduction, depreciable property, depreciation loss, general permission, grant-related suspensory loan, large budget screen production grant, local authority, public authority, time bar,

Compare: 1994 No 164 s DC 1

Subsection (1)(d) was amended, as from 3 April 2006, by section 48(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “exist; and” for the expression “exist.” with application as from the income year corresponding to the 2005–06 tax year.

Subsection (1)(e) was inserted, as from 3 April 2006, by section 48(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

DF 2 Repayment of grant-related suspensory loans

Deduction

(1) A person is allowed a deduction for the amount of a repayment that they are required to make of some or all of a grant-related suspensory loan to the extent to which the amount relates to a payment to which section DF 1(2) applies.

Timing of deduction

(2) The deduction is allocated to the income year in which repayment is first required.

Amount of depreciation loss
(3) If a person is required to repay some or all of a grant-related suspensory loan, then, to the extent to which section DF 1(3) and (4) apply to the loan,—
- (a) the person is allowed a deduction for an amount of depreciation loss for the item; and
- (b) the amount of depreciation loss is the total of the amounts of depreciation loss for the item for which the person would have been allowed a deduction if section DF 1(3) and (4) had not applied.
Quantifying amount of depreciation loss
(4) For the purpose of quantifying the amount of depreciation loss for the item in the income year and in later income years, the following matters must be taken into account:
- (a) the amount of the deduction under subsection (3); and
- (b) the total of the amounts of depreciation loss for the item for which the person has been allowed a deduction; and
- (c) the person's expenditure on acquiring, constructing, installing, or extending the item.
Link with subpart DA

(5) This section supplements the general permission and overrides the capital limitation for the amount described in subsection (1). The other general limitations still apply.

Defined in this Act: amount, capital limitation, deduction, depreciation loss, general limitation, general permission, grant-related suspensory loan, income year, supplement,

Compare: 1994 No 164 s DC 3(1)-(3)

DF 3 Identifying expenditure for purposes of sections DF 1 and DF 2

For the purposes of sections DF 1 and DF 2, a statement by a person making a grant-related suspensory loan as to the expenditure that relates to the loan or to the repayment of the loan provides conclusive evidence on the questions.

Defined in this Act: grant-related suspensory loan,

Compare: 1994 No 164 s DC 3(4)

DF 4 Payment for attendant care by claimant receiving type of accident compensation payments

Subpart DN—Attributed losses from foreign equity

Attributed controlled foreign company loss

DN 1 Attributed controlled foreign company loss

Deduction

(1) A person is allowed a deduction for an attributed CFC loss, subject to the jurisdictional ring-fencing rule in section DN 4.

Link with subpart DA

(2) This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.

Defined in this Act: attributed CFC loss, capital limitation, deduction, general limitation, general permission, supplement,

Compare: 1994 No 164 s CG 1(a)

DN 2 When attributed CFC loss arises

A person has an attributed CFC loss from a foreign company in an income year if—
- (a) the foreign company is a CFC at any time during 1 of its accounting periods, under sections EX 1 to EX 7 (which relate to the definition of a controlled foreign company); and
- (b) the accounting period ends during the income year; and
- (c) the person has an income interest in the foreign company for the accounting period, under sections EX 8 to EX 13 (which relate to calculating a person's income interest); and
- (d) at any time in the accounting period, the person is a New Zealand resident who is not a transitional resident; and
- (e) the person's income interest is 10% or more for the accounting period, under sections EX 14 to EX 17 (which relate to the 10% threshold); and
- (f) the CFC has a branch equivalent loss for the accounting period, under section EX 21 (Branch equivalent income or loss: calculation rules); and
- (g) the CFC is not an unqualified grey list CFC for the accounting period, under section EX 22 (Unqualified grey list CFCs).
Defined in this Act: accounting period, attributed CFC loss, branch equivalent loss, CFC, foreign company, grey list, income interest, income year, New Zealand resident, transitional resident,

Compare: 1994 No 164 ss CG 6(1), CG 7(1), CG 13(1)

Paragraph (d) was substituted, as from 1 October 2005, by section 50(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 50(3) and (4) of that Act as to the application of this amendment.

The list of defined terms was amended, as from 1 October 2005, by section 50(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting the words “transitional resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 50(3) and (4) of that Act as to the application of this amendment.

DN 3 Calculation of attributed CFC loss

The amount of an attributed CFC loss is calculated under sections EX 18 to EX 20 (which relate to the calculation of attributed CFC income or loss).

Defined in this Act: amount, attributed CFC loss,

DN 4 Ring-fencing cap on deduction

Amount of deduction
(1) The deduction that a person is allowed for an attributed CFC loss from a CFC in an income year is no more than the total of—
- (a) any attributed CFC income of the person for the income year from another CFC that is resident in the same country as the first CFC for the relevant accounting period; and
- (b) any FIF income of the person for the income year calculated under the branch equivalent method from a FIF that is resident in the same country.
Income only once
(2) When subsection (1) is applied to an attributed CFC loss, an amount of attributed CFC income or FIF income may be used only to the extent to which the income is not used when—
- (a) subsection (1) is applied to another attributed CFC loss; or
- (b) section DN 9 is applied to a FIF loss.
Relationship with sections IE 3 and IG 4

(3) Any excess not able to be deducted because of subsection (1) is an attributed CFC net loss able to be used under section IE 3 (Attributed CFC net losses) or IG 4 (Group of companies attributed CFC net losses).

Defined in this Act: accounting period, amount, attributed CFC income, attributed CFC loss, attributed CFC net loss, branch equivalent method, CFC, deduction, FIF, FIF income, FIF loss, income year,

Compare: 1994 No 164 s DP 1

Foreign investment fund loss

DN 5 Foreign investment fund loss

Deduction

(1) A person is allowed a deduction for a FIF loss.

Ring fencing rule for loss under branch equivalent method

(1B) The deduction for a FIF loss calculated under the branch equivalent method is subject to the jurisdictional ring-fencing rule in section DN 9.

Ring fencing rule for loss under branch equivalent method

Link with subpart DA

(2) This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.

Defined in this Act: branch equivalent method, calculation method, capital limitation, deduction, FIF loss, general limitation, general permission, supplement,

Compare: 1994 No 164 ss DP 2(1), DP 3(1)

Subsection (1) and the preceding heading were substituted, as from 1 April 2007, by section 24(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 24(2) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

Subsection (1B) and the preceding heading were inserted, as from 1 April 2007, by section 24(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 24(2) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

DN 6 When FIF loss arises

General rule
(1) A person has a FIF loss in an income year if,—
- (a) at any time in the year, the person has—
  - (i) rights in a foreign company, or a foreign superannuation scheme, or an entity listed in schedule 4, part A (Foreign investment funds); or
  - (ii) rights under a life insurance policy issued by a non-resident; and
- (b) at that time, the rights are an attributing interest in a FIF under sections EX 30 (Attributing interests in FIFs) and EX 31 (Direct income interests in FIFs); and
- (c) at that time, the rights are not exempt from being an attributing interest in a FIF under any of—
  - (i) the CFC regime exemption in section EX 32 (CFC rules exemption):
  - (ii) the grey list exemption in section EX 33 (Exemptions: direct income interests in FIF in grey list country):
  - (iib) the exemptions limited by income years in section EX 33B (Exemptions limited by income years: shares in certain grey list companies):
  - (iic) the exemption for shares in a listed Australian company in section EX 33C (Exemption: shares in listed Australian company):
  - (iid) the exemption for units in certain Australian unit trusts in section EX 33D (Exemption; units in certain Australian unit trusts):
  - (iie) the Australian superannuation fund exemption in section EX 33E (Australian superannuation fund exemption):
  - (iii) the foreign exchange control exemption in section EX 34 (Foreign exchange control exemption):
  - (iv) the exemption for a non-resident or transitional resident, in section EX 35 (Income interest of non-resident or transitional resident):
  - (v) the immigrant's accrued superannuation entitlement exemption in section EX 36 (Immigrant's accrued superannuation entitlement exemption):
  - (vi) the annuity or pension exemption in section EX 37 (Non-resident's pension or annuity exemption); and
- (d) if the person is a natural person and not acting as a trustee, the person holds, at any time during the income year when the person is a New Zealand resident, attributing interests in FIFs for which the total of the following amounts is more than $50,000:
  - (i) if subparagraph (ii) does not apply to the interest, the cost of the interest calculated under section EX 56 (Measurement of cost):
  - (ii) if the person acquired the interest before 1 January 2000 and chooses, for the year or an earlier year, that this subparagraph and section CQ 5(1)(d)(ii) (When FIF income arises) apply to all interests acquired before 1 January 2000, half of the market value of the interest on 1 April 2007; and
- (db) if the person is acting as a trustee of a trust that meets the requirements of subsection (4), the person holds attributing interests in FIFs for which the total of the following amounts is more than $50,000:
  - (i) if subparagraph (ii) does not apply to the interest, the cost of the interest calculated under section EX 56 (Measurement of cost):
  - (ii) if the person acquired the interest before 1 January 2000 and chooses, for the year or an earlier year, that this subparagraph and section CQ 5(1)(d)(ii) apply to all interests acquired before 1 January 2000, half of the market value of the interest on 1 April 2007; and
- (e) at any time in the year, the person is a New Zealand resident who is not a transitional resident and holds the attributing interest; and
- (f) under the relevant calculation method chosen by the person, a loss amount is calculated for the income year or relevant accounting period under sections EX 38 to EX 45B (which relate to the calculation of FIF income or loss).
Look-through calculation methods
(2) Despite subsection (1), if the calculation method is the accounting profits method or branch equivalent method,—
- (a) FIF loss arises in the income year only if the relevant accounting period of the FIF ends during the year; and
- (b) the tests in subsection (1)(a), (b), (c), and (e) are applied on the basis that references in subsection (1)(a), (b), (c), and (e) to any time in the income year are read as references to any time in the relevant accounting period.
Special rule: CFC with FIF interest

(3) A person with an income interest of 10% or more in a CFC can also have a FIF loss in an income year under the special rule in section EX 46 (Additional FIF income or loss if CFC owns FIF), which applies when a CFC has an attributing interest in a FIF (whether or not the CFC is an unqualified grey list CFC under section EX 22 (Unqualified grey list CFCs)).

When application of subsection (1) affected by subsection (1)(db)
(4) Subsection (1)(db) applies to the trustee of a trust for an income year if—
- (a) the settlor of the trust—
  - (i) is a relative or legal guardian of a beneficiary of the trust, or a person associated with a relative or legal guardian of a beneficiary of the trust under section OD 7 (Defining when 2 persons are associated persons); and
  - (ii) is required by a court order to pay damages or compensation to the beneficiary:
- (b) the settlor of the trust—
  - (i) is the estate of a deceased person; and
  - (ii) is required by a court order to settle on the trust the proceeds of damages or compensation for the beneficiaries of the trust:
- (c) the settlor of the trust is the Accident Compensation Corporation:
- (d) the trust is of the estate of a deceased person and the income year begins on or before the day that is 5 years after the person's death.
Defined in this Act: accounting period, accounting profits method, amount, attributing interest, branch equivalent method, calculation method, CFC, FIF, FIF loss, foreign company, foreign superannuation scheme, grey list, income interest, income year, life insurance policy, New Zealand resident, non-resident, transitional resident, trustee,

Compare: 1994 No 164 ss CG 7(5), CG 15(1), (2), CG 16(2)

Subsection (1)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (1)(a)(ii) was amended, as from 1 February 2004, by section 25(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “non-resident; and” for “non-resident:”.

Subsection (1)(b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (1)(b) was amended, as from 1 February 2004, by section 25(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “FIFs); and” for “FIFs):”.

Subsection (1)(c)(i) to (v) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (1)(c)(ii) was amended, as from 1 April 2007, by section 25(3)(a) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “(Exemptions: direct income interests in FIF in grey list country)” for “(Grey list exemption)”.

Subsection (1)(c)(iib) to (iie) was inserted, as from 1 April 2007, by section 25(3)(b) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Subsection (1)(c)(iv) was substituted, as from 1 October 2005, by section 51(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year.

Subsection (1)(c)(vi) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (1)(c)(vi) was amended, as from 1 February 2004, by section 25(4) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “exemption); and” for “exemption):”.

Subsection (1)(d) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (1)(d) was substituted, as from 1 October 2005, by section 51(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 51(4) and (5) of that Act for the application of this amendment.

Subsection (1)(d) was amended, as from 1 February 2004, by section 25(5) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “$50,000; and” for “$50,000:”.

Subsection (1)(d) was substituted, as from 1 April 2007, by section 25(6) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 25(10) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

Subsection (1)(db) was inserted, as from 1 April 2007, by section 25(6) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 25(10) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

Subsection (1)(e) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (1)(e) was amended, as from 1 February 2004, by section 25(7) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “time; and” for “time:”.

Subsection (1)(e) was substituted, as from 1 October 2005, by section 51(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 51(4) and (5) of that Act for the application of this amendment.

Subsection (1)(f) was amended, as from 1 April 2007, by section 25(8) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “EX 45B” for “EX 45”. See section 25(10) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

Subsection (4) and the preceding heading were inserted, as from 1 April 2007, by section 25(9) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 25(10) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

The list of defined terms was amended, as from 1 October 2005, by section 51(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “transitional resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 51(4) and (5) of that Act as to the application of this amendment.

DN 7 Calculation of FIF loss

The amount of a FIF loss is calculated, using the relevant calculation method, under sections EX 38 to EX 49 (which relate to the calculation of FIF income or loss).

Defined in this Act: amount, calculation method, FIF loss,

Section DN 7 was amended, as from 1 October 2005, by section 181 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “EX 38” for “EX 42”.

DN 8 Ring-fencing cap on deduction: not branch equivalent method

[Repealed]

Section DN 8 was repealed, as from 1 April 2007, by section 26(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 26(2) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

DN 9 Ring-fencing cap on deduction: branch equivalent method

Amount of deduction
(1) If a person has a FIF loss that is calculated under the branch equivalent method, the deduction the person is allowed for the loss in an income year is no more than the total of—
- (a) any attributed CFC income of the person for the income year from a CFC that is resident in the same country as the FIF for the relevant accounting period of the CFC; and
- (b) any FIF income of the person for the income year that is calculated under the branch equivalent method from another FIF resident in the same country.
Income only once
(2) When subsection (1) is applied to a FIF loss, an amount of attributed CFC income or FIF income may be used only to the extent to which the income is not used when applying—
- (a) subsection (1) to another FIF loss; or
- (b) section DN 4 to an attributed CFC loss.
Relationship with section IE 4

(3) Any excess not able to be deducted because of subsection (1) is a FIF net loss able to be used under section IE 4 (FIF net losses).

Defined in this Act: accounting period, amount, attributed CFC income, attributed CFC loss, branch equivalent method, CFC, deduction, FIF, FIF income, FIF loss, FIF net loss, income year,

Compare: 1994 No 164 s DP 3

Subpart DO—Farming and aquacultural business expenditure

Farming

DO 1 Enhancements to land, except trees

Deduction
(1) A person is allowed a deduction for expenditure that they incur on the following in carrying on a farming or agricultural business on land in New Zealand:
- (a) the destruction of weeds or plants detrimental to the land:
- (b) the destruction of animal pests detrimental to the land:
- (c) the repair of flood or erosion damage to the land:
- (d) the destruction of scrub, stumps, or undergrowth on the land:
- (e) the clearing or removing from the land of scrub, stumps, or undergrowth:
- (f) the construction on the land of fences for farming or agricultural purposes, including buying wire or wire netting for the purpose of making new or existing fences rabbit-proof:
- (g) the regrassing and fertilising of all types of pasture, if the expenditure is not incurred in the course of a significant capital activity.
Link with subpart DA

(2) This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.

Defined in this Act: business, capital limitation, deduction, general limitation, general permission, New Zealand,

Compare: 1994 No 164 s DO 3(a)-(d), (g)

Subsection (1)(a) to (e) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.

Subsection (1)(f) was amended, as from 3 April 2006, by section 52(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the expression “rabbit-proof:” for the expression “rabbit-proof.” with application to expenditure incurred as from 1 April 2005.

Subsection (1)(g) was inserted, as from 3 April 2006, by section 52(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application to expenditure incurred as from 1 April 2005.

DO 2 Erosion and shelter plantings

When this section applies

(1) This section applies when a person carries on a farming or agricultural business on land in New Zealand, whether or not the business is the principal business carried on on the land.

Deduction
(2) The person is allowed a deduction for expenditure that they incur in planting or maintaining trees, whether or not on the land, for the purpose of—
- (a) preventing or combating erosion of the land; or
- (b) providing shelter to the land.
Link with subpart DA

(3) This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.

Defined in this Act: business, capital limitation, deduction, general limitation, general permission, New Zealand,

Compare: 1994 No 164 s DO 3(e), (f)

DO 3 Trees on farms

When this section applies
(1) This section applies when—
- (a) a person carries on, on land in New Zealand, a farming or agricultural business that is the principal business carried on on the land; and
- (b) they plant or maintain trees on the land; and
- (c) the trees are not—
  - (i) trees for which the person is allowed a deduction under section DO 2; or
  - (ii) trees planted mainly to produce fruit; or
  - (iii) trees planted under a forestry encouragement agreement under the Forestry Encouragement Act 1962.
Deduction
(2) The person is allowed the following deductions:
- (a) in an income year in which the person incurs expenditure on planting trees on the land, they are allowed a deduction of the lesser of $7,500 and the expenditure that they incur; and
- (b) in an income year in which the person incurs expenditure on maintaining trees on the land, they are allowed a deduction of the lesser of $7,500 and the expenditure that they incur.
Link with subpart DA

(3) This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.

Defined in this Act: business, capital limitation, deduction, general limitation, general permission, income year, New Zealand,

Compare: 1994 No 164 s DO 7(1), (2)(e)

DO 4 Improvements to farm land

When this section applies
(1) This section applies when—
- (a) a person carries on a farming or agricultural business on land in New Zealand; and
- (b) an improvement described in schedule 7, part A (Expenditure on farming, aquacultural, and forestry improvements) has been made to the land; and
- (c) the expenditure on the improvement is not expenditure to which sections DO 4B to DO 4D apply.
Deduction: expenditure: owner of land
(2) A person who owns the land is allowed a deduction for expenditure to which all the following apply:
- (a) it is incurred on making the improvement; and
- (b) it is incurred by the person or by another person; and
- (c) it is not incurred on anything described in any of sections DO 1 to DO 3; and
- (d) it is incurred in the 1995-96 income year or in a later income year, not including the income year in which the person disposes of the land. (The income year referred to in this paragraph is the income year of the person who owns the land.); and
- (e) it is incurred in developing the land; and
- (f) it is of benefit to the business in the income year in which the person is allowed the deduction.
Deduction: expenditure: non-owner of land
(3) A person who does not own the land is allowed a deduction for expenditure to which all the following apply:
- (a) it is incurred on making the improvement; and
- (b) it is incurred by the person; and
- (c) it is not incurred on anything described in any of sections DO 1 to DO 3; and
- (d) it is incurred in the 1995-96 income year or in a later income year, not including the income year in which the person ceases to carry on the business on the land; and
- (e) it is incurred in developing the land; and
- (f) it is of benefit to the business in the income year in which the person is allowed the deduction.
Amount, and timing, of deduction

(4) The amount of the deduction is calculated using the formula—

schedule 7 percentage x diminished value

Definition of items in formula
(5) In the formula,—
- (a) schedule 7 percentage is the percentage set out opposite the description of the improvement in schedule 7, part A (Expenditure on farming, aquacultural, and forestry improvements):
- (b) diminished value is the diminished value of the improvement.
Amount, and timing, for obsolete vines or trees
(6) When non-listed horticultural plants described in schedule 7, part A, item 8 (Expenditure on farming, aquacultural, and forestry improvements) have ceased to exist, or to be used in deriving income, on or after 16 December 1991,—
- (a) subsection (4) does not apply; and
- (b) the amount of the deduction is the diminished value of the non-listed horticultural plants at the time they ceased to exist or to be used in deriving income; and
- (c) the deduction is allocated to the income year in which the non-listed horticultural plants ceased to exist or to be used in deriving income.
Link with subpart DA

(7) This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.

Order in Council to amend schedule 7

(8) The Governor-General may from time to time by Order in Council make regulations amending schedule 7 to vary the categories of improvements and percentages of diminished value of those improvements allowed as a deduction.

Defined in this Act: amount, business, capital limitation, deduction, diminished value, general limitation, general permission, income, income year, New Zealand, own,

Compare: 1994 No 164 s DO 4(1)-(3)(b), (4)

Subsection (1)(b) was amended, as from 1 October 2005, by section 182(1) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “land; and” for the word “land.” with application as from income years corresponding to the 2005–06 tax year.

Subsection (1)(c) was inserted, as from 1 October 2005, by section 182(1) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) with application as from income years corresponding to the 2005–06 tax year.

Subsection (6) was amended, as from 1 October 2005, by section 182(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “non-listed horticultural plants” for “vines or trees” with application as from income years corresponding to the 2005–06 tax year.

Subsection (8) was inserted, as from 1 October 2005, by section 53(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

DO 4B Expenditure on land: planting of listed horticultural plants

Application of section
(1) This section applies if—
- (a) a person carries on a farming or agricultural business (including a horticultural business) on land in New Zealand; and
- (b) the land has been developed by the planting of listed horticultural plants on the land.
Deduction and timing

(2) For an income year in which the planting benefits the business and for which subsection (3) does not apply, the person is allowed a deduction relating to expenditure incurred by the person, or by another person, in developing the land.

Income year in which no deduction
(3) The person is not allowed a deduction under subsection (2) for an income year in which—
- (a) if the person owns the land, the person disposes of the land:
- (b) if the person does not own the land, the person ceases carrying on the business on the land.
Amount of deduction other than under subsections (6) and (7)

(4) For expenditure to which subsections (6) and (7) do not apply for the income year, the amount of the deduction under subsection (2) is calculated using the formula:

1.2 x rate x diminished value.

Definition of items in formula
(5) In the formula—
- (a) rate is the percentage rate determined for the type of listed horticultural plant by the Commissioner under section 91AAB of the Tax Administration Act 1994:
- (b) diminished value is the diminished value of the expenditure.
Deduction: expenditure on replaced plant if no deduction under section DO 4C
(6) If a listed horticultural plant in a planting of the person ceases in an income year to exist or to be used in deriving assessable income and the person has no deduction under section DO 4C for the income year for the expenditure incurred in replacing the listed horticultural plant—
- (a) the person is allowed a deduction:
- (b) the amount of the deduction is the diminished value of the expenditure on the listed horticultural plant at the time that the listed horticultural plant ceases to exist or to be used in deriving assessable income:
- (c) the deduction is allocated to the income year in which the listed horticultural plant ceases to exist or to be used in deriving income.
Treatment of expenditure on replaced plant if deduction under section DO 4C
(7) If a listed horticultural plant in a planting of the person ceases in an income year to exist or to be used in deriving assessable income and the person has a deduction under section DO 4C for the income year for all or some of the expenditure incurred in replacing the listed horticultural plant—
- (a) the person is not allowed a deduction under this section; and
- (b) the person may add the diminished value, immediately before the replacement, of the expenditure on the listed horticultural plant to the diminished values, at the end of the income year, of the expenditure on listed horticultural plants that are in the planting at the end of the income year; and
- (c) the person may elect the method of making the addition by applying the method in a return of income for the income year.
Link with subpart DA

(8) This section overrides the general permission and the capital limitation. The other general limitations still apply.

Defined in this Act: assessable income, business, capital limitation, deduction, diminished value, general limitation, general permission, income year, listed horticultural plant, planting, return of income,

Section DO 4B was inserted, as from 1 October 2005, by section 183 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

DO 4C Expenditure on land: horticultural replacement planting

Application of section
(1) This section applies to a person who carries on a horticultural business on land in New Zealand and who, in an income year (called the current income year)—
- (a) plants, or causes to be planted, on the land a listed horticultural plant as a replacement plant:
- (b) regrafts, or causes to be regrafted, a listed horticultural plant on the land as a replacement plant.
Deduction
(2) The person is allowed a deduction of an amount given by 1 of subsections (3) and (5) if, in the current income year—
- (a) the person incurs expenditure in replacing a listed horticultural plant; and
- (b) the replacement plant benefits the business; and
- (c) the person does not dispose of the land on which the listed horticultural plant is cultivated; and
- (d) the person elects that this section apply to the expenditure by making a return of income for the current income year on that basis.
Amount of deduction if no deduction in 1 or both of 2 preceding income years

(3) If the person has had no deduction under this section for 1 or both of the 2 income years preceding the current income year, the amount of the deduction under subsection (2) is calculated using the formula—

Definition of items in formula
(4) In the formula—
- (a) replacement expenditure is the amount of the expenditure incurred by the person in replacing the listed horticultural plant:
- (b) fraction is the greater of 7.5% and the replaced area fraction for the planting for the current income year.
Amount of deduction if deduction in both of 2 preceding income years
(5) If the person has had a deduction under this section for a planting for both of the 2 income years preceding the current income year, the amount of the deduction under subsection (2) is the lesser of—
- (a) the amount that is calculated using the formula in subsection (6):
- (b) the amount that is calculated using the formula in subsection (8).
Formula for first amount

(6) The first amount is calculated using the formula

Definition of items in formula
(7) In the formula—
- (a) replacement expenditure is the amount of the expenditure incurred by the person:
- (b) fraction is the greater of 7.5% and the replaced area fraction for the planting for the current income year.
Formula for second amount

(8) The second amount is calculated using the formula—

Definition of items in formula
(9) In the formula—
- (a) replacement expenditure is the amount of the expenditure incurred by the person:
- (b) earlier fraction is the lesser of 7.5% and the replaced area fraction for the planting for the earlier of the 2 income years preceding the current income year:
- (c) later fraction is the lesser of 7.5% and the replaced area fraction for the planting for the later of the 2 income years preceding the current income year:
- (d) replaced area fraction is the replaced area fraction for the planting for the current income year.
Timing of deduction

(10) The deduction is allocated to the current income year.

Link with subpart DA

(11) This section overrides the general permission and the capital limitation. The other general limitations still apply.

Defined in this Act: assessable income, business, capital limitation, deduction, diminished value, general limitation, general permission, income year, listed horticultural plant, planting, replaced area fraction, replacement plant, return of income,

Section DO 4C was inserted, as from 1 October 2005, by section 183 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

DO 4D Accounting for expenditure on listed horticultural plants under sections DO 4B and DO 4C

Separate accounting for additional listed horticultural plants if deduction under section DO 4C
(1) A person to whom section DO 4B applies must, for an income year and for later income years for which subsection (2) does not apply, account separately under sections DO 4B and DO 4C for listed horticultural plants if—
- (a) the person has had a deduction under section DO 4C for 1 or both of the 2 income years preceding the income year; and
- (b) the person acquires the listed horticultural plants in the income year; and
- (c) the listed horticultural plants benefit the business of the person in the income year; and
- (d) the listed horticultural plants are not replacement plants.
Combined accounting for listed horticultural plants if no deduction under section DO 4C

(2) A person may, despite subsection (1), account under sections DO 4B and DO 4C for listed horticultural plants as 1 planting for an income year and later income years if the person has had no deduction under section DO 4C for both of the 2 income years preceding the income year.

Defined in this Act: deduction, income year, listed horticultural plant, planting, replacement plant,

Section DO 4D was inserted, as from 1 October 2005, by section 183 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

DO 4E Some definitions

In this section and sections DO 4B to DO 4D—
planting for a person and an income year means 1 or more listed horticultural plants—
- (a) that are involved in the business of the person during the income year; and
- (b) for which the person must account under sections DO 4B and DO 4C, for the income year, separately from any other listed horticultural plants that are involved in the business of the person
plot means the land occupied by the listed horticultural plants in a planting
replaced area fraction for a planting and an income year means the amount calculated using the formula—
where—

replacement area is the area, at the end of the income year, of the part of the plot on which listed horticultural plants in the planting are planted or regrafted during the income year as replacement plants

plot area is the total area, at the end of the income year, of the plot.
Defined in this Act: business, deduction, income year, listed horticultural plant, planting, plot, replaced area fraction, replacement plant,

Section DO 4E was inserted, as from 1 October 2005, by section 183 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

DO 5 Farming or horticulture expenditure of lessor or sublessor

When this section applies
(1) This section applies when a person—
- (a) is the owner of an estate in fee simple or of a leasehold estate in land in New Zealand; and
- (b) grants a lease or a sublease of the land to a person who carries on a farming or agricultural business on the land; and
- (c) in the term of the lease or sublease,—
  - (i) incurs expenditure relating to the land for which they are allowed a deduction under any of section DO 1 or DO 2 or DO 4 or DO 4B or DO 4C; or
- (ii) is allowed a deduction under section DO 4(2) or DO 4B(2) or DO 4C for expenditure incurred by another person relating to the land.
Relationship with section DO 1 or DO 2 or DO 4 or DO 4B or DO 4C

(2) Section DO 1 or DO 2 or DO 4 or DO 4B or DO 4C, whichever is applicable to the person, applies as if the person were personally carrying on a farming or agricultural business on the land at the time they incur the expenditure or are allowed the deduction.

Defined in this Act: business, deduction, estate, lease, leasehold estate, New Zealand, own, term of the lease,

Compare: 1994 No 164 s DO 6

The heading was amended, as from 1 October 2005, by section 184(1) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by inserting the words “or horticulture” after the word “Farming”.

Subsection (1)(c)(i) was amended, as from 1 October 2005, by section 184(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by inserting the words “or DO 4B or DO 4C” after the expression “DO 4”.

Subsection (1)(c)(i) was amended, as from 1 October 2005, by section 184(3) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by inserting the words “or DO 4B(2) or DO 4C” after the expression “DO 4(2)”.

Subsection (2) was amended, as from 1 October 2005, by section 184(4) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by inserting the words “or DO 4B or DO 4C” after the expression “DO 4”.

Subsection (2) was amended, as from 1 October 2005, by section 184(5) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by inserting the words “or DO 4B or DO 4C” after the expression “DO 4”.

DO 5B Improvement destroyed or made useless

When this section applies
(1) This section applies if, in an income year of a person,—
- (a) the person owns land, or operates a business on land, to which an improvement described in schedule 7 (Expenditure on farming, aquacultural, and forestry improvements) has been made for the purposes of the business; and
- (b) the improvement is destroyed or irreparably damaged and made useless for the purpose of deriving income; and
- (c) the person would be entitled for the income year to a deduction under section DO 4 or DO 5 for expenditure on the improvement if the improvement had not been destroyed or irreparably damaged and made useless; and
- (d) the damage occurs in an income year that corresponds to the 2005-06 or a subsequent tax year; and
- (e) the damage is caused other than as a result of the action or failure to act of the person, an agent of the person, or an associated person.
Deduction: diminished value of expenditure

(2) The person is allowed a deduction of the amount of the diminished value, for the income year, of the expenditure on the improvement.

Link with subpart DA

(3) This section overrides the general permission and the capital limitation. The other general limitations still apply.

Defined in this Act: business, capital limitation, deduction, diminished value, general limitation, general permission, income, income year, ,

Section DO 5B was inserted, as from 1 October 2005, by section 185 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) with application as from income years corresponding to the 2005–06 tax year.

The heading to section DO 5B was amended, as from 3 April 2006, by section 54(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by omitting “by qualifying event”.

Subsection (1) (excluding the heading) was substituted, as from 3 April 2006, by section 54(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

The list of defined terms was amended, as from 3 April 2006, by section 54(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by omitting “qualifying event”.

Aquaculture

DO 6 Improvements to aquacultural business

When this section applies
(1) This section applies when—
- (a) a person carries on an aquacultural business in New Zealand; and
- (b) the aquacultural business is—
  - (i) fish farming under a licence issued under the Freshwater Fish Farming Regulations 1983; or
  - (ii) mussel farming; or
  - (iii) rock oyster farming; or
  - (iv) scallop farming; or
  - (v) sea-cage salmon farming; and
- (c) an improvement described in any of parts B to F of schedule 7 (Expenditure on farming, aquacultural, and forestry improvements) is made for the purposes of the business.
Deduction: expenditure: owner of improvement
(2) A person who owns the improvement is allowed a deduction for expenditure to which all the following apply:
- (a) it is incurred on making the improvement; and
- (b) it is incurred by the person or by another person; and
- (c) it is incurred in the 1995-96 income year or in a later income year, not including the income year in which the person ceases to carry on the business. (The income year referred to in this paragraph is the income year of the person who owns the improvement.); and
- (d) it is incurred in developing the business; and
- (e) it is of benefit to the business in the income year in which the person is allowed the deduction.
Deduction: expenditure: non-owner of improvement
(3) A person who does not own the improvement is allowed a deduction for expenditure to which all the following apply:
- (a) it is incurred on making the improvement; and
- (b) it is incurred by the person; and
- (c) it is incurred in the 1995-96 income year or in a later income year, not including the income year in which the person ceases to carry on the business; and
- (d) it is incurred in developing the business; and
- (e) it is of benefit to the business in the income year in which the person is allowed the deduction.
Amount, and timing, of deduction

(4) The amount of the deduction is calculated using the formula—

schedule 7 percentage x diminished value

Definition of items in formula
(5) In the formula,—
- (a) schedule 7 percentage is the percentage set out opposite the description of the improvement in any of parts B to F of schedule 7 (Expenditure on farming, aquacultural, and forestry improvements):
- (b) diminished value is the diminished value of the improvement.
Link with subpart DA

(6) This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.

Defined in this Act: amount, business, capital limitation, deduction, diminished value, general limitation, general permission, income year, New Zealand,

Compare: 1994 No 164 ss DO 5(1)-(3)(b), OB 1 aquaculture

DO 7 Improvement destroyed or made useless

When this section applies
(1) This section applies if, in an income year of a person,—
- (a) the person carries on an aquacultural business in New Zealand—
  - (i) that satisfies section DO 6(1)(b); and
  - (ii) for the purposes of which an improvement described in schedule 7 (Expenditure on farming, aquacultural, and forestry improvements) has been made; and
- (b) the improvement is destroyed or irreparably damaged and made useless for the purpose of deriving income; and
- (c) the person would be entitled for the income year to a deduction under section DO 6 for expenditure on the improvement if the improvement had not been destroyed or irreparably damaged and made useless; and
- (d) the damage occurs in an income year that corresponds to the 2005-06 or a subsequent tax year; and
- (e) the damage is caused other than as a result of the action or failure to act of the person, an agent of the person, or an associated person.
Deduction: diminished value of expenditure

(2) The person is allowed a deduction of the amount of the diminished value, for the income year, of the expenditure on the improvement.

Link with subpart DA

(3) This section overrides the general permission and the capital limitation. The other general limitations still apply.

Defined in this Act: business, capital limitation, deduction, diminished value, general limitation, general permission, income, income year,

Section DO 7 was inserted, as from 3 April 2006, by section 55 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subpart DP—Forestry expenditure

DP 1 Expenditure of forestry business

Deduction
(1) A person carrying on a forestry business on land in New Zealand is allowed a deduction for expenditure that they incur on—
- (a) administrative overheads, rates, rent, insurance premiums, or other expenses of the same kinds:
- (b) interest on money borrowed for the purposes of the business and employed as capital in the business:
- (c) planting or maintaining trees on the land:
- (d) applying fertiliser after the planting of the trees:
- (e) disease control, pest control, or weed control (excluding releasing):
- (f) repair or maintenance of plant, machinery, or equipment used by the person mainly in—
  - (i) planting or maintaining trees on the land; or
  - (ii) preparing or otherwise developing the land for the person's forestry operations:
- (g) repair or maintenance of land improvements, other than trees, effected on the land and used by the person mainly in the business:
- (h) the construction to or on the land of access tracks that are—
  - (i) constructed for a specific operational purpose; and
  - (ii) used for no longer than 12 months after construction:
- (i) the cost of standing timber that is lost or destroyed.
Timing of deduction

(2) Although timber is revenue account property, a deduction for expenditure described in subsection (1) is not allocated under section EA 2(2) (Other revenue account property) but under section BD 4(2) (Allocation of deductions to particular income years).

Link with subpart DA

(3) This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.

Defined in this Act: business, capital limitation, deduction, general limitation, general permission, interest, New Zealand, revenue account property, standing timber, timber,

Compare: 1994 No 164 s DL 1(2)-(4), (7), (12), (13)(e)

Subsection (1)(a) to (e), (f)(ii), (g) and (h)(ii) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.

DP 2 Plant or machinery

When this section applies: first case
(1) This section applies when—
- (a) a person incurs expenditure on acquiring, on or after 1 April 1975, plant or machinery; and
- (b) the person first uses the plant or machinery on or after 1 April 1975; and
- (c) the person uses the plant or machinery mainly in developing land in New Zealand for use in a forestry business to be carried on by them on the land.
When this section applies: second case
(2) This section also applies when—
- (a) a person carrying on a forestry business on land in New Zealand incurs expenditure on acquiring, on or after 1 April 1975, plant or machinery; and
- (b) the person first uses the plant or machinery on or after 1 April 1975; and
- (c) the person uses the plant or machinery mainly in planting or maintaining trees on the land.
Deduction

(3) The person is allowed a deduction for an amount of depreciation loss for the plant or machinery.

Link with subpart DA

(4) This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.

Defined in this Act: acquire, amount, business, capital limitation, deduction, depreciation loss, general limitation, general permission, New Zealand,

Compare: 1994 No 164 s DL 1(5), (8)

DP 3 Improvements to forestry land

When this section applies
(1) This section applies when—
- (a) a person carries on a forestry business on land in New Zealand; and
- (b) an improvement described in schedule 7, part G (Expenditure on farming, aquacultural, and forestry improvements) has been made to the land.
Deduction: expenditure: owner of land
(2) A person who owns the land is allowed a deduction for expenditure to which all the following apply:
- (a) it is incurred on making the improvement; and
- (b) it is incurred by the person or by another person; and
- (c) it is incurred in the 1995-96 income year or in a later income year, not including the income year in which the person disposes of the land. (The income year referred to in this paragraph is the income year of the person who owns the land.); and
- (d) it is incurred in developing the land; and
- (e) it is of benefit to the business in the income year in which the person is allowed the deduction.
Deduction: expenditure: non-owner of land
(3) A person who does not own the land is allowed a deduction for expenditure to which all the following apply:
- (a) it is incurred on making the improvement; and
- (b) it is incurred by the person; and
- (c) it is incurred in the 1995-96 income year or in a later income year, not including the income year in which the person ceases to carry on the business on the land; and
- (d) it is incurred in developing the land; and
- (e) it is of benefit to the business in the income year in which the person is allowed the deduction.
Amount, and timing, of deduction

(4) The amount of the deduction is calculated using the formula—

schedule 7 percentage x diminished value

Definition of items in formula
(5) In the formula,—
- (a) schedule 7 percentage is the percentage set out opposite the description of the improvement in schedule 7, part G (Expenditure on farming, aquacultural, and forestry improvements):
- (b) diminished value is the diminished value of the improvement.
Link with subpart DA

(6) This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.

Defined in this Act: amount, business, capital limitation, deduction, diminished value, general limitation, general permission, income year, New Zealand, own,

Compare: 1994 No 164 s DL 2(1)-(3)(b)

DP 3B Improvement destroyed or made useless

When this section applies
(1) This section applies if, in an income year of a person,—
- (a) the person operates a forestry business on land, to which there has been made an improvement; and
- (b) the improvement is destroyed or irreparably damaged and made useless for the purpose of deriving income—
  - (i) in an income year that corresponds to the 2005-06 or a subsequent tax year; and
  - (ii) other than as a result of the action or failure to act of the person, an agent of the person, or an associated person; and
- (c) the person would be entitled for the income year to a deduction under section DP 3 for expenditure on the improvement if the improvement had not been destroyed or made useless.
Deduction: diminished value of expenditure

(2) The person is allowed a deduction of the amount of the diminished value, for the income year, of the expenditure on the improvement.

Link with subpart DA

(3) This section overrides the general permission and the capital limitation. The other general limitations still apply.

Defined in this Act: business, capital limitation, deduction, diminished value, general limitation, general permission, income, income year, ,

Section DP 3B was inserted, as from 1 October 2005, by section 186 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) with application as from income years corresponding to the 2005–06 tax year.

The heading to section DP 3B was amended, as from 3 April 2006, by section 56(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by omitting “by qualifying event”.

Subsection (1)(b) was substituted, as from 3 April 2006, by section 56(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

The list of defined terms was amended, as from 3 April 2006, by section 56(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by omitting “qualifying event”.

DP 4 Forestry encouragement agreement: deductions

When this section applies

(1) This section applies when a person makes a forestry encouragement agreement under the Forestry Encouragement Act 1962.

Deduction: forestry expenditure under agreement
(2) The person is allowed a deduction for expenditure that they incur if all the following apply to the expenditure:
- (a) it is expenditure incurred in planting or maintaining trees under the agreement; and
- (b) it is not expenditure for which an advance has been or is to be made under the agreement; and
- (c) it is not expenditure represented in a payment made to the person under the Forestry Encouragement Grants Regulations 1983 and incurred in—
  - (i) planting or maintaining trees; or
- (ii) meeting administrative overheads, rates, rent, insurance premiums, or other expenses of the same kinds; or
  - (iii) paying interest on money borrowed for the purpose of developing the trees and employed as capital in developing the trees.
Deduction: advance
(3) The person is allowed a deduction for expenditure that they incur in—
- (a) making a payment of interest for an advance made under the agreement:
- (b) making a payment reducing the principal of an advance made under the agreement.
Link with subpart DA

(4) This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.

Defined in this Act: capital limitation, deduction, general limitation, general permission, interest,

Compare: 1994 No 164 s DL 6(1)

Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

DP 5 Forestry encouragement agreement: no deduction

No deduction
(1) A person who has made a forestry encouragement agreement under the Forestry Encouragement Act 1962 is denied a deduction for an amount equal to the amount from which they are relieved in the following circumstances:
- (a) an advance is made to the person under the agreement; and
- (b) the advance is exempt income of the person under section CW 2 (Forestry encouragement agreements); and
- (c) the person is later relieved from some or all of their liability to repay the principal.
Link with subpart DA

(2) This section overrides the general permission.

Defined in this Act: amount, deduction, exempt income, general permission,

Compare: 1994 No 164 s DL 6(2)(b)

DP 6 Land contouring: no deduction

No deduction

(1) A person who derives income under section CB 22 (Disposal of timber or right to take timber) or CB 23 (Disposal of land with standing timber) is denied a deduction for expenditure that they incur on land contouring in the course of deriving the income.

Link with subpart DA

(2) This section overrides the general permission.

Defined in this Act: deduction, general permission, income,

Compare: 1994 No 164 s DL 1(9)

DP 7 Forestry business on land bought from Crown, Maori owners, or holding company: no deduction

No deduction: forestry company
(1) A forestry company is denied a deduction for interest to which both the following apply:
- (a) it is paid by the company under a qualifying debenture issued by the company; and
- (b) it is exempt income of the person deriving it, under section CW 3 (Forestry companies and Maori investment companies).
No deduction: Maori investment company
(2) A Maori investment company is denied a deduction for interest to which both the following apply:
- (a) it is paid by the company under a qualifying debenture issued by the company; and
- (b) it is exempt income of the person deriving it, under section CW 3 (Forestry companies and Maori investment companies).
Relationship with sections FC 2 and FZ 2

(3) Sections FC 2 (Interest on debentures issued in substitution for shares) and FZ 2 (Amounts owing under convertible notes deemed to be share capital and holders deemed to be shareholders) do not apply to a qualifying debenture.

Link with subpart DA

(4) This section overrides the general permission.

Defined in this Act: business, deduction, exempt income, forestry company, general permission, holding company, interest, Maori investment company, Maori owners, qualifying debenture,

Compare: 1994 No 164 s DL 5(1)(b), (c)

DP 8 Cost of acquiring timber: forestry business on land bought from Crown, Maori owners, or holding company

When this section applies

(1) This section applies when a forestry company buys land with standing timber on it from a seller who is the Crown, the Maori owners, or a holding company of the forestry company.

Sellers of Maori land
(2) For the purposes of subsection (1),—
- (a) land sold to the forestry company by the Maori Trustee or by a trustee for a Maori owner is treated as if it had been sold by the beneficial owners:
- (b) land sold to the forestry company by a Maori incorporation is treated as if it had been sold by the members of the incorporation.
Cost of acquiring timber
(3) The cost to the forestry company of acquiring the timber is the lesser of—
- (a) the cost of the timber to the seller at the date of the sale; and
- (b) the amount described in section CB 23(3) (Disposal of land with standing timber).
Defined in this Act: business, forestry company, holding company, Maori incorporation, Maori owners, standing timber, trustee,

Compare: 1994 No 164 s DL 5(1)(d)(ii), (iii)

Subsection (2)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (3)(a) was amended, as from 1 October 2005, by section 187 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “cost of the timber” for “cost of timber”.

DP 9 Cost of acquiring timber or right to take timber: other cases

Acquiring land with standing timber

(1) For a person acquiring land with standing timber on it in a disposal to which section CB 23 (Disposal of land with standing timber) applies, the cost of acquiring the timber is the amount that is, under section CB 23, income of the person disposing of the land.

Recharacterisation or avoidance
(2) For a person acquiring timber or a right to take timber in a disposal or distribution to which section FB 4 (Income derived from disposal of trading stock together with other assets of business) or FF 7 (Disposal of timber under matrimonial agreement) or GD 1 (Sale of trading stock for inadequate consideration) or GD 2 (Distribution of trading stock to shareholders of company) applies, the cost of acquiring the timber or the cost of acquiring a right to take timber is the amount treated as—
- (a) the price paid or realised under section FB 4 (Income derived from disposal of trading stock together with other assets of business); or
- (b) the consideration under section FF 7 (Disposal of timber under matrimonial agreement); or
- (c) the price realised under section GD 1 (Sale of trading stock for inadequate consideration); or
- (d) the price realised under section GD 2 (Distribution of trading stock to shareholders of company).
Defined in this Act: amount, dispose, income, right to take timber, standing timber, timber,

Compare: 1994 No 164 ss CJ 1(2)(e)(ii), OB 1 cost

DP 10 Cost of timber

When this section applies
(1) This section applies when—
- (a) an amount of cost of some timber is treated by a person under generally accepted accounting practice as a cost of the timber for the person and reported accordingly for financial reporting purposes; and
- (b) in the absence of section DB 37 (Avoiding, remedying, or mitigating effects of discharge of contaminant), no other provision of this Act would allow the person a deduction for the amount; and
- (c) an amount derived by the person from disposing of the timber would be income of the person under section CB 22 (Disposal of timber or right to take timber) or CB 23 (Disposal of land with standing timber).
Deduction

(2) The person is allowed a deduction for the amount.

Timing of deduction: trading stock

(3) If the amount is a cost of trading stock, the deduction is allocated to the income year in which the timber first becomes trading stock of the person.

Timing of deduction: not trading stock

(4) If the amount is not a cost of trading stock, the deduction is allocated by section EA 2 (Other revenue account property).

Link with subpart DA

(5) This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.

Defined in this Act: amount, capital limitation, deduction, dispose, general limitation, general permission, generally accepted accounting practice, income, income year, supplement, timber, trading stock,

Compare: 1994 No 164 ss DJ 13A, DL 1(7)

Subsection (1)(b) was substituted, as from 1 October 2005, by section 20(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

Subpart DQ—Income equalisation schemes and environmental restoration accounts scheme

This heading was amended, as from 1 October 2005, by section 21 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by inserting the words “and environmental restoration accounts scheme” with application as from the 2005–06 income year.

DQ 1 Main income equalisation scheme

DQ 2 Adverse event income equalisation scheme

DQ 3 Thinning operations income equalisation scheme

DQ 4 Environmental restoration accounts scheme

DQ 1 Main income equalisation scheme

Deduction

(1) A person who has made a deposit for a tax year is allowed a deduction of the amount quantified in section EH 7(2) (Deduction of deposit).

Timing of deduction

(2) The deduction is allocated to the tax year described in section EH 7(3) (Deduction of deposit).

Link with subpart DA

(3) This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.

Defined in this Act: amount, capital limitation, deduction, deposit, general limitation, general permission, main income equalisation scheme, person, supplement, tax year,

Compare: 1994 No 164 s EI 3

DQ 2 Adverse event income equalisation scheme

Deduction

(1) A person who has made a deposit for a tax year is allowed a deduction of the amount quantified in section EH 42(2) (Deduction of deposit).

Timing of deduction

(2) The deduction is allocated to the tax year described in section EH 42(3) (Deduction of deposit).

Link with subpart DA

(3) This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.

Defined in this Act: adverse event income equalisation scheme, amount, capital limitation, deduction, deposit, general limitation, general permission, person, supplement, tax year,

Compare: 1994 No 164 s EI 13

DQ 3 Thinning operations income equalisation scheme

Deduction

(1) A person who has made a deposit for a tax year is allowed a deduction of the amount quantified in section EH 69(2) (Deduction of deposit).

Timing of deduction

(2) The deduction is allocated to the tax year described in section EH 69(3) (Deduction of deposit).

Link with subpart DA

(3) This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.

Defined in this Act: amount, capital limitation, deduction, deposit, general limitation, general permission, person, supplement, tax year, thinning operations income equalisation scheme,

Compare: 1994 No 164 ss EI 3, EI 17(2)

DQ 4 Environmental restoration accounts scheme

Deduction for payment

(1) A person is allowed a deduction of the amount given by section EK 7 (Deduction for payment) if the person has made a payment to the Commissioner for an income year under section EK 2 (Persons who may make payment to environmental restoration account) that is not refunded under section EK 9 (Refund of payment if excess, lacking details).

Timing of deduction

(2) A deduction under subsection (1) is allocated to the income year given by section EK 7 (Deduction for payment).

Deduction for transfer
(3) A person is allowed a deduction for an income year of the amount given by section EK 8 (Deduction for transfer) if in the income year the person receives—
- (a) a transfer under section EK 15 (Transfer on request) that is treated under section EK 15(4) as being a payment by the person:
- (b) a transfer under section EK 16(3)(b) (Transfer on death, bankruptcy, or liquidation):
- (c) a transfer under section EK 19 (Environmental restoration account of amalgamating company).
Timing of deduction

(4) A deduction under subsection (3) is allocated to the income year given by section EK 8 (Deduction for transfer).

Link with subpart DA

(5) This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.

Defined in this Act: capital limitation, deduction, general limitation, general permission, income year, pay, supplement.,

Section DQ 4 was inserted, as from 1 October 2005, by section 22(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

Subpart DR—Life insurance business expenditure

DR 1 Mortality profit formula: negative result

DR 2 Disposal of property

DR 3 Specific deductions denied to life insurers and fully reinsured persons

DR 1 Mortality profit formula: negative result

When this section applies
(1) This section applies when—
- (a) a life insurer follows the steps in section EY 25(2) (Mortality profit: when life insurers providing life insurance at start of income year) or EY 26(2) (Mortality profit: when life insurers not providing life insurance at start of income year) for an income year and gets a negative result; and
- (b) the negative result is not treated as zero because 1 of the exceptions in section EY 32(2) to (4) (Mortality profit formula: individual result may be negative only in some cases) applies.
Deduction

(2) The life insurer is allowed a deduction of the amount quantified in section EY 33(2) (Mortality profit formula: negative result).

Timing of deduction

(3) The deduction is allocated to the income year described in section EY 33(3) (Mortality profit formula: negative result).

Link with subpart DA

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

Defined in this Act: amount, deduction, general limitation, general permission, income year, life insurer, mortality profit formula, supplement,

Compare: 1994 No 164 s DK 3A

DR 2 Disposal of property

When this section applies

(1) This section applies when a life insurer disposes of any property of their life insurance business.

Exclusions
(2) This section does not apply when the property is—
- (a) a share to which section DB 18 (Share losses) applies; or
- (b) a financial arrangement; or
- (c) property for whose cost the life insurer has already been allowed a deduction, other than for an amount of depreciation loss.
Deduction

(3) The life insurer is allowed a deduction of the amount quantified in section EY 46(2) (Deductions for disposal of property).

Timing of deduction

(4) The deduction is allocated to the income year described in section EY 46(3) (Deductions for disposal of property).

Link with subpart DA

(5) This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.

Defined in this Act: amount, business, capital limitation, deduction, depreciation loss, financial arrangement, general limitation, general permission, income year, life insurance, life insurer, property, share, supplement,

Compare: 1994 No 164 s DK 3B(1), (2)

Subsection (4) was amended, as from 1 April 2005, by section 57(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the expression “section EY 46(3)” for the expression “section EY 46(6)” with application as from the income year corresponding to the 2005–06 tax year.

DR 3 Specific deductions denied to life insurers and fully reinsured persons

No deduction
(1) A life insurer is denied a deduction for—
- (a) a claim payable by the life insurer under a life insurance policy; or
- (b) expenditure or loss incurred by the life insurer in deriving policyholder income; or
- (c) a bonus or other discretionary amount added to the actuarial reserves; or
- (d) a premium payable by the life insurer under a life reinsurance policy.
Inclusion

(2) This section applies to a person who is carrying on a business of providing life insurance but who is treated as not carrying on a business of providing life insurance because they have full reinsurance.

Link with subpart DA

(3) This section overrides the general permission.

Defined in this Act: actuarial reserves, amount, business, claim, deduction, full reinsurance, general permission, life insurance, life insurance policy, life insurer, life reinsurance policy, loss, pay, policyholder income, premium,

Compare: 1994 No 164 ss DK 3, DK 3D

Subpart DS—Film industry expenditure

DS 1 Acquiring film rights

DS 2 Film production expenditure

DS 3 Clawback of deductions for film reimbursement schemes

DS 4 Meaning of film reimbursement scheme

DS 1 Acquiring film rights

Deduction

(1) A person is allowed a deduction for expenditure that they incur in acquiring a film right, if the film is completed (whether it is completed before, at the time, or after the film right is acquired).

Exclusion
(2) This section does not apply to expenditure that a person incurs in acquiring a film right if—
- (a) the person operates a television station, a television network, or a cable television system, and the film right is acquired mainly to enable the film to be broadcast in New Zealand; or
- (b) the film is intended to be shown as an advertisement; or
- (c) the expenditure is film production expenditure.
Timing of deduction

(3) The deduction is allocated under section EJ 4 (Expenditure incurred in acquiring film rights in feature films) or EJ 5 (Expenditure incurred in acquiring film rights in films other than feature films).

No other deduction

(4) No other deduction for expenditure incurred in acquiring a film right is allowed under any other provision of this Act.

Link with subpart DA

(5) This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.

Defined in this Act: capital limitation, completed, deduction, film, film production expenditure, film right, general limitation, general permission, New Zealand,

Compare: 1994 No 164 s EO 3(1)-(5), (7), (9)

DS 2 Film production expenditure

Deduction
(1) A person is allowed a deduction for film production expenditure if—
- (a) the film is completed; and
- (b) the person has a film right in it—
  - (i) before it is completed:
  - (ii) at the time it is completed:
  - (iii) after it is completed.
Inclusions
(2) For the purposes of subsection (1),—
- (a) if a person (person A) reimburses another person (person B) for film production expenditure that person B incurs, and does it before the film is completed, the reimbursement is treated as film production expenditure incurred by person A; and
- (b) if a person (person A) reimburses another person (person B) for expenditure on interest incurred by person B in producing the film, person A may treat the reimbursement as film production expenditure incurred by person A.
Exclusion
(3) This section does not apply to film production expenditure if—
- (a) the film is produced mainly for broadcast in New Zealand by a person who operates a television station, a television network, or a cable television system; or
- (b) the film is intended to be shown as an advertisement; or
- (c) the film is one for which a large budget screen production grant is made.
Timing of deduction

(4) The deduction is allocated under section EJ 7 (Film production expenditure for New Zealand films) or EJ 8 (Film production expenditure for films other than New Zealand films).

No other deduction

(5) No other deduction for film production expenditure is allowed under any other provision of this Act.

Link with subpart DA
(6) The link between this section and subpart DA (General rules) is as follows:
- (a) it overrides the capital limitation; and
- (b) the other general limitations still apply; and
- (c) either—
  - (i) the general permission must be satisfied; or
  - (ii) a provision that supplements the general permission must be satisfied.
Defined in this Act: capital limitation, completed, deduction, film, film production expenditure, film right, general limitation, general permission, large budget screen production grant, New Zealand, supplement,

Compare: 1994 No 164 s EO 4(1)-(5)

Subsection (1)(b)(i) and (ii) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.

DS 3 Clawback of deductions for film reimbursement schemes

Reduction of deductions
(1) A person who disposes of property under a film reimbursement scheme must use the formula in subsection (3) to reduce—
- (a) the total deductions that they have been allowed for the disposal under the scheme under section DS 1 or DS 2; or
- (b) the total deductions that they would be allowed for the disposal under the scheme under section DS 1 or DS 2 if this section did not exist.
Order of reduction

(2) Deductions must be reduced in the same order as they have been allowed or would be allowed.

Formula

(3) The total deductions must be reduced to an amount equal to the greater of zero and the amount calculated using the formula—

total deductions – total consideration

Definition of items in formula
(4) In the formula,—
- (a) total deductions is the total amount of deductions that—
  - (i) the person has been allowed under section DS 1 or DS 2; or
  - (ii) the person would be allowed under section DS 1 or DS 2 if this section did not exist:
- (b) total consideration is the total amount of consideration for the disposal of the property that the person derives and that is not film income.
Application of Tax Administration Act 1994

(5) Section 44A of the Tax Administration Act 1994 applies to a person to whom this section applies.

Amendment of assessment

(6) Despite the time bar, the Commissioner may amend an assessment at any time in order to give effect to this section.

Exclusion

(7) This section does not apply to a deduction for expenditure excluded under section DZ 11 (Film reimbursement scheme on or before 30 June 2001).

Defined in this Act: amount, assessment, Commissioner, deduction, film income, film reimbursement scheme, time bar,

Compare: 1994 No 164 ss EO 4A(2)-(5), EO 4B

DS 4 Meaning of film reimbursement scheme

Meaning

(1) Film reimbursement scheme means an arrangement to which subsections (2) to (4) apply.

Deduction allowed
(2) The first requirement for a film reimbursement scheme is that it is a scheme under which a person may incur expenditure for which they are allowed a deduction under—
- (a) section DS 1 or DS 2, or would be allowed a deduction if section DS 3 did not exist:
- (b) subpart DA (General rules), if the expenditure is for—
  - (i) a film right:
  - (ii) a right to an amount that is dependent on or calculated by reference to income from the rental, sale, use, or other exploitation of a film.
Disposal of property
(3) The second requirement for a film reimbursement scheme is that 1 of the following applies:
- (a) it enables the person or an associated person to dispose of property; or
- (b) it gives a right to the person or an associated person to dispose of property; or
- (c) it gives a right, the right creates an obligation for the person or an associated person, and the person or the associated person may meet the obligation by disposing of property.
Consideration not film income

(4) The third requirement for a film reimbursement scheme is that it is a scheme under which some or all of the consideration for the property would not be film income.

Associated persons

(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 section OD 7 (Defining when 2 persons are associated persons) or OD 8(3) (Further definitions of associated persons).

Defined in this Act: amount, arrangement, associated person, deduction, film income, film reimbursement scheme, film right, income, loss attributing qualifying company, shareholder,

Compare: 1994 No 164 s EO 4A(2), (6), (7)

Subsection (2)(a) and (b)(i) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.

Subpart DT—Petroleum mining expenditure

Petroleum exploration expenditure

DT 1 Petroleum exploration expenditure

DT 2 Arrangement for petroleum exploration expenditure and sale of property

DT 3 Acquisition of licences and permits

DT 4 Acquisition of exploratory material

Petroleum development expenditure

DT 5 Petroleum development expenditure

DT 6 Expenditure on petroleum mining assets

DT 7 Exploratory well expenditure

DT 8 Acquisition of certain petroleum mining assets

DT 9 Disposal of petroleum mining asset to associate

DT 10 Disposal of petroleum mining asset outside association

DT 11 Association ending

Other expenditure

DT 12 Damage to assets

DT 13 Disposal of ownership interests in controlled petroleum mining entities

DT 14 Farm-out arrangements

DT 15 Persons associated with petroleum miner

DT 16 Removal or restoration operations

General provisions

DT 17 Attribution of expenditure

DT 18 Replacement permits

DT 19 Partnership interests and disposal of part of asset

DT 20 Petroleum mining operations outside New Zealand

Petroleum exploration expenditure

DT 1 Petroleum exploration expenditure

Deduction

(1) A person is allowed a deduction for petroleum exploration expenditure incurred by them.

Relationship with section DT 2

(2) This section is overridden by section DT 2.

Link with subpart DA

(3) This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.

Defined in this Act: capital limitation, deduction, general limitation, general permission, petroleum exploration expenditure, supplement,

Compare: 1994 No 164 ss DM 1(1), (2)(a), DM 1A(1)

DT 2 Arrangement for petroleum exploration expenditure and sale of property

What this section applies to
(1) This section applies to a person and an arrangement if—
- (a) the person may incur expenditure under the arrangement and would be allowed a deduction for the expenditure under section DT 1; and
- (b) the person or a person associated with them may dispose of property—
  - (i) under the arrangement; or
  - (ii) under a right given by the arrangement to the person or the associated person; or
  - (iii) in meeting an obligation of the person or the associated person arising from a right given by the arrangement; and
- (c) the property is not—
  - (i) exploratory material; or
  - (ii) a prospecting permit for petroleum; or
  - (iii) an exploration permit for petroleum.
Amount of deduction

(2) The person is allowed a deduction in an income year for the expenditure described in subsection (1)(a) but only to the extent of an amount equal to the greater of zero and the amount calculated using the formula—

expenditure – (consideration – lesser amount)

Exclusion

(3) If consideration for the property is derived in an income year, the person's deductions in previous income years for the expenditure described in subsection (1)(a) are reduced so that the total of those deductions is equal to the greater of zero and the amount calculated using the formula—

previous expenditure – consideration.

Definition of items in formulas
(4) In the formulas in subsections (2) and (3),—
- (a) expenditure is the amount of expenditure for which the person would be allowed a deduction in the income year under section DT 1(1):
- (b) consideration is the total consideration for the property that is derived before or during the income year:
- (c) lesser amount is the lesser of—
  - (i) the amount of consideration; and
  - (ii) the amount of expenditure for which a person would be allowed a deduction in previous income years under section DT 1(1):
- (d) previous expenditure is the amount of expenditure for which a person would be allowed a deduction in previous income years under section DT 1(1).
Order of reduction

(5) When an adjustment under subsection (3) is being made, deductions are treated as denied in the same order in time as they would have been allowed under section DT 1(1).

Application of Tax Administration Act 1994

(6) Section 44A of the Tax Administration Act 1994 applies to a person to whom this section applies.

Amendment of assessment

(7) Despite the time bar, the Commissioner may amend an assessment at any time in order to give effect to this section.

Relationship with section DT 1

(8) This section overrides section DT 1.

Link with subpart DA

(9) This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.

Defined in this Act: amount, arrangement, assessment, associated person, Commissioner, consideration, deduction, dispose, exploration permit, exploratory material, income year, petroleum, petroleum exploration expenditure, prospecting permit, supplement, time bar,

Compare: 1994 No 164 ss DM 1A, DM 1B

DT 3 Acquisition of licences and permits

The consideration that a person pays to acquire a prospecting licence, a prospecting permit for petroleum, or an exploration permit for petroleum from a petroleum miner is treated as petroleum exploration expenditure incurred in the income year in which the petroleum miner disposes of the licence or permit to the person.

Defined in this Act: consideration, dispose, exploration permit, income year, petroleum exploration expenditure, petroleum miner, prospecting licence, prospecting permit,

Compare: 1994 No 164 s DM 3(1)

DT 4 Acquisition of exploratory material

The consideration that a person pays to acquire exploratory material from a petroleum miner is treated as petroleum exploration expenditure incurred in the income year in which the petroleum miner disposes of the material to the person.

Defined in this Act: consideration, dispose, exploratory material, income year, petroleum exploration expenditure, petroleum miner,

Compare: 1994 No 164 s DM 3(2)

Petroleum development expenditure

DT 5 Petroleum development expenditure

Deduction

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

Timing of deduction

(2) The deduction is allocated under section EJ 11 (Petroleum development expenditure).

Relationship with section DZ 3

(3) This section is overridden by section DZ 3 (Petroleum mining: development expenditure from 1 October 1990 to 15 December 1991).

Link with subpart DA

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

Defined in this Act: capital limitation, deduction, general limitation, general permission, petroleum development expenditure, petroleum miner, supplement,

Compare: 1994 No 164 s DM 1(1), (2)(b)

DT 6 Expenditure on petroleum mining assets

Expenditure that a person incurs in buying a petroleum mining asset is treated as petroleum development expenditure if, at the time the asset is bought,—
- (a) petroleum is produced in commercial quantities on a continuing basis under a petroleum permit that is the one being bought; or
- (b) petroleum is produced in commercial quantities on a continuing basis under a petroleum permit that applies to the permit area in which an asset of the kind described in section CT 7(1)(b) or (c) (Meaning of petroleum mining asset) is to be used; or
- (c) an application for a mining permit for the permit area has been made by a person entitled to a mining permit under section 32(3) of the Crown Minerals Act 1991.
Defined in this Act: permit area, petroleum, petroleum development expenditure, petroleum permit, petroleum mining asset,

Compare: 1994 No 164 s DM 1(8)

DT 7 Exploratory well expenditure

When this section applies
(1) This section applies when—
- (a) a petroleum miner incurs exploratory well expenditure; and
- (b) the miner then uses the exploratory well for the commercial production of petroleum; and
- (c) the exploratory well expenditure is then treated, under section CT 3 (Exploratory well used for commercial production), as income of the miner.
Treatment of expenditure

(2) An amount equal to the amount that is treated as income is treated as petroleum development expenditure incurred by the petroleum miner in the income year in which commercial production from the well starts.

Defined in this Act: amount, commercial production, exploratory well expenditure, income, income year, petroleum, petroleum development expenditure, petroleum miner,

Compare: 1994 No 164 s DM 1(9)(b)

DT 8 Acquisition of certain petroleum mining assets

The consideration that a person pays to acquire a petroleum mining asset, other than a prospecting licence, a prospecting permit for petroleum, or an exploration permit for petroleum, from a petroleum miner is treated as petroleum development expenditure incurred in the income year in which the petroleum miner disposes of the petroleum mining asset to the person.

Defined in this Act: consideration, dispose, exploration permit, income year, petroleum, petroleum development expenditure, petroleum miner, petroleum mining asset, prospecting licence, prospecting permit,

Compare: 1994 No 164 s DM 3(1)

DT 9 Disposal of petroleum mining asset to associate

When this section applies
(1) This section applies when—
- (a) a petroleum miner disposes of a petroleum mining asset to—
  - (i) a person associated with the miner; or
  - (ii) a person who holds the asset for the miner; or
  - (iii) a person who holds the asset for a person associated with the miner; and
- (b) section EJ 14(2) (Disposal of petroleum mining asset to associate) prevents the miner from taking the full amount of a deduction allocated under section EJ 11 (Petroleum development expenditure) to the income year in which the miner disposes of the asset.
No deduction
(2) The miner is denied a deduction for—
- (a) the amount that section EJ 14(2) (Disposal of petroleum mining asset to associate) prevents the miner from taking; and
- (b) the amount of the deduction allocated under section EJ 11 (Petroleum development expenditure) to income years after the income year in which the miner disposes of the asset.
Link with subpart DA

(3) This section overrides the general permission.

Defined in this Act: amount, associated person, deduction, dispose, general permission, income year, petroleum miner, petroleum mining asset,

Compare: 1994 No 164 s DM 1(6)

DT 10 Disposal of petroleum mining asset outside association

When this section applies
(1) This section applies when—
- (a) a petroleum miner disposes of a petroleum mining asset to a person described in subsection (2) (person A); and
- (b) person A disposes of the asset to a person described in subsection (3) (person B).
Person A
(2) For the purposes of subsection (1)(a), the persons are—
- (a) an associated person of the miner; or
- (b) a person who holds the asset for the miner; or
- (c) a person who holds the asset for an associated person of the miner.
Person B
(3) For the purposes of subsection (1)(b), the persons are—
- (a) a person not associated with the miner; or
- (b) a person who does not hold the asset for the miner; or
- (c) a person who does not hold the asset for a person associated with the miner.
Deduction

(4) Person A is allowed a deduction.

Amount of deduction

(5) The amount of the deduction is the amount for which the petroleum miner is denied a deduction under section DT 9.

Timing of deduction

(6) The deduction is allocated to the income year in which person A disposes of the asset.

Link with subpart DA

(7) This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.

Defined in this Act: amount, associated person, capital limitation, deduction, dispose, general limitation, general permission, income year, petroleum miner, petroleum mining asset, supplement,

Compare: 1994 No 164 s DM 1(7)(a)

DT 11 Association ending

When this section applies
(1) This section applies when—
- (a) a petroleum miner disposes of a petroleum mining asset to a person (person A) who is—
  - (i) an associated person of the miner; or
  - (ii) a person who holds the asset for an associated person of the miner; or
  - (iii) a person who holds the asset for the miner; and
- (b) while person A holds the asset,—
  - (i) the association between the miner and the associated person ends; or
  - (ii) the association between the miner and the person who holds the asset for the miner ends.
Exclusion
(2) This section does not apply when the petroleum miner and the other party to the association end their association—
- (a) for the purpose of the miner being allowed a deduction under this section; or
- (b) for various purposes, 1 of which is, as a more than merely incidental purpose, the miner being allowed a deduction under this section.
Deduction

(3) The petroleum miner is allowed a deduction.

Amount of deduction

(4) The amount of the deduction is the amount for which the petroleum miner is denied a deduction under section DT 9.

Timing of deduction

(5) The deduction is allocated to the income year in which the association ends.

Link with subpart DA

(6) This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.

Defined in this Act: amount, associated person, capital limitation, deduction, dispose, general limitation, general permission, income year, petroleum miner, petroleum mining asset, supplement,

Compare: 1994 No 164 s DM 1(7)(b)

Other expenditure

DT 12 Damage to assets

Deduction

(1) A petroleum miner is allowed a deduction for the cost of repairing a damaged asset of the kind described in section CT 7(1)(b) or (c) (Meaning of petroleum mining asset).

Link with subpart DA

(2) This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.

Defined in this Act: capital limitation, deduction, general limitation, general permission, petroleum miner, supplement,

Compare: 1994 No 164 s DM 5

DT 13 Disposal of ownership interests in controlled petroleum mining entities

No deduction

(1) A person who disposes of shares or trust interests in a controlled petroleum mining entity is denied a deduction for their cost.

Application of Tax Administration Act 1994

(2) Section 65 of the Tax Administration Act 1994 applies when this section applies.

Link with subpart DA

(3) This section overrides the general permission.

Defined in this Act: controlled petroleum mining entity, deduction, dispose, share,

Compare: 1994 No 164 s DM 6

DT 14 Farm-out arrangements

When this section applies

(1) This section applies when a farm-in party under a farm-out arrangement incurs farm-in expenditure that, if it were incurred by the farm-out party, would be petroleum development expenditure, exploratory well expenditure, or prospecting expenditure.

Treatment of farm-in expenditure

(2) The farm-in expenditure is treated as if it were petroleum development expenditure, exploratory well expenditure, or prospecting expenditure, as applicable.

Deduction

(3) The farm-in party is allowed a deduction for the farm-in expenditure that is incurred under the farm-out arrangement on or after 16 December 1991.

Relationship with section DZ 5

(4) Farm-in expenditure that is incurred before 16 December 1991 is dealt with in section DZ 5 (Farm-out arrangements for petroleum mining before 16 December 1991).

Link with subpart DA

(5) This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.

Defined in this Act: capital limitation, deduction, exploratory well expenditure, farm-in expenditure, farm-in party, farm-out arrangement, general limitation, general permission, petroleum development expenditure, prospecting expenditure, supplement,

Compare: 1994 No 164 s DM 4(1)

DT 15 Persons associated with petroleum miner

When this section applies
(1) This section applies to a person associated with a petroleum miner when—
- (a) the petroleum miner has some or all of a prospecting licence or a mining licence; and
- (b) the associated person—
  - (i) undertakes petroleum mining operations in the licence area of the prospecting licence or mining licence; and
  - (ii) does so under an arrangement for reward; and
  - (iii) when doing so is not a petroleum miner in relation to the petroleum mining operations.
Deduction

(2) The associated person is allowed a deduction for expenditure or loss that they incur in the petroleum mining operations described in subsection (1).

Amount of deduction

(3) The amount of the deduction is limited to the extent of the amount of income that they derive from the petroleum mining operations.

Link with subpart DA

(4) This section overrides the general permission.

Defined in this Act: amount, arrangement, associated person, deduction, general permission, income, mining licence, petroleum miner, petroleum mining operations, prospecting licence,

Compare: 1994 No 164 s DK 2

DT 16 Removal or restoration operations

Deduction

(1) A petroleum miner is allowed a deduction for expenditure that they incur on removal or restoration operations.

Timing of deduction

(2) The deduction is allocated to the income year in which the expenditure is incurred.

Relationship with section EA 2

(3) This section overrides section EA 2 (Other revenue account property).

Link with subpart DA

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

Defined in this Act: capital limitation, deduction, general limitation, general permission, income year, petroleum miner, removal or restoration operations, supplement,

Compare: 1994 No 164 ss DM 1(1), DM 2

General provisions

DT 17 Attribution of expenditure

Petroleum permit

(1) A deduction for expenditure incurred to acquire a petroleum permit is attributable to the permit area of the petroleum permit.

Other assets
(2) A deduction for expenditure incurred to acquire an asset of the kind described in section CT 7(1)(b) or (c) (Meaning of petroleum mining asset) is attributable to—
- (a) the asset; and
- (b) the permit area to which the asset relates.
Relationship with this subpart and sections GC 12 and IH 3

(3) This section applies for the purposes of this subpart, sections GC 12 (Petroleum mining) and IH 3 (Loss carry back by petroleum miners), and section 91 of the Tax Administration Act 1994.

Defined in this Act: permit area, petroleum permit,

Compare: 1994 No 164 s DM 1(4)

DT 18 Replacement permits

In this subpart, a reference to a petroleum permit includes a reference to a replacement permit. All expenditure incurred, deductions allowed, and petroleum mining assets that are attributable to the petroleum permit are attributable to the replacement permit.

Defined in this Act: deduction, petroleum mining asset, petroleum permit, replacement permit,

Compare: 1994 No 164 s OB 1 petroleum permit

DT 19 Partnership interests and disposal of part of asset

In this subpart, unless the context requires otherwise,—
- (a) a partner is treated as having a share or interest in a petroleum permit or other property of a partnership to the extent of their interest in the income of the partnership:
- (b) references to the disposal of an asset apply equally to the disposal of part of an asset.
Defined in this Act: dispose, income, petroleum permit,

Compare: 1994 No 164 ss DM 9, DM 10

Paragraph (a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.

DT 20 Petroleum mining operations outside New Zealand

This subpart applies, with any necessary modifications, to a petroleum miner undertaking petroleum mining operations that are—
- (a) outside New Zealand and undertaken through a branch or a controlled foreign company; and
- (b) substantially the same as the petroleum mining activities governed by this subpart.
Defined in this Act: controlled foreign company, New Zealand, petroleum miner, petroleum mining operations,

Compare: 1994 No 164 s DM 7(1)

Subpart DU—Mineral mining expenditure

DU 1 Mining exploration expenditure and mining development expenditure

Deduction

(1) A mining company is allowed a deduction for mining exploration expenditure and mining development expenditure that it incurs.

Amount of deduction

(2) The amount of the deduction is the amount determined under section DU 2.

Mining expenditure

(3) The amount of the expenditure for which the company is allowed a deduction must be taken into account in the mining expenditure item of the formula in section DU 7(5).

Link with subpart DA

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

Defined in this Act: amount, capital limitation, deduction, general limitation, general permission, mining company, mining development expenditure, mining exploration expenditure, supplement,

Compare: 1994 No 164 s DN 1(5)

DU 2 Mining exploration expenditure or mining development expenditure on acquisition of asset

What this section does

(1) This section applies when a mining company acquires an asset by incurring mining exploration expenditure or mining development expenditure. It describes the consideration that the mining company is treated as giving for the asset and the consideration that the person who disposes of the asset to the mining company is treated as receiving for it.

Consideration in various cases
(2) The consideration is,—
- (a) in a case other than one described in any of subsections (3) to (6), the consideration that the company incurs for the acquisition of the asset:
- (b) in the case described in subsection (3), the consideration specified in the subsection for the acquisition of the asset:
- (c) in the case described in subsection (4), the consideration specified in the subsection for the acquisition of the asset:
- (d) in the case described in subsection (5), the consideration specified in subsection (6) for the acquisition of the asset.
Consideration other than in cash

(3) If some or all of the consideration for the acquisition is other than in cash, and the acquisition is not from an associated person, the consideration that is not in cash has the value agreed between the mining company and the person from whom the asset is acquired. If the mining company and the person do not agree, or if the Commissioner considers that the value agreed is unreasonable, the consideration that is not in cash has the value that the Commissioner decides.

Acquisition from associated person

(4) If the acquisition is from an associated person, the consideration for the acquisition is the market value that the asset has on the date of the acquisition.

Amount specified by parties to acquisition
(5) Subsection (6) applies when—
- (a) the mining company acquires the asset for use in carrying on their mining operations or associated mining operations; and
- (b) the mining company and the person from whom the asset is acquired give notice to the Commissioner that they have agreed to apply subsection (6); and
- (c) the notice is given to the Commissioner within 1 of the following times:
  - (i) the time within which the mining company is required to file a return of income for the income year in which it acquires the asset; or
  - (ii) a longer time allowed by the Commissioner; and
- (d) the notice specifies an amount that—
- (i) is no more than the market value that the asset has at the date of the acquisition; and
- (ii) is no less than the amount of any part of the consideration that is in cash.
Amount specified in notice

(6) The consideration for the acquisition is the amount that the mining company and the person specify in the notice.

Defined in this Act: amount, associated mining operations, associated person, Commissioner, income year, mining company, mining development expenditure, mining exploration expenditure, mining operations, notice, return of income,

Compare: 1994 No 164 s DN 1(10)-(12)

Subsection (2)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.

DU 3 Replacing or repairing asset

When subsections (2) to (4) apply
(1) Subsections (2) to (4) apply when—
- (a) a mining company complies with section CU 6(2) (Compensation and scrap payment: use to replace or repair asset); and
- (b) the company incurs expenditure in replacing or repairing the asset; and
- (c) the company has an excess amount because the expenditure is more than the total of—
  - (i) the amount of insurance, indemnity, or compensation paid; and
  - (ii) the amount (if any) payable to the company for the disposal of any scrap of the asset.
Deduction

(2) The company is allowed a deduction for the excess.

Mining expenditure

(3) The excess amount must be taken into account in the mining expenditure item of the formula in section DU 7(5).

No other deduction

(4) No other deduction for expenditure incurred in the circumstances described in subsection (1) is allowed under any other provision of this Act.

When subsections (7) and (8) apply
(5) Subsections (7) and (8) apply when—
- (a) a mining company complies with section CU 6(2) (Compensation and scrap payment: use to replace or repair asset); and
- (b) the Commissioner considers a period to be a reasonable period within which to complete the replacement or repair; and
- (c) the company incurs expenditure in replacing or repairing the asset after the last day of the period; and
- (d) the company has an excess amount because the expenditure is more than the total of the following:
  - (i) the amount of compensation paid; and
  - (ii) the amount (if any) payable to the company for the disposal of any scrap of the asset.
Deduction

(6) The company is allowed a deduction for the excess.

Limitation on calculation of excess amount

(7) The expenditure incurred after the last day of the period must not be taken into account to determine the existence or amount of an excess amount for the purposes of subsection (1)(c).

Mining expenditure

(8) The expenditure incurred after the last day of the period must be taken into account in the mining expenditure item of the formula in section DU 7(5).

Link with subpart DA

(9) This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.

Defined in this Act: amount, capital limitation, Commissioner, deduction, general limitation, general permission, mining company, supplement,

Compare: 1994 No 164 s DN 1(14)(c)(i), (d), (h)

DU 4 Income appropriated to expenditure

When this section applies
(1) This section applies when—
- (a) a mining company appropriates an amount of income to mining exploration expenditure or mining development expenditure; and
- (b) the company makes the appropriation within 2 months after the end of an income year or within a longer time allowed by the Commissioner; and
- (c) the amount that the company appropriates is no more than its net income in the income year, calculated as if this section did not exist.
Deduction
(2) The company is allowed a deduction for the part of the amount to which both the following apply:
- (a) it is not spent in the income year to which the appropriation relates; and
- (b) it will be, or is likely to be, used as mining exploration expenditure or mining development expenditure before the end of the second income year following the income year to which the appropriation relates.
Timing of deduction

(3) The deduction for the part of the amount is allocated to the income year to which the appropriation relates.

Mining expenditure

(4) The part of the amount to which subsection (2)(a) and (b) apply must be taken into account in the mining expenditure item of the formula in section DU 7(5).

Link with subpart DA

(5) This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.

Defined in this Act: amount, capital limitation, Commissioner, deduction, general limitation, general permission, income, income year, mining company, mining development expenditure, mining exploration expenditure, net income, supplement,

Compare: 1994 No 164 s DN 1(6)

DU 5 Non-mining asset used to derive income from mining

When this section applies
(1) This section applies when—
- (a) a mining company starts to use, or starts again to use, an asset to derive income from mining; and
- (b) immediately before that, the company used the asset to derive income other than income from mining.
Adjustment

(2) The Commissioner may make an adjustment to any deduction of the mining company for the asset for the income year, as between the part of the income year in which the company used the asset to derive income from mining and the part of the income year in which the company did not use the asset to derive income from mining.

Commissioner to consider
(3) The adjustment must be of a kind that the Commissioner considers equitable, having regard to—
- (a) any deduction for an amount of depreciation loss that the company has been allowed; and
- (b) any other deduction that the company has been allowed for the cost of the asset; and
- (c) any other matters that the Commissioner considers relevant.
Defined in this Act: amount, Commissioner, deduction, depreciation loss, income, income from mining, income year, mining company,

Compare: 1994 No 164 s DN 1(15)(a)

DU 6 Depreciation

When this section applies: first case
(1) This section applies when—
- (a) a mining company acquires an asset by incurring—
  - (i) mining exploration expenditure or mining development expenditure; or
  - (ii) the exploration expenditure or development expenditure referred to in section DZ 12(2)(a) (Mineral mining: 1954 to 2005); and
- (b) the company is allowed a deduction for the expenditure; and
- (c) the company uses the asset, wholly or mainly, to derive income from mining.
When this section applies: second case
(2) This section also applies when—
- (a) a mining company complies with section CU 6(2) (Compensation and scrap payment: use to replace or repair asset); and
- (b) the company incurs expenditure in replacing or repairing the asset; and
- (c) the company is allowed a deduction for the expenditure; and
- (d) the company uses the asset, wholly or mainly, to derive income from mining.
No deduction (with exception)

(3) The company is denied a deduction for an amount of depreciation loss for the asset from the time when it uses the asset wholly or mainly to derive income from mining until the time (if any) when it uses the asset wholly or mainly to derive income other than income from mining.

Amount of depreciation loss

(4) The asset has the value described in section CU 10(2) (Mining asset used to derive income other than income from mining) for the purpose of calculating the amount of depreciation loss that the company has for its use of the asset wholly or mainly to derive income other than income from mining.

Link with subpart DA

(5) Subsections (1) to (3) override the general permission.

Defined in this Act: acquire, amount, deduction, depreciation loss, general permission, income, income from mining, mining company, mining development expenditure, mining exploration expenditure,

Compare: 1994 No 164 s DN 1(7)(a)(ii), (c), (8)(c), (14)(c)(ii)

DU 7 Limit on deduction

Limit

(1) When a mining company has a mining outgoing excess, there is a limit on the deduction that it is allowed in the income year for the amount taken into account in the mining expenditure item of the formula in subsection (5).

Amount of deduction
(2) The limit is the lesser of—
- (a) two-thirds of the mining outgoing excess; and
- (b) the greater of zero and the amount calculated using the formula—
  
  non-mining income – non-mining expenditure.
Definition of items in formula
(3) In the formula,—
- (a) non-mining income is the income other than income from mining of the mining company allocated to the income year:
- (b) non-mining expenditure is all the expenditure or loss that the mining company incurs in the income year relating to deriving non-mining income and for which it is allowed a deduction that is allocated to the income year.
Meaning of mining outgoing excess

(4) Mining outgoing excess means the greater of zero and the amount that a mining company calculates for an income year using the formula—

mining expenditure – income from mining.

Definition of items in formula
(5) In the formula,—
- (a) mining expenditure is an amount consisting of—
  - (i) all the expenditure or loss that the mining company incurs in the income year relating to deriving income from mining and for which it would be allowed a deduction that would be allocated to the income year; and
  - (ii) any part of an amount described in section DU 4(4):
- (b) income from mining is the income from mining of the mining company allocated to the income year.
Defined in this Act: amount, deduction, income, income from mining, income year, mining company, mining outgoing excess,

Compare: 1994 No 164 ss DN 1(3), OB 1 mining outgoing excess

DU 8 Meaning of asset for sections DU 1 to DU 7

Mining company's share or interest in asset
(1) Sections DU 1 to DU 7 apply to a share or interest that a mining company has in an asset—
- (a) to the extent to which the mining company acquired the share or interest by incurring—
  - (i) mining exploration expenditure or mining development expenditure:
  - (ii) the exploration expenditure or development expenditure referred to in section DZ 12(2)(a) (Mineral mining: 1954 to 2005); and
- (b) to the extent to which the mining company uses the share or interest for the purpose of deriving income from mining.
Partner's share or interest in asset

(2) For the purposes of sections DU 1 to DU 7, a partner's share or interest in each asset of the partnership is the same as the partner's interest in the totality of the assets of the partnership.

Replaced or repaired asset
(3) For the purposes of sections DU 1 to DU 7,—
- (a) an asset that a mining company acquires by incurring expenditure in replacing or repairing the asset is the same asset as the one that was lost, destroyed, or damaged; and
- (b) part of an asset that a mining company acquires by incurring expenditure in repairing the asset is part of the asset that was damaged.
Defined in this Act: asset, income from mining, mining company, mining development expenditure, mining exploration expenditure,

Compare: 1994 No 164 s DN 1(14)(f), (16), (17)

Subsection (1)(a)(i) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; or”.

DU 9 Application of sections to resident mining operators

Sections of this subpart applying to resident mining operators

(1) Sections DU 1 to DU 3, and DU 5 to DU 7 apply, with any necessary modifications, to resident mining operators as if resident mining operators were mining companies.

Additional modification of section DU 6

(2) For the purposes of subsection (1), section DU 6(1)(a)(ii) applies as described in section DZ 12(2)(b) (Mineral mining: 1954 to 2005).

Application of section DU 7
(3) When a resident mining operator has a mining outgoing excess, the total of deductions that it is allowed in the income year for expenditure or loss taken into account in the mining expenditure item of the formula in section DU 7(5) is no more than the lesser of—
- (a) the total amount of the expenditure and loss; and
- (b) the prescribed amount for the income year.
Meaning of prescribed amount

(4) Prescribed amount means 50% of the amount by which the income that the resident mining operator derives in a tax year, other than from its mining operations or associated mining operations, is more than the total of the expenditure and losses, for which it is allowed deductions, that it incurs in the tax year in deriving the income.

Relationship with sections IE 1, IF 1, and IH 1

(5) Expenditure or loss of a resident mining operator for which it would be allowed a deduction in an income year if subsection (3) did not exist is a net loss of the operator in the income year for the purposes of sections IE 1 (Net losses may be offset against future net income), IF 1 (Net losses may be offset against future net income), and IH 1 (Losses of mining companies and petroleum miners).

Defined in this Act: amount, associated mining operations, deduction, income, income year, loss, mining company, mining operations, mining outgoing excess, net loss, prescribed amount, resident mining operator,

Compare: 1994 No 164 ss DN 4(2), (3), (5), (7), OB 1 prescribed amount

DU 10 Application of sections to non-resident mining operators

Sections of this subpart applying to non-resident mining operators

(1) Sections DU 1 to DU 6 and IH 4(2) and (3) (Companies engaged in exploring for, searching for, or mining certain minerals) apply, with any necessary modifications, to non-resident mining operators as if non-resident mining operators were mining companies, income from mining were income from a mining venture, mining operations were mining ventures, and associated mining operations were mining ventures.

Application of section DU 1

(2) Section DU 1 applies with the additional modification that subsection (2) is omitted.

Application of section DU 3

(3) Section DU 3 applies with the additional modification that subsections (3) and (6) are omitted.

Application of section DU 4

(4) Section DU 4 applies with the additional modification that subsection (4) is omitted.

Additional modification of section DU 6

(5) For the purposes of subsection (1), section DU 6(1)(a)(ii) applies as described in section DZ 12(2)(b) (Mineral mining: 1954 to 2005).

Defined in this Act: associated mining operations, income, income from mining, mining company, mining operations, mining venture, non-resident mining operator,

Compare: 1994 No 164 s DN 5(2)(a), (c)

DU 11 Disposal of mining shares by company

Deduction

(1) When a company disposes of a mining share, the company is allowed a deduction for the cost of the share to it.

Amount of deduction
(2) The cost of the share to the company is the difference between the following 2 sums:
- (a) the total of—
  - (i) the consideration that the company gave to acquire the share; and
  - (ii) any capital the company contributed later for the share:
- (b) the total of—
  - (i) any reinvestment profit of the company included in the consideration that the company gave; and
  - (ii) any reinvestment profit of the company included in the capital that the company contributed.
Link with subpart DA

(3) This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.

Defined in this Act: capital limitation, company, deduction, general limitation, general permission, mining share, reinvestment profit,

Compare: 1994 No 164 s DN 2(1)

Subsection (2)(a)(ii) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.

DU 12 Amount written off by holding company

Deduction

(1) A holding company of a mining company is allowed a deduction for an amount written off a loan it made to the mining company.

Exclusions
(2) The following are not included within the words “an amount written off a loan it made to the mining company” in subsection (1):
- (a) an amount of interest that the holding company writes off; or
- (b) an amount of a loan to the extent to which a mining holding company makes the loan from its reinvestment profit; or
- (c) an amount of a loan made on or after 1 October 1978 to the extent to which the loan—
  - (i) is made to obtain an unfair advantage for tax purposes; and
  - (ii) is excessive, having regard to previous loans made by the holding company and any other circumstances.
Amount of deduction
(3) The deduction is no more than the lesser of—
- (a) 50% of the amount that, if this section did not exist, would be the net income of the holding company in the tax year in which the amount is written off; and
  - (b) the prescribed proportion of all the mining exploration expenditure and mining development expenditure incurred by the mining company in the tax year in which the amount is written off, reduced by all the deductions the holding company is allowed under this section in all tax years before the tax year in which the amount is written off.
Timing of deduction

(4) The deduction for the amount written off is allocated to the tax year in which the amount is written off.

Reduction of amount

(5) The amount calculated under subsection (3) is reduced in the circumstances described in section DZ 12(4) (Mineral mining: 1954 to 2005).

Link with subpart DA

(6) This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.

Defined in this Act: amount, capital limitation, deduction, general limitation, general permission, holding company, interest, loan, mining company, mining development expenditure, mining exploration expenditure, net income, prescribed proportion, reinvestment profit, supplement, tax, tax year,

Compare: 1994 No 164 s DN 3(1), (3), (10)

Subpart DV—Expenditure specific to certain entities

Superannuation funds

DV 1 Publicising superannuation funds

When this section applies
(1) This section applies when a superannuation fund incurs expenditure to which all the following apply:
- (a) it is incurred in developing, marketing, selling, promoting, or advertising the fund; and
- (b) it is not incurred in acquiring a building, equipment, land, machinery, or plant; and
- (c) it is assessable income of the recipient.
Deduction

(2) The superannuation fund is allowed a deduction for the expenditure.

Link with subpart DA

(3) This section supplements the general permission and overrides the capital limitation and the exempt income limitation. The other general limitations still apply.

Defined in this Act: assessable income, capital limitation, deduction, exempt income limitation, general limitation, general permission, superannuation fund, supplement,

Compare: 1994 No 164 s DI 3(1)

DV 2 Transfer of expenditure to master fund

When this section applies
(1) This section applies when—
- (a) a superannuation fund (member superannuation fund) invests some or all of its funds in another superannuation fund (master superannuation fund); and
- (b) while the member superannuation fund has funds invested in the master superannuation fund, the member superannuation fund incurs expenditure of a kind described in subsection (2).
Expenditure on publicising or managing
(2) The expenditure is expenditure to which all the following apply:
- (a) it is incurred—
  - (i) in developing, marketing, selling, promoting, or advertising the fund; or
  - (ii) in managing the fund; and
- (b) it is not incurred in acquiring a building, equipment, land, machinery, or plant; and
- (c) it is assessable income of the recipient.
When expenditure becomes master superannuation fund's

(3) The member superannuation fund may choose to treat some or all of the expenditure as expenditure incurred by the master superannuation fund in deriving assessable income.

How election made
(4) The member superannuation fund makes the election by giving notice to the Commissioner within 1 of the following times:
- (a) the time within which its return of income must be filed under section 37 of the Tax Administration Act 1994; or
- (b) a longer time allowed by the Commissioner.
Effect of election

(5) When the member superannuation fund makes an election, subsections (6) to (9) apply to the part or the whole, as chosen, of the expenditure.

When expenditure incurred

(6) The expenditure is treated as being incurred by the master superannuation fund in the same income year as that in which it was incurred by the member superannuation fund.

Deduction allowed to master superannuation fund

(7) The master superannuation fund is allowed a deduction for the expenditure. The amount of the deduction is limited by subsection (8).

Amount of deduction

(8) The formula in section DV 3 is used to calculate the maximum deduction that the master superannuation fund is allowed for expenditure of the member superannuation fund treated as being incurred by the master superannuation fund.

Deducted expenditure not incurred by member superannuation fund

(9) The expenditure for which the master superannuation fund is allowed a deduction is treated as not being incurred by the member superannuation fund.

Link with subpart DA
(10) The link between this section and subpart DA (General rules) is as follows:
- (a) for subsection (7),—
  - (i) it supplements the general permission:
  - (ii) it overrides the capital limitation and the exempt income limitation:
  - (iii) the other general limitations still apply:
- (b) subsection (9) overrides the general permission.
Defined in this Act: amount, assessable income, capital limitation, Commissioner, deduction, exempt income limitation, general limitation, general permission, income year, notice, return of income, superannuation fund, supplement,

Compare: 1994 No 164 s DI 3(2), (8), (9)(a)

Subsection (10)(a)(i) to (iii) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.

DV 3 Formula for calculating maximum deduction

Formula

(1) The formula referred to in section DV 2(8) is—

taxable income – non-resident withholding income.

Definition of items in formula

(2) The items in the formula are defined in subsections (3) and (4).

Taxable income

(3) Taxable income is the amount that would be the master superannuation fund's taxable income in the tax year in which the expenditure is incurred if sections DV 2 to DV 4 did not exist.

Non-resident withholding income

(4) Non-resident withholding income is the total of any amounts of non-resident withholding income of any of the kinds to which section NG 4 (Non-resident withholding tax to be minimum tax in certain cases) applies derived by the master superannuation fund in the tax year in which the expenditure is incurred.

Defined in this Act: amount, deduction, non-resident withholding income, superannuation fund, tax year, taxable income,

Compare: 1994 No 164 s DI 3(2)(d)

DV 4 Carry forward of expenditure

When this section applies
(1) This section applies when—
- (a) the expenditure treated as being incurred by the master superannuation fund, under section DV 2(3), is more than the maximum amount for which it is allowed a deduction, as calculated under section DV 3, so there is surplus expenditure; and
- (b) the member superannuation fund chooses to deal with the surplus expenditure under this section, rather than deducting it itself; and
- (c) the member superannuation fund has funds invested in the master superannuation fund at the time referred to in section DV 2(1)(b) and while its election under section DV 2(3) continues and while it deals with the surplus expenditure under this section.
(1A) For the avoidance of doubt, section 144 of the KiwiSaver Act 2006 applies to a registered superannuation scheme that converts to a KiwiSaver scheme for the purpose of determining if subsection (1)(c) applies.

Surplus carried forward
(2) The member superannuation fund carries the surplus expenditure forward to the next tax year and takes the following steps:
- (a) it gets the combined expenditure by adding the surplus expenditure to the expenditure (if any) incurred by it in the tax year that it chooses to treat as being incurred by the master superannuation fund:
- (b) it calculates the maximum deduction for the tax year, using the formula in section DV 3:
- (c) if the combined expenditure is the same as or less than the maximum deduction, it—
  - (i) treats the surplus expenditure as expenditure incurred by the master superannuation fund in deriving assessable income in the tax year; and
  - (ii) applies subsections (4) to (7):
- (d) if the combined expenditure is more than the maximum deduction, it—
  - (i) carries forward the new surplus expenditure to the next tax year; and
  - (ii) applies subsection (3).
Surplus dealt with until gone

(3) The member superannuation fund repeats the steps in subsection (2) for the following tax years until all surplus expenditure is deducted.

Deduction allowed to master superannuation fund

(4) Expenditure treated under subsection (2)(c)(i) as incurred by the master superannuation fund in deriving income is allowed as a deduction in the tax year in which it is so treated. The amount of the deduction is limited by subsection (5).

Amount of deduction

(5) The maximum amount of a deduction under subsection (4) is the maximum deduction for the tax year, calculated using the formula in section DV 3.

Deducted expenditure not incurred by member superannuation fund

(6) Expenditure for which the master superannuation fund is allowed a deduction is treated as not being incurred by the member superannuation fund.

Sequential deductions

(7) Expenditure for which the master superannuation fund is allowed a deduction must be deducted in sequence according to the tax year in which the member superannuation fund incurred it.

Link with subpart DA
(8) The link between this section and subpart DA (General rules) is as follows:
- (a) subsection (4) supplements the general permission and overrides the capital limitation. The other general limitations still apply:
- (b) subsection (6) overrides the general permission.
Defined in this Act: amount, assessable income, capital limitation, deduction, general limitation, general permission, income, superannuation fund, supplement, tax year,

Compare: 1994 No 164 s DI 3(3)-(9)

Subsection (1A) was inserted, as from 1 December 2006, by section 231 KiwiSaver Act 2006 (2006 No 40). See section 232 of that Act as to the transitional provision requiring all KiwiSaver contributions to be paid to the Commissioner in the first 3 months. See clause 2(2) KiwiSaver Act Commencement Order 2006 (SR 2006/357).

Subsection (2)(a), (b), and (c)(ii) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.

Subsection (8)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.

Other entities

DV 5 Investment funds: transfer of expenditure to master funds

When this section applies
(1) This section applies when—
- (a) a group investment fund that derives category A income, a qualifying unit trust, or a superannuation fund (member fund) invests some or all of its funds in a master fund; and
- (b) while the member fund has funds invested in the master fund, the member fund incurs expenditure of a kind described in subsection (2); and
- (c) the member fund has some or all of its funds invested in the master fund throughout the period starting at the time at which the member fund incurs the expenditure and ending with the close of the last day of the tax year in which the expenditure is deducted by the master fund under this section.
Expenditure described
(2) The expenditure is expenditure for which the member fund is allowed a deduction,—
- (a) including expenditure on a financial arrangement that is denominated in New Zealand dollars and for which expenditure is allocated using the yield to maturity method set out in subpart EW (Financial arrangements rules); and
- (b) not including—
  - (i) expenditure on any other financial arrangement; or
  - (ii) expenditure on revenue account property.
When expenditure becomes master fund's
(3) The expenditure incurred by the member fund may be transferred to the master fund, subject to the following conditions:
- (a) the member fund and the master fund must agree to the transfer of the expenditure; and
- (b) the member fund may transfer expenditure only to the extent to which it has a net loss in the tax year, with the net loss calculated as if this section did not exist; and
- (c) a member fund that is a group investment fund that derives category A income may transfer only expenditure that relates to the category A income.
Tax year in which investment stops
(4) In the tax year in which the member fund stops investing in the master fund,—
- (a) neither the master fund nor the member fund is allowed a deduction for expenditure that would otherwise be transferable; and
- (b) the member fund must treat the expenditure as an available net loss.
When expenditure incurred

(5) The expenditure is treated as being incurred by the master fund in the tax year in which it is transferred by the member fund.

Deduction allowed to master fund
(6) The master fund is allowed a deduction for the expenditure, subject to the following conditions:
- (a) a master fund that is a group investment fund that derives category A income may deduct expenditure only from its category A income; and
- (b) the amount of the deduction is limited by subsection (7).
Amount of deduction

(7) The formula in section DV 6 is used to calculate the maximum deduction that the master fund is allowed for expenditure of the member fund treated as being incurred by the master fund.

Additional transfer

(8) If, after the date on which the master fund has filed its return of income, the master fund is able to deduct more than the amount actually deducted, the Commissioner may allow the member fund to transfer expenditure to the extent of the difference after the return of income has been filed.

Deducted expenditure not incurred by member fund

(9) The expenditure for which the master fund is allowed a deduction is treated as not being incurred by the member fund.

Link with subpart DA
(10) The link between this section and subpart DA (General rules) is as follows:
- (a) subsection (6) supplements the general permission and overrides the capital limitation. The other general limitations still apply:
- (b) subsection (9) overrides the general permission.
Defined in this Act: amount, available net loss, capital limitation, category A income, Commissioner, deduction, financial arrangement, general limitation, general permission, group investment fund, master fund, net loss, qualifying unit trust, return of income, revenue account property, superannuation fund, supplement, tax year,

Compare: 1994 No 164 ss DI 3B(1)-(6), (9), DI 3C(2)-(4)

Subsection (10)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.

DV 6 Formula for calculating maximum deduction

Formula used to calculate maximum deduction

(1) The formula referred to in section DV 5(6) is—

taxable income – non-resident withholding income.

Definition of items in formula

(2) The items in the formula are defined in subsections (3) and (4).

Taxable income

(3) Taxable income is the amount that would be the master fund's taxable income in the tax year in which the expenditure is transferred if sections DV 5 to DV 7 did not exist.

Non-resident withholding income

(4) Non-resident withholding income is the total of any amounts of non-resident withholding income of any of the kinds to which section NG 4 (Non-resident withholding tax to be minimum tax in certain cases) applies derived by the master fund in the tax year in which the expenditure is incurred.

Defined in this Act: amount, deduction, master fund, non-resident withholding income, tax year, taxable income,

Compare: 1994 No 164 s DI 3C(1)

DV 7 Carry forward of expenditure

Member fund carrying expenditure forward

(1) For the purposes of section DV 5, if a member fund incurs more expenditure than the member fund and the master fund agree can be transferred, the member fund may carry forward the expenditure for transfer in a later tax year.

Expenditure as available net loss

(2) If the member fund carries forward expenditure in a tax year, the member fund may treat some or all of the expenditure as an available net loss.

Defined in this Act: available net loss, master fund, tax year,

Compare: 1994 No 164 s DI 3B(7), (8)

DV 8 Non-profit organisations

When this section applies
(1) This section applies when an incorporated or unincorporated organisation—
- (a) does not have the purpose of making a profit for a proprietor, member, or shareholder; and
- (b) has a constitution that prohibits a distribution of property in any form to a member, proprietor, or shareholder.
Amount of deduction
(2) The organisation is allowed a deduction for the lesser of—
- (a) $1,000; and
- (b) the amount that would be the organisation's net income if this section did not exist.
Link with subpart DA

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

Defined in this Act: amount, deduction, general limitation, general permission, net income, shareholder, supplement,

Compare: 1994 No 164 s DJ 17

DV 9 Trusts

No deduction

(1) A person who derives beneficiary income is denied a deduction for expenditure or loss that a trustee incurs in deriving the income.

Trustee income

(2) For the purpose of determining the deductions that a trustee is allowed in a tax year, beneficiary income of beneficiaries of the trust in the tax year is treated as trustee income.

Link with subpart DA
(3) The link between this section and subpart DA (General rules) is as follows:
- (a) subsection (1) overrides the general permission:
- (b) subsection (2) supplements the general permission. The general limitations still apply.
Defined in this Act: beneficiary income, deduction, general limitation, general permission, supplement, tax year, trustee, trustee income,

Compare: 1994 No 164 ss DI 5, DI 6

Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.

DV 10 Building societies

Deduction
(1) A building society is allowed a deduction for—
- (a) expenditure incurred on money borrowed by way of withdrawable shares:
- (b) interest and other financial charges incurred in providing money that is used to provide an interest-free loan to a person who holds a terminating share:
- (c) an amount incurred in purchasing a balloted loan right from a person who holds a terminating share.
Timing of deduction

(2) The deduction for the amount referred to in subsection (1)(c) is allocated to the income year in which the amount is paid.

Meaning of balloted loan right
(3) In this section, balloted loan right means a right arising from a ballot that—
- (a) is held by or for a building society; and
- (b) is of terminating shares; and
- (c) is held for the purpose of finding out which of the holders of the shares are entitled to receive an interest-free loan relating to their shares.
Link with subpart DA

(4) This section overrides the capital limitation. The general permission must still be satisfied and other general limitations still apply.

Defined in this Act: amount, balloted loan right, building society, capital limitation, deduction, general limitation, general permission, income year, terminating share, withdrawable share,

Compare: 1994 No 164 s DI 1(1)

Subsection (1)(a) (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.

DV 10B Distribution to member of co-operative company, excluded from being dividend

Deduction

(1) A co-operative company, or a company owned by a co-operative company, is allowed a deduction for a distribution made for an income year to a member of the co-operative company if an amount of the distribution is excluded by section CD 24B (Distribution to member of co-operative company based on member's transactions) from being a dividend.

Amount of deduction

(2) The amount of the deduction is the amount of the distribution that is excluded by section CD 24B from being a dividend.

Timing of deduction

(3) The deduction for the distribution is allocated to the income year for which the distribution is made.

Link with subpart DA

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

Defined in this Act: company, co-operative company, deduction, general permission, general limitation, income year, shareholder,

Section DV 10B was inserted, as from 3 April 2006, by section 58(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

DV 11 Maori authorities: donations

Deduction
(1) A Maori authority is allowed a deduction for—
- (a) a donation that it makes to a Maori association, as defined in the Maori Community Development Act 1962, for the purposes of the Act:
- (b) a gift of money that it makes to a society, institution, association, organisation, trust, or fund of any of the kinds described in section KC 5(1) (Rebate in respect of gifts of money).
Amount of deduction

(2) The deduction for the total of all donations and gifts made in a tax year is limited to 5% of the amount that would be the Maori authority's net income in the tax year if this section did not exist.

Link with subpart DA

(3) This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.

Defined in this Act: amount, capital limitation, deduction, general limitation, general permission, Maori authority, net income, supplement, tax year,

Compare: 1994 No 164 s DI 2

Subsection (1)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.

DV 12 Group companies

When this section applies
(1) This section applies when,—
- (a) in a tax year, a company (company A) that is a member of a wholly-owned group of companies derives income under section CV 1 (Group companies); and
- (b) no other provision of this Act allows company A a deduction for the expenditure it incurs in deriving the income; and
- (c) if the wholly-owned group of companies were a single company, the single company would be allowed a deduction for the expenditure that company A incurs in deriving the income.
Amount, and timing, of deduction

(2) Company A is allowed a deduction for the expenditure in the tax year in which the income is derived.

Link with subpart DA

(3) This section supplements the general permission and overrides the exempt income limitation. The other general limitations still apply.

Defined in this Act: company, deduction, exempt income limitation, general limitation, general permission, income, supplement, tax year, wholly-owned group of companies,

Compare: 1994 No 164 s DI 4

DV 13 Amalgamated company: expenditure on improvements for farming, horticultural, aquacultural, and forestry businesses

When this section applies
(1) This section applies when—
- (a) an amalgamating company ceases to exist because of a qualifying amalgamation; and
- (b) the amalgamated company acquires land or a business from the amalgamating company; and
- (c) the amalgamating company would have been allowed a deduction under any of section DO 4 (Improvements to farm land), DO 4B (Expenditure on land: planting of listed horticultural plants), DO 4C (Expenditure on land: horticultural replacement planting), or DO 6 (Improvements to aquacultural business) or DP 3 (Improvements to forestry land) for the land or business if the amalgamation had not occurred.
Deduction

(2) While the amalgamated company holds the land or carries on the business, it is allowed the deduction that the amalgamating company would have been allowed under section DO 4 (Improvements to farm land), DO 4B (Expenditure on land: planting of listed horticultural plants), DO 4C (Expenditure on land: horticultural replacement planting), or DO 6 (Improvements to aquacultural business) or DP 3 (Improvements to forestry land).

Link with subpart DA

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

Defined in this Act: amalgamated company, amalgamating company, business, deduction, general limitation, general permission, qualifying amalgamation, supplement,

Compare: 1994 No 164 ss DL 7, DO 8

The heading was amended, as from 1 October 2005, by section 188(1) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by inserting the word “horticultural,” after the word “farming,”.

Subsection (1) was amended, as from 1 October 2005, by section 188(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by inserting the words “DO 4B (Expenditure on land: planting of listed horticultural plants), DO 4C (Expenditure on land: horticultural replacement planting),” before the words “or DO 6”.

Subsection (2) was amended, as from 1 October 2005, by section 188(3) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by inserting the words “DO 4B (Expenditure on land: planting of listed horticultural plants), DO 4C (Expenditure on land: horticultural replacement planting),” before the words “or DO 6”.

Subpart DW—Expenditure specific to certain industries

DW 1 Airport operators

DW 2 Bloodstock racing

DW 1 Airport operators

No deduction (with exception)

(1) An airport operator is denied a deduction for expenditure or loss to the extent to which the expenditure or loss is, in terms of the joint venture agreement that relates to the airport operator, a charge against any part of the joint income of the parties to the agreement that has been allocated or distributed to any party.

Meaning of expenditure

(2) In subsection (1), expenditure includes a provision that is treated as expenditure or loss in the nature of interest under section OC 1(2)(h) (Airport operators).

Link with subpart DA

(3) This section overrides the general permission.

Defined in this Act: airport operator, deduction, expenditure, general permission, income, joint venture agreement,

Compare: 1994 No 164 s DK 4

DW 2 Bloodstock racing

No deduction
(1) A person is denied a deduction for expenditure or loss that they incur—
- (a) on the racing of bloodstock; or
- (b) in relation to the racing of bloodstock.
No deduction (with exception)
(2) A person is denied a deduction for expenditure or loss that they incur in preparing bloodstock for racing, except, first, when—
- (a) the person is in the business of breeding bloodstock; and
- (b) they incur the expenditure or loss in preparing for sale bloodstock that they are preparing for racing; and
- (c) they do not race the bloodstock on which they incur the expenditure or loss.
No deduction (with exception)
(3) A person is denied a deduction for expenditure or loss that they incur in preparing bloodstock for racing, except, second, when—
- (a) the person incurs the expenditure or loss in preparing the bloodstock for racing; and
- (b) they receive consideration for preparing the bloodstock for racing; and
- (c) the consideration is income of the person.
Link with subpart DA

(4) This section overrides the general permission.

Defined in this Act: bloodstock, business, deduction, general permission, income, loss,

Compare: 1994 No 164 s DO 1

Subpart DX—Other expenditure

DX 1 Testamentary annuities

When this section applies
(1) This section applies when—
- (a) property is subject to the payment of an annuity—
  - (i) because of a provision in a will; or
  - (ii) because of a court order under the Family Protection Act 1955; or
  - (iii) because of a deed of family arrangement; and
- (b) the property, or property substituted for it, is transferred to a beneficiary; and
- (c) the property transferred, or property that the beneficiary substitutes for it, is charged with the payment of the annuity or part of the annuity.
Deduction

(2) The owner of the property, or the substituted property, is allowed a deduction for an amount that they pay on account of the annuity.

Exclusion
(3) The owner is denied a deduction—
- (a) if the owner is not a beneficiary but a person who has bought the property subject to the condition that they assume the liability for the annuity (or a part of it):
- (b) to the extent to which the annuity is payable under a court order or under a deed of family arrangement and represents consideration for the purchase of the property, or the substituted property, by the owner.
Amount of deduction

(4) The deduction is limited in a tax year to the amount that would be the net income of the owner for the tax year if the owner's only income in the tax year were from the property, or the substituted property.

Meaning of beneficiary
(5) In this section, beneficiary—
- (a) means—
  - (i) a person to whom a testator has left the property in their will; or
  - (ii) a person to whom the testator has given a right to buy the property in their will; and
- (b) includes a person who is entitled to the property under—
  - (i) an order of a court under the Family Protection Act 1955; or
  - (ii) a deed of family arrangement.
Link with subpart DA

(6) This section supplements the general permission and overrides the private limitation. The other general limitations still apply.

Defined in this Act: amount, arrangement, beneficiary, deduction, general limitation, general permission, income, net income, private limitation, supplement, tax year,

Compare: 1994 No 164 s DD 2

Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.

Subpart DY—Deductions under Parts F to I

DY 1 Amounts that are deductions under Parts to be rewritten

DY 2 Amounts that are not deductions under Parts to be rewritten

DY 1 Amounts that are deductions under Parts to be rewritten

Deduction

(1) An amount of expenditure or loss is allowed as a deduction if it is allowed as a deduction under a provision in any of Parts F to I.

General permission and general limitations
(2) A provision in any of Parts F to I may, without expressly stating so, supplement the general permission or override any 1 or more of—
- (a) the general permission; or
- (b) the capital limitation; or
- (c) the private limitation; or
- (d) the exempt income limitation; or
- (e) the employment limitation; or
- (f) the withholding tax limitation; or
- (g) the non-residents' foreign-sourced income limitation.
Defined in this Act: amount, capital limitation, deduction, employment limitation, exempt income limitation, general limitation, general permission, loss, non-residents' foreign-sourced income limitation, private limitation, supplement, withholding tax limitation,

DY 2 Amounts that are not deductions under Parts to be rewritten

No deduction

(1) An amount of expenditure or loss is denied as a deduction if it is denied as a deduction under a provision in any of Parts F to I.

General permission

(2) A provision in any of Parts F to I may, without expressly stating so, override the general permission or any provision that supplements the general permission.

Defined in this Act: amount, deduction, general permission, loss, supplement,

Compare: 1994 No 164 s BD 2(2)(f)

Subpart DZ—Terminating provisions

DZ 1 Commercial bills before 31 July 1986

DZ 2 Life insurers acquiring property before 1 April 1988

DZ 3 Petroleum mining: development expenditure from 1 October 1990 to 15 December 1991

DZ 4 Expenditure on abandoned exploratory well before 16 December 1991

DZ 5 Farm-out arrangements for petroleum mining before 16 December 1991

DZ 6 Partnership interests and disposal of part of asset before 16 December 1991

DZ 7 Petroleum mining operations outside New Zealand before 16 December 1991

DZ 8 Buying patent rights before 1 April 1993

DZ 9 Premium paid on land leased before 1 April 1993

DZ 10 General insurance with risk period straddling 1 July 1993

DZ 11 Film reimbursement scheme on or before 30 June 2001

DZ 12 Mineral mining: 1954 to 2005

DZ 13 Enhancements to land unamortised at end of 2004-05 year

DZ 14 Patent applications before 1 April 2005

DZ 15 Geothermal wells between 31 March 2003 and 17 May 2006

DZ 16 Expenditure on improvements to aquacultural business before 1995-96 income year

DZ 17 Expenditure on improvements to forestry land before 1995-96 income year

DZ 1 Commercial bills before 31 July 1986

Deduction

(1) A person is allowed a deduction if they acquire a commercial bill from another person, other than under a relationship agreement, and derive income under section CZ 6 (Commercial bills before 31 July 1986) on the redemption or disposal of the commercial bill.

Amount of deduction

(2) The amount of the deduction is the value of the commercial bill on the date on which the person acquired it.

Link with subpart DA

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

Defined in this Act: amount, commercial bill, deduction, general limitation, general permission, income, matrimonial agreement, supplement,

Compare: 1994 No 164 s DJ 16

Subsection (1) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

DZ 2 Life insurers acquiring property before 1 April 1988

When this section applies
(1) This section applies when—
- (a) a life insurer started carrying on the business of providing life insurance on or before the last day of the 1988-89 income year; and
- (b) on the last day of the 1987-88 income year the life insurer's Life Insurance Fund covered some or all of the following matters:
  - (i) superannuation policies; and
  - (ii) pre-1983 mortgage repayment insurance policies; and
  - (iii) annuities that had been granted; and
- (c) the life insurer, as part of the business, acquired property before 1 April 1988; and
- (d) the life insurer, as part of the business, disposes of the property; and
- (e) either—
  - (i) the life insurer has not already been allowed a deduction for the property, whether under section DR 2 (Disposal of property) or any other provision; or
  - (ii) the life insurer has been allowed a deduction for the property, but only for an amount of depreciation loss or because of the application of the old financial arrangements rules or the financial arrangements rules; and
- (f) section DR 2 (Disposal of property) does not apply to the disposal.
Deduction

(2) The life insurer is allowed a deduction for the amount quantified in section EZ 1 (Life insurers acquiring property before 1 April 1988).

Meaning of superannuation policy
(3) Superannuation policy means a life insurance policy—
- (a) that—
  - (i) is vested in a superannuation fund that was or was treated as being a superannuation category 1 scheme on or before 17 December 1987, not including a scheme that was classified by the Government Actuary as a personal pension superannuation scheme and that admitted new members after 17 December 1987; or
  - (ii) was effected for the purposes of any such superannuation fund; or
  - (iii) was accepted by any such superannuation fund for the purposes of the fund; and
- (b) that has not ceased to be a policy for the purposes of the superannuation fund.
Link with subpart DA

(4) This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.

Defined in this Act: amount, business, capital limitation, deduction, depreciation loss, financial arrangements rules, general limitation, general permission, income year, life insurance, Life Insurance Fund, life insurance policy, life insurer, old financial arrangements rules, property, superannuation category 1 scheme, superannuation fund, superannuation policy, superannuation scheme,

Compare: 1994 No 164 ss DK 3C, OB 1 superannuation policy

DZ 3 Petroleum mining: development expenditure from 1 October 1990 to 15 December 1991

Deduction

(1) A petroleum miner is allowed a deduction for petroleum mining development expenditure incurred by them on or after 1 October 1990 and before or on 15 December 1991. This subsection is overridden by subsection (2).

Relationship with section DZ 4
(2) The petroleum miner is denied a deduction for petroleum mining development expenditure as described in subsection (1) if it has been deducted under—
- (a) section DZ 4; or
- (b) sections 214D to 214M of the Income Tax Act 1976 as they were immediately before their repeal by section 15 of the Income Tax Amendment Act (No 5) 1992.
Timing of deduction

(3) The deduction is allocated under section EZ 3 (Petroleum development expenditure from 1 October 1990 to 15 December 1991).

Meaning of petroleum mining development expenditure

(4) In this section, petroleum mining development expenditure has the same meaning as in section 214D of the Income Tax Act 1976 immediately before its repeal by section 15 of the Income Tax Amendment Act (No 5) 1992.

Link with subpart DA

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

Defined in this Act: deduction, general limitation, general permission, petroleum miner, petroleum mining development expenditure, supplement,

Compare: 1994 No 164 s DM 1(3)

DZ 4 Expenditure on abandoned exploratory well before 16 December 1991

Deduction
(1) A petroleum miner is allowed a deduction for expenditure that they incur before 16 December 1991 in drilling, testing, completing, and abandoning an exploratory well if—
- (a) the miner seals and abandons the well before commercial production from the well starts; and
- (b) the expenditure has not been deducted in any previous income year.
Sealing and abandoning well
(2) To seal and abandon an exploratory well, a petroleum miner must make a declaration under the Oaths and Declarations Act 1957 that they do not intend—
- (a) to use the exploratory well in petroleum mining operations; or
- (b) to apply for a mining licence over the area containing the exploratory well.
Timing of deduction

(3) The deduction is allocated to the income year in which the well is sealed and abandoned.

Link with subpart DA

(4) This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.

Defined in this Act: capital limitation, commercial production, deduction, exploratory well, general limitation, general permission, income year, mining licence, petroleum miner, petroleum mining operations, seal and abandonment,

Compare: 1994 No 164 ss DM 1(5)(c), OB 1 seal and abandonment

DZ 5 Farm-out arrangements for petroleum mining before 16 December 1991

Deduction: excess expenditure incurred before 16 December 1991

(1) A transferee under a farm-out arrangement is allowed a deduction of excess expenditure incurred before 16 December 1991 in a farm-out arrangement entered into before 16 December 1991, and for which a deduction has not been allowed in any previous income year. The deduction is allowed under section DT 1 (Petroleum exploration expenditure) or DT 5 (Petroleum development expenditure).

Deduction: excess expenditure incurred on or after 16 December 1991

(2) A transferee under a farm-out arrangement is allowed a deduction of excess expenditure incurred on or after 16 December 1991 in a farm-out arrangement entered into before 16 December 1991 if the expenditure has the character of exploratory well expenditure, petroleum exploration expenditure, or petroleum development expenditure. The deduction is allowed under section DT 1 (Petroleum exploration expenditure) or DT 5 to DT 7 (which relate to petroleum development expenditure) and quantified and allocated under whichever of sections EJ 11 to EJ 14 (which relate to petroleum mining) applies.

Reduction of deductions

(3) A transferor under a farm-out arrangement entered into before 16 December 1991 must reduce (but is denied as a deduction) the deductions described in subsection (4) by the amount determined under subsection (5).

Deductions to which subsection (3) applies
(4) The deductions to which subsection (3) applies are deductions for expenditure incurred before, on, or after 16 December 1991 that—
- (a) are not deductions of a kind referred to in subsection (5)(a) to (c); and
- (b) are attributable to—
  - (i) the petroleum permit to which the farm-out arrangement relates; and
  - (ii) a licence-specific asset or permit-specific asset held for conducting petroleum mining operations under the petroleum permit.
Amount of reduction
(5) The amount of the reduction under subsection (4), in an income year, is the same amount as would have been determined under section 214I(2) and (3) of the Income Tax Act 1976 immediately before its repeal by section 15 of the Income Tax Amendment Act (No 5) 1992, as if references in section 214I(2) and (3) to deferred deductions were references to any deductions, deferred or not, attributable to the relevant permit or asset, except deductions for—
- (a) residual expenditure; and
- (b) expenditure incurred on or before the date on which the application for a prospecting licence or prospecting permit for petroleum was submitted for the relevant licence area; and
- (c) expenditure that is neither petroleum exploration expenditure nor petroleum development expenditure.
Some definitions

(6) In subsections (2) to (5), excess expenditure, farm-out arrangement, licence-specific assets, permit-specific asset, transferee, and transferor have the same meanings as in section 214D of the Income Tax Act 1976 immediately before its repeal by section 15 of the Income Tax Amendment Act (No 5) 1992.

Link with subpart DA

(7) This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.

Defined in this Act: amount, capital limitation, deduction, excess expenditure, exploratory well expenditure, farm-out arrangement, general limitation, general permission, income year, licence-specific assets, permit-specific asset, petroleum, petroleum development expenditure, petroleum exploration expenditure, petroleum mining operations, petroleum permit, prospecting licence, prospecting permit, residual expenditure, supplement, transferee, transferor,

Compare: 1994 No 164 s DM 4(2), (3)

DZ 6 Partnership interests and disposal of part of asset before 16 December 1991

In sections DZ 3 to DZ 5, unless the context requires otherwise,—
- (a) a partner is treated as having a share or interest in a petroleum permit or other property of a partnership to the extent of their income interest in the partnership:
- (b) references to the disposal of an asset apply equally to the disposal of part of an asset.
Defined in this Act: dispose, income, petroleum permit,

Compare: 1994 No 164 ss DM 9, DM 10

Section DZ 6 was amended, as from 1 October 2005, by section 189 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “DZ 3” for the expression “DZ 2”.

Paragraph (a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “:” for the expression “; and”.

DZ 7 Petroleum mining operations outside New Zealand before 16 December 1991

Sections DZ 3 to DZ 6 apply, with any necessary modifications, to a petroleum miner undertaking petroleum mining operations that are—
- (a) outside New Zealand and undertaken through a branch or a controlled foreign company; and
- (b) substantially the same as the petroleum mining activities governed by this Act.
Defined in this Act: controlled foreign company, New Zealand, petroleum miner, petroleum mining operations,

Compare: 1994 No 164 s DM 7(1)

Section DZ 7 was amended, as from 1 October 2005, by section 190 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “DZ 3” for the expression “DZ 2”.

DZ 8 Buying patent rights before 1 April 1993

When this section applies

(1) This section applies when a person buys patent rights before 1 April 1993 and uses them in deriving their income. In this section, if the person dies after incurring expenditure on buying the rights, references to the person include their personal representative, a trustee of their estate, and a beneficiary of their estate.

Deduction

(2) The person is allowed a deduction of the amount quantified in section EZ 5(2) (Buying patent rights before 1 April 1993).

Link with subpart DA

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

Defined in this Act: amount, deduction, general limitation, general permission, income, patent rights, supplement, trustee,

Compare: 1994 No 164 s EZ 5(1), (3), (4)

DZ 9 Premium paid on land leased before 1 April 1993

When this section applies

(1) This section applies when a person (person A) leases land that they use in deriving their income and a grant or renewal of the lease occurs before 1 April 1993.

Deduction

(2) Person A is allowed a deduction of the amount quantified in section EZ 6(2) (Premium paid on land leased before 1 April 1993).

Link with subpart DA

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

Defined in this Act: amount, deduction, general limitation, general permission, income, lease, premium, supplement,

Compare: 1994 No 164 s EZ 6

DZ 10 General insurance with risk period straddling 1 July 1993

When this section applies
(1) This section applies when—
- (a) a company carries on a business of providing general insurance or guarantees against loss, damage, or risk, immediately before and on 1 July 1993; and
- (b) the company, as insurer, enters into an insurance contract for the general insurance in the course of carrying on the business outside New Zealand; and
- (c) the contract covers a period of risk starting before 1 July 1993 and ending after 1 July 1993.
No deduction (with exception)

(2) The company is denied a deduction for an amount payable under the contract unless the event giving rise to the payment occurs on or after 1 July 1993.

Link with subpart DA

(3) This section overrides the general permission.

Defined in this Act: amount, business, company, deduction, general insurance, general permission, insurance contract, New Zealand, pay, payment,

Compare: 1994 No 164 s CZ 6(c)(i), (ii), (vi)

DZ 11 Film reimbursement scheme on or before 30 June 2001

Film reimbursement scheme
(1) Section DS 3 (Clawback of deductions for film reimbursement schemes) does not apply to a deduction for expenditure that relates to a film and is incurred by a person (person A) under a film reimbursement scheme if—
- (a) the scheme is entered into on or before 30 June 2001; and
- (b) the film has, under section EJ 6 (Certification of New Zealand films),—
  - (i) a final certificate that it is a New Zealand film; or
  - (ii) a provisional certificate, not obtained by the provision of materially incorrect information to the New Zealand Film Commission, that it is a New Zealand film; and
- (c) the film had not been completed before 7 July 1999; and
- (d) before 7 July 1999,—
  - (i) 1 or more contracts had been entered into for the supply of goods or services in New Zealand in relation to the film; and
  - (ii) at least $1,000,000 of expenditure had been incurred under the contract or contracts; and
- (e) on or before 1 November 1999, a person who entered into a contract referred to in paragraph (d)(i) gave notice to the Commissioner that the requirements in paragraphs (c) and (d) were met; and
- (f) the expenditure for which persons are allowed a deduction under section DS 1 (Acquiring film rights) or DS 2 (Film production expenditure) is no more than 140% of the physical cost of production of the film; and
- (g) without limiting the application of section BG 1 (Tax avoidance), on the date the film reimbursement scheme is entered into, there is an expectation based on reasonable commercial assumptions that the income to be derived by person A as a result of the expenditure will be at least equal to the sum of—
  - (i) all expenditure incurred by person A under the scheme; and
  - (ii) a return on each amount of expenditure that is equivalent to the return on 5 year government stock measured on the date that the scheme is entered into; and
- (h) if the expenditure is incurred on depreciable intangible property of a kind listed in schedule 17 (Depreciable intangible property), the expenditure is an amount paid to person B in the circumstances described in subsection (2).
Circumstances for purposes of subsection (1)(h)
(2) For the purposes of subsection (1)(h), the circumstances are that—
- (a) the amount paid is income of person B; or
- (b) at all times in the tax year in which the payment is made, person B—
  - (i) is resident in a country or territory specified in schedule 3, part A (International tax rules: grey list countries); and
  - (ii) is liable to income tax in that country or territory by reason of domicile, residence, place of incorporation, or place of management in that country or territory; and
  - (iii) has calculated its income that is liable to income tax in that country or territory without applying a feature of the taxation law of the country or territory specified in schedule 3, part B (International tax rules: grey list countries).
Some definitions
(3) In this section,—

government stock means stock issued under Part 6 of the Public Finance Act 1989
physical cost of production means the expenditure incurred in producing a film, whether incurred in New Zealand or elsewhere, other than expenditure incurred—
- (a) in marketing or selling the film; and
- (b) on depreciable intangible property of a kind listed in schedule 17 (Depreciable intangible property).
Link with subpart DA

(4) This section overrides the general permission.

Defined in this Act: amount, Commissioner, completed, deduction, depreciable intangible property, film, film reimbursement scheme, general permission, government stock, income, income tax, New Zealand, notice, physical cost of production, tax year, year,

Compare: 1994 No 164 s EO 4A(2A), (2B), (8)

DZ 12 Mineral mining: 1954 to 2005

Section CU 4(1)(b)(ii)
(1) For the purposes of section CU 4(1)(b)(ii) (Compensation for lost, destroyed, or damaged assets),—
- (a) for a mining company, the deduction is under—
  - (i) section 153F of the Land and Income Tax Act 1954; or
  - (ii) section 27 of the Land and Income Tax Amendment Act 1971; or
  - (iii) section 216 of the Income Tax Act 1976; or
  - (iv) section DN 1(5) of the Income Tax Act 1994; and
- (b) for a resident mining operator or a non-resident mining operator, the deduction is under—
  - (i) section 153J of the Land and Income Tax Act 1954; or
  - (ii) section 31 of the Land and Income Tax Amendment Act (No 2) 1972; or
  - (iii) section 216 of the Income Tax Act 1976; or
  - (iv) section DN 1(5) of the Income Tax Act 1994.
Sections CU 11(1)(a)(ii) and DU 6(1)(a)(ii)
(2) For the purposes of sections CU 11(1)(a)(ii) (Meaning of asset for sections CU 3 to CU 10) and DU 6(1)(a)(ii) (Depreciation),—
- (a) for a mining company, the expenditure is that referred to in section 27(3)(a) of the Land and Income Tax Amendment Act 1971; and
- (b) for a resident mining operator or a non-resident mining operator,—
  - (i) the expenditure, for section CU 11(1)(a)(ii), is that referred to in paragraph (i) of item “a” of the formula in section 31(3) of the Land and Income Tax Amendment Act (No 2) 1972; and
  - (ii) the asset, for section DU 6(1)(a)(ii), is that referred to in paragraph (i) of item “a” of the formula in section 31(3) of the Land and Income Tax Amendment Act (No 2) 1972.
Section DU 12

(3) This subsection applies if section DU 12 (Amount written off by holding company) would have applied to a loan by a company to another company made on or before 31 March 1979 if the Income Tax Amendment Act 1979 had not been enacted. The section applies, as far as applicable, to such a loan as if section 45 of the Income Tax Amendment Act 1979 were the only provision of it that had been enacted.

Section DU 12(5)

(4) For the purposes of section DU 12(5) (Amount written off by holding company), if the holding company that made the loan was a mining holding company and made the loan wholly or partly out of payments that it received and for which any person was allowed a deduction under section 159 of the Income Tax Act 1976, the part of the amount calculated under section DU 12(3) that arises from those payments is reduced by one-third.

Defined in this Act: company, deduction, holding company, mining company, mining holding company, non-resident mining operator, resident mining operator,

Compare: 1994 No 164 ss DN 1(13)(a), DN 3(3), (11), DN 4(5), (7)

DZ 13 Enhancements to land unamortised at end of 2004-05 year

When this section applies
(1) This section applies when—
- (a) a person is allowed under section DO 4(1) of the Income Tax Act 1994 a deduction of an amount given by section DO 4(3)(a) or (c) of that Act for expenditure incurred in carrying on a farming or agricultural business on land in New Zealand; and
- (b) at the end of the 2004-05 income year, part of the expenditure (unamortised balance) remains to be allowed as a deduction in later income years
- (c) [Repealed]
Deduction can be claimed under sections DO 1 to DO 3

(2) The person is allowed a deduction for the unamortised balance of expenditure in the income year in which the expenditure is of benefit to the business.

Link with subpart DA

(3) This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.

Defined in this Act: capital limitation, deduction, general limitation, general permission, income year, supplement,

Subsection (1)(a) was substituted, as from 1 April 2005, by section 23(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Subsection (1)(b) was amended, as from 1 April 2005, by section 23(2) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “allowed as a deduction in later income years” for “claimed as a deduction in later income years; and” with application as from the 2005–06 income year.

Subsection (1)(c) was repealed, as from 1 April 2005, by section 23(3) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Subsection (2) was substituted, as from 1 April 2005, by section 23(4) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

DZ 14 Patent applications before 1 April 2005

When this section applies
(1) This section applies if—
- (a) a patent is granted to a person in their 2005–06 or later income year; and
- (b) the patent is granted in relation to a patent application owned by the person; and
- (c) the patent application, with a complete specification, was first lodged with the Intellectual Property Office of New Zealand or a similar office in another jurisdiction before 1 April 2005; and
- (d) a deduction for expenditure on the patent application is not allowed under another provision.
Calculation of deduction

(2) The person is allowed, in the income year in which the patent is granted, a deduction for expenditure on the patent application in any income year, calculated using the formula—

Definition of items in formula
(3) In the formula,—
- (a) cost means the cost to the person of the patent application:
- (b) months of ownership means the number of whole calendar months for which the person owns the patent application.
Link with subpart DA

(4) This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.

Defined in this Act: capital limitation, deduction, general limitation, general permission, income year,

Sections DZ 14 to DZ 17 were inserted, as from 1 April 2005, by section 27(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005-06 income year. See section 27(2) of that Act for the application.

DZ 15 Geothermal wells between 31 March 2003 and 17 May 2006

When this section applies
(1) This section applies to a person's geothermal well, if—
- (a) the well's geothermal energy proving period ends between 31 March 2003 and 17 May 2006; and
- (b) the well is—
  - (i) both started and completed between 31 March 2003 and 17 May 2006:
  - (ii) acquired between 31 March 2003 and 17 May 2006; and
- (c) a deduction for expenditure on the well is not allowed under any provision except this one.
Deduction

(2) The person is allowed, in the income year in which the well's geothermal energy proving period ends, a deduction for expenditure incurred on the well.

Link with subpart DA

(3) This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.

Defined in this Act: capital limitation, deduction, general limitation, general permission, geothermal energy proving period, geothermal well, income year, supplement,

Sections DZ 14 to DZ 17 were inserted, as from 1 April 2005, by section 27(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005-06 income year. See section 27(2) of that Act for the application.

DZ 16 Expenditure on improvements to aquacultural business before 1995-96 income year

When this section applies
(1) This section applies to a person and an income year and expenditure—
- (a) incurred before the 1995-96 income year in making an improvement for the purposes of an aquacultural business; and
- (b) for which the person would be allowed under section DO 6 (Improvements and aquacultural business) a deduction in the income year if the expenditure had been incurred in the 1995-96 income year or a later income year.
Deduction

(2) The person is allowed a deduction in the income year for the expenditure.

Amount of deduction

(3) The amount of the deduction is calculated using the formula—

125% x schedule percentage × diminished value.

Definition of items in formula
(4) In the formula,—
- (a) schedule percentage is the percentage set out opposite the description of the improvement in any of schedule 7, parts B to F, column 2 (Expenditure on farming, aquacultural, and forestry improvements):
- (b) diminished value means the diminished value of the improvement.
Link with subpart DA

(5) This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.

Defined in this Act: amount, business, capital limitation, deduction, diminished value, general limitation, general permission, income year,

Sections DZ 14 to DZ 17 were inserted, as from 1 April 2005, by section 27(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005-06 income year. See section 27(2) of that Act for the application.

DZ 17 Expenditure on improvements to forestry land before 1995-96 income year

When this section applies
(1) This section applies to a person and an income year and expenditure—
- (a) incurred before the 1995-96 income year in making an improvement on land; and
- (b) for which the person would be allowed under section DP 3 (Improvements to forestry land) a deduction in the income year if the expenditure had been incurred in the 1995-96 income year or a later income year.
Deduction

(2) The person is allowed a deduction in the income year for the expenditure.

Amount of deduction

(3) The amount of the deduction is calculated using the formula—

125% x schedule percentage × diminished value.

Definition of items in formula
(4) In the formula,—
- (a) schedule percentage is the percentage set out opposite the description of the improvement in schedule 7, part G, column 2 (Expenditure on farming, aquacultural, and forestry improvements):
- (b) diminished value means the diminished value of the improvement.
Link with subpart DA

(5) This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.

Defined in this Act: amount, business, capital limitation, deduction, diminished value, general limitation, general permission, income year,

Sections DZ 14 to DZ 17 were inserted, as from 1 April 2005, by section 27(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005-06 income year. See section 27(2) of that Act for the application.

Part E
Timing and quantifying rules

Subpart EA—Matching rules: revenue account property, prepayments, and deferred payments

EA 1 Trading stock, livestock, and excepted financial arrangements

EA 2 Other revenue account property

EA 3 Prepayments

EA 4 Deferred payment of employment income

Subpart EB—Valuation of trading stock (including dealer's livestock)

EB 1 When this subpart applies

EB 2 Meaning of trading stock

EB 3 Valuation of trading stock

EB 4 Trading stock valuation methods

EB 5 Transfers of trading stock within wholly-owned groups

Standard valuation

EB 6 Cost

EB 7 Cost allocation: cost-flow method

EB 8 Cost allocation: budgeted method or standard cost method

EB 9 Discounted selling price

EB 10 Replacement price

EB 11 Market selling value

EB 12 Valuing closing stock consistently

Low-turnover valuation

EB 13 Low-turnover valuation

EB 14 Low-turnover valuation methods

EB 15 Cost for low-turnover traders

EB 16 Cost allocation: cost-flow method for low-turnover traders

EB 17 Costs: manufactured or produced stock of low-turnover traders

EB 18 Costs: other stock of low-turnover traders

EB 19 Discounted selling price for low-turnover traders

EB 20 Replacement price for low-turnover traders

EB 21 Market selling value for low-turnover traders

EB 22 Valuing closing stock consistently for low-turnover traders

Low value trading stock

EB 23 Valuing closing stock under $5,000

Subpart EC—Valuation of livestock

EC 1 Application of this subpart

EC 2 Valuation of livestock

EC 3 Livestock valuation methods

EC 4 Value of livestock on death of person [Repealed]

EC 5 Transfers of livestock within wholly-owned groups

EC 5B Transfer of livestock because of self-assessed adverse event

Valuation of specified livestock

EC 6 Application of sections EC 7 to EC 27

EC 7 Valuation methods

EC 8 Restrictions on use of herd scheme

EC 9 Restrictions on use of national standard cost scheme

EC 10 Restrictions on use of cost price method

EC 11 Restrictions on making of elections

EC 12 Interests in livestock

EC 13 Changes in partnership interests

Herd scheme

EC 14 Herd scheme

EC 15 Determining national average market values

EC 16 Valuation under herd scheme

EC 17 Herd value ratio

EC 18 Inaccurate herd value ratio

EC 19 Chatham Islands adjustment to herd value

EC 20 Herd livestock disposed of before values determined

EC 21 Herd livestock on death before values determined

National standard cost scheme

EC 22 National standard cost scheme

EC 23 Determining national standard costs

EC 24 Methods for determining costs using national standard cost scheme

Other methods

EC 25 Cost price, replacement price, or market value

EC 26 Bailee's treatment of livestock

Valuation of non-specified livestock

EC 27 Some definitions

EC 28 Application of sections EC 29 to EC 31

EC 29 Determining standard values

EC 30 Closing value methods

EC 31 Enhanced production

Valuation of high-priced livestock

EC 32 Application of sections EC 33 to EC 37

EC 33 Determining depreciation percentages

EC 34 General rule

EC 35 Livestock reaching national average market value and livestock no longer used for breeding

EC 36 Immature livestock and recently bought livestock

EC 37 Bailment

Valuation of bloodstock

EC 38 Application of sections EC 39 to EC 48

EC 39 First income year in breeding business

EC 40 Later income years in breeding business

EC 41 Reduction: bloodstock not previously used for breeding in New Zealand

EC 42 Reduction: bloodstock previously used for breeding in New Zealand

EC 43 Accident, birth deformity, or infertility

EC 44 Other bloodstock

EC 45 Residual value of bloodstock

EC 46 Use of bloodstock for racing

EC 47 Change of use of bloodstock in course of business

EC 48 Replacement breeding stock

Subpart ED—Valuation of excepted financial arrangements

ED 1 Valuation of excepted financial arrangements

ED 2 Transfers of certain excepted financial arrangements within wholly-owned groups

Subpart EE—Depreciation

EE 1 What this subpart does

Meaning of own

EE 2 Nature of ownership of item

EE 3 Ownership of goods subject to reservation of title

EE 4 Ownership of lessee's improvements: lessee

EE 5 Ownership of lessee's improvements: other person

Meaning of depreciable property

EE 6 What is depreciable property?

EE 7 What is not depreciable property?

EE 8 Election that property not be depreciable

How amounts of depreciation loss and depreciation recovery income are calculated

EE 9 Description of elements of calculation

EE 10 Calculation rule: item temporarily not available

EE 11 Calculation rule: income year in which item disposed of

Methods

EE 12 Depreciation methods

Amount of depreciation loss under diminishing value method or straight-line method

EE 13 Application of sections EE 14 to EE 19

EE 14 Diminishing value or straight-line method: calculating amount of depreciation loss

EE 15 Amount of adjusted tax value

EE 16 Amount resulting from standard calculation

EE 17 Amount resulting from petroleum-related depreciable property calculation

EE 18 Cost: change from diminishing value to straight-line method

EE 19 Cost: fixed life intangible property

Amount of depreciation loss under pool method

EE 20 Application of sections EE 21 to EE 24

EE 21 Pool method: calculating amount of depreciation loss

EE 22 Cases affecting pool

EE 23 Combined pools

EE 24 Property ceasing to qualify for pool

EE 24B Depreciation loss for plant variety rights application upon grant of rights in 2005–06 or later income year

Depreciation rates

EE 25 Setting of economic depreciation rate

EE 25B Economic rate for certain depreciable property

EE 25C Economic rate for buildings

EE 25D Economic rate for certain aircraft and motor vehicles

EE 25E Economic rate for plant, equipment, or building, with high residual value

EE 26 Annual rate for item acquired in person's 1995-96 or later income year

EE 26B Election in respect of certain depreciable property acquired on or after 1 April 2005

EE 27 Annual rate for fixed life intangible property

EE 27B Annual rate for patent granted in 2005–06 or later income year

EE 27C Annual rate for patent applications lodged with complete specifications on or after 1 April 2005 [Repealed]

EE 27D Annual rate for patents: applications lodged with complete specifications on or after 1 April 2005 [Repealed]

EE 27E Annual rate for plant variety rights [Repealed]

EE 28 Special rate or provisional rate

EE 29 Using economic rate or provisional rate instead of special rate

Improvements, items of low value, or items no longer used

EE 30 Improvements

EE 31 Items of low value

EE 32 Items no longer used

Transfers of depreciable property: associated persons and non-qualifying amalgamations

EE 33 Transfer of depreciable property on or after 24 September 1997

EE 34 Transfer of depreciable property in non-qualifying amalgamation on or after 14 May 2002

EE 35 Transfer of radiocommunications licence right on or after 24 September 1997

EE 36 Transfer of depreciable intangible property on or after 1 July 1997

Disposals and similar events

EE 37 Application of sections EE 41 to EE 44

EE 38 Consideration for purposes of section EE 37

EE 39 Items for purposes of section EE 37

EE 40 Events for purposes of section EE 37

EE 41 Effect of disposal or event

EE 42 Amount of depreciation recovery income when item partly used for business

EE 43 Amount of depreciation recovery income when lost or stolen items recovered

EE 44 Amount of depreciation recovery income when compensation received

EE 44B Unused geothermal well brought into use

Interpretation provisions

EE 45 Cost: GST

Adjusted tax value

EE 46 Meaning of adjusted tax value

EE 47 Formula

EE 48 Base value in section EE 47 when none of sections EE 49, EE 50, and EZ 21(1) applies

EE 49 Base value in section EE 47 when no previous deduction

EE 50 Base value in section EE 47 when property is petroleum-related depreciable property

EE 51 Total deductions in section EE 47

EE 52 Meaning of annual rate

EE 53 Meaning of depreciable intangible property

EE 54 Meaning of estimated useful life

EE 55 Meaning of excluded depreciable property

EE 56 Meaning of maximum pooling value

EE 57 Meaning of poolable property

EE 58 Other definitions

Subpart EF—Taxes and levies

EF 1 Fringe benefit tax

EF 2 Specified superannuation contribution withholding tax

EF 3 ACC levies and premiums

EF 4 Use of money interest payable by Commissioner

EF 5 Use of money interest payable by person

EF 6 Different tax years

Subpart EG—Recognition of accounting treatment

EG 1 Election to use balance date used in foreign country

EG 2 Adjustment for changes to accounting practice

EG 3 Allocation of income and deductions by portfolio tax rate entity

Subpart EH—Income equalisation schemes

EH 1 Income equalisation schemes

EH 2 Income Equalisation Reserve Account

Main income equalisation scheme

EH 3 Persons to whom main income equalisation scheme applies

EH 5 Main income equalisation account

EH 4 Main deposit

EH 6 Interest on deposits in main income equalisation account

EH 7 Deduction of deposit

EH 8 Refund of excess deposit

EH 9 Income does not include excess deposit

EH 10 Refund at end of 5 years

EH 11 Income when refund given at end of 5 years

EH 12 Application for refund by person, trustee of estate, Official Assignee, or liquidator

EH 13 Refund on request

EH 14 Income when refund given on request

EH 15 Refund for development or recovery

EH 16 Income when refund given for development or recovery

EH 17 Refund on retirement

EH 18 Income when refund given on retirement, and election to allocate amount to earlier year

EH 19 Refund on death

EH 20 Income when refund given on death

EH 21 Income when refund given on death, and election to allocate amount to earlier year

EH 22 Income when refund given on death, and election to allocate amount to later year or years

EH 23 Refund on bankruptcy

EH 24 Income when refund given on bankruptcy

EH 25 Refund on liquidation

EH 26 Income when refund given on liquidation

EH 27 Amendment of assessment

EH 28 Minimum refund

EH 29 Deposits from which refunds come

Rebate of income tax

EH 30 When person entitled to rebate of income tax

EH 31 Kind and amount of refund that entitles person to rebate of income tax

EH 32 Kind of person entitled to rebate of income tax

EH 33 Amount of rebate of income tax

EH 34 Meaning of income from forestry

EH 35 Meaning of main maximum deposit

EH 36 Meaning of self-assessed adverse event [Repealed]

EH 37 Other definitions

Adverse event income equalisation scheme

EH 38 Persons to whom adverse event income equalisation scheme applies

EH 39 Adverse event deposit

EH 40 Adverse event income equalisation account

EH 41 Interest on deposits in adverse event income equalisation account

EH 42 Deduction of deposit

EH 43 Refund of excess deposit

EH 44 Income does not include excess deposit

EH 45 Application for refund by person, trustee of estate, Official Assignee, or liquidator

EH 46 Refund on request

EH 47 Income when refund given on request

EH 48 Refund on retirement

EH 49 Income when refund given on retirement, and election to allocate amount to earlier year

EH 50 Refund on death

EH 51 Income when refund given on death

EH 52 Income when refund given on death, and election to allocate amount to earlier year

EH 53 Income when refund given on death, and election to allocate amount to later year or years

EH 54 Refund on bankruptcy

EH 55 Income when refund given on bankruptcy

EH 56 Refund on liquidation

EH 57 Income when refund given on liquidation

EH 58 Amendment of assessment

EH 59 Minimum refund

EH 60 Deposits from which refunds come

Transfers

EH 61 Transfer of deposit

EH 62 Meaning of adverse event maximum deposit

EH 63 Meaning of self-assessed adverse event [Repealed]

EH 64 Other definitions

Thinning operations income equalisation scheme

EH 65 Persons to whom thinning operations income equalisation scheme applies

EH 66 Thinning operations deposit

EH 67 Thinning operations income equalisation account

EH 68 Interest on deposits in thinning operations income equalisation account

EH 69 Deduction of deposit

EH 70 Refund of excess deposit

EH 71 Income does not include excess deposit

EH 72 Application for refund by person or liquidator

EH 73 Refund on request

EH 74 Income when refund given on request

EH 75 Refund for development or recovery

EH 76 Income when refund given for development or recovery

EH 77 Refund on liquidation

EH 78 Income when refund given on liquidation

Refunds: general provisions, and rebate of income tax

EH 79 Sections of main income equalisation scheme that apply to thinning operations income equalisation scheme

EH 80 Meaning of thinning operations maximum deposit

EH 81 Other definitions

Subpart EI—Spreading of specific income

Farming and forestry

EI 1 Spreading backward of income from timber

Inflation-indexed instruments

EI 2 Interest from inflation-indexed instruments

Intellectual property

EI 3 Assigning or granting copyright

EI 3B Spreading income from patent rights

Land

EI 4 Amount paid to lessor for non-compliance with covenant for repair

EI 5 Amount paid for non-compliance: when lessor ceases to own land

EI 6 Leases: income derived in anticipation

EI 7 Disposal of land to Crown

Shareholder-employees

EI 8 Matching rule for employment income of shareholderemployee

Subpart EJ—Spreading of specific expenditure

Farming and forestry

EJ 1 Spreading backward of deductions for costs of timber

EJ 2 Spreading forward of deductions for repairs to fishing boats

EJ 3 Spreading forward of fertiliser expenditure

Films

EJ 4 Expenditure incurred in acquiring film rights in feature films

EJ 5 Expenditure incurred in acquiring film rights in films other than feature films

EJ 6 Certification of New Zealand films

EJ 7 Film production expenditure for New Zealand films

EJ 8 Film production expenditure for films other than New Zealand films

EJ 9 Personal property lease payments

EJ 10 Amount paid by lessee for non-compliance with covenant for repair

EJ 11 Petroleum development expenditure

EJ 12 Relinquishing petroleum permit

EJ 13 Disposal of petroleum mining asset

EJ 14 Disposal of petroleum mining asset to associate

EJ 15 Partnership interests and disposal of part of asset

EJ 16 Petroleum mining operations outside New Zealand

EJ 17 Meaning of offshore development

EJ 18 Meaning of onshore development

EJ 19 Contributions to employees' superannuation schemes

Research, development, and resulting market development

EJ 20 Deductions for market development—product of research, development

EJ 21 Allocation of deductions for research, development, and resulting market development

Subpart EK—Environmental restoration accounts

EK 1 Environmental Restoration Funds Account

EK 2 Persons who may make payment to environmental restoration account

EK 3 Payments to environmental restoration account

EK 4 Environmental restoration account

EK 5 Details to be provided with payment to environmental restoration account

EK 6 Interest on payments to environmental restoration account

EK 7 Deduction for payment

EK 8 Deduction for transfer

EK 9 Refund of payment if excess, lacking details

EK 10 Certain refunds not income

EK 11 Application for refund

EK 12 Refund if request or excess balance

EK 13 Income when refund given on request

EK 14 Application for transfer

EK 15 Transfer on request

EK 16 Transfer on death, bankruptcy, or liquidation

EK 17 Minimum refund or transfer

EK 18 Payments from which refunds come

EK 19 Environmental restoration account of amalgamating company

EK 20 Environmental restoration account of member of consolidated group

EK 21 Commissioner may require notice in electronic format

EK 22 Meaning of maximum payment

EK 23 Other definitions

Subpart EW—Financial arrangements rules

EW 1 What this subpart does

EW 2 Relationship of financial arrangements rules with other provisions

Meaning of financial arrangement and excepted financial arrangement

EW 3 What is a financial arrangement?

EW 4 What is not a financial arrangement?

EW 5 What is an excepted financial arrangement?

EW 6 Relationship between financial arrangements and excepted financial arrangements

EW 7 Change from private or domestic purpose

EW 8 Election to treat certain excepted financial arrangements as financial arrangements

Application of financial arrangements rules

EW 9 Persons to whom financial arrangements rules apply

EW 10 Financial arrangements to which financial arrangements rules apply

EW 11 What financial arrangements rules do not apply to

Calculation and allocation of income and expenditure over financial arrangement's term

EW 12 When use of spreading method required

EW 13 When use of spreading method not required

EW 14 What spreading methods do

EW 15 What is included when spreading methods used

EW 16 Yield to maturity method or alternative

EW 17 Straight-line method

EW 18 Market valuation method

EW 19 Choice among first 3 spreading methods

EW 20 Determination method or alternative

EW 21 Financial reporting method

EW 22 Default method

EW 23 Failure to use method for financial reporting purposes

EW 24 Consistency of use of spreading method

EW 25 Consistency of use of straight-line method and market valuation method

EW 26 Change of spreading method

EW 27 Spreading method adjustment formula

Calculation and allocation of income and expenditure when rights and obligations under financial arrangement cease

EW 28 How base price adjustment calculated

EW 29 When calculation of base price adjustment required

EW 30 When calculation of base price adjustment not required

EW 31 Base price adjustment formula

Consideration

Consideration when financial arrangement involves property or services

EW 32 Consideration for agreement for sale and purchase of property or services, hire purchase agreement, specified lease, or finance lease

EW 33 Consideration for hire purchase agreement or finance lease

EW 34 Consideration in foreign currency

EW 35 Value relevant for non-financial arrangements rule

Consideration treated as paid to person

EW 36 Consideration when person exits from rules: accrued entitlement

EW 37 Consideration when person enters rules: accrued obligation

EW 38 Consideration when disposal for no, or inadequate, consideration

EW 39 Consideration treated as paid to person on distribution in kind [Repealed]

EW 40 Consideration affected by unfavourable factors

Consideration treated as paid by person

EW 41 Consideration when person exits from rules: accrued obligation

EW 42 Consideration when person enters rules: accrued entitlement

EW 43 Consideration when acquisition for no, or inadequate, consideration

EW 44 Consideration treated as paid by person on distribution in kind [Repealed]

EW 45 Consideration when debt sold at discount to associate of debtor

EW 46 Consideration when debt forgiven for natural love and affection

EW 47 Consideration when debtor released from obligation

EW 47B Consideration when debtor released as condition of new start grant

Consideration when legal defeasance has occurred

EW 48 Legal defeasance

Consideration when anti-avoidance provision applies

EW 49 Anti-avoidance provisions

Income and deduction provisions specifically related to financial arrangements

EW 50 Income and deduction when debt sold at discount to associate of debtor

EW 51 Income when debt forgiven to trustee

EW 52 Deduction for security payment

Treatment of original share acquired under financial arrangement

EW 52B Share supplier under share-lending arrangement

One kind of avoidance

EW 53 Adjustment required

Application of financial arrangements rules to cash basis persons

EW 54 Meaning of cash basis person

EW 55 Effect of being cash basis person

EW 56 Natural person

EW 57 Thresholds

EW 58 Financial arrangements, income, and expenditure relevant to criteria

EW 59 Exclusion by Commissioner

EW 60 Trustee of deceased's estate

EW 61 Election to use spreading method

EW 62 When and how calculation of cash basis adjustment required

EW 63 Cash basis adjustment formula

Subpart EX—Controlled foreign company and foreign investment fund rules

Controlled foreign company rules

When is a company a controlled foreign company?

EX 1 Meaning of CFC

Calculation of person's control interest

EX 2 Four categories for calculating control interests

EX 3 Control interest: total of direct, indirect, and associated person interests

EX 4 Limits to requirement to include associated person interests

EX 5 Direct control interests

EX 6 Direct control interests include options and similar rights

EX 7 Indirect control interests

Calculation of person's income interest

EX 8 Income interests: total of direct and indirect interests

EX 9 Direct income interests

EX 10 Indirect income interests

EX 11 Options and similar rights in certain cases

EX 12 Reduction of total income interests

EX 13 Income interests of partners

Ten percent threshold and variations in income interest level

EX 14 Attribution: 10% threshold

EX 15 Associates and 10% threshold

EX 16 Income interests for certain purposes

EX 17 Income interest if variations within period

Calculation of attributed CFC income or loss

EX 18 Formula for calculating attributed CFC income or loss

EX 19 Taxable distribution from non-qualifying trust

EX 20 Reduction in attributed CFC loss

Calculation of branch equivalent income or loss

EX 21 Branch equivalent income or loss: calculation rules

Grey list exemption

EX 22 Unqualified grey list CFCs

EX 23 Tax concession grey list CFCs

Residence of companies

EX 24 Residence in grey list country

EX 25 Companies moving to or from New Zealand

Change of CFC's balance date

EX 26 Change of CFC's balance date

Ownership measurement concession

EX 27 Use of quarterly measurement

Anti-avoidance rule: stapled stock

EX 28 Anti-avoidance rule: stapled stock

What is a foreign investment fund?

EX 29 Meaning of FIF

Attributing interests in FIFs

EX 30 Attributing interests in FIFs

EX 31 Direct income interests in FIFs

EX 32 CFC rules exemption

EX 33 Exemptions: direct income interests in FIF in grey list country

EX 33B Exemptions limited by income years: shares in certain grey list companies

EX 33C Exemption: shares in listed Australian company

EX 33D Exemption: units in certain Australian unit trusts

EX 33E Australian superannuation fund exemption

EX 34 Foreign exchange control exemption

EX 35 Income interest of non-resident or transitional resident

EX 36 New resident's accrued superannuation entitlement exemption

EX 37 Non-resident's pension or annuity exemption

Calculation of FIF income or loss

EX 38 Six calculation methods

EX 39 Exclusion of amounts of death benefit

EX 40 Limits on choice of calculation methods

EX 40B Use of particular calculation methods required

EX 41 Default calculation method

EX 42 Accounting profits method

EX 43 Branch equivalent method

EX 44 Comparative value method

EX 44B Fair dividend rate method

EX 44C Fair dividend rate method: usual method

EX 44D Fair dividend rate method: method for entities that value investors' units

EX 44E Fair dividend rate method and cost method: calculating items in formulas for periods affected by share reorganisations

EX 45 Deemed rate of return method

Additional FIF income or loss if CFC owns FIF

EX 45B Cost method

EX 46 Additional FIF income or loss if CFC owns FIF

Relationship with other provisions in Act

EX 47 Codes: comparative value method, deemed rate of return method, fair dividend rate method, and cost method

EX 48 Top-up FIF income: deemed rate of return method

EX 49 Top-up FIF income: 1 April 1993 uplift interests

Changing calculation method

EX 50 Limits on changes of method

EX 51 Consequences of changes in method

Cases of entry into and exit from FIF rules

EX 52 Migration of persons holding FIF interests

EX 53 Changes in application of FIF exemptions

EX 54 FIFs migrating from New Zealand

EX 54B FIF rules first applying to interest for income year beginning on or after 1 April 2007

EX 55 Death of persons holding FIF interests [Repealed]

Measurement of cost

EX 56 Measurement of cost

Change of FIF's balance date

EX 57 Change of FIF's balance date

Market value rules

EX 58 Market value of life policy and superannuation entitlements

EX 59 Non-market transactions in FIF interests

Commissioner's default assessment power

EX 60 Commissioner's default assessment power

Subpart EY—Life insurance rules

EY 1 What this subpart does

EY 2 Matters to which this subpart relates

EY 3 Meaning of actuarial reserves

EY 4 Actuarial reserves: calculation

EY 5 Actuarial reserves: actuary's declaration

EY 6 Actuarial reserves: powers of Commissioner

EY 7 Meaning of claim

EY 8 Meaning of life insurance

EY 9 Meaning of life insurance policy

EY 10 Meaning of life insurer

EY 11 Meaning of life reinsurance

EY 12 Meaning of life reinsurance policy

EY 13 Life insurance and life reinsurance: how sections relate

Premium loading

EY 14 How premium loading is calculated

EY 15 Premium loading: when life insurers providing life insurance at start of income year

EY 16 Premium loading: when life insurers not providing life insurance at start of income year

EY 17 Premium loading formulas

EY 18 Premium loading formulas: when life insurers not providing life insurance at start of income year

EY 19 Premium loading formulas: option when more than 1 life insured

EY 20 Premium loading formula (life): when annuity payable on death

EY 21 Premium loading formulas: when annuity payable on survival to date or age specified in policy

EY 22 Premium loading formula (life): when partial reinsurance exists

EY 23 Premium loading formulas: individual result may never be negative

Mortality profit

EY 24 How mortality profit is calculated

EY 25 Mortality profit: when life insurers providing life insurance at start of income year

EY 26 Mortality profit: when life insurers not providing life insurance at start of income year

EY 27 Mortality profit formula

EY 28 Mortality profit formula: when life insurers not providing life insurance at start of income year

EY 29 Mortality profit formula: option when more than 1 life insured

EY 30 Mortality profit formula: when annuity payable on death

EY 31 Mortality profit formula: when partial reinsurance exists

EY 32 Mortality profit formula: individual result may be negative only in some cases

EY 33 Mortality profit formula: negative result

Discontinuance profit

EY 34 How discontinuance profit is calculated

EY 35 Discontinuance profit for income year

EY 36 Discontinuance profit formula (existing policies)

EY 37 Discontinuance profit formula (new policies)

EY 38 Discontinuance profit formula (existing policies): when partial reinsurance exists

EY 39 Discontinuance profit formula (new policies): when partial reinsurance exists

EY 40 Discontinuance profit formulas: individual result may never be negative

Policyholder income

EY 41 How policyholder income is calculated

EY 42 Policyholder income formula

EY 43 Policyholder income formula: when partial reinsurance exists

EY 44 Policyholder income formula: when life insurance business transferred

Disposal of property

EY 45 Income from disposal of property

EY 46 Deductions for disposal of property

Non-resident life insurers

EY 47 Non-resident life insurers with life insurance policies in New Zealand

EY 48 Non-resident life insurer may become resident

Subpart EZ—Terminating provisions

Life insurance

EZ 1 Life insurers acquiring property before 1 April 1988

EZ 2 Deductions for disposal of property: 1982-83 and 1989-90 income years

EZ 3 Petroleum development expenditure from 1 October 1990 to 15 December 1991

Livestock

EZ 4 Valuation of livestock bailed or leased as at 2 September 1992

EZ 4B Reduction: bloodstock not previously used for breeding in New Zealand: pre-1 August 2006

EZ 4C Reduction: broodmare previously used for breeding in New Zealand: pre-1 August 2006

Patent rights

EZ 5 Buying patent rights before 1 April 1993

Leases of land

EZ 6 Premium paid on land leased before 1 April 1993

EZ 8 Pool method for items accounted for by globo method for 1992-93 income year

EZ 7 FIF interests held on 1 April 1993 [Repealed]

Depreciation

EZ 9 Pool items accounted for by globo method for 1992-93 income year

EZ 10 Amounts of depreciation recovery income and depreciation loss for part business use in or before 1992-93 income year

EZ 11 Amount of depreciation loss for item acquired from associated person on or before 23 September 1997

EZ 12 Annual rate for item acquired on or after 1 April 1993 and before end of person's 1994-95 income year

EZ 13 Pre-1993 depreciation rate

EZ 14 Annual rate for excluded depreciable property: 1992-93 tax year

EZ 15 Amount of depreciation loss for plant or machinery additional to section EZ 14 amount

EZ 16 Additional amount of depreciation loss: between 16 December 1991 and 1 April 1994

EZ 17 Section EZ 16 amount of depreciation loss when items transferred between companies in wholly-owned group before 1 April 1993

EZ 18 Section EZ 16 amount of depreciation loss when person previously exempt from tax acquires item

EZ 19 Adjusted tax value for software acquired before 1 April 1993

EZ 20 Sections EE 38 and EE 40: permanent removal: allowance before 1 April 1995

EZ 21 Base value and total deductions in section EE 47: before 1 April 1995

EZ 21B Economic rate for plant or equipment acquired before 1 April 2005 and buildings acquired before 19 May 2005

EZ 22 Meaning of new asset

EZ 23 Meaning of New Zealand-new asset

EZ 24 Meaning of qualifying capital value

EZ 25 Meaning of qualifying improvement

EZ 26 Meaning of qualifying asset

Accident insurance

EZ 27 Private insurers under Accident Insurance Act 1998

EZ 28 Base premium for 1998-99 premium year under Accident Insurance Act 1998

CFC and FIF rules

EZ 29 Disclosure restrictions on grey list CFCs before 2011–12

Old financial arrangements rules

EZ 30 Application of old financial arrangements rules

EZ 31 Election to apply financial arrangements rules in subpart EW

EZ 32 Accruals in relation to income and expenditure in respect of financial arrangements

EZ 33 Excepted financial arrangement that is part of financial arrangement

EZ 34 Cash basis holder

EZ 35 Income and expenditure where financial arrangement redeemed or disposed of

EZ 36 Forgiveness of debt

EZ 37 Accrued income written off

EZ 38 Sale of debt to associate of debtor

EZ 39 Post facto adjustment

EZ 40 Variable principal debt instruments

EZ 41 Relationship with rest of Act

EZ 42 Application of old financial arrangements rules

EZ 43 Election to treat short term trade credit as financial arrangement

EZ 44 Election to continue to treat certain excepted financial arrangements as financial arrangements

EZ 45 Definitions

EZ 46 Determination of core acquisition price where consideration for property denominated in foreign currency

EZ 47 Rules for non-market transactions

EZ 48 Transitional adjustment when changing to financial arrangements rules

EZ 49 References to new rules include old rules

Subpart EA—Matching rules: revenue account property, prepayments, and deferred payments

EA 1 Trading stock, livestock, and excepted financial arrangements

EA 2 Other revenue account property

EA 3 Prepayments

EA 4 Deferred payment of employment income

EA 1 Trading stock, livestock, and excepted financial arrangements

Property subject to matching rules
(1) The matching rules described in this section apply to each of the following kinds of property:
- (a) trading stock valued under subpart EB (Valuation of trading stock (including dealer's livestock)):
- (b) livestock valued under subpart EC (Valuation of livestock):
- (c) excepted financial arrangements that are revenue account property valued under subpart ED (Valuation of excepted financial arrangements):
- (d) a share supplier's share-lending right, if the original shares that relate to the right are excepted financial arrangements described in paragraph (c).
Application of section CH 1

(2) When a person has any of those kinds of property at the end of an income year, its value is income of the person in the income year under section CH 1 (Adjustment for closing values of trading stock, livestock, and excepted financial arrangements).

Application of section DB 40

(3) When a person has any of those kinds of property at the start of an income year, they are allowed a deduction for its value in the income year under section DB 40 (Adjustment for opening values of trading stock, livestock, and excepted financial arrangements).

Determination of values
(4) The values are determined under—
- (a) section EB 3 (Valuation of trading stock); and
- (b) section EC 2 (Valuation of livestock); and
- (c) section ED 1 (Valuation of excepted financial arrangements).
Defined in this Act: deduction, excepted financial arrangement, income, income year, original share, revenue account property, share-lending right, share supplier, trading stock,

Compare: 1994 No 164 s EE 2(2), (4)

Subsection (1)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (1)(c) was amended, as from 1 July 2006, by section 59(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “arrangements):” for “arrangements).”.

Subsection (1)(d) was inserted, as from 1 July 2006, by section 59(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

The list of defined terms was amended, as from 1 July 2006, by section 59(2)(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “original share”..

The list of defined terms was amended, as from 1 July 2006, by section 59(2)(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “share-lending right”..

The list of defined terms was amended, as from 1 July 2006, by section 59(2)(c) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “share supplier”..

EA 2 Other revenue account property

When this section applies
(1) This section applies to revenue account property that is not—
- (a) trading stock valued under subpart EB (Valuation of trading stock (including dealer's livestock)):
- (b) livestock valued under subpart EC (Valuation of livestock):
- (c) an excepted financial arrangement valued under subpart ED (Valuation of excepted financial arrangements):
- (d) a film or a film right to which sections EJ 4 to EJ 8 (which relate to films) apply:
- (e) property that arises as a result of petroleum development expenditure or petroleum exploration expenditure to which sections EJ 11 to EJ 18 (which relate to petroleum mining) apply:
- (f) a specified lease or a lease to which section EJ 9 (Personal property lease payments) applies:
- (g) a financial arrangement valued under subpart EW (Financial arrangements rules).
Timing of deduction
(2) A deduction for the cost of revenue account property of a person is allocated to the earlier of—
- (a) the income year in which the person disposes of the property; and
- (b) the income year in which the property ceases to exist.
Defined in this Act: deduction, excepted financial arrangement, film, film right, financial arrangement, income year, lease, petroleum development expenditure, petroleum exploration expenditure, revenue account property, specified lease, trading stock,

Compare: 1994 No 164 s EF 2(1), (2)

Subsection (1)(a) to (f) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

EA 3 Prepayments

When this section applies
(1) This section applies when—
- (a) a person has been allowed a deduction for expenditure under this Act or an earlier Act; and
- (b) the expenditure was not incurred on the items described in subsection (2); and
- (c) some or all of the expenditure is unexpired under subsections (4) to (7) at the end of the person's income year.
Exclusions
(2) This section does not apply to expenditure incurred on—
- (a) revenue account property to which section EA 2 applies:
- (b) trading stock valued under subpart EB (Valuation of trading stock (including dealer's livestock)):
- (c) livestock valued under subpart EC (Valuation of livestock):
- (d) an excepted financial arrangement valued under subpart ED (Valuation of excepted financial arrangements):
- (e) a film or a film right to which sections EJ 4 to EJ 8 (which relate to films) apply:
- (f) property that arises as a result of petroleum development expenditure or petroleum exploration expenditure to which sections EJ 11 to EJ 18 (which relate to petroleum mining) apply:
- (g) a specified lease or a lease to which section EJ 9 (Personal property lease payments) applies:
- (h) a financial arrangement valued under subpart EW (Financial arrangements rules).
Unexpired portion
(3) The unexpired portion of a person's expenditure at the end of an income year—
- (a) is income of the person in the income year under section CH 2 (Adjustment for prepayments); and
- (b) is an amount for which the person is allowed a deduction in the following income year under section DB 41 (Adjustment for prepayments).
Unexpired portion: expenditure on goods
(4) An amount of expenditure on goods is unexpired at the end of an income year if, by the end of the income year,—
- (a) the person has not used up the goods in deriving income; and
- (b) the goods are not destroyed or rendered useless for the purpose of deriving income.
Unexpired portion: expenditure on services

(5) An amount of expenditure on services is unexpired at the end of an income year if the services have not been performed by the end of the income year.

Unexpired portion: expenditure on choses in action

(6) An amount of expenditure on a chose in action is unexpired at the end of an income year if the amount relates to a period of enforceability of the chose in action falling after the income year.

Allowances reimbursing employees

(7) In the case of expenditure subject to sections CW 13 (Expenditure on account, and reimbursement, of employees) and CW 14 (Allowance for additional transport costs), this section applies on the basis that the relevant services were performed in the income year in which the employee's expenditure is expected to occur.

Commissioner's discretionary relief

(8) The Commissioner may excuse a person from complying with this section under section 91AAC of the Tax Administration Act 1994.

Defined in this Act: amount, Commissioner, deduction, employee, film, film right, goods, income, income year, revenue account property, services,

Compare: 1994 No 164 s EF 1(1)-(4), (5)(a), (b), (d), (5A)

Subsection (2)(a) to (g) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (4) (except the heading) was substituted, as from 1 October 2005, by section 191 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subsection (8) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “91AAC” for “91AAA”.

EA 4 Deferred payment of employment income

When this section applies
(1) This section applies when—
- (a) a person is allowed a deduction in an income year for an amount of expenditure on employment income; and
- (b) the person has not paid the amount at the end of—
  - (i) the 63rd day after the end of the income year; or
  - (ii) the period described in subsection (3), for employment income paid to a shareholder-employee.
Unpaid amount
(2) The unpaid amount is—
- (a) income of the person in the income year under section CH 3 (Adjustment for deferred payment of employment income); and
- (b) an amount for which the person is allowed a deduction in the following income year under section DB 42 (Adjustment for deferred payment of employment income).
Extension of payment period for shareholder-employee

(3) For employment income paid to a shareholder-employee, the 63 day period for payment in subsection (1)(b)(i) is extended until the last date by which the person could file a return of income for the income year if the time for filing were extended to its maximum under section 37(5) of the Tax Administration Act 1994.

Sale of business: obligations transferred to non-associates
(4) For the purposes of this section, a person (seller) who sells a business, or a part of a business, to another person (buyer) is treated as paying, at the time of the sale, an amount of employment income of an employee working in the business if—
- (a) the seller and the buyer are not associated persons at the time of the sale; and
- (b) the seller has incurred the obligation to pay the amount in the course of their business; and
- (c) the employee becomes an employee of the buyer under the sale arrangements; and
- (d) the seller and the buyer agree in writing, under the sale arrangements, that—
  - (i) the buyer assumes the obligation to pay an amount of employment income to the employee; and
  - (ii) the consideration payable by the buyer for the business, or the part of the business, reflects the buyer's assumption of the obligation.
Sale of business: obligations transferred to associates
(5) If subsection (4) would have applied but for the fact that the seller and the buyer are associated at the time of the sale,—
- (a) the amount of employment income is not treated as income of the seller in any income year following the sale, despite subsection (2)(a) and section CH 3 (Adjustment for deferred payment of employment income); and
- (b) the seller is denied a deduction for the amount of employment income in any income year following the sale, despite subsection (2)(b) and section DB 42 (Adjustment for deferred payment of employment income); and
- (c) the buyer may be allowed a deduction under section DC 9(3) (Sale of business: transferred employment income obligations).
No sale: obligations transferred to associates
(6) If section DC 10 (Transfers of employment income obligations to associates) applies,—
- (a) the amount of employment income is not treated as income of the transferor (person A) in any income year following the sale, despite subsection (2)(a) and section CH 3 (Adjustment for deferred payment of employment income); and
- (b) the transferor is denied a deduction for the amount of employment income in any income year following the sale, despite subsection (2)(b) and section DB 42 (Adjustment for deferred payment of employment income); and
- (c) the transferee (person B) may be allowed a deduction under section DC 10 (Transfers of employment income obligations to associates).
Accounting treatment of transferred obligations
(7) For the purposes of this section, the buyer of a business, or a part of a business, who assumes at the time of the sale an obligation to pay an amount of employment income—
- (a) may account for the amount in a way that treats the relevant employee individually or treats the buyer's employees as a group; and
- (b) must account for the amount in the same way in each relevant income year.
Defined in this Act: amount, arrangement, associated person, business, deduction, employee, employment income, income, income year, return of income, shareholder-employee, time of the sale,

Compare: 1994 No 164 ss DF 11(3), EF 1(5)(c), (6), (6A), EF 1A

Subpart EB—Valuation of trading stock (including dealer's livestock)

EB 1 When this subpart applies

EB 2 Meaning of trading stock

EB 3 Valuation of trading stock

EB 4 Trading stock valuation methods

EB 5 Transfers of trading stock within wholly-owned groups

Standard valuation

EB 6 Cost

EB 7 Cost allocation: cost-flow method

EB 8 Cost allocation: budgeted method or standard cost method

EB 9 Discounted selling price

EB 10 Replacement price

EB 11 Market selling value

EB 12 Valuing closing stock consistently

Low-turnover valuation

EB 13 Low-turnover valuation

EB 14 Low-turnover valuation methods

EB 15 Cost for low-turnover traders

EB 16 Cost allocation: cost-flow method for low-turnover traders

EB 17 Costs: manufactured or produced stock of low-turnover traders

EB 18 Costs: other stock of low-turnover traders

EB 19 Discounted selling price for low-turnover traders

EB 20 Replacement price for low-turnover traders

EB 21 Market selling value for low-turnover traders

EB 22 Valuing closing stock consistently for low-turnover traders

Low value trading stock

EB 23 Valuing closing stock under $5,000

Introductory provisions

EB 1 When this subpart applies

This subpart applies when a person who owns or carries on a business has trading stock for the purpose of selling or exchanging it in the ordinary course of the business.

Defined in this Act: business, trading stock,

Compare: 1994 No 164 s EE 1

EB 2 Meaning of trading stock

Meaning

(1) In the provisions referred to in paragraph (a) of the definition of trading stock in section OB 1 (Definitions), trading stock means property that a person who owns or carries on a business has for the purpose of selling or exchanging in the ordinary course of the business.

Inclusions
(2) Trading stock includes—
- (a) work of the following kinds that would be trading stock under subsection (1) if it were completed:
  - (i) partly completed work:
  - (ii) work in progress:
- (b) materials that the person has for use in producing trading stock:
- (c) property on which the person has incurred expenditure, when the property would, if they had it, be trading stock under subsection (1) or paragraph (a) or (b):
- (d) property leased under a hire purchase agreement when the property—
  - (i) is treated as having been acquired by the lessor under section FC 10(2) (Taxation of hire purchase agreements); and
  - (ii) is an asset of a business that the lessor carries on.
Exclusions
(3) Trading stock does not include—
- (a) land:
- (b) depreciable property:
- (c) a financial arrangement to which the financial arrangements rules or the old financial arrangements rules apply:
- (d) an excepted financial arrangement that a life insurer has:
- (db) an excepted financial arrangement held by a person if section CX 44C (Proceeds from disposal of certain shares by portfolio investment entities or New Zealand Superannuation Fund) applies to the income of the person from a disposal of the excepted financial arrangement:
- (e) livestock not used in a dealing business:
- (f) consumable aids to be used in the process of producing trading stock:
- (g) a spare part not held for sale or exchange.
Defined in this Act: business, depreciable property, excepted financial arrangement, financial arrangement, hire purchase agreement, land, lessor, life insurer, trading stock,

Compare: 1994 No 164 ss DK 3E, EE 4, OB 1 trading stock

Subsection (2)(a)(i) and (ii) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (2)(b) and (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (3)(a) to (f) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Section EB 2(3)(db): amended, on 1 October 2007, by section 13 of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section EB 2(3)(db): inserted, on 1 October 2007, by section 28 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

EB 3 Valuation of trading stock

Valuation method

(1) A person who carries on a business must determine the value of their trading stock at the end of each income year by a method that is available under this subpart for them to use.

Use of value
(2) The value determined under subsection (1) is—
- (a) the closing value of the trading stock for the income year for the purposes of section CH 1 (Adjustment for closing values of trading stock, livestock, and excepted financial arrangements); and
- (b) the opening value of the trading stock for the next income year for the purposes of section DB 40 (Adjustment for opening values of trading stock, livestock, and excepted financial arrangements).
Excepted financial arrangements valued at cost

(3) Despite anything in this subpart, the value of any trading stock that is an excepted financial arrangement must be determined under subpart ED (Valuation of excepted financial arrangements).

Defined in this Act: business, excepted financial arrangement, income year, trading stock,

Compare: 1994 No 164 s EE 2(1), (3)

EB 4 Trading stock valuation methods

Standard valuation
(1) The standard valuation methods for trading stock are—
- (a) cost:
- (b) discounted selling price:
- (c) replacement price:
- (d) market selling value.
Low-turnover valuation

(2) A person who is a low-turnover trader may value closing stock by a method described in section EB 14.

Low value trading stock

(3) In certain circumstances, a person may value closing stock under section EB 23.

Defined in this Act: closing stock, cost, low-turnover trader, trading stock,

Compare: 1994 No 164 s EE 3(1)

Subsection (1)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EB 5 Transfers of trading stock within wholly-owned groups

When this section applies
(1) This section applies in an income year to trading stock held by a company that is a member of a wholly-owned group of companies, when—
- (a) a group company (company A) originally acquires and holds the trading stock; and
- (b) from the time it is acquired to the end of the income year, the trading stock is held within the group by a company or companies that are resident in New Zealand; and
- (c) through transfers within the group, another group company (company B) holds the trading stock at the end of the income year; and
- (d) company A and company B remain members of the group at the end of the income year; and
- (e) either—
  - (i) the income years of company A and company B end on the same date; or
  - (ii) they end on different dates, and the Commissioner has approved both dates as corresponding to the end of a business cycle and as necessary to avoid material distortion of net income that would occur if the income years ended on the same date.
Choice of treatment

(2) Company B may choose to value the closing stock at the cost of the trading stock to company A.

When company stops being member of group

(3) If the companies stop being members of the same wholly-owned group, company B is treated as disposing of and reacquiring the trading stock for its market value at the time. If the market value of the trading stock cannot be determined separately from other property, its market value at the time company B acquired it is treated as its value.

Defined in this Act: business, closing stock, Commissioner, company, cost, income year, market value, net income, resident in New Zealand, trading stock, wholly-owned group of companies,

Compare: 1994 No 164 s EE 15

Standard valuation

EB 6 Cost

Valuation at cost

(1) A person may determine the value of their closing stock at cost. If the person chooses this method, they must include and allocate costs under generally accepted accounting practice.

Whether valuation correct

(2) For the purposes of subsection (1), the person has not complied with generally accepted accounting practice if the value of closing stock is materially different from the value obtained by applying, to the closing stock, Financial Reporting Standard No 4 (Accounting for Inventories) approved under the Financial Reporting Act 1993 or an equivalent standard issued in its place.

Defined in this Act: closing stock, cost, generally accepted accounting practice,

Compare: 1994 No 164 s EE 5(1), (2)

EB 7 Cost allocation: cost-flow method

When this section applies: first case

(1) This section applies when a person who determines the value of their closing stock at cost has items of trading stock that are not separately identifiable.

Compulsory use of cost-flow method

(2) The person must use 1 of the cost-flow methods described in subsection (5) to identify the items of trading stock included in closing stock and to determine the cost of the items.

When this section applies: second case

(3) This section also applies when a person who determines the value of their closing stock at cost has items of trading stock that are separately identifiable.

Discretionary use of cost-flow method

(4) The person may use 1 of the cost-flow methods described in subsection (5) to determine the cost of the items of trading stock.

Cost-flow methods
(5) The cost-flow methods of allocating costs are—
- (a) the first-in first-out cost method; and
- (b) the weighted average cost method.
Consistent use

(6) A person who determines the value of their closing stock at cost must use the same cost-flow method of allocating costs as they use in their financial statements for the income year.

Defined in this Act: closing stock, cost, financial statements, income year, trading stock,

Compare: 1994 No 164 ss EE 5(5), (6), EE 6(1), (2)

EB 8 Cost allocation: budgeted method or standard cost method

When this section applies
(1) This section applies when a person—
- (a) has a business of manufacturing or producing trading stock; and
- (b) determines the value of their closing stock at cost; and
- (c) allocates costs by—
  - (i) a budgeted method; or
  - (ii) a standard cost method; and
- (d) is not a low-turnover trader to whom section EB 17(3) applies.
Apportionment of difference required

(2) If any difference arises between the estimated costs of production included in the financial statements of the business for the income year and the actual costs of production, the person must apportion the difference between the cost of trading stock sold during the income year and the closing stock.

Defined in this Act: business, closing stock, cost, financial statements, income year, low-turnover trader, trading stock,

Compare: 1994 No 164 s EE 5(3)

EB 9 Discounted selling price

Valuation at discounted selling price

(1) A person may determine the value of their closing stock at its discounted selling price if they use discounted selling price for their trading stock in their financial statements.

Retailers

(2) If the person is a retailer, the discounted selling price for each department or category of goods is the total of the retail selling prices of the goods minus the normal gross profit margin for the department or category of goods. This subsection is overridden by subsection (4).

Normal gross profit margin for purposes of subsection (2)
(3) For the purposes of subsection (2), the person must—
- (a) calculate the normal gross profit margin for the department or category of goods under Financial Reporting Standard No 4 (Accounting for Inventories) approved under the Financial Reporting Act 1993 or an equivalent standard issued in its place; and
- (b) calculate the normal gross profit margin for each income year for each department or category of goods; and
- (c) include all costs that sections EB 6 to EB 8 require to be included.
Retailers with turnover of $1,000,000 or less

(4) A trader who is a retailer whose turnover is $1,000,000 or less may determine the discounted selling price of all closing stock valued under this method in an income year by discounting the total of the retail selling prices of the stock by the average gross profit margin for all closing stock valued under this method in the income year.

Increase in specified sum

(5) The Governor-General may make an Order in Council increasing the sum specified in subsection (4).

Not retailers

(6) If the person is not a retailer, the discounted selling price for each category of goods is the total market selling value of the goods minus the normal gross profit margin for the category of goods.

Normal gross profit margin for purposes of subsection (6)
(7) For the purposes of subsection (6), the person must—
- (a) calculate the normal gross profit margin for each income year for each category of goods; and
- (b) include all costs that sections EB 6 to EB 8 require to be included.
Defined in this Act: closing stock, cost, financial statements, income year, trading stock, turnover,

Compare: 1994 No 164 ss EE 8, EE 10

EB 10 Replacement price

Valuation at replacement price

(1) A person may determine the value of their closing stock at its replacement price if they use replacement price for their trading stock in their financial statements.

Establishing replacement price
(2) The replacement price—
- (a) is—
  - (i) the market value of the trading stock on the last day of the income year; or
  - (ii) if there is no such market value, the last price that the person paid during the income year to acquire equivalent trading stock; and
- (b) does not include an amount of input tax for the supply of the replacement trading stock to the person.
Defined in this Act: closing stock, financial statements, income year, input tax, trading stock,

Compare: 1994 No 164 s EE 11(1)-(3)

EB 11 Market selling value

Valuation at market selling value

(1) A person may determine the value of their closing stock at its market selling value if the market selling value is less than the cost of the stock.

Establishing market selling value
(2) The market selling value of closing stock is found by taking the amount that the person would normally expect to receive in the ordinary course of business from the sale of the trading stock and subtracting the following costs:
- (a) the estimated costs of completion; and
- (b) the expected costs of selling it.
Expected costs of selling
(3) For the purposes of subsection (2)(b), the expected costs of selling the stock are the costs that the person usually incurs for the following:
- (a) transport:
- (b) insurance:
- (c) sales commissions:
- (d) discounts to buyers.
Expected costs of selling: financial statements

(4) For the purposes of subsection (3), if the person prepares financial statements, the costs must have been taken into account in the statements in calculating net realisable value.

Substantiating market selling value
(5) If the person uses market selling value to value closing stock, they must be able to substantiate that value. If they cannot, they must use 1 of the following to value their closing stock:
- (a) cost, as described in sections EB 6 to EB 8 or EB 15 to EB 18; or
- (b) discounted selling price, as described in section EB 9 or EB 19; or
- (c) replacement price, as described in section EB 10 or EB 20.
Defined in this Act: amount, business, closing stock, cost, financial statements, trading stock,

Compare: 1994 No 164 ss EE 3(1), EE 12

Subsection (3)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EB 12 Valuing closing stock consistently

In determining the value of closing stock at cost, discounted selling price, or replacement price, a person must comply with the consistency and disclosure requirements of Financial Reporting Standard No 1 (Disclosure of Accounting Policies) approved under the Financial Reporting Act 1993 or an equivalent standard issued in its place.

Defined in this Act: closing stock, cost,

Compare: 1994 No 164 s EE 16(1)

Low-turnover valuation

EB 13 Low-turnover valuation

Options
(1) A person who is a low-turnover trader may value closing stock—
- (a) by a standard valuation method, as described in sections EB 6 to EB 12; or
- (b) by a low-turnover valuation method, as described in sections EB 14 to EB 22; or
- (c) as low value trading stock, in the circumstances described in section EB 23.
Meaning of low-turnover trader
(2) In this subpart, low-turnover trader means a person who carries on a business when, in an income year, the total of the turnover of the business and the turnover of associated persons, as defined in section OD 8(1)(a) or (b) (Further definitions of associated persons), is no more than the greater of—
- (a) $3,000,000; and
- (b) the sum specified by the Governor-General by Order in Council.
Increase in specified sum

(3) The Governor-General may make an Order in Council increasing the sum specified in subsection (2)(a).

Defined in this Act: associated person, business, closing stock, income year, low-turnover trader, turnover,

Compare: 1994 No 164 ss EE 20, OB 1 small taxpayer

EB 14 Low-turnover valuation methods

The low-turnover valuation methods are—
- (a) cost for low-turnover traders; and
- (b) discounted selling price for low-turnover traders; and
- (c) replacement price for low-turnover traders; and
- (d) market selling value for low-turnover traders.
Defined in this Act: cost, low-turnover trader,

EB 15 Cost for low-turnover traders

A low-turnover trader may determine the value of their closing stock at cost. If the low-turnover trader chooses this method, they must include and allocate costs under—
- (a) generally accepted accounting practice; or
- (b) section EB 16; or
- (c) section EB 17; or
- (d) section EB 18.
Defined in this Act: closing stock, cost, generally accepted accounting practice, low-turnover trader,

Compare: 1994 No 164 s EE 5(7)

EB 16 Cost allocation: cost-flow method for low-turnover traders

Section EB 7(1) to (5) apply to a low-turnover trader.

Defined in this Act: cost, low-turnover trader,

Compare: 1994 No 164 s EE 5(5), (6)

EB 17 Costs: manufactured or produced stock of low-turnover traders

When this section applies
(1) This section applies when a low-turnover trader—
- (a) has a business of manufacturing or producing trading stock; and
- (b) determines the value of their closing stock at cost.
Costs to be included
(2) In determining the value of their closing stock, the low-turnover trader must include the following costs of production:
- (a) direct and indirect material costs:
- (b) direct and indirect labour costs:
- (c) utilities costs:
- (d) costs of repairing and maintaining factory plant:
- (e) costs of rent of factory plant:
- (f) amounts of depreciation loss on factory plant:
- (g) costs additional to those described in paragraphs (a) to (f), if—
  - (i) they are costs of production; and
  - (ii) the low-turnover trader includes them in the financial statements for the income year.
Apportionment of difference not required

(3) If the low-turnover trader allocates costs by a budgeted method or a standard cost method, and if any difference arises between the estimated costs of production included in the financial statements of the business for the income year and the actual costs of production, the low-turnover trader is not required to apportion the difference between the cost of trading stock sold during the income year and the closing stock.

Defined in this Act: amount, business, closing stock, cost, depreciation loss, financial statements, income year, low-turnover trader, trading stock,

Compare: 1994 No 164 ss EE 5(3), EE 7(1), (2)

Subsection (2)(a) to (f) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EB 18 Costs: other stock of low-turnover traders

When this section applies
(1) This section applies when a low-turnover trader—
- (a) acquires trading stock other than by manufacture or production; and
- (b) determines the value of their closing stock at cost.
Costs to be included
(2) In determining the value of their closing stock, the low-turnover trader must include the following costs:
- (a) the purchase price; and
- (b) any direct transport and insurance costs that they incur in bringing the stock to the place and condition in which they have it.
Defined in this Act: closing stock, cost, low-turnover trader, trading stock,

Compare: 1994 No 164 s EE 7(3)

EB 19 Discounted selling price for low-turnover traders

Financial statements prepared

(1) A low-turnover trader who prepares financial statements may determine the value of their closing stock at its discounted selling price if they use discounted selling price for their trading stock in their financial statements.

Financial statements not prepared

(2) A low-turnover trader who does not prepare financial statements may determine the value of their closing stock at its discounted selling price.

Retailers with turnover of more than $1,000,000

(3) If the low-turnover trader is a retailer whose turnover is more than $1,000,000, the discounted selling price for each department or category of goods is the total of the retail selling prices of the goods minus the normal gross profit margin for the department or category of goods.

Normal gross profit margin for purposes of subsection (3)
(4) For the purposes of subsection (3), the low-turnover trader must—
- (a) calculate the normal gross profit margin for the department or category of goods under Financial Reporting Standard No 4 (Accounting for Inventories) approved under the Financial Reporting Act 1993 or an equivalent standard issued in its place; and
- (b) calculate the normal gross profit margin for each income year for each department or category of goods; and
- (c) include all costs that sections EB 16 to EB 18 require to be included.
Not retailers

(5) If the low-turnover trader is not a retailer, the discounted selling price for each category of goods is the total market selling value of the goods minus the normal gross profit margin for the category of goods.

Normal gross profit margin for purposes of subsection (5)
(6) For the purposes of subsection (5), the low-turnover trader must—
- (a) calculate the normal gross profit margin for each income year for each category of goods; and
- (b) include all costs that sections EB 16 to EB 18 require to be included.
Defined in this Act: closing stock, cost, financial statements, income year, low-turnover trader, trading stock, turnover,

Compare: 1994 No 164 ss EE 8-EE 10, EE 21

EB 20 Replacement price for low-turnover traders

Financial statements prepared

(1) A low-turnover trader who prepares financial statements may determine the value of their closing stock at its replacement price if they use replacement price for their trading stock in their financial statements.

Financial statements not prepared

(2) A low-turnover trader who does not prepare financial statements may determine the value of their closing stock at its replacement price.

Establishing replacement price
(3) The replacement price is—
- (a) the market value of the trading stock on the last day of the income year; or
- (b) the last price that the low-turnover trader paid during the income year to acquire equivalent trading stock.
Defined in this Act: financial statements, income year, low-turnover trader, trading stock,

Compare: 1994 No 164 s EE 11

EB 21 Market selling value for low-turnover traders

Valuation at market selling value

(1) A low-turnover trader may determine the value of their closing stock at its market selling value, whether that value is higher or lower than cost. However, if the value is higher than cost, the trader must be consistent from 1 income year to the next in their use of market selling value to determine the value of closing stock.

Establishing market selling value

(2) Section EB 11(2) to (4) apply to a low-turnover trader.

Defined in this Act: closing stock, cost, income year, low-turnover trader,

Compare: 1994 No 164 ss EE 3(2), EE 12, EE 16(3)

EB 22 Valuing closing stock consistently for low-turnover traders

Traders complying with generally accepted accounting practice

(1) In determining the value of closing stock at cost, discounted selling price, or replacement price, a low-turnover trader who complies with generally accepted accounting practice must comply with the consistency and disclosure requirements of Financial Reporting Standard No 1 (Disclosure of Accounting Policies) approved under the Financial Reporting Act 1993 an equivalent standard issued in its place.

Other traders
(2) A low-turnover trader who does not comply with generally accepted accounting practice must be consistent from 1 income year to the next in—
- (a) their choice of valuing closing stock at cost, discounted selling price, or replacement price; and
- (b) their use of market selling value, if it is greater than cost; and
- (c) their use of a cost-flow method of allocating costs under section EB 7(1) to (5); and
- (d) the extent to which they include indirect costs in the cost of trading stock that they manufacture or produce; and
- (e) their method of calculating discounted selling price.
When changes allowed
(3) A low-turnover trader to whom subsection (2) applies may make changes in relation to the matters described in the subsection if—
- (a) the change is justified by sound commercial reasons. (The advancement, deferral, or reduction of an income tax liability is not a sound commercial reason.); or
- (b) the change is required by another provision in this subpart.
Records

(4) A low-turnover trader who makes a change as described in subsection (3) must keep sufficient details of the change, and the reasons for the change, under section 22 of the Tax Administration Act 1994.

Defined in this Act: closing stock, cost, generally accepted accounting practice, income tax liability, income year, low-turnover trader, trading stock,

Compare: 1994 No 164 ss EE 6(3), EE 16(2)-(5)

Low value trading stock

EB 23 Valuing closing stock under $5,000

When this section applies
(1) This section applies when a person, including a low-turnover trader,—
- (a) has a turnover of $1,300,000 or less in an income year; and
- (b) reasonably estimates that the value of their closing stock for the income year is less than $5,000.
Closing value

(2) The person may use the opening value of their trading stock as the value of their closing stock for the income year.

Defined in this Act: closing stock, income year, low-turnover trader, trading stock, turnover,

Compare: 1994 No 164 s EE 2A

Subpart EC—Valuation of livestock

EC 1 Application of this subpart

EC 2 Valuation of livestock

EC 3 Livestock valuation methods

EC 4 Value of livestock on death of person [Repealed]

EC 5 Transfers of livestock within wholly-owned groups

EC 5B Transfer of livestock because of self-assessed adverse event

Valuation of specified livestock

EC 6 Application of sections EC 7 to EC 27

EC 7 Valuation methods

EC 8 Restrictions on use of herd scheme

EC 9 Restrictions on use of national standard cost scheme

EC 10 Restrictions on use of cost price method

EC 11 Restrictions on making of elections

EC 12 Interests in livestock

EC 13 Changes in partnership interests

Herd scheme

EC 14 Herd scheme

EC 15 Determining national average market values

EC 16 Valuation under herd scheme

EC 17 Herd value ratio

EC 18 Inaccurate herd value ratio

EC 19 Chatham Islands adjustment to herd value

EC 20 Herd livestock disposed of before values determined

EC 21 Herd livestock on death before values determined

National standard cost scheme

EC 22 National standard cost scheme

EC 23 Determining national standard costs

EC 24 Methods for determining costs using national standard cost scheme

Other methods

EC 25 Cost price, replacement price, or market value

EC 26 Bailee's treatment of livestock

Valuation of non-specified livestock

EC 27 Some definitions

EC 28 Application of sections EC 29 to EC 31

EC 29 Determining standard values

EC 30 Closing value methods

EC 31 Enhanced production

Valuation of high-priced livestock

EC 32 Application of sections EC 33 to EC 37

EC 33 Determining depreciation percentages

EC 34 General rule

EC 35 Livestock reaching national average market value and livestock no longer used for breeding

EC 36 Immature livestock and recently bought livestock

EC 37 Bailment

Valuation of bloodstock

EC 38 Application of sections EC 39 to EC 48

EC 39 First income year in breeding business

EC 40 Later income years in breeding business

EC 41 Reduction: bloodstock not previously used for breeding in New Zealand

EC 42 Reduction: bloodstock previously used for breeding in New Zealand

EC 43 Accident, birth deformity, or infertility

EC 44 Other bloodstock

EC 45 Residual value of bloodstock

EC 46 Use of bloodstock for racing

EC 47 Change of use of bloodstock in course of business

EC 48 Replacement breeding stock

Introductory provisions

EC 1 Application of this subpart

What this subpart does

(1) This subpart sets out the rules for valuing livestock not used in a dealing business.

Groups of livestock
(2) For the purposes of this subpart, livestock is divided into—
- (a) specified livestock:
- (b) non-specified livestock:
- (c) high-priced livestock:
- (d) bloodstock.
Defined in this Act: bloodstock, business, high-priced livestock, non-specified livestock, specified livestock,

Compare: 1994 No 164 s EE 2(1)

Subsection (2)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EC 2 Valuation of livestock

Valuation method

(1) A person must determine the value of their livestock at the end of each income year by a method that is available under this subpart for them to use.

Use of value
(2) The value determined under subsection (1) is—
- (a) the closing value of the livestock for the income year for the purposes of section CH 1 (Adjustment for closing values of trading stock, livestock, and excepted financial arrangements); and
- (b) the opening value of the livestock for the next income year for the purposes of section DB 40 (Adjustment for opening values of trading stock, livestock, and excepted financial arrangements).
Defined in this Act: income year,

Compare: 1994 No 164 s EL 1(1)

EC 3 Livestock valuation methods

Specified livestock

(1) The value of specified livestock is determined under sections EC 6 to EC 27.

Non-specified livestock

(2) The value of non-specified livestock is determined under sections EC 28 to EC 31.

High-priced livestock

(3) The value of high-priced livestock is determined under sections EC 32 to EC 37.

Bloodstock

(4) The value of bloodstock is determined under sections EC 38 to EC 48.

Defined in this Act: bloodstock, high-priced livestock, non-specified livestock, specified livestock,

Compare: 1994 No 164 s EL 1(1)

EC 4 Value of livestock on death of person

[Repealed]

Section EC 4 was repealed, as from 1 October 2005, by section 24 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

EC 5 Transfers of livestock within wholly-owned groups

When this section applies
(1) This section applies in an income year to livestock held by a company that is a member of a wholly-owned group of companies, when—
- (a) a group company (company A) originally acquires and holds the livestock; and
- (b) from the time it is acquired to the end of the income year, the livestock is held within the group by a company or companies that are resident in New Zealand; and
- (c) through transfers within the group, another group company (company B) holds the livestock at the end of the income year; and
- (d) company A and company B remain members of the group at the end of the income year; and
- (e) either—
  - (i) the income years of company A and company B end on the same date; or
  - (ii) they end on different dates, and the Commissioner has approved both dates as corresponding to the end of a business cycle and as necessary to avoid material distortion of net income that would occur if the income years ended on the same date.
Choice of treatment

(2) Company B may choose to value the livestock at the cost of the livestock to company A.

When company stops being member of group

(3) If the companies stop being members of the same whollyowned group, company B is treated as disposing of and reacquiring the livestock for its market value at the time. If the market value of the livestock cannot be determined separately from other property, its market value at the time company B acquired it is treated as its value.

Defined in this Act: business, Commissioner, company, income year, net income, resident in New Zealand, wholly-owned group of companies,

Compare: 1994 No 164 s EE 15

EC 5B Transfer of livestock because of self-assessed adverse event

When this section applies
(1) This section applies to livestock that is donated, or supplied for consideration with a value that is less than the market value of the livestock, to a recipient—
- (a) for use in a farming or agricultural business that is affected by a self-assessed adverse event; and
- (b) by a donor or supplier who is not associated with the recipient.
Treatment by donor or supplier
(2) The donor or supplier must treat the livestock as having on the day of the transfer of the livestock—
- (a) no value, if the livestock is donated to the recipient:
- (b) the value of the consideration provided by the recipient, otherwise.
Treatment by recipient
(3) The recipient must treat the livestock as having on the day of the transfer of the livestock—
- (a) no value, if the livestock is donated to the recipient:
- (b) the value of the consideration provided by the recipient, otherwise.
Defined in this Act: market value, self-assessed adverse event,

Section EC 5B was inserted, as from 3 April 2006, by section 60(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for transfers of livestock as from the income year corresponding to the 2005–06 tax year.

Valuation of specified livestock

EC 6 Application of sections EC 7 to EC 27

Sections EC 7 to EC 27 set out the rules for valuing specified livestock.

Defined in this Act: specified livestock,

Compare: 1994 No 164 s EL 1(1)(d)

EC 7 Valuation methods

Methods
(1) The methods available for valuing specified livestock are—
- (a) the herd scheme described in sections EC 14 to EC 21:
- (b) the national standard cost scheme described in sections EC 22 to EC 24:
- (c) 1 of the cost price, replacement price, or market value methods described in section EC 25:
- (d) the method described in section EC 26.
Person chooses

(2) A person must choose which method to use, making their election by using the method chosen in their return of income for the income year.

Election continues

(3) When a person chooses a valuation method, that method continues to apply in the following income years unless they choose another method that is available to them.

Commissioner's determination

(4) If a person chooses a valuation method that is not available to them and they later make no effective election, the Commissioner must determine the method to be used. In doing so, the Commissioner must consult the person.

Restrictions

(5) Restrictions apply to the use of valuation methods, as described in sections EC 8 to EC 10, and the making of elections, as described in section EC 11.

Defined in this Act: Commissioner, cost price, herd scheme, income year, national standard cost scheme, return of income, specified livestock,

Compare: 1994 No 164 s EL 2(1), (8)

Subsection (1)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EC 8 Restrictions on use of herd scheme

Herd scheme: first restriction on use of other method

(1) A valuation method other than the herd scheme is not available to a person, in an income year, for animals of a class for which they use the herd scheme if the animals remaining to be valued under the herd scheme would be reduced to a number smaller than the number of any animals of the class that the person valued under the herd scheme at the end of the previous income year.

Herd scheme: second restriction on use of other method

(2) A person who values livestock of a particular type under the herd scheme must value all male breeding stock of that type under the herd scheme in an income year if, in the income year, they also value any livestock of that type under the national standard cost scheme or under the cost price method.

Defined in this Act: class, cost price, herd scheme, income year, national standard cost scheme, type,

Compare: 1994 No 164 ss EL 2(2)(d), (e), EL 5(4), (5)

EC 9 Restrictions on use of national standard cost scheme

National standard cost scheme: first restriction on use of scheme

(1) The national standard cost scheme is not available to a person to value specified livestock in an income year if they value any specified livestock in the income year under the cost price method.

National standard cost scheme: second restriction on use of scheme

(2) The national standard cost scheme is not available to a person to value specified livestock if, in the income year before the income year in which their election under section EC 7(2) is to apply, they have valued specified livestock under the cost price method, and have not given at least 2 income years' notice in the way described in section EC 11 to the Commissioner of their election to value specified livestock under the national standard cost scheme.

National standard cost scheme: third restriction on use of scheme

(3) The national standard cost scheme is not available to a person to value a type of specified livestock in an income year if they have made specified livestock available to another person under a profit-sharing arrangement and, in the income year, the other person (or another person has also made livestock of the type available under the profit-sharing arrangement) values any livestock of the type under the cost price method.

National standard cost scheme: fourth restriction on use of scheme
(4) The national standard cost scheme is not available to a person to value specified livestock in an income year if—
- (a) they have bailed the livestock to another person under a long-term bailment not made under a profit-sharing arrangement; or
- (b) they have leased the livestock to another person under a long-term bailment not made under a profit-sharing arrangement.
National standard cost scheme: fifth restriction on use of scheme

(5) The national standard cost scheme is not available to a person to value specified livestock in an income year if a determination made under section EC 24 precludes the use of the national standard cost scheme for the livestock.

Defined in this Act: Commissioner, cost price, income year, lease, long-term bailment, national standard cost scheme, profit-sharing arrangement, specified livestock, type,

Compare: 1994 No 164 ss EL 2(2)(a), (c), (f), (g), EL 4(2), (3), EL 7(2), (4)(a)

EC 10 Restrictions on use of cost price method

Cost price method: first restriction on use of method

(1) The cost price method is not available to a person to value specified livestock in an income year if the person values other specified livestock in the income year under the national standard cost scheme.

Cost price method: second restriction on use of method

(2) The cost price method is not available to a person to value specified livestock if, in the income year before the income year in which their election under section EC 7(2) is to apply, they have valued specified livestock under the national standard cost scheme and have not given 2 income years' notice in the way described in section EC 11 to the Commissioner of their election to value specified livestock under the cost price method.

Cost price method: third restriction on use of method

(3) The cost price method is not available to a person to value specified livestock in an income year if they have bailed or leased their specified livestock to another person, unless the livestock is bailed or leased under a profit-sharing arrangement.

Cost price method: fourth restriction on use of method
(4) The cost price method is not available to a person to value specified livestock in an income year if they have bailed or leased their specified livestock to another person—
- (a) under a long-term bailment; or
- (b) under a short-term bailment made between associated persons in which the consideration paid to the bailee is not a fair market value.
Cost price method: fifth restriction on use of method

(5) The cost price method is not available to a person to value a type of specified livestock in an income year if they have made specified livestock available to another person under a profit-sharing arrangement and, in the income year, the other person (or another person has also made livestock of the type available under the profit-sharing arrangement) values any livestock of the type under the national standard cost scheme.

Defined in this Act: associated person, Commissioner, cost price, income year, lease, long-term bailment, national standard cost scheme, profit-sharing arrangement, short-term bailment, specified livestock, type,

Compare: 1994 No 164 ss EL 2(2)(b), (f), (g), EL 3(2), (3), EL 7(3), (4)(a)

EC 11 Restrictions on making of elections

Forms of notice

(1) This section specifies the 2 forms of notice that a person must give to the Commissioner and when each must be used. When a person notifies the Commissioner of an election under this section, the election is irrevocable in the first income year in which it applies.

When notice in same year required
(2) For the elections described in this subsection, a person must give notice by the date of filing their return of income for the income year in which the election is first to apply. The elections are—
- (a) an election to value livestock of a particular type under the herd scheme, as described in section EC 14; and
- (b) an election to adopt a herd value ratio or the Chatham Islands adjustment to the herd value ratio for livestock of any type when the income year is the first income year in which the particular livestock is valued under the herd scheme, as described in sections EC 17 to EC 19.
When 2 years' notice required
(3) For the elections described in this subsection, a person must give notice by the date of filing their return of income for an income year that is at least 2 income years before the income year in which the election is first to apply. The elections are—
- (a) an election to stop valuing specified livestock of a particular type under the herd scheme, except when the person continues to value some livestock of that type under the herd scheme or when another valuation method is available, as described in section EC 14(2); and
- (b) an election, after the herd scheme has been adopted, to adopt a herd value ratio or recalculated herd value ratio or the Chatham Islands adjustment for any livestock type, as described in sections EC 17 to EC 19; and
- (c) an election to value specified livestock under the national standard cost scheme when the person has, in the income year before the application of the new election, valued the same livestock under the cost price method; and
- (d) an election to value specified livestock under the cost price method when the person has, in the year before the application of the new election, valued the same livestock under the national standard cost scheme.
Information for notices of election
(4) A notice of election must state—
- (a) the income year in which the election is first to apply; and
- (b) the type, class, or other description of the applicable livestock; and
- (c) the existing and proposed methods of valuing the applicable livestock; and
- (d) for an election to use a herd value ratio or recalculated herd value ratio under section EC 17,—
  - (i) the value assessed under section EC 17(4) of an average animal of each applicable class of livestock; and
  - (ii) the date on which the valuation of each animal was made; and
  - (iii) the name and address of the valuer.
Defined in this Act: class, Commissioner, cost price, herd scheme, herd value ratio, income year, national standard cost scheme, notice, notify, return of income, specified livestock, type,

Compare: 1994 No 164 s EL 2(3)-(5)

EC 12 Interests in livestock

Joint election of valuation method

(1) When specified livestock is owned jointly by 2 or more persons, the owners must choose a valuation method. For the election to be effective, it must be made jointly by all the owners.

Ineffective election
(2) If there is no effective election, specified livestock owned jointly is valued as follows:
- (a) if the owners bail or lease the livestock to another person during the income year, under the market value method; or
- (b) if the owners enter into a profit-sharing arrangement for the livestock, under the market value method; or
- (c) in any other case, under the national standard cost scheme.
Profit-sharing arrangements
(3) If the method used in an income year to calculate the value of livestock under a profit-sharing arrangement is the national standard cost scheme or the cost price method, all the following are treated as the single owner of the livestock:
- (a) the person who owns the livestock; and
- (b) the person who has the use of the livestock; and
- (c) any other person who has made livestock of the same type available to the person referred to in paragraph (b) under a profit-sharing arrangement.
Partnerships interests

(4) For the purpose of an election under this section, a person's interest in a partnership that owns livestock is treated separately from any other interest that the person has in livestock. Separate elections are required for the person's partnership interest and for their other livestock interests. The person is not required to choose the same valuation method in both cases.

Defined in this Act: cost price, income year, lease, national standard cost scheme, profit-sharing arrangement, specified livestock, type,

Compare: 1994 No 164 ss EL 2(6), EL 7(4)(b)

EC 13 Changes in partnership interests

When this section applies
(1) This section applies when—
- (a) a partnership owns specified livestock (old partnership); and
- (b) a new partnership is formed (new partnership); and
- (c) at the end of the income year in which the new partnership is formed, more than 50% of the property of the new partnership is owned by persons who, during that income year or in the previous income year,—
  - (i) owned all the property of the old partnership; and
  - (ii) derived income in either income year from specified livestock of the same type as that owned by the new partnership.
Valuation

(2) The value of specified livestock owned by the new partnership must be taken into account in the way the old partnership determines the value of livestock of the particular type at the end of the income year in which the new partnership is formed. If the old partnership has no specified livestock of the type on hand at the end of the income year, the value is taken into account as the old partnership would have determined it, had it owned specified livestock of that type.

Defined in this Act: income, income year, specified livestock, type,

Compare: 1994 No 164 s EL 1(2)

Herd scheme

EC 14 Herd scheme

Election to use herd scheme

(1) A person may choose to value specified livestock of any type and class under the herd scheme.

Election of other method

(2) A person who has chosen to value livestock of a particular type under the herd scheme may nevertheless value livestock of that type by another method, subject to the restrictions described in section EC 8.

Election to leave herd scheme

(3) A person who wishes to stop valuing livestock of a particular type under the herd scheme must give 2 income years' notice to the Commissioner in the way described in section EC 11. However, notice is not required if the person values livestock of that type by another method that is available for use in conjunction with the herd scheme.

Defined in this Act: class, Commissioner, herd scheme, income year, notice, specified livestock, type,

Compare: 1994 No 164 s EL 2(4)

EC 15 Determining national average market values

Determined by Commissioner

(1) The Commissioner must determine a national average market value for an income year for each class of specified livestock set out in schedule 8, column 2 (Types and classes of livestock).

Application to income year

(2) The value applies to the income year for which it is determined, whether the income year started before, on, or after the date on which the determination is made.

Defined in this Act: class, Commissioner, income year, national average market value, specified livestock,

Compare: 1994 No 164 s EL 8

EC 16 Valuation under herd scheme

Closing value of herd livestock

(1) The closing value of herd livestock in an income year is either its herd value for the income year or, if a herd value ratio is adopted, its herd value multiplied by its herd value ratio.

Opening value of herd livestock
(2) The opening value of herd livestock in an income year is determined under subsection (3) if a person—
- (a) has valued the livestock under the herd scheme in the previous income year; and
- (b) has the livestock on hand at the start of the income year; and
- (c) has not chosen to value the livestock by a different method for the income year.
Determining opening value

(3) The opening value of herd livestock in an income year is either its herd value for the income year or, if the person has adopted a herd value ratio, its herd value for the income year multiplied by its herd value ratio for the previous income year. This subsection overrides section DB 40(5) (Adjustment for opening values of trading stock, livestock, and excepted financial arrangements).

Defined in this Act: herd livestock, herd scheme, herd value, herd value ratio, income year,

Compare: 1994 No 164 s EL 5(1), (2)

EC 17 Herd value ratio

Adoption of herd value ratio

(1) A herd value ratio is available for a person to use in determining the value of specified livestock in the herd scheme. A person may adopt a herd value ratio for herd livestock of a particular type by giving notice in the way described in section EC 11. A person may also adopt a recalculated ratio by giving notice in the same way.

Chatham Islands livestock

(2) Herd value ratios calculated under subsection (5) do not apply to livestock on the Chatham Islands. The Chatham Islands adjustment to the herd value ratio is dealt with in section EC 19.

When herd value ratio applies
(3) When a person adopts a herd value ratio for livestock of a particular type, the ratio applies in the income year specified in the notice and in later income years until—
- (a) the income year in which it is superseded by a recalculation of the ratio; or
- (b) the income year in which the person stops valuing, under an election, livestock of that type under the herd scheme; or
- (c) the income year following 2 consecutive income years in which the person has not valued livestock of that type under the herd scheme.
Assessment of average value

(4) For the purpose of calculating a herd value ratio, a person must obtain from a recognised livestock valuer an assessment of the value of an average animal of that person in each applicable class of livestock. The value is determined as at the 30 April that is closest to the day on which the national average market values are set.

Calculation of herd value ratio

(5) The herd value ratio for livestock of a particular type is calculated by using the formula in subsection (6) and rounding the result of the calculation to the nearest of the following figures: 0.9, 1.0, 1.1, 1.2, 1.3.

Formula

(6) The formula is—

Definition of items in formula
(7) In the formula,—
- (a) Σ is the total of the individual calculations for all applicable classes of livestock type valued under the herd scheme:
- (b) average value is the average value of an animal in a class as described in subsection (4):
- (c) number is the number of all livestock of that class on hand at the end of the income year (including livestock that are not in the herd scheme, but not including high-priced livestock):
- (d) herd value is the herd value of livestock for a class.
Defined in this Act: class, herd livestock, herd scheme, herd value, herd value ratio, high-priced livestock, income year, livestock on the Chatham Islands, national average market value, notice, specified livestock, type,

Compare: 1994 No 164 s EL 6(1)-(3), (5)

EC 18 Inaccurate herd value ratio

The Commissioner may require a person who is using an inaccurate herd value ratio for a type of livestock in an income year to recalculate the herd value ratio. If the recalculation differs from the existing ratio for the income year, the Commissioner may amend the assessment of income tax for the income year and any later income year and may substitute the recalculated herd value ratio for that previously applied by the person.

Defined in this Act: assessment, Commissioner, herd value ratio, income tax, income year, type,

Compare: 1994 No 164 s EL 6(4)

EC 19 Chatham Islands adjustment to herd value

Adjustment for herd livestock on Chatham Islands

(1) A person may adopt an adjustment for herd livestock on the Chatham Islands by giving notice in the way described in section EC 11.

When adjustment applies
(2) When a person adopts a Chatham Islands adjustment as a herd value ratio, it applies as a herd value ratio to a particular type of livestock on the Chatham Islands at the end of the income year specified in the notice and in later income years until—
- (a) the income year in which the person stops valuing, under an election, livestock of that type in the herd scheme; or
- (b) the income year following 2 consecutive income years in which the person has not valued livestock of that type on the Chatham Islands under the herd scheme.
Setting adjustment

(3) The Commissioner must set and may vary from time to time the level of Chatham Islands adjustment to the herd value ratio that applies in an income year.

Defined in this Act: Commissioner, herd livestock, herd scheme, herd value, herd value ratio, income year, livestock on the Chatham Islands, notice, type,

Compare: 1994 No 164 s EL 6(6), (7)

EC 20 Herd livestock disposed of before values determined

When this section applies
(1) This section applies when, in an income year, a person—
- (a) stops deriving income from specified livestock; and
- (b) disposes of herd livestock before the 1 February that precedes the determination of the national average market values for the income year; and
- (c) gives notice to the Commissioner before that 1 February that they choose that this section applies to the valuation of the herd livestock.
Value of herd livestock

(2) The value of herd livestock that is disposed of is either the herd value of the livestock for the previous income year or, if the person has adopted a herd value ratio, the herd value multiplied by the herd value ratio applying in the previous income year.

Defined in this Act: Commissioner, herd livestock, herd value, herd value ratio, income, income year, national average market value, notice, specified livestock,

Compare: 1994 No 164 s EL 5(6)

EC 21 Herd livestock on death before values determined

When this section applies
(1) This section applies when—
- (a) a person dies; and
- (b) herd livestock owned by the person is disposed of before the 1 February that precedes the determination of the national average market values for the income year in which the person dies; and
- (c) the person's return of income to the date of death is filed before the national average market values for the income year are determined.
Value of herd livestock

(2) The value of herd livestock that is disposed of is either the herd value of the livestock for the previous income year or, if the person has adopted a herd value ratio, the herd value multiplied by the ratio applying in the previous income year.

Defined in this Act: herd livestock, herd value, herd value ratio, income year, national average market value, return of income,

Compare: 1994 No 164 s EL 5(6)

National standard cost scheme

EC 22 National standard cost scheme

Election to use national standard cost scheme

(1) A person may choose to value specified livestock under the national standard cost scheme, subject to the restrictions described in section EC 9.

Closing value

(2) The closing value of the livestock is the cost of the livestock calculated under the determination made by the Commissioner under section EC 24.

Defined in this Act: Commissioner, national standard cost scheme, specified livestock,

Compare: 1994 No 164 s EL 4(1)

EC 23 Determining national standard costs

Determination of costs
(1) The Commissioner must determine national standard costs for each category of specified livestock in schedule 9 (Categories of livestock for which national standard costs to be declared). The determination must take into account, as applicable,—
- (a) the average breeding, rearing, and growing costs for animals in the category; and
- (b) the average rearing and growing costs for animals in the category.
Application to income year

(2) The national standard costs apply to the income year for which they are determined, whether the income year started before, on, or after the date on which the determination is made.

Defined in this Act: Commissioner, income year, specified livestock,

Compare: 1994 No 164 s EL 3A(1)

EC 24 Methods for determining costs using national standard cost scheme

Determination of methods for calculation of cost

(1) The Commissioner must determine the methods for calculating the cost of livestock listed in schedule 9, column 2 (Categories of livestock for which national standard costs to be declared).

Average cost
(2) For the purposes of subsection (1), the determination must establish a process for finding an average cost to be applied to all specified livestock valued under the national standard cost scheme. The process must take into account—
- (a) the number of homebred livestock that a person has on hand at any time in an income year, applying to the number the relevant national standard costs determined under section EC 23:
- (b) in addition to paragraph (a), the number in each category of livestock listed in schedule 9, column 2 (Categories of livestock for which national standard costs to be declared) that a person has on hand at any time in an income year, applying to the number the relevant national standard costs determined under section EC 23:
- (c) the number of livestock bought, applying to the number the purchase costs associated with the livestock.
Content of determination

(3) The matters that may be included in the determination are set out in section 91AAD of the Tax Administration Act 1994.

Defined in this Act: Commissioner, income year, national standard cost scheme, specified livestock,

Compare: 1994 No 164 s EL 4(4), (5)

Subsection (2)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (3) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “91AAD” for “91AB”.

Other methods

EC 25 Cost price, replacement price, or market value

Election

(1) A person may choose to value specified livestock under the cost price method, subject to the restrictions described in, or under the replacement price method, or under the market value method.

Changing to cost price method

(2) If a person chooses in an income year to change to the cost price method from another valuation method, the opening value of the affected livestock is the closing value of the livestock at the end of the previous income year determined under the method used in that previous income year.

Defined in this Act: cost price, income year, specified livestock,

Compare: 1994 No 164 ss EL 3(1), (4), EL 7(2)

EC 26 Bailee's treatment of livestock

When this section applies
(1) This section applies when, under a bailment, lease, or other agreement,—
- (a) a person (person A) has the use of specified livestock; and
- (b) person A is required—
  - (i) to return the livestock to the person who made it available; or
  - (ii) to pay the person full compensation for it.
Closing livestock numbers

(2) Person A is treated as owning, and must take into account at the end of an income year, the total number for all classes calculated using the formula—

total livestock – bailed livestock.

Definition of items in formula
(3) In the formula,—
- (a) total livestock is all the livestock that person A has on hand in a class at the end of the income year, including—
  - (i) the livestock that they own; and
  - (ii) the livestock that they have the use of under the bailment, lease, or other agreement:
- (b) bailed livestock is all the livestock in a class that person A has been given the use of under a bailment, lease, or other agreement that remains in force at the end of the income year.
Result of applying formula

(4) If the result of applying the formula in subsection (2) is positive, person A is treated as the owner of any surplus livestock. If the result is negative, person A must adjust the total number described in subsection (2) by treating it as a negative number.

Defined in this Act: class, income year, lease, specified livestock,

Compare: 1994 No 164 s EL 7(1)

Definitions

EC 27 Some definitions

In this subpart,—

long-term bailment is a bailment or lease under which, at the time a person delivers livestock, the person does not expect to have the same livestock delivered back to them
short-term bailment is a bailment or lease under which,—
- (a) at the time a person delivers livestock, the person expects to have the same livestock delivered back to them; and
- (b) the bailee or lessee did not provide consideration to the person for the delivery of the livestock; and
- (c) the term of the bailment or lease ends on or before the end of the income year following the income year in which the arrangement is made.
Defined in this Act: arrangement, income year, lease, long-term bailment, short-term bailment,

Compare: 1994 No 164 s EL 7(2), (3)(b)

Valuation of non-specified livestock

EC 28 Application of sections EC 29 to EC 31

Sections EC 29 to EC 31 set out the rules for valuing non-specified livestock.

Defined in this Act: non-specified livestock,

EC 29 Determining standard values

Determined by Commissioner

(1) The Commissioner may determine a standard value for an income year for a type or category of non-specified livestock.

Application to income year

(2) A standard value applies to the income year for which it is determined, whether the income year started before, on, or after the date on which the standard value is determined.

Defined in this Act: Commissioner, income year, non-specified livestock, standard value, type,

Compare: 1994 No 164 s EL 9(3)

EC 30 Closing value methods

A person may choose 1 of the following methods to value non-specified livestock on hand at the end of an income year:
- (a) its cost price:
- (b) its replacement price:
- (c) its market value:
- (d) if the Commissioner agrees, its standard value.
Defined in this Act: Commissioner, cost price, income year, non-specified livestock, standard value,

Compare: 1994 No 164 ss EL 1(1)(c), EL 9(1)

Paragraphs (a) to (c) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

EC 31 Enhanced production

When this section applies
(1) This section applies when a person who derives income from non-specified livestock—
- (a) enhances production in an income year by—
  - (i) starting, or restarting, to derive income from non-specified livestock; or
  - (ii) bringing land into production, or substantially increased production, for the purpose of deriving income from non-specified livestock; or
  - (iii) acquiring additional land for the purpose of deriving income from non-specified livestock; and
- (b) as a result, in an income year or over the following 3 income years, buys more non-specified livestock that is not replacement livestock and that is valued at its standard value.
Closing value
(2) The closing value of the livestock bought is,—
- (a) for the income year in which the livestock was bought, its standard value plus two-thirds of the difference between the cost price of the livestock and the standard value:
- (b) for the following income year, its standard value plus one-third of the difference between the cost price of the livestock and the standard value:
- (c) for other income years, its standard value.
Defined in this Act: cost price, income, income year, non-specified livestock, standard value,

Compare: 1994 No 164 s EL 9(2), (4)

Subsection (2)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Valuation of high-priced livestock

EC 32 Application of sections EC 33 to EC 37

Sections EC 33 to EC 37

(1) Sections EC 33 to EC 37 set out the rules for valuing high-priced livestock.

Person chooses valuation method

(2) A person may choose to use either the straight-line method or the diminishing value method to value high-priced livestock.

Diminishing value method

(3) If the person chooses to use the diminishing value method, they must give notice to the Commissioner that they are using the method at the time of filing their return of income for the first income year in which the value of the high-priced livestock is determined under section EC 34. The person cannot revoke their election to use the diminishing value method for the livestock.

Defined in this Act: Commissioner, high-priced livestock, income year, notice, return of income,

Compare: 1994 No 164 s EL 10(6)

EC 33 Determining depreciation percentages

Determined by Commissioner

(1) The Commissioner must determine a depreciation percentage for an income year for each type, class, or category of high-priced livestock.

Purpose

(2) The percentage represents the average percentage decline in the value of livestock of the type, class, or category.

Factors
(3) The Commissioner must take into account—
- (a) the average cost of livestock of the type, class, or category; and
- (b) the estimated useful life of the livestock; and
- (c) the average estimated residual market value of the livestock.
Defined in this Act: class, Commissioner, depreciation percentage, estimated residual market value, estimated useful life, high-priced livestock, income year, type,

Compare: 1994 No 164 ss EL 10(5), OB 1 assigned percentage

EC 34 General rule

Value in income year of purchase and later income years

(1) The closing value of high-priced livestock at the end of the income year in which it is bought is its cost price minus the reduction applying in the income year. In a later income year, the value is its opening value minus the reduction applying in the income year until the value reaches or falls below the national average market value for the class to which the livestock belongs.

Straight-line method

(2) When a person has chosen to use the straight-line method, the reduction is calculated using the formula—

cost price x depreciation percentage.

Diminishing value method
(3) When a person has chosen to use the diminishing value method, the reduction is calculated as follows:
- (a) in the first income year in which the election applies, the cost price multiplied by the diminishing value equivalent of the depreciation percentage for the income year:
- (b) in later income years, the opening value of the livestock multiplied by the diminishing value equivalent of the depreciation percentage for the income year.
Meaning of diminishing value equivalent
(4)
In this section, diminishing value equivalent, for a depreciation percentage, means the diminishing value depreciation rate in schedule 11, column 1 (Banded rates of depreciation) to which the amount in column 2 equal to the depreciation percentage is the straight-line equivalent. Two qualifications are—
- (a) if no amount in column 2 is equal to the depreciation percentage, the amount closest to it is taken; and
- (b) if 2 amounts in column 2 are equidistant from the depreciation percentage, the depreciation percentage is rounded down.
Exclusions

(5) This section does not apply in the cases described in section EC 35 and EC 36.

Defined in this Act: amount, class, cost price, depreciation percentage, diminishing value equivalent, high-priced livestock, income year, national average market value,

Compare: 1994 No 164 ss EL 10(1), OB 1 specified writedown, diminishing value equivalent

Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EC 35 Livestock reaching national average market value and livestock no longer used for breeding

Livestock at or less than national average market value

(1) This section applies to a person's high-priced livestock whose value at the end of an income year is equal to or less than the national average market value for the class to which the livestock belongs.

Livestock no longer used for breeding
(2) This section also applies to high-priced livestock that, in an income year, a person—
- (a) does not expect to use for breeding for that or any later income year; and
- (b) does not intend to dispose of to any other person to use for breeding.
Closing value
(3) The closing value of the high-priced livestock at the end of the income year is determined as follows:
- (a) when the person values any specified livestock of that type under the herd scheme for the income year, the value of the animal under the herd scheme; and
- (b) when the person values all specified livestock of that type that is older than 1 year under the national standard cost scheme or the cost price method, the national average market value for the income year of livestock of the class to which the animal belongs; and
- (c) when the person values all specified livestock of that type that is older than 1 year under the market value method or the replacement price method, the market value or replacement price of the animal at the end of the income year.
Valuation in later income years

(4) In later income years, the animal that was high-priced livestock is treated as the person's specified livestock and is valued under the valuation method the person chooses for specified livestock of the type to which the animal belongs.

Entry into herd scheme in later income years

(5) This subsection applies if, in a later income year (year A), the person values any specified livestock of the same type as the animal under the herd scheme and, in the next year, values the animal under the herd scheme. The animal is treated as if it were valued under the herd scheme at the end of year A.

Defined in this Act: class, cost price, herd scheme, high-priced livestock, income year, national average market value, national standard cost scheme, specified livestock, type, year,

Compare: 1994 No 164 s EL 10(3), (4)

EC 36 Immature livestock and recently bought livestock

Immature livestock

(1) This section applies to high-priced livestock that is less than 1 year old at the end of the income year in which it is bought.

Recently bought livestock
(2) This section also applies to high-priced livestock that is bought within 6 months of the end of an income year and, during that time,—
- (a) is not used for insemination, in the case of male livestock; and
- (b) is not used for the collection of semen; and
- (c) does not give birth; and
- (d) does not have ova removed.
Closing value

(3) The closing value of the high-priced livestock at the end of the income year is its cost price.

Defined in this Act: cost price, high-priced livestock, income year, year,

Compare: 1994 No 164 s EL 10(2)

EC 37 Bailment

In section EC 26, references to specified livestock include high-priced livestock.

Defined in this Act: high-priced livestock, specified livestock,

Compare: 1994 No 164 s EL 7(1), (3)(b)

Valuation of bloodstock

EC 38 Application of sections EC 39 to EC 48

Sections EC 39 to EC 48 set out the rules for valuing bloodstock.

Defined in this Act: bloodstock,

EC 39 First income year in breeding business

Bloodstock to which this section applies
(1) This section applies to bloodstock that is 2 years of age or older at the end of the first income year in which a person—
- (a) uses the bloodstock for breeding in their breeding business; or
- (b) forms the intention of using the bloodstock for breeding in their breeding business; or
- (c) buys the bloodstock, with the intention of using it for breeding in their breeding business.
Special group of broodmares to which this section applies
(2) This section also applies to a broodmare that is 2 years of age or older at the end of a person's first income year after 1 April 2001 in which the person—
- (a) first uses the broodmare for breeding in their breeding business; or
- (b) first forms the intention of using the broodmare for breeding in their breeding business; or
- (c) buys the broodmare, with the intention of using it for breeding in their breeding business.
Closing value

(3) The closing value of the bloodstock at the end of the first income year is its cost price minus the reduction applying in that income year.

Determination of reduction

(4) The reduction that applies is determined under section EC 41, EC 42, EZ 4B, or EZ 4C.

Defined in this Act: bloodstock, broodmare, business, cost price, income year, year,

Compare: 1994 No 164 s EM 1(1)(a), (ab)

Subsection (4) was amended, as from 1 August 2006, by section 61 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “section EC 41, EC 42, EZ 4B, or EZ 4C” for “section EC 41 or EC 42”.

EC 40 Later income years in breeding business

What this section applies to

(1) This section applies to the income years that follow the first income year described in section EC 39.

Closing value

(2) The closing value of the bloodstock is its opening value minus the reduction applying in that income year.

Closing value not previously taken into account

(3) If the person has not taken the closing value of the bloodstock into account in the previous income year, the closing value is the cost price of the bloodstock minus the reduction applying in the income year in which the person makes the calculation.

Determination of reduction

(4) The reduction that applies is determined under section EC 41, EC 42, EZ 4B, or EZ 4C.

Defined in this Act: bloodstock, cost price, income year,

Compare: 1994 No 164 s EM 1(1)(b), (ba)

Subsection (4) was amended, as from 1 August 2006, by section 62 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “section EC 41, EC 42, EZ 4B, or EZ 4C” for “section EC 41 or EC 42”.

EC 41 Reduction: bloodstock not previously used for breeding in New Zealand

Bloodstock to which this section applies
(1) This section applies to bloodstock that—
- (a) was not used for breeding in New Zealand before 16 December 1991; and
- (b) before a person (person A) acquired it, was not used for breeding in New Zealand by any other person, unless—
  - (i) the other person transferred the bloodstock to person A under a matrimonial agreement to which section FF 12 (Bloodstock) applies; or
  - (ii) the other person and person A were companies in the same wholly-owned group at the time person A acquired the bloodstock from the other person.
Stallion

(2) For the purposes of sections EC 39 and EC 40, the reduction applying to the value of a stallion is 50% of the cost price of the stallion unless person A chooses to value the stallion by the reducing value method.

Stallion valued by reducing value method

(3) When person A chooses to value the stallion by the reducing value method, the reduction applying to the value of the stallion is 75% of its cost price in the first income year and 75% of its opening value in each later income year. Person A must give notice to the Commissioner of their election in their return of income for the first income year.

(4) [Repealed]

(5) [Repealed]

Broodmare when first used on or after 1 April 2001

(6) For the purposes of sections EC 39 and EC 40, the reduction applying to the value of a broodmare to which section EC 39(2) applies is calculated using the formula—

Definition of item in formula
(7)
In the formula, age of broodmare is—
- (a) 8 years of age; or
- (b) the actual age in years, if the broodmare is 7 years of age or less at the end of the income year.
Relationship with subject matter

(8) This section is overridden by section EZ 4B.

Defined in this Act: bloodstock, broodmare, Commissioner, company, cost price, income year, matrimonial agreement, New Zealand, notice, return of income, stallion, wholly-owned group, year,

Compare: 1994 No 164 s EM 1(4), (5)

Subsection (2) was amended, as from 1 August 2006, by section 63(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “50%” for “25%”.

Subsection (3) was amended, as from 1 August 2006, by section 63(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “75%” for “37.5%” in both places it appears.

Subsections (4) and (5) were repealed, as from 1 August 2006, by section 63(c) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (6) formula was amended, as from 1 August 2006, by section 63(d) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “9” for “11”.

Subsection (8) and the heading above subsection (8) were inserted, as from 1 August 2006, by section 63(e) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

EC 42 Reduction: bloodstock previously used for breeding in New Zealand

Stallion

(1) For the purposes of sections EC 39 and EC 40, the reduction applying to the value of a stallion to which section EC 41 does not apply is 20% of its cost price.

(2) [Repealed]

(3) [Repealed]

Broodmare when first used on or after 1 April 2001

(4) For the purposes of sections EC 39 and EC 40, the reduction applying to the value of a broodmare to which section EC 39(2) applies and section EC 41 does not apply is calculated using the formula—

Definition of item in formula
(5)
In the formula, age of broodmare is—
- (a) 8 years of age; or
- (b) the actual age in years, for a broodmare that is 7 years of age or less at the end of the income year.
Relationship with subject matter

(6) This section is overridden by section EZ 4C.

Defined in this Act: bloodstock, broodmare, cost price, income year, stallion, year,

Compare: 1994 No 164 s EM 1(4), (5)

Subsections (2) and (3) were repealed, as from 1 August 2006, by section 64(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (4) formula was amended, as from 1 August 2006, by section 64(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “9” for “11”.

Subsection (6) and the heading above subsection (6) were inserted, as from 1 August 2006, by section 64(c) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

EC 43 Accident, birth deformity, or infertility

When this section applies

(1) This section applies when a person has bloodstock on hand at the end of an income year whose market value is, because of accident, birth deformity, or infertility, less than 50% of what its market value would have been if the accident, birth deformity, or infertility had not occurred.

Value

(2) The person may value the bloodstock at its market value.

Later income years

(3) If the person applies subsection (2), the closing value of the bloodstock in later income years is its market value in the applicable income year.

Defined in this Act: bloodstock, income year,

Compare: 1994 No 164 s EM 1(2)

EC 44 Other bloodstock

If sections EC 39 to EC 43 do not apply, the closing value of the bloodstock is its cost price.

Defined in this Act: bloodstock, cost price,

Compare: 1994 No 164 s EM 1(1)(c)

EC 45 Residual value of bloodstock

If the closing value of any bloodstock would be less than $1 in the absence of this section, the closing value is $1.

Defined in this Act: bloodstock,

Compare: 1994 No 164 s EM 1(3)

EC 46 Use of bloodstock for racing

General treatment

(1) If in an income year a bloodstock owner uses bloodstock for racing, and they are in the business of breeding bloodstock for sale, the use of the bloodstock for racing is treated as use in the course of the business.

Bloodstock not used in business

(2) If bloodstock used in an income year for racing is not actually used in the course of a business of breeding bloodstock for sale, the bloodstock owner may apply to the Commissioner to have the use of the bloodstock treated otherwise than under subsection (1).

Non-breeding bloodstock

(3) If a bloodstock owner expects that bloodstock will not be able to be used for future breeding, the use in an income year of the bloodstock for racing is not treated as use in the course of a business of breeding bloodstock for sale. However, if the bloodstock owner uses the bloodstock in the course of their business of breeding bloodstock for sale, they may apply to the Commissioner to have the use of the bloodstock treated as use in the course of the business.

Application to Commissioner

(4) The application must be made in writing with the supporting information that the Commissioner requires within 1 month after the day on which the bloodstock is first prepared for racing by the bloodstock owner or the day on which it is first raced by the bloodstock owner, whichever is earlier.

Defined in this Act: bloodstock, business, Commissioner, income year,

Compare: 1994 No 164 s EM 2(1)-(5)

EC 47 Change of use of bloodstock in course of business

Use outside business

(1) If a bloodstock owner who is in the business of breeding bloodstock for sale starts to use bloodstock other than in the course of the business, they are treated as having disposed of the bloodstock. The disposal is treated as having occurred at market value on the day on which they changed the use of the bloodstock.

Use in business

(2) If a bloodstock owner who is in the business of breeding bloodstock for sale has been using bloodstock for other purposes, and they start to use the bloodstock in the course of the business, the bloodstock is treated as having been bought by the bloodstock owner. The purchase is treated as having occurred at market value on the day on which the bloodstock owner changed the use of the bloodstock.

Defined in this Act: bloodstock, business,

Compare: 1994 No 164 s EM 2(6), (7)

EC 48 Replacement breeding stock

When this section applies
(1) This section applies when—
- (a) a bloodstock owner—
  - (i) disposes of bloodstock (breeding stock) that they had previously used for breeding in the course of a business of breeding bloodstock for sale; and
  - (ii) buys replacement bloodstock (replacement breeding stock) within the time limits set out in subsections (6) and (7); or
- (b) a bloodstock owner—
  - (i) receives a payment of insurance, indemnity, or compensation for the loss or death of, or permanent injury to, bloodstock (breeding stock) that they had previously used for breeding in the course of a business of breeding bloodstock for sale or that they had bought for use in the business; and
  - (ii) buys replacement bloodstock (replacement breeding stock) within the time limits set out in subsections (6) and (7).
Amount determined

(2) The bloodstock owner may apply to the Commissioner to determine the amount that the bloodstock owner has applied in buying replacement breeding stock.

Maximum amount

(3) The amount must not be more than the net gain calculated using the formula—

gross proceeds – value of breeding stock.

Definition of items in formula
(4) In the formula,—
- (a) gross proceeds is—
  - (i) the amount of the proceeds of disposing of the breeding stock; or
  - (ii) the amount paid by way of insurance, indemnity, or compensation for the breeding stock:
- (b) value of breeding stock is the closing value of the breeding stock in the income year before the breeding stock was disposed of or was lost or died or was permanently injured.
Reduction in income

(5) The bloodstock owner may reduce their income by the amount determined under subsection (2). If they reduce their income in this way, they must also reduce the cost of the replacement breeding stock by the same amount.

Time limit

(6) Replacement breeding stock must be acquired within 6 months after the end of the income year in which the amount determined under subsection (2) would otherwise be income or, if the Commissioner approves in a case or in a class of cases, a longer period.

Delay in replacing breeding stock

(7) In the case of lost, dead, or permanently injured breeding stock, the Commissioner may extend the time limit under subsection (6). However, valid commercial reasons must exist for the delay in replacing the breeding stock and the replacement breeding stock must have been acquired before the end of the second income year following the income year in which the loss, death, or permanent injury occurred.

Application to Commissioner

(8) An application under subsection (2) must be made in writing within the relevant time limits described in subsections (6) and (7). The application must relate only to replacement breeding stock bought before the application is made.

Defined in this Act: amount, bloodstock, business, Commissioner, income, income year,

Compare: 1994 No 164 s EM 3

Subsection (1)(a)(ii) was amended, as from 1 April 2005, by section 65(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “buys” for “applies the proceeds in buying” with application as from the income year corresponding to the 2005–06 tax year.

Subsection (1)(b)(ii) was amended, as from 1 April 2005, by section 65(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “buys” for “applies the payment in buying” with application as from the income year corresponding to the 2005–06 tax year.

Subsection (2) was amended, as from 1 April 2005, by section 65(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by repealing the words “of the proceeds of sale under subsection (1)(a) or payment under subsection (1)(b)” with application as from the income year corresponding to the 2005–06 tax yearr.

Subpart ED—Valuation of excepted financial arrangements

ED 1 Valuation of excepted financial arrangements

ED 2 Transfers of certain excepted financial arrangements within wholly-owned groups

ED 1 Valuation of excepted financial arrangements

Valuation methods for excepted financial arrangements

(1) A person who has revenue account property that is an excepted financial arrangement must determine the value of the arrangement at the end of each income year at cost.

Valuation method for right to acquire share under share-lending arrangement

(1B) Despite subsection (1), a share supplier's share-lending right has the value at the end of each income year that is equal to the amount described in subsection (1D).

Valuation method for share acquired by share supplier under share-lending arrangement

(1C) Despite subsection (1), the original share or an identical share acquired by a share supplier from a share user under a share-lending arrangement has the value at the end of each income year that is equal to the amount described in subsection (ID).

Amount

(1D) For subsections (1B) and (1C), the amount is the value of the original share at cost, determined by applying this section to the share immediately before the share supplier's disposal of the share under the relevant share-lending arrangement.

Cost-flow methods
(2) The person must use 1 of the following cost-flow methods to allocate costs:
- (a) the first-in first-out cost method; or
- (b) the weighted average cost method.
Persons complying with generally accepted accounting practice

(3) A person who complies with generally accepted accounting practice must comply with the consistency and disclosure requirements of Financial Reporting Standard No 1 (Disclosure of Accounting Policies) approved under the Financial Reporting Act 1993 or an equivalent standard issued in its place.

Other persons
(4) A person who does not comply with generally accepted accounting practice—
- (a) must be consistent from 1 income year to the next in their choice of 1 of the cost-flow methods described in subsection (2); and
- (b) may change their cost-flow method if—
  - (i) the change is justified by sound commercial reasons. (The advancement, deferral, or reduction of an income tax liability is not a sound commercial reason.); or
  - (ii) the change is required by another provision in this subpart; and
- (c) must keep sufficient details of any such change, and the reasons for it, under section 22 of the Tax Administration Act 1994.
Worthless arrangements

(5) If an excepted financial arrangement has no present or likely future market value and has been written off as worthless, its closing value is zero.

Use of value
(6) The value determined under this section is—
- (a) the closing value of the excepted financial arrangement for the purposes of section CH 1 (Adjustment for closing values of trading stock, livestock, and excepted financial arrangements); and
- (b) the opening value of the excepted financial arrangement for the next income year for the purposes of section DB 40 (Adjustment for opening values of trading stock, livestock, and excepted financial arrangements).
Defined in this Act: excepted financial arrangement, generally accepted accounting practice, identical share, income tax liability, income year, original share, revenue account property, share-lending arrangement, share-lending right, share supplier, share user,

Compare: 1994 No 164 ss EE 3(3), EE 13, EE 16

The heading to subsection (1) was substituted, as from 1 July 2006, by section 66(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsections (1B) to (1D) were inserted, as from 1 July 2006, by section 66(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

The list of defined terms was amended, as from 1 July 2006, by section 66(3)(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “identical share”..

The list of defined terms was amended, as from 1 July 2006, by section 66(3)(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “original share”..

The list of defined terms was amended, as from 1 July 2006, by section 66(3)(c) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “share-lending arrangement”..

The list of defined terms was amended, as from 1 July 2006, by section 66(3)(d) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “share-lending right”..

The list of defined terms was amended, as from 1 July 2006, by section 66(3)(e) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “share supplier”..

The list of defined terms was amended, as from 1 July 2006, by section 66(3)(f) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “share user”..

ED 2 Transfers of certain excepted financial arrangements within wholly-owned groups

When this section applies
(1) This section applies when—
- (a) a company in a wholly-owned group of companies (company A) transfers to another company in the same group (company B) an excepted financial arrangement that is revenue account property of company A; and
- (ab) the transfer of the excepted financial arrangement is not made under a share-lending arrangement; and
- (b) both companies are resident in New Zealand on the date of the transfer; and
- (c) the market value of the excepted financial arrangement on the date of the transfer is less than its cost to company A.
Transfer at cost

(2) The consideration for the transfer is treated as being equal to the cost of the excepted financial arrangement to company A.

Company stops being member of group

(3) If company B stops being a member of the wholly-owned group, the company is treated as disposing of and reacquiring the excepted financial arrangement at its market value at the time the company stops being a member of the group.

Not dividend

(4) A transfer of an excepted financial arrangement to which this section applies does not give rise to a dividend.

Defined in this Act: company, dividend, excepted financial arrangement, resident in New Zealand, revenue account property, wholly-owned group of companies,

Compare: 1994 No 164 s EE 14

Subsection (1)(ab) was inserted, as from 1 July 2006, by section 67 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subpart EE—Depreciation

EE 1 What this subpart does

Meaning of own

EE 2 Nature of ownership of item

EE 3 Ownership of goods subject to reservation of title

EE 4 Ownership of lessee's improvements: lessee

EE 5 Ownership of lessee's improvements: other person

Meaning of depreciable property

EE 6 What is depreciable property?

EE 7 What is not depreciable property?

EE 8 Election that property not be depreciable

How amounts of depreciation loss and depreciation recovery income are calculated

EE 9 Description of elements of calculation

EE 10 Calculation rule: item temporarily not available

EE 11 Calculation rule: income year in which item disposed of

Methods

EE 12 Depreciation methods

Amount of depreciation loss under diminishing value method or straight-line method

EE 13 Application of sections EE 14 to EE 19

EE 14 Diminishing value or straight-line method: calculating amount of depreciation loss

EE 15 Amount of adjusted tax value

EE 16 Amount resulting from standard calculation

EE 17 Amount resulting from petroleum-related depreciable property calculation

EE 18 Cost: change from diminishing value to straight-line method

EE 19 Cost: fixed life intangible property

Amount of depreciation loss under pool method

EE 20 Application of sections EE 21 to EE 24

EE 21 Pool method: calculating amount of depreciation loss

EE 22 Cases affecting pool

EE 23 Combined pools

EE 24 Property ceasing to qualify for pool

EE 24B Depreciation loss for plant variety rights application upon grant of rights in 2005–06 or later income year

Depreciation rates

EE 25 Setting of economic depreciation rate

EE 25B Economic rate for certain depreciable property

EE 25C Economic rate for buildings

EE 25D Economic rate for certain aircraft and motor vehicles

EE 25E Economic rate for plant, equipment, or building, with high residual value

EE 26 Annual rate for item acquired in person's 1995-96 or later income year

EE 26B Election in respect of certain depreciable property acquired on or after 1 April 2005

EE 27 Annual rate for fixed life intangible property

EE 27B Annual rate for patent granted in 2005–06 or later income year

EE 27C Annual rate for patent applications lodged with complete specifications on or after 1 April 2005 [Repealed]

EE 27D Annual rate for patents: applications lodged with complete specifications on or after 1 April 2005 [Repealed]

EE 27E Annual rate for plant variety rights [Repealed]

EE 28 Special rate or provisional rate

EE 29 Using economic rate or provisional rate instead of special rate

Improvements, items of low value, or items no longer used

EE 30 Improvements

EE 31 Items of low value

EE 32 Items no longer used

Transfers of depreciable property: associated persons and non-qualifying amalgamations

EE 33 Transfer of depreciable property on or after 24 September 1997

EE 34 Transfer of depreciable property in non-qualifying amalgamation on or after 14 May 2002

EE 35 Transfer of radiocommunications licence right on or after 24 September 1997

EE 36 Transfer of depreciable intangible property on or after 1 July 1997

Disposals and similar events

EE 37 Application of sections EE 41 to EE 44

EE 38 Consideration for purposes of section EE 37

EE 39 Items for purposes of section EE 37

EE 40 Events for purposes of section EE 37

EE 41 Effect of disposal or event

EE 42 Amount of depreciation recovery income when item partly used for business

EE 43 Amount of depreciation recovery income when lost or stolen items recovered

EE 44 Amount of depreciation recovery income when compensation received

EE 44B Unused geothermal well brought into use

Interpretation provisions

EE 45 Cost: GST

Adjusted tax value

EE 46 Meaning of adjusted tax value

EE 47 Formula

EE 48 Base value in section EE 47 when none of sections EE 49, EE 50, and EZ 21(1) applies

EE 49 Base value in section EE 47 when no previous deduction

EE 50 Base value in section EE 47 when property is petroleum-related depreciable property

EE 51 Total deductions in section EE 47

EE 52 Meaning of annual rate

EE 53 Meaning of depreciable intangible property

EE 54 Meaning of estimated useful life

EE 55 Meaning of excluded depreciable property

EE 56 Meaning of maximum pooling value

EE 57 Meaning of poolable property

EE 58 Other definitions

Introductory provision

EE 1 What this subpart does

Quantifies amounts of depreciation loss and depreciation recovery income
(1) This subpart—
- (a) quantifies the amount of depreciation loss for which a person is allowed a deduction if the provisions of Part D (Deductions) are met; and
- (b) quantifies the amount of depreciation recovery income that is income under Part C (Income).
When amount of depreciation loss arises
(2) A person has an amount of depreciation loss for an item for an income year if—
- (a) the person owns an item of property, as described in sections EE 2 to EE 5; and
- (b) the item is depreciable property, as described in sections EE 6 to EE 8; and
- (c) the item is used, or is available for use, by the person in the income year; and
- (d) the amount of depreciation loss is calculated for the person, the item, and the income year under sections EE 9 to EE 11.
When amount of depreciation recovery income arises
(3) A person has an amount of depreciation recovery income for an item for an income year if—
- (a) the person owns an item of property, as described in sections EE 2 to EE 5; and
- (b) the item is depreciable property, as described in sections EE 6 to EE 8; and
- (c) the item is disposed of or an event of a kind described in section EE 40 occurs; and
- (d) the amount of depreciation recovery income is calculated for the person, the item, and the income year under any of sections EE 22(5), EE 31(4), EE 41(1), EE 42(2), EE 43(3), and EE 44(3).
Amounts of loss incurred and income derived
(4) To avoid doubt,—
- (a) an amount of depreciation loss is treated as being incurred in the income year for which it is calculated; and
- (b) an amount of depreciation recovery income is treated as being derived in the income year for which it is calculated.
Choice for allocation of deduction for depreciation loss—property used for research, development, market development
(4B) A person who in an income year uses an item for research or development or for market development that gives rise to a deduction allocated under section EJ 20 (Deductions for market development product of research, development), and as a result has an amount of depreciation loss for the item for the income year, may choose to allocate all or part of the deduction for the depreciation loss—
- (a) to an income year after the income year for which the person has the depreciation loss; and
- (b) in the way required by section EJ 21 (Allocation of deductions for research, development, resulting market development).
Partial income-producing use

(5) Subpart DE (Motor vehicle expenditure) and section FB 7 (Depreciation: partial income-producing use) contain rules for calculating the amount of deduction available for depreciation loss in circumstances in which an item of property is only partly used or available for use in a way that satisfies the general permission.

Defined in this Act: amount, deduction, depreciable property, depreciation loss, depreciation recovery income, development, dispose, general permission, income, income year, own, property, research,

Compare: 1994 No 164 s EG 1(1)

Subsection (4B) was inserted, as from 1 October 2005, by section 68(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year

The list of defined terms was amended, as from 1 October 2005, by section 68(2)(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “development” with application as from the income year corresponding to the 2005–06 tax year.

The list of defined terms was amended, as from 1 October 2005, by section 68(2)(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “research” with application as from the income year corresponding to the 2005–06 tax year.

Meaning of own

EE 2 Nature of ownership of item

Kinds of ownership
(1) Own, for the ownership of depreciable property,—
- (a) means legal or equitable ownership; and
- (b) includes ownership of the kinds described in sections EE 3 to EE 5.
Shared ownership

(2) When more than 1 person owns an item of depreciable property, own means the interest that the person has in the item.

Defined in this Act: depreciable property, own,

Compare: 1994 No 164 s EG 19(8)

EE 3 Ownership of goods subject to reservation of title

When this section applies
(1) This section applies when—
- (a) a person (buyer) enters into an unconditional contract to buy an item of depreciable property; and
- (b) the contract is not a hire purchase agreement and the item is not a hire purchase asset that is the subject of a hire purchase agreement; and
- (c) the contract is subject to the Sale of Goods Act 1908; and
- (d) title to the item does not pass until the purchase price is paid in full; and
- (e) the buyer takes possession of the item before title to it passes.
Buyer treated as owner
(2) The buyer is treated as owning, and the seller is treated as not owning, the item from the later of the following times:
- (a) the time at which the buyer enters into the contract; and
- (b) the time at which the buyer takes possession of the item.
Buyer ceases to be treated as owner
(3) Subsection (2) ceases to apply when 1 of the following occurs:
- (a) title to the item passes to the buyer; or
- (b) the seller repossesses the item.
Defined in this Act: depreciable property, hire purchase agreement, hire purchase asset, own,

Compare: 1994 No 164 s EG 1B

EE 4 Ownership of lessee's improvements: lessee

When this section applies
(1) This section applies when—
- (a) a lessee of land incurs expenditure during the period during which the land is leased to the lessee in erecting a fixture on the land or making an improvement to the land; and
- (b) the lessor owns the fixture or improvement.
(2) The following apply to the ownership of the fixture or improvement:
- (a) in the period during which the land is leased to the lessee,—
  - (i) the lessee is treated as owning the fixture or improvement; and
  - (ii) the lessor is treated as not owning the fixture or improvement; and
  - (iii) a person to whom the lessor disposes of the land during the period is treated as not owning the fixture or improvement; and
- (b) after the period during which the land is leased to the lessee,—
  - (i) the lessor is treated as not owning the fixture or improvement, unless the lessor incurs a cost relating to it at the end of the period; and
  - (ii) a person to whom the lessor disposes of the land during the period is treated as not owning the fixture or improvement.
Defined in this Act: improvement, lessee, lessor, own,

Compare: 1994 No 164 s EG 1A(1)-(3)

EE 5 Ownership of lessee's improvements: other person

When this section applies: first case
(1) This section applies when—
- (a) a lessee of land incurs expenditure during the term of the lease in erecting a fixture on the land or making an improvement to the land; and
- (b) the lessee has been allowed a deduction for an amount of depreciation loss for the fixture or improvement; and
- (c) the lessee disposes of their interest in the lease to another person; and
- (d) the other person pays the lessee for the fixture or improvement.
When this section applies: second case
(2) This section also applies when—
- (a) a lessee of land has been allowed a deduction for an amount of depreciation loss for a fixture on the land, or an improvement to the land, that a previous lessee erected or made; and
- (b) the lessee disposes of their interest in the lease to another person; and
- (c) the other person pays the lessee for the fixture or improvement.
Other person treated as owner

(3) The other person is treated as owning the fixture or improvement from the time at which they pay the lessee for it.

Defined in this Act: amount, deduction, depreciation loss, dispose, improvement, lease, lessee, own, term of the lease,

Compare: 1994 No 164 s EG 1A(4)

Meaning of depreciable property

EE 6 What is depreciable property?

Description
(1) Depreciable property is property that, in normal circumstances, might reasonably be expected to decline in value while it is used or available for use—
- (a) in deriving assessable income; or
- (b) in carrying on a business for the purpose of deriving assessable income.
Subsections (2) to (4) expand on this subsection.
Property: tangible
(2) An item of tangible property is depreciable property if—
- (a) it is described by subsection (1); and
- (b) it is not described by section EE 7.
Property: intangible
(3) An item of intangible property is depreciable property if—
- (a) it is within the definition of depreciable intangible property ; and
- (b) it is described by subsection (1); and
- (c) it is not described by section EE 7.
Property: geothermal wells

(4) For the purposes of this subpart, a person who owns a geothermal well is, for the geothermal energy proving period, treated as acquiring the well as property that declines in value and is to be available for use in carrying on a business for the purpose of deriving assessable income.

Defined in this Act: assessable income, business, depreciable intangible property, depreciable property, property, geothermal energy proving period, geothermal well,

Compare: 1994 No 164 s OB 1 depreciable property

Subsection (1) was amended, as from 17 May 2006, by section 29(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “Subsections (2) to (4)” for “Subsections (2) and (3)” with application to a geothermal well for the 2006–07 and later income years, if the well is completed or acquired on or after 1 April 2003.

Subsection (4) was inserted, as from 17 May 2006, by section 29(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application to a geothermal well for the 2006–07 and later income years, if the well is completed or acquired on or after 1 April 2003.

The list of defined terms was amended, as from 17 May 2006, by section 29(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by adding “geothermal energy proving period” and “geothermal well” with application to a geothermal well for the 2006–07 and later income years, if the well is completed or acquired on or after 1 April 2003.

EE 7 What is not depreciable property?

The following property is not depreciable property:
- (a) land, although buildings, fixtures, and the improvements listed in schedule 16 (Depreciable land improvements) are depreciable property if they are described by section EE 6(1):
- (b) trading stock:
- (c) livestock to which subpart EB (Valuation of trading stock (including dealer's livestock)) applies:
- (d) financial arrangements:
- (e) excepted financial arrangements:
- (f) property that will not decline in value, as far as its owner is concerned, because, when they dispose of it, they have a right to be compensated for any decline in its value:
- (g) property that its owner chooses, under section EE 8, to treat as not depreciable:
- (h) property that its owner chooses, under section EE 31, to deal with under that section:
- (i) property for whose cost a person other than the property's owner is allowed a deduction:
- (j) property for whose cost a person is allowed a deduction under a provision of this Act outside this subpart or under a provision of an earlier Act, except for an asset to which section DU 6(4) (Depreciation) applies.
Defined in this Act: deduction, depreciable property, dispose, excepted financial arrangement, financial arrangement, own, property, trading stock,

Compare: 1994 No 164 s OB 1depreciable property

Paragraphs (a) to (i) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

EE 8 Election that property not be depreciable

Item acquired

(1) A person may choose that an item of property they acquire not be depreciable property even though, in the absence of the election, it would be depreciable property.

Item changing use
(2) A person may choose that an item of property they own ceases to be depreciable property if—
- (a) the use of the item changes; and
- (b) before the use changes, the person was denied a deduction for an amount of depreciation loss for the item; and
- (c) after the use changes, in the absence of the election, the person would have been allowed a deduction for an amount of depreciation loss for the item.
Retrospective election

(3) A person who has deducted none of the amounts of depreciation loss for which they were allowed a deduction for an item of property, in the income year in which they acquired it and in each later year, may retrospectively choose that the item not be depreciable property.

How elections made
(4) An election under this section is made as follows:
- (a) a person makes an election under subsection (1) by giving the Commissioner notice of it in their return of income for the income year in which they acquire the item; and
- (b) a person makes an election under subsection (2) by giving the Commissioner notice of it in their return of income for the income year in which the item's use changes; and
- (c) a person makes an election under subsection (3) by giving the Commissioner notice of it in their return of income for any income year after they acquire the item, including an income year after they dispose of the item.
Effect of election
(5) An election under this section has effect for the person for—
- (a) the income year for which they make the election; and
- (b) all later income years until—
  - (i) the item is disposed of, although this reference to disposal does not include the disposal of an item of intangible property as part of an arrangement to replace it with an item of the same kind; or
  - (ii) an event described in section EE 40 occurs involving the item.
Retrospective effect of election
(6) An election made under subsection (3) also has retrospective effect for the person for—
- (a) the income year in which they acquire the property; and
- (b) all intervening income years until the year in which they make the election.
Defined in this Act: acquire, amount, Commissioner, deduction, depreciable property, depreciation loss, dispose, income year, notice, property, return of income,

Compare: 1994 No 164 s EG 16A

How amounts of depreciation loss and depreciation recovery income are calculated

EE 9 Description of elements of calculation

Depreciation methods
(1) Sections EE 12 to EE 24 deal with the methods of calculating an amount of depreciation loss. The methods are—
- (a) the straight-line method, which is dealt with in sections EE 13 to EE 19; and
- (b) the diminishing value method, which is also dealt with in sections EE 13 to EE 19; and
- (c) the pool method, which is dealt with in sections EE 20 to EE 24.
Depreciation rates
(2) Sections EE 25 to EE 29 deal with the rates of depreciation. The rates are—
- (a) the economic rate, which is dealt with in section EE 25; and
- (b) the annual rate, which is dealt with in sections EE 26 and EE 27; and
- (c) a special rate or a provisional rate, both of which are dealt with in sections EE 28 and EE 29.
Improvements, low value items, and items no longer used
(3) Sections EE 30 to EE 32 deal with the cases of—
- (a) an improvement made to an item of depreciable property; and
- (b) an item of depreciable property that is of low value; and
- (c) an item of depreciable property that is no longer used.
Transfers

(4) Sections EE 33 to EE 36 deal with the transfer of items of depreciable property in non-qualifying amalgamations and between associated persons.

Disposals and similar events

(5) Sections EE 37 to EE 44 deal with disposals of property and events that involve property and are similar to disposal.

Interpretation provisions
(6) Sections EE 45 to EE 58 deal with the following interpretation matters:
- (a) section EE 45 deals with the effect of GST on cost; and
- (b) sections EE 46 to EE 51 deal with the meaning of adjusted tax value ; and
- (c) sections EE 52 to EE 58 contain definitions.
Relationship with sections EZ 8 to EZ 26

(7) Sections EZ 8 to EZ 26 (which relate to depreciation) deal with items acquired in periods before 24 September 1997.

Defined in this Act: adjusted tax value, amount, annual rate, associated person, depreciable property, depreciation loss, depreciation method, diminishing value method, dispose, economic rate, GST, improvement, pool method, property, provisional rate, special rate, straight-line method,

Compare: 1994 No 164 s EG 3

EE 10 Calculation rule: item temporarily not available

An item of depreciable property is treated as being available for use while subject temporarily to repair or inspection, if it was used or available for use immediately before going for repair or inspection.

Defined in this Act: depreciable property,

Compare: 1994 No 164 s EG 2(2A)

EE 11 Calculation rule: income year in which item disposed of

Generally no amount of depreciation loss

(1) A person does not have an amount of depreciation loss for an item of depreciable property for the income year in which they dispose of it.

Exclusion: building or petroleum-related depreciable property
(2) A person has an amount of depreciation loss for an item of depreciable property for the income year in which they dispose of it, if it is—
- (a) a building; or
- (b) an item of petroleum-related depreciable property.
Exclusion: empty pool

(3) A person has the amount of depreciation loss calculated under section EE 22(4)(a) for an income year for a disposal to which the subsection applies.

Exclusion: consideration less than adjusted tax value

(4) A person has the amount of depreciation loss calculated under section EE 41(2) for a disposal or event to which the subsection applies.

Exclusion: item partly used for business

(5) A person has the amount of depreciation loss calculated under section FB 7(6)) (Depreciation: partial income-producing use) for a disposal or event to which the section applies.

Exclusion: recent acquisition of item partly used for business

(6) A person has the amount of depreciation loss calculated under section FB 7(9) (Depreciation: partial income-producing use) for a disposal or event to which the subsection applies.

Defined in this Act: adjusted tax value, amount, business, depreciable property, depreciation loss, dispose, income year, petroleum-related depreciable property,

Compare: 1994 No 164 s EG 1(2)

Subsection (5) was amended, as from 1 April 2005, by section 26 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “section” for “subsection” with application as from the 2005–06 income year.

Subsection (5) was amended, as from 1 October 2005, by section 192 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “FB 7(6) (Depreciation: partial income-producing use)” for “EE 42” with application as from the 2005–06 income year.

Subsection (6) was inserted, as from 18 December 2006, by section 30(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005–06 income year.

Methods

EE 12 Depreciation methods

Meaning of depreciation method
(1) Depreciation method means—
- (a) a method that a person may use to calculate an amount of depreciation loss:
- (b) a rate determined by the Commissioner under section 91AAF or 91AAG of the Tax Administration Act 1994:
- (c) a maximum pooling value determined by the Commissioner under section 91AAL of that Act.
Methods described
(2) The depreciation methods are—
- (a) the diminishing value method, which—
  - (i) may be used for any item of depreciable property except one referred to in subparagraph (ii) or (iii); and
  - (ii) must not be used for an item of fixed life intangible property:
  - (iii) must not be used for an item of property in the circumstances described in section EZ 8 (Pool method for items accounted for by globo method for 1992-93 income year); and
- (b) the straight-line method, which—
  - (i) may be used for any item of depreciable property; and
  - (ii) must be used for an item of fixed life intangible property:
- (c) the pool method, which—
  - (i) may be used for any item of poolable property except one referred to in subparagraph (ii); and
  - (ii) must not be used for an item of fixed life intangible property; and
  - (iii) must be used for an item of property in the circumstances described in section EZ 8 (Pool method for items accounted for by globo method for 1992-93 income year).
Person chooses

(3) A person chooses which of the depreciation methods they will use for each item of depreciable property they own.

How person chooses

(4) The person chooses the method by using the chosen method for the item in their return of income for the income year for which they make the election.

Diminishing value or straight-line method fixed for income year

(5) If the person chooses the diminishing value method or the straight-line method, they must use the method for the item and the income year and must not change the election for the income year.

Pool method fixed for income year and later income years
(6) If the person chooses the pool method, they must use the method for the item and the income year and must not change the election for—
- (a) the income year; or
- (b) a later income year in which the item is still poolable property that they own.
Defined in this Act: amount, depreciable property, depreciation loss, depreciation method, diminishing value method, fixed life intangible property, income year, own, pool method, poolable property, property, return of income, straight-line method,

Compare: 1994 No 164 s EG 3(1)-(4)

Subsection (1) was amended, as from 1 October 2005, by section 25 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “loss, and includes a rate determined by the Commissioner under section 91AAF, 91AAG, or 91AAL of the Tax Administration Act 1994.” for “loss.” with application as from the 2005–06 income year.

Subsection (1) was substituted, as from 1 April 2005, by section 31(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005–06 income year.

Subsection (2)(a)(ii) and (b)(ii) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Amount of depreciation loss under diminishing value method or straight-line method

EE 13 Application of sections EE 14 to EE 19

Sections EE 14 to EE 19 apply to the calculation of the amount of depreciation loss that a person using the diminishing value method or the straight-line method has.

Defined in this Act: amount, depreciation loss, diminishing value method, straight-line method,

EE 14 Diminishing value or straight-line method: calculating amount of depreciation loss

Most depreciable property

(1) The amount of depreciation loss that the person has for an income year for an item of depreciable property is the lesser of the amounts dealt with in sections EE 15 and EE 16.

Exclusion: petroleum-related depreciable property

(2) The amount of depreciation loss that the person has for an income year for an item of petroleum-related depreciable property is the lesser of the amounts dealt with in sections EE 15 and EE 17.

Defined in this Act: amount, depreciable property, depreciation loss, income year, petroleum-related depreciable property,

Compare: 1994 No 164 s EG 2(1)

EE 15 Amount of adjusted tax value

For the purposes of the comparison of amounts required by section EE 14(1) and (2), the amount dealt with in this section is the item's adjusted tax value at the end of the income year before the deduction of an amount of depreciation loss for the item for the income year.

Defined in this Act: adjusted tax value, amount, deduction, depreciation loss, income year,

Compare: 1994 No 164 s EG 2(1)(c)

EE 16 Amount resulting from standard calculation

Amount

(1) For the purposes of the comparison of amounts required by section EE 14(1), the amount dealt with in this section is calculated using the formula—

Definition of items in formula

(2) The items in the formula are defined in subsections (3) to (5).

Annual rate

(3) Annual rate is the annual rate that, in the income year, applies to the item of depreciable property under the depreciation method that the person uses for the item. It is expressed as a decimal.

Value or cost
(4) Value or cost is,—
- (a) when the person uses the diminishing value method, the item's adjusted tax value at the end of the income year before the deduction of an amount of depreciation loss for the item for the income year:
- (b) when the person uses the straight-line method,—
  - (i) if subparagraph (ii) does not apply, the item's cost to the person excluding expenditure for which the person is allowed a deduction under a provision of this Act outside this subpart (variations to cost are in sections EE 18 and EE 19):
  - (ii) if the item is a patent or plant variety rights and the person has been allowed a deduction for depreciation loss for the patent application or plant variety rights application relating to the item, the item's adjusted tax value at the start of the month in which the person acquires the item (a variation to cost is in section EE 19).
Months: income year of normal length or shorter
(5) Months, for a person whose income year contains 365 days or fewer (or 366 days or fewer in a leap year), is the lesser of the following:
- (a) 12; and
- (b) the number of whole or part calendar months (or whole calendar months in the case of a patent application) in the income year in which—
  - (i) the person owns the item; and
  - (ii) the person uses the item or has it available for use for any purpose.
Months: income year of longer than normal length
(6) Months, for a person whose income year contains more than 365 days (or more than 366 days in a leap year) is the number of whole or part months (or whole months in the case of a patent application) in the income year in which—
- (a) the person owns the item; and
- (b) the person uses the item or has it available for use for any purpose.
Defined in this Act: adjusted tax value, amount, annual rate, deduction, depreciable property, depreciation loss, depreciation method, diminishing value method, income year, own, straight-line method,

Compare: 1994 No 164 s EG 2(1)(a)

Subsection (4)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (4)(b) was substituted, as from 1 October 2005, by section 32(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application to an item that is a patent or plant variety rights, if the item is acquired by a person in their 2005–06 or later income year.

Subsection (5)(b) was amended, as from 1 October 2005, by section 32(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “(or whole calendar months in the case of a patent application)” after “part calendar months” with application to a patent application, if the patent application, with a complete specification, is first lodged with the Intellectual Property Office of New Zealand or a similar office in another jurisdiction on or after 1 April 2005.

Subsection (6) was amended, as from 1 October 2005, by section 32(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “(or whole months in the case of a patent application)” after “part months” with application to a patent application, if the patent application, with a complete specification, is first lodged with the Intellectual Property Office of New Zealand or a similar office in another jurisdiction on or after 1 April 2005.

EE 17 Amount resulting from petroleum-related depreciable property calculation

Amount

(1) For the purposes of the comparison of amounts required by section EE 14(2), the amount dealt with in this section is calculated using the formula—

Definition of items in formula

(2) The items in the formula are defined in subsections (3) to (5).

Annual rate

(3) Annual rate is the annual rate that, in the income year, applies to the item of depreciable property under the depreciation method that the person uses for the item. It is expressed as a decimal.

Value or cost
(4) Value or cost is,—
- (a) when the person uses the diminishing value method, the item's adjusted tax value at the end of the income year before the deduction of an amount of depreciation loss for the item for the income year:
- (b) when the person uses the straight-line method, the item's cost to the person. (A variation to cost is in section EE 18.)
Days
(5) Days is the number of whole or part days in the income year on which—
- (a) the person owns the item; and
- (b) the person uses the item or has it available for use for any purpose.
Defined in this Act: adjusted tax value, amount, annual rate, deduction, depreciable property, depreciation loss, depreciation method, diminishing value method, income year, own, straight-line method,

Compare: 1994 No 164 s EG 2(1)(b)

Subsection (4)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EE 18 Cost: change from diminishing value to straight-line method

When this section applies

(1) This section applies when a person changes from the diminishing value method to the straight-line method for an item of property for an income year.

How straight-line method applies

(2) For the purposes of the formulas in sections EE 16 and EE 17, the item's cost is treated as being the item's adjusted tax value at the end of the income year before the deduction of an amount of depreciation loss for the item for the income year.

Defined in this Act: adjusted tax value, amount, deduction, depreciation loss, diminishing value method, income year, property, straight-line method,

Compare: 1994 No 164 s EG 3(6)

EE 19 Cost: fixed life intangible property

When this section applies
(1) This section applies when—
- (a) a person owns an item of fixed life intangible property; and
- (b) the person incurs additional costs in an income year for the item; and
- (c) the person is denied a deduction for the additional costs other than a deduction for an amount of depreciation loss.
Additional costs for fixed life intangible property
(2) For the purposes of the formula in section EE 16, the item's cost at the start of the income year is treated as being the total of—
- (a) the item's adjusted tax value at the start of the income year; and
- (b) the additional costs the person incurs.
Defined in this Act: adjusted tax value, amount, deduction, depreciation loss, fixed life intangible property, income year, own,

Compare: 1994 No 164 s EG 2(3)

Amount of depreciation loss under pool method

EE 20 Application of sections EE 21 to EE 24

Sections EE 21 to EE 24 apply to the calculation of the amount of depreciation loss that a person using the pool method has.

Defined in this Act: amount, depreciation loss, pool method,

EE 21 Pool method: calculating amount of depreciation loss

Amount of depreciation loss subtracted from pool's value
(1) The amount of depreciation loss that a person has for an income year for a pool of depreciable property is—
- (a) first, calculated under subsection (2); and
- (b) second, subtracted from the pool's adjusted tax value at the end of the income year.
Amount

(2) The amount of depreciation loss is calculated using the formula—

Definition of items in formula

(3) The items in the formula are defined in subsections (4) to (8).

Rate
(4) Rate is the diminishing value rate. It is 1 of the following:
- (a) if the same rate applies to all items depreciated in the pool in the income year, that rate; or
- (b) if different rates apply to items depreciated in the pool in the income year,—
- (i) the lower of the rates, if there are 2 items in the pool; or
- (ii) the lowest of the rates, if there are 3 or more items in the pool.
Starting adjusted tax value
(5) Starting adjusted tax value is—
- (a) the pool's adjusted tax value at the start of the income year; or
- (b) zero, if the pool did not exist at the start of the income year.
A variation to starting adjusted tax value is in section EE 22(2)(b).
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.

Months: income year of normal length or shorter
(7) Months, for a person whose income year contains 365 days or fewer (or 366 days or fewer in a leap year), is the lesser of the following:
- (a) 12; and
- (b) the number of whole or part months in the income year in which—
- (i) the person owns the item; and
- (ii) the person uses the item or has it available for use for any purpose.
Months: income year of longer than normal length
(8) Months, for a person whose income year contains more than
- (a) the person owns the item; and
- (b) the person uses the item or has it available for use for any purpose.
Defined in this Act: adjusted tax value, amount, deduction, depreciable property, depreciation loss, diminishing value rate, income year, own, pool,

Compare: 1994 No 164 ss EG 2(2), EG 11(1), (2)

EE 22 Cases affecting pool

Acquired item included

(1) If a person chooses in an income year to include in a pool an item of poolable property that they acquire in the income year, the pool's adjusted tax value is increased by the item's cost.

Separately depreciated item included
(2) If a person chooses in an income year to include in a pool an item of poolable property that they depreciated separately in the previous income year,—
- (a) the pool's adjusted tax value is increased by the item's adjusted tax value on the date it is included in the pool; and
- (b) the item's adjusted tax value at the end of the previous income year is included in starting adjusted tax value in section EE 21(5).
Item disposed of

(3) If a person disposes of an item included in a pool, any consideration they derive from the disposal is subtracted from the adjusted tax value of the pool in which the item was included on the date of the disposal.

All items disposed of
(4) If, on the last day of an income year, the adjusted tax value of a person's pool is positive but the person has disposed of all items that were in the pool,—
- (a) the amount of depreciation loss that the person has for the pool for the income year is the pool's adjusted tax value; and
- (b) on the first day of the following income year, the pool's adjusted tax value is zero.
Negative adjusted tax value
(5) If, on the last day of an income year, the adjusted tax value of a person's pool is negative,—
- (a) the amount by which the adjusted tax value is negative is an amount of depreciation recovery income of the person derived in the income year; and
- (b) on the first day of the following income year the pool's adjusted tax value is zero.
Relationship with section EZ 9

(6) Section EZ 9 (Pool items accounted for by globo method for 1992-93 income year) limits the amount of income arising under subsection (5)(a) in the circumstances described in the section.

Defined in this Act: acquire, adjusted tax value, amount, depreciation loss, depreciation recovery income, dispose, income, income year, pool, poolable property,

Compare: 1994 No 164 s EG 11(3)-(4A)

EE 23 Combined pools

Combining pools allowed

(1) A person using the pool method may at any time combine any number of pools to form a single pool.

Consequences
(2) When a person combines pools,—
- (a) the new pool's adjusted tax value is the same as the sum of the adjusted tax values of the constituent pools; and
- (b) the adjusted tax value of each of the constituent pools at the end of the income year in which the pools are combined is zero; and
- (c) each of the constituent pools ceases to exist.
Defined in this Act: adjusted tax value, income year, pool, pool method,

Compare: 1994 No 164 s EG 11(5)

EE 24 Property ceasing to qualify for pool

If a person starts using an item of property included in a pool in such a way as to cause the item to cease to meet section EE 57(4), they must account for it as if, on the day they first used it in that way,—
- (a) they disposed of it for its market value; and
- (b) they immediately reacquired it for its market value.
Defined in this Act: acquire, dispose, pool, property,

Compare: 1994 No 164 s EG 11(8)

EE 24B Depreciation loss for plant variety rights application upon grant of rights in 2005–06 or later income year

When this section applies
(1) This section applies if—
- (a) plant variety rights are granted to a person in their 2005–06 or later income year; and
- (b) the plant variety rights are granted in relation to a plant variety rights application owned by the person; and
- (c) a deduction for expenditure is not allowed under another provision.
Calculation of deduction

(2) A person is allowed a deduction for the income year in which the plant variety rights are granted, for expenditure on the plant variety rights application, calculated using the formula—

Definition of items in formula
(3) In the formula,—
- (a) cost means the cost to the person of the plant variety rights application:
- (b) months of ownership means the number of whole calendar months for which the person owns the plant variety rights application:
- (c) depreciation months means the total of the number of months of ownership under paragraph (b) and the number of months in the term for which the plant variety rights are granted in relation to the plant variety rights application.
Defined in this Act: amount, deduction, depreciation, income year, plant variety rights,

Section EE 24B was inserted, as from 1 October 2005, by section 33 Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Depreciation rates

EE 25 Setting of economic depreciation rate

Relevant provisions
(1) The economic depreciation rate that applies to a kind of item of depreciable property is set under—
- (a) section EE 25B, for items that—
  - (i) are not buildings, fixed life intangible property, excluded depreciable property, or property for which an economic rate is given by section EE 25D or set under section EE 25E; and
  - (ii) are acquired on or after 1 April 2005:
- (b) section EE 25C, for items that are buildings and—
  - (i) are acquired on or after 19 May 2005; and
  - (ii) do not have an economic depreciation rate set under section EZ 21B:
- (c) section EE 25D, for certain aircraft and motor vehicles acquired on or after 1 April 2005:
- (d) section EE 25E, for items that—
  - (i) have an estimated residual market value greater than 13.5% of cost:
  - (ii) would, in the absence of section EE 25E, have an economic depreciation rate set under section EE 25B or EE 25C:
- (e) section EZ 21B (Economic rate for plant or equipment acquired before 1 April 2005 and buildings acquired before 19 May 2005) for items that—
  - (i) are not buildings, fixed life intangible property, or excluded depreciable property and are acquired before 1 April 2005:
  - (ii) are buildings acquired before 19 May 2005:
  - (iii) are buildings acquired on or after 19 May 2005, as relationship property or from a company in the same wholly-owned group of companies, from a person who applied to the item an economic depreciation rate set under section EZ 21B or a corresponding provision.
No rate for fixed life intangible property or excluded depreciable property

(2) An economic depreciation rate must not be set for a kind of item of depreciable property that is fixed life intangible property or excluded depreciable property.

Relationship with subject matter: election under section EE 26B

(3) Subsection (1)(a), (c), and (d) are overridden by section EE 26B.

Defined in this Act: depreciable property, economic rate, estimated residual market value, excluded depreciable property, fixed life intangible property,

Subsection (2)(b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “91AAF” for “91AD”.

Section EE 25 was substituted, as from 3 April 2006, by section 69(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

Subsection (3) was substituted, as from 3 April 2006, by section 34(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005–06 income year.

EE 25B Economic rate for certain depreciable property

What this section is about

(1) This section is about setting the economic depreciation rate that applies to a kind of item of depreciable property.

Exclusion

(2) This section does not apply to buildings, fixed life intangible property, excluded depreciable property, or property for which an economic rate is given by section EE 25D or set under section EE 25E.

Rate set by Commissioner
(3) The Commissioner sets the rate from time to time by—
- (a) following the procedure set out in this section; and
- (b) issuing a determination under section 91AAF of the Tax Administration Act 1994.
Procedure for setting economic rate
(4) To set the diminishing value rate for a kind of item of depreciable property, the Commissioner—
- (a) gets a figure by applying the formula in subsection (5) to items of that kind; and
- (b) rounds the figure up or down to the nearest rate specified in schedule 11B, column 1 (Banded rates of depreciation); and
- (c) sets the same rate for some or all of the kinds of items of depreciable property that are similar to one another, if the Commissioner thinks it is appropriate to do so having regard to—
  - (i) the rate calculated for each kind; and
  - (ii) the reduction in compliance costs that is likely to be achieved.
Formula

(5) The formula is—

Definition of item in formula

(6) In the formula, estimated useful life is the estimated useful life of the item expressed in years.

Defined in this Act: Commissioner, depreciable property, diminishing value rate, economic rate, estimated useful life, excluded depreciable property, fixed life intangible property,

Sections EE 25B to EE 25E were inserted, as from 3 April 2006, by section 70(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

EE 25C Economic rate for buildings

What this section is about

(1) This section is about setting the economic depreciation rate that applies to a kind of item of depreciable property that is a building and for which an economic rate is not set under section EE 25E or EZ 21B.

Rate set by Commissioner
(2) The Commissioner sets the rate from time to time by—
- (a) following the procedure set out in this section; and
- (b) issuing a determination under section 91AAF of the Tax Administration Act 1994.
Procedure for setting economic rate
(3) To set the straight-line rate for a kind of item of depreciable property, the Commissioner—
- (a) gets a figure by applying the formula in subsection (4) to items of that kind; and
- (b) rounds the figure up or down to the nearest rate specified in schedule 11B, column 4 (Banded rates of depreciation); and
- (c) sets the same rate for some or all of the kinds of buildings that are similar to one another, if the Commissioner thinks it is appropriate to do so having regard to—
  - (i) the rate calculated for each kind; and
  - (ii) the reduction in compliance costs that is likely to be achieved.
Formula

(4) The formula is—

Definition of item in formula

(5) In the formula, estimated useful life is the estimated useful life of the item expressed in years.

Contracts existing at 19 May 2005

(6) Despite subsection (1), a person who before 19 May 2005 enters into a binding contract for the purchase or construction of a building must apply to the building the economic rate for the type of the building determined under section EZ 21B (Economic rate for plant or equipment acquired before 1 April 2005 and buildings acquired before 19 May 2005).

Defined in this Act: Commissioner, depreciable property, diminishing value rate, economic rate, estimated useful life, excluded depreciable property, fixed life intangible property,

Sections EE 25B to EE 25E were inserted, as from 3 April 2006, by section 70(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

EE 25D Economic rate for certain aircraft and motor vehicles

What this section does

(1) This section gives the economic depreciation rate for certain aircraft and motor vehicles.

Rate for certain aircraft
(2) The economic rate for an aircraft is a diminishing value rate of 10% or a straight-line rate of 7% if the aircraft—
- (a) is self-propelled; and
- (b) has fixed wings; and
- (c) is not an international aircraft; and
- (cb) is not used for top-dressing or spraying; and
- (d) is not a helicopter.
Rate for certain motor vehicles
(3) The economic rate for a motor vehicle that is designed exclusively or mainly to carry persons, and has seats for no more than 12 persons, is a diminishing value rate of 30% or a straight-line rate of 21% if the motor vehicle—
- (a) is not available for hire:
- (b) is available for hire for a hire period of more than 1 month:
- (c) is a taxi:
- (d) is a minibus.
Defined in this Act: diminishing value rate, economic rate, international aircraft, minibus, straight-line rate,

Sections EE 25B to EE 25E were inserted, as from 3 April 2006, by section 70(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

Subsection (2)(cb) was inserted, as from 3 April 2006, by section 35(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005-06 income year.

