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Income Tax Act 2007
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Income Tax Act 2007
| Public Act | 2007 No 97 |
| Date of assent | 1 November 2007 |
Contents
BD 1 Income, exempt income, excluded income, nonresidents' foreign-sourced income, and assessable income
Exclusions for residential land
Exclusions for business premises
CD 33 Payments corresponding to notional distributions of producer boards and co-operative companies
Attributed repatriation calculation rules
Restrictive covenants and exit inducement payments
Matching rules: revenue account property, prepayments, and deferred payments
Avoidance and non-market transactions
Interest apportionment on thin capitalisation
Attributed controlled foreign company income
Foreign investment fund income
Transfers to or from superannuation funds and superannuation schemes
Treatment of amounts when superannuation fund becomes superannuation scheme or vice versa
Treatment of distributions when superannuation fund wound up
Income from business or trade-like activities
CW 1 Forestry companies established by the Crown, Maori owners, and holding companies buying land with standing timber from founders
Income from holding property (excluding equity)
Certain income of transitional resident
Income from living allowances, compensation, and government grants
Income from certain activities
CX 55 Proceeds from certain disposals by portfolio investment entities or New Zealand Superannuation Fund
CX 56 Portfolio investor allocated income and distributions of income by portfolio investment entities
Transactions between companies in consolidated groups
CZ 5 Exempt interest: overseas money lent to government or local or public authority before 29 July 1983
CZ 13 Treatment of units and interests in unit trusts and group investment funds on issue as at 1 April 1996
Financial arrangements adjustments
Matching rules: revenue account property, prepayments, and deferred payments
DB 49 Adjustment for opening values of trading stock, livestock, and excepted financial arrangements
Use of motor vehicle under certain arrangements
DB 56 Expenditure incurred in operating motor vehicle under agreement or arrangement affected by section CX 7
Payments to spouses, civil union partners, or de facto partners
Avoidance and non-market transactions
Attributed controlled foreign company (CFC) loss
Foreign investment fund (FIF) loss
DP 8 Forestry business on land bought from the Crown, Maori owners, or holding company: no deduction
DP 9 Cost of acquiring timber: forestry business on land bought from the Crown, Maori owners, or holding company
Petroleum exploration expenditure
Petroleum development expenditure
DV 14 Amalgamated company: expenditure on improvements for farming, horticultural, aquacultural, and forestry businesses
Valuation of specified livestock
Valuation of non-specified livestock
Valuation of high-priced livestock
Meaning of depreciable property
How amounts of depreciation loss and depreciation recovery income are calculated
Amount of depreciation loss under diminishing value method or straight-line method
Amount of depreciation loss under pool method
EE 25 Depreciation loss for plant variety rights application granted in 2005–06 or later income year
Improvements, items of low value, or items no longer used
Transfers of depreciable property: associated persons and certain amalgamations
Main income equalisation scheme
Adverse event income equalisation scheme
Thinning operations income equalisation scheme
Refunds: general provisions, and tax credits
EH 77 Sections of main income equalisation scheme that apply to thinning operations income equalisation scheme
Research, development, and resulting market development
Meaning of financial arrangement and excepted financial arrangement
Application of financial arrangements rules
Calculation and allocation of income and expenditure over financial arrangement’s term
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 option, or finance lease
Consideration treated as paid to person
Consideration treated as paid by person
Consideration when legal defeasance has occurred
Consideration when anti-avoidance provision applies
Income and deduction provisions specifically related to financial arrangements
Treatment of original share acquired under financial arrangement
Application of financial arrangements rules to cash basis persons
Controlled foreign company (CFC) rules
When is a company a controlled foreign company?
Calculation of person’s control interest
Calculation of person’s income interest
Ten percent threshold and variations in income interest level
Calculation of attributed CFC income or loss
Calculation of branch equivalent income or loss
Change of residence of companies
Ownership measurement concession
Anti-avoidance rule: stapled stock
Foreign investment fund (FIF) rules
What is a foreign investment fund?
Calculation of FIF income or loss
Relationship with other provisions in Act
EX 59 Codes: comparative value method, deemed rate of return method, fair dividend rate method, and cost method
Cases of entry into and exit from FIF rules
Commissioner’s default assessment power
EY 19 Premium loading formulas: when life insurers not providing life insurance at start of income year
EY 29 Mortality profit formula: when life insurers not providing life insurance at start of income year
EZ 11 Amounts of depreciation recovery income and depreciation loss for part business use up to 2004–05 income year
EZ 12 Amount of depreciation loss for item acquired from associated person on or before 23 September 1997
EZ 13 Annual rate for item acquired on or after 1 April 1993 and before end of person’s 1994–95 income year
EZ 18 Section EZ 17 amount of depreciation loss when items transferred between companies in wholly-owned group before 1 April 1993
EZ 19 Section EZ 17 amount of depreciation loss when person previously exempt from tax acquires item
EZ 23 Economic rate for plant or equipment acquired before 1 April 2005 and buildings acquired before 19 May 2005
Controlled foreign company and foreign investment fund rules
Old financial arrangements rules
EZ 47 Election to continue to treat certain excepted financial arrangements as financial arrangements
EZ 49 Determination of core acquisition price where consideration for property denominated in foreign currency
Exceptions for property transferred on death of person
Debt percentage of New Zealand group
Debt percentage of worldwide group
Determining membership of groups
Measuring ownership interests in companies
Membership and debt percentages of foreign groups
Calculating taxable income for consolidated group returns
Accounting for particular property
Treatment of foreign dividends
Membership of consolidated groups
Forming, joining, or leaving consolidated groups
When membership starts and stops
Treatment of shares, income, expenditure, and bad debts
Property passing to amalgamated company on amalgamation
Treatment of financial arrangements between amalgamating companies
Arrangements involving dividend stripping
Arrangements involving transfer pricing
Arrangements involving tax losses
Arrangements to defeat continuity provisions
Arrangements involving qualifying companies
Arrangements involving controlled foreign companies
Arrangements involving foreign investment funds
Arrangements involving film rights
Arrangements involving petroleum mining
Arrangements involving financial arrangements
Arrangements involving trust beneficiary income
Arrangements involving repatriation of commercial bills
Attribution rule for income from personal services
Arrangements involving restrictive covenants
Arrangements involving fringe benefit tax
Arrangements involving depreciation loss
Arrangements involving imputation rules
Arrangements involving foreign dividends
Arrangements involving Maori authority credits
Arrangements involving family support credits
Arrangements involving money not at risk
Arrangements involving returning share transfers
Disposals of trading stock or similar property
Treatment of profits, dividends, and tax losses
Special tax matters for loss-attributing qualifying companies
Elections: qualifying companies
Elections: loss-attributing qualifying companies
Qualifying company election tax
Effective interests in qualifying companies
Tax treatment of amounts that beneficiaries derive from trusts
Tax treatment of trustee income
Settlors and their liabilities
Treatment of transition situations
Valuation of property, trading stock, and financial arrangements
Rate and payment of income tax
Eligibility requirements: portfolio investment entities and foreign investment vehicles
Becoming and ceasing to be portfolio investment entity
Periods relevant to calculation of portfolio entity tax liability
Allocation of income in some cases
Calculating portfolio entity tax liability
HL 20 Portfolio class taxable income and portfolio class taxable loss for portfolio allocation period
Payment by portfolio tax rate entity of tax for tax year
HL 27 Treatment of portfolio investor allocated loss for zero-rated portfolio investors and investors with portfolio investor exit period
Treatment of losses for entity
Partnerships and joint ventures
Tax loss components carried forward
Tax credits for persons on low incomes
Tax credits for transitional circumstances
Adjustments to certain tax credits
Use of credits in later tax years
Treatment of taxable distributions
Supplementary dividend holding companies
Underlying foreign tax credits
Credits for certain non-resident investment companies
Credits for interest on home vendor mortgages
Credits for savings in special home ownership accounts
Shareholder continuity requirements
Treatment of credits and debits on resident’s restricted amalgamation
Amalgamation of companies in consolidated groups
Imputation credits attached to dividends
Distributions of statutory producer boards and co-operative companies
Tables of credits and debits in memorandum accounts
FDP credits attached to dividends
CTR credits attached to dividends
Table O5: conduit tax relief credits
Table O6: conduit tax relief debits
Companies with branch equivalent tax accounts
Persons with branch equivalent tax accounts
Table O7 branch equivalent tax credits
Table O8 branch equivalent tax debits
Table O9 person's equivalent tax credits
Table O10 person's equivalent tax debits
Companies with policyholder credit accounts
Policyholder credits of PCA company
Policyholder debits of PCA company
Persons with policyholder credit accounts
Policyholder credits of PCA person
Policyholder debits of PCA person
Table O13 policy holder credits
Table O15 person's policyholder credits
Table O16 person's policyholder debits
Maori authority credits attached to distributions
Table O17 Maori authority credits
Table O18 Maori authority debits
Consolidated groups and imputation credit accounts
Imputation credits of consolidated imputation groups
Imputation debits of consolidated imputation groups
Table O19 imputation credits of consolidated imputation groups
Table O20 imputation debits of consolidated imputation groups
Consolidated groups and FDP accounts
FDP credits of consolidated FDP groups
FDP debits of consolidated FDP groups
Table O21 : credits of consolidated FDP groups
Table O22 : FDP debits of consolidated FDP groups
Consolidated groups and CTR credits
CTR credits of consolidated groups
CTR debits of consolidated groups
Consolidated groups’ FDP payments and refunds
Table O23 : conduit tax relief credits of consolidated groups
Table O23 : conduit tax relief debits of consolidated groups
Consolidated groups and branch equivalent tax accounts
Branch equivalent tax credits of consolidated BETA groups
Branch equivalent tax debits of consolidated BETA groups
Table O25 : branch equivalent tax credits of consolidated BETA groups
Table O26 : branch equivalent tax debits of consolidated BETA groups
Consolidated groups and policyholder credit accounts
Policyholder credits of consolidated groups
Policyholder debits of consolidated groups
Payment and withholding obligations
Application of other provisions
Calculating provisional tax liability
Instalments of provisional tax
Requirements for using GST ratio
When persons start or stop paying GST, or change taxable periods
Treatment of groups of companies and amalgamated companies
Attribution rule for income from personal services
PAYE rules and PAYE income payments
Adjustments for certain PAYE income payments
Fringe benefit tax (FBT) rules and fringe benefits
Attributing fringe benefits to employees
Taxable value of fringe benefits
Employer’s superannuation contribution tax (ESCT) rules and employer’s superannuation contributions
Tax on certain withdrawals from superannuation funds
Limits on refunds and transfers
Companies receiving foreign dividends
Persons with policyholder credit accounts
Certain unit trusts and group investment funds
Obligations and treatment of PAYE intermediaries
PAYE intermediaries’ responsibilities
YA 3 Treatment of qualifying company election tax, FBT, FDP penalty tax, imputation penalty tax, and withdrawal tax
Table Y1 Associated person rules
Voting and market value interests
Voting and market value interests: modifications for continuity provisions
The Parliament of New Zealand enacts as follows:
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
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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 49
(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 49 (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, pay, revenue account property, share-lending right, share supplier, trading stock,
Compare: 2004 No 35 s EA 1
EA 2 Other revenue account property
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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) a specified lease or a lease to which section EJ 10 (Personal property lease payments) applies:
(f) property that arises as a result of petroleum development expenditure or petroleum exploration expenditure to which sections EJ 12 to EJ 20 (which relate to petroleum mining) apply:
(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, pay, petroleum development expenditure, petroleum exploration expenditure, revenue account property, specified lease, trading stock,
Compare: 2004 No 35 s EA 2
EA 3 Prepayments
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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) a specified lease or a lease to which section EJ 10 (Personal property lease payments) applies:
(g) property that arises as a result of petroleum development expenditure or petroleum exploration expenditure to which sections EJ 12 to EJ 20 (which relate to petroleum mining) apply:
(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 50 (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 17 (Expenditure on account, and reimbursement, of employees) and CW 18 (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, pay, revenue account property, services,
Compare: 2004 No 35 s EA 3
EA 4 Deferred payment of employment income
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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
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(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 51 (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 (the seller) who sells a business, or a part of a business, to another person (the 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, whether or not it remains a contingent obligation at the time of sale; and
(c) the employee becomes an employee of the buyer under the sale arrangements; and
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(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 seller’s provision for 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; 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 51; and
(c) the buyer may be allowed a deduction under section DC 10(3) (Sale of business: transferred employment income obligations).
No sale: obligations transferred to associates
(6) If section DC 11 (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 CH 3; 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 51; and
(c) the transferee (person B) may be allowed a deduction under section DC 11.
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, pay, return of income, shareholder-employee, time of the sale,
Compare: 2004 No 35 s EA 4
Subpart EB—Valuation of trading stock (including dealer’s livestock)
Introductory provisions
EB 1 When this subpart applies
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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: 2004 No 35 s EB 1
EB 2 Meaning of trading stock
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Meaning
(1) 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—
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(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):
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(d) property leased under a hire purchase agreement when the property—
(i) is treated as having been acquired by the lessor under section FA 15 (Treatment when agreement ends: seller acquiring property); 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:
(e) an excepted financial arrangement held by a person if section CX 55 (Proceeds from certain disposals by portfolio investment entities or New Zealand Superannuation Fund) applies to the income of the person from a disposal of the excepted financial arrangement:
(f) livestock not used in a dealing business:
(g) consumable aids to be used in the process of producing trading stock:
(h) a spare part not held for sale or exchange.
Defined in this Act: business, depreciable property, excepted financial arrangement, financial arrangement, hire purchase agreement, income, land, lessor, life insurer, trading stock,
Compare: 2004 No 35 s EB 2
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EB 3 Valuation of trading stock
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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 49 (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: 2004 No 35 s EB 3
EB 4 Trading stock valuation methods
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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: 2004 No 35 s EB 4
EB 5 Transfers of trading stock within wholly-owned groups
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When this section applies
(1) This section applies in an income year to trading stock held by a company that is part 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 part of the group at the end of the income year; and
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(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 part of group
(3) If the companies stop being part 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: 2004 No 35 s EB 5
Standard valuation
EB 6 Cost
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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: 2004 No 35 s EB 6
EB 7 Cost allocation: cost-flow method
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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: 2004 No 35 s EB 7
EB 8 Cost allocation: budgeted method or standard cost method
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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
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(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: 2004 No 35 s EB 8
EB 9 Discounted selling price
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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: 2004 No 35 s EB 9
EB 10 Replacement price
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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—
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(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: 2004 No 35 s EB 10
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EB 11 Market selling value
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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: 2004 No 35 s EB 11
EB 12 Valuing closing stock consistently
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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: 2004 No 35 s EB 12
Low-turnover valuation
EB 13 Low-turnover valuation
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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 sections YB 2 and YB 8 (which contain 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: 2004 No 35 s EB 13
EB 14 Low-turnover valuation methods
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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,
Compare: 2004 No 35 s EB 14
EB 15 Cost for low-turnover traders
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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: 2004 No 35 s EB 15
EB 16 Cost allocation: cost-flow method for low-turnover traders
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Section EB 7(1) to (5) applies to a low-turnover trader.
Defined in this Act: cost, low-turnover trader,
Compare: 2004 No 35 s EB 16
EB 17 Costs: manufactured or produced stock of low-turnover traders
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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:
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(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: 2004 No 35 s EB 17
EB 18 Costs: other stock of low-turnover traders
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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: 2004 No 35 s EB 18
EB 19 Discounted selling price for low-turnover traders
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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: 2004 No 35 s EB 19
EB 20 Replacement price for low-turnover traders
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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: 2004 No 35 s EB 20
EB 21 Market selling value for low-turnover traders
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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) applies to a low-turnover trader.
Defined in this Act: closing stock, cost, income year, low-turnover trader,
Compare: 2004 No 35 s EB 21
EB 22 Valuing closing stock consistently for low-turnover traders
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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 1983 or 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 and for this purpose, 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: 2004 No 35 s EB 22
Low value trading stock
EB 23 Valuing closing stock under $5,000
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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: 2004 No 35 s EB 23
Disposal of business assets
EB 24 Apportionment on disposal of business assets that include trading stock
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When this section applies
(1) This section applies when a person disposes of trading stock together with other assets of a business to another person. This section applies also if a person disposes of an interest in trading stock together with other assets of a business or an interest in those other assets.
