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Income Tax Act 2007
Income Tax Act 2007
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Income Tax Act 2007
Part E Timing and quantifying rules
Subpart EA—Matching rules: revenue account property, prepayments, and deferred payments
Contents
EA 1 Trading stock, livestock, and excepted financial arrangements
Property subject to matching rules
(1)
The matching rules described in this section apply to each of the following kinds of property:
(a)
trading stock valued under subpart EB (Valuation of trading stock (including dealer’s livestock)):
(b)
livestock valued under subpart EC (Valuation of livestock):
(c)
excepted financial arrangements that are revenue account property valued under subpart ED (Valuation of excepted financial arrangements):
(d)
a share supplier’s share-lending right, if the original shares that relate to the right are excepted financial arrangements described in paragraph (c).
Application of section CH 1
(2)
When a person has any of those kinds of property at the end of an income year, its value is income of the person in the income year under section CH 1 (Adjustment for closing values of trading stock, livestock, and excepted financial arrangements).
Application of section DB 49
(3)
When a person has any of those kinds of property at the start of an income year, they are allowed a deduction for its value in the income year under section DB 49 (Adjustment for opening values of trading stock, livestock, and excepted financial arrangements).
Determination of values
(4)
The values are determined under—
(a)
section EB 3 (Valuation of trading stock); and
(b)
section EC 2 (Valuation of livestock); and
(c)
section ED 1 (Valuation of excepted financial arrangements).
Defined in this Act: deduction, excepted financial arrangement, income, income year, original share, pay, revenue account property, share-lending right, share supplier, trading stock
Compare: 2004 No 35 s EA 1
EA 2 Other revenue account property
When this section applies
(1)
This section applies to revenue account property that is not—
(a)
trading stock valued under subpart EB (Valuation of trading stock (including dealer’s livestock)):
(b)
livestock valued under subpart EC (Valuation of livestock):
(c)
an excepted financial arrangement valued under subpart ED (Valuation of excepted financial arrangements):
(d)
a film or a film right to which sections EJ 4 to EJ 8 (which relate to films) apply:
(e)
property under a specified lease or a lease to which section EJ 10 (Personal property lease payments) applies:
(f)
property that arises as a result of petroleum development expenditure or petroleum exploration expenditure to which sections DT 1, DT 5, and EJ 12 to EJ 20 (which relate to petroleum mining) apply:
(fb)
property that arises as a result of mining development expenditure or mining exploration expenditure to which sections EJ 20B to EJ 20E (which relate to mineral mining) apply:
(fc)
property fitted to an aircraft engine as part of an aircraft engine overhaul to which section DW 5 (Aircraft operators: aircraft engines and aircraft engine overhauls) applies:
(g)
a financial arrangement valued under subpart EW (Financial arrangements rules).
Timing of deduction
(2)
A deduction for the cost of revenue account property of a person is allocated to the earlier of—
(a)
the income year in which the person disposes of the property; and
(b)
the income year in which the property ceases to exist.
Defined in this Act: aircraft engine, aircraft engine overhaul, deduction, excepted financial arrangement, film, film right, financial arrangement, income year, lease, pay, petroleum development expenditure, petroleum exploration expenditure, revenue account property, specified lease, trading stock
Compare: 2004 No 35 s EA 2
Section EA 2(1)(e): replaced, on 29 March 2018 (with effect on 1 April 2008), by section 64(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EA 2(1)(f): amended, on 29 March 2018 (with effect on 1 April 2008), by section 64(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EA 2(1)(fb): inserted, on 1 April 2014, by section 45 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EA 2(1)(fc): inserted, on 1 April 2017, by section 54(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EA 2 list of defined terms aircraft engine: inserted, on 1 April 2017, by section 54(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EA 2 list of defined terms aircraft engine overhaul: inserted, on 1 April 2017, by section 54(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
EA 3 Prepayments
When this section applies
(1)
This section applies when—
(a)
a person has been allowed a deduction for expenditure under this Act or an earlier Act; and
(b)
the expenditure was not incurred on the items described in subsection (2); and
(c)
some or all of the expenditure is unexpired under subsections (4) to (7) at the end of the person’s income year.
Exclusions
(2)
This section does not apply to expenditure incurred on—
(a)
revenue account property to which section EA 2 applies:
(b)
trading stock valued under subpart EB (Valuation of trading stock (including dealer’s livestock)):
(c)
livestock valued under subpart EC (Valuation of livestock):
(d)
an excepted financial arrangement valued under subpart ED (Valuation of excepted financial arrangements):
(db)
a leasehold estate, or licence to use land, to which section EI 4B (Consideration for agreement to grant, renew, extend, or transfer leasehold estate or licence) applies:
(e)
a film or a film right to which sections EJ 4 to EJ 8 (which relate to films) apply:
(f)
a specified lease or a lease to which section EJ 10 (Personal property lease payments) applies:
(g)
property that arises as a result of petroleum development expenditure or petroleum exploration expenditure to which sections EJ 12 to EJ 20 (which relate to petroleum mining) apply:
(gb)
property that arises as a result of mining development expenditure or mining exploration expenditure to which sections EJ 20B to EJ 20E (which relate to mineral mining) apply:
(h)
a financial arrangement valued under subpart EW (Financial arrangements rules).
Unexpired portion
(3)
The unexpired portion of a person’s expenditure at the end of an income year—
(a)
is income of the person in the income year under section CH 2 (Adjustment for prepayments); and
(b)
is an amount for which the person is allowed a deduction in the following income year under section DB 50 (Adjustment for prepayments), if subsection (4B) does not apply.
Unexpired portion: expenditure on goods
(4)
An amount of expenditure on goods is unexpired at the end of an income year if, by the end of the income year,—
(a)
the person has not used up the goods in deriving income; and
(b)
the goods are not destroyed or rendered useless for the purpose of deriving income.
Expenditure on goods used in aircraft engine overhaul
(4B)
The unexpired portion of expenditure on pieces that are fitted to an aircraft engine as part of an aircraft engine overhaul is treated as being expenditure incurred in carrying out the aircraft engine overhaul for the purposes of sections DW 5 and DW 6 (which relate to the acquisition, overhaul, and leasing of aircraft engines).
Unexpired portion: expenditure on services
(5)
An amount of expenditure on services is unexpired at the end of an income year if the services have not been performed by the end of the income year.
Unexpired portion: expenditure on choses in action
(6)
An amount of expenditure on a chose in action is unexpired at the end of an income year if the amount relates to a period of enforceability of the chose in action falling after the income year.
Allowances reimbursing employees
(7)
In the case of expenditure subject to sections CW 16B to CW 16F, CW 17, CW 17B, CW 17C, CW 17CB, CW 17CC, and CW 18 (which relate to expenditure, reimbursement, and allowances of employees), this section applies on the basis that the relevant services were performed in the income year in which the employee’s expenditure is expected to occur.
Commissioner’s discretionary relief
(8)
The Commissioner may excuse a person from complying with this section under section 91AAC of the Tax Administration Act 1994.
Defined in this Act: aircraft engine, aircraft engine overhaul, amount, Commissioner, deduction, employee, film, film right, goods, income, income year, land, leasehold estate, pay, revenue account property, services
Compare: 2004 No 35 s EA 3
Section EA 3(2)(db): inserted (with effect on 1 April 2013), on 17 July 2013, by section 38(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EA 3(2)(gb): inserted, on 1 April 2014, by section 46 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EA 3(3)(b): amended, on 1 April 2017, by section 55(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EA 3(4B) heading: inserted, on 1 April 2017, by section 55(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EA 3(4B): inserted, on 1 April 2017, by section 55(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EA 3(7): amended, on 1 April 2015, by section 64 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EA 3(7): amended (with effect on 1 April 2008), on 6 October 2009, by section 111 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EA 3 list of defined terms aircraft engine: inserted, on 1 April 2017, by section 55(3) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EA 3 list of defined terms aircraft engine overhaul: inserted, on 1 April 2017, by section 55(3) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EA 3 list of defined terms land: inserted (with effect on 1 April 2013), on 17 July 2013, by section 38(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EA 3 list of defined terms leasehold estate: inserted (with effect on 1 April 2013), on 17 July 2013, by section 38(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
EA 4 Deferred payment of employment income
When this section applies
(1)
This section applies when—
(a)
a person is allowed a deduction in an income year for an amount of expenditure on employment income; and
(b)
the person has not paid the amount at the end of—
(i)
the 63rd day after the end of the income year; or
(ib)
the income year, if they choose, in a return of income, to not use paragraph (i) or (ii); or
(ii)
the period described in subsection (3), for employment income paid to a shareholder-employee.
Unpaid amount
(2)
The unpaid amount is—
(a)
income of the person in the income year under section CH 3 (Adjustment for deferred payment of employment income); and
(b)
an amount for which the person is allowed a deduction in the following income year under section DB 51 (Adjustment for deferred payment of employment income).
Extension of payment period for shareholder-employee
(3)
For employment income paid to a shareholder-employee, the 63 day period for payment in subsection (1)(b)(i) is extended until the last date by which the person could file a return of income for the income year if the time for filing were extended to its maximum under section 37(5) of the Tax Administration Act 1994.
Disposal of business: obligations transferred to non-associates
(4)
For the purposes of this section, a person (the seller) who disposes of a business, or a part of a business, to another person (the buyer) is treated as paying, at the time of the disposal, an amount of employment income of an employee working in the business if—
(a)
the seller and the buyer are not associated persons at the time of the disposal; and
(b)
the seller has incurred the obligation to pay the amount in the course of their business, whether or not it remains a contingent obligation at the time of the disposal; and
(c)
the employee becomes an employee of the buyer under the disposal arrangements; and
(d)
the seller and the buyer agree in writing, under the disposal arrangements, that—
(i)
the buyer assumes the obligation to pay an amount of employment income to the employee; and
(ii)
the consideration payable by the buyer for the business, or the part of the business, reflects the buyer’s assumption of the seller’s provision for the obligation.
Disposal of business: obligations transferred to associates
(5)
If subsection (4) would have applied but for the fact that the seller and the buyer are associated at the time of the disposal,—
(a)
the amount of employment income is not treated as income of the seller in any income year following the disposal, despite subsection (2)(a) and section CH 3; and
(b)
the seller is denied a deduction for the amount of employment income in any income year following the disposal, despite subsection (2)(b) and section DB 51; and
(c)
the buyer may be allowed a deduction under section DC 10(3) (Disposal of business: transferred employment income obligations).
No disposal: obligations transferred to associates
(6)
If section DC 11 (Transfers of employment income obligations to associates) applies,—
(a)
the amount of employment income is not treated as income of the transferor (person A) in any income year following the disposal, despite subsection (2)(a) and section CH 3; and
(b)
the transferor is denied a deduction for the amount of employment income in any income year following the disposal, despite subsection (2)(b) and section DB 51; and
(c)
the transferee (person B) may be allowed a deduction under section DC 11.
Accounting treatment of transferred obligations
(7)
For the purposes of this section, the buyer of a business, or a part of a business, who assumes at the time of the disposal an obligation to pay an amount of employment income—
(a)
may account for the amount in a way that treats the relevant employee individually or treats the buyer’s employees as a group; and
(b)
must account for the amount in the same way in each relevant income year.
Defined in this Act: amount, arrangement, associated person, business, deduction, employee, employment income, income, income year, pay, return of income, shareholder-employee, time of the disposal
Compare: 2004 No 35 s EA 4
Section EA 4(1)(b)(ib): inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 79(1) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section EA 4(4) heading: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EA 4(4): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EA 4(4)(a): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EA 4(4)(b): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EA 4(4)(c): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EA 4(4)(d): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EA 4(5) heading: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EA 4(5): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EA 4(5)(a): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EA 4(5)(b): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EA 4(5)(c): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EA 4(6) heading: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EA 4(6)(a): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EA 4(6)(b): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EA 4(7): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EA 4 list of defined terms time of the disposal: inserted (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EA 4 list of defined terms time of the sale: repealed (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Subpart EB—Valuation of trading stock (including dealer’s livestock)
Contents
Introductory provisions
EB 1 When this subpart applies
This subpart applies when a person who owns or carries on a business has trading stock for the purpose of selling or exchanging it in the ordinary course of the business.
Defined in this Act: business, trading stock
Compare: 2004 No 35 s EB 1
EB 2 Meaning of trading stock
Meaning
(1)
Trading stock means property that a person who owns or carries on a business has for the purpose of selling or exchanging in the ordinary course of the business.
Inclusions
(2)
Trading stock includes—
(a)
work of the following kinds that would be trading stock under subsection (1) if it were completed:
(i)
partly completed work:
(ii)
work in progress:
(b)
materials that the person has for use in producing trading stock:
(c)
property on which the person has incurred expenditure, when the property would, if they had it, be trading stock under subsection (1) or paragraph (a) or (b):
(d)
property leased under a hire purchase agreement when the property—
(i)
is treated as having been acquired by the lessor under section FA 15 (Treatment when agreement ends: seller acquiring property); and
(ii)
is an asset of a business that the lessor carries on.
Exclusions
(3)
Trading stock does not include—
(a)
land:
(b)
depreciable property:
(c)
a financial arrangement to which the financial arrangements rules or the old financial arrangements rules apply:
(d)
an excepted financial arrangement that a life insurer has:
(e)
an excepted financial arrangement held by a person if section CX 55 (Proceeds from disposal of investment shares) applies to the income of the person from a disposal of the excepted financial arrangement:
(f)
livestock not used in a dealing business:
(g)
consumable aids to be used in the process of producing trading stock:
(h)
a spare part not held for sale or exchange:
(i)
an emissions unit:
(j)
a greenhouse gas unit that is not an emissions unit.
Defined in this Act: business, depreciable property, emissions unit, excepted financial arrangement, financial arrangement, greenhouse gas unit, hire purchase agreement, income, land, lessor, life insurer, trading stock
Compare: 2004 No 35 s EB 2
Section EB 2(3)(e): amended, on 1 April 2010, by section 112(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EB 2(3)(h): amended, on 26 September 2008, by section 72(1) of the Climate Change Response (Emissions Trading) Amendment Act 2008 (2008 No 85).
Section EB 2(3)(i): substituted (with effect on 1 January 2009), on 6 October 2009, by section 112(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EB 2(3)(j): replaced, on 30 November 2020, by section 280 of the Climate Change Response (Emissions Trading Reform) Amendment Act 2020 (2020 No 22).
Section EB 2 list of defined terms emissions unit: inserted (with effect on 1 January 2009), on 6 October 2009, by section 112(3)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EB 2 list of defined terms ETS unit: repealed (with effect on 1 January 2009), on 6 October 2009, by section 112(3)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EB 2 list of defined terms greenhouse gas unit: inserted, on 30 November 2020, by section 280 of the Climate Change Response (Emissions Trading Reform) Amendment Act 2020 (2020 No 22).
Section EB 2 list of defined terms non-Kyoto greenhouse gas unit: repealed, on 30 November 2020, by section 280 of the Climate Change Response (Emissions Trading Reform) Amendment Act 2020 (2020 No 22).
EB 3 Valuation of trading stock
Valuation method
(1)
A person who carries on a business must determine the value of their trading stock at the end of each income year by a method that is available under this subpart for them to use.
Use of value
(2)
The value determined under subsection (1) is—
(a)
the closing value of the trading stock for the income year for the purposes of section CH 1 (Adjustment for closing values of trading stock, livestock, and excepted financial arrangements); and
(b)
the opening value of the trading stock for the next income year for the purposes of section DB 49 (Adjustment for opening values of trading stock, livestock, and excepted financial arrangements).
Excepted financial arrangements valued at cost
(3)
Despite anything in this subpart, the value of any trading stock that is an excepted financial arrangement must be determined under subpart ED (Valuation of excepted financial arrangements).
Defined in this Act: business, excepted financial arrangement, income year, trading stock
Compare: 2004 No 35 s EB 3
EB 4 Trading stock valuation methods
Standard valuation
(1)
The standard valuation methods for trading stock are—
(a)
cost:
(b)
discounted selling price:
(c)
replacement price:
(d)
market selling value.
Low-turnover valuation
(2)
A person who is a low-turnover trader may value closing stock by a method described in section EB 14.
Low value trading stock
(3)
In certain circumstances, a person may value closing stock under section EB 23.
Defined in this Act: closing stock, cost, low-turnover trader, trading stock
Compare: 2004 No 35 s EB 4
EB 5 Transfers of trading stock within wholly-owned groups
When this section applies
(1)
This section applies in an income year to trading stock held by a company that is part of a wholly-owned group of companies, when—
(a)
a group company (company A) originally acquires and holds the trading stock; and
(b)
from the time it is acquired to the end of the income year, the trading stock is held within the group by a company or companies that are resident in New Zealand; and
(c)
through transfers within the group, another group company (company B) holds the trading stock at the end of the income year; and
(d)
company A and company B remain part of the group at the end of the income year; and
(e)
either—
(i)
the income years of company A and company B end on the same date; or
(ii)
they end on different dates, and the Commissioner has approved both dates as corresponding to the end of a business cycle and as necessary to avoid material distortion of net income that would occur if the income years ended on the same date.
Choice of treatment
(2)
Company B may choose to value the closing stock at the cost of the trading stock to company A.
When company stops being part of group
(3)
If the companies stop being part of the same wholly-owned group, company B is treated as disposing of and reacquiring the trading stock for its market value at the time. If the market value of the trading stock cannot be determined separately from other property, its market value at the time company B acquired it is treated as its value.
Defined in this Act: business, closing stock, Commissioner, company, cost, income year, market value, net income, resident in New Zealand, trading stock, wholly-owned group of companies
Compare: 2004 No 35 s EB 5
Standard valuation
EB 6 Cost
Valuation at cost
(1)
A person may determine the value of their closing stock at cost. If the person chooses this method, they must include and allocate costs under generally accepted accounting practice or as described in subsection (1B)(b).
Valuation at cost: agricultural produce
(1B)
Despite subsection (1), a person who uses NZIAS 41 for their trading stock in their financial statements must—
(a)
value their closing stock at cost; and
(b)
include and allocate costs so that the value of their closing stock is not materially different from the value of the closing stock obtained by applying NZIAS 2, ignoring paragraph 20 of NZIAS 2.
Whether valuation correct
(2)
For the purposes of subsection (1), the person has not complied with generally accepted accounting practice if the value of closing stock is materially different from the value obtained by applying, to the closing stock, NZIAS 2 or an equivalent standard issued in its place.
Definition
(3)
In this section, NZIAS 41 means New Zealand Equivalent to International Accounting Standard 41, in effect under the Financial Reporting Act 2013 as amended from time to time, or an equivalent standard issued in its place.
Defined in this Act: closing stock, cost, generally accepted accounting practice, NZIAS 2, NZIAS 41
Compare: 2004 No 35 s EB 6
Section EB 6(1): amended, on 1 April 2008, by section 349(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EB 6(1B) heading: inserted, on 1 April 2008, by section 349(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EB 6(1B): inserted, on 1 April 2008, by section 349(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EB 6(2): amended, on 1 April 2008, by section 349(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EB 6(3) heading: inserted, on 1 April 2008, by section 349(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EB 6(3): inserted, on 1 April 2008, by section 349(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EB 6(3): amended, on 1 April 2014, by section 126 of the Financial Reporting (Amendments to Other Enactments) Act 2013 (2013 No 102).
Section EB 6 list of defined terms NZIAS 2: inserted, on 1 April 2008, by section 349(5) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EB 6 list of defined terms NZIAS 41: inserted, on 1 April 2008, by section 349(5) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EB 7 Cost allocation: cost-flow method
When this section applies: first case
(1)
This section applies when a person who determines the value of their closing stock at cost has items of trading stock that are not separately identifiable.
Compulsory use of cost-flow method
(2)
The person must use 1 of the cost-flow methods described in subsection (5) to identify the items of trading stock included in closing stock and to determine the cost of the items.
When this section applies: second case
(3)
This section also applies when a person who determines the value of their closing stock at cost has items of trading stock that are separately identifiable.
Discretionary use of cost-flow method
(4)
The person may use 1 of the cost-flow methods described in subsection (5) to determine the cost of the items of trading stock.
Cost-flow methods
(5)
The cost-flow methods of allocating costs are—
(a)
the first-in first-out cost method; and
(b)
the weighted average cost method.
Consistent use
(6)
A person who determines the value of their closing stock at cost must use the same cost-flow method of allocating costs as they use in their financial statements for the income year.
Defined in this Act: closing stock, cost, financial statements, income year, trading stock
Compare: 2004 No 35 s EB 7
EB 8 Cost allocation: budgeted method or standard cost method
When this section applies
(1)
This section applies when a person—
(a)
has a business of manufacturing or producing trading stock; and
(b)
determines the value of their closing stock at cost; and
(c)
allocates costs by—
(i)
a budgeted method; or
(ii)
a standard cost method; and
(d)
is not a low-turnover trader to whom section EB 17(3) applies.
Apportionment of difference required
(2)
If any difference arises between the estimated costs of production included in the financial statements of the business for the income year and the actual costs of production, the person must apportion the difference between the cost of trading stock sold or exchanged during the income year and the closing stock.
Defined in this Act: business, closing stock, cost, financial statements, income year, low-turnover trader, trading stock
Compare: 2004 No 35 s EB 8
Section EB 8(2): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EB 9 Discounted selling price
Valuation at discounted selling price
(1)
A person may determine the value of their closing stock at its discounted selling price if they use discounted selling price for their trading stock in their financial statements.
Retailers
(2)
If the person is a retailer, the discounted selling price for each department or category of goods is the total of the retail selling prices of the goods minus the normal gross profit margin for the department or category of goods. This subsection is overridden by subsection (4).
Normal gross profit margin for purposes of subsection (2)
(3)
For the purposes of subsection (2), the person must—
(a)
calculate the normal gross profit margin for the department or category of goods under NZIAS 2 or an equivalent standard issued in its place; and
(b)
calculate the normal gross profit margin for each income year for each department or category of goods; and
(c)
include all costs that sections EB 6 to EB 8 require to be included.
Retailers with turnover of $1,000,000 or less
(4)
A trader who is a retailer whose turnover is $1,000,000 or less may determine the discounted selling price of all closing stock valued under this method in an income year by discounting the total of the retail selling prices of the stock by the average gross profit margin for all closing stock valued under this method in the income year.
