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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 G
Avoidance and non-market transactions
Subpart GA—Avoidance: general
GA 1 Commissioner’s power to adjust
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When this section applies
(1) This section applies if an arrangement is void under section BG 1 (Tax avoidance).
Commissioner’s general power
(2) The Commissioner may adjust the taxable income of a person affected by the arrangement in a way the Commissioner thinks appropriate, in order to counteract a tax advantage obtained by the person from or under the arrangement.
Commissioner’s specific power over tax credits
(3) The Commissioner may—
(a) disallow some or all of a tax credit of a person affected by the arrangement; or
(b) allow another person to benefit from some or all of the tax credit.
Commissioner’s identification of hypothetical situation
(4) When applying subsections (2) and (3), the Commissioner may have regard to 1 or more of the amounts listed in subsection (5) which, in the Commissioner’s opinion, had the arrangement not occurred, the person—
(a) would have had; or
(b) would in all likelihood have had; or
(c) might be expected to have had.
Reconstructed amounts
(5) The amounts referred to in subsection (4) are—
(a) an amount of income of the person:
(b) an amount of deduction of the person:
(c) an amount of tax loss of the person:
(d) an amount of tax credit of the person.
No double counting
(6) When applying subsection (2), if the Commissioner includes an amount of income or deduction in calculating the taxable income of the person, it must not be included in calculating the taxable income of another person.
Meaning of tax credit
(7) In this section, tax credit means a reduction in the tax a person must pay because of—
(a) a credit allowed for a payment by the person of an amount of tax or of another item; or
(b) another type of benefit.
Defined in this Act: amount, arrangement, Commissioner, deduction, tax, tax credit, tax loss, taxable income,
Compare: 2004 No 35 s GB 1(1)–(2C)
GA 2 Commissioner’s power to adjust: fringe benefit tax
-
When this section applies
(1) This section applies if—
(a) an arrangement is void under section BG 1 (Tax avoidance); and
(b) the arrangement involves altering the incidence of fringe benefit tax (FBT).
Commissioner’s power in relation to excluded income
(2) The Commissioner may adjust the excluded income under section CX 3 (Excluded income) of a person affected by the arrangement in a way the Commissioner thinks appropriate, in order to counteract a tax advantage obtained by the person from or under the arrangement.
Commissioner’s identification of hypothetical situation
(3) When applying subsection (2), the Commissioner may have regard to 1 or more of the amounts listed in subsection (4) which, in the Commissioner’s opinion, had the arrangement not occurred, the person—
(a) would have had; or
(b) would in all likelihood have had; or
(c) might be expected to have had.
Reconstructed amounts
(4) The amounts referred to in subsection (3) are—
(a) an amount of excluded income of the person:
(b) an amount of excluded income of the person, if the person had been allowed the benefit of an amount of excluded income derived by another person as a result of the arrangement.
No double counting
(5) If the Commissioner includes an amount of excluded income in calculating the taxable income of the person, it must not be included in calculating the taxable income of another person.
Defined in this Act: amount, arrangement, Commissioner, excluded income, FBT, fringe benefit tax, taxable income,
Compare: 2004 No 35 s GC 17B
Subpart GB—Avoidance: specific
Arrangements involving dividend stripping
GB 1 Arrangements involving dividend stripping
-
When this section applies
(1) This section applies when—
(a) a person disposes of shares in a company in an income year; and
(b) the disposal is part of a tax avoidance arrangement; and
(c) some or all of the consideration that the person derives from the disposal is in substitution for a dividend in an income year.
When amount substitutes for dividend
(2) An amount derived by the person is in substitution for a dividend if it is equivalent to or substitutes for a dividend that, but for the arrangement, the person—
(a) would have derived; or
(b) would in all likelihood have derived; or
(c) might be expected to have derived.
Substitute treated as dividend
(3) The amount derived in substitution for a dividend is treated as a dividend derived by the person in the income year in which the disposal occurs.
Defined in this Act: arrangement, company, dispose, dividend, income year, tax avoidance arrangement,
Compare: 2004 No 35 s GB 1(3)
Arrangements involving transfer pricing
GB 2 Arrangements involving transfer pricing
-
When this section applies
(1) This section applies in relation to a person if an arrangement has a purpose or effect of defeating the intent and application of—
(a) section GC 7 (Excess amount payable by person):
(b) section GC 8 (Insufficient amount receivable by person):
(c) section GC 9 (Compensating arrangement: person paying less than arm’s length amount):
(d) section GC 10 (Compensating arrangement: person receiving more than arm’s length amount).
Possible examples
(2) Without limiting the generality of subsection (1), the following collateral arrangements may result in that purpose or effect:
(a) a collateral arrangement with an associated person who is a non-resident:
(b) a market-sharing arrangement:
(c) an arrangement not to enter a market:
(d) a back-to-back supply arrangement:
(e) an income-sharing arrangement.
Application of sections GC 7 to GC 10
(3) Section GC 7, GC 8, GC 9, or GC 10, as applicable, applies to require the substitution of an arm’s length amount of consideration, despite section GC 6(2) and (3) (Purpose of rules and nature of arrangements).
Defined in this Act: arrangement, associated person, non-resident,
Compare: 2004 No 35 s GC 1
Arrangements involving tax losses
GB 3 Arrangements for carrying forward loss balances: companies
-
When this section applies
(1) This section applies when—
(a) a share in a company (the loss company) or another company has been subject to an arrangement, including an arrangement directly or indirectly altering rights attached to the shares; and
(b) the arrangement allows the loss company to meet the requirements of section IA 5 (Restrictions on companies’ loss balances carried forward); and
(c) a purpose of the arrangement is to defeat the intent and application of sections IA 5 and IP 3 (Continuity breach: tax loss components of companies carried forward).
Company treated as not meeting requirements
(2) The loss company is treated as not meeting the requirements of section IA 5 in relation to the share.
Defined in this Act: arrangement, company, loss balance, share,
Compare: 2004 No 35 s GC 2
GB 4 Arrangements for grouping tax losses: companies
-
When this section applies
(1) This section applies when—
(a) a share in a company (the offset company) or another company has been subject to an arrangement, including an arrangement directly or indirectly altering rights attached to the shares; and
(b) the arrangement allows the offset company to meet the requirements of subparts IC and IP, and section IZ 7 (which relate to the use of tax losses by group companies), as applicable; and
(c) a purpose of the arrangement is to defeat the intent and application of those provisions.
Company treated as not meeting requirements
(2) The offset company is treated as not meeting the requirements of subparts IC and IP and section IZ 7, as applicable, in relation to the share.
Defined in this Act: arrangement, company, share, tax loss,
Compare: 2004 No 35 s GC 4
Arrangements to defeat continuity provisions
GB 5 Arrangements involving trust beneficiaries
-
When this section applies
(1) This section applies when—
(a) a share in a company or option over a share in a company is held by a trustee; and
(b) a change occurs in the beneficiaries of the trust; and
(c) a purpose or effect of the change is to defeat the intent and application of a continuity provision.
Trustee treated as disposing of share or option
(2) The trustee is treated as having disposed of the share or option to an unrelated person at the time of the change in beneficiaries, and as having reacquired it immediately afterwards.
Limited application of subsection (2)
(3) Subsection (2) applies only for the purposes of the application of the rules in sections YC 2 (Voting interests) and YC 3 (Market value interests) in the case of the continuity provisions.
Defined in this Act: company, continuity provisions, dispose, option, share, trustee,
Compare: 2004 No 35 s GC 3
Arrangements involving qualifying companies
GB 6 Arrangements involving qualifying companies
-
When this section applies
(1) This section applies when—
(a) a share in a company has been subject to an arrangement at a time; and
(b) the arrangement allows the company or another company (the relevant company) to be a qualifying company at the time; and
(c) a purpose of the arrangement is to defeat the intent and application of subpart HA (Qualifying companies (QC) and loss-attributing qualifying companies (LAQC)).
Company treated as not qualifying company
(2) The relevant company is treated as not being a qualifying company at that time.
Defined in this Act: arrangement, company, qualifying company, share,
Compare: 2004 No 35 s GC 5
Arrangements involving controlled foreign companies
GB 7 Arrangements involving CFC control interests
-
When this section applies
(1) This section applies when—
(a) 2 or more persons who are New Zealand residents enter into an arrangement; and
(b) under the arrangement, a control interest in a foreign company is held by another person; and
(c) a purpose of the arrangement is to prevent the foreign company being a controlled foreign company (CFC).
Interest treated as held by residents
(2) The control interest is treated as being held by the New Zealand residents in equal proportions, for the purposes of determining whether the company is a CFC.
Defined in this Act: arrangement, CFC, control interest, foreign company, New Zealand resident,
Compare: 2004 No 35 s GC 7
GB 8 Arrangements involving attributed repatriation from CFCs
-
When this section applies
(1) This section applies when—
(a) a CFC enters into a loan, security, or other type of arrangement (the CFC arrangement) with another person; and
(b) the CFC arrangement does not directly result in a person having an attributed repatriation from the CFC; and
(c) the CFC arrangement has the purpose or effect of allowing a person (the investor) to enter into a loan or other arrangement (the investor arrangement); and
(d) the investor arrangement would, if it had been made by the CFC, have resulted in a person having some attributed repatriation from the CFC; and
(e) the purpose or effect of the arrangement is to defeat the intent and application of section CD 45 (When does a person have attributed repatriation from a controlled foreign company?).
Investor arrangement treated as made by CFC
(2) For the purposes of applying section CD 45, the investor arrangement is treated as having been made by the CFC and not the investor.
Defined in this Act: arrangement, attributed repatriation, CFC,
Compare: 2004 No 35 s GC 8
GB 9 Temporary disposals of direct control or income interests
-
When this section applies
(1) This section applies when,—
(a) before the end of a quarter, a person (the disposer), directly or indirectly disposes of a direct control interest or direct income interest in a foreign company (the disposal); and
(b) the disposal is not to a New Zealand resident who, immediately after the disposal, has an income interest of 10% or more in the foreign company from which attributed CFC income or attributed repatriation is derived; and
(c) within 183 days after the disposal, the disposer directly or indirectly acquires a direct control interest or direct income interest in the foreign company (the reacquisition); and
-
(d) the disposal has the effect of reducing attributed CFC income or attributed repatriation of—
(i) the disposer; or
(ii) an associated person of the disposer; or
(iii) if the disposer is a CFC, a person holding an income interest in the disposer; and
(e) the disposal and reacquisition are part of an arrangement that has an effect of defeating the intent and application of the international tax rules.