Apportionment
(2) The total amount received on disposal must be apportioned between the trading stock and the other assets in a way that reflects their respective market values.
Purchase price
(3) The amount apportioned to the trading stock under subsection (2) is treated as the price paid for it by the buyer.
Disposals of timber
(4) For the purposes of this section, a disposal of timber is treated as—
(a) including the creation or grant of a right to take timber:
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(b) including a disposal of land with standing timber except to the extent to which the timber is any of the following:
(i) trees that are ornamental or incidental, as evidenced by a certificate given under section 44C of the Tax Administration Act 1994; or
(ii) timber 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) timber subject to a profit a prendre granted before 1 January 1984.
Transfers under settlement of relationship property
(5) A disposal under this section includes a transfer under a settlement of relationship property.
Defined in this Act: amount, business, dispose, financial arrangement, financial arrangements rules, land, market value, registered bank, right to take timber, settlement of relationship property, timber, trading stock,
Compare: 2004 No 35 ss FB 4, FF 13(1)
Subpart EC—Valuation of livestock
Introductory provisions
EC 1 Application of this subpart
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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: 2004 No 35 s EC 1
EC 2 Valuation of livestock
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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 49 (Adjustment for opening values of trading stock, livestock, and excepted financial arrangements).
Defined in this Act: income year,
Compare: 2004 No 35 s EC 2
EC 3 Livestock valuation methods
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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: 2004 No 35 s EC 3
EC 4 Transfers of livestock within wholly-owned groups
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When this section applies
(1) This section applies in an income year to livestock held by a company that is part 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 part of the group at the end of the income year; and
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(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 part of group
(3) If the companies stop being part of the same wholly-owned 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: 2004 No 35 s EC 5
EC 5 Transfer of livestock because of self-assessed adverse event
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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.
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.
Defined in this Act: market value, self-assessed adverse event,
Compare: 2004 No 35 s EC 5B
Valuation of specified livestock
EC 6 Application of sections EC 7 to EC 27
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Sections EC 7 to EC 27 set out the rules for valuing specified livestock.
Defined in this Act: specified livestock,
Compare: 2004 No 35 s EC 6
EC 7 Valuation methods
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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: 2004 No 35 s EC 7
EC 8 Restrictions on use of herd scheme
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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: 2004 No 35 s EC 8
EC 9 Restrictions on use of national standard cost scheme
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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: 2004 No 35 s EC 9
EC 10 Restrictions on use of cost price method
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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: 2004 No 35 s EC 10
EC 11 Restrictions on making of elections
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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 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
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(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: 2004 No 35 s EC 11
EC 12 Interests in livestock
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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: 2004 No 35 s EC 12
EC 13 Changes in partnership interests
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When this section applies
(1) This section applies when—
(a) a partnership owns specified livestock (the old partnership); and
(b) a new partnership is formed (the new partnership); and
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(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: 2004 No 35 s EC 13
Herd scheme
EC 14 Herd scheme
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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: 2004 No 35 s EC 14
EC 15 Determining national average market values
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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 17, 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: 2004 No 35 s EC 15
EC 16 Valuation under herd scheme
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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 DB 49(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: 2004 No 35 s EC 16
EC 17 Herd value ratio
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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: 2004 No 35 s EC 17
EC 18 Inaccurate herd value ratio
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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: 2004 No 35 s EC 18
EC 19 Chatham Islands adjustment to herd value
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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: 2004 No 35 s EC 19
EC 20 Herd livestock disposed of before values determined
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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: 2004 No 35 s EC 20
EC 21 Herd livestock on death before values determined
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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: 2004 No 35 s EC 21
National standard cost scheme
EC 22 National standard cost scheme
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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: 2004 No 35 s EC 22
EC 23 Determining national standard costs
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Determination of costs
(1) The Commissioner must determine national standard costs for each category of specified livestock in schedule 18 (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: 2004 No 35 s EC 23
EC 24 Methods for determining costs using national standard cost scheme
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Determination of methods for calculation of cost
(1) The Commissioner must determine the methods for calculating the cost of livestock listed in schedule 18, 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 18, column 2 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: 2004 No 35 s EC 24
Other methods
EC 25 Cost price, replacement price, or market value
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Election
(1) A person may choose to value specified livestock under the cost price method, subject to the restrictions described in section EC 10, 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: 2004 No 35 s EC 25
EC 26 Bailee’s treatment of livestock
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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
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(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,—
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(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, pay, specified livestock,
Compare: 2004 No 35 s EC 26
Definitions
EC 27 Some definitions
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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: 2004 No 35 s EC 27
Valuation of non-specified livestock
EC 28 Application of sections EC 29 to EC 31
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Sections EC 29 to EC 31 set out the rules for valuing non-specified livestock.
Defined in this Act: non-specified livestock,
Compare: 2004 No 35 s EC 28
EC 29 Determining standard values
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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: 2004 No 35 s EC 29
EC 30 Closing value methods
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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: 2004 No 35 s EC 30
EC 31 Enhanced production
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When this section applies
(1) This section applies when a person who derives income from non-specified livestock—
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(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: 2004 No 35 s EC 31
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Valuation of high-priced livestock
EC 32 Application of sections EC 33 to EC 37
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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 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: 2004 No 35 s EC 32
EC 33 Determining depreciation percentages
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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: 2004 No 35 s EC 33
EC 34 General rule
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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 × 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 12, column 1 (Old 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 sections 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: 2004 No 35 s EC 34
EC 35 Livestock reaching national average market value and livestock no longer used for breeding
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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: 2004 No 35 s EC 35
EC 36 Immature livestock and recently bought livestock
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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: 2004 No 35 s EC 36
EC 37 Bailment
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In section EC 26, references to specified livestock include high-priced livestock.
Defined in this Act: high-priced livestock, specified livestock,
Compare: 2004 No 35 s EC 37
Valuation of bloodstock
EC 38 Application of sections EC 39 to EC 48
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Sections EC 39 to EC 48 set out the rules for valuing bloodstock.
Defined in this Act: bloodstock,
Compare: 2004 No 35 s EC 38
EC 39 First income year in breeding business
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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 5, or EZ 6 (which relate to bloodstock).
Defined in this Act: bloodstock, broodmare, business, cost price, income year, year,
Compare: 2004 No 35 s EC 39
EC 40 Later income years in breeding business
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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 5, or EZ 6 (which relate to bloodstock).
Defined in this Act: bloodstock, cost price, income year,
Compare: 2004 No 35 s EC 40
EC 41 Reduction: bloodstock not previously used for breeding in New Zealand
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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
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(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 FB 18 (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.
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 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.
Relationship with section EZ 5
(6) This section is overridden by section EZ 5 (Reduction: bloodstock not previously used for breeding in New Zealand: pre-1 August 2006).
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: 2004 No 35 s EC 41
EC 42 Reduction: bloodstock previously used for breeding in New Zealand
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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.
Broodmare when first used on or after 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(2) applies and EC 41 does not apply is calculated using the formula—
Definition of item in formula
(3) 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 section EZ 6
(4) This section is overridden by section EZ 6 (Reduction: broodmare previously used for breeding in New Zealand: pre-1 August 2006).
Defined in this Act: bloodstock, broodmare, cost price, income year, stallion, year,
Compare: 2004 No 35 s EC 42
EC 43 Accident, birth deformity, or infertility
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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: 2004 No 35 s EC 43
EC 44 Other bloodstock
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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: 2004 No 35 s EC 44
EC 45 Residual value of bloodstock
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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: 2004 No 35 s EC 45
EC 46 Use of bloodstock for racing
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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 other 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: 2004 No 35 s EC 46
EC 47 Change of use of bloodstock in course of business
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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: 2004 No 35 s EC 47
EC 48 Replacement breeding stock
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When this section applies
(1) This section applies when—
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(a) a bloodstock owner—
(i) disposes of bloodstock (the 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 (the replacement breeding stock) within the time limits set out in subsections (6) and (7); or
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(b) a bloodstock owner—
(i) receives a payment of insurance, indemnity, or compensation for the loss or death of, or permanent injury to, 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 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,—
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(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, pay,
Compare: 2004 No 35 s EC 48
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Subpart ED—Valuation of excepted financial arrangements
ED 1 Valuation of excepted financial arrangements
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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
(2) 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 (4).
Valuation method for share acquired by share supplier under share-lending arrangement
(3) 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 (4).
Amount
(4) For subsections (2) and (3), 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
(5) 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
(6) 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
(7) 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 (5); and
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(b) may change their cost-flow method if—
(i) the change is justified by sound commercial reasons and for this purpose, 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
(8) 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
(9) 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 49 (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: 2004 No 35 s ED 1
ED 2 Transfers of certain excepted financial arrangements within wholly-owned groups
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When this section applies
(1) This section applies when—
(a) a company that is part of 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
(b) the transfer of the excepted financial arrangement is not made under a share-lending arrangement; and
(c) both companies are resident in New Zealand on the date of the transfer; and
(d) 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 part of group
(3) If company B stops being part 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 part 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: 2004 No 35 s ED 2
Subpart EE—Depreciation
Introductory provision
EE 1 What this subpart does
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Quantifying 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 38 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 38(5), EE 48(1), EE 49(2), EE 51(3), and EE 52(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.
Allocation of deduction for depreciation loss
(5) 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 22 (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 23 (Allocation of deductions for research, development, and resulting market development).
Partial income-producing use
(6) Subpart DE (Motor vehicle expenditure) and section EE 50 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: 2004 No 35 s EE 1
Meaning of own
EE 2 Nature of ownership of item
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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 51.
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: 2004 No 35 s EE 2
EE 3 Ownership of goods subject to reservation of title
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When this section applies
(1) This section applies when—
(a) a person (the 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: 2004 No 35 s EE 3
EE 4 Ownership of lessee’s improvements: lessee
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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.
Ownership of fixture or improvement
(2) The following apply to the ownership of the fixture or improvement:
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(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
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(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: 2004 No 35 s EE 4
EE 5 Ownership of lessee’s improvements: other person
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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, pay, term of the lease,
Compare: 2004 No 35 s EE 5
Meaning of depreciable property
EE 6 What is depreciable property?
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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: acquire, assessable income, business, depreciable intangible property, depreciable property, geothermal energy proving period, geothermal well, property,
Compare: 2004 No 35 s EE 6
EE 7 What is not depreciable property?
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The following property is not depreciable property:
(a) land, although buildings, fixtures, and the improvements listed in schedule 13 (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 38, 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: 2004 No 35 s EE 7
EE 8 Election that property not be depreciable
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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
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(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 47 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: 2004 No 35 s EE 8
How amounts of depreciation loss and depreciation recovery income are calculated
EE 9 Description of elements of calculation
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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 26 to EE 36 deal with the rates of depreciation. The rates are—
(a) the economic rate, which is dealt with in section EE 26; and
(b) the annual rate, which is dealt with in sections EE 31, EE 33, and EE 34; and
(c) a special rate or a provisional rate, both of which are dealt with in sections EE 35 and EE 36.
Improvements, low value items, and items no longer used
(3) Sections EE 37 to EE 39 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 40 to EE 43 deal with the transfer of items of depreciable property in certain amalgamations and between associated persons.
Disposals and similar events
(5) Sections EE 44 to EE 52 deal with disposals of property and events that involve property and are similar to disposal.
Interpretation provisions
(6) Sections EE 54 to EE 67 deal with the following interpretation matters:
(a) section EE 54 deals with the effect of goods and services tax (GST) on cost; and
(b) sections EE 55 to EE 60 deal with the meaning of adjusted tax value; and
(c) sections EE 61 to EE 67 contain definitions.
Relationship with sections EZ 9 to EZ 28
(7) Sections EZ 9 to EZ 28 (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: 2004 No 35 s EE 9
EE 10 Calculation rule: item temporarily not available
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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: 2004 No 35 s EE 10
EE 11 Calculation rule: income year in which item disposed of
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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 48(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 EE 50(6) for a disposal or event to which the subsection applies.
Exclusion: recent acquisition of item partly used for business
(6) A person has the amount of depreciation loss calculated under section EE 50(9) 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: 2004 No 35 s EE 11
Methods
EE 12 Depreciation methods
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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—
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(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; and
(iii) must not be used for an item of property in the circumstances described in section EZ 9 (Pool method for items accounted for by globo method for 1992–93 income year):
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(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:
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(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 9.
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: 2004 No 35 s EE 12
Amount of depreciation loss under diminishing value method or straight-line method
EE 13 Application of sections EE 14 to EE 19
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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,
Compare: 2004 No 35 s EE 13
EE 14 Diminishing value or straight-line method: calculating amount of depreciation loss
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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: 2004 No 35 s EE 14
EE 15 Amount of adjusted tax value
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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: 2004 No 35 s EE 15
EE 16 Amount resulting from standard calculation
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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:
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(b) when the person uses the straight-line method,—
(i) for a patent or plant variety rights in relation to which the person has been allowed a deduction for an amount of depreciation loss for the relevant application, the item’s adjusted tax value at the start of the month in which the person acquires it:
(ii) for other items, its cost to the person excluding expenditure for which the person is allowed a deduction under a provision of this Act outside this subpart:
(c) for the purposes of paragraph (b), variations to cost are in sections EE 18 and 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
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(b) the number of whole or part calendar 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
(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 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.
Months: patent applications
(7) For the purposes of subsections (5) and (6), for a patent application, months refers to whole calendar months and whole months, as applicable.
Defined in this Act: adjusted tax value, amount, annual rate, deduction, depreciable property, depreciation loss, depreciation method, diminishing value method, income year, own, plant variety rights, straight-line method,
Compare: 2004 No 35 s EE 16
EE 17 Amount resulting from petroleum-related depreciable property calculation
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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: 2004 No 35 s EE 17
EE 18 Cost: change from diminishing value to straight-line method
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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: 2004 No 35 s EE 18
EE 19 Cost: fixed life intangible property
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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: 2004 No 35 s EE 19
Amount of depreciation loss under pool method
EE 20 Application of sections EE 21 to EE 24
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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,
Compare: 2004 No 35 s EE 20
EE 21 Pool method: calculating amount of depreciation loss
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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
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(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
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(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 365 days, or more than 366 days in a leap year, is the number of whole or part months 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, deduction, depreciable property, depreciation loss, diminishing value rate, income year, own, pool,
Compare: 2004 No 35 s EE 21
EE 22 Cases affecting pool
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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 10
(6) Section EZ 10 (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: 2004 No 35 s EE 22
EE 23 Combined pools
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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: 2004 No 35 s EE 23
EE 24 Property ceasing to qualify for pool
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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 the requirements of section EE 66(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: 2004 No 35 s EE 24
EE 25 Depreciation loss for plant variety rights application granted in 2005–06 or later income year
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When this section applies
(1) This section applies when—
(a) plant variety rights are granted to a person in their 2005–06 income year or a later income year; and
(b) the rights are granted in relation to a plant variety rights application owned by the person; and
(c) a deduction for expenditure is denied under another provision.
Calculation of deduction
(2) For the income year in which the plant variety rights are granted, the person is allowed a deduction for expenditure on the plant variety rights application of an amount calculated using the formula—
Definition of items in formula
(3) In the formula,—
(a) cost is the cost to the person of the plant variety rights application:
(b) months of ownership is the number of whole calendar months for which the person owns the plant variety rights application:
(c) depreciation months is 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,
Compare: 2004 No 35 s EE 24B
Depreciation rates
EE 26 Setting of economic depreciation rate
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Relevant provisions
(1) The economic depreciation rate that applies to a kind of item of depreciable property is set under—
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(a) section EE 27, for items that—
(i) are not buildings, fixed life intangible property, excluded depreciable property, or property for which an economic rate is set under section EE 29 or EE 30; and
(ii) are acquired on or after 1 April 2005:
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(b) section EE 28, 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 23 (Economic rate for plant or equipment acquired before 1 April 2005 and buildings acquired before 19 May 2005):
(c) section EE 29, for certain aircraft and motor vehicles acquired on or after 1 April 2005:
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(d) section EE 30, for items that—
(i) have an estimated residual market value greater than 13.5% of cost:
(ii) would, in the absence of section EE 30, have an economic depreciation rate set under section EE 27 or EE 28:
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(e) section EZ 23 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 23 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.