Increase in specified sum
(5)
The Governor-General may make an Order in Council increasing the sum specified in subsection (4).
Secondary legislation
(5B)
An Order in Council under subsection (5) is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements).
Not retailers
(6)
If the person is not a retailer, the discounted selling price for each category of goods is the total market selling value of the goods minus the normal gross profit margin for the category of goods.
Normal gross profit margin for purposes of subsection (6)
(7)
For the purposes of subsection (6), the person must—
(a)
calculate the normal gross profit margin for each income year for each category of goods; and
(b)
include all costs that sections EB 6 to EB 8 require to be included.
Defined in this Act: closing stock, cost, financial statements, income year, NZIAS 2, trading stock, turnover
Compare: 2004 No 35 s EB 9
| Legislation Act 2019 requirements for secondary legislation made under this section | ||||
| Publication | PCO must publish it on the legislation website and notify it in the Gazette | LA19 s 69(1)(c) | ||
| Presentation | The Minister must present it to the House of Representatives | LA19 s 114, Sch 1 cl 32(1)(a) | ||
| Disallowance | It may be disallowed by the House of Representatives | LA19 ss 115, 116 | ||
| This note is not part of the Act. | ||||
Section EB 9(3)(a): amended, on 1 April 2008, by section 350(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EB 9(5B) heading: inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
Section EB 9(5B): inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
Section EB 9 list of defined terms NZIAS 2: inserted, on 1 April 2008, by section 350(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EB 10 Replacement price
Valuation at replacement price
(1)
A person may determine the value of their closing stock at its replacement price if they use replacement price for their trading stock in their financial statements.
Establishing replacement price
(2)
The replacement price—
(a)
is—
(i)
the market value of the trading stock on the last day of the income year; or
(ii)
if there is no such market value, the last price that the person paid during the income year to acquire equivalent trading stock; and
(b)
does not include an amount of input tax for the supply of the replacement trading stock to the person.
Defined in this Act: closing stock, financial statements, income year, input tax, trading stock
Compare: 2004 No 35 s EB 10
EB 11 Market selling value
Valuation at market selling value
(1)
A person may determine the value of their closing stock at its market selling value if the market selling value is less than the cost of the stock.
Establishing market selling value
(2)
The market selling value of closing stock is found by taking the amount that the person would normally expect to receive in the ordinary course of business from the sale of the trading stock and subtracting the following costs:
(a)
the estimated costs of completion; and
(b)
the expected costs of selling it.
Expected costs of selling
(3)
For the purposes of subsection (2)(b), the expected costs of selling the stock are the costs that the person usually incurs for the following:
(a)
transport:
(b)
insurance:
(c)
sales commissions:
(d)
discounts to buyers.
Expected costs of selling: financial statements
(4)
For the purposes of subsection (3), if the person prepares financial statements, the costs must have been taken into account in the statements in calculating net realisable value.
Substantiating market selling value
(5)
If the person uses market selling value to value closing stock, they must be able to substantiate that value. If they cannot, they must use 1 of the following to value their closing stock:
(a)
cost, as described in sections EB 6 to EB 8 or EB 15 to EB 18; or
(b)
discounted selling price, as described in section EB 9 or EB 19; or
(c)
replacement price, as described in section EB 10 or EB 20.
Defined in this Act: amount, business, closing stock, cost, financial statements, trading stock
Compare: 2004 No 35 s EB 11
EB 12 Valuing closing stock consistently
In determining the value of closing stock at cost, discounted selling price, or replacement price, a person must comply with the consistency and disclosure requirements of NZIAS 8 or an equivalent standard issued in its place.
Defined in this Act: closing stock, cost, NZIAS 8
Compare: 2004 No 35 s EB 12
Section EB 12: amended, on 1 April 2008, by section 351(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EB 12 list of defined terms NZIAS 8: inserted, on 1 April 2008, by section 351(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Low-turnover valuation
EB 13 Low-turnover valuation
Options
(1)
A person who is a low-turnover trader may value closing stock—
(a)
by a standard valuation method, as described in sections EB 6 to EB 12; or
(b)
by a low-turnover valuation method, as described in sections EB 14 to EB 22; or
(c)
as low value trading stock, in the circumstances described in section EB 23.
Meaning of low-turnover trader
(2)
In this subpart, low-turnover trader means a person who carries on a business when, in an income year, the total of the turnover of the business and the turnover of associated persons, as defined in sections YB 2 and YB 3 (which contain definitions of associated persons), is no more than the greater of—
(a)
$3,000,000; and
(b)
the sum specified by the Governor-General by Order in Council.
Increase in specified sum
(3)
The Governor-General may make an Order in Council increasing the sum specified in subsection (2)(a).
Secondary legislation
(4)
An Order in Council under this section is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements).
Defined in this Act: associated person, business, closing stock, income year, low-turnover trader, turnover
Compare: 2004 No 35 s EB 13
| Legislation Act 2019 requirements for secondary legislation made under this section | ||||
| Publication | PCO must publish it on the legislation website and notify it in the Gazette | LA19 s 69(1)(c) | ||
| Presentation | The Minister must present it to the House of Representatives | LA19 s 114, Sch 1 cl 32(1)(a) | ||
| Disallowance | It may be disallowed by the House of Representatives | LA19 ss 115, 116 | ||
| This note is not part of the Act. | ||||
Section EB 13(2): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 113(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EB 13(4) heading: inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
Section EB 13(4): inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
EB 14 Low-turnover valuation methods
The low-turnover valuation methods are—
(a)
cost for low-turnover traders; and
(b)
discounted selling price for low-turnover traders; and
(c)
replacement price for low-turnover traders; and
(d)
market selling value for low-turnover traders.
Defined in this Act: cost, low-turnover trader
Compare: 2004 No 35 s EB 14
EB 15 Cost for low-turnover traders
A low-turnover trader may determine the value of their closing stock at cost. If the low-turnover trader chooses this method, they must include and allocate costs under—
(a)
generally accepted accounting practice; or
(b)
section EB 16; or
(c)
section EB 17; or
(d)
Defined in this Act: closing stock, cost, generally accepted accounting practice, low-turnover trader
Compare: 2004 No 35 s EB 15
EB 16 Cost allocation: cost-flow method for low-turnover traders
Section EB 7(1) to (5) applies to a low-turnover trader.
Defined in this Act: cost, low-turnover trader
Compare: 2004 No 35 s EB 16
EB 17 Costs: manufactured or produced stock of low-turnover traders
When this section applies
(1)
This section applies when a low-turnover trader—
(a)
has a business of manufacturing or producing trading stock; and
(b)
determines the value of their closing stock at cost.
Costs to be included
(2)
In determining the value of their closing stock, the low-turnover trader must include the following costs of production:
(a)
direct and indirect material costs:
(b)
direct and indirect labour costs:
(c)
utilities costs:
(d)
costs of repairing and maintaining factory plant:
(e)
costs of rent of factory plant:
(f)
amounts of depreciation loss on factory plant:
(g)
costs additional to those described in paragraphs (a) to (f), if—
(i)
they are costs of production; and
(ii)
the low-turnover trader includes them in the financial statements for the income year.
Apportionment of difference not required
(3)
If the low-turnover trader allocates costs by a budgeted method or a standard cost method, and if any difference arises between the estimated costs of production included in the financial statements of the business for the income year and the actual costs of production, the low-turnover trader is not required to apportion the difference between the cost of trading stock sold or exchanged during the income year and the closing stock.
Defined in this Act: amount, business, closing stock, cost, depreciation loss, financial statements, income year, low-turnover trader, trading stock
Compare: 2004 No 35 s EB 17
Section EB 17(3): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EB 18 Costs: other stock of low-turnover traders
When this section applies
(1)
This section applies when a low-turnover trader—
(a)
acquires trading stock other than by manufacture or production; and
(b)
determines the value of their closing stock at cost.
Costs to be included
(2)
In determining the value of their closing stock, the low-turnover trader must include the following costs:
(a)
the acquisition cost; and
(b)
any direct transport and insurance costs that they incur in bringing the stock to the place and condition in which they have it.
Defined in this Act: closing stock, cost, low-turnover trader, trading stock
Compare: 2004 No 35 s EB 18
Section EB 18(2)(a): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EB 19 Discounted selling price for low-turnover traders
Financial statements prepared
(1)
A low-turnover trader who prepares financial statements may determine the value of their closing stock at its discounted selling price if they use discounted selling price for their trading stock in their financial statements.
Financial statements not prepared
(2)
A low-turnover trader who does not prepare financial statements may determine the value of their closing stock at its discounted selling price.
Retailers with turnover of more than $1,000,000
(3)
If the low-turnover trader is a retailer whose turnover is more than $1,000,000, the discounted selling price for each department or category of goods is the total of the retail selling prices of the goods minus the normal gross profit margin for the department or category of goods.
Normal gross profit margin for purposes of subsection (3)
(4)
For the purposes of subsection (3), the low-turnover trader must—
(a)
calculate the normal gross profit margin for the department or category of goods under NZIAS 2 or an equivalent standard issued in its place; and
(b)
calculate the normal gross profit margin for each income year for each department or category of goods; and
(c)
include all costs that sections EB 16 to EB 18 require to be included.
Not retailers
(5)
If the low-turnover trader is not a retailer, the discounted selling price for each category of goods is the total market selling value of the goods minus the normal gross profit margin for the category of goods.
Normal gross profit margin for purposes of subsection (5)
(6)
For the purposes of subsection (5), the low-turnover trader must—
(a)
calculate the normal gross profit margin for each income year for each category of goods; and
(b)
include all costs that sections EB 16 to EB 18 require to be included.
Defined in this Act: closing stock, cost, financial statements, income year, low-turnover trader, NZIAS 2, trading stock, turnover
Compare: 2004 No 35 s EB 19
Section EB 19(4)(a): amended, on 1 April 2008, by section 352(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EB 19 list of defined terms NZIAS 2: inserted, on 1 April 2008, by section 352(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EB 20 Replacement price for low-turnover traders
Financial statements prepared
(1)
A low-turnover trader who prepares financial statements may determine the value of their closing stock at its replacement price if they use replacement price for their trading stock in their financial statements.
Financial statements not prepared
(2)
A low-turnover trader who does not prepare financial statements may determine the value of their closing stock at its replacement price.
Establishing replacement price
(3)
The replacement price is—
(a)
the market value of the trading stock on the last day of the income year; or
(b)
the last price that the low-turnover trader paid during the income year to acquire equivalent trading stock.
Defined in this Act: financial statements, income year, low-turnover trader, trading stock
Compare: 2004 No 35 s EB 20
EB 21 Market selling value for low-turnover traders
Valuation at market selling value
(1)
A low-turnover trader may determine the value of their closing stock at its market selling value, whether that value is higher or lower than cost. However, if the value is higher than cost, the trader must be consistent from 1 income year to the next in their use of market selling value to determine the value of closing stock.
Establishing market selling value
(2)
Section EB 11(2) to (4) applies to a low-turnover trader.
Defined in this Act: closing stock, cost, income year, low-turnover trader
Compare: 2004 No 35 s EB 21
EB 22 Valuing closing stock consistently for low-turnover traders
Traders complying with generally accepted accounting practice
(1)
In determining the value of closing stock at cost, discounted selling price, or replacement price, a low-turnover trader who complies with generally accepted accounting practice must comply with the consistency and disclosure requirements of NZIAS 8 or an equivalent standard issued in its place.
Other traders
(2)
A low-turnover trader who does not comply with generally accepted accounting practice must be consistent from 1 income year to the next in—
(a)
their choice of valuing closing stock at cost, discounted selling price, or replacement price; and
(b)
their use of market selling value, if it is greater than cost; and
(c)
their use of a cost-flow method of allocating costs under section EB 7(1) to (5); and
(d)
the extent to which they include indirect costs in the cost of trading stock that they manufacture or produce; and
(e)
their method of calculating discounted selling price.
When changes allowed
(3)
A low-turnover trader to whom subsection (2) applies may make changes in relation to the matters described in the subsection if—
(a)
the change is justified by sound commercial reasons and for this purpose, the advancement, deferral, or reduction of an income tax liability is not a sound commercial reason; or
(b)
the change is required by another provision in this subpart.
Records
(4)
A low-turnover trader who makes a change as described in subsection (3) must keep sufficient details of the change, and the reasons for the change, under section 22 of the Tax Administration Act 1994.
Defined in this Act: closing stock, cost, generally accepted accounting practice, income tax liability, income year, low-turnover trader, NZIAS 8, trading stock
Compare: 2004 No 35 s EB 22
Section EB 22(1): amended, on 1 April 2008, by section 353(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EB 22 list of defined terms NZIAS 8: inserted, on 1 April 2008, by section 353(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Low value trading stock
EB 23 Valuing closing stock under $10,000
When this section applies
(1)
This section applies when a person, including a low-turnover trader,—
(a)
has a turnover of $1,300,000 or less in an income year; and
(b)
reasonably estimates that the value of their closing stock for the income year is less than $10,000.
Closing value
(2)
The person may use the opening value of their trading stock as the value of their closing stock for the income year.
Defined in this Act: closing stock, income year, low-turnover trader, trading stock, turnover
Compare: 2004 No 35 s EB 23
Section EB 23 heading: amended, on 1 April 2009, by section 5(1) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
Section EB 23(1)(b): amended, on 1 April 2009, by section 5(2) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
Disposal of business assets
EB 24 Apportionment on disposal of business assets that include trading stock
When this section applies
(1)
This section applies when a person disposes of trading stock together with other assets of a business to another person. This section also applies if a person disposes of an interest in trading stock together with other assets of a business or an interest in those other assets, whether or not the disposal of the partial interest is to another person.
Apportionment
(2)
The total amount received on disposal must be apportioned between the trading stock and the other assets in a way that reflects their respective market values.
Purchase price
(3)
The amount apportioned to the trading stock under subsection (2) is treated as the price paid for it by the buyer.
Disposals of timber
(4)
For the purposes of this section, a disposal of timber is treated as—
(a)
including the creation or grant of a right to take timber:
(b)
including a disposal of land with standing timber except to the extent to which the timber is any of the following:
(i)
trees that are ornamental or incidental, as evidenced by a certificate given under section 44C of the Tax Administration Act 1994; or
(ii)
timber subject to a forestry right, as defined in section 2 of the Forestry Rights Registration Act 1983, registered under the Land Transfer Act 2017; or
(iii)
timber subject to a profit a prendre granted before 1 January 1984.
Transfers under settlement of relationship property
(5)
A disposal under this section includes a transfer under a settlement of relationship property.
Defined in this Act: amount, business, dispose, financial arrangement, financial arrangements rules, land, market value, registered bank, right to take timber, settlement of relationship property, timber, trading stock
Compare: 2004 No 35 ss FB 4, FF 13(1)
Section EB 24(1): amended (with effect on 1 April 2008), on 7 September 2010, by section 27(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EB 24(4)(b)(ii): amended, on 12 November 2018, by section 250 of the Land Transfer Act 2017 (2017 No 30).
Subpart EC—Valuation of livestock
Contents
Introductory provisions
EC 1 Application of this subpart
When this subpart applies
(1)
This subpart applies to the valuation of property when a person who owns or carries on a business, other than of selling livestock, holds livestock for the purposes of sale or exchange in the ordinary course of carrying on the business.
Groups of livestock
(2)
For the purposes of this subpart, livestock is divided into—
(a)
specified livestock:
(b)
non-specified livestock:
(c)
high-priced livestock:
(d)
bloodstock.
Defined in this Act: bloodstock, business, high-priced livestock, non-specified livestock, specified livestock
Compare: 2004 No 35 s EC 1
Section EC 1(1) heading: replaced (with effect on 1 April 2008), on 2 November 2012, by section 30(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EC 1(1): replaced (with effect on 1 April 2008), on 2 November 2012, by section 30(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
EC 2 Valuation of livestock
Valuation method
(1)
A person must determine the value of their livestock at the end of each income year by a method that is available under this subpart for them to use.
Use of value
(2)
The value determined under subsection (1) is—
(a)
the closing value of the livestock for the income year for the purposes of section CH 1 (Adjustment for closing values of trading stock, livestock, and excepted financial arrangements); and
(b)
the opening value of the livestock for the next income year for the purposes of section DB 49 (Adjustment for opening values of trading stock, livestock, and excepted financial arrangements).
Defined in this Act: income year
Compare: 2004 No 35 s EC 2
EC 3 Livestock valuation methods
Specified livestock
(1)
The value of specified livestock is determined under sections EC 6 to EC 27.
Non-specified livestock
(2)
The value of non-specified livestock is determined under sections EC 28 to EC 31.
High-priced livestock
(3)
The value of high-priced livestock is determined under sections EC 32 to EC 37.
Bloodstock
(4)
The value of bloodstock is determined under sections EC 38 to EC 48.
Defined in this Act: bloodstock, high-priced livestock, non-specified livestock, specified livestock
Compare: 2004 No 35 s EC 3
EC 4 Transfers of livestock within wholly-owned groups
When this section applies
(1)
This section applies in an income year to livestock held by a company that is part of a wholly-owned group of companies, when—
(a)
a group company (company A) originally acquires and holds the livestock; and
(b)
from the time it is acquired to the end of the income year, the livestock is held within the group by a company or companies that are resident in New Zealand; and
(c)
through transfers within the group, another group company (company B) holds the livestock at the end of the income year; and
(d)
company A and company B remain part of the group at the end of the income year; and
(e)
either—
(i)
the income years of company A and company B end on the same date; or
(ii)
they end on different dates, and the Commissioner has approved both dates as corresponding to the end of a business cycle and as necessary to avoid material distortion of net income that would occur if the income years ended on the same date.
Choice of treatment
(2)
Company B may choose to value the livestock at the cost of the livestock to company A.
When company stops being part of group
(3)
If the companies stop being part of the same wholly-owned group, company B is treated as disposing of and reacquiring the livestock for its market value at the time. If the market value of the livestock cannot be determined separately from other property, its market value at the time company B acquired it is treated as its value.
Defined in this Act: business, Commissioner, company, income year, net income, resident in New Zealand, wholly-owned group of companies
Compare: 2004 No 35 s EC 5
EC 4B Compulsory use of herd scheme method for associated persons
When this section applies
(1)
This section applies if, in an income year (the current year), a person (the transferor) disposes of livestock of a type for which they use the herd scheme (the transfer) to an associated person (the transferee), and the transfer is not in the ordinary course of business.
When this section does not apply
(2)
This section does not apply to the transfer of livestock if,—
(a)
the transferor and the transferee would not be associated if the transferee or an associate were not the descendants in relation to the transferor or an associate of the transferor; and
(b)
the transfer is at market value and the transfer’s consideration is wholly on arm’s length commercial terms and conditions, ignoring terms and conditions relating to financing; and
(c)
for the transferor and associates of the transferor, but excluding their descended associates,—
(i)
all of their specified livestock in the income year of the transfer have been disposed of; and
(ii)
they do not derive income from the disposal of specified livestock that are part of a farming business in the next 4 income years.
When this section does not apply: deceased treated as alive and transferor
(3)
This section does not apply if it would not apply treating a transfer of livestock to or from the estate of a deceased or under a will of a deceased as a transfer made by the deceased immediately before their death to the relevant transferee. However, this subsection does not apply if the will of the deceased creates a life interest in the relevant livestock.
Compulsory use of herd scheme method
(4)
Despite sections EC 7(2), EC 12(1), EC 22(1), and EC 25(1), the transferee is treated as choosing and giving a notice of election, with application beginning for the current year, to use the herd scheme for a type of livestock, if the formula in subsection (5) calculates zero or a positive amount for a class in the type of livestock.
Formula
(5)
The formula, for the purposes of subsections (1) and (4), is—
hypothetical end herd scheme amount − minimum herd scheme amount.
Definition of items in formula
(6)
In the formula,—
(a)
hypothetical end herd scheme amount is the lesser of the following 2 amounts, or the first amount if they are the same:
(i)
the number of animals in the current year that the person would have of a class (the relevant class), adding back animals in all transfers described in subsection (1) that this section would apply to:
(ii)
the number of animals of the relevant class that the person valued under the herd scheme at the end of the year before the current year:
(b)
minimum herd scheme amount is the number of animals of the relevant class that the person has in the current year.
Definitions
(7)
In this section,—
(a)
descendant means the son, daughter, or grandchild of the transferor or of an associate of the transferor:
(b)
descended associate means—
(i)
an associate (the associate) of the transferor that would not be associated if the associate or another associate were not descendants in relation to the transferor or another associate of the transferor:
(ii)
an associate (the associate) of the transferor that carries on a farming business separately from the transferor, and would not be associated if the associate or another associate were not relatives in relation to the transferor or another associate of the transferor.
Defined in this Act: amount, associated, class, descendant, descended associate, herd scheme, income year, notice
Section EC 4B: inserted (with effect on 28 March 2012), on 17 July 2013, by section 39 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
EC 4C Value and timing of transfers
When this section applies
(1)
This section applies to a transfer (the transfer) of specified livestock that section EC 4B applies to.
Same tax year
(2)
If the transfer occurs in the same tax year for both the transferor and transferee, then the transfer is treated as a disposal and acquisition at the value of the relevant livestock under the herd scheme at the end of the transferor’s corresponding income year.
Different tax year
(3)
If the transfer occurs in different tax years for the transferor and transferee, then subsection (4) or (5) applies.
Different tax year: transferee earlier
(4)
If the transferee acquires the relevant livestock in a tax year earlier than the tax year in which the transferor disposes of it, then the transfer is treated as a disposal and acquisition at the value of the relevant livestock under the herd scheme at the beginning of the transferor’s corresponding income year.
Different tax year: transferee later
(5)
If the transferee acquires the relevant livestock in a tax year (the later tax year) later than the tax year in which the transferor disposes of it, then—
(a)
the transfer is treated as a disposal and acquisition at the value of the relevant livestock under the herd scheme at the end of the transferor’s corresponding income year:
(b)
for the purposes of the transferee’s opening value under section EC 16, the transferee is treated as owning and valuing the relevant livestock under the herd scheme on the last day of the transferee’s income year corresponding to the tax year before the later tax year.
