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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 F
Recharacterisation of certain transactions
Subpart FA—Recharacterisation of certain commercial arrangements
Introductory provision
FA 1 What this subpart does
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This subpart alters the tax treatment of certain commercial arrangements by—
(a) recharacterising either their nature or that of the amounts derived under the arrangements; and
(b) providing rules for the treatment of the parties to the arrangement.
Defined in this Act: amount, arrangement, tax,
Debentures and shares
FA 2 Recharacterisation of certain debentures
-
Treatment of debenture and interest
(1) A profit-related debenture or a substituting debenture is treated for tax purposes as a share described in paragraph (b) of the definition of share in section YA 1 (Definitions), and the interest payable under the debenture is treated as a dividend.
No deduction
(2) A company issuing either a profit-related debenture or a substituting debenture is denied a deduction under section DB 10 (Interest or expenditure connected to profit-related or substituting debentures) for—
(a) interest payable under the debenture; or
(b) expenditure or loss incurred in connection with the debenture; or
(c) expenditure or loss incurred in borrowing the money secured by or owing under the debenture.
When interest fixed to certain rates or indices
(3) Subsection (2) does not apply to a profit-related debenture if the rate of interest payable under it is determined by a fixed relationship to—
(a) banking rates; or
(b) general commercial rates; or
(c) economic, commodity, industrial, or financial indices, but the application of this paragraph is subject to section FZ 1(3) (Treatment of interest payable under debentures issued before certain date).
Profit-related debenture
(4) In this section, a profit-related debenture means a debenture with a rate of interest that is set from time to time by reference to—
(a) the dividend payable by the company issuing the debenture; or
(b) the profits of the company issuing the debenture, however measured.
Substituting debenture
(5) In this section, a substituting debenture—
-
(a) means a debenture issued by a company to a shareholder or class of shareholder of the company when the amount of the debenture is determined by reference to 1 or more of the following aspects of the shares in the company held by the shareholder or class of shareholder at the time the debenture is issued or at an earlier time:
(i) the number of shares:
(ii) the available subscribed capital of the company calculated under the slice rule set out in section CD 23 (Ordering rule and slice rule):
(iii) some other reference to the shares:
(b) does not include a debenture that is a convertible note.
Shares or available subscribed capital in another company
(6) A debenture is also a substituting debenture if it is issued to a shareholder or a class of shareholder and the amount of the debenture is determined by reference to 1 or more aspects of the shares as described in subsection (5) held by the shareholder in a company other than that issuing the debenture, whether or not the company is being, or has been, liquidated.
Amount of debenture
(7) For the purposes of subsections (5) and (6), the amount of the debenture means the principal sum secured by or owing under the debenture.
Terminating provisions
(8) For the treatment of debentures issued before 8pm New Zealand standard time on 23 October 1986, seesection FZ 1.
Relationship with agency rules
(9) Section HD 14 (Companies issuing debentures) does not apply to a profit-related debenture described in this section, or to an amount paid or payable under it.
Defined in this Act: amount, available subscribed capital, company, convertible note, debenture, deduction, dividend, interest, liquidation, loss, pay, profit-related debenture, share, shareholder, slice rule, substituting debenture, tax,
Compare: 2004 No 35 ss FC 1, FC 2
FA 3 Recharacterisation of certain dividends: recovery of cost of shares held on revenue account
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When this section applies
(1) This section applies to the amount of a dividend derived from shares that are revenue account property of a person when—
(a) the payment of the dividend realises or recovers the price the person paid for the shares; and
(b) the payment is made at the person’s control or direction, or is part of a scheme that includes the acquisition of the shares and the payment of the dividend.
Treatment of amount derived
(2) The dividend is treated as an amount derived on a sale of the shares to the extent to which the actual amount realised by the person on the disposal of the shares is less than the cost to the person of acquiring the shares.
Dividend
(3) Despite subsection (2), a dividend taken into account under this section remains a dividend derived by the person in the income year.
Defined in this Act: amount, control, dividend, income year, pay, revenue account property, share,
Compare: 2004 No 35 s FC 3
FA 4 Recharacterisation of shareholder’s base: company repurchasing share
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When this section applies
(1) This section applies to a shareholder in a company in relation to an off-market cancellation of shares by the company under section CD 22 (Returns of capital: off-market share cancellations) when—
(a) the shareholder holds the share as revenue account property; and
(b) after the cancellation, they continue to hold some shares of the same class.
When whole amount treated as dividend
(2) If the whole of the amount that the shareholder receives for the cancellation is treated as a dividend, the following paragraphs apply:
(a) the shareholder is not regarded as having disposed of the cancelled share, except for the purpose of determining whether they have derived a dividend; and
(b) the amount is added to the cost of the shareholder’s remaining shares of the same class under subsection (6).
Below market value of shares
(3) If subsection (2) does not apply, and the amount paid by the company is less than the market value of the shares at the time when notice is first given of the cancellation either by the shareholder or the company, the following paragraphs apply:
(a) an amount calculated using the formula in subsection (4) is added to the cost of the shareholder’s remaining shares of the same class under subsection (6); and
(b) the amount is excluded from the cost of the share being cancelled so that the shareholder is denied a deduction under section DB 25 (Cancellation of shares held as revenue account property) for the amount unless the share is trading stock of the shareholder; and
(c) sections GC 1 and GC 2 (which relate to the disposal of trading stock for inadequate consideration) does not apply.
Formula
(4) The formula referred to in subsection (3)(a) is—
Definition of items in formula
(5) In the formula,—
(a) share cost is the cost of the cancelled share to the shareholder:
(b) cost pre-cancellation is the total cost to the shareholder of all their shares of the same class immediately before the cancellation:
(c) amount from cancellation is the amount derived by the shareholder from the company for the cancellation:
(d) market value is the total market value of all the shareholder’s shares of the same class immediately before the cancellation.
When subsection (7) applies
(6) Subsection (7) applies at a time after the cancellation when the cost of the remaining shares is taken into account under subpart EB (Valuation of trading stock (including dealer’s livestock)), or otherwise.
Adding amount to cost of shares
(7) The amount referred to in subsection (2)(b) or (3)(a) must be fairly divided among, and added to, the cost of the shareholder’s remaining shares of the same class.
Defined in this Act: amount, company, deduction, dividend, market value, notice, off-market cancellation, revenue account property, share, shareholder, shares of the same class, trading stock,
Compare: 2004 No 35 s FC 4
Leases
FA 5 Assets acquired and disposed of after deduction of payments under lease
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When this section applies
(1) This section applies when a person (the lessee)—
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(a) leases, rents, or hires an asset that is—
(i) plant, machinery, or other equipment; or
(ii) a motor vehicle; or
(iii) a temporary building; and
(b) is allowed a deduction for the rental payments; and
(c) acquires the asset and later disposes of it; and
(d) the consideration derived on the disposal is not income of the lessee under a provision of this Act other than this section.
Income
(2) If the consideration derived by the lessee for the asset is more than the cost of its acquisition, the excess is income of the lessee under section CG 7 (Recoveries after deduction of payments under lease). Subsection (3) overrides this subsection.
Adjustment to income
(3) If the total amount of the deductions referred to in subsection (1)(b) is less than or equal to the excess, the amount of income under subsection (2) is the total amount of the deductions.
Apportionment
(4) If the asset is disposed of together with other assets, the total consideration must be apportioned to reflect the respective market values of the assets.
Disposal below market value
(5) If the asset is disposed of without consideration or for a consideration that is less than market value at the date of disposal, the asset is treated as having been disposed of at its market value.
Associated persons acquiring asset
(6) Subsection (2) also applies if a person associated with the lessee acquires the asset, whether from the lessee or not, and disposes of it for an amount that is more than the amount paid to acquire it. Association is determined at the time of acquisition by the associated person. The lesser of the excess and the total amount of the lessee’s deductions is treated as income of the lessee.
Transfers on settlement of relationship property
(7) In this section,—
(a) subsection (1)(c) does not apply to an acquisition on a settlement of relationship property:
(b) subsection (5) does not apply to a disposal on a settlement of relationship property.
Defined in this Act: amount, associated person, deduction, income, lease, lessee, market value, pay, settlement of relationship property, temporary building,
Compare: 2004 No 35 s FC 5
-
Finance leases
FA 6 Recharacterisation of amounts derived under finance leases
-
When a personal property lease asset is leased under a finance lease, the lease is treated as a sale of the lease asset by the lessor to the lessee on the date on which the term of the lease starts, and—
(a) the lessor is treated as giving a loan to the lessee for the lease asset; and
(b) the lessee is treated as using the loan to buy the lease asset; and
(c) subpart EE (Depreciation), the financial arrangements rules, and the other provisions of this Act apply to the arrangement as recharacterised.
Defined in this Act: finance lease, financial arrangements rules, lessee, lessor, loan, personal property lease asset, term of the lease,
Compare: 2004 No 35 ss FC 8A(1), FC 8F, FC 8G
FA 7 Determining amount of loan
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Value to lessor
(1) For a lessor under a finance lease, the amount of the loan is determined under section EW 32 (Consideration for agreement for sale and purchase of property or services, hire purchase agreement, specified option, or finance lease).
Value to lessee
(2) For a lessee under a finance lease, the amount of the loan is determined under sections EW 32 and EW 33 (which relate to the value of consideration under the financial arrangements rules).
Defined in this Act: amount, finance lease, lessee, lessor,
Compare: 2004 No 35 ss FC 8A(2), (3), OB 1 consideration, lessee’s acquisition cost, lessor’s disposition value
FA 8 Deductibility of expenditure under finance lease
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Lessee treated as owner
(1) The lessee under a finance lease is treated as the owner of the personal property lease asset for the purposes of subpart EE (Depreciation).
Lessor not treated as owner
(2) The lessor under a finance lease is not treated as the owner of the personal property lease asset for the purposes of subpart EE.
Defined in this Act: finance lease, lessee, lessor, personal property lease asset,
Compare: 2004 No 35 s FC 8B(1)
FA 9 Treatment when lease ends: lessee acquiring asset
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Acquisition treated as sale
(1) When a lessee under a finance lease acquires the personal property lease asset by the date on which the term of the lease ends, the acquisition is treated as the same sale that is treated as occurring under section FA 6.
When lessee or associated person acquires lease asset and later disposes of it
(2) If a lessee under a finance lease, or a person associated with them, acquires the lease asset and later disposes of it for an amount that is more than the consideration they paid for it, the excess is income of the lessee under section CC 11 (Lessee acquiring lease asset on expiry of term of lease).
Allocation and association
(3) For the purposes of subsection (2),—
(a) the excess is income of the lessee in the income year in which the lessee or associated person disposes of the asset:
(b) association is determined at the time of acquisition by the associated person.
Exception
(4) Subsection (2) does not apply if the consideration derived on the disposal is income of the lessee or an associated person under a provision of this Act other than this section.
Defined in this Act: amount, associated person, finance lease, income, income year, lessee, personal property lease asset, term of the lease,
Compare: 2004 No 35 ss FC 8B(2), FC 8E
FA 10 Treatment when lease ends: lessor acquiring asset
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When this section applies
(1) This section applies when a finance lease ends by the date on which its term ends.
Acquisition by lessor at end of lease
(2) If the lessee does not acquire the personal property lease asset by the date on which the term of the lease ends, the lessor is treated as having acquired it on that date at its guaranteed residual value. If there is no guaranteed residual value, the consideration is treated as zero. In this section, the consideration is called the notional sale price.
Further sale, assignment, or lease
(3) Subsections (4) and (5) apply when the lessor sells, assigns, or leases the lease asset to another person under another finance lease on or after the date on which the term of the original lease ends.
When consideration more than notional sale price
(4) If the consideration is more than the notional sale price,—
(a) to the extent to which it is paid by the lessor to the lessee under the original finance lease, the notional sale price is increased by the amount of the difference; and
(b) to the extent to which it is not paid by the lessor to the lessee under the original finance lease, the amount of the difference is income of the lessor under section CC 12 (Lessor acquiring lease asset on expiry of term of lease) in the income year in which the original lease term ends.
When consideration less than notional sale price
(5) If the consideration is less than the notional sale price, and the lessee is required to pay the amount of the deficit to the lessor, the notional sale price is reduced by that amount.
Acquisition by lessor when lease ends early
(6) If the lease is terminated before the end of its term and the lessee does not acquire the lease asset, the lessor is treated as acquiring it for an amount calculated using the formula—
outstanding balance − release payment.
Definition of items in formula
(7) In the formula,—
(a) outstanding balance is the amount of the outstanding balance of the loan on the date on which the lease is terminated:
(b) release payment is the amount the lessee paid to be released from their obligations under the lease.
Relationship with section EE 45
(8) Subsections (2) to (6) override section EE 45 (Consideration for purposes of section EE 44).
Defined in this Act: amount, finance lease, guaranteed residual value, income, lease, lessee, lessor, loan, notional sale price, outstanding balance, pay, personal property lease asset, term of the lease,
Compare: 2004 No 35 ss FC 8B(3), FC 8C, FC 8D
FA 11 Consecutive or successive finance leases
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When this section applies
(1) This section applies for the purposes of sections FA 6 to FA 10 if—
(a) the lease is a consecutive or a successive lease that, under the definition of lease, is treated as part of the original lease because the same personal property lease asset is leased to the same lessee; and
(b) the total lease runs for more than 75% of the lease asset’s estimated useful life, although the lessor and lessee did not contemplate at the start of the term of the original lease that it would.
Adjustment required
(2) The lessor and lessee must each adjust their income and expenditure calculated for the lease, and include the adjustment in a return of income for the tax year corresponding to the income year in which the adjustment is made.
Amount of adjustment
(3) The amount of the adjustment is calculated in relation to the period described in subsection (5) using the formula—
finance lease income − finance lease expenditure − operating lease income + operating lease expenditure.
Definition of items in formula
(4) In the formula,—
(a) finance lease income is the income that would have been derived under the lease if the lease were a finance lease:
(b) finance lease expenditure is the expenditure that would have been incurred under the lease if the lease were a finance lease:
(c) operating lease income is the income derived under the lease as if the lease were an operating lease:
(d) operating lease expenditure is the sum of deductions allowed if the lease were an operating lease.
Adjustment period
(5) The period starts on the date on which the lease starts and ends on the last day of the income year in which the lease becomes a finance lease.
Adjustment positive
(6) If the adjustment is positive, the amount is income of the lessor or the lessee under section CH 6 (Adjustments under consecutive or successive finance leases).
Adjustment negative
(7) If the adjustment is negative, the amount is expenditure incurred by the lessor or the lessee in the income year in which the adjustment is made.
Defined in this Act: amount, deduction, estimated useful life, finance lease, income, income year, lease, lessee, lessor, operating lease, personal property lease asset, return of income, tax year, term of the lease,
Compare: 2004 No 35 ss FC 8H, FC 8I
Hire purchase agreements
FA 12 Recharacterisation of amounts derived under hire purchase agreements
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When a person (the seller) provides personal property other than livestock or bloodstock to another person (the buyer) under a hire purchase agreement, the agreement is treated as a sale by the seller to the buyer on the date on which the term of the agreement starts, and—
(a) the seller is treated as giving a loan to the buyer for the property; and
(b) the buyer is treated as using the loan to buy the property; and
(c) subpart EE (Depreciation), the financial arrangements rules, and the other provisions of this Act apply to the agreement as recharacterised.
Defined in this Act: amount, bloodstock, financial arrangements rules, hire purchase agreement, loan,
Compare: 2004 No 35 ss FC 9, FC 10
FA 13 Agreements recharacterised as sale with finance provided
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Value to seller
(1) For a seller under a hire purchase agreement, the amount of the loan is determined under section EW 32 (Consideration for agreement for sale and purchase of property or services, hire purchase agreement, specified option, or finance lease).
Value to buyer
(2) For a buyer under a hire purchase agreement, the amount to the buyer is determined under sections EW 32 and EW 33 (which relate to the value of consideration under the financial arrangements rules).
Defined in this Act: amount, hire purchase agreement, loan,
Compare: 2004 No 35 ss FC 10(1)(a), OB 1 consideration, lessee’s acquisition cost, lessor’s disposition value
FA 14 Deductibility of expenditure or loss under hire purchase agreement
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Buyer treated as owner
(1) The buyer in section FA 12 is treated as the owner of the property for the purposes of subpart EE (Depreciation).
Seller not treated as owner
(2) The seller in section FA 12 is not treated as the owner of the property for the purposes of subpart EE.
Discounted or bad debts
(3) Subsection (4) applies if the seller takes an amount calculated under section FA 15 into account as the cost of trading stock or in the calculation of their net income for an income year.
No deduction for seller
(4) The seller is denied a deduction under section DB 14 or DB 31 (which relate to debts sold at a discount and bad debts) for an amount owing under the hire purchase agreement.
Defined in this Act: amount, deduction, hire purchase agreement, income year, net income, trading stock,
Compare: 2004 No 35 s FC 10(1)(c), (5)(c)
FA 15 Treatment when agreement ends: seller acquiring property
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When this section applies
(1) This section applies, subject to sections FA 16 and FA 17, when—
(a) a hire purchase agreement described in section FA 12 ends by the date on which its term ends or after that date; and
(b) the buyer does not acquire ownership of the property; and
(c) a person associated with the buyer does not acquire ownership of the property.
Sale of property
(2) The seller is treated as buying the property from the buyer for an amount equal to the outstanding balance calculated under subsection (3), and the buyer is treated as selling the property to the seller for that amount. The date of the sale is the date the agreement ends.
Outstanding balance
(3) The outstanding balance is the amount calculated using the formula—
net balance due on termination − buyer’s termination payment + seller’s termination payment.
Definition of items in formula
(4) In the formula,—
(a) net balance due on termination is the net balance due under the hire purchase agreement on the date the agreement ends less any costs and expenses referred to in section 31(2)(c) and (d) of the Credit (Repossession) Act 1997:
-
(b) buyer’s termination payment is the sum of the following amounts, as applicable:
(i) an amount paid by the buyer, or an associated person, to the seller, or an associated person, under the agreement; and
(ii) an amount paid as a consequence of the ending of the agreement; and
(iii) an amount required to be taken into account by the buyer under the base price adjustment in section EW 31 (Base price adjustment formula) or in item
“a”
of the formula in section EZ 38(1) (Income and expenditure where financial arrangement redeemed or disposed of):
-
(c) seller’s termination payment is the sum of the following amounts, as applicable:
(i) an amount paid by the seller, or an associated person, to the buyer, or an associated person, under the agreement; and
(ii) an amount paid as a consequence of the ending of the agreement; and
(iii) an amount required to be taken into account by the buyer under the base price adjustment in section EW 31 or by the seller in item
“b”
or“c”
of the formula in section EZ 38(1) or (2).
Base price adjustment
(5) For the purposes of section EW 31, the outstanding balance is taken into account as the consideration paid by the buyer to the seller under the hire purchase agreement.
Defined in this Act: amount, associated person, hire purchase agreement, outstanding balance,
Compare: 2004 No 35 ss FC 10(2), (5)(a), OB 1 lessee’s outstanding balance, lessor’s outstanding balance, net balance due
FA 16 Treatment when agreement ends: when seller is cash basis person
-
When this section applies
(1) This section applies for the purposes of section FA 15 when the seller is a cash basis person.
Reduction
(2) The amount treated as the seller’s purchase price in section FA 15(2) is reduced by an amount for accrued but unpaid interest on the hire purchase agreement calculated using the formula—
accrual income − income.
Definition of items in formula
(3) In the formula,—
-
(a) accrual income is the amount of income that would have been derived under 1 of the spreading methods for payments under the hire purchase agreement if—
(i) the seller were not a cash basis person; and
(ii) section EW 31 (Base price adjustment formula) did not apply to the seller and the agreement in the income year when the agreement ends:
(b) income is the amount of the seller’s income from payments received under the hire purchase agreement.
Defined in this Act: amount, cash basis person, hire purchase agreement, income, income year, interest, pay, spreading method,
Compare: 2004 No 35 s FC 10(3)
-
FA 17 Treatment when agreement ends: when buyer is cash basis person
-
When this section applies
(1) This section applies for the purposes of section FA 15 when the buyer is a cash basis person.
Reduction
(2) The amount treated as the buyer’s sale price in section FA 15(2) is reduced by an amount for accrued but unpaid interest on the hire purchase agreement calculated using the formula—
prepaid expenditure − expenditure.
Definition of items in formula
(3) In the formula,—
-
(a) prepaid expenditure is the amount of prepaid expenditure that would have been incurred under 1 of the spreading methods for payments under the hire purchase agreement if—
(i) the buyer were not a cash basis person; and
(ii) section EW 31 (Base price adjustment formula) did not apply to the buyer and the agreement in the income year when the agreement ends:
(b) expenditure is the amount of expenditure incurred by the buyer and treated as interest under the hire purchase agreement.
Defined in this Act: amount, cash basis person, hire purchase agreement, income year, interest, pay, prepaid expenditure, spreading method,
Compare: 2004 No 35 s FC 10(4)
-
FA 18 Treatment of amounts paid in income years after agreement ends
-
When this section applies
(1) This section applies when an amount that is liable to be paid under a hire purchase agreement is paid in an income year that is later than the income year in which the agreement ends.
Liability under agreement
(2) If the buyer is liable to pay the amount under the terms of the agreement to the seller, the amount is income of the seller under section CC 13(2) (Amounts paid in income years after hire purchase agreement ends).
Payment after end of agreement
(3) If the seller pays the amount to the buyer under the agreement and, consequent on the ending of the agreement, the amount was not taken into account, the amount is treated as—
(a) expenditure incurred by the seller in the income year in which the amount is paid; and
(b) income of the buyer under section CC 13(3), if they have been allowed a deduction in relation to the property under the agreement in the income year in which the amount is paid.
Associated persons
(4) In this section, the seller or the buyer includes a person associated with them.
Defined in this Act: amount, associated person, deduction, hire purchase agreement, income, income year, pay,
Compare: 2004 No 35 s FC 10(5)(d)–(f)
Subpart FB—Transfers of relationship property
FB 1 What this subpart does
-
When this subpart applies
(1) This subpart sets out the tax treatment when property is transferred on a settlement of relationship property.
General treatment of parties to agreement
(2) The tax consequences for the transferee on a settlement of relationship property are the same as if the transferor had continued to hold the property.
Meaning of settlement of relationship property
(3) A settlement of relationship property means a transaction between parties to a relationship agreement that creates a disposal and acquisition of property under this subpart.
Defined in this Act: relationship agreement, settlement of relationship property, tax,
FB 2 Personal property
-
When this section applies
(1) This section applies for the purposes of sections CB 4 (Personal property acquired for purpose of disposal) and CB 5 (Business of dealing in personal property) when personal property, or an interest in personal property, is transferred on a settlement of relationship property.
Transfer at cost
(2) The transfer is treated as a disposal and acquisition of the property for an amount that equals the cost of the property or, as applicable, the interest in the property, to the transferor.
Further disposal treated as dealing
(3) If, after the transfer, the transferee disposes of the property, they are treated in relation to the disposal as carrying on a business of dealing in the property.
Defined in this Act: amount, business, settlement of relationship property,
Compare: 2004 No 35 s FF 4
FB 3 Land acquired for certain purposes or under certain conditions
-
When this section applies
(1) This section applies for the purposes of sections CB 6 to CB 12, CB 14, CB 17, CB 20, and CB 23 (which relate to the disposal of land) and Part D (Deductions) when land was acquired for a purpose set out in or under the conditions set out in any of those sections, and the land is transferred on a settlement of relationship property.
Transfer at cost
(2) The transfer is treated as a disposal and acquisition for an amount that equals the total cost of the land to the transferor at the date of transfer.
Date of acquisition
(3) The transferee is treated as having acquired the land on the date it was acquired by the transferor.
Further disposal
(4) For the tax consequences if the transferee disposes of the land, seesection FB 5.
Defined in this Act: amount, date of transfer, dispose, land, settlement of relationship property, tax,
Compare: 2004 No 35 s FF 6(1)(a)
FB 4 Land under scheme for major development or division
-
When this section applies
(1) This section applies for the purposes of section CB 13 (Disposal: amount from major development or division and not already in income) and Part D (Deductions) when land is transferred on a settlement of relationship property.
Transfer at market value plus expenditure
(2) If the transferor has already begun an undertaking or scheme of the kind referred to in section CB 13, the transfer is treated as a disposal by them for an amount that equals the sum of—
(a) the market value of the land on the date on which they began the undertaking or scheme:
(b) the expenditure that they have incurred in carrying on the undertaking or scheme before the date of transfer.
Expenditure incurred by transferee
(3) For the purposes of subsection (2), the transferee is treated as having incurred expenditure in—
(a) acquiring the land of an amount equal to the market value referred to in subsection (2)(a); and
(b) carrying on the undertaking or scheme of an amount equal to the expenditure in subsection (2)(b).
When scheme not begun at date of transfer
(4) If no undertaking or scheme as described in subsection (2) has begun at the date of transfer, the transferee is treated as having acquired the land for an amount that equals the total cost of the land to the transferor at the date of transfer.
Further disposal
(5) For the tax consequences if the transferee disposes of the land, seesection FB 5.
Defined in this Act: amount, date of transfer, dispose, land, market value, settlement of relationship property, tax,
Compare: 2004 No 35 s FF 6(1)(b)
FB 5 Disposal of land
-
When this section applies
(1) This section applies for the purposes of sections FB 3 and FB 4 when the transferor and the transferee are not associated persons.
Persons treated as associated
(2) If the transferee disposes of the land, section CB 15 (Transactions between associated persons) applies as if the transferor and the transferee were associated persons.
Land disposed of by mortgagee
(3) If a mortgagee disposes of land because the transferee defaults under the mortgage, the disposal is treated as a disposal of land.
Defined in this Act: associated person, dispose, land, mortgage,
Compare: 2004 No 35 s FF 6(1)(a)(iv), (b)(iv), (2)
FB 6 Timber or right to take timber
-
When this section applies
(1) This section applies for the purposes of section CB 24 (Disposal of timber or right to take timber) when timber, or a right to take timber, is transferred on a settlement of relationship property.
Transfer at cost of timber at date of transfer
(2) The transfer is treated as if—
(a) it were a disposal and acquisition for consideration; and
(b) the amount of consideration were equal to the total cost of timber, or the right to take timber, to the transferor at the date of transfer.