Overriding effect of election under section EE 32
(3) Subsection (1)(a), (c), and (d) are overridden by section EE 32.
Defined in this Act: depreciable property, economic rate, estimated residual market value, excluded depreciable property, fixed life intangible property,
Compare: 2004 No 35 s EE 25
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EE 27 Economic rate for certain depreciable property
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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 set under section EE 29 or EE 30.
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) obtains 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 11, column 1 (New banded rates of depreciation); and
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(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,
Compare: 2004 No 35 s EE 25B
EE 28 Economic rate for buildings
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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 30 or EZ 23 (Economic rate for plant or equipment acquired before 1 April 2005 and buildings acquired before 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 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 11, column 4 (New banded rates of depreciation); and
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(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 kind of the building determined under EZ 23.
Defined in this Act: Commissioner, depreciable property, diminishing value rate, economic rate, estimated useful life, excluded depreciable property, fixed life intangible property,
Compare: 2004 No 35 s EE 25C
EE 29 Economic rate for certain aircraft and motor vehicles
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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
(d) is not used for top-dressing or spraying; and
(e) 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,
Compare: 2004 No 35 s EE 25D
EE 30 Economic rate for plant, equipment, or building, with high residual value
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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
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(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) obtains 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 12, column 1 (Old banded rates of depreciation); and
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(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 items in formula
(5) In the formula,—
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(a) residual value is the greater of—
(i) estimated residual market value, which is defined in section EE 67:
(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 63.
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,
Compare: 2004 No 35 s EE 25E
EE 31 Annual rate for item acquired in person’s 1995–96 or later income year
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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 FL 2(2) (Treatment of emigrating companies and their shareholders), 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 33 and EZ 15 (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):
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(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 car; 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: 2004 No 35 s EE 26
EE 32 Election in relation to certain depreciable property acquired on or after 1 April 2005
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When this section applies
(1) This section applies when 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 23
(2) The person may choose to calculate the depreciation loss for the item of depreciable property for income years corresponding to the 2005–06 tax year and later tax years in accordance with the economic depreciation rate determined for the kind of item under section EZ 23 (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,
Compare: 2004 No 35 s EE 26B
EE 33 Annual rate for fixed life intangible property
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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 15 (Annual rate for excluded depreciable property: 1992–93 tax year):
(b) a patent for which a rate is set in section EE 34.
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: 2004 No 35 s EE 27
EE 34 Annual rate for patent granted in 2005–06 or later income year
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When this section applies
(1) This section applies to an item that is a patent when the patent is acquired by a person in their 2005–06 income year or a later income year.
Rate
(2) The rate is the rate calculated using the formula—
Definition of item in formula
(3) In the formula, legal life is set out in whichever of subsections (4) to (7) applies to the patent.
Fixed life intangible property
(4) If the patent is an item of fixed life intangible property to which section EE 19 applies, legal life is 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.
No depreciation loss for patent application
(5) If section EE 19 does not apply to the patent and the person has been denied a deduction for an amount of depreciation loss for the patent application, legal life is the patent’s remaining legal life from the time at which the person acquires the patent.
Depreciation loss for patent application
(6) If section EE 19 does not apply to the patent, and has not applied to the patent application while the person has owned it, and the person has been allowed a deduction for an amount of depreciation loss for the patent application, legal life is the remaining legal life of the patent application from the start of the income year in which the person acquires the patent application.
When section EE 19 applied to patent application
(7) If section EE 19 does not apply to the patent, but has applied to the patent application while the person has owned it, and the person has been allowed a deduction for an amount of depreciation loss for the patent application, legal life is the remaining legal life of the patent application from the start of the income year in which the person acquires the patent.
How rate expressed
(8) 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, amount, deduction, depreciation loss, income year, legal life,
Compare: 2004 No 35 s EE 27B
EE 35 Special rate or provisional rate
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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,
Compare: 2004 No 35 s EE 28
EE 36 Using economic rate or provisional rate instead of special rate
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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: 2004 No 35 s EE 29
Improvements, items of low value, or items no longer used
EE 37 Improvements
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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:
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(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,
Compare: 2004 No 35 s EE 30
EE 38 Items of low value
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When this section applies
(1) This section applies for an item of property that a person acquires, in an income year, when—
(a) the total cost for the item is equal to or less than the threshold value given for the item by subsection (2); 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
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(f) 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 (2):
(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 (2).
Threshold value for item
(2) 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
(3) 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
(4) 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 (3).
Amount of depreciation recovery income
(5) If the person disposes in an income year of an item for which they have been allowed a deduction on a claim under subsection (3), the consideration they derive from the disposal is an amount of depreciation recovery income for the income year.
Change of use treated as disposal
(6) Subsection (7) applies when—
(a) a person has been allowed a deduction on a claim under subsection (3) 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
(7) The person is treated as having disposed of the item for its market value at the later time.
Increase in specified sum
(8) 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: 2004 No 35 s EE 31
EE 39 Items no longer used
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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 meets the requirements of subsection (2); and
(c) has not been depreciated using the pool method.
Buildings
(2) This section applies to a building that meets the requirements of subsection (1)(a) and (c) if—
(a) the building has been irreparably damaged and rendered useless for the purpose of deriving income; and
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(b) the damage occurs—
(i) in the 2005–06 income year or a later 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
(3) The person has an amount of depreciation loss under this section and under no other provision of this subpart.
Circumstances
(4) 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
(5) 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
(6) 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, geothermal energy proving period, income year, pool method,
Compare: 2004 No 35 s EE 32
Transfers of depreciable property: associated persons and certain amalgamations
EE 40 Transfer of depreciable property on or after 24 September 1997
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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 any of subsections (2) to (6) applies. The income year referred to is the income year of the associated person.
Deduction for depreciation loss allowed in year of acquisition
(2) 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, or would have been allowed the deduction if section EE 11(1) had not applied.
Deduction for depreciation loss allowed in year before acquisition
(3) The associated person was allowed a deduction for an amount of depreciation loss for the income year before that in which person A acquired it.
When section DZ 9 applies
(4) The associated person has been allowed a deduction for the item under section DZ 9 (Premium paid on land leased before 1 April 1993)—
(a) for the income year in which person A acquired it; or
(b) for the income year before that in which person A acquired it; or
(c) would have been allowed a deduction in either income year if they had incurred a cost for the item for which they were denied any other deduction.
If costs incurred for which deduction denied
(5) The associated person would have been allowed a deduction for an amount of depreciation loss for the item—
(a) for the income year in which person A acquired it, if they had incurred a cost for the item for which they were denied any other deduction and if section EE 11(1) had not applied; or
(b) for the income year before that in which person A acquired it, if they had incurred a cost for the item for which they were denied any other deduction.
When section EE 8 applies
(6) The associated person would have been a person to whom any of subsections (2) to (5) applied, if they had not made an election under section EE 8.
Cost of item to person A
(7) For the purposes 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:
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(a) if section EE 58 applies to set a base value for 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
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(b) if section EE 58 does not apply, the lesser of—
(i) the cost of the item to person A:
(ii) the cost of the item to the associated person.
Exclusions
(8) Subsection (7) does not apply if—
(a) the item is not depreciable intangible property, and 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) the cost to person A is income of the associated person, other than under section EE 48(1):
(c) person A acquires the item on a settlement of relationship property to which section FB 21 (Depreciable property) applies.
Rate
(9) The annual rate that person A applies to the item must be 1 of the following:
(a) when person A uses the same depreciation method for the item as that used by the associated person for it, the annual rate must be no more than the annual rate that the associated person applied to it:
(b) when person A uses a depreciation method for the item that is different from the method the associated person used for it, the annual rate must be no 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).
Fixed life intangible property
(10) Subsection (6) does not apply to an item of fixed life intangible property whose rate is set in section EE 33.
Relationship with section EE 41 and subpart FC
(11) This section—
(a) is overridden by section EE 41:
(b) does not apply to a bequest of property when subpart FC (Distribution, transmission, and gifts of property) applies to it 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, property, settlement of relationship property,
Compare: 2004 No 35 s EE 33
EE 41 Transfer of depreciable property on certain amalgamations on or after 14 May 2002
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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 acquisition of the item is part of an amalgamation that is not a resident’s restricted 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 FO 11(1)(b) or FO 15(3) (which relate to property passing on certain amalgamations) as having acquired the property from the amalgamating company.
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 58 applies for the amalgamating company and the item, the lesser of—
(i) the value given under section FO 11 or FO 15, as applicable; 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 58 does not apply for the amalgamating company and the item, the lesser of—
(i) the value given under section FO 11 or FO 15, as applicable; and
(ii) the cost of the item to the amalgamating company.
Exclusions
(3) Subsection (2) does not apply if—
(a) the item is not depreciable intangible property, and 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:
(b) the cost to the amalgamated company is income of the amalgamating company, other than under section EE 48(1).
Rate
(4) The annual rate that the amalgamated company applies to the item must be 1 of the following:
(a) when 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 be no more than the annual rate that the amalgamating company applied to it:
(b) when the amalgamated company uses a depreciation method for the item that is different from the method the amalgamating company used for it, the annual rate that the amalgamated company applies to it must be no 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).
Fixed life intangible property
(5) Subsection (4) does not apply to an item of fixed life intangible property whose rate is set in section EE 33.
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, income year, property, resident’s restricted amalgamation,
Compare: 2004 No 35 s EE 34
EE 42 Transfer of radiocommunications licence right on or after 24 September 1997
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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: 2004 No 35 s EE 35
EE 43 Transfer of depreciable intangible property on or after 1 July 1997
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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 14 (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: 2004 No 35 s EE 36
Disposals and similar events
EE 44 Application of sections EE 48 to EE 52
-
When sections apply
(1) Sections EE 48 to EE 52 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 45; and
-
(b) either—
(i) the item is an item of a kind described in section EE 46; or
(ii) the event is an event of a kind described in section EE 47.
Exclusions
(2) Sections EE 48 to EE 52 do not apply when—
(a) 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) a person’s patent application has concluded because a patent is granted to the person in relation to the application:
(c) 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: 2004 No 35 s EE 37
EE 45 Consideration for purposes of section EE 44
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General rule: amount derived
(1) For the purposes of section EE 44, 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 (3) to (9).
Amount derived may be zero or negative
(2) For the purposes of section EE 44, an amount that a person derives as consideration may be zero or a negative amount.
Other than market value
(3) If the person derives a consideration that is not the item’s market value, the consideration for the purposes of section EE 44 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; and
(c) this subsection does not apply in a case described in any of subsections (5) to (10).
Relationship with subpart FC
(4) Subsection (3) does not apply to a disposal of property to which any of sections FC 3 and FC 4 (which relate to the distribution or transmission of property) applies.
Change of use or location of use
(5) The consideration that a person derives from the event described in section EE 47(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
(6) The consideration that a person derives from the event described in section EE 47(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.
Unused geothermal well brought into use
(7) The consideration that a person derives from the event described in section EE 47(6) is the amount of the deduction for depreciation loss allowed under section EE 39(4).
Irreparable damage
(8) The consideration that a person derives from the event described in section EE 47(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
(9) The consideration that a person derives from the event described in section EE 47(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.
Other items
(10) 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
(11) The consideration that a person derives from the event referred to in section EE 47(10) is described in section EZ 21(1) (Sections EE 45 and EE 47: permanent removal: allowance before 1 April 1995).
Defined in this Act: amount, consideration, deduction, depreciation loss, dispose, geothermal well, GST, GST charged, New Zealand, registered person, relationship agreement, services, taxable supply,
Compare: 2004 No 35 s EE 38
EE 46 Items for purposes of section EE 44
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Items to which sections EE 48 to EE 52 apply
(1) For the purposes of section EE 44, an item of property to which sections EE 48 to EE 52 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 33; and
(b) an item to which section CZ 11 (Recovery of deductions for software acquired before 1 April 1993) applies.
Exclusions
(2) Sections EE 48 to EE 52 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: 2004 No 35 s EE 39
EE 47 Events for purposes of section EE 44
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Events to which sections EE 48 to EE 52 apply
(1) For the purposes of section EE 44, this section describes the events to which sections EE 48 to EE 52 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
(6) 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, is when the person starts to—
(a) use the well in deriving assessable income or carrying on a business for the purpose of deriving assessable income:
(b) have the well available for use in deriving assessable income or carrying on a business for the purpose of deriving assessable income.
Statutory acquisition
(7) The sixth event is the acquisition of an item of property by a person acting under statutory authority.
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 21(2) (Sections EE 45 and EE 47: 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, pay, property,
Compare: 2004 No 35 s EE 40
EE 48 Effect of disposal or event
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Amount of depreciation recovery income
(1) For the purposes of section EE 44, 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 44, 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 income year or a later 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: 2004 No 35 s EE 41
EE 49 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 46; 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 11 (Amounts of depreciation recovery income and depreciation loss for part business use up to 2004–05 income year); or
(iii) section EE 50.
Depreciation recovery income
(2) If the consideration referred to in section EE 44 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 57 to EE 59.
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 48(1).
Defined in this Act: adjusted tax value, amount, business, deduction, depreciation loss, depreciation recovery income, income year, own, property,
Compare: 2004 No 35 s EE 42
EE 50 Amount of depreciation loss when item partly used to produce income
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When subsection (2) applies
(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 48(2); and
-
(b) at a time during the income year, the item is partly used, or 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 (Motor vehicle expenditure) applies.
Partial use: formula
(2) The deduction the person is allowed for the amount of depreciation loss must not be more than the amount calculated using the formula—
Definition of items in formula
(3) In the formula in subsection (2),—
(a) depreciation loss is the amount of depreciation loss for the income year:
(b) qualifying use days is 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 is the number of days in the income year on which the person owns the item and uses it or has it available for use.
Other units of measurement
(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.
When subsection (6) applies
(5) Subsection (6) applies when—
(a) a person has an amount of depreciation loss for an item of depreciable property arising under section EE 48(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 11 (Amounts of depreciation recovery income and depreciation loss for part business use up to 2004–05 income year); and
(c) the item is not a motor vehicle to which subpart DE applies.
Deduction for depreciation loss: formula
(6) The deduction the person is allowed for the amount of depreciation loss is calculated using the formula—
Definition of items in formula
(7) In the formula in subsection (6),—
(a) disposal depreciation loss is the amount resulting from a calculation made for the item under section EE 48(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 whichever is applicable of the meanings in sections EE 57 to EE 59:
(d) adjusted tax value at date is the item’s adjusted tax value on the date on which the disposal or event occurs.
When subsection (9) applies
(8) Subsection (9) applies when—
(a) a person has an amount of depreciation loss for an item of depreciable property for an income year arising under section EE 48(2); and
(b) in the income year in which the amount of depreciation loss arises, the person starts to use the item, or 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 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 (Motor vehicle expenditure) applies.
Partial use: formula
(9) The deduction the person is allowed for the amount of depreciation loss is calculated using the formula—
Definition of items in formula
(10) In the formula in subsection (9),—
(a) disposal depreciation loss is the amount resulting from a calculation made for the item under section EE 48(2):
(b) qualifying use days is 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 is 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.
Other units of measurement
(11) 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.
Defined in this Act: adjusted tax value, amount, assessable income, business, deduction, depreciable property, depreciation loss, fringe benefit tax, income year, motor vehicle, property,
Compare: 2004 No 35 s FB 7
EE 51 Amount of depreciation recovery income when lost or stolen items recovered
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When this section applies
(1) This section applies when an item of property to which section EE 47(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 48(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: 2004 No 35 s EE 43
EE 52 Amount of depreciation recovery income when compensation received
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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 46, 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: 2004 No 35 s EE 44
EE 53 Unused geothermal well brought into use
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When this section applies
(1) This section applies to a person when an event occurs to which section EE 47(6) applies.
Person treated as acquiring well
(2) The person is treated as having acquired the geothermal well on the day on which the event occurs for the cost of the well under this subpart before the event occurs.