Defined in this Act: herd scheme, income year, specified livestock, tax year
Section EC 4C: inserted (with effect on 28 March 2012), on 17 July 2013, by section 39 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
EC 5 Transfer of livestock because of self-assessed adverse event
When this section applies
(1)
This section applies to livestock that is donated, or supplied for consideration with a value that is less than the market value of the livestock, to a recipient—
(a)
for use in a farming or agricultural business that is affected by a self-assessed adverse event; and
(b)
by a donor or supplier who is not associated with the recipient.
Treatment by donor or supplier
(2)
The donor or supplier must treat the livestock as having, on the day of the transfer of the livestock,—
(a)
no value, if the livestock is donated to the recipient:
(b)
the value of the consideration provided by the recipient.
Treatment by recipient
(3)
The recipient must treat the livestock as having, on the day of the transfer of the livestock,—
(a)
no value, if the livestock is donated to the recipient:
(b)
the value of the consideration provided by the recipient.
Defined in this Act: market value, self-assessed adverse event
Compare: 2004 No 35 s EC 5B
Valuation of specified livestock
EC 6 Application of sections EC 7 to EC 27
Sections EC 7 to EC 27 set out the rules for valuing specified livestock.
Defined in this Act: specified livestock
Compare: 2004 No 35 s EC 6
EC 7 Valuation methods
Methods
(1)
The methods available for valuing specified livestock are—
(a)
the herd scheme described in sections EC 14 to EC 21:
(b)
the national standard cost scheme described in sections EC 22 to EC 24:
(c)
1 of the cost price, replacement price, or market value methods described in section EC 25:
(d)
the method described in section EC 26.
Person chooses
(2)
A person must choose which method to use, making their election by using the method chosen in their return of income for the income year.
Election continues
(3)
When a person chooses a valuation method, that method continues to apply in the following income years unless they choose another method that is available to them.
Commissioner’s determination
(4)
If a person chooses a valuation method that is not available to them and they later make no effective election, the Commissioner must determine the method to be used. In doing so, the Commissioner must consult the person.
Restrictions on use of valuation methods
(5)
Restrictions apply to the use of valuation methods, as described in sections EC 8 to EC 10.
Exception to subsection (2): express notice required in certain cases
(6)
Subsection (2) does not apply to the extent to which an election requires a notice under section EC 11.
Defined in this Act: Commissioner, cost price, herd scheme, income year, national standard cost scheme, notice, return of income, specified livestock
Compare: 2004 No 35 s EC 7
Section EC 7(5) heading: replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 17 July 2013, by section 40(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EC 7(5): replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 17 July 2013, by section 40(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EC 7(6) heading: inserted (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 17 July 2013, by section 40(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EC 7(6) heading: amended, on 2 June 2016, by section 13 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EC 7(6): inserted (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 17 July 2013, by section 40(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EC 7 list of defined terms notice: inserted (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 17 July 2013, by section 40(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
EC 8 Restrictions arising from use of herd scheme
First restriction
(1)
A valuation method other than the herd scheme is not available to a person, in an income year after the 2011–12 income year, for a type of specified livestock if the person—
(a)
gives a notice of election, with application beginning for or before the income year, to use the herd scheme for the type of specified livestock; and
(b)
does not give before 18 August 2011 a later notice of election, with application beginning for or before the income year, to use another valuation method for the type of specified livestock.
First exception: election after 18 August 2011 for fattening business
(2)
Despite subsection (1), a valuation method other than the herd scheme is available to a person in an income year after the 2011–12 income year, if—
(a)
the person gives a notice of election as described in subsection (1)(a); and
(b)
the person gives, on or after 18 August 2011, a later notice of election to use another valuation method for the relevant type of specified livestock (the livestock); and
(c)
the later notice is given, with application beginning for the income year (the starting income year) in which all female breeding livestock cease being intended to be used for breeding purposes; and
(d)
the livestock are used in a fattening farming business for and after the starting income year.
Second exception: increase in a class
(3)
Despite subsection (1), a valuation method other than the herd scheme is available to a person in an income year, to the extent of a person’s animals of a class, in an income year (the current year), that are in excess of the person’s class closing animal balance.
A definition and a formula
(4)
Class closing animal balance means the number of animals of a class calculated using the formula—
last year’s class amount + associated class transfers.
Definition of items in formula
(5)
In the formula,—
(a)
last year’s class amount is the animals of the relevant class that the person valued under the herd scheme at the end of the year before the current year:
(b)
associated class transfers is the amount, if positive, calculated under section EC 4B(5), for the relevant class, that are transferred in the current year to the person to the extent to which section EC 4B(4) applies to the type of animals transferred.
Second restriction
(6)
A person who values livestock of a particular type under the herd scheme must value all male breeding stock of that type under the herd scheme in an income year if, in the income year, they also value any livestock of that type under the national standard cost scheme or under the cost price method.
Defined in this Act: amount, class, class closing animal balance, cost price, herd scheme, income year, national standard cost scheme, notice
Section EC 8: replaced (with effect on 18 August 2011), on 17 July 2013, by section 41(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EC 8(3) heading: replaced (with effect on 28 March 2012), on 17 July 2013, by section 41(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EC 8(3): replaced (with effect on 28 March 2012), on 17 July 2013, by section 41(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EC 8(4) heading: replaced (with effect on 28 March 2012), on 17 July 2013, by section 41(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EC 8(4): replaced (with effect on 28 March 2012), on 17 July 2013, by section 41(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EC 8(5) heading: inserted (with effect on 28 March 2012), on 17 July 2013, by section 41(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EC 8(5): inserted (with effect on 28 March 2012), on 17 July 2013, by section 41(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EC 8(6) heading: inserted (with effect on 28 March 2012), on 17 July 2013, by section 41(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EC 8(6): inserted (with effect on 28 March 2012), on 17 July 2013, by section 41(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EC 8 list of defined terms amount: inserted (with effect on 28 March 2012), on 17 July 2013, by section 41(3) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EC 8 list of defined terms class closing animal balance: inserted (with effect on 28 March 2012), on 17 July 2013, by section 41(3) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EC 8 list of defined terms notice: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
EC 9 Restrictions on use of national standard cost scheme
National standard cost scheme: first restriction on use of scheme
(1)
The national standard cost scheme is not available to a person to value specified livestock in an income year if they value any specified livestock in the income year under the cost price method.
National standard cost scheme: second restriction on use of scheme
(2)
The national standard cost scheme is not available to a person to value specified livestock if, in the income year before the income year in which their election under section EC 7(2) is to apply, they have valued specified livestock under the cost price method, and have not given at least 2 income years’ notice in the way described in section EC 11 to the Commissioner of their election to value specified livestock under the national standard cost scheme.
National standard cost scheme: third restriction on use of scheme
(3)
The national standard cost scheme is not available to a person to value a type of specified livestock in an income year if they have made specified livestock available to another person under a profit-sharing arrangement and, in the income year, the other person, or another person has also made livestock of the type available under the profit-sharing arrangement, values any livestock of the type under the cost price method.
National standard cost scheme: fourth restriction on use of scheme
(4)
The national standard cost scheme is not available to a person to value specified livestock in an income year if—
(a)
they have bailed the livestock to another person under a long-term bailment not made under a profit-sharing arrangement; or
(b)
they have leased the livestock to another person under a long-term bailment not made under a profit-sharing arrangement.
National standard cost scheme: fifth restriction on use of scheme
(5)
The national standard cost scheme is not available to a person to value specified livestock in an income year if a determination made under section EC 24 precludes the use of the national standard cost scheme for the livestock.
Defined in this Act: Commissioner, cost price, income year, lease, long-term bailment, national standard cost scheme, notice, profit-sharing arrangement, specified livestock, type
Compare: 2004 No 35 s EC 9
Section EC 9 list of defined terms notice: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
EC 10 Restrictions on use of cost price method
Cost price method: first restriction on use of method
(1)
The cost price method is not available to a person to value specified livestock in an income year if the person values other specified livestock in the income year under the national standard cost scheme.
Cost price method: second restriction on use of method
(2)
The cost price method is not available to a person to value specified livestock if, in the income year before the income year in which their election under section EC 7(2) is to apply, they have valued specified livestock under the national standard cost scheme and have not given 2 income years’ notice in the way described in section EC 11 to the Commissioner of their election to value specified livestock under the cost price method.
Cost price method: third restriction on use of method
(3)
The cost price method is not available to a person to value specified livestock in an income year if they have bailed or leased their specified livestock to another person, unless the livestock is bailed or leased under a profit-sharing arrangement.
Cost price method: fourth restriction on use of method
(4)
The cost price method is not available to a person to value specified livestock in an income year if they have bailed or leased their specified livestock to another person—
(a)
under a long-term bailment; or
(b)
under a short-term bailment made between associated persons in which the consideration paid to the bailee is not a fair market value.
Cost price method: fifth restriction on use of method
(5)
The cost price method is not available to a person to value a type of specified livestock in an income year if they have made specified livestock available to another person under a profit-sharing arrangement and, in the income year, the other person, or another person has also made livestock of the type available under the profit-sharing arrangement, values any livestock of the type under the national standard cost scheme.
Defined in this Act: associated person, Commissioner, cost price, income year, lease, long-term bailment, national standard cost scheme, notice, profit-sharing arrangement, short-term bailment, specified livestock, type
Compare: 2004 No 35 s EC 10
Section EC 10 list of defined terms notice: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
EC 11 Restrictions on making of elections
Forms of notice
(1)
This section specifies the 2 forms of notice that a person must give to the Commissioner and when each must be used. When a person notifies the Commissioner of an election under this section, the election is irrevocable in the first income year in which it applies.
When notice in same year required
(2)
For the elections described in this subsection, a person must give notice by the date of filing their return of income for the income year in which the election is first to apply. The elections are—
(a)
an election to value livestock of a particular type under the herd scheme, as described in section EC 14; and
(b)
an election to adopt a herd value ratio or the Chatham Islands adjustment to the herd value ratio for livestock of any type when the income year is the first income year in which the particular livestock is valued under the herd scheme, as described in sections EC 17 to EC 19; and
(c)
a later election, described in section EC 8(2)(b) and (c), to value livestock of a particular type under a valuation method other than the herd scheme.
When 2 years’ notice required
(3)
For the elections described in this subsection, a person must give notice by the date of filing their return of income for an income year that is at least 2 income years before the income year in which the election is first to apply. The elections are—
(a)
an election to stop valuing specified livestock of a particular type under the herd scheme, except when the person continues to value some livestock of that type under the herd scheme or when another valuation method is available, as described in section EC 14(2); and
(b)
an election, after the herd scheme has been adopted, to adopt a herd value ratio or recalculated herd value ratio or the Chatham Islands adjustment for any livestock type, as described in sections EC 17 to EC 19; and
(c)
an election to value specified livestock under the national standard cost scheme when the person has, in the income year before the application of the new election, valued the same livestock under the cost price method; and
(d)
an election to value specified livestock under the cost price method when the person has, in the year before the application of the new election, valued the same livestock under the national standard cost scheme.
Information for notices of election
(4)
A notice of election must state—
(a)
the income year in which the election is first to apply; and
(b)
the type, class, or other description of the applicable livestock; and
(c)
the existing and proposed methods of valuing the applicable livestock; and
(d)
for an election to use a herd value ratio or recalculated herd value ratio under section EC 17,—
(i)
the value assessed under section EC 17(4) of an average animal of each applicable class of livestock; and
(ii)
the date on which the valuation of each animal was made; and
(iii)
the name and address of the valuer.
Defined in this Act: class, Commissioner, cost price, herd scheme, herd value ratio, income year, national standard cost scheme, notice, notify, return of income, specified livestock, type
Compare: 2004 No 35 s EC 11
Section EC 11(2)(b): amended (with effect on 18 August 2011), on 17 July 2013, by section 42 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EC 11(2)(c): inserted (with effect on 18 August 2011), on 17 July 2013, by section 42 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
EC 12 Interests in livestock
Joint election of valuation method
(1)
When specified livestock is owned jointly by 2 or more persons, the owners must choose a valuation method. For the election to be effective, it must be made jointly by all the owners.
Ineffective election
(2)
If there is no effective election, specified livestock owned jointly is valued as follows:
(a)
if the owners bail or lease the livestock to another person during the income year, under the market value method; or
(b)
if the owners enter into a profit-sharing arrangement for the livestock, under the market value method; or
(c)
in any other case, under the national standard cost scheme.
Profit-sharing arrangements
(3)
If the method used in an income year to calculate the value of livestock under a profit-sharing arrangement is the national standard cost scheme or the cost price method, all the following are treated as the single owner of the livestock:
(a)
the person who owns the livestock; and
(b)
the person who has the use of the livestock; and
(c)
any other person who has made livestock of the same type available to the person referred to in paragraph (b) under a profit-sharing arrangement.
Partnerships interests
(4)
For the purpose of an election under this section, a person’s interest in a partnership that owns livestock is treated separately from any other interest that the person has in livestock. Separate elections are required for the person’s partnership interest and for their other livestock interests. The person is not required to choose the same valuation method in both cases.
Look-through company owners’ interests
(5)
For the purposes of an election under this section, a person’s interest for a look-through company that owns livestock is treated separately from any other interest that the person has in livestock. Separate elections are required for the person’s owner’s interest and for their other livestock interests. The person is not required to choose the same valuation method in both cases.
Defined in this Act: cost price, income year, lease, look-through company, national standard cost scheme, owner’s interests, profit-sharing arrangement, specified livestock, type
Compare: 2004 No 35 s EC 12
Section EC 12(5) heading: added, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 46(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EC 12(5): added, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 46(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EC 12 list of defined terms look-through company: inserted, on 1 April 2011, by section 46(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EC 12 list of defined terms owner’s interests: inserted, on 1 April 2011, by section 46(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
EC 13 Changes in partnership interests
When this section applies
(1)
This section applies when—
(a)
a partnership owns specified livestock (the old partnership); and
(b)
a new partnership is formed (the new partnership); and
(c)
at the end of the income year in which the new partnership is formed, more than 50% of the property of the new partnership is owned by persons who, during that income year or in the previous income year,—
(i)
owned all the property of the old partnership; and
(ii)
derived income in either income year from specified livestock of the same type as that owned by the new partnership.
Valuation
(2)
The value of specified livestock owned by the new partnership must be taken into account in the way the old partnership determines the value of livestock of the particular type at the end of the income year in which the new partnership is formed. If the old partnership has no specified livestock of the type on hand at the end of the income year, the value is taken into account as the old partnership would have determined it, had it owned specified livestock of that type.
Defined in this Act: income, income year, specified livestock, type
Compare: 2004 No 35 s EC 13
Herd scheme
EC 14 Herd scheme
Election to use herd scheme
(1)
A person may choose to value specified livestock of any type and class under the herd scheme.
Election of other method
(2)
A person who has chosen to value livestock of a particular type under the herd scheme may nevertheless value livestock of that type by another method, subject to the restrictions described in section EC 8.
Election to leave herd scheme
(3)
A person who wishes to stop valuing livestock of a particular type under the herd scheme must give 2 income years’ notice to the Commissioner in the way described in section EC 11. However, notice is not required if the person values livestock of that type by another method that is available for use in conjunction with the herd scheme.
Defined in this Act: class, Commissioner, herd scheme, income year, notice, specified livestock, type
Compare: 2004 No 35 s EC 14
EC 15 Determining national average market values
Determined by Commissioner
(1)
The Commissioner must determine a national average market value for an income year for each class of specified livestock set out in schedule 17, column 2 (Types and classes of livestock).
Application to income year
(2)
The value applies to the income year for which it is determined, whether the income year started before, on, or after the date on which the determination is made.
Secondary legislation
(3)
A determination under subsection (1) is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements).
Defined in this Act: class, Commissioner, income year, national average market value, specified livestock
Compare: 2004 No 35 s EC 15
| Legislation Act 2019 requirements for secondary legislation made under this section | ||||
| Publication | It is not required to be published | LA19 s 73(2) | ||
| Presentation | It is not required to be presented to the House of Representatives because a transitional exemption applies under Schedule 1 of the Legislation Act 2019 | LA19 s 114, Sch 1 cl 32(1)(a) | ||
| Disallowance | It may be disallowed by the House of Representatives | LA19 ss 115, 116 | ||
| This note is not part of the Act. | ||||
EC 16 Valuation under herd scheme
Closing value of herd livestock
(1)
The closing value of herd livestock in an income year is either its herd value for the income year or, if a herd value ratio is adopted, its herd value multiplied by its herd value ratio.
Opening value of herd livestock
(2)
The opening value of herd livestock in an income year is determined under subsection (3) if a person—
(a)
has valued the livestock under the herd scheme in the previous income year; and
(b)
has the livestock on hand at the start of the income year; and
(c)
has not chosen to value the livestock by a different method for the income year.
Determining opening value
(3)
The opening value of herd livestock in an income year is either its herd value for the income year or, if the person has adopted a herd value ratio, its herd value for the income year multiplied by its herd value ratio for the previous income year. This subsection overrides section DB 49(3) (Adjustment for opening values of trading stock, livestock, and excepted financial arrangements).
Defined in this Act: herd livestock, herd scheme, herd value, herd value ratio, income year
Compare: 2004 No 35 s EC 16
Section EC 16(3): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 22(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
EC 17 Herd value ratio
Adoption of herd value ratio
(1)
A herd value ratio is available for a person to use in determining the value of specified livestock in the herd scheme. A person may adopt a herd value ratio for herd livestock of a particular type by giving notice in the way described in section EC 11. A person may also adopt a recalculated ratio by giving notice in the same way.
Chatham Islands livestock
(2)
Herd value ratios calculated under subsection (5) do not apply to livestock on the Chatham Islands. The Chatham Islands adjustment to the herd value ratio is dealt with in section EC 19.
When herd value ratio applies
(3)
When a person adopts a herd value ratio for livestock of a particular type, the ratio applies in the income year specified in the notice and in later income years until—
(a)
the income year in which it is superseded by a recalculation of the ratio; or
(b)
the income year in which the person stops valuing, under an election, livestock of that type under the herd scheme; or
(c)
the income year following 2 consecutive income years in which the person has not valued livestock of that type under the herd scheme.
Assessment of average value
(4)
For the purpose of calculating a herd value ratio, a person must obtain from a recognised livestock valuer an assessment of the value of an average animal of that person in each applicable class of livestock. The value is determined as at the 30 April that is closest to the day on which the national average market values are set.
Calculation of herd value ratio
(5)
The herd value ratio for livestock of a particular type is calculated by using the formula in subsection (6) and rounding the result of the calculation to the nearest of the following figures: 0.9, 1.0, 1.1, 1.2, 1.3.
Formula
(6)
The formula is—
Σ(average value × number) ÷ Σ(herd value × number).
Definition of items in formula
(7)
In the formula,—
(a)
Σ is the total of the individual calculations for all applicable classes of livestock type valued under the herd scheme:
(b)
average value is the average value of an animal in a class as described in subsection (4):
(c)
number is the number of all livestock of that class on hand at the end of the income year, including livestock that are not in the herd scheme, but not including high-priced livestock:
(d)
herd value is the herd value of livestock for a class.
Defined in this Act: class, herd livestock, herd scheme, herd value, herd value ratio, high-priced livestock, income year, livestock on the Chatham Islands, national average market value, notice, specified livestock, type
Compare: 2004 No 35 s EC 17
EC 18 Inaccurate herd value ratio
The Commissioner may require a person who is using an inaccurate herd value ratio for a type of livestock in an income year to recalculate the herd value ratio. If the recalculation differs from the existing ratio for the income year, the Commissioner may amend the assessment of income tax for the income year and any later income year and may substitute the recalculated herd value ratio for that previously applied by the person.
Defined in this Act: assessment, Commissioner, herd value ratio, income tax, income year, type
Compare: 2004 No 35 s EC 18
EC 19 Chatham Islands adjustment to herd value
Adjustment for herd livestock on Chatham Islands
(1)
A person may adopt an adjustment for herd livestock on the Chatham Islands by giving notice in the way described in section EC 11.
When adjustment applies
(2)
When a person adopts a Chatham Islands adjustment as a herd value ratio, it applies as a herd value ratio to a particular type of livestock on the Chatham Islands at the end of the income year specified in the notice and in later income years until—
(a)
the income year in which the person stops valuing, under an election, livestock of that type in the herd scheme; or
(b)
the income year following 2 consecutive income years in which the person has not valued livestock of that type on the Chatham Islands under the herd scheme.
Setting adjustment
(3)
The Commissioner must set and may vary from time to time the level of Chatham Islands adjustment to the herd value ratio that applies in an income year.
Secondary legislation
(4)
The instrument that sets or varies an adjustment under subsection (3) is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements).
Defined in this Act: Commissioner, herd livestock, herd scheme, herd value, herd value ratio, income year, livestock on the Chatham Islands, notice, type
Compare: 2004 No 35 s EC 19
| Legislation Act 2019 requirements for secondary legislation made under this section | ||||
| Publication | It is not required to be published | LA19 s 73(2) | ||
| Presentation | It is not required to be presented to the House of Representatives because a transitional exemption applies under Schedule 1 of the Legislation Act 2019 | LA19 s 114, Sch 1 cl 32(1)(a) | ||
| Disallowance | It may be disallowed by the House of Representatives | LA19 ss 115, 116 | ||
| This note is not part of the Act. | ||||
EC 20 Herd livestock disposed of before values determined
When this section applies
(1)
This section applies when, in an income year, a person—
(a)
stops deriving income from the disposal of specified livestock; and
(b)
disposes of specified livestock before the 1 November that precedes the determination of the national average market values for the income year; and
(c)
[Repealed]When this section does and does not apply
(1B)
This section does not apply when, in an income year, a person’s specified livestock is disposed of, and section EC 4B(4) applies to the transfer. However, if section EC 4C(4) applies to the transfer, then this section may apply.
Value of herd livestock
(2)
The value of herd livestock that is disposed of is either the herd value of the livestock for the previous income year or, if the person has adopted a herd value ratio, the herd value multiplied by the herd value ratio applying in the previous income year.