Treatment of disposal
(2) The disposal is treated as not having occurred, when the person’s control interest or income interest in the foreign company at the end of the quarter is calculated, to the extent to which the reacquisition reverses the disposal.
Defined in this Act: arrangement, associated person, attributed CFC income, attributed repatriation, CFC, control interest, direct control interest, direct income interest, foreign company, income interest, international tax rules, quarter,
Compare: 2004 No 35 s GC 9(1), (4), (7)
GB 10 Temporary acquisitions of direct control or income interests
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When this section applies
(1) This section applies when,—
(a) before the end of a quarter, a person (the acquirer), directly or indirectly acquires a direct control interest or direct income interest in a foreign company (the acquisition); and
(b) the acquisition is not from a New Zealand resident who, immediately before the acquisition, has an income interest of 10% or more in the foreign company from which an attributed CFC loss is incurred; and
(c) within 183 days after the acquisition, the acquirer directly or indirectly disposes of a direct control interest or direct income interest in the foreign company (the disposal); and
-
(d) the acquisition has the effect of increasing an attributed CFC loss of—
(i) the acquirer; or
(ii) an associated person of the acquirer; or
(iii) if the acquirer is a CFC, a person holding an income interest in the acquirer; and
(e) the acquisition and disposal are part of an arrangement that has an effect of defeating the intent and application of the international tax rules.
Treatment of acquisition
(2) The acquisition is treated as not having occurred, when the person’s control interest or income interest in the foreign company at the end of the quarter is calculated, to the extent to which the disposal reverses the acquisition.
Defined in this Act: arrangement, associated person, attributed CFC loss, CFC, control interest, direct control interest, direct income interest, foreign company, income interest, international tax rules, quarter,
Compare: 2004 No 35 s GC 9(1), (4), (7)
GB 11 Temporary increases in totals for control interest categories
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When this section applies
(1) This section applies when,—
(a) before the end of a quarter, an increase occurs in the total of direct control interests in a foreign company in any of the control interest categories (the total increase); and
(b) the total increase results in a person (the interest holder) having a reduced income interest or control interest in a foreign company (the interest reduction); and
(c) within 365 days after the total increase, a reduction occurs in the total for the control interest category (the total reduction); and
-
(d) the interest reduction has the effect of reducing attributed CFC income or attributed repatriation of—
(i) the interest holder; or
(ii) an associated person of the interest holder; or
(iii) if the interest holder is a CFC, another person holding an income interest in the interest holder; and
(e) the total increase and total reduction are part of an arrangement that has an effect of defeating the intent and application of the international tax rules.
Treatment of interest reduction
(2) The interest reduction is treated as not having occurred, when the interest holder’s control interest or income interest in the foreign company at the end of the quarter is calculated, to the extent to which the total reduction reverses the interest reduction.
Defined in this Act: arrangement, associated person, attributed CFC income, attributed repatriation, CFC, control interest, control interest category, direct control interest, foreign company, income interest, international tax rules, quarter,
Compare: 2004 No 35 s GC 9(2), (7)
GB 12 Temporary reductions in totals for control interest categories
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When this section applies
(1) This section applies when,—
(a) before the end of a quarter, a reduction in the total of direct control interests in a foreign company occurs in a control interest category (the total reduction); and
(b) the total reduction results in a person (the interest holder) having an increased income interest or control interest in a foreign company (the interest increase); and
(c) within 365 days after the total reduction, an increase occurs in the total for the control interest category (the total increase); and
-
(d) the interest increase has the effect of increasing an attributed CFC loss of—
(i) the interest holder; or
(ii) an associated person of the interest holder; or
(iii) another person holding an income interest in the interest holder, if the interest holder is a CFC; and
(e) the total reduction and total increase are part of an arrangement which has an effect of defeating the intent and application of the international tax rules.
Treatment of interest increase
(2) The interest increase is treated as not having occurred, when the interest holder’s control interest or income interest in the foreign company at the end of the quarter is calculated, to the extent to which the total increase reverses the interest increase.
Defined in this Act: arrangement, associated person, attributed CFC loss, CFC, control interest, control interest category, direct control interest, foreign company, income interest, international tax rules, quarter,
Compare: 2004 No 35 s GC 9(2), (7)
GB 13 When combination of changes reduces income
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When this section applies
(1) This section applies when—
-
(a) before the end of a quarter, either—
(i) a person directly or indirectly disposes of a direct control interest or direct income interest in a foreign company (the disposal); or
(ii) an increase occurs in the total of direct control interests in a foreign company in any of the control interest categories (the total increase); and
(b) in the case of the disposal, the disposal is not to a New Zealand resident who, immediately after the disposal, has an income interest of 10% or more in the foreign company from which they derive attributed CFC income or attributed repatriation; and
(c) in the case of the disposal, within 365 days after the disposal, a reduction occurs in the total of direct control interests in the foreign company in any of the control interest categories (the total reduction); and
(d) in the case of the total increase, within 365 days after the total increase, a person directly or indirectly acquires a direct control interest or direct income interest in the foreign company (the reacquisition); and
-
(e) the disposal or total increase has the effect of reducing attributed CFC income or attributed repatriation of—
(i) the person (the interest holder); or
(ii) an associated person of the interest holder; or
(iii) if the interest holder is a CFC, a person holding an income interest in the interest holder; and
(f) the disposal and total reduction or total increase and reacquisition are part of an arrangement that has an effect of defeating the intent and application of the international tax rules.
Treatment of disposal or total increase
(2) The disposal or total increase is treated as not having occurred, when the interest holder’s control interest or income interest in the foreign company at the end of the quarter is calculated, to the extent to which the total reduction or reacquisition has the effect of reversing the effect of the disposal or total increase on the level of the interest holder’s control interest or income interest.
Defined in this Act: arrangement, associated person, attributed CFC income, attributed repatriation, CFC, control interest, control interest category, direct control interest, direct income interest, foreign company, income interest, international tax rules, quarter,
Compare: 2004 No 35 s GC 9(3), (4), (7)
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GB 14 When combination of changes increases loss
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When this section applies
(1) This section applies when,—
-
(a) before the end of a quarter, either—
(i) a person directly or indirectly acquires a direct control interest or direct income interest in a foreign company (the acquisition); or
(ii) a decrease occurs in the total of direct control interests in a foreign company in any of the control interest categories (the total decrease); and
(b) in the case of the acquisition, the acquisition is not from a New Zealand resident who, immediately before the acquisition, has an income interest of 10% or more in the foreign company from which they have an attributed CFC loss; and
(c) in the case of the acquisition, within 365 days after the acquisition, an increase occurs in the total of direct control interests in the foreign company in any of the control interest categories (the total increase); and
(d) in the case of the total reduction, within 365 days after the total reduction, a person directly or indirectly disposes of a direct control interest or direct income interest in the foreign company (the disposal); and
-
(e) the acquisition or total reduction has the effect of reducing an attributed CFC loss of—
(i) the person (the interest holder); or
(ii) an associated person of the interest holder; or
(iii) if the interest holder is a CFC, a person holding an income interest in the interest holder; and
(f) the acquisition and total increase or total reduction and disposal are part of an arrangement that has an effect of defeating the intent and application of the international tax rules.
Treatment of acquisition or total reduction
(2) The acquisition or total reduction is treated as not having occurred, when the interest holder’s control interest or income interest in the foreign company at the end of the quarter is calculated, to the extent to which the total increase or disposal has the effect of reversing the effect of the acquisition or total reduction on the level of the interest holder’s control interest or income interest.
Defined in this Act: arrangement, associated person, attributed CFC loss, CFC, control interest, control interest category, direct control interest, direct income interest, foreign company, income interest, international tax rules, quarter,
Compare: 2004 No 35 s GC 9(3), (4), (7)
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GB 15 CFC income or loss: arrangements related to quarterly measurement
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When this section applies
(1) This section applies when—
(a) an income interest in a CFC is transferred by a person to an associated person; and
(b) the associated persons make an arrangement for making or not making an election under section EX 26(3) (Use of quarterly measurement); and
(c) the arrangement has an effect of defeating the intent and application of the international tax rules.
Treatment of election
(2) The Commissioner may treat the election as having been made or not made, as applicable, to the extent appropriate to prevent the effect of the arrangement.
Defined in this Act: arrangement, associated person, CFC, Commissioner, income interest, international tax rules,
Compare: 2004 No 35 s GC 10
Arrangements involving foreign investment funds
GB 16 FIF income or loss: arrangements for measurement day concessions
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When this section applies
(1) This section applies when—
(a) an attributing interest in a foreign investment fund (FIF) is transferred by a person to an associated person; and
-
(b) the associated persons make an arrangement for making or not making—
(i) an election under section EX 26(3) (Use of quarterly measurement); or
(ii) an election under section EX 49(6) (Accounting profits method); or
(iii) a combination of those elections; and
(c) the arrangement has an effect of defeating the intent and application of the international tax rules.
Treatment of election
(2) The Commissioner may treat an election as having been made or not made, as applicable, to the extent appropriate to prevent the effect of the arrangement.
Defined in this Act: arrangement, associated person, attributing interest, FIF, Commissioner, international tax rules,
Compare: 2004 No 35 s GC 10
Arrangements involving film rights
GB 17 Excessive amounts for film rights or production expenditure
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When this section applies
(1) This section applies when—
-
(a) a person (the buyer) is allowed a deduction under—
(i) section DS 1 (Acquiring film rights) for expenditure incurred in acquiring a film right; or
(ii) section DS 2 (Film production expenditure) for expenditure incurred in acquiring goods or services in relation to a film; and
(b) the Commissioner considers that the buyer and the person from whom the film right, goods or services were acquired (the seller) were not dealing with each other at arm’s length; and
(c) the amount of expenditure incurred by the buyer is more than the market value of the film right, goods, or services at the time they were acquired.
Deduction reduced to market value
(2) The deduction is reduced to an amount equal to the market value.
Application to shares in film rights
(3) If the buyer acquires only a share in a film right, this section applies only to the part of the total market value of the film right that is attributable to that share.