Subsection (3) was amended, as from 3 April 2006, by section 35(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “that is designed exclusively or mainly to carry persons, and has seats for no more than 12 persons,” for “having seats for no more than 12 persons” with application as from the 2005-06 income year.

EE 25E Economic rate for plant, equipment, or building, with high residual value

What this section is about
(1) This section is about setting the economic depreciation rate that applies to items of a kind of depreciable property if—
- (a) the kind of depreciable property is not fixed life intangible property, or excluded depreciable property, for which an economic rate cannot be set; and
- (b) the estimated residual market value for the item is more than 13.5%; and
- (c) the items are—
  - (i) plant or equipment acquired on or after 1 April 2005:
  - (ii) buildings acquired on or after 19 May 2005.
Rate set by Commissioner
(2) The Commissioner sets the rate from time to time by—
- (a) following the procedure set out in this section; and
- (b) issuing a determination under section 91AAF of the Tax Administration Act 1994.
Procedure for setting economic rate
(3) To set the diminishing value rate for a kind of item of depreciable property, the Commissioner—
- (a) gets a figure by applying the formula in subsection (4) to items of that kind; and
- (b) rounds the figure up or down to the nearest rate specified in schedule 11, column 1 (Banded rates of depreciation); and
- (c) sets the same rate for some or all of the kinds of items of depreciable property that are similar to one another, if the Commissioner thinks it is appropriate to do so having regard to—
  - (i) the rate calculated for each kind; and
  - (ii) the reduction in compliance costs that is likely to be achieved.
Formula

(4) The formula is—

Definition of item in formula
(5) In the formula,—
- (a) residual value is the greater of—
  - (i) estimated residual market value, which is defined in section EE 58:
  - (ii) 13.5% of cost:
- (b) cost is the cost of items of the kind to which the formula is applied:
- (c) estimated useful life is defined in section EE 54.
Defined in this Act: Commissioner, depreciable property, diminishing value rate, economic rate, estimated residual market value, estimated useful life, excluded depreciable property, fixed life intangible property,

Sections EE 25B to EE 25E were inserted, as from 3 April 2006, by section 70(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

Subsection (1) (except the heading) was substituted, as from 3 April 2006, by section 36(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005-06 income year.

EE 26 Annual rate for item acquired in person's 1995-96 or later income year

What this section is about

(1) This section is about the annual rate that applies to an item of depreciable property that a person acquires, other than under section FCB 3 (Emigrating company treated as disposing of property and immediately reacquiring property), in their 1995-96 income year or a later income year (not including fixed life intangible property or excluded depreciable property, for which rates are set in sections EE 27 and EZ 14 (Annual rate for excluded depreciable property: 1992-93 tax year)).

Rate
(2) The rate is 1 of the following:
- (a) the item's economic rate, for an item not described in either paragraph (b) or (c):
- (b) the item's economic rate multiplied by 1.2, for an item that—
  - (i) has not been used or held for use in New Zealand as an item of depreciable property before the date on which the person acquires it; and
  - (ii) is not a building; and
  - (iii) is not a used imported motorcar; and
  - (iv) is not an international aircraft:
- (c) a diminishing value rate of 15% or a straight-line rate of 10%, for an international aircraft.
Defined in this Act: acquire, annual rate, depreciable property, diminishing value rate, economic rate, excluded depreciable property, fixed life intangible property, income year, international aircraft, New Zealand, straight-line rate,

Compare: 1994 No 164 ss EG 6, EG 7

Subsection (1) was amended, as from 3 April 2006, by section 71(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “, other than under section FCB 3 (Emigrating company treated as disposing of property and immediately reacquiring property),” after “a person acquires” with application as from the income year corresponding to the 2005–06 tax year.

Subsection (2)(a) and (b)(iv) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

EE 26B Election in respect of certain depreciable property acquired on or after 1 April 2005

When this section applies
(1) This section applies if a person acquired an item of depreciable property that is not a building—
- (a) on or after 1 April 2005; and
- (b) before the commencement of the person's income year corresponding to the 2006–07 tax year.
Election to use economic depreciation rate determined under section EZ 21B

(2) The person may elect to calculate the depreciation loss for the item of depreciable property for income years corresponding to the 2005–06 and subsequent tax years in accordance with the economic depreciation rate determined for the type of item under section EZ 21B (Economic rate for plant or equipment acquired before 1 April 2005 and buildings acquired before 19 May 2005).

Election to be made in return of income

(3) The person must make an election under subsection (2) in the person's return of income for the 2005-06 tax year.

Defined in this Act: depreciable property, depreciation loss, economic depreciation rate, income year, return of income, tax year.,

Section EE 26B was inserted, as from 3 April 2006, by section 72(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

EE 27 Annual rate for fixed life intangible property

What this section is about
(1) This section is about the annual rate that applies to an item of fixed life intangible property, not including—
- (a) an item of excluded depreciable property for which a rate is set in section EZ 14 (Annual rate for excluded depreciable property: 1992-93 tax year):
- (b) a patent for which a rate is set in section EE 27B.
- (c) [Repealed]
Rate

(2) The rate is the rate calculated using the formula—

Definition of item in formula
(3) In the formula, legal life is,—
- (a) if section EE 19 applies, the item's remaining legal life from the start of the income year in which a person incurs the additional costs referred to in that section:
- (b) if section EE 19 does not apply, the item's remaining legal life from the time at which a person acquires it.
How rate expressed

(4) The rate given by the formula is expressed as a decimal and rounded to 2 decimal places, with numbers at the midpoint or greater being rounded up and other numbers being rounded down.

Defined in this Act: acquire, annual rate, excluded depreciable property, fixed life intangible property, income year, legal life,

Compare: 1994 No 164 s EG 8

Subsection (1) was amended, as from 1 October 2005, by section 27 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “, not including—” for “(not including an item of excluded depreciable property, for which a rate is set in section EZ 14 (Annual rate for excluded depreciable property: 1992-93 tax year)).” with application as from the 2005–06 income year.

Subsection (1)(a) to (c) was inserted, as from 1 October 2005, by section 27 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Subsection (1)(b) was substituted, as from 1 October 2005, by section 37(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application to a patent, if the patent is acquired by a person as from their 2005–06 income year.

Subsection (1)(c) was repealed, as from 1 October 2005, by section 37(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application to a patent, if the patent is acquired by a person as from their 2005–06 income year.

EE 27B Annual rate for patent granted in 2005–06 or later income year

When this section applies

(1) This section applies to an item that is a patent, if the patent is acquired by a person in their 2005–06 or later income year.

Rate

(2) The rate is calculated using the formula—

Definition of item in formula
(3) In the formula, legal life is—
- (a) the patent's remaining legal life from the start of the income year in which the person incurs the additional costs referred to in that section, if section EE 19 applies to the patent; or
- (b) the patent's remaining legal life from the time at which the person acquires the patent, if—
  - (i) section EE 19 does not apply to the patent; and
  - (ii) the person has not been allowed a deduction for depreciation loss for the patent application relating to the patent; or
- (c) the remaining legal life of the patent application relating to the patent from the start of the income year in which the person acquires the patent application, if—
  - (i) section EE 19 does not apply to the patent; and
  - (ii) the person has been allowed a deduction for depreciation loss for the patent application; and
  - (iii) section EE 19 has not applied to the patent application while the person has owned it; or
- (d) the remaining legal life of the patent application relating to the patent from the start of the income year in which the person acquires the patent, if—
  - (i) section EE 19 does not apply to the patent; and
  - (ii) the person has been allowed a deduction for depreciation loss for the patent application; and
  - (iii) section EE 19 has applied to the patent application while the person has owned it.
How rate expressed

(4) The rate calculated using the formula is expressed as a decimal and rounded to 2 decimal places, with numbers at the midpoint or greater being rounded up and other numbers being rounded down.

Defined in this Act: acquire, deduction, depreciation loss, income year, legal life,

Sections EE 27B to EE27E were inserted, as from 1 October 2005, by section 28 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Section EE 27B was substituted, as from 1 October 2005, by section 38 Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

EE 27C Annual rate for patent applications lodged with complete specifications on or after 1 April 2005

[Repealed]

Sections EE 27B to EE27E were inserted, as from 1 October 2005, by section 28 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Sections EE 27C to EE27E were repealed, as from 1 October 2005, by section 38 Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

EE 27D Annual rate for patents: applications lodged with complete specifications on or after 1 April 2005

[Repealed]

Sections EE 27B to EE27E were inserted, as from 1 October 2005, by section 28 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Sections EE 27C to EE27E were repealed, as from 1 October 2005, by section 38 Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

EE 27E Annual rate for plant variety rights

[Repealed]

Sections EE 27B to EE27E were inserted, as from 1 October 2005, by section 28 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Sections EE 27C to EE27E were repealed, as from 1 October 2005, by section 38 Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

EE 28 Special rate or provisional rate

Rate set for item of depreciable property

(1) A special rate or a provisional rate is set for an item of depreciable property under sections 91AAG to 91AAJ of the Tax Administration Act 1994.

No special rate for excluded depreciable property

(2) A special rate may not be set for an item of excluded depreciable property.

No provisional rate for fixed life intangible property or excluded depreciable property

(3) A provisional rate may not be set for an item of fixed life intangible property or an item of excluded depreciable property.

Defined in this Act: depreciable property, excluded depreciable property, fixed life intangible property, provisional rate, special rate.,

Section EE 28 was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “91AAG to 91AAJ” for “91AE to 91AH”.

Section EE 28 was substituted, as from 1 October 2005, by section 29 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

EE 29 Using economic rate or provisional rate instead of special rate

Allowed to use economic or provisional rate

(1) A person may depreciate an item to which a special rate applies by applying, instead, the economic rate applicable to the item or a provisional rate applicable to the item. This subsection is overridden by subsection (2).

Not allowed to use economic or provisional rate
(2) The person must not depreciate the item by applying the economic rate or the provisional rate, if—
- (a) a special rate applies to the item; and
- (b) the special rate is higher than the economic rate; and
- (c) the person applies the special rate to the item for an income year; and
- (d) in a later income year, the item's market value declines at a rate equal to or greater than the special rate; and
- (e) it is a reasonable conclusion from all the circumstances of the case that the person's purpose, or 1 of the person's purposes, in wanting to change from the special rate to the economic rate or the provisional rate for the later income year is to enable the person to defer the deduction that the person is allowed for the amount of depreciation loss for the item's decline in value.
Defined in this Act: amount, deduction, depreciation loss, economic rate, income year, provisional rate, special rate,

Compare: 1994 No 164 s EG 10(10), (11)

Improvements, items of low value, or items no longer used

EE 30 Improvements

When this section applies

(1) This section applies when a person makes an improvement to an item of depreciable property.

Income year in which improvement made
(2) In the income year in which the person makes the improvement, the provisions of this subpart apply to the improvement, as if it were a separate item of depreciable property, in the period that—
- (a) starts at the start of the month in which the person first uses the improvement or has it available for use; and
- (b) ends at the end of the income year.
Following income years
(3) For income years following the income year in which the person makes the improvement,—
- (a) a person who uses the diminishing value method or the straight-line method for the item that was improved may choose to apply subsection (4) or (5):
- (b) a person who uses the pool method for the item that was improved must apply subsections (6) and (7).
Improvement treated as separate item

(4) For the purposes of subsection (3)(a), a person may choose to treat the improvement as a separate item of depreciable property.

Improvement treated as part of item
(5) For the purposes of subsection (3)(a), a person may choose to treat the improvement as part of the item of depreciable property that was improved. They must do 1 of the following for the first income year, after the income year in which they made the improvement, in which they use the improvement or have it available for use:
- (a) if they use the diminishing value method for the item, add the improvement's adjusted tax value at the start of the income year to the item's adjusted tax value at the start of the income year:
- (b) if they use the straight-line method for the item,—
  - (i) add the improvement's adjusted tax value at the start of the income year to the item's adjusted tax value at the start of the income year; and
  - (ii) add the improvement's cost to the item's cost.
Pool method

(6) For the purposes of subsection (3)(b), a person who uses the pool method for the item that was improved must treat the improvement as a separate item of depreciable property. If its cost is equal to or less than its maximum pooling value, they must include it in a pool in the first income year, after the income year in which they made the improvement, in which they use the improvement or have it available for use.

Adjustment of pool's value
(7) When an improvement is included in a pool under subsection (6),—
- (a) the pool's adjusted tax value is increased by the improvement's adjusted tax value on the date it is included in the pool; and
- (b) the improvement's adjusted tax value at the end of the previous income year is included in starting adjusted tax value in section EE 21(5).
Defined in this Act: adjusted tax value, depreciable property, diminishing value method, improvement, income year, maximum pooling value, pool, pool method, straight-line method,

Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (5)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

EE 31 Items of low value

When this section applies
(1) This section applies for an item of property that a person acquires, in an income year, if—
- (a) the total cost for the item is equal to or less than the threshold value given for the item by subsection (1B); and
- (b) the person uses the item, or has the item available for use, in the income year; and
- (c) the item would be depreciable property if the person did not deal with it under this section; and
- (d) the item has not been and will not become part of any other property that is depreciable property; and
- (e) the person is denied a deduction for the cost of the item if the person does not deal with the item under this section; and
- (f) when the item is one of a group of items, acquired at the same time and from the same supplier, to which the same depreciation rate would apply if they were all treated as items of depreciable property,—
  - (i) if subparagraph (ii) does not apply, the total cost for all the items in the group is equal to or less than the threshold value given for the item by subsection (1B):
  - (ii) if the items generally constitute the person's trading stock, the total cost for all the items in the group not treated by the person solely as trading stock is equal to or less than the threshold value given for the item by subsection (1B).
Threshold value for item
(1B) The threshold value for an item is—
- (a) $200, if the item is acquired before 19 May 2005:
- (b) $500, if the item is acquired on or after 19 May 2005.
Amount of depreciation loss

(2) If the person chooses to deal with the item under this section, the amount of depreciation loss that the person has for the item for the income year is the item's cost.

How election made

(3) The person makes the election by claiming, in their return of income for the income year for which the election is made, a deduction for the amount of depreciation loss described in subsection (2).

Amount of depreciation recovery income

(4) If the person disposes in an income year of an item for which they have been allowed a deduction on a claim under subsection (2), the consideration they derive from the disposal is an amount of depreciation recovery income for the income year.

Change of use treated as disposal
(5) Subsection (6) applies when—
- (a) a person has been allowed a deduction on a claim under subsection (2) for an item; and
- (b) at a later time, the person stops using the item, or having the item available for use, mainly in deriving assessable income or carrying on a business for the purpose of deriving assessable income; and
- (c) the use to which the item is put at the later time is not subject to fringe benefit tax.
Disposal

(6) The person is treated as having disposed of the item for its market value at the later time.

Increase in specified sum

(7) The Governor-General may make an Order in Council increasing the sum specified in subsection (1)(a) and (f).

Defined in this Act: acquire, amount, assessable income, business, deduction, depreciable property, depreciation loss, depreciation recovery income, dispose, fringe benefit tax, income year, property, return of income, trading stock,

Compare: 1994 No 164 ss EG 16, OB 1 low value property

Subsection (1) was substituted (excluding the heading), as from 19 May 2005, by section 73(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

Subsection (1B) was inserted, as from 19 May 2005, by section 73(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

EE 32 Items no longer used

When this section applies
(1) This section applies when a person in an income year has an item of depreciable property that—
- (a) is no longer used or, because the geothermal energy proving period has ended, becomes unavailable for use under section EE 6(4); and
- (b) is not a building, unless the item satisfies subsection (1B); and
- (c) has not been depreciated using the pool method.
Buildings
(1B) This section applies to a building that satisfies subsection (1)(a) and (c) if—
- (a) the building has been irreparably damaged and rendered useless for the purpose of deriving income; and
- (b) the damage occurs—
  - (i) in the 2005-06 or a subsequent income year:
  - (ii) as a result of the extreme climatic conditions that occurred during the month of February 2004 in New Zealand:
  - (iii) as a result of the storm event that occurred during the month of July 2004 in the Bay of Plenty area; and
- (c) the damage is caused other than as a result of the action or failure to act of the person, an agent of the person, or an associated person.
Amount of depreciation loss under this section

(2) The person has an amount of depreciation loss under this section and under no other provision of this subpart.

Circumstances
(3) The person has an amount of depreciation loss if—
- (a) they no longer use the item in deriving assessable income or carrying on a business for the purpose of deriving assessable income; and
- (b) neither they nor a person associated with them intends to use the item in deriving assessable income or carrying on a business for the purpose of deriving assessable income; and
- (c) the costs of disposing of the item would be more than any consideration they could derive from disposing of it.
Amount

(4) The amount of depreciation loss is the item's adjusted tax value at the start of the income year.

Adjusted tax value at end of year

(5) The item's adjusted tax value at the end of the income year is zero.

Defined in this Act: adjusted tax value, amount, assessable income, associated person, business, depreciable property, depreciation loss, dispose, income year, pool method,

Compare: 1994 No 164 s EG 12(1)-(3), (5), (6)

Subsection (1) was substituted, as from 1 October 2005, by section 30 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Subsection (1)(a) was substituted, as from 17 May 2006, by section 39(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application to a geothermal well for the 2006–07 and later income years, if the well is completed or acquired on or after 1 April 2003.

Subsection (1B) was inserted, as from 1 October 2005, by section 30 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Transfers of depreciable property: associated persons and non-qualifying amalgamations

This heading was substituted for the heading “Transfers of depreciable property: first, non-qualifying amalgamations and, second, associated persons”, as from 1 April 2005, by section 40(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005-06 income year.

EE 33 Transfer of depreciable property on or after 24 September 1997

When this section applies

(1) This section applies when, on or after 24 September 1997, a person (person A) acquires, directly or indirectly, an item of property from an associated person to whom 1 of the paragraphs in subsection (2) applies. The income year referred to in the paragraphs is the income year of the associated person.

Associated person
(2) The associated person must be a person to whom 1 of the following paragraphs applies:
- (a) the associated person is allowed a deduction for an amount of depreciation loss for the item for the income year in which person A acquires it:
- (b) the associated person would have been allowed a deduction for an amount of depreciation loss for the item for the income year in which person A acquired it, if section EE 11(1) had not applied:
- (c) the associated person was allowed a deduction for an amount of depreciation loss for the item for the income year before the income year in which person A acquired it:
- (d) the associated person has been allowed a deduction for the item under section DZ 9 (Premium paid on land leased before 1 April 1993) for the income year in which person A acquired it:
- (e) the associated person has been allowed a deduction for the item under section section DZ 9 for the income year before the income year in which person A acquired it:
- (f) the associated person would have been allowed a deduction for an amount of depreciation loss for the item for the income year in which person A acquired it, if the associated person had incurred a cost for the item for which the person was denied any other deduction and if section EE 11(1) had not applied:
- (g) the associated person would have been allowed a deduction for an amount of depreciation loss for the item for the income year before the income year in which person A acquired it, if the associated person had incurred a cost for the item for which the person was denied any other deduction:
- (h) the associated person would have been allowed a deduction for the item under section section DZ 9 for the income year in which person A acquired it, if the associated person had incurred a cost for the item for which the person was denied any other deduction:
- (i) the associated person would have been allowed a deduction for the item under section section DZ 9 for the income year before the income year in which person A acquired it, if the associated person had incurred a cost for the item for which the person was denied any other deduction:
- (j) the associated person would have been a person to whom any of paragraphs (a) to (i) applied, if the associated person had not made an election under section EE 8.
Cost of item to person A
(3) For the purpose of determining the amount of depreciation loss that person A has, the cost of the item to person A is treated as 1 of the following:
- (a) if section EE 49 applies for the associated person and the item, the lesser of—
  - (i) the cost of the item to person A:
  - (ii) the item's market value when the associated person starts to use it, or to have it available for use, for the purpose of deriving assessable income or carrying on a business for the purpose of deriving assessable income; or
- (b) if section EE 49 does not apply for the associated person and the item, the lesser of—
  - (i) the cost of the item to person A:
  - (ii) the cost of the item to the associated person.
Exclusions
(4) Subsection (3) does not apply—
- (a) if—
  - (i) the item is not depreciable intangible property; and
  - (ii) the Commissioner decides that it is appropriate to use the cost of the item to person A for the purposes of determining the amount of depreciation loss that person A has for the item:
- (b) if the cost to person A is income of the associated person, other than under section EE 41(1):
- (c) if person A acquires the item under a relationship agreement or a matrimonial agreement to which section FF 16 (Depreciable property) applies.
Rate
(5) The annual rate that person A applies to the item must be 1 of the following (not including an item of fixed life intangible property, for which the rate is set in section EE 27):
- (a) if person A uses the same depreciation method for the item as that used by the associated person for it, the annual rate that person A applies to it must not be more than the annual rate that the associated person applied to it:
- (b) if person A uses a depreciation method for the item different from the method that the associated person used for it, the annual rate that person A applies to it must not be more than a rate equivalent to the rate that the associated person applied to it, as determined by schedule 10 (Straight-line equivalents of diminishing value rates of depreciation).
Relationship with section EE 34 and subpart FI
(6) This section—
- (a) is overridden by section EE 34:
- (b) does not apply to a bequest of property, if it is property to which subpart FI (Effect of certain disposals and resulting acquisitions) applies and the property is disposed of at market value.
Defined in this Act: acquire, amount, annual rate, assessable income, associated person, business, Commissioner, deduction, depreciable intangible property, depreciation loss, depreciation method, fixed life intangible property, income, income year, matrimonial agreement, property, relationship agreement,

Compare: 1994 No 164 s EG 17(1)–(5), (8)

Sections EE 33 and EE 34 were substituted, as from 1 April 2005, by section 40(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005-06 income year.

Subsection (3)(a)(ii) was substituted, as from 18 December 2006, by section 41(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2006-07 income year.

EE 34 Transfer of depreciable property in non-qualifying amalgamation on or after 14 May 2002

When this section applies
(1) This section applies when, on or after 14 May 2002, an amalgamated company acquires, directly or indirectly, an item of property from an amalgamating company, and—
- (a) the amalgamated company's acquiring of the item is part of an amalgamation that is not a qualifying amalgamation; and
- (b) the amalgamating company is an associated person of the amalgamated company, treating the amalgamating company as existing at the time that the amalgamated company is treated under section FE 5(1)(b) (Transfer of property or obligations under financial arrangements deemed to be at market value) as having acquired the property from the amalgamating company; and
- (c) 1 of the paragraphs in section EE 33(2) applies to the amalgamating company, as an associated person of the amalgamated company, when the amalgamated company is treated as person A under that section.
Cost of item to person
(2) For the purposes of determining the amount of depreciation loss that the amalgamated company has, the cost of the item to it is treated as 1 of the following:
- (a) if section EE 49 applies for the amalgamating company and the item, the lesser of—
  - (i) the value given by section FE 5; and
  - (ii) the item's market value when the amalgamating company starts to use it, or to have it available for use, for the purpose of deriving assessable income or carrying on a business for the purpose of deriving assessable income; or
- (b) if section EE 49 does not apply for the amalgamating company and the item, the lesser of—
  - (i) the value given by section FE 5; and
  - (ii) the cost of the item to the amalgamating company.
Exclusions
(3) Subsection (2) does not apply—
- (a) if—
  - (i) the item is not depreciable intangible property; and
  - (ii) the Commissioner decides that it is appropriate to use the cost of the item to the amalgamated company for the purposes of determining the amount of depreciation loss that it has for the item; or
- (b) if the cost to the amalgamated company is income of the amalgamating company, other than under section EE 41(1).
Rate
(4) The annual rate that the amalgamated company applies to the item must be 1 of the following (not including an item of fixed life intangible property, for which the rate is set in section EE 27):
- (a) if the amalgamated company uses the same depreciation method for the item as that used by the amalgamating company for it, the annual rate that the amalgamated company applies to it must not be more than the annual rate that the amalgamating company applied to it; or
- (b) if the amalgamated company uses a depreciation method for the item different from the method that the amalgamating company used for it, the annual rate that the amalgamated company applies to it must not be more than a rate equivalent to the rate that the amalgamating company applied to it, as determined by schedule 10 (Straight-line equivalents of diminishing value rates of depreciation).
Defined in this Act: acquire, amalgamated company, amalgamating company, amalgamation, amount, annual rate, assessable income, business, Commissioner, depreciable intangible property, depreciation loss, depreciation method, fixed life intangible property, income, matrimonial agreement, property, qualifying amalgamation, relationship agreement,

Compare: 1994 No 164 ss EG 17(3B), FE 5(2)

Subsection (2)(a) to (i) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (4)(a)(ii) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (4)(c) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

Subsection (5)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (6) was inserted, as from 1 October 2005, by section 31 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Sections EE 33 and EE 34 were substituted, as from 1 April 2005, by section 40 Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005-06 income year.

Subsection (2)(a)(ii) was substituted, as from 18 December 2006, by section 42(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2006-07 income year.

EE 35 Transfer of radiocommunications licence right on or after 24 September 1997

When this section applies

(1) This section applies when, on or after 24 September 1997, the holder of management rights created under the Radiocommunications Act 1989 grants a licence right under that Act to an associated person.

Exclusion

(2) This section does not apply when the Crown acting by and through the Secretary of Commerce is named as the manager under section 11(1) of the Radiocommunications Act 1989.

Cost of licence right

(3) For the purposes of determining the amount of depreciation loss that the associated person has, the cost of the licence right to the associated person is treated as zero.

Defined in this Act: amount, associated person, depreciation loss,

Compare: 1994 No 164 s EG 17(6), (8)

EE 36 Transfer of depreciable intangible property on or after 1 July 1997

When this section applies
(1) This section applies when, on or after 1 July 1997, a person (person A) acquires, directly or indirectly, from an associated person an item of depreciable intangible property that—
- (a) was not depreciable property of the associated person because it was not of a kind listed in schedule 17 (Depreciable intangible property) at the time the associated person acquired it; and
- (b) was not an item for whose cost the associated person was allowed a deduction, other than a deduction for an amount of depreciation loss, under a provision of this Act outside this subpart.
No amount of depreciation loss

(2) Person A does not have an amount of depreciation loss for the item.

Defined in this Act: acquire, amount, associated person, deduction, depreciable intangible property, depreciable property, depreciation loss,

Compare: 1994 No 164 s EG 17(7)

Disposals and similar events

EE 37 Application of sections EE 41 to EE 44

When sections apply
(1) Sections EE 41 to EE 44 apply when a person derives consideration from the disposal of an item or from an event involving an item, if—
- (a) the consideration is consideration of a kind described in section EE 38; and
- (b) either—
  - (i) the item is an item of a kind described in section EE 39; or
  - (ii) the event is an event of a kind described in section EE 40.
Exclusion
(2) Sections EE 41 to EE 44 do not apply—
- (a) when a person disposes of an item of intangible property as part of an arrangement to replace it with an item of the same kind:
- (b) when a person's patent application has concluded because a patent is granted to the person in relation to the patent application:
- (c) when a person's geothermal well becomes unavailable for use under section EE 6(4) because the geothermal energy proving period has ended.
Defined in this Act: arrangement, consideration, dispose, geothermal energy proving period, geothermal well, property,

Compare: 1994 No 164 s EG 19(9)(b)

Subsection (2) was substituted, as from 1 October 2005, by section 43(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application to a patent application for the 2005–06 and later income years; and with application to a geothermal well for the 2006–07 and later income years, if the well is completed or acquired on or after 1 April 2003. See section 43(3) and (4) of that Act for the application.

The list of defined terms was amended, as from 17 May 2006, by section 39(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “geothermal energy proving period” with application to a geothermal well for the 2006–07 and later income years, if the well is completed or acquired on or after 1 April 2003. See section 39(3) of that Act for the application.

The list of defined terms was amended, as from 1 October 2005, by section 43(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “geothermal energy proving period” and “geothermal well” with application to a geothermal well for the 2006–07 and later income years, if the well is completed or acquired on or after 1 April 2003. See section 43(4) of that Act for the application.

EE 38 Consideration for purposes of section EE 37

General rule: amount derived
(1) For the purposes of section EE 37, the consideration is the amount that the person derives, minus any amount that they incur in deriving it. Two qualifications are—
- (a) if the person is a registered person, the amount that the person derives does not include any GST charged on a taxable supply they make:
- (b) any amount that they incur does not include an amount for which the person is allowed a deduction, other than a deduction for an amount of depreciation loss, under a provision of this Act outside this subpart.
This subsection is overridden by subsections (2) to (8).
Amount derived may be nil or negative

(1B) For the purposes of section EE 37, an amount that a person derives as consideration may be nil or a negative amount.

Other than market value
(2) If the person derives a consideration that is not the item's market value, the consideration for the purposes of section EE 37 is the item's market value. Three qualifications are—
- (a) if the person makes a taxable supply, market value means the market value minus any GST that would be charged on the supply:
- (b) this subsection does not apply to a transfer under a relationship agreement:
- (c) this subsection does not apply in a case described in any of subsections (3) to (8).
Link with subpart FI

(2B) Subsection (2) does not apply to a disposal of property to which any of sections FI 4 and FI 5 applies.

Change of use or location of use
(3) The consideration that a person derives from the event described in section EE 40(2) is the item's market value. Two qualifications are—
- (a) if the person makes a taxable supply, market value means the market value minus any GST that would be charged on the supply:
- (b) this subsection does not apply to a transfer under a relationship agreement.
Loss or theft

(4) The consideration that a person derives from the event described in section EE 40(3) is the amount of insurance, indemnity, or compensation they receive for the loss or theft (amount A). If the person is a registered person, amount A does not include the amount (if any) of GST charged on amount A to the extent to which amount A is treated as being consideration received for a supply of services by the registered person under section 5(13) of the Goods and Services Tax Act 1985.

Irreparable damage

(5) The consideration that a person derives from the event described in section EE 40(4) is the amount of insurance, indemnity, or compensation they receive for the irreparable damage (amount A). If the person is a registered person, amount A does not include the amount (if any) of GST charged on amount A to the extent to which amount A is treated as being consideration received for a supply of services by the registered person under section 5(13) of the Goods and Services Tax Act 1985.

Repossession
(6) The consideration that a person derives from the event described in section EE 40(5) is the item's cost minus the net amount paid. Two qualifications are—
- (a) if the person is a registered person, the consideration that the person derives does not include any GST charged on a taxable supply they make:
- (b) net amount paid means the amount paid by the buyer to the seller for the item under the contract minus any amount refunded by the seller to the buyer.
Unused geothermal well brought into use

(6B) The consideration that a person derives from the event described in section EE 40(5B) is the amount of the deduction for depreciation loss allowed under section EE 32(4).

Other items
(7) The consideration that a person derives from the disposal of an item along with any other item, or from the occurrence of an event involving an item that also involves other items, is the item's market value. Two qualifications are—
- (a) if the person makes a taxable supply, market value means the market value minus any GST that would be charged on the supply:
- (b) this subsection does not apply to a transfer under a relationship agreement.
Item leaving New Zealand permanently

(8) The consideration that a person derives from the event referred to in section EE 40(10) is described in section EZ 20(1) (Sections EE 38 and EE 40: permanent removal: allowance before 1 April 1995).

Defined in this Act: amount, consideration, deduction, depreciation loss, dispose, GST, GST charged, matrimonial agreement, New Zealand, registered person, services, taxable supply,

Compare: 1994 No 164 ss ED 4(6)(a), (c), (d), EG 19(6A), (7), (10)(b)-(10B)

Subsection (1)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (1B) was inserted, as from 3 April 2006, by section 74(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

Subsection (2)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (2)(b) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

Subsection (2)(b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (2B) was inserted, as from 1 October 2005, by section 32 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (3)(b) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

Subsection (6)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (6B) was inserted, as from 17 May 2006, by section 44(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application to a geothermal well for the 2006–07 and later income years, if the well is completed or acquired on or after 1 April 2003.

Subsection (7)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for n “; and”.

Subsection (7)(b) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

EE 39 Items for purposes of section EE 37

Items to which sections EE 41 to EE 44 apply
(1) For the purposes of section EE 37, an item of property to which sections EE 41 to EE 44 apply is an item of depreciable property that a person owns, including—
- (a) an item for which the person has been allowed a deduction for an amount of depreciation loss they have had under section EE 32; and
- (b) an item to which section CZ 11 (Recovery of deductions for software acquired before 1 April 1993) applies.
Exclusions
(2) Sections EE 41 to EE 44 do not apply to—
- (a) an item of property that, on the date on which the disposal or the event occurs, is accounted for in a pool; or
- (b) an item of petroleum-related depreciable property; or
- (c) an item of intangible property that is excluded depreciable property, other than software; or
- (d) a land improvement that is excluded depreciable property of a kind for which no deduction for depreciation was allowed under section 108 of the Income Tax Act 1976.
Defined in this Act: amount, deduction, depreciable property, depreciation loss, excluded depreciable property, own, petroleum-related depreciable property, pool, property,

Compare: 1994 No 164 ss EG 12(4), EG 19(1)

EE 40 Events for purposes of section EE 37

Events to which sections EE 41 to EE 44 apply

(1) For the purposes of section EE 37, this section describes the events to which sections EE 41 to EE 44 apply.

Change of use or location of use

(2) The first event is the change of use, or change of location of use, of an item of property, as a result of which a person is denied a deduction for an amount of depreciation loss for the item for the next income year. The event is treated as occurring on the first day of the next income year.

Loss or theft

(3) The second event is the loss or theft of an item of property, if the item is not recovered in the income year in which the loss or theft occurs.

Irreparable damage

(4) The third event is the irreparable damage of an item of property.

Repossession

(5) The fourth event is the seller's repossession of an item of property to which section EE 3 applies because the buyer wholly or partly fails to pay the consideration. The event is treated as occurring on the date on which the item is repossessed.

Unused geothermal well brought into use
(5B) The fifth event is, for a person's geothermal well that is unavailable for use under section EE 6(4) because the geothermal energy proving period has ended, the start of the person's—
- (a) using the well in deriving assessable income or carrying on a business for the purposes of deriving assessable income:
- (b) having the well available for use in deriving assessable income or carrying on a business for the purposes of deriving assessable income.
Statutory acquisition

(6) The sixth event is the acquisition of an item of property by a person acting under statutory authority.

(7) [Repealed]

Cessation of ownership under section EE 4 or EE 5
(8) The seventh event is the cessation of ownership of a fixture or improvement—
- (a) that a lessee is treated as having under section EE 4(2); or
- (b) that a person is treated as having under section EE 5(3).
Cessation of rights in intangible property

(9) The eighth event is an occurrence that has the effect that the owner of an item of intangible property is no longer able, and will never be able, to exercise the rights that constitute or are part of the item.

Item leaving New Zealand permanently

(10) The ninth event is described in section EZ 20(2) (Sections EE 38 and EE 40: permanent removal: allowance before 1 April 1995).

Defined in this Act: amount, assessable income, business, deduction, depreciation loss, geothermal energy proving period, geothermal well, improvement, income year, lessee, New Zealand, own, property,

Compare: 1994 No 164 s EG 19(9), (10A)

Subsection (5B) was inserted, as from 17 May 2006, by section 45(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application to a geothermal well for the 2006–07 and later income years, if the well is completed or acquired on or after 1 April 2003.

Subsection (6) was amended, as from 17 May 2006, by section 45(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “sixth” for “fifth” with application to a geothermal well for the 2006–07 and later income years, if the well is completed or acquired on or after 1 April 2003.

Subsection (7) was repealed, as from 1 October 2005, by section 33 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

The list of defined terms was amended, as from 17 May 2006, by section 45(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “assessable income”, “business”, “geothermal energy proving period” and “geothermal well” with application to a geothermal well for the 2006–07 and later income years, if the well is completed or acquired on or after 1 April 2003.

EE 41 Effect of disposal or event

Amount of depreciation recovery income
(1) For the purposes of section EE 37, if the consideration is more than the item's adjusted tax value on the date on which the disposal or the event occurs, the lesser of the following amounts is the amount of depreciation recovery income derived by the person for the income year in which the disposal or the event occurs:
- (a) the amount by which the consideration is more than the item's adjusted tax value on the date on which the disposal or the event occurs; and
- (b) the total of the amounts of depreciation loss for which the person has been allowed deductions for the item including, for an item to which section CZ 11 (Recovery of deductions for software acquired before 1 April 1993) applies, any deduction allowed for its acquisition.
Amount of depreciation loss

(2) For the purposes of section EE 37, if the consideration is less than the item's adjusted tax value on the date on which the disposal or the event occurs, the person has an amount of depreciation loss, for the income year in which the disposal or the event occurs, that is the amount by which the consideration is less than the item's adjusted tax value on that date.

When this section does not apply
(3) Subsection (2) does not apply if the item is a building unless—
- (a) the building has been irreparably damaged and rendered useless for the purpose of deriving income; and
- (b) the damage occurs—
  - (i) in the 2005-06 or a subsequent income year:
  - (ii) as a result of the extreme climatic conditions that occurred during the month of February 2004 in New Zealand:
  - (iii) as a result of the storm event that occurred during the month of July 2004 in the Bay of Plenty area; and
- (c) the damage is caused other than as a result of the action or failure to act of the person, an agent of the person, or an associated person.
Defined in this Act: acquire, adjusted tax value, amount, consideration, deduction, depreciation loss, depreciation recovery income, dispose, income, income year, ,

Compare: 1994 No 164 s EG 19(2), (3)

Subsection (2) was amended, as from 1 October 2005, by section 193(1) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “This subsection does not apply if the item is a building unless the item has been destroyed or rendered useless for the purpose of deriving income as a result of an event that is a qualifying event for the purpose of paragraph (a) or (b) of the definition of that term.” for “This subsection does not apply if the item is a building.” with application as from the 2005–06 income year.

Subsection (2) was amended, as from 1 October 2005, by section 34(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by repealing the words “This subsection does not apply if the item is a building unless the item has been destroyed or rendered useless for the purpose of deriving income as a result of an event that is a qualifying event for the purpose of paragraph (a) or (b) of the definition of that term.” with application as from the 2005–06 income year.

Subsection (3) was inserted, as from 1 October 2005, by section 34(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Subsection (3) was amended, as from 1 October 2005, by section 75(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “Subsection (2)” for “This section” with application as from the income year corresponding to the 2005–06 tax year.

Section EE 41 defined words was amended, as from 1 October 2005, by section 193(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “income, income year, qualifying event” for “income year” with application as from the 2005–06 income year.

The list of defined terms was amended, as from 1 October 2005, by section 34(2) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by repealing the words “qualifying event” with application as from the 2005–06 income year.

EE 42 Amount of depreciation recovery income when item partly used for business

Item to which this section applies
(1) This section applies to an item of property that—
- (a) is an item to which this section applies, as described in section EE 39; and
- (b) is, at any time during the period the person owns it, dealt with in—
  - (i) subpart DE (Motor vehicle expenditure); or
  - (ii) any applicable paragraph in section EZ 10 (Amounts of depreciation recovery income and depreciation loss for part business use in or before 1992-93 income year); or
  - (iii) section FB 7 (Depreciation: partial income-producing use).
Depreciation recovery income

(2) If the consideration referred to in section EE 37 is less than or equal to the cost of the item to the person, the amount of depreciation recovery income that the person has is an amount calculated using the formula in subsection (3).

Formula

(3) The formula is—

Definition of items in formula

(4) The items in the formula are defined in subsections (5) to (8).

All deductions

(5) All deductions is all amounts of depreciation loss for which the person has been allowed a deduction for the item in each of the income years in which the person has owned the item.

Base value

(6) Base value has the applicable one of the meanings in sections EE 48 to EE 50.

Adjusted tax value

(7) Adjusted tax value is the item's adjusted tax value on the date on which the disposal or the event occurs.

Amount of depreciation recovery income

(8) Amount of depreciation recovery income is the amount described in section EE 41(1).

Defined in this Act: adjusted tax value, amount, business, deduction, depreciation loss, depreciation recovery income, income year, own, property,

Compare: 1994 No 164 s EG 19(4)

EE 43 Amount of depreciation recovery income when lost or stolen items recovered

When this section applies
(1) This section applies when an item of property to which section EE 40(3) applies—
- (a) is recovered in a later income year; and
- (b) is still owned by the person; and
- (c) is still used or available for use by the person.
Person treated as acquiring item

(2) The person is treated as having acquired the item, on the date of recovery, for its adjusted tax value at the start of the income year in which it was lost or stolen.

Person treated as deriving income: amount

(3) The person is treated as deriving an amount of depreciation recovery income equal to the amount of depreciation loss that the person has under section EE 41(2) for which they have been allowed a deduction.

Person treated as deriving income: income year
(4) The income year in which the person derives the depreciation recovery income is—
- (a) the income year in which the item is lost or stolen, if the person chooses that year; or
- (b) the income year in which the item is recovered, in any other case.
Defined in this Act: adjusted tax value, amount, deduction, depreciation loss, depreciation recovery income, income year, own, property,

Compare: 1994 No 164 s EG 19(6B)

EE 44 Amount of depreciation recovery income when compensation received

When this section applies

(1) This section applies when a person receives insurance, indemnity, or compensation for an item of property to which this section applies (as described in section EE 39), other than for an item that is lost, stolen, or irreparably damaged.

Compensation subtracted

(2) An amount must be subtracted from the item's adjusted tax value. The amount is the amount by which the insurance, indemnity, or compensation that the person receives is more than the expenditure that the person incurs because of the event for which the person receives the insurance, indemnity, or compensation.

Depreciation recovery income

(3) If the item's adjusted tax value becomes negative in an income year through the application of subsection (2), the negative amount is an amount of depreciation recovery income derived by the person in the income year.

Defined in this Act: adjusted tax value, amount, depreciation recovery income, income year, property,

Compare: 1994 No 164 s EG 19(5), (6)

EE 44B Unused geothermal well brought into use

When this section applies

(1) This section applies to a person when an event occurs to which section EE 40(5B) applies.

Person treated as acquiring geothermal well

(2) The person is treated as having acquired the geothermal well, on the day the event occurs, for the cost of the well under this subpart before the event occurs.

Defined in this Act: geothermal well,

Section EE 44B was inserted, as from 17 May 2006, by section 46(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application to a geothermal well for the 2006-07 and later income years, if the well is completed or acquired on or after 1 April 2003.

Interpretation provisions

EE 45 Cost: GST

When this section applies

(1) This section applies when an amount of depreciation loss or an amount of depreciation recovery income is calculated by reference to the cost of an item of depreciable property to a person.

Cost reduced: input tax

(2) The item's cost is reduced by subtracting the amount (if any) of input tax applying to the supply of the item to the person. This subsection is overridden by subsection (3).

Cost reduced: input tax

(3) This subsection applies to an item that was not acquired or produced for the principal purpose of making taxable supplies but is applied in an income year principally for that purpose. The item's cost is reduced by subtracting a proportion of the amount (if any) calculated under sections 21F and 21G, and deductible under section 20(3)(e), of the Goods and Services Tax Act 1985. The proportion is the proportion of the amount that arises from the application of the item in the income year principally for the purpose of making taxable supplies.

Cost increased: output tax

(4) This subsection applies to an item that was acquired or produced for the principal purpose of making taxable supplies but is applied in an income year other than for that purpose. The item's cost is increased by adding the amount (if any) of output tax charged in the income year for the supply of the item because section 21 of the Goods and Services Tax Act 1985 applies to the supply.

Defined in this Act: amount, depreciable property, depreciation loss, depreciation recovery income, GST, income year, input tax, output tax, taxable supply,

Compare: 1994 No 164 s ED 4(4), (6)(b)

Adjusted tax value

EE 46 Meaning of adjusted tax value

Adjusted tax value means,—
- (a) for an item of depreciable property, the amount calculated using the formula in section EE 47:
- (b) for a pool, the total of the adjusted tax values of the items in the pool.
Defined in this Act: adjusted tax value, amount, depreciable property, pool,

Compare: 1994 No 164 s OB 1 adjusted tax value

Paragraph (a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EE 47 Formula

Formula

(1) The formula referred to in section EE 46 is—

base value – total deductions.

Definition of items in formula
(2) In the formula,—
- (a) base value has the applicable one of the meanings in sections EE 48, EE 49, EE 50, and EZ 21(1) (Base value and total deductions in section EE 47: before 1 April 1995):
- (b) total deductions is defined in section EE 51.
Compare: 1994 No 164 s OB 1 adjusted tax value

EE 48 Base value in section EE 47 when none of sections EE 49, EE 50, and EZ 21(1) applies

When this section applies

(1) This section applies when none of sections EE 49, EE 50, and EZ 21(1) (Base value and total deductions in section EE 47: before 1 April 1995) applies.

Base value

(2) Base value is the cost of the item to the person.

Cost
(3) In this section, cost is qualified as follows:
- (a) expenditure is excluded from it if it is expenditure for which a person has been allowed a deduction for an amount of depreciation loss they have had under section EE 31(2) or EE 41(2) or the corresponding provision of the Income Tax Act 1994:
- (b) expenditure is not excluded from it if it is expenditure for which a person has been allowed a deduction for an amount of depreciation loss they have had under any other provision of this subpart or the corresponding provision of the Income Tax Act 1994:
- (c) expenditure is excluded from it if it is expenditure for which a person has been allowed a deduction under any other subpart or the corresponding provision of the Income Tax Act 1994:
- (d) expenditure—
  - (i) is not excluded from it if it is described in section EZ 21(2)(a) (Base value and total deductions in section EE 47: before 1 April 1995):
  - (ii) is excluded from it if it is described in section EZ 21(2)(b) (Base value and total deductions in section EE 47: before 1 April 1995).
Defined in this Act: amount, deduction, depreciation loss,

Compare: 1994 No 164 s OB 1adjusted tax value (a)(i)

Subsection (3)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (3)(d)(i) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EE 49 Base value in section EE 47 when no previous deduction

When this section applies
(1) This section applies when all the following apply to the item:
- (a) it is not a building; and
- (b) it is not an item of petroleum-related depreciable property; and
- (c) it is not an item that the person—
  - (i) acquired to use or have available for use in deriving assessable income or carrying on a business for the purpose of deriving assessable income; and
  - (ii) first used for the purpose of deriving assessable income or carrying on a business for the purpose of deriving assessable income; and
- (d) it has been, since the person acquired it and first used it or had it available for use for any purpose, an item for which the person could not in any income year have been allowed a deduction for an amount of depreciation loss, whether because of the nature of the person's use of the item or the person's non-residence or for any other reason; and
- (e) in relation to the 1992-93 income year,—
  - (i) it was acquired by the person after the end of that income year; or
  - (ii) it was an item described in section EZ 21(3) (Base value and total deductions in section EE 47: before 1 April 1995).
Base value

(2) Base value is the item's market value at the time the person starts to use it, or to have it available for use, for the purpose of deriving assessable income or carrying on a business for the purpose of deriving assessable income.

Defined in this Act: acquire, amount, assessable income, business, deduction, depreciation loss, income year, petroleum-related depreciable property,

Compare: 1994 No 164 s OB 1adjusted tax value (a)(iii)

Subsection (2) was substituted, as from 18 December 2006, by section 47(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2006-07 income year.

EE 50 Base value in section EE 47 when property is petroleum-related depreciable property

When this section applies
(1) This section applies when the item is an item of petroleum-related depreciable property to which both the following apply:
- (a) section EZ 21(1) (Base value and total deductions in section EE 47: before 1 April 1995) does not apply to it; and
- (b) the person (person A) acquires it from an associated person.
Base value
(2) Base value is the lesser of—
- (a) the cost of the item to person A; and
- (b) the total of the amounts described in subsections (3) and (4).
First amount for purposes of subsection (2)(b)
(3) The amount is the cost of the item to—
- (a) the associated person, if the associated person did not acquire the item from either person A or another person associated with person A; or
- (b) whoever owned the item, whether person A or the associated person, at the start of an unbroken chain of ownership made up of person A and 1 or more persons associated with person A.
Second amount for purposes of subsection (2)(b)

(4) The amount is all expenditure incurred for the item by person A and the associated person or associated persons before the date on which person A acquired the item.

Cost and expenditure
(5) In this section, cost and expenditure are qualified as follows:
- (a) expenditure is excluded from them if it is expenditure for which a person has been allowed a deduction for an amount of depreciation loss they have had under section EE 31(2) or EE 41(2) or the corresponding provision of the Income Tax Act 1994:
- (b) expenditure is not excluded from them if it is expenditure for which a person has been allowed a deduction for an amount of depreciation loss they have had under any other provision of this subpart or the corresponding provision of the Income Tax Act 1994:
- (c) expenditure is excluded from them if it is expenditure for which a person is allowed a deduction under any other subpart or the corresponding provision of the Income Tax Act 1994:
- (d) expenditure is excluded from them if it is expenditure for which a person would have been allowed a deduction under any other subpart if this Act had applied or the corresponding provision of the Income Tax Act 1994 if that Act had applied.
Defined in this Act: acquire, amount, associated person, deduction, depreciation loss, own, petroleum-related depreciable property,

Compare: 1994 No 164 s OB 1adjusted tax value (a)(iv)

Subsection (5)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EE 51 Total deductions in section EE 47

Total deductions
(1) Total deductions is the total, calculated as at a particular time, of—
- (a) the amount described in subsection (2); and
- (b) the amount described in subsection (3); and.
- (c) the amount of a deduction under section EE 24B.
First amount for purposes of subsection (1)
(2) The amount is all amounts that 1 or more of the following provisions has required to be subtracted from the item's adjusted tax value since the start of the 1993-94 income year:
- (a) section EE 44(2):
- (b) section EG 19(5) of the Income Tax Act 1994:
- (c) the provision described in section EZ 21(4) (Base value and total deductions in section EE 47: before 1 April 1995).
Second amount for purposes of subsection (1)
(3) The amount is all deductions for amounts of depreciation loss, calculated using the method described in subsection (4), that, in the period described in subsection (5),—
- (a) the person was allowed for the item and for,—
  - (i) if the item is a patent, the patent application in relation to which the item was granted:
  - (ii) if the item is a geothermal well that a person acquired under section EE 44B(2), the well before the person acquired it under that section; or
- (b) the person would have been allowed if they had used the item wholly in deriving assessable income or carrying on a business for the purpose of deriving assessable income.
Method
(4) The method is—
- (a) the depreciation method that the person used in each relevant income year; or
- (b) the diminishing value method, if the person did not make deductions for amounts of depreciation loss for the item.
Period
(5) The period ends with the end of the income year before the income year in which the particular time occurs, and starts with,—
- (a) for an item to which section EE 48 applies,—
  - (i) unless subparagraph (ii) or (iii) applies, the date on which the person acquired the item; or
  - (ii) if the item is a geothermal well that a person acquired under section EE 44B(2), the earliest date on which the person acquired the geothermal well, under section EE 6(4) or otherwise; or
  - (iii) if the item is a patent and the person acquired the patent application in relation to which the patent was granted, the date on which the person acquired the patent application; or
- (b) for an item to which section EE 49 applies,—
  - (i) unless subparagraph (ii) applies, the beginning of the month in which the person started to use the item, or to have it available for use, for the purpose of deriving assessable income or carrying on business for the purpose of deriving assessable income; or
  - (ii) if the item is a patent and the person acquired the patent application in relation to which the item was granted, the start of the month in which the person acquired the patent application; or
- (c) for an item to which section EE 50 applies, the date on which person A or the relevant associated person acquired the item; or
- (d) for an item to which section EZ 21(1) (Base value and total deductions in section EE 47: before 1 April 1995) applies, the end of the 1992-93 income year.
Defined in this Act: acquire, adjusted tax value, amount, assessable income, associated person, business, deduction, depreciation loss, depreciation method, diminishing value method, geothermal well, income year,

Compare: 1994 No 164 s OB 1adjusted tax value (a) 'ad'

Subsection (1)(b) was amended, as from 1 October 2005, by section 48(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “subsection (3); and” for “subsection (3).” with application (a) to a patent, if the patent is acquired by a person in their 2005–06 or later income year; and (b) to a geothermal well for the 2006–07 and later income years, if the well is completed or acquired on or after 1 April 2003.

Subsection (1)(c) was inserted, as from 18 December 2006, by section 48(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application (a) to a patent, if the patent is acquired by a person in their 2005–06 or later income year, and (b) to a geothermal well for the 2006–07 and later income years, if the well is completed or acquired on or after 1 April 2003.

Subsection (2)(a) and (b) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (3)(a) was substituted, as from 18 December 2006, by section 48(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application (a) to a patent, if the patent is acquired by a person in their 2005–06 or later income year, and (b) to a geothermal well for the 2006–07 and later income years, if the well is completed or acquired on or after 1 April 2003.

Subsection (5)(a) to (d) was substituted, as from 18 December 2006, by section 48(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application (a) to a patent, if the patent is acquired by a person in their 2005–06 or later income year, and (b) to a geothermal well for the 2006–07 and later income years, if the well is completed or acquired on or after 1 April 2003.

The list of defined terms was amended, as from 18 December 2006, by section 48(4) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “geothermal well” with application to a geothermal well for the 2006–07 and later income years, if the well is completed or acquired on or after 1 April 2003.

Definitions

EE 52 Meaning of annual rate

Meaning

(1) Annual rate means the annual depreciation rate applying to an item of depreciable property that a person owns. The rate is 1 of the rates described in subsections (2) to (6).

1995-96 income year or later
(2) The rate is the rate set by section EE 26(2)(a) or (b) if both the following apply to the item:
- (a) the person acquires it in their 1995-96 income year or a later income year; and
- (b) the item is not dealt with in any of subsections (3) to (6).
1995-96 income year or later: international aircraft

(3) The rate is the rate set by section EE 26(2)(c) if the item is an international aircraft that the person acquires in their 1995-96 income year or a later income year.

Fixed life intangible property
(4) The rate is the rate set by section EE 27 if both the following apply to the item:
- (a) the item is an item of fixed life intangible property; and
- (b) the item is not an item of excluded depreciable property.
Patents, applications: complete specification before 1 April 2005

(4B) The rate is the rate set by section EE 27B if the item is a patent and section EE 27B applies to the item and the person.

Patent applications: lodged with complete specification on or after 1 April 2005

(4C) [Repealed]

Patents: application lodged with complete specification on or after 1 April 2005

(4D) [Repealed]

Plant variety rights

(4E) [Repealed]

1994-95 income year
(5) The rate is the rate set by section EZ 12 (Annual rate for item acquired on or after 1 April 1993 and before end of person's 1994-95 income year) if all the following apply to the item:
- (a) the person acquired it before the end of their 1994-95 income year; and
- (b) the item is not an item of fixed life intangible property; and
- (c) the item is not an item of excluded depreciable property.
Excluded depreciable property

(6) The rate is the rate set by section EZ 14 (Annual rate for excluded depreciable property: 1992-93 tax year) if the item is an item of excluded depreciable property.

Defined in this Act: acquire, annual rate, depreciable property, excluded depreciable property, fixed life intangible property, income year, international aircraft, own,

Compare: 1994 No 164 s OB 1annual depreciation rate

Subsections (4B) to (4E) were inserted, as from 1 October 2005, by section 35 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Subsections (4C) to (4E) were repealed, as from 1 October 2005, by section 49 Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

EE 53 Meaning of depreciable intangible property

Meaning

(1) Depreciable intangible property means the property listed in schedule 17 (Depreciable intangible property).

Criteria for listing in schedule 17
(2) For property to be listed in schedule 17 (Depreciable intangible property), the criteria are as follows:
- (a) it must be intangible; and
- (b) it must have a finite useful life that can be estimated with a reasonable degree of certainty on the date of its acquisition.
Schedule 17 prevails

(3) Property that is listed in schedule 17 (Depreciable intangible property) is depreciable intangible property even if the criteria are not met.

Defined in this Act: acquire, depreciable intangible property, property,

Compare: 1994 No 164 s OB 1depreciable intangible property

EE 54 Meaning of estimated useful life

Meaning for item of depreciable property (not copyright in sound recording)
(1) Estimated useful life, for an item of depreciable property, other than a copyright in a sound recording, means the period over which the item might reasonably be expected to be useful in deriving assessable income or carrying on a business for the purpose of deriving assessable income, taking into account—
- (a) the passage of time, likely wear and tear, exhaustion, and obsolescence; and
- (b) an assumption of normal and reasonable maintenance.
Meaning for copyright in sound recording

(2) Estimated useful life, for a copyright in a sound recording, means the period from the time at which the copyright might reasonably be expected to be first useful in deriving assessable income until the end of the income year in which it might reasonably be expected that 90% of all the income that will be derived from it has been derived.

Defined in this Act: assessable income, business, depreciable property, estimated useful life, income year, sound recording,

Compare: 1994 No 164 s OB 1estimated useful life

EE 55 Meaning of excluded depreciable property

Meaning
(1) Excluded depreciable property means, for a person,—
- (a) depreciable property for whose purchase or construction the person entered into a binding contract before 16 December 1991; or
- (b) depreciable property that the person used or had available for use for any purpose whatever within New Zealand, other than as trading stock, before 1 April 1993; or
- (c) depreciable property that is an intangible item that the person used or had available for use before 1 April 1993; or
- (d) depreciable property that is or has been a qualifying asset for the person; or
- (e) depreciable property to the extent to which it is or has been a qualifying improvement for the person.
Exclusion
(2) Excluded depreciable property does not include property to which both the following apply
- (a) it existed at the end of the 1992-93 income year; and
- (b) the Commissioner allowed it to be accounted for in that income year using the standard value method, the replacement value method, or the annual revaluation method.
Defined in this Act: Commissioner, depreciable property, excluded depreciable property, income year, New Zealand, property, qualifying improvement, qualifying asset, trading stock,

Compare: 1994 No 164 s OB 1excluded depreciable property

EE 56 Meaning of maximum pooling value

Meaning
(1) Maximum pooling value, for an item of depreciable property, means the greater of—
- (a) $2,000; and
- (b) the value set in a determination issued under section 91AAL of the Tax Administration Act 1994 applying to the item.
Increase in specified sum

(2) The Governor-General may make an Order in Council increasing the sum specified in subsection (1)(a).

Defined in this Act: depreciable property, maximum pooling value,

Compare: 1994 No 164 s OB 1maximum pooling value

Subsection (1)(b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “91AAL” for “91AJ”.

EE 57 Meaning of poolable property

Meaning

(1) Poolable property, for an income year, means an item of depreciable property that a person owns to which subsections (2) to (4) apply.

Not a building

(2) The item is not a building.

Maximum pooling value or globo method
(3) The item—
- (a) is acquired in the income year for a cost equal to or less than its maximum pooling value; or
- (b) was previously accounted for separately but has, as at the start of the income year, an adjusted tax value equal to or less than its maximum pooling value; or
- (c) was accounted for at the end of the 1992-93 income year using, with the Commissioner's permission, the globo accounting method.
Wholly used or subject to fringe benefit tax
(4) The item—
- (a) is wholly used or available for use by the person in deriving assessable income or carrying on a business for the purpose of deriving assessable income; or
- (b) to the extent to which it is not wholly used or available for use by the person in deriving assessable income or carrying on a business for the purpose of deriving assessable income, is used in a way that is subject to fringe benefit tax.
Defined in this Act: acquire, adjusted tax value, assessable income, business, Commissioner, depreciable property, fringe benefit tax, income year, maximum pooling value, own, poolable property,

Compare: 1994 No 164 s OB 1poolable property

EE 58 Other definitions

In this Act,—

depreciation method means a method described in section EE 12

diminishing value method means the method of calculating an amount of depreciation loss for an item of depreciable property by subtracting, in each income year, a constant percentage of the item's adjusted tax value from the item's adjusted tax value

diminishing value rate means the rate that a person using the diminishing value method applies to an item of depreciable property

economic rate means the economic depreciation rate of an item of depreciable property, set under sections EE 25B to EE 25E

economic rate: this definition was amended, as from 3 April 2006, by section 76(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “sections EE 25B to EE 25E” for “section EE 25” with application as from the income year corresponding to the 2005–06 tax year.

estimated residual market value means, for an item of depreciable property, its market value at the end of its estimated useful life, estimated reasonably as at the date of acquisition and based on an assumption of normal and reasonable maintenance over its estimated useful life
fixed life intangible property means property that—
- (a) is depreciable intangible property; and
- (b) has a legal life that could reasonably be expected, on the date of the property's acquisition, to be the same length as the property's remaining estimated useful life
improvement means an alteration, extension, or repair of an item of depreciable property that increases its capital value

international aircraft means a jet-engined aircraft that a person uses in an income year mainly in regular commercial service to transport passengers between New Zealand and any other place
legal life,—
- (a) for an item to which paragraphs (b) and (c) do not apply, means the number of years, months, and days for which an owner's interest in an item of intangible property exists under the contract or statute that creates the owner's interest, assuming that the owner exercises any rights of renewal or extension that are either essentially unconditional or conditional on the payment of predetermined fees:
- (b) for an item that is a patent application or a patent, means the legal life under paragraph (a) that a patent would have if granted when a patent application is first lodged:
- (c) for an item that is plant variety rights, means the total of—
  - (i) the legal life that the rights would have under paragraph (a); and
  - (ii) the number of whole calendar months during which the person owns the plant variety rights application in relation to which the rights are granted
legal life: this definition was substituted, as from 1 October 2005, by section 50(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005-06 income year. See section 50(2) of that Act for the application of this amendment.
petroleum-related depreciable property means depreciable property that is—
- (a) petroleum drilling rigs; or
- (b) support vessels for offshore petroleum drilling rigs; or
- (c) support vessels for offshore petroleum production platforms
pool means items of depreciable property that a person chooses under section EE 12 to depreciate as a pool using the pool method

pool method means the method of calculating an amount of depreciation loss set out in section EE 21

provisional rate means a provisional rate as described in section EE 28

special rate means a special rate as described in section EE 28

straight-line method means the method of calculating an amount of depreciation loss for an item of depreciable property by subtracting, in each income year, a constant percentage of the item's cost, to its owner, from the item's adjusted tax value

straight-line rate means the rate that a person using the straight-line method applies to an item of depreciable property.
Defined in this Act: acquire, adjusted tax value, amount, depreciable intangible property, depreciable property, depreciation loss, depreciation method, diminishing value method, diminishing value rate, economic rate, estimated residual market value, estimated useful life, fixed life intangible property, improvement, income year, international aircraft, legal life, New Zealand, own, petroleum, petroleum-related depreciable property, pool, pool method, property, provisional rate, special rate, straight-line method, straight-line rate,

Compare: 1994 No 164 s OB 1 basic economic depreciation rate, capital improvement, diminishing value method, estimated residual market value, fixed life intangible property, international aircraft, legal life, pool, pool method, schedule depreciable property, straight-line method

Subpart EF—Taxes and levies

EF 1 Fringe benefit tax

EF 2 Specified superannuation contribution withholding tax

EF 3 ACC levies and premiums

EF 4 Use of money interest payable by Commissioner

EF 5 Use of money interest payable by person

EF 6 Different tax years

EF 1 Fringe benefit tax

Fringe benefit tax for which a deduction is allowed may be deducted only in the income year in which the relevant fringe benefits are provided or granted, whether or not the tax actually becomes due and payable in the income year.

Defined in this Act: deduction, fringe benefit tax, income year,

Compare: 1994 No 164 s ED 2

EF 2 Specified superannuation contribution withholding tax

Specified superannuation contribution withholding tax for which a deduction is allowed may be deducted only in the income year in which the specified superannuation contributions to which the tax relates are made, whether or not the tax actually becomes due and payable in the income year.

Defined in this Act: deduction, income year, specified superannuation contribution, specified superannuation contribution withholding tax,

Compare: 1994 No 164 s ED 3

EF 3 ACC levies and premiums

Timing of deduction

(1) A deduction that an employer or self-employed person is allowed for an ACC levy or premium is allocated to the income year in which it becomes due and payable, except as provided in subsection (2) or (3).

Earlier income year

(2) If a deduction for an ACC levy or premium has been allocated to an income year earlier than the income year in which the levy or premium becomes due and payable and, because of the time bar or for another reason, the Commissioner cannot lawfully amend the assessment for the income year, the deduction is allocated to the income year in which it was allowed.

Balance dates between 1 October and 6 April

(3) If a person's income year ends on a balance date falling between 1 October and 6 April (both dates inclusive), an ACC levy or premium that is due on a date in schedule 13, part A, column H (Dates for payment of provisional tax) is treated as if it were due and payable on the relevant date in schedule 13, part A, column G for the person's corresponding income year.

References to dates in schedule 13
(4) For the purposes of subsection (3), references to the date in schedule 13, part A, columns G and H (which refer to months only and not days) are references to the day in the relevant month that is fixed by the following:
- (a) the definition of instalment date in section OB 1 (Definitions); and
- (b) sections MB 1(3), and MB 19 to 23 (which relate to provisional tax instalments in transitional years), and MC 1 (Payment of terminal tax).
Meaning of ACC levy or premium
(5) In this section, ACC levy or premium means any of the following levies, premiums, or penalties:
- (a) the following levy or premium:
  - (i) a levy to fund the Work Account under section 168 of the Injury Prevention, Rehabilitation, and Compensation Act 2001; or
  - (ii) an employer's premium to fund the Employers' Account under section 281B of the Accident Insurance Act 1998:
- (b) a Residual Claims levy under—
  - (i) section 193 of the Injury Prevention, Rehabilitation, and Compensation Act 2001; or
  - (ii) section 304 of the Accident Insurance Act 1998:
- (c) the following levy or premium:
  - (i) a levy to fund the Work Account under section 168B or 211 of the Injury Prevention, Rehabilitation, and Compensation Act 2001; or
  - (ii) a premium to fund the Self-Employed Work Account under section 300 of the Accident Insurance Act 1998:
- (d) the following levy or premium:
  - (i) a levy to fund the Earners' Account under section 219(1) of the Injury Prevention, Rehabilitation, and Compensation Act 2001; or
  - (ii) a premium to fund the Earners' Account under section 283(1) of the Accident Insurance Act 1998:
- (e) the following levy:
  - (i) an Earners' Account Residual levy under section 219(2) of the Injury Prevention, Rehabilitation, and Compensation Act 2001; or
  - (ii) an Earners' Account levy under section 283(2) of the Accident Insurance Act 1998:
- (f) a levy to meet the costs of the Regulator under section 236 of the Accident Insurance Act 1998:
- (g) a contribution to the Insolvent Insurers Fund under section 246 or 247 of the Accident Insurance Act 1998:
- (h) a levy or penalty payable to the Non-Compliers Fund under section 263 of the Accident Insurance Act 1998:
- (i) a base premium under sections 466 to 470 of the Accident Insurance Act 1998.
Defined in this Act: ACC levy or premium, , Commissioner, , deduction, , employer, , income year, , time bar

Compare: 1994 No 164 ss ED 1-ED 1B

Section EF 3(3): amended, on 1 October 2007, by section 77(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Section EF 3(4): substituted, on 1 October 2007, by section 77(2) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (5)(a)(i) was amended, as from 1 April 2007, by section 13(2) Injury Prevention, Rehabilitation, and Compensation Amendment Act 2007 (2007 No 8) by substituting “Work Account” for “Employers' Account”. See sections 14 to 16 of that Act for the transitional provisions.

Subsection (5)(a)(ii), (b)(ii), (c)(ii), (d)(ii), and (e)(ii) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (5)(c)(i) was amended, as from 1 April 2007, by section 13(2) Injury Prevention, Rehabilitation, and Compensation Amendment Act 2007 (2007 No 8) by substituting “Work Account under section 168B” for “Self-Employed Work Account under section 202”. See sections 14 to 16 of that Act for the transitional provisions.

Subsection (5)(f) to (h) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Section EF 3 list of defined terms first instalment date: omitted, on 1 October 2007, by section 77(3) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Section EF 3 list of defined terms second instalment date: omitted, on 1 October 2007, by section 77(3) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Section EF 3 list of defined terms third instalment date: omitted, on 1 October 2007, by section 77(3) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

EF 4 Use of money interest payable by Commissioner

Timing of income

(1) Income that is interest payable by the Commissioner to a person under Part 7 of the Tax Administration Act 1994 is allocated to the income year in which the Commissioner pays the interest. This subsection is overridden by subsections (2) and (3).

Interest paid in same year as liability arises

(2) If the Commissioner pays the interest in the same tax year as that to which the original assessment relates, the income that is interest is allocated to the following income year.

Effect of amended assessment

(3) If the Commissioner amends the person's assessment, income that is interest payable (or overpaid interest repayable) by the Commissioner as a result of the amended assessment is allocated to the income year following the income year in which the Commissioner issues the notice of amended assessment.

Amended assessment in same year

(4) For the purposes of subsection (3), if the Commissioner amends the person's assessment more than once in a tax year, only the last amended assessment is taken into account.

Defined in this Act: assessment, Commissioner, income, income year, interest, notice, pay, tax year,

Compare: 1994 No 164 ss ED 6(2), (3), ED 7(1)(b), (c), (2)

EF 5 Use of money interest payable by person

Timing of deduction

(1) A deduction for interest payable by a person to the Commissioner under Part 7 of the Tax Administration Act 1994 is allocated to the income year in which the person's original assessment is made. This subsection is overridden by subsection (2).

Assessment made in same year as liability arises

(2) If the original assessment is made in the same tax year as that to which the income tax liability relates, the deduction is allocated to the following income year.

Effect of amended assessment

(3) If the Commissioner amends the person's assessment, a deduction for interest payable (or overpaid interest repayable) to the Commissioner as a result of the amended assessment is allocated to the income year following the income year in which the Commissioner issues the notice of amended assessment. This subsection does not apply in the circumstances described in subsection (4).

Terminal amended assessment
(4) If the Commissioner amends the person's assessment, a deduction for interest payable (or overpaid interest repayable) to the Commissioner as a result of the amended assessment is allocated to the income year in which the Commissioner issues the notice of amended assessment, in the following circumstances:
- (a) the person dies, goes into liquidation, or otherwise ceases to exist before the income year following that in which the Commissioner issues the notice of amended assessment; and
- (b) the person would have been allowed a deduction for the interest payable or repayable if it had been incurred in the income year in which the Commissioner issues the notice of amended assessment; and
- (c) the person's executor or other representative asks the Commissioner.
Amended assessment in same year

(5) For the purposes of subsection (4), if the Commissioner amends the person's assessment more than once in a tax year, only the last amended assessment is taken into account.

Defined in this Act: assessment, Commissioner, deduction, income tax liability, interest, income year, liquidation, notice, pay, tax year,

Compare: 1994 No 164 ss ED 6(1), (3), ED 7(1)(a), (d), (2), (3)

EF 6 Different tax years

Sections EF 4 and EF 5 apply even though the income tax liability giving rise to the obligation to pay interest, and the period for the interest payment, may fall wholly or partly in a different tax year from that in which the obligation to pay interest arises under those sections.

Defined in this Act: income tax liability, interest, pay, payment, tax year,

Compare: 1994 No 164 s ED 8

Subpart EG—Recognition of accounting treatment

EG 1 Election to use balance date used in foreign country

EG 2 Adjustment for changes to accounting practice

EG 3 Allocation of income and deductions by portfolio tax rate entity

EG 1 Election to use balance date used in foreign country

When this section applies
(1) This section applies when—
- (a) a person has foreign source income or foreign expenditure that is taken into account in determining the income tax (not merely the withholding tax) payable by them in a foreign country or territory; and
- (b) the foreign source income or foreign expenditure has been included in 1 of their income tax returns in the country or territory; and
- (c) the annual income tax balance date that is relevant for them for the income tax return in the country or territory falls in a period that is an income year for them; and
- (d) if the person did not make an election under this section,—
  - (i) the foreign source income would be allocated to their previous income year; or
  - (ii) the foreign expenditure would be a deduction allocated to the previous income year if the only income of the person were foreign source income to which this section applies.
Election to allocate

(2) If the person has not already included the foreign source income or foreign expenditure in their return of income for the previous tax year, they may choose to allocate the foreign source income or the foreign expenditure to the income year referred to in subsection (1)(c).

How election made

(3) The person makes the election by including the foreign source income or foreign expenditure in their return of income for the income year referred to in subsection (1)(c).

What election applies to
(4) The election applies to all the person's foreign source income and foreign expenditure to which subsection (1) applies, except for—
- (a) income or expenditure under the financial arrangements rules, unless the Commissioner agrees in writing; or
- (b) dividends, unless the Commissioner agrees in writing and the person is not a company; or
- (c) attributed CFC income; or
- (d) FIF income or income derived from an attributing interest; or
- (e) in the case of foreign expenditure, foreign expenditure that would be allowed as a deduction if the only income of the person were income to which paragraphs (a) to (d) apply.
Timing of income

(5) The foreign source income and foreign expenditure to which the election applies is allocated to the income year referred to in subsection (1)(c).

Election treated as continuing
(6) A person who has made an election is treated as making the same election for all later income years, unless—
- (a) the Commissioner agrees in writing to allow the person to revoke the election; or
- (b) the person's net income for the relevant income year would be more than $100,000 if their only income in the income year were foreign source income.
Net income of more than $100,000
(7) If subsection (6)(b) applies,—
- (a) foreign source income and foreign expenditure is allocated to the income year referred to in subsection (1)(c) only if it was derived or incurred in that year; and
- (b) foreign source income and foreign expenditure to which the election would have applied if subsection (6)(b) had not existed is allocated to the previous income year; and
- (c) if necessary, the previous tax year's return is amended.
Factors considered
(8) In deciding whether to agree to an election applying to income or expenditure under the financial arrangements rules or dividends, the Commissioner must consider—
- (a) whether the person is likely to incur significant compliance costs if the Commissioner does not agree to the election; and
- (b) the risk to the revenue if the Commissioner agrees to the election; and
- (c) any other factors the Commissioner considers relevant.
Person ceasing to be, or becoming, resident
(9) If the person ceases to be, or becomes, resident in New Zealand, this section applies in the same way as for other persons except that—
- (a) it does not apply to income or expenditure that is allocated, other than under this section, to a period when the person is not resident in New Zealand; and
- (b) if it allocates foreign source income derived or foreign expenditure incurred while the person is resident in New Zealand to a period after the person has ceased to be resident in New Zealand,—
  - (i) the foreign source income is assessable income in the income year in which the foreign source income is allocated under this section, despite section BD 1(5)(c) (Income, exempt income, excluded income, non-residents' foreign-sourced income, and assessable income); and
  - (ii) the foreign expenditure is allowed as a deduction in the income year to which the foreign expenditure is allocated under this section.
Some definitions

(10) In this section,—

annual income tax balance date includes a date that is substantially equivalent to an annual income tax balance date

foreign expenditure means expenditure that is incurred in deriving foreign source income

foreign source income means income that is not derived from New Zealand and that is not exempt income.

Defined in this Act: annual income tax balance date, assessable income, attributed CFC income, attributing interest, Commissioner, company, deduction, derived from New Zealand, dividend, exempt income, FIF income, financial arrangements rules, foreign expenditure, foreign source income, income, income year, net income, resident in New Zealand, return of income, tax year,

Compare: 1994 No 164 s EP 1

EG 2 Adjustment for changes to accounting practice

When this section applies
(1) This section applies in an income year (year of change) when a person changes from—
- (a) a cash accounting method to an accrual accounting method of calculating their income tax liability; or
- (b) an accrual accounting method to a cash accounting method of calculating their income tax liability.
From cash to accrual accounting method
(2) If subsection (1)(a) applies,—
- (a) an amount owed to the person on the last day of the income year before the year of change is income of the person in the year of change; and
- (b) an amount owed by the person on the last day of the income year before the year of change is allowed as a deduction in the year of change.
From accrual to cash accounting method
(3) If subsection (1)(b) applies,—
- (a) an amount equal to the total of all amounts owing by the person in the year of change that have been allowed as a deduction in previous income years is income of the person in the year of change; and
- (b) an amount equal to the total of all amounts owing to the person in the year of change that have been treated as income of the person in previous income years is allowed as a deduction in the year of change.
Some definitions

(4) In this section,—

accrual accounting method means a method of accounting that is regarded as accrual accounting under generally accepted accounting practice

cash accounting method means a method of accounting by which the income tax liability of a person is calculated by reference to cash receipts or outgoings.

Defined in this Act: accrual accounting method, amount, cash accounting method, deduction, generally accepted accounting practice, income, income tax liability, income year,

Compare: 1994 No 164 s EC 1

EG 3 Allocation of income and deductions by portfolio tax rate entity

When this section applies

(1) This section applies for the calculation of a portfolio tax rate entity's liability for income tax for a tax year.

Allocation shown in accounts
(2) Income and deductions of the portfolio tax rate entity are allocated—
- (a) to portfolio allocation periods as—
  - (i) reflected in the entity's valuations of portfolio investor interests, if the entity makes such valuations; or
  - (ii) shown in the entity's financial statements, if subparagraph (i) does not apply:
- (b) to portfolio investor classes and investors as—
  - (i) reflected in the entity's valuations of portfolio investor interests, if the entity makes such valuations; or
  - (ii) shown in the entity's financial statements, if subparagraph (i) does not apply.
Defined in this Act: deduction, , income, , income tax, , investor, , portfolio allocation period, , portfolio investor class, , portfolio tax rate entity, , tax year

Section EG 3: added, on 1 October 2007, by section 51 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Subpart EH—Income equalisation schemes

EH 1 Income equalisation schemes

EH 2 Income Equalisation Reserve Account

Main income equalisation scheme

EH 3 Persons to whom main income equalisation scheme applies

EH 5 Main income equalisation account

EH 4 Main deposit

EH 6 Interest on deposits in main income equalisation account

EH 7 Deduction of deposit

EH 8 Refund of excess deposit

EH 9 Income does not include excess deposit

EH 10 Refund at end of 5 years

EH 11 Income when refund given at end of 5 years

EH 12 Application for refund by person, trustee of estate, Official Assignee, or liquidator

EH 13 Refund on request

EH 14 Income when refund given on request

EH 15 Refund for development or recovery

EH 16 Income when refund given for development or recovery

EH 17 Refund on retirement

EH 18 Income when refund given on retirement, and election to allocate amount to earlier year

EH 19 Refund on death

EH 20 Income when refund given on death

EH 21 Income when refund given on death, and election to allocate amount to earlier year

EH 22 Income when refund given on death, and election to allocate amount to later year or years

EH 23 Refund on bankruptcy

EH 24 Income when refund given on bankruptcy

EH 25 Refund on liquidation

EH 26 Income when refund given on liquidation

EH 27 Amendment of assessment

EH 28 Minimum refund

EH 29 Deposits from which refunds come

Rebate of income tax

EH 30 When person entitled to rebate of income tax

EH 31 Kind and amount of refund that entitles person to rebate of income tax

EH 32 Kind of person entitled to rebate of income tax

EH 33 Amount of rebate of income tax

EH 34 Meaning of income from forestry

EH 35 Meaning of main maximum deposit

EH 36 Meaning of self-assessed adverse event [Repealed]

EH 37 Other definitions

Adverse event income equalisation scheme

EH 38 Persons to whom adverse event income equalisation scheme applies

EH 39 Adverse event deposit

EH 40 Adverse event income equalisation account

EH 41 Interest on deposits in adverse event income equalisation account

EH 42 Deduction of deposit

EH 43 Refund of excess deposit

EH 44 Income does not include excess deposit

EH 45 Application for refund by person, trustee of estate, Official Assignee, or liquidator

EH 46 Refund on request

EH 47 Income when refund given on request

EH 48 Refund on retirement

EH 49 Income when refund given on retirement, and election to allocate amount to earlier year

EH 50 Refund on death

EH 51 Income when refund given on death

EH 52 Income when refund given on death, and election to allocate amount to earlier year

EH 53 Income when refund given on death, and election to allocate amount to later year or years

EH 54 Refund on bankruptcy

EH 55 Income when refund given on bankruptcy

EH 56 Refund on liquidation

EH 57 Income when refund given on liquidation

EH 58 Amendment of assessment

EH 59 Minimum refund

EH 60 Deposits from which refunds come

Transfers

EH 61 Transfer of deposit

EH 62 Meaning of adverse event maximum deposit

EH 63 Meaning of self-assessed adverse event [Repealed]

EH 64 Other definitions

Thinning operations income equalisation scheme

EH 65 Persons to whom thinning operations income equalisation scheme applies

EH 66 Thinning operations deposit

EH 67 Thinning operations income equalisation account

EH 68 Interest on deposits in thinning operations income equalisation account

EH 69 Deduction of deposit

EH 70 Refund of excess deposit

EH 71 Income does not include excess deposit

EH 72 Application for refund by person or liquidator

EH 73 Refund on request

EH 74 Income when refund given on request

EH 75 Refund for development or recovery

EH 76 Income when refund given for development or recovery

EH 77 Refund on liquidation

EH 78 Income when refund given on liquidation

Refunds: general provisions, and rebate of income tax

EH 79 Sections of main income equalisation scheme that apply to thinning operations income equalisation scheme

EH 80 Meaning of thinning operations maximum deposit

EH 81 Other definitions

Introductory provisions

EH 1 Income equalisation schemes

Description

(1) An income equalisation scheme allows a person to reduce their income for a tax year by making a deposit with the Commissioner.

Three schemes
(2) The 3 income equalisation schemes are—
- (a) the main income equalisation scheme, described in sections EH 3 to EH 37:
- (b) the adverse event income equalisation scheme, described in sections EH 38 to EH 64:
- (c) the thinning operations income equalisation scheme, described in sections EH 65 to EH 81.
Meaning of terms
(3) Terms used in the 3 schemes are defined as follows:
- (a) terms used specifically in the main income equalisation scheme are defined in sections EH 34 to EH 37:
- (b) terms used specifically in the adverse event income equalisation scheme are defined in sections EH 62 to EH 64:
- (c) terms used specifically in the thinning operations income equalisation scheme are defined in sections EH 80 and EH 81.
Defined in this Act: adverse event income equalisation scheme, Commissioner, deposit, income, main income equalisation scheme, person, tax year, thinning operations income equalisation scheme,

Subsection (2)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (3)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EH 2 Income Equalisation Reserve Account

Account

(1) There is a Crown Bank Account called the Income Equalisation Reserve Account that is operated under the Public Finance Act 1989.

Deposits paid into account
(2) Every deposit a person makes with the Commissioner under a scheme referred to in section EH 1(2)—
- (a) is public money; and
- (b) must be paid into the Income Equalisation Reserve Account.
Defined in this Act: Commissioner, deposit, person,

Compare: 1994 No 164 s EI 1(2)

Main income equalisation scheme

Application

EH 3 Persons to whom main income equalisation scheme applies

Meaning of farmer, fisher, and forester for main income equalisation scheme
(1) The main income equalisation scheme applies to—
- (a) a farmer, which means a person carrying on a farming or agricultural business on land in New Zealand; or
- (b) a fisher, which means a person carrying on a fishing business; or
- (c) a forester, which means a person who—
  - (i) derives income from forestry; and
  - (ii) is not a company, a public authority, a Maori authority, or an unincorporated body.
Meaning of person for main income equalisation scheme

(2) In the main income equalisation scheme, person means a farmer, fisher, or forester.

Defined in this Act: business, company, farmer, fisher, fishing business, forester, income from forestry, main income equalisation scheme, Maori authority, New Zealand, person, public authority,

Compare: 1994 No 164 s EI 1(1)

Deposits and accounts

EH 4 Main deposit

Deposit for business or forestry
(1) A person may make a payment to the Commissioner for entry in their main income equalisation account for a tax year as follows:
- (a) a farmer may make a payment for the farmer's farming or agricultural business:
- (b) a fisher may make a payment for the fisher's fishing business:
- (c) a forester may make a payment for the forester's income from forestry.
Upper limit of deposit

(2) A person must not make, for a tax year, deposits that in total are more than their main maximum deposit for the tax year.

Lower limit of deposit
(3) A person must not make, for a tax year, a deposit less than the lesser of—
- (a) $200; and
- (b) the difference between—
  - (i) the total of the deposits the person has previously made for the tax year; and
  - (ii) the person's main maximum deposit for the tax year.
Time of making deposit
(4) A person makes a deposit for a tax year by—
- (a) making the deposit during the tax year; or
- (b) doing both the following:
  - (i) making the deposit during the specified period for the tax year; and
  - (ii) at the time of making it, giving the Commissioner notice that the deposit is for the tax year; or
- (c) doing both the following:
  - (i) making the deposit within a time that is after the end of the specified period for the tax year but that is allowed by the Commissioner in a case or class of cases; and
  - (ii) at the time of making it, giving the Commissioner notice that the deposit is for the tax year.
Limit on making deposit

(5) If a refund has been made to a person for a tax year under section EH 13 or EH 15, the person may later make a deposit for that tax year only if the Commissioner is satisfied, before the deposit is made, that all the refund has been used to develop or expand a farmer's business (if the person is a farmer) or a fishing business (if the person is a fisher) or the means by which a forester derives income from forestry (if the person is a forester).

Defined in this Act: business, Commissioner, deposit, farmer, fisher, fishing business, forester, income from forestry, main deposit, main income equalisation account, main maximum deposit, notice, person, specified period, tax year,

Compare: 1994 No 164 ss EI 1(3), EI 3

Subsection (1)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EH 5 Main income equalisation account

Person's account

(1) The Commissioner must keep a main income equalisation account in the name of every person who makes a deposit with the Commissioner.

Deposits in account

(2) Every deposit a person makes with the Commissioner must be entered in the person's main income equalisation account.

Amounts in accounts
(3) The only amounts that may be entered in a person's main income equalisation account are—
- (a) deposits made by the person with the Commissioner; and
- (b) interest paid under section EH 6.
Amounts not available to others
(4) Despite section FI 3 (Date on which disposal and resulting acquisition treated as occurring), amounts entered in a person's main income equalisation account must not, while they are in the account,—
- (a) be assigned or charged in any way; or
- (b) pass by operation of law to, or into the custody or control of, someone else, except when the person is bankrupt or has been put into liquidation; or
- (c) be assets for the payment of the person's debts or liabilities, except when the person is bankrupt or has been put into liquidation; or
- (d) be assets for the payment of the debts or liabilities of a dead person's estate.
Amounts available only for refunds

(5) The only payments that may be made from a person's main income equalisation account are refunds under any of sections EH 8, EH 10, EH 13, EH 15, EH 17, EH 19, EH 23, and EH 25.

Defined in this Act: amount, Commissioner, deposit, interest, liquidation, main income equalisation account, pay, person,

Compare: 1994 No 164 s EI 1(2), (5)

Subsection (4) was amended, as from 1 October 2005, by section 36 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “Despite section FI 3 (Date on which disposal and resulting acquisition treated as occurring), amounts” for “Amounts” with application as from the 2005–06 income year.

Interest

EH 6 Interest on deposits in main income equalisation account

No interest payable

(1) No interest is payable on a deposit in a main income equalisation account that is refunded within 1 year of the date of deposit.

Interest payable

(2) Interest is payable on every other deposit in a main income equalisation account.

Period

(3) Interest is computed with daily rests from the date of acknowledgment of the receipt of the deposit until the date the deposit is refunded.

Date to which accrues
(4) Interest on a deposit accrues until the earlier of—
- (a) 31 March in each year; and
- (b) the date the deposit is refunded.
Added to deposit

(5) Accrued interest on a deposit is added to the deposit.

Rate

(6) The interest rate is 3% a year.

Defined in this Act: deposit, interest, main income equalisation account, pay, year,

Compare: 1994 No 164 s EI 2

Deduction

EH 7 Deduction of deposit

When this section applies

(1) This section applies when a person is allowed a deduction under section DQ 1 (Main income equalisation scheme).

Amount of deduction
(2) The amount of the deduction is the lesser of—
- (a) the total of the person's deposits for the tax year; and
- (b) their main maximum deposit for the tax year.
Timing of deduction

(3) The person is allowed the deduction in the tax year.

Defined in this Act: amount, deduction, deposit, main maximum deposit, person, tax year,

Compare: 1994 No 164 s EI 3

Refunds: automatic

EH 8 Refund of excess deposit

When this section applies

(1) This section applies when a person's deposits for a tax year are more than their main maximum deposit for the tax year.

Refund

(2) The Commissioner must refund the excess to the person as soon as practicable after the date the deposit ends.

Defined in this Act: Commissioner, date the deposit ends, deposit, main maximum deposit, person, tax year,

Compare: 1994 No 164 s EI 1(4)

EH 9 Income does not include excess deposit

A refund under section EH 8 is excluded income under section CX 43 (Income equalisation schemes).

Defined in this Act: excluded income,

Compare: 1994 No 164 s EI 1(4)

EH 10 Refund at end of 5 years

When this section applies

(1) This section applies when a deposit is in a person's main income equalisation account at the end of 5 years after the end of the tax year for which the deposit was made.

Refund

(2) The Commissioner must refund the deposit to the person. Section EH 28 overrides this subsection.

Defined in this Act: Commissioner, deposit, main income equalisation account, person, tax year, year,

Compare: 1994 No 164 s EI 9

EH 11 Income when refund given at end of 5 years

A refund under section EH 10 is income, under section CB 24 (Income equalisation schemes), derived by the person in the tax year in which the refund is given.

Defined in this Act: income, person, tax year,

Compare: 1994 No 164 s EI 9

Refunds: on application

EH 12 Application for refund by person, trustee of estate, Official Assignee, or liquidator

Who may apply
(1) The following may apply to the Commissioner for a refund of some or all of the amount in a person's main income equalisation account:
- (a) the person may apply under section EH 13 or EH 15 or EH 17:
- (b) the trustee of the person's estate may apply under section EH 19:
- (c) the Official Assignee having charge of the person's estate may apply under section EH 23:
- (d) the liquidator appointed for the person may apply under section EH 25.
Application
(2) An application for a refund must—
- (a) be in writing; and
- (b) state the grounds on which it is made; and
- (c) state the amount applied for.
Defined in this Act: amount, Commissioner, liquidation, main income equalisation account, person, trustee,

Compare: 1994 No 164 ss EI 4(1), EI 5(1), EI 6(1), EI 7(1), EI 8(1), EI 9

Subsection (1)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EH 13 Refund on request

When this section applies

(1) This section applies when a person wants a refund of some or all of the amount in their main income equalisation account, and none of sections EH 8, EH 10, EH 15, EH 17, EH 19, EH 23, and EH 25 applies.

Refund

(2) The Commissioner must refund to the person the amount applied for, to the extent to which it can be made up of 1 or more deposits that have been in the person's main income equalisation account for at least 1 year before the date the deposit ends. Section EH 28 overrides this subsection.

Defined in this Act: amount, Commissioner, date the deposit ends, deposit, main income equalisation account, person, year,

Compare: 1994 No 164 s EI 4(1), (2)

EH 14 Income when refund given on request

Year of income

(1) A refund under section EH 13 is income, under section CB 24 (Income equalisation schemes), derived by the person in the tax year in which the Commissioner receives the application for the refund.

When year of income may be different
(2) However, subsection (3) applies instead of subsection (1) if—
- (a) the Commissioner receives the application for a refund in the specified period for a tax year or, if the Commissioner allows in a case or class of cases, within a longer period; and
- (b) the person chooses in the application that the refund is to be income in the tax year to which the specified period or the longer period relates.
Different year of income

(3) The refund is income, under section CB 24 (Income equalisation schemes), in the tax year to which the specified period or the longer period relates.

Defined in this Act: Commissioner, income, person, specified period, tax year,

Compare: 1994 No 164 s EI 4(5)

EH 15 Refund for development or recovery

Refund for development: application of subsection (2)
(1) Subsection (2) applies when a person wants a refund of some or all of the amount in their main income equalisation account for either or both of the following purposes:
- (a) to enable them to undertake, immediately after the refund is given, planned development or maintenance work for their farming or agricultural business, fishing business, or forestry operation:
- (b) to enable them to buy, immediately after the refund is given, livestock for use in their farming business, other than livestock replacing livestock disposed of or lost as a result of a self-assessed adverse event.
Refund

(2) If the Commissioner is satisfied that the person will use the refund for either or both of the purposes, the Commissioner must refund to them the amount applied for, to the extent to which it can be made up of 1 or more deposits that have been in their main income equalisation account for at least 6 months before the date the deposit ends. Section EH 28 overrides this subsection.

Refund for recovery: application of subsection (4)
(3) Subsection (4) applies when a person wants a refund of some or all of the amount in their main income equalisation account for 1 or more of the following purposes:
- (a) to enable them to buy, immediately after the refund is given, livestock for use in their farming business to replace livestock disposed of or lost as a result of a selfassessed adverse event:
- (b) to avoid them suffering serious hardship:
- (c) to do anything else that the Commissioner determines, in a case or class of cases, is a purpose for which a refund should be given.
Refund

(4) If the Commissioner is satisfied that the person will use the refund for 1 or more of the purposes, the Commissioner must refund to them the amount applied for, regardless of the length of time it has been in the account. Section EH 28 overrides this subsection.

Defined in this Act: amount, business, Commissioner, date the deposit ends, deposit, fishing business, main income equalisation account, person, self-assessed adverse event,

Compare: 1994 No 164 s EI 4(3), (4)

Subsection (1)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (3)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

EH 16 Income when refund given for development or recovery

Year of income

(1) A refund under section EH 15 is income, under section CB 24 (Income equalisation schemes), derived by the person in the tax year in which the Commissioner receives the application for the refund.

When year of income may be different
(2) However, subsection (3) applies instead of subsection (1) if—
- (a) the Commissioner receives the application for a refund in the specified period for a tax year or, if the Commissioner allows in a case or class of cases, within a longer period; and
- (b) the person chooses in the application that the refund is to be income in the tax year to which the specified period or the longer period relates.
Different year of income

(3) The refund is income, under section CB 24 (Income equalisation schemes), in the tax year to which the specified period or the longer period relates.

Defined in this Act: Commissioner, income, person, specified period, tax year,

Compare: 1994 No 164 s EI 4(5)

EH 17 Refund on retirement

When this section applies
(1) This section applies when a farmer or a fisher—
- (a) has a main income equalisation account; and
- (b) is neither a company nor a trustee; and
- (c) retires from the farming or agricultural business or the fishing business.
Refund

(2) The Commissioner must refund to the person the amount that, on the date the deposit ends, is in their main income equalisation account, regardless of the length of time it has been in the account. Section EH 28 overrides this subsection.

Defined in this Act: amount, business, Commissioner, date the deposit ends, company, farmer, fisher, fishing business, main income equalisation account, person, trustee,

Compare: 1994 No 164 s EI 5(1)

EH 18 Income when refund given on retirement, and election to allocate amount to earlier year

Year of income

(1) A refund under section EH 17 is income, under section CB 24 (Income equalisation schemes), derived by the person in the tax year in which they retire.

When year of income may be different
(2) However, subsection (3) applies instead of subsection (1) if—
- (a) the refund includes a deposit made for a tax year earlier than the tax year in which the person retires; and
- (b) the person chooses to allocate some or all of the deposit to the earlier tax year.
Different year of income

(3) The amount allocated by the person to the earlier tax year is income, under section CB 24 (Income equalisation schemes), derived by them in the tax year.

How election made
(4) A person makes an election under this section by giving the Commissioner notice within 1 of the following times:
- (a) the time within which the person is required to file a return of income for the tax year in which they retire:
- (b) a further time allowed by the Commissioner in a case or class of cases.
Defined in this Act: amount, Commissioner, deposit, income, notice, person, return of income, tax year,

Compare: 1994 No 164 s EI 5(1), (2)

Subsection (4)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

EH 19 Refund on death

When this section applies
(1) This section applies when a person—
- (a) has a main income equalisation account; and
- (b) dies.
Refund

(2) Despite section FI 3 (Date on which disposal and resulting acquisition treated as occurring), the Commissioner must refund to the trustee of the person's estate the amount that, on the date the deposit ends, is in the person's main income equalisation account, regardless of the length of time it has been in the account. Section EH 28 overrides this subsection.

Defined in this Act: amount, Commissioner, date the deposit ends, main income equalisation account, person, trustee,

Compare: 1994 No 164 s EI 6(1)

Subsection (2) was amended, as from 1 October 2005, by section 37 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “Despite section FI 3 (Date on which disposal and resulting acquisition treated as occurring), the Commissioner” for “The Commissioner” with application as from the 2005–06 income year.

EH 20 Income when refund given on death

Year of income

(1) A refund under section EH 19 is income, under section CB 24 (Income equalisation schemes), derived by the person immediately before their death.

When year of income may be different

(2) However, section EH 21 or EH 22 applies instead of subsection (1) if the circumstances described in section EH 21(1) or EH 22(1) apply in the person's case.

Defined in this Act: income, person,

Compare: 1994 No 164 s EI 6(1)

EH 21 Income when refund given on death, and election to allocate amount to earlier year

When this section applies
(1) This section applies when—
- (a) a refund under section EH 19 includes a deposit made for a tax year earlier than the tax year in which the person dies; and
- (b) the trustee of the person's estate chooses to allocate some or all of the deposit to the earlier tax year.
Different year of income

(2) The amount allocated by the trustee to the earlier tax year is income, under section CB 24 (Income equalisation schemes), derived by the person in the tax year.

How election made
(3) A trustee makes an election under this section by giving the Commissioner notice within 1 of the following times:
- (a) the time within which the trustee is required to file a return of the person's income for the period to the date of the person's death:
- (b) a further time allowed by the Commissioner in a case or class of cases.
Defined in this Act: amount, Commissioner, deposit, income, notice, person, return of income, tax year, trustee,

Compare: 1994 No 164 s EI 6(1), (2)

Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

EH 22 Income when refund given on death, and election to allocate amount to later year or years

When this section applies
(1) This section applies when—
- (a) the trustee of the person's estate does not make an election under section EH 21; and
- (b) the trustee chooses to allocate some or all of the amount that is in the person's main income equalisation account on the date of the person's death to a tax year or years after that date.
Tax year or years referred to in subsection (1)(b)
(2) The tax year or years referred to in subsection (1)(b) must be within the earlier of—
- (a) the 3 years after the date of the person's death; and
- (b) the 5 years after the end of the tax year for which a deposit or a part of a deposit was made, if the amount that the trustee allocates to a later tax year or years includes the deposit or part of it.
Allocated amount remains in account
(3) An amount allocated by the trustee to a later tax year remains in the person's main income equalisation account until—
- (a) it is refunded to the trustee in the tax year to which it is allocated; or
- (b) it is not refunded because of the application of section EH 28.
Different year of income

(4) An amount allocated by the trustee to a later tax year is income, under section CB 24 (Income equalisation schemes), derived by the person in the tax year.

How election made
(5) A trustee makes an election under this section by a notice that—
- (a) specifies—
  - (i) each amount allocated to a later tax year; and
  - (ii) the tax year to which each amount is allocated; and
- (b) is given to the Commissioner within 1 of the following times:
  - (i) the time within which the trustee is required to file a return of the person's income for the period to the date of the person's death:
  - (ii) a further time allowed by the Commissioner in a case or class of cases.
Defined in this Act: amount, Commissioner, deposit, income, main income equalisation account, notice, person, return of income, tax year, trustee, year,

Compare: 1994 No 164 s EI 6(1), (2)

Subsection (5)(b)(i) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

EH 23 Refund on bankruptcy

When this section applies
(1) This section applies when a person—
- (a) has a main income equalisation account; and
- (b) is bankrupt.
Refund

(2) The Commissioner must refund to the Official Assignee having charge of the person's estate the amount that, on the date the deposit ends, is in the person's main income equalisation account, regardless of the length of time it has been in the account. Section EH 28 overrides this subsection.

Defined in this Act: amount, Commissioner, date the deposit ends, main income equalisation account, person,

Compare: 1994 No 164 s EI 7(1)

EH 24 Income when refund given on bankruptcy

A refund under section EH 23 is income, under section CB 24 (Income equalisation schemes), derived by the person immediately before the bankruptcy starts.

Defined in this Act: income, person,

Compare: 1994 No 164 s EI 7(2)

EH 25 Refund on liquidation

When this section applies
(1) This section applies when a person—
- (a) has a main income equalisation account; and
- (b) is put into liquidation.
Refund

(2) The Commissioner must refund to the liquidator appointed for the person the amount that, on the date the deposit ends, is in the person's main income equalisation account, regardless of the length of time it has been in the account. Section EH 28 overrides this subsection.

Defined in this Act: amount, Commissioner, date the deposit ends, liquidation, main income equalisation account, person,

Compare: 1994 No 164 s EI 8(1)

EH 26 Income when refund given on liquidation

A refund under section EH 25 is income, under section CB 24 (Income equalisation schemes), derived by the person immediately before the liquidation starts.

Defined in this Act: income, liquidation, person,

Compare: 1994 No 164 s EI 8(2)

Refunds: general provisions

EH 27 Amendment of assessment

Despite the time bar, the Commissioner may amend an assessment at any time in order to give effect to section EH 18 or EH 21 or EH 22.

Defined in this Act: assessment, Commissioner, time bar,

Compare: 1994 No 164 ss EI 5(3), EI 6(3)

EH 28 Minimum refund

The Commissioner must not give a refund under any of sections EH 10, EH 13, EH 15, EH 17, EH 19, EH 22(3), EH 23, and EH 25 that is less than the lesser of—
- (a) $200; and
- (b) the balance in the person's main income equalisation account on the date the deposit ends.
Defined in this Act: Commissioner, date the deposit ends, main income equalisation account, person,

Compare: 1994 No 164 s EI 10(2)

EH 29 Deposits from which refunds come

Each refund a person is given is treated as coming from the total amount of their deposits in the order in which the person made the deposits.

Defined in this Act: amount, deposit, person,

Compare: 1994 No 164 s EI 10(1)

Rebate of income tax

EH 30 When person entitled to rebate of income tax

A person who is given a refund is entitled to a rebate of income tax if—
- (a) the refund is of the kind and amount described in section EH 31; and
- (b) the person is of the kind described in section EH 32.
Defined in this Act: amount, income tax, person,

Compare: 1994 No 164 s EI 10(3)

EH 31 Kind and amount of refund that entitles person to rebate of income tax

Kind
(1) A refund that entitles a person to a rebate of income tax is one to which both the following apply:
- (a) the refund is given under any of sections EH 10, EH 13, EH 15, EH 17, EH 19, EH 22(3), EH 23, and EH 25; and
- (b) the refund does not come from a deposit made for the tax year in which the refund is given; if the refund comes in part from a deposit made for the tax year in which the refund is given and in part from a deposit made for some other tax year, the refund that entitles the person to a rebate of income tax is the part coming from the deposit for some other tax year.
Amount
(2) Once a refund qualifies under subsection (1) as a refund that entitles a person to a rebate of income tax, the amount of the refund is the lesser of the following:
- (a) the amount of the refund given to the person under any of sections EH 10, EH 13, EH 15, EH 17, EH 19, EH 22(3), EH 23, and EH 25; and
- (b) the total of the amounts by which the person's income was reduced in 1 or more previous tax years by subtracting the deposit or deposits or parts of deposits from which the refund comes.
Defined in this Act: amount, deposit, income, income tax, person, tax year,

Compare: 1994 No 164 s EI 10(3), (5)

EH 32 Kind of person entitled to rebate of income tax

A person in the following circumstances is entitled to a rebate of income tax:
- (a) the person's income in the tax year in question includes a refund of the kind described in section EH 31(1) and of the amount described in section EH 31(2); and
- (b) because of the refund, the person's income tax liability for the tax year is increased; and
- (c) the amount by which the person's income tax liability for the tax year is increased because of the refund (extra tax) is more than the total of the amounts by which the person's income tax liability for a previous tax year or years was decreased because of the subtraction of the deposit or deposits or parts of deposits from which the refund comes (tax saving).
Defined in this Act: amount, deposit, income, income tax, income tax liability, person, tax year,

Compare: 1994 No 164 s EI 10(3), (4)

EH 33 Amount of rebate of income tax

The amount of a rebate of income tax to which a person is entitled under section EH 30 is the amount by which the extra tax, as described in section EH 32(c), is more than the tax saving, as described in section EH 32(c).

Defined in this Act: amount, income tax,

Compare: 1994 No 164 s EI 10(3)

Definitions

EH 34 Meaning of income from forestry

Income

(1)

Income from forestry means income derived from either or both of the sales described in subsection (2) in the circumstances described in subsection (3).

Sales
(2) The sales are—
- (a) the sale of timber:
- (b) the sale of a right to cut or remove timber.
Circumstances
(3) The circumstances are—
- (a) the income is derived by a person who is the owner of land in New Zealand on which timber is grown, not including a person whose interest in the land is that of a licensee; and
- (b) the timber the subject of the sale is standing or cut or fallen timber in its natural state grown on the land.
Defined in this Act: income, income from forestry, New Zealand, own, person, timber,

Compare: 1994 No 164 s OB 1 gross income from forestry

Subsection (2)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

EH 35 Meaning of main maximum deposit

Meaning

(1)

Main maximum deposit means the maximum deposit that this section says a person may make to their main income equalisation account for a tax year.

Meaning of amount
(2)
In subsections (3) to (5), amount means an amount calculated without applying—
- (a) any provision allocating income derived or expenditure incurred to a tax year other than the tax year in which the income was in fact derived or the expenditure was in fact incurred; or
- (b) any provision of any of the income equalisation schemes referred to in section EH 1(2).
Maximum deposit of farmer
(3) The maximum deposit that a farmer may make is—
- (a) the amount determined by an Order in Council made under subsection (6); or
- (b) if no order is in force, an amount equal to the net income that the farmer would have in the tax year if—
  - (i) the farmer derived income only from the farming or agricultural business in the tax year; and
  - (ii) the farmer did not make a payment under section EH 39 for the farming or agricultural business for the tax year.
Maximum deposit of fisher

(4) The maximum deposit that a fisher may make is an amount equal to the net income that the fisher would have in the tax year if the fisher derived income only from the fishing business in the tax year.

Maximum deposit of forester

(5) The maximum deposit that a forester may make is an amount equal to the net income that the forester would have in the tax year if the forester derived only income from forestry in the tax year.

Order in Council relating to farmers
(6) The Governor-General may make an Order in Council declaring that the maximum deposit a farmer may make for a tax year or for every tax year is—
- (a) an amount calculated in the manner specified in the order; or
- (b) an unlimited amount.
Defined in this Act: amount, business, deposit, farmer, fisher, fishing business, forester, income, main income equalisation account, main maximum deposit, net income, person, tax year,

Compare: 1994 No 164 s OB 1 maximum deposit(a)

EH 36 Meaning of self-assessed adverse event

[Repealed]

Subsection (2)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Section EH 36 was repealed, as from 3 April 2006, by section 78(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

EH 37 Other definitions

In the main income equalisation scheme,—
date the deposit ends means—
- (a) the date on which the refund is calculated, when section EH 8 applies:
- (b) the date that is 5 years after the end of the tax year for which the deposit was made, when section EH 10 applies:
- (c) the date on which the Commissioner receives the application for the refund, when section EH 13 or EH 15 applies:
- (d) the date of the person's retirement, when section EH 17 applies:
- (e) the date of the person's death, when section EH 19 applies:
- (f) the date on which the Commissioner receives notice of the adjudication, when section EH 23 applies:
- (g) the date on which the Commissioner receives notice of the liquidation, when section EH 25 applies
date the deposit ends: paragraphs (a) to (f) of this definition were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
deposit —
- (a) means a main deposit; and
- (b) includes, for the purposes of sections EH 6(2) to (4) and EH 10 to EH 33, interest that is added to a main deposit under section EH 6(5)
fishing business includes a business of—
- (a) fish farming under a licence issued under the Freshwater Fish Farming Regulations 1983:
- (b) mussel farming:
- (c) rock oyster farming
fishing business: paragraphs (a) and (b) of this definition were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
main deposit means a payment made to the Commissioner under section EH 4(1)

main income equalisation account, for a person, means the account that the Commissioner keeps in the person's name under section EH 5
specified period, for a person's tax year, means the shorter of—
- (a) the period of 6 months after the end of the accounting year that corresponds to the tax year; and
- (b) the period from the end of the accounting year that corresponds to the tax year to the date 1 month after the date by which the person must, under section 37 of the Tax Administration Act 1994, file their return of income for the accounting year that corresponds to the tax year.
specified period: this definition was amended, as from 1 April 2005, by section 38 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “accounting year that corresponds to the tax year” for “tax year” in the 3 places in paragraphs (a) and (b) in which it appears with application as from the 2005–06 income year.
Defined in this Act: business, Commissioner, date the deposit ends, deposit, fishing business, interest, liquidation, main deposit, main income equalisation account, main income equalisation scheme, person, return of income, specified period, tax year, year,

Compare: 1994 No 164 s OB 1 fishing, specified period

Adverse event income equalisation scheme

Application

EH 38 Persons to whom adverse event income equalisation scheme applies

Person described
(1) The adverse event income equalisation scheme applies to a person who, in a tax year,—
- (a) carries on a farming or agricultural business on land in New Zealand; and
- (b) sells livestock and does not replace it because of a self-assessed adverse event.
Meaning of person for adverse event income equalisation scheme

(2) In the adverse event income equalisation scheme, person means a person described in subsection (1).

Defined in this Act: adverse event income equalisation scheme, business, New Zealand, person, self-assessed adverse event, tax year,

Compare: 1994 No 164 s EI 11(1)

Deposits and accounts

EH 39 Adverse event deposit

Deposit for adverse event

(1) A person may make a payment to the Commissioner for entry in their adverse event income equalisation account for a tax year in which, because of a self-assessed adverse event, they sell and do not replace livestock.

Upper limit of deposit

(2) A person must not make, for a tax year, deposits that in total are more than their adverse event maximum deposit for the tax year.

Lower limit of deposit
(3) A person must not make, for a tax year, a deposit less than the lesser of—
- (a) $200; and
- (b) the difference between the total of all the deposits they have previously made for the tax year and their adverse event maximum deposit for the tax year.
Time of making deposit
(4) A person makes a deposit for a tax year by—
- (a) making the deposit during the tax year; or
- (b) making the deposit during the month after the end of the tax year.
Defined in this Act: adverse event deposit, adverse event income equalisation account, adverse event maximum deposit, Commissioner, deposit, person, self-assessed adverse event, tax year,

Compare: 1994 No 164 s EI 11(1), (3)

EH 40 Adverse event income equalisation account

Person's account

(1) The Commissioner must keep an adverse event income equalisation account in the name of every person who makes a deposit with the Commissioner.

Deposits in accounts

(2) Every deposit a person makes with the Commissioner must be entered in their adverse event income equalisation account.

Amounts in accounts
(3) The only amounts that may be entered in a person's adverse event income equalisation account are—
- (a) deposits made by the person with the Commissioner; and
- (b) interest paid under section EH 41.
Amounts not available to others
(4) Amounts entered in a person's adverse event income equalisation account must not, while they are in the account,—
- (a) be assigned or charged in any way; or
- (b) pass by operation of law to, or into the custody or control of, someone else, except when the person is bankrupt or has been put into liquidation; or
- (c) be assets for the payment of the person's debts or liabilities, except when the person is bankrupt or has been put into liquidation; or
- (d) be assets for the payment of the debts or liabilities of a dead person's estate.
Amounts available only for refunds

(5) The only payments that may be made from a person's adverse event income equalisation account are refunds under any of sections EH 43, EH 46, EH 48, EH 50, EH 54, and EH 56.

Defined in this Act: adverse event income equalisation account, amount, Commissioner, deposit, interest, liquidation, pay, person,

Compare: 1994 No 164 s EI 11(2), (5)

Interest

EH 41 Interest on deposits in adverse event income equalisation account

Interest payable

(1) Interest is payable on every deposit in an adverse event income equalisation account.

Period

(2) Interest is computed with daily rests from the date of acknowledgment of the receipt of the deposit until the date the deposit is refunded.

Date to which accrues
(3) Interest on a deposit accrues until the earlier of—
- (a) 31 March in each year; and
- (b) the date the deposit is refunded.
Added to deposit

(4) Accrued interest on a deposit is added to the deposit.

Rate

(5) The interest rate is the rate set in regulations made by the Governor-General from time to time.

Defined in this Act: adverse event income equalisation account, deposit, interest, pay, year,

Compare: 1994 No 164 s EI 12

Deduction

EH 42 Deduction of deposit

When this section applies

(1) This section applies when a person is allowed a deduction under section DQ 2 (Adverse event income equalisation scheme).

Amount of deduction
(2) The amount of the deduction is the lesser of—
- (a) the total of their deposits for the tax year; and
- (b) their adverse event maximum deposit for the tax year.
Timing of deduction

(3) The person is allowed the deduction in the tax year.

Defined in this Act: adverse event maximum deposit, amount, deduction, deposit, person, tax year,

Compare: 1994 No 164 s EI 13

Refunds: automatic

EH 43 Refund of excess deposit

When this section applies

(1) This section applies when a person's deposits for a tax year are more than their adverse event maximum deposit for the tax year.

Refund

(2) The Commissioner must refund the excess to the person as soon as practicable after the date the deposit ends.

Defined in this Act: adverse event maximum deposit, Commissioner, date the deposit ends, deposit, person, tax year,

Compare: 1994 No 164 s EI 11(4)

EH 44 Income does not include excess deposit

A refund under section EH 43 is excluded income under section CX 43 (Income equalisation schemes).

Defined in this Act: excluded income,

Refunds: on application

EH 45 Application for refund by person, trustee of estate, Official Assignee, or liquidator

Who may apply
(1) The following may apply to the Commissioner for a refund of some or all of the amount in a person's adverse event income equalisation account:
- (a) the person may apply under section EH 46 or EH 48:
- (b) the trustee of the person's estate may apply under section EH 50:
- (c) the Official Assignee having charge of the person's estate may apply under section EH 54:
- (d) the liquidator appointed for the person may apply under section EH 56.
Application
(2) An application for a refund must—
- (a) be in writing; and
- (b) state the grounds on which it is made; and
- (c) state the amount applied for.
Defined in this Act: adverse event income equalisation account, amount, Commissioner, liquidation, person, trustee,

Compare: 1994 No 164 s EI 14(1)

Subsection (1)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EH 46 Refund on request

When this section applies

(1) This section applies when a person wants a refund of some or all of the amount in the person's adverse event income equalisation account, and none of sections EH 48, EH 50, EH 54, and EH 56 applies.

Refund

(2) The Commissioner must refund to the person the amount applied for.

Defined in this Act: adverse event income equalisation account, amount, Commissioner, person,

Compare: 1994 No 164 s EI 14(1)

EH 47 Income when refund given on request

A refund under section EH 46 is income, under section CB 24 (Income equalisation schemes), derived by the person in the tax year in which the Commissioner receives the application for the refund.

Defined in this Act: Commissioner, income, person, tax year,

Compare: 1994 No 164 s EI 14(2)

EH 48 Refund on retirement

When this section applies
(1) This section applies when a person—
- (a) has an adverse event income equalisation account; and
- (b) is neither a company nor a trustee; and
- (c) retires from the farming or agricultural business.
Refund

(2) The Commissioner must refund to the person the amount that, on the date the deposit ends, is in their adverse event income equalisation account.

Defined in this Act: adverse event income equalisation account, amount, business, Commissioner, company, date the deposit ends, person, trustee,

Compare: 1994 No 164 ss EI 5(1), EI 15

EH 49 Income when refund given on retirement, and election to allocate amount to earlier year

Year of income

(1) A refund under section EH 48 is income, under section CB 24 (Income equalisation schemes), derived by the person in the tax year in which they retire.

When year of income may be different
(2) However, subsection (3) applies instead of subsection (1) if—
- (a) the refund includes a deposit made for a tax year earlier than the tax year in which the person retires; and
- (b) the person chooses to allocate some or all of the deposit to the earlier tax year.
Different year of income

(3) The amount allocated by the person to the earlier tax year is income, under section CB 24 (Income equalisation schemes), derived by them in the tax year.

How election made
(4) A person makes an election under this section by giving the Commissioner notice within 1 of the following times:
- (a) the time within which the person is required to file a return of income for the tax year in which they retire:
- (b) a further time allowed by the Commissioner in a case or class of cases.
Defined in this Act: amount, Commissioner, deposit, income, notice, person, return of income, tax year,

Compare: 1994 No 164 ss EI 5(1), (2), EI 15

Subsection (4)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

EH 50 Refund on death

When this section applies
(1) This section applies when a person—
- (a) has an adverse event income equalisation account; and
- (b) dies.
Refund

(2) Despite section FI 3 (Date on which disposal and resulting acquisition treated as occurring), the Commissioner must refund to the trustee of the person's estate the amount that, on the date the deposit ends, is in the person's adverse event income equalisation account.

Defined in this Act: adverse event income equalisation account, amount, Commissioner, date the deposit ends, person, trustee,

Compare: 1994 No 164 ss EI 6(1), EI 15

Subsection (2) was amended, as from 1 October 2005, by section 39 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “Despite section FI 3 (Date on which disposal and resulting acquisition treated as occurring), the Commissioner” for “The Commissioner” with application as from the 2005–06 income year.

EH 51 Income when refund given on death

Year of income

(1) A refund under section EH 50 is income, under section CB 24 (Income equalisation schemes), derived by the person immediately before their death.

When year of income may be different

(2) However, section EH 52 or EH 53 applies instead of subsection (1) if the circumstances described in section EH 52(1) or EH 53(1) apply in the person's case.

Defined in this Act: income, person,

Compare: 1994 No 164 ss EI 6(1), EI 15

EH 52 Income when refund given on death, and election to allocate amount to earlier year

When this section applies
(1) This section applies when—
- (a) a refund under section EH 50 includes a deposit made for a tax year earlier than the tax year in which the person dies; and
- (b) the trustee of the person's estate chooses to allocate some or all of the deposit to the earlier tax year.
Different year of income

(2) The amount allocated by the trustee to the earlier tax year is income, under section CB 24 (Income equalisation schemes), derived by the person in the tax year.

How election made
(3) A trustee makes an election under this section by giving the Commissioner notice within 1 of the following times:
- (a) the time within which the trustee is required to file a return of the person's income for the period to the date of the person's death:
- (b) a further time allowed by the Commissioner in a case or class of cases.
Defined in this Act: amount, Commissioner, deposit, income, notice, person, return, tax year, trustee,

Compare: 1994 No 164 ss EI 6, EI 15

Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

EH 53 Income when refund given on death, and election to allocate amount to later year or years

When this section applies
(1) This section applies when—
- (a) the trustee does not make an election under section EH 52; and
- (b) the trustee chooses to allocate some or all of the amount that is in the person's adverse event income equalisation account on the date of the person's death to a tax year or years after that date.
Tax year or years for purposes of subsection (1)(b)
(2) For the purposes of subsection (1)(b), the tax year or years must be within the earlier of—
- (a) the 3 years after the date of the person's death; and
- (b) the 5 years after the end of the tax year for which a deposit or a part of a deposit was made, if the amount that the trustee allocates to a later year or years includes the deposit or part of it.
Amount allocated remains in account

(3) An amount allocated by the trustee to a later tax year remains in the person's adverse event income equalisation account until it is refunded to the trustee in the tax year to which it is allocated.

Different year of income

(4) An amount allocated by the trustee to a later tax year is income, under section CB 24 (Income equalisation schemes), derived by the person in the tax year.

How election made
(5) A trustee makes an election under this section by a notice that—
- (a) specifies—
  - (i) each amount allocated to a later tax year; and
  - (ii) the tax year to which each amount is allocated; and
- (b) is given to the Commissioner within 1 of the following times:
  - (i) the time within which the trustee is required to file a return of the person's income for the period to the date of the person's death:
  - (ii) a further time allowed by the Commissioner in a case or class of cases.
Defined in this Act: adverse event income equalisation account, amount, Commissioner, deposit, income, notice, person, return, tax year, trustee, year,

Compare: 1994 No 164 ss EI 6, EI 15

Subsection (5)(b)(i) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

EH 54 Refund on bankruptcy

When this section applies
(1) This section applies when a person—
- (a) has an adverse event income equalisation account; and
- (b) is bankrupt.
Refund

(2) The Commissioner must refund to the Official Assignee having charge of the person's estate the amount that, on the date the deposit ends, is in the person's adverse event income equalisation account.

Defined in this Act: adverse event income equalisation account, amount, Commissioner, date the deposit ends, person,

Compare: 1994 No 164 ss EI 7, EI 15

EH 55 Income when refund given on bankruptcy

A refund under section EH 54 is income, under section CB 24 (Income equalisation schemes), derived by the person immediately before the bankruptcy starts.

Defined in this Act: income, person,

Compare: 1994 No 164 ss EI 7, EI 15

EH 56 Refund on liquidation

When this section applies
(1) This section applies when a person—
- (a) has an adverse event income equalisation account; and
- (b) is put into liquidation.
Refund

(2) The Commissioner must refund to the liquidator appointed for the person the amount that, on the date the deposit ends, is in the person's adverse event income equalisation account.

Defined in this Act: adverse event income equalisation account, amount, Commissioner, date the deposit ends, liquidation, person,

Compare: 1994 No 164 ss EI 8, EI 15

EH 57 Income when refund given on liquidation

A refund under section EH 56 is income, under section CB 24 (Income equalisation schemes), derived by the person immediately before the liquidation starts.

Defined in this Act: income, liquidation, person,

Compare: 1994 No 164 ss EI 8, EI 15

Refunds: general provisions

EH 58 Amendment of assessment

Despite the time bar, the Commissioner may amend an assessment at any time in order to give effect to any of sections EH 49, EH 52, and EH 53.

Defined in this Act: assessment, Commissioner, time bar,

Compare: 1994 No 164 ss EI 5(3), EI 6(3), EI 15

EH 59 Minimum refund

The Commissioner must not give a refund under any of sections EH 46, EH 48, EH 50, EH 54, and EH 56 that is less than the lesser of—
- (a) $200; and
- (b) the balance in the person's adverse event income equalisation account on the date the deposit ends.
Defined in this Act: adverse event income equalisation account, Commissioner, date the deposit ends, person,

Compare: 1994 No 164 s EI 16(2)

EH 60 Deposits from which refunds come

Each refund a person is given is treated as coming from the total amount of their deposits in the order in which they made the deposits.

Defined in this Act: amount, deposit, person,

Compare: 1994 No 164 ss EI 10(1), EI 15, EI 16(1)

Transfers

EH 61 Transfer of deposit

Transfer from adverse event to main income equalisation account

(1) A deposit that is in a person's adverse event income equalisation account on the day 1 year after the date on which the deposit was made must be transferred to their main income equalisation account as soon as practicable.

Date of deposit in main income equalisation account
(2) The date on which a transferred deposit is treated as having been deposited in the person's main income equalisation account is as follows:
- (a) the date on which it was transferred, for the purpose of computing interest payable under section EH 6:
- (b) the date on which it was deposited in the adverse event income equalisation account, for any other purpose.
No deduction

(3) A transferred deposit is not an amount for which a deduction is allowed under section DQ 1 (Main income equalisation scheme).

Ceasing of deposit in adverse event income equalisation account

(4) A transferred deposit ceases to be a deposit in the person's adverse event income equalisation account.

Defined in this Act: adverse event income equalisation account, amount, deduction, deposit, interest, main income equalisation account, pay, person, year,

Compare: 1994 No 164 s EI 14(3), (4)

Subsection (2)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Definitions

EH 62 Meaning of adverse event maximum deposit

Meaning

(1) Adverse event maximum deposit means the maximum deposit that this section says a person may make to their adverse event income equalisation account for a tax year.

Maximum deposit
(2) The maximum deposit a person may make is an amount equal to the net income that the person would have in the tax year if, because of the self-assessed adverse event,—
- (a) the only income derived by the person in the tax year were income from their selling the livestock; and
- (b) the only amount for which the person was allowed a deduction in the tax year were the cost of the livestock sold.
Cost of livestock sold: matters excluded
(3) The cost of the livestock sold is an amount determined under subsection (4) or (5)—
- (a) without applying any provision allocating income derived or expenditure incurred to a tax year other than the tax year in which the income was in fact derived or the expenditure was in fact incurred; and
- (b) applying sections DQ 1 (Main income equalisation scheme), EH 7 to EH 33, and FF 9 to FF 11 (which relate to livestock).
Cost of livestock sold: person having livestock of class sold at end of previous tax year

(4) This subsection applies when, at the end of the tax year before the tax year in which the livestock is sold, the person had livestock of the class that is sold in which the livestock would, if unsold, have been included at the end of the tax year in which it is sold. Under this subsection, the cost of livestock sold is determined using the previous tax year's closing value for the class of livestock in which the livestock sold would have been included.

Cost of livestock sold: other cases

(5) This subsection applies when subsection (4) does not. Under this subsection, the cost of livestock sold is calculated using the formula—

Definition of items in formula
(6) In the formula,—
- (a) number at start means the number of livestock of the class sold that the person has at the start of the tax year in which the livestock is sold:
- (b) number bought means the number of livestock of the class sold that the person buys in the tax year in which the livestock is sold, before the sale:
- (c) price means the average purchase price of the number bought:
- (d) value means the opening value of the number at the start, determined without applying section EC 16(2) (Valuation under herd scheme).
Defined in this Act: adverse event income equalisation account, adverse event maximum deposit, amount, deduction, deposit, income, net income, person, self-assessed adverse event, tax year,

Compare: 1994 No 164 s OB 1 maximum deposit (b)

EH 63 Meaning of self-assessed adverse event

[Repealed]

Subsection (2)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Section EH 63 was repealed, as from 3 April 2006, by section 79(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

EH 64 Other definitions

In the adverse event income equalisation scheme,—

adverse event deposit means a payment made to the Commissioner under section EH 39(1)

adverse event income equalisation account, for a person, means the account that the Commissioner keeps in the person's name under section EH 40
date the deposit ends means—
- (a) the date on which the refund is calculated, when section EH 43 applies:
- (b) the date on which the Commissioner receives the applications for the refund, when section EH 46 applies:
- (c) the date of the person's retirement, when section EH 48 applies:
- (d) the date of the person's death, when section EH 50 applies:
- (e) the date on which the Commissioner receives notice of the adjudication, when section EH 54 applies:
- (f) the date on which the Commissioner receives notice of the liquidation, when section EH 56 applies:
- (g) the date on which the Commissioner transfers the deposit, when section EH 61(1) applies
date the deposit ends: paragraphs (a) to (f) of this definition were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
deposit —
- (a) means an adverse event deposit; and
- (b) includes, for the purposes of sections EH 41(2) and (3) and EH 45 to EH 61, interest that is added to an adverse event deposit under section EH 41(4)
specified period, for a person's tax year, means the shorter of—
- (a) the period of 6 months after the end of the tax year; and
- (b) the period from the end of the tax year to the date 1 month after the date by which the person must, under section 37 of the Tax Administration Act 1994, file their return of income for the tax year.
Defined in this Act: adverse event deposit, adverse event income equalisation account, adverse event income equalisation scheme, Commissioner, date the deposit ends, deposit, interest, liquidation, person, return of income, specified period, tax year,

Compare: 1994 No 164 s OB 1adverse event income equalisation account

Thinning operations income equalisation scheme

Application

EH 65 Persons to whom thinning operations income equalisation scheme applies

Person described
(1) The thinning operations income equalisation scheme applies to a company that, in a tax year,—
- (a) carries on a forestry business on land in New Zealand; and
- (b) derives income from carrying out thinning operations on the land.
Meaning of person for thinning operations income equalisation scheme

(2) In the thinning operations income equalisation scheme, person means a person described in subsection (1).

Defined in this Act: business, company, income, New Zealand, person, thinning operations, thinning operations income equalisation scheme, tax year,

Compare: 1994 No 164 s EI 17(1)

Deposits and accounts

EH 66 Thinning operations deposit

Deposit for thinning operations

(1) A person may make a payment to the Commissioner for entry in their thinning operations income equalisation account for a tax year in which they derive income from carrying out thinning operations.

Upper limit of deposit

(2) A person must not make, for a tax year, deposits that in total are more than their thinning operations maximum deposit for the tax year.

Lower limit of deposit
(3) A person must not make, for a tax year, a deposit that is less than the lesser of—
- (a) $200; and
- (b) the difference between the total of all the deposits the person has previously made for the tax year and their thinning operations maximum deposit for the tax year.
Time of making deposit
(4) A person makes a deposit for a tax year by—
- (a) making the deposit during the tax year; or
- (b) doing both the following:
  - (i) making the deposit during the specified period for the tax year; and
  - (ii) at the time of making it, giving the Commissioner notice that the deposit is for the tax year; or
- (c) doing both the following:
  - (i) making the deposit within a time that is after the end of the specified period for the tax year but that is allowed by the Commissioner in a case or class of cases; and
  - (ii) at the time of making it, giving the Commissioner notice that the deposit is for the tax year.
Limit on making deposit

(5) If a refund has been made to a person for a tax year under section EH 73 or EH 75, the person may later make a deposit for the tax year only if the Commissioner is satisfied, before the deposit is made, that all the refund has been used to expand or develop the person's business.

Defined in this Act: business, Commissioner, deposit, income, notice, person, specified period, tax year, thinning operations, thinning operations deposit, thinning operations income equalisation account, thinning operations maximum deposit,

Compare: 1994 No 164 ss EI 1(1), (3), EI 17(1), (2)

EH 67 Thinning operations income equalisation account

Person's account

(1) The Commissioner must keep a thinning operations income equalisation account in the name of every person that makes a deposit with the Commissioner.

Deposits in accounts

(2) Every deposit a person makes with the Commissioner must be entered in their thinning operations income equalisation account.

Amounts in accounts
(3) The only amounts that may be entered in a person's thinning operations income equalisation account are—
- (a) deposits made by the person with the Commissioner; and
- (b) interest paid under section EH 68.
Amounts not available to others
(4) Despite section FI 3 (Date on which disposal and resulting acquisition treated as occurring), amounts entered in a person's thinning operations income equalisation account must not, while they are in the account,—
- (a) be assigned or charged in any way; or
- (b) pass by operation of law to, or into the custody or control of, someone else, except when the person has been put into liquidation; or
- (c) be assets for the payment of the person's debts or liabilities, except when the person has been put into liquidation.
Amounts available only for refunds

(5) The only payments that may be made from a person's thinning operations income equalisation account are refunds under any of sections EH 70, EH 73, EH 75, and EH 77.

Defined in this Act: amount, Commissioner, deposit, interest, liquidation, pay, person, thinning operations income equalisation account,

Compare: 1994 No 164 ss EI 1(2), (5), EI 17(2), (3)

Subsection (4) was amended, as from 1 October 2005, by section 40 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “Despite section FI 3 (Date on which disposal and resulting acquisition treated as occurring), amounts” for “Amounts” with application as from the 2005–06 income year.

Interest

EH 68 Interest on deposits in thinning operations income equalisation account

No interest payable

(1) No interest is payable on a deposit in a thinning operations income equalisation account that is refunded within 1 year of the date of deposit.

Interest payable

(2) Interest is payable on every other deposit in a thinning operations income equalisation account.

Period

(3) Interest is computed with daily rests from the date of acknowledgment of the receipt of the deposit until the date the deposit is refunded.

Date to which interest accrues
(4) Interest on a deposit accrues until the earlier of—
- (a) 31 March in each year; and
- (b) the date the deposit is refunded.
Added to deposit

(5) Accrued interest on a deposit is added to the deposit.

Rate

(6) The interest rate is 3% a year.

Defined in this Act: deposit, interest, pay, thinning operations income equalisation account, year,

Compare: 1994 No 164 ss EI 2, EI 17(2)

Deductions

EH 69 Deduction of deposit

When this section applies

(1) This section applies when a person is allowed a deduction under section DQ 3 (Thinning operations income equalisation scheme).

Amount of deduction
(2) The amount of the deduction is the lesser of—
- (a) the total of the person's deposits for the tax year; and
- (b) their thinning operations maximum deposit for the tax year.
Timing of deduction

(3) The person is allowed the deduction in the tax year.

Defined in this Act: amount, deduction, deposit, person, tax year, thinning operations maximum deposit,

Compare: 1994 No 164 ss EI 3, EI 17(2)

Refunds: automatic

EH 70 Refund of excess deposit

When this section applies

(1) This section applies when a person's deposits for a tax year are more than their thinning operations maximum deposit for the tax year.

Refund

(2) The Commissioner must refund the excess to the person as soon as practicable after the date the deposit ends.

Defined in this Act: Commissioner, date the deposit ends, deposit, person, tax year, thinning operations maximum deposit,

Compare: 1994 No 164 ss EI 1(4), EI 17(2)

EH 71 Income does not include excess deposit

A refund under section EH 70 is excluded income under section CX 43 (Income equalisation schemes).

Defined in this Act: excluded income,

Compare: 1994 No 164 ss EI 1(4), EI 17(2)

Refunds: on application

EH 72 Application for refund by person or liquidator

Who may apply
(1) The following may apply to the Commissioner for a refund of some or all of the amount in a person's thinning operations income equalisation account:
- (a) the person may apply under section EH 73 or EH 75:
- (b) the liquidator appointed for the person may apply under section EH 77.
Application
(2) An application for a refund must—
- (a) be in writing; and
- (b) state the grounds on which it is made; and
- (c) state the amount applied for.
Defined in this Act: amount, Commissioner, liquidation, person, thinning operations income equalisation account,

Compare: 1994 No 164 ss EI 4(1), (2), EI 17(2)

Subsection (1)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EH 73 Refund on request

When this section applies

(1) This section applies when a person wants a refund of some or all of the amount in the person's thinning operations income equalisation account, and neither section EH 75 nor EH 77 applies.

Refund

(2) The Commissioner must refund to the person the amount applied for, to the extent to which it can be made up of 1 or more deposits that have been in the person's thinning operations income equalisation account for at least 1 year before the date the deposit ends.

Defined in this Act: amount, Commissioner, date the deposit ends, deposit, person, thinning operations income equalisation account, year,

Compare: 1994 No 164 ss EI 4(1), (2), EI 17(2)

EH 74 Income when refund given on request

Year of income

(1) A refund under section EH 73 is income, under section CB 24 (Income equalisation schemes), derived by the person in the tax year in which the Commissioner receives the application for the refund.

When year of income may be different
(2) However, subsection (3) applies instead of subsection (1) if—
- (a) the Commissioner receives the application for a refund in the specified period for a tax year or, if the Commissioner allows in a case or class of cases, within a longer period; and
- (b) the person chooses in the application that the refund is to be income in the tax year to which the specified period or the longer period relates.
Different year of income

(3) The refund is income, under section CB 24 (Income equalisation schemes), in the tax year to which the specified period or the longer period relates.

Defined in this Act: Commissioner, income, person, specified period, tax year,

Compare: 1994 No 164 ss EI 4(5), EI 17(2)

EH 75 Refund for development or recovery

Refund for development: application of subsection (2)

(1) Subsection (2) applies when a person wants a refund of some or all of the amount in their thinning operations income equalisation account for the purpose of enabling them to undertake, immediately after the refund is given, planned development or maintenance work for their forestry business.

Refund

(2) If the Commissioner is satisfied that the person will use the refund for the purpose, the Commissioner must refund to them the amount applied for, to the extent to which it can be made up of 1 or more deposits that have been in the person's thinning operations income equalisation account for at least 6 months before the date the deposit ends.

Refund for recovery: application of subsection (4)
(3) Subsection (4) applies when a person wants a refund of some or all of the amount in their thinning operations income equalisation account for either or both of the following purposes:
- (a) to avoid them suffering serious hardship:
- (b) to do anything else that the Commissioner determines, in a case or class of cases, is a purpose for which a refund should be given.
Refund

(4) If the Commissioner is satisfied that the person will use the refund for either or both of the purposes, the Commissioner must refund to them the amount applied for, regardless of the length of time it has been in the account.

Defined in this Act: amount, business, Commissioner, date the deposit ends, deposit, person, thinning operations income equalisation account,

Compare: 1994 No 164 ss EI 4(3), (4), EI 17(2)

Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

EH 76 Income when refund given for development or recovery

Year of income

(1) A refund under section EH 75 is income, under section CB 24 (Income equalisation schemes), derived by the person in the tax year in which the Commissioner receives the application for the refund.

When year of income may be different
(2) However, subsection (3) applies instead of subsection (1) if—
- (a) the Commissioner receives the application for a refund in the specified period for a tax year or, if the Commissioner allows in a case or class of cases, within a longer period; and
- (b) the person chooses in the application that the refund is to be income in the tax year to which the specified period or the longer period relates.
Different year of income

(3) The refund is income, under section CB 24 (Income equalisation schemes), derived in the tax year to which the specified period or the longer period relates.

Defined in this Act: Commissioner, income, person, specified period, tax year,

Compare: 1994 No 164 ss EI 4(5), EI 17(2)

EH 77 Refund on liquidation

When this section applies
(1) This section applies when a person—
- (a) has a thinning operations income equalisation account; and
- (b) is put into liquidation.
Refund

(2) The Commissioner must refund to the liquidator appointed for the person the amount that, on the date the deposit ends, is in the person's thinning operations income equalisation account on the date, regardless of the length of time it has been in the account.

Defined in this Act: amount, Commissioner, date the deposit ends, liquidation, person, thinning operations income equalisation account,

Compare: 1994 No 164 ss EI 8(1), EI 17(2)

EH 78 Income when refund given on liquidation

A refund under section EH 77 is income, under section CB 24 (Income equalisation schemes), derived by the person immediately before the liquidation starts.

Defined in this Act: income, liquidation, person,

Compare: 1994 No 164 ss EI 8(2), EI 17(2)

Refunds: general provisions, and rebate of income tax

EH 79 Sections of main income equalisation scheme that apply to thinning operations income equalisation scheme

Sections EH 28 to EH 33 apply, with the necessary amendments, to the thinning operations income equalisation scheme.

Defined in this Act: main income equalisation scheme, thinning operations income equalisation scheme,

Compare: 1994 No 164 s EI 17(2)

Definitions

EH 80 Meaning of thinning operations maximum deposit

Meaning

(1) Thinning operations maximum deposit means the maximum deposit that this section says a person may make to their thinning operations income equalisation account for a tax year.

Maximum deposit

(2) The maximum deposit that a person may make is an amount equal to the income derived by them during the tax year from carrying out thinning operations on the land on which they carry on their forestry business.

Meaning of amount
(3) In subsection (2), amount means an amount calculated without applying—
- (a) any provision allocating income derived or expenditure incurred to a tax year other than the tax year in which the income was in fact derived or the expenditure was in fact incurred:
- (b) any provision of any of the income equalisation schemes referred to in section EH 1(2).
Defined in this Act: amount, business, deposit, income, person, tax year, thinning operations, thinning operations income equalisation account, thinning operations maximum deposit,

Compare: 1994 No 164 s OB 1maximum deposit (a)

Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

EH 81 Other definitions

In the thinning operations income equalisation scheme,—
date the deposit ends means—
- (a) the date on which the refund is calculated, when section EH 70 applies:
- (b) the date on which the Commissioner receives the application for the refund, when section EH 73 or EH 75 applies:
- (c) the date on which the Commissioner receives notice of the liquidation, when section EH 77 applies
date the deposit ends: paragraphs (a) and (b) of this definition were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.
deposit —
- (a) means a thinning operations deposit; and
- (b) includes, for the purposes of sections EH 68(2) to (4) and EH 72 to EH 79, interest that is added to a thinning operations deposit under section EH 68(5)
specified period, for a person's tax year, means the shorter of—
- (a) the period of 6 months after the end of the accounting year that corresponds to the tax year; and
- (b) the period from the end of the accounting year that corresponds to the tax year to the date 1 month after the date by which the person must, under section 37 of the Tax Administration Act 1994, file their return of income for the accounting year that corresponds to the tax year
specified period: this definition was amended, as from 1 April 2005, by section 41 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “accounting year that corresponds to the tax year” for “tax year” in the 3 places in paragraphs (a) and (b) in which it appears with application as from the 2005–06 income year.
thinning operations means operations in which some trees in an immature stand of trees are felled for the purpose of improving the growth and form of the remaining trees and not for the purpose of permanently breaking the canopy

thinning operations deposit means a payment made to the Commissioner under section EH 66(1)

thinning operations income equalisation account, for a person, means the account that the Commissioner keeps in the person's name under section EH 67.
Defined in this Act: Commissioner, date the deposit ends, interest, liquidation, person, return of income, specified period, tax year, thinning operations, thinning operations deposit, thinning operations income equalisation account, thinning operations income equalisation scheme,

Compare: 1994 No 164 ss EI 17(4), OB 1specified period (a)

Subpart EI—Spreading of specific income

Farming and forestry

EI 1 Spreading backward of income from timber

When this section applies

(1) This section applies when a person derives income under section CB 22 (Disposal of timber or right to take timber) or CB 23 (Disposal of land with standing timber).

Timing of income

(2) The person may allocate the income between the income year in which they derive it and any 1 or more of the previous 3 income years.

Application

(3) A person who wants to make an allocation under subsection (2) must apply in writing to the Commissioner no later than 1 year after the end of the income year in which they derive the income.

Defined in this Act: Commissioner, income, income year, timber, year,

Compare: 1994 No 164 s EJ 1(1)

Inflation-indexed instruments

EI 2 Interest from inflation-indexed instruments

When this section applies
(1) This section applies when—
- (a) an amount of money lent is outstanding at the end of the lender's current income year; and
- (b) an amount is payable to the lender for the money lent, in a future income year of the lender; and
- (c) the amount payable is determined by a fixed relationship to 1 or more indices of general price inflation in New Zealand; and
- (d) the amount payable that has accrued at the end of the lender's current income year differs from any amount payable that had accrued—
  - (i) at the time the money was lent, if it was lent during the lender's current income year; or
  - (ii) at the end of the lender's previous income year, if it was lent before the lender's current income year.
Increase treated as credited
(2) If the difference is an increase, the increase is treated as having been credited in account and capitalised by the borrower for the benefit of the lender on—
- (a) the day following the day on which the level of the relevant index at the end of the lender's current income year becomes public knowledge; or
- (b) if the level of the relevant index is not calculated for the end of the lender's current income year, the last date before the end of the income year for which the level is calculated.
This subsection is overridden by subsection (3).
Increase not treated as credited
(3) An increase is not treated as having been credited to the extent to which—
- (a) the money lent has been repaid:
- (b) an amount on account of the increase has already been paid to the lender:
- (c) the increase represents a recovery of a decrease in the amount payable over a previous income year of the lender.
Defined in this Act: amount, income year, interest, money lent, New Zealand, pay,

Compare: 1994 No 164 s EB 4

Subsection (3)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Intellectual property

EI 3 Assigning or granting copyright

When this section applies
(1) This section applies when a person—
- (a) is the author of a literary, dramatic, musical, or artistic work; and
- (b) made the work over a period of more than 1 year; and
- (c) receives consideration from—
  - (i) assigning some or all of the copyright in the work; or
  - (ii) granting an interest in the copyright by licence.
Timing of income: lump sum payment
(2) If some or all of the consideration is a lump sum payment that would be income in 1 tax year, the person may allocate the income equally between the income year in which they receive it and—
- (a) the income year before that income year, if they made the work over a period of 2 years or less; or
- (b) the 2 income years before that income year, if they made the work over a period of more than 2 years.
Timing of income: other payments

(3) If some or all of the consideration is not a lump sum payment, would be income in 1 tax year, and is received by the person within 2 years after the first publication of the work, the person may allocate the income equally between the income year in which they receive it and the previous income year.

Self-publication

(4) Subsection (3) applies to income that the person derives from being the publisher of their work.

Application
(5) The following provisions apply to an allocation for the purposes of subsections (2) and (3):
- (a) for an allocation under subsection (2), the person must apply in writing to the Commissioner no later than 6 years after the end of the income year in which they receive the payment; and
- (b) for an allocation under subsection (3), the person must apply in writing to the Commissioner no later than 8 years after the first publication of the work.
Some definitions

(6) In this section,—

author includes a joint author first publication means the first occasion on which the work or a reproduction of it is published, performed, or exhibited lump sum payment includes an advance on account of royalties.

Defined in this Act: author, Commissioner, first publication, income, income year, lump sum payment, royalty, tax year, year,

Compare: 1994 No 164 s EN 3(1)-(3), (5), (6)

EI 3B Spreading income from patent rights

When this section applies

(1) This section applies when a person derives income under section CB 26 (Sale of patent applications or patent rights).

Timing of income

(2) The person may allocate the income equally between the income year in which they derive it and the following 2 income years.

Defined in this Act: Commissioner, income, income year, patent rights,

Section EI 3B was inserted, as from 18 December 2006, by section 52(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2007-08 income year.

Land

EI 4 Amount paid to lessor for non-compliance with covenant for repair

When this section applies

(1) This section applies when a lessor receives an amount of income under section CC 2 (Non-compliance with covenant for repair).

Timing of income: if election made

(2) The lessor may choose to allocate the income between the income year in which they receive the amount and any 1 or more of the following 4 income years.

Timing of income: if election not made

(3) Any part of the amount that the lessor does not allocate as described in subsection (2) is allocated to the fourth income year following the income year in which they receive the amount.

Notice
(4) The following provisions apply to an allocation for the purposes of subsection (2):
- (a) the lessor must give a notice to the Commissioner that specifies how the income has been allocated; and
- (b) the lessor must give the notice within the time required to file a return of income for the income year to which the income is allocated or within a longer time if the Commissioner agrees; and
- (c) the lessor must not revoke the election.
Relationship with sections CC 2 and EI 5

(6) This section overrides section CC 2(2) (Non-compliance with covenant for repair) and is overridden by section EI 5.

Defined in this Act: amount, Commissioner, income, income year, notice, return of income,

Compare: 1994 No 164 s EN 1(2)-(4), (8)

EI 5 Amount paid for non-compliance: when lessor ceases to own land

When this section applies
(1) This section applies when a lessor—
- (a) allocates income under section EI 4 to more than 1 income year; and
- (b) ceases to own the land to which the income relates before the end of the third tax year following the tax year in which they receive the income.
Timing of income

(2) If the lessor has not allocated a part of the income, the part is allocated to the income year in which the lessor ceases to own the land.

Ownership of part of land ceasing
(3) If the lessor ceases to own part of the land to which the income relates,—
- (a) this section applies to the part of the land that the lessor ceases to own; and
- (b) section EI 4 applies to the part of the land that the lessor continues to own.
Defined in this Act: amount, income, income year, own, tax year,

Compare: 1994 No 164 s EN 1(5), (7), (8)

EI 6 Leases: income derived in anticipation

When this section applies

(1) This section applies when a person derives, in a tax year, income in anticipation from fines, premiums, a payment of goodwill on the grant of a lease, or in another similar way.

Timing of income

(2) The Commissioner may allocate the income between the income year in which the person derives it and any 5 later income years.

Notice
(3) The following provisions apply to an allocation for the purposes of subsection (2):
- (a) the person must give a notice to the Commissioner requesting the Commissioner to make the allocation:
- (b) the person must give the notice in the tax year following the tax year to which the income year of derivation corresponds:
- (c) the Commissioner may cancel the allocation at any time.
Cancellation of allocation

(4) If the Commissioner cancels the allocation, the income allocated to the income year in which the cancellation occurs and to future income years is allocated to the income year before the income year in which the cancellation occurs.

Defined in this Act: Commissioner, income, income year, lease, notice, tax year,

Compare: 1994 No 164 s EB 2

Subsection (3)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (3)(b) was substituted, as from 1 April 2005, by section 80(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

EI 7 Disposal of land to Crown

When this section applies

(1) This section applies when a person derives income from disposing of any of their land to the Crown.

Timing of income

(2) The person may choose to allocate the income between the income year in which they derive it and any 3 later income years.

Timing of deduction

(3) If the person allocates income to 2 or more income years, they must allocate part of any deduction allowed for the cost of the land to the same income years. The part must bear the same proportion to the total deduction as the allocated income bears to the total amount of income.

Application
(4) The following provisions apply to an allocation for the purposes of subsection (2):
- (a) the person, or another person for them, must make a written application to the Commissioner:
- (b) the application must be made within 1 year after the end of the tax year in which the person derives the income or within a longer time if the Commissioner agrees:
- (c) the person must arrange to meet all income tax liabilities relating to the income:
- (d) the Commissioner may cancel the allocation at any time.
Cancellation of allocation
(5) If the Commissioner cancels the allocation,—
- (a) the whole of the income or deduction, as applicable, is allocated to the income year before the income year in which the cancellation occurs:
- (b) the cancellation does not affect income or a deduction that has been allocated to a previous income year.
Defined in this Act: amount, Commissioner, deduction, income, income tax liability, income year, tax year, year,

Compare: 1994 No 164 s EN 4

Subsection (4)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (5)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Shareholder-employees

EI 8 Matching rule for employment income of shareholderemployee

Matching if company allowed deduction

(1) If a company is allowed a deduction for expenditure on employment income that is paid or is payable to a shareholder- employee under section CE 1 (Amounts derived in connection with employment), the income is allocated in the way set out in subsections (2) and (3).

Allocation to deduction year unless unexpired

(2) The income is allocated to the income year to which the deduction allowed to the company is allocated, except for an amount equal to any unexpired portion for the income year of the company's expenditure under section EA 4 (Deferred payment of employment income).

Allocation otherwise when ceases being unexpired

(3) The remaining income is allocated to the income year or years in which the corresponding amount of the company's expenditure on the income is no longer treated as an unexpired portion.

Defined in this Act: amount, company, deduction, employment income, income year, pay, shareholder-employee,

Compare: 1994 No 164 s EB 1(3), (4)

Subpart EJ—Spreading of specific expenditure

Farming and forestry

EJ 1 Spreading backward of deductions for costs of timber

EJ 2 Spreading forward of deductions for repairs to fishing boats

EJ 3 Spreading forward of fertiliser expenditure

Films

EJ 4 Expenditure incurred in acquiring film rights in feature films

EJ 5 Expenditure incurred in acquiring film rights in films other than feature films

EJ 6 Certification of New Zealand films

EJ 7 Film production expenditure for New Zealand films

EJ 8 Film production expenditure for films other than New Zealand films

EJ 9 Personal property lease payments

EJ 10 Amount paid by lessee for non-compliance with covenant for repair

EJ 11 Petroleum development expenditure

EJ 12 Relinquishing petroleum permit

EJ 13 Disposal of petroleum mining asset

EJ 14 Disposal of petroleum mining asset to associate

EJ 15 Partnership interests and disposal of part of asset

EJ 16 Petroleum mining operations outside New Zealand

EJ 17 Meaning of offshore development

EJ 18 Meaning of onshore development

EJ 19 Contributions to employees' superannuation schemes

Research, development, and resulting market development

EJ 20 Deductions for market development—product of research, development

EJ 21 Allocation of deductions for research, development, and resulting market development

Farming and forestry

EJ 1 Spreading backward of deductions for costs of timber

When this section applies

(1) This section applies when a person derives income under section CB 22 (Disposal of timber or right to take timber) or CB 23 (Disposal of land with standing timber).

Timing of deduction

(2) The person must allocate every amount allowed as a deduction for a cost of timber to the income years to which the income is allocated under section EI 1 (Spreading backward of income from timber), and in the same proportions as it is allocated.

Defined in this Act: amount, deduction, income, income year,

Compare: 1994 No 164 s EJ 1(2)

EJ 2 Spreading forward of deductions for repairs to fishing boats

When this section applies: generally

(1) This section applies when a person who carries on a fishing business in New Zealand is allowed a deduction for expenditure incurred in making repairs or alterations required by Part 10 of the Maritime Transport Act 1994 to the equipment, hull, or machinery of a fishing boat used wholly for the purposes of the business.

When subsection (3) applies

(2) Subsection (3) applies when the person does not cease to carry on the business before the end of the fourth tax year following the tax year in which the expenditure is incurred.

Business not ceasing within 4 years
(3) The person may do 1 of the following to the total amount of expenditure allowed as a deduction:
- (a) deduct it in the income year in which the expenditure is incurred; or
- (b) allocate it to any 1 of the 4 income years following the income year in which the expenditure is incurred, and deduct it in that income year; or
- (c) allocate parts of it over some or all of the 4 income years following the income year in which the expenditure is incurred, and deduct each part allocated in the income year to which it is allocated; or
- (d) deduct it, or any part of it that has not already been deducted, in the fourth income year following the income year in which the expenditure is incurred.
When subsection (5) applies

(4) Subsection (5) applies when the person ceases to carry on the business before the end of the fourth tax year following the tax year in which the expenditure is incurred.

Business ceasing within 4 years
(5) The person may do 1 of the following to the total amount of expenditure allowed as a deduction:
- (a) deduct it, or any part of it that has not already been deducted, in the income year in which the person ceases to carry on the business; or
- (b) allocate it, or any part of it that has not already been deducted, equally to the income year in which it is incurred and the following income years in which the person continues to carry on the business.
Some definitions
(6) In this section,—
fishing boat—
- (a) means a boat registered as a fishing boat under Part 4 of the Fisheries Act 1983; and
- (b) includes a small boat belonging to any boat that is so registered fishing business means a business of catching or taking fish, including crustaceans and shellfish, for the purposes of sale.
Defined in this Act: amount, business, deduction, fishing boat, fishing business, income year, New Zealand, tax year,

Compare: 1994 No 164 s DO 2

EJ 3 Spreading forward of fertiliser expenditure

When this section applies
(1) This section applies when—
- (a) a person carries on a farming or agricultural business on land in New Zealand; and
- (b) the person incurs expenditure in buying fertiliser or lime or applying fertiliser or lime to some or all of the land; and
- (c) the expenditure is expenditure for which the person is allowed a deduction.
Timing of deduction: if election made

(2) The person may choose to allocate the expenditure by allocating some or all of it, in the proportions they choose, to any 1 or more of the 4 income years following the income year in which they incur the expenditure.

Timing of deduction: if election not made
(3) The person is allowed a deduction in the fourth income year following the income year in which they incur the expenditure for any part of the expenditure—
- (a) for which they do not claim a deduction in the income year in which they incur the expenditure; or
- (b) that they do not allocate under subsection (2).
Timing of deduction: business ceasing within 4 years
(4) If the person ceases to carry on the business before the end of the fourth income year following the income year in which they incurred the expenditure, they must choose 1 of the following ways to deal with any part of the expenditure that has not so far been deducted:
- (a) the part is to be deducted in the income year in which the person ceases to carry on the business; or
- (b) the part is to be allocated equally to the income year in which they incurred the expenditure and the following income years in which the person carried on the business.
Notice
(5) The following provisions apply to an allocation for the purposes of subsections (2) and (4):
- (a) for subsection (2), the person must give the Commissioner notice of the allocation within the time within which the person is required to file a return of income for the income year to which they allocated the expenditure:
- (b) for subsection (4), the person must give the Commissioner notice of the allocation within the time within which the person is required to file a return of income for the income year in which the person ceases to carry on the business:
- (c) for subsection (2) or (4), the Commissioner may allow a longer time in any case or class of cases:
- (d) for subsection (2), the person must not revoke the allocation.
Personal representative

(6) An election under subsection (4) may be made by a deceased's personal representative.

Defined in this Act: business, Commissioner, deduction, income year, New Zealand, notice, return of income,

Compare: 1994 No 164 s EK 1

Subsection (5)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Films

EJ 4 Expenditure incurred in acquiring film rights in feature films

Feature films

(1) A deduction under section DS 1 (Acquiring film rights) for expenditure that a person incurs in acquiring a film right is allocated under this section, if the film is a feature film.

Timing of deduction: retention of film right
(2) If the person has the film right at the end of an income year, the deduction that is allocated to the income year is the lesser of—
- (a) the greater of—
  - (i) an apportioned amount of the deduction, calculated for the income year under subsection (3); and
  - (ii) the amount of film income derived in the income year; and
- (b) the remaining deduction.
Calculation of apportioned amount

(3) The apportioned amount is calculated for the income year using the formula—

Definition of items in formula
(4) In the formula,—
- (a) completed months is the number of months in the income year (including a part of a month) for which the film is completed:
- (b) non-completed months is 24, reduced by the number of complete months in the period that—
  - (i) starts on the first day of the month in which the film is completed; and
  - (ii) ends on the last day of the income year before the income year referred to in subsection (2):
- (c) deduction is the remaining deduction.
Timing of deduction: disposal of film right

(5) If the person disposes of the film right during an income year, and does not have a film right in the film at the end of the income year, the remaining deduction is allocated to the income year.

Meaning of remaining deduction

(6) In this section, remaining deduction means, for an income year, the amount of the deduction for expenditure incurred before the end of the income year that has not been allocated to a previous income year.

Defined in this Act: amount, completed, deduction, feature film, film, film income, film right, income year, remaining deduction,

Compare: 1994 No 164 ss EO 3(4), (6), (9), OB 1 residual value

EJ 5 Expenditure incurred in acquiring film rights in films other than feature films

Films other than feature films

(1) A deduction under section DS 1 (Acquiring film rights) for expenditure that a person incurs in acquiring a film right is allocated under this section, if the film is not a feature film.

Timing of deduction: retention of film right
(2) If the person has the film right at the end of an income year,—
- (a) the deduction that is allocated to the income year in which the film right is acquired or the film is completed (whichever is later) is—
  - (i) 50% of the deduction; or
  - (ii) if the film income derived in the income year is more than 50% of the deduction, the lesser of the amount of film income and the total amount of the deduction; and
- (b) the deduction that is allocated to the next income year is the remaining deduction.
Timing of deduction: disposal of film right

(3) If the person disposes of the film right during an income year, and does not have a film right in the film at the end of the income year, the remaining deduction is allocated to the income year.

Meaning of remaining deduction

(4) In this section, remaining deduction means, for an income year, the amount of the deduction that has not been allocated to a previous income year.

Defined in this Act: amount, completed, deduction, feature film, film, film income, film right, income year, remaining deduction,

Compare: 1994 No 164 s EO 3(5), (6)

EJ 6 Certification of New Zealand films

Certification of New Zealand films

(1) The New Zealand Film Commission may certify that a film is a New Zealand film, if the Commission is satisfied that the film has, or will on completion have, a significant New Zealand content, as determined under section 18 of the New Zealand Film Commission Act 1978.

Final and provisional certificates
(2) The certificate issued by the New Zealand Film Commission must be—
- (a) a provisional certificate, if the film is not completed:
- (b) a final certificate, if the film is completed.
Applications for certification of New Zealand films

(3) An application to the New Zealand Film Commission for a certificate that a film is a New Zealand film must be in writing and must provide the information that the Commission requires.

Notice of certificate to Commissioner

(4) The New Zealand Film Commission must send a copy of the provisional certificate or the final certificate to the Commissioner immediately after issuing it.

Revocation of certificate

(5) The New Zealand Film Commission may revoke a provisional certificate or a final certificate if the Commission is satisfied that the certificate should not remain in force, whether because an incorrect statement was made in the provision of information for the purpose of obtaining a certificate or for any other reason.

Effect of revocation

(6) A revoked certificate is void from the time the certificate was issued.

Notice of revocation to Commissioner

(7) The New Zealand Film Commission must give notice to the Commissioner immediately after revoking a provisional certificate or a final certificate.

Defined in this Act: Commissioner, completed, film, New Zealand, notice,

Compare: 1994 No 164 s EO 4(9)-(11), (13)

Subsection (2)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

EJ 7 Film production expenditure for New Zealand films

New Zealand films

(1) A deduction under section DS 2 (Film production expenditure) for film production expenditure is allocated under this section, if the film has a final certificate under section EJ 6.

Timing of deduction: up to completion of film

(2) A deduction for film production expenditure incurred in or before the income year in which the film is completed is allocated to the income year in which the film is completed.

Timing of deduction: after completion of film

(3) A deduction for film production expenditure incurred after the film is completed is allocated to the income year in which it is incurred.

Defined in this Act: completed, deduction, film, film production expenditure, income year, New Zealand,

Compare: 1994 No 164 s EO 4(4), (6)

EJ 8 Film production expenditure for films other than New Zealand films

Films other than New Zealand films

(1) A deduction under section DS 2 (Film production expenditure) is allocated under this section, if the film does not have a final certificate under section EJ 6.

Timing of deduction: up to completion of film
(2) If the person has a film right at the end of the income year in which the film is completed, the deduction for film production expenditure incurred in or before the income year is allocated as follows:
- (a) to the income year in which the film is completed,—
  - (i) 50% of the deduction; or
  - (ii) if the film income derived in the income year is more than 50% of the deduction, the lesser of the amount of film income and the total amount of the deduction; and
- (b) to the next income year, the remaining deduction.
Timing of deduction: after completion of film

(3) If the person has a film right in an income year after the film is completed, a deduction for film production expenditure incurred after the film is completed is allocated to the income year in which it is incurred.

Timing of deduction: disposal of film right

(4) If the person disposes of a film right in the income year in which the film is completed, and does not have a film right in the film at the end of the income year, the remaining deduction is allocated to the income year.

Meaning of remaining deduction

(5) In this section, remaining deduction means, for an income year, the amount of the deduction for film production expenditure that has not been allocated to a previous income year.

Defined in this Act: amount, completed, deduction, film, film income, film production expenditure, film right, income year, New Zealand, remaining deduction,

Compare: 1994 No 164 s EO 4(5)-(7)

Leases

EJ 9 Personal property lease payments

What this section applies to
(1) This section applies to a lease that—
- (a) is of a personal property lease asset; and
- (b) is not a finance lease; and
- (c) is not a specified lease.
Payments

(2) Personal property lease payments are treated as being paid for the term of the lease.

Formula

(3) The expenditure that the lessee incurs is allocated to income years using the formula—

Definition of items in formula
(4) In the formula,—
- (a) part of term means the part of the term of the lease that falls within the income year:
- (b) term of the lease is defined in section OB 1 (Definitions):
- (c) total of payments means the total amount of the personal property lease payments.
Defined in this Act: finance lease, income year, lease, lessee, personal property lease asset, personal property lease payment, specified lease, term of the lease,

Compare: 1994, No 164 ss EO 2, EO 2A

EJ 10 Amount paid by lessee for non-compliance with covenant for repair

When this section applies

(1) This section applies when a lessee of land is allowed a deduction under section DB 15 (Amounts paid for non-compliance with covenant for repair).

Timing of deduction

(2) The lessee may choose to allocate some or all of the amount of the deduction to any 1 or more of the 3 income years before the income year in which the amount is paid or recovered. The lessee may make an allocation only to an income year in which they used the land for deriving income.

Effect of allocation
(3) If the lessee makes an allocation,—
- (a) they are denied a deduction for the allocated amount in the income year in which the amount of the deduction is paid or recovered; and
- (b) they are allowed a deduction for the allocated amount in the income year to which it is allocated.
Notice
(4) The following provisions apply to an allocation for the purposes of subsection (2):
- (a) the lessee makes the election by giving a notice to the Commissioner that specifies how the amount of the deduction has been allocated; and
- (b) the lessee must give the notice within the time required to file a return of income for the tax year in which the amount was paid or recovered or within a longer time if the Commissioner agrees; and
- (c) the lessee must not revoke the allocation.
Defined in this Act: amount, Commissioner, deduction, income, income year, lessee, notice, return of income, tax year,

Compare: 1994 No 164 s EO 5(2), (3)

Petroleum mining

EJ 11 Petroleum development expenditure

General rule

(1) A deduction under section DT 5 (Petroleum development expenditure) is allocated in equal amounts over a period of 7 income years.

Start of period for offshore development

(2) For petroleum development expenditure in an offshore development, the period of 7 income years starts with the income year in which the expenditure is incurred.

Start of period for onshore development
(3) For petroleum development expenditure in an onshore development, the period of 7 income years starts with the later of—
- (a) the income year in which commercial production starts; and
- (b) the income year in which the expenditure is incurred.
Relationship with sections DT 7, DT 8, DT 10, DT 11, DT 16, EJ 12 to EJ 14, and IH 3

(4) Sections EJ 12 to EJ 14 override subsection (1). Sections DT 7 (Exploratory well expenditure), DT 8 (Acquisition of certain petroleum mining assets), DT 10 (Disposal of petroleum mining asset outside association), DT 11 (Association ending), DT 16 (Removal or restoration operations), and IH 3 (Loss carry back by petroleum miners) override this section.

Defined in this Act: amount, commercial production, deduction, income year, offshore development, onshore development, petroleum development expenditure,

Compare: 1994 No 164 s DM 1(2)(b)

EJ 12 Relinquishing petroleum permit

When this section applies

(1) This section applies when a petroleum miner relinquishes a petroleum permit.

Amount of deduction
(2) The amount of the deduction that the miner is allowed on relinquishing the permit is the difference between—
- (a) the amount of the deduction allowed under section DT 5 (Petroleum development expenditure) and attributable to—
  - (i) the permit; or
  - (ii) an asset of the kind described in section CT 7(1)(b) or (c) (Meaning of petroleum mining asset) held solely in connection with the permit; and
- (b) any part of the deduction allocated to earlier income years under section EJ 11(1).
Timing of deduction

(3) The deduction is allocated to the income year in which the miner relinquishes the permit.

Defined in this Act: amount, deduction, income year, petroleum miner, petroleum permit,

Compare: 1994 No 164 s DM 1(5)(a)

EJ 13 Disposal of petroleum mining asset

When this section applies

(1) This section applies when a petroleum miner disposes of a petroleum mining asset.

Amount, and timing, of deduction
(2) Part of a deduction under section DT 5 (Petroleum development expenditure) is allocated to the income year in which the miner disposes of the asset. The part is that to which both the following apply:
- (a) it is attributable to the asset; and
- (b) it has been allocated under section EJ 11 to the income year in which the miner disposes of the asset and to 1 or more later income years.
Allocation to more than 1 year
(3) If the petroleum miner's income from disposing of the asset is derived in 2 or more income years,—
- (a) the amount of the deduction is allocated among the income years in which the miner derives the income; and
- (b) the amount allocated to each income year bears the same relation to the total amount of the deduction as the income that the miner derives in that income year bears to the total amount of income that the miner derives from the disposal.
Relationship with section EJ 14

(4) This section is overridden by section EJ 14.

Defined in this Act: amount, deduction, dispose, income, income year, petroleum miner, petroleum mining asset,

Compare: 1994 No 164 s DM 1(5)(b)

EJ 14 Disposal of petroleum mining asset to associate

When this section applies
(1) This section applies when, in an income year, a petroleum miner disposes of a petroleum mining asset to—
- (a) a person associated with the miner:
- (b) a person who holds the asset for the miner:
- (c) a person who holds the asset for a person associated with the miner.
Amount of deduction

(2) The maximum amount that may be allocated under section EJ 13 to the income year is the amount that would be the net income of the petroleum miner in the income year if their only income were from the disposal.

Defined in this Act: amount, associated person, dispose, income, income year, net income, petroleum miner, petroleum mining asset,

Compare: 1994 No 164 s DM 1(6)

Subsection (1)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

EJ 15 Partnership interests and disposal of part of asset

In sections EJ 11 to EJ 14, unless the context requires otherwise,—
- (a) a partner is treated as having a share or interest in a petroleum permit or other property of a partnership to the extent of their interest in the income of the partnership:
- (b) references to the disposal of an asset apply equally to the disposal of part of an asset.
Defined in this Act: dispose, income, petroleum permit,

Compare: 1994 No 164 ss DM 9, DM 10

Paragraph (a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EJ 16 Petroleum mining operations outside New Zealand

Sections EJ 11 to EJ 18 apply with any necessary modifications to a petroleum miner undertaking petroleum mining operations that are—
- (a) outside New Zealand and undertaken through a branch or a controlled foreign company; and
- (b) substantially the same as the petroleum mining activities governed by sections EJ 11 to EJ 18.
Defined in this Act: controlled foreign company, New Zealand, petroleum miner, petroleum mining operations,

Compare: 1994 No 164 s DM 7(1)

Definitions

EJ 17 Meaning of offshore development

Meaning
(1) In section EJ 11, offshore development means a place to which both the following apply:
- (a) 1 or more of the activities described in subsection (2) is carried out there; and
- (b) the major part of the facilities for extracting, producing, treating, processing, and separating petroleum are situated in the sea or in an area of foreshore on the seaward side of the mean high-water mark.
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: offshore development, permit area, petroleum, removal or restoration operations,

Compare: 1994 No 164 s OB 1 development operations, further processing, offshore development

Subsection (2)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

EJ 18 Meaning of onshore development

Meaning
(1) In section EJ 11, onshore development means a place to which both the following apply:
- (a) 1 or more of the activities described in subsection (2) is carried out there; and
- (b) the major part of the facilities for extracting, producing, treating, processing, and separating petroleum are situated neither in the sea nor in an area of foreshore on the seaward side of the mean high-water mark.
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: onshore development, permit area, petroleum, removal or restoration operations,

Compare: 1994 No 164 s OB 1 development operations, further processing, onshore development

Subsection (2)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Superannuation contributions

EJ 19 Contributions to employees' superannuation schemes

When this section applies

(1) This section applies when an employer is allowed a deduction for a superannuation contribution to an employee's superannuation scheme under section DC 6 (Contributions to employees' superannuation schemes).

Timing of deduction

(2) The employer may choose to allocate the deduction to the income year for which the contribution was required by the superannuation scheme to be made, or for which the amount of the contribution was calculated taking into account the earnings paid to employees who were members of the scheme during the income year, if the employer makes the contribution within 63 days after the end of the income year.

Election

(3) The employer must make the election before filing a return of income for the income year or within a longer time if the Commissioner agrees.

Defined in this Act: amount, Commissioner, deduction, employee, employer, income year, return of income, superannuation contribution, superannuation scheme,

Compare: 1994 No 164 ss DF 3(1), EO 1

Research, development, and resulting market development

This heading was inserted, as from 1 October 2005, by section 81(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

EJ 20 Deductions for market development—product of research, development

When this section applies
(1) This section applies if a person is allowed a deduction for expenditure that is not interest and is incurred—
- (a) on market development for a product that has resulted from expenditure incurred by the person on research or development; and
- (b) before the person begins commercial production or commercial use of the product.
Choice for allocation of deduction
(2) The person may choose to allocate all or part of the deduction to an income year—
- (a) after the income year in which the person incurs the expenditure; and
- (b) in the way required by section EJ 21.
Defined in this Act: assessable income, deduction, development, income year, research,

Sections EJ 20 and EJ 21 were inserted, as from 1 October 2005, by section 81(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

EJ 21 Allocation of deductions for research, development, and resulting market development

When this section applies
(1) This section applies if a person has—
- (a) a deduction, for expenditure incurred on research or development, that the person chooses to allocate under section DB 26(6B) (Research or development):
- (b) a deduction, for depreciation losses for an item used for research or development, that the person chooses to allocate under section EE 1(4B) (What this subpart does):
- (c) a deduction, for expenditure incurred on market development for a product that has resulted from expenditure incurred on research or development, that the person chooses to allocate under section EJ 20(2).
Timing of deduction
(2) The person must allocate the deduction to an income year—
- (a) in which the person derives assessable income that the person would not have derived but for—
  - (i) expenditure that gives rise to a deduction that may be allocated under this section:
  - (ii) the use or disposal of an item for which the person has a depreciation loss that may be allocated under this section:
- (b) to which the person would be permitted by Part I (Treatment of net losses) to carry forward a net loss for the income year in which the expenditure or depreciation loss was incurred.
Minimum amount of deduction allocated to income year
(3) The person must not allocate to an income year (the current year) an amount of the deductions referred to in subsection (1) that is less than the lesser of—
- (a) the amount of assessable income referred to in subsection (2)(a) that the person derives in the current year:
- (b) the amount of the deductions that have not been allocated to income years before the current year.
Maximum amount of deduction allocated to income year
(4) The person must not allocate to an income year (the current year) an amount of the deductions referred to in subsection (1) that is more than the greater of—
- (a) the amount of assessable income referred to in subsection (2)(a) that the person derives in the current year:
- (b) the amount of the deductions that—
  - (i) arise in other income years from which a net loss may be carried forward under Part 1 to the current year; and
  - (ii) have not been allocated to income years before the current year.
Defined in this Act: assessable income, deduction, depreciation losses, development, income year, research,

Sections EJ 20 and EJ 21 were inserted, as from 1 October 2005, by section 81(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

Subsection (3) was substituted, as from 18 December 2006, by section 53(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the income year corresponding to the 2005–06 tax year.

Subsection (4) was inserted, as from 18 December 2006, by section 53(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the income year corresponding to the 2005–06 tax year.

Subpart EK—Environmental restoration accounts

Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

EK 1 Environmental Restoration Funds Account

EK 2 Persons who may make payment to environmental restoration account

EK 3 Payments to environmental restoration account

EK 4 Environmental restoration account

EK 5 Details to be provided with payment to environmental restoration account

EK 6 Interest on payments to environmental restoration account

EK 7 Deduction for payment

EK 8 Deduction for transfer

EK 9 Refund of payment if excess, lacking details

EK 10 Certain refunds not income

EK 11 Application for refund

EK 12 Refund if request or excess balance

EK 13 Income when refund given on request

EK 14 Application for transfer

EK 15 Transfer on request

EK 16 Transfer on death, bankruptcy, or liquidation

EK 17 Minimum refund or transfer

EK 18 Payments from which refunds come

EK 19 Environmental restoration account of amalgamating company

EK 20 Environmental restoration account of member of consolidated group

EK 21 Commissioner may require notice in electronic format

EK 22 Meaning of maximum payment

EK 23 Other definitions

EK 1 Environmental Restoration Funds Account

Account

(1) There is a Crown Bank Account called the Environmental Restoration Funds Account that is operated under the Public Finance Act 1989.

Payments from person paid into account
(2) Every payment a person makes to the Commissioner under section EK 2—
- (a) is public money; and
- (b) must be paid into the Environmental Restoration Funds Account.
Defined in this Act: Commissioner,

Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

EK 2 Persons who may make payment to environmental restoration account

Business required to restore environment
A person may make a payment to the Commissioner for entry in the person's environmental restoration account for an income year if the person—
- (a) carries on a business in New Zealand; and
- (b) expects to incur, for a later income year, expenditure that—
  - (i) is not on revenue account property, other than land to which section CB 6B applies; and
  - (ii) is of a type listed in schedule 6B, part B (Expenditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant); and
  - (iii) is of a type not listed in schedule 6B, part C; and
- (c) makes a provision for such expenditure in financial statements that are—
  - (i) prepared for external reporting purposes; and
  - (ii) audited by an accountant who is a chartered accountant or has equivalent professional qualifications; and
  - (iii) given by the accountant a standard audit opinion, without qualifications on matters relating to the effect of this subpart.
Defined in this Act: business, Commissioner, environmental restoration account, income year, revenue account property,

Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

EK 3 Payments to environmental restoration account

Upper limit of payment

(1) A person must not make a payment for an income year of more than the person's maximum payment for the income year.

Lower limit of payment

(2) A person must not make a payment for an income year of less than $1,000.

Time for making payment
(3) A payment made after the day that is 6 months after the end of an income year is not made for the income year unless—
- (a) the Commissioner has allowed a longer period for the payment; and
- (b) the payment is made within the period allowed by the Commissioner.
Defined in this Act: Commissioner, income year, maximum payment,

Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

EK 4 Environmental restoration account

Person's account

(1) The Commissioner must keep an environmental restoration account in the name of every person who makes a payment to the Commissioner under section EK 2.

Payments in account

(2) Every payment under section EK 2 that a person makes to the Commissioner must be entered in the person's environmental restoration account.

Amounts in account
(3) The only amounts that may be entered in a person's environmental restoration account are—
- (a) payments made by the person to the Commissioner under section EK 2:
- (b) transfers made to the account under subsection (6):
- (c) interest paid under section EK 6.
Amounts not available to others
(4) Amounts entered in a person's environmental restoration account may not, while they are in the account,—
- (a) be assigned or charged in any way:
- (b) pass by operation of law to, or into the custody or control of, someone else, except when the person is bankrupt or has been put into liquidation:
- (c) be assets for the payment of the person's debts or liabilities, except when the person is bankrupt or has been put into liquidation:
- (d) be assets for the payment of the debts or liabilities of a dead person's estate.
Amounts not available except for refunds or transfers

(5) An amount entered in a person's environmental restoration account may not be removed from the environmental restoration account except by a refund under section EK 9 or EK 12 or by a transfer under subsection (6).

Transfers of amounts
(6) An amount may be transferred from the environmental restoration account of a person—
- (a) to an environmental restoration account of a person to whom the amount has been transferred under section EK 15 or EK 16(3)(b):
- (b) to the department that is at the time responsible for the administration of the Environment Act 1986, if the amount has been transferred under section EK 16(3)(a):
- (c) to an environmental restoration account of an amalgamated company to which the amount has been transferred under section EK 19.
Commissioner may close empty account

(7) The Commissioner may close an environmental restoration account of a person if the amount in the environmental restoration account is zero.

Defined in this Act: amalgamating company, amount, Commissioner, environmental restoration account, interest, liquidation,

Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

EK 5 Details to be provided with payment to environmental restoration account

(1) A person making a payment to an environmental restoration account must provide the Commissioner with a notice, in a form prescribed by the Commissioner, giving—
- (a) the name of the person; and
- (b) the income year for which the payment is made; and
- (c) a calculation of the maximum payment for the person and the income year; and
- (d) any additional information that the Commissioner requires.
(2) The person must provide the information required by subsection (1) within 2 working days from the day of the payment.

Defined in this Act: Commissioner, environmental restoration account, income year, maximum payment,

Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

EK 6 Interest on payments to environmental restoration account

Interest payable
(1) Interest is payable by the Commissioner on—
- (a) a payment under section EK 2 to an environmental restoration account:
- (b) an amount that is treated under section EK 15, EK 16, or EK 19 as being a payment to an environmental restoration account.
Period

(2) Interest is computed with daily rests from the day after the date of the payment until the day before the date on which the payment is included in a refund under section EK 12 or in a transfer under section EK 15, EK 16, or EK 19.

Date to which interest accrues
(3) Interest that has accrued on a payment is payable to the person who has the environmental restoration account on the earlier of—
- (a) 31 March in each year:
- (b) the day on which the payment is included in a refund under section EK 12 or in a transfer under section EK 15, EK 16, or EK 19.
Rate

(4) The interest rate is 3% per year.

Defined in this Act: Commissioner, environmental restoration account, interest, year,

Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

Subsection (1)(b) was amended, as from 1 October 2005, by section 54(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “section EK 15, EK 16, or EK 19” for “section EK 15 or EK 19” with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

EK 7 Deduction for payment

When this section applies

(1) This section applies if a person is allowed a deduction under section DQ 4 (Environmental restoration accounts scheme) for a payment to the person's environmental restoration account under section EK 2.

Amount of deduction

(2) The amount of the deduction is calculated using the formula—

Definitions of items in formula

(3) The items in the formula are defined in subsections (4) and (5).

Payment
(4) Payment is the lesser of—
- (a) the person's payment to the Commissioner under section EK 2 for the income year; and
- (b) the person's maximum payment for the income year.
Tax rate
(5) Tax rate is the highest rate of income tax on taxable income that—
- (a) is stated in schedule 1; and
- (b) would apply to the person for the tax year if the person had sufficient taxable income.
Timing of deduction

(6) The person is allowed the deduction for the income year for which the payment is made.

Defined in this Act: Commissioner, deduction, environmental restoration account, income tax, income year, maximum payment, tax year, taxable income,

Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

EK 8 Deduction for transfer

When this section applies

(1) This section applies if a person is allowed a deduction under section DQ 4 (Environmental restoration accounts scheme) for a transfer to the person's environmental restoration account under section EK 15, EK 16, or EK 19.

Amount of deduction

(2) The amount of the deduction is calculated using the formula—

Definitions of items in formula

(3) The items in the formula are defined in subsections (4) and (5).

Transfer

(4) Transfer is the amount of the transfer to the person's environmental restoration account that is treated as a payment by the person under section EK 15(3), EK 16, or EK 19.

Tax rate
(5) Tax rate is the highest rate of income tax on taxable income that—
- (a) is stated in schedule 1; and
- (b) would apply to the person for the tax year if the person had sufficient taxable income.
Timing of deduction

(6) The person is allowed the deduction for the income year for which the transfer is made.

Defined in this Act: deduction, environmental restoration account, income tax, income year. maximum payment, tax year, taxable income,

Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

EK 9 Refund of payment if excess, lacking details

When this section applies
(1) This section applies if a person's payment under section EK 2 for an income year is—
- (a) more than the person's maximum payment for the income year:
- (b) made without providing the details required by section EK 5.
Refund
(2) As soon as practicable after the date on which the payment is received, the Commissioner must refund to the person—
- (a) the excess, if the payment is more than the person's maximum payment for the income year:
- (b) the payment, if the payment is described by subsection (1)(b).
No interest payable by Commissioner

(3) No interest is payable by the Commissioner under section EK 6 on the amount of the payment.

Defined in this Act: Commissioner, income year, interest, maximum payment,

Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

EK 10 Certain refunds not income

A refund under section EK 9 is excluded income under section CX 43B (Refund from environmental restoration account).

Defined in this Act: excluded income,

Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

EK 11 Application for refund

Who may apply
(1) A person may apply to the Commissioner for a refund under section EK 12 of an amount in the person's environmental restoration account if the refund—
- (a) corresponds to expenditure incurred by the person of a type that is listed in schedule 6B, part B (Expenditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant) and not in schedule 6B, part C:
- (b) represents an excess in the person's environmental restoration account over the maximum account balance for the person's environmental restoration account for the income year.
Application
(2) An application for a refund must—
- (a) be in writing; and
- (b) state the grounds on which the application is made; and
- (c) provide evidence satisfactory to the Commissioner verifying the existence of the grounds; and
- (d) state the amount of the refund that the applicant wants.
Defined in this Act: Commissioner, environmental restoration account, income year,

Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

EK 12 Refund if request or excess balance

When this section applies
(1) This section applies when—
- (a) a person wants a refund of some or all of the amount in the person's environmental restoration account and none of sections EK 9, EK 15, EK 16, and EK 19 applies:
- (b) the amount in the person's environmental restoration account exceeds the maximum account balance for an income year.
Refund if request made
(2) The Commissioner must make a refund under this section to a person if—
- (a) the person applies for a refund and has incurred expenditure—
  - (i) of a type that is listed in schedule 6B, part B (Expenditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant) and not in schedule 6B, part C; and
  - (ii) of an amount equal to or greater than the amount given by subsection (3) for the amount of the refund; and
  - (iii) after the first date on which the person made to the Commissioner a payment under section EK 2 for entry in the person's environmental restoration account or a transfer under section EK 15, EK 16, or EK 19 was made to the person's environmental restoration account:
- (b) the maximum account balance for the latest complete income year for the person's environmental restoration account is less than the amount in the environmental restoration account at the end of that income year.
Minimum amount of expenditure incurred

(3) The amount of expenditure incurred that corresponds to the amount of a refund is calculated using the formula—

Definitions of items in formula

(4) The items in the formula are defined in subsections (5) and (6).

Amount

(5) Amount is the amount of the refund.

Tax rate
(6) Tax rate is the highest rate of income tax on taxable income that—
- (a) is stated in schedule 1; and
- (b) would apply to the person for the tax year if the person had sufficient taxable income.
Amount of refund if expenditure incurred
(7) If a person is entitled to a refund under subsection (2)(a), the amount that the Commissioner must refund to the person is the smallest of—
- (a) the refund for which the person applies:
- (b) the contents of the person's environmental restoration account at the time of the refund:
- (c) the refund corresponding to the person's expenditure that satisfies subsection (2)(a)(i) to (iii).
Amount of refund if maximum account balance decreases
(8) If a person is entitled to a refund under subsection (2)(b), the amount that the Commissioner must refund is the difference at the end of the latest complete income year between—
- (a) the amount in the person's environmental restoration account, after any transfer under section EK 15, EK 16, or EK 19 for the income year:
- (b) the person's maximum account balance for the income year.
Section EK 17 overrides subsections (7) and (8)

(9) Section EK 17 overrides subsections (7) and (8).

Defined in this Act: amount, Commissioner, environmental restoration account, income tax, income year, maximum account balance, tax year, taxable income,

Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

Section EK 12 heading was amended, as from 3 April 2006, by section 82 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by adding “if request or excess balance” after “Refund”.

Subsection (8) was substituted, as from 1 October 2005, by section 55(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

EK 13 Income when refund given on request

A refund under section EK 12 is income, of the amount given by section CB 24B (Environmental restoration accounts), derived by the person in the income year in which the person receives the refund.

Defined in this Act: Commissioner, income, income year,

Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

EK 14 Application for transfer

Who may apply

(1) A person may apply to the Commissioner for a transfer under section EK 15 from the amount in the person's environmental restoration account.

Application
(2) An application for a transfer must—
- (a) be in writing; and
- (b) state the grounds on which the application is made; and
- (c) state the amount of the transfer that the applicant wants.
Defined in this Act: Commissioner, environmental restoration account,

Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

EK 15 Transfer on request

When this section applies
(1) This section applies if—
- (a) a person applies under section EK 14 for a transfer of some or all of the amount in their environmental restoration account to a person who is nominated in the application; and
- (b) the person has transferred to the nominated person the obligations to which the amount relates; and
- (c) none of sections EK 9, EK 12, EK 16, and EK 19 applies.
Transfer if request made

(2) The Commissioner must make a transfer under this section to an environmental restoration account of the person nominated in the application.

Transfer treated as payment by nominated person if transfer of obligations verified
(3) A transfer under subsection (2) is treated as being a payment by the nominated person to the nominated person's environmental restoration account if the nominated person satisfies the Commissioner that—
- (a) the obligations to which the transferred amount relates have been transferred to the nominated person; and
- (b) in the absence of the transfer, the nominated person would be entitled to make a payment, of the amount of the transfer, to the nominated person's environmental restoration account.
Commissioner to reverse transfer if not satisfied under subsection (3)

(4) If the nominated person does not satisfy the requirements of subsection (3) in relation to an amount, the Commissioner must transfer the amount to the environmental restoration account of the person who made the application under subsection (1)(a).

Timing of reversal

(5) The transfer under subsection (4) is treated as taking place at the time of the original transfer under subsection (2).

Defined in this Act: Commissioner, environmental restoration account,

Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

EK 16 Transfer on death, bankruptcy, or liquidation

When this section applies
(1) This section applies if a person—
- (a) has an environmental restoration account; and
- (b) does one of the following:
  - (i) dies:
  - (ii) becomes bankrupt:
  - (iii) is put into liquidation.
Transfer to other person

(2) Subsection (3) applies if the Commissioner is informed, by the administrator of the person's estate, the Official Assignee, or the person's liquidator, that the obligation to which the balance in the person's environmental restoration account relates has been transferred to another person.

Commissioner to make transfer

(3) The Commissioner must transfer the amount referred to in subsection (4) to an environmental restoration account of the person to whom the obligation has been transferred.

Amount of transfer
(4) The Commissioner must transfer under subsection (3) the amount that is in the person's environmental restoration account—
- (a) on the date on which the person dies, if subsection (1)(b)(i) applies:
- (b) on the date on which the person becomes bankrupt, if subsection (1)(b)(ii) applies:
- (c) on the date on which the person is put into liquidation, if subsection (1)(b)(iii) applies.
Section EK 17 overrides subsection (4)

(5) Section EK 17 overrides subsection (4).

Transfer to person treated as payment to account by person

(5B) A transfer to the environmental account of a person under subsection (3) is treated as being a payment by that person to their environmental account.

Year of income

(6) The amount of a transfer under this section is income, under section CB 24B (Environmental restoration accounts), derived by the person on the day before the day on which the amount of the transfer is determined under subsection (4).

Defined in this Act: amount, Commissioner, environmental restoration account, income, liquidation,

Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

Subsection (3) was substituted, as from 1 October 2005, by section 56(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Subsection (5B) was inserted, as from 1 October 2005, by section 56(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

EK 17 Minimum refund or transfer

The Commissioner must not give a refund or make a transfer under any of sections EK 9, EK 12, EK 15, EK 16, and EK 19 that is less than the lesser of—
- (a) $1,000; and
- (b) the balance in the person's environmental restoration account on the date on which the refund or transfer is made.
Defined in this Act: Commissioner, environmental restoration account,

Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

EK 18 Payments from which refunds come

Each refund to a person is treated as coming from the total amount in the person's environmental restoration account in the order in which the person made the payments into the account.

Defined in this Act: amount, environmental restoration account,

Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

EK 19 Environmental restoration account of amalgamating company

If an amalgamating company with an environmental restoration account ceases to exist because of an amalgamation during an income year,—
- (a) the contents of the environmental restoration account of the amalgamating company are transferred to an environmental restoration account of the amalgamated company on the date of the amalgamation:
- (b) the amalgamated company is treated as having—
  - (i) made to the amalgamated company's environmental restoration account the payments that the amalgamating company made before the amalgamation to the amalgamating company's environmental restoration account; and
  - (ii) made from the amalgamated company's environmental restoration account the transfers that the amalgamating company made before the amalgamation from the amalgamating company's environmental restoration account; and
  - (iii) received from the amalgamated company's environmental restoration account the refunds that the amalgamating company received before the amalgamation from the amalgamating company's environmental restoration account.
Defined in this Act: amalgamated company, amalgamating company, amalgamation, environmental restoration account, income year,

Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

EK 20 Environmental restoration account of member of consolidated group

Member may have environmental restoration account

(1) A member of a consolidated group may have an environmental restoration account.

Nominated company for group may act on behalf of member
(2) The nominated company for the consolidated group may act on behalf of the member under this subpart to—
- (a) make payments, applications, and transfers:
- (b) receive refunds and transfers.
Use of consolidated financial statements for group

(3) In making payments and applications under this subpart, the nominated company may rely on the audited consolidated financial statements for the consolidated group.

Use of consolidated figures for liabilities anticipated and expenditure incurred

(4) If the nominated company relies on the audited consolidated financial statements for the consolidated group, the consolidated figures for the anticipated liabilities and incurred expenditure of the consolidated group are attributed to the members on the basis of the individual obligations of the members to incur expenditure of a type listed in schedule 6B, part B (Expenditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant) and not in schedule 6B, part C.

Defined in this Act: consolidated group, environmental restoration account, nominated company,

Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

Subsection (2) other than the heading was substituted, as from 18 December 2006, by section 57(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

EK 21 Commissioner may require notice in electronic format

The Commissioner may require a person to provide a notice under this subpart in an electronic format that the Commissioner prescribes under section 36BC of the Tax Administration Act 1994.

Defined in this Act: Commissioner,

Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

EK 22 Meaning of maximum payment

Meaning of maximum payment

(1) In this subpart, maximum payment means the maximum payment that under subsection (2) a person may make to the person's environmental restoration account for an income year.

Amount of maximum payment
(2) The maximum payment that a person may make for an income year is the lesser of—
- (a) the amount by which the maximum account balance for the income year for the environmental restoration account exceeds the amount in the environmental restoration account at the end of the income year:
- (b) the amount, if any, given for the person and the income year by subsection (3).
Maximum payment for first 5 years of environmental restoration funds scheme

(3) If a person has a maximum account balance for the 2005-06 income year that is more than zero, the amount given by this subsection for the person and for that income year, and for each of the later income years before the 2010-11 income year, is the amount given by the formula—

level increase + (year x 0.2 x initial level) – contents.

Definitions of items in formula
(4) In the formula,—
- (a) level increase is the greater of zero and the amount by which the maximum account balance for the income year exceeds the maximum account balance for the 2005-06 income year:
- (b) year is 1 for the 2005-06 income year and increases by 1 for each successive income year to a maximum of 5 for the 2009-10 income year:
- (c) initial level is the maximum account balance for the 2005-06 income year:
- (d) contents is the amount in the environmental restoration account at the end of the income year.
Defined in this Act: amount, business, environmental restoration account, income year, maximum payment,

Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

EK 23 Other definitions

Meaning of maximum account balance
(1) In this subpart, maximum account balance for a person and an income year means—
- (a) if the person does not satisfy section EK 2 for the income year, zero:
- (b) if the person satisfies section EK 2 for the income year, the amount calculated using the formula—
  
  provision x tax rate.
Definitions of items in formula
(2) In the formula in subsection (1)(b)—
- (a) provision is the provision in the person's financial statements for future expenditure that—
  - (i) is of a type listed in schedule 6B, part B (Expenditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant); and
  - (ii) is not of a type listed in schedule 6B, part C:
- (b) tax rate is the highest rate of income tax on taxable income that—
  - (i) is stated in schedule 1; and
  - (ii) would apply to the person for the tax year if the person had sufficient taxable income.
Meaning of environmental restoration account

(3) In this subpart, environmental restoration account, for a person, means the account that the Commissioner keeps in the person's name under section EK 4.

Defined in this Act: business, Commissioner, environmental restoration account, income tax, income year, taxable income.,

Subpart EK (sections EK 1 to EK 23) was inserted, as from 1 October 2005, by section 42(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for expenditure incurred by a person in an income year starting on or after 10 June 2005.

Subpart EW—Financial arrangements rules

EW 1 What this subpart does

EW 2 Relationship of financial arrangements rules with other provisions

Meaning of financial arrangement and excepted financial arrangement

EW 3 What is a financial arrangement?

EW 4 What is not a financial arrangement?

EW 5 What is an excepted financial arrangement?

EW 6 Relationship between financial arrangements and excepted financial arrangements

EW 7 Change from private or domestic purpose

EW 8 Election to treat certain excepted financial arrangements as financial arrangements

Application of financial arrangements rules

EW 9 Persons to whom financial arrangements rules apply

EW 10 Financial arrangements to which financial arrangements rules apply

EW 11 What financial arrangements rules do not apply to

Calculation and allocation of income and expenditure over financial arrangement's term

EW 12 When use of spreading method required

EW 13 When use of spreading method not required

EW 14 What spreading methods do

EW 15 What is included when spreading methods used

EW 16 Yield to maturity method or alternative

EW 17 Straight-line method

EW 18 Market valuation method

EW 19 Choice among first 3 spreading methods

EW 20 Determination method or alternative

EW 21 Financial reporting method

EW 22 Default method

EW 23 Failure to use method for financial reporting purposes

EW 24 Consistency of use of spreading method

EW 25 Consistency of use of straight-line method and market valuation method

EW 26 Change of spreading method

EW 27 Spreading method adjustment formula

Calculation and allocation of income and expenditure when rights and obligations under financial arrangement cease

EW 28 How base price adjustment calculated

EW 29 When calculation of base price adjustment required

EW 30 When calculation of base price adjustment not required

EW 31 Base price adjustment formula

Consideration

Consideration when financial arrangement involves property or services

EW 32 Consideration for agreement for sale and purchase of property or services, hire purchase agreement, specified lease, or finance lease

EW 33 Consideration for hire purchase agreement or finance lease

EW 34 Consideration in foreign currency

EW 35 Value relevant for non-financial arrangements rule

Consideration treated as paid to person

EW 36 Consideration when person exits from rules: accrued entitlement

EW 37 Consideration when person enters rules: accrued obligation

EW 38 Consideration when disposal for no, or inadequate, consideration

EW 39 Consideration treated as paid to person on distribution in kind [Repealed]

EW 40 Consideration affected by unfavourable factors

Consideration treated as paid by person

EW 41 Consideration when person exits from rules: accrued obligation

EW 42 Consideration when person enters rules: accrued entitlement

EW 43 Consideration when acquisition for no, or inadequate, consideration

EW 44 Consideration treated as paid by person on distribution in kind [Repealed]

EW 45 Consideration when debt sold at discount to associate of debtor

EW 46 Consideration when debt forgiven for natural love and affection

EW 47 Consideration when debtor released from obligation

EW 47B Consideration when debtor released as condition of new start grant

Consideration when legal defeasance has occurred

EW 48 Legal defeasance

Consideration when anti-avoidance provision applies

EW 49 Anti-avoidance provisions

Income and deduction provisions specifically related to financial arrangements

EW 50 Income and deduction when debt sold at discount to associate of debtor

EW 51 Income when debt forgiven to trustee

EW 52 Deduction for security payment

Treatment of original share acquired under financial arrangement

EW 52B Share supplier under share-lending arrangement

One kind of avoidance

EW 53 Adjustment required

Application of financial arrangements rules to cash basis persons

EW 54 Meaning of cash basis person

EW 55 Effect of being cash basis person

EW 56 Natural person

EW 57 Thresholds

EW 58 Financial arrangements, income, and expenditure relevant to criteria

EW 59 Exclusion by Commissioner

EW 60 Trustee of deceased's estate

EW 61 Election to use spreading method

EW 62 When and how calculation of cash basis adjustment required

EW 63 Cash basis adjustment formula

Introductory provisions

EW 1 What this subpart does

Financial arrangements rules

(1) This subpart contains most of the financial arrangements rules.

Meaning of financial arrangements rules
(2) Financial arrangements rules means—
- (a) the sections in this subpart; and
- (b) sections CC 3 (Financial arrangements), DB 9 to DB 12 (which relate to financial arrangements adjustments), EZ 48 (Transitional adjustment when changing to financial arrangements rules), FF 2 (Financial arrangements), GD 11 (Financial arrangements rules), and NG 16A (Variation in non-resident withholding tax deductions to correct errors); and
- (c) sections 90AA to 90AD of the Tax Administration Act 1994.
Purposes of financial arrangements rules
(3) The purposes of the financial arrangements rules are—
- (a) to require the parties to a financial arrangement to accrue over the term of the arrangement a fair and reasonable amount of income derived or expenditure incurred under the arrangement, and so to prevent the deferral of income or the advancement of expenditure; and
- (b) to require the parties to a financial arrangement to disregard any distinction between capital and revenue amounts; and
- (c) to require a party to a financial arrangement to calculate a base price adjustment when the rights and obligations of the party under the arrangement cease.
Defined in this Act: amount, financial arrangement, financial arrangements rules, income,

Compare: 1994 No 164 ss EH 20, OB 1 accrual rules

EW 2 Relationship of financial arrangements rules with other provisions

Financial arrangements rules override other provisions

(1) The financial arrangements rules prevail over any other provision in relation to the timing and quantifying of income and expenditure under a financial arrangement to which the financial arrangements rules apply, unless the other provision expressly or by necessary implication requires otherwise.

Interest excluded from certain valuations
(2) Expenditure under a financial arrangement to which the financial arrangements rules apply is not included in—
- (a) the cost of trading stock for low-turnover traders under subpart EB (Valuation of trading stock (including dealer's livestock)):
- (b) the cost of livestock under subpart EC (Valuation of livestock):
- (c) the cost of bloodstock under subpart EC (Valuation of livestock):
- (d) the cost of revenue account property:
- (e) the cost of timber:
- (f) the cost of acquiring a film or a film right:
- (g) film production expenditure:
- (h) petroleum development expenditure:
- (i) petroleum exploration expenditure.
Defined in this Act: bloodstock, film, film production expenditure, film right, financial arrangement, financial arrangements rules, income, low-turnover trader, petroleum development expenditure, petroleum exploration expenditure, revenue account property, trading stock,

Compare: 1994 No 164 s EH 26

Subsection (2)(a) to (h) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Meaning of financial arrangement and excepted financial arrangement

EW 3 What is a financial arrangement?

Meaning

(1) Financial arrangement means an arrangement described in any of subsections (2) to (4).

Money received for money provided
(2) A financial arrangement is an arrangement under which a person receives money in consideration for that person, or another person, providing money to any person—
- (a) at a future time; or
- (b) on the occurrence or non-occurrence of a future event, whether or not the event occurs because notice is given or not given.
Examples of money received for money provided
(3) Without limiting subsection (2), each of the following is a financial arrangement:
- (a) a debt, including a debt that arises by law:
- (b) a debt instrument:
- (c) the deferral of the payment of some or all of the consideration for an absolute assignment of some or all of a person's rights under another financial arrangement or under an excepted financial arrangement:
- (d) the deferral of the payment of some or all of the consideration for a legal defeasance releasing a person from some or all of their obligations under another financial arrangement or under an excepted financial arrangement.
Excepted financial arrangement ceasing to be excepted
(4) For sections EW 7 and EW 8,—
- (a) an excepted financial arrangement that ceases to be an excepted financial arrangement through the operation of section EW 7 is a financial arrangement:
- (b) an excepted financial arrangement that ceases to be an excepted financial arrangement for a party through the operation of section EW 8 is a financial arrangement for the party.
Defined in this Act: consideration, excepted financial arrangement, financial arrangement, legal defeasance, money,

Compare: 1994 No 164 ss EH 22, EH 24(2)

Subsection (3)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (4)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EW 4 What is not a financial arrangement?

Absolute assignment

(1) An absolute assignment of some or all of a person's rights under another financial arrangement or under an excepted financial arrangement is not a financial arrangement, except to the extent described in section EW 3(3)(c).

Legal defeasance

(2) A legal defeasance releasing a person from some or all of their obligations under another financial arrangement or under an excepted financial arrangement is not a financial arrangement, except to the extent described in section EW 3(3)(d).

Excepted financial arrangement

(3) An excepted financial arrangement is not a financial arrangement. The relationship between financial arrangements and excepted financial arrangements is dealt with in section EW 6.

Defined in this Act: excepted financial arrangement, financial arrangement, legal defeasance,

Compare: 1994 No 164 s EH 22(2)-(4)

EW 5 What is an excepted financial arrangement?

Meaning
(1) Excepted financial arrangement means an arrangement described in any of subsections (2) to (23). However,—
- (a) an arrangement described in any of subsections (16) to (18) may cease to be an excepted financial arrangement through the operation of section EW 7:
- (b) an arrangement described in any of subsections (19) to (23) may cease to be an excepted financial arrangement for a party who makes an election under section EW 8.
Annuity
(2) Each of the following is an excepted financial arrangement:
- (a) an annuity for a term contingent on human life:
- (b) an annuity for a term not contingent on human life to which section EY 8(2)(c) (Meaning of life insurance) applies.
Bet
(3) A bet on any of the following is an excepted financial arrangement:
- (a) a race, as defined in section 5 of the Racing Act 2003:
- (b) a sporting event under a sports betting system administered under Part 6 of the Racing Act 2003:
- (c) gambling, including a New Zealand lottery, as those terms are defined in section 4(1) of the Gambling Act 2003.
Employment contract

(4) An employment contract is an excepted financial arrangement.

Farm-out arrangement

(5) A farm-out arrangement is an excepted financial arrangement.

Group investment fund

(6) An interest in a group investment fund is an excepted financial arrangement.

Hire purchase: livestock or bloodstock

(7) A hire purchase agreement for livestock or bloodstock is an excepted financial arrangement.

Insurance contract

(8) An insurance contract is an excepted financial arrangement.

Lease not finance lease

(9) A lease that is not a finance lease is an excepted financial arrangement.

Loan in New Zealand currency
(10) A loan to which all the following apply is an excepted financial arrangement for the lender:
- (a) the loan is in New Zealand currency; and
- (b) the loan is interest-free; and
- (c) the loan is repayable on demand.
Partnership or joint venture

(11) An interest in a partnership or a joint venture is an excepted financial arrangement.

Share-lending arrangement

(11B) A share-lending arrangement is an excepted financial arrangement.

Share or option

(12) A share, or an option to acquire or to dispose of shares, is an excepted financial arrangement, if the share is acquired, or the person becomes a party to the option, on or after 20 May 1999. This subsection does not apply to a withdrawable share or to an option to acquire or to dispose of withdrawable shares.

Specified preference share

(13) A specified preference share to which section FZ 1 (Deduction for dividends paid on certain preference shares) applies is an excepted financial arrangement.

Superannuation

(14) A membership of a superannuation scheme is an excepted financial arrangement.

Warranty

(15) A warranty for goods or services is an excepted financial arrangement.

Certain arrangements to which transitional resident is party
(15B) An arrangement to which a transitional resident is a party is an excepted financial arrangement for the transitional resident if—
- (a) no other party to the arrangement is a New Zealand resident; and
- (b) the arrangement is not for a purpose of a business carried on in New Zealand by a party to the arrangement.
Loan in foreign currency: private or domestic purpose
(16) A loan to which all the following apply is an excepted financial arrangement for the borrower:
- (a) the loan is in foreign currency; and
- (b) the borrower is a cash basis person; and
- (c) the borrower uses the loan for a private or a domestic purpose.
Option: private or domestic purpose

(17) An option to acquire or dispose of property, other than an interest in a financial arrangement, is an excepted financial arrangement for a person who becomes a party to the option for a private or a domestic purpose.

Private or domestic agreement for the sale and purchase of property or services
(18) An agreement for the sale and purchase of property or services entered into by a person, or a specified option granted to or by a person, is an excepted financial arrangement for the person if,—
- (a) first,—
  - (i) the agreement is entered into by the person for a private or a domestic purpose; or
  - (ii) the option is granted to or by the person for a private or a domestic purpose; and
- (b) second, the subject matter of the agreement or option is—
  - (i) real property whose purchase price is less than $1,000,000; or
  - (ii) any other property whose purchase price is less than $400,000; or
  - (iii) services whose purchase price is less than $400,000; and
- (c) third,—
  - (i) the agreement requires settlement of the property, or performance of the services, to take place on or before the 365th day after the date on which the agreement is entered into; or
  - (ii) the option requires settlement of the property, or performance of the services, if an agreement is entered into as a result of the exercise of the option, to take place on or before the 365th day after the date on which the option is granted.
Agreement for the sale and purchase of property or services
(19) An agreement for the sale and purchase of property or services is an excepted financial arrangement, except for a party who makes an election under section EW 8, if—
- (a) all a party's sales or purchases under the agreement are prepaid; and
- (b) for all the party's agreements under which all sales and purchases are prepaid, the total value of prepayments, on every day in an income year, is $50,000 or less.
Short-term agreement for the sale and purchase of property or services

(20) A short-term agreement for the sale and purchase of property or services is an excepted financial arrangement, except for a party who makes an election under section EW 8.

Short-term option

(21) A short-term option is an excepted financial arrangement, except for a party who makes an election under section EW 8.

Travellers' cheques

(22) Travellers' cheques are excepted financial arrangements, except for a party who makes an election under section EW 8.

Variable principal debt instrument

(23) A variable principal debt instrument is an excepted financial arrangement, except for a party who makes an election under section EW 8, if the total value on every day in an income year of all variable principal debt instruments to which a person is a party is $50,000 or less.

Defined in this Act: agreement for the sale and purchase of property or services, arrangement, bloodstock, cash basis person, excepted financial arrangement, farmout arrangement, finance lease, group investment fund, hire purchase agreement, income year, insurance contract, lease, New Zealand, New Zealand resident, non-resident, property, share, share-lending arrangement, short-term agreement for the sale and purchase of property or services, short-term option, specified preference shares, superannuation scheme, transitional resident, variable principal debt instrument, withdrawable share,

Compare: 1994 No 164 s EH 24

Subsection (1)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (2)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (3)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (11B) was inserted, as from 1 July 2006, by section 83(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (15B) was inserted, as from 1 October 2005, by section 83(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 83(4) and (5) of that Act as to the application of this amendment.

The list of defined terms was amended, as from 3 April 2006, by section 83(3)(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “New Zealand resident”.

The list of defined terms was amended, as from 3 April 2006, by section 83(3)(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “non-resident”.

The list of defined terms was amended, as from 3 April 2006, by section 83(3)(c) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “share-lending arrangement”.

The list of defined terms was amended, as from 3 April 2006, by section 83(3)(d) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “transitional resident”.

EW 6 Relationship between financial arrangements and excepted financial arrangements

Part of financial arrangement

(1) An excepted financial arrangement may be part of a financial arrangement.

Income or expenditure under specific excepted financial arrangements

(2) If an excepted financial arrangement described in any of section EW 5(2) to (15) is part of a financial arrangement, an amount solely attributable to the excepted financial arrangement is not an amount taken into account under the financial arrangements rules.

Income or expenditure under remaining excepted financial arrangements

(3) If an excepted financial arrangement described in any of section EW 5(16) to (23) is part of a financial arrangement, an amount solely attributable to the excepted financial arrangement is an amount taken into account under the financial arrangements rules.

Defined in this Act: amount, excepted financial arrangement, financial arrangement, financial arrangements rules, income,

Compare: 1994 No 164 ss EH 22(4), EH 23

EW 7 Change from private or domestic purpose

When this section applies

(1) This section applies when a person who is a party to an excepted financial arrangement described in any of section EW 5(16) to (18) stops using it for a private or a domestic purpose.

Excepted financial arrangement becomes financial arrangement
(2) On and after the date on which the person stops using the excepted financial arrangement for a private or a domestic purpose,—
- (a) it ceases to be an excepted financial arrangement for the person; and
- (b) the person becomes a party to a financial arrangement.
Defined in this Act: excepted financial arrangement, financial arrangement,

Compare: 1994 No 164 s EH 24(3)

EW 8 Election to treat certain excepted financial arrangements as financial arrangements

Election

(1) A person may choose to treat as financial arrangements all the excepted financial arrangements to which the person is a party that are described in any of section EW 5(19) to (23).

Election for class of short-term agreements
(2) A person may choose to treat a class of short-term agreements for the sale and purchase of property or services as financial arrangements. The person must identify the class by—
- (a) the currency that applies to the agreements; or
- (b) the term of the agreements; or
- (c) both the currency and the term.
How election made

(3) The person makes an election by returning income derived or expenditure incurred under the chosen arrangements under the financial arrangements rules in their return of income.

How election revoked

(4) The person revokes the election by giving notice to the Commissioner with their return of income and within the time that the return must be filed under section 37 of the Tax Administration Act 1994.

Effect of revocation

(5) The revocation applies to financial arrangements the person enters into after the income year in which the notice is given.

Defined in this Act: Commissioner, excepted financial arrangement, financial arrangement, financial arrangements rules, income, income year, notice, return of income, short-term agreement for the sale and purchase of property or services,

Compare: 1994 No 164 s EH 25

Application of financial arrangements rules

EW 9 Persons to whom financial arrangements rules apply

Residents

(1) A person who is a party to a financial arrangement must calculate and allocate income or expenditure under the arrangement for an income year under the financial arrangements rules, if the arrangement is one to which the rules apply under section EW 10. This subsection is overridden by subsection (2).

Non-residents

(2) Subsection (1) applies to a person who is not resident in New Zealand only if subsection (3) or (4) applies.

Non-resident with New Zealand fixed establishment

(3) Subsection (1) applies to a person who is not resident in New Zealand to the extent to which the person is a party to a financial arrangement for the purpose of a business carried on by the person through a fixed establishment in New Zealand.

Non-resident trustee for New Zealand settlor
(4) Subsection (1) applies to a person who is not resident in New Zealand if—
- (a) the person is a trustee for a settlor who is resident in New Zealand; and
- (b) the trustee is not a person to whom section HH 4(3) and (6) (Trustee income) apply.
Defined in this Act: financial arrangement, financial arrangements rules, fixed establishment, income, New Zealand, resident in New Zealand, trustee,

Compare: 1994 No 164 s EH 21(1), (3)-(5)

EW 10 Financial arrangements to which financial arrangements rules apply

Entered into on or after 20 May 1999

(1) The financial arrangements rules apply to a financial arrangement that all its parties enter into on or after 20 May 1999.

Existing immediately before 20 May 1999

(2) The financial arrangements rules apply to a financial arrangement existing immediately before 20 May 1999 to the extent to which a person becomes a party to the arrangement on or after 20 May 1999.

Rollover, extension, or advance on or after 20 May 1999

(3) The financial arrangements rules apply to a financial arrangement that is rolled over or extended, or under which an advance is made, on or after 20 May 1999, under a binding contract entered into before 20 May 1999.

Binding contract before 20 May 1999
(4) However, the financial arrangements rules do not apply to a financial arrangement if—
- (a) all its parties enter into it on or after 20 May 1999; and
- (b) they enter into it under a binding contract entered into before 20 May 1999.
Transferred under relationship agreement
(5) The financial arrangements rules apply to a financial arrangement to which all the following apply, to the extent to which the transferee becomes a party to it:
- (a) the transferor is a party to it before 20 May 1999; and
- (b) it is rolled over or extended, or an advance is made under it, on or after 20 May 1999, under a binding contract entered into before 20 May 1999; and
- (c) it is transferred under a relationship agreement on or after 20 May 1999.
Binding contract before 20 May 1999 and transfer under relationship agreement
(6) However, the financial arrangements rules do not apply to a financial arrangement if—
- (a) all its parties enter into it on or after 20 May 1999; and
- (b) they enter into it under a binding contract entered into before 20 May 1999; and
- (c) it is transferred under a relationship agreement on or after 20 May 1999.
Defined in this Act: financial arrangement, financial arrangements rules, matrimonial agreement,

Compare: 1994 No 164 s EH 19

The heading to subsection (5) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

Subsection (5)(c) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

The heading to subsection (6) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

Subsection (6)(c) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

EW 11 What financial arrangements rules do not apply to

The financial arrangements rules do not apply to—
- (a) the calculation of resident withholding income:
- (b) the calculation of non-resident withholding income:
- (c) interest paid by the Commissioner under Part 7 of the Tax Administration Act 1994 for an overpayment of income tax:
- (d) interest payable to the Commissioner under Part 7 of the Tax Administration Act 1994 for an underpayment of income tax.
Defined in this Act: Commissioner, financial arrangements rules, income tax, interest, non-resident withholding income, pay, resident withholding income,

Compare: 1994 No 164 s EH 21(2)

Paragraphs (a) to (c) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Calculation and allocation of income and expenditure over financial arrangement's term

EW 12 When use of spreading method required

A party to a financial arrangement must use 1 of the spreading methods to calculate an amount of income or expenditure under the arrangement for each income year over the arrangement's term, and to allocate it to the income year, unless section EW 13 applies.

Defined in this Act: amount, financial arrangement, income, income year, spreading method,

Compare: 1994 No 164 s EH 33(1)

EW 13 When use of spreading method not required

Base price adjustment year

(1) A person does not use any of the spreading methods for a financial arrangement in the income year in which section EW 29 requires them to calculate a base price adjustment for it.

Trustee of personal injury compensation trust
(2) A trustee who holds a financial arrangement in trust to manage compensation paid for personal injury under the Accident Insurance Act 1998, any of the former Acts (as defined in section 13 of the Accident Insurance Act 1998), the Workers Compensation Act 1956, or a court order does not use any of the spreading methods for the financial arrangement if—
- (a) the trustee is a cash basis person; or
- (b) the trustee would be a cash basis person if the trustee were a natural person.
Cash basis person

(3) A cash basis person is not required to use any of the spreading methods, but may choose to do so under section EW 61.

Defined in this Act: cash basis person, financial arrangement, income year, spreading method, trustee,

Compare: 1994 No 164 s EH 33(1), (4)

EW 14 What spreading methods do

Description

(1) The spreading methods are methods of calculating and allocating income and expenditure under a financial arrangement over the arrangement's term.

Methods
(2) A spreading method is 1 of the following:
- (a) the yield to maturity method or an alternative, to which sections EW 16, EW 19, and EW 23 are relevant; or
- (b) the straight-line method, to which sections EW 17 and EW 19 are relevant; or
- (c) a market valuation method, to which sections EW 18, EW 19, and EW 23 are relevant; or
- (d) a determination method or an alternative, to which sections EW 20 and EW 23 are relevant; or
- (e) a financial reporting method, to which sections EW 21 and EW 23 are relevant; or
- (f) a default method, to which section EW 22 is relevant.
Result
(3) The amount calculated for and allocated to the income year under a spreading method is—
- (a) income, under section CC 3 (Financial arrangements), derived by the person in the income year; or
- (b) expenditure incurred by the person in the income year.
Defined in this Act: amount, financial arrangement, income, income year, spreading method,

Compare: 1994 No 164 s EH 33

EW 15 What is included when spreading methods used

Consideration and amounts
(1) A person using a spreading method must include, for the purpose of calculating and allocating income and expenditure under the financial arrangement,—
- (a) all consideration that has been paid, and all consideration that is or will be payable, to the person for or under the financial arrangement, ignoring non-contingent fees; and
- (b) all consideration that has been paid, and all consideration that is or will be payable, by the person for or under the financial arrangement, ignoring non-contingent fees; and
- (c) all amounts that have been remitted, and all amounts that are to be remitted, by the person under the financial arrangement; and
- (d) all amounts that would have been payable to the person under the financial arrangement if the amounts had not been remitted by law.
Consideration in particular cases

(2) If any of sections EW 32 to EW 49 applies, the consideration referred to in subsection (1)(a) and (b) is adjusted under the relevant section.

Defined in this Act: amount, consideration, financial arrangement, income, non-contingent fee, spreading method,

Compare: 1994 No 164 ss EH 33(2), EH 48(1)

EW 16 Yield to maturity method or alternative

Who may use yield to maturity method

(1) A person who is a party to a financial arrangement may use the yield to maturity method.

Who may use alternative
(2) A person who is a party to a financial arrangement may use an alternative to the yield to maturity method, but may do so only if the alternative—
- (a) has regard to the principles of accrual accounting; and
- (b) conforms with commercially acceptable practice; and
- (c) results in the allocation to each income year of amounts that are not materially different from those that would have been allocated using the yield to maturity method; and
- (d) is also used by the person for financial reporting purposes for financial arrangements that are the same as, or similar to, the arrangements (although section EW 23 may apply if the alternative is not used in this way).
Defined in this Act: amount, financial arrangement, income year,

Compare: 1994 No 164 s EH 34

EW 17 Straight-line method

Who may use straight-line method
(1) A person who is a party to a financial arrangement may use the straight-line method if—
- (a) the total value of all the financial arrangements to which the person is a party in an income year has been
$1,500,000 or less on every day in the income year; and
- (b) the person complies with section EW 25(1).
Calculation of total value of financial arrangements
(2) When calculating total value, the person must—
- (a) include every one of their financial arrangements, whether the financial arrangements rules or the old financial arrangements rules apply to it; and
- (b) use the following values:
  - (i) for a fixed principal financial arrangement, its face value:
  - (ii) for a variable principal debt instrument, the amount owing by or to the person under the financial arrangement on the relevant day:
  - (iii) for a financial arrangement to which the old financial arrangements rules apply, the value determined under those rules.
Increase in specified sum

(3) The Governor-General may make an Order in Council increasing the sum specified in subsection (1).

Defined in this Act: amount, financial arrangement, financial arrangements rules, fixed principal financial arrangement, income year, old financial arrangements rules, variable principal debt instrument,

Compare: 1994 No 164 ss EH 35(1), (5), (6), EH 58

Subsection (2)(b)(i) and (ii) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

EW 18 Market valuation method

Who may use market valuation method
(1) A person who is a party to a financial arrangement may use, for the arrangement, a market valuation method if—
- (a) either—
  - (i) the person's business includes dealing in financial arrangements of the class to which the arrangement belongs; or
  - (ii) the financial arrangement is an exchange-traded option, a forward contract for foreign exchange, or a futures contract; and
- (b) the parties to the financial arrangement are not associated persons; and
- (c) either—
  - (i) the Commissioner has approved the market, the method, and the source of information used to determine market values by a determination under section 90AC(1)(c) of the Tax Administration Act 1994; or
  - (ii) the person can demonstrate market prices that are reliable; and
- (d) the method conforms with commercially acceptable practice; and
- (e) the person complies with section EW 25(4); 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 arrangements (although section EW 23 may apply if the method is not used in this way).
Application of Tax Administration Act 1994

(2) Section 22A(1) of the Tax Administration Act 1994 applies to a person to whom subsection (1)(c)(ii) applies.

Defined in this Act: associated person, business, Commissioner, financial arrangement, forward contract, futures contract,

Compare: 1994 No 164 s EH 36(1)-(3)

EW 19 Choice among first 3 spreading methods

A person who may use the yield to maturity method or an alternative, the straight-line method, or a market valuation method for a financial arrangement may choose to use whichever of those methods the person can use for the arrangement.

Defined in this Act: financial arrangement, spreading method,

Compare: 1994 No 164 ss EH 34(1), EH 35(1), (2), EH 36(3)

EW 20 Determination method or alternative

Who may use determination method
(1) A person who is a party to a financial arrangement may use a determination method, that is, a method in a determination made by the Commissioner under section 90AC(1)(d) of the Tax Administration Act 1994 and applying to the arrangement, 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.
Who may use alternative
(2) A person who is a party to a financial arrangement may use an alternative to a determination method, but may do so only 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 alternative has regard to the principles of accrual accounting; and
- (d) the alternative conforms with commercially acceptable practice; and
- (e) the alternative results in the allocation to each income year of amounts that are not materially different from those that would have been allocated using the determination method; and
- (f) the alternative is also used by the person for financial reporting purposes for financial arrangements that are the same as, or similar to, the arrangements (although section EW 23 may apply if the alternative is not used in this way).
Defined in this Act: amount, Commissioner, financial arrangement,

Compare: 1994 No 164 ss EH 37, EH 38

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 Commissioner has not made a determination for the financial arrangement under section 90AC(1)(d) of the Tax Administration Act 1994; and
- (d) the method conforms with commercially acceptable practice; and
- (e) the method is also used by the person for financial reporting purposes for financial arrangements that are the same as, or similar to, the arrangements (although section EW 23 may apply if the method is not used in this way); and
- (f) 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,

Compare: 1994 No 164 ss EH 37, EH 39

EW 22 Default method

A person who is a party to a financial arrangement may use a default 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 may not use a determination method or an alternative, or a financial reporting method; and
- (d) the person—
  - (i) does not prepare financial accounts; or
  - (ii) does not report the income derived or expenditure incurred under a financial arrangement for financial reporting purposes; and
- (e) the method conforms with commercially acceptable practice; and
- (f) the method allocates a reasonable amount to each income year over the financial arrangement's term.
Defined in this Act: amount, financial arrangement, income, income year,

Compare: 1994 No 164 s EH 40

EW 23 Failure to use method for financial reporting purposes

When this section applies

(1) This section applies when a person would be allowed to use a method but for the fact that the person does not comply with whichever is relevant of sections EW 16(2)(d), EW 18(f), EW 20(2)(f), and EW 21(e).

Person treated as complying
(2) The person is treated as complying with whichever is relevant of sections EW 16(2)(d), EW 18(f), EW 20(2)(f), and EW 21(e) if the method that the person uses for each financial arrangement—
- (a) is used for the financial arrangement, and each financial arrangement that are the same as, or similar to, the arrangements, for every income year over its term for the purposes of the financial arrangements rules; and
- (b) appropriately reflects the dominant purpose for which the person entered into the financial arrangement; and
- (c) is not used for the purpose of tax avoidance; and
- (d) has been approved for use in circumstances applying to the person by the Commissioner, either by giving notice to the person or by making a determination under section 90AC(1)(f) of the Tax Administration Act 1994.
Qualification on subsection (2)(a)

(3) A method complies with subsection (2)(a), even if it is a change from a previous method, as long as the Commissioner approves the change in method under the circumstances or conditions specified in a determination under section 90AC(1)(g) of the Tax Administration Act 1994.

Defined in this Act: Commissioner, financial arrangement, financial arrangements rules, income year, notice, tax avoidance,

Compare: 1994 No 164 s EH 42

EW 24 Consistency of use of spreading method

Consistency required

(1) A person must use the same spreading method for financial arrangements that are the same as, or similar to, the arrangements for every income year. This subsection is overridden by subsection (3).

Straight-line method and market valuation method

(2) Section EW 25 sets out particular consistency requirements for the straight-line method and a market valuation method.

Change of spreading method

(3) Section EW 26 sets out the circumstances in which a person may change their spreading method.

Defined in this Act: financial arrangement, income year, spreading method,

Compare: 1994 No 164 s EH 41

EW 25 Consistency of use of straight-line method and market valuation method

Straight-line method for all financial arrangements
(1) A person using the straight-line method in an income year for a financial arrangement must use it for all financial arrangements—
- (a) to which the person is a party at the end of the income year; and
- (b) for which the person can use it.
Straight-line method for every income year of term

(2) A person who starts to use the straight-line method for a financial arrangement must use it over the arrangement's remaining term until section EW 29 requires them to calculate a base price adjustment for the arrangement, unless section EW 26(1) applies.

Total value may be over $1,500,000

(3) Subsection (2) applies even if the total value of all the financial arrangements to which the person is a party is over $1,500,000 at any time in the arrangement's remaining term.

Market valuation method

(4) A person who starts to use a market valuation method for a financial arrangement must use it over the arrangement's remaining term until section EW 29 requires them to calculate a base price adjustment for the arrangement, unless section EW 26(1) applies.

Increase in specified sum

(5) The Governor-General may make an Order in Council under section EW 17(3) increasing the sum specified in subsection (3).

Defined in this Act: financial arrangement, income year,

Compare: 1994 No 164 ss EH 35(3), (4), EH 36(4), EH 58

EW 26 Change of spreading method

Change of straight-line or market valuation method

(1) A person may change from the straight-line method or the market valuation method with the Commissioner's written authorisation.

Change of other method

(2) A person may change from any other spreading method if they have a sound commercial reason for doing so. The advancement, deferral, or reduction of an income tax liability is not a sound commercial reason.

Spreading method adjustment
(3) When a person changes their spreading method under subsection (2),—
- (a) they must use the formula in section EW 27 to calculate a spreading method adjustment for the income year in which they change the method; and
- (b) their only income or expenditure under the financial arrangement for the income year to which the formula is applied is the spreading method adjustment.
Positive or negative spreading method adjustment
(4) A spreading method adjustment calculated under section EW 27 is,—
- (a) if positive, income, under section CC 3 (Financial arrangements), derived by the person in the income year for which the calculation is made:
- (b) if negative, expenditure incurred by the person in the income year for which the calculation is made.
Application of Tax Administration Act 1994

(5) Section 22A(2) of the Tax Administration Act 1994 applies to a person to whom subsection (2) applies.

Defined in this Act: Commissioner, financial arrangement, income, income tax liability, income year, spreading method,

Compare: 1994 No 164 ss EH 35(3)(b), EH 36(4), EH 43(1), (2), EH 44(3), (4)

Subsection (4)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EW 27 Spreading method adjustment formula

Calculation of spreading method adjustment

(1) A person calculates a spreading method adjustment using the formula in subsection (3).

What formula applies to
(2) The person must apply the formula to each financial arrangement to which they—
- (a) are a party at the end of the income year in which they change their spreading method; and
- (b) were a party at the end of the previous income year.
Formula

(3) The formula is—

income (new method) – expenditure (new method) – income (old method) + expenditure (old method).

Definition of items in formula

(4) The items in the formula are defined in subsections (5) to (8).

Income (new method)

(5) Income (new method) is the amount that would have been income derived by the person under the financial arrangement if the new method had been used for the arrangement in the period starting on the date on which the person became a party to the arrangement and ending on the last day of the income year for which the calculation is made.

Expenditure (new method)

(6) Expenditure (new method) is the amount that would have been expenditure incurred by the person under the financial arrangement if the new method had been used for the arrangement in the period starting on the date on which the person became a party to the arrangement and ending on the last day of the income year for which the calculation is made.

Income (old method)

(7) Income (old method) is income, under section CC 3 (Financial arrangements), derived by the person under the financial arrangement in previous income years.

Expenditure (old method)

(8) Expenditure (old method) is expenditure incurred by the person under the financial arrangement in previous income years.

Defined in this Act: amount, financial arrangement, income, income year, spreading method,

Compare: 1994 No 164 s EH 44(1)-(3)

Calculation and allocation of income and expenditure when rights and obligations under financial arrangement cease

EW 28 How base price adjustment calculated

A party to a financial arrangement who must calculate a base price adjustment, as described in sections EW 29 and EW 30, calculates it using the formula in section EW 31.

Defined in this Act: financial arrangement,

EW 29 When calculation of base price adjustment required

Ceasing to be New Zealand resident

(1) A party to a financial arrangement who ceases to be a New Zealand resident must calculate a base price adjustment as at the date of the party's ceasing to be a New Zealand resident. This subsection is overridden by section EW 30(1) and (2).

Ceasing to be party for purpose of New Zealand business

(2) A person who is not a New Zealand resident and who is a party to a financial arrangement for the purpose of a business the party carries on through a fixed establishment in New Zealand must calculate a base price adjustment as at the date of the party's ceasing to be a party to the arrangement for that purpose.

Maturity

(3) A party to a financial arrangement must calculate a base price adjustment as at the date on which the arrangement matures.

Treated as maturity
(4) A financial arrangement that has not matured because an amount has not been paid is treated as if it had matured if—
- (a) the amount not paid is immaterial; and
- (b) the arrangement has been structured to avoid the application of section EW 31.
Disposal

(5) A party to a financial arrangement who disposes of the arrangement must calculate a base price adjustment as at the date of the disposal.

Absolute assignment

(6) A party to a financial arrangement who makes an absolute assignment of all the party's rights under the arrangement must calculate a base price adjustment as at the date of the absolute assignment.

Defeasance

(7) A party to a financial arrangement who makes a legal defeasance of all the party's obligations under the arrangement must calculate a base price adjustment as at the date of the legal defeasance.

Sale at discount to associated person

(8) A party to a financial arrangement that is a debt must calculate a base price adjustment as at the date on which the creditor sells the debt to a person associated with the debtor and at a discount in the circumstances described in section EW 45(1) to (4).

Discharge without consideration

(9) A party to a financial arrangement must calculate a base price adjustment as at the date on which a party to the arrangement is discharged from making all remaining payments under the arrangement without fully adequate consideration.

Operation of law

(10) A party to a financial arrangement must calculate a base price adjustment as at the date on which a party to the arrangement is released from making all remaining payments under the arrangement under the Insolvency Act 2006 or the Companies Act 1993 or the laws of a country or territory other than New Zealand.

Composition with creditors

(11) A party to a financial arrangement must calculate a base price adjustment as at the date on which a party to the arrangement is released from making all remaining payments under the arrangement by a deed or agreement of composition with the party's creditors.

Lapse of time

(12) A party to a financial arrangement must calculate a base price adjustment as at the date on which all remaining payments under the arrangement become irrecoverable or unenforceable through the lapse of time.

(13) [Repealed]

Defined in this Act: amount, associated person, business, consideration, financial arrangement, fixed establishment, legal defeasance, maturity, New Zealand, New Zealand resident,

Compare: 1994 No 164 s EH 45

Section EW 29(10): amended, on 3 December 2007, by section 445 of the Insolvency Act 2006 (2006 No 55).

Subsection (13) was repealed, as from 1 October 2005, by section 43(a) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

The list of defined terms was amended, as from 1 October 2005, by section 43(b) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “New Zealand resident” for “New Zealand resident, trustee” with application as from the 2005–06 income year.

EW 30 When calculation of base price adjustment not required

Cash basis person who ceases to be temporary New Zealand resident
(1) A cash basis person who ceases to be a New Zealand resident before the first day of the fourth income year following the income year in which they first became a New Zealand resident does not calculate a base price adjustment for a financial arrangement to which they—
- (a) were a party before first becoming a New Zealand resident; and
- (b) are a party on the date on which they cease to be a New Zealand resident.
Other party who ceases to be New Zealand resident

(2) A party to a financial arrangement who ceases to be a New Zealand resident does not calculate a base price adjustment to the extent to which the arrangement relates to a business the party carries on through a fixed establishment in New Zealand.

Creditor when legal defeasance occurs

(3) A party who has a right to receive money under a financial arrangement the obligations of which are the subject of a legal defeasance does not calculate a base price adjustment on the date of the defeasance if the defeasance requires another person to meet the remaining obligations of the arrangement.

Debtor when legal defeasance occurs
(4) A party to a financial arrangement does not calculate a base price adjustment if—
- (a) their obligations under the arrangement are the subject of an absolute legal defeasance; and
- (b) some or all of the consideration for the defeasance is deferred.
Creditor when assignment occurs
(5) A party to a financial arrangement does not calculate a base price adjustment if—
- (a) their rights under the arrangement are the subject of an absolute assignment; and
- (b) some or all of the consideration for the assignment is deferred.
Defined in this Act: business, cash basis person, consideration, financial arrangement, fixed establishment, income year, legal defeasance, money, New Zealand, New Zealand resident,

Compare: 1994 No 164 s EH 46

EW 31 Base price adjustment formula

Calculation of base price adjustment

(1) A person calculates a base price adjustment using the formula in subsection (5).

When formula applies

(2) The person calculates the base price adjustment for the income year in which section EW 29 applies to them.

Positive base price adjustment

(3) A base price adjustment, if positive, is income, under section CC 3 (Financial arrangements), derived by the person in the income year for which the calculation is made. However, it is not income to the extent to which it arises from expenditure incurred by the person under the financial arrangement in previous income years and for which a deduction was denied in those income years.

Negative base price adjustment

(4) A base price adjustment, if negative, is expenditure incurred by the person in the income year for which the calculation is made. The person is allowed a deduction for the expenditure under section DB 9 (Negative base price adjustment).

Formula

(5) The formula is—

consideration – income + expenditure + amount remitted.

Definition of items in formula

(6) The items in the formula are defined in subsections (7) to (11).

Consideration

(7) Consideration is all consideration that has been paid, and all consideration that is or will be payable, to the person for or under the financial arrangement, ignoring non-contingent fees, minus all consideration that has been paid, and all consideration that is or will be payable, by the person for or under the financial arrangement, ignoring non-contingent fees.

Consideration in particular cases

(8) If any of sections EW 32 to EW 49 applies, the consideration referred to in subsection (7) is adjusted under the relevant section.

Income
(9) Income is—
- (a) income, under section CC 3 (Financial arrangements), derived by the person under the financial arrangement in previous income years; and
- (b) dividends derived by the person from the release of the obligation to repay the amount lent; and
- (c) income derived under section CF 2(2) and (3) (Remission of specified suspensory loans).
Expenditure

(10) Expenditure is expenditure incurred by the person under the financial arrangement in previous income years.

Amount remitted
(11) Amount remitted is an amount that is not included in the consideration paid or payable to the person because it has been remitted—
- (a) by the person; or
- (b) by law.
Defined in this Act: amount, consideration, deduction, dividend, financial arrangement, income, income year, non-contingent fee,

Compare: 1994 No 164 ss EH 47, EH 48(1)

Consideration

Consideration when financial arrangement involves property or services

EW 32 Consideration for agreement for sale and purchase of property or services, hire purchase agreement, specified lease, or finance lease

When this section applies

(1) This section applies when an original party to an agreement for the sale and purchase of property or services, a hire purchase agreement, a specified option, or a finance lease pays or is paid consideration that includes property or services.

Value of property or services

(2) The value of the property or services is determined by applying subsections (3) to (6) in numerical order until a subsection applies.

Lowest price
(3) The value of the property or services is the lowest price the parties would have agreed on for the property or services, on the date the agreement, option, or lease was entered into, if payment had been required in full at the time the first right in the property was transferred or the services provided. Two qualifications are—
- (a) this subsection does not apply to an agreement for the sale and purchase of property or services that is part of another financial arrangement:
- (b) section EW 34 applies if the consideration is in a foreign currency.
Cash price

(4) The value of the property or services is the cash price of the property or services to which the agreement, option, or lease relates, as determined by section 5 of the Credit Contracts and Consumer Finance Act 2003, if that Act applies to the agreement, option, or lease.

Future or discounted value

(5) The value of the property or services is the future value, or the discounted value, or a combination of both the future and discounted values, of the amounts paid or payable on the date on which the first right in the property is transferred or the services are provided, as determined by the Commissioner under a determination under section 90AC(1)(i) of the Tax Administration Act 1994.

Determined by Commissioner

(6) The value of the property or services is the amount determined by the Commissioner when either party to the arrangement applies to the Commissioner for a specific determination. Both parties must use this amount.

Exclusion

(7) This section does not apply if the agreement, option, or lease has lapsed or does not proceed.

Defined in this Act: agreement for the sale and purchase of property or services, amount, Commissioner, consideration, finance lease, financial arrangement, hire purchase agreement, property, right, specified option,

Compare: 1994 No 164 s EH 48(2)-(4)

Subsection (1) was amended, as from 1 April 2005, by section 58 Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “property or services” for “property and services”.

Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EW 33 Consideration for hire purchase agreement or finance lease

When this section applies

(1) This section applies when a party to a hire purchase agreement or a finance lease pays or is paid consideration for the agreement or lease.

Consideration

(2) The consideration for a hire purchase agreement or a finance lease includes expenditure or loss incurred by the lessor in preparing and installing the hire purchase asset or personal property lease asset for use to the extent to which it is not taken into account under section EW 32.

Defined in this Act: consideration, finance lease, hire purchase agreement, hire purchase asset, personal property lease asset, lessor,

Compare: 1994 No 164 s EH 48(5)

EW 34 Consideration in foreign currency

When this section applies

(1) This section applies when the consideration payable under a financial arrangement to which section EW 32(3) applies is in a foreign currency.

Lowest price

(2) The lowest price referred to in section EW 32(3) is the lowest price the parties would have agreed on in the foreign currency, converted into New Zealand dollars using the rate that the original party applying section EW 32(3) selects from the rates in subsection (4). The party may select the rate in subsection (4)(b) only if the period between the date on which the first right in the property is to be transferred and the date on which final payment is to be made is 5 years or less.

Consistent application of rate

(3) The party must apply the selected rate to the financial arrangement for every income year over its term.

Rates
(4) The rates are—
- (a) the rate, on the date on which the parties enter into the financial arrangement, available to the party from a New Zealand registered bank for the exchange of New Zealand dollars for the foreign currency for 1 of the following dates:
  - (i) the date on which the first right in the property is to be transferred; or
  - (ii) if that date is uncertain on the date on which the parties enter into the financial arrangement, the date on which the parties reasonably expect, when entering into the arrangement, that the first right in the property will be transferred; or
- (b) the rate, on the date on which the parties enter into the financial arrangement, available to the party from a New Zealand registered bank for the exchange of New Zealand dollars for the foreign currency for 1 of the following dates:
  - (i) the date on which final payment is to be made; or
  - (ii) if that date is uncertain on the date on which the parties enter into the financial arrangement, the date on which the parties reasonably expect, when entering into the arrangement, that final payment will be made; or
- (c) an exchange rate approved by the Commissioner for this subsection in the circumstances applicable to the party in a determination under section 90AC(1)(k) of the Tax Administration Act 1994.
Defined in this Act: Commissioner, consideration, financial arrangement, income year, New Zealand, property, right, year,

Compare: 1994 No 164 s OB 7

EW 35 Value relevant for non-financial arrangements rule

When this section applies

(1) This section applies when the value of property acquired or disposed of under a financial arrangement, or the consideration for it, is relevant in determining a person's income or deductions under any provision of this Act that is not a financial arrangements rule.

Value

(2) The person is treated as having acquired or disposed of the property for a value determined by applying section EW 32(2).

Defined in this Act: consideration, deduction, financial arrangement, financial arrangements rules, income, property,

Compare: 1994 No 164 s EH 26(2), (3)

Consideration treated as paid to person

EW 36 Consideration when person exits from rules: accrued entitlement

When this section applies
(1) This section applies when—
- (a) a person is a party to a financial arrangement; and
- (b) 1 of the following situations arises:
  - (i) [Repealed]
  - (ii) the person ceases to be resident in New Zealand and is not a party to the arrangement for the purpose of a business carried on by them through a fixed establishment in New Zealand; or
  - (iii) the person, not resident in New Zealand, ceases to be a party to the arrangement for the purpose of a business carried on by them through a fixed establishment in New Zealand; or
  - (iv) the person starts using the arrangement for a private or domestic purpose and so it becomes an excepted financial arrangement described in any of section EW 5(16) to (18); and
- (c) at the time the situation arises, the person has an accrued entitlement to be paid consideration under the arrangement.
Disposal and consideration

(2) The person is treated as having disposed of their accrued entitlement immediately before the situation arose and as having been paid the market value that the accrued entitlement had at that time.

Defined in this Act: accrued entitlement, business, consideration, excepted financial arrangement, financial arrangement, fixed establishment, New Zealand, resident in New Zealand,

Compare: 1994 No 164 ss EH 45(5)(a), EH 50(1), (2)

Subsection (1)(b)(i) was repealed, as from 1 October 2005, by section 44 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

EW 37 Consideration when person enters rules: accrued obligation

When this section applies
(1) This section applies to a person who is a party to a financial arrangement if, when the person has an accrued obligation to pay consideration under the arrangement, 1 or more of the following situations arise:
- (a) the person is a non-resident who becomes a party to the arrangement for the purpose of a business carried on by the person through a fixed establishment in New Zealand:
- (b) the person is a non-resident who—
  - (i) becomes a New Zealand resident who is not a transitional resident; and
  - (ii) is not, immediately before becoming a New Zealand resident, a party to the arrangement for the purpose of a business carried on by the person through a fixed establishment in New Zealand:
- (c) the person is a transitional resident for whom the arrangement ceases to be an excepted financial arrangement described in section EW 5(15B):
- (d) the person is a transitional resident who becomes a New Zealand resident who is not a transitional resident, resulting in the arrangement ceasing to be an excepted financial arrangement described in section EW 5(15B):
- (e) the person stops using the arrangement for a private or domestic purpose, resulting in the arrangement ceasing to be an excepted financial arrangement described in any of section EW 5(16) to (18).
Assumption and consideration

(2) The person is treated as having assumed the accrued obligation immediately after the situation arose and as having been paid the market value that a contract to assume the obligation had at that time.

Defined in this Act: accrued obligation, business, consideration, excepted financial arrangement, financial arrangement, fixed establishment, New Zealand, New Zealand resident, non-resident, , transitional resident,

Compare: 1994 No 164 ss EH 24(3), EH 50(1A), (2)

Subsection (1) (excluding the heading) was substituted, as from 1 October 2005, by section 84(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 84(3) and (4) of that Act as to the application of this amendment.

The list of defined terms was amended, as from 1 October 2005, by section 84(2)(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “New Zealand resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 84(3) and (4) of that Act as to the application of this amendment.

The list of defined terms was amended, as from 1 October 2005, by section 84(2)(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “non-resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 84(3) and (4) of that Act as to the application of this amendment.

The list of defined terms was amended, as from 1 October 2005, by section 84(2)(c) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by omitting “resident in New Zealand” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 84(3) and (4) of that Act as to the application of this amendment.

The list of defined terms was amended, as from 1 October 2005, by section 84(2)(d) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “transitional resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 84(3) and (4) of that Act as to the application of this amendment.

EW 38 Consideration when disposal for no, or inadequate, consideration

When this section applies
(1) This section applies when—
- (a) a person is a party to a financial arrangement; and
- (b) the person has an accrued entitlement under the arrangement; and
- (c) the person disposes of the arrangement; and
- (d) the disposal of the accrued entitlement—
  - (i) is not for monetary consideration; or
  - (ii) is for a consideration that is less than the market value of the entitlement on the date of the disposal.
Consideration is market value

(2) The person is treated as having been paid the market value that the accrued entitlement had on the date of the disposal.

Defined in this Act: accrued entitlement, consideration, financial arrangement,

Compare: 1994 No 164 s EH 49(1)

EW 39 Consideration treated as paid to person on distribution in kind

[Repealed]

Section EW 39 was repealed, as from 1 October 2005, by section 45 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

EW 40 Consideration affected by unfavourable factors

When this section applies
(1) This section applies when—
- (a) a person is a party to a financial arrangement; and
- (b) the person has an accrued entitlement under the arrangement; and
- (c) the person disposes of the arrangement; and
- (d) the consideration for the disposal is affected by any of the following factors:
  - (i) a decline in the other party's creditworthiness between the date on which the arrangement was entered into and the date of the disposal; or
  - (ii) an increase, between the date on which the arrangement was entered into and the date of the disposal, in the possibility that the other party will not meet an obligation under the arrangement; or
  - (iii) the occurrence of an event reducing or cancelling the other party's obligations under the arrangement.
Exclusion
(2) This section does not apply when—
- (a) the person's business includes holding or dealing in financial arrangements of the class disposed of; and
- (b) the parties to the arrangement disposed of are not associated persons.
Consideration is market value

(3) The person is treated as having been paid the market value that the accrued entitlement had on the date of the disposal, as if the consideration had not been affected by a factor described in subsection (1)(d).

Defined in this Act: accrued entitlement, associated person, business, consideration, financial arrangement,

Compare: 1994 No 164 s EH 49(3)-(5)

Consideration treated as paid by person

EW 41 Consideration when person exits from rules: accrued obligation

When this section applies
(1) This section applies when—
- (a) a person is a party to a financial arrangement; and
- (b) 1 of the following situations arises:
  - (i) [Repealed]
  - (ii) the person ceases to be resident in New Zealand and is not a party to the arrangement for the purpose of a business carried on by them through a fixed establishment in New Zealand; or
  - (iii) the person, not resident in New Zealand, ceases to be a party to the arrangement for the purpose of a business carried on by them through a fixed establishment in New Zealand; or
  - (iv) the person starts using the arrangement for a private or domestic purpose and so it becomes an excepted financial arrangement described in any of section EW 5(16) to (18); and
- (c) at the time the situation arises, the person has an accrued obligation to pay consideration under the arrangement.
Relief and consideration

(2) The person is treated as having been relieved of the accrued obligation immediately before the situation arose and as having paid the market value that a contract to assume the obligation had at that time.

Defined in this Act: accrued obligation, business, consideration, excepted financial arrangement, financial arrangement, fixed establishment, New Zealand, resident in New Zealand,

Compare: 1994 No 164 ss EH 45(5)(a), EH 50(1), (2)

Subsection (1)(b)(i) was repealed, as from 1 October 2005, by section 46 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

EW 42 Consideration when person enters rules: accrued entitlement

When this section applies
(1) This section applies to a person who is a party to a financial arrangement if, when the person has an accrued entitlement to receive consideration under the arrangement, 1 or more of the following situations arise:
- (a) the person is a non-resident who becomes a party to the arrangement for the purpose of a business carried on by the person through a fixed establishment in New Zealand:
- (b) the person is a non-resident who—
  - (i) becomes a New Zealand resident who is not a transitional resident; and
  - (ii) is not, immediately before becoming a New Zealand resident, a party to the arrangement for the purpose of a business carried on by the person through a fixed establishment in New Zealand:
- (c) the person is a transitional resident for whom the arrangement ceases to be an excepted financial arrangement described in section EW 5(15B):
- (d) the person is a transitional resident who becomes a New Zealand resident who is not a transitional resident, resulting in the arrangement ceasing to be an excepted financial arrangement described in section EW 5(15B):
- (e) the person stops using the arrangement for a private or domestic purpose, resulting in the arrangement ceasing to be an excepted financial arrangement described in any of section EW 5(16) to (18).
Acquisition and consideration

(2) The person is treated as having acquired the accrued entitlement immediately after the situation arose and as having paid the market value that the accrued entitlement had at that time.

Defined in this Act: accrued entitlement, business, consideration, excepted financial arrangement, financial arrangement, fixed establishment, New Zealand, New Zealand resident, non-resident, , transitional resident,

Compare: 1994 No 164 ss EH 24(3)(c), EH 50(1A), (2)

Section EW 42 compare note was substituted, as from 1 April 2005, by section 47 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Subsection (1) (excluding the heading) was substituted, as from 1 October 2005, by section 85(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 85(3) and (4) of that Act as to the application of this amendment.

The list of defined terms was amended, as from 1 October 2005, by section 85(2)(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “New Zealand resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 85(3) and (4) of that Act as to the application of this amendment.

The list of defined terms was amended, as from 1 October 2005, by section 85(2)(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “non-resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 85(3) and (4) of that Act as to the application of this amendment.

The list of defined terms was amended, as from 1 October 2005, by section 85(2)(c) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by omitting “resident in New Zealand” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 85(3) and (4) of that Act as to the application of this amendment.

The list of defined terms was amended, as from 1 October 2005, by section 85(2)(d) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “transitional resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 85(3) and (4) of that Act as to the application of this amendment.

EW 43 Consideration when acquisition for no, or inadequate, consideration

When this section applies
(1) This section applies when—
- (a) a person becomes a party to a financial arrangement; and
- (b) the person acquires an entitlement under the arrangement—
- (i) not for monetary consideration; or
- (ii) for a consideration that is less than the market value of the entitlement on the date of the acquisition.
Consideration is market value

(2) The person is treated as having paid the market value that the entitlement had on the date of the acquisition.

Defined in this Act: consideration, financial arrangement,

Compare: 1994 No 164 s EH 49(1)

EW 44 Consideration treated as paid by person on distribution in kind

[Repealed]

Section EW 44 was repealed, as from 1 October 2005, by section 48 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

EW 45 Consideration when debt sold at discount to associate of debtor

When this section applies

(1) This section applies when a creditor sells a debt on or after 20 May 1999 to a person associated with the debtor and at a discount.

Person associated

(2) A person is associated with the debtor if the relationship between the person and the debtor is described in section OD 8(3) (Further definitions of associated persons).

At a discount

(3) A creditor sells a debt at a discount if the creditor sells it for 80% or less of the market value of the debt.

Market value
(4) The market value of a debt affected by any of the following factors is determined as if its market value were not affected by the factor. The factors are—
- (a) the occurrence of an event reducing or cancelling the debtor's obligations under the debt; or
- (b) the occurrence of 1 of the following between the date on which the debt was entered into and the date of the disposal:
  - (i) a decline in the debtor's creditworthiness; or
  - (ii) an increase in the possibility that the debtor will not meet an obligation under the debt.
Consideration

(5) The debtor is treated as having paid the creditor the amount that the person associated with the debtor pays the creditor.

Defined in this Act: amount, associated person, consideration,

Compare: 1994 No 164 ss EH 48(6), EH 53

EW 46 Consideration when debt forgiven for natural love and affection

When this section applies: first case
(1) This section applies when—
- (a) a person is a debtor; and
- (b) the creditor is a natural person; and
- (c) the creditor forgives the debtor's debt because of the natural love and affection the creditor has for the debtor.
When this section applies: second case
(2) This section also applies when—
- (a) a trust is a debtor; and
- (b) the trust was established mainly to benefit 1 or both of the following:
  - (i) a natural person for whom the creditor has natural love and affection:
  - (ii) an organisation or a trust whose income is exempt under section CW 34 (Charities: non-business income) or CW 35 (Charities: business income); and
- (c) the creditor is a natural person; and
- (d) the creditor forgives the debtor's debt.
Two points about subsections (1) and (2)
(3) For the purposes of subsections (1) and (2),—
- (a) the debtor's debt includes an amount accrued and unpaid at the time of the forgiveness; and
- (b) the means by which the debt is forgiven, whether in a will or otherwise, is immaterial.
Consideration

(4) The debtor is treated as having paid the debt on the date on which the creditor forgives it.

Defined in this Act: amount, consideration, income,

Compare: 1994 No 164 s EH 52(1)

Subsection (2)(b)(i) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

EW 47 Consideration when debtor released from obligation

When this section applies
(1) This section applies when—
- (a) a person is released from the obligation to pay an amount owing under a financial arrangement; and
- (b) the release occurs under—
  - (i) section 304 of the Insolvency Act 2006; or
  - (ii) any of the Inland Revenue Acts; or
  - (iii) a loan described in subsection (2).
Social assistance suspensory loan
(2) A loan referred to in subsection (1)(b)(iii) is a loan that—
- (a) is made by a department or instrument of the executive government of New Zealand; and
- (b) provides for the person's liability to pay to be wholly or partly remitted if they meet conditions intended to promote a social policy objective of the government of New Zealand; and
- (c) is of a class declared by the Governor-General by Order in Council to be a social assistance suspensory loan.
Declaration as social assistance suspensory loan

(3) The Governor-General may make an Order in Council declaring a class of loan that meets the criteria in subsection (2) to be a social assistance suspensory loan.

Consideration

(4) The person is treated as having paid the amount owing on the date on which they are released from the obligation to pay it.

Defined in this Act: amount, consideration, financial arrangement, Inland Revenue Acts, New Zealand,

Compare: 1994 No 164 ss EH 51, EH 59

Section EW 47(1)(b)(i): amended, on 3 December 2007, by section 445 of the Insolvency Act 2006 (2006 No 55).

EW 47B Consideration when debtor released as condition of new start grant

When this section applies
(1) This section applies if, 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 a qualifying 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 state of emergency that relates to the qualifying event; 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 state of emergency; and
- (e) in the absence of this section, the amount of the remitted liability would be income of the person.
Consideration

(2) The person is treated as having paid, on the date on which the liability is forgiven or remitted, the part of the amount owing that is the greater of zero and the amount calculated under the formula—

remitted amount - current loss - available loss - other loss.

Definition of items in formula
(3) In the formula—
- (a) remitted amount is the amount of the remitted liability:
- (b) current loss is the net loss that the person would have for the income year in which the liability is remitted in the absence of this section:
- (c) available loss is the available net losses that are available to the person for offset against net income for the income year in which the liability is remitted:
- (d) other loss is a loss that—
  - (i) is incurred by a person associated with the person who receives the new start grant; and
  - (ii) satisfies subsection (4).
Loss incurred by associated person from business or land
(4) The loss referred to in subsection (3)(d)—
- (a) is incurred by a person who—
  - (i) carries on or has carried on the business in respect of which the new start grant is paid or owns or has owned an estate in fee simple or leasehold estate in land used in the business; and
  - (ii) in the opinion of the Commissioner, is under a substantial degree of control by the person; and
  - (iii) in the opinion of the Commissioner, has a substantial identity of interests with the person; and
- (b) is incurred in respect of—
  - (i) the business referred to in paragraph (a)(i):
  - (ii) land that is used in the business; and
- (c) is, for the income year in which the liability is remitted,—
  - (i) a net loss of the associated person:
  - (ii) an available net loss for the associated person; and
- (d) is included in the calculation in subsection (3) to an extent that the Commissioner determines, having regard to the interests of the associated person that are separate from those of the person.
Notice to associated person

(5) The Commissioner must give to the associated person a written notice of a determination under subsection (4)(d).

Defined in this Act: business, deduction, diminished value, income, income year, qualifying event.,

Section EW 47B was inserted, as from 1 October 2005, by section 194 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Consideration when legal defeasance has occurred

EW 48 Legal defeasance

When this section applies
(1) This section applies when—
- (a) the obligations of a financial arrangement were the subject of a legal defeasance that required another person to meet the remaining obligations of the arrangement; and
- (b) the person who has a right to receive money under the arrangement is now required by section EW 29 to calculate a base price adjustment for it.
Consideration
(2) The consideration received by the person who has a right to receive money under the arrangement is the total of—
- (a) the amounts received from the original debtor; and
- (b) the amounts received from the person required to meet the remaining obligations.
Defined in this Act: amount, consideration, financial arrangement, legal defeasance, money,

Compare: 1994 No 164 s EH 48(1), (7)

Consideration when anti-avoidance provision applies

EW 49 Anti-avoidance provisions

When this section applies
(1) This section applies when it is necessary to determine the consideration that is paid to or by a person in a case to which any of the following provisions applies:
- (a) section GD 11 (Financial arrangements rules); or
- (b) section GD 13(3) (Cross-border arrangements between associated persons); or
- (c) section GD 13(4) (Cross-border arrangements between associated persons).
Consideration

(2) The consideration is the amount determined under the relevant provision.

Defined in this Act: amount, consideration,

Compare: 1994 No 164 s EH 48(1)

Income and deduction provisions specifically related to financial arrangements

EW 50 Income and deduction when debt sold at discount to associate of debtor

When this section applies

(1) This section applies when a creditor sells a debt on or after 20 May 1999 to a person associated with the debtor and at a discount.

Person associated

(2) A person is associated with the debtor if the relationship between the person and the debtor is described in section OD 8(3) (Further definitions of associated persons).

At a discount

(3) A creditor sells a debt at a discount if the creditor sells it for 80% or less of the market value of the debt.

Market value
(4) The market value of a debt affected by any of the following factors is determined as if its market value were not affected by the factor. The factors are—
- (a) the occurrence of an event reducing or cancelling the debtor's obligations under the debt; or
- (b) the occurrence of 1 of the following between the date on which the debt was entered into and the date of the disposal:
  - (i) a decline in the debtor's creditworthiness; or
  - (ii) an increase in the possibility that the debtor will not meet an obligation under the debt.
Original debt replaced with interest-free loan

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

Repayment: income and deduction
(6) If the debtor later repays the person associated with the debtor more than the amount the associated person paid for the debt, the excess amount paid by the debtor is—
- (a) income, under section CC 3(1) (Financial arrangements), of the person associated with the debtor; and
- (b) a deduction that the debtor is allowed under section DB 10(1) (Repayment of debt sold at discount to associate of debtor).
Defined in this Act: amount, associated person, deduction, income,

Compare: 1994 No 164 s EH 53

EW 51 Income when debt forgiven to trustee

When this section applies
(1) This section applies when—
- (a) a trust is a debtor; and
- (b) the trust was established mainly to benefit 1 or both of the following:
  - (i) a natural person for whom the creditor has natural love and affection; or
  - (ii) an organisation or a trust whose income is exempt under section CW 34 (Charities: non-business income) or CW 35 (Charities: business income); and
- (c) the creditor is a natural person; and
- (d) the creditor forgives the debtor's debt; and
- (e) a trustee of the trust makes a distribution, including a distribution of beneficiary income, to a beneficiary; and
- (f) the beneficiary is—
  - (i) not a natural person for whom the creditor has natural love and affection; and
  - (ii) not an organisation or a trust whose income is exempt under section CW 34 (Charities: non-business income) or CW 35 (Charities: business income); and
- (g) the distribution is made on or after 20 May 1999.
Exclusion
(2) This section does not apply when—
- (a) a trust (trust A) is a debtor; and
- (b) trust A was established mainly to benefit 1 or both of the following:
  - (i) a natural person for whom the creditor has natural love and affection; or
  - (ii) an organisation or a trust whose income is exempt under section CW 34 (Charities: non-business income) or CW 35 (Charities: business income); and
- (c) the creditor is a natural person; and
- (d) the creditor forgives the debtor's debt; and
- (e) a trustee of the trust makes a distribution to another trust (trust B); and
- (f) at the time the distribution is made, trust B is also established mainly to benefit 1 or both of the following:
  - (i) a natural person for whom the creditor has natural love and affection; or
  - (ii) an organisation or a trust whose income is exempt under section CW 34 (Charities: non-business income) or CW 35 (Charities: business income).
Two points about subsections (1) and (2)
(3) For the purposes of subsections (1) and (2),—
- (a) the debtor's debt includes an amount accrued and unpaid at the time of the forgiveness; and
- (b) the means by which the debt is forgiven, whether in a will or otherwise, is immaterial.
Distribution is income of trustee

(4) The distribution is income of the trustee, under section CC 3(2) (Financial arrangements), to the extent to which it is less than or equal to the total amount of the debts of the trust forgiven to it by the creditor.

Distribution subtracted from total amount forgiven

(5) The distribution is subtracted from the total amount of the debts of the trust forgiven to it by the creditor as the total amount stands at the time of the distribution.

Timing

(6) The income is derived by the trustee in the income year in which the distribution is made.

Application of Tax Administration Act 1994

(7) Section 22B of the Tax Administration Act 1994 applies to a trustee to whom this section applies.

Defined in this Act: amount, beneficiary income, distribution, income, income year, trustee,

Compare: 1994 No 164 s EH 52

EW 52 Deduction for security payment

When subsection (2) applies: loss generally

(1) Subsection (2) applies when a person is allowed a deduction under section DB 11(2) (Security payment).

Amount of deduction

(2) The person is allowed a deduction no greater than the amount of the security payment.

When subsection (4) applies: share loss

(3) Subsection (4) applies when a person is allowed a deduction under section DB 11(4) (Security payment).

Amount of deduction

(4) The person is allowed a deduction no greater than the amount of the security payment.

Defined in this Act: amount, deduction, security payment,

Compare: 1994 No 164 s EH 55

Treatment of original share acquired under financial arrangement

This heading was inserted, as from 1 July 2006, by section 86 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

EW 52B Share supplier under share-lending arrangement

When this section applies
(1) This section applies to a person who—
- (a) acquires a share under a financial arrangement (original financial arrangement); and
- (b) is the share supplier for a share-lending arrangement; and
- (c) disposes of the share to the share user as an original share under the share-lending arrangement.
Treatment of reacquisition of original share
(2) If the person reacquires the original share under the share-lending arrangement, for the purposes of applying the financial arrangements rules to the original financial arrangement—
- (a) the person did not dispose of the original share to the share user; and
- (b) the person continued to own the original share until the time that the person reacquired the original share.
Treatment of acquisition of replacement share
(3) If the person acquires an identical share under the share-lending arrangement, for the purposes of the financial arrangements rules in relation to the original financial arrangement—
- (a) the identical share is the share that the person acquired under the original financial arrangement; and
- (b) the person continued to own the identical share until the time that the person acquired the replacement share.
Defined in this Act: financial arrangement, financial arrangements rules, identical share, original share, share, share-lending arrangement, share supplier, share user.,

Section EW 52B was inserted, as from 1 July 2006, by section 86 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

One kind of avoidance

EW 53 Adjustment required

When this section applies
(1) This section applies when—
- (a) the terms of a financial arrangement give either party, both parties, or an associated person the discretion to decide on an amount payable under the arrangement; and
- (b) it is not generally accepted commercial practice to make financial arrangements containing such terms; and
- (c) a change in the amount brought about by the exercise of the discretion does not reflect changes in commodity, economic, financial, or industrial indices, or in banking or general commercial rates; and
- (d) the effect of the financial arrangement is to defeat the intention of the financial arrangements rules.
Parties to calculate adjustment

(2) Each person who is a party to the financial arrangement must calculate an adjustment for the income years specified in subsection (3) by following the steps in subsections (4) to (6).

Income years
(3) The adjustment must be calculated for the following income years:
- (a) until the person ceases to be a party, the fifth income year after the income year in which the parties entered into the financial arrangement and every fifth income year after that; and
- (b) the income year in which the person ceases to be a party.
First step

(4) The first step the person takes is to calculate income or expenditure under the financial arrangement for each income year using the yield to maturity method in the manner prescribed by the Commissioner in a determination under section 90AC(1)(a) of the Tax Administration Act 1994.

Consideration and amounts to be included at first step
(5) The person must include the following amounts in the calculation:
- (a) for every income year for which the calculation is made, as described in subsection (3), the consideration and amounts described in section EW 15 for the period starting on the date on which the person became a party to the financial arrangement and ending on the last day of the income year for which the calculation is made; and
- (b) for every fifth income year, as described in subsection (3)(a),—
  - (i) an amount equal to the financial arrangement's market value on the last day of the income year, as if the person had disposed of the arrangement for that amount; or
  - (ii) if the financial arrangement has no market value, the amount that might reasonably be expected to be paid on a disposal at arm's length.
Second step

(6) The second step the person takes is to calculate the income tax liability for each income year using the income or expenditure calculated under subsections (4) and (5) in substitution for the income or expenditure previously calculated for the financial arrangement for each income year.

Defined in this Act: amount, associated person, Commissioner, consideration, financial arrangement, financial arrangements rules, income, income tax liability, income year, prescribed,

Compare: 1994 No 164 s EH 57

Application of financial arrangements rules to cash basis persons

EW 54 Meaning of cash basis person

Who is cash basis person
(1) A cash basis person is—
- (a) a natural person who meets the criteria in section EW 56:
- (b) a trustee of a deceased's estate, whether or not a natural person, in the circumstances described in section EW 60.
Natural persons excluded by Commissioner

(2) A natural person may be excluded under section EW 59 from being a cash basis person for a class of financial arrangements.

Defined in this Act: cash basis person, Commissioner, financial arrangement, trustee,

Compare: 1994 No 164 ss EH 27, EH 29

Subsection (1)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EW 55 Effect of being cash basis person

Use of spreading method

(1) A cash basis person is not required to apply any of the spreading methods to any of their financial arrangements, but may choose to do so under section EW 61.

Calculation of base price adjustment

(2) The fact that a cash basis person does not use any of the spreading methods for the financial arrangement does not excuse them from the requirement to calculate a base price adjustment when any of section EW 29(1) to (13) applies to them.

Defined in this Act: cash basis person, financial arrangement, spreading method,

Compare: 1994 No 164 ss EH 33(4)(a), EH 45(1)

EW 56 Natural person

Criteria for natural person as cash basis person
(1) A natural person is a cash basis person for an income year if—
- (a) 1 of the following applies in the person's case for the income year:
  - (i) section EW 57(1); or
  - (ii) section EW 57(2); and
- (b) section EW 57(3) applies in the person's case for the income year; and
- (c) the person is not a trustee.
Financial arrangements, income, and expenditure relevant to application of criteria

(2) The calculations required by section EW 57(1) to (3) are done for the financial arrangements, or the income and expenditure, described in section EW 58.

Increase in specified sums

(3) The Governor-General may make an Order in Council increasing a sum specified in any of section EW 57(1) to (3).

Defined in this Act: cash basis person, financial arrangement, income, income year, trustee,

Compare: 1994 No 164 ss EH 27, EH 58

EW 57 Thresholds

Income and expenditure threshold

(1) For the purposes of section EW 56(1)(a)(i), this subsection applies if the absolute value of the person's income and expenditure in the income year under all financial arrangements to which the person is a party is $100,000 or less.

Absolute value threshold
(2) For the purposes of section EW 56(1)(a)(ii), this subsection applies if, on every day in the income year, the absolute value of all financial arrangements to which the person is a party added together is $1,000,000 or less. The value of each arrangement is,—
- (a) for a fixed principal financial arrangement, its face value:
- (b) for a variable principal debt instrument, the amount owing by or to the person under the financial arrangement:
- (c) for a financial arrangement to which the old financial arrangements rules apply, the value determined under those rules.
Deferral threshold

(3) For the purposes of section EW 56(1)(b), this subsection applies if the result of applying the formula in subsection (4) to each financial arrangement to which the person is a party at the end of the income year and adding the outcomes together is $40,000 or less.

Formula

(4) The formula is—

(accrual income – cash basis income) + (cash basis expenditure – accrual expenditure).

Definition of items in formula

(5) The items in the formula are defined in subsections (6) to (9).

Accrual income
(6) Accrual income is the amount that would have been income derived by the person under the financial arrangement if the person had been required to use a spreading method in the period starting on the date on which they became a party to the arrangement and ending on the last day of the income year for which the calculation is made. It is calculated using 1 of the following methods, as chosen by the person:
- (a) the yield to maturity method, whether or not the person may use it, or has chosen to use it, for their financial arrangement; or
- (b) the straight-line method, whether or not the person may use it, or has chosen to use it, for their financial arrangement; or
- (c) an alternative method approved by the Commissioner.
Cash basis income

(7) Cash basis income is the amount that would have been income derived by the person under the financial arrangement if the person had been a cash basis person in the period starting on the date on which they became a party to the arrangement and ending on the last day of the income year for which the calculation is made.

Cash basis expenditure

(8) Cash basis expenditure is the amount that would have been expenditure incurred by the person under the financial arrangement if the person had been a cash basis person in the period starting on the date on which they became a party to the arrangement and ending on the last day of the income year for which the calculation is made.

Accrual expenditure
(9) Accrual expenditure is the amount that would have been expenditure incurred under the financial arrangement if the person had been required to use a spreading method in the period starting on the date on which they became a party to the arrangement and ending on the last day of the income year for which the calculation is made. It is calculated using 1 of the following methods, as chosen by the person:
- (a) the yield to maturity method, whether or not the person may use it, or has chosen to use it, for their financial arrangement; or
- (b) the straight-line method, whether or not the person may use it, or has chosen to use it, for their financial arrangement; or
- (c) an alternative method approved by the Commissioner.
Defined in this Act: absolute value, amount, cash basis person, Commissioner, financial arrangement, fixed principal financial arrangement, income, income year, old financial arrangements rules, spreading method, variable principal debt instrument,

Compare: 1994 No 164 s EH 27(1)-(5), (7)

Subsection (2)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

EW 58 Financial arrangements, income, and expenditure relevant to criteria

Inclusions in and exclusions from thresholds
(1) The calculations required by section EW 57(1) to (3) are done for every financial arrangement to which the natural person is a party or, as the relevant subsection requires, to income and expenditure under such an arrangement, whether the financial arrangements rules or the old financial arrangements rules apply to the arrangement. Two qualifications are—
- (a) the calculations include an arrangement, or income and expenditure, to which subsection (2) or (3) applies only to the extent of the person's interest in it, as described in each subsection; and
- (b) the calculations exclude the value of an arrangement, and income and expenditure, in which the person has the interest described in subsection (4) or (5).
Natural person who is partner
(2) This subsection applies when a partnership required to make a joint return of income under section 42(1) of the Tax Administration Act 1994 is a party to a financial arrangement. A natural person who is a partner in the partnership—
- (a) is a party to the arrangement to the extent of the partner's share in the arrangement; and
- (b) derives income or incurs expenditure under the arrangement to the extent of the partner's share in the income or expenditure of the partnership.
Natural person who is beneficiary of bare trust
(3) This subsection applies when the trustee of a bare trust is a party to a financial arrangement. A natural person who is a beneficiary of the bare trust—
- (a) is treated as a party to the arrangement to the extent of the beneficiary's share of the beneficial interest in the arrangement; and
- (b) is treated as deriving income or incurring expenditure under the arrangement to the extent of the beneficiary's share of the beneficial interest in the arrangement.
Natural person who is beneficiary of trust other than bare trust
(4) This subsection applies when a natural person is a beneficiary of a trust, other than a bare trust, whose trustee is a party to a financial arrangement. The following are excluded from the calculations required by section EW 57(1) to (3):
- (a) the value of the arrangement, if it produces trustee income or beneficiary income under the trust rules; and
- (b) income under the arrangement that is trustee income or beneficiary income under the trust rules.
Natural person who is trustee
(5) This subsection applies when a natural person is a party to a financial arrangement as a trustee. The following are excluded from the calculations required by section EW 57(1) to (3):
- (a) the value of the arrangement, if it produces trustee income or beneficiary income under the trust rules; and
- (b) income under the arrangement that is trustee income or beneficiary income under the trust rules; and
- (c) the value of the arrangement, if expenditure is incurred under it; and
- (d) expenditure incurred under the arrangement.
Defined in this Act: beneficiary income, financial arrangement, financial arrangements rules, income, old financial arrangements rules, return of income, trust rules, trustee, trustee income,

Compare: 1994 No 164 ss EH 27(6), EH 28, EH 30

EW 59 Exclusion by Commissioner

The Commissioner may treat a natural person who would otherwise be a cash basis person for a class of financial arrangements as not being a cash basis person for the class if that or any other person has structured and promoted the class to defer an income tax liability.

Defined in this Act: cash basis person, Commissioner, financial arrangement, income tax liability,

Compare: 1994 No 164 s EH 27(8)

EW 60 Trustee of deceased's estate

When trustee of estate is cash basis person

(1) A trustee of a deceased's estate is a cash basis person for financial arrangements in the estate in the circumstances described in subsection (2) for the period described in subsection (3).

Circumstances
(2) The circumstances are that, at the time of the deceased's death,—
- (a) the deceased is a cash basis person; and
- (b) the financial arrangements in the deceased's estate meet the requirements of section EW 56(1)(a) and (b).
Period

(3) The period is the income year in which the deceased dies and in each of the 4 following income years. However, if at any time in those 5 income years the financial arrangements in the deceased's estate cease to meet the requirements of section EW 56(1)(a) and (b), the trustee ceases to be a cash basis person for financial arrangements in the estate and cannot again be a cash basis person for them.

Modifications to be read in

(4) For the purposes of this section, sections EW 54 to EW 56 are read with the modifications necessary to make them refer to the case of a deceased estate.

Defined in this Act: cash basis person, financial arrangement, income year, trustee,

Compare: 1994 No 164 s EH 29

EW 61 Election to use spreading method

Election of spreading method

(1) A cash basis person may choose to use a spreading method, unless subsection (2) applies.

Election not allowed

(2) A cash basis person may not choose to use a spreading method for a financial arrangement in the income year in which section EW 29 requires them to calculate a base price adjustment for the arrangement.

How election made

(3) The person makes the election by calculating a cash basis adjustment under section EW 62(1).

Effect of election
(4) The person must use a spreading method for—
- (a) all financial arrangements to which the person is a party at the time of making the election; and
- (b) all financial arrangements the person enters into after the income year in which they make the election.
How election revoked

(5) The person revokes the election by giving notice to the Commissioner with a return of income and within the time that the return must be filed under section 37 of the Tax Administration Act 1994.

Effect of revocation

(6) The revocation applies to all financial arrangements the person enters into after the income year in which the notice is given.

Defined in this Act: cash basis person, Commissioner, financial arrangement, income year, notice, return of income, spreading method,

Compare: 1994 No 164 s EH 31

EW 62 When and how calculation of cash basis adjustment required

Choosing spreading method

(1) A cash basis person who chooses to use a spreading method must calculate a cash basis adjustment for the income year in which they choose to use a spreading method as if they had ceased to be a cash basis person.

Person becoming cash basis person
(2) A person who becomes a cash basis person in an income year must calculate a cash basis adjustment for a financial arrangement to which they—
- (a) are a party at the end of the income year; and
- (b) were a party at the end of the previous income year.
Exclusions
(3) However,—
- (a) a person who becomes a cash basis person in an income year and who chooses to continue using a spreading method in the income year must not calculate a cash basis adjustment; and
- (b) a person who becomes a cash basis person in an income year must not calculate a cash basis adjustment for a financial arrangement that is already being accounted for on a cash basis.
Person ceasing to be cash basis person
(4) A person who ceases to be a cash basis person in an income year must calculate a cash basis adjustment for a financial arrangement to which they—
- (a) are a party at the end of the income year; and
- (b) were a party at the end of the previous income year.
Exclusion

(5) However, a person who ceases to be a cash basis person must not calculate a cash basis adjustment for a financial arrangement that is already subject to a spreading method.

Person not cash basis person if adjustment not made

(6) A person who would be a cash basis person for a financial arrangement if they calculated a cash basis adjustment for it, and who does not calculate the adjustment, is not a cash basis person for the arrangement.

Cash basis adjustment

(7) A person calculates a cash basis adjustment using the formula in section EW 63.

Adjustment is income or expenditure

(8) The only income or expenditure under the financial arrangement for the income year to which the formula is applied is the cash basis adjustment.

Positive or negative cash basis adjustment
(9) A cash basis adjustment is,—
- (a) if positive, income, under section CC 3(1) (Financial arrangements), derived by the person in the income year for which the calculation is made:
- (b) if negative, expenditure incurred by the person in the income year for which the calculation is made.
Defined in this Act: cash basis person, financial arrangement, income, income year, spreading method,

Compare: 1994 No 164 ss EH 31(4), EH 32

Subsection (9)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EW 63 Cash basis adjustment formula

Formula

(1) A person calculates a cash basis adjustment using the formula—

adjusted income – adjusted expenditure – previous income + previous expenditure.

Definition of items in formula

(2) The items in the formula are defined in subsections (3) to (6).

Adjusted income
(3) Adjusted income is,—
- (a) for a person who becomes a cash basis person, the amount that would have been income derived by the person under the financial arrangement if the person had been a cash basis person in the period starting on the date on which they became a party to the arrangement and ending on the last day of the income year for which the calculation is made; and
- (b) for a person who ceases to be a cash basis person, the amount that would have been income derived by the person under the financial arrangement if the person had been required to use a spreading method in the period starting on the date on which they became a party to the arrangement and ending on the last day of the income year for which the calculation is made.
Adjusted expenditure
(4) Adjusted expenditure is,—
- (a) for a person who becomes a cash basis person, the amount that would have been expenditure incurred by the person under the financial arrangement if they had been a cash basis person in the period starting on the date on which they became a party to the arrangement and ending on the last day of the income year for which the calculation is made; and
- (b) for a person who ceases to be a cash basis person, the amount that would have been expenditure incurred by the person under the financial arrangement if the person had been required to use a spreading method in the period starting on the date on which they became a party to the arrangement and ending on the last day of the income year for which the calculation is made.
Previous income

(5) Previous income is income derived by the person under the financial arrangement in previous income years.

Previous expenditure

(6) Previous expenditure is expenditure incurred by the person under the financial arrangement in previous income years.

Defined in this Act: amount, cash basis person, financial arrangement, income, income year, spreading method,

Compare: 1994 No 164 s EH 32(4)

Subpart EX—Controlled foreign company and foreign investment fund rules

Controlled foreign company rules

When is a company a controlled foreign company?

EX 1 Meaning of CFC

Calculation of person's control interest

EX 2 Four categories for calculating control interests

EX 3 Control interest: total of direct, indirect, and associated person interests

EX 4 Limits to requirement to include associated person interests

EX 5 Direct control interests

EX 6 Direct control interests include options and similar rights

EX 7 Indirect control interests

Calculation of person's income interest

EX 8 Income interests: total of direct and indirect interests

EX 9 Direct income interests

EX 10 Indirect income interests

EX 11 Options and similar rights in certain cases

EX 12 Reduction of total income interests

EX 13 Income interests of partners

Ten percent threshold and variations in income interest level

EX 14 Attribution: 10% threshold

EX 15 Associates and 10% threshold

EX 16 Income interests for certain purposes

EX 17 Income interest if variations within period

Calculation of attributed CFC income or loss

EX 18 Formula for calculating attributed CFC income or loss

EX 19 Taxable distribution from non-qualifying trust

EX 20 Reduction in attributed CFC loss

Calculation of branch equivalent income or loss

EX 21 Branch equivalent income or loss: calculation rules

Grey list exemption

EX 22 Unqualified grey list CFCs

EX 23 Tax concession grey list CFCs

Residence of companies

EX 24 Residence in grey list country

EX 25 Companies moving to or from New Zealand

Change of CFC's balance date

EX 26 Change of CFC's balance date

Ownership measurement concession

EX 27 Use of quarterly measurement

Anti-avoidance rule: stapled stock

EX 28 Anti-avoidance rule: stapled stock

What is a foreign investment fund?

EX 29 Meaning of FIF

Attributing interests in FIFs

EX 30 Attributing interests in FIFs

EX 31 Direct income interests in FIFs

EX 32 CFC rules exemption

EX 33 Exemptions: direct income interests in FIF in grey list country

EX 33B Exemptions limited by income years: shares in certain grey list companies

EX 33C Exemption: shares in listed Australian company

EX 33D Exemption: units in certain Australian unit trusts

EX 33E Australian superannuation fund exemption

EX 34 Foreign exchange control exemption

EX 35 Income interest of non-resident or transitional resident

EX 36 New resident's accrued superannuation entitlement exemption

EX 37 Non-resident's pension or annuity exemption

Calculation of FIF income or loss

EX 38 Six calculation methods

EX 39 Exclusion of amounts of death benefit

EX 40 Limits on choice of calculation methods

EX 40B Use of particular calculation methods required

EX 41 Default calculation method

EX 42 Accounting profits method

EX 43 Branch equivalent method

EX 44 Comparative value method

EX 44B Fair dividend rate method

EX 44C Fair dividend rate method: usual method

EX 44D Fair dividend rate method: method for entities that value investors' units

EX 44E Fair dividend rate method and cost method: calculating items in formulas for periods affected by share reorganisations

EX 45 Deemed rate of return method

Additional FIF income or loss if CFC owns FIF

EX 45B Cost method

EX 46 Additional FIF income or loss if CFC owns FIF

Relationship with other provisions in Act

EX 47 Codes: comparative value method, deemed rate of return method, fair dividend rate method, and cost method

EX 48 Top-up FIF income: deemed rate of return method

EX 49 Top-up FIF income: 1 April 1993 uplift interests

Changing calculation method

EX 50 Limits on changes of method

EX 51 Consequences of changes in method

Cases of entry into and exit from FIF rules

EX 52 Migration of persons holding FIF interests

EX 53 Changes in application of FIF exemptions

EX 54 FIFs migrating from New Zealand

EX 54B FIF rules first applying to interest for income year beginning on or after 1 April 2007

EX 55 Death of persons holding FIF interests [Repealed]

Measurement of cost

EX 56 Measurement of cost

Change of FIF's balance date

EX 57 Change of FIF's balance date

Market value rules

EX 58 Market value of life policy and superannuation entitlements

EX 59 Non-market transactions in FIF interests

Commissioner's default assessment power

EX 60 Commissioner's default assessment power

Controlled foreign company rules

When is a company a controlled foreign company?

EX 1 Meaning of CFC

Tests of control
(1) A foreign company is a CFC if any of the following tests is met:
- (a) there is a group of 5 or fewer New Zealand residents whose total control interests in the company are more than 50% in any one of the control interest categories:
- (b) a single New Zealand resident holds a control interest of 40% or more unless at the same time—
  - (i) another person also holds a 40% or more control interest in the same control interest category; and
  - (ii) the other person is not a New Zealand resident; and
  - (iii) the other person is not associated with the New Zealand resident:
- (c) there is a group of 5 or fewer New Zealand residents who can control the exercise of the shareholder decision- making rights for the company and, as a result, control the company's affairs.
Exception
(1B) Even if 1 of the tests in subsection (1) is met, a foreign company is not a CFC if—
- (a) the foreign company is a foreign investment vehicle; and
- (b) one of the New Zealand residents is—
  - (i) a portfolio investment entity:
  - (ii) an entity eligible to be a portfolio investment entity:
  - (iii) a life insurance company.
Status applies for whole accounting period

(2) If any of the tests in subsection (1) is met at any time in a foreign company's accounting period and the exception in subsection (1B) does not apply at that time, the company is treated as a CFC for the whole of the accounting period.

Defined in this Act: accounting period, associated person, CFC, company, control, control interest, control interest category, foreign company, New Zealand resident, shareholder decision-making rights,

Compare: 1994 No 164 s CG 4(1)

Subsection (1)(a) and (b)(iii) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Section EX 1(1B): inserted, on 1 October 2007, by section 14(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section EX 1(2): substituted, on 1 October 2007, by section 14(2) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Calculation of person's control interest

EX 2 Four categories for calculating control interests

Separate categories

(1) Under section EX 5(1), a direct control interest in a foreign company can arise in each of 4 separate categories of rights.

List of categories
(2) The 4 categories are—
- (a) shareholding in the foreign company:
- (b) shareholder decision-making rights for the foreign company:
- (c) rights to receive income from the foreign company:
- (d) rights to receive distributions of the company's net assets.
Detailed calculation rules

(3) In each category, more detailed calculation rules appear in section EX 5.

Four categories of control interests

(4) Accordingly, the rules in section EX 3 for calculating control interests by totalling various direct and indirect control interests and associated parties' interests are applied on a category by category basis, by reference to those categories of direct control interest.

Defined in this Act: associated person, control interest, direct control interest, foreign company, income, shareholder decision-making rights,

Subsection (2)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EX 3 Control interest: total of direct, indirect, and associated person interests

A New Zealand resident's control interest in a foreign company at any time is the total of the following for the relevant control interest category:
- (a) any direct control interest that the New Zealand resident holds in the company:
- (b) any direct control interests in the company held by persons associated with the New Zealand resident:
- (c) any indirect control interests that the New Zealand resident holds in the company:
- (d) any indirect control interests in the company held by persons associated with the New Zealand resident.
Defined in this Act: associated person, control interest, control interest category, direct control interest, foreign company, New Zealand resident,

Compare: 1994 No 164 s CG 4(2)

Paragraphs (a) to (c) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EX 4 Limits to requirement to include associated person interests

Non-resident relatives

(1) For the purposes of section EX 3, a New Zealand resident is associated with a non-resident relative only if the New Zealand resident holds a direct control interest or indirect control interest in the foreign company.

No double counting

(2) Despite section EX 3(b) and (d), for the purposes of determining whether a foreign company is a CFC, a direct control interest or indirect control interest may be counted only once.

Defined in this Act: associated person, CFC, control interest, direct control interest, foreign company, New Zealand resident, non-resident, relative,

Compare: 1994 No 164 s CG 4(3), (7)

EX 5 Direct control interests

Categories of direct control interests
(1) A person has a direct control interest in a foreign company at any time if they hold—
- (a) any of the shares in the foreign company:
- (b) any of the shareholder decision-making rights for the company:
- (c) a right to receive, or to control the application of, any of the income of the company for the accounting period in which the time falls:
- (d) a right to receive, or to control the application of, any of the value of the net assets of the company, if they are distributed.
Percentage of total is counted

(2) The direct control interest in each control interest category is the percentage of the total that the person holds.

Measurement of available subscribed capital

(3) When the direct control interest in the category in subsection (1)(a) is calculated, the percentage is the total of the available subscribed capital per share calculated under the slice rule of the shares held as a percentage of the total available subscribed capital per share calculated under the slice rule of all shares in the company.

Varying decision-making rights

(4) When the direct control interest in the category in subsection (1)(b) is calculated, if the percentage varies between the rights described in the different paragraphs of the definition of shareholder decision-making rights in section OB 1 (Definitions), the highest percentage is taken.

Income distribution rights: assumptions
(5) When the direct control interest in the category in subsection (1)(c) is calculated, it is assumed that—
- (a) the income is distributed on the last day of the accounting period; and
- (b) the person's entitlement is unchanged during the period; and
- (c) a payment of interest on a debenture subject to section FC 1 (Floating rate of interest on debentures) or FC 2 (Interest on debentures issued in substitution for shares) is a distribution of income.
Defined in this Act: accounting period, available subscribed capital, control interest category, direct control interest, foreign company, income, interest, payment, share, shareholder decision-making rights, slice rule,

Compare: 1994 No 164 ss CG 3(c), CG 4(4), CG 5(2)

Subsection (1)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (4) was amended, as from 1 October 2005, by section 195 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by inserting “of shareholder decision-making rights” after the word “definition”.

EX 6 Direct control interests include options and similar rights

Entitlement to acquire or extinguish

(1) For the purposes of section EX 5, a person is treated as holding something if they are entitled to acquire it or extinguish it.