Defined in this Act: amount, cost of timber, date of transfer, right to take timber, settlement of relationship property, timber,
Compare: 2004 No 35 s FF 7(1), (2)
FB 7 Land with standing timber
-
When this section applies
(1) This section applies for the purposes of section CB 25 (Disposal of land with standing timber) when—
(a) land with standing timber on it is transferred on a settlement of relationship property; and
(b) the standing timber does not consist of ornamental or incidental trees, as evidenced by a certificate given under section 44C of the Tax Administration Act 1994.
Transfer at cost of timber at date of transfer
(2) The transfer is treated as if—
(a) it were a disposal and acquisition for consideration; and
(b) the amount of consideration were equal to the total cost of timber to the transferor at the date of transfer.
Defined in this Act: amount, cost of timber, date of transfer, land, settlement of relationship property, standing timber, timber,
Compare: 2004 No 35 s FF 7(3), (4)
FB 8 Patent applications and patent rights
-
When this section applies
(1) This section applies for the purposes of sections CB 30 and DB 38 to DB 40 (which relate to patent applications and patent rights) when a patent application with complete specifications or a patent right is transferred on a settlement of relationship property.
Transfer: part of expenditure or cost of rights
(2) The transfer is treated as a disposal and acquisition for an amount that equals, as applicable,—
(a) expenditure referred to in section DB 38 (Patent rights: devising patented inventions) for which the transferor is denied a deduction; or
(b) the cost of the applications or rights referred to in section DB 39 (Patent rights acquired before 1 April 1993) for which the transferor is denied a deduction.
Defined in this Act: amount, deduction, patent rights, settlement of relationship property,
Compare: 2004 No 35 s FF 8
FB 9 Financial arrangements rules
-
Under section EW 10(6) (Financial arrangements to which financial arrangements rules apply) the financial arrangements rules do not apply to a financial arrangement entered into on or after 20 May 1999 and transferred on a settlement of relationship property after that date. For the application of the old financial arrangement rules, seesection EZ 45(c) (Application of old financial arrangements rules).
Defined in this Act: financial arrangement, financial arrangements rules, old financial arrangement rules, settlement of relationship property,
Compare: 2004 No 35 s FF 2
FB 10 Continuity provisions: shares and options
-
When this section applies
(1) This section applies to modify sections YC 2 to YC 6 (which relate to voting interests and market value interests) for the purposes of the application of the continuity provisions when a share, or option over a share, is transferred on a settlement of relationship property.
Transferee treated as holding share or option
(2) The transferee is treated as having acquired the share or option on the date it was acquired by the transferor, and to have held it at all times up to the date of transfer.
Defined in this Act: continuity provisions, date of transfer, option, settlement of relationship property, share,
Compare: 2004 No 35 s FF 1
FB 11 Pension payments to former employees
-
When this section applies
(1) This section applies for the purposes of section DC 2 (Pension payments to former employees) when a person is entitled to the payment of a pension from a former employer, and because of a settlement of relationship property, the employer pays some or all of the amount of the pension to another person.
Deduction for employer
(2) Section DC 2(1) and (2) applies to the amount paid as if it were the payment of a pension to the former employee.
Defined in this Act: amount, deduction, employee, employer, pay, settlement of relationship property,
Compare: 2004 No 35 s FF 17(1)
FB 12 Pension payments to former partners
-
When this section applies
(1) This section applies for the purposes of section DC 3 (Pension payments to former partners) when a person is entitled to the payment of a pension from a partner in a partnership or from any person, and because of a settlement of relationship property, the partnership, partner, or person pays some or all of the amount of the pension to another person.
Deduction for partner
(2) Section DC 3 applies to the amount paid as if it were the payment of a pension to the former partner.
Defined in this Act: amount, deduction, pay, settlement of relationship property,
Compare: 2004 No 35 s FF 17(2), (3)
FB 13 Trading stock
-
When this section applies
(1) This section applies for the purposes of subpart EB (Valuation of trading stock (including dealer’s livestock)) when trading stock is transferred on a settlement of relationship property.
When transferor holds and uses trading stock in business
(2) If the transferor used trading stock in carrying on a business and held the trading stock at the start of the year of transfer, the transfer is treated as a disposal by the transferor and an acquisition by the transferee for an amount equal to the greater of—
(a) the value of the trading stock under section EB 3 (Valuation of trading stock) for the transferor at the end of the income year before the year of transfer; or
(b) the value of the trading stock under section EB 3 for the transferee at the end of the year of transfer.
When transferor acquires and uses trading stock in business
(3) If the transferor used the trading stock in carrying on a business and acquired the trading stock during the year of transfer, the transfer is treated as a disposal by the transferor and an acquisition by the transferee for an amount equal to the cost of the trading stock to the transferor.
When transferor has not used trading stock in business
(4) If the transferor did not use the trading stock in the carrying on of a business, the transfer is treated as a disposal by the transferor and acquisition by the transferee for an amount equal to the cost of the trading stock to the transferor.
When transferee disposes of trading stock
(5) If, after a transfer under subsection (2) or (3), the trading stock was not used by the transferee in the carrying on of a business and they dispose of the trading stock at any time, the disposal is treated as a disposal of trading stock used by the transferee in the carrying on of a business.
Specified livestock in dealing operation
(6) For the purposes of subsection (2), trading stock does not include specified livestock unless it is used in a dealing operation and sections FB 14 and FB 17 apply.
Relationship with sections GC 1 and GC 2
(7) This section overrides sections GC 1 and GC 2 (which relate to the disposal of trading stock for inadequate consideration).
Defined in this Act: amount, business, consideration, income year, settlement of relationship property, specified livestock, trading stock, year of transfer,
Compare: 2004 No 35 s FF 13
FB 14 Specified livestock
-
When this section applies
(1) This section applies for the purposes of sections EC 6 to EC 26 (which relate to the valuation of specified livestock) when—
(a) specified livestock is transferred on a settlement of relationship property; and
(b) the transferor used the livestock in the carrying on of a business other than a business of dealing in livestock, and held the livestock at the start of the year of transfer; and
(c) the value of the livestock is not determined under the herd scheme, seesection FB 15.
Transfer at amount determined under subparts EA and EC
(2) The transfer is treated as a disposal and acquisition for an amount equal to the value that the transferor determined under subpart EC (Valuation of livestock) and took into account in section EA 1 (Trading stock, livestock, and excepted financial arrangements) at the end of the income year before the year of transfer.
Relationship with section GC 1 and GC 2
(3) This section overrides sections GC 1 and GC 2 (which relate to the disposal of trading stock for inadequate consideration).
Defined in this Act: amount, business, herd scheme, income year, settlement of relationship property, specified livestock, year of transfer,
Compare: 2004 No 35 s FF 13(1)(a)(i), (3)
FB 15 Specified livestock valued under herd scheme
-
When this section applies
(1) This section applies for the purposes of sections EC 8 to EC 26 (which relate to the valuation of specified livestock) when—
-
(a) specified livestock is transferred on a settlement of relationship property and the transferor—
(i) used the livestock in the carrying on of a business; and
(ii) held the livestock at the start of the year of transfer; and
-
(b) the value of the livestock is determined under the herd scheme—
(i) by the transferor at the end of the income year before the year of transfer; and
(ii) by the transferee at the end of the year of transfer.
Transfer at national average market value
(2) The transfer is treated as a disposal and acquisition for an amount equal to the national average market value of the livestock for the year of transfer. If the transferor adopted a herd value ratio, the amount is equal to the national average market value of the livestock for the year of transfer multiplied by the herd value ratio applying in the income year before the year of transfer.
Defined in this Act: amount, business, herd scheme, herd value ratio, income year, market value, national average market value, settlement of relationship property, specified livestock, year of transfer,
Compare: 2004 No 35 s FF 9
-
FB 16 Non-specified livestock
-
When subsections (2) to (4) apply
(1) Subsections (2) to (4) apply for the purposes of section EC 31 (Enhanced production) in an income year when—
(a) non-specified livestock is transferred on a settlement of relationship property; and
(b) because of the transfer, the transferee starts to derive, or once again derives, income from non-specified livestock.
Transferee not starting to derive income
(2) The transferee is treated as not starting to derive, or once again deriving income from non-specified livestock. However, the transfer is taken into account in working out whether any later acquisition by the transferee of non-specified livestock means that they start to derive, or once again derive, income from non-specified livestock.
When subsection (4) applies
(3) Subsection (4) applies when the transferee uses the non-specified livestock in deriving income and was not, before the transfer, deriving income from non-specified livestock.
Livestock being written down to standard value
(4) If the year of transfer falls in the first or second year of the 3-year period referred to in section EC 31(1)(b), the transferee must apply section EC 31(2) as if they were the transferor and the transfer had not taken place.
Transferee not acquiring land for production
(5) For the purposes of section EC 31(1)(a)(ii) and (iii), if land is transferred on a settlement of relationship property, the transferee is treated as having acquired the land on the date it was acquired by the transferor.
Defined in this Act: income, income year, land, non-specified livestock, settlement of relationship property, standard value, year of transfer,
Compare: 2004 No 35 s FF 10
FB 17 High-priced livestock
-
When this section applies
(1) This section applies for the purposes of sections EC 32 to EC 37 (which relate to the valuation of high-priced livestock) when high-priced livestock is transferred on a settlement of relationship property.
Transfer at cost
(2) The transfer is treated as a disposal and acquisition for an amount equal to the cost of the livestock to the transferor. The transferee is treated as having acquired the livestock on the day it was acquired by the transferor.
Straight-line method of valuation
(3) In determining the value of the livestock at the end of the year of transfer, the transferee must take into account the amount referred to in subsection (2) reduced by the depreciation percentage of its cost price under section EC 34(2) (General rule). Subsection (4) overrides this subsection.
When diminishing value chosen
(4) If the transferor had chosen to apply the diminishing value method to the valuation of the livestock, the transferee is treated as also having made that choice, and the reduction is calculated under section EC 34(3). But if the transferor had not chosen to apply the diminishing value method, the transferee may make a choice between the methods set out in section EC 34(2) and (3) only if the livestock was acquired by the transferor in the year of transfer.
Defined in this Act: amount, cost price, depreciation percentage, diminishing value method, high-priced livestock, settlement of relationship property, straight-line method, year of transfer,
Compare: 2004 No 35 s FF 11
FB 18 Bloodstock
-
When this section applies
(1) This section applies for the purposes of section EC 41 (Reduction: bloodstock not previously used for breeding in New Zealand) when bloodstock is transferred on a settlement of relationship property.
Use for breeding purposes in New Zealand
(2) If the bloodstock has been used for breeding purposes in New Zealand by the transferor, then for valuation purposes by the transferee and the amount of reduction applying to the value of an animal, the bloodstock is treated as not having been used for breeding purposes in New Zealand by the transferor.
Defined in this Act: amount, bloodstock, New Zealand, settlement of relationship property,
Compare: 2004 No 35 s FF 12
FB 19 Leased assets
-
When this section applies
(1) This section applies when—
(a) a person leases, rents, or hires plant, machinery, or other equipment, including a motor vehicle or a temporary building; and
(b) they are allowed a deduction in an income year for an amount paid under the agreement to lease, rent, or hire; and
(c) they acquire the lease asset at any time, or a person associated with them acquires the asset; and
(d) either they, or the associated person, transfer the asset on a settlement of relationship property.
Income when transferee disposes of asset
(2) If the transferee disposes of the asset for an amount that is more than the transfer amount, they are treated as deriving income as described in section FA 5 (Assets acquired and disposed of after deduction of payments under lease) in the income year of the disposal of the asset equal to the lesser of—
(a) the amount by which the amount derived on disposal is more than the transfer amount; or
(b) the sum of the amounts for which the transferor has been allowed a deduction.
Transfer amount
(3) In this section, the transfer amount is the amount that equals, as applicable,—
(a) the adjusted tax value of the asset at the start of the year of transfer; or
(b) if the asset was acquired by the transferor or the associated person during the year of transfer, the base value of the asset.
Defined in this Act: adjusted tax value, amount, associated person, deduction, income, income year, lease, pay, settlement of relationship property, temporary building, transfer amount, year of transfer,
Compare: 2004 No 35 s FF 14
FB 20 Mining assets
-
When this section applies
(1) This section applies when a resident mining operator transfers on a settlement of relationship property an asset that they used immediately before the transfer in deriving assessable income from mining.
Transfer at cost, reduced value, or reduced expenditure
(2) The transfer is treated as a disposal and acquisition for an amount equal to the least of—
(a) the amount of expenditure incurred by the transferor in acquiring the asset:
(b) when the transferor has been allowed a deduction for an amount of depreciation loss in relation to the asset, the adjusted tax value at the start of the year of transfer:
(c) when the asset has been acquired as a result of mining exploration expenditure or mining development expenditure incurred by the transferor for which they have been allowed a deduction under sections DU 1 and DU 9(1) (which relate to mineral mining expenditure), the amount of expenditure not allowed as a deduction under those provisions.
Transferee’s expenditure
(3) The transferee is treated as having incurred expenditure in acquiring the asset equal to the amount determined under subsection (2).
When transferee not a resident mining operator
(4) Subsections (5) and (6) apply when—
(a) the transferor is treated as having disposed of the asset for an amount determined under subsection (2)(c); and
(b) the transferee is not a resident mining operator at and after the date of transfer.
Treatment of disposal and transferee
(5) If the transferee disposes of the asset, they are treated as a resident mining operator in relation to the disposal, and the disposal is treated as a sale to which sections CU 3, CU 12(1), DU 2, and DU 9(1) (which relate to mining) apply.
Consideration for disposal
(6) For the purposes of subsection (5), and sections CU 1 to CU 11, DU 1 to DU 8, IA 7(7), IS 1 to IS 4, and IS 6 (which relate to mining and mining companies’ tax losses), the consideration for the disposal is the amount by which the amount derived on the disposal under subsection (5) is more than the amount determined under subsection (2)(c).
When transferee is resident mining operator
(7) If the transferee is, at and after the date of transfer, a resident mining operator, and the transferor is treated as having disposed of the asset for an amount determined under subsection (2)(c), then for the purposes of sections CU 3, CU 10, DU 2, and DU 6, the transferee is treated as having acquired the asset as a result of mining exploration expenditure or mining development expenditure incurred by the transferee.
Defined in this Act: adjusted tax value, amount, assessable income, date of transfer, deduction, depreciation loss, income from mining, mining development expenditure, mining exploration expenditure, resident mining operator, settlement of relationship property, year of transfer,
Compare: 2004 No 35 s FF 19
FB 21 Depreciable property
-
When this section applies
(1) This section applies when a person who is allowed a deduction for an amount of depreciation loss for an item of property transfers the item on a settlement of relationship property.
Persons to whom section does not apply
(2) This section does not apply if the person is a resident mining operator to whom section FB 20 applies.
Transfer at cost or adjusted tax value
(3) The transfer is treated as a disposal and acquisition for an amount equal to, as applicable,—
(a) if the transferor acquired the item in the year of transfer, the cost of the item to them; or
(b) in any other case, the adjusted tax value of the item measured at the start of the year of transfer.
Treatment of transferee
(4) In relation to amounts of depreciation loss for the item, the transferee—
(a) has an amount of depreciation loss for the item from the date of transfer, whether or not the transferor has in fact had an amount of depreciation loss:
(b) is treated as having had an amount of depreciation loss equal to all amounts of depreciation loss that the transferor had for the item in income years before the year of transfer:
(c) does not have a greater amount of depreciation loss than that which the transferor would have had if they had kept the item.
When item is building
(5) If the item is a building, the transferee’s amount of depreciation loss must be determined having regard to the original cost of the building to the transferor.
Activities in year of transfer
(6) If the item has been acquired, erected, installed, altered, extended, improved, or attached by the transferor in the year of transfer, the item is treated as if it were acquired, erected, installed, altered, extended, improved, or attached by the transferee in the income year.
Conditions applying to item
(7) For the purposes of determining the rate that applies to the item under section EE 31(2)(b) or EZ 23(4) (which relate to depreciation rates for new assets), if either of the following conditions applied to the item when the transferor acquired or erected it, the condition is treated as applying to the item at the date of transfer:
(a) the item had not previously been used by a person, or acquired or held by a person for their use; and
(b) if the item is a building or part of a building, it had not previously been occupied.
Defined in this Act: acquire, adjusted tax value, amount, date of transfer, deduction, depreciable property, depreciation loss, dispose, income year, resident mining operator, settlement of relationship property, year of transfer,
Compare: 2004 No 35 ss FF 15, FF 16
Subpart FC—Distribution, transmission, and gifts of property
Introductory provisions
FC 1 What this subpart does
-
Types of distributions and gifts
(1) This subpart provides a value for property that is disposed of under the following transactions:
(a) the transfer of a person’s estate to an executor or administrator on the death of the person:
(b) the transfer of property on a distribution by an executor, administrator, or trustee of a deceased person’s estate to a beneficiary who is beneficially entitled to receive the property under the will or the rules governing intestacy:
(c) the transfer of property on a distribution by a trustee of a trust to a beneficiary of the trust:
(d) the transfer of property on a distribution in kind by a company in a transfer of value caused by a shareholding in the company under section CD 6 (When is a transfer caused by a shareholding relationship?):
(e) the transfer of property on the making of a gift:
-
(f) the transfer of property on a settlement by the trustee of a trust on the trustee of another trust, if authorised under—
(i) a trust instrument as a power of advancement or resettlement:
(ii) section 41 of the Trustee Act 1956 as the payment of money or the application of property.
Some definitions
(2) In this subpart,—
close relative, in relation to a transfer from a person’s estate, means—
(a) a surviving spouse, civil union partner, or de facto partner of the deceased person:
(b) a person who is within the second degree of relationship to the deceased person
tax-base property means—
(a) revenue account property:
(b) an attributing interest in a foreign investment fund (FIF):
(c) a financial arrangement other than an arrangement for which the deceased person, or their trustee, was a cash basis person:
(d) an item for which a deduction for an amount of depreciation loss arises.
Defined in this Act: amount, attributing interest, cash basis person, company, deduction, de facto partner, depreciation loss, FIF, financial arrangement, revenue account property, settlement, transfer of value, trustee,
Compare: 2004 No 35 s FI 1
FC 2 Transfer at market value
-
Market value
(1) The transfer of property under section FC 1(1) is treated as a disposal by the transferor and an acquisition by the transferee at the market value of the item for the transferor. The disposal is treated as occurring on the date of the transaction.
Date of transfer of estate of deceased person
(2) For property referred to in section FC 1(1)(b), the disposal and acquisition is treated as occurring immediately before the death of the person.
Exceptions to general rule
(3) Sections FC 3 to FC 6 override this subsection.
Defined in this Act: dispose, market value,
Compare: 2004 No 35 ss FI 2, FI 3
Exceptions for property transferred on death of person
FC 3 Property transferred to spouse, civil union partner, or de facto partner
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When this section applies
(1) This section applies in the circumstances described in section FC 1(1)(a) or (b) when property is transferred on a person’s death to the surviving spouse, civil union partner, or de facto partner of the deceased person. However, this section does not apply if—
(a) the property is tax-base property; and
(b) a person who is not a close relative of the deceased person is beneficially entitled under the will or intestacy to other property that is tax-base property.
Disposal to spouse or partner
(2) The transfer of property to the surviving spouse, civil union partner, or de facto partner of the deceased person, including any intervening transfer to an executor or administrator, is treated as a transfer of property under a settlement of relationship property under subpart FB (Transfers of relationship property).
Defined in this Act: close relative, de facto partner, settlement of relationship property, tax base property,
Compare: 2004 No 35 s FI 4
FC 4 Property transferred to charities or to close relatives and others
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When this section applies
(1) This section applies in the circumstances described in section FC 1(1)(a) or (b) when property is transferred on a person’s death to a person exempt under section CW 43 (Charitable bequests) or to a close relative of the deceased person when—
(a) all beneficiaries of the deceased person are close relatives; or
(b) the only beneficiaries of all the tax-base property of the deceased person are close relatives.
Treated as transfer under settlement of relationship property
(2) The transfer, including any intervening transfer to an executor or administrator, is treated as a transfer of property on a settlement of relationship property for the purposes of subpart FB (Transfers of relationship property) if the following requirements are met:
(a) no life interest in the property is created; and
(b) no trust over the property is created, other than a trust to execute the will and administer the estate; and
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(c) while the administration of the estate is continuing, the net income of the estate is distributed to the extent allowed—
(i) under the will or the rules governing intestacy; and
(ii) by the trustee’s legal obligations.
Defined in this Act: close relative, net income, settlement of relationship property, tax base property, trustee,
Compare: 2004 No 35 s FI 5
FC 5 Land transferred to close relatives
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What this section applies to
(1) This section applies in the circumstances described in section FC 1(1)(a) or (b) when land is transferred on a person’s death to a close relative of the person.
Land
(2) Sections CB 9 to CB 11 and CB 14 (which relate to the disposal of land) do not apply to the transfer of land, including any intervening transfer to an executor or administrator that, if it had been disposed of by the deceased person, would have resulted in income under any of those sections.
Cost of land
(3) If the land is transferred to a person who disposes of it within 10 years of its acquisition by the deceased person, and the person derives income under any of sections CB 9 to CB 11 and CB 14, the cost of land to the person is—
(a) the cost of the land incurred by the deceased person; and
(b) all other expenditure incurred by both the person and the deceased person that relate to the land for which no deduction has been allowed.
Defined in this Act: close relative, deduction, dispose, income, land, year,
Compare: 2004 No 35 s FI 7
FC 6 Forestry assets transferred to close relatives
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What this section applies to
(1) This section applies in the circumstances described in section FC 1(1)(a) or (b) when forestry assets are transferred on a person’s death to a close relative of the person.
Forestry assets
(2) A transfer of a forestry asset, including any intervening transfer to an executor or administrator, is treated as a transfer of property on a settlement of relationship property for the purposes of subpart FB (Transfers of relationship property).
Meaning of forestry assets
(3) In this section, forestry assets means timber, standing timber, or a right to take timber.
Defined in this Act: close relative, forestry assets, right to take timber, settlement of relationship property, standing timber, timber,
Compare: 2004 No 35 s FI 6
FC 7 Transfer of prepaid property
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What this section applies to
(1) This section applies, in the circumstances described in section FC 1(1)(a) or (b), to a transfer of property on a person’s death for which the deceased person has, in the year of transfer, an unexpired portion of expenditure under section EA 3 (Prepayments).
Unexpired prepayments
(2) If section EA 3 applies to the property transferred, the property must be valued under section EA 3(4) to (7), as if the date of transfer were the end of an income year.
Defined in this Act: income year, year,
Compare: 2004 No 35 s FI 8
FC 8 Transfer of certain financial arrangements
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What this section applies to
(1) This section applies, in the circumstances described in section FC 1(1)(a) or (b), to a transfer of a financial arrangement on a person’s death.
Financial arrangements: cash basis person
(2) If the deceased person was a cash basis person and the trustee of the deceased person’s estate is a cash basis person under section EW 60(1) (Trustee of deceased’s estate), the property must be valued at cost.
Defined in this Act: cash basis person, financial arrangement, trustee,
Compare: 2004 No 35 s FI 11
Subpart FE—Interest apportionment on thin capitalisation
Introductory provisions
FE 1 What this subpart does
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Interest apportionment
(1) This subpart applies—
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(a) to apportion certain interest expenditure between income derived from New Zealand and other income for a New Zealand taxpayer who—
(i) is controlled by a single non-resident; and
(ii) has a disproportionately high level of debt funding in relation to their worldwide interest expenditure; and
(b) to prescribe an acceptable level of equity for a foreign-owned bank for the application of the interest apportionment rules.
Structure of subpart
(2) This subpart sets out—
(a) the persons to whom the interest apportionment rules may apply:
(b) the thresholds for the application of the rules:
(c) the consequences of application of the rules:
(d) how to calculate the debt percentages of a New Zealand group and a worldwide group:
(e) how to calculate a reporting bank’s New Zealand equity threshold, net equity, and funding debt:
(f) how to determine the membership of a New Zealand group, a worldwide group, and a New Zealand banking group:
(g) how to measure ownership interests in companies for the purposes of this subpart.
Defined in this Act: control, income, income derived from New Zealand, interest, New Zealand, New Zealand banking group, non-resident, reporting bank, taxpayer,
Compare: 2004 No 35 s FG 1
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FE 2 When this subpart applies
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Persons to whom interest apportionment rules may apply
(1) The interest apportionment rules in sections FE 6 and FE 7 may apply to the following persons if, at a time in an income year, they are:
(a) a non-resident who is not a company:
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(b) a non-resident company unless the company is 1 in which—
(i) a person resident in New Zealand has a direct ownership interest of 50% or more; and
(ii) no non-resident has a direct ownership interest of 50% or more, when added to any direct ownership interests of all persons associated with them:
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(c) a company that is resident in New Zealand if a non-resident has—
(i) an ownership interest in the company of 50% or more:
(ii) control of the company by any other means:
(d) the trustee of a non-complying trust settled by a non-resident if the value of the settlements made by them, including the value of all settlements made by a person associated with them, are 50% or more of the value of the settlements made on the trust.
Ownership interests
(2) Ownership interests in a company are determined under sections FE 38 to FE 41.
Treatment of foreign companies
(3) For the purposes of this section, a company resident in New Zealand is treated as being a non-resident company if it is treated under a double tax agreement as not being resident in New Zealand.
Associated persons
(4) For the purposes of subsection (1)(b)(ii), a non-resident who does not have a direct or an indirect ownership interest in a company and a relative resident in New Zealand are not associated persons in relation to the company.
Defined in this Act: associated person, company, control, income year, interest, New Zealand, non-complying trust, non-resident, non-resident company, relative, resident in New Zealand, settlement, trustee,
Compare: 2004 No 35 s FG 2(1), (6), (8)
FE 3 Interest apportionment for individuals
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Natural person who is not trustee
(1) This subpart applies to a natural person who is not a trustee, with the following modifications:
(a) the person’s New Zealand group is made up only of the person; and
(b) in the calculation of the amount of the person’s total assets, private and domestic assets are excluded.
Trustees
(2) For the purposes of section FE 2(1)(d), this subpart applies to a trustee with the following modifications:
(a) the trustee’s New Zealand group is made up of the trustee and all associated persons who are resident in New Zealand, or carrying on business in New Zealand through a fixed establishment in New Zealand:
(b) the debt percentage is calculated by determining the total group debt and total group assets of the members of the trustee’s New Zealand group on a consolidated basis equivalent to the generally accepted accounting practice for the consolidation of a group of companies for the purposes of eliminating intra-group balances.