Defined in this Act: Commissioner, deduction, film production expenditure, film right,
Compare: 2004 No 35 ss GC 11A, GD 12
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GB 18 Arrangements to acquire film rights or incur production expenditure
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When this section applies
(1) This section applies if the Commissioner considers that 2 persons have made arrangements so that any of the following sections applies more favourably in relation to a person in an income year than would have applied without the arrangements:
(a) section DS 1 (Acquiring film rights):
(b) section DS 2 (Film production expenditure):
(c) section EJ 4 (Expenditure incurred in acquiring film rights in feature films):
(d) section EJ 5 (Expenditure incurred in acquiring film rights in films other than feature films):
(e) section EJ 7 (Film production expenditure for New Zealand films):
(f) section EJ 8 (Film production expenditure for films other than New Zealand films).
Deduction reduced
(2) The deduction allowed to the person under section DS 1 or DS 2 is reduced to the amount that the Commissioner considers would have been allowed had the arrangements not occurred.
Allocation
(3) The deduction allocated under section EJ 4, EJ 5, EJ 7, or EJ 8 is allocated to the income year to which the Commissioner considers it would have been allocated had the arrangements not occurred.
Defined in this Act: arrangement, Commissioner, deduction, film production expenditure, film right, income year,
Compare: 2004 No 35 ss GC 11B, GD 12B
GB 19 When film production expenditure payments delayed or contingent
-
When this section applies
(1) This section applies when—
(a) a person (the payer) is liable to pay any of the costs of goods or services applied in producing a film:
-
(b) either—
(i) the payment of the costs is deferred under an agreement between the provider of the goods or services and another person, and the period of deferral is excessive; or
(ii) the payment is contingent.
Costs incurred when paid
(2) For the purposes of sections DS 2, EJ 7, and EJ 8 (which relate to film production expenditure), the payer is treated as incurring the costs at the time of payment.
Defined in this Act: film, film production expenditure,
Compare: 2004 No 35 s GD 12A
Arrangements involving petroleum mining
GB 20 Arrangements involving petroleum mining
-
When this section applies
(1) This section applies if the requirements of both of the following paragraphs are met:
-
(a) an arrangement includes—
(i) a disposal of a petroleum mining asset; or
(ii) the incurring of petroleum exploration expenditure; or
(iii) a farm-out arrangement:
(b) the arrangement has a purpose or effect of tax avoidance.
Applying section GA 1
(2) The Commissioner may apply section GA 1 (Commissioner’s power to adjust) to adjust the taxable income of a person affected by the arrangement so as to counteract a tax advantage obtained by the person.
Examples
(3) Without limiting the generality of subsection (1), arrangements having the effect of tax avoidance include the arrangements described in subsections (4) to (8).
Person acquiring asset relieved or compensated
(4) An arrangement has the effect of tax avoidance if it involves the disposal of a petroleum mining asset and it is probable that, at the time the arrangement is entered into, the person acquiring the petroleum mining asset—
(a) will, through a related arrangement, not have to suffer some or all of the expenditure of acquiring the petroleum mining asset; or
(b) will be effectively compensated in some way for some or all of the expenditure.
Person incurring expenditure relieved or compensated
(5) An arrangement has the effect of tax avoidance if it involves the incurring of petroleum exploration expenditure and it is probable that, at the time the arrangement is entered into, the person who is to incur the petroleum exploration expenditure—
(a) will, through a related arrangement, not have to suffer some or all of the petroleum exploration expenditure; or
(b) will be effectively compensated in some way for some or all of the petroleum exploration expenditure.
Farm-in party relieved or compensated
(6) An arrangement has the effect of tax avoidance if it involves a farm-out arrangement and it is probable that, at the time the arrangement is entered into,—
(a) the farm-in party will, through a related arrangement, not have to suffer some or all of the farm-in expenditure attributable to the proportionate interest acquired by the farm-in party under the farm-out arrangement; or
(b) the farm-in party or an associated person will be effectively compensated in some way for some or all of the farm-in expenditure.
Disposal of asset to associated person for over-value
(7) An arrangement has the effect of tax avoidance if it involves a petroleum miner disposing of a petroleum mining asset to an associated person for a purpose of ensuring that the associated person has a greater deduction than would have been allowed if the asset had been disposed of for its market value.
Farm-out arrangement with associated person for overvalue
(8) An arrangement has the effect of tax avoidance if it involves a petroleum miner entering into a farm-out arrangement with an associated person for a purpose of ensuring that the associated person has a greater deduction than would have been allowed if the farm-out arrangement had been entered into on substantially the same terms as those on which it would have been entered into with a person who is not associated.
Miners operating offshore
(9) This section applies, with the necessary modifications, to a petroleum miner who undertakes petroleum mining operations that are—
(a) outside New Zealand and undertaken through a branch or CFC; and
(b) substantially the same as the petroleum mining activities governed by this Act.
Treatment of partners
(10) For the purposes of this section, a partner is treated as having a share or interest in a petroleum permit or other property of a partnership to the extent of their income interest in the partnership.
Disposal of part of asset
(11) For the purposes of this section, references to the disposal of an asset apply equally to the disposal of part of an asset.
Defined in this Act: arrangement, associated person, CFC, deduction, dispose, farm-in expenditure, farm-out arrangement, New Zealand, petroleum exploration expenditure, petroleum miner, petroleum mining asset, petroleum permit, tax avoidance, taxable income,
Compare: 2004 No 35 s GC 12
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Arrangements involving financial arrangements
GB 21 Dealing that defeats intention of financial arrangements rules
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When this section applies
(1) This section applies if the Commissioner considers that the parties to a financial arrangement were dealing with each other in a way that defeats the intention of the financial arrangements rules at the time the financial arrangement was—
(a) entered into or otherwise acquired; or
(b) varied; or
(c) disposed of.
Alteration of consideration
(2) The Commissioner may treat the relevant transaction as having occurred for the consideration that parties dealing at arm’s length would have agreed on.
Defined in this Act: Commissioner, financial arrangement, financial arrangements rules,
Compare: 2004 No 35 s GD 11
Arrangements involving trust beneficiary income
GB 22 Arrangements involving trust beneficiary income
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When this section applies
(1) This section applies when—
(a) an arrangement involves a trustee transferring property, or providing services or other benefits, to a person other than a beneficiary of the trust; and
(b) the arrangement has the effect of defeating the intent and application of sections HC 17 to HC 23 (which relate to the income of beneficiaries) in relation to the beneficiary; and
(c) the trust is not a Maori authority.
Application of sections HC 17 to HC 23
(2) The beneficiary is treated, for the purposes of sections HC 17 to HC 23, as receiving the property or enjoying the services or benefits.
Defined in this Act: arrangement, Maori authority, trustee,
Compare: 2004 No 35 s GC 14
Excessive remuneration
GB 23 Excessive remuneration to relatives
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When this section applies: first case
(1) This section applies when—
(a) a person carries on a business or undertaking; and
(b) the person employs or engages a relative or, in a case in which the person is a company but not a close company, a relative of a director or shareholder of the company, to perform services for the business or undertaking; and
(c) the Commissioner considers that the income payable to the relative for the services is excessive; and
(d) the exemption in section GB 24 does not apply.
When this section applies: second case
(2) This section also applies when—
(a) a person carries on a business in partnership; and
(b) the partnership employs or engages a relative of the person or, in a case in which the person is a company, a relative of a director or shareholder in the company, to perform services for the business; and
(c) the Commissioner considers that the income payable to the relative for the services is excessive; and
(d) the exemption in section GB 24 does not apply.
When this section applies: third case
(3) This section also applies when—
(a) a person carries on a business in partnership; and
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(b) another partner in the partnership is—
(i) a relative of the person; or
(ii) if the person is a company, a relative of a director or shareholder in the company; or
(iii) a company in which a relative of the person is a director or shareholder; and
(c) the Commissioner considers that the other partner’s share of partnership profit or losses is excessive; and
(d) the exemption in section GB 24 does not apply.
Allocation of income or losses
(4) For the purposes of this Act, the Commissioner may allocate the income or losses of the business or undertaking among the parties to the contract or partnership as the Commissioner considers reasonable, without taking into account an amount provided to the relative or other partner.
Treatment of amount allocated
(5) An amount the Commissioner allocates to 1 person is treated as not belonging to another person.
Matters for Commissioner’s consideration
(6) The Commissioner may take into account each of the following matters when applying this section:
(a) the nature and extent of the services rendered by the relative:
(b) the value of the contributions made by the respective partners, by way of services, capital, or otherwise:
(c) any other relevant matters.
Treatment of amount allocated back to company
(7) If an amount provided by a company to a relative of a director or shareholder for services is allocated to the company under subsection (4), it is treated as a dividend paid by the company and derived by the relative.
Defined in this Act: close company, company, director, dividend, income, relative, shareholder,
Compare: 2004 No 35 s GD 3(1), (2)
GB 24 Exemption for genuine contracts
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When section GB 23 does not apply
(1) Section GB 23 does not apply if the relevant contract of employment, engagement, or partnership is a genuine contract.
When contracts genuine
(2) A contract is treated as a genuine contract if—
(a) the contract is in writing; and
(b) the contract is signed by all the parties to it; and
(c) in the case of a contract of employment or engagement, each person employed or engaged under the contract is 20 years or older on the date of signing the contract; and
(d) in the case of a contract of partnership, each partner is 20 years or older on the date of signing the contract; and
(e) the contract is binding for at least 3 years, except for the reasons set out in sections 36 and 38 of the Partnership Act 1908; and
(f) in the case of a contract of employment or engagement, each person employed or engaged has real control over their income under the contract; and
-
(g) in the case of a contract of partnership, each partner has—
(i) real control over their share of profits under the contract; and
(ii) real liability for their share of losses under the contract; and
(h) no part of the income or share of profits derived by the relative, or company of which the relative is a shareholder or director, is a gift for the purposes of the Estate and Gift Duties Act 1968.
Defined in this Act: director, income, loss, shareholder, year,
Compare: 2004 No 35 s GD 3(4), (5)
GB 25 Close company remuneration to shareholders, directors, or relatives
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When this section applies
(1) This section applies when—
-
(a) a close company provides remuneration for services to a person (the service provider) who is—
(i) a shareholder or director of the company; or
(ii) a relative of a shareholder or director of the company; and
(b) the Commissioner considers that the amount provided is excessive; and
(c) the exemption in subsection (3) does not apply.
Excess treated as dividend
(2) For the purposes of this Act, the excess is treated as a dividend paid by the company and derived by the service provider.