Entitlement arises in various ways
(2) A person is entitled to acquire or extinguish something if the entitlement is absolute or contingent and whether the entitlement—
- (a) arises under a company's constitution; or
- (b) arises under the terms of an option; or
- (c) arises under the terms of a convertible note; or
- (d) arises under the terms of any arrangement substantially similar to any of those described in paragraphs (a) to (c); or
- (e) arises in some other way.
Standard security arrangements
(3) Despite subsections (1) and (2), a person is not treated as being entitled to acquire something if—
- (a) the entitlement arises under a security arrangement; and
- (b) the person acquired the security arrangement in a transaction entered into on an arm's length basis; and
- (c) the security arrangement's terms conform to generally accepted commercial practice.
No double counting

(4) Despite subsections (1) and (2), for the purpose of determining whether a foreign company is a CFC, each of the percentage holdings described in section EX 5 may be counted only once.

Defined in this Act: arrangement, CFC, company, convertible note, direct control interest, foreign company, security arrangement,

Compare: 1994 No 164 ss CG 3(b), CG 4(8)

EX 7 Indirect control interests

How indirect control interests arise

(1) A person has an indirect control interest in a foreign company to the extent to which the rules in this section attribute to them some or all of the direct control interests held by a CFC in the foreign company.

Attribution of CFC's direct interests

(2) A CFC's direct control interest in another foreign company is attributed under subsections (3) to (11).

Associates

(3) For the purposes of this section, the CFC is treated as also holding any direct control interests in the foreign company held by persons associated with the CFC.

Attribution to smallest controlling group

(4) Subsections (6) to (11) apply to attribute the CFC's direct control interests to the smallest controlling group, to ensure that the attribution exercise does not dilute recognition of a factual chain of control.

Attribution on basis of respective income interests

(5) If the CFC's direct control interests are attributed to more than 1 person, the direct control interests are divided in proportion to each group member's respective income interest in the CFC.

One controlling group

(6) If there is only 1 group of New Zealand residents whose control interests have caused the CFC to be a CFC under section EX 1, the CFC's direct control interests are treated as being held by that group.

More than 1 group

(7) If there is more than 1 group whose control interests have caused the CFC to be a CFC under section EX 1, the CFC's direct control interests are attributed to the smallest group.

Equal smallest groups

(8) If there are 2 or more groups that are equally the smallest, and 1 group has the greatest total control interests in the CFC, the attribution is to that group.

Equal smallest groups with equal greatest control interests

(9) If there are 2 or more smallest groups with equal greatest total control interests in the CFC, the attribution is made in full to each group.

No double counting

(10) Despite subsection (9), for the purpose of determining whether a foreign company is a CFC, a direct control interest may be counted only once.

Sequential application

(11) If a foreign company becomes a CFC under this section, this section is then applied to attribute its direct control interests.

Defined in this Act: associated person, CFC, control, control interest, direct control interest, foreign company, income interest, New Zealand resident,

Compare: 1994 No 164 s CG 4(5), (6)

Calculation of person's income interest

EX 8 Income interests: total of direct and indirect interests

A person's income interest in a CFC at any time is the total of the following:
- (a) any direct income interest that the person holds in the CFC:
- (b) any indirect income interest that the person holds in the CFC.
Defined in this Act: CFC, direct income interest, income interest, indirect income interest,

Compare: 1994 No 164 s CG 5(1)

Paragraph (a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EX 9 Direct income interests

Categories of direct income interest
(1) A person has a direct income interest in a CFC at any time if they hold—
- (a) any of the shares in the foreign company:
- (b) any of the shareholder decision-making rights for the company:
- (c) a right to receive, or to control the application of, any of the income of the company for the accounting period in which the time falls:
- (d) a right to receive, or to control the application of, any of the value of the net assets of the company, if they are distributed.
Percentage of total is counted

(2) The person's direct income interest is the percentage of the total that the person holds.

Varying percentages

(3) However, if the percentage varies between the different categories, the person's direct income interest is the highest.

Measurement of available subscribed capital

(4) When the direct income interest in the category in subsection (1)(a) is calculated, the percentage is the total of the available subscribed capital per share calculated under the slice rule of the shares held as a percentage of the total available subscribed capital per share calculated under the slice rule of all shares in the company.

Varying decision-making rights

(5) When the direct income interest in the category in subsection (1)(b) is calculated, if the percentage varies between the rights described in the different paragraphs of the definition of shareholder decision-making rights in section OB 1 (Definitions), the highest percentage is taken.

Income distribution rights: assumptions
(6) When the direct income interest in the category in subsection (1)(c) is calculated, it is assumed that—
- (a) the income is distributed on the last day of the accounting period; and
- (b) the person's entitlement is unchanged during the period; and
- (c) a payment of interest on a debenture subject to section FC 1 (Floating rate of interest on debentures) or FC 2 (Interest on debentures issued in substitution for shares) is a distribution of income.
Defined in this Act: accounting period, available subscribed capital, CFC, debentures, direct income interest, foreign company, income, interest, payment, share, shareholder decision-making rights, slice rule,

Compare: 1994 No 164 ss CG 3(c), CG 5(2)

Subsection (1)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

EX 10 Indirect income interests

Looking through CFCs

(1) If a person has a direct income interest in a CFC, and the first CFC has a direct income interest in another CFC, the person has an indirect income interest in the other CFC.

Calculation of indirect income interest

(2) The indirect income interest is calculated by multiplying the person's direct income interest in the first CFC by the first CFC's direct income interest in the other CFC.

Chains of CFCs

(3) If there are 2 or more CFCs in a chain of direct income interests between the person and a CFC, the person has an indirect income interest in the CFC at the end of the chain that is calculated by multiplying all the direct income interests in the chain.

Defined in this Act: CFC, direct income interest, indirect income interest,

Compare: 1994 No 164 s CG 5(3)

EX 11 Options and similar rights in certain cases

Increase in income interest

(1) The rules in this section apply to increase a person's income interest in a CFC (first CFC) in some cases.

Entitlement to acquire

(2) This section applies if the person (or some other person, such as another CFC taken into account when calculating an indirect income interest of the person in the first CFC) has at any time an entitlement (option) to acquire 1 of the things listed in section EX 9(1) in relation to the first CFC but does not hold it.

Actual holder outside CFC rules attribution
(3) For this section to apply, the actual holder of the thing subject to the option must not be—
- (a) another CFC:
- (b) a New Zealand resident, unless they are a New Zealand resident whose income interest in the first CFC for the accounting period in question is less than 10%.
Terms of option indicating economic ownership
(4) For this section to apply, the option must have 1 of the following features:
- (a) if this section did not exist, the effect of the option would be to defeat the intent and application of subpart CQ (Attributed income from foreign equity) or DN (Attributed losses from foreign equity) or this subpart, taking into account the economic benefit that the person gets as a result of the CFC deriving income:
- (b) the consideration payable for the exercise of the option is less than the market value of the thing acquired at the time of the acquisition:
- (c) the holder of the option (or an associated person) has directly or indirectly funded or assisted the actual holder to acquire or hold the thing subject to the option.
Calculation as if option exercised

(5) If each requirement for this section to apply is met, the person's income interest is calculated as if the option holder had exercised the option.

Defined in this Act: accounting period, associated person, CFC, income, income interest, indirect income interest, New Zealand resident,

Compare: 1994 No 164 s CG 5(4)

Subsection (3)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (4)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

EX 12 Reduction of total income interests

Application of this section

(1) This section applies if the total income interests for a CFC for an accounting period would be more than 100% (because section EX 9(3) requires the highest percentage to be taken if varying percentage shareholder rights are held).

Proportional reduction

(2) Each person's income interest for the period is reduced to the amount calculated using the formula—

Defined in this Act: accounting period, amount, CFC, income interest, shareholder,

Compare: 1994 No 164 s CG 9

EX 13 Income interests of partners

When this section applies

(1) This section applies when a partnership holds rights that would be an income interest in a CFC if the partnership were an individual.

Partners' proportions

(2) When income interests in the CFC are calculated, each partner is treated as holding a share of anything held by the partnership, in proportion to the partner's interest in the partnership.

Defined in this Act: CFC, income interest,

Compare: 1994 No 164 s CG 5(7)

Ten percent threshold and variations in income interest level

EX 14 Attribution: 10% threshold

A person has attributed CFC income or attributed CFC loss from a CFC only if the person's income interest in the CFC is 10% or more for the relevant accounting period.

Defined in this Act: accounting period, attributed CFC income, attributed CFC loss, CFC, income interest,

Compare: 1994 No 164 s CG 6(1)(b)

EX 15 Associates and 10% threshold

Associates included

(1) Solely for the purpose of applying the 10% threshold in section EX 14 (and the equivalent test in sections EX 32(b) and EX 46(1)(a)), a person's income interest in a CFC is increased by each income interest in the CFC for the accounting period of a person associated with the person.

Exception

(2) Despite subsection (1), the income interest of an associate is not counted if the associate is a CFC.

Defined in this Act: accounting period, associated person, CFC, income interest,

Compare: 1994 No 164 s CG 6(2)

Subsection (1) was amended, as from 1 October 2005, by section 196 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “EX 46(1)(a)” for “EX 46(1)(b)” with application as from the 2005-06 income year.

Subsection (1) was amended, as from 1 April 2005, by section 59(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “sections EX 32(b) and EX 46(1)(a)” for “section EX 46(1)(a)” with application as from the 2005-06 income year.

EX 16 Income interests for certain purposes

When this section applies

(1) This section applies for the purposes of determining the attributed CFC income or loss of a person for a period if the person holds an income interest in the CFC on a day in the period.

Zero income interest
(2) For the purposes of calculating the attributed CFC income or loss of a person for a period, the person has an income interest in a CFC of zero on a day in the period if, on the day, the person is—
- (a) a non-resident:
- (b) a transitional resident.
Attribution not prevented
(3) This section does not override—
- (a) section CD 13 (Attributed repatriations from controlled foreign companies), which treats a dividend resulting from attributed repatriation as being derived while the person deriving it is a New Zealand resident; or
- (b) section CQ 2(3) (When attributed CFC income arises), which treats any attributed CFC income as being derived while the person deriving it is a New Zealand resident; or
- (c) section CQ 5(4) (When FIF income arises), which treats any FIF income as being derived while the person deriving it is a New Zealand resident.
Defined in this Act: accounting period, attributed CFC income, attributed repatriation, CFC, dividend, FIF income, income interest, New Zealand resident, non-resident, transitional resident,

Compare: 1994 No 164 ss CG 5(6), CG 7(6), CG 8(13), CG 16(5)

The heading to section EX 16 was substituted, as from 1 October 2005, by section 87(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 87(5) and (6) of that Act as to the application of this amendment.

Subsection (1) (excluding the heading) was substituted, as from 1 October 2005, by section 87(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 87(5) and (6) of that Act as to the application of this amendment.

Subsection (2) (excluding the heading) was substituted, as from 1 October 2005, by section 87(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 87(5) and (6) of that Act as to the application of this amendment.

The list of defined terms was amended, as from 1 October 2005, by section 87(4) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “transitional resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 87(5) and (6) of that Act as to the application of this amendment.

EX 17 Income interest if variations within period

When this section applies

(1) This section applies if a person's income interest in a CFC, calculated under sections EX 8 to EX 16, varies between days in a period.

Weighted average

(2) The person's income interest for the period is the total of the amounts for the period, each of which is calculated using the formula in subsection (3) for a day in the period.

Formula

(3) The formula is—

Definition of items in formula
(4) In the formula,—
- (a) income interest for day is—
  - (i) the income interest during the day, if the income interest does not vary during the day:
  - (ii) the income interest at the start of the day, if the income interest varies during the day:
- (b) days in period is the number of days in the period.
Defined in this Act: CFC, income interest,

Subsection (4)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Section EX 17 was substituted, as from 1 October 2005, by section 88(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

Calculation of attributed CFC income or loss

EX 18 Formula for calculating attributed CFC income or loss

If a person has attributed CFC income under section CQ 2 (When attributed CFC income arises) or an attributed CFC loss under section DN 2 (When attributed CFC loss arises), the amount of a person's attributed CFC income or loss from a CFC for an accounting period is calculated using the formula—

person's income interest for accounting period x branch equivalent income or loss of CFC for accounting period.

Defined in this Act: accounting period, amount, attributed CFC income, attributed CFC loss, branch equivalent income, CFC, income interest, loss,

Compare: 1994 No 164 s CG 7(2)

EX 19 Taxable distribution from non-qualifying trust

Application of this section
(1) This section applies if—
- (a) a CFC derives a taxable distribution from a non-qualifying trust in an accounting period; and
- (b) a person has attributed CFC income or loss from the CFC for the period (or would have if the taxable distribution were included in the CFC's branch equivalent income).
Additional attributed CFC income

(2) The taxable distribution is excluded (under section EX 21(32)) when calculating the CFC's branch equivalent income or loss, and instead the person has additional attributed CFC income.

Calculation of additional attributed CFC income

(3) The amount of the additional attributed CFC income is calculated using the formula—

person's income interest in CFC for accounting period x taxable distribution.

Non-qualifying trust tax rate

(4) The person is liable for income tax on the additional attributed CFC income at the rate in schedule 1 (Basic rates of income tax and specified superannuation contribution withholding tax) that applies to amounts under section HH 3(4) (Income of beneficiaries).

Disclosure restrictions on grey list CFCs

(5) No additional attributed CFC income arises under this section to the extent to which section EZ 29 (Disclosure restrictions on grey list CFCs before 2011–12) applies.

Defined in this Act: accounting period, amount, attributed CFC income, branch equivalent income, CFC, income interest, income tax, loss, non-qualifying trust, taxable distribution,

Compare: 1994 No 164 ss CG 6(1)(c), CG 7(4)

Subsection (5) was amended, as from 3 April 2006, by section 89(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “2011–12” for “2006–07” with application as from the income year corresponding to the 2006–07 tax year.

EX 20 Reduction in attributed CFC loss

Application of this section: no economic loss
(1) This section applies if—
- (a) a person has an amount of attributed CFC loss; and
- (b) the person suffers no, or substantially no, corresponding economic loss, whether because of a call option, a put option, or any other reason.
Application of this section: attributed CFC loss excessive
(2) This section also applies if—
- (a) a person has an amount of attributed CFC loss; and
- (b) the amount is more than any corresponding economic loss of the person, whether because of the application of the rules for calculating the person's income interest or for any other reason.
Reduction to economic loss

(3) The attributed CFC loss is reduced to be equal to the economic loss (if any).

Defined in this Act: amount, attributed CFC loss, income interest,

Compare: 1994 No 164 s CG 7(3)

Calculation of branch equivalent income or loss

EX 21 Branch equivalent income or loss: calculation rules

Rules set out in this section

(1) For the purpose of calculating the attributed CFC income or loss of a person (taxpayer), the branch equivalent income or loss of the CFC for an accounting period is calculated under the rules in this section.

CFC treated as New Zealand resident
(2) The rules in this Act are applied as if the CFC were always a New Zealand resident, and—
- (a) the CFC's branch equivalent income for the accounting period is equal to the CFC's net income for the period; and
- (b) the CFC's branch equivalent loss for the accounting period is equal to the CFC's net loss for the period.
Modifications to rules

(3) However, the rules in the Act are modified for the purposes of the calculation by the following subsections.

Conversion to New Zealand dollars
(4) The taxpayer must choose—
- (a) for all the calculations to be done in New Zealand dollars; or
- (b) for all the calculations to be done in the currency of the CFC's financial accounts. If the CFC has no financial accounts, the currency used is that of the CFC's country of residence. The result is then converted into New Zealand dollars at the average of the close of trading spot exchange rates for the fifteenth day of each complete month that falls in the period.
Consent for change of currency

(5) Having chosen a currency, the taxpayer must use the same currency for calculating branch equivalent income or loss for the CFC for each later consecutive accounting period, unless the Commissioner allows the taxpayer to choose again.

Change for commercial purpose
(6) The Commissioner may consent to a change under subsection (5) only if satisfied that—
- (a) the taxpayer's main purpose in changing is a commercial one. (The reducing of tax is not a commercial purpose.); and
- (b) the change does not have an effect of defeating the intent and application of subpart CQ (Attributed income from foreign equity) or DN (Attributed losses from foreign equity) or this subpart.
New Zealand currency for financial arrangements
(7) Despite subsections (4) to (6), New Zealand currency calculations must be used to calculate that part of the branch equivalent income or loss attributable to financial arrangements if—
- (a) the total value of financial arrangements to which the CFC is a party is more than $1,000,000 at any time during the relevant accounting period (applying section EW 17(2)(b) (Straight-line method) to measure the values); or
- (b) the CFC's total net foreign exchange loss attributable to financial arrangements, calculated under subsections (4) to (6) for the accounting period, is more than $100,000.
Limit to subsection (7)
(8) Subsection (7) does not apply to a financial arrangement if—
- (a) it is a variable principal debt instrument; and
- (b) all the rights and obligations of all the parties to the financial arrangement are expressed in the currency chosen under subsection (4)(b); and
- (c) no other party to the financial arrangement is associated with the CFC; and
- (d) no person enters into the financial arrangement under an arrangement that has a purpose of defeating the application of subsection (7).
Opening cost base: tangible assets: first period
(9) If the taxpayer had no attributed CFC income or loss from the CFC for the previous accounting period, the taxpayer must choose whether to measure the cost base at the start of an accounting period of premises, plant, machinery, equipment, and trading stock of the CFC at—
- (a) historical cost minus any accumulated amounts of depreciation loss, or another value used by the CFC as the starting value for the period for income tax calculations in the country in which the CFC is resident (but only if the value is below market value); or
- (b) the starting value that would be used under this Act if the CFC had always been a New Zealand resident.
Opening cost base: tangible assets: later periods

(10) If the taxpayer had attributed CFC income or loss from the CFC for the previous period, the cost base at the start of an accounting period of premises, plant, machinery, equipment, and trading stock of the CFC is the closing value at the end of the previous period used to calculate the income or loss.

Opening cost base: financial arrangements: first period
(11) If the taxpayer had no attributed CFC income or loss from the CFC for the previous accounting period, the taxpayer must choose to calculate the consideration under the financial arrangements rules for a financial arrangement at the start of an accounting period, at—
- (a) the market value of the financial arrangement; or
- (b) the absolute value calculated using the formula—
consideration paid to the CFC + expenditure – consideration paid by the CFC – income.
Definition of items in formula
(12) In the formula,—
- (a) consideration paid to the CFC is the consideration paid to the CFC for all periods before the accounting period:
- (b) expenditure is expenditure that would have been incurred under the financial arrangements rules for all periods before the accounting period if the CFC had been resident in New Zealand:
- (c) consideration paid by the CFC is the consideration paid by the CFC for all periods before the accounting period:
- (d) income is income that would have been derived under the financial arrangements rules for all periods before the accounting period if the CFC had been resident in New Zealand.
Provisions that do not apply
(13) The following provisions do not apply:
- (a) the consolidation rules:
- (b) section CB 24 (Income equalisation schemes) and subparts DQ (Income equalisation schemes) and EH (Income equalisation schemes):
- (c) sections CD 34 to CD 41 (which relate to the CFC attributed repatriation calculation rules) or subpart CQ (Attributed income from foreign equity) or DN (Attributed losses from foreign equity) or this subpart to the extent to which any of the sections or subparts would result in attributed CFC income, attributed CFC loss, or attributed repatriation for the CFC:
- (d) section CW 8 (Money lent to government of New Zealand):
- (e) section CW 33(1) (Local and regional promotion bodies):
- (f) sections DO 1 (Enhancements to land, except trees) and DO 2 (Erosion and shelter plantings):
- (g) sections EW 9 (Persons to whom financial arrangements rules apply) and EW 11(b) (What financial arrangements rules do not apply to):
- (h) subpart FG (Apportionment of interest costs):
- (i) section GC 3 (Effect on continuity provisions of change in beneficiaries of trust):
- (j) sections IE 1 (Net losses may be offset against future net income) and IF 1 (Net losses may be offset against future net income):
- (k) sections IG 2 (Net loss offset between group companies) and IG 3 (Special provisions in relation to group companies for 1991-92 tax year).
Business treated as if carried on in New Zealand
(14) The following provisions apply as if the CFC's business activities were carried on in New Zealand:
- (a) sections CT 1 to CT 3, CT 5 to CT 7, CX 36, CX 37, CZ 8, DT 1 to DT 15, DT 17 to DT 19, and IH 3, which relate to petroleum mining:
- (b) sections DO 4 to DO 4D, DO 6, DP 1 to DP 3, DP 7, and DP 10, which relate to farming, aquacultural, and forestry expenditure:
- (c) section EZ 15 (Amount of depreciation loss for plant or machinery additional to section EZ 14 amount):
- (d) the definitions in subpart OB (General definitions) that specifically apply for the purposes of those sections.
Transfer pricing rules

(15) Section GD 13 (Cross-border arrangements between associated persons) applies only to a transaction that has a purpose or effect of defeating any of the jurisdictional ring-fencing rules for CFC losses and tax credits in sections DN 4 (Ringfencing cap on deduction), IE 3 (Attributed CFC net losses), IG 4 (Group of companies attributed CFC net losses), LC 4 (Foreign tax credits: CFCs), and LC 5 (Group of companies CFC tax credits). Also, when section GD 13 is applied, the relevant definitions of associated persons are those in both sections OD 7 (Defining when 2 persons are associated persons) and OD 8(3) (Further definitions of associated persons).

Dividends generally

(16) Sections CW 9 to CW 11 (which relate to exempt income from equity) and CZ 13 (Treatment of units and interests in unit trusts and group investment funds on issue as at 1 April 1996) do not apply and dividends are income that is not exempt income, unless subsection (17) applies.

Dividends: exempt income
(17) Despite subsection (16), dividends are exempt income of the CFC if—
- (a) the dividends are derived by the CFC from another CFC and the taxpayer has a 10% or greater income interest (under sections EX 14 to EX 17) in the other CFC for an accounting period falling in the same relevant income year or the previous income year; or
- (b) the dividends are from shares that are an attributing interest in a FIF of the CFC.
Benefits from money advanced

(18) When section CC 7 (Consideration other than in money) is applied, the borrower is treated as if it carries on a business in New Zealand.

No tainting by association

(19) Sections CB 7 to CB 11 (which relate to the disposal of land) and CV 1 (Group companies) do not apply to treat an amount derived by the CFC as income merely because of the activities of a person associated with the CFC if the associate is a non-resident.

Crown acquisition of land

(20) The reference in section EI 7(1) (Disposal of land to Crown) to the Crown includes any relevant government outside New Zealand.

Amount of depreciation loss recovered

(21) When sections EE 41 to EE 44 (which relate to disposals and similar events) are applied, the CFC is treated as having had a deduction for an amount of depreciation loss, and to have an adjusted tax value accordingly, if an amount of depreciation loss has been deducted when calculating the CFC's branch equivalent income or loss for any period and the attributed CFC income or loss of any person.

GST and value-added taxes

(22) When sections CX 1 (GST), DB 2 (GST), EE 38 (Consideration for purposes of section EE 37), EE 45 (Cost: GST), EZ 7 (FIF interests held on 1 April 1993), and EZ 16 (Additional amount of depreciation loss: between 16 December 1991 and 1 April 1994) are applied, references to output tax, input tax, or GST payable include a reference to the equivalent item arising under the value-added tax or other tax rules of a country or territory outside New Zealand if the rules have a similar intent and application to the New Zealand GST rules.

Government grants to businesses

(23) When section DF 1 (Government grants to businesses) is applied, a reference to the New Zealand government includes a government outside New Zealand but, to the extent to which section DF 1 still does not apply to a grant or subsidy to the CFC from a government, the grant or subsidy is income of the CFC.

Subvention payments
(24) If an amount is paid as consideration for the transfer of tax losses,—
- (a) it is income if derived by the CFC; and
- (b) it is a deduction if payable by the CFC but only if paid to a person resident in the same country as the CFC and if deductible under the taxation law of that country.
Life insurers
(25) Subsection (26) applies if—
- (a) the CFC itself carries on the business of providing life insurance; or
- (b) shares in the CFC are held (directly or indirectly) by a foreign company (parent company, in subsection (26)) that carries on the business of providing life insurance and those shares have to be taken into account under sections EX 8 to EX 13 to calculate the taxpayer's income interest in the CFC.
Policyholders

(26) If the test in subsection (25) is met, the life insurance rules do not apply and the branch equivalent income or loss of the CFC is the amount actuarially determined to be the part of the CFC's net income or loss to which shareholders (and not policyholders in either the CFC or the parent company) are entitled.

When subsection (26) does not apply
(27) Despite subsection (25), subsection (26) does not apply if the Commissioner—
- (a) considers that the amount calculated is not a reasonable reflection of the part attributable to shareholders; or
- (b) has requested and not received sufficient information to enable the actuarial calculation to be reviewed.
Mineral mining activities

(28) Sections BC 7, CU 1 to CU 29, CX 38 to CX 40, CZ 2, CZ 4, DU 1 to DU 12, DZ 12, IH 4, and IH 5 (which relate to mineral mining) apply, with any necessary modifications, if the CFC carries on activities outside New Zealand that are substantially the same as the mineral mining activities to which those sections apply.

Petroleum mining activities

(29) Sections CT 1 to CT 3, CT 5, CX 36, CX 37, CZ 8, DT 1 to DT 15, DT 17 to DT 19, and IH 3 (which relate to petroleum mining) apply, with any necessary modifications, if the CFC carries on petroleum mining activities outside New Zealand that are substantially the same as the petroleum mining activities to which those sections apply.

Finance leases and specified leases

(30) A lease entered into by the CFC before the start of the first accounting period in which the CFC is a CFC is neither a finance lease (subject to the financial arrangements rules and sections FC 8A to FC 8I, which relate to finance leases) nor a specified lease (subject to sections FC 6 to FC 8, which relate to leases).

When subsection (30) does not apply

(31) Subsection (30) does not apply if another party to the lease is either a CFC or a New Zealand resident.

Taxable distributions from non-qualifying trust
(32) If the CFC gets a taxable distribution from a non-qualifying trust—
- (a) section HH 3(4) (Income of beneficiaries) does not apply; and
- (b) the taxable distribution is not taken into account in calculating the CFC's branch equivalent income or loss; and
- (c) section EX 19 applies.
CFCs with interest in FIFs
(33) If the CFC has rights in a FIF,—
- (a) the rights are not prevented from being an attributing interest of the CFC in a FIF merely because the notional New Zealand residence of the CFC under subsection (2) causes section EX 32 to apply; and
- (b) the CFC's FIF income or loss is not taken into account in calculating the branch equivalent income; and
- (c) section EX 46 applies.
Transitional treatment of cross-border reinsurance

(34) Section CZ 12 (General insurance with risk period straddling 1 July 1993) applies as if the reference to New Zealand were a reference to the CFC's country of residence.

Disclosure restrictions on grey list CFCs

(35) A CFC has no amount of branch equivalent income or loss under this section for an accounting period to the extent to which section EZ 29 (Disclosure restrictions on grey list CFCs before 2011–12) applies.

Defined in this Act: absolute value, accounting period, adjusted tax value, amount, arrangement, associated person, attributed CFC income, attributed CFC loss, attributed repatriation, attributing interest, branch equivalent income, branch equivalent loss, business, CFC, close of trading spot exchange rate, Commissioner, consideration, consolidation rules, deduction, depreciation loss, dividend, exempt income, FIF, FIF income, finance lease, financial arrangement, financial arrangements rules, foreign company, GST, GST payable, income, income interest, income tax, income year, input tax, lease, life insurance, life insurance rules, loss, mineral, net income, net loss, New Zealand, New Zealand resident, non-qualifying trust, non-resident, output tax, petroleum, resident in New Zealand, share, shareholder, specified lease, tax, taxable distribution, trading stock, variable principal debt instrument,

Compare: 1994 No 164 ss CG 6(1)(c), CG 11

Subsection (13)(a) to (j) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (14)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (14)(b) was amended, as from 1 October 2005, by section 197 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by inserting “to DO 4D,” after the expression “DO 4” with application as from the 2005–06 income year.

Subsection (14)(b) and (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (35) was amended, as from 3 April 2006, by section 90(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “2011–12” for “2006–07” with application as from the income year corresponding to the 2006–07 tax year.

Grey list exemption

EX 22 Unqualified grey list CFCs

Criteria
(1) A CFC is an unqualified grey list CFC for an accounting period if—
- (a) at all times in the accounting period it is resident in a country listed in schedule 3, part A (International tax rules: grey list countries); and
- (b) in that country the CFC's liability for income tax has not been reduced by applying any of the concessions listed in schedule 3, part B (International tax rules: grey list countries).
No attributed income or loss

(2) Sections CQ 2(1)(g) (When attributed CFC income arises) and DN 2(g) (When attributed CFC loss arises) provide that no attributed CFC income or attributed CFC loss arises from an unqualified grey list CFC.

CFCs with interest in FIFs: look-through approach

(3) This section does not prevent FIF income or loss arising under section EX 46, if an unqualified grey list CFC has an interest in a FIF.

Defined in this Act: accounting period, attributed CFC income, attributed CFC loss, CFC, FIF, FIF income, grey list, income tax, loss,

Compare: 1994 No 164 s CG 13(1)

Subsection (2) was amended, as from 1 April 2005, by section 60(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “CQ 2(1)(g)” for “CQ 2(g)” with application as from the 2005-06 income year.

EX 23 Tax concession grey list CFCs

Criteria
(1) A CFC is a tax concession grey list CFC for an accounting period if—
- (a) at all times in the accounting period it is resident in a country listed in schedule 3, part A (International tax rules: grey list countries); and
- (b) in that country the CFC's liability for income tax has been reduced by applying any of the concessions listed in schedule 3, part B (International tax rules: grey list countries).
Attribution using country's tax rules
(2) In the case of a tax concession grey list CFC,—
- (a) section EX 21 does not apply for the accounting period; and
- (b) when section EX 18 is applied, the amount of branch equivalent income or loss for the period is equal to the net income or net loss calculated under the income tax law of the CFC's country of residence but—
  - (i) excluding any allowance for carrying forward prior period losses; and
  - (ii) adjusted to exclude the benefit of concessions listed in schedule 3, part B (International tax rules: grey list countries); and
  - (iii) converted to New Zealand dollars under section EX 21(4)(b).
Defined in this Act: accounting period, amount, branch equivalent income, CFC, grey list, income tax, loss, net income, net loss, New Zealand,

Compare: 1994 No 164 s CG 13(2)

Residence of companies

EX 24 Residence in grey list country

Necessary liability to income tax
(1) For the purposes of this subpart and subparts CQ (Attributed income from foreign equity), DN (Attributed losses from foreign equity), and LF (Underlying foreign tax credits), a CFC is resident in a country listed in schedule 3, part A (International tax rules: grey list countries) if—
- (a) the CFC is liable in the country to income tax on the CFC's income because the CFC—
  - (i) is domiciled in the country:
  - (ii) is resident in the country:
  - (iii) is incorporated in the country:
  - (iv) has its place of management in the country:
- (b) the CFC is organised under the laws of the country and the country—
  - (i) imposes on persons holding income interests in the CFC the liability for income tax on the CFC's income; and
  - (ii) under the laws of the country, is the source of 80% or more of the income of the CFC.
Relationship with section OE 2

(2) This section overrides section OE 2 (Determination of residence of company).

Defined in this Act: CFC, grey list, income tax,

Compare: 1994 No 164 s CG 13(1)(a)

Subsection (1)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (1) (excluding the heading) was substituted, as from 1 April 2006, by section 91(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2006–07 tax year.

EX 25 Companies moving to or from New Zealand

Companies becoming foreign

(1) If a company becomes a foreign company, an accounting period of the company starts on the day when the company becomes a foreign company and the former accounting period ends on the previous day.

Companies ceasing to be foreign

(2) If a foreign company ceases to be a foreign company, an accounting period of the company starts on the day when the company ceases to be a foreign company and the former accounting period ends on the previous day.

Pro-rating
(3) If subsection (1) or (2) applies to shorten an accounting period of a CFC, a person with attributed CFC income or loss from the CFC for the period may choose to calculate the branch equivalent income or loss of the CFC—
- (a) using the results for the shortened period only; or
- (b) by applying the pro-rating formula in subsection (4) to the results for the unshortened period.
Formula

(4) The formula for calculating branch equivalent income or loss under subsection (3)(b) is—

Defined in this Act: accounting period, attributed CFC income, branch equivalent income, CFC, company, foreign company, loss, New Zealand,

Compare: 1994 No 164 s CG 12

Change of CFC's balance date

EX 26 Change of CFC's balance date

Application of this section
(1) This section applies if a person—
- (a) has an income interest in a CFC; and
- (b) has calculated attributed CFC income or loss or attributed repatriation from the CFC on the basis of 1 accounting year (old accounting year); and
- (c) wants to change to use a different accounting year (new accounting year) for the calculations.
Change requiring Commissioner's consent

(2) The person may make the change only if the Commissioner agrees.

Commissioner's reasons
(3) The Commissioner may consider any relevant factors when making the decision, including—
- (a) whether the change is sought because ownership of the CFC has changed:
- (b) whether the change is sought because of taxation or other legal requirements in a country where the CFC is resident or does business:
- (c) whether the change is sought to achieve consistent balance dates in a group of companies:
- (d) whether the change would postpone liability to income tax on attributed CFC income or on attributed repatriation or to dividend withholding payment on attributed repatriation.
No transitional deferral

(4) If the new accounting year ends in a later income year than the year the old accounting year ends in, and that fact would result in an amount of attributed CFC income or attributed repatriation being derived in the later income year, the amount is not deferred to the later income year and instead is treated as derived in the previous income year. However, this subsection applies only once, in the year of the transition.

Defined in this Act: accounting year, amount, attributed CFC income, attributed repatriation, business, CFC, Commissioner, dividend withholding payment, group of companies, income interest, income tax, income year, loss,

Compare: 1994 No 164 s CG 10

Subsection (3)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Ownership measurement concession

EX 27 Use of quarterly measurement

Interests held at end of quarter

(1) In order to simplify the process of calculating a person's control interest or income interest in a foreign company, the person is treated as holding at all times during a quarter the same interest (including a zero interest) as the interest they hold at the end of the quarter.

Anti-avoidance

(2) The concession in subsection (1) is overridden by the antiavoidance rules in sections GC 9 (Variations in control or income interests in foreign companies) and GC 10 (Attributed CFC income and FIF income: arrangements in respect of elections).

Ignoring concession

(3) A person may choose not to apply the concession in subsection (1) when calculating their attributed CFC income or loss from a foreign company.

Election
(4) An election under subsection (3)—
- (a) must be in the form required by the Commissioner; and
- (b) is irrevocable; and
- (c) applies in the income year in which it is made and later.
Defined in this Act: attributed CFC income, Commissioner, control interest, foreign company, income interest, income year, loss, quarter,

Compare: 1994 No 164 s CG 3(e)

Anti-avoidance rule: stapled stock

EX 28 Anti-avoidance rule: stapled stock

When this section applies
(1) This section applies when—
- (a) a New Zealand resident holds rights (stapled rights) that give rise to an income interest or control interest in a foreign company; and
- (b) the rights may, or may ordinarily, be disposed of only together with rights in another company; and
- (c) the other company is a New Zealand resident or a CFC.
Stapled rights held by company

(2) When each of subparts CQ (Attributed income from foreign equity) and DN (Attributed losses from foreign equity) and this subpart is applied, the stapled rights are held by the other company and not by the person.

Defined in this Act: CFC, company, control interest, foreign company, income interest, New Zealand resident,

Compare: 1994 No 164 s CG 3(d)

Foreign investment fund rules

What is a foreign investment fund?

EX 29 Meaning of FIF

A foreign investment fund, or FIF, is any of the following:
- (a) a foreign company:
- (b) a foreign superannuation scheme:
- (c) an insurer under a life insurance policy, but not if the policy is offered or entered into in New Zealand (in which case the insurer must comply with the life insurance rules in relation to the policy):
- (d) an entity described in schedule 4, part A (Foreign investment funds).
Defined in this Act: FIF, foreign company, foreign investment fund, foreign superannuation scheme, life insurance policy, life insurance rules, offered or entered into in New Zealand,

Paragraphs (a) to (c) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Attributing interests in FIFs

EX 30 Attributing interests in FIFs

Three categories
(1) A person has an attributing interest in a FIF if—
- (a) the person holds rights in 1 of the categories of rights described in subsections (2) to (4); and
- (b) none of the exemptions in sections EX 32 to EX 37 applies to those rights.
Category 1: direct income interest in foreign company

(2) The first category is a direct income interest in a foreign company, as defined in section EX 31, or in an entity described in schedule 4, part A (Foreign investment funds).

Category 2: foreign superannuation scheme entitlement

(3) The second category is rights to benefit from a foreign superannuation scheme, as a beneficiary or a member.

Category 3: foreign life policy entitlement

(4) The third category is rights to benefit from a life insurance policy in relation to which a FIF is the insurer.

Contingent rights

(5) The second and third categories include rights that are contingent or discretionary.

Defined in this Act: attributing interest, direct income interest, FIF, foreign company, foreign superannuation scheme, life insurance policy,

Compare: 1994 No 164 ss CG 15(1), OB 1 entitlement of the person to benefit

EX 31 Direct income interests in FIFs

Categories of direct income interest
(1) A person has a direct income interest in a foreign company at any time if they hold—
- (a) any of the shares in the foreign company:
- (b) any of the shareholder decision-making rights for the company:
- (c) a right to receive (or to apply) any of the income of the company for the accounting period in which the time falls:
- (d) a right to receive (or to apply) any of the value of the net assets of the company, if they are distributed.
Percentage of total

(2) The person's direct income interest is the percentage of the total that the person holds.

Varying percentages

(3) However, if the percentage varies between the different categories, the person's direct income interest is the highest.

Measurement of available subscribed capital

(4) When the direct income interest in the category in subsection

(1) (a) is calculated, the percentage is the total of the available subscribed capital per share calculated under the slice rule of the shares held as a percentage of the total available subscribed capital per share calculated under the slice rule of all shares in the company.

Varying decision-making rights

(5) When the direct income interest in the category in subsection (1)(b) is calculated, if the percentage varies between the rights described in the different paragraphs of the definition of shareholder decision-making rights in section OB 1 (Definitions), the highest percentage is taken.

Income distribution rights: assumptions
(6) When the direct income interest in the category in subsection (1)(c) is calculated, it is assumed that—
- (a) the income is distributed on the last day of the accounting period; and
- (b) the person's entitlement is unchanged during the period; and
- (c) a payment of interest on a debenture subject to section FC 1 (Floating rate of interest on debentures) or FC 2 (Interest on debentures issued in substitution for shares) is a distribution of income.
Meaning of company

(7) In this section, and in defined terms referred to in this section, company includes an entity listed in schedule 4, part A (Foreign investment funds).

Defined in this Act: accounting period, available subscribed capital, company, debentures, direct income interest, FIF, foreign company, income, interest, payment, share, shareholder decision-making rights, slice rule,

Compare: 1994 No 164 ss CG 3(c), CG 5(2), CG 15(1)(a)

Subsection (1)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

EX 32 CFC rules exemption

A person's rights in a FIF at any time are not an attributing interest if—
- (a) the FIF is a CFC at the time; and
- (b) the person has an income interest of 10% or more in the CFC for the accounting period during which the time falls.
Defined in this Act: accounting period, attributing interest, CFC, FIF, income interest,

Compare: 1994 No 164 s CG 15(2)(a)

EX 33 Exemptions: direct income interests in FIF in grey list country

Direct income interest of 10% or more
(1) A person's rights in a FIF in an income year are not an attributing interest if, at all times in the year,—
- (a) the rights are a direct income interest of 10% or more; and
- (b) the person is not a portfolio investment entity, a superannuation scheme, a unit trust, a life insurer, or a group investment fund; and
- (c) the FIF is not an entity described in schedule 4, part B (Foreign investment funds); and
- (d) the FIF meets the requirements of subsection (2).
Further requirements under subsection (1)
(2) A FIF meets the requirements of this subsection if—
- (a) the FIF is a grey list company and a country listed in the grey list imposes on the FIF liability for income tax on the FIF's income because the FIF—
  - (i) is domiciled in the country:
  - (ii) is resident in the country:
  - (iii) is incorporated in the country:
  - (iv) has its place of management in the country:
- (b) there is a country listed in the grey list that—
  - (i) is the country under whose laws the FIF is organised; and
  - (ii) imposes on persons holding income interests in the FIF liability for income tax on the FIF's income; and
  - (iii) under the laws of the country, is the source of 80% or more of the income of the FIF.
Shares acquired when FIF resident and unlisted company
(3) A person's rights in a 1-111 in an income year are not an attributing interest if—
- (a) the rights are shares; and
- (b) the FIF is a grey list company that is not an entity described in schedule 4 part B,; and
- (c) the person acquired the shares when—
  - (i) the company was resident in New Zealand; and
  - (ii) the shares were not listed on a recognised exchange; and
- (d) the company became a grey list company immediately after having, for 12 months or more,—
  - (i) been resident in New Zealand; and
  - (ii) had in New Zealand more than 50% of its assets and employees; and
- (e) the year begins less than 10 years after the company became a grey list company; and
- (f) at all times in the year, the company has a fixed establishment in New Zealand; and
- (g) the company through the fixed establishment—
  - (i) incurs in the year expenditure, other than interest, of $1,000,000:
  - (ii) at all times in the year, engages 10 or more fulltime employees or contractors.
Shares acquired when FIF unlisted, FIF owns resident company
(4) A person's rights in a FIF in an income year are not an attributing interest if—
- (a) the rights are shares; and
- (b) the FIF is a grey list company that is not an entity described in schedule 4, part B; and
- (c) the person acquired the shares when the shares were not listed on a recognised exchange; and
- (d) at all times in the year, the grey list company directly or indirectly owns a company (the resident company) that, for 12 months or more, has—
  - (i) been resident in New Zealand; and
  - (ii) had in New Zealand more than 50% of the resident company's assets and employees; and
- (e) the year begins less than 10 years after the grey list company first owned the resident company; and
- (f) the resident company through a fixed establishment in New Zealand—
  - (i) incurs in the year expenditure, other than interest, of $1,000,000:
  - (ii) at all times in the year, engages 10 or more fulltime employees or contractors.
Shares acquired under share purchase agreement
(5) A person's rights in a FIF in an income year are not an attributing interest if—
- (a) the person is a natural person; and
- (b) the rights are shares; and
- (c) the FIF is a grey list company that is not an entity described in schedule 4, part B; and
- (d) at the time the person acquires the shares, the FIF—
  - (i) employs the person:
  - (ii) owns, directly or indirectly, the person's employer; and
- (e) the person acquires the shares under a share purchase agreement; and
- (f) the share purchase agreement includes a restriction on the disposal of the shares that affects the value under section CE 3 (Restrictions on disposal of shares under share purchase agreements) of the benefit to the person under the agreement; and
- (g) at the beginning of the year, the period of the restriction has not expired or has expired for a period of less than 6 months.
Exception: Categories 2 and 3

(6) Subsections (1) to (5) do not apply if the rights of the person are those described in section EX 30(3) or (4).

Defined in this Act: attributing interest, company, direct income interest, employee, employer, FIF, fixed establishment, grey list company, group investment fund, income tax, income year, interest, life insurer, New Zealand resident, portfolio investment entity, recognised exchange, resident, share, share purchase agreement, superannuation scheme, unit trust, year,

Subsection (1) (excluding the heading) was substituted, as from 1 April 2006, by section 92(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2006–07 tax year.

Subsections (1B) and (1C) were inserted, as from 1 April 2006, by section 92(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2006–07 tax year.

Section EX 33 was substituted, as from 1 April 2007, by section 61(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 61(2) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

EX 33B Exemptions limited by income years: shares in certain grey list companies

Exemption for shares in company meeting requirements for listing, shareholding and taxation
(1) A person's rights in a FIF are not an attributing interest in an income year beginning before 1 April 2012 if the rights are shares in a grey list company that,—
- (a) on 17 May 2006,—
  - (i) is not an entity described in schedule 4, part B (Foreign investment funds); and
  - (ii) is listed on a recognised exchange in New Zealand; and
  - (iii) has more than 20 000 shareholders who have addresses in New Zealand on the company's share register in New Zealand; and
  - (iv) has shareholders referred to in subparagraph (iii) who between them hold shares in the company carrying voting interests of more than 50%; and
  - (v) is listed on a recognised exchange in a country listed in the grey list; and
  - (vi) is liable to income tax in a country listed in the grey list; and
  - (vii) has assets of which more than 50% in total value are shares in other companies carrying voting interests of more than 50%; and
- (b) in the period of 30 days beginning from the day on which the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 receives the Royal assent, gives to the Commissioner notice that on 17 May 2006 the grey list company met the requirements in paragraph (a)(i) to (vii).
Exemption for shares in company meeting requirements for investment
(2) A person's rights in a FIF are not an attributing interest in an income year beginning before 1 April 2009 if the rights are shares in a grey list company that,—
- (a) on 17 May 2006,—
  - (i) is not an entity described in schedule 4, part B; and
  - (ii) is listed on a recognised exchange in New Zealand; and
  - (iii) has shareholders of which more than 40% have addresses in New Zealand on the company's share register in New Zealand; and
  - (iv) is listed on a recognised exchange in a country listed in the grey list; and
  - (v) is liable to income tax in a country listed in the grey list; and
  - (vi) has assets of which 50% or more in total value are shares in other companies each of which is resident in New Zealand; and
  - (vii) has assets of which 90% or more in total value are shares in other companies each of which is resident in Australia or New Zealand and is listed on a recognised exchange in Australia or New Zealand; and
- (b) in the period of 30 days beginning from the day on which the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 receives the Royal assent, gives to the Commissioner notice that on 17 May 2006 the grey list company met the requirements in paragraph (a)(i) to (vii); and
- (c) at all times in the year,—
  - (i) has assets of which 50% or more in total value are shares in other companies each of which is resident in New Zealand; and
  - (ii) has assets of which 90% or more in total value are shares in other companies each of which is resident in Australia or New Zealand and is listed on a recognised exchange in Australia or New Zealand.
Exception: Election in tax return that exemption not apply

(3) An exemption under subsection (1) or (2) does not apply for a person for an income year (the initial year), and for income years after the initial year, if the person completes a return of income for the initial year on the basis that the exemption does not apply for the person and the initial year.

Defined in this Act: attributing interest, company, FIF, grey list, grey list company, income, income tax, income year, New Zealand resident, recognised exchange, resident, resident in Australia, share, shareholder, voting interest, year,

Sections EX 33B to EX 33D were inserted, as from 1 April 2007, by section 61(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 61(2) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

EX 33C Exemption: shares in listed Australian company

A person's rights in a FIF in an income year are not an attributing interest if the rights are from shares and the FIF is a company that, at all times in the year, is—
- (a) resident in Australia and not treated under a double tax agreement between Australia and another country as being resident in a country other than Australia or New Zealand; and
- (b) 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
- (c) not an entity described in schedule 4, part B (Foreign investment funds); and
- (d) required under the Income Tax Assessment Act 1997 (Aust) and Income Tax Assessment Act 1936 (Aust) to maintain a franking account.
Defined in this Act: attributing interest, company, direct income interest, double tax agreement, FIF, income, income tax, income year, resident in Australia, share, year,

Sections EX 33B to EX 33D were inserted, as from 1 April 2007, by section 61(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 61(2) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

EX 33D Exemption: units in certain Australian unit trusts

Exemption
(1) A person's rights in a FIF in an income year are not an attributing interest if—
- (a) the FIF is a unit trust; and
- (b) the FIF is not an entity described in schedule 4, part B (Foreign investment funds); and
- (c) at all times in the year, the unit trust is resident in Australia; and
- (d) at all times in the year, there is an RWT proxy under section NF 2AA (Election to be RWT proxy) for the unit trust and payments by the unit trust to the person; and
- (e) for the assets of the unit trust that each have a market value greater than or equal to the cost of the asset for the unit trust, the market value of the assets (the held assets) held at the end of the year by the unit trust and the proceeds derived from disposals of assets during the year by the unit trust (the asset disposals) have a relationship meeting the requirements of subsection (2).
Requirements for unit trust's assets and disposals

(2) The total market value of the held assets must exceed the total cost of the held assets by an amount that is less than or equal to 3 times the amount calculated using the formula—

disposal proceeds − asset costs.

Definition of items in formula
(3) In the formula,—
- (a) disposal proceeds is the total proceeds of the asset disposals:
- (b) asset costs is the total cost of the assets involved in the asset disposals.
Currency of amounts in subsections (2) and (3)

(4) In subsections (2) and (3), all amounts are expressed in the currency used in the unit trust's financial accounts.

Defined in this Act: attributing interest, company, FIF, income, income year, New Zealand resident, resident in Australia, RWT proxy, share, unit trust, year,

Sections EX 33B to EX 33D were inserted, as from 1 April 2007, by section 61(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 61(2) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

EX 33E Australian superannuation fund exemption

A person's rights in a FIF are not an attributing interest if—
- (a) the person is a natural person; and
- (b) the FIF is a foreign superannuation scheme that is—
  - (i) an Australian approved deposit fund:
  - (ii) an Australian exempt public sector superannuation scheme:
  - (iii) an Australian regulated superannuation fund:
  - (iv) an Australian retirement savings account.
Defined in this Act: attributing interest, Australian approved deposit fund, Australian exempt public sector superannuation scheme, Australian regulated superannuation fund, Australian retirement savings account, 1114, foreign superannuation scheme,

Section EX 33E was inserted, as from 1 April 2005, by section 62(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005-06 income year.

EX 34 Foreign exchange control exemption

A person's rights in a FIF are not an attributing interest if and to the extent to which—
- (a) the person is a natural person; and
- (b) the person acquired the rights—
  - (i) before first becoming a New Zealand resident; or
  - (ii) before exchange controls applying to the person and the interest were imposed by a foreign country; or
  - (iii) before 8.00 pm (New Zealand Standard Time) on 2 July 1992; and
- (c) the exchange controls prevent the person from deriving amounts from the rights, or from disposing of the rights, in New Zealand dollars (or consideration that is readily convertible into New Zealand dollars).
Defined in this Act: amount, attributing interest, FIF, New Zealand, New Zealand resident,

Compare: 1994 No 164 s CG 15(2)(e)

The list of provisions for comparison was amended, as from 1 April 2005, by section 93(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “CG 15(2)(e)” for “CG 15(2)(c), (e)” with application as from the income year corresponding to the 2005–06 tax year.

EX 35 Income interest of non-resident or transitional resident

Categories 2 and 3

(1) Subsection (2) applies only to rights described in section EX 30(3) or (4).

Exemption for non-resident or transitional resident
(2) A person's rights in a FIF at any time are not an attributing interest if—
- (a) the person is a natural person; and
- (b) the person acquires the rights when a non-resident or transitional resident; and
- (c) at the time, the person is a non-resident or transitional resident.
Defined in this Act: attributing interest, FIF, income year, New Zealand resident, non-resident, transitional resident,

Compare: 1994 No 164 s CG 15(2)(f)

The heading to section EX 35 was substituted, as from 1 October 2005, by section 94(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 94(4) and (5) of that Act as to the application of this amendment.

Subsection (2) was substituted, as from 1 October 2005, by section 94(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 94(4) and (5) of that Act as to the application of this amendment.

The list of defined terms was amended, as from 1 October 2005, by section 94(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “non-resident” and “transitional resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 94(4) and (5) of that Act as to the application of this amendment.

EX 36 New resident's accrued superannuation entitlement exemption

Exemption
(1) The rights of a natural person to benefit, as a beneficiary or a member, from a foreign superannuation scheme at any time are not an attributing interest in a FIF—
- (a) to the extent to which the requirements in subsections (2) to (4) are met at the time; and
- (b) if the requirements in subsections (5) to (9) are met at the time.
Rights accruing before or after becoming resident
(2) The rights must have accrued during a period—
- (a) for which the person is not a New Zealand resident:
- (b) for which the person is a New Zealand resident and that—
  - (i) begins when the person becomes a New Zealand resident; and
  - (ii) ends before the first day of the fifth income year following the income year in which the person becomes a New Zealand resident.
Calculation of rights accruing

(3) The extent to which the rights have accrued during a period referred to in subsection (2) is calculated using the formula—

closing value – opening value.

Definition of items in formula
(4) In the formula,—
- (a) closing value is the market value of the rights on the day that ends the period:
- (b) opening value is the market value of the rights on the day that begins the period.
Employee scheme or self-employed
(5) Either—
- (a) the scheme must be one where the person's rights can be acquired only through the person's employment; or
- (b) the person must be wholly or mainly self-employed, either when the person first acquired the rights or at the relevant time for applying this section.
Contributions or benefits: link to income
(6) The amount contributed to the scheme by or for the person must be calculated—
- (a) by some fixed relationship to the person's income from employment or self-employment; or
- (b) to provide benefits that bear a fixed relationship to the person's income from employment or self-employment, except to the extent to which the benefits are adjusted by reference to an objective measure of inflation.
Contributions by person, employer, or other scheme
(7) Contributions to the scheme for the person's benefit must be made only by or for—
- (a) the person; or
- (b) the person's employer (or a person associated with the employer); or
- (c) the representatives of another superannuation scheme—
  - (i) as a transfer of the person's benefit rights in the other scheme; and
  - (ii) if those benefit rights would have qualified for the exemption in this section.
Restricted rights to assign or cash in
(8) The person's future benefits under the scheme must not be able to be assigned, or exchanged for a current receipt of cash (or other property), except—
- (a) if the person becomes physically incapacitated; or
- (b) if the person is transferring the benefit rights into another, similar, scheme; or
- (c) when or after the person retires at normal retiring age; or
- (d) if the person is assigning the benefit rights to a spouse under a matrimonial agreement; or
- (e) at the cost of a substantial decrease in the present value of the benefits.
Matrimonial property assignment

(9) When the person has obtained the rights by their being assigned under a matrimonial agreement, the exemption in this section applies if the assignor spouse would have been entitled to it.

Defined in this Act: amount, associated person, attributing interest, employer, FIF, foreign superannuation scheme, income, income from employment, market value, matrimonial agreement, New Zealand resident, superannuation scheme,

Compare: 1994 No 164 ss CG 14(3), CG 15(2)(c), OB 1 interest in an employment- related foreign superannuation scheme

The heading to section EX 36 was amended, as from 1 October 2005, by section 95(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “New resident's” for “Immigrant's” with application for: a person who becomes a New Zealand resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 95(5) and (6) of that Act as to the application of this amendment.

Subsection (1) was amended, as from 1 April 2005, by section 63(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “in a FIF—” for “in a FIF to the extent to which the requirements in subsections (2) to (9) are met at the time.” with application as from the 2005-06 income year.

Subsection (1)(a) and (b) was inserted, as from 1 April 2005, by section 63(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005-06 income year.

Subsection (2) was substituted, as from 1 October 2005, by section 95(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a New Zealand resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 95(5) and (6) of that Act as to the application of this amendment.

Subsection (3) (excluding the heading) was substituted, as from 1 October 2005, by section 95(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a New Zealand resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 95(5) and (6) of that Act as to the application of this amendment.

Subsection (4)(a) and (b) were substituted, as from 1 October 2005, by section 95(4) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a New Zealand resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 95(5) and (6) of that Act as to the application of this amendment.

EX 37 Non-resident's pension or annuity exemption

Exemption

(1) The rights of a natural person to benefit from a pension or annuity provided by a FIF are not an attributing interest if the requirements in subsections (2) and (3) are met.

Relevant period of non-residence
(2) The person must have provided the consideration for acquiring the rights—
- (a) when the person was not resident in New Zealand; or
- (b) when the person was resident in New Zealand but in the period ending 3 years after the end of the income year in which they last became a New Zealand resident; or
- (c) when the person was resident in New Zealand but as a result of commuting or transferring their interest in a superannuation fund in anticipation of their ceasing to be a New Zealand resident.
Restricted rights to assign or cash in
(3) The person's future benefits must not be able to be assigned, or exchanged for a current receipt of cash (or other property), except—
- (a) if the person is assigning the benefit rights to a spouse under a matrimonial agreement; or
- (b) at the cost of a substantial decrease in the present value of the benefits.
Elective exclusion of pre-1996-97 rights
(4) Subsection (1) does not apply if—
- (a) the rights were acquired before the 1996-97 income year; and
- (b) the person chose to treat the rights as an interest in a foreign investment fund for the 1996-97 and later income years by complying with the requirements in section CG 15(4) of the Income Tax Act 1994.
Defined in this Act: attributing interest, FIF, foreign investment fund, income year, matrimonial agreement, New Zealand resident, non-resident, resident in New Zealand, superannuation fund, year,

Compare: 1994 No 164 ss CG 15(2)(g), (4), OB 1 qualifying private foreign annuity

Calculation of FIF income or loss

EX 38 Six calculation methods

Use of 1 method
(1) If the tests in section CQ 5 (When FIF income arises) or DN 6 (When FIF loss arises) are met, the amount of a person's FIF income or loss is calculated under—
- (a) the accounting profits method; or
- (b) the branch equivalent method; or
- (c) the comparative value method; or
- (d) the deemed rate of return method; or
- (e) the fair dividend rate method; or
- (f) the cost method.
Choosing method

(2) The person must choose which calculation method applies by completing their return of income accordingly, but the choice is limited by sections EX 40, EX 40B, EX 41, and EX 50.

Defined in this Act: accounting profits method, amount, branch equivalent method, calculation method, comparative value method, cost method, deemed rate of return method, fair dividend rate method, FIF income, loss, return of income,

Compare: 1994 No 164 ss CG 16(1), CG 17(1)

The heading to section EX 38 was substituted, as from 1 April 2007, by section 64(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 64(5) of that Act as to the application of this amendment for income years beginning on or after 1 April 2007.

Subsection (1)(d) was amended, as from 1 April 2007, by section 64(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “method; or” for “method.”. See section 64(5) of that Act as to the application of this amendment for income years beginning on or after 1 April 2007.

Subsection (1)(e) and (f) was inserted, as from 1 April 2007, by section 64(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 64(5) of that Act as to the application of this amendment for income years beginning on or after 1 April 2007.

Subsection (2) was amended, as from 1 April 2007, by section 64(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “EX 40B,” after “EX 40,”.

The list of defined terms was amended, as from 18 December 2006, by section 64(4) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “cost method” and “fair dividend rate method”. See section 64(5) of that Act as to the application of this amendment for income years beginning on or after 1 April 2007.

EX 39 Exclusion of amounts of death benefit

No FIF income

(1) When this section applies, a person is treated as not deriving FIF income to the extent to which the income arises solely from receiving a death benefit under a life insurance policy.

Application of this section: contract before becoming resident
(2) This section applies if—
- (a) the person or the deceased (contracting party), when not a New Zealand resident, entered into a binding contract that gave rise to the benefit; and
- (b) at the time the contract was entered into, the contracting party either had not previously been a New Zealand resident or had not been a resident for at least the previous 10 years; and
- (c) the benefit was not increased by a voluntary action taken after the contracting party became a resident.
Application of this section: pre-1992 contracts
(3) This section also applies if—
- (a) before 2 July 1992 the person or the contracting party entered into a binding contract giving rise to the benefit; and
- (b) the benefit was not increased by a voluntary action taken on or after 2 July 1992.
Defined in this Act: amount, FIF income, life insurance policy, New Zealand resident, year,

Compare: 1994 No 164 s CG 16(7)

EX 40 Limits on choice of calculation methods

Same method for same FIF
(1) If a person has 2 or more attributing interests in the same FIF for the same period, the person must use the same calculation method for calculating FIF income or loss from each interest in that period, except to the extent to which—
- (a) the interests are of different classes; and
- (b) this section prevents the same method being used.
Accounting profits method
(2) A person may use the accounting profits method for an accounting period to calculate FIF income or loss from an attributing interest in a FIF only if—
- (a) the FIF is a company; and
- (b) at all times during the accounting period when the FIF exists, interests in the FIF similar to the person's attributing interest were—
  - (i) quoted on the official list of a recognised exchange; or
  - (ii) offered widely by or for the FIF to the public in 1 or more countries; and
- (c) the net after-tax accounting profits or losses of the FIF for the accounting period are calculated under generally accepted accounting practice (or an equivalent standard for consistent and undistorted reporting of net profits) of the country in which the FIF is resident; and
- (d) the net after-tax accounting profits or losses are detailed in financial statements—
  - (i) sent or made available to shareholders in the FIF; and
  - (ii) readily available to interested members of the public; and
  - (iii) audited by a chartered accountant (or accountant of equivalent professional standard in the country in which the FIF is resident); and
  - (iv) for which such an accountant has given a standard audit opinion, without qualifications, to the effect that the financial statements represent the income and financial position of the FIF to the degree of validity normally required in the country in which the FIF is resident; and
- (e) the net after-tax accounting profits or losses are calculated, in any case in which the FIF has 1 or more subsidiaries, on a consolidated basis; and
- (f) the net after-tax accounting profits or losses include any extraordinary items; and
- (g) the person has no reason to believe that the net after-tax accounting profits or losses do not fairly represent the net after-tax profits or losses of the FIF for the accounting period; and
- (h) the FIF is not an entity described in schedule 4, part C (Foreign investment funds); and
- (i) the Commissioner has not concluded that the net aftertax accounting profits or losses do not fairly represent the net after-tax profits or losses of the FIF for the accounting period.
Branch equivalent method
(3) A person may use the branch equivalent method to calculate FIF income or loss from an attributing interest in a FIF for an accounting period only if—
- (a) the FIF is a company; and
- (b) the person can provide to the Commissioner, if requested, sufficient information to enable the Commissioner to check the calculations required by section EX 43.
Deemed rate of return method
(4) A person may use the deemed rate of return method to calculate FIF income or loss from an attributing interest in a FIF for an income year only if any of the following apply:
- (a) it is not reasonably practicable for the person to use—
  - (i) the comparative value method, because the person cannot determine the market value of the attributing interest at the end of the income year; or
  - (ii) the accounting profits method for any accounting period that falls wholly or partly in the year; or
- (b) the person is a natural person and at all times during the income year the total value of attributing interests in FIFs held by the person is $250,000 or less, the value of each interest being—
  - (i) its book value (calculated under section EX 45(7)) at the end of the previous income year, if the person held the interest then and used the deemed rate of return method to calculate FIF income for all attributing interests in the previous income year:
  - (ii) its market value, in any other case; or
- (bb) the person is required by section EX 40B to use the method; or
- (c) section EX 41 requires the person to use that method; or
- (d) section EX 50 requires the person to continue using that method.
Deemed rate of return method: further limit
(5) A person may not use the deemed rate of return method to calculate FIF income or loss for an income year from an attributing interest if—
- (a) the interest is a direct income interest in a foreign company of less than 10%; and
- (b) the person is not required by section EX 40B to use the deemed rate of return method for the interest.
Comparative value method
(6) A person may use the comparative value method to calculate FIF income or loss for an income year from an attributing interest that is a share in a foreign company only if—
- (a) the person's direct income interest in the FIF, increased for the purposes of this paragraph by each direct income interest of a person associated with the person, is 10% or more at any time in the income year:
- (b) the attributing interest is a right of a type referred to in subsection (8)(a)(i) to (v):
- (c) the person is a natural person:
- (d) the person is the trustee of a trust that—
  - (i) is a qualifying trust; and
  - (ii) is established mainly for the benefit of a natural person for whom the settlor has natural love or affection or mainly for the benefit of an organisation or trust with income that is exempt income under section CW 34 (Charities: non-business income) or CW 35 (Charities: business income); and
  - (iii) has no settlor who is not a natural person; and
  - (iv) is not a superannuation scheme.
Fair dividend rate method for share in foreign company
(7) A person may use the fair dividend rate method to calculate FIF income or loss for an income year from an attributing interest that is a share in a foreign company only if the requirements of subsection (8) are met and—
- (a) the person is a portfolio investment entity, an entity eligible to be a portfolio investment entity, or a life insurance company and the FIF is a foreign investment vehicle:
- (b) the person's direct income interest in the FIF, increased for the purposes of this paragraph by each direct income interest of a person associated with the person, is less than 10%—
  - (i) at any time in the income year, if the FIF is a grey list company; or
  - (ii) at all times in the income year, if the FIF is not a grey list company.
Fair dividend rate method: further requirements for share in foreign company
(8) The further requirements under this subsection for a share in a foreign company are—
- (a) the attributing interest is none of the following:
  - (i) a fixed rate share under section LF 2(3) (Granting of underlying foreign tax credit):
  - (ii) a non-participating redeemable share:
  - (iii) an interest in a non-resident having assets of which 80% by value consist of financial arrangements denominated in New Zealand dollars:
  - (iv) an interest meeting the requirements of subsection (9) that the Commissioner has not determined under section 91AAO of the Tax Administration Act 1994 to be an interest for which the fair dividend rate method is applicable;
  - (v) an interest of a type that the Commissioner has deter mined under section 91AAO of the Tax Administration Act 1994 to be an interest for which the fair dividend rate method is not applicable; and
- (b) the person uses the comparative value method for no other attributing interest that is a share in a foreign company and for which the person would be allowed, in the absence of this paragraph, to use the fair dividend rate method.
Fair dividend rate method: other interests for which method not applicable
(9) To meet the requirements of this subsection, an attributing interest of a person (the investor) in a FIF must be a share and involve an obligation—
- (a) of another person to provide to the investor an amount exceeding the issue price of the share; and
- (b) that is direct to the investor or indirect through an arrangement; and
- (c) that is non-contingent or subject to a contingency that is sufficiently remote to be immaterial.
Cost method for share in foreign company
(10) A person may use the cost method to calculate FIF income for an income year from an attributing interest that is a share in a foreign company only if—
- (a) the person's direct income interest in the FIF, increased for the purposes of this paragraph by each direct income interest of a person associated with the person, is less than 10%—
  - (i) at any time in the income year, if the FIF is a grey list company; or
  - (ii) at all times in the income year, if the FIF is not a grey list company; and
- (b) use of the fair dividend rate method is allowed but is not practical because the person cannot determine the market value of the attributing interest at the start of the income year except by an independent valuation.
Defined in this Act: accounting period, accounting profits method, attributing interest, branch equivalent method, calculation method, Commissioner, company, comparative value method, cost method, deemed rate of return method, direct income interest, exempt income, fair dividend rate method, FIF, FIF income, generally accepted accounting practice, income, income year, loss, market value, qualifying trust, recognised exchange, superannuation scheme, shareholder, tax, trustee,

Compare: 1994 No 164 s CG 17(2)-(6)

Subsection (4)(b)(i) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (4)(bb) was inserted, as from 1 April 2007, by section 65(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 65(4) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

Subsections (5) to (10) were inserted, as from 1 April 2007, by section 65(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 65(4) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

The list of defined terms was amended, as from 1 April 2007, by section 65(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “cost method”, “direct income interest”, “exempt income”, “fair dividend rate method”, “income”, “qualifying trust”, “superannuation scheme” and “trustee”.

EX 40B Use of particular calculation methods required

A person who is not allowed to use the fair dividend rate method to calculate FIF income from an attributing interest in a FIF for an income year but would be allowed to use the method in the absence of section EX 40(8)(a) must calculate FIF income from the interest for the income year 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 start of the income year.
Defined in this Act: attributing interest, comparative value method, deemed rate of return method, fair dividend rate method, FIF, FIF income, income year,

Section EX 40B was inserted, as from 1 April 2007, by section 66(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 66(2) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

EX 41 Default calculation method

When this section applies
(1) This section applies when—
- (a) a person does not choose a calculation method to calculate FIF income or loss from an attributing interest for a period; and
- (b) sections EX 40, EX 40B, and EX 50 do not have the effect of requiring a particular calculation method to be used.
Default choice for direct income interests in FIF of less than 10%
(2) The person is treated as having chosen to use, for the period,—
- (a) for a direct income interest in a foreign company of less than 10% for which section EX 40(7) permits the use of the fair dividend rate method,—
  - (i) the fair dividend rate method, if it is practical to use that method; or
  - (ii) the cost method, if it is not practical to use the fair dividend rate method; or
- (b) for any other interest,—
  - (i) the accounting profits method, if section EX 40(2) allows the use of that method and it is practical to use that method; or
  - (ii) the comparative value method, if section EX 40(2) does not allow the use of the accounting profits method and it is practical to use the comparative value method; or
  - (iii) the deemed rate of return method, if section EX 40(2) does not allow the use of the accounting profits method and it is not practical to use the comparative value method.
Defined in this Act: accounting profits method, attributing interest, calculation method, comparative value method, cost method, deemed rate of return method, fair dividend rate method, FIF income, loss,

Compare: 1994 No 164 s CG 17(7)

Subection (1)(b) was amended, as from 1 April 2007, by section 67(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81 by inserting “, EX 40B,” after “EX 40”.

Subsection (2) was substituted, as from 1 April 2007, by section 67(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81. See section 67(4) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

The list of defined terms was amended, as from 18 December 2006, by section 67(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “cost method” and “fair dividend rate method”. See section 67(4) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

EX 42 Accounting profits method

Formula

(1) If a person is using the accounting profits method to calculate FIF income or loss from an attributing interest in a FIF, the total FIF income or loss from all their attributing interests in the FIF for the relevant accounting period is calculated using the formula—

(accounting profits or losses – foreign tax) × income interest.

Definition of items in formula

(2) The items in the formula are defined in subsections (3) and (4).

Accounting profits or losses

(3) Accounting profits or losses is the net after-tax accounting profits or losses of the FIF for the accounting period.
(3B) Foreign tax is the total for the accounting period of income tax on the income of the FIF—
- (a) for which the person is liable under the laws of a country or territory outside New Zealand; and
- (b) paid by the person in the accounting period.
Income interest
(4) Income interest is the person's income interest in the FIF for the accounting period. The income interest is calculated under all the following CFC rules (applying as if the FIF were a CFC):
- (a) sections EX 8 to EX 11 and EX 13 (which, in general, describe how to calculate an income interest by totalling direct and indirect interests):
- (b) sections EX 16 and EX 17 (which describe how to deal with periods of non-residence and variations in ownership during an accounting period):
- (c) section EX 27 (which describes a concession to allow ownership to be measured only on quarterly measurement dates), unless the person chooses to apply subsection (5).
Election to measure on 31 March only

(5) In order to simplify the process of calculating the person's income interest, the person may choose to be treated as holding, at all times during a tax year, the same interest (including a zero one) that they held at the end of the tax year. The person makes the election by completing their return of income accordingly for the relevant income year.

Election irrevocable
(6) An election under subsection (5) is—
- (a) irrevocable and applies to the person and all their attributing interests in the FIF in later years; and
- (b) overridden by the anti-avoidance rules in sections GC 9 (Variations in control or income interests in foreign companies) and GC 10 (Attributed CFC income and FIF income: arrangements in respect of elections).
Conversion to New Zealand dollars
(7) The person must choose, for the accounting period and each later accounting period and for all interests for which the person uses the accounting profits method,—
- (a) for all the calculations to be done in the currency of the FIF's financial accounts, with the result then converted into New Zealand dollars at the average of the close of trading spot exchange rates for the fifteenth day of each complete month that falls in the accounting period; or
- (b) for all the calculations of the net after-tax accounting profits or losses of the FIF to be done in New Zealand dollars.
Reduction in FIF loss to economic loss

(8) In the cases described in subsections (9) and (10), the amount of any FIF loss calculated under subsection (1) is reduced to be equal to the person's corresponding economic loss (if any).

Application of subsection (8): no economic loss

(9) Subsection (8) applies if the person suffers no, or substantially no, economic loss corresponding to the FIF loss, whether because of a call option, a put option, or any other reason.

Application of subsection (8): FIF loss excessive

(10) Subsection (8) also applies if the amount of FIF loss is more than any corresponding economic loss suffered by the person, whether because of the application of the rules for calculating the person's income interest or any other reason.

Defined in this Act: accounting period, accounting profits method, amount, attributing interest, CFC, close of trading spot exchange rate, FIF, FIF income, FIF loss, income interest, income year, loss, New Zealand, non-resident, quarter, return of income, tax, tax year,

Compare: 1994 No 164 ss CG 16(11)(a), (12), CG 20

Subsection (1) formula was substituted, as from 3 April 2006, by section 96(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2006–07 tax year.

Subsection (3B) was inserted, as from 3 April 2006, by section 96(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2006–07 tax year.

Subsection (4)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (7) the words before paragraph (a) were substituted, as from 1 April 2007, by section 68(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 68(2) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

EX 43 Branch equivalent method

Formula

(1) If a person is using the branch equivalent method to calculate FIF income or loss from an attributing interest in a FIF, the total FIF income or loss from all their attributing interests in the FIF for the relevant accounting period is calculated using the formula—

branch equivalent income or loss x income interest.

Definition of items in formula

(2) The items in the formula are defined in subsections (3) and (4).

Branch equivalent income or loss
(3) Branch equivalent income or loss is the branch equivalent income or loss of the FIF for the accounting period. This is calculated by applying section EX 21 of the CFC rules—
- (a) as if the FIF were a CFC and the person were calculating their attributed CFC income or loss; and
- (b) applying subsections (5) and (6).
Income interest
(4) Income interest is the person's income interest in the FIF for the accounting period. The income interest is calculated under all the following CFC rules (applying as if the FIF were a CFC):
- (a) sections EX 8 to EX 11 and EX 13 (which, in general, describe how to calculate an income interest by totalling direct and indirect interests):
- (b) sections EX 16 and EX 17 (which describe how to deal with periods of non-residence and variations in ownership during an accounting period):
- (c) section EX 27 (which describes a concession to allow ownership to be measured only on quarterly measurement dates).
Taxable distributions
(5) If the FIF derives a taxable distribution from a non-qualifying trust in the accounting period,—
- (a) the taxable distribution is excluded when calculating the FIF's branch equivalent income or loss (due to the combined effect of subsection (1) and section EX 21(32)); and
- (b) the person has additional attributed CFC income calculated by multiplying the taxable distribution by the person's income interest in the FIF; and
- (c) the person is liable for income tax on the additional attributed CFC income at the rate in schedule 1 (Basic rates of income tax and specified superannuation contribution withholding tax) that applies to amounts under section HH 3(4) (Income of beneficiaries).
Calculation of additional FIF income or loss

(6) If the FIF itself has an income interest (calculated under subsection (4)) in a foreign company for the accounting period, the person has additional FIF income or loss calculated using the formula—

interest x FIF's FIF income or loss.

Definition of items in formula
(7) In the formula,—
- (a) interest is the person's income interest in the FIF for the period:
- (b) FIF's FIF income or loss is the FIF's FIF income or loss calculated under the rules in section EX 46(4) and (5), as if—
  - (i) the FIF were the CFC referred to; and
  - (ii) the FIF's interest in the foreign company were an attributing interest, despite any application of section EX 32.
Application of CFC rules tax credit rules

(8) The rules in sections LC 4 (Foreign tax credits: CFCs) and LC 5 (Group of companies CFC tax credits) apply to allow the person to claim foreign tax credits but on the basis of the assumptions made in subsection (9). The rules in those sections allow foreign tax credits relating to attributed CFC income but apply a jurisdictional ring-fencing approach to the use of tax credits.

Assumptions in reading tax credit rules
(9) Sections LC 4 (Foreign tax credits: CFCs) and LC 5 (Group of companies CFC tax credits) are applied as if—
- (a) the FIF were a CFC; and
- (b) the FIF income of the person from the FIF were attributed CFC income; and
- (c) the person's income interest (calculated under subsection (4)) were their relevant income interest for the purposes of those sections; and
- (d) any relevant person's FIF income calculated under the branch equivalent method from a FIF that is resident in the relevant country were attributed CFC income.
Reduction in FIF loss to economic loss

(10) In the cases described in subsections (11) and (12), the amount of any FIF loss calculated under subsections (1) and (6) is reduced to be equal to the person's corresponding economic loss (if any).

Application of subsection (10): no economic loss

(11) Subsection (10) applies if the person suffers no, or substantially no, economic loss corresponding to the FIF loss, whether because of a call option, a put option, or any other reason.

Application of subsection (10): FIF loss excessive

(12) Subsection (10) also applies if the amount of FIF loss is more than any corresponding economic loss suffered by the person, whether because of the application of the rules for calculating the person's income interest or any other reason.

Defined in this Act: accounting period, amount, attributed CFC income, attributing interest, branch equivalent income, branch equivalent method, CFC, FIF, FIF income, FIF loss, foreign company, income interest, income tax, loss, non-qualifying trust, non-resident, quarter, tax, taxable distribution,

Compare: 1994 No 164 s CG 21

Subsection (4)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EX 44 Comparative value method

Formula

(1) If a person is using the comparative value method to calculate FIF income or loss from an attributing interest in a FIF, the FIF income or loss from that interest for the relevant income year is calculated using the formula—

(closing value + gains) – (opening value + costs).

Definition of items in formula

(2) The items in the formula are defined in subsections (3) to (6).

Closing value

(3) Closing value is the market value of the person's interest in the FIF at the end of the income year. (The value is zero if the person has disposed of the interest or is then applying another calculation method to it.)

Gains

(4) Gains is the total of all amounts that the person derives during the income year from holding or disposing of the interest. The amounts include any foreign withholding tax or other tax that the person is allowed as a credit under section LC 1 (Credits in respect of tax paid in country or territory outside New Zealand).

Opening value

(5) Opening value is the market value of the person's interest in the FIF at the end of the previous income year. (The value is zero if the person did not hold the interest then or was then applying another calculation method to it.)

Costs
(6) Costs is the total for the income year of—
- (a) all expenditure, if any, that the person incurs in acquiring or increasing the interest:
- (b) income tax on the income of the FIF—
  - (i) for which the person is liable under the laws of a country or territory outside New Zealand; and
  - (ii) paid by the person in the income year.
Application of method to direct income interests of less than 10%
(6B) Subsection (6C) applies to a person who calculates under subsection (1) an amount of FIF income or loss for an attributing interest in a FIF (the minor attributing interest)—
- (a) that is a direct income interest in a foreign company of less than 10% at a time in the relevant income year; and
- (b) that is not a right of a type referred to in section EX 40(8)(a)(i) to (v).
Reduction of total FIF loss from direct income interests of less than 10%

(6C) 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 minor attributing interests in FIFs, the total FIF loss for the income year for the person from the minor attributing interests is zero.

Conversion of foreign currency amounts
(7) If an amount in a foreign currency is the market value of, or is derived from or incurred on, an interest during an income year, the person must choose that for the income year and each later income year and for all interests for which the person uses the comparative value method—
- (a) each foreign currency amount in the income year be converted into New Zealand dollars using the exchange rate on the day for which the market value is determined or on which the amount is derived or incurred; or
- (b) all foreign currency amounts in the income year be converted into New Zealand dollars at the average of the close of trading spot exchange rates for the 15th day of each month that falls in the income year.
Defined in this Act: amount, attributing interest, calculation method, close of trading spot exchange rate, comparative value method, direct income interest, FIF, FIF income, FIF loss, foreign withholding tax, income year, loss, market value, New Zealand, tax,

Compare: 1994 No 164 ss CG 16(11)(b), (12), CG 18

Subsection (6) was amended, as from 1 April 2006, by section 97(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the definition of “costs” with application as from the income year corresponding to the 2006–07 tax year.

Subsections (6B) and (6C) were inserted, as from 1 April 2007, by section 69(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 69(4) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

Subsection (7) was substituted, as from 1 April 2007, by section 69(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 69(4) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

The list of defined terms was amended, as from 1 April 2007, by section 69(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “direct income interest” and “FIF loss” See section 69(4) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

EX 44B Fair dividend rate method

Alternative formulas used
(1) If a person is using the fair dividend rate method to calculate FIF income or loss from an attributing interest in a FIF, the calculation depends on whether the person is a unit trust or other entity (the unit valuer) that—
- (a) makes investments for the benefit of other persons (the investors); and
- (b) assigns each investor an interest in a proportion of the net returns from the investments; and
- (c) determines the value of the investor's interest for each of a number of periods (the unit valuation periods) making up the income year.
FIF income for person not unit valuer

(2) For a person who is not a unit valuer, the FIF income for an income year from the attributing interests in FIFs for which the person uses the fair dividend rate method is the amount calculated for the income year using the method in section EX 44C.

FIF income for unit valuer

(3) For a person who is a unit valuer, the FIF income for an income year from the attributing interests in FIFs for which the person uses the fair dividend rate method is the total of the amounts calculated for each unit valuation period in the income year using the method in section EX 44D.

FIF loss

(4) If a person is using the fair dividend rate method to calculate FIF income or loss from an attributing interest in a FIF, the FIF loss from the attributing interest for an income year is zero.

Defined in this Act: amount, attributing interest, fair dividend rate method, FIF, FIF income, FIF loss, income year, investor, loss, unit trust,

Sections EX 44B to EX 44E were inserted, as from 1 April 2007, by section 70(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 70(2) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

EX 44C Fair dividend rate method: usual method

FIF income

(1) If this section applies to a person who calculates FIF income from attributing interests in FIFs under the fair dividend rate method for an income year, the FIF income is the total of the amounts, each calculated for a FIF for the income year using the formula in subsection (2).

Formula

(2) The formula referred to in subsection (1) is—

0.05 x opening + quick sale adjustment.

Definition of items in formula

(3) The items in the formula are defined in subsections (4) and (5).

Opening
(4) Opening is the total of the market values of the attributing interests in FIFs—
- (a) for which the person uses the fair dividend rate method; and
- (b) that the person holds at the beginning of the income year.
Quick sale adjustment
(5) Quick sale adjustment is—
- (a) zero, if the person in the income year—
  - (i) acquires or increases the attributing interest in no FIF for consideration:
  - (ii) disposes of or reduces the attributing interest in no FIF after an acquisition or increase of the interest for consideration; or
- (b) if paragraph (a) does not apply, the lesser of—
  - (i) the amount (the peak holding adjustment) determined under subsection (6):
  - (ii) the amount (the quick sale gains) that is the greater of zero and the total for the income year of amounts calculated, for each attributing interest that is both acquired and disposed of in the income year, by taking the total amount derived by the person from holding or disposing of the interest and subtracting the total expenditure that the person incurs in acquiring the interest.
Peak holding adjustment

(6) The peak holding adjustment is the total for the income year of the amounts calculated for each FIF using the formula in subsection (7).

Formula

(7) The formula referred to in subsection (6) is—

0.05 × quick sales × average cost.

Definition of items in formula

(8) The items in the formula are defined in subsections (9) and (10).

Quick sales
(9) Quick sales is,—
- (a) if the person in the income year does not acquire or increase the attributing interest in the FIF for consideration or does not dispose of or reduce the attributing interest in the FIF after such an acquisition or increase, zero; or
- (b) if paragraph (a) does not apply and no share reorganisation occurs in the income year, the lesser of the following, determined in terms of the amount of the attributing interest in the FIF (the interest size) that the person holds at a time in the income year:
  - (i) the difference between the interest size that is the greatest for the income year and the interest size at the beginning of the income year:
  - (ii) the difference between the interest size that is the greatest for the income year and the interest size at the end of the income year; or
- (c) if paragraph (a) does not apply and a share reorganisation occurs in the income year, the amount calculated under section EX 44E for the income year.
Average cost
(10) Average cost is,—
- (a) if the person in the income year does not acquire or increase the attributing interest in the FIF for consideration or does not dispose of or reduce the attributing interest in the FIF after such an acquisition or increase, zero; or
- (b) if paragraph (a) does not apply and no share reorganisation occurs in the income year, the total amount of expenditure that the person incurs during the income year in acquiring or increasing the attributing interest in the FIF divided by the total for the income year of the increase in the attributing interest in the FIF for each acquisition or increase; or
- (c) if paragraph (a) does not apply and a share reorganisation occurs in the income year, the amount calculated under section EX 44E for the income year.
Conversion of foreign currency amounts
(11) If an amount in a foreign currency is the market value of, or is incurred on, an interest during an income year, the person must choose that for the income year and each later income year and for all interests for which the person uses the fair dividend rate method—
- (a) each foreign currency amount in the income year be converted into New Zealand dollars using the exchange rate on the day for which the market value is determined or on which the amount is incurred; or
- (b) all foreign currency amounts in the income year be converted into New Zealand dollars at the average of the close of trading spot exchange rates for the 15th day of each month that falls in the income year.
Identifying attributing interests disposed of in income year

(12) For the purpose of calculating the quick sale gains under subsection (5)(b)(ii), attributing interests in a FIF are treated as being disposed of in the reverse order of their acquisition.

Defined in this Act: amount, attributing interest, fair dividend rate method, FIF, FIF income, income year, investor, market value, share reorganisation,

Sections EX 44B to EX 44E were inserted, as from 1 April 2007, by section 70(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 70(2) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

EX 44D Fair dividend rate method: method for entities that value investors' units

FIF income

(1) If this section applies to an entity who calculates FIF income from attributing interests in FIFs under the fair dividend rate method, the FIF income of the entity from the interests is the total of the amounts calculated using the formula in subsection (2) for each of the periods making up the income year (the unit valuation periods) for which the entity determines the value of investors' interests.

Formula

(2) The formula for the entity is—

Definition of items in formula

(3) The items in the formula are defined in subsections (4) to (7).

Opening
(4) Opening is the total of the market values of the attributing interests in FIFs—
- (a) for which the entity uses the fair dividend rate method; and
- (b) that the entity holds at the beginning of the unit valuation period.
Period

(5) Period is the number of days in the unit valuation period.

Year

(6) Year is the number of days in the income year.

Quick sale adjustment
(7) Quick sale adjustment is—
- (a) zero, if the unit valuation period is 1 day; or
- (b) zero, if the entity in the unit valuation period—
  - (i) acquires or increases the attributing interest in no FIF for consideration:
  - (ii) disposes of or reduces the attributing interest in no FIF after an acquisition or increase of the interest for consideration; or
- (c) if paragraphs (a) and (b) do not apply, the lesser of—
  - (i) the amount (the peak holding adjustment) determined under subsection (8):
  - (ii) the amount (the quick sale gains) that is the greater of zero and the total for the income year of amounts calculated, for each attributing interest that is both acquired and disposed of in the income year, by taking the total amount derived by the entity from holding or disposing of the interest and subtracting the total expenditure that the entity incurs in acquiring the interest.
Peak holding adjustment

(8) The peak holding adjustment is the total for the unit valuation period of the amounts calculated for each FIF using the formula in subsection (9).

Formula

(9) The formula referred to in subsection (8) is—

0.05 x quick sales × average cost.

Definition of items in formula

(10) The items in the formula are defined in subsections (11) and (12).

Quick sales
(11) Quick sales is,—
- (a) if the entity in the unit valuation period does not acquire or increase the attributing interest in the FIF for consideration or does not dispose of or reduce the attributing interest in the FIF after such an acquisition or increase, zero; or
- (b) if paragraph (a) does not apply and no share reorganisation occurs in the unit valuation period, the lesser of the following, determined in terms of the amount of the attributing interest in the FIF (the interest size) that the entity holds at a time in the unit valuation period:
  - (i) the difference between the interest size that is the greatest for the unit valuation period and the interest size at the beginning of the unit valuation period:
  - (ii) the difference between the interest size that is the greatest for the unit valuation period and the interest size at the end of the unit valuation period; or
- (c) if paragraph (a) does not apply and a share reorganisation occurs in the unit valuation period, the amount calculated under section EX 44E for the unit valuation period.
Average cost
(12) Average cost is,—
- (a) if the entity in the unit valuation period does not acquire or increase the attributing interest in the FIF for consideration or does not dispose of or reduce the attributing interest in the FIF after such an acquisition or increase, zero; or
- (b) if paragraph (a) does not apply and no share reorganisation occurs in the unit valuation period, the total amount of expenditure that the entity incurs during the unit valuation period in acquiring or increasing the attributing interest in the FIF divided by the total for the unit valuation period of the increase in the attributing interest in the FIF for each acquisition or increase; or
- (c) if paragraph (a) does not apply and a share reorganisation occurs in the unit valuation period, the amount calculated under section EX 44E for the unit valuation period.
Conversion of foreign currency amounts
(13) If an amount in a foreign currency is the market value of, or is incurred on, an interest during an income year, the entity must choose that for the income year and each later income year and for all interests for which the entity uses the fair dividend rate method—
- (a) each foreign currency amount in the income year be converted into New Zealand dollars using the exchange rate on the day for which the market value is determined or on which the amount is incurred; or
- (b) all foreign currency amounts in the income year be converted into New Zealand dollars at the average of the close of trading spot exchange rates for the 15th day of each month that falls in the income year.
Identifying attributing interests disposed of in income year

(14) For the purpose of calculating the quick sale gains under subsection (7)(c)(ii), attributing interests in a FIF are treated as being disposed of in the reverse order of their acquisition.

Defined in this Act: amount, attributing interest, close of trading spot exchange rate, fair dividend rate method, FIF, FIF income, income year, market value,

Sections EX 44B to EX 44E were inserted, as from 1 April 2007, by section 70(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 70(2) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

EX 44E Fair dividend rate method and cost method: calculating items in formulas for periods affected by share reorganisations

Items and formulas
(1) This section provides for the calculation, for an income year or unit valuation period (the affected period) in which a share reorganisation occurs, of the following:
- (a) the item quick sales, for the purposes of the formulas in sections EX 44C(7), EX 44D(9), and EX 45B(2):
- (b) the item average cost, for the purposes of the formulas in sections EX 44C(7), EX 44D(9), and EX 45B(2) and (7)(b):
- (c) the item change, for the purposes of the formula in section EX 45B(7)(b).
Treatment of affected period in which share reorganisation occurs
(2) For the purposes of calculating the items for an affected period under this section,—
- (a) the affected period is treated as consisting of periods (the reorganisation periods) that do not overlap:
- (b) each reorganisation period in the affected period—
  - (i) begins with the beginning of the affected period or a share reorganisation in the affected period; and
  - (ii) ends before the next later event that is a share reorganisation or the end of the affected period:
- (c) the amount of the attributing interest in the FIF held by the person at any time (the comparison time) in a reorganisation period, is treated as corresponding to an amount (the equivalent interest size) equal to the amount of the attributing interest in the FIF that the person would hold at the end of the affected period if, after the comparison time, the person did not increase or reduce the attributing interest in the FIF except under share reorganisations occurring in the affected period:
- (d) the amount of an acquisition or increase (the acquired interest) by the person of the attributing interest in the FIF, other than under a share reorganisation, is treated as corresponding to an amount (the equivalent acquired interest) equal to the difference between—
  - (i) the equivalent interest size for the time of the acquisition or increase; and
  - (ii) the amount that would be the equivalent interest size for the time of the acquisition or increase if the person were not to have the acquired interest.
Quick sales
(3) Under this section, the item quick sales for a person and an affected period is the lesser of the following:
- (a) the difference between the equivalent interest size that is the greatest for the affected period and the equivalent interest size for the beginning of the affected period:
- (b) the difference between the equivalent interest size that is the greatest for the affected period and the equivalent interest size for the end of the affected period.
Average cost

(4) Under this section, the item average cost for a person and an affected period is the total amount of expenditure that the person incurs during the affected period in acquiring or increasing the attributing interest in the FIF divided by the total for the affected period of the equivalent acquired interest for each acquisition or increase.

Change

(5) Under this section, the item change for a person and an affected period is the difference between the equivalent interest size for the beginning of the affected period and the equivalent interest size for the beginning of the period before the affected period.

Conversion of foreign currency amounts

(6) If an amount in a foreign currency is incurred on an interest during an affected period, the person must use the method for converting the amount to New Zealand currency chosen under section EX 44C, EX 44D, or EX 45B by the person for the income year of the affected period.

Defined in this Act: amount, attributing interest, FIF, income year,

Sections EX 44B to EX 44E were inserted, as from 1 April 2007, by section 70(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 70(2) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

EX 45 Deemed rate of return method

Formula changes if interest changes
(1) If a person is using the deemed rate of return method to calculate FIF income or loss from an attributing interest in a FIF for an income year, the FIF income or loss is calculated—
- (a) by the formula in subsection (3) (standard formula) if the person has held the interest unchanged throughout the income year; and
- (b) by totalling the amounts calculated by the formula in subsection (5) (part-year formula) for each part of the income year during which the interest is unchanged, in any other case.
When interest changes
(2) A person's attributing interest in a FIF changes during an income year if the person—
- (a) acquires or increases the interest; or
- (b) disposes of or reduces the interest (but merely receiving an annuity payment from the interest is not a disposal or reduction).
Standard formula

(3) The standard formula is—

opening book value x deemed rate.

Definition of items in standard formula
(4) In the standard formula,—
- (a) opening book value is the book value of the interest at the end of the previous income year, calculated under subsection (7):
- (b) deemed rate is the rate set by the Governor-General by Order in Council for this section for the relevant income year.
Part-year formula

(5) The part-year formula is—

Definition of items in part-year formula
(6) In the part-year formula,—
- (a) opening book value is the book value (if any) of the interest at the end of the period before the part of the income year, calculated under subsection (7):
- (b) costs is the total for the part of the income year of—
  - (i) all expenditure, if any, that the person incurs in acquiring or increasing the interest:
  - (ii) income tax on the income of the FIF for which the person is liable under the laws of a country or territory outside New Zealand and which is paid by the person in the part of the income year:
- (c) deemed rate is the rate set by the Governor-General by Order in Council for this section for the relevant income year:
- (d) days is the number of days in the part of the income year. (For this purpose, an acquisition or increase is treated as occurring at the start of a day and a disposition or reduction is treated as occurring at the end of a day.)
Closing book value formula

(7) The book value, at the end of an income year or (in a case in which subsection (5) applies) a part of an income year, of an attributing interest of a person in a FIF under the deemed rate of return method is, unless subsection (9) applies, calculated using the formula (closing book value formula)—

(opening book value + costs + deemed income + top-up amounts) – gains.

Definition of items in closing book value formula
(8) In the closing book value formula,—
- (a) opening book value is the book value (if any) of the interest at the end of the previous income year or the part of the income year, calculated under subsection (7):
- (b) costs is the total for the income year or part of the income year of—
  - (i) all expenditure, if any, that the person incurs in acquiring or increasing the interest:
  - (ii) income tax on the income of the FIF for which the person is liable under the laws of a country or territory outside New Zealand and which is paid by the person in the income year or part of the income year:
- (c) deemed income is the FIF income from the interest for the year or the part of the income year calculated under subsection (3) or (5):
- (d) top-up amounts is amounts (gains from holding or disposing of the interest) that are top-up FIF income in the year under section EX 48 or EX 49:
- (e) gains is the total of all amounts that the person derives during the year or the part of the income year from holding or disposing of the interest. (The amounts include any foreign withholding tax or other tax that the person is allowed as a credit under section LC 1 (Credits in respect of tax paid in country or territory outside New Zealand).)
Closing book value zero if changing method

(9) The closing book value is always zero if the person is using a calculation method for the interest different from the deemed rate of return method at the end of the income year or, in a case to which subsection (5) applies, the part of the income year.

Top-up income if deemed rate inadequate

(10) If the closing book value of a person's attributing interest in a FIF at the end of an income year or a part of an income year is below zero, the person has additional FIF income equal to the deficit for the relevant income year.

When subsection (10) does not apply
(11) Subsection (10) does not apply if—
- (a) the person is a natural person; and
- (b) at all times during the income year the total value of the person's attributing interests in FIFs is $250,000 or less, the value of each interest being—
  - (i) its book value (calculated under subsection (7)) at the end of the previous income year, if the person held the interest then and used the deemed rate of return method to calculate FIF income for all attributing interests in the previous income year:
  - (ii) its market value, in any other case; and
- (c) the deficit in closing book value arises only because the person disposed of some or all of the interest; and
- (d) the gain that the person derived from disposing of the interest or part-interest is not income (or is income only to the extent to which it gives rise to FIF income).
Top-up income if gains more than deemed income

(12) A person calculating FIF income under the deemed rate of return method can also have additional FIF income under section EX 48.

FIF income reduced on disposal if deemed rate excessive

(13) If a person has disposed of the whole of an attributing interest in a FIF and the closing book value for the relevant income year or the part of the income year is more than zero, the excess is subtracted when the person's FIF income under the deemed rate of return method for the income year is calculated.

When subsection (13) does not apply
(14) Subsection (13) does not apply if—
- (a) the person is a natural person; and
- (b) at all times during the income year the total value of attributing interests in FIFs held by the person is $250,000 or less, the value of each interest being—
  - (i) its book value (calculated under subsection (7)) at the end of the previous income year, if the person held the interest then and used the deemed rate of return method to calculate FIF income for all attributing interests in the previous income year:
  - (ii) its market value, in any other case; and
- (c) the gain that the person derived from disposing of the interest or part-interest is not income (or is income only to the extent to which it gives rise to FIF income).
Conversion of foreign currency amounts
(15) If an amount is derived from, or incurred on, the interest in a foreign currency during the income year, the person must choose, for the year and each later year and for all interests for which the person uses the deemed rate of return method,—
- (a) for each such foreign currency amount in the income year to be converted into New Zealand dollars using the exchange rate on the day the amount is derived or incurred; or
- (b) for all such foreign currency amounts in the year to be converted into New Zealand dollars at the average of the close of trading spot exchange rates for the fifteenth day of each complete month that falls in the income year.
Defined in this Act: amount, attributing interest, calculation method, close of trading spot exchange rate, deemed rate of return method, FIF, FIF income, foreign withholding tax, income, income year, loss, market value, New Zealand, tax,

Compare: 1994 No 164 ss CG 16(11)(b), (12), CG 19(1)-(5)

Subsection (6)(b) was amended, as from 1 April 2006, by section 98(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the definition of “costs” with application as from the income year corresponding to the 2006–07 tax year.

Subsection (8)(b) was amended, as from 1 April 2006, by section 98(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the definition of “costs” with application as from the income year corresponding to the 2006–07 tax year.

Subsection (11)(b)(i) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (14)(b)(i) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (15) the words before paragraph (a) were substituted, as from 1 April 2007, by section 71(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 71(2) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

Additional FIF income or loss if CFC owns FIF

EX 45B Cost method

FIF income from interest, disposal of interest
(1) If a person is using the cost method to calculate FIF income or loss from an attributing interest in a FIF,—
- (a) the FIF income from that interest for the relevant income year is the greater of zero and the amount calculated using the formula in subsection (2):
- (b) the FIF loss from that interest for the relevant income year is zero.
Formula

(2) The formula referred to in subsection (1) is—

0.05 × (opening value + (quick sales × average cost)).

Definition of items in formula

(3) The items in the formula are defined in subsections (4) to (6).

Opening value
(4) Opening value is—
- (a) zero, if the relevant income year is the year in which the person acquires the interest; or
- (b) the amount of an independent valuation of the market value of the interest at the beginning of the relevant income year, if the person holds the interest at the beginning of the relevant income year and—
  - (i) the interest was not an attributing interest for the income year before the relevant income year:
  - (ii) the person has used the cost method for the interest for a period of 4 or more income years ending before the relevant income year and has not applied this paragraph to the interest for any of those income years; or
- (c) the amount calculated using the formula in subsection (7)(a), if the person's attributing interest (the current opening interest) at the beginning of the relevant income year is the same as the person's attributing interest (the preceding opening interest) at the beginning of the income year before the relevant income year; or
- (d) the amount calculated using the formula in subsection (7)(b), if the person's current opening interest is more than the preceding opening interest; or
- (e) the amount calculated using the formula in subsection (7)(c), if the person's current opening interest is less than the preceding opening interest.
Quick sales
(5) Quick sales is,—
- (a) if the person in the relevant income year does not acquire or increase the attributing interest in the FIF for consideration or does not dispose of or reduce the attributing interest in the FIF after such an acquisition or increase, zero; or
- (b) if paragraph (a) does not apply and no share reorganisation occurs in the relevant income year, the lesser of the following, determined in terms of the amount of the attributing interest in the FIF (the interest size) that the person holds at a time in the relevant income year:
  - (i) the difference between the interest size that is the greatest for the income year and the interest size at the beginning of the income year:
  - (ii) the difference between the interest size that is the greatest for the income year and the interest size at the end of the income year; or
- (c) if paragraph (a) does not apply and a share reorganisation occurs in the income year, the amount calculated under section EX 44C for the income year.
Average cost
(6) Average cost is,—
- (a) if the person in the relevant income year does not acquire or increase the attributing interest in the FIF for consideration or does not dispose of or reduce the attributing interest in the FIF after such an acquisition or increase, zero; or
- (b) if paragraph (a) does not apply and no share reorganisation occurs in the relevant income year, the total amount of expenditure that the person incurs during the relevant income year in acquiring or increasing the attributing interest in the FIF divided by the total for the relevant income year of each increase in the attributing interest in the FIF for each acquisition or increase; or
- (c) if paragraph (a) does not apply and a share reorganisation occurs in the relevant income year, the amount calculated under section EX 44C for the relevant income year.
Formulas for opening value
(7) In subsection (4),—
- (a) the first formula is—
  
  preceding + FIF income:
- (b) the second formula is—
  
  preceding + FIF income + (change x average cost):
- (c) the third formula is—
Definition of items in formulas

(8) The items in the formulas are defined in subsections (9) to (14).

Preceding

(9) Preceding is the opening value for the income year before the relevant income year.

FIF income

(10) FIF income is the FIF income under subsection (1) for the attributing interest for the income year before the relevant income year.

Change
(11) Change is,—
- (a) if no share reorganisation occurs in the income year before the relevant income year, the difference between the person's attributing interest at the beginning of the relevant income year and the person's attributing interest at the beginning of the income year before the relevant income year:
- (b) if a share reorganisation occurs in the income year before the relevant income year, the amount calculated under section EX 44C for the income year before the relevant income year.
Average cost
(12) Average cost is,—
- (a) if the person in the income year before the relevant income year does not acquire or increase the attributing interest in the FIF for consideration or does not dispose of or reduce the attributing interest in the FIF after such an acquisition or increase, zero; or
- (b) if paragraph (a) does not apply and no share reorganisation occurs in the income year before the relevant income year, the total amount of expenditure that the person incurs during the income year before the relevant income year in acquiring or increasing the attributing interest in the FIF divided by the total for the income year of the increase in the attributing interest in the FIF for each acquisition or increase; or
- (c) if paragraph (a) does not apply and a share reorganisation occurs in the income year before the relevant income year, the amount calculated under section EX 44C for the income year before the relevant income year.
Opening interest

(13) Opening interest is the amount of the attributing interest at the beginning of the relevant income year.

Preceding interest

(14) Preceding interest is the amount of the attributing interest at the beginning of the income year before the relevant income year.

Conversion of foreign currency amounts
(15) If an amount in a foreign currency is the market value of, or is incurred on, an interest during an income year, the person must choose that for the income year and each later income year and for all interests for which the person uses the cost method—
- (a) each foreign currency amount in the income year be converted into New Zealand dollars using the exchange rate on the day for which the market value is determined or on which the amount is incurred; or
- (b) all foreign currency amounts in the income year be converted into New Zealand dollars at the average of the close of trading spot exchange rates for the 15th day of each month that falls in the income year.
Defined in this Act: amount, calculation method, close of trading spot exchange rate, dividend, FIF, FIF income, foreign withholding tax, income year, loss, New Zealand, tax,

Section EX 45B was inserted, as from 1 April 2007, by section 72(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 72(2) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

EX 46 Additional FIF income or loss if CFC owns FIF

Application of this section
(1) This section applies if—
- (a) a person has an income interest of 10% or more in a CFC for an accounting period under sections EX 8 to EX 17; and
- (b) because section EX 21(33) applies, FIF income and FIF loss is not taken into account in calculating the branch equivalent income or loss of the CFC for the period for the person.
Calculation of FIF income or loss

(2) The person instead has FIF income or loss, for the income year in which the period ends, calculated using the formula—

income interest x CFC's FIF income or loss.

Definition of items in formula
(3) In the formula,—
- (a) income interest is the person's income interest in the CFC for the period under sections EX 8 to EX 13:
- (b) CFC's FIF income or loss is the CFC's FIF income or loss for the period calculated under subsections (4) and (5).
Application of FIF rules to choice of method
(4) The person must—
- (a) choose, under sections EX 38 to EX 41, the calculation method for calculating the CFC's FIF income or loss; and
- (b) otherwise apply the calculation rules in sections EX 38 to EX 49 as if the person directly held the attributing interest; and
- (c) apply the FIF loss ring-fencing rules in section DN 9 (Ring-fencing cap on deduction: branch equivalent method) as if the person directly held the attributing interest.
Exclusion of policyholders' entitlements

(5) Despite subsection (4), the CFC's FIF income or loss does not include any amount actuarially determined to be attributable to policyholders in the CFC or another company as a result of applying section EX 21(25) and (26) to the CFC.

Unqualified grey list CFCs

(6) This section applies whether or not the CFC is an unqualified grey list CFC under section EX 22 for the period.

Disclosure restrictions on grey list CFCs

(7) No FIF income or loss arises under this section to the extent to which section EZ 29 (Disclosure restrictions on grey list CFCs before 2011-12) applies.

Defined in this Act: accounting period, amount, attributing interest, branch equivalent income, calculation method, CFC, company, FIF, FIF income, FIF loss, FIF rules, grey list, income interest, income year, loss,

Compare: 1994 No 164 ss CG 7(5), CG 11(25)(b), (c), CG 13(1)

Subsection (4)(c) was substituted, as from 1 April 2007, by section 73(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 73(2) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

Subsection (7) was amended, as from 3 April 2006, by section 99(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “2011-12” for “2006–07” with application as from the income year corresponding to the 2006–07 tax year.

Relationship with other provisions in Act

EX 47 Codes: comparative value method, deemed rate of return method, fair dividend rate method, and cost method

When this section applies
(1) This section applies if a person holding an attributing interest in a FIF calculates the FIF income or loss from the interest for a period using—
- (a) the comparative value method:
- (b) the deemed rate of return method:
- (c) the fair dividend rate method:
- (d) the cost method.
No income other than FIF income

(2) The person is treated as not having any income from the interest for the period other than FIF income and, in particular, any dividends derived in the period from the interest and any income gained from disposing of the interest in the period are disregarded.

No deductions other than FIF loss

(3) The person is denied a deduction for any amount incurred in the period on acquiring some or all of the interest, except to the extent to which the amount is taken into account under the relevant calculation method in calculating FIF income or loss for the period.

Application of trading stock rules

(4) The interest is not trading stock in the period and accordingly subpart EB (Valuation of trading stock (including dealer's livestock)) does not apply.

Defined in this Act: amount, attributing interest, calculation method, comparative value method, deduction, cost method, deemed rate of return method, dividend, fair dividend rate method, FIF, FIF income, FIF loss, income, loss, trading stock,

Compare: 1994 No 164 s CG 16(6)

The heading to section EX 47 was substituted, as from 1 April 2007, by section 74(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 74(4) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

Subsection (1) other than the heading was substituted, as from 1 April 2007, by section 74(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 74(4) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

The list of defined terms was amended, as from 1 April 2007, by section 74(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “cost method” and “fair dividend rate method”.

EX 48 Top-up FIF income: deemed rate of return method

When this section applies
(1) This section applies at any time when a person—
- (a) has an attributing interest in a FIF for a period; and
- (b) is calculating the FIF income or loss from the interest using the deemed rate of return method; and
- (c) derives in the period, from holding or disposing of the interest, an amount that would have been income if section EX 47(2) had not applied.
Formula

(2) The gain is FIF income to the extent to which the amount calculated using the following formula is positive:

total income gains – total FIF income.

Definition of items in formula
(3) In the formula,—
- (a) total income gains is the total of amounts (including the amount in question) derived by the person until that time from holding or disposing of the interest that would have been income if section EX 47(2) had not applied:
- (b) total FIF income is the total of FIF income (reduced by the total of any FIF losses) derived by the person from the interest until (and including) the relevant period.
Consequence of partial sales

(4) If the person disposes of part of the interest, this section applies to the part disposed of and the part retained as if they were separate interests. If this means that an apportionment is necessary, it must be done on the basis of the respective market values at the time the part interest is disposed of.

Defined in this Act: amount, attributing interest, deemed rate of return method, FIF, FIF income, FIF loss, income, loss, market value,

Compare: 1994 No 164 s CG 22

EX 49 Top-up FIF income: 1 April 1993 uplift interests

When this section applies
(1) This section applies at any time if a person—
- (a) has an attributing interest in a FIF for a period; and
- (b) held the interest on 2 July 1992; and
- (c) calculated their FIF income from the interest in the period starting on 1 April 1993 under the comparative value method or the deemed rate of return method; and
- (d) was treated as having reacquired the interest on 1 April 1993 for an uplifted cost under section CG 23(1)(d) of the Income Tax Act 1994; and
- (e) derives in the period, from holding or disposing of the interest, an amount that would have been income if section EX 47(2) had not applied.
Formula

(2) The gain is FIF income to the extent to which the amount calculated using the following formula is positive:

total income gains – total FIF income.

Definition of items in formula
(3) In the formula,—
- (a) total income gains is the total of amounts (including the amount in question) that the person derived until that time from holding or disposing of the interest that would have been income if section EX 47(2) had not applied:
- (b) total FIF income is the total of FIF income (reduced by the total of any FIF losses) that the person derived from the interest until (and including) the relevant period.
Consequence of partial sales

(4) If the person disposes of part of the interest, this section applies to the part disposed of and the part retained as if they were separate interests. If this means that an apportionment is necessary, it must be done on the basis of the respective market values at the time the part interest is disposed of.

Defined in this Act: amount, attributing interest, comparative value method, deemed rate of return method, FIF, FIF income, FIF loss, income, market value,

Compare: 1994 No 164 s CG 22

Changing calculation method

EX 50 Limits on changes of method

No change unless allowed

(1) Once a person uses a particular calculation method to calculate FIF income or loss for an attributing interest in a FIF for a particular period, they must use the same method for interests in the FIF for the next period unless they are allowed to change under subsections (2) to (7).

Change on practical grounds
(2) The person may change if it is not practical to continue with the same method because—
- (a) in the case of the accounting profits method, section EX 40(2) prevents its continued use or it is impossible to obtain enough information to continue to use it:
- (b) in the case of the branch equivalent method, it is impossible to obtain enough information to continue to use it:
- (c) in the case of the comparative value method, it is impossible to find out the end-of-year market value of the interest:
- (d) in the case of the deemed rate of return method, if the person was entitled to use that method only by falling under the $250,000 threshold in section EX 40(4)(b), the threshold is exceeded:
- (e) in the case of the deemed rate of return method, if it was the default method under section EX 41, it ceases to be the default method.
- (f) in the case of the fair dividend rate method, it is impossible to find out the start-of-year market value of the interest except by an independent valuation:
- (g) in the case of the cost method, if it was the default method under section EX 41, it ceases to be the default method.
Choosing to change
(3) The person may also change by notice to the Commissioner if—
- (a) the notice complies with subsection (4); and
- (b) either—
  - (i) the person is a natural person and the $250,000 threshold in subsection (5) is not exceeded; or
  - (ii) the change is to, or from, the branch equivalent method and within subsections (6) and (7).
Notice of election
(4) The notice of an election to change under subsection (3) must—
- (a) give the reasons for the change; and
- (b) comply with the Commissioner's notice requirements; and
- (c) be given before the end of the first income year or accounting period for which the change is to take effect, unless the Commissioner agrees to a retrospective notice; and
- (d) in the case of a natural person relying on the $250,000 threshold test in subsection (3)(b)(i), be given before the end of the year or period that is before the one from the end of which the change takes effect.
Natural person: $250,000 threshold

(5) A natural person may make an election under subsection (3) if the total market value of their attributing interests in FIFs is $250,000 or less at the end of the income year or accounting period before the year or period from the end of which the change takes effect.

Changing to or from branch equivalent method
(6) A person may make an election under subsection (3) to change—
- (a) to the branch equivalent method if—
  - (i) this is the first time they have chosen to change to the branch equivalent method for an attributing interest in the FIF; or
  - (ii) subsection (7) allows them to make another election:
- (b) from the branch equivalent method if—
  - (i) they are changing back to a calculation method that they used for attributing interests in the fund before they used the branch equivalent method; and
  - (ii) this is the first time they have chosen to change from the branch equivalent method, unless subsection (7) allows them to make another election.
Repeated changes to or from branch equivalent method
(7) A person may change more than once to, or from, the branch equivalent method if—
- (a) there has been a change in circumstances (such as a significant change in shareholding) that significantly changes their ability to obtain enough information to use the branch equivalent method; and
- (b) altering their income tax liability is not the principal purpose or effect of the change.
Repeated changes between fair dividend rate method and comparative value method
(8) A person may change more than once from the fair dividend rate method to the comparative value method and from the comparative value method to the fair dividend rate method if the person is a natural person or the trustee of a trust that—
- (a) is a qualifying trust; and
- (b) is established mainly for the benefit of—
  - (i) a natural person for whom the settlor has natural love or affection:
  - (ii) an organisation or trust with income that is exempt income under section CW 34 (Charities: non-business income) or CW 35 (Charities: business income); and
- (c) has no settlor who is not a natural person; and
- (d) is not a superannuation scheme.
Defined in this Act: accounting period, accounting profits method, attributing interest, branch equivalent method, calculation method, Commissioner, comparative value method, cost method, deemed rate of return method, exempt income, fair dividend rate method, FIF, FIF income, income tax liability, income year, loss, market value, notice, qualifying trust, settlor, superannuation scheme, trustee,

Compare: 1994 No 164 s CG 17(8)-(10)

Subsection (2)(a) to (d) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (2)(f) and (g) was inserted, as from 1 April 2007, by section 75(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 75(4) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

Subsection (6)(a)(ii) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (8) was inserted, as from 1 April 2007, by section 75(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 75(4) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

The list of defined terms was amended, as from 1 April 2007, by section 75(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “cost method”, “exempt income”, “fair dividend rate method”, “qualifying trust”, “settlor”, “superannuation scheme”, and “trustee”.

EX 51 Consequences of changes in method

Changes between cost-based methods and look-through methods
(1) Subsection (2) applies if a person holding an attributing interest in a FIF changes the calculation method for calculating FIF income or loss from the interest—
- (a) from 1 of the 4 cost-based calculation methods (the comparative value method, or the deemed rate of return method, or the fair dividend rate method, or the cost method) to either of the look-through calculation methods (the accounting profits method or the branch equivalent method):
- (b) from either of the look-through calculation methods to 1 of the 4 rust-based calculation methods.
Treatment as sale for market value
(2) The person is treated as having—
- (a) disposed of the interest to an unrelated person immediately before the start of the first accounting period to which the new method applies; and
- (b) reacquired it immediately after the start of the period; and
- (c) received for the disposal and paid for the reacquisition an amount equal to the interest's market value at the time.
Changes from comparative value method or fair dividend rate method to cost method or deemed rate of return method
(3) If a person holding an attributing interest in a FIF changes from either of the comparative value method and the fair dividend rate method to either of the cost method and the deemed rate of return method for calculating the FIF income or loss from the interest, the person is treated as having—
- (a) disposed of the interest to an unrelated person immediately before the start of the first income year to which the new method applies; and
- (b) reacquired the interest immediately after the start of the income year; and
- (c) received for the disposal and paid for the reacquisition an amount equal to the market value of the interest at the time of the disposal.
Changes from cost method or deemed rate of return method to comparative value method or fair dividend rate method
(4) If a person holding an attributing interest in a FIF changes from either of the cost method and the deemed rate of return method to either of the comparative value method and the fair dividend rate method for calculating the FIF income or loss from the interest, the person is treated as having—
- (a) disposed of the interest to an unrelated person immediately before the start of the first income year to which the new method applies; and
- (b) reacquired the interest immediately after the start of the income year; and
- (c) received for the disposal and paid for the reacquisition an amount equal to,—
  - (i) if the person changes from the cost method, what would have been the interest's opening value under section EX 45B if the person had applied the cost method for the income year; or
  - (ii) if the person changes from the deemed rate of return method, the interest's closing book value under section EX 45(7) for the preceding income year; or
Defined in this Act: accounting period, accounting profits method, amount, attributing interest, branch equivalent method, calculation method, comparative value method, cost method, deemed rate of return method, fair dividend rate method, FIF, FIF income, income year, loss, market value,

Compare: 1994 No 164 s CG 24

Subsection (1)(a) and (b) was substituted, as from 1 April 2007, by section 76(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 76(4) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

Subsections (3) and (4) were substituted, as from 1 April 2007, by section 76(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 76(4) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

The list of defined terms was amended, as from 1 April 2007, by section 76(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “cost method” and “fair dividend rate method”.

Cases of entry into and exit from FIF rules

EX 52 Migration of persons holding FIF interests

Leaving New Zealand
(1) Subsection (2) applies if a person—
- (a) ceases to be resident in New Zealand; and
- (b) holds an attributing interest in a FIF at the time; and
- (c) for the period before the change of residence, calculates FIF income or loss from the interest using—
  - (i) the comparative value method:
  - (ii) the deemed rate of return method:
  - (iii) the fair dividend rate method:
  - (iv) the cost method.
Treatment as sale at market value
(2) The person is treated as—
- (a) having sold the interest immediately before the change of residence for an amount equal to its market value at the time; and
- (b) not holding the interest when not resident in New Zealand (unless they become resident again and subsections (3) and (4) apply).
Coming to New Zealand
(3) Subsection (4) applies if a person—
- (a) is a non-resident or a transitional resident; and
- (ab) becomes a New Zealand resident who is not a transitional resident; and
- (b) holds an attributing interest in a FIF at the time; and
- (c) for the period after the change of residence or status, calculates FIF income or loss from the interest using—
  - (i) the comparative value method:
  - (ii) the deemed rate of return method:
  - (iii) the fair dividend rate method:
  - (iv) the cost method.
Treatment as purchase at market value
(4) The person is treated as—
- (a) having bought the interest immediately after the change of residence or status for an amount equal to its market value at the time; and
- (b) not holding it when the person is a transitional resident or not a New Zealand resident (unless they had previously ceased being resident and subsections (1) and (2) applied).
Look-through calculation method: relevance of income interest rules
(5) Subsection (6) applies if a person—
- (a) ceases to be—
  - (i) a New Zealand resident who is not a transitional resident, and becomes a non-resident:
  - (ii) a non-resident, and becomes a New Zealand resident who is not a transitional resident:
  - (iii) a transitional resident, and becomes a New Zealand resident who is not a transitional resident; and
- (b) holds an attributing interest in a FIF at the time; and
- (c) for the accounting period in which the change occurs, uses the accounting profits method or branch equivalent method to calculate FIF income or loss from the interest.
Income interest rules

(6) The income interest rule in section EX 16 is relevant to the calculation of the amount of FIF income or loss for the period.

Defined in this Act: accounting period, accounting profits method, amount, attributing interest, branch equivalent method, calculation method, comparative value method, cost method, deemed rate of return method, fair dividend rate method, FIF, FIF income, income interest, loss, market value, New Zealand, New Zealand resident, non-resident, resident in New Zealand, , transitional resident,

Compare: 1994 No 164 ss CG 16(4), CG 23(2), (3)

Subsection (1)(c) was substituted, as from 1 April 2007, by section 77(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 77(8) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

Subsection (3)(a) was substituted, as from 1 October 2005, by section 100(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 100(5) and (6) of that Act as to the application of this amendment.

Subsection (3)(ab) was inserted, as from 1 October 2005, by section 100(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 100(5) and (6) of that Act as to the application of this amendment.

Subsection (3)(c) was amended, as from 1 October 2005, by section 100(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “change of residence or status” for “change of residence” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 100(5) and (6) of that Act as to the application of this amendment.

Subsection (3)(c) was substituted, as from 1 April 2007, by section 77(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 77(8) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

Subsection (4)(a) was amended, as from 1 October 2005, by section 77(3)(a) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “residence or status” for “residence” with application as from the 2005-06 income year.

Subsection (4)(b) was amended, as from 1 October 2005, by section 77(3)(b) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “when the person is a transitional resident or not a New Zealand resident” for “when not resident in New Zealand” with application as from the 2005-06 income year.

Subsection (5)(a) was substituted, as from 1 October 2005, by section 100(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 100(5) and (6) of that Act as to the application of this amendment.

Subsection (5)(c) was amended, as from 1 April 2005, by section 77(4) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “branch equivalent method” for “deemed rate of return method” with application as from the 2005-06 income year.

The list of defined terms was amended, as from 1 October 2005, by section 100(4)(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “New Zealand resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 100(5) and (6) of that Act as to the application of this amendment.

The list of defined terms was amended, as from 1 October 2005, by section 100(4)(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “non-resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 100(5) and (6) of that Act as to the application of this amendment.

The list of defined terms was amended, as from 1 October 2005, by section 100(4)(c) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by omitting “resident of New Zealand” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 100(5) and (6) of that Act as to the application of this amendment.

The list of defined terms was amended, as from 1 October 2005, by section 100(4)(d) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “transitional resident” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 100(5) and (6) of that Act as to the application of this amendment.

The list of defined terms was amended, as from 18 December 2006, by section 77(5) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “branch equivalent method” with application as from the 2005-06 income year.

The list of defined terms was amended, as from 1 April 2007, by section 77(6) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “cost method” and “fair dividend rate method”.

EX 53 Changes in application of FIF exemptions

Exemptions ceasing to apply
(1) Subsections (2) to (4) apply if a person—
- (a) holds rights in 1 of the categories of rights described in section EX 30(2) to (4); and
- (b) either—
  - (i) the rights become an attributing interest in a FIF because 1 of the exemptions in sections EX 32 to EX 37 ceases to apply; or
  - (ii) the person starts having FIF income or loss from the rights because they incur a cost on an attributing interest in a FIF and exceed the $50,000 threshold in sections CQ 5(1)(d) or (db) (When FIF income arises) and DN 6(1)(d) or (db) (When FIF loss arises).
Market value for cost-based methods
(2) If the person uses the comparative value method, the deemed rate of return method, the fair dividend rate method, or the cost method to calculate FIF income or loss from the rights for the period following the change, the person is treated as having—
- (a) disposed of the rights to an unrelated person immediately before the change; and
- (b) reacquired them immediately after the change; and
- (c) received for the sale and paid for the repurchase an amount equal to their market value at the time.
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 the branch equivalent method to calculate FIF income or loss from the rights for that period, the FIF income or loss is reduced by subtracting the amount calculated using the formula—

Definition of items in formula
(4) In the formula,—
- (a) FIF income or loss is the FIF income or loss of the person from the rights for the period before allowing for the reduction:
- (b) days before change is the number of complete days in the period before the change occurs:
- (c) days in period is the number of days in the period.
Exemptions applying
(5) Subsections (6) to (8) apply if a person—
- (a) holds an attributing interest in a FIF; and
- (b) either—
  - (i) the interest ceases to be an attributing interest in a FIF because 1 of the exemptions in sections EX 32 to EX 37 starts to apply; or
  - (ii) the person ceases having FIF income or loss from the interest because they dispose of an attributing interest in a FIF and fall below the $50,000 threshold in sections CQ 5(1)(d) or (db) (When FIF income arises) and DN 6(1)(d) or (db) (When FIF loss arises).
Market value for cost-based methods
(6) If the person uses the comparative value method, the deemed rate of return method, the fair dividend rate method, or the cost method to calculate FIF income or loss from the interest for the period before the change, the person is treated as having—
- (a) disposed of the interest to an unrelated person immediately before the change; and
- (b) reacquired it immediately after the change; and
- (c) received for the sale and paid for the repurchase an amount equal to its market value at the time.
Calculation of reduction in FIF income or loss

(7) If the change occurs during an accounting period of the FIF and the person uses the accounting profits methods or the branch equivalent method to calculate FIF income or loss from the interest for that period, the FIF income or loss is reduced by subtracting the amount calculated using the formula—

Definition of items in formula
(8) In the formula,—
- (a) FIF income or loss is the FIF income or loss of the person from the interest 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, comparative value method, cost method, deemed rate of return method, fair dividend rate method, FIF, FIF income, loss, market value,

Compare: 1994 No 164 s CG 23(7), (8)

Subsection (1) was amended, as from 1 April 2005, by section 78(1)(a) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “Subsections (2) to (4)” for “Subsections (2) and (3)” with application as from the 2005-06 income year.

Subsection (1)(b)(ii) was amended, as from 1 April 2007, by section 78(1)(b)(i) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “or (db)” after “CQ 5(1)(d)”. See section 78(10) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

Subsection (1)(b)(ii) was amended, as from 1 April 2007, by section 78(1)(b)(ii) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “or (db)” after “DN 6(1)(d)”. See section 78(10) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

Subsection (2) before paragraph (a) was amended, as from 1 April 2007, by section 78(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “the comparative value method, the deemed rate of return method, the fair dividend rate method, or the cost method” for “the comparative value method or deemed rate of return method”. See section 78(10) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

Subsection (3) was amended, as from 1 April 2005, by section 78(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “branch equivalent method” for “deemed rate of return method” with application as from the 2005-06 income year.

Subsection (5) was amended, as from 1 April 2005, by section 78(4)(a) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “Subsections (6) to (8)” for “Subsections (2) to (4)” with application as from the 2005-06 income year.

Subsection (5)(b)(ii) was amended, as from 1 April 2007, by section 78(4)(b)(i) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “or (db)” after “CQ 5(1)(d)”. See section 78(10) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

Subsection (5)(b)(ii) was amended, as from 1 April 2007, by section 78(4)(b)(ii) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “or (db)” after “DN 6(1)(d)”. See section 78(10) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

Subsection (6) before paragraph (a) was amended, as from 1 April 2007, by section 78(5) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “the comparative value method, the deemed rate of return method, the fair dividend rate method, or the cost method” for “the comparative value method or the deemed rate of return method”. See section 78(10) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

Subsection (6)(b) was amended, as from 1 April 2005, by section 78(6) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “reacquired” for “repurchased” with application as from the 2005-06 income year.

Subsection (7) was amended, as from 1 April 2005, by section 78(7) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “branch equivalent method” for “deemed rate of return method” with application as from the 2005-06 income year.

The list of defined terms was amended, as from 1 April 2007, by section 78(5) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “branch equivalent method”, “cost method” and “fair dividend rate method”.

EX 54 FIFs migrating from New Zealand

When this section applies

(1) This section applies when a person holds rights that become an attributing interest in a FIF because an entity becomes a FIF.

Treatment as sale and repurchase
(2) The person is treated as having—
- (a) disposed of the interest immediately before the change to an unrelated person; and
- (b) repurchased it immediately after the change; 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 loss from the rights for that period, section EX 25 does not apply and the FIF income or loss is reduced by subtracting the amount calculated using the formula—

Definition of items in formula
(4) In the formula,—
- (a) FIF income or loss is the FIF income or loss of the person from the rights for the period before allowing for the reduction:
- (b) days before change is the number of complete days in the period before 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, business, FIF, FIF income, loss, market value, New Zealand,

Compare: 1994 No 164 ss CG 14(1)(ca), CG 23(7A)-(7D)

EX 54B FIF rules first applying to interest for income year beginning on or after 1 April 2007

Application of this section
(1) This section applies if—
- (a) a person has rights in a FIF—
  - (i) on the day (the preceding day) before an income year; and
  - (ii) on the day (the application day) that begins the income year; and
- (b) for the period ending on the preceding day,—
  - (i) the rights are not an attributing interest:
  - (ii) the rights are an attributing interest for which the person does not have FIF income or loss; and
- (c) for the period beginning on the application day, the rights are an attributing interest for which the person has FIF income or loss.
Disposal and acquisition
(2) The person is treated as having—
- (a) disposed of the interest to an unrelated person immediately before the application day; and
- (b) reacquired the interest at the start of the application day; and
- (c) received for the disposal and paid for the reacquisition an amount equal to the market value of the interest at the time of the disposal.
Payment of tax liability arising from transition
(3) A person who is liable to pay an amount of income tax (the tax amount) because of the disposal and acquisition referred to in subsection (2)—
- (a) may satisfy the liability by making payments to the Commissioner of at least—
  - (i) one third of the tax amount, in the income year following the income year in which the disposal is treated as occurring; and
  - (ii) one half of the balance of the tax amount remaining owing after the payments made under subparagraph (i), in the second income year following the income year in which the disposal is treated as occurring; and
  - (iii) the balance of the tax amount remaining owing after the payments made under subparagraphs (i) and (ii), in the third income year following the income year in which the disposal is treated as occurring:
- (b) is not liable to pay any penalty or interest for which the entity would otherwise be liable for an inaccuracy in an estimate, or shortfall in the payment, of provisional tax to the extent that the inaccuracy or shortfall arises because of the disposal.
Defined in this Act: attributing interest, FIF, FIF income, income year, loss, portfolio calculation period, revenue account property,

Section EX 54B was inserted, as from 1 April 2007, by section 79(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 79(2) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

EX 55 Death of persons holding FIF interests

[Repealed]

Section EX 55 was repealed, as from 1 October 2005, by section 49 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Measurement of cost

EX 56 Measurement of cost

When this section applies
(1) This section applies when the cost of a person's attributing interest in a FIF is being measured for the purposes of—
- (a) the natural person $50,000 exemption in sections CQ 5(1)(d) or (db) (When FIF income arises) and DN 6(1)(d) or (db) (When FIF loss arises):
- (b) the comparative value method:
- (c) the deemed rate of return method.
- (d) the fair dividend rate method:
- (e) the cost method.
Cost flow using average cost

(2) The cost of an attributing interest in a FIF acquired by a person in an income year is treated as being the amount calculated using the formula—

Definition of items in formula
(2B) In the formula,—
- (a) total cost is the total cost of all attributing interests in the FIF, of the same class as the attributing interest, acquired by the person in the income year:
- (b) number of interests is the number of the attributing interests referred to in paragraph (a).
Share splits or similar

(3) If the person acquires the interest as the result of a share split, non-taxable bonus issue, or similar event, and the acquisition is not income for the person, subsections (4) and (5) apply.

Allocation of original cost

(4) The cost of the interest is a fair allocation (based on market values at the time of the split) of the cost of the original property that is split.

Allocation replacing original cost
(5) For the income year in which the split occurs and later,—
- (a) the cost allocated to the interest is no longer the cost of the original property that was split; and
- (b) the person is treated as having incurred the allocated cost amount on acquiring the interest when the original property was acquired; and
- (c) the person is treated as not incurring any other cost on the interest merely because the original property ceases to exist.
Non-monetary cost

(6) If any cost is incurred in kind and not in money, the amount of the cost is equal to the market value of the cost incurred in kind, measured as at the time incurred.

Exclusion of term life insurance element of premiums

(7) If the interest is rights to benefit under a life insurance policy, the cost of the interest excludes a premium incurred in a previous income year (or accounting period) to the extent to which the premium relates only to term life insurance for the previous period and does not increase the policy's surrender value.

Exclusion of holding costs

(8) The cost of the interest does not include any expenditure under the financial arrangements rules or interest on money borrowed to acquire it, or other holding costs, incurred after its acquisition.

Defined in this Act: accounting period, attributing interest, amount, comparative value method, cost method, deemed rate of return method, fair dividend rate method, FIF, financial arrangements rules, income, income year, interest, life insurance, life insurance policy, market value, non-taxable bonus issue, premium, share,

Compare: 1994 No 164 s CG 14(1)

Subsection (1)(a) was amended, as from 1 April 2005, by section 80(1)(c) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “arises):” for “arises); and” with application as from the 2005–06 income year.

Subsection (1)(a) was amended, as from 1 April 2007, by section 80(1)(a) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “or (db)” after “CQ 5(1)(d)”. See section 80(7) of that Act as to the application of this amendment for income years beginning on or after 1 April 2007.

Subsection (1)(a) was amended, as from 1 April 2007, by section 80(1)(b) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “or (db)” after “DN 6(1)(d)”. See section 80(7) of that Act as to the application of this amendment for income years beginning on or after 1 April 2007.

Subsection (1)(b) was amended, as from 1 April 2005, by section 80(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “method:” for “method; and” with application as from the 2005–06 income year.

Subsection (1)(d) and (e) was inserted, as from 1 April 2007, by section 80(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 80(7) of that Act as to the application of this amendment for income years beginning on or after 1 April 2007.

Subsection (2) and the preceding heading were substituted, as from 1 April 2007, by section 80(4) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 80(7) of that Act as to the application of this amendment for income years beginning on or after 1 April 2007.

Subsection (2B) and the preceding heading were inserted, as from 1 April 2007, by section 80(4) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 80(7) of that Act as to the application of this amendment for income years beginning on or after 1 April 2007.

The list of defined terms was amended, as from 1 April 2007, by section 80(5) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “cost method” and “fair dividend rate method”.

Change of FIF's balance date

EX 57 Change of FIF's balance date

When this section applies
(1) This section applies when a person—
- (a) has an attributing interest in a FIF; and
- (b) calculates their FIF income or loss from the FIF using the accounting profits method or the branch equivalent method; and
- (c) has calculated FIF income or loss from the FIF on the basis of 1 accounting year (old accounting year); and
- (d) wants to change to use a different accounting year (new accounting year) for the calculations.
Commissioner's consent

(2) The person may make the change only if the Commissioner agrees.

Commissioner's reasons
(3) The Commissioner may take into account any relevant factors when making the decision, including—
- (a) whether the change is sought because ownership of the FIF has changed; and
- (b) whether the change is sought because of taxation or other legal requirements in a country where the FIF is resident or does business; and
- (c) whether the change would postpone liability to income tax on FIF income.
New accounting year

(4) If the change is approved, the person may use the new accounting year.

Limit on transitional deferral

(5) If, in order to make the transition, the transitional accounting period is more than 1 year and ends in a later income year than the old accounting year ends in, and that would result in an amount of FIF income being derived in the later income year, subsection (6) applies and section CQ 5(1)(f) (When FIF income arises) does not.

Income pro-rated over whole period

(6) For the transitional accounting period, the FIF income is divided by the number of days in the period and the resulting amount is FIF income of the person derived on each day in the period.

Defined in this Act: accounting period, accounting profits method, accounting year, amount, attributing interest, branch equivalent method, business, Commissioner, FIF, FIF income, income tax, income year, loss, year,

Compare: 1994 No 164 s CG 16(8)-(10)

Market value rules

EX 58 Market value of life policy and superannuation entitlements

When this section applies

(1) This section applies when, in order to calculate a person's FIF income or loss, it is necessary to calculate the market value of a person's rights to benefit under a life insurance policy or as a beneficiary under a superannuation scheme.

Value of life insurance policy

(2) The market value of rights to benefit under a life insurance policy is equal to their surrender value.

Limit to subsection (2)
(3) Subsection (2) applies only for the purpose of calculating the cost of a person's rights to benefit from a life insurance policy under—
- (a) section EX 52(4); and
- (b) section EX 53(2); and
- (c) section EZ 7 (FIF interests held on 1 April 1993).
Value of superannuation scheme entitlement
(4) The market value at any time of a person's rights to benefit under a superannuation scheme is equal to the total of costs incurred up to that time by or for the person on acquiring the rights if—
- (a) it is not reasonably practicable to calculate the actual market value; and
- (b) they have not derived any material gain from the rights up to that time.
Defined in this Act: FIF income, life insurance policy, loss, market value, superannuation scheme,

Compare: 1994 No 164 s CG 23(9)

EX 59 Non-market transactions in FIF interests

Section GD 14 (Attributing interests in FIFs) applies to acquisitions and dispositions of attributing interests in FIFs when the comparative value method, the deemed rate of return method, the fair dividend rate method, or the cost method is used.

Defined in this Act: attributing interest, comparative value method, cost method, deemed rate of return method, fair dividend rate method, FIF,

Compare: 1994 No 164 s CG 23(5), (6)

Section EX 59 was amended, as from 1 April 2007, by section 81(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “the comparative value method, the deemed rate of return method, the fair dividend rate method, or the cost method” for “the comparative value method or the deemed rate of return method”. See section 81(3) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

The list of defined terms was amended, as from 1 April 2007, by section 81(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “cost method” and “fair dividend rate method”.

Commissioner's default assessment power

EX 60 Commissioner's default assessment power

When this section applies
(1) This section applies when—
- (a) a person has failed to disclose their control interest or income interest in a CFC or attributing interest in a FIF, under section 61 of the Tax Administration Act 1994:
- (b) a person has failed to disclose information regarding their control interest or income interest in a CFC or attributing interest in a FIF, requested under section 17 of the Tax Administration Act 1994:
- (c) a person cannot obtain enough information to calculate their attributed CFC income or loss, FIF income or loss, or attributed repatriation for a period.
Commissioner's power

(2) The Commissioner may make an assessment of the amount of attributed CFC income or loss, FIF income or loss, or attributed repatriation for the relevant period.

Examples of methods
(3) Without limiting the Commissioner's discretion, the assessment may be based on any of the following:
- (a) the accounts of the CFC or FIF for the relevant period prepared for tax authorities, creditors, shareholders, or others:
- (b) the application of a rate of presumed increase of 10% or more (compounding annually) to the CFC's or FIF's branch equivalent income calculated under section EX 21 for a previous period:
- (c) the application of a rate of presumed increase of 10% or more (compounding annually) to the CFC's or FIF's accounting profits as shown in its accounts for a previous period:
- (d) an imputed rate of return on the market value of the interest at the start of the period:
- (e) the actual gains or losses of the person in the period from holding or disposing of the interest:
- (f) the change in the market value of the interest over the period.
Defined in this Act: amount, assessment, attributed CFC income, attributed repatriation, attributing interest, branch equivalent income, CFC, Commissioner, control interest, FIF, FIF income, income interest, loss, market value, shareholder,

Compare: 1994 No 164 s CG 25

Subsection (1)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (3)(a) to (e) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subpart EY—Life insurance rules

EY 1 What this subpart does

EY 2 Matters to which this subpart relates

EY 3 Meaning of actuarial reserves

EY 4 Actuarial reserves: calculation

EY 5 Actuarial reserves: actuary's declaration

EY 6 Actuarial reserves: powers of Commissioner

EY 7 Meaning of claim

EY 8 Meaning of life insurance

EY 9 Meaning of life insurance policy

EY 10 Meaning of life insurer

EY 11 Meaning of life reinsurance

EY 12 Meaning of life reinsurance policy

EY 13 Life insurance and life reinsurance: how sections relate

Premium loading

EY 14 How premium loading is calculated

EY 15 Premium loading: when life insurers providing life insurance at start of income year

EY 16 Premium loading: when life insurers not providing life insurance at start of income year

EY 17 Premium loading formulas

EY 18 Premium loading formulas: when life insurers not providing life insurance at start of income year

EY 19 Premium loading formulas: option when more than 1 life insured

EY 20 Premium loading formula (life): when annuity payable on death

EY 21 Premium loading formulas: when annuity payable on survival to date or age specified in policy

EY 22 Premium loading formula (life): when partial reinsurance exists

EY 23 Premium loading formulas: individual result may never be negative

Mortality profit

EY 24 How mortality profit is calculated

EY 25 Mortality profit: when life insurers providing life insurance at start of income year

EY 26 Mortality profit: when life insurers not providing life insurance at start of income year

EY 27 Mortality profit formula

EY 28 Mortality profit formula: when life insurers not providing life insurance at start of income year

EY 29 Mortality profit formula: option when more than 1 life insured

EY 30 Mortality profit formula: when annuity payable on death

EY 31 Mortality profit formula: when partial reinsurance exists

EY 32 Mortality profit formula: individual result may be negative only in some cases

EY 33 Mortality profit formula: negative result

Discontinuance profit

EY 34 How discontinuance profit is calculated

EY 35 Discontinuance profit for income year

EY 36 Discontinuance profit formula (existing policies)

EY 37 Discontinuance profit formula (new policies)

EY 38 Discontinuance profit formula (existing policies): when partial reinsurance exists

EY 39 Discontinuance profit formula (new policies): when partial reinsurance exists

EY 40 Discontinuance profit formulas: individual result may never be negative

Policyholder income

EY 41 How policyholder income is calculated

EY 42 Policyholder income formula

EY 43 Policyholder income formula: when partial reinsurance exists

EY 44 Policyholder income formula: when life insurance business transferred

Disposal of property

EY 45 Income from disposal of property

EY 46 Deductions for disposal of property

Non-resident life insurers

EY 47 Non-resident life insurers with life insurance policies in New Zealand

EY 48 Non-resident life insurer may become resident

EY 1 What this subpart does

Life insurance rules

(1) This subpart contains most of the life insurance rules.

Meaning of life insurance rules
(2) Life insurance rules means—
- (a) the sections in this subpart; and
- (b) subpart CR (Income from life insurance); and
- (c) section CX 33 (Life insurers and fully reinsured persons); and
- (d) subpart DR (Life insurance business expenditure); and
- (e) section DZ 2 (Life insurers acquiring property before 1 April 1988); and
- (f) section EZ 1 (Life insurers acquiring property before 1 April 1988); and
- (g) section GD 7 (Distribution of property to policyholders); and
- (h) section GD 8 (Superannuation schemes); and
- (i) subpart II (Losses: life insurers).
Defined in this Act: life insurance rules,

Compare: 1994 No 164 ss OB 1 life insurance rules, OZ 1(1)

EY 2 Matters to which this subpart relates

The matters to which this subpart relates are—
- (a) the meaning of actuarial reserves, claim, life insurance, life insurance policy, life insurer, life reinsurance, life reinsurer, and life reinsurance policy (sections EY 3 to EY 13):
- (b) life insurers' premium loading (sections EY 14 to EY 23):
- (c) life insurers' mortality profit (sections EY 24 to EY 33):
- (d) life insurers' discontinuance profit (sections EY 34 to EY 40):
- (e) life insurers' policyholder income (sections EY 41 to EY 44):
- (f) life insurers' income and deductions when disposing of property (sections EY 45 and EY 46):
- (g) non-resident life insurers (sections EY 47 and EY 48).
Defined in this Act: actuarial reserves, claim, deduction, discontinuance profit, income, life insurance, life insurance policy, life insurer, life reinsurance, life reinsurance policy, life reinsurer, mortality profit, non-resident, premium loading, property,

Paragraphs (a) to (f) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EY 3 Meaning of actuarial reserves

Meaning

(1) Actuarial reserves means a life insurer's reserves as calculated under section EY 4.

Link between actuarial reserves and life insurer

(2) Actuarial reserves, for a life insurer at any time, means the life insurer's actuarial reserves at that time.

Defined in this Act: actuarial reserves, life insurer,

Compare: 1994 No 164 s CM 8(1)

EY 4 Actuarial reserves: calculation

Calculation by actuary

(1) The life insurer's actuarial reserves must be calculated by an actuary.

All reserves or 1 or more amounts
(2) The actuary may calculate—
- (a) the actuarial reserves for all the life insurance policies for which the life insurer is the insurer; or
- (b) the amount in the life insurer's actuarial reserves for 1 or more life insurance policies for which the life insurer is the insurer.
Interest, mortality, and other assumptions and bases of calculation
(3) The actuary must do the calculation using interest, mortality, and other assumptions and bases of calculation that—
- (a) are based on the same principles as those used in the actuarial advice on which the following are calculated:
  - (i) the level of surplus funds available to the life insurer for allotment or payment to shareholders or policyholders; or
  - (ii) the level of surplus funds available to the life insurer, if a superannuation scheme, for allotment to objects of the scheme other than the object of providing for members' benefits; and
- (b) are likely to produce a reasonable estimation of the future experience of the life insurer in relation to life insurance policies of which the life insurer is the insurer, having regard to the past experience of the life insurer in relation to life insurance policies of which the life insurer was the insurer; and
- (c) conform with commercially acceptable practice.
Reserves for policy never negative

(4) The amount in the actuarial reserves for a life insurance policy must never be negative.

Reserves for all policies never less than total of surrender values

(5) The actuarial reserves at any time must not be less than the total of the surrender values of all the life insurance policies they cover at that time.

Reserves for policies same at end of one, and start of next, income year

(6) The amount in the actuarial reserves for life insurance policies at the start of an income year is the same as the amount in the actuarial reserves for the life insurance policies at the end of the previous income year.

Effect of partial reinsurance

(7) The actuarial reserves of a life insurer who has partial reinsurance must be reduced by an amount that the actuary responsible for actuarial control of the life insurer considers appropriate having regard to the nature of the life reinsurance policies.

Defined in this Act: actuarial reserves, actuary, amount, income year, life insurance policy, life insurer, life reinsurance policy, partial reinsurance, payment, shareholder, superannuation scheme,

Compare: 1994 No 164 ss CM 8(1), (2)(a), (b), CM 13(1)(d)

EY 5 Actuarial reserves: actuary's declaration

Content
(1) The actuary responsible for actuarial control of a life insurer must provide, with the life insurer's return of income, a declaration that—
- (a) states that the actuary is the actuary responsible for actuarial control of the life insurer; and
- (b) states the specific interest, mortality, and other assumptions and bases of calculation applied in calculating the life insurer's premium loading, mortality profit, discontinuance profit, and policyholder income or policyholder net loss for the income year of the return; and
- (c) states that the assumptions and bases of calculation comply with section EY 4.
Form

(2) The declaration must be in the form (if any) required by the Commissioner.

Defined in this Act: actuarial reserves, actuary, Commissioner, discontinuance profit, income year, life insurer, mortality profit, policyholder income, policyholder net loss, premium loading, return of income,

Compare: 1994 No 164 s CM 8(2)(c)

EY 6 Actuarial reserves: powers of Commissioner

Seek advice from Government Actuary or other actuary

(1) The Commissioner may seek the advice of the Government Actuary or any other actuary on the interest, mortality, and other assumptions and bases of calculation used by the actuary who did the calculation under section EY 4(3).

Assess on different basis

(2) Whether or not the Commissioner seeks or obtains any such advice, the Commissioner may make an assessment for a life insurer and an income year on the basis of interest, mortality, and other assumptions and bases of calculation different from those used by the actuary who did the calculation under section EY 4(3).

Defined in this Act: actuarial reserves, actuary, assessment, Commissioner, income year, life insurer,

Compare: 1994 No 164 s CM 8(3)

EY 7 Meaning of claim

Meaning in life insurance rules
(1) In the life insurance rules, claim—
- (a) means the amount that a life insurer is liable to pay under a life insurance policy because the contingency against which the life insured is covered under the policy has occurred. Subsections (2) to (5) expand on “the amount that a life insurer is liable to pay”:
- (b) includes a payment made by a life insurer on the transfer of some or all of its life insurance business:
- (c) in the expression claim arising, does not have the meaning given to the word claim in paragraph (a) or (b).
Includes cash and non-cash benefits
(2) For the purposes of subsection (1)(a), the amount that a life insurer is liable to pay includes—
- (a) a payment on the death of a life insured:
- (b) a payment on maturity:
- (c) a payment of a cash bonus:
- (d) a payment on the surrender of a policy:
- (e) an annuity payment:
- (f) a benefit other than in cash.
Does not include advance or amount in actuarial reserves
(3) For the purposes of subsection (1)(a), the amount that a life insurer is liable to pay does not include—
- (a) an advance against the security of the policy; or
- (b) a bonus or other discretionary amount added to the actuarial reserves.
Means amount before certain subtractions
(4) For the purposes of subsection (1)(a), the amount that a life insurer is liable to pay means the amount before the subtraction of the following amounts payable to the life insurer:
- (a) an advance against the security of the policy; and
- (b) an unpaid premium for the policy; and
- (c) interest on an amount referred to in paragraph (a) or (b).
Amount may be zero

(5) For the purposes of subsection (1)(a), the amount that a life insurer is liable to pay may be zero.

Defined in this Act: actuarial reserves, amount, business, claim, interest, life insurance, life insurance policy, life insurance rules, life insured, life insurer, pay, payment, premium,

Compare: 1994 No 164 s OB 1 claim

Subsection (1)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

Subsection (2)(a) to (e) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EY 8 Meaning of life insurance

Meaning
(1) Life insurance means insurance under which—
- (a) person A (life insurer) is liable to provide person B (policyholder) with a benefit described in subsection (2); and
- (b) the life insurer is entitled to receive consideration in return, either from the policyholder or from some other person.
Benefits
(2) The benefits are—
- (a) a benefit whose payment is contingent on the death of 1 or more human beings, including an annuity whose term is contingent on human life; or
- (b) a benefit whose payment is contingent on the survival of 1 or more human beings to a date, or an age, specified as part of the insurance, including an annuity whose term is contingent on human life; or
- (c) a benefit that is an annuity whose term is not contingent on human life, if the life insurer enters into the arrangement to provide the annuity as part of their business of providing life insurance.
Exclusion: death benefits provided under accident or medical insurance
(3) Life insurance does not include accident or medical insurance under which—
- (a) 1 or more benefits are payable for the death of the person whose life is insured; and
- (b) all the benefits referred to in paragraph (a) are—
  - (i) payable if the death is caused by a specified cause named in the policy; or
  - (ii) payable incidentally to the provision of accident or medical benefits, if the death is caused by a specified cause named in the policy.
Exclusion: death benefits provided by superannuation funds
(4) Life insurance does not include an arrangement in which—
- (a) a superannuation fund is liable to pay, as a benefit to a beneficiary of the fund, a lump sum on—
  - (i) the death of 1 or more human beings specified in the trust deed; or
  - (ii) the survival of 1 or more human beings specified in the trust deed to a date, or an age, specified in the trust deed; and
- (b) the lump sum is made up of—
  - (i) superannuation contributions made by or for the beneficiary; and
  - (ii) allocated investment earnings attributable to contributions made by or for the beneficiary; and
  - (iii) any other allocation from the profits of the superannuation fund attributable to contributions made by or for the beneficiary.
Defined in this Act: arrangement, business, life insurance, life insurer, pay, payment, superannuation contribution, superannuation fund,

Compare: 1994 No 164 ss CM 2, OB 1 life insurance

Subsection (3)(b) was substituted, as from 1 April 2005, by section 82(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 82(2) and (3) of that Act for the application of this amendment for a person for the 2005–06 and later income years. Subsection (3) of that Act provides that if subsection (1) of that Act does not apply for a person for an income year because of subsection (2), the law that would apply if subsection (1) did not come into force applies for the person for the income year.

EY 9 Meaning of life insurance policy

Life insurance policy means a policy to the extent to which it states the terms under which life insurance is covered.

Defined in this Act: life insurance, life insurance policy,

EY 10 Meaning of life insurer

Meaning

(1) Life insurer means a person carrying on a business of providing life insurance.

Exclusion

(2) A person carrying on a business of providing life insurance in an income year is treated as not carrying on a business of providing life insurance while the person has full reinsurance.

Inclusion
(3) An association of persons, a body of persons, or a trustee is treated as carrying on a business of providing life insurance to the extent to which—
- (a) the association, body, or trustee provides life insurance; and
- (b) the consideration for the provision is something other than natural love and affection.
Parties to policies treated as being unrelated
(4) Every life insurance policy entered into by the association, body, or trustee as insurer is treated as entered into with an unrelated party, even if the life insurer and the policyholder are, for example,—
- (a) an association and a member of the association; or
- (b) a trustee and a beneficiary of the trust.
Relationship with section HF 1

(5) Section HF 1 (Profits of mutual associations in respect of transactions with members) does not apply to the business of providing life insurance of the association, body, or trustee.

Defined in this Act: business, full reinsurance, income year, life insurance, life insurance policy, life insurer, trustee,

Compare: 1994 No 164 ss CM 12, CM 14, OB 1 life insurer

EY 11 Meaning of life reinsurance

Meaning

(1) Life reinsurance means insurance provided to a life insurer by another person (person C), under which person C secures the life insurer, fully or partially, against the life insurer's liability under a life insurance policy. The words ‘‘fully'' and ‘‘partially'' describe the extent to which the life insurer is secured against the life insurer's liability under the life insurance policy; they do not describe the term for which the reinsurance is provided.

Full reinsurance
(2) The life insurer has full reinsurance if all the following apply:
- (a) the life insurer offered or was offered or entered into a life insurance policy or policies,—
  - (i) in the case of a life insurer resident in New Zealand, as part of their business of providing life insurance; or
  - (ii) in the case of a life insurer not resident in New Zealand, as part of their New Zealand business; and
- (b) the life insurer holds a life reinsurance policy or policies covering every life insurance policy described in paragraph (a); and
- (c) the life insurer is fully secured against liability under the life insurance policy or policies by the life reinsurance policy or policies; and
- (d) the life insurer offered or was offered or entered into the life reinsurance policy or policies in New Zealand.
Partial reinsurance
(3) The life insurer has partial reinsurance if all the following apply:
- (a) the life insurer—
  - (i) holds a life reinsurance policy or policies fully securing them against liability for 1 or some, but not all, of the life insurance policies described in paragraph (b); or
  - (ii) holds a life reinsurance policy or policies for all the life insurance policies described in paragraph (b) but only partially securing them against liability; or
  - (iii) holds a life reinsurance policy or policies partially securing them against liability for 1 or some, but not all, of the life insurance policies described in paragraph (b); and
- (b) the life insurer offered or was offered or entered into the life insurance policy or policies covered by the life reinsurance policy or policies,—
  - (i) in the case of a life insurer resident in New Zealand, as part of their business of providing life insurance; or
  - (ii) in the case of a life insurer not resident in New Zealand, as part of their New Zealand business; and
- (c) the life insurer offered or was offered or entered into the life reinsurance policy or policies in New Zealand.
Life reinsurer

(4) Life reinsurer means a person in the position of person C.

Defined in this Act: business, full reinsurance, life insurance, life insurance policy, life insurer, life reinsurance, life reinsurance policy, life reinsurer, New Zealand business, offered or was offered or entered into, partial reinsurance, resident in New Zealand,

Compare: 1994 No 164 ss CM 12, CM 13(1)(a)

EY 12 Meaning of life reinsurance policy

Life reinsurance policy means a policy to the extent to which it states the terms under which life reinsurance is covered.

Defined in this Act: life reinsurance, life reinsurance policy,

EY 13 Life insurance and life reinsurance: how sections relate

Life insurance definitions

(1) Sections EY 8 to EY 10 define terms relating to life insurance.

Life reinsurance definitions

(2) Sections EY 11 and EY 12 define terms relating to life reinsurance.

Life insurance term usually includes life reinsurance term

(3) A reference in this Act to any of the terms defined in sections EY 8 to EY 10 includes the equivalent term in sections EY 11 and EY 12—for example, life insurer includes life reinsurer — unless the context requires otherwise.

Defined in this Act: life insurance, life insurer, life reinsurance, life reinsurer,

Premium loading

EY 14 How premium loading is calculated

Life insurer providing life insurance at start of income year

(1) Section EY 15 sets out the steps that a life insurer follows to calculate the life insurer's premium loading for an income year if the life insurer is in the business of providing life insurance at the start of the income year.

Life insurer not providing life insurance at start of income year

(2) Section EY 16 sets out the steps that a life insurer follows to calculate the life insurer's premium loading for an income year if the life insurer starts the business of providing life insurance in the income year.

Premium loading formula (life)

(3) Section EY 17(1) sets out the premium loading formula (life). This is the formula a life insurer uses, as the first step in calculating the life insurer's premium loading for an income year, to calculate an amount for a life insured under a life insurance policy, except to the extent to which an annuity is being paid under the policy at some time in the income year.

Premium loading formula (active annuities)

(4) Section EY 17(2) sets out the premium loading formula (active annuities). This is the formula a life insurer uses, as the first step in calculating the life insurer's premium loading for an income year, to calculate an amount for a life insured under a life insurance policy, to the extent to which an annuity is being paid under the policy at some time in the income year.

Defined in this Act: business, income year, life insurance, life insurance policy, life insured, life insurer, pay, premium loading, premium loading formula,

Compare: 1994 No 164 s CM 6(1), (3)

EY 15 Premium loading: when life insurers providing life insurance at start of income year

Calculation of premium loading

(1) If a life insurer is in the business of providing life insurance at the start of an income year, the life insurer calculates their premium loading for the income year by following the steps in subsection (2).

Steps
(2) The steps are,—
- (a) first, use the relevant premium loading formula to calculate an amount for each life insured under each life insurance policy existing at the start of the income year:
- (b) second, for each such life insurance policy, add together the amounts for the lives insured under it:
- (c) third, add together the totals reached under paragraph (b).
Defined in this Act: amount, business, income year, life insurance, life insurance policy, life insured, life insurer, premium loading, premium loading formula,

Compare: 1994 No 164 s CM 6(1)

Subsection (2)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EY 16 Premium loading: when life insurers not providing life insurance at start of income year

Calculation of premium loading

(1) If a life insurer has started to carry on a business of providing life insurance in an income year, the life insurer calculates the life insurer's premium loading for the income year by following the steps in subsection (2).

Steps
(2) The steps are,—
- (a) first, use the relevant premium loading formula, adjusted as described in section EY 18, to calculate an amount for each life insured under each life insurance policy existing at some time in the income year:
- (b) second, for each such life insurance policy, add together the amounts for the lives insured under it:
- (c) third, add together the totals reached under paragraph (b).
Defined in this Act: amount, business, income year, life insurance, life insurance policy, life insured, life insurer, premium loading, premium loading formula,

Compare: 1994 No 164 s CM 6(3)

Subsection (2)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EY 17 Premium loading formulas

Premium loading formula (life)

(1) The premium loading formula (life) is—

0.2 x claim probability x (opening sum assured – opening actuarial reserves).

Premium loading formula (active annuities)

(2) The premium loading formula (active annuities) is—

0.01 x claim probability x opening actuarial reserves.

Definition of items in formulas

(3) The items in the formulas are defined in subsections (4) to (6).

Claim probability

(4) Claim probability is the probability of a claim arising under the policy for the life insured's death in the income year. It is determined at the start of the income year using the same mortality assumptions as are used to calculate the life insurer's actuarial reserves at the start of the income year. It is expressed as a decimal. Variations to claim probability are in sections EY 18(2) and EY 19(2).

Opening sum assured

(5) Opening sum assured is the claim that would be payable under the policy for the life insured's death in the income year or, if no such claim would be payable, the claim that would be payable under the policy for the life insured's survival to the relevant date or age specified in the policy. It is determined at the start of the income year. It may be zero. Variations to opening sum assured are in sections EY 18(3), EY 20(2), EY 21(3), and EY 22(2).

Opening actuarial reserves

(6) Opening actuarial reserves is the amount in the life insurer's actuarial reserves for the life insured under the policy. It is determined at the start of the income year. A variation to opening actuarial reserves is in section EY 18(4).

Defined in this Act: actuarial reserves, amount, claim, income year, life insured, life insurer, pay, premium loading formula,

Compare: 1994 No 164 s CM 6(1)

EY 18 Premium loading formulas: when life insurers not providing life insurance at start of income year

When this section applies

(1) This section applies when a life insurer has started to carry on a business of providing life insurance in an income year.

Claim probability

(2) In using the relevant premium loading formula, the life insurer treats the reference in claim probability to the start of the income year as a reference to the date on which the life insurance policy started to cover the life insured.

Opening sum assured

(3) In using the premium loading formula (life), the life insurer treats the reference in opening sum assured to the start of the income year as a reference to the date on which the life insurance policy started to cover the life insured.

Opening actuarial reserves

(4) In using the relevant premium loading formula, the life insurer treats the reference in opening actuarial reserves to the start of the income year as a reference to the end of the income year.

Defined in this Act: business, income year, life insurance, life insurance policy, life insurer, premium loading formula,

Compare: 1994 No 164 s CM 6(3)

EY 19 Premium loading formulas: option when more than 1 life insured

When this section applies

(1) This section applies when a life insurance policy covers more than 1 life insured.

Claim probability

(2) In using the relevant premium loading formula, the life insurer may use as claim probability a common factor for all the lives insured under the policy.

Features of common factor
(3) The common factor must be a reasonable approximation of the average probability of a claim arising under the policy for each life insured's death in the income year. It must be weighted as necessary to take account of—
- (a) differing claims for individual lives insured under the policy; and
- (b) differing amounts in the life insurer's actuarial reserves for individual lives insured under the policy.
Defined in this Act: actuarial reserves, amount, claim, income year, life insurance policy, life insured, life insurer, premium loading formula,

Compare: 1994 No 164 s CM 6(2)

EY 20 Premium loading formula (life): when annuity payable on death

When this section applies

(1) This section applies when, and to the extent to which, a life insurance policy provides for the payment of an annuity the start of which is contingent on the life insured's death.

Opening sum assured
(2) In using the premium loading formula (life), the life insurer uses as opening sum assured the net present value of the annuity. The net present value is determined—
- (a) at the start of the income year; and
- (b) on the assumption that the life insured died at the start of the income year; and
- (c) using the same assumptions and bases of calculation as are used to calculate the life insurer's actuarial reserves for the income year.
Defined in this Act: actuarial reserves, income year, life insurance policy, life insured, life insurer, payment, premium loading formula,

Compare: 1994 No 164 s CM 6(4)

EY 21 Premium loading formulas: when annuity payable on survival to date or age specified in policy

When this section applies

(1) This section applies when, and to the extent to which, a life insurance policy provides for the payment of an annuity the start of which is contingent on the life insured's survival to the relevant date or age specified in the policy.

Claim probability

(2) In using the relevant premium loading formula, the life insurer must use claim probability as defined in section EY 17(4), without regard to the fact that the payment of the annuity is not contingent on the life insured's death.

Opening sum assured
(3) In using the premium loading formula (life), the life insurer must use as opening sum assured the net present value of the annuity. The net present value is determined—
- (a) at the relevant date or age specified in the policy; and
- (b) on the assumption that the life insured survived to the date or age; and
- (c) using the same assumptions and bases of calculation as are used to calculate the life insurer's actuarial reserves for the income year.
Defined in this Act: actuarial reserves, income year, life insurance policy, life insured, life insurer, pay, payment, premium loading formula,

Compare: 1994 No 164 s CM 6(5)

EY 22 Premium loading formula (life): when partial reinsurance exists

When this section applies

(1) This section applies when a life insurer has partial reinsurance.

Opening sum assured

(2) In using the premium loading formula (life), the life insurer must reduce opening sum assured by the claim receivable by the life insurer under the life reinsurance policy for the contingency against which the life insured is covered under the life insurance policy.

Defined in this Act: claim, life insurance policy, life insured, life insurer, life reinsurance policy, partial reinsurance, premium loading formula,

Compare: 1994 No 164 s CM 13(1)(a), (b)

EY 23 Premium loading formulas: individual result may never be negative

If a life insurer gets a negative result from using a premium loading formula to calculate an amount for a life insured under a life insurance policy for an income year, the result is treated as zero.

Defined in this Act: income year, life insurance policy, life insured, life insurer, premium loading formula,

Compare: 1994 No 164 s CM 6(6)

Mortality profit

EY 24 How mortality profit is calculated

Life insurer providing life insurance at start of income year

(1) Section EY 25 sets out the steps that a life insurer follows to calculate their mortality profit for an income year if they are in the business of providing life insurance at the start of the income year.

Life insurer not providing life insurance at start of income year

(2) Section EY 26 sets out the steps that a life insurer follows to calculate their mortality profit for an income year if they start the business of providing life insurance in the income year.

Mortality profit formula

(3) Section EY 27 sets out the mortality profit formula that a life insurer uses, as the first step in calculating the life insurer's mortality profit for an income year, to calculate an amount for a life insured under a life insurance policy.

Defined in this Act: business, income year, life insurance, life insurance policy, life insured, life insurer, mortality profit, mortality profit formula,

Compare: 1994 No 164 s CM 5(1), (3)

EY 25 Mortality profit: when life insurers providing life insurance at start of income year

Calculation of mortality profit

(1) If a life insurer is in the business of providing life insurance at the start of an income year, the life insurer calculates the life insurer's mortality profit for the income year by following the steps in subsection (2).

Steps
(2) The steps are,—
- (a) first, use the mortality profit formula to calculate an amount for each life insured under each life insurance policy existing at the start of the income year:
- (b) second, for each such life insurance policy, add together the amounts for the lives insured under it:
- (c) third, add together the totals reached under paragraph (b):
- (d) fourth, if the result is positive, take it as the mortality profit. If the result is negative, sections EY 32 and EY 33 apply.
Defined in this Act: amount, business, income year, life insurance, life insurance policy, life insured, life insurer, mortality profit, mortality profit formula,

Compare: 1994 No 164 s CM 5(1)

Subsection (2)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EY 26 Mortality profit: when life insurers not providing life insurance at start of income year

Calculation of mortality profit

(1) If a life insurer has started to carry on a business of providing life insurance in an income year, the life insurer calculates the life insurer's mortality profit for the income year by following the steps in subsection (2).

Steps
(2) The steps are,—
- (a) first, use the mortality profit formula, adjusted as described in section EY 28, to calculate an amount for each life insured under each life insurance policy existing at some time in the income year:
- (b) second, for each such life insurance policy, add together the amounts for the lives insured under it:
- (c) third, add together the totals reached under paragraph (b):
- (d) fourth, if the result is positive, take it as the mortality profit. If the result is negative, sections EY 32 and EY 33 apply.
Defined in this Act: amount, business, income year, life insurance, life insurance policy, life insured, life insurer, mortality profit, mortality profit formula,

Compare: 1994 No 164 s CM 5(3)

Subsection (2)(a) to (c) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EY 27 Mortality profit formula

Formula

(1) The mortality profit formula is—

claim probability x (opening sum assured – opening actuarial reserves) – (closing sum assured – opening actuarial reserves).

Definition of items in formula

(2) The items in the formula are defined in subsections (3) to (8).

Claim probability

(3) Claim probability is the probability of a claim arising under the policy for the life insured's death in the income year. It is determined at the start of the income year using the same mortality assumptions as are used to calculate the life insurer's actuarial reserves at the start of the income year. It is expressed as a decimal. Variations to claim probability are in sections EY 28(2) and EY 29(2).

Opening sum assured

(4) Opening sum assured is the claim that would be payable under the policy for the life insured's death in the income year. It is determined at the start of the income year. It may be zero. Variations to opening sum assured are in sections EY 28(3), EY 30(2), and EY 31(2).

Opening actuarial reserves

(5) Opening actuarial reserves is the amount in the life insurer's actuarial reserves for the life insured under the policy. It is determined at the start of the income year. A variation to opening actuarial reserves is in section EY 28(4).

Closing sum assured if life insured dies in current income year

(6) If a life insured dies in the income year to which the formula is being applied, closing sum assured is the claim payable under the policy for the death. It may be zero. A variation to closing sum assured is in section EY 31(3).

Closing sum assured if life insured dies in 1990-91 income year or year up to current income year

(7) If a life insured dies in the 1990-91 income year or a later income year before the income year to which the formula is being applied, and the claim has not already been included in closing sum assured for an income year, closing sum assured is the claim payable under the policy for the death. It may be zero. A variation to closing sum assured is in section EY 31(3).

Closing sum assured if subsections (6) and (7) do not apply

(8) If subsections (6) and (7) do not apply, closing sum assured is the same as opening actuarial reserves.

Defined in this Act: actuarial reserves, amount, claim, income year, life insured, life insurer, mortality profit formula, pay,

Compare: 1994 No 164 s CM 5(1)

EY 28 Mortality profit formula: when life insurers not providing life insurance at start of income year

When this section applies

(1) This section applies when a life insurer starts to carry on a business of providing life insurance in an income year.

Claim probability

(2) In using the mortality profit formula, the life insurer treats the reference in claim probability to the start of the income year as a reference to the date on which the life insurance policy started to cover the life insured.

Opening sum assured

(3) In using the mortality profit formula, the life insurer treats the reference in opening sum assured to the start of the income year as a reference to the date on which the life insurance policy started to cover the life insured.

Opening actuarial reserves

(4) In using the mortality profit formula, the life insurer treats the reference in opening actuarial reserves to the start of the income year as a reference to the end of the income year.

Defined in this Act: business, income year, life insurance, life insurance policy, life insurer, mortality profit formula,

Compare: 1994 No 164 s CM 5(3)

EY 29 Mortality profit formula: option when more than 1 life insured

When this section applies

(1) This section applies when a life insurance policy covers more than 1 life insured.

Claim probability

(2) In using the mortality profit formula, the life insurer may use as claim probability a common factor for all the lives insured under the policy.

Features of common factor
(3) The common factor must be a reasonable approximation of the average probability of a claim arising under the policy for each life insured's death in the income year. It must be weighted as necessary to take account of—
- (a) differing claims for individual lives insured under the policy; and
- (b) differing amounts in the life insurer's actuarial reserves for individual lives insured under the policy.
Defined in this Act: actuarial reserves, amount, claim, income year, life insurance policy, life insured, life insurer, mortality profit formula,

Compare: 1994 No 164 s CM 5(2)

EY 30 Mortality profit formula: when annuity payable on death

When this section applies

(1) This section applies when, and to the extent to which, a life insurance policy provides for the payment of an annuity the start of which is contingent on the life insured's death.

Opening sum assured
(2) In using the mortality profit formula, the life insurer uses as opening sum assured the net present value of the annuity. The net present value is determined—
- (a) at the start of the income year; and
- (b) on the assumption that the life insured died at the start of the income year; and
- (c) using the same assumptions and bases of calculation as are used to calculate the life insurer's actuarial reserves for the income year.
Defined in this Act: actuarial reserves, income year, life insurance policy, life insured, life insurer, mortality profit formula, pay, payment,

Compare: 1994 No 164 s CM 5(4)

EY 31 Mortality profit formula: when partial reinsurance exists

When this section applies

(1) This section applies when a life insurer has partial reinsurance.

Opening sum assured

(2) In using the mortality profit formula, the life insurer must reduce opening sum assured by the claim receivable by the life insurer under the life reinsurance policy for the contingency against which the life insured is covered under the life insurance policy.

Closing sum assured

(3) In using the mortality profit formula, the life insurer must reduce closing sum assured by the claim receivable by the life insurer under the life reinsurance policy for the contingency against which the life insured is covered under the life insurance policy.

Defined in this Act: claim, life insurance policy, life insured, life insurer, life reinsurance policy, mortality profit formula, partial reinsurance,

Compare: 1994 No 164 s CM 13(1)(a)

EY 32 Mortality profit formula: individual result may be negative only in some cases

Rule: not negative

(1) If a life insurer gets a negative result from using the mortality profit formula to calculate an amount for a life insured under a life insurance policy for an income year, the result is treated as zero. However, a negative result is not treated as zero if 1 of the exclusions in subsections (2) to (4) applies.

Exclusion: death in income year

(2) The first exception is when the life insured died in the income year.

Exclusion: death in 1990-91 income year or later
(3) The second exception is when—
- (a) the life insured died in the 1990-91 income year or a later income year before the income year for which the formula is being used; and
- (b) the claim has not already been included in closing sum assured for an income year.
Exclusion: annuity being paid

(4) The third exception is when, and to the extent to which, the benefit under the policy is an annuity that is being paid at some time in the income year.

Defined in this Act: claim, income year, life insurance policy, life insured, life insurer, mortality profit formula, pay,

Compare: 1994 No 164 s CM 5(5)

EY 33 Mortality profit formula: negative result

When this section applies

(1) This section applies when a life insurer is allowed a deduction under section DR 1 (Mortality profit formula: negative result).

Amount of deduction

(2) The amount of the deduction is the negative result.

Timing of deduction

(3) The life insurer is allowed the deduction in the income year.

Defined in this Act: amount, deduction, income year, life insurer, mortality profit formula,

Compare: 1994 No 164 s DK 3A

Discontinuance profit

EY 34 How discontinuance profit is calculated

Life insurer providing life insurance at any time

(1) Section EY 35 sets out the steps that a life insurer follows to calculate the life insurer's discontinuance profit for an income year.

Discontinuance profit formula (existing policies)
(2) Section EY 36 sets out the discontinuance profit formula (existing policies). This is the formula a life insurer uses, as the first step in calculating the life insurer's discontinuance profit for an income year, to calculate an amount for a life insurance policy that exists at the start of the income year and to which 1 of the following applies in the income year:
- (a) it terminates, wholly or partly, for a reason other than the life insured's death or the life insured's survival to the relevant date or age specified in the policy; or
- (b) a claim is paid under it for a reason other than the life insured's death or the life insured's survival to the relevant date or age specified in the policy.
Discontinuance profit formula (new policies)
(3) Section EY 37 sets out the discontinuance profit formula (new policies). This is the formula a life insurer uses, as the first step in calculating the life insurer's discontinuance profit for an income year, to calculate an amount for a life insurance policy to which both the following apply:
- (a) it does not exist at the start of the income year; and
- (b) it terminates in the income year for a reason other than the life insured's death or the life insured's survival to the relevant date or age specified in the policy.
Defined in this Act: claim, discontinuance profit, discontinuance profit formula, income year, life insurance, life insurance policy, life insured, life insurer, pay,

Compare: 1994 No 164 s CM 7(1)

EY 35 Discontinuance profit for income year

Calculation of discontinuance profit

(1) A life insurer calculates the life insurer's discontinuance profit for an income year by following the steps in subsection (2).

Steps
(2) The steps are,—
- (a) first, use the relevant discontinuance profit formula to calculate an amount for each life insurance policy existing at some time in the income year:
- (b) second, add all the amounts together.
Defined in this Act: amount, discontinuance profit, discontinuance profit formula, income year, life insurance policy, life insurer,

Compare: 1994 No 164 s CM 7(1)

Subsection (2)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EY 36 Discontinuance profit formula (existing policies)

Formula

(1) The discontinuance profit formula (existing policies) is—

pre-termination actuarial reserves – post-termination actuarial reserves – termination payment.

Definition of items in formula

(2) The items in the formula are defined in subsections (3) to (5).

Pre-termination actuarial reserves

(3) Pre-termination actuarial reserves is the amount in the life insurer's actuarial reserves for the life insurance policy, determined immediately before the event described in section EY 34(2)(a) or (b). It is calculated using the same assumptions and bases of calculation as were used at the start of the income year to calculate the amount in the life insurer's actuarial reserves for the policy.

Post-termination actuarial reserves

(4) Post-termination actuarial reserves is the amount in the life insurer's actuarial reserves for the life insurance policy, determined immediately after the event described in section EY 34(2)(a) or (b) and having regard to the fact that the event has occurred. It is calculated using the same assumptions and bases of calculation as were used at the start of the income year to calculate the amount in the life insurer's actuarial reserves for the policy.

Termination payment

(5) Termination payment is the claim payable by the life insurer on the occurrence of the event described in section EY 34(2)(a) or (b). It may be zero. A variation to termination payment is in section EY 38(2).

Defined in this Act: actuarial reserves, amount, claim, discontinuance profit formula, income year, life insurance policy, life insurer, pay,

Compare: 1994 No 164 s CM 7(1)(a)

EY 37 Discontinuance profit formula (new policies)

Formula

(1) The discontinuance profit formula (new policies) is—

premium – termination payment.

Definition of items in formula

(2) The items in the formula are defined in subsections (3) and (4).

Premium

(3) Premium is all the premiums paid to the life insurer for the life insurance policy, including a premium due before, but paid after, it terminates. A variation to premium is in section EY 39(2).

Termination payment

(4) Termination payment is the claim payable by the life insurer when the life insurance policy terminates. It may be zero. A variation to termination payment is in section EY 39(3).

Defined in this Act: claim, discontinuance profit formula, life insurance policy, life insurer, pay, premium,

Compare: 1994 No 164 s CM 7(1)(b)

EY 38 Discontinuance profit formula (existing policies): when partial reinsurance exists

When this section applies

(1) This section applies when a life insurer has partial reinsurance.

Termination payment

(2) In using the discontinuance profit formula (existing policies), the life insurer must reduce termination payment by the claim receivable by the life insurer under the life reinsurance policy on the occurrence of the event described in section EY 34(2)(a) or (b).

Defined in this Act: claim, discontinuance profit formula, life insurer, life reinsurance policy, partial reinsurance,

Compare: 1994 No 164 s CM 13(1)(c)(ii)

EY 39 Discontinuance profit formula (new policies): when partial reinsurance exists

When this section applies

(1) This section applies when a life insurer has partial reinsurance.

Premium
(2) In using the discontinuance profit formula (new policies), the life insurer must reduce premium by an amount to which both the following apply:
- (a) it is part of the premiums payable by the life insurer in the income year for a life reinsurance policy or policies
(life reinsurance premiums); and
- (b) it is the part of the life reinsurance premiums that relates to the life insurance policy.
Termination payment

(3) In using the discontinuance profit formula (new policies), the life insurer must reduce termination payment by the claim receivable by the life insurer under the life reinsurance policy for the termination of the life insurance policy.

Defined in this Act: amount, claim, discontinuance profit formula, income year, life insurance policy, life insurer, life reinsurance policy, partial reinsurance, pay, payment, premium,

Compare: 1994 No 164 ss CM 7(1), CM 13(1)(c)(i)

EY 40 Discontinuance profit formulas: individual result may never be negative

If a life insurer gets a negative result from using a discontinuance profit formula to calculate an amount for a life insurance policy for an income year, the result is treated as zero.

Defined in this Act: discontinuance profit formula, income year, life insurance policy, life insurer,

Compare: 1994 No 164 s CM 7(2)

Policyholder income

EY 41 How policyholder income is calculated

Section EY 42 sets out the policyholder income formula that a life insurer uses for each income year to calculate the life insurer's policyholder income for the income year.

Defined in this Act: income year, life insurer, policyholder income, policyholder income formula,

Compare: 1994 No 164 s CM 15(1)

EY 42 Policyholder income formula

Formula

(1) The policyholder income formula is—

Definition of items in formula

(2) The items in the formula are defined in subsections (3) to (8).

Claim due
(3) Claim due is the total of—
- (a) each claim that became due and payable in the income year; and
- (b) each claim that became due and payable in a previous income year to the extent to which—
  - (i) the claim relates to a contingency that was met in the 1990-91 income year or a later income year before the income year for which the formula is being used; and
  - (ii) the claim has not already been included in claim in an income year.
Closing actuarial reserves

(4) Closing actuarial reserves is the life insurer's actuarial reserves, determined at the end of the income year. A variation to closing actuarial reserves is in section EY 44(2).

Opening actuarial reserves

(5) Opening actuarial reserves is the life insurer's actuarial reserves, determined at the start of the income year. A variation to opening actuarial reserves is in section EY 44(3).

Premium

(6) Premium is all the premiums due and payable to the life insurer in the income year. Premium does not include a premium due and payable to the life insurer in a previous income year. A variation to premium is in section EY 43.

Underwriting result
(7) Underwriting result is the total of the following that the life insurer has in the income year:
- (a) the premium loading; and
- (b) the mortality profit; and
- (c) the discontinuance profit.
Tax rate

(8) Tax rate is the rate of tax specified in schedule 1, part A, clause 1 (Basic rates of income tax and specified superannuation contribution withholding tax), expressed as a decimal.

Positive result

(9) A positive result from using the policyholder income formula is policyholder income in the income year.

Negative result

(10) A negative result from using the policyholder income formula is policyholder net loss for the income year, and is dealt with under sections II 1 (Policyholder net losses) and II 2 (Policyholder net loss for tax year preceding 1990-91).

Defined in this Act: actuarial reserves, claim, discontinuance profit, income year, life insurer, mortality profit, pay, policyholder income, policyholder income formula, policyholder net loss, premium, premium loading, tax,

Compare: 1994 No 164 ss CM 15(1), (2), (4), OB 1 underwriting result

EY 43 Policyholder income formula: when partial reinsurance exists

When this section applies

(1) This section applies when a life insurer has partial reinsurance.

Premium

(2) In using the policyholder income formula, the life insurer must reduce premium by an amount calculated using the formula—

reinsurance premium – reinsurance claim.

Definition of items in formula

(3) The items in the formula are defined in subsections (4) and (5).

Reinsurance premium

(4) Reinsurance premium is the total of the premiums due and payable by the life insurer in the income year under the life reinsurance policies under which the life insurer has partial reinsurance. Reinsurance premium does not include premiums due and payable by the life insurer in previous income years.

Reinsurance claim

(5) Reinsurance claim is the total of the claims receivable by the life insurer in the income year under the life reinsurance policies under which the life insurer has partial reinsurance. Reinsurance claim does not include claims receivable by the life insurer in previous income years.

Defined in this Act: amount, claim, income year, life insurer, life reinsurance policy, partial reinsurance, policyholder income formula, premium,

Compare: 1994 No 164 s CM 17(1)

EY 44 Policyholder income formula: when life insurance business transferred

When this section applies
(1) This section applies when a life insurance business is transferred in a transfer to which all the following apply:
- (a) the transferor and the transferee, whether or not resident in New Zealand, are members of the same whollyowned group of companies immediately before and immediately after the transfer; and
- (b) 1 of the following is met:
  - (i) if the transferor is resident in New Zealand, all the transferor's life insurance business is transferred to the transferee; or
  - (ii) if the transferor is not resident in New Zealand, all the life insurance policies offered or entered into in New Zealand that are held by the transferor are transferred to the transferee; and
- (c) the Commissioner receives confirmation from the Government Actuary that—
  - (i) paragraph (b) is met; and
  - (ii) no policyholder will be unduly disadvantaged as a result of the transfer; and
- (d) the Commissioner is satisfied that the transfer is being undertaken for commercial reasons and that no undue tax advantage to either the transferor or the transferee will arise as a result of the transfer.
Closing actuarial reserves

(2) In using the policyholder income formula for the income year in which the transfer occurs, the transferor must use as closing actuarial reserves the transferor's actuarial reserves immediately before the transfer.

Opening actuarial reserves
(3) In using the policyholder income formula for the income year in which the transfer occurs, the transferee must use as opening actuarial reserves the total of—
- (a) the transferee's actuarial reserves, determined at the start of the income year; and
- (b) the transferee's actuarial reserves for the business or policies transferred to the transferee, determined immediately after the transfer.
Defined in this Act: actuarial reserves, business, Commissioner, income year, life insurance, life insurance policy, offered or entered into in New Zealand, policyholder income formula, resident in New Zealand, wholly-owned group of companies,

Compare: 1994 No 164 s CM 18

Disposal of property

EY 45 Income from disposal of property

When this section applies

(1) This section applies when a life insurer disposes of any property of their life insurance business.

Property generally

(2) An amount that a life insurer derives from disposing of any property of their life insurance business is income of the life insurer under section CR 1(5) (Income of life insurer). However, if the property is a financial arrangement, subsections (3) to (5) apply instead of this subsection.

Financial arrangement: application of financial arrangements rules

(3) If the life insurer disposes of a financial arrangement to which the financial arrangements rules apply, subpart EW (Financial arrangements rules) applies.

Financial arrangement: application of old financial arrangements rules

(4) If the life insurer disposes of a financial arrangement to which the old financial arrangements rules apply, sections EZ 30 to EZ 49 (which relate to the old financial arrangements rules) apply.

Financial arrangement: before old financial arrangements rules

(5) If the life insurer receives an amount on or after 1 April 1982 as repayment or partial repayment of a financial arrangement to which the old financial arrangements rules would have applied if section EZ 42 (Application of old financial arrangements rules) had not existed, the amount is income of the life insurer.

Defined in this Act: amount, business, financial arrangement, financial arrangements rules, income, life insurance, life insurer, old financial arrangements rules, property,

Compare: 1994 No 164 s CM 10

EY 46 Deductions for disposal of property

When this section applies

(1) This section applies when a life insurer is allowed a deduction under section DR 2 (Disposal of property).

Amount of deduction
(2) The amount of the deduction is—
- (a) the property's acquisition value or cost; or
- (b) the amount described in section EZ 2(1) (Deductions for disposal of property: 1982-83 and 1989-90 income years); or
- (c) the amount described in section EZ 2(2) (Deductions for disposal of property: 1982-83 and 1989-90 income years).
Timing of deduction

(3) The life insurer is allowed the deduction in the income year in which they dispose of the property.

Defined in this Act: amount, deduction, income year, life insurer, property,

Compare: 1994 No 164 s DK 3B(1), (3)

Non-resident life insurers

EY 47 Non-resident life insurers with life insurance policies in New Zealand

When this section applies

(1) This section applies when a life insurer not resident in New Zealand offers or is offered or enters into life insurance policies in New Zealand.

Income derived from New Zealand

(2) The life insurer's income from the business of providing life insurance, as determined under this section, is income derived from New Zealand.

Underwriting result and policyholder income
(3) The life insurer applies the items of the premium loading formula, the mortality profit formula, the discontinuance profit formula, and the policyholder income formula only to—
- (a) the life insurance policies the life insurer, as insurer, offered or was offered or entered into in New Zealand; and
- (b) the life reinsurance policies held by the life insurer that relate exclusively to the life insurance policies the life insurer, as insurer, offered or was offered or entered into in New Zealand.
Other income

(4) The life insurer's income from the business of providing life insurance, other than under a formula referred to in subsection (3), is determined only in relation to the life insurer's New Zealand business.

Defined in this Act: business, discontinuance profit formula, income, income derived from New Zealand, life insurance, life insurance policy, life insurer, life reinsurance policy, mortality profit formula, New Zealand, New Zealand business, non-resident, offered or was offered or entered into, policyholder income formula, premium loading formula, resident in New Zealand,

Compare: 1994 No 164 ss CM 13(2), CM 16, CM 17(2), CN 3(1), (1A)

EY 48 Non-resident life insurer may become resident

Non-resident life insurer may apply

(1) A life insurer not resident in New Zealand may apply to be treated for its New Zealand business as resident in New Zealand on and after the first day of a particular income year.

Application
(2) The life insurer applies by—
- (a) completing a written application specifying the particular income year; and
- (b) giving the application to the Commissioner not less than 20 working days before the start of the particular income year.
Commissioner may grant

(3) The Commissioner may grant the application.

Company resident in New Zealand

(4) If the application is granted, the life insurer's New Zealand business is treated, on and after the first day of the particular income year, as being carried on by a company resident in New Zealand in which the life insurer holds all the issued shares.

Life insurer agent for company

(5) The life insurer is treated as carrying on its New Zealand business as agent for the company and is liable, as agent for the company, to pay amounts payable to the Commissioner and to provide returns of income and other information required by the Commissioner.

Company and life insurer separate persons

(6) The life insurer and the company are treated as being separate persons in relation to the life insurer's New Zealand business.

Defined in this Act: agent, amount, Commissioner, company, income year, life insurer, New Zealand business, non-resident, resident in New Zealand, return of income, share, working day,

Compare: 1994 No 164 s OE 3

Subpart EZ—Terminating provisions

Life insurance

EZ 1 Life insurers acquiring property before 1 April 1988

EZ 2 Deductions for disposal of property: 1982-83 and 1989-90 income years

EZ 3 Petroleum development expenditure from 1 October 1990 to 15 December 1991

Livestock

EZ 4 Valuation of livestock bailed or leased as at 2 September 1992

EZ 4B Reduction: bloodstock not previously used for breeding in New Zealand: pre-1 August 2006

EZ 4C Reduction: broodmare previously used for breeding in New Zealand: pre-1 August 2006

Patent rights

EZ 5 Buying patent rights before 1 April 1993

Leases of land

EZ 6 Premium paid on land leased before 1 April 1993

EZ 8 Pool method for items accounted for by globo method for 1992-93 income year

EZ 7 FIF interests held on 1 April 1993 [Repealed]

Depreciation

EZ 9 Pool items accounted for by globo method for 1992-93 income year

EZ 10 Amounts of depreciation recovery income and depreciation loss for part business use in or before 1992-93 income year

EZ 11 Amount of depreciation loss for item acquired from associated person on or before 23 September 1997

EZ 12 Annual rate for item acquired on or after 1 April 1993 and before end of person's 1994-95 income year

EZ 13 Pre-1993 depreciation rate

EZ 14 Annual rate for excluded depreciable property: 1992-93 tax year

EZ 15 Amount of depreciation loss for plant or machinery additional to section EZ 14 amount

EZ 16 Additional amount of depreciation loss: between 16 December 1991 and 1 April 1994

EZ 17 Section EZ 16 amount of depreciation loss when items transferred between companies in wholly-owned group before 1 April 1993

EZ 18 Section EZ 16 amount of depreciation loss when person previously exempt from tax acquires item

EZ 19 Adjusted tax value for software acquired before 1 April 1993

EZ 20 Sections EE 38 and EE 40: permanent removal: allowance before 1 April 1995

EZ 21 Base value and total deductions in section EE 47: before 1 April 1995

EZ 21B Economic rate for plant or equipment acquired before 1 April 2005 and buildings acquired before 19 May 2005

EZ 22 Meaning of new asset

EZ 23 Meaning of New Zealand-new asset

EZ 24 Meaning of qualifying capital value

EZ 25 Meaning of qualifying improvement

EZ 26 Meaning of qualifying asset

Accident insurance

EZ 27 Private insurers under Accident Insurance Act 1998

EZ 28 Base premium for 1998-99 premium year under Accident Insurance Act 1998

CFC and FIF rules

EZ 29 Disclosure restrictions on grey list CFCs before 2011–12

Old financial arrangements rules

EZ 30 Application of old financial arrangements rules

EZ 31 Election to apply financial arrangements rules in subpart EW

EZ 32 Accruals in relation to income and expenditure in respect of financial arrangements

EZ 33 Excepted financial arrangement that is part of financial arrangement

EZ 34 Cash basis holder

EZ 35 Income and expenditure where financial arrangement redeemed or disposed of

EZ 36 Forgiveness of debt

EZ 37 Accrued income written off

EZ 38 Sale of debt to associate of debtor

EZ 39 Post facto adjustment

EZ 40 Variable principal debt instruments

EZ 41 Relationship with rest of Act

EZ 42 Application of old financial arrangements rules

EZ 43 Election to treat short term trade credit as financial arrangement

EZ 44 Election to continue to treat certain excepted financial arrangements as financial arrangements

EZ 45 Definitions

EZ 46 Determination of core acquisition price where consideration for property denominated in foreign currency

EZ 47 Rules for non-market transactions

EZ 48 Transitional adjustment when changing to financial arrangements rules

EZ 49 References to new rules include old rules

Life insurance

EZ 1 Life insurers acquiring property before 1 April 1988

When this section applies

(1) This section applies when section DZ 2 (Life insurers acquiring property before 1 April 1988) applies.

Amount of deduction

(2) The amount of the deduction is calculated using the formula—

Definition of items in formula

(3) The items in the formula are defined in subsections (4) to (9).

Specific liability
(4) Specific liability is the amount in the life insurer's total liability on the last day of the 1987-88 income year for the following matters covered by the life insurer's Life Insurance Fund:
- (a) superannuation policies; and
- (b) pre-1983 mortgage repayment insurance policies; and
- (c) annuities that have been granted.
Total liability

(5) Total liability is the life insurer's liability for life insurance policies on the last day of the 1987-88 income year.

Property sum

(6) The property sum is calculated under whichever is relevant of subsections (7) to (9).

Property acquired before last day of 1982-83 income year

(7) For property acquired on or before the last day of the 1982-83 income year, the property sum is calculated by subtracting the specified base cost for 1983 income year property from the market value of the property on 1 April 1988.

Property acquired after end of 1982-83 income year: not financial arrangement

(8) For property acquired after the end of the 1982-83 income year that is not a financial arrangement, the property sum is calculated by subtracting the cost price or acquisition value of the property from the market value of the property on 1 April 1988.

Property acquired after end of 1982-83 income year: financial arrangement

(9) For property acquired after the end of the 1982-83 income year that is a financial arrangement, the property sum is the base price adjustment for the arrangement, calculated as if the arrangement had matured on 1 April 1988 but using the formula in section EW 31 (Base price adjustment formula).

Timing of deduction

(10) The life insurer is allowed the deduction in the income year in which they dispose of the property.

Defined in this Act: amount, deduction, financial arrangement, income year, Life Insurance Fund, life insurance policy, life insurer, property, specified base cost for 1983 income year property, superannuation policy,

Compare: 1994 No 164 s DK 3C

EZ 2 Deductions for disposal of property: 1982-83 and 1989-90 income years

Section EY 46(2)(b)
(1) For the purposes of section EY 46(2)(b) (Deductions for disposal of property), for property to which both the following apply, the amount of the deduction is the market value of the property on the last day of the 1989-90 income year:
- (a) the property is land or buildings acquired on or before the last day of the 1989-90 income year; and
- (b) the profit from the property's disposal on or before the last day of the 1989-90 income year, had it been disposed of then at a profit, would have been a capital profit or gain and not a profit on disposal of an investment subject to income tax under section 204 of the Income Tax Act 1976 (as that section was immediately before its repeal and substitution by section 13(1) of the Income Tax Amendment Act (No 2) 1990).
Section EY 46(2)(c)
(2) For the purposes of section EY 46(2)(c) (Deductions for disposal of property), for property to which both the following apply, the amount of the deduction is the specified base cost for 1983 income year property:
- (a) the property was acquired on or before the last day of the 1982-83 income year; and
- (b) subsection (1) does not apply to the property.
Defined in this Act: amount, deduction, income year, property, specified base cost for 1983 income year property,

Compare: 1994 No 164 s DK 3B(1)

Petroleum mining

EZ 3 Petroleum development expenditure from 1 October 1990 to 15 December 1991

Timing of deduction
(1) Expenditure that is allowed as a deduction under section DZ 3 (Petroleum mining: development expenditure from 1 October 1990 to 15 December 1991) must be deducted in equal amounts over the 10 years starting with the later of—
- (a) the income year in which commercial production starts; and
- (b) the income year in which the expenditure is incurred.
Petroleum mining operations outside New Zealand
(2) This section applies with any necessary modifications to a petroleum miner who undertakes petroleum mining operations that are—
- (a) outside New Zealand and undertaken through a branch or a controlled foreign company; and
- (b) substantially the same as the petroleum mining activities governed by this Act.
Partnership interests

(3) For the purposes of this section, a partner is treated as having a share or interest in a petroleum permit or other property of a partnership to the extent of their income interest in the partnership.

Disposal of part of asset

(4) For the purposes of this section, references to the disposal of an asset apply equally to the disposal of part of an asset.

Defined in this Act: amount, commercial production, controlled foreign company, deduction, dispose, income year, New Zealand, petroleum, petroleum miner, petroleum mining operations,

Compare: 1994 No 164 ss DM 1(3), DM 7(1), DM 9, DM 10

Livestock

EZ 4 Valuation of livestock bailed or leased as at 2 September 1992

When this section applies
(1) This section applies when—
- (a) an owner of livestock valued a class of livestock for the 1991-92 income year under section 86 of the Income Tax Act 1976 (as that section was in force before its repeal by section 21 of the Income Tax Amendment Act (No 2) 1993); and
- (b) either—
  - (i) the livestock was, as at 2 September 1992, at the use of a person under a bailment, lease, or other agreement that the owner entered into on or before that date, or was, on or before that date, livestock that was subject to a binding contract to bail or lease the livestock to a person, or otherwise allow them to use the livestock; or
  - (ii) the class of livestock was not one that the owner had on hand in the previous income year, but was a class that, as at 2 September 1992, was at the use of a person under a bailment, lease, or other agreement that the owner entered into on or before that date.
Rolling average value

(2) The owner may value the livestock at a value equal to 70% of the rolling average value of that class of livestock.

When subsection (2) applies

(3) Subsection (2) applies for the 1992-93 income year and any later income year in which the livestock continues to be bailed, leased, or otherwise used by the person under the bailment, lease, or other agreement.

Number of livestock valued
(4) The number of specified livestock of a class that may be valued under this section is the number that is the least of—
- (a) the number of livestock of the class bailed, leased, or otherwise used (or, for a binding contract entered into before 2 September 1992 but not yet applying, the number of livestock of that class provided for in the contract); and
- (b) the number of livestock of the class bailed, leased, or otherwise used as at the end of the 1992-93 income year; and
- (c) the lesser of the opening and closing number of stock of the class bailed, leased, or otherwise used in a later income year up to and including the income year in which the livestock is being valued.
Meaning of rolling average value

(5) In this section, rolling average value, for an income year and a class of specified livestock, means one-third of the sum of the national average market values set for that income year and each of the 2 previous income years for livestock of that class.

Defined in this Act: class, income year, lease, national average market value, rolling average value, specified livestock,

Compare: 1994 No 164 s EZ 4(1), (2), (5)

EZ 4B Reduction: bloodstock not previously used for breeding in New Zealand: pre-1 August 2006

Bloodstock to which this section applies
(1) This section applies to bloodstock that—
- (a) was not used for breeding in New Zealand before 16 December 1991; and
- (b) before a person (person A) acquired it, was not used for breeding in New Zealand by any other person, unless—
  - (i) the other person transferred the bloodstock to person A under a matrimonial agreement to which section FF 12 (Bloodstock) applies; or
  - (ii) the other person and person A were companies in the same wholly-owned group at the time person A acquired the bloodstock from the other person; and
- (c) section EC 39(1) or (2) applies to,—
  - (i) before 1 August 2006; or
  - (ii) for an income year ending on or after 1 August 2006, if a requirement in paragraphs (a) to (c) of section EC 39(1) or (2) is first met before 1 August 2006.
Stallion

(2) For the purposes of sections EC 39 and EC 40, the reduction applying to the value of a stallion is 25% of the cost price of the stallion unless person A chooses to value the stallion by the reducing value method.

Stallion valued by reducing value method

(3) When person A chooses to value the stallion by the reducing value method, the reduction applying to the value of the stallion is 37.5% of its cost price in the first income year and 37.5% of its opening value in each later income year. Person A must give notice to the Commissioner of their election in their return of income for the first income year.

Broodmare when first used before 1 April 2001

(4) For the purposes of sections EC 39 and EC 40, the reduction applying to the value of a broodmare is calculated using the formula—

Definition of item in formula
(5) In the formula, age of broodmare is—
- (a) 12 years of age; or
- (b) the actual age in years, if the broodmare is 11 years of age or less at the end of the income year.
Broodmare when first used on or after 1 April 2001 but before 1 August 2006

(6) For the purposes of sections EC 39 and EC 40, the reduction applying to the value of a broodmare to which section EC 39(2) applies is calculated using the formula—

Definition of item in formula
(7) In the formula, age of broodmare is—
- (a) 8 years of age; or
- (b) the actual age in years, if the broodmare is 7 years of age or less at the end of the income year.
Defined in this Act: bloodstock, broodmare, Commissioner, company, cost price, income year, matrimonial agreement, New Zealand, notice, return of income, stallion, wholly-owned group, year,

Sections EZ 4B and EZ 4C were inserted, as from 1 August 2006, by section 101 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

EZ 4C Reduction: broodmare previously used for breeding in New Zealand: pre-1 August 2006

Broodmare to which this section applies
(1) This section applies to a broodmare that section EC 39(1) or (2) applies to,—
- (a) before 1 August 2006; or
- (b) for an income year ending on or after 1 August 2006, if a requirement in paragraphs (a) to (c) of section EC 39(1) or (2) is first met before 1 August 2006.
Broodmare when first used before 1 April 2001

(2) For the purposes of sections EC 39 and EC 40, the reduction applying to the value of a broodmare to which section EC 39(1) applies and sections EC 41 and EZ 4B do not apply is calculated using the formula—

Definition of item in formula
(3) In the formula, age of broodmare is—
- (a) 12 years of age; or
- (b) the actual age in years, if the broodmare is 11 years of age or less at the end of the income year.
Broodmare when first used on or after 1 April 2001 but before 1 August 2006

(4) For the purposes of sections EC 39 and EC 40, the reduction applying to the value of a broodmare to which section EC 39(2) applies and sections EC 41 and EZ 4B do not apply is calculated using the formula—

Definition of item in formula
(5) In the formula, age of broodmare is—
- (a) 8 years of age; or
- (b) the actual age in years, if the broodmare is 7 years of age or less at the end of the income year.
Defined in this Act: broodmare, cost price, income year, year,

Sections EZ 4B and EZ 4C were inserted, as from 1 August 2006, by section 101 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Patent rights

EZ 5 Buying patent rights before 1 April 1993

When this section applies

(1) This section applies when section DZ 8 (Buying patent rights before 1 April 1993) applies.

Amount of deduction

(2) The amount of the deduction is the expenditure that the person has incurred in buying the patent rights.

Amount when patent rights expired or disposed of

(3) If, before the expiry of the patent rights, the rights have come to an end or have been disposed of, the person is allowed a deduction of an amount that bears to the total sum of the expenditure on the purchase of the rights the same proportion as the unexpired term of the rights when they came to an end or were disposed of bears to their unexpired term at the date of their purchase. An amount that the person has otherwise been allowed as a deduction is not included.

Timing of deduction: subsection (2)

(4) The deduction referred to in subsection (2) is allocated to the income years in relation to which the term of the patent rights that is unexpired at the date of purchase applies.

Timing of deduction: subsection (3)

(5) The deduction referred to in subsection (3) is allocated to the income year in which the rights have come to an end or been disposed of.

Defined in this Act: amount, deduction, income year, patent rights,

Compare: 1994 No 164 s EZ 5

Leases of land

EZ 6 Premium paid on land leased before 1 April 1993

When this section applies

(1) This section applies when section DZ 9 (Premium paid on land leased before 1 April 1993) applies.

Amount of deduction

(2) The amount of the deduction is the premium paid on the grant or renewal of the lease. If person A does not use the land for the whole of a tax year, the amount of the deduction is reduced proportionately.

Amount when lease or renewal granted to another person

(3) If the lease or the renewal of the lease is granted to another person, the deduction must not be more than the amount of the premium paid by person A on the acquisition of the lease.

Timing of deduction

(4) The deduction is allocated evenly to the income years in relation to which the term of the lease applies.

Meaning of term of the lease

(5) In this section, term of the lease, for a lease of indefinite duration, means the minimum period it has to run.

Defined in this Act: amount, deduction, income year, lease, premium, tax year, term of the lease,

Compare: 1994 No 164 s EZ 6

Foreign investment fund rules

EZ 7 FIF interests held on 1 April 1993

[Repealed]

Section EZ 7 was repealed, as from 1 April 2007, by section 83(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 83(2) of that Act for the application of this amendment for income years beginning on or after 1 April 2007.

Depreciation

EZ 8 Pool method for items accounted for by globo method for 1992-93 income year

If a person chooses the pool method for an item of property of a kind described in section EE 57(3)(c) (Meaning of poolable property), they must also choose to treat as a single pool all such items of property they still own that they accounted for at the end of their 1992-93 income year within the same globo account.

Defined in this Act: income year, pool, pool method,

Compare: 1994 No 164 s EG 3(5)

EZ 9 Pool items accounted for by globo method for 1992-93 income year

Limit on amount of income

(1) If a person's pool consists solely of items of depreciable property accounted for at the end of the person's 1992-93 income year using, with the Commissioner's permission, the globo accounting method, the amount of income under section EE 22(5)(a) (Cases affecting pool) is no more than the amount calculated using the formula—

depreciation allowed – income.

Definition of items in formula

(2) In the formula,—

(a) depreciation allowed is the total of deductions for amounts of depreciation loss that the person has been allowed in all previous income years for all items in the pool, including amounts allowed before the person's 1993-94 income year under the globo accounting method

(b) income is all amounts of income under section EE 22(5)(a) (Cases affecting pool) in all previous income years.

Defined in this Act: amount, Commissioner, depreciable property, depreciation loss, income year, pool,

Compare: 1994 No 164 s EG 11(4A)

EZ 10 Amounts of depreciation recovery income and depreciation loss for part business use in or before 1992-93 income year

For the purposes of sections EE 42(1)(b)(ii) (Amount of depreciation recovery income when item partly used for business) and FB 7(5)(b)(ii) (Depreciation: partial income-producing use), the item is an item of property to which 1 or more of the following applies:
- (a) the item is, at any time during the period the person owns it, subject to section EG 2(1)(d) or (e) of the Income Tax Act 1994:
- (b) the item is, at any time during the period the person owns it, subject to section 108A(1)(d) or (e) of the Income Tax Act 1976:
- (c) the item was, in the 1992-93 income year or a previous income year, an item that the person did not use wholly in deriving assessable income or carrying on a business for the purpose of deriving assessable income and for which, consequently, the person was allowed a smaller deduction for depreciation under section 108 of the Income Tax Act 1976 than they would have been allowed if they had used the item wholly for 1 of those purposes.
Defined in this Act: assessable income, business, income year,

Compare: 1994 No 164 s EG 19(4)

Paragraphs (a) and (b) were amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

EZ 11 Amount of depreciation loss for item acquired from associated person on or before 23 September 1997

When this section applies

(1) This section applies when, on or before 23 September 1997, a person (person A) acquires an item from an associated person entitled to a deduction for an amount of depreciation loss for it.

Exclusions
(2) This section does not apply—
- (a) if the item is acquired under a relationship agreement in circumstances to which section FF 16(1) (Depreciable property) applies; or
- (b) if the item is listed in schedule 17 (Depreciable intangible property) and the price that person A pays is income of the associated person; or
- (c) if the item is not listed in schedule 17 (Depreciable intangible property) and the Commissioner is of the opinion that the circumstances are such that a person should be allowed a deduction for an amount of depreciation loss for the item based on the actual price or other consideration given for it.
No greater amount of depreciation loss

(3) Whether or not the associated person has been allowed a deduction for an amount of depreciation loss, person A does not have a greater amount of depreciation loss for the item than that which the associated person would have had if the associated person had kept the item.

Amount of depreciation loss dealt with under section EE 41
(4) If the associated person has an amount of depreciation loss that has been dealt with under section EE 41 (Effect of disposal or event), person A has an amount of depreciation loss for the item based on the total of—
- (a) all amounts dealt with under section EE 41 (Effect of disposal or event); and
- (b) the depreciated value of the item immediately before person A acquired it.
When subsection (6) applies and does not apply

(5) Subsection (6) applies when, on or before 23 September 1997, the holder of management rights created under the Radiocommunications Act 1989 grants a licence right under that Act to an associated person. However, it does not apply when the Crown acting by and through the Secretary of Commerce is named as the manager under section 11(1) of the Radiocommunications Act 1989.

Licence right price

(6) The price of the licence right is treated as being zero for the purposes of subpart EE (Depreciation).

Defined in this Act: amount, associated person, Commissioner, depreciation loss, matrimonial agreement,

Compare: 1994 No 164 s EZ 11

Subsection (2)(a) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

EZ 12 Annual rate for item acquired on or after 1 April 1993 and before end of person's 1994-95 income year

What this section is about

(1) This section is about the annual rate that applies to an item of depreciable property that a person acquires before the end of their 1994-95 income year (not including fixed life intangible property or excluded depreciable property, for which rates are set in sections EE 27 (Annual rate for fixed life intangible property) and EZ 14 respectively).

Rate
(2) The rate is—
- (a) the item's economic rate; or
- (b) the pre-1993 depreciation rate described in section EZ 13, if the person chooses it under that section.
Defined in this Act: annual rate, depreciable property, economic rate, excluded depreciable property, fixed life intangible property, income year,

Compare: 1994 No 164 s EG 5(1)

EZ 13 Pre-1993 depreciation rate

Scope of election

(1) A person may choose the pre-1993 depreciation rate for all items, or any item, that they acquire before the end of their 1994-95 income year.

How election made

(2) The election is made by applying the pre-1993 depreciation rate for the item to the item in the person's return of income for the income year for which the election is made.

Election unchangeable

(3) The election must not be changed for the income year for which it is made.

Moving from diminishing value to straight-line and vice versa
(4) A person who chooses the pre-1993 depreciation rate has the following choices:
- (a) if the rate is a diminishing value rate, the person may instead use the straight-line rate by—
  - (i) rounding the diminishing value rate to the nearest rate specified in schedule 10, column 1 (Straightline equivalents of diminishing value rates of depreciation); and
  - (ii) taking the equivalent straight-line rate specified in column 2 of the schedule; or
- (b) if the rate is a straight-line rate, the person may instead use the diminishing value rate by—
  - (i) rounding the straight-line rate to the nearest rate specified in schedule 10, column 2 (Straight-line equivalents of diminishing value rates of depreciation); and
  - (ii) taking the equivalent diminishing value rate specified in column 1 of the schedule.
Pre-1993 depreciation rate

(5) The pre-1993 depreciation rate is the rate calculated using the formula—

section 108 rate + section 108A rate + section 113A rate.

Definition of items in formula

(6) The items in the formula are defined in subsections (7) to (9).

Section 108 rate

(7) Section 108 rate means the rate of depreciation that the Commissioner allowed persons with a standard balance date to use for the 1992-93 tax year to calculate a deduction for depreciation under section 108 of the Income Tax Act 1976, as in force for the 1992-93 tax year, for property of the same kind as the item.

Section 108A rate

(8) Section 108A rate means the rate of additional deduction under section 108A of the Income Tax Act 1976, as in force for the 1992-93 tax year, for which the item was eligible for the 1992-93 tax year.

Section 113A rate

(9)

Section 113A rate means the rate of supplementary deduction under section 113A of the Income Tax Act 1976 for which the item was eligible for the 1992-93 tax year.

Section 113A rate

Defined in this Act: Commissioner, diminishing value rate, income year, return of income, standard balance date, straight-line rate, tax year,

Compare: 1994 No 164 s EG 5(2)-(4)

EZ 14 Annual rate for excluded depreciable property: 1992-93 tax year

What this section is about

(1) This section is about the annual rate that applies to an item of excluded depreciable property.

Rate

(2) The rate is the section 108 rate, without adding the section 108A rate or the other sections rate. The rates referred to in this subsection are described in subsections (3) to (5).

Section 108 rate

(3) Section 108 rate means the rate of depreciation that the Commissioner allowed persons with a standard balance date to use for the 1992-93 tax year to calculate a deduction for depreciation under section 108 of the Income Tax Act 1976, as in force for the 1992-93 tax year, for property of the same kind as the item.

Section 108A rate

(4) Section 108A rate means the rate of additional deduction under section 108A of the Income Tax Act 1976, as in force for the 1992-93 tax year, for which the item was eligible for the 1992-93 tax year.

Other sections rate

(5) Other sections rate means a rate of additional or supplementary deduction under section 113A or any other provision of the Income Tax Act 1976 for which the item was eligible for the 1992-93 tax year.

Amount of depreciation loss under any other provision
(6) If a person has an additional amount of depreciation loss for an income year for an item of excluded depreciable property under section EZ 15 or EZ 16 or any other provision of this Act,—
- (a) the rate applicable to the item under subsection (2) may be adjusted to incorporate the additional amount of depreciation loss in a manner prescribed or allowed by the Commissioner; and
- (b) when an adjusted rate is applied to the item, the person does not have a separate amount of depreciation loss for the item under section EZ 15 or EZ 16 or the other provision.
Changing rate
(7) A person applying the rate in subsection (2) has the following choices:
- (a) if the rate is a diminishing value rate, the person may instead use the straight-line rate by—
  - (i) rounding the diminishing value rate to the nearest rate specified in schedule 10, column 1 (Straightline equivalents of diminishing value rates of depreciation); and
  - (ii) taking the equivalent straight-line rate specified in column 2 of the schedule; or
- (b) if the rate is a straight-line rate, the person may instead use the diminishing value rate by—
  - (i) rounding the straight-line rate to the nearest rate specified in schedule 10, column 2 (Straight-line equivalents of diminishing value rates of depreciation); and
  - (ii) taking the equivalent diminishing value rate specified in column 1 of the schedule.
Defined in this Act: annual rate, Commissioner, depreciation loss, diminishing value rate, excluded depreciable property, prescribed, standard balance date, straight-line rate, tax year,

Compare: 1994 No 164 s EG 9

EZ 15 Amount of depreciation loss for plant or machinery additional to section EZ 14 amount

When this section applies
(1) This section applies when a person carrying on a business in New Zealand incurs, wholly for the purpose of the business, capital expenditure in acquiring, installing, or extending plant or machinery that—
- (a) is excluded depreciable property; and
- (b) is—
  - (i) plant or machinery that is normally in operation for an average of at least 16 hours each working day and is not normally in operation for 24 hours each working day:
  - (ii) plant or machinery that is normally in operation for 24 hours each working day.
Exclusions
(2) This section does not apply to—
- (a) aluminium smelting plant or machinery:
- (b) motorcars:
- (c) petroleum refining plant or machinery:
- (d) ships, aircraft, or hovercraft:
- (e) plant or machinery for which a deduction by way of a fixed rate was denied under section 108 of the Income Tax Act 1976 for the 1992-93 income year or a previous relevant income year:
- (f) plant or machinery for which the Commissioner did not prescribe a differential rate for more than 1 shift operation when determining under section 108 of the Income Tax Act 1976 the rate of depreciation for the 1992-93 income year or a previous relevant income year.
Additional amount of depreciation loss

(3) The person has an amount of depreciation loss for the plant or machinery under this section in addition to any amounts of depreciation loss that they have for the plant or machinery under section EZ 14 (Annual rate for excluded depreciable property: 1992-93 tax year).

Relevant income years

(4) The person has the additional amount of depreciation loss in the first, second, third, fourth, and fifth income years in which the plant or machinery is used in deriving assessable income.

Rate
(5) The rate of the additional amount of depreciation loss is,—
- (a) for plant or machinery described in subsection (1)(b)(i),
3% of the diminishing value of the plant or machinery in each income year:
- (b) for plant or machinery described in subsection (1)(b)(ii), 6% of the diminishing value of the plant or machinery in each income year.
Defined in this Act: amount, assessable income, business, Commissioner, depreciation loss, excluded depreciable property, income year, motorcar, New Zealand, petroleum, working day,

Compare: 1994 No 164 s EG 18

Subsection (1)(b)(i) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (2)(a) to (e) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; or”.

Subsection (5)(a) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EZ 16 Additional amount of depreciation loss: between 16 December 1991 and 1 April 1994

When this section applies
(1) This section applies when a person incurs expenditure of the kind described in subsection (2) in—
- (a) the acquisition or installation of a qualifying asset; or
- (b) the making of a qualifying improvement to an item the person owns.
Expenditure described

(2) The expenditure is expenditure of a capital nature, excluding any amount of input tax applying to the supply of the qualifying asset or qualifying improvement to the person.

Additional amount of depreciation loss

(3) The person has an amount of depreciation loss for the asset or item under this section in addition to any amount of depreciation loss they have for it under subpart EE (Depreciation) and section EZ 15. This subsection is overridden by section EE 41(2) (Effect of disposal or event).

Amount
(4) The additional amount of depreciation loss for an income year is 25% of the lesser of—
- (a) the amount of depreciation loss that the person has under subpart EE (Depreciation) and section EZ 15 for the asset or item and for the income year; and
- (b) the amount of depreciation loss that the person would have had under subpart EE (Depreciation) and section EZ 15 for the asset or item and the income year had its value been equal to its qualifying capital value.
Defined in this Act: acquire, amount, depreciation loss, income year, qualifying capital value, qualifying improvement, qualifying asset,

Compare: 1994 No 164 ss ED 4(5), EG 15(1), (2)

EZ 17 Section EZ 16 amount of depreciation loss when items transferred between companies in wholly-owned group before 1 April 1993

When this section applies

(1) This section applies when, before 1 April 1993, a company in a wholly-owned group of companies disposes of a qualifying asset, or an item to which the company has made a qualifying improvement, to another company in the same wholly-owned group.

Transferee has amount of depreciation loss

(2) The transferee company has an amount of depreciation loss under section EZ 16 for the period after the disposal as if the transferee company were the same person as the transferor company.

Amount

(3) The amount of depreciation loss that the transferor company has under section EZ 16 for the asset or item for the income year in which the disposal occurs must be subtracted when the amount of depreciation loss that the transferee company has under section EZ 16 for the income year is calculated.

How definitions affected

(4) This section applies despite any limitations in the definitions of new asset, New Zealand-new asset, qualifying capital value, qualifying improvement, and qualifying asset as to the identity of the person for whom an asset or item or improvement will be treated as a qualifying asset or qualifying improvement.

Defined in this Act: amount, company, depreciation loss, dispose, income year, new asset, New Zealand-new asset, qualifying capital value, qualifying improvement, qualifying asset, wholly-owned group of companies,

Compare: 1994 No 164 s EG 15(3)

EZ 18 Section EZ 16 amount of depreciation loss when person previously exempt from tax acquires item

When this section applies
(1) This section applies when a person who has derived nothing but exempt income—
- (a) starts in an income year to derive income that is not exempt income; and
- (b) would have had an amount of depreciation loss under section EZ 16 for an item and an income year if the person had been deriving income that was not exempt income at the time they acquired the item to which section EZ 16 applies or made a qualifying improvement to the item to which section EZ 16 applies.
How qualifying capital value determined

(2) The item's qualifying capital value is determined as if the person had had an amount of depreciation loss for the period during which they derived nothing but exempt income.

Defined in this Act: amount, depreciation loss, exempt income, income, income year, qualifying capital value, qualifying improvement,

Compare: 1994 No 164 s EG 15(4)

EZ 19 Adjusted tax value for software acquired before 1 April 1993

What this section applies to
(1) This section applies to any of the following items for the acquisition of which a person was allowed a deduction before 1 April 1993:
- (a) the copyright in software:
- (b) the right to use the copyright in software:
- (c) the right to use software.
Meaning of adjusted tax value

(2) The adjusted tax value of the item is its cost to the person minus all deductions that the person was allowed for it.

Defined in this Act: acquire, adjusted tax value,

Compare: 1994 No 164 s EG 19(9), (10)(a)

Subsection (1)(a) and (b) was amended, as from 21 December 2004, by section 270 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “:” for “; and”.

EZ 20 Sections EE 38 and EE 40: permanent removal: allowance before 1 April 1995

Section EE 38(8)
(1) For the purposes of section EE 38(8) (Consideration for purposes of section EE 37), the consideration that a person derives from the event described in subsection (2) is the item's market value. Two qualifications are—
- (a) if the person makes a taxable supply, “market value” means the market value minus any GST that would be charged on the supply; and
- (b) this subsection does not apply to a transfer under a relationship agreement.
Section EE 40(10)
(2) For the purposes of section EE 40(10) (Events for purposes of section EE 37), the ninth event is the cessation of use in New Zealand, and the taking out of New Zealand for use outside New Zealand, of an item of property for which a first-year allowance has been granted under section 112(1) to (7) of the Income Tax Act 1976, except when the item—
- (a) has been taken out of New Zealand temporarily; and
- (b) will, after its return to New Zealand, be used in or for the purpose of a business in New Zealand.
Defined in this Act: business, GST, matrimonial agreement, New Zealand, taxable supply,

Compare: 1994 No 164 s EG 19(7)(d), (9)

Subsection (1)(b) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

EZ 21 Base value and total deductions in section EE 47: before 1 April 1995

Base value in section EE 47 when section 108 of the Income Tax Act 1976 applies

(1) For the purposes of section EE 47 (Formula), this subsection applies when a person could have been allowed a deduction for depreciation for an item under section 108 of the Income Tax Act 1976 for the 1992-93 income year and they have owned the item continuously since the 1992-93 income year. Base value is the amount at which the item was recorded in the person's accounts for taxation purposes for the 1992-93 income year.

Section EE 48(3)(d)
(2) For the purposes of section EE 48(3)(d) (Base value in section EE 47 when none of sections EE 49, EE 50, or EZ 21(1) applies),—
- (a) the expenditure is expenditure for which a person has been allowed a deduction for depreciation under any of sections 108 to 108N or section 113A of the Income Tax Act 1976; or
- (b) the expenditure is expenditure for which a person has been allowed a deduction for depreciation under any other provision of the Income Tax Act 1976.
Section EE 49(1)(e)(ii)

(3) For the purposes of section EE 49(1)(e)(ii) (Base value in section EE 47 when no previous deduction), the item is one for which the person could not have been allowed a depreciation deduction under section 108 of the Income Tax Act 1976 for the 1992-93 income year.

Section EE 51(2)(c)

(4) For the purposes of section EE 51(2)(c) (Total deductions in section EE 47), the provision is section 117(5) of the Income Tax Act 1976.

Defined in this Act: amount, income year,

Compare: 1994 No 164 s OB 1 adjusted tax value (a)(i)-(iii)

EZ 21B Economic rate for plant or equipment acquired before 1 April 2005 and buildings acquired before 19 May 2005

What this section is about
(1) This section is about setting the economic depreciation rate that applies to items of a kind of depreciable property if—
- (a) the kind of depreciable property is not fixed life intangible property, or excluded depreciable property, for which an economic rate cannot be set; and
- (b) the items are—
  - (i) plant or equipment acquired before 1 April 2005:
  - (ii) buildings acquired before 19 May 2005:
  - (iii) buildings acquired on or after 19 May 2005, as relationship property or from a company in the same wholly-owned group of companies, from a person who applied to the item an economic depreciation rate set under this section or a corresponding provision.
Rate set by Commissioner
(2) The Commissioner sets the rate from time to time by—
- (a) following the procedure set out in this section; and
- (b) issuing a determination under section 91AAF of the Tax Administration Act 1994.
Procedure for setting economic rate
(3) To set the diminishing value rate for a kind of item of depreciable property, the Commissioner—
- (a) gets a figure by applying the formula in subsection (4) to items of that kind; and
- (b) rounds the figure up or down to the nearest rate specified in schedule 11, column 1 (Banded rates of depreciation); and
- (c) sets the same rate for some or all of the kinds of items of depreciable property that are similar to one another, if the Commissioner thinks it is appropriate to do so having regard to—
  - (i) the rate calculated for each kind; and
  - (ii) the reduction in compliance costs that is likely to be achieved.
Formula

(4) The formula is—

Definition of item in formula
(5) In the formula,—
- (a) residual value is the greater of—
  - (i) estimated residual market value, which is defined in section EE 58 (Other definitions):
  - (ii) 13.5% of cost:
- (b) cost is the cost of items of the kind to which the formula is applied:
- (c) estimated useful life is defined in section EE 54 (Meaning of estimated useful life).
Defined in this Act: Commissioner, depreciable property, diminishing value rate, economic rate, estimated residual market value, estimated useful life, excluded depreciable property, fixed life intangible property,

Section EZ 21B was inserted, as from 3 April 2006, by section 102(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

Definitions

EZ 22 Meaning of new asset

Meaning

(1) New asset means an item of property that a person owns to which subsections (2) to (4) apply and to which subsection (5) does not apply.

Acquisition date
(2) The item is—
- (a) acquired by the person in the period starting on 16 December 1991 and ending with the close of 31 March 1993, other than under a binding contract that they entered into before 16 December 1991; or
- (b) acquired by the person in the period starting on 1 April 1993 and ending with the close of 31 March 1994, under a binding contract that they entered into in the period starting on 16 December 1991 and ending with the close of 31 March 1993; or
- (c) one to which all the following apply:
  - (i) it was acquired by the person before 16 December 1991 as trading stock; and
  - (ii) it was used by the person as a capital item for the first time in the period starting on 16 December 1991 and ending with the close of 31 March 1993; and
  - (iii) it qualified for a deduction for depreciation under section 108 of the Income Tax Act 1976 in the period starting on 16 December 1991 and ending with the close of 31 March 1993.
Used before 1 April 1994

(3) The item is used by the person before 1 April 1994.

Not used by anyone previously
(4) The item is—
- (a) not acquired by any other person before the date on which the person acquired it; and
- (b) not used by any other person before the date on which the person acquired it; and
- (c) not held for use by any other person before the date on which the person acquired it; and
- (d) not an item or part of an item that qualified for a deduction for depreciation under the Income Tax Act 1976 for a period before the date on which the person acquired it.
Exclusion
(5) A constructed item that a person owns is not a new asset if—
- (a) its construction started before 16 December 1991 (but this paragraph does not apply to the extent to which the item is trading stock to which subsection (2)(c) applies); or
- (b) its construction started on or after 16 December 1991 under a binding contract that the person entered into before 16 December 1991; or
- (c) its construction was not completed before 1 April 1994; or
- (d) the item was not first used by the person before 1 April 1994.
Defined in this Act: acquire, new asset, trading stock,

Compare: 1994 No 164 s OB 1 new asset

EZ 23 Meaning of New Zealand-new asset

Meaning

(1) New Zealand-new asset means an item of property that a person owns to which subsections (2) to (5) apply.

Not new

(2) The item is not a new asset.

Date of acquisition
(3) The item is—
- (a) acquired by the person in the period starting on 16 December 1991 and ending with the close of 31 March 1993, other than under a binding contract that they entered into before 16 December 1991; or
- (b) acquired by the person in the period starting on 1 April 1993 and ending with the close of 31 March 1994, under a binding contract that they entered into in the period starting on 16 December 1991 and ending with the close of 31 March 1993; or
- (c) one to which all the following apply:
  - (i) it was acquired by the person before 16 December 1991 as trading stock; and
  - (ii) it was used by the person as a capital item for the first time in the period starting on 16 December 1991 and ending with the close of 31 March 1993; and
  - (iii) it qualified for a deduction for depreciation under section 108 of the Income Tax Act 1976 in the period starting on 16 December 1991 and ending with the close of 31 March 1993.
Used before 1 April 1994

(4) The item is used by the person before 1 April 1994.

Not used
(5) The item is—
- (a) not used in New Zealand before the date on which the person acquired it; and
- (b) not an item or part of an item that qualified for a deduction for depreciation under the Income Tax Act 1976 for a period before the date on which the person acquired it.
Defined in this Act: acquire, new asset, New Zealand, New Zealand-new asset, trading stock,

Compare: 1994 No 164 s OB 1 New Zealand-new asset

EZ 24 Meaning of qualifying capital value

Meaning
(1) Qualifying capital value means, for an income year,—
- (a) for a qualifying asset that a person owns, the amount calculated for the income year using the formula in subsection (2); or
- (b) for an item that a person owns that is not a qualifying asset but to which they have made a qualifying improvement, the amount calculated for the income year using the formula in subsection (7).
Formula

(2) The formula referred to in subsection (1)(a) is—

(acquisition cost + improvement cost) – item's depreciation.

Definition of items in formula

(3) The items in the formula are defined in subsections (4) to (6).

Acquisition cost

(4) Acquisition cost is the amount of capital expenditure the person incurs in acquiring the asset or item. In the case of a constructed item, the amount of capital expenditure is reduced by the amount of capital expenditure the person incurs on the construction on or after 1 April 1993, other than under a binding contract that the person entered into before 1 April 1993.

Improvement cost

(5) Improvement cost is the amount of capital expenditure (if any) the person incurs in making a qualifying improvement to the asset or item.

Item's depreciation

(6) Item's depreciation is the amount of depreciation loss for which the person has been allowed a deduction for the qualifying capital value of the asset or item in previous income years, not including an amount of depreciation loss calculated using the straight-line method.

Formula

(7) The formula referred to in subsection (1)(b) is—

capital expenditure – improvement's depreciation.

Definition of items in formula

(8) The items in the formula are defined in subsections (9) and (10).

Capital expenditure

(9) Capital expenditure is the amount of capital expenditure the person incurs for the improvement.

Improvement's depreciation

(10) Improvement's depreciation is the amount of depreciation loss for which the person has been allowed a deduction for the qualifying capital value of the improvement in previous income years, not including an amount of depreciation loss calculated using the straight-line method.

Defined in this Act: acquire, amount, depreciation loss, income year, qualifying capital value, qualifying improvement, qualifying asset, straight-line method,

Compare: 1994 No 164 s EG 15(5)

EZ 25 Meaning of qualifying improvement

Meaning
(1) Qualifying improvement, for a person's income year, means an improvement of an item that the person owns, if all the following apply:
- (a) the person incurred the expenditure on the improvement—
  - (i) in the period starting on 16 December 1991 and ending with the close of 31 March 1993, other than under a binding contract they entered into before 16 December 1991; or
  - (ii) in the period starting on 1 April 1993 and ending with the close of 31 March 1994, under a binding contract they entered into in the period starting on 16 December 1991 and ending with the close of 31 March 1993; and
- (b) the person used the item in its improved form before 1 April 1994; and
- (c) the person is allowed a deduction for depreciation under the Income Tax Act 1976 for the improvement for the income year.
Exclusions
(2) Qualifying improvement does not include—
- (a) an improvement to a building; or
- (b) an improvement requiring construction, if—
  - (i) the construction started before 16 December 1991; or
  - (ii) the construction started on or after 16 December 1991 under a binding contract that the person entered into before 16 December 1991; or
  - (iii) the construction was not completed before 1 April 1994; or
  - (iv) the improvement was not first used by the person before 1 April 1994.
Defined in this Act: income year, qualifying improvement,

Compare: 1994 No 164 s OB 1 “qualifying improvement”

EZ 26 Meaning of qualifying asset

Qualifying asset means—
- (a) a new asset, other than a building, that a person owns in an income year and for which they are allowed a deduction for depreciation under the Income Tax Act
1976 for the income year; or
- (b) a New Zealand-new asset, other than a building or a motorcar, that a person owns in an income year and for which they are allowed a deduction for depreciation under the Income Tax Act 1976 for the income year.
Defined in this Act: income year, motorcar, new asset, New Zealand-new asset, qualifying asset
Compare: 1994 No 164 s OB 1 “qualifying asset”

Accident insurance

EZ 27 Private insurers under Accident Insurance Act 1998

When this section applies
(1) This section applies when an insurer, as defined in paragraph (a) of the definition of insurer in section 13 of the Accident Insurance Act 1998, has a reserve in a tax year to cover the following, all of which relate to events covered by the Accident Insurance Act 1998 occurring before the end of the tax year:
- (a) claims that have been made with the insurer but have not been settled before the end of the tax year; and
- (b) claims that are expected to be made with the insurer in relation to events that the insurer knows about; and
- (c) an estimate of claims that have not been reported to the insurer in relation to events that the insurer does not know about.
Adjustment to deduction

(2) When the closing value of the reserve for a tax year is more than the opening value, the deduction that the insurer is allowed is adjusted by an amount equal to the amount calculated using the formula—

closing value – opening value.

Adjustment to income

(3) When the opening value of the reserve for a tax year is more than the closing value, the income of the insurer is adjusted by an amount equal to the amount calculated using the formula—

opening value – closing value.

Amount
(4) The reserve at the end of the tax year is—
- (a) an amount calculated by an actuary applying subsection (5) and adopted by the insurer for financial reporting purposes; or
- (b) if no such amount has been calculated, an amount determined by the Commissioner, who may seek the advice of the Government Actuary or any other actuary in determining it.
Calculation or determination of reserve
(5) A person calculating or determining the amount of a reserve under subsection (4) must ensure that the amount has regard to—
- (a) generally accepted accounting practice; and
- (b) generally accepted actuarial practice; and
- (c) the present value of expected future payments.
Link with subpart DA

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

Defined in this Act: actuary, amount, Commissioner, deduction, general limitation, general permission, generally accepted accounting practice, supplement, tax year,

Compare: 1994 No 164 s DK 5

EZ 28 Base premium for 1998-99 premium year under Accident Insurance Act 1998

Discount payment date

(1) An amount of base premium for the 1998-99 premium year that is paid on or before the discount payment date is treated as expenditure in the tax year in which the discount payment date falls if the discount payment date is before the date on the invoice that specifies when payment is due. This subsection overrides section EF 3(1) (ACC levies and premiums).

Monthly instalment plan

(2) Interest payable on a base premium for the 1998-99 premium year under a monthly instalment plan is treated as being payable on the date that the interest is applied under regulation 8 of the Accident Insurance (Payment of Base Premiums) Regulations 1999.

Some definitions

(3) In this section, base premium for the 1998-99 premium year, discount payment date, and monthly instalment plan have the meanings given to them in the Accident Insurance (Payment of Base Premiums) Regulations 1999.

Defined in this Act: amount, base premium for the 1998-99 premium year, discount payment date, interest, monthly instalment plan, tax year,

Compare: 1994 No 164 ss ED 1A(1A), (5), ED 6A

CFC and FIF rules

EZ 29 Disclosure restrictions on grey list CFCs before 2011–12

No attributed CFC income from taxable distribution

(1) No attributed CFC income arises under section EX 19 (Taxable distribution from non-qualifying trust) in respect of a person's income interest in a CFC if subsection (4) applies.

No branch equivalent income or loss

(2) No branch equivalent income or loss arises under section EX 21 (Branch equivalent income or loss: calculation rules) in respect of a person's income interest in a CFC if subsection (4) applies.

No FIF income or loss

(3) No FIF income or loss arises under section EX 46 (Additional FIF income or loss if CFC owns FIF) in respect of a person's income interest in a CFC if subsection (5) applies.

Application of subsections (1) and (2)
(4) Subsection (1) or (2) applies in respect of a person's income interest for an accounting period in a CFC if—
- (a) the income interest arises from an interest of the person in a CFC that satisfies subsection (6); and
- (b) the person holds information that would, if considered by the Commissioner, satisfy the Commissioner under subsection (7).
Application of subsection (3)
(5) Subsection (3) applies in respect of a person's income interest for an accounting period in a CFC if—
- (a) the income interest satisfies subsection (6); and
- (b) the person holds information that would, if considered by the Commissioner, satisfy the Commissioner under subsection (7).
Relevant grey list CFC
(6) An interest in a CFC satisfies this subsection for an accounting period if the CFC is, throughout the accounting period,—
- (a) resident in a country on the grey list; and
- (b) quoted on the official list of a recognised exchange in the country; and
- (c) under the law of the country or the rules of the exchange,—
  - (i) prevented from disclosing to the person information necessary for calculating attributed CFC income or loss or FIF income or loss:
  - (ii) required, as a result of the disclosure, to make a further disclosure of information that would be harmful to the commercial interests of the CFC.
Person must satisfy Commissioner

(7) For this section to apply in respect of a person's income interest for an accounting period in a CFC, the person must hold information that would satisfy the Commissioner that, for the accounting period, an effect of the law or rules referred to in subsection (6) is that the person cannot calculate the attributed CFC income or loss or FIF income or loss in respect of the income interest.

Section terminates after 2010–11 income year

(8) This section does not apply to the tax on income derived by a person in an income year after the income year that corresponds to the 2010–11 tax year.

Defined in this Act: accounting period, attributed CFC income, attributed CFC income or loss, branch equivalent income or loss, Commissioner, CFC, FIF, FIF income or loss, grey list, income, income interest, income year, recognised exchange, tax, tax year,

Section EZ 29 was substituted, as from 1 October 2006, by section 103(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2006–07 tax year.

Old financial arrangements rules

EZ 30 Application of old financial arrangements rules

The old financial arrangements rules apply to financial arrangements entered into on or after the implementation date and before 20 May 1999.

Compare: 1994 No 164 s EH A1

EZ 31 Election to apply financial arrangements rules in subpart EW

Despite section EZ 30, a person may elect to apply the financial arrangements rules by calculating a transitional adjustment under section EZ 48.

Compare: 1994 No 164 s EH A2

EZ 32 Accruals in relation to income and expenditure in respect of financial arrangements

(1) For the purpose of calculating the amount deemed to be income or expenditure of any person under subsections (2) to (7), regard must be had to,—
- (a) if the person is a holder in relation to the financial arrangement,—
  - (i) the amount of all consideration paid and to be paid to the person in relation to the financial arrangement; and
  - (ii) any amount remitted and to be remitted by the person in relation to the financial arrangement; and
  - (iii) the acquisition price of the financial arrangement in relation to the person; and
- (b) if the person is an issuer in relation to the financial arrangement,—
  - (i) the amount of all consideration paid and to be paid by the person in relation to the financial arrangement; and
  - (ii) the acquisition price of the financial arrangement in relation to the person.
(2) Subject to this section, where any person is a holder or an issuer of a financial arrangement, the amount that is deemed to be income or expenditure of that person in respect of the financial arrangement in any income year is an amount calculated using the yield to maturity method so as to result in the allocation to each income year of an amount that is fair and reasonable, and such amount so allocated to each income year is income deemed to be derived by or expenditure deemed to be incurred by the person in respect of the financial arrangement in the income year:

provided that the Commissioner must accept an alternative method to the yield to maturity method, that has regard to the principles of accrual accounting, and—
- (a) conforms with commercially acceptable practice; and
- (b) except to the extent that the Commissioner may otherwise allow under subsection (8), is adopted by the person and is or will be consistently applied in respect of all such financial arrangements for financial reporting purposes; and
- (c) results in the allocation to each income year of amounts that are not materially different from amounts that would be calculated but for this proviso.
(3) Notwithstanding subsection (2), but subject to the other provisions of this section, where in any income year the total value of all financial arrangements of which a person is a holder or an issuer has on no day within that income year exceeded $1,500,000 or such greater amount as the Governor-General may by Order in Council declare for the purposes of this section,—
- (a) the person may calculate income or expenditure for that income year in respect of those financial arrangements by using the straight-line method so as to result in the allocation to that income year and subsequent income years of amounts that are fair and reasonable in respect of those arrangements; and
- (b) where the straight-line method is used under paragraph (a), that method must be used by the person in respect of all financial arrangements of which the person was the holder or issuer during that income year; and
- (c) where the person has in accordance with this subsection calculated income or expenditure using the straight-line method in respect of a financial arrangement for any income year, the person must, unless otherwise authorised in writing by the Commissioner, continue to use that method in respect of that financial arrangement for any subsequent income year, until the maturity, remittance, sale, or other transfer of the arrangement, notwithstanding that the total value of all financial arrangements of which the person is holder or issuer may at any time in any such subsequent income year exceed $1,500,000 or such other amount as may be declared for the purposes of this section,—
and any amount calculated in respect of a financial arrangement in accordance with this subsection is income deemed to be derived by or expenditure deemed to be incurred by the person in respect of the financial arrangement for the relevant income year.
(4) For the purposes of subsection (3), a person must take into account financial arrangements to which subpart EW applies.
(5) For the purposes of subsection (3),—
- (a) the value of any financial arrangement to be taken into account in determining whether the total value of all financial arrangements of which a person is the holder or issuer on any day exceeds $1,500,000 or such other amount as may be declared for the purposes of this section is,—
  - (i) in the case of a fixed principal financial arrangement, the nominal or face value of the arrangement; and
  - (ii) in the case of a variable principal debt instrument, the amount owing by or to the person under the arrangement on the relevant day; and
  - (iii) in the case of a financial arrangement to which subpart EW applies, the value determined under that subpart; and
- (b) in the first income year for which income or expenditure is calculated under subsection (3) in respect of a financial arrangement that—
  - (i) was acquired or issued by the person in a previous income year; and
  - (ii) continues to be held or issued by the person at the end of the first income year for which income or expenditure is calculated under subsection (3),—
the amount of income or expenditure of the person in respect of that financial arrangement for that first income year is an amount calculated in accordance with the following formula:
a – b – c + d

where—
- a is the sum of all amounts that would have been income derived by the person in respect of the financial arrangement if the straight-line method referred to in subsection (3) had been applied to the financial arrangement from the date it was acquired or issued by the person until the end of that first income year
- b is the sum of all amounts that would have been expenditure incurred by the person in respect of the financial arrangement if the straight-line method referred to in subsection (3) had been applied to the financial arrangement from the date it was acquired or issued by the person until the end of that first income year
- c is the sum of all amounts of income deemed to have been derived by the person in respect of the financial arrangement before the commencement of that first income year
- d is the sum of all amounts deemed to have been expenditure incurred by the person in respect of the financial arrangement before the commencement of that first income year;—
and any amount so calculated is, if a positive amount, deemed to be income derived by the person in that first income year and, if a negative amount, deemed to be expenditure incurred by the person in that first income year.
(6) Where it is not possible to calculate an amount to be deemed to be income or expenditure in respect of a financial arrangement using the yield to maturity method as provided for in subsection (2) or (in a case to which subsection (3) applies) the straight-line method as provided for in subsection (3), the amount that is deemed to be income or expenditure of the person in any income year is an amount calculated by the person—
- (a) using the method, if any, prescribed by the Commissioner for the financial arrangement in a determination made under section 90(1)(c) of the Tax Administration Act 1994:
  
  provided that the Commissioner must accept an alternative method to the method prescribed in any such determination that has regard to the principles of accrual accounting, and—
  - (i) conforms with commercially acceptable practice; and
  - (ii) except to the extent that the Commissioner may otherwise allow under subsection (8), is adopted by the person and is or will be consistently applied in respect of all such financial arrangements for financial reporting purposes; and
  - (iii) results in the allocation to each income year of amounts that are not materially different from the amounts that would be calculated, but for this proviso; and
- (b) in the absence of any such determination, by applying a method that satisfies subparagraphs (i) and (ii) of the proviso to paragraph (a) and that results in the allocation to each income year of an amount that, having regard to the tenor of subsection (2), is fair and reasonable;—
and such amount of income or expenditure so allocated to each income year is income deemed to be derived or, as the case may be, expenditure deemed to be incurred by the person in the income year.
(7) Notwithstanding subsections (2) and (6), the Commissioner must accept an alternative method for calculating the amount to be deemed to be income or expenditure of the person, in respect of a financial arrangement, to the methods provided for under subsections (2) and (6), if the alternative method has regard to market valuation, and—
- (a) conforms with commercially acceptable practice; and
- (b) except to the extent that the Commissioner may otherwise allow under subsection (8), is adopted by the person and is or will be consistently applied in respect of all such financial arrangements for financial reporting purposes; and
- (c) either—
  - (i) the business of the person comprises dealing in such financial arrangements; or
  - (ii) the financial arrangement is a forward or future contract for foreign exchange, or a futures contract; and
- (d) the market, the method, and the source of the information used to determine the market values have been approved by the Commissioner under a determination issued under section 90(1)(e) of the Tax Administration Act 1994; and
- (e) the person and any other person who is a holder (where the person is an issuer) or an issuer (where the person is a holder) of the financial arrangement are not associated persons;—
and such amount of income or expenditure so calculated is income deemed to be derived or, as the case may be, expenditure deemed to be incurred by the person in respect of the financial arrangement in the income year: provided that where income or expenditure in respect of a financial arrangement has been calculated by a person under this subsection, income or expenditure in respect of that financial arrangement must, except as otherwise allowed under subsection (8), continue to be calculated on that basis by that person until the maturity, remittance, sale, or other transfer of the arrangement.
(8) Where a method of calculating income or expenditure in respect of a financial arrangement fails to satisfy the requirements of paragraph (b) of the proviso to subsection (2) or subparagraph (ii) of the proviso to subsection (6)(a) or (7)(b) by virtue of the fact that the method is not or will not be consistently applied by a person in respect of all such financial arrangements for financial reporting purposes, that method is nevertheless deemed to satisfy the relevant one of those provisions where the method—
- (a) appropriately reflects the dominant purpose for which the person acquired or issued the financial arrangement (or each such arrangement); and
- (b) has been and will be consistently applied by the person in respect of the particular financial arrangement (or each such financial arrangement) for the purposes of the old financial arrangements rules for every income year during its term (except to the extent that the Commissioner approves or may approve a change in method under the circumstances or conditions specified in a determination under section 90(1)(f) of the Tax Administration Act 1994); and
- (c) is not adopted for purposes that include the purpose of tax avoidance; and
- (d) has been approved by the Commissioner for adoption in the circumstances applicable to the taxpayer either by notice to the taxpayer or in a determination issued under section 90 of the Tax Administration Act 1994.
(9) Subsections (2) to (7) do not apply—
- (a) to a cash basis holder; or
- (b) in relation to a financial arrangement and a person, in any income year where section EZ 35 applies to that person and to that financial arrangement; or
- (c) in relation to a financial arrangement where—
  - (i) the financial arrangement is held by a trustee upon trust for the management of compensation paid for personal injury where that compensation is paid under the Workers Compensation Act 1956 or the Accident Compensation Act 1972 or the Accident Compensation Act 1982 or the Accident Rehabilitation and Compensation Insurance Act 1992 or the Injury Prevention, Rehabilitation, and Compensation Act 2001 or an order of court; and
  - (ii) the trustee is, or if it were a natural person would be, a cash basis holder in respect of the financial arrangement.
(10) For the purposes of this section, the Commissioner may determine whether and to what extent any issuer or class of issuers is not required to comply with this section in relation to expenditure incurred or income derived in respect of any class of financial arrangements, having regard to—
- (a) the nature and amount of the expenditure incurred or income derived by the issuer or class of issuers in respect of financial arrangements of that class; and
- (b) the costs of the issuer or class of issuers in complying with this section in relation to the class of financial arrangements; and
- (c) whether, in respect of that issuer or class of issuers and that class of financial arrangements, the application of the discretion given to the Commissioner under this subsection would result in a material difference in the amount of deductions or income allocated to any income year, in relation to the amount that would have been allocated had the discretion not been exercised.
(11) The Commissioner may at any time cancel any determination made in respect of any person or class of persons under subsection (10).

Compare: 1994 No 164 s EH 1

EZ 33 Excepted financial arrangement that is part of financial arrangement

The amount of the income deemed to be derived or the expenditure deemed to be incurred by a person in respect of a financial arrangement under the old financial arrangements rules does not include the amount of any income, gain or loss, or expenditure, that is solely attributable to an excepted financial arrangement that is part of the financial arrangement.

Compare: 1994 No 164 s EH 2

EZ 34 Cash basis holder

(1) Subject to this section, a natural person is a cash basis holder in respect of financial arrangements held by that person in any income year, where—
- (a) either—
  - (i) the income derived by that person in that income year in respect of those financial arrangements, calculated in accordance with subpart EW or section EZ 32 or EZ 35, as the case may be, does not exceed $70,000 (or such greater amount as the Governor-General may by Order in Council declare); or
  - (ii) the total value of financial arrangements held by the person in the income year does not exceed at any time in the income year $600,000 (or such greater amount as the Governor-General may by Order in Council declare), the value in respect of each financial arrangement being,—
    - (A) in the case of a fixed principal financial arrangement, the greater of the acquisition price of the arrangement or the nominal or face value of the arrangement; and
    - (B) in the case of a variable principal debt instrument, the amount of money owing to the person according to the arrangement; and
    - (C) in the case of a financial arrangement to which subpart EW applies, the value determined under that subpart; and
- (b) the difference between the following amounts does not exceed $20,000 (or such greater amount as the Governor-General may by Order in Council declare):
  - (i) the amount of income that would be calculated by the person for the income year—
    - (A) using, at the option of the person, either the yield to maturity method or the straightline method referred to in section EZ 32(3) (regardless of whether or not the person is entitled or has opted to use that method) or in accordance with subpart EW, as the case may be, or, where it is not possible to calculate an amount of income or expenditure in respect of the financial arrangements by using either of those methods, an alternative method approved by the Commissioner; and
    - (B) under either section EW 31 or EZ 35—
    in respect of financial arrangements held by the person at the end of the income year; and
    - (ii) the amount of income that would be calculated by the person for the income year in respect of financial arrangements held by the person at the end of the income year if the person were a cash basis holder.
(2) For the purposes of subsection (1), a person must take into account financial arrangements to which subpart EW applies.
(3) Notwithstanding anything in subsection (1), the Commissioner may,—
- (a) where the Commissioner is satisfied, having regard to the tenor of section EZ 32(2), that treatment of a class of financial arrangements other than under section EZ 32 results in a fair and reasonable allocation of income or expenditure among income years, deem natural persons to be cash basis holders in respect of such financial arrangements; and
- (b) where the Commissioner is satisfied that a class of financial arrangements has been structured and promoted with the objective of postponing any liability to income tax which would have arisen had those financial arrangements not been so structured, deem natural persons not to be cash basis holders in respect of such financial arrangements.
(4) In any income year where a person who was a cash basis holder in the previous income year ceases to be a cash basis holder, the person must take into account, in calculating income or deductions for the income year, an accruals basis adjustment, in respect of every financial arrangement (other than arrangements that are already dealt with according to section EZ 32 or in respect of which the Commissioner has exercised the discretion given under subsection (3)(a)) acquired in a previous income year and held by the person at the end of the income year equal to an amount calculated in accordance with the following formula:
a – b – c + d

where—
- a is the sum of all amounts which would have been income derived by the person in respect of the financial arrangement from the date it was acquired to the end of the income year if the person had not been a cash basis holder at any time during that period
- b is the sum of all amounts that would have been deductions of the person in respect of the financial arrangement from the date the financial arrangement was acquired to the end of the income year if the person had not been a cash basis holder at any time during the period
- c is the sum of all amounts of income of the person in respect of the financial arrangement since it was acquired to the end of the previous income year
- d is the sum of all amounts that have been deductions of the person in respect of the financial arrangement since it was acquired to the end of the previous income year;—
and the person must not take into account in the income year any other amount in respect of any such financial arrangement except those calculated under the accruals basis adjustment.
(5) In any income year where a person who was not a cash basis holder in the previous income year becomes a cash basis holder, that person may take into account, in calculating income or deductions for the income year, a cash basis adjustment, in respect of every financial arrangement (other than arrangements already treated on a cash basis) acquired in a previous income year and held by the person at the end of the income year, equal to an amount calculated in accordance with the following formula:
a – b – c + d

where—
- a is the sum of all amounts which would have been income derived by the person in respect of the financial arrangement from the date it was acquired to the end of the income year if the person had been a cash basis holder in respect of the financial arrangement for the whole of that period
- b is the sum of all amounts which would have been deductions of the person in respect of the financial arrangement from the date the financial arrangement was acquired to the end of the income year if the person had been a cash basis holder in respect of the financial arrangement for the whole of the period
- c is the sum of all amounts treated as income of the person in respect of the financial arrangement since it was acquired to the end of the previous income year
- d is the sum of all amounts that have been deductions of the person in respect of the financial arrangement since it was acquired to the end of the previous income year;—
and, where the cash basis adjustment has been taken into account, the person must not take into account any other amount in respect of any such financial arrangement in the income year except those calculated under the cash basis adjustment: provided that the person is deemed not to be a cash basis holder in relation to any financial arrangement in respect of which the person does not take into account a cash basis adjustment.
(6) The amount of the accruals basis adjustment or the cash basis adjustment in respect of any financial arrangement and any income year is,—
- (a) where it is a positive amount, income deemed to be derived by the holder in the income year; and
- (b) where it is a negative amount, deemed to be a deduction of the holder in the income year.
(7) For the purposes of subsection (1), but subject to subsections (8) and (9),—
- (a) all income in respect of financial arrangements that is trustee income or beneficiary income under the trust rules is disregarded, as is the value of all such financial arrangements producing such income; and
- (b) no person who holds such financial arrangements is a cash basis holder in relation to such financial arrangements.
(8) Subsection (7) does not apply to financial arrangements held on a bare trust, or to income in respect of such financial arrangements, and the financial arrangements held and the income derived by the trustees is treated as being held or, as the case may be, derived by a beneficiary of the trust to the extent of the beneficiary's share of the beneficial interest in the financial arrangement.
(9) Where a deceased person was at the time of his or her death a cash basis holder,—
- (a) nothing in subsection (7) or in any requirement under this section that a cash basis holder be a natural person, in respect of the income year in which the death occurred and in each of the 4 immediately succeeding income years, applies to prevent the trustee of the estate of the deceased person from being a cash basis holder for the purposes of this Act in respect of financial arrangements issued or held by the estate, where the estate would otherwise qualify as a cash basis holder under this section; but
- (b) if at any time during those income years the estate ceases to so otherwise qualify as a cash basis holder, it does not again qualify to become a cash basis holder by operation of paragraph (a);—
and for the purposes of subsections (4) and (5), any trustee of an estate who is a cash basis holder under this subsection is deemed to be the same person as the deceased cash basis holder.
(10) For the purposes of subsection (1),—
- (a) financial arrangements held; and
- (b) income required to be returned in respect of those financial arrangements under section 42(1) of the Tax Administration Act 1994—
by a partnership is treated as being held or, as the case may be, derived by each partner to the extent of the partner's share in the financial arrangements held by the partnership or, as the case may be, the income of the partnership in respect of financial arrangements.
Compare: 1994 No 164 s EH 3

EZ 35 Income and expenditure where financial arrangement redeemed or disposed of

(1) Subject to subsection (2), where, in relation to any person, a financial arrangement matures or is remitted (other than by way of being written off as a bad debt), sold, or otherwise transferred by the person in any income year, the amount of the base price adjustment in relation to that income year, that person, and that financial arrangement is an amount calculated in accordance with the following formula:
a – (b + c)

where—
- a is,—
  
  (i) in the case of a holder, the sum of—
  
  (A) the amount of all consideration that has been paid, and all further consideration that has or will become payable, to the person; and
  
  (B) any amounts that have been remitted by the person and that are not included in subsubparagraph (A):
  
  (ii) in the case of an issuer, the sum of—
  
  (A) the amount of all consideration that has been paid, and all further consideration that has or will become payable, by the person; and
  
  (B) the amount paid by the person associated with the issuer if the issuer is the debtor of a debt to which section EZ 38 applies—
  
  in relation to the financial arrangement
- b is the acquisition price of the financial arrangement in relation to the person
- c is,—
  
  (i) in the case of a holder, all amounts that are income derived, less the aggregate of amounts of expenditure deemed to be incurred under section EZ 32 or EZ 39 or deemed to be a deduction under section EZ 34 by the person in respect of the financial arrangement in all previous income years since the acquisition of the financial arrangement; and
  
  (ii) in the case of an issuer, all amounts of expenditure incurred in respect of the financial arrangement in all previous income years since the issue of the financial arrangement, less the aggregate of—
  
  (A) all amounts that are income deemed to be derived under section EZ 32 or EZ 34 or EZ 39 by the person in respect of the financial arrangement in all previous income years since the issue of the financial arrangement; and
  
  (B) all amounts that are dividends derived by the person from the release of the obligation to repay the amount lent; and
  
  (C) all amounts that are income of the person under section CF 2 in respect of the financial arrangement.
(2) Where, in relation to a financial arrangement, a person is a cash basis holder, and the financial arrangement matures or is remitted (other than by way of being written off as a bad debt), sold, or otherwise transferred by that person in any income year, the amount of the cash base price adjustment in relation to that income year, that person, and that financial arrangement is an amount calculated in accordance with the following formula:
a – (b + c)

where—
- a is the sum of all consideration derived in respect of the financial arrangement by the person, and amounts remitted by the person
- b is the acquisition price of the financial arrangement
- c is the sum of all amounts that are income derived by the person, less the aggregate of amounts of expenditure deemed to be incurred under sections EZ 32 and EZ 39 or deemed to be a deduction under section EZ 34.
(3) Subject to subsection (5), the amount of the base price adjustment in relation to any financial arrangement and any income year is,—
- (a) in relation to a holder,—
  - (i) where it is a positive amount, deemed to be income derived by the holder in the income year; and
  - (ii) where it is a negative amount, deemed to be a deduction of the holder in the income year:
- (b) in relation to an issuer,—
  - (i) where it is a positive amount, deemed to be expenditure incurred by the issuer in the income year; and
  - (ii) where it is a negative amount, deemed to be income derived by the issuer in the income year.
(4) Subject to subsection (5), the amount of the cash base price adjustment in relation to any financial arrangement and any income year is,—
- (a) where it is a positive amount, deemed to be income derived by the cash basis holder in the income year; and
- (b) where it is a negative amount, deemed to be a deduction of the cash basis holder in the income year.
(5) Notwithstanding anything in section EZ 47(3), where a financial arrangement is sold or otherwise transferred by a person for a consideration influenced by—
- (a) a decline in the creditworthiness of the issuer between the date of acquisition of the financial arrangement by the holder and the date of sale or other transfer; or
- (b) an increase in the possibility that the issuer may fail to meet any obligations under the financial arrangement between the date of acquisition of the financial arrangement by the holder and the date of sale or other transfer; or
- (c) the occurrence of any event reducing or cancelling the obligations of an issuer under the financial arrangement,—
all amounts that would have been received but for the factors listed above are deemed, in calculating the base price adjustment or cash base price adjustment, to have become payable to the holder: provided that this subsection does not apply where the business of the holder comprises holding or dealing in financial arrangements of that class, and the issuer of the financial arrangement and the holder are not associated persons.
(6) Where—
- (a) a person has been released from the obligation to make payment of an amount—
  - (i) under a financial arrangement by operation of section 304 of the Insolvency Act 2006; or
  - (ii) under any of the Inland Revenue Acts (and whether the relief arises through remission, waiver, or cancellation); or
  - (iii) under a social assistance suspensory loan by virtue of that person satisfying the conditions referred to in section EZ 35(8)(c)(ii); and
- (b) that amount would, but for this subsection, be taken into account in determining the income derived by or expenditure incurred by that person under the old financial arrangements rules,— that amount is, for the purpose of determining the income derived by or expenditure incurred by that person, and notwithstanding the old financial arrangements rules (other than this subsection), deemed to have been paid under that financial arrangement when the obligation to make payment has been so released.
(7) Notwithstanding anything in this Act, where and to the extent that a person (in this subsection called the surety) suffers expenditure or a loss under a security arrangement and the expenditure or loss, in whole or in part, is due to—
- (a) the actions of; or
- (b) the occurrence, or failure to occur, of an event that was potentially or actually subject to the influence of—
the surety or any person with whom the surety was, during the term of the security arrangement, an associated person, no deduction is allowed to the surety or any person in relation to the expenditure or loss.
(8) In this section,—
- (a) the expression holder, in relation to a financial arrangement, includes a person who ceases to be a holder of the financial arrangement as provided in subsection (1) or (2); and
- (b) the expression issuer, in relation to a financial arrangement, includes a person who ceases to be an issuer of the financial arrangement as provided in subsection (1); and
- (c) the expression social assistance suspensory loan means a loan—
  - (i) made by a department or instrument of the Executive Government of New Zealand; and
  - (ii) under whose terms the issuer's liability may be remitted in whole or in part if the issuer satisfies conditions intended to promote a social policy objective of the Government of New Zealand; and
  - (iii) of a kind that is declared by the Governor-General by Order in Council to be a social assistance suspensory loan; and
- (d) a financial arrangement is deemed to be remitted where—
  - (i) the issuer has been discharged from making all remaining payments under that financial arrangement without fully adequate consideration; or
  - (ii) the issuer has been released from making all remaining payments under that financial arrangement by the operation of the Insolvency Act 2006 or the Companies Act 1955 or the Companies Act 1993 or the laws of any country or territory other than New Zealand, or by any deed or agreement of composition with its creditors; or
  - (iii) all of the remaining payments under the financial arrangement have become irrecoverable or unenforceable by action through the lapse of time; or
  - (iv) the financial arrangement is a debt that is sold at a discount to a person associated with the debtor under the circumstances described in section EZ 38; and
- (e) where a person ceases to be a New Zealand resident any financial arrangement in relation to which that person is an issuer or a holder is deemed, in relation to the person, to have been transferred for its market value at that date.
Compare: 1994 No 164 s EH 4

Section EZ 35(6)(a)(i): amended, on 3 December 2007, by section 445 of the Insolvency Act 2006 (2006 No 55).

Section EZ 35(8)(d)(ii): amended, on 3 December 2007, by section 445 of the Insolvency Act 2006 (2006 No 55).

EZ 36 Forgiveness of debt

(1) In determining the income or expenditure under the base price adjustment in section EZ 35, an amount owing under a debt, including an amount accrued and unpaid at the time of the forgiveness, is treated as paid when forgiven under the old financial arrangements rules if—
- (a) the creditor is a natural person who forgives the debt, whether in a will or otherwise, because of the natural love and affection the creditor has for the debtor; or
- (b) the creditor is a natural person who forgives the debt owing by a trust, whether in a will or otherwise, and the trust was established primarily to benefit—
  - (i) a natural person for whom the creditor has natural love and affection; or
  - (ii) an organisation or a trust whose income is exempt under section CW 34 or CW 35; or
  - (iii) a natural person that meets paragraph (b)(i) and an organisation or a trust that meets paragraph (b)(ii).
(2) Subsection (3) applies when a trustee makes a distribution, including a distribution of beneficiary income, to a beneficiary that is neither—
- (a) a natural person for whom the creditor has natural love and affection; nor
- (b) an organisation or a trust whose income is exempt under section CW 34 or CW 35.
(2A) Subsection (3) does not apply when a trustee of a trust (trust A) to which subsection (1)(b) applies makes a distribution to another trust (trust B) if—
- (a) trust B is a trust described in subparagraphs (i), (ii), or (iii) of subsection (1)(b); and
- (b) subsection (1)(b) would apply to trust B if, at the time the distribution is made, the creditor of trust A were a creditor of trust B, and the creditor had forgiven a debt owing by trust B.
(3) A distribution to the beneficiary is income derived by the trustee—
- (a) in the income year in which the distribution is made; and
- (b) to the extent that the distribution is less than or equal to the total amount of debts forgiven by the creditor.
(3A) If subsection (3) applies, the income derived by the trustee is not income for the purposes of the beneficiary income definition.

(4) For the purposes of subsection (3), the total amount of debts forgiven by the creditor is reduced by the amount of each distribution that is income derived by the trustee.

(5) Subsection (3) applies to a distribution made on or after 20 May 1999.

Compare: 1994 No 164 s EH 5

EZ 37 Accrued income written off

(1) A deduction is allowed to a person for an amount written off by the person as a bad debt in respect of a financial arrangement where and to the extent that—
- (a) the person derives income in respect of the financial arrangement under any of sections EZ 32, EZ 34(4), EZ 35, and EZ 39; and
- (b) the amount written off is attributable to that income.
(2) A deduction is allowed to a person for an amount written off by the person as a bad debt in respect of a financial arrangement (not being an amount allowed as a deduction under subsection (1)) where—
- (a) the person—
  - (i) carries on a business which comprises holding or dealing in such financial arrangements; and
  - (ii) is not associated with the person owing the amount written off; or
- (b) the financial arrangement is a trade credit and the person carries on a business of dealing in the goods or services for which the trade credit is a debt.
(3) Where a person receives a security payment in relation to a loss and a deduction is denied to the person for the loss other than under this subsection, the person is allowed a deduction for the loss no greater than the amount of the security payment.

(4) A deduction for bad debts is allowed under this section only where the requirements of section DB 23(1) and (5) have been met.

(5) A deduction for a share loss (within the meaning of section DB 18) is allowed under subsection (3) only where the requirements of section DB 18 have been met.

Compare: 1994 No 164 s EH 6

EZ 38 Sale of debt to associate of debtor

(1) This section applies to a financial arrangement that is a debt which is sold at a discount to a person associated with the debtor on or after 20 May 1999.

(2) A creditor is treated as having sold a debt at a discount if the debt is sold to a person associated with the debtor for 80% or less of the market value of the debt.
(3) Subsection (4) applies to a debt that is sold if its market value was influenced by—
- (a) the decline in the original debtor's creditworthiness between the date the debt was entered into and the date of sale; or
- (b) an increase in the possibility that the original debtor would not pay an amount owing under the debt between the date the debt was entered into and the date of sale; or
- (c) an event that occurred which reduced or cancelled the original debtor's obligations under the debt.
(4) For the purposes of subsection (2), a debt's market value is determined as if its market value were not influenced by a factor listed in subsection (3)(a) to (c).

(5) For the purposes of subsection (2), associated person has the meaning set out in section OD 8(3).

(6) If a debt is sold at a discount to a person associated with the debtor, the associated person is treated as having provided the debtor with an interest free loan for the amount paid for the debt.
(7) If the debtor subsequently repays the person associated with the debtor more than the amount the associated person paid for the debt, the excess amount paid by the debtor is—
- (a) a deduction to the debtor; and
- (b) income of the person associated with the debtor.
Compare: 1994 No 164 s EH 7

EZ 39 Post facto adjustment

(1) A financial arrangement is subject to the provisions of this section where—
- (a) any of the amount or amounts payable under the financial arrangement are determined in the terms of the financial arrangement, as to whole or part, at the discretion of either the issuer or the holder, or both of them, or at the discretion of any other person where either the issuer or the holder and the other person are associated persons; and
- (b) the change in the amount or amounts payable under the financial arrangement upon the exercise of a discretion as provided for in paragraph (a) does not reflect changes in economic, commodity, industrial, or financial indices or banking or general commercial rates; and
- (c) the making of such financial arrangements is not generally accepted commercial practice; and
- (d) the effect of the arrangement is to defeat the intent and application of the old financial arrangements rules.
(2) Where a financial arrangement is subject to the provisions of this section, both the holder and the issuer of the financial arrangement are required to calculate a post facto adjustment in respect of the following income years:
- (a) the income year in which the person ceases to be a holder or an issuer, as the case may be, in respect of the financial arrangement; and
- (b) where the person has not ceased to be a holder or an issuer of the financial arrangement at the end of the fifth income year following the income year of its issue or acquisition by the person, in that fifth income year; and
- (c) until the person ceases to be an issuer or a holder in respect of the financial arrangement, in every fifth income year succeeding the income year in which the post facto adjustment was last required to be made under this section.
(3) In order to calculate the post facto adjustment, a person must,—
- (a) having regard to all amounts specified in section EZ 32(1) which have been paid or are payable, in respect of the financial arrangement, since acquisition or issue of the financial arrangement by the person to the end of the income year in which the post facto adjustment applies, calculate amounts of income or expenditure under the arrangement for each income year using the yield to maturity method as prescribed in a determination made by the Commissioner for the purposes of section EZ 32(2): provided that where the post facto adjustment is made at a time determined by subsection (2)(b) or (c), the person is, for the purpose of the post facto adjustment calculation, deemed to have transferred the financial arrangement for an amount equal to its market value on the last day of the income year; and
- (b) recalculate the income tax liability for each income year using the amounts of income or expenditure calculated under paragraph (a) in substitution for the amounts of income or expenditure previously calculated in respect of the financial arrangement for each income year.
(4) Where a person has been required to calculate the post facto adjustment, the person is required to make a special return in respect of the post facto adjustment in the form required by the Commissioner, no later than the time at which that person is required to file an annual return for the income year in which the post facto adjustment is made.

(5) Despite the time bar, the Commissioner must amend the person's assessment for the income years to which the post facto adjustment relates in accordance with the alterations to that income or expenditure as calculated by the post facto adjustment.

Compare: 1994 No 164 s EH 8

EZ 40 Variable principal debt instruments

For the purposes of the old financial arrangements rules, where a person is a party to a variable principal debt instrument on the implementation date, the person is deemed to have acquired or, as the case may be, issued it on that day for a consideration equal to the amount of money that would be payable to the holder on that day if the amount or amounts payable under the financial arrangement were due and payable on that day.

Compare: 1994 No 164 s EH 9

EZ 41 Relationship with rest of Act

(1) Notwithstanding any other provision in this Act, income or expenditure in an income year in respect of a financial arrangement under the old financial arrangements rules is calculated under those rules.
(1A) Expenditure incurred under the old financial arrangements rules is not included in—
- (a) the cost of trading stock, for small taxpayers:
- (b) the cost of revenue account property:
- (c) the cost of livestock:
- (d) the cost of bloodstock:
- (e) the cost of acquiring a film or a film right:
- (f) film production expenditure:
- (g) the cost of timber:
- (h) petroleum exploration expenditure or petroleum development expenditure.
(2) Where—
- (a) property is transferred under a financial arrangement; and
- (b) the property or the consideration given for the property is relevant under any provision of this Act other than the old financial arrangements rules for the purpose of determining any amount of income or deduction of a person,—
the property is treated for the purpose of that provision as having been transferred under the financial arrangement for an amount equal to the acquisition price of the property.
Compare: 1994 No 164 s EH 10

EZ 42 Application of old financial arrangements rules

The old financial arrangements rules do not apply—
- (a) in relation to a person and a financial arrangement, where the financial arrangement was issued or acquired by the person before the implementation date for the financial arrangement; or
- (b) in relation to a financial arrangement, where the issue, in the case of an issuer, or acquisition, in the case of a holder, of the financial arrangement is under a binding contract in existence before the implementation date in relation to that financial arrangement:
provided that this paragraph does not apply in relation to a rollover, extension, or advance provided for before the implementation date in relation to the financial arrangement where the rollover, extension, or advance occurs on or after 1 April 1990; or
- (c) in relation to a person and a financial arrangement, where the person acquired the financial arrangement in accordance with a relationship agreement and the transferor, in relation to the financial arrangement, was a person to whom paragraph (a) or (b) applied; or
- (d) in relation to a financial arrangement, where the issue, in the case of an issuer, or acquisition, in the case of a holder, of the financial arrangement is under and in terms of a rollover, extension, or advance provided for before the implementation date in relation to the financial arrangement and the rollover, extension, or advance occurs before 1 April 1990; or
- (e) to the determination of—
  - (i) income of or expenditure incurred by a person not resident in New Zealand in relation to a financial arrangement where and to the extent that the financial arrangement does not relate to a business carried on by that person through a fixed establishment in New Zealand; or
  - (ii) non-resident withholding income; or
- (f) in relation to a financial arrangement to the extent that the income or expenditure incurred by a person in respect of the financial arrangement consists of interest payable to or by the Commissioner under Part 7 of the Tax Administration Act 1994, being interest payable in relation to the income tax liability of the taxpayer in respect of the 1994-95 income year or any subsequent income year.
Compare: 1994 No 164 s EH 11

Paragraph (c) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

EZ 43 Election to treat short term trade credit as financial arrangement

(1) For the purposes of the old financial arrangements rules, a taxpayer may elect by notice given in accordance with subsection (2) to treat short term trade credits specified in subsection (4) as financial arrangements.

(2) Notice of an election under subsection (1) in relation to an income year must be given to the Commissioner within the time within which a vendor or a purchaser is required under section 37 of the Tax Administration Act 1994 to furnish a return of income for the income year to which the election is to apply.

(3) An election by the taxpayer under subsection (1) may be revoked by notice given to the Commissioner during any income year and the revocation applies only to short term trade credits created on or after the commencement of the subsequent income year.
(4) An election under subsection (1) may be made in respect of—
- (a) all short term trade credits of the taxpayer; or
- (b) 1 or more classes of short term trade credits of the taxpayer that the taxpayer defines by reference either—
  - (i) to the particular currency in which the short term trade credit is denominated; or
  - (ii) to the term of the short term trade credit; or
  - (iii) to both the term and the particular currency in which the short term trade credit is denominated.
Compare: 1994 No 164 s EH 12

EZ 44 Election to continue to treat certain excepted financial arrangements as financial arrangements

(1) A person may elect to continue to treat all excepted financial arrangements under any of paragraphs (p), (q), (r), (s), (t), (u), and (v) of the definition of excepted financial arrangement as financial arrangements if the person is a holder or an issuer of an arrangement that was entered into on or after the person's last balance date and before 20 May 1999.

(2) A person elects to treat their excepted financial arrangements as financial arrangements by returning income derived and expenditure incurred from the elected arrangements under the old financial arrangements rules in their return of income.

(3) A financial arrangement that is an excepted financial arrangement under any of paragraphs (p), (q), (r), (s), (t), (u), and (v) of the definition of excepted financial arrangement is not an excepted financial arrangement for the holder or issuer who elects to treat it as a financial arrangement under subsection (1).

Compare: 1994 No 164 s EH 13

EZ 45 Definitions

For the purposes of the old financial arrangements rules, each of the following terms has the meaning given to it, despite any other meaning given to the term in section OB 1 (Definitions) for any other purpose and unless the context otherwise requires:
acquisition price,—
- (a) in relation to a financial arrangement and a holder of the financial arrangement, means an amount calculated in accordance with the following formula:
  y – z
  
  where—
  
  y is the core acquisition price of the financial arrangement
  
  z is the smaller of—
  
  (i) the amount of consideration provided in relation to the financial arrangement by the holder that is not contingent on the implementation of the financial arrangement; and
  
  (ii) an amount equal to 2% of the core acquisition price of the financial arrangement; and
- (b) in relation to a financial arrangement and an issuer of the financial arrangement, means an amount calculated in accordance with the following formula:
  y + z
  
  where—
  
  y is the core acquisition price of the financial arrangement
  
  z is the smaller of—
  
  (i) the amount of consideration provided in relation to the financial arrangement by the issuer that is not contingent on the implementation of the financial arrangement; and
  
  (ii) an amount equal to 2% of the core acquisition price of the financial arrangement
agreement for the sale and purchase of property, in relation to a person, means a financial arrangement that is an agreement (whether conditional or unconditional) entered into by the person to purchase or otherwise acquire or sell or otherwise dispose of property; but does not include an option, a specified option, or a futures contract

amount of all consideration, in the definition of core acquisition price, in relation to a person and to an agreement for the sale and purchase of property or a specified option, where all or part of the consideration provided to the holder is property, means the aggregate of the amount calculated in respect of that property in the manner provided in subparagraph (i) or (ii) of item “w” in paragraph (c) of the definition of core acquisition price and any consideration provided to the holder in relation to the financial arrangement, other than the property provided to the holder
core acquisition price, in relation to a financial arrangement, means,—
- (a) where section EZ 47 applies, the amount determined under that section; and
- (b) where the financial arrangement is a trade credit, an amount calculated in accordance with the following formula:
  u + v
  
  where—
  
  u is—
  
  (i) the cash price of the goods or services to which the trade credit relates (referred to in this item and item “v” as the specified goods or services), as determined by section 5 of the Credit Contracts and Consumer Finance Act 2003; or
  
  (ii) if subparagraph (i) is not applicable, the lowest price at which the specified goods or services could be purchased under a short term trade credit; or
  
  (iii) if subparagraphs (i) and (ii) are not applicable, the discounted value of the amounts payable for the specified goods or services, as determined under a determination made by the Commissioner under section 90(1)(h) of the Tax Administration Act 1994
  
  v is—
  
  (i) in relation to a holder of the financial arrangement, the amount of all consideration provided by the holder in relation to the financial arrangement, other than the specified goods or services; or
  
  (ii) in relation to an issuer of the financial arrangement, the amount of all consideration provided to the issuer in relation to the financial arrangement, other than the specified goods or services; and
- (c) where the financial arrangement is an agreement for the sale and purchase of property (not being an agreement for the sale and purchase of property that has lapsed or otherwise does not proceed) or a specified option (not being a specified option that has lapsed or otherwise does not proceed), an amount calculated in accordance with the following formula:
  w + x
  
  where—
  
  w is—
  
  (i) the lowest price (determined in accordance with section EZ 46, if the consideration payable under the relevant financial arrangement is denominated in a foreign currency) that the parties would have agreed upon for the property that is the subject of the agreement for the sale and purchase of property or the specified option (referred to in this item and item “x” as the specified property) at the time at which the agreement for the sale and purchase of property was entered into or the specified option was granted on the basis of payment in full at the time at which the first right in the specified property is to be transferred; or
  
  (ii) if subparagraph (i) is not applicable, the discounted value of the amounts payable for the specified property as determined under a determination made by the Commissioner under section 90(1)(h) of the Tax Administration Act 1994
  
  x is—
  
  (i) in relation to the holder of the financial arrangement, the amount of all consideration provided by the holder in relation to the financial arrangement other than the specified property; or
  
  (ii) in relation to an issuer of the financial arrangement, the amount of all consideration provided to the issuer in relation to the financial arrangement other than the specified property; and
- (d) where the financial arrangement is a hire purchase agreement and the holder is the first holder in relation to the hire purchase agreement, either—
  - (i) an amount calculated in accordance with the following formula:
    
    a + b + c
    
    where—
    
    a is,—
    
    (A) the cash price of the hire purchase asset (as cash price is defined in section 5 of the Credit Contracts and Consumer Finance Act 2003); or
    
    (B) if subsubparagraph (A) of this item is not applicable, the lowest price at which the hire purchase asset could be purchased under a short term trade credit at the time of commencement of the hire purchase agreement
    
    b is the amount of all expenditure or loss incurred by the holder in preparing and installing the hire purchase asset for use to the extent to which any such expenditure or loss is not taken into account in determining the amount of item “a”
    
    c is—
    
    (A) in relation to the holder, the amount of all consideration provided by the holder in relation to the hire purchase agreement, other than the hire purchase asset and the expenditure or loss referred to in item “b”; or
    
    (B) in relation to the issuer, the amount of all consideration provided to the issuer in relation to the hire purchase agreement, other than the hire purchase asset and the expenditure or loss referred to in item “b”; or
  - (ii) if subparagraph (i) is not applicable, or if either the holder or the issuer in relation to the hire purchase agreement applies to the Commissioner for a specific determination, an amount calculated in accordance with the following formula:
    
    d + e
    
    where—
    
    d is—
    
    (A) the discounted value of all hire purchase payments payable under the hire purchase agreement, as determined under a determination made by the Commissioner under section 90(1)(i) of the Tax Administration Act 1994; or
    
    (B) where either the holder or the issuer in relation to the hire purchase agreement applies to the Commissioner for a specific determination, an amount determined by the Commissioner in relation to that application (and the amount so determined applies for both the holder and the issuer to the exclusion of any determination made in respect of that hire purchase agreement under subsubparagraph (A) of this item)
    
    e is,—
    
    (A) in relation to the holder, the amount of all consideration provided by the holder in relation to the hire purchase agreement, other than the hire purchase asset and any expenditure or loss incurred by the holder in preparing and installing the hire purchase asset for use; or
    
    (B) in relation to the issuer, the amount of all consideration provided to the issuer in relation to the hire purchase agreement, other than the hire purchase asset and any expenditure or loss incurred by the holder in preparing and installing the hire purchase asset for use; and
- (e) where none of paragraphs (a) to (d) applies to a financial arrangement,—
  - (i) in relation to a holder of the financial arrangement, the value of all consideration provided by the holder in relation to the financial arrangement; or
  - (ii) in relation to an issuer of the financial arrangement, the value of all consideration provided to the issuer in relation to the financial arrangement
excepted financial arrangement, other than an arrangement listed in paragraphs (p), (q), (r), (s), (t), (u), and (v) that a taxpayer has treated as a financial arrangement in a return of income already filed, means any of the following arrangements
- (a) an annuity for a term contingent upon human life or an annuity for a term not contingent on human life to which section EY 8(2)(c) applies:
- (b) an insurance contract or membership of a superannuation scheme:
- (c) a debenture to which section FC 1 or FC 2 applies:
- (d) a short term trade credit, unless the purchaser or vendor has elected in accordance with section EZ 43 to treat the short term trade credit as a financial arrangement to which the old financial arrangements rules apply:
- (e) a specified preference share to which section FZ 1 applies:
- (f) in relation to a holder or an issuer, shares, other than withdrawable shares, or an option to buy shares, other than withdrawable shares, where those shares were or that option was acquired or issued by the person before 8.00 pm New Zealand Standard Time on 18 June 1987:
- (g) in relation to a holder or an issuer, shares, other than withdrawable shares, or an option to acquire or to sell or otherwise dispose of shares, other than withdrawable shares, where those shares were or that option was acquired or issued by the person after 8.00 pm New Zealand Standard Time on 18 June 1987:
- (h) a lease:
- (i) a bet on any—
  - (i) race (as defined in section 5 of the Racing Act 2003); or
  - (ii) sporting event under a sports-betting system administered under Part 6 of the Racing Act 2003; or
  - (iii) gambling, including a New Zealand lottery (as those terms are defined in section 4(1) of the Gambling Act 2003):
- (j) in relation to an issuer or a holder, an option to acquire or to sell or otherwise dispose of property (other than an interest in a financial arrangement) where the option was issued or acquired by the person after 8.00 pm New Zealand Standard Time on 18 June 1987 for private or domestic purposes only:
- (k) a short term agreement for the sale and purchase of property:
- (l) a short term option:
- (m) a private or domestic agreement for the sale and purchase of property:
- (n) a farm-out arrangement:
- (o) a hire purchase agreement (as defined in section OB 1, but including an agreement that would be a hire purchase agreement but for the exclusion in paragraph (g) of the definition of that term) entered into before 1 April 1993, or any assignment of such an agreement:
- (p) a loan that is interest free, repayable on demand, and denominated in New Zealand dollars, for the lender of the loan only:
- (q) an employment contract:
- (r) an interest in a group investment fund:
- (s) an interest in a partnership or a joint venture:
- (t) travellers' cheques:
- (u) a warranty for goods or services:
- (v) a hire purchase agreement for livestock or bloodstock entered into on or after 1 April 1993
financial arrangement means—
- (a) any debt or debt instrument; and
- (b) any arrangement (whether or not such arrangement includes an arrangement that is a debt or debt instrument, or an excepted financial arrangement) whereby a person obtains money in consideration for a promise by any person to provide money to any person at some future time or times, or upon the occurrence or non-occurrence of some future event or events (including the giving of, or failure to give, notice); and
- (c) any arrangement which is of a substantially similar nature (including, without restricting the generality of the preceding provisions of this subparagraph, sell-back and buy-back arrangements, debt defeasances, and assignments of income);—
but does not include any excepted financial arrangement that is not part of a financial arrangement
fixed principal financial arrangement means any financial arrangement other than a variable principal debt instrument
forward contract, in the definitions of holder and implementation date, includes, but is not limited to, a forward contract for—
- (a) foreign exchange:
- (b) commodities:
- (c) financial arrangements:
- (d) excepted financial arrangements;—
but does not include an agreement for the sale and purchase of property or a specified option
holder—
- (a) means,—
  - (i) in relation to—
    
    (A) an agreement for the sale and purchase of property; or
    
    (B) a forward contract or a futures contract,—
  a person who is a vendor in relation to the financial arrangement:
  - (ii) in relation to an option to purchase or otherwise acquire property, a person who is a grantor of the option:
  - (iii) in relation to an option to sell or otherwise dispose of property, a person who is a grantee of the option:
  - (iv) in relation to a hire purchase agreement, the lessor:
  - (v) in relation to any other financial arrangement, a person who, if the amount or amounts payable under the financial arrangement were due and payable at that time, would be entitled to receive, or would receive a pecuniary benefit from, payment of the amount or amounts so payable or any part of them;—
  and hold has a corresponding meaning; and
- (b) is further defined in section EZ 35(8) for the purposes of that section
implementation date means,—
- (a) in the case of—
  - (i) forward or future contracts, including, but not limited to, contracts for—
    
    (A) foreign exchange:
    
    (B) commodities:
    
    (C) financial arrangements:
    
    (D) excepted financial arrangements; and
    
    (ii) futures contracts; and
    
    (iii) trade credits; and
    
    (iv) annuities; and
    
    (v) agreements for the sale and purchase of property; and
    
    (vi) convertible notes,—
  8.00 pm New Zealand Standard Time on 23 October 1986; and
- (b) in the case of debt defeasances and assignments of income, 20 December 1986; and
- (c) in the case of variable principal debt instruments, 1 April 1987; and
- (d) in the case of a financial arrangement under which—
  - (i) the monetary obligations of the parties are expressed in New Zealand currency; and
  - (ii) it is contemplated that the holder may, upon demand or call, require the return of sums advanced to the issuer; and
  - (iii) it is not contemplated that the holder may advance further sums to the issuer upon demand or call under the financial arrangement,—
  1 April 1987; and
- (e) in every other case, 8.30 pm New Zealand Standard Time on 31 July 1986
issuer,—
- (a) in relation to a financial arrangement at any time, means a person who is a party to the financial arrangement and is not a holder in relation to the financial arrangement; and
- (b) is further defined in section EZ 35(8) for the purposes of that section
maturity, in relation to a financial arrangement, means the date on which the last payment contingent upon the financial arrangement is made, and matures has a corresponding meaning: provided that where a financial arrangement has not matured and where the amount which has not been paid is immaterial and the financial arrangement has been structured to avoid the application of section EZ 35, the financial arrangement is deemed to have matured money, in paragraph (b) of the definition of financial arrangement and in the definition of security payment, includes money's worth, whether or not convertible into money, and the right to money, including the deferral or cancellation of any obligation to pay money whether in whole or in part
private or domestic agreement for the sale and purchase of property, in the definition of excepted financial arrangement, in relation to any person, means an agreement for the sale and purchase of property or a specified option where—
- (a) the agreement was entered into by that person or the specified option was granted to or by that person for private or domestic purposes; and
- (b) the subject-matter of the agreement or specified option is—
  - (i) real property, the purchase price of which is less than $750,000; or
  - (ii) any other property, the purchase price of which is less than $250,000; and
- (c) settlement is required to take place within 365 days after the day on which the agreement was entered into or the specified option granted
property,—
- (a) in the definition of specified base cost for 1983 income year property and in the life insurance rules, includes any real or personal property; and
- (b) in paragraph (a) of the definition of holder and paragraph (b) of the definition of lease and in the definitions of agreement for the sale and purchase of property, amount of all consideration, core acquisition price, excepted financial arrangement, private or domestic agreement for the sale and purchase of property, right in the specified property, short term agreement for the sale and purchase of property, short term option, and specified option, means—
- (i) any capital asset that is not foreign exchange or a financial arrangement; and
- (ii) trading stock; and
- (iii) consumable aids; and
- (iv) property to be purchased or otherwise acquired or sold or otherwise disposed of for private or domestic purposes only
right in the specified property, in the definition of core acquisition price, means—
- (a) the right to possession of the property; or
- (b) the right to any income or the right to control or influence the disposition of income derived from the property; or
- (c) the right, directly or indirectly, to exercise, or to influence any other person in the exercise of, any decisionmaking in respect of the property; or
- (d) any other right of a substantially similar nature:
provided that the mere right to enforce any agreement for the sale and purchase of property or any specified option does not of itself constitute a right in the specified property
secured arrangement, in the definitions of security arrangement and security payment, means an arrangement against which the failure to perform is secured by a financial arrangement

security arrangement, in the definition of security payment, means a financial arrangement that secures the holder against failure of any person to perform their obligations under a secured arrangement

security payment means money received by the holder of a security arrangement to the extent that the money is received in relation to a loss incurred due to the failure of performance of the secured arrangement and the value of the money is income of the holder
short term agreement for the sale and purchase of property means an agreement for the sale and purchase of property where—
- (a) the property is real property and settlement is required to take place within 93 days of the day on which the agreement was entered into; or
- (b) the property is not real property and settlement is required to take place within 63 days of the day on which the agreement was entered into
short-term option, in the definition of excepted financial arrangement, means a specified option where—
- (a) the subject-matter of the option is real property and settlement is required to take place within 93 days of the day on which the option was granted; or
- (b) the subject-matter of the option is not real property and settlement is required to take place within 63 days of the day on which the option was granted
short term trade credit, in the definitions of core acquisition price, excepted financial arrangement, and trade credit, means any debt for goods or services where payment is required by the vendor—
- (a) within 63 days after the supply of the goods or services; or
- (b) because the supply of the goods or services is continuous and the vendor renders periodic invoices for the goods or services, within 63 days after the date of an invoice rendered for those goods or services
social assistance suspensory loan is defined in section EZ 35(8)(c) for the purposes of that section

specified option means an option to purchase or otherwise acquire or sell or otherwise dispose of property, and the agreement for the sale and purchase of property, if any, entered into as a result of the exercise of the option is deemed to be part of the option

trade credit, in the definitions of core acquisition price and implementation date, means any debt for goods or services, but does not include a short term trade credit
trading stock, in paragraph (b) of the definition of property, means—
- (a) any thing acquired for the purposes of manufacture, sale, or exchange:
- (b) livestock:
- (c) any other real or personal property where the business of the person by whom it is sold or disposed of comprises dealing in such property or the property was acquired by the person for the purpose of sale or other disposal:
- (d) any land, any amount derived from the sale or other disposal of which would be income to which any of sections CB 5 to CB 21 applies:
- (e) anything in respect of which expenditure is incurred and which, if possession were taken, would fall within any of paragraphs (a) to (d);—
but does not include any financial arrangement
variable principal debt instrument means a bank deposit account or other financial arrangement where it is contemplated that the holder may—
- (a) advance further sums to the issuer; or
- (b) where the rights and obligations of the person under the financial arrangement are expressed in a currency other than New Zealand currency, require the return of sums advanced to the issuer—
in either case upon demand or call, and where all such sums form part of that bank deposit account or other instrument.
Compare: 1994 No 164 s EH 14

EZ 46 Determination of core acquisition price where consideration for property denominated in foreign currency

(1) For the purposes of paragraph (c) of the definition of core acquisition price in section EZ 45, if the consideration payable under the relevant financial arrangement for the specified property is denominated in a foreign currency, the lowest price referred to in that paragraph must be the lowest price the parties would have agreed upon in that foreign currency converted into New Zealand dollars using, at the option of the taxpayer,—
- (a) the rate, on the day on which the financial arrangement was entered into (in this section referred to as the contract date), available to the taxpayer from a New Zealand registered bank for the exchange of New Zealand dollars for that foreign currency on the day on which the first right in the specified property is to be transferred (in this section referred to as the rights date); or
- (b) if the period between the rights date and the day on which final payment is to be made under the financial arrangement (in this section referred to as the settlement date) is not greater than 5 years, the rate, on the contract date, available to the taxpayer from a New Zealand registered bank for the exchange of New Zealand dollars for that foreign currency on the settlement date; or
- (c) an exchange rate approved by the Commissioner for adoption under this subsection in the circumstances applicable to the taxpayer in a determination issued under section 90(1)(k) of the Tax Administration Act 1994.
(2) The rate adopted by a taxpayer in relation to a financial arrangement under subsection (1) must be consistently applied by that taxpayer in respect of that particular financial arrangement for the purposes of the old financial arrangements rules for every income year during its term.

