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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 H
Taxation of certain entities
Subpart HA—Qualifying companies (QC) and loss-attributing qualifying companies (LAQC)
Introductory provisions
HA 1 What this subpart does
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Distributing profits and attributing tax losses
(1) The rules in this subpart allow a company to choose, for taxation purposes,—
(a) to have a distribution of profits to shareholders imputed, or tax paid to the extent to which it is not imputed; and
(b) when it has only 1 class of shares, to have tax losses attributed to shareholders in a similar way to those of a partnership.
Requirements for qualifying companies
(2) A qualifying company must meet the requirements of sections HA 5 to HA 9, and must maintain the conditions set out in section HA 4.
Requirements for loss-attributing qualifying companies
(3) A loss-attributing qualifying company must be a qualifying company, and must meet the shareholding requirements of section HA 10.
Income year or part-year
(4) In this subpart, a reference to an income year includes a reference to part of an income year.
Elections required
(5) For a company to be a qualifying company or a loss-attributing qualifying company, all the directors of the company, and every shareholder in the company with legal capacity, must sign an election referred to in section HA 5. An exception applies for a minority shareholder in the situation described in section HA 29.
Shareholder’s personal liability
(6) A shareholder who makes an election referred to in subsection (5) must agree to take personal liability to the extent described in section HA 8.
Defined in this Act: company, director, income year, loss-attributing qualifying company, pay, qualifying company, share, shareholder, tax, tax loss,
Compare: 2004 No 35 ss HG 1(c), (d), HG 3(1), HG 4(1), HG 14
HA 2 Meaning of qualifying company
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In this Act, a qualifying company means a company other than a unit trust that, for the whole of an income year, meets the requirements of sections HA 5 to HA 9.
Defined in this Act: company, income year, qualifying company, unit trust,
Compare: 2004 No 35 s OB 3(1)
HA 3 Meaning of loss-attributing qualifying company
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In this Act, a loss-attributing qualifying company (LAQC) means a qualifying company that, for the whole of an income year, meets the requirements of section HA 10. If section HA 12 applies, the company is not eligible to be an LAQC.
Defined in this Act: income year, LAQC, loss-attributing qualifying company, qualifying company,
Compare: 2004 No 35 s HG 14
HA 4 Conditions applying
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Becoming and continuing as qualifying company
(1) The requirements of sections HA 5 to HA 9 are preconditions of, and ongoing conditions for, qualifying companies and LAQCs. For a company to become and to continue as a qualifying company, the requirements of those sections must be met.
Losing status
(2) Sections HA 11 and HA 12 apply in relation to a failure to maintain the requirements and avoidance arrangements.
Avoidance
(3) Section GB 6 (Arrangements involving qualifying companies) may apply to treat a company as not being a qualifying company.
Defined in this Act: arrangement, company, LAQC, qualifying company,
Compare: 2004 No 35 ss HG 7, HG 14(d)
Qualifying company status
HA 5 Elections to become qualifying company
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Making elections
(1) A company that meets the requirements of sections HA 6 to HA 9 may be a qualifying company or an LAQC only if all the directors of the company and every shareholder in the company with legal capacity, choose that the company is to become a qualifying company. Every director and every shareholder with legal capacity must sign a notice of election and give it to the Commissioner.
Elections remaining in effect
(2) The elections referred to in subsection (1) must remain in effect and must not have been revoked before the end of the relevant income year.
Director at time
(3) For the purposes of an election, a person is considered a director of a company if they hold the office at the time the notice is provided.
Elections
(4) The elections referred to in this section are dealt with in sections HA 28 to HA 39.
Defined in this Act: Commissioner, company, director, income year, LAQC, notice, qualifying company, shareholder,
Compare: 2004 No 35 ss HG 3(1), HG 4(1), HG 14(a), (b), OB 3(1)(f)
HA 6 Corporate requirements
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Requirements
(1) A qualifying company must, in an income year,—
(a) have 5 or fewer shareholders who meet the requirements of section HA 7; or
(b) be a flat-owning company.
Exclusions
(2) A company is not eligible to be a qualifying company if, at any time in an income year, it is—
(a) a company that is not resident in New Zealand; or
(b) a company that is resident in New Zealand but is treated under and for the purposes of a double tax agreement, as not resident in New Zealand; or
(c) no longer a qualifying company under section HA 11(4) because its status as an LAQC has ended.
Defined in this Act: company, double tax agreement, flat-owning company, income year, LAQC, qualifying company, resident in New Zealand, shareholder,
Compare: 2004 No 35 ss HG 1(a), (b), OB 1 foreign company, OB 3(1)(a), (b), (g)
HA 7 Shareholding requirements
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Natural persons, certain trustees, and qualifying companies
(1) A shareholder in a qualifying company must be 1 of the following:
(a) a natural person other than a trustee; or
(b) a trustee of a trust, but only if subsection (2) applies in relation to dividends derived by the trustee; or
(c) another qualifying company.
Dividends derived by trustees
(2) For the purposes of subsection (1)(b), all dividends that the trustee of a trust derives from a qualifying company in an income year must be beneficiary income of 1 or more persons who are not trustees or companies other than qualifying companies. However, this subsection does not apply to non-cash dividends other than taxable bonus issues.
Special shareholding rules
(3) When the shares in a qualifying company that has 5 or fewer shareholders are held by relatives, other companies, and trustees, the following special rules apply:
(a) if a shareholder in a qualifying company is connected within the first degree of relationship to another shareholder in the company by either blood relationship, marriage, civil union or de facto relationship, or adoption, they are treated as a single shareholder, and this treatment continues while they remain a shareholder in the company despite any later death or dissolution:
(b) shares in a qualifying company that are held by another company are treated as held by the shareholders in that other company:
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(c) if a shareholder in a qualifying company is a trustee, the shareholders are counted, without the trustee, as the larger of the following:
(i) the group who signed the election as shareholder; or
(ii) the group who derived beneficiary income from dividends from the qualifying company in the period between the first day of the 1991–92 income year and the time of counting.
Defined in this Act: beneficiary income, company, dividend, income year, non-cash dividend, qualifying company, relative, share, shareholder, taxable bonus issue, trustee,
Compare: 2004 No 35 s OB 3(1)(c), (3)
HA 8 Shareholders’ personal liability
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Agreement required for election
(1) A person making an election as shareholder as described in section HA 5 must agree for each income year in which the election is in effect, to take personal liability on the basis of their effective interest in the company—
(a) for their share of the company’s income tax liability for the income year; and
(b) if the company has made an election as shareholder in another company, for any income tax payable in relation to that other company for the income year.
Trustee shareholders
(2) A person making an election as trustee under section HA 28 must agree to take personal liability under subsection (1), modified as follows:
(a) the trustee together with 1 or more beneficiaries who have legal capacity must make the election; and
(b) the personal liability as trustee is limited to the extent of the net assets of the trust; and
(c) if the election is made for a majority shareholding under section HA 29, the personal liability includes the effective interests of the minority shareholding.
Majority shareholders
(3) One or more persons whose effective interests in a company at a particular time add up to 50% or more, may make an election under section HA 29, agreeing to take personal liability described in subsection (1) in relation to the effective interests in the company of the minority shareholding.
Beneficiaries
(4) In subsection (1), the person includes a beneficiary who makes an election under section HA 28 or a person who assumes liability on their behalf.
Nature of liability
(5) In sections HA 13 to HA 27, when more than 1 person agrees to take personal liability as described in subsection (3) for a percentage of an income tax liability or for income tax payable in an income year, the liability is joint and several.
Defined in this Act: company, effective interest, income tax, income tax liability, income year, pay, shareholder, trustee,
Compare: 2004 No 35 s HG 4(1)–(3)
HA 9 Limit on foreign non-dividend income
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Dollar limit
(1) The foreign non-dividend income of a qualifying company in an income year must be no more than $10,000 after subtracting the lesser of—
(a) any income under section CC 3 (Financial arrangements); or
(b) 10% of the gross income of the company for the income year.
Change in threshold
(2) The Governor-General may make an order in Council increasing the sum set out in subsection (1). The order may apply—
(a) from the start of the income year in which it is made; or
(b) to amounts of income derived after the date on which the order is made.
Defined in this Act: amount, foreign non-dividend income, gross, income, income year, qualifying company,
Compare: 2004 No 35 s OB 3(1)(d), (4)
HA 10 Nature of LAQC shares
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All shares in an LAQC must carry—
-
(a) the same shareholder decision-making rights on—
(i) the distributions to be made by the company; and
(ii) the company’s constitution; and
(iii) varying the capital of the company; and
(iv) appointing or electing directors of the company; and
(b) the same rights when the company distributes its profits or its assets, if the company acquires, redeems, or cancels its shares, or in another way reduces or returns its share capital, whether on liquidation or not.
Defined in this Act: cancellation, director, liquidation, LAQC, share, shareholder decision-making rights,
Compare: 2004 No 35 s HG 14(a), (b)
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HA 11 When requirements no longer met
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When this section applies
(1) This section applies when, through changed circumstances, a qualifying company no longer meets the requirements of sections HA 5 to HA 9.
Status at end
(2) The company’s status as a qualifying company is ended, whether or not it is, or could be, known at the time the circumstances arise that the company no longer meets the requirements.
Qualifying companies
(3) The company’s status as a qualifying company is treated as ended from the start of the income year in which the change of circumstances occurs. Subsection (6) overrides this subsection.
LAQCs
(4) If the company is an LAQC in an income year, but does not meet the requirements for the next income year, its status as a qualifying company is treated as ended from the start of that next income year. However, the company may become a qualifying company again if it later meets the requirements.
Distribution of dividends
(5) Despite subsection (1), a company’s status as a qualifying company is not ended merely because it does not comply with section HA 7(2) if—
(a) the dividends available to be distributed are beneficiary income; and
(b) some dividends derived by the trustee from the company have vested or have been distributed as beneficiary income.
Deferring date
(6) On an application by a qualifying company, the Commissioner may defer the date on which the company’s status ends to the start of a later income year if—
(a) the company did not know, and could not reasonably be expected to have known, at the time the circumstances arose that it no longer met the requirements; and
(b) in the circumstances, it would be an unduly harsh or inappropriate outcome.
Examples for subsection (6)(a)
(7) Examples of the circumstances that may apply for the purposes of subsection (6)(a) are a reasonable expectation or belief that—
(a) the company would continue to meet the requirements through an extension under section HA 34, HA 35, or HA 37; or
(b) an amount of foreign non-dividend income that the company derives would not breach the threshold in section HA 9; or
(c) the dividends referred to in section HA 7(2) would be distributed as beneficiary income.
Examples for subsection (6)(b)
(8) Examples of the circumstances that may apply for the purposes of subsection (6)(b) are—
(a) the length of time between the start of the income year and the date of the change in circumstances:
(b) the length of time between the date of the change in circumstances and the date when the company knew, or could reasonably be expected to have known, that the requirements were not met:
(c) the kinds of transactions that the company made during the periods of time described in paragraphs (a) and (b).
Defined in this Act: amount, beneficiary income, Commissioner, company, dividend, foreign non-dividend income, income year, LAQC, qualifying company, trustee,
Compare: 2004 No 35 ss HG 7, HG 18, OB 3(3A)
HA 12 Avoidance arrangements
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When this section applies
(1) This section applies in an income year in which a company is an LAQC.
Failure to meet requirements
(2) If a share in the company is or has been part of an arrangement whose purpose is to defeat the intent and application of the rules in this subpart, the company is no longer eligible to be an LAQC.
Series of arrangements, and 1 among other purposes
(3) In subsection (2), the arrangement referred to—
(a) includes a series of related or connected arrangements; and
(b) may have more than 1 purpose, and it is sufficient that 1 purpose among those other purposes has the effect described.
Defined in this Act: arrangement, company, income year, LAQC, share,
Compare: 2004 No 35 s HG 14(d)
Treatment of profits, dividends, and tax losses
HA 13 Qualifying companies’ distributions
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A distribution that is a transfer of value to a shareholder of a qualifying company must be treated in the way set out in sections HA 14 to HA 18.
Defined in this Act: qualifying company, shareholder, transfer of value,
Compare: 2004 No 35 s HG 1(c)
HA 14 Dividends paid by qualifying companies
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When this section applies
(1) This section applies when a qualifying company pays a dividend to a person resident in New Zealand.
General treatment
(2) The dividend is exempt income of the person under section CW 15 (Dividends paid by qualifying companies) to the extent to which it is more than a fully imputed distribution under section HA 15.
When shareholder has non-standard balance date
(3) If the person has a non-standard balance date and the dividend is derived after the end of the tax year but before their balance date, the dividend is allocated to the day after the balance date.
No resident passive income
(4) The dividend does not constitute resident passive income.
Defined in this Act: dividend, exempt income, non-standard balance date, pay, qualifying company, resident in New Zealand, resident passive income, shareholder, tax year,
Compare: 2004 No 35 ss HG 9(1), HG 13(1)
HA 15 Fully imputed distributions
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When this section applies
(1) This section applies when a qualifying company with an imputation credit account or foreign dividend payment (FDP) account pays a dividend other than to a person resident in New Zealand. However, this section does not apply to a non-cash dividend other than a taxable bonus issue.
Calculating amount of fully imputed distribution
(2) The amount of a fully imputed distribution is calculated using the formula—
Definition of items in formula
(3) In the formula in subsection (2), —
(a) attached imputation credit is the amount determined under subsection (4), and the amount is zero if no imputation credit is attached:
(b) attached FDP credit is the amount determined under subsection (5), and the amount is zero if no FDP credit is attached:
(c) tax rate is the basic rate of income tax set out in schedule 1, part A, clause 2 (Basic tax rates: income tax, ESCT, RWT, and attributed fringe benefits) for the income year of the shareholder in which the dividend is derived.
ICA companies
(4) A qualifying company that is an imputation credit account (ICA) company is treated as having attached an imputation credit to the dividend. The amount of the imputation credit is the lesser of—
(a) the maximum imputation credit that may be attached to the dividend under section OA 18 (Calculation of maximum permitted ratios); and
(b) an amount calculated using the formula in subsection (6).
FDPA companies
(5) A qualifying company that is a foreign dividend payment account (FDPA) company is treated as having attached a FDP credit to the dividend. The amount of the FDP credit is the lesser of—
(a) the maximum FDP credit that may be attached to the dividend under section OA 18, taking into account any imputation credit attached to the dividend under subsection (4); and
(b) an amount calculated using the formula in subsection (6).
Formula
(6) The formula referred to in subsections (4) and (5) is—
Definition of items in formula
(7) In the formula in subsection (6),—
(a) attached credits is the balance in the company’s imputation credit account or FDP account, as applicable, on the last day of the tax year in which the dividend is paid before a debit is made for any imputation credits or FDP credits, as applicable, that are attached:
(b) amount of the dividend is the amount before any imputation credits or FDP credits, as applicable, are attached:
(c) amount paid before credits attached is the total amount of dividends, excluding non-cash dividends other than taxable bonus issues, paid by the company during the tax year before any imputation credits or FDP credits, as applicable, are attached.
Relationship with imputation rules and FDP rules
(8) An imputation credit or an FDP credit may not be attached to a dividend by a qualifying company except under this section.
Relationship with section HA 16
(9) If part of the dividend is exempt income under section HA 16, an imputation credit or FDP credit is treated as attached to the part that is not exempt income.
Defined in this Act: amount, dividend, exempt income, FDP, FDP account, FDP credit, FDP rules, FDPA company, ICA company, imputation credit, imputation credit account, imputation rules, income tax, income year, non-cash dividend, pay, qualifying company, resident in New Zealand, shareholder, taxable bonus issue, tax year,
Compare: 2004 No 35 s HG 13(1)–(4)
HA 16 Exempt income
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When amount exempt
(1) To the extent to which the amount of a dividend that a qualifying company pays to a person resident in New Zealand is more than a fully imputed distribution under section HA 15, the amount is exempt income of the person under section CW 15(1) (Dividends paid by qualifying companies).
Beneficiary income
(2) If a dividend described in subsection (1) is paid to a trustee shareholder, and it is or becomes beneficiary income of a beneficiary resident in New Zealand, the amount is exempt income of the beneficiary under section CW 15(2) as if the beneficiary were the shareholder referred to in section HA 15.
Defined in this Act: amount, beneficiary income, dividend, exempt income, pay, qualifying company, resident in New Zealand, shareholder, trustee,
Compare: 2004 No 35 s HG 13(1)(a)(i), (1A)
HA 17 Dividends derived by qualifying companies
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What this section applies to
(1) This section applies to a dividend—
(a) that a company derives after it becomes a qualifying company; and
(b) to which section CW 10 (Dividend within New Zealand wholly-owned group) or CW 11 (Dividend of conduit tax relief holding company) applies.
Dividend not exempt income
(2) The dividend is not exempt income under sections CW 10 and CW 11, except to the extent to which section CW 9 (Dividend derived by company from overseas) applies to it.
Defined in this Act: company, dividend, exempt income, qualifying company,
Compare: 2004 No 35 ss HG 10(a), HG 13(1)(aa)
HA 18 Treatment of dividends when qualifying company status ends
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When this section applies
(1) This section applies when a company’s status as a qualifying company ends under section HA 11(1).
Dividends distributed in tax year
(2) Section HA 15 applies to a dividend distributed in the period of a tax year from the first day to the day before the date on which the status ends. References in that section to a tax year should be read as references to that period of the year.
Group companies: imputation credit accounts
(3) On the day before the date on which the status ends, the company’s imputation credit account is debited under section OB 41 (ICA debit for loss of shareholder continuity) by the lesser of—
(a) the balance of the credit account on that day after any credits are attached under section HA 15; and
(b) the largest debit to the credit account that would have arisen before that day if section OB 41 had applied.
Group companies: FDP account
(4) On the day before the date on which the status ends, the company’s FDP account is debited under section OC 24 (FDPA debit for loss of shareholder continuity) by the lesser of—
(a) the balance of the credit account on that day after any credits are attached under section HA 15; and
(b) the largest debit to the credit account that would have arisen before that day if section OC 24 had applied.
Defined in this Act: company, dividend, FDP account, imputation credit account, qualifying company, tax year,
Compare: 2004 No 35 s HG 13(6)
HA 19 Credit accounts and dividend statements
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When this section applies
(1) This section applies when a qualifying company pays a dividend that is treated either as a fully imputed distribution under section HA 15 or as exempt income under section HA 16.
Credit accounts
(2) For the purposes of sections OB 30 to OB 59 (which relate to imputation debits) and OC 13 to OC 26 (which relate to FDP debits), if an imputation credit or an FDP credit is attached to the dividend, the amount of the credit is debited to the company’s imputation credit account or FDP account, as applicable. The debit arises on the day the company pays the dividend.
Dividend statements
(3) For all dividends, whether or not credits have been attached, the company must complete the following statements detailing the extent to which the dividends are assessable income or exempt income:
(a) a company dividend statement under section 67(1) of the Tax Administration Act 1994; and
(b) a shareholder dividend statement under section 29 of that Act.
Date for completing statements
(4) The company must complete the statements in subsection (3) by 31 May after the end of the tax year in which the dividends were paid.
Non-cash dividends
(5) In addition to the information required in a shareholder dividend statement, if a shareholder asks the company to include in the statement the amount of a non-cash dividend that the company has paid them in the tax year, the company must provide the information.
Defined in this Act: amount, assessable income, company dividend statement, dividend, exempt income, FDP account, FDP credit, imputation credit, imputation credit account, non-cash dividend, pay, qualifying company, shareholder, shareholder dividend statement, tax year,
Compare: 2004 No 35 s HG 13(5)
HA 20 Attribution of tax losses
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A tax loss of an LAQC is treated as a loss incurred by the shareholders of the company under sections HA 24 to HA 27.
Defined in this Act: LAQC, shareholder, tax loss,
Compare: 2004 No 35 ss HG 1(d), HG 9(2), HG 16
HA 21 Loss balances not carried forward
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In an income year in which a company that is not a qualifying company becomes a qualifying company, subparts IA and IQ (which relate to the treatment of foreign losses) do not apply to carry forward a loss balance of the company to the income year or to later income years.
Defined in this Act: company, income year, loss balance, qualifying company,
Compare: 2004 No 35 s HG 11(3)
HA 22 Group companies using tax losses
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When this section applies
(1) This section applies if a qualifying company is in the same group of companies as a company with a tax loss (company A).
When tax losses available
(2) The amount of company A’s tax loss is available to the qualifying company to use under section IA 3(2) (Using tax losses in tax year) only if—
(a) company A is also a qualifying company; and
(b) the requirements of section IC 5 (Company B using company A’s tax loss) are met.
Defined in this Act: amount, company, group of companies, qualifying company, tax loss,
Compare: 2004 No 35 s HG 10(b)
HA 23 Treatment of tax losses on amalgamation
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If a company that is not a qualifying company amalgamates with a qualifying company and ends its existence on the amalgamation, subpart IA (General rules for tax losses) does not apply to carry forward the amalgamating company’s loss balance from earlier income years either to the income year of the amalgamation or to later income years.
Defined in this Act: amalgamating company, amalgamation, company, income year, loss balance, qualifying company, tax loss,
Compare: 2004 No 35 s HG 11(3A)
Special tax matters for loss-attributing qualifying companies
HA 24 Treatment of tax losses other than certain foreign losses
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What this section applies to
(1) This section applies in a tax year when an LAQC has a tax loss that does not include an attributed controlled foreign company (CFC) net loss or a foreign investment fund (FIF) net loss to which subsection (6) applies.
Calculating amounts for shareholders with effective interests
(2) Each shareholder in the company is treated as having incurred an amount of loss calculated using the formula—
company’s tax loss × shareholder’s effective interest.
Definition of items in formula
(3) In the formula,—
(a) company’s tax loss is the amount of the tax loss of the company for the tax year:
(b) shareholder’s effective interest is the effective interest of the shareholder in the company for the tax year.
Incurred in deriving income
(4) The shareholder’s amount of loss is treated as having been incurred in deriving their assessable income. Section HA 26 overrides this subsection.
Losses not carried forward
(5) If the company has a loss balance remaining for a tax year after the uses described in section IA 3 (Using tax losses in tax year), the balance is not carried forward to the next income year, and HA 21 applies.
Other foreign losses
(6) If an election under section HA 25 has not been made in relation to the tax loss then, to the extent to which it is an attributed CFC net loss or a FIF net loss, the amount is treated as if it were the shareholder’s attributed CFC net loss or FIF net loss.
Defined in this Act: amount, assessable income, attributed CFC net loss, effective interest, FIF net loss, income year, LAQC, loss balance, shareholder, tax loss, tax year,
Compare: 2004 No 35 ss HG 16(1), HG 17(1)(a)
HA 25 Treatment of certain foreign losses
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Choosing not to attribute foreign losses to shareholders
(1) On notification to the Commissioner, an LAQC may choose to exclude an attributed CFC net loss or a FIF net loss from a tax loss attributed to the company’s shareholders under section HA 24.
Treatment
(2) The amount of an attributed CFC net loss or FIF net loss under subsection (1)—
(a) may be carried forward under subparts IA and IQ (which relate to the treatment of foreign losses); and
(b) is not included in an amount of tax loss attributed to a shareholder under section HA 24; and
(c) is not available to be used under section HA 22.
Notice of election
(3) For the purposes of subsection (1), every person with legal capacity who is, at the time of notifying the Commissioner, a shareholder in the company must sign the notice of election. The notice must be given to the Commissioner before the start of the income year in which it is to apply or, if the company has not previously been required to provide a return of income, in the time allowed by section 37 of the Tax Administration Act 1994, for the company’s first income year.
When election applies
(4) A notice of election under subsection (3) applies in an income year if—
(a) it is given to the Commissioner before the start of the income year; and
(b) the company remains a qualifying company for the whole of the income year; and
(c) no revocation has effect for the income year.
Revoking notice
(5) A company may revoke an election made under this section only by giving a notice of revocation to the Commissioner. Every person with legal capacity who is, at the time of giving the notice, a shareholder in the company must sign the notice of revocation.
When revocation takes effect
(6) In a notice of revocation, the company may nominate an income year that is later than the year of notice as the income year in which the revocation takes effect, and it takes effect at the start of that income year. If the company does not nominate an income year in the notice, the revocation takes effect at the start of the income year in which the Commissioner receives the notice.
When losses carried forward
(7) A revocation does not apply to an attributed CFC net loss or a FIF net loss arising in an earlier income year and carried forward under subparts IA and IQ to the income year in which the revocation takes effect.