Defined in this Act: acquire, geothermal well,
Compare: 2004 No 35 s EE 44B
Interpretation provisions
EE 54 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: 2004 No 35 s EE 45
Adjusted tax value
EE 55 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 56:
(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: 2004 No 35 s EE 46
EE 56 Formula
-
Formula
(1) The formula referred to in section EE 55 is—
base value − total deductions.
Definition of items in formula
(2) In the formula,—
(a) base value has the applicable meaning in sections EE 57, EE 58, EE 59, and EZ 22(1) (Base value and total deductions in EE 56: before 1 April 1995):
(b) total deductions is defined in section EE 60.
Defined in this Act: deduction,
Compare: 2004 No 35 s EE 47
EE 57 Base value in section EE 56 when none of sections EE 58, EE 59, and EZ 22(1) applies
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When this section applies
(1) This section applies when none of sections EE 58, EE 59, and EZ 22(1) (Base value and total deductions in section EE 56: 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 38(3) or EE 48(2) or the corresponding provision of the Income Tax Act 2004 or the Income Tax Act 1994; and
(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 2004 or the Income Tax Act 1994; and
(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 2004 or the Income Tax Act 1994; and
-
(d) expenditure—
(i) is not excluded from it if it is described in section EZ 22(2)(a); and
(ii) is excluded from it if it is described in section EZ 22(2)(b).
Defined in this Act: amount, deduction, depreciation loss,
Compare: 2004 No 35 s EE 48
EE 58 Base value in section EE 56 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 22(3) (Base value and total deductions in section EE 56: before 1 April 1995).
Base value
(2) Base value is the item’s market value when 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: 2004 No 35 s EE 49
EE 59 Base value in section EE 56 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 22(1) (Base value and total deductions in section EE 56: 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 38(3) or EE 48(2) or the corresponding provision of the Income Tax Act 2004 or the Income Tax Act 1994; and
(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 2004 or the Income Tax Act 1994; and
(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 2004 or the Income Tax Act 1994; and
(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 2004 or the Income Tax Act 1994 if the Act had applied.
Defined in this Act: acquire, amount, associated person, deduction, depreciation loss, own, petroleum-related depreciable property,
Compare: 2004 No 35 s EE 50
EE 60 Total deductions in section EE 56
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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 25.
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 52(2):
(b) section EE 44(2) of the Income Tax Act 2004:
(c) section EG 19(5) of the Income Tax Act 1994:
(d) the provision described in section EZ 22(4) (Base value and total deductions in section EE 56: 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),—
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(a) the person was allowed for the item and,—
(i) if the item is a patent, for 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 53(2), for 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,—
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(a) for an item to which section EE 57 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 53(2), the earliest date on which the person acquired the well under section EE 55(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
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(b) for an item to which section EE 58 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 a 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 patent was granted, the beginning of the month in which the person acquired the patent application; or
(c) for an item to which section EE 59 applies, the date on which person A or the relevant associated person acquired the item; or
(d) for an item to which section EZ 22(1) applies, to the item, 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: 2004 No 35 s EE 51
Definitions
EE 61 Meaning of annual rate
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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 (5).
1995–96 income year or later
(2) The rate is the rate set by section EE 31(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 (5).
1995–96 income year or later: international aircraft
(3) The rate is the rate set by section EE 31(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 33 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
(5) The rate is the rate set by section EE 34 if the item is a patent and section EE 34 applies to the item and the person.
1994–95 income year
(6) The rate is the rate set by section EZ 13 (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
(7) The rate is the rate set by section EZ 15 (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: 2004 No 35 s EE 52
EE 62 Meaning of depreciable intangible property
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Meaning
(1) Depreciable intangible property means the property listed in schedule 14 (Depreciable intangible property).
Criteria for listing in schedule 14
(2) For property to be listed in schedule 14, 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 14 prevails
(3) Property that is listed in schedule 14 is depreciable intangible property even if the criteria are not met.
Defined in this Act: acquire, depreciable intangible property, property,
Compare: 2004 No 35 s EE 53
EE 63 Meaning of estimated useful life
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Meaning for item of depreciable property, except for 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: 2004 No 35 s EE 54
EE 64 Meaning of excluded depreciable property
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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: 2004 No 35 s EE 55
EE 65 Meaning of maximum pooling value
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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: 2004 No 35 s EE 56
EE 66 Meaning of poolable property
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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: 2004 No 35 s EE 57
EE 67 Other definitions
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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 27 to EE 30
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:
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(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
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 35
special rate means a special rate as described in section EE 35
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, pay, petroleum, petroleum-related depreciable property, plant variety rights, pool, pool method, property, provisional rate, special rate, straight-line method, straight-line rate,
Compare: 2004 No 35 s EE 58
Subpart EF—Taxes and levies
EF 1 Fringe benefit tax
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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, pay,
Compare: 2004 No 35 s EF 1
EF 2 Employer’s superannuation contribution tax
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An amount of employer’s superannuation contribution tax (ESCT) for which a deduction is allowed may be deducted only in the income year in which the employer’s 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, employer’s superannuation contribution, ESCT, income year, pay,
Compare: 2004 No 35 s EF 2
EF 3 Accident compensation levies and premiums
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Timing of deduction
(1) A deduction that an employer or self-employed person is allowed for an Accident Compensation Corporation (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 3, part A, column H (Payment of provisional tax and terminal tax) is treated as if it were due and payable on the relevant date in schedule 3, part A, column G for the person’s corresponding income year.
References to dates in schedule 3
(4) For the purposes of subsection (3), references to the date in schedule 3, 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 YA 1 (Definitions); and
(b) sections RA 3 (Terminal tax obligations), RC 1(2), and RC 20 to RC 24 (which relate to provisional tax instalments in transitional years).
Meaning of ACC levy or premium
(5) In this section, ACC levy or premium means any of the following levies, premiums, or penalties:
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(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:
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(b) a Residual Claims levy under—
(ii) section 304 of the Accident Insurance Act 1998:
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(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:
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(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:
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(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, pay, time bar,
Compare: 2004 No 35 s EF 3
EF 4 Use of money interest payable by Commissioner
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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: 2004 No 35 s EF 4
EF 5 Use of money interest payable by person
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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, income year, interest, liquidation, notice, pay, tax year,
Compare: 2004 No 35 s EF 5
EF 6 Different tax years
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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, tax year,
Compare: 2004 No 35 s EF 6
Subpart EG—Recognition of accounting treatment
EG 1 Election to use balance date used in foreign country
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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
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(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 controlled foreign company (CFC) income; or
(d) foreign investment fund (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
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(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 tax, income year, net income, pay, resident in New Zealand, return of income, tax year,
Compare: 2004 No 35 s EG 1
EG 2 Adjustment for changes to accounting practice
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When this section applies
(1) This section applies in an income year (the 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 earlier 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 earlier 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: 2004 No 35 s EG 2
EG 3 Allocation of income and deductions by portfolio tax rate entity
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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—
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(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:
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(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, financial statements, income, income tax, investor, portfolio allocation period, portfolio investor class, portfolio investor interest, portfolio tax rate entity, tax year,
Compare: 2004 No 35 s EG 3
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Subpart EH—Income equalisation schemes
Introductory provisions
EH 1 Income equalisation schemes
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Description
(1) An income equalisation scheme allows a person to reduce their net income for a tax year by making a deposit with the Commissioner for the corresponding income year.
Three schemes
(2) The 3 income equalisation schemes are—
(a) the main income equalisation scheme, described in sections EH 3 to EH 36:
(b) the adverse event income equalisation scheme, described in sections EH 37 to EH 62:
(c) the thinning operations income equalisation scheme, described in sections EH 63 to EH 79.
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 36:
(b) terms used specifically in the adverse event income equalisation scheme are defined in sections EH 61 and EH 62:
(c) terms used specifically in the thinning operations income equalisation scheme are defined in sections EH 78 and EH 79.
Defined in this Act: adverse event income equalisation scheme, Commissioner, corresponding income year, deposit, income, main income equalisation scheme, net income, person, tax year, thinning operations income equalisation scheme,
Compare: 2004 No 35 s EH 1
EH 2 Income Equalisation Reserve Account
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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: 2004 No 35 s EH 2
Main income equalisation scheme
Application
EH 3 Persons to whom main income equalisation scheme applies
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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
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(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: 2004 No 35 s EH 3
Deposits and accounts
EH 4 Main deposit
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Deposit for business or forestry
(1) A person may make a payment to the Commissioner for entry in their main income equalisation account for an accounting 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 an accounting 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 an accounting year, a deposit less than the lesser of—
(a) $200; and
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(b) the difference between—
(i) the total of the deposits the person has previously made for the accounting year; and
(ii) the person’s main maximum deposit for the accounting year.
Time of making deposit
(4) A person makes a deposit for an accounting year by—
(a) making the deposit during the accounting year; or
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(b) doing both the following:
(i) making the deposit during the specified period for the accounting year; and
(ii) at the time of making it, giving the Commissioner notice that the deposit is for the accounting year; or
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(c) doing both the following:
(i) making the deposit within a time that is after the end of the specified period for the accounting 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 accounting year.
Limit on making deposit
(5) If a refund has been made to a person for an accounting year under section EH 13 or EH 15, the person may later make a deposit for that accounting 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: accounting year, business, Commissioner, deposit, farmer, fisher, fishing business, forester, income from forestry, main deposit, main income equalisation account, main maximum deposit, notice, pay, person, specified period,
Compare: 2004 No 35 s EH 4
EH 5 Main income equalisation account
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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 FC 2 (Transfer at market value), 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: 2004 No 35 s EH 5
Interest
EH 6 Interest on deposits in main income equalisation account
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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: 2004 No 35 s EH 6
Deduction
EH 7 Deduction of deposit
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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 accounting year; and
(b) their main maximum deposit for the accounting year.
Timing of deduction
(3) The person is allowed the deduction in the accounting year.
Defined in this Act: accounting year, amount, corresponding income year, deduction, deposit, main maximum deposit, person,
Compare: 2004 No 35 s EH 7
Refunds: automatic
EH 8 Refund of excess deposit
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When this section applies
(1) This section applies when a person’s deposits for an accounting year are more than their main maximum deposit for the accounting 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: accounting year, Commissioner, date the deposit ends, deposit, main maximum deposit, person,
Compare: 2004 No 35 s EH 8
EH 9 Income does not include excess deposit
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A refund under section EH 8 is excluded income under section CX 51 (Income equalisation schemes).
Defined in this Act: excluded income,
Compare: 2004 No 35 s EH 9
EH 10 Refund at end of 5 years
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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 accounting 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: accounting year, Commissioner, deposit, main income equalisation account, person, year,
Compare: 2004 No 35 s EH 10
EH 11 Income when refund given at end of 5 years
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A refund under section EH 10 is income, under section CB 27 (Income equalisation schemes), derived by the person and is allocated to the income year in which the refund is given.
Defined in this Act: income, income year, person,
Compare: 2004 No 35 s EH 11
Refunds: on application
EH 12 Application for refund by person, trustee of estate, Official Assignee, or liquidator
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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, 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: 2004 No 35 s EH 12
EH 13 Refund on request
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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: 2004 No 35 s EH 13
EH 14 Income when refund given on request
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Year of income
(1) A refund under section EH 13 is income, under section CB 27 (Income equalisation schemes), derived by the person and is allocated to the income 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 an accounting 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 accounting year to which the specified period or the longer period relates.
Different year of income
(3) The refund is income, under section CB 27, and is allocated to the income year to which the specified period or the longer period relates.
Defined in this Act: accounting year, Commissioner, income, income year, person, specified period,
Compare: 2004 No 35 s EH 14
EH 15 Refund for development or recovery
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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 self-assessed 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: 2004 No 35 s EH 15
EH 16 Income when refund given for development or recovery
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Year of income
(1) A refund under section EH 15 is income, under section CB 27 (Income equalisation schemes), derived by the person in the income 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 an accounting 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 accounting year to which the specified period or the longer period relates.
Different year of income
(3) The refund is income, under section CB 27, and is allocated to the income year to which the specified period or the longer period relates.
Defined in this Act: accounting year, Commissioner, income, income year, person, specified period,
Compare: 2004 No 35 s EH 16
EH 17 Refund on retirement
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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. EH 28 overrides this subsection.
Defined in this Act: amount, business, Commissioner, company, date the deposit ends, farmer, fisher, fishing business, main income equalisation account, person, trustee,
Compare: 2004 No 35 s EH 17
EH 18 Income when refund given on retirement, and election to allocate amount to earlier year
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Year of income
(1) A refund under section EH 17 is income, under section CB 27 (Income equalisation schemes), derived by the person in the income 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 an accounting 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 accounting year.
Different year of income
(3) The amount allocated by the person to the earlier accounting year is income, under section CB 27, derived by them in the corresponding income 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 corresponding to the accounting year in which they retire:
(b) a further time allowed by the Commissioner in a case or class of cases.
Defined in this Act: accounting year, amount, Commissioner, corresponding income year, deposit, income, income year, notice, person, return of income, tax year,
Compare: 2004 No 35 s EH 18
EH 19 Refund on death
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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 FC 2 (Transfer at market value), 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: 2004 No 35 s EH 19
EH 20 Income when refund given on death
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Year of income
(1) A refund under section EH 19 is income, under section CB 27 (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: 2004 No 35 s EH 20
EH 21 Income when refund given on death, and election to allocate amount to earlier year
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When this section applies
(1) This section applies when—
(a) a refund under section EH 19 includes a deposit made for an accounting year earlier than the accounting 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 accounting year.
Different year of income
(2) The amount allocated by the trustee to the earlier accounting year is income, under section CB 27 (Income equalisation schemes), derived by the person in the corresponding income 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: accounting year, amount, Commissioner, corresponding income year, deposit, income, notice, person, return of income, trustee,
Compare: 2004 No 35 s EH 21
EH 22 Income when refund given on death, and election to allocate amount to later year or years
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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 an accounting year or years after that date.
Accounting year or years referred to in subsection (1)(b)
(2) The accounting 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 accounting year for which a deposit or a part of a deposit was made, if the amount that the trustee allocates to a later accounting 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 accounting year remains in the person’s main income equalisation account until—
(a) it is refunded to the trustee in the accounting 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 accounting year is income, under section CB 27 (Income equalisation schemes), derived by the person in the corresponding accounting year.
How election made
(5) A trustee makes an election under this section by a notice that—
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(a) specifies—
(i) each amount allocated to a later accounting year; and
(ii) the accounting year to which each amount is allocated; and
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(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: accounting year, amount, Commissioner, corresponding income year, deposit, income, main income equalisation account, notice, person, return of income, trustee, year,
Compare: 2004 No 35 s EH 22
EH 23 Refund on bankruptcy
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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: 2004 No 35 s EH 23
EH 24 Income when refund given on bankruptcy
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A refund under section EH 23 is income, under section CB 27 (Income equalisation schemes), derived by the person immediately before the bankruptcy starts.
Defined in this Act: income, person,
Compare: 2004 No 35 s EH 24
EH 25 Refund on liquidation
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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: 2004 No 35 s EH 25
EH 26 Income when refund given on liquidation
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A refund under section EH 25 is income, under section CB 27 (Income equalisation schemes), derived by the person immediately before the liquidation starts.
Defined in this Act: income, liquidation, person,
Compare: 2004 No 35 s EH 26
Refunds: general provisions
EH 27 Amendment of assessment
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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: 2004 No 35 s EH 27
EH 28 Minimum refund
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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: 2004 No 35 s EH 28
EH 29 Deposits from which refunds come
Tax credit
EH 30 When person entitled to tax credit
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A person who is given a refund is entitled to a tax credit 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, person,
Compare: 2004 No 35 s EH 30
EH 31 Kind and amount of refund that entitles person to tax credit
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Kind
(1) A refund that entitles a person to a tax credit is 1 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 accounting year in which the refund is given; if the refund comes in part from a deposit made for the accounting year in which the refund is given and in part from a deposit made for some other accounting year, the refund that entitles the person to a tax credit is the part coming from the deposit for some other accounting year.
Amount
(2) Once a refund qualifies under subsection (1) as a refund that entitles a person to a tax credit, 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 earlier accounting years by subtracting the deposit or deposits or parts of deposits from which the refund comes.