(3) If the terms of the financial arrangement referred to in subsection (1) are such that the actual rights date is uncertain as at the contract date, then the rights date is for the purposes of subsection (1) the date on which it is reasonably expected by the parties at the time of entering into the financial arrangement that the first right in the specified property will be transferred.

(4) If the terms of the financial arrangement referred to in subsection (1) are such that the actual settlement date is uncertain as at the contract date, then the settlement date is for the purposes of subsection (1) the date on which it is reasonably expected by the parties at the time of entering into the financial arrangement that final payment will be made.

Compare: 1994 No 164 s EH 15

EZ 47 Rules for non-market transactions

(1) Where the Commissioner, having regard to any connection between the parties to the issue or transfer of a financial arrangement and to any other relevant circumstances, is satisfied that the parties were dealing with each other in relation to the issue or transfer in a manner that has the effect of defeating the intent and application of the old financial arrangements rules, the Commissioner may, under section EZ 32 or EZ 34 or EZ 35 or EZ 39, deem the consideration for the issue or transfer to be equal to the consideration that might reasonably be expected for the issue or transfer if the parties to the issue or transfer were independent parties dealing at arm's length with each other in relation to the issue or transfer.
(2) If at any time a person not resident in New Zealand—
- (a) commences to hold, whether temporarily or otherwise, a financial arrangement, for the purposes of a business carried on through a fixed establishment in New Zealand, the person is deemed to have acquired the financial arrangement at that time; or
- (b) ceases to hold, whether temporarily or otherwise, a financial arrangement for the purposes of a business carried on through a fixed establishment in New Zealand, the person is deemed to have disposed of the financial arrangement at that time; or
- (c) being a holder or an issuer of a financial arrangement, becomes a New Zealand resident, the person is deemed to acquire or to issue the financial arrangement at the time at which the person becomes a New Zealand resident;—
and that acquisition or that disposal is deemed to have been made for a consideration equal to the consideration that might reasonably be expected for the acquisition or disposal if the acquisition or disposal had been made at arm's length.
(3) A financial arrangement is treated as having been sold and purchased or transferred and realised at its market value on the date of its sale or transfer if the sale or transfer, including a transfer by way of distribution to shareholders, is not for consideration in money or is for a consideration that is less than the market value of the financial arrangement.

(5) The market value of a financial arrangement is the market value for both seller and purchaser or transferor and transferee.

Compare: 1994 No 164 s EH 16

EZ 48 Transitional adjustment when changing to financial arrangements rules

(1) A person may elect to apply the financial arrangements rules to a financial arrangement to which the old financial arrangements rules apply.

(2) A person who makes an election must apply the financial arrangements rules to all financial arrangements to which the person is a holder or an issuer.

(3) Despite subsections (1) and (2), a person must apply section EZ 35 if that section applies to a financial arrangement in the income year in which the election is made.

(4) Once an election is made, the financial arrangement is subject to the financial arrangements rules and is treated in the same way as a financial arrangement that was entered into on or after 20 May 1999.

(5) A person who makes an election must calculate a transitional adjustment for the income year of election and return the resulting income or expenditure.

(6) The transitional adjustment is calculated using the formula—

income (financial arrangements rules) – expenditure (financial arrangements rules) – income (old financial arrangements rules) + expenditure (old financial arrangements rules)

where—

income (financial arrangements rules) is the total amount of income that would be derived by the person from the financial arrangement if the financial arrangements rules were applied to the financial arrangement for the period beginning on the date the person acquires the arrangement and ending on the last day of the income year in which this calculation is made

expenditure (financial arrangements rules) is the total amount of expenditure that would be incurred by the person under the financial arrangement if the financial arrangements rules were applied to the financial arrangement for the period beginning on the date the person acquires the arrangement and ending on the last day of the income year in which this calculation is made

income (old financial arrangements rules) is the total amount of income of the person from the financial arrangement in all income years before the income year in which this calculation is made

expenditure (old financial arrangements rules) is the total amount of expenditure incurred by the person under the financial arrangement in all income years before the income year in which this calculation is made.
(7) The result of the transitional adjustment is,—
- (a) if a positive amount, income derived by the person in the income year; and
- (b) if a negative amount, expenditure incurred by the person in the income year.
(8) In the income year in which the transitional adjustment is made to a financial arrangement, a person must take into account only the income derived or the expenditure incurred as a result of the adjustment for the financial arrangement.
(9) Despite subsections (2) to (8), a person is treated as transferring a financial arrangement at market value at the end of the income year of election and must calculate a base price adjustment under section EZ 35 if—
- (a) the financial arrangement is an arrangement to which the old financial arrangements rules apply; and
- (b) the financial arrangement were entered into on or after 20 May 1999 and would not have been subject to the financial arrangements rules; and
- (c) the person elects to apply the financial arrangements rules to a financial arrangement to which the old financial arrangements rules apply.
Compare: 1994 No 164 s EH 17

EZ 49 References to new rules include old rules

(1) Subsection (2) applies if—
- (a) the old financial arrangement rules apply to a financial arrangement (old financial arrangement); and
- (b) a taxation law in this Act (rewritten law) refers only to, or applies only to, a financial arrangement to which the financial arrangements rules apply; and
- (c) the rewritten law is in neither subpart EW nor sections EZ 30 to EZ 48; and
- (d) the rewritten law corresponds to and replaces, with or without amendments, a taxation law that applied to the old financial arrangement before 20 May 1999.
(2) The rewritten law applies to the old financial arrangement as if the rewritten law referred to, or applied to, a financial arrangement to which the old financial arrangements rules apply.
(3) Subsection (2) does not apply to—
- (a) a definition, or parts of a definition, in section OB 1 if that definition or part refers to section EZ 45; or
- (b) section GD 11, because the former taxation law to which it corresponds has been re-enacted as section EZ 47.
(4) Section HB 2(1)(a)(v) applies to a financial arrangement to which the old financial arrangements rules apply as if—
- (a) the reference to section EW 31 were to section EZ 35; and
- (b) the words “financial arrangements rules” read “old financial arrangements rules”.
Compare: 1994 No 164 s EH 18

Part F
Apportionment and recharacterised transactions

Subpart FB—Apportionment

FB 2 Apportionment of income derived partly in New Zealand and partly elsewhere

FB 3 Disposal of trading stock

FB 4 Income derived from disposal of trading stock together with other assets of business

FB 4A Land on revenue account

FB 7 Depreciation: partial income-producing use

Subpart FC—Recharacterisation

Debentures and notes

FC 1 Floating rate of interest on debentures

FC 2 Interest on debentures issued in substitution for shares

FC 3 Share dealing

FC 4 Valuation adjustments where company acquires its shares

FC 5 Assets purchased and resold after deduction of payments under lease

FC 6 Effect of specified lease on lessor and lessee

FC 7 Income of lessor under specified lease

FC 8 Deduction to lessee under specified lease

Finance leases

FC 8A Lease of personal property lease asset treated as sale

FC 8B Rules for personal property lease asset during term of finance lease

FC 8C Termination of finance lease

FC 8D Lessor's use of personal property lease asset after finance lease ends

FC 8E Purchase and sale of personal property lease asset by lessee or associated person

FC 8F Lessor's income

FC 8G Deduction to lessee

FC 8H Adjustment required for consecutive or successive leases

FC 8I Adjustment

Hire purchase

FC 9 Purpose

FC 10 Taxation of hire purchase agreements

Non-resident general insurers

FC 13 Premiums derived by non-resident general insurers treated as being derived from New Zealand

FC 14 Non-resident general insurers' income

FC 15 Non-resident general insurers' expenditure

FC 16 Liability to make return and pay income tax

FC 17 Premiums paid to residents of Switzerland

Non-resident shippers

FC 18 Non-resident shippers' income

FC 19 Non-resident shippers' excluded income

FC 20 Non-resident shippers' expenditure

Non-resident film renters

FC 21 Amounts derived by non-residents from renting films

Transitional residents

FC 22 Tax treatment of foreign-sourced amounts derived by transitional resident

FC 23 General requirements for being transitional resident

FC 24 Transitional resident

Subpart FCB—Emigration of resident companies

FCB 1 Tax effects of company becoming non-resident to reflect tax effects of liquidation

FCB 2 Emigrating company treated as paying distribution to shareholders

FCB 3 Emigrating company treated as disposing of property and immediately reacquiring property

Subpart FD—Consolidation of companies

FD 1 Purpose and application of consolidated grouping provisions

FD 2 Interpretation

FD 3 Companies which may constitute consolidated group

FD 4 Formation of consolidated group

FD 5 Company may not be member of more than 1 consolidated group

FD 6 Nominated companies

FD 7 Joining existing consolidated group

FD 8 Leaving consolidated group

FD 9 Part income year accounts and part tax year income allocation

FD 10 Special provisions relating to dispositions of property

FD 11 Application of international tax rules

Subpart FDA—Imputation group of companies

FDA 1 Companies that may constitute imputation group

FDA 2 Formation, entry, and combination of imputation groups

FDA 3 Membership of groups

FDA 4 Liability of members of imputation group

FDA 5 Nominated company

FDA 6 Leaving imputation group

Subpart FE—Amalgamation

FE 1 Amalgamation of companies: purpose

FE 2 Cancellation of shares held by amalgamating company on amalgamation

FE 3 Deduction to amalgamated company for bad debts and expenditure

FE 4 Amalgamated company to assume unexpired accrual expenditure and profits or gains of amalgamating company

FE 5 Transfer of property or obligations under financial arrangements deemed to be at market value

FE 6 Acquisition of property by amalgamated company on qualifying amalgamation

FE 6A Deduction to amalgamating company for depreciable property transferred

FE 7 Succession of obligations of amalgamating company under financial arrangement on amalgamation

FE 8 Amalgamated company to assume rights and obligations of amalgamating company

FE 9 Amalgamation not to result in deemed income or remission of liabilities

FE 10 Treatment of financial arrangements between amalgamating companies

Subpart FF—Transfers under relationship agreements

FF 1 Shares or options

FF 2 Financial arrangements

FF 3 Business stock in hand

FF 4 Personal property

FF 5 Commercial bills

FF 6 Land

FF 7 Disposal of timber under relationship agreement

FF 8 Patent applications and patent rights

FF 9 Specified livestock

FF 10 Non-specified livestock

FF 11 High-priced livestock

FF 12 Bloodstock

FF 13 Trading stock

FF 14 Leased assets

FF 15 Amount of depreciation loss for qualifying assets

FF 16 Depreciable property

FF 17 Pensions

FF 18 Land used in specified activity

FF 19 Mining assets

Subpart FG—Apportionment of interest costs

FG 1 Purpose of this subpart

FG 2 Entities to which interest deduction rules potentially apply

FG 3 When interest apportioned under section FG 8 or annual total deduction adjusted under section FG 8B

FG 4 Rules for calculating New Zealand group debt percentage

FG 5 Rules for calculating worldwide group debt percentage

FG 6 Concession for on-lending

FG 7 Concession for exchange rate fluctuations

FG 8 Apportionment of interest deductions—taxpayer not in New Zealand banking group

FG 8B Adjustment of annual total deduction—reporting bank

FG 8C New Zealand banking group of registered bank

FG 8D Reporting bank for New Zealand banking group

FG 8E Measurement periods and measurement days

FG 8F Financial value and regulatory value

FG 8G New Zealand net equity of New Zealand banking group

FG 8H Net equity threshold

FG 8I Valuation of debt and risk-weighted exposures

FG 8J Treatment of temporary change in New Zealand net equity or net equity threshold

FG 9 Treatment of specified leases and interest expense

FG 10 Mode of elections

Subpart FH—Foreign attributed income excess interest allocation

FH 1 Circumstances in which group excess interest allocation required

FH 2 Rules for determining company's foreign attributed income group

FH 3 Rules for determining New Zealand foreign attributed income group debt percentage

FH 4 Rules for determining consolidated foreign attributed income group debt percentage

FH 5 Rule for calculating group excess interest allocation amount

FH 6 Rule for calculating company's excess interest allocation percentage

FH 7 Rule for calculating individual excess interest allocation amount

FH 8 Rules for applying surplus group excess interest allocation amount to increase income tax and dividend withholding payment

Subpart I—Effect of certain disposals and resulting acquisitions

FI 1 Disposals and resulting acquisitions to which subpart FI applies

FI 2 Disposal and resulting acquisition of property treated as occurring at market value

FI 3 Date on which disposal and resulting acquisition treated as occurring

FI 4 Disposal and resulting acquisition of property by spouse, civil union partner, or de facto partner on death of person

FI 5 Distributions of property to close relatives and others

FI 6 Disposal and resulting acquisition of timber

FI 7 Relationship of section FI 2(2) to subpart CB

FI 8 Relationship of subpart FI to unexpired prepayments

FI 9 Death occurring before 1 October 2005

FI 10 Value of property acquired by beneficiary of trust before 1 October 2005

FI 11 Disposal of certain financial arrangements on death

Subpart FZ—Terminating provisions

FZ 1 Deduction for dividends paid on certain preference shares

FZ 2 Amounts owing under convertible notes deemed to be share capital and holders deemed to be shareholders

Subpart FB—Apportionment

FB 2 Apportionment of income derived partly in New Zealand and partly elsewhere

FB 3 Disposal of trading stock

FB 4 Income derived from disposal of trading stock together with other assets of business

FB 4A Land on revenue account

FB 7 Depreciation: partial income-producing use

FB 2 Apportionment of income derived partly in New Zealand and partly elsewhere

(1) For the purposes of this Act generally, if—
- (a) any business of a taxpayer is carried on partly in New Zealand and partly outside New Zealand; or
- (b) a contract is made in New Zealand and is wholly or partly performed by a taxpayer outside New Zealand, or is made outside New Zealand and is wholly or partly performed by a taxpayer in New Zealand,—
the gross amount of income from the business or contract, and expenditure incurred in deriving that income, is apportioned to New Zealand in such a way and to such an extent as is necessary to produce an amount of net income or net loss for the purposes of this Act in respect of the business or contract which the taxpayer might be expected to have if the taxpayer's activities in New Zealand in respect of the business or contract were carried out by the taxpayer as a separate and wholly independent person undertaking only those activities and dealing at arm's length, and the gross amount of income, so far as so apportioned to New Zealand, is deemed to be derived from New Zealand.
(1A) For the purposes of Part L, if—
- (a) any business of a taxpayer is carried on partly in 1 country and partly in another country; or
- (b) a contract is made in 1 country and wholly or partly performed by a taxpayer in another country, or is partly performed by a taxpayer in 2 or more countries,—
the gross amount of income from the business or contract, and expenditure incurred in deriving that income, is apportioned between the countries in such a way and to such an extent as is necessary to produce an amount of net income or net loss, in respect of each country and the business or contract, which the taxpayer might be expected to have if the taxpayer's activities in that country in respect of the business or contract were carried out by the taxpayer as a separate and wholly independent person undertaking only those activities and dealing at arm's length.
(2) This section must not be construed as applying with respect to—
- (a) income of any of the classes referred to in section OE 4(1) (except paragraphs (a) and (q)); or
- (b) income of any of the classes referred to in section OE 4(1)(a) or (q) to the extent that that income consists of income of any of the classes referred to in any of the other provisions of that subsection.
Compare: 1994 No 164 s FB 2

Subsection (2)(a) was amended, as from 1 April 2005, by section 104(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the expression “section OE 4(1)” for the expression “section OE (1)” with application as from the income year corresponding to the 2005–06 tax year.

Subsection (2)(b) was amended, as from 1 April 2005, by section 104(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the expression “section OE 4(1)(a)” for the expression “section OE (1)(a)” with application as from the income year corresponding to the 2005–06 tax year.

FB 3 Disposal of trading stock

Where in any income year the whole or any part of the assets of a business owned or carried on by any taxpayer is sold or otherwise disposed of (whether by way of exchange, or otherwise, other than by a disposition of property that is not at market value because of the operation of any of sections FI 4 to FI 6, and whether or not in the ordinary course of the business of the taxpayer or for the purpose of putting an end to that business or any part of it), and the assets sold or otherwise disposed of consist of or include any trading stock, the consideration received or receivable for the trading stock or, as the case may be, the price which under this Act the trading stock is deemed to have realised is taken into account in determining the taxpayer's assessable income for that income year, and the person acquiring the trading stock is, for the purpose of calculating the person's taxable income for that income year or for any subsequent income year, deemed to have purchased it at the amount of that consideration or price. This section, with any necessary modifications, applies in any case where a share or interest in any trading stock is sold or otherwise disposed of by any taxpayer.

Compare: 1994 No 164 s FB 3

Section FB 3 was amended, as from 1 October 2005, by section 50 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “(whether by way of exchange, or otherwise, other than by a disposition of property that is not at market value because of the operation of any of sections FI 4 to FI 6” for “(whether by way of exchange, or gift, or distribution in terms of a will or on an intestacy, or otherwise” with application as from the 2005–06 income year.

FB 4 Income derived from disposal of trading stock together with other assets of business

(1) If trading stock is sold together with other assets of a business, the total consideration must be apportioned, for the purposes of this Act, between the trading stock and the other assets so as to reflect their respective market values, and the amount apportioned to the trading stock is treated as being the price paid for the trading stock by the purchaser.

(2) For the purposes of this section, any trading stock which has been disposed of otherwise than by sale and otherwise than by way of a transfer in accordance with a relationship agreement is deemed to have been sold, and any trading stock so disposed of and any trading stock which has been sold for a consideration other than cash is deemed to have realised its market value at the date of the disposition or sale.

(3) This section, with any necessary modifications, applies in any case where a share or interest in any trading stock is sold or otherwise disposed of together with other assets of a business or with a share or interest in other assets of a business.
(4) For the purposes of this section,—
- (a) the creation or grant of any right to take timber is treated as a sale or other disposition of trading stock of a kind referred to in subsection (5)(d):
- (b) where there is a sale or other disposition of land with standing timber on the land, that sale or other disposition is deemed to include a sale or other disposition of trading stock of a kind referred to in subsection (5)(d), except to the extent that the timber is—
  - (i) timber comprised in ornamental or incidental trees, as evidenced by a certificate given under section 44C of the Tax Administration Act 1994; or
  - (ii) subject to a forestry right (as defined in section 2 of the Forestry Rights Registration Act 1983) registered under the Land Transfer Act 1952; or
  - (iii) subject to a profit à prendre granted before 1 January 1984.
(5) In this section, trading stock includes—
- (a) anything produced or manufactured:
- (b) anything acquired or purchased for purposes of manufacture, sale, or exchange:
- (c) livestock:
- (d) timber:
- (e) any right to take timber:
- (f) any other real or personal property sold or disposed of by the taxpayer where the business of the taxpayer comprises dealing in such property or the property was acquired by the taxpayer for the purpose of sale or other disposal:
- (g) anything in respect of which expenditure is incurred after 8.30 pm New Zealand Standard Time on 31 July 1986 and which, if possession of that thing were taken, would be trading stock;—
but does not include any financial arrangement to which the financial arrangements rules apply.
Compare: 1994 No 164 s FB 4

Subsection (2) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

FB 4A Land on revenue account

If a person derives income under sections CB 5 to CB 21 from the disposal of land, and the land is acquired together with other property, the cost of acquisition must be apportioned between the land and the other property.

Compare: 1994 No 164 s DJ 14(4)

FB 7 Depreciation: partial income-producing use

(1) Subsection (2) applies when—
- (a) a person has an amount of depreciation loss for an item of depreciable property for an income year, other than an amount arising under section EE 41(2); and
- (b) at a time during the income year, the item is partly used, or is partly available for use, by the person—
  - (i) in deriving assessable income or carrying on a business for the purpose of deriving assessable income; or
  - (ii) in a way that is subject to fringe benefit tax; and
- (c) at the same time, the item is partly used, or is partly available for use, by the person for a use that falls outside both paragraph (b)(i) and (ii); and
- (d) the item is not a motor vehicle to which subpart DE applies.
(2) The deduction the person is allowed for the amount of depreciation loss must not be more than the amount calculated using the formula—
(3) In the formula,—
- (a) depreciation loss means the amount of depreciation loss for the income year:
- (b) qualifying use days means the number of days in the income year on which the person owns the item and uses it, or has it available for use, for a use that falls within subsection (1)(b)(i) or (ii):
- (c) all days means the number of days in the income year on which the person owns the item and uses it or has it available for use.
(4) A unit of measurement other than days, whether relating to time, distance, or anything else, is to be used in the formula if it achieves a more appropriate apportionment.
(5) Subsection (6) applies when—
- (a) a person has an amount of depreciation loss for an item of depreciable property arising under section EE 41(2); and
- (b) the item was, at any time during the period the person owned it, dealt with in—
  - (i) subsection (2); or
  - (ii) any applicable paragraph in section EZ 10; and
- (c) the item is not a motor vehicle to which subpart DE applies.
(6) The deduction the person has for the amount of depreciation loss is calculated using the formula—
(7) In the formula,—
- (a) disposal depreciation loss is the amount resulting from a calculation made for the item under section EE 41(2):
- (b) all deductions is all amounts of depreciation loss relating to the item for which the person has been allowed a deduction in each of the income years in which the person has owned the item:
- (c) base value has the applicable one of the meanings in sections EE 48 to EE 50:
- (d) adjusted tax value is the item's adjusted tax value on the date on which the disposal or event occurs.
(8) Subsection (9) applies when—
- (a) a person has an amount of depreciation loss for an item of depreciable property arising under section EE 41(2); and
- (b) in the income year in which the depreciation loss arises, the person starts to use the item, or to have it available for use, for the purpose of deriving assessable income or carrying on a business for the purpose of deriving assessable income; and
- (c) at a time during the income year, the item is partly used, or is partly available for use, by the person—
  - (i) in deriving assessable income or carrying on a business for the purpose of deriving assessable income; or
  - (ii) in a way that is subject to fringe benefit tax; and
- (d) the item is not a motor vehicle to which subpart DE applies.
(9) The deduction the person has for the amount of depreciation loss is calculated using the formula—
(10) In the formula,—
- (a) disposal depreciation loss is the amount resulting from a calculation made for the item under section EE 41(2):
- (b) qualifying use days means the number of days in the income year on which the person owns the item and uses it, or has it available for use, for a use that falls within subsection (8)(c)(i) or (ii):
- (c) all days means the number of days in the income year on which the person owns the item and uses it or has it available for use, for any purpose.
(11) Despite subsection (8), a unit of measurement other than days, whether relating to time, distance, or anything else, is to be used in the formula if it achieves a more appropriate apportionment.

Compare: 1994 No 164 ss EG 2(1)(e), EG 19(4)

Subsections (8) to (11) were inserted, as from 18 December 2006, by section 84(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2006–07 income year.

Subpart FC—Recharacterisation

Debentures and notes

FC 1 Floating rate of interest on debentures

FC 2 Interest on debentures issued in substitution for shares

FC 3 Share dealing

FC 4 Valuation adjustments where company acquires its shares

FC 5 Assets purchased and resold after deduction of payments under lease

FC 6 Effect of specified lease on lessor and lessee

FC 7 Income of lessor under specified lease

FC 8 Deduction to lessee under specified lease

Finance leases

FC 8A Lease of personal property lease asset treated as sale

FC 8B Rules for personal property lease asset during term of finance lease

FC 8C Termination of finance lease

FC 8D Lessor's use of personal property lease asset after finance lease ends

FC 8E Purchase and sale of personal property lease asset by lessee or associated person

FC 8F Lessor's income

FC 8G Deduction to lessee

FC 8H Adjustment required for consecutive or successive leases

FC 8I Adjustment

Hire purchase

FC 9 Purpose

FC 10 Taxation of hire purchase agreements

Non-resident general insurers

FC 13 Premiums derived by non-resident general insurers treated as being derived from New Zealand

FC 14 Non-resident general insurers' income

FC 15 Non-resident general insurers' expenditure

FC 16 Liability to make return and pay income tax

FC 17 Premiums paid to residents of Switzerland

Non-resident shippers

FC 18 Non-resident shippers' income

FC 19 Non-resident shippers' excluded income

FC 20 Non-resident shippers' expenditure

Non-resident film renters

FC 21 Amounts derived by non-residents from renting films

Transitional residents

FC 22 Tax treatment of foreign-sourced amounts derived by transitional resident

FC 23 General requirements for being transitional resident

FC 24 Transitional resident

Debentures and notes

FC 1 Floating rate of interest on debentures

(1) Where in any debenture issued by a company the rate of interest payable in respect of the debenture is not specifically determined, but is determinable from time to time—
- (a) by reference to the dividend payable by the company; or
- (b) by reference to the company's profits, however measured, for debentures issued after 8.00 pm New Zealand Standard Time on 23 October 1986 other than those issued under a binding contract entered into before that time; or
- (c) in any other manner, for debentures issued before the time specified in paragraph (b),—
the company is denied a deduction in respect of any interest payable under the debenture or of any expenditure or loss incurred in connection with the debenture or in borrowing the money secured by or owing under it.
(2) Section HK 12 does not apply with respect to any such debenture or to the interest paid or payable under it.

(3) This section does not apply if, under the terms of the debenture, the rate of interest payable is determined by a fixed relationship to banking rates or general commercial rates or (in the case of debentures issued after the time specified in subsection (1)(b)) economic, commodity, industrial, or financial indices.

Compare: 1994 No 164 s FC 1

FC 2 Interest on debentures issued in substitution for shares

(1) Where a company has issued debentures to its shareholders or to any class of its shareholders, and the amount of the debenture or debentures issued to each shareholder of the company or of that class has been determined by reference to the number or to the available subscribed capital per share calculated under the slice rule of, or by reference otherwise to, the shares in that company or in any other company (whether or not that other company is being or has been liquidated) that were held by or on behalf of the shareholder at the time the debentures were issued or at any earlier time, the company is denied a deduction in respect of any interest payable under any debenture so issued or of any expenditure or loss incurred in connection with any such debenture or in borrowing the money secured by or owing under any such debenture.

(2) Section FC 1 applies with respect to all debentures to which subsection (1) applies, and to the interest payable under those debentures, in the same manner as if those debentures and that interest were debentures and interest of the kinds referred to in section FC 1.

(3) This section does not apply with respect to any issue of debentures if more than 25% of the debentures (computed by reference to the amount of the debentures) were transferred for a consideration in money or money's worth before 30 August 1940 (being the date of the passing of the Finance Act (No 2) 1940).

(4) This section does not apply with respect to any debenture that is a convertible note.

(5) In this section,—

amount of the debenture means, in respect of any debenture, the principal sum expressed to be secured by or owing under that debenture

shareholder includes, in respect of any company, a person by whom or on whose behalf shares in the company have at any time been held.

Compare: 1994 No 164 s FC 2

FC 3 Share dealing

(1) If a taxpayer holds shares that are revenue account property, a dividend derived by the taxpayer or an associated person from the shares after their acquisition which—
- (a) constitutes a realisation or recovery of the price at which the taxpayer acquired those shares; and
- (b) is a dividend the declaration, payment, or distribution of which was in any way—
  - (i) controlled or directed by the taxpayer; or
  - (ii) part of or associated with a scheme which includes the acquisition of those shares and the payment or distribution of the dividend—
is deemed to be received by the taxpayer as consideration or part consideration on the sale of the shares, whether or not the shares have been or will be sold, and is income in the tax year in which the dividend is derived:

provided that if, in relation to the transaction initiated by the acquisition of those shares in the tax year in which the dividend is derived, the amount that would be the taxpayer's net income if the taxpayer's only income derived in that tax year were in respect of the transaction (including any amount deemed to be consideration under this subsection) is more than zero, the amount of the consideration that is treated as income under this subsection is reduced by the lesser of—
- (c) the amount that would be the taxpayer's net income so calculated; and
- (d) the total of any dividends that have been treated as income under subsection (2) and that have not previously been applied in reduction of the amount of consideration under this paragraph.
(2) Notwithstanding anything in subsection (1), any dividend that is taken into account under that subsection in any tax year remains and is a dividend derived by the taxpayer in that tax year, and the amount of that dividend is income of the taxpayer in that tax year.

Compare: 1994 No 164 s FC 3

FC 4 Valuation adjustments where company acquires its shares

Where—
- (a) a company acquires, redeems, or otherwise cancels a share in the company (referred to in this section as the cancellation); and
- (b) the cancellation is not an on-market cancellation; and
- (c) any consideration derived by the shareholder from the cancellation would be income of the shareholder under any of sections CB 1 to CB 4 or any other provision of this Act (other than a provision in subpart CD or section HH 1(8)); and
- (d) the shareholder continues to hold, after the cancellation, shares of the same class as the share,—
then, for the purposes of this Act,—
- (e) if the whole of the consideration derived by the shareholder is treated as a dividend for the purposes of this Act, the shareholder is deemed not to have disposed of the share (except for the purpose of determining whether the shareholder has derived a dividend) and an amount equal to the cost to the shareholder of the share must be fairly divided amongst and added to the cost to the shareholder of the shareholder's remaining shares of the same class when taking into account, under subpart EB, this section, or otherwise, the cost of those remaining shares of the same class at any time after the cancellation; and
- (f) in any case where—
  - (i) paragraph (e) does not apply; and
  - (ii) the consideration payable by the company for the cancellation is less than the market value of the share at the time at which notice is first given by the company to the shareholder or, in any case where the cancellation is proposed by the shareholder, by the shareholder to the company proposing the cancellation (for any reason other than that the proposal requires the consideration to be equal to the market value of the share at the time of the cancellation),—
  section GD 1 does not apply but an amount (being not less than nil) calculated in accordance with the following formula:
  where—
  
  a is the cost to the shareholder of the share
  
  b is the aggregate cost to the shareholder of all the shareholder's shares of the same class immediately before the cancellation
  
  c is the consideration derived by the shareholder from the company in respect of the cancellation
  
  d is the market value of all the shareholder's shares of the same class immediately before the cancellation
  
  must be—
  
  (iii) fairly divided amongst and added to the cost to the shareholder of the shareholder's remaining shares of the same class when taking into account, under subpart EB, this section, or otherwise, the cost of those remaining shares of the same class at any time after the cancellation; and
  
  (iv) in any case where the shares are not trading stock of the shareholder, excluded from the cost of the share acquired, redeemed, or otherwise cancelled, so that the shareholder is denied any deduction for that amount.
Compare: 1994 No 164 s FC 4

Leases

FC 5 Assets purchased and resold after deduction of payments under lease

(1) Where—
- (a) a taxpayer leased, rented, or hired any asset, being any plant or machinery (including a motor vehicle) or other equipment or a temporary building and the taxpayer has been allowed a deduction for the consideration paid or given in respect of that lease, rental, or hire; and
- (b) either—
  - (i) that taxpayer at any time purchased or otherwise acquired that asset and sold or otherwise disposed of it for a consideration in excess of the consideration for which the taxpayer purchased or otherwise acquired it; or
  - (ii) any other person, where the taxpayer and that other person are associated persons, at any time purchased or otherwise acquired that asset, not being an acquisition resulting from a relationship agreement, whether or not from the taxpayer, and that other person sold or otherwise disposed of it for a consideration in excess of the consideration for which that other person purchased or otherwise acquired it,—
  an amount equal to the excess or to the total amount of the deductions so allowed, whichever is less, is income of the taxpayer derived in the tax year in which the asset is sold or otherwise disposed of.
(2) Subsection (1) applies whether or not there was any clause or condition in the lease, contract, agreement, or arrangement under which the asset was leased, rented, or hired, by which that taxpayer or that other person was required to purchase or otherwise acquire that asset.
(3) For the purposes of this section,—
- (a) if an asset to which this section relates has been purchased or otherwise acquired, or sold or otherwise disposed of, together with other assets, the total consideration must be apportioned between the asset and the other assets so as to reflect their respective market values, and the amount apportioned to the asset is treated as being the consideration for which the asset was purchased, acquired, sold, or disposed of:
- (b) where any asset to which this section relates has been sold or otherwise disposed of, not being a disposition in accordance with a relationship agreement, without consideration or for a consideration which is less than the market value of that asset at the date of the sale or other disposition, that asset is deemed to have been sold at and to have realised that market value.
Compare: 1994 No 164 s FC 5

Subsection (1)(b)(ii) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

Subsection (3)(b) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

FC 6 Effect of specified lease on lessor and lessee

(1) This section applies notwithstanding anything in this Act.

(2) The leasing of any personal property lease asset under any specified lease is deemed to be a sale of that asset, made at the commencement of the term of the lease, by the lessor to the lessee, and the lessee is deemed to have incurred, pursuant to that sale, capital expenditure of an amount equal to the cost price of that asset.

(3) The lessor in any specified lease is deemed to have advanced to the lessee in that specified lease a loan of an amount equal to the cost price of the personal property lease asset and the lessee is deemed to have applied that loan in the financing of the acquisition of that asset.

(4) In any income year in which the lessor leases, under a specified lease, any personal property lease asset to any lessee, the lessor is denied a deduction for an amount of depreciation loss in respect of that asset.
(5) On the expiry of the term of the lease, where the personal property lease asset is not purchased by the lessee under the terms of that lease or on the exercise of any option under that lease, the asset is deemed to have been sold on the expiry of the term of the lease to the lessor for—
- (a) an amount equal to the guaranteed residual value (if any) specified, in respect of the asset, in the specified lease; or
- (b) where no guaranteed residual value is so specified, no consideration.
(6) In any case where a specified lease is terminated before the expiry of the term of the lease (whether by cancellation, surrender, or otherwise),—
- (a) the personal property lease asset in relation to that lease is deemed to be sold, on the date of that termination, to the lessor by the lessee at a price equal to the amount by which the amount of the outstanding balance (at the time of that termination) of any loan advanced by the lessor to the lessee exceeds the amount or the sum of the amounts payable by the lessee to the lessor in consideration for the release by the lessor of the lessee from the obligations of the lessee under the lease: provided that where, in relation to the amount of that outstanding balance and to the amount or the sum of the amounts payable by the lessee to the lessor, no such excess arises, that asset is deemed to have been so sold for no consideration:
- (b) where the value of the consideration payable by the lessee to the lessor in respect of that termination exceeds the amount of the outstanding balance (at the time of that termination) of any loan advanced by the lessor to the lessee, an amount equal to the amount of that excess is deemed to be income derived by the lessor in the income year in which that lease is terminated.
(7) Where on or after the expiry of the term of the lease in relation to any specified lease the personal property lease asset in relation to that lease is sold, assigned, or leased under a specified lease by the lessor to another person and the value of the consideration in respect of that sale, or that assignment, or that lease—
- (a) exceeds the amount determined, in respect of that first-mentioned specified lease, under subsection (5), that amount so determined is increased by such further amount as is equal to such part (if any) of the excess as is paid by the lessor to the lessee:
- (b) is less than the amount determined, in respect of that first-mentioned specified lease, under subsection (5)(a) and the lessee is required to make a further payment to the lessor equal to the difference between the guaranteed residual value in relation to that lease value and that value of that consideration, that amount so determined is reduced by the amount of that further payment: provided that in any case where the value of the consideration in respect of that sale, or that assignment, or that lease exceeds the amount determined under subsection (5), such part (if any) of that excess as is not paid to the lessee is deemed to be income derived by the lessor in the income year in which that term of the lease expires.
(8) In any case where the lessee in any specified lease, or any other person where that other person and that lessee are associated persons, at any time purchased or otherwise acquired that personal property lease asset and sold or otherwise disposed of that asset and the value of the consideration for that sale or other disposal exceeds the value of the consideration for which the lessee or the other person purchased or otherwise acquired it, an amount equal to that excess is income derived by the lessee in the income year in which the asset is sold or otherwise disposed of.

Compare: 1994 No 164 s FC 6

FC 7 Income of lessor under specified lease

(1) For the purposes of this Act, the income of any lessor derived under any specified lease is deemed to be interest.
(2) The amount of interest so derived by any lessor is deemed to be,—
- (a) during the term of the lease, derived during the initial period and each instalment period, an amount that either—
  - (i) is calculated, on the outstanding balance in relation to that initial period and each instalment period, at such a rate and in such a manner that the aggregate of all of the amounts so calculated is equal to the amount first mentioned in paragraph (b); or
  - (ii) is calculated, in relation to that initial period and to each instalment period, in accordance with such other method commonly applied in commercial usage as, having regard to the term of the lease and to the frequency of the personal property lease payments, results in the allocation to that initial period and to each instalment period of an amount that is fair and reasonable and results in the sum of all such amounts so allocated being equal to the amount first mentioned in paragraph (b):
- (b) in relation to the term of the lease, such amount as is equal to the sum of the amounts of the personal property lease payments in relation to the specified lease and the amount of the guaranteed residual value (if any) in relation to the specified lease, reduced by the cost price of the personal property lease asset.
(3) The interest so derived by any lessor is, in relation to any income year, deemed to be an amount equal to the sum of such of the amounts (being amounts calculated in accordance with subsection (2)(a)) as are calculated in relation to the initial period (if any) and to each instalment period that ends in that income year.

Compare: 1994 No 164 s FC 7

FC 8 Deduction to lessee under specified lease

No deduction is allowed for any expenditure incurred by the lessee under a specified lease except to the extent that the expenditure—
- (a) would be allowed as a deduction to the lessee under section BD 2; and
- (b) does not exceed the sum of such of the amounts (being amounts calculated in accordance with section FC 7(2)(a)) as are calculated in relation to the initial period (if any) and to each instalment period that ends in that income year.
Compare: 1994 No 164 s FC 8

Finance leases

FC 8A Lease of personal property lease asset treated as sale

(1) The leasing of a personal property lease asset under a finance lease is treated as a sale of the asset from the lessor to the lessee on the date that the lease starts, and—
- (a) the lessor is treated as giving the lessee a loan for the asset; and
- (b) the lessee is treated as using the loan to purchase the asset.
(2) For the lessor, the loan's value is the lessor's disposition value.

(3) For the lessee, the loan's value is the lessee's acquisition cost.

Compare: 1994 No 164 s FC 8A

FC 8B Rules for personal property lease asset during term of finance lease

(1) A lessor is denied a deduction for an amount of depreciation loss for a personal property lease asset in a tax year or a part of a tax year (as the case may be) in which the lessor leases the asset under a finance lease.

(2) If the lessee acquires ownership of the personal property lease asset by the date on which the term of the lease ends, the sale giving rise to the acquisition is the same sale referred to in section FC 8A.
(3) Despite section EE 38, if the lessee does not purchase the personal property lease asset by the date on which the term of the lease ends, the lessor is treated as having purchased the asset on the date on which the lease ends, and the asset is sold to the lessor for—
- (a) the guaranteed residual value; or
- (b) no consideration, if there is no guaranteed residual value.
Compare: 1994 No 164 s FC 8B

Subsection (2) was amended, as from 1 October 2005, by section 198(1) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “by the date on which the lease term ends” for “on the date that the term of the lease ends or terminates” with application as from the 2005–06 income year.

Subsection (2) was amended, as from 1 October 2005, by section 51(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “term of the lease” for “lease term” with application as from the 2005–06 income year.

Subsection (3) was amended, as from 1 October 2005, by section 198(2)(a) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “by the date on which the lease term ends” for “at the end of the term of the lease” with application as from the 2005–06 income year.

Subsection (3) was amended, as from 1 October 2005, by section 198(2)(b)Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “on which” for “that” with application as from the 2005–06 income year.

Subsection (3) was amended, as from 1 October 2005, by section 51(2) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “term of the lease” for “lease term” with application as from the 2005–06 income year.

FC 8C Termination of finance lease

(1) Despite section EE 38, if a finance lease terminates before the term of the lease ends and the lessor reacquires the personal property lease asset, the asset is treated as being sold to the lessor for the amount by which the outstanding balance of the loan on the date of termination is more than the amount the lessee paid to be released from his or her obligations under the lease.

Compare: 1994 No 164 s FC 8C

FC 8D Lessor's use of personal property lease asset after finance lease ends

(1) If, on or after the date the term of the lease ends, the personal property lease asset is sold, assigned, or leased by the lessor to another person under another finance lease, and the consideration for the sale, assignment, or lease—
- (a) is more than the amount determined under section FC 8B(3), the amount determined under section FC 8B(3) is increased by the excess to the extent that it is paid by the lessor to the lessee of the original finance lease:
- (b) is less than the amount determined under section FC 8B(3)(a), and the lessee is required to make a further payment to the lessor for the difference between the guaranteed residual value and the consideration for the sale, assignment, or lease, the amount so determined is reduced by the further payment.
(2) If subsection (1)(a) applies, any excess that is not paid by the lessor to the lessee is income derived by the lessor in the tax year in which the original term of the lease ends.

Compare: 1994 No 164 s FC 8D

FC 8E Purchase and sale of personal property lease asset by lessee or associated person

If the lessee, or a person who is associated with the lessee, purchases or acquires a personal property lease asset that has been subject to a finance lease and sells or disposes of it for more than the consideration given for the purchase or acquisition, the difference is income of the lessee in the tax year in which the lessee or the person who is associated with the lessee sells the asset.

Compare: 1994 No 164 s FC 8E

FC 8F Lessor's income

Income derived by a lessor from the loan under a finance lease is treated as interest.

Compare: 1994 No 164 s FC 8F

FC 8G Deduction to lessee

A lessee is denied a deduction for expenditure incurred under a finance lease in a tax year, except to the extent that the lessee would be allowed a deduction for the expenditure under section BD 2.

Compare: 1994 No 164 s FC 8G

FC 8H Adjustment required for consecutive or successive leases

(1) A lessor and a lessee must make an adjustment under section FC 8I if—
- (a) their lease is a consecutive or a successive lease and is deemed to be 1 lease under the definition of lease; and
- (b) they did not contemplate, at the start of the term of the lease, that the lease would be for more than 75% of the personal property lease asset's estimated useful life; and
- (c) their lease is for more than 75% of the asset's estimated useful life.
(2) The result of the adjustment must be included in the return of income for the tax year in which the adjustment is made.

Compare: 1994 No 164 s FC 8H

FC 8I Adjustment

(1) A lessor and a lessee must both apply the formula in subsection (2) for the period beginning on the date that the lease starts and ending on the last day of the tax year in which the lease becomes a finance lease to make the adjustment.

(2) The formula is—

income (finance lease) – expenditure (finance lease) – income (operating lease) + expenditure (operating lease)

where—

income (finance lease)	is the income that would have been derived under the lease as if the lease were a finance lease
expenditure (finance lease)	is the expenditure that would have been incurred under the lease as if the lease were a finance lease
income (operating lease)	is the income derived under an operating lease
expenditure (operating lease)	is the sum of all deductions taken in relation to an operating lease.

(3) If the result of the adjustment is—

(a) a positive amount, the result is income of the lessor or the lessee derived in the tax year in which the adjustment is made; and

(b) a negative amount, the result is expenditure incurred by the lessor or the lessee in the tax year in which the adjustment is made.

Compare: 1994 No 164 s FC 8I

Hire purchase

FC 9 Purpose

This section and section FC 10 are intended to result in hire purchase agreements that are made in relation to personal property other than livestock or bloodstock being treated for the purposes of this Act in a similar manner to a sale of the property with a loan for the purchase price being made by the person providing the finance under the agreement to the person obtaining under the agreement the use of or right to use the property.

Compare: 1994 No 164 s FC 9

FC 10 Taxation of hire purchase agreements

(1) For the purposes of this Act, except subsections (2), (3), and (6) and section FC 9, where a hire purchase asset is provided to a lessee under a hire purchase agreement,—

(a) the lessor is deemed to have sold the hire purchase asset at the commencement of the hire purchase agreement for an amount equal to the lessor's disposition value for the hire purchase asset; and

(b) the lessee is deemed to have purchased the hire purchase asset at the commencement of the hire purchase agreement for an amount equal to the lessee's acquisition cost for the hire purchase asset; and

(c) the lessee, but no other person, is allowed deductions for amounts of depreciation loss of the hire purchase asset attributable to the period until the hire purchase agreement is terminated.

(2) Subject to subsections (3) and (4), for the purposes of this Act, if on or after the termination or expiry of a hire purchase agreement the lessee, or any other person if that person and the lessee are associated persons, does not acquire ownership of the hire purchase asset the subject of the hire purchase agreement,—

(a) the lessor is deemed to have acquired ownership of the hire purchase asset from the lessee for an amount equal to the lessor's outstanding balance in relation to the hire purchase agreement; and

(b) the lessee is deemed to have disposed of ownership of the hire purchase asset to the lessor for an amount equal to the lessee's outstanding balance in relation to the hire purchase agreement—

on the date of the termination or expiry of the hire purchase agreement.

(3) If the lessor is a cash basis person, the amount referred to in subsection (2) is reduced by an amount for accrued but unpaid interest on the hire purchase agreement calculated using the formula—

accrual income – income

where—

accrual income	is the amount of income that would have been derived under 1 of the spreading methods for the hire purchase payments if—
	(a)	the lessor were not a cash basis person; and
	(b)	section EW 31 did not apply to the lessor and the hire purchase agreement in the income year that the hire purchase agreement terminates or expires
income	is the income of the lessor from hire purchase payments paid.

(4) If the lessee is a cash basis person, the amount referred to in subsection (2) is reduced by an amount for accrued but unpaid interest on the hire purchase agreement calculated using the formula—

expenditure under the financial arrangements rules – expenditure

where—

expenditure under the financial arrangements rules	is the amount of expenditure that would have been incurred under 1 of the spreading methods for the hire purchase payments if—
	(a)	the lessee were not a cash basis person; and
	(b)	section EW 31 did not apply to the lessee and the hire purchase agreement in the income year that the hire purchase agreement terminates or expires
expenditure	is the expenditure incurred by the lessee from hire purchase payments paid.

(5) For the avoidance of doubt, if a lessor is deemed to acquire ownership of a hire purchase asset the subject of a hire purchase agreement from a lessee under subsection (2),—

(a) the amount calculated in accordance with subsection (2) and, if applicable, subsection (3) or (4) is taken into account as consideration paid by the lessee to the lessor in relation to the hire purchase agreement for the purposes of section EW 31, and as consideration derived by the lessor in respect of the hire purchase agreement for the purposes of section EW 31; and

(b) the costs and expenses referred to in section 31(2)(c) and (d) of the Credit (Repossession) Act 1997 (being, generally, storage and repossession and other costs and expenses associated with a breach of a hire purchase agreement by the lessee) are not taken into account by the lessor or the lessee for the purposes of the old financial arrangements rules; and

(c) the lessor is denied a deduction under section DB 11 or DB 23 for bad debts in relation to any amount owing or to become owing in respect of the hire purchase agreement, if the amount calculated for the lessor under subsection (2) and, if applicable, subsection (3) in relation to the hire purchase agreement is taken into account by the lessor—
- (i) as the acquisition price of trading stock of the lessor; or
- (ii) for the purpose of calculating the net income of the lessor for any income year, in any way not referred to in subparagraph (i); and

(d) any amount paid at any time in an income year subsequent to the income year in which a hire purchase agreement is terminated or expires on account of any amount that, under the terms of the hire purchase agreement, the lessee or any person associated with the lessee is liable to pay to the lessor or any person associated with the lessor is income of the lessor in the income year it is received by the lessor or associate of the lessor; and

(e) any amount—
- (i) paid at any time in an income year subsequent to the income year in which a hire purchase agreement is terminated or expires by the lessor or any person associated with the lessor to the lessee or any person associated with the lessee under the hire purchase agreement and consequent upon the termination or expiry of the hire purchase agreement; and
- (ii) that was not taken into account in the computation of the lessor's outstanding balance in relation to that hire purchase agreement—
is, in the income year it is paid, deemed to be expenditure incurred by the lessor; and

(f) any amount—
- (i) paid at any time in an income year subsequent to the income year in which a hire purchase agreement is terminated or expires by the lessor or any person associated with the lessor to the lessee or any person associated with the lessee under the hire purchase agreement and consequent upon the termination or expiry of the hire purchase agreement; and
- (ii) that was not taken into account in the computation of the lessee's outstanding balance in relation to that hire purchase agreement—

is, in the income year it is paid, deemed to be income derived by the lessee if the lessee has been allowed a deduction in respect of the hire purchase asset that is the subject of the agreement.

(6) For the purposes of this Act, if a lessee acquires ownership of a hire purchase asset on the termination or expiration of a hire purchase agreement and the lessor has been deemed already to have disposed of that ownership under subsection (1), that acquisition does not constitute a further disposition of the hire purchase asset by the lessor or further acquisition of the hire purchase asset by the lessee.

(6A) Income derived by a lessor from the loan under a hire purchase agreement is treated as interest.

(7) Sections FC 5 and FF 14 do not apply to a lessee in relation to a hire purchase agreement.

(8) In this section, lessee's acquisition cost, in relation to a hire purchase asset, means the aggregate of—

(a) the consideration provided to the lessee under the hire purchase agreement, as determined by the definition of consideration ; and

(b) the amount of any expenditure or loss incurred by the lessee in preparing and installing the hire purchase asset for use (unless the lessee is allowed a deduction for such expenditure or loss, other than a deduction for an amount of depreciation loss).

Compare: 1994 No 164 s FC 10

Subsection (8)(a) was amended, as from 1 October 2005, by section 199 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “consideration provided to the lessee under the hire purchase agreement” for “consideration paid to the lessee for the hire purchase agreement”.

Non-resident general insurers

FC 13 Premiums derived by non-resident general insurers treated as being derived from New Zealand

(1) A premium is treated as being derived from New Zealand, for the purposes of sections FC 14 and FC 15, if—
- (a) an insured person pays the premium to an insurer for insurance of any of the kinds described in subsections (2) to (4); and
- (b) the premium meets all 3 conditions in subsections (5) to (7); and
- (c) the premium is not excluded from the application of this section by subsection (8).
(2) For the purposes of subsection (1)(a), the first kind of insurance is general insurance.
(3) For the purposes of subsection (1)(a), the second kind of insurance is a guarantee against risk given by an insurer to an insured person, if—
- (a) the insured person is liable to pay a premium to the insurer for the guarantee; and
- (b) the insured person is associated with the insurer.
(4) For the purposes of subsection (1)(a), the third kind of insurance is a guarantee against risk given by an insurer to an insured person, if—
- (a) the insured person is liable to pay a premium to the insurer for the guarantee; and
- (b) the risk arises from money lent to the insured person; and
- (c) the amounts the insured person is liable to pay for the money are significantly less than they would otherwise have been because of the guarantee; and
- (d) the effect of the guarantee on the amounts payable is more than an incidental effect, or comes about as more than an incidental purpose, of the insurer's giving the guarantee.
(5) For the purposes of subsection (1)(b), the premium is derived by an insurer who is not resident in New Zealand when the insurer derives it.

(6) For the purposes of subsection (1)(b), the premium is not attributable to a fixed establishment of the insurer in New Zealand through which the insurer carries on business in New Zealand.
(7) For the purposes of subsection (1)(b), at least 1 of the following applies to the premium:
- (a) the insured person from whom the premium is derived is resident in New Zealand; or
- (b) the insurance contract from which the premium is derived is offered or entered into in New Zealand; or
- (c) the insurance contract from which the premium is derived is entered into for the purposes of a business carried on by the insured person in New Zealand through a fixed establishment in New Zealand.
(8) For the purposes of subsection (1)(c), the premium is excluded from the application of this section if—
- (a) all risk covered by the premium is located outside New Zealand; and
- (b) the insurer deriving the premium is not associated with the insured person.
(9) In this section, and sections FC 14 to FC 17,—

insurance means insurance of a kind described in any of subsections (2) to (4)
insured person means,—
- (a) in relation to insurance of the kind described in subsection (2), a person who is liable to pay a premium to an insurer for the insurance and is entitled by the payment of the premium to make a claim against the insurer:
- (b) in relation to insurance of the kinds described in subsections (3) and (4), a person who is liable to pay a premium to an insurer for the guarantee, whether or not the payment of the premium entitles the person to make a claim against the insurer
insurer means,—
- (a) in relation to insurance of the kind described in subsection (2), a person who provides the insurance and to whom an insured person is liable to pay a premium:
- (b) in relation to insurance of the kinds described in subsections (3) and (4), a person who provides the guarantee and to whom an insured person is liable to pay a premium
premium means,—
- (a) in relation to insurance of the kind described in subsection (2), an amount payable in respect of a contract of insurance entered by an insured person:
- (b) in relation to insurance of the kinds described in subsections (3) and (4), an amount payable in respect of a guarantee of a contract of insurance entered by an insured person.
- (c) [Repealed]
Compare: 1994 No 164 ss CN 4(1)(b), (c), OB 1, OE 4(1)(o)

Subsection (9): paras (a) and (b) of the definition of “premium” were substituted, as from 1 October 2005, by section 200 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subsection (9): paragraph (c) of the definition of “premium” was repealed, as from 1 October 2005, by section 200 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

FC 14 Non-resident general insurers' income

(1) This section applies when an insurer derives a premium that, under section FC 13, is treated as being derived from New Zealand.

(2) Ten percent of the gross premium derived by the insurer is income of the insurer.

Compare: 1994 No 164 s CN 4(1)

FC 15 Non-resident general insurers' expenditure

(1) This section applies when an insurer derives income under section FC 14.

(2) The insurer is denied a deduction in relation to an amount to which this section applies.

(3) This section overrides the general permission.

Compare: 1994 No 164 s CN 4(2)

FC 16 Liability to make return and pay income tax

(1) This section applies when an insurer derives income under section FC 14.

(2) To the extent to which the insurer makes a return of income and pays income tax on the income, no other person described in this section is liable to do so.

(3) To the extent to which a person on behalf of the insurer, including a broker or other agent who pays the premium on behalf of another person, makes a return and pays income tax on the income, no agent described in any of subsections (4) to (6) is liable to do so.
(4) The person who is liable in the first place as an agent of the insurer to make a return of income and pay income tax on the income is—
- (a) a person, including a broker or agent, who pays the premium to the insurer or to some other person not carrying on a business through a fixed establishment in New Zealand; or
- (b) a person described in subsection (7)(b).
(5) The person who is liable in the second place as an agent of the insurer to make a return of income and pay income tax on the income is a person who pays the premium, whether or not through a broker or agent.

(6) The person who is liable in the third place as an agent of the insurer to make a return of income and pay income tax on the income is the insured person.
(7) When a bank or other body to whom any of section NF 9(1)(a) and (b) applies pays the premium on behalf of another person to the insurer or to some other person not carrying on a business through a fixed establishment in New Zealand,—
- (a) the bank or other body is not an agent of the insurer; and
- (b) the person who provides the bank or other body with the funds from which the premium is paid is an agent of the insurer.
Compare: 1994 No 164 s CN 4(3)-(5)

Subsection (7) was amended, as from 1 April 2005, by section 105(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “section NF 9(1)(a) and (b)” for “section NF 9(1)(a) to (c)” with application as from the income year corresponding to the 2005–06 tax year.

FC 17 Premiums paid to residents of Switzerland

(1) This section applies when—
- (a) an insurer derives income under section FC 14; and
- (b) an agent of the insurer under section FC 16 pays the premium to an insurer or to some other person not carrying on a business in New Zealand through a fixed establishment in New Zealand; and
- (c) the insurer or other person is treated as being resident in Switzerland for the purposes of a double tax agreement between the government of New Zealand and the government of Switzerland.
(2) The agent must disclose details of the premium payment to the Commissioner in the manner, if any, required by the Commissioner.

Compare: 1994 No 164 s CN 4(3A)

The heading to section FC 17 was amended, as from 1 April 2005, by section 52(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by omitting the words “and the Netherlands” with application as from the 2005–06 income year.

Subsection (1)(c) was substituted, as from 1 April 2005, by section 52(2) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Non-resident shippers

FC 18 Non-resident shippers' income

(1) This section applies when a ship that belongs to, or is chartered by, a non-resident person carries outside New Zealand cargo, mail, or passengers shipped or embarked in New Zealand. In this section, cargo, mail, or passengers shipped or embarked at a port in New Zealand for carriage outside New Zealand are treated as carried outside New Zealand from that port, even though the ship may call at another port in New Zealand before finally leaving New Zealand.

(2) Five percent of the amount payable to the person for the carriage (whether it is payable inside or outside New Zealand) is treated as income of the person derived from New Zealand.

(3) This section is subject to an exemption granted by the Commissioner under section FC 19.

Compare: 1994 No 164 s CN 1(1), (3)

FC 19 Non-resident shippers' excluded income

The Commissioner may determine that some or all of an amount that would otherwise be income of a non-resident person under section FC 18 is excluded income if, and to the extent to which, in circumstances corresponding to those described in that section, similar persons resident in New Zealand are not liable to, or are exempt from, income tax imposed by the laws of the country or territory in which the non-resident person is resident.

Compare: 1994 No 164 s CN 1(2)

FC 20 Non-resident shippers' expenditure

(1) When a person who is a non-resident is treated by section FC 18 as deriving income from New Zealand for cargo, mail, or passengers shipped outside New Zealand,—
- (a) the person is denied a deduction in relation to an amount to which this section applies; and
- (b) the person has no amount of depreciation loss in relation to that income.
(2) This section overrides the general permission.

Compare: 1994 No 164 s CN 1(1A)

Non-resident film renters

FC 21 Amounts derived by non-residents from renting films

(1) Ten percent of the amounts derived from New Zealand by a non-resident person from the following activities is income of the non-resident person:
- (a) renting, exhibiting, or issuing a film, or making other arrangements for its exhibition:
- (b) selling or hiring film containers, cinematographic or photographic materials, or equipment or accessories relating to a film:
- (c) selling or hiring advertising materials relating to a film.
(2) The rest of the amounts derived from activities in subsection (1) are exempt income of the non-resident person.

(3) The non-resident person is denied a deduction in relation to an amount to which this section applies.

(3B) If the non-resident person is required under an agreement with another non-resident (person A) to pay to person A an amount that is a film rent, or a royalty, commission, or arises from an amount derived by the non-resident person from activities described in subsection (1), the amount paid to person A is exempt income of person A.

(4) This section does not apply if the amounts derived by the nonresident person from activities described in subsection (1) are an insignificant proportion of the total amounts derived by them from any business.

(5) This section overrides the general permission.

Compare: 1994 No 164 s CN 2

Subsection (3B) was inserted, as from 1 April 2005, by section 85(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005–06 income year.

Subsection (4) was substituted, as from 1 April 2005, by section 85(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Transitional residents

This heading was inserted, as from 1 October 2005, by section 106(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for a person who becomes a transitional resident as from 1 April 2006. See section 106(2) and (3) of that Act as to the application of this amendment.

FC 22 Tax treatment of foreign-sourced amounts derived by transitional resident

The intended effect of this section and sections FC 23 and FC 24 and related provisions of the Act is that, for the purposes of the Act, a person who derives a foreign-sourced amount is treated as being a non-resident in relation to the amount if the person derives the amount when the person is a transitional resident.

Sections FC 22 to FC 24 were inserted, as from 1 October 2005, by section 106(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for a person who becomes a transitional resident as from 1 April 2006. See section 106(2) and (3) of that Act as to the application of this amendment.

FC 23 General requirements for being transitional resident

A person satisfies the general requirements for being a transitional resident if—
- (a) the person is resident in New Zealand; and
- (b) for a continuous period (the non-residence period) of at least 10 years ending immediately before the person satisfies the requirements of section OE 1(1) or (2) (Determination of residence of person other than company) for becoming resident in New Zealand, the person—
  - (i) did not satisfy the requirements of section OE 1(1) or (2) for being resident in New Zealand:
  - (ii) was not resident in New Zealand; and.
- (c) the person was not a transitional resident before the non-residence period; and
- (d) the person has not ceased to be a transitional resident after the end of the non-residence period.
Sections FC 22 to FC 24 were inserted, as from 1 October 2005, by section 106(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for a person who becomes a transitional resident as from 1 April 2006. See section 106(2) and (3) of that Act as to the application of this amendment.

Paragraph (a) was amended, as from 1 October 2005, by section 86(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “is resident” for “has a permanent place of abode” with application as from the 2005–06 income year.

Paragraph (b) was substituted, as from 1 October 2005, by section 86(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005–06 income year.

Paragraph (c) was amended, as from 1 October 2005, by section 86(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “period; and” for “period.” with application as from the 2005–06 income year.

Paragraph (d) was inserted, as from 1 October 2005, by section 86(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005–06 income year.

FC 24 Transitional resident

Meaning
(1) A natural person is a transitional resident at a time in the period given by subsection (2) if the person—
- (a) satisfies at the time the general requirements of section FC 23; and
- (b) does not make an election under subsection (3) for the time.
Period
(2) The period for which a natural person may be a transitional resident—
- (a) begins from the first day of the residence required by section FC 23(a); and
- (b) ends on the day that is the earlier of the following:
  - (i) the day before the person ceases to be a New Zealand resident:
  - (ii) the last day of the 48th month after the earliest month in which the person meets the requirements of section OE 1(1) or (2) (Determination of residence of person other than company) for the residence required by section FC 23(a).
Election not to be transitional resident
(3) A person who would otherwise be a transitional resident in an income year may choose irrevocably by a notice under subsection (4) or (6) not to be a transitional resident for a period—
- (a) beginning on or after the beginning of the income year; and
- (b) ending immediately before the person ceases to meet the requirements for being a transitional resident.
Application for tax credit under subpart KD treated as election by person and by spouse or partner in certain circumstances
(4) For a person who satisfies the requirements of subsection (5), an application under section 41 of the Tax Administration Act 1994 by the person for a credit of tax under subpart KD for the income year is treated as being—
- (a) a notice of an election under subsection (3) by the person, if the person is eligible to be a transitional resident and has not made an election under subsection (3); and
- (b) a notice of an election under subsection (3) by any spouse, civil union partner or de facto partner of the person who is eligible to be a transitional resident and who has not made an election under subsection (3); and
- (c) for the period beginning with the first day of the period to which the application relates.
Circumstances in which application treated as election
(5) Subsection (4) applies to a person making an application under section 41 of the Tax Administration Act 1994 who—
- (a) is eligible to receive a credit of tax under subpart KD in the income year or would be eligible to receive such a credit of tax if the person's spouse, civil union partner, or de facto partner were not a transitional resident; and
- (b) makes the application—
  - (i) on or after 1 April 2007; or
  - (ii) before 1 April 2007 and does not give to the Commissioner before 1 June 2007 a notice that the person does not wish the application to be treated as a notice of an election under subsection (3).
Notice of election
(6) A notice under this subsection of an election under subsection (3) by a person must be—
- (a) in a form acceptable to the Commissioner; and
- (b) received by the Commissioner on or before the latest of the following:
  - (i) the date by which section 37 of the Tax Administration Act 1994 would require the person to furnish a return of income for the 2006–07 tax year if the person were required to furnish a return of income for that year:
  - (ii) the date by which section 37 of the Tax Administration Act 1994 would require the person to furnish a return of income for the tax year corresponding to the first income year affected by the election if the person were required to furnish a return of income for that year:
  - (iii) the date allowed by the Commissioner upon application by or on behalf of the person.
Application for extension of time for notice

(7) An application under subsection (6)(b)(iii) by a person, or by a tax agent for a person, for an extension of time to make an election is treated as if it were an application under section 37 of the Tax Administration Act 1994 by the person or tax agent in relation to a return of income for the later of the tax years referred to in subsection (6)(b)(i) and (ii).

Sections FC 22 to FC 24 were inserted, as from 1 October 2005, by section 106(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for a person who becomes a transitional resident as from 1 April 2006. See section 106(2) and (3) of that Act as to the application of this amendment.

Section FC 24 was substituted, as from 1 October 2005, by section 87(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005–06 income year. See section 87(2) and (3) of that Act as to the application of this amendment as from the 2005–06 income year.

Subpart FCB—Emigration of resident companies

Subpart FCB (comprising sections FCB 1 to FCB 3) was inserted, as from 3 April 2006, by section 107(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3). See section 107(2) and (3) of that Act as to the application of this amendment: to a company that becomes a non-resident on or after 21 March 2005 (subject to section 107(2)(a)(i) and (ii)); and as from the income year corresponding to the 2005–06 tax year.

FCB 1 Tax effects of company becoming non-resident to reflect tax effects of liquidation

FCB 2 Emigrating company treated as paying distribution to shareholders

FCB 3 Emigrating company treated as disposing of property and immediately reacquiring property

FCB 1 Tax effects of company becoming non-resident to reflect tax effects of liquidation

(1) This subpart applies to an emigrating company, which is a company that—
- (a) is a New Zealand resident; and
- (b) ceases to be a New Zealand resident.
(2) The intended effect of this subpart and related provisions of the Act is that, for the purposes of the Act, the effects on an emigrating company and its shareholders when the emigrating company becomes a non-resident reflect the effects that would have resulted if,—
- (a) immediately before the emigration time,—
  - (i) the emigrating company disposed of its property at market value; and
  - (ii) the emigrating company went into liquidation; and
  - (iii) the amount available for distribution in the liquidation were distributed as dividends to the shareholders of the emigrating company; and
- (b) at the emigration time, the emigrating company were reformed as a foreign company that—
  - (i) had the same ownership and business activities as those of the emigrating company immediately before the emigration time; and
  - (ii) had acquired at market value the property of the emigrating company immediately before the emigration time.
Subpart FCB (comprising sections FCB 1 to FCB 3) was inserted, as from 3 April 2006, by section 107(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3). See section 107(2) and (3) of that Act as to the application of this amendment: to a company that becomes a non-resident on or after 21 March 2005 (subject to section 107(2)(a)(i) and (ii)); and as from the income year corresponding to the 2005–06 tax year.

FCB 2 Emigrating company treated as paying distribution to shareholders

Immediately before the emigration time for an emigrating company,—
- (a) the emigrating company is treated as paying, as dividends, a distribution in money to shareholders of the amount that would be available for distribution to the shareholders if, immediately before the emigration time, the emigrating company—
  - (i) disposed of its property at market value; and
  - (ii) went into liquidation; and
- (b) each shareholder in the emigrating company is treated as being paid by the emigrating company, as a dividend, a distribution in money of the amount to which the shareholder would be entitled in such a liquidation.
Subpart FCB (comprising sections FCB 1 to FCB 3) was inserted, as from 3 April 2006, by section 107(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3). See section 107(2) and (3) of that Act as to the application of this amendment: to a company that becomes a non-resident on or after 21 March 2005 (subject to section 107(2)(a)(i) and (ii)); and as from the income year corresponding to the 2005–06 tax year.

FCB 3 Emigrating company treated as disposing of property and immediately reacquiring property

An emigrating company is treated as, immediately before the emigration time for the emigrating company,—
- (a) disposing of the property of the emigrating company to another person for consideration equal to the market value of the property at the emigration time; and
- (b) acquiring the property referred to in paragraph (a) from the other person for consideration equal to the amount referred to in paragraph (a).
Subpart FCB (comprising sections FCB 1 to FCB 3) was inserted, as from 3 April 2006, by section 107(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3). See section 107(2) and (3) of that Act as to the application of this amendment: to a company that becomes a non-resident on or after 21 March 2005 (subject to section 107(2)(a)(i) and (ii)); and as from the income year corresponding to the 2005–06 tax year.

Subpart FD—Consolidation of companies

FD 1 Purpose and application of consolidated grouping provisions

Subject to the express provisions of the consolidation rules, those rules are intended to result in the provisions of this Act applying, except where otherwise expressly provided or where the context otherwise requires, to 2 or more companies which are a wholly-owned group of companies that elect to be treated as a consolidated group of companies as if those companies were a single company, and this Act must be read accordingly.

Compare: 1994 No 164 s FD 1

FD 2 Interpretation

(1) For the purposes of the consolidation rules, any reference in those rules to—
- (a) income, assessable income, net income, or taxable income of a consolidated group; or
- (b) an attributed CFC net loss or a FIF net loss, or a net loss of a consolidated group; or
- (c) tax payable by a consolidated group; or
- (d) a tax credit available to a consolidated group—
is, unless the context otherwise requires, interpreted as a reference to the income, assessable income, net income, taxable income, attributed CFC net loss, FIF net loss, net loss, tax payable, or tax credit available determined in respect of that consolidated group on a single assessment basis in accordance with those rules as if the group were 1 company.
(2) For the purposes of the application of those provisions of the consolidation rules that require provisions of this Act to apply to a consolidated group as if it were a single company, the shares or options over shares in respect of that single company are deemed to comprise all shares or options over shares in respect of companies which were at the relevant time members of that consolidated group.
(3) Notwithstanding any provisions of the consolidation rules other than any of those provisions that expressly otherwise provide, dividends paid by 1 member of a consolidated group to another member of the group continue to be taken into account for the purposes of—
- (a) the imputation rules; and
- (b) the dividend withholding payment rules; and
- (c) subpart MF; and
- (d) sections GC 24, GC 26, HB 2(1)(a)(vi), ME 10 to ME 14, MG 13 to MG 16, NH 5, and NH 6; and
- (e) sections 73 and 74 of the Tax Administration Act 1994.
(4) For the purposes of sections GC 24, ME 10 to ME 14, ME 25 to ME 28, MF 7 to MF 10, MG 13 to MG 16, NH 5, and NH 6, and sections 73 and 74 of the Tax Administration Act 1994, unless the context otherwise requires, sections ME 2, MG 1, and OB 6(1)(f) apply as if references in those provisions—
- (a) to the imputation rules were references to sections ME 10 to ME 14:
- (b) to the dividend withholding payment rules were references to sections MG 13 to MG 16, NH 5, and NH 6.
Compare: 1994 No 164 s FD 2

FD 3 Companies which may constitute consolidated group

For the purposes of this Act, any 2 or more eligible companies are entitled to be members of the same consolidated group at any time only where—
- (a) at that time those companies are a wholly-owned group of companies; and
- (b) if at that time any of the companies has a non-standard balance date, at that time all the companies have the same non-standard balance date; and
- (c) if at that time any of the companies is a qualifying company, at that time all the companies are qualifying companies; and
- (d) if at that time any of the companies is a mining company, at that time all the companies are mining companies; and
- (e) at that time, no shares in those companies have—
  - (i) been subject to any arrangement or series of related or connected arrangements; or
  - (ii) had any rights attaching to them extinguished or altered, directly or indirectly, by any means whatever,—
in either case for the purpose, or for purposes including the purpose, of enabling the companies to be entitled to be members of the same consolidated group so as to defeat the intent and application of the consolidation rules.
Compare: 1994 No 164 s FD 3

FD 4 Formation of consolidated group

(1) Any 2 or more eligible companies that are entitled to be members of the same consolidated group may elect to form and be treated as a consolidated group for the purposes of this Act by giving notice to the Commissioner in such form as the Commissioner may approve.
(2) Any notice given under subsection (1) must—
- (a) nominate 1 of the companies as agent of the consolidated group for the purposes of this Act; and
- (b) contain an agreement by each company to be jointly and severally liable with other members of the consolidated group for any income tax payable by the consolidated group (which agreement may be expressed as subject to, or in terms of an approval given under, section HB 1(2) to (5)).
(3) Where any 2 or more companies have elected under this section to form a consolidated group, those companies are treated for the purposes of this Act as members of a consolidated group from—
- (a) the beginning of the income year immediately succeeding that in which the notice is received by the Commissioner; or
- (b) if the notice—
  - (i) is received by the Commissioner within 63 working days after the beginning of an income year, or within such further period as the Commissioner may allow under subsection (6); and
  - (ii) specifies that the election applies for that income year,—
the beginning of that income year.
(4) Notwithstanding subsection (3), where—
- (a) any 2 or more companies that have elected under this section to form a consolidated group are each incorporated or otherwise formed during the same income year; and
- (b) the notice of election—
  - (i) is received by the Commissioner within 63 working days after the latest of those incorporations or other formations, or within such further period as the Commissioner may allow under subsection (6); and
  - (ii) specifies that the election applies for the income year in which the incorporations or other formations occurred,—
those companies are treated for the purposes of this Act as members of a consolidated group from the first day of that income year.
(5) Notwithstanding subsection (3), where—
- (a) any 2 or more companies have in any income year elected under this section to form a consolidated group during that income year; and
- (b) the notice of election—
  - (i) is received by the Commissioner within 63 working days after the date the companies first became entitled to so elect, or within such further period as the Commissioner may allow under subsection (6); and
  - (ii) specifies that the election applies from that date of first entitlement,—
those companies are treated for the purposes of this Act as members of a consolidated group from that date of first entitlement provided that adequate part income year accounts in respect of each company's net income or net loss for each relevant part income year are furnished to the Commissioner in accordance with section FD 9.
(6) The Commissioner may in any particular case extend the period of 63 working days specified in any of subsections (3)(b), (4)(b), and (5)(b) where the relevant company or companies satisfy the Commissioner that in all the circumstances the notice of election could not reasonably be expected to be, or to have been, furnished within that period.
(7) Nothing in this section applies to treat as members of a consolidated group any 2 companies that have made an election under this section, unless,—
- (a) in the case of companies to which subsection (3)(a) would apply, the companies remain eligible companies entitled to be members of the same consolidated group at the beginning of the income year referred to in that provision; or
- (b) in the case of companies to which any of subsections (3)(b), (4), and (5) would apply, the companies (once in existence) are eligible companies entitled to be members of the same consolidated group throughout the period that—
  - (i) commences with the date on which they would, under the relevant one of those provisions, be treated as being members of a consolidated group; and
  - (ii) ends with the date on which the notice of election is received by the Commissioner.
(8) Subsection (5) does not apply where it can reasonably be concluded that any arrangement has been entered into for the purpose, or for purposes including the purpose, of enabling the company to meet the requirements of that subsection so as to defeat the intent and application of the consolidation rules.

Compare: 1994 No 164 s FD 4

FD 5 Company may not be member of more than 1 consolidated group

(1) No company may at any time be a member of more than 1 consolidated group.
(2) Where any company would, but for this section, be treated at any time as being a member of more than 1 consolidated group, either—
- (a) the company is treated as being at that time a member only of the group of which it was first a member; or
- (b) where paragraph (a) does not apply by virtue of a company becoming a member of 2 or more groups simultaneously, the company is treated as being a member only of such one of the consolidated groups as the Commissioner may specify having regard to all the circumstances.
Compare: 1994 No 164 s FD 5

FD 6 Nominated companies

(1) The nominated company for a consolidated group at any time is treated for the purposes of this Act and the Tax Administration Act 1994 as the agent at that time of the consolidated group and of each company which is at that time a member of the consolidated group, except where this Act or that Act otherwise expressly provides or the context otherwise requires.

(2) No company is at any time a nominated company for a consolidated group unless, at that time, that company is a member of that consolidated group.

(3) Where any company which is at any time a nominated company for a consolidated group gives notice to the Commissioner in such form as the Commissioner may approve that it is to cease to be the agent for that group and that another company is to become the agent for that group, the notifying company ceases to be the agent for the group, and the other company becomes the agent for the group, from the date of receipt by the Commissioner of the notice or from such later date as may be specified in the notice.

Compare: 1994 No 164 s FD 6

FD 7 Joining existing consolidated group

(1) Where at any time—
- (a) any 2 or more companies have formed a consolidated group; and
- (b) at least 1 company remains a member of that consolidated group,—
any other eligible company which is at that time entitled to be a member of the same consolidated group may elect to join and be treated as a member of that consolidated group by giving notice to the Commissioner in such form as the Commissioner may allow.
(2) Any such notice must contain the agreement of the company to be jointly and severally liable for any income tax payable by the consolidated group (which agreement may be expressed as subject to, or in terms of an approval given under, section HB 1(2) to (5)).
(3) A company that has elected to join and be treated as a member of a consolidated group is treated for the purposes of this Act as a member of the consolidated group from—
- (a) the beginning of the income year immediately succeeding the income year in which the notice is received by the Commissioner; or
- (b) if the notice—
  - (i) is received by the Commissioner within 63 working days after the beginning of an income year, or within such further period as the Commissioner may allow under subsection (6); and
  - (ii) specifies that the election applies for that income year,—
the beginning of that income year.
(4) Notwithstanding subsection (3), where—
- (a) an eligible company makes an election to join and be treated as a member of a consolidated group in the income year in which that company is incorporated or otherwise formed; and
- (b) the notice of election—
  - (i) is received by the Commissioner within 63 working days after the date of that incorporation or other formation, or within such further period as the Commissioner may allow under subsection (6); and
  - (ii) specifies that the election applies for the income year in which the incorporation or other formation occurs,—
that company is treated for the purposes of this Act as a member of the consolidated group from the first day of that income year.
(5) Notwithstanding subsection (3), where—
- (a) a company first becomes entitled to be a member of a specified consolidated group at any time during an income year; and
- (b) the notice of election to join the group—
  - (i) is received by the Commissioner within 63 working days after that date of first entitlement, or within such further period as the Commissioner may allow under subsection (6); and
  - (ii) specifies that the election applies from that date of first entitlement,—
the company is treated for the purposes of this Act as a member of the consolidated group from that date of first entitlement provided that adequate part income year accounts in respect of the company's net income or net loss for each relevant part income year are furnished to the Commissioner in accordance with section FD 9.
(6) The Commissioner may in any particular case extend the period of 63 working days specified in any of subsections (3)(b), (4)(b), and (5)(b) where the company satisfies the Commissioner that in all the circumstances the notice of election could not reasonably be expected to be, or to have been, furnished within that period.
(7) Nothing in this section applies to treat a company as a member of a consolidated group, unless,—
- (a) in the case of a company to which subsection (3)(a) would apply,—
  - (i) the company remains an eligible company entitled to be a member of the consolidated group at the beginning of the income year referred to in that provision; and
  - (ii) at least 1 other company remains a member of the consolidated group until the beginning of that income year; or
- (b) in the case of a company to which any of subsections (3)(b), (4), and (5) would apply, the company is an eligible company entitled to be a member of the consolidated group throughout the period that—
  - (i) commences with the date on which the company would, under the relevant one of those subsections, be treated as being a member of the consolidated group; and
  - (ii) ends with the date on which the company's notice of election to join the group is received by the Commissioner.
(8) Subsection (5) does not apply where it can reasonably be concluded that any arrangement has been entered into for the purpose, or for purposes including the purpose, of enabling the company to meet the requirements of that subsection so as to defeat the intent and application of the consolidation rules.

Compare: 1994 No 164 s FD 7

FD 8 Leaving consolidated group

(1) A company that is a member of a consolidated group ceases to be a member of that group if—
- (a) the company so elects, by notice to the Commissioner in such form as the Commissioner may approve; or
- (b) the company ceases to be an eligible company; or
- (c) the company, not being the nominated company for the consolidated group, ceases to be entitled to be a member of the same consolidated group as the nominated company; or
- (d) the company is a member of a consolidated group that has ceased to have a nominated company.
(2) A company that elects to cease to be a member of a consolidated group is treated as having ceased to be a member of the group with effect from—
- (a) the beginning of the income year in which the notice of election is received by the Commissioner (or, where appropriate, such later time as the company was first treated as being a member of the group); or
- (b) if the company so specifies in the notice of election, the beginning of the income year immediately succeeding that in which the notice was furnished to the Commissioner (or, where appropriate, such earlier time as the company is treated under this section as having ceased to be a member of the group).
(3) A company that ceases to be an eligible company is treated as having ceased to be a member of the consolidated group with effect from—
- (a) the beginning of the income year during which the company ceased to be an eligible company (or, where appropriate, such later time as the company was first treated as being a member of the group); or
- (b) if subsection (6) applies, the beginning of the day on which the company ceased to be an eligible company.
(4) Where any company, not being the nominated company for the consolidated group, ceases to be entitled to be a member of the same consolidated group as the nominated company, the company is treated as having ceased to be a member of the group with effect from—
- (a) the beginning of the income year during which the cessation occurred (or, where appropriate, such later time as the company was first treated as being a member of the group); or
- (b) if subsection (6) applies in respect of the company, the beginning of the day on which the cessation of entitlement occurred.
(5) Where at any time during an income year there is no nominated company for a consolidated group, all the companies in the group are treated as having ceased to be members of the group with effect from the beginning of the income year: provided that neither this subsection nor subsection (1)(d) applies where—
- (a) the nominated company ceases to be such by reason of being liquidated; and
- (b) within 20 working days after that liquidation, or within such further period as the Commissioner may allow, the other companies in the group have selected another nominated company and notified the Commissioner accordingly (in which case the selected company is treated as the nominated company with effect from the time of the liquidation).
(6) Notwithstanding subsections (3) and (4), where—
- (a) a company which has at any time been a member of a consolidated group first ceases—
  - (i) to be an eligible company; or
  - (ii) to be entitled to be a member of the same consolidated group as the nominated company of the group—
  at any time during an income year (such time being referred to in this subsection as the time of cessation); and
- (b) the company elects, by notice to the Commissioner in such form as the Commissioner may allow, that this subsection applies with respect to the company, the consolidated group, and the income year; and
- (c) the notice is received by the Commissioner within 20 working days after the time of cessation, or within such further period as the Commissioner may allow as reasonable in all the circumstances,—
the company is treated for the purposes of this Act as ceasing to be a member of the consolidated group with effect from the time of cessation provided that adequate part income year accounts in respect of the company's net income or net loss for each relevant part income year are furnished to the Commissioner in accordance with section FD 9.
(7) Subsection (6) does not apply where it can reasonably be concluded that any arrangement has been entered into for the purpose, or for purposes including the purpose, of enabling the company to meet the requirements of that subsection so as to defeat the intent and application of the consolidation rules.
(8) Where a company ceases to be a member of a consolidated group by virtue only of being liquidated,—
- (a) nothing in subsections (2) to (4) applies to treat the company as having so ceased to be a member with effect from the beginning of the income year in which the liquidation occurred; and
- (b) nothing in subsection (6) applies to require the furnishing of adequate part income year accounts in relation to the company.
(9) If at any time a consolidated group ceases to have any member company or companies, that consolidated group is treated as having ceased to exist.

Compare: 1994 No 164 s FD 8

FD 9 Part income year accounts and part tax year income allocation

(1) Where a company joins or leaves a consolidated group part way through an income year, or is or has been a member of a consolidated group that is formed or ceases to exist part way through an income year, any part income year accounts with respect to the company required to be furnished by any of sections FD 4(5), FD 7(5), and FD 8(6) must—
- (a) be incorporated in the return of income for the income year furnished to the Commissioner—
  - (i) by the company, where such part income year accounts are for a period in which the company is not a member of any consolidated group; or
  - (ii) by the consolidated group, where such part income year accounts are for a period in which the company is a member of the consolidated group; or
  - (iii) by any other consolidated group, where such part income year accounts are for a period in which the company is a member of another consolidated group; and
- (b) sufficiently detail in accordance with subsection (2) the annual gross income and annual total deduction (and, where required, the income tax liability) of the company in respect of any relevant part of the income year.
(2) The annual gross income, annual total deduction, income tax liability, or net loss of a company attributable to a part of an income year referred to in subsection (1) are determined, to the extent fair and reasonable and with any necessary modifications, by treating that part income year as a complete income year for the purposes of applying the provisions of this Act.

Compare: 1994 No 164 s FD 9

FD 10 Special provisions relating to dispositions of property

(1) Where any company (in this subsection referred to as the transferor) disposes of any property to another company (in this subsection referred to as the transferee) that is a member of the same consolidated group when the disposition takes place, being property that is—
- (a) depreciating property of the transferor; or
- (b) any property (being neither trading stock for either the transferor or the transferee nor a financial arrangement to which the financial arrangements rules apply) where, if the transferor or transferee were to dispose of that property, the consideration would (but for this section or section HB 2) be income of the transferor or transferee,—
then, for the purpose of determining income and deductions, in respect of any subsequent disposal of the property or in respect of depreciation or amortisation of the acquisition cost of the property under any of sections EE 1, EZ 5, and EZ 6 or any other amortisation provisions of this Act,—
- (c) the transferee is deemed to have acquired the property on the day on which it was acquired by the transferor; and
- (d) the transferee is, where the transferor entered into a binding contract to purchase or construct any depreciable property before 16 December 1991, deemed to have entered into that binding contract on the same date as the transferor; and
- (e) the transferee is deemed to have acquired the property from the transferor for consideration equal to,—
  - (i) except where the property forms all or part of a pool of property that is depreciated by the transferor in accordance with sections EE 20 to EE 24, the aggregate of the following amounts of expenditure incurred by the transferor in respect of the property before the disposition to the transferee in fact takes place, being in every case expenditure in respect of which no deduction has been allowed under this Act (other than by way of depreciation or amortisation of the acquisition cost of the property under any of sections EE 1, EZ 5, and EZ 6 or any other amortisation provisions of this Act):
    - (A) the original purchase price of the property; and
    - (B) any expenditure incurred in purchasing or improving the property; and
    - (C) any expenditure incurred in securing or improving the legal rights of the transferor in relation to the property:
  - (ii) where the property forms the whole of a pool of property that is depreciated by the transferor in accordance with sections EE 20 to EE 24, the adjusted tax value of the pool immediately before the property was disposed of to the transferee:
  - (iii) where the property forms part only of any such pool, the lesser of—
    - (A) the market value of the property disposed of to the transferee; and
    - (B) the adjusted tax value of the whole of the pool immediately before the property was disposed of to the transferee.
(2) Where any company (in this subsection referred to as the transferor) disposes of any depreciating property (other than pooled property) to another company (in this subsection referred to as the transferee) that is a member of the same consolidated group when the disposition takes place, for the purposes of sections EE 1, EE 39 to EE 44, EZ 5, and EZ 6 and any other amortisation provisions of this Act in respect of the calculation of the net income of the transferee for any income year, the transferee is deemed to have been allowed deductions for amounts of depreciation loss or deductions under section EZ 5 or EZ 6 or any other amortisation provision of the same amounts as, in respect of or in relation to the property, the transferor has been allowed.
(3) Where and to the extent that in any income year—
- (a) a company (in this subsection referred to as the transferor)—
  - (i) disposes of any land; or
  - (ii) ceases to carry on a business; and
- (b) but for this subsection, the disposal or cessation would prevent the transferor from being allowed a deduction under any of sections DO 4, DO 4B, DO 4C, DO 6, and DP 3; and
- (c) after the disposal or cessation and for the remainder of the income year—
  - (i) the land is held; or
  - (ii) the business is carried on—
  by another company which is a member of the same consolidated group as the transferor for the whole of the income year,—
the transferor is not prevented by the disposal or cessation from being allowed such a deduction.
(4) Despite sections EW 38 and GD 11, for the purposes of this Act, a company (referred to as the transferor) that disposes of a financial arrangement to another company (referred to as the transferee) that is a member of the same consolidated group on the date of disposition must—
- (a) apply subsection (4A) if—
  - (i) the financial arrangements rules apply to the financial arrangement; and
  - (ii) the method of calculating income and expenditure under the financial arrangement remains the same despite the disposition; and
  - (iii) the nominated company of the group so elects by filing the group's return of income for the income year; and
  - (iv) the transferor and the transferee are members of the same consolidated group at all times in the income year; and
  - (v) the transferor and the transferee are not entitled, under section IE 1 or IF 1, to carry forward and offset, in a later income year, a net loss of the company for any preceding income year, unless the whole of that net loss may be offset against the net income of the consolidated group for the income year under section IG 6:
- (b) in any other case, apply either subsection (4B) or (4C).
(4A) In the income year in which the disposition occurs and in each subsequent income year,—
- (a) the transferor is treated as if it had never been a party to the financial arrangement prior to the disposition, and section EW 31 does not apply to the transferor with respect to the disposition; and
- (b) the transferee is treated as if it had—
  - (i) entered into the financial arrangement on the same date and for the same amount of consideration as the transferor; and
  - (ii) incurred all expenditure and derived all income incurred or derived by the transferor under the financial arrangement before the disposition; and
  - (iii) included in its return of income the same amounts of expenditure and income under the financial arrangement as were included by the transferor.
(4B) If the method of calculating the income or expenditure under the financial arrangement remains the same despite the disposition, the consideration for the disposition in the transferor's base price adjustment calculation is a fair and reasonable amount of the income or expenditure that the transferor would have derived or incurred in the income year of disposition had the disposition not taken place.

(4C) In any other case, the consideration for the disposition is the market value of the financial arrangement on the date of disposition.
(5) Where—
- (a) any company (in this subsection referred to as the transferor) disposes of any trading stock to another company (in this subsection referred to as the transferee) that is a member of the same consolidated group when the disposition takes place; and
- (b) the nominated company has elected that this subsection applies, by notice to the Commissioner in such form as the Commissioner may approve given within the time within which the consolidated group is required to furnish a return of income for that income year or within such further time as the Commissioner may allow; and
- (ba) the property and its ownership is, at any time, able to be specifically identified,—
then, for the purpose of calculation of the net income of the transferor and the transferee, the consideration for which the disposition has taken place is deemed to be,—
- (c) in any case where the trading stock was held by the transferor at the beginning of the income year, the value of that trading stock as at the beginning of the income year as determined in accordance with subpart EB; and
- (d) in any other case, the cost to the transferor of that trading stock.
(6) For the purpose of bringing into account tax liabilities arising from dispositions of property within a consolidated group to the extent that they have not previously been taken into account by virtue of this section or section HB 2(1), where at any time—
- (a) a company ceases to be a member of a consolidated group (other than by virtue only of being liquidated); and
- (b) the company holds any property (whether that property is held as a separate item of property or is part of some other property) which has at any time been the subject of a disposition between members of that consolidated group to which any of subsections (1), (2), (4)(a), (4)(b), and (5) has applied,—
then, for the purposes of this Act, the company is deemed to have disposed of that item of property immediately prior to that time to a person not associated with the company and to have immediately thereafter reacquired it, in each case for a consideration equal to the market value of that property at that time.
(7) For the purposes of subsection (6), where—
- (a) any property to which that subsection applies is, at the time of the disposition deemed to occur under that subsection, part of or absorbed into some other property; and
- (b) its market value at that time cannot separately be determined,—
it is treated as if disposed of and reacquired for a consideration equal to its market value at the time of the disposition to which any of subsections (1), (2), (4)(a), (4)(b), and (5) has applied (or, if there has been more than 1 such disposition between members of the consolidated group, equal to its market value at the time of the latest in time of those dispositions at which its market value can separately be determined), and the treatment under this Act of that other property is adjusted accordingly.
(8) Where and to the extent that—
- (a) any company (in this subsection referred to as the transferor) disposes of any shares in another company (in this subsection referred to as the related company); and
- (b) if that disposition were by way of sale, the consideration from the sale would be included in the transferor's income (not being income not taken into account by virtue of section HB 2); and
- (c) the consideration received by the transferor for that disposition is lower than the consideration that would have been received in an arm's length disposition had not any reduction in the value of the net assets of the related company occurred as a result of any 1 or more dividends, distributions, payments, arrangements, or transactions between the related company and any other company that was at the time of the dividend, distribution, payment, arrangement, or transaction a member of the same consolidated group as the related company,—
for the purposes of this Act the consideration received by the transferor is deemed to be equal to the consideration that would have been received in an arm's length disposition had that reduction in value not occurred.
(9) Notwithstanding the preceding subsections of this section, where—
- (a) any company joins a consolidated group; and
- (b) at the time of joining that consolidated group the company holds any property; and
- (c) after joining the consolidated group, the company disposes of the property to another member of the consolidated group; and
- (d) any of subsections (1), (2), (4)(a), (4)(b), and (5) would apply to that disposition but for the application of this subsection; and
- (e) after the time of that disposition, the company ceases to be a member of the consolidated group (including by virtue of being liquidated); and
- (f) it can reasonably be concluded that there was an arrangement having a purpose or effect of defeating the intent and application of the consolidation rules which involved that company joining the consolidated group, disposing of the property, and ceasing to be a member of the consolidated group,—
the relevant subsection of this section which would have applied to that disposition but for the application of this subsection does not apply to that disposition.
Compare: 1994 No 164 s FD 10

Subsection (3)(b) was amended, as from 1 October 2005, by section 201 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by inserting the expressions “DO 4B, DO 4C,” after the expression “DO 4,”.

FD 11 Application of international tax rules

The international tax rules apply, with any necessary modifications, as if the consolidated group were a single company, and the income and deductions of the consolidated group are determined accordingly.

Compare: 1994 No 164 s CG 2

Subpart FDA—Imputation group of companies

FDA 1 Companies that may constitute imputation group

FDA 2 Formation, entry, and combination of imputation groups

FDA 3 Membership of groups

FDA 4 Liability of members of imputation group

FDA 5 Nominated company

FDA 6 Leaving imputation group

FDA 1 Companies that may constitute imputation group

(1) A company that is not a member of a consolidated group is eligible at a time to be a member of an imputation group with other companies if, assuming the company and the other companies to be members of the group, at the time,—
- (a) each member of the group is a company that is resident in New Zealand or Australia and—
  - (i) is not, for a purpose of taxation in New Zealand or Australia, treated by a double tax agreement as being resident in a country that is not New Zealand or Australia; and
  - (ii) is required by section ME 1 to maintain an imputation credit account or is subject to an election under section ME 1A to maintain an imputation credit account; and
  - (iii) is not a loss attributing qualifying company; and
- (b) the members of the group are a wholly-owned group of companies; and
- (c) no member of the group is a qualifying company or all members of the group are qualifying companies; and
- (d) no member of the group is a mining company or all members of the group are mining companies; and
- (e) [Repealed]
- (f) no member of the group has shares that, for purposes including the purpose of enabling a company to be a member of the same imputation group as another member of the group so as to defeat the intent and application of the imputation rules, have—
  - (i) been subject to an arrangement or series of related or connected arrangements:
  - (ii) had rights attaching to them that have been extinguished or altered, directly or indirectly, by any means whatever.
(2) A company that is a member of a consolidated group is eligible at a time to be a member of an imputation group with other companies if, at the time,—
- (a) all the requirements of subsection (1)(a) to (f) are or would be satisfied by the imputation group; and
- (ab) all members of the consolidated group are or would be members of the imputation group; and
- (b) for an imputation group that contains or will contain members of more than 1 consolidated group, all the members of the consolidated groups have been members of a single wholly-owned group of companies throughout the period that—
  - (i) began on the earliest date on which there arose a credit that, at the time, remains uncancelled in the imputation credit account of a consolidated group or imputation group, all of whose members are or would be in the imputation group; and
  - (ii) ended at the time.
Compare: 1994 No 164 s FDB 1

Subsection (1)(e) was repealed, as from 1 October 2005, by section 202(1) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subsection (2)(ab) was inserted, as from 1 October 2005, by section 202(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subsection (2)(b) was amended, as from 1 October 2005, by section 202(3) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “for an imputation group that contains or will contain members of more than 1 consolidated group, all the members of the consolidated groups have been members of a single wholly-owned group of companies throughout the period that—” for “the company and the other companies that are each a member of a consolidated group and are, or would be, members of the imputation group have been members of a single wholly-owned group of companies throughout the period that—”.

FDA 2 Formation, entry, and combination of imputation groups

(1) Any 2 or more companies that are not members of a consolidated group and are eligible to be members of an imputation group may give to the Commissioner, in a form that is acceptable to the Commissioner, a notice of election to form the imputation group.

(2) A company that is not a member of a consolidated group and is eligible to be a member of an existing imputation group may give to the Commissioner, in a form that is acceptable to the Commissioner, a notice of election to join the imputation group.

(3) The nominated company of a consolidated group may give to the Commissioner, in a form that is acceptable to the Commissioner, a notice of election by all the members of the consolidated group to form an imputation group with companies that are not members of the consolidated group, or to join an existing imputation group, if the companies that are to be the members of the proposed imputation group are at the time of the election eligible under section FDA 1 to be members of the proposed imputation group.

(4) A notice of election under subsection (1) or (3) to form an imputation group must nominate 1 of the companies as agent of the imputation group for the purposes of the imputation rules.

(5) A notice of election under any of subsections (1) to (3) has effect from the beginning of the imputation year that contains the date on which the Commissioner receives the notice.

Compare: 1994 No 164 s FDB 2

FDA 3 Membership of groups

(1) A resident imputation subgroup is associated with a trans-Tasman imputation group and consists of the members of the trans-Tasman imputation group that are not Australian imputation credit account companies.

(2) An imputation group may not be formed with 1 member company but may continue to exist if the number of its members is reduced to 1.

(3) A resident imputation subgroup may be formed and continue to exist with 1 member company.

(4) If at any time an imputation group or resident imputation subgroup has no member company, that imputation group or resident imputation subgroup ceases to exist.

Compare: 1994 No 164 s FDB 3

FDA 4 Liability of members of imputation group

A company that is a member of an imputation group is jointly and severally liable, with the other members of the imputation group, for further income tax, civil penalties, and interest under Part 7 of the Tax Administration Act 1994 arising from the operation of the imputation credit account of the imputation group.

Compare: 1994 No 164 s FDB 4

FDA 5 Nominated company

(1) The nominated company for an imputation group at any time must be a member of the imputation group at the time.
(2) The nominated company for a trans-Tasman imputation group—
- (a) must not be an Australian imputation credit account company:
- (b) is also the nominated company for the resident imputation subgroup that is associated with the trans-Tasman imputation group.
(3) For the purpose of the imputation rules, the nominated company for an imputation group at any time is the agent at that time of the imputation group and of each company that is at that time a member of the imputation group.

(4) A nominated company for an imputation group may at any time give notice to the Commissioner, in a form acceptable to the Commissioner, that the company is to cease to be the nominated company for the imputation group and that another company is to become the nominated company for the imputation group.

(5) A notice under subsection (4) has effect from the date that is 30 days after the date on which the Commissioner receives the notice.

Compare: 1994 No 164 s FDB 5

FDA 6 Leaving imputation group

(1) A company that is a member of an imputation group ceases to be a member of that group if—
- (a) the company elects to cease to be a member of the group, by notice to the Commissioner in a form acceptable to the Commissioner:
- (b) the company ceases to be eligible to be a member of the group:
- (c) the company is not the nominated company for the group and ceases to be eligible to be a member of the same imputation group as the nominated company:
- (d) the company is a member of an imputation group that ceases to have a nominated company, subject to subsection (6).
(2) Subject to subsection (9), a company that elects to cease to be a member of an imputation group ceases to be a member of the group with effect from,—
- (a) if the notice of election specifies a date on which the election is to take effect and on that date the company would otherwise be a member of the group, the beginning of the day specified in the notice of election:
- (b) otherwise, the later of—
  - (i) the beginning of the imputation year in which the notice of election is received by the Commissioner:
  - (ii) the time at which the company becomes a member of the group.
(3) Subject to subsection (9), a company that ceases to be eligible to be a member of an imputation group ceases to be a member of the group with effect from,—
- (a) if subsection (7) is satisfied, the beginning of the day on which the company's eligibility ceases:
- (b) otherwise, the later of—
  - (i) the beginning of the imputation year in which the company's eligibility ceases:
  - (ii) the time at which the company becomes a member of the group.
(4) Subject to subsection (9), a company that is not the nominated company for a group and that ceases to be eligible to be a member of the same group as the nominated company ceases to be a member of the group with effect from,—
- (a) if subsection (7) is satisfied in respect of the company, the beginning of the day on which the company's eligibility ceases:
- (b) otherwise, the later of—
  - (i) the beginning of the imputation year in which the company's eligibility ceases:
  - (ii) the time at which the company becomes a member of the group.
(5) If at any time during an imputation year there is no nominated company for an imputation group and a replacement nominated company is not appointed under subsection (6), the companies in the group cease to be members of the group with effect from the beginning of the imputation year.

(6) If the nominated company for an imputation group is liquidated and the other companies of the group select another company as a replacement, the replacement company is the nominated company for the group from the date of the liquidation if the Commissioner is notified of the selection within 30 days after that date, or within such further period as the Commissioner may allow.

(7) If a company ceases to be eligible to be a member of an imputation group, or ceases to be eligible to be a member of the same group as the nominated company of an imputation group, and makes a valid election that this subsection apply, the company is treated for the purposes of this Act as ceasing to be a member of the imputation group with effect from the date on which the eligibility ceases.
(8) An election under subsection (7) is valid if—
- (a) the election is made by notice to the Commissioner in a form that is acceptable to the Commissioner and is received by the Commissioner within—
  - (i) 30 days after the date on which the company ceases to be eligible to be a member of the group or ceases to be entitled to be a member of the same group as the nominated company:
  - (ii) such further period as the Commissioner may allow as reasonable in all the circumstances; and
- (b) the Commissioner cannot reasonably conclude that an arrangement has been entered into for the purpose, or for purposes including the purpose, of enabling the company to meet the requirements of subsection (7) so as to defeat the intent and application of the imputation rules.
(9) If a company ceases to be a member of an imputation group by virtue only of being liquidated, nothing in subsections (2) to (4) applies to treat the company as having so ceased to be a member with effect from the beginning of the tax year in which the liquidation occurred.

Compare: 1994 No 164 s FDB 6

Subpart FE—Amalgamation

FE 1 Amalgamation of companies: purpose

FE 2 Cancellation of shares held by amalgamating company on amalgamation

FE 3 Deduction to amalgamated company for bad debts and expenditure

FE 4 Amalgamated company to assume unexpired accrual expenditure and profits or gains of amalgamating company

FE 5 Transfer of property or obligations under financial arrangements deemed to be at market value

FE 6 Acquisition of property by amalgamated company on qualifying amalgamation

FE 6A Deduction to amalgamating company for depreciable property transferred

FE 7 Succession of obligations of amalgamating company under financial arrangement on amalgamation

FE 8 Amalgamated company to assume rights and obligations of amalgamating company

FE 9 Amalgamation not to result in deemed income or remission of liabilities

FE 10 Treatment of financial arrangements between amalgamating companies

FE 1 Amalgamation of companies: purpose

(1) Subject always to the express provisions of the amalgamation provisions, those provisions are intended—
- (a) to specify certain taxation consequences of the amalgamation of companies; and
- (b) in the case of a qualifying amalgamation, to permit certain property to be transferred to an amalgamated company on a concessional taxation basis and an amalgamated company to succeed to the net losses and imputation credit account and other credits of amalgamating companies, subject to tests of continuity and commonality of ownership being met; and
- (c) to apply notwithstanding anything to the contrary in section 225(d) of the Companies Act 1993.
(2) In this section, amalgamation provisions means—
- (a) sections CD 25, CD 32(23) and (24), CD 33(8), DB 8(3) to (5), DV 13, FE 2 to FE 10, IF 4 to IF 6, IG 8, IG 9, LC 8 to LC 12, MB 34, MD 2(8) and (9), ME 29, MF 16, MG 17, NC 15(7), ND 1R, ND 3(7), ND 4(7), and NH 4(8) and (9); and
- (b) sections 75 and 76 of the Tax Administration Act 1994.
Compare: 1994 No 164 s FE 1

Subsection (2)(a) was amended, as from 1 October 2006, by section 108(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the expression “MB 34” for the expression “MB 11” with application as from the income year corresponding to the 2007–08 tax year.

FE 2 Cancellation of shares held by amalgamating company on amalgamation

Where shares in any amalgamating company are—
- (a) held by another amalgamating company; and
- (b) cancelled on the amalgamation,—
then, for the purposes of this Act, the shares are deemed to have been disposed of by the shareholder amalgamating company immediately before the amalgamation for a consideration equal to the cost of the shares to the shareholder amalgamating company.
Compare: 1994 No 164 s FE 2

FE 3 Deduction to amalgamated company for bad debts and expenditure

Where—
- (a) any amalgamating company ceases to exist on a qualifying amalgamation; and
- (b) the amalgamated company in any period—
  - (i) writes off as a bad debt any debt acquired from the amalgamating company at the time of the amalgamation; or
  - (ii) incurs any expenditure or loss (including an amount of depreciation loss) by virtue of anything done or not done by the amalgamating company; and
- (c) the amalgamated company would but for this subsection have been denied a deduction for the amount of the bad debt, expenditure, or loss (including an amount of depreciation loss); and
- (d) the amalgamating company would have been allowed a deduction for the amount but for the amalgamation,—
the amalgamated company is allowed a deduction for the amount for the period.
Compare: 1994 No 164 s FE 3

FE 4 Amalgamated company to assume unexpired accrual expenditure and profits or gains of amalgamating company

Where any amalgamating company ceases to exist on an amalgamation during any tax year,—
- (a) the unexpired portion of any amount of accrual expenditure of the amalgamating company for the tax year is deemed to be the unexpired portion of an amount of accrual expenditure of the amalgamated company for the tax year, and not of the amalgamating company; and
- (b) any amount derived by the amalgamated company at any time after the amalgamation which—
  - (i) is derived by virtue of anything done or not done by the amalgamating company; and
  - (ii) would have been income of the amalgamating company but for the amalgamation,—
is income at the time of the amalgamated company.
Compare: 1994 No 164 s FE 4

FE 5 Transfer of property or obligations under financial arrangements deemed to be at market value

(1) Where any amalgamated company, on an amalgamation other than a qualifying amalgamation, acquires any property of an amalgamating company, or succeeds to any obligations of an amalgamating company in respect of a financial arrangement to which the amalgamating company is a party, for the purposes of this Act,—
- (a) the amalgamating company is treated as having disposed of the property or relieved itself of the obligations immediately before the amalgamation; and
- (b) the amalgamated company is treated as having acquired the property or assumed the obligations from the amalgamating company immediately after the amalgamation—
for a consideration equal to the market value of the property, or market price for assuming such obligations, at the time.
(2) This section is overridden by section EE 34(2) for the purposes of determining the cost of an item to an amalgamated company under that section, unless the context requires otherwise.

Compare: 1994 No 164 s FE 5

Subsection (2) was substituted, as from 1 April 2005, by section 88 Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

FE 6 Acquisition of property by amalgamated company on qualifying amalgamation

(1) Where any amalgamated company, on a qualifying amalgamation, acquires any property of an amalgamating company, then, for the purposes of this Act with effect from the date of acquisition and except where otherwise provided in the succeeding subsections of this section,—
- (a) the amalgamated company is deemed to have acquired the property on the date on which it was acquired by the amalgamating company; and
- (b) the amalgamated company is, where the amalgamating company entered into a binding contract to purchase or construct any depreciable property before 16 December 1991, deemed to have entered into that binding contract on the same date as the amalgamating company; and
- (c) the amalgamated company is deemed to have acquired the property from the amalgamating company for a consideration equal to,—
  - (i) except where the property forms all or part of a pool of property that is depreciated by the amalgamating company in accordance with sections EE 20 to EE 24, the aggregate of the following amounts of expenditure incurred by the amalgamating company in respect of the property before the amalgamation, being in every case expenditure in respect of which deductions are denied under this Act (other than by way of a deduction in respect of the depreciation or amortisation of the acquisition cost of the property under any of sections EE 1, EZ 5, and EZ 6 or any other amortisation provisions of this Act):
    - (A) the original purchase price of the property; and
    - (B) any expenditure incurred in purchasing or improving the property; and
    - (C) any expenditure incurred in securing or improving the legal rights of the amalgamating company in relation to the property:
  - (ii) where the property forms the whole of a pool of property that is depreciated by the amalgamating company in accordance with sections EE 20 to EE 24, the adjusted tax value of the pool immediately before the amalgamation:
  - (iii) where the property forms part only of any such pool, the lesser of—
    - (A) the market value of the property acquired by the amalgamated company; and
    - (B) the adjusted tax value of the whole of the pool immediately before the amalgamation.
(1A) Where any amalgamated company, on a qualifying amalgamation, acquires any property of an amalgamating company, then, for the purposes of this Act and except where otherwise provided in the succeeding subsections of this section,—
- (a) the amalgamating company is deemed to have disposed of the property immediately before the amalgamation; and
- (b) the amalgamating company is deemed not to derive any income or to have any deductions in respect of that disposition under sections EE 37 to EE 44.
(2) Where an amalgamated company, on a qualifying amalgamation, acquires any property of an amalgamating company which is trading stock for both the amalgamating company and the amalgamated company, for the purposes of this Act the amalgamating company is deemed to have disposed of the trading stock and the amalgamated company is deemed to have acquired the trading stock for a consideration equal to the value of the trading stock under subpart EB to the amalgamating company, at the time of the amalgamation.

(3) Where an amalgamated company, on a qualifying amalgamation, acquires any property of an amalgamating company which is revenue account property of the amalgamating company and is not revenue account property of the amalgamated company, for the purposes of this Act the amalgamating company is deemed to have disposed of the property and the amalgamated company is deemed to have acquired the property at the time of the amalgamation for a consideration equal to its market value at that time.

(3A) Subsection (3) does not apply where the property is land that is (or may be) revenue account property of the amalgamating company only by virtue of the 10 year rule in any of sections CB 7 to CB 9 and CB 12 but, if the amalgamated company disposes of the property within 10 years after the date of its acquisition by the amalgamating company, any amount derived from the disposition is income of the amalgamated company under the relevant one of sections CB 5 to CB 12 (subject to sections CB 13 to CB 21).

(3B) Where an amalgamated company, on a qualifying amalgamation, acquires any land of an amalgamating company which is not revenue account property of the amalgamating company but is (to the extent that its sale or disposition would give rise to income under any of sections CB 5 to CB 12) revenue account property of the amalgamated company, for the purposes of this Act the amalgamating company is deemed to have disposed of the land and the amalgamated company is deemed to have acquired the land at the time of the amalgamation for a consideration equal to its market value at that time.

(4) Where an amalgamated company, on a qualifying amalgamation, acquires property from an amalgamating company which was depreciating property (other than pooled property) of the amalgamating company, then, for the purposes of sections EE 1, EE 37 to EE 44, EZ 5, and EZ 6 and any other amortisation provisions of this Act in respect of the calculation of the net income for any tax year of the amalgamated company, the amalgamated company is deemed to have been allowed deductions for amounts of depreciation loss or deductions under section EZ 5 or EZ 6 or any other amortisation provision of the same amounts as, in respect of or in relation to the property, the amalgamating company has been allowed.
(5) Despite sections EW 43 and GD 11, for the purposes of this Act, an amalgamated company that acquires, during a tax year, a financial arrangement of an amalgamating company must—
- (a) apply subsection (6) if—
  - (i) the financial arrangements rules apply to the financial arrangement; and
  - (ii) the amalgamation is a qualifying amalgamation; and
  - (iii) the method of calculating income and expenditure under the financial arrangement remains the same despite the amalgamation; and
  - (iv) the amalgamated company so elects by filing its return of income for the tax year; and
  - (v) the amalgamating company and the amalgamated company were members of the same whollyowned group of companies at all times in the tax year before the amalgamation; and
  - (vi) the amalgamating company is not entitled, under section IE 1 or IF 1, to carry forward and offset, in a later tax year, a net loss of the company for any preceding tax year, unless the whole of that net loss may be offset against the net income of the amalgamated company for the tax year under section IF 4:
- (b) apply either subsection (7) or (8) for any other qualifying amalgamation.
(6) In the tax year of amalgamation and in each subsequent tax year,—
- (a) the amalgamating company is treated as if it had never been a party to the financial arrangement prior to the amalgamation, and section EW 31 does not apply to the amalgamating company with respect to the disposition; and
- (b) the amalgamated company is treated as if it had—
  - (i) entered into the financial arrangement on the same date and for the same consideration as the amalgamating company; and
  - (ii) incurred all expenditure and derived all income incurred or derived by the amalgamating company under the financial arrangement before the amalgamation; and
  - (iii) included in its return of income the same amounts of expenditure and income under the financial arrangement as were included by the amalgamating company.
(7) If the method of calculating the income or expenditure under the financial arrangement remains the same despite the amalgamation, the consideration for the disposition in the amalgamating company's base price adjustment calculation is a fair and reasonable amount of the income or expenditure that the amalgamating company would have derived or incurred in the tax year of disposition had the disposition not taken place.

(8) In any other case, the consideration for the disposition is the market value of the financial arrangement on the date of disposition.

Compare: 1994 No 164 s FE 6

FE 6A Deduction to amalgamating company for depreciable property transferred

In respect of a qualifying amalgamation, an amalgamating company is allowed a deduction for an amount of depreciation loss for property transferred to the amalgamated company for the period beginning on the first day of the income year in which the amalgamation takes place and ending on the day before the date of the amalgamation.

Compare: 1994 No 164 s FE 6B

FE 7 Succession of obligations of amalgamating company under financial arrangement on amalgamation

(1) Despite sections EW 43 and GD 11, an amalgamated company that succeeds to the obligations of an amalgamating company in respect of a financial arrangement subject to the financial arrangements rules must—
- (a) apply subsection (2) if—
  - (i) the amalgamation is a qualifying amalgamation; and
  - (ii) the method of calculating income and expenditure under the financial arrangement remains the same despite the amalgamation; and
  - (iii) the amalgamated company so elects by filing its return of income for the tax year; and
  - (iv) the amalgamating company and the amalgamated company were members of the same whollyowned group of companies at all times in the tax year before the amalgamation; and
  - (v) the amalgamating company is not entitled, under section IE 1 or IF 1, to carry forward and offset, in a later tax year, a net loss of the company for any preceding tax year, unless the whole of that net loss may be offset against the net income of the amalgamated company for the tax year under section IF 4:
- (b) apply either subsection (3) or (4) for any other qualifying amalgamation.
(2) In the tax year of amalgamation and in each subsequent tax year,—
- (a) the amalgamating company is treated as if it had never been a party to the financial arrangement prior to the amalgamation, and section EW 31 does not apply to the amalgamating company with respect to the succession; and
- (b) the amalgamated company is treated as if it had—
  - (i) entered into the financial arrangement on the same date and for the same consideration as the amalgamating company; and
  - (ii) incurred all expenditure and derived all income incurred or derived by the amalgamating company under the financial arrangement before the succession; and
  - (iii) included in its return of income the same amounts of income and expenditure under the financial arrangement as were included by the amalgamating company.
(3) If the method of calculating the income or expenditure under the financial arrangement remains the same despite the amalgamation, the consideration for the disposition in the amalgamating company's base price adjustment calculation is a fair and reasonable amount of the income or expenditure that the amalgamating company would have derived or incurred in the tax year of disposition had the disposition not taken place.

(4) In any other case, the consideration for the disposition is the market value of the financial arrangement on the date of disposition.

Compare: 1994 No 164 s FE 7

FE 8 Amalgamated company to assume rights and obligations of amalgamating company

Where any amalgamating company ceases to exist on an amalgamation, the amalgamated company must, in accordance with section 209G of the Companies Act 1955 or section 225 of the Companies Act 1993, comply with all obligations of and meet all liabilities of, and be entitled to all rights, powers, and privileges of, the amalgamating company under the Inland Revenue Acts with respect to the tax year in which the amalgamation occurs and all preceding tax years.

Compare: 1994 No 164 s FE 8

FE 9 Amalgamation not to result in deemed income or remission of liabilities

Sections CG 2 and DB 38 do not apply merely by virtue of an amalgamated company succeeding to a liability of an amalgamating company on an amalgamation.

Compare: 1994 No 164 s FE 9

Section FE 9 was amended, as from 1 October 2005, by section 203 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “DB 38” for the expression “IE 1(4)”.

FE 10 Treatment of financial arrangements between amalgamating companies

(1) This section applies if the parties to a financial arrangement are amalgamating companies and the financial arrangement exists on the date of the amalgamation.

(2) If immediately before the amalgamation the amalgamating company that is the borrower under the financial arrangement is solvent or likely to meet its obligations under the financial arrangement, the financial arrangement is, for the purposes of section EW 31, discharged immediately before the amalgamation and the amalgamating company is treated as having paid to the other party to the arrangement, in consideration for the discharge,—

(a) in the case of a qualifying amalgamation, the amalgamating company's outstanding accrued balance for the financial arrangement:

(b) in any other case, the market value of the financial arrangement on the date of the amalgamation.

(3) If subsection (2) applies, the other party to the financial arrangement is treated as not having remitted an amount merely by virtue of the discharge.

(4) If immediately before the amalgamation the amalgamating company that is the borrower under the financial arrangement is insolvent and unlikely to meet its obligations under the financial arrangement, the financial arrangement is, for the purposes of section EW 31, discharged immediately before the amalgamation and the amalgamating company is treated as having paid to the other party to the financial arrangement, in consideration for the discharge, the market value of the financial arrangement on the date of the amalgamation.

(5) If subsection (4) applies, the other party to the financial arrangement is treated as having remitted the excess (over market value) of the other party's outstanding accrued balance for the financial arrangement.

(6) For the purposes of this section,—

(a) the amalgamating company's outstanding accrued balance for the financial arrangement is calculated using the formula—

consideration + prior expenditure + expenditure accrued in year of amalgamation – income accrued in year of amalgamation – consideration paid before amalgamation

where—

consideration	is the consideration paid to the amalgamating company under the financial arrangement
prior expenditure	is expenditure incurred less income derived by the amalgamating company under the financial arrangement under a spreading method or section EW 53 in all previous tax years since the financial arrangement was entered into
expenditure accrued in year of amalgamation	is expenditure accrued by the amalgamating company under the financial arrangement for the period beginning on the first day of the tax year in which the amalgamation occurs and ending on the date of the amalgamation, calculated,—
	(i)	if the amalgamating company was a party to the financial arrangement in a prior tax year, using the spreading method the amalgamating company used to calculate income and expenditure under the financial arrangement in that tax year; and
	(ii)	in any other case, using a spreading method the amalgamating company chooses, if the method could have been used had the tax year ended immediately before the amalgamation
income accrued in year of amalgamation	is the income accrued by the amalgamating company under the financial arrangement for the period beginning on the first day of the tax year in which the amalgamation occurs and ending on the date of the amalgamation, as calculated under paragraph (i) or (ii) of the item “expenditure accrued in year of amalgamation”
consideration paid before amalgamation	is the consideration paid by the amalgamating company for the financial arrangement before the amalgamation:

(b) the other party's outstanding accrued balance for the financial arrangement is calculated using the formula—

consideration + prior income + income accrued in year of amalgamation – expenditure accrued in year of amalgamation – consideration paid before amalgamation

where—

consideration	is the consideration paid by the party under the financial arrangement
prior income	is income derived less expenditure incurred by the other party to the financial arrangement under a spreading method or section EW 53 in all previous tax years since the financial arrangement was entered into
income accrued in year of amalgamation	is income accrued by the party for the period beginning on the first day of the tax year in which the amalgamation occurs and ending on the date of the amalgamation, calculated,—
	(i)	if the party was a party to the financial arrangement in a prior tax year, using the spreading method the party used to calculate income and expenditure under the financial arrangement in that tax year; and
	(ii)	in any other case, using a spreading method the party chooses, if the method could have been used had the tax year ended immediately before the amalgamation
expenditure accrued in year of amalgamation	is the expenditure accrued by the party to the financial arrangement for the period beginning on the first day of the tax year in which the amalgamation occurs and ending on the date of the amalgamation, as calculated under paragraph (i) or (ii) of the item “income accrued in year of amalgamation”
consideration paid before amalgamation	is the consideration paid to the party under the financial arrangement before the amalgamation :

(c) a company is treated as being insolvent if it does not satisfy the solvency test in section 4 of the Companies Act 1993.

Compare: 1994 No 164 s FE 10

Subpart FF—Transfers under relationship agreements

The heading to subpart FF was substituted, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11). It previously read “Matrimonial transfers”.

FF 1 Shares or options

(1) The provisions of this section apply only to modify the provisions of sections OD 3 and OD 4 for the purpose of the application of the continuity provisions.

(2) Where any share or option over a share in a company is transferred to any person from a spouse, civil union partner or de facto partner or former spouse, civil union partner or de facto partner in accordance with a relationship agreement, the transferee is deemed to have acquired that share or option on the date on which that share or option was acquired, or deemed under section OD 5 to have been acquired, by the transferor, and to have held it at all times until the date of transfer.

Compare: 1994 No 164 s FF 1

Subsection (2) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse” in both places it occurs.

Subsection (2) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

Subsection (2) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner” in both places it occurs.

FF 2 Financial arrangements

The financial arrangements rules do not apply in relation to a financial arrangement transferred in accordance with a relationship agreement in the circumstances specified in section EW 10(6).

Compare: 1994 No 164 s FF 2

Section FF 2 was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

FF 3 Business stock in hand

For the purposes of section CB 1, where any business is transferred in accordance with a relationship agreement, the value of stock in hand in relation to that business is an amount equal to the amount at which that stock is deemed by section FF 13 to have been sold.

Compare: 1994 No 164 s FF 3

Section FF 3 was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

FF 4 Personal property

For the purposes of sections CB 3 and CB 4, where any personal property or any interest in personal property to which those sections apply is transferred in accordance with a relationship agreement,—
- (a) the transferor is deemed to have disposed of that personal property or that interest for a consideration equal to the cost of that personal property or that interest to the transferor:
- (b) the transferee is deemed to have acquired that personal property or that interest at a cost equal to the amount of the consideration determined under paragraph (a):
- (c) where in any tax year the transferee sells or otherwise disposes of that personal property or that interest, the transferee is, in relation to that personal property or that interest, and to that sale or other disposition, deemed, for the purposes of sections CB 3 and CB 4, to be engaged in a business comprising dealing in such property.
Compare: 1994 No 164 s FF 4

Section FF 4 was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

FF 5 Commercial bills

For the purposes of section CZ 6, where any commercial bill is transferred in accordance with a relationship agreement, the transferor is deemed to have disposed of the commercial bill, and the transferee is deemed to have purchased it, at a cost equal to the cost at which the transferor purchased the bill.

Compare: 1994 No 164 s FF 5

Section FF 5 was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

FF 6 Land

(1) Where any land is transferred in accordance with a relationship agreement,—
- (a) for the purposes of sections BD 2, CB 5 to CB 10, CB 12, CB 15, CB 18, and CB 21,—
  - (i) the transferor is deemed to have disposed of that land for a consideration equal to the total amount that would, if that land had been sold by the transferor on the date of the transfer, have been the cost price of the land to the transferor; and
  - (ii) the transferee is deemed to have incurred expenditure, in the acquisition of that land, of an amount equal to the consideration for which that land is, under subparagraph (i), deemed to have been disposed of by the transferor; and
  - (iii) the transferee is deemed to have acquired that land on the day on which it was acquired by the transferor; and
  - (iv) where the transferor and the transferee are not associated persons and the transferee subsequently sells or otherwise disposes of that land, section CB 13(1) has effect as if the transferor and the transferee were associated persons:
- (b) for the purposes of sections BD 2 and CB 11,—
  - (i) the transferor is deemed to have disposed of that land for a consideration equal to the sum of—
    - (A) the market value of the land, at the date of the commencement of any undertaking or scheme of the kind referred to in section CB 11, commenced, carried on, or carried out by the transferor prior to the transfer; and
    - (B) expenditure incurred by the transferor prior to the transfer in the carrying on or carrying out, in relation to that land, of any undertaking or scheme of the kind referred to in section CB 11:
  - (ii) where the land is acquired from any transferor to whom subparagraph (i) applies, the transferee is—
    - (A) deemed to have incurred expenditure, in the acquisition of that land, of an amount equal to the market value referred to in subparagraph (i)(A); and
    - (B) deemed to have incurred expenditure, in the carrying on or carrying out of the undertaking or scheme which was carried on or carried out by the transferor prior to the transfer, of an amount equal to the expenditure referred to in subparagraph (i)(B):
  - (iii) where the land is acquired from any transferor to whom subparagraph (i) does not apply, the transferee is deemed to have incurred expenditure, in the acquisition of that land, of an amount equal to the consideration for which that land is, under paragraph (a)(i), deemed to have been disposed of by the transferor:
  - (iv) where the transferor and the transferee are not associated persons and the transferee subsequently sells or otherwise disposes of that land, section CB 13(1) has effect as if the transferor and the transferee were associated persons.
(2) Every reference in this section to a sale or other disposition of any land by any person is deemed to include a reference to a sale or other disposition of any land by or on behalf of any other person where that other person is, in relation to a mortgage secured on that land, a mortgagee and that sale or other disposition by or on behalf of that other person is made in consequence of the default of the person under that mortgage.

Compare: 1994 No 164 s FF 6

Subsection (1) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

FF 7 Disposal of timber under relationship agreement

(1) Subsection (2) applies when timber or a right to take timber is transferred under a relationship agreement.
(2) The transfer of timber or a right to take timber is treated—
- (a) as if the transferor sold the timber or the right to take timber to the transferee; and
- (b) as if the transferee gave the transferor consideration; and
- (c) as if the amount of the consideration equalled the costs of timber to the transferor or the costs of the right to take timber to the transferor. The costs are worked out as at the date of transfer.
(3) Subsection (4) applies when—
- (a) land with standing timber on it is transferred under a relationship agreement; and
- (b) the standing timber does not consist of ornamental or incidental trees, as evidenced by a certificate given under section 44C of the Tax Administration Act 1994.
(4) A transfer of land with standing timber on it is treated, so far as the standing timber is concerned,—
- (a) as if the transferor sold the timber to the transferee; and
- (b) as if the transferee gave the transferor consideration; and
- (c) as if the amount of the consideration equalled the costs of timber to the transferor. The costs are worked out as at the date of transfer.
(5) The amount treated as consideration is,—
- (a) as far as the transferor is concerned, income; and
- (b) as far as the transferee is concerned, the cost of acquiring the timber or the cost of acquiring the right to take timber.
Compare: 1994 No 164 s FF 7

The heading to section FF 7 was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

Subsection (1) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

Subsection (3)(a) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

FF 8 Patent applications and patent rights

For the purposes of sections CB 26 and DB 29 to DB 31, where any patent applications with complete specifications or patent rights are transferred in accordance with a relationship agreement,—
- (a) the transferor is deemed to have sold those patent applications with complete specifications or patent rights in the income year of transfer for a consideration equal to the amount (if any) of the expenditure of the kind referred to in section DB 29 or, as the case may be, of the total cost of the kind referred to in section DB 30, for which the transferor has been denied a deduction; and
- (b) the transferor is denied a deduction of the amount first mentioned in paragraph (a) in any tax year; and
- (c) the transferee is deemed to have incurred expenditure, in the acquisition of those patent applications with complete specifications or patent rights in that tax year, of an amount equal to the value of the consideration for which, under paragraph (a), they are deemed to have been sold by the transferor.
Compare: 1994 No 164 s FF 8

The heading to section FF 8 was substituted, as from 21 June 2005, by section 53(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application to patent applications that are lodged for the first time on or after 21 June 2005.

Section FF 8 was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

Section FF 8 was amended, as from 21 June 2005, by section 53(2) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “patent applications with complete specifications or patent rights” for “patent rights” wherever they appear with application to patent applications that are lodged for the first time on or after 21 June 2005.

FF 9 Specified livestock

For the purposes of subpart EC and section EZ 4, where any specified livestock is transferred in accordance with a relationship agreement, and—
- (a) that livestock was used by the transferor in any business carried on by the transferor, and was held by the transferor at the beginning of the income year of transfer; and
- (b) its value at the end of the preceding income year was determined by the transferor under the herd scheme; and
- (c) its value at the end of the income year in which the transfer occurred is determined by the transferee under the herd scheme,—
then, notwithstanding section FF 13, the transferee is deemed to have acquired the livestock during the income year in which the transfer occurred at a price equal to the national average market value of that livestock for that income year multiplied by the herd value ratio (if any) applying to the livestock in the hands of the transferor in the preceding income year.
Compare: 1994 No 164 s FF 9

Section FF 9 was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

FF 10 Non-specified livestock

(1) For the purposes of sections EC 28 to EC 31,—
- (a) where in any income year—
  - (i) any non-specified livestock is transferred in accordance with a relationship agreement; and
  - (ii) by virtue of that transfer the transferee commences or recommences to derive income from non-specified livestock in that income year,—
the transferee is, except for the purpose of determining whether any subsequent acquisition of livestock by the transferee constitutes the commencement or recommencement by the transferee of the deriving of income from non-specified livestock, deemed not to have so commenced or recommenced to derive income from non-specified livestock by virtue of that transfer:
- (b) where any land is transferred in accordance with a relationship agreement, the transferee is deemed to have acquired that land on the day on which it was acquired by the transferor.
(2) Where—
- (a) any non-specified livestock is transferred in accordance with a relationship agreement and is then used by the transferee in the deriving of income from livestock; and
- (b) the transferee was not, immediately before the transfer, deriving income from non-specified livestock; and
- (c) if the livestock had been retained by the transferor and had not been so transferred, section EC 31(2)(a) or (b) would have applied to the valuation of that livestock in the hands of the transferor,—
then the value to be taken into account under section EC 31 by the transferee in respect of that livestock is, notwithstanding section EC 31(2) (but subject to subsection (1)), increased,—
- (d) for the income year of transfer, by an amount equal to either—
  - (i) the amount that would have been the transferor's amount of two-thirds of the difference between the cost price of the livestock and the standard value in relation to that livestock and the income year of transfer, where that income year is the income year in which section EC 31(2)(a) would have applied to the transferor if the transferor had retained the livestock; or
  - (ii) one-third of the amount that would have been the transferor's amount of two-thirds of the difference between the cost price of the livestock and the standard value in relation to that livestock and the income year of transfer where that income year is the income year in which section EC 31(2)(b) would have applied to the transferor if the transferor had retained the livestock:
- (e) for the income year following the income year of transfer, by an amount equal to one-third of the amount (if any) that would have been the transferor's amount of two-thirds of the difference between the cost price of the livestock and the standard value in relation to that livestock and that following income year if, had the transferor retained the livestock, section EC 31(2)(b) would have applied in relation to the transferor and that livestock.
Compare: 1994 No 164 s FF 10

Subsection (1)(a)(i) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

Subsection (1)(b) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

Subsection (2)(a) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

FF 11 High-priced livestock

For the purposes of sections EC 32 to EC 37, where any highpriced livestock is transferred to any taxpayer in accordance with a relationship agreement,—
- (a) the transferee is deemed to have acquired the livestock—
  - (i) on the day on which it was acquired by the transferor; and
  - (ii) at a cost equal to the cost of the livestock to that transferor; and
- (b) the value of the high-priced livestock to be taken into account at the end of the income year of transfer by the transferee is, notwithstanding section EC 34(1), the amount of the value at which it is so transferred to the transferee (as that value is determined in accordance with section FF 13), reduced by an amount equal to the depreciation percentage of its cost price; and
- (c) where the transferor had elected under section 86I(7) of the Income Tax Act 1976 to adopt in respect of the high-priced livestock a specified writedown based on diminishing value, or had chosen to apply section EC 34(3), the transferee is deemed also to have made such an election or choice; and
- (d) where the transferor had not so elected to adopt a specified writedown based on diminishing value, or had not chosen to apply section EC 34(3), the transferee is not entitled to make a choice between section EC 34(2) and
(3) unless the high-priced livestock was acquired by the transferor in the income year of transfer.

Compare: 1994 No 164 s FF 11

Section FF 11 was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

FF 12 Bloodstock

For the purposes of sections EC 38 to EC 45, where any bloodstock is transferred in accordance with a relationship agreement, and that bloodstock has been used for breeding purposes in New Zealand by the transferor, that bloodstock is deemed not to have been used for breeding purposes in New Zealand by the transferor.

Compare: 1994 No 164 s FF 12

Section FF 12 was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

FF 13 Trading stock

(1) Where any trading stock is transferred in accordance with a relationship agreement, the trading stock is deemed for the purposes of this Act to have been sold at and to have realised during the tax year of transfer,—
- (a) where that trading stock was used by the transferor in any business carried on by that person and was held by that person at the commencement of the tax year, an amount equal to,—
  - (i) in relation to any trading stock that is specified livestock other than livestock used in dealing operations, the value taken into account by the transferor in respect of that trading stock, under subpart EC, at the end of the last preceding tax year:
  - (ii) in relation to any trading stock other than trading stock to which subparagraph (i) applies, the greater of—
    - (A) the value taken into account by the transferor in respect of that trading stock, under subpart EB, at the end of the last preceding tax year:
    - (B) the value of that trading stock to be taken into account by the transferee at the end of the income year of transfer, determined under subpart EB or, as the case may be, subpart EC; and
- (b) where that trading stock was used by the transferor in any business carried on by the transferor and was acquired by the transferor during the tax year of transfer, an amount equal to the price at which that trading stock was so acquired; and
- (c) where that trading stock was not used by the transferor in any business carried on by the transferor, an amount equal to the cost price at which that trading stock was acquired by the transferor,—
and for the purposes of this Act that trading stock is deemed to have been purchased by the transferee, during the tax year of transfer, at a price equal to the amount which that trading stock is so deemed to have realised.
(2) Where any trading stock to which subsection (1)(a) or (b) applies is not used by the transferee in the carrying on by the transferee of any business and is in any tax year sold or otherwise disposed of by the transferee, that sale or other disposal is, for the purposes of this Act, deemed to be a sale of trading stock used by the transferee in the carrying on by the transferee of a business.

(3) Section GD 1 does not apply in respect of any trading stock which is transferred to any person in accordance with a relationship agreement.

Compare: 1994 No 164 s FF 13

Subsection (1) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

Subsection (3) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

FF 14 Leased assets

Where—
- (a) any person has leased, rented, or hired any asset, being any plant or machinery (including a motor vehicle) or other equipment or a temporary building, and that person has been allowed a deduction in any tax year for the consideration paid or given in respect of that lease, rental, or hire; and
- (b) that person, or any other person where that person and that other person are associated persons, at any time purchases or otherwise acquires that asset; and
- (c) that person or that other person who so purchases or otherwise acquires that asset transfers that asset to any further person in accordance with a relationship agreement; and
- (d) the transferee sells or otherwise disposes of that asset for a consideration in excess of an amount equal to the value to which, at the commencement of the income year of transfer, the asset has been reduced by deductions for amounts of depreciation loss of that asset or, where the asset was purchased or otherwise acquired by the transferor during the tax year of transfer, an amount equal to the consideration for which the transferor purchased or otherwise acquired that asset,—
the income under section FC 5 of the transferee derived in the tax year in which the asset is sold or otherwise disposed of by the transferee includes an amount equal to the excess or the total amount of the deductions that the person first mentioned in this section has been allowed, whichever is the less.
Compare: 1994 No 164 s FF 14

Paragraph (c) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

FF 15 Amount of depreciation loss for qualifying assets

(1) This section applies when a qualifying asset or an item to which a qualifying improvement has been made is transferred under a relationship agreement.

(2) After the transfer, the transferee has an amount of depreciation loss under section EZ 16 as if the transferee were the transferor.

(3) The amount of the transferee's depreciation loss for the asset or item for the income year in which it is transferred is the amount of depreciation loss for the asset or item for the income year under section EZ 16 minus the amount that the transferor has for the income year.

Compare: 1994 No 164 s FF 15

Subsection (1) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

FF 16 Depreciable property

(1) This section applies when a transferor who has an amount of depreciation loss for an item transfers the item under a relationship agreement.

(2) Whether or not the transferor has in fact had an amount of depreciation loss, the transferee has an amount of depreciation loss for the item from the time of the transfer.

(3) The transferee is treated as having incurred, in acquiring the item, expenditure of the amount of the consideration for which the transferor is treated as having disposed of the item. The consideration is described in subsection (4) or section FF 19.
(4) The transferor is treated as having disposed of the item for consideration, as follows:
- (a) if the transferor acquired the item in the income year of transfer, a consideration equal to the item's cost:
- (b) in any other case, a consideration equal to the item's adjusted tax value at the start of the income year of transfer.
(5) The depreciation loss that the transferee has when the item is a building must be determined having regard to its cost to the transferor originally.

(6) In addition to the amount of depreciation loss that the transferee in fact has for the item, the transferee is treated as having had an amount of depreciation loss equal to all the amounts of depreciation loss that the transferor had for the item.

(7) The transferee does not have a greater amount of depreciation loss than that which the transferor would have had if the transferor had kept the item.

(8) An item acquired, erected, installed, altered, extended, improved, or attached by the transferor in the income year in which the item is transferred is treated as if it were acquired, erected, installed, altered, extended, improved, or attached by the transferee in the income year.
(9) If any of the following conditions applied to the item when the transferor acquired or erected it, the condition is treated as applying to the item at the time it is transferred:
- (a) the item had not previously been used by any person or acquired or held by a person for their use; and
- (b) if the item is a building or part of a building, it had not previously been occupied.
Compare: 1994 No 164 s FF 16

Subsection (1) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

FF 17 Pensions

(1) For the purposes of section DC 2, where any part of the pension otherwise payable by an employer to a former employee is paid by the employer to any person other than the employee in accordance with an agreement made between the former employee and that other person under section 21 of the Property (Relationships) Act 1976 or in compliance with an order of the court made under section 25 of that Act, section DC 2(1) and (2) apply in the same manner and to the same extent to the amount of the part so paid as they would have applied if that amount had been, or formed part of, an amount paid by way of a pension to that former employee.

(2) Subsection (3) applies if part of the pension, otherwise payable by a partnership or a taxpayer to a former partner, is paid by the partnership or the taxpayer to a person other than the former partner in accordance with an agreement made between the former partner and the person under section 21 of the Property (Relationships) Act 1976 or in compliance with an order of the court made under section 25 of that Act.

(3) Section DC 3 applies in the same manner and to the same extent to the part of the pension so paid as it would have applied if the part had been paid by way of a pension to the former partner.

Compare: 1994 No 164 s FF 17

FF 18 Land used in specified activity

(1) For the purpose of the definition of established activity in section IE 2(8), where any land is transferred in accordance with a relationship agreement where the transferee conducts on that land a specified activity or specified activities which the transferor conducted on 11 October 1982 which in the opinion of the Commissioner was the specified activity or 1 of the specified activities the conduct of which constituted, as at that date, the livelihood of the transferor and the transferor's sole or principal source of income, then the transferee is deemed to have conducted on 11 October 1982 such specified activity or specified activities and such specified activity or specified activities are deemed to constitute the livelihood of the transferee and the transferee's sole or principal source of income.

(2) For the purposes of section IE 2(2), where the transferor, under a relationship agreement, of any land of the kind to which that subsection refers was an existing farmer immediately before the date of transfer, the transferee is deemed, as at the date of transfer, to have acquired or, as the case may be, commenced to hold that land on the first day of the period throughout which the transferor owned or held that land, being the period that ended with the day immediately preceding the date of transfer: provided that in any case where the transferee commences to conduct, on that land, any specified activity that is of the same kind as any specified activity conducted on that land by the transferor immediately before the date of transfer, the transferee is not, in relation to that commencement by the transferee of the conduct of that specified activity, so deemed to have acquired or, as the case may be, commenced to hold that land on that first day.

Compare: 1994 No 164 s FF 18

Subsection (1) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

Subsection (2) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

FF 19 Mining assets

For the purposes of this section and sections CU 12, DU 9, and IH 5, where any asset is transferred in accordance with a relationship agreement, the following provisions apply:
- (a) where the transferor is a resident mining operator and that asset is an asset that was used by the transferor immediately before that transfer, in deriving assessable income from mining, the transferor is deemed to have sold or otherwise disposed of that asset on the date of transfer for a consideration equal to the lesser of—
  - (i) the amount of the expenditure incurred by the transferor in the acquisition of that asset:
  - (ii) where the transferor has been allowed a deduction for an amount of depreciation loss in respect of that asset, an amount equal to the value to which, at the commencement of the tax year of transfer, that asset has been reduced by all such deductions:
  - (iii) where that asset is an asset acquired as a result of mining exploration expenditure or mining development expenditure incurred by the transferor in respect of which the transferor has been allowed a deduction under sections DU 1 and DU 9(1), the amount of that mining exploration expenditure or that mining development expenditure reduced by an amount equal to the sum of the amounts of all such deductions:
- (b) in any case where paragraph (a) applies, the transferee is deemed to have incurred expenditure in the acquisition of that asset, when so transferred to the transferee, of an amount equal to the amount of the consideration for which the transferor is, under paragraph (a), deemed to have sold or otherwise disposed of that asset:
- (c) where, in any case where paragraph (a) applies, the transferor is deemed to have sold or otherwise disposed of that asset for a consideration equal to the amount calculated in accordance with paragraph (a)(iii), and the transferee, being a transferee who, immediately after that transfer, is not a resident mining operator, at any time sells or otherwise disposes of that asset,—
  - (i) the transferee is, in relation to that sale or other disposal, deemed to be a resident mining operator; and
  - (ii) that sale or other disposal is deemed to be a sale or other disposal to which, in relation to sections CU 3 and DU 2, sections CU 12(1) and DU 9(1) apply; and
  - (iii) the value of the consideration received or receivable by the transferee for that sale or other disposal is, for the purposes of sections CU 1 to CU 11, DU 1 to DU 8, and IH 4, deemed to be an amount equal to the amount by which the value of the consideration received or receivable by the transferee for that sale or other disposal exceeds the amount of the consideration first mentioned in this paragraph:
- (d) where the transferee is, immediately after the date of transfer, a resident mining operator, the transferee is deemed to have incurred expenditure in the acquisition of that asset, when so transferred, of an amount equal to the lesser of—
  - (i) the amount of the expenditure incurred by the transferor in the acquisition of that asset:
  - (ii) where the transferor has been allowed a deduction for an amount of depreciation loss in respect of that asset, an amount equal to the value to which, at the commencement of the tax year of transfer, that asset has been reduced by all such deductions:
  - (iii) where that asset is an asset acquired as a result of mining exploration expenditure or mining development expenditure incurred by the transferor in respect of which the transferor has been allowed any deduction under sections DU 1 and DU 9(1), the amount of that mining exploration expenditure or that mining development expenditure reduced by an amount equal to the sum of the amounts of all such deductions:
- (e) where, in any case where paragraph (d) applies, the transferee is deemed to have incurred expenditure in the acquisition of that asset of an amount calculated in accordance with paragraph (d)(iii), the transferee is, for the purposes of sections CU 3, CU 10, DU 2, and DU 6, deemed to have acquired that asset as a result of mining exploration expenditure or mining development expenditure incurred by the transferee.
Compare: 1994 No 164 s FF 19

Section FF 19 was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “relationship agreement” for “matrimonial agreement”.

Subpart FG—Apportionment of interest costs

FG 1 Purpose of this subpart

FG 2 Entities to which interest deduction rules potentially apply

FG 3 When interest apportioned under section FG 8 or annual total deduction adjusted under section FG 8B

FG 4 Rules for calculating New Zealand group debt percentage

FG 5 Rules for calculating worldwide group debt percentage

FG 6 Concession for on-lending

FG 7 Concession for exchange rate fluctuations

FG 8 Apportionment of interest deductions—taxpayer not in New Zealand banking group

FG 8B Adjustment of annual total deduction—reporting bank

FG 8C New Zealand banking group of registered bank

FG 8D Reporting bank for New Zealand banking group

FG 8E Measurement periods and measurement days

FG 8F Financial value and regulatory value

FG 8G New Zealand net equity of New Zealand banking group

FG 8H Net equity threshold

FG 8I Valuation of debt and risk-weighted exposures

FG 8J Treatment of temporary change in New Zealand net equity or net equity threshold

FG 9 Treatment of specified leases and interest expense

FG 10 Mode of elections

FG 1 Purpose of this subpart

Subject always to the express provisions of this subpart, the purpose of this subpart is to ensure, in the case of a New Zealand taxpayer controlled by a single non-resident and which has a disproportionately high level of New Zealand group debt funding, an appropriate apportionment to the New Zealand taxpayer of the worldwide interest expenditure of the group of entities of which the New Zealand taxpayer is a part.

Compare: 1994 No 164 s FG 1

FG 2 Entities to which interest deduction rules potentially apply

(1) A taxpayer is not subject for a tax year to the interest apportionment rule in section FG 8 or the adjustment of annual total deduction in section FG 8B unless, at a time in the taxpayer's income year, the taxpayer—
- (a) is a non-resident who is not a company:
- (b) is a company that is a non-resident in which—
  - (i) no person who is resident in New Zealand has a direct ownership interest that is equal to or greater than 50%:
  - (ii) a non-resident has a direct ownership interest that, when aggregated with the direct ownership interests of persons associated with the non-resident, is equal to or greater than 50%:
- (c) is a company that is resident in New Zealand—
  - (i) in which a non-resident has an ownership interest that is equal to or greater than 50%:
  - (ii) of which a non-resident has control by any other means:
- (d) is the trustee of a non-qualifying trust for which 50% or more in value of the settlements on the trust is settled by—
  - (i) a non-resident:
  - (ii) persons who are associated with the non-resident.
(2) A person's ownership interest in a company is equal to the sum of—
- (a) any direct ownership interest held by the person in the company; and
- (b) any direct ownership interest or interests held in the company by persons associated with the person; and
- (c) any indirect ownership interest or interests held by the person in the company; and
- (d) any indirect ownership interest or interests held in the company by persons associated with the person.
(3) A person's direct ownership interest in a company is equal to the highest percentage held by the person out of the categories listed in section EX 5(1) (applying that subsection as if the company were the foreign company referred to).
(4) If a person has a direct ownership interest in a company (referred to in this subsection as the upper company) and the upper company has an ownership interest in another company (referred to in this subsection as the lower company), then,—
- (a) if the person's direct ownership interest in the upper company (when aggregated with the direct ownership interests of persons associated with the person) is less than 50%, the person is deemed to hold an indirect ownership interest in the lower company calculated by multiplying the person's direct ownership interest in the upper company by the upper company's ownership interest in the lower company; and
- (b) if the person's direct ownership interest in the upper company (when aggregated with the direct ownership interests of persons associated with the person) is equal to or greater than 50%, the person is deemed to hold an indirect ownership interest in the lower company equal to the upper company's ownership interest in the lower company.
(5) If the application of subsection (2) or (4) to require a person's ownership interest in a company to be calculated on a basis of aggregation with associated persons results in the same percentage shares or rights in respect of the company being counted more than once, the person's ownership interest in the company is adjusted to the extent necessary to avoid multiple counting.

(6) For the purposes of subsections (1)(a)(ii) and (2), a person not resident in New Zealand who does not hold any direct or indirect ownership interests in the company and any relative of that person resident in New Zealand are not associated persons in respect of that company.

(7) [Repealed]

(8) For the purposes of this section, a foreign company is treated as not being resident in New Zealand.

Compare: 1994 No 164 s FG 2

The heading to section FG 2 was substituted, as from 1 July 2005, by section 54(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Subsection (1) was substituted, as from 1 July 2005, by section 54(2) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Subsection (7) was repealed, as from 1 July 2005, by section 54(3) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

FG 3 When interest apportioned under section FG 8 or annual total deduction adjusted under section FG 8B

(1) A taxpayer who is not excluded by section FG 2 from the application of section FG 8 for a tax year is required to make an apportionment under section FG 8 of interest expenditure incurred during the corresponding income year of the taxpayer if the taxpayer—
- (a) at no time in the income year—
  - (i) is a reporting bank for a New Zealand banking group:
  - (ii) is part of a New Zealand banking group for the purpose of section FG 8C; and
- (b) has a New Zealand group debt percentage for the income year that—
  - (i) is greater than 75%; and
  - (ii) if the taxpayer is a company or a trustee, exceeds the number obtained by multiplying the worldwide group debt percentage of the taxpayer by 1.1.
(2) A taxpayer who is not excluded by section FG 2 from the application of section FG 8B for a tax year is treated as having an annual total deduction for the tax year of an amount that is given by section FG 8B if—
- (a) at a time in the taxpayer's corresponding income year the taxpayer is the reporting bank for a New Zealand banking group; and
- (b) the New Zealand banking group has a New Zealand net equity, as defined in section FG 8G, of less than the net equity threshold for the New Zealand banking group, as defined in section FG 8H, on a measurement day for the taxpayer's corresponding income year, as defined in section FG 8E.
Section FG 3 was substituted, as from 1 July 2005, by section 55 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

FG 4 Rules for calculating New Zealand group debt percentage

(1) The New Zealand group debt percentage is the percentage which the amount of total debt represents of the amount of total assets for the taxpayer's New Zealand group for the income year, and must be calculated under the rules in this section.
(2) Total debt means the sum of the outstanding balances of all financial arrangements entered into by the taxpayer (or another group member) on the relevant date chosen under subsection (5) if—
- (a) the financial arrangement provides funds to the taxpayer (or another group member); and
- (b) the financial arrangement gives rise to an amount for which the taxpayer (or another group member) would be allowed a deduction, other than an amount that arises only from movement in currency exchange rates.
(3) Total assets for the income year means the aggregate on the relevant date chosen under subsection (5) of all assets of the taxpayer (or another group member), which (subject to the following subsections) must be measured, by any combination, elected by the taxpayer, of—
- (a) the values shown in the financial accounts of the taxpayer's New Zealand group; or
- (b) the net current value of the assets; or
- (c) in the case of trading stock which is valued at market selling value in calculating the taxpayer's (or group member's) income tax liability for the income year, market selling value; or
- (ca) in the case of a specified lease or a finance lease that is not recognised as an asset under generally accepted accounting practice, the adjusted tax value of the personal property lease asset; or
- (d) if permitted under generally accepted accounting practice, a combination of the financial account values and net current values.
(4) Except where either subsection (3)(c) or (ca) applies, the amount of total assets must be calculated under generally accepted accounting practice.
(5) The amount of total debt and total assets for the income year must be measured, at the election of the taxpayer, on the basis of—
- (a) an average of the figures for the amount of total debt and total assets, respectively, calculated at the end of each day of the income year; or
- (b) an average of the figures for the amount of total debt and total assets, respectively, calculated at the end of each complete consecutive 3 month period during the income year; or
- (c) the amount of total debt and total assets, respectively, at the end of the income year.
(6) Notwithstanding subsection (5), if members of the taxpayer's New Zealand group have different income tax balance dates, the election made by the taxpayer under subsection (5) applies as if the taxpayer's income year were the same as that of the New Zealand parent (as defined in subsection (10)).

(7) The amount of total debt and the amount of total assets calculated must be in New Zealand currency and, subject to section FG 7, any necessary currency conversions must be made at the close of trading spot exchange rate on the date as at which the amount is being calculated.
(8) Any temporary—
- (a) reduction in the outstanding balance of a financial arrangement; or
- (b) increase in the value of an asset—
must be excluded from the calculations if the reduction or increase has a purpose or effect of defeating the intent and application of this subpart.
(9) If the taxpayer is a company, the amount of total debt and the amount of total assets must be calculated, on a consolidated basis for elimination of intra-group balances used under generally accepted accounting practice for consolidation of a group of companies, for the group identified under subsections (10) to (13).
(10) If the taxpayer is a company, the members of the group are determined in accordance with subsection (12) by—
- (a) the taxpayer, if the taxpayer is—
  - (i) not resident in New Zealand; or
  - (ii) a company in which—
    - (A) persons not resident in New Zealand have, under the rules set out in section FG 2, in aggregate a 50% or greater direct ownership interest; and
    - (B) no single person not resident in New Zealand and carrying on business in New Zealand through a fixed establishment in New Zealand has a 50% or greater ownership interest:
- (b) if paragraph (a) does not apply, the company—
  - (i) that is either—
    - (A) resident in New Zealand; or
    - (B) not resident in New Zealand but carrying on business in New Zealand through a fixed establishment in New Zealand; and
  - (ii) that has, under the rules set out in section FG 2 (but applied as if the rules for aggregation of the interests of associates set out in section FG 2(2)(b) and (d) were omitted), an ownership interest in the taxpayer; and
  - (iii) in which a person not resident in New Zealand has, under those rules, a direct ownership interest; and
  - (iv) in which, if paragraph (b)(i)(A) applies, a person not resident in New Zealand (being a person who has, under those rules, a 50% or greater ownership interest in the taxpayer) has a 50% or greater ownership interest; and
  - (v) in which no company satisfying the conditions of subparagraphs (i) to (iv) has, under those rules set out in section FG 2, a direct ownership interest:
- (c) the taxpayer, if paragraph (a) does not apply and no company can be identified under paragraph (b):
- (d) if more than 1 company is identified under paragraph (b), the company out of that set of companies where the highest figure is produced by multiplying—
  - (i) the aggregate direct ownership interests held in that company by persons not resident in New Zealand who also have a 50% or greater ownership interest in the taxpayer; and
  - (ii) the ownership interest of that company in the taxpayer calculated under the rules set out in section FG 2 (but applied as if the rules for aggregation of the interests of associates set out in section FG 2(2)(b) and (d) were omitted):
- (e) if more than 1 company is identified under paragraph (d), the company out of that set of companies that was incorporated at the earliest time—
(the party identified under paragraphs (a) to (e) being referred to in subsections (12) to (14D) as the New Zealand parent).
(11) If a taxpayer is subject to the interest apportionment rule in section FG 8 solely by virtue of section FG 2(1)(b)(ii), section FG 4(10)(b) applies as if subparagraph (iii) were omitted and subparagraph (iv) read—
- “(iv) in which, if paragraph (b)(i)(A) applies, a person not resident in New Zealand who, under those rules, has control of the taxpayer by any other means whatsoever, has control by any other means whatsoever; and.”
(12) Subject to subsections (14C) and (14D), the taxpayer's New Zealand group comprises the taxpayer, the New Zealand parent (if different from the taxpayer), and all companies that—
- (a) are resident in New Zealand or carrying on business in New Zealand through a fixed establishment in New Zealand; and
- (b) are identified under subsection (13) or (14) as being controlled by the New Zealand parent; and
- (c) are not members of the New Zealand banking group of a registered bank.
(13) If the New Zealand parent elects that the relevant control percentage is any percentage greater than 50%, the companies treated as being controlled by the New Zealand parent and to be included in the New Zealand group are those in which greater than 50% direct ownership interests are held collectively by any combination of—
- (a) the New Zealand parent; and
- (b) companies already included in the group as a result of paragraph (a) or this paragraph.
(14) If the New Zealand parent elects that the relevant control percentage is 66% or any greater percentage, the companies treated as being controlled by the New Zealand parent and to be included in the New Zealand group are those in which 66% or greater direct ownership interests are held collectively by any combination of—
- (a) the New Zealand parent; and
- (b) a person not resident in New Zealand if—
  - (i) the person has a 50% or greater ownership interest in both the taxpayer and the New Zealand parent; and
  - (ii) the company included in the New Zealand group as a result would have been included in the New Zealand group under subsection (13) if the New Zealand parent had elected that subsection (13) applied; and
- (c) companies already included in the group, as a result of any or all of paragraph (a), (b), and this paragraph.
(14A) If the New Zealand parent fails to elect that either subsection (13) or (14) applies, the New Zealand parent is deemed to have elected that subsection (14) applies.

(14B) The New Zealand parent must and is deemed to make the same election whether subsection (13) or (14) applies for the income year with respect to any other taxpayer in respect of which it is determined to be the New Zealand parent.
(14C) Notwithstanding subsections (12) to (14), if the taxpayer is not a company identified under subsection (13) or (14) as being controlled by the New Zealand parent, the taxpayer's New Zealand group comprises only the taxpayer and all companies that—
- (a) are resident in New Zealand or carrying on business in New Zealand through a fixed establishment in New Zealand; and
- (b) are companies that—
  - (i) would be identified under subsection (13) or (14) as being controlled by the taxpayer if the taxpayer were treated as being the New Zealand parent; or
  - (ii) would result in the taxpayer being identified under subsection (13) or (14) as being controlled by the other company being included in the group under this subparagraph if the other company were treated as being the New Zealand parent; or
  - (iii) would be identified under subsection (13) or (14) as being controlled by a company included in the taxpayer's New Zealand group under subparagraph (ii) if that other company were treated as being the New Zealand parent; and
  - (c) are not members of the New Zealand banking group of a registered bank.
(14D) Notwithstanding subsections (12) to (14C), the taxpayer's New Zealand group also includes 1 or more other companies resident in New Zealand or carrying on business in New Zealand through a fixed establishment in New Zealand if—
- (aa) none of the taxpayer and the other companies is a member of a New Zealand banking group; and
- (a) the New Zealand parent so elects; and
- (b) the same person who is not resident in New Zealand holds an ownership interest of 50% or more in the taxpayer and each of those companies; and
- (c) any necessary elections are made under this subsection to ensure that the New Zealand group of—
  - (i) each of those other companies; and
  - (ii) each company which is a member of the taxpayer's New Zealand group other than under this subsection— comprises the same companies as the taxpayer's New Zealand group; and
- (d) the other company is not a company in which, under the rules set out in section FG 2, a direct ownership interest is held by a company (referred to in this paragraph as the possible group member) if—
  - (i) the possible group member is not included in the taxpayer's New Zealand group; and
  - (ii) the possible group member could have been included in the taxpayer's New Zealand group had the New Zealand parent made an appropriate election under subsection (13) or this subsection.
(14E) Notwithstanding subsections (12) to (14D), a company is a member of the taxpayer's New Zealand group if it is—
- (a) a conduit tax relief holding company, on the date on which the measurement is made under subsection (5), in respect of a conduit tax relief company in which it holds a direct ownership interest of more than 50%, and the conduit tax relief company is a member of the taxpayer's New Zealand group; or
- (b) a member of the New Zealand group of any company identified under paragraph (a) (determined under this section before applying this subsection).
(14F) Subsection (14E) does not apply to the income year if, at the end of the income year, the total of all dividends to the extent fully conduit tax relief credited and previously derived by the conduit tax relief holding company does not exceed the total of all dividends to the extent fully conduit tax relief credited and previously paid by the conduit tax relief holding company.
(15) If the taxpayer is a trustee, the amount of total debt and the amount of total assets must be calculated, on a consolidated basis for elimination of intra-group balances equivalent to that used for consolidation of a group of companies under generally accepted accounting practice, for the group comprising the taxpayer and all associated persons which are—
- (a) resident in New Zealand; or
- (b) carrying on business in New Zealand through a fixed establishment in New Zealand.
(16) If the taxpayer is an individual who is not a trustee—
- (a) the only person in the group is the taxpayer; and
- (b) total assets do not include any private or domestic assets.
(17) In any case where a group member required to be included in the consolidated calculation under subsection (9), (12), (15), or (16) is not resident in New Zealand, the amount of total debt and amount of total assets only includes the total debt and total assets of that group member to the extent that that group member is carrying on business in New Zealand through a fixed establishment in New Zealand.

Compare: 1994 No 164 s FG 4

Subsection (12)(b) was amended, as from 1 July 2005, by section 56(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “New Zealand parent; and” for “New Zealand parent.” with application as from the 2005–06 income year.

Subsection (12)(c) was inserted, as from 1 July 2005, by section 56(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Subsection (14)(b)(iii) was amended, as from 1 July 2005, by section 56(2) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “New Zealand parent; and” for “New Zealand parent.” with application as from the 2005–06 income year.

Subsection (14)(c) was inserted, as from 1 July 2005, by section 56(2) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Subsection (14D)(aa) was inserted, as from 1 July 2005, by section 56(3) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

FG 5 Rules for calculating worldwide group debt percentage

(1) The worldwide group debt percentage is the percentage which the amount of total debt represents of the amount of total assets for the taxpayer's worldwide group for the accounting year of the group ending most immediately prior to the start of the income year, and must be calculated under the rules in this section.

(2) Subject to the following subsections, either or both the amount of total debt and the amount of total assets can be taken from the financial accounts of the taxpayer's worldwide group.

(3) The amount of total debt and amount of total assets for the income year are measured at the end of the relevant accounting year.
(4) The amount of total debt and amount of total assets must be calculated—
- (a) under a standard for financial reporting in a consistent and non-distorting manner which is equivalent to generally accepted accounting practice; and
- (b) in accordance with the financial reporting standards of the country which are applied in the preparation of that group's consolidated financial accounts.
(5) Notwithstanding subsections (3) and (4), the taxpayer may elect either or both—
- (a) to measure total debt applying the definition of total debt in section FG 4(2) (applying that provision as if paragraph (b) referred also to a deduction which could be claimed if the taxpayer or another group member were resident in New Zealand):
- (b) to measure total debt and total assets on 1 of the bases listed in section FG 4(5)(a) or (b) (applying that provision as if the accounting year were the income year referred to).
(6) The amount of total debt and total assets calculated must be in New Zealand currency and, subject to section FG 7, any necessary currency conversions must be made at the close of trading spot exchange rate on the date as at which the amount is being calculated.

(7) Any temporary increase in the amount of total debt and any temporary decrease in the amount of total assets must be excluded from the calculations if the increase or decrease has a purpose or effect of defeating the intent and application of this subpart.
(8) If the taxpayer is a company, the amount of total debt and total assets must be calculated for the group (referred to in this section as the taxpayer's worldwide group) which comprises—
- (a) the taxpayer; and
- (b) all persons included in the taxpayer's New Zealand group for the income year under section FG 4; and
- (c) all persons not resident in New Zealand required to be included in consolidated group accounts with the taxpayer under, at the election of the taxpayer,—
  - (i) the generally accepted accounting practice; or
  - (ii) an equivalent standard for financial reporting in a consistent and non-distorting manner of the country in which is resident the company (referred to in this section as the ultimate non-resident parent)—
    - (A) which has, under section FG 2, a 50% or greater ownership interest in the taxpayer; and
    - (B) is not excluded from the taxpayer's worldwide group under subsection (9); and
    - (C) in which no other company, which has under the section FG 2 rules a 50% or greater ownership interest in the taxpayer, has under those rules an ownership interest; or
  - (iii) an equivalent standard for financial reporting in a consistent and non-distorting manner which is in fact applied when preparing the consolidated group accounts of the international group of which the taxpayer is part; and
- (d) the ultimate non-resident parent and all persons not resident in New Zealand required to be included in consolidated group accounts with the ultimate non-resident parent under,—
  - (i) if an accounting standard of the ultimate non-resident parent's country applies under subsection (8)(c)(ii), that standard; and
  - (ii) in any other case, under generally accepted accounting practice; and
- (e) any person not resident in New Zealand who—
  - (i) is not a company; and
  - (ii) has a 50% or greater ownership interest in the company; and
- (f) any person associated with any person included in the taxpayer's worldwide group under paragraph (e).
(9) Notwithstanding subsection (8), if in a joint venture ownership situation of a taxpayer which is a company—
- (a) a person, under the rules set out in section FG 2, has an ownership interest in the taxpayer equal to 50%; and
- (b) the taxpayer elects to exclude the person (referred to in this subsection as the excluded joint venturer) from the taxpayer's worldwide group; and
- (c) there is still included in the taxpayer's worldwide group—
  - (i) 1 other person (referred to in this subsection as the included joint venturer) who has an ownership interest equal to 50% in the taxpayer; and
  - (ii) all other persons who have an ownership interest equal to 50% in the taxpayer and—
    - (A) who have an ownership interest in the included joint venturer; or
    - (B) in whom the included joint venturer has an ownership interest,—
    the excluded joint venturer is excluded from the taxpayer's worldwide group for the income year in respect of which the election is made.
(10) If the taxpayer is a company, the amount of total debt and total assets must be calculated, for the group identified under subsections (8) and (9), on a consolidated basis for elimination of intra-group balances, under,—
- (a) if an accounting standard of the ultimate non-resident parent's country applies under subsection (8)(c)(ii), that standard; and
- (b) in any other case, under generally accepted accounting practice.
(11) If the taxpayer is a trustee, the amount of total debt and total assets must be calculated, on a consolidated basis for elimination of intra-group balances equivalent to that used for consolidation of companies under generally accepted accounting practice, for the group comprising the taxpayer and all associated persons.
(12) If it is impractical for the taxpayer to calculate the taxpayer's worldwide group debt percentage for an income year due to an inability to comply with all or any of these rules,—
- (a) the taxpayer may elect that the Commissioner must estimate the percentage in accordance with the intent of this subpart and, if the Commissioner then makes an estimate, the estimate is treated as being the percentage for the purposes of this subpart; and
- (b) if the Commissioner is not asked to or cannot reasonably make an estimate, this subpart applies as if the percentage were 68.1818.
(13) If there is no person in the taxpayer's worldwide group who is not resident in New Zealand (other than the taxpayer), the taxpayer's worldwide group debt percentage is 68.1818 notwithstanding the calculation rules in this section.

Compare: 1994 No 164 s FG 5

FG 6 Concession for on-lending

(1) When a taxpayer calculates their New Zealand group debt percentage, the amount of total debt and total assets is reduced by the outstanding balance of a financial arrangement if—
- (a) the taxpayer (or another group member) enters into the financial arrangement with a person who is—
  - (i) neither resident in New Zealand nor carrying on a business in New Zealand through a fixed establishment; or
  - (ii) not associated with the taxpayer; or
  - (iii) associated with the taxpayer if section FG 8 can apply to that person because section FG 2 applies, and the person is not a member of the taxpayer's New Zealand group; and
- (b) the financial arrangement provides funds to the other party; and
- (c) the consideration given for the financial arrangement is an arm's length amount.
(2) When a taxpayer calculates their worldwide group debt percentage, the amount of total debt and total assets is reduced by the outstanding balance of a financial arrangement if—
- (a) the taxpayer (or another group member) enters into the financial arrangement with a person not associated with the taxpayer; and
- (b) the financial arrangement provides funds to the other party.
Compare: 1994 No 164 s FG 6

FG 7 Concession for exchange rate fluctuations

The taxpayer may elect, when calculating the taxpayer's New Zealand or worldwide group debt percentage for the income year, to calculate the outstanding balance of any 1 or more financial arrangements, or the value of any 1 or more assets, denominated in a currency other than New Zealand currency using the forward exchange rate, for the relevant measurement date specified in section FG 4 or FG 5, applicable on the first day of the income year.

Compare: 1994 No 164 s FG 7

FG 8 Apportionment of interest deductions—taxpayer not in New Zealand banking group

(1) Notwithstanding anything in section DB 6 or DB 7 or DB 8, if a taxpayer is not in a New Zealand banking group and the taxpayer's New Zealand group debt percentage for an income year fails the test in section FG 3, the amount for which the taxpayer would, in the absence of this section, be allowed a deduction for the income year under section DB 6 or DB 7 or DB 8 is reduced by an amount calculated in accordance with the following formula:
where—
- I is the sum of all deductions for which the taxpayer would be allowed a deduction under section DB 6 or DB 7 or DB 8 but for this subpart
- GI is the sum of all deductions which the taxpayer would be allowed under section DB 6 or DB 7 or DB 8 in respect of amounts payable (excluding any amount included in item “IFD”) to a company included in the taxpayer's New Zealand group under section FG 4(12) or (15)
- IFD is the sum of all deductions which the taxpayer would be allowed under section DB 6 or DB 7 or DB 8 in respect of financial arrangements excluded from total debt for the taxpayer's New Zealand group by virtue of section FG 4(2)
- TNZD is the total debt of the taxpayer's New Zealand group for the income year, calculated under section FG 4 before allowing for any adjustment under section FG 6
- NZDA is the amount, if any, deducted under section FG 6 in calculating the total debt of the taxpayer's New Zealand group for the income year (which amount must be averaged in circumstances where section FG 4(5)(a) or (b) applies)
- NZDP is the taxpayer's New Zealand group debt percentage for the income year
- TDP is,—
  
  (a) if the taxpayer is a company or a trustee, the greater of—
  
  (i) 75%; and
  
  (ii) the taxpayer's worldwide group debt percentage multiplied by 1.1; and
  
  (b) if the taxpayer is an individual who is not a trustee, 75%.
(2) Notwithstanding subsection (1), if and to the extent that another member of the same wholly-owned group of companies—
- (a) elects that this subsection apply; and
- (b) would, in the absence of an election under paragraph (a) and after allowing for any other reductions under this subsection, be allowed a deduction under section DB 6 or DB 7 or DB 8, and if the sum of all deductions under section DB 6 or DB 7 or DB 8 is at least as large as the amount to which the election applies,—
the reduction is made to the amount for which the other group member would otherwise be allowed a deduction under section DB 6 or DB 7 or DB 8 for the income year instead of to the amount for which the taxpayer was allowed a deduction.
Compare: 1994 No 164 s FG 8

The heading to section FG 8 was amended, as from 1 July 2005, by section 57(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by inserting the words “—taxpayer not in New Zealand banking group” after the word “deductions” with application as from the 2005–06 income year.

Subsection (1) was amended, as from 1 July 2005, by section 57(2) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by inserting the words “taxpayer is not in a New Zealand banking group and the” after the words “if a” with application as from the 2005–06 income year.

FG 8B Adjustment of annual total deduction—reporting bank

(1) For a taxpayer that is a reporting bank and under section FG 3(2) has an annual total deduction for a tax year given by this section, the taxpayer's annual total deduction for the tax year is,—
- (a) if the New Zealand banking group of the reporting bank has a group funding debt for the tax year that is not zero, the amount calculated using the formula—
  
  unadjusted annual total deduction – adjustments:
- (b) if the New Zealand banking group of the reporting bank has a group funding debt for the tax year of zero, the annual total deduction for the tax year that the taxpayer would have had in the absence of this section and section FG 3(2).
(2) In the formula in subsection (1)(a),—
- (a) unadjusted annual total deduction is the annual total deduction for the tax year that the taxpayer would have had in the absence of this section and section FG 3(2):
- (b) adjustments is the sum of the income adjustment amounts that are given by subsection (4) for the measurement periods for the corresponding income year of the reporting bank.
(3) The group funding debt for a tax year for the New Zealand banking group of a reporting bank means the amount calculated using the formula—

where—
- SFI is the sum of the amounts for the tax year, each of which is the financial value for the New Zealand banking group of interest-bearing debt calculated under generally accepted accounting practice for a group quarter day
- FID is the sum of the amounts for the tax year, each of which is the financial value for the New Zealand banking group, on a group quarter day, of financial arrangements—
  - (a) for which the consolidated financial statements of the New Zealand banking group would show, in the corresponding income year of the reporting bank, a deduction—
    - (i) under 1 or more of sections DB 6 to DB 8; and
    - (ii) other than as a consequence of a fluctuation in the value of a currency of a country relative to the value of a currency of another country; and
  - (b) that do not contribute to item SFI
- FTE is the sum of the amounts for the tax year, each of which is the financial value for the New Zealand banking group, on a group quarter day, of shares that contribute to item SFI
- NQ is the number of group quarter days in the corresponding income year of the registered bank.
(4) For a measurement day in an income year of a reporting bank, the adjustment amount for a reporting bank is the amount calculated using the formula—

where—
- NET is the net equity threshold for the New Zealand banking group for the measurement day
- NZE is the lesser of—
  - (a) the net equity threshold for the New Zealand banking group for the measurement day:
  - (b) the New Zealand net equity for the New Zealand banking group for the measurement day
- I is the financial value for the New Zealand banking group, on the last day of the income year, of expenditure that—
  - (a) is incurred by a member of the New Zealand banking group in the income year; and
  - (b) is an interest expense under generally accepted accounting practice, incurred other than in relation to a share that contributes to item SFI, or is a deduction referred to in paragraph (a) of the definition of item FID in subclause (3)
- GFD is the group funding debt for the tax year for the New Zealand banking group
- PD is the number of days in the measurement period that corresponds to the measurement day
- YD is the number of days in the income year.
(5) If this Act requires that the annual total deduction for a reporting bank for an income year be apportioned between 2 or more parts of the income year, the adjustment amount under subsection (4) for a measurement day in the income year is attributed to the part containing the measurement day.
(6) In this section, group quarter day for a registered bank and a tax year means a day—
- (a) that is the last day of a quarter in the corresponding income year of the registered bank; and
- (b) on which the registered bank is a reporting bank.
Sections FG 8B to FG 8J were inserted, as from 1 October 2005, by section 58 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

FG 8C New Zealand banking group of registered bank

(1) The New Zealand banking group of a registered bank for a measurement period consists of every person or fixed establishment that on the measurement day for the measurement period is—
- (a) a member under subsection (2) or a potential member under subsection (3) or (4); and
- (b) not excluded by an election under subsection (8).
(2) If the registered bank—
- (a) is resident in New Zealand, the registered bank is a member:
- (b) is not resident in New Zealand, a fixed establishment in New Zealand of the registered bank is treated as being a person who is—
  - (i) separate from the registered bank; and
  - (ii) a member.
(3) A person who is a New Zealand resident is a potential member if—
- (a) the person satisfies subsection (5) and—
  - (i) the registered bank is resident in New Zealand; and
  - (ii) there is no non-resident who is an ultimate parent of the registered bank under subsection (9):
- (b) the person satisfies subsection (6) and—
  - (i) the registered bank is a non-resident; and
  - (ii) there is no non-resident who is an ultimate parent of the registered bank under subsection (9):
- (c) the person satisfies subsection (7) and there is a non-resident who is an ultimate parent of the registered bank under subsection (9).
(4) A fixed establishment in New Zealand of a non-resident is treated as being a person who is separate from the non-resident and a potential member if—
- (a) the fixed establishment satisfies subsection (6) and—
  - (i) the registered bank is a non-resident; and
  - (ii) there is no non-resident who is an ultimate parent of the registered bank under subsection (9):
- (b) the fixed establishment satisfies subsection (7) and there is a non-resident who is an ultimate parent of the registered bank under subsection (9).
(5) A person satisfies this subsection if,—
- (a) under generally accepted accounting practice, consolidated group accounts—
  - (i) are required to include the person and the registered bank:
  - (ii) would be required to include the person and the registered bank but for relevant materiality thresholds:
- (b) the person is in the same group of companies as the registered bank under section IG 1(2).
(6) A person or fixed establishment satisfies this subsection if,—
- (a) under generally accepted accounting practice, the person or fixed establishment would be required to be included in consolidated group accounts with the registered bank if—
  - (i) the registered bank were resident in New Zealand; and
  - (ii) the relevant materiality thresholds were satisfied:
- (b) the person is in the same group of companies as the registered bank under section IG 1(2).
(7) A person or fixed establishment satisfies this subsection if,—
- (a) under generally accepted accounting practice, the person or fixed establishment would be required to be included in consolidated group accounts with the ultimate parent of the registered bank if—
  - (i) the ultimate parent were resident in New Zealand; and
  - (ii) the relevant materiality thresholds were satisfied:
- (b) the person is in the same group of companies as the ultimate parent under section IG 1(2).
(8) A reporting bank may elect under this subsection to exclude from the New Zealand banking group of the reporting bank—
- (a) a person or a fixed establishment, whose main activity is the providing of life insurance:
- (b) a person who—
  - (i) is resident in New Zealand; and
  - (ii) has a voting interest of 100% in a person who is excluded by an election under paragraph (a); and
  - (iii) does not have a main activity that is banking, financing or leasing; and
  - (iv) does not have a main activity that involves the ownership or control of entities having a main activity of banking, financing or leasing:
- (c) a fixed establishment of a non-resident, if—
  - (i) the non-resident has a voting interest of 100% in a person who is excluded by an election under paragraph (a); and
  - (ii) the fixed establishment has a main activity of financing the person who is excluded by the election under paragraph (a); and
  - (iii) the fixed establishment does not have a main activity that is banking, financing or leasing, other than the activity referred to in subparagraph (ii); and
  - (iv) the fixed establishment does not have a main activity that involves the ownership or control of entities having a main activity of banking, financing or leasing:
- (d) a person who—
  - (i) is resident in New Zealand; and
  - (ii) under generally accepted accounting practice is required for the making of financial reports to be included in consolidated group accounts with a person or fixed establishment who is excluded by an election under paragraph (a) or (b); and
  - (iii) does not have a main activity that is banking, financing or leasing; and
  - (iv) does not have a main activity that involves the ownership or control of entities having a main activity of banking, financing or leasing.
(9) For the purposes of this section, the ultimate parent of a registered bank is a company—
- (a) that has an ownership interest in the registered bank, calculated under section FG 2, of 50% or more; and
- (b) in which no ownership interest, as calculated under section FG 2, is held by a company that holds an ownership interest in the registered bank, calculated under section FG 2, of 50% or more.
(10) For the purposes of this section, the ultimate parent of a fixed establishment in New Zealand of a registered bank is the registered bank.

Sections FG 8B to FG 8J were inserted, as from 1 October 2005, by section 58 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

FG 8D Reporting bank for New Zealand banking group

(1) For a New Zealand banking group that on a day includes a single registered bank, or includes no registered bank but includes a fixed establishment of a single registered bank, the reporting bank for the day is the registered bank.
(2) For a New Zealand banking group that on a day includes more than 1 registered bank, the reporting bank for the day is—
- (a) the registered bank that first gives notice to the Commissioner of an election to be the reporting bank, if the Commissioner receives such a notice by the day that is 6 months after the end of the tax year in which the day occurs:
- (b) the registered bank chosen by the Commissioner, if paragraph (a) does not apply.
(3) For a New Zealand banking group that on a day includes no registered bank but includes fixed establishments of more than 1 registered bank, the reporting bank for the day is—
- (a) the registered bank that first gives notice to the Commissioner of an election to be the reporting bank, if the Commissioner receives such a notice by the day that is 6 months after the end of the tax year in which the day occurs:
- (b) the registered bank chosen by the Commissioner, if paragraph (a) does not apply.
Sections FG 8B to FG 8J were inserted, as from 1 October 2005, by section 58 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

FG 8E Measurement periods and measurement days

(1) For the New Zealand banking group and income year of a reporting bank, the measurement periods are—
- (a) the quarters in the income year, if the reporting bank does not make an election under paragraph (b) or (c):
- (b) each calendar month of the income year, if the reporting bank elects that the New Zealand banking group have such measurement periods:
- (c) each day of the income year, if the reporting bank elects that the New Zealand banking group have such measurement periods.
(2) For the New Zealand banking group and income year of a reporting bank, the measurement days are each last day of each measurement period if the measurement periods are given by subsection (1)(a) or (b).

(3) If there is a change in the identity of the reporting bank for a New Zealand banking group, the measurement period corresponding to the first measurement day for the new reporting bank begins on the day after the last measurement day for the former reporting bank.

Sections FG 8B to FG 8J were inserted, as from 1 October 2005, by section 58 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

FG 8F Financial value and regulatory value

(1) In sections FG 8B to FG 8J, the financial value of an item for a New Zealand banking group at a time is the amount that would be recorded for the item in financial statements for the New Zealand banking group that—
- (a) related to the time; and
- (b) were prepared for external reporting purposes; and
- (c) were produced consistently with generally accepted accounting practice at the time by—
  - (i) consolidating the financial statements for the members of the New Zealand banking group that are in the same group of companies; and
  - (ii) if more than 1 consolidation is required under subparagraph (i), combining the consolidated financial statements so as to eliminate inter-group transactions.
(2) In sections FG 8B to FG 8J, the regulatory value of an item for a New Zealand banking group at a time is the total risk-weighted value for the item that would be obtained for the New Zealand banking group if the New Zealand banking group were a banking group for the purposes of the Capital Adequacy Framework that is issued by the Reserve Bank of New Zealand acting in the prudential supervision of registered banks under the Reserve Bank of New Zealand Act 1989.

Sections FG 8B to FG 8J were inserted, as from 1 October 2005, by section 58 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

FG 8G New Zealand net equity of New Zealand banking group

(1) The New Zealand net equity of the New Zealand banking group of a registered bank for a measurement day is given by the following formula:

EQV – FRS – EID – UPB – INTG – CGA – REV – TXB – CEFA – NAFA – EOI – NOIA – AEQ – AEQI

where—
- EQV is the sum of the following amounts for the New Zealand banking group:
  - (a) the financial value for the measurement day of—
    - (i) the shareholders' equity for the New Zealand banking group; and
    - (ii) the branch equity relating to fixed establishments of the New Zealand banking group:
  - (b) the financial value for the measurement day of shares, each of which—
    - (i) is issued by a member of the taxpayer's New Zealand banking group; and
    - (ii) does not contribute to the amount referred to in paragraph (a):
  - (c) the financial value for the measurement day of financial arrangements, each of which is a loan, or the provision of funds by a non-resident to its fixed establishment that—
    - (i) is not taken into account in the calculation of the group funding debt of the New Zealand banking group; and
    - (ii) is made by a non-resident who is not a member of the New Zealand banking group and is associated with a member of the New Zealand banking group under section OD 7 or OD 8(3); and
    - (iii) is made to a member of the New Zealand banking group; and
    - (iv) does not contribute to the amount referred to in paragraph (a); and
    - (v) does not give rise to interest expenditure other than as a result of a fluctuation in the value of a currency of a country relative to the value of a currency of another country; and
    - (vi) does not relate to a supply of goods or services
- FRS is the financial value for the measurement day of fixed rate shares, each of which is—
  - (a) issued by a member of the New Zealand banking group; and
  - (b) owned by a person who is resident in New Zealand; and
  - (c) included in the value of item EQV; and
  - (d) issued by the member—
    - (i) on or after 1 January 2005:
    - (ii) before 1 January 2005, if the measurement period begins on or after 1 January 2010
- EID is the financial value for the measurement day of financial arrangements, each of which—
  - (a) is taken into account under paragraph (a) or (b) of the definition of item EQV in calculating the value of that item; and
  - (b) gives rise to a deduction for the tax year under 1 or more of sections DB 6 to DB 8 for a member of the New Zealand banking group
- UPB is the financial value for the measurement day of unvested policyholder benefit liabilities and policy-holder retained profits that contribute to the value of item EQV
- INTG is the financial value for the measurement day of intangible assets, other than—
  - (a) goodwill relating to a business that is not banking, financing, leasing, or life insurance and that—
    - (i) is acquired from a person who, at the time of acquisition, is not associated under section OD 7 or OD 8(3) with a member of the New Zealand banking group:
    - (ii) relates to an entity that is acquired from a person who is not associated under section OD 7 or OD 8(3) with a member of the New Zealand banking group:
  - (b) a film or film right:
  - (c) property that is depreciable property or is expected to become depreciable property
- CGA is the sum for the measurement day of capital gain amounts, each of which arises for the 2004-05 or a later tax year from a transfer of an intangible asset between a member of the New Zealand banking group and a person who—
  - (a) is not a member of the New Zealand banking group; and
  - (b) is associated with a member of the New Zealand banking group under section OD 7 or OD 8(3)
- REV is the financial value for the measurement day of revaluation reserves that contribute to the value of item EQV
- TXB is the financial value for the measurement day of net future tax benefits that are taken into account in determining the value of item EQV and arise from—
  - (a) net losses for the tax year:
  - (b) losses carried forward from an earlier tax year:
  - (c) timing or temporary differences to the extent that the items giving rise to the timing or temporary differences would contribute to a net loss for the tax year if the items were deductible in the tax year
- CEFA is the financial value for the measurement day of the credit enhancements provided by members of the New Zealand banking group, each of which is, for the purpose of the Capital Adequacy Framework that is issued by the Reserve Bank of New Zealand,—
  - (a) a credit enhancement that is provided to an associated funds management and securitisation scheme of a non-member:
  - (b) a credit enhancement that is provided to an affiliated insurance group that is a non-member and has not been expensed
- NAFA is the financial value for the measurement day of advances by members of the New Zealand banking group, each of which is, for the purpose of the Capital Adequacy Framework that is issued by the Reserve Bank of New Zealand, an advance of a capital nature to a connected person who is not a member of the New Zealand banking group
- EOI is the amount that would, if the New Zealand banking group included the potential members of the New Zealand banking group and before any set-off allowed under generally accepted accounting practice, be the financial value for the measurement day of shares in non-residents that—
  - (a) are held by—
    - (i) a member or potential member of the New Zealand banking group:
    - (ii) a company resident in New Zealand in which a member or potential member of the New Zealand banking group holds a direct voting interest of 10% or more and that, in the income year, pays to the member or potential member a dividend to which a conduit tax relief credit is attached; and
  - (b) are not interests in foreign investment funds for which the FIF income or loss is calculated using the comparative value method, the deemed rate of return method, the fair dividend rate method, or the cost method; and
  - (c) are not shares in a grey list company that—
    - (i) are listed on the official list of a recognised exchange; and
    - (ii) are revenue account property; and
    - (iii) would not be a sufficient interest in the offshore company if the class of the shares were the only class of share issued by the offshore company
- NOIA is the notional offshore investment amount for the New Zealand banking group for the income year of the reporting bank, as defined in subsection (4)
- AEQ is the financial value for the measurement day of interests, each of which is taken into account in calculating item EQV and is held by a person who—
  - (a) is not a member of the New Zealand banking group; and
  - (b) is not a member of the New Zealand banking group because of an election under section FG 8C(8); and
  - (c) is resident in New Zealand or holds the interest through a fixed establishment in New Zealand
- AEQI is the financial value for the measurement day of—
  - (a) shares in persons who are not members of the New Zealand banking group because of an election under section FG 8C(8):
  - (b) loans, other than on arm's-length terms, to persons who are not members of the New Zealand banking group because of an election under section FG 8C(8).
(2) Subsection (3) applies if a component of an item, other than the item NOIA, that is subtracted from the item EQV under subsection (1) is a component of 1 or more other such items.

(3) The value of the component is included in a single item for which the value of the component is not less than the value of the component for each of the other items.
(4) The notional offshore investment amount for a New Zealand banking group for an income year of the reporting bank for the New Zealand banking group is the greater of zero and the amount given by the following formula:

where—
- FTC is the total for the tax year of foreign tax credits each of which—
  - (a) is claimed as a credit against the income tax liability for the tax year of—
    - (i) a member of the New Zealand banking group:
    - (ii) a person who is excluded from the New Zealand banking group by an election under section FG 8C(7); and
  - (b) does not arise from attributed CFC income or from FIF income; and
  - (c) does not arise from income derived before 1 July 2005
- DMT is the amount—
  - (a) set by the Governor-General by Order in Council as the threshold amount for the application of this subsection; or
  - (b) equal to $5,000,000, if no threshold amount is set under paragraph (a) and paragraph (c) does not apply; or
  - (c) equal to $416,667 multiplied by the number of months beginning on or after 1 July 2005 in the corresponding income year for the reporting bank, if the corresponding income year includes that date and no threshold amount is set under paragraph (a)
- CRT is the rate of tax for companies referred to in schedule 1, part A, item 5 for the tax year
- IRR is the amount—
  - (a) set by the Governor-General by Order in Council as the interest rate of return for the purposes of this subsection; or
  - (b) of 7% per year, if no interest rate of return is set under paragraph (a)
- NM is the number of months beginning on or after 1 July 2005 in the income year of the reporting bank for the New Zealand banking group.
(5) The Governor-General may, from time to time by Order in Council,—
- (a) specify a type of instrument that is included in item EQV for the purposes of subsection (1):
- (b) specify a type of instrument that is not included in item EQV for the purposes of subsection (1):
- (c) set, replace, or repeal a figure for a threshold amount for a value of an instrument, or aggregate value of a type of instrument, held by a person or group of persons for the purposes of a specification under paragraph (a) or (b):
- (d) amend or delete a specification under paragraph (a) to (c):
- (e) set, replace, or repeal a figure for the threshold amount for the purposes of paragraph (a) of the definition of item DMT in subsection (4):
- (f) set, replace, or repeal a figure for the interest rate of return for the purposes of paragraph (a) of the definition of item IRR in subsection (4).
(6) An Order in Council under subsection (5) may—
- (a) come into effect on or after 1 July 2005:
- (b) apply for measurement periods and quarters that—
  - (i) are in the 2005-06 or a subsequent income year; and
  - (ii) commence on or after 1 July 2005.
Sections FG 8B to FG 8J were inserted, as from 1 October 2005, by section 58 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Subsection (1) the definition of item EOI paragraph (b) was amended, as from 1 April 2007, by section 89(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “comparative value method, the deemed rate of return method, the fair dividend rate method, or the cost method” for “comparative value method or the deemed rate of return method”. See section 89(2) of that Act as to the application of this amendment for income years beginning on or after 1 April 2007.

FG 8H Net equity threshold

(1) The net equity threshold for a measurement day for the New Zealand banking group of a registered bank is given by the following formula:

0.04 x (RWE – DEQ)

where—
- RWE is the sum of the following values for the measurement day:
  - (a) for an asset that is included in a balance sheet, the regulatory value of the asset:
  - (b) for an exposure that is not included in a balance sheet, the regulatory value of the exposure:
  - (c) for goodwill that is not taken into account in calculating item INTG in determining the New Zealand net equity of the New Zealand banking group, the financial value of the goodwill
- DEQ is the total of the regulatory values for the measurement day of items, other than item NOIA, that are deducted from item EQV in determining the New Zealand net equity of the New Zealand banking group.
(2) For the purposes of subsection (1), the assets of a fixed establishment include the assets that are treated as being the assets of the fixed establishment under generally accepted accounting practice.

Sections FG 8B to FG 8J were inserted, as from 1 October 2005, by section 58 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

FG 8I Valuation of debt and risk-weighted exposures

For the purposes of sections FG 8B to FG 8H, the value on a day of a financial arrangement or risk-weighted exposure that is denominated in a foreign currency must be determined—
- (a) in New Zealand currency; and
- (b) using the close of trading spot exchange rate for the foreign currency on the day.
Sections FG 8B to FG 8J were inserted, as from 1 October 2005, by section 58 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

FG 8J Treatment of temporary change in New Zealand net equity or net equity threshold

A change in a quantity that, but for this subsection, would produce a temporary change in the New Zealand net equity or net equity threshold of the New Zealand banking group of a registered bank does not affect the value of the New Zealand net equity or net equity threshold if the change is produced by an arrangement that has an effect of defeating the intent and application of sections FG 8B to FG 8I.

Sections FG 8B to FG 8J were inserted, as from 1 October 2005, by section 58 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

FG 9 Treatment of specified leases and interest expense

In this subpart,—
- (a) a deemed loan under section FC 6(3) must be treated as a financial arrangement which provides funds to the issuer; and
- (b) expenditure incurred by the lessee in respect of specified leases for which a deduction is allowed must be treated as an amount of interest under section DB 6 or DB 7 or DB 8; and
- (c) interest that is allowed as a deduction under section DP 1(1)(b) or DV 10(1)(a) or (b) must be treated as an amount of interest under section DB 6 or DB 7 or DB 8, if not already allowed as a deduction under section DB 6 or DB 7 or DB 8.
Compare: 1994 No 164 s FG 9

FG 10 Mode of elections

(1) Any election available to a person under this subpart must be exercised by the person filing the person's return of income for the income year completed in a manner which reflects the election.

(2) Notwithstanding subsection (1), any election under section FG 4(5) or FG 5(5)(b) can be revoked and exercised differently on receipt of a notice of assessment from the Commissioner for the relevant income year.

(3) Notwithstanding subsection (1), an election made under section FG 4(11), (13), (14), or (14D) by a person other than the taxpayer must be exercised by the person giving a notice to the Commissioner with the taxpayer's income tax return for the income year.

Compare: 1994 No 164 s FG 10

Subpart FH—Foreign attributed income excess interest allocation

FH 1 Circumstances in which group excess interest allocation required

FH 2 Rules for determining company's foreign attributed income group

FH 3 Rules for determining New Zealand foreign attributed income group debt percentage

FH 4 Rules for determining consolidated foreign attributed income group debt percentage

FH 5 Rule for calculating group excess interest allocation amount

FH 6 Rule for calculating company's excess interest allocation percentage

FH 7 Rule for calculating individual excess interest allocation amount

FH 8 Rules for applying surplus group excess interest allocation amount to increase income tax and dividend withholding payment

FH 1 Circumstances in which group excess interest allocation required

(1) Subject to subsection (2), the group excess interest allocation rules in sections FH 5 to FH 8 apply for a tax year to a company that—
- (a) for the imputation year that corresponds with the tax year—
  - (i) is a dividend withholding payment account company or a conduit tax relief company; and
  - (ii) is not a member of a New Zealand banking group for a registered bank; and
- (b) in the corresponding income year—
  - (i) derives foreign attributed income:
  - (ii) is paid a dividend from which the company must deduct an amount of dividend withholding payment or would have to deduct such an amount but for section NH 7.
(2) The group excess interest allocation rules do not apply for a tax year to—
- (a) a company, if the total of the rebates in the following subparagraphs is less than $50,000, calculated as if item “EIA” of the formula in section KH 1(2) were in all cases nil:
- (i) income tax rebates under section KH 1 and dividend withholding payment reductions under section NH 7 allowed to the company for the tax year if it is a conduit tax relief company, or that would be allowed to the company if it had been a conduit tax relief company; and
- (ii) income tax rebates under section KH 1 and dividend withholding payment reductions under section NH 7 allowed to all other conduit tax relief companies that are associated with the company; and
- (iii) income tax rebates under section KH 1 and dividend withholding payment reductions under section NH 7 that would be allowed to all other companies that are not conduit tax relief companies and are associated with the company, had those other companies been conduit tax relief companies; or
- (b) a company whose New Zealand foreign attributed income group debt percentage for the tax year is 66% or less.
Compare: 1994 No 164 s FH 1

Subsection (1) was substituted, as from 1 July 2005, by section 59 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79).

FH 2 Rules for determining company's foreign attributed income group

(1) If the thin capitalisation interest apportionment rule in section FG 8 can apply to a company by virtue of section FG 2, the company's foreign attributed income group is the same New Zealand group of companies that would be identified for thin capitalisation purposes under section FG 4(10) to (14D).
(2) If subsection (1) does not apply, the company's foreign attributed income group consists of—
- (a) the company; and
- (b) every other company that is—
  - (i) in the same group of companies as the company; and
  - (ii) resident in New Zealand or carrying on business in New Zealand through a fixed establishment in New Zealand.
Compare: 1994 No 164 s FH 2

FH 3 Rules for determining New Zealand foreign attributed income group debt percentage

(1) Subject to subsections (2) and (3), the New Zealand foreign attributed income group debt percentage of a company for a tax year is calculated under section FG 4 (excluding subsections (14E) and (14F) and modified, as relevant, under sections FG 6, FG 7, and FG 9) as if the company were the taxpayer calculating its New Zealand group debt percentage.
(2) If a company and each company in the same New Zealand tax group are the company's foreign attributed income group under section FH 2(2),—
- (a) section FG 4(10) to (14F) does not apply; and
- (b) the group of companies referred to in section FG 4(9) is the group identified under section FH 2(2); and
- (c) section FG 4(6) applies as if the company were the New Zealand parent.
(3) The total assets of the group are reduced by the total of the amounts calculated for each member of the group as follows:
NRS x (CFC + FIF)

where—
- NRS is either—
  
  (a) if the group member receives conduit tax relief by way of an income tax rebate under section KH 1, the percentage of the relevant group member's shareholders not resident in New Zealand used to calculate the rebate under section KH 1(2); or
  
  (b) if the group member receives conduit tax relief by reducing its dividend withholding payment under section NH 7, the average of the percentages of the relevant group member's shareholders not resident in New Zealand used to calculate the reduction under section NH 7(1)
- CFC is the total value, at the relevant measurement time and determined under section FG 4(3), of the assets of the relevant group member which are rights in respect of a controlled foreign company which result in the relevant group member having attributed CFC income or attributed CFC loss in the controlled foreign company for an accounting period which includes the relevant measurement time
- FIF is the total value, at the relevant time and measured under section FG 4(3), of any interests in foreign investment funds of the relevant group member for which the relevant group member is determining its FIF income or FIF loss under the accounting profits method or the branch equivalent method.
Compare: 1994 No 164 s FH 3

FH 4 Rules for determining consolidated foreign attributed income group debt percentage

(1) A company may choose to calculate its consolidated foreign attributed income group debt percentage for the tax year under this section if its New Zealand foreign attributed income group debt percentage for the tax year is more than 66%.

(2) Subject to subsections (3) to (8), the consolidated foreign attributed income group debt percentage is calculated under the rules set out in section FH 3 for calculating the New Zealand foreign attributed income group debt percentage.
(3) A controlled foreign company or foreign investment fund of the type referred to in item “CFC” or “FIF” in section FH 3(3) is consolidated with a foreign attributed income group if the foreign attributed income group—
- (a) has a total income interest of 40% or more in the controlled foreign company for the accounting period in which the relevant measurement date under section FG 4(5) falls; or
- (b) would be treated, under section EX 8 if the foreign investment fund were a controlled foreign company, as having a total income interest of 40% or more in the foreign investment fund for the accounting period in which the relevant measurement date under section FG 4(5) falls.
(4) A controlled foreign company or foreign investment fund of the type referred to in item “CFC” or “FIF” in section FH 3(3) is consolidated with a foreign attributed income group if the foreign attributed income group—
- (a) has a total income interest of 5% or more but less than
40% in the controlled foreign company for the accounting period in which the relevant measurement date under section FG 4(5) falls; or
- (b) would be treated, under section EX 8 if the foreign investment fund were a controlled foreign company, as having in total an income interest of 5% or more but less than 40% in the foreign investment fund for the accounting period in which the relevant measurement date under section FG 4(5) falls.
(5) A controlled foreign company's or foreign investment fund's consolidation with a foreign attributed income group under subsection (4) applies only to the extent that the percentage of the controlled foreign company's or foreign investment fund's debts and assets equal the total percentage income interest of the foreign attributed income group in the controlled foreign company or foreign investment fund.
(6) The consolidation required under subsections (3) and (4) is made—
- (a) as if the controlled foreign company or foreign investment fund were a member of the company's foreign attributed income group; and
- (b) on a basis for eliminating intra-group balances used under generally accepted accounting practice for consolidation of a group of companies; and
- (c) by calculating the amount of debts and assets of the controlled foreign company or foreign investment fund using the values shown in the financial accounts for the accounting period and to a financial reporting standard that is equivalent to generally accepted accounting practice.
(7) No reduction from the amount of total assets is to be made under section FH 3(3).
(8) A reduction is to be made equal to the total value of assets (determined under section FG 4(3)) of group members which are—
- (a) referred to in items “CFC” or “FIF” of section FH 3(3) for the accounting period in which the relevant measurement date falls; and
- (b) not consolidated under subsection (3) or (4).
Compare: 1994 No 164 s FH 4

FH 5 Rule for calculating group excess interest allocation amount

The group excess interest allocation amount for a company for a tax year is calculated under the following formula (but cannot be less than nil):
where—
- GI is the total of deductions that companies are allowed for the tax year if they are members of the company's foreign attributed income group at the end of the tax year under—
  
  (a) section DB 6 or DB 7 or DB 8 (as modified by section FG 8); or
  
  (b) sections FC 6 to FC 8 as lessee expenditure in respect of a specified lease
- IGI is the total of amounts included in item “GI” for amounts payable to another company in the foreign attributed income group (excluding an amount included in item “GIFD”)
- GIFD is the total of amounts included in item “GI” for financial arrangements that are excluded, when applying sections FH 3 and FH 4, as a result of section FG 4(2)
- NCGDP is the New Zealand foreign attributed income group debt percentage of the company for the tax year calculated under section FH 3
- CGDP is the greatest of—
  
  (a) 66%; or
  
  (b) the New Zealand foreign attributed income group debt percentage that would be calculated for the company if section FH 3(3) did not apply; or
  
  (c) the consolidated foreign attributed income group debt percentage of the company for the tax year, calculated under section FH 4, if the company chooses to calculate that percentage.
Compare: 1994 No 164 s FH 5

FH 6 Rule for calculating company's excess interest allocation percentage

If a company has a group excess interest allocation amount for a tax year, the company's excess interest allocation percentage is the lesser of 1 and the amount calculated as follows:
where—
- GEIA is the group excess interest allocation amount for the tax year
- GFAI is the total of the foreign attributed income for the tax year of all companies (including the company) which are in the company's foreign attributed income group at the end of the tax year
- GFALO is the total of the foreign attributed loss offsets for the tax year of all companies (including the company) that are in the company's foreign attributed income group at the end of the tax year
- GBC is the total of the amounts able to be credited against the income tax liability for the tax year under section MF 5(4) of all companies (including the company) that are in the company's foreign attributed income group at the end of the tax year, determined as if the amount of rebate calculated under section KH 1 were for all companies nil
- TR is the rate of income tax stated in schedule 1, part A, clause 5 for the tax year.
Compare: 1994 No 164 s FH 6

FH 7 Rule for calculating individual excess interest allocation amount

The individual excess interest allocation for the company for the tax year to be included in the formula in section KH 1(2) is calculated as follows:
where—
- BC is the total of—
  
  (a) the amount able to be credited by the company against its income tax liability for the tax year under section MF 5(4) (the amount is determined as if the amount of rebate calculated under section KH 1 were nil); and
  
  (b) the amount credited by another company in the same group of companies against the company's income tax liability for the tax year under section MF 5(4) (the amount is determined as if the amount of rebate calculated under section KH 1 were nil)
- TR is the rate of income tax stated in schedule 1, part A, clause 5 for the tax year
- FAI is the company's foreign attributed income for the tax year
- FALO is the company's foreign attributed loss offsets for the tax year
- EIAP is the company's excess interest allocation percentage calculated under section FH 6 for the tax year.
Compare: 1994 No 164 s FH 7

FH 8 Rules for applying surplus group excess interest allocation amount to increase income tax and dividend withholding payment

(1) If the total of individual excess interest allocations calculated under section FH 7 for the tax year for all companies included in a company's foreign attributed income group at the end of the tax year is less than the group excess interest allocation amount calculated under section FH 5, for all companies included in the company's foreign attributed income group, the difference is the surplus group excess interest allocation amount.
(2) The company's surplus group excess interest allocation percentage for the tax year is the lesser of 1 and the percentage calculated as follows:
where—
- SGEIA is the surplus group excess interest allocation amount for the tax year
- TR is the rate of income tax stated in schedule 1, part A, clause 5 for the tax year
- GDWP is the total of dividend withholding payments (calculated after loss offsets are claimed under section NH 3 but before any reduction is allowed under section NH 7) that must be deducted from dividends paid during the tax year to companies that are members of the company's foreign attributed income group at the end of the tax year.
(3) The company is deemed to derive, on the last day of the tax year, an amount of income equal to the foreign dividend adjustment amount.
(4) The company's foreign dividend adjustment amount is calculated as follows:
where—
- DWP is the total of dividend withholding payments (calculated after loss offsets are claimed under section NH 3 but before any reduction is allowed under section NH 7) that must be deducted by the company from dividends paid to the company during the tax year
- SGEIP is the surplus group excess interest allocation percentage calculated under subsection (2) for the company and the tax year
- TR is the rate of income tax stated in schedule 1, part A, clause 5 for the tax year.
(5) A conduit tax relief company has a conduit tax relief account adjustment of an amount calculated as follows:
FDAA x TR

where—
- FDAA is the company's foreign dividend adjustment amount for the tax year
- TR is the rate of income tax stated in schedule 1, part A, clause 5 for the tax year.
(6) A membership change that has only a temporary effect on the company's foreign attributed income group is disregarded when making calculations under this section, if a purpose or effect of the change is to defeat the intent and application of this section.

Compare: 1994 No 164 s FH 8

Subpart I—Effect of certain disposals and resulting acquisitions

Subpart I (comprising sections FI 1 to FI 11) was inserted, as from 1 October 2005, by section 60 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

FI 1 Disposals and resulting acquisitions to which subpart FI applies

(1) The purpose of this subpart is to provide a disposal value in respect of the disposals and a cost price in respect of the resulting acquisitions of property for transactions to which subsections (2) and (3) refer.

(2) This subpart applies to a transaction that is of a type referred to in subsection (3).
(3) This subpart applies to a transaction that is—
- (a) a distribution of property made by a trustee of a trust to a beneficiary of that trust:
- (b) a distribution in kind made by a company—
  - (i) to a shareholder of that company, or to a person in a shareholding relationship with that company; and
  - (ii) to which section CD 5 applies; and
  - (iii) that is a transfer of value to which section CD 3(1)(a) refers:
- (c) a gift made by one person to another person:
- (d) a transfer of an estate of a deceased person to an administrator or executor of the estate occurring as a result of the death of a person:
- (e) a distribution of property made by an administrator, executor, or trustee of the estate of a deceased person to a person who is beneficially entitled to receive the property under a will or an intestacy:
- (f) a settlement of property by one trust on another trust, if authorised—
  - (i) under a trust instrument as a power of advancement or resettlement:
  - (ii) under section 41 of the Trustee Act 1956 as the payment of money or the application of property.
Subpart I (comprising sections FI 1 to FI 11) was inserted, as from 1 October 2005, by section 60 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

FI 2 Disposal and resulting acquisition of property treated as occurring at market value

(1) A transaction to which this subpart applies is to be treated as—
- (a) a disposal at market value by the person who disposes of the property; and
- (b) an acquisition at market value by the recipient of the property.
(2) In this Act, the market value of property that a person receives from a transaction to which this subpart applies is the market value of the property for the person from whom the property was received.

Subpart I (comprising sections FI 1 to FI 11) was inserted, as from 1 October 2005, by section 60 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

FI 3 Date on which disposal and resulting acquisition treated as occurring

(1) Unless subsection (2) applies, the person who disposes of property in a transaction to which section FI 1 refers and the person who receives the property must treat the disposal as occurring on the date on which the transaction occurs.

(2) On the happening of a transaction to which section FI 1(3)(d) refers, the personal representatives of the deceased person and the recipient of the property must treat the disposal as occurring immediately before the person died.

Subpart I (comprising sections FI 1 to FI 11) was inserted, as from 1 October 2005, by section 60 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

FI 4 Disposal and resulting acquisition of property by spouse, civil union partner, or de facto partner on death of person

On the death of a person, a disposal under the terms of a will or intestacy in a transaction to which section FI 1(3)(d) or (e) refers of property to which the surviving spouse, civil union partner, or de facto partner of the deceased person is entitled as beneficiary is treated as a matrimonial property disposition to which subpart FF applies, unless—
- (a) a person who is not within the second degree of relationship to the deceased is beneficially entitled under the will or intestacy to other property (the other property); and
- (b) the other property is—
  - (i) revenue account property:
  - (ii) an interest in a FIF:
  - (iii) a financial arrangement other than a financial arrangement in respect of which the deceased person or a trustee of the deceased person was a cash basis person:
  - (iv) an item in respect of which a person has an amount of depreciation loss under section EE 1(2).
Subpart I (comprising sections FI 1 to FI 11) was inserted, as from 1 October 2005, by section 60 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

The heading to section FI 4 was amended, as from 1 October 2005, by section 90(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “spouse, civil union partner, or de facto partner” for “spouse or de facto partner”.

Section FI 4 was amended, as from 1 October 2005, by section 90(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “in a transaction to which section FI 1(3)(d) or (e) refers of property to which the surviving spouse, civil union partner, or de facto partner of the deceased person is entitled as beneficiary” for “to the surviving spouse or de facto partner of the deceased person of property to which section FI 1(3)(d) or (e) refers”.

Paragraph (a) was amended, as from 1 October 2005, by section 90(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “under the will or intestacy to other property (the other property)” for “to property”.

Paragraph (b) was amended, as from 1 October 2005, by section 90(4) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “the other property” for “the property”.

FI 5 Distributions of property to close relatives and others

(1) This section applies to a transaction to which section FI 1(3)(e) refers if persons who are related within the second degree of relationship to the deceased person, or persons who are exempt under section CW 36, are—
- (a) the sole beneficiaries of the property of the deceased person:
- (b) beneficiaries of the deceased person and the sole beneficiaries of property of the deceased person that is—
  - (i) revenue account property:
  - (ii) an interest in a FIF:
  - (iii) a financial arrangement other than a financial arrangement in respect of which the deceased person or a trustee of the deceased person was a cash basis person:
  - (iv) an item in respect of which a person has an amount of depreciation loss under section EE 1(2).
(2) A disposal and acquisition of property to which this section applies is treated as a transaction to which subpart FF applies, if—
- (a) the terms of the testamentary instrument or intestacy of the deceased person establish no life interest; and
- (b) other than for the period in which the property is subject to administration or executorship, the terms of the testamentary instrument or intestacy of the deceased person require that no property of the deceased person be held in trust; and
- (c) in a tax year during which the property is subject to administration or executorship or in which the property is held in trust, the net income of the estate is distributed beneficially to the maximum extent that is allowable under the terms of the will or intestacy and that is consistent with the legal obligations of the trustee.
Subpart I (comprising sections FI 1 to FI 11) was inserted, as from 1 October 2005, by section 60 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

FI 6 Disposal and resulting acquisition of timber

If a transaction to which section FI 1(3)(d) or (e) refers involves the disposal and acquisition of property that is timber, standing timber, or the right to take timber, the disposal is treated as a transaction to which subpart FF, applies if the beneficiary of the property is within the second degree of relationship to the deceased person

Subpart I (comprising sections FI 1 to FI 11) was inserted, as from 1 October 2005, by section 60 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Section FI 6 was substituted, as from 1 October 2005, by section 91 Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

FI 7 Relationship of section FI 2(2) to subpart CB

(1) This section applies to a transaction to which section FI 1(3)(d) or (e) refer if—
- (a) the transaction involves an interest in property that is land; and
- (ab) persons who are related within the second degree of relationship to the deceased person receive the land as beneficiaries—
  - (i) under the transaction (the original transaction), if section FI 1(3)(e) refers to the original transaction:
  - (ii) under a transaction to which section FI 1(3)(e) refers, if section FI 1(3)(d) refers to the original transaction; and
- (b) the sale of the interest in the land, if sold by the deceased person, would result in income to the deceased person under any of sections CB 7, CB 8, CB 9, or CB 12.
(2) When this section applies, sections CB 7, CB 8, CB 9, and CB 12 do not apply to a transaction to which any of section FI 1(3)(d) or (e) refers.

(3) If a disposal of an interest in land by an administrator or executor or beneficiary of the estate of a deceased person within 10 years of its acquisition by the deceased person results in income under any of sections CB 7, CB 8, CB 9, or CB 12, the cost of the interest in the land to the administrator or executor or beneficiary is the cost of the interest to the deceased person plus all other costs incurred by the deceased person and the administrator or executor or beneficiary not previously deducted under this Act.

Subpart I (comprising sections FI 1 to FI 11) was inserted, as from 1 October 2005, by section 60 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Subsection (1)(a) was substituted, as from 1 October 2005, by section 92(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Subsection (1)(ab) was inserted, as from 1 October 2005, by section 92(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Subsection (1)(b) was amended, as from 1 October 2005, by section 92(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “CB 10, or CB 12” for “or CB 10”.

Subsection (1)(b) was amended, as from 17 May 2006, by section 92(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “or CB 12” for “CB 10, or CB 12”.

Subsection (2) was amended, as from 1 October 2005, by section 92(4) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “CB 10, and CB 12” for “and CB 10”.

Subsection (2) was amended, as from 17 May 2006, by section 92(5) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “and CB 12” for “CB 10, and CB 12”.

Subsection (3) was amended, as from 1 October 2005, by section 92(6) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “CB 10, or CB 12” for “or CB 10”.

Subsection (3) was amended, as from 17 May 2006, by section 92(7) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “or CB 12” for “CB 10, or CB 12”.

FI 8 Relationship of subpart FI to unexpired prepayments

If property subject to section EA 3 is disposed of in a transaction to which section FI 1(3)(d) or (e) refers and would be valued under section FI 2 in the absence of this section, the property must be valued under section EA 3(4) to (7), as the circumstances require, as if the date of valuation is the end of an income year.

Subpart I (comprising sections FI 1 to FI 11) was inserted, as from 1 October 2005, by section 60 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

FI 9 Death occurring before 1 October 2005

(1) This section applies to a transaction to which section FI 1 refers that involves the disposal of property to an administrator, or executor, or trustee on the death of a person if—
- (a) the death occurred before 1 October 2005; and
- (b) in the year in which the transaction occurred,—
  - (i) each beneficiary of the deceased person is a New Zealand resident; and
  - (ii) no amount of the income of the beneficiary is exempt income under section CW 36; and
- (c) the tax returns of the deceased person and of the resulting estate that are provided to the Commissioner in respect of the income year in which the death occurred are calculated on the basis that all the property of the deceased person was disposed of immediately before death—
  - (i) at market values; or
  - (ii) at the values given by subpart FF for property of that type; or
  - (iii) at a combination of the values in subparagraphs (i) and (ii); and
- (d) the administrator or executor adopted for taxation purposes the value referred to in paragraph (c) for the property.
(2) For the purposes of the Income Tax Act 1994 and this Act, the value used in the tax returns of the deceased person and the estate for the disposal value and the cost price of the property involved in the transaction is treated as correct.

(3) Despite subsection (2), if an enactment contained in the Income Tax Act 1994 or this Act prescribes the adoption of a market value on a disposal by an administrator or executor or trustee of the estate of the deceased person on the death of the deceased person, that market value must be adopted in a tax return provided to the Commissioner.

Subpart I (comprising sections FI 1 to FI 11) was inserted, as from 1 October 2005, by section 60 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

FI 10 Value of property acquired by beneficiary of trust before 1 October 2005

(1) This section applies to a transaction to which section FI 1 refers that involves the disposal of property to a beneficiary by an administrator or executor or trustee if—
- (a) the transaction occurred before 1 October 2005; and
- (b) the beneficiary was a New Zealand resident when the beneficiary acquired the property; and
- (c) no amount of the income of the beneficiary is exempt income under section CW 36; and
- (d) the tax returns of the estate and of the beneficiary provided to the Commissioner in respect of the income year in which the transaction occurred are calculated on the basis that—
  - (i) the distributed property was disposed of at market value; or
  - (ii) the disposition of the estate was a disposition and acquisition of the property at values given by subpart FF for property of that type; or
  - (iii) the value of the property was a combination of the values given by paragraphs (d)(i) or (ii); and
- (e) the beneficiary adopted for taxation purposes the value referred to in paragraph (d) for the property.
(2) For the purposes of the Income Tax Act 1994 and this Act, the value used in the tax returns of the estate and the beneficiary for the disposal value and the cost price of the property involved in the transaction is treated as correct.

(3) Despite subsection (2), if an enactment contained in the Income Tax Act 1994 or this Act prescribes the adoption of a market value on a disposal by an administrator or executor or trustee of the estate of a deceased person, that market value must be adopted by the administrator, executor, or trustee, and a beneficiary in the tax returns they provide to the Commissioner.

Subpart I (comprising sections FI 1 to FI 11) was inserted, as from 1 October 2005, by section 60 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

FI 11 Disposal of certain financial arrangements on death

If property is disposed of in a transaction to which section FI 1(3)(d) or (e) refers and the trustee of the deceased person's estate is a cash basis person under section EW 60(1), the property must be valued at cost and not under section FI 2.

Subpart I (comprising sections FI 1 to FI 11) was inserted, as from 1 October 2005, by section 60 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Subpart FZ—Terminating provisions

FZ 1 Deduction for dividends paid on certain preference shares

FZ 2 Amounts owing under convertible notes deemed to be share capital and holders deemed to be shareholders

FZ 1 Deduction for dividends paid on certain preference shares

(1) This section does not apply to the extent that any specified preference shares in any close company are to be issued to or are held by—
- (a) any holder of any other class or classes of shares in the capital of the company; or
- (b) any person where that person and any holder of any other class or classes of shares in the capital of the company are associated persons,—
unless the Commissioner has approved the terms of issue of the specified preference shares as being ordinary commercial conditions consistent with those applying between parties at arm's length, and those terms as approved are continued.
(2) This section does not apply to any company which is under the control of persons who are not deemed to be resident in New Zealand.

(3) For the purposes of subsection (2), section OD 1 has effect as if for the term 50% wherever it occurs there were substituted in each case the term 25%.

(4) Subject to this section, a company to which this section applies is allowed a deduction in any income year of an amount equal to the dividends paid by the company in that income year in respect of specified preference shares of that company in any case where at all times in that income year the aggregate amount of the available subscribed capital per share calculated under the slice rule of all the preference shares, including specified preference shares, of the company does not exceed 50% of the aggregate amount of the available subscribed capital per share calculated under the slice rule of all the ordinary shares of the company.
(5) In this section, specified preference shares, in relation to any company, means shares in the company—
- (a) that have been issued and subscribed for in cash on or after 22 May 1975, in accordance with a binding contract entered into before 8.00 pm New Zealand Standard Time on 23 October 1986; and
- (b) that are preferential as to dividends; and
- (c) that are fully paid up in cash; and
- (d) that are entitled to a fixed rate of dividend without a further right to participate in profits; and
- (e) that are issued at par value only; and
- (f) that are—
  - (i) redeemable in cash at that par value; or
  - (ii) convertible into, or redeemable by the issue of, shares or stock in the capital of the company or in the capital of any other company not earlier than 5 years after the date of allotment.
Compare: 1994 No 164 s FZ 1

FZ 2 Amounts owing under convertible notes deemed to be share capital and holders deemed to be shareholders

(1) Where, under the terms of any issue of convertible notes, any person becomes entitled to have a convertible note issued or given to the person by a company, the company is, for the purposes of this section, deemed to have issued or given the convertible note at the time when that person first became entitled to have the convertible note issued or given to the person.
(2) Where a company has issued or given a convertible note in accordance with an offer made by or to the company after 8 September 1960,—
- (a) the company is denied a deduction in respect of any interest payable under the convertible note or of any expenditure or loss incurred in connection with the convertible note or in borrowing any money in respect of which the convertible note is issued or given; and
- (b) for the purposes of this Act,—
  - (i) the amount in respect of which the convertible note is issued or given is deemed to be share capital in the capital of the company; and
  - (ii) that amount is deemed to be the amount paid up in respect of shares of which the holder of the convertible note is deemed to be the holder; and
  - (iii) the holder of the convertible note is deemed to be a shareholder in the company,—
and this Act applies accordingly.
(3) Subsection (2) does not apply with respect to any convertible note that is issued or given by a New Zealand company on or after 11 June 1971, if the total amount in respect of which the convertible note has been issued or given is required, not later than 5 years after the date on which the company has issued or given the convertible note, to be, under the terms of issue of the convertible note, converted into, or redeemed or paid by the issue of, shares or stock in the capital of the company.
(4) A company is denied a deduction in respect of—
- (a) any interest payable on the whole or any part of the amount in respect of which the company has issued or given a convertible note to which subsection (3) applies, after—
  - (i) the date on which, under the terms of issue of the convertible note, the amount in respect of which the convertible note has been issued or given is required to be converted into, or to be redeemed or paid by the issue of, shares or stock in the capital of the company; or
  - (ii) the expiration of 5 years after the date on which the company has issued or given the convertible note,—
whichever is the earlier; or
- (b) any expenditure or loss incurred at any time in connection with a convertible note to which subsection (3) applies, or in borrowing any money in respect of which any such convertible note is issued or given.
(5) Notwithstanding anything in subsection (1), the period of 5 years referred to in subsections (3) and (4)(a)(ii) is deemed not to include any interval between the time when the person entitled first became entitled to have the convertible note issued or given to the person and the commencement of the period for which interest under the convertible note commences to become payable, if and to the extent that that interval is, in the opinion of the Commissioner, necessary for the completion of formalities preliminary to the issue of the convertible note.

(6) This section does not apply to any convertible note issued after 8.00 pm New Zealand Standard Time on 23 October 1986, other than a convertible note issued in accordance with a binding contract entered into before that time.

Compare: 1994 No 164 s FZ 2

Part G
Avoidance and non-market transactions

Subpart GB—Avoidance: general

GB 1 Agreements purporting to alter incidence of tax to be void

Subpart GC—Avoidance: specific

GC 1 Arrangement to defeat application of cross-border arrangement provision

GC 2 Arrangements to defeat application of net loss carry forward provisions

GC 3 Effect on continuity provisions of change in beneficiaries of trust

GC 4 Arrangement to defeat application of net loss offset provisions

GC 5 Arrangement to defeat application of qualifying company provisions

GC 6 Arrangement to defeat application of depreciation provisions

GC 7 Arrangements in respect of CFCs

GC 8 Arrangement to defeat application of CFC attributed repatriation provisions

GC 9 Variations in control or income interests in foreign companies

GC 10 Attributed CFC income and FIF income: arrangements in respect of elections

GC 11A Non-market transactions to acquire film rights

GC 11B Manipulation of arrangements to acquire film rights

GC 12 Petroleum mining

GC 14 Income of beneficiaries

GC 14A Sale or transfer of commercial bill to New Zealand resident

GC 14B Attribution rule for personal services

GC 14C Definitions for use in section GC 14B

GC 14D Attribution rule: calculation

GC 14E Attribution rule: exception

GC 14F Arrangement to avoid application of restrictive covenant rule

GC 14G Arrangement to avoid application of rules for returning share transfers

Fringe benefit tax

GC 15 Benefit given to associated person of employee

GC 16 Value of motor vehicle acquired from associated person

GC 17 Fringe benefit tax: general

GC 17B Fringe benefit tax: arrangement void

GC 18 Agreements not to make tax deductions to be void

GC 19 Resident withholding tax

GC 20 Agreements not to make resident withholding tax deductions to be void

Imputation

GC 21 Imputation continuity requirements

GC 22 Imputation: arrangement to obtain tax advantage

GC 23 Imputation: dividend paid by another company

GC 24 Application of specific imputation provisions to consolidated groups

GC 25 Avoidance of dividend withholding payments

GC 26 Arrangement to defeat application of branch equivalent tax account provisions

GC 27 Arrangement to defeat application of dividend withholding payment account provisions

GC 27A Arrangement to obtain tax advantage with respect to Maori authority credit account provisions (subpart MK)

Tax credits for family support and family plus

GC 28 Tax credits for family support and family plus

Arrangements involving money not at risk

GC 29 Application of sections GC 29 to GC 31

GC 30 Defined terms for sections GC 29 to GC 31

GC 31 Deferral of surplus deductions from arrangement

Subpart GD—Non-market transactions

Trading stock

GD 1 Sale or other disposal of trading stock for inadequate consideration

GD 2 Distribution of trading stock to shareholders of company [Repealed]

Remuneration

GD 3 Payment of excessive salary or wages, or allocation of excessive share of profits or losses, to relative employed by or in partnership with taxpayer

GD 4 Payments to taxpayer's spouse, civil union partner or de facto partner

GD 5 Excessive remuneration by close company to shareholder, director, or relative

Superannuation and life insurance

GD 6 Value of loans provided by superannuation fund deemed to be income of fund

GD 7 Distribution of property to policyholders

GD 8 Superannuation schemes

GD 10 Leases for inadequate rent

Other non-market transactions

GD 11 Financial arrangements rules

GD 12 Non-market transactions for incurring film production expenditure

GD 12A Film production expenditure if payments postponed or contingent

GD 12B Manipulation of arrangements to incur film production expenditure

GD 13 Cross-border arrangements between associated persons

GD 14 Attributing interests in FIFs

GD 15 Disposal of timber, or right to take timber, or standing timber to associated person

Subpart GE—Non-market transactions: specific

GE 1 New Zealand Raspberry Marketing Council

Subpart GZ—Terminating provisions

GZ 1 Pre-1974 agreements purporting to alter incidence of tax

Subpart GB—Avoidance: general

GB 1 Agreements purporting to alter incidence of tax to be void

(1) Where an arrangement is void in accordance with section BG 1, the amounts of assessable income, deductions, and available net losses included in calculating the taxable income of any person affected by that arrangement may be adjusted by the Commissioner in the manner the Commissioner thinks appropriate, so as to counteract any tax advantage obtained by that person from or under that arrangement, and, without limiting the generality of this subsection, the Commissioner may have regard to—
- (a) such amounts of assessable income, deductions, and available net losses as, in the Commissioner's opinion, that person would have, or might be expected to have, or would in all likelihood have, had if that arrangement had not been made or entered into; or
- (b) such amounts of assessable income and deductions as, in the Commissioner's opinion, that person would have had if that person had been allowed the benefit of all amounts of assessable income, or of such part of the assessable income, as the Commissioner considers proper, derived by any other person or persons as a result of that arrangement.
(2) Where any amount of assessable income or deduction is included in the calculation of taxable income of any person under subsection (1), then, for the purposes of this Act, that amount is not included in the calculation of the taxable income of any other person.
(2A) Without limiting the generality of the preceding subsections, if an arrangement is void in accordance with section BG 1 because, whether wholly or partially, the arrangement directly or indirectly relieves a person from liability to pay income tax by claiming a credit of tax, the Commissioner may, in addition to any other action taken under this section,—
- (a) disallow the credit in whole or in part; and
- (b) allow in whole or in part the benefit of the credit of tax for any other taxpayer.
(2B) For the purposes of subsection (2A), the Commissioner may have regard to the credits of tax which the taxpayer or another taxpayer would have had, or might have been expected to have had, if the arrangement had not been made or entered into.
(2C) In this section, credit of tax means the reduction or offsetting of the amount of tax a person must pay because—
- (a) credit has been allowed for a payment of any kind, whether of tax or otherwise, made by a person; or
- (b) of a credit, benefit, entitlement, or state of affairs.
(3) Without limiting the generality of subsections (1) and (2), section BG 1, or the definitions of arrangement, liability, tax avoidance, or tax avoidance arrangement in section OB 1, where, in any tax year, any person sells or otherwise disposes of any shares in any company under a tax avoidance arrangement under which that person receives, or is credited with, or there is dealt with on that person's behalf, any consideration (whether in money or money's worth) for that sale or other disposal, being consideration the whole or a part of which, in the opinion of the Commissioner, represents, or is equivalent to, or is in substitution for, any amount which, if that arrangement had not been made or entered into, that person would have derived or would derive, or might be expected to have derived or to derive, or in all likelihood would have derived or would derive, as dividends in that tax year, or in any subsequent tax year or years, whether in 1 sum in any of those years or in any other way, an amount equal to the value of that consideration, or of that part of that consideration, is deemed to be a dividend derived by that person in that first-mentioned tax year.

Compare: 1994 No 164 s GB 1

Subpart GC—Avoidance: specific

GC 1 Arrangement to defeat application of cross-border arrangement provision

GC 2 Arrangements to defeat application of net loss carry forward provisions

GC 3 Effect on continuity provisions of change in beneficiaries of trust

GC 4 Arrangement to defeat application of net loss offset provisions

GC 5 Arrangement to defeat application of qualifying company provisions

GC 6 Arrangement to defeat application of depreciation provisions

GC 7 Arrangements in respect of CFCs

GC 8 Arrangement to defeat application of CFC attributed repatriation provisions

GC 9 Variations in control or income interests in foreign companies

GC 10 Attributed CFC income and FIF income: arrangements in respect of elections

GC 11A Non-market transactions to acquire film rights

GC 11B Manipulation of arrangements to acquire film rights

GC 12 Petroleum mining

GC 14 Income of beneficiaries

GC 14A Sale or transfer of commercial bill to New Zealand resident

GC 14B Attribution rule for personal services

GC 14C Definitions for use in section GC 14B

GC 14D Attribution rule: calculation

GC 14E Attribution rule: exception

GC 14F Arrangement to avoid application of restrictive covenant rule

GC 14G Arrangement to avoid application of rules for returning share transfers

Fringe benefit tax

GC 15 Benefit given to associated person of employee

GC 16 Value of motor vehicle acquired from associated person

GC 17 Fringe benefit tax: general

GC 17B Fringe benefit tax: arrangement void

GC 18 Agreements not to make tax deductions to be void

GC 19 Resident withholding tax

GC 20 Agreements not to make resident withholding tax deductions to be void

Imputation

GC 21 Imputation continuity requirements

GC 22 Imputation: arrangement to obtain tax advantage

GC 23 Imputation: dividend paid by another company

GC 24 Application of specific imputation provisions to consolidated groups

GC 25 Avoidance of dividend withholding payments

GC 26 Arrangement to defeat application of branch equivalent tax account provisions

GC 27 Arrangement to defeat application of dividend withholding payment account provisions

GC 27A Arrangement to obtain tax advantage with respect to Maori authority credit account provisions (subpart MK)

Tax credits for family support and family plus

GC 28 Tax credits for family support and family plus

Arrangements involving money not at risk

GC 29 Application of sections GC 29 to GC 31

GC 30 Defined terms for sections GC 29 to GC 31

GC 31 Deferral of surplus deductions from arrangement

GC 1 Arrangement to defeat application of cross-border arrangement provision

Notwithstanding section GD 13(2), section GD 13 also applies to require the substitution of an arm's length amount of consideration in the case of an arrangement which has a purpose or effect in respect of any taxpayer of defeating the intent and application of that section (including, but without limiting the generality of this section, as a result of a collateral arrangement involving an associated person not resident in New Zealand, or another collateral arrangement such as a market sharing arrangement, an arrangement not to enter a particular market, a back-to-back supply arrangement, or an income sharing arrangement).

Compare: 1994 No 164 s GC 1

GC 2 Arrangements to defeat application of net loss carry forward provisions

Where any company (in this section referred to as the loss company) claims to carry forward the whole or any part of any net loss for any income year to any later income year and—
- (a) any shares in the loss company or in any other company have been subject to any arrangement or series of related or connected arrangements; or
- (b) any shares in the loss company or in any other company have had any rights attaching to them extinguished or altered, directly or indirectly by any means,—
in each case for the purpose, or for purposes including the purpose, of enabling the loss company to meet the requirements of section IF 1(1) so as to defeat the intent and application of sections IE 1 and IF 1, the loss company is, in relation to those shares, deemed not to have met those requirements.
Compare: 1994 No 164 s GC 2

GC 3 Effect on continuity provisions of change in beneficiaries of trust

(1) The provisions of this section apply only to modify the provisions of sections OD 3 and OD 4 for the purposes of the application of the continuity provisions.
(2) Where at any time—
- (a) any share in a company or option over a share in a company is held by a trustee; and
- (b) there is a change in the beneficiaries of the trust under an arrangement which has a purpose or effect of defeating the intent and application of any of the continuity provisions,—
the trustee is treated as having disposed of the share or option at that time to an unrelated third party and to have reacquired the share or option immediately thereafter.
Compare: 1994 No 164 s GC 3

GC 4 Arrangement to defeat application of net loss offset provisions

No offset is allowed under section IG 2(2) in calculating the taxable income of any company for any tax year where the Commissioner is of the opinion that any shares in that company or in any other company—
- (a) have been subject to any arrangement or series of related or connected arrangements; or
- (b) have had any rights attaching to them extinguished or altered, directly or indirectly, by any means,—
in either case for the purpose, or for purposes including the purpose, of enabling that first-mentioned company to meet the requirements of that subsection so as to defeat the intent and application of section IG 2.
Compare: 1994 No 164 s GC 4

GC 5 Arrangement to defeat application of qualifying company provisions

Where the Commissioner is of the opinion that at any time any shares in a company have been subject to any arrangement or series of related or connected arrangements for the purpose, or for purposes including the purpose, of making the company or any other company (the relevant company being in this section referred to as the specified company) a qualifying company so as to defeat the intent and application of subpart HG, the specified company is deemed not to be a qualifying company at that time.

Compare: 1994 No 164 s GC 5

GC 6 Arrangement to defeat application of depreciation provisions

If the Commissioner is of the opinion that at any time the assets of a taxpayer have been subject to any arrangement or series of connected arrangements for the purpose, or for purposes including the purpose, of allowing the taxpayer or any other taxpayer (the relevant taxpayer being in this section referred to as the specified taxpayer) a deduction for an amount of depreciation loss so as to defeat the intent or application of this Act, the specified taxpayer is denied such a deduction.

Compare: 1994 No 164 s GC 6

Section GC 6 was amended, as from 3 April 2006, by section 109(1)(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the word “If” for the words “For the purposes of sections EZ 16 to EZ 18 and FF 15, where” with application as from the income year corresponding to the 2005–06 tax year.

Section GC 6 was amended, as from 3 April 2006, by section 109(1)(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the words “a deduction for an amount of depreciation loss so” for the words “a deduction so” with application as from the income year corresponding to the 2005–06 tax year.

GC 7 Arrangements in respect of CFCs

Where in relation to any foreign company any 2 or more persons resident in New Zealand have entered into an arrangement by which any control interests in that foreign company are held by any other person or persons, which arrangement has the purpose or a purpose of preventing the foreign company from being a controlled foreign company, those control interests are deemed to be held by those persons resident in New Zealand divided equally among them.

Compare: 1994 No 164 s GC 7

GC 8 Arrangement to defeat application of CFC attributed repatriation provisions

For the purposes of sections CD 34 to CD 41, where and to the extent that—
- (a) any controlled foreign company enters into any loan or other arrangement (including a security arrangement) with any other person; and
- (b) the arrangement does not directly result in any person having any attributed repatriation in respect of the controlled foreign company; and
- (c) where, having regard to any connection between the parties to the loan or arrangement or to any other relevant circumstances, the parties were dealing with each other in relation to the loan or arrangement in a manner that has the purpose or effect of—
  - (i) directly or indirectly enabling any person (whether or not the person referred to in paragraph (a), and referred to in this paragraph as the investor) to enter into a loan or other arrangement (in this section referred to as the related arrangement), which, if entered into by the controlled foreign company, would have resulted in a person having attributed repatriation in respect of the controlled foreign company; and
  - (ii) defeating the intent and application of sections CD 34 to CD 41,—
the related arrangement is deemed to have been entered into by the controlled foreign company and not by the investor.
Compare: 1994 No 164 s GC 8

GC 9 Variations in control or income interests in foreign companies

(1) Where before the end of a quarter there is, in relation to any person and any foreign company, a variation in control or income interests that is attributable to an acquisition of control or income interests or a disposal of control or income interests by the person (in this subsection referred to as the variation), and within a period of 183 days after that variation there is a further variation in control or income interests that is attributable to a disposal of control or income interests or an acquisition of control or income interests by the person (in this subsection referred to as the subsequent variation), then if—
- (a) the variation reduces the person's control interest or income interest in the foreign company and the subsequent variation increases that person's control interest or income interest in the foreign company; or
- (b) the variation increases the person's control interest or income interest in the foreign company and the subsequent variation reduces that person's control interest or income interest in the foreign company,—
and, if it were not for the application of this subsection the effect of the variation would be that a greater amount of attributed CFC loss or a lesser amount of attributed CFC income or attributed repatriation would be attributed to the person, or to any person associated with the person, or, where the person is a controlled foreign company, to any person holding an income interest in the controlled foreign company, then if the variation and the subsequent variation are part of an arrangement the effect, or 1 of the effects, of which is to defeat the intent and application of the international tax rules, the variation, to the extent it was reversed by the subsequent variation, is deemed not to have occurred when calculating that person's control interest or income interest in the foreign company at the end of the quarter.
(2) Where before the end of a quarter there is, in relation to any person and any foreign company, a variation in control or income interests that is attributable to a reduction or increase in any of the foreign company aggregates (in this subsection referred to as the variation) and within a period of 365 days after the variation there is a further variation in control or income interests which is attributable to an increase or reduction in any of the foreign company aggregates (in this subsection referred to as the subsequent variation), then if—
- (a) the variation reduces the person's control interest or income interest in the foreign company and the subsequent variation increases that person's control interest or income interest in the foreign company; or
- (b) the variation increases the person's control interest or income interest in the foreign company and the subsequent variation reduces that person's control interest or income interest in the foreign company,—
and if it were not for the application of this subsection the effect of the variation would be that a greater amount of attributed CFC loss or a lesser amount of attributed CFC income or attributed repatriation would be attributed to the person, or to any person associated with the person, or, where the person is a controlled foreign company, to any person holding an income interest in the controlled foreign company, then if the variation and the subsequent variation are part of an arrangement the effect, or 1 of the effects, of which is to defeat the intent and application of the international tax rules, the variation, to the extent it was reversed by the subsequent variation, is deemed not to have occurred when calculating that person's control interest or income interest in the foreign company at the end of the quarter.
(3) Where before the end of a quarter there is, in relation to any person and any foreign company, a variation in control or income interests (in this subsection referred to as the variation) that is attributable to—
- (a) an acquisition of control or income interests or a disposal of control or income interests by the person; or
- (b) a reduction in any of the foreign company aggregates or an increase in any of the foreign company aggregates,—
and within a period of 365 days after the variation there is a further variation in control or income interests (in this subsection referred to as the subsequent variation) which is attributable,—
- (c) in any case where the variation was of the type specified in paragraph (a), to an increase in the foreign company aggregates or a reduction in the foreign company aggregates; or
- (d) in any case where the variation was of the type specified in paragraph (b), to an acquisition of control or income interests or a disposal of control or income interests by the person,—
and if it were not for the application of this subsection, the effect of the variation would be that a greater amount of attributed CFC loss or a lesser amount of attributed CFC income or attributed repatriation would be attributed to the person, or to any person associated with the person, or, where the person is a controlled foreign company, to any person holding an income interest in the controlled foreign company, then if the variation and the subsequent variation are part of an arrangement the effect, or 1 of the effects, of which is to defeat the intent and application of the international tax rules, the variation, to the extent it was reversed by the subsequent variation, is deemed not to have occurred when calculating that person's control interest or income interest in the foreign company at the end of the quarter.
(4) Subsections (1) and (3) do not apply where the person first mentioned in each of those subsections acquired a control interest or an income interest in a controlled foreign company from, or disposes of a control interest or income interest in a controlled foreign company to, a person who—
- (a) is at the time of the acquisition or disposal resident in New Zealand; and
- (b) is required to include as assessable income any attributed CFC income which that person might derive; and
- (c) has immediately prior to the acquisition or immediately after the disposition (as the case may be) an income interest of 10% or greater in that controlled foreign company.
(5) Nothing in this section is to be construed as limiting the circumstances in which a person is regarded as being entitled to acquire anything under section EX 6.

(6) For the purposes of the international tax rules, where a company resident in New Zealand becomes a foreign company and subsequently within 183 days becomes a company resident in New Zealand, that company is deemed to have been resident in New Zealand at all times during that period.
(7) In this section,—

acquisition of control or income interests means an acquisition directly or indirectly, and whether by 1 transaction or a series of transactions, by a person of any percentage of any of the things, or an entitlement to acquire any percentage of any of the things, listed in section EX 5(1) or EX 9(1)

disposal of control or income interests means a disposal directly or indirectly, and whether by 1 transaction or a series of transactions, by a person of any percentage of any of the things, or an entitlement to acquire any percentage of any of the things, listed in section EX 5(1) or EX 9(1)
foreign company aggregates, in relation to any foreign company, means the total of each of—
- (a) the available subscribed capital per share calculated under the slice rule of shares in the foreign company; or
- (b) the rights to vote or participate in any decision-making concerning the distributions to be made by that foreign company (not being decision-making undertaken by directors acting only in their capacity as directors), the constitution of that foreign company, any variation in the issued capital of the foreign company, or the appointment or election of directors of the foreign company; or
- (c) the rights to receive or have dealt with the income of the foreign company, if distributed; or
- (d) the rights to receive or have dealt with the net assets of the foreign company, if distributed
variation in control or income interests, in relation to any person, means any increase or reduction in the control interest or income interest of such person in a foreign company, whether by 1 transaction or a series of transactions, that is attributable to—
- (a) an acquisition of control or income interests; or
- (b) a disposal of control or income interests; or
- (c) a reduction in any of the foreign company aggregates; or
- (d) an increase in any of the foreign company aggregates.
Compare: 1994 No 164 s GC 9

GC 10 Attributed CFC income and FIF income: arrangements in respect of elections

Notwithstanding sections EX 27(3) and EX 42(5), where—
- (a) an income interest in a controlled foreign company or an attributing interest in a foreign investment fund is transferred from 1 person to an associated person on or more occasions; and
- (b) the associated persons enter into an arrangement with respect to making or not making—
  - (i) the election referred to in section EX 27(3); or
  - (ii) the election referred to in section EX 42(5); or
  - (iii) any combination of 2 or more such elections; and
- (c) the arrangement has an effect of defeating the intent and application of the international tax rules,—
the Commissioner may deem any 1 or more of such elections to have been made or not made to the extent appropriate to prevent the arrangement having such effect.
Compare: 1994 No 164 s GC 10

GC 11A Non-market transactions to acquire film rights

(1) A person must reduce the deduction allowed to them under section DS 1 for expenditure incurred in acquiring a film right, in accordance with subsection (2), if—
- (a) the Commissioner considers that the person (person A) and the person from whom the film right was acquired (person B) were not dealing with each other at arm's length in relation to the acquisition; and
- (b) the amount of the expenditure incurred by person A in acquiring the film right is more than the market value of the film right at the time it was acquired by person A.
(2) If subsection (1) applies, the deduction must be reduced to an amount equal to the market value of the film right at the time it was acquired by person A.

(3) If person A acquires only a share of a film right, this section applies only to the part of the total market value of the film right that is attributable to that share.

Compare: 1994 No 164 s GC 11(3)

GC 11B Manipulation of arrangements to acquire film rights

If the Commissioner considers that 2 persons have made arrangements so that section DS 1, EJ 4, or EJ 5 applies more favourably in relation to a person in an income year than it would have applied without the arrangements,—
- (a) the deduction allowed to the person under section DS 1 must be reduced to the amount that the Commissioner considers would have been allowed if the arrangements had not been made:
- (b) the deduction allocated under section EJ 4 or EJ 5 must be allocated to the income year to which the Commissioner considers it would have been allocated if the arrangements had not been made.
Compare: 1994 No 164 s GC 11(4)

GC 12 Petroleum mining

(1) Without limiting the provisions of sections BG 1, GB 1, and GZ 1, where the Commissioner considers that any arrangement consisting of—
- (a) a disposal of any petroleum mining asset on or after 1 July 1992, together with any related arrangements (if any); or
- (b) the incurring of petroleum exploration expenditure on or after 1 July 1992, together with any related arrangements (if any); or
- (c) a farm-out arrangement entered into on or after 16 December 1991, together with any related arrangements (if any),—
has the effect or has been entered into for a purpose of tax avoidance, the Commissioner may, in accordance with section GB 1, adjust the taxable income of any person affected by the arrangement so as to counteract any tax advantage obtained by that person.
(2) Without limiting the generality of subsection (1), and for the purposes of that subsection, an arrangement having the effect of tax avoidance includes—
- (a) an arrangement involving the disposal, on or after 1 July 1992, of any petroleum mining asset where it is probable at the time the arrangement is entered into that the person acquiring the petroleum mining asset—
  - (i) will through a related arrangement, whether in relation to an associated person or otherwise, not have to suffer the whole or part of the expenditure of acquiring the petroleum mining asset; or
  - (ii) will be (or has been or is) effectively compensated in some way for the whole or part of that expenditure:
- (b) an arrangement involving the incurring, on or after 1 July 1992, of petroleum exploration expenditure where it is probable at the time the arrangement is entered into that the person who is to incur the petroleum exploration expenditure—
  - (i) will through a related arrangement, whether in relation to an associated person or otherwise, not have to suffer the whole or part of the petroleum exploration expenditure; or
  - (ii) will be (or has been or is) effectively compensated in some way for whole or part of the petroleum exploration expenditure:
- (c) an arrangement, involving a farm-out arrangement entered into on or after 16 December 1991, where it is probable at the time the arrangement is entered into that—
  - (i) the farm-in party will through a related arrangement, whether in relation to an associated person or otherwise, not have to suffer the whole or part of the farm-in expenditure attributable to the proportionate interest acquired by the farm-in party under the farm-out arrangement; or
  - (ii) the farm-in party or an associated person will be (or has been or is) effectively compensated in some way for the whole or part of that farm-in expenditure:
- (d) an arrangement by which a petroleum miner disposes of a petroleum mining asset to an associated person on or after 1 July 1992 for the purpose, or for purposes including the purpose, of ensuring that the associated person secures the benefit of a greater deduction than that which would have been allowed if the asset had been disposed of for its market value:
- (e) an arrangement by which a petroleum miner enters into a farm-out arrangement with an associated person on or after 16 December 1991 for the purpose, or for purposes including the purpose, of ensuring that the associated person receives the benefit of a greater deduction than would have been allowed if the farm-out arrangement had been entered into on substantially the same terms as those on which it would have been entered into with a person not associated with the petroleum miner.
(3) This section applies with any necessary modifications to a petroleum miner who undertakes petroleum mining operations that are—
- (a) outside New Zealand and undertaken through a branch or a controlled foreign company; and
- (b) substantially the same as the petroleum mining activities governed by this Act.
(4) For the purposes of this section, a partner is treated as having a share or interest in a petroleum permit or other property of a partnership to the extent of their income interest in the partnership.

(5) For the purposes of this section, references to the disposal of an asset apply equally to the disposal of part of an asset.

Compare: 1994 No 164 ss DM 7, DM 9, DM 10, GC 12

GC 14 Income of beneficiaries

(1) Where, in relation to any trust and any beneficiary, any arrangement has been entered into under which property is transferred, or services or other benefits are provided by the trustee to a person other than that beneficiary, which arrangement has the effect in relation to that beneficiary of defeating the intent and application of section HH 3, that property and those services or benefits are deemed for the purposes of that section to be received or enjoyed by that beneficiary.

(2) This section does not apply to a Maori authority.

Compare: 1994 No 164 s GC 14

GC 14A Sale or transfer of commercial bill to New Zealand resident

(1) A person who redeems a commercial bill derives income from the redemption payment if—
- (a) a non-resident, not being a person who has become a party to a commercial bill for the purpose of carrying on business through a fixed establishment in New Zealand, sells or transfers the commercial bill to the person; and
- (b) the person is a resident or a non-resident who has become a party to the commercial bill for the purpose of carrying on business through a fixed establishment in New Zealand; and
- (c) the sale or transfer has the purpose of avoiding non-resident withholding tax or the approved issuer levy.
(2) A person who does not redeem the commercial bill but otherwise satisfies subsection (1) is treated as having redeemed the bill.
(3) Subsection (1) does not apply to a commercial bill issued by—
- (a) a person who is resident in New Zealand, if the money lent for the bill is used by the person in a business carried on through a fixed establishment outside New Zealand; or
- (b) a person who is not resident in New Zealand, unless the money lent for the bill is used by the person in a business carried on through a fixed establishment in New Zealand.
Compare: 1994 No 164 s GC 14A

GC 14B Attribution rule for personal services

(1) If, during a tax year, a person (person A) purchases services from another person (person B) and the services are personally performed by a third person (person C), who is associated with person B, an amount must be attributed by person B to person C in accordance with section GC 14D in the same tax year.
(2) Subsection (1) applies if—
- (a) 80% or more of person B's total assessable income from personal services during the tax year is derived from the sale of services to person A or a person associated with person A; and
- (b) 80% or more of person B's total assessable income from personal services during the tax year is derived through services personally performed by person C or a relative of person C; and
- (c) person C's net income for the tax year in which an attribution would be made is more than $60,000; and
- (d) substantial business assets are not a necessary part of the business structure that is used to derive the total assessable income referred to in paragraph (a).
(3) Subsection (1) does not apply—
- (a) if person B and person C are both non-residents during all of person B's tax year:
- (ab) if person B is a natural person and is not a partner of a partnership:
- (b) to the extent that the services personally performed by person C are essential support for a product supplied by person B.
Compare: 1994 No 164 s GC 14B

GC 14C Definitions for use in section GC 14B

(1) This section applies for the purposes of section GC 14B.

(2) A person is treated as being associated with another person if the person would be treated as being associated under section OD 7 or OD 8(3) at the time the services are personally performed by person C.
(3) A person is not treated as being associated with another person under subsection (2) if—
- (a) both persons are public authorities:
- (b) person C cannot be reasonably expected to know that a particular person A is associated with another person A, other than by making a specific enquiry.
(4) For the purposes of section GC 14B(2)(b), a relative of person C must be a relative at the beginning of person C's tax year.

(5) For the purposes of section GC 14B(2)(c), person C's total assessable income includes the taxable value of a fringe benefit provided or granted by a person associated with person C.
(6) Substantial business assets means depreciable property that—
- (a) on person B's balance date, costs more than $75,000, or 25% or more of person B's total assessable income from services for the tax year; and
- (b) is not for private use or enjoyment.
(7) For the purposes of subsection (6)(a), the cost of depreciable property includes the cost price of property subject to a specified lease or the lessee's acquisition cost of property subject to a finance lease or a hire purchase agreement.

(8) Subsection (6)(b) does not apply to depreciable property if 20% or less of the property's use is for private use or enjoyment.
(9) For the purposes of subsection (8), 20% of a property's use is calculated according to—
- (a) the proportion that the number of days for which fringe benefit tax is payable in respect of the property bears to the total number of days in the tax year in which the property is owned or is subject to a specified lease, finance lease, or a hire purchase agreement, if the property is subject to the FBT rules:
- (b) the proportion that the expenditure incurred in respect of the property, for which a deduction is denied, bears to all expenditure incurred in respect of the property in the tax year if the property is not subject to the FBT rules.
Compare: 1994 No 164 s GC 14C

GC 14D Attribution rule: calculation

(1) Person B must attribute to person C in a tax year the lesser of the following amounts:
- (a) person B's net income for the tax year, calculated as if their only income were derived from personal services; and
- (b) person B's net income for the tax year; and
- (c) if person B is a company or a trust that has a net loss available for carry forward under section IE 1 that arises only from a business or a trading activity of selling personal services, person B's net income for the tax year, offset by any net loss carried forward from a previous tax year, as allowed by section IE 1.
(2) For the purpose of calculating person B's net income for the tax year under subsection (1),—
- (a) if person B is a trustee of a trust, the trustees are treated as not having made a distribution to a beneficiary during the tax year or before the end of 6 months after the end of the tax year:
- (b) if person B is a partnership, person B is treated as a taxpayer and section HD 1(1)(b) does not apply.
(3) For the purpose of calculating person B's net income for the tax year under subsection (1)(a),—
- (a) person B is allowed a deduction for employment income paid to person C during the tax year:
- (b) person B is allowed a deduction for the taxable value of a fringe benefit provided or granted by person B to person C during the tax year and the fringe benefit tax payable on the fringe benefit.
(4) Person B's net income for the tax year, as calculated after applying subsections (2) and (3), is reduced by,—
- (a) in the case of a trustee of a trust, the amount of beneficiary income derived by person C from the trust in the tax year:
- (b) in the case of a partnership, the share of profits allocated by the partnership to person C:
- (c) in the case of a company, any dividends paid—
  - (i) by person B to person C during the tax year or before the end of 6 months after the end of the tax year; and
  - (ii) from income derived in the tax year.
(5) If person B is a partnership that receives administrative services from another person related to their income from personal services and has not paid for the administrative services, the amount to be attributed to person C must be reduced by the market value of the administrative services provided by the other person.

(6) If a reduction required under subsection (4) results in a negative amount, an amount is not attributable.
(7) If person B is a trust and the amount attributable would cause the trust to have a net loss for the tax year, the trust's beneficiary income for the tax year must be reduced so that the trust's taxable income for the tax year is zero, and the amount of beneficiary income distributed to beneficiaries other than person C must be reduced—
- (a) according to proportions determined by the trust's trustees:
- (b) if paragraph (a) does not apply, by the amount of the reduction, according to the proportion the beneficiary income distributed bears to total beneficiary income.
(8) If the amount attributable is to be attributed to more than 1 person C, the amount attributed to each person C must reflect the value of the services personally performed by each person C respectively.

Compare: 1994 No 164 s GC 14D

GC 14E Attribution rule: exception

(1) Sections GC 14B and GC 14D do not apply if the amount to be attributed by person B to person C is less than $5,000.

(2) If there is more than 1 person selling the services that are personally performed by the same person C, subsection (1) may be applied in respect of person C once only.

Compare: 1994 No 164 s GC 14E

GC 14F Arrangement to avoid application of restrictive covenant rule

(1) If a person enters into an arrangement that has an effect of avoiding section CE 9, the Commissioner may, despite the arrangement, treat—
- (a) an amount, or part of an amount, under the arrangement as an amount to which section CE 9 applies; and
- (b) a person affected by the arrangement as the person who gave the undertaking referred to in section CE 9(1).
(2) In this section, a collateral arrangement to dispose of property may be part of an arrangement.

Compare: 1994 No 164 s GC 14F

GC 14G Arrangement to avoid application of rules for returning share transfers

If a person enters into an arrangement that has an effect of avoiding a requirement of the definition of returning share transfer in section OB 1 so as to defeat the intention and application of this Act, the Commissioner may, despite the arrangement, treat—
- (a) the arrangement as a returning share transfer; and
- (b) a person affected by the arrangement as a share user or a share supplier, under the returning share transfer.
Section GC 14G was inserted, as from 1 July 2006, by section 110 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Fringe benefit tax

GC 15 Benefit given to associated person of employee

(1) For the purposes of the FBT rules, where any benefit which, if it were provided for or granted to an employee would be a fringe benefit, is provided or granted by the employer of the employee, or is provided or granted by another person with whom the employer of the employee has entered into an arrangement for the providing or granting of that benefit, for or to a person other than the employee of the employer, the employee of the employer and the other person being associated persons, that benefit is deemed to be a benefit provided for or granted to the employee by the employer of the employee.
(2) Subsection (1) does not apply to deem a benefit provided or granted by an employer (being a company) to an associated person of any employee to be a benefit provided or granted to the employee where and to the extent that—
- (a) the employee is also a shareholder in the company; and
- (b) the associated person is a company; and
- (c) the Commissioner is satisfied that the benefit is not provided or granted under an arrangement which has a purpose of providing or granting a benefit to the employee—
  - (i) in lieu of employment income; or
  - (ii) free from the application of fringe benefit tax.
(3) For the purposes of the FBT rules and notwithstanding section CX 4, an associated person is deemed to be an employee of an employer and a benefit is deemed to be a fringe benefit subject to fringe benefit tax where—
- (a) the employer is a company; and
- (b) the employer provides or grants a benefit, or has entered into an arrangement with another person for the providing or granting of that benefit, for or to an associated person of an employee; and
- (c) the person associated with the employee is also an associated person of a shareholder in the company; and
- (d) the associated person is not a company; and
- (e) the associated person is not an employee or shareholder in the company except to the extent this section deems otherwise; and
- (f) the benefit is of a kind that would be a fringe benefit under the FBT rules were it provided or granted for or to the employee; and
- (g) the benefit is of a kind that would be a dividend were it provided or granted for or to the shareholder.
(4) Subsection (3) does not apply for the purposes of sections ND 5 and ND 6, which require calculations of fringe benefit tax on attributed and non-attributed fringe benefits respectively.

Compare: 1994 No 164 s GC 15

GC 16 Value of motor vehicle acquired from associated person

For the purposes of schedule 2, part A,—
- (a) in any case where, in any quarter, or (where fringe benefit tax is payable on an income year basis under section ND 14) income year, any motor vehicle, being a motor vehicle acquired by a person on or after 23 September 1985 (that acquisition being referred to in this subsection as the specified acquisition), is owned by the person and has, within the period of 24 consecutive months immediately preceding the day on which the specified acquisition occurred, been owned by the person, or by any other person where the person and the other person are associated persons, the cost price of the motor vehicle to the person is deemed to be an amount equal to the higher, or the highest, of the cost prices for which the motor vehicle has, subsequent to its manufacture, been acquired by the person or the other person:
- (b) subject to paragraph (a), where, in relation to any motor vehicle and to any acquisition of the vehicle by any person,—
  - (i) the motor vehicle was acquired by that person at no cost; or
  - (ii) the cost price of the motor vehicle to that person was, in the opinion of the Commissioner, less than the amount of the market value of the motor vehicle on the date of the acquisition of it by that person, and the Commissioner is satisfied that the cost price would not have been so less but for an arrangement entered into, for the purpose of defeating the intent and application of the FBT rules, between that person and any other person (that person and that other person being associated persons); or
  - (iii) the cost price in relation to that acquisition is for any reason unable to be established by that person to the satisfaction of the Commissioner,—
the cost price, in relation to that acquisition, is deemed to be an amount equal to the amount which the Commissioner is satisfied was the market value of the motor vehicle on the date of that acquisition.
Compare: 1994 No 164 s GC 16

GC 17 Fringe benefit tax: general

Where the Commissioner is satisfied that an arrangement has been entered into between persons and a purpose or effect of the arrangement (not being a merely incidental purpose or effect) is to defeat the intent and application of the FBT rules, or of any provision of the FBT rules, the Commissioner may, notwithstanding the arrangement, deem—
- (a) a person who is a party to that arrangement (that person being referred to in this section as the participant) to be the employer in relation to such other person or such other persons as the Commissioner specifies by notice to the participant; and
- (b) any person so specified to be, in relation to the participant, an employee (that person being referred to in this section as the deemed employee); and
- (c) any benefit that—
  - (i) is obtained by the deemed employee and is provided or granted by the participant; or
  - (ii) the deemed employee would have, or might be expected to have, or would in all likelihood have, obtained if that arrangement had not been made or entered into,—
  to be a benefit provided or granted by the participant to the deemed employee by virtue of the employment of the deemed employee,—
for the purposes of the FBT rules; and the FBT rules apply accordingly throughout such period or periods (each being a period during which that arrangement is in force) as the Commissioner determines.
Compare: 1994 No 164 s GC 17

GC 17B Fringe benefit tax: arrangement void

(1) If an arrangement is void under section BG 1, the amount of excluded income under section CX 3 of a person affected by the arrangement may be adjusted by the Commissioner in the manner the Commissioner thinks appropriate, so as to counteract any tax advantage obtained by that person from or under the arrangement, and without limiting the generality of this subsection, the Commissioner may have regard to—
- (a) the amount of excluded income as, in the Commissioner's opinion, the person would have, or might be expected to have, or would in all likelihood have, had if the arrangement had not been made or entered into; or
- (b) the amount of excluded income as, in the Commissioner's opinion, the person would have had if they had been allowed the benefit of some or all of the excluded income, as the Commissioner considers proper, derived by any other person or persons as a result of the arrangement.
(2) If an amount of excluded income is included in the income of a person under subsection (1), then, for the purposes of this Act, that amount is not included in the income of any other person.

Section GC 17B was inserted, as from 1 April 2006, by section 111(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3). See section 111(2) of that Act as to the application of this amendment for a person and a period beginning on or after 1 April 2006 for which the person or the person's employer is required to forward a return to the Commissioner under subpart ND (Fringe benefit tax).

Deductions

GC 18 Agreements not to make tax deductions to be void

Where a tax deduction or combined tax and earner premium deduction or combined tax and earner levy deduction is required to be made under the PAYE rules and, where applicable, section 115 of the Accident Rehabilitation and Compensation Insurance Act 1992 or section 285 of the Accident Insurance Act 1998 or section 221 of the Injury Prevention, Rehabilitation, and Compensation Act 2001, any agreement not to make the deduction in accordance with those rules or that section 115 or that section 285 or that section 221 is void.

Compare: 1994 No 164 s GC 18

GC 19 Resident withholding tax

Without limiting the generality of section NF 13, section GB 1(1) applies as if—
- (a) the words “amounts of assessable income, deductions, and available net losses included in calculating the taxable income” in subsection (1) were replaced by the words “liability to resident withholding tax”; and
- (b) the words “assessable income, deductions, and available net losses” in subsection (1)(a) were replaced by the words “resident withholding income”; and
- (c) the words “assessable income and deductions as, in the Commissioner's opinion, that person would have had if that person had been allowed the benefit of all amounts of assessable income, or of such part of the assessable income” in subsection (1)(b) were replaced by the words “resident withholding income as, in the Commissioner's opinion, that person would have had, if that person had been allowed the benefit of all amounts of resident withholding income, or such part of the resident withholding income”.
Compare: 1994 No 164 s GC 19

GC 20 Agreements not to make resident withholding tax deductions to be void

Where a resident withholding tax deduction is required to be made under the RWT rules, any agreement not to make the tax deduction in accordance with those rules is void.

Compare: 1994 No 164 s GC 20

Imputation

GC 21 Imputation continuity requirements

For the purposes of section ME 5(1)(i), where—
- (a) any shares in the company or in any other company have been subject to any arrangement or series of related or connected arrangements; or
- (b) any shares in the company or in any other company have had any rights attaching to them extinguished or altered, directly or indirectly, by any means,—
in each case for the purpose, or for purposes including the purpose, of enabling the company to meet the requirements of section ME 5(1)(i) so as to defeat its intent and application, the company, in relation to those shares, is deemed not to have met those requirements.
Compare: 1994 No 164 s GC 21

GC 22 Imputation: arrangement to obtain tax advantage

(1) For the purposes of this section, there is an arrangement to obtain a tax advantage where—
- (a) there is an arrangement for the sale or other disposition of shares or issue of shares where—
  - (i) any person who is a party to the arrangement might reasonably have anticipated that a dividend would be paid in respect of the shares in any income year; and
  - (ii) any person who is a party to the arrangement might reasonably have anticipated that an imputation credit or a dividend withholding payment credit would be attached to the dividend; and
  - (iii) any person who is a party to the arrangement might reasonably expect—
    - (A) that a party to the arrangement will be able to obtain a tax advantage in relation to any such imputation credit or dividend withholding payment credit; or
    - (B) that a party to the arrangement will not be able to obtain a tax advantage in relation to any such imputation credit or dividend withholding payment credit; and
  - (iv) the purpose, not being an incidental purpose, of the arrangement is that a party to the arrangement would obtain any such tax advantage; or
- (b) in respect of any 1 or more distributions (including bonus issues) by a company, whether occurring in the same imputation year or over more than 1 imputation year, the company streams the payment of dividends, or the attachment of imputation credits or dividend withholding payment credits or both to any dividends, in such a way as will give higher credit values to persons who will obtain a tax advantage from them than to persons who will not so obtain a tax advantage or who may reasonably be expected to derive a lesser benefit from any tax advantage.
(2) For the purposes of subsection (1)(b), a dividend paid by a company is deemed to have a higher credit value than another dividend where any of the following applies:
- (a) the dividend has an imputation credit attached to it, and the other dividend does not:
- (b) the imputation ratio of the dividend is higher than that of the other dividend:
- (c) the dividend has a dividend withholding payment credit attached to it, and the other dividend does not:
- (d) the dividend withholding payment ratio of the dividend is higher than that of the other dividend:
- (e) the dividend has both an imputation credit and a dividend withholding payment credit attached to it, and the other dividend has no such credit or only 1 such type of credit attached:
- (f) the combined imputation and dividend withholding payment ratio of the dividend is greater than that of the other dividend.
(3) Where the Commissioner determines that there is an arrangement to obtain a tax advantage, the Commissioner may—
- (a) determine whether the arrangement gives rise to an account advantage, a tax credit advantage, or both:
- (b) determine, in the case of any arrangement within the meaning of subsection (1)(b) to which any person (other than the company referred to in that paragraph) is a party, which of subsections (4) and (5) should apply:
- (c) determine the amount of the imputation credit or dividend withholding payment credit the subject of the arrangement:
- (d) determine the imputation year in which the arrangement occurred or commenced (being the year in which the Commissioner considers that the first reasonably identifiable step towards implementation of the arrangement occurred).
(4) Where the Commissioner determines that there is an arrangement within the meaning of subsection (1)(a), or determines that there is an arrangement within the meaning of subsection (1)(b) and that this subsection should apply to that arrangement, the following provisions apply:
- (a) any person who, but for this paragraph, would obtain a tax credit advantage from the arrangement is not entitled in respect of the arrangement to a credit of tax under section LB 2 or LD 8 or to a refund under section LD 9 (as the case may be); and
- (b) there arises a debit to the imputation credit account or the dividend withholding payment credit account (as the case may be) of any company that, but for this paragraph, would obtain an account advantage from the arrangement; and
- (c) the amount of the credit of tax or refund to which the person referred to in paragraph (a) is not entitled and the amount which arises as the debit referred to in paragraph (b) is in each case an amount equal to the amount of the imputation credit or the dividend withholding payment credit determined under subsection (3)(c) to be the subject of the arrangement; and
- (d) any debit arising under paragraph (b) is a debit that arises in the imputation year determined under subsection (3)(d) to be that in which the arrangement occurred or commenced.
(5) Where there is an arrangement within the meaning of subsection (1)(b) to which no person other than the company referred to in that paragraph is a party, or where the Commissioner determines that there is an arrangement within the meaning of that paragraph and that this subsection should apply in respect of that arrangement, the following provisions apply:
- (a) there arises a further debit to the imputation credit account or the dividend withholding payment account of the company referred to in subsection (1)(b); and
- (b) the amount of that further debit is an amount equal to the amount of the imputation credit or the dividend withholding payment credit determined under subsection (3)(c) to be the subject of the arrangement; and
- (c) the further debit is a debit that arises in the imputation year determined under subsection (3)(d) to be that in which the arrangement occurred or commenced; and
- (d) to the extent to which this subsection applies to the arrangement, subsection (4) does not apply to the arrangement.
(6) As soon as is convenient after a determination is made in relation to a company under subsection (3) (in this section referred to as a determination of tax advantage arrangement debit), the Commissioner must give notice of the determination to the company in respect of whose imputation credit account or dividend withholding payment account the determination is made.

(7) A notice may be included in a notice of assessment made under section 111(1) of the Tax Administration Act 1994, or a determination under either section ME 40 or MG 12.

(8) An omission to give the notice referred to in subsection (6) does not invalidate the determination of tax advantage arrangement debit.
(9) In this section,—
account advantage means—
- (a) the arising of a credit to an imputation credit account in accordance with section ME 4; or
- (b) the arising of a credit to a dividend withholding payment account in accordance with section MG 4
tax credit advantage means—
- (a) the allowance, in whole or in part, of a credit of tax in accordance with section LB 2:
- (b) the allowance, in whole or in part, of a credit of tax in accordance with section LD 8, or the obtaining of a refund of dividend withholding payment under section LD 9.
Compare: 1994 No 164 s GC 22

Subsection (4)(b) was amended, as from 1 October 2005, by section 61(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by omitting the words “both a tax credit advantage and” with application for arrangements entered on or after 16 November 2004.

GC 23 Imputation: dividend paid by another company

(1) Where, in relation to a company and a shareholder of the company, there is an arrangement entered into for the purpose, or for purposes including the purpose, that—
- (a) the shareholder or, where the shareholder is a trustee in relation to the share or shares held, any beneficiary of that trust, or any person associated with either the shareholder or any such beneficiary, may be paid a dividend by another company, whether directly or indirectly by any means whatever; or
- (b) the shareholder or, where the shareholder is a trustee in relation to the share or shares held, any beneficiary of that trust, or any person associated with either the shareholder or any such beneficiary, may acquire any shares in another company so that the other company may pay a dividend to the shareholder or the beneficiary or the associated person, whether directly or indirectly by any means whatever,—
any dividend paid to the shareholder or, as the case may be, the beneficiary or associated person by that other company under the arrangement is, for the purposes of the imputation rules, deemed to be a dividend paid by the company.
(2) For the purposes of the imputation rules, the amount of any imputation credit attached to a dividend to which subsection (1) applies—
- (a) does not constitute income of the shareholder or, as the case may be, the beneficiary or associated person:
- (b) is not treated as an imputation credit for the purposes of section LB 2:
- (c) notwithstanding anything in subsection (1), is a debit in accordance with section ME 5(1)(a) to the imputation credit account of the company that is deemed by subsection (1) to have paid the dividend.
Compare: 1994 No 164 s GC 23

GC 24 Application of specific imputation provisions to consolidated groups

(1) Section GC 23(2) applies in any case where the company deemed by section GC 23(1) to have paid a dividend is at the time of payment a member of a consolidated group as if the reference to section ME 5(1)(a) were a reference to section ME 12(1)(a).
(2) Section GC 22 applies, with any necessary modifications, in any case which involves accounts of a consolidated group, as if—
- (a) the consolidated group were a single company; and
- (b) references to provisions of this Act were references to the equivalent provisions applicable to such equivalent accounts.
Compare: 1994 No 164 s GC 24

GC 25 Avoidance of dividend withholding payments

Where the Commissioner is satisfied that an arrangement has been entered into between persons for the purpose of, or for purposes including the purpose of, avoiding the application of the dividend withholding payment rules or of any provision of those rules, the Commissioner may, notwithstanding the arrangement, deem a payment or part of a payment that is the subject of the arrangement to be a foreign withholding payment dividend for the purposes of those rules.

Compare: 1994 No 164 s GC 25

GC 26 Arrangement to defeat application of branch equivalent tax account provisions

For the purposes of section MF 4(1)(e) and (3)(d), where—
- (a) any shares in the company or in any other company have been subject to any arrangement or series of related or connected arrangements; or
- (b) any shares in the company or in any other company have had any rights attached to them extinguished or altered, directly or indirectly, by any means whatever,—
in each case for the purpose, or for purposes including the purpose, of enabling the company to meet the requirements of either section MF 4(1)(e) and (3)(d) so as to defeat its intent and application, the company, in relation to those shares, is deemed not to have met those requirements.
Compare: 1994 No 164 s GC 26

GC 27 Arrangement to defeat application of dividend withholding payment account provisions

For the purposes of section MG 5(1)(i), where—
- (a) any shares in the company or in any other company have been subject to any arrangement or series of related or connected arrangements; or
- (b) any shares in the company or in any other company have had any rights attaching to them extinguished or altered, directly or indirectly, by any means whatsoever,—
in each case for the purpose, or for purposes including the purpose, of enabling the company to meet the requirements of section MG 5(1)(i) so as to defeat its intent and application, the company, in relation to those shares, is deemed not to have met those requirements.
Compare: 1994 No 164 s GC 27

GC 27A Arrangement to obtain tax advantage with respect to Maori authority credit account provisions (subpart MK)

(1) For the purposes of this section, there is an arrangement to obtain a tax advantage if the arrangement is for the sale or other disposition of shares or the issue of shares in a Maori authority that is a company and—
- (a) a party to the arrangement might reasonably have anticipated that a taxable Maori authority distribution would be made in respect of the shares in an income year; and
- (b) a party to the arrangement might reasonably have anticipated that a Maori authority credit would be attached to the distribution; and
- (c) a party to the arrangement might reasonably expect that the party will, or will not, be able to obtain a tax advantage in relation to the Maori authority credit; and
- (d) the purpose, not being an incidental purpose, of the arrangement is that a party to the arrangement would obtain a tax advantage.
(2) For the purposes of this section, there is an arrangement to obtain a tax advantage if in respect of any 1 or more taxable Maori authority distributions by a Maori authority, whether occurring in the same imputation year or over more than imputation year, the Maori authority streams the distributions, or the attachment of Maori authority credits to distributions, in such a way as will give higher credit values to members who will obtain a tax advantage from them than to members who will not so obtain a tax advantage or who may reasonably be expected to derive a lesser benefit from any tax advantage.
(3) For the purposes of subsection (2), a taxable Maori authority distribution by a Maori authority is treated as having a higher credit value than another distribution if—
- (a) the taxable Maori authority distribution has a Maori authority credit attached to it, and the other distribution does not; or
- (b) the base ratio of the taxable Maori authority distribution is higher than that of the other distribution.
(4) If the Commissioner determines that there is an arrangement to obtain a tax advantage, the Commissioner may—
- (a) determine whether the arrangement gives rise to an account advantage, a tax credit advantage, or both; or
- (b) in the case of an arrangement described in subsection (2) to which a person, other than the Maori authority, is a party, determine whether subsection (5) or (6) should apply; or
- (c) determine the amount of the Maori authority credit that is the subject of the arrangement; or
- (d) determine the imputation year in which the arrangement occurred or commenced, being the year in which the Commissioner considers that the first reasonably identifiable step towards implementation of the arrangement occurred.
(5) If the Commissioner determines that there is an arrangement to obtain a tax advantage and that this subsection should apply, the following provisions apply:
- (a) a member who, but for this paragraph, would obtain a tax credit advantage from the arrangement is not entitled to a credit of tax under section LD 3A; and
- (b) a debit arises to the Maori authority credit account of a Maori authority that, but for this paragraph, would obtain both a tax credit advantage and an account advantage from the arrangement; and
- (c) the amount of the credit of tax or refund to which the member is not entitled and the debit that arises must both be the same amount as the Maori authority credit determined under subsection (4)(c) to be the subject of the arrangement; and
- (d) the debit arises in the imputation year determined under subsection (4)(d) to be that in which the arrangement occurred or commenced.
(6) If the Commissioner determines that there is an arrangement to obtain a tax advantage to which subsection (2) applies and to which only the Maori authority referred to in that subsection is a party, or if the Commissioner determines that there is an arrangement within the meaning of that subsection and that this subsection should apply in respect of the arrangement, the following provisions apply:
- (a) a further debit arises to the Maori authority's Maori authority credit account; and
- (b) the further debit is equal to the amount of the Maori authority credit determined under subsection (4)(c) to be the subject of the arrangement; and
- (c) the further debit arises in the imputation year determined under subsection (4)(d) to be that in which the arrangement occurred or commenced; and
- (d) to the extent to which this subsection applies to the arrangement, subsection (5) does not apply to the arrangement.
(7) As soon as is convenient after a determination is made, the Commissioner must give notice of the determination to the Maori authority in respect of whose Maori authority credit account the determination is made.

(8) A notice may be included in a notice of assessment under section 111(1) of the Tax Administration Act 1994, or a determination under section MK 9.

(9) Failure to give notice does not invalidate the Commissioner's determination.

(10) In this section,—

account advantage means the arising of a credit to a Maori authority credit account in accordance with section MK 4

tax credit advantage means the allowance, in whole or in part, of a credit of tax in accordance with section LD 3A.

Compare: 1994 No 164 s GC 27B

Tax credits for family support and family plus

GC 28 Tax credits for family support and family plus

If the Commissioner is satisfied that arrangements have been made between a person and another person with a view to the affairs of those persons being arranged or conducted so that subpart KD would, but for this section, have effect more favourably for that person than would otherwise have been the case, the amount of a credit of tax to which that person is entitled under subpart KD may not be more than the amount of the credit of tax to which the person would, in the Commissioner's opinion, have been entitled if those arrangements had not been made.

Compare: 1994 No 164 s GC 28

Arrangements involving money not at risk

GC 29 Application of sections GC 29 to GC 31

(1) This section and sections GC 30 and GC 31 apply to an arrangement and a person (participant), who is a taxpayer and is a party to the arrangement or affected by the arrangement, if at any time after the arrangement commences—
- (a) there is a person who sells or issues, or promotes the selling or issuing of, the arrangement, whether or not for remuneration; and
- (b) the participant and any affected associates of the participant, considered together, have for a period—
  - (i) deductions resulting from the arrangement, other than—
    - (A) deductions arising under this section and sections GC 30 and GC 31:
    - (B) net losses of a loss attributing qualifying company, to the extent that shareholders with effective interests in the company are deemed under section HG 16 to incur amounts of loss that correspond to the net losses; and
  - (ii) assessable income resulting from the arrangement, other than assessable income arising under this section and sections GC 30 and GC 31, that in total is less than the total amount of deductions referred to in subparagraph (i); and
- (c) the period referred to in paragraph (b) for a participant, or a group consisting of a participant and the affected associates of the participant, is—
  - (i) the earliest income year in which an interest in the arrangement was acquired by the participant or an affected associate of the participant; or
  - (ii) the income year referred to in subparagraph (i) together with the next following income year; or
  - (iii) the income year referred to in subparagraph (i) together with the next following income year and the second following income year; and
- (d) as part of or for the purposes of the arrangement, the participant or an affected associate of the participant borrows a limited-recourse amount under a limited recourse loan; and
- (e) on the balance date, or the latest balance date, of the participant and affected associates of the participant that ends a period referred to in paragraph (c)(i) to (iii) for which paragraph (b) is satisfied, the participant and the affected associates of the participant hold, as part of the arrangement, property with a total cost that is—
  - (i) less than twice the total of the limited-recourse amounts referred to in paragraph (d) that the participant and the affected associates of the participant borrowed on or before the balance date; and
  - (ii) more than 142.85% of the total cost of the part of that property that is—
    - (A) land:
    - (B) buildings:
    - (C) plant:
    - (D) machinery:
    - (E) shares in a listed company that in total represent a direct voting interest of 10% or less in the listed company:
    - (F) shares and options that are acquired or created with an intention that the shares or options will produce income that is monetary remuneration of a participant under sections CE 2 to CE 4:
    - (G) shares in a foreign company, if the proceeds of a disposal of the shares would not be assessable income of the holder other than under the FIF rules.
(2) The assessable income and deductions resulting from an arrangement for each person in a group of persons, for the purposes of subsection (1)(b) and section GC 31, and the cost of property that is held by each person in the group as part of the arrangement, for the purposes of subsection (1)(e), are consolidated for the elimination of intra-group balances in accordance with generally accepted accounting practice.

(3) If a group of persons consists of persons who are a partnership and the partners in a partnership, a joint venture and the partners in the joint venture, or a loss attributing qualifying company and the shareholders in the loss attributing qualifying company, the assessable income and deductions resulting from an arrangement for each person in the group for the purposes of subsection (1)(b) and section GC 31, and the cost of property that is held by each person in the group as part of the arrangement for the purpose of subsection (1)(e), are calculated using the proportionate method in accordance with generally accepted accounting practice for partnerships.

Compare: 1994 No 164 s ES 1

Subsection (1)(b) (that part before subpara (i)(A)) was amended, as from 1 October 2005, by section 204(1)(a) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by omitting the words “or losses”.

Subsection (1)(b)(i)(B) was substituted, as from 1 October 2005, by section 204(1)(b) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subsection (1)(b)(ii) was amended, as from 1 October 2005, by section 204(1)(c) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by omitting the words “or losses”.

Subsection (1)(b)(ii) was amended, as from 1 October 2005, by section 204(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by inserting the word “assessable” before the word “income” in both places that it occurs.

Subsection (1)(e)(i) was amended, as from 1 October 2005, by section 204(3) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the words “date; and” for the word “date:”.

Subsection (1)(e)(ii)(F) was amended, as from 1 October 2005, by section 204(4) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the expression “CE 4:” for the expression “CE 4.”.

Subsection (1)(e)(ii)(G) was inserted, as from 1 October 2005, by section 204(4) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subsection (2) was amended, as from 1 October 2005, by section 204(5) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the words “assessable income and deductions” for the words “income, deductions, and losses”.

Subsection (3) was amended, as from 1 October 2005, by section 204(6) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the words “assessable income and deductions” for the words “income, deductions, and losses”.

GC 30 Defined terms for sections GC 29 to GC 31

(1) For the purposes of this section and sections GC 29 and GC 31, a person is an affected associate, for the arrangement, of another person if each person is a party to the arrangement or is affected by the arrangement and—
- (a) 1 person is a loss attributing qualifying company and the other person is a shareholder in the loss attributing qualifying company:
- (b) the persons are associated under a provision of section OD 7 or OD 8(3).
(2) For the purposes of this section and sections GC 29 and GC 31, the limited-recourse amount for a limited-recourse loan means the total for the limited-recourse loan of the amounts for which the obligations of a borrower, as defined in subsection (3)(b), are affected in a way that is described in subsection (3)(c).
(3) For the purposes of this section and sections GC 29 and GC 31, limited-recourse loan means a financial arrangement that—
- (a) is not an excepted financial arrangement; and
- (b) involves the provision of money by a person (lender) to another person (borrower); and
- (c) has an effect, or has an economic effect that is substantially similar to the effect, of—
  - (i) relieving the borrower under the financial arrangement from the obligation to repay all or some of the money, whether the relief is contingent or not:
  - (ii) requiring the borrower under the financial arrangement to make no repayment for a period of 10 or more years from the date on which the loan is made, other than repayments for the purpose of defeating the intent and application of this subpart:
  - (iii) providing that the repayment of the money is in substance secured solely against assets that are employed in the arrangement; and
- (d) involves money that is provided by—
  - (i) a lender who is not an associated person of the borrower under a provision of section OD 7 or OD 8(3) and who does not provide the money on arm's-length terms and who—
    - (A) is not a person who regularly provides money to persons on arm's-length terms under arrangements that do not satisfy paragraphs (a) to (c):
    - (B) is not resident in New Zealand under section OE 1 or OE 2 and does not carry on business in New Zealand through a fixed establishment in New Zealand; or
  - (ii) a lender who is an associated person of the borrower under a provision of section OD 7 or OD 8(3) and who obtains the money under an arrangement that satisfies paragraphs (a) to (c).
Compare: 1994 No 164 s ES 2

Subsection (3)(c) was amended, as from 1 October 2005, by section 205(1) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by omitting the words “a purpose or effect of achieving”.

Subsection (3)(d) was substituted, as from 1 October 2005, by section 205(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

GC 31 Deferral of surplus deductions from arrangement

(1) This section applies for an income year to a participant in an arrangement to which this section and sections GC 29 and GC 30 apply if—
- (a) the participant is not a loss attributing qualifying company and has from the arrangement for the income year—
  - (i) deductions, including any deduction under subsection (3) or section HG 16; and
  - (ii) a total amount of assessable income, other than under this section, that is less than the total amount of the deductions referred to in subparagraph (i); and
- (b) the participant and the affected associates of the participant who are not a loss attributing qualifying company that has incurred a net loss from the arrangement for the income year, considered together, have from the arrangement for the income year—
  - (i) deductions, including any deduction under subsection (3) or section HG 16; and
  - (ii) a total amount of assessable income, other than under this section, that is less than the total amount of the deductions referred to in subparagraph (i); and
- (c) on the balance date, or the latest balance date, of the participant and affected associates of the participant for the income year, the arrangement involves a limited recourse loan for which the participant or an affected associate of the participant is a borrower.
(2) If this section applies to a participant for an income year and an arrangement, the participant is treated as deriving in the income year an amount of assessable income that is given by the following formula:
where—
- a is the amount for the income year by which the deductions, including any deduction under subsection (3) or section HG 16, of the participant from the arrangement exceed the assessable income, other than under this section, of the participant from the arrangement
- b is the total amount for the income year by which the deductions, including any deduction under subsection (3) or section HG 16, from the arrangement exceed the assessable income, other than under this section, from the arrangement for the group that consists of—
  
  (a) the participant; and
  
  (b) the affected associates of the participant who are not a loss attributing qualifying company and who each have for the income year allowable deductions, including any allowable deduction under subsection (3) or section HG 16, from the arrangement that in total exceed the assessable income, other than under this section, from the arrangement
- c is the lesser of—
  
  (a) the total amount for the income year by which the deductions, including any deduction under subsection (3) or section HG 16, from the arrangement exceed the assessable income, other than under this section, from the arrangement for the group that consists of—
  
  (i) the participant; and
  
  (ii) the affected associates of the participant who are not a loss attributing qualifying company that has incurred a net loss from the arrangement for the income year; and
  
  (b) the total of limited-recourse amounts that, on the balance date or the latest balance date of the participant and the affected associates of the participant, the participant and the affected associates of the participant have undischarged obligations to repay as part of or for the purposes of the arrangement.
(3) A participant who has an amount of assessable income for an income year under subsection (2) has a deduction of an equal amount for the next following income year.
(4) For the purposes of subsection (1) and of paragraph (b) of the definition of item “c” in subsection (2), an obligation to repay a limited-recourse amount is not discharged by a transaction to the extent that the transaction—
- (a) involves the use, as part of the arrangement, of—
  - (i) a put or call option that is not a contract for the sale for future delivery of goods at market value:
  - (ii) a contract of insurance or guarantee; and
- (b) does not give rise to assessable income for the person who is the borrower of the limited-recourse amount under the limited-recourse loan.
Compare: 1994 No 164 s ES 3

Subsection (1)(a)(i) was substituted, as from 1 October 2005, by section 206(1)(a) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subsection (1)(a)(ii) was amended, as from 1 October 2005, by section 206(1)(b)(i) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by inserting the word “assessable” before the word “income”.

Subsection (1)(a)(ii) was amended, as from 1 October 2005, by section 206(1)(b)(ii) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by omitting the words “and losses”.

Subsection (1)(b)(i) was substituted, as from 1 October 2005, by section 206(1)(c) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subsection (1)(b)(ii) was amended, as from 1 October 2005, by section 206(1)(d)(i) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by inserting the word “assessable” before the word “income”.

Subsection (1)(b)(ii) was amended, as from 1 October 2005, by section 206(1)(d)(ii) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by omitting the words “and losses”.