Defined in this Act: Commissioner, herd livestock, herd value, herd value ratio, income, income year, national average market value, notice, specified livestock
Compare: 2004 No 35 s EC 20
Section EC 20(1)(a): amended (with effect on 1 April 2012 and applying for the 2012–13 and later income years), on 17 July 2013, by section 43(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EC 20(1)(b): amended (with effect on 1 April 2012 and applying for the 2012–13 and later income years), on 17 July 2013, by section 43(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EC 20(1)(c): repealed (with effect on 1 April 2012 and applying for the 2012–13 and later income years), on 17 July 2013, by section 43(3) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EC 20(1B) heading: inserted (with effect on 1 April 2012 and applying for the 2012–13 and later income years), on 17 July 2013, by section 43(4) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EC 20(1B): inserted (with effect on 1 April 2012 and applying for the 2012–13 and later income years), on 17 July 2013, by section 43(4) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
EC 21 Herd livestock on death before values determined
[Repealed]Section EC 21: repealed (with effect on 28 March 2012), on 17 July 2013, by section 44 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
National standard cost scheme
EC 22 National standard cost scheme
Election to use national standard cost scheme
(1)
A person may choose to value specified livestock under the national standard cost scheme, subject to the restrictions described in section EC 9.
Closing value
(2)
The closing value of the livestock is the cost of the livestock calculated under the determination made by the Commissioner under section EC 24.
Defined in this Act: Commissioner, national standard cost scheme, specified livestock
Compare: 2004 No 35 s EC 22
EC 23 Determining national standard costs
Determination of costs
(1)
The Commissioner must determine national standard costs for each category of specified livestock in schedule 18 (Categories of livestock for which national standard costs to be declared). The determination must take into account, as applicable,—
(a)
the average breeding, rearing, and growing costs for animals in the category; and
(b)
the average rearing and growing costs for animals in the category.
Application to income year
(2)
The national standard costs apply to the income year for which they are determined, whether the income year started before, on, or after the date on which the determination is made.
Secondary legislation
(3)
A determination under subsection (1) is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements).
Defined in this Act: Commissioner, income year, specified livestock
Compare: 2004 No 35 s EC 23
| Legislation Act 2019 requirements for secondary legislation made under this section | ||||
| Publication | It is not required to be published | LA19 s 73(2) | ||
| Presentation | It is not required to be presented to the House of Representatives because a transitional exemption applies under Schedule 1 of the Legislation Act 2019 | LA19 s 114, Sch 1 cl 32(1)(a) | ||
| Disallowance | It may be disallowed by the House of Representatives | LA19 ss 115, 116 | ||
| This note is not part of the Act. | ||||
EC 24 Methods for determining costs using national standard cost scheme
Determination of methods for calculation of cost
(1)
The Commissioner must determine the methods for calculating the cost of livestock listed in schedule 18, column 2 (Categories of livestock for which national standard costs to be declared).
Average cost
(2)
For the purposes of subsection (1), the determination must establish a process for finding an average cost to be applied to all specified livestock valued under the national standard cost scheme. The process must take into account—
(a)
the number of homebred livestock that a person has on hand at any time in an income year, applying to the number the relevant national standard costs determined under section EC 23:
(b)
in addition to paragraph (a), the number in each category of livestock listed in schedule 18, column 2 that a person has on hand at any time in an income year, applying to the number the relevant national standard costs determined under section EC 23:
(c)
the number of livestock acquired other than by way of being homebred, applying to the number the acquisition costs associated with the livestock.
Content of determination
(3)
The matters that may be included in the determination are set out in section 91AAD of the Tax Administration Act 1994.
Secondary legislation
(4)
A determination under subsection (1) is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements).
Defined in this Act: Commissioner, income year, national standard cost scheme, specified livestock
Compare: 2004 No 35 s EC 24
| Legislation Act 2019 requirements for secondary legislation made under this section | ||||
| Publication | It is not required to be published | LA19 s 73(2) | ||
| Presentation | It is not required to be presented to the House of Representatives because a transitional exemption applies under Schedule 1 of the Legislation Act 2019 | LA19 s 114, Sch 1 cl 32(1)(a) | ||
| Disallowance | It may be disallowed by the House of Representatives | LA19 ss 115, 116 | ||
| This note is not part of the Act. | ||||
Section EC 24(2)(c): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EC 24(4) heading: inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
Section EC 24(4): inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
Other methods
EC 25 Cost price, replacement price, or market value
Election
(1)
A person may choose to value specified livestock under the cost price method, subject to the restrictions described in section EC 10, or under the replacement price method, or under the market value method.
Changing to cost price method
(2)
If a person chooses in an income year to change to the cost price method from another valuation method, the opening value of the affected livestock is the closing value of the livestock at the end of the previous income year determined under the method used in that previous income year.
Defined in this Act: cost price, income year, specified livestock
Compare: 2004 No 35 s EC 25
EC 26 Bailee’s treatment of livestock
When this section applies
(1)
This section applies when, under a bailment, lease, or other agreement,—
(a)
a person (person A) has the use of specified livestock; and
(b)
person A is required—
(i)
to return the livestock to the person who made it available; or
(ii)
to pay the person full compensation for it.
Closing livestock numbers
(2)
Person A is treated as owning, and must take into account at the end of an income year, the total number for all classes calculated using the formula—
total livestock − bailed livestock.
Definition of items in formula
(3)
In the formula,—
(a)
total livestock is all the livestock that person A has on hand in a class at the end of the income year, including—
(i)
the livestock that they own; and
(ii)
the livestock that they have the use of under the bailment, lease, or other agreement:
(b)
bailed livestock is all the livestock in a class that person A has been given the use of under a bailment, lease, or other agreement that remains in force at the end of the income year.
Result of applying formula
(4)
If the result of applying the formula in subsection (2) is positive, person A is treated as the owner of any surplus livestock. If the result is negative, person A must adjust the total number described in subsection (2) by treating it as a negative number.
Defined in this Act: class, income year, lease, pay, specified livestock
Compare: 2004 No 35 s EC 26
Partnerships: cost price and national standard cost scheme
Heading: inserted (with effect on 1 April 2009), on 6 October 2009, by section 114(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EC 26B Entering partners’ cost base
When this section applies
(1)
This section applies when an entering partner has acquired specified livestock that includes female breeding livestock for which section HG 10 (Disposal of livestock) applies, and the partners use the cost price method or the national standard cost scheme.
Existing cost base
(2)
For the specified livestock, the entering partner is treated as having the same existing cost base that the exiting partner would have had for the purposes of the cost price method or national standard cost scheme for an income year, if they had not disposed of the interests.
Addition to cost base
(3)
For the purposes of determining the value of the specified livestock at the end of an income year for the purposes of section EC 2, the entering partner must add to the existing cost base, described in subsection (2), the amount for the income year (the current year) calculated using the following formula:
livestock cost base difference × current year count ÷ allowed years.
Definition of items in formula
(4)
In the formula,—
(a)
livestock cost base difference is the cost base that the entering partner would have for the specified livestock at the end of the income year in which the acquisition of the specified livestock occurred, ignoring subsection (2) reduced by the entering partner’s existing cost base for the specified livestock at the end of that year, described in subsection (2). It must be a positive number:
(b)
current year count,—
(i)
is the allowed years reduced by the number of years between the current year and the income year in which the entering partner’s acquisition of the specified livestock occurred, ignoring years in which the partners do not use the cost price method or national standard cost scheme (for example: current year count is 1, if the allowed years is 4, and the acquisition of the specified livestock occurred in the 2010–11 income year, and the current year is the 2013–14 income year, and the relevant method or scheme was used for all relevant income years):
(ii)
may equal the allowed years (for example: the current year is the same year as the income year in which the entering partner’s acquisition of the specified livestock occurred), but must not be a negative number:
(c)
allowed years is—
(i)
4, if the partners acquire or dispose of any partnership interests that include any livestock after the entering partner’s acquisition of the specified livestock and before the end of the income year in which that acquisition occurred; or
(ii)
5, if the partners do not acquire or dispose of any partnership interests that include any livestock after the entering partner’s acquisition of the specified livestock and before the end of the income year in which that acquisition occurred.
Defined in this Act: amount, cost price, dispose, entering partner, exiting partner, income year, national standard cost scheme, partner, partner’s interest, specified livestock
Section EC 26B: inserted (with effect on 1 April 2009), on 6 October 2009, by section 114(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EC 26B list of defined terms entering partner: inserted, on 30 March 2017, by section 56 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EC 26B list of defined terms exiting partner: inserted, on 30 March 2017, by section 56 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Definitions
EC 27 Some definitions
In this subpart,—
long-term bailment is a bailment or lease under which, at the time a person delivers livestock, the person does not expect to have the same livestock delivered back to them
short-term bailment is a bailment or lease under which,—
(a)
at the time a person delivers livestock, the person expects to have the same livestock delivered back to them; and
(b)
the bailee or lessee did not provide consideration to the person for the delivery of the livestock; and
(c)
the term of the bailment or lease ends on or before the end of the income year following the income year in which the arrangement is made.
Defined in this Act: arrangement, income year, lease, long-term bailment, short-term bailment
Compare: 2004 No 35 s EC 27
Valuation of non-specified livestock
EC 28 Application of sections EC 29 to EC 31
Sections EC 29 to EC 31 set out the rules for valuing non-specified livestock.
Defined in this Act: non-specified livestock
Compare: 2004 No 35 s EC 28
EC 29 Determining standard values
Determined by Commissioner
(1)
The Commissioner may determine a standard value for an income year for a type or category of non-specified livestock.
Application to income year
(2)
A standard value applies to the income year for which it is determined, whether the income year started before, on, or after the date on which the standard value is determined.
Secondary legislation
(3)
A determination under subsection (1) is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements).
Defined in this Act: Commissioner, income year, non-specified livestock, standard value, type
Compare: 2004 No 35 s EC 29
| Legislation Act 2019 requirements for secondary legislation made under this section | ||||
| Publication | It is not required to be published | LA19 s 73(2) | ||
| Presentation | It is not required to be presented to the House of Representatives because a transitional exemption applies under Schedule 1 of the Legislation Act 2019 | LA19 s 114, Sch 1 cl 32(1)(a) | ||
| Disallowance | It may be disallowed by the House of Representatives | LA19 ss 115, 116 | ||
| This note is not part of the Act. | ||||
EC 30 Closing value methods
A person may choose 1 of the following methods to value non-specified livestock on hand at the end of an income year:
(a)
its cost price:
(b)
its replacement price:
(c)
its market value:
(d)
if the Commissioner agrees, its standard value.
Defined in this Act: Commissioner, cost price, income year, non-specified livestock, standard value
Compare: 2004 No 35 s EC 30
EC 31 Enhanced production
When this section applies
(1)
This section applies when a person who derives income from non-specified livestock—
(a)
enhances production in an income year by—
(i)
starting, or restarting, to derive income from non-specified livestock; or
(ii)
bringing land into production, or substantially increased production, for the purpose of deriving income from non-specified livestock; or
(iii)
acquiring additional land for the purpose of deriving income from non-specified livestock; and
(b)
as a result, in an income year or over the following 3 income years, acquires more non-specified livestock that—
(i)
is not replacement livestock; and
(ii)
is not homebred livestock; and
(iii)
is valued at its standard value.
Closing value
(2)
The closing value of the livestock acquired is,—
(a)
for the income year in which the livestock was acquired, its standard value plus two-thirds of the difference between the cost price of the livestock and the standard value:
(b)
for the following income year, its standard value plus one-third of the difference between the cost price of the livestock and the standard value:
(c)
for other income years, its standard value.
Defined in this Act: cost price, income, income year, non-specified livestock, standard value
Compare: 2004 No 35 s EC 31
Section EC 31(1)(b): replaced (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 114(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EC 31(2): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 114(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EC 31(2)(a): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 114(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Valuation of high-priced livestock
EC 32 Application of sections EC 33 to EC 37
Sections EC 33 to EC 37
(1)
Sections EC 33 to EC 37 set out the rules for valuing high-priced livestock.
Person chooses valuation method
(2)
A person may choose to use either the straight-line method or the diminishing value method to value high-priced livestock.
Diminishing value method
(3)
If the person chooses to use the diminishing value method, they must give notice to the Commissioner that they are using the method at the time of filing their return of income for the first income year in which the value of the high-priced livestock is determined under section EC 34. The person cannot revoke their election to use the diminishing value method for the livestock.
Defined in this Act: Commissioner, high-priced livestock, income year, notice, return of income
Compare: 2004 No 35 s EC 32
EC 33 Determining depreciation percentages
Determined by Commissioner
(1)
The Commissioner must determine a depreciation percentage for an income year for each type, class, or category of high-priced livestock.
Purpose
(2)
The percentage represents the average percentage decline in the value of livestock of the type, class, or category.
Factors
(3)
The Commissioner must take into account—
(a)
the average cost of livestock of the type, class, or category; and
(b)
the estimated useful life of the livestock; and
(c)
the average estimated residual market value of the livestock.
Secondary legislation
(4)
A determination under subsection (1) is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements).
Defined in this Act: class, Commissioner, depreciation percentage, estimated residual market value, estimated useful life, high-priced livestock, income year, type
Compare: 2004 No 35 s EC 33
| Legislation Act 2019 requirements for secondary legislation made under this section | ||||
| Publication | It is not required to be published | LA19 s 73(2) | ||
| Presentation | It is not required to be presented to the House of Representatives because a transitional exemption applies under Schedule 1 of the Legislation Act 2019 | LA19 s 114, Sch 1 cl 32(1)(a) | ||
| Disallowance | It may be disallowed by the House of Representatives | LA19 ss 115, 116 | ||
| This note is not part of the Act. | ||||
EC 34 General rule
Value in income year of acquisition and later income years
(1)
The closing value of high-priced livestock at the end of the income year in which it is acquired is its cost price minus the reduction applying in the income year. In a later income year, the value is its opening value minus the reduction applying in the income year until the value reaches or falls below the national average market value for the class to which the livestock belongs.
Straight-line method
(2)
When a person has chosen to use the straight-line method, the reduction is calculated using the formula—
cost price × depreciation percentage.
Diminishing value method
(3)
When a person has chosen to use the diminishing value method, the reduction is calculated as follows:
(a)
in the first income year in which the election applies, the cost price multiplied by the diminishing value equivalent of the depreciation percentage for the income year:
(b)
in later income years, the opening value of the livestock multiplied by the diminishing value equivalent of the depreciation percentage for the income year.
Meaning of diminishing value equivalent
(4)
In this section, diminishing value equivalent, for a depreciation percentage, means the diminishing value depreciation rate in schedule 12, column 1 (Old banded rates of depreciation) to which the amount in column 2 equal to the depreciation percentage is the straight-line equivalent. Two qualifications are—
(a)
if no amount in column 2 is equal to the depreciation percentage, the amount closest to it is taken; and
(b)
if 2 amounts in column 2 are equidistant from the depreciation percentage, the depreciation percentage is rounded down.
Exclusions
(5)
This section does not apply in the cases described in sections EC 35 and EC 36.
Defined in this Act: amount, class, cost price, depreciation percentage, diminishing value equivalent, high-priced livestock, income year, national average market value
Compare: 2004 No 35 s EC 34
Section EC 34(1) heading: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EC 34(1): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EC 35 Livestock reaching national average market value and livestock no longer used for breeding
Livestock at or less than national average market value
(1)
This section applies to a person’s high-priced livestock whose value at the end of an income year is equal to or less than the national average market value for the class to which the livestock belongs.
Livestock no longer used for breeding
(2)
This section also applies to high-priced livestock that, in an income year, a person—
(a)
does not expect to use for breeding for that or any later income year; and
(b)
does not intend to dispose of to any other person to use for breeding.
Closing value
(3)
The closing value of the high-priced livestock at the end of the income year is determined as follows:
(a)
when the person values any specified livestock of that type under the herd scheme for the income year, the value of the animal under the herd scheme; and
(b)
when the person values all specified livestock of that type that is older than 1 year under the national standard cost scheme or the cost price method, the national average market value for the income year of livestock of the class to which the animal belongs; and
(c)
when the person values all specified livestock of that type that is older than 1 year under the market value method or the replacement price method, the market value or replacement price of the animal at the end of the income year.
Valuation in later income years
(4)
In later income years, the animal that was high-priced livestock is treated as the person’s specified livestock and is valued under the valuation method the person chooses for specified livestock of the type to which the animal belongs.
Entry into herd scheme in later income years
(5)
This subsection applies if, in a later income year (year A), the person values any specified livestock of the same type as the animal under the herd scheme and, in the next year, values the animal under the herd scheme. The animal is treated as if it were valued under the herd scheme at the end of year A.
Defined in this Act: class, cost price, herd scheme, high-priced livestock, income year, national average market value, national standard cost scheme, specified livestock, type, year
Compare: 2004 No 35 s EC 35
EC 36 Immature livestock and recently acquired livestock
Immature livestock
(1)
This section applies to high-priced livestock that is less than 1 year old at the end of the income year in which it is acquired.
Recently acquired livestock
(2)
This section also applies to high-priced livestock that is acquired within 6 months of the end of an income year and, during that time,—
(a)
is not used for insemination, in the case of male livestock; and
(b)
is not used for the collection of semen; and
(c)
does not give birth; and
(d)
does not have ova removed.
Closing value
(3)
The closing value of the high-priced livestock at the end of the income year is its cost price.
Defined in this Act: cost price, high-priced livestock, income year, year
Compare: 2004 No 35 s EC 36
Section EC 36 heading: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EC 36(1): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EC 36(2) heading: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EC 36(2): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EC 37 Bailment
In section EC 26, references to specified livestock include high-priced livestock.
Defined in this Act: high-priced livestock, specified livestock
Compare: 2004 No 35 s EC 37
Valuation of bloodstock
EC 38 Application of sections EC 39 to EC 48
Sections EC 39 to EC 48 set out the rules for valuing bloodstock.
Defined in this Act: bloodstock
Compare: 2004 No 35 s EC 38
EC 39 First income year in breeding business
Bloodstock to which this section applies
(1)
This section applies to bloodstock that is 2 years of age or older at the end of the first income year in which a person—
(a)
uses the bloodstock for breeding in their breeding business; or
(b)
forms the intention of using the bloodstock for breeding in their breeding business; or
(c)
acquires the bloodstock, with the intention of using it for breeding in their breeding business.
Special group of broodmares to which this section applies
(2)
This section also applies to a broodmare that is 2 years of age or older at the end of a person’s first income year after 1 April 2001 in which the person—
(a)
first uses the broodmare for breeding in their breeding business; or
(b)
first forms the intention of using the broodmare for breeding in their breeding business; or
(c)
acquires the broodmare, with the intention of using it for breeding in their breeding business.
Prospective breeders’ bloodstock to which this section applies
(2B)
This section also applies to stud-founding bloodstock at the end of the prospective bloodstock breeder’s first income year in which the stud-founding bloodstock is 2 years of age.
Closing value
(3)
The closing value of the bloodstock at the end of the first income year is its cost price minus the reduction applying in that income year.
Determination of reduction
(4)
The reduction that applies is determined under section EC 41, EC 42, EZ 5, or EZ 6 (which relate to bloodstock).
Defined in this Act: bloodstock, broodmare, business, cost price, income year, prospective bloodstock breeder, stud-founding bloodstock, year
Compare: 2004 No 35 s EC 39
Section EC 39(1)(c): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EC 39(2)(c): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EC 39(2B) heading: inserted (with effect on 1 January 2019), on 18 March 2019, by section 158(1) (and see section 158(3) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EC 39(2B): inserted (with effect on 1 January 2019), on 18 March 2019, by section 158(1) (and see section 158(3) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EC 39 list of defined terms prospective bloodstock breeder: inserted (with effect on 1 January 2019), on 18 March 2019, by section 158(2) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EC 39 list of defined terms stud-founding bloodstock: inserted (with effect on 1 January 2019), on 18 March 2019, by section 158(2) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EC 39B Stud-founding bloodstock and related terms
Meaning of stud-founding bloodstock
(1)
Stud-founding bloodstock means high-priced bloodstock that a prospective bloodstock breeder owns if—
(a)
the prospective bloodstock breeder acquires the high-priced bloodstock before it is 2 years of age; and
(b)
within 4 months after the day on which the prospective bloodstock breeder acquires the high-priced bloodstock—
(i)
the prospective bloodstock breeder notifies the Commissioner of their intention to use the high-priced bloodstock for breeding bloodstock for profit; and
(ii)
information as the Commissioner requires is provided to the Commissioner; and
(c)
the high-priced bloodstock is registered in the New Zealand Stud Book or in the New Zealand Harness Racing Stud Book.
Meaning of high-priced bloodstock
(2)
High-priced bloodstock means bloodstock that—
(a)
is sold, when a yearling, at a premier yearling sale for an amount greater than the relevant national minimum price threshold for the calendar year in which the sale occurs; and
(b)
is expected, when sold at the premier yearling sale, to be capable of being used for breeding when it reaches maturity.
Meaning of prospective bloodstock breeder
(3)
A prospective bloodstock breeder means a person who acquires bloodstock—
(a)
when they do not have an existing bloodstock breeding business; and
(b)
with the intention of—
(i)
having the bloodstock first raced in New Zealand; and
(ii)
using the bloodstock for breeding bloodstock in New Zealand for profit.
Meaning of premier yearling sale
(4)
A premier yearling sale means a sale of bloodstock yearlings that is listed in schedule 18B (Premier yearling sales).
Meaning of national minimum price threshold
(5)
National minimum price threshold, for a class of bloodstock and for a calendar year, means the national minimum price threshold set under section EC 39C or by section EZ 6B (National minimum price threshold for 2019 calendar year), as applicable, for bloodstock of the class for the calendar year.