Exemption: residents working full-time
(3) This section does not apply when—
(a) the service provider is an adult employed substantially full-time in the business of the company; and
(b) the service provider participates in the management of the company; and
(c) the amount provided to the service provider was not influenced by their relationship with a shareholder or director; and
(d) the service provider is a New Zealand resident.
Defined in this Act: close company, Commissioner, company, director, dividend, New Zealand resident, shareholder,
Compare: 2004 No 35 s GD 5
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Arrangements involving repatriation of commercial bills
GB 26 Arrangements involving repatriation of commercial bills
-
When this section applies
(1) This section applies when—
-
(a) a commercial bill has been issued by—
(i) a New Zealand resident who does not use the money lent in a business carried on through a fixed establishment outside New Zealand; or
(ii) a non-resident who uses the money lent in a business carried on through a fixed establishment in New Zealand; and
(b) a non-resident who holds the bill transfers it to another person (the New Zealand transferee); and
(c) the non-resident did not become a party to the bill for the purpose of carrying on a business through a fixed establishment in New Zealand; and
-
(d) the New Zealand transferee is either—
(i) a New Zealand resident; or
(ii) a non-resident who becomes a party to the commercial bill for the purpose of carrying on a business through a fixed establishment in New Zealand; and
(e) the transfer of the bill has the purpose of avoiding non-resident withholding tax (NRWT) or the approved issuer levy.
Income
(2) If the New Zealand transferee redeems the commercial bill, the redemption payment is income of the New Zealand transferee.
New Zealand transferee treated as redeeming bill
(3) For the purposes of this section, the New Zealand transferee is treated as redeeming the bill on the scheduled redemption date even if it is not redeemed.
Defined in this Act: approved issuer, commercial bill, fixed establishment, income, money lent, New Zealand resident, non-resident, NRWT, redemption payment,
Compare: 2004 No 35 s GC 14A
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Attribution rule for income from personal services
GB 27 Attribution rule for income from personal services
-
Application of section GB 29
(1) An amount of income in an income year of a person (the associated entity) is attributed to another person (the working person) under section GB 29 for the working person’s corresponding tax year if,—
(a) during the income year, a third person (the buyer) purchases services from the associated entity, and the services are personally performed by the working person; and
(b) the working person is associated with the associated entity; and
(c) the threshold test in subsection (2) is met; and
(d) none of the exemptions in subsection (3) applies.
Threshold for application of attribution rule
(2) The attribution occurs only if—
(a) 80% or more of the associated entity’s total income from personal services during the income year is derived from the sale of services to the buyer, a person associated with the buyer, or a combination of them; and
(b) 80% or more of the associated entity’s income from personal services during the income year is derived through services personally performed by the working person, a relative of the working person, or a combination of them; and
(c) the working person’s net income for the income year, assuming section GB 29 applies in relation to the associated entity and working person, is more than $60,000; and
(d) substantial business assets are not a necessary part of the business structure that is used to derive the total income referred to in paragraph (a).
Exemptions
(3) The attribution does not occur—
(a) if both the associated entity and the working person are non-residents at all times during the associated entity’s income year:
(b) if the associated entity is a natural person and is neither a partner of a partnership nor a trustee of a trust:
(c) to the extent to which the services personally performed by the working person are essential support for a product supplied by the associated entity:
(d) if the total amount to be attributed to the working person, for the associated entity and the income year, is less than $5,000, unless this paragraph applies to prevent income being attributed to the working person for the income year in relation to another associated entity.
Defined in this Act: associated person, income, income year, net income, non-resident, relative, tax year, trustee,
Compare: 2004 No 35 ss GC 14B, GC 14E
GB 28 Interpretation of terms used in section GB 27
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When this section applies
(1) This section applies for the purposes of section GB 27.
Associated persons
(2) A person is treated as being associated with another person if the person would be treated as being associated under the parts of subpart YB (Associated persons and nominees) that apply for the purposes of the whole Act, excluding the 1973, 1988, and 1990 version provisions, at the time the services are personally performed by the working person.
Non-associated buyers
(3) For the purposes of section GB 27(2)(a), a buyer is not treated as being associated with another buyer if either—
(a) both buyers are public authorities; or
(b) the working person cannot be reasonably expected to know that a particular buyer is associated with another buyer, other than by making a specific enquiry.
Relatives
(4) For the purposes of section GB 27(2)(b), a person is a relative of the working person only if the person is a relative at the beginning of the relevant income year of the working person.
Fringe benefits included
(5) For the purposes of section GB 27(2)(c), the working person’s annual gross income includes the taxable value of a fringe benefit, as determined under sections RD 25 to RD 63 (which relate to fringe benefit tax), provided or granted by a person associated with the working person.
Meaning of substantial business assets
(6) Substantial business assets means depreciable property that—
-
(a) at the end of the associated entity’s corresponding income year, has a total cost of more than either—
(i) $75,000; or
(ii) 25% or more of the associated entity’s total income from services for the income year; and
(b) is not for private use.
Assets subject to finance lease, hire purchase agreement, or specified lease
(7) For the purposes of subsection (6)(a), the cost of depreciable property includes—
(a) the consideration provided to the lessee in the case of property subject to a finance lease or a hire purchase agreement, including expenditure or loss incurred by the lessee in preparing and installing the finance lease asset for use, unless the lessee is allowed a deduction for the expenditure or loss, other than a deduction for an amount of depreciation loss:
(b) the cost price, in the case of property subject to a specified lease.
Private use of assets
(8) Subsection (6)(b) does not apply to depreciable property if 20% or less of the property’s use is for private use.
Calculation of private proportion of use
(9) For the purposes of subsection (8), the percentage of a property’s use for private purposes for an income year is calculated according to—
(a) the proportion that the number of days for which fringe benefit tax is payable by the associated entity in relation to the property bears to the total number of days in the income year in which the property is owned by or is subject to a finance lease, hire purchase agreement, or specified lease, involving the associated entity, if the property is subject to the FBT rules:
(b) the proportion that the expenditure incurred in relation to the property, for which a deduction is denied to the associated entity, bears to all expenditure incurred by the associated entity in relation to the property in the income year, if the property is not subject to the FBT rules.
Defined in this Act: 1973 version provisions, 1988 version provisions, 1990 version provisions, annual gross income, associated person, consideration, cost price, deduction, depreciable property, FBT rules, finance lease, fringe benefit, fringe benefit tax, hire purchase agreement, income, income year, public authority, relative, specified lease, substantial business asset,
Compare: 2004 No 35 s GC 14C
GB 29 Attribution rule: calculation
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Amount attributed
(1) A working person is treated as deriving income in an income year equal to the least of the following amounts:
(a) the associated entity’s net income for the corresponding tax year, calculated as if their only income were derived from personal services:
(b) the associated entity’s net income for the corresponding tax year:
(c) if and to the extent to which the associated entity is a company or a trust that has a loss balance to be carried forward under section IA 4 (Using loss balances carried forward to tax year) arising from a business or a trading activity of selling personal services, the associated entity’s net income for the corresponding tax year after subtracting the loss balance carried forward from an earlier corresponding tax year.
Calculation for trustee or partnership
(2) For the purposes of calculating the associated entity’s net income for the corresponding tax year in the application of subsection (1),—
(a) if the associated entity is a trustee of a trust, the trustees are treated as not having made a distribution of beneficiary income out of the year’s income:
(b) if the associated entity is a partnership, the associated entity is treated as a taxpayer and section HR 1 (Partnerships and joint ventures) does not apply.
Salary paid or fringe benefits treated as deductions
(3) For the purposes of calculating the associated entity’s net income for the corresponding tax year in the application of subsection (1),—
(a) the associated entity is allowed a deduction for employment income paid to the working person during the income year:
(b) the associated entity is allowed a deduction for the taxable value of a fringe benefit provided or granted by the associated entity to the working person during the income year, and for the fringe benefit tax payable on the fringe benefit.
Reduction of attributable income for distributions
(4) For the purposes of calculating the associated entity’s net income for the corresponding tax year in the application of subsection (1), the amount of net income of the associated entity for the corresponding tax year is reduced by—
(a) in the case of a trustee of a trust, the amount of beneficiary income derived by the working person from the trust in the income year:
(b) in the case of a partnership, the share of profits allocated by the partnership to the working person:
-
(c) in the case of a company, a dividend paid—
(i) by the associated entity to the working person during the income year or before the end of 6 months after the end of the income year; and
(ii) from income derived in the income year.
Attribution reduced by market value of administrative services
(5) If the associated entity is a partnership that receives administrative services from another person related to their income from personal services and has not paid for the administrative services, the amount to be attributed to the working person is reduced by the market value of the administrative services provided by the other person.
Reduction of beneficiary income when rule results in trust having tax loss
(6) If the associated entity is a trustee and the amount attributable would cause the associated entity to have a tax loss for the corresponding tax year, for the purposes of this Act,—
(a) beneficiary income from the trust for the income year must be reduced to the extent to which the associated entity’s taxable income for the corresponding tax year is zero; and
-
(b) the reduction in beneficiary income must be divided among the beneficiaries other than the working person—
(i) according to proportions determined by the trust’s trustees:
(ii) if the trustees do not make the determination, according to the proportion that each beneficiary’s beneficiary income bears to the total beneficiary income from the trust for the income year.
Attribution to more than 1 working person
(7) If the amount attributable is to be attributed to more than 1 working person, the share attributed to each working person must reflect the respective value of the services personally performed by each working person.
Defined in this Act: beneficiary income, company, deduction, dividend, fringe benefit, fringe benefit tax, income, income year, net income, taxpayer, tax loss, tax year, trustee,
Compare: 2004 No 35 s GC 14D
Arrangements involving restrictive covenants
GB 30 Arrangements to avoid taxation of restrictive covenant payments
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When this section applies
(1) This section applies if a person enters into an arrangement that has an effect of avoiding section CE 9 (Restrictive covenants).
Treatment as restrictive covenant payment
(2) The Commissioner may treat—
(a) an amount provided under the arrangement as an amount to which section CE 9(2) applies; and
(b) a person affected by the arrangement as the person who gave the undertaking referred to in section CE 9(1).
Example
(3) An example of an arrangement that may be subject to this section is an arrangement that involves a collateral arrangement to dispose of property.