Defined in this Act: amount, attributed CFC net loss, Commissioner, company, FIF net loss, income year, LAQC, notice, notify, qualifying company, return of income, shareholder, tax loss, tax year,
Compare: 2004 No 35 s HG 17
HA 26 Attribution when balance dates differ
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When this section applies
(1) This section applies in an income year when—
(a) an LAQC has a tax loss; and
(b) an amount of the tax loss is attributable to a shareholder under section HA 20, HA 24(2), or HA 25; and
(c) the company or the shareholder, or both, have a non-standard balance date for the income year; and
(d) the company’s balance date is later than the shareholder’s balance date; and
(e) because of the difference in balance dates, the shareholder cannot practically quantify the amount of the tax loss attributable to them in the time allowed by section 37 of the Tax Administration Act 1994 for providing their return of income.
When loss incurred
(2) Despite section 38 of the Tax Administration Act 1994, the amount of the shareholder’s tax loss is treated as having been incurred on the first day of the next income year.
Defined in this Act: amount, income year, LAQC, non-standard balance date, return of income, shareholder, tax loss,
Compare: 2004 No 35 s HG 16(2)
HA 27 Attribution when loss results in reduction in value of shares
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When this section applies
(1) This section applies in an income year if—
(a) an LAQC has a tax loss that causes a reduction in the total value of shares in the company; and
(b) a shareholder who has an amount of the tax loss attributed to them under section HA 20, HA 24(2), or HA 25, suffers no, or substantially no, corresponding economic loss arising from any factor including a call option or a put option.
Treatment of shareholder, company, and amount
(2) The shareholder is treated for the income year as having no amount of the company’s tax loss component attributed to them. The amount must not be attributed to another shareholder, and section HA 21 applies.
Defined in this Act: amount, income year, LAQC, share, shareholder, tax loss, tax loss component,
Compare: 2004 No 35 s HG 16(3), (4)
Elections: qualifying companies
HA 28 Elections by trustee shareholders
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If a shareholder referred to in section HA 5 is acting as trustee, they must make an election together with—
(a) 1 or more beneficiaries of the trust who are natural persons with legal capacity; or
(b) if no beneficiary has legal capacity, a natural person, who may also be the trustee, who assumes liability on behalf of beneficiaries.
Defined in this Act: shareholder, trustee,
Compare: 2004 No 35 s HG 4(2)(a)
HA 29 Elections by majority shareholders
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When this section applies
(1) This section applies when 1 or more shareholders (the majority) in a company have, at the time of making an election, effective interests in the company of 50% or more, and the effective interest of 1 or more other shareholders (the minority) is less than 50%.
Majority assuming minority’s liability
(2) The majority may sign a notice of election advising the Commissioner that the company is to become a qualifying company. The notice has effect only if the majority agree to an extension of their personal liability under section HA 8(3).
Minority treated as making election
(3) The minority is treated as having made an election under section HA 5 in relation to their shareholding in the company at the time the election is made.
Election additional
(4) An election under this section may be made in addition to any other election a shareholder may make or have made under section HA 5.
Defined in this Act: Commissioner, company, effective interest, notice, qualifying company, shareholder,
Compare: 2004 No 35 s HG 4(3)
HA 30 When elections take effect
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When election takes effect
(1) In a notice of election made under section HA 5, an income year later than the year of notice may be nominated as the year in which the election is to take effect and, if so, the election takes effect at the start of that income year. If no income year is nominated in the notice, the election takes effect at the start of the income year after the year of notice.
Shareholder’s election after company becomes qualifying company
(2) If a shareholder makes an election when the company is already a qualifying company, the election takes effect when the Commissioner receives it.
Company’s first income year
(3) Despite subsection (1), if the company has not previously been required to provide a return of income, the first income year of the company may be nominated as the year in which the election is to take effect. The Commissioner must be advised of this decision in the notice of election to be received within the time allowed by section 37 of the Tax Administration Act 1994 for providing a return for the company’s first income year.
Election in effect until revoked
(4) An election remains in effect until revoked.
Defined in this Act: Commissioner, company, income year, notice, qualifying company, return of income, shareholder,
Compare: 2004 No 35 ss HG 3(2), (3), HG 4(4)
HA 31 Revocation of directors’ elections
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Revoking election
(1) An election by directors under section HA 5 may be revoked only by a resolution of the board of directors. The board must advise the Commissioner of the resolution by providing a notice of revocation.
When revocation takes effect
(2) The revocation of an election takes effect at the start of the income year that the board nominates in the notice of revocation. If the board has not nominated an income year, the revocation takes effect at the start of the income year in which the notice of revocation is provided.
Defined in this Act: Commissioner, director, income year, notice,
Compare: 2004 No 35 s HG 3(4), (5)
HA 32 Revocation of shareholders’ elections: by notice
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Notice
(1) A person who, as a shareholder in a company, has made an election under section HA 5, may revoke it by notifying both the company and the Commissioner.
When revocation takes effect
(2) In the notice, the person may nominate an income year later than the year of notice as the income year in which revocation takes effect, and the revocation takes effect at the start of that income year. If no income year is nominated, it takes effect at the start of the income year in which the Commissioner receives the notice.
Measuring effective interests
(3) For measuring the effective interest in the company, as defined in section HA 43 and measured under section HA 44, of the person revoking the election, the revocation takes effect—
(a) when both the company and the Commissioner have received the notice; or
(b) on a later date nominated in the notice.
Periods of grace and Commissioner’s power to defer
(4) Sections HA 11(6) and HA 34 to HA 37 override this section.
Defined in this Act: Commissioner, company, effective interest, income year, notice, notify, shareholder,
Compare: 2004 No 35 s HG 5(1)
HA 33 Revocation of shareholders’ elections: by event
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Event
(1) An election by a person as shareholder under section HA 5 is revoked if an event described in the following paragraphs occurs:
(a) the person dies:
(b) the person disposes of all of their shares, unless they dispose of them to an existing shareholder in the company for whom an election exists:
(c) if sections HA 28 and HA 29 apply, a beneficiary acquires legal capacity:
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(d) if section HA 29 applies,—
(i) the effective interests of a minority shareholder increase to 50% or more; or
(ii) the total effective interests of the majority shareholder or shareholders fall below 50%:
(e) for an election made jointly by 2 or more persons, 1 person revokes the election or is treated as having revoked the election.
When revocation by event takes effect
(2) The revocation of an election under this section takes effect at the start of the income year in which the event occurred.
Periods of grace and Commissioner’s power to defer
(3) Sections HA 11(6) and HA 34 to HA 37 override this section.
Defined in this Act: Commissioner, company, effective interest, income year, share, shareholder,
Compare: 2004 No 35 s HG 5(2)
HA 34 Period of grace following death of shareholder
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12-month period
(1) Despite section HA 33(1)(a), a company’s status as a qualifying company does not end because a shareholder or another person has died if, within 12 months of the death of the person, the company meets the requirements of sections HA 5 to HA 9.
Extension of time
(2) The Commissioner may extend the 12-month period referred to in subsection (1) on the application of the company, the personal representative of the deceased person, or a person who is entitled as a shareholder to make an election under HA 5.
Defined in this Act: Commissioner, company, qualifying company, shareholder,
Compare: 2004 No 35 s HG 6(1)
HA 35 Period of grace following revocation of election
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When this section applies
(1) This section applies when a company has been a qualifying company but no longer meets the requirement of section HA 5 through revocation of a shareholder’s election under section HA 32 or HA 33. But this section does not apply when—
(a) the revocation is brought about by the death of a person; or
(b) a joint election is revoked.
Revocation by notice
(2) When section HA 32 applies, the company’s status as a qualifying company does not end if, within 63 days of the date on which the company received the notice of revocation, a person other than the shareholder who revoked the election makes an election relating to the whole of the relevant shareholding.
Revocation by event
(3) When section HA 33 applies, the company’s status as a qualifying company does not end if, within 63 days of the date when the event that gave rise to the revocation occurred, an election relating to the whole of the relevant shareholding is made or is in effect.
Extension of time
(4) In subsections (2) and (3), the Commissioner may extend the 63-day period on the application of the company or a person who is entitled to make an election under section HA 5.
Defined in this Act: Commissioner, company, notice, qualifying company, shareholder,
Compare: 2004 No 35 s HG 6(2)(a), (b)
HA 36 Period of grace following revocation of joint election
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When this section applies
(1) This section applies when a company has been a qualifying company, but an election that shareholders have made jointly has been revoked through an event described in section HA 33.
Cause of revocation
(2) The company’s status as a qualifying company does not end if, within the relevant period in section HA 34(1) or HA 35(2) and (3), an election relating to the whole of the relevant shareholding is made.
Defined in this Act: company, qualifying company, shareholder,
Compare: 2004 No 35 s HG 6(2)(c)
HA 37 Period of grace for new shareholder
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When this section applies
(1) This section applies when a company has been a qualifying company but fails to meet the requirement of section HA 5 when—
(a) a person other than an existing shareholder acquires shares in the company; or
(b) an existing shareholder acquires legal capacity.
Period for making election
(2) The company’s status as a qualifying company does not end if, within 63 days of the date on which either the shares were acquired or the shareholder acquired legal capacity, an election relating to the whole of the relevant shareholding is made.
Extension of time
(3) The Commissioner may extend the 63-day period in subsection (2) on the application of the company, the new shareholder, the existing shareholder, or a person who is entitled to make an election as shareholder under section HA 5.
Defined in this Act: Commissioner, company, qualifying company, share, shareholder,
Compare: 2004 No 35 s HG 6(3)
Elections: loss-attributing qualifying companies
HA 38 Elections by directors and shareholders required
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Election and notification
(1) For a company to become an LAQC, every person who is a director of the company, and every shareholder in the company with legal capacity, must advise the Commissioner in a notice of election.
Minority shareholders
(2) Despite subsection (1) and assuming the other requirements of sections HA 5 to HA 9 have been met, if a shareholder whose effective interest in a company is less than 50% has not signed the notice, the election nevertheless has effect if 1 or more shareholders in the company whose interests amount to more than 50% have signed the notice.
Notifying Commissioner
(3) The notice must be provided before the start of the relevant income year or, if the company has not previously been required to provide a return of income, within the time allowed by section 37 of the Tax Administration Act 1994 for providing a return for the company’s first income year.
Directors and shareholders at time
(4) A person is considered a director of a company under subsection (1) if they hold the office at the time the notice is provided. Similarly, a person is considered a shareholder if they have an effective interest in the company at the time the notice is provided.
Defined in this Act: Commissioner, company, director, effective interest, income year, LAQC, notice, notify, return of income, shareholder,
Compare: 2004 No 35 ss HG 14(c), HG 14A
HA 39 Revocation of elections
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Sections HA 28 to HA 37 apply to an election made under section HA 38 as if it were an election by a director or a shareholder under section HA 5.
Defined in this Act: director, shareholder,
Compare: 2004 No 35 s HG 15
Qualifying company election tax
HA 40 Liability for qualifying company election tax
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Payment of tax
(1) A company that becomes a qualifying company must pay a qualifying company election tax in relation to the change in status, of an amount calculated under section HA 41. The date for payment is set out in section HA 42.
Payment on amalgamation
(2) If a company that is not a qualifying company amalgamates with a qualifying company and ends its existence on the amalgamation, the amalgamated company must pay a qualifying company election tax under subsection (1).
Defined in this Act: amalgamated company, amalgamation, amount, company, pay, qualifying company, qualifying company election tax,
Compare: 2004 No 35 s HG 11(1), (1A)
HA 41 Calculating qualifying company election tax
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Formula
(1) The amount of qualifying company election tax that a company must pay under section HA 40 is calculated using the formula—
Definition of items in formula
(2) The items in the formula are defined in subsections (3) to (6).
Dividends
(3) Dividends is the sum of the amounts that would be dividends if the company—
(a) disposed of all its property, other than cash, to an unrelated person at market value for cash; and
(b) met all its liabilities at market value, excluding income tax payable through disposing of the property or meeting the liabilities; and
(c) was liquidated, with the amount of cash remaining being distributed to its shareholders without imputation credits or FDP credits attached.
Balances
(4) Balances is the sum of the following amounts:
(a) the balance in the company’s imputation credit account:
(b) the balance in the company’s FDP account:
(c) an amount of income tax payable for an earlier income year but not paid before the relevant date, less refunds due for the earlier income year but paid after the relevant date:
(d) FDP payable for a dividend received before the relevant date but not paid before the date, less refunds made or due after that date for a dividend received before that date.
Assessable income
(5) Assessable income is the total assessable income that the company would derive by taking the actions described in subsection (3)(a) and (b) less the amount of any deduction that the company would have for taking those actions.
Tax rate
(6) Tax rate is the basic rate of income tax set out in schedule 1, part A, clause 2 (Basic tax rates: income tax, ESCT, RWT, and attributed fringe benefits) for the relevant income year of the company.
Relevant date
(7) In subsections (3) to (5), the relevant date for measuring items in the formula is the date just before the company became a qualifying company or, as applicable, at the time the company ended its existence.
Income tax and refund
(8) For the purposes of subsection (4)(c),—
(a) income tax payable is income tax that would, when paid, give rise to a credit in the company’s imputation credit account under sections OB 4 to OB 29 (which relate to imputation credits):
(b) a refund of income tax due is the amount that would, when paid, give rise to a debit to the company’s imputation credit account under section OB 30 to OB 59 (which relate to imputation debits):
(c) if the company pays income tax or FDP with a purpose or intention of reducing the amount of election tax, the amount of credit in the imputation credit account or FDP account is reduced by the amount of the credit arising from the company’s action, unless that purpose is merely incidental.
Defined in this Act: amount, assessable income, company, deduction, dividend, FDP, FDP account, FDP credit, imputation credit, imputation credit account, income tax, income year, liquidation, pay, qualifying company, qualifying company election tax, shareholder,
Compare: 2004 No 35 s HG 11(1B), (2), (4)
HA 42 Paying qualifying company election tax
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A company must pay a qualifying company election tax under section HA 40 to the Commissioner no later than the company’s terminal tax date for the tax year corresponding to the income year in which the company chooses to become a qualifying company.
Defined in this Act: Commissioner, company, income year, pay, qualifying company, qualifying company election tax, terminal tax date,
Compare: 2004 No 35 s HG 12
Effective interests in qualifying companies
HA 43 Meaning of effective interest
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What this section does
(1) This section defines an effective interest in a company, which is the measure of a person’s liability under section HA 8.
Effective interest
(2) Effective interest for a person and a company, at a particular time or for an income year, means—
(a) the person’s voting interest in the company at the time or for the income year, unless paragraph (b) applies:
-
(b) if there is a market value circumstance for the company at the time or at some time during the income year, the average of—
(i) the person’s voting interest in the company at the time or for the income year; and
(ii) the person’s market value interest in the company at the time or for the income year.
Defined in this Act: company, effective interest, income year, market value circumstance, market value interest, voting interest,
Compare: 2004 No 35 s OB 1 effective interest
HA 44 Measuring effective interests
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Subpart YC
(1) A person’s voting interest and market value interest in a company is measured under subpart YC (Measurement of company control and ownership). If the person is a company, the voting interest and market value interest are measured at a particular time or for an income year under those sections as if—
(a) the person were not a company; and
(b) sections YC 4 and YC 6 (which relate to corporate shareholders and certain excluded securities) did not apply.
If interests vary during income year
(2) If a person’s voting interest or market value interest varies during an income year, the measure of their effective interest is the weighted average of their voting interest or market value interest, as applicable, for the income year.
If election made during income year
(3) If a shareholder makes an election under section HA 5 after the start of the income year, their voting interest and market value interest is measured from the earliest day in the income year when they became a shareholder in the company, even if the day is earlier than the date of the election.
Shareholders’ interests after revocation
(4) A person who revokes an election under section HA 32 or HA 33 is treated as having no voting interest and no market value interest for the period of the income year after the revocation takes effect unless they make a later election for the same income year. In this subsection, the person is a trustee when an election is made under section HA 28 by a person other than the trustee.
When majority shareholders’ liabilities excluded
(5) If a majority shareholder has made an election and agreed under sections HA 8 and HA 29 to take personal liability to the extent of a minority shareholder’s effective interest in the company, any effective interest for which the minority shareholder has agreed to be personally liable under section HA 8 is excluded in measuring the majority shareholder’s effective interest.
Minority shareholder’s liability after revocation
(6) If a majority shareholder’s election is revoked under section HA 32(1) or HA 33(1)(d), the effective interest of the minority shareholder for which the majority shareholder is liable is treated as zero for the part of the income year that follows the day on which the revocation takes effect.
Defined in this Act: company, effective interest, income year, market value interest, shareholder, trustee, voting interest,
Compare: 2004 No 35 s HG 2
Subpart HC—Trusts
Introductory provisions
HC 1 What this subpart does
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What this subpart does
(1) This subpart, together with the trust rules,—
-
(a) provides for the taxation of distributions from trusts, for this purpose defining—
(i) beneficiary income:
(ii) a taxable distribution:
(b) provides for the taxation of trustee income:
-
(c) classifies trusts into the following 3 categories for the purposes of determining the treatment of distributions that are not beneficiary income:
(i) complying trusts:
(ii) foreign trusts:
(iii) non-complying trusts:
(d) determines who is a settlor, and sets out their income tax liability:
(e) sets out the treatment of trusts settled by persons becoming resident in New Zealand.
Excluded: certain funds and distributions
(2) The trust rules do not apply to—
(a) a unit trust:
(b) a group investment fund to the extent to which it is treated as a company under this Act:
(c) a Maori authority:
(d) a distribution under section HZ 1 (Distributions from trusts of pre-1989 tax reserves).
Disclosure requirements: non-resident trustees
(3) Section 59 of the Tax Administration Act 1994 requires the disclosure of a settlement on a trust with a non-resident trustee.
Avoidance arrangements
(4) Section GB 22 (Arrangements involving trust beneficiary income) may apply to treat a beneficiary as receiving property, or enjoying services or benefits, in fact received, or enjoyed, by another person.
Superannuation funds entering trust rules
(5) A superannuation scheme that is treated as a company because it is a unit trust and then becomes a superannuation fund is treated as—
(a) liquidated under section CD 12 (Superannuation schemes entering trust rules) immediately before the date on which it becomes a superannuation fund; and
(b) no longer a company.
Defined in this Act: arrangement, beneficiary income, company, complying trust, distribution, foreign trust, group investment fund, income tax liability, liquidation, Maori authority, non-complying trust, non-resident, resident in New Zealand, settlement, settlor, superannuation fund, superannuation scheme, taxable distribution, trust rules, trustee, trustee income, unit trust,
Compare: 2004 No 35 ss GC 14, HH 1(8), (9), HH 3(6), HH 4(8), Income Tax Amendment Act 1988 (No 5) s 9
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HC 2 Obligations of joint trustees for calculating income and providing returns
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What this section applies to
(1) This section applies for the purposes of the obligations imposed by section BB 2 (Main obligations) on 2 or more persons who derive income jointly as trustees of a trust.
Single person
(2) The trustees of the trust are treated in that capacity as if they were a notional single person, and are jointly and severally liable to satisfy the income tax liability of the notional single person. They must—
(a) calculate the trust’s taxable income for a tax year; and
(b) for that tax year, provide a joint return of income for the trust under section 42(1)(a) of the Tax Administration Act 1994.
Defined in this Act: income, income tax liability, return of income, tax year, taxable income, trustee,
Compare: 2004 No 35 s HD 1(1)(a)
HC 3 Multiple settlements
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For the purposes of this subpart, if a settlement is made on a trust and further settlements are made on the same terms, a trustee of the trust may treat all the settlements as 1 trust.
Defined in this Act: settlement, trustee,
Compare: 2004 No 35 s HH 1A
HC 4 Corpus of trust
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Meaning
(1) In the trust rules, corpus means an amount that is equal to the market value of a settlement of property on the trust measured at the date of the settlement. Subsection (2) overrides this subsection.
Settlements excluded from corpus
(2) Corpus does not include an amount equal to the market value of the property settlements described in subsections (3) to (5).
Settlements on other trusts
(3) A property settlement by a trustee of another trust is excluded from corpus to the extent to which, if the property were distributed to a beneficiary of the other trust, and the beneficiary was resident in New Zealand, the distribution would be beneficiary income or a taxable distribution to that beneficiary.
Deductions
(4) A property settlement for which the settlor is allowed a deduction is excluded from corpus.
Income or dividend
(5) A property settlement is excluded from corpus if, but for the fact of the settlement,—
(a) it would be income of the settlor; or
(b) it would be a dividend liable to a foreign dividend payment (FDP) under section RG 2 (Foreign dividends); or
(c) it would fall under paragraph (a) or (b) if the settlor were resident in New Zealand at the time of the settlement.
Defined in this Act: amount, beneficiary income, corpus, deduction, distribution, dividend, FDP, income, resident in New Zealand, settlement, settlor, taxable distribution, trust rules, trustee,
Compare: 2004 No 35 s OB 1 corpus
Trust income
HC 5 Amounts derived by trustees
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Either beneficiary or trustee income
(1) An amount of income derived in an income year by a trustee of a trust is either—
(a) beneficiary income under section HC 6; or
(b) trustee income under section HC 7.
Statutory amounts treated as derived
(2) For the purposes of subsection (1) and sections HC 6 and HC 7, if the trustee is treated as having an amount of income in the income year under a provision in this Act and the amount is not derived under ordinary concepts, then the amount is treated as derived in the income year.
Defined in this Act: amount, beneficiary income, income, income year, trustee, trustee income,
Compare: 2004 No 35 s OB 1 beneficiary income, trustee income
HC 6 Beneficiary income
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Meaning
(1) An amount of income derived in an income year by a trustee of a trust is beneficiary income to the extent to which—
(a) it vests absolutely in interest in a beneficiary of the trust in the income year; or
(b) it is paid to a beneficiary of the trust in the income year, or within 6 months after the end of the income year.
Exclusions
(2) Beneficiary income does not include—
(a) an amount of income derived by a trustee of a trust in an income year in which the trust is a superannuation fund; or
(b) an amount of income derived by a trustee that is income to which sections CC 3(2) (Financial arrangements) and EW 50 (Income when debt forgiven to trustee) apply.
When subsection (4) applies
(3) Subsection (4) applies when—
(a) a trustee is a person with a non-standard income year; and
(b) an amount derived by the trustee in the income year is also beneficiary income.
Deriving beneficiary income in same year as trustee
(4) The beneficiary is treated as having derived the beneficiary income during the same tax year as that corresponding to the trustee’s income year.
Defined in this Act: amount, beneficiary income, income, income year, non-standard income year, pay, superannuation fund, tax year, trustee,
Compare: 2004 No 35 ss OB 1 beneficiary income, OF 2 (3)
HC 7 Trustee income
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Meaning
(1) To the extent to which it is not beneficiary income, an amount of income derived by a trustee of a trust is trustee income.
Minors’ beneficiary income
(2) An amount of beneficiary income to which section HC 33 applies that is derived in an income year by a person who is a minor is treated as if it were trustee income for the purposes of—
(a) determining the tax rate that applies; and
(b) paying the tax; and
(c) providing returns of income.
Exclusions from corpus
(3) The amount that is the market value of a property settlement referred to in section HC 4(3) to (5) is treated as trustee income of the trustee of the recipient trust derived in the income year of settlement.
Defined in this Act: amount, beneficiary income, corpus, income, income year, minor, pay, return of income, settlement, trustee, trustee income,
Compare: 2004 No 35 ss HH 1(7), HH 3A(1)(a), OB 1 trustee income
HC 8 Amounts received after person’s death
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When this section applies
(1) This section applies when a trustee of an estate of a deceased person receives an amount in an income year that is not income that the person derived during their lifetime, but would have been included in the person’s income had they been alive when it was received.
Income
(2) The amount is treated under section CV 12 (Trustees: amounts received after person’s death) as income derived by the trustee in the income year.
Defined in this Act: amount, income, income year, trustee,
Compare: 2004 No 35 s HH 8
Classification of trusts
HC 9 Classifying trusts
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A trust is classified at the time it makes a distribution as—
(a) a complying trust under section HC 10:
(b) a foreign trust under section HC 11:
(c) a non-complying trust under section HC 12.
Defined in this Act: complying trust, distribution, foreign trust, non-complying trust,
HC 10 Complying trusts
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Requirements for complying trusts
(1) A trust is a complying trust in relation to a distribution if—
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(a) the following requirements are met for the life of the trust up to the time of distribution:
(i) no trustee income derived includes an amount of non-resident passive income, or non-residents’ foreign-sourced income, or exempt income under section CW 54 (Foreign-sourced amounts derived by trustees); and
(ii) the tax obligations relating to the trustee’s income tax liability have been satisfied for every tax year; or
(b) it is a superannuation fund.
Foreign trust choosing to become complying trust
(2) A foreign trust may become a complying trust to the extent set out in section HC 30 by—
-
(a) an election being made under section HC 30(2)—
(i) before the time of distribution; and
(ii) within 12 months of the date on which the settlor referred to in section HC 30(1) becomes resident in New Zealand; and
(b) the requirements of subsection (1)(a) are met for trustee income derived after the election date.