Subsection (2) was amended, as from 1 October 2005, by section 206(2)(a) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by inserting the word “assessable” before the word “income”.

Subsection (2), items a and b of the formula, were substituted, as from 1 October 2005, by section 206(2)(b) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subsection (2), paragraph (a) of item c of the formula, was substituted, as from 1 October 2005, by section 206(2)(b) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subsection (3) was amended, as from 1 October 2005, by section 206(3) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the words “amount of assessable income” for the words “amount of income”.

Subsection (4)(b) was amended, as from 1 October 2005, by section 206(4) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by inserting the word “assessable” before the word “income”.

Subpart GD—Non-market transactions

Trading stock

GD 1 Sale or other disposal of trading stock for inadequate consideration

GD 2 Distribution of trading stock to shareholders of company [Repealed]

Remuneration

GD 3 Payment of excessive salary or wages, or allocation of excessive share of profits or losses, to relative employed by or in partnership with taxpayer

GD 4 Payments to taxpayer's spouse, civil union partner or de facto partner

GD 5 Excessive remuneration by close company to shareholder, director, or relative

Superannuation and life insurance

GD 6 Value of loans provided by superannuation fund deemed to be income of fund

GD 7 Distribution of property to policyholders

GD 8 Superannuation schemes

GD 10 Leases for inadequate rent

Other non-market transactions

GD 11 Financial arrangements rules

GD 12 Non-market transactions for incurring film production expenditure

GD 12A Film production expenditure if payments postponed or contingent

GD 12B Manipulation of arrangements to incur film production expenditure

GD 13 Cross-border arrangements between associated persons

GD 14 Attributing interests in FIFs

GD 15 Disposal of timber, or right to take timber, or standing timber to associated person

Trading stock

GD 1 Sale or other disposal of trading stock for inadequate consideration

(1) Subject to subsections (1B) and (2), where any trading stock is sold or otherwise disposed of without consideration in money or money's worth or for a consideration that is less than the market price of the trading stock at the date of the sale or other disposition,—
- (a) the trading stock is, for the purposes of this Act, treated as having been sold at and realised at its market price on the date of the sale or other disposition:
- (b) the price which under this section the trading stock is deemed to have realised is treated as income of the person selling or otherwise disposing of the trading stock:
- (c) the person acquiring the trading stock is deemed to have purchased the trading stock at the price which under this section the trading stock is deemed to have realised.
Exclusion

(1B) Subsection (1) does not apply to a share disposed of by a share user to a share supplier, or by a share supplier to a share user, under a share-lending arrangement.
(2) For the purposes of this section,—
- (a) the creation or grant (other than in favour of a proprietor or grantor) of a right to take timber must be treated as a sale or other disposition of trading stock of a kind referred to in paragraph (b)(iv) of the definition of trading stock:
- (b) a sale or other disposition of land with standing timber on the land, unless the land is subject to a right in favour of the seller to take timber, is deemed to include a sale or other disposition of trading stock of a kind referred to in paragraph (b)(iv) of the definition of trading stock, except to the extent the timber is—
  - (i) timber comprised in ornamental or incidental trees, as evidenced by a certificate given under section 44C of the Tax Administration Act 1994; or
  - (ii) subject to a forestry right (as defined in section 2 of the Forestry Rights Registration Act 1983) registered under the Land Transfer Act 1952; or
  - (iii) subject to a profit à prendre granted before 1 January 1984.
(3) This section, with any necessary modifications, applies in any case where a share or interest in any trading stock is sold or otherwise disposed of without consideration in money or money's worth or for a consideration that is less than the market value of the share or interest at the date of the sale or other disposition.

(3A) Subsection (3) does not apply to land with standing timber that is subject to a right to take standing timber.
(4) This section does not apply in respect of any trading stock that—
- (a) is transferred to a person under a relationship agreement; or
- (b) is donated, or supplied for consideration worth less than the market value of the trading stock, to a person—
  - (i) for use in a farming, agricultural, or fishing business that is affected by a self-assessed adverse event; and
  - (ii) by a donor or supplier who is not associated with the person.
Compare: 1994 No 164 s GD 1

The heading to section GD 1 was amended, as from 1 October 2005, by section 207(1) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the words “Sale or other disposal” for the word “Sale” with application as from the 2005–06 income year.

Subsection (1) was amended, as from 1 July 2006, by section 112(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the words “subsections (1B) and (2)” for the expression “subsection (2)”.

Subsection (1B) was inserted, as from 1 July 2006, by section 112(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (4) was substituted, as from 1 October 2005, by section 207(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) with application as from the 2005–06 income year.

Subsection (4) was to be amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting the words “relationship agreement” for the words “matrimonial agreement”. However, that amendment appears to have been made redundant by the substitution of subsection (4), see above, with application as from the 2005–06 income year.

Subsection (4)(b) was substituted, as from 1 July 2006, by section 112(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for transfers of trading stock from the income year corresponding to the 2005–06 tax year.

GD 2 Distribution of trading stock to shareholders of company

[Repealed]

Section GD 2 was repealed, as from 1 October 2005, by section 63 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Remuneration

GD 3 Payment of excessive salary or wages, or allocation of excessive share of profits or losses, to relative employed by or in partnership with taxpayer

(1) Where—
- (a) any taxpayer carries on any business or undertaking and employs or engages any relative, or, being a company other than a close company, employs or engages any relative of a director or shareholder of the company, to perform services in connection with that business or undertaking; or
- (b) any taxpayer carries on business in partnership with any person, whether or not any other person is a member of the partnership, and—
  - (i) any relative of the taxpayer is employed or engaged by the partnership to perform services in connection with the business; or
  - (ii) where 1 of the partners is a company, any relative of a director or shareholder of the company is employed or engaged by the partnership to perform services in connection with the business; or
- (c) any taxpayer carries on business in partnership with any relative or with any company a director or shareholder of which is a relative of the taxpayer or, being a company, carries on business in partnership with any relative of a director or shareholder of the company, whether or not any other person is a member of the partnership,—
and the Commissioner is of the opinion that the remuneration, salary or wages, share of profits, or other income payable to or for the benefit of that relative or that company, or the share of losses to be borne by that relative or that company, under the contract of service, employment, or engagement or the terms of the partnership exceeds such an amount as is reasonable having regard to the nature and extent of the services rendered, the value of the contributions made by the respective partners by way of services or capital or otherwise, and any other relevant matters, the Commissioner may for the purposes of this Act allocate the total profits, income or losses of the business or undertaking, without taking into account any amount payable to that relative or company, between the parties to the contract or the partners or any of them in such shares and proportions as the Commissioner considers reasonable, and the amounts so allocated are deemed to be income or losses of persons to whom those amounts are so allocated and of no other person.
(2) Where any sum paid or credited by a company, being or purporting to be remuneration for services rendered by any person who is a relative of a director or shareholder of the company, is allocated to that company in accordance with subsection (1), the amount so allocated to the company is deemed to be a dividend paid by the company to that person and received by that person as a shareholder of the company.

(3) This section applies whether the contract of service or employment or the partnership was entered into before or after the commencement of the tax year.

(4) This section does not apply to a bona fide contract of employment or to a bona fide contract of partnership.
(5) For the purposes of this section, a contract of employment or a contract of partnership is deemed to be bona fide if it complies with the following conditions:
- (a) the contract is in writing or by deed signed by all the parties to it:
- (b) no partner and no person employed or engaged under the contract was under the age of 20 years at the date on which the contract was signed:
- (c) the contract is binding on the parties to the contract for a term of not less than 3 years and is not capable of being terminated by any of those parties before the expiry of that term except for the reasons specified in sections 36 and 38 of the Partnership Act 1908:
- (d) each party to the contract has—
  - (i) real and effective control of the remuneration, salary or wages, share of profits, or other income to which the party is entitled under the contract:
  - (ii) real and effective liability for the share of losses to be borne by the party under the contract:
- (e) the remuneration, salary or wages, share of profits, or other income payable to a relative, or to a company a director or a shareholder of which is a relative, does not constitute in whole or in part a gift for the purposes of the Estate and Gift Duties Act 1968.
Compare: 1994 No 164 s GD 3

GD 4 Payments to taxpayer's spouse, civil union partner or de facto partner

No deduction may, except as expressly provided in this Act, be made in respect of any payments of any kind made by a taxpayer to his or her spouse, civil union partner or de facto partner: provided that, with the consent of the Commissioner granted before the deduction is claimed by the taxpayer, and subject to section GD 3, a deduction may be made in respect of any payment made by a taxpayer to his or her spouse, civil union partner or de facto partner where the Commissioner is satisfied that the payment is for services rendered (not being domestic services or services performed in connection with the home) or is otherwise a bona fide payment, and that the payment was exclusively incurred in the derivation of assessable income of the taxpayer for the tax year.

Compare: 1994 No 164 s GD 4

The heading to section GD 4 was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.

The heading to section GD 4 was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

Section GD 4 was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse” in both places it occurs.

Section GD 4 was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner” in both places it occurs.

GD 5 Excessive remuneration by close company to shareholder, director, or relative

Where any sum paid or credited by a close company, being or purporting to be remuneration for services rendered by any person who is a shareholder or director of the company or a relative of any such shareholder or director, exceeds such amount as in the opinion of the Commissioner is reasonable, the amount of the excess is denied as a deduction of the company, and is, for the purposes of this Act, deemed to be a dividend paid by the company to that person and received by that person as a shareholder of the company: provided that this section does not apply in any case where the Commissioner is satisfied—
- (a) that the person to whom the sum is paid or credited is an adult employed substantially full time in the business of the company and participating in the administration or management of the company; and
- (b) that the determination by the company of the amount so paid or credited to that person was not influenced by the fact that the person is a relative of a shareholder or director of the company; and
- (c) that the person is resident in New Zealand.
Compare: 1994 No 164 s GD 5

Superannuation and life insurance

GD 6 Value of loans provided by superannuation fund deemed to be income of fund

(1) Where any superannuation fund in any income year has, directly or indirectly and whether by 1 transaction or by a series of transactions, provided to a member of that superannuation fund in that income year any loan that would be a fringe benefit if it were provided by an employer to an employee in respect of that employee's employment, the value of the loan so provided is deemed to be income derived by the superannuation fund in that income year.

(2) For the purposes of subsection (1), but subject to subsection (3), the value of the loan is the amount, if any, by which the amount of interest that would have accrued on that loan in respect of that income year had that interest been calculated on the daily balance of that loan at the prescribed rate of interest exceeds the amount of interest that, whenever it accrues, arises in respect of that loan to the member during that income year.
(3) Where the loan is a loan that was made on or before 31 March 1989, and the rate of interest payable on the loan is not subject to review, the prescribed rate of interest is deemed to be—
- (a) in the case of a loan made before 1 April 1985, the non-concessionary rate of interest for the tax year in which the agreement to make the loan was signed or, where the agreement was not in writing, the making of the loan was agreed to by all the parties to the loan:
- (b) in the case of a loan made on or after 1 April 1985, the prescribed rate of interest that applied during the quarter in which the agreement to make the loan was signed or, where the agreement was not in writing, the making of the loan was agreed to by all parties to the loan.
Compare: 1994 No 164 s GD 6

GD 7 Distribution of property to policyholders

For the purposes of section GD 1, where any life insurer sells or otherwise disposes of any property (other than any financial arrangement) in the course of carrying on a business of providing life insurance,—
- (a) that property is deemed to be trading stock; and
- (b) the life insurer is deemed to be a company; and
- (c) holders of policies of life insurance for which the life insurer is the insurer are deemed to be shareholders of the life insurer.
Compare: 1994 No 164 s GD 7

Section GD 7 was amended, as from 1 October 2005, by section 113 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the expression “section GD 1” for the words “sections GD 1 and GD 2 (which relate to the sale of trading stock for inadequate consideration, and the distribution of trading stock to shareholders of companies)”.

GD 8 Superannuation schemes

(1) For the purposes of the life insurance rules, where any person is the trustee of a superannuation scheme and provides any life insurance to members or beneficiaries of that scheme, the provision by that trustee of any benefit to any member or beneficiary of that scheme is, subject to subsections (2) to (6), treated as if it were the provision of life insurance.

(2) Notwithstanding subsection (1) or any other provision of the life insurance rules, where any person is the trustee of a superannuation fund (other than a superannuation fund to which property is transferred under an arrangement approved by the Government Actuary under Part 6 of the Superannuation Schemes Act 1989), in respect of the 1990-91 tax year that person is deemed in respect of that superannuation fund not to carry on the business of life insurance.

(3) Notwithstanding subsection (1) or any other provision of the life insurance rules, where in any tax year any person is the trustee of a superannuation fund which is in respect of that tax year a qualifying superannuation scheme, that person is deemed in respect of that superannuation fund and that tax year not to carry on the business of life insurance.
(4) For the purposes of this section, a superannuation fund is a qualifying superannuation scheme in respect of any tax year where at all times during that tax year—
- (a) the superannuation fund is registered by the Government Actuary under the Superannuation Schemes Act 1989; and
- (b) no trustee of the superannuation fund is a company carrying on the business of providing life insurance to which the Life Insurance Act 1908 applies; and
- (c) the superannuation fund was—
  - (i) established by an employer or group of employers who are associated persons to provide benefits only to persons who are, in respect of any such employer or in respect of any other associated person who is an employer and subsequent to the establishment of the superannuation fund agrees to make contributions to the fund,—
    - (A) employees; or
    - (B) in the case of deferred benefits relating to a previous period of employment, former employees; or
    - (C) in the case of benefits arising in respect of membership of the superannuation fund by those employees or former employees, relatives or dependants of those employees or former employees; or
  - (ii) constituted under the National Provident Fund Restructuring Act 1990, the National Provident Fund Act 1950, or the Government Superannuation Fund Act 1956 and provides benefits only to persons who are—
    - (A) employees; or
    - (B) in the case of deferred benefits relating to a previous period of employment, former employees; or
    - (C) in the case of benefits arising in respect of membership of the superannuation fund by those employees or former employees, relatives or dependants of those employees or former employees,—
    of any employer who agrees to or is required to make contributions to the fund or is accepted as a contributor to the fund or on whose behalf contributions are made to the fund; or
  - (iii) not being a superannuation fund of the kind referred to in subparagraph (ii), constituted under—
    - (A) the National Provident Fund Restructuring Act 1990 for the purpose of providing benefits to persons (and relatives and dependants of persons) who, before 1 April 1991, were members of a superannuation fund which satisfied the requirements of subparagraph (ii); or
    - (B) the National Provident Fund Act 1950 and which, but for the fact that a small number of the total employers to which the fund relates do not agree to or are not required to make contributions to the fund, would be a superannuation fund which satisfied the requirements of subparagraph (ii); or
    - (C) the National Provident Fund Restructuring Amendment Act 1997 for the purpose of providing benefits to persons (and relatives, dependants, and nominated beneficiaries of persons) who, immediately prior to becoming members of that superannuation fund, were members of a superannuation fund which satisfied the requirements of either subparagraph (ii) or (iii)(B); and
- (d) the only beneficiaries of the superannuation fund are natural persons to whom—
  - (i) any of paragraph (c)(i)(A) to (C) or (ii)(A) to (C) applies; or
  - (ii) paragraph (c)(iii) applies—
except to the extent that an employer of employees who are members of the superannuation fund may have a contingent interest in any surplus in the superannuation fund; and
- (e) except in the case of a superannuation fund to which paragraph (c)(iii) applies, and subject to subsection (5), each employer—
  - (i) is required by the trust deed of the superannuation fund or by any Act under which the superannuation fund is constituted to make; or
  - (ii) in that tax year is making; or
  - (iii) in that tax year is having made on the employer's behalf—
superannuation contributions to the superannuation fund to provide to a significant extent the benefits payable by the superannuation fund, not being merely nominal contributions or contributions only to meet the costs of administration and management of investments of the superannuation fund; and
- (f) the superannuation fund has not been established or utilised in a manner which has the effect of defeating the intent and application of the life insurance rules,—
and where an application in writing has been made for the purposes of this subsection to the Government Actuary by the trustee of that superannuation fund and the Government Actuary is satisfied that the superannuation fund is in respect of that tax year a superannuation fund to which the preceding paragraphs of this subsection apply.
(5) Where in respect of any tax year a superannuation fund fails to meet the requirements of subsection (4)(e), that fund is nevertheless treated as complying with that paragraph if the Government Actuary is satisfied that each employer would be required by the trust deed of the superannuation fund, or by any Act under which the superannuation fund is constituted, to make superannuation contributions to the superannuation fund to provide to a significant extent the benefits payable by the superannuation fund, not being merely nominal contributions or contributions only to meet the costs of administration and management of investments of the superannuation fund, were it not that the assets of the fund exceed the accrued benefits of all members and other beneficiaries of the fund.

(6) Where the Government Actuary ceases to be satisfied that any superannuation fund is a superannuation fund to which subsection (4)(a) to (f) apply, that superannuation fund ceases to be a qualifying superannuation scheme from such date as the Government Actuary may specify.
(7) The Government Actuary must, as soon as practicable after determining under subsection (4) or (6)—
- (a) whether or not a superannuation fund is in respect of any tax year a fund to which subsection (4)(a) to (f) apply; or
- (b) that a superannuation fund has ceased to be a fund to which those paragraphs apply,—
notify the trustee of the superannuation fund accordingly.
(8) Any person who is dissatisfied with any such determination of the Government Actuary may object to the determination in accordance with section 23 of the Superannuation Schemes Act 1989, and no right of objection lies under this Act or the Tax Administration Act 1994 in respect of any such determination.

Compare: 1994 No 164 s GD 8

Leases

GD 10 Leases for inadequate rent

(1) Where any property owned by any person or by 2 or more persons (whether jointly or in common) or by any partnership is leased to a relative of any of those persons or of any member of the partnership or to a related company or by a company to any person and the rent is less than an adequate rent for that property or the lease makes no provision for the payment of rent,—
- (a) there is deemed to be payable under the lease a rent that is equal to an adequate rent for the property, and that rent is deemed to be payable by the lessee to the lessor on the days provided in the lease for payment of the rent, or, if no rent is payable under the lease, on each day of the term of the lease on a pro rata basis, and is deemed to be income derived by the lessor on the days on which the rent is deemed to be payable under this paragraph; and
- (b) the rent deemed to be payable under paragraph (a) is deemed to accrue from day to day during the period in respect of which it is payable, and is apportionable accordingly.
(2) This section applies with respect to any leased property only if and to the extent that it is used by the lessee in the derivation of assessable income or exempt income.

(3) This section applies whether the lease was granted before or after the commencement of the tax year.

(4) In this section,—

adequate rent, in relation to any property, means the amount of rent that the Commissioner determines to be adequate for that property during the period in respect of which the determination is made

lease means a tenancy of any duration, whether in writing or otherwise; and includes a sublease; and also includes a bailment; and lessor and lessee have corresponding meanings

related company means a company that is under the control of the lessor or any relative or relatives of the lessor or any 1 or more of them, or, where there are several lessors or the lessor is a partnership, under the control of any of the lessors or partners or any relative or relatives of any of the lessors or partners

rent includes any premium or other consideration for the lease.

Compare: 1994 No 164 s GD 10

Other non-market transactions

GD 11 Financial arrangements rules

If the Commissioner is satisfied that the parties to a financial arrangement were, at the time the financial arrangement is entered into, acquired, varied, sold, or transferred, dealing with each other in a way that defeats the intention of the financial arrangements rules, the Commissioner may deem the consideration to be that which independent parties dealing at arm's length would give.

Compare: 1994 No 164 s GD 11

GD 12 Non-market transactions for incurring film production expenditure

(1) A person must reduce the deduction allowed to them under section DS 2 in accordance with subsection (2), if—
- (a) the Commissioner considers that the person (person A) and a person who supplied goods or provided services to person A in relation to the film (person B) were not dealing with each other at arm's length in relation to the goods or services; and
- (b) person A incurred more film production expenditure than person A would have incurred if person A and person B had been dealing with each other at arm's length.
(2) If subsection (1) applies, the deduction must be reduced to an amount equal to the film production expenditure that the Commissioner thinks person A would have incurred if person A and person B had been dealing with each other at arm's length.

Compare: 1994 No 164 s GD 12(1), (1A)

GD 12A Film production expenditure if payments postponed or contingent

For the purposes of sections DS 2, EJ 7, and EJ 8, a person is treated as incurring film production expenditure in relation to goods or services only at the time of payment for those goods or services if—
- (a) payment for the goods or services has been deferred by agreement between the supplier of the goods or services and any other person, and the Commissioner thinks that the period between the time that the goods or services are supplied and the time of payment for them is excessive; or
- (b) liability for the payment is contingent.
Compare: 1994 No 164 s EO 4(12)

GD 12B Manipulation of arrangements to incur film production expenditure

If the Commissioner considers that 2 persons have made arrangements so that section DS 2, EJ 7, or EJ 8 applies more favourably in relation to a person in an income year than it would have applied without those arrangements,—
- (a) the deduction that a person is allowed under section DS 2 must be reduced to the amount that the Commissioner considers would have been allowed if the arrangements had not been made:
- (b) the deduction allocated under section EJ 7 or EJ 8 must be allocated to the income year to which the Commissioner considers it would have been allocated if the arrangements had not been made.
Compare: 1994 No 164 s GD 12(2)

GD 13 Cross-border arrangements between associated persons

(1) Subject always to its express provisions, the purpose of this section is to require a taxpayer, who enters into a cross-border arrangement with an associated person for the acquisition or supply of goods, services, or anything else at a consideration which reduces the taxpayer's net income, to substitute an arm's length consideration when calculating the taxpayer's net income.
(2) This section only applies to require the substitution of an arm's length amount of consideration in the case of an arrangement—
- (a) that involves the supply and acquisition of goods, services, money, other intangible property, or anything else; and
- (b) where the supplier and acquirer are associated persons; and
- (c) where the supplier and acquirer are—
  - (i) 2 persons each not resident in New Zealand (unless each enters into the arrangement for the purposes of a business carried on by the person in New Zealand through a fixed establishment in New Zealand); or
  - (ii) a person resident in New Zealand and a person not resident in New Zealand unless—
    - (A) the non-resident is entering into the arrangement for the purposes of a business carried on by the non-resident in New Zealand through a fixed establishment in New Zealand; and
    - (B) the New Zealand resident has not entered into the arrangement for the purposes of a business carried on by the New Zealand resident outside New Zealand; or
  - (iii) 2 persons each resident in New Zealand if either or both enter into the arrangement for the purposes of a business carried on by the person outside New Zealand.
(3) If the amount of consideration payable by a taxpayer under such an arrangement exceeds the arm's length amount, then for all purposes of the application of this Act in relation to the income tax liability for any tax year of the taxpayer, an amount equal to the arm's length amount is deemed to be the amount payable by the taxpayer in substitution for the actual amount.
(4) If the amount of consideration receivable by a taxpayer under such an arrangement is less than the arm's length amount, an amount equal to the arm's length amount is deemed to be the amount receivable by the taxpayer in substitution for the actual amount for all purposes of the application of this Act in relation to—
- (a) the income tax liability for any tax year of the taxpayer; or
- (b) the obligation of the taxpayer under subpart NH to make a withholding or deduction from the amount; or
- (c) the obligation of any person other than the taxpayer to make a withholding or deduction under Part N from the amount.
(5) Subsection (4) does not apply if the taxpayer is neither resident in New Zealand nor entering into the arrangement for the purposes of a business carried on in New Zealand through a fixed establishment in New Zealand, and—
- (a) the amount is a deduction of the other party (or, in the case of an interest-free loan, would be a deduction but for the application of subpart FG if an arm's length amount of interest were substituted) and is interest, royalties, or an insurance premium; or
- (b) the amount is a dividend receivable on a fixed rate share.
(6) For the purposes of this section, the arm's length amount of consideration must be determined by applying whichever 1 (or combination) of the methods listed in subsection (7) produces the most reliable measure of the amount completely independent parties would have agreed upon after real and fully adequate bargaining.
(7) The arm's length amount of consideration must be calculated under any 1 (or a combination) of—
- (a) the comparable uncontrolled price method; or
- (b) the resale price method; or
- (c) the cost plus method; or
- (d) the profit split method; or
- (e) comparable profits methods.
(8) The choice of method or methods for calculation and the resultant application of the method (or methods) must be made having regard to—
- (a) the degree of comparability between the uncontrolled transactions used for comparison and the controlled transactions of the taxpayer; and
- (b) the completeness and accuracy of the data relied on; and
- (c) the reliability of all assumptions; and
- (d) the sensitivity of any results to possible deficiencies in the data and assumptions.
(9) The arm's length amount of consideration is determined by the taxpayer under subsections (6) to (8), and the amount so determined is the arm's length amount for the purposes of subsections (3), (4), and (10), unless—
- (a) the Commissioner can demonstrate another amount to be a more reliable measure of the arm's length amount; or
- (b) the taxpayer has not co-operated with the Commissioner in the Commissioner's administration of this section in relation to that taxpayer and the non-cooperation has materially affected the Commissioner in that administration,—
in either of which events the Commissioner determines the amount under subsections (6) to (8) for the purposes of subsections (3), (4), and (10).
(10) If—
- (a) the amount of consideration payable by a taxpayer for an acquisition is less than an arm's length amount or the amount of consideration receivable by the taxpayer for a supply exceeds an arm's length amount (that acquisition or supply being referred to in this subsection as the compensating adjustment arrangement); and
- (b) in the same tax year or in the immediately preceding or succeeding tax year, either—
  - (i) an amount of consideration payable by the taxpayer is adjusted down under subsection (3); or
  - (ii) an amount of consideration receivable by the taxpayer is adjusted up under subsection (4); and
- (c) the adjustment down (or up) is in respect of an arrangement for acquisition (or supply) with the same other party and—
  - (i) involving goods, services, money, other intangible property, or anything else of the same type as that supplied and acquired in the compensating adjustment arrangement; or
  - (ii) where the amount of consideration actually payable (or receivable) is set having regard to the amount of consideration actually payable (or receivable) under the compensating adjustment arrangement,—
then for all purposes of the application of this Act in relation to the income tax liability for any tax year of the taxpayer (or, if the amount is receivable by the taxpayer, to the obligation of the taxpayer or any other person to make a withholding or deduction from the amount under Part N), an amount equal to the arm's length amount is deemed to be the amount payable (or receivable) by the taxpayer under the compensation adjustment arrangement in substitution for the actual amount.
(11) If—
- (a) an arm's length amount of consideration is substituted under subsection (3) or (4) in respect of an arrangement entered into by a taxpayer; and
- (b) the other party to the arrangement (or, if the other party is a controlled foreign company, any person with an income interest in the controlled foreign company) applies to the Commissioner in writing within 6 months after an assessment is made in respect of the taxpayer which reflects the substitution; and
- (c) the Commissioner considers it is fair and reasonable to do so, having regard to any adjustment made under a double tax agreement or any other matter, and has notified the other party,—
then the substitution so applies for all purposes of the application of this Act in relation to the other party—
- (d) excluding the determination of whether and the extent to which the other party has derived or been paid a dividend; and
- (e) including, in any case where the other party is a controlled foreign company, the calculation of branch equivalent income or branch equivalent loss in respect of the other party and the resultant calculation of the attributed CFC income or attributed CFC loss or attributed CFC net loss of any person.
(12) Except to the extent that subsection (11) applies, an adjustment under any of subsections (3), (4), and (10) has no effect on any obligation of the taxpayer to make a withholding or deduction in respect of the amount under Part N, other than under subpart NH.
(13) In this section,—
acquisition —
- (a) subject to paragraph (b), includes obtaining the availability of any thing; and
- (b) does not include the mere receipt, or retention, by a company of consideration for issue of a share (unless the share is a fixed rate share)
amount includes a nil amount

insurance premium means a premium treated as being derived from New Zealand under section FC 13
supply —
- (a) subject to paragraph (b), includes making any thing available; and
- (b) does not include the mere payment, and subsequent continuing making available, by a person to a company of consideration for issue of a share (unless the share is a fixed rate share).
Compare: 1994 No 164 s GD 13

GD 14 Attributing interests in FIFs

(1) Subsection (2) applies if—
- (a) a person disposes of an attributing interest in a FIF; and
- (b) they calculate the FIF income or loss from the interest for the period ending with the disposal using the comparative value method, the deemed rate of return method, the fair dividend rate method, or the cost method; and
- (c) they received no consideration for the disposal or consideration that was below the market value of the interest at the time.
(2) The person is treated as having disposed of the interest for an amount equal to its market value at the time.
(3) Subsection (4) applies if—
- (a) a person acquires an attributing interest in a FIF; and
- (b) they calculate the FIF income or loss from the interest for the period after the acquisition using the comparative value method, the deemed rate of return method, the fair dividend rate method, or the cost method; and
- (c) the consideration (if any) is not equal to the market value of the interest at the time.
(4) The person is treated as having acquired the interest for its market value at the time.

Compare: 1994 No 164 s CG 23(5), (6)

Subsection (1)(b) was substituted, as from 1 April 2007, by section 93(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 93(3) of that Act as to the application of this amendment for income years beginning on or after 1 April 2007.

Subsection (3)(b) was substituted, as from 1 April 2007, by section 93(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 93(3) of that Act as to the application of this amendment for income years beginning on or after 1 April 2007.

Subsection (3)(c) was substituted, as from 1 October 2005, by section 62 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

GD 15 Disposal of timber, or right to take timber, or standing timber to associated person

(1) This section applies when—
- (a) a person (person A) disposes of timber, or a right to take timber, or standing timber, to an associated person; and
- (b) as a result, person A has an amount of income under section CB 22 or CB 23.
(2) The deduction that person A is allowed for the timber, or the right to take timber, or the standing timber must not be more than the amount of the income.
(3) The deduction that the associated person is allowed for the cost of acquiring the timber is calculated on the basis that the associated person acquired the timber for the total of—
- (a) the cost to the associated person of acquiring the timber; and
- (b) the amount (if any) that person A is denied a deduction for by subsection (2).
Compare: 1994 No 164 s DL 1(1)

Subpart GE—Non-market transactions: specific

GE 1 New Zealand Raspberry Marketing Council

(1) This section applies upon the making of regulations to dissolve the New Zealand Raspberry Marketing Council, the Raspberry Marketing Export Authority, and the District Raspberry Marketing Committees, established under the Raspberry Marketing Regulations 1979.

(2) In this section, council, current grower, District Committee, and grower have the meanings set out in the Raspberry Marketing Authorities (Dissolution) Regulations 1999.
(3) When the Raspberry Marketing Authorities (Dissolution) Regulations 1999 are made, the making and coming into force does not give rise to—
- (a) assessable income for growers, current growers, or the District Committees under section BD 1; or
- (b) a dividend.
(4) When the Cold Storage Nelson Limited shares owned by the Nelson Raspberry Marketing Committee vest in Rubus Investments Nelson Limited, the vesting—
- (a) is treated as the consideration received by Rubus Investments Nelson Limited for the issue of its shares to the current growers of the Nelson Raspberry Marketing Committee in accordance with the formula in the Raspberry Marketing Authorities (Dissolution) Regulations 1999; and
- (b) does not give rise to—
  - (i) assessable income for Rubus Investments Nelson Limited under section BD 1; or
  - (ii) a dividend.
(5) The issue of shares to the current growers of the Nelson Raspberry Marketing Committee by Rubus Investments Nelson Limited in accordance with the formula in the Raspberry Marketing Authorities (Dissolution) Regulations 1999 is treated as a distribution having been made by the Nelson Raspberry Marketing Committee itself on dissolution.

(6) A distribution made by the council to the District Committees on dissolution is treated as a distribution made by a company to its shareholders on dissolution.

(7) A distribution made by any 1 of the committees to a grower or a current grower on dissolution is treated as a distribution made by a company to its shareholders on dissolution.

Compare: 1994 No 164 s GE 1

Subpart GZ—Terminating provisions

GZ 1 Pre-1974 agreements purporting to alter incidence of tax

Where any arrangement has been made or entered into before 1 October 1974 and the Commissioner is satisfied, in respect of that arrangement, or in respect of a part of that arrangement, that the terms or conditions of that arrangement or of that part (being legally binding terms or conditions which were agreed upon in writing before that date) prevent the discontinuance of that arrangement or of that part,—
- (a) sections BG 1 and GB 1 do not apply with respect to that arrangement, or with respect to that part, so long as that arrangement or that part is so prevented from being discontinued and is continued strictly in accordance with the requirements of the terms or conditions of the arrangement or part of the arrangement; and
- (b) so long as sections BG 1 and GB 1 are not applied with respect to that arrangement, or with respect to that part, in accordance with paragraph (a), the section for which section 108 of the Land and Income Tax Act 1954 was substituted by section 9 of the Land and Income Tax Amendment Act (No 2) 1974 is, notwithstanding that substitution, deemed to remain in full force and effect in relation to that arrangement or in relation to that part of the arrangement.
Compare: 1994 No 164 s GZ 1

Part H
Treatment of net income of certain entities

Subpart HB—Consolidated groups of companies

HB 1 Returns, assessments, and liability of consolidated group

HB 2 Taxable income to be calculated generally as if group were single company

Subpart HC—Special partnerships

HC 1 Special partnerships [Repealed]

Subpart HD—Partnerships

HD 1 Assessment of partners, co-trustees, and joint venturers

Subpart HE—Unit trusts

HE 1 Unit trusts

HE 2 Group investment funds

Subpart HF—Mutual associations

HF 1 Profits of mutual associations in respect of transactions with members

Subpart HG—Qualifying companies

HG 1 Qualifying company regime

HG 2 Determination of effective interest in company

HG 3 Director elections, and revocation of director elections

HG 4 Shareholder elections

HG 5 Revocation of shareholder elections

HG 6 Period of grace for new elections following death, revocation of shareholder election, or issue of new shares

HG 7 Date on which non-complying company ceases to be qualifying company, and Commissioner's power to defer

HG 8 Liability of electing shareholder for income tax of company

HG 9 Taxation of shareholders in qualifying companies

HG 10 Taxation of qualifying company

HG 11 Taxation on election to become qualifying company

HG 12 Payment of qualifying company election tax

HG 13 Dividends from qualifying company

HG 14 Loss attributing qualifying companies

HG 14A Minority shareholders in loss attributing qualifying companies

HG 15 Revocation of loss attribution elections

HG 16 Net losses of loss attributing qualifying company to be attributed to shareholders

HG 17 Attributed CFC losses and FIF losses

HG 18 Company that ceases to be loss attributing qualifying company also ceases to be qualifying company

Subpart HH—Trusts

HH 1 Interpretation

HH 1A Treatment of settlements on trust

HH 2 Trusts settled by persons before becoming resident

HH 3 Income of beneficiaries

HH 3A Beneficiary income of minors

HH 3B Exemption for beneficiary income $1,000 or less

HH 3C Source of beneficiary income

HH 3D Treatment of various settlements

HH 3E Exceptions

HH 3F Definitions of guardian, minor, and relative

HH 4 Trustee income

HH 5 Existing trusts becoming subject to tax

HH 6 Distributions from trusts

HH 7 Commissioner may determine amount of trustee income

HH 8 Income received by trustee after death of deceased person

Subpart HI—Maori authorities

HI 1 Application of Act to Maori authority

HI 2 Eligibility to be Maori authority

HI 3 Election to become Maori authority

HI 4 Distributions by Maori authority

HI 5 Amount distributed to member by Maori authority

HI 6 Proportional allocation required if distribution includes amount other than taxable Maori authority distribution

HI 7 Distribution includes Maori authority credit attached and RWT deducted

HI 8 Treatment of companies and trusts that elect to apply this subpart

HI 9 Market value calculations

Subpart HJ—Superannuation

HJ 1 Government Superannuation Fund

Subpart HK—Agency

Agents generally

HK 1 Agent to make returns and be assessed as principal

HK 2 Rate and amount of tax payable by agent

HK 3 Liability of principal not affected

HK 4 Agent may recover tax from principal

HK 5 Agent may retain from money of principal amount required for tax

HK 6 Assessment deemed authority for payment of tax by agent

HK 7 Agents to be personally liable for payment of tax

HK 8 Relation of principal and agent arising in effect

Special cases of agency

HK 9 Guardian of person under disability to be agent

HK 10 Liability of mortgagee in possession

HK 11 Liability for tax payable by company left with insufficient assets

HK 12 Company deemed agent of debenture holders

HK 13 Modification of agency provisions in respect of income from company debentures

Agents of absentees and non-residents

HK 16 Liability of agent of absentee principal for returns and tax

HK 17 Partner of absentee deemed agent

HK 18 Master of ship deemed agent of absentee owner

HK 19 Tenant, mortgagor, or other debtor to be agent of absentee landlord, mortgagee, or other creditor

HK 20 Person having disposal of income deemed agent

HK 21 Company to be agent of absentee shareholders

HK 22 Trustee of group investment fund to be agent of absentee investors

HK 23 Banking company to be agent of absentee depositors

HK 24 Liability as agent of employer of non-resident taxpayer and employer's agent

HK 25 Non-resident trader to be agent of employees in New Zealand

HK 26 Agents in New Zealand of principals resident abroad

Subpart HL—Portfolio investment entities

HL 1 Intended effect on portfolio tax rate entities and investors

HL 2 Scheme of subpart

Eligibility requirements: portfolio investment entities and foreign investment vehicles

HL 3 Eligibility requirements for entities

HL 4 Effect of failure to meet eligibility requirements for entities

HL 5 Foreign investment vehicles

HL 6 Investor membership requirement

HL 7 Investor return adjustment requirement: portfolio tax rate entity

HL 8 Imputation credit distribution requirement: portfolio listed company

HL 9 Investor interest size requirement

HL 10 Further eligibility requirements relating to investments

Becoming and ceasing to be portfolio investment entity

HL 11 Election to become portfolio investment entity and cancellation of election

HL 11B Unlisted company may choose to become portfolio listed company

HL 12 Becoming portfolio investment entity

HL 13 Tax consequences from transition

HL 14 Ceasing to be portfolio investment entity

Periods relevant to calculation of portfolio entity tax liability

HL 15 Portfolio allocation period and portfolio calculation period

Allocation of income in some cases

HL 16 Treatment of income from interest if no investor entitled or investor has conditional entitlement

HL 17 Certain new investors treated as part of existing portfolio investor class

Calculating portfolio entity tax liability

HL 18 Portfolio class net income and portfolio class net loss for portfolio allocation period

HL 19 Portfolio class taxable income and portfolio class taxable loss for portfolio allocation period

HL 20 Portfolio entity tax liability and rebates of portfolio tax rate entity for period

Payment by portfolio tax rate entity of tax for tax year

HL 21 Payments of tax by portfolio tax rate entity making no election

HL 22 Payments of tax by portfolio tax rate entity choosing to pay provisional tax

HL 23 Payments of tax by portfolio tax rate entity choosing to make payments when investor leaves

HL 23B Optional payments of tax by portfolio tax rate entities

Results for investors

HL 24 Portfolio investor allocated income and portfolio investor allocated loss

HL 25 Treatment of portfolio investor allocated loss for zero-rated portfolio investors and investors with portfolio investor exit period

Rebate for entity

HL 26 Treatment of portfolio investor allocated loss for other investors

Treatment of credits received by entity

HL 27 Credits received by portfolio tax rate entity or portfolio investor proxy

Treatment of losses for entity

HL 28 Portfolio entity formation loss

HL 29 Portfolio class taxable income and portfolio class taxable loss for tax year

HL 30 Treatment of portfolio class taxable loss and portfolio class land loss for tax year

Portfolio investor proxies

HL 31 Portfolio investor proxies

Subpart HZ—Terminating provisions

HZ 1 Trust distributions

HZ 2 Trusts that may become qualifying trusts

Subpart HB—Consolidated groups of companies

HB 1 Returns, assessments, and liability of consolidated group

HB 2 Taxable income to be calculated generally as if group were single company

HB 1 Returns, assessments, and liability of consolidated group

(1) Where and to the extent that any 1 or more companies are in any income year members of the same consolidated group,—
- (a) the nominated company must make a single return of income of those companies for that income year and those companies must not make separate returns of income for that income year, except to the extent that any such company is not a member of the group for part of the income year:
- (b) that single return of income must, if the Commissioner so requires, include such form of accounts detailing the separate affairs of each of those companies as the Commissioner may specify:
- (c) for the purposes of determining the availability under this Act of credits for set-off against the income tax liability of the consolidated group in respect of that income year, the group is treated as if it were a single company:
- (d) a single assessment must be made by the nominated company for those companies for that income year as if the companies were a single taxpayer, and a separate assessment for each company for that income year must not be made except to the extent that the company is not a member of the group for part of the income year,—
and each of those companies is, subject to this section, jointly and severally liable for the amount of income tax assessed in respect of that consolidated group and that income year, and that joint and several liability is in substitution for any income tax liability of those companies under this Act individually in respect of taxable income for that income year (to the extent that the taxable income relates to a period when the company is a member of the consolidated group).
(2) Subsection (1) does not apply to impose on a company that has ceased to be a member of a consolidated group joint and several liability for any amount of income tax assessed in respect of the consolidated group and any income year to the extent that—
- (a) the assessment is made after the later of—
  - (i) the date on which the company is treated for the purposes of this Act as having ceased to be a member of the group; and
  - (ii) the date on which occurred the event that caused the company to cease to be treated as a member of the group; and
- (b) the amount of income tax so assessed exceeds the amount (if any) assessed before that date in respect of the consolidated group and the income year; and
- (c) the Commissioner is satisfied that the application of this subsection will not significantly prejudice any recovery or likely recovery of any amount of income tax for the income year, and notifies the company and the consolidated group accordingly.
(3) The nominated company of a consolidated group may, at any time before making an assessment of income tax in respect of the consolidated group and any income year, apply to the Commissioner requesting that only 1 or more specified companies in the consolidated group be treated as jointly and severally liable for the income tax liability of that group for that income year.

(4) The Commissioner must give written approval of any application made under subsection (3) where satisfied that recovery or likely recovery of income tax assessed for that income year will not be significantly prejudiced by limiting the joint and several liability for that tax to the company or companies specified in the application.
(5) Where the Commissioner approves an application under subsection (4),—
- (a) subsection (1) does not apply to impose on any company other than the companies specified in the Commissioner's written approval joint and several liability for income tax assessed in respect of the consolidated group for the income year to which the approval relates, except to the extent that—
  - (i) the specified companies default in meeting their liability for that income tax assessed; and
  - (ii) the Commissioner determines that the income tax liability of the consolidated group that is attributable to the taxable income of the other company is to be recovered from the other company:
- (b) sections MB 29 and MB 30 do not apply to impose on any company other than the companies specified in the Commissioner's written approval joint and several liability for the amount of provisional tax payable by the consolidated group for the income year to which the approval relates.
Compare: 1994 No 164 s HB 1

Section HB 1(5)(b): amended, on 1 October 2007, by section 114(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

HB 2 Taxable income to be calculated generally as if group were single company

(1) Notwithstanding any other section of this Act, for the purposes of ensuring that a consolidated group is generally liable to income tax as if it were a single company, when calculating the taxable income for all or part of any income year of a company which is for that income year or part income year a member of the consolidated group (that year or part year being in this subsection referred to as the relevant period and the relevant period for the purposes of this section being treated as if it were an income year) to be included in the group return of income under section HB 1,—
- (a) an amount derived in the relevant period by the company that—
  - (i) is derived from a transaction or other arrangement with any other company that is a member of the same consolidated group; and
  - (ii) would not be income if the company and the other company were 1 company,—
  is not income except to the extent that—
  - (iii) it arises by virtue of a disposition of trading stock of the company; or
  - (iv) the amount arises under section EW 31 from the disposition of a financial arrangement to which the financial arrangements rules apply; or
  - (v) the amount arises under section EW 31 from the remission of a financial arrangement to which the financial arrangements rules apply, if the parties to the financial arrangement were not members of the consolidated group for the whole term of the arrangement; or
  - (vi) the amount is a dividend under section CD 3(1) that arises between members of a consolidated group due to the release of the obligation to repay an amount lent before the time the members are treated as being members of the consolidated group under section FD 4; and
- (b) any expenditure or loss incurred in the relevant period by the company—
  - (i) that is incurred by virtue of a payment or disposition to, or other transaction or arrangement with, any other company that is a member of the consolidated group; and
  - (ii) for which the company would be denied a deduction if the company and the other company were 1 company,— is denied as a deduction except—
  - (iii) to the extent that it arises by virtue of an acquisition of trading stock by the company; or
  - (iv) for the purposes of and in accordance with section FD 10; and
- (c) where any expenditure or loss or amount of depreciation loss incurred in the relevant period by the company (not being expenditure or loss that is denied as a deduction by virtue of paragraph (b))—
  - (i) would be denied as a deduction but for this paragraph; and
  - (ii) would be allowed as a deduction if the consolidated group were 1 company by virtue of any connection between the incurring of that expenditure or loss or amount of depreciation loss and the deriving of assessable income or the carrying on of any business by any other member of the consolidated group,— the expenditure or loss or amount of depreciation loss is allowed as a deduction for the relevant period; and
- (d) where any expenditure or loss or amount of depreciation loss incurred in the relevant period by the company (not being expenditure or loss that is denied as a deduction by virtue of paragraph (b))—
  - (i) would be allowed as a deduction but for this paragraph; and
  - (ii) would be denied as a deduction if the consolidated group were 1 company,— the expenditure or loss or amount of depreciation loss is denied as a deduction for the relevant period, except to the extent that it is interest in respect of money borrowed from a person that is not a member of the consolidated group; and—
  - (iii) is allowed as a deduction under section DB 7 or DB 8; or
  - (iv) would be allowed as a deduction under section DB 7 or DB 8 if the company were deemed for the purposes of that section to have used the money borrowed (to the extent of the actual acquisition cost) to acquire certain shares in fact acquired by another member of the consolidated group using (having regard to interposed intragroup borrowings) the money borrowed; and
- (e) where any amount derived in the relevant period by the company—
  - (i) would not be income but for this paragraph; and
  - (ii) would be income of the consolidated group if it were 1 company, by virtue of any purpose for which any property was acquired or any connection between that amount and the carrying on of a business by any other member of the consolidated group or otherwise,— the amount is treated as income for the relevant period; and
- (f) in applying any provision of this Act (such as section EW 17) whose application is dependent upon whether a specified limit is or is not exceeded, the consolidated group is treated as if it were a single company.
(2) Where—
- (a) any company which is a member of a consolidated group of companies incurs any expenditure or loss; and
- (b) that expenditure or loss would, if the group of companies were a single company, be taken into account under this Act in determining the cost of any property; and
- (c) but for the application of this subsection, that expenditure or loss would not be taken into account in determining under this Act the cost of any property of a member of the consolidated group,— that expenditure or loss is taken into account in determining the cost of any property of members of the consolidated group.
Compare: 1994 No 164 s HB 2

Subsection (1)(c)(i) was amended, as from 1 April 2005, by section 94(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “; and” for “; or” with application as from the 2005–06 income year.

Subsection (1)(d)(i) was amended, as from 1 April 2005, by section 94(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “; and” for “; or” with application as from the 2005–06 income year.

Subsection (1)(e)(i) was amended, as from 1 April 2005, by section 94(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “; and” for “; or” with application as from the 2005–06 income year.

Subpart HC—Special partnerships

Subpart HC (section HC 1) was repealed, as from 1 October 2005, by section 208 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

HC 1 Special partnerships [Repealed]

HC 1 Special partnerships

[Repealed]

Section HC 1 was repealed, as from 1 October 2005, by section 208 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subpart HD—Partnerships

HD 1 Assessment of partners, co-trustees, and joint venturers

(1) Where amounts are derived or incurred by 2 or more persons jointly, whether as partners, co-trustees, or otherwise,—
- (a) in the case of co-trustees, they include such amounts that would be income or deductions if the co-trustees were a single taxpayer resident in New Zealand in a joint calculation of taxable income and are jointly and severally liable for the resulting income tax liability:
- (b) in the case of partners there is no joint assessment, but each partner must, in calculating their taxable income, take into account their share of the income that they jointly derive from the firm:
- (c) in any case other than that of co-trustees or partners, each person jointly deriving or incurring such amounts must, in calculating their taxable income, take into account their share of the income that they jointly derive.
(2) This section does not apply with respect to the income derived by, and deductions allowed to, an airport operator from activities that, in relation to that airport operator, are activities as an airport operator.

Compare: 1994 No 164 s HD 1

Subpart HE—Unit trusts

HE 1 Unit trusts

HE 2 Group investment funds

HE 1 Unit trusts

For the purposes of this Act,—
- (e) income derived by the trustees of a unit trust is deemed to be income derived by that unit trust; and
- (f) the trustees of a unit trust are liable to income tax as agent of the unit trust; and
- (g) sums periodically appropriated or paid for manager's and trustee's remuneration out of income derived by the trustees of a unit trust are treated as expenditure incurred in the production of that income.
Compare: 1994 No 164 s HE 1

HE 2 Group investment funds

(1) The trustee of a group investment fund for any income year must make separate returns of—
- (a) category A income of the group investment fund; and
- (b) category B income of the group investment fund.
(1A) Any income derived by the trustee of a group investment fund from the investments and funds of the group investment fund is, to the extent that—
- (a) the income is category A income of the group investment fund, deemed to be income to which the trustee of the group investment fund is beneficially entitled:
- (b) the income is—
  - (i) income derived from the investments and funds of any designated group investment fund; or
  - (ii) category B income of the group investment fund,—
deemed to be income derived by a trustee and the trustee of the group investment fund must make returns and be liable accordingly in accordance with sections CX 34, DV 1 to DV 4, GC 14, HH 1 to HH 6, and HZ 2.
(2) For the purposes of this section, the current value of the investments and funds referred to in paragraphs (a) and (b) of the definition of protected amount in subsection (3) is the current value attributable to the investments and funds referred to in that paragraph (a) or, as the case may be, that paragraph (b) at any time in relation to which the protected amount is ascertained, as if the investments and funds referred to in that paragraph (a) or, as the case may be, that paragraph (b) comprised all of the investments and funds in the group investment fund at that time.
(3) In this section,—
designated sources, in relation to a group investment fund, means—
- (a) any trust, other than the trust under which the group investment fund is established, being a trust—
  - (i) that is created—
    
    (A) by will or codicil or by order of court varying or modifying the provisions of any will or codicil; or
    
    (B) on any intestacy (including any partial intestacy), or by order of court varying or modifying, in relation to any estate, the application of the law relating to the distribution of intestate estates; or
    
    (C) by order of court; or
    
    (D) by any enactment; or
    
    (E) for the purpose of administering any funds, being compensation or other money arising from the death of, or injury to, any person; or
    
    (F) in order to vary the terms of a will or codicil or, in relation to any estate, to vary the application of the law relating to the distribution of intestate estates, in either case for the sole purpose of effecting a settlement out of court of an application made or proposed to be made under the Family Protection Act 1955 or a claim or proposed claim to be made under the Law Reform (Testamentary Promises) Act 1949, where the Commissioner is of the opinion that the terms are substantially the same as those likely to have been ordered by the court; or
  - (ii) that is not carried on for the private pecuniary profit of any individual and the funds of which are, in the opinion of the Commissioner, applied, wholly or principally, for benevolent, philanthropic, cultural, or public purposes within New Zealand,—
  where the trustee of the group investment fund is a trustee of the trust first referred to in this paragraph
protected amount, in relation to a group investment fund and to any time, means the aggregate of—
- (a) the current value of the investments and funds from designated sources invested as at that time in the group investment fund; and
- (b) the current value of the investments and funds that were invested in the group investment fund as at 22 June 1983 as if those investments and funds had continued to be so invested up to the time first mentioned in this definition other than the part of those investments and funds that on that date were attributable to amounts from designated sources,—
and for the purposes of this definition the investments and funds that were invested in the group investment fund as at 22 June 1983 are deemed to include—
- (c) any money deposited between 15 June and 23 June 1983 with the trustee of the group investment fund being money so deposited for investment in the group investment fund; and
- (d) any money deposited between 22 June and 16 July 1983 with the trustee of the group investment fund, being money so deposited for investment in the group investment fund which was, on or before 22 June 1983, subject to a binding commitment to deposit that money
specified value, in relation to a group investment fund and to any income year, means the amount of the current value of all of the investments and funds of the group investment fund on the last day of the income year reduced by the amount that, on that day, is the protected amount.
Compare: 1994 No 164 s HE 2

Subpart HF—Mutual associations

HF 1 Profits of mutual associations in respect of transactions with members

(1) Where in any income year an association enters into transactions with its members, or with its members and other persons, any amounts derived in that income year from those transactions which would be income of the association if the transactions were not of a mutual character is deemed to be income of the association derived in that income year (such an association being referred to in this section as an association to which this section applies).
(2) Subject to subsection (3), an association to which this section applies is allowed a deduction in an income year for the lesser of—
- (a) the aggregate of the amounts of rebates, being rebates that—
  - (i) are paid by the association to its members in respect of their transactions with the association in that income year, being transactions that are taken into account in determining the net income or net loss of the association; and
  - (ii) are calculated by reference to the amounts of those transactions, whether or not, in any case, any rebate is limited or reduced by reference to the amount of the share or interest of a member in the capital of the association; and
- (b) an amount calculated in accordance with the following formula:
  
  a – (b + c)
  
  where—
  - a is the total of the assessable income attributable to those transactions
  - b is the total of the deductions to which the association is entitled other than under this subsection and which are attributable to that assessable income
  - c is the total of any amounts distributed to members in that income year by way of a cash distribution in respect of which a determination is made under section ME 35(1)(a).
(3) Where an association to which this section applies is a statutory producer board,—
- (a) any amount allowed as a deduction under subsection (2) in respect of rebates paid by the producer board is the amount specified in subsection (2)(a), and nothing in subsection (2)(b) or (4) or the proviso to subsection (5) applies in relation to any such deduction; and
- (b) the statutory producer board may elect whether the amount is allowed as a deduction in the income year in which the rebates were paid or for the income year in which occurred the transactions in respect of which the rebates were paid; and
- (c) where any member of the statutory producer board to whom such a rebate is paid is itself a mutual association to which this section applies, the amount of the rebate is deemed to be income of that association derived in the income year in which the rebate is allowed as a deduction to the statutory producer board in accordance with its election under paragraph (b).
(4) In subsection (2)(b), any expenditure or loss (being expenditure or loss that is allowed as a deduction under this Act) incurred by the association in the income year must be apportioned between the transactions referred to in paragraph (a)(i) of that subsection and the transactions (being transactions that are taken into account in determining the net income or net loss of the association) in that income year with persons other than its members.

(5) Where any rebate or part of a rebate paid to any member by an association to which this section applies is paid in respect of any transactions which are of such a nature that any payments in respect of those transactions by that member to the association, or by the association to that member, would be taken into account in determining the taxable income of that member, that rebate, or that part of a rebate, is income (otherwise than as a dividend) of that member:

provided that where that rebate, or that part of a rebate, exceeds so much as is attributable to it of the deduction allowed under subsection (2), the amount of the excess is deemed to be a dividend derived by that member.

(6) For the purposes of this section, a rebate is deemed to have been paid to a person when it has been credited in account or otherwise dealt with in the person's interest or on the person's behalf.
(7) Where a rebate or part of a rebate is satisfied—
- (a) by the issue of fully paid-up or partly paid-up shares in an association (being a company) to which this section applies; or
- (b) by giving credit in respect of the whole or part of the amount unpaid on any shares in any such association,—
that rebate or part of a rebate is deemed not to be a bonus issue.
(8) Every reference in this section to transactions as being transactions of an association with its members or transactions of members of an association with the association and as being, in either case, transactions that are taken into account in determining net income or net loss of the association is taken as a reference to transactions of any 1 or more of the following classes:
- (a) the purchase or other acquisition by the association of trading stock from a member of the association, whether that trading stock is sold or otherwise disposed of by the association to a member of the association or to any other person:
- (b) the sale or other disposition by the association of trading stock to a member of the association, whether that trading stock was purchased or otherwise acquired from a member of the association or from any other person:
- (c) the supply of any services by a member of the association to the association:
- (d) the supply of any services by the association to a member of the association:
- (e) the borrowing by the association of money from a member of the association to the extent to which that money is applied in lending money to a member or members of the association:
- (f) the lending by the association of money to a member of the association:
- (g) in relation to an association that is a statutory producer board, produce transactions, and the payment of levies to the statutory producer board by its members.
(9) In this section,—

association means any body or association of persons, whether incorporated or not
member, in relation to an association that is a statutory producer board and to any income year, means any person who—
- (a) is liable in respect of that year to pay a levy to the statutory producer board; or
- (b) during that year, supplies produce or goods to the statutory producer board, in terms of the body's primary statutory functions
rebate means any payment to its members by an association, being a payment that—
- (a) is made by way of a distribution of profits of the association; and
- (b) is made not later than 6 months after the end of the trading year of the association in respect of which the payment is made,—
but does not include any such payment to the extent that it forms part of a cash distribution in respect of which the association has made a determination under section ME 30(1)(a) or ME 35(1)(a) or any distribution described in section CD 18 or CD 24.
Compare: 1994 No 164 s HF 1

Subpart HG—Qualifying companies

HG 1 Qualifying company regime

HG 2 Determination of effective interest in company

HG 3 Director elections, and revocation of director elections

HG 4 Shareholder elections

HG 5 Revocation of shareholder elections

HG 6 Period of grace for new elections following death, revocation of shareholder election, or issue of new shares

HG 7 Date on which non-complying company ceases to be qualifying company, and Commissioner's power to defer

HG 8 Liability of electing shareholder for income tax of company

HG 9 Taxation of shareholders in qualifying companies

HG 10 Taxation of qualifying company

HG 11 Taxation on election to become qualifying company

HG 12 Payment of qualifying company election tax

HG 13 Dividends from qualifying company

HG 14 Loss attributing qualifying companies

HG 14A Minority shareholders in loss attributing qualifying companies

HG 15 Revocation of loss attribution elections

HG 16 Net losses of loss attributing qualifying company to be attributed to shareholders

HG 17 Attributed CFC losses and FIF losses

HG 18 Company that ceases to be loss attributing qualifying company also ceases to be qualifying company

HG 1 Qualifying company regime

Subject to the express provisions of this subpart, any company that—
- (a) is owned by 5 or fewer natural persons as counted in accordance with section OB 3; or
- (b) is a flat-owning company within the meaning of subsection (1)(b)(ii) of that section—and that otherwise meets the requirements of that section may, by making the appropriate elections,—
- (c) make distributions to its shareholders of its gains in such a fashion that the distributed gains are treated for taxation purposes; and
- (d) where the company has only 1 class of shares, allocate its net losses to its shareholders in such a fashion that the net losses are treated for taxation purposes,—
in like manner to that which would have occurred had the company been a partnership.
Compare: 1994 No 164 s HG 1

HG 2 Determination of effective interest in company

For the purpose of determining a person's effective interest in a company in respect of any income year,—
- (a) the person's voting interest and market value interest in the company at any time is determined in accordance with sections OD 2 to OD 5, but the person's voting interest and market value interest is, except where otherwise specifically provided in this subpart, determined in accordance with those sections as if (in any case where the person is a company) the person were not a company and as if sections OD 3(3)(c) and (d) and OD 4(3)(c) and (d) did not apply:
- (b) where the person's voting interest or market value interest varies at any time during the income year, the person's voting interest or market value interest for that year is equal to the weighted average of the person's voting interest or market value interest, as the case may be, for the whole of the income year:
- (c) in the case of a person who has made a shareholder election under section HG 4(1) or (2) in respect of any income year,—
  - (i) the person (or, in the case of an election made under section HG 4(2) by a person other than the trustee, the trustee (but only for the purposes of that election)) is, if during that income year the person revokes that election under section HG 5(1), treated as having a nil voting interest and a nil market value interest during any period following the date on which the revocation takes effect under section HG 5(1)(b), unless the person makes a subsequent shareholder election during and in respect of the same income year and in respect of the company:
  - (ii) if the shareholder election was made after the commencement of the income year, the person's voting interest and market value interest is determined in relation to that part of the income year that starts with the earliest day of the income year on which the person was a shareholder in the company, whether or not that date precedes the date on which the election was made:
- (d) in the case of a majority shareholder who has made a shareholder election under section HG 4(3) in respect of a minority shareholder's shareholding,—
  - (i) the effective interest of the minority shareholder in respect of which the majority shareholder has elected to be liable is determined exclusive of any effective interest for which the minority shareholder is personally liable by virtue of an election made by the minority shareholder under section HG 4(1) or (2); and
  - (ii) where the majority shareholder's election is revoked under section HG 5(1) or deemed to be revoked under section HG 5(2)(d) or (e), the effective interest of the minority shareholder for which the majority shareholder is liable is treated as nil for that part of the income year that follows the day on which the revocation took effect under section HG 5(1)(b) or, as the case may be, the day on which occurred the event specified in section HG 5(2)(d) or (e).
Compare: 1994 No 164 s HG 2

HG 3 Director elections, and revocation of director elections

(1) A company is only a qualifying company where all persons who are directors of the company at the time of the notice of election have, by notice to the Commissioner in such form as the Commissioner may allow, elected that the company should become a qualifying company.
(2) Any election under this section takes effect,—
- (a) if no later income year has been specified in the notice of election, on the first day of the income year of the company that succeeds the income year in which the notice is received by the Commissioner; or
- (b) in any case where a later income year has been so specified, on the first day of such later income year,—
and remains effective until the date upon which a revocation of that election takes effect in accordance with this section.
(3) Notwithstanding subsection (2), any election under this section in relation to any company that has not previously been required to furnish an annual return of income under the Income Tax Act 1976 or the Tax Administration Act 1994 may take effect on the first day of the company's first income year if the notice of election so requests and is received by the Commissioner not later than the time allowed in accordance with section 37 of the Tax Administration Act 1994 for the furnishing of a return of income in respect of that first income year of the company.

(4) A director election may be revoked only by resolution of the board of directors notified to the Commissioner in such form as the Commissioner may allow.
(5) Any such revocation takes effect on the later of—
- (a) the beginning of the income year in which the notice of revocation is received by the Commissioner; or
- (b) the beginning of such other income year as may be specified in the notice.
Compare: 1994 No 164 s HG 3

HG 4 Shareholder elections

(1) A company may only be a qualifying company where each shareholder in that company who is sui juris has, by notice to the Commissioner in such form as the Commissioner may allow,—
- (a) elected that the company should become a qualifying company; and
- (b) elected to be personally liable in respect of each income year during which the election is at any time in effect for such percentage of—
  - (i) the income tax liability for that income year of that company; and
  - (ii) any income tax payable in respect of that income year in accordance with an election by the company under this section as a shareholder in another company,—
  as is equal to the shareholder's effective interest in the company for the relevant income year.
(2) Where any shareholder in a company is a trustee, that trustee is not treated as having made an election in accordance with subsection (1) or (3) unless both the trustee and any 1 or more natural persons who are sui juris (being in each case a beneficiary of the trust, or, where no beneficiary of the trust is sui juris, being a natural person (who may also be the trustee) assuming liability on behalf of beneficiaries) have, by notice to the Commissioner in such form as the Commissioner may allow,—
- (a) elected that the company should become a qualifying company; and
- (b) elected to be personally (in the case of any such beneficiary or natural person (who may also be the trustee) assuming liability on behalf of beneficiaries), or to the extent of the net assets subject to the trust (in the case of the trustee), jointly and severally liable in respect of each income year during which the election is at any time in effect for such percentage of any income tax liability for that income year of the company and of any income tax for which the company may be liable in respect of that income year in accordance with an election by the company under this section as a shareholder in another company as is equal to,—
  - (i) in the case of an election made in accordance with subsection (1), the effective interest in the company of the trustee as a shareholder of the company for that income year; or
  - (ii) in the case of an election made in accordance with subsection (3), the effective interest of the relevant other shareholder in the company for that income year.
(3) Where—
- (a) the effective interest of any shareholder (in this subsection referred to as the minority shareholder) in a company at the time at which the election referred to in paragraph (b) is made is less than 50%; and
- (b) any 1 or more other shareholders (in this subsection referred to as the majority shareholders) in the company whose effective interests in that company at that time aggregate 50% or more have, in addition to any other election the majority shareholders have made in accordance with this section,—
  - (i) elected that the company should become a qualifying company; and
  - (ii) elected to be personally and (in the case of more than 1 majority shareholder) jointly and severally liable for each income year during which the election remains in effect for such percentage of any income tax liability for that income year of the company and of any income tax payable by the company in respect of that income year by virtue of an election by the company under this section as a shareholder in another company as is equal to the minority shareholder's effective interest in the company at the time of election and subsequently from time to time,—
  the minority shareholder is, for the purposes only of section OB 3(1)(f), treated as having made an election in accordance with subsection (1) in respect of the minority shareholder's shareholding in the company at the time of election.
(4) Any election made in accordance with this section in relation to any company takes effect,—
- (a) in the case of an election made at a time when the company is not already a qualifying company,—
  - (i) if no later income year has been specified in the notice of election, on the first day of the income year of the company that succeeds the income year of the company in which the notice is received by the Commissioner; or
  - (ii) in any case where a later income year has been specified, on the first day of that later income year; or
- (b) in the case of an election made at a time when the company is already a qualifying company, on the date on which the Commissioner receives notice of the election.
(5) Notwithstanding subsection (4)(a), any election under this section in relation to any company that has not previously been required to furnish an annual return of income under the Income Tax Act 1976 or the Tax Administration Act 1994 may take effect on the first day of the company's first income year if the notice of election so requests and is received by the Commissioner not later than the time allowed in accordance with section 37 of the Tax Administration Act 1994 for the furnishing of a return of income in respect of that first income year of the company.

Compare: 1994 No 164 s HG 4

HG 5 Revocation of shareholder elections

(1) A shareholder election made by any person may be revoked by that person by notice furnished to both the Commissioner and the company in such form as the Commissioner may allow, and any such revocation, subject to sections HG 6 and HG 7, takes effect,—
- (a) for the purposes only of section OB 3(1)(f),—
  - (i) if no later income year has been specified in the notice of revocation, on the first day of the income year in which the notice is received by the Commissioner; or
  - (ii) on the first day of such later income year as may be specified in the notice:
- (b) for the purpose of determining in any appropriate case the effective interest in the company of the person making the revocation, on the date on which both the Commissioner and the company have received notice of the revocation or on such later date as may be specified in the notice of revocation.
(2) A shareholder election made by any person is deemed to be revoked—
- (a) upon the death of the person:
- (b) upon the sale or other disposal of all the shares in the shareholding in relation to which the election was made (unless those shares are sold or otherwise disposed of to an existing shareholder in the company for whose shareholding a valid shareholder election is already in effect):
- (c) in the case of an election made under section HG 4(2) or (3) by both a trustee and a natural person assuming liability on behalf of the beneficiaries of a trust none of whom is sui juris, upon any beneficiary of the trust becoming sui juris:
- (d) in any case where the effective interest in the company of a minority shareholder in respect of whom an election has been made under section HG 4(3) increases to 50% or more, upon that effective interest attaining 50% or more:
- (e) in any case where the effective interest or aggregate effective interests in the company of any majority shareholder or shareholders who have made an election under section HG 4(3) falls below 50%, upon the effective interest or aggregate effective interests falling below 50%:
- (f) in the case of an election jointly made by 2 or more persons, upon any revocation or deemed revocation taking effect in respect of any 1 of those persons and that election,—
and any such deemed revocation, subject to sections HG 6 and HG 7, takes effect for the purposes of section OB 3(1)(f) on the first day of the income year in which occurred the event giving rise to the deemed revocation.
Compare: 1994 No 164 s HG 5

HG 6 Period of grace for new elections following death, revocation of shareholder election, or issue of new shares

(1) A company does not cease to be a qualifying company at any time as a result only of the death of a shareholder or any other person, if—
- (a) that company would have been a qualifying company at that time but for that death; and
- (b) that company meets (and, subject to this section, subsequently continues to meet) all the requirements of section OB 3(1) at some time falling within—
  - (i) the period of 12 months immediately succeeding that death; or
  - (ii) such extended period as the Commissioner may allow on the application of the company, the personal representative of a deceased shareholder, or any other person who may make any relevant shareholder election.
(2) A company does not cease to be a qualifying company by reason only of a failure to comply with section OB 3(1)(f) due to the revocation or deemed revocation of any shareholder election if,—
- (a) in the case of a revocation made by a person by notice to both the Commissioner and the company under section HG 5(1), any other person makes or is deemed to make a shareholder election in respect of all of the shareholding to which the revocation relates within—
  - (i) the period of 63 days immediately succeeding the date of receipt by the company of the notice of revocation; or
  - (ii) such extended period as the Commissioner may allow on the application of the company or of a person who may make an election in respect of the shareholding:
- (b) in the case of a shareholder election deemed to be revoked under any of section HG 5(2)(b) to (e), a valid shareholder election is made (or is already in effect) in respect of all of the shareholding to which the revoked election relates within—
- (i) the period of 63 days immediately succeeding the event that gave rise to the deemed revocation; or
- (ii) such extended period as the Commissioner may allow on the application of the company or any person who may make a shareholder election in respect of the shareholding:
- (c) in the case of a jointly made shareholder election deemed to be revoked under section HG 5(2) by reason of a revocation taking effect in respect of any 1 of the persons making the election, any person or persons who may make a shareholder election in respect of the relevant shareholding make that election within the period specified under whichever of subsection (1) or paragraph (a) or (b) applies to the cause of the revocation.
(3) A company does not cease to be a qualifying company by reason only of a failure to comply with section OB 3(1)(f) due to—
- (a) the acquisition of shares in the company by a person other than an existing shareholder (whether by purchase, issue, or otherwise); or
- (b) an existing shareholder becoming sui juris—if, within the period of 63 days following the date upon which the shares were acquired or the shareholder became sui juris, or within such extended period as the Commissioner may allow on the application of the new shareholder or the newly sui juris shareholder, or of any other person who may make a shareholder election in respect of the relevant shareholding, a valid shareholder election is made in respect of that shareholding.
Compare: 1994 No 164 s HG 6

HG 7 Date on which non-complying company ceases to be qualifying company, and Commissioner's power to defer

(1) Where a company ceases to comply with any of the requirements of section OB 3(1), the company, subject to subsection (2), ceases to be a qualifying company with effect on and after the first day of the income year in which the failure to comply occurred, whether or not it was known or possible to ascertain at that time that the company had so ceased to comply.
(2) Where in respect of any company that would, but for this subsection, cease on the first day of any income year to be a qualifying company by reason of any event occurring or failing to occur at or by any particular time within that income year, the Commissioner is satisfied that—
- (a) at the particular time the company did not know and could not reasonably be expected to have known or ascertained that it would so cease to be a qualifying company, whether by reason of—
  - (i) a reasonable expectation that the company would continue to qualify as a qualifying company by virtue of a substitute election or other appropriate event occurring within any period specified in or allowed under section HG 6 or HG 15(3); or
  - (ii) a reasonable expectation that the company would not fail to comply with section OB 3(1)(d); or
  - (iii) a reasonable belief that qualifying company dividend income derived by a trustee referred to in section OB 3(1)(c)(ii) would be distributed, and qualify, as beneficiary income,—
or otherwise; and
- (b) having regard to—
  - (i) the period of time that has elapsed between the beginning of the income year and the date of failure to comply with any of the requirements of section OB 3(1); and
  - (ii) the period of time that has elapsed between the date of failure to comply with any of the requirements and the date on which that failure became known, or could reasonably be expected to have become known, to the company; and
  - (iii) any transactions of the company during any such period; and
  - (iv) any other relevant circumstances,—
  it would be unduly harsh or otherwise inappropriate to treat the company as having ceased for the purposes of this Act to be a qualifying company,—
the Commissioner may, on the application of the company supported by such accounts or other information as the Commissioner may require, defer until the first day of a later income year than that specified under subsection (1) the date on which the company will be treated as ceasing to be a qualifying company; and this Act and the Tax Administration Act 1994 accordingly apply in respect of the company and its shareholders as if the company had ceased to be a qualifying company on that later date.
Compare: 1994 No 164 s HG 7

HG 8 Liability of electing shareholder for income tax of company

(1) Where any person elects in accordance with any of section HG 4(1) or (2) or (3) to be liable for a percentage of any income tax payable by a company, then, while the company must make an assessment in the first instance,—
- (a) the Commissioner may assess that person and, where the Commissioner does so, the person is liable as agent under this Act accordingly, as if the person were an agent for the company, for such percentage of the income tax payable by the company (including any income tax payable by the company by virtue of a shareholder election made by the company) in respect of any income year during which the company is a qualifying company and the election is at any time in effect as is equal to that person's effective interest (and, where appropriate, the effective interest of a minority shareholder) in the company in respect of the income year; and
- (b) no assessment of the company in respect of that income tax precludes an assessment of that person for the income tax, and no assessment of that person in respect of the income tax precludes an assessment of the company for the income tax.
(2) Where a person who is liable under this section for a percentage of the tax payable by a qualifying company first acquires shares in the company, or sells or otherwise disposes of that person's whole shareholding in the company, during an income year, the Commissioner may reduce the percentage of tax for which the person is liable if—
- (a) the person satisfies the Commissioner, with the support of adequate accounts and such other information as the Commissioner may require, that the proportion of the company's tax liability that is attributable to the part of the income year in which the person was a shareholder in the company is smaller than the proportion that that part income year bears to the whole income year; and
- (b) the Commissioner is satisfied in all the circumstances that it would be appropriate to reduce the person's liability to tax accordingly— and, where the Commissioner so reduces the percentage of tax liability, the person's liability under this section is determined in relation to that reduced percentage accordingly.
Compare: 1994 No 164 s HG 8

HG 9 Taxation of shareholders in qualifying companies

(1) Where any qualifying company pays a dividend to any shareholder resident in New Zealand, the provisions of section HG 13 apply in relation to that dividend.

(2) Where for any income year a loss attributing qualifying company has a net loss, the provisions of sections HG 16 and HG 17 apply to the shareholders in the company in relation to that loss.

(3) Notwithstanding any other provision of this Act, where in any income year any shareholder in a qualifying company incurs any interest expenditure in respect of money borrowed to acquire shares in that company, section DB 6 denies any deduction for that interest expenditure to the extent of the amount of any non-cash dividends (other than taxable bonus issues) which that shareholder, or any person associated with the shareholder, derives from that company in that income year.

(3A) For the purposes of subsection (3), where the associated person is associated with more than 1 shareholder in the qualifying company, the amount of any non-cash dividends (other than taxable bonus issues) derived by that person from that company in the income year is apportioned among the shareholders associated with the person in proportion to the effective interest in the company held by each of those shareholders in the relevant income year.
(4) For the purpose only of determining whether a deduction is allowed under section DB 6 for interest expenditure incurred in respect of money borrowed to acquire shares in a qualifying company,—
- (a) section HG 13 is treated as not deeming to be exempt income distributions from a qualifying company to a shareholder of that company; and
- (b) those distributions are treated as excluded from the definition of dividend.
(5) For the purposes of subsection (3), dividends to which section CD 28 applies are not deemed to be paid and derived on the earlier of the dates specified in section CD 28(3), but are instead deemed to be paid and derived at the end of the quarter in respect of which the amount of the dividend is determined under that paragraph.

Compare: 1994 No 164 s HG 9

HG 10 Taxation of qualifying company

Notwithstanding any other provision of this Act,—
- (a) sections CW 9 to CW 11 do not apply to treat as exempt income any dividend derived by a company which has been at any time before the date of derivation a qualifying company, except to the extent that the dividend is a dividend to which section CW 9 applies; and
- (b) section IG 2(2) does not apply to permit any qualifying company to offset against its net income any amount on account of—
  - (i) the loss of any other company; or
  - (ii) a payment made to any other company,— unless the other company is also a qualifying company.
Compare: 1994 No 164 s HG 10

HG 11 Taxation on election to become qualifying company

(1) Where at any time any company not a qualifying company becomes a qualifying company, that company is liable to pay a special tax by way of an income tax known as qualifying company election tax.

(1A) If a company is not a qualifying company and ceases to exist when it amalgamates with a qualifying company, the amalgamated company is liable to pay a special tax by way of income tax known as qualifying company election tax.
(1B) If subsection (1A) applies, subsection (2) applies to the amalgamated company as if—
- (a) the reference to the “relevant time” were read as referring to the time at which the amalgamating company ceases to exist; and
- (b) all references to the time or income year in which the company became a qualifying company, however expressed, were read as referring to the time at which the amalgamating company ceases to exist.
(2) The amount of qualifying company election tax payable by any company is an amount (not being less than nil) calculated in accordance with the following formula:
where—
- a is the aggregate of any amounts which would be dividends for the purposes of this Act if, at the time (referred to in this section and section HG 12 as the relevant time) immediately preceding the time at which the company became a qualifying company,—
  
  (a) the company had disposed of all its tangible and intangible property (other than cash) to an unrelated person at the relevant time for amounts of cash equal to the market value of such property at the relevant time; and
  
  (b) the company had repaid or otherwise met all of its liabilities at the relevant time (not being income tax payable as a result of the disposition of property or meeting of liabilities) for amounts of cash equal to the market value of such liabilities to a purchaser of such liabilities at the relevant time; and
  
  (c) the company had then been liquidated and any amounts of cash remaining (whether arising from the disposition or otherwise) had been distributed to its shareholders (without imputation credits or dividend withholding payment credits attached); and
  
  (d) paragraph (i) of item “j” of the formula in the definition of transitional capital amount were repealed
- b is the aggregate of the assessable income which would be derived by the company at the relevant time from taking the actions described in paragraphs (a) and (b) of item “a”, reduced by all amounts of expenditure or loss incurred in taking such actions for which this Act would allow a deduction
- c is, subject to subsection (4), the aggregate of the following amounts:
  
  (a) the amount of the balance in the company's imputation credit account immediately before the time at which the company became a qualifying company:
  
  (b) the amount of the balance in the company's dividend withholding payment account immediately before the time at which the company became a qualifying company:
  
  (c) any amount of income tax that—
  
  (i) is payable by the company in relation to an income year earlier than that in which the company became a qualifying company; and
  
  (ii) has not been paid by the company before the time it became a qualifying company; and
  
  (iii) is tax that, when paid, gives rise to a credit to the company's imputation credit account under section ME 4,—
  
  less the amount of any income tax refund due in respect of any such earlier income year that is paid to the company, or credited or available to be credited in payment of any income tax liability of the company, after the time it became a qualifying company, and that gives rise, when paid or credited, to a debit to the company's imputation credit account under section ME 5:
  
  (d) any amount of dividend withholding payment that—
  
  (i) is payable by the company in relation to dividends received before the time the company became a qualifying company; and
  
  (ii) has not been paid by the company before that time,—
  
  less the amount of any refund of dividend withholding payment made or due after that time to the company in relation to dividend withholding payment paid in respect of dividends received before that time
- d is the basic rate of income tax for companies, expressed as a decimal, stated in schedule 1, part A, clause 5, and applying in the income year of the company in which the relevant time falls.
(3) Where in any income year (in this section referred to as the relevant year) any company not a qualifying company becomes a qualifying company, that company is not entitled by virtue of any of sections IE 1, IE 3, IE 4, IF 1, and IF 3 to carry forward any net losses of that company for income years before the relevant year to the relevant year or any later income year or years.

(3A) If a company that is not a qualifying company amalgamates with a qualifying company and ceases to exist on amalgamation during an income year (referred to as the relevant year), the amalgamated company is not entitled by virtue of any of sections IE 1, IE 3, IE 4, IF 1, and IF 3 to carry forward to the relevant year or a later income year any net losses of the amalgamating company that ceases to exist for income years before the relevant year.

(4) For the purposes of this section, there is deducted, when calculating the amount of item “c” of the formula specified in subsection (2), any amount of credit to the company's imputation credit account or dividend withholding payment credit account which results from any payment of income tax or dividend withholding payment made by the company with a purpose or intention (other than a merely incidental purpose) of reducing the amount of qualifying company election tax payable by the company.

Compare: 1994 No 164 s HG 11

HG 12 Payment of qualifying company election tax

(1) Every company liable to pay qualifying company election tax in accordance with section HG 11 must—
- (a) make payment to the Commissioner of the qualifying company election tax no later than the company's terminal tax date for the tax year in which the relevant time, as defined in section HG 11(2), falls; and
- (b) at the same time as making that payment, furnish to the Commissioner a return in a form prescribed by the Commissioner, setting out such details as are required in that form.
(2) Subject to this section, and to sections 94 and 139B of the Tax Administration Act 1994, the provisions of this Act and of the Tax Administration Act 1994, so far as they are applicable and with any necessary modifications, apply with respect to qualifying company election tax, and to any late payment penalty payable under section 139B of the Tax Administration Act 1994 in respect of that qualifying company election tax as if it were income tax imposed under section BB 1, but nothing in this section is to be so construed as to include qualifying company election tax or any such late payment penalty in the expressions “income tax” or “tax” for the purposes of—
- (a) the provisions listed in section OB 6(3); or
- (b) the provisional tax rules; or
- (c) sections 120KB to 120KE of the Tax Administration Act 1994.
Compare: 1994 No 164 s HG 12

Section HG 12(2)(c): amended, on 1 October 2007, by section 115 of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

HG 13 Dividends from qualifying company

(1) Where any qualifying company pays a dividend to any person (in this section referred to as the shareholder) resident in New Zealand,—
- (a) that dividend is exempt income of the shareholder to the extent to which the dividend exceeds the aggregate of—
  - (i) the amount calculated in accordance with the following formula:
    where—
    
    a is the amount of the imputation credit deemed to have been attached to the dividend in accordance with subsection (3) (which amount is zero where no imputation credit is attached)
    
    b is the amount of the dividend withholding payment credit deemed to have been attached to the dividend in accordance with subsection (4) (which amount is zero where no dividend withholding payment credit is attached)
    
    c is the basic rate of income tax for companies, expressed as a decimal, stated in schedule 1, part A, clause 5 and applying in respect of the income year of the shareholder in which the dividend is derived; and
  - (ii) the amount of the dividend which would not be a dividend if paragraph (i) of item “j” of the formula in the definition of transitional capital amount were repealed—
  and the amount of any such imputation credit or dividend withholding payment credit is, for the purposes of this Act, deemed to be attached to that part of the dividend which is not exempt income; and
- (aa) sections CW 9 to CW 11 do not apply to treat that dividend as exempt income; and
- (b) the whole of that dividend does not constitute resident withholding income for the purposes of the RWT rules; and
- (c) where for any income year—
  - (i) the shareholder has a late balance date; and
  - (ii) the dividend is derived in the period between the preceding 31 March and that balance date,—
  the dividend is, notwithstanding section 38 of the Tax Administration Act 1994, treated for the purposes of this Act as if derived by the shareholder immediately following that balance date.
(1A) For the avoidance of doubt, a dividend that is paid by a qualifying company to any trustee shareholder and that is, or that becomes, beneficiary income of a beneficiary resident in New Zealand is exempt income of the beneficiary to the same extent as if the beneficiary were the shareholder referred to in section HG 13(1)(a) and the company had paid the dividend to the beneficiary.
(2) Notwithstanding the imputation rules or the dividend withholding payment rules, no qualifying company may attach—
- (a) an imputation credit to any dividend paid by that company except in accordance with subsection (3); or
- (b) a dividend withholding payment credit to any dividend paid by that company except in accordance with subsection (4).
(3) A qualifying company that is an imputation credit account company is, with respect to any dividend (not being a non-cash dividend other than a taxable bonus issue) paid during any imputation year while that company is a qualifying company, deemed to have attached an imputation credit to that dividend equal to the lesser of—
- (a) the maximum imputation credit which may be attached to that dividend by virtue of section ME 8(1); and
- (b) an amount calculated in accordance with the following formula:
  where—
  
  a is the balance in the company's imputation credit account on the last day of the imputation year in which the dividend is paid, being the balance before any debit is made for the attachment in accordance with this subsection of imputation credits to dividends paid by the company during the imputation year
  
  b is the amount of the dividend before attachment of any imputation credits
  
  c is the aggregate amount of all dividends (not being non-cash dividends other than taxable bonus issues) paid by the company during the imputation year before attachment of any imputation credits.
(4) A qualifying company that is a dividend withholding payment account company is, with respect to any dividend (not being a non-cash dividend other than a taxable bonus issue) paid during any imputation year while that company is a qualifying company, deemed to have attached a dividend withholding payment credit to that dividend equal to the lesser of—
- (a) the maximum dividend withholding payment credit which may be attached to that dividend by virtue of sections MG 8(1) and MG 10(1) (after taking into account for the purposes of section MG 10(1) any imputation credit attached to that dividend under subsection (3)); and
- (b) an amount calculated in accordance with the following formula:
  where—
  
  d is the balance in the company's dividend withholding payment account on the last day of the imputation year in which the dividend is paid, being the balance before any debit is made for the attachment in accordance with this subsection of dividend withholding payment credits to dividends paid by the company during the imputation year
  
  e is the amount of the dividend before attachment of any dividend withholding payment credits
  
  f is the aggregate amount of all dividends (not being non-cash dividends other than taxable bonus issues) paid by the company during the imputation year before attachment of any dividend withholding payment credits.
(5) Where a company has in any imputation year paid any dividends (not being non-cash dividends other than taxable bonus issues),—
- (a) the amount of any imputation credit attached to any of those dividends in accordance with subsection (3) is, for the purposes of section ME 5, a debit to the company's imputation credit account arising on the date the company paid the dividend; and
- (b) the amount of any dividend withholding payment credit attached to any of those dividends in accordance with subsection (4) is, for the purposes of section MG 5, a debit to the company's dividend withholding payment credit account arising on the date the company paid the dividend; and
- (c) the company must complete a company dividend statement in accordance with section 67(1) of the Tax Administration Act 1994 in respect of all dividends (not being non-cash dividends other than taxable bonus issues) so paid (whether or not any imputation credits or dividend withholding payment credits are attached), which company dividend statement must—
  - (i) detail the extent (if any) to which any of the dividends are assessable income and the extent (if any) to which any of the dividends are exempt income by virtue of subsection (1); and
  - (ii) be completed by the 31 May first succeeding the last day of the imputation year in which the dividends were paid; and
- (d) the company must complete a shareholder dividend statement in accordance with section 29 of the Tax Administration Act 1994 in respect of all dividends (not being non-cash dividends other than taxable bonus issues) paid to the shareholder in the imputation year (whether or not any imputation credits or dividend withholding payment credits are attached), which shareholder dividend statement must—
  - (i) detail the extent (if any) to which any of the dividends are assessable income and the extent (if any) to which any of the dividends are exempt income by virtue of subsection (1); and
  - (ii) be given by the 31 May first succeeding the last day of the imputation year in which the dividends were paid; and
- (e) in addition to the information to be included in a shareholder dividend statement under paragraph (d), the company must, where it is requested to do so by the shareholder, include in the shareholder dividend statement a statement of the amount of non-cash dividends paid to the shareholder during the imputation year.
(6) Sections ME 5(1)(i) and MG 5(1)(i) do not apply in the case of any qualifying company but, in the event that any qualifying company ceases to be a qualifying company,—
- (a) subsections (3) and (4) apply with respect to the imputation year in which occurs the day (in this subsection referred to as the relevant date) that immediately precedes the day on which the company ceases to be a qualifying company as if references in those subsections to an imputation year were references to the period commencing with the first day of the imputation year and ending with the close of the relevant date; and
- (b) there is a debit recorded in the company's imputation credit account on the relevant date equal to the lesser of—
  - (i) the excess (if any) of the balance in the company's imputation credit account on the relevant date (being that balance before the attachment of any imputation credits in accordance with subsection (3)) over the amount of such credits attached in accordance with subsection (3); and
  - (ii) any debit (and, if more than 1, the greatest in amount) which would have arisen before the relevant date to the company's imputation credit account by virtue of the application of section ME 5(1)(i) had this subsection not applied; and
- (c) there is a debit recorded in the company's dividend withholding payment credit account on the relevant date equal to the lesser of—
  - (i) the excess (if any) of the balance in the company's dividend withholding payment credit account on the relevant date (being that balance before the attachment of any dividend withholding payment credits in accordance with subsection (4)) over the amount of such credits attached in accordance with subsection (4); and
  - (ii) any debit (and, if more than 1, the greatest in amount) which would have arisen before the relevant date to the company's dividend withholding payment credit account by virtue of the application of section MG 5(1)(i) had this subsection not applied.
Compare: 1994 No 164 s HG 13

HG 14 Loss attributing qualifying companies

A company is in respect of any income year a loss attributing qualifying company to which section HG 16 applies where—
- (a) the company is at all times in the income year a qualifying company; and
- (b) each share in the company carries at all times in the income year the same—
  - (i) right to exercise voting power and participate in any decision-making at any time concerning—
    - (A) the distributions to be made by the company; and
    - (B) the constitution of the company; and
    - (C) any variation in the capital of the company; and
    - (D) the appointment or election of directors of the company; and
  - (ii) right (in terms of priority, amount payable per share, and otherwise) to receive or have dealt with in the shareholder's interest or on the shareholder's behalf—
    - (A) profits that may be distributed at any time by the company; and
    - (B) distributions of assets of the company on any acquisition, redemption, or other cancellation by the company of its shares or other reduction in or return of share capital of the company, whether on its liquidation or otherwise,—
as each other share in the company; and
- (c) a notice in such form as the Commissioner may allow electing that the company be a loss attributing qualifying company—
  - (i) is executed by each person who is sui juris and is at the date on which the notice is furnished a shareholder or a director in the company; and
  - (ii) is received by the Commissioner before the first day of the income year, or, in the case of a company that has not previously been required to furnish an annual return of income under the Income Tax Act 1976 or the Tax Administration Act 1994, before the time specified in section HG 4(5) as that by which notice of shareholder elections in respect of the company and that income year is required to be furnished to the Commissioner; and
  - (iii) subject to section HG 15, has not been revoked; and
- (d) no share in the company has, at any time during that income year, in the opinion of the Commissioner, been subject to any arrangement or series of related or connected arrangements for the purpose, or for purposes including the purpose, of making the company a company to which this section applies so as to defeat the intent and application of this section.
Compare: 1994 No 164 s HG 14

HG 14A Minority shareholders in loss attributing qualifying companies

For the purposes only of section HG 14, the requirements of section HG 14(c) are treated as fulfilled in respect of a shareholder who has not executed the notice of election, and who has an effective interest of less than 50% in a company at the time at which an election under section HG 14(c) is made in respect of the company, if—
- (a) any 1 or more other shareholders in the company whose effective interests in that company at that time aggregate 50% or more have executed the notice required by section HG 14(c)(i); and
- (b) all the conditions required by section HG 14 for a company to be a loss attributing qualifying company are fulfilled except that the notice required by section HG 14(c)(i) is not executed by each person who is sui juris and is at the date on which the notice is furnished a shareholder in the company.
Compare: 1994 No 164 s HG 14A

HG 15 Revocation of loss attribution elections

Sections HG 3(4) and (5), HG 5, HG 6, and HG 7 apply to an election made under section HG 14 or HG 14A, in respect of the revocation of that election, as if that election were, in the case of an election made by a director, an election made under section HG 3(1) or, in the case of an election made by a shareholder, a shareholder election made under section HG 4(1).

Compare: 1994 No 164 s HG 15

HG 16 Net losses of loss attributing qualifying company to be attributed to shareholders

(1) Subject to section HG 17, where a loss attributing qualifying company has a net loss for any income year, then, for the purposes of this Act,—
- (a) each shareholder who has an effective interest in the company for that income year is deemed to incur an amount of loss equal to the net loss of the company for that income year multiplied by the shareholder's effective interest in the company for that income year; and
- (b) subject to subsection (2), the amount of loss deemed to be incurred by each shareholder is treated for the purposes of this Act as if it were a loss incurred by that shareholder in deriving assessable income of that shareholder for that income year (except to the extent that the net loss of the company includes an attributed CFC loss or a FIF loss, in either of which cases the shareholder's amount of attributed loss is treated for the purposes of this Act as if it were attributed CFC loss or FIF loss, as the case may be, of the shareholder); and
- (c) the company is not entitled to carry that net loss forward in accordance with any of sections IE 1, IE 3, IE 4, and IF 1 to any income year succeeding that income year, but without prejudice to any right of the company under this Act to carry forward any other net loss.
(2) Where, in respect of any company, any shareholder in that company, and any income year,—
- (a) either the company, the shareholder, or both have a non-standard balance date for that income year; and
- (b) the company has a later balance date for the income year than the shareholder; and
- (c) by reason of the difference in balance dates it is not practicable for the shareholder to ascertain, within the time allowed in accordance with section 37 of the Tax Administration Act 1994 for the furnishing of the shareholder's return of income for that income year, the amount of any net loss of the company attributable to the shareholder under this section in respect of that income year; and
- (d) the shareholder elects that this subsection applies by applying accordingly the provisions of this Act,—
the amount of any net loss of the company so attributable to the shareholder in respect of that income year is, notwithstanding section 38 of the Tax Administration Act 1994, treated for the purposes of this Act as if it were incurred by the shareholder on the first day of the immediately succeeding income year of the shareholder.
(3) Notwithstanding subsections (1) and (2), where and to the extent that, in relation to any loss attributing qualifying company and any income year of that company,—
- (a) any shareholder has a part of that company's net loss attributed to that shareholder in accordance with subsections (1) and (2); and
- (b) that company's net loss results in a reduction in the aggregate value of shares in that company; and
- (c) that shareholder suffers no, or substantially no, part of such reduction, due to any factor or factors, including any right of the shareholder or any other person to sell any thing, or any right of any other person to require that shareholder or any other person to sell any thing,—
the shareholder is, for the purposes of this Act in respect of that income year, deemed to have no part of that company's net loss attributed to that shareholder in accordance with this section.
(4) Where the attribution of any amount of a company's net loss is denied to a shareholder under subsection (3), that amount—
- (a) is not attributed to any other shareholder; and
- (b) may not be carried forward by the company under any of sections IE 1, IE 3, IE 4, and IF 1.
Compare: 1994 No 164 s HG 16

HG 17 Attributed CFC losses and FIF losses

(1) Where a foreign loss election is deemed in accordance with this section to be in effect in respect of a loss attributing qualifying company in any income year,—
- (a) the amount of any attributed CFC loss and any FIF loss of the company for the income year is not included within any net loss attributed to and deemed to be incurred by shareholders under section HG 16(1)(a) and (b); and
- (b) the company may carry that amount of attributed CFC loss or FIF loss forward to a succeeding income year subject to and in accordance with section IE 3 or IE 4.
(2) A foreign loss election is deemed to be in effect in respect of any income year of a loss attributing qualifying company where—
- (a) the company is at all times in the income year a qualifying company; and
- (b) a notice in such form as the Commissioner may allow, executed by each person who is sui juris and is at the date on which the notice is furnished a shareholder in the company, electing that the company is to retain any attributed CFC losses and FIF losses, has been received by the Commissioner before—
  - (i) the first day of the income year; or
  - (ii) in the case of a company that has not previously been required to furnish an annual return of income under the Income Tax Act 1976 or the Tax Administration Act 1994, before the time specified in section HG 4(5) as that by which notice of shareholder elections in respect of the company and that income year is required to be given; and
- (c) no revocation of the foreign loss election is in effect for that income year.
(3) A foreign loss election under this section may be revoked only by furnishing to the Commissioner a notice of revocation, in such form as the Commissioner may allow, executed by all persons who are sui juris and are shareholders in the company at the time of the notice of revocation, and, subject to subsection (4), any such revocation takes effect—
- (a) where no later income year is specified, on the first day of the income year of the company in which the notice of revocation was received by the Commissioner; or
- (b) on the first day of such later income year as is specified in the notice.
(4) Any revocation of a foreign loss election under this section does not apply in respect of any attributed CFC loss or FIF loss of the company that—
- (a) has been carried forward under section IE 3 or IE 4 to the income year in which the revocation takes effect; and
- (b) arose for the company in an earlier income year.
Compare: 1994 No 164 s HG 17

HG 18 Company that ceases to be loss attributing qualifying company also ceases to be qualifying company

Where any company which is a loss attributing qualifying company for any income year ceases to be a loss attributing qualifying company for the immediately succeeding income year, that company is also deemed, for the purposes of this Act, and notwithstanding any other provision of this subpart, to have ceased to be a qualifying company on the first day of that immediately succeeding income year, but without prejudice to any ability of that company subsequently to become once again a qualifying company.

Compare: 1994 No 164 s HG 18

Subpart HH—Trusts

HH 1 Interpretation

(1) For the purposes of this section, where any person (in this subsection referred to as the first person) has made any settlement to or for the benefit of a trust or on the terms of a trust,—
- (b) where such settlement is of a nominal amount made at the request of any other person,—
that other person is, in relation to that settlement, deemed to be the settlor and not the first person.
(2) For the purposes of this section and the trust rules, without limiting the situations in which a person is a settlor by reason of that person indirectly undertaking any of the transactions specified in paragraph (a) of the definition of settlor, where a company (being at the time of settlement a controlled foreign company or which would have been at that time a controlled foreign company had it been at that time a foreign company) settles a trust or is deemed by virtue of this section to be a settlor of a trust, in respect of that trust the term settlor includes any person who at the time of the settlement of the trust held a control interest in any of the categories of control interest listed in section EX 5(1) of 10% or more, calculated in accordance with sections EX 2 to EX 7, or who would have at that time held such a control interest had that company been at that time a foreign company.

(3) For the purposes of this section and the trust rules, where a trustee of a trust (in this subsection called the first trust) settles a trust or makes any distribution to or on the terms of another trust (in this subsection called the second trust), paragraph (a) of the definition of settlor, in relation to the second trust, includes any person who is a settlor of the first trust, and includes any person who is a settlor of the first trust by the operation of this subsection.

(4) For the purposes of this section and the trust rules, where any person has, directly or indirectly, acquired any rights or powers in relation to a trustee or settlor of an existing trust, and that acquisition has the purpose or effect of enabling the person to require the trustee of the trust to treat the person or any other person nominated by that person as a beneficiary of that trust, the person is deemed to be a settlor of that trust.

(5) Subject to subsection (6), for the purposes of this section and the trust rules, a trust is a charitable trust in any tax year if the income derived by the trustees of that trust in that tax year and any income derived by the trustee of that trust in prior tax years and not previously distributed is held in trust solely for charitable purposes.
(6) For the purposes of this section and the trust rules, no trust is a charitable trust in relation to any tax year if, in that tax year, a business is carried on by or on behalf of the trustees of that trust and, in the carrying on of that business, any benefit or advantage, whether or not in money or money's worth, or any income of any of the kinds referred to in sections CB 5 to CB 21, CB 27, CB 28, CC 1, CC 3 to CC 7, CC 9, CD 1, CE 1, CE 8, CF 1, CG 3, CQ 1, CQ 4, CZ 6, FF 3, and FF 4 is able to be afforded to, or received, gained, achieved, or derived by any person—
- (a) who is a settlor or trustee of the trust by which the business is carried on; or
- (b) who is a shareholder or director of the company by which the business is carried on; or
- (c) who is a settlor or trustee of a trust that is a shareholder of the company by which the business is carried on; or
- (d) where that person and that settlor or trustee or shareholder or director referred to in any of paragraphs (a) to (c) are associated persons by virtue of section OD 7 or OD 8(3),—
and that person is able, by virtue of that capacity as settlor or trustee or shareholder or director or associated person, in any way (whether directly or indirectly) to determine, or to materially influence in any way the determination of, the nature or the amount of that benefit or advantage or that income or the circumstances in which it is or is to be so received, gained, achieved, afforded, or derived; and for the purposes of this subsection—
- (e) a person is, in relation to a trust, deemed to be a settlor of the trust and to gain a benefit or advantage in the carrying on of a business of the trust, in any case where that person has disposed of or disposes of, to the trust, any asset that is used by the trust in the carrying on of that business, and where that person retains or reserves an interest in that asset or where that asset will revert to that person:
- (f) the deriving by any trustee of any rents, fines, premiums, or other revenues from any asset is, in any case where any person, being a person of any of the kinds referred to in paragraphs (a) to (d), has disposed of or disposes of, to the trust, any asset that is used by the trustee in the deriving of those rents, fines, premiums, or other revenues, and where that person retains or reserves an interest in that asset or that asset will revert to that person, deemed to be the carrying on of any business by the trustee:
- (g) income is deemed not to be derived by any person of any of the classes referred to in paragraphs (a) to (d) in any case where the income consists of interest on money lent that, in the opinion of the Commissioner, is payable at not more than current commercial rates, having regard to the nature and term of the loan:
- (h) a person is not, by reason only that the person renders professional services to any trust or company by which a business is carried on, considered to be able to determine, or to materially influence the determination of, the nature or the amount of any benefit or advantage or income afforded to, or received, gained, achieved, or derived by that person or the circumstances in which it is or is to be so received, gained, achieved, afforded, or derived, in any case where that ability to so determine or to so materially influence results from the rendering by that person, in the course of and as part of the carrying on as a business of a professional public practice by that person, of professional services to the trust or company by which the business first mentioned in this paragraph is carried on; and, for the purposes of this paragraph, Public Trust, the Maori Trustee, and any trustee company are each deemed to be a person carrying on as a business a professional public practice.
(7) For the purposes of this section and the trust rules, where any property of the kinds described in paragraph (b) of the definition of corpus is settled on a trust, the property is, unless this Act otherwise requires, deemed to be income derived by a trustee of that trust in the tax year in which it was settled on that trust.

(8) This section and the trust rules do not apply to any unit trust or to any group investment fund to the extent to which it is treated as a company for the purposes of this Act.

(9) Where a trust that is deemed for the purposes of this Act to be a company becomes a superannuation fund, the trust is for the purposes of this Act deemed to have been wound up on the date that it becomes a superannuation fund.

(10) For the purposes of this section and the trust rules, where any person resident in New Zealand makes a settlement as an employer for the benefit of 1 or more employees on the terms of a trust established or created principally for the purpose of providing retirement benefits to beneficiaries who are natural persons, which trust is neither a foreign superannuation scheme nor a superannuation fund, that person is, in relation to that settlement, deemed not to be a settlor of that trust.

Compare: 1994 No 164 ss HH 1, CF 2(3A)(b)

Subsection (7) was amended, as from 1 April 2005, by section 64 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by inserting “paragraph (b) of” before the words “the definition” with application as from the 2005–06 income year.

HH 1A Treatment of settlements on trust

For the purposes of this subpart, if a settlement is made on a trust and further settlements are made on the same terms, a trustee of the trust may treat all settlements as 1 trust.

Compare: 1994 No 164 s HH 1A

HH 2 Trusts settled by persons before becoming resident

(1A) This section applies to a trust if—
- (a) a settlor of the trust is a natural person who on a day (the transition day)—
  - (i) becomes a New Zealand resident who is not a transitional resident:
  - (ii) ceases to be a transitional resident and continues to be a New Zealand resident; and
- (b) the trust would be a foreign trust in relation to a distribution made from property of the trust if the distribution were made on the day immediately before the settlor became a New Zealand resident.
(1) A settlor, trustee, or beneficiary of the trust may, within 12 months of the transition day, elect under section HH 4(7) to satisfy the income tax liability in respect of the taxable income of the trustee of the trust.
(2) Where an election has been made in accordance with subsection (1), for the purposes of the definition of taxable distribution,—
- (a) the trust is deemed to be a foreign trust to the extent to which any distribution from that trust consists of income, capital profits, or capital gains derived by the trustee of the trust before the date on which the election was made; and
- (b) the trust is deemed to be a qualifying trust to the extent to which any distribution from the trust consists of income, capital profits, or capital gains derived by the trustee of the trust on or after the date on which the election was made if the trustee's obligations under this Act and the Tax Administration Act 1994 in respect of the trustee's liability to income tax in respect of the trustee income derived by the trustee have been satisfied, and if, in the tax year in which the election was made or any subsequent tax year, the trustee's obligations are not satisfied, the trust is deemed to be a non-qualifying trust with respect to any distributions made in that tax year and succeeding tax years (not being distributions to which paragraph (a) applies).
(3) Where an election has not been made in accordance with subsection (1), for the purposes of the definition of taxable distribution,—
- (a) the trust is deemed to be a foreign trust to the extent to which any distribution from that trust consists of income, capital profits, or capital gains derived by the trustee of the trust before the date on which expires 12 months from the transition day (referred to in this section as the election expiry date); and
- (b) the trust is deemed to be a non-qualifying trust to the extent to which any distribution from the trust consists of income, capital profits, or capital gains derived by the trustee of the trust on or after the election expiry date.
(4) For the purposes of subsections (2) and (3), the income, capital profits, or capital gains derived in the part of the tax year before the election to pay tax was made or before the election expiry date, as the case may be, must be calculated at the option of any trustee, settlor, or beneficiary of the trust who is required to satisfy the income tax liability in respect of the taxable income of the trustee of the trust as—
- (a) the amount calculated in accordance with the following formula:
  where—
  
  a is the income, capital profits, or capital gains derived by the trustee of the trust during the tax year in which the election is made or in which the election expiry date falls
  
  b is the number of days in the tax year which fall before the day on which the election is made or before the election expiry date; or
- (b) the income, capital profits, or capital gains derived by the trustee of the trust in the part of the tax year which falls before the day on which the election is made or before the election expiry date.
Compare: 1994 No 164 s HH 2

Subsection (1A) was inserted, as from 1 October 2005, by section 116(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 116(3) and (4) of that Act as to the application of this amendment.

Subsection (1) was substituted, as from 1 October 2005, by section 116(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 116(3) and (4) of that Act as to the application of this amendment.

Subsection (3)(a) was amended, as from 1 October 2005, by section 116(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “the transition day” for “the day on which the settlor first became resident in New Zealand” with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 116(3) and (4) of that Act as to the application of this amendment.

HH 3 Income of beneficiaries

(1) The income of any person in any tax year includes any beneficiary income and any taxable distribution derived other than from a non-qualifying trust by that person in that tax year.

(2) Where any beneficiary, other than a beneficiary of a community trust, derives in any tax year beneficiary income or a taxable distribution, the trustee must in respect of that beneficiary income or taxable distribution satisfy the income tax liability of the beneficiary as agent of the beneficiary.

(3) Notwithstanding any other provision of this Act, where any person resident in New Zealand ceases to be resident in New Zealand and, within a period of not more than 5 years from the day upon which that person ceased to be resident, that person again becomes resident in New Zealand, for the purposes of this section that person is deemed to derive, on the day on which that person again becomes resident in New Zealand, any amount which would have been income of the person, if the person had during that period remained in New Zealand, as beneficiary income from a foreign trust or a non-qualifying trust or taxable distributions derived by that person during the period commencing with the day on which that person ceased to be resident in New Zealand and ending on the day on which that person again became resident in New Zealand:

provided that this subsection does not apply to beneficiary income or taxable distributions derived by that person prior to 16 December 1988 (being the date upon which the Income Tax Amendment Act (No 5) 1988 received the Royal assent).
(4) Where any person derives in any tax year any taxable distribution from a trust which is, in relation to that distribution, a non-qualifying trust, that taxable distribution is not income of the person and the person is liable for tax by way of an income tax in respect of that taxable distribution at the rate specified in schedule 1:

provided that where in that tax year the person has any net loss or net loss carried forward to which relief would be given under section IE 1 or IF 1, that person is entitled to subtract from that taxable distribution an amount calculated in accordance with the following formula:
where—
- a is such part of the net loss or net loss carried forward as the person claims must be taken into account by virtue of this proviso
- b is the minimum rate specified in schedule 1 for income tax on taxable income of trustees of trusts expressed as a decimal
- c is the rate specified in schedule 1 first mentioned in this subsection expressed as a decimal,—
and, to the extent to which any net loss or net loss carried forward is taken into account by virtue of this proviso, the loss may not be offset by the person against the person's net income or carried forward by the person.
(5) Distributions (not being beneficiary income) derived by any beneficiary in that beneficiary's capacity as beneficiary in any tax year from any trust that is in relation to that distribution a qualifying trust is excluded from being income of the beneficiary, subject to subsection (5A).
(5A) If the trustee of a community trust makes in a tax year a distribution to a person as a beneficiary of the trust and the distribution is not beneficiary income of the person, the distribution is income of the person in the tax year to the extent that the distribution does not represent—
- (a) trustee income derived by the trustee of the trust in or before the 2003-04 tax year:
- (b) the corpus of the trust:
- (c) capital profits or capital gains derived by the trustee of the trust:
- (d) a distribution, settlement, or dividend that is made to the community trust in the 2004-05 or 2005-06 tax year on the winding up of a trust or company, if—
  - (i) the community trust provided the corpus of the trust and the trust would have been for charitable purposes but for the distribution, settlement, or dividend:
  - (ii) the company is wholly-owned by the community trust and would have been established, maintained, and carried on for exclusively charitable purposes but for the distribution, settlement, or dividend.
(6) This section does not apply to a Maori authority.

Compare: 1994 No 164 s HH 3

Subsection (4) formula was substituted, as from 1 April 2005, by section 65 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

HH 3A Beneficiary income of minors

(1) If a minor derives beneficiary income,—
- (a) a trustee of the trust from which the beneficiary income is derived must pay income tax on the beneficiary income as if the beneficiary income were trustee income:
- (b) despite section HH 3(1), the beneficiary income is excluded from being income of the minor.
(2) For the purpose of debiting and crediting a beneficiary's account within a trust, income tax paid by the trustee of a trust on beneficiary income is paid on behalf of the beneficiary, being a minor.

Compare: 1994 No 164 s HH 3A

HH 3B Exemption for beneficiary income $1,000 or less

Section HH 3A does not apply if the amount of beneficiary income derived by a minor in relation to a tax year is $1,000 or less.

Compare: 1994 No 164 s HH 3B

HH 3C Source of beneficiary income

(1) Section HH 3A does not apply to beneficiary income derived by a minor from a trust if all settlements on the trust were—
- (a) made by a person who is neither a relative or legal guardian of the minor nor a person associated with the relative or legal guardian:
- (b) made by a relative, legal guardian, or associated person as an agent of the minor if the settlor has received the property from someone other than a relative, guardian, or associated person:
- (c) made by a relative, legal guardian, or associated person if the settlor is required by a court order to pay damages or compensation to the minor:
- (d) made by a relative, a legal guardian, or an associated person, against whom a protection order has been made under section 14 of the Domestic Violence Act 1995:
- (e) made according to a will, codicil, intestacy, or a court variation of a will, codicil, or intestacy if—
  - (i) the minor is alive within 12 months of the date of the settlor's death:
  - (ii) the minor has a brother, sister, half-brother, or half-sister who is alive within 12 months of the date of the settlor's death.
(2) Subsection (1)(d) applies if—
- (a) the minor is a protected person, as defined in section 2 of the Domestic Violence Act 1995, in relation to the protection order; and
- (b) the settlement on the trust is made before the protection order is made or during the time the protection order is in force.
(3) For the purposes of subsection (1)(d), a settlement on the trust may be made jointly with another person.

Compare: 1994 No 164 s HH 3C

Subsection (1)(a) was amended, as from 1 October 2005, by section 95(a) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by omitting “either” in the words before para (a).

Subsection (1)(a) to (d) and (e)(i) was amended, as from 1 October 2005, by section 95(b) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “:” for “; or”.

HH 3D Treatment of various settlements

(1) If more than 1 settlement is made on a trust and 1 or more settlements are not of the type referred to in section HH 3C, section HH 3A does not apply to beneficiary income derived by a minor from the trust if—
- (a) all the settlements that are not of the type referred to in section HH 3C satisfy either—
  - (i) paragraph (a)(i) of the definition of settlor ; or
  - (ii) paragraph (a)(ii) of the definition of settlor, being financial assistance by way of a loan for less than market value; and
- (b) the settlements that satisfy paragraph (a)(i) of the definition of settlor have a total value of not more than $5,000 at the end of the trust's tax year; and
- (c) the settlements that satisfy paragraph (a)(ii) of the definition of settlor relate to loans that are for less than market value and the loans have a total value of not more than $1,000 on any day in the trust's tax year.
(1A) Subsection (1) does not apply if more than 1 settlement is made on a trust and none of the settlements are of the type referred to in section HH 3C.

(2) For the purposes of subsection (1)(b), a settlement is valued on the date of settlement.

(3) This section does not apply if services are provided to a trust by a relative or a legal guardian of a minor or by a person associated with the relative or the legal guardian.

(4) In subsection (3), services does not include services that are incidental to the operation of the trust, such as bookkeeping or accounting services or those provided in being a trustee.

Compare: 1994 No 164 s HH 3D

HH 3E Exceptions

(1) Section HH 3A(1) does not apply to beneficiary income derived by a minor for whom a child disability allowance is paid under the Social Security Act 1964.

(2) Section HH 3A(1) does not apply to beneficiary income derived directly by a minor from a group investment fund or derived by a minor from a Maori authority.

Compare: 1994 No 164 s HH 3E

HH 3F Definitions of guardian, minor, and relative

(1) In sections HH 3C and HH 3D, guardian has the corresponding meaning to the definition of guardianship as set out in section 15 of the Care of Children Act 2004, but does not include a guardian appointed under—
- (a) section 110(1)(a), (b), (c), or (d) of the Children, Young Persons, and Their Families Act 1989; or
- (b) section 31 of the Care of Children Act 2004; or
- (c) section 53 of the Public Trust Office Act 1957 by a court order; or
- (d) section 7(4) of the Adoption Act 1955.
(2) In sections HH 3A to HH 3E, LB 1, and LB 1A, minor means a natural person who is a New Zealand resident and who is, on the balance date of the trust making the distribution of beneficiary income, under 16 years of age.

(2A) In subsection (2), the balance date of the trust is the balance date for the income year in which the income, from which the distribution of beneficiary income is made, is derived.

(3) In sections HH 3C and HH 3D, relative, in relation to a person (person A), means another person (person B) connected with person A by blood relationship, marriage or partnership, or adoption and includes the trustee of a trust under which person B has benefited or is eligible to benefit.
(4) In subsection (3),—
- (a) persons are connected by blood relationship if within the fourth degree of relationship:
- (b) persons are connected by marriage or partnership if 1 person is in a marriage, civil union or de facto relationship with the other or with a person who is connected by blood relationship, adoption or guardianship to the other:
- (c) persons are connected by adoption if one has been adopted as the child of the other or as a child of a person who is within the third degree of relationship to the other:
- (d) persons are connected by guardianship if one is a guardian of the other.
Compare: 1994 No 164 s HH 3F

Subsection (1) was amended, as from 1 July 2005, by section 151 Care of Children Act 2004 (2004 No 90) by substituting “section 15 of the Care of Children Act 2004” for “section 3 of the Guardianship Act 1968”.

Subsection (1)(b) was amended, as from 1 July 2005, by section 151 Care of Children Act 2004 (2004 No 90) by substituting “section 31 of the Care of Children Act 2004” for “section 10B of the Guardianship Act 1968”.

Subsection (3) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “marriage or partnership” for “marriage”.

Subsection (4)(b) was substituted, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11).

HH 4 Trustee income

(1) Subject to this section and sections CX 34 and DV 1 to DV 4, a trustee is required to satisfy the income tax liability in respect of the taxable income of the trustee as if the trustee were an individual beneficially entitled to the trustee income.
(2) A trustee is not entitled—
- (a) to any rebate of income tax; or
- (b) to be a cash basis person, unless the trustee meets the requirements of section EW 60.
(3) Subject to subsection (7) and section HH 2, if a trustee who is not resident in New Zealand derives in a tax year any amount from outside New Zealand that would be income if derived by a resident of New Zealand, that amount is deemed to be income of the trustee if at any time in the tax year—
- (a) any settlor of the trust is a New Zealand resident who is not a transitional resident; or
- (b) the trust is a superannuation fund; or
- (c) any trustee of the trust was resident in New Zealand and the trust is a testamentary trust or an inter vivos trust where any settlor of the trust died resident in New Zealand, whether in that tax year or otherwise.
(3A) In calculating the taxable income of a trustee to whom subsection (3) applies, and for no other purpose, the trustee is deemed not to be a non-resident for the purposes of section BD 1(4)(b) and is deemed to be resident in New Zealand for the purposes of sections EW 9, EW 11, LC 1, and MF 11, the FIF rules, and the international tax rules.
(3B) If a trustee resident in New Zealand derives in a tax year any foreign-sourced amount, that amount is exempt income if no settlor of the trust is at any time in the tax year a New Zealand resident who is not a transitional resident and that trust is neither—
- (a) a superannuation fund; nor
- (b) a testamentary trust or an inter vivos trust where any settlor of the trust died resident in New Zealand, whether in that tax year or otherwise.
(3BB) Subsection (3B) does not apply for an income year to the resident foreign trustees of a foreign trust to which sections 22(2)(fb) and (m) and 59B of the Tax Administration Act 1994 apply if a resident foreign trustee—
- (a) is not a qualifying resident foreign trustee for the income year; and
- (b) is convicted of an offence under section 143A of the Tax Administration Act 1994; and
- (c) has committed the offence in relation to information relating to the income year.
(3BC) Subsection (3BB) does not apply for an income year to the resident foreign trustees of a foreign trust if a resident foreign trustee is convicted of an offence under section 143A(1)(b) of the Tax Administration Act 1994 if—
- (a) the conviction is in relation to information relating to the income year; and
- (b) the information is supplied to the Commissioner after the conviction is entered.
(4) Subject to subsection (5), where, in relation to any trust (not being a charitable trust) and any tax year, a trustee of the trust derives trustee income, and a settlement was made to or for the benefit of the trust or on the terms of the trust by any person after 17 December 1987 (whether or not that person or any other person may have also made a settlement on the terms of that trust on or before 17 December 1987), any settlor of the trust who is resident in New Zealand at any time during that tax year is liable as agent of the trustee for any income tax payable by the trustee (other than income tax payable by the trustee in the trustee's capacity as agent) and, if there is more than 1 such settlor, those settlors are, in respect of that income tax payable, jointly and severally so liable.
(5) Subsection (4) does not apply to—
- (a) any settlor of a trust in any tax year where at all times during that tax year (or, where a settlement is first made to or for the benefit of that trust or on the terms of that trust during that tax year, at all times from the day of that settlement until the end of that tax year) a trustee of that trust is resident in New Zealand; or
- (b) any settlor of a superannuation fund; or
- (c) any settlor of a trust (being a natural person) who was at the time of any settlement by that settlor on the trust not resident in New Zealand and who had not at the time of any settlement previously (at any time after 17 December 1987) been resident in New Zealand, unless the settlor elects to satisfy the income tax liability in respect of the taxable income of the trustee under subsection (7); or
- (d) any settlor of a trust to the extent to which that settlor can establish to the satisfaction of the Commissioner by making full disclosure of all relevant facts that the liability of that settlor to satisfy the income tax liability of the trustee exceeds the liability which that settlor should bear by comparison to other persons who have made a settlement to or for the benefit of the trust or on the terms of that trust having regard to the respective settlements made by that settlor and those other persons; or
- (e) any settlor of a trust to the extent to which the trustee income is derived by virtue of the application of the financial arrangements rules to any amounts remitted by the settlor under any financial arrangement where section EW 31 applies:
provided that paragraph (d) does not apply in determining the nature and extent of the obligations of the trustee of the trust and whether those obligations have been satisfied for the purposes of the definition of qualifying trust and the application of that definition.
(6) Where in any tax year an amount is income under subsection (3) and—
- (a) either—
  - (i) no settlement was made to or for the benefit of the trust or on the terms of the trust after 17 December 1987 and, where any election has been made under section HZ 2 to pay income tax on trustee income, that election has not been made by the trustee; or
  - (ii) the only settlements made to or for the benefit of the trust or on the terms of the trust have been made by settlors who, at the time of the settlement, were not resident in New Zealand nor had previously (at any time after 17 December 1987) been resident in New Zealand and, where an election has been made under section HZ 2 to pay income tax on trustee income, that election has not been made by the trustee; and
- (b) the trustee is at all times during that tax year resident outside New Zealand,—
the amount is exempt income under subsection (3):

provided that this subsection does not affect the income tax liability of any settlor of a trust under sections HH 1 and HH 2 and the trust rules:

provided also that for the purpose of determining whether a trust is or remains a qualifying trust or is deemed to be a qualifying trust, and for the purpose of the application of the definition of qualifying trust, this subsection does not apply in determining whether the trustee's obligations in relation to that liability have been satisfied.
(7) In relation to any trust and any tax year, any trustee, settlor, or beneficiary of a trust may furnish to the Commissioner within the prescribed period for furnishing an annual return of income for that tax year, or within such other period as may be specified in section HH 2, an election to satisfy the income tax liability of the trustee for that tax year or from the date of the election and, if an election is so made, the trustee, settlor, or beneficiary is liable for any income tax payable by the trustee (other than income tax payable in the trustee's capacity as agent) and that election applies in respect of that tax year or from the date of the election, and in respect of all succeeding tax years.

(8) This section does not apply to a Maori authority.

Compare: 1994 No 164 s HH 4

Subsection (3)(a) was substituted, as from 1 October 2005, by section 117(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

Subsection (3B) was amended, as from 1 October 2005, by section 117(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “at any time in the tax year a New Zealand resident who is not a transitional resident” for “resident in New Zealand at any time during the tax year” with application as from the income year corresponding to the 2005–06 tax year.

Subsections (3BB) and (3BC) were inserted, as from 1 October 2006, by section 117(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

HH 5 Existing trusts becoming subject to tax

Where, in relation to any trust and any tax year, amounts derived by the trustee of that trust on or after any date in that tax year are trustee income, but would not have been trustee income had they been derived immediately before that date (other than only as non-resident withholding income),—

(a) the cost for the purposes of this Act at that date of the premises, plant, machinery, equipment, and trading stock of that trust is deemed to be, at the option of any person who is liable for any income tax payable by the trustee,—
- (i) the historical cost of the asset, less accumulated amounts of depreciation loss (if any), or other value at that date used for the purposes of income tax calculations in any country or territory in which there has been a liability to income tax in respect of the trustee income of the trust (being a value not higher than the market value at that date); or
- (ii) the value which would be used for the purposes of this Act at that date calculated as if the trustee income of that trust had at all times been assessable income under this Act (other than only as non-resident withholding income):

(b) the consideration for a financial arrangement on that date is, at the option of the person who is liable for income tax payable by the trustee,—

(i) the market value of the financial arrangement on that date; or

(ii) the absolute value of the result of the formula—

consideration paid to the person + expenditure – consideration paid by the person – income

where—

consideration paid to the person	is the consideration paid to the person for all periods before the accounting period
expenditure	is expenditure that would have been incurred under the financial arrangements rules for all periods before the accounting period
consideration paid by the person	is the consideration paid by the person for all periods before the accounting period
income	is income that would have been derived under the financial arrangements rules for all periods before the accounting period.

Compare: 1994 No 164 s HH 5

HH 6 Distributions from trusts

(1) Subject to subsection (2), where in any tax year any distribution from a trust is made to a beneficiary by any trustee, that distribution is, for the purposes of sections HH 1 and HH 2 and the trust rules, deemed to consist of—
- (a) the income derived by the trustee in that tax year (whether, as between the parties to the trust, the income is treated as derived by a beneficiary or not) less any deductions in that tax year required to be taken into account under this Act for the purpose of calculating net or taxable income, not being income deemed by this section to have constituted part of any earlier or contemporaneous distribution from that trust in that tax year; and
- (b) to the extent to which the distribution exceeds the amount specified in paragraph (a), income derived by the trustee in preceding tax years (not being beneficiary income) during which the trust was in existence less any deductions in that tax year required to be taken into account under this Act for the purpose of calculating net or taxable income, not being amounts deemed by this section to have constituted part of any earlier or contemporaneous distribution from that trust; and
- (c) to the extent to which the distribution exceeds the amounts specified in paragraphs (a) and (b), profits derived during that tax year by the trustee of the trust from realisation of a capital asset of the trust or any other capital profit or capital gain realised during that tax year by the trustee (not being amounts required to be taken into account under this Act for the purpose of assessing income tax) less any capital loss incurred by the trust in that tax year (not being a loss required to be taken into account under this Act for the purpose of assessing income tax), not being profits or gains deemed by this section to have constituted part of any earlier or contemporaneous distribution from that trust in that tax year; and
- (d) to the extent to which the distribution exceeds the amounts specified in paragraphs (a), (b), and (c), the distribution is deemed to be out of the amount specified in paragraph (c) for preceding tax years during which the trust was in existence, not being amounts deemed by this section to have constituted part of any earlier or contemporaneous distribution from that trust; and
- (e) to the extent to which the distribution exceeds the amounts specified above, corpus of the trust.
(2) Subsection (1) does not apply—
- (a) to any distribution from a trust which is a qualifying trust (other than a qualifying trust in relation to which an election to pay income tax on trustee income has been made for the purposes of section HZ 2); or
- (b) to any distribution from a trust—
  - (i) created by will or codicil or by an order of court varying or modifying the provisions of any will or codicil; or
  - (ii) created on any intestacy or partial intestacy; or
  - (iii) on which no settlement was made after 17 December 1987,—
  and the trustee has no discretion as to the source nature and amount of distributions to beneficiaries, including but not limited to the classification of trust property as capital or income; or
- (c) to any distribution that is a distribution only by virtue of the application of paragraph (b)(i) or (ii) of the definition of distribution and not by virtue of the application of any other part of that definition; or
- (d) to any distribution from a trust which is one to which section HH 2(2) applies (except where the trust is deemed to be a non-qualifying trust under paragraph (b) of that subsection)—
and in such case except in the case of a distribution specified in paragraph (c) of this subsection the distribution is deemed to consist of such amounts as reflect the terms of the trust or the terms of the exercise of the discretion of the trustee, and, in the case of a distribution specified in paragraph (c), the distribution is a taxable distribution.
(3) Subject to subsection (2), where and to the extent to which in relation to any distribution the records maintained in relation to any trust do not permit subsection (1) to be applied accurately to determine the constituent elements of any distribution, the distribution made is a taxable distribution.

(4) For the purposes of this section, in determining in relation to any trust and to any beneficiary the constituent elements of any distribution, no amount of income or capital profits or gains derived by the trustee of the trust is treated as having been distributed to any other beneficiary of that trust if the effect is that any part or all of the distribution in question would be treated as not being a taxable distribution, unless that amount distributed to that other beneficiary was distributed in a bona fide transaction which placed the whole of that amount beyond the possession and control of the trustee in the trustee's capacity as trustee of that trust and which transaction did not itself constitute a settlement.

Compare: 1994 No 164 s HH 6

HH 7 Commissioner may determine amount of trustee income

Where any person—
- (a) has failed to disclose for any tax year in accordance with section 59 of the Tax Administration Act 1994 a trust of which that person is a settlor or any of the further details required by the Commissioner; or
- (b) has failed to disclose any information requested by the Commissioner under section 17 of the Tax Administration Act 1994 in relation to that trust; or
- (c) is unable to obtain sufficient information to calculate the trustee income of that trust for any tax year,—
the Commissioner may determine the amount of trustee income for the tax year in such manner as the Commissioner considers fair and reasonable.
Compare: 1994 No 164 s HH 7

HH 8 Income received by trustee after death of deceased person

Any amount received in any tax year by the trustee of the estate of a deceased person is deemed to be income derived by the trustee in that tax year if it does not represent income derived by the deceased person during that person's lifetime, but would have been included in that person's income if that person had been alive when it was received.

Compare: 1994 No 164 s HH 8

Subpart HI—Maori authorities

HI 1 Application of Act to Maori authority

HI 2 Eligibility to be Maori authority

HI 3 Election to become Maori authority

HI 4 Distributions by Maori authority

HI 5 Amount distributed to member by Maori authority

HI 6 Proportional allocation required if distribution includes amount other than taxable Maori authority distribution

HI 7 Distribution includes Maori authority credit attached and RWT deducted

HI 8 Treatment of companies and trusts that elect to apply this subpart

HI 9 Market value calculations

HI 1 Application of Act to Maori authority

(1) The application to a Maori authority of a provision that is not in the Maori authority rules is subject to the Maori authority rules.
(2) A Maori authority may not—
- (a) offset any part of a net loss against net income of another taxpayer that is not a Maori authority:
- (b) offset net income against any part of a net loss of another taxpayer that is not a Maori authority:
- (c) amalgamate with a company that is not a Maori authority:
- (d) be part of a consolidated group that includes a company that is not a Maori authority:
- (e) be a co-operative company if a shareholder is not a Maori authority.
Compare: 1994 No 164 s HI 1

HI 2 Eligibility to be Maori authority

The following persons are eligible to be a Maori authority:
- (a) a company that is established by an order made under Te Ture Whenua Maori Act 1993 (Maori Land Act 1993):
- (b) the trustees of a trust that is established by an order made under Te Ture Whenua Maori Act 1993 (Maori Land Act 1993):
- (c) a company that owns land that is subject to Te Ture Whenua Maori Act 1993 (Maori Land Act 1993):
- (d) the trustees of a trust who own land that is subject to Te Ture Whenua Maori Act 1993 (Maori Land Act 1993):
- (e) the Maori Trustee in the Maori Trustee's capacity as an agent for an owner of land that is subject to Te Ture Whenua Maori Act 1993 (Maori Land Act 1993):
- (f) a Maori Trust Board, as defined in section 2 of the Maori Trust Boards Act 1955:
- (g) the Crown Forestry Rental Trust, established by deed in accordance with section 34 of the Crown Forest Assets Act 1989:
- (h) Te Ohu Kai Moana Trustee Limited, established in accordance with section 33 of the Maori Fisheries Act 2004:
- (i) Aotearoa Fisheries Limited, established in accordance with section 60 of the Maori Fisheries Act 2004:
- (ia) a company that is—
  - (i) established by a mandated iwi organisation to be an asset-holding company, as contemplated by section 12(1)(d) of the Maori Fisheries Act 2004:
  - (ii) recognised by Te Ohu Kai Moana Trustee Limited as a mandated iwi organisation under section 13(1) of the Maori Fisheries Act 2004:
- (ib) the trustees of a trust that is recognised by Te Ohu Kai Moana Trustee Limited as a mandated iwi organisation under section 13(1) of the Maori Fisheries Act 2004:
- (j) the trustees of the trusts that are established by Te Ohu Kai Moana Trustee Limited in accordance with sections 79 and 92 of the Maori Fisheries Act 2004:
- (k) a company that—
  - (i) on behalf of Maori claimants, receives and manages assets that are transferred by the Crown as part of the settlement of a claim under the Treaty of Waitangi; and
  - (ii) is contemplated by the deed of settlement of the claim as performing the functions referred to in subparagraph (i):
- (l) the trustees of a trust who—
  - (i) on behalf of Maori claimants, receive and manage assets that are transferred by the Crown as part of the settlement of a claim under the Treaty of Waitangi; and
  - (ii) are contemplated by the deed of settlement of the claim as performing the functions referred to in subparagraph (i).
Compare: 1994 No 164 s HI 2

Paragraphs (h), (i) and (j) were substituted, as from 29 November 2004, by section 214 Maori Fisheries Act 2004 (2004 No 78). See clause 3 Maori Fisheries (Appointed Day) Order 2004 (SR 2004/401).

Paragraphs (ia) and (ib) were inserted, as from 29 November 2004, by section 214 Maori Fisheries Act 2004 (2004 No 78). See clause 3 Maori Fisheries (Appointed Day) Order 2004 (SR 2004/401).

HI 3 Election to become Maori authority

(1) A person who is eligible to be a Maori authority may elect to become a Maori authority by giving notice to the Commissioner.

(2) Upon receiving a notice of election by a person, the Commissioner must give to the person a notice accepting the election.
(3) A person who elects to become a Maori authority becomes a Maori authority—
- (a) on the first day of the income year in which the person gives notice of the election to the Commissioner, if paragraph (b) does not apply:
- (b) on the first day of the income year immediately succeeding the income year in which the person gives notice of the election to the Commissioner, if the person nominates that date in the notice of the election.
(4) An election by a person to become a Maori authority ceases to be effective if the person—
- (a) gives notice to the Commissioner that the election is cancelled, whereupon the election ceases to be effective from the date that is given in the notice:
- (b) ceases to be a Maori authority.
(5) A person who is a Maori authority under this Act at the end of the 2003-04 tax year ceases to be a Maori authority at that time unless the person—
- (a) is eligible at the beginning of the 2004-05 tax year to be a Maori authority; and
- (b) gives to the Commissioner a notice of an election to become a Maori authority that the Commissioner accepts at or before the end of the 2004-05 tax year.
Compare: 1994 No 164 s HI 3

Subsection (3) was substituted, as from 1 October 2005, by section 209 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

HI 4 Distributions by Maori authority

(1) The following amounts are treated as distributions by a Maori authority:
- (a) an amount that is paid or credited by the Maori authority to a member in any manner or under any name:
- (b) an amount that is applied by the Maori authority exclusively for the member:
- (c) an amount that is advanced by the Maori authority to a member to the extent to which the making of the advance is not a bona fide investment by the Maori authority but is virtually a distribution of income:
- (d) if property is disposed of by the Maori authority to a member without consideration in money or money's worth, or for a consideration that is less than the market value of the property, the amount by which the market value of the property is more than the amount of consideration:
- (e) if property is disposed of by a member to the Maori authority for a consideration that is more than the market value of the property, the amount by which the market value of the property is less than the amount of consideration:
- (f) a taxable bonus issue.
(2) A distribution by a Maori authority to a member that, but for this subsection, would be a dividend for the member—
- (a) is treated as being a distribution by the Maori authority to the member; and
- (b) is treated as not being a dividend paid by the Maori authority to the member except for the purposes of section CW 10.
(3) A Maori authority that is a co-operative company may make a notional distribution to a member under section ME 35 as if a Maori authority credit were an imputation credit.

Compare: 1994 No 164 s HI 4

Subsection (1)(e) was amended, as from 1 October 2005, by section 210 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “consideration:” for “consideration:”.

Subsection (1)(f) was inserted, as from 1 October 2005, by section 210 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subsection (3) was amended, as from 1 April 2005, by section 96 Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “ME 35” for “ME 5”.

HI 5 Amount distributed to member by Maori authority

(1) An amount distributed by a Maori authority to a member is—
- (a) income of the member, if the amount is a taxable Maori authority distribution or a notional distribution:
- (b) not income of the member, otherwise.
(2) Subject to subsection (3), an amount distributed by a Maori authority to a member is a taxable Maori authority distribution if the distribution is made from income of the Maori authority that is—
- (a) derived by the Maori authority in the 2004-05 tax year or a subsequent tax year; and
- (b) not exempt from tax in the hands of the Maori authority.
(3) A cash distribution by a Maori authority to a member is not a taxable Maori authority distribution if the Maori authority—
- (a) makes the distribution in respect of a notional distribution; and
- (b) has made a determination under section ME 35 in respect of the notional distribution.
(4) A taxable bonus issue that is made by a Maori authority to a member is a taxable Maori authority distribution.

Compare: 1994 No 164 s HI 5

Subsection (4) was inserted, as from 1 October 2005, by section 211 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

HI 6 Proportional allocation required if distribution includes amount other than taxable Maori authority distribution

If a Maori authority makes a distribution that consists of a taxable Maori authority distribution and another amount, the Maori authority must allocate an equal proportion of each type of distribution to every member to whom the distribution is made.

Compare: 1994 No 164 s HI 6

HI 7 Distribution includes Maori authority credit attached and RWT deducted

For the purposes of this Act, the income of a member includes the amount of a Maori authority credit attached, or treated as being attached under section NF 8A, to a distribution.

Compare: 1994 No 164 s HI 7

HI 8 Treatment of companies and trusts that elect to apply this subpart

Table HI 8—Transitional rules

CONSEQUENCES OF CHANGE IN ENTITY STAUS FOR PURPOSE OF MAORI AUTHORITY RULES
Row	If	becomes	then
1	a company	a Maori authority	(a)	the company ceases to be an imputation credit account company and the rules relating to a company ceasing to be an imputation credit account company apply; and
			(b)	retained earnings, accumulated profits, and capital reserves are treated as an amount from which may be made a distribution that is not a taxable Maori authority distribution.
2	a trust	a Maori authority	trustee income is treated as an amount from which may be made a distribution that is not a taxable Maori authority distribution.
3	a Maori Authority	a company	(a)	the Maori authority may transfer a credit balance that is not a in the Maori authority credit account to the company's imputation rity credit account, and section MK 8 applies in respect of a debit balance in the Maori authority credit account; and
			(b)	taxable income derived by the Maori authority in the 2003-04 or an earlier tax year is available subscribed capital.
4	a Maori authority	a trust that is not a Maori authority	taxable income derived by the Maori authority is treated as trustee income
Row	If	becomes	and reverts to being	then
5	a Maori authority	a company that is not a Maori authority	a Maori authority	(a)	market value calculations are required in accordance with section HI 9; and
				(b)	the company must apply row 1.
6	a Maori authority	a trust that is not a Maori authority	a Maori authority	(a)	market value calculations are required in accordance with section HI 9; and
				(b)	the trust must apply row 2.
How to use this table
Read columns from left to right according to the row that fits your situation.

(1) If a company becomes a Maori authority, the company must apply row 1 of table HI 8.

(2) If a trust becomes a Maori authority, the trust must apply row 2 of table HI 8

(3) If a Maori authority is a company and ceases to be a Maori authority, the former Maori authority must apply row 3 of table HI 8.

(4) If a Maori authority is a trust and ceases to be a Maori authority, the former Maori authority must apply row 4 of table HI 8.

Compare: 1994 No 164 s HI 8

Row 4 of Table HI 8 was substituted, as from 1 October 2005, by section 212 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

HI 9 Market value calculations

(1) This section applies to a company or the trustees of a trust that, having ceased to be a Maori authority, become a Maori authority again.
(2) For the purposes of this Act, such a company is treated as—
- (a) disposing of its property immediately before becoming a Maori authority for a consideration that is the market value of the property on the date of disposal; and
- (b) acquiring the property of the Maori authority for a consideration that is the market value of the property on the date of the disposal referred to in paragraph (a).
(3) The market value of the property is the market value for both the company and the Maori authority.
(4) For the purposes of this Act, such trustees are treated as—
- (a) disposing of the trust's property immediately before becoming a Maori authority for a consideration that is the market value of the property on the date of disposal; and
- (b) acquiring the property of the Maori authority for a consideration that is the market value of the property on the date of the disposal referred to in paragraph (a).
(5) The market value of the property is the market value for both the trustees and the Maori authority.
(6) For the purpose of applying depreciation provisions, the cost to a Maori authority of property that is affected by this section is the lower of—
- (a) the market value of the property on the date of acquisition; and
- (b) the original cost of the property to the company or the trust.
Compare: 1994 No 164 s HI 9

Subpart HJ—Superannuation

HJ 1 Government Superannuation Fund

The Government Superannuation Fund Authority is liable for income tax in the same manner in all respects as if the Fund were a superannuation scheme that is a trust and the Government Superannuation Fund Authority were the trustee of that scheme.

Compare: 1994 No 164 s HJ 1

Subpart HK—Agency

Agents generally

HK 1 Agent to make returns and be assessed as principal

HK 2 Rate and amount of tax payable by agent

HK 3 Liability of principal not affected

HK 4 Agent may recover tax from principal

HK 5 Agent may retain from money of principal amount required for tax

HK 6 Assessment deemed authority for payment of tax by agent

HK 7 Agents to be personally liable for payment of tax

HK 8 Relation of principal and agent arising in effect

Special cases of agency

HK 9 Guardian of person under disability to be agent

HK 10 Liability of mortgagee in possession

HK 11 Liability for tax payable by company left with insufficient assets

HK 12 Company deemed agent of debenture holders

HK 13 Modification of agency provisions in respect of income from company debentures

Agents of absentees and non-residents

HK 16 Liability of agent of absentee principal for returns and tax

HK 17 Partner of absentee deemed agent

HK 18 Master of ship deemed agent of absentee owner

HK 19 Tenant, mortgagor, or other debtor to be agent of absentee landlord, mortgagee, or other creditor

HK 20 Person having disposal of income deemed agent

HK 21 Company to be agent of absentee shareholders

HK 22 Trustee of group investment fund to be agent of absentee investors

HK 23 Banking company to be agent of absentee depositors

HK 24 Liability as agent of employer of non-resident taxpayer and employer's agent

HK 25 Non-resident trader to be agent of employees in New Zealand

HK 26 Agents in New Zealand of principals resident abroad

Agents generally

HK 1 Agent to make returns and be assessed as principal

(1) A person who is an agent for a principal under this Act or under the Tax Administration Act 1994 is, in the person's capacity as agent for that principal, treated as being a separate taxpayer with respect to the income in respect of which the person is agent and must—
- (a) make all assessments that the principal is required to make; and
- (b) furnish all tax returns that the principal is required to furnish; and
- (c) satisfy the income tax liability of the principal.
(2) A person who is an agent under subsection (1) is not entitled to a rebate other than a rebate to which the agent's principal is entitled.

Compare: 1994 No 164 s HK 1

HK 2 Rate and amount of tax payable by agent

Except where otherwise expressly provided by this Act, the rate of tax used to calculate an agent's income tax liability must be determined by reference to the taxable income of the principal, but it must be charged and payable in the same proportion as the income subject to section HK 1 bears to the taxable income of the principal.

Compare: 1994 No 164 s HK 2

HK 3 Liability of principal not affected

(1) Nothing in this Act relating to an agent is to be so construed as to release the principal from liability to make assessments, furnish returns, and to be charged with tax.
(1A) With the Commissioner's agreement, a principal may agree with their agent that the principal will—
- (a) make an assessment that the agent would be required to make; and
- (b) furnish a return that the agent would be required to furnish; and
- (c) satisfy an income tax liability that the agent would be required to satisfy.
(2) No assessment of the agent precludes an assessment of the principal for the same tax, nor does an assessment of the principal by the Commissioner preclude an assessment of the agent by the Commissioner for the same tax, and the principal and agent are jointly and severally liable for all tax for which the agent is liable.

(3) When 2 or more persons are liable as agents in respect of the same tax, they are jointly and severally liable for it.

Compare: 1994 No 164 s HK 3

HK 4 Agent may recover tax from principal

When an agent pays any tax, the agent may recover the amount so paid from the agent's principal or may deduct the amount from any money in the agent's hands belonging or payable to the agent's principal.

Compare: 1994 No 164 s HK 4

HK 5 Agent may retain from money of principal amount required for tax

An agent may from time to time during the tax year, or at any later time, retain out of any money belonging or payable to the agent's principal such sums as may reasonably be deemed sufficient to pay the tax for which the agent is or may become liable.

Compare: 1994 No 164 s HK 5

HK 6 Assessment deemed authority for payment of tax by agent

An assessment made by the Commissioner is, as between an agent and the agent's principal, a sufficient authority for the payment by the agent of the tax so assessed and the agent is entitled as against the agent's principal to reimbursement accordingly.

Compare: 1994 No 164 s HK 6

HK 7 Agents to be personally liable for payment of tax

(1) Every person who is an agent is personally liable for the income tax liability of the person in respect of the person's taxable income as agent.

(2) When the Commissioner is satisfied that an agent has no money of the agent's principal with which the agent can pay the tax, and that the agent has not paid away any such money after an assessment in respect of the agent has been made, and that immediate enforcement of payment by the agent would be a cause of hardship, the Commissioner may set a new due date for payment of the tax assessed as payable in the notice of assessment.

Compare: 1994 No 164 s HK 7

HK 8 Relation of principal and agent arising in effect

When the Commissioner is satisfied that any person carrying on business in New Zealand (in this section referred to as the agent) is so far under the control of any other person carrying on business in New Zealand or elsewhere (in this section referred to as the principal) that the relation between them is in effect that of agent and principal, the Commissioner may treat the first-mentioned business as that of the principal, and as being carried on by the agent on the principal's behalf, and may require returns to be made, and may make assessments accordingly, and the principal and agent are liable for income tax accordingly.

Compare: 1994 No 164 s HK 8

Special cases of agency

HK 9 Guardian of person under disability to be agent

Every person who, as guardian, manager, or otherwise, has the receipt, control, or disposition of any income derived by a person under any legal disability is for the purposes of this Act and the Tax Administration Act 1994 the agent of that person in respect of that income.

Compare: 1994 No 164 s HK 9

HK 10 Liability of mortgagee in possession

For the purposes of this Act and the Tax Administration Act 1994, a mortgagee in possession of any land or other property is deemed to be the agent of the mortgagor in respect of any income derived by that mortgagee from that land or other property on behalf of or for the benefit of the mortgagor.

Compare: 1994 No 164 s HK 10

HK 11 Liability for tax payable by company left with insufficient assets

(1) This section applies where—
- (a) any arrangement has been entered into in relation to a company; and
- (b) an effect of that arrangement is that the company is unable to satisfy under this Act a liability (called in this section the tax liability) of the company, whether arising before or after the arrangement is entered, for—
  - (i) income tax:
  - (ii) a civil penalty:
  - (iii) an amount payable under Part 7 of the Tax Administration Act 1994; and
- (c) it can reasonably be concluded that—
  - (i) a director of the company at the time of entry into the arrangement who had made all reasonable inquiries into the affairs of the company would have anticipated at that time that the tax liability would be, or would be likely to be, required to be satisfied by the company under this Act; and
  - (ii) a purpose of the arrangement was to have the effect specified in paragraph (b).
(2) This section does not apply to—
- (a) any arrangement to which the Commissioner is a party; or
- (b) any arrangement to the extent that the Commissioner is satisfied that the tax liability is less than or equal to any amount of income tax—
  - (i) arising under this Act as a direct result of the performance of the arrangement; and
  - (ii) the liability for which has been duly satisfied under this Act; or
- (c) any arrangement entered into at a time when the company is under statutory management under the Reserve Bank of New Zealand Act 1989 or the Corporations (Investigation and Management) Act 1989.
(3) Where any arrangement to which this section applies has been entered into, all persons who were directors of the company at the time the arrangement was entered into are, subject to subsection (6), jointly and severally liable for the tax liability as agent of the company.
(4) Where any arrangement to which this section applies has been entered into, any person who was—
- (a) a controlling shareholder at the time the arrangement was entered into; or
- (b) a person who had a voting interest or market value interest in the company (calculated, in any case where the person is a company, as if the person were not a company) at the time the arrangement was entered into, where it could reasonably be concluded, having regard to the materiality of the benefit derived by the person from the arrangement, that the person was a party to the arrangement,—
is liable as agent of the company for—
- (c) the tax liability (excluding a civil penalty or an amount payable under Part 7 of the Tax Administration Act 1994 that is part of the tax liability) to the extent that the amount of the tax liability (so exclusive) does not exceed the greater of—
  - (i) the market value of the person's direct and indirect shareholding in the company at the time of entry into the arrangement; and
  - (ii) the value of any benefit derived by the person from the arrangement; and
- (d) that proportion of a civil penalty or an amount payable under Part 7 of the Tax Administration Act 1994 that is part of the tax liability, which is equal to the proportion which the amount for which the person is liable under paragraph (c) represents as a proportion of the tax liability (excluding the civil penalty or the amount payable under Part 7 of the Tax Administration Act 1994).
(5) A limitation placed on the liability of any person under subsection (4) applies notwithstanding section HK 3(3).
(6) Notwithstanding subsection (3), a director is not liable under that subsection for any tax liability of the company where the Commissioner is satisfied that the director derived no benefit from the arrangement and either—
- (a) the director has, at the first reasonable opportunity after becoming aware of the arrangement, or of those aspects of the arrangement that render it subject to this section,—
  - (i) formally recorded with the company his or her dissent in relation to the arrangement; and
  - (ii) notified the Commissioner of the arrangement and of his or her dissent from that arrangement; or
- (b) the director satisfies the Commissioner that—
  - (i) the director was not at the material time or times involved in the executive management of the company; and
  - (ii) the director had no knowledge of the arrangement, or of those aspects of the arrangement that render it subject to the application of this section.
(7) Subject to the time bar, but notwithstanding any other provision of this Act or the Tax Administration Act 1994, for the purposes of giving effect to this section where a company has been liquidated, the Commissioner may at any time after the liquidation make or amend any assessment of a company under this Act or an earlier Act or the Tax Administration Act 1994 in respect of any tax liability of the company as if the company had not been liquidated.

(8) Where the Commissioner makes or amends any assessment under subsection (7), the Commissioner must nominate 1 or more persons whom the Commissioner considers to be liable in respect of the tax liability specified in that assessment and that person or those persons are treated, for the purposes of this Act and the Inland Revenue Acts in respect of any notification or objection procedure in relation to that assessment or amended assessment, as the agent or agents of the company.
(9) No person is liable under this section as agent for the tax liability of a company in respect of any particular tax year where—
- (a) the company has furnished returns for that tax year before the expiry of the time allowed under section 37 of the Tax Administration Act 1994 for the furnishing of returns for the tax year in which the company is liquidated; and
- (b) the Commissioner fails to issue a notice of assessment of the company for the particular tax year before the expiry of 4 years following the end of the tax year in which the company is liquidated.
(10) In this section,—

controlling shareholder means, at any time at which an arrangement to which this section applies is entered into, in respect of any company, any person whose voting interest or market value interest in that company, aggregated with the voting interest or market value interest or interests (as the case may be) of any other person or persons who are at that time associated with that person, at that time (calculated, in any case where either the person or any such associated person is a company, as if neither that person nor any such associated persons were companies and as if sections OD 3(3)(c) and (d) and OD 4(3)(c) and (d) were omitted from this Act) is equal to or greater than 50%
director means—
- (a) a person occupying the position of director by whatever name called:
- (b) in the case of an entity deemed or assumed to be a company by virtue of any provision of this Act, which entity does not have directors as such, any trustee, manager, or other person who acts in relation to that entity in the same or a similar fashion as a director would act were that entity a company incorporated in New Zealand under the Companies Act 1993.
(11) Except as otherwise specifically provided in this section, a person's market value interest or voting interest in a company is determined in accordance with sections OD 2 to OD 4.

Compare: 1994 No 164 s HK 11

Subsection (1)(b) was substituted, as from 21 June 2005, by section 66(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Subsection (4)(c) was amended, as from 21 June 2005, by section 66(2) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “(excluding a civil penalty or an amount payable under Part 7 of the Tax Administration Act 1994 that is part of the tax liability)” for “(exclusive of any late payment penalty or interest arising under this Act or the Tax Administration Act 1994 for late payment of any part of the tax liability)” with application as from the 2005–06 income year.

Subsection (4)(d) was amended, as from 21 June 2005, by section 66(3)(a) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “a civil penalty or an amount payable under Part 7 of the Tax Administration Act 1994 that is part of the tax liability” for “any late payment penalty or interest arising under this Act or the Tax Administration Act 1994 for late payment, which comprises part of the tax liability” with application as from the 2005–06 income year.

Subsection (4)(d) was amended, as from 21 June 2005, by section 66(3)(b) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “(excluding the civil penalty or the amount payable under Part 7 of the Tax Administration Act 1994)” for “(exclusive of any such late payment penalty or interest)” with application as from the 2005–06 income year.

HK 12 Company deemed agent of debenture holders

Save as otherwise provided in sections FC 1 and HK 13, every company which has issued debentures, whether charged on the property of the company or not, is for the purposes of this Act and the Tax Administration Act 1994 the agent of all debenture holders, whether absentees or not, in respect of all income derived by them from those debentures.

Compare: 1994 No 164 s HK 12

HK 13 Modification of agency provisions in respect of income from company debentures

(1) The duty to act as the agents of debenture holders imposed on companies by section HK 12 does not apply with respect to debentures issued to any person resident in New Zealand if the company that has issued the debentures has supplied to the Commissioner, before an assessment has been made, or should have been made, in any tax year taking into account the income derived from those debentures, a certified list specifying the numbers of the debentures or other particulars sufficient to identify them, the names, addresses, and descriptions of the persons to whom the debentures have been issued, the interest derived or derivable from the debentures, and such other particulars as may be prescribed.

(2) Where any such list is supplied the person named in it as the holder of any debentures is liable for income tax (though not to the exclusion of any other person) accordingly, unless and until that person satisfies the Commissioner that they have transferred or assigned the debentures, and has given notice to the Commissioner in the prescribed form of the name, address, and description of the transferee or assignee.

(3) Every person being the transferee or assignee of any debentures in like manner remains personally liable in respect of them (though not to the exclusion of any other person) unless and until the person has given notice to the Commissioner in the prescribed form of the transfer or assignment of the debentures.

(4) Any tax paid by the former holder of any debentures in respect of the taxable income calculated taking into account income derived from the debentures by a subsequent holder is deemed to be paid on behalf of that subsequent holder so far as it does not exceed the income tax liability which the subsequent holder might personally have had in respect of those debentures and may be recovered by the former holder from the subsequent holder accordingly.

Compare: 1994 No 164 s HK 13

Agents of absentees and non-residents

HK 16 Liability of agent of absentee principal for returns and tax

Every person who in New Zealand carries on any business for and on behalf of a principal who is an absentee is for the purposes of this Act and the Tax Administration Act 1994 the agent of that principal in respect of all income derived by the principal through the business so carried on in New Zealand by means of that agent, whether the income comes to the hands of the agent or not.

Compare: 1994 No 164 s HK 16

HK 17 Partner of absentee deemed agent

Every person who in New Zealand carries on business in partnership with an absentee is for the purposes of this Act and the Tax Administration Act 1994 the agent of that absentee in respect of the absentee's share of the amount that would be income of the business if the business were a person resident in New Zealand.

Compare: 1994 No 164 s HK 17

HK 18 Master of ship deemed agent of absentee owner

(1) When an absentee, by means of any ship owned by the absentee or under charter to the absentee, carries on the business of the carriage of merchandise, mails, or passengers, the master of that ship is (though not to the exclusion of any other agent) the agent of that absentee for the purposes of this Act and the Tax Administration Act 1994 in respect of all income so derived by the absentee.

(2) Pending the payment of any tax assessed against such an absentee or against any person who is the absentee's agent for the purposes of this Act and the Tax Administration Act 1994, a Customs officer must, on the requisition of the Commissioner, withhold the clearance of the ship in respect of which the tax is payable.

Compare: 1994 No 164 s HK 18

HK 19 Tenant, mortgagor, or other debtor to be agent of absentee landlord, mortgagee, or other creditor

(1) Any tenant, mortgagor, or other person who transmits from New Zealand to any landlord, mortgagee, or other creditor, being an absentee, any rent, interest, or other money being income derived by that absentee from New Zealand, is for the purposes of this Act and the Tax Administration Act 1994 the agent of that absentee in respect of all money so transmitted at any time after the Commissioner has given notice to the person that the person is accountable as the agent of that absentee.

(2) For the purposes of this section, any money paid by or on account of a person resident in New Zealand from a fund situated out of New Zealand is deemed to be money transmitted by that person from New Zealand.

Compare: 1994 No 164 s HK 19

HK 20 Person having disposal of income deemed agent

Every person who in New Zealand has the receipt, control, or disposal of any income derived by a principal who is an absentee is for the purposes of this Act and the Tax Administration Act 1994 the agent of the principal in respect of that income.

Compare: 1994 No 164 s HK 20

HK 21 Company to be agent of absentee shareholders

A New Zealand company is the agent of all absentee shareholders and of all absentee holders of debentures to which section FC 1 or FC 2 applies, and the company must treat as income of the company and make returns in respect of all dividends paid or credited by the company to any such shareholder or debenture holder while that shareholder or debenture holder is an absentee.

Compare: 1994 No 164 s HK 21

HK 22 Trustee of group investment fund to be agent of absentee investors

The trustee of any group investment fund is the agent of every investor in the group investment fund, being an investor who is an absentee, and must treat as income of the trustee and make returns in respect of all dividends paid or credited by the group investment fund to any such investor while that investor is an absentee.

Compare: 1994 No 164 s HK 22

HK 23 Banking company to be agent of absentee depositors

Every banking company, and every other company, local or public authority, or other person, who in the course of business receives or holds money by way of deposit and allows interest on the deposit is, for the purposes of this Act and the Tax Administration Act 1994, the agent of all depositors who are absentees and must treat as income of the person as agent and make returns in respect of any interest which is paid or credited to a depositor while the depositor is an absentee, if that interest exceeds $100 in any tax year.

Compare: 1994 No 164 s HK 23

HK 24 Liability as agent of employer of non-resident taxpayer and employer's agent

(1) The employer or the agent of the employer of every non-resident taxpayer is, for the purposes of this Act and the Tax Administration Act 1994, the agent of the non-resident taxpayer in respect of the salary, wages, or other emoluments received by the non-resident taxpayer.

(2) Where any such non-resident taxpayer has, whether before or after the commencement of this Act, made default in the payment of any income tax payable by the non-resident taxpayer in respect of his or her salary, wages, or other emoluments, the amount of that tax must, on application by the Commissioner, be deducted by the employer or the employer's agent from any salary, wages, or other emoluments to be paid and must be paid to the Commissioner on behalf of the taxpayer.

(3) Where any non-resident taxpayer is in receipt of any pension or annuity payable by the Government of New Zealand or payable out of any superannuation scheme established in New Zealand, any income tax payable by the non-resident taxpayer in respect of the pension or annuity must, on application by the Commissioner, be deducted from any instalment or instalments of the pension or annuity to be paid and must be paid to the Commissioner on behalf of the taxpayer.

(4) In this section, non-resident taxpayer means any person who, being liable for income tax in respect of salary, wages, or other emoluments derived from New Zealand, or in respect of any annuity or pension derived from New Zealand, has no fixed and permanent residence or place of abode in New Zealand.

Compare: 1994 No 164 s HK 24

HK 25 Non-resident trader to be agent of employees in New Zealand

Every non-resident trader is, for the purposes of this Act and the Tax Administration Act 1994, the agent of all persons in the non-resident trader's employment in New Zealand in respect of the salary, wages, or other emoluments received by them. The agent in New Zealand of a non-resident trader is, for the purposes of this section, under the same obligations as the agent's principal.

Compare: 1994 No 164 s HK 25

HK 26 Agents in New Zealand of principals resident abroad

(1) Subject to this section, when any person in New Zealand, on behalf of a principal who is resident in a country or territory outside New Zealand and is not resident in New Zealand, is instrumental in procuring the purchase from that principal of goods or merchandise which are in New Zealand or are to be imported into New Zealand in pursuance of or in consequence of that purchase, whether the contract of purchase is made in New Zealand or elsewhere, the principal is in respect of the sale by the principal of the goods or merchandise deemed to be carrying on business in New Zealand through the agency of that person; and the income derived from that business is deemed to be derived from New Zealand, in the same manner and to the same extent as if the contract had been made in New Zealand.

(2) An agent is not required under subsection (1) to pay income tax in New Zealand in respect of any principal or class or classes of principals, being resident in a country or territory outside New Zealand and not being resident in New Zealand, if and so far as the Commissioner is satisfied that in corresponding circumstances the like principal or the like class or classes of principals, being resident in New Zealand, are not liable to or are exempt from income tax imposed by the laws of that country or territory.

(3) Every exemption granted under subsection (2) to a principal extends to exempt from income tax in New Zealand (in the capacity of agent, but not otherwise) the agent of that principal.

Compare: 1994 No 164 s HK 26

Subpart HL—Portfolio investment entities

Subpart HL: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

HL 1 Intended effect on portfolio tax rate entities and investors

HL 2 Scheme of subpart

Eligibility requirements: portfolio investment entities and foreign investment vehicles

HL 3 Eligibility requirements for entities

HL 4 Effect of failure to meet eligibility requirements for entities

HL 5 Foreign investment vehicles

HL 6 Investor membership requirement

HL 7 Investor return adjustment requirement: portfolio tax rate entity

HL 8 Imputation credit distribution requirement: portfolio listed company

HL 9 Investor interest size requirement

HL 10 Further eligibility requirements relating to investments

Becoming and ceasing to be portfolio investment entity

HL 11 Election to become portfolio investment entity and cancellation of election

HL 11B Unlisted company may choose to become portfolio listed company

HL 12 Becoming portfolio investment entity

HL 13 Tax consequences from transition

HL 14 Ceasing to be portfolio investment entity

Periods relevant to calculation of portfolio entity tax liability

HL 15 Portfolio allocation period and portfolio calculation period

Allocation of income in some cases

HL 16 Treatment of income from interest if no investor entitled or investor has conditional entitlement

HL 17 Certain new investors treated as part of existing portfolio investor class

Calculating portfolio entity tax liability

HL 18 Portfolio class net income and portfolio class net loss for portfolio allocation period

HL 19 Portfolio class taxable income and portfolio class taxable loss for portfolio allocation period

HL 20 Portfolio entity tax liability and rebates of portfolio tax rate entity for period

Payment by portfolio tax rate entity of tax for tax year

HL 21 Payments of tax by portfolio tax rate entity making no election

HL 22 Payments of tax by portfolio tax rate entity choosing to pay provisional tax

HL 23 Payments of tax by portfolio tax rate entity choosing to make payments when investor leaves

HL 23B Optional payments of tax by portfolio tax rate entities

Results for investors

HL 24 Portfolio investor allocated income and portfolio investor allocated loss

HL 25 Treatment of portfolio investor allocated loss for zero-rated portfolio investors and investors with portfolio investor exit period

Rebate for entity

HL 26 Treatment of portfolio investor allocated loss for other investors

Treatment of credits received by entity

HL 27 Credits received by portfolio tax rate entity or portfolio investor proxy

Treatment of losses for entity

HL 28 Portfolio entity formation loss

HL 29 Portfolio class taxable income and portfolio class taxable loss for tax year

HL 30 Treatment of portfolio class taxable loss and portfolio class land loss for tax year

Portfolio investor proxies

HL 31 Portfolio investor proxies

Introductory provisions

Heading: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

HL 1 Intended effect on portfolio tax rate entities and investors

What this section does

(1) This section describes the intended effects of this subpart and related provisions of the Act on a portfolio investment entity that is a portfolio tax rate entity and on an investor in a portfolio tax rate entity.

Intended effect on portfolio tax rate entity
(2) The intended effects for a person (the entity) who is using funds supplied by investors to make investments of specified types and who satisfies the other requirements for being a portfolio tax rate entity are that the entity—
- (a) has a tax liability, on proceeds of the investments that are allocated to investors who are natural persons,—
  - (i) calculated using a portfolio investor rate for each investor; and
  - (ii) resembling the total tax liability that the group of investors would have if the investors were to make the investments separately; and
- (b) has no tax liability on proceeds of the investments that are allocated to other investors; and
- (c) distributes to each investor amounts resembling the amounts that the investor would receive, after allowing for the tax paid by the entity, if making the investments separately.
Intended effect on investor in portfolio tax rate entity
(3) The intended effects for an investor in the entity are that the investor—
- (a) has no tax liability on income arising from proceeds for which the entity has a tax liability based on a portfolio investor rate of more than zero, unless the investor has given to the entity a portfolio investor rate that is lower than the correct rate; and
- (b) is liable for tax on any assessable income arising from proceeds for which the entity has a tax liability based on a portfolio investor rate of zero; and
- (c) receives on the investment in the entity an economic return resembling the return that the investor would receive after payment of tax liabilities if personally making investments similar to those made by the entity in which the investor has an interest.
Defined in this Act: investor, , portfolio investment entity, , portfolio investor rate, , portfolio tax rate entity, , tax

Section HL 1: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

HL 2 Scheme of subpart

Eligibility to be portfolio investment entity

(1) The eligibility of an entity to be a portfolio investment entity is determined by sections HL 3 to HL 10.

Election to be portfolio investment entity

(2) An entity who is eligible to be a portfolio investment entity may choose under section HL 11 to be a portfolio investment entity.

Becoming a portfolio investment entity

(3) The time at which an entity becomes a portfolio investment entity and the effects of the change are given by sections HL 12 and HL 13.

Ceasing to be a portfolio investment entity

(4) The time at which an entity ceases to be a portfolio investment entity and the effects of the change are given by section HL 14.

Portfolio allocation period and portfolio calculation period
(5) An entity who is a portfolio tax rate entity has under section HL 15—
- (a) a portfolio allocation period, which gives the length of the periods in the tax year to which the entity's income and outgoings are allocated; and
- (b) a portfolio calculation period, which gives the length of the periods in the tax year between each calculation by the entity of the amounts of income and outgoings allocated to each portfolio allocation period.
Treatment of entity's income from property with no investor or with interest not vested

(6) The treatment of income from an entity's property in which no investor has an interest, or in which the interest has not vested in an investor, is given by section HL 16.

Portfolio entity tax liability
(7) An entity who is a portfolio tax rate entity in a portfolio allocation period must pay income tax of an amount found from the following amounts:
- (a) the portfolio class net income or portfolio class net loss calculated under section HL 18—
  - (i) for each portfolio investor class and each portfolio allocation period:
  - (ii) from the entity's assessable income and allowable deductions allocated to the class and the period
- (b) the portfolio class taxable income or portfolio class taxable loss calculated under section HL 19—
  - (i) for each portfolio investor class and each portfolio allocation period:
  - (ii) from the portfolio class net income or portfolio class net loss for the class and the period and, if appropriate, any portfolio entity formation loss under section HL 28, and any portfolio class taxable loss under section HL 29 that is portfolio class land loss under section HL 30:
- (c) the portfolio entity tax liability calculated under section HL 20—
  - (i) for each portfolio investor class of the entity and each portfolio allocation period in the tax year:
  - (ii) from the portfolio class taxable income for the period, the portfolio investor interest fraction and portfolio investor rate for each investor in the class for the period.
Payments of tax by portfolio tax rate entity

(8) A portfolio tax rate entity is liable to pay tax equal to the amount of the entity's portfolio entity tax liability for a tax year by the payments required by sections HL 21 to HL 23, depending on the entity's portfolio allocation period and portfolio calculation period.

Portfolio investor allocated income and portfolio investor allocated loss
(9) An investor in a portfolio tax rate entity in a tax year is treated as—
- (a) deriving income for the tax year equal to the amount by which the investor's total portfolio investor allocated income under section HL 24 for the tax year exceeds the investor's total portfolio investor allocated loss under section HL 24 for the tax year:
- (b) having, if the investor is a zero-rated portfolio investor, for the tax year a deduction under section HL 25 equal to the amount by which the investor's total portfolio investor allocated loss under section HL 24 for the tax year exceeds the investor's total portfolio investor allocated income under section HL 24 for the tax year.
Rebate to entity for some portfolio investor allocated loss

(10) If a portfolio tax rate entity does not make an election under section HL 22, the entity has a rebate under section HL 26 if it has an investor in a portfolio investor class who is not a zero-rated portfolio investor and who has total portfolio investor allocated loss for a period exceeding the investor's total portfolio investor allocated income for the period.

Treatment of tax credits

(11) If a portfolio tax rate entity does not make an election under section HL 22, the tax liability of the entity relating to an investor in the entity for a portfolio allocation period is reduced in the way given by section HL 27 for credits that are received by the entity and allocated to the investor for the portfolio allocation period.

Portfolio investor proxies
(12) An entity who meets the requirements of section HL 31—
- (a) may be a portfolio investor proxy; and
- (b) must perform the obligations imposed by the section relating to a portfolio investor interest held by the entity for an investor.
Defined in this Act: amount, , deduction, , income, , income tax, , income year, , investor, , portfolio allocation period, , portfolio calculation period, , portfolio class taxable income, , portfolio investment entity, , portfolio investor allocated income, , portfolio investor allocated loss, , portfolio investor class, , portfolio investor interest, , portfolio investor interest fraction, , portfolio investor proxy, , portfolio investor rate, , portfolio tax rate entity, , tax, , tax year

Section HL 2: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Eligibility requirements: portfolio investment entities and foreign investment vehicles

Heading: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

HL 3 Eligibility requirements for entities

Eligibility requirements for portfolio tax rate entity and electing entity

(1) A portfolio tax rate entity and an entity that is choosing under section HL 11 to be a portfolio investment entity and a portfolio tax rate entity must meet the eligibility requirements described in subsections (7), (8), and (10).

Further eligibility requirements for portfolio tax rate entity

(2) A portfolio tax rate entity must meet the further eligibility requirements described in subsection (9) and sections HL 6, HL 7, HL 9, and HL 10.

Eligibility requirements for portfolio listed company and electing entity

(3) A portfolio listed company and an entity that is choosing under section HL 11 to be a portfolio investment entity and a portfolio listed company must meet the eligibility requirements described in subsections (7), (8), and (10).

Further eligibility requirements for portfolio listed company

(4) A portfolio listed company must meet the further eligibility requirements described in subsection (9) and sections HL 6, HL 8, HL 9, and HL 10.

Eligibility requirements for portfolio defined benefit fund and electing entity

(5) A portfolio defined benefit fund and an entity that is choosing under section HL 11 to be a portfolio investment entity and a portfolio defined benefit fund must meet the eligibility requirements described in subsections (7), (8), and (10).

Further eligibility requirements for portfolio defined benefit fund

(6) A portfolio defined benefit fund must meet the further eligibility requirements described in sections HL 6, HL 9, and HL 10.

Form and business requirement
(7) The form and business requirement is that the entity—
- (a) must be a company, superannuation fund, or group investment fund; and
- (b) must not carry on a business of life insurance.
Residence requirement
(8) The residence requirement is that the entity must be—
- (a) resident in New Zealand; and
- (b) not treated under a double tax agreement as not being resident in New Zealand.
Income interest requirement

(9) The income interest requirement is that all portfolio investor interests in the entity that give rights in relation to proceeds from a portfolio entity investment give the rights in relation to all the proceeds from the investment that are not category B income.

Entity history requirement

(10) The entity history requirement is that the entity must not, before the day on which the election to be a portfolio investment entity is to be effective, have ceased to be a portfolio investment entity under section HL 14(1), unless the cessation occurred more than 5 years before the day on which the election is to be effective.

Defined in this Act: amount, , company, , category B income, , double tax agreement, , group investment fund, , life insurance, , portfolio defined benefit fund, , portfolio entity investment, , portfolio investment entity, , portfolio investor interest, , portfolio listed company, , portfolio tax rate entity, , resident in New Zealand, , superannuation fund, , year

Section HL 3: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

HL 4 Effect of failure to meet eligibility requirements for entities

Failure to meet certain requirements
(1) An entity ceases under this section to be eligible to be a portfolio investment entity if the entity fails at any time to meet a requirement that is—
- (a) referred to in section HL 3; and
- (b) not referred to in subsection (2)(a).
Failure to meet other requirements
(2) An entity ceases under this section to be eligible to be a portfolio investment entity if—
- (a) the entity fails to meet a requirement under section HL 6, HL 9, or HL 10 on the last day of a quarter—
  - (i) beginning 6 months or more after the date on which the entity becomes a portfolio investment entity; and
  - (ii) ending more than 3 months before an announcement by the entity to its investors that the entity is winding up within 12 months of the announcement; and
- (b) the entity's failure—
  - (i) is significant and would not have occurred but for an event or circumstance within the control of the entity:
  - (ii) is repeated on the last day of the quarter following the quarter referred to in paragraph (a) and ending more than 3 months before the announcement referred to in paragraph (a)(ii).
Defined in this Act: investor, , portfolio defined benefit fund, , portfolio investment entity, , portfolio listed company, , portfolio tax rate entity, , quarter

Section HL 4: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

HL 5 Foreign investment vehicles

When entity becomes foreign investment vehicle
(1) An entity becomes a foreign investment vehicle if the entity—
- (a) is not resident in New Zealand; and
- (b) is a company, a superannuation scheme, or the trustee of a trust that would be a unit trust if there were more than 1 subscriber, purchaser, or contributor participating as beneficiaries under the trust; and
- (c) has investors that would, if the entity were a portfolio investment entity, be a portfolio investor class meeting the investor membership requirements under section HL 6(1)(a) to (i); and
- (d) has investors who, if they are resident in New Zealand, would meet the investor interest size requirements under section HL 9 if the entity were a portfolio investment entity; and
- (e) meets the further eligibility requirements relating to investments under section HL 10.
When entity ceases to be foreign investment vehicle
(2) An entity that becomes a foreign investment vehicle ceases under this section to be a foreign investment vehicle if the entity—
- (a) fails to meet a requirement under subsection (1)(a) and (b):
- (b) fails to meet a requirement under subsection (1)(c), (d), and (e)—
  - (i) on the last day of a quarter; and
  - (ii) on the last day of the quarter following the quarter referred to in subparagraph (i).
Defined in this Act: foreign investment vehicle, , portfolio investment entity, , portfolio investor class, , quarter, , resident in New Zealand, , superannuation scheme

Section HL 5: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section HL 5(1)(b): substituted, on 1 October 2007, by section 15(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 5(1)(c): amended, on 1 October 2007, by section 15(2) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 5(1)(d): substituted, on 1 October 2007, by section 15(3) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 5(1)(e): substituted, on 1 October 2007, by section 15(3) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

HL 6 Investor membership requirement

Investor membership requirement for entity other than listed company
(1) The investor membership requirement for a portfolio investor class of an entity that is not a company listed on a recognised exchange in New Zealand and does not meet the requirements of subsection (3) is that the portfolio investor class must include—
- (a) 20 persons, treating all interests held by persons associated under section OD 8(3) (Further definitions of associated persons) and included by subsection (4) as being held by 1 person:
- (b) a portfolio investment entity:
- (c) a foreign investment vehicle:
- (d) an entity that—
  - (i) meets the requirements in section HL 3 that would be relevant if the entity were choosing to be a portfolio investment entity; and
  - (ii) has not chosen to be a portfolio investment entity:
- (e) a life insurer:
- (f) the New Zealand Superannuation Fund:
- (g) the Accident Compensation Corporation:
- (h) a Crown entity subsidiary of the Accident Compensation Corporation:
- (i) the Earthquake Commission:
- (j) less than 20 persons, as determined under paragraph (a), if—
  - (i) the entity has 1 or more other portfolio investor classes that satisfy paragraph (a); and
  - (ii) no investor in the class, other than the entity's manager or trustee, can control the investment decisions relating to that class; and
  - (iii) investors for which the entity would not meet the investor membership requirement in the absence of this paragraph have portfolio investor interests with a total value of less than 10% of the total value of portfolio investor interests in the entity.
Investor membership requirement for listed company
(2) The investor membership requirement for an entity that is a company listed on a recognised exchange in New Zealand is that—
- (a) the company must not have more than 1 portfolio investor class of investors holding portfolio investor interests in the company; and
- (b) each investor must be a member of the portfolio investor class; and
- (c) each portfolio investor interest in the company must be a share traded on the recognised exchange.
No investor membership requirement for entities similar to unit trusts and certain superannuation funds
(3) There is no investor membership requirement for an entity that,—
- (a) if treated as a unit trust, would meet the requirements of 1 or more of paragraphs (a) and (c) to (e) of the definition of qualifying unit trust:
- (b) is a superannuation fund established under the proposal for the restructuring of the National Provident Fund required by the National Provident Fund Restructuring Act 1990:
- (c) is the fund established by the Government Superannuation Fund Act 1956.
Interests of some associated investors included with interests of investor for some purposes
(4) For the purposes of subsection (1), the portfolio investor interests of a person who is associated under section OD 8(3) with an investor in a portfolio investor class are included with the portfolio investor interests of the investor if—
- (a) the investor is not listed in subsection (1)(b) to (i); and
- (b) the associated person is not listed in subsection (1)(b) to (i); and
- (c) the associated person has a portfolio investor interest fraction of 5% or more.
Defined in this Act: associated person, , company, , foreign investment vehicle, , group investment fund, , investor, , portfolio entity investment, , portfolio investment entity, , portfolio investor class, , portfolio investor interest, , portfolio investor proxy, , qualifying unit trust, , recognised exchange, , registered superannuation scheme, unit trust

Section HL 6: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section HL 6(1)(a): substituted, on 1 October 2007, by section 16 of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

HL 7 Investor return adjustment requirement: portfolio tax rate entity

When this section applies

(1) This section applies to a portfolio tax rate entity.

Investor return adjustment requirement
(2) The investor return adjustment requirement is that the entity must make an adjustment referred to in subsection (3) to reflect the effect of the portfolio investor rate of an investor, as a member of a portfolio investor class, on—
- (a) the amount of the entity's portfolio entity tax liability for the portfolio investor class; and
- (b) the amount of a rebate under section HL 26 or HL 27 allocated to the investor as a member of the portfolio investor class.
Nature of adjustment
(3) An adjustment reflecting the effect of the investor's portfolio investor rate must be made to—
- (a) the investor's portfolio investor interest in the portfolio investor class or another portfolio investor class—
  - (i) before the end of the second month after the portfolio calculation period, if the entity has made an election under section HL 21; or
  - (ii) within 3 months of the end of the tax year, if the entity has made an election under section HL 22; or
  - (iii) within 2 months of the end of the tax year, if the entity has made an election under section HL 23:
- (b) the amount of each distribution to the investor as a member of the portfolio investor class or another portfolio investor class.
Investor may be offered choice of method

(4) A portfolio tax rate entity may offer an investor a choice of the method of adjustment.

Defined in this Act: company, , investor, , portfolio calculation period, , portfolio entity tax liability, , portfolio investor interest, , portfolio investor rate, , recognised exchange, , tax year, , unit trust

Section HL 7: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section HL 7(2): amended, on 1 October 2007, by section 17(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 7(2)(a): amended, on 1 October 2007, by section 17(2) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 7(2)(b): amended, on 1 October 2007, by section 17(3) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 7(3)(a): substituted, on 1 October 2007, by section 17(4) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 7(3)(b): substituted, on 1 October 2007, by section 17(4) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

HL 8 Imputation credit distribution requirement: portfolio listed company

When this section applies

(1) This section applies to a portfolio investment entity that is an portfolio listed company.

Imputation credit requirement

(2) The imputation credit distribution requirement is that when the entity makes a distribution to the members of a portfolio investor class, the distribution must be fully credited for the purposes of section CD 32 (Available subscribed capital amount) to the extent permitted by the imputation credits that the directors of the entity determine are available.

Defined in this Act: director, , imputation credit, , portfolio investment entity, , portfolio investor class, , portfolio listed company

Section HL 8: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section HL 8 heading: amended, on 1 October 2007, by section 18(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 8(1): amended, on 1 October 2007, by section 18(2) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 8 list of defined terms: substituted, on 1 October 2007, by section 18(3) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

HL 9 Investor interest size requirement

Investor interest size requirement

(1) The investor interest size requirement for a portfolio investment entity is that an investor in a portfolio investor class may not hold more than 20% of the total portfolio investor interests of investors in the class.

No investor interest size requirement for entities similar to unit trusts and certain superannuation finds
(2) There is no investor interest size requirement for an entity that,—
- (a) if treated as a unit trust, would meet the requirements of 1 or more of paragraphs (a) and (c) to (e) of the definition of qualifying unit trust:
- (b) is a superannuation fund established under the proposal for the restructuring of the National Provident Fund required by the National Provident Fund Restructuring Act 1990:
- (c) is the fund established by the Government Superannuation Fund Act 1956.
Exception for certain investors
(3) An entity with an investor holding more than 20% of the total portfolio investor interests in a class does not breach the investor interest size requirement if—
- (a) the entity is not a portfolio listed company and the investor is listed in subsection (4):
- (b) the entity is a portfolio listed company and the investor is listed in subsection (4) and holds less than 40% of the total portfolio investor interests in the class.
Investors to which exception applies
(4) An investor may hold portfolio investor interests in a portfolio investment entity that would otherwise breach the investor interest size requirement for the entity if the investor is—
- (a) a portfolio investment entity:
- (b) a foreign investment vehicle:
- (c) [Repealed]
- (d) an entity that—
  - (i) meets the requirements in section HL 3 that would be relevant if the entity were choosing to be a portfolio investment entity; and
  - (ii) has not chosen to be a portfolio investment entity:
- (e) a life insurer:
- (f) the New Zealand Superannuation Fund:
- (g) the Accident Compensation Corporation:
- (h) a Crown entity subsidiary of the Accident Compensation Corporation:
- (i) the Earthquake Commission:
- (j) a person who meets the requirements of subsection (5).
Exception for shares in portfolio listed company held from 17 May 2006

(5) An investor who is not listed in subsection (4)(a) to (i) may on a date after 30 September 2007 hold portfolio investor interests in a portfolio listed company that are more than 20% and not more than 40% of the total interests of investors in a portfolio investor class if the investor holds portfolio interests that are more than 20% and not more than 40% of the total interests of investors on each day in the period beginning on 17 May 2006 and ending before the date.

Interests of some associated investors included with interests of investor for some purposes
(6) For the purposes of subsections (1) and (5), the portfolio investor interests of a person who is associated under section OD 8(3) (Further definitions of associated persons) with an investor in a portfolio investor class are included with the portfolio investor interests of the investor if—
- (a) the investor is not listed in subsection (4)(a) to (i); and
- (b) the associated person is not listed in subsection (4)(a) to (i); and
- (c) the associated person has a portfolio investor interest fraction of 5% or more.
Defined in this Act: associated person, , company, , defined benefit fund, , foreign investment vehicle, , group investment fund, , investor, , life insurer, , New Zealand resident, , portfolio investment entity, , portfolio investor class, , portfolio investor interest, , portfolio investor interest fraction, , recognised exchange, , qualifying unit trust, , superannuation fund, , unit trust

Section HL 9: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section HL 9(4)(c): repealed, on 1 October 2007, by section 19 of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

HL 10 Further eligibility requirements relating to investments

Investment type requirement
(1) The investment type requirement is that the entity must use, or have available to use, 90% or more by value of the entity's assets in deriving income from the owning or trading of—
- (a) an interest in land:
- (b) a financial arrangement:
- (c) an excepted financial arrangement:
- (d) a right or option concerning property referred to in paragraphs (a) to (c).
Income type requirement
(2) The income type requirement is that the income derived by the entity must, to the extent of 90% or more,—
- (a) be derived from property referred to in subsection (1); and
- (b) consist of the following:
  - (i) dividends:
  - (ii) income treated under subpart EW (Financial arrangements rules) as being derived by the entity:
  - (iii) rent from an interest in land:
  - (iv) proceeds from the disposal of property:
  - (v) FIF income:
  - (vi) portfolio investor allocated income:
  - (vii) distributions from superannuation funds.
Entity shareholding investment requirement
(3) The entity shareholding investment requirement is that, for an investment of the entity consisting of shares in a company that is not listed in subsection (4),—
- (a) the investment must—
  - (i) carry voting interests in the company equal to or less than 20%, if the company is not a unit trust; or
  - (ii) have a market value equal to or less than 20% of the total market value of all shares in the company, if the company is a unit trust:
- (b) the amount that is 10% of the total market value of all the entity's investments must be greater than the total market value of all the entity's investments in—
  - (i) shares in a company that is not a unit trust that carry voting interests of more than 20% in the company:
  - (ii) shares in a company that is a unit trust that have a market value of more than 20% of the total market value of all shares in the company.
Investments not affected by shareholding investment requirement
(4) The investments referred to in subsection (3) do not include shares in—
- (a) a portfolio investment entity:
- (b) a foreign investment vehicle:
- (c) an entity that—
  - (i) meets the requirements in section HL 3 that would be relevant if the entity were choosing to be a portfolio investment entity; and
  - (ii) has not chosen to be a portfolio investment entity:
- (d) [Repealed]
- (e) a portfolio land company.
Class shareholding investment requirement
(5) The class shareholding investment requirement is that, for each portfolio investor class and each investment referred to in subsection (3),—
- (a) the portfolio class fraction of the investment must—
  - (i) correspond to voting interests in the company equal to or less than 20%, if the company is not a unit trust; or
  - (ii) have a market value equal to or less than 20% of the total market value of all shares in the company, if the company is a unit trust:
- (b) the amount that is 10% of the total market value of all the class's interests in the entity's investments must be greater than the total market value of all the class's interests in the entity's investments in—
  - (i) shares in a company that is not a unit trust that carry voting interests of more than 20% in the company:
  - (ii) shares in a company that is a unit trust that have a market value of more than 20% of the total market value of all shares in the company.
Defined in this Act: amount, , company, , dividend, , excepted financial arrangement, , FIF income, , financial arrangement, , foreign investment vehicle, , futures contract, , income, , interest, , investor, , portfolio class fraction, , portfolio class investment value, , portfolio entity investment, , portfolio investment entity, , portfolio investor allocated income, portfolio investor class, , portfolio land company, , share, , superannuation fund, , voting interest

Section HL 10: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section HL 10(2): amended, on 1 October 2007, by section 20(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 10(2)(b)(v): amended, on 1 October 2007, by section 20(2) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 10(2)(b)(vi): added, on 1 October 2007, by section 20(2) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 10(2)(b)(vii): added, on 1 October 2007, by section 20(2) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 10(3)(a): substituted, on 1 October 2007, by section 20(3) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 10(3)(b): substituted, on 1 October 2007, by section 20(3) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 10(4)(d): repealed, on 1 October 2007, by section 20(4) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 10(5): substituted, on 1 October 2007, by section 20(5) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 10 list of defined terms portfolio investor allocated income: inserted, on 1 October 2007, by section 20(6) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 10 list of defined terms superannuation fund: added, on 1 October 2007, by section 20(6) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 10 list of defined terms voting interest: added, on 1 October 2007, by section 20(6) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Becoming and ceasing to be portfolio investment entity

Heading: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

HL 11 Election to become portfolio investment entity and cancellation of election

Notice of election

(1) An entity that meets the eligibility requirements in section HL 3 for an electing entity may choose to be a portfolio investment entity by giving a notice in the prescribed foil!' to the Commissioner at any time after 1 April 2007.

When election effective
(2) An election received by the Commissioner is effective on the latest of the following:
- (a) 1 October 2007:
- (b) the date of formation of the entity:
- (c) the date nominated in the notice:
- (d) the date 30 days before the day of receipt.
Notice of cancellation

(3) An entity may choose at any time to cease being a portfolio investment entity by giving a notice in the prescribed form to the Commissioner.

When cancellation effective
(4) An election to cease being a portfolio investment entity received by the Commissioner takes effect from the later of the following:
- (a) the date on which the entity became a portfolio investment entity:
- (b) the date nominated in the notice:
- (c) the date of receipt.
Defined in this Act: Commissioner, , company, , notice, , portfolio investment entity, , quarter, , recognised exchange, , tax year

Section HL 11: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

HL 11B Unlisted company may choose to become portfolio listed company

Election
(1) A company that is not listed on a recognised exchange in New Zealand may choose under section HL 11 to become a portfolio investment entity that is a portfolio listed company if the company—
- (a) would meet the requirements of paragraph (a) of the definition of qualifying unit trust if it were a unit trust; and
- (b) has resolved to become a company listed on a recognised exchange in New Zealand if it were to obtain the required consents; and
- (c) has applied to the Securities Commission for an exemption to disclose in a prospectus its intention to become a listed company; and
- (d) satisfies the Commissioner that the company would apply to become a listed company if it were to obtain the required consents.
Election effective for 2 years

(2) A company that makes an election under subsection (1) ceases to be a portfolio listed company from the last day of the period of 2 years from when the election is effective, if the company is not listed on a recognised exchange in New Zealand on that day.

Defined in this Act: company, , portfolio investment entity, , portfolio listed company, , qualifying unit trust, , recognised exchange, , unit trust, , widely-held company, .

Section HL 11B: inserted, on 1 October 2007, by section 21 of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

HL 12 Becoming portfolio investment entity

Requirement for effective election
(1) An entity that makes an election under section HL 11 becomes a portfolio investment entity unless, in the period ending 12 months after the date on which the election would be effective,—
- (a) the entity cancels the election:
- (b) the entity, if treated as becoming a portfolio investment entity when the election would be effective, would cease under section HL 4 to be eligible.
Income year for electing entity
(2) If an entity with a non-standard income year chooses to become a portfolio tax rate entity making payments of tax under section HL 21 or HL 23, section 39 of the Tax Administration Act 1994 applies as if—
- (a) the day before the day on which the election is effective were the original balance date of the entity; and
- (b) the next 31 March after the day on which the election is effective were a new balance date approved by the Commissioner for the entity.
Entity treated as disposing of and reacquiring, property
(3) If an entity becomes a portfolio investment entity, the entity is treated for the purposes of this Act as, on the day before the day on which the election is effective,—
- (a) transferring to another person all shares held by the entity that—
  - (i) satisfy section CX 44C(1)(a) and (b) (Proceeds from disposal of certain shares by portfolio investment entities or New Zealand Superannuation Fund); and
  - (ii) are shares in a company that is not a portfolio investment entity and does not become a portfolio investment entity within the period of 6 months beginning from the day on which the entity becomes a portfolio investment entity; and
- (b) receiving for the shares referred to in paragraph (a) an amount of consideration equal to the market value of the shares at that time; and
- (c) acquiring the shares referred to in paragraph (a) from the other person for an amount of consideration equal to the amount referred to in paragraph (b).
New Zealand Superannuation Fund treated as disposing of, and reacquiring, property

(4) The New Zealand Superannuation Fund is treated for the purposes of subsection (3) as if it made an election that would be effective on 1 October 2007.

Defined in this Act: amount, , Commissioner, , company, , group investment fund, , life insurer, , portfolio investment entity, , portfolio tax rate entity, , share, , superannuation fund, , tax year

Section HL 12: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section HL 12(1)(b): substituted, on 1 October 2007, by section 22(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 12(3)(a)(i): amended, on 1 October 2007, by section 22(2) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 12(4) heading: added, on 1 October 2007, by section 22(3) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 12(4): added, on 1 October 2007, by section 22(3) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

HL 13 Tax consequences from transition

No penalty or interest arising from transition
(1) An entity that becomes a portfolio investment entity is not liable to pay any penalty or interest for which the entity would otherwise be liable for an inaccuracy in an estimate, or shortfall in the payment, of provisional tax to the extent that the inaccuracy or shortfall arises because of—
- (a) the effect of the election on the length of the entity's income year under section HL 12(2):
- (b) the disposal and acquisition referred to in section HL 12(3).
Payment of tax liability arising from transition
(2) An entity that becomes a portfolio investment entity in a tax year and is liable to pay an amount of income tax (the tax amount) because of the disposal and acquisition referred to in section HL 12(3) may satisfy the liability by making payments to the Commissioner of at least—
- (a) one third of the tax amount, in the tax year in which the entity becomes a portfolio investment entity; and
- (b) one half of the balance of the tax amount remaining owing after the payments made under paragraph (a), in the tax year following the tax year in which the entity becomes a portfolio investment entity; and
- (c) the balance of the tax amount remaining owing after the payments made under paragraphs (a) and (b), in the second tax year following the tax year in which the entity becomes a portfolio investment entity.
Defined in this Act: income tax, , income year, , interest, , portfolio investment entity, , provisional tax, , tax year

Section HL 13: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

HL 14 Ceasing to be portfolio investment entity

Cancellation or loss of eligibility
(1) An entity that has chosen to be a portfolio investment entity ceases to be a portfolio investment entity if—
- (a) the entity cancels the election under section HL 11:
- (b) the entity is no longer eligible to be a portfolio investment entity under section HL 4.
When entity ceases to be portfolio investment entity
(2) An entity ceases to be a portfolio investment entity under subsection (1) on—
- (a) the day on which the entity's election under section HL 11 is effective; or
- (b) the first day of the quarter following the quarter in which the entity ceases under section HL 4 to be eligible to be a portfolio investment entity.
Entity treated as disposing of and reacquiring, property
(3) An entity that ceases to be a portfolio investment entity is treated for the purposes of this Act as—
- (a) disposing of all shares held by the entity that satisfy section CX 44C(1)(a) and (b) (Proceeds from disposal of certain shares by portfolio investment entities or New Zealand Superannuation Fund) to another person for an amount of consideration equal to the market value of the shares at the time; and
- (b) acquiring the shares referred to in paragraph (a) from the other person for an amount of consideration equal to the amount referred to in paragraph (a).
Defined in this Act: amount, , portfolio investment entity, , quarter, , share

Section HL 14: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section HL 14(3)(a): amended, on 1 October 2007, by section 23 of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Periods relevant to calculation of portfolio entity tax liability

Heading: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

HL 15 Portfolio allocation period and portfolio calculation period

When this section applies

(1) This section applies to a portfolio tax rate entity.

Portfolio allocation period
(2) The portfolio allocation period for the entity for a tax year is—
- (a) a day, if the entity does not choose a portfolio allocation period under paragraph (ab), (b), or (c); or
- (ab) a month, if the entity has a portfolio calculation period of a quarter and chooses the portfolio allocation period by giving a notice to the Commissioner—
  - (i) before the tax year:
  - (ii) when the entity chooses to become a portfolio tax rate entity; or
- (b) a quarter, if the entity chooses the portfolio allocation period by giving a notice to the Commissioner—
  - (i) before the tax year:
  - (ii) when the entity chooses to become a portfolio tax rate entity; or
- (c) a day, month, quarter, or income year, if the entity chooses to have a portfolio calculation period of an income year under subsection (3)(c) and chooses the portfolio allocation period by giving a notice to the Commissioner at the same time as the choice under subsection (3)(c).
Portfolio calculation period
(3) The portfolio calculation period for the entity for a portfolio allocation period in a tax year is—
- (a) a day, if the entity chooses the portfolio calculation period by giving a notice to the Commissioner—
  - (i) before the tax year:
  - (ii) when the entity chooses to become a portfolio tax rate entity; or
- (b) a quarter, if the entity does not choose a portfolio calculation period under paragraph (a) or (c); or
- (c) an income year, if the entity—
  - (i) chooses under section HL 22 to pay provisional tax; and
  - (ii) chooses the portfolio calculation period by giving a notice to the Commissioner when the entity makes the election under section HL 22.
Defined in this Act: Commissioner, , notice, , portfolio allocation period, , portfolio calculation period, , portfolio tax rate entity, , quarter, , tax year

Section HL 15: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section HL 15(2)(a): amended, on 1 October 2007, by section 24(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 15(2)(ab): inserted, on 1 October 2007, by section 24(2) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Allocation of income in some cases

Heading: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

HL 16 Treatment of income from interest if no investor entitled or investor has conditional entitlement

Treatment of unallocated income

(1) If a portfolio tax rate entity has income or property in which no investor has a portfolio investor interest and in which no investor is treated as having an interest under subsection (2), the portfolio tax rate entity is treated as being the sole investor in a portfolio investor class having a portfolio investor interest in the property or income.

Treatment of income from interest if investor has conditional entitlement
(2) A portfolio investment entity that is a superannuation fund may for the purposes of section HL 20 allocate a portfolio investor interest to an investor for a portfolio allocation period if—
- (a) the portfolio investor interest is purchased by or for the investor's employer; and
- (b) under an agreement between the investor and the investor's employer, subject to any contingencies, the investor will have an unconditional entitlement to the interest in or before the end of a period (the vesting period) beginning with the creation of the interest; and
- (c) the agreement exists before the portfolio allocation period; and
- (d) the vesting period ends after the portfolio allocation period; and
- (e) the vesting period,—
  - (i) if the entity exists on 17 May 2006, does not exceed the longest vesting period allowed by the entity on 17 May 2006 for an interest created on 17 May 2006; or
  - (ii) if the entity does not exist on 17 May 2006, does not exceed 5 years.
Defined in this Act: income, , investor, , portfolio investor class, , portfolio investor interest, , portfolio tax rate entity, , superannuation fund

Section HL 16: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section HL 16 heading: substituted, on 1 October 2007, by section 25(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 16(2) heading: substituted, on 1 October 2007, by section 25(2) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 16(2): amended, on 1 October 2007, by section 25(3) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 16(2)(b): amended, on 1 October 2007, by section 25(4) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 16(2)(e)(ii): amended, on 1 October 2007, by section 25(5) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

HL 17 Certain new investors treated as part of existing portfolio investor class

A person who becomes an investor in a portfolio tax rate entity may be treated by the entity as a member of an existing portfolio investor class, of which the investor would not be a member in the absence of this section, if—
- (a) the investor acquires portfolio investor interests that the entity intends to qualify the investor as a member of the class; and
- (b) the interests do not qualify the investor as a member of the class because the entity does not have sufficient portfolio entity investments corresponding to the interests; and
- (c) the entity acquires sufficient portfolio entity investments to qualify the investor as a member of the class as soon after the investor's acquisition of the interests as is practicable.
Defined in this Act: investor, , portfolio investor class, , portfolio investor interest, , portfolio investor investment

Section HL 17: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Calculating portfolio entity tax liability

Heading: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

HL 18 Portfolio class net income and portfolio class net loss for portfolio allocation period

Portfolio class net income for portfolio allocation period
(1) The portfolio class net income under this section for a portfolio investor class for a portfolio allocation period is—
- (a) the amount calculated for the period under subsection (3), if the calculated amount is more than zero; or
- (b) zero, if paragraph (a) does not apply.
Portfolio class net loss for portfolio allocation period
(2) The portfolio class net loss under this section for a portfolio investor class for a portfolio allocation period is—
- (a) the amount by which zero exceeds the amount calculated for the period under subsection (3), if the calculated amount is less than zero; or
- (b) zero, if paragraph (a) does not apply.
Calculation of amount for portfolio allocation period

(3) The amount calculated under this subsection for the portfolio allocation period is the amount calculated using the formula—

class assessable income − class deductions.

Definition of items in formula
(4) In the formula,—
- (a) class assessable income is the total amount of the entity's assessable income allocated by the entity to—
  - (i) the portfolio investor class; and
  - (ii) the portfolio allocation period:
- (b) class deductions is the total amount of the entity's expenditure or loss—
  - (i) for which the entity is allowed a deduction; and
  - (ii) incurred by the portfolio investment entity in deriving assessable income allocated to the portfolio investor class; and
  - (iii) allocated by the entity to the portfolio allocation period.
Defined in this Act: amount, , assessable income, , deduction, , portfolio allocation period, , portfolio class fraction, , portfolio class net loss, , portfolio entity investment, , portfolio investment entity, , portfolio investor class

Section HL 18: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

HL 19 Portfolio class taxable income and portfolio class taxable loss for portfolio allocation period

Portfolio class taxable income for portfolio allocation period
(1) The portfolio class taxable income under this section for a portfolio investor class for a portfolio allocation period is—
- (a) the amount calculated for the period under subsection (3), if the calculated amount is more than zero; or
- (b) zero, if paragraph (a) does not apply.
Portfolio class taxable loss for portfolio allocation period
(2) The portfolio class taxable loss under this section for a portfolio investor class for a portfolio allocation period is—
- (a) the amount by which zero exceeds the amount calculated for the period under subsection (3), if the calculated amount is less than zero; or
- (b) zero, if paragraph (a) does not apply.
Calculation of amount for portfolio allocation period

(3) The amount calculated under this subsection for the portfolio investor class and the portfolio allocation period is calculated using the formula—

class net income − class net loss− other loss used.

Definition of items in formulas

(4) The items in the formula are defined in subsections (5) to (7).

Class net income

(5) Class net income is the amount of the portfolio class net income under section HL 18 of the class for the period.

Class net loss

(6) Class net loss is the amount of the portfolio class net loss under section HL 18 of the class for the period.

Other loss used
(7) Other loss used is the lesser of the following amounts:
- (a) the total amount for the class of—
  - (i) the portfolio entity formation loss that is allocated to the portfolio allocation period and the portfolio investor class as allowed by section HL 28:
  - (ii) the portfolio class land loss that has not been offset against portfolio class net income for an earlier allocation period and may be allocated to the allocation period under section HL 30:
- (b) the total amount of the class net income referred to in subsection (5).
Defined in this Act: amount, , portfolio allocation period, , portfolio class land loss, , portfolio class net income, , portfolio class net loss, , portfolio class taxable income, , portfolio class taxable loss, , portfolio entity formation loss, , portfolio investor class, , portfolio investor interest, , tax year

Section HL 19: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section HL 19(7)(a)(i): substituted, on 1 October 2007, by section 26 of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

HL 20 Portfolio entity tax liability and rebates of portfolio tax rate entity for period

Portfolio entity tax liability
(1) The portfolio entity tax liability of a portfolio tax rate entity, for a period (the calculation period) for which the entity is required to calculate the portfolio entity tax liability, is—
- (a) the total of the amounts calculated under subsection (3) for the calculation period and each portfolio investor class and each investor in the portfolio investor class to which the liability relates, if the total is more than zero; or
- (b) zero, if paragraph (a) does not apply.
Amount of rebate under section KI 1
(2) For the purposes of section KI 1 (Rebate for portfolio tax rate entity relating to certain investors), the amount of a rebate for a portfolio tax rate entity for a calculation period is—
- (a) the amount by which zero exceeds the total of the amounts calculated under subsection (3) for the calculation period and each portfolio investor class and each investor in the portfolio investor class to which the rebate relates, if the total is less than zero; or
- (b) zero, if paragraph (a) does not apply.
Calculation of amount for calculation period
(3) The amount calculated under this subsection for an investor in a portfolio investor class and for a calculation period is the total of the amounts calculated using the formula in subsection (4) for—
- (a) each day of a portfolio allocation period in the calculation period; and
- (b) each portfolio allocation period in the calculation period.
- (c) [Repealed]
Formula

(4) The formula is—

investor fraction income loss rate days in allocation period fees rebates

Definition of items in formula

(5) The items in the formula are defined in subsections (6) to (12).

Investor fraction

(6) Investor fraction is the investor's portfolio investor interest fraction on the day.

Income

(7) Income is the portfolio class taxable income under section HL 19 for the investor's portfolio investor class and the portfolio allocation period.

Loss

(8) Loss is the portfolio class taxable loss under section HL 19 for the investor's portfolio investor class and the portfolio allocation period.

Rate
(9) Rate is—
- (a) the portfolio investor rate for the investor for the portfolio allocation period, if paragraph (b) does not apply; or
- (b) 30%, if the entity is treated as the sole investor under section HL 16.
Days in allocation period

(10) Days in allocation period is the number of days in the portfolio allocation period.

Fees

(11) Fees is the amount of fees for ongoing management and administration services paid from or charged to the account of the investor as a member of the portfolio investor class on the day in the portfolio allocation period.

Rebates

(12) Rebates is the amount of rebates of fees paid or credited by the entity to the account of the investor as a member of the portfolio investor class on the day in the portfolio allocation period.

Defined in this Act: amount, , investor, , portfolio allocation period, , portfolio class taxable income, , portfolio investor class, , portfolio investor interest fraction, , portfolio investor rate, , portfolio tax rate entity, , tax year

Section HL 20: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section HL 20(1)(a): amended, on 1 October 2007, by section 27(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 20(2)(a): amended, on 1 October 2007, by section 27(2) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 20(3): amended, on 1 October 2007, by section 27(3)(a) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 20(3)(b): amended, on 1 October 2007, by section 27(3)(b) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 20(3)(c): repealed, on 1 October 2007, by section 27(3)(c) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 20(4) formula: substituted, on 1 October 2007, by section 27(4) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 20(5): amended, on 1 October 2007, by section 27(5) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 20(9)(b): amended, on 1 October 2007, by section 27(6) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 20(11) heading: added, on 1 October 2007, by section 27(7) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 20(11): added, on 1 October 2007, by section 27(7) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 20(12) heading: added, on 1 October 2007, by section 27(7) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 20(12): added, on 1 October 2007, by section 27(7) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Payment by portfolio tax rate entity of tax for tax year

Heading: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

HL 21 Payments of tax by portfolio tax rate entity making no election

When this section applies

(1) This section applies to a portfolio tax rate entity for a tax year if the entity does not make an election under section HL 22 or HL 23 for the tax year.

Portfolio calculation period

(2) The portfolio calculation period of the entity for the tax year must be a quarter.

Amount of payments
(3) After each portfolio calculation period for the tax year, the entity must make a payment to the Commissioner—
- (a) of an amount of income tax equal to the part of the portfolio entity tax liability of the entity for the portfolio calculation period that does not relate to a payment by the entity under section HL 23B; and
- (b) within the period of 1 month beginning from the end of the portfolio calculation period.
Entity not required to pay provisional tax

(4) The entity is not required to pay provisional tax under subpart MB (Provisional tax) for the tax year.

Payment to Commissioner of residual value of investor's interest

(5) If an investor in the entity has, at the end of the investor's portfolio investor exit period, a portfolio investor interest with a value of more than zero, the entity must pay an amount equal to the value of the interest to the Commissioner at the same time as the payment referred to in subsection (3) for the portfolio calculation period in which the portfolio investor exit period ends.

Defined in this Act: Commissioner, , income tax, , interest, , portfolio calculation period, , portfolio entity tax liability, , portfolio investor exit period, , portfolio tax rate entity, , provisional tax, , quarter, , tax year

Section HL 21: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section HL 21(3)(a): substituted, on 1 October 2007, by section 28 of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

HL 22 Payments of tax by portfolio tax rate entity choosing to pay provisional tax

When this section applies
(1) This section applies to a portfolio tax rate entity for a tax year—
- (a) the portfolio calculation period of the entity for the tax year is the income year corresponding to the tax year; and
- (b) the entity chooses to be subject to this section for the tax year.
Provisional tax

(2) The entity must pay provisional tax under subpart MB (Provisional tax) for the income year corresponding to the tax year.

Notice of election
(3) The entity must give the Commissioner notice of an election to be subject to this section—
- (a) in the prescribed form; and
- (b) by the date by which the entity is required to choose a portfolio allocation period and portfolio calculation period for the tax year.
Defined in this Act: Commissioner, , notice, , portfolio allocation period, , portfolio calculation period, , portfolio tax rate entity, , provisional tax, , tax year, , year

Section HL 22: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

HL 23 Payments of tax by portfolio tax rate entity choosing to make payments when investor leaves

When this section applies
(1) This section applies to a portfolio tax rate entity for a tax year if—
- (a) the portfolio allocation period and the portfolio calculation period of the entity for the tax year are 1 day; and
- (b) the entity chooses to be subject to this section for the tax year.
Amount of payment for withdrawing investor
(2) After each portfolio investor exit period for an investor in a portfolio investor class, the entity must make a payment to the Commissioner—
- (a) of an amount of income tax equal to the portfolio entity tax liability of the entity for—
  - (i) the portfolio investor exit period; and
  - (ii) the investor as a member of the portfolio investor class; and
- (b) within the period of 1 month beginning from the end of the month in which the portfolio investor exit period ends.
Amount of payment for investors remaining at end of tax year
(3) After each tax year, the entity must make a payment to the Commissioner—
- (a) of an amount of income tax equal to the entity's portfolio entity tax liability for the tax year for the investors in the entity at the end of the tax year, allowing for any payment made under subsection (2) or section HL 23B by the entity for any of the investors; and
- (b) within the period of 1 month beginning from the end of the tax year.
Entity not required to pay provisional tax

(4) The entity is not required to pay provisional tax under subpart MB (Provisional tax) for the tax year.

Notice of election
(5) The entity must give the Commissioner notice of an election to be subject to this section—
- (a) in the prescribed form; and
- (b) by the date by which the entity is required to choose a portfolio allocation period and portfolio calculation period for the tax year.
Defined in this Act: Commissioner, , income tax, , interest, , investor, , notice, , portfolio allocation period, , portfolio calculation period, , portfolio entity tax liability, , portfolio investor class, , portfolio investor exit period, , portfolio tax rate entity, , provisional tax, , tax year

Section HL 23: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section HL 23(3)(a): amended, on 1 October 2007, by section 29 of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

HL 23B Optional payments of tax by portfolio tax rate entities

When this section applies

(1) This section applies to a portfolio tax rate entity that makes payments of tax under section HL 21 or HL 23 if an investor reduces the investor's portfolio investor interest in the entity.

Optional payment during tax year of income tax relating to investor

(2) The entity may make a payment of income tax to the Commissioner representing an amount of the portfolio entity tax liability of the entity for the investor and the investor's portfolio investor interest for the tax year.

Time of optional payment
(3) A payment under this section must be made by the end of the month after—
- (a) the portfolio calculation period in which the reduction of the investor's portfolio investor interest occurs, if the entity makes payments of tax under section HL 21; or
- (b) the month in which the reduction of the investor's portfolio investor interest occurs, if the entity makes payments of tax under section HL 23.
Defined in this Act: Commissioner, , income tax, , investor, , portfolio entity tax liability, , portfolio investor interest, , portfolio tax rate entity, , tax year, .

Section HL 23B: inserted, on 1 October 2007, by section 30 of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Results for investors

Heading: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

HL 24 Portfolio investor allocated income and portfolio investor allocated loss

When this section applies

(1) This section applies to a person who is treated by a portfolio tax rate entity or portfolio investor proxy as an investor in a portfolio tax rate entity on a day in a tax year.

Portfolio investor allocated income for period

(2) The person is treated as deriving from the portfolio tax rate entity in an income year an amount of portfolio investor allocated income equal to the greater of zero and the amount described in subsection (4) for portfolio allocation periods in the entity's income year that ends in the person's income year.

Portfolio investor allocated loss for period
(3) The person is treated as having in relation to the portfolio tax rate entity in an income year an amount of portfolio investor allocated loss equal to,—
- (a) if the portfolio tax rate entity makes payments of tax under section HL 21 or HL 23, the greater of—
  - (i) the amount by which zero is more than the amount described in subsection (4) for portfolio allocation periods in the entity's income year that ends in the person's income year:
  - (ii) zero; or
- (b) if the portfolio tax rate entity makes payments of tax under section HL 22, zero.
Amount
(4) The amount that determines whether an investor has portfolio investor allocated income or portfolio investor allocated loss for a period containing portfolio allocation periods is the total of the amounts calculated using the formula in subsection (5) for—
- (a) each portfolio allocation period in the period; and
- (b) each day of the portfolio allocation period; and
- (c) each portfolio investor class to which the investor belongs on the day.
Formula

(5) The formula is—

investor fraction income loss days in allocation period fees rebates

Definition of items in formula
(6) In the formula,—
- (a) investor fraction is the portfolio investor interest fraction of the investor as part of the portfolio investor class on the day:
- (b) income is the amount under section HL 19 of the portfolio class taxable income for the portfolio allocation period:
- (c) loss is the amount under section HL 19 of the portfolio class taxable loss for the portfolio investor class for the portfolio allocation period:
- (d) days in period is the number of days in the portfolio allocation period:
- (e) fees is the amount of fees for ongoing management and administration services incurred by the investor as a member of the portfolio investor class on the day in the portfolio allocation period:
- (f) rebates is the amount of rebates of fees paid by the entity and derived by the investor as a member of the portfolio investor class on the day in the portfolio allocation period.
Defined in this Act: amount, , investor, , portfolio allocation period, , portfolio class taxable income, , portfolio class taxable loss, , portfolio investment entity, , portfolio investor allocated income, , portfolio investor allocated loss, , portfolio investor class, , portfolio investor interest fraction, , portfolio investor proxy, , tax year

Section HL 24: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section HL 24(2) heading: substituted, on 1 October 2007, by section 31(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 24(2): substituted, on 1 October 2007, by section 31(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 24(3) heading: substituted, on 1 October 2007, by section 31(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 24(3): substituted, on 1 October 2007, by section 31(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 24(4): amended, on 1 October 2007, by section 31(2)(a) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 24(4)(a): amended, on 1 October 2007, by section 31(2)(b) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 24(5) formula: substituted, on 1 October 2007, by section 31(3) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 24(6)(b): amended, on 1 October 2007, by section 31(4)(a) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 24(6)(c): amended, on 1 October 2007, by section 31(4)(b) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 24(6)(d): amended, on 1 October 2007, by section 31(4)(c) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 24(6)(e): added, on 1 October 2007, by section 31(4)(c) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 24(6)(f): added, on 1 October 2007, by section 31(4)(c) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

HL 25 Treatment of portfolio investor allocated loss for zero-rated portfolio investors and investors with portfolio investor exit period

When this section applies
(1) This section applies for an investor in a portfolio tax rate entity for a period in a tax year, if—
- (a) the investor is a zero-rated portfolio investor and the period is a tax year:
- (b) the entity makes payments of income tax under section HL 21 and the period is a portfolio investor exit period for the investor.
Deduction for excess of portfolio investor allocated loss

(2) The investor has a deduction under section DB 43B(1) (Zero-rated portfolio investor and portfolio investor allocated loss) in the income year corresponding to the tax year of an amount equal to the total amount of portfolio investor allocated loss under section HL 24 for the period.

Defined in this Act: amount, , deduction, , income year, , investor, , portfolio allocation period, , portfolio investor allocated income, , portfolio investor allocated loss, , portfolio investor exit period, , tax year, , zero-rated portfolio investor

Section HL 25: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Rebate for entity

Heading: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

HL 26 Treatment of portfolio investor allocated loss for other investors

Investor in entity making payments of tax under section HL 21
(1) A portfolio tax rate entity that makes payments of tax under section HL 21 has a rebate of tax under section KI 1 (Rebate for portfolio tax rate entity relating to certain investors) for a portfolio calculation period and an investor in a portfolio investor class if—
- (a) the portfolio calculation period does not include a part of a portfolio investor exit period for the investor; and
- (b) the investor is not a zero-rated portfolio investor.
Investor in entity making payments of tax under section HL 23

(2) A portfolio tax rate entity that makes payments of tax under section HL 23 has a rebate of tax under section KI 1, for a tax year and an investor as a member of a portfolio investor class, at the time that the entity would be required to make a payment of tax in relation to the tax year and the investor if the entity were liable , or were to have chosen, to make such a payment instead of having a rebate.

Defined in this Act: amount, , deduction, , income year, , investor, , portfolio allocation period, , portfolio investment entity, , portfolio investor allocated income, , portfolio investor allocated loss, , portfolio investor rate, , tax year, , zero-rated portfolio investor

Section HL 26: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section HL 26(1): amended, on 1 October 2007, by section 32(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 26(2): amended, on 1 October 2007, by section 32(2) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 26(2): amended, on 1 October 2007, by section 32(3) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Treatment of credits received by entity

Heading: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

HL 27 Credits received by portfolio tax rate entity or portfolio investor proxy

When this section applies
(1) This section applies to an entity that receives an imputation credit, a credit for tax paid in a foreign country or territory, or a credit for tax paid or withheld if the entity is—
- (a) a portfolio tax rate entity that has not made an election under section HL 22:
- (b) a portfolio investor proxy for an investor in a portfolio tax rate entity that has not made an election under section HL 22.
Use of credit by entity
(2) The entity may not, except as allowed by this section,—
- (a) use the credit to reduce the liability of the entity for income tax or to obtain a refund of income tax:
- (b) attach the credit to any distribution or transfer the credit to any other person.
Tax credit allocated to investor

(3) For a portfolio allocation period and a portfolio investor class to which the entity allocates a credit, the amount of the credit that is allocated to an investor is the total of the amounts calculated using the formula in subsection (4) for each day of the period.

Formula

(4) The formula is—

credit class fraction investor fraction days in period

Definition of items in formula
(5) In the formula in subsection (4),—
- (a) credit is the amount of the credit received by the entity in relation to the portfolio entity investment that gives rise to the credit:
- (b) class fraction is the portfolio class fraction, of the investor's portfolio investor class, in relation to the portfolio entity investment:
- (c) investor fraction is the portfolio investor interest fraction of the investor:
- (d) days in period is the number of days in the portfolio allocation period.
Application of subsections (7) to (11)
(6) For an investor in a portfolio tax rate entity who is allocated under subsection (3) a credit for a portfolio allocation period in a portfolio calculation period,—
- (a) subsections (7) and (8) apply—
  - (i) to the income year in which the tax year ends, if the investor is a zero-rated portfolio investor; or
  - (ii) to the income year corresponding to the tax year, if the entity makes payments of tax under section HL 21 and the portfolio allocation period includes part of a portfolio investor exit period for the investor.
- (b) subsection (9) applies to credits that are allocated to a portfolio allocation period in a portfolio investor exit period and are not treated as a credit against tax payable by the entity, if the entity makes payments of tax under section HL 23 and the investor is not a zero-rated portfolio investor:
- (c) subsections (10) and (11) apply if subsections (7) and (9) do not apply.
Zero-rated portfolio investor or investor with portfolio investor exit period for interest in entity that makes payments under section HL 21
(7) The investor is treated as receiving for the tax year corresponding to the income year for the allocated credits,—
- (a) if the investor is not a portfolio tax rate entity and the credits are under subpart LC (Foreign tax), a credit against income tax payable by the investor of the amount given by subsection (8):
- (b) if the investor is a portfolio tax rate entity or the credits are not under subpart LC, the allocated amount of each type of credit.
Amount of credit for foreign tax — zero-rated portfolio investors, other than portfolio investment entities, and investors having portfolio investor exit period
(8) An investor to whom subsection (7)(a) applies is treated as receiving for the tax year, for credits under subpart LC, a credit that is the lesser of—
- (a) the amount of the allocated credits:
- (b) the amount calculated by multiplying the amount of portfolio investor allocated income for the investor for the tax year by,—
  - (i) if the investor is not a zero-rated portfolio investor, the investor's portfolio investor rate for the portfolio allocation period ending before the investor's portfolio investor exit period; or
  - (ii) if the investor is a zero-rated portfolio investor, the basic rate of tax for the investor for the tax year under schedule 1 (Basic rate of income tax and specified superannuation contribution withholding tax).
Investor with portfolio investor exit period for interest in entity that makes payments under section HL 23

(9) The investor is treated as receiving for the tax year of the portfolio calculation period, for credits other than under subpart LC, the unused allocated amount of each type of credit.

Other investor: credit for entity for foreign tax credits

(10) The entity is treated as receiving for the tax year of the portfolio calculation period, for credits under subpart LC allocated to a portfolio investor class and an investor other than a zero-rated portfolio investor as a member of the portfolio investor class, a credit of an amount given by subsection (10C) against income tax payable by the entity as described by subsection (10B).

Use of credit
(10B) The credit is against income tax payable by the entity for—
- (a) the portfolio calculation period and portfolio calculation periods—
  - (i) later in the tax year, if the entity makes payments of tax under section HL 21; or
  - (ii) earlier or later in the tax year, if the entity makes payments of tax under section HL 22 or HL 23; and
- (b) the investor as a member of the portfolio investor class or another portfolio investor class.
Amount of credit
(10C) The amount of the credit is the lesser of the following:
- (a) the total of—
  - (i) the credits allocated to the portfolio calculation period and the investor as a member of the portfolio investor class; and
  - (ii) the credits allocated to earlier portfolio calculation periods in the tax year and the investor that are not used by the entity as a credit against income tax payable for those portfolio calculation periods and for the investor as a member of the portfolio investor class or another portfolio investor class:
- (b) the amount of the entity's portfolio entity tax liability—
  - (i) for the investor as a member of the portfolio investor class or another portfolio investor class; and
  - (ii) the portfolio calculation period and earlier portfolio calculation periods in the tax year; and
  - (iii) not met by a credit allocated to an earlier portfolio calculation period.
Other investor: credit for entity for other credits
(11) The amount of the credits not under subpart LC allocated to the investor under subsection (3) is treated as—
- (a) a credit against tax payable by the entity of the amount that is the lesser of the following:
  - (i) the amount of the credits:
  - (ii) the amount referred to in subsection (10B)(b), reduced by the amount of the credit given by subsection (10B):
- (b) a rebate of tax under section KI 1 (Rebate for portfolio tax rate entity relating to certain investors), for the entity and the portfolio calculation period, of the amount of the credits that is not used under paragraph (a).
Defined in this Act: amount, , income tax, , investor, , net income, , portfolio allocation period, , portfolio class fraction, , portfolio entity investment, , portfolio investment entity, , portfolio investor allocated income, , portfolio investor class, , portfolio investor exit period, , portfolio investor interest fraction, , portfolio investor proxy, , tax year, , zero-rated portfolio investor

Section HL 27: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section HL 27(3): amended, on 1 October 2007, by section 33(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 27(6): amended, on 1 October 2007, by section 33(2) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 27(6)(a): substituted, on 1 October 2007, by section 33(3) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 27(7): amended, on 1 October 2007, by section 33(4) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 27(7)(a): substituted, on 1 October 2007, by section 33(5) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 27(7)(b): amended, on 1 October 2007, by section 33(6) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 27(8) heading: substituted, on 1 October 2007, by section 33(7) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 27(8): substituted, on 1 October 2007, by section 33(7) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 27(10) heading: substituted, on 1 October 2007, by section 33(8) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 27(10): substituted, on 1 October 2007, by section 33(8) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 27(10B) heading: inserted, on 1 October 2007, by section 33(8) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 27(10B): inserted, on 1 October 2007, by section 33(8) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 27(10C) heading: inserted, on 1 October 2007, by section 33(8) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 27(10C): inserted, on 1 October 2007, by section 33(8) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 27(11): amended, on 1 October 2007, by section 33(9) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 27(11)(a)(ii): amended, on 1 October 2007, by section 33(10)(a) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 27(11)(a)(ii): amended, on 1 October 2007, by section 33(10)(b) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Treatment of losses for entity

Heading: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

HL 28 Portfolio entity formation loss

Portfolio entity formation loss

(1) The portfolio entity formation loss of a portfolio investment entity is the total amount for the entity, at the time the entity becomes a portfolio investment entity, of net loss arising from a period ending before the entity becomes a portfolio investment entity that may be carried forward under subparts IE and IF (which relate to tax losses generally) to the quarter in which the entity becomes a portfolio investment entity.

Carrying forward portfolio entity formation loss of entity other than portfolio tax rate entity

(2) The portfolio entity formation loss of a portfolio investment entity that is not a portfolio tax rate entity or that makes payments of income tax under section HL 22 may be carried forward under subparts IE and IF to an income year in which the entity is a portfolio investment entity.

Amount of portfolio entity formation loss available for allocation to portfolio allocation period
(3) The maximum amount of portfolio entity formation loss that a portfolio tax rate entity may allocate to a portfolio allocation period (the relevant period) is—
- (a) the amount of the portfolio entity formation loss that has not been allocated to an earlier portfolio allocation period, if, at the time the entity becomes a portfolio investment entity, the amount of portfolio entity formation loss is less than 5% of the total market value of the entity's portfolio entity investments; or
- (b) the amount calculated using the formula in subsection (4), if paragraph (a) does not apply.
Formula

(4) The maximum amount of portfolio entity formation loss under subsection (3)(b) that a portfolio tax rate entity may allocate to a relevant period is calculated using the formula—

initial loss days 1095 loss used

Definition of items in formula
(5) In the formula in subsection (4),—
- (a) initial loss is the amount of portfolio entity formation loss at the time the entity becomes a portfolio investment entity:
- (b) days is—
  - (i) the number of days in the period beginning with the day on which the entity becomes a portfolio investment entity and ending on the last day of the relevant period, if that number is less than or equal to 1095; or
  - (ii) 1095, if paragraph (a) does not apply:
- (c) loss used is the amount of portfolio entity formation loss allocated to portfolio allocation periods before the relevant period.
Amount of portfolio entity formation loss available for allocation to portfolio investor class and portfolio allocation period
(6) The maximum amount of portfolio entity formation loss that a portfolio tax rate entity may allocate to a portfolio investor class for a relevant period is the lesser of the following amounts:
- (a) the maximum amount of portfolio entity formation loss given for the relevant period by subsection (3):
- (b) the amount calculated using the formula—
  
  class net income credits rate
Definition of items in formula
(7) In the formula in subsection (6)(b),—
- (a) class net income is the amount of portfolio class net income for the portfolio investor class for the portfolio allocation period:
- (b) credits is the total amount allocated to the portfolio investor class and the relevant period of—
  - (i) imputation credits:
  - (ii) Maori authority credits:
  - (iii) credits for resident withholding tax:
  - (iv) dividend withholding payment credits:
- (c) rate is the rate of tax for companies given by schedule 1, part A, clause 5 (Basic rates of income tax and specified superannuation contribution withholding tax).
Defined in this Act: amount, , dividend withholding payment credit, , imputation credit, , Maori authority credit, net income, , net loss, , portfolio allocation period, , portfolio class net income, , portfolio entity formation loss, , portfolio entity investment, portfolio investment entity, , portfolio investor class, portfolio tax rate entity, , resident withholding tax

Section HL 28: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section HL 28(3) heading: substituted, on 1 October 2007, by section 34(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 28(3): substituted, on 1 October 2007, by section 34(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 28(4) heading: added, on 1 October 2007, by section 34(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 28(4): added, on 1 October 2007, by section 34(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 28(5) heading: added, on 1 October 2007, by section 34(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 28(5): added, on 1 October 2007, by section 34(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 28(6) heading: added, on 1 October 2007, by section 34(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 28(6): added, on 1 October 2007, by section 34(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 28(7) heading: added, on 1 October 2007, by section 34(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 28(7): added, on 1 October 2007, by section 34(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 28 list of defined terms dividend withholding payment credit: inserted, on 1 October 2007, by section 34(2) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 28 list of defined terms imputation credit: inserted, on 1 October 2007, by section 34(2) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 28 list of defined terms Maori authority credit: inserted, on 1 October 2007, by section 34(2) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 28 list of defined terms portfolio entity investment: inserted, on 1 October 2007, by section 34(2) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 28 list of defined terms portfolio investor class: inserted, on 1 October 2007, by section 34(2) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 28 list of defined terms resident withholding tax: added, on 1 October 2007, by section 34(2) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

HL 29 Portfolio class taxable income and portfolio class taxable loss for tax year

Portfolio class taxable income for tax year
(1) The portfolio class taxable income under this section for a portfolio investor class for a tax year is—
- (a) the amount calculated for the tax year under subsection (3), if the calculated amount is more than zero; or
- (b) zero, if paragraph (a) does not apply.
Portfolio class taxable loss for tax year
(2) The portfolio class taxable loss under this section for a portfolio investor class for a tax year is—
- (a) the amount by which zero exceeds the amount calculated for the tax year under subsection (3), if the calculated amount is less than zero; or
- (b) zero, if paragraph (a) does not apply.
Calculation of amount for tax year

(3) The amount calculated under this subsection for the portfolio investor class and the tax year is the total of the amounts calculated for each portfolio allocation period in the tax year using the formula

class tax income − class tax loss.

Definition of items in formula

(4) The items in the formula are defined in subsections (5) and (6).

Class tax income

(5) Class tax income is the amount of the portfolio class taxable income under section HL 19 of the portfolio investor class for the portfolio allocation period.

Class tax loss

(6) Class tax loss is the amount of the portfolio class taxable loss under section HL 19 of the portfolio investor class for the portfolio allocation period.

Defined in this Act: amount, , portfolio allocation period, , portfolio class taxable income, , portfolio class taxable loss, , portfolio investor class, , portfolio investor interest fraction, , tax year

Section HL 29: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

HL 30 Treatment of portfolio class taxable loss and portfolio class land loss for tax year

Portfolio class taxable loss for tax year other than portfolio class land loss

(1) If a portfolio investor class of an entity making payments of tax under section HL 21 or HL 23 has, for a portfolio calculation period, a portfolio class taxable loss that is not a portfolio class land loss, the portfolio class taxable loss may not be carried forward to a later portfolio calculation period.

Portfolio class land loss for tax year

(2) If a portfolio investor class has a portfolio class land loss for a portfolio calculation period, the portfolio class land loss may be carried forward for the portfolio investor class to following portfolio calculation periods and used to reduce the amount of portfolio class taxable income under section HL 19 for a later portfolio allocation period.

Meaning of portfolio class land loss
(3) A portfolio class land loss, for a portfolio investor class, means the portfolio class taxable loss of the portfolio investor class for a portfolio calculation period—
- (a) at the end of which, the class has interests in portfolio entity investments that—
  - (i) are investments in land or shares in a portfolio land company; and
  - (ii) have a portfolio class investment value that is more than 50% of the portfolio class investment value for all portfolio entity investments in which the class has interests; and
- (b) for which the class has a portfolio class taxable loss of more than zero.
Defined in this Act: land, , net income, , net loss, , portfolio class investment value, , portfolio class land loss, , portfolio class taxable income, , portfolio class taxable loss, , portfolio entity investment, , portfolio investment entity, , portfolio investor class, , portfolio land company, , tax year

Section HL 30: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section HL 30(1): amended, on 1 October 2007, by section 35 of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Portfolio investor proxies

Heading: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

HL 31 Portfolio investor proxies

Eligibility of person to be portfolio investor proxy
(1) An entity is eligible to be a portfolio investor proxy for an investor in a portfolio investment entity for a portfolio allocation period if—
- (a) the portfolio investment entity is not a portfolio listed company; and
- (b) the entity holds a portfolio investor interest for an investor in the portfolio investment entity; and
- (c) the entity gives to the portfolio investment entity—
  - (i) a notice that the entity is holding the portfolio investor interest as a portfolio investor proxy; and
  - (ii) other information that the Commissioner requires the entity to provide with the notice.
Role of portfolio investor proxy
(2) An entity who is a portfolio investor proxy holding a portfolio investor interest for an investor for a portfolio allocation period must perform the responsibilities given by subsection (3) in relation to amounts allocated to the entity as holder of the interest for the period as if—
- (a) the entity were a portfolio investment entity; and
- (b) the portfolio investor interest were an interest of the investor in the income of the entity; and
- (c) the portfolio investor allocated income, portfolio investor allocated loss, and distributions received by the entity for the investor were income or loss—
  - (i) of the entity; and
  - (ii) to which the investor is entitled by the portfolio investor interest.
Responsibilities of portfolio investor proxy
(3) The responsibilities of an entity referred to in subsection (2) in relation to amounts allocated to the entity are to—
- (a) allocate, to the investor, portfolio investor allocated income and portfolio investor allocated loss for the portfolio allocation period; and
- (b) distribute, to the investor, distributions and credits for the period; and
- (c) pay income tax on portfolio investor allocated income for the period; and
- (d) adjust the portfolio investor interest of the investor, or the distributions to the investor, to reflect the effect of the investor's portfolio investor rate on the amount of distributions under paragraph (b) and payments under paragraph (c); and
- (e) provide to the Commissioner—
  - (i) returns relating to the allocations, distributions, credits, and payments referred to in paragraphs (a) to (c); and
  - (ii) other information that the Commissioner requires the entity to provide; and
- (f) provide to each portfolio investment entity in which the portfolio investor proxy holds portfolio investor interests for investors in a portfolio investor class, information concerning the investors and the portfolio investor interests that may be relevant to whether the portfolio investment entity meets the eligibility requirements for the entity.
Defined in this Act: Commissioner, , income, , income tax, , investor, , loss, , notice, , portfolio allocation period, , portfolio investment entity, , portfolio investor allocated income, , portfolio investor allocated loss, , portfolio investor class, , portfolio investor interest, , portfolio investor proxy, , portfolio investor rate, , tax year

Section HL 31: inserted, on 1 October 2007, by section 97 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section HL 31(3)(e)(ii): amended, on 1 October 2007, by section 36 of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section HL 31(3)(f): added, on 1 October 2007, by section 36 of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Subpart HZ—Terminating provisions

HZ 1 Trust distributions

HZ 2 Trusts that may become qualifying trusts

HZ 1 Trust distributions

Where and to the extent to which any distribution received from a trust (not being a unit trust, a group investment fund, or a superannuation scheme) consists of income, capital profits, or capital gains derived by the trustee of that trust in the 1987-88 or any earlier tax year which was not also income derived by a beneficiary entitled in possession to the receipt of that income under the trust during the same tax year,—
- (a) the provisions of this Act and of the Tax Administration Act 1994 that correspond to those provisions of the Income Tax Act 1976 and of the Income Tax Amendment Act (No 5) 1988 specified in the proviso to section 9 of the latter Act (as substituted by section 13 of the Income Tax Amendment Act 1990) do not apply in respect of that distribution; and
- (b) that distribution is not income.
Compare: 1994 No 164 s HZ 1

HZ 2 Trusts that may become qualifying trusts

Where a settlement was first made on the terms of a trust on or before 17 December 1987 (whether or not any further settlements were made to or for the benefit of the trust or on the terms of the trust after 17 December 1987), and any settlor, trustee, or beneficiary of that trust has made an election under section 228(7) of the Income Tax Act 1976 on or before 31 May 1989 to pay income tax on trustee income derived in the 1988-89 and subsequent tax years, for the purposes of determining the liability of any person for income tax on any distribution from that trust, all trustee income of that trust—
- (a) derived from outside New Zealand; or
- (b) derived from New Zealand only as non-resident withholding income, if the obligations of all persons to pay income tax in relation to that non-resident withholding income tax have been satisfied,—
in the 1987-88 and earlier tax years during any period during which there was no trustee of that trust resident in New Zealand is deemed to have been liable under this Act to New Zealand income tax (other than only as non-resident withholding income) and all the trustee's obligations under this Act in relation to the trustee's liability to New Zealand income tax in respect of that trustee income are deemed to have been satisfied.
Compare: 1994 No 164 s HZ 2

Part I
Treatment of net losses

Subpart ID—Application of Part to schedular income

ID 1 No offset in calculating some income tax liabilities

Subpart IE—Net losses

IE 1 Net losses may be offset against future net income

IE 2 Specified activity net losses

IE 3 Attributed CFC net losses

IE 4 FIF net losses

Subpart IF—Net losses: companies

IF 1 Net losses may be offset against future net income

IF 2 Special provision in relation to net losses of companies for 1990-91 and 1991-92 income years

IF 3 Attributed CFC net losses

IF 4 Losses, attributed CFC net losses, and FIF net losses of amalgamating company

IF 5 Ordering of losses of amalgamated company

IF 6 Losses, attributed CFC net losses, and FIF net losses of amalgamated company

IF 7 Offsetting supplementary dividend against net income

Subpart IG—Net losses: groups of companies

IG 1 Companies included in group of companies

IG 2 Net loss offset between group companies

IG 3 Special provisions in relation to group companies for 1991-92 tax year

IG 4 Group of companies attributed CFC net losses

IG 5 Group of companies FIF net losses

IG 6 Loss carry forward and grouping by consolidated group and consolidated group members

IG 7 Attributed CFC net losses and FIF net losses of consolidated group members

IG 8 Net losses, attributed CFC net losses, and FIF net losses of amalgamated company

IG 9 Net losses, attributed CFC net losses, and FIF net losses offset against net income of amalgamated company

IG 10 Net losses used to pay penalties

Subpart IH—Losses: miners

IH 1 Losses of mining companies and petroleum miners

IH 2 Companies engaged in exploring for, searching for, or mining petroleum

IH 3 Loss carry back by petroleum miners

IH 4 Companies engaged in exploring for, searching for, or mining certain minerals

IH 5 Resident mining operators

Subpart II—Losses: life insurers

II 1 Policyholder net losses

II 2 Policyholder net loss for tax year preceding 1990-91

II 3 Carry forward of policyholder net loss

Subpart IZ—Withdrawal tax

IZ 1 Application of this subpart

IZ 2 Rate of withdrawal tax

IZ 3 Withdrawal income

IZ 4 Payment of withdrawal tax

IZ 5 Evidence of liability in proceedings for recovery

IZ 6 Relief in certain cases

IZ 7 Application of other provisions to withdrawal tax

Subpart ID—Application of Part to schedular income

ID 1 No offset in calculating some income tax liabilities

(1) A taxpayer may not take an available net loss into account in calculating the schedular income tax liability relating to schedular income that is of a type described in any of paragraphs (c) or (e) to (h) of the definition of schedular income.

(2) [Repealed]

Compare: 1994 No 164 s ID 1

Subsection (2) was omitted, as from 1 October 2005, by section 213 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subpart IE—Net losses

IE 1 Net losses may be offset against future net income

IE 2 Specified activity net losses

IE 3 Attributed CFC net losses

IE 4 FIF net losses

IE 1 Net losses may be offset against future net income

(1) Subject always to the express provisions of this section and section IF 1, this section and section IF 1 are intended—
- (a) to permit taxpayers to carry forward net losses that arise in an income year for offset against net income of the taxpayer in a later income year; but
- (b) in the case of taxpayers who are companies, to limit the circumstances in which a net loss can be so carried forward and offset to those where the tax benefit arising from the offset is obtained (directly or indirectly), at least to the extent of 49%, only by the same natural persons holding (directly or indirectly) rights in relation to the company who, by virtue of holding such rights, effectively bore the net loss.
(2) Any taxpayer who has a net loss for any income year is, subject to this section and section IF 1, entitled to claim that—
- (a) the net loss be carried forward to the income year immediately succeeding that income year and be offset against the net income for that immediately succeeding income year, so far as that net income extends; and
- (b) so far as it cannot then be offset, the net loss be carried forward from that immediately succeeding income year to the next succeeding income year and be offset against the net income for that next succeeding income year and so on.
(2B) A taxpayer who is a partner in a special partnership may not under this section carry forward a net loss if—
- (a) the taxpayer has a deduction in an income year that arises from the activities of the special partnership; and
- (b) the net loss arises from the deduction; and
- (c) during the income year, the taxpayer derives no assessable income, whether from the activities of the special partnership or otherwise.
(2BB) If a taxpayer is a portfolio tax rate entity that does not make payments of tax under section HL 22, the taxpayer may not carry forward a net loss under this section.

(2C) A taxpayer may not carry forward under this section a net loss to the extent that the net loss is offset against a remitted amount of an associated person as determined by the Commissioner under section CX 41B or EW 47B.
(3) Where net losses for 2 or more income years are carried forward to an income year in accordance with the provisions of this section,—
- (a) the aggregate amount of those net losses that may be offset against net income for that income year must not exceed the amount of that net income; and
- (b) those net losses must be offset in the order in which they arose.
Compare: 1994 No 164 s IE 1

Section IE 1(2BB): inserted, on 1 October 2007, by section 98 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

IE 2 Specified activity net losses

(1) Subject to this section, where in any income year any taxpayer, being an existing farmer, commences to conduct another specified activity that is different from the specified activity, or every 1 of the specified activities, by virtue of which the taxpayer is, immediately before that commencement, an existing farmer and that other specified activity is 1 that is usually conducted in association with and is complementary to the specified activity or any of the specified activities by virtue of which the taxpayer is, immediately before that commencement, an existing farmer, that other specified activity is deemed to be an activity related to the specified activity to which it is complementary.
(2) Subject to this section, where in any income year any taxpayer, being an existing farmer, commences to conduct another specified activity that is different from the specified activity or every 1 of the specified activities by virtue of which the taxpayer is, immediately before that commencement, an existing farmer and that other specified activity is conducted on land that the taxpayer has owned, or has held under any lease, licence, or other agreement, throughout the period of 5 years ending on the date of that commencement, that other specified activity is deemed to be an activity related to (as the case may be)—
- (a) the specified activity by virtue of which the taxpayer is, immediately before that commencement, an existing farmer; or
- (b) such 1 of the specified activities by virtue of which the taxpayer is, immediately before that commencement, an existing farmer—
  - (i) as the taxpayer elects by notice (which notice is irrevocable) given to the Commissioner within the time within which the taxpayer is required to furnish a return of the taxpayer's income for the income year in which the taxpayer commenced to conduct that other specified activity, or within such further time as the Commissioner may allow in any case or class of cases; or
  - (ii) where the taxpayer does not so elect, as the Commissioner determines.
(3) For the purposes of subsections (4) to (7), any specified activity that is a related activity is deemed to be part of the specified activity in relation to which it is a related activity.

(4) Subsection (6) does not apply in respect of any specified activity net loss for any income year of any taxpayer, who is an existing farmer, in the conduct of any established activity.

(5) Where, in relation to a taxpayer and to any income year, this section would have effect more favourably if the words “not including crops for which the preparation of the land, and the planting and cultivation of the tree or plant, and the harvesting of the crop are accomplished within 12 months” were omitted from paragraph (c)(iii) of the definition of specified activity, this section, in relation to the taxpayer and to the income year, applies as if those words were omitted.

(5A) Sections IE 1, IF 1, and IG 2, subject to subsection (6), apply to any specified activity net loss carried forward from a preceding income year as if it were a net loss carried forward from a preceding income year.
(6) Where in any income year (referred to in this subsection as the year of offset) any taxpayer has carried forward from the preceding income year any specified activity net loss, the following provisions apply:
- (a) the amount of that specified activity net loss which may be offset against the net income of the taxpayer or another taxpayer for the year of offset is the lesser of the amount of that specified activity net loss and,—
  - (i) where the offset is made against the net income of the taxpayer, the sum of the taxpayer's specified activity net income for the year of offset from the conduct of the same specified activity as gave rise to the specified activity net loss and $10,000:
  - (ii) where the offset is made against the net income of another taxpayer, $10,000:
- (b) in any case where the specified activity was conducted in any income year by 2 or more persons, the preceding provisions of this subsection apply as if every reference in those provisions to a taxpayer and to the amount of a specified activity net loss of the taxpayer attributable to the conduct of the specified activity were a reference to each such person and to the amount of each such person's share of the amount of any joint specified activity net loss for that income year:
- (c) where in the year of offset a taxpayer has carried forward from the preceding income year any specified activity net losses to which this subsection applies and which arise from the conduct of 2 or more specified activities, the aggregate amount of those specified activity net losses that may be offset against the taxpayer's net income for the year of offset is the lesser of the sum of those specified activity net losses and the sum of—
  - (i) the sum of the taxpayer's specified activity net income from each of those specified activities for the year of offset; and
  - (ii) $10,000:
- (d) in any year of offset in which paragraph (c) applies, the taxpayer may elect, by notice (which notice is irrevocable) given to the Commissioner within the time within which the taxpayer is required to furnish a return of the taxpayer's income for the year of offset, or within such further time as the Commissioner may allow in any case or class of cases, that, of the aggregate of the amount of the losses referred to in paragraph (c), the amount that may be offset under that paragraph comprises such amount (if any) of each of those specified activity net losses as the taxpayer specifies in that notice.
(7) Notwithstanding anything in the preceding subsections of this section, in any case where in any income year any taxpayer—
- (a) is engaged (on average in respect of the whole of the income year) principally and personally in conducting any specified activity (not being a specified activity within the meaning of paragraph (j) of the definition of specified activity) which is the livelihood of the taxpayer or the taxpayer is in the course of establishing as the taxpayer's livelihood; and
- (b) derives income from personal exertion, being income derived otherwise than from the conduct of that specified activity and being income which the taxpayer is compelled, by reason of circumstances that arise in the course of and as a result of the conduct of that specified activity, to derive; and
- (c) derives that income from personal exertion for the purposes of enabling the taxpayer to meet expenditure (whether or not the expenditure is required to meet losses suffered through any adverse event, happening, or cause) essential for the maintenance of the taxpayer and the taxpayer's dependants or for the continuance of that specified activity; and
- (d) would, in the opinion of the Commissioner, suffer hardship from the application of subsection (6),—
the Commissioner may determine that an amount of specified activity net loss greater than that authorised in subsection (6) (being a specified activity net loss arising from the conduct of the specified activity) may, subject to section IF 1(1), be offset against the taxpayer's net income in such income year or income years as the Commissioner specifies.
(8) In this section,—

established activity in relation to a taxpayer who is an existing farmer, means any specified activity or specified activities (not being a specified activity within the meaning of paragraph (j) of the definition of specified activity) that the taxpayer conducted on 11 October 1982, where, in the opinion of the Commissioner, the conduct of the specified activity or the specified activities constituted the livelihood of the taxpayer and the taxpayer's sole or principal source of income

income from personal exertion means income of any of the kinds referred to in sections CB 1 and CE 1; but does not include income from any business of renting, or lending money, or making financial investments
related activity, in relation to a specified activity conducted by any taxpayer in any income year, means—
- (a) any other specified activity conducted by the taxpayer in the income year that is of the same kind as that specified activity, whether or not conducted on the same land as that on which that specified activity is conducted:
- (b) any other specified activity conducted by the taxpayer in the income year which is deemed, under subsection (1) or (2), to be an activity related to that specified activity
specified activity net income means, in respect of a specified activity conducted by a taxpayer in an income year, the result of subtracting from the sum of the income of the taxpayer allocated to that activity and that income year the sum of the deductions of the taxpayer allocated to that activity and that income year, if that result is a positive amount

specified activity net loss means, in respect of a specified activity conducted by a taxpayer in an income year preceding, in the case of an activity referred to in paragraphs (a) to (i) of the definition of specified activity, the 1986-87 tax year and, in the case of an activity referred to in paragraph (j) of that definition, the 1990-91 tax year, a loss from that specified activity referred to in section 188A of the Income Tax Act 1976.
Compare: 1994 No 164 s IE 2

IE 3 Attributed CFC net losses

(1) Subject to this section, section IE 1 applies to any attributed CFC net loss as if it were a net loss.
(2) If a person has carried forward to an income year an attributed CFC net loss, the maximum amount of that loss that the person may offset against the person's net income for that income year is an amount equal to the total of—
- (a) any attributed CFC income of the taxpayer for that income year in respect of—
  - (i) the controlled foreign company in respect of which the loss arose, where that company remains resident in the relevant country; and
  - (ii) any other controlled foreign company resident in the relevant country; and
- (b) any FIF income, calculated under the branch equivalent method, of the taxpayer derived in that income year in respect of any foreign investment fund resident in the relevant country.
(3) A person may only take an amount of attributed CFC income or an amount of FIF income into account under subsection (2) to the extent that the person has not taken the amount into account—
- (a) in determining under section DN 4 or DN 9 the deductions that the person is allowed under section DN 1 or DN 5; or
- (b) in any other calculation under subsection (2) in respect of any other attributed CFC net loss; or
- (c) in determining the person's entitlement to offset under sections IG 2 and IG 4.
(4) If, in an income year,—
- (a) a person has an attributed CFC net loss in relation to an income interest in a controlled foreign company; and
- (b) by virtue of section 38 of the Income Tax Amendment Act (No 2) 1993 the income interest becomes an interest of the person in a foreign investment fund,—
with effect from that income year the attributed CFC net loss is treated as a FIF net loss of the person (as if the controlled foreign company were the relevant fund) not calculated under the branch equivalent method, except where the person calculates the person's FIF income or loss under the branch equivalent method with respect to the interest and the period commencing with the date upon which the income interest becomes an interest in a foreign investment fund.
(5) If a person is unable to offset any part of the maximum amount calculated under subsection (2) for an income year against net income for the income year because there is insufficient net income, the excess is treated as if it were a net loss for the income year determined under section BC 4 and ceases to be part of the attributed CFC net loss available to the person.

Compare: 1994 No 164 s IE 3

IE 4 FIF net losses

(1) Subject to this section, section IE 1 applies to any FIF net loss as if it were a net loss.

(2) [Repealed]

(3) [Repealed]
(4) If a person has carried forward to an income year a FIF net loss in respect of an attributing interest in a foreign investment fund calculated under the branch equivalent method, the maximum amount of that loss that the person may offset against the person's net income for that income year is the amount that could be offset in respect of that loss under section IE 3 if—
- (a) the interest in the fund were an income interest in a controlled foreign company; and
- (b) the FIF net loss were an attributed CFC net loss arising in respect of a branch equivalent loss; and
- (c) references to the controlled foreign company were references to the fund.
(5) Notwithstanding any other provision of this section, where—
- (a) a person has carried forward to any income year a FIF net loss; and
- (b) section CQ 5(1)(d) or (db) applies in respect of the person and the income year,—
the person may offset the FIF net loss against the person's net income for the income year, to the extent that the FIF net loss does not exceed the person's assessable income in respect of attributing interests that would give rise to FIF income in the income year but for section CQ 5(1)(d) or (db).
(6) [Repealed]

Compare: 1994 No 164 s IE 4

Subsections (2) and (3) were repealed, as from 1 April 2007, by section 99(1)(a) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 99(2) of that Act as to the application of this amendment for income years beginning on or after 1 April 2007.

Subsection (5) was amended, as from 1 April 2007, by section 99(1)(b) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by inserting “or (db)” after “CQ 5(1)(d)” in both places it appears. See section 99(2) of that Act as to the application of this amendment for income years beginning on or after 1 April 2007.

Subsection (6) was repealed, as from 1 April 2007, by section 99(1)(a) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 99(2) of that Act as to the application of this amendment for income years beginning on or after 1 April 2007.

Subpart IF—Net losses: companies

IF 1 Net losses may be offset against future net income

IF 2 Special provision in relation to net losses of companies for 1990-91 and 1991-92 income years

IF 3 Attributed CFC net losses

IF 4 Losses, attributed CFC net losses, and FIF net losses of amalgamating company

IF 5 Ordering of losses of amalgamated company

IF 6 Losses, attributed CFC net losses, and FIF net losses of amalgamated company

IF 7 Offsetting supplementary dividend against net income

IF 1 Net losses may be offset against future net income

(1) Subject to the succeeding provisions of this section, no taxpayer being a company (in this subsection referred to as the loss company) may carry forward, in accordance with section IE 1(2), the whole or any part of a net loss for any income year (in this subsection referred to as the year of loss) to any later income year (in this subsection referred to as the year of carry forward), unless there is a group of persons—
- (a) the aggregate of whose minimum voting interests in the loss company in the period from the beginning of the year of loss to the end of the year of carry forward (in this subsection referred to as the continuity period) is equal to or greater than 49%; and
- (b) in any case where at any time during the continuity period a market value circumstance exists in respect of the loss company, the aggregate of whose minimum market value interests in the loss company in the continuity period is equal to or greater than 49%,—
and, for the purposes of this subsection, the minimum voting interest or minimum market value interest (as the case may be) of any person in the loss company in the continuity period is equal to the lowest voting interest or market value interest (as the case may be) in the loss company which that person has during the continuity period.
(2) Subsection (1) does not apply to prevent any company from carrying forward, in accordance with section IE 1(2), the whole or part of any net loss for any income year (in this subsection referred to as the year of loss) where and to the extent that—
- (a) subsection (1) would not have applied to prevent carry forward if regard were had, for the purposes of applying that subsection (to the extent to which it requires regard to be had to the circumstances in the year of loss and without prejudice to the application of that subsection to the extent to which it requires regard to be had to later periods), to part only of the year of loss; and
- (b) adequate accounts have been prepared and furnished to the Commissioner by the company relating to that part of that year of loss which detail sufficiently that part of the net loss for the year of loss which was reasonably and fairly attributable to that part of that year of loss,—
in which event that claim for carry forward is allowed in respect of that part of the net loss for the year of loss as those accounts indicate was reasonably and fairly attributable to that part of that year of loss.
(3) Subsection (1) does not apply to prevent any company from carrying forward, in accordance with section IE 1(2), the whole or part of any net loss for any income year (in this subsection referred to as the year of loss) to any later income year where and to the extent that—
- (a) subsection (1) would not have applied to prevent the carry forward if regard were had, for the purposes of applying such subsection (to the extent to which it requires regard to be had to the later income year and without prejudice to the application of such subsection to the extent to which it requires regard to be had to earlier periods), to part only of the later income year; and
- (b) adequate accounts have been prepared and furnished to the Commissioner by the company relating to that part of that later income year which detail sufficiently that part of the net income for the whole of the later income year which was reasonably and fairly attributable to that part of that later income year,—
in which event that claim for carry forward to the later income year is allowed in respect of the net loss for the year of loss to the extent to which it does not exceed that amount of net income as those accounts indicated was reasonably and fairly attributable to that part of that later income year.
(4) For the purposes of this section, where adequate accounts are required to be prepared and furnished to the Commissioner in respect of the net loss or net income of any company which is reasonably and fairly attributable to a period which is part only of an income year of that company, those accounts must be prepared, to the extent to which reasonable and fair, by applying the provisions of this Act to that period as if it were an income year.

(5) Any taxpayer is entitled to claim to carry forward and offset against net income of the taxpayer in accordance with section IE 1(2) any net loss of the taxpayer for any income year prior to the 1977-78 income year if that taxpayer would have been entitled to claim to carry forward that net loss to that subsequent tax year for the purpose of assessing income tax under section 137 of the Land and Income Tax Act 1954 if the Income Tax Act 1976, the Income Tax Act 1994, and this Act had not been passed.
(6) Where any taxpayer (being a company) claims, in accordance with section IE 1(2), to carry forward the whole or part of a net loss incurred by it in the 1991-92 income year or any earlier income year (in this subsection referred to as the pre-1993 year of loss) to any later income year, the provisions of subsection (1) do not preclude such claim where—
- (a) the taxpayer would have been entitled to claim to carry forward the whole or part of the net loss to the later income year under section 188 of the Income Tax Act 1976, as that section applied before its repeal and replacement by section 22 of the Income Tax Amendment Act (No 2) 1992, if that section 188 had continued to apply—
  - (i) as modified by section 188AA of the Income Tax Act 1976; and
  - (ii) as if the continuity percentage referred to in section 188(7) of the Income Tax Act 1976 were always 40%,—
in respect of the later income year; and
- (b) in respect of the period commencing on the first day of the 1992-93 income year and ending with the last day of that later income year (referred to in this subsection as the relevant period), there is a group of persons—
  - (i) the aggregate of whose minimum voting interests in the taxpayer in the relevant period is equal to or greater than 49%; and
  - (ii) in any case where at any time during the relevant period a market value circumstance exists in respect of the taxpayer, the aggregate of whose minimum market value interests in the taxpayer in the relevant period is equal to or greater than 49%—
and, for the purposes of this paragraph, the minimum voting interest or minimum market value interest (as the case may be) of any person in the taxpayer in the relevant period is equal to the lowest voting interest or market value interest (as the case may be) in the taxpayer which that person has during the relevant period.
Compare: 1994 No 164 s IF 1

IF 2 Special provision in relation to net losses of companies for 1990-91 and 1991-92 income years

Where and to the extent that the Commissioner is satisfied that—
- (a) a company (in this section referred to as the loss company) has a net loss for the 1990-91 income year or the 1991-92 income year (the relevant income year being referred to in this section as the year of loss); and
- (b) section 188(7B) of the Income Tax Act 1976 (as inserted by section 7 of the Income Tax Amendment Act (No 5) 1991 and in force before the repeal of section 188 by section 22 of the Income Tax Amendment Act (No 2) 1992) would not have applied to prevent the loss company from carrying forward the whole or part of that net loss if regard were had, for the purposes of that subsection (7B) (to the extent to which it required regard to be had to that part of the period commencing with 8.00 pm New Zealand Standard Time on 30 July 1991 which falls within the year of loss (in this paragraph referred to as the relevant part of the year of loss) and without prejudice to the application of that subsection (7B) to the extent to which it required regard to be had to later periods), to part only of the relevant part of the year of loss (that part of the relevant part of the year of loss being in this section referred to as the relevant continuity period); and
- (c) adequate accounts have been prepared by the loss company and furnished to the Commissioner relating to the relevant continuity period which detail sufficiently that part of the net loss for the whole of the year of loss which was reasonably and fairly attributable to the relevant continuity period,—
that subsection (7B) does not apply to prevent the loss company carrying forward, in accordance with section 188(2) (as in force before its repeal by section 22 of the Income Tax Amendment Act (No 2) 1992), that part of the net loss as those accounts indicate was reasonably and fairly attributable to the relevant continuity period.
Compare: 1994 No 164 s IF 2

IF 3 Attributed CFC net losses

For the purposes of sections IF 1 and IG 2, an attributed CFC net loss or a FIF net loss is deemed to arise on the last day of the income year in respect of which the loss is attributed.

Compare: 1994 No 164 s IF 3

IF 4 Losses, attributed CFC net losses, and FIF net losses of amalgamating company

If—
- (a) an amalgamating company ceases to exist on a qualifying amalgamation; and
- (b) the amalgamating company, in respect of a tax year, has a net loss, an attributed CFC net loss, or a FIF net loss; and
- (c) the net loss, the attributed CFC net loss, or the FIF net loss has not, under any of sections IE 1, IF 1, and IG 2, been offset against net income of the amalgamating company or any other company in any period prior to the amalgamation (including any part of the tax year in which the amalgamation takes place); and
- (d) under section IG 2, the net loss, the attributed CFC net loss, or the FIF net loss could have been offset against net income (if there were sufficient such income) of the amalgamated company (unless it is a company incorporated only on the amalgamation) and any company which has, at any time before or during the tax year in respect of which the net loss, the attributed CFC net loss, or the FIF net loss is offset under this section, amalgamated with the amalgamated company, that is attributable to that part of the tax year of the relevant company which ends with the date of the amalgamation,—
the net loss, the attributed CFC net loss, or the FIF net loss (as the case may be) is attributed to the amalgamated company and may be offset against, under section IE 1 or IF 1, the net income of the amalgamated company in periods commencing on or after the amalgamation, but applying sections IE 1 and IF 1 (and any other provisions of this Act the application of which is dependent upon the application of either of those provisions) as if, with respect to all times prior to the amalgamation, the amalgamated company did not separately exist and was instead the amalgamating company with the same holders of shares and options over shares each holding the same number and class of shares and options over shares as they held at the time in the amalgamating company.
Compare: 1994 No 164 s IF 4

IF 5 Ordering of losses of amalgamated company

Where net losses, attributed CFC net losses, or FIF net losses of 2 or more amalgamating companies are allowed under section IF 4 to be offset against the net income for a tax year of the amalgamated company, those net losses, attributed CFC net losses, or FIF net losses must—
- (a) if arising in 2 or more tax years, be offset in the same order as they arose; and
- (b) if arising in the same tax year, be offset, so far as the net income extends,—
  - (i) in the order elected by the amalgamated company by notice to the Commissioner in such form as the Commissioner may allow; or
  - (ii) if no such election is made, on a pro rata basis.
Compare: 1994 No 164 s IF 5

IF 6 Losses, attributed CFC net losses, and FIF net losses of amalgamated company

Where—
- (a) an amalgamated company, in respect of a tax year prior to the tax year in which the amalgamation takes place, has a net loss, an attributed CFC net loss, or a FIF net loss; and
- (b) the net loss, the attributed CFC net loss, or the FIF net loss has not, under any of sections IE 1, IF 1, and IG 2, been offset against net income of the amalgamated company or any other company in any period prior to the amalgamation (including any part of the tax year in which the amalgamation takes place),—
the amalgamated company is entitled to carry forward the net loss, the attributed CFC net loss, or the FIF net loss into the tax year in which the amalgamation takes place or any subsequent tax year only if—
- (c) the amalgamated company satisfies the relevant requirements of sections IE 1 and IF 1; and
- (d) under section IG 2, the net loss, the attributed CFC net loss, or the FIF net loss could have been offset against net income (if there were sufficient such income) attributable to that part of the tax year of the relevant company which ends with the date of the amalgamation, by each amalgamating company.
Compare: 1994 No 164 s IF 6

IF 7 Offsetting supplementary dividend against net income

(1) If a taxpayer is a section LE 3 holding company and derives a supplementary dividend in a tax year, the maximum aggregate amount that the taxpayer may offset under section IE 1, IG 2, or IH 4 against its net income for that tax year is the amount calculated in accordance with the following formula:
where—
- NI is the taxpayer's net income
- NRC is the total amount of non-refundable credits that are available under Part L to be set off against the taxpayer's income tax liability
- CC is the total amount of convertible credits that are available under Part L to be set off against the taxpayer's income tax liability
- SDD is the total amount of supplementary dividends derived by the taxpayer in the tax year
- T is the applicable basic tax rate.
(2) Subsection (1) does not affect the calculation under Part L of the non-refundable credits and convertible credits of a section LE 3 holding company for a tax year.

Compare: 1994 No 164 s IF 7

Subpart IG—Net losses: groups of companies

IG 1 Companies included in group of companies

(1) Subject always to the express provisions of this section and section IG 2, the provisions of this section and section IG 2 are intended to limit the circumstances in which a company that has a net loss for an income year, or that has a net loss able to be carried forward to that income year in accordance with section IE 1 or IF 1, may offset part or the whole of that net loss against the net income of another company to those circumstances where, at all times during the income year in which the net loss arises and all succeeding income years (if any) up to and including the income year in which the net loss is offset, the company which has the net loss and the other company are, at least to the extent of 66%, commonly owned (whether or not always during that period by the same group of persons).
(2) For the purposes of this Act, in relation to any 2 or more companies, none of which is a portfolio tax rate entity,—
- (a) where at any time there is a group of persons—
  - (i) the aggregate of whose common voting interests is equal to or greater than 66%; and
  - (ii) in any case where at that time a market value circumstance exists in respect of any of the companies, the aggregate of whose common market value interests is equal to or greater than 66%,—
those companies are treated as a group of companies at that time; and
- (b) where, in relation to any income year or other period, there is at all times during that income year or other period a group of persons (whether or not always during that income year or other period the same group of persons)—
  - (i) the aggregate of whose common voting interests is equal to or greater than 66%; and
  - (ii) in any case where at any relevant time a market value circumstance exists in respect of any of the companies, the aggregate of whose common market value interests is equal to or greater than 66%,—
those companies are treated as a group of companies for that income year or other period.
(3) For the purposes of this Act, references to any 2 or more companies being at any time or for any period a wholly-owned group of companies mean any 2 or more companies which would be a group of companies at that time or for that period if—
- (a) the references in subsection (2) to 66% were instead references to 100%; or
- (b) the companies would be a wholly-owned group of companies under paragraph (a) if—
  - (i) any nominal shareholding held by any person solely for the purpose of complying with the requirements of company law were disregarded; or
  - (ii) the shares in any such company held by the trustee of, or held by employees or former employees of the company as a consequence of the operation of, any share purchase scheme were disregarded to the extent that the shares so held by the trustee or employees or former employees—
    - (A) represent no more than 3% of the voting interests in the company; and
    - (B) in any case where at that time or during that period a market value circumstance exists in respect of the company, represent no more than 3% of the market value interests in the company.
(4) Except as expressly provided in this Act, every company in a group of companies is liable for income tax in the same manner as if it were a company not included in a group of companies.
(5) For the purposes of this section, in relation to any 2 or more companies at any time,—
- (a) the common voting interest of any person who has or is treated as having a voting interest in each of those companies at that time by virtue of section OD 3 is that percentage which is equal to—
  - (i) the percentage voting interest of the person in each of the companies at that time, if those percentages are the same in the case of each company; or
  - (ii) the lowest of the percentage voting interests of the person in each of the companies at that time, if those percentages differ as between the companies; and
- (b) the common market value interest of any person who is treated as having a market value interest in each of those companies at that time by virtue of section OD 4 is that percentage which is equal to—
  - (i) the percentage market value interest of the person in each of the companies at that time, if those percentages are the same in the case of each company; or
  - (ii) the lowest of the percentage market value interests of the person in each of the companies at that time, if those percentages differ as between the companies.
Compare: 1994 No 164 s IG 1

Section IG 1(2): amended, on 1 October 2007, by section 37 of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section IG 1(2): amended, on 1 October 2007, by section 100 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

IG 2 Net loss offset between group companies

(1) For the purposes of this section, continuity of ownership is treated as being maintained in respect of any company and any period where there is a group of persons—
- (a) the aggregate of whose minimum voting interests in the company is equal to or greater than 49%; and
- (b) in any case where at any time during the period a market value circumstance exists in respect of the company, the aggregate of whose minimum market value interests in the company is equal to or greater than 49%—
and, for the purposes of this paragraph, the minimum voting interest or the minimum market value interest of any person in the company in the period is equal to the lowest voting interest or market value interest (as the case may be) in the company which that person has during the period.
(2) Subject to the succeeding subsections of this section, where in respect of any income year (in this subsection referred to as the year of offset)—
- (a) a company (in this subsection referred to as the loss company) has—
  - (i) a net loss for the year of offset that does not consist of a mining outgoing excess and is not prevented by section IE 1(2B) or (2C) from being carried forward under sections IE 1 and IF 1:
  - (ii) carried forward under sections IE 1 and IF 1 such a net loss of the loss company which arose in a preceding income year (in this subsection referred to as the preceding loss year) to the year of offset; and
- (b) the loss company either—
  - (i) elects by notice in accordance with subsection (3) that the whole or part of the net loss be offset against the net income for the year of offset of another company; or
  - (ii) receives a payment from another company under an agreement providing for the other company to bear or share in the net loss—
that other company being in this subsection referred to as the profit company ; and
- (c) the profit company is in the same group of companies as the loss company for—
  - (i) the year of offset of the loss company; and
  - (ii) in any case where the year of offset of the profit company ends on a date later than the last day of the year of offset of the loss company, the year of offset of the profit company; and
  - (iii) in the case of a net loss or part of a net loss of the loss company, for any preceding loss year that was the 1981-82 income year or any subsequent year, the preceding loss year of the loss company; and
  - (iv) in the case of a net loss or part of a net loss of the loss company, for any preceding loss year that was the 1991-92 income year or any subsequent year, all income years of the loss company (if any) falling between the preceding loss year of the loss company and the year of offset of the loss company; and
- (d) the loss company is at all times in—
  - (i) the year of offset of the loss company; and
  - (ii) in the case of a net loss or part of a net loss of the loss company, for any preceding loss year,—
    - (A) the preceding loss year of the loss company; and
    - (B) in any case where the preceding loss year is the 1991-92 income year or a later income year, all income years of the loss company (if any) falling between the preceding loss year of the loss company and the year of offset of the loss company—
not a dual resident company and is at all times in those years either—
- (iii) incorporated in New Zealand; or
- (iv) carrying on business in New Zealand through a fixed establishment in New Zealand; and
- (e) continuity of ownership is maintained in respect of the loss company for—
  - (i) the year of offset of the loss company; and
  - (ii) in any case where the year of offset of the profit company ends on a date later than the last day of the year of offset of the loss company, the year of offset of the profit company; and
- (f) the amount so elected to be offset or payment so received does not exceed the amount that would, were that offset not allowed or that payment not made, be the taxable income (after offsetting any net loss which is available to the profit company under this section or other than under this section) of the profit company for the year of offset; and
- (g) in the case of any payment made by the profit company,—
  - (i) the payment does not exceed the amount of the net loss; and
  - (ii) the payment is made not later than the 31 March that, in relation to the loss company and the year of offset, is the latest date to which the time for the furnishing of the return for that income year may be extended under section 37(5) of the Tax Administration Act 1994 or is made within such further time as the Commissioner may allow; and
  - (iii) the payment would not (otherwise than under this subsection) be taken into account in calculating the taxable income of either the loss company or the profit company; and
  - (iv) the loss company gives notice of the payment to the Commissioner in accordance with subsection (3),—
the amount so elected to be offset or the payment (as the case may be) must—
- (h) be offset against net income of the profit company in the year of offset; and
- (i) to the extent so offset, give rise to a reduction in the available net losses of the loss company (in the same order in which the losses arose); and
- (j) in the case of any payment made by the profit company, to the extent so offset, not be treated as a dividend paid by the profit company to the loss company,— and any election made in accordance with this subsection is irrevocable.
(3) Every notice under subsection (2) must be given to the Commissioner not later than the 31 March that, in relation to the loss company and the year of offset, is the latest date to which the time for the furnishing of the return of its income for the year of offset may be extended under section 37(5) of the Tax Administration Act 1994 or within such further time as the Commissioner may allow.
(4) Notwithstanding subsection (2), where and to the extent that—
- (a) an offset under that subsection would not, but for the application of this subsection, be available to a company (in this subsection referred to as the profit company) in an income year (in this subsection referred to as the year of offset) in respect of all or part of a net loss of another company (in this subsection referred to as the loss company) for that income year because the requirements of either or both of subsection (2)(c)(i) and (ii) and (e) are not met; and
- (b) an offset under the relevant subsection would be available if regard were had, for the purposes of subsection (2)(c) and (e) to a period (in this subsection referred to as the loss company commonality period) which is part only of the year of offset of the loss company; and
- (c) adequate accounts have been prepared by the loss company and furnished to the Commissioner which detail sufficiently that part of the net loss (in this subsection referred to as the part-year loss, and that net loss to be calculated after taking into account any amount that has been offset under this section against the net income of any company other than the profit company) as is reasonably and fairly attributable to the loss company commonality period; and
- (d) adequate accounts have been prepared by the profit company and furnished to the Commissioner which detail sufficiently that part of the amount (in this subsection referred to as the part-year profit) that would be the profit company's taxable income if this subsection did not apply to that net loss for the whole of the year of offset of the profit company as is reasonably and fairly attributable to,—
  - (i) in any case where the year of offset of the profit company is co-extensive with the year of offset of the loss company, the loss company commonality period (in this subsection in respect of that case referred to as the profit company commonality period); and
  - (ii) in any other case, that part of the year of offset of the profit company (in this subsection in respect of that case referred to as the profit company commonality period)—
    - (A) which includes (but is not limited to) all or part of the loss company commonality period; and
    - (B) in which the profit company and the loss company are at all times members of the same group of companies; and
    - (C) in which continuity of ownership has been maintained in respect of the loss company,—
the loss company may, in any notice given to the Commissioner, in accordance with subsection (3) in respect of the net loss, the profit company, the loss company, and the year of offset, elect that regard must be had in applying subsection (2) in respect of the net loss, the profit company, the loss company, and the year of offset only to the loss company commonality period and, where that election is made, subsection (2) applies for the purpose of determining the amount able to be offset against the net income of the profit company in respect of the net loss and the year of offset as if—
- (e) the year of offset of the loss company were co-extensive with the loss company commonality period and the net loss of the loss company for that deemed year were equal to the part-year loss; and
- (f) the year of offset of the profit company were co-extensive with the profit company commonality period and the taxable income of the profit company for that deemed year were equal to the part-year profit.
(5) Notwithstanding subsection (2), where and to the extent that—
- (a) an offset under that subsection would not, but for the application of this subsection, be available to a company (in this subsection referred to as the profit company) in an income year (in this subsection referred to as the year of offset) in respect of all or part of a net loss of another company (in this subsection referred to as the loss company) for a preceding income year (in this subsection referred to as the preceding loss year) because the requirements of any 1 or more of—
  - (i) paragraph (c)(i); or
  - (ii) paragraph (c)(ii); or
  - (iii) in the case where the preceding loss year is the 1991-92 income year or a subsequent income year, paragraph (c)(iii); or
  - (iv) paragraph (e)—
of subsection (2) are not met; and
- (b) an offset under that subsection would be available if—
  - (i) in any case where subsection (2)(c)(i) or (ii) or (e) is not met,—
    - (A) regard were had for the purposes of applying subsection (2)(c)(i), (ii), and (e) to a period (in this subsection referred to as the loss company commonality period) which is part only of the year of offset of the loss company; and
    - (B) section IF 1(3) were to apply as if the loss company had, in that part of the year of offset of the profit company which falls within the loss company commonality period, net income equal to that part of the profit company's net income for the year of offset specified in paragraph (c); and
  - (ii) in any case where subsection (2)(c)(iii) is not met in respect of a preceding loss year being the 1991-92 income year or a subsequent income year, regard were had for the purposes of applying that paragraph (c)(iii) to a period (in this subsection referred to as the preceding year loss company commonality period) which is part only of the preceding loss year; and
- (c) in any case where subsection (2)(c)(i) or (ii) or (e) is not met, adequate accounts have been prepared by the profit company and furnished to the Commissioner which detail sufficiently that part of the amount that would, if this subsection did not apply to the net loss of the loss company, be the profit company's taxable income (in this subsection referred to as the part-year profit) for the whole of the year of offset of the profit company as is reasonably and fairly attributable to—
  - (i) in any case where the year of offset of the profit company is co-extensive with the year of offset of the loss company, the loss company commonality period (in this subsection in respect of that case referred to as the profit company commonality period); and
  - (ii) in any other case, that part of the year of offset of the profit company (in this subsection in respect of that case referred to as the profit company commonality period)—
    - (A) which includes (but is not limited to) all or part of the loss company commonality period; and
    - (B) in which the profit company and the loss company are members of the same group of companies; and
    - (C) in which continuity of ownership has been maintained in respect of the loss company; and
- (d) in any case where subsection (2)(c)(iii) is not met in respect of a preceding loss year being the 1991-92 income year or a subsequent income year, adequate accounts have been prepared by the loss company and furnished to the Commissioner which detail sufficiently that part of the net loss (in this subsection referred to as the part-year loss, and that net loss to be calculated after taking into account any amount that has been offset against net income by any company other than the profit company) as is reasonably and fairly attributable to the preceding year loss company commonality period,—
the loss company may, in any notice given to the Commissioner in accordance with subsection (3) in respect of the net loss, the profit company, the loss company, and the year of offset, elect that, in respect of the net loss, the profit company, the loss company, and the year of offset,—
- (e) in any case where subsection (2)(c)(i) or (ii) or (e) is not met, regard must be had in applying those paragraphs only to the loss company commonality period, and, where such an election is made,—
  - (i) for the purposes of determining the amount able to be offset by the profit company in respect of the loss company's net loss and the year of offset, subsection (2) applies as if the year of offset of the profit company were co-extensive with the profit company commonality period and the taxable income of the profit company for that deemed year were equal to the part-year profit; and
  - (ii) where and to the extent that—
    - (A) the whole or part net loss of the loss company could only be carried forward by the loss company under section IE 1(2) to the year of offset by virtue of section IF 1(3); and
    - (B) by virtue of this subsection an offset is allowed to the profit company,—
    section IF 1(3) applies as if the loss company has, in that part of the profit company commonality period which falls within the loss company commonality period, net income equal to the part-year profit; and
- (f) in any case where subsection (2)(c)(iii) is not met in respect of a preceding loss year being the 1991-92 income year or a subsequent income year, regard must be had in applying that paragraph (c)(iii) only to the preceding year loss company commonality period, and, where such an election is made, for the purposes of determining the amount able to be offset by the profit company in respect of the loss company's net loss and the year of offset, subsection (2) applies as if the preceding loss year were co-extensive with the preceding year loss company commonality period and the net loss of the loss company for such deemed year were equal to the part-year loss.
(6) Where—
- (a) a company (referred to in this subsection as the loss company) has a net loss for any income year; and
- (b) a deduction has been allowed under this Act or an earlier Act, in the 1993-94 or any subsequent income year (referred to in this subsection as the year of write off), to any company (referred to in this subsection as the write-off company) other than the loss company for—
  - (i) a bad debt; or
  - (ii) a decline in the value of any shares determined as follows:
    - (A) if the shares have not been disposed of, from a valuation made under subpart EB or otherwise; or
    - (B) if the shares have been disposed of by the taxpayer, as the amount by which the income of the company in respect of the disposal is less than the deduction allowed to the company in respect of the cost of the shares; and
- (c) the application by the loss company of an amount which—
  - (i) gave rise to the debt; or
  - (ii) was paid by any person for the subscription of the shares—
  was taken into account in calculating the net loss,—
no offset is available in respect of the net loss under subsection (2) in the year of write off or in any income year succeeding the year of write off in calculating the net income of any company which is the write-off company or which is at any time in the income year in which the net loss arises in the same group of companies as the write-off company, except to the extent that the net loss exceeds the aggregate of the deductions referred to in paragraph (b).
(7) Where—
- (a) an amount of net loss apparently arising for a company (in this subsection referred to as the loss company) in an income year (in this subsection referred to as the year of loss) is offset by more than 1 company (in this subsection referred to as the profit companies) under subsection (2); and
- (b) the actual net loss of the loss company for the year of loss is determined by the Commissioner to be less than the aggregate amounts offset in respect of the apparent net loss by the profit companies against their net income,—
then, notwithstanding any other provision of this section,—
- (c) where the loss company so elects by notice in such form as the Commissioner may allow, given to the Commissioner within 6 months after the date upon which the Commissioner gave notice to the loss company of the determination of the reduced amount of the net loss or within such further time as the Commissioner may allow, the amount by which the actual net loss determined by the Commissioner is less than the aggregate of the amounts offset by the profit companies must be allocated to the respective profit companies as a reduction in the amounts available to them for offset in the manner the loss company elects, but any election which provides that the amount of the reduction allocated to a company which at the time of the election is no longer a member of the same group of companies as the loss company exceeds the amount of reduction which would arise under paragraph (d) is deemed not to have been made; and
- (d) in any other case, the amount available to each of the profit companies for offset against their net income must be reduced by the same proportion as the proportion by which the apparent net loss was reduced to equal the actual net loss,—
and, where and to the extent that the reduction in an amount available for offset against the net income of any profit company results in any payment made under this section under an agreement for the profit company to bear or share in the net loss of the loss company being treated as a dividend, that dividend is deemed to be reduced to the extent to which the payment is refunded by the loss company to the profit company within the period of 6 months referred to in paragraph (c).
(8) For the purposes of subsection (2)(c)(iii) and (iv), a company is treated as being a member of the same group of companies as another company in respect of the 1991-92 income year or any earlier income year if those 2 companies were, in respect of that income year, members of the same group of companies for the purposes of section 191(5) and (7) of the Income Tax Act 1976 as in force before its repeal by section 25 of the Income Tax Amendment Act (No 2) 1992 by virtue of the provisions of that section 191, as modified by section IG 3.

(9) Section IE 1(4) applies as if any deduction allowed under subsection (2) were relief afforded by section IE 1.

(10) For the purposes of this section, where adequate accounts are required to be prepared and furnished to the Commissioner in respect of part of the net loss or taxable income for any income year of any company which is reasonably and fairly attributable to a period which is part only of that income year of that company, those accounts must be prepared, to the extent to which reasonable and fair, by applying the provisions of this Act to that period as if it were an income year.
(11) In this section, dual resident company means, in relation to any income year, any company which in that income year or any part of that income year is—
- (a) resident in New Zealand; and
- (b) either—
  - (i) treated, under a double tax agreement, as not being resident in New Zealand for the purposes of the double tax agreement; or
  - (ii) also, by the law of another country or territory, liable to income tax in that country or territory by reason of domicile, residence, or place of incorporation.
Compare: 1994 No 164 s IG 2

Subsection (2)(a)(i) was substituted, as from 1 October 2005, by section 215 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

IG 3 Special provisions in relation to group companies for 1991-92 tax year

(1) Notwithstanding section 191(3A) of the Income Tax Act 1976 (as that provision was inserted by section 8 of the Income Tax Amendment Act (No 5) 1991 and as in force before the repeal of section 191 of that Act by section 25 of the Income Tax Amendment Act (No 2) 1992), where and to the extent that the Commissioner is satisfied that—
- (a) a company (in this subsection referred to as the loss company) had a net loss for the 1991-92 tax year; and
- (b) the loss company and another company would have been treated, under that section 191(3A), as a group of companies or a specified group to which section 191(4) of the Income Tax Act 1976 (as also in force before its repeal) applied, had the period specified in that section 191(3A)(c) and (d) been, instead of the period so specified, part only of the period so specified; and
- (c) adequate accounts have been prepared by the loss company and furnished to the Commissioner relating to that part of that period which detail sufficiently such part of the net loss for the 1991-92 tax year which was reasonably and fairly attributable to that part of that period,—
those 2 companies are treated, for the purposes of section 191(5) and (7) of the Income Tax Act 1976 (as so previously in force), but only with respect to that part of that net loss as those accounts indicate was reasonably and fairly attributable to that part of that period, as constituting a group of companies, specified group, or both (as the case may be).
(2) The references in section 191(7A) of the Income Tax Act 1976 (as in force before the repeal of section 191 by section 25 of the Income Tax Amendment Act (No 2) 1992) to section 188 of the Income Tax Act 1976 are references to section 188 (as in force before its repeal by section 22 of the Income Tax Amendment Act (No 2) 1992)—
- (a) as modified by section 188AA of the Income Tax Act 1976; and
- (b) as if the continuity percentage referred to in that section 188(7) were always 40%.
Compare: 1994 No 164 s IG 3

IG 4 Group of companies attributed CFC net losses

(1) Subject to this section, if a company (in this section referred to as the first company) has an attributed CFC net loss for any income year or has carried forward to any income year an attributed CFC net loss under sections IE 1 and IF 1, and the loss may not be offset by the first company in the income year in accordance with sections IE 1 and IE 3, sections GC 4 and IG 2 apply as if—
- (a) the attributed CFC net loss were a net loss arising on the last day of the income year in respect of which it was attributed; and
- (b) each reference in those sections to a group of companies were a reference to a wholly-owned group of companies; and
- (c) section IG 2(4), (5), and (10) were omitted; and
- (d) the reference in section IG 2(8) to “the same group of companies for the purposes of section 191(5) and (7) of the Income Tax Act 1976” were a reference to “the same specified group in accordance with section 191(4) of the Income Tax Act 1976”.
(2) The maximum amount of the attributed CFC net loss that any other company may, under section IG 2 (as modified by this section), offset against its net income for that income year is an amount equal to the total of—
- (a) any attributed CFC income of the other company for that income year in respect of any controlled foreign company resident in the same country or territory (referred to in this section as the relevant country) as that in which the first-mentioned controlled foreign company was resident in the accounting period in respect of which the attributed CFC net loss arose; and
- (b) any FIF income of the other company that is calculated under the branch equivalent method and is derived in that income year in respect of an attributing interest in a foreign investment fund resident in the relevant country.
(3) An amount of attributed CFC income or FIF income of the other company may only be taken into account under subsection (2) to the extent that the amount is not taken into account—
- (a) in determining under section DN 4 or DN 9 the deductions that the other company is allowed under section DN 1 or DN 5; or
  - (b) in determining the other company's entitlement to an offset under section IE 3; or
  - (c) in determining the other company's entitlement to an offset under section IG 2 in respect of any other attributed CFC net loss.
(4) If the first company is unable to offset any part of the maximum amount of attributed CFC net loss calculated under subsection (2) for the income year against net income of the other company for the income year because there is insufficient net income, the excess is treated as if it were a net loss of the other company for the year determined under section BC 4 and ceases to be part of the attributed CFC net loss available to the first company.

Compare: 1994 No 164 s IG 4

IG 5 Group of companies FIF net losses

(1) Subject to this section, if a company (in this section referred to as the first company) has a FIF net loss for an income year or has carried forward to an income year a FIF net loss under sections IE 1 and IF 1, and that loss may not be offset by the first company in that income year in accordance with sections IE 1 and IE 4, sections IG 2 and GC 4 apply as if—
- (a) the FIF net loss were a net loss arising on the last day of the income year in respect of which it was attributed; and
- (b) each reference in those sections to a group of companies were a reference to a wholly-owned group of companies; and
- (c) section IG 2(4), (5), and (10) were omitted; and
- (d) the reference in section IG 2(8) to “the same group of companies for the purposes of section 191(5) and (7) of the Income Tax Act 1976” were a reference to “the same specified group in accordance with section 191(4) of the Income Tax Act 1976”.
(2) [Repealed]
(3) If the FIF net loss is calculated under the branch equivalent method, the maximum amount of the FIF net loss which may be offset against the net income of another company under section IG 2 (as modified by this section) is determined by applying section IG 4 as if—
- (a) the interest in the fund were an income interest in a controlled foreign company; and
- (b) the FIF net loss were an attributed CFC net loss; and
- (c) references to the first controlled foreign company referred to were references to the fund.
(4) If the first company is unable to offset any part of the maximum amount of the FIF net loss calculated under subsection (3) for the income year against net income of the other company for the year because there is insufficient net income, the excess is treated as if it were a net loss of the other company for the year determined under section BC 4 and ceases to be part of the FIF net loss available to the first company.

Compare: 1994 No 164 s IG 5

Subsection (2) was repealed, as from 1 April 2007, by section 101(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81). See section 101(3) of that Act as to the application of this amendment for income years beginning on or after 1 April 2007.

Subsection (4) was amended, as from 1 April 2007, by section 101(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “subsection (3)” for “subsection (2) or (3)”. See section 101(3) of that Act as to the application of this amendment for income years beginning on or after 1 April 2007.

IG 6 Loss carry forward and grouping by consolidated group and consolidated group members

(1A) Subject to this section, sections IE 1 to IE 4, IF 1, IF 2, IG 1, IG 2, and IH 1 apply, with any necessary modifications, in respect of a consolidated group as if the consolidated group were a single company and the taxable income of the consolidated group is determined accordingly.

(2) Nothing in this section applies to any consolidated group whose members are mining companies.