Defined in this Act: arrangement, Commissioner,
Compare: 2004 No 35 s GC 14F
Arrangements involving fringe benefit tax
GB 31 FBT arrangements: general
-
When this section applies
(1) This section applies when—
(a) 2 or more persons enter into an arrangement; and
(b) a purpose or effect of the arrangement is to defeat the intent and application of any of the FBT rules; and
(c) the purpose or effect is not merely incidental.
FBT rules treated as applying
(2) For the purposes of the FBT rules, the Commissioner may treat—
(a) a party to the arrangement (the provider) as the employer of a person (the recipient) of whom the Commissioner notifies the provider:
(b) the recipient as the employee of the provider:
(c) a benefit as being provided by the provider to the recipient through the employment of the recipient.
Actual or likely benefit
(3) The Commissioner may apply subsection (2)(c) only in the case of a benefit that,—
(a) is in fact provided by the provider to the recipient; or
-
(b) had the arrangement not occurred, the recipient—
(i) would have obtained; or
(ii) would in all likelihood have obtained; or
(iii) might be expected to have obtained.
Arrangements to reduce motor vehicle costs
(4) Schedule 5, clause 4(c) (Fringe benefit values for motor vehicles) may apply to treat the cost of a motor vehicle as equal to its market value.
Defined in this Act: arrangement, Commissioner, employee, employer, employment, FBT rules,
Compare: 2004 No 35 ss GC 16(b), GC 17
GB 32 Benefits provided to employee’s associates
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When this section applies
(1) This section applies when—
(a) a benefit is provided to a person who is associated with an employee of an employer; and
(b) the benefit would be a fringe benefit if provided to the employee; and
(c) the benefit is provided either by the employer or by another person under an arrangement with the employer for providing the benefit; and
(d) the exemption in subsection (2) does not apply.
Exemption for shareholder-employees and corporate associates
(2) Subsection (3) does not apply when—
(a) the benefit is provided by an employer that is a company; and
(b) the employee is a shareholder in the company; and
(c) the person associated with the employee is a company; and
-
(d) the benefit is not provided under an arrangement that has a purpose of providing the benefit either—
(i) in place of employment income; or
(ii) free from fringe benefit tax.
Benefit treated as provided to employee
(3) For the purposes of the FBT rules, the benefit is treated as provided by the employer to the employee.
Application of section CX 18
(4) Section CX 18 (Benefits provided to associates of both employees and shareholders) applies to determine when a benefit provided to an associate of both an employee and a shareholder is treated as a fringe benefit and not a dividend.
Defined in this Act: arrangement, associated person, company, dividend, employee, employer, employment income, FBT rules, fringe benefit, fringe benefit tax,
Compare: 2004 No 35 s GC 15(1)–(3)
Arrangements involving depreciation loss
GB 33 Arrangements involving depreciation loss
-
When this section applies
(1) This section applies when—
(a) an asset of a person has been subject to an arrangement; and
(b) the arrangement allows the person or another person to have a deduction for an amount of depreciation loss; and
(c) a purpose of the arrangement is to defeat the intent and application of this Act.
No deduction
(2) The relevant person is denied the deduction.
Defined in this Act: arrangement, Commissioner, deduction, depreciation loss,
Compare: 2004 No 35 s GC 6
Arrangements involving imputation rules
GB 34 ICA arrangements for carrying amounts forward
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When this section applies
(1) This section applies when—
(a) a share in an imputation credit account (ICA) company or another company has been subject to an arrangement, including an arrangement directly or indirectly altering rights attached to the share; and
(b) the arrangement allows the ICA company to meet the requirements of section OB 41 (ICA debit for loss of shareholder continuity); and
(c) a purpose of the arrangement is to defeat the intent and application of section OB 41.
Company treated as not meeting requirements
(2) The ICA company is treated as not meeting the requirements in relation to the share.
Defined in this Act: arrangement, company, imputation credit account, share,
Compare: 2004 No 35 s GC 21
GB 35 Imputation arrangements to obtain tax advantage
-
When section GB 36 applies
(1) Section GB 36 applies if an arrangement to obtain a tax advantage arises as described in either subsection (2) or (3).
Share disposal or issue arrangements
(2) An arrangement is an arrangement to obtain a tax advantage if—
(a) the arrangement is for the disposal or issue of shares; and
(b) a party to the arrangement might reasonably have expected that a dividend would be paid in relation to the shares with an imputation credit or foreign dividend payment (FDP) credit attached; and
(c) a party might reasonably have expected that a party will, or will not, be able to obtain a tax advantage from the credit; and
(d) a purpose of the arrangement is that a party will obtain a tax advantage; and
(e) the purpose is not a merely incidental one.
Dividend or credit streaming arrangements
(3) An arrangement is an arrangement to obtain a tax advantage if—
(a) the arrangement relates to 1 or more distributions by a company, including bonus issues, during 1 or more tax years; and
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(b) under the arrangement, the company streams—
(i) the payment of dividends; or
(ii) the attachment of imputation credits; or
(iii) the attachment of FDP credits; or
(iv) the attachment of both imputation credits and FDP credits; and
(c) the streaming will give a higher credit value to a person who will obtain a tax advantage from the higher credit value than to a person who will not or may reasonably be expected to obtain a lesser benefit.
Meaning of higher credit value
(4) For the purposes of subsection (3)(c), a dividend has a higher credit value than another dividend if any of the following applies:
(a) the dividend has an attached imputation credit and the other dividend does not:
(b) the imputation ratio of the dividend is higher than that of the other dividend:
(c) the dividend has an attached FDP credit and the other dividend does not:
(d) the FDP ratio of the dividend is higher than that of the other dividend:
(e) the dividend has attached both an imputation credit and an FDP credit and the other dividend does not have both types of credit attached:
(f) the combined imputation ratio and FDP ratio of the dividend is higher than that of the other dividend.
Defined in this Act: arrangement, combined imputation and FDP ratio, dividend, FDP credit, FDP ratio, higher credit value, imputation credit, imputation ratio, share, tax advantage,
Compare: 2004 No 35 s GC 22(1), (2)
GB 36 Reconstruction of imputation arrangements to obtain tax advantage
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Reconstruction of either type of arrangement
(1) In the case of a share disposal or issue arrangement described in section GB 35(2), or a streaming arrangement described in section GB 35(3), if the Commissioner decides this subsection should apply, the following paragraphs apply:
(a) a person who would get a tax credit advantage from the arrangement is denied it:
(b) a company that would get an account advantage from the arrangement has a debit to its imputation credit account or FDP account, as applicable, in the tax year in which the arrangement began.
Reconstruction of streaming arrangement
(2) In the case of a streaming arrangement described in section GB 35(3) in which the company is the only party, or if the Commissioner decides this subsection should apply, the company has a debit to its imputation credit account or FDP account, as applicable, in the tax year in which the arrangement began. Subsection (1) does not apply to the extent to which this subsection applies to the arrangement.
Amount of adjustment
(3) The amount of the credit or refund denied under subsection (1)(a) and the debit arising under subsection (1)(b) or (2) is in each case the amount of the imputation credit or FDP credit that the Commissioner determines is subject to the arrangement.
Commissioner’s powers of determination
(4) The Commissioner may make determinations for the purposes of this section under section 90AF of the Tax Administration Act 1994.
Some definitions
(5) In this section and section 90AF of the Tax Administration Act 1994,—
account advantage means—
(a) a credit arising to an imputation credit account under sections OB 4 to OB 29 (which relate to credits arising to imputation credit accounts); or
(b) a credit arising to an FDP account under sections OC 6 to OC 12 (which relate to credits arising to FDP accounts)
tax credit advantage means—
(a) a tax credit allowed under section LE 1 (Tax credits for imputation credits); or
(b) a tax credit allowed under section LF 1 (Tax credits for FDP credits); or
(c) a refund of FDP obtained under section LF 8 (Credits for persons who are non-resident or who receive exempt income).
Defined in this Act: account advantage, arrangement, Commissioner, company, FDP account, FDP credit, imputation credit, imputation credit account, notice, tax credit advantage, tax year,
Compare: 2004 No 35 s GC 22(4), (5), (9)
GB 37 Arrangements for payment of dividend by other companies
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When this section applies
(1) This section applies when—
(a) an arrangement is entered into in relation to a company (the first company) and a shareholder in the first company; and
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(b) the arrangement has a purpose of allowing a dividend to be paid by another company to any of the following parties (the payee):
(i) the shareholder:
(ii) if the shareholder is a trustee in relation to the shareholding, a beneficiary of the trust:
(iii) an associated person of the shareholder:
(iv) an associated person of a beneficiary of the trust.
Direct or indirect payments
(2) The arrangement may include—
(a) the payee acquiring shares in the other company:
(b) a form of indirect payment of a dividend from the other company.
Dividend treated as paid by first company
(3) For the purposes of the imputation rules, the dividend is treated as if it were paid by the first company.
No imputation credit
(4) Any imputation credit attached to the dividend paid by the other company—
(a) is not included in the amount of the dividend derived by the payee; and
(b) is not treated as an imputation credit for the purposes of section LE 1 (Tax credits for imputation credits); and
(c) is a debit under section OB 30 (ICA payment of dividend) of the first company.
Defined in this Act: arrangement, associated person, company, dividend, imputation credit, imputation credit account, share, shareholder, trustee,
Compare: 2004 No 35 s GC 23
GB 38 When sections GB 35 to GB 37 apply to consolidated groups
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Tax advantage arrangements
(1) Sections GB 35 and GB 36 apply, with the necessary modifications, in a case that involves accounts of a consolidated group as if—
(a) the consolidated group were a single company; and
(b) references to provisions of this Act were references to the equivalent provisions applicable to the equivalent accounts.
Arrangement for dividend from another company
(2) If a company is treated by section GB 37(3) as having paid a dividend, and is at the time of payment a member of a consolidated group, section GB 37 applies as if the reference to section OB 30 (ICA payment of dividend) were a reference to section OP 28 (Consolidated ICA payment of dividend).
Defined in this Act: company, consolidated group, dividend,
Compare: 2004 No 35 s GC 24
Arrangements involving foreign dividends
GB 39 FDP arrangements: general
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When this section applies
(1) This section applies if both of the following requirements are met:
(a) 2 or more persons enter into an arrangement:
(b) a purpose of the arrangement is to defeat the intent and application of any of the FDP rules.
Payment treated as subject to rules
(2) For the purposes of the FDP rules, the Commissioner may treat a payment that is subject to the arrangement as a foreign dividend.