Life of trust
(3) The life of the trust referred to in subsection (1)(a) includes every income year from the start of the income year in which a settlement was first made on the trust up to the time of the distribution.
Complying trusts: meeting requirements
(4) For the purposes of subsection (1)(a),—
(a) section HC 29(6) does not apply in determining whether the requirements are met:
(b) the requirements may be met by a person who has made an election under section HC 33.
Defined in this Act: amount, complying trust, distribution, exempt income, foreign-sourced amount, foreign trust, income tax liability, income year, non-resident passive income, non-residents’ foreign-sourced income, resident in New Zealand, settlement, settlor, superannuation fund, tax year, trustee, trustee income,
Compare: 2004 No 35 ss HH 2(2), HH 4(5) proviso, OB 1 foreign trust, qualifying trust
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HC 11 Foreign trusts
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A trust is a foreign trust in relation to a distribution if no settlor is resident in New Zealand at any time in the period that—
(a) starts on the later of 17 December 1987 and the date on which a settlement was first made on the trust; and
(b) ends on the date of distribution.
Defined in this Act: distribution, foreign trust, resident in New Zealand, settlement, settlor,
Compare: 2004 No 35 s OB 1 foreign trust
HC 12 Non-complying trusts
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A trust is a non-complying trust in relation to a distribution if it is neither a complying trust nor a foreign trust.
Defined in this Act: complying trust, distribution, foreign trust, non-complying trust,
Compare: 2004 No 35 s OB 1 non-qualifying trust
HC 13 Charitable trusts
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In the trust rules, a trust is a charitable trust in an income year if—
(a) all income derived or accumulated by the trustee in that or in any earlier income year is held for charitable purposes; and
(b) any income derived by the trustee in the income year is exempt income under either section CW 41(1) (Charities: non-business income) or CW 42(1) (Charities: business income).
Defined in this Act: charitable purpose, charitable trust, exempt income, income, income year, trust rules, trustee,
Compare: 2004 No 35 s HH 1(5), (6)
Distributions from trusts
HC 14 Distributions from trusts
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Transfers of value
(1) A trustee makes a distribution when the trustee transfers value to a person because the person is a beneficiary of the trust.
Transfers to other trusts included
(2) Despite subsection (1), a settlement for the benefit of a beneficiary is treated as a transfer of value only—
(a) if the amount or the property being settled would have been beneficiary income of, or a taxable distribution to, a beneficiary, had it been distributed at the time to a beneficiary resident in New Zealand; or
(b) when sections EW 50 or EZ 39 (which relate to forgiveness of debt) applies, if the property being settled is an amount forgiven and treated as paid as described in section EW 44(1) or (2) (Consideration when debt forgiven for natural love and affection) or EZ 39(1).
When distribution made
(3) A distribution is made when what is transferred—
(a) vests absolutely in interest in the person; or
(b) is paid to the person.
Manner of distribution
(4) A distribution may be made directly or indirectly, or by 1 transaction or a number of transactions, whether related, connected, or otherwise.
Nil value of beneficiary relationship
(5) The fact that a person is, or will become, a beneficiary of a trust does not constitute the giving or receiving of value.
Defined in this Act: amount, beneficiary income, distribution, pay, resident in New Zealand, settlement, taxable distribution, transfer of value, trustee,
Compare: 2004 No 35 s OB 1 distribution
HC 15 Taxable distributions from non-complying and foreign trusts
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When subsection (2) applies
(1) Subsection (2) applies for a trust that is a non-complying trust at the time a distribution to a beneficiary is made.
Taxable distributions: non-complying trusts
(2) The distribution is a taxable distribution to the extent to which it is not a distribution of—
(a) beneficiary income; or
(b) a part of the corpus of the trust; or
(c) a payment or a transaction that represents a distribution of the corpus of the trust.
When subsection (4) applies
(3) Subsection (4) applies for a trust that is a foreign trust at the time a distribution to a beneficiary is made.
Taxable distributions: foreign trusts
(4) The distribution is a taxable distribution to the extent to which it is not a distribution of—
(a) beneficiary income; or
(b) a part of the corpus of the trust; or
(c) a profit from the realisation of a capital asset or another capital gain; or
(d) a payment or a transaction that represents a distribution of either the corpus of the trust referred to in paragraph (b) or a capital gain referred to in paragraph (c).
Determining amount of gain
(5) For the purposes of subsection (4)(c),—
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(a) the profit does not include—
(i) a gain that must be taken into account for the purposes of determining an income tax liability; or
(ii) a capital gain derived by the trustee through a transaction or series of transactions between the trustee and a person associated with them under the parts of subpart YB (Associated persons and nominees) that apply for the purposes of the whole Act, excluding the 1973 and 1990 version provisions, or the 1988 version provisions:
(b) the amount of the profit is determined after subtracting any capital loss that the trustee incurs in the income year in which the amount was derived.
Amounts not subject to ordering rule
(6) To the extent to which a distribution is made from a trust that is not a complying trust by disposing of property at less than market value or providing services to a beneficiary at less than market value, the distribution is a taxable distribution and is not subject to the ordering rule in section HC 16.
Inadequate records
(7) If the records of a trust that is not a complying trust do not allow an accurate determination of the elements of a distribution under section HC 16, the distribution is a taxable distribution.
Defined in this Act: 1973 version provisions, 1988 version provisions, 1990 version provisions, amount, associated person, beneficiary income, complying trust, corpus, distribution, foreign trust, income tax liability, income year, non-complying trust, pay, superannuation fund, taxable distribution, trustee,
Compare: 2004 No 35 ss HH 6(2)(c), (3), OB 1 taxable distribution
HC 16 Ordering rule for distributions from non-complying and foreign trusts
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When this section applies
(1) This section applies for the purposes of the trust rules when a trustee of a non-complying trust or a foreign trust makes a distribution in an income year to a beneficiary. Subsections (6) and (7) override this subsection.
Order of elements of distribution
(2) The distribution is treated as consisting of the following elements in the following order:
(a) first, an amount of income that the trustee derives in the income year:
(b) second, an amount of income, other than beneficiary income, that the trustee has derived in an earlier income year:
(c) third, an amount that the trustee derives in the income year from the realisation of a capital asset of the trust or another capital gain:
(d) fourth, an amount that the trustee has derived in an earlier income year from the realisation of a capital asset of the trust or another capital gain:
(e) last, the corpus of the trust.
Order and elements
(3) In subsection (2),—
(a) an amount must not be treated as included in the distribution if the amount has been treated under this section as being included in an earlier or contemporaneous distribution from the trust:
(b) the paragraphs are applied in order, and the next paragraph applies only to the extent to which the amount of the distribution is more than the cumulative amounts described in that paragraph and the preceding paragraphs.
Deductions and capital losses subtracted
(4) For the purposes of subsection (2),—
(a) in paragraphs (a) and (b), the amount of income is determined after subtracting the amount of a deduction that is taken into account in the income year in the calculation of net or taxable income for the corresponding tax year:
(b) in paragraphs (c) and (d), the amount is determined after subtracting the amount of a capital loss that the trustee incurs in the income year.
Transactions that are not genuine
(5) In the determination of the elements of a distribution to a beneficiary (beneficiary A), no amount of income or capital gain derived by the trustee of the trust is treated as distributed to another beneficiary of the trust (beneficiary B) if the effect is that some or all of the distribution to beneficiary A would be treated as not being a taxable distribution, unless the distribution to beneficiary B meets all the following requirements:
(a) it is a genuine transaction entered into and carried out in good faith; and
(b) it places the amount beyond the possession and control of the trustee in their capacity as trustee; and
(c) it does not itself constitute a settlement.
Exclusions: terms of trust
(6) This section does not apply to the following distributions which are instead treated as consisting of the amount that reflects the terms of the trust or the terms of the exercise of the trustee’s discretion:
(a) a distribution by the trustee of a complying trust which is treated as exempt income under section CW 53 (Distributions from complying trusts), unless an election to pay income tax on trustee income has been made for the purposes of section HZ 2 (Trusts that may become complying trusts); or
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(b) a distribution from a non-discretionary trust—
(i) created by will or codicil, or by an order of court varying or modifying the provisions of a will or codicil; or
(ii) created on an intestacy or partial intestacy; or
(iii) on which no settlement has been made after 17 December 1987; or
(c) a distribution from a trust other than a non-complying trust that is settled by a natural person who makes an election under section HC 30(2).
Exclusions: taxable distributions
(7) This section does not apply to a distribution described in section HC 15(6).
Meaning of non-discretionary trust
(8) In this section, a non-discretionary trust is a trust in relation to which the trustee has no discretion as to the source, nature, and amount of distributions to beneficiaries, including but not limited to the classification of trust property as capital or income.
Defined in this Act: amount, beneficiary income, complying trust, corpus, deduction, distribution, exempt income, foreign trust, income, income tax, income year, net income, New Zealand resident, non-complying trust, non-discretionary trust, settlement, tax year, taxable distribution, taxable income, trust rules, trustee, trustee income,
Compare: 2004 No 35 s HH 6(1), (2), (4)
Tax treatment of amounts that beneficiaries derive from trusts
HC 17 Amounts derived as beneficiary income
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Non-minor beneficiaries
(1) An amount that a person derives in an income year as beneficiary income is income of the person under section CV 13(a) (Amounts derived from trusts), except to the extent to which it is beneficiary income to which section HC 35 applies.
Minor beneficiaries
(2) Subsection (1) does not apply to beneficiary income derived by a minor. The beneficiary income is excluded income of the minor, and treated as trustee income under sections CX 58 (Amounts derived by minors from trusts) and HC 35.
Defined in this Act: amount, beneficiary income, excluded income, income year, minor, trustee income,
Compare: 2004 No 35 ss HH 3(1), HH 3A(1)(b)
HC 18 Taxable distributions from foreign trusts
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An amount that a person derives in an income year as a taxable distribution from a foreign trust is income of the person under section CV 13(b) (Amounts derived from trusts).
Defined in this Act: amount, foreign trust, income, income year, taxable distribution,
Compare: 2004 No 35 s HH 3(1)
HC 19 Taxable distributions from non-complying trusts
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Excluded income
(1) An amount that a person derives in an income year as a taxable distribution from a non-complying trust is excluded income of the person under section CX 59 (Taxable distributions from non-complying trusts).
Relationship with other provisions
(2) Despite subsection (1), section BF 1(b) (Other obligations) applies to impose income tax on the amount of the taxable distribution. Section HC 22 may apply to reduce the amount of the taxable distribution, and section HC 34 sets the rate of tax for the purposes of section BF 1(b).
Defined in this Act: amount, excluded income, income tax, income year, non-complying trust, taxable distribution,
Compare: 2004 No 35 s HH 3(1), (4)
HC 20 Distributions from complying trusts
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An amount that a person derives in an income year is exempt income of the person under section CW 53 (Distributions from complying trusts) if—
(a) the amount is a distribution from a complying trust other than a community trust; and
(b) the amount is not beneficiary income.
Defined in this Act: amount, beneficiary income, community trust, complying trust, distribution, exempt income, income year,
Compare: 2004 No 35 s HH 3(5)
HC 21 Distributions from community trusts
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What this section applies to
(1) This section applies when a community trust distributes an amount other than beneficiary income to a person.
Exclusion
(2) Subsection (1) does not apply to the extent to which the amount represents—
(a) income derived by the trustee in or before the 2003–04 income year:
(b) corpus of the trust:
(c) a capital gain of the trust:
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(d) a distribution, settlement, or dividend made or paid to the trust in the 2004–05 or 2005–06 income year on the winding up of a trust or company, if—
(i) the community trust provided the corpus of the trust and the trust would have been run for charitable purposes but for the distribution, settlement, or dividend:
(ii) the company is wholly-owned by the community trust and would have been established and run exclusively for charitable purposes but for the distribution, settlement, or dividend.
Income
(3) Despite sections HC 15 and HC 20, the amount is income of the person under section CV 14 (Distributions from community trusts) if the person receives the amount as beneficiary of the trust.
Defined in this Act: amount, beneficiary income, charitable purpose, community trust, company, corpus, distribution, dividend, income, income year, pay, settlement, trustee, trustee income,
Compare: 2004 No 35 s HH 3(5A)
HC 22 Use of tax losses to reduce taxable distributions from non-complying trusts
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When this section applies
(1) This section applies in an income year when a person—
(a) has, for the corresponding tax year, a tax loss component or loss balance to which sections IA 2 to IA 10 (which relate to the use of tax losses) apply; and
(b) derives a taxable distribution from a non-complying trust to which section HC 19 applies.
Reducing taxable distribution
(2) The person may reduce the amount of the taxable distribution by an amount calculated using the formula—
Definition of items in formula
(3) In the formula,—
(a) tax loss is the amount of a tax loss component or loss balance that the person chooses to use:
(b) tax rate is the basic rate of income tax set out in schedule 1, part A, clause 3 (Basic tax rates: income tax, ESCT, RWT, and attributed fringe benefits):
(c) distribution rate is the basic rate of income tax set out in schedule 1, part A, clause 4.
Loss no longer available
(4) If a person takes an amount of a tax loss or a loss balance into account under this section, the amount cannot be subtracted from their net income for the corresponding tax year for the purposes of section IA 2(2) (Tax losses).
Defined in this Act: amount, income tax, income year, loss balance, net income, non-complying trust, tax loss, tax loss component, tax year, taxable distribution,
Compare: 2004 No 35 s HH 3(4)
HC 23 Temporary absences of beneficiaries
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When this section applies
(1) This section applies when—
(a) a person who is a beneficiary of a trust and who is resident in New Zealand stops being resident; and
(b) within a period of 5 years from the date of the end of their residence, they become resident in New Zealand again.
Income derived during the period
(2) The person is treated as deriving income under section CV 15 (Amounts derived from trusts while person absent from New Zealand) to the extent to which they would have been treated as deriving an amount of beneficiary income or a taxable distribution from a foreign trust or a non-complying trust if they had remained in New Zealand for the period of their absence.
Allocation
(3) The amount is treated as derived on the day on which the person becomes resident in New Zealand again.
Defined in this Act: amount, beneficiary income, foreign trust, income, non-complying trust, resident in New Zealand, taxable distribution,
Compare: 2004 No 35 s HH 3(3)
Tax treatment of trustee income
HC 24 Trustees’ obligations
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Liability as individual for trustee income
(1) A trustee must satisfy the income tax liability for their taxable income as if they were an individual beneficially entitled to the trustee income.
No tax credits, cash basis treatment
(2) In determining the income tax liability, the trustee is not entitled to—
(a) have a tax credit under Part L or M (which relate to tax credits); or
(b) be a cash basis person, unless section EW 60 (Trustee of deceased’s estate) applies.
Beneficiary income of minors
(3) Section HC 35 applies to treat beneficiary income derived by a minor as if it were trustee income.
Calculating trustees’ deductions
(4) Section DV 9(2) (Trusts) applies for the purposes of calculating a trustee’s deductions.
Superannuation funds
(5) Sections CX 40, and DV 1 to DV 4 (which relate to superannuation funds) override this section.
Defined in this Act: beneficiary income, cash basis person, deduction, income tax liability, minor, tax credit, taxable income, trustee, trustee income,
Compare: 2004 No 35 ss DV 9(2), HH 4(1), (2)
HC 25 Foreign-sourced amounts: non-resident trustees
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When this section applies
(1) This section applies when a non-resident trustee derives in an income year a foreign-sourced amount that would be assessable income if derived by a person resident in New Zealand.
Trustee income
(2) Despite section BD 1(4)(a), (b), and (5)(c) (Income, exempt income, excluded income, non-residents’ foreign-sourced income, and assessable income), the amount is assessable income of the trustee if, at any time in the income year,—
(a) a settlor of the trust is a New Zealand resident who is not a transitional resident; or
(b) the trust is a superannuation fund; or
-
(c) the trust is a testamentary trust or an inter vivos trust, of which—
(i) a trustee is resident in New Zealand; and
(ii) a settlor died resident in New Zealand (whether or not they died in the income year).
First exception
(3) Subsection (2) does not apply if—
(a) the trustee is resident outside New Zealand at all times in the income year; and
(b) no settlement has been made on the trust after 17 December 1987 and, if an election has been made under section HZ 2 (Trusts that may become complying trusts), the election has not been made by the trustee.
Second exception
(4) Subsection (2) does not apply if—
(a) the trustee is resident outside New Zealand at all times in the income year; and
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(b) when a settlement has been made on the trust after 17 December 1987, it was made only by a settlor who is not resident in New Zealand—
(i) at the date of the settlement; and
(ii) at any time between 17 December 1987 and the date of settlement.
Extent to which subsections (3) and (4) apply
(5) Subsections (3) and (4) do not—
(a) affect a settlor’s income tax liability under the trust rules:
(b) apply to determine whether the tax obligations in relation to the trustee’s income tax liability are met for the purposes of section HC 10(1)(a)(ii) and meeting the requirements for a complying trust.
Treatment of non-resident trustee in other provisions
(6) For the purpose only of calculating the taxable income of a trustee referred to in subsection (2), and not otherwise, the trustee is treated as resident in New Zealand for the purposes of—
(a) sections EW 9 and EW 11 (which relate to financial arrangements):
(b) section LJ 2 (Tax credits for foreign income tax):
(c) section OE 1 (General rules for companies and other persons with branch equivalent tax accounts):
(d) the international tax rules.
Defined in this Act: amount, assessable income, complying trust, foreign-sourced amount, income, income tax liability, income year, international tax rules, New Zealand, New Zealand resident, non-resident, resident in New Zealand, settlement, settlor, superannuation fund, taxable income, transitional resident, trust rules, trustee,
Compare: 2004 No 35 s HH 4(3), (3A), (6) provisos
HC 26 Foreign-sourced amounts: resident trustees
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Exempt income
(1) A foreign-sourced amount that a New Zealand resident trustee derives in an income year is exempt income under section CW 54 (Foreign-sourced amounts derived by trustees) if—
(a) no settlor of the trust is at any time in the income year a New Zealand resident who is not a transitional resident; and
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(b) the trust is not—
(i) a superannuation fund; or
(ii) a testamentary trust or an inter vivos trust of which a settlor died resident in New Zealand (whether or not they died in the income year).
When subsection (3) applies
(2) Subsection (3) applies for an income year to a resident foreign trustee of a foreign trust to which sections 22(2)(fb) and (m), and 59B of the Tax Administration Act 1994 applies.
When knowledge offence committed
(3) Subsection (1) does not apply if the trustee—
(a) is not a qualifying resident foreign trustee for the income year; and
(b) is convicted of an offence under section 143A of the Tax Administration Act 1994; and
(c) has committed the offence in connection with information relating to the income year.
Exception
(4) Subsection (3) does not apply to an offence under section 143A(1)(b) if the information is supplied to the Commissioner after the conviction is entered.
Defined in this Act: Commissioner, exempt income, foreign-sourced amount, foreign trust, income year, New Zealand resident, qualifying resident foreign trustee, resident foreign trustee, settlor, superannuation fund, transitional resident, trustee,
Compare: 2004 No 35 s HH 4(3B), (3BB), (3BC)
Settlors and their liabilities
HC 27 Who is a settlor?
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When this section applies
(1) This section applies for the purposes of—
(a) the trust rules; and
(b) the consolidation rules; and
(c) section CW 59 (New Zealand companies operating in Niue); and
(d) section YA 1 (Definitions), the definition of settlement; and
(e) subpart YB (Associated persons and nominees).
Meaning of settlor
(2) A settlor of a trust is a person who, at any time,—
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(a) transfers value—
(i) to the trust; or
(ii) for the benefit of the trust; or
(iii) on terms of the trust:
(b) provides financial assistance to the trust or for the benefit of the trust with an obligation to pay on demand, and the right to demand is not exercised or is deferred:
(c) is treated as a settlor under section HC 28.
Trusts for retirement benefits for employees
(3) Despite subsection (2), this section does not apply for the purposes of the trust rules to a transfer of value that a person resident in New Zealand makes as an employer for the benefit of 1 or more employees, if the trust—
(a) is established or created mainly to provide retirement benefits to natural persons; and
(b) is neither a foreign superannuation scheme nor a superannuation fund.
Indirect settlement
(4) A person may make the transfer or provision in subsection (2) directly or indirectly, or by 1 transaction or a number of transactions, whether connected or otherwise.
Nil value of beneficiary relationship
(5) The fact that a person is, or will become, a beneficiary of a trust does not constitute the giving or receiving of value.
Defined in this Act: consolidation rules, employee, employer, foreign superannuation scheme, pay, resident in New Zealand, settlor, superannuation fund, transfer of value, trust rules,
Compare: 2004 No 35 ss HH 1(10), OB 1 settlor
HC 28 Activities treated as those of settlor
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When this section applies
(1) This section applies for the purposes of the trust rules to describe certain activities of a person that result in the person being treated as a settlor.
Avoidance
(2) A person is treated as a settlor if, in relation to a trust,—
(a) they act, refrain from acting, or enter into a transaction or a series of transactions; and
(b) what is done or not done has the effect of defeating the intent and application of the trust rules.
Shareholders in controlled foreign companies
(3) A person is treated as a settlor of a trust if a controlled foreign company (CFC) settles an amount on a trust, and the person has a control interest of 10% or more in the CFC.
Shareholders in companies
(4) A person is treated as a settlor of a trust if—
(a) a company settles an amount on the trust; and
(b) the company would have been a CFC at the date of settlement if it had been a foreign company at the time; and
(c) the person would be treated as having a control interest of 10% or more in the company, if the company had been a foreign company.
Second trusts
(5) A person is treated as a settlor of a trust (the sub-trust) if—
(a) they are a settlor of a trust (the head-trust); and
(b) a trustee of the head-trust settles an amount on the subtrust, or makes a distribution to, or on terms of the subtrust.
Control over trustee or settlor
(6) A person is treated as a settlor of a trust if—
(a) they acquire, directly or indirectly, rights or powers in relation to a trustee or a settlor of the trust; and
(b) the acquisition has the purpose or effect of enabling them to require the trustee to treat them, or a nominee, as a beneficiary of the trust.
Defined in this Act: amount, business, CFC, company, control interest, distribution, foreign company, nominee, settlement, settlor, shareholder, trust rules, trustee,
Compare: 2004 No 35 ss HH 1(1)–(4), (8), (10), OB 1 settlor
HC 29 Settlors’ liability to income tax
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When this section applies
(1) This section applies to a person who makes a settlement to or for the benefit of a trust after 17 December 1987, and the settlor is resident in New Zealand in an income year. It applies whether or not they settled property on the trust on or before that date. Subsections (3) and (4) override this subsection.
Liable as agent
(2) If a trustee of the trust derives trustee income in the income year, the settlor is liable as agent of the trustee for income tax payable by the trustee. For a trust with more than 1 settlor, the liability is joint and several. However, this subsection does not apply to income tax that the trustee is liable for as agent under section HC 32.
Exclusion: resident trustee
(3) This section does not apply if the trust has a resident trustee for the full income year or, if the first settlement on the terms of the trust is made during the income year, from the day on which the settlement is made to the end of the income year.
Exclusion: trust types
(4) This section does not apply to the settlor of—
(a) a charitable trust; or
(b) a superannuation fund; or
(c) a trust to the extent to which trustee income is derived from the settlor’s remitting an amount under a financial arrangement to which section EW 31 or EZ 38 (which relate to base price adjustments) applies.
Exclusion: settlor not resident at time of settlement
(5) This section does not apply if the settlor is a natural person who, unless they make an election under section HC 33,—
(a) is not resident in New Zealand at the time of any settlement on the trust; and
(b) had not after 17 December 1987 previously been resident in New Zealand.
Exclusion: other settlor more appropriately liable
(6) This section does not apply to the extent to which the settlor establishes, through full disclosure to the Commissioner of the settlements made, that another person who has settled property on the trust should be liable, having regard to the respective settlements made.
Limited effect of disclosure
(7) Subsection (6) does not apply to determine whether the tax obligations in relation to the trustee’s income tax liability are met for the purposes of section HC 10(1)(a)(ii) and meeting the requirements for a complying trust.
Defined in this Act: agent, amount, charitable trust, Commissioner, complying trust, financial arrangement, income tax, income tax liability, income year, pay, resident in New Zealand, settlement, settlor, superannuation fund, trustee, trustee income,
Compare: 2004 No 35 s HH 4(4), (5)
Treatment of transition situations
HC 30 Treatment of foreign trusts when settlor becomes resident
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What this section applies to
(1) This section applies for the purposes of section HC 15 and the definition of taxable distribution when—
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(a) a settlor of a trust is a natural person who on a day (the transition date)—
(i) becomes resident in New Zealand and is not a transitional resident:
(ii) stops being a transitional resident and continues to be a New Zealand resident; and
(b) the trust would be a foreign trust in relation to a distribution if a distribution were made immediately before the settlor became resident.