(3) Where any consolidated group has a net loss for an income year, no part of that net loss is treated for the purposes of this Act as a net loss of any individual member company of that consolidated group.
(4) Where a company that is in an income year a member of a consolidated group is allowed under sections IE 1 and IF 1 to claim to carry forward to that income year and offset to the extent of net income for that year (in this subsection referred to as the specified year) any net loss of the company for any preceding income year,—
- (a) that net loss must, subject to subsections (5) to (7), be offset against the net income (if any) for the specified year of the consolidated group so far as that net income extends; and
- (b) only so far as it has not been so offset, is eligible to be—
  - (i) offset in accordance with sections IE 1 and IF 1 or this section against net income of the company or of any other consolidated group for the specified year; or
  - (ii) carried forward by the company in accordance with sections IE 1 and IF 1 to any succeeding income year; or
  - (iii) treated, for the purposes of section IG 2, as a net loss of the company carried forward to the specified year, in which event that net loss may be the subject of an election or agreement under section IG 2(2) in respect of the net income of any other company (other than the consolidated group).
(5) Where net losses of a consolidated group or of 1 or more member companies of the group are allowed under sections IE 1 and IF 1 or required under this section to be offset against the net income (if any) for an income year of a consolidated group, those net losses must—
- (a) if they arose in 2 or more income years, be offset in the same order as they arose; and
- (b) if they arose in the same income year, be offset, so far as the net income extends,—
  - (i) in the order elected by the consolidated group by notice to the Commissioner in such form as the Commissioner may allow; or
  - (ii) if no such election is made, on a pro rata basis.
(6) In any case where—
- (a) subsection (4) would, except to the extent of the application of this subsection and subsection (7), require the whole or part of the net loss of any company for any income year (in this subsection referred to as the preceding loss year) to be offset against the net income (if any) of a consolidated group for a subsequent year (in this subsection referred to as the subsequent year); and
- (b) the company was not a member of the same group of companies, for the preceding loss year or any income year falling between the preceding loss year and the subsequent year, as any 1 or more companies which are members of the consolidated group in the subsequent year,—
the amount of net loss offset under subsection (4) against the net income of the consolidated group for the subsequent year must not exceed the aggregate of—
- (c) the amount of the net loss that could be offset by the company in the subsequent year under sections IE 1 and IF 1 against its own net income (that net income being nevertheless calculated in accordance with section HB 2(1)) were it not in that subsequent year a member of a consolidated group; and
- (d) the aggregate amount that could be offset under section IG 2 against their own net income (that net income being nevertheless calculated in accordance with section HB 2(1)) by companies (other than the company) which are members of the consolidated group in the subsequent year if—
  - (i) neither the company nor those other companies were members of the consolidated group in the subsequent year; and
  - (ii) the company were to take all necessary steps under section IG 2 to permit that offset under that section by the other companies.
(7) In any case where—
- (a) subsection (4) would, except to the extent of the application of this subsection and subsection (6), require the whole or part of the net loss of any company for any income year (in this subsection referred to as the preceding loss year) to be offset against the net income (if any) of a consolidated group of companies for a subsequent year (in this subsection referred to as the subsequent year); and
- (b) the company was a member of the consolidated group for part only of the subsequent year,—
the amount of net loss offset under subsection (4) against the net income of the consolidated group for the subsequent year must not exceed the lesser of—
- (c) the excess (if any) of the net loss of the company for the preceding loss year and required, but for the application of this subsection and subsection (6), to be offset against the net income of the consolidated group for the subsequent year over the aggregate of—
  - (i) any net income for the subsequent income year of the company attributable to any period prior to the company being a member of the consolidated group, calculated by applying the provisions of section FD 9(2); and
  - (ii) any part of the net loss required, under subsection (4), to be offset against the net income for the subsequent year of another consolidated group of companies of which the company was a member during the subsequent year and prior to the company being a member of the consolidated group; and
- (d) the amount (if any), as shown in adequate and sufficiently detailed accounts furnished to the Commissioner with the consolidated group's return of income for the income year, of the consolidated group's net income for the income year as is reasonably and fairly attributable to the part of the income year during which the company was a member of the consolidated group.
(8) Where and to the extent that—
- (a) a company is a member of a consolidated group for part only of an income year (in this subsection referred to as the specified year); and
- (b) the company is entitled only by virtue of section IF 1(3) to claim to carry forward to the specified year and offset, to the extent of the amount of net income of the company attributable to part only of the specified year (that part being referred to in this subsection as the continuity period) any net loss of the company for any preceding income year; and
- (c) the company is a member of the consolidated group for the whole or part of the continuity period; and
- (d) adequate and sufficiently detailed accounts have been prepared and furnished to the Commissioner with the consolidated group's return of income for the specified year, relating to that part of the continuity period during which the company was a member of the consolidated group, which detail sufficiently such part of the net income of the consolidated group (that part being referred to in this subsection as the continuity period profit) for the specified year as is reasonably and fairly attributable to that part of the continuity period; and
- (e) the net loss of the company for the preceding income year, to the extent able to be carried forward under sections IE 1 and IF 1 by virtue of this subsection, is, by virtue of this section, offset against the net income for the specified year of the consolidated group,—
section IF 1(3) applies as if the company had an amount of net income attributable to the continuity period equal to the continuity period profit.
Compare: 1994 No 164 s IG 6

IG 7 Attributed CFC net losses and FIF net losses of consolidated group members

(1) Where any consolidated group has in respect of an income year—
- (a) an attributed CFC net loss; or
- (b) a FIF net loss,—
no part of that attributed CFC net loss or FIF net loss is treated for the purposes of this Act as an attributed CFC net loss or FIF net loss of any individual member company of that consolidated group.
(2) Where—
- (a) any company is a member of a consolidated group in an income year (in this subsection referred to as the specified year); and
- (b) the company is entitled—
  - (i) in accordance with sections IE 1 and IE 3 to claim to carry forward to the specified year and offset against net income for that year any attributed CFC net loss of that company for any preceding income year; or
  - (ii) in accordance with sections IE 1 and IE 4 to claim to carry forward to the specified year and offset against net income for that year any FIF net loss of that company for any preceding income year,—
that loss must, subject to subsections (3) and (4), be—
- (c) in the case of such an attributed CFC net loss, offset against the net income of the consolidated group for the specified year, to the extent that it does not exceed the attributed CFC income (if any) derived in the specified year by the consolidated group in respect of any controlled foreign company or companies resident in the relevant country or territory; and
- (d) in the case of such a FIF net loss, offset against the net income of the consolidated group for the specified year to the extent that it does not exceed the FIF income (if any) derived in the specified year by the consolidated group,—
and only so far as it cannot be so offset is eligible to be—
- (e) offset against the net income of the company or any other consolidated group in the specified year; or
- (f) carried forward by the company in accordance with sections IE 1 and IF 1 to any succeeding income year; or
- (g) offset against the net income of any other company (other than the consolidated group) subject to and in accordance with section IG 4 or IG 5.
(3) Where attributed CFC net losses or FIF net losses of a consolidated group or of 1 or more member companies of the group are allowed to be offset against net income of a consolidated group, those net losses must,—
- (a) if resulting from net losses arising in 2 or more income years, be offset in the same order as the net losses arose; and
- (b) if resulting from net losses arising in the same income year, be offset, so far as the relevant net income extends,—
  - (i) in the order elected by the consolidated group by notice to the Commissioner in such form as the Commissioner may allow; or
  - (ii) if no such election is made, on a pro rata basis.
(4) In any case where—
- (a) subsection (2) would, except to the extent of the application of this subsection, require the whole or part of any net loss of any company, arising in any income year (in this subsection referred to as the preceding loss year), to be offset against net income (if any) of a consolidated group of companies for a subsequent income year (in this subsection referred to as the subsequent year); and
- (b) the company was not a member of the same group of companies, for the preceding loss year or any income year falling between the preceding loss year and the subsequent year, as any 1 or more companies which are members of the consolidated group in the subsequent year,—
the amount of net loss offset under subsection (2) against the net income of the consolidated group in the subsequent year must not exceed the aggregate of—
- (c) the amount of the attributed CFC net loss or FIF net loss which could be offset by the company in the subsequent year in accordance with sections IE 1 and IF 1, and IE 3 or IE 4 (as the case may be) against its own net income were it not in that subsequent year a member of a consolidated group of companies (that net income being nevertheless calculated in accordance with section HB 2(1)); and
- (d) the aggregate amount which could be offset against their own net income if that net income were nevertheless calculated in accordance with section HB 2(1) and in accordance with sections IG 2 and IG 4 or IG 5 by companies (other than the company) that are members of the consolidated group in the subsequent year if—
  - (i) neither the company nor those other companies were members of the consolidated group in the subsequent year; and
  - (ii) the company were to take all necessary steps under sections IG 2 and IG 4 or IG 5 to permit that offset by the other companies under the relevant one of those sections.
(5) In any case where—
- (a) subsection (2) would, except to the extent of application of this subsection and subsection (4), require the whole or part of any attributed CFC net loss or FIF net loss of any company for any income year (in this subsection referred to as the preceding year) to be offset against net income of a consolidated group of companies in a subsequent year (in this subsection referred to as the subsequent year); and
- (b) the company was a member of the consolidated group for part only of the subsequent year,—
the amount of net loss offset under that subsection against net income of the consolidated group for the subsequent year must not exceed the lesser of—
- (c) the excess (if any) of the amount of net loss of the company for the preceding year required, but for the application of this subsection and subsection (4), to be offset against net income of the consolidated group in respect of the subsequent year over the aggregate of—
  - (i) any net income of the company in the subsequent year in any period prior to the company being a member of the consolidated group (calculated by applying the provisions of section FD 9(2)) against which net income that net loss would be able to be offset under this Act; and
  - (ii) any part of the net loss required, under subsection (2), to be offset against net income for the subsequent year of another consolidated group of companies of which the company was a member during the subsequent year prior to the company being a member of the consolidated group; and
- (d) the amount (if any), as shown in adequate and sufficiently detailed accounts furnished to the Commissioner with the consolidated group's return of income for the income year, of the consolidated group's net income for the income year (being net income against which that net loss could be offset under this Act) as is reasonably and fairly allocable to the part of the income year during which the company was a member of the consolidated group.
Compare: 1994 No 164 s IG 7

IG 8 Net losses, attributed CFC net losses, and FIF net losses of amalgamated company

Where an amalgamated company is deemed under section IF 4 to have a net loss, attributed CFC net loss, or FIF net loss in respect of an amalgamating company that ceased to exist on the amalgamation, for the purposes of determining whether the net loss, attributed CFC net loss, or FIF net loss may be offset, under sections IG 2, IG 4, and IG 5 against net income of another company, the relevant section of this Act applies as if, with respect to all times prior to the amalgamation, the amalgamated company did not separately exist and was instead the amalgamating company with the same holders of shares and options over shares each holding the same number and class of shares and options over shares as they held at the time in the amalgamating company.

Compare: 1994 No 164 s IG 8

IG 9 Net losses, attributed CFC net losses, and FIF net losses offset against net income of amalgamated company

Where a company (referred to in this subsection as the loss company) has a net loss, attributed CFC net loss, or FIF net loss in respect of a period that falls wholly or partly before an amalgamation, the net loss, attributed CFC net loss, or FIF net loss may be offset, under sections IG 2, IG 4, and IG 5 against net income of the amalgamated company if and only if the net loss, attributed CFC net loss, or FIF net loss can be so offset by applying the commonality of ownership and other tests contained in the relevant provisions of this Act severally to the loss company and the amalgamated company in respect of each company that has in the course of or before the amalgamation amalgamated with the amalgamated company, as if, with respect to all times prior to the amalgamation, the amalgamated company did not separately exist and was instead that amalgamating company with the same holders of shares and options over shares each holding the same number and class of shares and options over shares as they held at the time in the amalgamating company.

Compare: 1994 No 164 s IG 9

IG 10 Net losses used to pay penalties

(1) A taxpayer may elect to use a net loss of the taxpayer to pay a shortfall penalty assessed by the Commissioner in respect of an income tax liability, if—
- (a) the net loss is available to be offset against net income of the taxpayer in the tax year of the shortfall penalty; and
- (b) the taxpayer notifies the Commissioner of the election within the due date period for the payment of the shortfall penalty.
(1A) A wholly-owned group of companies may elect, in the manner provided in subsection (1), to apply a loss incurred by a company in the wholly-owned group in payment of a shortfall penalty imposed on any company in that group.

(2) If a taxpayer makes an election under subsection (1) in relation to current tax year losses and the net losses are available to be offset in the current tax year, the time that the net losses are offset is the time of the election.
(3) Each dollar of net loss that is used to pay a shortfall penalty—
- (a) counts as an amount of payment equal to 1 dollar multiplied by the tax rate; and
- (b) is, from the date the net loss is used, no longer available for use by a person.
(4) For the purposes of subsection (3), the term tax rate means the rate of tax or lowest marginal rate of tax that would apply to the taxpayer during the return period to which the relevant tax shortfall relates, if the taxpayer had tax to pay.

(5) In this section, tax year includes any part of a tax year that, by virtue of section IF 1 or IG 2, may be taken into account for loss continuity or group purposes.

Compare: 1994 No 164 s IG 10

Subpart IH—Losses: miners

IH 1 Losses of mining companies and petroleum miners

IH 2 Companies engaged in exploring for, searching for, or mining petroleum

IH 3 Loss carry back by petroleum miners

IH 4 Companies engaged in exploring for, searching for, or mining certain minerals

IH 5 Resident mining operators

IH 1 Losses of mining companies and petroleum miners

(1) Where the whole or a part of a net loss of a company (being a mining company or a resident mining operator or a non-resident mining operator) for any income year (in this subsection referred to as the year of loss) arises as a result of mining exploration expenditure or mining development expenditure or petroleum exploration expenditure or petroleum development expenditure relating to an area comprised in a mining licence or a mining privilege or to 2 or more such areas (any such area being referred to in this subsection as a licence area), the following provisions apply:
- (a) the amount of that net loss which so arises in relation to that licence area or (as the case may be) to each of those licence areas is to be determined (and the amount in respect of any such licence area is referred to in this subsection as the specified sum in relation to that licence area); and
- (b) where, in relation to the specified sum in relation to a licence area,—
  - (i) at the beginning of any income year, being an income year after the year of loss and being the first such income year in respect of which this subsection applies with respect to that specified sum, (that income year being referred to in this paragraph as the year of claim), there remains a balance of that specified sum after taking into account such amounts of that specified sum as have been offset against the net income of that company for any income year or years before the year of claim under this Act, and, where that company is a mining company, after taking into account any amounts by which that specified sum has been reduced in accordance with section IH 4(1)(a) or (c); and
  - (ii) by reason only of section GC 2 or IF 1(1), that balance would, but for this paragraph, be precluded from being, in whole or in part, offset against any net income of that company for the year of claim,—
section GC 2 or IF 1(1) does not preclude that balance from being offset against the net income of that company to the extent that it does not exceed the amount that would be the net income of the company if its sole source of assessable income for the year of claim was from that licence area and, so far as that balance cannot then be offset, from being offset against the net income of that company for the income year next following the year of claim, to the extent that it does not exceed the amount that would be the net income of the company if its sole source of assessable income for that income year was from that licence area, and so on, and, in any such case, section IH 4(1)(e), with any necessary modifications, applies; and
- (d) for the purposes of this subsection, the reference in this subsection to petroleum exploration expenditure relating to an area comprised in a mining licence or a mining privilege is taken as including a reference to expenditure on exploring or searching in any area which is outside but continuous, or geologically contiguous, with that first-mentioned area, being exploring or searching which was included in the programme of exploring or searching as a consequence of which application was made for that mining licence or that mining privilege.
(2) Subject to section IH 2(1), where the Commissioner is satisfied that the whole or part of any net loss of a petroleum mining company for the 1990-91 income year or any earlier income year (that income year being referred to in this subsection as the year of loss) arises from the allowance of—
- (a) a deduction of the amount of any petroleum exploration expenditure incurred by that company on or before 30 September 1990 in exploring or searching for petroleum in an area that is or is subsequently comprised in a mining licence or in 2 or more such areas; or
- (b) a deduction of an amount in respect of the amount of any petroleum development expenditure incurred by that company on or before 30 September 1990,—
the following provisions apply:
- (c) the amount of that net loss which so arises from the allowance of that deduction, in relation to that licence area or (as the case may be) to each of those licence areas (the amount so determined in respect of any such licence area being referred to in this subsection as the specified sum in relation to that licence area); and
- (d) where, in relation to that specified sum in relation to a licence area, at the beginning of any income year, being an income year after the year of loss and being the first such income year in respect of which this subsection (or section 188C(2) of the Income Tax Act 1976) applies with respect to that specified sum (that income year being referred to in this paragraph as the year of claim), there remains a balance of that specified sum after taking into account—
  - (i) such amounts of that specified sum that have been allowed as a deduction to that company, or offset against the net income of that company, in or for any income year or years before the year of claim under this Act or the Income Tax Act 1976 or have been allowed as a deduction to any other company in or for any such income year or years; and
  - (ii) where that company was, immediately before the commencement of section 214B of the Income Tax Act 1976, a company to which section 216 of that Act applied, after taking into account any amounts by which, in the determination of the Commissioner, that specified sum has been reduced in accordance with section 216(16)(a) or the first proviso to section 216(16)(b) of that Act (as those provisions applied immediately before the commencement of section 214B of the Income Tax Act 1976); and
  - (iii) by reason only of section GC 2 or IF 1(1), that balance would, but for this paragraph, be precluded from being, in whole or in part, offset against the net income of that company, in or for the year of claim,—
section GC 2 or IF 1(1) does not preclude that balance from being offset against the net income of that company for the year of claim, to the extent that the amount offset does not exceed the amount that would be the net income of the company for the year of claim if the company's sole source of assessable income was from that licence area, so far as that income or amount extends, and, so far as the balance cannot then be offset, from being offset against the net income of the company for the income year next following the year of claim to the extent that the amount offset does not exceed the amount that would be the net income of the company for that income year if the company's sole source of assessable income was from that licence area, and so on; and
- (f) for the purposes of this subsection,—
  - (i) the reference in this subsection to exploration in exploring or searching for petroleum in an area which is or is subsequently comprised in a mining licence is taken as including a reference to expenditure in exploring or searching for petroleum in any area which is outside but continuous, or geologically contiguous, with that first-mentioned area, being exploring or searching that was included (whether originally or additionally) in the programme of exploring or searching as a consequence of which application was made for that mining licence; and
  - (ii) the expression mining licence means a mining licence issued under the Petroleum Act 1937.
Compare: 1994 No 164 s IH 1

IH 2 Companies engaged in exploring for, searching for, or mining petroleum

(1) Where in the 1990-91 or any earlier income year a net loss arises from the allowance in that income year to a petroleum mining company of a deduction or further deduction under any of section 214B(6), (13)(b), (14)(b), and (18)(c) of the Income Tax Act 1976 (or under section DZ 6(4) or (9)(c) of the Income Tax Act 1994)—
- (a) any company (referred to in this subsection as a shareholder company) that is a shareholder of that petroleum mining company and has made at any time (being a time at which that shareholder company was a shareholder of that petroleum mining company) any payment or payments to that petroleum mining company which was or were used for the purposes of the petroleum development expenditure of the kind referred to in section DZ 6(4) of the Income Tax Act 1994, in respect of which that deduction or further deduction is allowed in that income year, is allowed, if that shareholder company has so elected by notice in accordance with section 214B(22)(d) of the Income Tax Act 1976 (or section DZ 6(12)(d) of the Income Tax Act 1994), a deduction of an amount that bears to that net loss the same proportion as that payment, or the aggregate of those payments, bears to that petroleum development expenditure; and
- (b) no other deduction and no offset is allowed under this Act in respect of—
  - (i) that net loss, except to the extent that it exceeds the aggregate of all amounts deducted, under paragraph (a) in the income year in which that net loss arises:
  - (ii) any amount allowed as a deduction under paragraph (a) to any such shareholder company:
provided that where that net loss arises from the allowance of a further deduction under the second proviso to section 214B(6) of the Income Tax Act 1976 (or section DZ 6(4) of the Income Tax Act 1994) that net loss is, for the purposes of this subsection, deemed to be a net loss arising in the year which, in section DZ 6(4), is referred to as the year of cessation: provided also that in no case may the aggregate of the amounts deducted by any shareholder company under paragraph (a) exceed the aggregate of the payments of the kind referred to in that paragraph made by that shareholder company to the petroleum mining company.
(2) Where, in relation to the 1990-91 or any earlier income year, any taxpayer (being a company) is a petroleum mining company, sections CV 1 and IG 1 do not apply, in relation to that company, in respect of—
- (a) any net loss, arising in that company, of the kind referred to in section IH 2(1) except to the extent (if any) that, in relation to that net loss, there is an excess of the kind referred to in section IH 2(1); and
- (b) any net loss of that taxpayer for the 1978-79 or any earlier tax year.
Compare: 1994 No 164 s IH 2

IH 3 Loss carry back by petroleum miners

(1) If a petroleum miner would, in the absence of this section, have a net loss for any income year in which—
- (a) expenditure for removal or restoration operations is incurred; or
- (b) a permit is relinquished and the petroleum miner is allowed a deduction for deferred deductions under section EJ 12,—
the deductions of the petroleum miner for that income year are reduced by the amount that would otherwise be a net loss, and that amount is allowed as a deduction in the income years preceding the loss year, beginning with the income year immediately preceding the loss year, and the petroleum miner has the right to amend its returns for those income years notwithstanding the time bar.
(2) This section applies with any necessary modifications to a petroleum miner who undertakes petroleum mining operations that are—
- (a) outside New Zealand and undertaken through a branch or a controlled foreign company; and
- (b) substantially the same as the petroleum mining activities governed by this Act.
Compare: 1994 No 164 ss DM 7(1), IH 3

IH 4 Companies engaged in exploring for, searching for, or mining certain minerals

(1) Where, in accordance with sections IE 1 and IF 1 or IH 1, a mining company is entitled to claim that a net mining loss for any income year (that income year being referred to in this subsection as the year of loss) be carried forward and offset against the net income of that company for subsequent income years, that section applies subject to the following provisions:
- (a) the amount that may be carried forward in respect of the net mining loss from the income year in which the net mining loss arose for offset against the net income of that company in subsequent income years must not exceed an amount calculated in accordance with the following formula:
  a – b
  
  where—
  
  a is the amount of the mining outgoing excess in the year of loss
  
  b is 150% of so much of the amount of that mining outgoing excess as is deducted, in accordance with section DU 7, in calculating the net income of that company for the year of loss:
- (b) the maximum amount of net mining losses that a mining company may offset against its net income for an income year is an amount equal to the lesser of the company's net income for the income year and the amount calculated in accordance with the following formula:
  where—
  
  c is the net mining losses carried forward to that income year
  
  d is the amount that would be the company's net income for the year if its only source of assessable income for the income year were from mining:
- (c) if the mining company offsets net mining losses against its net income for an income year, the amount of net mining losses that the company may otherwise carry forward to the subsequent income year under sections IE 1 and IF 1 must be reduced by an amount equal to the larger of zero and the amount calculated in accordance with the following formula:
  where—
  
  e is the amount of net mining losses offset by the mining company in that income year
  
  d has the same meaning as in paragraph (b):
- (d) paragraphs (b) and (c) do not apply to any balance of a net loss, being a balance to which section IH 1(1)(b) applies:
- (e) where—
  - (i) that company is entitled, in accordance with the preceding provisions of this subsection, to carry forward any amount and offset it against the net income of that company for any income year; and
  - (ii) that company has ceased to be a mining company at or before the end of that income year,—
it is treated, for the purposes of those provisions, as if it had not so ceased to be a mining company.
(2) Where, in relation to any income year, a company is a mining company,—
- (a) none of the provisions of section IG 2 apply with respect to that company in relation to that income year; and
- (b) that company is not included in a group of companies for the purposes of that section in relation to that income year.
(3) Where—
- (a) but for subsection (2), a mining company and a holding company (not being a mining company) would be included in a wholly-owned group of companies in relation to an income year; and
- (b) that mining company has net income for that income year in excess of any net loss carried forward by that mining company to that income year under sections IE 1 and IF 1; and
- (c) that holding company has a net loss for that income year, being a net loss which has been calculated without taking into account any deduction that that holding company is allowed under section DU 12 in respect of the amount written off from any loan made by that holding company to that mining company,—
the amount of that net loss (as so calculated) may, to the extent that it cannot be offset under section IG 2(2) from the net income for that income year of any other company or companies (being a company or companies which together with that holding company are included in a wholly-owned group of companies in relation to that income year), be deducted from the amount by which the net income of that mining company for that income year exceeds any net loss carried forward by that mining company to that income year under sections IE 1 and IF 1, and the amount so deducted from that excess must not be carried forward under sections IE 1 and IF 1:

provided that where, by reason of an amount being, in accordance with the preceding provisions of this subsection, offset against the net income of that mining company for that income year, instead of being offset against the net income of that holding company for an income year after that income year, the Commissioner is of the opinion that adjustment is warranted for the purposes of this subsection, the Commissioner may, on application made by that holding company within 8 years after the end of that first-mentioned income year, or within such extended period as the Commissioner may allow, and notwithstanding the time bar, make such adjustments for the purposes of this subsection, in relation to that holding company and that mining company, in respect of that first-mentioned income year and any 1 or more of the 8 income years immediately succeeding that first-mentioned income year, as the Commissioner considers equitable to meet the special circumstances of the case.
Compare: 1994 No 164 s IH 4

IH 5 Resident mining operators

Notwithstanding anything in this Act, where a resident mining operator has a net mining loss for a tax year (that tax year being referred to in this subsection as the year of loss), sections IE 1, IF 1, and IH 1 apply subject to the following provisions:
- (a) where the net mining loss is not a balance to which section IH 1(1)(b) applies, the amount of the loss that the resident mining operator is allowed to offset against net income in the first tax year after the year of loss must not exceed the sum of—
  - (i) the amount that would be the resident mining operator's net income for that tax year if the operator's sole source of assessable income in that year was income from mining; and
  - (ii) an amount equal to the greater of zero and an amount calculated in accordance with the following formula:
    a – b
    
    where—
    
    a is the prescribed amount of the resident mining operator for that tax year
    
    b is the mining outgoing excess of the resident mining operator for that tax year:
- (b) any net mining loss that cannot be offset under paragraph (a) may be offset against the resident mining operator's net income for the tax year immediately succeeding the tax year to which paragraph (a) refers, to the extent it does not exceed the amount that could be offset under paragraph (a) if that paragraph referred to the immediately succeeding tax year, and so on:
- (c) section IH 4(1)(e), with any necessary modifications, applies for the purposes of this section as if every reference to a mining company or company were a reference to a resident mining operator and as if the reference to section IH 4(1) were a reference to this subsection.
Compare: 1994 No 164 s IH 5

Subpart II—Losses: life insurers

II 1 Policyholder net losses

II 2 Policyholder net loss for tax year preceding 1990-91

II 3 Carry forward of policyholder net loss

II 1 Policyholder net losses

(1) Subject to this section, section IE 1 applies to any policyholder net loss as if it were a net loss.

(2) Sections IF 1(1) and IG 2(2) do not apply in respect of a policyholder net loss.

(3) Subject to section II 2, in calculating a policyholder base income tax liability for a tax year, a life insurer may offset an available net loss by an amount no greater than the life insurer's policyholder net loss.

(4) To the extent that an available net loss consists of a policyholder net loss, the policyholder net loss may be offset only in calculating a life insurer's policyholder base income tax liability.

Compare: 1994 No 164 s II 1

II 2 Policyholder net loss for tax year preceding 1990-91

Where any company to which section 204 of the Income Tax Act 1976 (as that provision was in force before its repeal and substitution by section 13(1) of the Income Tax Amendment Act (No 2) 1990) applied—
- (a) incurred any loss in carrying on its business of life insurance in the 1989-90 tax year; or
- (b) carried forward any loss (incurred in any earlier tax year) to the 1989-90 tax year in accordance with section 188 of the Income Tax Act 1976 as then in force,—
that loss is (except to the extent to which it was in the 1989-90 tax year deducted from or offset against any income of any person otherwise than in accordance with section 205C of the Income Tax Act 1976) deemed to be a policyholder net loss of that company.
Compare: 1994 No 164 s II 2

II 3 Carry forward of policyholder net loss

Where—
- (a) a life insurer transfers its life insurance business to another company; and
- (b) the transfer meets the requirements set out in section EY 44(1),—
the transferor life insurer may, by notification to the Commissioner in such form as the Commissioner may approve, elect that any policyholder net loss calculated by it for the tax year of transfer, or carried forward by it to that tax year, be treated as a policyholder net loss calculated for or carried forward to that tax year by the transferee company and not by the transferor life insurer, and the provisions of this Act apply to any such loss accordingly.
Compare: 1994 No 164 s II 3

Subpart IZ—Withdrawal tax

IZ 1 Application of this subpart

IZ 2 Rate of withdrawal tax

IZ 3 Withdrawal income

IZ 4 Payment of withdrawal tax

IZ 5 Evidence of liability in proceedings for recovery

IZ 6 Relief in certain cases

IZ 7 Application of other provisions to withdrawal tax

IZ 1 Application of this subpart

This subpart applies to every person who is deemed to derive withdrawal income.

Compare: 1994 No 164 s IZ 1

IZ 2 Rate of withdrawal tax

The rate of tax (referred to as withdrawal tax) in respect of withdrawal income derived by any person is 45% of the gross amount of that withdrawal income.

Compare: 1994 No 164 s IZ 2

IZ 3 Withdrawal income

(1) Where any special account is closed in any tax year, any amount withdrawn on that closure, not being an amount withdrawn under a withdrawal certificate, is deemed to be withdrawal income derived in that tax year by the person who operated that account: provided that in no case must the withdrawal income of any person under this subsection exceed,—
- (a) in the case of a person operating a special farm ownership account or a special fishing vessel ownership account, $60,000 less the aggregate amount withdrawn from that account under withdrawal certificates:
- (b) in the case of a person operating a special home ownership account, $10,250 less the aggregate amount withdrawn from that account under withdrawal certificates.
(2) Where in any tax year any special farm ownership account or special fishing vessel ownership account is converted into a special home ownership account, the amount (if any) by which the amount standing to the credit of the special farm ownership account or special fishing vessel ownership account at the end of the 31 March immediately preceding the date of that conversion of that account exceeded the amount of $10,250 is deemed to be withdrawal income derived in that tax year by the person who operated that account so converted.
(3) Where any amount is withdrawn from a special account under a withdrawal certificate, and the farm ownership requirements or the home ownership requirements or the fishing vessel ownership requirements (as the case may be) are not fulfilled in relation to that amount, that amount is deemed to be withdrawal income derived by the person who operated the account in the tax year in which the Commissioner is notified under the Farm Ownership Savings Act 1974 or the Home Ownership Savings Act 1974 that those requirements were not fulfilled: provided that in no case must the withdrawal income of any person under this subsection exceed,—
- (a) in the case of a person who operated a special farm ownership account or a special fishing vessel ownership account, $60,000 less the aggregate of any amounts deemed to be withdrawal income derived by that person under subsection (1):
- (b) in the case of a person who operated a special home ownership account, $10,250 less the aggregate of any amounts deemed to be withdrawal income derived by that person under subsection (1).
(4) Any amount that is withdrawal income derived by any person in any tax year under this section is excluded income of that person in that tax year or any other tax year.

Compare: 1994 No 164 s IZ 3

IZ 4 Payment of withdrawal tax

(1) Where, in respect of any withdrawal from any special account, any withdrawal income is derived by any person under section IZ 3(1), the authorised savings institution with which that account is operated must withhold from the proceeds payable in respect of that withdrawal the amount of the withdrawal tax payable in respect of that withdrawal income.

(2) Where, in respect of the conversion of any special farm ownership account or special fishing vessel ownership account to a special home ownership account, any amount standing to the credit of that account is withdrawal income derived by any person under section IZ 3(2), the authorised savings institution with which that account is operated must deduct from the amount of that withdrawal income the amount of the withdrawal tax payable in respect of that withdrawal income.

(3) Any authorised savings institution that is liable to withhold or deduct, under subsection (1) or (2), the amount of any withdrawal tax payable by any person, must, not later than the 20th of the month immediately following the month in which it became so liable, pay that amount to the Commissioner, and deliver to the Commissioner a certificate in the prescribed form giving such details in relation to that tax and to the person in respect of whom it is payable as are mentioned in that form, and that payment is deemed to be a payment of that tax by that person.

(4) Notwithstanding anything in this or any other Act, the amount of any withdrawal tax that any authorised savings is liable to withhold or deduct under subsection (1) or (2) must in all cases be so withheld or deducted and is payable by that authorised savings institution only to the Commissioner in respect of that tax.

(5) Where any authorised savings institution has failed to withhold or deduct the amount of any withdrawal tax payable by any person, under subsection (1) or (2), and has paid an amount equal to the amount of that tax to the Commissioner under subsection (3), it may recover the amount so paid from that person.

(6) Any person who derives any withdrawal income under section IZ 3(3) must pay to the Commissioner, within such time as the Commissioner may allow, the withdrawal tax payable in respect of that income.

Compare: 1994 No 164 s IZ 4

IZ 5 Evidence of liability in proceedings for recovery

Any amount that is payable to the Commissioner as or in respect of withdrawal tax under section IZ 4(3) or (6) is recoverable by the Commissioner in the same manner as if it were income tax imposed under section BB 1 and, in any proceedings against any person relating to the recovery of such an amount, a certificate signed by the Commissioner certifying that that amount is payable by that person under this section is, in the absence of proof to the contrary, conclusive evidence that that amount is payable to the Commissioner by that person. Judicial notice must be taken of the signature to any certificate given under this section.

Compare: 1994 No 164 s IZ 5

IZ 6 Relief in certain cases

In any case where it is shown to the satisfaction of the Commissioner that the amount of withdrawal tax payable by any person in respect of any withdrawal income deemed to be derived by the person in relation to any special account operated by the person exceeds the aggregate of the amounts of rebate of income tax allowed in relation to that account under section KG 1, the Commissioner must make such reduction in the amount of that withdrawal tax as the Commissioner considers to be just and equitable in the circumstances of that particular case.

Compare: 1994 No 164 s IZ 6

IZ 7 Application of other provisions to withdrawal tax

Subject to this subpart, the other provisions of this Act and of the Tax Administration Act 1994, as far as they are applicable and with any necessary modifications, apply with respect to withdrawal tax as if it were income tax imposed under section BB 1; but nothing in this subpart is to be so construed as to include withdrawal tax in the terms income tax or tax for the purposes of—
- (a) the provisions listed in section OB 6(3); or
- (b) sections 120KB to 120KE of the Tax Administration Act 1994.
Compare: 1994 No 164 s IZ 7

Section IZ 7(b): amended, on 1 October 2007, by section 118(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Part K
Rebates

Subpart KB—General

KB 2 Proportionate adjustment to rebates on change of return date

KB 3 Calculations of rebates producing negative amounts

Subpart KC—Individual rebates

KC 1 Low income rebate

KC 2 Rebate in certain cases for children

KC 3 Transitional tax allowance

KC 4 Rebate in certain cases for housekeeper

KC 5 Rebate in respect of gifts of money

Subpart KD—Tax credits for family support and family plus

KD A1 Calculation of tax credits under this subpart

KD 1 Determination of net income

KD 1A Family support and family plus

KD 2 Calculation of subpart KD credit

KD 2AAA In-work payment

KD 2AAAB Continuation of child tax credit payments

KD 2AA Rules for subpart KD credit

KD 2AB Parental tax credit

KD 2A Calculating net contributions to family support credit, in-work payment, child tax credit, and parental tax credit

KD 3 Calculation of family tax credit

KD 3A Rules for family tax credit

KD 3B Applications for guaranteed minimum family tax credit

KD 4 Allowance of credit of tax in end of year assessment

KD 5 Credit of tax by instalments

KD 5B Rates for interim instalments for period beginning on or after 1 July 1998 [Repealed]

KD 5C Adjustment of family support amounts, abatement threshold amounts, amounts of in-work payment and parental tax credit, and amount of family tax credit

KD 6 Chief executive to deliver credit of tax

KD 7 Commissioner to deliver credit of tax by instalments

KD 7A Effect of extra interim instalment on entitlement to tax credit

KD 8 Credit of tax deemed to be excluded income

KD 9 Advice

Subpart KE—Housing rebates

KE 1 Rebate for interest on home vendor mortgages

Subpart KF—Rebates for non-residents

KF 3 Rebates for absentees

Subpart KG—Industry-specific rebates

KG 1 Rebate for savings in special farm, fishing vessel, and home ownership accounts

Subpart KH—Conduit tax relief

KH 1 Conduit tax relief

KH 2 Calculation of percentage of shareholders not resident

Subpart KI—Rebates for portfolio tax rate entities

KI 1 Rebate for portfolio tax rate entity relating to certain investors

Subpart KJ—KiwiSaver scheme and complying superannuation fund tax credits

KJ 1 Tax credits relating to KiwiSaver scheme and complying superannuation fund members

KJ 2 Person's requirements

KJ 3 Tax credit amount

KJ 4 Payment

KJ 5 Rules

Subpart KZ—Terminating provisions

KZ 1 Rebate from tax payable by persons receiving war pension

KZ 2 Rebate in respect of loss not carried forward

KZ 3 Continuation of rebates in respect of certain specified development projects

Subpart KB—General

KB 2 Proportionate adjustment to rebates on change of return date

KB 3 Calculations of rebates producing negative amounts

KB 2 Proportionate adjustment to rebates on change of return date

Where, for the purposes of section 39 of the Tax Administration Act 1994, an assessment in respect of a taxpayer is made for a period of less than a year, the taxpayer is entitled, by way of rebates allowed under sections KC 1 to KC 4, only to an amount bearing to the total of such rebates to which the taxpayer would be entitled for a full year, the same proportion as the number of days in that period bears to the number of days in a year; and where an assessment is made for a period of more than a year, the total of such rebates to which the taxpayer is entitled is proportionately increased.

Compare: 1994 No 164 s KB 2

KB 3 Calculations of rebates producing negative amounts

If a calculation prescribed by this Part produces a result of less than zero for the amount of a rebate or the amount of a component of a rebate, then the amount of that rebate or component is zero.

Compare: 1994 No 164 s KB 3

Section KB 3 was amended, as from 1 October 2005, by section 216 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the word “Part” for “subpart”.

Subpart KC—Individual rebates

KC 1 Low income rebate

KC 2 Rebate in certain cases for children

KC 3 Transitional tax allowance

KC 4 Rebate in certain cases for housekeeper

KC 5 Rebate in respect of gifts of money

KC 1 Low income rebate

(1) A taxpayer, who is a natural person but who is not an absentee, is allowed as a rebate of income tax,—
- (a) where the net income derived in the tax year by that taxpayer, being a New Zealand superannuitant or a person in receipt of a veteran's pension, is less than $9,500, a rebate of an amount equal to 4.5 cents for each complete dollar of that net income:
- (b) where the net income of that taxpayer (not being a taxpayer to whom paragraph (a) applies) is less than $9,500 for the tax year, a rebate of 4.5 cents for each complete dollar of the amount determined under the formula in subsection (4):
- (c) where the net income of that taxpayer amounts to, or exceeds, $9,500 for the tax year, an amount calculated in accordance with the following formula:
  x – y
  
  where—
  
  x is—
  
  (i) $427.50, where the taxpayer is a New Zealand superannuitant or a person in receipt of a veteran's pension:
  
  (ii) the lesser of $427.50 and an amount equal to 4.5 cents for each complete dollar of the amount determined under the formula in subsection (4), in all other cases
  
  y is an amount equal to 1.5 cents for each complete dollar of the net income that exceeds $9,500.
(2) In a tax year in which a taxpayer is a non-resident for a period, the amount of rebate under subsection (1) is calculated by—
- (a) increasing the net income of the taxpayer in the proportion that the number of days for which the taxpayer is a resident bears to the number of days in the tax year; and
- (b) reducing the rebate in the proportion that the number of days for which the taxpayer is a resident bears to the number of days in the tax year.
(3) For the purposes of subsection (1) and notwithstanding subsection (2), where the taxpayer derives assessable income from New Zealand in the period (in the tax year) that precedes the taxpayer's arrival in, or, as the case may be, succeeds the taxpayer's departure from New Zealand (being the period in respect of which the taxpayer is deemed not to be resident in New Zealand), the Commissioner may determine the amount of the net income of the taxpayer for the tax year in such manner and in such amount as in all the circumstances of the case appear equitable having regard to the class or classes of the assessable income so derived by the taxpayer and to the circumstances of the derivation of that assessable income and to the tenor of this section.
(4) The amount on which a rebate calculated under subsection (1)(b) or (c) is determined is calculated in accordance with the following formula:
a – (b – c)

where—
- a is the net income of the taxpayer for the tax year
- b is the aggregate amount of assessable income of the taxpayer that is interest, dividends, royalties, rents, beneficiary income, taxable distributions under section HH 3, and taxable Maori authority distributions allocated to that year in accordance with Part B
- c is the aggregate amount of deductions allowed in deriving the assessable income referred to in item “b” of this formula allocated to that year in accordance with Part B to the extent it does not exceed the amount calculated in item “b” of this formula.
Compare: 1994 No 164 s KC 1

KC 2 Rebate in certain cases for children

A taxpayer (other than an absentee) who at any time during any tax year—
- (a) is under the age of 15 years; or
- (b) is under the age of 18 years and is attending—
  - (i) a private primary school or a state primary school or a private secondary school or a state secondary school or department (in each case as defined in the Education Act 1964); or
  - (ii) an integrated school (as defined in section 2 of the Private Schools Conditional Integration Act 1975); or
  - (iii) a school providing special education (as defined in the Education Act 1964) for the deaf, the dumb, the blind, the mentally handicapped, the crippled, or the otherwise disabled, afflicted, or handicapped; or
- (c) is a person under the age of 19 years who—
  - (i) during the preceding tax year was a person to whom paragraph (b) applied; and
  - (ii) attained the age of 18 years on or after 1 January in that preceding tax year; and
  - (iii) continues to attend a school of any of the kinds referred to in paragraph (b)—
is allowed a rebate of income tax for that tax year of the lesser of—
- (d) an amount calculated in accordance with the following formula:
  where—
  
  x is the net income of the taxpayer for that tax year
  
  y is the resident withholding income derived by the taxpayer in that tax year:
- (e) $351:
provided that in no case is a taxpayer allowed a rebate under this section in respect of any tax year in respect of which the taxpayer has been allowed a rebate under section KC 3.
Compare: 1994 No 164 s KC 2

Paragraph (e) was substituted, as from 1 October 2006, by section 119(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2006–07 tax year.

KC 3 Transitional tax allowance

(1) A taxpayer who in any tax year is a qualifying person is allowed as a rebate of income tax an amount calculated in accordance with the following formula:
where—
- y is,—
  
  (i) where the net income of the taxpayer for the tax year is less than $6,241, $728:
  
  (ii) where the net income of the taxpayer for the tax year amounts to or exceeds $6,241, $728 diminished by 20 cents for each complete dollar of the net income that exceeds $6,240
- z is the number (if any) of periods of 1 week, in the tax year, in relation to each of which the taxpayer is a fulltime earner.
(2) For the purposes of subsection (1), in any case where a qualifying person has, during the tax year, either arrived in or departed from New Zealand and in respect of that part of the tax year (being the tax year in which the qualifying person so arrives or departs) that precedes the qualifying person's arrival in or, as the case may be, succeeds the qualifying person's departure from New Zealand, the qualifying person is deemed, under section OE 1, not to be resident in New Zealand, the net income of the qualifying person for the tax year is deemed to be an amount equal to the net income of the qualifying person for the period during which (in the tax year) the qualifying person is personally present in New Zealand, increased in the proportion that the number of days in the tax year bears to the number of days in that period: provided that, in any case where the qualifying person derives assessable income from New Zealand in the period (in the tax year) that precedes the qualifying person's arrival in or, as the case may be, succeeds the qualifying person's departure from New Zealand (being the period in respect of which the qualifying person is deemed not to be resident in New Zealand), the Commissioner may determine the amount of the net income of the qualifying person for the tax year in such manner and in such amount as in all the circumstances of the case appear equitable having regard to the class or classes of the assessable income so derived by the qualifying person and to the circumstances of the derivation of that income and to the tenor of this subsection.
(3) In this section,—
full-time earner, in relation to any week, means any person who, in the week, is engaged in remunerative work for not less than 20 hours, and includes any person who has not been so engaged by reason of—
- (a) that person having suffered incapacity due to personal injury by accident (being personal injury by accident within the meaning of section 2 of the Accident Compensation Act 1982 or personal injury within the meaning of section 4 of the Accident Rehabilitation and Compensation Insurance Act 1992) in respect of which earnings related compensation (under section 2 of the Accident Compensation Act 1982), any compensation for loss of earnings payable under sections 38, 39, and 43 of the Accident Rehabilitation and Compensation Insurance Act 1992, or any vocational rehabilitation allowance payable under section 25 of that Act, or any compensation for loss of potential earning capacity payable under section 45 or 46 of that Act, or any weekly compensation payable under section 58, 59, or 60 of that Act, or any continued compensation payable under section 138 of that Act has been, is being, or will be paid where, were it not for the suffering of that incapacity, that person would have been so engaged:
- (aa) that person having suffered incapacity due to personal injury (within the meaning of section 13 of the Accident Insurance Act 1998) in respect of which—
  - (i) weekly compensation is payable under section 428(2) or 429(2) or schedule 1, part 2 of that Act; or
  - (ii) compensation payable under section 445, 446, or 447 or schedule 1, clauses 67, 70, and 71 of that Act has been, is being, or will be paid where, were it not for the death of another person, that person would have been so engaged:
- (ab) that person having suffered incapacity due to personal injury (within the meaning of section 6 of the Injury Prevention, Rehabilitation, and Compensation Act 2001) in respect of which—
  - (i) weekly compensation (within the meaning of sections 6 and 365 and schedule 1, part 2 of that Act) is payable; or
  - (ii) compensation payable under sections 383, 384, and 385 and schedule 1, clauses 66, 70, and 71 of that Act has been, is being, or will be paid where, if not for the death of another person, that person would have been so engaged:
- (ac) that person being on parental leave during a week in respect of which a parental leave payment is payable under Part 7A of the Parental Leave and Employment Protection Act 1987:
- (b) that person having been temporarily, or for an indefinite period, incapacitated for work through sickness or accident in respect of which a sickness benefit has been, is being, or will be paid under the Social Security Act 1964 where, were it not for that person having been so incapacitated for work, that person would have been so engaged:
and for the purposes of this definition, in any case where remunerative work is performed, by any person, in a pay period that consists of a period that is longer than 1 week, the person is deemed to have been engaged in remunerative work to a uniform daily extent throughout the said period
qualifying person, in relation to a tax year, means any fulltime earner, not being a person—
- (a) who is a child under the age of 18 years (other than a child over the age of 15 years who has ceased attending a school of any of the kinds referred to in section KC 2(b)):
- (c) who is deemed, under section OE 1, not to be resident in New Zealand throughout the tax year:
- (d) who is entitled to any credit of tax in respect of the tax year under subpart KD:
- (e) who is, throughout the tax year, the spouse, civil union partner, or de facto partner of any person who, in respect of the tax year, is entitled to any credit of tax under subpart KD
qualifying person: paragraph (e) of this definition was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner, or de facto partner” for “spouse”.
remunerative work, in relation to any person, means work from, by, or through the performing of which by the person assessable income (within the meaning of this Act) is derived by the person.
Compare: 1994 No 164 s KC 3

KC 4 Rebate in certain cases for housekeeper

(1) A taxpayer (other than an absentee) specified in paragraph (a) or (b) or (c) of the definition of housekeeper in subsection (2) who makes qualifying payments during any tax year is allowed as a rebate of income tax for that tax year the smaller of—
- (a) a sum equal to 33 cents for every complete dollar of those qualifying payments:
- (b) $310.
(1A) A refund may be made under this section only if section 41A of the Tax Administration Act 1994 is complied with.
(2) In this section,—

child means any child who is under the age of 18 years or who is suffering from any mental or physical infirmity or disability affecting his or her ability to earn his or her living

communal home means a motel, hotel, boardinghouse, guest house, convalescent home, nursing home, rest home, hospital, hospice, or other similar establishment; but does not include any part of such an establishment that is occupied by any person regularly engaged in carrying on the activity of operating the establishment or by the spouse, civil union partner or de facto partner of the person

communal home: this definition was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.

communal home: this definition was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

home, in relation to a taxpayer and to any tax year, means the dwelling that is the residence of the taxpayer in which the taxpayer resides during the tax year; but does not include a communal home
housekeeper, in relation to a taxpayer and a tax year, means,—
- (a) where the taxpayer is a widow, a widower, a surviving civil union partner, a surviving de facto partner, a divorced person, a person whose civil union has been dissolved, a person who is not in a marriage, civil union or de facto relationship, or a separated person,—
  - (i) a person who, or an institution which, has the care and control, either in the home of the taxpayer or elsewhere, of any child; or
  - (ii) a person who tends the home of the taxpayer, where the Commissioner is satisfied that the services of the person are necessary by reason of any mental or physical infirmity or disability of the taxpayer; or
- (b) where the taxpayer is living with the taxpayer's spouse, civil union partner or de facto partner,—
  - (i) a person who, or an institution which, has the care and control, either in the home of the taxpayer or elsewhere, of any child; or
  - (ii) a person who tends the home of the taxpayer,—
  where, in either case, the Commissioner is satisfied that the services of the person or the institution are necessary by reason of any mental or physical infirmity or disability of the taxpayer or his or her spouse, civil union partner or de facto partner; or
- (c) where the taxpayer is living with the taxpayer's spouse, civil union partner or de facto partner, a person who, or an institution which, has the care and control, either in the home of the taxpayer or elsewhere, of any child, where the Commissioner is satisfied that the services of the person or the institution are necessary by reason of the employment or business activities of both the taxpayer and his or her spouse, civil union partner or de facto partner:
provided that where, in respect of any tax year and by reason of this paragraph, both spouses, civil union partners or de facto partners are entitled to a rebate under this section, the Commissioner may apportion such amounts of rebate not exceeding in the aggregate $310 in such manner as the Commissioner considers fair and equitable

housekeeper: paragraph (a) of this definition was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “a surviving civil union partner, a divorced person, a person whose civil union has been dissolved, a person who is not in a marriage or civil union,” for “a divorced person, an unmarried person,”.

housekeeper: paragraph (a) before subparagraph (i) of this definition was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “a surviving civil union partner, a surviving de facto partner, a divorced person, a person whose civil union has been dissolved, a person who is not in a marriage, civil union or de facto relationship,” for “a surviving civil union partner, a divorced person, a person whose civil union has been dissolved, a person who is not in a marriage or civil union,”.

housekeeper: paragraph (b) of this definition was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “living with the taxpayer's spouse or civil union partner” for “a married person (other than a separated person)”.

housekeeper: paragraph (b) of this definition was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.

housekeeper: paragraph (b) (i) of this definition was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner” in both places it occurs.

housekeeper: paragraph (c) of this definition was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “living with the taxpayer's spouse or civil union partner” for “a married person (other than a separated person”.

housekeeper: paragraph (c) of this definition was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.

housekeeper: paragraph (c) of this definition was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouses or civil union partners” for “spouses”.

housekeeper: paragraph (c) of this definition was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner” in both places it occurs.

housekeeper: paragraph (c) of this definition was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouses, civil union partners or de facto partners” for “spouses or civil union partners”.
institution means any creche, day nursery, play centre, kindergarten, or similar body; but does not, in relation to the care and control of a child who is 5 years of age or over, include any institution which is, in any way, concerned with the education of the child

qualifying payments, in relation to a taxpayer and to any tax year, means payments made by the taxpayer during the tax year for the services of a housekeeper or housekeepers, being payments in respect of which no rebate of income tax under any other provision of this Act has been, or will be, allowed to the taxpayer or to any other taxpayer

separated person means a person in a marriage or civil union who is in fact separated and living separate and apart from his or her spouse or civil union partner, whether in accordance with a decree, order, or judgment of any court, or under an agreement for separation, or by reason of the desertion of one of the parties by the other of them, or otherwise.

separated person: this definition was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “a person in a marriage or civil union” for “a married person”.

separated person: this definition was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for “spouse”.
Compare: 1994 No 164 s KC 4

KC 5 Rebate in respect of gifts of money

(1) A taxpayer, other than an absentee, or a company, or a public authority, or a Maori authority, or an unincorporated body, or a trustee liable for income tax under sections HH 3 to HH 6 and HZ 2, is allowed as a rebate of income tax the amount of any gift (not being a testamentary gift) of money of $5 or more made by the taxpayer in the tax year to any of the following societies, institutions, associations, organisations, trusts, or funds (being in each case a society, an institution, an association, an organisation, a trust, or a fund in New Zealand), namely:
- (aa) a society, institution, association, organisation, or trust which is not carried on for the private pecuniary profit of any individual and the funds of which are, in the opinion of the Commissioner, applied wholly or principally to any charitable, benevolent, philanthropic, or cultural purposes within New Zealand:
- (ab) a public institution maintained exclusively for any 1 or more of the purposes within New Zealand specified in paragraph (aa):
- (ac) a fund established and maintained exclusively for the purpose of providing money for any 1 or more of the purposes within New Zealand specified in paragraph (aa), by a society, institution, association, organisation, or trust which is not carried on for the private pecuniary profit of any individual:
- (ad) a public fund established and maintained exclusively for the purpose of providing money for any 1 or more of the purposes within New Zealand specified in paragraph (aa):
- (ae) the Red Cross Society Incorporated:
- (af) the Pacific Leprosy Foundation:
- (ag) the Leprosy Mission New Zealand Incorporated:
- (ah) the Volunteer Service Abroad (Incorporated):
- (ai) the Commonwealth Foundation:
- (aj) the Sir Walter Nash Vietnam Appeal:
- (ak) the Food Bank of New Zealand:
- (al) the Norman Kirk Memorial Trust Fund:
- (am) the United Nations International Children's Emergency Fund (UNICEF):
- (an) World Vision of New Zealand (Incorporated):
- (ao) Save the Children New Zealand (and its branches):
- (ap) Sport and Recreation New Zealand:
- (aq) Christian World Service:
- (ar) Caritas Aotearoa-New Zealand:
- (as) “Raphael” (The Ryder-Cheshire Foundations of New Zealand):
- (at) New Zealand Sports Foundation (Incorporated):
- (au) the New Zealand Society for the Intellectually Handicapped (Incorporated):
- (av) Amnesty International:
- (aw) the Evangelical Alliance Relief Fund (TEAR Fund):
- (ax) CORSO (Incorporated):
- (ay) Operation Hope (Aid Ship to Africa):
- (az) the New Zealand Rotary Clubs Charitable Trust:
- (ba) Alhay Buhay Foundation Trust:
- (bb) Cyclone Ofa Relief Fund:
- (bc) Water for Survival:
- (bd) International Christian Aid (ICA):
- (be) Christian Children's Fund of New Zealand Limited (CCFNZ):
- (bf) Cyclone Val Relief Fund:
- (bg) Channel 2 Cyclone Aid for Samoa:
- (bh) Community Action Overseas (Oxfam NZ):
- (bi) the Winston Churchill Memorial Trust:
- (bj) the Fred Hollows Foundation (NZ):
- (bk) Christian Blind Mission International (New Zealand):
- (bl) Four Sherpa Trust:
- (bm) Adventist Development and Relief Agency:
- (bn) Mobility Equipment for the Needs of Disabled Trust:
- (bo) the Serious Road Trip Charitable Trust:
- (bp) Valehead Community Health Centre Trust:
- (bq) Nelson Mandela Trust (New Zealand):
- (br) African Enterprise (New Zealand) Aid and Development Fund:
- (bs) New Zealand Viet Nam Health Trust:
- (bt) Mission Without Borders (NZ), Humanitarian Aid Account:
- (bu) Bangladesh Flood Appeal Trust:
- (bv) Karunai Illam Trust:
- (bw) Cry for the World Foundation New Zealand Humanitarian Aid Fund:
- (bx) Akha Rescue Ministry Charitable Trust:
- (by) Register of Engineers for Disaster Relief New Zealand:
- (bz) the Hillary Himalayan Foundation:
- (ca) Together for Uganda:
- (cb) Open Home Foundation International Trust:
- (cc) Books for Africa:
- (cd) Bright Hope International Trust:
- (ce) Help a Child Foundation New Zealand:
- (cf) Greater Mekong Subregion Tertiary Education Consortium Trust:
- (cg) The Sir Edmund Hillary Trust:
- (ch) Cheboche Area Trust Inc:
- (ci) Sampoerna Foundation Limited:
- (cj) Surf Aid International Incorporated:
- (ck) Plan New Zealand:
- (cl) St Stanislas Charitable Trust of New Zealand:
- (cm) Medicine Mondiale:
- (cn) New Zealand Jesuits in India Trust:
- (co) Operation Vanuatu Charitable Trust:
- (cp) Habitat for Humanity New Zealand Limited:
- (cq) Children on the Edge (NZ) Trust:
- (cr) DIPS'N Charitable Trust (International):
- (cs) The New Zealand Council of the Ramabai Mukti Mission Trust Board:
- (ct) Waterharvest Trust:
- (cu) Zonta International District 16 (New Zealand) Charitable Trust.
(2) The rebates provided for in this section must not, in the case of any taxpayer, in any tax year exceed in the aggregate the smaller of—
- (a) 331/3% of the aggregate of all gifts described in subsection (1):
- (b) $630.
(3) No rebate is allowed under this section in respect of any gift unless the taxpayer furnishes to the Commissioner in support of the taxpayer's claim for the rebate a receipt evidencing to the satisfaction of the Commissioner the making of the gift by the taxpayer.
(3AA) Despite subsection (3), a rebate is allowed under this section if a tax agent makes an application for a refund under section 41A of the Tax Administration Act 1994 on behalf of a person and—
- (a) the tax agent sights the receipt evidencing the making of the gift for which a claim is being made; and
- (b) the person retains the receipt for 4 tax years after the tax year to which the claim relates.
(3A) A refund may be made under this section only if section 41A of the Tax Administration Act 1994 is complied with.

(4) In this section, gift includes a subscription paid to a society, institution, association, organisation, trust, or fund, only if the Commissioner is satisfied that the subscription does not confer any rights arising from membership in that or any other society, institution, association, organisation, trust, or fund.

Compare: 1994 No 164 s KC 5

Subsection (1)(cl) was amended, as from 1 October 2005, by section 217 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the word “Zealand:” for “Zealand.” with application as from the 2005–06 income year.

Subsection (1)(cm) to (co) were inserted, as from 1 October 2005, by section 217 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) with application as from the 2005–06 income year.

Subsection (1)(co) was amended, as from 21 June 2005, by section 67 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “Trust:” for the expression “Trust.” with application as from the 2005–06 income year.

Subsection (1)(co) was to be amended, as from 1 October 2005, by section 120(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “Trust:” for the expression “Trust.” with application as from the income year corresponding to the 2005–06 tax year. However, this amendment appears to be redundant as this amendment had already been made with application as from the 2005–06 income year, see above.

Subsection (1)(cp) was inserted, as from 21 June 2005, by section 67 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Subsection (1)(cp) was to be inserted, as from 1 October 2005, by section 120(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year. However, this amendment appears to be redundant as this amendment had already been made with application as from the 2005–06 income year, see above.

Subsection (1)(cp) was amended, as from 1 October 2005, by section 102(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “Limited:” for “Limited.” with application as from the 2006–07 income year.

Subsection (1)(cq) to (cu) was inserted, as from 1 October 2005, by section 102(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2006–07 income year.

Subpart KD—Tax credits for family support and family plus

KD A1 Calculation of tax credits under this subpart

KD 1 Determination of net income

KD 1A Family support and family plus

KD 2 Calculation of subpart KD credit

KD 2AAA In-work payment

KD 2AAAB Continuation of child tax credit payments

KD 2AA Rules for subpart KD credit

KD 2AB Parental tax credit

KD 2A Calculating net contributions to family support credit, in-work payment, child tax credit, and parental tax credit

KD 3 Calculation of family tax credit

KD 3A Rules for family tax credit

KD 3B Applications for guaranteed minimum family tax credit

KD 4 Allowance of credit of tax in end of year assessment

KD 5 Credit of tax by instalments

KD 5B Rates for interim instalments for period beginning on or after 1 July 1998 [Repealed]

KD 5C Adjustment of family support amounts, abatement threshold amounts, amounts of in-work payment and parental tax credit, and amount of family tax credit

KD 6 Chief executive to deliver credit of tax

KD 7 Commissioner to deliver credit of tax by instalments

KD 7A Effect of extra interim instalment on entitlement to tax credit

KD 8 Credit of tax deemed to be excluded income

KD 9 Advice

KD A1 Calculation of tax credits under this subpart

Despite section 92 of the Tax Administration Act 1994, a rebate of income tax under this subpart is calculated by the Commissioner.

Compare: 1994 No 164 s KD A1

KD 1 Determination of net income

(1) Notwithstanding any other provision of this Act, for the purposes of this subpart, in calculating under this Act the net income or net loss of any person in any income year,—
- (a) amounts referred to in sections CW 23(1)(e) and CW 26, derived by the person in the income year, are deemed not to be exempt income; and
- (b) the person is allowed a deduction for—
  - (i) the amount of any payment, made by the person during the tax year, of the kind referred to in section CW 26; and
  - (ii) the amount of any payment made by the person during the tax year under section 27K of the Social Security Act 1964; and
- (e) there is not included—
  - (i) any amount of main deposit made in relation to the 2002-03 or an earlier income year (not being interest payable under section EH 6) that is refunded to the person in the 2003-04 income year or a later income year under any of sections EH 10, EH 13, EH 15, EH 17, and EH 23; and
  - (ii) any amount of assessable income that, under any of sections CB 26, CF 2, EE 37 to EE 44, EI 1, EI 3, and EI 7, and EJ 1, is deemed to be, or to have been, derived by the person in the 2002-03 or an earlier income year and that, were it not so deemed, would not be or have been assessable income derived by the person in the 2002-03 or an earlier income year; and
  - (v) any amount derived from the sale of a building that, under sections EE 37 to EE 44, is assessable income of the person in the income year, excluding a deduction allowed by way of a depreciation loss in the 2003-04 or a later income year; and
  - (vi) any amount of adverse event deposit made under section EH 39 in relation to the 2002-03 or an earlier income year (not being interest payable under section EH 41) that is refunded to the person in the 2003-04 or a later income year under any of sections EH 46, EH 48, and EH 54; and
  - (vii) any amount of a net loss of a qualifying company that is attributed to the person as a shareholder of that company under section HG 16; and
  - (viii) any amount of portfolio investor allocated income that is not excluded income of the person and would be excluded income of the person in the absence of section CX 44D(1)(b); and
- (f) where, in the income year, a business or more than 1 business is carried on by the person, there must, in relation to that business, or each such business, be calculated under this Act, including this subpart (that calculation being referred to in this paragraph and in subsection (2) as the specified calculation), the amount that would be the net income or the net loss of the person for that income year if the person derived assessable income only from carrying on the business and, where that amount so calculated is a net loss, that business is deemed, for the purposes of this subpart (except for the purpose of making the specified calculation), not to have been carried on by the person during the income year; and
- (g) where, on the day that, in relation to a company that is a close company, is the last day of the year or other period ending with the date of the annual balance of the accounts of the company for the purpose of furnishing its return of income under this Act for the tax year (that period being referred to in this paragraph as the accounting year of the company), the person is, or would be if that day was the last day of any quarter, in relation to that company, a major shareholder, there is included,—
  - (i) for the purposes of this Act, other than the definition of net specified income, an amount equal to the amount (if any) by which the amount of any dividend, or the aggregate of the amounts of all dividends, paid by the company to the person in the tax year is less than an amount equal to so much of the net income of the company for the tax year to which, under and for the purposes of this Act, the accounting year of the company corresponds, as bears to that amount the same proportion as the total of the issued shares of the company (other than shares which bear a fixed rate of dividend only) so held by the person bears to the total of the issued shares of the company (other than shares which bear a fixed rate of dividend only) on the last day of that accounting year of the company:
  - (ii) for the purposes of the definition of net specified income, an amount equal to the amount (if any) by which the amount of any dividend, or the aggregate of the amounts of all dividends, paid by the company to the person in the tax year is less than the amount calculated in accordance with the following formula:
    where—
    
    a is the number of issued shares of the company (other than shares which bear a fixed rate of dividend only) held by the person on the last day of the accounting year of the company
    
    b is the number of issued shares of the company (other than shares which bear a fixed rate of dividend only) on the last day of the accounting year of the company
    
    c iis the net income of the company for the tax year to which, under and for the purposes of this Act, the accounting year of the company corresponds; and
    
    d [Repealed]
- (h) where any person receives any distribution from a superannuation scheme, and an employer of that person (being an employer by whom the person continues to be employed 1 month after the date of receipt of the distribution) has made contributions to that superannuation scheme in the income year in which the distribution was received or in the immediately preceding 2 income years, that distribution is, unless the Commissioner in the Commissioner's discretion determines otherwise, assessable income of the person and is deemed to be derived in the income year or years determined by the Commissioner as being the income year or years for which the contributions were appropriate, less an amount that the Commissioner determines is attributable to the member's contributions for any such year: provided that this paragraph does not apply to any person who receives any distribution from a superannuation scheme as a result of and on or after the person's retirement from employment with an employer who was a contributor to the scheme; and
- (i) the Commissioner must have regard to the gross amounts of all income sources known to the Commissioner and, if the person has been issued an income statement under Part 3A of the Tax Administration Act 1994, the sum of all amounts of assessable income included in an income statement issued to the person.
(2) For the purposes of subsection (1)(f),—
- (a) where, in the income year, any asset of the person is used in the carrying on by the person of a business and another business or other businesses, there is allowed, in the making, in relation to that first-mentioned business, of the specified calculation, a deduction of such part (and no other part) of the expenditure incurred and of an amount (if any) of depreciation loss (being the expenditure and being the amount of depreciation loss that, apart from subsection (1)(f), would for the purposes of this subpart, in the income year, be allowed as a deduction in respect of or in relation to the asset), as the Commissioner thinks fit; and
- (b) where, the Commissioner is satisfied, 2 or more businesses that are carried on by the person in the income year are businesses of the kind that are normally carried on in association with each other or, as the case may be, one another, the Commissioner may determine that the carrying on of those businesses is deemed to constitute the carrying on by the person of a single business in the income year.
(3) For the purpose of determining the amount that is equal to so much of the net income of any person for any income year as, for the purposes of this subpart, is deemed to be the net income for any period contained in the income year, that is, in relation to the person, a specified period,—
- (a) the assessable income derived by the person in the income year is, to the extent that it was derived by the person from employment during the whole or any part of the income year, deemed to have been derived at a uniform daily rate throughout the period of that employment:
- (b) the assessable income derived by the person in the income year is, to the extent that it was derived by the person by way of a benefit that was an income-tested benefit, deemed to have been derived at a uniform daily rate throughout the period, in the income year, in respect of which the benefit was paid to the person:
- (c) notwithstanding section 38(1) of the Tax Administration Act 1994,—
  - (i) the assessable income derived by the person in the income year is, to the extent that it was derived by the person otherwise than from employment, and otherwise than by way of a benefit that was an income-tested benefit, deemed to have been derived at a uniform daily rate throughout the income year; and
  - (ii) any expenditure incurred in deriving the assessable income to which subparagraph (i) applies that is allowed as a deduction is deemed to have been incurred at a uniform daily rate throughout the income year.
(4) For the purposes of this subpart, the specified income in relation to a person and to any specified period is an amount calculated in accordance with the following formula:
where—
- a is so much of the net income of the person for the income year that contains the specified period as, in the opinion of the Commissioner, is attributable to the specified period
- b is the number of days in the specified period.
(5) Where the net income calculated under this Act (except this subpart) in relation to any person and to any income year is calculated in respect of a period (referred to in this subsection as the greater period) that is greater than a period of 12 consecutive months, the net income (referred to in this subsection as the adjusted net income) of the person calculated under this Act (including this subpart), for the purposes of this subpart, in relation to that income year, must, subject to such adjustments (if any) as the Commissioner considers fair and equitable, be reduced (for the purposes of this subpart) to an amount equal to such amount as bears to the adjusted net income the proportion that 365 bears to the number of days in the greater period.

(6) Where, by reason of an alteration to the date of the annual balance of the accounts of any person for the purpose of the furnishing by the person of returns of income under the Tax Administration Act 1994, the net income (referred to in this subsection as the adjusted income) calculated under this Act (except this subpart) in relation to the person and to an income year is calculated in respect of a period (referred to in this subsection as the lesser period) that is less than a period of 12 consecutive months, the net income of the person calculated under this Act (including this subpart), for the purposes of this subpart, in relation to that income year, must, subject to such adjustments (if any) as the Commissioner considers fair and equitable, be increased (for the purposes of this subpart) to an amount equal to such amount as bears to the adjusted income the proportion that 365 bears to the number of days in the lesser period.

Compare: 1994 No 164 s KD 1

Subsection (1)(e)(ii) was amended, as from 1 October 2005, by section 218(1) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “EI 1, EI 3, and EI 7” for “EI 3, EI 7, and EJ 1”.

Section KD 1(1)(e)(viii): inserted, on 1 October 2007, by section 103(1) of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Subsection (1)(g)(ii) formula was amended, as from 18 December 2006, by section 103(2)(a) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “c” for “(c − d)”.

Subsection (1)(g)(ii) the definition of item “c” was amended, as from 18 December 2006, by section 103(2)(b) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “corresponds; and” for “corresponds”.

Subsection (1)(g)(ii) the definition of item “d” was repealed, as from 18 December 2006, by section 103(2)(c) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Subsection (3)(c)(ii) was amended, as from 1 October 2005, by section 218(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “assessable income” for “counted income”.

KD 1A Family support and family plus

(1) Under this subpart, a person and their spouse, civil union partner, or de facto partner (if any) may be entitled to family support and family plus.

(2) Family plus consists of the in-work payment, or the child tax credit continued under section KD 2AAAB, the parental tax credit and the family tax credit.

Compare: 1994 No 164 s KD 1A

Subsection (1) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner, or de facto partner” for “spouse”.

Subsection (2) was substituted, as from 1 April 2006, by section 12(1) Income Tax Act 2004 (2004 No 52).

KD 2 Calculation of subpart KD credit

(1) A person is allowed a credit of tax (known as the subpart KD credit) for a tax year containing an eligible period of an amount calculated under the formula in subsection (2), subject to section KD 7A.
(2) The formula is—
FSC + IWP or CTC + PTC - FCA

where—
- FSC is the amount of the family support credit for the eligible period calculated under subsection (3)
- IWP or CTC is the amount of—
  
  (a) the in-work payment for the eligible period calculated under section KD 2AAA, if the person is entitled to the in-work payment for the eligible period; or
  
  (b) the child tax credit for the eligible period calculated under subsection (4), if the person—
  
  (i) is not entitled to the in-work payment for the eligible period; and
  
  (ii) is entitled to the child tax credit for the eligible period under section KD 2AAAB
- PTC is the amount of the parental tax credit for the eligible period calculated under subsection (5)
- FCA is the amount of the family credit abatement for the eligible period calculated under subsection (6).
(3) The amount of the family support credit for an eligible period is given by the following formula:
where
amount is the sum,—

(a) for the eldest dependent child for whom the person is a principal caregiver during the period, 1 of the following:

(i) $4,264, or such greater amount as may be prescribed by the Governor-General by Order in Council under section KD 5C, if the child is under 16 years of age:

(ii) $4,940, or such greater amount as may be prescribed by the Governor-General by Order in Council under section KD 5C, if the child is 16 years of age or older:

(iii) a weighted average of the amounts in subparagraphs (i) and (ii) that reflects the proportion of the period for which those subparagraphs apply to the child, if the child turns 16 years of age during the period; and

(b) for each dependent child for whom the person is a principal caregiver during the period, other than the eldest dependent child, 1 of the following:

(i) $2,964, or such greater amount as may be prescribed by the Governor-General by Order in Council under section KD 5C, if the child is under 13 years of age:

(ii) $3,380, or such greater amount as may be prescribed by the Governor-General by Order in Council under section KD 5C, if the child is 13, 14, or 15 years of age:

(iii) $4,420, or such greater amount as may be prescribed by the Governor-General by Order in Council under section KD 5C, if the child is 16 years of age or older:

(iv) a weighted average of the amounts in subparagraphs (i) and (ii) that reflects the proportion of the period for which those subparagraphs apply to the child, if the child turns 13 years of age during the period:

(v) a weighted average of the amounts in subparagraphs (ii) and (iii) that reflects the proportion of the period for which those subparagraphs apply to the child, if the child turns 16 years of age during the period
days is the number of days in the eligible period.
(4) The amount of the child tax credit for an eligible period is calculated using the formula—
where—
- dependent children is the number of dependent children for whom the person is a principal caregiver during the eligible period
- eligible period is the number of days in the eligible period for which the person and their spouse, civil union partner, or de facto partner do not receive a specified payment and do not have a suspended entitlement to an income-tested benefit.
(5) For each dependent child born on or after 1 October 1999, the amount of the parental tax credit for an eligible period is calculated using the formula—
where—
- amount is $1,200 or such greater amount as may be prescribed by the Governor-General by Order in Council under section KD 5C per dependent child
- days is the number of days in the eligible period, up to a maximum of 56 days, for which the person and their spouse, civil union partner, or de facto partner do not receive a specified payment and do not have a suspended entitlement to an income-tested benefit.
(6) The amount of the family credit abatement for an eligible period is calculated by the following formula:
where—
full-year abatement is,—

(a) if the person has no spouse, civil union partner, or de facto partner during the eligible period and the person's specified income for a specified period containing the eligible period is more than $35,000 or such greater amount as may be prescribed by the Governor-General by Order in Council under section KD 5C, 20 cents for each complete dollar of the excess:

(b) if the person has a spouse, civil union partner, or de facto partner during the eligible period and the person's specified income, the specified income of the person's spouse, civil union partner, or de facto partner, or the sum of those specified incomes, as the case may be, for a specified period containing the eligible period is more than $35,000 or such greater amount as may be prescribed by the Governor-General by Order in Council under section KD 5C, 20 cents for each complete dollar of the excess:
NRFFS is the number of days in the eligible period, not including calendar months in which the person is a ring-fenced family support recipient.
(6B) For the purpose of subsection (6), a ring-fenced family support recipient for a calendar month in an eligible period is a person who, in the calendar month,—
- (a) has no spouse, civil union partner, or de facto partner, receives an income-tested benefit and derives annualised specified income that is less than the amount specified in section KD 2(6)(a):
- (b) has a spouse, civil union partner, or de facto partner, receives an income-tested benefit and derives annualised specified income that together with the annualised specified income of the person's spouse, civil union partner, or de facto partner is less in total than the amount specified in section KD 2(6)(b).
(6C) In calculating the annualised specified income under subsection (6B),—
- (a) section KD 1(3)(a) and (b) does not apply; and
- (b) no regard may be had to income from employment that is derived in the calendar month as a result of an extra pay period that occurs in that month; and
- (c) for a person who derives, for part of an income year, income to which section OB 2(2) applies, or income from a business, the assessable income and any expenditure incurred in deriving that income that is allowed as a deduction are to be treated as derived and incurred, respectively, at a uniform daily rate throughout that part of the income year.
(7) If a qualifying person receives interim fortnightly instalments of the parental tax credit in an 8 week period that includes 31 March, the family credit abatement formula in subsection (6) is to be applied so that—
- (a) instalments of the parental tax credit received in the first tax year are abated against the person's specified income, the specified income of their spouse, civil union partner, or de facto partner, or the sum of those specified incomes for that tax year; and
- (b) instalments of the parental tax credit received in the second tax year are abated against the person's specified income, the specified income of their spouse, civil union partner, or de facto partner, or the sum of those specified incomes for that tax year.
Compare: 1994 No 164 s KD 2

Subsection (2) formula was substituted, as from 4 June 2004, by section 13(1) Taxation (Working for Families) Act 2004 (2004 No 52) with application as from the 2006–07 income year.

Subsection (2) item CTC was repealed, as from 4 June 2004, by section 13(2) Taxation (Working for Families) Act 2004 (2004 No 52) with application as from the 2006–07 income year.

Subsection (2) item “IWP or CTC” was inserted, as from 4 June 2004, by section 13(2) Taxation (Working for Families) Act 2004 (2004 No 52) with application as from the 2006–07 income year.

Subsection (2) the definition of item “IWP or CTC” paragraph (a) was amended, as from 18 December 2006, by section 104(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “; or” for “:” with application as from the 2006–07 income year.

Subsection (3) was substituted, as from 4 June 2004, by section 4(1) Taxation (Working for Families) Act 2004 (2004 No 52) with application as from the 2005–06 income year.

Subsection (3) paragraphs (a)(i) and (ii) and (b)(i) to (iii) of the item amount were amended, as from 4 June 2004, by section 13(3) Taxation (Working for Families) Act 2004 (2004 No 52) by inserting the words “or such greater amount as may be prescribed by the Governor-General by Order in Council under section KD 5C” after the amount provided in each paragraph with application as from the 2006–07 income year.

Subsection (3) was substituted, as from 4 June 2004, by section 21(1) Taxation (Working for Families) Act 2004 (2004 No 52) with application as from the 2007–08 income year.

Subsection (4) the item eligible period was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner, or de facto partner” for “spouse”.

Subsection (5) the item amount was amended, as from 4 June 2004, by section 13(4) Taxation (Working for Families) Act 2004 (2004 No 52) by inserting the words “or such greater amount as may be prescribed by the Governor-General by Order in Council under section KD 5C” after “$1,200” with application as from the 2006–07 income year.

Subsection (5) the item days was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner, or de facto partner” for “spouse”.

Subsection (6) was substituted by section 4(2) Taxation (Working for Families) Act 2004 (2004 No 52) with application as from the 2005–06 income year.

Subsection (6) paragraph (a) of the item abatement rate was to be amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner, or de facto partner” for “spouse”. However, this amendment appears to be in error as the item “full-year abatement” was substituted for “abatement rate” by section 4(2) Taxation (Working for Families) Act 2004 (2004 No 52) with application as from the 2005–06 income year, see above.

Subsection (6) paragraph (b) of the item abatement rate was to be amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner, or de facto partner” for “spouse”. However, this amendment appears to be in error as the item “full-year abatement” was substituted for “abatement rate” by section 4(2) Taxation (Working for Families) Act 2004 (2004 No 52) with application as from the 2005–06 income year, see above.

Subsection (6) paragraph (b) of the item abatement rate was to be amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “the specified income of their spouse, civil union partner, or de facto partner” for “their spouse’s specified income” wherever it occurs. However, this amendment appears to be in error as the item “full-year abatement” was substituted for “abatement rate” by section 4(2) Taxation (Working for Families) Act 2004 (2004 No 52) with application as from the 2005–06 income year, see above.

Subsection (6) paragraph (a) of the item full-year abatement was amended, as from 4 June 2004, by section 121(1)(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “spouse, civil union partner, or de facto partner” for “spouse” with application for the income year corresponding to the 2005–06 tax year.

Subsection (6) paragraph (b) of the item full-year abatement was amended, as from 4 June 2004, by section 121(1)(b)(i) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “spouse, civil union partner, or de facto partner” for “spouse” with application for the income year corresponding to the 2005–06 tax year.

Subsection (6) paragraph (b)(i) of the item full-year abatement was amended, as from 4 June 2004, by section 121(1)(b)(ii) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “the specified income of the person's spouse, civil union partner, or de facto partner” for “their spouse's specified income” with application for the income year corresponding to the 2005–06 tax year.

Subsection (6) paragraph (b)(ii) of the item full-year abatement was amended, as from 4 June 2004, by section 121(1)(b)(iii) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “the specified income of the person's spouse, civil union partner, or de facto partner” for “their spouse's specified income” with application for the income year corresponding to the 2005–06 tax year.

Subsection (6) paragraph (b)(iii) of the item full-year abatement was amended, as from 4 June 2004, by section 121(1)(b)(iv) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “the specified income of the person's spouse, civil union partner, or de facto partner” for “their spouse's specified income” with application for the income year corresponding to the 2005–06 tax year.

Subsection (6) paragraphs (a) and (b) of the item full-year abatement were substituted, as from 4 June 2004, by section 13(5) Taxation (Working for Families) Act 2004 (2004 No 52) with application as from the 2006–07 income year.

Subsection (6) paragraph (a) of the item full-year abatement was amended, as from 21 December 2005, by section 5(1)(a)(i) Taxation (Urgent Measures) Act 2005 (2005 No 121) by substituting “$35,000” for the expression “$27,500” with application as from the 2006-07 tax year.

Subsection (6) paragraph (a) of the item full-year abatement was amended, as from 21 December 2005, by section 5(1)(a)(ii) Taxation (Urgent Measures) Act 2005 (2005 No 121) by substituting “20 cents” for the expression “30 cents” with application as from the 2006-07 tax year.

Subsection (6) paragraph (a) of the item full-year abatement was amended, as from 4 June 2004, by section 121(2)(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “spouse, civil union partner, or de facto partner” for “spouse” with application as from the income year corresponding to the 2006–07 tax year.

Subsection (6) paragraph (b) of the item full-year abatement was amended, as from 21 December 2005, by section 5(1)(b)(i) Taxation (Urgent Measures) Act 2005 (2005 No 121) by substituting “$35,000” for the expression “$27,500” with application as from the 2006-07 tax year.

Subsection (6) paragraph (b) of the item full-year abatement was amended, as from 21 December 2005, by section 5(1)(b)(ii) Taxation (Urgent Measures) Act 2005 (2005 No 121) by substituting “20 cents” for the expression “30 cents” with application as from the 2006-07 tax year.

Subsection (6) paragraph (b) of the item full-year abatement was amended, as from 4 June 2004, by section 121(2)(b)(i) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “spouse, civil union partner, or de facto partner” for “spouse” with application as from the income year corresponding to the 2006–07 tax year.

Subsection (6) paragraph (b) of the item full-year abatement was amended, as from 4 June 2004, by section 121(2)(b)(ii) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “the specified income of the person's spouse, civil union partner, or de facto partner” for “their spouse's specified income” with application as from the income year corresponding to the 2006–07 tax year.

Subsections (6B) and (6C) were inserted by section 4(2) Taxation (Working for Families) Act 2004 (2004 No 52) with application as from the 2005–06 income year.

Subsection (6B)(a) full-year abatement: this definition was to be amended, as from 4 June 2004, by section 121(3)(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “spouse, civil union partner, or de facto partner” for “spouse” with application for the income year corresponding to the 2005–06 tax year. However, the definition of the term full-year abatement does not appear in subsection (6B), so the amendment has been editorially made to subsection (6B)(a).

Subsection (6B)(a) was amended, as from 4 June 2004, by section 13(6) Taxation (Working for Families) Act 2004 (2004 No 52) by substituting “section KD 2(6)(a)” for the expression “section KD 2(6)(a)(i)” with application as from the 2006–07 income year.

Subsection (6B)(a) full-year abatement: this definition was to be amended, as from 4 June 2004, by section 121(4)(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “spouse, civil union partner, or de facto partner” for “spouse” with application as from the income year corresponding to the 2006–07 tax year. However, the definition of the term full-year abatement does not appear in subsection (6B), so the amendment has been editorially made to subsection (6B)(a).

Subsection (6B)(b) full-year abatement: this definition was to be amended, as from 4 June 2004, by section 121(3)(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “spouse, civil union partner, or de facto partner” for “spouse” in both places it appears with application for the income year corresponding to the 2005–06 tax year. However, the definition of the term full-year abatement does not appear in subsection (6B), so the amendment has been editorially made to subsection (6B)(b).

Subsection (6B)(b) was amended, as from 4 June 2004, by section 13(6) Taxation (Working for Families) Act 2004 (2004 No 52) by substituting “section KD 2(6)(b)” for the expression “section KD 2(6)(b)(i)” with application as from the 2006–07 income year.

Subsection (6B)(b) full-year abatement: this definition was to be amended, as from 4 June 2004, by section 121(4)(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “spouse, civil union partner, or de facto partner” for “spouse” in both places it appears with application as from the income year corresponding to the 2006–07 tax year. However, the definition of the term full-year abatement does not appear in subsection (6B), so the amendment has been editorially made to subsection (6B)(b).

Subsection (7)(a) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “the specified income of their spouse, civil union partner, or de facto partner” for “their spouse’s specified income” in both places that it occurs.

KD 2AAA In-work payment

(1) A principal caregiver is entitled to the in-work payment for an eligible period in relation to a child if, for the eligible period,—
- (a) the principal caregiver is aged 16 years or over; and
- (b) the principal caregiver cares for the child—
  - (i) whose care is primarily the responsibility of the principal caregiver; and
  - (ii) who is being maintained as a member of the principal caregiver's family; and
  - (iii) who is financially dependent on the principal caregiver and includes a child for whom payments are made under section 363 of the Children, Young Persons, and Their Families Act 1989 or a child for whom a benefit is paid under section 28 or 29 of the Social Security Act 1964; and
- (c) either the principal caregiver satisfies the residence requirements of subsection (3) or the child satisfies the residence requirements of subsection (4); and
- (d) either or both of the principal caregiver and the principal caregiver's spouse, civil union partner, or de facto partner is a person to whom subsection (8) refers, or—
  - (i) has, from an activity, income that satisfies the requirements of subsection (5) for 1 or more periods of a week in the eligible period, subject to subsection (6) or (7) or paragraphs (c), (d), (e), (f), or (g) of the definition full-time earner; and
  - (ii) is a full-time earner, or would normally be a full-time earner, engaged in employment if the income referred to in subparagraph (i) were treated as satisfying the requirements of paragraph (d) of the definition of employment ; and
- (e) neither the principal caregiver nor the principal caregiver's spouse, civil union partner, or de facto partner receives an income-tested benefit, or a payment of the kind described in paragraph (xi) of the definition of salary or wages, or a parent's allowance under section 32(2) of the War Pensions Act 1954.
(2) The amount of the in-work payment for a principal caregiver for an eligible period is calculated using the formula:
where—

amount A is $3,120 or such greater amount as may be prescribed by the Governor-General by Order in Council under section KD 5C

amount B is $780 or such greater amount as may be prescribed by the Governor-General by Order in Council under section KD 5C
weeks,—

(a) for 2 or more eligible periods forming 1 continuous period, is the number of whole 1-week periods in the continuous period for which the principal caregiver or the principal caregiver's spouse, civil union partner, or de facto partner has, from the activity, income to which subsection (1)(d)(i) and (ii) refer:

(b) for an eligible period to which paragraph (a) does not apply, is the number of whole 1-week periods in the eligible period for which the principal caregiver or the principal caregiver's spouse, civil union partner, or de facto partner has, from the activity, income to which subsection (1)(d)(i) and (ii) refer
children is the greater of—

(a) 3:

(b) the number of children in relation to whom the principal caregiver is entitled to the in-work payment.
(3) A principal caregiver satisfies subsection (1)(c) if—
- (a) the principal caregiver has been both resident and pre-sent in New Zealand for a continuous period of 12 months at any time; and
- (b) on the date on which a credit of tax is claimed under section KD 2, the principal caregiver is a tax resident and resident in New Zealand.
(4) A child satisfies subsection (1)(c) if the child is both resident and present in New Zealand for the eligible period.
(5) Income from an activity satisfies this subsection if the income is—
- (a) a source deduction payment that is not—
  - (i) described in paragraph (b)(v), (viii), (ix), (xi), (xii), (xiii), (xiv), and (xv) of the definition of salary or wages:
  - (ii) a withholding payment of the kind specified in Part E of the Schedule of the Income Tax (Withholding Payments) Regulations 1979:
  - (iii) paid as a result of an incapacity, suffered before 1 January 2006, due to personal injury by accident within the meaning of section 26 of the Injury Prevention, Rehabilitation, and Compensation Act 2001:
- (b) income to which section OB 2(2) applies:
- (c) income from a business carried on for profit.
(6) A person who satisfies the requirements of subsection (1)(d)(ii) but who in a 1 week period is not engaged in an activity related to their employment and who is on leave from that employment because of the birth of a child and who is eligible to receive the parental tax credit in respect of the child is treated for the purpose of subsection (1)(d)(ii), and for the period for which the parental tax credit is paid to the person, as being engaged in the week in the activity for the number of hours in respect of which the Commissioner is satisfied that the person would have been engaged but for the birth of the child.

(7) A person who satisfies the requirements of subsection (1)(d)(ii) but who in a 1 week period is engaged in employment for less than the number of hours required to satisfy subsection (1)(d)(ii) because of the birth of a child and who is eligible to receive the parental tax credit in respect of the child is treated for the purpose of subsection (1)(d)(ii), and for the period for which the parental tax credit is paid to the person, as being engaged in the week in the activity for the number of hours in respect of which the Commissioner is satisfied that the person would have been engaged but for the birth of the child.
(8) A person is treated as satisfying subsection (1)(d) if—
- (a) the person is receiving a child tax credit for an eligible period ending on 31 March 2006; and
- (b) the person or the person's spouse, on or after 1 January 2006, suffered an incapacity due to personal injury by accident within the meaning of section 26 of the Injury Prevention, Rehabilitation, and Compensation Act 2001; and
- (c) weekly compensation within the meaning of section 6 of the Injury Prevention, Rehabilitation, and Compensation Act 2001, is being paid in respect of the incapacity or will be paid in respect of the incapacity; and
- (d) the person or their spouse, civil union partner, or de facto partner would have satisfied the requirements of subsection (1)(d)(i) and (ii) and been eligible for the credit of tax calculated under this section at the time of the incapacity if this section had come into force before the date of the incapacity.
Sections KD 2AAA and KD 2AAAB were inserted, as from 4 June 2004, by section 14(1) Taxation (Working for Families) Act 2004 (2004 No 52) with application as from the 2006–07 income year.

Subsection (1)(d) and (e) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner, or de facto partner” for “spouse”.

Subsection (1)(d) was amended, as from 18 December 2006, by section 105(1)(a) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “subsection (8)” for “subsection (7)” with application as from the 2006–07 income year.

Subsection (2) the definition of weeks was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner, or de facto partner” for “spouse”.

Subsection (2) the definition of weeks was substituted, as from 18 December 2006, by section 105(1)(b) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2006–07 income year.

Subsection (5)(a)(i) was amended, as from 18 December 2006, by section 105(1)(c)(i) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “(xi), (xii), (xiii), (xiv), and (xv)” for “(x), (xi), (xii), (xiii), (xiv), (xv), and (xvi)” with application as from the 2006–07 income year.

Subsection (5)(a)(ii) was amended, as from 4 June 2004, by section 122 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting the words “of the Schedule” after the expression “Part E”.

Subsection (5)(a)(iii) was inserted, as from 18 December 2006, by section 105(1)(c)(ii) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2006–07 income year.

Subsection (8)(d) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner, or de facto partner” for “spouse”.

KD 2AAAB Continuation of child tax credit payments

A person is entitled to continue to receive a child tax credit calculated under section KD 2(4) for an eligible period if—
- (a) the person is eligible for a child tax credit in relation to a child for an eligible period ending on 31 March 2006; and
- (b) the person is not eligible for an in-work payment under section KD 2AAA; and
- (c) the person continues to be eligible for a child tax credit in relation to a child at all times after 31 March 2006.
Sections KD 2AAA and KD 2AAAB were inserted, as from 4 June 2004, by section 14(1) Taxation (Working for Families) Act 2004 (2004 No 52) with application as from the 2006–07 income year.

KD 2AA Rules for subpart KD credit

(1) This section applies for the purposes of sections KD 2, KD 2AAA, and KD 2AAAB.

Principal caregiver
(2) A person (person A) is a principal caregiver of a child if person A lives apart from another qualifying person for that dependent child, and person A has the dependent child in their exclusive care for periods totalling at least one-third of—
- (a) a 4-month period:
- (b) the tax year:
- (c) the entitlement period, in the case of the parental tax credit.
Principal caregiver for eligible period for purposes of inwork payment

(2B) A person (person A) is a principal caregiver of a child for an eligible period under section KD 2AAA(1) if person A lives apart from another qualifying person for that dependent child, and person A has the dependent child in their exclusive care for periods totalling at least one-third of a 4-month period or the tax year, whether or not those periods coincide with the eligible period.

(2C) When subsection (2B) applies, section KD 2AAA(1)(b) is to be read as applying to the periods during which the principal caregiver has exclusive care of the child.

(2D) A person who is a principal caregiver under subsection (2) or (2B) must inform the Commissioner forthwith upon the occurrence of a change in the arrangements for the care of the child which has, or will have, the effect of ending the person's status as a principal caregiver.

(3) A family support credit or a parental tax credit must be reduced in proportion to the amount of time a dependent child spends in the exclusive care of another qualifying person during the eligible period.

(3A) If 2 persons are eligible for a child tax credit or an in-work payment in relation to a child for an eligible period, the amount of the credit of tax to which each is entitled is not affected by the eligibility of the other person for a credit of tax.
(4) Subsection (5) applies if a person has a spouse, civil union partner, or de facto partner throughout an eligible period and during the eligible period—
- (a) the person is a qualifying person for a dependent child or more than 1 dependent child; and
- (b) the spouse, civil union partner, or de facto partner is a qualifying person for a dependent child or more than 1 dependent child; and
- (c) the dependent child, or at least 1 of the dependent children, referred to in paragraph (b) is not a dependent child referred to in paragraph (a).
(5) Section KD 2 and this section, apart from this subsection and subsection (6), apply as if either the person or the spouse, civil union partner, or de facto partner were the qualifying person for all those children and the other person were not a qualifying person for any of the children.

(6) The Commissioner must determine which of the persons referred to in subsection (5) is the qualifying person under that subsection.
(7) A credit of tax is allowed under section KD 2 to a qualifying person for a person aged 18 years who—
- (a) is not financially independent; and
- (b) is attending school or a tertiary educational establishment,—
as if the person had not attained the age of 18 years.
(8) The Commissioner must determine the period for which a credit is allowed to a qualifying person for a person aged 18 years.

(9) The period determined by the Commissioner under subsection (8) expires on or before the first day fixed by the Commissioner for payments of interim instalments of credits of tax under section KD 7 in the calendar year following the calendar year in which the person turns 18.

(10) If a day is part of more than 1 eligible period, for the purposes of this section, the day is part only of the particular eligible period that the Commissioner thinks just, having regard to the tenor of this section and section KD 2.

(11) If a day is part of more than 1 specified period, for the purposes of this section, the day is part only of the particular specified period that the Commissioner thinks just, having regard to the tenor of this section and section KD 2.

Compare: 1994 No 164 s KD 2AA

Subsection (1) was substituted, as from 4 June 2004, by section 15(1) Taxation (Working for Families) Act 2004 (2004 No 52) with application as from the 2006–07 income year.

Subsection (2) was substituted, as from 18 December 2006, by section 106(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2006–07 income year.

Subsection (2B) was inserted, as from 4 June 2004, by section 15(2) Taxation (Working for Families) Act 2004 (2004 No 52) with application as from the 2006–07 income year.

Subsection (2B) was substituted, as from 18 December 2006, by section 106(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2006–07 income year.

Subsections (2C) and (2D) were inserted, as from 4 June 2004, by section 15(2) Taxation (Working for Families) Act 2004 (2004 No 52) with application as from the 2006–07 income year.

Subsection (3) was amended, as from 4 June 2004, by section 15(3) Taxation (Working for Families) Act 2004 (2004 No 52) by substituting “A family support credit or a parental tax credit” for “A subpart KD credit” with application as from the 2006–07 income year.

Subsection (3A) was inserted, as from 4 June 2004, by section 15(4) Taxation (Working for Families) Act 2004 (2004 No 52) with application as from the 2006–07 income year.

Subsection (5) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner, or de facto partner” for “spouse”.

KD 2AB Parental tax credit

(1) The qualifying person for a dependent child that is born on or after 1 October 1999 is allowed a credit of tax, called the parental tax credit, for up to the first 56 days after the date of the dependent child's birth if—
- (a) neither the person nor his or her spouse, civil union partner, or de facto partner receives a specified payment or has a suspended entitlement to an income-tested benefit at any time during that period (in this subpart called the entitlement period):
- (b) neither the person nor his or her spouse, civil union partner, or de facto partner (within the meaning of the Parental Leave and Employment Protection Act 1987) receives a parental leave payment under Part 7A of that Act at any time in respect of the child.
(1A) Section 2B of the Parental Leave and Employment Protection Act 1987 applies for the purposes of subsection (1)(b) if a person gives birth to 2 or more children as a result of 1 pregnancy or assumes the care of 2 or more children with a view to adoption.

(2) A qualifying person continues to be entitled to the parental tax credit if the dependent child dies during the entitlement period and the person and their spouse, civil union partner, or de facto partner (if any) would otherwise meet the requirements of subsection (1).
(3) The parental tax credit is to be paid to a qualifying person either—
- (a) in accordance with section KD 4; or
- (b) in the 56 days after the date an application is made if the person applies to receive the credit by way of interim instalments and at any time during that period (in this subpart called the payment period) the person and their spouse, civil union partner, or de facto partner do not receive a specified payment and do not have a suspended entitlement to an income-tested benefit.
Compare: 1994 No 164 s KD 2AB

Subsection (1)(a) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner, or de facto partner” for “spouse”.

Subsection (1)(b) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner, or de facto partner” for “spouse”.

Subsection (2) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner, or de facto partner” for “spouse”.

Subsection (3)(b) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner, or de facto partner” for “spouse”.

Subsection (3)b) was amended, as from 1 October 2005, by section 219 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by omitting the word “fortnightly”.

KD 2A Calculating net contributions to family support credit, in-work payment, child tax credit, and parental tax credit

When the Commissioner calculates the amounts making up the family support credit, in-work payment, the child tax credit, and the parental tax credit corresponding to a period under this subpart, the Commissioner must—
- (a) treat the family support credit, in-work payment, the child tax credit, and the parental tax credit as credits corresponding to the period; and
- (b) treat as a debit the amount of family credit abatement corresponding to the period; and
- (c) apply the amount of the family credit abatement corresponding to the period,—
  - (i) first, to reduce the amount of the family support credit corresponding to the period; and
  - (ii) secondly, to reduce the amount of the in-work payment or, as the case may be, the child tax credit corresponding to the period; and
  - (iii) thirdly, to reduce the amount of the parental tax credit corresponding to the period.
Compare: 1994 No 164 s KD 2A

The heading to section KD 2A was amended, as from 4 June 2004, by section 16(1) Taxation (Working for Families) Act 2004 (2004 No 52) by inserting the words “in-work payment,” after the words “family support credit” with application as from the 2006–07 income year.

Section KD 2A (the part before paragraph (a)) was amended, as from 4 June 2004, by section 16(2)(a) Taxation (Working for Families) Act 2004 (2004 No 52) by inserting the words “in-work payment,” after the words “family support credit” with application as from the 2006–07 income year.

Paragraph (a) was amended, as from 4 June 2004, by section 16(2)(b) Taxation (Working for Families) Act 2004 (2004 No 52) by inserting the words “in-work payment,” after the words “family support credit” with application as from the 2006–07 income year.

Paragraph (c)(ii) was substituted, as from 4 June 2004, by section 16(2)(c) Taxation (Working for Families) Act 2004 (2004 No 52) with application as from the 2006–07 income year.

KD 3 Calculation of family tax credit

(1) In this section and section KD 3A,—
employment means the activity a person performs that gives rise, or will give rise, to an entitlement to a source deduction payment other than—
- (a) a payment of any of the kinds referred to in paragraph (b)(iii), (ix), and (xi) of the definition of salary or wages:
- (b) a withholding payment of the kind specified in part E of the schedule of the Income Tax (Withholding Payments) Regulations 1979:
- (c) a payment made by a close company to a person who is a major shareholder of the close company:
- (d) a payment made by a person to their spouse, civil union partner, or de facto partner:
- (e) a payment made by a business carried on by 2 or more persons jointly, whether in partnership or otherwise, to a spouse, civil union partner, or de facto partner of 1 of the persons in business
employment: paragraphs (d) and (e) of this definition were amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner, or de facto partner” for “spouse”.
qualifying person, for a specified period, means a person, if throughout the specified period—
- (a) the person is 16 years or older; and
- (b) the person is the principal caregiver in respect of 1 or more dependent children; and
- (bb) the person is not a spouse, civil union partner, or de facto partner of a person who is eligible to be a transitional resident and who has not made an election under section FC 24(3) (Transitional resident); and
- (bc) [Repealed]
- (c) either—
  - (i) the person has been both resident and present in New Zealand for a continuous period of 12 months at any time and is tax resident, being resident in New Zealand, on the date on which a credit of tax is claimed under this section; or
  - (ii) each of the dependent children referred to in paragraph (b) is both resident and present in New Zealand;—
but does not include a person who, during the specified period, receives an income-tested benefit, a veteran's pension, or a war widows mother's allowance.

qualifying person: paragraphs (bb) and (bc) of this definition were inserted, as from 1 October 2005, by section 123(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year. See section 123(2) and (3) of that Act as to the application of this amendment.

qualifying person: paragraph (bb) of this definition was substituted, as from 18 December 2006, by section 107(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

qualifying person: paragraph (bc) of this definition was repealed, as from 18 December 2006, by section 107(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).
(2) A person who does not have a spouse, civil union partner, or de facto partner during an eligible period is allowed a credit of tax for the tax year containing the eligible period of an amount calculated using the formula in subsection (3), subject to section KD 7A.
(3) The formula is—
where—
- amount is $18,044 or a greater amount prescribed by the Governor-General by Order in Council under section KD 5C
- NSI is the person's net specified income for the specified period containing the eligible period
- 1WPs is the number of 1 week periods in the eligible period for which the person is a full-time earner.
(4) If a person has a spouse, civil union partner, or de facto partner and is the principal caregiver during an eligible period, that person is allowed a credit of tax for the tax year containing the eligible period of an amount calculated using the formula in subsection (5).
(5) The formula is—
where—
- amount is $18,044 or a greater amount prescribed by the Governor-General by Order in Council under section KD 5C
NSI is the net specified income, for a specified period containing the eligible period, of the person, or of the person's spouse, civil union partner, or de facto partner, or of the person and the person's spouse, civil union partner, or de facto partner
- 1WPs is the number of 1 week periods in the eligible period for which the person is a full-time earner.
Compare: 1994 No 164 s KD 3

Subsection (1) was amended, as from 18 December 2006, by section 107(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “In this section and section KD 3A” for “In this section”.

Subsection (2) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner, or de facto partner” for “spouse”.

Subsection (3) the item “amount” was substituted, as from 1 April 2005, by section 5(1) Taxation (Working for Families) Act 2004 (2004 No 52).

Subsection (3) the item amount was amended, as from 1 April 2006, by clause 3(1) Income Tax (Family Tax Credit) Order 2005 (SR 2005/264) by substituting “$17,680” for “$15,080” with application as from the 2006–07 tax year.

Subsection (3) the item amount was amended, as from 1 April 2007, by clause 3(1) Income Tax (Family Tax Credit) Order 2006 (2006/344) by substituting “$18,044” for “$17,680” with application as from the 2007–08 tax year.

Subsection (4) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11), by substituting “spouse, civil union partner, or de facto partner” for “spouse”.

Subsection (5) the item amount was substituted, as from 1 April 2005, by section 5(2) Taxation (Working for Families) Act 2004 (2004 No 52).

Subsection (5) the item amount was amended, as from 1 April 2006, by clause 3(1) Income Tax (Family Tax Credit) Order 2005 (SR 2005/264) by substituting “$17,680” for the expression “$15,080” with application as from the 2006–07 tax year.

Subsection (5) the item amount was amended, as from 1 April 2007, by clause 3(1) Income Tax (Family Tax Credit) Order 2006 (2006/344) by substituting the figure “$18,044” for the figure “$17,680” with application as from the 2007–08 tax year.

Subsection (5) the item NSI was substituted, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11).

KD 3A Rules for family tax credit

(1) This section applies for the purposes of section KD 3.
(2) Subsection (3) applies if a person has a spouse, civil union partner, or de facto partner throughout an eligible period and during the eligible period—
- (a) the person is a qualifying person for a dependent child or more than 1 dependent child; and
- (b) the spouse is a qualifying person for a dependent child or more than 1 dependent child; and
- (c) the dependent child, or at least 1 of the dependent children, referred to in paragraph (b) is not a dependent child referred to in paragraph (a).
(3) Section KD 3 and this section, apart from this subsection and subsection (4), apply as if either the person or the spouse, civil union partner, or de facto partner were the qualifying person for all those children and the other person was not a qualifying person for any of the children.

(4) The Commissioner must determine which of the persons referred to in subsection (3) is the qualifying person under that subsection.
(5) A credit of tax is allowed under section KD 3 to a qualifying person for a person aged 18 years who—
- (a) is not financially independent; and
- (b) is attending school or a tertiary educational establishment,—
as if the person had not attained the age of 18 years.
(6) The Commissioner must determine the period for which a credit is allowed to a qualifying person who is a person aged 18 years.

(7) The period determined by the Commissioner under subsection (6) expires on or before the first day fixed by the Commissioner for payments of interim instalments of credits of tax under section KD 7 in the calendar year following the calendar year in which the person turns 18.

(8) If a day is part of more than 1 eligible period, for the purposes of this section, the day is part only of the particular eligible period that the Commissioner thinks just, having regard to the tenor of this section and section KD 3.

(9) If a day is part of more than 1 specified period, for the purposes of this section, the day is part only of the particular specified period that the Commissioner thinks just, having regard to the tenor of this section and section KD 3.

(10) For the purposes of this section, if a person receives a source deduction payment and on the date of receipt does not perform any employment or performs an activity to an extent less than would give rise to an entitlement to the source deduction payment, the person is treated as having performed such employment as the Commissioner determines, having regard to the date of receipt, to the pay period in which it occurs, to the circumstances giving rise to the source deduction payment, and to any other circumstances that the Commissioner considers relevant.

Compare: 1994 No 164 s KD 3A

Subsection (2) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner, or de facto partner” for “spouse” in both places that it occurs.

Subsection (3) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner, or de facto partner” for “spouse”.

KD 3B Applications for guaranteed minimum family tax credit

A person who wishes to apply for a credit of tax, known as the guaranteed minimum family tax credit, under section KD 3 as it was before or after its enactment by section 21 of the Income Tax Act 1994 Amendment Act 1996, must apply either section KD 3 as if the definition of qualifying person read—
qualifying person, in relation to any specified period, means any person where, throughout the specified period,—
- (a) the person is aged 16 years or over; and
- (b) the person is the principal caregiver in respect of 1 or more dependent children; and
- (c) either—
  - (i) the person has been both resident and present in New Zealand for a continuous period of 12 months at any time and is tax resident, being resident in New Zealand, on the date on which a credit of tax is claimed under this section; or
  - (ii) each of the dependent children referred to in paragraph (b) is both resident and present in New Zealand;—
but does not include any person who, during the specified period, receives an income-tested benefit, a veteran's pension, or a war widows mother's allowance.
Compare: 1994 No 164 s KD 3B

KD 4 Allowance of credit of tax in end of year assessment

(2) Where, in relation to any tax year, a credit of tax is allowed under section KD 2 or KD 3, the Commissioner—
- (a) issues a person with a certificate of entitlement for the tax year because an interim instalment of estimated entitlement to a credit of tax was paid to the person during the tax year; or
- (b) finds out, otherwise than by way of a certificate of entitlement, that an interim instalment of estimated entitlement to a credit of tax has been paid to, or for the benefit of, or dealt with in the interest of, the person for the tax year,—
then,—
- (c) where any such instalment of estimated entitlement to a credit of tax, or the aggregate of all such instalments of estimated entitlement to a credit of tax, exceeds any credit of tax, or the aggregate of all credits of tax, to which, under this subpart, the person is entitled for the tax year, an amount equal to that excess is added to the tax payable by the person for the tax year; or
- (d) where any credit of tax, or the aggregate of all credits of tax, to which, under this subpart, the person is entitled for the tax year exceeds the credit first mentioned or, as the case may be, the aggregate first mentioned in paragraph (c), an amount equal to that excess is credited in payment of any tax payable by the person for the tax year, so far as that tax extends,—
and,—
- (e) in any case where paragraph (c) applies, the amount added under that paragraph is recoverable by the Commissioner in the same manner, with any necessary modifications, as if it were tax payable by the person for the tax year:
- (f) in any case where paragraph (d) applies, and where, after the crediting in payment of any tax payable under that paragraph, there remains a balance of the excess referred to in that paragraph, that balance is deemed to be tax paid by the person in respect of the tax year and is refundable by the Commissioner to the person as if it were tax paid in excess.
(2A) A credit of tax in respect of a child is not allowed under subsection (2)(c) or (d) if the person does not provide the Commissioner with—
- (a) the tax file number of the child for whom the credit is claimed; or
- (b) the birth certificate or other evidence acceptable to the Commissioner verifying the birth or existence of the child for whom the credit is claimed.
(4) Where the Commissioner is satisfied that the amount of any credit of tax under section KD 2 or KD 3 set off or refunded to the person in relation to any tax year is in excess of the proper amount, the Commissioner may recover the excess in the same manner, with any necessary modifications, as if it were income tax payable by the person in that tax year: provided that, where any person is a qualifying person in relation to whom, throughout the tax year, any other person is a spouse, civil union partner, or de facto partner, that person and that spouse, civil union partner, or de facto partner are jointly and severally liable for payment of the excess and the Commissioner may recover the excess in the same manner, with any necessary modifications, as if it were income tax payable by the person or, as the case may be, the spouse, civil union partner, or de facto partner in that tax year.
(4B) A person is not liable for a shortfall penalty under Part 9 of the Tax Administration Act 1994 in relation to an amount that the Commissioner is entitled to recover under this section if the setoff or refund was in excess of the proper amount because—
- (a) the person applied under section 41 of the Tax Administration Act 1994 and before 1 April 2007 for a credit of tax; and
- (b) at the time of the application, the person was eligible to be a transitional resident; and
- (c) before 1 June 2007, the person gave notice to the Commissioner that they did not wish the application to be treated under section FC 24(4) (Transitional resident) as an election under section FC 24(3).
(5) Every person to whom the Commissioner has issued a certificate of entitlement in relation to any tax year must, within the time within which the person is required to furnish a return of his or her income for the tax year, furnish to the Commissioner a statement in the prescribed form setting forth a complete statement of the net income of the person together with a complete statement of the net income for the tax year of every other person who at any time during that tax year was a spouse, civil union partner, or de facto partner in relation to that person, signed by that person, that statement setting forth such other particulars as may be required in the statement.

Compare: 1994 No 164 s KD 4

Subsection (4) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner, or de facto partner” for “spouse” in each place that it occurs.

Subsection (4B) was inserted, as from 18 December 2006, by section 108 Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Subsection (5) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner, or de facto partner” for “spouse”.

KD 5 Credit of tax by instalments

(1) Any person who, before the commencement of any specified period that, for the purposes of this section, is elected by the person (that specified period being referred to in this subpart as the elected period), expects to be entitled, in relation to and throughout the elected period, to a credit of tax under section KD 2 or, as the case may be, sections KD 2 and KD 3, may, subject to this section, by application made in accordance with subsection (2), require that, in advance of the expiry of the tax year that contains the elected period, payment to the person, or to the spouse, civil union partner, or de facto partner of the person on behalf of the person, be made of that credit of tax by way of interim instalments.

(1A) If a person is entitled to receive the parental tax credit for up to the first 56 days of a dependent child's life (referred to in this subpart as the elected period), the person may apply, in accordance with subsection (2), to receive the parental tax credit under section KD 2 by way of interim instalments in advance of the end of the tax year containing the elected period.

(1B) The application must be made no later than 3 months after the date of the dependent child's birth.

(1BA) If the 3 month period in which a person may apply to receive the parental tax credit spans 2 tax years and all of the elected period falls in the first tax year, for the purposes of this subpart, the elected period is treated as falling in the second tax year if all interim instalments are paid to the person in the second tax year.

(1C) If a person applies more than 3 months after the date of the dependent child's birth, the person may receive the parental tax credit only in accordance with section KD 4 in the tax year in which the birth occurs.
(2) An application under subsection (1) or (1A) must—
- (a) be in the prescribed form; and
- (b) be signed by the person and any other person who, at the time at which the application is made, expects to be, in the elected period, a spouse, civil union partner, or de facto partner in relation to the person; and
- (c) give, for each signatory to the application, a complete statement of—
  - (i) the net income that is expected to be attributable to the tax year referred to in subsection (1) or (1A); and
  - (ii) the net income that is expected to be attributable to the elected period; and
- (d) elect whether the interim instalments should be paid weekly or fortnightly; and
- (e) contain such other information as the Commissioner may require; and
- (f) be accompanied by the information required by subsection (2AAA).
(2AAA) An application under subsection (1) or (1A) must be accompanied by the following:
- (a) for a signatory who expects to derive income from employment, evidence of the amount of income from employment (if any) derived by the signatory in the period of one month immediately preceding the date on which the application is made:
- (b) for a signatory who expects to derive income from a business,—
  - (i) a copy of the annual accounts of the business for the tax year (or the accounting year that, under this Act, corresponds with the tax year) immediately preceding the tax year that contains the elected period; or
  - (ii) if the Commissioner is satisfied that the annual accounts referred to in subparagraph (i) have not been completed, a copy of the annual accounts for the business for the tax year (or the accounting year that, under this Act, corresponds with the tax year) that precedes the year immediately preceding the tax year that contains the elected period; or
  - (iii) a set of budgeted accounts of the business for the tax year (or the accounting year that, under this Act, corresponds with the tax year) that contains the elected period; or
  - (iv) other evidence that is acceptable to the Commissioner in relation to the business for the tax year (or the accounting year that, under this Act, corresponds with the tax year) that contains the elected period:
- (c) unless paragraph (d) applies, the tax file number of each child in relation to whom a credit of tax is claimed:
- (d) in the case of a child that has died or is given up for adoption, a birth certificate or other evidence acceptable to the Commissioner verifying the birth or existence of the child for whom a credit of tax is claimed.
(2AA) subsection (2AAA)(a) does not apply if the Commissioner considers that the Commissioner has sufficient evidence of a signatory's income from employment.

(2AB) subsection (2AAA)(d) does not apply to an application made by a person who is an adoptive parent, as that term is defined in the Adoption Act 1955.

(2A) A person continues to be entitled to a credit of tax under section KD 2 or KD 2 and KD 3 for specified periods after the specified period for which an application was made until the Commissioner withdraws the certificate of entitlement under either subsection (10) or (12).
(3) If an application is not accompanied by the tax file number of each child for whom a credit of tax is claimed and if the Commissioner is otherwise satisfied of the person's entitlement, the Commissioner must—
- (a) issue the person with a certificate of entitlement; and
- (b) pay to the person interim instalments of a credit of tax under section KD 2 or KD 2 and KD 3 for a period of 8 weeks.
(3A) If the person or their spouse, civil union partner, or de facto partner does not provide the tax file number of a child for whom a credit of tax is claimed within the 8 week period, the Commissioner must stop paying the credit of tax for the child until the tax file number is provided.
(4) On receipt by the Commissioner of an application made by any person in accordance with subsection (2), the Commissioner must, subject to this section,—
- (a) determine under this subpart the amount (if any) of the estimated entitlement to a credit of tax (calculated on the basis of that application and the statement and the other information furnished with the application and any other information available to the Commissioner) to which the person would be entitled in relation to the elected period; and
- (b) calculate the amount that, if the Commissioner issued to the person a certificate of entitlement in relation to the whole of the elected period, would be the interim instalment by way of credit of tax that would be specified in the certificate of entitlement; and
- (c) in relation to the whole or such part (if any) of the elected period as the Commissioner sees fit, issue to the person a certificate specifying—
  - (i) the amount of the interim instalment by way of credits of tax (as calculated under paragraph (b)) to which the person is entitled:
  - (ii) the amount (if any) after abatement contributed by the family support credit to the interim instalment:
  - (iib) the amount of credit (if any) after abatement contributed by the in-work payment to the interim instalment:
  - (iii) the amount (if any) after abatement contributed by the child tax credit to the interim instalment:
  - (iiia) the amount (if any) after abatement contributed by the parental tax credit to the instalment:
  - (iv) the amount (if any) contributed by the family tax credit to the interim instalment.
(5) Where a certificate of entitlement has been issued to a person under this section,—
- (a) the Commissioner must retain a copy of the certificate; and
- (b) the Commissioner must make payments to the person of interim instalments by way of credit of tax in accordance with section KD 7.
(6) In determining for the purpose of subsection (4) the amount of the subpart KD credit relating to the whole or any part of an elected period, the Commissioner must—
- (a) calculate an amount (referred to in paragraph (b) and in schedule 12 as the annual amount) in accordance with the following formula:
  where—
  
  x is equal to such amount of the net income referred to in subsection (2) expected to be attributable to the part of the tax year that is the part (referred to in this subsection as the calculation period) in relation to which the Commissioner determines that a credit of tax is allowable to the person
  
  y y is the number of days in the calculation period; and
- (b) ascertain the amount that, in schedule 12, second column, is deemed to be the equivalent of the annual amount, as that annual amount is represented in schedule 12, first column; and
- (c) calculate the subpart KD credit that would be allowed to the person, for the tax year of which the calculation period is part, if the specified income of the person in relation to the calculation period were equal to the amount first mentioned in paragraph (b).
(6A) The amount of an interim instalment by way of credit of tax under section KD 2 or, as the case may be, sections KD 2 and KD 3, must be calculated by the Commissioner—
- (a) as if the calculation period were a specified period; and
- (b) using—
  - (i) a value for specified income as directed by subsection (6)(c); and
  - (ii) the amounts of family support credit, in-work payment, child tax credit, parental tax credit, family credit abatement, and family tax credit given by sections KD 2, KD 2AAA, and KD 3.
(7) The amount of any interim instalment by way of credit of tax under section KD 2 or, as the case may be, sections KD 2 and KD 3, in relation to any part of any elected period, that is shown in any certificate of entitlement issued to any person under subsection (4) is the amount that, but for this subsection, would be shown in that certificate of entitlement as the whole dollars comprised in that last-mentioned amount.
(8) Where—
- (a) a person—
  - (i) expects that in any specified period the person will be entitled to receive an income-tested benefit; or
  - (ii) has applied to the chief executive of the department currently responsible for administering the Social Security Act 1964 under section KD 6(1B) for a credit of tax to be paid for a period after an income-tested benefit has ceased; and
- (b) the chief executive of that department—
- (i) is authorised, by section KD 6(1), to make payments of a subpart KD credit to the person; and
  - (ii) does not request the Commissioner, under section KD 6(1C), to accept from the person an application for a certificate of entitlement,—
the person is not entitled to make an application under subsection (2) in relation to that period and section KD 6 applies in relation to the person and the period.
(9) Any person to whom a certificate of entitlement has been issued under this section must notify the Commissioner immediately upon the occurrence (within the period commencing with the issuing of that certificate of entitlement and ending with the last day of the part, of the elected period, to which that certificate of entitlement relates) of any of the following:
- (a) the cessation, by the person or by another person who in relation to the person is a spouse, civil union partner, or de facto partner, of the role of being principal caregiver of any child, where the person expects that he or she will not resume the role of principal caregiver for a period of more than 56 consecutive days:
- (b) the commencing or the ceasing of the person to be a spouse, civil union partner, or de facto partner in relation to another person:
- (c) any other event of a kind specified, by the Commissioner, in the certificate of entitlement, for the purposes of this subsection,—
and may so notify the Commissioner upon the person, or another person who in relation to the person is a spouse, civil union partner, or de facto partner, becoming the principal caregiver of any child, or upon the occurrence of any other event that, the person considers, may affect his or her entitlement to the credit of tax specified in that certificate of entitlement, or upon the loss or destruction of that certificate of entitlement.
(10) Where the Commissioner—
- (a) receives any notification given by any person in accordance with subsection (9) that affects any certificate of entitlement; or
- (b) is otherwise satisfied that a certificate of entitlement issued to any person is incorrect; or
- (c) is advised by the chief executive of the department currently responsible for administering the Social Security Act 1964, under sections 84 or 85G of the Tax Administration Act 1994, that the person is also receiving a credit of tax from the chief executive or will receive a credit of tax from the chief executive,—
the Commissioner may require the return of the certificate of entitlement and, whether or not the Commissioner requires the certificate to be returned, may—
- (d) withdraw the certificate of entitlement; or
- (e) withdraw the certificate of entitlement and issue to the person, in its place, such other certificate of entitlement, in relation to the specified period to which that withdrawn certificate of entitlement related or in relation to such other specified period as the Commissioner considers appropriate, as, having regard to any information in the Commissioner's possession, the Commissioner considers should be issued to the person for the purpose of giving effect to this subpart; or
- (f) in relation to the certificate of entitlement, issue to the person such supplement as, in the circumstances of the case, the Commissioner considers appropriate; and, for the purposes of this Act, that supplement so issued is deemed to constitute part of, and to amend accordingly, that certificate of entitlement.
(11) A certificate of entitlement issued to any person under this section (that person being referred to in this subsection and in subsection (12) as the claimant) is—
- (a) not transferable (whether or not for valuable consideration) by the claimant to any other person:
- (b) on alteration, in any manner by any person, invalid:
- (c) subject to all terms and conditions stipulated in the certificate by the Commissioner.
(12) The Commissioner may, by notice to the claimant, withdraw the certificate of entitlement where, in the opinion of the Commissioner, the certificate of entitlement should cease to have effect and the claimant must, within the period of 7 days immediately succeeding the giving of that notice, return the certificate of entitlement to the Commissioner for cancellation by the Commissioner.

Compare: 1994 No 164 s KD 5

Subsection (1) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner, or de facto partner” for “spouse”.

Subsection (2) was substituted by section 6(1) Taxation (Working for Families) Act 2004 (2004 No 52) with application as from the 2005-06 income year.

Subsection (2)(b) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner, or de facto partner” for “spouse”.

Subsection (2AAA) was inserted by section 6(1) Taxation (Working for Families) Act 2004 (2004 No 52) with application as from the 2005-06 income year.

Subsection (2AA) was amended by section 6(2) Taxation (Working for Families) Act 2004 (2004 No 52) by substituting “Subsection (2AAA)(a)” for the expression “Subsection (2)(a)” with application as from the 2005-06 income year.

Subsection (2AB) was amended by section 6(3) Taxation (Working for Families) Act 2004 (2004 No 52) by substituting “Subsection (2AAA)(d)” for the expression “Subsection (2)(d)” with application as from the 2005-06 income year.

Subsection (3A) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner, or de facto partner” for “spouse”.

Subsection (4)(b) and (c)(i) to (iv) was amended by section 6(4) Taxation (Working for Families) Act 2004 (2004 No 52) by omitting the word “fortnightly” with application as from the 2005-06 income year.

Subsection (4)(c)(iib) was inserted, as from 4 June 2004, by section 17(1) Taxation (Working for Families) Act 2004 (2004 No 52) with application as from the 2006–07 income year.

Subsection (6) was amended by section 6(5) Taxation (Working for Families) Act 2004 (2004 No 52) by substituting “for the purpose of subsection (4)” for “under subsection (4)” with application as from the 2005-06 income year.

Subsection (6A)(b)(ii) was amended by section 6(6) Taxation (Working for Families) Act 2004 (2004 No 52) by substituting “sections KD 2 and KD 3” for the expression “section KD 5B” with application as from the 2005-06 income year.

Subsection (6A)(b)(ii) was amended, as from 18 December 2006, by section 109(1)(a) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “amounts of family support credit, in-work payment” for “rates of family support credit” with application as from the 2006–07 income year.

Subsection (6A)(b)(ii) was amended, as from 18 December 2006, by section 109(1)(b) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “KD 2, KD 2AAA,” for “KD 2” with application as from the 2006–07 income year.

Subsection (9) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner, or de facto partner” for “spouse” in each place that it occurs.

Subsection (10)(c) was substituted by section 6(7) Taxation (Working for Families) Act 2004 (2004 No 52) with application as from the 2005-06 income year.

KD 5B Rates for interim instalments for period beginning on or after 1 July 1998

[Repealed]

Section KD 5B was repealed, as from 1 April 2005, by section 7(1) Taxation (Working for Families) Act 2004 (2004 No 52).

KD 5C Adjustment of family support amounts, abatement threshold amounts, amounts of in-work payment and parental tax credit, and amount of family tax credit

(1) The Governor-General may from time to time, by Order in Council,—
- (a) increase the amount of the family support credits specified in section KD 2(3) and the specified income threshold in section KD 2(6) by amounts that—
  - (i) correspond to the movement in the quarterly all groups index number of the New Zealand Consumers Price Index:
  - (ii) are rounded up to the nearest whole dollar, with-out affecting the calculation of later increases made under this paragraph:
- (b) increase the amount of the parental tax credit specified in section KD 2(5):
- (c) increase the amount of the in-work payment specified in section KD 2AAA:
- (d) increase the figure in the definition of the item amount in sections KD 3(3) and KD 3(5):
- (e) replace Schedule 12.
(2) An Order in Council under subsection (1)(a),—
- (a) in the case of the first Order in Council made under subsection (1)(a), must be made when the total percentage increase in the movements in the quarterly all groups index number of the New Zealand Consumers Price Index measured from that applying on 1 April 2007 is 5% or more:
- (b) in the case of a subsequent Order in Council under subsection (1)(a), must be made when the total percentage increase in the movements in the quarterly all groups index number of the New Zealand Consumers Price Index measured from that applying on the date when the requirement to make the immediately preceding adjustment arose is 5% or more.
(3) An Order in Council made under this section must be made no later than 1 December in each year and must apply from 1 April following that date.

(4) The Minister responsible for the Inland Revenue Department, in consultation with the Minister responsible for the department currently responsible for administering the Social Security Act 1964, must cause a review to be undertaken of the amounts of the in-work payment and the parental tax credit allowable under this subpart.
(5) A review undertaken under subsection (4) must occur,—
- (a) in the case of the first review, not later than 30 June 2008; and
- (b) in the case of subsequent reviews, not later than 30 June in the third year after each preceding review.
Section KD 5C was inserted, as from 1 April 2005, by section 8(1) Taxation (Working for Families) Act 2004 (2004 No 52).

Section KD 5C was substituted, as from 1 April 2006, by section 18(1) Taxation (Working for Families) Act 2004 (2004 No 52).

Subsection (1)(d) was amended, as from 1 April 2006, by section 110 Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “the figure in the definition of the item amount” for “the amount of the family tax credit”.

KD 6 Chief executive to deliver credit of tax

(1) Where in any tax year the chief executive of the department currently responsible for administering the Social Security Act 1964 pays to any person an income-tested benefit, and the chief executive is satisfied that—
- (a) the person is entitled to receive a subpart KD credit for which the amount of the family credit abatement is nil; or
- (b) the chief executive is authorised by an Order in Council made under section 225A of the Tax Administration Act 1994 to pay the person under this section an amount of subpart KD credit for which the amount of family credit abatement is greater than nil,—
the chief executive must, when paying the income-tested benefit, in addition pay to the person so much of the amount of the subpart KD credit as, in the opinion of the chief executive, the person is entitled to at the time of the payment.
(1A) In determining under subsection (1) the amount of any subpart KD credit to be paid to a person for a period, the chief executive of the department currently responsible for administering the Social Security Act 1964 must—
- (a) use the method set out in section KD 5(6), if required to calculate the amount of the family credit abatement; and
- (b) take into account the rates of family support credit and family credit abatement given by section KD 2.
(1B) Where the chief executive of the department currently responsible for administering the Social Security Act 1964 ceases to pay to any person an income-tested benefit, the chief executive must, if the person applies, continue to pay to the person, for a period determined by the chief executive in consultation with the Commissioner, an amount of subpart KD credit determined as if the person were still being paid an income-tested benefit during the period.

(1C) The chief executive of the department currently responsible for administering the Social Security Act 1964 may request the Commissioner to accept from a person an application for a certificate of entitlement if the chief executive is satisfied that the person is entitled to a subpart KD credit under section KD 2 but is not satisfied that the chief executive is authorised by subsection (1) to pay the person an amount of subpart KD credit.

(1D) The chief executive of the department currently responsible for administering the Social Security Act 1964 may, any time after making a request under subsection (1C) in relation to a person, request the Commissioner to cease making payments to the person under a certificate of entitlement if the chief executive is satisfied that subsection (1) authorises the chief executive to pay the person an amount of subpart KD credit.

(2) Notwithstanding subsection (1) or (1B), any person entitled to payment of a credit of tax under either of those subsections may notify the chief executive of the department currently responsible for administering the Social Security Act 1964 not to pay the credit of tax to that person and the chief executive must as soon as practicable cease to pay the credit of tax accordingly.

(3) Any notification given under subsection (2) by any person may be cancelled by that person at any time and the chief executive must then recommence payment of the credit of tax as soon as practicable.
(4) If, in relation to a tax year, the chief executive of the department currently responsible for administering the Social Security Act 1964 makes a payment under this section to a person or to the spouse, civil union partner, or de facto partner of a person on behalf of the person, the chief executive must for each month in which a payment is made deliver to the Commissioner particulars of the payment in an employer monthly schedule and,—
- (a) not later than the 20 April next succeeding the last day of the tax year in which any such payment is so made, deliver to that person a certificate, signed by the chief executive, in a form authorised by the Commissioner and showing the total of all of the amounts of the credits of tax paid under any certificate of entitlement, together with such other information as the Commissioner may prescribe:
- (b) not later than 31 May in the tax year next succeeding the tax year in which any such payment is so made, deliver to the Commissioner a copy of every certificate delivered by the chief executive in accordance with paragraph (a), together with such other information as the Commissioner may prescribe.
Compare: 1994 No 164 s KD 6

Subsection (1A)(b) was amended, as from 1 April 2005, by section 9(1) Taxation (Working for Families) Act 2004 (2004 No 52) by substituting “section KD 2” for the expression “section KD 5B”.

Subsection (4) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner, or de facto partner” for “spouse”.

KD 7 Commissioner to deliver credit of tax by instalments

(1) Where a certificate of entitlement has been issued to any person under section KD 5, the Commissioner must, in such period as—
- (a) commences on the day specified in the certificate of entitlement; and
- (b) ends with the earlier of—
  - (i) the day on which the certificate of entitlement is withdrawn by the Commissioner; or
  - (ii) the termination date specified in the certificate of entitlement,—
pay to the person, on such days as the Commissioner may fix, the interim instalments of the credit of tax shown in the certificate of entitlement.
(2) If the Commissioner makes a payment in accordance with this section to a person or to their spouse, civil union partner, or de facto partner on their behalf during a tax year, the Commissioner must deliver to the person a certificate in the prescribed form showing the total of all the credits of tax paid by instalments under a certificate of entitlement for that tax year, together with such other information the Commissioner may prescribe.
(2A) The Commissioner must deliver the certificate—
- (a) on or before 20 May next following the last day of the tax year in which the payment is made for persons to whom section 33A(5) of the Tax Administration Act 1994 does not apply; and
- (b) on the same date that the Commissioner issues the person with an income statement for the tax year in which the payment is made for persons to whom section 33A(5) of the Tax Administration Act 1994 applies.
(2B) If the Commissioner considers, on the basis of information provided under section 85G of the Tax Administration Act 1994 by the chief executive of the department currently responsible for administering the Social Security Act 1964, that a person is entitled to a family support credit, the Commissioner must make payments by way of interim instalments without abatement of the credit to the person for the period that—
- (a) commences on the day following the day that the chief executive specifies as being the last day for which the person is entitled to the specified benefit, or as the case may be, a subpart KD credit paid under section KD 6(1); and
- (b) ends on the earlier of—
  - (i) the day preceding the first day specified in a certificate of entitlement subsequently issued under section KD 5:
  - (ii) a period of not more than 8 weeks, commencing on the first day referred to in paragraph (a).
(2C) If under section KD 6(1B) a credit payable under subsection (2B) is paid for part of the 8 week period referred to in subsection (2B)(b)(ii) by the chief executive of the department currently responsible for administering the Social Security Act 1964, the 8 week period is reduced by the period in respect of which payments were made by the chief executive of that department.

(3) Where, following receipt by the Commissioner of an application for a certificate of entitlement under section KD 5(2), the issue of a certificate of entitlement has in the opinion of the Commissioner been unduly delayed, the Commissioner may pay such amounts by way of interim instalments of credit of tax as, having regard to the circumstances of the case, the Commissioner determines should be so paid.
(3A) Where in any tax year the chief executive of the department currently responsible for administering the Social Security Act 1964 ceases to pay to any person a credit of tax with an income-tested benefit, the Commissioner may, on application by the person, pay to the person the amount of the credit of tax that the Commissioner determines the person would be entitled to under section KD 2(2) for the period that—
- (a) commences on the later of—
  - (i) the first day of the tax year; and
  - (ii) the day following that on which the chief executive ceases payment of any credit of tax to the person; and
- (b) ends on the day preceding the first day specified in a certificate of entitlement subsequently issued to the person under section KD 5.
(3B) Where in any tax year the chief executive of the department currently responsible for administering the Social Security Act 1964 ceases to pay to any person an income-tested benefit, the Commissioner may, on application by the person, pay to the person the amount of the credit of tax that the Commissioner determines the person would be entitled to under section KD 3 for the period that—
- (a) commences on the later of—
  - (i) the first day of the tax year; and
  - (ii) the day following that on which the chief executive ceases payment of the income-tested benefit to the person; and
- (b) ends on the day preceding the first day specified in a certificate of entitlement subsequently issued to the person under section KD 5.
(3C) [Repealed]
(4) Unless the Commissioner in any particular case otherwise determines, it is a condition of the receipt of credits of tax paid by instalments under this section that the qualifying person, or the qualifying person and his or her spouse, civil union partner, or de facto partner, supply the Commissioner with particulars of an existing account held by the person (whether alone or jointly with the person's spouse, civil union partner, or de facto partner), or open such an account if one is not held, and supply the Commissioner with particulars of the account, being an account held with—
- (a) any registered bank within the meaning of that term in section 2 of the Reserve Bank of New Zealand Act 1989; or
- (b) any private savings bank carried on under the Private Savings Banks Act 1983; or
- (c) any building society, in respect of any deposits with the building society; or
- (d) the Public Service Investment Society Limited; or
- (e) any person that is a bank within the meaning of the Banking Act 1982,—
and every credit of tax by interim instalment must be paid by the Commissioner into such an account.
Compare: 1994 No 164 s KD 7

Subsection (1) was amended by section 10(1) Taxation (Working for Families) Act 2004 (2004 No 52) by omitting the word “fortnightly” with application as from the 2005-06 income year.

Subsection (2) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner, or de facto partner” for “spouse”.

Subsections (2B) and (2C) were inserted by section 10(2) Taxation (Working for Families) Act 2004 (2004 No 52) with application as from the 2005-06 income year.

Subsection (3A) was amended, as from 18 December 2006, by section 111(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “any person a credit of tax with an income-tested benefit” for “any person a credit of tax”.

Subsection (3C) was repealed, as from 18 December 2006, by section 111(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Subsection (4) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner, or de facto partner” for “spouse” in both places that it occurs.

KD 7A Effect of extra interim instalment on entitlement to tax credit

(1) This section applies to a person who—
- (a) is entitled to a subpart KD credit or family tax credit for the whole or part of a tax year; and
- (b) receives in the tax year—
  - (i) a payment under section KD 7 of an interim instalment of the credit for each period of a fortnight in the tax year; or
  - (ii) payments under section KD 6 of interim instalments of the credit for periods of a week in the tax year and no payment under section KD 7 in the tax year; and
- (c) as a consequence of the year not being divided into an exact number of fortnights or weeks,—
  - (i) receives in the tax year 27 interim instalments corresponding to a period of a fortnight; or
  - (ii) may have received in the tax year 53 interim instalments corresponding to a period of a week.
(2) For the purposes of section KD 4(2)(c), a person who has received payments under section KD 7 for the whole of a tax year is entitled to a credit of tax for the tax year of the amount given by the following formula:
where—
- a is the amount of the credit of tax for the tax year calculated for the person under—
  
  (a) section KD 2, if the person is entitled to a subpart KD credit of tax:
  
  (b) section KD 3, if the person is entitled to the family tax credit
- b is the amount of the final interim instalment received by the person in the tax year
- c is the amount of any parental tax credit that is included in the final interim instalment received by the person in the tax year.
(3) For the purposes of section KD 4(2)(c), a person who has received payments under section KD 6 for the whole of a tax year and no payment under section KD 7 for the tax year is entitled to a credit of tax for the tax year of the amount given by the following formula:
where—
- a is the amount of the credit of tax for the tax year calculated for the person under—
  
  (a) section KD 2, if the person is entitled to a subpart KD credit of tax:
  
  (b) section KD 3, if the person is entitled to the family tax credit
- b is the total amount of the interim instalments received by the person in the tax year.
Compare: 1994 No 164 s KD 7B

KD 8 Credit of tax deemed to be excluded income

Every credit of tax allowed to any person under this subpart is, for the purposes of this Act, deemed to be excluded income derived by the person to whom the credit of tax is allowed.

Compare: 1994 No 164 s KD 8

KD 9 Advice

In determining the entitlement of a person to any credit of tax under this subpart, the Commissioner may, if the Commissioner considers it necessary, obtain the advice of the chief executive of the department currently responsible for administering the Social Security Act 1964 or, as the case may be, the Secretary for War Pensions.

Compare: 1994 No 164 s KD 9

Subpart KE—Housing rebates

KE 1 Rebate for interest on home vendor mortgages

(1) A taxpayer (not being an absentee, or a company, or a public authority, or a Maori authority, or an unincorporated body, or a trustee liable for income tax under sections HH 3 to HH 6 and HZ 2) who in any tax year has derived interest in respect of a home vendor mortgage is allowed as a rebate of income tax for that tax year an amount equal to 20 cents for each complete dollar of the interest so derived:

provided that the rebate under this section in any tax year must not exceed $500:

provided also that where in any tax year there are 2 or more taxpayers who have provided the loan secured by any home vendor mortgage, the rebate allowed to each such taxpayer must not exceed an amount calculated in accordance with the following formula:
where—
- a is the amount of the loan provided by the taxpayer
- b is the total amount of the loan secured by the home vendor mortgage.
(3) In this section,—

Corporation means Housing New Zealand Corporation
home vendor mortgage means a mortgage—
- (a) which secures a loan provided by the vendor or vendors of a house; and
- (b) which is guaranteed by the Corporation under its housing mortgage guarantee scheme; and
- (c) which has been approved by the Corporation, on or before 5 August 1982, for the purpose of the rebate to which this section applies; and
- (d) in respect of which notice of such guarantee and approval and of any variation has been delivered by the Corporation to the Commissioner.
Compare: 1994 No 164 s KE 1

Subpart KF—Rebates for non-residents

KF 3 Rebates for absentees

Every absentee who has derived assessable income from that absentee's personal services (being services performed for or on behalf of any other person) while personally present in New Zealand in a tax year is entitled to a rebate of income tax in that absentee's assessment for that tax year of the same proportion of every rebate to which the absentee would have been entitled under any of the provisions of sections KC 1 to KC 4 if the absentee were not an absentee, as the proportion that,—
- (a) if the absentee was paid for regular pay periods in respect of those services, the number of weeks for which the absentee was so paid in the tax year bears to 52:
- (b) in every other case, the number of days for which the absentee was paid for those services in the tax year bears to the number of days in the tax year.
Compare: 1994 No 164 s KF 3

Subpart KG—Industry-specific rebates

KG 1 Rebate for savings in special farm, fishing vessel, and home ownership accounts

(1) A taxpayer who in any tax year operates a special account is allowed as a rebate of income tax for that tax year an amount equal to 45 cents for every complete dollar of any increase in savings in that account in relation to that tax year: provided that in no case is a rebate allowed under this section for any tax year in respect of any increase in savings in any special account to the extent that the increase in relation to that year exceeds $5,000 in the case of a special farm ownership account, or a special fishing vessel ownership account, or $3,000 in the case of a special home ownership account.

(2) For the purposes of this section, the aggregate of the amounts of the increase in savings in any special account in relation to every tax year must not exceed $60,000 in the case of a special farm ownership account, or a special fishing vessel ownership account, or $10,250 in the case of a special home ownership account.
(3) In this section, increase in savings, in relation to any special account of any taxpayer and to any tax year, means the aggregate of—
- (a) the amount by which the amount standing to the credit of that special account at the end of that tax year or the date of the closure of that account, whichever is the earlier, exceeds the amount standing to the credit of that account, if any, at the end of the tax year immediately preceding that tax year; and
- (b) the amount of resident withholding tax deducted during that tax year from interest paid in respect of that account.
(4) For the purposes of the definition of increase in savings in subsection (3),—
- (a) any amount withdrawn from a special account in accordance with a withdrawal certificate is deemed not to have been withdrawn:
- (b) any amount withdrawn from a special account in accordance with a withdrawal certificate, and subsequently redeposited in the account, is deemed not to have been redeposited.
Compare: 1994 No 164 s KG 1

Subpart KH—Conduit tax relief

KH 1 Conduit tax relief

KH 2 Calculation of percentage of shareholders not resident

KH 1 Conduit tax relief

(1) A company is allowed an income tax rebate as calculated under subsection (2), for a tax year corresponding with an imputation year for which it is a conduit tax relief company, if it is still a conduit tax relief company at the time it files its return of income for the tax year.

(2) The rebate amount is—

NRS x ((TR x (FAI – FALO – EIA)) – FAC - BC)

where—

NRS is the percentage of the company's shareholders who are not resident in New Zealand calculated under section KH 2

TR is the rate of income tax stated in schedule 1, part A, clause 5, that applies to the tax year

FAI is the company's foreign attributed income for the tax year

FALO is the company's foreign attributed loss offsets for the tax year

EIA is the excess interest allocation, if any, for the tax year calculated under section FH 7

FAC is all tax credits that would be allowed against the company's income tax liability for the tax year under section LC 4 or LC 5, determined as if the amount of rebate calculated under this section were nil

BC is the total of—
- (a) the amount able to be credited by the company against its income tax liability for the tax year under section MF 5(4); and
- (b) the amount credited by another company in the same group of companies against the company's income tax liability for the tax year under section MF 5(4); and both amounts are determined as if the amount of rebate calculated under this section were nil.

(3) Notwithstanding subsection (2), the rebate amount cannot be—

(a) less than nil; or

(b) greater than the amount calculated as follows:

NRS x (terminal tax + refundable credits)

where—

NRS	is the percentage of the company's shareholders who are not resident in New Zealand calculated under section KH 2
terminal tax	is the company's terminal tax (including a nil amount and calculated as if the rebate calculated under this section were nil) for the tax year
refundable	are the company's refundable credits
credits	for the tax year.

Compare: 1994 No 164 s KH 1

KH 2 Calculation of percentage of shareholders not resident

(1) The percentage of shareholders of a conduit tax relief company not resident in New Zealand is calculated—
- (a) on the last date the company pays a dividend to all shareholders during the tax year; or
- (b) at the end of the tax year if the company does not pay a dividend to all shareholders during the year.
(2) If a company to which subsection (1) applies is a listed company, the company may use—
- (a) the record date (the date on which entitlement to a dividend is determined) for a dividend instead of the date on which the dividend is paid; or
- (b) any date in the tax year on which the company, for whatever commercial reason, calculates the percentage of non-resident shareholders.
(2A) If, in respect of a company, there is a conduit tax relief group member, subsection (1) (as modified, if applicable, by subsection (2)) applies as if the company referred to in that subsection were the company—
- (a) in which 1 or more non-residents have a direct voting interest; and
- (b) that has a 100% voting interest (calculated as if section OD 3(3)(d) did not apply to deem the company's interests to be held by others) in the company first mentioned in this subsection.
(3) The percentage of shareholders not resident in New Zealand is the lowest of—
- (a) the percentage of direct voting interests held in the company by non-residents at the relevant time; and
- (b) the percentage of direct market value interests (if a direct market value circumstance exists) held in the company by non-residents at the relevant time; and
- (c) the percentage of total dividends payable by the company (if the shares in the company are not all shares of the same class) that would be derived by non-residents, if the company were liquidated at the relevant time.
(4) For the purposes of subsection (1)(a), a company with more than 1 class of shares that pays a dividend to all shareholders of each class of shares in a tax year is treated as if a dividend had been paid to all shareholders on the latest date on which it paid a dividend to all holders of shares of 1 of the classes.
(5) For the purposes of determining direct voting interests under subsection (3)(a) or direct market value interests under subsection (3)(b),—
- (a) the relevant time is the date on which the company is treated as having paid a dividend to all shareholders under subsection (4); and
- (b) in relation to each class of shares, the company is treated as having the same shareholders on the relevant date in relation to that class that it had on the last date in the tax year on which a dividend was paid to all shareholders of that class.
(6) For the purposes of this section, treasury stock is to be disregarded.

(7) The rules for determining residence in sections OE 7 and OE 8 apply for the purposes of this section.

Compare: 1994 No 164 s KH 2

Subpart KI—Rebates for portfolio tax rate entities

Subpart KI: inserted, on 1 October 2007, by section 112 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

KI 1 Rebate for portfolio tax rate entity relating to certain investors

Rebate of income tax
(1) A portfolio tax rate entity is allowed a rebate of income tax for a tax year of an amount given by subsection (2) for a portfolio calculation period in the tax year and an investor as a member of a portfolio investor class if—
- (a) the investor is not a zero-rated portfolio investor; and
- (b) the entity does not make payments of tax under section HL 22 (Payments of tax by portfolio tax rate entity choosing to pay provisional tax); and
- (c) for an entity that makes payments of tax under section HL 21 (Payments of tax by portfolio tax rate entity making no election), the portfolio calculation period does not include part of a portfolio investor exit period for the investor.
Amount of rebate
(2) The amount of the rebate of income tax is—
- (a) the amount of a tax credit allocated to the investor and the portfolio calculation period under section HL 27 (Credits received by portfolio tax rate entity or portfolio investor proxy) from an imputation credit or a credit for tax paid or withheld:
- (b) the amount of a rebate under section HL 20(2) (Portfolio entity tax liability and rebates of portfolio tax rate entity for period) arising from portfolio investor allocated loss of the investor for the portfolio calculation period.
Reduction of rebate

[Repealed]

(3) [Repealed]

Defined in this Act: imputation credit, , income tax, , investor, , portfolio class net income, , portfolio investor allocated loss, , portfolio investor exit period, , portfolio tax rate entity, , tax year, , zero-rated portfolio investor

Section KI 1: inserted, on 1 October 2007, by section 112 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section KI 1(1): amended, on 1 October 2007, by section 38(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section KI 1(3) heading: repealed, on 1 October 2007, pursuant to section 38(2) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section KI 1(3): repealed, on 1 October 2007, by section 38(2) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Subpart KJ—KiwiSaver scheme and complying superannuation fund tax credits

Subpart KJ (sections KJ 1 to KJ 5) was inserted, as from 1 July 2007, by section 39 Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

KJ 1 Tax credits relating to KiwiSaver scheme and complying superannuation fund members

KJ 2 Person's requirements

KJ 3 Tax credit amount

KJ 4 Payment

KJ 5 Rules

KJ 1 Tax credits relating to KiwiSaver scheme and complying superannuation fund members

Tax credit

(1) The Commissioner must pay, in accordance with section KJ 4, the amount of a tax credit calculated under section KJ 3 for a member credit year to a person's fund provider, to the extent to which the person meets the requirements in section KJ 2 in the member credit year.

Rules

(2) Section KJ 5 provides some rules for the tax credit.

Defined in this Act: amount, Commissioner, complying superannuation fund, KiwiSaver scheme, member credit year,

Subpart KJ (sections KJ 1 to KJ 5) was inserted, as from 1 July 2007, by section 39 Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

KJ 2 Person's requirements

For the purposes of section KJ 1(1), the requirements are that the person—
- (a) is a member of a complying superannuation fund or a KiwiSaver scheme for which there are member credit contributions; and
- (b) is 18 years or older; and
- (c) is not entitled to withdraw an amount from a fund or scheme under schedule 1, clause 4(3) of the KiwiSaver Act 2006 or a rule the same as that clause; and
- (d) has their principal place of residence in New Zealand, unless they meet the requirement in paragraph (e); and
- (e) if paragraph (d) does not apply, is an employee of the State services within the meaning of the State Sector Act 1988 who is serving outside New Zealand, or is a person who works overseas as a volunteer or for token payment and—
  - (i) the person works for a charitable organisation named in regulations made under the Student Loan Scheme Act 1992; and
  - (ii) the work meets 1 or more of the requirements in sections 38AEA(a)(i) to (iii) of the Student Loan Scheme Act 1992; and
- (f) where they meet the requirements of paragraph (e), they give the relevant fund provider evidence, in writing, of why and for what period in a member credit year they meet the relevant requirements of paragraph (e).
Defined in this Act: amount, complying superannuation fund, fund provider, KiwiSaver scheme, member credit contributions, member credit year,

Subpart KJ (sections KJ 1 to KJ 5) was inserted, as from 1 July 2007, by section 39 Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

KJ 3 Tax credit amount

Amount

(1) For the member credit year, the amount of the tax credit is equal to the number of dollars calculated using the following formula:

Definition of items in formula
(2) In the formula,—
- (a) base amount is the lesser of—
  - (i) the total amount of a person's member credit contributions to all of the person's complying superannuation funds and KiwiSaver schemes for the member credit year:
  - (ii) $1,042.86:
- (b) included days are the number of days in the member credit year on which the person meets the requirements in section KJ 2.
Defined in this Act: amount, complying superannuation fund, KiwiSaver scheme, member credit contributions, member credit year,

Subpart KJ (sections KJ 1 to KJ 5) was inserted, as from 1 July 2007, by section 39 Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

KJ 4 Payment

No deduction: direct credit
(1) The Commissioner must pay the amount of tax credit under section KJ 1 to a person's fund provider who complies with section 68C of the Tax Administration Act 1994—
- (a) without deduction or set-off for any other amount that the person or the person's fund provider may be obliged to pay the Commissioner; and
- (b) by direct credit; and
- (c) in accordance with subsection (2).
Pro-rata payment

(2) Where the person has more than 1 fund provider to whom the Commissioner must pay an amount of tax credit for a member credit year, the Commissioner must pay a fund provider the proportion of the tax credit that the person's member credit contributions for the year bears to the total amount of a person's member credit contributions to all of the person's complying superannuation funds and KiwiSaver schemes for the year.

Defined in this Act: amount, Commissioner, complying superannuation fund, KiwiSaver scheme, member credit contributions, member credit year,

Subpart KJ (sections KJ 1 to KJ 5) was inserted, as from 1 July 2007, by section 39 Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

KJ 5 Rules

Credit: amount

(1) The fund provider is treated as being credited with the tax credit for the purposes of recovering any amount of tax credit paid in excess of that properly payable under section KJ 1.

Treatment as contribution

(2) Despite subsection (1), the amount of the tax credit paid to a person's fund provider is treated, for the purposes of this Act and the KiwiSaver Act 2006, as a Crown contribution for the person, and the amount is subject to the relevant KiwiSaver scheme rules and complying fund rules.

Treatment of tax credit

(3) The fund provider must credit the amount of the tax credit on a pro rata basis across the investment products to which the person has subscribed or has been allocated as a member of the relevant KiwiSaver scheme or complying superannuation fund.

Vesting of tax credit

(4) The tax credit must vest in the person immediately after it is paid to the fund provider, despite any provision to the contrary.

Override of other rules: tax credit paid in excess

(5) Despite the relevant KiwiSaver scheme rules or complying fund rules, the relevant fund provider may remove an amount from a person's account for the purposes of paying to the Commissioner an amount of tax credit paid in excess of that properly payable under this subpart.

Claw-back: permanent emigration
(6) When a person for whom amounts of tax credit have been paid makes an application for, or otherwise wants, after their permanent emigration, a withdrawal or transfer from their KiwiSaver scheme or complying superannuation fund under schedule 1, clause 14 of the KiwiSaver Act 2006 or a rule the same as that clause,—
- (a) the relevant fund provider must pay to the Commissioner the lesser of—
  - (i) the amounts of the tax credit that have been paid for the person:
  - (ii) the amount of employee's superannuation accumulation for the person, for a complying superannuation fund:
  - (iii) the amount of the member's accumulation as defined in the KiwiSaver Act 2006 for the person, for a KiwiSaver scheme; and
- (b) the payment described in paragraph (a) must be made to the Commissioner as soon as practicable.
Recovery of claw-back

(7) A fund provider has an amount of tax credit paid in excess of that properly payable to the extent to which they fail to comply with subsection (6)(b).

Defined in this Act: amount, complying fund rules, complying superannuation fund, employee's superannuation accumulation, fund provider, KiwiSaver scheme.,

Subpart KJ (sections KJ 1 to KJ 5) was inserted, as from 1 July 2007, by section 39 Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Subpart KZ—Terminating provisions

KZ 1 Rebate from tax payable by persons receiving war pension

KZ 2 Rebate in respect of loss not carried forward

KZ 3 Continuation of rebates in respect of certain specified development projects

KZ 1 Rebate from tax payable by persons receiving war pension

(1) Where the assessable income derived in any tax year by any taxpayer who, having served in the First World War with any naval, military, or air forces of any part of the Commonwealth is, in the year in which that assessable income is derived, in receipt of a pension granted by the government of any part of the Commonwealth in respect of the taxpayer's total disablement attributable to such service comprises assessable income otherwise than income from employment, there is allowed as a rebate of income tax for that tax year 7.5% of so much of the amount that would be the taxable income if the only assessable income derived were derived by the taxpayer otherwise than from—
- (a) income from employment; or
- (b) New Zealand superannuation.
(2) For the purposes of this section, income from employment does not include a periodic payment by way of superannuation, pension, retiring allowance, or annuity in respect of or in relation to the past employment of any person to whom this section relates.

Compare: 1994 No 164 s KZ 1

KZ 2 Rebate in respect of loss not carried forward

(1) Where—
- (a) if the Land and Income Tax Amendment Act (No 3) 1968 had not been passed any taxpayer would have been entitled to claim that a loss be carried forward for the purpose of calculating social security income tax on income derived in the 1969-70 tax year; and
- (b) that loss exceeds the loss to be carried forward to that tax year in accordance with section 137(4) of the Land and Income Tax Act 1954,—
the Commissioner must allow a rebate of 7.5% of that excess in accordance with subsection (2).
(2) The rebate provided for in subsection (1), to the extent that it has not been deducted from the tax payable in respect of the income derived by the taxpayer in the 1976-77 or any earlier tax year, must be deducted from the income tax that, apart from this section and after taking into account all other rebates allowed under this Act, is payable in respect of income derived by the taxpayer in the 1977-78 tax year, so far as that tax extends and, so far as it cannot then be deducted, is deducted from the tax payable in respect of income derived by the taxpayer in the next succeeding tax year, and so on.

Compare: 1994 No 164 s KZ 2

KZ 3 Continuation of rebates in respect of certain specified development projects

(1) Notwithstanding the repeal of sections KF 1, NF 1(2)(a)(vi), NG 1(2)(f), and OB 5 by sections 13, 21, 22, and 26 of the Income Tax Act 1994 Amendment Act (No 3) 1995, a non-resident investment company, in relation to the development projects specified in subsection (4), continues to be eligible for the rebates specified in subsections (2) and (3) and, accordingly,—
- (a) sections NF 1(2)(a)(vi) and NG 1(2)(f) continue to apply in respect of the company; and
- (b) section OB 5 and the definitions of any terms relevant to those rebates are treated as continuing in force for the purposes of this section.
(2) Where the Commissioner is satisfied that, if this section had not been passed, the amount that would be the income tax liability of a non-resident investment company if the only assessable income of the company were interest derived by it in any tax year from development investments would exceed the amount of income tax that would be payable by the company in respect of that interest if the company had derived the interest from a source in the country or territory in which the company is resident, the Commissioner must allow the excess as a rebate of income tax: provided that in any case where—
- (a) any interest is derived by a non-resident investment company in any tax year from development investments; and
- (b) the company and the person by whom the interest is paid are not associated persons,—
the amount that would be the income tax liability of the company if the only assessable income of the company were that interest must not exceed 15% of the gross amount of that interest.
(3) Where the Commissioner is satisfied that, if this section had not been passed, the amount that would be the income tax liability of a non-resident investment company, as determined by section NG 3, if the only assessable income of the company were dividends derived by it from development investments would exceed the amount of income tax that would be payable by the company in respect of those dividends if the company had derived the dividends from a source in the country or territory in which the company is resident, the Commissioner must allow the excess as a rebate of income tax.
(4) This section applies to the development projects specified in the following orders:
- (a) the Income Tax (Non-Resident Investment Companies) Order 1970 (SR 1970/138):
- (b) the Income Tax (Non-Resident Investment Companies) Order 1972 (SR 1972/19):
- (c) the Income Tax (Non-Resident Investment Companies) Order (No 2) 1972 (SR 1972/248):
- (d) the Income Tax (Non-Resident Investment Companies) Order (No 3) 1974 (SR 1974/277).
Compare: 1994 No 164 s KZ 3

Part L
Credits

Subpart LB—Imputation credits: shareholders and imputation system

LB 1 Determination of amount of credit in certain cases

LB 1A Treatment of imputation credits of beneficiary minor

LB 2 Credit of tax for imputation credit

Subpart LC—Foreign tax

LC 1 Credits in respect of tax paid in country or territory outside New Zealand

LC 1A Amendment of schedule 6 by Order in Council

LC 2 Maximum credits

LC 3 Recovery of excess credit allowed through not taking into account refund of foreign tax

LC 4 Foreign tax credits: CFCs

LC 5 Group of companies CFC tax credits

LC 8 CFC tax credits of amalgamating company

LC 9 Ordering of CFC tax credits of amalgamated company

LC 10 CFC tax credits of amalgamated company

LC 11 CFC tax credits of amalgamated company credited against income tax liability of another company

LC 12 CFC tax credits of company credited against income tax liability of amalgamated company

LC 13 Information for credit to be furnished within 4 years

LC 14 Ascertainment of New Zealand income tax liability

LC 14A Source of dividends

LC 15 United Kingdom tax on dividends [Repealed]

LC 16 Foreign tax credits of consolidated group members

Subpart LD—Credit for tax paid or withheld

LD 1 Tax deductions to be credited against tax assessed

LD 1B Tax deductions from certain accident compensation payments: credit allowed to caregiver [Not in force]

LD 2 Non-resident withholding tax: credit allowed

LD 3 Resident withholding tax payments to be credited against income tax assessed

LD 3A Maori authority credit to be credited against income tax assessed

LD 6 Allowance for provisional tax paid by agent

LD 7 Provisional tax to be credited against income tax liability

LD 8 Credit of tax for dividend withholding payment credit in hands of shareholder

LD 9 Refund to non-resident or exempt shareholders

LD 10 Credit for investor for tax paid by entity if portfolio investor allocated income not excluded income

LD 10B Credit for zero-rated portfolio investor for tax paid by entity in relation to portfolio investor allocated income

LD 11 Credit for investor for payment under section HL 21(5) by entity for portfolio investor exit period

Subpart LE—Non-resident investors

LE 1 Purpose of subpart

LE 2 Credits in respect of dividends to non-resident investors

LE 3 Special rules for holding companies

LE 4 Allocation of deductions by section LE 3 holding company

Subpart LF—Underlying foreign tax credits

LF 1 Underlying foreign tax credits generally, and interpretation

LF 2 Granting of underlying foreign tax credit

LF 3 Amount of underlying foreign tax credit

LF 4 Dividends from lower-tier companies

LF 5 Dividends from grey list companies

LF 6 Procedures with respect to underlying foreign tax credit

LF 7 Interest paid in conduit financing arrangements

Subpart LG—Conduit tax relief credits

LG 1 Conduit tax relief additional dividends

Subpart LB—Imputation credits: shareholders and imputation system

LB 1 Determination of amount of credit in certain cases

LB 1A Treatment of imputation credits of beneficiary minor

LB 2 Credit of tax for imputation credit

LB 1 Determination of amount of credit in certain cases

(1) For the purposes of sections CD 9(1) and (2), HI 5, LB 2(1), LD 3A, and LD 8, the amount of an imputation credit, dividend withholding payment credit, or Maori authority credit is, where appropriate, as follows:
- (a) in the case of a beneficiary of a trust, other than to the extent specified in subsection (2), the amount of the imputation credit or dividend withholding payment credit calculated, in relation to the beneficiary, in accordance with the formula stated in subsection (3):
- (ab) in the case of a beneficiary of a trust who is a minor, the amount of the imputation credit or dividend withholding payment credit calculated, in relation to the beneficiary, in accordance with the formula in subsection (3) as if section HH 3A(1)(b) did not apply:
- (b) in the case of a partner of a partnership, the amount of the imputation credit or dividend withholding payment credit calculated, in relation to the partner, in accordance with the formula stated in subsection (4):
- (c) in the case of an imputation credit attached to a dividend that has an imputation ratio greater than the ratio calculated in accordance with the formula stated in section ME 8(1), so much of the imputation credit as would arise if the imputation ratio of the dividend were the ratio so calculated:(d) in the case of a dividend withholding payment credit attached to a dividend with a dividend withholding payment ratio greater than the ratio calculated in accordance with the formula stated in section MG 8(1), so much of the dividend withholding payment credit as would arise if the dividend withholding payment ratio of the dividend were the ratio so calculated:
- (e) in the case of a dividend with a combined imputation and dividend withholding payment ratio greater than the ratio calculated in accordance with the formula stated in section MG 10(1), so much of the dividend withholding payment credit and the imputation credit as remain after any reduction of the dividend withholding payment credit or the imputation credit in accordance with subsection (5):
- (ea) in the case of a Maori authority credit attached to a distribution that has a base ratio greater than the ratio permitted by section MK 7, so much of the Maori authority credit that would arise if the base ratio of the distribution were the ratio permitted by section MK 7:
- (f) in the case of an imputation credit in respect of which any credit of tax has been disallowed under section LB 2(4), so much (if any) of the imputation credit as is not disallowed under that provision:
- (g) in the case of a dividend withholding payment credit in respect of which any credit of tax has been disallowed under section LD 8(3), so much (if any) of the dividend withholding payment credit as is not disallowed under that provision:
- (h) in the case of an imputation credit that gives rise to a reduced credit of tax in accordance with section LB 2(5) or (7), so much of the imputation credit as remains after reduction by an amount equal to the amount of reduction under the relevant one of those subsections:
- (hb) in the case of an imputation credit carried forward to a later income year under section LB 2(3C) as a credit of tax, the amount of the credit of tax carried forward reduced by any amount of the credit that is extinguished by the Commissioner under section 177C of the Tax Administration Act 1994:
- (i) in the case of a dividend withholding payment credit that gives rise to a reduced credit of tax in accordance with section LD 8(4) or (6), so much of the dividend withholding payment credit as remains after reduction by an amount equal to the amount of reduction under the relevant one of those subsections:
- (j) in the case of an imputation credit attached to a dividend to which section GC 23 applies, a nil amount:
- (k) in the case of an imputation credit determined under section GC 22 to be the subject of an arrangement to obtain a tax advantage, so much of the imputation credit as remains after reduction by the amount referred to in subsection (5)(b) of that section:
- (l) in the case of a dividend withholding payment credit determined under section GC 22 to be the subject of an arrangement to obtain a tax advantage, so much of the dividend withholding payment credit as remains after reduction by the amount referred to in subsection (5)(b) of that section:
- (m) in the case of a Maori authority credit determined under section GC 27A to be the subject of an arrangement to obtain a tax advantage, so much of the Maori authority credit as remains after it is reduced by the amount referred to in section GC 27A(6)(b).
(2) Subsection (1)(a) does not apply to a beneficiary who is an investor of a group investment fund in so far as the beneficiary derives an amount from the group investment fund that is category A income.
(3) The amount of an imputation credit, dividend withholding payment credit, or Maori authority credit, in relation to a beneficiary of a trust who, during an income year, derives dividends with an imputation credit or a dividend withholding payment credit attached, or distributions with a Maori authority credit attached, by reason of being a beneficiary of the trust is, for the purposes of subsection (1)(a), an amount calculated in accordance with the following formula:
where—
- a is the aggregate of all imputation credits and all dividend withholding payment credits attached to all dividends distributed, and all Maori authority credits attached to all distributions, to beneficiaries of the trust in their capacity as such during the income year
- b is the aggregate of all distributions (whether of an income or a capital nature and whether or not included in the assessable income of the beneficiary) made to the beneficiary in his or her capacity as a beneficiary of the trust during the income year
- c is the aggregate of all distributions (whether of an income or a capital nature and whether or not included in the assessable income of the beneficiaries) made to beneficiaries of the trust in their capacity as such during the income year.
(3A) In any case where a beneficiary of a trust derives, by reason of being a beneficiary of the trust, a supplementary dividend to which section LE 2 applies, subsection (3) applies as if—
- (a) item “a” of the formula in that subsection included the amount of all supplementary dividends distributed to beneficiaries of the trust in their capacity as such during the income year; and
- (b) the amount of the imputation credit calculated with respect to that beneficiary were reduced by the amount of the supplementary dividend.
(4) The amount of an imputation credit or dividend withholding payment credit, in relation to a partner of a partnership that, during an income year, derives dividends with an imputation credit or dividend withholding payment credit attached by reason of being a partner of the partnership is, for the purposes of subsection (1)(b), an amount calculated in accordance with the following formula:
where—
- a is the aggregate of all imputation credits and all dividend withholding payment credits attached to dividends derived by partners of the partnership in their capacity as such in the income year
- b is the assessable income of the partner as a partner of the partnership for the income year excluding all imputation credits and dividend withholding payment credits attached to dividends derived by the partner during the year
- c is the assessable income jointly derived by partners of the partnership for the income year excluding all imputation credits and dividend withholding payment credits attached to dividends derived by the partners during the year.
(4A) If a partnership has both resident and non-resident partners, subsection (4) applies as if—
- (a) supplementary dividends derived by non-resident partners were added to item “a” of the formula:
- (b) the assessable income of a non-resident partner excluded supplementary dividends derived by the non-resident partner:
- (c) the assessable income jointly derived by partners excluded supplementary dividends derived by non-resident partners.
(4B) A non-resident partner must reduce the result obtained from applying subsection (4A) by the amount of supplementary dividends derived by the non-resident partner.
(5) Where there is an excess credit amount in respect of a dividend with a combined imputation and dividend withholding payment ratio greater than the ratio calculated in accordance with the formula stated in section MG 10(1),—
- (a) the amount of the dividend withholding payment credit attached to the dividend is, for the purposes of section CD 9(1)(b), reduced by the amount of the excess credit amount in so far as the dividend withholding payment credit extends:
- (b) the amount of the imputation credit attached to the dividend is, for the purposes of section CD 9(1)(a), reduced by so much of the excess credit amount as remains after deduction from the excess credit amount of the amount of the reduction referred to in paragraph (a).
Compare: 1994 No 164 s LB 1

Subsection (1)(hb) was inserted, as from 1 October 2005, by section 68 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

LB 1A Treatment of imputation credits of beneficiary minor

For the purposes of section LB 2, an imputation credit calculated in respect of a beneficiary of a trust who is a minor is included in the assessable income of the trustee of the trust and not in the beneficiary's assessable income.

Compare: 1994 No 164 s LB 1A

LB 2 Credit of tax for imputation credit

(1) Where the assessable income of a taxpayer for an income year includes any imputation credit, the taxpayer is, subject to the provisions of this section and of section LB 1, entitled to a credit of tax of an amount equal to the imputation credit so included in assessable income.

(1B) A taxpayer who receives an imputation credit as a share user in a returning share transfer is not entitled under subsection (1) to a credit of tax.

(1C) A taxpayer who is issued with a credit transfer notice is entitled under subsection (1) to a credit of tax equal to the amount of imputation credit shown in the notice.

(2) Any such credit of tax is credited, in so far as it extends, against the income tax liability of the taxpayer for the income year.
(2B) Subsection (3) applies to a taxpayer that is—
- (a) a company:
- (b) a trustee (other than the Maori Trustee):
- (c) a Maori authority:
- (d) a taxpayer whose imputation credit giving rise to the credit of tax is category A income of the trustee of a group investment fund.
(2C) A taxpayer that is a portfolio tax rate entity is entitled under this section to a credit of tax of no more than the extent allowed by subpart HL (Portfolio investment entities).

(2D) A taxpayer that is an investor in a portfolio tax rate entity is, to the extent allowed by subpart HL, entitled to a credit of tax to which the entity's entitlement is restricted by subsection (2C).
(3) For a taxpayer referred to in subsection (2B), no refund of a credit of tax under this section is available but, where the whole of the credit of the tax is not credited against the income tax liability of the taxpayer for the income year, the taxpayer is, in respect of any amount of the credit that is not so credited, deemed to have a net loss for the income year calculated in accordance with the following formula:
where—
- a is the amount of the credit of tax not credited against the income tax liability for the income year
- b b is,—
  
  (i) in any case where the taxpayer is a company, the basic rate of income tax for companies, expressed as a percentage, stated in schedule 1, part A, clause 5, and applying for the income year; and
  
  (ii) in any case where the imputation credit giving rise to the credit of tax is category A income of the trustee of a group investment fund, the rate of tax applicable to category A income of the trustee of a group investment fund, expressed as a percentage, stated in schedule 1, part A, clause 7, and applying for the income year; and
  
  (iii) in any case where the taxpayer is a trustee (other than the Maori trustee), the basic rate of income tax for trustees, expressed as a percentage, stated in schedule 1, part A, clause 4, and applying for the income year; and
  
  (iiia) in any case where the taxpayer is a Maori authority, the basic rate of income tax for Maori authorities, expressed as a percentage, stated in schedule 1, Part A, clause 2 and applying for the income year.
  
  (iv) [Repealed]
(3A) A taxpayer who has calculated under subsection (3) a net loss in an income year may—
- (a) offset under subparts IG and IH the net loss wholly or partly against the net income of another company for the income year; or
- (b) carry forward under subparts IE and IF the net loss as an available net loss to a later income year.
(3B) For a taxpayer other than a taxpayer referred to in subsection (2B), no refund of a credit of tax under this section is available, but if the whole of the credit of tax is not credited under subsection (2) against the taxpayer's income tax liability for the income year, subsection (3C) applies to the amount of the credit of tax that remains.
(3C) The remaining credit of tax for an income year is treated in the following ways, applied in the alphabetical order of the paragraphs so far as the credit of tax extends:
- (a) carried forward as a credit of tax to the next income year:
- (b) reduced by any amount extinguished under section 177C(5B) of the Tax Administration Act 1994 by the Commissioner in that next income year:
- (c) reduced by any amount credited against the taxpayer's income tax liability for that next income year:
- (d) treated under this subsection as a remaining credit of tax for that next income year.
(4) A taxpayer is not allowed a credit of tax under this section unless the taxpayer furnishes the shareholder dividend statement, or other sufficient evidence in writing, evidencing the imputation credit giving rise to the credit of tax.
(5) Subject to subsection (6), where the Commissioner is satisfied that it would be inappropriate for a taxpayer to be allowed, in whole or in part, a credit of tax by reason of the taxpayer receiving an imputation credit in respect of which insufficient income tax or further income tax has been paid by the company that issued the imputation credit,—
- (a) the taxpayer is not allowed the credit of tax under this section to the extent that the Commissioner is so satisfied; and
- (b) any such disallowance is in such manner as the Commissioner considers fair and equitable.
(6) A credit of tax disallowed under subsection (5) is allowed to the extent the Commissioner is satisfied that sufficient income tax or further income tax has subsequently been paid by or on behalf of the company.

(7) Where the Commissioner is satisfied that the amount of any credit of tax claimed under this section is in excess of the proper amount, the credit of tax is not allowed to the extent of the excess.

Compare: 1994 No 164 s LB 2

Subsections (1B) and (1C) were inserted, as from 1 July 2006, by section 124 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (2B) was inserted, as from 1 October 2005, by section 69(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Section LB 2(2C): inserted, on 1 October 2007, by section 113 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section LB 2(2D): inserted, on 1 October 2007, by section 113 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Subsection (3) was amended, as from 1 October 2005, by section 69(2)(a) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “For a taxpayer referred to in subsection (2B), no refund of a credit of tax under this section is available” for “There is no refund to the taxpayer of any credit of tax under this section” with application as from the 2005–06 income year.

Subsection (3), subpara (iiia) of the definition of item b of the formula, was amended, as from 1 October 2005, by section 69(2)(b)(i) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “year.” for “year; and” with application as from the 2005–06 income year.

Subsection (3), subpara (iv) of the definition of item b of the formula, was omitted, as from 1 October 2005, by section 69(2)(b)(ii) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Subsections (3B) and (3C) were inserted, as from 1 October 2005, by section 69(3) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Subpart LC—Foreign tax

LC 1 Credits in respect of tax paid in country or territory outside New Zealand

LC 1A Amendment of schedule 6 by Order in Council

LC 2 Maximum credits

LC 3 Recovery of excess credit allowed through not taking into account refund of foreign tax

LC 4 Foreign tax credits: CFCs

LC 5 Group of companies CFC tax credits

LC 8 CFC tax credits of amalgamating company

LC 9 Ordering of CFC tax credits of amalgamated company

LC 10 CFC tax credits of amalgamated company

LC 11 CFC tax credits of amalgamated company credited against income tax liability of another company

LC 12 CFC tax credits of company credited against income tax liability of amalgamated company

LC 13 Information for credit to be furnished within 4 years

LC 14 Ascertainment of New Zealand income tax liability

LC 14A Source of dividends

LC 15 United Kingdom tax on dividends [Repealed]

LC 16 Foreign tax credits of consolidated group members

LC 1 Credits in respect of tax paid in country or territory outside New Zealand

(1) Where a person who is resident in New Zealand derives assessable income from a country or territory outside New Zealand, income tax paid in that country or territory in respect of that assessable income is allowed as a credit against the income tax liability of the person: provided that if the person so resident in New Zealand has, as a national or member of that country or territory, paid income tax in that country or territory in respect of that assessable income, there is allowed as a credit against the income tax liability of the person only such amount as does not exceed the amount of income tax that would have been paid by the person in that country or territory in respect of that assessable income if the person, being resident in New Zealand, had not been a national or member of that country or territory.

(1B) A portfolio tax rate entity is allowed under this section a credit of tax of no more than the extent allowed by subpart HL (Portfolio investment entities).

(1C) An investor in a portfolio tax rate entity is, to the extent allowed by subpart HL, allowed a credit of tax to which the entity's entitlement is restricted by subsection (1B).
(2) Where in any tax year any beneficiary of a trust who is resident in New Zealand derives a taxable distribution,—
- (a) no credit is allowed in respect of any tax paid on the taxable distribution unless the tax is substantially of the same nature as non-resident withholding tax imposed under the NRWT rules; and
- (b) the amount of the credit is calculated in accordance with the following formula:
  where—
  
  a is the tax which qualifies for a credit under paragraph (a)
  
  b is the amount of the taxable distribution, including the tax which qualifies for a credit under paragraph (a) derived by the beneficiary
  
  c is the total amount of the distribution, including the tax which qualifies for a credit under paragraph (a) derived by the beneficiary.
(3) A credit is not allowed under this section in respect of income tax paid in a country or a territory specified in schedule 6 to the extent that the income tax is paid on the types of income specified in that schedule.
(3A) Despite subsection (1) and sections LC 4 and NH 2, if and to the extent that a taxpayer or a person pays foreign tax, and the taxpayer, the person, or a person associated with either of them receives a refund or repayment of the foreign tax or another amount (whether in money or money's worth) or a benefit of any kind (including the remission of a debt) which is determined, directly or indirectly, by reference to the amount of the foreign tax paid or any part of that amount, the taxpayer is not allowed—
- (a) a credit for income tax paid in a country or territory outside New Zealand against income tax payable in New Zealand; or
- (b) an underlying foreign tax credit or a credit for foreign withholding tax in calculating under section NH 2(1) the amount of dividend withholding payment to be deducted from a foreign withholding payment dividend.
(3B) If a credit initially allowed under subsection (1) or section LC 4, or an underlying foreign tax credit or a credit for foreign withholding tax taken into account under section NH 2, is more than the amount allowable by virtue of subsection (3A), section LC 3 or, if section LC 3(3) is applicable, section LC 4(11), applies to the excess amount of credit initially allowed.

(4) Any amount that would but for section EX 47 be assessable income of a taxpayer in respect of an attributing interest in a foreign investment fund for a period is treated as if it were assessable income for the purpose of determining the taxpayer's entitlement to a credit under this section, provided that the amount of income to be taken into account in determining item “a” of the formula in section LC 14(1) is the taxpayer's FIF income with respect to the interest and the period.

(5) This subpart and sections BH 1 and CD 11(1), and sections 88 and 108(3B) of the Tax Administration Act 1994, as far as they are applicable and with any necessary modifications, for the purposes of subsection (1), apply as if that subsection were a double tax agreement.

(6) In this section,—

member, in relation to a country or territory outside New Zealand, means any person who, under any law in force for the time being in the country or territory outside New Zealand, is liable to income tax in that country or territory by reason of the domicile or residence of the person in that country or territory national, in relation to any country or territory, includes a citizen of that country or territory.

Compare: 1994 No 164 s LC 1

Section LC 1(1B): inserted, on 1 October 2007, by section 114 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section LC 1(1C): inserted, on 1 October 2007, by section 114 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

LC 1A Amendment of schedule 6 by Order in Council

(1) The Governor-General may, by Order in Council, amend schedule 6—
- (a) by adding a country or territory and specifying in respect of the country or territory the type of income for which a credit is not allowed against income tax payable in New Zealand:
- (b) by omitting a country or territory.
(2) An Order in Council made under subsection (1)(a) expires on 31 December in the tax year following that in which it is made, unless it is confirmed by an Act of Parliament before the end of the following tax year, in which case the Order in Council does not expire.

(3) The repeal of an Act passed to confirm an Order in Council does not affect the confirmation of the order unless there is express provision to the contrary.

Compare: 1994 No 164 s LC 1A

LC 2 Maximum credits

Where, under a double tax agreement, a credit for foreign tax is allowed, the amount of that credit must not exceed the amount of New Zealand tax calculated in accordance with section LC 14.

Compare: 1994 No 164 s LC 2

LC 3 Recovery of excess credit allowed through not taking into account refund of foreign tax

(1) Subsection (2) applies if—
- (a) a credit for foreign tax has been—
  - (i) initially allowed under section LC 1(1) or LC 4 against a person's New Zealand income tax liability; or
  - (ii) initially taken into account under section NH 2 as an amount of underlying foreign tax credit or credit for foreign withholding tax in calculating the amount of dividend withholding payment to be deducted from a foreign withholding payment dividend; and
- (b) the credit, or any part of it, is not allowed under section LC 1(3A), irrespective of when the taxpayer, the person, or a person associated with either of them received the refund or repayment of the foreign tax or the other amount or benefit referred to in that subsection; and
- (c) either—
  - (i) the amount of the credit was more than the amount allowable against New Zealand tax by virtue of section LC 1(3A), after taking into account the refund or repayment of the foreign tax or the other amount or benefit referred to in that subsection; or
  - (ii) the amount of dividend withholding payment calculated under section NH 2 by taking the credit into account is less than the amount of dividend withholding payment deduction that would have been required by virtue of section LC 1(3A), after taking into account the refund or repayment of the foreign tax or the other amount or benefit referred to in that subsection.
(2) The excess or shortfall is treated as if it were income tax or, as the case may be, a dividend withholding payment which is due and payable to the Commissioner 30 days after the later of—
- (a) the date of the notice of assessment in which the credit for foreign tax is reflected or, in the case of an underlying foreign tax credit or a credit for foreign withholding tax that is taken into account under section NH 2(1), the due date for payment of the dividend withholding payment deduction under section NH 3(1); and
- (b) the date the relevant person receives the refund, repayment, or the other amount or benefit.
(3) This section does not apply to a credit for which a refund or repayment of foreign tax is received by a controlled foreign company if section LC 4(11) applies to the credit and the refund or repayment.

Compare: 1994 No 164 s LC 3

LC 4 Foreign tax credits: CFCs

(1) Subject to this section, a person who has attributed CFC income for an income year in respect of an income interest in a controlled foreign company is allowed a credit against the person's income tax liability for—
- (a) income tax paid or payable in New Zealand or another country or territory by the controlled foreign company in respect of the attributed CFC income:
- (b) withholding tax paid or payable in New Zealand or another country or territory on behalf of the controlled foreign company in respect of the attributed CFC income:
- (c) income tax paid or payable in a country or territory outside New Zealand by the person in respect of the attributed CFC income.
(1B) For the purposes of this section, income tax or withholding tax paid or payable in a currency other than New Zealand currency must be converted into New Zealand currency by, at the option of the person who has the attributed CFC income,—
- (a) applying the close of trading spot exchange rate applicable on the date when the income tax or withholding tax was paid or became payable; or
- (b) applying the average of the close of trading spot exchange rates for the 15th day of each complete month falling within the period to which the attributed CFC income relates.
(1C) The Commissioner must amend an assessment of a person for an income year to reflect the amount of a credit under subsection (1) to which the person is entitled if—
- (a) the amount of the credit cannot be determined before the time by which the person must file a return of income for the income year; and
- (b) the Commissioner receives a written request for the amended assessment from the person within 4 years after the end of the income year.
(2) A credit is not allowed under subsection (1) in respect of income tax paid or payable in a country or territory specified in schedule 6.

(3) For the purposes of this section, in respect of any accounting period of a controlled foreign company, the amount of income tax paid or payable by that controlled foreign company in respect of the attributed CFC income of any person calculated on the basis of that accounting period is the product of the income interest used to calculate attributed CFC income under section EX 18 and the income tax paid or payable by that company in any country or territory (including New Zealand) in respect of that accounting period.
(4) Any person who is, for an income year, allowed a credit under subsection (1) in respect of attributed CFC income derived in respect of a controlled foreign company (referred to in this subsection as the primary controlled foreign company) is entitled to set off that credit against the person's income tax liability—
- (a) for that income year, to the extent it does not exceed the amount that would be the person's income tax liability for that year if the person did not have any assessable income for that year other than attributed CFC income derived in respect of any controlled foreign company resident in the same country or territory as that in which the primary controlled foreign company was resident in the accounting period during which the income tax giving rise to the credit was paid or was payable, determined as if the amount of any rebate under section KH 1 were nil; and
- (b) so far as the credit cannot be set off under paragraph (a), for the income year immediately succeeding that income year, to the extent it does not exceed the amount that would be the person's income tax liability for the year if the person did not have any assessable income for that year other than attributed CFC income derived in respect of any controlled foreign company resident in the country or territory as that in which the primary controlled foreign company was resident in the accounting period during which the income tax giving rise to the credit was paid or was payable, determined as if the amount of any rebate under section KH 1 were nil; and
- (c) so far as the credit cannot be set off under paragraph (b), for the next income year to the immediately succeeding income year, to the extent it does not exceed the amount that could be offset under paragraph (b) if that paragraph applied to the next income year and so on.
(5) Where credits initially allowable in 2 or more income years are carried forward in accordance with the provisions of this section, those credits are allowed in the same order as those credits were initially allowable.

(6) If the person who has any credit allowable is a company, that credit may only be carried forward to any succeeding income year in accordance with this section if and to the extent to which, had that credit been a net loss to which sections IE 1 and IF 1 applied, the carry forward of that net loss would have been permitted by those sections and, for the purposes of this subsection only, that credit is deemed to be a net loss that arose on the last day of the income year in respect of which the credit was initially allowable.
(7) Where during any accounting period any controlled foreign company receives a taxable distribution and, in relation to any person with an income interest of 10% or greater under the rules in sections EX 14 to EX 17 in the controlled foreign company, that taxable distribution gives rise to attributed CFC income to which section EX 19 applies,—
- (a) no credit is allowed in respect of any tax paid in respect of that attributed CFC income unless the tax is substantially of the same nature as non-resident withholding tax imposed under the NRWT rules; and
- (b) the amount of the tax for which a credit is allowed must not exceed an amount calculated in accordance with the following formula:
  where—
  
  a is the tax which qualifies for a credit under paragraph (a)
  
  b is the amount of the taxable distribution, including the tax which qualifies for a credit under paragraph (a), derived by the controlled foreign company
  
  c is the total amount of the distribution, including the tax which qualifies for a credit under paragraph (a), derived by the controlled foreign company; and
- (c) the credit to which the person is entitled is calculated as the product of the income interest of the person in the controlled foreign company and the tax calculated in accordance with the formula in paragraph (b).
(10) For the purposes of this section, where and to the extent to which by virtue of any legislation of any country or territory which has similar intent and application to the provisions of the international tax rules any foreign company has paid income tax in respect of the income derived by any controlled foreign company, that income tax is deemed to have been paid by the controlled foreign company and not by the foreign company.
(11) Where, by virtue of the preceding provisions of this section,—
- (a) a credit has been allowed against the income tax liability of any person; and
- (b) that credit has not taken into account any refund or repayment of income tax received by the controlled foreign company in question, whether before or after that credit was allowed; and
- (c) the amount of that credit was in excess of the amount that would have been allowed if only the amount of the income tax not refunded or repaid to the controlled foreign company had been taken into account in calculating the credit,—
the amount of that excess—
- (d) must be applied to reduce the balance of the credits carried forward under subsection (4) in respect of that controlled foreign company; and
- (e) to the extent that the amount of the excess is not applied in accordance with paragraph (d) that excess is deemed to be income tax due and payable to the Commissioner on the 30th day after the date of the notice of assessment in which the credit is reflected or the date of the receipt by the controlled foreign company of that refund or repayment, whichever date is the later, and this Act and the Tax Administration Act 1994 apply accordingly.
Compare: 1994 No 164 s LC 4

Subsection (1) was substituted, as from 1 April 2006, by section 125(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2006–07 tax year.

Subsections (1B) and (1C) were inserted, as from 1 April 2006, by section 125(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2006–07 tax year.

LC 5 Group of companies CFC tax credits

(1) Where a company (in this section referred to as the primary company) has for any income year a credit in relation to an income interest in a controlled foreign company (referred to in this section as the taxpaying controlled foreign company) that is allowable under section LC 4 or has been carried forward to that income year in accordance with section LC 4 and that credit may not be utilised by the primary company in that income year in accordance with section LC 4(4), that credit may be set off against the income tax liability of another company (referred to in this section as the member company) for that income year in accordance with subsection (2) where the member company is, for the income year, a member of the same group of companies as the primary company to the extent that the credit does not exceed the amount that would be the member company's income tax liability if its only assessable income were the attributed CFC income derived in respect of that income year and is in respect of any controlled foreign company resident in the same country or territory as that in which the taxpaying controlled foreign company was resident in the accounting period in which was paid or was payable the income tax giving rise to the credit.
(2) A credit under subsection (1) may only be allowed against the income tax liability of the member company where that credit would be able to be allowed under section IG 2 were—
- (a) each reference in that section to a group of companies to be treated as if it were a reference to a wholly-owned group of companies; and
- (b) each reference in that section to the loss company to be treated as if it were a reference to the primary company; and
- (c) each reference in that section to a net loss of the loss company to be treated as if it were a reference to the credit allowed to the primary company; and
- (d) each reference in that section and section GC 4 to the offset of a net loss against net income to be treated as if it were a reference to allowance of the credit against the income tax liability; and
- (e) each reference in that section to the profit company to be treated as if it were a reference to the member company; and
- (f) each reference in that section to the net income of the profit company to be treated as if it were a reference to the income tax liability of the member company; and
- (g) each reference in that section (other than the references in subsection (9)) to sections IE 1 and IF 1 to be treated as if it were a reference to section LC 4; and
- (h) the reference in section IG 2(2)(f) to “any net loss which is available to the profit company under this section” to be treated as if it were a reference to “any other amount allowed to the member company under this section”; and
- (i) section IG 2(4), (5), and (10) to be treated as if omitted; and
- (j) the reference in section IG 2(8) to the “same group of companies for the purposes of section 191(5) and (7) of the Income Tax Act 1976” to be treated as if it were a reference to the “same specified group in accordance with section 191(4) of the Income Tax Act 1976”,—
and to the extent to which a credit has been so allowed to the member company, the credit may not be allowed to or carried forward by the primary company.
Compare: 1994 No 164 s LC 5

LC 8 CFC tax credits of amalgamating company

Where—
- (a) any amalgamating company ceases to exist on a qualifying amalgamation; and
- (b) the amalgamating company, in respect of a tax year, has a controlled foreign company tax credit; and
- (c) the tax credit has not, under section LC 4 or LC 5, been credited against the income tax liability of the amalgamating company or any other company in respect of any period prior to the amalgamation (including any part of the tax year in which the amalgamation takes place); and
- (d) under section LC 5, the credit could have been credited against income tax payable (if any) in respect of that part of the tax year of the relevant company which ends with the date of the amalgamation by each of the amalgamated company (unless it is a company incorporated only on the amalgamation) and any company which has, at any time before or during the tax year in respect of which the tax credit is credited under this section, amalgamated with the amalgamated company,—
the tax credit is treated as a tax credit of the amalgamated company and may be credited, under section LC 4, against the income tax liability of the amalgamated company in periods commencing on or after the amalgamation, but applying section LC 4 (in so far as its application is dependent upon the application of sections IE 1 and IF 1) as if, with respect to all times prior to the amalgamation, the amalgamated company did not separately exist and was instead the amalgamating company with the same holders of shares and options over shares each holding the same number and class of shares and options over shares as they held at the time in the amalgamating company.
Compare: 1994 No 164 s LC 8

LC 9 Ordering of CFC tax credits of amalgamated company

Where tax credits of 2 or more amalgamating companies are permitted under section LC 8 to be credited against the amalgamated company's income tax liability for a tax year, those tax credits must,—
- (a) if resulting from tax payable in 2 or more tax years, be credited in the same order as arising; and
- (b) if resulting from tax payable in the same tax year, be credited, so far as the tax extends,—
  - (i) in the order elected by the amalgamated company by notice to the Commissioner in such form as the Commissioner may allow; or
  - (ii) if no such election is made, on a pro rata basis.
Compare: 1994 No 164 s LC 9

LC 10 CFC tax credits of amalgamated company

Where—
- (a) an amalgamated company, in respect of a tax year prior to the tax year in which the amalgamation takes place, has a controlled foreign company tax credit; and
- (b) the tax credit has not, under section LC 4 or LC 5, been credited against the income tax liability of the amalgamated company or any other company in respect of any period prior to the amalgamation (including any part of the tax year in which the amalgamation takes place),—
the amalgamated company is entitled to carry forward the tax credit into the tax year in which the amalgamation takes place or any subsequent tax year only if—
- (c) the amalgamated company satisfies the relevant requirements of section LC 4; and
- (d) under section LC 5, the tax credit could have been credited against income tax liability (if any) in respect of that part of the tax year of the relevant company which ends with the date of the amalgamation by each amalgamating company.
Compare: 1994 No 164 s LC 10

LC 11 CFC tax credits of amalgamated company credited against income tax liability of another company

Where an amalgamated company is deemed under section LC 8 to have a controlled foreign company tax credit, in respect of an amalgamating company which ceased to exist on the amalgamation, for the purposes of determining whether the tax credit may be credited, under section LC 5, against the income tax liability of another company, that section is applied as if, with respect to all times prior to the amalgamation, the amalgamated company did not separately exist and was instead the amalgamating company with the same holders of shares and options over shares each holding the same number and class of shares and options over shares as they held at the time in the amalgamating company.

Compare: 1994 No 164 s LC 11

LC 12 CFC tax credits of company credited against income tax liability of amalgamated company

Where a company (referred to in this section as the credit company) has a controlled foreign company tax credit, in respect of a period which falls wholly or partly before an amalgamation, the tax credit may be credited under section LC 5 against the income tax liability of the amalgamated company if and only if the tax credit can be so credited, by applying the commonality of ownership and other tests contained in that section severally to the credit company and the amalgamated company in respect of each company which has in the course of or before the amalgamation amalgamated with the amalgamated company, as if, with respect to all times prior to the amalgamation, the amalgamated company did not separately exist and was instead that amalgamating company with the same holders of shares and options over shares each holding the same number and class of shares and options over shares as they held at the time in the amalgamating company.

Compare: 1994 No 164 s LC 12

LC 13 Information for credit to be furnished within 4 years

(1) A credit for foreign tax is not allowed unless, within 4 years after the end of the tax year in which arose the income tax liability of the taxpayer against which the credit is claimed, or within such further period, not exceeding 2 years, as the Commissioner allows in any case or class of cases, the taxpayer claiming the credit—
- (a) makes application in writing to the Commissioner for the credit; and
- (b) furnishes to the Commissioner all information necessary to determine the amount of the credit, including information relevant to the application of section LC 1(3A).
(2) If an entitlement to a refund or repayment of the foreign tax or another amount or a benefit referred to in section LC 1(3A) changes after their application is made, the taxpayer must furnish to the Commissioner all information relating to the change as soon as possible.

Compare: 1994 No 164 s LC 13

Miscellaneous provisions

LC 14 Ascertainment of New Zealand income tax liability

(1) Subject to subsections (2) and (3), the part of a taxpayer's income tax liability for a tax year that is treated as being in respect of assessable income of the taxpayer from a particular source or of a particular nature that is allocated to the tax year is an amount calculated in accordance with the following formula:
where—
- a is the total of the taxpayer's assessable income from that source or of that nature that is allocated to the tax year
- b is the total of the taxpayer's deductions that are allocated to the tax year and that are attributable to assessable income of the type referred to in item “a”
- c is the taxpayer's net income for the tax year
- d is the taxpayer's notional income tax liability for the tax year.
(2) If, for a tax year, the amount or the total of the amounts determined under subsection (1) exceeds the taxpayer's notional income tax liability for the tax year, the amount that is treated as being part of the taxpayer's income tax liability that is in respect of assessable income from a particular source or of a particular nature is the amount calculated in accordance with the following formula:
where—
- d has the same meaning as in subsection (1)
- e is the total of the amounts calculated under subsection (1) by the taxpayer for that tax year
- f is the amount calculated under subsection (1).
(3) If an amount calculated under subsection (1) is less than nil, the amount is deemed to be zero.
(4) For the purposes of this section, the notional income tax liability of a taxpayer for a tax year is the amount calculated in accordance with the following formula:
(g – h) × i

where—
- g is the taxpayer's net income
- h is the amount (if any) of net losses that the taxpayer has offset against the net income in accordance with subparts IE and IF
- i is the taxpayer's applicable basic tax rate.
Compare: 1994 No 164 s LC 14

Subsection (1), item b of the formula, was amended, as from 1 October 2005, by section 220 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “assessable income” for “counted income”.

LC 14A Source of dividends

If a company is not resident in New Zealand, and for the purposes of a law of another territory in relation to which a double tax agreement has been made is resident in that territory, and the law imposes foreign tax, a dividend paid by the company is treated as being derived from a source in that other territory for the purposes of the double tax agreement.

Compare: 1994 No 164 s LC 14A

LC 15 United Kingdom tax on dividends

[Repealed]

Section LC 15 was repealed, as from 1 April 2005, by section 70 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

LC 16 Foreign tax credits of consolidated group members

(1) Where any consolidated group has in respect of an income year a tax credit available for crediting under section LC 4(1) against the income tax liability of the consolidated group, no part of that credit is treated for the purposes of this Act as a tax credit available to any individual member company of that consolidated group.
(2) Where—
- (a) any company is a member of a consolidated group in an income year (in this subsection referred to as the specified year); and
- (b) the company is entitled under section LC 4 to carry forward to the specified year and credit (against an income tax liability for the specified year) any credit for income tax resulting from income tax payable in any preceding income year,—
that credit must, subject to subsections (3) and (4), be credited against the income tax liability (if any) of the consolidated group for the specified year (but must not exceed the amount that would be that consolidated group's income tax liability for the year if it had not derived any assessable income other than the attributed CFC income derived in respect of any controlled foreign company or companies resident in the relevant country or territory) and, only so far as it cannot be so credited, is eligible to be—
- (c) credited against the income tax liability of the company or any other consolidated group in the specified year; or
- (d) carried forward by the company in accordance with section LC 4 to any succeeding income year; or
- (e) treated for the purposes of section LC 5 as a credit of the company carried forward to the specified year, in which event that credit may be credited against the income tax liability of any other company (other than the consolidated group) subject to and in accordance with that section.
(3) Where tax credits available to a consolidated group or to 1 or more member companies of the group are permitted, under section LC 4, or required, under this section, to be credited against the income tax liability of a consolidated group, those credits are,—
- (a) if resulting from tax payable in 2 or more income years, credited in the same order as the tax was payable; and
- (b) if resulting from tax payable in the same income year, credited, so far as the income tax extends,—
  - (i) in the order elected by the consolidated group by notice to the Commissioner in such form as the Commissioner may allow; or
  - (ii) if no such election is made, on a pro rata basis.
(4) In any case where—
- (a) subsection (2) would, except to the extent of the application of this subsection, require the whole or part of any tax credit of any company, resulting from income tax payable by the company in any income year (in this subsection referred to as the preceding year), to be credited against the income tax liability of a consolidated group of companies in a subsequent income year (in this subsection referred to as the subsequent year); and
- (b) the company was not a member of the same group of companies, for the preceding year or any income year falling between the preceding year and the subsequent year, as any 1 or more companies which are members of the consolidated group in the subsequent year,—
the amount credited under subsection (2) against the income tax liability of the consolidated group in the subsequent year must not exceed the aggregate of—
- (c) the amount of the credit which could be credited by the company in the subsequent year under section LC 4 against its own income tax liability were it not in that subsequent year a member of a consolidated group of companies (its taxable income being nevertheless calculated in accordance with section HB 2(1)); and
- (d) the aggregate amount which could be credited against their own income tax liability (their taxable income being nevertheless calculated in accordance with section HB 2(1)) under section LC 5 by companies
(other than the company) which are members of the consolidated group in the subsequent year if—
- (i) neither the company nor those other companies were members of the consolidated group in the subsequent year; and
- (ii) the company were to take all necessary steps under section LC 5 to permit that crediting by the other companies under that section.
(5) In any case where—
- (a) subsection (2) would, except to the extent of application of this subsection and subsection (4), require the whole or part of any tax credit of any company resulting from income tax payable by the company in any income year (in this subsection referred to as the preceding year) to be credited against the income tax liability of a consolidated group of companies in a subsequent income year (in this subsection referred to as the subsequent year); and
- (b) the company was a member of the consolidated group for part only of the subsequent year,—
the amount of tax credit credited under subsection (2) against the income tax liability of the consolidated group in the subsequent year must not exceed the lesser of—
- (c) the excess (if any) of the amount of tax credit of the company for the preceding year required, but for the application of this subsection and subsection (4), to be credited against the income tax liability of the consolidated group in respect of the subsequent year over the aggregate of—
  - (i) any income tax liability of the company in the subsequent year in respect of any period prior to the company being a member of the consolidated group (calculated by applying the provisions of section FD 9(2)) against which income tax liability that tax credit would be able to be credited under this Act; and
  - (ii) any part of the tax credit required, under subsection (2), to be credited against the income tax liability for the subsequent year of another consolidated group of companies of which the company was a member during the subsequent year prior to the company being a member of the consolidated group; and
- (d) the amount (if any), as shown in adequate and sufficiently detailed accounts furnished to the Commissioner with the consolidated group's return of income for the income year, of the consolidated group's income tax liability for the income year (being the income tax liability against which that tax credit could be credited under this Act) as is reasonably and fairly allocable to the part of the income year during which the company was a member of the consolidated group.
Compare: 1994 No 164 s LC 16

Subpart LD—Credit for tax paid or withheld

LD 1 Tax deductions to be credited against tax assessed

LD 1B Tax deductions from certain accident compensation payments: credit allowed to caregiver [Not in force]

LD 2 Non-resident withholding tax: credit allowed

LD 3 Resident withholding tax payments to be credited against income tax assessed

LD 3A Maori authority credit to be credited against income tax assessed

LD 6 Allowance for provisional tax paid by agent

LD 7 Provisional tax to be credited against income tax liability

LD 8 Credit of tax for dividend withholding payment credit in hands of shareholder

LD 9 Refund to non-resident or exempt shareholders

LD 10 Credit for investor for tax paid by entity if portfolio investor allocated income not excluded income

LD 10B Credit for zero-rated portfolio investor for tax paid by entity in relation to portfolio investor allocated income

LD 11 Credit for investor for payment under section HL 21(5) by entity for portfolio investor exit period

LD 1 Tax deductions to be credited against tax assessed

(2) If, for a tax year, the Commissioner has received an employer monthly schedule showing tax deductions from source deduction payments in relation to an employee, the amount of the tax deductions must be credited successively against—
- (a) the income tax liability (if any) of the employee for the tax year:
- (b) the income tax liability (if any) of the employee that has not otherwise been satisfied for any tax year before that tax year:
- (c) the income tax liability (if any) of the employee that has not otherwise been satisfied for any tax year after that tax year and, if more than 1, in the order of those years:
- (d) the provisional tax (if any) that is due by the employee and unpaid for any tax year after that tax year and, if more than 1, in the order of those years,—
and the Commissioner must refund to the employee in accordance with section MD 1, and the Tax Administration Act 1994, an amount equal to the tax deductions not so credited.
(2AA) Subsection (2) does not apply to a non-filing taxpayer.
(2A) The amount credited or refunded must not exceed the amount of the tax deductions received by the Commissioner, if—
- (aa) the employee is employed by a close company; and
- (a) the employee and the employer are associated persons, or the spouse, civil union partner or de facto partner of the employee and the employer are associated persons; and
- (b) the amount of tax deductions from source deduction payments shown in the employer monthly schedule was deducted from source deduction payments made to the employee by the employer.
(3) If the amount credited under subsection (2)(b) is less than the income tax liability referred to in that subsection, the amount credited must be applied in satisfaction, so far as the amount extends, of the income tax liability.

(4) A tax deduction must not be credited against an income tax liability, nor must a tax deduction made in relation to an employee be refunded, if the Commissioner considers that a particular in an employer monthly schedule is incorrect.

(5) A tax deduction referred to in subsection (4) may be credited in satisfaction of an income tax liability or refunded when the Commissioner is satisfied the particulars received are correct.
(6) If a tax deduction relating to an employee is credited in satisfaction of an income tax liability or is refunded, and the amount credited or refunded—
- (a) exceeds the amount that the employer or a PAYE intermediary deducted from a source deduction payment, particulars of which are contained in an employer monthly schedule; or
- (b) exceeds the amount of the tax deductions received by the Commissioner, if subsection (2A) applies to the employee,—
the employer and the employee, or the PAYE intermediary and the employee, are jointly and severally liable to pay to the Commissioner the amount of the excess and that amount is deemed to be due and payable on the 31 May in the tax year after the tax year in which the tax deductions were made.
(7) Subsection (6) does not apply to a non-filing taxpayer who has provided the taxpayer's correct tax file number and correct tax code for a tax year.

Compare: 1994 No 164 s LD 1

Subsection (2) was amended, as from 3 April 2006, by section 126(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the words before para (a).

Subsection (2A) was amended, as from 3 April 2006, by section 126(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the words before para (a).

Subsection (2A)(aa) was inserted, as from 3 April 2006, by section 126(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (2A)(a) was amended, as from 26 April 2005, by section 3(1) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse or civil union partner” for the word “spouse”.

Subsection (2A)(a) was amended, as from 1 April 2007, by section 3(2) Income Tax Amendment Act 2005 (2005 No 11) by substituting “spouse, civil union partner or de facto partner” for “spouse or civil union partner”.

Subsection (6)(b) was substituted, as from 3 April 2006, by section 126(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

LD 1B Tax deductions from certain accident compensation payments: credit allowed to caregiver

LD 2 Non-resident withholding tax: credit allowed

There is allowed as a credit against the income tax liability of a person for a tax year an amount equal to the non-resident withholding tax (but not including any penalties) deducted from the non-resident withholding income of that person and paid to the Commissioner in respect of that non-resident withholding income.

Compare: 1994 No 164 s LD 2

LD 3 Resident withholding tax payments to be credited against income tax assessed

(1) Where a person derives an amount of resident withholding income other than a replacement payment, from which an amount has been deducted on account of resident withholding tax, the amount of resident withholding income, for the purposes of this Act, includes such amount deducted.

(1B) A portfolio tax rate entity is allowed under this section a credit of tax of no more than the extent allowed by subpart HL (Portfolio investment entities).

(1C) An investor in a portfolio tax rate entity is, to the extent allowed by subpart HL, allowed a credit of tax to which the entity's entitlement is restricted by subsection (1B).
(2) Subject to this section, where any resident withholding tax, not being a penalty, has been paid in relation to any amount of resident withholding income, not being a replacement payment made under a share-lending arrangement, derived by any person in any tax year, the amount of the resident withholding tax payment must be credited successively against—
- (a) the income tax liability (if any) of the person for that tax year; and
- (b) the income tax liability (if any) of the person that has not otherwise been satisfied for any tax year before that tax year; and
- (c) the income tax liability (if any) of the person that has not otherwise been satisfied for any tax year after that tax year and, if more than 1, in the order of those years; and
- (d) the provisional tax (if any) that is due by the person and unpaid for any tax year after that tax year and, if more than 1, in the order of those years,—
and the Commissioner must refund to the person an amount equal to the excess of the resident withholding tax payments over the amounts which are so credited in accordance with section MD 1, and the Tax Administration Act 1994, as if it were tax paid in excess.
(3) Any credit of tax to which a person is entitled under this section must be credited, so far as it extends, after allowing for any credit of tax allowable in accordance with sections LB 2 and LC 1 and subpart LE.
(4) A credit of tax is not allowed and a refund must not be paid under subsection (2) in relation to resident withholding tax deducted, unless the Commissioner has received—
- (a) the resident withholding tax deduction certificate relating to that resident withholding tax or other evidence in writing satisfactory to the Commissioner evidencing the deduction; and
- (b) such other information as the Commissioner may require.
(5) Where the Commissioner is satisfied that the amount of any tax credit or refund claimed in accordance with this section is in excess of the amount properly allowable in accordance with this section, the Commissioner may disallow the credit or refuse to make the refund to the extent of the excess.

(7) For the purposes of giving effect to this section, the Commissioner may at any time amend any assessment or any determination, notwithstanding the time bar.

Compare: 1994 No 164 s LD 3

The heading to section LD 3 was amended, as from 1 October 2005, by section 71(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “payments” for the word “deductions” with application as from the 2005–06 income year.

Subsection (1) was amended, as from 1 July 2006, by section 128(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “other than a replacement payment,” after the words “Where a person derives an amount of resident withholding income”.

Section LD 3(1B): inserted, on 1 October 2007, by section 115 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section LD 3(1C): inserted, on 1 October 2007, by section 115 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Subsection (2) (before paragraph (a)) was amended, as from 1 October 2005, by section 71(2)(a) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “paid in relation to” for “deducted from” with application as from the 2005–06 income year.

Subsection (2) (before paragraph (a)) was amended, as from 1 October 2005, by section 71(2)(b) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “payment” for the word “deduction” with application as from the 2005–06 income year.

Subsection (2) (after paragraph (d)) was amended, as from 1 October 2005, by section 71(3) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “payments” for the word “deducted” with application as from the 2005–06 income year.

Subsection (2) was amended, as from 1 July 2006, by section 128(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “, not being a replacement payment made under a share-lending arrangement,” after the words “any amount of resident with-holding income”.

LD 3A Maori authority credit to be credited against income tax assessed

(1) If a person for a tax year derives a taxable Maori authority distribution, whether as income or as exempt income under section CW 34 or CW 35, the person is, subject to section LB 1, allowed a credit of tax for an amount equal to the Maori authority credit attached to the distribution.
(2) The credit of tax must be credited successively against—
- (a) the person's income tax liability for the tax year; and
- (b) the person's income tax liability that has not otherwise been satisfied for any year before the tax year; and
- (c) the person's income tax liability that has not otherwise been satisfied for any year after the tax year and, if more than 1, in the order of those years; and
- (d) the provisional tax that is due by the person and unpaid for any tax year after the tax year and, if more than 1, in the order of those years.
(3) If the credit of tax under subsection (1) exceeds the total of the amounts referred to by subsection (2)(a) to (d), the Commissioner must refund to the person, under section MD 1 and under the Tax Administration Act 1994, the amount of the surplus as if it were tax paid in excess.

(4) A credit of tax to which a person is entitled under this section must be credited so far as it extends, after allowing for any credit of tax allowable in accordance with sections LB 2 and LC 1, and subpart LE.
(5) A credit of tax is not allowed and a refund must not be paid under subsection (3), unless the Commissioner has received—
- (a) the Maori authority distribution statement relating to the Maori authority credit or other evidence in writing evidencing the deduction that is satisfactory to the Commissioner; and
- (b) such other information as the Commissioner may require.
(6) If the Commissioner is satisfied that the amount of a credit of tax or refund claimed under this section is in excess of the proper amount, the Commissioner may refuse to allow the credit of tax or refund to the extent of the excess.

(7) For the purpose of giving effect to this section, the Commissioner may at any time amend any assessment or any determination, despite the time bar.

Compare: 1994 No 164 s LD 3B

LD 6 Allowance for provisional tax paid by agent

Where an agent is liable to pay any amount of provisional tax on behalf of the agent's principal, any amount paid by the agent is credited against the principal's account on the date on which that payment is made.

Compare: 1994 No 164 s LD 6

LD 7 Provisional tax to be credited against income tax liability

The provisional tax paid by a taxpayer for a tax year is credited against the taxpayer's income tax liability for that year.

Compare: 1994 No 164 s LD 7

LD 8 Credit of tax for dividend withholding payment credit in hands of shareholder

(1) Where the assessable income of a taxpayer for an income year includes any dividend withholding payment credit, then, subject to this section and section LB 1,—
- (a) the taxpayer is entitled to a credit of tax equal to the dividend withholding payment credit so included in assessable income; and
- (b) the credit of tax is credited, so far as it extends, against the taxpayer's income tax liability for the income year; and
- (c) to the extent that the credit of tax is not so credited, the excess is refundable to the taxpayer in accordance with section MD 1, and the Tax Administration Act 1994, as if it were tax paid in excess.
(1B) A taxpayer that is a portfolio tax rate entity is entitled under this section to a credit of tax of no more than the extent allowed by subpart HL (Portfolio investment entities).

(1C) A taxpayer that is an investor in a portfolio tax rate entity is, to the extent allowed by subpart HL, entitled to a credit of tax to which the entity's entitlement is restricted by subsection (1B).

(1B) A taxpayer who receives a dividend withholding payment credit is not entitled under subsection (1) to a credit of tax if they issue a credit transfer notice in respect of the dividend withholding payment credit.

(1C) A taxpayer who is issued with a credit transfer notice is entitled under subsection (1) to a credit of tax equal to the amount of dividend withholding payment credit shown in the notice.

(2) Any credit of tax to which a taxpayer is entitled under this section is credited after allowing for any credit of tax allowable in accordance with sections LB 2, LC 1, and LD 3.

(3) A credit of tax is not allowed under this section unless the taxpayer furnishes the shareholder dividend statement, or other sufficient evidence in writing, evidencing the dividend withholding payment credit giving rise to the credit of tax.
(4) Subject to subsection (5), where the Commissioner is satisfied that it would be inappropriate for a taxpayer to be allowed a credit of tax under this section by reason of the taxpayer receiving any dividend withholding payment credit in respect of which no dividend withholding payment or further dividend withholding payment has been paid by the company that issued the dividend withholding payment credit,—
- (a) the taxpayer is not allowed the credit of tax to the extent the Commissioner is so satisfied:
- (b) any such disallowance is in such a manner as the Commissioner considers fair and reasonable.
(5) A credit of tax previously disallowed under subsection (4) is allowed to the extent the Commissioner is satisfied that sufficient dividend withholding payment or further dividend withholding payment has subsequently been paid by or on behalf of the company.

(6) Where the Commissioner is satisfied that the amount of any credit of tax claimed under this section is in excess of the proper amount, the credit of tax is not allowed to the extent of the excess.

(9) For the purposes of giving effect to this section, the Commissioner may at any time amend any assessment or any determination, notwithstanding the time bar.

Compare: 1994 No 164 s LD 8

First section LD 8(1B): inserted, on 1 October 2007, by section 116 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

First section LD 8(1C): inserted, on 1 October 2007, by section 116 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Subsections (1B) and (1C) were inserted, as from 1 July 2006, by section 129 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

LD 9 Refund to non-resident or exempt shareholders

(1) Where a dividend with a dividend withholding payment credit attached is paid to a shareholder of a company (being a company resident in New Zealand) who is—
- (a) a person who is not resident in New Zealand; or
- (b) a person who is resident in New Zealand and for whom the dividend is exempt income otherwise than by virtue of sections CW 9 to CW 11,—
the Commissioner must, except as otherwise provided in this section, pay to the shareholder by way of a refund of dividend withholding payment credit an amount equal to the amount of the dividend withholding payment credit.
(1B) The Commissioner must, except as otherwise provided in this section, pay to a person by way of a refund of dividend withholding payment credit an amount equal to the amount of the dividend withholding payment credit shown in a credit transfer notice issued to the person if—
- (a) the person is not resident in New Zealand:
- (b) [Repealed]
(2) The amount of any refund payable under this section to a shareholder in respect of a dividend withholding payment credit—
- (a) must not exceed the amount of the dividend withholding payment credit that would be included in that assessable income in accordance with section CD 9 or LB 1:
- (b) must be reduced by any amount of the dividend withholding payment credit that is applied in accordance with section NG 2(2) to reduce an amount of non-resident withholding tax:
- (c) in the case of an amount of the dividend withholding payment credit shown in a credit transfer notice, must be reduced by any amount of dividend withholding payment credit applied in accordance with section NG 2(2) to reduce an amount of non-resident withholding tax in respect of the dividend to which the credit transfer notice relates.
(3) A shareholder who becomes entitled to a refund under this section must make application for the refund, in a form authorised by the Commissioner, no earlier than the 31 May that follows the end of the imputation year during which the dividend with the credit attached was paid to the shareholder.

(4) The Commissioner may not pay a refund under this section unless the Commissioner receives the shareholder dividend statement, or such other evidence as the Commissioner considers necessary, evidencing the dividend withholding payment credit giving rise to the refund of dividend withholding payment.

Compare: 1994 No 164 s LD 9

Subsection (1B) was inserted, as from 1 July 2006, by section 130(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (1B)(b) was repealed, as from 1 July 2006, by section 117 Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Subsection (2)(b) was amended, as from 1 July 2006, by section 130(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “tax:” for “tax.”.

Subsection (2)(c) was inserted, as from 1 July 2006, by section 130(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

LD 10 Credit for investor for tax paid by entity if portfolio investor allocated income not excluded income

(1) This section applies for a taxpayer and a tax year if the taxpayer has for the tax year portfolio investor allocated income from a portfolio tax rate entity that—
- (a) is not excluded income of the taxpayer; and
- (b) would be excluded income of the taxpayer in the absence of section CX 44D(1)(b) (Portfolio investor allocated income and distributions of income by portfolio tax rate entities).
(2) The taxpayer is entitled to a credit of tax against the taxpayer's income tax liability for the tax year equal to the amount of income tax paid by the portfolio tax rate entity in relation to the portfolio investor allocated income referred to in subsection (1).

Section LD 10: added, on 1 October 2007, by section 118 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section LD 10(2): substituted, on 1 October 2007, by section 40 of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

LD 10B Credit for zero-rated portfolio investor for tax paid by entity in relation to portfolio investor allocated income

(1) This section applies for a taxpayer and a tax year if the taxpayer is a zero-rated portfolio investor and has for the tax year portfolio investor allocated income from a portfolio tax rate entity that pays income tax in relation to the portfolio investor allocated income.

(2) The taxpayer is entitled to a credit of tax against the taxpayer's income tax liability for the tax year equal to the amount of income tax paid by the portfolio tax rate entity in relation to the portfolio investor allocated income referred to in subsection (1).

Section LD 10B: inserted, on 1 October 2007, by section 41 of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

LD 11 Credit for investor for payment under section HL 21(5) by entity for portfolio investor exit period

(1) This section applies for a taxpayer and a tax year if—
- (a) the taxpayer has for the tax year portfolio investor allocated income from a portfolio tax rate entity for a portfolio investor exit period; and
- (b) the entity makes a payment under section HL 21(5) (Payments of tax by portfolio tax rate entity making no election) to the Commissioner after the portfolio investor exit period.
(2) The taxpayer is entitled to a credit of tax against the taxpayer's income tax liability for the tax year equal to the amount of the payment by the entity under section HL 21(5).

Section LD 11: added, on 1 October 2007, by section 118 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section LD 11(2): substituted, on 1 October 2007, by section 42 of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Subpart LE—Non-resident investors

LE 1 Purpose of subpart

LE 2 Credits in respect of dividends to non-resident investors

LE 3 Special rules for holding companies

LE 4 Allocation of deductions by section LE 3 holding company

LE 1 Purpose of subpart

Subject always to its express provisions, the purpose of this subpart is to allow a company that pays to a non-resident investor a dividend with an imputation credit attached, and a supplementary dividend to the same investor, a credit of tax calculated by reference to the imputation credit which is equal to and sufficient to fund the supplementary dividend.

Compare: 1994 No 164 s LE 1

LE 2 Credits in respect of dividends to non-resident investors

(1) This section applies if a company resident in New Zealand pays in an income year with respect to its own shares—
- (a) a dividend (referred to in this section as the dividend); and
- (b) a single supplementary dividend with respect to the dividend—
derived by a person not resident in New Zealand.
(2) The company is entitled to a credit against its income tax liability calculated under the following formula:
where—
- IC is the imputation credit (if any, and calculated having regard to subsections (9) and (10)) attached to the dividend.
(2A) A section LE 3 holding company may elect to reduce the amount of credit applied against its income tax liability under subsection (2) to an amount that is not less than the amount of supplementary dividends derived in that income year.
(3) If a part of the tax credit cannot be credited under subsection (2) against the company's income tax liability for the income year in which the supplementary dividend was paid, or if the amount credited is reduced under subsection (2A), the company may—
- (a) elect under subsection (4) that the excess credit be set off against any other income tax liability of the company or an income tax liability of another company; and
- (b) if and to the extent that the excess credit cannot be set off against an income tax liability as a result of an election under subsection (4), carry forward the excess credit under subsection (5) to a later income year.
(4) If any part of the tax credit cannot be set off under subsection (2) against the company's income tax liability and the company so elects, by notice to the Commissioner with the company's return of income for the income year, the excess credit (so far as it extends) must be set off against the income tax liability,—
- (a) for the income year in which the supplementary dividend is paid, of any other company that is for that income year (or, in any case where 1 of the companies exists for part only of the income year, at all times in the income year at which the 2 companies both exist) in the same wholly-owned group of companies as the company; or
- (b) for any of the 4 income years immediately preceding the income year in which the supplementary dividend is paid (being in each case the 1993-94 income year or a subsequent income year), of—
  - (i) the company; or
  - (ii) any other company which is, for both the income year in which the supplementary dividend is paid and the relevant preceding income year (or, in any case where 1 of the companies exists for part only of the relevant income year, at all times in the relevant income year at which the 2 companies both exist) in the same wholly-owned group of companies as the company.
(5) A company which has an excess credit for an income year (referred to in this section as the original income year) may carry the excess credit forward to the succeeding or a later income year (referred to in this section as the year of carry forward) if and only if there is a group of persons,—
- (a) the aggregate of whose minimum voting interests in the company in the period from the beginning of the original income year to the end of the year of carry forward (in this subsection referred to as the continuity period) is equal to or greater than 49%; and
- (b) in any case where at any time during the continuity period a market value circumstance exists in respect of the company, the aggregate of whose minimum market value interests in the company in the continuity period is equal to or greater than 49%,—
and, for the purposes of this subsection, the minimum voting interest or minimum market value interest, as the case may be, of any person in the company in the continuity period is equal to the lowest voting interest or market value interest, as the case may be, in the company that that person has during the continuity period.
(6) If a company has carried forward any excess credit to a year of carry forward, the excess credit is to be set off in the first instance against the income tax liability of the company for the year of carry forward, to the extent that the credit does not exceed the income tax liability for that year after allowing for any credit under section LC 1.

(7) If any part of the excess credit cannot be set off under subsection (6) against the company's income tax liability for the year of carry forward, and the company so elects by notice to the Commissioner with the company's return of income for the year of carry forward, the excess credit is to be set off against the income tax liability for the year of carry forward of any other company that is in the same wholly-owned group of companies as the company for both the year of carry forward and the original income year (or, in any case where 1 of the companies exists for part only of the relevant income year, at all times in the relevant income year at which the 2 companies both exist).

(8) If and to the extent that an excess credit is set off against an income tax liability under subsection (4) or (6) or (7), the excess credit ceases to be available otherwise to be carried forward or credited under this section.

(9) The benchmark dividend provisions of sections ME 8 and MG 8 and the provisions of section GC 22 apply as if the company had never paid the supplementary dividend.

(10) The maximum imputation credit ratio and benchmark dividend provisions of section ME 8 and the provisions of section GC 22 apply as if the imputation credit attached to the dividend were increased by an amount equal to the tax credit calculated with respect to the dividend under subsection (2).
(11) If the company pays such a supplementary dividend with respect to all shares of the relevant class held by persons not resident in New Zealand, the payment of the supplementary dividend with respect only to certain shares of that class is not to be treated as contravening—
- (a) any provision of the Companies Act 1955 or section 53 of the Companies Act 1993; or
- (b) any provision of the company's articles of association or constitution (not being a provision which expressly refers to this subsection); or
- (c) any rule of law—
that would otherwise prohibit the payment by the company at the time of dividends of different amounts in relation to shares of the class.
(12) If a trustee derives the dividend and is required under the terms of the trust to distribute it as beneficiary income to a beneficiary, the distribution by the trustee of the supplementary dividend to the same beneficiary is not to be treated as contravening any term of the trust.

Compare: 1994 No 164 s LE 2

LE 3 Special rules for holding companies

(1) Subsections (4) to (10) apply if a company (referred to in this section as the company) resident in New Zealand pays in any income year with respect to its own shares—
- (a) a dividend (referred to in this section as the dividend); and
- (b) a single supplementary dividend with respect to the dividend—
derived by a section LE 3 holding company.
(2) A section LE 3 holding company is a company resident in New Zealand which—
- (a) has given a notice to the company before the dividend is paid advising the company that it is a section LE 3 holding company; and
- (b) has not revoked that notice before the dividend is paid.
(3) A notice given under subsection (2)(a) is treated as having been revoked by the company which gave it (referred to in this section as the former section LE 3 holding company), and the former section LE 3 holding company must give notice to the company of the revocation as soon as is practicable, if—
- (a) more than 7 years have passed since the end of the income year in which the notice was given; or
- (b) the former section LE 3 holding company elects to revoke the notice; or
- (c) the former section LE 3 holding company does not have the purpose, in keeping the notice in existence, of enabling, directly or indirectly, the payment of a supplementary dividend to a person not resident in New Zealand; or
- (d) the only persons holding voting interests in the former section LE 3 holding company are residents of New Zealand; or
- (e) dividends derived by the former section LE 3 holding company are excluded income or are exempt income other than under any of sections CW 9 to CW 11.
(4) Section LE 2 applies, with respect to the dividend and the supplementary dividend, as if the section LE 3 holding company were not resident in New Zealand.
(5) Notwithstanding subsection (4) and section LE 2, if—
- (a) the section LE 3 holding company and the company are associated persons (as defined in section OD 8(3) but as if each reference in that provision to “50% or more” instead read “more than 50%”); and
- (b) because the section LE 3 holding company has an earlier income tax balance date than the company, the dividend is derived by the section LE 3 holding company in a later income year than the income year of the company in which the company pays the dividend,—
the provisions of section LE 2 allowing the company a tax credit apply as if the income year in which the company pays the dividend were the later income year.
(6) Where section CW 10 would otherwise apply to the dividend, the dividend is exempt income under that section only to the extent to which it exceeds the amount calculated under the following formula:
where—
- IC is the amount of imputation credit attached to the dividend
- SD is the amount of the supplementary dividend
- T is the basic rate of income tax for companies, expressed as a percentage, stated in schedule 1, part A, clause 5, and applying in respect of the income year—
and the imputation credit is deemed, for the purposes of section LB 2, to be included in the part of the dividend that is assessable income.
(7) The dividend is ignored for the purposes of the RWT rules to the extent to which it does not exceed the amount calculated under the formula in subsection (6) and the imputation credit is deemed to be included in the part ignored.

(8) The supplementary dividend is not exempt income under section CW 10.

(9) The supplementary dividend is ignored for the purposes of the RWT rules.
(10) If in an income year a section LE 3 holding company derives a supplementary dividend,—
- (a) the maximum amount of net losses that the company may offset against its net income for the income year is the amount calculated under section IF 7(1); and
- (b) the maximum aggregate amount of deductions that the company may allocate to the income year is the amount calculated in accordance with the formula in section LE 4(2).
(11) If a section LE 3 holding company is a member of a consolidated group, this section does not apply to a dividend received by the section LE 3 holding company from a member of the consolidated group.

Compare: 1994 No 164 s LE 3

Subsection (3)(e) was amended, as from 1 April 2005, by section 72 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “are exempt income other than” for “are exempt income” with application as from the 2005–06 income year.

LE 4 Allocation of deductions by section LE 3 holding company

(1) This section applies when a person is a section LE 3 holding company and derives a supplementary dividend in an income year.

(2) The maximum total amount of deductions of the person that may be allocated to the income year is the amount calculated using the formula—
(3) In the formula,—
- income is the person's income
- non-refundable credits is the total amount of non-refundable credits that are available under this Part to be set off against the person's income tax liability
- convertible credits is the total amount of convertible credits that are available under this Part to be set off against the person's income tax liability
- supplementary dividends is the total amount of supplementary dividends derived by the person in the income year
- applicable tax rate is the applicable basic tax rate.
(4) If subsection (2) prevents an amount from being allocated to an income year, the section LE 3 holding company may offset or carry forward the amount under subsection (5) and under no other provision of this Act.
(5) If subsection (2) prevents an amount from being allocated to an income year, the section LE 3 holding company may—
- (a) carry forward to a later income year under subparts IE and IF some or all of the amount as an available net loss; or
- (b) offset under subpart IG or IH some or all of the amount as a net loss against the net income of another company for the income year.
(6) This section does not affect the calculation under this subpart of the non-refundable credits and convertible credits of a section LE 3 holding company.

Compare: 1994 No 164 s EQ 1

Subpart LF—Underlying foreign tax credits

LF 1 Underlying foreign tax credits generally, and interpretation

LF 2 Granting of underlying foreign tax credit

LF 3 Amount of underlying foreign tax credit

LF 4 Dividends from lower-tier companies

LF 5 Dividends from grey list companies

LF 6 Procedures with respect to underlying foreign tax credit

LF 7 Interest paid in conduit financing arrangements

LF 1 Underlying foreign tax credits generally, and interpretation

(1) This subpart, taken in conjunction with section NH 2,—
- (a) allows in certain circumstances a company resident in New Zealand to claim a credit against a liability to pay a dividend withholding payment in respect of a foreign withholding payment dividend paid by a foreign company; and
- (ab) provides that the amount of the credit, in general terms, be calculated to reflect a proportionate share of the New Zealand and foreign income tax paid, or deemed to be paid,—
  - (i) on the income of the foreign company that gives rise to the foreign withholding payment dividend; and
  - (ii) by the company, the foreign company, or another company directly or indirectly funding the foreign withholding payment dividend; and
- (b) provides for the entitlement to the credit to arise where, in general terms,—
  - (i) the company that is resident in New Zealand and is liable to pay the dividend withholding payment has at least a 10% interest in the company paying the income tax in respect of which the credit arises, at the time the income tax was paid; and
  - (ii) the company can provide to the Commissioner sufficient details to enable accurate calculation of the credit entitlement.
(2) A person has a sufficient interest in a company at any time only where—
- (a) the person has at the time—
  - (i) a voting interest of 10% or greater in the company (determined as if paragraphs (a) to (c) of the definition of shareholder decision-making rights did not apply and section OD 3(3)(d) did not apply to deem any voting interest held or deemed to be held by the person to be held by any other person); and
  - (ii) in any case where at the time a market value circumstance exists in respect of the company, a market value interest of 10% or greater in the company (determined as if section OD 4(3)(d) did not apply to deem any market value interest held or deemed to be held by the person to be held by any other person)—
  and, if the time is on or after 1 April 1993, the company is, at the time, either—
  - (iii) a branch equivalent company; or
  - (iv) a grey list company; or
  - (v) a company resident in New Zealand that is not a company that, under a double tax agreement, is treated as not being resident in New Zealand for the purposes of the double tax agreement; or
- (b) in any case where the time is on or after 1 April 1988,—
  - (i) the person has at the time an income interest of 10% or greater under the rules in sections EX 14 to EX 17 in the company; and
  - (ii) the company is at the time a controlled foreign company.
Compare: 1994 No 164 s LF 1

Subsection (1)(a) was substituted, as from 1 April 2006, by section 131 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (1)(ab) was inserted, as from 1 April 2006, by section 131 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

LF 2 Granting of underlying foreign tax credit

(1) Where a taxpayer derives at any time a foreign withholding payment dividend from a company, the amount of underlying foreign tax credit arising with respect to the dividend is,—
- (a) where—
  - (i) subsection (2) does not apply with respect to the dividend; and
  - (ii) at the time either—
    - (A) the company is not a grey list company; or
    - (B) the company is a grey list company and section LF 5(1) does not apply with respect to the dividend,—
  the amount determined by section LF 3; and
- (b) where—
  - (i) subsection (2) does not apply with respect to the dividend; and
  - (ii) at the time the company is a grey list company and section LF 5(1) applies with respect to the dividend,—
  the amount determined by section LF 5; and
- (c) where subsection (2) applies with respect to the dividend, nil.
(2) The underlying foreign tax credit arising with respect to a foreign withholding payment dividend derived by a taxpayer at any time from a company is nil—
- (a) in any case where, at the time, the taxpayer is a qualifying company; or
- (b) if, at the time, the taxpayer does not have a sufficient interest in the company; or
- (c) where the share in respect of which the dividend is paid (or, in the case of any dividend being attributed repatriation, any share taken into account in calculating the income interest giving rise to the attributed repatriation) is a fixed rate share; or
- (d) where the company is allowed a deduction, in respect of the payment of the dividend, in calculating its liability to income tax in any country or territory outside New Zealand; or
- (db) if the company, as a result of the payment of the dividend, is liable to pay no income tax in relation to an amount, or part of an amount, from which the dividend is sourced; or
- (e) where—
  - (i) the dividend is sourced, directly or indirectly, out of an amount derived by the company from another company; and
  - (ii) the company was not liable to income tax in any country or territory outside New Zealand in respect of that amount; and
  - (iii) the other company is allowed a deduction, in respect of the payment of the amount, in calculating its liability to income tax in any country or territory outside New Zealand.
(3) In this section, fixed rate share means—
- (a) any share where the dividend payable in respect of the share is payable at a rate which is—
  - (i) a specific fixed percentage of the amount subscribed in respect of the issue of the share; or
  - (ii) a percentage of the amount subscribed in respect of the issue of the share which is determined by a fixed relationship to economic, commodity, industrial, or financial indices, or to banking rates or general commercial rates of interest; or
  - (iii) a percentage that would be of a kind referred to in subparagraph (i) or (ii) but for any variation in the rate of dividend that may occur only—
    - (A) by a fixed relationship to a rate of income tax; or
    - (B) as may be necessary to compensate the shareholder for any default on the part of the paying company or any expenditure or loss suffered by the shareholder (or a person associated with the shareholder) in respect of the holding of the share,—
  or due to a combination of those 2 factors; or
- (b) any share where, having regard to—
  - (i) whether or not the share is redeemable; and
  - (ii) any security provided to the shareholder, including any option to require the purchase or sale of the share, and any amount payable determined by reference to the amount of dividends payable; and
  - (iii) the variability or lack of variability of the dividend payable,—
the payment of dividends in respect of the share is equivalent to the payment of interest in respect of money lent.
Compare: 1994 No 164 s LF 2

Subsection (2)(db) was inserted, as from 1 October 2005, by section 221 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

LF 3 Amount of underlying foreign tax credit

(1) The amount of underlying foreign tax credit arising with respect to a foreign withholding payment dividend derived by a taxpayer from a company during an accounting year is the greater of nil and the amount calculated in accordance with the following formula:
where—
- a is the amount of the foreign withholding payment dividend (before deduction of any withholding tax and without any reduction under section CD 10C)
- b is the aggregate amount of income tax paid or payable on the income of the company with respect to all eligible accounting years (not being income tax deemed paid under section LF 4)
- c is the aggregate amount of income tax deemed under section LF 4 to be paid by the company in all eligible accounting years with respect to dividends derived from lower tier companies
- d is the aggregate of all underlying foreign tax credit amounts, determined under section LF 2, with respect to all dividends paid by the company during an eligible accounting year (not including the current year), calculated as if,—
  
  (a) in the case of any dividend not derived by the taxpayer, the dividend were derived by the taxpayer at a time when the taxpayer had a sufficient interest in the company; and
  
  (b) in the case of any dividend derived before 28 September 1993, as if this section applied at the time the dividend was derived
- e is the aggregate amount of underlying foreign tax credit amounts with respect to all dividends paid by the company during the current year, being dividends to which section LF 5(1) applies, calculated as if, in the case of any dividend paid during the current year which was not derived by the taxpayer, the dividend were derived by the taxpayer at a time when the taxpayer had a sufficient interest in the company
- f is equal to the greater of—
  
  (a) the aggregate amount of after-income tax earnings (less after-income tax losses) of the company with respect to all eligible accounting years; or
  
  (b) the aggregate of—
  
  (i) all dividends paid by the company during the accounting year other than dividends included in item “h”; and
  
  (ii) the amounts of items “g” and “h”
- g is the aggregate amount of dividends paid by the company during an eligible accounting year (not including the current year)
- h is the aggregate amount of dividends paid by the company during the current year which—
  
  (a) are dividends to which section LF 2(2) or LF 5(1) applies; or
  
  (b) in the case of any dividends not derived by the taxpayer, would be dividends to which section LF 2(2) or LF 5(1) would apply if derived by the taxpayer.
(2) Where—
- (a) an amount of underlying foreign tax credit is being calculated under subsection (1) with respect to any dividend paid by a company during an accounting year; and
- (b) the financial statements of the company for the accounting year are prepared in a currency other than New Zealand currency,—
the calculation of the amount of underlying foreign tax credit must be undertaken in the foreign currency and converted to New Zealand currency at the close of trading spot exchange rate for the day on which the dividend is paid.
Compare: 1994 No 164 s LF 3

Subsection (1) item a was amended, as from 1 April 2006, by section 132(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting “and without any reduction under section CD 10B” after the words “withholding tax”.

Subsection (1) item a was amended, as from 1 April 2006, by section 119 Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “section CD 10C” for “section CD 10B”.

Subsection (1) item b was amended, as from 1 April 2006, by section 132(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “on the income of the company” for “by the company”.

LF 4 Dividends from lower-tier companies

(1) For the purposes of section LF 3 with respect to the calculation of an amount of underlying foreign tax credit in respect of a foreign withholding payment dividend derived by a taxpayer, where—
- (a) a company pays a standard dividend to another company; and
- (b) at the time the dividend is paid, the taxpayer has a sufficient interest in both companies,—
the other company is deemed to have paid (in addition to any actual tax paid or payable), with respect to its earnings in its accounting year in which the dividend is derived, income tax equal to the amount of underlying foreign tax credit determined under section LF 2 with respect to the dividend as if—
- (c) the other company were the taxpayer; and
- (d) the dividend were a foreign withholding payment dividend to which section LF 2 applies; and
- (e) the only dividends paid by the company paying the standard dividend were those of its dividends which are standard dividends; and
- (f) all such standard dividends were foreign withholding payment dividends to which section LF 2 applies.
(2) Notwithstanding subsection (1), the income tax deemed paid must not exceed the amount (being not less than nil) calculated in accordance with the following formula:
((a + b + c) x d) – c

where—
- a is the amount of the dividend (after deduction of any withholding tax paid in respect of the dividend)
- b is the amount of underlying foreign tax credit referred to in subsection (1)
- c is the withholding tax paid in respect of the dividend
- d is the basic rate of income tax for companies, expressed as a percentage, stated in schedule 1, part A, clause 5, and applying in respect of the tax year in which the dividend is paid.
(3) Notwithstanding any provision of section LF 3 or the preceding provisions of this section, the amount of underlying foreign tax credit arising with respect to a foreign withholding payment dividend, including the notional credit calculated under the concluding phrase and 4 paragraphs of subsection (1), paid by a company resident in New Zealand which has ever been an imputation credit account company must not exceed the imputation credit attached to the dividend and is nil if no imputation credit is attached.

Compare: 1994 No 164 s LF 4

LF 5 Dividends from grey list companies

(1) Where—
- (a) a taxpayer derives a foreign withholding payment dividend from a grey list company; and
- (b) for all eligible accounting years, a country or territory specified in schedule 3, part A—
  - (i) is the residence of the company under section OE 2(3) to (6) and imposes on the company liability for income tax on the company's income because the company is domiciled in the country, is resident in the country, is incorporated in the country, or has its place of management in the country:
  - (ii) is the country under whose laws the company is organised and imposes on persons holding income interests in the company a liability for income tax on the company's income and is the source of 80% or more of the company's income; and
- (c) for all eligible accounting years, the income of the company that is liable to income tax in the country or territory is calculated without applying any features of the taxation law of the country or territory that are specified in schedule 3, part B (except where and to the extent that the feature is that specified in schedule 3, part B, clause 1 and the exemption is in respect of business activities carried on in a country or territory specified in schedule 3, part A); and
- (d) the company is either—
  - (i) at all times during the period commencing with—
    - (A) the first day of the third accounting year of the company preceding the first accounting year in which the taxpayer had a sufficient interest in the company; or
    - (B) the date of incorporation of the company, where the taxpayer had a sufficient interest in the company when it was first incorporated or first acquired a sufficient interest in the company less than 3 years after the date of incorporation of the company,—
    and ending with the time at which the dividend is paid, a foreign company; or
  - (ii) at the time the dividend is paid, a member of the same wholly-owned group of companies as the taxpayer; and
- (e) the taxpayer has maintained, with respect to transactions occurring on or after the latest of—
  - (i) 20 October 1992; and
  - (ii) the first day of the first eligible accounting year; and
  - (iii) the first day of such eligible accounting year as the taxpayer elects,—
  (such latest date being referred to in subsection (2) as the effective date) and can furnish to the Commissioner, if requested, the tracking account required under subsection (2) in order to determine the extent of the application of this subsection to the dividend,—
the amount of the underlying tax credit arising with respect to the dividend is equal to the amount calculated in accordance with the following formula:
where—
- a is the amount of the dividend (before deduction of any withholding tax)
- b is the basic rate of income tax for companies, expressed as a percentage, stated in schedule 1, part A, clause 5, and applying in respect of the tax year in which the dividend is paid.
(2) Subsection (1) applies to a dividend paid by a company to the taxpayer in an accounting year only to the extent to which it exceeds the amount calculated by multiplying the dividend by the lesser of 1 and the following fraction:
where—
- a is the credit balance (if any) at the last day of the accounting year of the company in an account which is—
  
  (a) credited with each of the following amounts (referred to in this subsection as the applicable payments) derived or received by the company on or after the effective date and before the end of the accounting year, except to the extent such amounts are paid by a company resident in New Zealand or, had they been dividends derived by the taxpayer, would have been dividends with respect to which an amount of underlying tax credit would have been deemed to arise under subsection (1):
  
  (i) any standard dividend in respect of which the company is not liable to income tax; and
  
  (ii) a dividend paid by a relevant associate and in respect of which the company is not liable to income tax, not being—
  
  (A) attributed repatriation; or
  
  (B) a standard dividend; or
  
  (C) a dividend arising only by virtue of a difference between the rate of interest specified in section CD 28(6) to (8) and the interest rate in fact payable in respect of a loan made by the relevant associate to the company, to the extent to which the loan is treated as an applicable payment under subparagraph (iv); and
  
  (iii) any amount subscribed for shares issued by the company (or otherwise contributed to the company as additional equity) by a relevant associate, to the extent to which the relevant associate has, at the time of subscription (or contribution), retained earnings; and
  
  (iv) any amount advanced by way of loan to the company by a relevant associate (except where and to the extent that the taxpayer anticipates that the advance will be repaid within 5 years and the advance is in fact so repaid) to the extent to which the relevant associate has, at the time of advance, retained earnings; and
  
  (v) any amount, not being a dividend, paid by a relevant associate, which would be assessable income of the company if the company were at all times resident in New Zealand and in respect of which the company is not liable to income tax; and
  
  (b) in any case where the effective date is determined by subsection (1)(e)(iii), credited with the retained earnings of the company at the end of the accounting year immediately preceding the accounting year in respect of which the taxpayer makes the election; and
  
  (c) debited with the aggregate of amounts (not being dividends to which paragraph (d) of this item applies) paid by the company on or after the effective date and before the end of the accounting year and derived by another company as applicable payments where and to the extent that—
  
  (i) the taxpayer maintains, with respect to that other company, a tracking account with an effective date earlier than the time of payment of the amount; and
  
  (ii) the amount is credited to that account maintained with respect to that other company; and
  
  (d) debited with the aggregate amount of dividends paid by the company on or after the effective date and before the start of the accounting year in respect of which an amount of underlying foreign tax credit amount would have been deemed to arise under subsection (1) but for the application, in respect of the taxpayer, of this subsection (had all such dividends been derived by the taxpayer); and
  
  (e) in any case where the company prepares its financial statements in a currency (referred to in this paragraph as the first currency) other than New Zealand currency, prepared in the first currency and converted, in any case where the applicable payment is paid in a different currency, to the first currency at the close of trading spot exchange rate (as if all references to New Zealand currency in the definition of close of trading spot exchange rate were to the first currency) on the day on which the applicable payment or dividend is paid
- b is the aggregate amount of dividends paid by the company during the accounting year to which subsection (1) (or would, but for this subsection) applies to deem an amount of underlying foreign tax credit to arise (had all such dividends been derived by the taxpayer).
(3) For the purposes of subsection (2), a company is treated as not being liable to income tax of a country or territory in respect of an amount derived by the company where and to the extent that the derivation of the amount gives rise, under the taxation law of the country or territory, to a rebate, credit, deduction, subsidy, or similar benefit (not being in any case merely the deduction of a current year loss to offset the amount or the operation merely, under the taxation law of the country or territory, of provisions equivalent to this subpart or any of sections BH 1, IE 1, IF 1, IG 2, LC 1, and MF 5) which has the direct or indirect effect of rebating to the company the income tax for which the company is liable in respect of the amount.
(3A) Where a company carries on the business of providing life insurance, subsection (2) applies as if the amounts referred to in paragraph (a)(i) to (v) of item “a” in that subsection were limited to such amounts as are actuarially determined to be part of the profit or loss of the company which the shareholders (and not the policyholders in the company) are attributed with, except where the Commissioner—
- (a) considers that the amounts so determined are not a reasonable and fair reflection of the relevant part of the profit or loss; or
- (b) has requested but has not received sufficient information to allow the Commissioner to review the actuarial calculation of the amount.
(4) Where, as a result of subsection (2), subsection (1) applies to part of a dividend only, the part to which subsection (1) does not apply is treated as a separate dividend to which section LF 3 applies to calculate an amount of underlying foreign tax credit.
(5) In subsection (2),—
relevant associate means, at any time with respect to any taxpayer and any dividend paid by any company (referred to in this definition as the company), a company (other than the taxpayer) which is at the time—
- (a) associated with both the taxpayer and the company; and
- (b) either—
  - (i) resident in New Zealand; or
  - (ii) a controlled foreign company
retained earnings means, with respect to any company at any time, the aggregate at the time of the company's shareholders' funds (calculated under generally accepted accounting practice) after deduction of the aggregate of—
- (a) the company's paid up share capital; and
- (b) the company's share premium account; and
- (c) any amount subscribed by the company, prior to the time, for shares issued by another company and credited, under paragraph (a)(iii) of item “a” of the formula in subsection (2), to the tracking account maintained with respect to another company; and
- (d) any principal balance outstanding, at the time, of a loan by the company which has been credited, under paragraph (a)(iv) of item “a” of the formula in subsection (2), to the tracking account maintained with respect to another company; and
- (e) any amount, not being an amount previously or otherwise deducted in calculating the aggregate at the time of the company's shareholders' funds, paid by the company prior to the time and credited, under paragraph (a)(v) of item “a” of the formula in subsection (2), to the tracking account maintained with respect to another company,—
not being amounts of the company's paid-up share capital or share premium account resulting from—
- (f) bonus issues by the company; or
- (g) reinvestment, directly or indirectly, of distributions made by the company,—
except to the extent to which such bonus issues or distributions were—
- (h) derived by another company as applicable payments (as defined in paragraph (a) of item “a” of the formula in subsection (2)) where the taxpayer maintains, with respect to that other company, a tracking account with an effective date (as defined in subsection (1)(e)) earlier than the time of derivation of the bonus issue or distribution; or
- (i) foreign withholding payment dividends; or
- (j) derived by a shareholder of the company subject to income tax.
Compare: 1994 No 164 s LF 5

Subsection (1)(b) was substituted, as from 1 April 2006, by section 133(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (1)(c) was amended, as from 1 April 2006, by section 133(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “for all eligible accounting years, the income of the company that is liable to income tax in the country or territory is calculated” for “the company has in respect of all eligible accounting years, for the purposes of income tax in the country or territory, calculated its income liable to income tax”.

LF 6 Procedures with respect to underlying foreign tax credit

(1) A taxpayer may, before 28 September 1995 (or by such later date as the Commissioner may allow, where the Commissioner is satisfied that the reason for the failure to meet the deadline is beyond the control of the taxpayer), furnish to the Commissioner, in such form as the Commissioner may allow, details of—
- (a) the earnings of a company for any 1 or more accounting years immediately preceding the commencement date; and
- (b) the income tax paid or payable with respect to the earnings of those years; and
- (c) dividends paid by the company during those years; and
- (d) amounts of underlying foreign tax credits arising under section LF 2 with respect to those dividends.
(2) Notwithstanding any provision in section NH 3 or in section 102 or 139B of the Tax Administration Act 1994, the Commissioner may not assess any company for dividend withholding payment or late payment penalty for late payment of dividend withholding payment, to the extent such assessment is made only by reason of the Commissioner disputing details provided by the company to the Commissioner under subsection (1) or (6)(c), after the expiration of 4 years from the later of—
- (a) the date upon which the details were provided; and
- (b) the last date specified in or allowed by the Commissioner under subsection (1) or (6), as the case may be, for filing the details,—
except where, in the opinion of the Commissioner, the details are fraudulently or wilfully misleading.
(3) Where—
- (a) a taxpayer furnishes under subsection (1) details in respect of an accounting year of a company to which paragraph (c)(i) or (ii) of the definition of eligible accounting year does not apply; and
- (b) the company is at any time in the accounting year a low tax jurisdiction company,—
for the purposes of this subpart the company is treated as—
- (c) deriving, in that accounting year, only those of its earnings for the accounting year which are dividends derived from another company which is, at the time of derivation, not a low tax jurisdiction company; and
- (d) paying, with respect to its earnings in that accounting year, only those amounts of income tax paid or payable with respect to the earnings for the accounting year which are—
  - (i) income tax payable, in the country or territory in which the other company is resident, with respect to those dividends; or
  - (ii) income tax deemed under section LF 4 to be payable by the company with respect to derivation of those dividends—
and the taxpayer must furnish the details accordingly.
(4) For the purposes of section LF 3, with respect to any taxpayer, no amount of income tax is paid or payable in respect of earnings of a company for an accounting year except where—
- (a) the taxpayer has available to furnish, if requested, to the Commissioner—
  - (i) a copy of a receipt issued by the relevant revenue authority evidencing payment of the amount of tax; or
  - (ii) a copy of a return of income, of substantially the same nature as a return of income furnished under this Act, of the company as furnished to the relevant revenue authority and showing as payable the amount of tax; or
  - (iii) a copy of a demand, statement of account, or similar paper issued by the relevant revenue authority requesting payment of the amount of tax; or
- (b) the Commissioner is satisfied on the basis of any other evidence, such as an auditor's certificate, that the amount of tax is paid or payable; or
- (c) the company is deemed under section LF 4 to have paid the amount of tax (but without prejudice to the determination of whether the lower-tier company paying the relevant dividend is treated as paying any amount of tax).
(5) Where, with respect to any taxpayer and any company,—
- (a) the taxpayer has reason to believe that the statements used, under the definition of after-income tax earnings, to measure the after-income tax earnings or after-income tax loss of the company for any eligible accounting year do not fairly present the actual after tax profits or loss of the company for the eligible accounting year; or
- (b) the Commissioner has concluded that such statements do not fairly present the actual after-tax profits or loss of the company for an eligible accounting year; or
- (c) no statements exist to which any of the paragraphs of the definition of after-income tax earnings apply in respect of the company and an eligible accounting year,—
then, for the purposes of section LF 3, the income tax paid or payable by that company with respect to its earnings for that accounting year, the immediately preceding accounting year, and the immediately succeeding accounting year is in each case nil.
(6) Where the amount of any dividend withholding payment deductible under section NH 2(1) with respect to a foreign withholding payment dividend derived by a taxpayer is reducible by virtue of an amount of underlying foreign tax credit arising with respect to the dividend, then, notwithstanding anything in section NH 2, no such reduction is allowed unless the taxpayer has furnished to the Commissioner, within such time as the Commissioner may allow in a particular case or class of cases having regard to the period stated in section LC 13, all information specified by the Commissioner as being necessary to verify the calculation of the amount of underlying foreign tax credit, including, if specified by the Commissioner,—
- (a) details of the calculation of the amounts of items “a” to “h” of the formula in section LF 3(1) with respect to the underlying foreign tax credit amount; and
- (b) in any case where the amount of underlying foreign tax credit is calculated under section LF 5(1), details of the relevant tracking account and entries in that account; and
- (c) in any case where the amount of underlying foreign tax credit is calculated having regard to underlying foreign tax credit amounts arising under section LF 4 with respect to a lower-tier company, details of the calculation of items “a” to “h” of the formula in section LF 3(1), or of the relevant tracking account and entries in that account (as the case may be) with respect to the underlying foreign tax credit amount in respect of the lower-tier company.
Compare: 1994 No 164 s LF 6

Subsection (4) was amended, as from 1 April 2006, by section 134 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “no amount of income tax is paid or payable in respect of earnings of a company” for “a company is treated as having no amount of income tax paid or payable with respect to its earnings”.

LF 7 Interest paid in conduit financing arrangements

Notwithstanding anything in sections DB 6 to DB 8, or any other provision of this Act, where—
- (a) any company—
  - (i) incurs any interest expenditure for which the company is allowed a deduction under this Act; or
  - (ii) incurs expenditure under the financial arrangements rules,—
  in any tax year; and
- (b) in that tax year or a preceding tax year—
  - (i) the company; or
  - (ii) another company resident in New Zealand which is at the time of derivation associated with the company,—
  derives a dividend from a company (referred to in this section as the first foreign company); and
- (c) section LF 5(1) deems an amount of underlying foreign tax credit to arise in respect of the dividend or, by virtue of section LF 4, results in an amount of underlying foreign tax credit arising in respect of the dividend; and
- (d) the interest, or the consideration payable by the company giving rise to the expenditure incurred under the financial arrangements rules, is paid, directly or indirectly and whether by 1 transaction or a series of transactions, to—
  - (i) the first foreign company; or
  - (ii) a person (referred to in this section as the associate) who, at the time of payment,—
    - (A) is associated with the first foreign company; and
    - (B) is a foreign company; and
- (e) at the time at which—
  - (i) the interest or consideration is paid; or
  - (ii) the dividend is paid,—
  persons not resident in New Zealand have—
  - (iii) voting interests; or
  - (iv) in any case where at the time a market value circumstance exists in respect of the company, market value interests,—
  aggregating 50% or greater in the first foreign company and, in any case to which paragraph (d)(ii) applies, the associate; and
- (f) at the time at which—
  - (i) the interest or consideration is paid; and
  - (ii) the dividend is paid,—
  the recipient (referred to in paragraph (d)(i) and (ii)) of the direct or indirect payment of interest or consideration (referred to in that paragraph) is not a controlled foreign company,—
the company is denied any deduction in calculating the net income of the company for such interest or expenditure incurred in the tax year except where and to the extent that the aggregate of such interest or expenditure incurred in the tax year exceeds the amount calculated in accordance with the following formula:
a – b

where—
- a is the aggregate amount of dividends (before deduction of any withholding tax) in respect of which an amount of underlying foreign tax credit has been deemed to arise under or by virtue of section LF 5(1), derived by—
  
  (i) the company; or
  
  (ii) another company resident in New Zealand which is associated at the time with the company,—
  
  in the tax year or any preceding tax year from the first foreign company
- b is the aggregate amount of—
  
  (i) such interest or expenditure incurred in any preceding tax year for which, under this section, the company has been denied a deduction by virtue of the receipt of such dividends from the first foreign company; and
  
  (ii) income derived by the company under a financial arrangement for which the interest or expenditure is incurred in any preceding tax year if, in those tax years, the first foreign company or the associate (as the case may be) were a party to the financial arrangement.
Compare: 1994 No 164 s LF 7

Subpart LG—Conduit tax relief credits

LG 1 Conduit tax relief additional dividends

(1) If a conduit tax relief company pays a dividend to a non-resident and a conduit tax relief credit is attached to the dividend, the company must pay a conduit tax relief additional dividend at the same time.
(2) The additional dividend must be—
- (a) equal in amount to the conduit tax relief credit; and
- (b) paid with respect to the first dividend; and
- (c) derived by the same person.
(3) Sections GC 22, ME 8, and MG 8 apply as if the company had never paid the additional dividend.
(4) The payment of an additional dividend to all non-resident shareholders that hold shares of a particular class (that would otherwise be prohibited) does not contravene—
- (a) section 53 of the Companies Act 1993; or
- (b) a provision of the company's articles of association or constitution, unless the provision expressly refers to this subsection; or
- (c) another rule of law.
(5) When a trustee derives the dividend and is required under the terms of the trust to distribute it to a beneficiary, the trustee's distribution of an additional dividend to the same beneficiary does not contravene the terms of the trust.

(6) The rules for determining residence in sections OE 7 and OE 8 apply for the purposes of subsections (1) and (4).

Compare: 1994 No 164 s LG 1

Part M
Tax payments

Subpart MB—Provisional tax

MB 2 Who pays provisional tax?

MB 1 Outline of subpart

MB 2A Election to be provisional taxpayer [Repealed]

MB 2B Amount of provisional tax based on 1997-98 or earlier tax year [Repealed]

MB 3 Becoming provisional taxpayer by election

MB 3B Provisional taxpayer affected by self-assessed adverse event or qualifying event [Repealed]

Calculation of provisional tax liability

MB 4 Methods for calculating provisional tax liability

MB 5 Standard method

MB 5A Amount of provisional tax instalments in transitional year [Repealed]

MB 6 Estimation method

MB 7 GST ratio method

Instalments of provisional tax

MB 8 Provisional tax payable in instalments

MB 9 Calculating amount of instalment under standard and estimation methods

MB 9A Provisional tax and attribution rule for services [Repealed]

MB 10 Calculating amount of instalment using GST ratio

MB 11 Using GST refund to pay instalment of provisional tax

MB 11B Transitional provisions relating to alignment of dates of payment for provisional tax and GST [Repealed]

MB 12 Voluntary payments

MB 13 Paying 2 instalments for tax year

MB 14 Paying 1 instalment for tax year

Requirements for using GST ratio

MB 15 Who may use GST ratio?

MB 16 Choosing to use GST ratio

MB 17 Changing determination method

MB 18 Disposal of assets

Transitional years

MB 19 Calculating residual income tax in transitional years

MB 20 Paying provisional tax in transitional years

MB 21 Calculating instalments in transitional years: standard method

MB 22 Calculating instalments in transitional years: estimation method

MB 23 Calculating instalments in transitional years: GST ratio method

MB 24 Consequences of change in balance date

When provisional taxpayers start or stop paying GST, or change taxable periods

MB 25 Registering for GST or cancelling registration

MB 26 Changing GST cycle

MB 27 Payment of provisional tax instalments when GST cycle changed

Penalties and interest provisions

MB 28 Application of provisions of Tax Administration Act 1994

Treatment of groups of companies and amalgamated companies

MB 29 Provisional tax rules and consolidated groups

MB 30 Residual income tax of consolidated groups

MB 31 Consolidated groups using estimation method

MB 32 Consolidated groups using GST ratio method

MB 33 Wholly-owned groups of companies

MB 34 Amalgamated companies: calculating residual income tax

Attribution rule for services

MB 35 Attribution rule for services

Overpayments and credits

MB 36 Overpaid provisional tax

MB 37 Further income tax credited to provisional tax liability

Disaster relief

MB 38 Provisional taxpayer affected by self-assessed adverse event or qualifying event

Subpart MBA—Pooling of provisional tax

MBA 1 Purpose

MBA 2 Function of intermediary and tax pooling account

MBA 3 Application to establish tax pooling account

MBA 4 Tax pooling account

MBA 5 Deposits to tax pooling account

MBA 6 Transfers from tax pooling account

MBA 7 Refunds from tax pooling account

MBA 8 Wind up of tax pooling account

MBA 9 Tax treatment of payments of interest

Subpart MBB—Early-payment discount of income tax

MBB 1 Purpose

MBB 2 Availability of early-payment discount

MBB 3 Credit treated as being payment as income tax

MBB 4 Some definitions

Subpart MC—Terminal tax

MC 1 Payment of terminal tax

Subpart MD—Refunds

MD 1 Refund of excess tax

MD 2 Limit on refunds and allocations of tax

MD 2A Limits on refunds of tax for certain qualifying unit trusts and group investment funds

MD 2B Limits on refunds of tax in relation to Maori authorities

MD 3 Refund of income tax not to exceed amount of credit balance

MD 5 No credits or debits for excess income tax or dividend withholding payments not refunded or allocated

Subpart ME—Imputation credit accounts

Imputation credit accounts: general

ME 1 Companies required to maintain imputation credit account

ME 1A Companies electing to maintain imputation credit account

ME 1B Amount of dividend for imputation rules if paid in Australian currency

ME 2 Balance of imputation credit account

ME 3 Imputation credit account

ME 4 Credits arising to imputation credit account

ME 5 Debits arising to imputation credit account

ME 6 Company may attach imputation credit to dividend

ME 6B Share user may attach imputation credit to replacement payment

ME 7 Transfer by life insurance company of credit balance to policyholder credit account

ME 8 Allocation rules for imputation credits

ME 9 Further tax payable where end of year debit balance, or when company ceases to be imputation credit account company

ME 9B Imputation credit account company leaving wholly-owned group

ME 9C Imputation credit account company joining wholly-owned group

Consolidated imputation groups

ME 10 Consolidated imputation group to maintain separate imputation credit account

ME 11 Credits arising to imputation credit account of group

ME 12 Debits arising to imputation credit account of group

ME 13 Debiting and crediting between consolidated imputation group and individual companies

ME 14 Application of specific imputation provisions to consolidated imputation groups

Policyholder credit accounts

ME 15 Resident life insurance companies to maintain policyholder credit account

ME 16 Calculation of balance of policyholder credit account

ME 17 Policyholder credit account of company

ME 18 Credits and debits arising to policyholder credit account of company

ME 19 Election to use credit balance as credit against policyholder base income tax liability or as credit in imputation credit account

ME 19A Credit balance may be transferred on transfer of life insurance business

ME 20 Determinations by Commissioner as to credits and debits arising to policyholder credit account

ME 21 Person may elect to maintain policyholder credit account

ME 22 Policyholder credit account of person

ME 23 Credits and debits arising to policyholder credit account of person

ME 24 Use of credit balance to reduce income tax

Policyholder credit accounts: consolidated groups

ME 25 Policyholder credit accounts and consolidated groups

ME 26 Credits and debits arising to group policyholder credit account

ME 27 Debiting and crediting between group and individual policyholder credit accounts

ME 28 Application of policyholder credit account provisions to consolidated group

Imputation credit accounts and policyholder credit accounts: amalgamated companies

ME 29 Debits and credits arising to imputation credit account or policyholder credit account on amalgamation

Imputation credit accounts: statutory producer boards

ME 30 Statutory producer board may determine to attach imputation credit to certain distributions

ME 31 Amount of imputation credit to be attached to cash distribution

ME 32 Amount of imputation credit to be attached to notional distribution

ME 33 Notional distribution deemed to be dividend

ME 34 Statutory producer boards and dividend withholding payments

Imputation credits: co-operative companies

ME 35 Co-operative company may make annual determination to attach imputation credit to certain distributions

ME 36 Amount of imputation credit to be attached to cash distribution

ME 37 Amount of imputation credit to be attached to notional distribution

ME 38 Notional distribution deemed to be dividend or taxable Maori authority distribution

ME 39 Co-operative companies and dividend withholding payments

Imputation credit accounts: credits and debits incorrectly recorded

ME 40 Determinations by Commissioner as to credits and debits arising to imputation credit account

Imputation credit accounts: unit trusts and group investment funds

ME 41 Special debits arising to imputation credit account of unit trust or group investment fund

Subpart MF—Branch equivalent tax accounts

Branch equivalent tax accounts of companies

MF 1 Company may elect to maintain branch equivalent tax account

MF 2 Balance of branch equivalent tax account

MF 3 Branch equivalent tax account of company

MF 4 Credits and debits arising to branch equivalent tax account of company

MF 5 Use of credit to reduce dividend withholding payment, or use of debit to satisfy income tax liability

MF 6 Determinations by Commissioner as to credits and debits arising to branch equivalent tax account

MF 7 Branch equivalent tax accounts and consolidated groups

MF 8 Debits and credits arising to group branch equivalent tax account

MF 9 Debiting and crediting between group and individual branch equivalent tax accounts

MF 10 Use of consolidated group credit to reduce dividend withholding payment, or use of group or individual debit to satisfy income tax liability

Branch equivalent tax accounts of persons

MF 11 Person may elect to maintain branch equivalent tax account

MF 12 Branch equivalent tax account of person

MF 13 Credits and debits arising to branch equivalent tax account of person

MF 14 Debit election to offset income tax payable in respect of foreign dividend

MF 15 Extension of branch equivalent tax account provisions to certain FIF income

MF 16 Debits and credits arising to branch equivalent tax account of amalgamated company on amalgamation

Subpart MG—Dividend withholding payment accounts

MG 1 Balance of dividend withholding payment account

MG 2 Company may elect to maintain dividend withholding payment account

MG 3 Dividend withholding payment account

MG 4 Credits arising to dividend withholding payment account

MG 5 Debits arising to dividend withholding payment account

MG 6 Company may attach dividend withholding payment credit to dividend

MG 7 Transfer by life insurance company of credit balance to policyholder credit account

MG 8 Allocation rules for dividend withholding payment credits

MG 8B Policyholder credit account companies and dividend withholding payment credits

MG 9 Further dividend withholding payment payable by company

MG 10 Dividend with both imputation credit and dividend withholding payment credit attached

MG 11 Transfer of credit balance to imputation credit account

MG 12 Determinations by Commissioner as to credits and debits arising to dividend withholding payment credit account

MG 13 Dividend withholding payment accounts and consolidated groups

MG 14 Credits arising to group dividend withholding payment account

MG 15 Debits arising to group dividend withholding payment account

MG 16 Debiting and crediting between group and individual dividend withholding payment accounts

MG 16A Application of specific dividend withholding provisions to consolidated groups

MG 17 Debits and credits arising to dividend withholding payment account of amalgamated company on amalgamation

Subpart MH—Payment of tax by public authorities

MH 1 Payment of tax by public authorities

Subpart MI—Conduit tax relief accounts

MI 1 Balance of conduit tax relief account

MI 2 Company may elect to be conduit tax relief company and maintain conduit tax relief account

MI 3 Conduit tax relief account

MI 4 Credits arising to conduit tax relief account

MI 5 Debits arising to conduit tax relief account

MI 6 End of imputation year clearing transfer to or from dividend withholding payment account

MI 7 Attachment of conduit tax relief credit to dividend

MI 8 Allocation rules for conduit tax relief credits

MI 9 Arrangement to obtain tax advantage

MI 10 Dividend withholding payment payable in respect of conduit tax relief account debits

MI 11 Refund of tax in respect of transfer from dividend withholding payment account

MI 12 Correction by Commissioner of credits and debits

MI 13 Debits and credits arising to conduit tax relief account of amalgamated company on amalgamation

MI 14 Consolidated group to maintain separate conduit tax relief account

MI 15 Consolidated group conduit tax relief account

MI 16 Consolidated group member is conduit tax relief company

MI 17 Credits arising to group conduit tax relief account

MI 18 Debits arising to group conduit tax relief account

MI 19 Debiting and crediting between group and individual conduit tax relief accounts

MI 20 End of imputation year clearing transfer to or from dividend withholding payment account

MI 21 Dividend with-holding payment payable in respect of group conduit tax relief account debits

MI 22 Application of specific conduit tax relief account provisions to consolidated groups

Subpart MJ—Supplementary available subscribed capital accounts

MJ 1 Qualifying unit trust or group investment fund may elect to maintain supplementary available subscribed capital account

MJ 2 Balance of supplementary available subscribed capital account

MJ 3 Supplementary available subscribed capital account

MJ 4 Supplementary available subscribed capital account: opening balance

MJ 5 Credits arising to supplementary available subscribed capital account

MJ 6 Debits arising to supplementary available subscribed capital account

Liquidation of qualifying unit trust or group investment fund

MJ 7 Special rule for certain qualifying unit trusts and group investment funds

MJ 8 Correction by Commissioner of credits and debits

Subpart MK—Maori authority credit accounts

MK 1 Maori authority to maintain Maori authority credit account

MK 2 Balance of Maori authority credit account

MK 3 Maori authority credit account

MK 4 Credits arising to Maori authority credit account

MK 5 Debits arising to Maori authority credit account

MK 6 Maori authority may attach Maori authority credit to distribution

MK 7 Allocation rules for Maori authority credit account credits

MK 8 Further tax payable for end of year debit balance or when Maori authority ceases to exist

MK 9 Correction by Commissioner of credits and debits

Subpart MZ—Terminating provisions

MZ 1 Savings for certain credits arising in relation to overpayment of income tax or dividend withholding payment

MZ 2 Ordering rule for purposes of section MZ 1

MZ 3 Transfers of dividend withholding payment credit balance to imputation credit account

MZ 4 Attachment of dividend withholding payment credits to dividends to non-residents

MZ 5 Application of excess tax to nil period

MZ 6 Application of excess tax for 2001-02 tax year

MZ 7 Application of allocation debit rules to certain dividends [Repealed]

MZ 8 Certain elections to become provisional taxpayer

MZ 9 Amount of provisional tax based on 199798 or earlier tax year

MZ 10 Calculating provisional tax instalments: section MB 4

MZ 11 Calculating provisional tax instalments: sections MB 7 and MB 10

MZ 12 Calculating provisional tax instalments: section MB 9

Subpart MB—Provisional tax

Subpart MB: substituted, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 2 Who pays provisional tax?

MB 1 Outline of subpart

MB 2A Election to be provisional taxpayer [Repealed]

MB 2B Amount of provisional tax based on 1997-98 or earlier tax year [Repealed]

MB 3 Becoming provisional taxpayer by election

MB 3B Provisional taxpayer affected by self-assessed adverse event or qualifying event [Repealed]

Calculation of provisional tax liability

MB 4 Methods for calculating provisional tax liability

MB 5 Standard method

MB 5A Amount of provisional tax instalments in transitional year [Repealed]

MB 6 Estimation method

MB 7 GST ratio method

Instalments of provisional tax

MB 8 Provisional tax payable in instalments

MB 9 Calculating amount of instalment under standard and estimation methods

MB 9A Provisional tax and attribution rule for services [Repealed]

MB 10 Calculating amount of instalment using GST ratio

MB 11 Using GST refund to pay instalment of provisional tax

MB 11B Transitional provisions relating to alignment of dates of payment for provisional tax and GST [Repealed]

MB 12 Voluntary payments

MB 13 Paying 2 instalments for tax year

MB 14 Paying 1 instalment for tax year

Requirements for using GST ratio

MB 15 Who may use GST ratio?

MB 16 Choosing to use GST ratio

MB 17 Changing determination method

MB 18 Disposal of assets

Transitional years

MB 19 Calculating residual income tax in transitional years

MB 20 Paying provisional tax in transitional years

MB 21 Calculating instalments in transitional years: standard method

MB 22 Calculating instalments in transitional years: estimation method

MB 23 Calculating instalments in transitional years: GST ratio method

MB 24 Consequences of change in balance date

When provisional taxpayers start or stop paying GST, or change taxable periods

MB 25 Registering for GST or cancelling registration

MB 26 Changing GST cycle

MB 27 Payment of provisional tax instalments when GST cycle changed

Penalties and interest provisions

MB 28 Application of provisions of Tax Administration Act 1994

Treatment of groups of companies and amalgamated companies

MB 29 Provisional tax rules and consolidated groups

MB 30 Residual income tax of consolidated groups

MB 31 Consolidated groups using estimation method

MB 32 Consolidated groups using GST ratio method

MB 33 Wholly-owned groups of companies

MB 34 Amalgamated companies: calculating residual income tax

Attribution rule for services

MB 35 Attribution rule for services

Overpayments and credits

MB 36 Overpaid provisional tax

MB 37 Further income tax credited to provisional tax liability

Disaster relief

MB 38 Provisional taxpayer affected by self-assessed adverse event or qualifying event

Introductory provisions

Heading: inserted, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 1 Outline of subpart

When this subpart applies
(1) Sections MB 2 to MB 38 apply for the purposes of the provisional tax rules to determine
- (a) who pays provisional tax:
- (b) a taxpayer's provisional tax liability for a tax year, and the methods for calculating the amount payable:
- (c) the number of instalments and the instalment dates for an income year:
- (d) how the amount of an instalment is determined:
- (e) the payment of provisional tax in transitional years:
- (f) the application of the rules relating to use of money interest, late payment penalties, and shortfall penalties.
Amount treated as income tax

(2) The provisions of this Act and the Tax Administration Act 1994 apply in relation to an amount that a person is liable to pay under the provisional tax rules as if the amount were income tax imposed under section BB 1 (Imposition of income tax).

Instalment dates

(3) In this subpart, a reference to an instalment classified by the letters A to H is a reference to a date in the table in schedule 13, part A (Months for payment of provisional tax and terminal tax) on which an instalment of provisional tax (A to F) or terminal tax (G and H) is payable by a provisional taxpayer for an income year that corresponds to a tax year.

Defined in this Act: amount, , income tax, , income year, , instalment date, , pay, , provisional tax, , provisional tax rules, , provisional taxpayer, , shortfall penalty, , tax year, , terminal tax, , transitional year

Section MB 1: inserted, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 2 Who pays provisional tax?

Meaning of provisional taxpayer
(1) A provisional taxpayer, for a tax year, means
- (a) a person whose residual income tax for the tax year is more than $2,500; or
- (b) a person who chooses under section MB 3 to be a provisional taxpayer.
Exclusions
(2) The following persons are not provisional taxpayers:
- (a) a company that does not have a fixed establishment in New Zealand and is not treated as resident in New Zealand:
- (b) a person to whom section 33A of the Tax Administration Act 1994 applies:
- (c) a non-resident contractor as defined in regulation 2 of the Income Tax (Withholding Payments) Regulations 1979 who has not been issued with an exemption certificate by the Commissioner for the tax year under regulation 5.
No obligation

(3) A person has no obligation to pay provisional tax for a tax year if their residual income tax for the preceding tax year is $2,500 or less.

Defined in this Act: company, , fixed establishment, , New Zealand, , non-resident, , provisional taxpayer, , resident in New Zealand, , residual income tax, , tax year

Section MB 2: substituted, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (1)(aa) and (ab) was repealed, as from 1 April 2005, by section 73 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

MB 2A Election to be provisional taxpayer

[Repealed]

Section MB 2A: repealed, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 2B Amount of provisional tax based on 1997-98 or earlier tax year

[Repealed]

Section MB 2B: repealed, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 3 Becoming provisional taxpayer by election

A taxpayer, when first providing a return of income for a tax year, may choose to be a provisional taxpayer for the tax year if
- (a) they have paid provisional tax of more than $2,500 on or before
  - (i) the date of instalment F for the corresponding income year; or
  - (ii) the final instalment date in a transitional year; and
- (b) they have, on the day on which the first payment of provisional tax is made for the tax year, a reasonable expectation that they are a provisional taxpayer for the tax year, other than by this election.
Defined in this Act: corresponding income year, , final instalment, , instalment date, , provisional tax, , provisional taxpayer, , return of income, , tax year, , taxpayer, , transitional year

Section MB 3: substituted, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 3B Provisional taxpayer affected by self-assessed adverse event or qualifying event

[Repealed]

Section MB 3B: repealed, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Calculation of provisional tax liability

Heading: inserted, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 4 Methods for calculating provisional tax liability

Choice of method

(1) The provisional tax payable by a provisional taxpayer for a tax year must be calculated using 1 of the methods described in subsections (3) to (7).

Meaning of next affected instalment date

(2) Next affected instalment date for a tax year means the instalment date for the tax year that next follows the date on which the calculation is made.

Standard method
(3) Under the standard method, the amount of provisional tax payable for the tax year is
- (a) 105% of the taxpayer's residual income tax for the preceding tax year, determined under section MB 5, if paragraph (b) does not apply; or
- (b) 110% of the taxpayer's residual income tax for the tax year before the preceding tax year if
  - (i) the taxpayer is required to provide a return of income for the preceding tax year; and
  - (ii) the return is not due on or before the first instalment date for the tax year through the application of section 37 of the Tax Administration Act 1994 or an extension granted under that section; and
  - (iii) the taxpayer has not provided the return on or before the instalment date; and
  - (iv) the instalment date is not the date of instalment F for the corresponding income year.
Relationship of other methods with standard method, and modification of standard method

(4) Subsections (5) to (7) override subsection (3). Section MZ 10 (Calculating provisional tax instalments: section MB 4) modifies subsection (3).

Estimation method

(5) A taxpayer may make an estimate of their residual income tax under section MB 6 as their provisional tax liability for the tax year.

GST ratio method

(6) A taxpayer who is eligible under section MB 15 may choose to use a GST ratio under section MB 7 for the purposes of determining their provisional tax liability for the tax year.

Commissioner's determination

(7) If the Commissioner determines a taxpayer's provisional tax liability under section 119 of the Tax Administration Act 1994, the amount is that last determined by the Commissioner and notified to the taxpayer at least 30 days before the instalment date. The 30-day requirement does not apply in a case to which section 119(1)(d) applies (which relates to an estimate of residual income tax that is not fair and reasonable).

Life insurance business

(8) A provisional taxpayer, who carries on a business of providing life insurance and who is liable for income tax under the life insurance rules, must at the time they determine their provisional tax liability provide the Commissioner with details of the calculation of that liability, in particular, the extent to which the amount of that provisional tax relates to the policyholder base.

Defined in this Act: amount, , business, , Commissioner, , corresponding income year, , GST ratio, , instalment date, , life insurance, , life insurance rules, , notify, , pay, , policyholder base, , provisional tax, , provisional taxpayer, , qualifying event, , residual income tax, , return of income, , tax year, , taxpayer

Section MB 4: substituted, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Section MB 4(4) heading: substituted, on 1 October 2007, by section 43 of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section MB 4(4): substituted, on 1 October 2007, by section 43 of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

MB 5 Standard method

When this section applies

(1) This section applies for the purposes of section MB 4(3) and the calculation of the amount of provisional tax payable for a tax year under the standard method.

Assessment for preceding tax year

(2) The taxpayer's residual income tax for a tax year is based on their assessment for the preceding tax year unless the Commissioner has issued a notice of assessment for the tax year at least 30 days before the relevant instalment date, in which case it is based on the Commissioner's assessment for the preceding tax year.

Commissioner's assessment for preceding tax year
(3) The taxpayer's residual income tax is based on the Commissioner's assessment for the preceding tax year, whenever the assessment is made, if
- (a) the taxpayer is required under section 37 of the Tax Administration Act 1994 to provide a return of income for the preceding tax year but has failed to do so by the relevant instalment date; or
- (b) the taxpayer is not required under section 37 to provide a return by the relevant instalment date, and subsections (2) and (4) do not apply.
Residual income tax for preceding tax year
(4) The amount of provisional tax payable for a tax year is the amount of residual income tax for the preceding tax year if
- (a) the taxpayer is not required to provide a return of income for the preceding tax year; or
- (b) the taxpayer's residual income tax for that tax year was $2,500 or less and they were not required to provide, and have not provided, a return of income for that tax year by the date of instalment F for the corresponding income year.
Later increased assessment

(5) If the Commissioner assesses a taxpayer's income tax liability after the due date for an instalment of provisional tax and the taxpayer's residual income tax is increased by the assessment, the residual income tax is treated for the purposes of the provisional tax rules as if it had not been increased.

Transitional years and consolidated groups

(6) Residual income tax in transitional years is calculated under section MB 19. For consolidated groups of companies, the calculation is made under section MB 30.

Defined in this Act: amount, , assessment, , Commissioner, , consolidated group, , corresponding income year, , income tax liability, , instalment date, , notice, , pay, , provisional tax, , residual income tax, , return of income, , tax year, , taxpayer, , transitional year

Section MB 5: substituted, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 5A Amount of provisional tax instalments in transitional year

[Repealed]

Section MB 5A: repealed, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 6 Estimation method

When this section applies

(1) This section applies for the purposes of section MB 4(5) and the calculation of the amount of provisional tax payable for a tax year under the estimation method.

Fair and reasonable estimate

(2) On or before an instalment date, a provisional taxpayer may make a fair and reasonable estimate of their residual income tax for the tax year by informing the Commissioner of the estimate. The estimate may be a revised estimate.

Reasonable care in making and maintaining assessment

(3) A taxpayer who makes an estimate under subsection (2) must take reasonable care in making it, and must revise the estimate for the tax year if, at some time in the tax year, the amount estimated is no longer fair and reasonable.

Estimation higher than provisional tax payable

(4) If a taxpayer estimates their residual income tax and the estimate is more than the provisional tax that is payable for the tax year, they are treated as having taken reasonable care in making the estimate.

Changing determination method from GST ratio

(5) If, under section MB 17(5), a taxpayer changes they way they determine the amount of provisional tax after the date of an instalment, they must estimate their residual income tax for the income year, and must pay provisional tax on whichever of instalment dates B, D, and F for their corresponding income year occur after 30 days from their last ratio instalment date.

Disaster relief

(6) A taxpayer who is significantly affected by a self-assessed adverse event may make an estimate of their provisional tax under section MB 38, and that section overrides this section.

Defined in this Act: amount, , Commissioner, , corresponding income year, , GST ratio, , income year, , instalment date, , pay, , provisional tax, , provisional taxpayer, , ratio instalment date, , residual income tax, , self-assessed adverse event, , tax year, , taxpayer

Section MB 6: substituted, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Section MB 6 was substituted, as from 1 October 2005, by section 74 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

MB 7 GST ratio method

Using GST ratio

(1) A provisional taxpayer who meets the requirements of section MB 15 may choose to use a GST ratio to determine the amount of provisional tax payable for a tax year.

Meaning of GST ratio

(2) A taxpayer's GST ratio is the percentage figure that is obtained by dividing their residual income tax for the preceding tax year by their total taxable supplies for the corresponding income year. The amount of residual income tax and the amount of total taxable supplies are called the base amounts in this section.

When amounts based on tax year before preceding tax year

(3) If the base amounts for the preceding tax year or corresponding income year have not been assessed, the GST ratio is the percentage based on the assessment for the tax year and corresponding income year that are immediately before the preceding tax year and corresponding income year.

Commissioner's calculation and notification
(4) The Commissioner must calculate a taxpayer's GST ratio, notifying them by
- (a) including the percentage figure on the taxpayer's pre-printed GST return form; or
- (b) advising them in writing or by telephone; or
- (c) some other means.
Adjustment to GST ratio
(5) The Commissioner must adjust a taxpayer's GST ratio if the base amounts are revised through, among other reasons,
- (a) an assessment or an amended assessment of the taxpayer's income tax return for the preceding tax year; or
- (b) a change in the value of the total taxable supplies for the corresponding income year; or
- (c) the disposal of an asset to which section MB 18 applies.
New GST ratio

(6) When subsection (5) applies, the Commissioner must notify the taxpayer of the new GST ratio. The new ratio applies in relation to the relevant instalment dates that occur 30 days after the date of notification.

Transitional years
(7) If a taxpayer has paid instalments of provisional tax in a transitional year, for the tax year that follows the transitional year, for the purposes of this section and section MB 10, they must
- (a) ignore the transitional year when determining their residual income tax or total taxable supplies; and
- (b) base their determination of residual income tax and total taxable supplies on the tax year preceding the transitional year.
Total taxable supplies

(8) In subsections (2), (5), and (7), and in sections MB 10, MB 15, MB 18, and MB 32, total taxable supplies for a person and a period means the amount that is the total value, including GST, of taxable supplies of the person for the period.

Relationship with other provisions

(9) Section MZ 11 (Calculating provisional tax instalments: sections MB 7 and MB 10) modifies this section.

Defined in this Act: amount, , assessment, , base amount, , Commissioner, , corresponding income year, , GST, , GST ratio, , instalment date, , notify, , pay, , provisional tax, , provisional taxpayer, , residual income tax, , tax year, , taxable supply, , total taxable supplies, , transitional year

Section MB 7: substituted, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Section MB 7(9) heading: added, on 1 October 2007, by section 44 of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section MB 7(9): added, on 1 October 2007, by section 44 of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Instalments of provisional tax

Heading: inserted, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 8 Provisional tax payable in instalments

General principle

(1) The general principle for the standard and estimation methods is that the amount of a taxpayer's provisional tax must be spread evenly over the applicable number of instalments, so that equal amounts are paid on each instalment date. If the amount of provisional tax is not divisible into exactly equal instalments, the final instalment carries the difference.

Provisional tax payable in 3 instalments

(2) Provisional tax is payable in 3 instalments on the interest instalment dates for the tax year in the months set out in schedule 13, part A, columns B, D, and F for the taxpayer's corresponding income year. The amount of each instalment is calculated under section MB 9. Subsection (3) overrides this subsection.

Exclusions

(3) Subsection (2) does not apply

(a) to a provisional taxpayer who
- (i) pays GST on a 6-monthly basis:
- (ii) uses a GST ratio to determine the amount of provisional tax payable, or who changes their determination method under section MB 17(5):
- (iii) changes the cycle of their taxable periods under section 15C of the Goods and Services Tax Act 1985:

(b) to a new provisional taxpayer who
- (i) pays GST on a 6-monthly basis:
- (ii) pays GST on a monthly or 2-monthly basis, and starts a taxable activity after the day that is 30 days before the date of instalment B in their corresponding income year:

(c) to a provisional taxpayer who has not provided a return of income for the preceding tax year, and whose residual income tax for the tax year immediately before the preceding tax year was $2,500 or less:

(d) in a transitional year.

Provisional tax when GST paid on 6-monthly basis

(4) A provisional taxpayer who pays GST on a 6-monthly basis must pay provisional tax on the 2 interest instalment dates for the tax year in the months set out in schedule 13, part A, columns C and F for the taxpayer's corresponding income year. This subsection applies to a new provisional taxpayer other than one who pays GST on a 6-monthly basis and starts a taxable activity after the day that is 30 days before the date of instalment C.

Provisional tax determined using GST ratio

(5) A provisional taxpayer who uses a GST ratio to determine the amount of provisional tax payable for a tax year, must pay provisional tax on the 6 ratio instalment dates in the months set out in schedule 13, part A, columns A to F for the taxpayer's corresponding income year. The amount of each instalment is calculated under section MB 10.

Changing determination method

(6) A provisional taxpayer who is unable or decides not to use a GST ratio, changing their determination method under section MB 17, must pay the provisional tax payable for the tax year on the relevant instalment dates under the replacement method. The amount of each instalment is calculated under section MB 6 or MB 9, as applicable.

Changing cycle of taxable periods

(7) A provisional taxpayer who changes the cycle of their taxable periods under section 15C of the Goods and Services Tax Act 1985 must pay provisional tax for the tax year on the instalment dates specified in section MB 27 after the change in taxable period takes effect under section MB 26. The amount of each instalment is calculated under section MB 9.

New provisional taxpayers

(8) A new provisional taxpayer who starts a taxable activity in a tax year in relation to which they pay GST must pay provisional tax for the tax year

(a) in 3 instalments under subsection (2) if they start a taxable activity at some time in the period that starts at the beginning of the corresponding income year and ends 30 days before the date of instalment B:

(b) in 2 instalments
- (i) in a case to which section MB 13 applies; or
- (ii) if they start a taxable activity at some time in the period that starts at the beginning of the corresponding income year and ends 30 days before the date of instalment C:

Extension of time for return

(9) A provisional taxpayer who has not provided a return of income for a preceding tax year and whose residual income tax for the tax year before the preceding tax year was $2,500 or less must pay provisional tax for the tax year on the instalment dates set out in section MB 13 or MB 14, as applicable.

Transitional years

(10) In a transitional year, provisional tax is due and payable as set out in section MB 20 and schedule 13, part B. The amount of each instalment is calculated under sections MB 21 to MB 23.

Voluntary payments

(11) A provisional taxpayer may pay an instalment of provisional tax under section MB 12 at any time.

Defined in this Act: amount, , corresponding income year, , GST, , GST ratio, , income year, , instalment date, , interest instalment date, , new provisional taxpayer, , pay, , provisional tax, , provisional taxpayer, , ratio instalment date, , residual income tax, , return of income, , tax year, , taxable activity, , taxable period, , taxpayer, , transitional year

Table MB 8—Categories for payment of provisional tax

Categories: ordinary	Variables	Method	Instalments	Instalment dates	Calculation	Interest, penalties
Standard MB 4(3)		MB 5	3—MB 8(2)	B, D, F	MB 9	120KE(1), (2)
Estimation MB 4(5)		MB 6	3—MB 8(2)	B, D, F	MB 9	120KB
GST ratio MB 4(6)	1 month	MB 7	6—MB 8(5)	A to F	MB 10	120KE(3)
	2 month	MB 7	6—MB 8(5)	A to F	MB 10(3)	120KE(3), 139C
GST6-month MB 8(4)	standard	MB 5	2—MB 8(4)	C and F	MB 9	120KE(1)
	estimation	MB 6	2—MB 8(4)	C and F	MB 9	120KB
Categories: exceptional	Variables	Method	Instalments	Instalment dates	Calculation	Interest, penalties
New provisional taxpayers		MB 5 or MB 6	MB 8(8), MB 13(2), MB 14(2)	D and F, or F as required	MB 9 (MB 13(3))	120KC
Transitional years		MB 19	MB 20 (MB 8(10))	B, D, F, or C, F as required	MB 21, MB 22	120KD
Changing taxable period (or starting and stopping GST registration)		MB 25, MB 26, and 15C and 15D of GST Act	MB 27 (MB 8(7))	B, D, F, or C, F as required	MB 9
Changing determination method		MB 17	MB 4(3) or (5) (MB 6, MB 8(6))	B, D, F, or C, F as required	MB 9	120KE(5)-(7)
Voluntary payments		MB 12				120E
Note: References in the last column are to sections of the Tax Administration Act 1994 .