Defined in this Act: accounting year, amount, deposit, income, income tax, person, tax credit,
Compare: 2004 No 35 s EH 31
EH 32 Kind of person entitled to tax credit
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A person in the following circumstances is entitled to a tax credit:
(a) the person’s income in the accounting 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 corresponding to the accounting year is increased; and
(c) the amount by which the person’s income tax liability for the corresponding tax year is increased because of the refund (the extra tax) is more than the total of the amounts by which the person’s income tax liability for an earlier tax year or years was decreased because of the subtraction of the deposit or deposits or parts of deposits from which the refund comes (the tax saving).
Defined in this Act: accounting year, amount, deposit, income, income tax, income tax liability, person, tax credit, tax year,
Compare: 2004 No 35 s EH 32
EH 33 Amount of tax credit
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The amount of a tax credit 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, tax credit,
Compare: 2004 No 35 s EH 33
Definitions
EH 34 Meaning of income from forestry
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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: 2004 No 35 s EH 34
EH 35 Meaning of main maximum deposit
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Meaning
(1) Main maximum deposit means the maximum deposit that this section says a person may make to their main income equalisation account for an accounting 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 an income year other than the corresponding income 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
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(b) if no order is in force, an amount equal to the net income that the farmer would have in the tax year corresponding to the accounting year if—
(i) the farmer derived income only from the farming or agricultural business in the accounting year; and
(ii) the farmer did not make a payment under section EH 38 for the farming or agricultural business for the accounting 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 corresponding to the accounting year if the fisher derived income only from the fishing business in the accounting 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 corresponding to the accounting year if the forester derived only income from forestry in the accounting 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 an accounting year or for every accounting year is—
(a) an amount calculated in the manner specified in the order; or
(b) an unlimited amount.
Defined in this Act: accounting year, amount, business, corresponding income year, deposit, farmer, fisher, fishing business, forester, income, main income equalisation account, main maximum deposit, net income, income year, pay, person, tax year,
Compare: 2004 No 35 s EH 35
EH 36 Other definitions
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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 accounting 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
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
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.
Defined in this Act: accounting year, business, Commissioner, date the deposit ends, deposit, fishing business, interest, liquidation, main deposit, main income equalisation account, main income equalisation scheme, pay, person, return of income, specified period, tax year, year,
Compare: 2004 No 35 s EH 37
Adverse event income equalisation scheme
Application
EH 37 Persons to whom adverse event income equalisation scheme applies
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Person described
(1) The adverse event income equalisation scheme applies to a person who, in an accounting 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: accounting year, adverse event income equalisation scheme, business, New Zealand, person, self-assessed adverse event,
Compare: 2004 No 35 s EH 38
Deposits and accounts
EH 38 Adverse event deposit
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Deposit for adverse event
(1) A person may make a payment to the Commissioner for entry in their adverse event income equalisation account for an accounting 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 an accounting year, deposits that in total are more than their adverse event maximum deposit for the accounting year.
Lower limit of deposit
(3) A person must not make, for an accounting 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 accounting year and their adverse event maximum deposit for the accounting year.
Time of making deposit
(4) A person makes a deposit for an accounting year by—
(a) making the deposit during the accounting year; or
(b) making the deposit during the month after the end of the accounting year.
Defined in this Act: accounting year, adverse event deposit, adverse event income equalisation account, adverse event maximum deposit, Commissioner, deposit, pay, person, self-assessed adverse event,
Compare: 2004 No 35 s EH 39
EH 39 Adverse event income equalisation account
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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 40.
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 42, EH 45, EH 47, EH 49, EH 53, and EH 55.
Defined in this Act: adverse event income equalisation account, amount, Commissioner, deposit, interest, liquidation, pay, person,
Compare: 2004 No 35 s EH 40
Interest
EH 40 Interest on deposits in adverse event income equalisation account
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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 interest 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: 2004 No 35 s EH 41
Deduction
EH 41 Deduction of deposit
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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 accounting year; and
(b) their adverse event maximum deposit for the accounting year.
Timing of deduction
(3) The person is allowed the deduction and it is allocated to the corresponding income year.
Defined in this Act: accounting year, adverse event maximum deposit, amount, corresponding income year, deduction, deposit, person,
Compare: 2004 No 35 s EH 42
Refunds: automatic
EH 42 Refund of excess deposit
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When this section applies
(1) This section applies when a person’s deposits for an accounting year are more than their adverse event maximum deposit for the accounting 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: accounting year, adverse event maximum deposit, Commissioner, date the deposit ends, deposit, person,
Compare: 2004 No 35 s EH 43
EH 43 Income does not include excess deposit
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A refund under section EH 42 is excluded income under section CX 51 (Income equalisation schemes).
Defined in this Act: excluded income,
Compare: 2004 No 35 s EH 44
Refunds: on application
EH 44 Application for refund by person, trustee of estate, Official Assignee, or liquidator
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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 45 or EH 47:
(b) the trustee of the person’s estate may apply under section EH 49:
(c) the Official Assignee having charge of the person’s estate may apply under section EH 53:
(d) the liquidator appointed for the person may apply under section EH 55.
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: 2004 No 35 s EH 45
EH 45 Refund on request
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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 47, EH 49, EH 53, and EH 55 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: 2004 No 35 s EH 46
EH 46 Income when refund given on request
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A refund under section EH 45 is income, under section CB 27 (Income equalisation schemes), derived by the person in the income year in which the Commissioner receives the application for the refund.
Defined in this Act: Commissioner, income, income year, person,
Compare: 2004 No 35 s EH 47
EH 47 Refund on retirement
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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: 2004 No 35 s EH 48
EH 48 Income when refund given on retirement, and election to allocate amount to earlier year
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Year of income
(1) A refund under section EH 47 is income, under section CB 27 (Income equalisation schemes), derived by the person in the income 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 an accounting 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 accounting year.
Different year of income
(3) The amount allocated by the person to the earlier accounting year is income, under section CB 27, derived by them in the corresponding income 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 corresponding to the accounting year in which they retire:
(b) a further time allowed by the Commissioner in a case or class of cases.
Defined in this Act: accounting year, amount, Commissioner, corresponding income year, deposit, income, notice, person, return of income, tax year,
Compare: 2004 No 35 s EH 49
EH 49 Refund on death
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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 FC 2 (Transfer at market value), 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: 2004 No 35 s EH 50
EH 50 Income when refund given on death
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Year of income
(1) A refund under section EH 49 is income, under section CB 27 (Income equalisation schemes), derived by the person immediately before their death.
When year of income may be different
(2) However, section EH 51 or EH 52 applies instead of subsection (1) if the circumstances described in section EH 51(1) or EH 52(1) apply in the person’s case.
Defined in this Act: income, person,
Compare: 2004 No 35 s EH 51
EH 51 Income when refund given on death, and election to allocate amount to earlier year
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When this section applies
(1) This section applies when—
(a) a refund under section EH 49 includes a deposit made for an accounting year earlier than the accounting 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 accounting year.
Different year of income
(2) The amount allocated by the trustee to the earlier accounting year is income, under section CB 27 (Income equalisation schemes), derived by the person in the corresponding income 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: accounting year, amount, Commissioner, corresponding income year, deposit, income, notice, person, return, trustee,
Compare: 2004 No 35 s EH 52
EH 52 Income when refund given on death, and election to allocate amount to later year or years
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When this section applies
(1) This section applies when—
(a) the trustee does not make an election under section EH 51; 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 an accounting year or years after that date.
Accounting year or years for purposes of subsection (1)(b)
(2) For the purposes of subsection (1)(b), the accounting 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 accounting 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 accounting year remains in the person’s adverse event income equalisation account until it is refunded to the trustee in the accounting year to which it is allocated.
Different year of income
(4) An amount allocated by the trustee to a later accounting year is income, under section CB 27 (Income equalisation schemes), derived by the person in the corresponding income 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 accounting year; and
(ii) the accounting 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: accounting year, adverse event income equalisation account, amount, Commissioner, corresponding income year, deposit, income, notice, person, return, trustee, year,
Compare: 2004 No 35 s EH 53
EH 53 Refund on bankruptcy
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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: 2004 No 35 s EH 54
EH 54 Income when refund given on bankruptcy
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A refund under section EH 53 is income, under section CB 27 (Income equalisation schemes), derived by the person immediately before the bankruptcy starts.
Defined in this Act: income, person,
Compare: 2004 No 35 s EH 55
EH 55 Refund on liquidation
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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: 2004 No 35 s EH 56
EH 56 Income when refund given on liquidation
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A refund under section EH 55 is income, under section CB 27 (Income equalisation schemes), derived by the person immediately before the liquidation starts.
Defined in this Act: income, liquidation, person,
Compare: 2004 No 35 s EH 57
Refunds: general provisions
EH 57 Amendment of assessment
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Despite the time bar, the Commissioner may amend an assessment at any time in order to give effect to any of sections EH 48, EH 51, and EH 52.
Defined in this Act: assessment, Commissioner, time bar,
Compare: 2004 No 35 s EH 58
EH 58 Minimum refund
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The Commissioner must not give a refund under any of sections EH 45, EH 47, EH 49, EH 53, and EH 55 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: 2004 No 35 s EH 59
EH 59 Deposits from which refunds come
Transfers
EH 60 Transfer of deposit
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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: 2004 No 35 s EH 61
Definitions
EH 61 Meaning of adverse event maximum deposit
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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 an accounting 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 corresponding to the accounting year if, because of the self-assessed adverse event,—
(a) the only income derived by the person in the accounting year were income from their selling the livestock; and
(b) the only amount for which the person was allowed a deduction in the accounting 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 an income year other than the income 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 FB 15 to FB 17 (which relate to livestock).
Cost of livestock sold: person having livestock of class sold at end of previous accounting year
(4) This subsection applies when, at the end of the accounting year before the accounting 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 accounting year in which it is sold. Under this subsection, the cost of livestock sold is determined using the previous accounting 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 is the number of livestock of the class sold that the person has at the start of the accounting year in which the livestock is sold:
(b) number bought is the number of livestock of the class sold that the person buys in the accounting year in which the livestock is sold, before the sale:
(c) price is the average purchase price of the number bought:
(d) value is the opening value of the number at the start, determined without applying section (2) (Valuation under herd scheme).
Defined in this Act: accounting year, adverse event income equalisation account, adverse event maximum deposit, amount, corresponding income year, deduction, deposit, income, net income, person, self-assessed adverse event, tax year,
Compare: 2004 No 35 s EH 62
EH 62 Other definitions
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In the adverse event income equalisation scheme,—
adverse event deposit means a payment made to the Commissioner under section EH 38(1)
adverse event income equalisation account, for a person, means the account that the Commissioner keeps in the person’s name under section EH 39
date the deposit ends means—
(a) the date on which the refund is calculated, when section EH 42 applies:
(b) the date on which the Commissioner receives the applications for the refund, when section EH 45 applies:
(c) the date of the person’s retirement, when section EH 47 applies:
(d) the date of the person’s death, when section EH 49 applies:
(e) the date on which the Commissioner receives notice of the adjudication, when section EH 53 applies:
(f) the date on which the Commissioner receives notice of the liquidation, when section EH 55 applies:
(g) the date on which the Commissioner transfers the deposit, when section EH 60(1) applies
deposit—
(a) means an adverse event deposit; and
(b) includes, for the purposes of sections EH 40(2) and (3) and EH 44 to EH 60, interest that is added to an adverse event deposit under section EH 40(4)
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.
Defined in this Act: accounting year, adverse event deposit, adverse event income equalisation account, adverse event income equalisation scheme, Commissioner, date the deposit ends, deposit, interest, liquidation, pay, person, return of income, specified period, tax year,
Compare: 2004 No 35 s EH 64
Thinning operations income equalisation scheme
Application
EH 63 Persons to whom thinning operations income equalisation scheme applies
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Person described
(1) The thinning operations income equalisation scheme applies to a company that, in an accounting 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: accounting year, business, company, income, New Zealand, person, thinning operations, thinning operations income equalisation scheme,
Compare: 2004 No 35 s EH 65
Deposits and accounts
EH 64 Thinning operations deposit
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Deposit for thinning operations
(1) A person may make a payment to the Commissioner for entry in their thinning operations income equalisation account for an accounting year in which they derive income from carrying out thinning operations.
Upper limit of deposit
(2) A person must not make, for an accounting year, deposits that in total are more than their thinning operations maximum deposit for the accounting year.
Lower limit of deposit
(3) A person must not make, for an accounting 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 accounting year and their thinning operations maximum deposit for the accounting year.
Time of making deposit
(4) A person makes a deposit for an accounting year by—
(a) making the deposit during the accounting year; or
-
(b) doing both the following:
(i) making the deposit during the specified period for the accounting year; and
(ii) at the time of making it, giving the Commissioner notice that the deposit is for the accounting 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 accounting 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 accounting year.
Limit on making deposit
(5) If a refund has been made to a person for an accounting year under section EH 71 or EH 73, the person may later make a deposit for the accounting 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: accounting year, business, Commissioner, deposit, income, notice, pay, person, specified period, thinning operations, thinning operations deposit, thinning operations income equalisation account, thinning operations maximum deposit,
Compare: 2004 No 35 s EH 66
EH 65 Thinning operations income equalisation account
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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 66.
Amounts not available to others
(4) Despite section FC 2 (Transfer at market value), 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 68, EH 71, EH 73, and EH 75.
Defined in this Act: amount, Commissioner, deposit, interest, liquidation, pay, person, thinning operations income equalisation account,
Compare: 2004 No 35 s EH 67
Interest
EH 66 Interest on deposits in thinning operations income equalisation account
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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: 2004 No 35 s EH 68
Deductions
EH 67 Deduction of deposit
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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 accounting year; and
(b) their thinning operations maximum deposit for the accounting year.
Timing of deduction
(3) The person is allowed the deduction in the accounting year.
Defined in this Act: accounting year, amount, deduction, deposit, person, thinning operations maximum deposit,
Compare: 2004 No 35 s EH 69
Refunds: automatic
EH 68 Refund of excess deposit
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When this section applies
(1) This section applies when a person’s deposits for an accounting year are more than their thinning operations maximum deposit for the accounting 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: accounting year, Commissioner, date the deposit ends, deposit, person, thinning operations maximum deposit,
Compare: 2004 No 35 s EH 70
EH 69 Income does not include excess deposit
-
A refund under section EH 68 is excluded income under section CX 51 (Income equalisation schemes).
Defined in this Act: excluded income,
Compare: 2004 No 35 s EH 71
Refunds: on application
EH 70 Application for refund by person or liquidator
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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 71 or EH 73:
(b) the liquidator appointed for the person may apply under section EH 75.
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: 2004 No 35 s EH 72
EH 71 Refund on request
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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 73 nor EH 75 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: 2004 No 35 s EH 73
EH 72 Income when refund given on request
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Year of income
(1) A refund under section EH 71 is income, under section CB 27 (Income equalisation schemes), derived by the person in the income 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 an accounting 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 accounting year to which the specified period or the longer period relates.
Different year of income
(3) The refund is income under section CB 27 in the corresponding income year to which the specified period or the longer period relates.
Defined in this Act: accounting year, Commissioner, corresponding income year, income, income year, person, specified period,
Compare: 2004 No 35 s EH 74
EH 73 Refund for development or recovery
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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: 2004 No 35 s EH 75
EH 74 Income when refund given for development or recovery
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Year of income
(1) A refund under section EH 73 is income, under section CB 27 (Income equalisation schemes), derived by the person in the income 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 an accounting 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 accounting year to which the specified period or the longer period relates.
Different year of income
(3) The refund is income under section CB 27 derived in the corresponding income year to which the specified period or the longer period relates.
Defined in this Act: accounting year, Commissioner, corresponding income year, income, income year, person, specified period,
Compare: 2004 No 35 s EH 76
EH 75 Refund on liquidation
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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: 2004 No 35 s EH 77
EH 76 Income when refund given on liquidation
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A refund under section EH 75 is income, under section CB 27 (Income equalisation schemes), derived by the person immediately before the liquidation starts.