Choosing to satisfy tax liability
(2) A settlor, trustee, or beneficiary of the trust may choose to satisfy the income tax liability of the trustee under section HC 33. They must make the election by the election expiry date.
Tax consequences of making election
(3) If an election under subsection (2) is made, the trust is treated as follows:
(a) as a foreign trust to the extent to which the distribution consists of an amount derived by the trustee before the date of the election:
(b) as a complying trust to the extent to which the distribution consists of an amount derived by the trustee on or after the date on which the election is made, if the requirements of section HC 10(1)(a) are met for the trustee income derived after the date of the election:
(c) as a non-complying trust if the election is made but the requirements of section HC 10(1)(a) are not met, for any distribution not within paragraph (a).
Tax consequences when no election made
(4) If an election under subsection (2) is not made, the trust is treated as follows:
(a) as a foreign trust to the extent to which the distribution consists of an amount derived by the trustee before the date of the election:
(b) as a non-complying trust to the extent to which a distribution consists of an amount derived by the trustee on or after the election expiry date.
Election expiry date
(5) In this section, the election expiry date is the day that is the first anniversary of the transition date.
Calculating income derived before election or election expiry date
(6) For the purposes of subsections (3) and (4), the amount derived in the part of the income year before the person makes the election, or before the election expiry date, as applicable, is at the option of the person either—
(a) the amount actually derived in the part year; or
(b) an amount calculated using the formula—
Defined in this Act: amount, complying trust, distribution, election expiry date, foreign trust, income tax liability, income year, non-complying trust, resident in New Zealand, settlor, taxable distribution, transitional resident, trustee,
Compare: 2004 No 35 s HH 2
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Valuation of property, trading stock, and financial arrangements
HC 31 When existing trusts come into tax base
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When this section applies
(1) This section applies if, through a change in circumstances, an amount derived by a trustee of a trust on a day in an income year is assessable income when it would not have been assessable income had it been derived before that day. Examples of a change in circumstances are—
(a) a non-resident settlor becomes resident in New Zealand, section HC 30:
(b) a charitable trust loses its charitable status, section HC 13.
Person able to make choice
(2) The choice given in subsections (3) and (4) is to be made by the person who is liable to satisfy the income tax liability of the trustee.
Establishing cost of trust property
(3) For the purposes of this Act, the cost of premises, plant, equipment, and trading stock of the trust at the date of the change in circumstances is either—
(a) the historical cost of the property or trading stock less accumulated depreciation loss, or other value, no higher than market value, that the trustee used at that date for income tax purposes in a country or territory in which the trustee is liable to pay income tax on trustee income; or
(b) the value that would be used at that date under this Act, calculated as if the trustee income derived by the trustee had always been assessable income.
Consideration for financial arrangements
(4) For the purposes of this Act, the consideration for a financial arrangement of the trust at the date of the change in circumstances is either—
(a) the market value of the financial arrangement on that date; or
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(b) the value calculated using the formula—
consideration paid to person + expenditure − consideration paid by person − income.
Definition of items in formula
(5) In the formula,—
(a) consideration paid to person is the consideration that is paid to the person before the date:
(b) expenditure is the expenditure that would have been incurred under the financial arrangements rules before the date:
(c) consideration paid by person is the consideration that is paid by the person before the date:
(d) income is the income that would have been derived under the financial arrangements rules before the date.
Non-resident passive income
(6) For the purposes of subsections (1) and (3)(b), assessable income does not include an amount derived only as non-resident passive income.
Defined in this Act: amount, assessable income, business, charitable trust, consideration, depreciation loss, financial arrangement, financial arrangements rules, income, income tax, income tax liability, income year, non-resident, non-resident passive income, pay, resident in New Zealand, settlor, trading stock, trustee, trustee income,
Compare: 2004 No 35 s HH 5
Rate and payment of income tax
HC 32 Liability of trustee as agent
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When this section applies
(1) This section applies in an income year when a beneficiary of a trust derives an amount of beneficiary income or a taxable distribution.
Exclusion
(2) Subsection (1) does not apply to a beneficiary of a community trust.
Agency
(3) In their capacity as agent, the trustee must satisfy the income tax liability of the beneficiary for their beneficiary income and taxable distributions derived.
Relationship to other provisions
(4) Section HD 4(b) (Treatment of principals) overrides this section.
Defined in this Act: agent, amount, beneficiary income, community trust, income tax liability, income year, taxable distribution, trustee,
Compare: 2004 No 35 ss HH 3(2), HK 3(1A)
HC 33 Choosing to satisfy income tax liability of trustee
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Election to satisfy tax liability
(1) A person who is a trustee, settlor, or beneficiary of a trust may choose to satisfy the income tax liability of the trustee of the trust.
Liability of person making election
(2) The person making the election is liable for the income tax payable by the trustee, other than income tax that the trustee is liable for as agent.
Application of election
(3) The election under subsection (1) may apply either for an income year or from the date on which it is made. It then applies for all following income years.
Time of providing election
(4) The person must notify the Commissioner of an election under subsection (1) within the time allowed for filing a return of income for the income year. If section HC 30 applies, they must give notification by the election expiry date.
Defined in this Act: agent, Commissioner, election expiry date, income tax, income tax liability, income year, notify, pay, return of income, settlor, trustee,
Compare: 2004 No 35 s HH 4(7)
HC 34 Taxable distributions from non-complying trusts
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Rate of tax
(1) Income tax is imposed on a taxable distribution derived by a person in an income year from a non-complying trust under section BF 1(b) (Other obligations) at the basic rate set out in schedule 1, part A, clause 4 (Basic tax rates: income tax, ESCT, RWT, and attributed fringe benefits).
Due date
(2) The income tax is payable on the person’s payment date for terminal tax under section RA 13 (Payment dates for terminal tax) for the corresponding tax year.
Defined in this Act: income tax, income year, non-complying trust, pay, taxable distribution, terminal tax,
Compare: 2004 No 35 s HH 3(4)
HC 35 Beneficiary income of minors
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When this section applies
(1) This section applies when a person who is a minor derives an amount of beneficiary income from a trust in an income year. Subsection (4) and sections HC 36 and HC 37 override this subsection.
Treatment of amount derived
(2) The amount is—
(a) excluded income of the minor under section CX 58 (Amounts derived by minors from trusts):
(b) treated as trustee income for the purposes of determining the rate of tax that applies, who pays the relevant tax, and who provides the return of income.
Meaning of minor
(3) For the purposes of this section, and sections HC 36, HC 37, LE 4, and LF 2 (which relate to the treatment of tax credits of beneficiary minors), a minor is a natural person resident in New Zealand who is under 16 years of age on the trust’s balance date for the income year.
Exclusions
(4) This section does not apply—
(a) if the total amount of beneficiary income that the minor derives from the trust in the income year is less than $1,000; or
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(b) to beneficiary income derived—
(i) from a trust settled in the way described in section HC 36:
(ii) from a testamentary trust described in section HC 37:
(iii) from a Maori authority:
(iv) directly from a group investment fund:
(v) by a person for whom a child disability allowance is paid under the Social Security Act 1964.
Relationship with other provisions
(5) This section overrides sections HC 5, HC 18 to HC 20, HC 22, HC 23, and HC 32.
Defined in this Act: amount, beneficiary income, excluded income, group investment fund, income year, Maori authority, minor, pay, resident in New Zealand, return of income, settlement, trustee, trustee income,
Compare: 2004 No 35 ss HH 3A–HH 3C, HH 3E, HH 3F(2), (2A)
HC 36 Trusts and minor beneficiary rule
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Trusts excluded from application of minor beneficiary rule
(1) Section HC 35(2) does not apply to an amount of beneficiary income derived by a minor if all settlements on the trust were made by—
(a) a person who is neither a relative or a guardian of the minor, nor a person associated with a relative or a guardian; or
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(b) a person who is a relative, guardian, or a person associated with a relative or guardian, if—
(i) the settlor is acting as agent of the minor and has received the property from a person other than a relative, guardian, or their associate:
(ii) the settlor is required by a court order to pay damages or compensation to the minor:
(iii) the minor is a protected person, as defined in section 2 of the Domestic Violence Act 1995, in relation to a protection order, and the settlement, whether made jointly with another person or not, is made before the protection order is made or during the time the order is in force.
When some settlements do not meet requirements
(2) Subsection (3) applies when more than 1 settlement is made on a trust, and 1 or more but not all settlements meet the requirements of subsection (1) or section HC 37(1).
Small additional settlements permitted
(3) Section HC 35(2) does not apply to an amount of beneficiary income derived by a minor if the only settlements that do not meet the requirements are made through—
(a) the disposal for less than market value of property whose total value is no more than $5,000 at the end of the trust’s income year, valuing each settlement at the date of settlement; or
(b) providing financial assistance for less than market value in the form of a loan whose total value is no more than $1,000 on any day in the trust’s income year.
Exclusion if significant services provided to trust
(4) Subsection (3) does not apply if services are provided to the trust by a relative, guardian, or associated person, unless those services are incidental to the operation of the trust. Examples of incidental services are bookkeeping, accounting, or trustee services.
Some definitions
(5) In this section,—
associated person or person associated does not include a person associated only under sections YB 9 to YB 11 (which relate to relatives who are treated as being associated persons)
financial assistance may include assistance through a loan, guarantee, security, or in another way, and financial assistance is treated as having been provided to, or for the benefit of, a trust for less than market value if—
(a) the assistance is provided at below market rates; or
(b) an amount payable for the assistance is payable on demand and the right to demand is not exercised or is deferred
guardian has the meaning set out in section 15 of the Care of Children Act 2004, and persons are connected by guardianship if 1 is the guardian of the other, but guardian does not include a guardian appointed under—
(a) section 110(1)(a) to (d) of the Children, Young Persons, and their Families Act 1989; or
(b) section 31 of the Care of Children Act 2004; or
(c) section 53 of the Public Trust Office Act 1957 by a court order; or
(d) section 7(4) of the Adoption Act 1955
relative means a person referred to in paragraph (c) of the definition of relative in section YA 1 (Definitions) extended to include being in a marriage, civil union, or de facto relationship with a person connected to the other through adoption, as described in paragraph (c)(iv), or guardianship.
Defined in this Act: agent, amount, associated person, beneficiary income, financial assistance, guardian, income year, loan, minor, pay, relative, settlement, settlor,
Compare: 2004 No 35 ss HH 3C(1)(a)–(d), (2), (3), HH 3D, HH 3F(1), (2A)–(4)
HC 37 Testamentary trusts and minor beneficiary rule
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Testamentary trusts not subject to minor beneficiary rule
(1) Section HC 35(2) does not apply to an amount of beneficiary income derived by a minor if all the settlements on the trust were made under a will, codicil, intestacy, or court variation and—
(a) the minor is alive within 12 months of the date of the settlor’s death; or
(b) the minor has a brother, sister, half-brother, or half-sister alive within 12 months of the date of the settlor’s death.
Small additional settlements permitted
(2) Section HC 36(3) may apply to extend the application of this exemption.
Defined in this Act: amount, beneficiary income, minor, settlement, settlor,
Compare: 2004 No 35 s HH 3C(1)(e)
Subpart HD—Agents
Introductory provisions
HD 1 What this subpart does
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When this subpart applies
(1) This subpart sets out the circumstances in which a person is treated for the purposes of this Act and the Tax Administration Act 1994 as an agent of another person in relation to the tax obligations of that other person.
Provisions relating to agents
(2) The following provisions in other subparts of this Act set up certain agency relationships for income tax purposes, or provide certain tax consequences and requirements of an agency relationship:
(a) section EY 49(5) (Non-resident life insurer becoming resident):
(b) sections FM 34(2) (Nominated companies):
(c) sections FN 6(3) (Nominated companies):
(d) section HA 8 (Shareholders’ personal liability):
(e) section HC 29(3) (Settlors’ liability to income tax):
(f) section HC 32 (Liability of trustee as agent):
(g) section LB 2 (Tax credits for provisional tax payments):
(h) section RA 9 (Treatment of amounts withheld as received):
(i) sections RE 4, RE 5, and RE 7 to RE 9 (which relate to requirements for agents or trustees to pay RWT):
(j) section RE 22 (When payment treated as non-resident passive income):
(k) section RF 4 (Non-resident passive income received by agents and others):
(l) section YA 1 (Definitions), the definition of offered or entered into in New Zealand.
Defined in this Act: agent, income tax, offered or entered into in New Zealand, tax,
Compare: 2004 No 35 s HK 1(1)
HD 2 Joint liability of principal and agent for tax obligations
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A principal and an agent are jointly and severally liable for the tax obligations relating to the agency, and the Commissioner may issue an assessment for the same tax to both an agent and their principal. The liability of 1 remains despite an assessment of the other.
Defined in this Act: agent, assessment, Commissioner, tax,
Compare: 2004 No 35 ss HK 3(2), HK 7(1)
HD 3 Agents’ duties and liabilities
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When this section applies
(1) This section applies for the purposes of sections HD 8 to HD 27 in relation to all income derived by a principal through a business carried on in New Zealand by an agent.
Assessments, returns, and payment of tax
(2) The agent must—
(a) make the assessments that their principal is required to make; and
(b) provide all returns required of their principal under the Tax Administration Act 1994; and
(c) satisfy their principal’s income tax liability.
Joint and several liability
(3) If 2 or more persons are liable as agents in relation to the same tax, the liability is joint and several.
Agent as separate person
(4) The agent is treated in that capacity as a separate person, and may claim in relation to the agency income only those tax credits or exemptions to which the principal is entitled.
Defined in this Act: agent, assessment, business, income, income tax liability, New Zealand, return of income, tax, tax credit,
Compare: 2004 No 35 ss HK 1, HK 3(3), HK 7(1)
HD 4 Treatment of principals
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Despite section HD 3,—
(a) a principal remains liable for their tax obligations, and is not released from them merely through the existence of the agency; and
(b) if the Commissioner agrees, the principal and the agent may decide that the principal is to undertake the duties set out in section HD 3(2).
Defined in this Act: agent, Commissioner, tax,
Compare: 2004 No 35 s HK 3(1), (1A)
HD 5 Matters between principals and agents
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Assessment as authority
(1) The Commissioner’s assessment is, as between principal and agent, sufficient authority for the payment of tax by the agent.
Recovering payment
(2) On paying tax, an agent is entitled to be reimbursed by the principal, and may—
(a) recover the amount from the principal; or
(b) subtract the amount from money held by the agent that belongs or is payable to the principal.
Retaining funds
(3) For the purposes of paying tax in relation to which an agent is or may become liable, the agent may retain from money that belongs or is payable to the principal an amount that is reasonably sufficient to pay the tax. This subsection applies at a time in an income year in which the tax is due or in a later income year.
Hardship
(4) The Commissioner may set a new due date for an agent to pay a tax liability if—
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(a) the agent—
(i) is unable to pay the tax liability out of money that the agent holds that belongs to the principal; and
(ii) has not paid away an amount after being assessed in relation to the agency; and
(b) the enforcement of payment would cause hardship to the agent.
Defined in this Act: agent, amount, assessment, Commissioner, income year, pay, tax,
Compare: 2004 No 35 ss HK 4–HK 6, HK 7(2)
HD 6 When relationship effectively that of principal and agent
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If a person who is carrying on business in New Zealand is sufficiently under the control of another person in business, whether in New Zealand or elsewhere, so that the relationship between them is effectively that of principal and agent, the Commissioner may treat the first business as the principal’s business carried on by the agent on behalf of the principal.
Defined in this Act: agent, business, Commissioner, control, New Zealand,
Compare: 2004 No 35 s HK 8
HD 7 Rate and amount of tax
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The rate of tax used to calculate an agent’s income tax liability is determined by reference to the taxable income of the principal. The amount of income tax payable is the amount determined by the amount of agency income as a proportion of the taxable income of the principal.
Defined in this Act: agent, amount, income tax, income tax liability, pay, taxable income,
Compare: 2004 No 35 s HK 2
Particular cases
HD 8 Circumstances giving rise to agency
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For the purposes of this Act and the Tax Administration Act 1994, a person is treated as an agent in relation to the income of another person to the extent described in the circumstances set out in sections HD 9 to HD 15.
HD 9 Guardians
HD 10 Mortgagees in possession
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A person (person A) is treated as an agent of another person (person B) if, as mortgagee in possession of land or other property, person A derives income from the land or property on behalf or for the benefit of person B as mortgagor.
Defined in this Act: agent, income, land,
Compare: 2004 No 35 s HK 10
HD 11 Nominated companies
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Consolidated groups
(1) A nominated company is treated under section FM 34(2) (Nominated companies) as the agent of a consolidated group, and of each company that is at the time a member of that group.
Imputation groups
(2) A nominated company is treated under section FN 6(3) (Nominated companies) as the agent of an imputation group, and of each company that is at the time a member of that group.
Defined in this Act: agent, company, consolidated group, imputation group, nominated company,
Compare: 2004 No 35 ss FD 6(1), FDA 5(3)
HD 12 Trusts
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Beneficiary income and taxable distributions
(1) If a beneficiary of a trust, other than a beneficiary of a community trust, derives an amount of beneficiary income or taxable distribution in a tax year, the trustee of the trust is treated under section HC 32 (Liability of trustee as agent) as the agent of the beneficiary.
Settlors
(2) If a trustee of a trust, other than a charitable trust, derives trustee income in a tax year, and a settlor of the trust is resident in New Zealand in the tax year, the settlor is treated under section HC 29 (Settlors’ liability to income tax) as the agent of the trustee for income tax payable by the trustee (but not for income tax that the trustee is liable for as agent).
Defined in this Act: agent, amount, beneficiary income, charitable trust, community trust, income tax, pay, resident in New Zealand, settlor, tax year, taxable distribution, trustee, trustee income,
Compare: 2004 No 35 ss HH 3(2), HH 3A(2), HH 4(4)
HD 13 Unit trusts
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A trustee of a unit trust is treated as an agent of the unit trust in relation to income derived by the unit trust.
Defined in this Act: agent, income, trustee, unit trust,
Compare: 2004 No 35 s HE 1
HD 14 Companies issuing debentures
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Agency
(1) A company is treated as an agent of a person if—
(a) the company has issued a debenture; and
(b) the person, as a debenture holder, derives income from the debenture.
Excluded debentures
(2) Subsection (1) does not apply to a debenture if—
(a) it is a profit-related debenture to which section FA 2 (Recharacterisation of certain debentures) applies; or
(b) it is issued to a New Zealand resident, and the company provides the Commissioner with a certified list containing particulars of the debentures, the name and details of each person to whom a debenture has been issued, and details of the interest payments before an assessment is made in a tax year of the debenture holder.
Liability of persons named
(3) A person named as a debenture holder in the list referred to in subsection (2)(b) is liable for income tax on income derived from the debenture. Subsection (4) overrides this subsection.
Continuing liability until notification
(4) Despite section BB 2 (Main obligations), if a debenture holder disposes of a debenture, they remain liable for income tax unless they notify the Commissioner of the disposal before an assessment is made in a tax year that takes into account the income derived from the debentures. On notification, the subsequent holder is liable in relation to the debentures, and the liability of the transferor is ended.
Recovery of tax paid
(5) If a person who formerly held a debenture pays income tax on taxable income that takes into account income derived by a subsequent holder, the income tax is treated as paid on behalf of the subsequent holder to the extent of the liability of the subsequent holder, and the person may recover that amount from them.
Matters not taken into account
(6) For the purposes of subsection (1), it does not matter whether the debenture is charged on the company’s property, nor whether a debenture holder is an absentee.
Defined in this Act: absentee, agent, assessment, Commissioner, company, debenture, debenture holder, income, income tax, interest, New Zealand resident, notify, pay, profit-related debenture, tax, tax year, taxable income,
Compare: 2004 No 35 ss HK 12, HK 13
HD 15 Asset stripping of companies
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When this section applies
(1) This section applies when—
(a) an arrangement has been entered into in relation to a company; and
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(b) an effect of the arrangement is that the company cannot meet a tax liability (the tax obligation) whether existing at the time of the arrangement or arising after that time, for—
(i) income tax:
(ii) a civil penalty, as defined in section 3(1) of the Tax Administration Act 1994:
(iii) an amount payable under Part 7 of that Act; and
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(c) it is reasonable to conclude that—
(i) a purpose of the arrangement is to have the effect described in paragraph (b); and
(ii) if a director of the company at the time of the arrangement made reasonable inquiries, they could have anticipated at the time that the income tax liability would, or would likely, be required to be met.
When this section does not apply
(2) This section does not apply to an arrangement if—
(a) the Commissioner is a party to the arrangement:
(b) the tax obligation is no more than an amount of income tax that arises as a direct result of the performance of the arrangement, and that obligation has been met:
(c) at the time of the arrangement, the company was under statutory management under the Reserve Bank of New Zealand Act 1989 or the Corporations (Investigation and Management) Act 1989.
Director’s liability
(3) All persons who are directors of the company at the time the arrangement is entered into are treated as agents of the company in relation to the tax obligation, and the liability is joint and several. But a director has no liability if—
(a) they do not derive a benefit from the arrangement, and at the first reasonable opportunity after becoming aware of the arrangement, or the aspects of the arrangement that cause this section to apply to it, they record formally their dissent in relation to the arrangement with the company and with the Commissioner; or
(b) they were not at the relevant time involved in the executive management of the company and had no knowledge of the arrangement, or the aspects of the arrangement that cause this section to apply to it.
Shareholder’s liability
(4) A person who is a controlling shareholder or an interested shareholder at the time of the arrangement is treated as an agent of the company in relation to the tax obligation other than penalties and interest but, despite section HD 3(2), the liability is limited to the greater of—
(a) the market value of the person’s direct and indirect shareholding in the company at the time of the arrangement; and
(b) the value of the benefit that the person derives from the arrangement.
Shareholder’s liability for penalties and interest
(5) A person who is a controlling shareholder or an interested shareholder at the time of the arrangement is treated as an agent of the company in relation to penalties and interest in proportion to their liability for the tax obligation under subsection (4).
Company liquidations
(6) In order to give effect to this section, if a company has been liquidated, the Commissioner may at any time after the liquidation make an assessment of a company for an income tax liability of the company as if it had not been liquidated. The time bar applies, but this subsection overrides other provisions in this Act and the Tax Administration Act 1994.
Agents for purposes of notification or objection procedures
(7) In making an assessment under subsection (6), the Commissioner must nominate 1 or more persons as having the tax obligation set out in the assessment. The nominated person or persons are treated as agents of the company in relation to any notification or objection procedure concerning the assessment.
When liability does not arise
(8) No liability arises under this section for a tax year in relation to which—
(a) a company has provided returns within the time allowed by section 37 of the Tax Administration Act 1994 for providing returns for the tax year in which the company is liquidated; and
(b) the Commissioner has not issued a notice of assessment of the company for the tax year before the end of 4 years following the end of the tax year in which the company is liquidated.
Some definitions
(9) In this section,—
controlling shareholder, for a company, means—
(a) a person whose voting interest or market value interest in the company at the time of the arrangement, together with any interests of an associated person, is 50% or more; and
(b) if the person or associated person is a company, the voting interest or market value interest of the person or associated person is calculated as if they were not a company and as if sections YC 4 (Look-through rule for corporate shareholders) and YC 6 (Disregarding certain securities) did not apply
director means,—
(a) a person who occupies the position of director, whether or not the position has that title:
(b) for an entity that is treated as a company under this Act, a person who acts in the same or similar way as a director would if the entity were a company incorporated in New Zealand under the Companies Act 1993
interested shareholder means a person who, at the time the arrangement is entered into, has a voting interest or market value interest in the company, calculated in either case if the person is a company as if the person were not a company, and because of the size of the benefit that the person derives from the arrangement, it is reasonable to conclude that the person is a party to the arrangement
penalties and interest means a civil penalty or amount payable under Part 7 of the Tax Administration Act 1994 that is part of the tax obligation.
Defined in this Act: agent, amount, arrangement, assessment, associated person, Commissioner, company, controlling shareholder, director, income tax, income tax liability, interested shareholder, liquidation, market value, market value interest, New Zealand, notice, notify, penalties and interest, return of income, tax, tax year, time bar, voting interest,
Compare: 2004 No 35 s HK 11
HD 16 Non-resident general insurers
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When this section applies
(1) This section applies when an insurer derives income under section CR 3 (Income of non-resident general insurer) to determine who is liable to provide a return of income and pay income tax on the income.
Insurer
(2) To the extent to which the insurer provides the return and pays the income tax, no other person described in this section is liable to do so.