Defined in this Act: amount, associated person, business, fixed establishment, generally accepted accounting practice, group of companies, natural person, New Zealand, resident in New Zealand, total group assets, total group debt, trustee,
Compare: 2004 No 35 s FG 4(15), (16)
FE 4 Some definitions
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In this subpart,—
excess debt entity for an income year is a person who—
(a) meets the requirements of section FE 2 in the income year; and
(b) is not, at any time in the income year, a reporting bank for a New Zealand banking group, or part of a New Zealand banking group; and
(c) is not a natural person other than a person acting as a trustee
natural person for an income year is a natural person who—
(a) meets the requirements of section FE 2 in the income year; and
(b) is a person who is not acting as a trustee
reporting bank for an income year for a New Zealand banking group is a person who—
(a) meets the requirements of section FE 2 in the income year; and
(b) is the registered bank in the banking group, unless the circumstances set out in section FE 36 apply.
Defined in this Act: excess debt entity, income year, natural person, New Zealand, New Zealand banking group, registered bank, reporting bank, trustee,
Interest apportionment rules
FE 5 Thresholds for application of interest apportionment rules
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Threshold for excess debt entity
(1) An excess debt entity must apportion its interest expenditure for an income year under section FE 6 if the debt percentage of its New Zealand group for the income year—
(a) is more than 75%; and
(b) for a company or a trustee, is also more than 110% of the debt percentage of the worldwide group.
Threshold for reporting bank
(2) A reporting bank must apportion its interest expenditure for an income year under section FE 7 if—
(a) the New Zealand net equity of its New Zealand banking group for a tax year is less than its equity threshold; and
(b) its group funding debt for the corresponding tax year is more than zero.
Threshold for natural person
(3) A natural person must apportion their interest expenditure for an income year under section FE 6 if their New Zealand group debt percentage is more than 75%.
Debt percentages
(4) The debt percentage of a New Zealand group is calculated under sections FE 14 to FE 16. The debt percentage of a worldwide group is calculated under sections FE 17 and FE 18.
Equity threshold, net equity, group funding debt
(5) The calculations that a reporting bank must make for the purposes of section FE 7 are set out as follows:
(a) for the banking group’s equity threshold, seesection FE 19:
(b) for the banking group’s New Zealand net equity, seesection FE 21:
(c) for the banking group’s funding debt, seesection FE 23.
Defined in this Act: company, excess debt entity, group funding debt, income year, interest, natural person, New Zealand, New Zealand banking group, New Zealand net equity, reporting bank, tax year, trustee,
Compare: 2004 No 35 s FG 3
FE 6 Apportionment of interest by excess debt entity
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When this section applies
(1) This section applies to an excess debt entity if the debt percentage of its New Zealand group for an income year is more than the threshold set out in section FE 5(1).
Formula
(2) The excess debt entity is treated under section CH 9 (Interest apportionment: excess debt entity) as deriving in the income year an amount of income calculated for the income year using the formula—
Items in formula
(3) In the formula,—
-
(a) total deduction is the whole amount of the excess debt entity’s deduction for interest allowed under any of sections DB 6 to DB 8 less—
(i) the total amount allowed in relation to interest payable to a company that is a member of the entity’s New Zealand group under sections FE 14(2) and FE 28, but this does not include an amount referred to in subparagraph (ii); and
(ii) the total amount allowed in relation to interest payable under a financial arrangement excluded from the total group debt of its New Zealand group under section FE 15:
(b) total debt is the total amount of the debt of the excess debt entity’s New Zealand group for the income year as calculated under section FE 15, before allowing for a reduction under section FE 13:
(c) concession is any reduction allowed under section FE 13 in the total group debt of the excess debt entity’s New Zealand group for the income year, averaged when section FE 8(1)(a) or (b) applies:
(d) group debt percentage is the debt percentage of the excess debt entity’s New Zealand group for the income year:
-
(e) threshold amount is, as applicable,—
(i) if the excess debt entity is a company or trustee, the greater of 75% and 110% of the debt percentage of their worldwide group:
(ii) if the person is a natural person who is not a trustee, 75%.
Defined in this Act: amount, company, deduction, excess debt entity, financial arrangement, income, income year, interest, natural person, New Zealand, pay, total group debt, trustee,
Compare: 2004 No 35 s FG 8
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FE 7 Apportionment of interest by reporting bank
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When this section applies
(1) This section applies to a reporting bank if, at the relevant measurement date referred to in section FE 8(3),—
(a) the New Zealand net equity of its New Zealand banking group for an income year is less than its equity threshold under section FE 19; and
(b) its group funding debt for the corresponding tax year is more than zero.
Income
(2) The reporting bank is treated as deriving an amount of income under section CH 10 (Interest apportionment: reporting bank) calculated using the formula—
Definition of items in formula
(3) In the formula,—
(a) amount below threshold is the amount by which the New Zealand net equity for the New Zealand banking group is less than the equity threshold under section FE 19:
-
(b) interest expenditure is the financial value for the New Zealand banking group of interest expenditure measured under generally accepted accounting practice that is incurred—
(i) by a member of the New Zealand banking group in the income year; and
(ii) other than in relation to a share that contributes to the item total interest in the formula in section FE 23, or is a deduction referred to in the definition of the item interest deductions in that section:
(c) days in period is the number of days in the relevant measurement period:
(d) group funding debt is the group funding debt for the New Zealand banking group for the corresponding tax year:
(e) days in year is the number of days in the income year.
Apportionment of income to part-years
(4) If an amount of income described in subsection (2) must be apportioned under this Act to a part of an income year, the amount of income for a measurement period is attributed to the part of the income year in which the measurement period falls.
Defined in this Act: amount, deduction, financial value, generally accepted accounting practice, group funding debt, income, income year, interest, measurement period, New Zealand, New Zealand banking group, New Zealand net equity, reporting bank, share, tax year,
Compare: 2004 No 35 s FG 8B
FE 8 Measurement dates
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Daily, 3-monthly, or annual basis for excess debt entity
(1) An excess debt entity must measure the amount of total group debt and total group assets of its New Zealand group for an income year using 1 of the following methods:
(a) the average amount at the end of each day of the income year; or
(b) the average amount at the end of each 3-month period in the income year; or
(c) the amount at the end of the income year.
Different balance dates
(2) For the purposes of subsection (1), if the members of the entity’s New Zealand group do not have the same balance date, the alternatives in subsection (1) apply as if the entity has the same balance date as that of the New Zealand parent.
Daily, monthly, or quarterly for reporting bank
(3) A reporting bank must measure both the equity threshold and the net equity of its New Zealand banking group for an income year on 1 of the following dates:
(a) each day of the income year; or
(b) the last day of each calendar month of the income year; or
(c) if the reporting bank does not choose either paragraph (a) or (b), the last day of each quarter of an income year.
Change in identity of reporting bank
(4) If the identity of the reporting bank changes, the first measurement date for the new reporting bank is the day after the last measurement date of the former reporting bank.
Defined in this Act: amount, excess debt entity, income year, New Zealand, New Zealand banking group, quarter, reporting bank, total group assets, total group debt,
Compare: 2004 No 35 ss FG 4(5), (6), FG 8E
FE 9 Elections
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Return of income
(1) An election or choice under this subpart is made by providing a return of income for the relevant income year.
Measurement date
(2) A choice of measurement date under section FE 8 may be changed after a notice of assessment for an income year is received from the Commissioner.
Control threshold, enlarged New Zealand group
(3) A choice of control threshold under section FE 27, or an election to include certain other companies in a New Zealand group under section FE 30 by a person other than an excess debt entity is made by providing notice to the Commissioner with the return of income for the relevant income year.
Defined in this Act: assessment, Commissioner, company, control, excess debt entity, income year, New Zealand, notice, return of income,
Compare: 2004 No 35 s FG 10
FE 10 Currency
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Calculations
(1) In this subpart, the following values must be calculated in New Zealand currency:
(a) an amount of total group debt and an amount of total group assets of a New Zealand group or of a worldwide group:
(b) a financial arrangement or risk-weighted exposure.
Currency conversions for excess debt entity
(2) If the value referred to in subsection (1) is denominated in a foreign currency, an excess debt entity must convert the value to New Zealand currency at—
(a) the close of trading spot exchange rate for the foreign currency on the relevant measurement date under section FE 8; or
(b) the forward exchange rate that applies on the first day of the income year for the relevant measurement date under section FE 8.
Currency conversions for reporting bank
(3) If the value referred to in subsection (1) is denominated in a foreign currency, a reporting bank must convert the value to New Zealand currency at the close of trading spot exchange rate for the foreign currency on the relevant measurement date under section FE 8.
Defined in this Act: amount, close of trading spot exchange rate, excess debt entity, financial arrangement, income year, New Zealand, reporting bank, total group assets, total group debt,
Compare: 2004 No 35 ss FG 4(7), FG 5(6), FG 7, FG 8I
FE 11 Temporary increases or decreases in value
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A temporary increase or decrease in a value applying in this subpart must be excluded from a calculation made under this subpart if—
(a) the increase or decrease has, or would have, a purpose or effect of defeating the intent and application of this subpart; or
(b) the change is produced by an arrangement that has an effect of defeating the intent and application of this subpart.
Defined in this Act: arrangement,
Compare: 2004 No 35 ss FG 4(8), FG 5(7), FG 8J
Calculations
FE 12 Calculation of debt percentages
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Requirement for New Zealand group
(1) An excess debt entity must calculate the debt percentage of its New Zealand group under the rules set out in sections FE 14 to FE 16. A natural person must calculate their debt percentage under the rules set out in sections FE 13, FE 14(4), FE 15, FE 16, and FE 18.
Requirement for worldwide group
(2) If the debt percentage of the New Zealand group is more than 75% as described in section FE 5(1)(a), the entity or natural person must calculate the debt percentage of their worldwide group under the rules set out in sections FE 17 and FE 18.
Debt percentage of group
(3) A debt percentage of a group is found by dividing the amount of total group debt by the amount of total group assets of the group for an income year or accounting year, as applicable. The amounts are calculated on a consolidated basis. Total group debt and total group assets for an income year or accounting year are defined in—
(a) sections FE 15 and FE 16 for a New Zealand group; and
(b) section FE 18 for a worldwide group.
Membership of company’s New Zealand group
(4) For an excess debt entity that is a company, the New Zealand group is made up of all companies, traced tier by tier, that are identified as within the control threshold of the New Zealand parent, seesection FE 27. Section FE 25 provides the process for determining who is a member of a group based on the identification of a New Zealand parent and the establishment of the control threshold.
Membership of company’s worldwide group
(5) For an excess debt entity that is a company, the worldwide group is made up of all companies, traced tier by tier, that are included in both the entity’s New Zealand group and the ultimate non-resident parent’s worldwide group. Section FE 31 sets out who is a member of a worldwide group.
Membership of trustee’s New Zealand and worldwide groups
(6) For an excess debt entity that is a trustee, the memberships of the New Zealand group and the worldwide group are determined under section FE 3(2).
Defined in this Act: accounting year, amount, company, control, excess debt entity, income year, natural person, New Zealand, non-resident, total group assets, total group debt, trustee, ultimate parent,
Compare: 2004 No 35 ss FG 3, FG 4(1), FG 5(1)
FE 13 Financial arrangements entered into with persons outside group
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When this section applies
(1) This section applies when a natural person, or an excess debt entity, or a member of an entity’s New Zealand group or worldwide group, enters into a financial arrangement with another person (person A) as described in this section, and the financial arrangement provides funds to person A.
Reduction
(2) In the calculation of the debt percentage of the New Zealand group, the amount of total group debt and total group assets is reduced by the outstanding balance of the financial arrangement.
Debt percentage of New Zealand group
(3) In the calculation of the debt percentage of a New Zealand group, the reduction applies if the consideration for the financial arrangement is at arm’s length, and person A is 1 of the following:
(a) a non-resident who is not carrying on a business in New Zealand through a fixed establishment in New Zealand; or
(b) a person who is not associated with the excess debt entity; or
-
(c) a person who is associated with the excess debt entity but—
(i) is not a member of the New Zealand group; and
(ii) is a person to whom this subpart may apply under section FE 2.
Debt percentage of worldwide group
(4) In the calculation of the debt percentage of a worldwide group, the reduction applies if person A is not associated with the excess debt entity.
Defined in this Act: amount, associated person, business, excess debt entity, financial arrangement, fixed establishment, natural person, New Zealand, non-resident, total group assets, total group debt,
Compare: 2004 No 35 s FG 6
Debt percentage of New Zealand group
FE 14 Consolidation of debts and assets
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Company calculation
(1) For an excess debt entity that is a company, the debt percentage of a New Zealand group is calculated under generally accepted accounting practice for the consolidation of companies for the purposes of eliminating intra-group balances by consolidating the debts and assets of the members of the entity’s New Zealand group.
Trustee calculation
(2) For an excess debt entity that is a trustee, the debt percentage of a New Zealand group is calculated under generally accepted accounting practice for the consolidation of companies for the purposes of eliminating intra-group balances by consolidating the debts and assets for the group that is made up of—
(a) the entity; and
(b) all associated persons resident in New Zealand or carrying on a business in New Zealand through a fixed establishment in New Zealand.
When member not resident
(3) If a member of a New Zealand group is not resident in New Zealand, the assets and debts of the member are included in a consolidation only to the extent to which the group member is carrying on business in New Zealand through a fixed establishment in New Zealand.
Treatment of specified leases and particular interest expenditure
(4) In this subpart, in the determination of total group debt and total group assets and the calculation of an amount for which a deduction is denied,—
(a) a specified lease under section FZ 2 (Effect of specified lease on lessor and lessee) is treated as a financial arrangement that provides funds to the issuer; and
(b) expenditure incurred by the lessee under a specified lease for which a deduction is allowed under section BD 2 (Deductions) is treated as an amount of interest to which any of sections DB 6 to DB 8 (which relate to deductions for interest expenditure) applies; and
-
(c) interest that is allowed as a deduction under either of the following sections is treated as an amount of interest to which any of sections DB 6 to DB 8 applies, if not already allowed under those sections:
(i) section DP 1(1)(b) (Expenditure of forestry business):
(ii) section DV 10(1)(a) or (b) (Building societies).
Defined in this Act: amount, associated person, business, company, deduction, excess debt entity, financial arrangement, fixed establishment, generally accepted accounting practice, interest, issuer, lessee, New Zealand, resident in New Zealand, specified lease, total group assets, total group debt, trustee,
Compare: 2004 No 35 ss FG 4(9), (15), (17), FG 9
FE 15 Total group debt
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Meaning
(1) In this subpart for a New Zealand group, total group debt means the sum of the outstanding balances of all financial arrangements entered into by a natural person, or an excess debt entity, or another member of the New Zealand group, measured on the date the entity chooses under section FE 8 if both the following conditions are met:
(a) the financial arrangement provides funds to the natural person, the entity, or another member of the group; and
(b) the financial arrangement gives rise to an amount for which the natural person, the entity, or another member of the group, would have a deduction.
Exchange rate fluctuations
(2) Subsection (1)(b) does not include a deduction for an amount that arises only from movement in currency exchange rates.
Section 90A Tax Administration Act 1994
(3) For a determination on whether a financial arrangement provides funds, seesection 90A of the Tax Administration Act 1994.
Defined in this Act: amount, deduction, excess debt entity, financial arrangement, natural person, New Zealand,
Compare: 2004 No 35 s FG 4(2)
FE 16 Total group assets
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Meaning
(1) In this subpart, for a New Zealand group, total group assets for an income year means the total assets of a natural person, or an excess debt entity, or another member of the New Zealand group, measured under the following paragraphs, as applicable or as the person or entity chooses:
(a) the value of the assets shown in the financial statements of the entity’s New Zealand group; or
(b) the net current value of the assets; or
(c) market value, for trading stock that is valued at market value in calculating the person or entity’s income tax liability for the income year, or that of a member of the group; or
(d) adjusted tax value of a personal property lease asset at the start of the income year, in the case of a specified lease or a finance lease that is not recognised as an asset under generally accepted accounting practice; or
(e) if allowed under generally accepted accounting practice, a combination of the financial statement values and net current values.
Generally accepted accounting practice
(2) The amount of total group assets must be calculated under generally accepted accounting practice, with the exception of the values referred to in subsection (1)(c) or (d).
Defined in this Act: adjusted tax value, amount, excess debt entity, finance lease, generally accepted accounting practice, income tax liability, income year, lease, market value, natural person, New Zealand, personal property lease asset, specified lease, trading stock,
Compare: 2004 No 35 s FG 4(3), (4)
Debt percentage of worldwide group
FE 17 Consolidation of debts and assets
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For an excess debt entity that is a company, the debt percentage of a worldwide group is calculated under generally accepted accounting practice for the consolidation of companies for the purposes of eliminating intra-group balances by consolidating the debts and assets of the members of the entity’s worldwide group using—
(a) a financial standard used in the country in which the entity’s ultimate non-resident parent company resides, as described in section FE 18(1)(a), if applicable; or
(b) generally accepted accounting practice.
Defined in this Act: company, excess debt entity, generally accepted accounting practice, non-resident company, ultimate parent,
Compare: 2004 No 35 s FG 5(2), (10)
FE 18 Measurement of debts and assets of worldwide group
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Standards applying
(1) The amount of total group debt and the amount of total group assets of the worldwide group of a natural person or an excess debt entity must be calculated—
(a) using a standard that is equivalent to generally accepted accounting practice for consistent and non-distorting financial reporting; and
(b) in accordance with the financial reporting standards of the country where the worldwide group’s consolidated financial accounts are prepared.
Date of measurement
(2) The amount of total group debt and the amount of total group assets of the worldwide group of a natural person or an excess debt entity for an income year are measured at the worldwide group’s balance date that immediately precedes the relevant income year.
Measurement of amounts
(3) A natural person or an excess debt entity may choose to measure—
(a) the amount of total group debt by applying section FE 15, applying the provision as if it referred to a deduction that would be allowed if the person, entity, or another group member were resident in New Zealand; or
(b) the amount of total group debt and amount of total group assets on a basis listed in section FE 8(1)(a) or (b).
Commissioner’s estimate
(4) If a natural person or an excess debt entity is unable to calculate the debt percentage of their worldwide group for an income year, they may ask the Commissioner to estimate the percentage under this subpart. The estimate is then treated as the percentage applying for the purposes of this subpart.
Default percentage
(5) The debt percentage of the worldwide group or a natural person or an excess debt entity is treated as 68.1818% in the following cases:
(a) the person or entity is unable to calculate the percentage, and does not ask the Commissioner to make an estimate under subsection (4):
(b) the Commissioner cannot reasonably estimate the debt percentage under subsection (4):
(c) no member of the entity’s worldwide group, other than the entity, is not resident in New Zealand.
Defined in this Act: amount, Commissioner, deduction, excess debt entity, generally accepted accounting practice, income year, natural person, resident in New Zealand, total group assets, total group debt,
Compare: 2004 No 35 s FG 5(2)–(5), (12), (13)
New Zealand banking group
FE 19 Banking group’s equity threshold
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Requirement for New Zealand banking group: formula
(1) A reporting bank must calculate the equity threshold of its New Zealand banking group for a tax year using the formula—
0.04 × (risk-weighted exposures − deductions from equity value).
Definition of items in formula
(2) In the formula,—
-
(a) risk-weighted exposures is the sum of the following values:
(i) for an asset included in a balance sheet, the regulatory value of the asset:
(ii) for an exposure not included in a balance sheet, the regulatory value of the exposure:
(iii) for an amount of goodwill that is not taken into account in adjustment 4: intangible assets in determining the New Zealand net equity of the group under section FE 21, the financial value of the goodwill:
(b) deductions from equity value is the total amount of the regulatory values of adjustments 1 to 10 referred to in section FE 21.
Assets of fixed establishments
(3) For the purposes of this section, the assets of a fixed establishment include those treated as assets of the fixed establishment under generally accepted accounting practice.
Defined in this Act: amount, financial value, fixed establishment, generally accepted accounting practice, New Zealand banking group, New Zealand net equity, regulatory value, reporting bank, tax year,
Compare: 2004 No 35 s FG 8H
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FE 20 Financial value and regulatory value
-
Financial value
(1) In sections FE 19, and FE 21 to FE 23, the financial value of an item for a New Zealand banking group at a time is the amount recorded for the item in the group’s financial statements that—
(a) relate to the time; and
(b) are prepared for external reporting purposes; and
(c) are consistent with generally accepted accounting practice for the consolidation of a group of companies for the purposes of eliminating intra-group balances.
Regulatory value
(2) In section FE 19, the regulatory value of an item for a New Zealand banking group at a time is the total risk-weighted value for the item for the purposes of the Capital Adequacy Framework issued by the Reserve Bank of New Zealand acting in the prudential supervision of registered banks under the Reserve Bank of New Zealand Act 1989.
Defined in this Act: amount, financial value, generally accepted accounting practice, group of companies, issue, New Zealand, New Zealand banking group, registered bank, regulatory value,
Compare: 2004 No 35 s FG 8F
FE 21 Banking group’s New Zealand net equity
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Formula
(1) A reporting bank must calculate the New Zealand net equity of its New Zealand banking group for an income year using the formula—
equity value − adjustments 1 to 11.
Definition of items in formula
(2) The items in the formula are defined in subsections (3) to (14).
Equity value
(3) Equity value is the total financial value of—
(a) the shareholders’ equity for the group; and
(b) the branch equity relating to fixed establishments of the group; and
(c) any shares issued by a member of the group whose value is not included under paragraph (a) or (b); and
-
(d) any financial arrangement that is a loan or provision of funds—
(i) that is not taken into account in calculating the group’s funding debt for the tax year corresponding to the income year; and
(ii) that is made by a non-resident who is not a member of the New Zealand banking group or associated with a member of the group 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; and
(iii) that is made to a member of the group; and
(iv) that does not give rise to interest expenditure other than as a result of a fluctuation in the value of a currency of a country relative to the value of a currency of another country; and
(v) whose value is not included under paragraph (a) or (b); and
(vi) that does not relate to a supply of goods or services; and
(e) an instrument specified by the Governor-General by Order in Council under section FE 24 as included in equity value, but excluding an instrument specified under that section as not being an item of equity value.
Fixed-rate shares
(4) Adjustment 1 is the financial value of fixed-rate shares that are—
(a) issued by a member of the group on or after 1 January 2005, or before that date if the measurement period starts on or after 1 January 2010; and
(b) owned by a person resident in New Zealand; and
(c) included in equity value under subsection (3).
Tax debts
(5) Adjustment 2 is the financial value of a tax debt that is a financial arrangement—
(a) included in equity value under subsection (3)(a) to (c); and
(b) in relation to which a member of the group is allowed a deduction for the corresponding tax year for interest to which any of sections DB 6 to DB 8 (which relate to interest expenditure) applies.
Policyholder liabilities and retained profits
(6) Adjustment 3 is the financial value of unvested policyholder benefit liabilities and policyholder retained profits included in equity value under subsection (3).
Intangible assets
(7) Adjustment 4 is the financial value of intangible assets, but does not include the value of—
-
(a) the goodwill of a business that is not a banking, financing, leasing, or life insurance business—
(i) acquired from a person who, at the time of acquisition, is not associated under subpart YB with a member of the group; or
(ii) relating to an entity that is acquired from a person who is not associated under subpart YB with a member of the group:
(b) a film or film right:
(c) property that is depreciable property or is expected to become depreciable property.
Capital gains
(8) Adjustment 5 is the total amount of capital gain arising for the 2004–05 income year or a later income year from a transfer of an intangible asset between a member of the group and a person who is associated under subpart YB with a member of the group.
Asset revaluation reserves
(9) Adjustment 6 is the financial value of revaluation reserves included in equity value under subsection (3).
Future tax benefits
(10) Adjustment 7 is the financial value of net future tax benefits included in equity value under subsection (3) that arise from—
(a) a tax loss for the tax year corresponding to the income year referred to in subsection (1):
(b) a loss balance carried forward from an earlier tax year:
(c) a timing or temporary difference to the extent to which the item giving rise to the difference would contribute to the amount of a tax loss for the tax year corresponding to the income year referred to in subsection (1) if allowed as a deduction.
Prudential deductions
(11) Adjustment 8 is the financial value of a credit enhancement or advance that is, for the purposes of the Capital Adequacy Framework described in section FE 20(2),—
-
(a) a credit enhancement that a member of the group provides to—
(i) an associated funds management and securitisation scheme of a non-member:
(ii) an affiliated insurance group that is a non-member when the credit has not been expensed:
(b) an advance by a member of the group of a capital nature to a connected person who is a non-member.
Offshore assets
(12) Adjustment 9 is the financial value of shares in a non-resident company that—
-
(a) are held by—
(i) a member or potential member of the group; or
(ii) a company resident in New Zealand in which a member or potential member of the group holds a direct voting interest of 10% or more and that, in the income year, pays to the member or potential member a dividend to which a conduit tax relief (CTR) credit is attached; and
(b) are not interests in a foreign investment fund (FIF) for which the FIF income or FIF loss is calculated using the comparative value method, the deemed rate of return method, the fair dividend rate method, or the cost method; and
-
(c) are not shares in a grey list company that—
(i) are listed on the official list of a recognised exchange; and
(ii) are revenue account property; and
(iii) would not be a sufficient interest in the company if the class of shares were the only class of share issued by the company.
Cross holdings
(13) Adjustment 10 is the financial value of—
-
(a) interests included in equity value under subsection (3) held by a person who—
(i) is not a member of the group because of an exclusion under section FE 35; and
(ii) is resident in New Zealand or holds the interest through a fixed establishment in New Zealand:
(b) shares in or loans (other than on an arm’s length basis) to a person who is not a member of the group because of an exclusion under section FE 35.
Notional offshore investments
(14) Adjustment 11 is the amount of notional offshore investment for the group for the income year under section FE 22.
Components of adjustment items counted once
(15) For the purposes of this section, if a component of an item described in adjustments 1 to 10 is a component of 1 or more other adjustment items, the value of the component is counted once only at its highest value.