Defined in this Act: income, liquidation, person,
Compare: 2004 No 35 s EH 78
Refunds: general provisions, and tax credits
EH 77 Sections of main income equalisation scheme that apply to thinning operations income equalisation scheme
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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: 2004 No 35 s EH 79
Definitions
EH 78 Meaning of thinning operations maximum deposit
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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 accounting 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 an income year other than the income 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: accounting year, amount, business, deposit, income, income year, person, thinning operations, thinning operations income equalisation account, thinning operations maximum deposit,
Compare: 2004 No 35 s EH 80
EH 79 Other definitions
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In the thinning operations income equalisation scheme,—
date the deposit ends means—
(a) the date on which the refund is calculated, when section EH 68 applies:
(b) the date on which the Commissioner receives the application for the refund, when section EH 71 or EH 73 applies:
(c) the date on which the Commissioner receives notice of the liquidation, when section EH 75 applies
deposit—
(a) means a thinning operations deposit; and
(b) includes, for the purposes of sections EH 66(2) to (4) and EH 70 to EH 77, interest that is added to a thinning operations deposit under section EH 66(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
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 64(1)
thinning operations income equalisation account, for a person, means the account that the Commissioner keeps in the person’s name under section EH 65.
Defined in this Act: Commissioner, date the deposit ends, interest, liquidation, pay, person, return of income, specified period, tax year, thinning operations, thinning operations deposit, thinning operations income equalisation account, thinning operations income equalisation scheme,
Compare: 2004 No 35 s EH 81
Subpart EI—Spreading of specific income
Farming and forestry
EI 1 Spreading backward of income from timber
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When this section applies
(1) This section applies when a person derives income under section CB 24 (Disposal of timber or right to take timber) or CB 25 (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: 2004 No 35 s EI 1
Inflation-indexed instruments
EI 2 Interest from inflation-indexed instruments
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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
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(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 an earlier income year of the lender.
Defined in this Act: amount, income year, interest, money lent, New Zealand, pay,
Compare: 2004 No 35 s EI 2
Intellectual property
EI 3 Assigning or granting copyright
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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
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(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, pay, royalty, tax year, year,
Compare: 2004 No 35 s EI 3
EI 4 Spreading income from patent rights
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When this section applies
(1) This section applies when a person derives income under section CB 30 (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: income, income year, patent right,
Compare: 2004 No 35 s EI 3B
Land
EI 5 Amount paid to lessor for non-compliance with covenant for repair
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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 6
(5) This section overrides section CC 2(2) and is overridden by section EI 6.
Defined in this Act: amount, Commissioner, income, income year, notice, return of income,
Compare: 2004 No 35 s EI 4
EI 6 Amount paid for non-compliance: when lessor ceases to own land
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When this section applies
(1) This section applies when a lessor—
(a) allocates income under section EI 5 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 5 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: 2004 No 35 s EI 5
EI 7 Leases: income derived in anticipation
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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, pay, tax year,
Compare: 2004 No 35 s EI 6
EI 8 Disposal of land to the Crown
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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 an earlier income year.
Defined in this Act: amount, Commissioner, deduction, income, income tax liability, income year, tax year, year,
Compare: 2004 No 35 s EI 7
Shareholder-employees
EI 9 Matching rule for employment income of shareholder-employee
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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 when no longer treated as 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: 2004 No 35 s EI 8
Subpart EJ—Spreading of specific expenditure
Farming and forestry
EJ 1 Spreading backward of deductions for costs of timber
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When this section applies
(1) This section applies when a person derives income under section CB 24 (Disposal of timber or right to take timber) or CB 25 (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: 2004 No 35 s EJ 1
EJ 2 Spreading forward of deductions for repairs to fishing boats
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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: 2004 No 35 s EJ 2
EJ 3 Spreading forward of fertiliser expenditure
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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: 2004 No 35 s EJ 3
Films
EJ 4 Expenditure incurred in acquiring film rights in feature films
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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—
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(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:
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(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 an earlier income year.
Defined in this Act: amount, completed, deduction, feature film, film, film income, film right, income year, remaining deduction,
Compare: 2004 No 35 s EJ 4
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EJ 5 Expenditure incurred in acquiring film rights in films other than feature films
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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,—
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(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 an earlier income year.
Defined in this Act: amount, completed, deduction, feature film, film, film income, film right, income year, remaining deduction,
Compare: 2004 No 35 s EJ 5
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EJ 6 Certification of New Zealand films
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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: 2004 No 35 s EJ 6
EJ 7 Film production expenditure for New Zealand films
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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: 2004 No 35 s EJ 7
EJ 8 Film production expenditure for films other than New Zealand films
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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:
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(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 an earlier income year.
Defined in this Act: amount, completed, deduction, film, film income, film production expenditure, film right, income year, New Zealand, remaining deduction,
Compare: 2004 No 35 s EJ 8
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EJ 9 Avoidance arrangements
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The allocation of a deduction under any of sections EJ 4, EJ 5, EJ 7, and EJ 8 may be subject to adjustment under—
(a) section GB 18 (Arrangements to acquire film rights or incur production expenditure):
(b) section GB 19 (When film production expenditure payments delayed or contingent).
Defined in this Act: deduction, film production expenditure, film right, pay,
Compare: 2004 No 35 ss GC 11B, GD 12A, GD 12B
Leases
EJ 10 Personal property lease payments
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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 is the part of the term of the lease that falls within the income year:
(b) term of the lease has the meaning given in section YA 1 (Definitions):
(c) total of payments is the total amount of the personal property lease payments.
Defined in this Act: finance lease, income year, lease, lessee, pay, personal property lease asset, personal property lease payment, specified lease, term of the lease,
Compare: 2004 No 35 s EJ 9
EJ 11 Amount paid by lessee for non-compliance with covenant for repair
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When this section applies
(1) This section applies when a lessee of land is allowed a deduction under section DB 21 (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: 2004 No 35 s EJ 10
Petroleum mining
EJ 12 Petroleum development expenditure
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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 other petroleum mining provisions
(4) Sections EJ 13 to EJ 16 override subsection (1). Sections DT 7, DT 8, DT 10, DT 11, DT 16, and IS 5 (which relate to petroleum miners) override this section.
Defined in this Act: amount, commercial production, deduction, income year, offshore development, onshore development, petroleum development expenditure,
Compare: 2004 No 35 s EJ 11
EJ 13 Relinquishing petroleum mining permit
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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—
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(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 12(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: 2004 No 35 s EJ 12
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EJ 14 Spreading deduction backwards
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When this section applies
(1) This section applies when a petroleum miner has a deduction whose amount has been reduced under section IS 5 (Petroleum miners’ tax losses).
Spreading backwards
(2) The petroleum miner may allocate the amount of the deduction to the tax year before that in which the net loss arises, or allocate parts of it to earlier tax years.
Amending returns
(3) The petroleum miner may amend their returns of income for the relevant tax years despite the operation of the time bar.
Defined in this Act: amount, deduction, petroleum miner, return of income, tax year, time bar,
Compare: 2004 No 35 s IH 3(1)
EJ 15 Disposal of petroleum mining asset
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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 12 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 16
(4) This section is overridden by section EJ 16.
Defined in this Act: amount, deduction, dispose, income, income year, petroleum miner, petroleum mining asset,
Compare: 2004 No 35 s EJ 13
EJ 16 Disposal of petroleum mining asset to associate
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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 15 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: 2004 No 35 s EJ 14
EJ 17 Partnership interests and disposal of part of asset
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In sections EJ 12 to EJ 16, 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: 2004 No 35 s EJ 15
EJ 18 Petroleum mining operations outside New Zealand
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Sections EJ 12 to EJ 17, EJ 19, and EJ 20 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 12 to EJ 17, EJ 19, and EJ 20.
Defined in this Act: controlled foreign company, New Zealand, petroleum miner, petroleum mining operations,
Compare: 2004 No 35 s EJ 16
Definitions
EJ 19 Meaning of offshore development
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Meaning
(1) In section EJ 12, 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
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(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: 2004 No 35 s EJ 17
EJ 20 Meaning of onshore development
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Meaning
(1) In section EJ 12, 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: 2004 No 35 s EJ 18
Superannuation contributions
EJ 21 Contributions to employees’ superannuation schemes
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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 7 (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: 2004 No 35 s EJ 19
Research, development, and resulting market development
EJ 22 Deductions for market development: product of research, development
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When this section applies
(1) This section applies when a person is allowed a deduction for expenditure under section DB 34 (Research or development) 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 under section DB 34(7) 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 23.
Defined in this Act: deduction, development, income year, research,
Compare: 2004 No 35 s EJ 20
EJ 23 Allocation of deductions for research, development, and resulting market development
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When this section applies
(1) This section applies when a person has—
(a) a deduction for expenditure incurred on research or development that the person chooses to allocate under section DB 34(7) (Research or development):
(b) a deduction for an amount of depreciation loss for an item used for research or development, that the person chooses to allocate under section EE 1(5) (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 22(2).
Timing of deduction
(2) The person must allocate the deduction to an income year—
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(a) in which the person derives an amount of income that is 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 an amount of depreciation loss that may be allocated under this section:
(b) to which under Part I (Treatment of tax losses) a loss balance is carried forward 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 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 an income year 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 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:
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(b) the amount of the deductions that—
(i) arise in other income years from which a loss balance may be carried forward under Part I to the current year; and
(ii) have not been allocated to income years before the current year.
Defined in this Act: amount, assessable income, deduction, depreciation losses, development, income year, loss balance, research,
Compare: 2004 No 35 s EJ 21
Subpart EK—Environmental restoration accounts
EK 1 Environmental Restoration Funds Account
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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, pay,
Compare: 2004 No 35 s EK 1
EK 2 Persons who may make payment to environmental restoration account
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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
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(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 8 (Disposal: land used for landfill, if notice of election) applies; and
(ii) is of a kind listed in schedule 19, part B (Expenditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant); and
(iii) is of a kind not listed in schedule 19, part C; and
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(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, pay, revenue account property,
Compare: 2004 No 35 s EK 2
EK 3 Payments to environmental restoration account
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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, pay,
Compare: 2004 No 35 s EK 3
EK 4 Environmental restoration account
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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) An amount entered in a person’s environmental restoration account may not, while 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 an asset for the payment of the person’s debts or liabilities, except when the person is bankrupt or has been put into liquidation:
(d) be an asset 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 administering 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, pay,
Compare: 2004 No 35 s EK 4
EK 5 Details to be provided with payment to environmental restoration account
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Notice and details required
(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.
Time for providing information
(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, pay, working day,
Compare: 2004 No 35 s EK 5
EK 6 Interest on payments to environmental restoration account
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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, pay, year,
Compare: 2004 No 35 s EK 6
EK 7 Deduction for payment
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When this section applies
(1) This section applies when a person is allowed a deduction under section DQ 4 (Environmental restoration accounts scheme) for a payment to their environmental restoration account under EK 2.
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) 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 set out in schedule 1 (Basic tax rates: income tax, ESCT, RWT, and attributed fringe benefits); 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, pay, tax year, taxable income,
Compare: 2004 No 35 s EK 7
EK 8 Deduction for transfer
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When this section applies
(1) This section applies when a person is allowed a deduction under section DQ 4 (Environmental restoration accounts scheme) for a transfer to their 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—
Definition 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 set out in schedule 1 (Basic tax rates: income tax, ESCT, RWT, and attributed fringe benefits); 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, pay, tax year, taxable income,
Compare: 2004 No 35 s EK 8
EK 9 Refund of payment if excess, lacking details
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When this section applies
(1) This section applies when 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, pay,
Compare: 2004 No 35 s EK 9
EK 10 Certain refunds not income
-
A refund under section EK 9 is excluded income under section CX 52 (Refund from environmental restoration account).
Defined in this Act: excluded income,
Compare: 2004 No 35 s EK 10
EK 11 Application for refund
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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 kind that is listed in schedule 19, part B (Expenditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant) and not in schedule 19, 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,
Compare: 2004 No 35 s EK 11
EK 12 Refund if request or excess balance
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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 is more than 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 kind that is listed in schedule 19, part B (Expenditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant) and not in schedule 19, 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—
Definition of items in formula
(4) In the formula,—
(a) amount is the amount of the refund:
-
(b) tax rate is the highest rate of income tax on taxable income that—
(i) is set out in schedule 1 (Basic tax rates: income tax, ESCT, RWT, and attributed fringe benefits); and
(ii) would apply to the person for the tax year if the person had sufficient taxable income.
Amount of refund if expenditure incurred
(5) 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 meets the requirements of subsection (2)(a)(i) to (iii).
Amount of refund if maximum account balance decreases
(6) 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.
Relationship with section EK 17
(7) Section EK 17 overrides subsections (5) and (6).
Defined in this Act: amount, Commissioner, environmental restoration account, income tax, income year, maximum account balance, pay, tax year, taxable income,
Compare: 2004 No 35 s EK 12
EK 13 Income when refund given on request
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A refund under section EK 12 is income, of the amount given by section CB 28 (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,
Compare: 2004 No 35 s EK 13
EK 14 Application for transfer
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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,
Compare: 2004 No 35 s EK 14
EK 15 Transfer on request
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When this section applies
(1) This section applies when—
(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
(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 requirements of subsection (3) not met
(4) If the nominated person does not meet 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, pay,
Compare: 2004 No 35 s EK 15
EK 16 Transfer on death, bankruptcy, or liquidation
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When this section applies
(1) This section applies when a person—
(a) has an environmental restoration account; and
-
(b) does 1 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.
Transfer by Commissioner
(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 on the date on which—
(a) the person dies, if subsection (1)(b)(i) applies:
(b) the person becomes bankrupt, if subsection (1)(b)(ii) applies:
(c) the person is put into liquidation, if subsection (1)(b)(iii) applies.
Relationship with section EK 17
(5) Section EK 17 overrides subsection (4).
Transfer treated as payment
(6) A transfer to the environmental account of a person under subsection (3) is treated as a payment by the person to their environmental account.
Year of income
(7) The amount of a transfer under this section is income, under section CB 28 (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, pay,
Compare: 2004 No 35 s EK 16
EK 17 Minimum refund or transfer
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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,
Compare: 2004 No 35 s EK 17
EK 18 Payments from which refunds come
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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, pay,
Compare: 2004 No 35 s EK 18
EK 19 Environmental restoration account of amalgamating company
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If an amalgamating company with an environmental restoration account ends its existence on 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:
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(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, pay,
Compare: 2004 No 35 s EK 19
EK 20 Environmental restoration account of consolidated group company
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Company with environmental restoration account
(1) A company that is part of a consolidated group may have an environmental restoration account.
Nominated company for group acting on behalf of company
(2) The nominated company for the consolidated group may act on behalf of the group company 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 group companies on the basis of the individual obligations of the companies to incur expenditure of a kind listed in schedule 19, part B (Expenditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant) and not in schedule 19, part C.
Defined in this Act: consolidated group, environmental restoration account, nominated company, pay,
Compare: 2004 No 35 s EK 20
EK 21 Notices in electronic format
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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, electronic format,
Compare: 2004 No 35 s EK 21
EK 22 Meaning of maximum payment
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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 is more than the amount in the environmental restoration account at the end of the income year:
(b) the amount, if any, calculated under subsection (3) for the person and the income year.
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 referred to in subsection (2)(b) 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 calculated using the formula—
level increase + (year × 0.2 × initial level) − contents.
Definition 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 is more than 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, pay,
Compare: 2004 No 35 s EK 22
EK 23 Other definitions
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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 meet the requirements of section EK 2 for the income year, zero:
-
(b) if the person meets the requirements of section EK 2 for the income year, the amount calculated using the formula—
provision × tax rate.