Person acting on insurer’s behalf
(3) To the extent to which a person on behalf of the insurer, including a broker or other agent who pays a premium on behalf of another person, provides the return and pays the income tax, no agent described in any of subsections (4) to (6) is liable to do so.
Agent paying premium or providing funds
(4) The person liable in the first place as an agent is—
(a) a person, including a broker or agent, who pays the premium to the insurer or to some other person not carrying on a business in New Zealand through a fixed establishment in New Zealand; or
(b) a person described in subsection (7)(b).
Person paying premium
(5) The person liable in the second place as agent is a person who pays the premium, whether or not through a broker or agent.
Insured person
(6) The person liable in the third place as agent is the insured person.
Bank or building society
(7) If a premium is paid by a registered bank, as defined in section 2 of the Reserve Bank of New Zealand Act 1989, or a building society on behalf of a person to the insurer or to some other person not carrying on a business in New Zealand through a fixed establishment in New Zealand,—
(a) the bank or building society is not an agent of the insurer; and
(b) the person who provides the bank or building society with the funds from which the premium is paid is an agent of the insurer.
Defined in this Act: agent, building society, business, fixed establishment, income, income tax, insured person, insurer, New Zealand, pay, premium, registered bank, return of income,
Compare: 2004 No 35 s FC 16
HD 17 Agent paying premiums to residents of Switzerland
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When this section applies
(1) This section applies when—
(a) an insurer derives income under section CR 3 (Income of non-resident general insurer); and
(b) an agent of the insurer under section HD 16 pays the premium to an insurer or to some other person not carrying on a business in New Zealand through a fixed establishment in New Zealand; and
(c) the insurer or other person is treated as being resident in Switzerland for the purposes of a double tax agreement between the government of New Zealand and the government of Switzerland.
Disclosure
(2) The agent must disclose details of the payment of the premium to the Commissioner in the manner, if any, required by the Commissioner.
Defined in this Act: agent, business, Commissioner, double tax agreement, fixed establishment, income, insurer, New Zealand, pay, premium,
Compare: 2004 No 35 s FC 17
Absentees
HD 18 Agency in relation to absentees generally
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What sections HD 19 to HD 25 do
(1) Sections HD 19 to HD 25 apply for the purposes of this Act to treat a person as an agent in relation to the income of an absentee when certain conditions are met and to the extent set out in the circumstances described in those sections. The person must meet the tax obligations set out in section HD 3 in relation to the income to which the agency applies.
Meaning of absentee
(2) In this subpart, absentee means—
(a) a natural person who is for the time being out of New Zealand:
(b) a foreign company, unless it has a fixed and permanent place of business in New Zealand at which it carries on business in its own name:
(c) a foreign company when the Commissioner declares that it is an absentee for the purposes of this Act by giving notice to the company, or its agent or representative in New Zealand.
Defined in this Act: absentee, agent, business, Commissioner, company, foreign company, income, New Zealand, notice, tax,
Compare: 2004 No 35 ss HK 1>, HK 16, OB 1 absentee
HD 19 Persons receiving absentees’ income
HD 20 Persons carrying on business for or with absentees
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A person is treated as an agent if they carry on in New Zealand—
(a) a business for an absentee, whether or not the income is received by the agent:
(b) a business in partnership with an absentee, in relation to the amount that would be the taxable income of the absentee derived from the business in a tax year.
Defined in this Act: absentee, agent, amount, business, income, New Zealand, tax year, taxable income,
Compare: 2004 No 35 ss HK 16, HK 17
HD 21 Companies
-
Paying dividends
(1) A company incorporated in New Zealand is an agent of an absentee to whom it pays or credits dividends as a shareholder, or as a holder of a debenture to which section FA 2 (Recharacterisation of certain debentures) applies.
Relationship with NRWT rules
(2) section RF 2(3) and (4) (Non-resident passive income) overrides this section.
Defined in this Act: absentee, agent, company, debenture, debenture holder, dividend, New Zealand, NRWT rules, pay, shareholder,
Compare: 2004 No 35 s HK 21
HD 22 Banking companies
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Receiving deposit in course of business activities
(1) A person, including a banking or other company, or a local authority or public authority, is treated as an agent if in the course of their business activities, they receive or hold money as a deposit and pay interest to an absentee on the money deposited by the absentee.
Threshold
(2) This section applies only if the interest paid on the deposit is more than $100.
Relationship with NRWT rules
(3) section RF 2(3) and (4) (Non-resident passive income) overrides this section.
Defined in this Act: absentee, agent, banking company, business, company, interest, local authority, NRWT rules, pay, public authority,
Compare: 2004 No 35 s HK 23
HD 23 Trustees of group investment funds
HD 24 Shipping businesses
HD 25 Persons remitting amounts outside New Zealand
-
Absentee landlords, mortgagors, or creditors
(1) A person is treated as an agent if they are a tenant, mortgagor, or other person who remits an amount from New Zealand to an absentee who is their landlord, mortgagee, or creditor, when the amount is income derived by the absentee. But this subsection applies only after the Commissioner has notified the person that they are accountable as the absentee’s agent.
When fund outside New Zealand
(2) If the amount referred to in subsection (1) is paid by or on account of a person resident in New Zealand from a fund outside New Zealand, it is treated as an amount to which this section applies.
Defined in this Act: absentee, agent, amount, Commissioner, income, New Zealand, notify, pay, resident in New Zealand,
Compare: 2004 No 35 s HK 19
Non-residents
HD 26 Agency in relation to non-residents generally
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What sections HD 27 and HD 28 do
(1) sections HD 27 and HD 28 apply for the purposes of this Act to treat a person as an agent in relation to the income of a non-resident taxpayer when certain conditions are met. The person must meet the tax obligations set out in section HD 3 in relation to the income to which the agency applies.
Meaning of non-resident taxpayer
(2) In sections HD 27 and HD 28, a non-resident taxpayer means a person who—
(a) is liable for income tax on employment income derived in New Zealand; and
(b) has no fixed and permanent place to live in New Zealand.
Defined in this Act: agent, employment income, income, income tax, New Zealand, non-resident, non-resident taxpayer, tax,
Compare: 2004 No 35 s HK 24(1), (4)
HD 27 Employers
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Employment of non-resident persons
(1) An employer who employs a non-resident person with an income tax liability is treated as an agent in relation to the employment income derived in New Zealand by the non-resident person. If the person does not meet their income tax liability, the employer must withhold the amount of income tax payable from their employment income and pay it to the Commissioner on the person’s behalf.
Employment by non-resident traders
(2) A non-resident trader who employs a person in New Zealand is treated as an agent in relation to the person’s employment income. If the trader has an agent in New Zealand, the agent must meet the trader’s obligations under section HD 3.
Defined in this Act: agent, amount, Commissioner, employer, employment income, income tax, income tax liability, New Zealand, non-resident, non-resident trader, pay,
Compare: 2004 No 35 ss HK 24(2), HK 25
HD 28 Government pensions and payments under superannuation schemes
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If a non-resident person who has an income tax liability derives a pension or annuity from the government of New Zealand or under an unregistered superannuation scheme established in New Zealand, the income tax payable must be withheld from 1 or more instalments of the pension or annuity and paid to the Commissioner on the person’s behalf.
Defined in this Act: Commissioner, income tax, income tax liability, New Zealand, non-resident, pay, superannuation scheme,
Compare: 2004 No 35 s HK 24(3)
HD 29 Persons buying goods from overseas
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Who this section applies to
(1) This section applies, in relation to a purchase of goods, to—
(a) a person in New Zealand (person A); and
(b) person A’s principal who is resident in a country or territory outside New Zealand, and not resident in New Zealand (person B).
Treatment of persons buying goods
(2) If person A is instrumental in arranging the purchase of goods from person B, and the goods are either in New Zealand or are to be imported into New Zealand under the contract of purchase, person A and person B and the income are treated as follows:
(a) person B is treated as carrying on a business in New Zealand; and
(b) person A is treated as person B’s agent in relation to the income derived from the business; and
(c) the income from the business is treated as derived from New Zealand.
Exemption
(3) Person A is not liable as agent for the payment of income tax if the Commissioner is satisfied that in corresponding circumstances in a country or territory outside New Zealand, person B, if resident in New Zealand, would not be liable for income tax in that country or territory.
Defined in this Act: agent, business, Commissioner, derived from New Zealand, income, income tax, New Zealand, pay, resident in New Zealand,
Compare: 2004 No 35 s HK 26
Subpart HE—Mutual associations
HE 1 Income and deductions of mutual associations
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Income and allocation
(1) The treatment of amounts derived by mutual associations and from mutual associations is dealt with in—
(a) section CB 33 (Amounts derived by mutual associations); and
(b) section CB 34 (Amounts derived by members from mutual associations).
Deductions and allocation
(2) The treatment of association rebates that a mutual association pays to a member is dealt with in section DV 19 (Association rebates).
Defined in this Act: amount, association, association rebate, member,
HE 2 Classes of mutual transaction
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When mutual transactions arise
(1) In this subpart, and sections CB 33, CB 34, and DV 19 (which relate to income and deductions relating to mutual transactions), a mutual transaction arises when an association—
(a) enters into a transaction with members of the association, or a transaction with members of the association and other persons; and
(b) the association takes the transaction into account in an income year in determining its net income or net loss under section BC 4 (Net income and net loss).
Types of transaction
(2) For the purposes of subsection (1), a transaction between an association and its member includes 1 or more of the following:
(a) the borrowing by the association of money from 1 or more members, to the extent to which the money is applied as a loan to a member:
(b) the lending by the association of money to 1 or more members:
-
(c) for an association that is a statutory producer board other than a body that derives only exempt income—
(i) a levy paid by 1 or more members:
(ii) a produce transaction.
Defined in this Act: association, exempt income, income year, levy, loan, member, mutual transaction, net income, net loss, pay, produce transactions, statutory producer board,
Compare: 2004 No 35 s HF 1(8)
HE 3 Association rebates
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Meaning
(1) In this subpart, and in sections CB 34 and DV 19 (which relate to income and deductions relating to mutual transactions), an association rebate means a payment by an association to a member that is made—
(a) through a distribution of profits of the association:
(b) not later than 6 months after the end of the accounting year of the association in relation to which the payment is made.
Exclusion
(2) An association rebate does not include—
(a) a cash distribution in relation to which the association has made an election under section OB 73(1) or OB 78(1) (which relate to imputation credits of statutory producer boards or co-operative companies); or
(b) a distribution described in section CD 26 (Capital distributions on liquidation or emigration) or CD 33 (Payments corresponding to notional distributions of producer boards and co-operative companies).
Defined in this Act: accounting year, association, association rebate, member, pay,
Compare: 2004 No 35 s HF 1(9) rebate
HE 4 Apportionment when transactions with members and non-members
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When this section applies
(1) This section applies when an association takes into account transactions with both members and non-members.
Apportioning expenditure or loss
(2) In determining its net income or net loss for an income year under section BC 4 (Net income and net loss), the association must apportion the expenditure or loss that it incurs in the income year between those transactions with members, and those with persons who are not members.
Defined in this Act: association, income year, loss, member, net income, net loss,
Compare: 2004 No 35 s HF 1(4)
HE 5 Association rebates paid by shares or credit
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When this section applies
(1) This section applies when an association that enters into mutual transactions with members pays an association rebate to 1 or more members through—
(a) issuing fully or partly paid-up shares in the association; or
(b) providing credit for all or part of an amount unpaid on shares in the association.
Not bonus issue
(2) The amount, or the relevant part of it, is not treated as a bonus issue.
Defined in this Act: amount, association, association rebate, bonus issue, member, mutual transaction, pay, share,
Compare: 2004 No 35 s HF 1(7)
Subpart HF—Maori authorities
Introductory provisions
HF 1 Maori authorities and the Maori authority rules
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Who is a Maori authority?
(1) A Maori authority is a person eligible under section HF 2 who has made an election under section HF 11.
Maori authority rules
(2) The Maori authority rules means the following:
(a) this subpart:
(b) sections GB 42 and GB 43 (which relate to Maori authority credit arrangements to obtain a tax advantage):
(c) sections LA 4, LA 6, LO 1, LO 4, and LO 5 (which relate to Maori authority credits):
(d) subpart OK (Maori authority credit accounts (MACA)):
(e) section RM 22 to RM 27 (which relate to limits on refunds of tax in relation to Maori authorities):
(f) schedule 1, part A, clause 6 (Basic tax rates: income tax, ESCT, RWT, and attributed fringe benefits):
(g) sections 31, 57, 68B, 69B, 70B, 97B, 140CB, 140DB, and 181B of the Tax Administration Act 1994.
Defined in this Act: Maori authority, Maori authority rules,
Compare: 2004 No 35 s OB 1 Maori authority, Maori authority rules
HF 2 Who is eligible to be a Maori authority?
-
What this section does
(1) This section sets out the persons eligible to choose under section HF 11 to become a Maori authority.
Companies
(2) The following are eligible to make an election:
(a) a company established by an order made under Te Ture Whenua Maori Act 1993 (the Maori Land Act 1993):
(b) a company that owns land that is subject to Te Ture Whenua Maori Act 1993 (the Maori Land Act 1993):
-
(c) a company that is—
(i) established by a mandated iwi organisation to be an asset-holding company, as contemplated by section 12(1)(d) of the Maori Fisheries Act 2004:
(ii) recognised by Te Ohu Kai Moana Trustee Limited as a mandated iwi organisation under section 13(1) of the Maori Fisheries Act 2004:
-
(d) a company that,—
(i) on behalf of Maori claimants, receives and manages assets that are transferred by the Crown as part of the settlement of a claim under the Treaty of Waitangi; and
(ii) is contemplated by the deed of settlement of the claim as performing the functions described in subparagraph (i).
Trusts
(3) The following are eligible to make an election:
(a) the trustees of a trust established by an order made under Te Ture Whenua Maori Act 1993 (the Maori Land Act 1993):
(b) the trustees of a trust who own land that is subject to Te Ture Whenua Maori Act 1993 (the Maori Land Act 1993):
(c) the trustees of a trust that is recognised by Te Ohu Kai Moana Trustee Limited as a mandated iwi organisation under section 13(1) of the Maori Fisheries Act 2004:
(d) the trustees of trusts that are established by Te Ohu Kai Moana Trustee Limited as a mandated iwi organisation under sections 79 and 92 of the Maori Fisheries Act 2004:
-
(e) the trustees of a trust who,—
(i) on behalf of Maori claimants, receive and manage assets that are transferred by the Crown as part of the settlement of a claim under the Treaty of Waitangi; and
(ii) are contemplated by the deed of settlement of the claim as performing the functions described in subparagraph (i).
Maori Trustee
(4) The Maori Trustee in the Maori Trustee’s capacity as an agent for an owner of land that is subject to Te Ture Whenua Maori Act 1993 (the Maori Land Act 1993) is eligible to make an election.
Maori Trust Board
(5) A Maori Trust Board, as defined in section 2 of the Maori Trust Boards Act 1955, is eligible to make an election.
Crown Forestry Rental Trust
(6) The Crown Forestry Rental Trust, established by deed in accordance with section 34 of the Crown Forest Assets Act 1989, is eligible to make an election.
Te Ohu Kai Moana Trustee Limited
(7) Te Ohu Kai Moana Trustee Limited, established under section 33 of the Maori Fisheries Act 2004, is eligible to make an election.
Aotearoa Fisheries Limited
(8) Aotearoa Fisheries Limited, established under section 60 of the Maori Fisheries Act 2004, is eligible to make an election.
Defined in this Act: agent, company, Maori authority, trustee,
Compare: 2004 No 35 s HI 2
HF 3 Applying provisions to Maori authorities
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Relationship with provisions generally
(1) A provision in the Maori authority rules overrides any other provision in this Act that may apply to a Maori authority unless a provision specifically provides otherwise.
Relationship with company rules
(2) A Maori authority must not—
(a) amalgamate with a company that is not a Maori authority; or
(b) be part of a consolidated group that includes a company that is not a Maori authority; or
(c) be a co-operative company if a shareholder is not a Maori authority.
Treatment of tax losses
(3) Under section IA 6 (Restrictions on companies grouping tax losses) and subpart IC (Grouping tax losses),—
(a) a Maori authority may subtract from its net income some or all of a tax loss component or loss balance only of another Maori authority:
(b) a Maori authority may use some or all of its tax loss component or loss balance in relation to the net income only of another person who is a Maori authority.
Defined in this Act: amalgamation, company, consolidated group, co-operative company, loss balance, Maori authority, Maori authority rules, net income, shareholder, tax loss component,
Compare: 2004 No 35 s HI 1
Maori authority distributions
HF 4 What constitutes a Maori authority distribution?
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Transfer of value
(1) A transfer of value from a Maori authority to a person is a Maori authority distribution if the cause of the transfer is the membership of the person in the Maori authority.
Distributions
(2) A Maori authority distribution includes an amount advanced to a member by a Maori authority, to the extent to which the advance is not a genuine investment by the authority entered into but in effect a distribution of an amount that falls within sections BD 1(1) and CA 1(2) (which relate to amounts that are income).
Taxable bonus issues
(3) A taxable bonus issue made by a Maori authority to a member is a taxable Maori authority distribution.
Exclusion: services
(4) A Maori authority distribution does not include the provision of services to a person by a Maori authority.
Distributions with credits attached
(5) A Maori authority distribution includes the amount of a Maori authority credit attached to it.
Dividends
(6) A Maori authority distribution that, but for this subsection, would be a dividend for a member, is treated as not being a dividend except for the purposes of section CW 10 (Dividend within New Zealand wholly-owned group).
Value of distribution by reference to market values
(7) For the purposes of this section, if the transfer of value is—
(a) the disposal of property to a member without consideration, or for a consideration that is less than the market value of the property, the value of the Maori authority distribution is the amount by which the market value of the property is more than the consideration; and
(b) the acquisition of property from a member for a consideration that is more than the market value of the property, the value of the Maori authority distribution is the amount by which the market value is less than the consideration.
Defined in this Act: amount, dividend, Maori authority, Maori authority credit, member, taxable bonus issue, taxable Maori authority distribution, transfer of value,
Compare: 2004 No 35 ss HI 4(1), (2), HI 5(4), HI 7
HF 5 Notional distributions of co-operative companies
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A Maori authority that is a co-operative company may make a notional distribution to a member under section OB 79 (Cooperative companies attaching imputation credits to notional distributions) as if a Maori authority credit were an imputation credit.
Defined in this Act: co-operative company, imputation credit, Maori authority, Maori authority credit, member,
Compare: 2004 No 35 s HI 4(3)
HF 6 Tax treatment of Maori authority distributions
-
A Maori authority distribution to a member is—
-
(a) income of the member under section CV 11 (Maori authorities), if the amount is—
(i) a taxable Maori authority distribution; or
(ii) a notional distribution:
(b) exempt income of the member under section CW 55 (Maori authority distributions), if paragraph (a) does not apply.
Defined in this Act: amount, exempt income, income, Maori authority, member, taxable Maori authority distribution,
Compare: 2004 No 35 s HI 5(1)
-
HF 7 Taxable Maori authority distributions
-
A Maori authority distribution is a taxable Maori authority distribution if the source is income of the Maori authority that is—
(a) derived by the Maori authority in the 2004–05 income year or a later income year; and
(b) not exempt income of the Maori authority; and
(c) not a cash distribution made to a member in relation to a notional distribution for which the Maori authority has made an election under section OB 82 (When and how co-operative company makes election).
Defined in this Act: exempt income, income, income year, Maori authority, member, taxable Maori authority distribution,
Compare: 2004 No 35 s HI 5(2), (3)
HF 8 Proportional allocation
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If a Maori authority distribution consists of a taxable Maori authority distribution and another amount, the Maori authority must allocate an equal proportion of each type of distribution to every member to whom the distribution is made.
Defined in this Act: amount, Maori authority, member, taxable Maori authority distribution,
Compare: 2004 No 35 s HI 6
Changing status
Table HI—Consequences of change in entity status for purposes of Maori authority rules
| Row | Entity | Changing to | Consequences | |
| 1 | Company | Maori authority | The company stops being an ICA company, and the rules relating to the ending of ICA company status apply | |
| Retained earnings, accumulated profits, and capital reserves are treated as an amount from which a distribution that is not a taxable Maori authority distribution may be made | ||||
| 2 | Trust | Maori authority | Trustee income is treated as an amount from which a distribution that is not a taxable Maori authority distribution may be made | |
| 3 | Maori authority | Company that is not a Maori authority | The Maori authority may transfer a credit balance in the Maori authority credit account to the company's imputation credit account, and section OK 18 applies to a debit balance in the Maori authority credit account | |
| Taxable income derived by the Maori authority in the 2003-04 or an earlier tax year is available subscribed capital | ||||
| Row | Entity | Changing to | Reverting to | Consequences |
| 5 | Maori authority | Company that is not a Maori authority | Maori authority | Market value calculations are required under section HF 10. The company must apply row 1 |
| 6 | Maori authority | Trust that is not a Maori authority | Maori authority | Market value calculations are required under section HF 10. The company must apply row 2 |
| How to use this table | ||||
| Read columns from left to right according to the row that fits the situation. | ||||
HF 9 Treatment of companies and trusts that choose to apply this subpart
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Company becoming Maori authority
(1) If a company becomes a Maori authority in a tax year, the company must apply table H1, row 1.
Trust becoming Maori authority
(2) If a trust becomes a Maori authority in a tax year, the trustee must apply table H1, row 2.
Maori authority becoming company
(3) If a Maori authority is a company that stops being a Maori authority in a tax year, it must apply table H1, row 3.
Maori authority becoming trust
(4) If a Maori authority is a trust that stops being a Maori authority in a tax year, the trustee must apply table H1, row 4.
Defined in this Act: company, Maori authority, tax year, trustee,
Compare: 2004 No 35 s HI 8
HF 10 Market value calculations
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When this section applies
(1) This section applies to property of a company or a trust when the company or the trustees of the trust, having stopped being a Maori authority, reverts to being a Maori authority.
Treatment
(2) The company or the trustees, as applicable, are treated as—
(a) disposing of the company’s property, or the trust’s property, immediately before becoming a Maori authority for a consideration that is the market value of the property on the date of disposal; and
(b) acquiring the property of the Maori authority for a consideration that is the market value of the property on the date of disposal referred to in paragraph (a).
Market value for both
(3) In subsection (2), the market value of the property is the market value for both the company, or the trustees, as applicable, and the Maori authority.
Depreciation
(4) Despite sections EE 55 to EE 60, and EZ 22 (which relate to depreciation), the cost to a Maori authority of property to which this section applies is the lesser of—
(a) the market value of the property on the date it was acquired; and
(b) the original cost of the property to the company or the trust.
Defined in this Act: company, Maori authority, trustee,
Compare: 2004 No 35 s HI 9
HF 11 Choosing to become Maori authority
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Notice
(1) A person who is eligible under section HF 2 may choose to become a Maori authority by notifying the Commissioner.
Acceptance notified
(2) Having received a notice under subsection (1), the Commissioner must notify the person of the acceptance of the election. The Commissioner must provide an acceptance date in the notice.
When election takes effect
(3) The election takes effect on the first day of—
(a) the income year in which the person’s notice is given; or
(b) the next income year, if the person nominates that date in the notice.
When election no longer effective
(4) An election under this section stops having effect if the person—
(a) notifies the Commissioner that the election is cancelled, and the election no longer has effect from the date set out in the notice:
(b) stops being a Maori authority.
Defined in this Act: Commissioner, income year, Maori authority, notice, notify,
Compare: 2004 No 35 s HI 3
Subpart HL—Portfolio investment entities
Introductory provisions
HL 1 Intended effect on portfolio tax rate entities and investors
-
What this section does
(1) This section describes the intended effects of this subpart and related provisions of the Act on a portfolio investment entity that is a portfolio tax rate entity and on an investor in a portfolio tax rate entity.
Intended effect on portfolio tax rate entity
(2) The intended effects for a person (the entity) who is using funds supplied by investors to make investments of specified types and who satisfies the other requirements for being a portfolio tax rate entity are that the entity—
-
(a) has a tax liability, on proceeds of the investments that are allocated to investors who are natural persons,—
(i) calculated using a portfolio investor rate for each investor; and
(ii) resembling the total tax liability that the group of investors would have if the investors were to make the investments separately; and
(b) has no tax liability on proceeds of the investments that are allocated to other investors; and
(c) distributes to each investor amounts resembling the amounts that the investor would receive, after allowing for the tax paid by the entity, if making the investments separately.