Defined in this Act: 1973 version provisions, 1988 version provisions, 1990 version provisions, amount, associated person, business, company, comparative value method, cost method, CTR credit, deduction, deemed rate of return method, depreciable property, direct voting interest, dividend, fair dividend rate method, FIF, FIF income, FIF loss, film, film right, financial arrangement, financial value, fixed establishment, fixed-rate share, grey list company, group funding debt, income year, interest, loan, loss balance, measurement period, New Zealand, New Zealand banking group, New Zealand net equity, non-resident, non-resident company, notional offshore investment amount, pay, recognised exchange, reporting bank, resident in New Zealand, revenue account property, share, shareholder, tax, tax loss,
Compare: 2004 No 35 s FG 8G(1)–(3)
FE 22 Notional offshore investment
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When this section applies
(1) This section applies for the purposes of section FE 21(14) to determine an amount of notional offshore investment for a New Zealand banking group for an income year.
Formula
(2) The amount of notional offshore investment is calculated using the formula—
Definition of items in formula
(3) In the formula,—
-
(a) foreign tax credits is the total amount of foreign tax credits for the tax year corresponding to the income year claimed as a credit against the income tax liability for the tax year of a member of the group or a person excluded from the group under section FE 35 that does not arise from—
(i) attributed CFC income or from FIF income; or
(ii) income derived before 1 July 2005.
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(b) threshold is—
(i) the amount set by the Governor-General by Order in Council as the threshold amount for the purposes of this subsection; or
(ii) $416,667 multiplied by the number of months beginning on or after 1 July 2005 in the income year that includes that date, if no threshold is set under subparagraph (i):
(iii) $5,000,000 if no threshold amount is set under subparagraph (i) or (ii):
(c) tax rate is the rate of tax for companies set out in schedule 1, part A, clause 2 (Basic tax rates: income tax, ESCT, RWT, and attributed fringe benefits) for the tax year corresponding to the income year referred to in subsection (1):
-
(d) interest rate of return is—
(i) the percentage amount set by the Governor-General by Order in Council as the interest rate of return for the purposes of this subsection; or
(ii) 7%, if no interest rate of return is set under subparagraph (i):
(e) months is the number of months beginning on or after 1 July 2005 in the corresponding income year.
Defined in this Act: amount, attributed CFC income, corresponding income year, FIF income, income, income tax liability, income year, interest, New Zealand banking group, notional offshore investment amount, tax year,
Compare: 2004 No 35 s FG 8G(4)
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FE 23 Banking group’s funding debt
-
Formula
(1) A reporting bank must calculate the funding debt of its New Zealand banking group for a tax year using the formula—
Definition of items in formula
(2) In the formula,—
(a) total interest is the financial value of the total interest-bearing debt for the group, measured on the last day of a quarter in the reporting bank’s corresponding income year:
(b) interest deductions is the financial value not included in paragraph (a) of a financial arrangement in relation to which the group has a deduction for interest to which any of sections DB 6 to DB 8 (which relate to interest expenditure) applies, other than as a consequence of a fluctuation in the value of a currency of a country relative to the value of a currency of another country:
(c) shares is the financial value of shares included in paragraph (a), measured on the last day of a quarter in the reporting bank’s corresponding income year:
(d) days in quarter is the number of days in a quarter in the reporting bank’s corresponding income year.
Defined in this Act: corresponding income year, deduction, financial arrangement, financial value, interest, New Zealand banking group, quarter, reporting bank, share, tax year,
Compare: 2004 No 35 s FG 8B(3)
FE 24 Regulations
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When this section applies
(1) This section applies for the purposes of sections FE 21 and FE 22.
Specifications
(2) The Governor-General may, from time to time, by Order in Council—
(a) specify a type of instrument that is included in equity value under section FE 21(3):
(b) specify a type of instrument that is not included in equity value under section FE 21(3):
(c) set, replace, or repeal a figure for a threshold amount for a value of an instrument, or aggregate value of a type of instrument, held by a person or group of persons for the purposes of a specification under paragraph (a) or (b):
(d) amend or delete a specification under paragraphs (a) to (c):
(e) set, replace, or repeal a figure for the threshold amount for the purposes of the definition of threshold in section FE 22(3)(b)(i):
(f) set, replace, or repeal a figure for the definition of interest rate of return in section FE 22(3)(d)(i).
Application or effective date
(3) An Order in Council under subsection (2) may—
(a) come into effect on or after 1 July 2005:
-
(b) apply for measurement periods and quarters that—
(i) are in the 2005–06 income year or a later income year; and
(ii) commence on or after 1 July 2005.
Defined in this Act: amount, group of persons, income year, interest, measurement period, quarter,
Compare: 2004 No 35 s FG 8G(5), (6)
Determining membership of groups
New Zealand group
FE 25 New Zealand group for excess debt entity that is a company
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Steps to determine membership
(1) The following steps are used to determine the membership of the New Zealand group of an excess debt entity that is a company:
(a) identifying the New Zealand parent, seesection FE 26:
(b) establishing the companies under the parent’s control, seesection FE 27:
(c) identifying the members of the New Zealand group, seesections FE 28 and FE 29:
(d) if a non-resident has ownership interests in 2 or more New Zealand groups, establishing whether the groups may be combined into a single New Zealand group, seesection FE 30.
Entity as company
(2) Sections FE 26 to FE 30 apply only to an excess debt entity that is a company.
Defined in this Act: company, control, excess debt entity, New Zealand, non-resident,
Compare: 2004 No 35 s FG 4(10), (11)
FE 26 Identifying New Zealand parent
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Identifying resident company
(1) The New Zealand parent of an excess debt entity is the entity identified in whichever is applicable of subsections (2) to (6).
Entity as parent
(2) The excess debt entity is treated as the New Zealand parent if—
(a) the entity is not resident in New Zealand; or
-
(b) the entity is resident in New Zealand, and—
(i) a non-resident has a direct ownership interest in the entity of 50% or more, as determined under section FE 39; and
(ii) no single non-resident carrying on business in New Zealand through a fixed establishment in New Zealand has an ownership interest in the entity of 50% or more.
Top tier New Zealand resident company
(3) If subsection (2) does not apply, the excess debt entity’s New Zealand parent is the company (company A) that meets all the following requirements:
-
(a) company A is either—
(i) resident in New Zealand; or
(ii) not resident in New Zealand but carrying on business in New Zealand through a fixed establishment in New Zealand; and
(b) company A has an ownership interest in the entity; and
(c) a non-resident has a direct ownership interest in company A; and
(d) if company A is resident in New Zealand, a non-resident who has an ownership interest in the entity of 50% or more, also has an ownership interest in company A of 50% or more; and
(e) no company that meets the requirements of paragraphs (a) to (d) has a direct ownership interest in company A.
When parent controlled by non-resident
(4) Despite subsection (3), if the interest apportionment rule in section FE 6 applies to the excess debt entity only through the application of section FE 2(1)(c)(ii), the entity’s New Zealand parent is the company (company B) that meets all the following requirements:
-
(a) company B is either—
(i) resident in New Zealand; or
(ii) not resident in New Zealand but carrying on business in New Zealand through a fixed establishment in New Zealand; and
(b) company B has an ownership interest in the entity; and
(c) if company B is resident in New Zealand, a non-resident who has control of the entity by any means, has control of company B by any means; and
(d) no company that meets the requirements of paragraphs (a) to (c) has a direct ownership interest in company B.
Tie-breaker
(5) If more than 1 company is identified as New Zealand parent under subsection (3) or (4), the New Zealand parent is the company that has the highest value in ownership interests calculated by multiplying—
(a) the total direct ownership interests in company A or company B of non-residents who also have ownership interests in the entity of 50% or more:
(b) the ownership interests of company A or company B in the entity.
Entity as parent
(6) If subsection (2) does not apply, and no company meets the requirements of subsection (3) or (4), the excess debt entity is treated as the New Zealand parent.
Determining ownership interests in subsections (3) and (4)
(7) In subsections (3) and (4), ownership interests are determined under sections FE 38 to FE 41, but for the purpose of identifying a New Zealand parent, the ownership interests of an associated person are ignored.
Defined in this Act: associated person, business, company, control, excess debt entity, fixed establishment, interest, New Zealand, non-resident, non-resident company, resident in New Zealand,
Compare: 2004 No 35 s FG 4(10)
FE 27 Establishing companies under parent’s control
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Choosing threshold
(1) A control threshold that the New Zealand parent of an excess debt entity chooses under this section must apply consistently to all companies that are members of the group.
Percentages
(2) The New Zealand parent of an excess debt entity may choose as the relevant control threshold a percentage that is either—
(a) more than 50%; or
(b) 66% or more.
Threshold over 50%
(3) For a control threshold that is more than 50%, the company or companies treated as controlled by the New Zealand parent are those in which direct ownership interests of more than 50% are held collectively by either or both—
(a) the New Zealand parent; and
(b) any other company included in the New Zealand group.
Threshold of 66% or more
(4) For a control threshold of 66% or more, the companies treated as controlled by the New Zealand parent are those in which direct ownership interests of 66% or more are held collectively by any combination of—
(a) the New Zealand parent; and
-
(b) a non-resident if—
(i) they have ownership interests of 50% or more in both the entity and the New Zealand parent; and
(ii) a company included in the New Zealand group as a result of the control percentage would have been included in the group under section FE 28 through the application of the control test in subsection (3), had the control percentage in that subsection been chosen; and
(c) any other company or companies that are included in the New Zealand group under section FE 28 through the application of any of these paragraphs.
Default threshold of 66%
(5) If the New Zealand parent does not choose a control threshold under subsection (3) or (4), the control threshold applying to the New Zealand group is 66% or more.
Application to other companies of New Zealand parent
(6) The control threshold applying for an income year in relation to the entity and its New Zealand parent applies to any company of the New Zealand parent.
Defined in this Act: company, control, excess debt entity, income year, New Zealand, non-resident,
Compare: 2004 No 35 s FG 4(12)–(14B)
FE 28 Identifying members of New Zealand group
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New Zealand parent’s group
(1) A New Zealand group is made up of—
(a) an excess debt entity; and
(b) the entity’s New Zealand parent; and
-
(c) a company that is—
(i) resident in New Zealand or carrying on a business in New Zealand through a fixed establishment in New Zealand:
(ii) identified under section FE 27 as under the control of the New Zealand parent:
(iii) not a member of the New Zealand banking group of a registered bank:
(d) a CTR holding company as described in section FE 29.
Entity’s group
(2) Despite subsection (1), if the excess debt entity is not a company identified under section FE 27 as under the control of the New Zealand parent because the threshold is not met, the New Zealand group is made up only of—
(a) the entity; and
-
(b) any company that is resident in New Zealand or carrying on a business in New Zealand through a fixed establishment in New Zealand, and that—
(i) would be, under section FE 27 under the control of the entity, if the entity is treated as the New Zealand parent; or
(ii) would be, under section FE 27 under the control of another company (company A) if the entity is identified as under the control of company A, and company A is included in the New Zealand group and treated as the New Zealand parent; or
(iii) would be, under section FE 27 under the control of company A included in the entity’s New Zealand group under subparagraph (ii), if company A is treated as the New Zealand parent; or
(iv) is not a member of the New Zealand banking group of a registered bank; and
(c) a CTR holding company as described in section FE 29.
Defined in this Act: business, company, control, CTR holding company, excess debt entity, fixed establishment, New Zealand, New Zealand banking group, registered bank, resident in New Zealand,
Compare: 2004 No 35 s FG 4(12), (14C), (14E)
FE 29 Holding companies
-
Company included in New Zealand group
(1) A company is included in an excess debt entity’s New Zealand group under section FE 28 if it is,—
-
(a) on the date referred to in section FE 8, a CTR holding company for a CTR company—
(i) that is a member of the entity’s New Zealand group; and
(ii) in which the holding company has direct ownership interests of more than 50%:
(b) a member of the New Zealand group of a company described in paragraph (a).
When subsection (1) does not apply
(2) Subsection (1) does not apply in relation to an income year if, at the end of the income year, the total dividends to the extent fully credited and previously derived by the CTR holding company are no more than the total dividends to the extent fully credited and previously paid by the CTR holding company.
Defined in this Act: company, CTR company, CTR holding company, dividend, excess debt entity, income year, New Zealand,
Compare: 2004 No 35 s FG 4(12), (14C), (14E), (14F)
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FE 30 Ownership interests in companies outside New Zealand group
-
When this section applies
(1) This section applies when—
(a) a New Zealand group is in existence; and
(b) a particular excess debt entity (company A) is outside the group; and
(c) company A is resident in New Zealand or carrying on business in New Zealand through a fixed establishment in New Zealand; and
-
(d) a single non-resident has ownership interests of 50% or more in both—
(i) the New Zealand group; and
(ii) company A.
Consistency in group membership
(2) The New Zealand parent of company A may choose to include the company in the New Zealand group if every company to be included in the enlarged group that is a New Zealand parent in the group makes the same election in relation to all other companies that are not in a New Zealand group with that parent before this section applies.
When company A cannot be part of group
(3) Despite subsection (2), company A cannot be part of the New Zealand group if—
(a) another company (company B) that is outside the group has a direct ownership in company A; and
(b) company B is resident in New Zealand, or is carrying on business in New Zealand through a fixed establishment in New Zealand; and
-
(c) either—
(i) a New Zealand parent in the group, after the application of subsection (2), has control of company B under section FE 27(3); or
(ii) the single non-resident has ownership interests of 50% or more in company B.
Defined in this Act: business, company, control, excess debt entity, fixed establishment, New Zealand, non-resident, resident in New Zealand,
Compare: 2004 No 35 s FG 4(14D)
Worldwide group
FE 31 Worldwide group for corporate excess debt entity
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Members of worldwide group
(1) A worldwide group for an income year is made up of—
(a) an excess debt entity that is a company; and
(b) the entity’s New Zealand group for the income year; and
(c) the entity’s worldwide GAAP group, as described in subsection (2); and
(d) the entity’s ultimate non-resident parent, as described in subsection (3); and
(e) the ultimate non-resident parent’s worldwide GAAP group, as described in subsection (4); and
-
(f) any non-resident that—
(i) is not a company; and
(ii) has ownership interests in the entity of 50% or more; and
(g) any person associated with the non-resident referred to in paragraph (f).
Worldwide GAAP group
(2) An excess debt entity’s worldwide GAAP group is made up of all non-residents who are required to be included with the entity in the consolidated financial statements under, as the entity chooses,—
(a) generally accepted accounting practice; or
-
(b) an equivalent standard for consistent and non-distorting financial reporting that is—
(i) set in the country where the ultimate non-resident parent of the parent, as described in subsection (3), resides; or
(ii) applied when preparing the consolidated financial statements of the international group of which the entity is part.
Ultimate non-resident parent
(3) An excess debt entity’s ultimate non-resident parent is the company that meets the following requirements:
(a) the company has ownership interests in the entity of 50% or more; and
(b) the company is not excluded from the entity’s worldwide group under section FE 32; and
-
(c) no other company has both—
(i) an ownership interest in the entity of 50% or more:
(ii) an ownership interest in the company referred to in paragraphs (a) and (b).
Ultimate non-resident parent’s worldwide GAAP group
(4) The ultimate non-resident parent’s worldwide GAAP group is made up of—
(a) the ultimate non-resident parent; and
-
(b) any non-resident who is required to be included with the ultimate non-resident parent in consolidated group accounts under, as the non-resident parent chooses,—
(i) the standard referred to in subsection (2)(b)(i), if applicable; or
(ii) generally accepted accounting practice.
Measuring ownership interests
(5) In subsection (3), ownership interests are determined under sections FE 38 to FE 41.
Defined in this Act: associated person, company, excess debt entity, generally accepted accounting practice, income year, New Zealand, non-resident, ultimate parent,
Compare: 2004 No 35 s FG 5(8)
FE 32 Joint venture parties
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When this section applies
(1) This section applies, despite section FE 31, when—
(a) ownership interests of 50% are held by each of 2 joint venture parties in a company (company A) that is included in a worldwide group; and
-
(b) a person holds an ownership interest equal to 50% in company A and—
(i) the person has an interest in a joint venture party referred to in paragraph (a); or
(ii) a joint venture party referred to in paragraph (a) has an interest in the person.
Exclusion of 1 joint venture partner
(2) An excess debt entity may choose to exclude company A from its worldwide group for an income year.
Ownership interests
(3) For the purposes of this section, ownership interests are determined under sections FE 38 to FE 41.
Defined in this Act: company, excess debt entity, income year,
Compare: 2004 No 35 s FG 5(9)
New Zealand banking group
FE 33 New Zealand banking group
-
The following steps are used to determine the membership of a New Zealand banking group:
(a) identifying the ultimate parent of a registered bank, seesection FE 34:
(b) determining whether a person may be excluded from a banking group, seesection FE 35:
(c) identifying a person and a fixed establishment as a member of a banking group, seesection FE 36.
Defined in this Act: fixed establishment, New Zealand banking group, registered bank, ultimate parent,
FE 34 Identifying ultimate parent
-
Identifying company
(1) The ultimate parent is the company identified in subsection (2) or (3), as applicable.
Registered bank’s parent
(2) An ultimate parent of a registered bank is a company—
(a) that has an ownership interest in the registered bank of 50% or more; and
(b) in which no other company that has an ownership interest in the registered bank of 50% or more has an ownership interest.
Fixed establishment’s parent
(3) The ultimate parent of a registered bank’s fixed establishment in New Zealand is the registered bank.
Ownership interests
(4) For the purposes of this section, ownership interests are determined under sections FE 38 to FE 41.
Defined in this Act: company, fixed establishment, New Zealand, registered bank, ultimate parent,
Compare: 2004 No 35 s FG 8C(9), (10)
FE 35 Persons who may be excluded from banking groups
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Reporting bank’s exclusions
(1) A reporting bank may determine the members of its New Zealand banking group by excluding from the group a person or fixed establishment described in subsections (2) to (5).
Life insurance providers
(2) A reporting bank may choose to exclude from its New Zealand banking group a person or a fixed establishment whose main activity is providing life insurance.
Entity owning life insurer or banker
(3) A reporting bank may choose to exclude from its New Zealand banking group a person resident in New Zealand—
(a) who has a voting interest of 100% in a person excluded under subsection (2); and
(b) whose main activity is not banking, financing, or leasing, or the ownership or control of an entity whose main activity is banking, financing, or leasing.
Resident group company with other activities
(4) A reporting bank may choose to exclude from its New Zealand banking group a person resident in New Zealand—
(a) who is required under generally accepted accounting practice to be included in consolidated group accounts with a person or fixed establishment excluded under subsection (2) or (3); and
(b) whose main activity is not banking, financing, or leasing, or the ownership or control of an entity whose main activity is banking, financing, or leasing.
Fixed establishment with other activities
(5) A reporting bank may choose to exclude from its New Zealand banking group a fixed establishment of a non-resident if—
(a) the non-resident has a voting interest of 100% in a person excluded under subsection (2); and
(b) the fixed establishment has a main activity of financing the person excluded under subsection (2); and
(c) the main activity of the fixed establishment is not banking, financing, or leasing, or the ownership or control of an entity whose main activity is banking, financing, or leasing.
Defined in this Act: company, control, fixed establishment, generally accepted accounting practice, life insurance, New Zealand banking group, non-resident, reporting bank, resident in New Zealand, voting interest,
Compare: 2004 No 35 s FG 8C(8)
FE 36 Identifying members of New Zealand banking group
-
Entities included in group
(1) The New Zealand banking group of a registered bank includes the entities described in subsection (2), and may also include the entities described in subsections (3) to (6) if the conditions set out in those subsections are met.
Registered bank or fixed establishment
(2) The banking group includes—
(a) the registered bank, if resident in New Zealand:
(b) the registered bank’s fixed establishment, if the registered bank is not resident in New Zealand.
Resident person in group with registered bank
(3) A resident person is included in the banking group if the person is part of the same group of companies as the registered bank, and the following conditions under generally accepted accounting practice are met:
(a) for a resident registered bank with no non-resident ultimate parent, the consolidated group accounts include both the person and the registered bank, or would include both but for relevant materiality thresholds; or
(b) for a non-resident registered bank with no non-resident ultimate parent, the consolidated group accounts would include the person and the registered bank if the registered bank were resident in New Zealand and the relevant materiality thresholds were met.
Resident in group with non-resident ultimate parent
(4) A resident is included in the banking group if—
(a) the person is part of the same group of companies as a non-resident ultimate parent; and
(b) under generally accepted accounting practice, the consolidated group accounts would include the person and the ultimate parent if the ultimate parent were resident in New Zealand and the relevant materiality thresholds were met.
Fixed establishment in group with registered bank
(5) A fixed establishment in New Zealand of a non-resident is included in the banking group separately from the non-resident if—
(a) the fixed establishment is part of the same group of companies as a non-resident registered bank with no non-resident ultimate parent; and
(b) under generally accepted accounting practice, the consolidated group accounts would include the fixed establishment and the registered bank if the registered bank were resident in New Zealand and the relevant materiality thresholds were met.
Fixed establishment in group with non-resident ultimate parent
(6) A fixed establishment in New Zealand of a non-resident is included in the banking group separately from the non-resident if—
(a) the fixed establishment is part of the same group of companies as a non-resident ultimate parent; and
(b) under generally accepted accounting practice, the consolidated group accounts would include the fixed establishment and the ultimate parent if the ultimate parent were resident in New Zealand and the relevant materiality thresholds were met.
Defined in this Act: fixed establishment, generally accepted accounting practice, group of companies, New Zealand, New Zealand banking group, non-resident, registered bank, resident in New Zealand, ultimate parent,
Compare: 2004 No 35 s FG 8C(1), (2), (4)–(7)
FE 37 Reporting bank for New Zealand banking group
-
When subsection (2) applies
(1) Subsection (2) applies on a day when a New Zealand banking group has either—
(a) a single registered bank, or
(b) no registered bank but a fixed establishment of a single registered bank.
Registered bank
(2) The reporting bank for the day is the registered bank.
When subsection (4) applies
(3) Subsection (4) applies on a day when a New Zealand banking group has either—
(a) more than 1 registered bank; or
(b) no registered bank but fixed establishments of more than 1 registered bank.
Notice or Commissioner’s appointment
(4) The reporting bank is—
(a) the registered bank that first notifies the Commissioner of an election to be the reporting bank, if the Commissioner receives the notice within 6 months after the end of the income year in which the day occurs; or
(b) if paragraph (a) does not apply, the registered bank chosen by the Commissioner.
Defined in this Act: Commissioner, fixed establishment, income year, New Zealand banking group, notice, registered bank, reporting bank,
Compare: 2004 No 35 s FG 8D
Measuring ownership interests in companies
FE 38 Measuring ownership interests in companies
-
For the purposes of this subpart, a person’s ownership interest in a company is the total of the following percentages:
(a) any direct ownership interests they hold in the company; and
(b) any direct ownership interests held in the company by an associated person; and
(c) any indirect ownership interests they hold in the company; and
(d) any indirect ownership interests held in the company by an associated person.
Defined in this Act: associated person, company,
Compare: 2004 No 35 s FG 2(2)
FE 39 Direct ownership interests
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A person’s direct ownership interest in a company referred to in section FE 38 is equal to the highest percentage of shares or rights the person holds in the categories listed in section EX 5(1) (Direct control interests), applying the subsection as if the company were a foreign company.
Defined in this Act: company, control, foreign company, share,
Compare: 2004 No 35 s FG 2(3)
FE 40 Tiered ownership interests
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When this section applies
(1) This section applies when a person has a direct ownership interest in a company (company A), and that company has an ownership interest in another company (company B).
When ownership interest less than 50%
(2) If the person’s direct ownership interest in company A is less than 50%, they are treated as holding an indirect ownership interest in company B. The interest is calculated by multiplying the percentage that is the person’s direct ownership interest in company A by the percentage that is company A’s ownership in company B.
When ownership interest more than 50%
(3) If the person’s direct ownership interest in company A is equal to or more than 50%, they are treated as holding an indirect ownership interest in company B that is equal to company A’s ownership interest in company B.
Defined in this Act: company,
Compare: 2004 No 35 s FG 2(4)
FE 41 Treatment of associated persons’ interests
-
Aggregating ownership interests
(1) For the purposes of section FE 39, a person’s direct ownership interests include the direct ownership interests of a person associated with them. But if an aggregation of ownership interests results in the same percentage shares or rights in a company being counted more than once, the person’s ownership interest in the company must be adjusted to the extent necessary to avoid multiple counting.
Relative resident in New Zealand
(2) For the purposes of sections FE 38 to FE 40, a non-resident who does not have a direct or an indirect ownership interest in a company and a relative resident in New Zealand are not associated persons in relation to the company.
Defined in this Act: associated person, company, New Zealand, non-resident, relative, resident in New Zealand, share,
Compare: 2004 No 35 s FG 2(4)–(6)
Subpart FF—Interest apportionment for conduit investment
Introductory provisions
FF 1 What this subpart does
-
What this subpart does
(1) This subpart applies to restrict the conduit tax relief that a company has under sections LQ 1 to LQ 4 (which relate to conduit tax relief) or section RG 7 (Reduction of payments for conduit tax relief) by limiting the amount of interest expenditure that may be apportioned to the company’s New Zealand operations, and apportioning the excess to conduit investments.
Structure of subpart
(2) This subpart sets out—
(a) the companies to which the interest apportionment rule applies:
(b) the thresholds for the application of the rule:
(c) how to identify the companies that are part of a company’s foreign attributed interest group (the foreign group):
-
(d) the formulas for the calculation of—
(i) the debt percentage of a New Zealand foreign group:
(ii) the debt percentage of a consolidated foreign group:
(iii) the amount of excess interest to be allocated against foreign attributed income:
(iv) the company’s share of the apportionment:
(e) how to determine the amount to be applied to reduce conduit tax relief under sections LQ 1 to LQ 4:
(f) the treatment of any remaining balance of interest expenditure.
Defined in this Act: amount, company, foreign attributed income, foreign group, interest, New Zealand,
FF 2 When interest apportionment rule applies
-
The interest apportionment rule in this subpart applies to a company (the conduit company) for an income year if—
(a) the conduit company is a foreign dividend payment account (FDPA) company or a conduit tax relief (CTR) company, and is not a member of a New Zealand banking group for a registered bank; and
-
(b) in the income year, the conduit company—
(i) derives foreign attributed income; or
(ii) is paid a dividend from which the company must pay FDP, or would be required to do so in the absence of section RG 7 (Reduction of payments for conduit tax relief); and
(c) the threshold test in section FF 4 is met.