Defined in this Act: arrangement, Commissioner, FDP rules, foreign dividend,
Compare: 2004 No 35 s GC 25
GB 40 BETA arrangements for carrying amounts forward
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When this section applies
(1) This section applies when—
(a) a share in a branch equivalent tax account (BETA) company or another company has been subject to an arrangement, including an arrangement directly or indirectly altering rights attached to the shares; and
(b) the arrangement allows the BETA company to meet the requirements of section OE 10 or OE 15 (which relate to credits and debits arising to branch equivalent tax accounts); and
(c) a purpose of the arrangement is to defeat the intent and application of section OE 10 or OE 15.
Company treated as not meeting requirements
(2) The BETA company is treated as not meeting the requirements of the relevant provision in relation to the share.
Defined in this Act: arrangement, BETA company, company, share,
Compare: 2004 No 35 s GC 26
GB 41 FDPA arrangements for carrying amounts forward
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When this section applies
(1) This section applies when—
(a) a share in a foreign dividend payment account (FDPA) company or another company has been subject to an arrangement, including an arrangement directly or indirectly altering rights attached to the share; and
(b) the arrangement allows the FDPA company to meet the requirements of section OC 24 (FDPA debit for loss of shareholder continuity); and
(c) a purpose of the arrangement is to defeat the intent and application of section OC 24.
Company treated as not meeting requirements
(2) The FDPA company is treated as not meeting the requirements of section OC 24 in relation to the share.
Defined in this Act: arrangement, FDPA company, share,
Compare: 2004 No 35 s GC 27
Arrangements involving Maori authority credits
GB 42 Maori authority credit arrangements to obtain tax advantage
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When section GB 43 applies
(1) Section GB 43 applies if an arrangement to obtain a tax advantage arises as described in either subsection (2) or (3).
Arrangements for share disposal or issue
(2) An arrangement is an arrangement to obtain a tax advantage if—
(a) the arrangement is for the disposal or issue of a share in a Maori authority that is a company; and
(b) a party to the arrangement might reasonably have expected that a taxable Maori authority distribution would be paid in relation to the share with a Maori authority credit attached; and
(c) a party might reasonably have expected that a party will or will not be able to obtain a tax advantage from the credit; and
(d) a purpose of the arrangement is that a party will obtain a tax advantage; and
(e) the purpose is not a merely incidental one.
Distribution or credit streaming arrangements
(3) An arrangement is an arrangement to obtain a tax advantage if—
(a) the arrangement is in relation to 1 or more taxable Maori authority distributions by a Maori authority during 1 or more tax years; and
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(b) under the arrangement, the Maori authority streams—
(i) the distributions; or
(ii) the attachment of Maori authority credits; and
(c) the streaming will give a higher credit value to a member who will obtain a tax advantage from the higher credit value than to a member who will not or may reasonably be expected to obtain a lesser benefit.
Meaning of higher credit value
(4) A taxable Maori authority distribution has a higher credit value than another distribution if either of the following applies:
(a) the distribution has a Maori authority credit and the other distribution does not:
(b) the Maori authority credit ratio under section OK 19(2) (Maori authority credits attached to distributions) of the distribution is higher than that of the other distribution.
Defined in this Act: arrangement, Maori authority, Maori authority credit, member, share, tax advantage, taxable Maori authority distribution,
Compare: 2004 No 35 s GC 27A(1)–(3)
GB 43 Reconstruction of Maori authority credit arrangements to obtain tax advantage
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Reconstruction of either type of arrangement
(1) In the case of an arrangement for a share disposal or issue as described in section GB 42(2) or a streaming arrangement as described in section GB 42(3), if the Commissioner decides this subsection should apply, the following paragraphs apply:
(a) a member who would get a tax credit advantage from the arrangement is denied it:
(b) a Maori authority that would get both a tax credit advantage and an account advantage from the arrangement has a debit to its Maori authority credit account in the tax year in which the arrangement began.
Reconstruction of streaming arrangement
(2) In the case of a streaming arrangement as described in section GB 42(3) in which the Maori authority is the only party, or if the Commissioner decides this subsection should apply, the Maori authority has a debit to its Maori authority credit account in the tax year in which the arrangement began. Subsection (1) does not apply to the extent to which this subsection applies to the arrangement.
Amount of adjustment
(3) The amount of the credit denied under subsection (1)(a) and the debit arising under subsection (1)(b) or (2) is in each case the amount of the Maori authority credit that the Commissioner determines is subject to the arrangement.
Commissioner’s powers of determination
(4) The Commissioner may make determinations for the purposes of this section under section 90AG of the Tax Administration Act 1994.
Some definitions
(5) In this section and section 90AG of the Tax Administration Act 1994,—
account advantage means a credit arising to a Maori authority credit account under sections OK 2 to OK 9 (which relate to credits arising to Maori authority credit accounts)
tax credit advantage means a tax credit allowed under section LO 1 (Tax credits for Maori authority credits).
Defined in this Act: account advantage, arrangement, Commissioner, Maori authority, Maori authority credit, Maori authority credit account, member, notice, tax credit advantage, tax year,
Compare: 2004 No 35 s GC 27A (5), (6), (10)
Arrangements involving family support credits
GB 44 Arrangements involving family support credits
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When this section applies
(1) This section applies if both of the following paragraphs are met:
(a) a person (the claimant) enters into an arrangement with another person:
(b) a purpose of the arrangement is that subparts MA to MF and MZ (which relate to tax credits for families) has a more favourable effect for the claimant than would otherwise have occurred.
Credit reduced
(2) The claimant’s tax credit under subparts MA to MF and MZ is reduced to the amount that the Commissioner considers would have arisen had the arrangement not occurred.
Defined in this Act: arrangement, Commissioner,
Compare: 2004 No 35 s GC 28
Arrangements involving money not at risk
GB 45 Arrangements involving money not at risk
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Application of section GB 46
(1) Section GB 46 can apply to an arrangement when—
(a) a person sells or issues, or promotes the selling or issuing of, the arrangement, whether or not for remuneration; and
(b) a person (the participant) who is a party to the arrangement or affected by it, considered together with their affected associates, has for an assessment period a total amount of deductions from the arrangement that is more than their total amount of assessable income from the arrangement, having regard to the rules in subsection (2); and
(c) as part of or for the purposes of the arrangement, the participant or an affected associate borrows a limited-recourse amount under a limited-recourse loan; and
(d) on the relevant balance date, the total of the limited-recourse amounts of the limited-recourse loans of the participant and affected associates is more than half of the total cost of their arrangement property on the relevant balance date; and
(e) on the relevant balance date, the total cost of their arrangement property is more than 142.85% of the total cost of the part of the property that is acceptable property.
Certain deductions or income disregarded
(2) For the purposes of subsection (1)(b), the following amounts are disregarded:
(a) a deduction under section GB 46:
(b) a tax loss component of a loss-attributing qualifying company (LAQC) to the extent to which it is attributed to shareholders under section HA 20 (Attribution of tax losses):
(c) an amount of income under section GB 46.
Some definitions
(3) In this section,—
acceptable property is—
(a) land:
(b) buildings:
(c) plant:
(d) machinery:
(e) shares in a listed company that in total represent a direct voting interest of 10% or less in the listed company:
(f) a share and an option that are acquired or created with an intention that the share or option will produce income that is employment income of a participant under section CE 1(d) (Amounts derived in connection with employment):
(g) a share in a foreign company, if the proceeds of a disposal of the share would not be assessable income of the holder other than under the FIF rules
arrangement property means property held as part of the arrangement by the participant and affected associates
assessment period is any of—
(a) the earliest income year (the first income year) in which an interest in the arrangement was acquired by the participant or an affected associate of the participant:
(b) the first income year and the next income year:
(c) the first income year and the next 2 income years
relevant balance date means the balance date, or the latest balance date, of the participant and affected associates that ends the assessment period.
Defined in this Act: acceptable property, affected associate, arrangement, arrangement property, assessable income, assessment period, deduction, direct voting interest, dispose, employment income, FIF rules, foreign company, income, income year, LAQC, limited-recourse amount, limited-recourse loan, relevant balance date, share, shareholder, tax loss component,
Compare: 2004 No 35 s GC 29 (1)
GB 46 Deferral of surplus deductions from arrangements
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When this section applies
(1) This section applies when—
(a) an arrangement of the type described in section GB 45 is made; and
(b) a person (the participant) is a party to the arrangement or affected by it; and
(c) the participant is not an LAQC; and
(d) the participant has, for an income year, a total amount of deductions from the arrangement that is more than their total amount of assessable income from the arrangement, having regard to the rules in subsection (6); and
(e) the participant considered together with their affected associates, excluding an LAQC that has a tax loss from the arrangement for the income year, has for the income year a total amount of deductions from the arrangement that is more than their total amount of assessable income from the arrangement, having regard to the rules in subsection (6); and
(f) on the balance date, or the latest balance date, of the participant and affected associates for the income year, the arrangement involves a limited-recourse loan in relation to which the participant or an affected associate of the participant is a borrower.
Income for participant
(2) The participant is treated as deriving in the income year an amount of assessable income calculated using the formula—
Definition of items in formula
(3) In the formula,—
(a) participant’s excess deductions is the amount of excess deductions of the participant for the income year described in subsection (1)(d):
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(b) total individual excess deductions is the amount, for the income year, by which the total deductions from the arrangement are more than the total assessable income from the arrangement, having regard to the rules in subsection (6), for the group that consists of—
(i) the participant; and
(ii) each affected associate of the participant who is not an LAQC and who has, for the income year, a total amount of deductions from the arrangement that is more than their total assessable income from the arrangement, having regard to the rules in subsection (6):
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(c) total ineligible amount is the lesser of—
(i) the total individual excess deductions for the group and the income year as described in subsection (1)(e); and
(ii) the total limited-recourse amount that, on the balance date or the latest balance date of the participant and the affected associates, the participant and the affected associates have an undischarged obligation to repay as part of or for the purposes of the arrangement.
Matching deduction in following year
(4) A participant who has an amount of assessable income for an income year under subsection (2) has a deduction of an equal amount for the following income year.
Obligation to repay limited-recourse amount not discharged
(5) For the purposes of subsections (1) and (3)(c)(ii), an obligation to repay a limited recourse amount is not discharged by a transaction to the extent to which the transaction—
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(a) involves, as part of the arrangement, the use of—
(i) a put or call option that is not a contract for the sale for future delivery of goods at market value:
(ii) a contract of insurance or guarantee; and
(b) does not give rise to assessable income for the person who is the borrower of the limited-recourse amount under the limited-recourse loan.