Definition of items in formula
(2) In the formula,—
-
(a) provision is the provision in the person’s financial statements for future expenditure that—
(i) is of a kind listed in schedule 19, part B (Expenditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant); and
(ii) is not of a kind listed in schedule 19, part C:
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(b) tax rate is the highest rate of income tax on taxable income that—
(i) is set out in schedule 1 (Basic tax rates: income tax, ESCT, RWT, and attributed fringe benefits); 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,
Compare: 2004 No 35 s EK 23
Subpart EW—Financial arrangements rules
Introductory provisions
EW 1 What this subpart does
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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 11 to DB 15 (which relate to financial arrangements adjustments), EZ 51 (Transitional adjustment when changing to financial arrangements rules), FB 9 (Financial arrangements rules), GB 21 (Dealing that defeats intention of financial arrangements rules), RA 11 and RA 12 (which relate to adjustments 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: 2004 No 35 s EW 1
EW 2 Relationship of financial arrangements rules with other provisions
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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:
(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: 2004 No 35 s EW 2
Meaning of financial arrangement and excepted financial arrangement
EW 3 What is a financial arrangement?
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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, pay,
Compare: 2004 No 35 s EW 3
EW 4 What is not a financial arrangement?
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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: 2004 No 35 s EW 4
EW 5 What is an excepted financial arrangement?
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Meaning
(1) Excepted financial arrangement means an arrangement described in any of subsections (2) to (25). However,—
(a) an arrangement described in any of subsections (18) to (20) may cease to be an excepted financial arrangement through the operation of section EW 7:
(b) an arrangement described in any of subsections (21) to (25) 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
(12) A share-lending arrangement is an excepted financial arrangement.
Share or option
(13) 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
(14) A specified preference share to which section FZ 1 (Deduction for dividends paid on certain preference shares) of the Income Tax Act 2004 applies is an excepted financial arrangement.
Superannuation
(15) A membership of a superannuation scheme is an excepted financial arrangement.
Warranty
(16) A warranty for goods or services is an excepted financial arrangement.
Certain arrangements to which transitional resident is party
(17) 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
(18) 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
(19) 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
(20) 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,—
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(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
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(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
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(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
(21) 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 sale and purchase
(22) A short-term agreement for sale and purchase is an excepted financial arrangement, except for a party who makes an election under section EW 8.
Short-term option
(23) A short-term option is an excepted financial arrangement, except for a party who makes an election under section EW 8.
Travellers’ cheques
(24) Travellers’ cheques are excepted financial arrangements, except for a party who makes an election under section EW 8.
Variable principal debt instrument
(25) 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, farm-out arrangement, finance lease, group investment fund, hire purchase agreement, income year, insurance contract, lease, New Zealand, New Zealand resident, non-resident, pay, property, share, share-lending arrangement, short-term agreement for sale and purchase, short-term option, superannuation scheme, transitional resident, variable principal debt instrument, withdrawable share,
Compare: 2004 No 35 s EW 5
EW 6 Relationship between financial arrangements and excepted financial arrangements
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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 (16) 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(17) to (25) 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: 2004 No 35 s EW 6
EW 7 Change from private or domestic purpose
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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(18) to (20) 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: 2004 No 35 s EW 7
EW 8 Election to treat certain excepted financial arrangements as financial arrangements
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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(21) to (25).
Election for class of short-term agreements
(2) A person may choose to treat a class of short-term agreements for sale and purchase 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 sale and purchase,
Compare: 2004 No 35 s EW 8
Application of financial arrangements rules
EW 9 Persons to whom financial arrangements rules apply
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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 HC 25 (Foreign-sourced amounts: non-resident trustees) apply.
Defined in this Act: financial arrangement, financial arrangements rules, fixed establishment, income, New Zealand, resident in New Zealand, trustee,
Compare: 2004 No 35 s EW 9
EW 10 Financial arrangements to which financial arrangements rules apply
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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, relationship agreement,
Compare: 2004 No 35 s EW 10
EW 11 What financial arrangements rules do not apply to
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The financial arrangements rules do not apply to—
(a) the calculation of resident passive income:
(b) the calculation of non-resident passive 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 passive income, pay, resident passive income,
Compare: 2004 No 35 s EW 11
Calculation and allocation of income and expenditure over financial arrangement’s term
EW 12 When use of spreading method required
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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: 2004 No 35 s EW 12
EW 13 When use of spreading method not required
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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 Injury Prevention, Rehabilitation, and Compensation Act 2001, 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, pay, spreading method, trustee,
Compare: 2004 No 35 s EW 13
EW 14 What spreading methods do
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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: 2004 No 35 s EW 14
EW 15 What is included when spreading methods used
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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 48 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, pay, spreading method,
Compare: 2004 No 35 s EW 15
EW 16 Yield to maturity method or alternative
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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: 2004 No 35 s EW 16
EW 17 Straight-line method
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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
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(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: 2004 No 35 s EW 17
EW 18 Market valuation method
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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—
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(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
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(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: 2004 No 35 s EW 18
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EW 19 Choice among first 3 spreading methods
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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: 2004 No 35 s EW 19
EW 20 Determination method or alternative
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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
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(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
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(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: 2004 No 35 s EW 20
EW 21 Financial reporting method
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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
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(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: 2004 No 35 s EW 21
EW 22 Default method
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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
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(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
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(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: 2004 No 35 s EW 22
EW 23 Failure to use method for financial reporting purposes
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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(1)(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(1)(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 is 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 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: 2004 No 35 s EW 23
EW 24 Consistency of use of spreading method
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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: 2004 No 35 s EW 24
EW 25 Consistency of use of straight-line method and market valuation method
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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: 2004 No 35 s EW 25
EW 26 Change of spreading method
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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: 2004 No 35 s EW 26
EW 27 Spreading method adjustment formula
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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 earlier income years.
Expenditure (old method)
(8) Expenditure (old method) is expenditure incurred by the person under the financial arrangement in earlier income years.
Defined in this Act: amount, financial arrangement, income, income year, spreading method,
Compare: 2004 No 35 s EW 27
Calculation and allocation of income and expenditure when rights and obligations under financial arrangement cease
EW 28 How base price adjustment calculated
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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,
Compare: 2004 No 35 s EW 28
EW 29 When calculation of base price adjustment required
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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 43.
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.
Defined in this Act: amount, associated person, business, consideration, financial arrangement, fixed establishment, legal defeasance, maturity, New Zealand, New Zealand resident, pay,
Compare: 2004 No 35 s EW 29
EW 30 When calculation of base price adjustment not required
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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: 2004 No 35 s EW 30
EW 31 Base price adjustment formula
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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 earlier 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 11 (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 48 applies, the consideration referred to in subsection (7) is adjusted under the relevant section.
Income
(9) Income is—
(a) income, under section CC 3, derived by the person under the financial arrangement in earlier 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 earlier 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, pay,
Compare: 2004 No 35 s EW 31
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 option, or finance lease
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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, pay, property, right, specified option,
Compare: 2004 No 35 s EW 32
EW 33 Consideration for hire purchase agreement or finance lease
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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 EW 32.
Defined in this Act: consideration, finance lease, hire purchase agreement, hire purchase asset, pay, personal property lease asset, lessor,
Compare: 2004 No 35 s EW 33
EW 34 Consideration in foreign currency
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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, pay, property, registered bank, right, year,
Compare: 2004 No 35 s EW 34
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EW 35 Value relevant for non-financial arrangements rule
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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: 2004 No 35 s EW 35
Consideration treated as paid to person
EW 36 Consideration when person exits from rules: accrued entitlement
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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) 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
(ii) 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
(iii) 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(18) to (20); 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, pay, resident in New Zealand,
Compare: 2004 No 35 s EW 36
EW 37 Consideration when person enters rules: accrued obligation
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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(17):
(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(17):
(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(18) to (20).
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, pay, transitional resident,
Compare: 2004 No 35 s EW 37
EW 38 Consideration when disposal for no, or inadequate, consideration
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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
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(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, pay,
Compare: 2004 No 35 s EW 38
EW 39 Consideration affected by unfavourable factors
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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, pay,
Compare: 2004 No 35 s EW 40
Consideration treated as paid by person
EW 40 Consideration when person exits from rules: accrued obligation
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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) 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
(ii) 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
(iii) 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(18) to (20); 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, pay, resident in New Zealand,
Compare: 2004 No 35 s EW 41
EW 41 Consideration when person enters rules: accrued entitlement
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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(17):
(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(17):
(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(18) to (20).
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, pay, transitional resident,
Compare: 2004 No 35 s EW 42
EW 42 Consideration when acquisition for no, or inadequate, consideration
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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, pay,
Compare: 2004 No 35 s EW 43
EW 43 Consideration when debt sold at discount to associate of debtor
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When this section applies
(1) This section applies when a creditor sells a debt on or after 20 May 1999 to a person associated under the 1988 version provisions with the debtor and at a discount.
At a discount
(2) 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
(3) The market value of a debt affected by any of the following factors is determined as if its market value were not affected by the factor. The factors are—
(a) the occurrence of an event reducing or cancelling the debtor’s obligations under the debt; or
-
(b) the occurrence of 1 of the following between the date on which the debt was entered into and the date of the disposal:
(i) a decline in the debtor’s creditworthiness; or
(ii) an increase in the possibility that the debtor will not meet an obligation under the debt.
Consideration
(4) 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: 1988 version provisions, amount, associated person, consideration, pay,
Compare: 2004 No 35 s EW 45
EW 44 Consideration when debt forgiven for natural love and affection
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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 41 (Charities: non-business income) or CW 42 (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, pay,
Compare: 2004 No 35 s EW 46
EW 45 Consideration when debtor released from obligation
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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, pay,
Compare: 2004 No 35 s EW 47
EW 46 Consideration when debtor released as condition of new start grant
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When this section applies
(1) This section applies when, in an income year of a person,—
-
(a) the person carries on a business of—
(i) animal husbandry:
(ii) poultry-keeping:
(iii) beekeeping:
(iv) breeding horses other than bloodstock:
(v) horticulture:
(vi) cropping; and
(b) the person is paid a new start grant for the business for an event that is 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
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(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 using the formula—
remitted amount − current loss − loss balance − 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 tax loss that the person would have for the income year in which the liability is remitted in the absence of this section:
(c) loss balance is the amount of loss balance that the person may subtract from their net income for the income year in which the liability is remitted:
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(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) meets the requirements of subsection (4).
Loss incurred by associated person from business or land
(4) The loss referred to in subsection (3)(d)—
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(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
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(b) is incurred in relation to—
(i) the business referred to in paragraph (a)(i):
(ii) land that is used in the business; and
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(c) is, for the income year in which the liability is remitted,—
(i) a tax loss of the associated person:
(ii) a loss balance for the associated person; and
(d) is included in the calculation in subsection (3) to an extent to which 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 the associated person notice of a determination under subsection (4)(d).
Defined in this Act: associated person, business, Commissioner, deduction, diminished value, income, income year, loss balance, notice, pay, qualifying event, tax loss,
Compare: 2004 No 35 s EW 47B
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Consideration when legal defeasance has occurred
EW 47 Legal defeasance
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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: 2004 No 35 s EW 48
Consideration when anti-avoidance provision applies
EW 48 Anti-avoidance provisions
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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 GB 21 (Dealing that defeats intention of financial arrangements rules); or
(b) section GC 7 (Excess amount payable by person); or
(c) section GC 8 (Insufficient amount receivable by person).
Consideration
(2) The consideration is the amount determined under the relevant provision.
Defined in this Act: amount, consideration, pay,
Compare: 2004 No 35 s EW 49
Income and deduction provisions specifically related to financial arrangements
EW 49 Income and deduction when debt sold at discount to associate of debtor
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When this section applies
(1) This section applies when a creditor sells a debt on or after 20 May 1999 to a person associated under the 1988 version provisions with the debtor and at a discount.
At a discount
(2) 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
(3) The market value of a debt affected by any of the following factors is determined as if its market value were not affected by the factor. The factors are—
(a) the occurrence of an event reducing or cancelling the debtor’s obligations under the debt; or
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(b) the occurrence of 1 of the following between the date on which the debt was entered into and the date of the disposal:
(i) a decline in the debtor’s creditworthiness; or
(ii) an increase in the possibility that the debtor will not meet an obligation under the debt.
Original debt replaced with interest-free loan
(4) The associated person is treated as having provided the debtor with an interest-free loan for the amount paid for the debt.
Repayment: income and deduction
(5) If the debtor later repays the person associated with the debtor more than the amount the associated person paid for the debt, the excess amount paid by the debtor is—
(a) income, under section CC 3(1) (Financial arrangements), of the person associated with the debtor; and
(b) a deduction that the debtor is allowed under section DB 13(1) (Repayment of debt sold at discount to associate of debtor).
Defined in this Act: 1988 version provisions, amount, associated person, deduction, income, pay,
Compare: 2004 No 35 s EW 50
EW 50 Income when debt forgiven to trustee
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When this section applies
(1) This section applies when—
(a) a trust is a debtor; and
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(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 41 (Charities: non-business income) or CW 42 (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
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(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 41 or CW 42; 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
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(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 41 or CW 42; 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
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(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 41 or CW 42.
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, pay, trustee,
Compare: 2004 No 35 s EW 51
EW 51 Deduction for security payment
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When subsection (2) applies: loss generally
(1) Subsection (2) applies when a person is allowed a deduction under section DB 14(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 14(4).
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, pay, security payment,
Compare: 2004 No 35 s EW 52
Treatment of original share acquired under financial arrangement
EW 52 Share supplier under share-lending arrangement
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When this section applies
(1) This section applies to a person who—
(a) acquires a share under a financial arrangement (the 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,
Compare: 2004 No 35 s EW 52B
One kind of avoidance
EW 53 Adjustment required
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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
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(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, pay, prescribed,
Compare: 2004 No 35 s EW 53
Application of financial arrangements rules to cash basis persons
EW 54 Meaning of cash basis person
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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: 2004 No 35 s EW 54
EW 55 Effect of being cash basis person
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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 (12) applies to them.
Defined in this Act: cash basis person, financial arrangement, spreading method,
Compare: 2004 No 35 s EW 55
EW 56 Natural person
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Criteria for natural person as cash basis person
(1) A natural person is a cash basis person for an income year if—
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(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: 2004 No 35 s EW 56
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EW 57 Thresholds
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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: 2004 No 35 s EW 57
EW 58 Financial arrangements, income, and expenditure relevant to criteria
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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: 2004 No 35 s EW 58
EW 59 Exclusion by Commissioner
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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: 2004 No 35 s EW 59
EW 60 Trustee of deceased’s estate
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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: 2004 No 35 s EW 60
EW 61 Election to use spreading method
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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: 2004 No 35 s EW 61
EW 62 When and how calculation of cash basis adjustment required
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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: 2004 No 35 s EW 62
EW 63 Cash basis adjustment formula
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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 earlier income years.
Previous expenditure
(6) Previous expenditure is expenditure incurred by the person under the financial arrangement in earlier income years.
Defined in this Act: amount, cash basis person, financial arrangement, income, income year, spreading method,
Compare: 2004 No 35 s EW 63
Subpart EX—Controlled foreign company and foreign investment fund rules
Controlled foreign company (CFC) rules
When is a company a controlled foreign company?
EX 1 Meaning of controlled foreign company
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Tests of control
(1) A foreign company is a controlled foreign company (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:
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(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
(2) 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
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(b) 1 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
(3) 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 (2) does not apply at the 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, foreign investment vehicle, life insurance, New Zealand resident, portfolio investment entity, shareholder decision-making right,
Compare: 2004 No 35 s EX 1
Calculation of person’s control interest
EX 2 Four categories for calculating control interests
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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 right,
Compare: 2004 No 35 s EX 2
EX 3 Control interest: total of direct, indirect, and associated person interests
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Calculation of control interest
(1) 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.
Avoidance arrangements: first kind
(2) Section GB 7 (Arrangements involving CFC control interests) may apply to treat a control interest as being held by a group of New Zealand residents in equal proportions.
Avoidance arrangements: other kinds
(3) Any of the following sections may apply to the calculation of a person’s control interest:
(a) section GB 9 (Temporary disposals of direct control or income interests):
(b) section GB 10 (Temporary acquisitions of direct control or income interests):
(c) section GB 11 (Temporary increases in totals for control interest categories):
(d) section GB 12 (Temporary reductions in totals for control interest categories):
(e) section GB 13 (When combination of changes reduces income):
(f) section GB 14 (When combination of changes increases loss).