Intended effect on investor in portfolio tax rate entity
(3) The intended effects for an investor in the entity are that the investor—
(a) has no tax liability on income arising from proceeds for which the entity has a tax liability based on a portfolio investor rate of more than zero, unless the investor has given to the entity a portfolio investor rate that is lower than the correct rate; and
(b) is liable for tax on any assessable income arising from proceeds for which the entity has a tax liability based on a portfolio investor rate of zero; and
(c) receives on the investment in the entity an economic return resembling the return that the investor would receive after payment of tax liabilities if personally making investments similar to those made by the entity in which the investor has an interest.
Defined in this Act: assessable income, investor, portfolio investment entity, portfolio investor rate, portfolio tax rate entity, tax,
Compare: 2004 No 35 s HL 1
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HL 2 Scheme of subpart
-
Eligibility to be portfolio investment entity
(1) The eligibility of an entity to be a portfolio investment entity is determined by sections HL 3 to HL 10.
Election to be portfolio investment entity
(2) An entity who is eligible to be a portfolio investment entity may choose under section HL 11 to be a portfolio investment entity.
Becoming a portfolio investment entity
(3) The time at which an entity becomes a portfolio investment entity and the effects of the change are given by sections HL 13 and HL 14.
Ceasing to be a portfolio investment entity
(4) The time at which an entity ceases to be a portfolio investment entity and the effects of the change are given by section HL 15.
Portfolio allocation period and portfolio calculation period
(5) An entity who is a portfolio tax rate entity has under section HL 16—
(a) a portfolio allocation period, which gives the length of the periods in the tax year to which the entity’s income and outgoings are allocated; and
(b) a portfolio calculation period, which gives the length of the periods in the tax year between each calculation by the entity of the amounts of income and outgoings allocated to each portfolio allocation period.
Treatment of entity’s income from property with no investor or with interest not vested
(6) The treatment of income from an entity’s property in which no investor has an interest, or in which the interest has not vested in an investor, is given by section HL 17.
Portfolio entity tax liability
(7) An entity who is a portfolio tax rate entity in a portfolio allocation period must pay income tax of an amount found from the following amounts
-
(a) the portfolio class net income or portfolio class net loss calculated under section HL 19—
(i) for each portfolio investor class and each portfolio allocation period:
(ii) from the entity’s assessable income and deductions allocated to the class and the period:
-
(b) the portfolio class taxable income or portfolio class taxable loss calculated under section HL 20—
(i) for each portfolio investor class and each portfolio allocation period:
(ii) from the portfolio class net income or portfolio class net loss for the class and the period and, if appropriate, any portfolio entity formation loss under section HL 30, and any portfolio class taxable loss under section HL 31 that is portfolio class land loss under section HL 32:
-
(c) the portfolio entity tax liability calculated under section HL 21—
(i) for each portfolio investor class of the entity and each portfolio allocation period in the tax year:
(ii) from the portfolio class taxable income for the period, the portfolio investor interest fraction and portfolio investor rate for each investor in the class for the period.
Payments of tax by portfolio tax rate entity
(8) A portfolio tax rate entity is liable to pay tax equal to the amount of the entity’s portfolio entity tax liability for a tax year by the payments required by sections HL 22 to HL 24, depending on the entity’s portfolio allocation period and portfolio calculation period.
Portfolio investor allocated income and portfolio investor allocated loss
(9) An investor in a portfolio tax rate entity in a tax year is treated as—
(a) deriving income for the tax year equal to the amount by which the investor’s total portfolio investor allocated income under section HL 26 for the tax year exceeds the investor’s total portfolio investor allocated loss under section HL 26 for the tax year:
(b) having, if the investor is a zero-rated portfolio investor, for the tax year a deduction under section HL 27 equal to the amount by which the investor’s total portfolio investor allocated loss under section HL 26 for the tax year exceeds the investor’s total portfolio investor allocated income under section HL 26 for the tax year.
Tax credit for some portfolio investor allocated loss
(10) If a portfolio tax rate entity does not make an election under section HL 23, the entity has a tax credit under section HL 28 if it has an investor in a portfolio investor class who is not a zero-rated portfolio investor and who has total portfolio investor allocated loss for a period exceeding the investor’s total portfolio investor allocated income for the period.
Treatment of tax credits
(11) If a portfolio tax rate entity does not make an election under section HL 23, the tax liability of the entity relating to an investor in the entity for a portfolio allocation period is reduced in the way given by HL 29 for credits that are received by the entity and allocated to the investor for the portfolio allocation period.
Portfolio investor proxies
(12) An entity who meets the requirements of section HL 33—
(a) may be a portfolio investor proxy; and
(b) must perform the obligations imposed by the section relating to a portfolio investor interest held by the entity for an investor.
Defined in this Act: amount, deduction, income, income tax, income year, investor, portfolio allocation period, portfolio calculation period, portfolio class net income, portfolio class net loss, portfolio class taxable income, portfolio investment entity, portfolio investor allocated income, portfolio investor allocated loss, portfolio investor class, portfolio investor interest, portfolio investor interest fraction, portfolio investor proxy, portfolio investor rate, portfolio tax rate entity, tax, tax credit, tax year, zero-rated portfolio investor,
Compare: 2004 No 35 s HL 2
Eligibility requirements: portfolio investment entities and foreign investment vehicles
HL 3 Eligibility requirements for entities
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Eligibility requirements for portfolio tax rate entity and entity
(1) A portfolio tax rate entity and an entity that is choosing under section HL 11 to be a portfolio investment entity and a portfolio tax rate entity must meet the eligibility requirements described in subsections (7), (8), and (10).
Further eligibility requirements for portfolio tax rate entity
(2) A portfolio tax rate entity must meet the further eligibility requirements described in subsection (9) and sections HL 6, HL 7, HL 9, and HL 10.
Eligibility requirements for portfolio listed company and entity
(3) A portfolio listed company and an entity that is choosing under section HL 11 to be a portfolio investment entity and a portfolio listed company must meet the eligibility requirements described in subsections (7), (8), and (10).
Further eligibility requirements for portfolio listed company
(4) A portfolio listed company must meet the further eligibility requirements described in subsection (9) and sections HL 6, HL 8, HL 9, and HL 10.
Eligibility requirements for portfolio defined benefit fund and entity
(5) A portfolio defined benefit fund and an entity that is choosing under section HL 11 to be a portfolio investment entity and a portfolio defined benefit fund must meet the eligibility requirements described in subsections (7), (8), and (10).
Further eligibility requirements for portfolio defined benefit fund
(6) A portfolio defined benefit fund must meet the further eligibility requirements described in sections HL 6, HL 9, and HL 10.
Form and business requirement
(7) The form and business requirement is that the entity—
(a) must be a company, superannuation fund, or group investment fund; and
(b) must not carry on a business of life insurance.
Residence requirement
(8) The residence requirement is that the entity must be—
(a) resident in New Zealand; and
(b) not treated under a double tax agreement as not being resident in New Zealand.
Income interest requirement
(9) The income interest requirement is that all portfolio investor interests in the entity that give rights in relation to proceeds from a portfolio entity investment give the rights in relation to all the proceeds from the investment that are not category B income.
Entity history requirement
(10) The entity history requirement is that the entity must not, before the day on which the election to be a portfolio investment entity is to be effective, have ceased to be a portfolio investment entity under section HL 15(1), unless the cessation occurred more than 5 years before the day on which the election is to be effective.
Defined in this Act: amount, business, company, category B income, double tax agreement, group investment fund, life insurance, portfolio defined benefit fund, portfolio entity investment, portfolio investment entity, portfolio investor interest, portfolio listed company, portfolio tax rate entity, resident in New Zealand, superannuation fund, year,
Compare: 2004 No 35 s HL 3
HL 4 Effect of failure to meet eligibility requirements for entities
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Failure to meet certain requirements
(1) An entity ceases under this section to be eligible to be a portfolio investment entity if the entity fails at any time to meet a requirement that is—
(a) referred to in section HL 3; and
(b) not referred to in subsection (2)(a).
Failure to meet other requirements
(2) An entity ceases under this section to be eligible to be a portfolio investment entity if—
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(a) the entity fails to meet a requirement under section HL 6, HL 9, or HL 10 on the last day of a quarter—
(i) beginning 6 months or more after the date on which the entity becomes a portfolio investment entity; and
(ii) ending more than 3 months before an announcement by the entity to its investors that the entity is winding up within 12 months of the announcement; and
-
(b) the entity’s failure—
(i) is significant and would not have occurred but for an event or circumstance within the control of the entity:
(ii) is repeated on the last day of the quarter following the quarter referred to in paragraph (a) and ending more than 3 months before the announcement referred to in paragraph (a)(ii).
Defined in this Act: investor, portfolio defined benefit fund, portfolio investment entity, quarter,
Compare: 2004 No 35 s HL 4
HL 5 Foreign investment vehicles
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When entity becomes foreign investment vehicle
(1) An entity becomes a foreign investment vehicle if the entity—
(a) is not resident in New Zealand; and
(b) is a company, a superannuation scheme, or the trustee of a trust that would be a unit trust if there were more than 1 subscriber, purchaser, or contributor participating as beneficiaries under the trust; and
(c) has investors that would, if the entity were a portfolio investment entity, be a portfolio investor class meeting the investor membership requirements under section HL 6(1)(a) to (i); and
(d) has investors who, if they are resident in New Zealand, would meet the investor interest size requirements under section HL 9 if the entity were a portfolio investment entity; and
(e) meets the further eligibility requirements relating to investments under section HL 10.
When entity ceases to be foreign investment vehicle
(2) An entity that becomes a foreign investment vehicle ceases under this section to be a foreign investment vehicle if the entity—
(a) fails to meet a requirement under subsection (1)(a) and (b):
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(b) fails to meet a requirement under subsection (1)(c), (d), and (e)—
(i) on the last day of a quarter; and
(ii) on the last day of the quarter following the quarter referred to in subparagraph (i).
Defined in this Act: company, foreign investment vehicle, investor, portfolio investment entity, portfolio investor class, quarter, resident in New Zealand, superannuation scheme, trustee, unit trust,
Compare: 2004 No 35 s HL 5
HL 6 Investor membership requirement
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Investor membership requirement for entity other than listed company
(1) The investor membership requirement for a portfolio investor class of an entity that is not a company listed on a recognised exchange in New Zealand and does not meet the requirements of subsection (3) is that the portfolio investor class must include—
(a) 20 persons, treating all interests held by persons associated under the 1988 version provisions and included by subsection (4) as being held by 1 person:
(b) a portfolio investment entity:
(c) a foreign investment vehicle:
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(d) an entity that—
(i) meets the requirements in section HL 3 that would be relevant if the entity were choosing to be a portfolio investment entity; and
(ii) has not chosen to be a portfolio investment entity:
(e) a life insurer:
(f) the New Zealand Superannuation Fund:
(g) the Accident Compensation Corporation:
(h) a Crown entity subsidiary of the Accident Compensation Corporation:
(i) the Earthquake Commission:
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(j) less than 20 persons, as determined under paragraph (a), if—
(i) the entity has 1 or more other portfolio investor classes that satisfy paragraph (a); and
(ii) no investor in the class, other than the entity’s manager or trustee, can control the investment decisions relating to that class; and
(iii) investors for which the entity would not meet the investor membership requirement in the absence of this paragraph have portfolio investor interests with a total value of less than 10% of the total value of portfolio investor interests in the entity.
Investor membership requirement for listed company
(2) The investor membership requirement for an entity that is a company listed on a recognised exchange in New Zealand is that—
(a) the company must not have more than 1 portfolio investor class of investors holding portfolio investor interests in the company; and
(b) each investor must be a member of the portfolio investor class; and
(c) each portfolio investor interest in the company must be a share traded on the recognised exchange.
No investor membership requirement for entities similar to unit trusts and certain superannuation funds
(3) There is no investor membership requirement for an entity that,—
(a) if treated as a unit trust, would meet the requirements of 1 or more of paragraphs (a) and (c) to (e) of the definition of public unit trust:
(b) is a superannuation fund established under the proposal for the restructuring of the National Provident Fund required by the National Provident Fund Restructuring Act 1990:
(c) is the fund established by the Government Superannuation Fund Act 1956.
Interests of some associated investors included with interests of investor for some purposes
(4) For the purposes of subsection (1), the portfolio investor interests of persons associated with an investor in a portfolio investor class are included with the portfolio investor interests of the investor if—
(a) the investor is not listed in subsection (1)(b) to (i); and
(b) the associated person is not listed in subsection (1)(b) to (i); and
(c) the associated person has a portfolio investor interest fraction of 5% or more.
Defined in this Act: 1988 version provisions, associated person, company, foreign investment vehicle, group investment fund, investor, New Zealand, portfolio entity investment, portfolio investment entity, portfolio investor class, portfolio investor interest, portfolio investor proxy, public unit trust, recognised exchange, registered superannuation scheme, share, unit trust,
Compare: 2004 No 35 s HL 6
HL 7 Investor return adjustment requirement: portfolio tax rate entity
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When this section applies
(1) This section applies to a portfolio tax rate entity.
Investor return adjustment requirement
(2) The investor return adjustment requirement is that the entity must make an adjustment referred to in subsection (3) to reflect the effect of the portfolio investor rate of an investor, as a member of a portfolio investor class on—
(a) the amount of the entity’s portfolio entity tax liability for the portfolio investor class; and
(b) the amount of a tax credit under section HL 28 or HL 29 allocated to the investor as a member of the portfolio investor class.
Nature of adjustment
(3) An adjustment reflecting the effect of the investor’s portfolio investor rate must be made to—
-
(a) the investor’s portfolio investor interest in the portfolio investor class or another portfolio investor class—
(i) before the end of the 2nd month after the portfolio calculation period, if the entity has made an election under section HL 22; or
(ii) within 3 months of the end of the tax year, if the entity has made an election under section HL 23; or
(iii) within 2 months of the end of the tax year, if the entity has made an election under section HL 24:
(b) the amount of each distribution to the investor as a member of the portfolio investor class or another portfolio investor class.
Investor may be offered choice of method
(4) A portfolio tax rate entity may offer an investor a choice of the method of adjustment.
Defined in this Act: company, investor, portfolio calculation period, portfolio entity tax liability, portfolio investor class, portfolio investor interest, portfolio investor rate, portfolio tax rate entity, recognised exchange, tax credit, tax year, unit trust,
Compare: 2004 No 35 s HL 7
HL 8 Imputation credit distribution requirement: portfolio listed company
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When this section applies
(1) This section applies to a portfolio investment entity that is a portfolio listed company.
Imputation credit requirement
(2) The imputation credit distribution requirement is that when the entity makes a distribution to the members of a portfolio investor class, the distribution must be fully credited for the purposes of section CD 43 (Available subscribed capital (ASC) amount) to the extent permitted by the imputation credits that the directors of the entity determine are available.
Defined in this Act: director, imputation credit, portfolio investment entity, portfolio investor class, portfolio listed company,
Compare: 2004 No 35 s HL 8
HL 9 Investor interest size requirement
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Investor interest size requirement
(1) The investor interest size requirement for a portfolio investment entity is that an investor in a portfolio investor class may not hold more than 20% of the total portfolio investor interests of investors in the class.
No investor interest size requirement for entities similar to unit trusts and certain superannuation funds
(2) There is no investor interest size requirement for an entity that,—
(a) if treated as a unit trust, would meet the requirements of 1 or more of paragraphs (a) and (c) to (e) of the definition of public unit trust:
(b) is a superannuation fund established under the proposal for the restructuring of the National Provident Fund required by the National Provident Fund Restructuring Act 1990:
(c) is the fund established by the Government Superannuation Fund Act 1956.
Exception for certain investors
(3) An entity with an investor holding more than 20% of the total portfolio investor interests in a class does not breach the investor interest size requirement if—
(a) the entity is not a portfolio listed company and the investor is listed in subsection (4):
(b) the entity is a portfolio listed company and the investor is listed in subsection (4) and holds less than 40% of the total portfolio investor interests in the class.
Investors to which exception applies
(4) An investor may hold portfolio investor interests in a portfolio investment entity that would otherwise breach the investor interest size requirement for the entity if the investor is—
(a) a portfolio investment entity:
(b) a foreign investment vehicle:
-
(c) an entity that—
(i) meets the requirements in section HL 3 that would be relevant if the entity were choosing to be a portfolio investment entity; and
(ii) has not chosen to be a portfolio investment entity:
(d) a life insurer:
(e) the New Zealand Superannuation Fund:
(f) the Accident Compensation Corporation:
(g) a Crown entity subsidiary of the Accident Compensation Corporation:
(h) the Earthquake Commission:
(i) a person who meets the requirements of subsection (5).
Exception for shares in portfolio listed company held from 17 May 2006
(5) An investor who is not listed in subsection (4)(a) to (h) may on a date after 30 September 2007 hold portfolio investor interests in a portfolio listed company that are more than 20% and not more than 40% of the total interests of investors in a portfolio investor class if the investor holds portfolio interests that are more than 20% and not more than 40% of the total interests of investors on each day in the period beginning on 17 May 2006 and ending before the date.
Interests of some associated investors included with interests of investor for some purposes
(6) For the purposes of subsections (1) and (5), the portfolio investor interests of persons associated with an investor in a portfolio investor class are included with the portfolio investor interests of the investor if—
(a) the investor is not listed in subsection (4)(a) to (h); and
(b) the associated person is not listed in subsection (4)(a) to (h); and
(c) the associated person has a portfolio investor interest fraction of 5% or more.
Defined in this Act: associated person, company, defined benefit fund, foreign investment vehicle, group investment fund, investor, life insurer, New Zealand resident, portfolio investment entity, portfolio investor class, portfolio investor interest, portfolio investor interest fraction, public unit trust, recognised exchange, superannuation fund, unit trust,
Compare: 2004 No 35 s HL 9
HL 10 Further eligibility requirements relating to investments
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Investment type requirement
(1) The investment type requirement is that the entity must use, or have available to use, 90% or more by value of the entity’s assets in deriving income from the owning or trading of—
(a) an interest in land:
(b) a financial arrangement:
(c) an excepted financial arrangement:
(d) a right or option concerning property referred to in paragraphs (a) to (c).
Income type requirement
(2) The income type requirement is that the income derived by the entity must, to the extent of 90% or more,—
(a) be derived from property referred to in subsection (1); and
-
(b) consist of the following:
(i) dividends:
(ii) income treated under subpart EW (Financial arrangements rules) as being derived by the entity:
(iii) rent from an interest in land:
(iv) proceeds from the disposal of property:
(v) foreign investment fund (FIF) income:
(vi) portfolio investor allocated income:
(vii) distributions from superannuation funds.
Entity shareholding investment requirement
(3) The entity shareholding investment requirement is that, for an investment of the entity consisting of shares in a company that is not listed in subsection (4),—
-
(a) the investment must—
(i) carry voting interests in the company equal to or less than 20%, if the company is not a unit trust; or
(ii) have a market value equal to or less than 20% of the total market value of all shares in the company, if the company is a unit trust:
-
(b) the amount that is 10% of the total market value of all the entity’s investments must be greater than the total market value of all the entity’s investments in—
(i) shares in a company that is not a unit trust that carry voting interests of more than 20% in the company:
(ii) shares in a company that is a unit trust that have a market value of more than 20% of the total market value of all shares in the company.
Investments not affected by shareholding investment requirement
(4) The investments referred to in subsection (3) do not include shares in—
(a) a portfolio investment entity:
(b) a foreign investment vehicle:
-
(c) an entity that—
(i) meets the requirements in section HL 3 that would be relevant if the entity were choosing to be a portfolio investment entity; and
(ii) has not chosen to be a portfolio investment entity:
(d) a portfolio land company.
Class shareholding investment requirement
(5) The class shareholding investment requirement is that, for each portfolio investor class and each investment referred to in subsection (3),—
-
(a) the portfolio class fraction of the investment must—
(i) correspond to voting interests in the company equal to or less than 20%, if the company is not a unit trust; or
(ii) have a market value equal to or less than 20% of the total market value of all shares in the company, if the company is a unit trust:
-
(b) the amount that is 10% of the total market value of all the class’s interests in the entity’s investments must be greater than the total market value of all the class’s interests in the entity’s investments in—
(i) shares in a company that is not a unit trust that carry voting interests of more than 20% in the company:
(ii) shares in a company that is a unit trust that have a market value of more than 20% of the total market value of all shares in the company.
Defined in this Act: amount, company, dividend, excepted financial arrangement, FIF income, financial arrangement, foreign investment vehicle, futures contract, income, interest, investor, portfolio class fraction, portfolio class investment value, portfolio entity investment, portfolio investment entity, portfolio investor allocated income, portfolio investor class, portfolio land company, share, superannuation fund, voting interest,
Compare: 2004 No 35 s HL 10
Becoming and ceasing to be portfolio investment entity
HL 11 Election to become portfolio investment entity and cancellation of election
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Notice of election
(1) An entity that meets the eligibility requirements in section HL 3 for an entity may choose to be a portfolio investment entity by giving a notice in the prescribed form to the Commissioner at any time after 1 April 2007.
When election effective
(2) An election received by the Commissioner is effective on the latest of the following:
(a) 1 October 2007:
(b) the date of formation of the entity:
(c) the date nominated in the notice:
(d) the date 30 days before the day of receipt.
Notice of cancellation
(3) An entity may choose at any time to cease being a portfolio investment entity by giving a notice in the prescribed form to the Commissioner.
When cancellation effective
(4) An election to cease being a portfolio investment entity received by the Commissioner takes effect from the later of the following:
(a) the date on which the entity became a portfolio investment entity:
(b) the date nominated in the notice:
(c) the date of receipt.
Defined in this Act: Commissioner, company, notice, portfolio investment entity, quarter, recognised exchange, tax year,
Compare: 2004 No 35 s HL 11
HL 12 Unlisted company choosing to become portfolio listed company
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Election
(1) A company that is not listed on a recognised exchange in New Zealand may choose under section HL 11 to become a portfolio investment entity that is a portfolio listed company if it—
(a) would meet the requirements of paragraph (a) of the definition of public unit trust if it were a unit trust; and
(b) has resolved to become a company listed on a recognised exchange in New Zealand if it were to obtain the required consents; and
(c) has applied to the Securities Commission for an exemption to disclose in a prospectus its intention to become a listed company; and
(d) satisfies the Commissioner that the company would apply to become a listed company if it were to obtain the required consents.
Election effective for 2 years
(2) A company that makes an election under subsection (1) stops being a portfolio listed company from the last day of the period of 2 years from the date on which the election takes effect, if the company is not listed on a recognised exchange in New Zealand on that day.
Defined in this Act: company, portfolio investment entity, portfolio listed company, public unit trust, recognised exchange, unit trust,
Compare: 2004 No 35 s HL 11B
HL 13 Becoming portfolio investment entity
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Requirement for effective election
(1) An entity that makes an election under section HL 11 becomes a portfolio investment entity unless, in the period ending 12 months after the date on which the election would be effective,—
(a) the entity cancels the election:
(b) the entity, if treated as becoming a portfolio investment entity when the election would be effective, would cease under section HL 4 to be eligible.
Income year for entity
(2) If an entity with a non-standard income year chooses to become a portfolio tax rate entity making payments of tax under section HL 22 or HL 24, section 39 of the Tax Administration Act 1994 applies as if—
(a) the day before the day on which the election is effective were the original balance date of the entity; and
(b) the next 31 March after the day on which the election is effective were a new balance date approved by the Commissioner for the entity.
Entity treated as disposing of, and reacquiring, property
(3) If an entity becomes a portfolio investment entity, the entity is treated for the purposes of this Act as, on the day before the day on which the election is effective,—
-
(a) transferring to another person all shares held by the entity that—
(i) satisfy section CX 55(1)(a) and (b) (Proceeds from certain disposals by portfolio investment entities or New Zealand Superannuation Fund); and
(ii) are shares in a company that is not a portfolio investment entity and does not become a portfolio investment entity within the period of 6 months beginning from the day on which the entity becomes a portfolio investment entity; and
(b) receiving for the shares referred to in paragraph (a) an amount of consideration equal to the market value of the shares at that time; and
(c) acquiring the shares referred to in paragraph (a) from the other person for an amount of consideration equal to the amount referred to in paragraph (b).
New Zealand Superannuation Fund
(4) The New Zealand Superannuation Fund is treated for the purposes of subsection (3) as if it made an election that would be effective on 1 October 2007.
Defined in this Act: amount, Commissioner, company, group investment fund, life insurer, non-standard income year, portfolio investment entity, portfolio tax rate entity, share, superannuation fund, tax year,
Compare: 2004 No 35 s HL 12
HL 14 Tax consequences from transition
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No penalty or interest arising from transition
(1) An entity that becomes a portfolio investment entity is not liable to pay any penalty or interest for which the entity would otherwise be liable for an inaccuracy in an estimate, or shortfall in the payment, of provisional tax to the extent that the inaccuracy or shortfall arises because of—
(a) the effect of the election on the length of the entity’s income year under section HL 13(2):
(b) the disposal and acquisition referred to in section HL 13(3).