Some deductions included, some income excluded
(6) For the purposes of subsections (1)(d) and (e) and (3)(b),—
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(a) a deduction of a person includes—
(i) a deduction under subsection (4); and
(ii) a deduction under section HA 20 (Attribution of tax losses); and
(b) income of a person excludes an amount of income arising under subsection (2).
Defined in this Act: arrangement, assessable income, associated person, deduction, income year, LAQC, limited-recourse amount, limited-recourse loan, tax loss,
Compare: 2004 No 35 s GC 31
GB 47 Calculation rules for sections GB 45 and GB 46
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Consolidation of assessable income and deductions, and cost of property
(1) The deductions and assessable income from an arrangement for each person in a group of persons, and the cost of property that is held by each person in the group as part of the arrangement, are calculated on a basis of consolidation for the elimination of intra-group balances in accordance with generally accepted accounting practice.
Calculation of assessable income and deductions, and cost of property
(2) The deductions and assessable income from an arrangement for each person in a group of persons, and the cost of property that is held by each person in the group as part of the arrangement, are calculated using the proportionate method in accordance with generally accepted accounting practice for partnerships, if the group is any of—
(a) persons who are a partnership and the partners in a partnership:
(b) a joint venture and the partners in the joint venture:
(c) an LAQC and the shareholders in the LAQC.
Defined in this Act: arrangement, assessable income, deduction, generally accepted accounting practice, LAQC, shareholder,
Compare: 2004 No 35 s GC 29(2), (3)
GB 48 Defined terms for sections GB 45 and GB 46
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Affected associate
(1) For an arrangement, a person is an affected associate of another person if each person is a party to the arrangement or is affected by the arrangement, and—
(a) 1 person is an LAQC and the other person is a shareholder in the LAQC; or
(b) the persons are associated under the parts of subpart YB (Associated persons and nominees) that apply for the purposes of the whole Act, excluding the 1973, 1988, and 1990 version provisions.
Limited-recourse amount
(2) A limited-recourse amount, for a limited-recourse loan, means the total for the limited-recourse loan of the amounts for which the obligations of a borrower are affected in a way that is described in subsection (3)(c).
Limited-recourse loan
(3) A limited recourse loan means a financial arrangement that meets each of the following requirements:
(a) it is not an excepted financial arrangement:
(b) it involves the provision of money by a person (the lender) to another person (the borrower):
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(c) it has 1 or more of the following effects, or an effect which is substantially similar:
(i) relieving the borrower from the obligation to repay all or some of the money, whether the relief is contingent or not:
(ii) requiring the borrower to make no repayment for a period of 10 or more years from the date on which the loan is made, other than repayments for the purpose of defeating the intent and application of section GB 46:
(iii) providing that the repayment of the money is in substance secured solely against assets that are employed in the arrangement:
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(d) if the lender is not an associated person of the borrower under subpart YB, the lender provides the money on terms that are not arm’s length and the lender is either—
(i) not a person who regularly provides money to persons on arm’s length terms under arrangements that do not meet the requirements of paragraphs (a) to (c); or
(ii) a person who is neither a New Zealand resident nor carrying on business in New Zealand through a fixed establishment in New Zealand:
(e) if the lender is an associated person of the borrower under subpart YB, the lender obtains the money under an arrangement that meets the requirements of paragraphs (a) to (c).
Defined in this Act: 1973 version provisions, 1988 version provisions, 1990 version provisions, affected associate, arrangement, associated person, excepted financial arrangement, financial arrangement, fixed establishment, LAQC, limited-recourse amount, limited-recourse loan, listed company, money, resident in New Zealand,
Compare: 2004 No 35 s GC 30
Arrangements involving returning share transfers
GB 49 Arrangements involving returning share transfers
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When this section applies
(1) This section applies when—
(a) a person enters into an arrangement; and
(b) an effect of the arrangement means that a requirement of the definition of returning share transfer is not met; and
(c) the effect of the arrangement is to defeat the intent and application of this Act.
Arrangement treated as returning share transfer
(2) The Commissioner may treat—
(a) the arrangement as a returning share transfer; and
(b) a person affected by the arrangement as a share user or a share supplier, under the returning share transfer.
Defined in this Act: arrangement, Commissioner, returning share transfer, share supplier, share user,
Compare: 2004 No 35 s GC 14G
Subpart GC—Market value substituted
Disposals of trading stock or similar property
GC 1 Disposals of trading stock at below market value
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When this section applies
(1) This section applies if a person (the transferor) disposes of trading stock to another person (the transferee) for—
(a) no consideration:
(b) an amount of consideration that is less than the market value of the trading stock at the time of disposal.
Disposal treated as being for market value
(2) For the purposes of this Act, the consideration received by the transferor and provided by the transferee is treated as being an amount equal to the market value at the time.
Shares in trading stock
(3) In this section, trading stock includes a share in trading stock.
Exclusions
(4) This section does not apply to a disposal of trading stock—
(a) under a relationship agreement:
(b) for use by the transferee in a farming, agricultural, or fishing business that is affected by a self-assessed adverse event, if the transferor and transferee are not associated persons:
(c) under a share-lending arrangement, by a share user to a share supplier or by a share supplier to a share user.
Defined in this Act: amount, qualifying event, relationship agreement, self-assessed adverse event, share-lending arrangement, share supplier, share user, trading stock,
Compare: 2004 No 35 s GD 1(1), (3), (4)
GC 2 Disposals of timber rights or standing timber
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When section GC 1 applies
(1) Section GC 1 applies to each of the following disposals as if it were a disposal of trading stock—
(a) a grant of a right to take timber, other than in favour of the grantor:
(b) a disposal of standing timber as part of the disposal of the land on which it stands, other than a disposal subject to a right in favour of the seller to take timber.
Exclusion
(2) Subsection (1) does not apply to a disposal of land with standing timber if the disposal is within 1 of the exclusions in section CB 25(2) (Disposal of land with standing timber).
Limitation
(3) Section GC 1(3) does not apply if the disposal is of land with standing timber subject to a right to take timber.
Defined in this Act: timber, trading stock,
Compare: 2004 No 35 s GD 1(2), (3A)
GC 3 Disposals by life insurers
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Section GC 1 applies to a life insurer that disposes of any property, other than a financial arrangement, in the course of their business of life insurance, as if the property were trading stock.
Defined in this Act: financial arrangement, life insurance, life insurer, property, trading stock,
Compare: 2004 No 35 s GD 7
GC 4 Disposals and acquisitions of FIF attributing interests
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When subsection (2) applies
(1) Subsection (2) applies if—
(a) a person disposes of an attributing interest in a foreign investment fund (FIF); and
(b) they calculate their FIF income or loss from the interest for the period ending with the disposal using the comparative value method, deemed rate of return method, the fair dividend rate method, or the cost method; and
(c) the consideration, if any, for the disposal is below the market value of the interest at the time.
Disposal treated as at market value
(2) The person is treated as having disposed of the interest for an amount equal to its market value at the time.
When subsection (4) applies
(3) Subsection (4) applies if—
(a) a person acquires an attributing interest in a FIF; and
(b) they calculate their FIF income or loss from the interest for the period after the acquisition using the comparative value method, deemed rate of return method, the fair dividend rate method, or the cost method; and
(c) the consideration, if any, for the acquisition is not equal to the market value of the interest at the time.
Acquisition treated as at market value
(4) The person is treated as having acquired the interest for an amount equal to its market value at the time.
Defined in this Act: attributing interest, comparative value method, cost method, deemed rate of return method, fair dividend rate method, FIF, FIF income, FIF loss,
Compare: 2004 No 35 s GD 14
Leases
GC 5 Leases for inadequate rent
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When this section applies
(1) This section applies if and to the extent to which—
(a) a property is leased; and
(b) the lease is 1 of the types referred to in subsection (2); and
(c) the lessee uses the property in deriving income; and
(d) no rent is payable, or the Commissioner considers that the rent is less than adequate.
Types of leases
(2) The following types of leases are subject to this section:
(a) a lease by a company:
(b) a lease by a person to a relative or a related company:
(c) a lease by 2 or more persons to a relative or a related company of any of those persons:
(d) a lease by a partnership to a relative of a partner or a related company of the partnership.
Lease treated as having adequate rent
(3) The lessee is treated as paying, and the lessor is treated as deriving as income, an adequate rent determined by the Commissioner.
Timing
(4) The adequate rent is treated as—
(a) paid on the rent payment dates set out in the lease, if any; and
(b) paid on a daily basis on each day of the lease term, if there are no rent payment dates; and
(c) income derived by the lessor on the date on which it is treated as being paid; and
(d) accruing on a daily basis.
Some definitions
(5) In this section,—
lease means a tenancy of any duration, including a sublease or bailment
related company means a company that is under the control of,—
(a) in the case of a single lessor, the lessor, 1 or more relatives of the lessor, or a combination of them:
(b) in the case of multiple lessors, including a partnership, any of the lessors, 1 or more relatives of any of the lessors, or a combination of them
rent includes a premium or other consideration for the lease.
Defined in this Act: Commissioner, company, income, lease, related company, relative, rent,
Compare: 2004 No 35 s GD 10
Transfer pricing arrangements
GC 6 Purpose of rules and nature of arrangements
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Purpose of rules
(1) The purpose of this section and sections GC 7 to GC 14 is to substitute an arm’s length consideration in the calculation of a person’s net income if the person’s net income is reduced by the terms of a cross-border arrangement with an associated person for the acquisition or supply of goods, services, or anything else.
What is a transfer pricing arrangement?
(2) An arrangement is a transfer pricing arrangement if—
(a) the arrangement involves the supply and acquisition of goods, services, money, other intangible property, or anything else; and
(b) the supplier and acquirer are associated persons; and
(c) the arrangement is a cross-border arrangement under subsection (3).