Section MB 8: substituted, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Section MB 8(1): amended, on 1 October 2007, by section 120(1) of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

MB 9 Calculating amount of instalment under standard and estimation methods

When this section applies
(1) This section applies for the purposes of
- (a) section MB 4(3) and (5) (which relates to the calculation of a provisional tax liability):
- (b) section MB 8(2) and (4) (which relates to payment of instalments):
- (c) sections MB 13 and MB 14 (which relate to new provisional taxpayers and taxpayers with an extension of time for providing a return):
- (d) sections MB 25 to MB 27 (which relate to changes in taxable periods).
Calculation

(2) The amount of an instalment of provisional tax for a tax year is calculated using the formula—

residual tax instalment number total instalments provisional tax

Definition of items in formula
(3) In the formula,
- (a) residual tax is a provisional taxpayer's residual income tax, as applicable
  - (i) for the preceding tax year, uplifted by 5% (section MZ 12 (Calculating provisional tax instalments: section MB 9) modifies this subparagraph); or
  - (ii) for the tax year immediately before the preceding tax year, uplifted by 10% (section MZ 12 modifies this subparagraph); or
  - (iii) the amount estimated by the taxpayer:
- (b) instalment number is the number of the taxpayer's instalment for the tax year, whether first, second, or third:
- (c) total instalments is the total number of the taxpayer's instalments for the tax year:
- (d) provisional tax is the amount of the taxpayer's provisional tax liabilities for the tax year to date.
Instalment amounts after change in balance date or taxable period

(4) If a change occurs to the balance date or cycle of taxable periods of a provisional taxpayer, the calculation of the amount of an instalment is made under this section, applying the updated figures to the items in the formula.

Defined in this Act: amount, , balance date, , new provisional taxpayer, , pay, , provisional tax, , provisional taxpayer, , residual income tax, , return of income, , tax year, , taxable period

Section MB 9: substituted, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Section MB 9(3)(a)(i): amended, on 1 October 2007, by section 45(a) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section MB 9(3)(a)(ii): amended, on 1 October 2007, by section 45(b) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

MB 9A Provisional tax and attribution rule for services

[Repealed]

Section MB 9A: repealed, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 10 Calculating amount of instalment using GST ratio

Calculation

(1) The amount of provisional tax payable on an instalment date by a provisional taxpayer who uses a GST ratio for a tax year is calculated using the formula—

GST ratio for tax year × taxable supplies.

Item in formula: taxable supplies

(2) In the formula, taxable supplies is the amount of the taxpayer's taxable supplies in the taxable period that matches the instalment period.

Taxable supplies when taxpayer pays on monthly basis

(3) For the purposes of subsection (1), a taxpayer who pays GST on a 1-month cycle under section 15 of the Goods and Services Tax Act 1985 must apply the GST ratio to the sum of their taxable supplies in the current taxable period and the preceding taxable period; that is, the taxable supplies in the 2-month period matching the instalment period.

Relationship with other provisions

(4) Section MZ 11 (Calculating provisional tax instalments: sections MB 7 and MB 10) modifies this section.

Defined in this Act: amount, , GST, , GST ratio, , instalment period, , pay, , provisional tax, , provisional taxpayer, , tax year, , taxable period, , taxable supply

Section MB 10: substituted, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Section MB 10(4) heading: added, on 1 October 2007, by section 46 of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section MB 10(4): added, on 1 October 2007, by section 46 of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

MB 11 Using GST refund to pay instalment of provisional tax

Offsetting amount

(1) If a provisional taxpayer has an excess of deductions over aggregate output tax in a taxable period under section 20(5) of the Goods and Services Tax Act 1985, they may choose to use an amount of the excess to pay some or all of an instalment of provisional tax that is due on the same instalment date.

(2) If a person makes an election under subsection (1) affecting an amount of an excess of deductions over aggregate output tax (elected amount) and the Commissioner makes an amended assessment reducing the amount of the excess to less than the elected amount, the person's payment of provisional tax arising from the GST refund is the amount of the excess after the reassessment.

Defined in this Act: amount, , Commissioner, , GST, , instalment date, , pay, , provisional tax, , provisional taxpayer, , taxable period

Section MB 11: substituted, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 11B Transitional provisions relating to alignment of dates of payment for provisional tax and GST

[Repealed]

Section MB 11B: repealed, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 12 Voluntary payments

A taxpayer may at any time make a voluntary payment of an amount of provisional tax that
- (a) relates to their income tax liability for a tax year in which they are not a provisional taxpayer:
- (b) is more than the provisional tax payable by them for the tax year:
- (c) is more than the income tax payable by them for the tax year.
Defined in this Act: amount, , income tax liability, , pay, , provisional tax, , provisional taxpayer, , tax year, , taxpayer

Section MB 12: substituted, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 13 Paying 2 instalments for tax year

Who this section applies to
(1) This section applies for a tax year to
- (a) a new provisional taxpayer whose first business day occurs in the period that starts 30 days before the date of instalment B and ends 30 days before the date of instalment D; or
- (b) a taxpayer whose return of income for the preceding tax year is provided in the period that starts on the date of instalment B and ends on the date of instalment D if
  - (i) the taxpayer was required to provide a return for the preceding tax year but, under section 37 of the Tax Administration Act 1994 or an extension under that section, the taxpayer is not required to provide the return by the date of instalment B; and
  - (ii) their residual income tax for the tax year before the preceding tax year was $2,500 or less.
Who this section does not apply to

(2) Despite subsection (1), this section does not apply to a provisional taxpayer who pays GST on a 6-monthly basis.

When instalments are due

(3) The instalments are due and payable on the date of instalments D and F for the taxpayer's corresponding income year.

Formula for amount of instalment

(4) The amount of each instalment is calculated under section MB 9.

Example: Section MB 13 Mr Red, who is not registered for GST, starts business on 20 August and has a March balance date. The first business day falls in the period that starts on 29 July (30 days before instalment B) and ends on 21 December (30 days before instalment D). Mr Red has 2 payments of provisional tax for the year, due on 15 January and 7 May second payment

Defined in this Act: amount, , corresponding income year, , first business day, , new provisional taxpayer, , pay, , residual income tax, , return of income, , tax year, , taxpayer

Section MB 13: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Section MB 13 example: substituted, on 1 October 2007, by section 121(1) of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

MB 14 Paying 1 instalment for tax year

Who this section applies to
(1) This section applies for a tax year to
- (a) a new provisional taxpayer whose first business day occurs in the period that starts 30 days before the date of instalment D and ends at the end of the corresponding income year:
- (b) a taxpayer whose return of income for the preceding tax year is not provided on or before the date of instalment D if
  - (i) the taxpayer was required to provide a return for the preceding tax year but, under section 37 of the Tax Administration Act 1994 or an extension under that section, is not required to provide the return by the date of instalment D; and
  - (ii) their residual income tax for the tax year before the preceding tax year was $2,500 or less:
- (c) a person who pays GST on a 6-monthly basis if
  - (i) their first business day occurs in the period that starts 30 days before the date of instalment C and ends at the end of the corresponding income year:
  - (ii) they meet the requirements of paragraph (b)(i) and (ii) as if the reference to instalment D in paragraph (b)(i) were a reference to instalment C.
When instalment due

(2) The instalment is due and payable on the date of instalment F for the taxpayer's corresponding income year.

Amount of instalment

(3) The amount of the instalment is calculated under section MB 9.

Example: Section MB 14 Ms Orange, who is registered for GST on a 2-monthly basis, starts business on 1 January and has a March balance date. Ms Orange is ordinarily liable to pay provisional tax in 3 instalments aligned with her GST payment dates (s MB 8(2)). However, because her first business day falls in the period that starts on 21 December (30 days before instalment D) and ends on 31 March, Ms Orange has 1 payment of provisional tax for the year, due on 7 May.

Defined in this Act: amount, , corresponding income year, , first business day, , GST, , new provisional taxpayer, , pay, , provisional tax, , residual income tax, , return of income, , tax year, , taxpayer

Section MB 14: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Section MB 14 example: substituted, on 1 October 2007, by section 122(1) of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Requirements for using GST ratio

Heading: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 15 Who may use GST ratio?

General eligibility

(1) A provisional taxpayer may choose to use a GST ratio to determine under section MB 4(6) the amount of provisional tax payable for a tax year only if they meet all the requirements in subsections (2) and (3) in relation to the same entity.

Requirements for preceding tax year
(2) For the purposes of determining their eligibility for a tax year, the taxpayer must meet the following requirements in the preceding tax year:
- (a) their residual income tax, as assessed, was more than $2,500 but no more than $150,000; and
- (b) they were a person registered under section 51 of the Goods and Services Tax Act 1985 for the whole tax year, and provided returns under that Act for an entity whose business or taxable activity did not begin operations in that tax year; and
- (c) the ratio of their residual income tax to total taxable supplies, as calculated under section MB 7(2) and expressed as a percentage, is between zero and 100%.
Requirement for current year

(3) For the tax year in which the taxpayer uses a GST ratio, they must be liable to file a return under the Goods and Services Tax Act 1985 for a 2-month or a 1-month period under section 15(1)(b) and (c) of that Act.

When election applies

(4) An election to use a GST ratio applies for the tax year for which the election is made and in later tax years, unless the taxpayer changes their determination method under section MB 17. The election is made under section MB 16.

Requirement to discontinue use of GST ratio
(5) Despite subsections (1) to (4), a taxpayer must discontinue the use of the GST ratio for the tax year and must apply section MB 17(4) or (5) if
- (a) their GST registration ends in the tax year; or
- (b) they no longer qualify under subsection (2) as a result of an amended assessment of their income tax liability or their GST liability for the preceding tax year; or
- (c) they no longer qualify under subsection (3) as a result of a change in their taxable period.
Failure to provide GST returns
(6) A taxpayer must not use, or must discontinue the use of, a GST ratio for a tax year if the taxpayer
- (a) is liable to provide a return under the Goods and Services Tax Act 1985 for a period in the taxpayer's corresponding income year; and
- (b) becomes in default under this subsection by failing to provide the return before the date that is 60 days after the due date for filing the return.
Provisional tax instalments for periods following default
(7) If a taxpayer is required by subsection (6) to discontinue the use of a GST ratio for a determination method, the taxpayer must make provisional tax instalments as required by section MB 17 for instalment periods
- (a) beginning on or after the due date for filing of the return for which the taxpayer becomes in default under subsection (6)(b); and
- (b) not affected by a notice issued by the Commissioner under subsection (8).
Further use of GST ratio
(8) A taxpayer who would otherwise be prohibited by subsection (6) from using a GST ratio for a determination method for an instalment period referred to in subsection (7)(a) may nevertheless use that determination method for the instalment period if the taxpayer
- (a) applies in writing for the Commissioner to issue a notice under this subsection; and
- (b) satisfies the Commissioner that
  - (i) the failure referred to in subsection (6)(b) is a result of an event or circumstance beyond the control of the taxpayer; and
  - (ii) as a consequence of that event or circumstance, the taxpayer has a reasonable justification or excuse for the failure; and
  - (iii) the taxpayer corrected the failure as soon as practicable; and
- (c) is sent a notice in writing by the Commissioner that the taxpayer may use the GST ratio for a determination method for the instalment period.
Standard of satisfaction

(9) The taxpayer must satisfy the Commissioner under subsection (8)(b) to a standard that would justify the remission of a penalty under section 183A of the Tax Administration Act 1994.

Effect of later default
(10) A notice to a taxpayer under subsection (8) does not apply to an instalment period if
- (a) the taxpayer becomes in default under subsection (6) in relation to a return for which the due date is after the date of the notice; and
- (b) the default is not expressly anticipated and taken into account in the notice; and
- (c) the instalment period begins on or after the due date referred to in paragraph (a).
References to preceding tax year

(11) In this section, a reference to a preceding tax year includes a reference to the tax year immediately before the preceding tax year if that earlier tax year is used for the purposes of calculating a GST ratio.

Defined in this Act: amount, , assessment, , business, , corresponding income year, , GST ratio, , income tax liability, , instalment period, , pay, , provisional tax, , provisional taxpayer, , registered person, , residual income tax, , tax year, , taxable activity, , taxable period, , taxable supply

Section MB 15: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 16 Choosing to use GST ratio

A taxpayer who meets the requirements referred to in section MB 15(1) for a tax year may use a GST ratio for the corresponding income year if the taxpayer, before the start of the corresponding income year, informs the Commissioner of the election to use a GST ratio for the tax year.

Defined in this Act: Commissioner, , corresponding income year, , GST ratio, , provisional taxpayer, , tax year

Section MB 16: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Section MB 16 list of defined terms notice: omitted, on 1 October 2007, by section 123(1) of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section MB 16 list of defined terms notify: omitted, on 1 October 2007, by section 123(1) of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

MB 17 Changing determination method

When this section applies
(1) This section applies if, after having chosen to use a GST ratio for a tax year, a provisional taxpayer either
- (a) chooses another way to determine the amount of provisional tax payable for the corresponding income year; or
- (b) is required under section MB 15(5) or (6) to discontinue the use of a GST ratio for the corresponding income year.
Notifying Commissioner of decision to change

(2) The taxpayer must notify the Commissioner of their decision under subsection (1)(a), and may do this either in writing or by telephone. Subsection (3) or (4) then applies for the remaining instalments for the income year.

Date on which use of GST ratio discontinued
(3) For the purposes of subsection (1)(b), the date on which the taxpayer discontinues their use of a GST ratio is, as applicable,
- (a) the date their GST registration ends; or
- (b) the date of the amended assessment of their income tax liability or GST liability for the preceding tax year; or
- (c) the effective date of a change in taxable period; or
- (d) the end of the period in which a return is liable to be provided under the Goods and Services Tax Act 1985.
Changing method before date of instalment A

(4) If the taxpayer is unable or decides not to use a GST ratio before the date of instalment A, they may choose to determine the amount of provisional tax payable under section MB 4(3) or (5), as if the election to use the GST ratio had not been made.

Changing method after instalment date

(5) If the taxpayer is unable or decides not to use the GST ratio after an instalment date, they must determine the amount of provisional tax payable on instalment for the remainder of the income year under section MB 4(5) on the basis of an estimate of their residual income tax for the tax year. For this purpose, the taxpayer may provide the estimate in writing or by telephone.

Date of application when method changed

(6) If a taxpayer changes their determination method under subsection (4) or (5), the date on which the change applies may be a future date agreed between the taxpayer and the Commissioner.

Other consequences of changing method
(7) For the purposes of this section,
- (a) the frequency and the instalment dates remaining for an income year depend on
  - (i) the requirements of the determination method chosen by the taxpayer when they stop using the GST ratio; and
  - (ii) the cycle of taxable periods chosen by the taxpayer, being either a monthly or 2-monthly basis:
- (b) a taxpayer may change from using a GST ratio to a 6-monthly cycle of taxable periods only if
  - (i) the requirements in section 15C of the Goods and Services Tax Act 1985 are met; and
  - (ii) their 6-month taxable period is aligned with their balance date under section 15B of the Goods and Services Tax Act 1985:
- (c) section 120KE(5) to (7) (Provisional tax and rules on use of money interest) of the Tax Administration Act 1994 applies to determine whether and when use of money interest is payable in relation to instalments under the new determination method.
Defined in this Act: amount, , balance date, , Commissioner, , corresponding income year, , GST ratio, , income year, , instalment date, , notify, , pay, , provisional tax, , provisional taxpayer, , residual income tax, , tax year, , taxable period

Section MB 17: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Section MB 17(4) heading: amended, on 1 October 2007, by section 124(1) of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

MB 18 Disposal of assets

When this section applies
(1) This section applies if, as part of the business of an entity described in section MB 15(1), a provisional taxpayer disposes of an asset
- (a) that is not revenue account property; and
- (b) the value of the supply of which is not less than the greater of
  - (i) an amount equal to 5% of the total taxable supplies of the business for the previous 12 months:
  - (ii) $1,000.
Adjustment to GST ratio for current and next income year
(2) The taxpayer may choose to take the disposal of the asset into account by adjusting their taxable supplies for the relevant taxable period and income year. The adjustment must be made to both
- (a) the amount of the taxpayer's taxable supplies for the purposes of the formula in section MB 10(1), by subtracting an amount that equals the value of the supply of the asset (as determined under section 10 of the Goods and Services Tax Act 1985) from the amount of taxable supplies for the relevant taxable period; and
- (b) the base amount of the taxpayer's taxable supplies for the next income year, by subtracting the amount that equals the value of the supply of the asset referred to in paragraph (a) from total taxable supplies in working out the GST ratio under section MB 7(2).
Notifying Commissioner

(3) For the purposes of subsection (2), the taxpayer must notify the Commissioner of both the disposal of the asset and the value of its supply, and may do this either in writing or by telephone.

Rounding percentages

(4) In the determination of the value of the supply of the asset under subsection (1)(b)(i), the amount must be rounded to a whole percentage number.

Defined in this Act: amount, , base amount, , business, , Commissioner, , GST ratio, , income year, , instalment date, , notify, , provisional taxpayer, , revenue account property, , taxable period, , taxable supply

Section MB 18: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Transitional years

Heading: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 19 Calculating residual income tax in transitional years

Calculation for transitional year
(1) This section applies for the purposes of section MB 4(3) and the calculation of a taxpayer's residual income tax for a tax year if—
- (a) the preceding tax year is a transitional year:
- (b) the tax year before the preceding tax year is a transitional year.
Calculation for transitional year

(2) The amount of residual income tax for the transitional year must be increased or decreased by the amount given by the formula in subsection (3) so as to reflect the amount that would apply in a 12-month period.

Formula

(3) The amount is calculated using the formula—

residual income tax days in current year days in transitional year

Defined in this Act: amount, , first business day, , new provisional taxpayer, , residual income tax, , tax year, , taxpayer, , transitional year

Section MB 19: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Section MB 19(1)(a): amended, on 1 October 2007, by section 125(1) of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section MB 19(1)(b): amended, on 1 October 2007, by section 125(1) of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

MB 20 Paying provisional tax in transitional years

Total amount payable

(1) The total amount of provisional tax payable in a transitional year is the sum of all instalments of provisional tax due in the transitional year.

When instalments due
(2) Instalments other than a final instalment of provisional tax are due on
- (a) the 28th day of the months set out in schedule 13, part B (Months for payment of provisional tax and terminal tax), reflecting the instalment dates set out in part A of the schedule, unless paragraph (b) applies:
- (b) the 15th day of January, when the month set out in schedule 13, part A is December.
When final instalment due
(3) Payment of the final instalment is due on
- (a) the 28th day of the month following the final month in the transitional year; or
- (b) the 15th day of January, when November is the final month.
Modifications to instalment dates
(4) For the purposes of subsection (2), provisional tax is not due and payable on
- (a) the date of instalment B, if section MB 13 would have applied had the tax year not been a transitional year; or
- (b) the dates of instalments B and D, if section MB 14(1)(a) and (b) would have applied had the tax year not been a transitional year; or
- (c) the dates of instalments B, D, and F, if the taxpayer is a new provisional taxpayer whose first business day occurs after the day that is 30 days before the date of instalment F; or
- (d) the date of instalment C, if section MB l4(1)(c) would have applied had the tax year not been a transitional year; or
- (e) the dates of instalments C and F, if the taxpayer is a new provisional taxpayer who pays GST on a 6-monthly basis whose first business day occurs after the day that is 30 days before the date of instalment F.
Counting months in transitional years
(5) In this section, and in sections MB 21 to MB 24, and in schedule 13, part B (Months for payment of provisional tax and terminal tax), the number of months in a transitional year is determined as follows:
- (a) the first month in a taxpayer's transitional year is the first whole month in the transitional year:
- (b) the final month in a transitional year is the month in which the taxpayer's new balance date under section 39 of the Tax Administration Act 1994 occurs:
- (c) each month falling between the first and final months must be included in determining the length of the transitional year.
Defined in this Act: amount, , final instalment, , first business day, , new provisional taxpayer, , pay, , provisional tax, , tax year, , transitional year

Section MB 20: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 21 Calculating instalments in transitional years: standard method

When this section applies

(1) This section applies to instalments of provisional tax payable in a transitional year under section MB 20 by a provisional taxpayer using the standard method to calculate their provisional tax liability.

Instalment other than final instalment

(2) The amount payable on an instalment date other than the final instalment date is calculated using the formula—

provisional tax instalments due total instalments tax previously due

Definition of items in formula in subsection (2)
(3) In the formula in subsection (2),
- (a) provisional tax is the provisional tax liability under section MB 4(3):
- (b) instalments due is the number of instalments due in the transitional year on or before the instalment date:
- (c) total instalments is whichever of the following applies:
  - (i) 3, for provisional taxpayers who pay on instalment dates B, D, and F; or
  - (ii) 2, for provisional taxpayers who pay on instalment dates C and F:
- (d) tax previously due is the amount for the transitional year of provisional tax that is due and payable before the instalment date.
Final instalment

(4) The amount payable on a final instalment date is calculated using the formula—

provisional tax transitional year days preceding year days tax previously due

Definition of items in formula in subsection (4)
(5) In the formula in subsection (4),
- (a) provisional tax is the provisional tax liability under section MB 4(3):
- (b) transitional year days is the number of days in the transitional year:
- (c) preceding year days is the number of days in the preceding tax year:
- (d) tax previously due is the amount for the preceding tax year of provisional tax that is due and payable before the instalment date.
Defined in this Act: amount, , instalment date, , final instalment date, pay, , provisional tax, , provisional taxpayer, , tax year, , transitional year

Section MB 21: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 22 Calculating instalments in transitional years: estimation method

When this section applies

(1) This section applies to instalments of provisional tax payable in a transitional year under section MB 20 by a provisional taxpayer using the estimation method to calculate their provisional tax liability.

Instalment other than final instalment

(2) The amount payable on an instalment date other than the final instalment date is calculated using the formula—

tax estimate instalments due transitional months tax previously due

Definition of items in formula in subsection (2)
(3) In the formula,
- (a) tax estimate is the provisional tax liability last estimated by the taxpayer under section MB 4(5):
- (b) instalments due is either
  - (i) 4 multiplied by the number of instalments in the transitional year that are due on or before the instalment date, for provisional taxpayers who pay on the equivalent of instalment dates B, D, and F; or
  - (ii) 6 multiplied by the number of instalments in the transitional year that are due on or before the instalment date, for provisional taxpayers who pay on the equivalent of instalment dates C and F:
- (c) transitional months is the number of months in the transitional year:
- (d) tax previously due is the amount for the transitional year of provisional tax that is due and payable before the instalment date.
Final instalment

(4) The amount payable on a final instalment date is the amount of provisional tax determined under section MB 4(5) less the amount of any instalment previously due and payable.

Defined in this Act: amount, , instalment date, , final instalment date, pay, , provisional tax, , provisional taxpayer, , transitional year

Section MB 22: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 23 Calculating instalments in transitional years: GST ratio method

What this section applies to

(1) This section applies to instalments of provisional tax payable in a transitional year by a provisional taxpayer using a GST ratio.

Adjustment if required

(2) The taxpayer must apply the GST ratio under section MB 10 to any period or part period before the start of the new income year on whichever dates of instalments A to F for their corresponding income year occur in the transitional year.

Defined in this Act: GST ratio, , income year, , pay, , provisional tax, , provisional taxpayer, , transitional year

Section MB 23: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 24 Consequences of change in balance date

Continuing frequency

(1) If a provisional taxpayer changes their balance date, until the new balance date is reached, the taxpayer must continue to use the instalment dates that applied before the change in balance date was approved.

How amounts determined

(2) Sections MB 19 to MB 23 and schedule 13, part B (Months for payment of provisional tax and terminal tax) apply for the transitional year in subsection (1) to determine the amount and due date of the instalments.

Estimation method
(3) In a transitional year, a provisional taxpayer who uses the estimation method must,
- (a) before the date on which the Commissioner notifies a change in balance date, estimate the residual income tax as if no change in balance date is or will be approved; and
- (b) after the date on which the Commissioner notifies a change in balance date, re-estimate the residual income tax.
GST ratio method
(4) Subsection (5) applies when a provisional taxpayer who uses a GST ratio to determine the provisional tax payable for a tax year, changes their balance date and moves from
- (a) a set of instalment dates in even-numbered months to a set of instalment dates in odd-numbered months; or
- (b) a set of instalment dates in odd-numbered months to a set of instalment dates in even-numbered months.
Adjustment to liability

(5) The taxpayer must adjust their provisional tax liability for the income year for the part period of 1 month before the start of the new income year. The part period is their final taxable period, and the instalment of provisional tax is due 28 days after the end of that period.

Aligning taxable periods

(6) For a provisional taxpayer with a GST liability, if a change in balance date means that the taxpayer's taxable period is not aligned with the balance date, an adjustment must be made to their taxable period under section 15B(3) or 15C of the Goods and Services Tax Act 1985.

Example: Sections MB 20 to MB 24 Mr Yellow, who has a March balance date, decides to change to a May balance date. The transitional year is 14 months long. He starts business and becomes a new provisional taxpayer on 31 July, estimating provisional tax at $15,000 for the income year. At the end of the year, Mr Yellow's residual income tax is $20,000. Instalments in transitional year: 28th day of 5th, 9th, and 13th months after balance date, and final instalment on 28th day of month following final month in transitional year (s MB 22 and schedule 13, part B). But the first business day falls within 30 days of the date that would be the first instalment, 28 August (s MB 13), so no instalment is due. The April instalment only is due on 7 May. Amounts payable on the instalment dates are calculated under s MB 22. First instalment due 15 January: $15,000 x 4/14 = $4,285 Second instalment due 7 May: $15,000 x 8/14 - $4,285 = $4,286 Final instalment due 28 June: $15,000 – $8,571 = $6,429.

Defined in this Act: amount, , balance date, , Commissioner, , GST ratio, , income year, , instalment date, , notify, , pay, , provisional tax, , provisional taxpayer, , residual income tax, , tax year, , taxable period

Section MB 24: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Section MB 24 example: substituted, on 1 October 2007, by section 126(1) of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

When provisional taxpayers start or stop paying GST, or change taxable periods

Heading: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 25 Registering for GST or cancelling registration

When this section applies
(1) This section applies if a provisional taxpayer who uses the standard or estimation method to determine the amount of provisional tax payable for a tax year
- (a) applies to the Commissioner to become a registered person under section 51 of the Goods and Services Tax Act 1985; or
- (b) is treated as registered under section 51B of that Act; or
- (c) asks the Commissioner to cancel their GST registration, or has their GST registration cancelled under section 52 of that Act.
Starting or ending GST registration: monthly or 2-monthly basis

(2) For a taxpayer who becomes registered for GST paying on a monthly or 2-monthly basis, or who cancels or has their GST registration cancelled having paid on that basis, the instalments of provisional tax payable by them for the tax year are unaffected.

Starting GST registration: 6-monthly basis

(3) For a taxpayer who becomes registered for GST paying on a 6-monthly basis, instalments of provisional tax are due and payable on whichever dates of instalments C and F for their corresponding income year coincide with the cycle of their taxable periods after they become a registered person.

Ending GST registration: 6-monthly basis

(4) For a taxpayer who pays GST on a 6-monthly basis and cancels their GST registration or has their registration cancelled, instalments of provisional tax are due and payable on whichever dates of instalments B, D, and F for their corresponding income year occur after 30 days from the date of cancellation.

Date of cancellation

(5) For the purposes of subsection (4) and the provisional tax rules, the date of cancellation is the date on which the cancellation of GST registration is notified.

Formula for amount of instalment

(6) The amount of each instalment is calculated under section MB 9.

Defined in this Act: amount, , corresponding income year, , GST, , pay, , provisional tax, , provisional taxpayer, , registered person, , tax year, , taxable period

Section MB 25: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 26 Changing GST cycle

When this section applies

(1) This section applies when a provisional taxpayer with a GST liability changes under section 15C of the Goods and Services Tax Act 1985 their cycle of taxable periods.

When taxable periods aligned
(2) The change takes effect as described in section 15D of the Goods and Services Tax Act 1985 if the following coincide:
- (a) the end of the taxable period in which the taxpayer
  - (i) applies to change the basis on which the taxpayer's taxable period is set:
  - (ii) is required to change the basis on which the taxpayer's taxable period is set:
- (b) the start of the taxable period in the taxpayer's new cycle.
When taxable periods not aligned

(3) If subsection (2) does not apply, the taxpayer must continue to use the taxpayer's existing cycle until the end of the next taxable period for which the end coincides with the start of a taxable period in the new cycle. This section overrides section 15D(2) of the Goods and Services Tax Act 1985.

Defined in this Act: instalment dates, , interest instalment date, , provisional tax, , provisional taxpayer, , tax year, , taxable period

Section MB 26: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 27 Payment of provisional tax instalments when GST cycle changed

When subsection (2) applies
(1) Subsection (2) applies in a tax year to a provisional taxpayer who
- (a) uses the standard or estimation method to determine the amount of provisional tax payable; and
- (b) has been paying GST on a monthly or 2-monthly basis; and
- (c) changes to a 6-monthly basis under section 15C(1) of the Goods and Services Tax Act 1985.
When instalments are due: changing to 6-monthly basis

(2) Instalments of provisional tax are due and payable on whichever dates of instalments C and F for the taxpayer's corresponding income year occur after the change in taxable period takes effect under section MB 26.

When subsection (4) applies
(3) Subsection (4) applies in a tax year to a provisional taxpayer who
- (a) uses the standard or estimation method to determine the amount of provisional tax payable; and
- (b) has been paying GST on a 6-monthly basis; and
- (c) changes to a monthly or 2-monthly basis under section 15C(2) or (3) of the Goods and Services Tax Act 1985.
When instalments due: changing to monthly or 2-monthly basis

(4) Instalments of provisional tax are due and payable on whichever dates of instalments B, D, and F for the taxpayer's corresponding income year occur after the change in taxable period takes effect under section MB 26.

Interest instalment dates in new cycle

(5) If an instalment of provisional tax due on an instalment date in the new cycle is payable in relation to a period in the taxpayer's original cycle and was, under that original cycle, an interest instalment date, it remains an interest instalment date in the new cycle. However, if the instalment is due and payable on an instalment date other than an interest instalment date, the change does not affect the nature of the instalment.

Formula for amount of instalment

(6) The amount of each instalment is calculated under section MB 9.

Examples: Sections MB 26 and MB 27 (using March balance dates) 1 Professor Green starts the income year registered for GST on a monthly basis, and on 10 June asks to change to a 6-monthly basis the change takes effect on 30 September (s MB 26(2)) provisional tax instalment payable on old cycle on 28 August provisional tax instalment due on 7 May (s MB 27(2)). 2 Ms Blue starts the income year registered for GST on a 6-monthly basis, and on 10 June asks to change to a monthly basis: the change takes effect on 30 September (s MB 26(2)) provisional tax instalment payable on old cycle on 28 October provisional tax instalments due on 15 January, 7 May (s MB 27(4)). 3 Mr Indigo starts the income year registered for GST on a monthly basis, and on 20 October asks to change to a 6-monthly basis: the change takes effect on following 31 March provisional tax instalments paid on old cycle on 28 August, 15 January, 7 May (ss MB 26(3), MB 27(5)). 4 Miss Violet starts the income year registered for GST on a 6-monthly basis, and on 10 June ends her GST registration: the change takes effect for provisional tax purposes on 10 June (s MB 25(5)) provisional tax instalments due on 28 August, 15 January, 7 May (s MB 25(4)).

Defined in this Act: amount, , corresponding income year, , GST, , provisional tax, , provisional taxpayer, , tax year, , taxable period

Section MB 27: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Section MB 27 example: substituted, on 1 October 2007, by section 127(1) of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Penalties and interest provisions

Heading: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 28 Application of provisions of Tax Administration Act 1994

Safe harbour for standard method

(1) If a provisional taxpayer meets the requirements in section 120KE(1) of the Tax Administration Act 1994, their provisional tax is treated as due and payable in 1 instalment on their terminal tax date.

GST ratio method
(2) A provisional taxpayer who uses a GST ratio in a tax year to determine the amount of an instalment of provisional tax is liable to pay an amount of use of money interest, a late payment penalty, or a shortfall penalty only in the circumstances set out in, as applicable, the following sections of the Tax Administration Act 1994:
- (a) sections 120KB to 120KE:
- (b) section 139C(1B):
- (c) section 141EA.
Defined in this Act: amount, , GST ratio, , pay, , provisional taxpayer, , residual income tax, , shortfall penalty, , tax year, , terminal tax date

Section MB 28: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Section MB 28(1): amended, on 1 October 2007, by section 128(1) of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Treatment of groups of companies and amalgamated companies

Heading: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 29 Provisional tax rules and consolidated groups

Single company

(1) The provisional tax rules apply, with the necessary modifications, to a consolidated group of companies as if it were a single company.

Joint and several liability

(2) Each company in a consolidated group in a tax year is jointly and severally liable for the amount of provisional tax payable by the consolidated group to be credited against the income tax liability of the group for the tax year. The individual liability of a company for income tax for the tax year is substituted by that joint and several liability to the extent to which the liability arises while the company is a member of the consolidated group.

Relationship with section HB 1

(3) Section HB 1(5) (Returns, assessments, and liability of consolidated group) overrides this section.

Defined in this Act: amount, , company, , consolidated group, , income tax, , income tax liability, , pay, , provisional tax, , provisional tax rules, , tax year

Section MB 29: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 30 Residual income tax of consolidated groups

When this section applies

(1) This section applies for the purposes of the provisional tax rules if a company is a member of a consolidated group of companies in a tax year but was not a member of the group for all or part of the preceding tax year.

Increased residual income tax

(2) The residual income tax of the consolidated group for the preceding tax year is treated as increased by an amount equal to the residual income tax of the company for the preceding tax year. If the company is a member of the group for part of the current tax year, the amount of residual income tax is increased as a proportion on the basis of the part of the tax year during which the company is a member of the group.

Instalments due after company becomes member

(3) If the company is a member of a group for part of the tax year, this section applies only to instalments of provisional tax payable after the date on which the company becomes a member.

Defined in this Act: amount, , company, , consolidated group, , pay, , provisional tax, , provisional tax rules, , residual income tax, , tax year

Section MB 30: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 31 Consolidated groups using estimation method

When subsection (2) applies

(1) Subsection (2) applies for the purposes of the provisional tax rules if a company is a member of a consolidated group of companies for all or part of a tax year but is not a member of the group for all or part of the following tax year.

Estimation before final instalment date

(2) The company must estimate its residual income tax on or before the date of instalment F for the following income year that corresponds to the tax year, and the company is treated as a provisional taxpayer to which section MB 6 applies for the purposes of its estimate.

When company member of another consolidated group

(3) The consolidated group, in the case of a company that is a member of another consolidated group, must make an estimate of residual income tax on or before the date of instalment F for the following income year that corresponds to the tax year, and the consolidated group is treated as a provisional taxpayer to which section MB 6 applies for the purposes of its estimate.

When company no longer member

(4) If a company stops being a member of the consolidated group in the following tax year, the company's estimate applies only to instalments of provisional tax payable after the date on which it stopped being a member.

Defined in this Act: company, , consolidated group, , corresponding income year, , pay, , provisional tax rules, , provisional taxpayer, , residual income tax, , tax year

Section MB 31: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 32 Consolidated groups using GST ratio method

Sections MB 7, MB 8(5), MB 10, and MB 15 to MB 18 apply to a consolidated group of companies with the following modifications:
- (a) if a consolidated group that is eligible to use, or is using, a GST ratio for a tax year is joined by a new member, the following subparagraphs apply:
  - (i) if the new member joins at the start of the tax year and, as a result, the threshold in section MB 15(2)(a) is exceeded, the group is no longer eligible to use a GST ratio:
  - (ii) if the new member joins at the start of the tax year, and the group, allowing for the inclusion of the new member, is eligible under section MB 15(1), the group may use a GST ratio, subject to the recalculation of the ratio under paragraph (c):
  - (iii) if the new member joins at some time in the tax year, the group may continue to use a GST ratio for the tax year, as recalculated under paragraph (c), provided the requirements for eligibility other than the threshold in section MB 15(2)(a) are met:
- (b) if a consolidated group that does not determine provisional tax payable for a tax year using a GST ratio is joined by a new member that is using a GST ratio for the tax year, the group may not start using a GST ratio for this purpose for the tax year:
- (c) for the purposes of paragraph (a),
  - (i) the group must recalculate the GST ratio applying for a tax year to include the residual income tax of the new member for the preceding tax year and the total taxable supplies of the new member for the corresponding income year, applying section MB 7(3) if required; and
  - (ii) the recalculated GST ratio applies to provisional tax payments made for the corresponding income year on or after the date on which the new member joins the group:
- (d) section MB 15(3) and section MB 17(4) or (5), as applicable, apply to a company that leaves a consolidated group at some time in a tax year.
Defined in this Act: consolidated group, , corresponding income year, , GST ratio, , pay, , provisional tax, , residual income tax, , tax year, , taxable supply

Section MB 32: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 33 Wholly-owned groups of companies

When this section applies

(1) This section applies for the purposes of the provisional tax rules and Part 7 of the Tax Administration Act 1994 in relation to a company (company A) that is a member in a tax year of a wholly-owned group of companies that includes another company (company B). Section MD 2 (Limits on refunds and allocations of tax) overrides this section.

Company A allocating overpayment to company B

(2) If, for a tax year, company A has paid an amount of provisional tax that is more than the residual income tax payable for the tax year, the company may allocate some or all of the overpayment to company B to the extent to which the amount of provisional tax paid by company B is less than their residual income tax for the tax year. Company A must notify the Commissioner under subsection (4).

When allocation made
(3) Company A may allocate an amount under subsection (2) on or after the later of
- (a) the day on which company A overpays the provisional tax; or
- (b) the day on which the first instalment of provisional tax for the tax year becomes payable by company B.
Notice
(4) A notice under subsection (2) must
- (a) name company B, and the amount to be allocated; and
- (b) state the date on which the overpayment is treated as allocated to company B; and
- (c) be provided to the Commissioner
  - (i) within the time for providing a return of income for the tax year for company B:
  - (ii) within any extension of time that the Commissioner allows.
When allocation made, and how allocation treated
(5) For the purposes of this section,
- (a) an allocation under subsection (2) is treated as made on the date stated in the notice; and
- (b) provisional tax allocated to company B by company A is treated as provisional tax paid by company B and not by company A.
Defined in this Act: amount, , Commissioner, , company, , notice, , notify, , pay, , provisional tax, , provisional tax rules, , residual income tax, , return of income, , tax year, , wholly-owned group of companies

Section MB 33: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 34 Amalgamated companies: calculating residual income tax

When this section applies

(1) This section applies if an amalgamating company ceases to exist on an amalgamation occurring in an income year of the amalgamated company that corresponds to a tax year.

Residual income tax for preceding tax year

(2) The residual income tax of the amalgamated company for the preceding tax year is the amount that would have been the residual income tax of the amalgamated company for the preceding tax year if the amalgamating company and the amalgamated company had always been 1 company.

Exception: instalments of provisional tax

(3) Subsection (2) does not apply for the purposes of the provisional tax rules in relation to instalments of provisional tax payable before the amalgamation.

Defined in this Act: amalgamated company, , amalgamating company, , amalgamation, , amount, , company, , pay, , provisional tax, , provisional tax rules, , residual income tax, , tax year

Section MB 34: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Attribution rule for services

Heading: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 35 Attribution rule for services

When this section applies

(1) This section applies for the purposes of the provisional tax rules and Part 7 of the Tax Administration Act 1994 for provisional tax paid for income from personal services to which section GC 14B (Attribution rule for personal services) may apply.

Person B allocating amount to person C

(2) If, in a tax year, person B pays an amount of provisional tax that is more than the residual income payable for the tax year, person B may allocate some or all of the overpayment to person C to the extent to which the amount of provisional tax paid by person C is less than their residual income tax for the tax year.

Person C allocating amount to person B

(3) If, in a tax year, person C pays an amount of provisional tax that is more than the residual income payable for the tax year, person C may allocate some or all of the overpayment to person B to the extent that the amount of provisional tax paid by person B is less than their residual income tax for the tax year.

When allocation made
(4) Persons B and C may allocate an amount under subsection (2) or (3) on or after the later of
- (a) the day on which the overpayment of provisional tax is paid by person B or person C, as applicable; or
- (b) the day on which the first instalment of provisional tax payable for the tax year becomes payable by
  - (i) person C, if person B is making the allocation; or
  - (ii) person B, if person C is making the allocation.
Notice
(5) The Commissioner must be notified of an allocation under subsection (2) or (3) in a notice that
- (a) names the person to whom an allocation is made, and the amount to be allocated; and
- (b) states the date on which the overpayment is treated as allocated to person B or person C, as applicable; and
- (c) is provided within the time for providing a return of income for the tax year for the person to whom the allocation is made.
When allocation made, and how allocation treated
(6) For the purposes of this section,
- (a) an allocation under subsection (2) or (3) is treated as made on the day stated in the notice; and
- (b) provisional tax allocated to person C by person B for a tax year is treated as provisional tax paid by person C and not by person B; and
- (c) provisional tax allocated to person B by person C is treated as provisional tax paid by person B and not by person C.
Defined in this Act: amount, , Commissioner, , notice, , notify, , pay, , provisional tax, , provisional tax rules, , residual income tax, , return of income, , tax year

Section MB 35: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Overpayments and credits

Heading: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 36 Overpaid provisional tax

When this section applies

(1) This section applies when the amount of provisional tax payable by a provisional taxpayer for a tax year is reduced by the taxpayer, or by the Commissioner under section 119(2) of the Tax Administration Act 1994.

Reduction in amount of provisional tax payable
(2) If the taxpayer applies for a refund of the amount of provisional tax already paid that is as a result of the reduction more than the amount that would have been payable in relation to earlier instalment dates for the tax year, the Commissioner must
- (a) apply the overpayment as the taxpayer asks under section 173T of the Tax Administration Act 1994 or, if no request is made, in a way that the Commissioner determines in payment of tax or another amount that is payable by them; and
- (b) refund any balance of the overpayment.
Reduction in assessment
(3) If the taxpayer's residual income tax is assessed as not more than $2,500, and they apply for the refund of an amount of provisional tax that has been determined under section MB 8 and already paid (other than on a final instalment), the Commissioner must
- (a) apply the amount as the taxpayer asks under section 173T of the Tax Administration Act 1994 or, if no request is made, in a way the Commissioner determines in payment of tax or another amount that is payable by them; and
- (b) refund any balance of the amount.
Treatment of amount refunded or credited
(4) When an overpayment or amount of provisional tax for a tax year has been applied or refunded under subsection (2) or (3),
- (a) a later instalment payable under section MB 9 or MB 10, as applicable, is calculated as if the total instalments previously payable were reduced by the amount of the overpayment or amount; and
- (b) the overpayment or amount applied or refunded is, from the date of action taken by the Commissioner, treated as not being provisional tax paid for the tax year.
Defined in this Act: amount, , Commissioner, , instalment date, , pay, , provisional tax, , provisional taxpayer, , residual income tax, , tax, , tax year

Section MB 36: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 37 Further income tax credited to provisional tax liability

When this section applies

(1) This section applies for the purposes of sections MB 8 to MB 10 if, under section ME 9 (Further tax payable where end of year debit balance or when company ceases to be imputation credit account company), a company applies an amount of further income tax to pay an instalment of provisional tax for which the company becomes liable after the date of payment of the further income tax.

Amount treated as provisional tax

(2) The instalment is satisfied to the extent of the amount of further income tax. The amount is treated as provisional tax paid on the date on which the instalment was due and payable.

Order
(3) The Commissioner must credit the amount of the further income tax in payment successively of
- (a) the instalment of provisional tax that is first due and payable after the date of payment of the further income tax; and
- (b) to the extent of the amount of further income tax, to later instalments in the order in which they are due and payable.
Defined in this Act: amount, , company, , further income tax, , pay, , provisional tax

Section MB 37: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Disaster relief

Heading: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MB 38 Provisional taxpayer affected by self-assessed adverse event or qualifying event

Who this section applies to

(1) This section applies to a provisional taxpayer with a business that is significantly affected by a self-assessed adverse event or qualifying event. This section overrides section MB 6.

Taxpayer's request

(2) The provisional taxpayer may ask the Commissioner to accept an estimate or a revised estimate of the residual income tax payable by them for a tax year.

Acceptance of estimate
(3) The Commissioner may accept an estimate or revised estimate described in subsection (2) if all the following requirements are met:
- (a) the business is significantly affected by the self-assessed adverse event or qualifying event; and
- (b) it is not reasonable to require the taxpayer to provide under section MB 6 an estimate or revised estimate of residual income tax payable by them for the tax year; and
- (c) the basis on which the taxpayer has chosen to pay provisional tax is now inappropriate; and
- (d) the taxpayer asks to revise their estimate as soon as practicable.
Treatment of revised estimate

(4) If a revised estimate is accepted under subsection (3), it is treated as the estimate applying on the date of instalment F.

Defined in this Act: Commissioner, , provisional tax, , provisional taxpayer, , qualifying event, .

Section MB 38: added, on 1 October 2007, by section 137(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subpart MBA—Pooling of provisional tax

MBA 1 Purpose

MBA 2 Function of intermediary and tax pooling account

MBA 3 Application to establish tax pooling account

MBA 4 Tax pooling account

MBA 5 Deposits to tax pooling account

MBA 6 Transfers from tax pooling account

MBA 7 Refunds from tax pooling account

MBA 8 Wind up of tax pooling account

MBA 9 Tax treatment of payments of interest

MBA 1 Purpose

The purpose of this subpart is to allow taxpayers to manage provisional tax payment risks by—
- (a) reducing use of money interest on underpaid tax; and
- (b) increasing use of money interest on overpaid tax.
Compare: 1994 No 164 s MBB 1

MBA 2 Function of intermediary and tax pooling account

A taxpayer may agree with a person who holds a tax pooling account that the person (in this subpart called an intermediary) will act as an intermediary between the taxpayer and the Commissioner in using funds from the tax pooling account to meet the taxpayer's obligations to pay provisional tax.

Compare: 1994 No 164 s MBB 2

MBA 3 Application to establish tax pooling account

(1) A person (in this section called the applicant) may apply to the Commissioner for the establishment of a tax pooling account in the applicant's name by a notice that states—
- (a) the applicant's full name, address, and tax file number; and
- (b) that the applicant has administration and information technology systems that satisfy section MBA 4(4) and will maintain and operate those systems as required by that section; and
- (c) that the applicant has established a trust account into which the applicant will pay amounts that the applicant receives as an intermediary; and
- (d) that the applicant, if a natural person, or each of the persons acting as an officer of the applicant, if the applicant is not a natural person, and any principal of the applicant,—
  - (i) is not a discharged or undischarged bankrupt; and
  - (ii) has not been convicted of an offence involving dishonesty; and
  - (iii) is eligible to be a company director; and
- (e) that the applicant, before acting as an intermediary for a taxpayer, will inform the taxpayer—
  - (i) that the Commissioner is not required to oversee or audit the operation of the tax pooling account; and
  - (ii) that the Commissioner is not liable for any loss that a person suffers because of the way in which the intermediary operates the tax pooling account; and
  - (iii) of the requirements of paragraphs (b), (c), and (d).
(2) The Commissioner may give written approval for an applicant to establish a tax pooling account if the Commissioner is satisfied that—
- (a) the applicant will operate the tax pooling account correctly; and
- (b) the applicant's information technology systems will allow the applicant to make payments and provide information in a prescribed format.
Compare: 1994 No 164 s MBB 3

MBA 4 Tax pooling account

(1) An intermediary must establish a tax pooling account with the Commissioner in the name of the intermediary.

(2) A tax pooling account continues until wound up and does not relate to a particular tax year.

(3) An intermediary who accepts a payment from a taxpayer for deposit in a tax pooling account must, at or before the time of the payment, give notice to the taxpayer that a payment to the intermediary does not satisfy any obligation of the taxpayer to make a payment to the Commissioner.
(4) An intermediary must maintain and operate administration and information technology systems that—
- (a) protect the privacy of the personal information and payment details acquired by the intermediary in the operation of the intermediary's tax pooling account; and
- (b) record the amount remaining at any time in the intermediary's tax pooling account that has been contributed by each taxpayer from whom the intermediary accepts payments.
(5) The Commissioner is not required to oversee or audit the operation of a tax pooling account.
(6) The Commissioner is not liable for any loss that a person suffers because—
- (a) an intermediary does not deposit a taxpayer's payment into a tax pooling account:
- (b) an intermediary makes an unauthorised withdrawal from a tax pooling account:
- (c) an intermediary fails to request a transfer of funds from a tax pooling account to a taxpayer's account with the Commissioner.
Compare: 1994 No 164 s MBB 4

MBA 5 Deposits to tax pooling account

(1) When a deposit is made to a tax pooling account, the intermediary must provide the Commissioner with a notice by electronic means that gives, for each taxpayer who has contributed to the amount deposited,—
- (a) the name and tax file number of the taxpayer; and
- (b) the amount contributed by the taxpayer to the deposit.
(2) When the Commissioner receives a deposit and the details required by subsection (1), the Commissioner must give to the intermediary a notice of—
- (a) the account into which the deposit has been paid; and
- (b) the taxpayers who are recorded as being associated with the deposit; and
- (c) the amount of the deposit that is recorded as being associated with each taxpayer.
(3) The Commissioner must refund a deposit if the details required by subsection (1) are not provided within 5 working days.
(4) The principal amount of a payment that a taxpayer makes to an intermediary for deposit in a tax pooling account is held by the intermediary in trust for the taxpayer until the principal amount is—
- (a) credited to an account with the Commissioner of the taxpayer:
- (b) credited to an account with the Commissioner of another taxpayer who is a client of the intermediary:
- (c) refunded to the taxpayer.
(5) Interest that is paid by the Commissioner on an amount that is deposited in a tax pooling account accrues to the benefit of the intermediary from the date of the deposit and is payable to the intermediary on—
- (a) the effective date of the credit of the amount to another account with the Commissioner:
- (b) the date that the amount is refunded by the Commissioner to the intermediary.
(6) An amount deposited into a tax pooling account is treated as tax paid by the intermediary for the purpose of calculating use of money interest but for no other purpose.

Compare: 1994 No 164 s MBB 5

MBA 6 Transfers from tax pooling account

(1) An intermediary may, from time to time,—
- (a) request that the Commissioner transfer an amount in the intermediary's tax pooling account to the account with the Commissioner of a taxpayer who is a client of the intermediary:
- (b) request that the transferred amount be treated as producing a credit in the taxpayer's account on a date that is on or after the date on which the transferred amount was deposited in the tax pooling account.
(2) The date on which a transferred amount is treated as producing a credit in the taxpayer's account (the effective date of the transfer) is—
- (a) the date requested by the intermediary for the transfer, unless—
  - (i) the requested date is in a tax year for which the taxpayer's terminal tax date is more than 60 days before the date on which the Commissioner receives the request; and
  - (ii) the taxpayer, when the Commissioner receives the request, is liable for a penalty that relates to the taxpayer's provisional tax obligations for the tax year; or
- (b) the date that the Commissioner receives the request for the transfer, otherwise.
(3) The intermediary must provide the Commissioner with the following details by electronic means:
- (a) the date on which an amount is to be transferred and the effective date of the transfer if this is a different date; and
- (b) the amount to be transferred; and
- (c) the tax file number of the taxpayer to whom the amount is to be transferred.
(4) The Commissioner must not transfer an amount if the transfer involves a deposited amount for which the details required by section MBA 5(1) have not been provided and the period of 5 working days for providing the details has not expired.

(5) The Commissioner must not transfer an amount from a tax pooling account to a taxpayer's account until the details required by subsection (3) have been provided.
(6) Once an amount has been transferred, the Commissioner must provide a statement showing the effect of the transfer to—
- (a) the intermediary; and
- (b) the taxpayer in respect of whom the transfer has been made.
(7) An amount transferred and credited to a taxpayer's account is treated as income tax paid to meet a provisional tax obligation under the provisional tax rules.

(9) The Commissioner may refuse to accept a request for a transfer, or may reverse a transfer, if the Commissioner considers that the request for the transfer is made for the purpose or effect of tax avoidance.

Compare: 1994 No 164 s MBB 6

MBA 7 Refunds from tax pooling account

An intermediary may request the Commissioner to refund all or part of the balance in their tax pooling account.

Compare: 1994 No 164 s MBB 7

MBA 8 Wind up of tax pooling account

(1) An intermediary may wind up their tax pooling account at any time.
(2) Subject to subsection (3), the Commissioner may require an intermediary to wind up their tax pooling account immediately, or on a date specified by the Commissioner, if the Commissioner considers that—
- (a) the intermediary's actions are preventing a taxpayer from effectively managing the taxpayer's liabilities to pay provisional tax and use of money interest; or
- (b) the intermediary is, or has been, in breach of their obligations under this subpart; or
- (c) the tax pooling account has gone into deficit; or
- (d) there are, or are likely to be, consistently fewer than 100 taxpayers making payments for depositing in the tax pooling account; or
- (e) the intermediary, if a natural person, or a person acting as an officer of the intermediary, if the intermediary is not a natural person, or a principal of the intermediary,—
  - (i) has been made bankrupt:
  - (ii) has been convicted of an offence involving dishonesty:
  - (iii) is not eligible to be a company director; or
- (f) the intermediary, if not a natural person, has been put into liquidation or receivership.
(3) If the Commissioner intends to rely on subsection (2)(d) when requiring an intermediary to wind up a tax pooling account, the Commissioner must give 30 days' notice to the intermediary of the intended action.
(4) When a tax pooling account is wound up, the Commissioner may, at the Commissioner's discretion,—
- (a) refund the contents of the tax pooling account to the former holder of the account:
- (b) apply to a court for directions concerning the disposal of the contents of the tax pooling account.
Compare: 1994 No 164 s MBB 8

MBA 9 Tax treatment of payments of interest

(1) This section applies to a payment that is made by an intermediary to a client of an intermediary or by a client of an intermediary to the intermediary and that represents a difference between—
- (a) an amount of funds that has been held in a tax pooling account for a period of time; and
- (b) an amount that is paid for the entitlement to the funds.
(2) The payment is treated as—
- (a) a payment of interest to the person who derives the payment, for the purposes of section CC 4, the RWT rules, and the NRWT rules:
- (b) expenditure incurred in deriving the income of the person who makes the payment.
Compare: 1994 No 164 s MBB 9

Subpart MBB—Early-payment discount of income tax

Subpart MBB (comprising sections MBB 1 to MBB 4) was inserted, as from 1 October 2005, by section 224 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

MBB 1 Purpose

MBB 2 Availability of early-payment discount

MBB 3 Credit treated as being payment as income tax

MBB 4 Some definitions

MBB 1 Purpose

The purpose of this subpart is to encourage, by means of a discount of income tax, payments of amounts as income tax by small-business taxpayers in the income year preceding the income year in which the taxpayers are first required to pay provisional tax.

Subpart MBB (comprising sections MBB 1 to MBB 4) was inserted, as from 1 October 2005, by section 224 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

MBB 2 Availability of early-payment discount

(1) This section applies to a small-business taxpayer for an income year if the small-business taxpayer—
- (a) is not required to make payments of provisional tax in the income year; and
- (b) on or before the taxpayer's balance date for the income year, makes payments as income tax for the income year; and
- (c) throughout the period from the taxpayer's balance date for the income year to the taxpayer's terminal tax date for the income year, has a credit in an account with the Commissioner that is greater than or equal to the lesser of the following:
  - (i) the amount that, on or before the small-business taxpayer's balance date for the income year, the small-business taxpayer pays as income tax for the income year:
  - (ii) the amount of terminal tax for the income year for which the taxpayer would be liable in the absence of this section; and
- (d) has, for earlier income years—
  - (i) never been required to make payments of provisional tax and—
    - (A) never received an early-payment discount; or
    - (B) derived assessable income from a business at no time in a period of 4 income years that began after the latest income year for which the small-business taxpayer received an early-payment discount; or
  - (ii) derived assessable income from a business at no time in a period of 4 income years that began after the latest income year for which the small-business taxpayer was required to make payments of provisional tax.
(2) If a small-business taxpayer to whom this section applies makes a return of income for the income year and applies for an early-payment discount, the Commissioner must credit the income tax account of the small-business taxpayer with an early-payment discount found by multiplying the discount rate referred to in subsection (4) by the lesser of the following:
- (a) the amount that, on or before the small-business taxpayer's balance date for the income year, the small-business taxpayer paid as income tax for the income year:
- (b) 105% of the small-business taxpayer's residual income tax for the income year.
(3) The small-business taxpayer must make the application required by subsection (2) on or before the date given by section 37(5) of the Tax Administration Act 1994 as the last date for filing a return of income for the income year to which the application relates.
(4) The discount rate is—
- (a) 6.7% if no rate is prescribed under paragraph (b):
- (b) the rate prescribed by the Governor-General by Order in Council.
Subpart MBB (comprising sections MBB 1 to MBB 4) was inserted, as from 1 October 2005, by section 224 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

MBB 3 Credit treated as being payment as income tax

A credit of an early-payment discount for a small-business taxpayer for an income year is treated as being a payment made on the day after the last day of the income year by the small-business taxpayer as income tax for the income year.

Subpart MBB (comprising sections MBB 1 to MBB 4) was inserted, as from 1 October 2005, by section 224 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

MBB 4 Some definitions

In this subpart—

early-payment discount means a discount of income tax under this subpart
small-business taxpayer means a taxpayer who—
- (a) conducts a business on the taxpayer's own account, acting alone or as a partner in a partnership; and
- (b) does not use a company or a trust in the conduct of the business; and
- (c) derives assessable income that is predominantly—
  - (i) from the business; and
  - (ii) not interest, dividends, royalties, rents or beneficiary income.
Subpart MBB (comprising sections MBB 1 to MBB 4) was inserted, as from 1 October 2005, by section 224 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subpart MC—Terminal tax

MC 1 Payment of terminal tax

(1) Terminal tax payable by a person for a tax year is due on—
- (a) the 7th day of the month specified in schedule 13, part A, column G or H, for the person's corresponding income year, unless January is specified:
- (b) the 15th day of January, if January is specified in schedule 13, part A, column G or H for the person's corresponding income year.
(2) For the purposes of subsection (1), the month specified in schedule 13, part A for the taxpayer's corresponding income year is—
- (a) the month in column H, if—
  - (i) the person's return of income for the tax year was linked to a tax agent:
  - (ii) the Commissioner has been notified that a tax agent will respond to an income statement for the tax year that the person has requested under section 80C of the Tax Administration Act 1994 or that the Commissioner has issued under section 80D of that Act:
- (b) the month in column G, in any other case.
Compare: 1994 No 164 s MC 1

Section MC 1(1)(a): amended, on 1 October 2007, by section 138(1)(a) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Section MC 1(1)(b): substituted, on 1 October 2007, by section 138(1)(b) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Section MC 1(2): substituted, on 1 October 2007, by section 138(2) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subpart MD—Refunds

MD 1 Refund of excess tax

MD 2 Limit on refunds and allocations of tax

MD 2A Limits on refunds of tax for certain qualifying unit trusts and group investment funds

MD 2B Limits on refunds of tax in relation to Maori authorities

MD 3 Refund of income tax not to exceed amount of credit balance

MD 5 No credits or debits for excess income tax or dividend withholding payments not refunded or allocated

MD 1 Refund of excess tax

(1) Subject to sections MD 2, MD 2A, MD 2B, MD 3 and NH 4, and subsection (2), the Commissioner must refund an amount that a taxpayer has paid as tax if—
- (a) the Commissioner is satisfied that the amount represents an excess over the tax properly payable by the taxpayer; and
- (b) the 4-year period referred to in section 108 of the Tax Administration Act 1994 has not ended.
(1A) If, as a result of the issue of an income statement, the amount of tax paid in excess and required to be refunded is more than $50, or such greater amount as the Governor-General by Order in Council prescribes, the Commissioner must not refund the tax until the taxpayer has confirmed the income statement is correct.

(1B) The Commissioner must not pay a refund under subsection (1) to the extent that the excess tax is applied to a nil period under either section MZ 5 or MZ 6.
(2) Subject to sections MD 2, MD 2A, MD 2B, MD 3, and NH 4, the Commissioner must refund an amount that a taxpayer has paid as tax if—
- (a) the taxpayer paid the amount as a result of an amendment to an assessment that increased the amount of tax payable by the taxpayer; and
- (b) the Commissioner is satisfied that the amount represents an excess over the tax properly payable by the taxpayer; and
- (c) the 4-year period beginning at the end of the income year in which the assessment was amended has not ended.
(2B) The Commissioner may refund an amount that is referred to in subsection (1) or (2) after the end of the 4-year period referred to in the subsection, if—
- (a) the refund arises from—
  - (i) a clear mistake or simple oversight of the taxpayer:
  - (ii) an entitlement of the taxpayer to a rebate of income tax under subpart KD; and
- (b) the refund is made—
  - (i) within the period of 4 years beginning from the end of the 4-year period referred to in the subsection:
  - (ii) as a result of an application by or on behalf of the taxpayer that the Commissioner receives before or within the period of 4 years beginning from the end of the 4-year period referred to in the subsection.
(3) If, but for this subsection and after the application of sections MD 2, MD 2A, MD 2B, MD 3, and NH 4, a person would be entitled to an amount as a refund under this section, the Commissioner may apply the amount, in accordance with a request under section 173T of the Tax Administration Act 1994 or, in the absence of such a request, in such order or manner as the Commissioner may determine, in payment of—
- (a) an amount that is payable by the person under this Act:
- (b) an amount that is payable by the person under another Inland Revenue Act.
(3A) The Commissioner may apply a credit of tax allowed under section KD 5 in satisfaction of an amount added to tax payable under section KD 4(2) in respect of a prior tax year whether that amount is due and payable.
(4) Nothing in subsection (3) authorises the Commissioner to apply in satisfaction of any tax or other amount due the amount of any refund that arises in terms of—
- (a) subpart KD (which relates to family support and family plus); or
- (b) section NF 7 (which relates to refunds of excess resident withholding tax); or
- (c) section NG 16 (which relates to refunds of excess non-resident withholding tax).
Compare: 1994 No 164 s MD 1

Subsection (1) was substituted, as from 1 October 2005, by section 225(1) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subsection (2) was substituted, as from 1 October 2005, by section 225(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subsection (2B) was inserted, as from 1 October 2005, by section 225(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

MD 2 Limit on refunds and allocations of tax

(1) If an imputation credit account company becomes entitled at any time to a refund of income tax in accordance with section MD 1, or becomes entitled to make an allocation within a wholly-owned group in accordance with section MB 33, the refund to be paid to the company or the allocation to be made in accordance with section MB 33 must not exceed the credit balance (if any) of the company's imputation credit account at the later of—
- (a) the end of the most recently ending imputation year; or
- (b) the last day of any period for which the company furnishes an imputation return under section 70(3) of the Tax Administration Act 1994; or
- (c) the last day of any period for which the company is required by the Commissioner to furnish an imputation return under section 70(1) of the Tax Administration Act 1994.
(1A) Despite subsection (1)(a), an imputation credit account company that furnishes its imputation return for an imputation year before the end of the next imputation year within the time allowed under an extension of time for furnishing the imputation return may be refunded income tax in accordance with section MD 1 or make an allocation in accordance with section MB 33 if the total amount that is refunded or allocated does not exceed the credit balance (if any) of the company's imputation credit account on the last day of the imputation year for which the imputation return was furnished.

(2) If a company that has ceased to be an imputation credit account company becomes entitled to a refund of income tax in accordance with section MD 1 or becomes entitled to make an allocation within a wholly-owned group in accordance with section MB 33 in respect of any tax year during which it was an imputation credit account company, the total amount that is refunded or allocated must not exceed the credit balance (if any) of the company's imputation credit account that arose as a debit under section ME 5(1)(k) immediately before the company ceased to be an imputation credit account company.

(3) For the purposes of subsections (1), (1A), and (2), a credit balance referred to in those subsections is treated as being reduced by a refund under section MD 1, or an allocation under section MB 33, that is made earlier in the same imputation year if, under this section or section NH 4, the refund or allocation may not exceed the credit balance.

(4) For the purposes of subsections (1), (1A), and (2), if the refund or allocation referred to in those subsections is a refund of income tax for a tax year made under section MD 1 or an allocation for a tax year under section MB 33, the credit balance referred to in those subsections must be treated as being increased by an amount equal to any debit to the company's imputation credit account that, under section ME 5(1)(i), arose after a credit is made to that company's imputation credit account for amounts that have satisfied the company's income tax liability for that tax year, and before the date on which the credit balance is to be determined in accordance with subsection (1), (1A), or (2).
(5) If an effect of subsection (1), (1A), or (2) is that income tax paid in excess by a company is not refunded to the company or not allocated within a wholly-owned group by the company, the income tax that is neither refunded nor allocated—
- (a) must be credited in payment of any income tax or provisional tax that is payable by the company for—
  - (i) the tax year during which the company would, but for subsection (1), (1A), or (2), have become entitled to receive a refund or make an allocation:
  - (ii) a tax year that commences after 31 March 1988, whether before or after the income year referred to in subparagraph (i):
- (b) to the extent that it cannot be credited in accordance with paragraph (a), whether by reason of the company being liquidated or for any other reason, is retained by the Commissioner.
(5A) Despite subsection (5), the income tax not refunded or allocated within a wholly-owned group in accordance with section MB 33 may be credited on a provisional tax instalment date if residual income tax is treated as being payable on the date specified in Part 7 of the Tax Administration Act 1994.

(6) For the purposes of section MD 1, every company that has paid further income tax under section ME 9 is deemed not to have paid tax in excess of the amount properly payable to the extent that any tax paid in excess is referable to the further income tax paid by the company.
(7) Nothing in this section limits the amount of tax overpaid by a qualifying company that may be refunded to the company or allocated by the company unless—
- (a) the tax was overpaid as part of or under an arrangement to secure a tax advantage of any of the kinds referred to in section GC 22(1), or otherwise to avoid the liability of any shareholder in the company to tax under this Act; and
- (b) the arrangement, or any element of the arrangement, was based on the ability of the company to obtain a refund of tax that, but for this subsection, would not be obtainable by virtue of subsection (1), (1A), or (2).
(8) Where an amalgamating company ceases to exist upon a qualifying amalgamation, this section applies with effect from the time of the amalgamation, with any necessary modifications, in respect of any tax paid by the amalgamating company as if it and the amalgamated company were a single company.

(9) Where a consolidated group ceases to exist on a qualifying amalgamation which involves all members of the consolidated group amalgamating (whether or not also amalgamating with any company outside the group), this section applies with effect from the time of the amalgamation, with any necessary modifications, in respect of any tax paid by the consolidated group as if it and the amalgamated company were a single company.

(10) Nothing in this section applies to limit the amount of any refund of tax paid by a company in respect of income derived by the company in the 1987-88 or any earlier tax year or any refund of tax paid in relation to which no credit arose to the company's imputation credit account by virtue of section ME 4(1)(a).

Compare: 1994 No 164 s MD 2

Section MD 2(1): amended, on 1 October 2007, by section 139(1)(a) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Section MD 2(1A): amended, on 1 October 2007, by section 139(1)(a) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Section MD 2(2): amended, on 1 October 2007, by section 139(1)(a) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Section MD 2(3): amended, on 1 October 2007, by section 139(1)(a) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Section MD 2(4): amended, on 1 October 2007, by section 139(1)(a) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (4) was amended, as from 1 April 2005, by section 129 Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “after a credit is made to that company's imputation credit account for amounts that have satisfied the company's income tax liability for that tax year,” for “after the date of payment of the first instalment of provisional tax for that tax year”.

Section MD 2(5A): amended, on 1 October 2007, by section 139(1)(a) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MD 2A Limits on refunds of tax for certain qualifying unit trusts and group investment funds

(1) A refund of income tax to which a qualifying unit trust or group investment fund becomes entitled in accordance with section MD 1 is limited to the amount given by subsection (2) if the trust or fund—
- (a) goes into liquidation or chooses to become a portfolio investment entity; and
- (b) at the time of the liquidation or election, the trust or fund has—
  - (i) a credit balance in its supplementary available subscribed capital account; and
  - (ii) a zero balance in its imputation credit account.
(2) The refund of income tax may not be more than the amount calculated according to the formula—

credit balance × maximum imputation ratio

where—

credit balance is the credit balance in the qualifying unit trust's, or the group investment fund's, supplementary available subscribed capital account

maximum imputation ratio is the amount that would be given by the formula set out in section ME 8(1) if the words “in which the dividend is paid” in the definition of item a were replaced by “in which the liquidation occurs or the election is made”

Section MD 2A (except for the heading) was substituted, as from 18 December 2006, by section 130(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application for income years beginning on or after 1 April 2007.

MD 2B Limits on refunds of tax in relation to Maori authorities

(1) A refund of income tax under section MD 1 to a Maori authority must not be more than the credit balance of the Maori authority's Maori authority credit account at the later of—
- (a) unless subsection (1B) applies, the end of the most recently ending imputation year; or
- (b) the last day of a period for which the Maori authority furnishes a Maori authority credit account return under section 70B(3) of the Tax Administration Act 1994; or
- (c) the last day of a period for which the Maori authority is required by the Commissioner to furnish a Maori authority credit account return under section 70B(1) of the Tax Administration Act 1994.
(1B) Despite subsection (1)(a), a Maori authority that furnishes its Maori authority credit account return for an imputation year before the end of the next imputation year may be refunded income tax in accordance with section MD 1 if—
- (a) the Maori authority has furnished the Maori authority credit account return within an extension of time given by the Commissioner; and
- (b) the amount of the refund does not exceed the credit balance in the Maori authority's Maori authority credit account on the last day of the imputation year for which the Maori authority credit account return was furnished.
(2) If a Maori authority has ceased being a Maori authority and becomes entitled to a refund of income tax in accordance with section MD 1 in respect of a tax year during which the Maori authority maintained a Maori authority credit account, the refund to be paid to the Maori authority must not be more than the credit balance of the Maori authority's Maori authority credit account that arose as a debit under section MK 5(1)(i) immediately before the Maori authority ceased being a Maori authority.

(3) For the purposes of subsections (1) and (2), if the refund is a refund of income tax, the credit balance referred to in those subsections is increased by the amount of a debit that arises to the Maori authority's Maori authority credit account under section MK 5(1)(f) after the date of instalment B specified in schedule 13, part A, for the authority's income year that corresponds to the tax year and before the date upon which the credit balance is determined under subsection (1) or (2).
(4) Unless subsection (4B) applies, if income tax paid in excess is not refunded to a Maori authority by reason of subsection (1) or (2), the income tax not refunded—
- (a) must be credited in payment of income tax or provisional tax that is payable by the Maori authority for the tax year in which the entitlement to the refund arose, or for the 2004-05 or a later tax year, whether before or after the tax year in which the entitlement arose; and
- (b) to the extent that the income tax not refunded cannot be credited under paragraph (a), must be retained by the Commissioner.
(4B) Despite subsection (4), the income tax not refunded may be credited on a provisional tax instalment date if residual income tax is treated as being payable on the date specified in Part 7 of the Tax Administration Act 1994.

(5) For the purposes of section MD 1, further income tax paid under section MK 8 by a Maori authority is treated as not being tax paid in excess of the amount properly payable.
(6) This section does not apply to limit the amount of a refund of tax paid—
- (a) by a Maori authority in respect of income derived by the Maori authority in the 2003-04 or an earlier tax year; or
- (b) for which a credit did not arise to the Maori authority's Maori authority credit account under section MK 4(1)(a).
Compare: 1994 No 1964 s MD 2B

Subsection (1)(a) was amended, as from 1 October 2005, by section 226(1) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “unless subsection (1B) applies, the end” for “the end”.

Subsection (1B) was inserted, as from 1 October 2005, by section 226(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Section MD 2B(3): amended, on 1 October 2007, by section 140(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (4) was amended, as from 1 October 2005, by section 226(3) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “Unless subsection (4B) applies, if income” for “If income”.

Subsection (4B) was inserted, as from 1 October 2005, by section 226(4) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

MD 3 Refund of income tax not to exceed amount of credit balance

(1) Where a policyholder credit account person becomes entitled at any time to a refund of income tax in accordance with section MD 1, the refund to be paid to the person must not exceed the credit balance (if any) of the person's policyholder credit account at the later of—
- (a) the end of the most recently ending tax year of the person; or
- (b) the last day of any period (being a period ending before the date upon which the refund is payable) for which the person furnishes a policyholder credit account return under section 66(5) of the Tax Administration Act 1994; or
- (c) the last day of any period (being a period ending before the date upon which the refund is payable) for which the person is required by the Commissioner to furnish a policyholder credit account return under section 66(4) of the Tax Administration Act 1994.
(2) Where a person who has ceased to be a policyholder credit account person becomes entitled to a refund of income tax in accordance with section MD 1 in respect of any tax year during which the person was a policyholder credit account person, the refund to be paid to the person does not exceed the credit balance (if any) of the person's policyholder credit account immediately before the person ceased to be a policyholder credit account person.

(3) For the purposes of subsections (1) and (2), any credit balance referred to in those subsections is deemed to be reduced by any earlier refund paid to the person during the same tax year, being a refund of income tax that may not, under this section, exceed that credit balance.
(4) Where income tax paid in excess is not refunded to a person by reason of subsection (1) or (2), the income tax not refunded—
- (a) is credited in payment of any income tax or provisional tax payable by the person for the tax year during which the entitlement to the refund arose, or for any tax year commencing after 31 March 1990, whether before or after the tax year in which the entitlement to the refund arose:
- (b) to the extent that it cannot, for any reason, be credited in accordance with paragraph (a), is retained by the Commissioner.
(5) Nothing in this section applies to limit the amount of any refund of tax paid by a person in respect of income derived by the person in the 1989-90 or any earlier tax year.

Compare: 1994 No 164 s MD 3

MD 5 No credits or debits for excess income tax or dividend withholding payments not refunded or allocated

No credit or debit arises in an imputation credit account or dividend withholding payment account of a company from an amount of tax paid in excess by the company, or dividend withholding payment made by the company, that is—
- (a) credited under section MD 2 against an amount of income tax or provisional tax that is payable by the company:
- (b) credited under section NH 4(2)(b) or NH 5(5)(b) in payment of a dividend withholding payment that is payable by the company.
Compare: 1994 No 164 s MD 5

Subpart ME—Imputation credit accounts

Imputation credit accounts: general

ME 1 Companies required to maintain imputation credit account

ME 1A Companies electing to maintain imputation credit account

ME 1B Amount of dividend for imputation rules if paid in Australian currency

ME 2 Balance of imputation credit account

ME 3 Imputation credit account

ME 4 Credits arising to imputation credit account

ME 5 Debits arising to imputation credit account

ME 6 Company may attach imputation credit to dividend

ME 6B Share user may attach imputation credit to replacement payment

ME 7 Transfer by life insurance company of credit balance to policyholder credit account

ME 8 Allocation rules for imputation credits

ME 9 Further tax payable where end of year debit balance, or when company ceases to be imputation credit account company

ME 9B Imputation credit account company leaving wholly-owned group

ME 9C Imputation credit account company joining wholly-owned group

Consolidated imputation groups

ME 10 Consolidated imputation group to maintain separate imputation credit account

ME 11 Credits arising to imputation credit account of group

ME 12 Debits arising to imputation credit account of group

ME 13 Debiting and crediting between consolidated imputation group and individual companies

ME 14 Application of specific imputation provisions to consolidated imputation groups

Policyholder credit accounts

ME 15 Resident life insurance companies to maintain policyholder credit account

ME 16 Calculation of balance of policyholder credit account

ME 17 Policyholder credit account of company

ME 18 Credits and debits arising to policyholder credit account of company

ME 19 Election to use credit balance as credit against policyholder base income tax liability or as credit in imputation credit account

ME 19A Credit balance may be transferred on transfer of life insurance business

ME 20 Determinations by Commissioner as to credits and debits arising to policyholder credit account

ME 21 Person may elect to maintain policyholder credit account

ME 22 Policyholder credit account of person

ME 23 Credits and debits arising to policyholder credit account of person

ME 24 Use of credit balance to reduce income tax

Policyholder credit accounts: consolidated groups

ME 25 Policyholder credit accounts and consolidated groups

ME 26 Credits and debits arising to group policyholder credit account

ME 27 Debiting and crediting between group and individual policyholder credit accounts

ME 28 Application of policyholder credit account provisions to consolidated group

Imputation credit accounts and policyholder credit accounts: amalgamated companies

ME 29 Debits and credits arising to imputation credit account or policyholder credit account on amalgamation

Imputation credit accounts: statutory producer boards

ME 30 Statutory producer board may determine to attach imputation credit to certain distributions

ME 31 Amount of imputation credit to be attached to cash distribution

ME 32 Amount of imputation credit to be attached to notional distribution

ME 33 Notional distribution deemed to be dividend

ME 34 Statutory producer boards and dividend withholding payments

Imputation credits: co-operative companies

ME 35 Co-operative company may make annual determination to attach imputation credit to certain distributions

ME 36 Amount of imputation credit to be attached to cash distribution

ME 37 Amount of imputation credit to be attached to notional distribution

ME 38 Notional distribution deemed to be dividend or taxable Maori authority distribution

ME 39 Co-operative companies and dividend withholding payments

Imputation credit accounts: credits and debits incorrectly recorded

ME 40 Determinations by Commissioner as to credits and debits arising to imputation credit account

Imputation credit accounts: unit trusts and group investment funds

ME 41 Special debits arising to imputation credit account of unit trust or group investment fund

Imputation credit accounts: general

ME 1 Companies required to maintain imputation credit account

(1) Except as provided in subsection (2), every company that is resident in New Zealand must establish and maintain an imputation credit account for each imputation year.
(2) A company must not establish and maintain an imputation credit account in respect of any imputation year, or any period within an imputation year, if, during the whole of that imputation year or that period, the company is—
- (a) [Repealed]
- (b) a company resident in New Zealand which, under a double tax agreement, is treated as not being resident in New Zealand for the purposes of the double tax agreement; or
- (c) a company acting only in the capacity of trustee (not being a company that is a group investment fund that derives category A income); or
- (d) a company whose constitution prohibits it from making any distribution of any kind to any proprietor, member, or shareholder of the company; or
- (e) a company which derives only exempt income (not being exempt income under any of sections CW 9 to CW 11); or
- (f) a local authority; or
- (g) a Crown Research Institute; or
- (i) a subsidiary company of the Accident Compensation Corporation to which section 334(1) of the Accident Insurance Act 1998 or section 24 of the Injury Prevention, Rehabilitation, and Compensation Act 2001 applies; or
- (j) a Maori authority; or
- (k) a portfolio tax rate entity.
(3) Where a company that acts in the capacity of trustee is required to establish and maintain an imputation credit account by virtue of also engaging in other activities, no debits or credits arise to the account in respect of any activities of the company in its capacity as trustee.

Compare: 1994 No 164 s ME 1

Subsection (2)(a) was substituted, as from 1 October 2005, by section 227 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) with application as from the income year corresponding to the 2005–06 income year.

Subsection (2)(a) was repealed, as from 1 October 2005, by section 141(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

Subsection (2)(b) was substituted, as from 17 May 2006, by section 131(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application for income years beginning on or after 1 October 2007.

Section ME 1(2)(j): amended, on 1 October 2007, by section 131(2) of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Section ME 1(2)(k): added, on 1 October 2007, by section 131(2) of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

ME 1A Companies electing to maintain imputation credit account

(1) A company that is excluded by section ME 1(2)(a) or (b), but not by section ME 1(2)(c) to (i), from the obligation under section ME 1 to establish and maintain an imputation credit account is eligible under this section to have an imputation credit account if the company is—
- (a) resident in Australia; and
- (b) not treated by a double tax agreement as being resident in a country that is not Australia or New Zealand, for a purpose of taxation in Australia or New Zealand.
(2) A company that is eligible under this section to have an imputation credit account may make an election under this subsection by giving notice to the Commissioner in a form that is acceptable to the Commissioner.
(3) The Commissioner may decline to accept a notice under subsection (2) from a company if—
- (a) an election by the company under this section has been revoked previously by the Commissioner; and
- (b) the company does not satisfy the Commissioner that the company has taken adequate steps to prevent the occurrence of situations of the type that gave rise to the revocation.
(4) A notice under subsection (2) that is accepted by the Commissioner is effective—
- (a) for the purpose of section ME 6, from—
  - (i) the date that is 30 days after the date on which the Commissioner receives the notice, if none of subparagraphs (ii) to (iv) apply; or
  - (ii) 1 October 2003, if the Commissioner receives the notice before 1 April 2004 and notifies the company that the notice is effective from 1 October 2003; or
  - (iii) 1 April 2004, if the Commissioner receives the notice before 1 April 2005 and notifies the company that the notice is effective from 1 April 2004; or
  - (iv) the beginning of the imputation year in which the Commissioner receives the notice, if the company is formed in the imputation year or becomes eligible under this section in the imputation year and the Commissioner notifies the company that the notice is effective from the beginning of the imputation year:
- (b) for the purposes of the other provisions in the imputation rules, from the beginning of the imputation year that contains the date on which the Commissioner receives the notice.
(5) A company that makes an effective election under subsection (2) in an imputation year must establish and maintain an imputation credit account—
- (a) until the date on which the company ceases to be eligible under subsection (1) or on which the election is revoked, for the purposes of section ME 6:
- (b) for the imputation year and for each subsequent imputation year at the beginning of which the company is eligible under subsection (1) and the election has not been revoked, otherwise.
(6) A company that is in a wholly-owned group of companies with a company that makes an election under subsection (2), and is not prohibited by an independent regulatory body from having such liability, is jointly and severally liable with that company for further income tax, civil penalties, and interest under Part 7 of the Tax Administration Act 1994 that arise from a breach of the imputation rules by the company that makes the election.

(7) A company that makes an election under subsection (2) may revoke the election by giving a notice to the Commissioner.
(8) A notice under subsection (7) is effective—
- (a) from the date that the Commissioner receives the notice, for the purposes of section ME 6:
- (b) from the end of the imputation year in which the Commissioner receives the notice, otherwise.
(9) The Commissioner may give to a company a notice that revokes an election under subsection (2) by the company.
(10) A notice under subsection (9) is effective—
- (a) from the date given in the notice, for the purposes of section ME 6:
- (b) from the end of the imputation year in which the date of the notice falls, otherwise.
(11) The revocation of an election does not affect the obligations of a company that arise while the company is an imputation credit account company.

Compare: 1994 No 164 s ME 1B

Subsection (4)(a) was substituted, as from 1 October 2005, by section 228 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

ME 1B Amount of dividend for imputation rules if paid in Australian currency

For the purposes of the imputation rules, the amount of a dividend that is paid in Australian currency by an Australian imputation credit account company is given by—
a × b

where—
- (a) is the amount of the dividend expressed in Australian currency
- (b) is the close of trading spot exchange rate for the Australian dollar—
  
  (a) for the date on which the dividend is declared, if that date precedes the date of the payment of the dividend by 3 months or less:
  
  (b) for the date on which the dividend is paid, if that date follows the date of the declaration of the dividend by more than 3 months.
Compare: 1994 No 164 s ME 1C

The formula was substituted, as from 1 October 2005, by section 229 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

ME 2 Balance of imputation credit account

For the purposes of the imputation rules, the balance of an imputation credit account at any time is ascertained by calculating the difference in amount between the aggregate of credits and the aggregate of debits to the account at that time, and the account has—
- (a) a credit balance to the extent that credits exceed debits:
- (b) a debit balance to the extent that debits exceed credits.
Compare: 1994 No 164 s ME 2

ME 3 Imputation credit account

(1) Every imputation credit account company must record in its imputation credit account for each imputation year—
- (a) the opening balance of the account for the imputation year, in accordance with subsection (2):
- (b) credits as they arise in accordance with section ME 4:
- (c) debits as they arise in accordance with section ME 5.
(2) The opening balance of the imputation credit account for any imputation year is,—
- (a) for the imputation year during which the company first becomes an imputation credit account company, nil:
- (b) for any subsequent imputation year, the amount of the closing balance of the imputation credit account for the preceding imputation year, and such amount is—
  - (i) a credit arising to the imputation credit account where the closing balance is a credit balance:
  - (ii) a debit arising to the imputation credit account where the closing balance is a debit balance.
Compare: 1994 No 164 s ME 3

ME 4 Credits arising to imputation credit account

(1) There arise as credits to be recorded in a company's imputation credit account for any imputation year the following amounts:

(a) the amount of any income tax paid by the company during the imputation year to meet a provisional tax obligation under the provisional tax rules or to satisfy an income tax liability under sections BC 9 and BC 10, other than—
- (i) in the case of a company acting in the capacity of trustee, income tax paid by the company in respect of its activities when acting in the capacity of trustee:
- (ii) in the case of a company carrying on a business of providing life insurance to which section EY 47 applies, income tax paid to the extent that that income tax does not exceed the company's policyholder base income tax liability for the imputation year:
- (iii) in the case of a company that is a group investment fund deriving category B income, income tax paid in respect of the income:
- (iv) in the case of a company that becomes an imputation credit account company during the imputation year, income tax paid to the extent that that income tax does not exceed the amount that would have been the company's income tax liability for the imputation year, if the imputation year ended on the day immediately preceding the day on which the company became an imputation credit account company:
- (v) income tax paid by way of crediting under subpart LE:
- (vi) income tax that is paid by way of a crediting of further income tax under section ME 9(5):
- (vii) income tax paid by way of crediting under section LB 2(2) or LD 8(1):
- (viii) income tax paid in relation to the income tax payable for the 1987-88 or any earlier tax year:
- (ix) income tax paid by way of crediting under section MF 5 the company's branch equivalent tax account:
- (x) a payment that is made by means of a transfer from a tax pooling account to the company's account with the Commissioner:

(aab) the amount that results from multiplying the basic rate of income tax, expressed as a percentage, stated in schedule 1, part A, clause 5 by the amount of expenditure transferred to the company, being a master fund, in accordance with sections DV 5 to DV 7:

(ab) 49.25% of an amount attributed in accordance with section GC 14D, but not if the company is a qualifying company:

(ac) the amount of any payment that is made by an intermediary into a tax pooling account from funds that are supplied by the company for that purpose:

(ad) the amount of any transfer by an intermediary to the company of an entitlement to funds that are held in a tax pooling account:

(b) the amount of any tax deemed to be paid by the company under section MB 9(5):

(cb) the amount of any credit arising in the imputation credit account as a result of an election under section ME 9B(2)(a)(ii):

(cc) the amount of any payment of additional income tax for which the company is liable under section ME 9B(6):

(cd) the amount of any payment of additional income tax for which the company is liable under section ME 9C(7)

(d) the amount of any imputation credit attached to a dividend that is paid to the company during the imputation year:

(da) the amount calculated according to the formula—

credit balance x maximum imputation ratio

where—

credit balance	is all or part of the credit balance of the supplementary available subscribed capital account that the qualifying unit trust or group investment fund elects to use under section MJ 6
maximum imputation ratio	is the formula set out in section ME 8(1), as if the words “in which the dividend is paid” in item “a” were read as “to which the election made under section MJ 6 relates”:

(e) the amount of any dividend withholding payment credit attached to a dividend paid to the company during the imputation year at a time when the company is not a dividend withholding payment account company:

(ea) the amount of a Maori authority credit attached to a distribution that is made to the company during the imputation year:

(eb) the amount of any imputation credit attached under section ME 6B to a replacement payment paid under a share-lending arrangement to the company during the imputation year:

(ec) the amount of any imputation credit treated under section NF 8B as being attached to a replacement payment paid under a share-lending arrangement to the company during the imputation year:

(ed) the amount of imputation credit shown in a credit transfer notice that the company is issued with during the imputation year:

(f) subject to subsection (3), the amount of any dividend withholding payment paid by the company during the imputation year at a time when the company is not a dividend withholding payment account company:

(g) any amount forming all or part of an end of year credit balance in the company's dividend withholding payment account that the company elects in accordance with section MG 11 to be a credit to the company's imputation credit account:

(h) an amount equal to any amount of a debit arising to the imputation credit account under section ME 5(1)(j) (which relates to debits arising in respect of imputation credits determined to have been the subject of an arrangement to obtain a tax advantage), to the extent that it is subsequently established that the relevant imputation credit should not have been determined to be the subject of such an arrangement:

(i) the amount of any resident withholding tax deduction deemed, under section NF 12(b), to have been derived by the company during the imputation year:

(j) any amount forming all or part of a credit balance in the company's policyholder credit account that the company elects in accordance with section ME 19 to be a credit to the company's imputation credit account:

(k) in the case of a company that stops maintaining a Maori authority credit account during the imputation year, the amount of the credit balance in the Maori authority credit account on the date that the account is closed.

(1A) If a company has been required by section ME 5(1)(i) to record in the company's imputation credit account an imputation debit that has the effect of cancelling a credit that arose from a deposit by the company into a tax pooling account, a credit that is equal to the imputation debit arises to be recorded in the company's imputation credit account if—

(a) a further debit arises in the imputation credit account, on a date that is after the date on which the imputation debit under section ME 5(1)(i) arose, in relation to—
- (i) a refund to the company of the amount of the deposit:
- (ii) a transfer to another taxpayer of the company's entitlement to the amount of the deposit:

(b) the amount of the deposit is transferred to the company's account with the Commissioner with an effective date under section MBA 6 that is after the date on which the imputation debit arose.

(1B) There arise as credits to be recorded by an Australian imputation credit account company in the imputation credit account of the company for any imputation year the following amounts:

(a) non-resident withholding tax that, under section NG 2, the company pays on non-resident withholding income:

(b) a payment of tax made under the Income Tax (Withholding Payments) Regulations 1979 from a withholding payment made to the company as a non-resident contractor:

(c) a payment of tax to meet the schedular income tax liability of the company for schedular income that the company derives under any of sections FC 13, FC 14, FC 18, and FC 21 in the income year corresponding to the imputation year.

(1C) No amount may create more than 1 credit under subsections (1) and (1B).

(2) The credits referred to in subsection (1) arise,—

(a) in the case of the credits referred to in subsection (1)(a) and (c), on the date the relevant tax is paid:

(aab) in the case of a credit referred to in subsection (1)(aab), on 31 March of the income year in which the expenditure is deducted:

(ab) in the case of a credit referred to in subsection (1)(ab), on 31 March of the income year in which the amount is attributed:

(ac) in the case of a credit referred to in subsection (1)(ac), on the date of the payment into the tax pooling account:

(ad) in the case of a credit referred to in subsection (1)(ad),—
- (i) if the funds to which the entitlement relates are transferred to the company's account with the Commissioner, on the effective date under section MBA 6 of the transfer:
- (ii) if the funds to which the entitlement relates are refunded to the company or the entitlement to the funds is transferred to another taxpayer, on the date of the refund or transfer:

(b) in the case of a credit referred to in subsection (1)(b), on the date on which notice of the allocation of the tax referred to in section MB 9(4) is given to the Commissioner:

(bb) in the case of a credit referred to in subsection (1)(cb), on the date on which the leaving company ceases to be a member of the wholly-owned group of companies:

(bc) in the case of a credit referred to in subsection (1)(cc), on the date on which the company makes the payment to the Commissioner:

(bd) in the case of a credit referred to in subsection (1)(cd), on the date on which the company makes the payment to the Commissioner:

(ca) in the case of a credit referred to in subsection (1)(da), on the date that a debit arises in the qualifying unit trust's or group investment fund's supplementary available subscribed capital account under section MJ 6:

(cb) in the case of a credit referred to in subsection (1)(ea), on the date that the distribution is made:

(cc) in the case of the credits referred to in subsection (1)(eb) and (ec), on the date the replacement payment is paid:

(cd) in the case of the credit referred to in subsection (1)(ed), on the date the credit transfer notice is issued:

(d) in the case of a credit referred to in subsection (1)(f), on the date the dividend withholding payment is paid:

(e) in the case of a credit referred to in subsection (1)(g), on the date that the amount of the credit arises as a debit to the company's dividend withholding payment account under section MG 5(2)(c):

(f) in the case of a credit referred to in subsection (1)(h), on the date that the relevant debit arose under section ME 5(2)(i):

(g) in the case of a credit referred to in subsection (1)(i), on the date that the resident withholding tax is deducted from the resident withholding income:

(h) in the case of a credit referred to in subsection (1)(j), on the date that the amount of the credit arises as a debit to the company's policyholder credit account under section ME 19:

(i) in the case of a credit referred to in subsection (1)(k), on the date that the amount of the credit arises as a debit to the Maori authority credit account under section MK 5.

(2A) A credit referred to in subsection (1A) arises on the date of the refund or transfer.

(2B) The credits referred to in subsection (1B) arise—

(a) in the case of a credit referred to in subsection (1B)(a), on the date that the non-resident withholding tax is paid:

(b) in the case of a credit referred to in subsection (1B)(b), on the date that the tax is paid:

(3) For the purposes of subsection (1)(f), a credit does not arise to the extent that, in accordance with section NH 3(2) or (3), payment of all or part of a dividend withholding payment is satisfied by reducing a net loss.

Compare: 1994 No 164 s ME 4

Subsection (1)(cb) to (cd) was inserted, as from 1 October 2005, by section 75(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Subsection (1)(eb) to (ed) was inserted, as from 1 July 2006, by section 142(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (2)(bb) to (bd) was inserted, as from 1 October 2005, by section 75(2) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Subsection (2)(cc) and (cd) was inserted, as from 1 July 2006, by section 142(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

ME 5 Debits arising to imputation credit account

(1) There arise as debits to be recorded in a company's imputation credit account for any imputation year the following amounts:
- (a) the amount of any imputation credit attached to a dividend paid by the company during the imputation year:
- (ab) the amount of any imputation credit attached under section ME 6B to a replacement payment paid under a share-lending arrangement by the company during the imputation year:
- (ac) the amount of any imputation credit attached to a dividend that is paid to the company during the imputation year as a share user in a returning share transfer that is not a share-lending arrangement:
- (ad) the amount of any imputation credit attached to a dividend that is paid to the company during the imputation year, if the imputation credit is shown in a credit transfer notice issued by the company:
- (b) in the case of a company carrying on a business of providing life insurance to which the life insurance rules apply, the amount of any credit balance of the company's imputation credit account which the company elects in accordance with section ME 7 is a credit to the company's policyholder credit account:
- (c) in the case of any on-market cancellation by the company of a share in the company, the amount (not being less than nil) calculated in accordance with the following formula:
  where—
  
  a is the amount distributed upon the on-market cancellation to the extent that it exceeds the available subscribed capital per share calculated under the ordering rule
  
  b is the rate of resident withholding tax, expressed as a percentage, stated in schedule 14, clause 2 and applying at the time the acquisition occurs:
- (d) the amount of any provisional tax allocated by the company under section MB 33 to an underpaid company (as referred to in that section):
- (e) the amount of any refund of income tax paid to the company during the imputation year except to the extent that—
  - (i) the refund is in respect of income tax paid in relation to the 1987-88 or any earlier tax year; or
  - (ii) the refund is in respect of income tax paid that was applied in satisfaction of an income tax liability for an income year—
    - (A) during which the company was not an imputation credit account company; or
    - (B) during only part of which the company was an imputation credit account company, in which case the debit to the company's imputation credit account is the amount calculated in accordance with the following formula:
      
      where—
      
      a is the number of days in the income year during which the company was an imputation credit account company
      
      b is the amount of the refund; or
  - (iii) the amount of the refund does not exceed the amount of a debit arising under paragraph (i) if—
    - (A) the refund is in respect of income tax paid prior to the date that the debit arose; and
    - (B) in the case of a refund arising by virtue of subpart LE, the supplementary dividend paid by the company giving rise to the refund was paid before the date that the debit arose under paragraph (i):
- (ea) the amount of any refund that is made to the company by an intermediary from funds in a tax pooling account for which the company has received a credit under section ME 4(1)(ac) or (ad):
- (eb) the amount of the funds involved in any transfer from the company to another taxpayer by an intermediary of an entitlement to funds in a tax pooling account for which the company has received a credit under section ME 4(1)(ac) or (ad):
- (f) the amount of any allocation debit arising in respect of the imputation year under section ME 8(4):
- (fb) the amount of any debit arising in the imputation credit account as a result of an election under section ME 9B(2)(a)(i):
- (g) the amount of any refund of dividend withholding payment paid to the company during the imputation year at a time when the company is not a dividend withholding payment account company:
- (h) the amount of any credit of tax refunded to the company under section LD 8(1)(c) at a time when the company is not a dividend withholding payment account company:
- (i) the amount of any particular credit in the company's imputation credit account at any time (in this paragraph referred to as the specified time), not being a credit which has before the specified time been cancelled out by a prior or subsequent debit, unless there is a group of persons—
  - (i) the aggregate of whose minimum voting interests in the company in the period from the date upon which the credit arose until the specified time is equal to or greater than 66%; and
  - (ii) in any case where at any time during that period a market value circumstance exists in respect of the company, the aggregate of whose minimum market value interests in the company in the period is equal to or greater than 66%:
- (ia) the amount of a credit in the company's imputation credit account arising under section ME 4(1)(ab) if the company's financial statements are adjusted to reflect an amount attributed in accordance with section GC 14D:
- (j) the amount of any further debit arising to the imputation credit account under section GC 22 in relation to an imputation credit determined to be the subject of an arrangement to obtain a tax advantage:
- (ja) the amount that results from multiplying the basic rate of income tax, expressed as a percentage, stated in schedule 1, part A, clause 5 by the amount of expenditure transferred by the company, being a member fund, to a master fund in accordance with sections DV 5 to DV 7:
- (k) the amount of credit balance, if any, of the imputation credit account where, during the imputation year, the company ceases to be an imputation credit account company:
- (ka) the amount of credit balance of the imputation credit account if, during the imputation year, the company establishes a Maori authority credit account:
- (l) the amount of any overpaid income tax that the Commissioner applies towards the satisfaction of an amount (other than an income tax liability or an instalment of provisional tax) that is due and payable under any provision of this Act or any other of the Inland Revenue Acts, except to the extent that the amount applied—
  - (i) is in respect of income tax paid before the date that a debit arises under paragraph (i); and
  - (ii) does not exceed the amount of the debit that arises on that date:
- (m) the amount of any overpaid dividend withholding payment that the Commissioner applies, at a time when the company is not a dividend withholding payment account company, towards the satisfaction of an amount (other than a dividend withholding payment or an income tax liability or an instalment of provisional tax) that is due and payable under this Act or any other of the Inland Revenue Acts:
- (n) the amount of any overpaid income tax or dividend withholding payment that the Commissioner applies, at a time when the company is not a dividend withholding payment account company, in satisfaction of income tax that is due and payable in respect of the 1987-88 or any earlier tax year, except to the extent that the amount applied—
  - (i) is in respect of income tax or dividend withholding payment paid before the date that a debit arises under paragraph (i); and
  - (ii) does not exceed the amount of the debit that arises on that date:
- (o) the amount calculated under subsection (6) or (7) for an income year and transferred to the company's dividend withholding payment account on account of net foreign attributed income.
(1A) There arise as debits to be recorded by an Australian imputation credit account company in the imputation credit account of the company for any imputation year the following amounts:
- (a) any refund arising from an amount—
  - (i) that is an overpayment of non-resident withholding tax on non-resident withholding income; and
  - (ii) for which the company has received a credit under section ME 4(1B)(a):
- (b) any refund arising from an amount—
  - (i) that is an overpayment of tax under the Income Tax (Withholding Payments) Regulations 1979 from a withholding payment made to the company as a non-resident contractor; and
  - (ii) for which the company has received a credit under section ME 4(1B)(b):
- (c) any refund of tax arising from an amount—
  - (i) that is an overpayment of the company's schedular income tax liability for schedular income that the company derived under any of sections FC 13, FC 14, FC 18, and FC 21 in the income year corresponding to the imputation year; and
  - (ii) for which the company has received a credit under section ME 4(1B)(c).
(2) The debits referred to in subsection (1) arise,—
- (a) in the case of a debit referred to in subsection (1)(a), on the date the dividend is paid:
- (ab) in the case of a debit referred to in subsection (1)(ab), on the date the replacement payment is paid:
- (ac) in the case of a debit referred to in subsection (1)(ac) or (ad), on the date the relevant dividend is paid:
- (b) in the case of a debit referred to in subsection (1)(b), on the date the company makes the election in accordance with section ME 7:
- (c) in the case of a debit referred to in subsection (1)(c), on the date the acquisition occurs:
- (d) in the case of a debit referred to in subsection (1)(d), on the date the company gives to the Commissioner notice of the allocation of tax under section MB 33:
- (e) in the case of a debit referred to in subsection (1)(e) or (h), on the date the refund is paid:
- (ea) in the case of a debit referred to in subsection (1)(ea) or (eb) arising for a qualifying company, on the date on which the refund or transfer is made:
- (eb) in the case of a debit referred to in subsection (1)(ea) or (eb) arising for a company that is not a qualifying company,—
  - (i) on the last day of the imputation year that immediately precedes the imputation year in which the refund or transfer is made, to the extent that the debit does not exceed the credit balance in the company's imputation credit account on that date:
  - (ii) on the date on which the refund or transfer is made, to the extent that, after the application of subparagraph (i), the amount of the debit that is not assigned a date under subparagraph (i) does not exceed the credit balance in the company's imputation credit account on the date of the refund or transfer:
  - (iii) on the last day of the imputation year that immediately precedes the imputation year in which the refund or transfer is made, to the extent that the debit is not assigned a date under subparagraphs (i) and (ii):
- (f) in the case of a debit referred to in subsection (1)(f), at the end of the imputation year in respect of which the allocation debit arises:
- (fb) in the case of a debit referred to in subsection (1)(fb), on the date on which the leaving company ceases to be a member of the wholly-owned group of companies:
- (g) in the case of a debit referred to in subsection (1)(g), on the date the refund is paid:
- (h) in the case of a debit referred to in subsection (1)(i), at the specified time referred to in that paragraph:
- (ha) in the case of a debit referred to in subsection (1)(ia), on 31 March of the income year in respect of which the company's financial statements are adjusted:
- (i) in the case of a debit referred to in subsection (1)(j), at the end of the imputation year in respect of which it is determined under section GC 22 that the arrangement to obtain a tax advantage occurred or commenced:
- (ia) in the case of a debit referred to in subsection (1)(ja), on 31 March in the income year in which the expenditure is transferred:
- (j) in the case of a debit referred to in subsection (1)(k), immediately before the company ceases to be an imputation credit account company:
- (ja) in the case of a debit referred to in subsection (1)(ka), immediately before the company becomes a Maori authority:
- (k) in the case of a debit referred to in subsection (1)(l) or (m) or (n), on the date that the Commissioner applies the amount of overpaid income tax or dividend withholding payment in satisfaction of the amount that is referred to in those paragraphs as due and payable:
- (l) in the case of a debit to which subsection (1)(o) applies,—
  - (i) on the last day of the imputation year that corresponds to the income year, to the extent that the debit does not exceed the amount of provisional tax payments made in relation to the income year on or before that day; and
  - (ii) to the extent that subparagraph (i) does not apply, on the date the company files the return of income for the income year.
(2A) A debit referred to in subsection (1A) arises on the date on which the refund is paid.
(3) Subject always to the express provisions of this Act, subsection (1)(i) is intended to limit the circumstances in which a taxpayer, being a company, may carry forward an imputation account credit for subsequent utilisation to those where the tax benefit arising from such utilisation is obtained or available to be obtained (directly or indirectly), at least to the extent of 66%, only by the same natural persons holding (directly or indirectly) rights in relation to the company who—
- (a) by virtue of holding (directly or indirectly) such rights, bore the tax liability giving rise to the imputation account credit; or
- (b) held (directly or indirectly) such rights at the time of the event giving rise to the imputation account credit.
(4) For the purposes of subsection (1)(i),—
- (a) in respect of any period referred to in that paragraph, the minimum voting interest or market value interest of any person in the company in the period is equal to the lowest voting interest or market value interest (as the case may be) which that person holds in the company during the period; and
- (b) section ME 3(2)(b) does not apply and any credit in the company's imputation credit account is treated as continuing to exist until treated as being cancelled out by a prior or subsequent debit in accordance with paragraph (c); and
- (c) in determining whether any credit in the company's imputation credit account has been cancelled out by any prior or subsequent debit,—
  - (i) any amount of debit may be taken into account only once for the purpose of ascertaining whether any credit has been so cancelled out; and
  - (ii) the amount of any debit is offset against the amount of any credit in the order in which the credits arise; and
- (d) any credit arising on or before 16 December 1988 is deemed to have been cancelled out by a subsequent debit before the specified time referred to in that paragraph; and
- (e) in the case of any credit arising after 16 December 1988 and before 1 April 1992 (not being a credit cancelled out before 1 April 1992 by a subsequent debit), the credit is deemed first to arise in the company's imputation credit account on 1 April 1992, but a debit is deemed to arise in accordance with subsection (1)(i) in respect of that credit at any time if and to the extent that, at that specified time, that credit still exists and a debit would have arisen in respect of that credit in accordance with section 394E(2)(g) of the Income Tax Act 1976 as that paragraph applied before its repeal and replacement by section 51 of the Income Tax Amendment Act (No 2) 1992, had that paragraph continued to apply but with the figure “75” omitted and the figure “66” substituted.
(5) Where—
- (a) a share in a company is acquired by any person (referred to in this subsection as the associated person) associated with the company; and
- (b) the acquisition would have been an on-market cancellation if the associated person had been the company; and
- (c) in the opinion of the Commissioner, the acquisition occurs under an arrangement between the company and the associated person for the associated person to make the acquisition in lieu of the company,—
then, for the purposes of subsections (1)(c) and (2)(c) and section CD 32(22), the acquisition is deemed to be an on-market cancellation by the company.
(6) If a dividend withholding payment account company is also a conduit tax relief company for the whole of the imputation year corresponding with the income year, and at the time of filing the return, the amount to be transferred under subsection (1)(o) from the company's imputation credit account to the company's dividend withholding payment account is calculated by applying sections KH 1 and KH 2 (as if the amount were conduit tax relief for the imputation year) but substituting the percentage of resident shareholders for the quantity NRS in section KH 1(2) and (3) and calculating the percentage of resident shareholders by deducting NRS from 100%.

(7) If a dividend withholding payment account company for the whole of the imputation year corresponding with the income year is not a conduit tax relief company for the whole of the imputation year corresponding with the income year and at the time of filing the return, the amount to be transferred under subsection (1)(o) is calculated under section KH 1 as if the company were a conduit tax relief company and the quantity NRS were 100%.

(8) If neither subsection (6) nor (7) applies, no amount is transferred under subsection (1)(o).

Compare: 1994 No 164 s ME 5

Subsection (1)(ab) to (ad) was inserted, as from 1 July 2006, by section 143(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (1)(ac) was amended, as from 1 July 2006, by section 132(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by omitting “or as a person associated with a share user,” with application as from the 2005–06 income year.

Section ME 5(1)(d): amended, on 1 October 2007, by section 143(2) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (1)(fb) was inserted, as from 1 October 2005, by section 76(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Subsection (1)(h) was amended, as from 1 April 2005, by section 76(2) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “section LD 8(1)(c)” for “section LD 8(1)(a)” with application as from the 2005–06 income year.

Subsection (2)(ab) and (ac) was inserted, as from 1 July 2006, by section 143(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Section ME 5(2)(d): amended, on 1 October 2007, by section 143(4) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (2)(fb) was inserted, as from 1 October 2005, by section 76(3) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Subsection (2)(ia) was amended, as from 1 April 2005, by section 143(5) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “subsection (1)(ja)” for “subsection (1)(jb)” with application as from the income year corresponding to the 2005–06 tax year.

ME 6 Company may attach imputation credit to dividend

(1) An imputation credit account company may, on payment of a dividend by the company, attach an imputation credit to that dividend.
(1B) Notwithstanding subsection (1), an imputation credit account company is not allowed to attach an imputation credit to a dividend if—
- (a) the Income Tax Assessment Act 1997 (Aust) applies to the payment of the dividend by the company; and
- (b) the dividend is paid in relation to a share that is, or forms part of, a debt interest under that Act; and
- (c) the payment of the dividend is included in a return of income made by the company to the Australian Federal Commissioner of Taxation.
(1C) Subsection (1B) does not apply in relation to a share issued before 21 July 2005 if, when the dividend is paid,—
- (a) the shareholder and the imputation credit account company are not in the same group of companies:
- (b) the shareholder and the imputation credit account company are—
  - (i) in the same wholly-owned group of companies; and
  - (ii) not resident in New Zealand.
(1D) Subsection (1B) does not apply in relation to a share issued before 21 July 2005 if—
- (a) the shareholder and the imputation credit account company are in the same group of companies; and
- (b) the shareholder acquired the share—
  - (i) as part of a business of sharebroking:
  - (ii) as an investment held by the shareholder as part of a business of insurance:
  - (iii) as security for a loan given as part of a business of lending money:
  - (iv) as a trustee for a beneficiary who is not a company in the same group of companies as the shareholder:
  - (v) for reasons not including the fact that the shareholder and the imputation credit account company were members of the same group of companies.
(2) Notwithstanding subsection (1), a company may retrospectively attach an imputation credit to a dividend arising from a transfer pricing adjustment or under subpart FCB if—
- (a) the company is an imputation credit account company that—
  - (i) pays a non-cash dividend; and
  - (ii) is subject to an adjustment under section GD 13(3) or (4) in respect of the arrangement giving rise to the dividend:
- (b) the company is an emigrating company that—
  - (i) is an imputation credit account company immediately before the emigration time; and
  - (ii) is treated under section FCB 2 as paying a distribution to shareholders.
(3) The amount of imputation credit able to be attached retrospectively under subsection (2)(a) must not (when aggregated with all other imputation credits retrospectively attached by the company to dividends paid in the same imputation year) exceed the least of—
- (a) the credit balance, if any, in the company's imputation credit account at the end of the imputation year in which the dividend is paid; and
- (b) the credit balances, if any, in the company's imputation credit account at the end of each imputation year after the year in which the dividend is paid and before the year in which the company makes the retrospective attachment.
(3B) The amount of imputation credit attached retrospectively under subsection (2)(b) must not exceed the credit balance, if any, in the company's imputation credit account immediately before the emigration time.
(4) Where a company has determined to attach an imputation credit to a dividend under subsection (2),—
- (a) the amount of the imputation credit is, for the purposes of section ME 5, a debit to the company's imputation credit account arising on the date the company paid the dividend; and
- (b) the company dividend statement to be completed in accordance with section 67 of the Tax Administration Act 1994 must be completed at the time the company makes the determination under subsection (2); and
- (c) the shareholder dividend statement to be given by the company in accordance with section 29 of the Tax Administration Act 1994 must be given at the time the company makes the determination under subsection (2).
(5) If and to the extent that—
- (a) a company has determined to attach an imputation credit to a dividend under subsection (2)(a); and
- (b) an amount of income tax paid by the company is attributable to the relevant adjustment under section GD 13(3) or (4); and
- (c) the company would not, without application of imputation penalty tax, be able to attach the imputation credit; and
- (d) the company notifies the Commissioner with the company dividend statement completed under subsection (4)(b),—
the amount of income tax is treated for the purposes of this subpart as if it were paid on the date the dividend was paid and the company is not liable for any failure to have furnished a correct imputation return under section 69 of the Tax Administration Act 1994 to the extent the return is rendered incorrect solely as a result of this subsection.
(6) If an amount of tax paid by an emigrating company is attributable to income derived before the emigration time by the emigrating company or to the application of subpart FCB to the emigrating company, the amount of tax is treated for the purposes of this subpart as being paid immediately before the emigration time if—
- (a) the company determines under subsection (2)(b) to attach an imputation credit to a dividend; and
- (b) the imputation credits that the company attaches are not less than the amount of tax; and
- (c) the company notifies the Commissioner when providing the company dividend statement required by subsection (4)(b).
Compare: 1994 No 164 s ME 6

Subsections (1B) to (1D) were inserted, as from 21 July 2005, by section 144(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for a dividend that is paid by an imputation credit account company to a shareholder: in relation to a share issued on or after 21 July 2005; on or after 1 April 2006 in relation to a share issued before 21 July 2005, if, when the dividend is paid, the shareholder is in the same group of companies as the imputation credit account company.

Subsection (2) was substituted, as from 3 April 2006, by section 144(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the 2005–06 imputation year.

Subsection (3) was amended, as from 3 April 2006, by section 144(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “subsection (2)(a)” for “subsection (2)” with application as from the 2005–06 imputation year.

Subsection (3B) was inserted, as from 3 April 2006, by section 144(4) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the 2005–06 imputation year.

Subsection (5)(a) was amended, as from 3 April 2006, by section 144(5) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “subsection (2)(a)” for “subsection (2)” with application as from the 2005–06 imputation year.

Subsection (6) was inserted, as from 3 April 2006, by section 144(6) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the 2005–06 imputation year.

ME 6B Share user may attach imputation credit to replacement payment

A share user under a share-lending arrangement may, on making a replacement payment, attach to the replacement payment an imputation credit of an amount less than or equal to the amount of any imputation credits attached to dividends—
- (a) received by the share user before the replacement payment is made; and
- (b) to which the replacement payment relates.
Section ME 6B was inserted, as from 1 July 2006, by section 145 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

ME 7 Transfer by life insurance company of credit balance to policyholder credit account

(1) Where an imputation credit account company is also a policyholder credit account company, the company may elect that all or any part of the credit balance (if any) in the company's imputation credit account at the time of election is to be a credit to the company's policyholder credit account and a debit to its imputation credit account.
(2) A company makes an election under this section by recording the amount in respect of which the election is made—
- (a) as a debit in the company's imputation credit account; and
- (b) as a credit in its policyholder credit account.
(3) Where a company that may make an election under subsection (1) furnishes a return of income under section 38 of the Tax Administration Act 1994 for a non-standard accounting year, then,—
- (a) where and to the extent to which, in respect of any imputation year,—
  - (i) any credit has arisen to the company's imputation credit account in accordance with section ME 4(1)(a) on or before the last day of that imputation year and during the accounting year in which the last day of that imputation year falls, by virtue of any amount of provisional tax paid by the company in accordance with the provisional tax rules; and
  - (ii) the amount of that credit has not, on or before the last day of that imputation year, been cancelled out by any subsequent debit arising in accordance with section ME 5(1)(e), by virtue of any refund of provisional tax paid during that accounting year; and
  - (iii) the company has not, on or before the last day of that imputation year, elected in accordance with this section that the amount of that credit is to be transferred to the company's policyholder credit account,— the company is deemed to have so elected on the last day of that imputation year:
- (b) where and to the extent to which, in respect of any imputation year,—
  - (i) any credit has arisen to the company's imputation credit account in accordance with section ME 4(1)(f) on or before the last day of that imputation year and during the accounting year in which the last day of that imputation year falls; and
  - (ii) the amount of that credit has not, on or before the last day of that imputation year, been cancelled out by any subsequent debit arising in accordance with section ME 5(1)(g), by virtue of any refund of dividend withholding payment paid during that accounting year; and
  - (iii) the company has not, on or before the last day of that imputation year, elected in accordance with this section that the amount of that credit is to be transferred to the company's policyholder credit account,—
the company is deemed to have so elected on the last day of that imputation year:
- (c) where and to the extent to which in any imputation year any credit has arisen to the company's imputation credit account in accordance with section ME 4(1)(d) or (e), then, notwithstanding any provision of this section the company may not elect that any part of that credit is to be transferred to that company's policyholder credit account on any day falling after the last day of that imputation year and during the accounting year in which the last day of that imputation year falls.
(4) For the purposes of subsection (3)(a)(ii) and (b)(ii), the amount of any debit referred to in those paragraphs is offset against the amount of any credits referred to in those paragraphs in the order in which the credits arise.

Compare: 1994 No 164 s ME 7

ME 8 Allocation rules for imputation credits

(1) A company must not attach to a dividend an imputation credit of such an amount that the imputation ratio of the dividend would exceed the ratio calculated in accordance with the following formula:
where—
- a is the basic rate of income tax for companies, expressed as a percentage, stated in schedule 1, part A, clause 5 and applying in respect of the income year that is concurrent with the imputation year in which the dividend is paid.
(2) Where an imputation credit account company has paid a benchmark dividend in any imputation year, the company must, unless it makes a ratio change declaration in accordance with subsection (3), ensure that the imputation ratio of every subsequent dividend paid by the company during that imputation year is the same as the imputation ratio of the benchmark dividend; and for the purposes of this subsection any benchmark dividend with an imputation ratio exceeding the ratio specified in subsection (1) is deemed to have the ratio so specified.
(3) The imputation ratio of a subsequent dividend may differ from that of a benchmark dividend if—
- (a) an officer of the company declares, in a ratio change declaration in the prescribed form, that the subsequent dividend is not being paid as part of an arrangement to obtain a tax advantage, and provides such further information as may be prescribed; and
- (b) the ratio change declaration is delivered to the Commissioner before the date of payment of the subsequent dividend, or before such later date as the Commissioner may allow in any case or class of cases; and
- (c) the subsequent dividend is not paid as part of an arrangement to obtain a tax advantage.
(4) Where the imputation ratio of a subsequent dividend differs from the imputation ratio of a benchmark dividend in contravention of subsection (2), there arises an allocation debit of an amount calculated in accordance with the following formula:
(a x b) – c

where—
- a is the aggregate of the amount of all dividends paid by the company during the imputation year (exclusive of any imputation credit or withholding payment credit attached to those dividends)
- b is the lesser of—
  
  (i) the imputation ratio of the dividend with the greatest imputation ratio of all dividends paid by the company during the imputation year; or
  
  (ii) the ratio calculated in accordance with the formula stated in subsection (1)
- c is the aggregate of all imputation credits attached to dividends paid by the company during the imputation year.
(5) Nothing in this section applies to a dividend that is the subject of a determination made by a statutory producer board or a cooperative company in accordance with section ME 30 or ME 35.

(6) Nothing in subsections (2) to (4) applies to an imputation credit account company in relation to a dividend to which the imputation credit account company is not allowed to attach an imputation credit.

Compare: 1994 No 164 s ME 8

Subsection (6) was inserted, as from 21 July 2005, by section 146 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

ME 9 Further tax payable where end of year debit balance, or when company ceases to be imputation credit account company

(1) Where there is a debit balance in a company's imputation credit account at the end of any imputation year, and the company is not a company that is liable to pay further income tax under subsection (3), then, subject to subsections (7) and (9), the company is liable to pay to the Commissioner an amount of tax by way of further income tax of an amount equal to that debit balance.

(1A) Subsection (1) does not apply if the debit balance in the company's imputation credit account arises solely because of a debit amount that is recorded in the account after applying section ME 5(1)(jb).

(2) A company must pay any further income tax for which it is liable under subsection (1) not later than the 20 June following the end of the imputation year for which there was the debit balance.

(3) Where there is a debit balance in a company's imputation credit account immediately before the company ceases to be an imputation credit account company, then, subject to subsection (7), the company is liable to pay to the Commissioner an amount of tax by way of further income tax of an amount equal to that debit balance.

(4) A company must pay any further income tax to which it is liable under subsection (3) not later than the last day on which it is still an imputation credit account company.
(5) If a company pays an amount of further income tax for which the company is liable under this section, the company may elect that the amount of the payment be also credited—
- (a) in payment of a liability of the company to pay income tax, which may include a liability to pay provisional tax, in relation to an income year that corresponds to an imputation year in which the company was an imputation credit account company:
- (b) with effect on the date on which the Commissioner receives the payment of further income tax.
(5A) If a company is liable under this section to pay further income tax in relation to an imputation year and, after the end of the imputation year, pays an amount of income tax in relation to an income year that corresponds to an imputation year in which the company was an imputation credit account company, the company may elect that the amount of the payment of income tax be also credited—
- (a) in payment of the liability of the company to pay the further income tax:
- (b) with effect on the date on which the Commissioner receives the payment of income tax.
(5B) If an Australian imputation credit account company pays in an income year further income tax to which it is liable under this section and, at the time of the payment, there is no possibility that the company will have in the future an income tax liability against which the payment may be credited, the company may elect that the payment be treated for the income year, and for a company in the same wholly-owned group, as being an available net loss of an amount given by the following formula:
where—
- a is the amount of further income tax that is paid by the company and not credited against an income tax liability
- b is the basic rate of income tax, expressed as a percentage, stated in schedule 1, part A, clause 5.
(6) Subject to this section, and section 101 of the Tax Administration Act 1994, the other provisions of this Act and of the Tax Administration Act 1994 (other than the imputation rules), so far as they are applicable and with any necessary modifications, apply with respect to any further income tax for which a company is chargeable under this section as if it were income tax.
(7) If—
- (a) a qualifying company that is an imputation credit account company has been paid a refund of an amount of income tax; and
- (b) the amount of that refund has in any imputation year arisen as a debit to the company's imputation credit account,—
any amount that the company would otherwise be liable to pay by way of further income tax under subsection (1) or (3) is reduced (so far as it extends) by an amount calculated in accordance with the following formula:
a – b

where—
- a is the sum of all such refunds of amounts of income tax paid to the company on or before the date on which the relevant debit balance giving rise to the liability for further income tax is determined
- b is the sum of any credits arising in accordance with sections ME 3(2)(b)(i) and ME 4(1) in the company's imputation credit account during the imputation year in which the amount of any such refund first arose as a debit to the company's imputation credit account and during any subsequent imputation year.
(8) A company that has a debit balance in the company's imputation credit account at the end of an imputation year may request the Commissioner, by notice, for a reduction of the company's liability for further income tax relating to the imputation year if—
- (a) the company had a debit balance in the company's imputation credit account at the end of the immediately preceding imputation year; and
- (b) the debit balance referred to in paragraph (a) exceeds the total of the credits that have arisen in the company's imputation credit account during the imputation year.
(9) If the Commissioner receives a notice under subsection (8) from a company, the company's liability for further income tax relating to the imputation year is reduced by an amount that equals the difference between—
- (a) the debit balance in the company's imputation credit account at the end of the immediately preceding imputation year; and
- (b) the total of the credits that have arisen in the company's imputation credit account during the imputation year.
Compare: 1994 No 164 s ME 9

ME 9B Imputation credit account company leaving wholly-owned group

(1) This section applies to an imputation credit account company (called the leaving company) if, at a time in the income year of the leaving company that corresponds to a tax year,—
- (a) there is a change in the ultimate owners of the leaving company; and
- (b) as a result of the change, the leaving company ceases to be a member of a wholly-owned group of companies (called the former group); and
- (c) the total amount of the available net losses from the previous tax year for the members of the former group exceeds $1,000,000.
(2) If the leaving company at the time has a debit balance in its imputation credit account, the leaving company—
- (a) may elect that an amount that is not more than the debit balance be—
  - (i) a debit in the imputation credit account of another imputation credit account company that is a member of the former group and for which there is no change in ultimate owners at the time; and
  - (ii) a credit in the imputation credit account of the leaving company:
- (b) may elect to pay an amount of tax by way of additional income tax that is equal to—
  - (i) the amount of the debit balance, if the leaving company makes no election under paragraph (a):
  - (ii) the amount by which the debit balance exceeds the amount that is subject to the election under paragraph (a).
(3) If the leaving company at the time is entitled to an amount in a pooling account or would be entitled, in the absence of section MD 2, to a refund under section MD 1 of an amount of excess tax, subsection (4) applies to the following amount (called the excess entitlement):
- (a) zero, if at the time the credit balance in the imputation credit account of the leaving company equals or exceeds the total of the following amounts:
  - (i) the amount that would be the entitlement under section MD 1:
  - (ii) the amount in a tax pooling account that has been provided by or for the benefit of the leaving company and would exceed the liability at the time of the leaving company to pay income tax or provisional tax:
- (b) the total of the amounts referred to in paragraph (a)(i) and (ii), if at the time there is no credit balance in the imputation credit account of the leaving company:
- (c) the amount by which the credit balance in the imputation credit account of the leaving company at the time is exceeded by the total of the amounts referred to in paragraph (a)(i) and (ii), if neither of paragraphs (a) and (b) applies.
(4) If the leaving company at the time has an excess entitlement, the leaving company—
- (a) may elect that an amount that is not more than the excess tax payment for the company be—
  - (i) treated as having been paid, as income tax or provisional tax, on behalf of another imputation credit account company that is a member of the former group and for which there is no change in ultimate owners at the time; and
  - (ii) not treated as having been paid as income tax or provisional tax by the leaving company:
- (b) may elect to pay an amount of tax by way of additional income tax equal to—
  - (i) the amount of the excess entitlement, if the leaving company makes no election under paragraph (a); or
  - (ii) the amount, by which the excess tax payment exceeds the amount that is subject to the election under paragraph (a).
(5) A leaving company or a former group may satisfy a liability to pay additional income tax under subsection (2) or (4) by treating an excess tax payment of the leaving company or the former group as a payment towards the satisfaction of the liability.

(6) If the leaving company elects to pay an amount of additional income tax under subsection (2)(b) or (4)(b) that exceeds the amount of any payment under subsection (5), the additional income tax must be paid to the Commissioner by the 20th day of the month following the month in which the leaving company leaves the former group.

(7) The former group is jointly liable with the leaving company for additional income tax payable under subsection (6).

(8) A payment of additional income tax under subsection (2) or (4) does not satisfy any other liability of the leaving company or the former group.
(9) An election under subsection (2) or (4) must be—
- (a) in a form the Commissioner may require; and
- (b) made by the leaving company; and
- (c) accompanied by notice of agreement from the company who receives the debit under subsection (2) or is treated under subsection (4) as having the benefit of the excess tax payment; and
- (d) be made before the company leaves the group or within a further period that the Commissioner may allow if satisfied that the company had insufficient information to make an appropriate election at the time the company left the group.
(10) In this section,—
- (a) an ultimate owner of a company means a person—
  - (i) who has an ownership interest in the company, calculated under section FG 2; and
  - (ii) in whom no ownership interest, as calculated under section FG 2, is held by a person who holds an ownership interest in the company, calculated under section FG 2, of 50% or more:
- (b) excess tax payment, for a company at a time, means the amount at the time by which payments made by or on behalf of the company to the Commissioner for income tax or provisional tax exceed the liability at the time of the company to pay income tax and provisional tax.
Sections ME 9B and ME 9C were inserted, as from 1 October 2005, by section 77(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for a company that leaves a wholly-owned group on or after 16 November 2004.

ME 9C Imputation credit account company joining wholly-owned group

(1) This section applies to an imputation credit account company (called the joining company) if, at a time in the income year of the joining company that corresponds to a tax year,—
- (a) the joining company becomes a member of a wholly-owned group of companies (called the new group); and
- (b) the joining company was formerly a member of a wholly-owned group (called the former group) having ultimate owners that differed from the ultimate owners of the new group; and
- (c) the total amount of the available net losses from the previous tax year for the members of the former group exceeds $1,000,000.
(2) Subsection (3) applies to the joining company if—
- (a) the joining company at the time has a debit balance in its imputation credit account; and
- (b) the debit balance includes debits (called the former group debits)—
  - (i) that arose in the imputation credit account when the joining company was a member of the former group; and
  - (ii) upon which additional income tax under section ME 9B(2) was not paid by the joining company or former group.
(3) The joining company must pay an amount of tax by way of additional income tax that is equal to the amount of the former group debits.
(4) If the joining company at the time is entitled to an amount in a pooling account or would be entitled, in the absence of section MD 2, to a refund under section MD 1 of an amount of excess tax relating to a time when the joining company was in the former group, subsection (5) applies to the following amount (called the excess entitlement):
- (a) zero, if at the time the credit balance in the imputation credit account of the joining company equals or exceeds the total of the following amounts:
  - (i) the amount that would be the entitlement under section MD 1:
  - (ii) the amount in a tax pooling account that has been provided by or for the benefit of the joining company and would exceed the liability at the time of the joining company to pay income tax and provisional tax:
- (b) the total of the amounts referred to in paragraph (a)(i) and (ii), if at the time there is no credit balance in the imputation credit account of the joining company:
- (c) the amount by which the credit balance in the imputation credit account of the joining company at the time is exceeded by the total of the amounts referred to in paragraph (a)(i) and (ii), if neither of paragraphs (a) and (b) applies.
(5) If the joining company at the time has an excess entitlement, the joining company must pay an amount of tax by way of additional income tax equal to the amount of the excess entitlement.

(6) A joining company or a new group may satisfy a liability to pay additional income tax under subsection (3) or (5) by treating an excess tax payment of the joining company or the new group as a payment towards the satisfaction of the liability.

(7) If the joining company must pay an amount of additional income tax under subsection (3) or (5) that exceeds the amount of any payment under subsection (6), the additional income tax must be paid to the Commissioner by the 20th day of the month following the month in which the joining company joins the new group.

(8) The new group is jointly liable with the joining company for additional income tax payable under subsection (3) or (5).

(9) A payment of additional income tax under subsection (3) or (5) does not satisfy any other liability of the joining company or the new group.
(10) In this section,—
- (a) an ultimate owner of a company means a person—
  - (i) who has an ownership interest in the company, calculated under section FG 2; and
  - (ii) in whom no ownership interest, as calculated under section FG 2, is held by a person who holds an ownership interest in the company, calculated under section FG 2, of 50% or more:
- (b) excess tax payment, for a company at a time, means the amount at the time by which payments made by or on behalf of the company to the Commissioner for income tax or provisional tax exceed the liability at the time of the company to pay income tax and provisional tax.
Sections ME 9B and ME 9C were inserted, as from 1 October 2005, by section 77(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application for a company that leaves a wholly-owned group on or after 16 November 2004.

Consolidated imputation groups

ME 10 Consolidated imputation group to maintain separate imputation credit account

(1) Every consolidated imputation group must for each imputation year establish and maintain in accordance with this section and sections ME 11 to ME 14 an imputation credit account, separate from the imputation credit account of each company that is a member of that consolidated imputation group.

(1A) If the members of a consolidated group that is a consolidated imputation group elect to form an imputation group that includes no company that is a member of another consolidated group, the imputation group must, for the purposes of subsection (1), continue to use and maintain the imputation credit account formerly used by the consolidated group.
(1B) If the members of a consolidated group that is a consolidated imputation group elect to form or join an imputation group that includes the members of another consolidated group, the imputation group that results from the election must record in its imputation credit account—
- (a) all the debits and credits that, immediately before the election takes effect, are recorded in the imputation credit account of the consolidated group; and
- (b) all the debits and credits that, when or after the election takes effect, arise from transactions involving a member of the imputation group.
(1C) The resident imputation subgroup that is associated with a trans-Tasman imputation group must record in its imputation credit account all the debits and credits that—
- (a) are recorded in the imputation credit account of the trans-Tasman imputation group; and
- (b) arise in relation to a company that, at the time the debit or credit arises—
  - (i) will be a member of the resident imputation sub-group, if the debit or credit arises before the formation of the resident imputation subgroup:
  - (ii) is a member of the resident imputation subgroup, if the debit or credit arises at or after the formation of the resident imputation subgroup.
(1D) If the members of an imputation group elect to cease to be an imputation group and to form a consolidated group that is a consolidated imputation group, the consolidated group must, for the purposes of subsection (1), continue to use and maintain the imputation credit account formerly used by the imputation group.
(2) The opening balance of the imputation credit account of a consolidated imputation group for any imputation year is—
- (a) nil, if the consolidated imputation group is formed during the imputation year and is not formed from the members of a consolidated imputation group that exists immediately before the time of the formation:
- (aa) the amount given by the application of subsection (1A), (1B), or (1C), if the consolidated imputation group is formed during the imputation year and is formed from the members of a consolidated imputation group that exists immediately before the time of the formation:
- (b) the amount of the closing balance of the imputation credit account for the preceding imputation year (being a credit or debit, as the case may be), in any other case.
Compare: 1994 No 164 s ME 10

Subsection (1C)(b) was substituted, as from 1 October 2005, by section 230 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

ME 11 Credits arising to imputation credit account of group

(1) There arise as credits to be recorded in the imputation credit account of a consolidated imputation group for any imputation year the following amounts:
- (a) the amount of any income tax paid during that imputation year by that consolidated imputation group that is to be applied in satisfaction of the income tax liability (if any) of the group except to the extent that such income tax—
  - (i) would not, if the group were a single company, give rise to a credit by virtue of section ME 4(1)(a)(i) to (viii) and (x); or
  - (ii) is paid by way of a crediting of further income tax under section ME 13(6):
- (aa) the amount of any payment that is made by an intermediary into a tax pooling account from funds that are supplied by the group for that purpose:
- (ab) the amount of any transfer by an intermediary to the group of an entitlement to funds that are held in a tax pooling account:
- (b) the amount of any income tax deemed under section MB 33 to be paid during the imputation year by the consolidated imputation group:
- (c) the amount of any further income tax paid in respect of the consolidated imputation group during the imputation year under section ME 14(3):
- (d) the amount of any imputation credit attached to a dividend paid during the imputation year to any company which is at the time of payment a member of the consolidated imputation group:
- (e) the amount of any dividend withholding payment credit that is attached to a dividend paid during the imputation year to a company, if, at the time of the payment, the company is a member of the consolidated imputation group and—
  - (i) is a member of a consolidated group that does not have a dividend withholding payment account; or
  - (ii) is not a member of a consolidated group and does not have a dividend withholding payment account:
- (eb) the amount of any imputation credit attached under section ME 6B to a replacement payment paid under a share-lending arrangement to a company that is at the time of the payment a member of the consolidated imputation group:
- (ec) the amount of any imputation credit treated under section NF 8B as being attached to a replacement payment paid under a share-lending arrangement to a company that is at the time of the payment a member of the consolidated imputation group:
- (ed) the amount of imputation credit shown in a credit transfer notice a company is issued with, if the company is a member of the consolidated imputation group at the time the credit transfer notice is issued:
- (f) the amount of any dividend withholding payment that is made during the imputation year by a company that is a member of the consolidated imputation group at the time of the payment, if—
  - (i) the company at the time of the payment—
    - (A) is a member of a consolidated group that does not have a dividend withholding payment account; or
    - (B) is not a member of a consolidated group and does not have a dividend withholding payment account; and
  - (ii) the company does not satisfy the obligation to make the dividend withholding payment by reducing a net loss under section NH 5(4):
- (fb) an amount forming all or part of a credit balance in the dividend withholding payment account of a company that is a member of the consolidated imputation group, if the company elects under section MG 11 that the amount be a credit to the imputation credit account of the consolidated imputation group:
- (g) an amount forming all or part of a credit balance in the dividend withholding payment account of a consolidated group, if—
  - (i) the nominated company of the consolidated group elects under section NH 6(6) during the imputation year that the amount be a credit to the imputation credit account of the consolidated imputation group; and
  - (ii) the members of the consolidated group are members of the consolidated imputation group at the time of the election:
- (i) an amount equal to the amount of a debit arising to the imputation credit account under section ME 12(1)(i) during the imputation year, to the extent that it is subsequently established that the relevant imputation credit should not have been determined to be the subject of an arrangement to which that subsection applies:
- (j) the amount of any resident withholding tax deduction deemed under section NF 12(b) to have been derived by any company during the imputation year where the company is at the time of derivation a member of the consolidated imputation group:
- (jb) an amount forming all or part of a credit balance in the policyholder credit account of a company, if the company elects under section ME 19(3)(a) during the imputation year that the amount be a credit to the imputation credit account of the consolidated imputation group:
- (k) an amount forming all or part of a credit balance in the policyholder credit account of a consolidated group, if—
  - (i) the nominated company of the consolidated group elects under section ME 28(3) during the imputation year that the amount be a credit to the imputation credit account of the consolidated imputation group; and
  - (ii) the members of the consolidated group are members of the consolidated imputation group at the time of the election:
- (l) the amount of any credit arising during the imputation year to the imputation credit account under section ME 13(2).
(1A) If a group has been required by section ME 12(1)(h) to record in the group's imputation credit account an imputation debit that has the effect of cancelling a credit that arose from a deposit by the group into a tax pooling account, a credit that is equal to the imputation debit arises to be recorded in the group's imputation credit account if—
- (a) a further debit arises in the imputation credit account, on a date that is after the date on which the imputation debit under section ME 12(1)(h) arose, in relation to—
  - (i) a refund to the group of the amount of the deposit:
  - (ii) a transfer to another taxpayer of the group's entitlement to the amount of the deposit:
- (b) the amount of the deposit is transferred to the group's account with the Commissioner with an effective date under section MBA 6 that is after the date on which the imputation debit arose.
(1B) If a consolidated imputation group has a member that is an Australian imputation credit account company, there arise as credits to be recorded in the imputation credit account of the group for any imputation year the following amounts:
- (a) non-resident withholding tax that, under section NG 2, the company pays on non-resident withholding income derived by the company when the company is a member of the consolidated imputation group:
- (b) a payment of tax made under the Income Tax (Withholding Payments) Regulations 1979 from a withholding payment made to the company as a non-resident contractor when the company is a member of the consolidated imputation group:
- (c) a payment of tax to meet the schedular income tax liability of the company for schedular income that the company derives—
  - (i) under any of sections FC 13, FC 14, FC 18, and FC 21; and
  - (ii) in the income year that corresponds to the imputation year; and
  - (iii) when the company is a member of the consolidated imputation group.
(1C) No amount may create more than 1 credit under subsections (1) and (1B).
(2) The credits referred to in subsection (1) arise,—
- (a) in the case of the credits referred to in subsection (1)(a), (c), and (f), on the date the relevant tax or dividend withholding payment is paid:
- (aa) in the case of a credit referred to in subsection (1)(aa), on the date of the payment into the tax pooling account:
- (ab) in the case of a credit referred to in subsection (1)(ab),—
  - (i) if the funds to which the entitlement relates are transferred to the group's account with the Commissioner, on the effective date under section MBA 6 of the transfer:
  - (ii) if the funds to which the entitlement relates are refunded to the group or the entitlement to the funds is transferred to another taxpayer, on the date of the refund or transfer:
- (b) in the case of the credit referred to in subsection (1)(b), on the date on which notice of the allocation of the tax referred to in section MB 33 is given to the Commissioner:
- (c) in the case of the credits referred to in subsection (1)(d), (e), and (j), on the date the relevant dividend or interest is paid:
- (cb) in the case of the credits referred to in subsection (1)(eb) and (ec), on the date the replacement payment is paid:
- (cc) in the case of the credit referred to in subsection (1)(ed), on the date the credit transfer notice is issued:
- (d) in the case of the credits referred to in subsection (1)(fb), (g) and (k), on the date the relevant credit arises as a debit to the relevant account:
- (e) in the case of the credit referred to in subsection (1)(i), on the date the relevant debit arose under section ME 12(1)(i):
- (eb) in the case of the credit referred to in subsection (1)(jb), on the date the relevant debit arose under section ME 18(4)(b):
- (f) in the case of the credit referred to in subsection (1)(l), immediately prior to the date the relevant debit referred to in section ME 13(2)(b) arose to the imputation credit account.
(2A) A credit referred to in subsection (1A) arises on the date of the refund or transfer.
(2B) The credits referred to in subsection (1B) arise—
- (a) in the case of a credit referred to in subsection (1B)(a), on the date that the non-resident withholding tax is paid:
- (b) in the case of a credit referred to in subsection (1B)(b), on the date that the tax is paid:
- (c) in the case of a credit referred to in subsection (1B)(c), on the date that the schedular income tax is paid.
Compare: 1994 No 164 s ME 11

Section ME 11(1)(b): amended, on 1 October 2007, by section 147(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (1)(eb) to (ed) was inserted, as from 1 July 2006, by section 147(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (1)(fb) was inserted, as from 1 October 2005, by section 231(1) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subsection (1)(jb) was inserted, as from 1 October 2005, by section 231(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Section ME 11(2)(b): amended, on 1 October 2007, by section 147(3) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (2)(cb) and (cc) was inserted, as from 1 July 2006, by section 147(4) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (2)(d) was amended, as from 1 October 2005, by section 231(3) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “subsection (1)(fb), (g) and (k)” for “subsection (1)(g) and (k)”.

Subsection (2)(eb) was inserted, as from 1 October 2005, by section 231(4) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

ME 12 Debits arising to imputation credit account of group

(1) There arise as debits to be recorded in the imputation credit account of a consolidated imputation group for any imputation year the following amounts:
- (a) the amount of any imputation credit attached to a dividend paid during the imputation year by any company which is at the time of payment a member of the consolidated imputation group:
- (ab) the amount of any imputation credit attached under section ME 6B to a replacement payment paid under a share-lending arrangement during the imputation year by a company that is, at the time of the payment, a member of the consolidated imputation group:
- (ac) the amount of any imputation credit attached to a dividend that is paid during the imputation year to a company, if—
  - (i) at the time of the payment, the company is a member of the consolidated imputation group; and
  - (ii) the dividend is paid to the company as a share user or as a person associated with a share user, in a returning share transfer that is not a share-lending arrangement:
- (ad) the amount of any imputation credit attached to a dividend that is paid during the imputation year to a company that is, at the time of the payment, a member of the consolidated imputation group, if the imputation credit is shown in a credit transfer notice issued by the company:
- (b) an amount forming all or part of a credit balance in the imputation credit account of the consolidated imputation group, if the nominated company of the consolidated imputation group elects under section ME 14(1) during the imputation year that the amount be a credit to the policyholder credit account of the consolidated imputation group or of a member of the consolidated imputation group:
- (c) the amount of any provisional tax allocated by the consolidated imputation group under section MB 33 during the imputation year to an underpaid company (as referred to in that section):
- (d) the amount of any refund of income tax paid to the consolidated imputation group during the imputation year that was applied towards the satisfaction of an income tax liability of the consolidated imputation group or that was paid as an instalment of provisional tax of the consolidated imputation group except to the extent that—
  - (i) the refund is in respect of income tax paid before the date that a debit arises under paragraph (h); and
  - (ii) the amount of the refund does not exceed the amount of the debit that arises on that date:
- (da) the amount of any refund that is made to the group by an intermediary from funds in a tax pooling account for which the group has received a credit under section ME 11(1)(aa) or (ab):
- (db) the amount of the funds involved in any transfer from the group to another taxpayer by an intermediary of an entitlement to funds in a tax pooling account for which the group has received a credit under section ME 11(1)(aa) or (ab):
- (e) the amount of any allocation debit arising in respect of the imputation year under section ME 8(4) in respect of any company which is at the time of payment of the relevant dividend a member of the consolidated imputation group:
- (f) the amount of a refund of a dividend withholding payment, or a refund of a credit of tax under section LD 8(1)(c), that is made in respect of a dividend that is derived during the imputation year by a member of the consolidated imputation group, if at the time of derivation the member—
  - (i) is a member of a consolidated group that does not have a dividend withholding payment account; or
  - (ii) is not a member of a consolidated group and does not have a dividend withholding payment account:
- (h) the amount of any debit which would arise under section ME 5(1)(i) if that provision were to apply, with any necessary modifications, to a consolidated imputation group and its imputation credit account as if it were a single company:
- (i) the amount of any further debit arising during the imputation year to the imputation credit account under section GC 22 in relation to an imputation credit determined to be the subject of an arrangement to obtain a tax advantage:
- (j) the amount of credit balance, if any, of the imputation credit account where, during the imputation year, the consolidated imputation group ceases to be a consolidated imputation group:
- (k) the amount of any debit arising during the imputation year to the imputation credit account under section ME 13(5) (or under section ME 13(5) of the Income Tax Act 1994 or section 191SC(6) of the Income Tax Act 1976):
- (l) the amount of any overpaid income tax paid by the consolidated imputation group that the Commissioner applies towards the satisfaction of an amount (other than an amount of income tax) that is due and payable by a company that is a member of the consolidated imputation group under any provision of this Act or any other of the Inland Revenue Acts, except to the extent that the amount applied—
  - (i) is in respect of income tax paid before the date that a debit arises under paragraph (h); and
  - (ii) does not exceed the amount of the debit that arises on that date:
- (m) the overpaid amount of a dividend withholding payment that is made by a company in respect of a dividend derived by the company during the imputation year, if—
  - (i) the company at the time of derivation—
    - (A) is a member of a consolidated group that does not have a dividend withholding payment account; or
    - (B) is not a member of a consolidated group and does not have a dividend withholding payment account; and
  - (ii) the Commissioner applies the overpaid amount in satisfaction of an amount that—
    - (A) is due and payable under an Inland Revenue Act by a member of the consolidated group; and
    - (B) is not a dividend withholding payment or income tax; and
  - (iii) the consolidated group does not have a dividend withholding payment account at the time of the application of the overpaid amount:
- (n) the amount, calculated under subsection (3) or (4) for the income year corresponding to the imputation year, that is transferred on account of net foreign attributed income to the dividend withholding payment account of—
  - (i) a consolidated group, the members of which are members of the consolidated imputation group; or
  - (ii) a member of the consolidated imputation group that is not a member of a consolidated group and has a dividend withholding payment account.
(1A) If a consolidated imputation group has a member that is an Australian imputation credit account company, there arise as debits to be recorded in the imputation credit account of the group for any imputation year the following amounts:
- (a) any refund arising from an amount—
  - (i) that is an overpayment of non-resident withholding tax on non-resident withholding income that the company derives when the company is a member of the consolidated imputation group; and
  - (ii) for which the consolidated imputation group has received a credit under section ME 11(1B)(a):
- (b) any refund arising from an amount—
  - (i) that is an overpayment of tax under the Income Tax (Withholding Payments) Regulations 1979 from a withholding payment made to the company as a non-resident contractor when the company is a member of the consolidated imputation group; and
  - (ii) for which the consolidated imputation group has received a credit under section ME 11(1B)(b):
- (c) any refund of tax arising from an amount—
  - (i) that is an overpayment of the company's schedular income tax liability for schedular income that the company derives—
    - (A) under any of sections FC 13, FC 14, FC 18, and FC 21; and
    - (B) in the income year that corresponds to the imputation year; and
    - (C) when the company is a member of the consolidated imputation group; and
  - (ii) for which the consolidated imputation group has received a credit under section ME 11(1B)(c).
(2) The debits referred to in subsection (1) arise,—
- (a) in the case of the debit referred to in subsection (1)(a), on the date the dividend is paid:
- (ab) in the case of a debit referred to in subsection (1)(ab), on the date the replacement payment is paid:
- (ac) in the case of a debit referred to in subsection (1)(ac) or (ad), on the date the relevant dividend is paid:
- (b) in the case of a debit referred to in subsection (1)(b), on the date the nominated company makes the election:
- (c) in the case of a debit referred to in subsection (1)(c), on the date there is given to the Commissioner notice of the allocation of tax under section MB 9:
- (d) in the case of the debits referred to in subsection (1)(d) and (f), on the date the refund is paid:
- (da) in the case of a debit referred to in subsection (1)(da) or (db),—
  - (i) on the last day of the imputation year that immediately precedes the imputation year in which the refund or transfer is made, to the extent that the debit does not exceed the credit balance in the group's imputation credit account on that date:
  - (ii) on the date of the refund or transfer, to the extent that, after the application of subparagraph (i), the amount of the debit that is not assigned a date under subparagraph (i) does not exceed the credit balance in the group's imputation credit account on the date of the refund or transfer:
  - (iii) on the last day of the imputation year that immediately precedes the imputation year in which the refund or transfer is made, to the extent that the debit is not assigned a date under subparagraphs (i) and (ii):
- (e) in the case of a debit referred to in subsection (1)(e), at the end of the imputation year in respect of which the allocation debit arises:
- (g) in the case of a debit referred to in subsection (1)(h), at the specified time:
- (h) in the case of a debit referred to in subsection (1)(i), at the end of the imputation year in respect of which it is determined that the arrangement to obtain a tax advantage occurred or commenced:
- (i) in the case of a debit referred to in subsection (1)(j), immediately before the consolidated imputation group ceases to be a consolidated imputation group:
- (j) in the case of a debit referred to in subsection (1)(k), at the time first referred to in section ME 13(5) (or section ME 13(5) of the Income Tax Act 1994 or section 191SC(6) of the Income Tax Act 1976, as the case may be):
- (k) in the case of a debit referred to in subsection (1)(l) or (m), on the date that the Commissioner applies the amount of overpaid income tax or dividend withholding payment in satisfaction of the other amount that is due and payable:
- (l) in the case of a debit referred to in subsection (1)(n),—
  - (i) on the last day of the imputation year that corresponds to the income year, to the extent that the debit is not more than the amount of provisional tax payments made for the income year on or before that day; and
  - (ii) to the extent that subparagraph (i) does not apply, on the date the return of income for the income year is filed.
(2A) A debit referred to in subsection (1A) arises on the date that the refund is paid.
(3) If a consolidated group or a company that is not a member of a consolidated group maintains both a dividend withholding payment account and a conduit tax relief account for the imputation year corresponding to the income year, the amount to be transferred under subsection (1)(n) is calculated for the consolidated group or company by applying sections KH 1 and KH 2, with any necessary modifications and as if the amount were conduit tax relief for the imputation year, but—
- (a) substituting the percentage of resident shareholders for the quantity NRS in section KH 1(2) and (3); and
- (b) calculating the percentage of resident shareholders by deducting the quantity NRS from 100%.
(4) If a consolidated group or a company that is not a member of a consolidated group maintains a dividend withholding payment account for the imputation year corresponding to the income year but does not maintain a group conduit tax relief account for the imputation year, the amount to be transferred under subsection (1)(n) is calculated for the consolidated group or company by applying section KH 1 as if each member of the group or the company were a conduit tax relief company and the quantity NRS were 100%.

(5) If neither subsection (3) nor (4) applies, no amount is to be transferred under subsection (1)(n).

Compare: 1994 No 164 s ME 12

Subsection (1)(ab) to (ad) was inserted, as from 1 July 2006, by section 148(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (1)(b) was substituted, as from 1 October 2005, by section 232 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Section ME 12(1)(c): amended, on 1 October 2007, by section 148(2) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (2)(ab) and (ac) was inserted, as from 1 July 2006, by section 148(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

ME 13 Debiting and crediting between consolidated imputation group and individual companies

(1) Where—
- (a) any credit arises to the imputation credit account of a consolidated imputation group in respect of any tax paid, payment into a tax pooling account, imputation credit attached to a dividend derived, dividend withholding payment credit attached to a dividend derived, or dividend withholding payment paid; or
- (b) any debit arises to the imputation credit account of a consolidated imputation group in respect of any tax refunded, refund of funds in a tax pooling account, transfer of an entitlement to funds in a tax pooling account, imputation credit attached to a dividend paid, dividend withholding payment refunded, tax credit refunded, or allocation debit arising under section ME 8(4),—
that credit or debit does not arise to the imputation credit account of any individual company.
(2) Subject to subsection (3), where and to the extent that at any time—
- (a) a company which is at that time a member of a consolidated imputation group has a credit in its individual imputation credit account (that credit being referred to in this subsection as the company credit); and
- (b) a debit arises under section ME 12 to be recorded in the imputation credit account of the consolidated imputation group; and
- (c) that debit is not offset, determined by applying the procedure set out in section ME 5(4)(c), against any credit in the consolidated imputation group's imputation credit account which arose before the date or on the same date upon which the company credit arose,—
the company credit is, to the extent of that debit, credited to the imputation credit account of the consolidated imputation group, and that credit to the group's imputation credit account is, for the purposes of section ME 12(1)(h), deemed to have been cancelled out by that debit notwithstanding section ME 5.
(3) Where at any time all or part of any credit in a company's imputation credit account is credited to the imputation credit account of a consolidated imputation group, an amount equal to the credit so arising arises as a debit at that time to be recorded under section ME 5 in the company's imputation credit account.
(4) Where under subsection (2) credits in the individual imputation credit accounts of 2 or more members of a consolidated imputation group would, but for this subsection, be required to be credited to the group's imputation credit account, those credits must be credited—
- (a) in the order in which those credits arose, determined by applying the procedure set out in section ME 5(4)(c); and
- (b) if 2 or more credits arose at the same time,—
  - (i) in the order elected by the consolidated imputation group; or
  - (ii) if no such election is made, on a pro rata basis,—
so far as the relevant debit to the group's imputation credit account extends and no further.
(5) Where and to the extent that at any time—
- (a) a debit would, but for this subsection, arise in the individual imputation credit account of a company which is at that time a member of a consolidated imputation group; and
- (b) the arising of that debit would result in or increase a debit balance in the individual imputation credit account of the company,—
that debit does not arise to the company's imputation credit account but is debited to the consolidated imputation group's imputation credit account.
(6) Where at any time—
- (a) a company has paid any further income tax under section ME 9 in respect of a debit balance in its individual imputation credit account; and
- (b) the company is entitled under section ME 9(5) to credit that further income tax against any income tax liability of the company that arises or any instalment of provisional tax for which the company becomes liable at or after that time; and
- (c) the company is at that time a member of a consolidated imputation group,—
that further income tax may be credited against—
- (d) any income tax liability of the group that arises at or after that time; or
- (e) any instalment of provisional tax in accordance with section MB 37 for which the group becomes liable at or after that time,—
and, to the extent so credited, the further income tax is not available to be credited under section ME 9(5).
Compare: 1994 No 164 s ME 13

Section ME 13(6)(e): amended, on 1 October 2007, by section 149(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

ME 14 Application of specific imputation provisions to consolidated imputation groups

(1) If at any time there is a credit balance in the imputation credit account of a consolidated imputation group that is not a resident imputation subgroup and a member of the consolidated imputation group has a policyholder credit account, or a consolidated group whose members are members of the consolidated imputation group has a policyholder credit account, the nominated company of the consolidated imputation group may—
- (a) elect that an amount forming all or part of the credit balance be, at the time, a credit to the policyholder credit account of the member or consolidated group and a debit to the imputation credit account of the consolidated imputation group; and
- (b) make an election under paragraph (a) by recording the debit in the imputation credit account.
(1A) If the members of a consolidated group that has a policyholder credit account are members of a consolidated imputation group and the consolidated group has a non-standard balance date, section ME 7(3) and (4) apply to the transfer of a credit balance from the imputation credit account of the consolidated imputation group to the policyholder credit account of the consolidated group as if—
- (a) each reference to a company were a reference to the consolidated imputation group or the consolidated group, as appropriate; and
- (b) each reference to the provisions of the Act applicable to an individual company were a reference to the equivalent provision of this section or of sections ME 10 to ME 13 applicable to consolidated imputation groups with members that are the members of a consolidated group.
(2) Section ME 8 applies, with any necessary modifications, to a consolidated imputation group as if it were a single company but, for the purposes of sections ME 8(2) to (4), dividends paid by 1 member of the consolidated imputation group to another member of the consolidated imputation group are not taken into account.
(3) Section ME 9, and sections 97, 101, 139B, 140B, 140D, and 180 of the Tax Administration Act 1994 apply, with any necessary modifications, to a consolidated imputation group and its imputation credit account as if—
- (a) it were a single company; and
- (b) each reference to a provision of this Act were a reference to the equivalent provision applicable to consolidated imputation groups; and
- (c) each reference to liability of a company for further income tax, late payment penalty, or imputation penalty tax were (subject to the application of section HB 1(2) to (5)) a reference to joint and several liability for that tax of each company which is a member of the group at the time the further income tax, late payment penalty, or imputation penalty tax becomes payable.
(3B) Sections ME 9B and ME 9C and sections 97, 101, 139B, 140B, 140D, and 180 of the Tax Administration Act 1994 apply, with any necessary modifications, to a consolidated imputation group and its imputation credit account as if—
- (a) it were a single company; and
- (b) each reference to a provision of this Act were a reference to the equivalent provision applicable to consolidated imputation groups; and
- (c) each reference to liability of a company for additional income tax, late payment penalty, or imputation penalty tax were (subject to the application of section HB 1(2) to (5)) a reference to joint and several liability for that tax of each company which is a member of the group at the time the additional income tax, late payment penalty, or imputation penalty tax becomes payable.
(4) Sections GC 22 and ME 40 apply, with any necessary modifications, in any case which involves accounts of a consolidated imputation group, as if—
- (a) the consolidated imputation group were a single company; and
- (b) references to provisions of this Act were references to the equivalent provisions applicable to such equivalent accounts.
(5) Section MD 2—
- (a) applies, with any necessary modifications, in respect of any tax paid by a consolidated group that is a consolidated imputation group as if—
  - (i) the group were a single company; and
  - (ii) the reference to that company ceasing to be an imputation credit account company were a reference to the consolidated group ceasing to be a consolidated imputation group; and
  - (iii) each reference to a provision of this Act or of the Tax Administration Act 1994 were a reference to the equivalent provision applicable to consolidated imputation groups; and
- (b) does not apply to limit a refund of income tax payable to a company which is a member of a consolidated group that is a consolidated imputation group in respect of income tax paid individually by that company to the extent that, if that refund had been of income tax paid by the consolidated group, section MD 2 would not have limited the refund; but, where and to the extent that a refund of income tax is paid which would not have been payable but for this paragraph, section MD 2(3) applies as if that refund were in respect of tax paid by the consolidated group.
(6) If a company that is a member of an imputation group has an entitlement under section MD 1 to a refund of overpaid income tax,—
- (a) the company must apply for the refund by a notice to the Commissioner that is in a form acceptable to the Commissioner:
- (b) section MD 2 applies to the entitlement as if—
  - (i) the imputation credit account of the imputation group were the imputation credit account of the company:
  - (ii) the credit in the imputation credit account for the purpose of section MD 2 were reduced by each refund to a member of the imputation group.
Compare: 1994 No 164 s ME 14

Subsection (3B) was inserted, as from 1 October 2005, by section 78 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Policyholder credit accounts

ME 15 Resident life insurance companies to maintain policyholder credit account

A company resident in New Zealand (being a company carrying on a business of providing life insurance to which the life insurance rules apply) must establish and maintain a policyholder credit account for each imputation year.

Compare: 1994 No 164 s ME 15

ME 16 Calculation of balance of policyholder credit account

For the purposes of sections MD 3 and ME 15 to ME 24, the balance of a policyholder credit account at any time is ascertained by calculating the difference in amount between the aggregate of credits and the aggregate of debits to the account existing at that time, and the account has—
- (a) a credit balance to the extent that credits exceed debits:
- (b) a debit balance to the extent that debits exceed credits.
Compare: 1994 No 164 s ME 16

ME 17 Policyholder credit account of company

(1) Every policyholder credit account company must record in its policyholder credit account for any imputation year—
- (a) the opening balance of the account for that imputation year, in accordance with subsection (2):
- (b) credits as they arise in accordance with section ME 18(1) and (2):
- (c) debits as they arise in accordance with section ME 18(3) and (4).
(2) The opening balance of the policyholder credit account of a company for any imputation year is,—
- (a) for the imputation year during which the company commences to be a policyholder credit account company, nil:
- (b) for any subsequent imputation year, the amount of the closing balance of the policyholder credit account of the company for the immediately preceding imputation year, and such amount is—
  - (i) a credit arising to the account where the closing balance is a credit balance:
  - (ii) a debit arising to the account where the closing balance is a debit balance.
Compare: 1994 No 164 s ME 17

ME 18 Credits and debits arising to policyholder credit account of company

(1) There arise as credits to be recorded in the policyholder credit account of a policyholder credit account company the following amounts:
- (a) any amount of a credit balance in an imputation credit account that is a debit to the imputation credit account and a credit to the policyholder credit account as a result of an election—
  - (i) under section ME 14 by the nominated company for an imputation group to which the company belongs, if the company is a member of an imputation group and not a member of a consolidated group; or
  - (ii) under section ME 7 by the company, if the company is not a member of an imputation group or of a consolidated group that is a consolidated imputation group:
- (b) any amount forming all or part of a credit balance in the company's dividend withholding payment account that the company elects in accordance with section MG 7 to be a credit to the company's policyholder credit account:
- (bb) an amount equal to any allocation deficit debit that arises in the company's dividend withholding payment account under section MG 8B, if the amount of the allocation deficit debit is given by section MG 8B(3)(a):
- (bc) an amount equal to the credit balance in the company's dividend withholding payment account immediately before an allocation deficit debit arises in the company's dividend withholding payment account under section MG 8B, if the amount of the allocation deficit debit is given by section MG 8B(3)(b):
- (c) any amount forming all of the credit balance in another company's or person's policyholder credit account that that other company or person elects, in accordance with section ME 19A, to transfer as a credit to the policyholder credit account of the company along with the transfer of the other company's or person's life insurance business to the company.
(2) The credits referred to in subsection (1) arise,—
- (a) in the case of a credit referred to in subsection (1)(a), on the date that the amount of the credit arises as a debit to the company's imputation credit account under section ME 7:
- (b) in the case of a credit referred to in subsection (1)(b), on the date that the amount of the credit arises as a debit to the company's dividend withholding payment account under section MG 7:
- (bb) in the case of a credit referred to in paragraph (bb) or (bc) of that subsection, at the end of the imputation year in respect of which the credit arises:
- (c) in the case of a credit referred to in subsection (1)(c), on the date of transfer of the life insurance business.
(3) There arise as debits to be recorded in the policyholder credit account of a policyholder credit account company the following amounts:
- (a) the amount of any credit balance in the account that the company elects in accordance with section ME 19 to use as a credit against the company's policyholder base income tax liability:
- (b) the amount of any credit balance in the account that the company elects under section ME 19 to be a credit to the imputation credit account of—
  - (i) the imputation group to which the company belongs, if the company is a member of an imputation group; or
  - (ii) the company, if the company is not a member of an imputation group:
- (c) the amount of the credit balance in the account that the company elects in accordance with section ME 19A to transfer as a credit to the policyholder credit account of another company or person along with the transfer of the company's life insurance business to that other company or person.
(4) The debits referred to in subsection (3) arise,—
- (a) in the case of a debit referred to in subsection (3)(a), on the last day of the income year of the company to which the income tax that is reduced by the relevant amount of the credit balance relates:
- (b) in the case of a debit referred to in subsection (3)(b), on the date the company elects in accordance with section ME 19 to credit the imputation credit account of the company or imputation group:
- (c) in the case of a debit referred to in subsection (3)(c), on the date of transfer of the life insurance business.
Compare: 1994 No 164 s ME 18

Subsection (1)(a) was amended, as from 1 October 2005, by section 233(1)(a) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by omitting “under section ME 7 by”.

Subsection (1)(a)(i) was amended, as from 1 October 2005, by section 233(1)(b) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by inserting “under section ME 14 by” before the words “the nominated company”.

Subsection (1)(a)(ii) was amended, as from 1 October 2005, by section 233(1)(c) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by inserting “under section ME 14 by” before the words “the nominated company”.

Subsection (1)(bb) and (bc) were inserted, as from 1 October 2005, by section 233(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subsection (2)(bb) was inserted, as from 1 October 2005, by section 233(3) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subsection (3)(b)(i) was amended, as from 1 October 2005, by section 233(4)(a) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by omitting “and not a member of a consolidated group”.

Subsection (3)(b)(ii) was amended, as from 1 October 2005, by section 233(4)(b) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by omitting “or of a consolidated group that is a consolidated imputation group”.

Subsection (4)(b) was amended, as from 1 October 2005, by section 233(5) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “imputation credit account of the company or imputation group” for “company's imputation credit account”.

ME 19 Election to use credit balance as credit against policyholder base income tax liability or as credit in imputation credit account

(1) A policyholder credit account company may elect that all or part of any credit balance in its policyholder credit account at the time of the election is to be credited against any policyholder base income tax liability of the company, or provisional tax payable by the company in respect of its policyholder base.

(2) A company makes an election under subsection (1) by recording the amount in respect of which it makes the election as a debit in its policyholder credit account, and any amount so recorded as a debit in accordance with subsection (1) is credited against any policyholder base income tax liability of the company or provisional tax payable by the company in respect of its policyholder base.
(3) A policyholder credit account company may elect that all or part of any credit balance in its policyholder credit account at the time of the election be a debit to the company's policyholder credit account and a credit to the imputation credit account of—
- (a) the imputation group to which the company belongs, if the company is a member of an imputation group; or
- (b) the company, if the company is not a member of an imputation group.
(4) An election of a company under subsection (3) is made by recording the amount that is subject to the election—
- (a) as a debit in the company's policyholder credit account; and
- (b) as a credit in the imputation credit account—
  - (i) of the imputation group to which the company belongs, if the company is a member of an imputation group; or
  - (ii) of the company.
(5) Notwithstanding subsection (3), no policyholder credit account company may in any imputation year elect that any credit balance in its policyholder credit account is to be a credit to the imputation credit account of the company, or of the company's imputation group, where and to the extent to which—
- (a) the company furnishes a return of income under section 38 of the Tax Administration Act 1994 for a non-standard accounting year; and
- (b) that credit balance is an amount of credit arising in that imputation year from an election made by the company in accordance with section ME 7 or MG 7 during the accounting year of the company in which the last day of that imputation year falls; and
- (c) the election would, if made, result in a debit to the company's policyholder credit account in that imputation year.
(6) For the purposes of subsection (5), a credit balance in a policyholder credit account is deemed not to contain the amount of a credit referred to in paragraph (b) of that subsection to the extent that the credit has been cancelled out by any subsequent debit arising to the account, and for this purpose the amount of any debit is offset against the amount of any credits in the order in which the credits arise.

Compare: 1994 No 164 s ME 19

Subsection (3)(a) was amended, as from 1 October 2005, by section 234(1) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by omitting “and not a member of a consolidated group”.

Subsection (3)(b) was amended, as from 1 October 2005, by section 234(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by omitting “or of a consolidated group that is a consolidated imputation group”.

Subsection (4)(b)(i) was amended, as from 1 October 2005, by section 234(3) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by omitting “and not a member of a consolidated group”.

Subsection (4)(b)(ii) was amended, as from 1 October 2005, by section 234(4) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by omitting “, if the company is not a member of an imputation group or of a consolidated group that is a consolidated imputation group”.

ME 19A Credit balance may be transferred on transfer of life insurance business

(1) Where a policyholder credit account company or policyholder credit account person transfers its life insurance business to another company or person, the policyholder credit account company or person may, if—
- (a) the transfer meets the requirements set out in section EY 44(1); and
- (b) in the case of—
  - (i) a policyholder credit account company, the company is not, following the transfer, required by section ME 15 to maintain a policyholder credit account; or
  - (ii) a policyholder credit account person, the person is not, following the transfer, eligible to make an election under section ME 21 to maintain a policyholder credit account,—
elect to transfer the whole of the credit balance in its account at the time of transfer of the business to the policyholder credit account of the company or person to which its business is transferred.
(2) A policyholder credit account company or person makes an election under subsection (1) by recording a debit in its policyholder credit account accordingly.

Compare: 1994 No 164 s ME 19A

ME 20 Determinations by Commissioner as to credits and debits arising to policyholder credit account

(1) Where the Commissioner considers that—
- (a) any amount recorded as a credit or a debit arising to a company's policyholder credit account—
  - (i) is not the correct amount that should have been recorded in respect of the credit or debit; or
  - (ii) should not have been so recorded; or
  - (iii) should not have been recorded as arising at the time it was recorded as arising; or
- (b) any amount that has not been recorded as a credit or debit to the imputation credit account of a company, or of a company's consolidated imputation group, should have been so recorded,—
the Commissioner must determine the correct amount (including a nil amount) of the credit or debit properly arising to the account and the time at which such credit or debit arose.
(2) Where the Commissioner makes a determination under subsection (1), then, except in so far as the company establishes on objection that any credit or debit was correctly recorded, or not recorded as the case may be, in the policyholder credit account,—
- (a) the relevant credit or debit is deemed to have arisen, or not to have arisen, or to have been the amount determined by the Commissioner under subsection (1), as the case may require, effective on the date on which the debit or credit originally arose, or is determined by the Commissioner as having arisen:
- (b) the company must make such other corrections in respect of any credits or debits or balances recorded as arising to its policyholder credit account or imputation credit account or dividend withholding payment account, and the nominated company of any consolidated imputation group of which the company is a member must make such corrections in the consolidated imputation group's imputation credit account, whether for the imputation year in which the incorrect record the subject of the determination was made or for any subsequent imputation year, as may be necessary or as may be directed by the Commissioner as a consequence of the determination in relation to the amount incorrectly recorded or not recorded.
(3) As soon as is convenient after a determination is made under subsection (1), the Commissioner must give notice to the company in respect of whose policyholder credit account the determination is made, and the notice may be included in a notice of assessment under section 111(1) of the Tax Administration Act 1994.

(4) An omission to give the notice referred to in subsection (3) does not invalidate the determination.

Compare: 1994 No 164 s ME 20

ME 21 Person may elect to maintain policyholder credit account

(1) Any person carrying on a business of providing life insurance (not being a company resident in New Zealand) to which section CR 1(4) applies may at any time during an income year of that person elect to maintain a policyholder credit account for that income year.
(2) A person who so elects must notify the Commissioner of that fact within 21 days after the date of the election, or within such further time as the Commissioner may allow in any case or class of cases, and must maintain a policyholder credit account—
- (a) for the income year in which the election is made; and
- (b) subject to this section, for every subsequent income year.
(3) A person who has made an election under subsection (1) may, during any income year subsequent to that in which the election was made, elect to cease to be a policyholder credit account person, and, subject to subsection (4), any person who so elects must, as from the commencement of the income year succeeding that in which the election to so cease is made, cease to be a person required to maintain a policyholder credit account.

(4) An election made under subsection (3) is of no effect unless the person furnishes, within the time provided for in section 66(3) of the Tax Administration Act 1994, the annual policyholder credit account return required in respect of the income year in which the election is made.

Compare: 1994 No 164 s ME 21

ME 22 Policyholder credit account of person

(1) Every policyholder credit account person must record in the person's policyholder credit account for any income year of that person—
- (a) the opening balance of the account for that income year, in accordance with subsection (2):
- (b) credits as they arise in accordance with section ME 23(1), (2), (3), and (6):
- (c) debits as they arise in accordance with section ME 23(4), (5), and (6).
(2) The opening balance of the policyholder credit account of a person for any income year is,—
- (a) for the income year during which the person commences to be a policyholder credit account person, nil:
- (b) for any subsequent income year, the amount of the closing balance of the policyholder credit account of the person for the preceding income year, and such amount is—
  - (i) a credit arising to the account where the closing balance is a credit balance:
  - (ii) a debit arising to the account where the closing balance is a debit balance.
Compare: 1994 No 164 s ME 22

ME 23 Credits and debits arising to policyholder credit account of person

(1) There arise as credits to be recorded in the policyholder credit account of a policyholder credit account person—
- (a) such amounts as would arise as credits if—
  - (i) that policyholder credit account person were, in respect of the business of providing life insurance carried on by that person, an imputation credit account company; and
  - (ii) that policyholder credit account were an imputation credit account; and
  - (iii) section ME 4(1)(d), (e), and (j) did not apply:
- (b) any amount forming all of the credit balance in another company's or person's policyholder credit account that that other company or person elects, in accordance with section ME 19A, to transfer as a credit to the policyholder credit account of the person along with the transfer of the other company's or person's life insurance business to the person.
(2) Subject to subsection (3), any such credit arises,—
- (a) in the case of a credit referred to in subsection (1)(a), on the date on which the credit would have arisen to the imputation credit account of the policyholder credit account person if—
  - (i) that policyholder credit account person were, in respect of the business of providing life insurance carried on by that person, an imputation credit account company; and
  - (ii) that policyholder credit account were an imputation credit account:
- (b) in the case of a credit referred to in subsection (1)(b), on the date of transfer of the life insurance business.
(3) Where any amount of income tax is treated as being paid by the policyholder credit account person by virtue of section LB 2 or LD 8 or MF 14, for the purposes of this section the income tax is deemed to be paid on the date upon which the relevant dividend is paid.
(4) There arise as debits to be recorded in the policyholder credit account of a policyholder credit account person for any income year the following amounts:
- (a) any of the credit balance of the account that the person elects in accordance with section ME 24 to use as a credit against the policyholder base income tax liability of the person:
- (b) any amount equal to any debits which would have arisen to the imputation credit account of the policyholder credit account person if—
  - (i) that policyholder credit account person were, in respect of the business of providing life insurance carried on by that person, an imputation credit account company; and
  - (ii) that policyholder credit account were an imputation credit account; and
  - (iii) section ME 5(1)(b), (c), and (i) did not apply:
- (c) the amount of the credit balance in the account that the person elects in accordance with section ME 19A to transfer as a credit to the policyholder credit account of another company or person along with the transfer of the person's life insurance business to that other company or person.
(5) The debits referred to in subsection (4) arise,—
- (a) in the case of a debit referred to in subsection (4)(a), on the date the person makes the election in accordance with section ME 24:
- (b) in the case of a debit referred to in subsection (4)(b), on the date the debit would have arisen to the imputation credit account of the policyholder credit account person if—
  - (i) that policyholder credit account person were, in respect of the business of providing life insurance carried on by that person, an imputation credit account company; and
  - (ii) that policyholder credit account were an imputation credit account:
- (c) in the case of a debit referred to in subsection (4)(c), on the date of transfer of the life insurance business.
(6) Notwithstanding any provision of this section, in the case of any policyholder credit account person not resident in New Zealand to whom section EY 47 applies,—
- (a) a credit arises only to that person's policyholder credit account by virtue of income tax paid to the extent that it does not exceed—
  - (i) the amount of income tax liability that would have arisen in respect of the person's taxable income if the sole activity of the person carrying on a business of providing life insurance consisted of or related to any 1 or more policies of life insurance for which that life insurer is the insurer which were offered or entered into in New Zealand; or
  - (ii) an amount that would have been so calculated and deemed to be derived from New Zealand under that formula but for the application of section NG 3; and
- (b) no debit arises to that person's policyholder credit account by virtue of any refund of income tax paid to that person if no credit arose to that person's policyholder credit account in respect of that income tax paid by virtue of paragraph (a).
Compare: 1994 No 164 s ME 23

ME 24 Use of credit balance to reduce income tax

(1) A policyholder credit account person may elect that all or any part of the credit balance in the policyholder credit account of that person at the time of election is to be credited against any policyholder base income tax liability of the person or provisional tax payable in respect of the person's policyholder base.

(2) A person makes an election under this section by recording the amount in respect of which the election is made as a debit in the person's policyholder credit account, and any amount recorded as a debit in accordance with this section is credited against any policyholder base income tax liability of the person or provisional tax payable by the person in respect of the person's policyholder base.

Compare: 1994 No 164 s ME 24

Policyholder credit accounts: consolidated groups

ME 25 Policyholder credit accounts and consolidated groups

Every consolidated group any member of which is a company carrying on a business of providing life insurance to which the life insurance rules apply must establish and maintain a policyholder credit account, separate from the policyholder credit account of each company which is a member of that consolidated group.

Compare: 1994 No 164 s ME 25

ME 26 Credits and debits arising to group policyholder credit account

(1) The opening balance of the policyholder credit account of a consolidated group for any imputation year is—
- (a) nil, for the imputation year during which the consolidated group is formed; and
- (b) the amount of the closing balance of the policyholder credit account for the preceding imputation year (being a credit or debit, as the case may be), in any other case.
(2) There arise as credits to be recorded in the policyholder credit account of the consolidated group for any imputation year the following amounts:
- (a) any amount forming all or part of a credit balance in the imputation credit account of an imputation group or of a consolidated group that is a consolidated imputation group if—
  - (i) the members of the consolidated group are members of the consolidated imputation group; and
  - (ii) the nominated company for the consolidated imputation group elects under section ME 14(1)(a) that the credit balance be a credit to the policyholder credit account of the consolidated group:
- (b) any amount forming all or part of a credit balance in the group's dividend withholding payment account that the nominated company for the group elects in accordance with section ME 14(2) to be a credit to the group's policyholder credit account:
- (c) the amount of any credit arising during the imputation year to the policyholder credit account under section ME 27(1).
- (d) an amount equal to any allocation deficit debit that arises in the consolidated group's dividend withholding payment account under section MG 8B, if the amount of the allocation deficit debit is given by section MG 8B(3)(a):
- (e) an amount equal to the credit balance in the consolidated group's dividend withholding payment account immediately before an allocation deficit debit arises in the consolidated group's dividend withholding payment account under section MG 8B, if the amount of the allocation deficit debit is given by section MG 8B(3)(b):
(3) The credits referred to in subsection (2) arise,—
- (a) in the case of a credit referred to in subsection (2)(a), on the date that the amount of the credit arises as a debit to the group's imputation credit account under section ME 12(2)(b):
- (b) in the case of a credit referred to in subsection (2)(b), on the date that the amount of the credit arises as a debit to the group's dividend withholding payment account under section MG 15(2)(b):
- (c) in the case of a credit referred to in subsection (2)(c), at the time first referred to in section ME 27(1).
(4) There arise as debits to be recorded in the policyholder credit account of a consolidated group the following amounts:
- (a) the amount of any credit balance in the account that the nominated company for the group elects in accordance with section ME 28(2) to use as a credit against the policyholder base income tax liability of the group:
- (b) the amount of any credit balance in the policyholder credit account of the consolidated group if—
  - (i) the consolidated group is a consolidated imputation group or the members of the consolidated group are members of an imputation group; and
  - (ii) the nominated company for the consolidated group elects under section ME 28(3) that the credit balance be a credit to the imputation credit account of the consolidated group or imputation group.
(5) The debits referred to in subsection (4) arise,—
- (a) in the case of a debit referred to in subsection (4)(a), on the last day of the income year of the group to which the income tax that is reduced by the relevant amount of the credit balance relates:
- (b) in the case of a debit referred to in subsection (4)(b), on the date the company elects in accordance with section ME 28(3) to credit the group's imputation credit account.
Compare: 1994 No 164 s ME 26

Subsection (2)(d) and (e) were inserted, as from 1 October 2005, by section 235(1) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subsection (3)(d) was inserted, as from 1 October 2005, by section 235(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

ME 27 Debiting and crediting between group and individual policyholder credit accounts

(1) Subject to subsection (3), where and to the extent that at any time—
- (a) a company which is at that time a member of a consolidated group has a credit in its individual policyholder credit account (that credit being referred to in this section as the company credit); and
- (b) a debit arises under this section to be recorded in the policyholder credit account of the consolidated group; and
- (c) that debit is not offset, determined by applying the procedure set out in section ME 5(4)(c) as if that policyholder credit account were an imputation credit account, against any credit in the consolidated group's policyholder credit account which arose before the date or on the same date upon which the company credit arose,—
the company credit is, to the extent of that debit, credited to the policyholder credit account of the consolidated group.
(2) Where at any time all or any part of any credit in a company's policyholder credit account is credited to the policyholder credit account of a consolidated group, an amount equal to the credit so arising arises as a debit at that time to be recorded under section ME 18 in the company's policyholder credit account.
(3) Where under subsection (1) credits in the individual policyholder credit accounts of 2 or more members of a consolidated group would, but for this subsection, be required to be credited to the group's policyholder credit account, those credits must be credited—
- (a) in the order in which those credits arose, determined having regard to the procedure set out in section ME 5(4)(c) as if that policyholder credit account were an imputation credit account; and
- (b) if 2 or more credits arose at the same time,—
  - (i) in the order elected by the consolidated group; or
  - (ii) if no election is made, on a pro rata basis,—
so far as the relevant debit to the group's policyholder credit account extends and no further.
Compare: 1994 No 164 s ME 27

ME 28 Application of policyholder credit account provisions to consolidated group

(1) The nominated company for a consolidated group may elect that all or part of any credit balance in the group's policyholder credit account at the time of the election is to be credited against any policyholder base income tax liability of the group or provisional tax payable by the group, in respect of its policyholder base.

(2) An election under subsection (1) is made by recording the amount in respect of which the nominated company makes the election as a debit in the group's policyholder credit account, and any amount so recorded as a debit in accordance with this subsection is credited against any policyholder base income tax liability of the group or provisional tax payable by the group in respect of its policyholder base.
(3) The nominated company for a consolidated group that is a consolidated imputation group, or the members of which are members of an imputation group, may—
- (a) elect that all or any part of a credit balance in the policyholder credit account of the consolidated group at the time of the election be a credit balance in the imputation credit account of the consolidated group or imputation group; and
- (b) record the election by recording the amount affected by the election as a debit in the policyholder credit account of the consolidated group.
(4) Sections ME 19(5) and (6) and ME 20, with any necessary modifications, apply in any case where a consolidated group has a policyholder credit account as if—
- (a) each reference to the policyholder credit account company were a reference to the group; and
- (b) each reference to a provision of this Act applicable to an individual company were a reference to the equivalent provision of this Act applicable to consolidated groups.
Compare: 1994 No 164 s ME 28

Imputation credit accounts and policyholder credit accounts: amalgamated companies

ME 29 Debits and credits arising to imputation credit account or policyholder credit account on amalgamation

(1) Where any amalgamating company ceases to exist upon a qualifying amalgamation,—
- (a) if, immediately before the amalgamation, a credit or debit exists in the amalgamating company's imputation credit account, determined by applying the procedure set out in sections GC 21 and ME 5(4), or in its policyholder credit account, the credit or debit must be treated with effect from the time of the amalgamation as a credit or debit in the equivalent account of the amalgamated company (or, if the amalgamated company does not have a policyholder credit account, in its imputation credit account) and not as a credit or debit in the relevant account of the amalgamating company but applying section ME 5(1)(i) as if, with respect to all times prior to the amalgamation, the amalgamated company did not separately exist and was instead the amalgamating company with the same holders of shares and options over shares as the amalgamating company each holding the same number and class of shares and options over shares as they held in the amalgamating company; and
- (b) any credit or debit (not being a debit arising under section ME 5(1)(i)) would have arisen, but for the amalgamation, to be recorded in the imputation credit account of the amalgamating company on a date after the amalgamation, the credit or debit instead arises to be recorded in the imputation credit account of the amalgamated company.
(2) Where a consolidated group ceases to exist on a qualifying amalgamation which involves all members of the consolidated group amalgamating (whether or not also amalgamating with any company outside the group),—
- (a) if, immediately before the amalgamation, the consolidated group is a consolidated imputation group and a credit or debit exists in the group's imputation credit account, determined by applying the procedure set out in sections GC 21 and ME 5(4), or the consolidated group has a policyholder credit account and a credit or debit exists in that account, the credit or debit must be treated with effect from the time of the amalgamation as a credit or debit in the equivalent account of the amalgamated company (or, if the amalgamated company does not have a policyholder credit account, in its imputation credit account) and not as a credit or debit in the relevant account of the consolidated group but applying section ME 5(1)(i) as if, with respect to times prior to the amalgamation, the amalgamated company did not separately exist and was instead the consolidated group with the same holders of shares and options over shares as the consolidated group each holding the same number and class of shares and options over shares as they held in the consolidated group; and
- (b) any credit or debit (not being a debit arising under section ME 12(1)(h)) would have arisen, but for the amalgamation, to be recorded in the imputation credit account of the group on a date after the amalgamation, the credit or debit instead arises to be recorded in the imputation credit account of the amalgamated company.
Compare: 1994 No 164 s ME 29

Imputation credit accounts: statutory producer boards

ME 30 Statutory producer board may determine to attach imputation credit to certain distributions

(1) Every statutory producer board that is an imputation credit account company is entitled to determine, in respect of any year of determination,—
- (a) to attach an imputation credit to a cash distribution in respect of which the producer board makes an election in accordance with subsection (2) (being a cash distribution that the producer board is otherwise authorised to make):
- (b) to make a notional distribution with an imputation credit attached in respect of all persons who were members of the producer board at any time during the year of determination.
(2) A statutory producer board may, where—
- (a) it is to make a cash distribution in respect of all persons who at any time during the year of determination were members of the producer board, based on—
  - (i) the proportion that amounts paid in respect of each such member's produce transactions bear to the total amount paid in respect of produce transactions of all members of the producer board; or
  - (ii) the proportion that levies payable by each such member bear to the total levies payable by all members of the producer board; or
  - (iii) such other method as the Commissioner may approve; and
- (b) all or any part of that cash distribution would, were it not for this section, be allowed as a deduction to the producer board, whether as a rebate under section HF 1 or otherwise,—
elect, on or before the day it makes the distribution, not to claim the amount of the cash distribution as a deduction; and where a producer board so elects the amount of the cash distribution is, to the extent it is not a deduction, deemed for the purposes of this Act to be a dividend.
(3) Any determination under subsection (1) must be made after the year of determination in respect of which the determination is made, but not later than 6 months after the end of that year of determination.

(4) A statutory producer board that makes an election under subsection (2) must give notice to the Commissioner of the election not later than the time allowed in accordance with section 37 of the Tax Administration Act 1994 for providing its return of income for the year of determination.

Compare: 1994 No 164 s ME 30

ME 31 Amount of imputation credit to be attached to cash distribution

(1) Where a statutory producer board determines under section ME 30(1)(a) to attach an imputation credit to a cash distribution, the aggregate of all imputation credits to be attached in respect of the distribution is an amount calculated in accordance with the following formula:
where—
- a is the total amount of the cash distribution (exclusive of any imputation credit)
- b is the basic rate of income tax for companies, expressed as a percentage, stated in schedule 1, part A, clause 5 and applying in respect of the income year that is concurrent with the imputation year in which the determination is made.
(2) Where a statutory producer board determines under section ME 30(1)(a) to attach an imputation credit to a cash distribution, the amount of the imputation credit attached is, in relation to each person who was a member of the producer board during the year of determination, an amount calculated in accordance with the following formula:
where—
- c is the member's share of the cash distribution (exclusive of the imputation credit)
- d is the total amount of the cash distribution (exclusive of any imputation credit)
- e is the aggregate of all imputation credits attached in respect of the cash distribution.
Compare: 1994 No 164 s ME 31

ME 32 Amount of imputation credit to be attached to notional distribution

(1) Where a statutory producer board determines under section ME 30(1)(b) to make a notional distribution with an imputation credit attached, the amount of the imputation credit in relation to each person who was a member of the producer board during the year of determination is, having regard to any produce transactions of the member during that year of determination and to any levies payable by the member for that year of determination, calculated by the producer board—
- (a) in accordance with the formula in subsection (2) (which relates to produce transactions of the member); or
- (b) in accordance with the formula in subsection (3) (which relates to levies payable by the member); or
- (c) partly in accordance with the formula in subsection (2) and partly in accordance with the formula in subsection (3), where it is appropriate to take into account both produce transactions and levies payable; or
- (d) in such other manner as the Commissioner approves.
(2) The producer board may calculate the amount of the imputation credit attached to a notional distribution, in relation to each person who was a member of the producer board during the year of determination, in accordance with the following formula:
where—
- a is the aggregate of all amounts paid to or by the member in respect of produce transactions of the member during the year of determination
- b is the aggregate of all amounts paid to or by all members of the producer board for produce transactions during the year of determination
- c is the aggregate of all imputation credits determined by the producer board to be attached in respect of the notional distribution.
(3) The producer board may calculate the amount of the imputation credit attached to a notional distribution, in relation to each member, in accordance with the following formula:
where—
- d is the aggregate of all levies payable by the member to the producer board for the year of determination
- e is the aggregate of all levies payable by all members to the producer board for the year of determination
- f is the aggregate of all imputation credits attached in respect of the notional distribution.
(4) Where the Commissioner is satisfied, having regard to—
- (a) any levy payable to or any produce transactions of the producer board; and
- (b) any other circumstances that the Commissioner considers relevant,—
that a calculation made by a producer board under this section does not result in a fair and reasonable allocation of an imputation credit to a person who was a member of the producer board during the relevant year of determination, the Commissioner may determine the extent to which the producer board should have made the calculation under any of subsection (1)(a) to (d).
(5) Where and to the extent that the Commissioner makes a determination under subsection (4), the amount of the imputation credit attached to the notional distribution is, notwithstanding any calculation made by the producer board, the amount calculated under the determination of the Commissioner.

Compare: 1994 No 164 s ME 32

ME 33 Notional distribution deemed to be dividend

(1) Where a statutory producer board has determined under section ME 30(1)(b) to attach an imputation credit in respect of a notional distribution to persons who were members of the producer board during a year of determination, the producer board is, for the purposes of this Act, deemed to have paid a dividend to each such member of an amount calculated in accordance with the following formula:
where—
- a is the amount of the imputation credit attached to the notional distribution of the member
- b is the basic rate of income tax for companies, expressed as a percentage, stated in schedule 1, part A, clause 5 and applying in respect of the income year that is concurrent with the imputation year in which the determination is made.
(2) Any notional distribution that is deemed by subsection (1) to be a dividend is, for the purposes of this Act, deemed to have been derived on the date of the determination made in relation to the distribution under section ME 30(1)(b).
(3) A statutory producer board that makes a determination in respect of a notional distribution under section ME 30(1)(b) must—
- (a) furnish, with the return furnished under section 33 of the Tax Administration Act 1994 for the income year in which the determination is made, particulars of the dividend deemed to have been paid; and
- (b) retain such particulars as will enable the Commissioner to determine whether any subsequent distribution in respect of the deemed dividend is not a dividend under section CD 18(3) or CD 24(1).
Compare: 1994 No 164 s ME 33

ME 34 Statutory producer boards and dividend withholding payments

(1) Where a statutory producer board is a dividend withholding payment company, sections ME 30 to ME 33 apply, with any necessary modifications, as if references to an imputation credit included references to a dividend withholding payment credit.

(2) Where a statutory producer board proposes in respect of any year of determination to attach both dividend withholding payment credits and imputation credits, the determination under section ME 30 in relation to the dividend withholding payment credits must be made at the same time as the determination under that section in relation to the imputation credits.

Compare: 1994 No 164 s ME 34

Imputation credits: co-operative companies

ME 35 Co-operative company may make annual determination to attach imputation credit to certain distributions

(1) Every co-operative company that is an imputation credit account company is entitled to determine—
- (a) once only in respect of any year of determination to attach an imputation credit to a cash distribution in respect of which the co-operative company makes an election in accordance with subsection (2):
- (b) once only in respect of any year of determination to make a notional distribution with an imputation credit attached in respect of all persons who at any time during the year of determination were shareholders of the company.
(2) A co-operative company may, where—
- (a) it is to make a cash distribution in respect of all persons who at any time during the year of determination were shareholders of the company, based on the proportion that amounts paid in respect of each such shareholder's produce transactions bear to the total amount paid in respect of produce transactions of all shareholders of the company; and
- (b) all or any part of that cash distribution would, were it not for this section, be allowed as a deduction to the cooperative company, whether as a rebate under section HF 1 or otherwise,—
elect, on or before the day it makes the distribution, by notice to the Commissioner, not to claim the amount of the cash distribution as a deduction; and where a co-operative company so elects the amount of the cash distribution is, to the extent it is not a deduction, deemed for the purposes of this Act to be a dividend.
(3) Any determination under subsection (1) must be made after the year of determination in respect of which the determination is made, but not later than 6 months after the end of that year of determination.

Compare: 1994 No 164 s ME 35

ME 36 Amount of imputation credit to be attached to cash distribution

(1) Where a co-operative company determines under section ME 35(1)(a) to attach an imputation credit to a cash distribution, the aggregate of all imputation credits to be attached in respect of the distribution is an amount calculated in accordance with the following formula:
where—
- a is the total amount of the cash distribution (exclusive of any imputation credit)
- b is the basic rate of income tax, expressed as a percentage, stated in—
  
  (a) schedule 1, part A, clause 5 if the co-operative company is not a Maori authority; or
  
  (b) schedule 1, part A, clause 2 if the co-operative company is a Maori authority.
(2) Where a co-operative company determines under section ME 35(1)(a) to attach an imputation credit to a cash distribution, the amount of the imputation credit attached is, in relation to each person who was a shareholder of the co-operative company during the year of determination, an amount calculated in accordance with the following formula:
where—
- c is the shareholder's share of the cash distribution (exclusive of the imputation credit)
- d is the total amount of the cash distribution (exclusive of any imputation credit)
- e is the aggregate of all imputation credits attached in respect of the cash distribution.
Compare: 1994 No 164 s ME 36

ME 37 Amount of imputation credit to be attached to notional distribution

Where a co-operative company determines under section ME 35(1)(b) to make a notional distribution with an imputation credit attached, the amount of the imputation credit is, in relation to each person who was a shareholder of the cooperative company during the year of determination, an amount calculated in accordance with the following formula:
where—
- a is the aggregate of all amounts paid to or by the shareholder in respect of produce transactions of the shareholder for the year of determination
- b is the aggregate of all amounts paid to or by shareholders of the company in respect of all produce transactions for the year of determination
- c is the aggregate of all imputation credits determined by the co-operative company to be attached in respect of the notional distribution.
Compare: 1994 No 164 s ME 37

ME 38 Notional distribution deemed to be dividend or taxable Maori authority distribution

(1) Where a co-operative company has determined under section ME 35(1)(b) to attach an imputation credit in respect of a notional distribution to persons who were shareholders of the company during a year of determination, the co-operative company is, for the purposes of this Act, deemed to have paid a dividend or taxable Maori authority distribution to each such shareholder of an amount calculated in accordance with the following formula:
where—
- a is the amount of the imputation credit attached to the notional distribution of the shareholder
- b is the basic rate of income tax, expressed as a percentage, stated in—
  
  (a) schedule 1, part A, clause 5 if the co-operative company is not a Maori authority; or
  
  (b) schedule 1, part A, clause 2 if the co-operative company is a Maori authority.
(2) Any notional distribution that is deemed by subsection (1) to be a dividend is, for the purposes of this Act, deemed to have been derived on the date of the determination made in relation to the distribution under section ME 35(1)(b).

Compare: 1994 No 164 s ME 38

ME 39 Co-operative companies and dividend withholding payments

(1) Where a co-operative company is a dividend withholding payment company, sections ME 35 to ME 38 and section 64 of the Tax Administration Act 1994 apply, with any necessary modifications, as if references to an imputation credit included references to a dividend withholding payment credit.

(2) Where a co-operative company proposes in respect of any year of determination to attach both dividend withholding payment credits and imputation credits, the determination under section ME 35 in relation to the dividend withholding payment credits must be made at the same time as the determination under that section in relation to the imputation credits.

Compare: 1994 No 164 s ME 39

Imputation credit accounts: credits and debits incorrectly recorded

ME 40 Determinations by Commissioner as to credits and debits arising to imputation credit account

(1) Where the Commissioner considers that any amount recorded as a credit or a debit arising to a company's imputation credit account is not the correct amount that should have been recorded in respect of the credit or debit, the Commissioner must determine the amount of the credit or debit properly arising to the account.

(2) Where the Commissioner considers that any amount recorded as a credit or a debit arising to a company's imputation credit account should not have been so recorded, the Commissioner must determine accordingly.

(3) Where the Commissioner considers that any amount recorded as a credit or a debit arising to a company's imputation credit account should not have been recorded as arising at the time it was recorded as arising, the Commissioner must determine the time at which the credit or debit properly arose to the account.
(4) Where the Commissioner considers that any amount that has not been recorded as a credit or debit arising to a company's imputation credit account should have been so recorded, the Commissioner must determine—
- (a) the amount of the credit or debit so arising; and
- (b) the time at which the credit or debit arose to the account.
(5) Where the Commissioner makes a determination under any of subsections (1) to (4), then, except in so far as the company establishes by proceedings on a challenge that any credit or debit was correctly recorded, or not recorded as the case may be, in the imputation credit account,—
- (a) the relevant credit or debit is deemed to have arisen, or not to have arisen, or to have been the amount determined by the Commissioner under subsection (1), as the case may require, effective on the date on which the debit or credit originally arose, or is determined by the Commissioner as having arisen:
- (b) the company must make such other corrections in respect of any credits or debits or balances arising to its imputation credit account or dividend withholding payment account or branch equivalent tax account, whether for the imputation year to which the determination related or for any subsequent imputation year, as may be directed by the Commissioner to be necessary or appropriate as a consequence of the determination in relation to the amount incorrectly recorded, or not recorded.
(6) As soon as is convenient after a determination is made under any of subsections (1) to (4), the Commissioner must give notice of the determination to the company in respect of whose imputation credit account the determination is made.

(7) Any such notice may be included in a notice of assessment made under section 111(1) of the Tax Administration Act 1994.

(8) An omission to give the notice referred to in subsection (6) does not invalidate the determination.
(9) This section applies, with any necessary modifications, in any case which involves accounts of a consolidated group, as if—
- (a) the consolidated group were a single company; and
- (b) references to provisions of this Act were references to the equivalent provisions applicable to such equivalent accounts.
Compare: 1994 No 164 s ME 40

Imputation credit accounts: unit trusts and group investment funds

ME 41 Special debits arising to imputation credit account of unit trust or group investment fund

(1) Notwithstanding anything in this Part, a debit arises to the imputation credit account of a company or a consolidated group in respect of any dividends derived in an income year by the company or any company in that group if—
- (a) the dividend is derived by a company resident in New Zealand which is either—
  - (i) the manager of a unit trust; or
  - (ii) the trustee or manager of a group investment fund,—
(such manager or trustee being in this subsection referred to as the manager); and
- (b) the dividend is derived in respect of the redemption or other cancellation of—
  - (i) units in the unit trust; or
  - (ii) interests of investors in the group investment fund; and
- (c) these units or interests were acquired by the manager from unit holders or investors—
  - (i) in the ordinary course of the manager's activities in respect of the unit trust or group investment fund; and
  - (ii) in accordance with the terms upon which units in the unit trust or interests in the group investment fund were offered to potential unit holders or investors.
(2) The amount of the debit referred to in subsection (1) is the greater of—
- (a) the aggregate of the amounts of imputation credits and dividend withholding payment credits attached to the dividends, excluding imputation credits that have been included in a debit to the company's or consolidated group's imputation credit account arising under section ME 5(1)(i) in the income year, being imputation credits attached to dividends derived by the company or group company in the circumstances described in subsection (1); and
- (b) the amount calculated in accordance with the following formula:
  where—
  
  a is the aggregate amount of the dividends paid (including any imputation and dividend withholding payment credits attached to the dividends)
  
  b is the taxable income of the company or, as the case may be, the consolidated group for the income year in which the dividends are derived
  
  c is the income tax liability of the company or, as the case may be, the consolidated group for the income year
  
  d is the amount of imputation credits attached to dividends that have been included in a debit to the company's or consolidated group's imputation credit account that arises under section ME 5(1)(i) in the income year, being imputation credits attached to dividends derived by the company or group company in the circumstances described in subsection (1).
(3) The debit referred to in subsection (1) arises on the date on which the company or nominated group company files a return of income for the income year in which the dividends are derived.

Compare: 1994 No 164 s ME 41

Subpart MF—Branch equivalent tax accounts

Branch equivalent tax accounts of companies

MF 1 Company may elect to maintain branch equivalent tax account

MF 2 Balance of branch equivalent tax account

MF 3 Branch equivalent tax account of company

MF 4 Credits and debits arising to branch equivalent tax account of company

MF 5 Use of credit to reduce dividend withholding payment, or use of debit to satisfy income tax liability

MF 6 Determinations by Commissioner as to credits and debits arising to branch equivalent tax account

MF 7 Branch equivalent tax accounts and consolidated groups

MF 8 Debits and credits arising to group branch equivalent tax account

MF 9 Debiting and crediting between group and individual branch equivalent tax accounts

MF 10 Use of consolidated group credit to reduce dividend withholding payment, or use of group or individual debit to satisfy income tax liability

Branch equivalent tax accounts of persons

MF 11 Person may elect to maintain branch equivalent tax account

MF 12 Branch equivalent tax account of person

MF 13 Credits and debits arising to branch equivalent tax account of person

MF 14 Debit election to offset income tax payable in respect of foreign dividend

MF 15 Extension of branch equivalent tax account provisions to certain FIF income

MF 16 Debits and credits arising to branch equivalent tax account of amalgamated company on amalgamation

Branch equivalent tax accounts of companies

MF 1 Company may elect to maintain branch equivalent tax account

(1) A company resident in New Zealand may at any time during an imputation year, or within the time within which the company is required to furnish a return of its income for the income year which corresponds with that imputation year (or within such further time as the Commissioner may allow), elect to maintain a branch equivalent tax account for that imputation year.

(2) A company that so elects must notify the Commissioner of that fact within 21 days after the date of the election, or within such further time as the Commissioner may allow in any case or class of cases.
(3) A company that makes an election under subsection (1) must maintain a branch equivalent tax account —
- (a) for the imputation year in respect of which the election is made; and
- (b) subject to this section, for every subsequent imputation year.
(4) A company that has made an election under subsection (1) may, during any imputation year subsequent to that in respect of which the election was made, elect that the company is to cease to be a branch equivalent tax account company, and, subject to subsection (5), any company that so elects ceases, as from the commencement of the imputation year succeeding that in which the election to so cease is made, to be a company required to maintain a branch equivalent tax account.

(5) An election under subsection (4) is of no effect unless the company furnishes, within the time provided for in section 69 of the Tax Administration Act 1994, the annual imputation return required in respect of the imputation year in which the election is made.

Compare: 1994 No 164 s MF 1

MF 2 Balance of branch equivalent tax account

For the purposes of this subpart and sections 77 and 78 of the Tax Administration Act 1994, the balance of a branch equivalent tax account at any time is ascertained by calculating the difference in amount between the aggregate of credits and the aggregate of debits to the account existing at that time, and the account has—
- (a) a credit balance to the extent that credits exceed debits:
- (b) a debit balance to the extent that debits exceed credits.
Compare: 1994 No 164 s MF 2

MF 3 Branch equivalent tax account of company

(1) Every branch equivalent tax account company must record in its branch equivalent tax account for any imputation year—
- (a) the opening balance of the account for that imputation year, in accordance with subsection (2):
- (b) credits as they arise in accordance with section MF 4(1) and (2):
- (c) debits as they arise in accordance with section MF 4(3) to (6).
(2) The opening balance of the branch equivalent tax account of a company for any imputation year is,—
- (a) for the imputation year during which the company commences to be a branch equivalent tax account company, nil:
- (b) for any subsequent imputation year, the amount of the closing balance of the branch equivalent tax account of the company for the immediately preceding imputation year, and such amount is—
  - (i) a credit arising to the account where the closing balance is a credit balance:
  - (ii) a debit arising to the account where the closing balance is a debit balance.
Compare: 1994 No 164 s MF 3

MF 4 Credits and debits arising to branch equivalent tax account of company

(1) There arise as credits to be recorded in the branch equivalent tax account of a branch equivalent tax account company the following amounts:
- (a) an amount (not less than nil) calculated in accordance with the following formula:
  ((a – b) x c) – d – e
  
  where—
  
  a is the attributed CFC income derived by the company in the income year
  
  b is the total amount of any deductions and offsets for the income year that the company is allowed for attributed CFC loss, attributed CFC net loss, FIF loss, and FIF net loss
  
  c is the basic rate of income tax, expressed as a percentage, stated in—
  
  (i) schedule 1, part A, clause 5, if the company is not a Maori authority; or
  
  (ii) schedule 1, part A, clause 2, if the company is a Maori authority
  
  d is the total amount of any foreign tax credits allowed under section LC 4 or LC 5 that are set off against the company's income tax liability for the income year
  
  e is the total amount of credits against the company's income tax liability for the income year from debit balances in the branch equivalent tax accounts of the company and any other company:
- (c) the amount of any debit balance in the account that the company elects in accordance with section MF 5 to set off against the income tax liability of the company or of another company:
- (d) an amount equal to any refund of dividend withholding payment paid to the company under section NH 4 to the extent that the refund is in respect of an amount of dividend withholding payment paid which gave rise to a debit to the branch equivalent tax account under this section, except, to the extent that the refund is in respect of a dividend withholding payment paid before the date that a credit arises under paragraph (e), a credit does not arise to the extent that the amount of the refund does not exceed the amount of the credit that arises on that date:
- (e) the amount of any particular debit in the company's branch equivalent tax account at any time (in this paragraph referred to as the specified time), not being a debit which has before the specified time been cancelled out by a subsequent credit, unless there is a group of persons—
  - (i) the aggregate of whose minimum voting interests in the company in the period from the date upon which the debit arose until the specified time is equal to or greater than 66%; and
  - (ii) in any case where at any time during that period a market value circumstance exists in respect of the company, the aggregate of whose minimum market value interests in the company in the period is equal to or greater than 66%:
- (f) the amount of any debit balance of the branch equivalent tax account where, during the imputation year, the company ceases to be resident in New Zealand.
(2) The credits referred to in subsection (1) arise,—
- (a) in the case of a credit referred to in subsection (1)(a), on the date on which the company files a return of income for the income year of the company referred to in that subsection:
- (b) in the case of a credit referred to in subsection (1)(c), on the date the company elects in accordance with section MF 5 to set off the amount against the income tax liability of the company or of another company:
- (c) in the case of a credit referred to in subsection (1)(d), on the date the refund is paid:
- (d) in the case of a credit referred to in subsection (1)(e), at the specified time referred to in that paragraph:
- (e) in the case of a credit referred to in subsection (1)(f), on the date on or on the expiry of which the company ceases to be a resident of New Zealand.
(3) There arise as debits to be recorded in the branch equivalent tax account of a branch equivalent tax account company the following amounts:
- (a) an amount of dividend withholding payment, calculated before any reduction is allowed under section NH 7, paid by the company in respect of a dividend derived from an income interest in a controlled foreign company, whether the amount is paid directly or by an election to reduce an amount of net loss:
- (b) the amount of any credit balance in the account that the company elects in accordance with section MF 5 to use to reduce an amount of dividend withholding payment payable by the company or any other company under section NH 2:
- (c) an amount equal to any refund of income tax to the extent that the refund would have been made had the company not derived any income other than attributed CFC income in the income year to which the refund relates, except, to the extent that the refund is in respect of income tax paid before the date that a debit arises under paragraph (d), a debit does not arise to the extent that the amount of the refund does not exceed the amount of the debit that arises on that date:
- (d) the amount of any particular credit in the company's branch equivalent tax account at any time (in this paragraph referred to as the specified time), not being a credit which has before the specified time been cancelled out by a subsequent debit, unless there is a group of persons—
  - (i) the aggregate of whose minimum voting interests in the company in the period from the date upon which the credit arose until the specified time is equal to or greater than 66%; and
  - (ii) in any case where at any time during that period a market value circumstance exists in respect of the company, the aggregate of whose minimum market value interests in the company in the period is equal to or greater than 66%:
- (e) the amount of any credit balance of the branch equivalent tax account where, during the imputation year, the company ceases to be resident in New Zealand.
(4) The debits referred to in subsection (3) arise,—
- (a) in the case of the debit referred to in subsection (3)(a), on the date the dividend withholding payment is paid:
- (b) in the case of a debit referred to in subsection (3)(b), on the date by which the company is required by section NH 3 to pay to the Commissioner the dividend withholding payment that is reduced by the relevant amount of the credit balance:
- (c) in the case of a debit referred to in subsection (3)(c), on the date the refund is paid:
- (d) in the case of a debit referred to in subsection (3)(d), at the specified time referred to in that paragraph:
- (e) in the case of a debit referred to in subsection (3)(e), on the date on or on the expiry of which the company ceases to be resident in New Zealand.
(5) Subject always to the express provisions of this Act, subsections (1)(e) and (3)(d) are intended to limit the circumstances in which a taxpayer, being a company, may carry forward a branch equivalent tax account debit or credit for subsequent utilisation to those where the tax benefit arising from such utilisation is obtained or available to be obtained (directly or indirectly) at least to the extent of 66%, only by the same natural persons holding (directly or indirectly) rights in relation to the company who—
- (a) by virtue of holding (directly or indirectly) such rights, bore the dividend withholding payment or tax liability giving rise to the branch equivalent tax account debit or credit:
- (b) held (directly or indirectly) such rights at the time of the event giving rise to the branch equivalent tax account debit or credit.
(6) For the purposes of subsections (1)(e) and (3)(d),—
- (a) in respect of any period referred to in either of those provisions, the minimum voting interest or market value interest of any person in the company in the period is equal to the lowest voting interest or market value interest (as the case may be) which that person holds in the company during that period; and
- (b) section MF 3(2)(b) does not apply, and—
  - (i) any credit in the company's branch equivalent tax account is treated as continuing to exist until treated as being cancelled out by a subsequent debit in accordance with paragraph (c); and
  - (ii) any debit in the company's branch equivalent tax account is treated as continuing to exist until treated as being cancelled out by a subsequent credit in accordance with paragraph (d); and
- (c) in determining whether any credit in the company's branch equivalent tax account has been cancelled out by any subsequent debit,—
  - (i) any amount of debit may be taken into account only once for the purpose of ascertaining whether any credit has been so cancelled out; and
  - (ii) the amount of any debit is offset against the amount of any credit in the order in which the credits arise; and
- (d) in determining whether any debit in the company's branch equivalent tax account has been cancelled out by any subsequent credit,—
  - (i) any amount of credit may be taken into account only once for the purpose of ascertaining whether any debit has been so cancelled out; and
  - (ii) the amount of any credit is offset against the amount of any debit in the order in which the debits arise; and
- (e) any credit arising on or before 16 December 1988 is deemed to have been cancelled out by a subsequent debit before the specified time referred to in subsection (3)(d); and
- (f) in the case of any credit arising after 16 December 1988 and before 1 April 1992 (not being a credit cancelled out before 1 April 1992 by a subsequent debit), the credit is deemed first to arise in the company's branch equivalent tax account on 1 April 1992, but a debit is deemed to arise in accordance with subsection (3)(d) in respect of that credit at any time if and to the extent that, at that specified time, that credit still exists and a debit would have arisen in respect of that credit in accordance with section 394ZZP(3)(d) of the Income Tax Act 1976 as that paragraph applied before its repeal and replacement by section 60 of the Income Tax Amendment Act (No 2) 1992, had that paragraph continued to apply but with the figure “75” omitted and the figure “66” substituted.
Compare: 1994 No 164 s MF 4

Subsection (2)(a) was amended, as from 1 October 2005, by section 236 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by omitting “or paragraph (b)”.

MF 5 Use of credit to reduce dividend withholding payment, or use of debit to satisfy income tax liability

(1) A branch equivalent tax account company may elect that all or part of any credit balance in its branch equivalent tax account at the time of the election is to be used for the purpose of reducing, so far as the liability extends, the amount of any dividend withholding payment deduction required to be made by the company, or any other company which is at the time the relevant dividend is paid in the same group of companies as the company, under sections NH 1 and NH 2.

(2) [Repealed]

(3) A company makes an election under subsection (1) by recording the amount in respect of which it makes the election as a debit in its branch equivalent tax account.

(4) Where for any income year the income of a company (referred to in this subsection as the first company) includes an amount of attributed CFC income derived in respect of an income interest in a controlled foreign company, the first company, or any other company which is for the income year in the same group of companies as the first company, may elect that all or any part of the debit balance (if any) in the branch equivalent tax account of the first company or the other company, as the case may be, at the time of the election is to be credited against any income tax liability of the first company.

(5) A company makes an election under subsection (4) by recording the amount in respect of which the election is made as a credit in the company's branch equivalent tax account.
(6) Where a company has made an election under subsection (4) in respect of the income tax liability for any income year, the amount of debit balance in respect of which the election is made is set off against any income tax liability of the company or the relevant other company for that income year to the extent that—
- (a) the amount set off does not exceed an amount equal to the company's income tax liability that would arise if no income were derived by the company other than the attributed CFC income referred to in subsection (4), such amount to be calculated under the formula set out in section MF 4(1)(a) (but applying as if item “e” were nil); and
- (b) the company has made a proper election in accordance with this section; and
- (c) the company has paid (whether directly or by way of an election to reduce an amount of a net loss or by means of a reduction of dividend withholding payment under section NH 7) the dividend withholding payment that gives rise to a debit to the company's branch equivalent tax account.
(6B) [Repealed]

(7) If an election under subsection (4) relates to an amount that exceeds the income tax liability, for the income year, of the company that receives the offset under subsection (6), the excess amount is treated as giving rise to a net loss of the company for the purpose of subparts IF and IG.
(8) The amount of the net loss under subsection (7) is given by the following formula:
where—
- a is the amount of the excess:
- b is the rate of income tax, expressed as a percentage, stated in—
  
  (a) schedule 1, part A, clause 5, if the company is not a Maori authority; or
  
  (b) schedule 1, part A, clause 2, if the company is a Maori authority.
Compare: 1994 No 164 s MF 5

Subsection (2) was repealed, as from 1 October 2005, by section 237(1) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) with application as from the income year corresponding to the 2005–06 income year.

Subsection (6B) was substituted, as from 1 October 2005, by section 237(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) with application as from the income year corresponding to the 2005–06 income year.

Subsection (7) was substituted, as from 1 October 2005, by section 150(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

Subsection (8) was inserted, as from 1 October 2005, by section 150(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

MF 6 Determinations by Commissioner as to credits and debits arising to branch equivalent tax account

(1) Where the Commissioner considers that any amount recorded as a credit or a debit arising to a company's branch equivalent tax account is not the correct amount that should have been recorded in respect of the credit or debit, the Commissioner must determine the amount of the credit or debit properly arising to the account.

(2) Where the Commissioner considers that any amount recorded as a credit or a debit arising to a company's branch equivalent tax account should not have been so recorded, the Commissioner must determine accordingly.

(3) Where the Commissioner considers that any amount recorded as a credit or a debit arising to a company's branch equivalent tax account should not have been recorded as arising at the time it was recorded as arising, the Commissioner must determine the time at which the credit or debit properly arose to the account.
(4) Where the Commissioner considers that any amount that has not been recorded as a credit or debit arising to a company's branch equivalent tax account should have been so recorded, the Commissioner must determine—
- (a) the amount of the credit or debit so arising; and
- (b) the time at which the credit or debit arose to the account.
(5) Where the Commissioner makes a determination under any of subsections (1) to (4), then, except in so far as the company establishes by proceedings on a challenge that any credit or debit was correctly recorded, or not recorded as the case may be, in the branch equivalent tax account,—
- (a) the relevant credit or debit is deemed to have arisen, or not to have arisen, or to have been the amount determined by the Commissioner under subsection (1), as the case may require, effective on the date on which the debit or credit originally arose, or is determined by the Commissioner as having arisen:
- (b) the company must make such other corrections in respect of any credits or debits or balances recorded as arising to its branch equivalent tax account or imputation credit account or dividend withholding payment account, whether for the imputation year in which the incorrect record the subject of the determination was made or for any subsequent imputation year, as may be necessary or as may be directed by the Commissioner as a consequence of the determination in relation to the amount incorrectly recorded, or not recorded.
(6) As soon as is convenient after a determination is made under any of subsections (1) to (4), the Commissioner must give notice of the determination to the company in respect of whose branch equivalent tax account the determination is made.

(7) Any such notice may be included in a notice of assessment made under section 111(1) of the Tax Administration Act 1994.

(8) An omission to give the notice referred to in subsection (6) does not invalidate the determination.

Compare: 1994 No 164 s MF 6

Consolidated groups

MF 7 Branch equivalent tax accounts and consolidated groups

(1) A consolidated group—
- (a) must maintain a branch equivalent tax account for an imputation year if, in that imputation year, any company which is a member of that consolidated group at any time in that imputation year maintains a branch equivalent tax account; and
- (b) may at any time elect to maintain a branch equivalent tax account for an imputation year,—
which group branch equivalent tax account must be separate from the branch equivalent tax account of each company which is a member of that consolidated group.
(2) Where a consolidated group has elected to maintain a branch equivalent tax account under subsection (1),—
- (a) the nominated company for the group must notify the Commissioner of that fact within 21 days after the date of the election, or within such further time as the Commissioner may allow in any case or class of cases; and
- (b) the group must maintain a branch equivalent tax account with effect from the date of the election and, subject to subsection (3), for every imputation year subsequent to the imputation year in which the election was made.
(3) Subject to subsection (4), the nominated company for a consolidated group that maintains a branch equivalent tax account may elect at any time that the group is to cease to maintain a branch equivalent tax account and, where such an election is made, the group ceases to be required to maintain a group branch equivalent tax account from the commencement of the imputation year succeeding that in which the election so to cease is made.
(4) An election under subsection (3),—
- (a) in any case where the nominated company for the group has elected to maintain a branch equivalent tax account, may only be made during an imputation year subsequent to the imputation year in which the election to maintain the account was made; and
- (b) is of no effect if the group is required to maintain a branch equivalent tax account under subsection (1)(a) in respect of the imputation year from the commencement of which the election to cease would otherwise take effect; and
- (c) is of no effect unless the annual group imputation return required in respect of the imputation year in which the election was made is furnished within the time provided for in section 69 of the Tax Administration Act 1994.
Compare: 1994 No 164 s MF 7

MF 8 Debits and credits arising to group branch equivalent tax account

(1) The opening balance of the branch equivalent tax account of a consolidated group for any imputation year is—
- (a) nil, for the imputation year during which the consolidated group commences to maintain a branch equivalent tax account; and
- (b) the amount of the closing balance of the branch equivalent tax account for the preceding imputation year (being a credit or debit as the case may be), in any other case.
(2) There arise as credits to be recorded in the branch equivalent tax account of a consolidated group the following amounts:
- (a) an amount (not less than nil) calculated in accordance with the following formula:
  ((a – b) x c) – d – e
  
  where—
  
  a is the attributed CFC income derived by the consolidated group in the income year
  
  b is the total amount of any deductions and offsets for the income year that the consolidated group is allowed for attributed CFC loss, attributed CFC net loss, FIF loss, and FIF net loss
  
  c is the basic rate of income tax, expressed as a percentage, stated in—
  
  (i) schedule 1, part A, clause 5, if the consolidated group does not consist of Maori authorities; or
  
  (ii) schedule 1, part A, clause 2, if the consolidated group consists of Maori authorities
  
  d is the total amount of any foreign tax credits allowed under section LC 4, LC 5 or LC 16 that are credited against the consolidated group's income tax liability for the income year
  
  e is the total amount of credits against the consolidated group's income tax liability for the income year from debit balances in the branch equivalent tax accounts of the consolidated group and other companies:
- (c) the amount of any debit balance in the account that the nominated company for the consolidated group elects in accordance with section MF 10(3) or (4) to set off against the income tax liability of the consolidated group or of another company:
- (d) an amount equal to any refund of dividend withholding payment paid under section NH 4 to the extent that the refund is in respect of any amount of dividend withholding payment paid which gave rise to a debit to the branch equivalent tax account under this section; except, to the extent that the refund is in respect of a dividend withholding payment paid before the date that a credit arises under paragraph (e), a credit does not arise to the extent that the amount of the refund does not exceed the amount of the credit that arises on that date:
- (e) the amount of any credit which would arise under section MF 4(1)(e) if that provision were to apply, with any necessary modifications, to a consolidated group and its branch equivalent tax account as if it were a single company.
(3) The credits referred to in subsection (2) arise,—
- (a) in the case of a credit referred to in subsection (2)(a), on the date on which is filed a return of income for the consolidated group for the income year referred to in that paragraph:
- (b) in the case of a credit referred to in subsection (2)(c), on the date the nominated company elects in accordance with section MF 10(3) or (4) to set off the amount against the income tax liability of the consolidated group or of another company:
- (c) in the case of a credit referred to in subsection (2)(d), on the date the refund is paid:
- (d) in the case of a credit referred to in subsection (2)(e), at the relevant specified time referred to in section MF 4(1)(e).
(4) There arise as debits to be recorded in the branch equivalent tax account of a consolidated group the following amounts:
- (a) the amount of any dividend withholding payment paid (whether directly or by way of an election to reduce an amount of net loss), or payable but for a reduction under section NH 7, during the income year by a company which is, at the time of payment of the dividend giving rise to the liability to pay dividend withholding payment, a member of the consolidated group, in respect of a dividend derived by the company in respect of an income interest in a controlled foreign company:
- (b) the amount of any credit balance in the account that the nominated company for the consolidated group elects in accordance with section MF 10(1) to use to reduce an amount of dividend withholding payment deductible under sections NH 1 and NH 2 by a company which is, at the time of payment of the dividend giving rise to the liability to pay the dividend withholding payment, a member of the consolidated group:
- (c) an amount equal to any refund of income tax to the extent that the refund would have been made had the consolidated group not derived any income other than attributed CFC income in the income year to which the refund relates, except that, to the extent that the refund is in respect of income tax paid before the date that a debit arises under paragraph (d), a debit does not arise to the extent that the amount of the refund does not exceed the amount of the debit that arises on that date:
- (d) the amount of any debit which would arise under section MF 4(3)(d) if that provision were to apply, with any necessary modifications, to a consolidated group and its branch equivalent tax account as if it were a single company.
(5) The debits referred to in subsection (4) arise,—
- (a) in the case of a debit referred to in subsection (4)(a), on the date the dividend withholding payment is paid:
- (b) in the case of a debit referred to in subsection (4)(b), on the date by which the relevant company is required by section NH 3 to pay to the Commissioner the dividend withholding payment that is reduced by the relevant amount of the credit balance:
- (c) in the case of a debit referred to in subsection (4)(c), on the date the refund is paid:
- (d) in the case of a debit referred to in subsection (4)(d), at the relevant specified time referred to in section MF 4(3)(d).
(6) Section MF 6 applies, with any necessary modifications, in the case of a branch equivalent tax account of a consolidated group as if the group were a single company.

Compare: 1994 No 164 s MF 8

Subsection (2)a), definition of item “d”, was amended, as from 1 October 2005, by section 238(1)(a) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “, LC 5 or LC 16” for “or LC 5”.

Subsection (2)a), definition of item “e”, was amended, as from 1 October 2005, by section 238(1)(b) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “other companies” for “companies that are members of the consolidated group”.

Subsection (3)(a), definition of item “e”, was amended, as from 1 October 2005, by section 238(2)(a) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “a credit referred to in subsection (2)(a)” for “the credits referred to in subsection (2)(a) and (b)”.

Subsection (3)(a), definition of item “e”, was amended, as from 1 October 2005, by section 238(2)(b) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “that paragraph” for “those paragraphs”.

MF 9 Debiting and crediting between group and individual branch equivalent tax accounts

Where—
- (a) any credit arises to the branch equivalent tax account of a consolidated group in respect of any attributed CFC income; or
- (b) any debit arises to the branch equivalent tax account of a consolidated group in respect of a refund of income tax paid in respect of attributed CFC income; or
- (c) any debit arises to the branch equivalent tax account of a consolidated group in respect of an amount of dividend withholding payment paid; or
- (d) any credit arises to the branch equivalent tax account of a consolidated group in respect of a refund of dividend withholding payment paid,—
no credit or debit arises to the branch equivalent tax account of any individual company in respect of that attributed CFC income, income tax refund, dividend withholding payment, or dividend withholding payment refund.
Compare: 1994 No 164 s MF 9

MF 10 Use of consolidated group credit to reduce dividend withholding payment, or use of group or individual debit to satisfy income tax liability

(1) Where—
- (a) there is a credit balance in the branch equivalent tax account of a consolidated group; and
- (b) the nominated company for the consolidated group elects (by debiting the account) to use all or any part of the credit balance for the purpose of reducing, so far as the liability extends, the amount of any dividend withholding payment deduction required to be made under sections NH 1 and NH 2 by a company; and
- (c) the company, at the time of payment of the dividend giving rise to the liability to pay dividend withholding payment,—
  - (i) is a member of the consolidated group; or
  - (ii) would be a member of the same group of companies as the consolidated group if the consolidated group were a single company,—
the dividend withholding payment required to be made is reduced by the amount of the credit balance so elected.
(2) [Repealed]
(3) Where a consolidated group derives attributed CFC income for an income year,—
- (a) the nominated company of the consolidated group; or
- (b) any member of the consolidated group; or
- (c) any other company which for the income year would be in the same group of companies as the consolidated group if the consolidated group were a single company—
may elect (by crediting the account) that all or any part of the debit balance in the branch equivalent tax account of the consolidated group or the company (as the case may be) at the time of the election is to be set off against the income tax liability of the consolidated group for the income year.
(4) Where a company (referred to in this section as the first company) derives attributed CFC income in an income year, the nominated company of a consolidated group, which group would be, if the consolidated group were a single company, in the same group of companies as the first company for the income year, may elect (by crediting the account) that all or part of any debit balance in the branch equivalent tax account of the consolidated group at the time of the election is to be set off against the income tax liability of the first company for the income year.
(5) Where a company has made an election under subsection (3) or (4) in respect of an income tax liability for any income year, the amount of debit balance in respect of which the election is made must be set off against the income tax liability to the extent that—
- (a) the amount set off does not exceed an amount equal to the income tax liability that would arise if no income were derived in that income year by the consolidated group or the first company, as the case may be, other than attributed CFC income referred to in subsection (3) or (4), such amount to be calculated under the formula set out in section MF 8(2)(a) (but applying as if item “e” were nil); and
- (b) the company has made a proper election in accordance with this section; and
- (c) the consolidated group or relevant other company, as the case may be, has paid (whether directly or by way of an election to reduce an amount of net loss or by means of a reduction of dividend withholding payment under section NH 7) the dividend withholding payment that gives rise to a debit to the branch equivalent tax account of the entity making the payment.
(6) If an election under subsection (3) or (4) relates to an amount that exceeds the income tax liability, for the income year, of the company or group that receives the offset under subsection (5), the excess amount is treated as giving rise to a net loss of the company or group for the purpose of subparts IF and IG of an amount given by the following formula:
where—
- a is the amount of the excess
- b is the basic rate of income tax, expressed as a percentage, stated in—
  
  (a) schedule 1, part A, clause 5, if the company is not a Maori authority or the group does not consist of Maori authorities; or
  
  (b) schedule 1, part A, clause 2, if the company is a Maori authority or the group consists of Maori authorities.
(6) If an election under subsection (3) or (4) relates to an amount that exceeds the income tax liability, for the income year, of the company or group that receives the offset under subsection (5), the excess is a net loss of the company or group for the purposes of subparts IF and IG.

Compare: 1994 No 164 s MF 10

Subsection (2) was repealed, as from 1 October 2005, by section 239(1) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subsection (6) was substituted, as from 1 October 2005, by section 239(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Branch equivalent tax accounts of persons

MF 11 Person may elect to maintain branch equivalent tax account

(1) A person resident in New Zealand (not being a company) may at any time during an income year of that person, or within the time within which the person is required to furnish a return of income for that income year (or within such further time as the Commissioner may allow), elect to maintain a branch equivalent tax account for that income year.

(2) A person who so elects must notify the Commissioner of that fact within 21 days after the date of the election, or within such further time as the Commissioner may allow in any case or class of cases.
(3) A person who makes an election under subsection (1) must maintain a branch equivalent tax account—
- (a) for the income year in respect of which the election is made; and
- (b) subject to this section, for every subsequent income year.
(4) A person who has made an election under subsection (1) may, during any income year subsequent to that in respect of which the election was made, elect to cease to be a branch equivalent tax account person, and, subject to subsection (5), any person who so elects ceases, as from the commencement of the income year succeeding that in which the election to so cease is made, to be a person required to maintain a branch equivalent tax account.

(5) An election made under subsection (4) is of no effect unless the person furnishes, within the time provided for in section 78(3) of the Tax Administration Act 1994, the annual branch equivalent tax account return required in respect of the income year in which the election is made.

Compare: 1994 No 164 s MF 11

MF 12 Branch equivalent tax account of person

(1) Every branch equivalent tax account person must record in the person's branch equivalent tax account for any income year of that person—
- (a) the opening balance of the account for that income year, in accordance with subsection (2):
- (b) credits as they arise in accordance with section MF 13(1) and (2):
- (c) debits as they arise in accordance with section MF 13(3) and (4).
(2) The opening balance of the branch equivalent tax account of a person for any income year is,—
- (a) for the income year during which the person commences to be a branch equivalent tax account person, nil:
- (b) for any subsequent income year, the amount of the closing balance of the branch equivalent tax account of the person for the preceding income year, and such amount is—
  - (i) a credit arising to the account where the closing balance is a credit balance:
  - (ii) a debit arising to the account where the closing balance is a debit balance.
Compare: 1994 No 164 s MF 12

MF 13 Credits and debits arising to branch equivalent tax account of person

(1) There arise from time to time, as credits to be recorded in the branch equivalent tax account of a branch equivalent tax account person, amounts calculated in accordance with the following formula:
where—
- a is the amount of the person's unadjusted income tax liability for any income year
- b is the amount that is the lesser of—
  
  (i) the amount of any attributed CFC income derived by the person during that income year; and
  
  (ii) the taxable income of the person for that income year
- c is the taxable income referred to in paragraph (ii) of item “b”
- d is any foreign tax credit allowed in accordance with section LC 4 or LC 5 that is offset against the person's income tax liability for that income year.
(2) Any such credit arises on the date on which the person files a return of income for the income year of the person in which the attributed CFC income referred to in item “b” of the formula in subsection (1) was derived.
(3) There arise as debits to be recorded in the branch equivalent tax account of a branch equivalent tax account person for any income year the following amounts:
- (a) any of the credit balance of the account that the person elects in accordance with section MF 14 is to be a credit against the income tax liability of the person:
- (b) an amount equal to any refund of income tax to the extent that the refund would have been made had the person not derived any income other than attributed CFC income:
- (c) the amount of the credit balance of the branch equivalent tax account where, during the income year, the person ceases to be resident in New Zealand.
(4) The debits referred to in subsection (3) arise,—
- (a) in the case of a debit referred to in subsection (3)(a), on the date the person makes the election in accordance with section MF 14:
- (b) in the case of a debit referred to in subsection (3)(b), on the date the refund is paid:
- (c) in the case of a debit referred to in subsection (3)(c), on the date the person ceases to be resident in New Zealand.
Compare: 1994 No 164 s MF 13

MF 14 Debit election to offset income tax payable in respect of foreign dividend

(1) Where for any income year the income of a branch equivalent tax account person includes the amount of any dividend derived in respect of an income interest in a controlled foreign company, the person may elect that all or any part of the credit balance (if any) in the person's branch equivalent tax account at the time of the election is to be credited against the person's income tax liability for that income year.

(2) A person makes an election under this section by recording the amount in respect of which the election is made as a debit in the person's branch equivalent tax account.
(3) Where a person has made an election under this section in respect of the income tax liability for any income year, the amount of credit balance in respect of which the election is made is credited against any income tax liability of the person for that income year to the extent that—
- (a) the amount credited does not exceed the amount that would be the person's income tax liability for the income year, if the only income of the person were the dividends referred to in subsection (1); and
- (b) the person has made a proper election in accordance with this section; and
- (c) the person has paid income tax (including provisional tax), for the income year in respect of which the credit arose to the person's branch equivalent tax account, equal to or exceeding the credit balance so credited in payment.
Compare: 1994 No 164 s MF 14

MF 15 Extension of branch equivalent tax account provisions to certain FIF income

This subpart and section NH 2 apply as if—
- (a) any FIF income of a person in respect of an attributing interest in a foreign investment fund—
  - (i) calculated under the accounting profits method or the branch equivalent method; or
  - (ii) in any case where section EX 43(6) or EX 46 applies with respect to the FIF income, calculated under any calculation method,—
  were attributed CFC income of the person; and
- (b) the fund were a controlled foreign company; and
- (c) the interest of the person in the fund were an income interest.
Compare: 1994 No 164 s MF 15

Amalgamated companies

MF 16 Debits and credits arising to branch equivalent tax account of amalgamated company on amalgamation

(1) Where any amalgamating company ceases to exist upon a qualifying amalgamation,—
- (a) if, immediately before the amalgamation, a credit or debit exists, determined by applying the procedure set out in sections GC 26 and MF 4(6), in the amalgamating company's branch equivalent tax account, the credit or debit is treated with effect from the time of the amalgamation as a credit or debit in the branch equivalent tax account of the amalgamated company and not as a credit or debit in the branch equivalent tax account of the amalgamating company but applying section MF 4(1)(e) and (3)(d) as if, with respect to all times prior to the amalgamation, the amalgamated company did not separately exist and was instead the amalgamating company with the same holders of shares and options over shares as the amalgamating company each holding the same number and class of shares and options over shares as they held in the amalgamating company; and
- (b) any credit (not being a credit arising under section MF 4(1)(e)) or debit (not being a debit arising under section MF 4(3)(d)) would have arisen, but for the amalgamation, to be recorded in the branch equivalent tax account of the amalgamating company on a date after the amalgamation, the credit or debit instead arises to be recorded in the branch equivalent tax account of the amalgamated company.
(2) Where a consolidated group ceases to exist on a qualifying amalgamation which involves all members of the consolidated group amalgamating (whether or not also amalgamating with any company outside the group),—
- (a) if, immediately before the amalgamation, a credit or debit exists, determined by applying the procedure set out in sections GC 26 and MF 4(6), in the consolidated group's branch equivalent tax account, the credit or debit is treated with effect from the time of the amalgamation as a credit or debit in the branch equivalent tax account of the amalgamated company and not as a credit or debit in the branch equivalent tax account of the consolidated group but applying section MF 4(1)(e) and (3)(d) as if, with respect to all times prior to the amalgamation, the amalgamated company did not separately exist and was instead the consolidated group with the same holders of shares and options over shares as the consolidated group each holding the same number and class of shares and options over shares as they held in the consolidated group; and
- (b) any credit or debit (not being a debit arising under section MF 8(4)) would have arisen, but for the amalgamation, to be recorded in the branch equivalent tax account of the consolidated group on a date after the amalgamation, the credit or debit instead arises to be recorded in the branch equivalent tax account of the amalgamated company.
Compare: 1994 No 164 s MF 16

Subpart MG—Dividend withholding payment accounts

MG 1 Balance of dividend withholding payment account

MG 2 Company may elect to maintain dividend withholding payment account

MG 3 Dividend withholding payment account

MG 4 Credits arising to dividend withholding payment account

MG 5 Debits arising to dividend withholding payment account

MG 6 Company may attach dividend withholding payment credit to dividend

MG 7 Transfer by life insurance company of credit balance to policyholder credit account

MG 8 Allocation rules for dividend withholding payment credits

MG 8B Policyholder credit account companies and dividend withholding payment credits

MG 9 Further dividend withholding payment payable by company

MG 10 Dividend with both imputation credit and dividend withholding payment credit attached

MG 11 Transfer of credit balance to imputation credit account

MG 12 Determinations by Commissioner as to credits and debits arising to dividend withholding payment credit account

MG 13 Dividend withholding payment accounts and consolidated groups

MG 14 Credits arising to group dividend withholding payment account

MG 15 Debits arising to group dividend withholding payment account

MG 16 Debiting and crediting between group and individual dividend withholding payment accounts

MG 16A Application of specific dividend withholding provisions to consolidated groups

MG 17 Debits and credits arising to dividend withholding payment account of amalgamated company on amalgamation

MG 1 Balance of dividend withholding payment account

For the purposes of the dividend withholding payment rules, the balance of a dividend withholding payment account at any time is ascertained by calculating the difference in amount between the aggregate of credits and the aggregate of debits to the account existing at that time, and the account has—
- (a) a credit balance to the extent that credits exceed debits:
- (b) a debit balance to the extent that debits exceed credits.
Compare: 1994 No 164 s MG 1

MG 2 Company may elect to maintain dividend withholding payment account

(1) A company that is resident in New Zealand and is not a portfolio tax rate entity may at any time elect to maintain a dividend withholding payment account for an imputation year.

(2) A company that so elects must notify the Commissioner of that fact within 21 days after the date of the election, or within such further time as the Commissioner may allow in any case or class of cases.
(3) A company that makes an election under subsection (1)—
- (a) must maintain a dividend withholding payment account with effect from the date on which the company makes the election; and
- (b) must, subject to this section, maintain a dividend withholding payment account for every imputation year subsequent to the one in which the election was made.
(4) A company that has made an election under subsection (1) may, during any imputation year subsequent to that in which the election was made, elect that the company is to cease to be a dividend withholding payment account company, and, subject to subsection (5), any company that so elects ceases, as from the commencement of the imputation year succeeding that in which the election to so cease is made, to be a company required to maintain a dividend withholding payment account.
(5) An election under subsection (4) is of no effect unless the company—
- (a) furnishes, within the time provided for in section 71 of the Tax Administration Act 1994, the annual dividend withholding payment account return required in respect of the imputation year in which the election was made; and
- (b) has paid any further dividend withholding payment that may be payable by the company for that imputation year under section MG 9.
(6) If an emigrating company is a dividend withholding payment account company immediately before the emigration time for the emigrating company, the emigrating company ceases to be a dividend withholding payment account company at the emigration time.
(7) A company that ceases to be a dividend withholding payment account company as a result of subsection (6) must—
- (a) furnish, within the time limit in section 71 of the Tax Administration Act 1994, the annual dividend with-holding payment account return required from the company as a dividend withholding payment account company for the imputation year in which the company becomes a non-resident; and
- (b) pay any further dividend withholding payment that may be payable under section MG 9 by the company as a dividend withholding payment account company for the imputation year.
Compare: 1994 No 164 s MG 2

Section MG 2(1): amended, on 1 October 2007, by section 133 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Subsection (5)(a) was amended, as from 3 April 2006, by section 151(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting the word “account” after the words “dividend withholding payment” with application as from the 2005–06 imputation year.

Subsections (6) and (7) were inserted, as from 3 April 2006, by section 151(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the 2005–06 imputation year.

MG 3 Dividend withholding payment account

(1) Every dividend withholding payment account company must record in its dividend withholding payment account for each imputation year—
- (a) the opening balance of the account for the imputation year, in accordance with subsection (2):
- (b) credits as they arise in accordance with section MG 4:
- (c) debits as they arise in accordance with section MG 5.
(2) The opening balance of the dividend withholding payment account for any imputation year is,—
- (a) for the imputation year during which the company commences to be a dividend withholding payment account company, nil:
- (b) for any subsequent imputation year, the amount of the closing balance of the dividend withholding payment account for the preceding imputation year, and such amount is—
  - (i) a credit arising to the account where the closing balance is a credit balance:
  - (ii) a debit arising to the account where the closing balance is a debit balance.
Compare: 1994 No 164 s MG 3

MG 4 Credits arising to dividend withholding payment account

(1) There arise as credits to be recorded in a company's dividend withholding payment account for any imputation year the following amounts:
- (a) the amount of dividend withholding payment paid by the company during the imputation year, other than dividend withholding payment that is paid by way of a crediting of further dividend withholding payment under section MG 9(5):
- (b) the amount of any dividend withholding payment credit attached to a dividend paid to the company during the imputation year:
- (ba) the amount debited to the company's imputation credit account under section ME 5(1)(o) on account of net foreign attributed income:
- (bb) the amount of dividend withholding payment payable under section MI 10(4) on account of a credit transferred from the company's conduit tax relief account under section MI 6(2):
- (bc) the amount of a dividend withholding payment paid by the company under section MI 10(3):
- (bd) the amount of dividend withholding payment credit shown in a credit transfer notice that the company is issued with during the imputation year:
- (c) the amount of any further dividend withholding payment paid by the company during the imputation year under section MG 9:
- (d) the amount of any debit arising to the account under section MG 5(1)(h) (which relates to debits arising in respect of dividend withholding payment credits determined to have been the subject of an arrangement to obtain a tax advantage), to the extent that it is subsequently established that the relevant dividend withholding payment credit should not have been determined to be the subject of such an arrangement.
(2) The credits referred to in subsection (1) arise,—
- (a) in the case of a credit referred to in subsection (1)(a), on the date the dividend withholding payment is paid:
- (b) in the case of a credit referred to in subsection (1)(b), on the date the dividend is paid:
- (ba) in the case of the credit referred to in subsection (1)(ba), on the date the debit arises to the imputation credit account:
- (bb) in the case of the credit referred to in subsection (1)(bb), immediately before the end of the imputation year (whether or not the dividend withholding payment is paid by then):
- (bc) in the case of the credit referred to in subsection (1)(bc), on the date the dividend withholding payment is paid:
- (bd) in the case of the credit referred to in subsection (1)(bd), on the date the credit transfer notice is issued:
- (c) in the case of a credit referred to in subsection (1)(c), on the date the further dividend withholding payment is paid:
- (d) in the case of a credit referred to in subsection (1)(d), on the date that the relevant debit under section MG 5(1)(h) arose.
(3) For the purposes of subsection (1), a credit does not arise where, in accordance with section NH 3(2) or (3), payment of all or part of a dividend withholding payment is satisfied by reducing a net loss.

Compare: 1994 No 164 s MG 4

Subsection (1)(bd) was inserted, as from 1 July 2006, by section 152(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (2)(bd) was inserted, as from 1 July 2006, by section 152(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MG 5 Debits arising to dividend withholding payment account

(1) There arise as debits to be recorded in a company's dividend withholding payment account for any imputation year the following amounts:
- (a) the amount of any dividend withholding payment credit attached to a dividend paid by the company during the imputation year:
- (ab) the amount of any dividend withholding payment credit attached to a dividend that is paid to the company during the imputation year, if the dividend withholding payment credit is shown in a credit transfer notice issued by the company:
- (b) in the case of a company carrying on a business of providing life insurance to which the life insurance rules apply, the amount of any credit balance of the company's dividend withholding payment account that the company elects in accordance with section MG 7 is to be a credit to the company's policyholder credit account:
- (c) any amount forming all or part of an end of imputation year credit balance in the account that the company elects in accordance with section MG 11 is to be a credit to the imputation credit account of the company or of an imputation group to which the company belongs:
- (ca) the amount of a credit transferred to the company's conduit tax relief account under section MI 6(1):
- (d) the amount of a refund of dividend withholding payment paid to the company except—
  - (i) to the extent that the refund is for a dividend withholding payment paid prior to the date that a debit arises under paragraph (i); and
  - (ii) a debit does not arise for a refund paid under section MI 11:
- (e) the amount of any credit of tax refunded to the company under section LD 8(1)(c):
- (f) the amount of any allocation deficit debit arising in the account under section MG 8(4):
- (g) the amount of any allocation deficit debit arising in the account under section MG 8B:
- (h) the amount of any further debit arising to the dividend withholding payment account under section GC 22 in relation to a dividend withholding payment credit determined to be the subject of an arrangement to obtain a tax advantage:
- (i) the amount of any particular credit in the company's dividend withholding payment account at any time (in this paragraph referred to as the specified time), not being a credit which has before the specified time been cancelled out by a prior or subsequent debit, unless there is a group of persons—
  - (i) the aggregate of whose minimum voting interests in the company in the period from the date upon which the credit arose until the specified time is equal to or greater than 66%; and
  - (ii) in any case where at any time during that period a market value circumstance exists in respect of the company, the aggregate of whose minimum market value interests in the company in the period is equal to or greater than 66%:
- (j) the amount of the credit balance, if any, of the dividend withholding payment account where, during the imputation year, the company ceases to be a dividend withholding payment account company:
- (k) the amount of any overpaid dividend withholding payment that the Commissioner applies in satisfaction of an amount (other than dividend withholding payment) that is due and payable under any provision of this Act or any other of the Inland Revenue Acts, except to the extent that the amount applied—
  - (i) is in respect of dividend withholding payment paid before the date that a debit arises under paragraph (i); and
  - (ii) does not exceed the amount of the debit that arises on that date.
(2) The debits referred to in subsection (1) arise,—
- (a) in the case of a debit referred to in subsection (1)(a), on the date the dividend is paid:
- (ab) in the case of a debit referred to in subsection (1)(ab), on the date the relevant dividend is paid:
- (b) in the case of a debit referred to in subsection (1)(b), on the date the company makes the election in accordance with section MG 7:
- (c) in the case of a debit referred to in subsection (1)(c), at the end of the imputation year in which there was the credit balance:
- (ca) in the case of the debit referred to in subsection (1)(ca), immediately before the end of the imputation year:
- (d) in the case of a debit referred to in subsection (1)(d) or (e), on the date the refund is paid:
- (e) in the case of a debit referred to in subsection (1)(f) or (g), at the end of the imputation year in respect of which the allocation deficit debit arises:
- (f) in the case of a debit referred to in subsection (1)(h), at the end of the imputation year in respect of which it is determined under section GC 22 that the tax advantage arrangement occurred or commenced:
- (g) in the case of a debit referred to in subsection (1)(i), at the specified time referred to in that paragraph:
- (h) in the case of a debit referred to in subsection (1)(j), immediately before the company ceases to be a dividend withholding payment account company:
- (i) in the case of a debit referred to in subsection (1)(k), on the date that the Commissioner applies the relevant amount in satisfaction of the other amount that is due and payable.
(3) Subject always to the express provisions of this Act, subsection (1)(i) is intended to limit the circumstances in which a taxpayer, being a company, may carry forward a dividend withholding payment account credit for subsequent utilisation to those where the tax benefit arising from such utilisation is obtained or available to be obtained (directly or indirectly), at least to the extent of 66%, only by the same natural persons holding (directly or indirectly) rights in relation to the company who,—
- (a) by virtue of holding (directly or indirectly) such rights, bore the dividend withholding payment liability giving rise to the dividend withholding payment account credit; or
- (b) held (directly or indirectly) such rights at the time of the event giving rise to the dividend withholding payment account credit.
(4) For the purposes of subsection (1)(i),—
- (a) in respect of any period referred to in that paragraph the minimum voting interest or market value interest of any person in the company in the period is equal to the lowest voting interest or market value interest, as the case may be, which that person holds in the company during that period; and
- (b) section MG 3(2)(b) does not apply and any credit in the company's dividend withholding payment account is treated as continuing to exist until treated as being cancelled out by a prior or subsequent debit in accordance with paragraph (c); and
- (c) in determining whether any credit in the company's dividend withholding payment account has been cancelled out by any prior or subsequent debit,—
  - (i) any amount of debit may be taken into account only once for the purpose of ascertaining whether any credit has been so cancelled out; and
  - (ii) the amount of any debit is offset against the amount of any credit in the order in which the credits arise; and
- (d) any credit arising on or before 16 December 1988 is deemed to have been cancelled out by a subsequent debit before the specified time referred to in that paragraph; and
- (e) in the case of any credit arising after 16 December 1988 and before 1 April 1992 (not being a credit cancelled out before 1 April 1992 by a subsequent debit), the credit is deemed first to arise in the company's dividend withholding payment account on 1 April 1992, but a debit is deemed to arise in accordance with subsection (1)(i) in respect of that credit at any time if and to the extent that, at that specified time, that credit still exists and a debit would have arisen in respect of that credit in accordance with section 394ZW(1)(f) of the Income Tax Act 1976 as that paragraph applied before its repeal and replacement by section 57 of the Income Tax Amendment Act (No 2) 1992, had that paragraph continued to apply but with the figure “75” omitted and the figure “66” substituted.
Compare: 1994 No 164 s MG 5

Subsection (1)(ab) was inserted, as from 1 July 2006, by section 153(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (1)(c) was amended, as from 1 October 2005, by section 240(1) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “imputation credit account of the company or of an imputation group to which the company belongs” for “company's imputation credit account” with application as from the 2005–06 income year.

Subsection (1)(e) was amended, as from 1 April 2005, by section 79 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “section LD 8(1)(c)” for “section LD 8(1)(a)” with application as from the 2005–06 income year.

Subsection (1)(f) was amended, as from 1 October 2005, by section 240(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “section MG 8(4)” for “section MG 8” with application as from the 2005–06 income year.

Subsection (1)(g) was amended, as from 1 October 2005, by section 240(3) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “section MG 8B” for “section MG 8(5)” with application as from the 2005–06 income year.

Subsection (2)(ab) was inserted, as from 1 July 2006, by section 153(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MG 6 Company may attach dividend withholding payment credit to dividend

(1) A dividend withholding payment account company may, on payment of a dividend by the company, attach a dividend withholding payment credit to the dividend.

(2) A dividend withholding payment account company that is also a conduit tax relief company may attach a dividend withholding payment credit to a dividend derived by a non-resident, but only to the extent allowed under section MZ 4.

(3) The rules for determining residence in sections OE 7 and OE 8 apply for the purposes of subsection (2).

Compare: 1994 No 164 s MG 6

MG 7 Transfer by life insurance company of credit balance to policyholder credit account

(1) Where a dividend withholding payment account company is also a policyholder credit account company but not a conduit tax relief company, the company may elect that all or any part of the credit balance (if any) in the company's dividend withholding payment account at the time of election is to be a credit to the company's policyholder credit account and a debit to its dividend withholding payment account.
(2) A company makes an election under this section by recording the amount in respect of which the election is made—
- (a) as a debit in the company's dividend withholding payment account; and
- (b) as a credit in its policyholder credit account.
(3) Where a company that may make an election under subsection (1) furnishes a return of income under section 38 of the Tax Administration Act 1994 for a non-standard accounting year, then,—
- (a) where and to the extent to which, in respect of any imputation year,—
  - (i) any credit has arisen to the company's dividend withholding payment account in accordance with section MG 4(1)(a) on or before the last day of that imputation year and during the accounting year in which the last day of that imputation year falls; and
  - (ii) the amount of that credit has not, on or before the last day of that imputation year, been cancelled out by any subsequent debit arising in accordance with section MG 5(1)(d), by virtue of any refund of dividend withholding payment paid during that accounting year; and
  - (iii) the company has not, on or before the last day of that imputation year, elected in accordance with this section that the amount of that credit is to be transferred to the company's policyholder credit account,—
  the company is deemed to have so elected on the last day of that imputation year:
- (b) where and to the extent to which in any imputation year any credit has arisen to the company's dividend withholding payment account in accordance with section MG 4(1)(b), then, notwithstanding any provision of this section, the company may not elect that any part of that credit is to be transferred to the company's policyholder credit account on any day falling after the last day of that imputation year and during the accounting year in which the last day of that imputation year falls.
(4) For the purposes of subsection (3)(a)(ii), the amount of any debit referred to in that subparagraph is offset against the amount of any credits referred to in that subparagraph in the order in which the credits arise.

Compare: 1994 No 164 s MG 7

MG 8 Allocation rules for dividend withholding payment credits

(1) A company must not attach to a dividend a dividend withholding payment credit of such an amount that the dividend withholding payment ratio of the dividend would exceed the ratio calculated in accordance with the following formula:
where—
- a is the basic rate of income tax for companies, expressed as a percentage, stated in schedule 1, part A, clause 5 and applying in respect of the income year that is concurrent with the imputation year in which the dividend is paid.
(2) Where a dividend withholding payment account company has paid a benchmark dividend in any imputation year, the company must, unless it makes a ratio change declaration in accordance with subsection (3), ensure that the dividend withholding payment ratio of every subsequent dividend paid by the company during that imputation year is the same as the dividend withholding payment ratio of the benchmark dividend; and for the purposes of this subsection any benchmark dividend with a dividend withholding payment ratio exceeding the ratio specified in subsection (1) is deemed to have the ratio so specified.
(3) The dividend withholding payment ratio of a subsequent dividend may differ from that of a benchmark dividend if—
- (a) an officer of the company declares, in a ratio change declaration in the prescribed form, that the subsequent dividend is not being paid as part of an arrangement to obtain a tax advantage within the meaning of section GC 22, and provides such further information as may be prescribed; and
- (b) the ratio change declaration is delivered to the Commissioner before the date of payment of the subsequent dividend, or before such later date as the Commissioner may allow in any case or class of cases; and
- (c) the subsequent dividend is not paid as part of an arrangement to obtain a tax advantage within the meaning of section GC 22.
(4) Where the dividend withholding payment ratio of a subsequent dividend differs from the dividend withholding payment ratio of a benchmark dividend in contravention of subsection (2), there arises an allocation deficit debit of an amount calculated in accordance with the following formula:
(a x b) – c

where—
- a is the aggregate of the amount of all dividends paid by the company during the imputation year (exclusive of any imputation credit or dividend withholding payment credit)
- b is the lesser of—
  
  (i) the dividend withholding payment ratio of the dividend with the greatest dividend withholding payment ratio of all dividends paid by the company during the income year; and
  
  (ii) the ratio calculated in accordance with the formula stated in subsection (1)
- c is the aggregate of all dividend withholding payment credits attached to dividends paid by the company during the imputation year.
(5) [Repealed]

(6) [Repealed]

(7) [Repealed]

(8) Nothing in this section applies to a dividend that is the subject of a determination made by a statutory producer board or a cooperative company in accordance with section ME 30 or ME 35.

Compare: 1994 No 164 s MG 8

Subsections (5) to (7) were repealed, as from 1 October 2005, by section 241 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

MG 8B Policyholder credit account companies and dividend withholding payment credits

(1) This section applies to a policyholder credit account company (called the company) that is not a conduit tax relief company and an imputation year (called the dividend year) in which the company pays a dividend with a dividend withholding payment credit attached.
(2) An allocation deficit debit of an amount given by subsection (3) arises at the end of the dividend year in the company's dividend withholding payment account if—
- (a) the total of the amounts of the company's policyholder income and policyholder net loss for the DWP reference period, found using the policyholder base calculation for each imputation year, is greater than zero:
- (b) the shareholder DWP ratio for the DWP reference period exceeds the policyholder DWP ratio for the DWP reference period.
(3) The amount of the allocation deficit debit that arises under subsection (2) is—
- (a) equal to the maximum deficit debit, if the maximum deficit debit is less than or equal to the credit balance that is in the company's dividend withholding payment account immediately before any allocation deficit debit arises under this section:
- (b) equal to the reduced deficit debit, if paragraph (a) does not apply.
(4) In this section—
DWP reference period means the period that consists of—
- (a) the dividend year:
- (b) the longest period of consecutive imputation years—
  - (i) that begins on or after the date on which this section applies for the company; and
  - (ii) that ends immediately before the dividend year; and
  - (iii) in which the company paid no dividend that had a dividend withholding payment credit attached
maximum deficit debit means the quantity that is given by the following formula
(a - b) x d x (1 - r)

where—

a is the company's shareholder DWP ratio for the DWP reference period:

b is the company's policyholder DWP ratio for the DWP reference period:

d is the total of the amounts of the company's policy-holder income and policyholder net loss found for the DWP reference period using the policyholder base calculation:

r is the basic rate of income tax, expressed as a percentage, stated in—

(a) schedule 1, part A, clause 5, if the company is not a Maori authority:

(b) schedule 1, part A, clause 2, if the company is a Maori authority
policyholder DWP ratio means the quantity that is given by the following formula

where—
- c is the total for the DWP reference period of all the credits that have arisen in the company's policyholder credit account as a result of an election by the company under section MG 7 in relation to a credit balance in the company's dividend withholding payment account
- d is the total of the amounts of the company's policy-holder income and policyholder net loss found for the DWP reference period using the policyholder base calculation
- r is the basic rate of income tax, expressed as a percentage, stated in—
  - (a) schedule 1, part A, clause 5, if the company is not a Maori authority:
  - (b) schedule 1, part A, clause 2, if the company is a Maori authority
Subsection (4) policyholder DWP ratio item “c” was amended, as from 1 October 2005, by section 80(1)(a) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “dividend withholding payment account” for “dividend withholding payment credit account” with application from the 2005–06 income year.
reduced deficit debit means the quantity that is given by the following formula
where—

c is the total for the DWP reference period of all the credits that have arisen in the company's policyholder credit account as a result of an election by the company under section MG 7 in relation to a credit balance in the company's dividend withholding payment account

d is the total of the amounts of the company's policy-holder income and policyholder net loss found for the DWP reference period using the policyholder base calculation

e is the credit balance in the company's dividend withholding payment account at the end of the dividend year immediately before any allocation deficit debit arises under this section

f is the total amount of DWP credits that the company has attached to dividends paid by the company in the DWP reference period

g is the total amount of dividends paid by the company in the DWP reference period

r is the basic rate of income tax, expressed as a percentage, stated in—

(a) schedule 1, part A, clause 5, if the company is not a Maori authority:

(b) schedule 1, part A, clause 2, if the company is a Maori authority
Subsection (4) reduced deficit debit item “c” was amended, as from 1 October 2005, by section 80(1)(b) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting “dividend withholding payment account” for “imputation credit account” with application from the 2005–06 income year.
shareholder DWP ratio means the quantity given by the following formula
where—

f is the total amount of DWP credits that the company has attached to dividends paid by the company in the DWP reference period

g is the total amount of dividends paid by the company in the DWP reference period.
(5) This section does not apply to a dividend that is the subject of a determination made by a statutory producer board or a co-operative company under section ME 30 or section ME 35.

Section MG 8B was inserted, as from 1 October 2005, by section 242 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) with application as from the 2005–06 income year.

MG 9 Further dividend withholding payment payable by company

(1) Where there is a debit balance in a company's dividend withholding payment account at the end of any imputation year, and the company is not a company that is liable to pay a further dividend withholding payment under subsection (3), the company is liable to pay to the Commissioner a further dividend withholding payment of an amount equal to that debit balance, subject to subsection (7).

(2) A company must pay any further dividend withholding payment to which it is liable under subsection (1) not later than the 20 June following the end of the imputation year for which there was the debit balance.

(3) Where there is a debit balance in a company's dividend withholding payment account immediately before the company ceases to be resident in New Zealand, the company is liable to pay to the Commissioner a further dividend withholding payment of an amount equal to that debit balance.

(4) A company must pay any further dividend withholding payment to which it is liable under subsection (3) not later than the last day on which it is still resident in New Zealand.
(5) If a company pays a further dividend withholding payment for which the company is liable under this section, the company may elect that the amount of the payment be also credited—
- (a) in payment of a liability of the company to pay a dividend withholding payment in relation to an income year that corresponds to an imputation year in which the company was a dividend withholding payment account company:
- (b) with effect on the date on which the Commissioner receives the further dividend withholding payment.
(5A) If a company is liable under this section to pay a further dividend withholding payment in relation to an imputation year and, after the end of the imputation year, pays a dividend withholding payment in relation to an imputation year in which the company was a dividend withholding payment account company, the company may elect that the amount of the dividend withholding payment be also credited—
- (a) in payment of the liability of the company to pay the further dividend withholding payment:
- (b) with effect on the date on which the Commissioner receives the dividend withholding payment.
(6) Subject to this section and section 103 of the Tax Administration Act 1994, the provisions of this Act and of the Tax Administration Act 1994 (other than the dividend withholding payment rules), so far as they are applicable and with any necessary modifications, apply with respect to any further dividend withholding payment for which a company is chargeable under this section as if it were income tax.
(7) A company that has a debit balance in the company's dividend withholding payment account at the end of an imputation year may apply to the Commissioner by notice for a reduction of the company's liability to make a further dividend withholding payment relating to the imputation year if—
- (a) the company had a debit balance in the company's dividend withholding payment account at the end of the immediately preceding imputation year; and
- (b) the debit balance referred to in paragraph (a) exceeds the total of the dividend withholding payments that the company has made during the imputation year.
(8) If the Commissioner receives a notice under subsection (7) from a company, the company's liability to make a further dividend withholding payment relating to the imputation year is reduced by the amount of the difference between—
- (a) the debit balance in the company's dividend withholding payment account at the end of the immediately preceding imputation year; and
- (b) the total of the dividend withholding payments that the company has made during the imputation year.
Compare: 1994 No 164 s MG 9

Subsection (5A)(b) was amended, as from 1 October 2005, by section 243 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “dividend withholding payment” for “payment of income tax”.

MG 10 Dividend with both imputation credit and dividend withholding payment credit attached

(1) Where a company pays a dividend with both an imputation credit and a dividend withholding payment credit attached, the company must ensure that the combined imputation and dividend withholding payment ratio of the dividend does not exceed the ratio calculated in accordance with the following formula:
where—
- a is the basic rate of income tax for companies, expressed as a percentage, stated in schedule 1, part A, clause 5, and applying in respect of the income year that is concurrent with the imputation year in which the dividend is paid.
(2) Where a company pays a dividend with a combined imputation and dividend withholding payment ratio exceeding the ratio stated in subsection (1), there is an excess credit amount in relation to the dividend of an amount calculated in accordance with the following formula:
a x (b – c)

where—
- a is the amount of the dividend paid (excluding the imputation credit and the dividend withholding payment credit)
- b is the combined imputation and dividend withholding payment ratio of the dividend
- c is the combined imputation and dividend withholding payment ratio calculated in accordance with the formula stated in subsection (1).
Compare: 1994 No 164 s MG 10

MG 11 Transfer of credit balance to imputation credit account

(1) A company that is not a conduit tax relief company and has a credit balance in the dividend withholding payment account of the company at the end of an imputation year, or immediately before a debit arises in the account under section MG 5(1)(j), may elect that all or part of the credit balance be, for the imputation year in which the credit balance occurs—
- (a) a debit to the dividend withholding payment account of the company; and
- (b) a credit to the imputation credit account of the company, or of an imputation group of which the company is a member at the time the credit balance occurs.
(2) A company makes an election under this section by recording the amount in respect of which it makes the election—
- (a) as a debit in the company's dividend withholding payment account; and
- (b) as a credit in its imputation credit account.
Compare: 1994 No 164 s MG 11

Subsection (1) was substituted, as from 1 October 2005, by section 244 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Credits and debits incorrectly recorded

MG 12 Determinations by Commissioner as to credits and debits arising to dividend withholding payment credit account

(1) Where the Commissioner considers that any amount recorded as a credit or a debit arising to a company's dividend withholding payment account is not the correct amount that should have been recorded in respect of the credit or debit, the Commissioner must determine the amount of the credit or debit properly arising to the account.

(2) Where the Commissioner considers that any amount recorded as a credit or a debit arising to a company's dividend withholding payment account should not have been so recorded, the Commissioner must determine accordingly.

(3) Where the Commissioner considers that any amount recorded as a credit or a debit arising to a company's dividend withholding payment account should not have been recorded as arising at the time it was recorded as arising, the Commissioner must determine the time at which the credit or debit properly arose to the account.
(4) Where the Commissioner considers that any amount that has not been recorded as a credit or debit arising to a company's dividend withholding payment account should have been so recorded, the Commissioner must determine—
- (a) the amount of the credit or debit so arising; and
- (b) the time at which the credit or debit arose to the account.
(5) Where the Commissioner makes a determination under any of subsections (1) to (4), then, except in so far as the company establishes on objection that any credit or debit was correctly recorded, or not recorded, as the case may be, in the dividend withholding payment account,—
- (a) the relevant credit or debit in the account is deemed to have arisen, or not to have arisen, or is deemed to have been the amount determined by the Commissioner under subsection (1), as the case may require, effective on the date on which the debit or credit originally arose, or is determined by the Commissioner as having arisen:
- (b) the company must make such other corrections in respect of any credits or debits or balances arising to its dividend withholding payment account or imputation credit account or branch equivalent tax account, whether for the imputation year to which the determination related or for any subsequent imputation year, as may be necessary or as may be directed by the Commissioner as a consequence of the determination in relation to the amount incorrectly recorded, or not recorded.
(6) As soon as is convenient after a determination is made under any of subsections (1) to (4), the Commissioner must give notice of the determination to the company in respect of whose dividend withholding payment account the determination is made.

(7) Any such notice may be included in a notice of assessment made under section 111(1) of the Tax Administration Act 1994.

(8) An omission to give the notice referred to in subsection (6) does not invalidate the determination.

Compare: 1994 No 164 s MG 12

Consolidated groups

MG 13 Dividend withholding payment accounts and consolidated groups

(1) A consolidated group—
- (a) must maintain a dividend withholding payment account if, in that imputation year, any company which is a member of that consolidated group at any time in that imputation year maintains a dividend withholding payment account; and
- (b) may at any time elect to maintain a dividend withholding payment account for an imputation year,—
which group dividend withholding payment account must be separate from the dividend withholding payment account of each company which is a member of the consolidated group.
(2) Where a consolidated group has elected to maintain a dividend withholding payment account under subsection (1),—
- (a) the nominated company for the group must notify the Commissioner of that fact within 21 days after the date of the election, or within such further time as the Commissioner may allow in any case or class of cases; and
- (b) the group must maintain a dividend withholding payment account with effect from the date of the election and, subject to subsection (4), for every imputation year subsequent to that imputation year in which the election was made.
(3) The opening balance of the dividend withholding payment account of a consolidated group for any imputation year is—
- (a) nil, for the imputation year during which the consolidated group commences to maintain a dividend withholding payment account; and
- (b) the amount of the closing balance of the dividend withholding payment account for the preceding imputation year (being a credit or debit, as the case may be), in any other case.
(4) Subject to subsection (5), the nominated company for a consolidated group that maintains a dividend withholding payment account may elect at any time that the group is to cease to maintain a dividend withholding payment account and, where such an election is made, the group ceases to be required to maintain a group dividend withholding payment account from the commencement of the imputation year succeeding that in which the election so to cease is made.
(5) An election under subsection (4),—
- (a) in any case where the nominated company for the group has elected to maintain a dividend withholding payment account, may only be made during an imputation year subsequent to the imputation year in which the election to maintain the account was made; and
- (b) is of no effect if the group is required to maintain a dividend withholding payment account under subsection (1)(a) in respect of the imputation year from the commencement of which the election to cease would otherwise take effect; and
- (c) is of no effect unless—
  - (i) the annual dividend withholding payment account return required in respect of the imputation year in which the election was made is furnished within the time provided for in section 71 of the Tax Administration Act 1994; and
  - (ii) any further dividend withholding payment that may be payable by the group for that imputation year under section MG 9 is paid by the date specified in section MG 9(2).
(6) Subsection (7) applies to a consolidated group that maintains a group dividend withholding payment account if—
- (a) a member of the consolidated group is an emigrating company; and
- (b) the emigrating company is a dividend withholding payment account company immediately before the emigration time for the emigrating company.
(7) The consolidated group must—
- (a) cease to maintain a group dividend withholding payment account at the emigration time for the member; and
- (b) if there is a debit balance in the group dividend with-holding payment account immediately before the emigration time of the member, pay to the Commissioner a further dividend withholding payment of an amount equal to the debit balance; and
- (c) furnish, within the time limit under sections 71 and 73 of the Tax Administration Act 1994, the annual dividend withholding payment account return required from the group for the imputation year in which the member becomes a non-resident.
Compare: 1994 No 164 s MG 13

Subsection (5)(c)(i) was amended, as from 3 April 2006, by section 154(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting the word “account” after the words “dividend withholding payment” with application as from the 2005–06 imputation year.

Subsections (6) and (7) were inserted, as from 3 April 2006, by section 154(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the 2005–06 imputation year.

MG 14 Credits arising to group dividend withholding payment account

(1) There arise as credits to be recorded in the dividend withholding payment account of a consolidated group for any imputation year the following amounts:
- (a) the amount of dividend withholding payment paid during the imputation year by any company that is a member of the consolidated group in respect of a dividend paid to a company which is at the time of payment of the dividend a member of the consolidated group, except where and to the extent that—
  - (i) the dividend withholding payment is paid by way of a crediting of further dividend withholding payment under section MG 9(5) or MG 16(6); or
  - (ii) payment of the dividend withholding payment is satisfied by reducing a net loss under section NH 5(4):
- (b) the amount of any dividend withholding payment credit attached to a dividend paid during the imputation year to a company which is at the time of payment a member of the consolidated group:
- (bb) the amount of dividend withholding payment credit shown in a credit transfer notice a company is issued with, if the company is a member of the consolidated group at the time the credit transfer notice is issued:
- (c) the amount of any further dividend withholding payment paid during the imputation year in respect of the group's dividend withholding payment account under section MG 9:
- (d) the amount of any debit arising to the account under section MG 15(1)(h), to the extent that it is subsequently established that the relevant dividend withholding payment credit should not have been determined to be the subject of an arrangement to which that paragraph applies:
- (e) the amount of any credit arising during the imputation year to the dividend withholding payment account under section MG 16(2):
- (f) the amount debited to the group's imputation credit account under section ME 12(1)(n) on account of net foreign attributed income.
(2) The credits referred to in subsection (1) arise,—
- (a) in the case of the credits referred to in subsection (1)(a), (b), and (c), on the date the relevant dividend withholding payment, dividend, or further dividend withholding payment is paid:
- (ab) in the case of the credit referred to in subsection (1)(bb), on the date the credit transfer notice is issued:
- (b) in the case of a credit referred to in subsection (1)(d), on the date that the relevant debit under section MG 15(1)(h) arose:
- (c) in the case of the credit referred to in subsection (1)(e), immediately before the relevant debit referred to in section MG 16(2)(b) arose to the dividend withholding payment account:
- (d) in the case of a debit referred to in subsection (1)(f), on the date the debit arises in the group's imputation credit account.
Compare: 1994 No 164 s MG 14

Subsection (1)(bb) was inserted, as from 1 July 2006, by section 155(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (2)(ab) was inserted, as from 1 July 2006, by section 155(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MG 15 Debits arising to group dividend withholding payment account

(1) There arise as debits to be recorded in the dividend withholding payment account of a consolidated group for any imputation year the following amounts:
- (a) the amount of any dividend withholding payment credit attached to a dividend paid during the imputation year by any company which is, at the time of payment, a member of the consolidated group:
- (ab) the amount of any dividend withholding payment credit attached to a dividend that is paid during the imputation year to a company that is, at the time of the payment, a member of the consolidated group, if the dividend with-holding payment credit is shown in a credit transfer notice issued by the company:
- (b) the amount of any credit balance of the dividend withholding payment account that the nominated company for the consolidated group elects in accordance with section NH 6(2) during the imputation year is a credit to the policyholder credit account of the consolidated group:
- (c) any amount forming all or part of an end of imputation year balance in the account that the nominated company for the consolidated group elects in accordance with section NH 6(6) to be a credit to the imputation credit account of the consolidated group:
- (d) the amount of any refund of dividend withholding payment paid during the imputation year under section NH 4 in respect of a dividend withholding payment paid in respect of a dividend paid to a company which at the time of payment of the dividend was a member of the consolidated group, except that, where the refund is in respect of a dividend withholding payment paid before the date that a debit arises under paragraph (i), a debit does not arise to the extent that the amount of the refund does not exceed the amount of the debit that arises on that date:
- (e) the amount of any credit of tax refunded under section LD 8(1)(c) in respect of a dividend paid to a company which is at the time of payment a member of the consolidated group:
- (f) the amount of any allocation deficit debit arising in the account under section MG 8(4) in respect of any company which is at the time of payment of the relevant dividend a member of the consolidated group:
- (g) the amount of any allocation deficit debit arising in the account under section MG 8B:
- (h) the amount of any further debit arising during the imputation year to the dividend withholding payment account under section GC 22 in relation to a dividend withholding payment credit determined to be the subject of an arrangement to obtain a tax advantage:
- (i) the amount of any debit that would arise under section MG 5(1)(i) if that provision were to apply, with any necessary modifications, to a consolidated group and its dividend withholding payment account as if it were a single company:
- (j) the amount of the credit balance, if any, of the dividend withholding payment account where the consolidated group ceases to maintain a dividend withholding payment account:
- (k) the amount of any debit arising during the imputation year to the dividend withholding payment account under section MG 16(5):
- (l) the amount of any overpaid dividend withholding payment paid by a company in respect of a dividend derived by the company, which is at the time of derivation a member of the consolidated group, that the Commissioner applies in satisfaction of an amount (other than dividend withholding payment) that is due and payable by a company that is a member of the consolidated group under any provision of this Act or any other of the Inland Revenue Acts, except to the extent that the amount applied—
  - (i) is in respect of dividend withholding payment paid before the date that a debit arises under paragraph (i); and
  - (ii) does not exceed the amount of the debit that arises on that date.
(2) The debits referred to in subsection (1) arise,—
- (a) in the case of a debit referred to in subsection (1)(a), on the date the dividend is paid:
- (ab) in the case of a debit referred to in subsection (1)(ab), on the date the relevant dividend is paid:
- (b) in the case of a debit referred to in subsection (1)(b), on the date the company makes the election in accordance with section NH 6(2):
- (c) in the case of a debit referred to in subsection (1)(c), at the end of the imputation year in which there was the credit balance:
- (d) in the case of the debits referred to in subsection (1)(d) and (e), on the date the refund is paid:
- (e) in the case of the debits referred to in subsection (1)(f) and (g), at the end of the imputation year in respect of which the allocation deficit debit arises:
- (f) in the case of a debit referred to in subsection (1)(h), at the end of the imputation year in respect of which it is determined under section GC 22 that the tax advantage arrangement occurred or commenced:
- (g) in the case of a debit referred to in subsection (1)(i), at the specified time:
- (h) in the case of a debit referred to in subsection (1)(j), immediately before the consolidated group ceases to maintain a dividend withholding payment account:
- (i) in the case of a debit referred to in subsection (1)(k), at the time first referred to in section MG 16(5):
- (j) in the case of a debit referred to in subsection (1)(l), on the date that the Commissioner applies the relevant amount in satisfaction of the other amount that is due and payable.
Compare: 1994 No 164 s MG 15

Subsection (1)(ab) was inserted, as from 1 July 2006, by section 156(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (1)(f) was amended, as from 1 October 2005, by section 245(1) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “section MG 8(4)” for “section MG 8”.

Subsection (1)(g) was amended, as from 1 October 2005, by section 245(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting “section MG 8B” for “section MG 8(5)”.

Subsection (2)(ab) was inserted, as from 1 July 2006, by section 156(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MG 16 Debiting and crediting between group and individual dividend withholding payment accounts

(1) Where—
- (a) any credit arises to the dividend withholding payment account of a consolidated group in respect of any dividend withholding payment paid or dividend withholding payment credit attached to a dividend derived; or
- (b) any debit arises to the dividend withholding payment account in respect of any dividend withholding payment credit attached to a dividend paid, any dividend withholding payment or tax credit refunded, or any allocation debit arising under section ME 8(4),—
that credit or debit does not arise to the dividend withholding payment account of any individual company.
(2) Subject to subsection (4), where and to the extent that at any time—
- (a) a company which is at that time a member of a consolidated group has a credit in its individual dividend withholding payment account (such credit being in this section referred to as the company credit); and
- (b) a debit arises under section MG 15 to be recorded in the dividend withholding payment account of the consolidated group; and
- (c) that debit is not offset, determined by applying the procedure set out in section MG 5(4)(c), against any credit in the consolidated group's dividend withholding payment account which arose before the date or on the same date upon which the company credit arose,—
the company credit is, to the extent of that debit, credited to the dividend withholding payment account of the consolidated group, and that credit to the group's dividend withholding payment account is, for the purposes of section MG 15(1)(i), deemed to have been cancelled out by that debit notwithstanding section MG 5.
(3) Where at any time all or part of any credit in a company's dividend withholding payment account is credited to the dividend withholding payment account of a consolidated group, an amount equal to the credit so arising arises as a debit at that time to be recorded under section MG 5 in the company's dividend withholding payment account.
(4) Where under subsection (2) credits in the individual dividend withholding payment accounts of 2 or more members of a consolidated group would, but for this subsection, be required to be credited to the group's dividend withholding payment account, those credits must be credited—
- (a) in the order in which those credits arose, determined by applying the procedure set out in section MG 5(4)(c); and
- (b) if 2 or more credits arose at the same time,—
  - (i) in the order elected by the consolidated group; or
  - (ii) if no such election is made, on a pro rata basis,—
so far as the relevant debit to the group's dividend withholding payment account extends and no further.
(5) Where and to the extent that at any time—
- (a) a debit would, but for this subsection, arise in the individual dividend withholding payment account of a company which is at that time a member of a consolidated group; and
- (b) the arising of that debit would result in or increase a debit balance in the individual dividend withholding payment account of the company,—
that debit does not arise to the company's dividend withholding payment account but is debited to the consolidated group's dividend withholding payment account.
(6) Where at any time—
- (a) a company has paid any further dividend withholding payment under section MG 9 in respect of a debit balance in its individual dividend withholding payment account; and
- (b) the company is entitled under section MG 9(5) to credit that further dividend withholding payment in payment of any dividend withholding payment for which the company becomes liable at or after that time; and
- (c) the company is at that time a member of a consolidated group,— the further dividend withholding payment may be credited in payment of any dividend withholding payment payable at or after that time by any company which is at that time a member of the consolidated group and, to the extent so credited, is not available to be credited under section MG 9(5).
Compare: 1994 No 164 s MG 16

MG 16A Application of specific dividend withholding provisions to consolidated groups

(1) Section MG 8 applies with any necessary modifications to a consolidated group—
- (a) as if the consolidated group were a company; and
- (b) for the purpose of section MG 8(2) to (4), without taking into account any dividend that is paid by a member of the consolidated group to another member of the consolidated group.
(1B) Section MG 8B applies with any necessary modifications to a consolidated group that has a policyholder credit account—
- (a) as if the consolidated group were a company; and
- (b) as if a reference to section MG 7 were a reference to section NH 6(2); and
- (c) without taking into account any dividend that is paid by a member of the consolidated group to another member of the consolidated group.
(2) Section MG 9 and sections 103, 104, 139B, 140C, 140D and 181 of the Tax Administration Act 1994 apply, with any necessary modifications, to a consolidated group and its dividend withholding payment account as if—
- (a) the consolidated group were a single company; and
- (b) each reference to a provision of this Act were a reference to the equivalent provision that applies to consolidated groups; and
- (c) each reference to the liability of a company for further dividend withholding payment, late payment penalty, or dividend withholding payment penalty tax were, subject to the application of section HB 1(2) to (5), a reference to a joint and several liability of each company which is a member of the group at the time the liability becomes payable.
(3) Sections GC 22 and MG 12 apply, with any necessary modifications, to the dividend withholding payment account of a consolidated group, as if—
- (a) the consolidated group were a single company; and
- (b) each reference to a provision of this Act were a reference to the equivalent provision that applies to the accounts of a consolidated group.
Compare: 1994 No 164 s MG 16A

Subsection (1) was substituted, as from 1 October 2005, by section 246 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subsection (1B) was inserted, as from 1 October 2005, by section 246 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Amalgamated companies

MG 17 Debits and credits arising to dividend withholding payment account of amalgamated company on amalgamation

(1) Where any amalgamating company ceases to exist upon a qualifying amalgamation,—
- (a) if, immediately before the amalgamation, a credit or debit exists, determined by applying the procedure set out in sections GC 27 and MG 5(4), in the amalgamating company's dividend withholding payment account, the credit or debit is treated with effect from the time of the amalgamation as a credit or debit in the dividend withholding payment account of the amalgamated company (or, if the amalgamated company does not have a dividend withholding payment account, in its imputation credit account) and not as a credit or debit in the dividend withholding payment account of the amalgamating company but applying section MG 5(1)(i) as if, with respect to all times prior to the amalgamation, the amalgamated company did not separately exist and was instead the amalgamating company with the same holders of shares and options over shares as the amalgamating company each holding the same number and class of shares and options over shares as they held in the amalgamating company; and
- (b) any credit or debit (not being a debit arising under section MG 5(1)(i)) would have arisen, but for the amalgamation, to be recorded in the dividend withholding payment account of the amalgamating company on a date after the amalgamation, the credit or debit instead arises to be recorded in the dividend withholding payment account of the amalgamated company (or, if the amalgamated company does not have a dividend withholding payment account, its imputation credit account).
(2) Where a consolidated group ceases to exist on a qualifying amalgamation which involves all members of the consolidated group amalgamating (whether or not also amalgamating with any company outside the group),—
- (a) if, immediately before the amalgamation, a credit or debit exists, determined by applying the procedure set out in sections GC 27 and MG 5(4), in the consolidated group's dividend withholding payment account, the credit or debit is treated with effect from the time of the amalgamation as a credit or debit in the dividend withholding payment account of the amalgamated company (or, if the amalgamated company does not have a dividend withholding payment account, in its imputation credit account) and not as a credit or debit in the dividend withholding payment account of the consolidated group but applying section MG 5(1)(i) as if, with respect to all times prior to the amalgamation, the amalgamated company did not separately exist and was instead the consolidated group with the same holders of shares and options over shares as the consolidated group each holding the same number and class of shares and options over shares as they held in the consolidated group; and
- (b) any credit or debit (not being a debit arising under section MG 15(1)(i)) would have arisen, but for the amalgamation, to be recorded in the dividend withholding payment account of the consolidated group on a date after the amalgamation, the credit or debit instead arises to be recorded in the dividend withholding payment account of the amalgamated company (or, if the amalgamated company does not have a dividend withholding payment account, its imputation credit account).
Compare: 1994 No 164 s MG 17

Subpart MH—Payment of tax by public authorities

MH 1 Payment of tax by public authorities

All money payable as income tax or any other tax or amount under this Act by any public authority is payable without further appropriation than this section.

Compare: 1994 No 164 s MH 1

Subpart MI—Conduit tax relief accounts

MI 1 Balance of conduit tax relief account

MI 2 Company may elect to be conduit tax relief company and maintain conduit tax relief account

MI 3 Conduit tax relief account

MI 4 Credits arising to conduit tax relief account

MI 5 Debits arising to conduit tax relief account

MI 6 End of imputation year clearing transfer to or from dividend withholding payment account

MI 7 Attachment of conduit tax relief credit to dividend

MI 8 Allocation rules for conduit tax relief credits

MI 9 Arrangement to obtain tax advantage

MI 10 Dividend withholding payment payable in respect of conduit tax relief account debits

MI 11 Refund of tax in respect of transfer from dividend withholding payment account

MI 12 Correction by Commissioner of credits and debits

MI 13 Debits and credits arising to conduit tax relief account of amalgamated company on amalgamation

MI 14 Consolidated group to maintain separate conduit tax relief account

MI 15 Consolidated group conduit tax relief account

MI 16 Consolidated group member is conduit tax relief company

MI 17 Credits arising to group conduit tax relief account

MI 18 Debits arising to group conduit tax relief account

MI 19 Debiting and crediting between group and individual conduit tax relief accounts

MI 20 End of imputation year clearing transfer to or from dividend withholding payment account

MI 21 Dividend with-holding payment payable in respect of group conduit tax relief account debits

MI 22 Application of specific conduit tax relief account provisions to consolidated groups

MI 1 Balance of conduit tax relief account

(1) The balance of a conduit tax relief account is the difference between the aggregate amounts of credits and debits existing in the account.
(2) The account has—
- (a) a credit balance if credits exceed debits:
- (b) a debit balance if debits exceed credits.
Compare: 1994 No 164 s MI 1

MI 2 Company may elect to be conduit tax relief company and maintain conduit tax relief account

(1) A dividend withholding payment account company may elect to be a conduit tax relief company for an imputation year.

(2) The company must notify the Commissioner of its election by the date the company must furnish its return of income for the tax year corresponding with the imputation year.

(3) An election is effective from the date it is notified to the Commissioner for the purposes of sections LG 1(1), MG 6, MI 7, MZ 4, and NH 7, but otherwise from the start of the imputation year.

(4) The company must maintain a conduit tax relief account from the beginning of the imputation year and for every subsequent imputation year until revocation under subsection (5) takes effect.

(5) The company may revoke its election.

(5A) A revocation of an election is effective from the beginning of the imputation year immediately succeeding the imputation year in which the revocation is made.
(6) Revocation is of no effect unless the company—
- (a) furnishes the annual imputation return required for the imputation year in which the revocation election was made within the time limit in section 69 of the Tax Administration Act 1994; and
- (b) has paid any dividend withholding payment payable in respect of that cessation under section MI 10(3).
(6A) A company is treated as having revoked its election if it elects to cease to be a dividend withholding payment account company under section MG 2(4).

(7) A company that revokes its election must maintain the account until the end of the imputation year in which the revocation is made.
(8) A company that ceases to be a dividend withholding payment account company as a result of section MG 2(6)—
- (a) ceases to be a conduit tax relief company; and
- (b) must furnish, within the time limit in section 69 of the Tax Administration Act 1994, the annual imputation return required from the company for the imputation year in which the company becomes a non-resident; and
- (c) must pay any dividend withholding payment that may be payable under section MI 10(3) by the company as a dividend withholding payment account company for the imputation year.
Compare: 1994 No 164 s MI 2

Subsection (8) was inserted, as from 3 April 2006, by section 157(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the 2005–06 imputation year.