Payment of tax liability arising from transition
(2) An entity that becomes a portfolio investment entity in a tax year and is liable to pay an amount of income tax (the tax amount) because of the disposal and acquisition referred to in section HL 13(3) may satisfy the liability by making payments to the Commissioner of at least—
(a) one third of the tax amount, in the tax year in which the entity becomes a portfolio investment entity; and
(b) one half of the balance of the tax amount remaining owing after the payments made under paragraph (a), in the tax year following the tax year in which the entity becomes a portfolio investment entity; and
(c) the balance of the tax amount remaining owing after the payments made under paragraphs (a) and (b), in the second tax year following the tax year in which the entity becomes a portfolio investment entity.
Defined in this Act: income tax, income year, interest, portfolio investment entity, provisional tax, tax year,
Compare: 2004 No 35 s HL 13
HL 15 Ceasing to be portfolio investment entity
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Cancellation or loss of eligibility
(1) An entity that has chosen to be a portfolio investment entity ceases to be a portfolio investment entity if—
(a) the entity cancels the election under section HL 11:
(b) the entity is no longer eligible to be a portfolio investment entity under section HL 4.
When entity ceases to be portfolio investment entity
(2) An entity ceases to be a portfolio investment entity under subsection (1) on—
(a) the day on which the entity’s election under section HL 11 is effective; or
(b) the first day of the quarter following the quarter in which the entity ceases under section HL 4 to be eligible to be a portfolio investment entity.
Entity treated as disposing of, and reacquiring, property
(3) An entity that ceases to be a portfolio investment entity is treated for the purposes of this Act as—
(a) disposing of all shares held by the entity that satisfy section CX 55(1)(a) and (b) (Proceeds from certain disposals by portfolio investment entities or New Zealand Superannuation Fund) to another person for an amount of consideration equal to the market value of the shares at the time; and
(b) acquiring the shares referred to in paragraph (a) from the other person for an amount of consideration equal to the amount referred to in paragraph (a).
Defined in this Act: amount, portfolio investment entity, quarter, share,
Compare: 2004 No 35 s HL 14
Periods relevant to calculation of portfolio entity tax liability
HL 16 Portfolio allocation period and portfolio calculation period
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When this section applies
(1) This section applies to a portfolio tax rate entity.
Portfolio allocation period
(2) The portfolio allocation period for the entity for a tax year is—
(a) a day, if the entity does not choose a portfolio allocation period under paragraph (b), (c) or (d); or
-
(b) a month, if the entity has a portfolio calculation period of a quarter and chooses the portfolio allocation period by giving notice to the Commissioner—
(i) before the tax year:
(ii) when the entity chooses to become a portfolio tax rate entity; or
-
(c) a quarter, if the entity chooses the portfolio allocation period by giving a notice to the Commissioner—
(i) before the tax year:
(ii) when the entity chooses to become a portfolio tax rate entity; or
(d) a day, month, quarter, or income year, if the entity chooses to have a portfolio calculation period of an income year under subsection (3)(c) and chooses the portfolio allocation period by giving a notice to the Commissioner at the same time as the choice under subsection (3)(c).
Portfolio calculation period
(3) The portfolio calculation period for the entity for a portfolio allocation period in a tax year is—
-
(a) a day, if the entity chooses the portfolio calculation period by giving a notice to the Commissioner—
(i) before the tax year:
(ii) when the entity chooses to become a portfolio tax rate entity; or
(b) a quarter, if the entity does not choose a portfolio calculation period under paragraph (a) or (c); or
-
(c) an income year, if the entity—
(i) chooses under section HL 23 to pay provisional tax; and
(ii) chooses the portfolio calculation period by giving a notice to the Commissioner when the entity makes the election under section HL 23.
Defined in this Act: Commissioner, notice, portfolio allocation period, portfolio calculation period, portfolio tax rate entity, quarter, tax year,
Compare: 2004 No 35 s HL 15
Allocation of income in some cases
HL 17 Treatment of income from interest when entitlement conditional or lacking
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Treatment of unallocated income
(1) If a portfolio tax rate entity has income or property in which no investor has a portfolio investor interest and in which no investor is treated as having an interest under subsection (2), the portfolio tax rate entity is treated as being the sole investor in a portfolio investor class having a portfolio investor interest in the property or income.
Treatment of income from interest when entitlement conditional
(2) A portfolio tax rate entity that is a superannuation fund may for the purpose of section HL 21 allocate a portfolio investor interest to an investor for a portfolio allocation period if—
(a) the portfolio investor interest is purchased by or for the investor’s employer; and
(b) under an agreement between the investor and the investor’s employer, subject to any contingencies, the investor will have an unconditional entitlement to the interest in or before the end of a period (the vesting period) beginning with the creation of the interest; and
(c) the agreement exists before the portfolio allocation period; and
(d) the vesting period ends after the portfolio allocation period; and
-
(e) the vesting period,—
(i) if the entity exists on 17 May 2006, does not exceed the longest vesting period allowed by the entity on 17 May 2006 for an interest created on 17 May 2006; or
(ii) if the entity does not exist on 17 May 2006, does not exceed 5 years.
Defined in this Act: income, investor, portfolio investor class, portfolio investor interest, portfolio tax rate entity, superannuation fund,
Compare: 2004 No 35 s HL 16
HL 18 Certain new investors treated as part of existing portfolio investor class
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A person who becomes an investor in a portfolio tax rate entity may be treated by the entity as a member of an existing portfolio investor class, of which the investor would not be a member in the absence of this section, if—
(a) the investor acquires portfolio investor interests that the entity intends to qualify the investor as a member of the class; and
(b) the interests do not qualify the investor as a member of the class because the entity does not have sufficient portfolio entity investments corresponding to the interests; and
(c) the entity acquires sufficient portfolio entity investments to qualify the investor as a member of the class as soon after the investor’s acquisition of the interests as is practicable.
Defined in this Act: investor, portfolio investor class, portfolio investor interest, portfolio investor investment,
Compare: 2004 No 35 s HL 17
Calculating portfolio entity tax liability
HL 19 Portfolio class net income and portfolio class net loss for portfolio allocation period
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Portfolio class net income for portfolio allocation period
(1) The portfolio class net income under this section for a portfolio investor class for a portfolio allocation period is—
(a) the amount calculated for the period under subsection (3), if the calculated amount is more than zero; or
(b) zero, if paragraph (a) does not apply.
Portfolio class net loss for portfolio allocation period
(2) The portfolio class net loss under this section for a portfolio investor class for a portfolio allocation period is—
(a) the amount by which zero exceeds the amount calculated for the period under subsection (3), if the calculated amount is less than zero; or
(b) zero, if paragraph (a) does not apply.
Calculation of amount for portfolio allocation period
(3) The amount calculated under this subsection for the portfolio allocation period is the amount calculated using the formula—
class assessable income − class deductions.
Definition of items in formula
(4) In the formula,—
-
(a) class assessable income is the total amount of the entity’s assessable income allocated by the entity to—
(i) the portfolio investor class; and
(ii) the portfolio allocation period:
-
(b) class deductions is the total amount of the entity’s expenditure or loss—
(i) for which the entity is allowed a deduction; and
(ii) incurred by the portfolio investment entity in deriving assessable income allocated to the portfolio investor class; and
(iii) allocated by the entity to the portfolio allocation period.
Defined in this Act: amount, assessable income, deduction, portfolio allocation period, portfolio class fraction, portfolio class net loss, portfolio entity investment, portfolio investment entity, portfolio investor class,
Compare: 2004 No 35 s HL 18
HL 20 Portfolio class taxable income and portfolio class taxable loss for portfolio allocation period
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Portfolio class taxable income for portfolio allocation period
(1) The portfolio class taxable income under this section for a portfolio investor class for a portfolio allocation period is—
(a) the amount calculated for the period under subsection (3), if the calculated amount is more than zero; or
(b) zero, if paragraph (a) does not apply.
Portfolio class taxable loss for portfolio allocation period
(2) The portfolio class taxable loss under this section for a portfolio investor class for a portfolio allocation period is—
(a) the amount by which zero exceeds the amount calculated for the period under subsection (3), if the calculated amount is less than zero; or
(b) zero, if paragraph (a) does not apply.
Calculation of amount for portfolio allocation period
(3) The amount calculated under this subsection for the portfolio investor class and the portfolio allocation period is calculated using the formula—
class net income − class net loss × other loss used.
Definition of items in formulas
(4) The items in the formula are defined in subsections (5) to (7).
Class net income
(5) Class net income is the amount of the portfolio class net income under section HL 19 of the class for the period.
Class net loss
(6) Class net loss is the amount of the portfolio class net loss under section HL 19 of the class for the period.
Other loss used
(7) Other loss used is the lesser of the following amounts:
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(a) the total amount for the class of—
(i) the portfolio entity formation loss that is allocated to the portfolio allocation period and the portfolio investor class as allowed by section HL 30:
(ii) the portfolio class land loss that has not been offset against portfolio class net income for an earlier allocation period and may be allocated to the allocation period under section HL 32:
(b) the total amount of the class net income referred to in subsection (5).
Defined in this Act: amount, portfolio allocation period, portfolio class land loss, portfolio class net income, portfolio class net loss, portfolio class taxable income, portfolio class taxable loss, portfolio entity formation loss, portfolio investor class, portfolio investor interest, tax year,
Compare: 2004 No 35 s HL 19
HL 21 Portfolio entity tax liability and tax credits of portfolio tax rate entity for period
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Portfolio entity tax liability
(1) The portfolio entity tax liability of a portfolio tax rate entity, for a period (the calculation period) for which the entity is required to calculate the portfolio entity tax liability, is—
(a) the total of the amounts calculated under subsection (3) for the calculation period and each portfolio investor class and each investor in the portfolio investor class to which the liability relates, if the total is more than zero; or
(b) zero, if paragraph (a) does not apply.
Amount of tax credit under section LS 1
(2) For the purposes of section LS 1 (Tax credits for portfolio tax rate entities relating to certain investors), the amount of a tax credit for a portfolio tax rate entity for a calculation period is—
(a) the amount by which zero exceeds the total of the amounts calculated under subsection (3) for the calculation period and each portfolio investor class and each investor in the portfolio investor class to which the tax credit relates, if the total is less than zero; or
(b) zero, if paragraph (a) does not apply.
Calculation of amount for calculation period
(3) The amount calculated under this subsection for an investor in a portfolio investor class and for a calculation period is the total of the amounts calculated using the formula in subsection (4) for—
(a) each day of a portfolio allocation period in the calculation period; and
(b) each portfolio allocation period in the calculation period.
Formula
(4) The formula is—
Definition of items in formula
(5) The items in the formula are defined in subsections (6) to (12).
Investor fraction
(6) Investor fraction is the investor’s portfolio investor interest fraction on the day.
Income
(7) Income is the portfolio class taxable income under section HL 20 for the investor’s portfolio investor class and the portfolio allocation period.
Loss
(8) Loss is the portfolio class taxable loss under section HL 20 for the investor’s portfolio investor class and the portfolio allocation period.
Rate
(9) Rate is—
(a) the portfolio investor rate for the investor for the portfolio allocation period, if paragraph (b) does not apply; or
(b) 30%, if the entity is treated as the sole investor under section HL 17.
Days in allocation period
(10) Days in allocation period is the number of days in the portfolio allocation period.
Fees
(11) Fees is the amount of fees for ongoing management and administration services paid from or charged to the account of the investor as a member of the portfolio investor class on the day in the portfolio allocation period.
Credits
(12) Credits is the amount of credits for fees paid or credited by the entity to the account of the investor as a member of the portfolio investor class on the day in the portfolio allocation period.
Defined in this Act: amount, investor, portfolio allocation period, portfolio class taxable income, portfolio investor class, portfolio investor interest fraction, portfolio investor rate, portfolio tax rate entity, tax credit, tax year,
Compare: 2004 No 35 s HL 20
Payment by portfolio tax rate entity of tax for tax year
HL 22 Payments of tax by portfolio tax rate entity making no election
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When this section applies
(1) This section applies to a portfolio tax rate entity for a tax year if the entity does not make an election under section HL 23 or HL 24 for the tax year.
Portfolio calculation period
(2) The portfolio calculation period of the entity for the tax year must be a quarter.
Amount of payments
(3) After each portfolio calculation period for the tax year, the entity must make a payment to the Commissioner—
(a) of an amount of income tax equal to the part of the portfolio entity tax liability of the entity for the portfolio calculation period that does not relate to a payment by the entity under section HL 25; and
(b) within the period of 1 month beginning from the end of the portfolio calculation period.
Entity not required to pay provisional tax
(4) The entity is not required to pay provisional tax under subpart RC (Provisional tax) for the tax year.
Payment to Commissioner of residual value of investor’s interest
(5) If an investor in the entity has, at the end of the investor’s portfolio investor exit period, a portfolio investor interest with a value of more than zero, the entity must pay an amount equal to the value of the interest to the Commissioner at the same time as the payment referred to in subsection (3) for the portfolio calculation period in which the portfolio investor exit period ends.
Defined in this Act: Commissioner, income tax, interest, portfolio calculation period, portfolio entity tax liability, portfolio investor exit period, portfolio tax rate entity, provisional tax, quarter, tax year,
Compare: 2004 No 35 s HL 21
HL 23 Payments of tax by portfolio tax rate entity choosing to pay provisional tax
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When this section applies
(1) This section applies to a portfolio tax rate entity for a tax year if—
(a) the portfolio calculation period of the entity for the tax year is the income year corresponding to the tax year; and
(b) the entity chooses to be subject to this section for the tax year.
Provisional tax
(2) The entity must pay provisional tax under subpart RC (Provisional tax) for the income year corresponding to the tax year.
Notice of election
(3) The entity must give the Commissioner notice of an election to be subject to this section—
(a) in the prescribed form; and
(b) by the date by which the entity is required to choose a portfolio allocation period and portfolio calculation period for the tax year.
Defined in this Act: Commissioner, notice, portfolio allocation period, portfolio calculation period, portfolio tax rate entity, provisional tax, tax year, year,
Compare: 2004 No 35 s HL 22
HL 24 Payments of tax by portfolio tax rate entity choosing to make payments when investor leaves
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When this section applies
(1) This section applies to a portfolio tax rate entity for a tax year if—
(a) the portfolio allocation period and the portfolio calculation period of the entity for the tax year are 1 day; and
(b) the entity chooses to be subject to this section for the tax year.
Amount of payment for withdrawing investor
(2) After each portfolio investor exit period for an investor in a portfolio investor class, the entity must make a payment to the Commissioner—
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(a) of an amount of income tax equal to the portfolio entity tax liability of the entity for—
(i) the portfolio investor exit period; and
(ii) the investor as a member of the portfolio investor class; and
(b) within the period of 1 month beginning from the end of the month in which the portfolio investor exit period ends.
Amount of payment for investors remaining at end of tax year
(3) After each tax year, the entity must make a payment to the Commissioner—
(a) of an amount of income tax equal to the entity’s portfolio entity tax liability for the tax year for the investors in the entity at the end of the tax year, allowing for any payment made under subsection (2) or section HL 25 by the entity for any of the investors; and
(b) within the period of 1 month beginning from the end of the tax year.
Entity not required to pay provisional tax
(4) The entity is not required to pay provisional tax under subpart RC (Provisional tax) for the tax year.
Notice of election
(5) The entity must give the Commissioner notice of an election to be subject to this section—
(a) in the prescribed form; and
(b) by the date by which the entity is required to choose a portfolio allocation period and portfolio calculation period for the tax year.
Defined in this Act: Commissioner, income tax, interest, investor, notice, portfolio allocation period, portfolio calculation period, portfolio entity tax liability, portfolio investor class, portfolio investor exit period, portfolio tax rate entity, provisional tax, tax year,
Compare: 2004 No 35 s HL 23
HL 25 Optional payments of tax by portfolio tax rate entities
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When this section applies
(1) This section applies when a portfolio tax rate entity pays an amount of tax under section HL 22 or HL 24 and an investor reduces their portfolio investor interest in the entity.
Optional payment
(2) The entity may pay an amount of income tax to the Commissioner that represents an amount of its portfolio entity tax liability for the investor and the investor’s portfolio investor interest for the tax year.
Timing of payment
(3) A payment under this section must be made by the end of the month after—
(a) the portfolio calculation period in which the reduction of the investor’s portfolio investor interest occurs, if the entity pays tax under section HL 22; or
(b) the month in which the reduction of the investor’s portfolio investor interest occurs, if the entity pays tax under section HL 24.
Defined in this Act: amount, Commissioner, income tax, investor, pay, portfolio calculation period, portfolio entity tax liability, portfolio investor interest, portfolio tax rate entity, tax year,
Compare: 2004 No 35 s HL 23B
Results for investors
HL 26 Portfolio investor allocated income and portfolio investor allocated loss
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When this section applies
(1) This section applies to a person who is treated by a portfolio tax rate entity or portfolio investor proxy as an investor in a portfolio tax rate entity on a day in a tax year.
Portfolio investor allocated income for period
(2) The person is treated as deriving an amount of portfolio investor allocated income in an income year from the portfolio tax rate entity. The amount is equal to the greater of zero and the amount described in subsection (4) for portfolio allocation periods in the entity’s income year that ends in the person’s income year.
Portfolio investor allocated loss for period
(3) The person is treated as having an amount of portfolio investor allocated loss in an income year in relation to the portfolio tax rate entity. The amount is equal to,—
-
(a) for a portfolio tax rate entity that pays tax under section HL 22 or HL 24, the greater of—
(i) the amount by which zero is more than the amount described in subsection (4) for portfolio allocation periods in the entity’s income year that ends in the person’s income year:
(ii) zero; or
(b) for a portfolio tax rate entity that pays tax under section HL 23, zero.
Amount
(4) The amount that determines whether an investor has portfolio investor allocated income or portfolio investor allocated loss for a period containing portfolio allocation periods is the total of the amounts calculated using the formula in subsection (5) for—
(a) each portfolio allocation period in the period; and
(b) each day of the portfolio allocation period; and
(c) each portfolio investor class to which the investor belongs on the day.
Formula
(5) The formula is—
Definition of items in formula
(6) In the formula,—
(a) investor fraction is the portfolio investor interest fraction of the investor as part of the portfolio investor class on the day:
(b) income is the amount under section HL 20 of the portfolio class taxable income for the portfolio allocation period:
(c) loss is the amount under section HL 20 of the portfolio class taxable loss for the portfolio investor class for the portfolio allocation period:
(d) days in period is the number of days in the portfolio allocation period:
(e) fees is the amount of fees for ongoing management and administration services paid from or charged to the account of the investor as a member of the portfolio investor class on the day in the portfolio allocation period:
(f) credits is the amount of credits for fees paid or credited by the entity to the account of the investor as a member of the portfolio investor class on the day in the portfolio allocation period.
Defined in this Act: amount, investor, portfolio allocation period, portfolio class taxable income, portfolio class taxable loss, portfolio investment entity, portfolio investor allocated income, portfolio investor allocated loss, portfolio investor class, portfolio investor interest fraction, portfolio investor proxy, tax year,
Compare: 2004 No 35 s HL 24
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HL 27 Treatment of portfolio investor allocated loss for zero-rated portfolio investors and investors with portfolio investor exit period
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When this section applies
(1) This section applies for an investor in a portfolio tax rate entity for a period in a tax year, if—
(a) the investor is a zero-rated portfolio investor and the period is a tax year:
(b) the entity makes payments of income tax under section HL 22 and the period is a portfolio investor exit period for the investor.
Deduction for excess of portfolio investor allocated loss
(2) The investor is allowed a deduction under section DB 53(1) (Portfolio investment entities: zero-rated portfolio investors and allocated losses) in the income year corresponding to the tax year of an amount equal to the total amount of portfolio investor allocated loss under section HL 26 for the period.
Defined in this Act: amount, deduction, income year, investor, portfolio allocation period, portfolio investor allocated income, portfolio investor allocated loss, portfolio investor exit period, tax year, zero-rated portfolio investor,
Compare: 2004 No 35 s HL 25
Tax credits for entity
HL 28 Treatment of portfolio investor allocated loss for other investors
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Investor in entity making payments of tax under section HL 22
(1) A portfolio tax rate entity that makes payments of tax under section HL 22 has a tax credit under section LS 1 (Tax credits for portfolio tax rate entities relating to certain investors) for a portfolio calculation period and an investor in a portfolio investor class if—
(a) the portfolio calculation period does not include a part of a portfolio investor exit period for the investor; and
(b) the investor is not a zero-rated portfolio investor.
Investor in entity making payments of tax under section HL 24
(2) A portfolio tax rate entity that makes payments of tax under section HL 24 has a tax credit under section LS 1, for a tax year and an investor as a member of a portfolio investor class, at the time that the entity would be required to make a payment of tax in relation to the tax year and the investor if the entity were liable, or were to have chosen to make such a payment instead of having a tax credit.
Defined in this Act: amount, deduction, income year, investor, portfolio allocation period, portfolio investment entity, portfolio investor allocated income, portfolio investor allocated loss, portfolio investor rate, tax credit, tax year, zero-rated portfolio investor,
Compare: 2004 No 35 s HL 26
HL 29 Credits received by portfolio tax rate entity or portfolio investor proxy
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When this section applies
(1) This section applies to an entity that receives an imputation credit, a credit for tax paid in a foreign country or territory, or a credit for tax paid or withheld if the entity is—
(a) a portfolio tax rate entity that has not made an election under section HL 23:
(b) a portfolio investor proxy for an investor in a portfolio tax rate entity that has not made an election under section HL 23.
Use of credit by entity
(2) The entity may not, except as allowed by this section,—
(a) use the credit to reduce the liability of the entity for income tax or to obtain a refund of income tax:
(b) attach the credit to any distribution or transfer the credit to any other person.
Tax credit allocated to investor
(3) For a portfolio allocation period and a portfolio investor class to which the entity allocates a credit, the amount of the credit that is allocated to an investor is the total of the amounts calculated using the formula in subsection (4) for each day of the period.
Formula
(4) The formula is—
Definition of items in formula
(5) In the formula in subsection (4),—
(a) credit is the amount of the credit received by the entity in relation to the portfolio entity investment that gives rise to the credit:
(b) class fraction is the portfolio class fraction, of the investor’s portfolio investor class, in relation to the portfolio entity investment:
(c) investor fraction is the portfolio investor interest fraction of the investor:
(d) days in period is the number of days in the portfolio allocation period.
Application of subsections (7) to (13)
(6) For an investor in a portfolio tax rate entity who is allocated under subsection (3) a credit for a portfolio allocation period in a portfolio calculation period,—
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(a) subsections (7) and (8) apply—
(i) to the income year in which the tax year ends, if the investor is a zero-rated portfolio investor; or
(ii) to the income year corresponding to the tax year, if the entity pays tax under section HL 22 and the portfolio allocation period includes part of a portfolio investor exit period for the investor:
(b) subsection (9) applies to credits that are allocated to a portfolio allocation period in a portfolio investor exit period and are not treated as a credit against tax payable by the entity, if the entity makes payments of tax under section HL 24 and the investor is not a zero-rated portfolio investor:
(c) subsections (10) and (13) apply if subsections (7) and (9) do not apply.
Zero-rated portfolio investor or investor with portfolio investor exit period for interest in entity that makes payments under section HL 22
(7) The investor is treated as receiving for the tax year corresponding to the income year for the allocated credits,—
(a) if the investor is not a portfolio tax rate entity and the credits are under subpart LJ (Tax credits for foreign income tax), a credit against income tax payable by the investor of the amount set out in subsection (8):
(b) if the investor is a portfolio tax rate entity or the credits are not under subpart LJ, the allocated amount of each type of credit.
Amount of credit for foreign tax: certain zero-rated portfolio investors and withdrawing investors
(8) An investor to whom subsection (7)(a) applies is treated as receiving for the tax year, for credits under subpart LJ, a credit that is the lesser of—
(a) the amount of the allocated credits:
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(b) the amount calculated by multiplying the amount of portfolio investor allocated income for the investor for the tax year by,—
(i) for an investor other than a zero-rated portfolio investor, the investor’s portfolio investor rate for the portfolio allocation period ending before the investor’s portfolio investor exit period; or
(ii) for a zero-rate portfolio investor, the basic rate of tax for the investor for the tax year under schedule 1 (Basic tax rates: income tax, ESCT, RWT, and attributed fringe benefits).
Investor with portfolio investor exit period for interest in entity that makes payments under section HL 24
(9) The investor is treated as receiving for the tax year of the portfolio calculation period, for credits other than under subpart LJ, the unused allocated amount of each type of credit.