Defined in this Act: bloodstock, business, Commissioner, high-priced bloodstock, national minimum price threshold, New Zealand, premier yearling sale, prospective bloodstock breeder, stud-founding bloodstock
Section EC 39B: inserted (with effect on 1 January 2019), on 18 March 2019, by section 159(1) (and see section 159(2) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EC 39B(5): replaced, on 1 January 2020, by section 160 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EC 39C Setting and publication of national minimum price threshold
Setting of national minimum price threshold
(1)
The Commissioner must set a national minimum price threshold for each class of bloodstock set out in schedule 18C, column 2 (Breeds and classes of bloodstock). The national minimum price threshold for a calendar year (the threshold year) must be set at the amount given by,—
(a)
for each class of the standardbred breed of horses,—
(i)
for each of the 3 calendar years immediately preceding the threshold year, calculating the value at the 97th percentile of sale prices for that class at the premier yearling sales in the calendar year; and
(ii)
dividing the sum of the 3 percentile values calculated in subparagraph (i) by 3; and
(iii)
rounding the amount calculated in subparagraph (ii) to the nearest multiple of $1,000, with the amount being rounded up if it ends in $500:
(b)
for each class of the thoroughbred breed of horses,—
(i)
for each of the 3 calendar years immediately preceding the threshold year, calculating the value at the 95th percentile of sale prices for that class at the premier yearling sales in the calendar year; and
(ii)
dividing the sum of the 3 percentile values calculated in subparagraph (i) by 3; and
(iii)
rounding the amount calculated in subparagraph (ii) to the nearest multiple of $1,000, with the amount being rounded up if it ends in $500.
When national minimum price threshold must be set and published
(2)
The Commissioner must set and publish the national minimum price threshold that applies for a calendar year before the first premier yearling sale in that calendar year is held.
Consequence of late setting and publication of national minimum price threshold
(3)
This subsection applies when the Commissioner does not set and publish the national minimum price threshold that applies for a calendar year before the first premier yearling sale in that calendar year is held. For sales of bloodstock yearlings at the premier yearling sales that occur before the Commissioner has set and published the national minimum price threshold that applies for that calendar year, the national minimum price threshold for each class of bloodstock set out in schedule 18C, column 2 that has most recently been set under section EC 39C or by section EZ 6B (National minimum price threshold for 2019 calendar year) is, for the purposes of section EC 39B(2), treated as being the national minimum price threshold for the calendar year in which the sale occurs.
Defined in this Act: bloodstock, Commissioner, national minimum price threshold, premier yearling sale
Section EC 39C: inserted, on 1 January 2020, by section 161(1) (and see section 161(2) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EC 40 Later income years in breeding business
What this section applies to
(1)
This section applies to the income years that follow the first income year described in section EC 39.
Closing value
(2)
The closing value of the bloodstock is its opening value minus the reduction applying in that income year.
Closing value not previously taken into account
(3)
If the person has not taken the closing value of the bloodstock into account in the previous income year, the closing value is the cost price of the bloodstock minus the reduction applying in the income year in which the person makes the calculation.
Determination of reduction
(4)
The reduction that applies is determined under section EC 41, EC 42, EZ 5, or EZ 6 (which relate to bloodstock).
Defined in this Act: bloodstock, cost price, income year
Compare: 2004 No 35 s EC 40
EC 41 Reduction: bloodstock not previously used for breeding in New Zealand other than as shuttle stallions
Bloodstock to which this section applies
(1)
This section applies to bloodstock that—
(a)
was not used for breeding in New Zealand before 16 December 1991; and
(b)
before a person (person A) acquired it, was not used for breeding in New Zealand by any other person.
Further bloodstock to which this section applies
(1B)
This section also applies to bloodstock that, before person A acquired it, was used by another person for breeding in New Zealand if—
(a)
the other person transferred the bloodstock to person A under a relationship agreement to which section FB 18 (Bloodstock) applies:
(b)
the other person was a company in the same wholly-owned group as person A at the time person A acquired the bloodstock from the other person:
(c)
the bloodstock is a stallion that, for each year in which the stallion was used for breeding in New Zealand before being acquired by person A, was—
(i)
owned by a non-resident; and
(ii)
removed from New Zealand after the breeding season; and
(iii)
not subject to a reduction under this section.
Stallion
(2)
For the purposes of sections EC 39 and EC 40, the reduction applying to the value of a stallion is 50% of the cost price of the stallion unless person A chooses to value the stallion by the reducing value method.
Stallion valued by reducing value method
(3)
When person A chooses to value the stallion by the reducing value method, the reduction applying to the value of the stallion is 75% of its cost price in the first income year and 75% of its opening value in each later income year. Person A must give notice to the Commissioner of their election in their return of income for the first income year.
Broodmare when first used on or after 1 April 2001
(4)
For the purposes of sections EC 39 and EC 40, the reduction applying to the value of a broodmare to which section EC 39(2) applies is calculated using the formula—
1.25 × cost price of broodmare ÷ (9 − age of broodmare).
Definition of item in formula
(5)
In the formula, age of broodmare is—
(a)
8 years of age; or
(b)
the actual age in years, if the broodmare is 7 years of age or less at the end of the income year.
Relationship with section EZ 5
(6)
This section is overridden by section EZ 5 (Reduction: bloodstock not previously used for breeding in New Zealand: pre-1 August 2006).
Defined in this Act: bloodstock, broodmare, Commissioner, company, cost price, income year, New Zealand, notice, relationship agreement, return of income, stallion, wholly-owned group, year
Compare: 2004 No 35 s EC 41
Section EC 41 heading: amended, on 1 April 2008, by section 354(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EC 41(1)(b): substituted, on 1 April 2008, by section 354(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EC 41(1B) heading: inserted, on 1 April 2008, by section 354(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EC 41(1B): inserted, on 1 April 2008, by section 354(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EC 41(1B)(a): amended (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 24 February 2016, by section 115(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EC 41 list of defined terms matrimonial agreement: repealed (with effect on 1 April 2008), on 24 February 2016, by section 115(2)(a) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EC 41 list of defined terms relationship agreement: inserted (with effect on 1 April 2008), on 24 February 2016, by section 115(2)(b) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EC 42 Reduction: bloodstock previously used for breeding in New Zealand
Stallion
(1)
For the purposes of sections EC 39 and EC 40, the reduction applying to the value of a stallion to which section EC 41 does not apply is 20% of its cost price.
Broodmare when first used on or after 1 April 2001
(2)
For the purposes of sections EC 39 and EC 40, the reduction applying to the value of a broodmare to which section EC 39(2) applies and section EC 41 does not apply is calculated using the formula—
cost price of broodmare ÷ (9 − age of broodmare).
Definition of item in formula
(3)
In the formula, age of broodmare is—
(a)
8 years of age; or
(b)
the actual age in years, for a broodmare that is 7 years of age or less at the end of the income year.
Relationship with section EZ 6
(4)
This section is overridden by section EZ 6 (Reduction: broodmare previously used for breeding in New Zealand: pre-1 August 2006).
Defined in this Act: bloodstock, broodmare, cost price, income year, stallion, year
Compare: 2004 No 35 s EC 42
EC 43 Accident, birth deformity, or infertility
When this section applies
(1)
This section applies when a person has bloodstock on hand at the end of an income year whose market value is, because of accident, birth deformity, or infertility, less than 50% of what its market value would have been if the accident, birth deformity, or infertility had not occurred.
Value
(2)
The person may value the bloodstock at its market value.
Later income years
(3)
If the person applies subsection (2), the closing value of the bloodstock in later income years is its market value in the applicable income year.
Defined in this Act: bloodstock, income year
Compare: 2004 No 35 s EC 43
EC 44 Other bloodstock
If sections EC 39 to EC 43 do not apply, the closing value of the bloodstock is its cost price.
Defined in this Act: bloodstock, cost price
Compare: 2004 No 35 s EC 44
EC 45 Residual value of bloodstock
If the closing value of any bloodstock would be less than $1 in the absence of this section, the closing value is $1.
Defined in this Act: bloodstock
Compare: 2004 No 35 s EC 45
EC 46 Use of bloodstock for racing
General treatment
(1)
If in an income year a bloodstock owner uses bloodstock for racing, and they are in the business of breeding bloodstock for sale or exchange, the use of the bloodstock for racing is treated as use in the course of the business.
Bloodstock not used in business
(2)
If bloodstock used in an income year for racing is not actually used in the course of a business of breeding bloodstock for sale or exchange, the bloodstock owner may apply to the Commissioner to have the use of the bloodstock treated other than under subsection (1).
Non-breeding bloodstock
(3)
If a bloodstock owner expects that bloodstock will not be able to be used for future breeding, the use in an income year of the bloodstock for racing is not treated as use in the course of a business of breeding bloodstock for sale or exchange. However, if the bloodstock owner uses the bloodstock in the course of their business of breeding bloodstock for sale or exchange, they may apply to the Commissioner to have the use of the bloodstock treated as use in the course of the business.
Application to Commissioner
(4)
The application must be made with the supporting information that the Commissioner requires within 1 month after the day on which the bloodstock is first prepared for racing by the bloodstock owner or the day on which it is first raced by the bloodstock owner, whichever is earlier.
Defined in this Act: apply, bloodstock, business, Commissioner, income year
Compare: 2004 No 35 s EC 46
Section EC 46(1): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EC 46(2): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EC 46(3): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EC 46(4): amended, on 2 June 2016, by section 14(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EC 46 list of defined terms apply: inserted, on 2 June 2016, by section 14(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
EC 47 Change of use of bloodstock in course of business
Use outside business
(1)
If a bloodstock owner who is in the business of breeding bloodstock for sale or exchange starts to use bloodstock other than in the course of the business, they are treated as having disposed of the bloodstock. The disposal is treated as having occurred at market value on the day on which they changed the use of the bloodstock.
Use in business
(2)
If a bloodstock owner who is in the business of breeding bloodstock for sale or exchange has been using bloodstock for other purposes, and they start to use the bloodstock in the course of the business, the bloodstock is treated as having been acquired by the bloodstock owner. The acquisition is treated as having occurred at market value on the day on which the bloodstock owner changed the use of the bloodstock.
Defined in this Act: bloodstock, business
Compare: 2004 No 35 s EC 47
Section EC 47(1): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EC 47(2): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EC 47B Removal of high-priced bloodstock from New Zealand after earlier deductions
When this section applies
(1)
This section applies when—
(a)
high-priced bloodstock is removed from New Zealand before being—
(i)
first raced in New Zealand:
(ii)
used for breeding in New Zealand; and
(b)
a person who is a prospective bloodstock breeder has been allowed a deduction in relation to the high-priced bloodstock.
Treatment as disposal
(2)
The person is treated as having disposed of the high-priced bloodstock.
Defined in this Act: deduction, high-priced bloodstock, New Zealand, prospective bloodstock breeder
Section EC 47B: inserted (with effect on 1 January 2019), on 18 March 2019, by section 162(1) (and see section 162(2) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EC 47C When prospective breeders treated as being in breeding business
Prospective breeders treated as being in breeding business
(1)
A prospective bloodstock breeder is treated as having, and carrying on, a bloodstock breeding business on and from the day on which the prospective bloodstock breeder acquires stud-founding bloodstock until the earliest of the following days:
(a)
the day on which the prospective bloodstock breeder commences a bloodstock breeding business using the stud-founding bloodstock:
(b)
the day on which the prospective bloodstock breeder is treated as having disposed of the stud-founding bloodstock under section EC 47(1):
(c)
the day on which the prospective bloodstock breeder is treated as having disposed of the stud-founding bloodstock under section EC 47B:
(d)
the day on which the prospective bloodstock breeder is treated as having disposed of the stud-founding bloodstock under section EC 47D:
(e)
the day on which the prospective bloodstock breeder commences a bloodstock breeding business using bloodstock that are not stud-founding bloodstock, if the Commissioner has approved an application under section EC 47E for the stud-founding bloodstock to be treated as being used in the course of the business.
Other bloodstock not part of breeding business
(2)
Despite subsection (1), if the prospective bloodstock breeder owns bloodstock that are not stud-founding bloodstock during the period of time described in that subsection, those bloodstock are not treated as part of the prospective bloodstock breeder’s bloodstock breeding business.
Defined in this Act: bloodstock, business, Commissioner, prospective bloodstock breeder, stud-founding bloodstock
Section EC 47C: inserted (with effect on 1 January 2019), on 18 March 2019, by section 162(1) (and see section 162(2) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EC 47D Change of prospective bloodstock breeders’ expectation or intention after earlier deductions
When this section applies
(1)
This section applies when—
(a)
a person owns high-priced bloodstock that they acquired as a prospective bloodstock breeder; and
(b)
the person has been allowed a deduction in relation to the high-priced bloodstock; and
(c)
the person has not used the high-priced bloodstock for breeding bloodstock in New Zealand for profit; and
(d)
the person—
(i)
no longer expects that the high-priced bloodstock will be able to be used for future breeding:
(ii)
no longer intends to use the high-priced bloodstock for breeding bloodstock in New Zealand for profit.
Treatment as disposal at market value
(2)
The person is treated as having disposed of the high-priced bloodstock. The disposal is treated as having occurred at the high-priced bloodstock’s market value on the day on which the person’s expectation or intention first changed.
Defined in this Act: deduction, high-priced bloodstock, prospective bloodstock breeder
Section EC 47D: inserted (with effect on 1 January 2019), on 18 March 2019, by section 162(1) (and see section 162(2) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EC 47E Prospective breeders commencing actual breeding businesses
When this section applies
(1)
This section applies when, ignoring section EC 47C, a bloodstock owner commences a bloodstock breeding business using bloodstock that are not stud-founding bloodstock.
Stud-founding bloodstock subsumed into breeding business
(2)
If the bloodstock owner owns stud-founding bloodstock they acquired as a prospective bloodstock breeder, they may apply to the Commissioner to have the stud-founding bloodstock treated as being used in the course of the business.
Application to Commissioner
(3)
The application must be made with the supporting information that the Commissioner requires within 1 month after the day on which the business commenced.
Effect of application being approved
(4)
If the Commissioner approves the application, sections CG 8B (Recoveries after deductions for high-priced bloodstock removed from New Zealand), CG 8C (Recoveries after deductions for high-priced bloodstock disposed of to non-residents), and EC 47B to EC 47D are, from the date on which the business commenced, treated as not applying in relation to the bloodstock owner and the stud-founding bloodstock.
Defined in this Act: apply, bloodstock, business, Commissioner, prospective bloodstock breeder, stud-founding bloodstock
Section EC 47E: inserted (with effect on 1 January 2019), on 18 March 2019, by section 162(1) (and see section 162(2) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EC 48 Replacement breeding stock
When this section applies
(1)
This section applies when—
(a)
a bloodstock owner—
(i)
disposes of bloodstock (the breeding stock) that they had previously used for breeding in the course of a business of breeding bloodstock for sale or exchange; and
(ii)
acquires replacement bloodstock (the replacement breeding stock) within the time limits set out in subsections (6) and (7); or
(b)
a bloodstock owner—
(i)
receives a payment of insurance, indemnity, or compensation for the loss or death of, or permanent injury to, breeding stock that they had previously used for breeding in the course of a business of breeding bloodstock for sale or exchange or that they had acquired for use in the business; and
(ii)
acquires replacement breeding stock within the time limits set out in subsections (6) and (7).
Amount determined
(2)
The bloodstock owner may apply to the Commissioner to determine the amount that the bloodstock owner has applied in acquiring replacement breeding stock.
Maximum amount
(3)
The amount must not be more than the net gain calculated using the formula—
gross proceeds − value of breeding stock.
Definition of items in formula
(4)
In the formula,—
(a)
gross proceeds is—
(i)
the amount of the proceeds of disposing of the breeding stock; or
(ii)
the amount paid by way of insurance, indemnity, or compensation for the breeding stock:
(b)
value of breeding stock is the closing value of the breeding stock in the income year before the breeding stock was disposed of or was lost or died or was permanently injured.
Reduction in income
(5)
The bloodstock owner may reduce their income by the amount determined under subsection (2). If they reduce their income in this way, they must also reduce the cost of the replacement breeding stock by the same amount.
Time limit
(6)
Replacement breeding stock must be acquired within 6 months after the end of the income year in which the amount determined under subsection (2) would otherwise be income or, if the Commissioner approves in a case or in a class of cases, a longer period.
Delay in replacing breeding stock
(7)
In the case of lost, dead, or permanently injured breeding stock, the Commissioner may extend the time limit under subsection (6). However, valid commercial reasons must exist for the delay in replacing the breeding stock and the replacement breeding stock must have been acquired before the end of the second income year following the income year in which the loss, death, or permanent injury occurred.
Application to Commissioner
(8)
An application under subsection (2) must be made within the relevant time limits described in subsections (6) and (7). The application must relate only to replacement breeding stock acquired before the application is made.
Defined in this Act: amount, apply, bloodstock, business, Commissioner, income, income year, pay
Compare: 2004 No 35 s EC 48
Section EC 48(1)(a)(i): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EC 48(1)(a)(ii): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EC 48(1)(b)(i): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EC 48(1)(b)(ii): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EC 48(2): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EC 48(8): amended, on 2 June 2016, by section 15(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EC 48(8): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EC 48 list of defined terms apply: inserted, on 2 June 2016, by section 15(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Subpart ED—Valuation of excepted financial arrangements
Contents
ED 1 Valuation of excepted financial arrangements
Valuation methods for excepted financial arrangements
(1)
A person who has revenue account property that is an excepted financial arrangement must determine the value of the arrangement at the end of each income year at cost.
Valuation method for right to acquire share under share-lending arrangement
(2)
Despite subsection (1), a share supplier’s share-lending right has the value at the end of each income year that is equal to the amount described in subsection (4).
Valuation method for share acquired by share supplier under share-lending arrangement
(3)
Despite subsection (1), the original share or an identical share acquired by a share supplier from a share user under a share-lending arrangement has the value at the end of each income year that is equal to the amount described in subsection (4).
Amount
(4)
For subsections (2) and (3), the amount is the value of the original share at cost, determined by applying this section to the share immediately before the share supplier’s disposal of the share under the relevant share-lending arrangement.
Valuation when disposal of shares acquired under taxable bonus issue
(4B)
Despite subsection (1), a share that a person acquires under a taxable bonus issue is valued immediately before the person disposes of the share at an amount equal to the amount of the dividend derived by the person from the issue of the share, not including the amount of imputation credits attached to the dividend by the issuer of the share and withholding tax withheld by the issuer of the share.
Cost-flow methods
(5)
The person must use 1 of the following cost-flow methods to allocate costs:
(a)
the first-in first-out cost method; or
(b)
the weighted average cost method.
Certain emissions units not pooled with other types of emissions unit
(5B)
No emissions unit described in 1 of the following paragraphs may be pooled for the purposes of subsection (5) with an emissions unit described in another of the paragraphs:
(a)
pre-1990 forest land emissions units relating to pre-1990 forest land, if the holder of the units would derive income, other than exempt income and excluded income, from a disposal of the land without timber:
(b)
post-1989 forest land emissions units:
(bb)
forest sink emissions units:
(c)
replacement forest land emissions units:
(cb)
fishing quota emissions units, if the holder of the units would derive income, other than exempt income and excluded income, from a disposal of the individual transferable quota to which the units relate:
(d)
pre-1990 forest land emissions units relating to pre-1990 forest land, if the holder of the units would derive no income other than exempt income and excluded income from a disposal of the land without timber:
(db)
fishing quota emissions units, if the holder of the units would derive no income, other than exempt income and excluded income, from a disposal of the individual transferable quota to which the units relate:
(e)
emissions units issued for no consideration—
(i)
to which section ED 1B applies; and
(ii)
that have not been assigned a cost under section ED 1B(3)(a).
Exceptions: types of emissions units pooled with other types
(5C)
Despite subsection (5B), for the purposes of subsection (5),—
(a)
emissions units described in paragraphs (a) to (cb) may be pooled together:
(b)
emissions units described in paragraphs (d) and (db) may be pooled together.
Persons complying with generally accepted accounting practice
(6)
A person who complies with generally accepted accounting practice must comply with the consistency and disclosure requirements of NZIAS 8 or an equivalent standard issued in its place.
Other persons
(7)
A person who does not comply with generally accepted accounting practice—
(a)
must be consistent from 1 income year to the next in their choice of 1 of the cost-flow methods described in subsection (5); and
(b)
may change their cost-flow method if—
(i)
the change is justified by sound commercial reasons and for this purpose, the advancement, deferral, or reduction of an income tax liability is not a sound commercial reason; or
(ii)
the change is required by another provision in this subpart; and
(c)
must keep sufficient details of any such change, and the reasons for it, under section 22 of the Tax Administration Act 1994.
Valuation of emissions units issued for zero price
(7B)
Despite subsection (1),—
(a)
an emissions unit transferred under Part 4, subpart 2, of the Climate Change Response Act 2002 in an income year for no payment of a price, and to which section ED 1B does not apply, has a value of zero for the period beginning with the transfer and ending before the end of the income year:
(b)
a forest land emissions unit has a value of zero at the end of each income year:
(c)
a replacement forest land emissions unit has a value of zero at the end of each income year:
(cb)
a fishing quota emissions unit has a value at the end of each income year of—
(i)
the market value of the unit at the end of the income year, if the holder of the unit would derive income, other than exempt income and excluded income, from a disposal of the individual transferable quota to which the units relate; or
(ii)
zero, if subparagraph (i) does not apply:
(d)
an emissions unit to which section ED 1B applies has the value at the end of each income year that is given by that section.
Worthless arrangements
(8)
If an excepted financial arrangement has no present or likely future market value and has been written off as worthless, its closing value is zero.
Closing value for replacement ETS unit[Repealed]
(8B)
[Repealed]Use of value
(9)
The value determined under this section is—
(a)
the closing value of the excepted financial arrangement for the purposes of section CH 1 (Adjustment for closing values of trading stock, livestock, and excepted financial arrangements); and
(b)
the opening value of the excepted financial arrangement for the next income year for the purposes of section DB 49 (Adjustment for opening values of trading stock, livestock, and excepted financial arrangements).