When arrangement is cross-border arrangement
(3) An arrangement is a cross-border arrangement if the requirements of any of the following paragraphs is met:
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(a) the supplier and acquirer are a New Zealand resident and non-resident, unless the requirements of both of the following subparagraphs are met:
(i) the non-resident enters into the arrangement for the purposes of a business carried on by the non-resident in New Zealand through a fixed establishment in New Zealand:
(ii) the New Zealand resident has not entered into the arrangement for the purposes of a business carried on by the New Zealand resident outside New Zealand:
(b) the supplier and acquirer are 2 New Zealand residents and either or both enter into the arrangement for the purposes of a business carried on by the person outside New Zealand:
(c) the supplier and acquirer are 2 non-residents, unless each enters into the arrangement for the purposes of a business carried on by the person in New Zealand through a fixed establishment in New Zealand.
Application of sections
(4) Section GC 7, GC 8, GC 9, or GC 10 can apply to an arrangement under section GB 2 (Arrangements involving transfer pricing).
Defined in this Act: acquisition, arrangement, associated person, fixed establishment, net income, New Zealand, New Zealand resident, non-resident, supply, transfer pricing arrangement,
Compare: 2004 No 35 s GD 13(1), (2)
GC 7 Excess amount payable by person
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If the amount of consideration payable by a person (the taxpayer) under a transfer pricing arrangement is more than an arm’s length amount, an amount equal to the arm’s length amount is treated as the amount payable by the taxpayer for the purposes of the calculation of their income tax liability for a tax year.
Defined in this Act: amount, arrangement, income tax liability, tax year, taxpayer, transfer pricing arrangement,
Compare: 2004 No 35 s GD 13(3)
GC 8 Insufficient amount receivable by person
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Amount receivable
(1) If the amount of consideration receivable by a person (the taxpayer) under a transfer pricing arrangement is less than an arm’s length amount, an amount equal to the arm’s length amount is treated as the amount receivable by the taxpayer for each of the following purposes:
(a) the calculation of their income tax liability for a tax year:
(b) the determination of their obligation to withhold under subpart RG (Payments for foreign dividends (FDP)) from the amount:
(c) the determination of the obligation of another person to withhold under Part R (General collection rules) from the amount.
Non-resident’s exemption: deduction to payer
(2) This section does not apply when—
(a) the taxpayer is neither resident in New Zealand nor entering into the arrangement for the purposes of a business carried on in New Zealand through a fixed establishment in New Zealand; and
(b) the amount receivable is a deduction of the other party or, in the case of an interest-free loan, would be a deduction but for the application of subpart FE (Interest apportionment on thin capitalisation) if an arm’s length amount of interest were substituted; and
(c) the amount receivable is interest, royalties, or an insurance premium to which section YD 8 (Apportionment of premiums derived by non-resident general insurers) applies.
Non-resident’s exemption: fixed-rate share dividend
(3) This section does not apply if both of the following requirements are met:
(a) the taxpayer is neither resident in New Zealand nor entering into the arrangement for the purposes of a business carried on in New Zealand through a fixed establishment in New Zealand:
(b) the amount is a dividend receivable on a fixed-rate share.
Defined in this Act: amount, arrangement, deduction, dividend, fixed establishment, fixed-rate share, income tax liability, interest, resident in New Zealand, royalty, tax year, taxpayer, transfer pricing arrangement,
Compare: 2004 No 35 s GD 13(4), (5)
GC 9 Compensating arrangement: person paying less than arm’s length amount
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When this section applies
(1) This section applies when—
(a) a person (the taxpayer) is a party to a transfer pricing arrangement with another person; and
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(b) an adjustment is made for an income year under either—
(i) section GC 7 to an amount payable by the taxpayer under the transfer pricing arrangement; or
(ii) section GC 8 to an amount receivable by the taxpayer under the transfer pricing arrangement; and
(c) an amount of consideration payable by the taxpayer in the same income year, or in the preceding or next income year, for an acquisition (the compensating acquisition arrangement) from the same person is less than an arm’s length amount; and
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(d) either—
(i) the transfer pricing arrangement involves goods, services, money, other intangible property, or anything else of the same type as that acquired in the compensating acquisition arrangement; or
(ii) the amount of consideration actually payable or receivable in the transfer pricing arrangement is set having regard to the amount of consideration payable under the compensating acquisition arrangement.
Paying arm’s length amount
(2) For the purposes of calculating the taxpayer’s income tax liability, the amount paid by them in the compensating acquisition arrangement is treated for the corresponding tax year as an amount equal to the arm’s length amount determined under section GC 13.
Defined in this Act: acquisition, amount, arrangement, income tax liability, tax year, transfer pricing arrangement,
Compare: 2004 No 35 s GD 13(10)
GC 10 Compensating arrangement: person receiving more than arm’s length amount
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When this section applies
(1) This section applies when—
(a) a person (the taxpayer) is a party to a transfer pricing arrangement with another person; and
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(b) an adjustment is made for a tax year under either—
(i) section GC 7 to an amount payable by the taxpayer under the transfer pricing arrangement; or
(ii) section GC 8 to an amount receivable by the taxpayer under the transfer pricing arrangement:
(c) an amount of consideration receivable by the taxpayer in the same tax year, or the preceding or next tax year, for a supply (the compensating supply arrangement) to the same person is more than an arm’s length amount:
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(d) either—
(i) the transfer pricing arrangement involves goods, services, money, other intangible property, or anything else of the same type as that acquired in the compensating supply arrangement; or
(ii) the amount of consideration actually payable or receivable in the transfer pricing arrangement is set having regard to the amount of consideration receivable under the compensating supply arrangement.
Receiving arm’s length amount
(2) The amount received by the taxpayer in the compensating supply arrangement is treated as being an amount equal to the arm’s length amount determined under section GC 13, for each of the following purposes:
(a) the calculation of their income tax liability for a tax year:
(b) the determination of their obligation to withhold under subpart RG (Payments for foreign dividends (FDP)) from the amount:
(c) the determination of the obligation of another person to withhold under Part R (General collection rules) from the amount.
Defined in this Act: amount, arrangement, income tax liability, supply, tax year, transfer pricing arrangement,
Compare: 2004 No 35 s GD 13(10)
GC 11 Requests for matching treatment
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When this section applies
(1) This section applies when—
(a) an arm’s length amount of consideration is substituted under section GC 7 or GC 8 in relation to a transfer pricing arrangement entered into by a person (the taxpayer); and
(b) the other party to the arrangement or, if the other party is a controlled foreign company (CFC), a person with an income interest in the CFC, applies to the Commissioner in writing within 6 months after an assessment is made for the taxpayer which reflects the substitution; and
(c) the Commissioner considers it is fair and reasonable to apply subsection (2), having regard to an adjustment made under a double tax agreement or any other matter; and
(d) the Commissioner has notified the other party.
Substitution applying for other party
(2) The substitution applies for the purposes of the application of this Act to the other party—
(a) excluding the determination of the extent to which the other party has derived or been paid a dividend; and
(b) including, when the other party is a CFC, the calculation of branch equivalent income or branch equivalent loss in relation to the other party, and the resultant calculation of the attributed CFC income or an attributed CFC loss or attributed CFC net loss of a person.
Defined in this Act: amount, arrangement, assessment, attributed CFC income, attributed CFC loss, attributed CFC net loss, branch equivalent income, branch equivalent loss, CFC, Commissioner, dividend, double tax agreement, income interest, taxpayer, transfer pricing arrangement,
Compare: 2004 No 35 s GD 13(11)
GC 12 Effect on person’s withholding obligations
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An adjustment under any of sections GC 7 to GC 10 has no effect on an obligation of the taxpayer to withhold in relation to the amount under Part R (General collection rules) other than—
(a) an obligation under subpart RG (Payments for foreign dividends (FDP)); or
(b) to the extent to which section GC 11(2) applies.
Defined in this Act: amount,
Compare: 2004 No 35 ss GC 12(1), GD 13(12)
GC 13 Calculation of arm’s length amounts
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Use of most reliable measure
(1) An arm’s length amount of consideration must be determined by applying whichever 1 or a combination of the methods listed in subsection (2) produces the most reliable measure of the amount that completely independent parties would have agreed upon after real and fully adequate bargaining.
Five available methods
(2) The arm’s length amount of consideration must be calculated under any 1 or a combination of—
(a) the comparable uncontrolled price method:
(b) the resale price method:
(c) the cost plus method:
(d) the profit split method:
(e) the comparable profits methods.
Criteria for choice and application of method
(3) The choice and application of a method or methods must be made having regard to each of the following factors:
(a) the degree of comparability between the uncontrolled transactions used for comparison and the controlled transactions of the taxpayer:
(b) the completeness and accuracy of the data relied on:
(c) the reliability of all assumptions:
(d) the sensitivity of a result to possible deficiencies in the data and assumptions.
Initial determination by the taxpayer
(4) The arm’s length amount of consideration is determined by the taxpayer under subsections (1) to (3), and the amount determined is the arm’s length amount for the purposes of sections GC 7 to GC 11, unless either—
(a) the Commissioner can demonstrate that another amount is a more reliable measure of the arm’s length amount; or
(b) the taxpayer has not co-operated with the Commissioner in the Commissioner’s administration of sections GC 6 to GC 14 in relation to the taxpayer, and the non-co-operation has materially affected the Commissioner in that administration.
Commissioner’s determination
(5) If subsection (4)(a) or (b) applies, the Commissioner determines the amount under subsections (1) to (3) for the purposes of sections GC 7 to GC 11.
Defined in this Act: amount, Commissioner,
Compare: 2004 No 35 s GD 13(6)–(9)
GC 14 Definitions for sections GC 6 to GC 13
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In sections GC 6 to GC 13,—
acquisition—
(a) includes obtaining the availability of anything; but
(b) does not include the mere receipt or retention by a company of consideration for the issue of a share, unless the share is a fixed-rate share
amount includes zero
supply—
(a) includes making anything available; but
(b) does not include the mere payment, and subsequent continuing making available, by a person to a company of consideration for the issue of a share, unless the share is a fixed-rate share.
Defined in this Act: acquisition, amount, company, fixed-rate share, share, supply,
Compare: 2004 No 35 s GD 13(13)
Subpart GZ—Terminating provisions
GZ 1 Limitation on section GB 20: petroleum mining arrangements
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Section GB 20 (Arrangements involving petroleum mining) does not apply to an arrangement if—
(a) the petroleum mining asset was disposed of before 1 July 1992:
(b) the petroleum exploration expenditure was incurred before 1 July 1992:
(c) the farm-out arrangement was entered into before 16 December 1991.
Defined in this Act: arrangement, dispose, farm-out arrangement, petroleum mining asset, petroleum mining expenditure,
Compare: 2004 No 35 s GD 12(1)
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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