Defined in this Act: amount, company, conduit company, CTR company, dividend, FDP, FDPA company, foreign attributed income, income year, interest, New Zealand banking group, pay, registered bank,
Compare: 2004 No 35 s FH 1(1)
FF 3 Steps required to determine treatment of excessive interest expenditure
-
The following steps are required to determine if a conduit company has an excessive amount of interest expenditure apportioned to its New Zealand operations, and how the amount is to be treated:
(a) step 1: identify the members of the conduit company’s New Zealand foreign group, seesection FF 8:
(b) step 2: calculate the debt percentage of the New Zealand foreign group, seesection FF 9:
(c) step 3: if the debt percentage is more than 66%, and the conduit company chooses to make the calculation, calculate the debt percentage of its consolidated foreign group, seesection FF 10:
(d) step 4: determine whether an excess amount of interest expenditure exists, seesection FF 5:
(e) step 5: determine the conduit company’s share of the excess amount of interest expenditure for inclusion in the formula in section LQ 1(2) (Tax credits of CTR companies) reducing the tax credit for conduit tax relief, seesection FF 6:
(f) step 6: use any surplus amount to adjust the amount of the conduit company’s foreign dividends by treating the company as having an additional amount of income and a debit in its CTR account, seesection FF 7.
Defined in this Act: amount, company, conduit company, CTR account, dividend, foreign dividend, foreign group, income, interest, New Zealand, tax credit,
Interest apportionment rule
FF 4 Threshold for application of interest apportionment rule
-
When interest apportionment rule applies
(1) The interest apportionment rule in this subpart applies for an income year only if—
(a) the amount of a conduit company’s conduit tax relief determined under subsection (2) for the corresponding tax year is $50,000 or more; or
(b) the debt percentage of a conduit company’s New Zealand foreign group, as determined under sections FF 9 and FF 10, for the income year is more than 66%.
Determination of threshold amount
(2) The amount of conduit tax relief referred to in subsection (1)(a) is the sum of the tax credits under sections LQ 1 to LQ 4 (which relate to conduit tax relief) and reductions in FDP under section RG 7 (Reduction of payments for conduit tax relief) that—
(a) the company has for the income year, for reductions in FDP, or the corresponding tax year, for tax credits under sections LQ 1 to LQ 4 as a CTR company, or would have if it were a CTR company; and
(b) all companies associated with the company have for the income year, for reductions in FDP, or the corresponding tax year, for tax credits under sections LQ 1 to LQ 4 as CTR companies, or would have if they were CTR companies.
Calculation
(3) For the purposes of subsection (2), the calculation of each credit is made as if item excess interest allocation in the formula in section LQ 1(2) (Tax credits of CTR companies) were zero.
Defined in this Act: amount, associated person, company, conduit company, CTR company, FDP, foreign group, interest, New Zealand, tax credit, tax year,
Compare: 2004 No 35 s FH 1
FF 5 Determination of excess amount of interest expenditure of group
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When this section applies
(1) This section applies to determine whether a group of companies has an excess amount of interest expenditure in an income year.
Formula
(2) The amount is calculated using the formula—
Definition of items in formula
(3) In the formula, —
-
(a) interest expenditure is the total amount of deductions for interest under any of sections DB 6 to DB 8 (which relate to deductions for interest) as modified by section FE 6 (Apportionment of interest by excess debt entity) or section FZ 2 (Effect of specified lease on lessor and lessee), that members of the company’s foreign group at the end of the income year are allowed for the income year, excluding—
(i) any amount payable to another company in the foreign group; and
(ii) any amount for a financial arrangement excluded, when sections FF 9 and FF 10 are applied, as a result of the rules in section FE 15 (Total group debt):
(b) NZ foreign group debt percentage is the debt percentage of the company’s New Zealand foreign group for the income year calculated under section FF 9:
-
(c) relief debt percentage is the greatest of the following:
(i) 66%:
(ii) the debt percentage of the New Zealand foreign group for the income year as calculated for the conduit company without any reduction of the total group assets under section FF 9(3):
(iii) the debt percentage of the consolidated foreign group for the income year under section FF 10, if the conduit company chooses to make the modified calculation described in that section.
Negative result
(4) If the result of the formula is negative, it is treated as zero.
Defined in this Act: amount, company, conduit company, deduction, financial arrangement, foreign group, group of companies, interest, income year, New Zealand, pay, total group assets,
Compare: 2004 No 35 s FH 5
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FF 6 Conduit tax relief
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What this section does
(1) This section provides for the calculation of a conduit company’s share of an excess interest allocation determined under section FF 5. The result is included as an item in the formula in section LQ 1(2) (Tax credits of CTR companies) that determines the company’s tax credit for conduit tax relief.
Conduit company’s share: formula
(2) The conduit company’s share of an excess amount of interest expenditure for an income year is calculated using the formula—
Definition of items in formula
(3) In the formula in subsection (2),—
(a) foreign income is the conduit company’s foreign attributed income for the income year less its foreign attributed loss offsets for the corresponding tax year:
-
(b) company credits is the sum of—
(i) an amount that the conduit company is able to credit under section OE 7(3) (BETA payment of income tax) against its income tax liability for the corresponding tax year, determined as if the amount of the tax credit calculated under section LQ 1 were zero; and
(ii) an amount that another company that is part of the same group of companies is able to credit under section OE 7(3) against the conduit company’s income tax liability for the corresponding tax year, determined as if the amount of the tax credit calculated under section LQ 1 were zero:
(c) apportionment percentage is the amount calculated for the tax year corresponding to the income year referred to in paragraph (a) under subsection (5):
(d) tax rate is the basic rate of income tax set out in schedule 1, part A, clause 2 (Basic tax rates: income tax, ESCT, RWT, and attributed fringe benefits) for the corresponding tax year.
Apportionment percentage: formula
(4) An apportionment percentage for an income year is the lesser of 1 and the amount calculated using the formula—
Definition of items in formula
(5) In the formula in subsection (4),—
(a) excess amount is the excess amount of interest expenditure that the conduit company’s foreign group has for the income year, calculated under section FF 5:
(b) tax rate is the basic rate of income tax set out in schedule 1, part A, clause 2 for the corresponding tax year:
(c) net foreign attributed income is the total foreign attributed income for the income year less the total amount of tax losses for the corresponding tax year of all companies, including the conduit company, that are part of the conduit company’s foreign group at the end of its income year:
(d) credits is the total amount that can be credited against the income tax liability for the corresponding tax year under section OE 7(3) of all companies, including the conduit company, that are part of the conduit company’s foreign group at the end of its income year, determined as if the amount of the tax credit calculated under section LQ 1 for all companies were zero.
Defined in this Act: amount, company, conduit company, foreign attributed income, foreign attributed loss offsets, foreign group, group of companies, income tax, income tax liability, income year, interest, tax credit, tax loss, tax year,
Compare: 2004 No 35 ss FH 6, FH 7
FF 7 Surplus to foreign dividends
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When this section applies
(1) This section applies when the total amount of interest expenditure that is apportioned at the end of an income year to all members of a conduit company’s foreign group under section FF 6(4) is less than the amount of interest expenditure calculated for all members of the group under section FF 5(2).
Adjustments
(2) This section provides for an adjustment to the amount of a conduit company’s foreign dividends, and for an amount of income derived by the company and a debit arising in its CTR account through the following calculations that determine:
(a) the tax cash value of the surplus amount, seesubsection (3); and
-
(b) the amount of—
(i) the adjustment, seesubsection (5); and
(ii) income, seesubsection (7); and
(c) the amount of the debit, seesubsection (8).
Surplus amount as percentage: formula
(3) The tax cash value of the surplus amount for the income year is the lesser of 1 and the percentage calculated using the formula—
Definition of items in formula
(4) In the formula in subsection (3),—
(a) surplus amount is the amount that is the difference between the results of the calculations made under sections FF 5(2) and FF 6(4) as described in subsection (1):
(b) tax rate is the basic rate of income tax set out in schedule 1, part A, clause 2 (Basic tax rates: income tax, ESCT, RWT, and attributed fringe benefits) for the corresponding tax year:
-
(c) group FDP is the total amount of FDP—
(i) calculated after taking into account an amount of a tax loss component that the conduit company chooses to use to satisfy a liability to pay some or all of a payment of FDP under section RA 6 (Withholding and payment obligations for passive income), but before taking into account a reduction in liability under section RG 7 (Reduction of payments for conduit tax relief); and
(ii) required to be withheld from dividends paid during the income year to a company that is a member of the conduit company’s foreign group at the end of the income year.
Adjustment to foreign dividends: formula
(5) The adjustment to be made to the amount of the conduit company’s foreign dividends is calculated using the formula—
Definition of items in formula
(6) In the formula in subsection (5),—
-
(a) company FDP is the total amount of FDP—
(i) calculated after taking into account an amount of a loss balance that the company chooses to use to satisfy a liability to pay some or all of the payment of FDP under section RG 6 (Using loss balances) but before taking into account a reduction in liability under section RG 7; and
(ii) required to be withheld from dividends paid to the company during the income year:
(b) surplus percentage is the percentage figure given by the formula in subsection (3):
(c) tax rate is the rate of income tax set out in schedule 1, part A, clause 2 for the corresponding tax year.
Income
(7) The conduit company is treated as deriving under section CV 10 (Foreign dividend payment account companies or conduit tax relief companies) on the last day of the income year an amount of income equal to the adjustment calculated under subsection (5).
Debit in CTR account
(8) If the conduit company is a CTR company, the CTR account is adjusted by a debit under section OD 13 (CTRA adjustment for conduit tax relief) of an amount calculated using the formula—
income under subsection (7) × tax rate.
Definition of items in formula
(9) In the formula in subsection (8),—
(a) income under subsection (7) is the amount of income referred to in subsection (7):
(b) tax rate is the rate of income tax set out in schedule 1, part A, clause 2 for the corresponding tax year.
Defined in this Act: amount, conduit company, CTR account, CTR company, dividend, FDP, foreign dividend, foreign group, income, income tax, income year, interest, loss balance, pay, tax, tax loss component, tax year,
Compare: 2004 No 35 s FH 8
Membership and debt percentages of foreign groups
FF 8 Identifying members of foreign groups
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New Zealand group under interest apportionment rules
(1) If a conduit company is a person described in section FE 2 (When this subpart applies), the company’s foreign group is made up of the members of its New Zealand group under section FE 28 (Identifying members of New Zealand group). However, the grouping rules for holding companies in section FE 29 (Holding companies) do not apply.
Resident group companies
(2) If subsection (1) does not apply, a conduit company’s foreign group is made up of—
(a) the conduit company; and
-
(b) a company that is—
(i) part of the same group of companies as the conduit company; and
(ii) resident in New Zealand or carrying on a business in New Zealand through a fixed establishment in New Zealand.
Defined in this Act: business, company, conduit company, fixed establishment, foreign group, group of companies, New Zealand, resident in New Zealand,
Compare: 2004 No 35 s FH 2
FF 9 Calculating debt percentage of New Zealand foreign groups
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When this section applies
(1) This section applies to determine the debt percentage of a New Zealand foreign group for an income year.
Total group debt divided by total group assets
(2) The debt percentage of a conduit company’s New Zealand foreign group is found by dividing the amount of total group debt by the amount of total group assets of the group for the income year, applying, as relevant, sections FE 3, FE 8, FE 10(1), FE 11 to FE 16, FE 25 to FE 28 and FE 30 (which relate to the thin capitalisation rules), as if the conduit company were an excess debt entity calculating the debt percentage of their New Zealand group.
Formula
(3) For the purposes of this section, the amount that is the total group assets of the New Zealand foreign group as determined under section FE 16 (Total group assets) is reduced by the sum of the amounts calculated for each member of the group using the formula—
percentage of non-resident shareholders × (CFC rights + FIF interests).
Definition of items in formula
(4) In the formula,—
-
(a) percentage of non-resident shareholders is either,—
(i) for a member receiving conduit tax relief through a tax credit under section LQ 1 (Tax credits of CTR companies), the percentage of that member’s non-resident shareholders used to calculate the amount of the credit under section LQ 1(2); or
(ii) for a member receiving conduit tax relief through a reduction in FDP under section RG 7 (Reduction of payments for conduit tax relief), the average of the percentages of that member’s non-resident shareholders used to calculate the amount of the reduction under section RG 7(1):
-
(b) CFC rights is the total value of the rights that the member has in a controlled foreign company (CFC) that—
(i) are determined under section FE 16 at the relevant measurement date; and
(ii) result in the member having attributed CFC income or attributed CFC loss for an accounting period that includes the relevant measurement date:
-
(c) FIF interests is the total value of interests that the member has in a foreign investment fund (FIF) that—
(i) are determined under section FE 16 at the relevant measurement date; and
(ii) in relation to which they determine their FIF income or FIF loss under the accounting profits method or the branch equivalent method.
Modifications in certain circumstances
(5) For the purposes of this section, if the conduit company and each company in the same New Zealand group are the company’s foreign group under section FF 8(2), the following modifications apply:
(a) sections FE 26 to FE 30 (which relate to the identification of members of a New Zealand group) do not apply:
(b) the group of companies referred to in section FE 14 (Consolidation of debts and assets) is the group identified under section FF 8(2):
(c) section FE 8(2) (Measurement dates) applies as if the company were the New Zealand parent.
Defined in this Act: accounting period, accounting profits method, amount, attributed CFC income, attributed CFC loss, branch equivalent method, CFC, company, conduit company, dividend, excess debt entity, FDP, FIF, FIF income, FIF loss, foreign group, group of companies, income year, New Zealand, non-resident, pay, shareholder, tax credit, total group assets, total group debt,
Compare: 2004 No 35 s FH 3
-
FF 10 Calculating debt percentage of consolidated foreign groups
-
When this section applies
(1) This section applies when the debt percentage of a New Zealand foreign group for an income year is more than the threshold percentage set out in section FF 4(1)(b) to determine whether, on a consolidated basis, a higher threshold for the application of the interest apportionment rule is justified.
Conduit company’s election
(2) If the debt percentage of a conduit company’s New Zealand foreign group for an income year is more than 66%, the company may choose to calculate the debt percentage of its consolidated foreign group under section FF 9, as modified by subsection (3).
Modifications
(3) For the purposes of the consolidated calculation,—
(a) the assets of the group exclude all income interests in a CFC or FIF in a country that is not included in the grey list, calculated under the accounting profits or branch equivalent method:
-
(b) the debts and assets of a CFC or FIF are consolidated with the foreign group if, for the accounting period in which the relevant measurement date under section FE 8(1) (Measurement dates) falls,—
(i) the foreign group holds total income interests of 40% or more in a CFC; or
(ii) the foreign group would be treated under section EX 8 (Income interests: total of direct and indirect interests) if the FIF were a CFC as holding total income interests of 40% or more in the FIF:
-
(c) a percentage of the debts and assets of a CFC or FIF equal to the total percentage income interest of the foreign group in the CFC or FIF is consolidated with the foreign group if, for the accounting period in which the relevant measurement date under FE 8(1) falls,—
(i) the foreign group holds total income interests of 5% or more but less than 40% in a CFC; or
(ii) the foreign group would be treated under section EX 8 if the FIF were a CFC as holding total income interests of 5% or more but less than 40% in the FIF.
Accounting practice
(4) A consolidation under this section is made as if the CFC or FIF were a member of the foreign group using—
(a) generally accepted accounting practice for consolidation of a group of companies for the elimination of intra-group balances; and
(b) the values shown in the financial accounts for the accounting period calculated according to a financial reporting standard that is equivalent to generally accepted accounting practice.
Defined in this Act: accounting period, accounting profits method, branch equivalent method, CFC, company, conduit company, FIF, foreign group, generally accepted accounting practice, grey list, group of companies, income interest, income year, interest, New Zealand,
Compare: 2004 No 35 ss FH 3(1), FH 4
FF 11 Changes in foreign group membership
-
A temporary change in membership of a conduit company’s foreign group is disregarded in making the calculations in section FF 7 if a purpose or effect of the change is to defeat the intent and application of the section.
Defined in this Act: conduit company, foreign group,
Compare: 2004 No 35 s FH 8(6)
Subpart FL—Emigration of resident companies
FL 1 What this subpart does
-
When this subpart applies
(1) This subpart applies when a company that is a New Zealand resident (the emigrating company) stops being a New Zealand resident.
Tax effects
(2) For tax purposes, the effects on an emigrating company and its shareholders, when an emigrating company becomes non-resident reflect the effects that would have resulted if,—
-
(a) immediately before the time of emigration,—
(i) the emigrating company disposed of its property at market value; and
(ii) the emigrating company went into liquidation; and
(iii) the amount available for distribution on liquidation were distributed as dividends to shareholders of the emigrating company to the extent to which the amount is more than the available subscribed capital and any capital gain of the company; and
-
(b) at the time of emigration, the emigrating company were reformed as a foreign company with—
(i) the same ownership and business activities as those of the emigrating company immediately before the time of emigration; and
(ii) the property of the emigrating company immediately before the time of emigration, acquired at its market value at that time.
Defined in this Act: amount, available subscribed capital, business, company, dividend, emigrating company, foreign company, liquidation, market value, New Zealand resident, non-resident, shareholder, tax, time of emigration,
Compare: 2004 No 35 s FCB 1
-
FL 2 Treatment of emigrating companies and their shareholders
-
When this section applies
(1) This section applies immediately before the time of emigration of an emigrating company.
Treatment of company
(2) The company is treated as—
(a) disposing of its property to a person, and reacquiring the property from the person, for consideration equal to the market value of the property at the time; and
(b) making a distribution in money as a dividend to its shareholders of an amount that would be available for distribution at the time if the company were treated as going into liquidation.
Treatment of shareholder
(3) Each shareholder of the company is treated as being paid a distribution in money as a dividend of the amount the shareholder would be entitled to at the time if the company were treated as going into liquidation.
Defined in this Act: amount, dividend, emigrating company, liquidation, market value, pay, shareholder, time of emigration,
Compare: 2004 No 35 ss FCB 2, FCB 3
Subpart FM—Consolidated groups of companies
Introductory provisions
FM 1 What this subpart applies to
-
This subpart applies to eligible companies that are part of a wholly-owned group of companies that choose to form a consolidated group of companies.
Defined in this Act: company, consolidated group, wholly-owned group,
Compare: 2004 No 35 s FD 1
FM 2 Consolidation rules
-
Purpose
(1) The consolidation rules are intended to ensure that, unless a provision of this Act expressly provides otherwise or the context requires another result, this Act applies to companies that are part of a consolidated group as if they were a single company, including its treatment for the following purposes:
(a) to determine whether a tax credit may be used to satisfy the income tax liability of a consolidated group for a tax year:
(b) when a provision sets a limit or provides a threshold, and its application depends on whether or not something is more or less than the limit or threshold.
Meaning
(2) The consolidation rules means the following:
(a) this subpart:
(b) section GB 38 (When sections GB 35 to GB 37 apply to consolidated groups):
(c) subpart ID (Use of tax losses by consolidated groups):
(d) sections LK 8 to LK 11 (which relate to tax credits of consolidated group companies):
(e) subpart OP (Memorandum accounts of consolidated groups):
(f) section RC 28 (Provisional tax rules and consolidated groups):
(g) sections 73 and 74 of the Tax Administration Act 1994.
Defined in this Act: company, consolidated group, consolidation rules, income tax liability, tax credit, tax year,
Compare: 2004 No 35 ss FD 1, OB 1 consolidation rules
FM 3 Liability of consolidated groups and group companies
-
Taxable income of consolidated group
(1) For the purposes of calculating the income tax liability for a tax year of a consolidated group under subpart BC (Calculating and satisfying income tax liabilities), the taxable income of a consolidated group for a tax year is the sum of the amounts calculated under subsection (2) for each company in the consolidated group for all or part of the corresponding income year.
Calculation for each company in consolidated group
(2) Each company that is part of a consolidated group for all or part of an income year must calculate the amount that would be its taxable income under subpart BC, as modified by this section and sections FM 4 to FM 13, for all or part of the income year in which the company is part of the consolidated group.
Returns and assessment by consolidated group
(3) The nominated company of a consolidated group must—
(a) provide a single return of income for a tax year for the companies in the consolidated group in the corresponding income year under section 33 of the Tax Administration Act 1994; and
(b) make an assessment under section 92 of the Tax Administration Act 1994 of the amount of income tax payable by the consolidated group.
No separate returns or assessment (with exception)
(4) A group company cannot make a separate assessment or return for the tax year unless it is, for part of the corresponding income year, not part of the consolidated group.
Joint and several liability
(5) Each company that is part of a consolidated group is jointly and severally liable for the amount of income tax assessed for the consolidated group in relation to its taxable income.
Individual liability
(6) The joint and several liability of each company that is part of a consolidated group is substituted for their individual income tax liability, but only to the extent—
(a) of the income tax liability of the consolidated group for the period of the income year in which the company is in the consolidated group; and
(b) to which section FM 37 does not apply.
Withholding and payment obligations of companies
(7) Each company that is part of a consolidated group is liable to comply with its obligations under the PAYE rules, the FBT rules, the ESCT rules, the RWT rules, and the NRWT rules.
Defined in this Act: amount, assessment, company, consolidated group, corresponding income year, ESCT rules, FBT rules, income tax, income tax liability, income year, nominated company, NRWT rules, pay, PAYE rules, return of income, RWT rules, tax year, taxable income,
Compare: 2004 No 35 ss HB 1(1), HB 2(1), NB 1
FM 4 Limiting joint and several liability of group companies
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When this section applies
(1) This section applies before the nominated company of a consolidated group makes an assessment for the consolidated group for a tax year.
Named companies bearing liability
(2) Despite section FM 3(5), the nominated company may ask the Commissioner for approval for 1 or more named companies in the consolidated group to bear the consolidated group’s income tax liability for the tax year.
Approval by Commissioner
(3) The Commissioner must approve a request under subsection (2) unless limiting the liability to the named companies will significantly prejudice the recovery, or likely recovery, of the income tax liability of the consolidated group for the tax year.
Liability limited to named companies
(4) For a tax year to which an approval referred to in subsection (3) relates,—
(a) only a named company is liable for the income tax liability of the consolidated group, and if more than 1 company is named, the liability is joint and several:
(b) section RC 28 (Provisional tax rules and consolidated groups) does not apply to impose on a company other than a named company joint and several liability for provisional tax payable by the consolidated group.
When named companies do not meet obligations
(5) Despite subsection (4), the joint and several liability of a group company other than a named company is not extinguished to the extent to which—
(a) a named company does not meet their income tax liability under this section; and
(b) the Commissioner determines that the income tax liability of the consolidated group that is attributable to the taxable income of a company other than a named company is to be recovered from the other company.
Defined in this Act: assessment, Commissioner, company, consolidated group, income tax liability, nominated company, pay, provisional tax, tax year, taxable income,
Compare: 2004 No 35 s HB 1(3)–(5)
FM 5 Liability when company leaves consolidated group
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Company leaving consolidated group
(1) In an income year in which a company leaves a consolidated group, the company’s liability under section FM 3(5) is removed if all the following paragraphs apply:
-
(a) if the assessment is made after the later of—
(i) the date on which the company is treated as leaving the consolidated group; or
(ii) the date of the event that caused the company to be treated as leaving the consolidated group; and
(b) the amount assessed is more than an earlier assessment of the consolidated group for the income year; and
(c) the Commissioner considers that the removal of the liability will not significantly prejudice the recovery, or likely recovery, of the amount of income tax assessed for the income year.
Notifying company and consolidated group
(2) For the purposes of subsection (1)(c), the Commissioner must notify the company and the consolidated group if the discretion has been exercised.
Defined in this Act: amount, assessment, Commissioner, company, consolidated group, income tax, income year, notify,
Compare: 2004 No 35 s HB 1(2)
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FM 6 Some general rules for treatment of consolidated groups
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References to income, tax losses, tax payable, and credits
(1) For the purposes of the consolidation rules, the following amounts are determined on the basis of a single assessment:
(a) income, assessable income, net income, or taxable income of a consolidated group:
(b) a tax loss component, a tax loss, a loss balance, an attributed CFC net loss, or a FIF net loss of a consolidated group:
(c) tax payable by a consolidated group:
(d) a tax credit available to a consolidated group.
Shares
(2) For the purposes of applying the consolidation rules to particular provisions in this Act, the shares or options over shares of a consolidated group are treated as comprising all the shares or options over shares of the companies in the consolidated group at the relevant time.
Dividends
(3) A dividend that 1 company that is part of a consolidated group pays to another group company continues to be taken into account for the purposes of—
(a) the imputation rules:
(b) the foreign dividend payment (FDP) rules:
(c) sections FM 8(3)(c), FM 24 to FM 30, GB 38, GB 40, OP 3 to OP 77, (which relate to dividends and consolidated groups):
(d) subpart OE (Branch equivalent tax accounts (BETA)):
(e) sections 73 and 74 of the Tax Administration Act 1994.
International tax rules
(4) The international tax rules apply, modified as necessary, as if the consolidated group were a single company.
Balances of imputation credit and FDP accounts
(5) Sections OA 3 (General rules for maintaining memorandum accounts), and YA 2(2)(e) (Meaning of income tax varied) apply for the purposes of sections FM 24 to FM 30, GB 38, subpart OP, and sections 73 and 74 of the Tax Administration Act 1994, as if the references to—
(a) the imputation rules were references to sections OP 3 to OP 50:
(b) the FDP rules were references to sections FM 24 to FM 30, and OP 51 to OP 77.
Defined in this Act: amount, assessable income, assessment, attributed CFC net loss, company, consolidated group, consolidation rules, dividend, FDP account, FDP rules, FIF net loss, imputation credit account, imputation rules, income, income tax, international tax rules, loss balance, net income, pay, share, tax, tax credit, tax loss, tax loss component, taxable income,
Compare: 2004 No 35 ss FD 2, FD 11
Calculating taxable income for consolidated group returns
Accounting generally
FM 7 Treatment of amounts derived or expenditure incurred
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Sections FM 8 to FM 30 set out the treatment of certain amounts derived or expenditure incurred while a company is part of a consolidated group. The treatment applies to the part of a company’s income year when the company is in the consolidated group.
Defined in this Act: amount, company, consolidated group, income year,
Compare: 2004 No 35 s HB 2(1)
FM 8 Transactions between group companies: income
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When this section applies
(1) This section applies when a company that is part of a consolidated group derives an amount of income from a transaction or arrangement with another company in the same consolidated group, and the amount would not be income if the consolidated group were 1 company.
Excluded income
(2) The amount is excluded income of the company under section CX 60 (Intra-group transactions).