Defined in this Act: emissions unit, excepted financial arrangement, excluded income, exempt income, fishing quota emissions unit, forest land emissions unit, forest sink emissions unit, generally accepted accounting practice, identical share, income tax liability, income year, NZIAS 8, original share, pay, post-1989 forest land emissions unit, pre-1990 forest land, pre-1990 forest land emissions unit, replacement forest land emissions unit, revenue account property, share-lending arrangement, share-lending right, share supplier, share user
Compare: 2004 No 35 s ED 1
Section ED 1(4B) heading: inserted, on 30 March 2017 (applying for shares received under taxable bonus issues made on or after this date), by section 57(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section ED 1(4B): inserted, on 30 March 2017 (applying for shares received under taxable bonus issues made on or after this date), by section 57(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section ED 1(5B) heading: inserted (with effect on 1 January 2009), on 6 October 2009, by section 115(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section ED 1(5B): inserted (with effect on 1 January 2009), on 6 October 2009, pursuant to section 115(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section ED 1(5B)(bb): inserted (with effect on 1 January 2009), on 7 September 2010, by section 28(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section ED 1(5B)(cb): inserted (with effect on 1 July 2010), on 7 September 2010, by section 28(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section ED 1(5B)(db): inserted (with effect on 1 July 2010), on 7 September 2010, by section 28(3) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section ED 1(5C) heading: inserted (with effect on 1 January 2009), on 6 October 2009, by section 115(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section ED 1(5C): substituted (with effect on 1 July 2010), on 7 September 2010, by section 28(4) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section ED 1(6): amended, on 1 April 2008, by section 355(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section ED 1(7B) heading: inserted (with effect on 1 January 2009), on 6 October 2009, by section 115(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section ED 1(7B): inserted (with effect on 1 January 2009), on 6 October 2009, by section 115(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section ED 1(7B)(a): substituted (with effect on 1 July 2010), on 21 December 2010, by section 47(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section ED 1(7B)(a): amended (with effect on 1 July 2010), on 2 November 2012, by section 31 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section ED 1(7B)(cb): inserted (with effect on 1 July 2010), on 21 December 2010, by section 47(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section ED 1(8B) heading: repealed (with effect on 1 January 2009), on 6 October 2009, pursuant to section 115(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section ED 1(8B): repealed (with effect on 1 January 2009), on 6 October 2009, by section 115(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section ED 1 list of defined terms emissions unit: inserted (with effect on 1 January 2009), on 6 October 2009, by section 115(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section ED 1 list of defined terms excluded income: inserted (with effect on 1 January 2009), on 6 October 2009, by section 115(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section ED 1 list of defined terms exempt income: inserted (with effect on 1 January 2009), on 6 October 2009, by section 115(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section ED 1 list of defined terms fishing quota emissions unit: inserted (with effect on 1 July 2010), on 7 September 2010, by section 28(5)(a) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section ED 1 list of defined terms forest land emissions unit: inserted (with effect on 1 January 2009), on 6 October 2009, by section 115(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section ED 1 list of defined terms forest sink emissions unit: inserted (with effect on 1 January 2009), on 7 September 2010, by section 28(5)(b) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section ED 1 list of defined terms NZIAS 8: amended, on 1 April 2008, by section 355(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section ED 1 list of defined terms pay: inserted (with effect on 1 July 2010), on 21 December 2010, by section 47(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section ED 1 list of defined terms post-1989 forest land emissions unit: inserted (with effect on 1 January 2009), on 6 October 2009, by section 115(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section ED 1 list of defined terms pre-1990 forest land: inserted (with effect on 1 January 2009), on 6 October 2009, by section 115(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section ED 1 list of defined terms pre-1990 forest land emissions unit: inserted (with effect on 1 January 2009), on 6 October 2009, by section 115(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section ED 1 list of defined terms replacement ETS unit: repealed (with effect on 1 January 2009), on 6 October 2009, by section 115(4)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section ED 1 list of defined terms replacement forest land emissions unit: inserted (with effect on 1 January 2009), on 6 October 2009, by section 115(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
ED 1B Valuation of emissions units issued for zero price
What this section applies to
(1)
This section applies to emissions units held by a person in an income year that—
(a)
are transferred to the person at a price of zero—
(i)
under sections 80 to 86F of the Climate Change Response Act 2002:
(ii)
under section 64 of the Climate Change Response Act 2002 for a removal activity listed in Schedule 4, Part 2 of that Act:
(iii)
by a public authority under a supplementary agreement to a negotiated greenhouse agreement:
(iv)
by a public authority as a rebate, under a negotiated greenhouse agreement, for an indirect emissions charge; and
(b)
have been held continuously by the person from the time of the transfer; and
(c)
have not been valued under either of subsections (4)(a) and (8)(a) before the income year; and
(d)
[Repealed](e)
[Repealed](f)
[Repealed]Value of units transferred to person if no earlier emissions unit shortfall year
(2)
If an emissions unit is transferred to the person in the income year and there is no earlier income year that is an emissions unit shortfall year for the person under subsections (9) and (10), the emissions unit is assigned a value of zero at the time of the transfer.
Value of units transferred to person in income year after emissions unit shortfall year
(3)
If an earlier income year is an emissions unit shortfall year for the person immediately before an emissions unit (the transferred unit) is transferred to the person in the income year, the value of the transferred unit at the time of the transfer is given by the application of the paragraphs in subsection (4) in alphabetical order to transferred units until all the transferred units are assigned a value.
Valuation method at transfer for transferred units
(4)
If emissions units are transferred to the person in an income year when there is a unit shortfall under subsections (9) and (10) for an earlier emissions unit shortfall year,—
(a)
for each emissions unit shortfall year in date order, transferred units, up to the number corresponding to the unit shortfall relating to the emissions unit shortfall year, are each assigned a value equal to the market value of an emissions unit at the end of the emissions unit shortfall year:
(b)
transferred units are each assigned a value equal to zero.
Value of units with zero value immediately before end of income year
(5)
If the value of an emissions unit (the revalued unit) held by the person immediately before the end of the income year is zero, the value of the revalued unit at the end of the year is given by the application of the paragraphs in subsection (8) in alphabetical order to revalued units until all the revalued units are assigned a value.
Limit on application of subsection (8)(a)
(6)
The maximum number of units valued under subsection (8)(a) for the income year is the greater of zero and the number calculated using the formula—
unit entitlement − disposals at zero value.
Definition of items in formula
(7)
In the formula,—
(a)
unit entitlement is the total for the income year of amounts, each of which the person would have for the period of overlap between a calendar year ending 31 December and the income year if the period of overlap were treated as a year, of—
(i)
final allocation entitlement under section 83 of the Climate Change Response Act 2002:
(ii)
allocation entitlement under section 85 of that Act:
(iii)
allocation entitlement under section 64 of the Climate Change Response Act 2002 for a removal activity listed in Schedule 4, Part 2 of that Act:
(iv)
emissions units corresponding to the actual emissions amount under a supplementary agreement to a negotiated greenhouse agreement:
(v)
emissions units corresponding to a rebate, under a negotiated greenhouse agreement, for an indirect emissions charge:
(b)
disposals at zero value is the number of emissions units disposed of by the person in the income year that had a value of zero at the disposal.
Valuation method at end of income year for revalued units
(8)
If the person holds revalued units immediately before the end of the income year, the units are each assigned a value—
(a)
equal to the market value of an emissions unit at the end of the income year:
(b)
equal to zero.
Emissions unit shortfall year
(9)
If the number of units assigned a market value for an income year under subsection (8)(a) is less than the maximum number given by subsection (6) for the income year, at the end of the income year—
(a)
the income year is an emissions unit shortfall year and has 2 numbers (the unit shortfall and the unit shortfall value) associated with it:
(b)
the unit shortfall relating to the emissions unit shortfall year is the difference between the maximum number given by subsection (6) for the income year and the number of zero value units assigned a market value under subsection (8)(a) for the income year:
(c)
the unit shortfall value relating to the emissions unit shortfall year is the unit shortfall multiplied by the market value of an emissions unit at the end of the income year.
Reductions in unit shortfall and unit shortfall value
(10)
When an emissions unit held by a person is assigned a value under subsection (4)(a) in relation to a year that is an emissions unit shortfall year for the person,—
(a)
the unit shortfall relating to that year is reduced by the number of emissions units assigned a value in relation to that year:
(b)
the unit shortfall value relating to that year is reduced by an amount equal to the number of emissions units assigned a value in relation to that year multiplied by the value assigned to each of those emissions units:
(c)
the year ceases to be an emissions unit shortfall year, if the unit shortfall relating to the year is reduced to zero.
Unit shortfall values treated as values of additional emissions units for purposes of adjustments
(11)
For the purposes of sections CH 1 and DB 49 (which relate to adjustments for values of excepted financial arrangements), the person is treated as holding at the end of the income year additional emissions units with a value equal to the total of the unit shortfall values relating to emissions unit shortfall years for the person.
Defined in this Act: amount, emissions unit, emissions unit shortfall year, fishing quota emissions units, forest land emissions units, income year, public authority, replacement forest land emissions units, year
Section ED 1B: substituted (with effect on 1 July 2010), on 21 December 2010, by section 48 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section ED 1B(1)(a)(i): replaced (with effect on 1 July 2010), on 2 November 2012, by section 32(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section ED 1B(1)(a)(ii): replaced (with effect on 1 July 2010), on 2 November 2012, by section 32(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section ED 1B(1)(a)(iii): inserted (with effect on 1 July 2010), on 2 November 2012, by section 32(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section ED 1B(1)(a)(iv): inserted (with effect on 1 July 2010), on 2 November 2012, by section 32(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section ED 1B(1)(d): repealed (with effect on 1 July 2010), on 2 November 2012, by section 32(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section ED 1B(1)(e): repealed (with effect on 1 July 2010), on 2 November 2012, by section 32(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section ED 1B(1)(f): repealed (with effect on 1 July 2010), on 2 November 2012, by section 32(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section ED 1B(7)(a)(iii): replaced (with effect on 1 July 2010), on 2 November 2012, by section 32(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section ED 1B(7)(a)(iv): inserted (with effect on 1 July 2010), on 2 November 2012, by section 32(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section ED 1B(7)(a)(v): inserted (with effect on 1 July 2010), on 2 November 2012, by section 32(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
ED 2 Transfers of certain excepted financial arrangements within wholly-owned groups
When this section applies
(1)
This section applies when—
(a)
a company that is part of a wholly-owned group of companies (company A) transfers to another company in the same group (company B) an excepted financial arrangement that is revenue account property of company A; and
(b)
the transfer of the excepted financial arrangement is not made under a share-lending arrangement; and
(c)
both companies are resident in New Zealand on the date of the transfer; and
(d)
the market value of the excepted financial arrangement on the date of the transfer is less than its cost to company A.
Transfer at cost
(2)
The consideration for the transfer is treated as being equal to the cost of the excepted financial arrangement to company A.
Company stops being part of group
(3)
If company B stops being part of the wholly-owned group, the company is treated as disposing of and reacquiring the excepted financial arrangement at its market value at the time the company stops being part of the group.
Not dividend
(4)
A transfer of an excepted financial arrangement to which this section applies does not give rise to a dividend.
Defined in this Act: company, dividend, excepted financial arrangement, resident in New Zealand, revenue account property, wholly-owned group of companies
Compare: 2004 No 35 s ED 2
ED 2B Transfers to shareholders by ASX-listed Australian company of shares in subsidiary
When this section applies
(1)
This section applies when—
(a)
a company (the splitting company) is an ASX-listed Australian company under subsection (8); and
(b)
shares in a company (the subsidiary) that is a member of the same group of companies as the splitting company (the group), are issued or transferred (the share transfer) to—
(i)
shareholders of the splitting company or of a company that is a member of the group:
(ii)
a member of the group; and
(c)
the subsidiary is a member of the group immediately before the share transfer; and
(d)
the share transfer is not a payment of assessable income or exempt income under the Income Tax Assessment Act 1936 (Aust).
(2)
[Repealed]Cost of shares in splitting company after transfer
(3)
The cost for a shareholder of the shares in the splitting company that are held by the shareholder after the share transfer is the amount calculated using the formula—
cost before transfer × value after transfer ÷ (value acquired shares + value after transfer).
Cost of shares in new company
(4)
The cost for a shareholder of the shares acquired in the share transfer is the amount calculated using the formula—
cost before transfer × value acquired shares ÷ (value acquired shares + value after transfer).
Definition of items in formulas
(5)
In the formulas in subsections (3) and (4),—
(a)
cost before transfer is the cost for the shareholder, immediately before the share transfer, of the shares in the splitting company held by the shareholder immediately after the share transfer:
(b)
value after transfer is the market value of the shares in the splitting company held by the shareholder immediately after the share transfer:
(c)
value acquired shares is the market value of the shares in the subsidiary held by the shareholder immediately after the share transfer.
Available subscribed capital amounts
(6)
Immediately after the share transfer, the available subscribed capital,—
(a)
for each share held in the subsidiary, is—
(i)
the amount given by section CD 43 (Available subscribed capital (ASC) amount) for the share; or
(ii)
zero, if it is impractical to recognise an amount of available subscribed capital for the shares held in the subsidiary:
(b)
for the shares held in the splitting company, equals the amount of the available subscribed capital for the shares in the splitting company held immediately before the share transfer, reduced by the total amount given by paragraph (a) for the shares held in the subsidiary immediately after the share transfer.
Not dividend
(7)
The transfer of the shares in the subsidiary to the shareholders in the splitting company is not a dividend.
Meaning of ASX-listed Australian company
(8)
ASX-listed Australian company means a company that—
(a)
is resident in Australia; and
(b)
is treated as resident in no tax jurisdiction other than Australia under each agreement that—
(i)
is between Australia and another tax jurisdiction; and
(ii)
would be a double tax agreement if negotiated between New Zealand and the other tax jurisdiction; and
(c)
is included on the official list of ASX Limited, a market licensee under Chapter 7 of the Corporations Act 2001 (Aust); and
(d)
is not an entity described in schedule 25, part B (Foreign investment funds); and
(e)
is required under the Income Tax Assessment Act 1997 (Aust) and Income Tax Assessment Act 1936 (Aust) to maintain a franking account.
Defined in this Act: amount, ASX-listed Australian company, available subscribed capital, company, dividend, double tax agreement, group of companies, market value, resident in Australia, share, shareholder
Section ED 2B: inserted, on 29 March 2018 (with effect on 1 April 2016 and applying for the 2016–17 and later income years), by section 65(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section ED 2B(1)(b): replaced (with effect on 1 April 2016), on 18 March 2019, by section 163(1) (and see section 163(4) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section ED 2B(1)(c): replaced (with effect on 1 April 2016), on 18 March 2019, by section 163(1) (and see section 163(4) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section ED 2B(2): repealed (with effect on 1 April 2016), on 18 March 2019, by section 163(2) (and see section 163(4) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section ED 2B(8)(c): replaced, on 29 March 2018 (with effect on 1 April 2017 and applying for the 2017–18 and later income years), by section 65(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section ED 2B list of defined terms group of companies: inserted (with effect on 1 April 2016), on 18 March 2019, by section 163(3) (and see section 163(4) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
ED 3 Part-year tax calculations for transfers: general insurance OCR
When this section applies
(1)
This section applies when a person (the transferor) transfers general insurance contracts to another person (the transferee) in an income year and sections CR 4 and DW 4 (which relate to outstanding claims reserves) apply to either or both of the transferor and transferee.
Transfer from non-resident
(1B)
If sections CR 4 and DW 4 apply to the transferee and not to the transferor, the transferee—
(a)
does the calculations that the transferor would be required to perform under this section if sections CR 4 and DW 4 applied to the transferor; and
(b)
uses the results of the calculations in the way required under this section for a transferee.
Part-year calculations for transfers
(2)
A transferor to whom sections CR 4 and DW 4 apply does a part-year calculation immediately before the transfer, as described in subsection (3), for the transferred general insurance contracts, but only for their part-year ending on the day the transfer occurs. A transferee to whom sections CR 4 and DW 4 apply also does a part-year calculation for the transferred contracts, as described in subsection (3), but only for their part-year starting on the day the transfer occurs. The transferee’s relevant opening outstanding claims reserve amounts equal the transferor’s relevant closing outstanding claims reserve amounts immediately before the transfer, but if the reinsurance associated with transferred policies is not assigned by the transferor to the transferee, the transferee’s reserve amounts are calculated without subtracting relevant reinsurance amounts.
Part-year calculations for transfers: description
(3)
For calculating their income tax liability for the tax year that corresponds to the income year, the transferor and transferee treat references, in sections CR 4 and DW 4 and in the rules for life insurers, to an income year or a tax year as if they are references to 2 separate tax years and corresponding income years (the part-years) within that tax year.
Part-year calculations for transfers: effect
(4)
Transferor’s and transferee’s part-year calculations may give rise to income and deductions for the income year, but they do not create any part-year tax return obligations.
Defined in this Act: amount, deduction, general insurance, IFRS 4, income, income tax liability, income year, insurer, outstanding claims reserve, pay, tax year
Section ED 3: inserted (with effect on 7 September 2010), on 2 November 2012, by section 33(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section ED 3(1): replaced, on 1 April 2014, by section 47(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section ED 3(1B) heading: inserted, on 1 April 2014, by section 47(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section ED 3(1B): inserted, on 1 April 2014, by section 47(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section ED 3(2): amended, on 1 April 2014, by section 47(3)(a) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section ED 3(2): amended, on 1 April 2014, by section 47(3)(b) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section ED 3(3): amended (with effect on 2 November 2012), on 30 March 2021, by section 34 of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
ED 4 Valuation of certain excepted financial arrangements denominated in foreign currency
Who this section applies to
(1)
This section applies to a person who, in an income year (the current year),—
(a)
has an excepted financial arrangement, of a type (the arrangement type) described in section EW 5(21) to (25) (What is an excepted financial arrangement?), denominated in a foreign currency; and
(b)
has an amount of foreign currency payable or receivable under the excepted financial arrangement (a foreign currency payment) at the end of the current year.
Person may choose valuation timing used for financial statements
(2)
The person may choose to value a foreign currency payment at the close of trading spot exchange rate applicable at the end of the current year, if the person, in preparing financial statements, determines values at the end of the income year for amounts of foreign currency payable or receivable by the person.
Consistent valuation timing for excepted financial arrangement
(3)
If foreign currency payments under a person’s excepted financial arrangement are valued under subsection (2) for an income year, the amounts of foreign currency payable or receivable under all of the person’s excepted financial arrangements of the arrangement type are valued in the same way for the income year and later income years.
Defined in this Act: amount, close of trading spot exchange rate, excepted financial arrangement, financial arrangement, income year
Section ED 4: inserted (with effect on 27 September 2012 and applying for a person and an excepted financial arrangement on and after that date, except if the person takes a tax position for the excepted financial arrangement, relying on an election made under section EW 8 before its amendment by the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013, in a return of income received by the Commissioner before that date or under a determination or binding ruling made by the Commissioner before that date), on 17 July 2013, by section 45(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Subpart EE—Depreciation
Contents
Introductory provision
EE 1 What this subpart does
Quantifying amounts of depreciation loss and depreciation recovery income
(1)
When amount of depreciation loss arises
(2)
A person has an amount of depreciation loss for an item for an income year if—
(a)
the person owns an item of property, as described in sections EE 2 to EE 5; and
(b)
the item is depreciable property, as described in sections EE 6 to EE 8; and
(c)
the item is used, or is available for use, by the person in the income year; and
(d)
the amount of depreciation loss is calculated for the person, the item, and the income year under sections EE 9 to EE 11.
When amount of depreciation recovery income arises
(3)
A person has an amount of depreciation recovery income for an item for an income year if—
(a)
the person owns an item of property, as described in sections EE 2 to EE 5; and
(b)
the item is depreciable property, as described in sections EE 6 to EE 8; and
(c)
the item is disposed of or an event of a kind described in section EE 47 or EE 52 occurs; and
(d)
the amount of depreciation recovery income is calculated for the person, the item, and the income year under any of sections EE 22(5), EE 38(5), EE 48(1), EE 49(2), EE 51(3), EE 52(3), EZ 23B, and EZ 23BB (which relate to property, and interests in property, acquired after depreciable property was affected by the Canterbury earthquakes).
Amounts of loss incurred and income derived
(4)
To avoid doubt,—
(a)
an amount of depreciation loss is treated as being incurred in the income year for which it is calculated; and
(b)
an amount of depreciation recovery income is treated as being derived in the income year for which it is calculated.
Allocation of deduction for depreciation loss
(5)
A person who in an income year uses an item for research or development or for market development that gives rise to a deduction allocated under section EJ 22 (Deductions for market development: product of research, development), and as a result has an amount of depreciation loss for the item for the income year, may choose to allocate all or part of the deduction for the depreciation loss—
(a)
to an income year after the income year for which the person has the depreciation loss; and
(b)
in the way required by section EJ 23 (Allocation of deductions for research, development, and resulting market development).
Partial income-producing use
(6)
Subpart DE (Motor vehicle expenditure) and section EE 50 contain rules for calculating the amount of deduction available for depreciation loss in circumstances in which an item of property is only partly used or available for use in a way that satisfies the general permission.
Defined in this Act: amount, deduction, depreciable property, depreciation loss, depreciation recovery income, development, dispose, general permission, income, income year, own, property, research
Compare: 2004 No 35 s EE 1
Section EE 1(3)(c): amended, on 30 March 2017, by section 58 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EE 1(3)(d): amended (with effect on 4 September 2010), on 27 February 2014, by section 48 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EE 1(3)(d): amended (with effect on 4 September 2010), on 29 August 2011, by section 23 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Meaning of own
EE 2 Nature of ownership of item
Kinds of ownership
(1)
Own, for the ownership of depreciable property,—
(a)
means legal or equitable ownership; and
(b)
includes ownership of the kinds described in sections EE 3 to EE 5.
Shared ownership
(2)
When more than 1 person owns an item of depreciable property, own means the interest that the person has in the item.
Defined in this Act: depreciable property, own
Compare: 2004 No 35 s EE 2
EE 3 Ownership of goods subject to reservation of title
When this section applies
(1)
This section applies when—
(a)
a person (the buyer) enters into an unconditional contract to buy an item of depreciable property; and
(b)
the contract is not a hire purchase agreement and the item is not a hire purchase asset that is the subject of a hire purchase agreement; and
(c)
the contract is subject to Part 3, subparts 1 to 6 of the Contract and Commercial Law Act 2017; and
(d)
title to the item does not pass until the purchase price is paid in full; and
(e)
the buyer takes possession of the item before title to it passes.
Buyer treated as owner
(2)
The buyer is treated as owning, and the seller is treated as not owning, the item from the later of the following times:
(a)
the time at which the buyer enters into the contract; and
(b)
the time at which the buyer takes possession of the item.
Buyer ceases to be treated as owner
(3)
Subsection (2) ceases to apply when 1 of the following occurs:
(a)
title to the item passes to the buyer; or
(b)
the seller repossesses the item.