MI 3 Conduit tax relief account

(1) For each imputation year, a company must record the following in its conduit tax relief account:
- (a) the opening balance calculated under subsection (2):
- (b) credits arising under section MI 4:
- (c) debits arising under section MI 5.
(2) The opening balance of the account is,—
- (a) for the first imputation year the company is a conduit tax relief company, nil; and
- (b) for subsequent imputation years, the closing balance of the account at the end of the preceding imputation year.
Compare: 1994 No 164 s MI 3

MI 4 Credits arising to conduit tax relief account

(1) In an imputation year, a company's conduit tax relief account must be credited by the following amounts:
- (a) an income tax rebate allowed to the company under section KH 1:
- (b) a dividend withholding payment reduction allowed to the company under section NH 7 for a dividend paid to the company during the imputation year:
- (c) a conduit tax relief credit attached to a dividend derived by the company:
- (d) the amount of a debit arising under section MI 5(1)(d), to the extent it is subsequently established that the relevant conduit tax relief credit was not part of an arrangement to obtain a tax advantage:
- (e) a credit transferred from the company's dividend withholding payment account under section MI 6(1).
(2) The credits arise at the following times:
- (a) in the case of an income tax rebate credit,—
  - (i) on the last day of the imputation year that corresponds to the tax year, to the extent of the amount calculated under the following formula:
    where—
    
    PROV is the amount debited on the last day of the imputation year under section ME 5(2)(l)(i)
    
    XFER is the total amount to be transferred from the imputation credit account to the dividend withholding payment account under section ME 5(1)(o)
    
    CTR is the amount of income tax rebate to be credited under subsection (1)(a); and
  - (ii) to the extent that subparagraph (i) does not apply, on the date the company files the return of income for the tax year:
- (b) in the case of a dividend withholding payment reduction credit, on the date the company is required to pay the Commissioner the dividend withholding payment reduced by section NH 7:
- (c) in the case of a credit for a conduit tax relief credit attached to a dividend, on the date the dividend is paid:
- (d) in the case of the subsequent correction credit, on the date the relevant debit arose under section MI 5(1)(d):
- (e) in the case of a transferred credit, immediately before the end of the imputation year.
Compare: 1994 No 164 s MI 4

MI 5 Debits arising to conduit tax relief account

(1) In an imputation year, a company's conduit tax relief account must be debited by the following amounts:
- (a) a conduit tax relief credit attached to a dividend paid by the company during the imputation year:
- (b) the amount of conduit tax relief adjustment calculated under section FH 8(5):
- (c) an allocation deficit debit arising under section MG 8, as applied by section MI 8:
- (d) a debit arising to the account under section GC 22, as applied by section MI 9:
- (e) a credit in the account at any time (that is not previously cancelled by a debit) if, since the time the credit arose, there has been an increase of 34 or more percentage points in the percentage of the company's shareholders who are resident in New Zealand, as measured under subsection (3):
- (f) a credit in the account at any time (that is not previously cancelled by a debit) if and to the extent that—
  - (i) the credit arose under section MI 4(1)(a) or (b); and
  - (ii) the credit would not have arisen but for sections OE 7 and OE 8(3)(b) applying to deem a conduit tax relief group member to be a non-resident; and
  - (iii) the conduit tax relief group member ceases to be a conduit tax relief group member because section OE 7(3)(c) is no longer satisfied:
- (g) a credit in the account at any time (that is not previously cancelled by a debit) if—
  - (i) the company is a conduit tax relief group member in respect of another conduit tax relief company; and
  - (ii) the credit arose under section MI 4(1)(c) when the company received a dividend with a conduit tax relief credit attached from the other conduit tax relief company; and
  - (iii) the company ceases at that time to be a conduit tax relief group member because section OE 7(3)(c) is no longer satisfied:
- (h) the credit balance (if any) of the account if the company ceases to be a conduit tax relief company during the imputation year:
- (i) a credit transferred from the account to the company's dividend withholding payment account under section MI 6(2):
- (j) the amount of a credit transferred to the conduit tax relief account of a consolidated group under section MI 19.
(2) The debits referred to in subsection (1) arise at the following times:
- (a) in the case of a dividend attachment debit, on the date the dividend is paid:
- (b) in the case of a conduit tax relief adjustment, on the date on which the income tax return for the tax year for which the adjustment is made is filed:
- (c) in the case of an allocation deficit debit, at the end of the imputation year in which the debit arises:
- (d) in the case of a tax advantage arrangement debit, at the end of the imputation year in which the arrangement commenced:
- (e) in the case of a resident shareholder percentage debit, at the time the 34 percentage point change threshold is first reached:
- (f) in the case of the chain break debits referred to in subsection (1)(f) and (g), at the time the group relationship ceases:
- (g) in the case of a termination debit, immediately before the company ceases to be a conduit tax relief company:
- (h) in the case of a credit transfer debit, immediately before the end of the imputation year:
- (i) in the case of a debit for an amount transferred to the conduit tax relief account of a consolidated group under section MI 19, on the date of transfer.
(3) The percentage of shareholders of a conduit tax relief company who are resident in New Zealand at the time is the highest of—
- (a) the percentage of direct voting interests held in the company by residents; and
- (b) the percentage of direct market value interests held in the company (if a direct market value circumstance exists) by residents; and
- (c) the percentage of total dividends payable by a company (if the shares in the company are not all shares of the same class) that would be derived by residents, if the company were liquidated at the relevant time.
(4) Subsection (1)(e) does not apply to the extent that the increase in shareholders resident in New Zealand is solely because section OE 7(1)(c) is not satisfied.
(5) For the purposes of subsection (1)(e), (f), and (g), in determining whether a credit has been cancelled out by a subsequent debit,—
- (a) section MI 3(2)(b) does not apply; and
- (b) an amount of debit can only cancel out a credit once; and
- (c) a debit is offset against credits in the order in which the credits arise.
(6) A debit arises under subsection (1)(e) if it would have arisen but for an arrangement that affects the shares in the company, if a purpose or effect of the arrangement is to defeat the intent and application of subsection (1)(e).

(7) The rules for determining residence in sections OE 7 and OE 8 apply for the purposes of subsections (1)(f) and (2).

Compare: 1994 No 164 s MI 5

MI 6 End of imputation year clearing transfer to or from dividend withholding payment account

(1) If, immediately before the end of the imputation year and before a transfer is made under this subsection (but after any transfer from the imputation credit account is credited under section ME 5(2)(l)(i) and any amount is credited to the conduit tax relief account under section MI 4(2)(a)(i)), a conduit tax relief company's dividend withholding payment account is in credit and its conduit tax relief account is in debit, the company must transfer from the dividend withholding payment account to the conduit tax relief account the lesser of the 2 balances.

(2) If, immediately before the end of the imputation year and before a transfer is made under this subsection (but after any transfer from the imputation credit account is credited under section ME 5(2)(l)(i) and any amount is credited to the conduit tax relief account under section MI 4(2)(a)(i)), a conduit tax relief company's dividend withholding payment account is in debit and its conduit tax relief account is in credit, the company must transfer from the conduit tax relief account to the dividend withholding payment account the lesser of the 2 balances.

Compare: 1994 No 164 s MI 6

MI 7 Attachment of conduit tax relief credit to dividend

(1) A conduit tax relief company may attach a conduit tax relief credit to a dividend when it pays the dividend to a non-resident.

(2) The rules for determining residence in sections OE 7 and OE 8 apply for the purposes of subsection (1).

Compare: 1994 No 164 s MI 7

MI 8 Allocation rules for conduit tax relief credits

(1) Sections MG 8 and MG 10 and the definitions of dividend withholding payment ratio and combined imputation and dividend withholding payment ratio apply as if a conduit tax relief credit were a dividend withholding payment credit.

(2) To the extent that an allocation deficit debit arises under section MG 8 only as a result of subsection (1), the allocation deficit debit is debited to the conduit tax relief account and not the dividend withholding payment account.

Compare: 1994 No 164 s MI 8

MI 9 Arrangement to obtain tax advantage

(1) Section GC 22 and the definitions of dividend withholding payment ratio and combined imputation and dividend withholding payment ratio apply as if a conduit tax relief credit were a dividend withholding payment credit.

(2) To the extent that a further debit arises under section GC 22 only as a result of subsection (1), the further debit is debited to the conduit tax relief account and not the dividend withholding payment account.

Compare: 1994 No 164 s MI 9

MI 10 Dividend withholding payment payable in respect of conduit tax relief account debits

(1) If a debit arises to a company's conduit tax relief account under section MI 5(1)(c), (d), or (e), the company must pay, to the Commissioner, an amount of dividend withholding payment equal to that debit within 20 days of the end of the quarter in which the debit arises.

(2) The amount of dividend withholding payment does not give rise to a credit in the company's dividend withholding payment credit account.

(3) If a debit arises to a company's conduit tax relief account under section MI 5(1)(f), (g), or (h), the company must pay the Commissioner an amount of dividend withholding payment equal to that debit within 20 days of the end of the quarter in which the debit arises.

(4) If a credit balance is transferred from a company's conduit tax relief account to its dividend withholding payment account under section MI 6(2), the company must pay the Commissioner an amount of dividend withholding payment equal to the amount transferred by 20 June after the imputation year for which the transfer is made.

(5) Subject to this section and section 103A of the Tax Administration Act 1994, this Act and the Tax Administration Act 1994 (other than the dividend withholding payment rules), so far as they are applicable and with any necessary modifications, apply with respect to any dividend withholding payment for which a company is liable under this section as if it were income tax.

Compare: 1994 No 164 s MI 10

The heading to section MI 10 was amended, as from 3 April 2006, by section 158(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “Dividend” for “Further dividend” with application as from the 2005–06 imputation year.

Subsection (1) was amended, as from 3 April 2006, by section 158(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “an amount” for “a further amount” with application as from the 2005–06 imputation year.

Subsection (2) was amended, as from 3 April 2006, by section 158(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “amount” for “further amount” with application as from the 2005–06 imputation year.

MI 11 Refund of tax in respect of transfer from dividend withholding payment account

(1) If a credit balance is transferred to a company's conduit tax relief account from its dividend withholding payment account under section MI 6(1), the company is entitled to a refund equal to the amount of the transfer.

(2) The Commissioner must pay the refund to the company or apply the refund to satisfy an obligation of the company at that time to pay an amount to the Commissioner.

Compare: 1994 No 164 s MI 11

Credits and debits incorrectly recorded

MI 12 Correction by Commissioner of credits and debits

(1) If the Commissioner considers that a credit or a debit in a company's conduit tax relief account is incorrectly recorded or determines that a debit or a credit has not been recorded at all, the Commissioner must determine the correct debit or credit amount and the date on which the debit or credit should be recorded.

(2) As soon as is convenient after a determination is made, the Commissioner must give notice of the determination of incorrect entry to the company.

(3) Unless the company establishes, in proceedings challenging the determination, that the Commissioner is wrong, the account must be corrected accordingly.

(4) The notice may be included in a notice of assessment under section 111(1) of the Tax Administration Act 1994.

(5) Failure to give notice does not invalidate the Commissioner's determination.

Compare: 1994 No 164 s MI 12

MI 13 Debits and credits arising to conduit tax relief account of amalgamated company on amalgamation

(1) This section applies if an amalgamating company ceases to exist upon a qualifying amalgamation.

(2) If, as a result of applying the procedure under section MI 5(5) and (6), there exists immediately before the amalgamation a credit or a debit in an amalgamating company's conduit tax relief account, the credit or debit must be treated from the commencement of the amalgamation as a credit or debit in the conduit tax relief account of the amalgamated company.

(3) If the amalgamated company has no conduit tax relief account, the credit or debit referred to in subsection (2) must be treated as a credit or debit in the amalgamated company's imputation credit account.

(4) Section MI 5(1)(e) applies to an amalgamated company as if, at all times prior to the amalgamation, the amalgamated company did not separately exist and was instead the amalgamating company with the same holders of shares and options over shares as the amalgamating company and with each holding the same number and class of shares and options over shares as they held in the amalgamating company.

(5) If a credit or debit (not being a debit arising under section MI 5(1)(e)) would have arisen and, but for the amalgamation, been recorded in the conduit tax credit account of the amalgamating company on a date after the date of amalgamation, the credit or debit must be recorded in the conduit tax relief account of the amalgamated company.

(6) If the amalgamated company referred to in subsection (5) has no conduit tax relief account, the debit must instead be recorded in that company's imputation credit account.
(7) If an amalgamated company does not have a conduit tax relief account after a qualifying amalgamation, and a credit is transferred to the imputation account of the amalgamated company under either of subsection (3) or (6),—
- (a) the amalgamated company must within 20 days of the end of the quarter in which the amalgamation occurs pay an amount of dividend withholding payment equal to the amount of the credit transferred; and
- (b) a payment required to be made under paragraph (a) does not give rise to a credit in the imputation credit account or the dividend withholding payment account of the amalgamated company.
Compare: 1994 No 164 s MI 13

Consolidated groups

MI 14 Consolidated group to maintain separate conduit tax relief account

(1) A consolidated group must maintain a group conduit tax relief account for an imputation year if a company which is a member of the consolidated group is a conduit tax relief company at any time during the imputation year.

(2) A group conduit tax relief account is a separate account from the conduit tax relief account of each company which is a member of the consolidated group.

Compare: 1994 No 164 s MI 14

MI 15 Consolidated group conduit tax relief account

The opening balance of a consolidated group's conduit tax relief account is,—
- (a) for the first imputation year the consolidated group maintains a group conduit tax relief account, nil; and
- (b) for subsequent tax years, the closing balance of the account at the end of the preceding imputation year.
Compare: 1994 No 164 s MI 15

MI 16 Consolidated group member is conduit tax relief company

A company is a conduit tax relief company, whether or not it has so elected under section MI 2, if it is a member of a consolidated group that is required to maintain a group conduit tax relief account for an imputation year.

Compare: 1994 No 164 s MI 16

MI 17 Credits arising to group conduit tax relief account

(1) In an imputation year, a consolidated group's conduit tax relief account must be credited by the following amounts:
- (a) an income tax rebate allowed to the consolidated group under section KH 1:
- (b) a dividend withholding payment reduction allowed under section NH 7 for a dividend paid during the imputation year to a company that is a member of the consolidated group at the time of the reduction:
- (c) a conduit tax relief credit attached to a dividend derived by a company that is a member of the consolidated group at the time it derives the dividend:
- (d) the amount of a debit that previously arose under section MI 18(1)(d), to the extent it is subsequently established that the relevant conduit tax relief credit was not part of an arrangement to obtain a tax advantage:
- (e) the amount transferred from a company's dividend withholding payment account under section MI 19:
- (f) a credit transferred from the group's dividend withholding payment account under section MI 20(1).
(2) The credits arise at the following times:
- (a) in the case of an income tax rebate credit,—
  - (i) on the last day of the imputation year that corresponds to the tax year, to the extent of the amount calculated using the formula—
    where—
    
    PROV is the amount debited on the last day of the imputation year under section ME 12(2)(l)(i)
    
    XFER is the total amount to be transferred from the imputation credit account to the dividend withholding payment account under section ME 12(1)(n)
    
    CTR is the amount of income tax rebate to be credited under subsection (1)(a); and
  - (ii) to the extent that subparagraph (i) does not apply, on the date the company files its return of income for the tax year:
- (b) in the case of a dividend withholding payment reduction credit, on the date the company is required to pay the Commissioner the dividend withholding payment reduced by section NH 7:
- (c) in the case of a credit for a conduit tax relief credit attached to a dividend, on the date the dividend is paid:
- (d) in the case of a credit under section MI 17(1)(d), on the date the relevant debit arose under section MI 18(1)(d):
- (e) in the case of a credit transferred under section MI 19, on the date the credit was transferred:
- (f) in the case of a credit transferred under section MI 20(1), immediately before the end of the imputation year.
Compare: 1994 No 164 s MI 17

MI 18 Debits arising to group conduit tax relief account

(1) In an imputation year, a consolidated group's conduit tax relief account must be debited by the following amounts:
- (a) a conduit tax relief credit attached to a dividend paid during the imputation year by a company that is a member of the consolidated group at the time of payment:
- (b) the amount of conduit tax relief adjustment calculated under section FH 8(5) for a company that is a member of the consolidated group on the last day of the tax year for which the adjustment arises:
- (c) an allocation deficit debit arising under section MG 8, as applied by section MI 8, for a company that is a member of the consolidated group at the time the relevant dividend is paid:
- (d) a debit arising to the account under section GC 22, as applied by section MI 9:
- (e) a credit in the group account at any time (that has not previously been cancelled by a debit) if, since the time that credit arose, there has been an increase of 34 or more percentage points in the percentage of the group's shareholders who are resident in New Zealand, as measured by applying section MI 5(3) to the group as if the group were a conduit tax relief company:
- (f) the credit balance (if any) of the account if the consolidated group stops being required to maintain a group conduit tax relief account:
- (g) a credit transferred from the account to the company's dividend withholding payment account under section MI 20(2).
(2) The debits arise at the following times:
- (a) in the case of a dividend attachment debit, on the date the dividend is paid:
- (b) in the case of a conduit tax relief adjustment, on the date on which the income tax return for the tax year for which the adjustment is made is filed:
- (c) in the case of an allocation deficit debit, at the end of the imputation year in which the debit arises:
- (d) in the case of a tax advantage arrangement debit, at the end of the imputation year in which the arrangement commenced:
- (e) in the case of a resident shareholder percentage debit, on the date that the 34 percentage point change threshold is first reached:
- (f) in the case of a termination debit, immediately before the consolidated group stops being required to maintain a conduit tax relief account:
- (g) in the case of a credit transfer debit, immediately before the end of the imputation year.
(3) For the purposes of subsection (1)(e), in determining whether a credit has been cancelled by a subsequent debit,—
- (a) section MI 15 does not apply; and
- (b) a credit arising under section MI 17(1)(e) is treated as arising on the date on which the corresponding credit arose in the conduit tax relief account of the group member; and
- (c) an amount of debit can cancel out a credit only once; and
- (d) a debit is offset against credits in the order in which the credits arise.
(4) A debit arises under subsection (1)(e) if it would have arisen but for an arrangement that affects the shares of a company in the consolidated group, if a purpose or effect of the arrangement is to defeat the intent and application of subsection (1)(e).

Compare: 1994 No 164 s MI 18

MI 19 Debiting and crediting between group and individual conduit tax relief accounts

(1) A credit does not arise to an individual company's conduit tax relief account if a credit arises to a consolidated group's conduit tax relief account for—
- (a) an amount of conduit tax relief arising under section KH 1 or NH 7; or
- (b) a conduit tax relief credit attached to a dividend derived.
(2) A debit does not arise to an individual company's conduit tax relief account if a debit arises to a consolidated group's conduit tax relief account for—
- (a) the amount of conduit tax relief credit attached to a dividend paid; or
- (b) the amount of any conduit tax relief credit or tax credit refunded; or
- (c) any amount of conduit tax relief adjustment calculated under section FH 8(5); or
- (d) any allocation debit arising under section MG 8, as applied by section MI 8.
(3) Subject to subsection (5), if a company has a credit in its individual conduit tax relief account (referred to as the company credit) and is a member of a consolidated group at that time, the credit must be transferred to the consolidated group's conduit tax relief account to the extent that—
- (a) a debit arises under section MI 18 to be recorded in the consolidated group's conduit tax relief account at that time; and
- (b) that debit is not offset, determined by applying section MI 5(5), against a credit in the consolidated group's conduit tax relief account which arose on or before the same date on which the company credit arose; and
- (c) the credit does not exceed the consolidated group's debit.
(4) If credit amounts in the individual conduit tax relief accounts of 2 or more members of a consolidated group would, but for this subsection, be required to be transferred to the group's conduit tax relief account under subsection (3), those amounts must be transferred to the group account and must be credited—
- (a) so far as the relevant debit to the group's conduit tax relief account extends and no further; and
- (b) in the order in which those credits arose, determined by applying section MI 5(5); and
- (c) if 2 or more credits arose at the same time,—
  - (i) in the order elected by the consolidated group; or
  - (ii) if no such election is made, on a pro rata basis.
(5) A debit does not arise to a company's conduit tax relief account but does arise to a consolidated group's conduit tax relief account to the extent that—
- (a) a debit would, but for this subsection, arise in the individual conduit tax relief account of a company that is a member of a consolidated group at the time the debit arises; and
- (b) the arising of the debit would result in or increase the debit balance in the individual company's conduit tax relief account.
Compare: 1994 No 164 s MI 19

MI 20 End of imputation year clearing transfer to or from dividend withholding payment account

(1) If, immediately before the end of the imputation year and before a transfer is made under this subsection, but after a transfer from the imputation credit account is credited under section ME 12(2)(l)(i) and an amount is credited to the conduit tax relief account under section MI 17(2)(a)(i), a consolidated group's dividend withholding payment account is in credit and its group conduit tax relief account is in debit, the consolidated group must—
- (a) apply section MI 19(3) as if the debit balance were the debit referred to in section MI 19(3)(b); and
- (b) to the extent that the debit balance is not eliminated under paragraph (a), transfer from the dividend withholding payment account to the conduit tax relief account the lesser of—
  - (i) the credit balance in the dividend withholding payment account; and
  - (ii) the debit balance remaining in the conduit tax relief account after paragraph (a) has been applied.
(2) If, immediately before the end of the imputation year and before a transfer is made under this subsection, but after a transfer from the imputation credit account is credited under section ME 12(2)(l)(i) and an amount is credited to the conduit tax relief account under section MI 17(2)(a)(i), a consolidated group's dividend withholding payment account is in debit and its group conduit tax relief account is in credit, the consolidated group must transfer from the conduit tax relief account to the dividend withholding payment account the lesser of the 2 balances.

Compare: 1994 No 164 s MI 20

MI 21 Dividend with-holding payment payable in respect of group conduit tax relief account debits

(1) If a debit arises to a consolidated group's conduit tax relief account under section MI 18(1)(c), (d), or (e), the group must pay to the Commissioner an amount of dividend withholding payment equal to the debit not later than 20 days after the end of the quarter in which the debit arises.

(2) The amount of dividend withholding payment does not give rise to a credit in the group's dividend withholding payment credit account.

(3) If a debit arises to a consolidated group's conduit tax relief account under section MI 18(1)(f), the group must pay to the Commissioner an amount of dividend withholding payment equal to the debit not later than 20 days after the end of the quarter in which the debit arises.

(4) If a credit balance is transferred from a consolidated group's conduit tax relief account to its dividend withholding payment account under section MI 20(2), the consolidated group must pay to the Commissioner an amount of dividend withholding payment equal to the amount transferred by 20 June after the imputation year in which the transfer is made.

(5) Subject to section 103A of the Tax Administration Act 1994, this Act and the Tax Administration Act 1994, other than the dividend withholding payment rules, so far as they are applicable and with any necessary modifications, apply to a dividend withholding payment for which a consolidated group is liable under this section as if it were income tax.

Compare: 1994 No 164 s MI 21

The heading to section MI 21 was substituted, as from 3 April 2006, by section 159(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the 2005–06 imputation year.

Subsection (1) was amended, as from 3 April 2006, by section 159(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “an amount” for “a further amount” with application as from the 2005–06 imputation year.

Subsection (2) was amended, as from 3 April 2006, by section 159(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “amount” for “further amount” with application as from the 2005–06 imputation year.

MI 22 Application of specific conduit tax relief account provisions to consolidated groups

(1) Section MG 8, as applied by section MI 8, applies with any necessary modifications to a consolidated group as if it were a single company, but, for the purposes of section MG 8(2) to (4), dividends paid by 1 member of the consolidated group to another member of the consolidated group are not taken into account.
(2) Section MI 10(5) and section 103A of the Tax Administration Act 1994 apply, with any necessary modifications, to a consolidated group as if—
- (a) it were a single company; and
- (b) each reference to a provision of this Act were a reference to the equivalent provision that applies to consolidated groups.
(3) Section GC 22, as applied by section MI 9, applies with any necessary modifications to the accounts of a consolidated group, as if—
- (a) the consolidated group were a single company; and
- (b) references to provisions of this Act were references to the equivalent provisions that apply to equivalent accounts.
(4) If a credit balance is transferred to a consolidated group's conduit tax relief account from its dividend withholding payment account under section MI 20(1)(b),—
- (a) the consolidated group is entitled to a refund of the amount of the transfer; and
- (b) the Commissioner must pay the refund to the consolidated group or apply the refund to satisfy an obligation of the consolidated group to pay an amount to the Commissioner at that time.
Compare: 1994 No 164 s MI 22

Subpart MJ—Supplementary available subscribed capital accounts

MJ 1 Qualifying unit trust or group investment fund may elect to maintain supplementary available subscribed capital account

MJ 2 Balance of supplementary available subscribed capital account

MJ 3 Supplementary available subscribed capital account

MJ 4 Supplementary available subscribed capital account: opening balance

MJ 5 Credits arising to supplementary available subscribed capital account

MJ 6 Debits arising to supplementary available subscribed capital account

Liquidation of qualifying unit trust or group investment fund

MJ 7 Special rule for certain qualifying unit trusts and group investment funds

MJ 8 Correction by Commissioner of credits and debits

MJ 1 Qualifying unit trust or group investment fund may elect to maintain supplementary available subscribed capital account

(1) If a qualifying unit trust or a group investment fund that derives category A income is not a portfolio tax rate entity and issues shares on terms that their redemption will be subject to section CD 14(4), the qualifying unit trust or group investment fund may establish and maintain a supplementary available subscribed capital account on and after the date that the Taxation (Relief, Refunds and Miscellaneous Provisions) Act 2002 receives the Royal assent. In this subpart, the date on which a qualifying unit trust or a group investment fund establishes a supplementary available subscribed capital account is called the start date.

(2) Despite subsection (1), if section MJ 4(1) applies, and a qualifying unit trust or group investment fund makes an actual calculation for a period before an effective date or a notional calculation as at an effective date that is within the period, the start date is the day after the effective date of the calculation.

Compare: 1994 No 164 s MJ 1

Section MJ 1(1): amended, on 1 October 2007, by section 134 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

MJ 2 Balance of supplementary available subscribed capital account

(1) The balance of a supplementary available subscribed capital account is the difference between the total amount of credits and the total amount of debits existing in the account.

(2) The account has a credit balance if credits are more than debits.

Compare: 1994 No 164 s MJ 2

MJ 3 Supplementary available subscribed capital account

(1) For each imputation year, a qualifying unit trust or a group investment fund must record the following in its supplementary available subscribed capital account:
- (a) the opening balance:
- (b) credits arising under section MJ 5 in the year:
- (c) debits arising under section MJ 6 in the year.
(2) The opening balance of the account is—
- (a) for the first imputation year in which the start date falls, nil; and
- (b) for subsequent imputation years, the closing balance of the account for the prior imputation year.
Compare: 1994 No 164 s MJ 3

MJ 4 Supplementary available subscribed capital account: opening balance

(1) This section applies to a qualifying unit trust or a group investment fund that exists at any time between the date that the Taxation (Relief, Refunds and Miscellaneous Provisions) Act 2002 receives the Royal assent and 30 September 2003 (both dates inclusive).
(2) Despite section MJ 3(2), for the 2002-03 imputation year, a qualifying unit trust or a group investment fund may calculate the opening balance of its supplementary available subscribed capital account according to either—
- (a) an actual calculation of the total excess for any redemptions, being, for each redemption, the amount by which the available subscribed capital, as calculated under section CD 14(4), was more than the proceeds, calculated under sections CD 3 to CD 5 from the redemption, if the redemption occurred during the period beginning on the date on which the qualifying unit trust or group investment fund became an imputation credit account company and ending on the day before the start date; or
- (b) a notional calculation according to the formula—
  where—
  
  further income tax on liquidation is the further income tax that would be payable under section ME 9 if the qualifying unit trust or group investment fund were liquidated on the day before the start date, and it had paid all tax (including foreign dividend withholding payments) and imputed all dividends (including redemption dividends) at the maximum rate allowed
  
  tax not available to impute dividends is the amount of further income tax to be paid that arises due to the structural features of the taxation and imputation systems described in subsection (4)
  
  maximum imputation ratio is the ratio calculated using the formula set out in section ME 8(1), as if the words “in which the dividend is paid” in item “a” were read as “in which the start date occurs”.
(3) In subsection (2)(b), tax must be calculated under the item further income tax on liquidation based on an orderly realisation of assets in the ordinary course of business.
(4) For the purpose of subsection (2)(b), the structural features of the taxation and imputation systems that would not allow a company that does not issue shares on terms subject to section CD 14(4) to fully impute a distribution made on the liquidation of the company include, for example, the tax effects of—
- (a) non-taxable gains and losses, including exempt income but excluding dividends subject to section NH 1; and
- (b) imputation credits lost because of a breach in the continuity provisions; and
- (c) foreign tax credits; and
- (d) retained earnings generated before the qualifying unit trust or group investment fund established an imputation credit account.
Compare: 1994 No 164 s MJ 4

MJ 5 Credits arising to supplementary available subscribed capital account

(1) In an imputation year, a qualifying unit trust's, or a group investment fund's, supplementary available subscribed capital account may be credited with the amount by which the available subscribed capital, as calculated under section CD 14(4), is more than the proceeds, calculated under sections CD 3 to CD 5, from the redemption of shares in the qualifying unit trust or group investment fund.

(2) The credit arises on the date that the shares are redeemed.

(3) This section only applies to credits that arise in respect of redemptions that occur on or after the start date.

Compare: 1994 No 164 s MJ 5

MJ 6 Debits arising to supplementary available subscribed capital account

(1) A qualifying unit trust or a group investment fund that has a credit balance in its supplementary available subscribed capital account at any time in the imputation year may elect to use all or part of the balance for the purpose of recording credits in its imputation credit account to satisfy a debit balance in that account.

(2) A qualifying unit trust or a group investment fund that has a credit balance in its supplementary available subscribed capital account may, immediately before it ceases to be an imputation credit account company, elect to use all or part of the balance for the purpose of recording credits in its imputation credit account to satisfy a debit balance in that account.
(3) An election is made by—
- (a) debiting the available subscribed capital account with the amount of the credit balance so elected; and
- (b) crediting the imputation credit account with the amount allowed by section ME 4(1)(da).
(4) The debit arises—
- (a) on the date on which an election is made under subsection (1):
- (b) immediately before the qualifying unit trust or group investment fund ceases to be an imputation credit account company if an election is made under subsection (2).
Compare: 1994 No 164 s MJ 6

Liquidation of qualifying unit trust or group investment fund

MJ 7 Special rule for certain qualifying unit trusts and group investment funds

(1) If a qualifying unit trust or a group investment fund is liquidated and has never established a supplementary available subscribed capital account, the qualifying unit trust or the group investment fund may, upon liquidation, establish a supplementary available subscribed capital account and calculate an opening balance in accordance with section MJ 4(2).

(2) If subsection (1) applies, section MJ 3 does not apply and the opening balance is treated as the closing balance of the account.

Compare: 1994 No 164 s MJ 7

Credits and debits incorrectly recorded

MJ 8 Correction by Commissioner of credits and debits

(1) If the Commissioner considers that a credit or a debit in a qualifying unit trust's, or group investment fund's, supplementary available subscribed capital account is incorrectly recorded or determines that a debit or a credit has not been recorded at all, the Commissioner must determine the correct debit or credit amount and the date on which the debit or credit should be recorded.

(2) As soon as is convenient after a determination is made, the Commissioner must give notice of the determination of incorrect entry to the qualifying unit trust or group investment fund.

(3) Unless the qualifying unit trust or group investment fund establishes in proceedings challenging the determination that the Commissioner is wrong, the account must be corrected accordingly.

(4) The notice may be included in a notice of assessment under section 111(1) of the Tax Administration Act 1994.

(5) Failure to give notice does not invalidate the Commissioner's determination.

Compare: 1994 No 164 s MJ 8

Subpart MK—Maori authority credit accounts

MK 1 Maori authority to maintain Maori authority credit account

MK 2 Balance of Maori authority credit account

MK 3 Maori authority credit account

MK 4 Credits arising to Maori authority credit account

MK 5 Debits arising to Maori authority credit account

MK 6 Maori authority may attach Maori authority credit to distribution

MK 7 Allocation rules for Maori authority credit account credits

MK 8 Further tax payable for end of year debit balance or when Maori authority ceases to exist

MK 9 Correction by Commissioner of credits and debits

MK 1 Maori authority to maintain Maori authority credit account

(1) A Maori authority must establish and maintain a Maori authority credit account for each imputation year, and period within an imputation year, for which the Maori authority is not governed by subsection (2).
(2) A Maori authority must not establish and maintain a Maori authority credit account for an imputation year, or a period within an imputation year, if, during the whole of the imputation year or period, the Maori authority is—
- (a) a Maori authority whose constitution or rules prohibit it from making a distribution of any kind to a member of the Maori authority; or
- (b) a Maori authority that derives only exempt income, not being exempt income under section CW 10.
Compare: 1994 No 164 s MK 1

MK 2 Balance of Maori authority credit account

(1) The balance of a Maori authority credit account is the difference between the total amounts of credits and debits existing in the account.
(2) The account has—
- (a) a credit balance if credits exceed debits:
- (b) a debit balance if debits exceed credits.
Compare: 1994 No 164 s MK 2

MK 3 Maori authority credit account

(1) For each imputation year, a Maori authority must record the following in its Maori authority credit account:
- (a) the opening balance calculated under subsection (2):
- (b) credits arising under section MK 4:
- (c) debits arising under section MK 5.
(2) The opening balance of the account is—
- (a) for the first imputation year in which the Maori authority establishes the account, nil:
- (b) for subsequent imputation years, the closing balance of the account at the end of the preceding imputation year.
Compare: 1994 No 164 s MK 3

MK 4 Credits arising to Maori authority credit account

(1) In an imputation year, a Maori authority must record the following amounts as credits in its Maori authority credit account:
- (a) the amount of any income tax paid by the Maori authority during the imputation year to meet a provisional tax obligation under the provisional tax rules or to satisfy an income tax liability under sections BC 9 and BC 10, other than—
  - (i) income tax paid for income tax payable in respect of the 2003-04 or an earlier income year:
  - (ii) in the case of a Maori authority that becomes a Maori authority during the imputation year, income tax paid to the extent that the income tax is not more than the amount that would have been the Maori authority's income tax liability for the income year, if the income year ended on the day immediately preceding the day on which the Maori authority became a Maori authority:
  - (iii) income tax paid by way of crediting under section LB 2(2):
  - (iv) income tax that is paid by way of a crediting of further income tax under section MK 8(5):
- (b) the amount of any tax deemed to be paid by the Maori authority to another Maori authority under section MB 33(5)(b):
- (c) the amount of further income tax paid by the Maori authority during the imputation year under section MK 8:
- (d) the amount of a Maori authority credit attached to a distribution that is made to the Maori authority during the imputation year:
- (e) the amount of an imputation credit attached to a dividend that is paid to the Maori authority during the imputation year:
- (f) the amount of any dividend withholding payment credit attached to a dividend paid to the Maori authority during the imputation year at a time when the Maori authority is not a dividend withholding payment account company:
- (g) an amount equal to any amount of a debit arising to the Maori authority credit account under section MK 5(1)(h) (which relates to debits arising in respect of Maori authority credits determined to have been the subject of an arrangement to obtain a tax advantage), to the extent that it is subsequently established that the relevant Maori authority credit should not have been determined to be the subject of such an arrangement:
- (h) the amount of a resident withholding tax deduction deemed, under section NF 12(b), to have been derived by the Maori authority during the imputation year.
(2) The credits referred to in subsection (1) arise at the following times:
- (a) in the case of the credits referred to in subsection (1)(a), (b), and (c), on the date the relevant tax is paid:
- (b) in the case of a credit referred to in subsection (1)(d), on the date the relevant distribution is made:
- (c) in the case of a credit referred to in subsection (1)(e) and (f), on the date the relevant dividend is paid:
- (d) in the case of a credit referred to in subsection (1)(g), on the date that the relevant debit arose under section MK 5(2)(h):
- (e) in the case of a credit referred to in subsection (1)(h), on the date that the resident withholding tax is deducted from the resident withholding income.
Compare: 1994 No 164 s MK 4

Section MK 4(1)(b): amended, on 1 October 2007, by section 160(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MK 5 Debits arising to Maori authority credit account

(1) In an imputation year, a Maori authority must record the following amounts as debits in its Maori authority credit account:
- (a) the amount of a Maori authority credit attached to a distribution made by the Maori authority during the imputation year:
- (b) the amount of any provisional tax allocated by the Maori authority under section MB 33(5)(b) to another Maori authority that is an underpaid company (as referred to in that section):
- (c) the amount of a refund of income tax paid to the Maori authority during the imputation year, except to the extent that—
  - (i) the refund is for income tax paid in respect of the 2003-04 or an earlier income year; or
  - (ii) the refund is for income tax paid that was applied in satisfaction of an income tax liability for an income year—
    - (A) during which the Maori authority did not maintain a Maori authority credit account; or
    - (B) during only part of which the Maori authority maintained a Maori authority credit account, in which case the debit to the account is the amount calculated according to the formula—
      
      where—
      
      days is the number of days in the year during which the Maori authority maintained a Maori authority credit account
      
      refund is the amount of the refund:
- (d) the amount of an allocation debit arising in respect of the imputation year under section MK 7(4):
- (e) the amount of any refund of dividend withholding payment paid to the Maori authority during the imputation year at a time when the Maori authority is not a dividend withholding payment account company:
- (f) in the case of a Maori authority that is a company, the amount of a particular credit in the Maori authority's Maori authority credit account at any time, in this paragraph referred to as the specified time, not being a credit which has before the specified time been cancelled out by a prior or subsequent debit, unless there is a group of persons—
  - (i) whose total minimum voting interests in the Maori authority in the period from the date on which the credit arose until the specified time is 66% or more; and
  - (ii) in any case where at any time during that period a market value circumstance exists in respect of the Maori authority, whose total minimum market value interests in the Maori authority in the period is 66% or more:
- (g) the amount of a refund of income tax paid to the Maori authority during the imputation year except to the extent that the refund is not more than the debit arising under paragraph (f):
- (h) the amount of any further debit arising to the Maori authority credit account under section GC 27A in relation to a Maori authority credit determined to be the subject of an arrangement to obtain a tax advantage:
- (i) the amount of credit balance in the Maori authority credit account if, during the imputation year, the Maori authority ceases to be a Maori authority:
- (j) the amount of any overpaid income tax that the Commissioner applies towards the satisfaction of an amount (other than an income tax liability or an instalment of provisional tax) that is due under any provision of this Act or any other of the Inland Revenue Acts, except to the extent that the amount applied—
  - (i) is in respect of income tax paid for the 2003-04 or an earlier income year; and
  - (ii) is in respect of income tax paid before the date that a debit arises under paragraph (f); and
  - (iii) is not more than the amount of the debit that arises on that date.
(2) The debits referred to in subsection (1) arise at the following times:
- (a) in the case of a debit referred to in subsection (1)(a), on the date the distribution is made:
- (b) in the case of a debit referred to in subsection (1)(b), on the date that the Maori authority gives the Commissioner notice in writing of the allocation of tax under section MB 33(4):
- (c) in the case of a debit referred to in subsection (1)(c), (e), or (g), on the date the refund is paid:
- (d) in the case of a debit referred to in subsection (1)(d), at the end of the imputation year in respect of which the allocation debit arises:
- (f) in the case of a debit referred to in subsection (1)(f), at the specified time referred to in that subsection:
- (g) in the case of a debit referred to in subsection (1)(h), at the end of the imputation year in respect of which it is determined under section GC 27A that the arrangement to obtain a tax advantage occurred or commenced:
- (h) in the case of a debit referred to in subsection (1)(i), immediately before the Maori authority ceases to be a Maori authority:
- (i) in the case of a debit referred to in subsection (1)(j), on the date that the Commissioner applies the amount of overpaid income tax in satisfaction of the amount that is referred to in those paragraphs as due and payable.
(3) Subject to the express provisions of this Act, subsection (1)(f) is intended to limit the circumstances in which a taxpayer, being a Maori authority, may carry forward a credit for use if the tax benefit arising from its use is obtained or available to be obtained (directly or indirectly), at least to the extent of 66%, only by the same natural persons holding (directly or indirectly) rights in relation to the Maori authority who—
- (a) by virtue of holding, directly or indirectly, such rights, bore the tax liability giving rise to the credit; or
- (b) held, directly or indirectly, such rights at the time of the event giving rise to the credit.
(4) For the purposes of subsection (1)(f),—
- (a) in respect of any period referred to in that paragraph, the minimum voting interest or market value interest that a person holds in the Maori authority in the period is equal to the lowest voting interest or market value interest (as the case may be) that the person holds in the Maori authority during the period; and
- (b) section MK 3(2)(b) does not apply and a credit in the Maori authority's Maori authority credit account is treated as continuing to exist until treated as being cancelled out by a prior or subsequent debit in accordance with paragraph (c); and
- (c) in determining whether any credit in the Maori authority's Maori authority credit account has been cancelled out by a prior or subsequent debit,—
  - (i) any amount of debit may be taken into account only once for the purpose of ascertaining whether any credit has been so cancelled out; and
  - (ii) the amount of any debit is offset against the amount of any credit in the order in which the credits arise.
Compare: 1994 No 164 s MK 5

Section MK 5(1)(b): amended, on 1 October 2007, by section 161(1)(a) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Section MK 5(2)(b): amended, on 1 October 2007, by section 161(1)(b) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MK 6 Maori authority may attach Maori authority credit to distribution

(1) A Maori authority may attach a Maori authority credit to a taxable Maori authority distribution.
(2) A Maori authority that is a co-operative company may attach a Maori authority credit to a notional distribution as if, for the purposes of sections ME 35 to ME 39,—
- (a) a Maori authority credit were an imputation credit; and
- (b) a Maori authority credit account were an imputation credit account.
(3) A Maori authority may retrospectively attach a Maori authority credit to a taxable Maori authority distribution as if, for the purposes of section ME 6,—
- (a) a Maori authority credit were an imputation credit; and
- (b) a Maori authority credit account were an imputation credit account.
Compare: 1994 No 164 s MK 6

MK 7 Allocation rules for Maori authority credit account credits

(1) A Maori authority may not attach a Maori authority credit to a taxable Maori authority distribution to the extent that the distribution's base ratio is more than the following ratio:
where—
- tax rate is the basic rate of income tax for Maori authorities, expressed as a percentage, stated in schedule 1, part A, clause 2 and applying for the income year that is concurrent with the imputation year in which the distribution is made.
(2) If a Maori authority makes a benchmark distribution in an imputation year, the Maori authority must, unless it makes a ratio change declaration in accordance with subsection (4), ensure that the base ratio of every subsequent distribution it makes during the imputation year is the same as the base ratio of the benchmark distribution.

(3) A benchmark distribution with a base ratio of more than the ratio specified in subsection (1) is treated as having a base ratio equal to the ratio so specified.
(4) The base ratio of a subsequent taxable Maori authority distribution by the Maori authority may differ from that of a benchmark distribution if—
- (a) the Maori authority declares, in a ratio change declaration in the prescribed form, that the subsequent distribution is not being made as part of an arrangement to obtain a tax advantage, and provides such further information as may be prescribed; and
- (b) the ratio change declaration is delivered to the Commissioner before the date the subsequent distribution is made, or before such later date as the Commissioner may allow in any case or class of cases; and
- (c) the subsequent distribution is not paid as part of an arrangement to obtain a tax advantage.
(5)

distributions is the total of all taxable Maori authority distributions made by the Maori authority during the imputation year, exclusive of any Maori authority credit attached to the distributions

If the base ratio of a subsequent taxable Maori authority distribution by the Maori authority differs from the base ratio of a benchmark distribution in contravention of subsection (2), an allocation debit arises for the purposes of section MK 5 and is calculated according to the formula—
(distributions x ratio) — credits

where—
- distributions is the total of all taxable Maori authority distributions made by the Maori authority during the imputation year, exclusive of any Maori authority credit attached to the distributions
- credits is the total of all Maori authority credits attached to distributions made by the Maori authority during the imputation year.
Compare: 1994 No 164 s MK 7

Subsection (5) distributions (where it appears after “where—”) was substituted, as from 1 October 2005, by section 247 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

MK 8 Further tax payable for end of year debit balance or when Maori authority ceases to exist

(1) If there is a debit balance in a Maori authority's Maori authority credit account at the end of an imputation year, and the Maori authority is not liable to pay further income tax under subsection (3), then the Maori authority is liable to pay to the Commissioner an amount of tax by way of further income tax of an amount equal to the debit balance.

(2) A Maori authority must pay further income tax for which it is liable under subsection (1) no later than the 20 June following the end of the imputation year in which there was the debit balance.

(3) If there is a debit balance in a Maori authority's Maori authority credit account immediately before the Maori authority stops being a Maori authority, then the Maori authority is liable to pay to the Commissioner an amount of tax by way of further income tax of an amount equal to the debit balance.

(4) A Maori authority must pay any further income tax to which it is liable under subsection (3) no later than the last day on which it is still a Maori authority.

(5) A Maori authority that pays an amount of further income tax for which the authority is liable may elect, with effect from the date on which the Commissioner receives the payment, that the amount paid be also credited in payment of a liability of the authority to pay income tax or provisional tax in relation to an income year that corresponds to an imputation year in which the authority was required to establish and maintain a Maori authority credit account.

(5B) A Maori authority that pays an amount of income tax in relation to an income year in which the authority was required to establish and maintain a Maori authority credit account and that is liable to pay further income tax in relation to an imputation year may elect, with effect from the date on which the Commissioner receives the payment, that the amount of the payment of tax be also credited in payment of the liability of the authority to pay the further income tax.

(6) Subject to this section, and section 101 of the Tax Administration Act 1994, the other provisions of this Act and of the Tax Administration Act 1994 (other than the Maori authority rules), so far as they are applicable and with any necessary modifications, apply with respect to any further income tax for which a Maori authority is chargeable under this section as if it were income tax.

Compare: 1994 No 164 s MK 8

Subsection (5) was substituted, as from 1 October 2005, by section 248 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subsection (5B) was inserted, as from 1 October 2005, by section 248 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Credits and debits incorrectly recorded

MK 9 Correction by Commissioner of credits and debits

(1) If the Commissioner considers that a credit or a debit in a Maori authority's Maori authority credit account is incorrectly recorded or determines that a credit or a debit has not been recorded at all, the Commissioner must determine the correct credit or debit amount and the date on which the credit or debit should be recorded.

(2) As soon as is convenient after a determination is made, the Commissioner must give notice of the determination of incorrect entry to the Maori authority.

(3) Unless the Maori authority establishes, in proceedings challenging the determination, that the Commissioner is wrong, the account must be corrected accordingly.

(4) The notice may be included in a notice of assessment under section 111(1) of the Tax Administration Act 1994.

(5) Failure to give notice does not invalidate the Commissioner's determination.

Compare: 1994 No 164 s MK 9

Subpart MZ—Terminating provisions

MZ 1 Savings for certain credits arising in relation to overpayment of income tax or dividend withholding payment

(1) Where and to the extent that—
- (a) a windfall credit has been recorded in the imputation credit account or dividend withholding payment account of a company or a consolidated group before 17 August 1995; and
- (b) that windfall credit has been—
  - (i) offset by a debit in accordance with section MZ 2; or
  - (ii) with the approval of the Commissioner, treated as having been simultaneously offset by a debit before 17 August 1995,—
then that credit is not denied to the company or consolidated group by reason of the enactment of section 38 of the Income Tax Act 1994 Amendment Act (No 4) 1995.
(2) No debit arises to a company's or consolidated group's imputation credit account or dividend withholding payment account under any of sections ME 5(1)(l) to (n), ME 12(1)(l) and (m), MG 5(1)(k), and MG 15(1)(l) to the extent that—
- (a) the amount of income tax or dividend withholding payment that is referred to in those provisions as being applied by the Commissioner has, before 17 August 1995, given rise to a credit to that imputation credit account or dividend withholding payment account of the company or group; and
- (b) that credit has been offset before that date by a debit.
(3) In this section, windfall credit means any credit arising to a company's or consolidated group's imputation credit account or dividend withholding payment account by reason of the Commissioner crediting an amount of overpaid income tax or overpaid dividend withholding payment towards payment by the company or, as the case may be, the consolidated group or a member of the consolidated group of income tax or dividend withholding payment respectively.

Compare: 1994 No 164 s MZ 1

MZ 2 Ordering rule for purposes of section MZ 1

For the purpose of determining under section MZ 1 whether, and if so to what extent, a credit has been offset by a debit,—
- (a) a calculation is made of the credits and debits that would arise in the relevant imputation credit account or dividend withholding payment account as if that account were maintained in accordance with (as the case may require) section ME 3 or ME 10 or MG 3 or MG 13 subject to the following modifications:
  - (i) the account is to be treated as maintained as a single account for the period from its establishment until 17 August 1995, and not as a separate account for each imputation year; and
  - (ii) sections ME 3(2)(b), ME 10(2)(b), MG 3(2)(b), and MG 13(3)(b) do not apply; and
  - (iii) sections ME 5(1)(l) to (n), ME 12(1)(l) and (m), MG 5(1)(k), and MG 15(1)(l) apply as if the relevant amendments or inserting of those provisions enacted by the Income Tax Act 1994 Amendment Act (No 4) 1995 had not come into force before 17 August 1995; and
- (b) the amount of any credits is offset successively (in the order in which those credits arise) against the amounts recorded as debits (in the order in which those debits arise).
Compare: 1994 No 164 s MZ 2

MZ 3 Transfers of dividend withholding payment credit balance to imputation credit account

(1) If—
- (a) a credit in a company's imputation credit account arises from an election under section MG 11 made by a company before 17 August 1995; and
- (b) the corresponding debit to the company's dividend withholding payment account is attributable in accordance with section MG 11 to a credit which—
  - (i) in accordance with the law that was in force before the enactment of the Income Tax Act 1994 Amendment Act (No 4) 1995, was recorded in the company's dividend withholding payment account before 17 August 1995; and
  - (ii) was a credit arising by virtue of—
    - (A) the crediting towards dividend withholding payment of an amount of overpaid dividend withholding payment; or
    - (B) an amount of overpaid dividend withholding payment that was applied by the Commissioner in satisfaction of an amount (other than a dividend withholding payment) that was due and payable under any provision of this Act or any other of the Inland Revenue Acts,—
then, for the purpose of determining the extent of relief available to a company under section MZ 1, the credit to the company's imputation credit account is deemed to be a credit which qualifies for the relief provided by section MZ 1.
(2) Subsection (1) applies with any necessary modifications to all or any part of the credit balance in the dividend withholding payment account of a consolidated group which, in accordance with section NH 6(6), the nominated company for the group elects to be a credit in the group's imputation credit account.

Compare: 1994 No 164 s MZ 3

MZ 4 Attachment of dividend withholding payment credits to dividends to non-residents

(1) Notwithstanding section MG 6(2), but otherwise subject to this Act, a conduit tax relief company may attach a dividend withholding payment credit to a dividend derived by a non-resident to the extent allowed under this section.

(2) The rules for determining residence in sections OE 7 and OE 8 apply for the purposes of subsection (1).

(3) The dividend must be paid before 1 April 2001.
(4) The credit attached to the dividend, when aggregated with all dividend withholding payment credits attached under subsection (1) to dividends previously paid or paid at the same time, must not exceed the greater of—
- (a) nil; and
- (b) the amount calculated as follows:
  NRS x (DWPA balance + March DWP)
  
  where—
  
  NRS is the percentage of the company's shareholders not resident in New Zealand, as calculated under section NH 7(2) as if that section applied to a dividend received on 31 March 1998
  
  DWPA balance is the balance of the company's dividend withholding payment account at the end of the 1997-98 imputation year
  
  March DWP is the amount of the credit that arises under section MG 4(1)(a) after 31 March 1998 on account of dividends paid to the company in the quarter ended 31 March 1998.
Compare: 1994 No 164 s MZ 4

MZ 5 Application of excess tax to nil period

(1) To the extent that tax paid in excess by or on behalf of a taxpayer is refundable and, before it is applied under this section, has not been applied to satisfy a tax liability or other amount due, the Commissioner must apply all or part of the excess to a nil period if—
- (a) before 21 April 2001,—
  - (i) the taxpayer or their agent requested, in writing, that the Commissioner apply all or part of the excess to the nil period; or
  - (ii) the Commissioner, by notice, declined the taxpayer's or their agent's request to apply all or part of the excess to the nil period; or
  - (iii) the Commissioner provided the taxpayer to whom the tax was applied with a notice or a statement of account that reflected the application of all or part of the excess to the nil period, irrespective of whether the application of the excess is subsequently reversed; and
- (b) on or after 24 October 2001, the taxpayer identifies themselves, or the taxpayer's agent identifies the taxpayer, to the Commissioner as being a person to whom this section applies.
(2) To the extent that tax paid in excess by or on behalf of a taxpayer is refundable and, before it is applied under this section, has not been applied to satisfy a tax liability or other amount due, the Commissioner must apply all or part of the excess to a nil period if, on or after 21 February 2001,—
- (a) an assessment is made of a previous tax year's tax liability that gives rise to the excess; and
- (b) the taxpayer or their agent requests that the Commissioner apply all or a part of the excess to the nil period.
(3) The Commissioner must apply all or part of an excess to a date in a nil period that occurs after the date the excess tax is paid.
(4) In this section,—

nil period means a period in which a taxpayer does not have an outstanding liability for unpaid tax
tax includes a credit allowed to a taxpayer under Part L—
- (a) for withholding tax or provisional tax; and
- (b) in respect of a dividend withholding payment, if the taxpayer is entitled to a refund of that credit under Part L.
Compare: 1994 No 164 s MZ 5

MZ 6 Application of excess tax for 2001-02 tax year

(1) To the extent that tax for the 2001-02 tax year is paid in excess by or on behalf of a taxpayer and, before it is applied under this section, has not been applied to satisfy a tax liability or other amount due, the Commissioner must apply all or part of the excess to a nil period if the taxpayer or their agent requests that the Commissioner apply all or a part of the excess to the nil period.

(2) The Commissioner must apply all or part of an excess to a date in a nil period that occurs after the date the excess tax is paid.
(3) In this section,—

nil period means a period in which a taxpayer does not have an outstanding liability for unpaid tax
tax includes a credit allowed to a taxpayer under Part L—
- (a) for withholding tax or provisional tax; and
- (b) in respect of a dividend withholding payment, if the taxpayer is entitled to a refund of that credit under Part L.
Compare: 1994 No 164 s MZ 6

MZ 7 Application of allocation debit rules to certain dividends

[Repealed]

Compare: 1994 No 164 s MZ 7

Section MZ 7 was repealed, as from 1 October 2005, by section 249 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

MZ 8 Certain elections to become provisional taxpayer

(1) This section applies if a taxpayer has a non-standard income year and has, between 10 October 2000 and the date on which the Taxation (Relief, Refunds and Miscellaneous Provisions) Act 2002 received the Royal assent, filed a return of income for the 1998-99 or a later income year on the basis that section MB 3(a) applied (being section MB 2A(1)(a)(i) as it was before the enactment of section 50(1) of the Taxation (Relief, Refunds and Miscellaneous Provisions) Act 2002).

(2) The taxpayer may elect to be a provisional taxpayer for the income year for which the return was filed if the taxpayer has paid provisional tax of more than $2,500 on or before the date of instalment F for the non-standard income year that corresponds to the tax year for which the return was filed.

Section MZ 8: added, on 1 October 2007, by section 162(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MZ 9 Amount of provisional tax based on 199798 or earlier tax year

For the purposes of sections MB 4 and MB 5 (other than section MB 5(3) and (4)), and for a taxpayer who is a New Zealand superannuitant for the 1997–98 tax year, the taxpayer's residual income tax for that tax year or for an earlier tax year is the amount that would have been the taxpayer's residual income tax if the taxpayer
- (a) had not been liable to pay the New Zealand superannuitant surcharge; and
- (b) had not paid any New Zealand superannuitant surcharge by way of surcharge deduction.
Section MZ 9: added, on 1 October 2007, by section 163(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

MZ 10 Calculating provisional tax instalments: section MB 4

(1) This section applies, for a person's 2008–09 and 2009–10 income years, when the person is a new tax rate person for that year.
(2) For the purposes of the standard method, and for the purpose of a provisional taxpayer calculating the amount of provisional tax under section MB 4(3),—
- (a) for the 2008–09 income year,—
  - (i) 105% is treated as 95% in section MB 4(3)(a):
  - (ii) 110% is treated as 100% in section MB 4(3)(b):
- (b) for the 2009–10 income year, 110% is treated as 100% in section MB 4(3)(b).
Section MZ 10: added, on 1 October 2007, by section 47(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

MZ 11 Calculating provisional tax instalments: sections MB 7 and MB 10

(1) This section applies, for a person's 2008–09 and 2009–10 income years when—
- (a) the person is a new tax rate person for that year; and
- (b) in section MB 7, residual income tax amounts or income tax assessment amounts (the income tax amounts) are required for determining base amounts or otherwise for calculating the GST ratio; and
- (c) the income tax amounts are for the 2007–08 or earlier income years.
(2) For the purposes of a provisional taxpayer calculating the amount of an instalment under section MB 10, the income tax amounts in section MB 7 are treated as reduced by multiplying them by 0.9.

Section MZ 11: added, on 1 October 2007, by section 47(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

MZ 12 Calculating provisional tax instalments: section MB 9

(1) This section applies, for a person's 2008–09 and 2009–10 income years, when the person is a new tax rate person for that year.
(2) For the purposes of a provisional taxpayer calculating the amount of an instalment under section MB 9(2),—
- (a) for the 2008–09 income year,—
  - (i) section MB 9(3)(a)(i) is treated as requiring a 5% reduction of the taxpayer's residual income tax for the preceding tax year, not a 5% uplift:
  - (ii) section MB 9(3)(a)(ii) is treated as requiring the taxpayer's residual income tax for the tax year immediately before the preceding tax year, not a 10% uplift:
- (b) for the 2009–10 income year, section MB 9(3)(a)(ii) is treated as requiring the taxpayer's residual income tax for the tax year immediately before the preceding tax year, not a 10% uplift.
Section MZ 12: added, on 1 October 2007, by section 47(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Part N
Withholding taxes and taxes on income of others

Subpart NB—General

NB 1 Withholding tax obligations of consolidated group members

Subpart NBA—PAYE intermediaries

NBA 1 Purpose

NBA 2 Accreditation requirements of PAYE intermediaries

NBA 3 Approval by Commissioner of employer arrangements with PAYE intermediary

NBA 4 Employer having PAYE intermediary: responsibilities and status under PAYE rules and SSCWT rules

NBA 5 PAYE intermediary: responsibilities and status under PAYE rules and SSCWT rules

NBA 6 Operation of trust account

NBA 7 Refund by Commissioner of deductions

NBA 8 Termination of employer arrangements with PAYE intermediary

Subpart NBB—Subsidy payable to certain listed PAYE intermediaries

NBB 1 Purpose

NBB 2 Accreditation of listed PAYE intermediary

NBB 3 Obligations of listed PAYE intermediaries

NBB 4 Revocation of listing

NBB 5 Listed PAYE intermediary claim form

NBB 6 Calculation and payment of subsidy to certain listed PAYE intermediaries

NBB 7 Termination of employer arrangements with listed PAYE intermediary

Subpart NC—Withholding of PAYE

Tax deductions

NC 1 Application of PAYE rules

NC 2 Tax deductions to be made by employers or PAYE intermediaries

NC 3 Tax deductions from amounts credited to or applied for employees

NC 4 Benefits and superannuation and other payments deemed to be salary or wages

NC 5 Payment to be made by employee where tax deduction exceeds source deduction payment

Amounts of tax deductions

NC 6 Amounts of tax deductions

Reduced deductions

NC 7 Delivery of withholding declaration

NC 8 Application of tax codes specified in tax code declarations or tax code certificates

NC 8A Entitlement to undertake employment

NC 9 Cessation of transitional tax allowance for purposes of tax code

NC 10 Amount of total tax deduction where several deductions made for 1 week

NC 11 Increased deductions to cover deficiency in deductions from advance payments

NC 12 Amount of tax deductions for pay period current when tax deductions altered

NC 12A Employee using incorrect tax code

NC 13 Power of Commissioner to reduce tax deductions

NC 14 Special tax code certificates

Duties of employer or PAYE intermediary as to deductions

NC 15 Payment of tax deductions to Commissioner

Employee's duties where deductions not made

NC 16 Employee to pay deductions to Commissioner

NC 18 Bond in lieu of tax deductions in case of certain non-resident employees

NC 19 Amount of tax deductions deemed to be received by employee

NC 20 Application of other provisions to amounts payable under PAYE rules

NC 21 Regulations

Subpart ND—Fringe benefit tax

ND 1 Employer's liability for fringe benefit tax

Value of fringe benefits

ND 1A Private use of motor vehicle: value of benefit

ND 1AB Private use of motor vehicle: 24-hour period

ND 1B Private use of motor vehicle: test period to establish private use

ND 1C Subsidised transport: value of benefit

ND 1D Employment-related loans: value of benefit using prescribed interest

ND 1DB Employment-related loans: election to value benefit using market interest

ND 1E Employment-related loans: repayment

ND 1F Employment-related loans: regulations

ND 1G Meaning of prescribed interest

ND 1H Contributions to superannuation schemes: value of benefit

ND 1I Contributions to funds, trusts, and insurance: value of benefit

ND 1IB Benefits provided by charitable organisations

ND 1J Goods: value of benefit

ND 1K Services: value of benefit

ND 1L When value of fringe benefit cannot be ascertained

ND 1M Meaning of identical goods

ND 1N Goods at staff discount

ND 1O Goods on special with staff discount

ND 1P Definitions for sections ND 1N and ND 1O

ND 1Q Unclassified benefits

ND 1R Adjustments for unclassified benefits on amalgamation

Taxable value of fringe benefits

ND 1S Payments towards fringe benefits

ND 1T Private use of motor vehicle: determining taxable value in cases of part ownership

ND 1U Private use of motor vehicle: when schedular value not used

ND 1V Private use of motor vehicle: when schedular value used

Payment of fringe benefit tax

ND 1W Application

ND 2 Election to pay fringe benefit tax per quarter

ND 3 Attributed fringe benefits

ND 4 Attributed fringe benefits: exception for subsidised transport

ND 5 Multi-rate calculation for attributed fringe benefits

ND 5A Special rule for fringe benefits attributed to shareholder-employees or employees receiving attributed income

ND 6 Calculation of fringe benefit tax on non-attributed fringe benefits

ND 7 Definition of cash remuneration

ND 7A Timing of certain cash remuneration

ND 8 Special rule for employer who stops employing staff during tax year

ND 8B Special rule for employer who is charitable organisation providing short-term charge facility

ND 9 Payment of fringe benefit tax: first 3 quarters of tax year

ND 10 Payment of fringe benefit tax: final quarter of tax year

ND 11 Payment of fringe benefit tax: no fringe benefit provided during quarter

ND 12 Special filing rule for employer who stops employing staff during tax year

ND 13 Payment of fringe benefit tax on annual basis for employees who are not shareholder-employees

ND 14 Payment of fringe benefit tax on income year basis for shareholder-employees

ND 15 Change in period for which fringe benefit tax payable

ND 16 Amendment to thresholds for fringe benefit categories by Order in Council

Subpart NE—Specified superannuation contribution withholding tax

NE 1 Application

NE 2 Specified superannuation contribution withholding tax imposed

NE 2AA Employee election that higher rate of specified superannuation contribution withholding tax apply [Repealed]

NE 2AB Employer election that progressive rates of specified superannuation contribution withholding tax apply [Repealed]

NE 2A Employee election that specified superannuation contributions be treated as salary or wages

NE 2B Employer election that progressive rates of specified superannuation contribution withholding tax apply

NE 3 Specified superannuation contribution withholding tax to be deducted

NE 3B Calculation amounts in relation to current specified superannuation contribution for complying superannuation fund

NE 4 Period for payment

NE 5 Failure to deduct tax

NE 6 Tax deemed for certain purposes to have been received by superannuation fund

NE 7 Application of other provisions to specified superannuation contribution withholding tax

Subpart NEA—Tax on certain withdrawals from superannuation funds

NEA 1 Recovery of tax paid by superannuation fund

Subpart NF—Resident withholding tax

NF 1 Application of RWT rules

Liability to pay resident withholding tax

NF 2 Liability to pay resident withholding tax

NF 2AA Election to be RWT proxy

NF 2A Election to apply higher rate of deduction

NF 2B Companies to notify interest payer

NF 2C Transitional rule: notifications by companies between 1 April 2001 and 31 May 2001 (both dates inclusive)

NF 2D Election rates of deduction for companies

NF 3 Requirements for agents or trustees to make resident withholding tax deductions on receipt of payments

Payment of resident withholding tax

NF 4 Payment of deductions of resident withholding tax to Commissioner

NF 5 Non-resident withholding tax deducted in substitution for resident withholding tax

NF 6 Resident withholding tax deductions varied to correct errors

NF 7 Refunds of deductions

NF 8 Resident withholding tax deductions from dividends deemed to be dividend withholding payment credits

NF 8A Resident withholding tax deductions from distributions treated as Maori authority credits

NF 8B Resident withholding tax deductions from replacement payments treated as imputation credits

NF 9 Certificates of exemption

NF 10 Unincorporated bodies

NF 11 Cancellation of certificates of exemption

NF 12 Amount of resident withholding tax deduction deemed to have been received

NF 13 Application of other provisions in relation to resident withholding tax

Subpart NG—Non-resident withholding tax

General

NG 1 Application of NRWT rules

NG 2 Non-resident withholding tax imposed

NG 3 Non-resident withholding tax to be final tax in certain cases

NG 4 Non-resident withholding tax to be minimum tax in certain cases

NG 5 Persons who may apply for approval

NG 6 Approval of person as approved issuer

NG 7 Revocation of approval

Deduction of non-resident withholding tax

NG 8 Deduction of non-resident withholding tax

NG 9 Non-resident withholding tax on dividends not paid in money

NG 10 Power of Commissioner to grant relief from or vary amount of deductions

Payment of non-resident withholding tax

NG 11 Payment of deductions of non-resident withholding tax to Commissioner

NG 12 Person deriving non-resident withholding income to pay non-resident withholding tax to Commissioner

NG 13 Failure to make deductions of non-resident withholding tax or to make payments to Commissioner

NG 14 Non-resident withholding tax on dividends paid to company under control of non-resident

NG 15 Deductions of non-resident withholding tax deemed to be received by person entitled to payment

NG 16 Non-resident withholding tax deducted in error

NG 16A Variation in non-resident withholding tax deductions to correct errors

NG 17 Application of other provisions to non-resident withholding tax

Subpart NH—Dividend withholding payments

NH 1 Liability to make deduction in respect of foreign withholding payment dividend

NH 2 Amount of dividend withholding payment to be deducted

NH 3 Payment and recovery of dividend withholding payment

NH 4 Refund for overpayment and to company in loss

NH 5 Dividend withholding payments and consolidated groups

NH 6 Application of specific dividend withholding payment provisions to consolidated groups

Conduit tax relief

NH 7 Reduction in liability under conduit tax relief

Subpart NZ—Terminating provisions

NZ 1 Adjustment of dividends payable to preference shareholders

Subpart NB—General

NB 1 Withholding tax obligations of consolidated group members

Notwithstanding any provision of the consolidation rules, each company which is at any time a member of a consolidated group is, individually and not jointly with other members of that consolidated group, liable to comply with that company's obligations under the FBT rules, the NRWT rules, the PAYE rules, the RWT rules, and the SSCWT rules.

Compare: 1994 No 164 s NB 1

Subpart NBA—PAYE intermediaries

NBA 1 Purpose

NBA 2 Accreditation requirements of PAYE intermediaries

NBA 3 Approval by Commissioner of employer arrangements with PAYE intermediary

NBA 4 Employer having PAYE intermediary: responsibilities and status under PAYE rules and SSCWT rules

NBA 5 PAYE intermediary: responsibilities and status under PAYE rules and SSCWT rules

NBA 6 Operation of trust account

NBA 7 Refund by Commissioner of deductions

NBA 8 Termination of employer arrangements with PAYE intermediary

NBA 1 Purpose

The purpose of this subpart is to—
- (a) allow an employer to enter into an arrangement with a person to transfer their PAYE and SSCWT obligations to the person; and
- (b) allow persons, accredited by the Commissioner, to make payments and tax deductions in accordance with the PAYE rules and SSCWT rules on behalf of an employer, and to file returns relating to those payments and tax deductions on behalf of the employer.
Compare: 1994 No 164 s NBB 1

NBA 2 Accreditation requirements of PAYE intermediaries

(1) A person (in this section called the applicant) may apply to the Commissioner to be accredited as a PAYE intermediary for employers by giving notice that—
- (a) the applicant has established a trust account that complies with the requirements of section NBA 6 and will operate the account as required by that section; and
- (b) the applicant has administration and information technology systems that satisfy section NBA 5(3) and will maintain and operate those systems as required by that section; and
- (c) the applicant, if a natural person or corporation sole, or each member of the applicant, if the applicant is an unincorporated body, or each of the persons acting as a director, secretary or statutory officer of the applicant, if the applicant is a body corporate, and any principal of the applicant,—
  - (i) is not a discharged or undischarged bankrupt; and
  - (ii) has not been convicted of an offence involving fraud; and
  - (iii) is eligible to be a company director; and
- (d) the applicant will, before acting as a PAYE intermediary for an employer,—
  - (i) inform the employer that the Commissioner does not guarantee payments by the applicant to employees of the employer; and
  - (ii) provide the employer with a copy of the applicant's notice to the Commissioner.
(2) The Commissioner may accredit an applicant as a PAYE intermediary if the Commissioner is satisfied that—
- (a) the applicant will comply with the PAYE rules; and
- (aa) the applicant will comply with the SSCWT rules if the applicant assumes an employer's obligations under the SSCWT rules; and
- (b) the applicant's information technology systems will allow the applicant to make payments and file returns in a prescribed format.
(3) The Commissioner may specify a period for which a person is accredited as a PAYE intermediary.
(4) The Commissioner may revoke the accreditation of a person if—
- (a) the person fails to comply with the PAYE rules:
- (aa) the person fails to comply with the SSCWT rules, if the person assumes an employer's obligations under the SSCWT rules:
- (b) the person, if a natural person or corporation sole, or a member of the person, if the person is an unincorporated body, or a person acting as a director, secretary or statutory officer of the person, if the person is a body corporate, or a principal of the person,—
  - (i) has been made bankrupt:
  - (ii) has been convicted of an offence involving fraud:
  - (iii) is not eligible to be a company director:
- (c) the person, if not a natural person, has been put into liquidation or receivership:
- (d) the person, if a company, ceases to be registered in New Zealand.
(5) On revoking the accreditation of a person, the Commissioner must send to the person, and to any employer who has notified the Commissioner that the person is a PAYE intermediary for the employer, notice of—
- (a) the revocation; and
- (b) the date, not less than 14 days from the date of the notice, on which the revocation will take effect.
(6) A decision made by the Commissioner under this section may not be challenged.

Compare: 1994 No 164 s NBB 2

Subsection (1)(c) was amended, as from 1 April 2005, by section 250(1) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the words “the applicant, if a natural person or corporation sole, or each member of the applicant, if the applicant is an unincorporated body, or each of the persons acting as a director, secretary or statutory officer of the applicant, if the applicant is a body corporate, and any principal of the applicant” for the words before subparagraph (i).

Subsection (4)(b) was amended, as from 1 April 2005, by section 250(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the words “the person, if a natural person or corporation sole, or a member of the person, if the person is an unincorporated body, or a person acting as a director, secretary or statutory officer of the person, if the person is a body corporate, or a principal of the person” for the words before subparagraph (i).

NBA 3 Approval by Commissioner of employer arrangements with PAYE intermediary

(1) An employer who wishes to enter into an arrangement with a person under which the person will be a PAYE intermediary for the employer must notify the Commissioner of the proposed arrangement. The notice must include the following details:
- (a) the name of the person; and
- (b) the period for which the person will be a PAYE intermediary for the employer; and
- (c) the number of the person's bank account into which the employer will deposit payments in relation to an employee; and
- (d) whether the proposed arrangement requires the person to make deductions under the SSCWT rules.
(2) The Commissioner must send notice to the employer approving the proposed arrangement.

(3) An approval by the Commissioner of an arrangement applies to pay periods that begin on or after the date that is 14 days after the date on which the Commissioner sends the notice of approval.

Compare: 1994 No 164 s NBB 3

NBA 4 Employer having PAYE intermediary: responsibilities and status under PAYE rules and SSCWT rules

(1) An employer who is in an arrangement with a PAYE intermediary that applies to an employee and a pay period must—
- (a) if the employer has authorised the PAYE intermediary to direct the transfer of amounts from a bank account of the employer in satisfaction of the obligations under the arrangement of the PAYE intermediary to make payments on behalf of the employer, ensure that, at a time specified by the PAYE intermediary, the funds in the bank account of the employer that are available for transfer are sufficient to satisfy the obligations of the PAYE intermediary that relate to the employee and the pay period; or
- (b) if the employer has not authorised the PAYE intermediary as described in paragraph (a), pay into the trust account established by the PAYE intermediary and identified in the employer's notice to the Commissioner under section NBA 3—
  - (i) if subparagraph (ii) does not apply, the employee's gross salary or wages for the pay period after deduction of any amount that is owed by the employee to the employer and may be lawfully withheld by the employer from the salary or wages:
  - (ii) if the employer has paid salary or wages to the employee in the way authorised by subsection (4), the amount that the employer is required by subsection (4)(d) to make available to the PAYE intermediary:
  - (iii) if the PAYE intermediary has agreed to assume obligations of the employer under the SSCWT rules, the specified superannuation contributions that are made in the pay period by the employer on behalf of the employee.
(1B) An employer who is in an arrangement with a PAYE intermediary that applies to an employee and a pay period must—
- (a) keep records of the gross salary or wages of the employee for the pay period and the amounts withheld by the employer for the pay period; and
- (b) provide information requested by the PAYE intermediary within the time agreed by the employer and the PAYE intermediary.
(2) An employer who satisfies the requirements of subsections (1) and (1B)—
- (a) is not subject to the requirements in relation to the employee and the pay period that the PAYE rules impose on the PAYE intermediary; and
- (b) does not, merely because of the effect of paragraph (a) and subsection (3), cease to be liable as an employer for the payment to the employee of the salary or wages for the pay period or the making of specified superannuation contributions on behalf of the employee.
(3) If an employer is in an arrangement with a PAYE intermediary under which the PAYE intermediary agrees to assume obligations under the SSCWT rules in relation to an employee and a pay period and the employer satisfies the requirements of subsections (1) and (1B), the employer is not subject to the requirements in relation to the employee and the pay period that the SSCWT rules impose on the PAYE intermediary.
(4) An employer who is in an arrangement with a PAYE intermediary that applies to an employee and a pay period may make a payment of salary or wages directly to the employee in cash or by cheque if—
- (a) the payment is made on a day in a pay period that is not the usual day for a payment of salary or wages for the pay period; and
- (b) the payment is—
  - (i) an advance of the employee's salary or wages:
  - (ii) salary or wages owed to the employee for an earlier pay period:
  - (iii) a payment on the termination of the employee's employment; and
- (c) the employer makes from the gross salary or wages of the employee the deduction that the PAYE rules and SSCWT rules would require of an employer who did not have a PAYE intermediary; and
- (d) the employer makes available to the PAYE intermediary, in the way required by subsection (1), the amount of the deduction referred to in paragraph (c).
Compare: 1994 No 164 s NBB 4

Subsection (1) was substituted, as from 1 April 2005, by section 251(1) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subsection (2) was amended, as from 1 April 2005, by section 251(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the words “subsections (1) and (1B)” for the words “subsection (1)”.

Subsection (3) was amended, as from 1 April 2005, by section 251(3) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the words “subsections (1) and (1B)” for the words “subsection (1)”.

Subsection (4)(c) and (d) was substituted, as from 1 April 2005, by section 251(4) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

NBA 5 PAYE intermediary: responsibilities and status under PAYE rules and SSCWT rules

(1) A PAYE intermediary who is in an arrangement, that applies to an employee and a pay period, with an employer who satisfies the requirements of section NBA 4(1) assumes the obligations for the employee and the pay period that are not imposed on the employer by section NBA 4(1) and (1B) and that would, but for this subsection, be the obligations of the employer under the PAYE rules, including the obligations to—
- (a) calculate and make tax deductions and pay those deductions to the Commissioner by electronic means and in the prescribed electronic format; and
- (b) deliver an employer monthly schedule to the Commissioner by electronic means and in the prescribed electronic format; and
- (c) if required, deliver a remittance certificate to the Commissioner; and
- (d) keep records in accordance with section 24 of the Tax Administration Act 1994.
(1B) If a PAYE intermediary has been authorised by an employer to direct the transfer of amounts from a bank account of the employer as described in section NBA 4(1)(a), the PAYE intermediary must direct that, at or before the time of the transfer of the amount of salary or wages owing to the employee, an amount representing the deductions from the gross salary or wages of the employee that are required by the PAYE rules and SSCWT rules be transferred to—
- (a) the Commissioner:
- (b) the trust account established by the PAYE intermediary and identified in the employer's notice to the Commissioner under section NBA 3.
(2) A PAYE intermediary does not, merely because of the effect of subsections (1) and (2A), become liable as an employer for the payment to the employee of the salary or wages for the pay period or the making of specified superannuation contributions on behalf of the employee.
(2A) A PAYE intermediary who agrees to assume obligations under the SSCWT rules in relation to an employee and a pay period, in an arrangement with an employer who satisfies the requirements of section NBA 4(1), assumes the obligations for the employee and the pay period that—
- (a) are not imposed on the employer by section NBA 4(1) and (1B); and
- (b) would, but for this subsection, be the obligations of the employer under the SSCWT rules.
(3) A PAYE intermediary must maintain and operate administration and information technology systems that protect the privacy of the personal information and payment details acquired by the PAYE intermediary in the performance of its functions.

(4) A PAYE intermediary who is in an arrangement, that applies to an employee and a pay period, with an employer may make an amended return relating to employees of the employer for a different pay period, and is then responsible for the accuracy of the amendments.

Compare: 1994 No 164 s NBB 5

Subsection (1) was amended, as from 1 April 2005, by section 252(1) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by inserting the words “and (1B)” after the words “section NBA 4(1)” in both places that it occurs.

Subsection (1B) was inserted, as from 1 April 2005, by section 252(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subsection (2A) was amended, as from 1 April 2005, by section 252(3) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by inserting the words “and (1B)” after the words “section NBA 4(1)” in both places that it occurs.

NBA 6 Operation of trust account

(1) A PAYE intermediary's trust account must be established at a registered bank within the meaning of the Reserve Bank of New Zealand Act 1989 and must be named as a trust account.
(2) The only deposits that may be made to the account are—
- (a) gross salary or wages paid by employers:
- (ab) deductions from gross salary or wages that are required by the PAYE rules and SSCWT rules:
- (ac) specified superannuation contributions paid by employers:
- (ad) deductions under section NBA 4(4) made by employers from salary or wages:
- (b) refunds by the Commissioner under section NBA 7:
- (c) interest earned by funds in the trust account.
(3) The only withdrawals that may be made from the account are—
- (ab) specified superannuation contributions paid by employers:
- (ac) deductions under section NBA 4(4) made by employers from salary or wages:
- (ab) deductions under section NBA 4(4) made by employers from salary or wages:
- (b) payments that the employer would be required to make, but for the arrangement with the PAYE intermediary, from—
  - (i) a deduction from the salary or wages of an employee:
  - (ii) a deduction from a specified superannuation contribution made on behalf of an employee:
- (c) interest earned by funds in the trust account.
(4) A payment relating to an employee that is credited to the trust account of a PAYE intermediary is held by the PAYE intermediary on trust for the benefit of the employee and the Commissioner according to their respective rights and obligations.

(5) Interest earned in the trust account by a payment that relates to an employee is held beneficially by the PAYE intermediary.

Compare: 1994 No 164 s NBB 6

Subsection (2)(aa) was repealed, as from 1 April 2005, by section 253(1) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subsection (2)(ab) was substituted, as from 1 April 2005, by section 253(1) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subsection (2)(ac) and (2)(ad) were inserted, as from 21 December 2004, by section 253(1) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subsection (3)(aa) was repealed, as from 1 April 2005, by section 253(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subsection (3)(ab) was substituted, as from 1 April 2005, by section 253(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subsection (3)(ac) was inserted, as from 21 December 2004, by section 253(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

NBA 7 Refund by Commissioner of deductions

The Commissioner must refund to a PAYE intermediary any payment of deductions that is made by the PAYE intermediary for an employer—
- (a) in reliance on a payment to the trust account of the PAYE intermediary that was—
  - (i) made by the employer and later dishonoured by the employer:
  - (ii) made by a person because of a mistake and later recovered from the PAYE intermediary by the person:
- (b) because of a mistake by the PAYE intermediary or another person and from funds that were not provided to the PAYE intermediary by the employer for the purpose of—
  - (i) the payment to which the deductions relate:
  - (ii) the payment of the deductions.
Compare: 1994 No 164 s NBB 7

NBA 8 Termination of employer arrangements with PAYE intermediary

(1) An employer or a PAYE intermediary may end an arrangement by giving notice to the other party and to the Commissioner.

(2) A notice must state the date on which the arrangement will end, being a date that occurs after the date on which the notice is given.
(3) A person who, for whatever reason, ceases to be a PAYE intermediary for an employer has the rights and obligations under the PAYE rules and SSCWT rules of a PAYE intermediary in relation to funds that—
- (a) the employer pays to the person as a PAYE intermediary; and
- (b) the person is holding at the time that the person ceases to be a PAYE intermediary for the employer.
Compare: 1994 No 164 s NBB 8

Subpart NBB—Subsidy payable to certain listed PAYE intermediaries

Subpart NBB (comprising sections NBB 1 to NBB 4) was inserted, as from 3 April 2006, by section 164(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

NBB 1 Purpose

NBB 2 Accreditation of listed PAYE intermediary

NBB 3 Obligations of listed PAYE intermediaries

NBB 4 Revocation of listing

NBB 5 Listed PAYE intermediary claim form

NBB 6 Calculation and payment of subsidy to certain listed PAYE intermediaries

NBB 7 Termination of employer arrangements with listed PAYE intermediary

NBB 1 Purpose

The purpose of this subpart is to prescribe the requirements for a listed PAYE intermediary to receive a subsidy payment under this subpart.

Subpart NBB (comprising sections NBB 1 to NBB 4) was inserted, as from 3 April 2006, by section 164(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

NBB 2 Accreditation of listed PAYE intermediary

(1) The Commissioner may list an applicant as a listed PAYE intermediary if the Commissioner is satisfied that,—
- (a) the applicant is an accredited PAYE intermediary under subpart NBA, the listing of which is consistent with section 6(1) of the Tax Administration Act 1994; and
- (b) the period for which the applicant requests listing as a listed PAYE intermediary does not exceed the period for which the applicant is an accredited PAYE intermediary; and
- (c) the applicant. has completed and provided the tax returns required from the applicant; and
- (d) the applicant has made the required payments of tax due from the applicant; and
- (e) in the case of an applicant who acted as an accredited PAYE intermediary for an employer or who made PAYE payments for an employer before the date of the application,—
  - (i) the applicant completed and provided the required tax returns by their due dates; and
  - (ii) the applicant made the payments of tax by their due dates; and
- (f) the applicant has available the administrative (including information technology) systems necessary to perform the obligations of a listed PAYE intermediary; and
- (g) if the application is approved, the applicant will, before acting as a listed PAYE intermediary for an employer, inform each employer who contracts the services of the applicant as a listed PAYE intermediary that the Commissioner does not guarantee payments by the applicant to employees of the employer or the performance of any part of the services provided by the applicant.
(2) The Commissioner may specify a period for which a person is accredited as a listed PAYE intermediary.

Subpart NBB (comprising sections NBB 1 to NBB 4) was inserted, as from 3 April 2006, by section 164(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

NBB 3 Obligations of listed PAYE intermediaries

(1) A listed PAYE intermediary must, throughout the period of their listing,—
- (a) maintain the status of an accredited PAYE intermediary under subpart NBA; and
- (b) perform in a timely manner the obligations of an accredited PAYE intermediary; and
- (c) continuously meet the standards listed in section NBB 2(1)(c) to (g).
(2) A listed PAYE intermediary must, throughout the period of their listing, maintain working access to administrative and information technology systems that will enable the listed PAYE intermediary to correctly return by electronic means a listed PAYE intermediary claim form that—
- (a) employs the electronic format prescribed by the Commissioner; and
- (b) correctly calculates the amount of subsidy claimed under section NBB 5.
(3) For the purposes of section 22 of the Tax Administration Act 1994, a listed PAYE intermediary must keep such records as are necessary to verify the information contained in each listed PAYE intermediary claim form.

Subpart NBB (comprising sections NBB 1 to NBB 4) was inserted, as from 3 April 2006, by section 164(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

NBB 4 Revocation of listing

(1) The Commissioner may revoke the listing of a listed PAYE intermediary if—
- (a) the person's accreditation as a PAYE intermediary is revoked:
- (b) the person does not provide a listed PAYE intermediary claim form by the date and in the format prescribed by the Commissioner:
- (c) the person fails to comply with any of the obligations of a listed PAYE intermediary or ceases to be a person which the Commissioner may list under section NBB 2:
- (d) the Commissioner considers revocation is necessary in order to protect the integrity of the tax system.
(2) The Commissioner must give notice of his intention to revoke an accreditation under subsection (1) and of the reasons for the intended revocation.

(3) The Commissioner may give 14 days notice of revocation, if, within 30 days of the date on which the notice of intended revocation is given under subsection (2), the listed PAYE intermediary fails to satisfy the Commissioner that the matters listed in that notice of intended revocation are resolved.

(4) At the expiration of the 14 days' notice of revocation given under subsection (3), the listing of the listed PAYE intermediary is revoked.

(5) A decision made by the Commissioner under this section may not be challenged.

Subpart NBB (comprising sections NBB 1 to NBB 4) was inserted, as from 3 April 2006, by section 164(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (2) was amended, as from 3 April 2006, by section 135(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “notice” for “30 days”.

Subsection (3) was substituted, as from 3 April 2006, by section 135(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Subsection (4) was amended, as from 3 April 2006, by section 135(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “the 14 days' notice of revocation given” for “a notice”.

NBB 5 Listed PAYE intermediary claim form

(1) A listed PAYE intermediary claim form must be filed within one month of the date of filing of the employer monthly schedule to which it relates.

(2) The Commissioner may, within 2 years of receipt of a listed PAYE intermediary claim form, amend the particulars in order to rectify an error in the particulars supplied by the listed PAYE intermediary.

(3) The Commissioner must give the listed PAYE intermediary who provided the listed PAYE intermediary claim form 14 days notice of the amendment proposed under subsection (2) before making the amendment.

(4) An overpayment or underpayment that results from the amendment must be paid by the listed PAYE intermediary or the Commissioner, as the case may be, within 30 days of the giving of the Commissioner's notice under subsection (3).

(5) Despite subsection (4), the Commissioner may elect to offset an overpayment that results from an amendment under subsection (2) against a claim for payment of subsidy made after expiry of the 14-day period prescribed in subsection (3).

Sections NBB 5 to NBB 7 were inserted, as from 3 April 2006, by section 164(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for pay periods beginning on or after 1 October 2006.

Subsection (5) was substituted, as from 3 April 2006, by section 136(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application for pay periods beginning on or after 1 October 2006.

NBB 6 Calculation and payment of subsidy to certain listed PAYE intermediaries

(1) The Commissioner may pay a subsidy to a listed PAYE intermediary in respect of payroll services provided to an employer to whom sections NC 15(1)(c) or (d) applies if the listed PAYE intermediary—
- (a) has contracted with the employer for the provision of those services; and
- (b) has met the obligations of the listed PAYE intermediary under subpart NBA; and
- (c) files a correct listed PAYE intermediary claim form under section NBB 5.
(2) Within 14 days of the date on which the Commissioner pays a subsidy to a listed PAYE intermediary under subsection (1), the Commissioner must give notice by electronic means to the listed PAYE intermediary of—
- (a) the amount of subsidy paid in respect of each employer; and
- (b) the period to which the amount relates; and
- (c) other information relevant to the payroll services provided by the listed PAYE intermediary that the Commissioner considers appropriate.
(3) The amount of the subsidy must be calculated in the manner provided by regulations made under this section and a payment of a subsidy under this section must be made electronically to a bank account—
- (a) nominated by the listed PAYE intermediary for the purpose; or
- (b) if an overpayment has been made to the listed PAYE intermediary, to the Listed PAYE Intermediary Bank Account.
(4) A claim for payment of an amount of subsidy calculated under this section is to be made in the manner provided in section NBB 5.
(5) The Commissioner must pay the amount of subsidy that is payable in respect of a listed PAYE intermediary claim form within 30 days of receipt the last of—
- (a) the employer monthly schedule to which the listed PAYE intermediary claim form relates:
- (b) payment of the PAYE deductions to which the listed PAYE intermediary claim form relates:
- (c) the listed PAYE intermediary claim form.
(6) The Governor-General may from time to time, by Order in Council, prescribe the amount of the subsidy to be paid in respect of each employee of an employer who contracts the services of a listed PAYE intermediary under this subpart.

Sections NBB 5 to NBB 7 were inserted, as from 3 April 2006, by section 164(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for pay periods beginning on or after 1 October 2006.

NBB 7 Termination of employer arrangements with listed PAYE intermediary

(1) An employer or a listed PAYE intermediary may end an arrangement by giving notice to the other party and to the Commissioner.

(2) A notice must state the date on which the arrangement will end, being a date that occurs not less than 14 days after the date on which the notice is given.
(3) A person who, for whatever reason, ceases to be a listed PAYE intermediary for an employer has the rights and obligations under the PAYE rules and SSCWT rules of a listed PAYE intermediary in relation to funds that—
- (a) the employer pays to the person as a listed PAYE intermediary; and
- (b) the person is holding at the time that the person ceases to be a listed PAYE intermediary for the employer.
Sections NBB 5 to NBB 7 were inserted, as from 3 April 2006, by section 164(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for pay periods beginning on or after 1 October 2006.

Subpart NC—Withholding of PAYE

Tax deductions

NC 1 Application of PAYE rules

NC 2 Tax deductions to be made by employers or PAYE intermediaries

NC 3 Tax deductions from amounts credited to or applied for employees

NC 4 Benefits and superannuation and other payments deemed to be salary or wages

NC 5 Payment to be made by employee where tax deduction exceeds source deduction payment

Amounts of tax deductions

NC 6 Amounts of tax deductions

Reduced deductions

NC 7 Delivery of withholding declaration

NC 8 Application of tax codes specified in tax code declarations or tax code certificates

NC 8A Entitlement to undertake employment

NC 9 Cessation of transitional tax allowance for purposes of tax code

NC 10 Amount of total tax deduction where several deductions made for 1 week

NC 11 Increased deductions to cover deficiency in deductions from advance payments

NC 12 Amount of tax deductions for pay period current when tax deductions altered

NC 12A Employee using incorrect tax code

NC 13 Power of Commissioner to reduce tax deductions

NC 14 Special tax code certificates

Duties of employer or PAYE intermediary as to deductions

NC 15 Payment of tax deductions to Commissioner

Employee's duties where deductions not made

NC 16 Employee to pay deductions to Commissioner

NC 18 Bond in lieu of tax deductions in case of certain non-resident employees

NC 19 Amount of tax deductions deemed to be received by employee

NC 20 Application of other provisions to amounts payable under PAYE rules

NC 21 Regulations

Tax deductions

NC 1 Application of PAYE rules

(1) The PAYE rules apply notwithstanding anything in this Act, other than subpart KD.

(2) If any question is raised as to whether or not a source deduction payment is as to the whole or any part subject to the PAYE rules, it is, subject to any regulations made for the purposes of the PAYE rules, determined by the Commissioner.

Compare: 1994 No 164 s NC 1

NC 2 Tax deductions to be made by employers or PAYE intermediaries

(1) For the purpose of enabling the collection of income tax from employees by instalments, where an employee receives a source deduction payment from an employer, the employer, PAYE intermediary, or other person by whom the payment is made must, at the time of making the payment, make a tax deduction from the payment in accordance with the PAYE rules: provided that no tax deduction need be made from any source deduction payment made to any employee in respect of the employee's employment as a private domestic worker: provided also that if a tax deduction is not made by the employer or the PAYE intermediary in any such case section NC 16 applies to the employee.

(2) Where in the case of a regular full-time employment an employee receives salary or wages from any 1 employer for part only of the pay period, that salary or wages is deemed to be for the whole of the pay period.

(3) For the purposes of this section, where an employee receives salary or wages in respect of work performed by the employee as a piece worker or out-worker and the employee is paid on a production basis, that salary or wages is deemed to be for the period from the commencement of the performance of the work until the completion of the work.
(4) Where a source deduction payment for any pay period is paid in 2 or more separate sums, all sums so paid must, for the purpose of calculating the amount of the tax deduction, be aggregated, and the employer or PAYE intermediary may, at the employer's or the PAYE intermediary's option, make the tax deduction wholly from 1 sum or in part from each of any 2 or more sums:

provided that where, by reason of the size or nature of the employer's business or organisation, the dispersal of employees, or difficulty in assembling particulars, or for any other reason approved by the Commissioner, it is impracticable for an employer to pay overtime pay for a pay period at the same time as the other salary or wages for the pay period, the overtime pay of any employee for the pay period may, for the purpose of calculating the amount of the tax deduction, be aggregated with the employee's salary or wages (other than overtime pay) for a subsequent pay period if, in respect of both pay periods,—
- (a) the amounts of the employee's salary or wages (other than overtime pay) are substantially the same; and
- (b) the amounts of the tax deductions applicable to the employee's salary or wages are the same; and
- (c) the tax code applicable to the employee is the same:
provided also that, where it is the practice of an employer to pay overtime pay for an interval of time which is of the same length as a pay period of an employee but does not coincide with any such period, the overtime pay of the employee for any such interval may, for the purposes of the first proviso to this subsection, be deemed to be overtime pay for the pay period during which that interval ends, if the amounts of the employee's salary or wages (other than overtime pay) for that interval and for that pay period are substantially the same.
(5) When an extra pay is paid by an employer to an employee and the sum of the extra pay and the annualised value of all source deduction payments (excluding extra pays) paid to the employee by the employer in the previous 4 weeks (ending on the date the extra pay is paid) is—
- (a) more than $38,000 but not more than $60,000, the employer or the PAYE intermediary must deduct tax from the extra pay at the basic tax deduction rate specified in schedule 19, clause 8(b):
- (b) more than $60,000, the employer or the PAYE intermediary must deduct tax from the extra pay at the basic tax deduction rate specified in schedule 19, clause 8(c).
Compare: 1994 No 164 s NC 2

NC 3 Tax deductions from amounts credited to or applied for employees

Where a source deduction payment, though not actually paid, is credited to or applied on account of any employee entitled to that payment, the amount so credited or applied is, for the purposes of the PAYE rules, deemed to be paid when it is so credited or applied, and a tax deduction in respect of the payment must be made accordingly.

Compare: 1994 No 164 s NC 3

NC 4 Benefits and superannuation and other payments deemed to be salary or wages

(1) Where in respect of an employee's employment the employee receives or enjoys a benefit referred to in section CE 1(c), or any other benefit in kind which is included in the employee's salary or wages, or receives a payment by way of superannuation, pension, retiring allowance, or other allowance, or annuity which is included in salary or wages, the value of the benefit (whether in money or otherwise), or the amount of the payment, is deemed to accrue from day to day, and accordingly in each case the amount so accrued for any days in a pay period of the employee is deemed to be the employee's salary or wages for the pay period, or, as the case may be, part of the employee's salary or wages for the pay period.

(2) Where a benefit to which subsection (1) applies is received or enjoyed by an employee otherwise than in money, the value of the benefit for a pay period is deemed to be paid to the employee at the time when the residue of the salary or wages for the pay period is paid or deemed to be paid to the employee, and must be aggregated with that residue for the purpose of calculating the amount of the tax deduction: provided that, where the value of the benefit constitutes the only salary or wages of the employee for the pay period, the value of the benefit is deemed to be paid to the employee on the last day of the pay period.

Compare: 1994 No 164 s NC 4

NC 5 Payment to be made by employee where tax deduction exceeds source deduction payment

(1) Where, at the time when a source deduction payment is made or deemed to be made, the amount of the source deduction payment available in money is less than the amount of the tax deduction, or there is no amount available in money, the employee must immediately pay to the employer, or to the PAYE intermediary, the amount of the deficiency in the tax deduction or, as the case may be, the amount of the tax deduction, and every amount so paid on any date is deemed to be a tax deduction made by the employer or the PAYE intermediary on that date from the source deduction payment made or deemed to be made to the employee.

(2) If an employee makes default in paying to the employer or the PAYE intermediary any amount payable under this section, or any part of any such amount, the amount in respect of which default has been made is deemed for the purposes of section NC 16 to be a tax deduction that should have been made and was not made, and that section applies accordingly.

Compare: 1994 No 164 s NC 5

Amounts of tax deductions

NC 6 Amounts of tax deductions

(1) [Repealed]

(1A) A tax deduction must be of an amount fixed by the basic tax deductions specified in schedule 19.

(1B) If the amount of tax deduction from a withholding payment is not fixed by the basic tax deductions, the tax deduction must be of an amount fixed by regulations under this Act.
(1C) If,—
- (a) by reason of the size of a source deduction payment; or
- (b) in the case of a reduced deduction, by reason of the number of the employee's dependants; or
- (c) for any other reason,—
the amount of a tax deduction is not fixed by the basic tax deductions or by regulations, the tax deduction must be of an amount fixed by the Commissioner, taking into account the factors taken into account in fixing the amounts of other tax deductions of a like nature.
(1D) Despite subsections (1A) to (1C), the amount of a tax deduction from a source deduction payment that is—
- (a) a payment of an income-tested benefit; or
- (b) an allowance paid under regulations made under section 303 of the Education Act 1989,—
must be of an amount determined by the Commissioner in consultation with—
- (c) the chief executive of the department currently responsible for administering the Social Security Act 1964; or
- (d) the Secretary of Education.
(2) [Repealed]

(3) Except as otherwise provided in this Act, the amount of every tax deduction must be the maximum amount for the time being in force having regard to the nature and amount of the source deduction payment: provided that where a reduced deduction applies to the employee the tax deduction must be of an amount equal to the amount of the reduced deduction.

Compare: 1994 No 164 s NC 6

Subsection (1) was repealed, as from 1 April 2005, by section 254(1) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subsection (1A) was amended, as from 1 April 2005, by section 254(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the word “A” for the words “For a period for which the amount of a tax deduction is not fixed by an annual taxing Act, the”.

Subsection (1B) was amended, as from 1 April 2005, by section 254(3) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by omitting the words “by an annual taxing Act or”.

Subsection (1C) was amended, as from 1 April 2005, by section 254(4) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by omitting the words “by an annual taxing Act or”.

Subsection (2) was repealed, as from 1 April 2005, by section 254(5) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Reduced deductions

NC 7 Delivery of withholding declaration

(1) Every person to whom a withholding payment is to be made by another person must, before that withholding payment is made, deliver to that other person a withholding declaration in a form authorised by the Commissioner, and containing such particulars as the Commissioner requires.
(2) If a person who is making a withholding payment has not received the withholding declaration required by subsection (1), the person must make from the withholding payment a tax deduction that is equal to the sum of the amount of the tax deduction that would, apart from this subsection, be made from the withholding payment and an amount equal to—
- (a) 15% of the amount of the withholding payment, if neither of paragraphs (b) and (c) applies; or
- (b) 5% of the amount of the withholding payment, if—
  - (i) the person receiving the withholding payment is a company that is a non-resident contractor for the purposes of the Income Tax (Withholding Payments) Regulations 1979; and
  - (ii) the person referred to in subparagraph (i) receives the withholding payment other than directly or indirectly as a result of a choice that is made for purposes that include a purpose of defeating the intent and application of paragraph (a); and
  - (iii) paragraph (c) does not apply; or
- (c) zero, if the withholding payment is a payment of the class specified in clause 4(b) of part B of the Schedule to the Income Tax (Withholding Payments) Regulations 1979.
(3) The Commissioner may vary any of the requirements of this section in relation to any person or class of person to whom a withholding payment is to be made, or in respect of any class of withholding payment, in such cases and to such extent as the Commissioner thinks fit, and in every such case this section applies as so varied.

Compare: 1994 No 164 s NC 7

Subsection (2) was substituted, as from 1 April 2005, by section 255 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

NC 8 Application of tax codes specified in tax code declarations or tax code certificates

(1) For the purposes of the PAYE rules, the tax code of any employee in relation to any source deduction payment (not being a source deduction payment that is an extra pay and not being a source deduction payment that is a withholding payment and not being a source deduction payment that is a payment of an income-tested benefit) must be such 1 of the following codes as applies to the employee in respect of that source deduction payment in accordance with this section, namely:
- (a) “No declaration”, signifying an employee who has not delivered to the employer a tax code declaration in the form authorised by the Commissioner and containing such particulars as the Commissioner requires, nor a tax code certificate:
- (b) “ML”, signifying an employee who is entitled to a rebate of income tax under section KC 3 and in relation to whom the source deduction payment is a payment that is primary employment earnings:
- (c) “M”, signifying an employee who is not entitled to a rebate of income tax under section KC 3 and in relation to whom the source deduction is a payment that is primary employment earnings:
- (d) “S”, signifying an employee in relation to whom the source deduction payment is a payment that is secondary employment earnings to which neither paragraph (da) nor (db) applies:
- (da) “SH”, signifying an employee in relation to whom the source deduction payment is a payment, other than a payment of the kind referred to in schedule 19, clauses 5A and 5B, that is secondary employment earnings to which neither paragraph (d) nor (db) applies:
- (db) “ST”, signifying an employee in relation to whom the source deduction payment is a payment, other than a payment of the kind referred to in schedule 19, clauses 5A and 5B, that is secondary employment earnings to which neither paragraph (d) nor (da) applies:
- (e) “CAE”, signifying an employee in relation to whom the source deduction payment is a payment of salary or wages for employment as a casual agricultural employee:
- (h) “EDW”, signifying an employee in relation to whom the source deduction payment is a payment of salary or wages for employment as an election day worker: provided that, where the employee is receiving 1 or more source deduction payments that are payments of income-tested benefits and 1 or more source deduction payments that are not payments of income-tested benefits, the tax code “S” applies to that employee in relation to those source deduction payments that are not payments of income-tested benefits.
(1AA) If other Acts require an employer to deduct amounts from a source deduction payment payable to an employee and to pay the amounts to the Commissioner, the tax code under subsection (1) that applies to the employee may be combined with codes that apply to the employee under the other Acts.

(1A) An employee may elect, by providing a tax code declaration to the employer, that an extra pay be subject to the basic tax deduction rate specified in schedule 19, clause 8(b), if the employee's taxable income for the year is expected to be no more than $60,000, or in schedule 19, clause 8(c), otherwise.

(2) Subject to this Act, where any employee desires that a reduced deduction applies to the employee (whether or not the same or any other reduced deduction has previously applied), the employee may deliver to the employee's employer a tax code declaration in a form authorised by the Commissioner, and containing such particulars as the Commissioner requires, and specifying the employee's tax code as determined by those particulars, and that tax code applies to the employee in accordance with this section.

(3) Where any employee considers that it is or will be undesirable or impracticable for the employee to deliver a tax code declaration to the employee's employer, the employee may deliver the declaration to the Commissioner, and in any such case the Commissioner must issue to the employee a tax code certificate addressed to the employer and specifying the employee's tax code as determined by the particulars contained in the declaration. The employee may deliver that certificate to the employee's employer, and that tax code applies to the employee in accordance with this section.
(4) If an employee in a pay period delivers a tax code declaration or a tax code certificate to the employee's employer, the tax code applies to the employee in respect of all source deduction payments made by the employer to the employee—
- (a) from the first day of the pay period until the tax code ceases in accordance with subsection (7), if the employer has not previously been provided with a tax code for the employee; or
- (b) from the first day of the pay period until the tax code ceases in accordance with subsection (7), if the declaration or certificate—
  - (i) relates to a change in a tax code previously provided for the employee; and
  - (ii) is delivered to the employer before the date on which the employer calculates the employer's payroll for the pay period; or
- (c) from the first day of the next pay period until the tax code ceases in accordance with subsection (7), if the declaration or certificate—
  - (i) relates to a change in a tax code previously provided for the employee; and
  - (ii) is delivered to the employer after the date on which the employer calculates the employer's payroll for the pay period.
(7) Where an employee, being an employee to whom an “M” or “ML” or “S” or “SH” or “ST” or “CAE” or “EDW” tax code previously applied, ceases to be entitled to the use of that tax code, the tax code does not apply to the employee in respect of any source deduction payment made by the employer to the employee after the date on which that entitlement so ceased, not being a payment of salary or wages for a pay period current on that date: provided that, where the employee delivers a further tax code declaration or tax code certificate to the employer not later than 3 days after the date of giving the notice required by subsection (8), the tax code specified in that declaration or certificate is deemed to have commenced to apply to the employee immediately after the former tax code ceased to apply to the employee.

(8) Where a tax code ceases under subsection (7) to apply to an employee by reason of the employee, being an employee to whom an “M” or “ML” or “S” or “SH” or “ST” or “CAE” or “EDW” tax code previously applied, ceasing to be entitled to the use of that code, the employee must, not later than 4 days after the date on which the employee became aware that the tax code ceased to apply, give notice of that fact to the employer or (where the tax code declaration was delivered to the Commissioner) to the Commissioner, stating the reason why an “M” or “ML” or “S” or “SH” or “ST” or “CAE” or “EDW” tax code, as the case may be, ceased to apply and the date it ceased to apply. No employer or other person making a source deduction payment is liable for making a reduced deduction according to a tax code after it has ceased under subsection (7) to apply to the employee but before the employer has received notice (whether under this subsection or otherwise) that an “M” or “ML” or “S” or “SH” or “ST” or “CAE” or “EDW” tax code has ceased to apply to the employee.

(9) A reduced deduction applying to an employee in respect of the employee's employment by any employer does not apply to the employee in respect of the employee's employment by any other employer, not being a successor of the first-mentioned employer in the same employment.

(9A) The tax code that applies to any parental leave payment that is payable under Part 7A of the Parental Leave and Employment Protection Act 1987 is the tax code that applied to the employee immediately before he or she commenced the parental leave from his or her employment, unless the employee delivers a further tax code declaration to the Commissioner to the contrary.

(10) The Commissioner may vary any of the requirements of this section in relation to any employee or class of employees in such cases and to such extent as the Commissioner thinks fit, and in every such case this section applies as so varied.

(11) For the purposes of this Act, a tax code declaration or tax code certificate which is delivered to an employer before the beginning of any tax year but is expressed to relate to that tax year is deemed to be delivered on 1 April in that tax year.

(12) Where any employee desires that a tax code apply in respect of the employee's employment as a private domestic worker, the employee may deliver a tax code declaration to the Commissioner, and upon delivery of the declaration this section, with any necessary modifications, applies in respect of that employment as if the Commissioner were the employer.

Compare: 1994 No 164 s NC 8

NC 8A Entitlement to undertake employment

(1) The Commissioner must ensure that all tax code declaration forms provided by the Commissioner after 31 March 2003 contain a means for the employee concerned to state that he or she is entitled under the Immigration Act 1987 to undertake employment in the service of the employer concerned.

(2) The Commissioner may, before 1 April 2003, provide forms complying with subsection (1).

Compare: 1994 No 164 s NC 8A

NC 9 Cessation of transitional tax allowance for purposes of tax code

An employee who, in any tax year, is entitled under section NC 8(1) to the application of the tax code “ML” ceases to be so entitled if and when, before that tax code ceases to apply to the employee, the employee knows or anticipates, or should have known or anticipated, that the employee will not be entitled, for whatever reason, to a rebate of income tax under section KC 3.

Compare: 1994 No 164 s NC 9

NC 10 Amount of total tax deduction where several deductions made for 1 week

Except as otherwise provided in this Act, where during any week ending with a Saturday an employee has engaged in more than 1 employment (whether with the same employer or with 2 or more employers), the amount of the total tax deduction required to be made in respect of all payments of salary or wages made to the employee for that week or any part of that week is deemed to be the amount of the tax deduction that would have been required to be made if all those payments had been 1 payment made by 1 employer for that week, and where that total tax deduction is not made in full section NC 16 applies accordingly: provided that, where the employee left 1 regular full-time employment before the employee engaged in another regular full-time employment, the employee is not deemed for the purposes of this section to have been engaged in both those employments in the 1 week: provided also that, where the employee is employed as a shearer, a shearing shed hand, a casual agricultural worker, or an election day worker, the salary or wages of the employee for that employment are not taken into account for the purposes of this section.

Compare: 1994 No 164 s NC 10

NC 11 Increased deductions to cover deficiency in deductions from advance payments

(1) Where the amount of the tax deduction to be made from any salary or wages is increased, and before the date of the increase an employee has received from an employer a payment of salary or wages to the whole or a part of which the increase applies, and the proper tax deduction, taking the increase into account as far as it applies, has not been made in full at the time of the payment, the amount of the deficiency is added to the tax deduction required to be made from the next payment of salary or wages made to the employee in the same employment, and the amount of the tax deduction so required to be made is deemed to be increased accordingly.

(2) Where any salary or wages become subject to tax deductions under the PAYE rules, and before the date of its becoming so subject an employee has received from an employer a payment of salary or wages of which the whole or a part is so subject, and the proper tax deduction has not been made in full at the time of the payment, the amount of the deficiency must be added to the tax deduction required to be made from the next payment of salary or wages made to the employee in the same employment, and the amount of the tax deduction so required to be made is deemed to be increased accordingly.

Compare: 1994 No 164 s NC 11

NC 12 Amount of tax deductions for pay period current when tax deductions altered

(1) Notwithstanding anything in the PAYE rules, this section applies where the amount of the tax deduction for the time being in force in relation to any payment of salary or wages is reduced or increased by an amendment made to the basic tax deductions.
(2) Where this section applies, the amount of the tax deduction to be made from a payment of salary or wages to an employee for a pay period current on the date on which an altered tax deduction commences to apply is as follows:
- (a) where the pay period does not exceed a month, the tax deduction in respect of the whole of the payment for the pay period is the amount of the altered tax deduction:
- (b) where the pay period exceeds a month, the tax deduction is ascertained—
  - (i) by calculating, on the basis specified in schedule 19, clause 3(a), the parts of the payment for the pay period that are for the respective portions of the pay period before and after the altered tax deduction commences to apply; and
  - (ii) by calculating, in respect of each such part of the payment, the amount of the tax deduction that would be required to be made from a payment of salary or wages equal to that part for a pay period equal to the portion of the pay period to which that part relates; such calculation to be made according to the tax deduction in force in that portion of the pay period and in the manner provided in schedule 19, clause 3(b) and (c),—
and the total of the amounts of the tax deductions calculated under subparagraph (ii) is the amount of the tax deduction to be made from the payment of salary or wages for the pay period.
(3) Where this section applies and section NC 10 also applies, the amount of the total tax deduction required to be made in accordance with section NC 10 in respect of all payments of salary or wages made to an employee for a week current on the date on which an altered tax deduction commences to apply must be calculated in accordance with the altered tax deduction: provided that, where all the payments made to an employee for that week are for services rendered before that date, the amount of that total tax deduction must be calculated in accordance with the tax deduction in force in the portion of the week in which the services were rendered.
(4) Where this section applies, and on or after the date on which an altered tax deduction commences to apply a payment of salary or wages is made to an employee—
- (a) for a pay period that ended before that date; or
- (b) where section NC 10 applies, for services rendered in a week that ended before that date,—
the amount of the tax deduction to be made, or the amount of the total tax deduction required to be made, must be calculated in accordance with the tax deduction in force in that pay period or week.
Compare: 1994 No 164 s NC 12

Subsection (1) was amended, as from 1 April 2005, by section 256 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by omitting the words “by an annual taxing Act or”.

NC 12A Employee using incorrect tax code

(1) If the Commissioner considers an employer or a PAYE intermediary has applied an incorrect tax code to source deduction payments made to an employee, the Commissioner may, by notice to the employer or the PAYE intermediary, specify the employee's tax code declaration and notify the employer or the PAYE intermediary of the tax code that the Commissioner considers should apply to source deduction payments made to the employee.

(2) An employer or a PAYE intermediary who receives a notice under subsection (1) must apply the tax code specified by the Commissioner to source deduction payments made to the employee after the date of notification, despite section NC 8(2).

(3) An amended tax code specified by the Commissioner under subsection (1) does not apply on and after the date that the employee gives notice to the employer that the employee's circumstances have changed and a different tax code is applicable.

Compare: 1994 No 164 s NC 12A

NC 13 Power of Commissioner to reduce tax deductions

(1) Notwithstanding sections NC 1 to NC 12, the Commissioner may, in such circumstances and to such extent as the Commissioner thinks fit, reduce the amount of the tax deduction required to be made from any source deduction payment that has been or will be made to any employee or class of employees, or may make such adjustment as in the Commissioner's opinion is equitable, for the purpose in either case of meeting the special circumstances of any case or class of cases, upon or subject to such terms and conditions as the Commissioner may require.

(2) In every such case the PAYE rules apply as if they had been amended in accordance with the decisions or requirements of the Commissioner for the time being in force under this section.

Compare: 1994 No 164 s NC 13

NC 14 Special tax code certificates

(1) Where the Commissioner in any case thinks fit (whether by reason of the employee being employed in 2 or more employments, or being entitled to have any net loss carried forward under section IE 1, or by reason of any reduction under section NC 13, or for any other reason), the Commissioner may issue to an employee a special tax code certificate under this section.
(2) A special tax code certificate may, as the Commissioner thinks fit, do all or any of the following things:
- (a) specify a tax code to be applicable to the employee in respect of payments of salary or wages made to the employee during the period specified in the certificate by the employer or by all or any of the employers of the employee:
- (b) specify any source deduction payments to be made to the employee during the period specified in the certificate in respect of which—
  - (i) no tax deductions are made; or
  - (ii) the tax deductions are of such amount or rate as is specified in the certificate, or are made from a specified proportionate part of each payment as if that part were the whole of the payment.
(2A) The Commissioner must calculate, for the source deduction payments and the period specified in the certificate, the amount or rate of tax deductions to be specified in the certificate having regard to the amount of any tax deduction that would otherwise be required under section NC 6.

(3) A special tax code certificate does not enable the employee to receive any benefit by way of a credit of tax to which subpart KD applies.

(4) Where a special tax code certificate bearing the signature of the employee is produced to an employer at the time when the employer makes to the employee a payment to which the certificate relates, the provisions of the certificate in respect of that payment, subject to section NC 16, apply notwithstanding anything in this Act.

(5) Where a special tax code certificate so produced to an employer provides for the making of a tax deduction from a specified proportionate part of any source deduction payment, the PAYE rules as to tax deductions, other than this section and section NC 16, so far as they are applicable, apply in respect of the specified proportionate part as if that part constituted the whole of the source deduction payment.

(6) The Commissioner may at any time cancel any special tax code certificate.

(7) Not later than 7 days after the Commissioner has given notice of the cancellation of a special tax code certificate to the employee named in the certificate, the employee must return the certificate to the Commissioner.

Compare: 1994 No 164 s NC 14

Duties of employer or PAYE intermediary as to deductions

NC 15 Payment of tax deductions to Commissioner

(1) Every employer or PAYE intermediary who makes tax deductions from source deduction payments made to employees must,—
- (a) unless paragraph (c) or (d) applies, not later than the 20th day of the month in which the employer or the PAYE intermediary makes such a deduction in the first PAYE period, pay to the Commissioner the amount of the tax deduction and deliver to the Commissioner a remittance certificate:
- (b) unless paragraph (c) or (d) applies, not later than the 5th day of the month following a month in which the employer or the PAYE intermediary makes a deduction in the second PAYE period, or the 15th day of January if December is the month in which the deduction is made, pay to the Commissioner the amount of the tax deductions and deliver to the Commissioner by electronic means and in the prescribed electronic format (unless section 36B of the Tax Administration Act 1994 applies) an employer monthly schedule, and a remittance certificate:
- (c) if the employer was an employer in the preceding tax year and gross tax deductions payable and specified superannuation contribution withholding tax payable in that preceding tax year were, in total, less than $100,000, not later than the 20th of the month following a month in which the employer or the PAYE intermediary has made a deduction (deduction month), pay to the Commissioner the amount of the tax deductions, deliver to the Commissioner an employer monthly schedule, and deliver to the Commissioner a remittance certificate:
- (d) if the employer was not an employer in the preceding tax year, until the time when gross tax deductions and specified superannuation contribution withholding tax payable in the current tax year in total exceeded $100,000, not later than the 20th of the month following a month in which the employer or the PAYE intermediary has made a deduction, pay to the Commissioner the amount of the tax deductions, deliver to the Commissioner an employer monthly schedule, and deliver to the Commissioner a remittance certificate:
- (e) not later than the 15th day of the second month after the month in a tax year in which the employer disposes of or otherwise stops carrying on a business in respect of which the employer or the PAYE intermediary has made tax deductions, notify the Commissioner of the disposal or cessation of conduct of the business in respect of which tax deductions were made.
(2) The Commissioner may exempt an employer, a class of employers, a PAYE intermediary, or a class of PAYE intermediaries from the requirement to provide a remittance certificate under section NC 15(1)(b) or (c) or (d) if the information required to be included in a remittance certificate is provided in an employer monthly schedule.

(2B) An employer monthly schedule or a remittance certificate that is delivered to the Commissioner by non-electronic means is required to be signed by the employer.

(3) The Commissioner may vary any of the requirements of this section in relation to an employer, a class of employers, a PAYE intermediary, or a class of PAYE intermediaries in such cases and to such extent as the Commissioner thinks fit, and in every such case this section applies as so varied.

(4) The executor or administrator of a deceased employer must fulfil such of the obligations of the employer under this section as have not been fulfilled by the employer before the employer's death.
(5) For the purposes of subsection (1)(c),—
- (a) 2 or more companies where, at any time during the relevant tax year, those companies were a group of companies; and
- (b) all partners in a partnership; and
- (c) all persons in whom property has become vested or to whom the control of property has passed in the case of each estate of a deceased person or each trust or each company in liquidation or each assigned estate or each other case where property is vested or controlled in a fiduciary capacity,—
are deemed to be 1 employer.
(6) For the purposes of subsection (1)(c), where at any time during a tax year an employer ceases business and begins a new business, or operates 2 or more businesses simultaneously, the gross tax deductions relating to all businesses carried on by the employer must be aggregated.

(7) Where any amalgamating company ceases to exist on an amalgamation, subsection (1)(c) applies from the time of the amalgamation as if gross tax deductions and specified superannuation contribution withholding tax deductions payable by the amalgamating company in the year preceding the year in which the amalgamation takes place were payable by the amalgamated company.

(8) In this section, PAYE period means the first PAYE period or the second PAYE period, as the case may require.

Compare: 1994 No 164 s NC 15

Employee's duties where deductions not made

NC 16 Employee to pay deductions to Commissioner

Where for any reason a tax deduction or a combined tax and earner premium deduction or combined tax and earner levy deduction is not made or is not made in full at the time of the making of any source deduction payment or payments, the employee must,—
- (a) not later than the 20th day of the month that next follows the month in which payment of the source deduction payment was made, furnish to the Commissioner an employer monthly schedule containing those particulars that apply to the employee; and
- (b) unless the employee is exempted from liability to pay the same or is not liable to pay the same, pay to the
Commissioner an amount equal to the total of the tax deductions or combined tax and earner premium deductions or combined tax and earner levy deductions that should have been made and were not made, and that amount is due and payable to the Commissioner on the 20th of the month following the month in which payment of the source deduction payment or payments was made.
Compare: 1994 No 164 s NC 16

Miscellaneous provisions

NC 18 Bond in lieu of tax deductions in case of certain non-resident employees

(1) Where the Commissioner is satisfied on the written application of any employer or PAYE intermediary that it cannot be reasonably determined, at the time that a tax deduction is or will be required to be made from a source deduction payment under the PAYE rules, whether or not that source deduction payment will in respect of any employee of that employer be exempt income under this Act under—
- (a) a double tax agreement; or
- (b) section CW 15,—
the Commissioner may accept from the employer or the PAYE intermediary a bond or other form of security satisfactory to the Commissioner securing the payment, on terms acceptable to the Commissioner, of the tax deductions that would, but for this section, have been required to be deducted under the PAYE rules from source deduction payments made to the employee.
(2) If the Commissioner accepts from an employer or a PAYE intermediary a bond or other security under subsection (1), then, in respect of an employee and the period to which the bond or security applies,—
- (a) no tax deduction under the PAYE rules must be made by an employer or a PAYE intermediary from a source deduction payment made to the employee; and
- (b) information in relation to an employee that is, but for this paragraph, required to be included in an employer monthly schedule must not be included in that schedule; and
- (c) the non-declaration rate must not be applied in relation to a source deduction payment made to the employee.
(3) Subsection (2) ceases to apply in respect of any employer, PAYE intermediary, and employee immediately upon the earlier of—
- (a) the occurrence of any event (including the passing of any date or period) that, in terms of any provision of arrangements to which effect is given by an Order in Council made under section BH 1, or in terms of section CW 15, renders the employee liable to income tax under this Act; or
- (b) such date as may be specified by the Commissioner by notice to the employer or the PAYE intermediary (being a date not earlier than that on which the notice is given) as that after which tax deductions are to be made from source deduction payments made to the employee,—
and tax deductions must from that time be made by the employer or the PAYE intermediary in accordance with the PAYE rules.
(4) Where the Commissioner is satisfied that an employee is liable for income tax in respect of any source deduction payment from which no tax deduction was made by virtue of subsection (2),—
- (a) the Commissioner must advise the employer or the PAYE intermediary accordingly by notice; and
- (b) the employer or the PAYE intermediary must account for, and pay to the Commissioner, an amount equal to the tax deductions that would have been due in respect of that employee if subsection (2) had not applied, or such lesser amount as may be determined by the Commissioner.
(5) Any amount paid to the Commissioner under subsection (4) is deemed to be a tax deduction made from a source deduction payment under the PAYE rules and, subject to section 120U of the Tax Administration Act 1994, is deemed to have been made on the date that notice was given by the Commissioner under that subsection.

Compare: 1994 No 164 s NC 18

NC 19 Amount of tax deductions deemed to be received by employee

Where any amount has been deducted from a source deduction payment by way of tax deduction, or combined tax and earner premium deduction, or combined tax and earner levy deduction under the PAYE rules and, where applicable, section 115 of the Accident Rehabilitation and Compensation Insurance Act 1992 or section 285 of the Accident Insurance Act 1998 or section 221 of the Injury Prevention, Rehabilitation, and Compensation Act 2001, the amount so deducted—
- (a) is deemed to have been received by the employee at the time of the source deduction payment:
- (b) for the purposes of this Act, is deemed to have been derived by the employee at the same time and in the same way as the residue of the source deduction payment.
Compare: 1994 No 164 s NC 19

NC 20 Application of other provisions to amounts payable under PAYE rules

(1) Subject to the PAYE rules, this Act and the Tax Administration Act 1994 apply with respect to every amount other than any earner premium deduction payable in accordance with section 115 of the Accident Rehabilitation and Compensation Insurance Act 1992 or section 285 of the Accident Insurance Act 1998 or an earner's levy payable under section 221 of the Injury Prevention, Rehabilitation, and Compensation Act 2001 that any employer, PAYE intermediary, employee, or other person is liable to account for or pay to the Commissioner under the PAYE rules as if the amount were income tax; but nothing in the PAYE rules should be construed so as to include any such amount in the terms “income tax” or “tax” for the purposes of section sections 120KB to 120KE of the Tax Administration Act 1994.

(2) Sections 156 to 165 and 211 of the Tax Administration Act 1994 apply with respect to combined tax and earner premium deductions or combined tax and earner levy deductions as if those deductions were income tax.
(3) For the purposes of the PAYE rules, sections 156 to 165, 143, and 143A of the Tax Administration Act 1994, and section 115 of the Accident Rehabilitation and Compensation Insurance Act 1992 or section 285 of the Accident Insurance Act 1998 or section 221 of the Injury Prevention, Rehabilitation, and Compensation Act 2001, nothing in those Acts or in this Act should be treated as requiring or having required—
- (a) the separate identification of those amounts of a combined tax and earner premium deduction or combined tax and earner levy deduction that are attributable to—
  - (i) a tax deduction required to be made by an employer or a PAYE intermediary under the PAYE rules; or
  - (ii) a deduction required to be made by an employer under section 115 of the Accident Rehabilitation and Compensation Insurance Act 1992 or section 285 of the Accident Insurance Act 1998 on account of the earner's premium or earner's levy payable under that section; or
  - (iii) a deduction required to be made by an employer or a PAYE intermediary under section 221 of the Injury Prevention, Rehabilitation, and Compensation Act 2001 on account of the earner's premium or earner's levy payable under that section; or
- (b) the bringing of separate proceedings or other separate treatment in relation to the collection, recovery, or imposition of penalties in relation to those types of deduction,—
in respect of any such deductions that, on or after 5 August 1993, have not been paid to the Commissioner in accordance with either of those Acts or this Act by the employer or the PAYE intermediary required to make the deductions.
Compare: 1994 No 164 s NC 20

Section NC 20(1): amended, on 1 October 2007, by section 165(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

NC 21 Regulations

Without limiting the general power to make regulations under the Tax Administration Act 1994, regulations may be made under this Act or that Act for all or any of the following purposes:
- (a) declaring any specified payment or payments of any specified class—
  - (i) to be included in or excluded from the definition of extra pay ; or
  - (ii) to be included in or excluded from the definition of salary or wages ; or
  - (iii) to be a withholding payment or payments, or not to be a withholding payment or payments, for the purposes of the PAYE rules:
- (b) prescribing the amounts of the tax deductions to be made from withholding payments or from any specified withholding payment or from withholding payments of any specified class:
- (c) providing that the Commissioner may, on the application of any person, specify an amount or a rate of tax deduction, other than the prescribed rate of tax deduction, to be made from withholding payments made to that person:
- (d) providing, in relation to any specified withholding payment, or withholding payments of any specified class, or withholding payments not exceeding any specified amount, that, subject to any provisions of the regulations, the amount of income tax for which the person receiving the payment or payments is liable in respect of the payment or payments must be determined exclusively and finally by the total amount of the tax deductions required under the PAYE rules to be made from the payment or payments:
- (e) providing that a tax deduction may be made from a withholding payment, notwithstanding that the payment may be protected against assignment or charge:
- (f) providing that a tax deduction may be made from the gross amount of a withholding payment, whether or not it consists wholly or partly of income, or from so much of a withholding payment as remains after the subtraction from the withholding payment of any part of it regarded as expenditure incurred in the production of the payment:
- (g) providing that the Commissioner may determine, on such basis as the Commissioner thinks fit, what amount or proportion of any specified withholding payment, or withholding payments of any specified class, is to be regarded as expenditure incurred in the production of the payment or payments, and for the determination of the Commissioner to be final and conclusive, subject to any revocation or variation of the determination by the Commissioner:
- (h) providing that a tax deduction may be made from a withholding payment, whether the amount of the deduction relates exclusively to the income tax liability of the person receiving the payment or relates partly to that income tax and partly to the income tax liability of any employee or subcontractor of that person; and providing in the latter case for that person to recover from the employee or subcontractor a part of the tax deduction and to retain that part but otherwise to comply with the PAYE rules in respect of any tax deduction made by that person from any payment to the employee or subcontractor:
- (i) providing that the regulations or any of them do not apply in respect of payments made to any specified person, or to persons of any specified class, to whom the Commissioner gives notice to that effect.
Compare: 1994 No 164 s NC 21

Subpart ND—Fringe benefit tax

ND 1 Employer's liability for fringe benefit tax

Value of fringe benefits

ND 1A Private use of motor vehicle: value of benefit

ND 1AB Private use of motor vehicle: 24-hour period

ND 1B Private use of motor vehicle: test period to establish private use

ND 1C Subsidised transport: value of benefit

ND 1D Employment-related loans: value of benefit using prescribed interest

ND 1DB Employment-related loans: election to value benefit using market interest

ND 1E Employment-related loans: repayment

ND 1F Employment-related loans: regulations

ND 1G Meaning of prescribed interest

ND 1H Contributions to superannuation schemes: value of benefit

ND 1I Contributions to funds, trusts, and insurance: value of benefit

ND 1IB Benefits provided by charitable organisations

ND 1J Goods: value of benefit

ND 1K Services: value of benefit

ND 1L When value of fringe benefit cannot be ascertained

ND 1M Meaning of identical goods

ND 1N Goods at staff discount

ND 1O Goods on special with staff discount

ND 1P Definitions for sections ND 1N and ND 1O

ND 1Q Unclassified benefits

ND 1R Adjustments for unclassified benefits on amalgamation

Taxable value of fringe benefits

ND 1S Payments towards fringe benefits

ND 1T Private use of motor vehicle: determining taxable value in cases of part ownership

ND 1U Private use of motor vehicle: when schedular value not used

ND 1V Private use of motor vehicle: when schedular value used

Payment of fringe benefit tax

ND 1W Application

ND 2 Election to pay fringe benefit tax per quarter

ND 3 Attributed fringe benefits

ND 4 Attributed fringe benefits: exception for subsidised transport

ND 5 Multi-rate calculation for attributed fringe benefits

ND 5A Special rule for fringe benefits attributed to shareholder-employees or employees receiving attributed income

ND 6 Calculation of fringe benefit tax on non-attributed fringe benefits

ND 7 Definition of cash remuneration

ND 7A Timing of certain cash remuneration

ND 8 Special rule for employer who stops employing staff during tax year

ND 8B Special rule for employer who is charitable organisation providing short-term charge facility

ND 9 Payment of fringe benefit tax: first 3 quarters of tax year

ND 10 Payment of fringe benefit tax: final quarter of tax year

ND 11 Payment of fringe benefit tax: no fringe benefit provided during quarter

ND 12 Special filing rule for employer who stops employing staff during tax year

ND 13 Payment of fringe benefit tax on annual basis for employees who are not shareholder-employees

ND 14 Payment of fringe benefit tax on income year basis for shareholder-employees

ND 15 Change in period for which fringe benefit tax payable

ND 16 Amendment to thresholds for fringe benefit categories by Order in Council

ND 1 Employer's liability for fringe benefit tax

(1) Subject to section ND 1V, an employer who has provided or granted a fringe benefit to an employee is liable to pay a special tax by way of an income tax to be known as fringe benefit tax.
(2) An employer must do 1 of the following:
- (a) elect to pay fringe benefit tax at the rate of either 49% or 64% of the taxable value of a fringe benefit for the first 3 quarters of a tax year in accordance with section ND 2 and pay fringe benefit tax for the final quarter in accordance with both sections ND 5 and ND 6; or
- (b) pay fringe benefit tax at the rate of 64% of the taxable value of a fringe benefit for the first 3 quarters of a tax year and either—
  - (i) pay fringe benefit tax for the final quarter in accordance with both sections ND 5 and ND 6; or
  - (ii) pay fringe benefit tax for the final quarter at the rate of 64% of the taxable value of a fringe benefit; or
- (c) if the employer pays fringe benefit tax on either an annual or an income year basis under section ND 13 or ND 14 respectively, either—
  - (i) apply sections ND 5 and ND 6 to a year and calculate and pay the resulting fringe benefit tax liability; or
  - (ii) pay fringe benefit tax at the rate of 64% of the taxable value of a fringe benefit.
(3) An employer who applies subsection (2)(c)(i) must apply sections ND 5 and ND 6 as if references to the final quarter of the year were read as being to the tax year, or the income year, as the case may be.

(4) An employer who has elected to pay fringe benefit tax under subsection (2)(b)(ii) may request the Commissioner to amend the fringe benefit tax liability calculated by providing the Commissioner with the necessary information to amend the fringe benefit liability so that it is calculated under subsection (2)(b)(i).

(5) An employer who has elected to pay fringe benefit tax under subsection (2)(c)(ii) may request the Commissioner to amend the fringe benefit tax liability calculated by providing the Commissioner with the necessary information to amend the fringe benefit liability so that it is calculated under subsection (2)(c)(i).

(6) An employer must provide the information to the Commissioner during the 2 months that occur after the date of the notice advising that an assessment for the final quarter, or the year, has been made.

Compare: 1994 No 164 s ND 1

Value of fringe benefits

ND 1A Private use of motor vehicle: value of benefit

(1) This section determines the value of the benefit that an employer provides to an employee by making a motor vehicle available for their private use. The taxable value of the fringe benefit when the vehicle is owned in part by an employee or a person associated with the employee is dealt with in sections ND 1U to ND 1V.

(1B) In the first return under this subpart (initial return) by an employer for a vehicle, the employer may calculate the value of the benefit using either of the valuation methods set out in schedule 2, part A.
(1C) The employer must use the method from the initial return in calculating the value of the benefit in a return for the vehicle for a period beginning—
- (a) after the end of the period of the initial return; and
- (b) before the earliest of the following:
  - (i) the date of disposal of the vehicle:
  - (ii) the date on which the vehicle ceases to be leased by the employer or an associated person without a consecutive or successive lease of the vehicle by the employer or an associated person:
  - (iii) the date 5 years after the beginning of the period of the initial return.
(1D) In a return for the vehicle for a period beginning 5 years or more after the beginning of the period of the initial return, the employer may calculate the value of the benefit using either of the valuation methods set out in schedule 2, part A.
(1E) Despite subsections (1B) to (1D), an employer must apply schedule 2, part A item 1 or item 2 using the cost price valuation method if—
- (a) a vehicle is owned, leased or rented by the employer or an associated person; and
- (b) the employer or the associated person owned, leased or rented the vehicle:
  - (i) during the initial return period for that vehicle, being a period beginning before 1 April 2006:
  - (ii) before 1 April 2006.
(1F) Subsection (1E) does not apply if—
- (a) the employer's initial return for the vehicle is for a period beginning on or after 1 April 2006 and the vehicle is not subject to an agreement or arrangement referred to in section CX 6B; or
- (b) the vehicle is owned by the employer or the associated person and there has been a period of 5 years after the beginning of the period of the employer's initial return for the vehicle.
(2) If fringe benefit tax is paid quarterly, the value of the benefit is calculated using the formula—

(3) If fringe benefit tax is paid annually, the value of the benefit is the total of the amounts calculated under subsection (2) for the 4 quarters in the applicable tax year.

(4) If fringe benefit tax is paid on an income year basis, the value of the benefit is calculated using the formula—
(5) In the formula,—
- (a) in subsection (2), days refers to the number of days in the quarter on which the motor vehicle is made available for private use, reduced by the number of days on which the vehicle was a work-related vehicle, or 90, whichever is less:
- (b) in subsection (4), days refers to the number of days in the income year on which the vehicle is made available for private use, reduced by the number of days on which the vehicle was a work-related vehicle:
- (c) schedule 2 amount refers to the amount calculated under schedule 2, part A, as the value of the benefit that would have been received for unlimited private use of the vehicle in that quarter or income year, as applicable.
(6) To calculate the value of the benefit, an employer may choose to use a test period to establish private use.

Compare: 1994 No 164 s CI 3(1), CI 11(1)

Subsections (1B) to (1D) were inserted, as from 1 April 2006, by section 166(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

Subsection (1C)(b)(ii) was amended, as from 1 April 2006, by section 137(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “ceases to be leased by the employer or an associated person without a consecutive or successive lease of the vehicle by the employer or an associated person” for “ceases to be leased” with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

Subsections (1E) and (1F) were inserted, as from 1 April 2006, by section 137(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

ND 1AB Private use of motor vehicle: 24-hour period

(1) This section applies for the purposes of the calculation of the value of a benefit under section ND 1A.
(2) In section ND 1A(5)(a) and (b), in relation to a motor vehicle and the item days in the formulas in section ND 1A(2) and (4), a day is—
- (a) a 24-hour period starting at midnight, if the person who owns or leases the motor vehicle does not make an election under paragraph (b):
- (b) a 24-hour period starting from the time in a day that is elected under this section by the person who owns or leases the motor vehicle.
(3) For the purposes of subsection (2)(b), the person must—
- (a) choose a starting point for the day that is a whole number of hours after midnight; and
- (b) notify the Commissioner of the election when providing the next return that relates to the motor vehicle.
(4) An election under subsection (3) is effective from the start of the quarter, income year, or tax year to which the return relates, and applies to all motor vehicles in relation to which the person provides a return.

(5) If the person chooses a particular hour in the 24-hour period as the starting point of the day under subsection (3), that hour continues to apply to the use of the motor vehicle or vehicles from the start of the relevant quarter, income year, or tax year as applicable, for a minimum period of 2 income years.
(6) An employer may apply to the Commissioner to amend the starting point of the 24-hour period or to treat the election as revoked if the employer's circumstances have changed in a way that—
- (a) is more than minor; and
- (b) makes the starting point no longer relevant to the employer's business.
Subsection ND 1AB was inserted, as from 1 April 2006, by section 167(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

ND 1B Private use of motor vehicle: test period to establish private use

(1) To establish the value of the benefit provided through a motor vehicle being made available to an employee for their private use, an employer may choose to record the details of the use of the vehicle by the employee for a test period. The number of days on which a vehicle is available for an employee's private use that is ascertained in the test period is the number used in the calculation in section ND 1A(2). The number used in the calculation in section ND 1A(4) is the number of days ascertained in the test period multiplied by 4.

(2) If fringe benefit tax is paid quarterly or annually, the test period is a quarter. If fringe benefit tax is paid on an income year basis, the test period is 3 consecutive months of an income year.

(3) The employer must choose a test period that shows, or is likely to show, a pattern of use of the motor vehicle by the employee that fairly represents the use of the vehicle by the employee over the whole of the applicable term. The employer must keep a record of the test period, including accurate details of the days in the period on which the vehicle is available for the employee's private use. For this purpose, a day on which the vehicle is a work-related vehicle is treated as a day on which the vehicle is not available for private use.
(4) The number of days of availability for private use ascertained in the test period applies for a term of 3 years. The term starts, as applicable, as follows:
- (a) if fringe benefit tax is paid quarterly, on the first day of the test period:
- (b) if fringe benefit tax is paid annually, on the first day of the tax year in which the test period occurs:
- (c) if fringe benefit tax is paid on an income year basis, on the first day of the income year in which the test period occurs.
(5) The term is reduced if the actual number of days of actual private use of the motor vehicle is 20 or more percentage points higher than the number ascertained in the test period. In this case, the term ends on the last day of the applicable quarter, year, or income year. If the employer chooses to start another test period, the existing term ends immediately before the start of the new term.

(6) If the Commissioner considers that the result ascertained in the test period does not, or does no longer, fairly represent the actual private use of the motor vehicle by the employee, the Commissioner may give notice to the employer that the term will end on a specified date. Following notification, the employer must not use that result again.

(7) A replacement motor vehicle is treated in the same way as the vehicle it replaces if the result ascertained in the test period is likely to be fairly representative of the average availability for the private use of the vehicle during the term.

Compare: 1994 No 164 s CI 11

ND 1C Subsidised transport: value of benefit

(1) If an employer provides their employee with subsidised transport, the value of the benefit is 25% of the highest fare the employer charges the public for the equivalent transport (in terms of class, extent, and occasion). This subsection is overridden by subsection (2).

(2) Despite section CX 2(2), if the fringe benefit is provided under an arrangement with a third person, the value of the benefit is determined under subsection (3).
(3) If a third person provides the employee with subsidised transport under an arrangement with their employer, the value of the benefit is the greatest of—
- (aa) 25% of the highest fare the third person charges the public for the equivalent transport (in terms of class, extent, and occasion), if the third person is a company in the same group of companies as the employer; and
- (a) 25% of the highest fare the employer charges the public for the equivalent transport (in terms of class, extent, and occasion); and
- (b) the amount that the employer has paid or is liable to pay the person for the benefit provided.
(4) In this section, for a registered person who may claim input tax for subsidised transport, amount means the GST-inclusive amount.

Compare: 1994 No 164 s CI 3(6), (8A)

Subsection (3) was amended, as from 1 April 2005, by section 138(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “the benefit is the greatest of—” for “the benefit is the greater of—” with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

Subsection (3)(aa) was inserted, as from 1 April 2005, by section 138(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

ND 1D Employment-related loans: value of benefit using prescribed interest

The value of a benefit provided by way of an employment related loan by an employer who does not make an election under section ND 1DB in a period is the amount by which the prescribed interest on the loan is more than—
- (a) the amount of interest that accrued on the loan in that period; or
- (b) when the loan is a financial arrangement and it is appropriate having regard to the nature of the loan, the income that would have accrued to the employer's benefit in that period as calculated under the yield to maturity method.
Compare: 1994 No 164 s CI 3(2)

The heading to section ND 1D was amended, as from 1 April 2006, by section 168(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting the words “using prescribed interest” after the word “benefit” with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

Section ND 1D was amended, as from 1 April 2006, by section 168(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by inserting the words “by an employer who does not make an election under section ND 1DB” after the words “employment-related loan” with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

ND 1DB Employment-related loans: election to value benefit using market interest

(1) An employer in the business of lending money to members of the public may choose that the value of a benefit provided by the employer by way of an employment-related loan be determined using the market interest on the loan.
(2) If an employer makes an election under subsection (1), the value of a benefit provided by the employer by way of an employment-related loan in a period is the amount by which the market interest on the loan is more than—
- (a) the amount of interest that accrued on the loan in that period; or
- (b) when the loan is a financial arrangement and it is appropriate having regard to the nature of the loan, the income that would have accrued to the employer's benefit in that period as calculated under the yield to maturity method.
(3) Having made an election under subsection (1), an employer must use the method for the income year to which the choice relates and for the next following income year.

(4) An employer may not change the method of calculating the value of the benefit for an income year unless the employer notifies the Commissioner of the proposed change at least 1 year before the beginning of the income year in which the change is to occur.
(5) In this section, market interest means the amount of interest calculated at the interest rate that would apply to a borrower belonging to a group of persons to whom a loan of the kind provided to the employee is offered when that group meets the following requirements:
- (a) the group is assessed as having a comparable credit risk to the group to which the employee belongs; and
- (b) membership of the group arises from factors that do not include a link between a member and the employer; and
- (c) the group is of sufficient number to ensure a transaction on an arm's-length basis.
(6) For the purposes of a calculation under subsection (5), the amount of interest is the amount accrued on the loan during the quarter or tax year calculated on the daily balance of that loan at the rate referred to in that subsection.

Section ND 1DB was inserted, as from 1 April 2006, by section 169(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

ND 1E Employment-related loans: repayment

(1) For the purposes of section ND 1D, an amount of income that is applied in a tax year to repay an employment-related loan is treated as having been applied towards repayment on the first day of the tax year or, if the date of the advance of the loan falls after that day, that later date.
(2) Subsection (1) applies only to income that—
- (a) an employee derives from their employer by way of salary or wages, extra pay, dividend, or interest; and
- (b) is not resident withholding income, non-resident withholding income, or an amount subject to tax deduction under the PAYE rules; and
- (c) is income of the employee in the tax year in which it is applied to repay the loan or in an earlier tax year.
(3) If the amount that the employee derives and that is applied in this way relates to a tax year following the tax year in which it is applied to repay the loan, the employee may treat the amount as having been derived in that earlier tax year. If so, the employee must give notice to the Commissioner of their decision within the time allowed to the employer for filing a return of income or within a longer time that the Commissioner allows.

(4) If the employer has a non-standard accounting year, references in this section to an employer's tax year are treated as references to that accounting year.

Compare: 1994 No 164 s CI 3(3)-(5)

ND 1F Employment-related loans: regulations

(1) The Governor-General may make regulations by Order in Council to declare the rate of interest applying to employment-related loans.

(2) When regulations referred to in subsection (1) are made, they apply to quarters starting from a date at least 1 month after the date the regulations were made. Regulations that reduce the rate of interest from the prescribed rate of interest at the time, if made at least 1 month before the quarter ends, may apply for that quarter.

Compare: 1994 No 164 s CI 6

ND 1G Meaning of prescribed interest

In sections ND 1D and ND 1F, prescribed interest means,—
- (a) except as provided in paragraph (b), the amount of interest that would have accrued on the loan during the quarter or tax year had the interest been calculated on the daily balance of that loan at the prescribed rate of interest:
- (b) for loans made on or before 31 March 1985, the interest on which is not subject to review, the amount of interest that would have accrued on the loan during the quarter or tax year had the interest been calculated on the daily balance of the loan at the non-concessionary rate of interest for—
  - (i) the tax year in which the agreement to make the loan was signed; or
  - (ii) if the agreement was not in writing, the year in which the loan was agreed to by all parties.
Compare: 1994 No 164 s OB 1 prescribed interest

Section ND 1G was amended, as from 1 April 2005, by section 139(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “sections ND 1D” for “sections ND 1E” with application as from the 2005–06 income year.

ND 1H Contributions to superannuation schemes: value of benefit

(1) The value of a benefit by way of an employer's contribution to a superannuation scheme is the amount of the contribution made by the employer.

(2) In this section, for a registered person who may claim input tax for a contribution to a superannuation scheme, amount means the GST-inclusive amount.

Compare: 1994 No 164 s CI 3(8), (8A)

ND 1I Contributions to funds, trusts, and insurance: value of benefit

(1) The value of a benefit provided by way of a contribution to a sickness, accident, or death benefit fund is the amount of the contribution made by the employer.

(1A) The value of a benefit provided by way of a contribution to a funeral trust is the contribution made by the employer.

(2) The value of a benefit provided by way of a specified insurance premium is the amount of the premium paid by the employer.

(3) The value of a benefit provided by way of a contribution to an insurance fund of a friendly society is the amount of the contribution made by the employer.

Compare: 1994 No 164 s CI 3(7), (8)

ND 1IB Benefits provided by charitable organisations

The value under section CX 21(2) of a benefit provided by a charitable organisation by way of a short-term charge facility is the sum of—
- (a) the amount that the organisation pays for or towards the purchase or the hire of the goods and services obtained by the employee under the short-term charge facility:
- (b) any interest incurred in relation to the purchase or hire of the goods and services:
- (c) if the short-term charge facility is a credit card or charge card provided for an employee's use solely for purposes unconnected with the organisation or its operations, the associated account or service fees.
Section ND 1IB was inserted, as from 1 April 2006, by section 170(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

ND 1J Goods: value of benefit

(1) The value of a fringe benefit that consists of the provision of goods is determined as follows:
- (a) when the person providing the goods manufactured, produced, or processed them, their market value:
- (b) when the person providing the goods bought them, or paid for them to be bought, dealing at arm's length with the supplier of the goods, the cost of the goods to the person:
- (c) if the person providing the goods is a company included in a group of companies, then, as the person chooses, the value of the benefit under either paragraph (a) or (b), applying the provisions as if the group of companies were 1 company.
This subsection is overridden by subsection (2).
(2) If the value of the fringe benefit as determined under subsection (1) would be more than the amount that would have been paid to the employer for the purchase of the goods in a sale described in paragraphs (a) to (d), then the value is treated as that amount. The sale is one that is—
- (a) at retail in the open market in New Zealand; and
- (b) freely offered; and
- (c) made on ordinary trade terms; and
- (d) to a member of the public with whom the employer is at arm's length.
(3) In this section,—

cost, for a registered person who may claim input tax for the goods, means the GST-inclusive cost of the goods bought or the amount that the person paid for the goods

market value means the lowest price, at the time at which the goods were provided to the employee, for which identical goods were sold by the same person to an arm's length buyer (whether wholesaler, retailer, or the public) in the open market in New Zealand in a sale freely offered and made on ordinary trade terms

price, for a registered person who may claim input tax for goods that they manufacture, produce, or process, means the GST-inclusive price of those goods to that person.

Compare: 1994 No 164 s CI 3(9), (9A)

ND 1K Services: value of benefit

(1) The value of a fringe benefit that consists of providing services (other than making available a motor vehicle for private use, providing an employment-related loan, or providing subsidised transport) is,—
- (a) when an employer normally provides the services as part of their business, the price charged by the employer, at the time they provided the services, for the same or similar services to the public in the open market in New Zealand on ordinary trade or professional terms between buyers and sellers independent of each other:
- (b) when an employer pays for the services to be provided, dealing at arm's length with the supplier of the services, the amount paid or payable:
- (c) if neither paragraph (a) nor (b) applies, the price or fee that the employer or supplier providing the services would at that time have charged the public, had they provided the same or similar services to the public in the open market in New Zealand on ordinary trade or professional terms.
(1B) For the purposes of subsection (1), a person providing services to an employee belonging to a group of employees is to be treated as providing the same or similar services to the public in the open market in New Zealand on ordinary trade or professional terms if the person provides the same or similar services to a group of persons that—
- (a) negotiates the transaction on an arm's-length basis; and
- (b) is comparable in number to the group of employees.
(2) In this section,—

amount, for a registered person who may claim input tax for that service, means the GST-inclusive amount

fee and price, for a registered person who may claim input tax for that service, mean the GST-inclusive fee or price.

Compare: 1994 No 164 s CI 3(10), (10A)

Subsection (1B) was inserted, as from 1 April 2006, by section 171(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

ND 1L When value of fringe benefit cannot be ascertained

(1) If, under sections ND 1A, ND 1C to ND 1E, and ND 1I to ND 1K, the value of a fringe benefit cannot be ascertained, the value is the market value or otherwise as the Commissioner determines.
(2) In this section, market value means the price, at the time at which the goods or services were provided to the employee, for which the goods or services would normally be sold in a sale—
- (a) in the open market in New Zealand; and
- (b) freely offered; and
- (c) made on ordinary trade terms; and
- (d) to a member of the public at arm's length.
Compare: 1994 No 164 s CI 3(11)

ND 1M Meaning of identical goods

In the fringe benefit tax rules, identical goods, for any goods, means other goods that are the same in terms of physical characteristics, quality, and reputation, except for minor differences in appearance that do not affect the value of the goods.

Compare: 1994 No 164 s OB 1 identical goods

ND 1N Goods at staff discount

(1) This section applies to goods that an employer sells in the normal course of their business to an employee when all the following apply:
- (a) the retail price of identical goods is $200 or less to an arm's length buyer in the open market in New Zealand in a sale freely offered and made on ordinary trade terms; and
- (b) the price of the goods to the employee is lower than their cost to the employer, the difference resulting from a staff discount that the employer normally provides to employees; and
- (c) at the time of the sale, the staff discount is no more than 5% of the price of identical goods in the circumstances referred to in paragraph (a).
(2) The goods are treated as having been sold at a price equal to the cost of the goods to the employer.

Compare: 1994 No 164 s CI 2(6)

ND 1O Goods on special with staff discount

(1) This section applies to goods that an employer sells to an employee on a day when the employer is selling identical goods at a special price and when all the following apply:
- (a) the price of the identical goods is $200 or less to an arm's length buyer in the open market in New Zealand in a sale freely offered and made on ordinary trade terms; and
- (b) the price of the goods to the employee is lower than their cost to the employer, the difference resulting from a staff discount that the employer offers to the employee in addition to any other discount; and
- (c) immediately before or immediately after the sale, a reasonable quantity of those goods is available in the open market in New Zealand; and
- (d) the price is at least 95% of the cost of the goods to the employer, or at least 95% of the price on the day of the sale of the identical goods to the public in the open market in New Zealand, whichever is less.
(2) The goods are treated as having been sold at a price equal to the cost of the goods to the employer.

Compare: 1994 No 164 s CI 2(5)

ND 1P Definitions for sections ND 1N and ND 1O

(1) In sections ND 1N and ND 1O,—

cost, for a registered person who may claim input tax for the cost of the goods, means the GST-inclusive cost of the goods to the person

price, for a registered person who may claim input tax for goods provided to an employee, means the GST-inclusive price.

(2) For the purposes of sections ND 1N and ND 1O, if a company that is included in a group of companies sells goods to an employee of another company in the group, the sale is treated as if it were made directly from employer to employee.

Compare: 1994 No 164 s CI 2(6A), (7)

ND 1Q Unclassified benefits

(1) An employer is liable to pay fringe benefit tax on an unclassified benefit only within the limits described in this section.
(2) When fringe benefit tax is paid quarterly, an employer is liable for fringe benefit tax on an unclassified benefit provided to an employee in a quarter only if—
- (a) the total taxable value of all unclassified benefits provided in the quarter by the employer to the employee is more than $200; or
- (b) the total taxable value of all unclassified benefits provided in the last four quarters including the current quarter by the employer to all employees of the employer (whether accounted for on a quarterly or an income year basis) is more than $15,000.
(3) When fringe benefit tax is paid either annually or on an income year basis (except when subsection (4) applies), an employer is liable for fringe benefit tax on unclassified benefits provided to an employee in the tax year or income year only if—
- (a) the total taxable value of all unclassified benefits provided in the tax year or income year by the employer to the employee is more than $800; or
- (b) the total taxable value of all unclassified benefits provided in the tax year or income year by the employer to all employees of the employer is more than $15,000.
(4) When an employer accounts for fringe benefit tax on an income year basis, and the period for which they have accounted under section ND 14 differs from an income year for the reasons described in subsection (5), an employer is liable for fringe benefit tax on unclassified benefits provided in the period only if—
- (a) the total taxable value of all unclassified benefits provided in the period by the employer to an employee is more than the figure that is the same fraction or multiple of $800 as the number of days in the period is a fraction or multiple of 365; or
- (b) the total taxable value of all unclassified benefits provided in the period by the employer to all employees of the employer is more than the figure that is the same fraction or multiple of $15,000 as the number of days in the period is a fraction or multiple of 365.
(5) In subsection (4), the income year for which the employer has accounted may be longer or shorter than the normal income year because the employer has either—
- (a) started or ceased business during that income year; or
- (b) chosen (with the agreement of the Commissioner) to file a return under this subpart for the income year ending with the date of the annual balance of their accounts.
(6) In this section, employer includes a person associated with an employer at any time in the relevant period.

Compare: 1994 No 164 s CI 5

Subsection (2)(a) was amended, as from 1 April 2006, by section 172(1)(a)(i) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the expression “$200” for the expression “$75” with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

Subsection (2)(b) was amended, as from 1 April 2006, by section 172(1)(a)(ii) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the words “the last four quarters including the current quarter” for the words “the quarter” with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

Subsection (2)(b) was amended, as from 1 April 2006, by section 172(1)(a)(iii) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the expression “$15,000” for the expression “$450” with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

Subsection (3)(a) was amended, as from 1 April 2006, by section 172(1)(b)(i) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the expression “$800” for the expression “$300” with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

Subsection (3)(b) was amended, as from 1 April 2006, by section 172(1)(b)(ii) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the expression “$15,000” for the expression “$1,800” with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

Subsection (4)(a) was amended, as from 1 April 2006, by section 172(1)(c)(i) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the expression “$800” for the expression “$300” with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

Subsection (4)(b) was amended, as from 1 April 2006, by section 172(1)(c)(ii) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the expression “$15,000” for the expression “$1,800” with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

ND 1R Adjustments for unclassified benefits on amalgamation

(1) This section applies when a company that is an employer ceases to exist through amalgamation or when a new company is established on amalgamation. An adjustment is allowed for unclassified benefits in the period in which the amalgamation occurs.

(2) If the amalgamating company pays fringe benefit tax quarterly, an adjustment must be made in the quarter in which the amalgamation occurs reducing the figure of $15,000 referred to in section ND 1Q(2)(b) by an amount calculated using the formula—

(3) If an amalgamated company pays fringe benefit tax quarterly, and the amalgamated company is a new company established on amalgamation, an adjustment must be made in the quarter in which the amalgamation occurs reducing the figure of $15,000 referred to in section ND 1Q(2)(b) by an amount calculated using the formula—

(4) If the amalgamating company pays fringe benefit tax annually, an adjustment must be made for the year in which the amalgamation occurs reducing the figure of $15,000 referred to in section ND 1Q(3)(b) by an amount calculated using the formula—

(5) If the amalgamated company pays fringe benefit tax annually, and the amalgamated company is a new company established on amalgamation, an adjustment must be made for the year in which the amalgamation occurs reducing the figure of $15,000 referred to in section ND 1Q(3)(b) by an amount calculated using the formula—

Compare: 1994 No 164 s CI 7

Subsection (2) was amended, as from 1 April 2006, by section 173(1)(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the expression “$15,000” for the expression “$450” with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

Subsection (2) formula was substituted, as from 1 April 2006, by section 173(1)(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

Subsection (3) was amended, as from 1 April 2006, by section 173(2)(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the expression “$15,000” for the expression “$450” with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

Subsection (3) formula was substituted, as from 1 April 2006, by section 173(2)(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

Subsection (4) was substituted, as from 1 April 2006, by section 173(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

Subsection (5) was inserted, as from 1 April 2006, by section 173(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

Taxable value of fringe benefits

ND 1S Payments towards fringe benefits

(1) The taxable value of a fringe benefit is the value of the benefit.

(2) If an employee pays a sum for receiving a fringe benefit, the value of the benefit is reduced by the amount paid.

(3) When section GC 15(1) applies, the value of the benefit is reduced if a person associated with the employee pays an amount for the benefit.
(4) This section does not apply to—
- (a) an employment-related loan:
- (b) a payment to acquire or improve an asset if receiving or using the asset does not constitute a fringe benefit.
Compare: 1994 No 164 s CI 4(1)(a)

ND 1T Private use of motor vehicle: determining taxable value in cases of part ownership

When a fringe benefit is provided by way of a motor vehicle being made available to an employee for their private use, and the vehicle is owned in part by the employee (or, when section GC 15(1) applies, a person associated with the employee), the taxable value of the fringe benefit is determined under either section ND 1U or ND 1V.

Compare: 1994 No 164 s CI 4(1)(b)

ND 1U Private use of motor vehicle: when schedular value not used

(1) This section applies when the employer has not valued the motor vehicle using schedule 2, part A, clause 6.
(2) To calculate the taxable value of the fringe benefit, the value of the benefit determined under section ND 1A is reduced by an amount that is the applicable percentage of the cost price (determined including GST under schedule 2, part A, clause 2) of the motor vehicle to the employee or the associated person as follows:
- (a) if fringe benefit tax is paid quarterly, 2.5%:
- (b) if fringe benefit tax is paid annually, 2.5% for each quarter in which the vehicle was part-owned by the employee or the associated person:
- (c) if fringe benefit tax is paid on an income year basis, 10%.
(3) In subsection (2)(c) and section ND 1V(2)(c) and (3), if the period for which the employer accounts for fringe benefit tax differs from a normal income year for the reasons described in subsection (4), the amount by which the taxable value of the fringe benefit is reduced is a percentage of the cost price (determined including GST under schedule 2, part A, clause 2) of the motor vehicle to the employer or the associated person equal to the amount calculated using the formula—
(4) The period for which the employer has accounted may be longer or shorter than the normal income year because the employer has either—
- (a) begun or ceased business during that income year; or
- (b) chosen (with the agreement of the Commissioner) to file a fringe benefit return for the income year ending with the date of the annual balance of their accounts.
(5) If an employee has not been part-owner of the motor vehicle for the whole of the income year (or the period referred to in subsection (4)), the reduction is reduced by the proportion of the number of days of that income year or period for which the employee was not a part-owner to the total number of days of that income year or period.

Compare: 1994 No 164 s CI 4(1)(b), (2), (3)

Subsection (1) was substituted, as from 1 April 2005, by section 140(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

ND 1V Private use of motor vehicle: when schedular value used

(1) This section applies when the employer has valued the motor vehicle using schedule 2, part A, clause 6.
(2) To calculate the taxable value of the fringe benefit, the value of the benefit determined under section ND 1A is reduced by an amount that is the applicable percentage of the cost price (determined excluding GST) under schedule 2, part A, clause 6(a) in the following way:
- (a) when fringe benefit tax is paid quarterly, by a percentage calculated using the formula—
  
  2.5 + (2.5 x schedule 2 rate):
- (b) when fringe benefit tax is paid annually, by a percentage for each quarter in which the vehicle was part-owned by the employee or associated person calculated using the formula—
  
  2.5 + (2.5 x schedule 2 rate):
- (c) when fringe benefit tax is paid on an income year basis, by a percentage calculated using the formula—
  
  10 + (10 x schedule 2 rate).
(3) In the formula, schedule 2 rate is the rate of GST specified in schedule 2, part A, clause 6(b), (c), (d), or (e) for the employer and the relevant quarter and relevant income year, as applicable.

Compare: 1994 No 164 s CI 4(1)(c)

Subsection (1) was substituted, as from 1 April 2005, by section 141(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

Subsection (2) was amended, as from 1 April 2005, by section 141(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “clause 6(a)” for “clause 3(b)(i)” with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

Subsection (3) was amended, as from 1 April 2005, by section 141(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “clause 6(b), (c), (d), or (e)” for “clause 3(b)(ii) or (iii)” with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

Application

ND 1W Application

(1) The fringe benefit tax rules bind the Crown.

(2) The provisions of this Act and of the Tax Administration Act 1994 apply to fringe benefit tax as if it were income tax imposed under section BB 1, and as if a reference to a tax year were a reference to a quarter or a tax year or an income year, as required. Nothing in the fringe benefit tax rules may be construed to include fringe benefit tax in the words “income tax” or “tax” for the purposes of section OB 6(3).

Compare: 1994 No 164 ss CI 8, CI 10

Payment of fringe benefit tax

ND 2 Election to pay fringe benefit tax per quarter

(1) An employer may elect to pay fringe benefit tax at the rate of 49% of the taxable value of a fringe benefit provided or granted to an employee for any 1 or all of the first 3 quarters of a tax year.

(2) An employer must pay fringe benefit tax at the rate of 64% of the taxable value of a fringe benefit provided or granted to an employee for any of the first 3 quarters of the tax year for which the employer does not pay fringe benefit tax at the rate of 49%.

(3) An employer may make an election under this section by providing a return stipulating the rate chosen.

(4) An election under this section is irrevocable.

(5) Despite subsection (1), an employer must pay fringe benefit tax at the rate of 64% of the taxable value of a fringe benefit provided or granted to an employee for the quarters beginning 1 April 2000 and 1 July 2000.

Compare: 1994 No 164 s ND 2

Subsection (3) was substituted, as from 1 April 2006, by section 174(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

ND 3 Attributed fringe benefits

(1) For each tax year or income year, as the case may be, an employer must attribute the following fringe benefits to the employee to whom the fringe benefit is provided or granted:
- (a) a benefit to which either section CX 6 or CX 9 applies; and
- (b) a benefit with a taxable value of $1,000 or more per category per year to which any 1 of sections CX 8 and CX 12 to CX 15 applies; and
- (c) benefits with a total taxable value of $2,000 or more per year to which section CX 2(1)(b)(ii) applies.
(1A) Subsection (1)(a) does not apply to a loan to which section CX 10 applies (loans owing to life insurers).

(2) If an employer provides or grants a fringe benefit to more than 1 employee and the fringe benefit is one that must be attributed under subsection (1), the employer must attribute the fringe benefit to the employee who principally uses, enjoys, or receives the fringe benefit during a quarter or, if the employer is one to whom section ND 14 applies, during an income year or to the employee to whom the fringe benefit is principally available for private use during a quarter or, if the employer is one to whom section ND 14 applies, during an income year.

(3) An employer who cannot determine which employee principally uses, enjoys, or receives a fringe benefit must pool the fringe benefit under section ND 6.
(4) Subsection (5) applies if an employer provides or grants a fringe benefit to an employee and the fringe benefit—
- (a) has a taxable value of less than $1,000 per category per year to which any 1 of sections CX 8 and CX 12 to CX 15 applies; or
- (b) has a taxable value of less than $2,000 per category per year to which section CX 2(1)(b)(ii) applies.
(5) An employer must either—
- (a) attribute the fringe benefit as if it were a benefit to which subsection (1)(b) or, as the case may be, subsection (1)(c) applies; or
- (b) pool the fringe benefit in accordance with section ND 6.
(6) If an employer attributes a fringe benefit in the manner allowed by subsection (5)(a), the employer must attribute all fringe benefits that have an annual taxable value of less than $1,000 or, as the case may be, $2,000 that fall within that fringe benefit category.

(7) For the purpose of subsection (1), each of sections CX 8 and CX 12 to CX 15, and an unclassified benefit, is a fringe benefit category.

Compare: 1994 No 164 s ND 3

ND 4 Attributed fringe benefits: exception for subsidised transport

Despite section ND 3(1), an employer may pool a fringe benefit with a taxable value of $1,000 or more per year to which section CX 8 applies if all of the employer's employees have the same or similar entitlement to the fringe benefit.

Compare: 1994 No 164 s ND 4

ND 5 Multi-rate calculation for attributed fringe benefits

(1) An employer who attributes a fringe benefit to an employee who is not a major shareholder must calculate the employee's fringe benefit inclusive cash remuneration according to the formula—

cash remuneration – tax on cash remuneration + taxable value of fringe benefit

where—

cash remuneration	is the cash remuneration determined under section ND 7
tax on cash remuneration	is the tax calculated using the basic rates of tax for every $1 of taxable income set out in schedule 1, part B, as if the cash remuneration were taxable income, the only taxable income received by the employee and any rebate of tax allowed under section KC 1, applied as if the employee were resident in New Zealand for the full tax year for the purpose of that section, were taken into account .
taxable value of fringe	is the taxable value of all fringe benefit benefits attributed to the employee in the tax year

(2) An employer who attributes a fringe benefit to an employee who is a major shareholder must calculate the employee's fringe benefit inclusive cash remuneration according to the formula—

cash remuneration – tax on cash remuneration + taxable value of fringe benefit

where—

cash remuneration	is the cash remuneration determined under section ND 7
tax on cash remuneration	is the tax calculated using the basic rates of tax for every $1 of taxable income set out in schedule 1, part B, as if the cash remuneration were the only taxable income received by the employee and any rebate of tax allowed under section KC 1, applied as if the employee were resident in New Zealand for the full income year for the purpose of that section, were taken into account
tax on cash remuneration	is—
	(a) the taxable value of all fringe benefits attributed to the employee in the income year; and
	(b) the taxable value of all fringe benefits attributed to an associate of the employee in the income year if the fringe benefits are not received by the associate as an employee of the employer.

(3) An employer must calculate the tax on each employee's fringe benefit inclusive cash remuneration using the rates specified in schedule 2, part B.

(4) An employer's fringe benefit tax liability for each employee is the result of the formula—

tax on fringe benefit inclusive cash remuneration - tax on cash remuneration

where—

tax on fringe benefit inclusive cash remuneration	is the result of subsection (3)
tax on cash remuneration	is the amount of tax calculated under either subsection (1) or (2), as the case may be.

(5) An employer who applies section ND 5A(2)(a) must deduct from the result of the formula the fringe benefit tax payable at the rate of 49% on attributable fringe benefits in the tax year in which this section is applied to the benefits.

(6) Despite subsections (1) to (5), an employer may disregard the calculations required by this section and instead pay fringe benefit tax at the rate of 63.93% on the taxable value of the attributed fringe benefits.

Compare: 1994 No 164 s ND 5

ND 5A Special rule for fringe benefits attributed to shareholder-employees or employees receiving attributed income

(1) If at the time an employer files their return the employer does not have sufficient information to undertake the calculations required by section ND 5, section ND 5 does not apply—
- (a) in respect of—
  - (i) a shareholder-employee who derives salary, wages, or income to which section OB 2(2) applies; or
  - (ii) an employee who receives attributed income from their employer, being a company or a trust, in accordance with section GC 14D; and
- (b) in the year in which the employer must attribute fringe benefits under section ND 3 to an employee who receives income described under paragraph (a).
(2) In respect of fringe benefits to be attributed to those particular employees, the employer must either—
- (a) pay fringe benefit tax at the rate of 49% of the taxable value of the fringe benefits attributed for the tax year and apply section ND 5 to the benefits in the following tax year; or
- (b) pay fringe benefit tax at the rate of 63.93% of the taxable value of the fringe benefits attributed for the tax year and, despite section ND 3, not apply section ND 5 to the benefits.
Compare: 1994 No 164 s ND 5A

ND 6 Calculation of fringe benefit tax on non-attributed fringe benefits

(1) An employer must pool non-attributed fringe benefits that—
- (a) have a taxable value of less than $1,000 per category per year, being benefits to which any 1 of sections CX 8 and CX 12 to CX 15 applies, and have not been attributed to a particular employee; or
- (b) have a taxable value of less than $2,000 per year, being benefits to which section CX 2(1)(b)(ii) applies, and have not been attributed to a particular employee; or
- (c) fall within section ND 4, being benefits that have a taxable value of $1,000 or more per year to which section CX 8 applies; or
- (d) cannot be attributed to a particular employee; or
- (e) were provided or granted to a former employee; or
- (f) are loans to which section CX 10 applies (loans owing to life insurers).
(2) For the final quarter of the tax year, an employer must—
- (a) create 2 pools and allocate fringe benefits to each pool according to whether a recipient of the pooled fringe benefits is—
  - (i) either—
    - (A) an employee who is a major shareholder; or
    - (B) an associate of an employee who is a major shareholder if the associate does not receive the fringe benefit as an employee of the employer:
  - (ii) an employee to whom subparagraph (i) does not apply; and
- (b) calculate fringe benefit tax on the annual taxable value of the pooled fringe benefits—
  - (i) at the rate of 64% for pooled fringe benefits received or enjoyed by either—
    - (A) an employee who is a major shareholder; or
    - (B) an associate of an employee who is a major shareholder if the fringe benefit is not received by the associate as an employee of the employer:
  - (ii) at the rate of 49% in all other cases.
Compare: 1994 No 164 s ND 6

ND 7 Definition of cash remuneration

(1) For the purposes of section ND 5, if an employee is not a major shareholder, the employee's cash remuneration for the tax year in which a fringe benefit is attributed is the remuneration paid to, credited to, or applied on account of the employee by the employer (employer A) or a related employer during the tax year but does not include the taxable value of a fringe benefit provided or granted by the employer or a related employer.
(2) For the purpose of section ND 5, if an employee is a major shareholder, the employee's cash remuneration for the income year in which a fringe benefit is attributed is the remuneration paid to, credited to, or applied on account of the employee by the employer (employer A) or a related employer, plus—
- (a) dividends and interest derived by the employee from employer A; or
- (b) dividends and interest derived by the employee from a related employer if the related employer is the one who pays or credits remuneration, or who applies remuneration on account of the employee.
(3) For the purposes of subsections (1) and (2), an employer (employer B) is a related employer if employer B is treated as a separate employer from employer A and is—
- (a) a branch or division of employer A; or
- (b) a person associated with employer A.
(4) In this section, remuneration means—
- (a) salary or wages; and
- (b) salary, wages, or income to which section OB 2(2) applies; and
- (ba) an amount attributed in accordance with section GC 14D; and
- (c) extra pays; and
- (d) withholding payments.
Compare: 1994 No 164 s ND 7

ND 7A Timing of certain cash remuneration

(1) Subsection (2) applies if—
- (a) a shareholder-employee derives salary, wages, or income to which section OB 2(2) applies; or
- (b) an amount is attributed by a company or a trust in accordance with section GC 14D.
(2) For the purposes of section ND 5, all of an employee's cash remuneration is treated as being cash remuneration in the year following the year in which the amount was derived or attributed.

Compare: 1994 No 164 s ND 7A

ND 8 Special rule for employer who stops employing staff during tax year

(1) An employer who stops employing staff and does not intend to replace them during a tax year must apply sections ND 5, ND 6, ND 9, and ND 10 as if the final quarter of the year were the quarter in which the employer stops employing staff.

(2) This section does not apply to an employer who continues to provide or grant a fringe benefit to a former employee.
(3) As an alternative to the application of section ND 5(4) or ND 6(2), an employer may choose to pay fringe benefit tax at the rate of 64% of the taxable value of a fringe benefit provided or granted to an employee,—
- (a) making the calculation in relation to the period from the start of the tax year to the date on which the employer stops employing staff; and
- (b) taking into account any earlier payments of fringe benefit tax made in relation to the employee.
Compare: 1994 No 164 s ND 8

Subsection (3) was inserted, as from 1 April 2006, by section 175(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

ND 8B Special rule for employer who is charitable organisation providing short-term charge facility

(1) This rule applies to an employer who is a charitable organisation if—
- (a) the employer provides to an employee in a tax year a benefit by way of a short-term charge facility that is a fringe benefit under section CX 21(2); and
- (b) the employer is required to pay fringe benefit tax for the tax year on a quarterly basis; and
- (c) the value of the benefits by way of short-term charge facilities provided by the employer to the employee in the first quarter of the tax year does not exceed 5% of the employee's salary or wages for the tax year.
(2) The employer's liability to pay fringe benefit tax on the benefits provided in a quarter of the tax year depends on whether the taxable value of the benefits (accumulated benefit value) provided by the employer to the employee in the period from the beginning of the tax year to the end of the quarter exceeds 5% of the employee's salary or wages for the tax year (threshold benefit value).
(3) The employer is liable to pay fringe benefit tax for a quarter of the tax year on—
- (a) nil, if the accumulated benefit value for the quarter does not exceed the threshold benefit value; or
- (b) the accumulated benefit value, if the quarter is the earliest in the tax year for which the accumulated benefit value exceeds the threshold benefit value; or
- (c) the taxable value of the benefits provided to the employee in the quarter, if neither of paragraphs (a) and (b) applies.
Section ND 8B was inserted, as from 1 April 2006, by section 176(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

ND 9 Payment of fringe benefit tax: first 3 quarters of tax year

(1) This section and sections ND 10 to ND 12 do not apply to an employer who pays fringe benefit tax—
- (a) on an annual basis under section ND 13; or
- (b) on an income year basis under section ND 14.
(2) For each of the first 3 quarters of a tax year or an income year, an employer to whom section BE 1(4) applies must forward to the Commissioner a return, in a form prescribed by the Commissioner, setting out,—
- (a) for the fringe benefits received or enjoyed by each of the employer's employees in a quarter, such details as are prescribed in the form; and
- (b) a calculation of the amount of fringe benefit tax payable on the taxable value of the fringe benefits.
(3) An employer must forward the return no later than 20 days after the end of the quarter, and is liable to pay to the Commissioner the amount calculated on or before the end of the 20th day.

Compare: 1994 No 164 s ND 9

ND 10 Payment of fringe benefit tax: final quarter of tax year

(1) If an employer elects to pay fringe benefit tax in accordance with sections ND 5 and ND 6, the employer's fringe benefit tax liability for the final quarter of the tax year is the total of all amounts calculated under sections ND 5(4) and ND 6(2) less the amount of the fringe benefit tax payable for the previous 3 quarters of the tax year.
(2) For the final quarter of a year, an employer to whom section BE 1(4) applies must forward a return to the Commissioner setting out—
- (a) for the fringe benefits received or enjoyed by the employer's employees, such details as are prescribed in the form; and
- (b) the amount of fringe benefit tax payable on the taxable value of the fringe benefits.
(3) An employer must forward the return no later than 31 May next following the end of the quarter.
(4) If an employer elects to pay fringe benefit tax in accordance with sections ND 5 and ND 6 and the amount calculated is—
- (a) a negative amount, the employer is entitled to a refund of the excess tax:
- (b) a positive amount, the employer must pay the difference on or before 31 May next following the end of the quarter.
(5) If subsection (4) does not apply, an employer is liable to pay to the Commissioner the amount calculated on or before the 31 May next following the end of the quarter.

(6) Subsection (7) applies if an employer has elected to pay fringe benefit tax at the rate of 49% of the taxable value of a fringe benefit for the quarter beginning 1 October 2000 and the employer does not have the necessary records and systems to calculate and pay fringe benefit tax for the final quarter of the year in accordance with sections ND 5 and ND 6.

(7) For the final quarter of the year, the employer must furnish a return and pay fringe benefit tax in accordance with this section as if all the fringe benefits provided or granted during the year were pooled fringe benefits to which section ND 6(2)(b)(i) applies.

Compare: 1994 No 164 s ND 10

ND 11 Payment of fringe benefit tax: no fringe benefit provided during quarter

(1) If a fringe benefit has not been provided or granted by an employer during a quarter, the employer must forward to the Commissioner a return for the quarter, in a form prescribed by the Commissioner, setting out such details as are prescribed in the form.
(2) An employer must forward the return—
- (a) for any 1 of the first 3 quarters of a tax year, no later than 20 days after the end of the quarter:
- (b) for the final quarter of a tax year, no later than 31 May next following the end of the quarter.
(3) Despite subsection (1), the Commissioner may, for the purpose of meeting the special circumstances of a case or class of cases, and upon or subject to such terms as the Commissioner may require, relieve an employer in whole or in part from any obligation imposed by subsection (1).

Compare: 1994 No 164 s ND 11

ND 12 Special filing rule for employer who stops employing staff during tax year

An employer to whom section ND 8 applies must apply section ND 10(3) to (5) and paragraph (d) of the definition of date interest starts in section 120C(1) of the Tax Administration Act 1994 as if the references to “31 May next following the end of the quarter” and “31 May next following the end of the final quarter” were to “the end of 2 months immediately following the end of the quarter in which the employer stops employing staff”.

Compare: 1994 No 164 s ND 12

Section ND 12 was amended, as from 1 April 2005, by section 257 Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111) by substituting the words “section ND 10(3) to (5)” for the words “section ND 10(4) and (5)”.

ND 13 Payment of fringe benefit tax on annual basis for employees who are not shareholder-employees

(1) An employer may elect to pay fringe benefit tax on an annual basis for fringe benefits provided or granted to employees who are not shareholder-employees if, in respect of any tax year,—
- (a) gross tax deductions and specified superannuation contribution withholding tax deductions payable by the employer in the preceding tax year were not more than $100,000; or
- (b) the employer was not an employer in the preceding tax year.
(2) An employer makes an election by giving notice to the Commissioner, either in writing or by telephone, stating the first tax year to which the election applies.
(3) An employer must give the notice of election to the Commissioner no later than—
- (a) 30 June in the tax year in which the election first applies, if the employer was an employer in the preceding tax year; or
- (b) the last day of the quarter that first ends after the day on which the employer first becomes an employer, if the employer was not an employer in the preceding tax year.
(4) An employer who makes an election must,—
- (a) subject to section ND 15, pay fringe benefit tax on the taxable value of fringe benefits provided or granted to employees of the employer, other than shareholderemployees, in the tax year of election and in every subsequent tax year; and
- (b) except as otherwise provided in the FBT rules, calculate the fringe benefit tax payable in the same manner as it would be calculated for fringe benefits provided or granted in the 4 consecutive quarters that comprise a tax year.
(5) For a tax year, an employer must forward to the Commissioner a return, in a form prescribed by the Commissioner, setting out the fringe benefit tax payable on the taxable value of fringe benefits received or enjoyed by each of the employer's employees, other than shareholder-employees, in that tax year.

(6) An employer must forward the form no later than the 31 May that first follows the end of the tax year to which the form relates and is liable to pay to the Commissioner the amount calculated no later than that 31 May.

(7) For the purpose of subsection (1), if an employer ceases business and begins a new business, or operates 2 or more businesses simultaneously, the gross tax deductions and specified superannuation contribution withholding tax deductions relating to all business carried on by the employer must be aggregated.

(8) If an amalgamating company ceases to exist on an amalgamation, subsection (1)(a) applies on and after the date of amalgamation as if gross tax deductions and specified superannuation contribution withholding tax deductions payable by the amalgamating company in the tax year preceding the tax year in which the amalgamation takes place were payable by the amalgamated company.

Compare: 1994 No 164 s ND 13

Subsection (2) was amended, as from 1 April 2006, by section 177(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the words “Commissioner, either in writing or by telephone,” for the word “Commissioner” with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

ND 14 Payment of fringe benefit tax on income year basis for shareholder-employees

(1) An employer that is a close company may elect to pay fringe benefit tax on an income year basis for fringe benefits provided or granted to shareholder-employees if, in respect of an income year,—
- (a) gross tax deductions and specified superannuation contribution withholding tax deductions payable by the employer in the preceding year were not more than—
  - (i) $100,000; or
  - (ii) if the employer has an early balance date, the proportion of $100,000 that is equivalent to the proportion that the period beginning on 1 April in the preceding year and ending on the date by which the employer's notice of election is required by subsection (3) to be furnished to the Commissioner bears to a full year; or
- (b) the employer was not an employer in the preceding income year.
(2) An employer makes an election by giving notice to the Commissioner, either in writing or by telephone, stating the first year to which the election applies.
(2B) If an employer has been paying fringe benefit tax on a quarterly basis under sections ND 2, ND 9, and ND 10 and elects under this section to change to payment on an income year basis, a calculation must be made under section ND 10 for the period—
- (a) beginning immediately after the end of the last full tax year for which the employer pays fringe benefit tax on a quarterly basis:
- (b) ending immediately before the beginning of the first income year for which the election applies.
(3) An employer must give the notice of election to the Commissioner no later than—
- (a) the last day of the quarter that first ends after the beginning of the income year in which the election first applies, if the employer was an employer in the preceding income year; or
- (b) the last day of the quarter that first ends after the day on which the employer first becomes an employer of employees, if the employer was not an employer in the preceding year.
(4) Subject to section ND 15, an employer who makes an election must pay fringe benefit tax on the taxable value of fringe benefits provided or granted to shareholder-employees in the income year of election and in every subsequent income year.

(5) For an income year, an employer must forward to the Commissioner a return, in a form prescribed by the Commissioner, setting out the fringe benefit tax payable on the taxable value of the fringe benefits received or enjoyed by each of the employer's shareholder-employees in that income year.

(6) An employer must forward the form no later than the employer's terminal tax date for the income year to which the form relates and is liable to pay to the Commissioner the amount calculated no later than that terminal tax date.

(7) For the purpose of subsection (1), if an employer ceases business and begins a new business, or operates 2 or more businesses simultaneously, the gross tax deductions and specified superannuation contribution withholding tax deductions relating to all business carried on by the employer must be aggregated.

(8) If an amalgamating company ceases to exist on an amalgamation, subsection (1)(a) applies on and after the date of amalgamation as if gross tax deductions and specified superannuation contribution withholding tax deductions payable by the amalgamating company in the income year preceding the income year in which the amalgamation takes place were payable by the amalgamated company.
(9) In this section, preceding year means, in relation to an employer and an income year,—
- (a) for an employer with a standard balance date, the year ending on the 31 March that immediately precedes the income year:
- (b) for an employer with a late balance date, the year ending on the 31 March that last ends before the beginning of the employer's income year:
- (c) for an employer with an early balance date,—
  - (i) the year beginning on 1 April before the beginning of the employer's income year and ending on the 31 March that occurs within the employer's income year; or
  - (ii) for the purpose of subsections (1)(a)(ii) and (3)(b) only, that part of the year referred to in paragraph (c)(i) that begins on 1 April and ends on the day before the beginning of the employer's income year.
Compare: 1994 No 164 s ND 14

Subsection (2) was amended, as from 1 April 2006, by section 178(1)(a) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the words “Commissioner, either in writing or by telephone,” for the word “Commissioner” with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

Subsection (2B) was inserted, as from 1 April 2006, by section 178(1)(b) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for a person's liability for fringe benefit tax for a period beginning on or after 1 April 2006.

ND 15 Change in period for which fringe benefit tax payable

(1) If, for a tax year, an employer has elected under section ND 13 to pay fringe benefit tax on an annual basis and the employer does not meet the criteria specified in section ND 13(1) that are required for an election for that tax year, the employer must furnish returns and pay fringe benefit tax on a quarterly basis in accordance with sections ND 9 and ND 10 for fringe benefits provided or granted by the employer to employees on or after the first day of the tax year.

(2) If, for an income year, an employer has elected under section ND 14 to pay fringe benefit tax on an income year basis, and the employer does not meet the criteria specified in section ND 14(1) that are required for an election for that income year, the employer must furnish returns and pay fringe benefit tax on a quarterly basis in accordance with sections ND 9 and ND 10 for fringe benefits provided or granted by the employer to shareholder-employees on or after the first day of the employer's income year.

(3) An employer who has elected to pay fringe benefit tax on an annual or an income year basis may at any time elect, by giving notice to the Commissioner, to pay fringe benefit tax on a quarterly basis.
(4) An employer who elects must furnish returns and pay fringe benefit tax on a quarterly basis in accordance with sections ND 9 and ND 10 for fringe benefits provided or granted by the employer on or after—
- (a) the 1 April that first follows the date of the employer's election under subsection (3), if the employer had previously elected to pay fringe benefit tax on an annual basis; or
- (b) the first day of the income year of the employer that first follows the date of the employer's election under subsection (3), if the employer had previously elected to pay fringe benefit tax on an income year basis; or
- (c) such other date agreed by both the employer and the Commissioner and notified by the Commissioner to the employer.
(5) Subsection (6) applies if—
- (a) an employer transfers from paying fringe benefit tax on an income year basis to paying fringe benefit tax on a quarterly basis; and
- (b) the day specified in subsection (2) or (4)(b) as the day on and after which fringe benefit tax is payable on a quarterly basis is not the same day as the first day of a quarter.
(6) The employer must furnish a return and pay fringe benefit tax in accordance with sections ND 9 and ND 10 as if the period beginning on the day specified and ending on the day before the first day of the quarter that begins after that specified day were a quarter.
(7) Subsection (8) applies if—
- (a) an employer has made an election in accordance with section ND 14 to pay fringe benefit tax on an income year basis for an income year; and
- (b) the first day of the employer's income year in which the election first applies is not the same day as the first day of a quarter.
(8) The employer must furnish a return and pay fringe benefit tax in accordance with sections ND 9 and ND 10 as if the period beginning on the first day of the quarter in which the first day of the first income year falls and ending on the day before the first day of the first income year were a quarter.

Compare: 1994 No 164 s ND 15

ND 16 Amendment to thresholds for fringe benefit categories by Order in Council

(1) The Governor-General may, by Order in Council, determine monetary thresholds for benefits that are categorised under section ND 3 and referred to in section ND 6.

(2) An Order in Council made pursuant to this section must specify the tax year from which a new monetary threshold applies.

Compare: 1994 No 164 s ND 16

Subpart NE—Specified superannuation contribution withholding tax

NE 1 Application

NE 2 Specified superannuation contribution withholding tax imposed

NE 2AA Employee election that higher rate of specified superannuation contribution withholding tax apply [Repealed]

NE 2AB Employer election that progressive rates of specified superannuation contribution withholding tax apply [Repealed]

NE 2A Employee election that specified superannuation contributions be treated as salary or wages

NE 2B Employer election that progressive rates of specified superannuation contribution withholding tax apply

NE 3 Specified superannuation contribution withholding tax to be deducted

NE 3B Calculation amounts in relation to current specified superannuation contribution for complying superannuation fund

NE 4 Period for payment

NE 5 Failure to deduct tax

NE 6 Tax deemed for certain purposes to have been received by superannuation fund

NE 7 Application of other provisions to specified superannuation contribution withholding tax

NE 1 Application

Except as otherwise provided in the SSCWT rules, the SSCWT rules apply notwithstanding anything in any other provision of this Act.

Compare: 1994 No 164 s NE 1

NE 2 Specified superannuation contribution withholding tax imposed

(1) A specified superannuation contribution made to a superannuation fund is subject to specified superannuation contribution withholding tax at the rate specified in schedule 1, part A, clause 10(b), unless section NE 2A(2) or NE 2B applies applies.
(2) For the purposes of the SSCWT rules, unless the context otherwise requires, the amount of a specified superannuation contribution is deemed to be the aggregate of—
- (a) the amount of the specified superannuation contribution received by the superannuation fund or, in the case of a contribution paid to the Commissioner under the KiwiSaver Act 2006, received by the Commissioner for payment to the superannuation fund; and
- (b) the amount of any specified superannuation contribution withholding tax payable under the SSCWT rules in respect of the contribution.
Compare: 1994 No 164 s NE 2

Subsection (1) was amended, as from 1 April 2007, by section 142 Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “unless section NE 2A(2) or NE 2B applies” for “unless either section NE 2AA(2), NE 2AB, or NE 2A(2) applies”.

Subsection (2)(a) was amended, as from 1 December 2006, by section 231 KiwiSaver Act 2006 (2006 No 40) by inserting “or, in the case of a contribution paid to the Commissioner under the KiwiSaver Act 2006, received by the Commissioner for payment to the superannuation fund” after “superannuation fund”. See section 232 of that Act as to the transitional provision requiring all KiwiSaver contributions to be paid to the Commissioner in the first 3 months. See clause 2(2) KiwiSaver Act Commencement Order 2006 (SR 2006/357).

NE 2AA Employee election that higher rate of specified superannuation contribution withholding tax apply

[Repealed]

Section NE 2AA and NE 2AB were repealed, as from 1 April 2007, by section 143 Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

NE 2AB Employer election that progressive rates of specified superannuation contribution withholding tax apply

[Repealed]

Section NE 2AA and NE 2AB were repealed, as from 1 April 2007, by section 143 Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

NE 2A Employee election that specified superannuation contributions be treated as salary or wages

(1) With the agreement of their employer, an employee may elect, by giving notice to the employer, that all or part of a specified superannuation contribution made by the employer on behalf of the employee be treated as salary or wages, irrespective of their employment contract.

(2) If an employee makes an election under subsection (1), the specified superannuation contribution is salary and wages of the employee and subject to the PAYE rules.

(3) An employee's election notice is valid until revoked in writing.

Compare: 1994 No 164 s NE 2A

NE 2B Employer election that progressive rates of specified superannuation contribution withholding tax apply

If an employer makes a specified superannuation contribution on behalf of an employee for a tax year, the employer may choose that the employer, or a PAYE intermediary, pays specified superannuation contribution withholding tax on the specified superannuation contribution at the rate specified in schedule 1, part A, clause 10(a) (Basic rates of income tax and specified superannuation contribution withholding tax) for the SSCWT rate threshold amount for the employee.

Section NE 2B was inserted, as from 1 April 2007, by section 144 Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

NE 3 Specified superannuation contribution withholding tax to be deducted

(1) If an employer or a PAYE intermediary pays to a superannuation fund an amount that represents a specified superannuation contribution, the employer or PAYE intermediary must, at the time of payment, deduct from the specified superannuation contribution an amount of specified superannuation contribution withholding tax determined in accordance with whichever is applicable of section NE 2 or NE 2B.
(2) Subsection (1), and whichever is applicable of sections NE 2(1), NE 2A(2), and NE 2B, do not apply to the specified superannuation contribution (the current specified superannuation contribution) to the extent to which that contribution is for the employee's KiwiSaver scheme, and the contribution is not more than the lesser of—
- (a) an amount calculated under subsection (3):
- (b) an amount calculated under subsection (4).
(2B) Subsection (1), and whichever is applicable of sections NE 2(1), NE 2A(2), and NE 2B, do not apply to the current specified superannuation contribution to the extent to which that contribution—
- (a) is for the employee's complying superannuation fund; and
- (b) is subject to complying fund rules; and
- (c) is not more than the lesser of—
  - (i) an amount calculated under section NE 3B(1):
  - (ii) an amount calculated under section NE 3B(2).
(3) In subsection (2)(a) the amount is calculated using the formula

0.04 × total salary or wages − previous exempt contributions.

(4) In subsection (2)(b) the amount is calculated using the formula—

total KiwiSaver contributions − previous exempt KiwiSaver contributions.
(5) In the formulas,—
- (a) total salary or wages means the total salary or wages paid to the employee in the KiwiSaver calculation period, but excluding salary or wages for which there are no KiwiSaver contributions:
- (b) previous exempt contributions means the total specified superannuation contributions for the employee, to the extent to which—
  - (i) those contributions are made in the KiwiSaver calculation period, but excluding the current specified superannuation contribution; and
  - (ii) subsection (2) or (2B) applied to those contributions (excluding the current one):
- (c) total KiwiSaver contributions means the total KiwiSaver contributions deducted from the salary or wages paid to the employee in the KiwiSaver calculation period:
- (d) previous exempt KiwiSaver contributions means the total specified superannuation contributions for the employee's KiwiSaver scheme, to the extent to which—
  - (i) those contributions are made in the KiwiSaver calculation period, but excluding the current specified superannuation contribution; and
  - (ii) subsection (2) applied to the contributions (excluding the current one):
(6) In this section,—
KiwiSaver calculation period means, for the current specified superannuation contribution, a period—
- (a) beginning with the later of—
  - (i) 1 year before when the employer makes the current specified superannuation contribution:
  - (ii) when the employer is first required to deduct KiwiSaver contributions from the employee's salary or wages; and
- (b) ending with when the employer makes the current specified superannuation contribution
KiwiSaver contributions

[Repealed]

KiwiSaver contributions: this definition was repealed, as from 1 July 2007, by section 145(6) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

KiwiSaver scheme

[Repealed]

KiwiSaver scheme: this definition was repealed, as from 1 July 2007, by section 145(6) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

salary or wages means salary or wages, as defined in section 4 of the KiwiSaver Act 2006.
Compare: 1994 No 164 s NE 3

Section NE 3 was amended, as from 1 April 2007, by section 145(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “section NE 2 or NE 2B” for “sections NE 2, NE 2AA, and NE 2AB”.

Subsections (2) to (6) were inserted, as from 1 July 2007, by section 231 KiwiSaver Act 2006 (2006 No 40). See section 232 of that Act as to the transitional provision requiring all KiwiSaver contributions to be paid to the Commissioner in the first 3 months. See clause 2(1) KiwiSaver Act Commencement Order 2006 (SR 2006/357).

Subsection (2) was substituted, as from 1 July 2007, by section 145(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Subsection (2B) was inserted, as from 1 July 2007, by section 145(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Subsection (3) was amended, as from 1 July 2007, by section 145(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “subsection (2)(a)” for “subsection (2)(b)(i)”.

Subsection (4) was amended, as from 1 July 2007, by section 145(4)(a) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “subsection (2)(b)” for “subsection (2)(b)(ii)”.

Subsection (4) was amended, as from 1 July 2007, by section 145(4)(b) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “previous exempt KiwiSaver contributions” for “previous exempt contributions”.

Subsection (5)(b)(ii) was amended, as from 1 July 2007, by section 145(5)(a) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “subsection (2) or (2B)” for “subsection (2)”.

Subsection (5)(c) was amended, as from 1 July 2007, by section 145(5)(b) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “period:” for “period.”

Subsection (5)(d) was inserted, as from 1 July 2007, by section 145(5)(b) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

NE 3B Calculation amounts in relation to current specified superannuation contribution for complying superannuation fund

(1) For the current specified superannuation contribution, in section NE 3(2B)(c)(i) the amount is calculated using the formula—

0.04 × total salary or wages − previous exempt contributions.

(2) For the current specified superannuation contribution, in section NE 3(2B)(c)(ii) the amount is calculated using the formula—

total complying fund contributions − previous exempt complying fund contributions.
(3) In the formulas,—
- (a) total salary or wages means the total salary or wages paid to the employee in the complying fund calculation period, but excluding salary or wages for which there are no superannuation contributions for the employee's complying superannuation fund that are subject to complying fund rules:
- (b) previous exempt contributions means the total specified superannuation contributions for the employee, to the extent to which—
  - (i) the contributions are made in the complying fund calculation period, but excluding the current specified superannuation contribution; and
  - (ii) section NE 3(2) or (2B) applied to those contributions (excluding the current one):
- (c) total complying fund contributions means the total superannuation contributions that are—
  - (i) deducted from the employee's salary or wages in the complying fund calculation period; and
  - (ii) subject to complying fund rules:
- (d) previous exempt complying fund contributions means the total specified superannuation contributions for the employee's complying superannuation fund, to the extent to which—
  - (i) those contributions are made in the complying fund calculation period, but excluding the current specified superannuation contribution; and
  - (ii) section NE 3(2B) applied to those contributions (excluding the current one).
(4) In this section, complying fund calculation period means, for the current specified superannuation contribution, a period—
- (a) beginning with the later of—
  - (i) 1 year before when the employer makes the current specified superannuation contribution:
  - (ii) when the employer is first required to deduct superannuation contributions that are subject to complying fund rules from the employee's salary or wages; and
- (b) ending with when the employer makes the current specified superannuation contribution.
Section NE 3B was inserted, as from 1 July 2007, by section 146 Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

NE 4 Period for payment

Every employer or PAYE intemediary who makes a deduction of specified superannuation contribution withholding tax from a specified superannuation contribution must pay to the Commissioner the amount of the deduction,—
- (a) subject to paragraph (c), where the employer or PAYE intermediary has made that deduction during the first PAYE period, not later than the 20th of the month during which that deduction was made:
- (b) subject to paragraph (c), where the employer or PAYE intermediary has made that deduction during the second PAYE period, not later than—
  - (i) the 5th of the month following the month in which the deduction was made; or
  - (ii) the 15th of January where the month in which the deduction was made is December:
- (c) notwithstanding paragraphs (a) and (b), where the employer or PAYE intermediary is required to pay tax deductions to the Commissioner in accordance with section NC 15(1)(c), not later than the 20th of the month following the month in which that deduction was made.
Compare: 1994 No 164 s NE 4

NE 5 Failure to deduct tax

Where an employer or PAYE intermediary fails to make any deduction of specified superannuation contribution withholding tax from any specified superannuation contribution in accordance with the obligations under section NE 3,—
- (a) the amount in respect of which default has been made is, notwithstanding any other provision of this Act, deemed for the purposes of this Act to be an amount calculated in accordance with the following formula:
  where—
  
  a is the rate of specified superannuation contribution withholding tax, expressed as a percentage, stated in schedule 1, part A, clause 10, and applying at the time the contribution was made
  
  b is the amount of the contribution (exclusive of any amount of specified superannuation contribution withholding tax) received by the superannuation fund
  
  c is the amount (if any) of specified superannuation contribution withholding tax already paid in respect of the contribution; and
- (b) that amount constitutes a debt payable by the employer or PAYE intermediary to the Commissioner and is deemed to have become due and payable to the Commissioner,—
  - (i) subject to subparagraph (iii), where the specified superannuation contribution was made during the first PAYE period, on the 20th of the month during which that contribution was made:
  - (ii) subject to subparagraph (iii), where the specified superannuation contribution was made during the second PAYE period, on the 5th of the month following the month in which that contribution was made:
  - (iii) notwithstanding subparagraphs (i) and (ii), where the employer or PAYE intermediary is required to pay tax deductions to the Commissioner in accordance with section NC 15(1)(c), on the 20th of the month following the month in which that contribution was so made.
Compare: 1994 No 164 s NE 5

NE 6 Tax deemed for certain purposes to have been received by superannuation fund

In determining whether an employer has satisfied the employer's obligations or commitments to pay contributions to a superannuation fund,—
- (a) the employer or the employer's PAYE intermediary is treated, in respect of any specified superannuation contribution that has been made on behalf of an employee, as having paid to the superannuation fund in satisfaction of the employer's obligations or commitments—
  - (i) the amount of any specified superannuation contribution withholding tax payable in accordance with the SSCWT rules:
  - (ii) the amount of any PAYE payable in accordance with the PAYE rules as a result of an election by the employee under section NE 2A; and
- (b) the superannuation fund is treated as having received the amount referred to in paragraph (a); and
- (c) the payment referred to in paragraph (a) and the receipt referred to in paragraph (b) are treated as having occurred when the superannuation fund received the specified superannuation contribution referred to in paragraph (a).
Compare: 1994 No 164 s NE 6

NE 7 Application of other provisions to specified superannuation contribution withholding tax

(1) Subject to the SSCWT rules, section GC 18, and sections 167 and 169 of the Tax Administration Act 1994, as far as they are applicable and with any necessary modifications, for the purposes of the SSCWT rules, apply as if—
- (a) every reference in those sections to a tax deduction were a reference to a deduction of specified superannuation contribution withholding tax:
- (b) every reference in those sections to the PAYE rules were a reference to the SSCWT rules.
(2) Subject to the SSCWT rules, the other provisions of this Act (other than section GC 18) and of the Tax Administration Act 1994 (other than sections 167 and 169), as far as they are applicable and with any necessary modifications, apply with respect to specified superannuation contribution withholding tax as if it were income tax levied under section BB 1; but nothing in the SSCWT rules should be construed so as to include specified superannuation contribution withholding tax in the terms “income tax” or “tax” for the purposes of section 121 or 122 of the Tax Administration Act 1994.

Compare: 1994 No 164 s NE 7

Subpart NEA—Tax on certain withdrawals from superannuation funds

NEA 1 Recovery of tax paid by superannuation fund

(1) If section CS 1 applies to a withdrawal in respect of a person's membership in a superannuation fund, the trustee of the fund may deduct from the withdrawal an amount according to the formula in subsection (2).

(2) The formula is—

tax rate x income

where—

tax rate is the basic rate of income tax stated in schedule 1, part A, clause 4

income is the superannuation fund's income under section CS 1.

Compare: 1994 No 164 s NEA 1

Subpart NF—Resident withholding tax

NF 1 Application of RWT rules

Liability to pay resident withholding tax

NF 2 Liability to pay resident withholding tax

NF 2AA Election to be RWT proxy

NF 2A Election to apply higher rate of deduction

NF 2B Companies to notify interest payer

NF 2C Transitional rule: notifications by companies between 1 April 2001 and 31 May 2001 (both dates inclusive)

NF 2D Election rates of deduction for companies

NF 3 Requirements for agents or trustees to make resident withholding tax deductions on receipt of payments

Payment of resident withholding tax

NF 4 Payment of deductions of resident withholding tax to Commissioner

NF 5 Non-resident withholding tax deducted in substitution for resident withholding tax

NF 6 Resident withholding tax deductions varied to correct errors

NF 7 Refunds of deductions

NF 8 Resident withholding tax deductions from dividends deemed to be dividend withholding payment credits

NF 8A Resident withholding tax deductions from distributions treated as Maori authority credits

NF 8B Resident withholding tax deductions from replacement payments treated as imputation credits

NF 9 Certificates of exemption

NF 10 Unincorporated bodies

NF 11 Cancellation of certificates of exemption

NF 12 Amount of resident withholding tax deduction deemed to have been received

NF 13 Application of other provisions in relation to resident withholding tax

Application

NF 1 Application of RWT rules

(1) The RWT rules apply notwithstanding any other provision of this Act.
(2) The RWT rules apply to any amount paid (referred to as resident withholding income) that consists of—
- (a) interest, not being interest that is—
  - (i) exempt interest; or
  - (ii) interest derived by a person who holds a valid certificate of exemption; or
  - (iii) interest which constitutes non-resident withholding income; or
  - (iv) interest derived from outside New Zealand by a person not resident in New Zealand; or
  - (ivb) interest that is exempt income by virtue of the application of section CW 22B (Certain income derived by transitional resident); or
  - (v) interest paid by a company and derived by another company where both companies are, at the time of payment, members of the same group of companies; or
  - (vii) interest payable by a taxpayer in accordance with Part 7 of the Tax Administration Act 1994:
  - (ix) interest paid to an intermediary by a client of the intermediary in the operation of a tax pooling account:
  - (x) interest paid under section MBA 5(5) to an intermediary by the Commissioner:
  - (xi) interest payable on overpaid tax in accordance with section 120D of the Tax Administration Act 1994:
- (b) dividends, not being—
  - (i) dividends that are exempt income by virtue of the application of any of sections CW 9 to CW 11; or
  - (ii) any amount that is deemed to be a dividend under section GD 3 or GD 5 or the proviso to section HF 1(5); or
  - (iii) attributed repatriation; or
  - (iv) dividends derived by a person who holds a valid certificate of exemption; or
  - (v) dividends that constitute non-resident withholding income; or
  - (vi) dividends, other than dividends derived from New Zealand, derived by a person not resident in New Zealand; or
  - (vii) dividends paid by a company and derived by another company where both companies are, at the time of payment, members of the same group of companies; or
  - (viii) dividends that are exempt income under section CW 50; or
  - (ix) dividends that are exempt income by virtue of the application of section CW 22B; or
  - (x) dividends that are excluded income by virtue of the application of section CX 44D (Portfolio investor allocated income and distributions of income by portfolio tax rate entities):
- (c) taxable Maori authority distributions:
- (d) a replacement payment, paid to a person under a share-lending arrangement:
provided that, for the purposes of each of the subparagraphs of paragraphs (a) to (d), where any amount is derived by a person (in this proviso referred to as the trustee) in that person's capacity as trustee for any other person or persons and that amount is beneficiary income, that amount is deemed not to be derived by the trustee.
(3) [Repealed]

(3A) [Repealed]

(4) For the purposes of the RWT rules, dividends paid by any building society to its members in relation to withdrawable shares in that building society are deemed to be interest and not dividends.

(5) For the purposes of the RWT rules, dividends paid by any friendly society in relation to shares in that friendly society to its members are deemed to be interest and not dividends.

Compare: 1994 No 164 s NF 1

Subsection (2)(a)(ivb) was inserted, as from 1 October 2005, by section 147(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005–06 income year.

Subsection (2)(a)(xi) was inserted, as from 1 April 2005, by section 258(1) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subsection (2)(b)(viii) was amended, as from 1 October 2005, by section 147(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “CW 50; or” for “CW 50:” with application as from the 2005–06 income year.

Section NF 1(2)(b)(ix): amended, on 1 October 2007, by section 147(3) of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Subsection (2)(b)(ix) was inserted, as from 1 October 2005, by section 147(2) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005–06 income year.

Section NF 1(2)(b)(x): added, on 1 October 2007, by section 147(3) of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Subsection (2)(d) was inserted, as from 1 July 2006, by section 179(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (2) proviso was amended, as from 1 July 2006, by section 179(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the words “paragraphs (a) to (d)” for the words “paragraphs (a), (b) and (c)”.

Subsection (3) was repealed, as from 1 April 2005, by section 258(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Subsection (3A) was repealed, as from 1 April 2005, by section 258(2) Taxation (Venture Capital and Miscellaneous Provisions) Act 2004 (2004 No 111).

Liability to pay resident withholding tax

This heading was substituted, as from 1 October 2005, by section 81(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year. The heading previously read “Deduction of resident withholding tax”.

NF 2 Liability to pay resident withholding tax

(1A) A person is liable to pay to the Commissioner, in relation to a payment that is or includes resident withholding income, a tax (called resident withholding tax) of an amount given by subsection (1) or (1B) if—
- (a) the person makes the payment and is required to make a deduction of resident withholding tax from the payment:
- (b) the person is an RWT proxy for the payer of the resident withholding income, the recipient of the resident withholding income, and the resident withholding income.
(1AB) A person who makes a payment that is or includes resident withholding income must deduct resident withholding tax from the payment if the person is not excluded by the rest of this section from liability to make the deduction.
(1) If a person makes a payment that is or includes resident withholding income and is required to deduct resident withholding tax from the payment, the person must make a deduction—
- (a) to the extent to which that payment consists of interest, of an amount calculated in accordance with the following formula:
  (a x (b + c)) – c
  
  where—
  
  a is the appropriate rate of resident withholding tax, expressed as a percentage, specified in schedule 14, clause 1 or 1C
  
  b is the amount of interest paid (before the deduction of resident withholding tax)
  
  c is the amount of foreign withholding tax paid or payable in respect of that amount of interest paid; and
- (b) to the extent to which that payment consists of dividends (not being non-cash dividends), of an amount calculated in accordance with the following formula:
  (a x (b + c)) – c
  
  where—
  
  a is the rate of resident withholding tax, expressed as a percentage, specified in schedule 14, clause 2
  
  b is the amount of dividend paid (before the deduction of resident withholding tax)
  
  c is the total of the following amounts:
  
  (i) if the dividend is paid in relation to shares issued by an imputation credit account company, the amount of any imputation credit attached to the dividend:
  
  (ii) if the dividend is paid in relation to shares issued by a company not resident in New Zealand, the amount of foreign withholding tax paid or payable in respect of the amount of the dividend:
  
  (iii) if the dividend is paid in relation to shares issued by a company resident in New Zealand, the amount of any dividend withholding payment credit attached to the dividend; and
- (c) to the extent to which the payment consists of non-cash dividends other than a bonus issue in lieu, of an amount calculated in accordance with the following formula:
  where—
  
  a is the rate of resident withholding tax, expressed as a percentage, specified in schedule 14, clause 2
  
  b is the amount of the dividend paid (disregarding any deduction of resident withholding tax)
  
  c is the total of the following amounts:
  
  (i) if the dividend is paid in relation to shares issued by an imputation credit account company, the amount of any imputation credit attached to the dividend:
  
  (ii) if the dividend is paid in relation to shares issued by a company not resident in New Zealand, the amount of foreign withholding tax paid or payable in respect of the amount of the dividend:
  
  (iii) if the dividend is paid in relation to shares issued by a company resident in New Zealand, the amount of any dividend withholding payment credit attached to the dividend; and
- (d) to the extent to which that payment consists of dividends being a bonus issue in lieu, the amount calculated in accordance with the following formula:
  (a x (b + c)) – c
  
  where—
  
  a is the rate of resident withholding tax, expressed as a percentage, specified in schedule 14, clause 2
  
  b is the amount of the money or money's worth offered as an alternative to the bonus issue (before the deduction of resident withholding tax)
  
  c is the total of the following amounts:
  
  (i) if the dividend is paid in relation to shares issued by an imputation credit account company, the amount of any imputation credit attached to the dividend:
  
  (ii) if the dividend is paid in relation to shares issued by a company not resident in New Zealand, the amount of foreign withholding tax paid or payable in respect of the amount of the dividend:
  
  (iii) if the dividend is paid in relation to shares issued by a company resident in New Zealand, the amount of any dividend withholding payment credit attached to the dividend; and
- (e) to the extent that the payment is a taxable Maori authority distribution in the form of a sum of money or a credit of an amount of money to the balance of an account with the Maori authority, of an amount calculated according to the formula—
  (a x (b + c)) – c
  
  where—
  
  a is the rate of resident withholding tax, expressed as a percentage, specified in schedule 14, clause 3
  
  b is the amount of the distribution (before the deduction of resident withholding tax)
  
  c is the amount of the Maori authority credit attached to the distribution; and
- (f) to the extent that the payment is a taxable Maori authority distribution to which paragraph (e) does not apply, of an amount calculated according to the formula—
  where—
  
  a is the rate of resident withholding tax, expressed as a percentage, specified in schedule 14, clause 3
  
  b is the amount of the distribution (disregarding any deduction of resident withholding tax)
  
  c c is the amount of the Maori authority credit attached to the distribution: provided that in no case may the amount of resident withholding tax to be deducted be less than zero; and
- (g) to the extent that the payment is a replacement payment paid to a person under a share-lending arrangement, of an amount calculated according to the formula—
  where
  
  a is the rate of resident withholding tax, expressed as a percentage, specified in schedule 14, clause 2:
  
  b is the amount of the replacement payment, not including imputation credits attached under section ME 6B:
  
  c is the amount of imputation credits attached to the replacement payment under section ME 6B:
  
  d is the amount of imputation credits shown in a credit transfer notice that relates to the replacement payment:
  
  e is the amount of dividend withholding payment credit shown in a credit transfer notice that relates to the replacement payment.
(1B) A person who is an RWT proxy for a payer of resident withholding income and a payment of resident withholding income in the form of a dividend must pay to the Commissioner the amount of resident withholding tax given by the following formula:

where—
- a is the appropriate rate of resident withholding tax, expressed as a percentage, specified in schedule 14, clause 1:
- b is the amount paid to the recipient of the dividend.
(2) Where any company in any month pays in respect of its shares resident withholding income, being dividends that are non-cash dividends from which resident withholding income that company is required, in accordance with the RWT rules, to deduct resident withholding tax, that company may not make any deduction of resident withholding tax from the dividends in accordance with subsection (1), but is liable to pay to the Commissioner an amount (which is treated as a deduction of resident withholding tax made from those dividends for the purposes of this Act and the Tax Administration Act 1994) equal to the resident withholding tax that, but for this subsection, would have been required to be deducted and to pay that amount in the same manner in all respects as if it were the resident withholding tax that, but for this subsection, would have been required to be deducted.
(2A) If a Maori authority pays resident withholding income, being taxable distributions of property, from which the Maori authority is required to deduct resident withholding tax, the Maori authority—
- (a) must not deduct resident withholding tax from the distribution in accordance with subsection (1); and
- (b) is liable to pay an amount that would be equal to the resident withholding tax that, but for this subsection, would have had to have been deducted, as if the amount were resident withholding tax.
(2B) For the purposes of this Act and the Tax Administration Act 1994, an amount paid in accordance with subsection (2A) is treated as a deduction of resident withholding tax from the distribution.
(3) Where any resident withholding tax deduction is required to be made by any person (in this subsection called the first person) in accordance with the RWT rules in relation to any payment of resident withholding income, which resident withholding income is in a currency other than New Zealand currency, that resident withholding tax deduction may be made in that foreign currency and, if so,—
- (a) for the purposes of this Act, in calculating in relation to the person deriving the resident withholding income (in this subsection called the second person) the amount of resident withholding tax deduction to be credited against income tax assessed or treated as a dividend withholding payment in accordance with the RWT rules, the resident withholding tax deduction must be converted into New Zealand currency at the option of the second person either at—
  - (i) the close of trading spot exchange rate on the day on which the resident withholding tax deduction was made; or
  - (ii) such exchange rate as the Commissioner may specify for this purpose in relation to the month in which the resident withholding tax deduction was made; and
- (b) for the purposes of this Act and the Tax Administration Act 1994, in calculating in relation to the first person the amount of resident withholding tax deduction required to be paid to the Commissioner, the amount of resident withholding tax deduction made by the first person is converted into New Zealand currency at—
  - (i) the close of trading spot exchange rate on the first working day of the month succeeding the month in which the resident withholding tax deduction is made, unless subparagraph (ii) applies; or
  - (ii) the conversion rate applicable under section ME 1B to the resident withholding income, if the resident withholding income is a dividend and the first person is an Australian imputation credit account company that chooses to use the rate referred to in that section.
(4) A person is liable to deduct resident withholding tax from any payment of resident withholding income only if—
- (a) that person is, at the time of the payment, either—
  - (i) resident in New Zealand for the purposes of this Act; or
  - (ii) not resident in New Zealand for the purposes of this Act but—
    - (A) carrying on a taxable activity in New Zealand through a fixed establishment in New Zealand; and
    - (B) not prevented by subsection (4B) from satisfying this paragraph; and
- (b) either—
  - (i) that person holds at the time of payment a valid certificate of exemption issued to that person; or
  - (ii) that payment is made wholly or partly in the course of or furtherance of a taxable activity, whether that person is acting in the capacity of agent or trustee for any other person or persons, or otherwise; or
  - (iii) that payment is a payment by a company of dividends in relation to shares issued by that company; or
  - (iv) that payment is a taxable Maori authority distribution; or
  - (v) that payment is a replacement payment paid under a share-lending arrangement.
(4B) A person (payer) who is not resident in New Zealand for the purposes of this Act and is carrying on a taxable activity in New Zealand through a fixed establishment in New Zealand is treated as not satisfying subsection (4)(a) in relation to a payment if,—
- (a) in the case of a payment of interest or of dividends payable in respect of shares issued by another person, the payer satisfies the Commissioner that—
  - (i) the payment is attributable to or effectively connected with a fixed establishment of the payer outside New Zealand; and
  - (ii) the amounts payable in relation to the money lent or shares to which the payment relates are payable in a currency other than New Zealand currency:
- (b) in the case of a payment of dividends payable in respect of shares issued by the payer, the payer satisfies the Commissioner that the payer is not required by generally accepted accounting practice to express its financial statements in New Zealand currency.
(5) Notwithstanding subsection (4)(b), any person who makes a payment of resident withholding income, being interest, and—
- (a) is either—
  - (i) a person who does not hold at the time of payment a valid certificate of exemption; or
  - (ii) a person who holds at the time of payment a certificate of exemption issued in accordance with section NF 9(1)(i) or (j) or (12); and
- (b) has made payments of resident withholding income, being interest, totalling less than $5,000 in the tax year immediately preceding the tax year during which the time of payment falls; and
- (c) is a person who, but for the application of this subsection, would be liable to deduct resident withholding tax from that payment,—
is liable to deduct resident withholding tax from that payment only if that payment exceeds (when aggregated with earlier payments of resident withholding income, being interest, paid by that person in the tax year in which the time of payment falls) a total of $5,000.
(6) Where any person (in this subsection referred to as the first person) makes or receives a payment which consists in whole or in part of resident withholding income and resident withholding tax has already been deducted by any person in accordance with the RWT rules from that resident withholding income, the first person is not required to deduct resident withholding tax from the payment to the extent to which resident withholding tax has already been deducted.
(7) Where any person (in this subsection referred to as the first person) in relation to any other person (in this subsection referred to as the second person)—
- (a) makes a payment to the second person; or
- (b) receives a payment as agent or bare trustee for that second person,—
for the purpose only of determining the first person's liability to make a deduction of resident withholding tax from that payment in accordance with the RWT rules, that payment is deemed not to constitute resident withholding income if, in the case of a payment of interest or dividends or a taxable Maori authority distribution,—
- (c) either—
  - (i) the first person has taken reasonable steps to confirm that the second person is a person to whom at the time of payment any of section NF 9(1)(a) to (d) applies; or
  - (ii) except in any case where the second person is a person to whom either section NF 9(1)(i) or (j) applies or a person holding a certificate of exemption issued in accordance with section NF 9(12), the first person has been provided with the second person's tax file number and has been notified by the second person that the second person holds a certificate of exemption; or
  - (iii) the first person has sighted a certificate of exemption issued to the second person and has taken reasonable steps to confirm that the second person is the person named in that certificate; and
- (d) there has been no notice of cancellation of a certificate of exemption held by the second person published in any issue of the Gazette, in the case of a payment of interest, more than 5 working days before the time when the money was lent or, in the case of a payment of dividends or a taxable Maori authority distribution, more than 5 working days before the day on which the payment is made or, if such notice of cancellation has been so published, either the first person has sighted a certificate of exemption issued, on a date subsequent to the date of the issue of the Gazette including the notice of cancellation, to the second person; and
- (e) in the case of a payment of interest, no notice of cancellation of a certificate of exemption held by the second person has been published in any issue of the Gazette more than 5 working days before the day on which the payment is made or, if such notice of cancellation has been so published, either—
  - (i) there has been published in any issue of the Gazette subsequent to the publication of the notice of cancellation and more than 5 working days before the day on which payment is made, notice of issue of a further certificate of exemption to the second person; or
  - (ii) the first person has sighted a certificate of exemption issued, on a date subsequent to the date of the issue of the Gazette including the notice of cancellation, to the second person; and
- (f) the first person has not been advised by the Commissioner or the second person of cancellation of a certificate of exemption issued to the second person more than 5 working days before the day on which payment is made or, if the first person has been so advised, either—
  - (i) there has been published in any issue of the Gazette, subsequent to the date of that advice being received and more than 5 working days before the day on which payment is made, notice of issue of a further certificate of exemption to the second person; or
  - (ii) the first person has sighted a certificate of exemption issued, on a date subsequent to the date of that advice being received, to the second person; and
- (g) the first person does not have any other grounds for believing that the second person is a person not eligible to be issued with a certificate of exemption; and
- (h) in any case where the second person is a person to whom any of section NF 9(1)(a) to (c) applies and the payment is not interest, dividends, or a taxable Maori authority distribution derived by the second person as trustee holding an asset on behalf of some third person, the first person does not have any grounds for believing that the interest, dividends, or taxable Maori authority distribution is income derived by any person other than the second person.
(7B) A person (the first person) who receives as agent or bare trustee for another person (the second person) a payment that is or includes resident withholding income is not liable to make a deduction of resident withholding tax from the payment if—
- (a) the first person receives notice from the second person that—
  - (i) the second person is a transitional resident for a period (the transitional period); and
  - (ii) payments during the transitional period from a source or sources (the specified sources) are exempt income of the second person under section CW 22B (Certain income derived by transitional resident); and
- (b) the first person receives the payment during the transitional period; and
- (c) the payment is from a specified source; and
- (d) the first person does not have reasonable grounds for believing that the payment is not exempt income of the second person under section CW 22B.
(8) Where any person (in this subsection referred to as the first person), being a person to whom any of section NF 9(1)(a) to (c) applies, in relation to any other person (in this subsection referred to as the second person),—
- (a) receives a payment from that second person; or
- (b) makes a payment at the request of that second person,—
for the purpose only of determining the first person's liability to make a deduction of resident withholding tax from that payment in accordance with the RWT rules and without affecting the liability of the second person or any other person to make a deduction of resident withholding tax from that payment in accordance with the RWT rules, that payment is deemed not to constitute resident withholding income if and to the extent that—
- (c) the first person could not reasonably be expected to be aware that the payment constituted resident withholding income; or
- (d) in any case of a payment to the extent to which it is a redemption payment, the first person could not reasonably be expected to be aware of the extent to which the payment constituted resident withholding income.
Compare: 1994 No 164 s NF 2

The heading to section NF 2 was substituted, as from 1 October 2005, by section 81(2) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year with application as from the 2005–06 income year.

Subsections (1A) and (1AB) were inserted, as from 1 October 2005, by section 81(3) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Subsection (1) was amended, as from 1 October 2005, by section 81(4) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting the words “If a person makes a payment that is or includes resident withholding income and is required to deduct resident withholding tax from the payment, the person must make a deduction—” for the words “Subject to this section, where a person makes a payment which consists in whole or in part of resident withholding income, that person must, at the time of making the payment, make a deduction of tax (in this Act referred to as resident withholding tax) from the resident withholding income—” with application as from the 2005–06 income year.

Subsection (1)(b) item c was substituted by section 180(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (1)(c) item c was substituted, as from 1 April 2005, by section 180(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (1)(d) item c was substituted, as from 1 April 2005, by section 180(3) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (1)(f) was amended, as from 3 April 2006, by section 180(4) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the words “zero; and” for the expression “zero.”.

Subsection (1)(g) was inserted, as from 3 April 2006, by section 180(4) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (1B) was inserted, as from 1 October 2005, by section 81(5) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Subsection (4)(a) proviso was repealed, as from 3 April 2006, by section 180(5) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (4)(a)(ii) was substituted, as from 3 April 2006, by section 180(5) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (4)(b)(iv) was amended, as from 1 July 2006, by section 180(6) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the words “distribution; or” for the expression “distribution.”.

Subsection (4)(b)(v) was inserted, as from 1 July 2006, by section 180(6) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (4B) was inserted, as from 1 April 2007, by section 180(7) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subsection (7B) was inserted, as from 1 October 2005, by section 148(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005–06 income year.

NF 2AA Election to be RWT proxy

(1) A person is an RWT proxy for a payer of resident withholding income and a payment that is or includes the resident withholding income if—
- (a) the person gives to the Commissioner a notice of election under subsection (2); and
- (b) the payer is a unit trust who is a non-resident; and
- (c) the recipient is a natural person or a trustee of a qualifying trust; and
- (d) the recipient has requested the person to act as an RWT proxy in relation to the payer and the resident withholding income; and
- (db) the person has agreed to act as an RWT proxy in relation to the recipient; and
- (e) the resident withholding income is a dividend; and
- (f) the payment is made while the election in the notice is effective.
(2) A notice of election must be in writing and contain—
- (a) an election by the person to be an RWT proxy for dividends distributed by the payer; and
- (b) the name and postal address of the payer; and
- (c) the date from which the election is effective.
(3) An election by a person to be an RWT proxy is effective from the date nominated in the notice of election until the later of the following:
- (a) the date nominated in a written notice of cancellation of the election that the Commissioner receives from the person:
- (b) the date on which the Commissioner receives from the person a written notice of cancellation of the election.
Section NF 2AA was inserted, as from 1 October 2005, by section 82 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

NF 2A Election to apply higher rate of deduction

(1) A person entitled to receive a payment to which section NF 2(1), other than section NF 2(1)(g) or (1B) relates may elect, in the manner required by the payer or RWT proxy, that the payment be subject to resident withholding tax at a rate specified in schedule 14, clause 1(a), (b), or (c).

(2) An election under subsection (1) may be made for each source of payment that is subject to resident withholding tax on or after 1 April 1999.

(3) A notice of election under this section applies to each deduction or payment under section NF 2(1B) of resident withholding tax required to be made on or after the date on which the notice is furnished to the person required to make the deduction or payment.

Compare: 1994 No 164 s NF 2A

Subsection (1) was substituted, as from 1 October 2005, by section 83(1) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

Subsection (1) was amended, as from 1 July 2006, by section 181 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the words “section NF 2(1), other than section NF 2(1)(g),” for the words “section NF 2(1)”.

Subsection (3) was amended, as from 1 October 2005, by section 83(2)(a) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting the words “each deduction or payment under section NF 2(1B)” for the words “each deduction” with application as from the 2005–06 income year.

Subsection (3) was amended, as from 1 October 2005, by section 83(2)(b) Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting the words “the deduction or payment” for the words “the deduction” with application as from the 2005–06 income year.

NF 2B Companies to notify interest payer

(1) A company, other than a company that is a trustee or a Maori authority, that becomes entitled to receive a payment to which section NF 2(1), other than section NF 2(1)(g), applies on or after 1 April 2001, must notify the interest payer that they are a company on becoming entitled to receive the payment.

(2) An interest payer who receives a notice from a company must deduct resident withholding tax at the appropriate rate specified in schedule 14, clause 1C, from payments made on and after the date on which the notice is received.

(3) An interest payer who does not receive a notice from a company must treat the company as a person to whom section NF 2A applies.

Compare: 1994 No 164 s NF 2B

Subsection (1) was amended, as from 1 July 2006, by section 182 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the words “section NF 2(1), other than section NF 2(1)(g),” for the words “section NF 2(1)”.

NF 2C Transitional rule: notifications by companies between 1 April 2001 and 31 May 2001 (both dates inclusive)

(1) A company, other than a company that is a trustee, that has an entitlement on 31 March 2001 to receive a payment to which section NF 2(1) applies, must notify the interest payer, between 1 April 2001 and 31 May 2001 (both dates inclusive), that they are a company to which this section applies.

(2) An interest payer who receives a notice from a company during the period 1 April 2001 to 31 May 2001 (both dates inclusive) must deduct resident withholding tax at the appropriate rate specified in schedule 14, clause 1C, from payments made on and after the end of 1 month after the date on which the notice is received.

(3) Despite the 1 month time period in subsection (2), an interest payer may make deductions of resident withholding tax at the rates specified in schedule 14, clause 1 or 1C, from payments made during the period starting on the date on which the notice is received and ending on the last day of the 1 month period.

Compare: 1994 No 164 s NF 2C

NF 2D Election rates of deduction for companies

(1) A company entitled to receive a payment to which section NF 2(1), other than section NF 2(1)(g), applies may elect, in the manner prescribed by the interest payer, to make the payment subject to the deduction of resident withholding tax at the rate specified in schedule 14, clause 1C(a) or (b).

(2) An election may be made for each source of payment that is subject to resident withholding tax on or after 1 April 2001.

(3) A notice of election applies to each deduction of resident withholding tax required to be made on or after the date on which notice is given to the interest payer.

Compare: 1994 No 164 s NF 2D

Subsection (1) was amended, as from 1 July 2006, by section 183 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the words “section NF 2(1), other than section NF 2(1)(g),” for the words “section NF 2(1)”.

NF 3 Requirements for agents or trustees to make resident withholding tax deductions on receipt of payments

(1) Where—
- (a) a payment which consists in whole or in part of resident withholding income has been made; and
- (b) the recipient of the payment either—
  - (i) holds at the time of that payment a valid certificate of exemption issued to the recipient; or
  - (ii) receives that payment wholly or partly in the course of or furtherance of a taxable activity carried on by that recipient; and
- (c) resident withholding tax was not deducted from that payment or was not deducted in full in accordance with the RWT rules; and
- (d) the recipient of that payment is, in relation to that payment, an agent or a trustee for another person or persons,—
the recipient of that payment must (subject to this section and section NF 2, with the exception of section NF 2(4)(b)) at the time of receiving that payment make a deduction from that payment of the amount of the resident withholding tax or, as the case may be, the amount of the deficiency in that tax, and must pay to the Commissioner the amount of that deduction no later than the 20th of the month following the month in which the payment is received.
(2) Subsection (1) does not apply to require a recipient of a payment of resident withholding income to make a deduction of resident withholding tax if—
- (a) the recipient—
  - (i) holds at the time of payment a valid certificate of exemption; and
  - (ii) receives the payment as trustee of a trust that is not a bare trust:
- (b) the payment is a replacement payment under a share-lending arrangement.
(3) Where any person is required in accordance with this section to make a deduction of resident withholding tax from a dividend (not being a specified dividend), that resident withholding tax deduction is for the purposes of the RWT rules (including in particular but without limiting the generality of sections LD 3, NF 6, and NF 8, and sections 25 and 51 of the Tax Administration Act 1994) treated as being a resident withholding tax deduction made in respect of a specified dividend.

(4) Where any person is required in accordance with this section to make a deduction of resident withholding tax from resident withholding income, being dividends which are non-cash dividends, that person may not make a deduction of resident withholding tax from that resident withholding income but is liable to pay to the Commissioner an amount (which is treated as a deduction of resident withholding tax for the purposes of this Act and the Tax Administration Act 1994) equal to the resident withholding tax that, but for this subsection, would have been required to be deducted, and to pay that amount in the same manner in all respects as if it were the resident withholding tax that, but for this subsection, would have been required to be deducted.

(5) Subject to section NF 2(6), the provisions of this section do not restrict the application of section NF 2 to require any person to make a deduction of resident withholding tax when making a payment, whether acting in the capacity of agent or trustee for another person or persons or otherwise.

Compare: 1994 No 164 s NF 3

Subsection (2) was substituted, as from 1 July 2006, by section 184 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Payment of resident withholding tax

NF 4 Payment of deductions of resident withholding tax to Commissioner

(1) All persons who estimate in relation to any tax year that they will be required by the RWT rules to make resident withholding tax deductions of $500 or more in aggregate in relation to payments of interest during each month of that tax year must pay to the Commissioner the amount of all resident withholding tax deductions made during that tax year in accordance with the RWT rules on a monthly basis, with the deductions made during any month being paid to the Commissioner no later than the 20th of the following month.
(2) Subject to subsections (3) and (5) to (8), all persons who estimate in relation to any tax year that they will not be required by the RWT rules to make resident withholding tax deductions of more than $500 in aggregate in accordance with the RWT rules in relation to payments of interest during each month of that tax year must pay to the Commissioner the amount of all resident withholding tax deductions made during that tax year in accordance with the RWT rules in 2 instalments as follows:
- (a) the first instalment is due and payable on 20 October in that tax year, and on that date all resident withholding tax deductions made in relation to payments of interest made during the period beginning on 1 April in that tax year and ending on 30 September in that year must be paid to the Commissioner; and
- (b) the second instalment is due and payable on 20 April in the following tax year, and on that date all resident withholding tax deductions made in relation to payments of interest made during the period beginning on 1 October in that tax year and ending on 31 March in that following tax year must be paid to the Commissioner.
(3) If, as at the end of any month (in this subsection referred to as the specified month) in any tax year, any person has made resident withholding tax deductions, in relation to payments of interest, of more than $500 in aggregate since the beginning of the last month (in this subsection referred to as the month of prior payment) during which that person was required in accordance with this section to pay to the Commissioner an amount of resident withholding tax deductions made in relation to payments of interest, that person must pay to the Commissioner all resident withholding tax deductions made in relation to payments of interest since the beginning of the month of prior payment until the end of the specified month no later than the 20th of the month following the specified month.

(4) All persons who make resident withholding tax deductions in accordance with the RWT rules in relation to payments of dividends, replacement payments, or taxable Maori authority distributions must pay all such deductions to the Commissioner on a monthly basis, with the deductions made during any month being paid to the Commissioner no later than the 20th of the following month.
(5) Where any person (not being a person who continues to hold a valid certificate of exemption issued to that person, notwithstanding the cessation in carrying on a taxable activity) in any month—
- (a) ceases to carry on any taxable activity in respect of which that person has been required to make any resident withholding tax deductions; or
- (b) ceases to carry on any such taxable activity in New Zealand,—
that person must pay to the Commissioner all resident withholding tax deductions made by that person with respect to that taxable activity and not earlier paid to the Commissioner no later than the 20th of the following month.
(6) Where any person in any month ceases to be a person holding a valid certificate of exemption issued to that person (not being a person who continues to be required to make resident withholding tax deductions by virtue of making payments in the course of or furtherance of a taxable activity notwithstanding that cessation in holding a valid certificate of exemption), that person must pay to the Commissioner all resident withholding tax deductions made by that person and not earlier paid to the Commissioner no later than the 20th of the following month.

(6B) An emigrating company who is treated under section FCB 2 as paying a distribution to shareholders must, on or before the date that is 3 months after the date of the emigration time, pay to the Commissioner all resident withholding tax deductions made by the company from the distribution.
(7) Every person who is required by section 51(1), (4), or (5) of the Tax Administration Act 1994 to provide information to the Commissioner in respect of deductions or payments of resident withholding tax, that are made or should be made from resident withholding income paid or derived in a tax year or part year, must pay to the Commissioner, not later than—
- (a) 20 April following the end of the tax year (in the case of information provided under section 51(1) of that Act); and
- (b) the last date by which the information is to be provided (in the case of information provided under section 51(4) or (5) of that Act),—
an amount equal to all unpaid deductions and payments for the tax year or part year that are identified as discrepancies in the information.
(8) Subsection (7) does not apply to any unpaid deductions or payments of resident withholding tax that the Commissioner assesses as due and payable in respect of a particular return period.

(9) For the purposes of this section, an RWT proxy who is required to pay resident withholding tax in relation to a payment of resident withholding income is treated as having deducted the resident withholding tax from the payment at the time of the payment.

Compare: 1994 No 164 s NF 4

Subsection (4) was amended, as from 1 July 2006, by section 185(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting the words “dividends, replacement payments,” for the word “dividends”.

Subsection (6B) was inserted, as from 3 April 2006, by section 185(2) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

Subsection (6B) was amended, as from 3 April 2006, by section 149(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “date of the emigration time” for “emigration date” with application as from the 2005–06 income year.

Subsection (9) was inserted, as from 1 October 2005, by section 84 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) with application as from the 2005–06 income year.

NF 5 Non-resident withholding tax deducted in substitution for resident withholding tax

(1) No person is liable to pay any amount to the Commissioner by virtue of any of the provisions of the RWT rules where, in relation to any payment or (in any case where that person is acting as agent or trustee for another person) receipt, that person—
- (a) on reasonable grounds and having made all reasonable inquiries, concluded that that payment or receipt constituted non-resident withholding income as being an amount derived by a person not resident in New Zealand and was for that reason not resident withholding income; and
- (b) complied with all the obligations on the part of that person which would have been applicable under this Act or the Tax Administration Act 1994 had that payment or receipt constituted non-resident withholding income.
(2) Where any person has, by virtue of the application of this section, been relieved from liability under the RWT rules, for the purpose only of determining any liability of that person under the RWT rules, the payment or (in any case where that person is acting in relation to that receipt as agent or trustee for any other person) receipt in question is deemed to be derived by a person not resident in New Zealand.

Compare: 1994 No 164 s NF 5

Miscellaneous provisions

NF 6 Resident withholding tax deductions varied to correct errors

(1) Where any person (in this subsection referred to as the first person) required to make a deduction of resident withholding tax from any payment of—
- (a) interest; or
- (b) specified dividends—
to any person (in this subsection referred to as the second person) has failed to make such a deduction or has failed to make it in full, the first person may (except to the extent to which a deduction of resident withholding tax has already been made by any other person to correct the deficiency) either—
- (c) deduct a sufficient amount or amounts to correct the deficiency from any subsequent payment of such interest or dividends to the second person in the same year in which the first payment was made; or
- (d) otherwise recover from the second person a sufficient amount or amounts to correct the deficiency.
(2) Where a person deducts from any payment an amount on account of resident withholding tax that is in excess of the amount of resident withholding tax required to be deducted under the RWT rules due to an error on the part of that person, the person may pay the excess to the recipient of the payment at any time on or before 31 March in the tax year in which the deduction was made if, at that time,—
- (a) in the case of an excess deduction from a payment of interest or specified dividends, either—
  - (i) a resident withholding tax deduction certificate including that excess deduction has not been issued; or
  - (ii) any resident withholding tax deduction certificate including that excess deduction has been returned and cancelled:
- (b) in the case of an excess deduction from a payment of dividends other than specified dividends, either—
  - (i) a shareholder dividend statement including the excess deduction has not been issued for the purposes of section 29 of the Tax Administration Act 1994; or
  - (ii) any such shareholder dividend statement including the excess deduction has been returned and cancelled:
- (c) in the case of an excess deduction from a taxable Maori authority distribution, either—
  - (i) a notice including the excess deduction has not been given to a member in accordance with section 31 of the Tax Administration Act 1994; or
  - (ii) a notice including the excess deduction has been returned and cancelled.
(3) Where a person refunds an excess amount to a recipient in accordance with subsection (2),—
- (a) that excess amount ceases for the purposes of this Act and the Tax Administration Act 1994 to be a resident withholding tax deduction; and
- (b) the person must, if any previously issued resident withholding tax deduction certificate or shareholder dividend statement that includes the excess deduction has been returned and cancelled, give to the recipient an amended certificate or statement; and
- (c) the person may, where the excess deduction has been paid to the Commissioner, either—
  - (i) offset the amount of the refunded excess against any tax deductions subsequently payable to the Commissioner in accordance with section NF 4 (which offset must be noted in the statement required by section 50 of the Tax Administration Act 1994); or
  - (ii) apply for a refund of the excess under section NF 7.
(4) Where a person deducts from any payment on account of resident withholding tax an amount in excess of the amount of resident withholding tax required to be deducted in accordance with the RWT rules due to an act or omission on the part of the recipient of that payment, the person must pay the full amount of the resident withholding tax deducted to the Commissioner in accordance with section NF 4, and is, upon such payment, not liable to refund the amount of that excess to the recipient of that payment or any other person.

Compare: 1994 No 164 s NF 6

NF 7 Refunds of deductions

(1) Where—
- (a) any deduction is made by any person in accordance with the procedure set out in the RWT rules; and
- (b) the amount so deducted is paid to the Commissioner; and
- (c) the amount so deducted exceeds the resident withholding tax deduction (if any) required in accordance with the RWT rules,—
the Commissioner must, subject to this section, pay by way of refund an amount equal to that excess.
(2) Any refund under subsection (1) must be paid to—
- (a) the person deriving the amount from which the deduction was made; or
- (b) the person who made the excess deduction, if that person has, in accordance with section NF 6(2), paid the excess to the person deriving the amount from which the deduction was made and has not offset that amount under section NF 6(3)(c).
(3) Any person who becomes entitled to a refund under this section may make an application for the refund in such form as may be approved by the Commissioner.

(4) The Commissioner may not pay a refund under this section unless the Commissioner receives such evidence as the Commissioner considers necessary that the requirements of subsection (1) (and, where appropriate, section NF 6(2)) have been met.
(5) If, but for this subsection, a person would be entitled to an amount as a refund under this section, the Commissioner may apply the amount, in accordance with a request under section 173T of the Tax Administration Act 1994 or in the absence of such a request in such order or manner as the Commissioner may determine, in payment of—
- (a) an amount that is payable by the person under this Act:
- (b) an amount that is payable by the person under the Tax Administration Act 1994.
Compare: 1994 No 164 s NF 7

NF 8 Resident withholding tax deductions from dividends deemed to be dividend withholding payment credits

(1) Where any resident withholding tax deduction is made by a company in accordance with the RWT rules from a dividend (not being a specified dividend) paid in relation to shares issued by that company, that deduction is deemed to be a dividend withholding payment credit attached to that dividend by the company and that company is deemed to be a dividend withholding payment account company for the purposes of the following provisions:
- (a) sections LB 1 and LD 9:
- (b) section 185 of the Tax Administration Act 1994.
(2) Where any resident withholding tax deduction is in any tax year made by a company in accordance with the RWT rules from a dividend (not being a specified dividend) in relation to shares issued by that company, that company must provide to the Commissioner such information as the Commissioner may require in relation to that deduction, and such information must be provided,—
- (a) in the case of any company required to furnish an annual dividend withholding payment account return, in that return:
- (b) in the case of any company (not being a company to which in relation to that tax year paragraph (a) applies) required to furnish an annual imputation return, in that return.
(3) Where any company pays in any tax year any dividend (not being a specified dividend) in relation to its shares from which dividend any resident withholding tax is deducted in accordance with the RWT rules, the company must at the time of paying that dividend complete such information in relation to that dividend as the Commissioner may require, and such information must,—
- (a) if the company is an imputation credit account company in that year, be included in the company dividend statement prepared in accordance with section 67 of the Tax Administration Act 1994; and
- (b) in any other case, be included in such form as the Commissioner may approve, containing also the information set out in section 67(a) to (c) and (f) of the Tax Administration Act 1994, and be furnished to the Commissioner not later than the 31 May that follows the end of that tax year.
(4) In this section,—

dividend withholding payment account return means an annual dividend withholding payment account return required to be furnished in accordance with section 71 of the Tax Administration Act 1994

imputation return means an annual imputation return required to be furnished in accordance with section 69 of the Tax Administration Act 1994.

Compare: 1994 No 164 s NF 8

NF 8A Resident withholding tax deductions from distributions treated as Maori authority credits

(1) If a Maori authority deducts resident withholding tax in accordance with the RWT rules from a taxable Maori authority distribution, the deduction is treated as a Maori authority credit attached to the distribution by the Maori authority for the purposes of sections LB 1, LD 3A, and MK 7.

(2) If a Maori authority deducts resident withholding tax in accordance with the RWT rules from a taxable Maori authority distribution, the Maori authority must provide to the Commissioner such information as the Commissioner may require in relation to the deduction in the annual Maori authority credit account return.

(3) If a Maori authority deducts resident withholding tax in accordance with the RWT rules from a taxable Maori authority distribution in any year, the Maori authority must, at the time it makes the distribution, complete such information in relation to the distribution as the Commissioner may require, and include it in the distribution statement prepared in accordance with section 68B of the Tax Administration Act 1994.

Compare: 1994 No 164 s NF 8B

NF 8B Resident withholding tax deductions from replacement payments treated as imputation credits

If a share user under a share-lending arrangement deducts resident withholding tax in accordance with the RWT rules from a replacement payment, the deduction—
- (a) is treated for the share supplier as an imputation credit attached to the replacement payment in addition to any imputation credit that the share user attaches to the replacement payment under section ME 6B; and
- (b) does not give rise under section LD 3 to a credit of tax or refund for the share supplier.
Section NF 8B was inserted, as from 1 July 2006, by section 186 Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

NF 9 Certificates of exemption

(1) Any of the following persons may apply to the Commissioner to be issued with a certificate of exemption:
- (a) any registered bank as defined in section 2 of the Reserve Bank of New Zealand Act 1989:
- (b) any building society:
- (c) any portfolio investment entity:
- (d) any of Public Trust or any company that would be a member of the same wholly-owned group of companies as Public Trust were Public Trust a company for the purposes of this Act or the Maori Trustee or a trustee company:
- (e) any person whose principal form of business is—
  - (i) the borrowing of money or accepting of deposits, whether on demand or for a fixed term, or the receiving of credit or the selling of any credit instrument; and
  - (ii) the lending of money or granting of credit or buying or discounting of any credit instrument:
  or any person which is—
  - (iii) a solicitors' nominee company to which rules made by the Council of the New Zealand Law Society under section 17(2)(g) of the Law Practitioners Act 1982 apply; or
  - (iv) a broker's nominee company to which the Securities Act (Contributory Mortgage) Regulations 1988 apply:
- (f) any solicitor in relation to the operations of that solicitor's trust account, being a trust account maintained in accordance with section 89 of the Law Practitioners Act 1982:
- (g) any person who has furnished all returns of income that that person is required to furnish under the Income Tax Act 1976, the Income Tax Act 1994, or the Tax Administration Act 1994 within the time period prescribed in the relevant Act (or within such further time as the Commissioner has allowed), and who has for the tax year to which that person's most recently furnished income tax return relates annual gross income in excess of $2,000,000:
- (h) any person in any accounting year who has reasonable grounds for believing that the annual gross income of that person for the next accounting year of that person will exceed $2,000,000:
- (i) any person who derives in any tax year amounts that are exempt income under any of sections CW 31(2) (and, for this purpose, the Reserve Bank of New Zealand is not a public authority), CW 32(2), and CW 33 to CW 44 and CW 50 in relation to the activities of that person in the capacity in which that person derived that exempt income:
- (j) any person to whom section DV 8 applies and who would, but for that section, have net income, in that person's most recently completed accounting year, of an amount less than the amount for the time being specified in that section.
(2) Any application under subsection (1) must be made in writing in the form prescribed by the Commissioner, and must state which paragraph of subsection (1) applies to the applicant (the requirements of the paragraph specified in the application being referred to in this section and in section NF 11 as the basis of exemption), and must be accompanied by a declaration made by the applicant or any duly authorised officer of the applicant stating that the applicant comes within the basis of exemption.

(3) An applicant for a certificate of exemption must provide such further information as the Commissioner may require in relation to the application, including any books of account or other accounting information or records of or relating to the applicant.
(4) Where the Commissioner has received an application under subsection (1), and any further information that may be required under subsection (3) in relation to that application, and the Commissioner is satisfied that the applicant is a person to whom subsection (1) applies, the Commissioner must issue a certificate of exemption to the applicant for such period as the Commissioner determines (if any), which certificate must—
- (a) be a valid certificate of exemption from the date that the Commissioner determines and states in the certificate; and
- (b) bear the date of issue of the certificate and the date of termination of the certificate (if any); and
- (c) bear that applicant's tax file number.
(5) In the event that any certificate of exemption issued is lost or destroyed, on receipt of satisfactory evidence of that fact the Commissioner may issue a replacement certificate of exemption.

(6) Any person to whom is issued a certificate of exemption on the basis that subsection (1)(h) applies to that person must, within 3 months after the end of the accounting year last referred to in that paragraph, furnish to the Commissioner evidence, to the satisfaction of the Commissioner, of that person's annual gross income for the relevant accounting year, and must provide such supporting information or further evidence as the Commissioner may require for the purposes of this section and section NF 11.

(7) In the event that any person to whom subsection (6) applies has during the relevant 12 month period less than $2,000,000 of annual income, that person (in this subsection referred to as the first person) is liable for late payment penalties in relation to amounts received or derived by the first person that would, had the first person not held that certificate of exemption, have been deducted under the RWT rules from payments made by any other person, and section 139B of the Tax Administration Act 1994 must apply to the first person as if the first person had failed to make a deduction under the RWT rules, and as if that default had occurred on each day that the first person received or derived a payment from which a deduction would otherwise have been made under the RWT rules.

(8) When calculating the annual gross income of any company for the purposes of subsection (1)(g), being a company that was for the relevant tax year under section IG 1 a member of a group of companies, the annual gross income of that company is deemed to include all of the annual gross income in that tax year of any other members of that group.

(9) When calculating the estimated annual gross income of any company for the purposes of subsections (1)(h), (6), and (7), being a company which anticipates that it will be a member of a group of companies under section IG 1 for the relevant 12 month period, the estimated annual gross income in that period of that company is deemed to include the estimated annual gross income of all other companies in that group.

(10) For the purposes of subsections (1)(g) and (h) and (6) to (9), when calculating the annual gross income of any company, there is excluded from the annual gross income calculations any assessable income derived by that company (or derived by another company in the same group of companies) from any transaction or series of related or connected transactions with another company in the same group of companies.
(11) The Commissioner may—
- (a) issue a certificate of exemption; or
- (b) permit the retention of a certificate of exemption; or
- (c) remit the whole or any part of any late payment penalty payable by virtue of subsection (7),—
notwithstanding the failure of the applicant for the certificate or the holder of the certificate to satisfy the basis of exemption in subsection (1)(h) or to derive during the relevant 12 month period referred to in subsection (7) annual gross income of at least $2,000,000, where the Commissioner is satisfied that the failure is solely as a consequence of extraordinary circumstances that are—
- (d) beyond the reasonable control of the applicant or holder of the certificate of exemption; and
- (e) not likely to be repeated in subsequent tax years; and
- (f) in the case of any remission of any late payment penalty payable by virtue of subsection (7), circumstances which the applicant for the certificate of exemption could not reasonably have been expected to foresee at the time of application.
(12) Notwithstanding any other provision of this section, the Commissioner may at any time issue to a person, being a person to whom at that time subsection (1) does not apply, a certificate of exemption which is valid until the date of termination (if any) specified in the certificate where the Commissioner is satisfied that in the period of validity of any certificate of exemption issued to that person either—
- (a) the person will or is likely to have an annual total deduction in accordance with this Act not less than the annual gross income of that person; or
- (b) the person would, but for the application of this subsection, in each tax year any part of which tax year falls within the period of validity of the certificate of exemption, be or be likely to be entitled to claim aggregate resident withholding tax credits in accordance with section LD 3 exceeding the income tax liability of that person for such tax year by an amount not less than $500:
provided that the Commissioner may not issue to any person a certificate of exemption in accordance with this subsection unless the Commissioner has received from that person an application in writing in the form prescribed by the Commissioner, which application must be accompanied by—
- (c) a set of budgeted accounts detailing the projected annual gross income, annual total deduction, resident withholding tax credits, and income tax liability of the person for the proposed period of validity of the certificate of exemption; and
- (d) such further information in relation to the person or the budgeted accounts as the Commissioner may require.
(13) Where any certificate of exemption issued in accordance with subsection (12) ceases to be a valid certificate of exemption at the date of termination specified in the certificate and is not immediately replaced by a valid certificate of exemption in substitution, the provisions of section NF 11 apply as if the certificate were on the date of termination cancelled in accordance with that section, and such cancellation on that date notified by the Commissioner to the holder of the certificate.

(14) No person (in this subsection referred to as the first person) issued with a certificate of exemption in accordance with subsection (12) may notify any other person that the first person holds that certificate of exemption without providing the other person with a copy of that certificate of exemption.

Compare: 1994 No 164 s NF 9

Section NF 9(1)(c): inserted, on 1 October 2007, by section 150 of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Subsection (1)(i) was amended, as from 1 October 2005, by section 85 Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005 (2005 No 79) by substituting the expression “CW 44” for the expression “CW 43” with application as from the 2005–06 income year.

NF 10 Unincorporated bodies

(1) Where any body that carries on any taxable activity is issued with a certificate of exemption in relation to the carrying on of that taxable activity,—
- (a) the members of that body are not themselves issued with a certificate of exemption in relation to the carrying on of that taxable activity; and
- (b) any payments made in the course of carrying on that taxable activity are deemed for the purposes of the RWT rules to be made by that body, and are deemed not to be made by any member of that body; and
- (c) any payments to any member of that body acting in the capacity as a member of that body and in the course of carrying on that taxable activity are deemed for the purposes of the RWT rules to be payments to that body, and are deemed not to be payments to that member; and
- (d) that certificate of exemption is in the name of the body or, where that body is the trustee of a trust, in the name of the trust; and
- (e) subject to subsection (2), any change of members of that body has no effect for the purposes of the RWT rules.
(2) Notwithstanding anything in this section, every member is liable jointly and severally with any other members for all resident withholding tax payable by the body while that member remains a member of that body, and, where that member is an individual, after that member's death, that member's estate is severally liable in due course of administration for such resident withholding tax payable as far as it remains unpaid:

provided that, where any such body is a partnership, joint venture, or the trustees of a trust, a member does not cease to be a member for the purposes of this section until the date on which any change of membership of that body is notified to the Commissioner.

(3) For the purposes of the RWT rules, any notice served in accordance with the RWT rules which is addressed to a body by the name in which it is issued with a certificate of exemption registered under this Act is deemed to be served on that body and on all members of that body.

(4) Subject to subsection (5), where anything is required to be done under the RWT rules by or on behalf of any body, it is the joint and several liability of all members to do any such thing: provided that any such thing done by 1 member is sufficient compliance with any such requirement.
(5) Notwithstanding anything in this section, but subject to subsection (2), where anything is required to be done under the RWT rules by or on behalf of any body, not being a partnership, joint venture, or trustees of a trust, the affairs of which are managed by its members or a committee or committees of its members, it is the joint and several responsibility of—
- (a) every member holding office as president, chairperson, treasurer, secretary, or any similar office; or
- (b) in default of any such member, every member holding office as a member of a committee: provided that if it is done by any official or committee member referred to in paragraph (a) or (b), that is sufficient compliance with any such requirement.
(6) In this section,—
body means an unincorporated body of persons, and includes—
- (a) a partnership:
- (b) a joint venture:
- (c) the trustees of a trust
member means a partner, a joint venturer, a trustee, or a member of any body

partnership and partner have the same meanings as in the Partnership Act 1908.
Compare: 1994 No 164 s NF 10

NF 11 Cancellation of certificates of exemption

(1) Where any person who holds a certificate of exemption ceases to be a person who comes within the basis of exemption that was specified in that person's application for that certificate, that person must, within 5 working days after the first day upon which that person became aware of that fact,—
- (a) give notice to the Commissioner of that fact; and
- (b) deliver to the Commissioner any certificate of exemption held by that person; and
- (c) if requested by the Commissioner and within 5 working days after that request, provide the Commissioner with the full names and last known addresses of all persons to whom that person has shown the certificate of exemption for the purpose of obtaining an exemption from the deduction of resident withholding tax under the RWT rules.
(2) The Commissioner may cancel any person's certificate of exemption at any time in the following circumstances:
- (a) if the Commissioner has reason to believe that the person no longer satisfies the basis of exemption that was specified in the application made for that certificate of exemption; or
- (b) if that person is not within the basis of exemption specified in the application made by that person for that certificate of exemption and obtained that certificate of exemption on the basis of misleading information or otherwise should not have been issued with a certificate of exemption; or
- (c) where the basis of exemption for that certificate of exemption was section NF 9(1)(h), if—
  - (i) the evidence required to be furnished by that person under section NF 9(6) shows that that person did not derive annual gross income in excess of $2,000,000 in the relevant accounting year; or
  - (ii) that person fails to furnish satisfactory evidence of annual gross income as required under section NF 9(6); or
  - (iii) the Commissioner has reason to believe the evidence furnished by that person under section NF 9(6) is incorrect in any material respect or is misleading; or
- (d) if that person has not made payment of any income tax which is payable by that person under this Act by the due date for payment of that tax,—
and in each such event the Commissioner must notify the person of the fact that that person's certificate of exemption has been cancelled and that person must, within 5 working days of receiving the notification, deliver up that person's certificate of exemption to the Commissioner, if not delivered up previously, and must, if requested by the Commissioner, provide the Commissioner with the full names and last known addresses of all persons to whom that person has shown the certificate of exemption for the purpose of obtaining an exemption under the RWT rules: provided that, except in the circumstance specified in paragraph (d), in any case where the Commissioner is satisfied that the person is a person to whom section NF 9(6) applies in relation to a further basis of exemption other than that specified in the application made for the certificate of exemption, the Commissioner may not cancel the certificate of exemption except to issue with immediate effect a certificate of exemption in substitution for that certificate.
(3) The Commissioner may give notice to any persons of the fact of cancellation of any certificate of exemption at any time.

(4) Any person who receives notification from the Commissioner that that person's certificate of exemption has been cancelled must, within 5 working days of receipt of that notification, give notice to all persons to whom that person has shown that certificate of exemption for the purpose of obtaining an exemption under the RWT rules and from whom that person expects to receive further payments of resident withholding income of the cancellation of that certificate.
(5) The Commissioner must publish in the Gazette, whether or not that information has been published under subsection (9),—
- (a) on or before 30 June in each tax year,—
  - (i) a list of all certificates of exemption that were cancelled during the immediately preceding tax year (not including any such certificates of exemption held prior to cancellation by a person to whom a further certificate of exemption was issued subsequently in that tax year); and
  - (ii) a list of all certificates of exemption that were issued during the immediately preceding tax year to persons who had previously held a certificate of exemption (not including any such certificates of exemption that were issued to a person who previously in that tax year held a certificate of exemption which was cancelled); and
- (b) in April, July, October, and January (in this subsection referred to respectively as the month of publication),—
  - (i) a list of all certificates of exemption that were cancelled during the 3 month period ending with the last day of the month immediately preceding the relevant month of publication (not including any such certificates of exemption held prior to cancellation by a person to whom a further certificate of exemption was issued subsequently in that 3 month period); and
  - (ii) a list of all certificates of exemption that were issued during the 3 month period ending with the last day of the month immediately preceding the relevant month of publication to a person who had previously held a certificate of exemption (not including any such certificates of exemption that were issued to a person who previously in that 3 month period held a certificate of exemption which was cancelled).
(6) Where any person is required to deliver up a certificate of exemption held by that person, that person must deliver up all original copies of that certificate of exemption issued to that person by the Commissioner.

(7) A certificate of exemption ceases to be a valid certificate of exemption on the 5th working day after the date of publication of the cancellation of that certificate in the Gazette, and, in relation to persons who are notified by the Commissioner or the previous holder of that certificate that a certificate of exemption has been cancelled, a certificate of exemption ceases to be a valid certificate of exemption as from the day which is 5 working days after the date the person is so notified.

(8) The Commissioner may, at any time after publication of the lists of certificates required to be published under subsection (5), publish those lists of certificates by electronic means.

(9) Subsection (8) applies to lists of certificates the issue or cancellation of which was required to be published in the Gazette before the commencement of this subsection.

Compare: 1994 No 164 s NF 11

NF 12 Amount of resident withholding tax deduction deemed to have been received

Where any amount has been deducted by way of resident withholding tax deduction under the RWT rules from any payment other than a replacement payment under a share-lending arrangement, the amount so deducted,—
- (a) as between the payer and the recipient, is deemed to have been received by the recipient at the time of receiving the payment from which the tax deduction was made; and
- (b) for the purposes of this Act, is deemed to have been derived at the same time and in the same way as the payment from which the tax deduction was made.
Compare: 1994 No 164 s NF 12

Section NF 12 was amended, as from 1 July 2006, by section 151 Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “under the RWT rules from any payment other than a replacement payment under a share-lending arrangement” for “under the RWT rules from any payment”.

NF 13 Application of other provisions in relation to resident withholding tax

Subject to the RWT rules, the other provisions of this Act and of the Tax Administration Act 1994 apply with respect to every amount that any person is liable to account for or pay to the Commissioner under those rules as if the amount were income tax.

Compare: 1994 No 164 s NF 13

Subpart NG—Non-resident withholding tax

General

NG 1 Application of NRWT rules

NG 2 Non-resident withholding tax imposed

NG 3 Non-resident withholding tax to be final tax in certain cases

NG 4 Non-resident withholding tax to be minimum tax in certain cases

NG 5 Persons who may apply for approval

NG 6 Approval of person as approved issuer

NG 7 Revocation of approval

Deduction of non-resident withholding tax

NG 8 Deduction of non-resident withholding tax

NG 9 Non-resident withholding tax on dividends not paid in money

NG 10 Power of Commissioner to grant relief from or vary amount of deductions

Payment of non-resident withholding tax

NG 11 Payment of deductions of non-resident withholding tax to Commissioner

NG 12 Person deriving non-resident withholding income to pay non-resident withholding tax to Commissioner

NG 13 Failure to make deductions of non-resident withholding tax or to make payments to Commissioner

NG 14 Non-resident withholding tax on dividends paid to company under control of non-resident

NG 15 Deductions of non-resident withholding tax deemed to be received by person entitled to payment

NG 16 Non-resident withholding tax deducted in error

NG 16A Variation in non-resident withholding tax deductions to correct errors

NG 17 Application of other provisions to non-resident withholding tax

General

NG 1 Application of NRWT rules

(1) The NRWT rules apply notwithstanding anything in any other provision of this Act or of the Tax Administration Act 1994.
(2) The NRWT rules apply to income (in this Act referred to as non-resident withholding income) deemed under this Act to be derived from New Zealand and that consists of—
- (a) dividends (other than investment society dividends ) or royalties that are derived by a person who is not resident in New Zealand; or
- (b) interest or investment society dividends, being interest or investment society dividends that are derived by a person who is not resident in New Zealand, not being a person who is engaged in business in New Zealand through a fixed establishment in New Zealand,—
not being income that is—
- (c) income calculated under the financial arrangements rules; or
- (d) income to which section FC 21 applies; or
- (e) exempt income; or
- (f) income that is excluded income under section CX 44D(2) or (3).
(3) For the purposes of the NRWT rules, an amount of interest is treated as being paid by an approved issuer in respect of a registered security only where that amount is treated as being so paid under section 86I of the Stamp and Cheque Duties Act 1971.
(4) In the case of interest payable by the Commissioner under Part 7 of the Tax Administration Act 1994,—
- (a) all non-resident withholding tax deductions made by the Commissioner from that interest are deemed to have been paid to the Commissioner on the date on which they are made; and
- (b) the provisions of sections 50, 55, and 100, and Part 9 of the Tax Administration Act 1994 do not apply in relation to the Commissioner and any such interest; and
- (c) the other provisions of the non-resident withholding tax rules apply in respect of the Commissioner and any such interest so far as applicable and with all necessary modifications.
Compare: 1994 No 164 s NG 1

Subsection (2) was amended, as from 1 April 2005, by section 187(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) by substituting “apply to assessable income” for “apply to income” with application as from the income year corresponding to the 2005–06 tax year.

Subsection (2) was amended, as from 1 April 2005, by section 152(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “income” for “assessable income” with application as from the 2005–06 income year.

Section NG 1(2)(a): amended, on 1 October 2007, by section 48(1) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

Section NG 1(2)(a): amended, on 1 October 2007, by section 152(2) of the Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81).

Subsection (2)(d) was amended, as from 1 April 2005, by section 152(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “applies; or” for “applies.” with application as from the 2005–06 income year.

Subsection (2)(e) and (f) was inserted, as from 1 April 2005, by section 152(3) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) with application as from the 2005–06 income year.

Section NG 1(2)(f): amended, on 1 October 2007, by section 48(2) of the Taxation (KiwiSaver and Company Tax Rate Amendments) Act 2007 (2007 No 19).

NG 2 Non-resident withholding tax imposed

(1) Every person who derives non-resident withholding income is liable to pay non-resident withholding tax upon that income—
- (a) at the rate of 30% on non-resident withholding income that is dividends, but not to the extent that those dividends are—
  - (i) investment society dividends; or
  - (ii) supplementary dividends payable as a result of subpart LE; or
  - (iii) conduit tax relief additional dividends payable as a result of subpart LG; or
  - (iv) fully imputed; or
  - (v) fully dividend withholding payment credited; or
  - (vi) fully conduit tax relief credited:
- (ab) if it is interest that is derived by 2 or more persons jointly and at least 1 of those persons is a New Zealand resident, at the rate of resident withholding tax that applies under section NF 2(1)(a) as if the non-resident withholding income were resident withholding income from which the payer must deduct resident withholding tax and the other rules in section NF 2 do not apply:
- (b) at the rate of zero % of so much of that non-resident withholding income as consists of—
  - (i) interest, other than interest to which paragraph (ab) applies, paid by an approved issuer in respect of a registered security and derived by a person who is not an associated person of the approved issuer; or
  - (ib) interest, other than interest to which paragraph (ab) applies, that is paid by a transitional resident in respect of money borrowed by the transitional resident when the transitional resident was a non-resident, and not in relation to a business carried on by the transitional resident through a fixed establishment in New Zealand, and is derived by a person who is not an associated person of the transitional resident; or
  - (ii) non-cash dividends to the extent fully imputed; or
  - (iii) non-resident withholding income derived by a life insurer from a company resident in New Zealand deemed to exist as a result of the life insurer making an election under section EY 48:
- (c) at the rate of 15% of so much of that non-resident withholding income as consists of non-resident withholding income to which none of paragraph (a), (ab), or (b) applies.
(2) Every person liable under the NRWT rules to pay or deduct an amount of non-resident withholding tax in respect of any non-resident withholding income consisting of dividends is deemed to have paid or deducted (as the case may be) the non-resident withholding tax to the extent of any dividend withholding payment credit that is included within the non-resident withholding income.
(3) For the purposes of this section, the extent to which any dividends are fully imputed must be calculated under the following formula:
where—
- IC is the amount of imputation credits attached to the dividends
- SD is the amount of supplementary dividends payable as a result of subpart LE in respect of the dividends
- T is the basic rate of income tax for companies, expressed as a percentage, stated in schedule 1, part A, clause 5, and applying in respect of the tax year that is concurrent with the imputation year in which the dividends are paid.
(4) For the purposes of this section, the extent to which any dividends are fully dividend withholding payment credited must be calculated under the following formula:
where—
- DWPC is the amount of dividend withholding payment credits attached to the dividends
- T is the rate of resident companies' tax, expressed as a percentage, stated in schedule 1, part A, clause 5, and applying in respect of the tax year that is concurrent with the imputation year in which the dividends are paid.
Compare: 1994 No 164 s NG 2

Subsection (1)(b)(ib) was inserted, as from 1 October 2005, by section 188(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application for: a person who becomes a transitional resident as from 1 April 2006; and as from the income year corresponding to the 2005–06 tax year. See section 188(2) and (3) of that Act as to the application of this amendment.

NG 3 Non-resident withholding tax to be final tax in certain cases

(1) Notwithstanding anything in this Act, where a person derives in any tax year non-resident withholding income that consists of—
- (a) a dividend (other than an investment society dividend); or
- (b) a royalty that is for the use, production, or reproduction of, or for the privilege of using, producing, or reproducing, a literary, dramatic, musical, or artistic work in which copyright subsists; or
- (ba) interest or royalties derived by a life insurer from a company resident in New Zealand deemed to exist as a result of the life insurer making an election under section EY 48; or
- (c) interest or an investment society dividend, in any case where the person by whom that interest or that investment society dividend is derived and the person by whom that interest or that investment society dividend is paid are not associated persons,—
the income tax liability of that person for that year is the sum of—
- (d) the total amounts of non-resident withholding tax for which that person is liable in respect of that non-resident withholding income under section NG 2; and
- (e) the amount that would be that person's income tax liability for that tax year if that person had not derived that non-resident withholding income in that tax year.
(2) If a taxpayer derives a dividend to which subsection (1) applies, the taxpayer is not entitled to a credit of tax under section LB 2 for any imputation credit attached to the dividend.

Compare: 1994 No 164 s NG 3

NG 4 Non-resident withholding tax to be minimum tax in certain cases

Where a person derives in any tax year non-resident withholding income that consists of interest, or of an investment society dividend (other than interest or an investment society dividend referred to in section NG 3(1)(c)), or of a royalty (not being a royalty referred to in section NG 3(1)(b)), the income tax liability of that person for that tax year is the greater of—
- (a) the sum of—
  - (i) the total amount of non-resident withholding tax for which that person is liable in accordance with section NG 2 in respect of all non-resident withholding income; and
  - (ii) the amount that would be that person's income tax liability for that tax year if that person had not derived any non-resident withholding income in that tax year:
- (b) the amount that would, but for the application of this section and calculated under section NG 3 if applicable, be the income tax liability of that person for that tax year: provided that where, in the case of a company, the aggregate of the amount of that non-resident withholding income and any other assessable income derived by the company in that tax year does not exceed $1,000, the income tax liability of the company under this Act in respect of that tax year, is an amount ascertained in accordance with paragraph (a).
Compare: 1994 No 164 s NG 4

NG 5 Persons who may apply for approval

Any person to whom money is, has been, or may in future be lent may apply to the Commissioner, in writing and in such form as the Commissioner may approve, for approval of that person as an approved issuer for the purposes of the NRWT rules.

Compare: 1994 No 164 s NG 5

NG 6 Approval of person as approved issuer

(1) Where the Commissioner has received from any person any duly completed application for approval in accordance with section NG 5, that person is deemed to be approved as an approved issuer for the purposes of the NRWT rules from the date upon which the Commissioner received the application, unless the Commissioner gives notice to that person under subsection (2).

(2) Where the Commissioner considers that any person who has made an application for approval under section NG 5 has, within the 2 year period ending with the date of application, been responsible for serious default or neglect in complying with that person's obligations under the Inland Revenue Acts, the Commissioner may, by giving notice to the person within 20 working days after the date of receipt of the application, decline the application for approval.

Compare: 1994 No 164 s NG 6

NG 7 Revocation of approval

(1) The Commissioner may, at any time, on being satisfied that an approved issuer has, within the 2 year period ending with that time, been responsible for serious default or neglect in complying with the approved issuer's obligations under the Inland Revenue Acts, revoke the approval given to the approved issuer under section NG 6, and notify the issuer accordingly.

(2) The Commissioner must, on receipt of a written request in that behalf by an approved issuer, revoke the approval given to that approved issuer under section NG 6, and notify the issuer accordingly.
(3) Notwithstanding any provision of the NRWT rules, where the Commissioner revokes under subsection (1) or (2) the approval given to an approved issuer, that approved issuer is deemed to remain an approved issuer for the purposes of the NRWT rules and for the purposes of Part 6B of the Stamp and Cheque Duties Act 1971 in relation to any payments of interest made after the date of the revocation in respect of money that was lent to the person under a registered security—
- (a) before the date of the revocation; and
- (b) while the person was an approved issuer.
Compare: 1994 No 164 s NG 7

Deduction of non-resident withholding tax

NG 8 Deduction of non-resident withholding tax

(1) Where a person makes a payment consisting of non-resident withholding income, the person must, at the time of making the payment, make a deduction of non-resident withholding tax from that payment of an amount determined in accordance with section NG 2.
(2) Where—
- (a) a payment consisting of non-resident withholding income has been made to an agent or other person in New Zealand for or on behalf of the person entitled to the payment; and
- (b) the non-resident withholding tax payable in respect of that non-resident withholding income has not been deducted, or has not been deducted in full, under subsection (1),—
that agent or other person must, at the time of receiving the payment, make a deduction from that payment of the amount of the non-resident withholding tax or, as the case may be, of the amount of the deficiency in that tax.
(3) Where—
- (a) a person makes a deduction of non-resident withholding tax under subsection (1) from a payment consisting of non-resident withholding income; and
- (b) the payment of that non-resident withholding income is made by the person to an agent or other person in New Zealand for or on behalf of the person entitled to the payment,—
that first-mentioned person must, at the time of making the payment, give notice to that agent or other person of the amount of the deduction made by the person from the payment.
Compare: 1994 No 164 s NG 8

NG 9 Non-resident withholding tax on dividends not paid in money

(1) Notwithstanding any provision of the NRWT rules, but subject to this section, where a person is required under the NRWT rules to make a deduction of non-resident withholding tax from a payment of non-resident withholding income which consists of non-cash dividends (to the extent not fully imputed, as described in section NG 2(3)), the amount required to be deducted is equal—
- (a) to the extent to which the payment consists of dividends not being a taxable bonus issue, to an amount calculated in accordance with the following formula:
  where—
  
  a is,—
  
  (i) in the case of conduit tax relief additional dividends paid as a result of subpart LG or dividends to the extent fully conduit tax relief credited, the rate of non-resident withholding tax, expressed as a percentage, specified in section NG 2(1)(c); and
  
  (ii) in any other case, the rate of non-resident withholding tax, expressed as a percentage, specified in section NG 2(1)(a)
  
  b is the amount of the dividends paid—
  
  (i) to the extent neither fully imputed nor fully dividend withholding payment credited (as described in section NG 2(3) and (4)); and
  
  (ii) disregarding any deduction of non-resident withholding tax
  
  c is the rate of non-resident withholding tax, expressed as a percentage, specified in section NG 2(1)(c)
  
  d is the amount of the dividends paid—
  
  (i) to the extent fully dividend withholding payment credited (as described in section NG 2(4)); and
  
  (ii) disregarding any deduction of non-resident withholding tax; and
- (b) to the extent to which the payment consists of a taxable bonus issue, to an amount calculated according to the formula—
  (a x e) + (c x (f + g))
  
  where—
  
  a is the rate of non-resident withholding tax, expressed as a percentage, specified in section NG 2(1)(a)
  
  e is the amount of the dividends, other than dividends referred to in item “g”, calculated under section CD 6(2) or CD 7(3)—
  
  (i) to the extent neither fully imputed nor fully dividend withholding payment credited (as described in section NG 2(3) and (4)); and
  
  (ii) before any deduction of non-resident withholding tax
  
  c is the rate of non-resident withholding tax, expressed as a percentage, specified in section NG 2(1)(c)
  
  f is the amount of the dividends calculated under section CD 6(2) or CD 7(3) together with the amount of any dividend withholding payment credit attached to the dividends—
  
  (i) to the extent fully dividend withholding payment credited (as described in section NG 2(4)); and
  
  (ii) before any deduction of non-resident withholding tax
  
  g is the amount of the dividends, to the extent fully conduit tax relief credited plus the conduit tax relief additional dividends paid in respect of the taxable bonus issue as a result of subpart LG.
(1A) For the purposes of subsection (1), in determining the extent to which the dividend is fully conduit tax relief credited, and section MI 8, an amount that must be deducted from a non-cash dividend to the extent fully conduit tax relief credited is treated as being part of the non-cash dividend.

(2) Notwithstanding any provision of the NRWT rules, where any person is required under this Act to make a deduction of non-resident withholding tax from a payment of non-resident withholding income consisting of non-cash dividends, that person may not make any deduction from that payment in accordance with the NRWT rules, but is liable to pay to the Commissioner an amount (which is treated as a deduction of non-resident withholding tax made from those dividends for the purposes of this Act and the Tax Administration Act 1994) equal to the non-resident withholding tax that, but for this subsection, would have been required to be deducted, and is liable to pay that amount in the same manner in all respects as if it were the non-resident withholding tax that, but for this subsection, would have been required to be deducted.

Compare: 1994 No 164 s NG 9

NG 10 Power of Commissioner to grant relief from or vary amount of deductions

(1) The Commissioner may, for the purpose of meeting the special circumstances of any case or class of cases and to such extent as the Commissioner thinks fit, and upon or subject to such terms and conditions as the Commissioner may require,—
- (a) relieve any person from an obligation to make a deduction of non-resident withholding tax imposed upon that person by section NG 8, or from an obligation to comply with section NG 9; or
- (b) vary the amount to be deducted under section NG 8 by any person from any payments consisting of non-resident withholding income or from any class or classes of such payments.
(1A) Subsection (1)(b) does not apply to non-resident withholding income to which section NG 2(1)(ab) applies.

(2) In every such case the NRWT rules apply as if they had been amended in accordance with the decisions or requirements of the Commissioner for the time being in force under this section.

Compare: 1994 No 164 s NG 10

Payment of non-resident withholding tax

NG 11 Payment of deductions of non-resident withholding tax to Commissioner

(1) Except as otherwise provided in this section, every person who makes deductions of non-resident withholding tax from payments consisting of non-resident withholding income must pay the deductions to the Commissioner on a monthly basis, with the deductions made during any month being paid to the Commissioner not later than the 20th of the following month.
(2) Subject to subsections (3) and (4), a person who estimates in relation to any tax year that the person will not be required by the NRWT rules to make non-resident withholding tax deductions of $500 or more in aggregate may pay the deductions to the Commissioner in 2 instalments as follows:
- (a) the first instalment is due and payable on 20 October in that tax year, and consists of the amount of all deductions required by the NRWT rules to be made from payments of non-resident withholding income made by the person during the period 1 April to 30 September (both dates inclusive) in the tax year:
- (b) the second instalment is due and payable on 20 April in the following tax year, and consists of the amount of all deductions required by the NRWT rules to be made from payments of non-resident withholding income made by the person during the period 1 October to 31 March (both dates inclusive) in the tax year.
(3) Where the $500 aggregate referred to in subsection (2) is reached at any time during a tax year,—
- (a) the person must pay to the Commissioner, not later than the 20th of the month following that in which the $500 aggregate is reached, all non-resident withholding tax deductions made by the person between the beginning of the tax year and the end of the month in which the aggregate is reached; and
- (b) the person must for the remainder of the tax year pay all non-resident withholding tax deductions to the Commissioner on a monthly basis in accordance with subsection (1).
(4) Where in any month a person—
- (a) ceases to carry on a taxable activity in respect of which the person has been required to make any non-resident withholding tax deductions; or
- (b) ceases to carry on any such taxable activity in New Zealand,—
the person must pay to the Commissioner, not later than the 20th of the following month, all non-resident withholding tax deductions made by the person with respect to the taxable activity and not earlier paid to the Commissioner.
(4B) An emigrating company who is treated under section FCB 2 (Emigrating company treated as paying distribution to shareholders) as paying a distribution to shareholders must, on or before the date that is 3 months after the date of the emigration time, pay to the Commissioner all non-resident withholding tax deductions made by the company from the distribution.

(5) The Commissioner may extend the time for payment of any amount of non-resident withholding tax in such cases and to such extent as the Commissioner thinks fit.
(6) Every person who is required by section 49(1) or (2) of the Tax Administration Act 1994 to provide information to the Commissioner in respect of deductions or payments of non-resident withholding tax, that are made or should be made from non-resident withholding income paid or derived in a tax year or part year, must pay to the Commissioner, not later than—
- (a) 20 April following the end of the tax year (in the case of information provided under section 49(1) of that Act); and
- (b) the last day by which the information is to be provided, (in the case of information provided under section 49(2) of that Act),—
an amount equal to all unpaid deductions and payments for the tax year or part year that are identified as discrepancies in the information.
(7) Subsection (6) does not apply to any unpaid deductions or payments of non-resident withholding tax that the Commissioner assesses as due and payable in respect of a particular return period.

Compare: 1994 No 164 s NG 11

Subsection (4B) was inserted, as from 3 April 2006, by section 189(1) Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3) with application as from the income year corresponding to the 2005–06 tax year.

Subsection (4B) was amended, as from 3 April 2006, by section 153(1) Taxation (Savings Investment and Miscellaneous Provisions) Act 2006 (2006 No 81) by substituting “date of the emigration time” for “emigration date” with application as from the 2005–06 income year.

NG 12 Person deriving non-resident withholding income to pay non-resident withholding tax to Commissioner

Where for any reason—
- (a) a deduction of non-resident withholding tax is not made or is not made in full in accordance with the NRWT rules from any payment consisting of non-resident withholding income; or
- (b) a payment that is required to be made to the Commissioner, in accordance with section NG 9, of an amount equal to the non-resident withholding tax in relation to a dividend has, in contravention of that section, not been made or not been made in full to the Commissioner; or
- (c) a deduction of non-resident withholding tax in respect of non-resident withholding income consisting of dividends is not made, or is not made in full, because allowance for a dividend withholding payment credit included in the non-resident withholding income is in excess of the proper amount of the dividend withholding payment credit,—
the person who derives the non-resident withholding income must pay to the Commissioner an amount equal to the amount of the deduction or, as the case may be, the payment that should have been made and was not made, and that amount is due and payable to the Commissioner on the 20th of the month following the month in which the deduction was required to be made, or, as the case may be, the dividend was paid, or, in either case, on such later date as the Commissioner may in any case allow.
Compare: 1994 No 164 s NG 12

NG 13 Failure to make deductions of non-resident withholding tax or to make payments to Commissioner

(1) Where a person fails to make any deduction of non-resident withholding tax from any payment consisting of non-resident withholding income in accordance with that person's obligations under section NG 8, the amount in respect of which default has been made constitutes a debt payable by that person to the Commissioner, and is deemed to have become due and payable to the Commissioner in accordance with section NG 11 as if the person had made the deduction.

(2) Where a person has, in contravention of section NG 9, paid non-resident withholding income consisting of a dividend without payment to the Commissioner of an amount equal to the non-resident withholding tax in relation to the dividend, that amount, or so much of that amount as has not been paid to the Commissioner, constitutes a debt payable by that person to the Commissioner, and is deemed to have become due and payable to the Commissioner in accordance with section NG 11 as if the person had made a deduction of the relevant amount from that non-resident withholding income consisting of a dividend.

(3) The right of the Commissioner to recover the amount in respect of which default has been made in the manner referred to in subsection (1) or (2) from a person who has made default is in addition to any right of the Commissioner to recover that amount from the person chargeable with the non-resident withholding tax to which that amount relates; and nothing in the NRWT rules should be construed as preventing the Commissioner from taking such steps as the Commissioner thinks fit to recover that amount from both of those persons concurrently, or from recovering that amount wholly from 1 of those persons, or partly from 1 and partly from the other of those persons.

(4) Where any amount recoverable in accordance with the NRWT rules from the person chargeable with the non-resident withholding tax to which that amount relates is in fact paid by another person, the amount so paid may be recovered by that other person from that first-mentioned person.

Compare: 1994 No 164 s NG 13

Miscellaneous provisions

NG 14 Non-resident withholding tax on dividends paid to company under control of non-resident

Where—
- (a) shares in a company that is resident in New Zealand were formerly held by a person not resident in New Zealand and while those shares were so held the company was under the control of that person or was deemed under this Act to be under the control of persons of whom that person was one; and
- (b) that person has sold or otherwise disposed of those shares to another company that is resident in New Zealand and is under the control of that person or is deemed under this Act to be under the control of persons of whom that person is one; and
- (b) any part of the price at which that other company acquired those shares remained unpaid after the acquisition by that other company of those shares or after the acquisition remained owing in any way directly or indirectly to that person and whether or not secured by mortgage or otherwise,—
any dividends paid in respect of those shares to that other company while any part of that price remains unpaid or owing are, to the extent to which that price is unpaid or owing at the time when the dividends are paid to that other company, deemed to have been paid to that person and to have been derived as dividends by that person at that time, and this Act applies accordingly.
Compare: 1994 No 164 s NG 14

NG 15 Deductions of non-resident withholding tax deemed to be received by person entitled to payment

Where any non-resident withholding tax has been deducted from a payment consisting of non-resident withholding income, the amount so deducted,—
- (a) as between the person by whom the deduction was made and the person entitled to the payment consisting of the non-resident withholding income from which the deduction was made, is deemed to have been received by the person entitled to that payment,—
  - (i) in any case where the deduction was made under section NG 8(1), at the time at which the payment consisting of the non-resident withholding income was made:
  - (ii) in any case where the deduction was made under section NG 8(2), at the time at which the payment consisting of the non-resident withholding income was received, for or on behalf of the person entitled to that payment, by an agent or other person in New Zealand:
- (b) for the purposes of this Act (including the NRWT rules), is deemed to have been derived by the person entitled to the payment consisting of the non-resident withholding income at the same time and in the same manner as the residue of that payment.
Compare: 1994 No 164 s NG 15

NG 16 Non-resident withholding tax deducted in error

(1) Where—
- (a) any deduction is made by a person in accordance with the procedure set out in the NRWT rules; and
- (b) the amount deducted is paid to the Commissioner; and
- (c) the amount deducted exceeds the non-resident withholding tax deduction (if any) required in accordance with the NRWT rules,—
the Commissioner must, subject to this section, pay by way of refund an amount equal to that excess.
(1A) Any refund under subsection (1) must be paid to—
- (a) the person deriving the amount from which the deduction was made; or
- (b) the person who made the excess deduction, if that person has paid the excess to the person deriving the amount from which the deduction was made and has not offset that amount under section NG 16A(2).
(2) Any person who becomes entitled to a refund under this section may make an application for the refund in such form as may be approved by the Commissioner.

(3) The Commissioner may not pay a refund under this section unless the Commissioner receives such evidence as the Commissioner considers necessary that the requirements of subsection (1) (and, where appropriate, subsection (1A)(b)) have been met.
(4) If, but for this subsection, a person would be entitled to an amount as a refund under this section, the Commissioner may apply the amount, in accordance with a request under section 173T of the Tax Administration Act 1994 or in the absence of such a request in such order or manner as the Commissioner may determine, in payment of—
- (a) an amount that is payable by the person under this Act:
- (b) an amount that is payable by the person under the Tax Administration Act 1994.
(5) Where the Commissioner is satisfied that any amount refunded to a person under this section is in excess of the amount properly refundable, the Commissioner may recover the amount of the excess in the same manner, with any necessary modifications, as if it were income tax payable by that person due,—
- (a) in any case where the person by wilful default or neglect led the Commissioner to pay the refund, on the date upon which the refund was paid; or
- (b) in any other case, on the 5th working day of the month following the month in which the person is notified that the excess is payable.
Compare: 1994 No 164 s NG 16

NG 16A Variation in non-resident withholding tax deductions to correct errors

(1) Where a person required to make a deduction of non-resident withholding tax from any payment of non-resident withholding income has failed to make the deduction, or has failed to make it in full, the person may (except to the extent to which a deduction of non-resident withholding tax has already been made by any other person to correct the deficiency) either—
- (a) deduct a sufficient amount to correct the deficiency from any subsequent payment of non-resident withholding income to the same person in the same year in which the first payment was made; or
- (b) otherwise recover from that person a sufficient amount to correct the deficiency.
(2) Where—
- (a) a person deducts from a payment of non-resident withholding income an amount on account of non-resident withholding tax that is in excess of the amount required to be deducted by the NRWT rules, and pays that excess deduction to the Commissioner; and
- (b) the excess deduction is due to an error on the part of the person making the deduction; and
- (c) the person has subsequently refunded the excess to the recipient of the non-resident withholding income,— the person may either offset the amount of that excess against any tax deductions subsequently payable to the Commissioner under section NG 11 or apply for a refund of the excess under section NG 16.
(3) Where—
- (a) a person deducts from a payment of non-resident withholding income an amount on account of non-resident withholding tax that is in excess of the amount required to be deducted by the NRWT rules; and
- (b) the excess deduction is due to an act or omission on the part of the recipient of the payment,—
the person must pay the full amount deducted to the Commissioner in accordance with section NG 11, and upon such payment is not liable to refund the amount of the excess to the recipient of the payment or any other person.
Compare: 1994 No 164 s NG 16A

NG 17 Application of other provisions to non-resident withholding tax

(1) Subject to the NRWT rules, section GC 18 and sections 167 and 169 of the Tax Administration Act 1994, as far as they are applicable and with any necessary modifications, for the purposes of the NRWT rules, apply as if—
- (a) every reference in those sections to a tax deduction were a reference to a deduction of non-resident withholding tax:
- (b) every reference in those sections to an employer were a reference to a person by whom a deduction of non-resident withholding tax has been or, as the case may be, is required to be made:
- (c) every reference in those sections to the PAYE rules were a reference to the NRWT rules.
(2) Subject to the NRWT rules, the other provisions of this Act (other than section GC 18) and of the Tax Administration Act 1994 (other than sections 167 and 169), as far as they are applicable and with any necessary modifications, apply with respect to non-resident withholding tax as if it were income tax levied under section BB 1, but nothing in the NRWT rules should be construed so as to include non-resident withholding tax in the terms “income tax” or “tax” for the purposes of sections 120KB to 120KE of the Tax Administration Act 1994.

Compare: 1994 No 164 s NG 17

Section NG 17(2): amended, on 1 October 2007, by section 190(1) of the Taxation (Depreciation, Payment Dates Alignment, FBT, and Miscellaneous Provisions) Act 2006 (2006 No 3).

Subpart NH—Dividend withholding payments

NH 1 Liability to make deduction in respect of foreign withholding payment dividend

NH 2 Amount of dividend withholding payment to be deducted

NH 3 Payment and recovery of dividend withholding payment

NH 4 Refund for overpayment and to company in loss