Exclusion of certain amounts
(3) Despite subsection (2), this section does not apply to—
(a) an amount arising from the disposal of the company’s trading stock; or
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(b) an amount arising under section EW 31 (Base price adjustment formula) from—
(i) the disposal of a financial arrangement to which the financial arrangements rules apply; or
(ii) the remission of a financial arrangement to which the financial arrangements rules apply, if the parties were not group companies for the whole term of the arrangement; or
(c) a dividend under section CD 4(1) (Transfers of value generally) between group companies arising from the release of an obligation to repay money lent before the companies are treated under FM 35 as part of the consolidated group.
Defined in this Act: amount, arrangement, company, consolidated group, dividend, excluded income, financial arrangement, financial arrangements rules, income, money lent, pay, trading stock,
Compare: 2004 No 35 s HB 2(1)(a)
FM 9 Amounts that are company’s income
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When this section applies
(1) This section applies when a company that is part of a consolidated group derives an amount that would not be income of the company in the absence of this section, but would be income of the consolidated group if it were 1 company either—
(a) because of a purpose for which an item of property was acquired; or
(b) because a connection exists between the amount and the carrying on of a business by another consolidated group company; or
(c) for some other reason.
Income
(2) The amount is income of the company under section CV 2 (Consolidated groups: income of company in group).
Defined in this Act: amount, business, company, consolidated group, income,
Compare: 2004 No 35 s HB 2(1)(e)
FM 10 Expenditure: intra-group transactions
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When this section applies
(1) This section applies when—
(a) a company incurs expenditure or loss, or has an amount of depreciation loss, in a tax year or part of a tax year in which it is part of a consolidated group; and
(b) the company incurs the expenditure or loss through a payment or disposal to, or a transaction or arrangement with, another consolidated group company.
No deduction (with exception)
(2) If a deduction would not be allowed for the expenditure or loss if the consolidated group were 1 company, the company is denied a deduction under section DV 16 (Consolidated groups: intra-group transactions) unless the exceptions in section DV 16(2)(a) or (b) apply.
Defined in this Act: amount, arrangement, company, consolidated group, deduction, depreciation loss, loss, tax year,
Compare: 2004 No 35 s HB 2(1)(b)
FM 11 Expenditure: nexus with income derivation
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When this section applies
(1) This section applies when a company incurs expenditure or loss or has an amount of depreciation loss in a tax year or part of a tax year in which it is part of a consolidated group that—
(a) is not expenditure or loss to which section FM 10 applies; and
(b) would not be allowed as a deduction to the company in the absence of this section.
Deduction
(2) The company is allowed a deduction for the amount under section DV 17 (Consolidated groups: expenditure or loss incurred by group companies) if the consolidated group would be allowed a deduction for the amount, treating the group as if it were 1 company, because of a connection between—
(a) the incurring of the expenditure or loss or amount of depreciation loss; and
(b) the deriving of assessable or excluded income, or the carrying on of a business by another company in the consolidated group.
Defined in this Act: amount, assessable income, business, company, consolidated group, deduction, depreciation loss, excluded income loss, tax year,
Compare: 2004 No 35 s HB 2(1)(c)
FM 12 Expenditure when deduction would be denied to consolidated group
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When this section applies
(1) This section applies when a company incurs expenditure or loss or an amount of depreciation loss in a tax year or part of a tax year in which it is part of a consolidated group that—
(a) is not expenditure or loss to which section FM 10 applies; and
(b) would be allowed as a deduction to that company in the absence of this section.
No deduction (with exception)
(2) The company is denied a deduction for an amount under section DV 17 (Consolidated groups: expenditure or loss incurred by group companies) if the deduction would be denied to the consolidated group, treating the group as if it were 1 company, except to the extent to which the expenditure or loss or amount of depreciation loss is interest on money that the company has borrowed from a person that is part of the consolidated group, and the company—
(a) is allowed a deduction under section DB 7 (Interest: most companies need no nexus with income) or DB 8 (Interest: money borrowed to acquire shares in group companies):
(b) would be allowed a deduction under section DB 7 or DB 8 because the company is treated as having used the money borrowed, to the extent of the actual acquisition cost, to acquire certain shares when, through interposed intra-group borrowings, the money borrowed was in fact used by another group company in acquiring the shares.
Defined in this Act: amount, company, consolidated group, deduction, depreciation loss, interest, loss, share, tax year,
Compare: 2004 No 35 s HB 2(1)(d)
FM 13 Capital expenditure
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When this section applies
(1) This section applies when a company that is part of a consolidated group incurs expenditure or loss that would, treating the consolidated group as if it were 1 company, be taken into account in determining the cost of property but would not otherwise be taken into account in the absence of this section.
Amount taken into account
(2) The expenditure or loss is taken into account in determining the cost of property of companies in the consolidated group.
Defined in this Act: company, consolidated group, loss,
Compare: 2004 No 35 s HB 2(2)
FM 14 Part-year financial statements
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When this section applies
(1) This section applies in an income year when—
(a) a company joins or leaves a consolidated group during the income year; or
(b) a consolidated group is formed or ends its existence during the income year.
Who must provide statements
(2) The following returns of income for the tax year must include part-year financial statements under sections FM 38(5) and FM 40(4):
(a) by the company when the financial statements relate to a period in which the company is not in the consolidated group:
(b) by the consolidated group when the financial statements relate to a period in which the company is in the consolidated group:
(c) by another consolidated group when the financial statements relate to a period in which the company is in another consolidated group.
Detailed statements
(3) The part-year financial statements must determine, as applicable, the annual gross income, annual total deductions, income tax liability, or tax loss of the company in a fair and reasonable way. For this purpose the relevant part of the income year is treated as a complete income year.
Defined in this Act: annual gross income, annual total deduction, company, consolidated group, income tax liability, income year, return of income, tax loss, tax year,
Compare: 2004 No 35 s FD 9
Accounting for particular property
FM 15 Amortising property and revenue account property
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When this section applies
(1) This section applies—
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(a) when property is transferred from a company (company A) to another company (company B) and both companies are in the same consolidated group at the time the transfer takes place, and the property transferred is—
(i) amortising property; or
(ii) revenue account property, but not trading stock or a financial arrangement to which the financial arrangements rules apply; and
(b) to determine the income and deductions on a later disposal of property, or in relation to the depreciation or amortisation of the acquisition cost of the property under this Act.
Acquisition by company B
(2) Company B is treated as acquiring the property on the date it was acquired by company A for the amount set out in subsections (3) to (5).
Whole pool
(3) When the property forms the whole of a pool of property that is depreciated by company A under sections EE 20 to EE 24 (which relate to depreciation loss calculated under the pool method), the amount in subsection (2) is the adjusted tax value of the pool immediately before the property is transferred to company B.
Part pool
(4) When the property forms only part of a pool of property that is depreciated by company A under sections EE 20 to EE 24, the amount in subsection (2) is the lesser of—
(a) the market value of the property transferred to company B; and
(b) the adjusted tax value of the whole of the pool immediately before the property is transferred to company B.
Not pool property
(5) If subsections (3) and (4) do not apply, the amount in subsection (2) is the sum of the following amounts of expenditure incurred by company A before the property is transferred to company B for which no deduction has been allowed other than by the depreciation or amortisation of the acquisition cost of the property under section EE 1, EZ 7, or EZ 8 (which relate to depreciation), or another amortisation provision of this Act:
(a) the original purchase price of the property:
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(b) expenditure incurred—
(i) in purchasing or improving the property; or
(ii) in securing or improving company A’s legal rights to the property.
When subsection (7) applies
(6) Subsection (7) applies—
(a) for the purposes of sections EE 46 to EE 52 (which relate to disposals and depreciation recovery income); and
(b) to property referred to in subsection (1)(b) other than pooled property; and
(c) in relation to an amount of depreciation loss or amortisation of acquisition cost up to the time the property is transferred from company A to company B.
Pre-transfer deductions for depreciation loss and amortisation
(7) Company B is treated as allowed the pre-transfer deductions that company A is allowed for amounts of depreciation loss under section EZ 7 or EZ 8, or for an amount of expenditure or loss under another amortisation provision of this Act.
Defined in this Act: acquire, adjusted tax value, amortising property, amount, company, consolidated group, deduction, depreciation loss, financial arrangement, financial arrangements rules, income, market value, other amortisation provision, pool, revenue account property, trading stock,
Compare: 2004 No 35 s FD 10(1), (2)
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FM 16 Land or business: certain farming or forestry expenditure
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When this section applies
(1) This section applies in an income year when 2 companies (company A and company B) are in the same consolidated group for the whole of the income year, and —
(a) company A transfers land to company B, and company B holds the land for the remainder of the income year; or
(b) company A stops carrying on a business, and company B carries on the business for the remainder of the income year.
Deductions for certain farming and forestry expenditure
(2) Company A is allowed a deduction under sections DO 4 to DO 6, and DO 12 (which relate to farming and aquaculture expenditure), or DP 3 (Improvements to forestry land) after the transfer or cessation of the business as if the transfer or cessation did not occur.
Defined in this Act: business, company, consolidated group, deduction, income year, land,
Compare: 2004 No 35 s FD 10(3)
FM 17 Trading stock
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When this section applies
(1) This section applies in an income year in which a company (company A) transfers identifiable trading stock to another company (company B) when—
(a) company A and company B are in the same consolidated group at the time of the transfer; and
(b) company A and company B choose to value the trading stock under subpart EB (Valuation of trading stock (including dealer’s livestock)) or at the cost to company A, as applicable; and
(c) the nominated company of the consolidated group notifies the Commissioner within the time for providing the consolidated group’s return of income, or a later time if the Commissioner agrees.
Trading stock held at start of income year
(2) If company A held the trading stock at the start of the income year, the consideration for the transfer is the value of the trading stock at the start of the income year determined under subpart EB.
Trading stock acquired
(3) If subsection (2) does not apply, the consideration for the transfer is the cost of the trading stock to company A.
Defined in this Act: Commissioner, company, consolidated group, income year, nominated company, notify, return of income, trading stock,
Compare: 2004 No 35 s FD 10(5)
FM 18 Financial arrangements: transfer from company A to company B
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When this section applies
(1) This section applies in an income year in which a company (company A) transfers a financial arrangement to which the financial arrangements rules apply to another company (company B) when—
(a) company A and company B are in the same consolidated group for the whole of the income year; and
(b) the method of calculating income and expenditure from the financial arrangement does not change after the transfer, and the consolidated group’s return of income is made on that basis; and
Treatment of companies
(2) In the year of transfer and in later income years,—
(a) company A is treated as if it had never been a party to the financial arrangement, and section EW 31 (Base price adjustment formula) does not apply:
(b) company B is treated as if it had taken all the actions that company A undertook before the transfer in entering into the financial arrangement, incurring expenditure and deriving income, and providing its return of income in relation to the financial arrangement.
Relationship with sections EW 38 and GB 21
(3) This section overrides sections EW 38 (Consideration when disposal for no, or inadequate, consideration) and GB 21 (Dealing that defeats intention of financial arrangements rules).
Defined in this Act: company, consolidated group, financial arrangement, financial arrangements rules, income, income year, loss balance, return of income,
Compare: 2004 No 35 s FD 10(4), (4A)
FM 19 Financial arrangements: transfer for fair and reasonable consideration
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When this section applies
(1) This section applies in an income year in which a company (company A) transfers a financial arrangement to another company (company B) when—
(a) company A and company B are in the same consolidated group at the time of the transfer; and
(b) section FM 18 does not apply to the transfer; and
(c) the method of calculating income and expenditure from the financial arrangement does not change after the transfer, and the consolidated group’s return is made on this basis.
Consideration for transfer
(2) In calculating the base price adjustment, company A’s consideration for the transfer is a fair and reasonable amount of the income that would have been derived, or the expenditure that would have been incurred, by company A in the year of transfer if the transfer had not taken place.
Relationship with sections EW 38 and GB 21
(3) This section overrides sections EW 38 (Consideration when disposal for no, or inadequate, consideration) and GB 21 (Dealing that defeats intention of financial arrangements rules).
Defined in this Act: amount, company, consolidated group, financial arrangement, income, income year, return of income,
Compare: 2004 No 35 s FD 10(4), (4B)
FM 20 Financial arrangements: transfer at market value
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When this section applies
(1) This section applies in an income year in which a company (company A) transfers a financial arrangement to another company (company B) when—
(a) company A and company B are in the same consolidated group at the time of the transfer; and
(b) neither section FM 18 nor FM 19 applies to the transfer.
Consideration for transfer
(2) The consideration for the transfer is the market value of the financial arrangement on the date of the transfer.
Relationship with sections EW 38 and GB 21
(3) This section overrides sections EW 38 (Consideration when disposal for no, or inadequate, consideration) and GB 21 (Dealing that defeats intention of financial arrangements rules).
Defined in this Act: company, consolidated group, financial arrangement, income year,
Compare: 2004 No 35 s FD 10(4), (4C)
FM 21 Property transfers when companies leave consolidated groups
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When this section applies
(1) This section applies to the extent to which a transfer of property has not previously been taken into account in the calculation of a consolidated group’s taxable income under sections FM 8 to FM 13, or FM 15 to FM 20 and FM 23 when—
(a) a company leaves a consolidated group, but not through liquidation; and
(b) the company holds property that has at any time been transferred between companies in the same consolidated group; and
(c) sections FM 15, or FM 17 to FM 20 applied to the transfer of the property.
Disposal and acquisition at market value
(2) The company is treated as disposing of the property immediately before it leaves the consolidated group to a person not associated with it, and reacquiring it at that time at its market value.
Market value at time of transfer
(3) If the item of property is part of or is absorbed into some other property, or its market value cannot be separately identified, the company is treated as disposing of and reacquiring the property at its market value at the time of the transfer under the relevant provision referred to in subsection (1)(c). If the property is transferred more than once, the time of disposal and reacquisition is the date of the latest transfer at which its market value can be determined.
Defined in this Act: associated person, company, consolidated group, liquidation, market value, taxable income,
Compare: 2004 No 35 s FD 10(6), (7)
FM 22 Arrangements to avoid consolidation rules
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When this section applies
(1) This section applies when—
(a) a company joins a consolidated group and at the time holds property that it later transfers to another group company; and
(b) sections FM 15 or FM 17 to FM 20 would otherwise apply to the transfer of the property; and
(c) after the transfer the company leaves the consolidated group, whether by liquidation or otherwise.
Arrangement to defeat consolidation rules
(2) If, in undertaking the activities, it could reasonably be concluded that the company was involved in an arrangement that had a purpose or effect of defeating the intent and application of the consolidation rules, the relevant provision does not apply to the transfer.
Defined in this Act: arrangement, company, consolidated group, consolidation rules, liquidation,
Compare: 2004 No 35 s FD 10(9)
FM 23 Arrangements for disposal of shares
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When this section applies
(1) This section applies when—
(a) 2 companies (company A and company B) are in the same consolidated group; and
(b) the value of company A’s net assets have been reduced as a result of a dividend, distribution, payment, arrangement, or transaction between company A and company B at the time the dividend is paid or the distribution, payment, arrangement, or transaction is made; and
(c) another company (company C) disposes of shares in company A for consideration that is less than the amount that would have been received in an arm’s length transaction had the reduction in the value of company A’s net assets not occurred; and
(d) if the disposal were by way of sale, the consideration from the sale would be included in company C’s income, other than income taken into account under section FM 3.
Arm’s length transaction on disposal of shares
(2) The disposal is treated as if it were a sale at arm’s length.
Income
(3) The amount that would have been received in an arm’s length transaction is income of company C under section CV 3 (Consolidated groups: arrangement for disposal of shares).
Timing
(4) The time at which the consideration for the sale at arm’s length is determined is before the reduction in the value of company A’s net assets.
Relationship with sections FM 8 and FM 11
(5) Subsection (2) does not apply to an amount of income taken into account under section FM 8 or FM 11.
Defined in this Act: amount, arrangement, company, consolidated group, dividend, income, pay, share,
Compare: 2004 No 35 s FD 10(8)
Treatment of foreign dividends
FM 24 General treatment of foreign dividends
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When this section applies
(1) This section applies when a company is part of a consolidated group at a time when it receives a foreign dividend for which it is required to make a payment to the Commissioner under section RG 3 (Obligation to pay FDP).
Joint and several liability
(2) All companies in the consolidated group at the time of the payment of the foreign dividend are jointly and severally liable for the payment, and the Commissioner’s assessment under section 102 of the Tax Administration Act 1994 must reflect the joint and several liability.
Tax credits
(3) For the purposes of sections FM 25 to FM 30, section LF 9 (When income tax unpaid) applies to a company that is part of a consolidated group.
Defined in this Act: assessment, Commissioner, company, consolidated group, foreign dividend, pay,
Compare: 2004 No 35 s NH 5(3), (9)
FM 25 Reduction in payments for foreign dividends
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When this section applies
(1) This section applies at a time when—
(a) a company is part of a consolidated group that maintains a branch equivalent tax account under section OP 97 (Branch equivalent tax accounts of consolidated BETA groups); and
(b) the company receives a foreign dividend to which section RG 5(3) (Credit balance in branch equivalent tax account) applies in relation to an income interest in a controlled foreign company (CFC) for which it is liable to make a payment to the Commissioner.
Reduction in payment
(2) If the nominated company of the consolidated group chooses under section OP 106(1) (Consolidated BETA reduction of FDP), the payment is reduced by a credit balance in the group’s branch equivalent tax account at the time the dividend is paid.
Whether sufficient interest
(3) In determining whether a person has a sufficient interest in a company at the time, a consolidated group is treated as if it were a single company.
Relationship with section RG 5
(4) This section overrides section RG 5(2).
Defined in this Act: branch equivalent tax account, CFC, Commissioner, company, consolidated group, foreign dividend, income interest, nominated company, pay,
Compare: 2004 No 35 s NH 5(1), (2)
FM 26 Using tax losses to pay FDP
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When this section applies
(1) This section applies when—
(a) a company is liable to pay FDP to the Commissioner for a foreign dividend paid to it; and
(b) the company is part of a consolidated group at the time of the payment; and
Maximum reduction
(2) The nominated company may notify the Commissioner within the time for payment to the Commissioner set out in section RA 15(3)(c) (Payment dates for interim and other tax payments) that it chooses to use the tax loss component or loss balance, so far as it extends, to pay some or all of the payment. The maximum reduction is calculated using the formula—
Definition of items in formula
(3) In the formula,—
(a) payment is the amount determined under section RG 4 (Calculating amount of FDP):
(b) tax rate is the basic rate of income tax set out in schedule 1, part A, clause 2 (Basic tax rates: income tax, ESCT, RWT, and attributed fringe benefits) for the tax year in which the dividend is paid.
Relationship with section RG 6
(4) For the purposes of this section, section RG 6(6) (Using loss balances) applies, modified as necessary.
Defined in this Act: amount, Commissioner, company, consolidated group, FDP, foreign dividend, income tax, income year, loss balance, nominated company, notify, pay, tax loss component, tax year,
Compare: 2004 No 35 s NH 5(4)
FM 27 Refunds of FDP
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When this section applies
(1) This section applies when a company becomes entitled in a tax year to a refund of a FDP paid by it to the Commissioner in an earlier tax year in relation to a foreign dividend received when the company was part of a consolidated group.
Maximum amount of refund
(2) The refund must not be more than the amount set out in the following paragraphs, as applicable:
(a) if the consolidated group has an FDP account at the time the entitlement arises, a credit balance in the group’s FDP account at the end of the tax year that is before the tax year in which the entitlement arises; or
(b) if the consolidated group does not have an FDP account at the time the entitlement arises, a credit balance in the group’s imputation credit account at the end of the tax year that is before the tax year in which the entitlement arises.
Treatment of excess
(3) If subsection (2) does not apply to some or all of the payment because it is more than the applicable credit balance, the amount in excess is credited to FDP payable by the company for a tax year in which it is part of the consolidated group.
Earlier refunds of payments
(4) The credit balance referred to in subsection (3) is treated as reduced by an earlier refund of FDP that is made in the tax year to the company or to another company in the same consolidated group at the time the dividend is paid or for the income year in which the refund is made.
Refunds of income tax
(5) Subsection (4) also applies in relation to a refund of income tax that is, under sections RM 13 to RM 17 (which relate to limit on refunds) no more than the credit balance described in subsection (2).
Relationship with section RM 18
(6) This section overrides section RM 18 (Limits on refunds related to foreign dividends). However, section RM 18 does not limit a refund of FDP to a company that is part of a consolidated group at the time the dividend is paid to the extent to which this section would not have limited the refund.
Defined in this Act: amount, Commissioner, company, consolidated group, FDP, FDP account, foreign dividend, imputation credit account, income tax, pay, tax year,
Compare: 2004 No 35 s NH 5(5), (6), (8)
FM 28 Refund when consolidated group has loss
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When this section applies
(1) This section applies when—
(a) a company has paid FDP to the Commissioner in an income year and, at the time the dividend was paid, the company was part of a consolidated group; and
(b) the group has a tax loss component for the tax year that corresponds to the income year that may be used under section IA 3 and subpart ID (which relate to the treatment of tax losses); and
(c) the nominated company of the consolidated group has filed its return of income under section FM 3(3).
Applying for refund
(2) The company may apply to the Commissioner for a refund of the payment. The maximum refund is the smallest of the following amounts:
(a) the amount of the payment paid in the income year:
(b) the amount of the tax loss component multiplied by the rate set out in subsection (4)(b):
(c) the credit balance of the group’s FDP account at the end of the tax year just ended.
Tax loss component reduced
(3) The amount of the tax loss component is reduced by an amount calculated using the formula—
Definition of items in formula
(4) In the formula,—
(a) amount of refund is the amount of the refund paid to the company:
(b) tax rate is the basic rate of income tax set out in schedule 1, part A, clause 2 (Basic tax rates: income tax, ESCT, RWT, and attributed fringe benefits) for the tax year that corresponds to the income year.
Relationship with section RM 21
(5) This section overrides section RM 21 (Refunds when loss balances used to reduce net income).
Defined in this Act: amount, Commissioner, company, consolidated group, FDP, FDP account, foreign dividend, income tax, income year, nominated company, pay, return of income, tax loss component, tax year,
Compare: 2004 No 35 s NH 5(7)
FM 29 Treatment of credit balance in consolidated group’s FDP account
-
When this section applies
(1) This section applies when a consolidated group has a credit balance in its FDP account at the end of a tax year.
Credit and debit
(2) The nominated company of the consolidated group may choose that some or all of the credit balance becomes—
(a) a credit in the imputation credit account of the group, or of the imputation group to which the consolidated group companies belong; and
(b) a debit in the FDP account of the consolidated group.
How election made
(3) The company makes the election by recording the debit in the consolidated group’s FDP account.
Defined in this Act: consolidated group, FDP account, imputation credit account, imputation group, nominated company, tax year,
Compare: 2004 No 35 s NH 6(6)
FM 30 Application of certain provisions to consolidated groups
-
When subsections (2) and (3) apply
(1) Subsections (2) and (3) apply when a consolidated group has a policyholder credit account and an FDP account.
Credit and debit balances
(2) The nominated company of the consolidated group may choose to have some or all of a credit balance in the FDP account credited to its policyholder credit account by recording the credit and corresponding debit in its accounts.
Section OC 20: life insurance credit balance
(3) Section OC 20 (FDPA transfer to policyholder credit account) applies in relation to a consolidated group, modified as necessary, as if—
(a) a reference to a company were a reference to the consolidated group:
(b) a reference to a provision of this Act applying to a company were a reference to the equivalent of sections OA 2 to OA 4, OA 7, OA 8, OC 2, OC 21, OC 23(4), OC 28(7), OC 34(3), OP 1, OP 2, and OP 51 to OP 77 (which relate to FDP accounts) applying to a consolidated group.
Section OC 27: FDP credits
(4) Section OC 27 (FDP credits attached to dividends) applies in relation to a consolidated group as if the reference to an FDPA company includes a reference to a company if, at the time a foreign dividend is paid to it, the company is part of a consolidated group that maintains an FDP account.
Sections OC 30 to OC 32, and others: liability for payments and penalties
(5) Sections OA 2(5) and OC 30 to OC 32 (which relate to further FDP), and 103, 104, 139B, 140C, 140D, and 181 of the Tax Administration Act 1994 apply, modified as necessary in relation to a consolidated group and its FDP account as if—
(a) the group were a single company:
(b) a reference to a provision of this Act were a reference to the equivalent provision applying to a consolidated group:
(c) a reference to a liability of a company for further FDP, FDP penalty tax, and a late payment penalty were a reference to the joint and several liability for the payment, tax, or penalty of each company that is part of the group at the time the payment, tax or penalty becomes payable.
Section RA 19: amalgamations
(6) Section RA 19 (Refunds of excess amounts or when amounts mistakenly paid) applies, modified as necessary, from the time of amalgamation when a consolidated group ends its existence on a resident’s restricted amalgamation that involves all companies in the consolidated group, whether or not with a company outside the consolidated group, in relation to tax paid by the consolidated group as if it and the amalgamated company were a single company.
Sections 30 and 68 of Tax Administration Act 1994: FDP accounts
(7) Sections 30 and 68 of the Tax Administration Act 1994 apply, modified as necessary, in relation to a consolidated group as if a reference to an FDPA company were a reference to a company that is part of a consolidated group that maintains an FDP account.
Defined in this Act: amalgamated company, amalgamation, company, consolidated group, FDP account, FDP penalty tax, FDPA company, foreign dividend, further FDP, nominated company, pay, policyholder credit account, resident’s restricted amalgamation, tax,
Compare: 2004 No 35 ss NH 4(9), NH 6(1), (2), (5), (7)
Membership of consolidated groups
Eligibility and restrictions
FM 31 Eligibility rules
-
When company eligible
(1) A company is eligible to be part of a consolidated group at a particular time if, at the time,—
(a) it is resident in New Zealand; and
(b) it is not a foreign company; and
(c) it is not a company that derives only exempt income (except income under sections CW 9 to CW 11 (which relate to exempt income from equity)); and
(d) when subsection (2), (3), or (4) applies, it meets the relevant conditions; and
(e) subsections (5) and (6) do not apply to it.
Restriction when company of certain type
(2) Despite subsection (1), if a company that is part of a consolidated group is 1 of the following types of company, all companies in the consolidated group at the time must be the same type as that company:
(a) a qualifying company:
(b) a mining company.