Defined in this Act: depreciable property, hire purchase agreement, hire purchase asset, own
Compare: 2004 No 35 s EE 3
Section EE 3(1)(c): amended, on 1 September 2017, by section 347 of the Contract and Commercial Law Act 2017 (2017 No 5).
EE 4 Ownership of lessee’s improvements: lessee
When this section applies
(1)
This section applies when—
(a)
a lessee of land incurs expenditure during the period during which the land is leased to the lessee in erecting a fixture on the land or making an improvement to the land; and
(b)
the lessor owns the fixture or improvement.
Ownership of fixture or improvement
(2)
The following apply to the ownership of the fixture or improvement:
(a)
in the period during which the land is leased to the lessee,—
(i)
the lessee is treated as owning the fixture or improvement; and
(ii)
the lessor is treated as not owning the fixture or improvement; and
(iii)
a person to whom the lessor disposes of the land during the period is treated as not owning the fixture or improvement; and
(b)
after the period during which the land is leased to the lessee,—
(i)
the lessor is treated as not owning the fixture or improvement, unless the lessor incurs a cost relating to it at the end of the period; and
(ii)
a person to whom the lessor disposes of the land during the period is treated as not owning the fixture or improvement.
Defined in this Act: improvement, lessee, lessor, own
Compare: 2004 No 35 s EE 4
EE 5 Ownership of lessee’s improvements: other person
When this section applies: first case
(1)
This section applies when—
(a)
a lessee of land incurs expenditure during the term of the lease in erecting a fixture on the land or making an improvement to the land; and
(b)
the lessee has been allowed a deduction for an amount of depreciation loss for the fixture or improvement; and
(c)
the lessee disposes of their interest in the lease to another person; and
(d)
the other person pays the lessee for the fixture or improvement.
When this section applies: second case
(2)
This section also applies when—
(a)
a lessee of land has been allowed a deduction for an amount of depreciation loss for a fixture on the land, or an improvement to the land, that a previous lessee erected or made; and
(b)
the lessee disposes of their interest in the lease to another person; and
(c)
the other person pays the lessee for the fixture or improvement.
Other person treated as owner
(3)
The other person is treated as owning the fixture or improvement from the time at which they pay the lessee for it.
Defined in this Act: amount, deduction, depreciation loss, dispose, improvement, lease, lessee, own, pay, term of the lease
Compare: 2004 No 35 s EE 5
Meaning of depreciable property
EE 6 What is depreciable property?
Description
(1)
Depreciable property is property that, in normal circumstances, might reasonably be expected to decline in value while it is used or available for use—
(a)
in deriving assessable income; or
(b)
in carrying on a business for the purpose of deriving assessable income; or
(c)
in deriving exempt income, and it is used in performing research and development activities.
Subsections (2) to (4) expand on this subsection.
Property: tangible
(2)
An item of tangible property is depreciable property if—
(a)
it is described by subsection (1); and
(b)
it is not described by section EE 7.
Property: utilities distribution assets
(2B)
For the purposes of this subpart, utilities distribution assets are separate items of property.
Property: intangible
(3)
An item of intangible property is depreciable property if—
(a)
it is within the definition of depreciable intangible property; and
(b)
it is described by subsection (1); and
(c)
it is not described by section EE 7.
Property: geothermal wells
(4)
For the purposes of this subpart, a person who owns a geothermal well is, for the geothermal energy proving period, treated as acquiring the well as property that declines in value and is to be available for use in carrying on a business for the purpose of deriving assessable income.
Defined in this Act: acquire, assessable income, business, depreciable intangible property, depreciable property, geothermal energy proving period, geothermal well, property, research and development activity, utilities distribution asset
Compare: 2004 No 35 s EE 6
Section EE 6(1)(b): amended, on 1 April 2019, by section 6(1) (and see section 3 for application) of the Taxation (Research and Development Tax Credits) Act 2019 (2019 No 15).
Section EE 6(1)(c): inserted, on 1 April 2019, by section 6(1) (and see section 3 for application) of the Taxation (Research and Development Tax Credits) Act 2019 (2019 No 15).
Section EE 6(2B) heading: inserted (with effect on 1 April 2008), on 31 March 2023, by section 50(1) (and see section 50(3) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EE 6(2B): inserted (with effect on 1 April 2008), on 31 March 2023, by section 50(1) (and see section 50(3) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EE 6 list of defined terms research and development activities: repealed (with effect on 1 April 2019), on 30 March 2022, by section 78 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EE 6 list of defined terms research and development activity: inserted (with effect on 1 April 2019), on 30 March 2022, by section 78 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EE 6 list of defined terms utilities distribution asset: inserted (with effect on 1 April 2008), on 31 March 2023, by section 50(2) (and see section 50(3) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
EE 7 What is not depreciable property?
The following property is not depreciable property:
(a)
land other than depreciable intangible property, although buildings, fixtures, and the improvements listed in schedule 13 (Depreciable land improvements) are depreciable property if they are described by section EE 6(1):
(ab)
a lease of land with a perpetual right of renewal:
(b)
trading stock:
(c)
livestock to which subpart EC (Valuation of livestock) applies:
(d)
financial arrangements:
(e)
excepted financial arrangements other than depreciable intangible property:
(f)
property that will not decline in value, as far as its owner is concerned, because, when they dispose of it, they have a right to be compensated for any decline in its value:
(fb)
property that is a piece of an item of depreciable property that is an aircraft or an aircraft engine, if the expenditure on the piece is treated under section DW 5(8) (Aircraft operators: aircraft engines and aircraft engine overhauls) as being expenditure incurred in carrying out an aircraft engine overhaul:
(fc)
a utilities distribution network, to the extent to which it is treated as an item of property separate from the relevant utilities distribution assets:
(g)
property that its owner chooses, under section EE 8, to treat as not depreciable:
(h)
property that its owner chooses, under section EE 38, to deal with under that section:
(i)
property for whose cost a person other than the property’s owner is allowed a deduction:
(j)
property for whose cost a person is allowed a deduction under a provision of this Act outside this subpart or under a provision of an earlier Act.
Defined in this Act: aircraft engine, aircraft engine overhaul, building, deduction, depreciable intangible property, depreciable property, dispose, excepted financial arrangement, financial arrangement, land, own, property, trading stock, utilities distribution asset, utilities distribution network
Compare: 2004 No 35 s EE 7
Section EE 7(a): amended (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 17 July 2013, by section 46(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EE 7(ab): inserted, on 1 April 2015, by section 65(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EE 7(c): amended (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 30 June 2014, by section 65(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EE 7(e): replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 17 July 2013, by section 46(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EE 7(fb): inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 59(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EE 7(fc): inserted (with effect on 1 April 2008), on 31 March 2023, by section 51(1) (and see section 51(3) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EE 7(j): amended, on 29 March 2018 (with effect on 1 April 2014), by section 66 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EE 7 list of defined terms aircraft engine: inserted, on 1 April 2017, by section 59(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EE 7 list of defined terms aircraft engine overhaul: inserted, on 1 April 2017, by section 59(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EE 7 list of defined terms building: inserted (with effect on 30 July 2009), on 28 May 2010, by section 84 of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 7 list of defined terms depreciable intangible property: inserted (with effect on 1 April 2008), on 17 July 2013, by section 46(3) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EE 7 list of defined terms land: inserted (with effect on 1 April 2008), on 17 July 2013, by section 46(3) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EE 7 list of defined terms utilities distribution asset: inserted (with effect on 1 April 2008), on 31 March 2023, by section 51(2) (and see section 51(3) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EE 7 list of defined terms utilities distribution network: inserted (with effect on 1 April 2008), on 31 March 2023, by section 51(2) (and see section 51(3) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
EE 8 Election that property not be depreciable
Item acquired
(1)
A person may choose that an item of property they acquire not be depreciable property even though, in the absence of the election, it would be depreciable property.
Item changing use
(2)
A person may choose that an item of property they own ceases to be depreciable property if—
(a)
the use of the item changes; and
(b)
before the use changes, the person was denied a deduction for an amount of depreciation loss for the item; and
(c)
after the use changes, in the absence of the election, the person would have been allowed a deduction for an amount of depreciation loss for the item.
Retrospective election
(3)
A person who has deducted none of the amounts of depreciation loss for which they were allowed a deduction for an item of property, in the income year in which they acquired it and in each later year, may retrospectively choose that the item not be depreciable property.
How elections made
(4)
An election under this section is made as follows:
(a)
a person makes an election under subsection (1) by giving the Commissioner notice of it in their return of income for the income year in which they acquire the item; and
(b)
a person makes an election under subsection (2) by giving the Commissioner notice of it in their return of income for the income year in which the item’s use changes; and
(c)
a person makes an election under subsection (3) by giving the Commissioner notice of it in their return of income for any income year after they acquire the item, including an income year after they dispose of the item.
Effect of election
(5)
An election under this section has effect for the person for—
(a)
the income year for which they make the election; and
(b)
all later income years until—
(i)
the item is disposed of, although this reference to disposal does not include the disposal of an item of intangible property as part of an arrangement to replace it with an item of the same kind; or
(ii)
an event described in section EE 47 occurs involving the item.
Retrospective effect of election
(6)
An election made under subsection (3) also has retrospective effect for the person for—
(a)
the income year in which they acquire the property; and
(b)
all intervening income years until the year in which they make the election.
Defined in this Act: acquire, amount, Commissioner, deduction, depreciable property, depreciation loss, dispose, income year, notice, property, return of income
Compare: 2004 No 35 s EE 8
How amounts of depreciation loss and depreciation recovery income are calculated
EE 9 Description of elements of calculation
Depreciation methods
(1)
Sections EE 12 to EE 24 deal with the methods of calculating an amount of depreciation loss. The methods are—
(a)
the straight-line method, which is dealt with in sections EE 13 to EE 19; and
(b)
the diminishing value method, which is also dealt with in sections EE 13 to EE 19; and
(c)
the pool method, which is dealt with in sections EE 20 to EE 24.
Depreciation rates
(2)
Sections EE 26 to EE 36 deal with the rates of depreciation. The rates are—
(a)
the economic rate, which is dealt with in section EE 26; and
(b)
the annual rate, which is dealt with in sections EE 31, EE 33, and EE 34; and
Improvements, low value items, and items no longer used
(3)
Sections EE 37 to EE 39 deal with the cases of—
(a)
an improvement made to an item of depreciable property; and
(b)
an item of depreciable property that is of low value; and
(c)
an item of depreciable property that is no longer used.
Transfers
(4)
Sections EE 40 to EE 43 deal with the transfer of items of depreciable property in certain amalgamations and between associated persons.
Disposals and similar events
(5)
Sections EE 44 to EE 52 deal with disposals of property and events that involve property and are similar to disposal.
Interpretation provisions
(6)
Sections EE 54 to EE 67 deal with the following interpretation matters:
(a)
section EE 54 deals with the effect of goods and services tax (GST) on cost; and
(b)
sections EE 55 to EE 60 deal with the meaning of adjusted tax value; and
(c)
sections EE 61 to EE 67 contain definitions.
Relationship with sections EZ 9 to EZ 28
(7)
Sections EZ 9 to EZ 28 (which relate to depreciation) deal with items acquired in periods before 24 September 1997.
Defined in this Act: adjusted tax value, amount, annual rate, associated person, depreciable property, depreciation loss, depreciation method, diminishing value method, dispose, economic rate, GST, improvement, pool method, property, provisional rate, special rate, straight-line method
Compare: 2004 No 35 s EE 9
EE 10 Calculation rule: item temporarily not available
An item of depreciable property is treated as being available for use while subject temporarily to repair or inspection, if it was used or available for use immediately before going for repair or inspection.
Defined in this Act: depreciable property
Compare: 2004 No 35 s EE 10
EE 11 Calculation rule: income year in which item disposed of
Generally no amount of depreciation loss
(1)
A person does not have an amount of depreciation loss for an item of depreciable property for the income year in which they dispose of it.
Exclusion: building or petroleum-related depreciable property
(2)
A person has an amount of depreciation loss for an item of depreciable property for the income year in which they dispose of it, if it is—
(a)
a building; or
(b)
an item of petroleum-related depreciable property.
Exclusion: empty pool
(3)
A person has the amount of depreciation loss calculated under section EE 22(4)(a) for an income year for a disposal to which the subsection applies.
Exclusion: consideration less than adjusted tax value
(4)
A person has the amount of depreciation loss calculated under section EE 48(2) for a disposal or event to which the subsection applies.
Exclusion: item partly used for business
(5)
A person has the amount of depreciation loss calculated under section EE 50(6) for a disposal or event to which the subsection applies.
Exclusion: recent acquisition of item partly used for business
(6)
A person has the amount of depreciation loss calculated under section EE 50(9) for a disposal or event to which the subsection applies.
Defined in this Act: building, adjusted tax value, amount, business, depreciable property, depreciation loss, dispose, income year, petroleum-related depreciable property
Compare: 2004 No 35 s EE 11
Section EE 11 list of defined terms building: inserted (with effect on 30 July 2009), on 28 May 2010, by section 84 of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Methods
EE 12 Depreciation methods
Meaning of depreciation method
(1)
Depreciation method means—
(a)
a method that a person may use to calculate an amount of depreciation loss:
(b)
a rate determined by the Commissioner under section 91AAF or 91AAG of the Tax Administration Act 1994:
(c)
a maximum pooling value determined by the Commissioner under section 91AAL of that Act.
Methods described
(2)
The depreciation methods are—
(a)
the diminishing value method, which—
(i)
may be used for any item of depreciable property except one referred to in subparagraph (ii) or (iii); and
(ii)
must not be used for an item of fixed life intangible property; and
(iii)
must not be used for an item of property in the circumstances described in section EZ 9 (Pool method for items accounted for by globo method for 1992–93 income year):
(b)
the straight-line method, which—
(i)
may be used for any item of depreciable property; and
(ii)
must be used for an item of fixed life intangible property:
(c)
the pool method, which—
(i)
may be used for any item of poolable property except one referred to in subparagraph (ii); and
(ii)
must not be used for an item of fixed life intangible property; and
(iii)
must be used for an item of property in the circumstances described in section EZ 9.
Person chooses
(3)
A person chooses which of the depreciation methods they will use for each item of depreciable property they own.
How person chooses
(4)
The person chooses the method by using the chosen method for the item in their return of income for the income year for which they make the election.
Diminishing value or straight-line method fixed for income year
(5)
If the person chooses the diminishing value method or the straight-line method, they must use the method for the item and the income year and must not change the election for the income year.
Pool method fixed for income year and later income years
(6)
If the person chooses the pool method, they must use the method for the item and the income year and must not change the election for—
(a)
the income year; or
(b)
a later income year in which the item is still poolable property that they own.
Defined in this Act: amount, depreciable property, depreciation loss, depreciation method, diminishing value method, fixed life intangible property, income year, own, pool method, poolable property, property, return of income, straight-line method
Compare: 2004 No 35 s EE 12
Amount of depreciation loss under diminishing value method or straight-line method
EE 13 Application of sections EE 14 to EE 19
Sections EE 14 to EE 19 apply to the calculation of the amount of depreciation loss that a person using the diminishing value method or the straight-line method has.
Defined in this Act: amount, depreciation loss, diminishing value method, straight-line method
Compare: 2004 No 35 s EE 13
EE 14 Diminishing value or straight-line method: calculating amount of depreciation loss
Most depreciable property
(1)
The amount of depreciation loss that the person has for an income year for an item of depreciable property is the lesser of the amounts dealt with in sections EE 15 and EE 16.
Exclusion: petroleum-related depreciable property
(2)
The amount of depreciation loss that the person has for an income year for an item of petroleum-related depreciable property is the lesser of the amounts dealt with in sections EE 15 and EE 17.
Defined in this Act: amount, depreciable property, depreciation loss, income year, petroleum-related depreciable property
Compare: 2004 No 35 s EE 14
EE 15 Amount of adjusted tax value
For the purposes of the comparison of amounts required by section EE 14(1) and (2), the amount dealt with in this section is the item’s adjusted tax value at the end of the income year before the deduction of an amount of depreciation loss for the item for the income year.
Defined in this Act: adjusted tax value, amount, deduction, depreciation loss, income year
Compare: 2004 No 35 s EE 15
EE 16 Amount resulting from standard calculation
Amount
(1)
For the purposes of the comparison of amounts required by section EE 14(1), the amount dealt with in this section is calculated using the formula—
annual rate × value or cost × months ÷ 12.
Definition of items in formula
(2)
The items in the formula are defined in subsections (3) to (5).
Annual rate
(3)
Annual rate is the annual rate that, in the income year, applies to the item of depreciable property under the depreciation method that the person uses for the item. It is expressed as a decimal.
Value or cost
(4)
Value or cost is,—
(a)
when the person uses the diminishing value method, the item’s adjusted tax value at the end of the income year before the deduction of an amount of depreciation loss for the item for the income year:
(b)
when the person uses the straight-line method,—
(i)
for a patent, design registration, or plant variety rights in relation to which the person has been allowed a deduction for an amount of depreciation loss for the relevant application, the item’s adjusted tax value at the start of the month in which the person acquires it:
(ib)
for a design registration to which subparagraph (i) does not apply, for a design registration application, or for industrial artistic copyright, its cost to the person, but excluding expenditure that the person incurred before 7 November 2013 or for which they are allowed a deduction under a provision of this Act outside this subpart:
(ii)
for other items, its cost to the person excluding expenditure for which the person is allowed a deduction under a provision of this Act outside this subpart:
(c)
for the purposes of paragraph (b), variations to cost are in sections EE 18 to EE 19.
Months: income year of normal length or shorter
(5)
Months, for a person whose income year contains 365 days or fewer, or 366 days or fewer in a leap year, is the lesser of the following:
(a)
12; and
(b)
the number of whole or part calendar months in the income year in which—
(i)
the person owns the item; and
(ii)
the person uses the item or has it available for use for any purpose.
Months: income year of longer than normal length
(6)
Months, for a person whose income year contains more than 365 days, or more than 366 days in a leap year, is the number of whole or part months in the income year in which—
(a)
the person owns the item; and
(b)
the person uses the item or has it available for use for any purpose.
Months: applications
(7)
For the purposes of subsections (5) and (6), for a patent application and a design registration application, months refers to whole calendar months and whole months, as applicable.
Defined in this Act: adjusted tax value, amount, annual rate, deduction, depreciable property, depreciation loss, depreciation method, design registration, design registration application, diminishing value method, income year, industrial artistic copyright, own, plant variety rights, straight-line method
Compare: 2004 No 35 s EE 16
Section EE 16(4)(b)(i): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 116(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 16(4)(b)(ib): inserted (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 116(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 16(4)(c): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 116(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 16(7) heading: amended (with effect on 1 April 2015), on 24 February 2016, by section 116(4) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 16(7): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 116(5) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 16 list of defined terms design registration: inserted (with effect on 1 April 2015), on 24 February 2016, by section 116(6) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 16 list of defined terms design registration application: inserted (with effect on 1 April 2015), on 24 February 2016, by section 116(6) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 16 list of defined terms industrial artistic copyright: inserted (with effect on 1 April 2015), on 24 February 2016, by section 116(6) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EE 17 Amount resulting from petroleum-related depreciable property calculation
Amount
(1)
For the purposes of the comparison of amounts required by section EE 14(2), the amount dealt with in this section is calculated using the formula—
annual rate × value or cost × days ÷ 365.
Definition of items in formula
(2)
The items in the formula are defined in subsections (3) to (5).
Annual rate
(3)
Annual rate is the annual rate that, in the income year, applies to the item of depreciable property under the depreciation method that the person uses for the item. It is expressed as a decimal.
Value or cost
(4)
Value or cost is,—
(a)
when the person uses the diminishing value method, the item’s adjusted tax value at the end of the income year before the deduction of an amount of depreciation loss for the item for the income year:
(b)
when the person uses the straight-line method, the item’s cost to the person; a variation to cost is in section EE 18.
Days
(5)
Days is the number of whole or part days in the income year on which—
(a)
the person owns the item; and
(b)
the person uses the item or has it available for use for any purpose.
Defined in this Act: adjusted tax value, amount, annual rate, deduction, depreciable property, depreciation loss, depreciation method, diminishing value method, income year, own, straight-line method
Compare: 2004 No 35 s EE 17
EE 18 Cost: change from diminishing value to straight-line method
When this section applies
(1)
This section applies when a person changes from the diminishing value method to the straight-line method for an item of property for an income year.
How straight-line method applies
(2)
For the purposes of the formulas in sections EE 16 and EE 17, the item’s cost is treated as being the item’s adjusted tax value at the end of the income year before the deduction of an amount of depreciation loss for the item for the income year.
Defined in this Act: adjusted tax value, amount, deduction, depreciation loss, diminishing value method, income year, property, straight-line method
Compare: 2004 No 35 s EE 18
EE 18B Cost: some depreciable intangible property
For the purposes of section EE 16 and this subpart, the cost to a person for an item of depreciable intangible property or a plant variety rights application (the amortising item) includes an amount of expenditure incurred by the person for an item of intangible property (the underlying item) if—
(a)
the underlying item gives rise to, supports, or is an item in which the person holds, the amortising item; and
(b)
the amount of expenditure is incurred by the person on or after 7 November 2013, if the amortising item is 1 of—
(i)
a patent or a patent application with a complete specification lodged on or after 1 April 2005:
(ii)
plant variety rights:
(iii)
a plant variety rights application:
(iv)
a design registration:
(v)
a design registration application:
(vi)
industrial artistic copyright; and
(c)
the person is denied a deduction for the expenditure under a provision outside this subpart.
Defined in this Act: deduction, depreciable intangible property, design registration, design registration application, industrial artistic copyright, plant variety rights
Section EE 18B: inserted (with effect on 1 April 2011 and applying for the 2011–12 and later income years), on 24 February 2016, by section 117(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 18B: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 118(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 18B(b): replaced (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 118(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 18B list of defined terms design registration: inserted (with effect on 1 April 2015), on 24 February 2016, by section 118(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 18B list of defined terms design registration application: inserted (with effect on 1 April 2015), on 24 February 2016, by section 118(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 18B list of defined terms industrial artistic copyright: inserted (with effect on 1 April 2015), on 24 February 2016, by section 118(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EE 19 Cost: fixed life intangible property
When this section applies
(1)
This section applies when—
(a)
a person owns an item of fixed life intangible property; and
(b)
the person incurs additional costs in an income year for the item; and
(c)
the person is denied a deduction for the additional costs other than a deduction for an amount of depreciation loss.