Defined in this Act: associated person, control interest, direct control interest, foreign company, New Zealand resident,
Compare: 2004 No 35 ss EX 3, GC 7, GC 9
EX 4 Limits to requirement to include associated person interests
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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(1)(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: 2004 No 35 s EX 4
EX 5 Direct control interests
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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 YA 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 FA 2 (Recharacterisation of certain debentures) or FZ 1 (Treatment of interest payable under debentures issued before certain date) is a distribution of income.
Defined in this Act: accounting period, available subscribed capital, control interest category, direct control interest, foreign company, income, interest, pay, share, shareholder decision-making right, slice rule,
Compare: 2004 No 35 s EX 5
EX 6 Direct control interests include options and similar rights
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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: 2004 No 35 s EX 6
EX 7 Indirect control interests
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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: 2004 No 35 s EX 7
Calculation of person’s income interest
EX 8 Income interests: total of direct and indirect interests
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Calculation of income interest
(1) 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.
Avoidance arrangements
(2) Any of the following sections may apply to the calculation of a person’s income interest:
(a) section GB 9 (Temporary disposals of direct control or income interests):
(b) section GB 10 (Temporary acquisitions of direct control or income interests):
(c) section GB 11 (Temporary increases in totals for control interest categories):
(d) section GB 12 (Temporary reductions in totals for control interest categories):
(e) section GB 13 (When combination of changes reduces income):
(f) section GB 14 (When combination of changes increases loss).
Defined in this Act: CFC, control interest category, direct control interest, direct income interest, income, income interest, indirect income interest,
Compare: 2004 No 35 s EX 8
EX 9 Direct income interests
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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 YA 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 FA 2 (Recharacterisation of certain debentures) or FZ 1 (Treatment of interest payable under debentures issued before certain date) is a distribution of income.
Defined in this Act: accounting period, available subscribed capital, CFC, debentures, direct income interest, foreign company, income, interest, pay, share, shareholder decision-making right, slice rule,
Compare: 2004 No 35 s EX 9
EX 10 Indirect income interests
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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: 2004 No 35 s EX 10
EX 11 Options and similar rights in certain cases
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Increase in income interest
(1) The rules in this section apply to increase a person’s income interest in a CFC (the first CFC) in some cases.
Entitlement to acquire
(2) This section applies when 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 (the 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) in the absence of this section, 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, pay,
Compare: 2004 No 35 s EX 11
EX 12 Reduction of total income interests
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Application of this section
(1) This section applies when 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: 2004 No 35 s EX 12
EX 13 Income interests of partners
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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: 2004 No 35 s EX 13
Ten percent threshold and variations in income interest level
EX 14 Attribution: 10% threshold
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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: 2004 No 35 s EX 14
EX 15 Associates and 10% threshold
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Associates included
(1) Solely for the purpose of applying the 10% threshold in section EX 14, and the equivalent test in sections EX 34(b) and EX 58(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: 2004 No 35 s EX 15
EX 16 Income interests for certain purposes
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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 21 (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 foreign investment fund (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: 2004 No 35 s EX 16
EX 17 Income interest if variations within period
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When this section applies
(1) This section applies when 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,—
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(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,
Compare: 2004 No 35 s EX 17
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Calculation of attributed CFC income or loss
EX 18 Formula for calculating attributed CFC income or loss
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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 × 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: 2004 No 35 s EX 18
EX 19 Taxable distribution from non-complying trust
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Application of this section
(1) This section applies when—
(a) a CFC derives a taxable distribution from a non-complying 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 × taxable distribution.
Non-complying trust tax rate
(4) The person is liable for income tax on the additional attributed CFC income at the rate in schedule 1 (Basic tax rates: income tax, ESCT, RWT, and attributed fringe benefits) that applies to amounts under HC 19 (Taxable distributions from non-complying trusts).
Disclosure restrictions on grey list CFCs
(5) No additional attributed CFC income arises under this section to the extent to which section EZ 31 (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-complying trust, taxable distribution,
Compare: 2004 No 35 s EX 19
EX 20 Reduction in attributed CFC loss
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Application of this section: no economic loss
(1) This section applies when—
(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: 2004 No 35 s EX 20
Calculation of branch equivalent income or loss
EX 21 Branch equivalent income or loss: calculation rules
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Rules set out in this section
(1) For the purpose of calculating the attributed CFC income or loss of a person (the 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; and if the CFC has no financial accounts, the currency used is that of the CFC’s country of residence, the result being then converted into New Zealand dollars at the average of the close of trading spot exchange rates for the 15th 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, and for this purpose, 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
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(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 27 (Income equalisation schemes) and subparts DQ (Income equalisation schemes and environmental restoration accounts schemes) and EH (Income equalisation schemes):
(c) sections CD 45 to CD 52 (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 40(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 FE (Interest apportionment on thin capitalisation):
(i) section GB 5 (Arrangements involving trust beneficiaries):
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 42, CX 43, CZ 8, DT 1 to DT 15, DT 17 to DT 19, and IS 5 (which relate to petroleum mining):
(b) sections DO 4 to DO 7, DO 12, DP 1 to DP 3, DP 8, and DP 11 (which relate to farming, aquacultural, and forestry expenditure):
(c) section EZ 16 (Amount of depreciation loss for plant or machinery additional to section EZ 15 amount):
(d) the definitions in subpart YA (General definitions) that specifically apply for the purposes of those sections.
Transfer pricing rules
(15) Sections GC 6 to GC 14 (which relate to transfer pricing arrangements between associated persons) apply 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—
(a) section DN 4 (Ring-fencing cap on deduction):
(b) section IQ 2 (Ring-fencing cap on attributed CFC net losses):
(c) section IQ 4 (Group companies using attributed CFC net losses):
(d) sections LK 1 to LK 7 (which relate to foreign tax credits and CFCs).
Also, when sections GC 6 to GC 14 are applied, the associated persons include persons associated under the parts of subpart YB (Associated persons and nominees) that apply for the purposes of the whole Act, excluding the 1973, 1988, and 1990 version provisions.
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 9 to CB 13 (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 8(1) (Disposal of land to the Crown) to the Crown includes any relevant government outside New Zealand.
Amount of depreciation loss recovered
(21) When sections EE 48 to EE 52 (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 (Goods and Services Tax), DB 2 (Goods and Services Tax), EE 45 (Consideration for purposes of section EE 44), EE 54 (Cost: GST), and EZ 17 (Additional amount of depreciation loss: between 16 December 1991 and 1 April 1994) are applied, references to output tax, input tax, or goods and services tax (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 (the 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 44 to CX 46, CZ 2, CZ 4, DU 1 to DU 12, DZ 12, IS 1 to IS 4 (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 42, CX 43, CZ 8, DT 1 to DT 15, DT 17 to DT 19, and IS 5 (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 FA 6 to FA 11, which relate to finance leases), nor a specified lease (subject to sections FZ 2 to FZ 4, 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-complying trust
(32) If the CFC gets a taxable distribution from a non-complying trust—
(a) section HC 22 (Use of tax losses to reduce taxable distributions from non-complying trusts) 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 34 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 58 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 31 (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-complying trust, non-resident, output tax, pay, petroleum, resident in New Zealand, share, shareholder, specified lease, tax, taxable distribution, trading stock, variable principal debt instrument,
Compare: 2004 No 35 s EX 21
Grey list exemption
EX 22 Unqualified grey list CFCs
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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 a grey list company; and
(b) the CFC’s liability for income tax has not been reduced by applying any of the concessions listed in schedule 24, 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 58, 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, grey list company, income tax, loss,
Compare: 2004 No 35 s EX 22
EX 23 Tax concession grey list CFCs
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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 a grey list company; and
(b) the CFC’s liability for income tax has been reduced by applying any of the concessions listed in schedule 24, 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
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(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 24, part B; 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, grey list company, income tax, loss, net income, net loss, New Zealand,
Compare: 2004 No 35 s EX 23
Change of residence of companies
EX 24 Companies moving to or from New Zealand
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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: 2004 No 35 s EX 25
Change of CFC’s balance date
EX 25 Change of CFC’s balance date
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Application of this section
(1) This section applies when 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 (the old accounting year); and
(c) wants to change to use a different accounting year (the 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 a foreign dividend payment (FDP) 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, FDP, group of companies, income interest, income tax, income year, loss,
Compare: 2004 No 35 s EX 26
Ownership measurement concession
EX 26 Use of quarterly measurement
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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 anti-avoidance rules in sections GB 9 to GB 16 (which relate to arrangements involving CFCs).
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: 2004 No 35 s EX 27
Anti-avoidance rule: stapled stock
EX 27 Anti-avoidance rule: stapled stock
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When this section applies
(1) This section applies when—
(a) a New Zealand resident holds rights (the 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: 2004 No 35 s EX 28
Foreign investment fund (FIF) rules
What is a foreign investment fund?
EX 28 Meaning of FIF
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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 25, 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,
Compare: 2004 No 35 s EX 29
Attributing interests in FIFs
EX 29 Attributing interests in FIFs
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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, as defined in section EX 30, in a foreign company or in an entity described in schedule 25, 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: 2004 No 35 s EX 30
EX 30 Direct income interests in FIFs
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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 YA 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 FA 2 (Recharacterisation of certain debentures) 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 25, part A (Foreign investment funds).
Partnerships
(8) In this section, if a partnership holds any rights, each partner is treated as holding a share of those rights in proportion to the partner’s interest in the partnership.
Defined in this Act: accounting period, available subscribed capital, company, debentures, direct income interest, FIF, foreign company, income, interest, pay, share, shareholder decision-making right, slice rule,
Compare: 2004 No 35 s EX 31
EX 31 Exemption for ASX-listed Australian companies
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A person’s rights in a FIF in an income year are not an attributing interest if—
(a) the rights are a direct income interest; and
(b) the FIF is a company that, at all times in the year, is resident in Australia and not treated under a double tax agreement between Australia and another country as resident in a country other than Australia or New Zealand; and
(c) shares in the company are, at all times in the year, 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
(d) the company is, at all times in the year, not an entity described in schedule 25, part B (Foreign investment funds); and
(e) the company is, at all times in the year, required to maintain a franking account under the Income Tax Assessment Act 1997 (Aust) and Income Tax Assessment Act 1936 (Aust).
Defined in this Act: attributing interest, company, direct income interest, double tax agreement, FIF, income tax, income year, resident in Australia, resident in New Zealand, share, year,
Compare: 2004 No 35 s EX 33C
EX 32 Exemption for Australian unit trusts with 25% turnover
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Exemption
(1) A person’s rights in a FIF in an income year are not an attributing interest if—
(a) the rights are a direct income interest; and
(b) the FIF is a unit trust; and
(c) the unit trust is, at all times in the year, resident in Australia and not treated under a double tax agreement between Australia and another country as resident in a country other than Australia or New Zealand; and
(d) the unit trust is, at all times in the year, not an entity described in schedule 25, part B (Foreign investment funds); and
(e) at all times in the year, an RWT proxy exists under section 15T of the Tax Administration Act 1994 for the unit trust and payments by the unit trust to the person; and
(f) for the year, the 25% minimum turnover test contained in subsection (2) is satisfied.
25% minimum turnover test
(2) The 25% minimum turnover test is that, for the year, the amount of total net realised gains calculated under subsection (3) must be 25% or more of the amount of total net unrealised gains at the end of the year calculated under subsection (5).
Calculation of total net realised gains
(3) The amount of total net realised gains is calculated using the formula—
total disposal gain − total cost.
Definition of items in formula
(4) In the formula,—
(a) total disposal gain is the total of amounts derived from disposal of assets by the unit trust during the year:
(b) total cost is the total cost to the unit trust of those assets.
Calculation of total net unrealised gains
(5) The amount of total net unrealised gains is calculated using the formula—
total profitable assets − total cost.
Definition of items in formula
(6) In the formula,—
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(a) total profitable assets is the total of the market values of assets of the unit trust that are—
(i) held at the end of the year; and
(ii) have a market value greater than or equal to their cost to the unit trust:
(b) total cost is the total of the cost to the unit trust of those assets.
Currency
(7) The calculations must be done in the currency of the FIF’s financial accounts.
Defined in this Act: attributing interest, company, direct income interest, FIF, income year, resident in Australia, resident in New Zealand, RWT proxy, share, unit trust, year,
Compare: 2004 No 35 s EX 33D
EX 33 Exemption for Australian regulated superannuation savings
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A person’s rights in a FIF are not an attributing interest if—
(a) the person is a natural person; and
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(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, FIF, foreign superannuation scheme,
Compare: 2004 No 35 s EX 33E
EX 34 CFC rules exemption
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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: 2004 No 35 s EX 32
EX 35 Exemption for 10% or greater interest in grey list company
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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 FIF is a grey list company; and
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(c) the person is not—
(i) a portfolio investment entity:
(ii) a superannuation scheme:
(iii) a unit trust:
(iv) a life insurer:
(v) a group investment fund; and
(d) the FIF is not an entity described in schedule 25, part B (Foreign investment funds).
Defined in this Act: attributing interest, company, direct income interest, FIF, grey list company, group investment fund, income year, life insurer, portfolio investment entity, superannuation scheme, unit trust,
Compare: 2004 No 35 s EX 33(1), (2)
EX 36 Venture capital company emigrating to grey list country: 10-year exemption
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A person’s rights in a FIF in an income year are not an attributing interest if—
(a) the rights are a direct income interest; and
(b) the FIF is a grey list company; and
(c) the FIF is not an entity described in schedule 25, part B (Foreign investment funds); and
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(d) 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
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(e) 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
(iii) had in New Zealand more than 50% of its employees; and
(f) the year begins less than 10 years after the company became a grey list company; and
(g) at all times in the year, the company has a fixed establishment in New Zealand; and
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(h) the company through the fixed establishment—
(i) incurs expenditure other than interest of $1,000,000 in the income year:
(ii) at all times in the year, engages 10 or more fulltime employees or contractors.
Defined in this Act: attributing interest, company, direct income interest, employee, FIF, fixed establishment, grey list company, income year, interest, New Zealand resident, recognised exchange, share, year,
Compare: 2004 No 35 s EX 33(3)
EX 37 Grey list company owning New Zealand venture capital company: 10-year exemption
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A person’s rights in a FIF in an income year are not an attributing interest if—
(a) the rights are a direct income interest; and
(b) the FIF is a grey list company; and
(c) the FIF is not an entity described in schedule 25, part B (Foreign investment funds); and
(d) the person acquired the shares when the shares were not listed on a recognised exchange; and
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(e) 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 its assets; and
(iii) had in New Zealand more than 50% of its employees; and
(f) the year begins less than 10 years after the grey list company first owned the resident company; and
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(g) the resident company through a fixed establishment in New Zealand—
(i) incurs expenditure other than interest of $1,000,000 in the year:
(ii) at all times in the year, engages 10 or more fulltime employees or contractors.
Defined in this Act: attributing interest, company, direct income interest, employee, FIF, fixed establishment, grey list company, income year, interest, New Zealand resident, recognised exchange, share, year,
Compare: 2004 No 35 s EX 33(4)
EX 38 Exemption for employee share purchase scheme of grey list company
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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 a direct income interest; and
(c) the FIF is a grey list company; and
(d) the FIF is not an entity described in schedule 25, part B (Foreign investment funds); and
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(e) at the time the person acquires the shares, the FIF—
(i) employs the person:
(ii) owns, directly or indirectly, the person’s employer; and
(f) the person acquires the shares under a share purchase agreement; and
(g) 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
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(h) at the beginning of the year, the period of the restriction—
(i) has not expired:
(ii) has expired for a period of less than 6 months.
Defined in this Act: attributing interest, company, direct income interest, employer, FIF, grey list company, share, share purchase agreement, year,
Compare: 2004 No 35 s EX 33(5)
EX 39 Terminating exemption for grey list company with numerous New Zealand shareholders
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Qualifying requirements
(1) A person’s rights in a FIF are not an attributing interest if the rights are a direct income interest in a grey list company that, on 17 May 2006—
(a) was not an entity described in schedule 25, part B (Foreign investment funds); and
(b) was listed on a recognised exchange in New Zealand; and
(c) was listed on a recognised exchange in a grey list country; and
(d) had more than 20,000 shareholders who have addresses in New Zealand on the company’s share register; and
(e) had shareholders referred to in paragraph (c) who between them hold shares in the company carrying votin