Grandparented consolidated companies
(3) Despite subsection (1), if a company that is part of a consolidated group is a grandparented consolidated company, it must—
(a) be incorporated in New Zealand or be carrying on a business in New Zealand through a fixed establishment; and
(b) not, by the law of another country, be liable to income tax in that country or territory through domicile, residence, or place of incorporation.
Non-standard balance date
(4) Despite subsection (1), if a company that is part of a consolidated group has a non-standard balance date, all companies in the consolidated group at the time must have the same non-standard balance date.
LAQCs
(5) A company is not eligible to be part of a consolidated group if it is an LAQC.
Anti-avoidance measure
(6) A company is not eligible to be part of a consolidated group if, for a purpose of enabling a company to be part of a consolidated group so as to defeat the intent and application of the consolidation rules, the company’s shares—
(a) are subject to an arrangement, or to a series of related or connected arrangements; or
(b) have rights attaching to them extinguished or altered directly or indirectly by any means.
Defined in this Act: arrangement, business, company, consolidated group, consolidation rules, exempt income, fixed establishment, foreign company, grandparented consolidated company, income, LAQC, mining company, New Zealand, non-standard balance date, qualifying company, resident in New Zealand, share,
Compare: 2004 No 35 ss FD 3(b)-(e), OB 1 eligible company
FM 32 Restriction on membership of consolidated groups
-
A company is not eligible to be in more than 1 consolidated group at a particular time. If circumstances arise in which a company would, apart from this section, be treated at a particular time as in more than 1 consolidated group, then—
(a) the company is treated as in the consolidated group of which it was first part; or
(b) if the company is in 2 or more consolidated groups simultaneously, the Commissioner may specify its consolidated group, having regard to all the circumstances of the case.
Defined in this Act: Commissioner, company, consolidated group,
Compare: 2004 No 35 s FD 5
FM 33 When membership is reduced
-
A consolidated group continues to exist if the number of group companies is reduced to 1 company, but if the consolidated group has no company at any time, the consolidated group no longer exists.
Defined in this Act: company, consolidated group,
Compare: 2004 No 35 s FD 8(9)
Nominated companies
FM 34 Nominated companies
-
Group company at the time
(1) The nominated company of a consolidated group at any time must be in the consolidated group at the time.
Agent
(2) For the purposes of this Act and the Tax Administration Act 1994, a nominated company of a consolidated group is, at a time, the agent of the consolidated group and of each company that is in the consolidated group at the time.
Changing nominated company
(3) A nominated company may notify the Commissioner that it is, at a particular date, no longer to continue as the agent for the consolidated group, and that another company is to become the nominated company for the consolidated group.
When notice takes effect
(4) A notice referred to in subsection (3) takes effect—
(a) on the date the Commissioner receives the notice; or
(b) on a later date set out in the notice.
Replacing nominated company
(5) If the nominated company of a consolidated group is liquidated, the other companies in the consolidated group may choose a replacement. The replacement company—
(a) becomes the nominated company of the consolidated group from the date of liquidation; and
(b) must notify the Commissioner of its selection as nominated company within 20 working days after the date of liquidation, or a longer period if the Commissioner agrees.
Defined in this Act: agent, Commissioner, company, consolidated group, liquidation, nominated company, notice, notify, working day,
Compare: 2004 No 35 ss FD 6, FD 8(5) proviso
Forming, joining, or leaving consolidated groups
FM 35 Forming consolidated group
-
Election
(1) Two or more companies may choose to form a consolidated group of companies if the companies are, at the time,—
(a) a wholly-owned group of companies; and
(b) eligible under section FM 31.
Notifying Commissioner
(2) The Commissioner must be notified of an election under subsection (1). For the purposes of section FM 3(5), the notice must state that each company that is part of the consolidated group acknowledges their joint and several liability for the amount of income tax assessed for the consolidated group.
Nominated company
(3) A notice under subsection (2) must nominate 1 of the companies in the consolidated group as its agent. The company is called the nominated company.
Defined in this Act: agent, amount, assessment, Commissioner, company, consolidated group, income tax, nominated company, notice, notify, wholly-owned group,
Compare: 2004 No 35 ss FD 3(a), FD 4(1), (2)
FM 36 Joining existing consolidated group
-
When this section applies
(1) This section applies when 2 or more companies have formed a consolidated group and the consolidated group has not ended its existence.
Eligible for and entitled to membership
(2) If a company is eligible under section FM 31 and entitled to join the consolidated group, it may choose to join the consolidated group by notifying the Commissioner.
Joint and several liability
(3) The company providing the notification referred to in subsection (2) must agree in the notice to be jointly and severally liable under section FM 3(5) for income tax payable by the consolidated group.
Defined in this Act: Commissioner, company, consolidated group, income tax, notice, notify, pay,
Compare: 2004 No 35 s FD 7(1), (2)
FM 37 Leaving consolidated group
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A company leaves a consolidated group if—
(a) it chooses to leave the consolidated group and notifies the Commissioner of its election, seesection FM 39; or
(b) it no longer meets the eligibility criteria set out in section FM 31, seesection FM 40; or
(c) when it is not a nominated company, it is no longer entitled to be in the same consolidated group as the nominated company, seesection FM 40; or
(d) it is part of a consolidated group that no longer has a nominated company, seesection FM 41.
Defined in this Act: Commissioner, company, consolidated group, nominated company, notify,
Compare: 2004 No 35 s FD 8(1)
When membership starts and stops
FM 38 Notice requirements on forming or joining consolidated group
-
When this section applies
(1) This section applies when—
(a) 2 or more companies choose to form a consolidated group under section FM 35; or
(b) a company chooses to join an existing consolidated group under section FM 36.
Condition
(2) Despite subsection (1), this section applies only if a company forming or joining a consolidated group remains entitled to be in the consolidated group either at the start of the relevant income year or for the notice period, as applicable.
Setting out income year in notice
(3) For a notice given to the Commissioner within the notice period in an income year, the company may provide that the election applies for the income year. The company is treated as in the consolidated group from the start of the income year.
When notice does not specify income year
(4) If the notice referred to in subsection (3) does not specify an income year, the company is treated as in the consolidated group from the start of the income year following that in which the Commissioner receives the notice.
Setting out entitlement date in notice
(5) Despite subsections (3) and (4), if a company becomes eligible to join a consolidated group during an income year, and the notice is given to the Commissioner within the notice period, the company may provide that the election applies from the date they first became entitled to make an election. The company is treated as in the consolidated group from that date, and part-year financial statements under section FM 14 are required.
Notice period
(6) In this section, notice period means 1 of the following:
(a) 63 working days after the start of an income year; or
(b) if the company joining, or the companies forming, the consolidated group in the income year are incorporated or formed in the same income year, 63 working days after the latest incorporation or formation; or
(c) if the company or companies become entitled to make an election during an income year, 63 working days from the date they first became entitled; or
(d) an extended period if the Commissioner agrees that the notice could not reasonably have been provided within the 63-day period.
Anti-avoidance measure
(7) Subsection (5) does not apply if it would be reasonable to conclude that an arrangement has been entered into for a purpose of enabling the company to meet the requirements of the subsection so as to defeat the intent and application of the consolidation rules.
Defined in this Act: arrangement, Commissioner, company, consolidated group, consolidation rules, income year, notice, notice period, working day,
Compare: 2004 No 35 ss FD 4(3)–(8), FD 7(3)–(8)
FM 39 Choosing to leave consolidated group
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When this section applies
(1) This section applies when a company chooses to leave a consolidated group and notifies the Commissioner of its election.
Deferring leaving date
(2) When the company notifies the Commissioner of its election, it may defer the date on which it leaves the consolidated group to the first day of the next income year. However, unless subsections (3) and (4) apply, if the company does not defer the leaving date, it is treated as no longer in the consolidated group from the start of the income year in which the Commissioner receives the notice.
First income year: deferral
(3) Despite subsection (2), if a company leaves a consolidated group in the same income year in which it joins the group, and defers the leaving date in the notice, it is treated as leaving the consolidated group from the start of the income year after the income year in which the Commissioner receives the notice. Sections FM 40 and 41 override this subsection.
First income year: no deferral
(4) Despite subsection (2), if a company leaves a consolidated group in the same income year in which it joins the consolidated group, and does not defer the leaving date in the notice, it is treated as leaving the consolidated group on the date it joined the group.
Defined in this Act: Commissioner, company, consolidated group, income year, notice, notify,
Compare: 2004 No 35 s FD 8(2)
FM 40 Losing eligibility or entitlement to be part of consolidated group
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When this section applies
(1) This section applies when a company is no longer eligible to be part of a consolidated group or, if it is not the nominated company, when it is no longer entitled to be in the same consolidated group as the nominated company.
Effective date
(2) Unless subsections (3) or (4) apply, the company is treated as leaving the consolidated group from the start of the income year in which the relevant event occurs, making it no longer—
(a) eligible to be part of the consolidated group; or
(b) if it is not the nominated company, entitled to be in the same consolidated group as the nominated company.
First income year
(3) Despite subsection (2), if a company becomes no longer eligible or entitled to be in the consolidated group in the same income year in which it joined the group, the company is treated as leaving the consolidated group on the day it joined the group.
Notifying date
(4) Despite subsections (2) and (3), the company may notify the Commissioner that it is leaving the consolidated group from the date on which its eligibility or its entitlement ended. For the notice to be effective, the company must—
(a) provide the notice within 20 working days after the date on which the company’s eligibility or entitlement ended, although the Commissioner may agree to extend this period if it is reasonable to do so in the circumstances; and
(b) provide part-year financial statements under section FM 14.
Anti-avoidance measure
(5) A notice under this section is not valid if it is made in connection with an arrangement entered into for a purpose of enabling the company to leave a consolidated group so as to defeat the intent and application of the consolidation rules. When this subsection applies, the company is treated as leaving the consolidated group on the date on which its eligibility or entitlement ended.
Defined in this Act: arrangement, Commissioner, company, consolidated group, consolidation rules, income year, nominated company, notice, notify, working day,
Compare: 2004 No 35 s FD 8(3), (4), (6), (7)
FM 41 No nominated company
-
If, during an income year, no nominated company exists for a consolidated group and no company that is part of the consolidated group is notified as a replacement under section FM 34(3), all companies in the consolidated group are treated as having left the consolidated group with effect from the start of the income year. Section FM 34(5) overrides this section.
Defined in this Act: company, consolidated group, income year, nominated company, notify,
Compare: 2004 No 35 s FD 8(5)
FM 42 When company liquidated
-
If a company is no longer part of a consolidated group because it has been liquidated,—
(a) the company is not treated as leaving the consolidated group from the start of the income year of the liquidation under sections FM 39 and FM 40:
(b) part-year financial statements are not required under section FM 40(4)(b).
Defined in this Act: company, consolidated group, income year, liquidation,
Compare: 2004 No 35 s FD 8(8)
Subpart FN—Imputation groups of companies
FN 1 When this subpart applies
-
This subpart applies when 2 or more companies that are part of a wholly-owned group of companies form an imputation group to enable a company in the imputation group to pay an imputed dividend when another company in the imputation group has a credit for New Zealand tax paid.
Defined in this Act: company, dividend, imputation group, New Zealand tax, pay, wholly-owned group of companies,
FN 2 Imputation rules
-
The imputation rules means the following:
(a) this subpart:
(b) section CD 15 (Tax credits linked to dividends):
(c) sections GB 34 to GB 37 (which relate to tax avoidance and imputation):
(e) subpart OB (Imputation credit accounts (ICA)):
(f) sections OP 1 to OP 50 (which relate to imputation credits and consolidated groups):
(g) subpart OZ (Terminating provisions):
(h) sections RM 13 to RM 17, RM 32, and RZ 6 (which relate to limits on refunds):
(i) section YA 2(2)(d) (Meaning of income tax varied):
(j) sections 29, 64, 67, 69, 70, 78D, 97, 101, 139B, 140B, 140D(1) and (2), and 180 of the Tax Administration Act 1994.
Defined in this Act: imputation rules,
Compare: 2004 No 35 s OB 1 imputation rules
FN 3 Liabilities of companies in imputation group
-
A company that is part of an imputation group is jointly and severally liable for further income tax, civil penalties, and interest under Part 7 of the Tax Administration Act 1994 arising from the operation of the imputation credit account of the imputation group.
Defined in this Act: company, further income tax, imputation credit account, imputation group,
Compare: 2004 No 35 s FDA 4
FN 4 Eligibility rules
-
When company eligible
(1) A company is eligible to be part of an imputation group at a particular time if, at the time,—
(a) it is resident in New Zealand or resident in Australia; and
(b) it is part of the same wholly-owned group of companies; and
(c) it is not treated under a double tax agreement as resident in a country other than New Zealand or Australia, as applicable, for the purposes of taxation in the relevant country; and
(d) it is required to maintain an imputation credit account under section OB 1 (General rules for companies with imputation credit accounts), or chooses to maintain an account under OB 2 (Australian companies with imputation credit accounts); and
(e) if it is a company that is part of a consolidated group, it meets the criteria set out in subsection (2); and
(f) if it is a qualifying company or a mining company, it meets the condition set out in subsection (3); and
(g) subsections (4) and (5) do not apply to it.
Consolidated group companies
(2) A company that is part of a consolidated group is eligible to be part of an imputation group at a particular time if, at the time,—
(a) all companies in the consolidated group meet the criteria set out in subsection (1) and are part of the imputation group; and
(b) for an imputation group that includes or will include companies from more than 1 consolidated group, the companies in the consolidated groups are part of a single wholly-owned group of companies from the earliest date on which a credit arose and remains uncancelled in the imputation credit account of a consolidated group or an imputation group, all of whose members are, or would be, in the imputation group.
Restriction when company of certain type
(3) Despite subsections (1) and (2), if a company that is part of an imputation group is 1 of the following types of company, all companies in the imputation group at the time must be the same type as that company:
(a) a qualifying company; or
(b) a mining company.
LAQCs
(4) A company is not eligible to be part of an imputation group if it is an LAQC.
Anti-avoidance measure
(5) A company is not eligible to be part of an imputation group if, for a purpose of enabling a company to be part of an imputation group so as to defeat the intent and application of the imputation rules, the company’s shares—
(a) are subject to an arrangement or to a series of related or connected arrangements; or
(b) have rights attaching to them extinguished or altered, either directly or indirectly, by any means.
Defined in this Act: arrangement, company, consolidated group, double tax agreement, imputation credit account, imputation group, imputation rules, LAQC, mining company, New Zealand, qualifying company, resident in Australia, resident in New Zealand, wholly-owned group,
Compare: 2004 No 35 s FDA 1
FN 5 Imputation groups with reduced numbers
-
An imputation group continues to exist if the number of group companies is reduced to 1 company, but if an imputation group has no company at any time, the imputation group no longer exists.
Defined in this Act: company, imputation group,
Compare: 2004 No 35 s FDA 3(2), (4)
FN 6 Nominated companies
-
Group company at the time
(1) The nominated company of an imputation group at any time must be part of the imputation group at the time.
Trans-Tasman imputation groups
(2) For a trans-Tasman imputation group, the nominated company—
(a) must not be an Australian imputation credit account (ICA) company:
(b) is the nominated company for the resident imputation subgroup associated with the trans-Tasman imputation group.
Agent
(3) For the purposes of the imputation rules, a nominated company is, at a time, the agent of the imputation group and of each company that is part of the imputation group at the time.
Changing nominated company
(4) A nominated company may notify the Commissioner that it is, at a particular date, no longer to continue as the agent for the imputation group, and that another company is to become the nominated company.
When notice takes effect
(5) A notice under subsection (4) has effect 30 days after the date on which the Commissioner receives it.
Replacing nominated company
(6) If a nominated company of an imputation group is liquidated, the other companies in the imputation group may choose a replacement. The replacement company—
(a) becomes the nominated company from the date of the liquidation, on complying with paragraph (b); and
(b) must notify the Commissioner of its selection as nominated company within 30 days after the date of the liquidation, or by a later date if the Commissioner agrees.
Defined in this Act: agent, Australian ICA company, Commissioner, company, imputation group, liquidation, nominated company, notice, notify, resident imputation subgroup, trans-Tasman imputation group,
Compare: 2004 No 35 ss FDA 5, FDA 6(6)
FN 7 Forming imputation groups
-
Election
(1) Two or more companies may choose to form an imputation group of companies if the companies are, at the time,—
(a) a wholly-owned group of companies; and
(b) eligible under section FN 4.
Notifying Commissioner
(2) The Commissioner must be notified of an election under subsection (1).
Nominated company
(3) A notice under subsection (2) must nominate 1 of the companies in the imputation group as its agent for the purposes of the imputation rules. In this subpart, the company is called the nominated company.
Consolidated group companies
(4) A nominated company of a consolidated group may notify the Commissioner that, having met the eligibility criteria in section FN 4, all the group companies have chosen—
(a) to form an imputation group with eligible companies that are not part of the consolidated group; or
(b) to join an existing imputation group.
Effective date
(5) A notice under subsection (1) or (4) has effect from the start of the tax year in which the Commissioner receives the notice.
Defined in this Act: agent, Commissioner, company, consolidated group, imputation group, imputation rules, nominated company, notice, notify, tax year, wholly-owned group,
Compare: 2004 No 35 s FDA 2
FN 8 Trans-Tasman imputation groups and resident imputation subgroups
-
Trans-Tasman imputation group
(1) If at least 1 company in an imputation group is an Australian ICA company, and at least 1 company in the imputation group is not an Australian ICA company, the imputation group is a trans-Tasman imputation group.
Resident imputation subgroup
(2) One or more companies in a trans-Tasman imputation group may form a resident imputation subgroup that is associated with the trans-Tasman imputation group. The election is made by notifying the Commissioner. The subgroup consists of the companies in the imputation group that are not Australian ICA companies.
Formation and continuation of subgroups
(3) A resident imputation subgroup may be formed and continue to exist with 1 group company.
Defined in this Act: Australian ICA company, Commissioner, company, imputation group, notify, resident imputation subgroup, trans-Tasman imputation group,
Compare: 2004 No 35 ss FDA 3(1), (3), OB 1 resident imputation subgroup, trans-Tasman imputation group
FN 9 Joining existing imputation group
-
Generally
(1) A company that is eligible under section FN 4(1) may join an imputation group by notifying the Commissioner.
Consolidated groups
(2) If the companies part of a consolidated group are eligible under section FN 4(2), the nominated company of the consolidated group may notify the Commissioner that all the companies in the consolidated group are to join an imputation group.
Joint and several liability
(3) The companies referred to in subsections (1) and (2) must agree in the notice to be jointly and severally liable under section FN 3 for any further income tax, civil penalties, and interest under Part 7 of the Tax Administration Act 1994 arising from the operation of the imputation credit account of the imputation group.
Effective date
(4) A notice under subsection (1) has effect from the start of the tax year in which the Commissioner receives the notice.
Defined in this Act: Commissioner, company, consolidated group, further income tax, imputation credit account, imputation group, nominated company, notice, notify, tax year,
Compare: 2004 No 35 ss FDA 2(1)–(3), (5), FDA 4
FN 10 When membership of imputation group ends
-
A company stops being part of an imputation group if—
(a) the company chooses to leave the imputation group and notifies the Commissioner, seesection FN 11; or
(b) the company no longer meets the eligibility criteria set out in section FN 4, seesection FN 12; or
(c) the company is not a nominated company and is no longer entitled to be part of the same imputation group as the nominated company, seesection FN 12; or
(d) the company is in an imputation group that no longer has a nominated company, seesection FN 13.
Defined in this Act: Commissioner, company, imputation group, nominated company, notify,
Compare: 2004 No 35 s FDA 6(1)
FN 11 Company choosing to leave imputation group
-
When this section applies
(1) This section applies when a company chooses to leave an imputation group and notifies the Commissioner of its election.
Effective date
(2) When the company notifies the Commissioner of its election, it may set out in the notice a date from which it is no longer to be treated as part of the imputation group. However, unless subsection (3) applies, if the company does not set out a date in the notice, it is treated as no longer part of the imputation group from the start of the tax year in which the Commissioner receives the notice.
First tax year
(3) Despite subsection (2), if a company leaves an imputation group in the same tax year in which it joined the imputation group, it is treated as leaving the imputation group on the date when it became part of the imputation group, and not from the start of the tax year.
Defined in this Act: Commissioner, company, imputation group, notice, notify, tax year,
Compare: 2004 No 35 s FDA 6(2)
FN 12 Company no longer eligible or entitled to membership
-
When this section applies
(1) This section applies when a company is no longer eligible to be part of an imputation group or, if it is not the nominated company, when it is no longer entitled to be part of the same imputation group as the nominated company.
Effective date
(2) Unless subsections (3) or (4) apply, the company is treated as no longer part of the imputation group from the start of the tax year in which the relevant event occurs, making it no longer—
(a) eligible to be part of the imputation group; or
(b) if it is not the nominated company, entitled to be part of the same imputation group as the nominated company.
Notifying date
(3) Despite subsection (2), the company may notify the Commissioner that it is no longer to be treated as part of the imputation group from the date on which its eligibility or its entitlement ended. The company must provide the notice within 30 days after the date on which the company’s eligibility or entitlement ended, although the Commissioner may agree to extend this period if it is reasonable to do so in the circumstances.
First tax year
(4) Despite subsections (2) and (3), if a company leaves an imputation group in the same tax year in which it became part of the imputation group, the company is treated as leaving the group on the date when it became part of the imputation group, and not at the start of the tax year.
Anti-avoidance measure
(5) A notice under this section is not valid if it is made in connection with an arrangement entered into for a purpose of enabling the company to leave an imputation group so as to defeat the intent and application of the imputation rules. When this subsection applies, the company is treated as leaving the imputation group on the date on which its eligibility or entitlement ended.
Defined in this Act: arrangement, Commissioner, company, imputation group, imputation rules, nominated company, notice, notify, tax year,
Compare: 2004 No 35 s FDA 6(3), (4), (7), (8)
FN 13 Imputation group with no nominated company
-
If, during a tax year, no nominated company exists for an imputation group and no replacement is made under section FN 6(6), all companies in the imputation group are treated as having left the imputation group with effect from the start of the tax year.
Defined in this Act: company, imputation group, nominated company, tax year,
Compare: 2004 No 35 s FDA 6(5)
FN 14 Effect of liquidation of company
-
If a company is no longer part of an imputation group because it is liquidated, sections FN 11 and FN 12 do not apply to treat the company as leaving the imputation group from the start of the income year in which the liquidation occurred.
Defined in this Act: company, imputation group, income year, liquidation,
Compare: 2004 No 35 s FDA 6(9)
Subpart FO—Amalgamation of companies
Introductory provisions
FO 1 What this subpart does
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This subpart sets out the rules that provide for some tax consequences when companies amalgamate. In general, the rules provide roll-over relief when a resident’s restricted amalgamation occurs.
Defined in this Act: amalgamation, company, resident’s restricted amalgamation, tax,
Compare: 2004 No 35 s FE 1(1)(a), (b)
FO 2 Amalgamation rules
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The amalgamation rules means the following:
(a) this subpart:
(b) sections CD 35, CD 43(23) and (24), and CD 44(8) (which relate to the treatment of dividends):
(c) sections DB 8(3) to (5), DV 14 and DV 15 (which relate to the treatment of deductions when an amalgamating company ends its existence on a resident’s restricted amalgamation):
(d) sections IA 9, IE 2 to IE 5, and IQ 1 (which relate to tax losses):
(e) sections LK 12 to LK 15 (which relate to tax credits):
(f) sections OA 9, OB 24, OB 53 (which relate to memorandum accounts):
(g) sections RA 20, RC 33, RD 46, and RD 49 (which relate to tax payments):
(h) sections 75 and 76 of the Tax Administration Act 1994.
Defined in this Act: amalgamation rules,
Compare: 2004 No 35 s FE 1(2)
FO 3 Resident’s restricted amalgamations
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What is a resident’s restricted amalgamation?
(1) In the amalgamation rules, an amalgamation is a resident’s restricted amalgamation if, at the time of the amalgamation, each of the amalgamating companies and the amalgamated company—
(a) is resident in New Zealand; and
(b) is not treated under, and for the purposes of, a double tax agreement as resident in another country; and
(c) is not a company that derives only exempt income, except income exempt under sections CW 9 to CW 11 (which relate to income from equity); and
(d) if the amalgamated company is a qualifying company, it meets the condition in subsection (2); and
(e) if the amalgamated company is a loss-attributing qualifying company (LAQC), it meets the condition in subsection (3).
Qualifying companies
(2) If the amalgamated company is a qualifying company immediately after the amalgamation, each of the amalgamating companies must be a qualifying company at the time of the amalgamation.
LAQCs
(3) If the amalgamated company is an LAQC immediately after the amalgamation, each of the amalgamating companies must be an LAQC at the time of the amalgamation.
Companies deriving exempt income
(4) For the purposes of subsection (1)(c), a company that derives only exempt income includes a local authority that is not a council-controlled organisation.
Companies opting out
(5) Even if they meet the requirements of subsection (1), the companies may choose that the amalgamation will not be treated as a resident’s restricted amalgamation by notifying the Commissioner in the way set out in section 75 of the Tax Administration Act 1994.
Defined in this Act: amalgamated company, amalgamating company, amalgamation, amalgamation rules, Commissioner, company, council-controlled organisation, double tax agreement, exempt income, LAQC, local authority, New Zealand, notify, qualifying company, resident in New Zealand, resident’s restricted amalgamation,
Compare: 2004 No 35 s OB 1 qualifying amalgamation
FO 4 Rights and obligations of amalgamated companies
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When this section applies
(1) This section applies when an amalgamating company ends its existence on amalgamation.
Amalgamated company assuming rights, obligations, and liabilities
(2) For the tax year corresponding to the income year of amalgamation and all earlier tax years, the amalgamated company, under section 209G of the Companies Act 1955 or section 225 of the Companies Act 1993,—
(a) must comply with the obligations of the amalgamating company under the Inland Revenue Acts; and
(b) must meet the liabilities of the amalgamating company under the Inland Revenue Acts; and
(c) is entitled to the rights, powers, and privileges of the amalgamating company under the Inland Revenue Acts.
Relationship with Companies Act 1993
(3) The amalgamation rules apply despite anything to the contrary in section 225(d) of the Companies Act 1993.