Other investors: credit for entity for foreign tax credits
(10) The entity is treated as receiving for the tax year of the portfolio calculation period, for credits under subpart LJ allocated to a portfolio investor class and an investor other than a zero-rated portfolio investor as a member of the portfolio investor class, a credit of an amount set out in subsection (12) against income tax payable by the entity as described in subsection (11).
Use of credit
(11) The credit is against income tax payable by the entity for—
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(a) the portfolio calculation period and portfolio calculation periods—
(i) late in the tax year, if the entity pays tax under section HL 22; or
(ii) earlier or later in the tax year, if the entity pays tax under section HL 23 or HL 24; and
(b) the investor as a member of the portfolio investor class or another portfolio investor class.
Amount of credit
(12) The amount of the credit is the lesser of the following:
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(a) the total of—
(i) the credits allocated to the portfolio calculation period and the investor as a member of the portfolio investor class; and
(ii) the credits allocated to earlier portfolio calculation periods in the tax year and the investor that are not used by the entity as a credit against income tax payable for those portfolio calculation periods and for the investor as a member of the portfolio investor class or another portfolio investor class:
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(b) the amount of the entity’s portfolio entity tax liability—
(i) for the investor as a member of the portfolio investor class or another portfolio investor class; and
(ii) the portfolio calculation period and earlier portfolio calculation periods in the tax year; and
(iii) not met by a credit allocated to an earlier portfolio calculation period.
Other investor: credit for entity for other credits
(13) The amount of the credits not under subpart LJ allocated to the investor under subsection (3) is treated as—
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(a) a credit against tax payable by the entity of the amount that is the lesser of the following:
(i) the amount of the credits:
(ii) the amount referred to in subsection (11)(b), reduced by the amount of the credit given by subsection (11):
(b) a tax credit under section LS 1 (Tax credits for portfolio tax rate entities relating to certain investors), for the entity and the portfolio calculation period, of the amount of the credits that is not used under paragraph (a).
Defined in this Act: amount, income tax, investor, net income, portfolio allocation period, portfolio class fraction, portfolio entity investment, portfolio investment entity, portfolio investor allocated income, portfolio investor class, portfolio investor exit period, portfolio investor interest fraction, portfolio investor proxy, tax credit, tax year, zero-rated portfolio investor,
Compare: 2004 No 35 s HL 27
Treatment of losses for entity
HL 30 Portfolio entity formation loss
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Portfolio entity formation loss
(1) The portfolio entity formation loss of a portfolio investment entity is the total amount for the entity, at the time the entity becomes a portfolio investment entity, of a loss balance arising from a period ending before the entity becomes a portfolio investment entity that may be carried forward under subpart IA (General rules for tax losses) to the quarter in which the entity becomes a portfolio investment entity.
Carrying forward portfolio entity formation loss of entity other than portfolio tax rate entity
(2) The portfolio entity formation loss of a portfolio investment entity that is not a portfolio tax rate entity or that makes payments of income tax under section HL 23 may be carried forward under subpart IA to an income year in which the entity is a portfolio investment entity.
Amount of formation loss available for allocation
(3) The maximum amount of portfolio entity formation loss that a portfolio tax rate entity may allocate to a portfolio allocation period (the relevant period) is—
(a) the amount of the loss that has not been allocated to an earlier portfolio allocation period if, at the time the entity becomes a portfolio investment entity, the amount of the loss is less than 5% of the total market value of the entity’s portfolio entity investments; or
(b) the amount calculated using the formula in subsection (4), if paragraph (a) does not apply.
Formula
(4) The formula referred to in subsection (3)(b) is—
Definition of items in formula
(5) In the formula in subsection (4),—
(a) initial loss is the amount of portfolio entity formation loss at the time the entity becomes a portfolio investment entity:
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(b) days is—
(i) the number of days in the period beginning with the day on which the entity becomes a portfolio investment entity and ending on the last day of the relevant period, if that number is less than or equal to 1095; or
(ii) 1095, if paragraph (a) does not apply:
(c) loss used is the amount of portfolio entity formation loss allocated to portfolio allocation periods before the relevant period.
Amount of formation loss available for allocation to investor class
(6) The maximum amount of portfolio entity formation loss that a portfolio tax rate entity may allocate to a portfolio investor class for a relevant period is the lesser of the following amounts:
(a) the maximum amount of portfolio entity formation loss for the relevant period set out in subsection (3):
-
(b) the amount calculated using the formula—
Definition of items in formula
(7) In the formula in subsection (6)(b),—
(a) class net income is the amount of portfolio class net income for the portfolio investor class for the portfolio allocation period:
-
(b) credits is the total amount allocated to the portfolio investor class and the relevant period of—
(i) imputation credits:
(ii) Maori authority credits:
(iii) credits for RWT:
(iv) FDP credits:
(c) rate is the rate of tax for companies set out in schedule 1, part A, clause 5 (Basic tax rates: income tax, ESCT, RWT, and attributed fringe benefits).
Defined in this Act: amount, FDP credit, imputation credit, loss balance, Maori authority credit, net income, portfolio allocation period, portfolio class net income, portfolio entity formation loss, portfolio entity investment, portfolio investment entity, portfolio investor class, portfolio tax rate entity, RWT, tax credit,
Compare: 2004 No 35 s HL 28
HL 31 Portfolio class taxable income and portfolio class taxable loss for tax year
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Portfolio class taxable income for tax year
(1) The portfolio class taxable income under this section for a portfolio investor class for a tax year is—
(a) the amount calculated for the tax year under subsection (3), if the calculated amount is more than zero; or
(b) zero, if paragraph (a) does not apply.
Portfolio class taxable loss for tax year
(2) The portfolio class taxable loss under this section for a portfolio investor class for a tax year is—
(a) the amount by which zero exceeds the amount calculated for the tax year under subsection (3), if the calculated amount is less than zero; or
(b) zero, if paragraph (a) does not apply.
Calculation of amount for tax year
(3) The amount calculated under this subsection for the portfolio investor class and the tax year is the total of the amounts calculated for each portfolio allocation period in the tax year using the formula—
class tax income − class tax loss.
Definition of items in formula
(4) The items in the formula are defined in subsections (5) and (6).
Class tax income
(5) Class tax income is the amount of the portfolio class taxable income under section HL 20 of the portfolio investor class for the portfolio allocation period.
Class tax loss
(6) Class tax loss is the amount of the portfolio class taxable loss under section HL 20 of the portfolio investor class for the portfolio allocation period.
Defined in this Act: amount, portfolio allocation period, portfolio class taxable income, portfolio class taxable loss, portfolio investor class, portfolio investor interest fraction, tax year,
Compare: 2004 No 35 s HL 29
HL 32 Treatment of portfolio class taxable loss and portfolio class land loss for tax year
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Portfolio class taxable loss for tax year other than portfolio class land loss
(1) If a portfolio investor class of an entity paying tax under section HL 22 or HL 24 has, for a portfolio calculation period, a portfolio class taxable loss that is not a portfolio class land loss, the portfolio class taxable loss may not be carried forward to a later portfolio calculation period.
Portfolio class land loss for tax year
(2) If a portfolio investor class has a portfolio class land loss for a portfolio calculation period, the portfolio class land loss may be carried forward for the portfolio investor class to following portfolio calculation periods and used to reduce the amount of portfolio class taxable income under section HL 20 for a later portfolio allocation period.
Meaning of portfolio class land loss
(3) A portfolio class land loss, for a portfolio investor class, means the portfolio class taxable loss of the portfolio investor class for a portfolio calculation period—
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(a) at the end of which, the class has interests in portfolio entity investments that—
(i) are investments in land or shares in a portfolio land company; and
(ii) have a portfolio class investment value that is more than 50% of the portfolio class investment value for all portfolio entity investments in which the class has interests; and
(b) for which the class has a portfolio class taxable loss of more than zero.
Defined in this Act: land, net income, net loss, portfolio class investment value, portfolio class land loss, portfolio class taxable income, portfolio class taxable loss, portfolio entity investment, portfolio investment entity, portfolio investor class, portfolio land company, tax year,
Compare: 2004 No 35 s HL 30
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Portfolio investor proxies
HL 33 Portfolio investor proxies
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Eligibility of person to be portfolio investor proxy
(1) An entity is eligible to be a portfolio investor proxy for an investor in a portfolio investment entity for a portfolio allocation period if—
(a) the portfolio investment entity is not a portfolio listed company; and
(b) the entity holds a portfolio investor interest for an investor in the portfolio investment entity; and
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(c) the entity gives to the portfolio investment entity—
(i) a notice that the entity is holding the portfolio investor interest as a portfolio investor proxy; and
(ii) other information that the Commissioner requires the entity to provide with the notice.
Role of portfolio investor proxy
(2) An entity who is a portfolio investor proxy holding a portfolio investor interest for an investor for a portfolio allocation period must perform the responsibilities given by subsection (3) in relation to amounts allocated to the entity as holder of the interest for the period as if—
(a) the entity were a portfolio investment entity; and
(b) the portfolio investor interest were an interest of the investor in the income of the entity; and
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(c) the portfolio investor allocated income, portfolio investor allocated loss, and distributions received by the entity for the investor were income or loss—
(i) of the entity; and
(ii) to which the investor is entitled by the portfolio investor interest.
Responsibilities of portfolio investor proxy
(3) The responsibilities of an entity referred to in subsection (2) in relation to amounts allocated to the entity are to—
(a) allocate, to the investor, portfolio investor allocated income and portfolio investor allocated loss for the portfolio allocation period; and
(b) distribute, to the investor, distributions and credits for the period; and
(c) pay income tax on portfolio investor allocated income for the period; and
(d) adjust the portfolio investor interest of the investor, or the distributions to the investor, to reflect the effect of the investor’s portfolio investor rate on the amount of distributions under paragraph (b) and payments under paragraph (c); and
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(e) provide to the Commissioner—
(i) returns relating to the allocations, distributions, credits, and payments referred to in paragraphs (a) to (c); and
(ii) other information that the Commissioner requires the entity to provide; and
(f) provide to each portfolio investment entity in which the portfolio investor proxy holds portfolio investor interests for investors in a portfolio investor class, information concerning the investors and the portfolio investor interests that may be relevant to whether the portfolio investment entity meets the eligibility requirements for the entity.
Defined in this Act: Commissioner, income, income tax, investor, loss, notice, portfolio allocation period, portfolio investment entity, portfolio investor allocated income, portfolio investor allocated loss, portfolio investor class, portfolio investor interest, portfolio investor proxy, portfolio investor rate, tax year,
Compare: 2004 No 35 s HL 31
Subpart HR—Other entities
Partnerships and joint ventures
HR 1 Partnerships and joint ventures
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Partnership joint return
(1) The partners in a partnership are treated, in their capacity as partners, as if the partnership were a separate person. The partners must—
(a) calculate the net income of the partnership for a tax year; and
(b) for that tax year, provide a joint return of income for the partnership under section 42(1)(b) of the Tax Administration Act 1994, in addition to the partners’ individual returns of income.
Partner’s separate income tax obligations
(2) Despite subsection (1), each partner in a partnership has a separate obligation under section BB 2 (Main obligations) for calculating and satisfying their income tax liability, including an obligation in relation to their share of income derived by the partnership.
Joint income
(3) A person (person A), other than a partner or co-trustee, who derives income or has a deduction jointly with another person must—
(a) calculate the net income of person A for a tax year, taking into account their share of the joint income or deduction; and
(b) for that tax year, provide a separate return of income under section 42(1)(c) of the Tax Administration Act 1994.
Airport operators excluded
(4) Subsection (3) does not apply to an amount derived or incurred by an airport operator in relation to activities carried on as an airport operator.
Defined in this Act: airport operator, amount, deduction, income, income tax liability, net income, return of income, tax year,
Compare: 2004 No 35 s HD 1(1)(b), (c), (2)
Funds
HR 2 Group investment funds
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Separate returns
(1) The trustee of a group investment fund must provide for a tax year under section 33 of the Tax Administration Act 1994, separate returns of its category A income and its category B income.
Designated group investment fund, category B income: application of trust rules
(2) If the trustee of a group investment fund derives an amount that is income derived from investments and funds of a designated group investment fund or category B income, the amount is treated as income derived by the trustee and the trust rules apply.
Category A income: application of company rules
(3) If the trustee of a group investment fund derives from the investments and funds of the group investment fund an amount that is category A income, the amount is treated as income of a notional company.
Defined in this Act: amount, category A income, category B income, designated group investment fund, group investment fund, income, return of income, tax year, trust, trust rules, trustee,
Compare: 2004 No 35 s HE 2(1), (1A)
HR 3 Definitions for section HR 2: group investment funds
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Category A income
(1) Category A income, for a group investment fund other than a designated group investment fund in an income year, means the amount of income derived from the investments and funds of the group investment fund that is calculated using the formula—
Definitions for items in formula
(2) In the formula,—
(a) last day value is the current value of all investments and funds of the group investment fund on the last day of the income year:
(b) designated source investments is the current value of the designated source investments in the group investment fund on the last day of the income year:
(c) pre-1983 investments is the current value of the pre-1983 investments in the group investment fund on the last day of the income year:
(d) income is the total income derived from all investments and funds of the group investment fund in the income year.
Category B income
(3) Category B income, for a group investment fund other than a designated group investment fund, means the income derived from investments and funds of the group investment fund that is not category A income for the income year.
Current value
(4) Current value, for a group investment fund and a day in an income year, means the capital value, as defined by the Trustee Companies Act 1967 or the Public Trust Act 2001, of the investments and funds of the group investment fund that is—
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(a) either—
(i) last determined before the day under section 31 of the Trustee Companies Act 1967 or section 66 of the Public Trust Act 2001; or
(ii) determined on the day, if that day is the day on which the capital value is determined; and
(b) for the purposes of the definition of designated source investments in subsection (7), and pre-1983 investments in subsection (8), determined as if those investments and funds comprised all the investments and funds in the group investment fund at the time.
Designated sources
(5) Designated sources, for a group investment fund, means a trust, other than the trust under which the fund is established, whose trustee is a trustee of the group investment fund, that—
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(a) is created—
(i) by will or codicil, or by order of court varying or modifying the provisions of a will or codicil; or
(ii) on intestacy, including a partial intestacy, or by an order of court varying or modifying, in relation to an estate, the application of the law relating to the distribution of intestate estates; or
(iii) by an order of court; or
(iv) by an enactment; or
(v) to administer funds that are compensation or other money arising from the death of, or injury to, a person; or
(vi) to vary the terms of a will or codicil or, in relation to an estate, to vary the application of the law relating to the distribution of intestate estates, in either case for the sole purpose of effecting a settlement out of court of an application made, or proposed to be made, under the Family Protection Act 1955 or a claim, or a proposed claim, to be made under the Law Reform (Testamentary Promises) Act 1949, if the terms are mainly the same as those likely to have been ordered by the court:
(b) is not carried on for the private benefit of an individual whose funds are applied entirely or mainly for benevolent, philanthropic, cultural, or public purposes in New Zealand.
Designated group investment fund
(6) Designated group investment fund means a group investment fund whose investments and funds are invested wholly—
(a) in investments authorised under section 4(1)(a) to (j) of the Trustee Act 1956, which is interpreted as if the Trustee Amendment Act 1988 had not been enacted, and are not investments authorised solely by the instrument creating the trust under which the fund is established; or
(b) in, and for the purposes of, the carrying on of a forestry business on land in New Zealand, to the extent to which the investments and funds are invested in the land that the fund owned or otherwise held on 22 June 1983 for the purposes of the forestry business.
Designated source investments
(7) Designated source investments, for a group investment fund at any time, means investments and funds from designated sources invested at the time in the group investment fund.
Pre-1983 investments
(8) Pre-1983 investments, for a group investment fund at any time, means investments and funds that were invested in the group investment fund at 22 June 1983, other than designated source investments, as if those investments and funds had continued to be invested at the time, including—
(a) money deposited between 15 June and 23 June 1983 with the trustee of the group investment fund for investment in the fund; and
(b) money deposited between 22 June and 16 July 1983 with the trustee of the group investment fund for investment in the fund, which, on or before 22 June 1983, was subject to a binding commitment to deposit that money.
Defined in this Act: amount, business, category A income, category B income, Commissioner, current value, designated group investment fund, designated source investments, designated sources, group investment fund, income, income year, New Zealand, pre-1983 investments, trustee,
Compare: 2004 No 35 ss HE 2(2), (3), OB 1 category A income, category B income, current value, designated group investment fund, group investment fund
HR 4 Government Superannuation Fund
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The Government Superannuation Fund Authority is treated for income tax purposes as if the Government Superannuation Fund were a superannuation scheme that is a trust and the Authority the trustee of that scheme.
Defined in this Act: income tax, Government Superannuation Fund, superannuation scheme, trust, trustee,
Compare: 2004 No 35 s HJ 1
Airport operators
HR 5 Airport operators: general
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When this section applies
(1) This section and sections HR 6 and HR 7 apply to determine for this Act certain aspects of the treatment of an airport operator that is a joint venture between the Crown and a local authority.
Company
(2) The airport operator is treated as a company.
Shares in company
(3) Each joint venturer is treated as holding shares in the company in proportion to their share of the profits of the joint venture, as determined under the joint venture agreement (after allowing for adjustments for earlier income years).
Separate from joint ventures
(4) The airport operator is treated as a person separate from—
(a) the Crown; and
(b) each airport authority; and
(c) each other person.
Neither public nor local authority
(5) The airport operator is treated as neither a public authority nor a local authority.
Not subject to mutual association rules
(6) The airport operator is not treated as a mutual association for the purposes of subpart HE (Mutual associations).
Interest-bearing funding
(7) Subsection (8) applies to the extent to which—
(a) a joint venturer provides funds for the airport operator’s activities; and
(b) the joint venturers expressly agree that the funds are to be provided for the airport operator’s activities; and
(c) the funds are provided for consideration in the nature of interest payable by the airport operator.
Funding
(8) The funds are treated as money borrowed by the airport operator and the consideration is treated as interest.
Defined in this Act: airport authority, airport operator, airport operator’s activities, association, company, interest, local authority, public authority, share,
Compare: 2004 No 35 s OC 1(2)
HR 6 Airport operator’s assets
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Ownership of airport assets
(1) An airport operator is treated as owning each of its airport assets.
Time of acquisition
(2) An airport operator is treated as having acquired an asset at the time—
(a) it acquired it other than by way of purchase:
(b) it agreed to use it:
(c) it started to have the power to use it.
Cost of acquisition
(3) An airport operator is treated as having incurred, in acquiring an asset, its market value at the time of acquisition.
Ceasing to be airport asset
(4) If an asset ceases to be an airport asset of the airport operator, other than on sale, the airport operator is treated as having sold it, at the time, for a price equal to its market value at the time.
Disputes concerning value or timing
(5) Subsection (6) applies if a question arises concerning—
(a) the market value of an asset:
(b) the cost of an airport asset:
(c) the time at which an airport operator acquired, agreed to use, or started to have the power to use an asset.
Resolved by agreement or Commissioner
(6) The question must be resolved by agreement between the airport operator and the Commissioner or, failing agreement, by the Commissioner.
Meaning of airport asset
(7) In this section, for an airport operator, airport asset means—
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(a) an asset that, under the joint venture agreement and for the purposes of the airport operator’s activities, the airport authority—
(i) acquires:
(ii) agrees to use:
(iii) is given the power to use:
(b) an asset owned by a person for the purposes of a depreciation sinking fund for an airport asset:
(c) an asset owned by a person for the purposes of a loan redemption sinking fund for a loan on which the interest payments are a charge against the joint venture income of the airport operator:
(d) an asset acquired by the airport operator using funds that are, or by exchanging property that is, acquired in carrying on the airport operator’s activities and not allocated or distributed to the joint venturers.
Exclusion
(8) Subsection (7)(a) does not apply to an asset that—
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(a) the airport operator has—
(i) disposed of:
(ii) ceased to agree to use:
(iii) ceased to have the power to use:
(b) the airport operator has acquired, agreed to use or acquired the power to use under a lease, unless the lease is a specified lease or a finance lease.
Defined in this Act: acquire, airport asset, airport authority, airport operator, airport operator’s activities, Commissioner, finance lease, interest, loan, specified lease,
Compare: 2004 No 35 s OC 1(2)–(6)
HR 7 Meaning of airport operator’s activities
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Meaning of airport operator’s activities
(1) In sections HR 5 and HR 6, airport operator’s activities means the following activities undertaken for the purposes of the airport operator’s joint venture agreement concerning the airport, including the airport’s approaches, buildings and equipment:
(a) its establishment:
(b) its improvement:
(c) its maintenance:
(d) its operation:
(e) its management.
Meaning of airport
(2) In this section, airport has the meaning given in section 2 of the Airport Authorities Act 1966.
Defined in this Act: airport, airport operator, airport operator’s activities,
Compare: 2004 No 35 s OC 1(6)
Transitional residents
HR 8 Transitional residents
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Person deriving foreign-sourced amount
(1) A person who derives a foreign-sourced amount is treated as being a non-resident in relation to the amount if the person derives the amount when they are a transitional resident.
Meaning of transitional resident
(2) A person is a transitional resident if—
(a) they are resident in New Zealand; and
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(b) for a continuous period (the non-residence period) of at least 10 years immediately before they meet the requirements of section YD 1(2) to (4) (Residence of natural persons) for becoming resident in New Zealand, they—
(i) did not meet the requirements of that section:
(ii) were not resident in New Zealand; and
(c) they were not a transitional resident before the non-residence period; and
(d) they have not ceased to be a transitional resident after the end of the non-residence period.
Natural persons
(3) A natural person who meets the requirements of subsection (2) and does not make an election under subsection (4) is a transitional resident for a period—
(a) beginning from the first day of the residence required by subsection (2)(b); and
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(b) ending on the day that is the earlier of—
(i) the day before the person stops being a New Zealand resident:
(ii) the last day of the 48th month after the month in which they meet the requirements of section YD 1(2) to (4).
Choosing not to be transitional resident
(4) A person who would otherwise be a transitional resident in an income year may choose by notice under subsection (5) not to be a transitional resident for a period—
(a) beginning on or after the start of the income year; and
(b) ending immediately before the person stops meeting the requirements of subsection (2).
Applying for tax credits
(5) An application under section 41 of the Tax Administration Act 1994 by a person who is eligible to be a transitional resident for a tax credit under subparts MA to MF and MZ (which relate to tax credits for families) for an income year is treated for the period of the application as—
(a) a notice of election under subsection (4) by the person if they have not made one; and
(b) a notice of election under subsection (4) by a spouse, civil union partner, or de facto partner of the person.
Election irrevocable
(6) An election under subsection (4) is irrevocable.
Defined in this Act: foreign-sourced amount, New Zealand resident, non-resident, notice, resident in New Zealand, tax credit, transitional resident,
Compare: 2004 No 35 ss FC 22—FC 24
Subpart HZ—Terminating provisions
HZ 1 Distributions from trusts of pre-1989 tax reserves
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When this section applies
(1) This section applies if, and to the extent to which, a distribution is received from a trust that is not a unit trust, a group investment fund, or a superannuation scheme, when the distribution—
(a) consists of an amount of income or a capital gain derived by the trustee in the 1987–88 or earlier tax year; and
(b) is not also beneficiary income to which an entitlement exists in the tax year.
Treatment of distribution
(2) The distribution is not income, and the provisions of this Act and the Tax Administration Act 1994 that correspond to the provisions of the Income Tax Act 1976, the Income Tax Act 1994, the Income Tax Act 2004, and the Income Tax Amendment Act (No 5) 1988 specified in the proviso to section 9 of the Act last referred to, do not apply.
Defined in this Act: beneficiary income, distribution, group investment fund, income, superannuation scheme, tax year, trustee, trustee income, unit trust,
Compare: 2004 No 35 s HZ 1
HZ 2 Trusts that may become complying trusts
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When this section applies
(1) This section applies in relation to a settlement made on a trust on or before 17 December 1987, whether or not further settlements have been made on the trust after that date, when a settlor, trustee, or beneficiary of the trust chose under section 228(7) of the Income Tax Act 1976 on or before 31 May 1989 to pay income tax on trustee income derived in the 1988–89 tax year and later tax years.
Trustee income derived in earlier tax years
(2) Trustee income that is derived from outside New Zealand, or derived from New Zealand only as non-resident passive income in relation to which the income tax obligations have been satisfied, in the 1987–88 tax year and earlier tax years when no trustee was resident in New Zealand is treated as liable to income tax, other than only as non-resident passive income.
Trustee’s obligations
(3) The trustee’s obligations in relation to their income tax liability on the trustee income are treated as having been satisfied.
Defined in this Act: complying trust, derived from New Zealand, income tax, income tax liability, New Zealand, non-resident passive income, pay, resident in New Zealand, settlement, settlor, tax year, trustee, trustee income,
Compare: 2004 No 35 s HZ 2
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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