Defined in this Act: amalgamated company, amalgamating company, amalgamation, amalgamation rules, income year, Inland Revenue Acts, tax year,
Compare: 2004 No 35 ss FE 1(1)(c), FE 8
FO 5 Amalgamations and remitted liabilities
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Sections CG 2 (Remitted amounts) and DB 47 (Payments for remitted amounts) do not apply merely because an amalgamated company succeeds to a liability of an amalgamating company on an amalgamation.
Defined in this Act: amalgamated company, amalgamating company, amalgamation, amount,
Compare: 2004 No 35 s FE 9
Treatment of shares, income, expenditure, and bad debts
FO 6 Cancellation of shares
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If an amalgamating company (company A) holds shares in another amalgamating company (company B), and the shares are cancelled on the amalgamation, company A is treated as having disposed of the shares in company B immediately before the amalgamation for an amount equal to the cost of the shares to company A.
Defined in this Act: amalgamating company, amalgamation, cancellation, share,
Compare: 2004 No 35 s FE 2
FO 7 Income derived after amalgamation
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When this section applies
(1) This section applies when an amalgamating company ends its existence on amalgamation, and an amount is derived by the amalgamated company after the amalgamation as a result of something that the amalgamating company did or did not do.
Income of amalgamated company
(2) The amount is income of the amalgamated company under section CV 4 (Amalgamated companies: amount derived after amalgamation) if it would have been income of the amalgamating company but for the amalgamation.
Defined in this Act: amalgamated company, amalgamating company, amalgamation, amount, income,
Compare: 2004 No 35 s FE 4(b)
FO 8 Bad debts and expenditure or loss on resident’s restricted amalgamation
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When this section applies
(1) This section applies when an amalgamating company ends its existence on a resident’s restricted amalgamation, and the amalgamated company at any time—
(a) writes off as bad the amount of a debt that it acquires from the amalgamating company at the time of the amalgamation; or
(b) incurs an amount of expenditure or loss, including an amount of depreciation loss, as a result of something that the amalgamating company did or did not do.
Deduction of amalgamated company
(2) The amalgamated company is allowed a deduction under section DV 15(2) (Amalgamated companies: property passing on resident’s restricted amalgamation) for the amount if—
(a) the amalgamating company would have been allowed the deduction but for the amalgamation; and
(b) the amalgamated company is not otherwise allowed the deduction.
Defined in this Act: amalgamated company, amalgamating company, amount, deduction, depreciation loss, loss, resident’s restricted amalgamation,
Compare: 2004 No 35 s FE 3
FO 9 Unexpired portion of prepaid expenditure
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If an amalgamating company ends its existence on amalgamation, the unexpired portion under section EA 3 (Prepayments) of an amount of expenditure of the amalgamating company for the income year of amalgamation is treated as the amalgamated company’s unexpired amount of the expenditure.
Defined in this Act: amalgamated company, amalgamating company, amalgamation, amount, income year, prepaid expenditure,
Compare: 2004 No 35 s FE 4(a)
Property passing to amalgamated company on amalgamation
FO 10 When property passes on resident’s restricted amalgamation
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When this section applies
(1) This section applies when property belonging to an amalgamating company becomes the property of the amalgamated company on a resident’s restricted amalgamation.
What this section does not apply to
(2) Despite subsection (1), this section—
(a) does not apply to property that is a financial arrangement, seesections FO 12 to FO 15:
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(b) is subject to the rules for—
(i) amortising property in section FO 16:
(ii) land in section FO 17.
Property passing
(3) The amalgamating company is treated as having disposed of the property immediately before the amalgamation. The passing of ownership is treated as a disposal of the property by the amalgamating company and an acquisition of the property by the amalgamated company.
Timing and consideration
(4) Unless subsections (5) or (6) apply, the amalgamated company is treated as having acquired the property on the date on which the amalgamating company acquired it for an amount that is the sum of—
(a) the price paid for the property; and
(b) any expenditure incurred in buying or improving the property; and
(c) any expenditure incurred in securing or improving the amalgamating company’s legal rights to the property.
Trading stock
(5) If the property is trading stock for both the amalgamating company and the amalgamated company, the consideration for the disposal and acquisition is taken as the value of the trading stock to the amalgamating company determined under subpart EB (Valuation of trading stock (including dealer’s livestock)) at the time of the amalgamation.
Revenue account property
(6) If the property is revenue account property of the amalgamating company but not revenue account property of the amalgamated company, the consideration for the disposal and acquisition is taken as the market value of the property at the time of the amalgamation. But this subsection does not apply to land that is revenue account property merely because of the 10-year rule in sections CB 9 to CB 11 and CB 14 (which relate to the disposal of land), in which case section FO 17(3) may apply.
Depreciation loss
(7) An amalgamating company is allowed a deduction under section DV 15(3) (Amalgamated companies: property passing on resident’s restricted amalgamation) for an amount of depreciation loss for property transferred to the amalgamated company for the period beginning on the first day of the income year of amalgamation and ending on the day before the date of the amalgamation.
Defined in this Act: amalgamated company, amalgamating company, amortising property, amount, deduction, financial arrangement, income year, land, market value, resident’s restricted amalgamation, revenue account property, trading stock,
Compare: 2004 No 35 ss FE 6(1)–(3B), FE 6A
FO 11 When property passes on amalgamation other than resident’s restricted amalgamation
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Disposal and acquisition
(1) If property belonging to an amalgamating company becomes the property of the amalgamated company on an amalgamation that is not a resident’s restricted amalgamation,—
(a) the amalgamating company is treated as having disposed of the property for an amount equal to the market value of the property at the time of the amalgamation; and
(b) the amalgamated company is treated as having acquired the property at that market value.
Relationship with section EE 41
(2) Section EE 41 (Transfer of depreciable property on certain amalgamations on or after 14 May 2002) overrides this section for the purposes of determining the cost of an item to an amalgamated company, unless the context requires otherwise.
Defined in this Act: amalgamated company, amalgamating company, amalgamation, amount, market value, resident’s restricted amalgamation,
Compare: 2004 No 35 s FE 5
FO 12 Financial arrangements: resident’s restricted amalgamation, companies in wholly-owned group
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When this section applies
(1) This section applies, despite sections EW 42 and GB 21 (which relate to non-market transfers of financial arrangements) in an income year in which the obligations that an amalgamating company has under a financial arrangement pass to the amalgamated company on a resident’s restricted amalgamation when,—
(a) the financial arrangements rules apply to the financial arrangement; and
(b) for the whole of the income year before the amalgamation, the amalgamating company and the amalgamated company were part of the same wholly-owned group of companies; and
(c) the method of calculating income and expenditure from the financial arrangement does not change after the amalgamation, and the amalgamated company’s return of income for the corresponding tax year is made on this basis; and
(d) sections IA 3 to IA 6 and subpart ID (which relate to tax losses of companies and consolidated groups) do not apply to allow the amalgamating company to carry a loss balance forward from an earlier tax year for use in the tax year corresponding to the income year unless section IE 2 (Treatment of tax losses by amalgamating company) applies when the tax losses are those of the consolidated group.
Amalgamated company’s election
(2) The amalgamated company may choose to apply subsections (3) and (4) in their return of income for the corresponding tax year.
Treatment of amalgamating company
(3) The amalgamating company is treated as if it had never been party to the financial arrangement. Section EW 31 (Base price adjustment formula) does not apply, in relation to the transfer of the financial arrangement or the obligations under it.
Treatment of amalgamated company
(4) The amalgamated company is treated as if it had taken the place of the amalgamating company in relation to the financial arrangement in terms of—
(a) the date the company entered into the arrangement; and
(b) the consideration paid; and
(c) the income derived; and
(d) the expenditure incurred; and
(e) the returns of income provided.
Defined in this Act: amalgamated company, amalgamating company, consideration, consolidated group, corresponding income year, financial arrangement, financial arrangements rules, income, income year, loss balance, resident’s restricted amalgamation, return of income, tax loss, tax year, wholly-owned group of companies,
Compare: 2004 No 35 ss FE 6(5), (6), FE 7(1)(a), (2)
FO 13 Financial arrangements: resident’s restricted amalgamation, calculation method unchanged
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When this section applies
(1) This section applies, despite sections EW 42 and GB 21 (which relate to non-market transfers of financial arrangements) in an income year in which the obligations that an amalgamating company has under a financial arrangement pass to the amalgamated company on a resident’s restricted amalgamation when—
(a) the method of calculating income and expenditure from the financial arrangement does not change after the amalgamation; and
(b) section FO 12 does not apply.
Calculating base price adjustment
(2) The amalgamating company is treated as having disposed of the financial arrangement. In calculating the base price adjustment, the consideration is the amount that would fairly and reasonably represent the income or expenditure that the amalgamating company would have derived or would have incurred in the income year if the amalgamation had not taken place.
Defined in this Act: amalgamated company, amalgamating company, amalgamation, consideration, dispose, financial arrangement, income, income year, resident’s restricted amalgamation,
Compare: 2004 No 35 ss FE 6(5), (7), FE 7(1)(b), (3)
FO 14 Financial arrangements: resident’s restricted amalgamation, other cases
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When this section applies
(1) This section applies in an income year in which a financial arrangement belonging to an amalgamating company passes to the amalgamated company on a resident’s restricted amalgamation when sections FO 12 and FO 13 do not apply.
Market value
(2) The amalgamating company is treated as having disposed of the financial arrangement. The consideration for the disposal is the market value of the financial arrangement on the date the amalgamated company acquires it.
Defined in this Act: amalgamated company, amalgamating company, consideration, financial arrangement, income year, market value, resident’s restricted amalgamation,
Compare: 2004 No 35 ss FE 6(5), (8), FE 7(1)(b), (4)
FO 15 Financial arrangements: amalgamation other than resident’s restricted amalgamation
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When this section applies
(1) This section applies when an obligation that an amalgamating company has in relation to a financial arrangement passes to the amalgamated company on an amalgamation that is not a resident’s restricted amalgamation.
Market value for amalgamating company
(2) The amalgamating company is treated as having disposed of the financial arrangement or relieved itself of the obligations immediately before the amalgamation. The consideration for the disposal is the market price for assuming the obligations at the time of the amalgamation.
Market value for amalgamated company
(3) The amalgamated company is treated as having acquired the financial arrangement or assumed the obligations immediately after the amalgamation. The consideration for the acquisition is the market value of the property at the time of the amalgamation.
Defined in this Act: amalgamated company, amalgamating company, amalgamation, consideration, financial arrangement, market value, resident’s restricted amalgamation,
Compare: 2004 No 35 s FE 5
FO 16 Amortising property
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When this section applies
(1) This section applies in an income year in which amortising property belonging to an amalgamating company passes to the amalgamated company on a resident’s restricted amalgamation. The passing of ownership is treated as a disposal of the property by the amalgamating company and an acquisition by the amalgamated company.
Value: all pool property
(2) If the amortising property forms the whole of a pool of property of the amalgamating company that is depreciated under sections EE 20 to EE 24 (which relate to depreciation under the pool method), the consideration for the disposal and acquisition is taken as the adjusted tax value of the pool immediately before the amalgamation.
Value: part pool property
(3) If the amortising property forms part of a pool of property of the amalgamating company that is depreciated under sections EE 20 to EE 24, the consideration for the disposal and acquisition is taken as the lesser of—
(a) the market value of the property; or
(b) the adjusted tax value of the pool immediately before the amalgamation.
Deductions for depreciation loss
(4) If the amortising property is other than pool property of the amalgamating company, the amalgamated company is treated as having been allowed the deduction that the amalgamating company would have had for an amount of depreciation loss, or a deduction under any other amortisation provision of this Act, relating to the property.
Defined in this Act: acquire, adjusted tax value, amalgamated company, amalgamating company, amortising property, amount, deduction, depreciation loss, dispose, income year, market value, other amortisation provision, pool, resident’s restricted amalgamation,
Compare: 2004 No 35 s FE 6(1), (4)
FO 17 Land
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When this section applies
(1) This section applies when land belonging to an amalgamating company passes to the amalgamated company on a resident’s restricted amalgamation.
Disposal at market value
(2) If the land is not revenue account property of the amalgamating company, but the disposal of the land would give rise to income for the amalgamated company under any of sections CB 6 to CB 14 (which relate to the disposal of land), the amalgamating company is treated as having disposed of the land to the amalgamated company at the market value of the land at the date of the amalgamation.
Disposal of land within 10-year period
(3) If the land is, or may be, revenue account property of the amalgamating company because of the 10-year rule in any of sections CB 9 to CB 11 and CB 14, and the amalgamated company disposes of the land within the 10-year period after the amalgamating company acquired it, an amount derived from the disposal is income of the amalgamated company under whichever is applicable of sections CB 6 to CB 14.
Defined in this Act: amalgamated company, amalgamating company, amount, income, land, resident’s restricted amalgamation, revenue account property,
Compare: 2004 No 35 s FE 6(3A), (3B)
Treatment of financial arrangements between amalgamating companies
FO 18 When amalgamating companies are parties to financial arrangement
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When this section applies
(1) This section applies when amalgamating companies are parties to a financial arrangement that exists on the date of the amalgamation of the companies.
Financial arrangement discharged
(2) The financial arrangement is, for the purposes of section EW 31 (Base price adjustment formula), treated as having been discharged immediately before the amalgamation. The consideration for the discharge is,—
(a) on a resident’s restricted amalgamation, the amalgamating company’s outstanding accrued balance for the financial arrangement, seesection FO 19; or
(b) on an amalgamation other than a resident’s restricted amalgamation or when the borrowing company is insolvent, the market value of the financial arrangement on the date of the amalgamation.
Amounts remitted
(3) An amount outstanding under a financial arrangement is not regarded as remitted merely because it is treated as discharged under subsection (2). However, for these purposes, an amalgamated company is treated as having remitted an amount equal to the excess over market value of the outstanding accrued balance for the financial arrangement, seesection FO 20.
When borrower insolvent
(4) If an amalgamating company that is the borrower under the arrangement is insolvent and is unlikely to be able to meet its obligations under the arrangement, the company is treated as having paid to the other party to the arrangement in consideration for the discharge an amount that is the market value of the financial arrangement on the date of the amalgamation. A company is treated as insolvent if it does not meet the solvency test in section 4 in the Companies Act 1993. This subsection overrides subsection (2)(b).
Defined in this Act: amalgamated company, amalgamating company, amalgamation, amount, company, consideration, financial arrangement, market value, resident’s restricted amalgamation,
Compare: 2004 No 35 s FE 10(1)–(5), (6)(c)
FO 19 Calculation of outstanding accrued balance: consideration for discharge
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Formula
(1) In section FO 18(2)(a), the outstanding accrued balance is calculated using the formula—
consideration + prior expenditure + expenditure accrued in year − income accrued in year − consideration paid.
Definition of items in formula
(2) In the formula,—
(a) consideration is the consideration paid to the amalgamating company under the financial arrangement:
(b) prior expenditure is the expenditure that the amalgamating company incurs less the income that it derives from the financial arrangement calculated under either a spreading method or EW 53 (Adjustment required) in all income years other than the current income year from the time the financial arrangement was entered into:
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(c) expenditure accrued in year is the expenditure that the amalgamating company accrues from the financial arrangement for the period from the first day of the income year in which the amalgamation occurs to the date of the amalgamation, calculated either—
(i) if the amalgamating company was party to the financial arrangement in an earlier income year, using the spreading method it used to calculate income and expenditure under the financial arrangement in the income year; or
(ii) using a spreading method that the amalgamating company chooses, if the method could have been used if the income year had ended immediately before the amalgamation:
(d) income accrued in year is the income that the amalgamating company accrues from the financial arrangement for the period described in paragraph (c) and calculated as described in that paragraph:
(e) consideration paid is the consideration that the amalgamating company pays for the financial arrangement before the date of the amalgamation.
Defined in this Act: amalgamating company, amalgamation, consideration, financial arrangement, income, income year, pay, spreading method,
Compare: 2004 No 35 s FE 10(6)(a)
FO 20 Calculation of outstanding accrued balance: amounts remitted
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Formula
(1) In section FO 18(3), the outstanding accrued balance is calculated using the formula—
consideration + prior income + income accrued in year − expenditure accrued in year − consideration paid.
Definition of items in formula
(2) In the formula,—
(a) consideration is the consideration paid by the party under the financial arrangement:
(b) prior income is the income that the party derives less the expenditure that it incurs under the financial arrangement calculated under either a spreading method or section EW 53 (Adjustment required) in all income years other than the current income year from the time the financial arrangement was entered into:
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(c) income accrued in year is the income that the party accrues from the financial arrangement for the period from the first day of the income year in which the amalgamation occurs to the date of the amalgamation, calculated either—
(i) using the spreading method used to calculate income and expenditure under the financial arrangement in the income year, if the party was a party to the financial arrangement in an earlier income year; or
(ii) using a spreading method that the party chooses, if the method could have been used if the income year had ended immediately before the amalgamation:
(d) expenditure accrued in year is the expenditure that the party accrues under the financial arrangement for the period described in paragraph (c) and calculated as described in that paragraph:
(e) consideration paid is the consideration paid to the party under the financial arrangement before the date of the amalgamation.
Defined in this Act: amalgamation, consideration, financial arrangement, income, income year, spreading method,
Compare: 2004 No 35 s FE 10(6)(b)
Subpart FZ—Terminating provisions
Debentures
FZ 1 Treatment of interest payable under debentures issued before certain date
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When this section applies
(1) This section applies for the purposes of section FA 2 (Recharacterisation of certain debentures).
Profit-related debentures
(2) A debenture issued before 8pm New Zealand standard time on 23 October 1986 is a profit-related debenture if the rate of interest may be determined by reference to the dividend payable by the company issuing the debenture or in any other manner.
Fixed rates of interest
(3) Despite section FA 2(3)(c), section FA 2(2) applies to a profit-related debenture issued before 8pm New Zealand standard time on 23 October 1986.
Defined in this Act: company, debentures, dividend, interest, pay, profit-related debenture,
Compare: 2004 No 35 s FC 1
Leases
FZ 2 Effect of specified lease on lessor and lessee
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Lease treated as sale
(1) The leasing of a personal property lease asset under a specified lease is treated as a sale of the asset, made at the start of the term of the lease, by the lessor to the lessee. The lessee is treated as having incurred, through the sale, capital expenditure of an amount equal to the cost price of the asset.
Loan applied to finance acquisition of asset
(2) A lessor under a specified lease is treated as having advanced to the lessee a loan of an amount equal to the cost price of the personal property lease asset. The lessee is treated as having applied the loan in the financing of the acquisition of the asset.
No deduction
(3) A lessor under a specified lease is denied a deduction under section DZ 14(2) (Deductions under specified leases) for an amount of depreciation loss for the personal property lease asset.
Asset sold to lessor
(4) At the end of the term of a specified lease, if the personal property lease asset is not acquired by the lessee under the terms of the lease or in the exercise of an option under the lease, the asset is treated as sold at the end of the term of the lease to the lessor for—
(a) an amount equal to the guaranteed residual value, if any, set out for the asset in the lease; or
(b) if no guaranteed residual value is set out in the lease, no consideration.
Treatment when lease terminated
(5) If a specified lease is terminated before the term of the lease ends, whether by cancellation, surrender, or otherwise,—
(a) the personal property lease asset relating to the lease is treated as sold on the date of the termination to the lessor by the lessee at a price equal to the amount by which the amount of the outstanding balance, at the time of termination, of a loan advance by the lessor to the lessee is more than the amount or the sum of the amounts payable by the lessee to the lessor in consideration for the release by the lessor of the lessee from the obligations of the lessee under the lease:
(b) despite paragraph (a), if, in relation to the amount of the outstanding balance and the amount or the sum of the amounts payable by the lessee to the lessor, no excess arises, the asset is treated as having been sold for no consideration:
(c) if the value of the consideration payable by the lessee to the lessor in relation to the termination is more than the amount of the outstanding balance, at the time of termination, of a loan advanced by the lessor to the lessee, an amount equal to the amount of the excess is treated as income derived by the lessor in the income year in which the lease is terminated.
Subsequent sale, assignment, or lease
(6) If, on or after the end of the term of a specified lease, the personal property lease asset relating to the lease is sold, assigned, or leased under a specified lease by the lessor to another person, and the value of the consideration on the sale, assignment, or lease—
(a) is more than the amount determined for the first specified lease under subsection (4), the amount determined is increased by a further amount that is equal to the part, if any, of the excess paid by the lessor to the lessee:
(b) is less than the amount determined for the first specified lease under subsection (4)(a), and the lessee is required to make a further payment to the lessor equal to the difference between the guaranteed residual value for the lease value, and the value of the consideration, the amount determined is reduced by the amount of the further payment.
Consideration more than amount determined under subsection (4)
(7) Despite subsection (6), if the value of the consideration on the sale, assignment, or lease is more than the amount determined under subsection (4), the part, if any, of the excess that is not paid to the lessee is treated as income under section CZ 20 (Disposal of personal property lease asset under specified lease).
Associated persons
(8) If the lessee under a specified lease, or another person who is associated with the lessee, at any time acquires the personal property lease asset, and disposes of the asset, and the value of the consideration for the disposal is more than the value of the consideration for which the lessee or other person acquired it, an amount equal to the excess is income under section CZ 20.
Meaning of outstanding balance
(9) In this section, and in section FZ 3, outstanding balance means the amount calculated using the formula—
(loans advanced + interest payable) − instalments.
Definition of items in formula
(10) In the formula,—
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(a) loans advanced is the total amount of all loans advanced under the lease by the lessor for the period—
(i) starting on the date that the lease started; and
(ii) ending on the date immediately before the start of the instalment period:
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(b) interest payable is the total amount of interest payable for each loan for the period—
(i) starting on the date that the lease started; and
(ii) ending on the date immediately before the start of the instalment period:
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(c) instalments is the total amount of all instalments paid by the lessee in the period—
(i) starting on the date that the lease started; and
(ii) ending on the date immediately before the start of the instalment period.
Defined in this Act: amount, associated person, cost price, deduction, depreciation loss, guaranteed residual value, income, income year, instalment, lessee, lessor, loan, outstanding balance, pay, personal property lease asset, specified lease, term of the lease,
Compare: 2004 No 35 s FC 6(2)–(8)
FZ 3 Income of lessor under specified lease
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Interest
(1) The income of a lessor derived under a specified lease is treated as interest.
Treatment of amount derived
(2) The amount of interest derived under subsection (1) is treated as—
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(a) during the term of the lease, derived during the initial period and each instalment period, an amount that is calculated either,—
(i) on the outstanding balance for the initial period, and each instalment period, at such a rate and in such a manner that the aggregate of all of the amounts so calculated is equal to the amount first mentioned in paragraph (b); or
(ii) for the initial period and each instalment period, under such other method commonly applied in commercial usage as, having regard to the term of the lease and to the frequency of the personal property lease payments, results in the allocation to that initial period and to each instalment period of an amount that is fair and reasonable and results in the sum of all amounts so allocated being equal to the amount first mentioned in paragraph (b):
(b) in relation to the term of the lease, an amount that is equal to the sum of the personal property lease payments under the specified lease and the amount of the guaranteed residual value, if any, under the specified lease, reduced by the cost price of the personal property lease asset.
Calculation for income year
(3) The interest derived by a lessor is, for an income year, treated as an amount equal to the sum of the amounts calculated under subsection (2)(a) as calculated for the initial period, if any, and each instalment period that ends in the income year.
Some definitions
(4) In this section,—
initial period means the period—
(a) starting on the date of the start of a lease; and
(b) ending just before the start of the instalment period that follows the start of the lease
instalment period means the period—
(a) starting on the day on which an instalment is payable; and
(b) ending with the day just before the day on which the next instalment is payable.
Defined in this Act: amount, guaranteed residual value, income, income year, initial period, instalment, instalment period, interest, lessor, outstanding balance, pay, personal property lease asset, personal property lease payment, specified lease, term of the lease,
Compare: 2004 No 35 s FC 7
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FZ 4 Deductions under specified leases
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A lessee under a specified lease is denied a deduction for expenditure incurred by them under the lease except to the extent described in section DZ 14(3) (Deductions under specified leases).
Defined in this Act: deduction, lessee, specified lease,
Compare: 2004 No 35 s FC 8
Relationship property
FZ 5 Commercial bills
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When this section applies
(1) This section applies for the purposes of section CZ 6 (Commercial bills before 31 July 1986) when a commercial bill is transferred under a settlement of relationship property.
Transfer at cost
(2) The transfer is treated as a disposal by the transferor and an acquisition by the transferee for an amount that equals the cost of the bill to the transferor.
Defined in this Act: amount, commercial bill, settlement of relationship property,
Compare: 2004 No 35 s FF 5
Estate property
FZ 6 Transitional valuation rule for estate property
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What this section applies to
(1) This section applies to property transferred under section FC 1(1)(a) (What this subpart does) either on a person’s death or on a distribution by an executor, administrator, or trustee of an estate, if—
(a) the death or distribution occurred before 1 October 2005; and
(b) in the tax year in which the property passes, all beneficiaries of the deceased person are resident in New Zealand, and no income of a beneficiary is exempt income under section CW 43 (Charitable bequests).
Market value or value under settlement of relationship property
(2) The valuation of the transferred property for tax purposes for the corresponding income year in which the death or distribution occurred is measured as a transfer occurring immediately before the death of the person, or at the date of distribution, as applicable, at—
(a) market value; or
(b) a value under subpart FB (Transfers of relationship property) for property of the type; or
(c) a value under subsection (4).
Returns of income
(3) For the purposes of providing a return of income for the deceased person, beneficiary, and estate, a value determined under subsection (2) is treated as correct.
Requirements of other provisions
(4) Despite subsection (3), if this Act, the Income Tax Act 2004, or Income Tax Act 1994, requires the use of a market value for an item of property, that value must be used in the return of income.
Defined in this Act: corresponding income year, exempt income, income, market value, New Zealand, property, resident in New Zealand, return of income, tax year, trustee,
Compare: 2004 No 35 ss FI 9, FI 10
Legislative history | |
|---|---|
| 15 November 2006 | Introduction (Bill 92-1) |
| 23 November 2006 | First reading and referral to Finance and Expenditure Committee |
| 16 July 2007 | Reported from Finance and Expenditure Committee (Bill 91-2) |
| 16 August 2007 | Second reading |
| 21 August 2007 | Committee of the whole House |
| 25 October 2007 | Third reading |
| 1 November 2007 | Royal assent |
This Act is administered by the Inland Revenue Department.
Versions
Income Tax Act 2007
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