When this section does not apply
(1B)
This section does not apply for additional costs incurred before 7 November 2013 for—
(a)
a design registration:
(b)
a design registration application:
(c)
industrial artistic copyright.
Additional costs for fixed life intangible property
(2)
For the purposes of the formula in section EE 16, the item’s cost at the start of the income year is treated as being the total of—
(a)
the item’s adjusted tax value at the start of the income year; and
(b)
the additional costs the person incurs.
Defined in this Act: adjusted tax value, amount, deduction, depreciation loss, design registration, design registration application, fixed life intangible property, income year, industrial artistic copyright, own
Compare: 2004 No 35 s EE 19
Section EE 19(1B) heading: inserted (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 119(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 19(1B): inserted (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 119(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 19 list of defined terms design registration: inserted (with effect on 1 April 2015), on 24 February 2016, by section 119(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 19 list of defined terms design registration application: inserted (with effect on 1 April 2015), on 24 February 2016, by section 119(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 19 list of defined terms industrial artistic copyright: inserted (with effect on 1 April 2015), on 24 February 2016, by section 119(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Amount of depreciation loss under pool method
EE 20 Application of sections EE 21 to EE 24
Sections EE 21 to EE 24 apply to the calculation of the amount of depreciation loss that a person using the pool method has.
Defined in this Act: amount, depreciation loss, pool method
Compare: 2004 No 35 s EE 20
EE 21 Pool method: calculating amount of depreciation loss
Amount of depreciation loss subtracted from pool’s value
(1)
The amount of depreciation loss that a person has for an income year for a pool of depreciable property is—
(a)
first, calculated under subsection (2); and
(b)
second, subtracted from the pool’s adjusted tax value at the end of the income year.
Amount
(2)
The amount of depreciation loss is calculated using the formula—
rate × ((starting adjusted tax value + ending adjusted tax value) ÷ 2)
× months ÷ 12.
Definition of items in formula
(3)
The items in the formula are defined in subsections (4) to (8).
Rate
(4)
Rate is the diminishing value rate. It is 1 of the following:
(a)
if the same rate applies to all items depreciated in the pool in the income year, that rate; or
(b)
if different rates apply to items depreciated in the pool in the income year,—
(i)
the lower of the rates, if there are 2 items in the pool; or
(ii)
the lowest of the rates, if there are 3 or more items in the pool.
Starting adjusted tax value
(5)
Starting adjusted tax value is—
(a)
the pool’s adjusted tax value at the start of the income year, increased as applicable by the amount referred to in section EE 22(2)(b); or
(b)
zero, if the pool did not exist at the start of the income year.
Ending adjusted tax value
(6)
Ending adjusted tax value is the pool’s adjusted tax value at the end of the income year before the deduction of an amount of depreciation loss for the pool for the income year. The value is, as applicable,—
(a)
increased by the amounts referred to in section EE 22(1) and (2)(a):
(b)
decreased by the amount referred to in section EE 22(3).
Months
(7)
Months, for a person, is the number of whole or part months in their income year, and the number may be more or less than 12.
Months: income year of longer than normal length[Repealed]
(8)
[Repealed]Defined in this Act: adjusted tax value, amount, deduction, depreciable property, depreciation loss, diminishing value rate, income year, own, pool
Compare: 2004 No 35 s EE 21
Section EE 21(5) heading: substituted (with effect on 1 April 2008), on 6 October 2009, by section 117(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EE 21(5): substituted (with effect on 1 April 2008), on 6 October 2009, by section 117(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EE 21(6) heading: substituted (with effect on 1 April 2008), on 6 October 2009, by section 117(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EE 21(6): substituted (with effect on 1 April 2008), on 6 October 2009, by section 117(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EE 21(7) heading: substituted (with effect on 1 April 2008), on 6 October 2009, by section 117(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EE 21(7): substituted (with effect on 1 April 2008), on 6 October 2009, by section 117(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EE 21(8) heading: repealed (with effect on 1 April 2008), on 6 October 2009, by section 117(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EE 21(8): repealed (with effect on 1 April 2008), on 6 October 2009, by section 117(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EE 22 Cases affecting pool
Acquired item included
(1)
If a person chooses in an income year to include in a pool an item of poolable property that they acquire in the income year, the pool’s adjusted tax value is increased by the item’s cost.
Separately depreciated item included
(2)
If a person chooses in an income year to include in a pool an item of poolable property that they depreciated separately in the previous income year,—
(a)
the pool’s adjusted tax value is increased by the item’s adjusted tax value on the date it is included in the pool; and
(b)
the item’s adjusted tax value at the end of the previous income year is included in starting adjusted tax value in section EE 21(5).
Insurance or compensation for damage to item
(2B)
If a person in an income year derives an amount of insurance, indemnity, or compensation (the compensation amount) for damage to an item included in a pool at the end of the income year and the compensation amount exceeds the expenditure or loss that the person incurs because of the damage, the excess is subtracted from the adjusted tax value of the pool.
Item disposed of
(3)
If a person disposes of an item included in a pool, and derives an amount of consideration from the disposal, or derives an amount of insurance, indemnity, or compensation to which subsection (2B) does not apply for damage to the item occurring before the disposal, any excess of the amount derived over the expenditure or loss incurred in deriving the amount is subtracted from the adjusted tax value of the pool in which the item was included on the date of the disposal.
All items disposed of
(4)
If, on the last day of an income year, the adjusted tax value of a person’s pool is positive but the person has disposed of all items that were in the pool,—
(a)
the amount of depreciation loss that the person has for the pool for the income year is the pool’s adjusted tax value; and
(b)
on the first day of the following income year, the pool’s adjusted tax value is zero.
Negative adjusted tax value
(5)
If, on the last day of an income year, the adjusted tax value of a person’s pool is negative,—
(a)
the amount by which the adjusted tax value is negative is an amount of depreciation recovery income of the person derived in the income year; and
(b)
on the first day of the following income year the pool’s adjusted tax value is zero.
Relationship with section EZ 10
(6)
Section EZ 10 (Pool items accounted for by globo method for 1992–93 income year) limits the amount of income arising under subsection (5)(a) in the circumstances described in the section.
Defined in this Act: acquire, adjusted tax value, amount, depreciation loss, depreciation recovery income, dispose, income, income year, pool, poolable property
Compare: 2004 No 35 s EE 22
Section EE 22(2B) heading: inserted (with effect on 4 September 2010), on 2 November 2012, by section 35(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EE 22(2B): inserted (with effect on 4 September 2010), on 2 November 2012, by section 35(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EE 22(3): amended (with effect on 4 September 2010), on 2 November 2012, by section 35(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
EE 23 Combined pools
Combining pools allowed
(1)
A person using the pool method may at any time combine any number of pools to form a single pool.
Consequences
(2)
When a person combines pools,—
(a)
the new pool’s adjusted tax value is the same as the sum of the adjusted tax values of the constituent pools; and
(b)
the adjusted tax value of each of the constituent pools at the end of the income year in which the pools are combined is zero; and
(c)
each of the constituent pools ceases to exist.
Defined in this Act: adjusted tax value, income year, pool, pool method
Compare: 2004 No 35 s EE 23
EE 24 Property ceasing to qualify for pool
If a person starts using an item of property included in a pool in such a way as to cause the item to cease to meet the requirements of section EE 66(4), they must account for it as if, on the day they first used it in that way,—
(a)
they disposed of it for its market value; and
(b)
they immediately reacquired it for its market value.
Defined in this Act: acquire, dispose, pool, property
Compare: 2004 No 35 s EE 24
EE 25 Depreciation loss for plant variety rights application granted in 2005–06 or later income year
When this section applies
(1)
This section applies when—
(a)
plant variety rights are granted to a person in their 2005–06 income year or a later income year; and
(b)
the rights are granted in relation to a plant variety rights application owned by the person; and
(c)
a deduction for expenditure is denied under another provision.
Calculation of deduction
(2)
For the income year in which the plant variety rights are granted, the person is allowed a deduction for expenditure on the plant variety rights application of an amount calculated using the formula—
cost × months of ownership ÷ depreciation months.
Definition of items in formula
(3)
In the formula,—
(a)
cost is the cost to the person of the plant variety rights application, including an amount incurred for the purpose of lodging an earlier application and giving rise under section CG 7B (Disposals or applications after earlier deductions) to a corresponding amount of income relating to the plant variety rights application:
(b)
months of ownership is the number of whole calendar months for which the person owns the plant variety rights application:
(c)
depreciation months is the total of the number of months of ownership under paragraph (b) and the number of months in the term for which the plant variety rights are granted in relation to the plant variety rights application.
Defined in this Act: amount, deduction, income year, plant variety rights
Compare: 2004 No 35 s EE 24B
Section EE 25(3)(a): replaced (with effect on 1 April 2014), on 30 June 2014 (applying for 2014–15 and later income years), by section 66(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EE 25 list of defined terms depreciation: repealed, on 24 February 2016, by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Depreciation rates
EE 26 Setting of economic depreciation rate
Relevant provisions
(1)
The economic depreciation rate that applies to a kind of item of depreciable property is set under—
(a)
section EE 27, for items that—
(i)
are not buildings, fixed life intangible property, excluded depreciable property, or property for which an economic rate is set under section EE 29 or EE 30; and
(ii)
are acquired on or after 1 April 2005:
(b)
section EE 28, for items that are buildings and—
(i)
are acquired on or after 19 May 2005; and
(ii)
do not have an economic depreciation rate set under section EZ 23 (Economic rate for plant or equipment acquired before 1 April 2005 and buildings acquired before 19 May 2005):
(c)
section EE 29, for certain aircraft and motor vehicles acquired on or after 1 April 2005:
(d)
section EE 30, for items that—
(i)
have an estimated residual market value greater than 13.5% of cost:
(ii)
would, in the absence of section EE 30, have an economic depreciation rate set under section EE 27 or EE 28:
(e)
section EZ 23 for items that—
(i)
are not buildings, fixed life intangible property, or excluded depreciable property and are acquired before 1 April 2005:
(ii)
are buildings acquired before 19 May 2005:
(iii)
are buildings acquired on or after 19 May 2005, as relationship property or from a company in the same wholly-owned group of companies, from a person who applied to the item an economic depreciation rate set under section EZ 23 or a corresponding provision.
No rate for fixed life intangible property or excluded depreciable property
(2)
An economic depreciation rate must not be set for a kind of item of depreciable property that is fixed life intangible property or excluded depreciable property.
Overriding effect of election under section EE 32
(3)
Subsection (1)(a), (c), and (d) are overridden by section EE 32.
Defined in this Act: building, depreciable property, economic rate, estimated residual market value, excluded depreciable property, fixed life intangible property
Compare: 2004 No 35 s EE 25
Section EE 26 list of defined terms building: inserted (with effect on 30 July 2009), on 28 May 2010, by section 84 of the Taxation (Budget Measures) Act 2010 (2010 No 27).
EE 27 Economic rate for certain depreciable property
What this section is about
(1)
This section is about setting the economic depreciation rate that applies to a kind of item of depreciable property.
Exclusion
(2)
This section does not apply to buildings, fixed life intangible property, excluded depreciable property, or property for which an economic rate is set under section EE 29 or EE 30.
Rate set by Commissioner
(3)
The Commissioner sets the rate from time to time by—
(a)
following the procedure set out in this section; and
(b)
issuing a determination under section 91AAF of the Tax Administration Act 1994.
Procedure for setting economic rate
(4)
To set the diminishing value rate for a kind of item of depreciable property, the Commissioner—
(a)
obtains a figure by applying the formula in subsection (5) to items of that kind; and
(b)
rounds the figure up or down to the nearest rate specified in schedule 11, column 1 (New banded rates of depreciation); and
(c)
sets the same rate for some or all of the kinds of items of depreciable property that are similar to one another, if the Commissioner thinks it is appropriate to do so having regard to—
(i)
the rate calculated for each kind; and
(ii)
the reduction in compliance costs that is likely to be achieved.
Formula
(5)
The formula is—
2 ÷ estimated useful life.
Definition of item in formula
(6)
In the formula, estimated useful life is the estimated useful life of the item expressed in years.
Defined in this Act: building, Commissioner, depreciable property, diminishing value rate, economic rate, estimated useful life, excluded depreciable property, fixed life intangible property
Compare: 2004 No 35 s EE 25B
Section EE 27 list of defined terms building: inserted (with effect on 30 July 2009), on 28 May 2010, by section 84 of the Taxation (Budget Measures) Act 2010 (2010 No 27).
EE 28 Economic rate for buildings
What this section is about
(1)
This section is about setting the economic depreciation rate that applies to a kind of item of depreciable property that is a building and for which an economic rate is not set under section EE 30 or EZ 23 (Economic rate for plant or equipment acquired before 1 April 2005 and buildings acquired before 19 May 2005).
Rate set by Commissioner
(2)
The Commissioner sets the rate from time to time by—
(a)
following the procedure set out in this section; and
(b)
issuing a determination under section 91AAF of the Tax Administration Act 1994.
Procedure for setting economic rate
(3)
To set the straight-line rate for a kind of item of depreciable property, the Commissioner—
(a)
gets a figure by applying the formula in subsection (4) to items of that kind; and
(b)
rounds the figure up or down to the nearest rate specified in schedule 11, column 4 (New banded rates of depreciation); and
(c)
sets the same rate for some or all of the kinds of buildings that are similar to one another, if the Commissioner thinks it is appropriate to do so having regard to—
(i)
the rate calculated for each kind; and
(ii)
the reduction in compliance costs that is likely to be achieved.
Formula
(4)
The formula is—
1 ÷ estimated useful life.
Definition of item in formula
(5)
In the formula, estimated useful life is the estimated useful life of the item expressed in years.
Contracts existing at 19 May 2005
(6)
Despite subsection (1), a person who before 19 May 2005 enters into a binding contract for the acquisition or construction of a building must apply to the building the economic rate for the kind of the building determined under section EZ 23.
Defined in this Act: building, Commissioner, depreciable property, diminishing value rate, economic rate, estimated useful life, excluded depreciable property, fixed life intangible property
Compare: 2004 No 35 s EE 25C
Section EE 28(6): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 28 list of defined terms building: inserted (with effect on 30 July 2009), on 28 May 2010, by section 84 of the Taxation (Budget Measures) Act 2010 (2010 No 27).
EE 29 Economic rate for certain aircraft and motor vehicles
What this section does
(1)
This section gives the economic depreciation rate for certain aircraft and motor vehicles.
Rate for certain aircraft
(2)
The economic rate for an aircraft is a diminishing value rate of 10% or a straight-line rate of 7% if the aircraft—
(a)
is self-propelled; and
(b)
has fixed wings; and
(c)
is not an international aircraft; and
(d)
is not used for top-dressing or spraying; and
(e)
is not a helicopter.
Rate for certain motor vehicles
(3)
The economic rate for a motor vehicle that is designed exclusively or mainly to carry persons and has seats for no more than 12 persons is a diminishing value rate of 30% or a straight-line rate of 21% if the motor vehicle—
(a)
is not available for hire:
(b)
is available for hire for a hire period of more than 1 month:
(c)
is a small passenger service vehicle:
(d)
is a minibus.
Defined in this Act: diminishing value rate, economic rate, international aircraft, minibus, small passenger service vehicle, straight-line rate
Compare: 2004 No 35 s EE 25D
Section EE 29(3)(c): amended, on 1 October 2017, by section 110(3) of the Land Transport Amendment Act 2017 (2017 No 34).
EE 30 Economic rate for plant, equipment, or building, with high residual value
What this section is about
(1)
This section is about setting the economic depreciation rate that applies to items of a kind of depreciable property if—
(a)
the kind of depreciable property is not fixed life intangible property, or excluded depreciable property, for which an economic rate cannot be set; and
(b)
the estimated residual market value for the item is more than 13.5% of cost; and
(c)
the items are—
(i)
plant or equipment acquired on or after 1 April 2005:
(ii)
buildings acquired on or after 19 May 2005.
Rate set by Commissioner
(2)
The Commissioner sets the rate from time to time by—
(a)
following the procedure set out in this section; and
(b)
issuing a determination under section 91AAF of the Tax Administration Act 1994.
Procedure for setting economic rate
(3)
To set the diminishing value rate for a kind of item of depreciable property, the Commissioner—
(a)
obtains a figure by applying the formula in subsection (4) to items of that kind; and
(b)
rounds the figure up or down to the nearest rate specified in schedule 11, column 1 (New banded rates of depreciation); and
(c)
sets the same rate for some or all of the kinds of items of depreciable property that are similar to one another, if the Commissioner thinks it is appropriate to do so having regard to—
(i)
the rate calculated for each kind; and
(ii)
the reduction in compliance costs that is likely to be achieved.
Formula
(4)
The formula is—
1 − ((residual value ÷ cost) (1 ÷ estimated useful life)).
Definition of items in formula
(5)
In the formula,—
(a)
residual value is the greater of—
(i)
estimated residual market value, which is defined in section EE 67:
(ii)
13.5% of cost:
(b)
cost is the cost of items of the kind to which the formula is applied:
(c)
estimated useful life is defined in section EE 63.
Defined in this Act: building, Commissioner, depreciable property, diminishing value rate, economic rate, estimated residual market value, estimated useful life, excluded depreciable property, fixed life intangible property
Compare: 2004 No 35 s EE 25E
Section EE 30(1)(b): amended (with effect on 1 April 2008), on 6 October 2009, by section 118 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EE 30(3)(b): substituted (with effect on 1 April 2008), on 7 September 2010 (applying for the 2008–09 and later income years), by section 30(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EE 30 list of defined terms building: inserted (with effect on 30 July 2009), on 28 May 2010, by section 84 of the Taxation (Budget Measures) Act 2010 (2010 No 27).
EE 31 Annual rate for item acquired in person’s 1995–96 or later income year
What this section is about
(1)
This section is about the annual rate that applies to an item of depreciable property that a person acquires, other than under section FL 2(2) or FL 3(2) (which relate to the treatment of emigrating companies and their shareholders), in their 1995–96 income year or a later income year (not including fixed life intangible property or excluded depreciable property, for which rates are set in sections EE 33 and EZ 15 (Annual rate for excluded depreciable property: 1992–93 tax year)). Subsection (2) applies to specify the annual rate for the item if the requirements in subsection (2A) are met, and subsection (3) applies to specify the annual rate for the item if subsections (2A) and (2) do not apply and the requirements in subsection (3A) are met.
Requirements for subsection (2) rate
(2A)
This subsection applies, and the rate is 1 of the rates given by subsection (2), if the person—
(a)
acquires the item on or before 20 May 2010; or
(b)
decides to acquire or construct the item, meets the administrative requirements in subsection (4), and—
(i)
enters into a binding contract for the acquisition or construction of the item on or before 20 May 2010:
(ii)
after deciding to acquire or construct the item, incurs expenditure in relation to its acquisition or construction on or before 20 May 2010.
Rate for item acquired on or before 20 May 2010
(2)
If subsection (2A) applies, the rate is 1 of the following:
(a)
the item’s economic rate, special rate, or provisional rate, for an item not described in paragraph (b), (c), or (d):
(b)
the item’s economic rate, special rate, or provisional rate, multiplied by 1.2, for an item that—
(i)
has not been used or held for use in New Zealand as an item of depreciable property before the date on which the person acquires it; and
(ii)
is not a building; and
(iii)
is not a used imported car; and
(iv)
is not an international aircraft:
(c)
a diminishing value rate of 15% or a straight-line rate of 10%, for an international aircraft:
(d)
0% for a residential building that has an economic rate or provisional rate of more than 0% due to an estimated useful life of 50 years or more.
Requirements for subsection (3) rate
(3A)
This subsection applies, and the rate is 1 of the rates given by subsection (3), if subsections (2A) and (2) do not apply and the person—
(a)
acquires the item after 20 May 2010; or
(b)
decides to acquire or construct the item, and—
(i)
enters into a binding contract for the acquisition or construction of the item after 20 May 2010:
(ii)
incurs expenditure in relation to the item’s acquisition or construction after 20 May 2010.
Rate for item acquired after 20 May 2010
(3)
If subsection (3A) applies, the rate is 1 of the following:
(a)
the item’s economic rate, special rate, or provisional rate, for an item not described in paragraph (b) or (c):
(b)
a diminishing value rate of 15% or a straight-line rate of 10% for an international aircraft:
(c)
0%, for a residential building that has an economic rate or provisional rate of more than 0% due to an estimated useful life of 50 years or more.
Administrative requirements
(4)
For the purposes of subsection (2A)(b), a person must—
(a)
have available for the Commissioner documents dated on or before 20 May 2010 that evidence that the person had, on or before 20 May 2010, decided to acquire or construct the relevant item:
(b)
send to the Commissioner a statutory declaration that the person had, on or before 20 May 2010, decided to acquire or construct the relevant item.
Defined in this Act: acquire, annual rate, Commissioner, depreciable property, diminishing value rate, economic rate, estimated useful life, excluded depreciable property, fixed life intangible property, income year, international aircraft, New Zealand, residential building, straight-line rate
Compare: 2004 No 35 s EE 26
Section EE 31(1): amended (with effect on 30 August 2022), on 31 March 2023, by section 52 of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EE 31(1): amended (with effect on 20 May 2010), on 21 December 2010, by section 49(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 31(1): amended (with effect on 20 May 2010), on 28 May 2010, by section 77(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 31(2A) heading: inserted (with effect on 20 May 2010), on 21 December 2010, by section 49(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 31(2A): inserted (with effect on 20 May 2010), on 21 December 2010, by section 49(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 31(2A)(b): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 31(2A)(b)(i): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 31(2A)(b)(ii): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 31(2) heading: substituted (with effect on 20 May 2010), on 28 May 2010, by section 77(2)(a) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 31(2): amended (with effect on 20 May 2010), on 21 December 2010, by section 49(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 31(2): amended (with effect on 20 May 2010), on 28 May 2010, by section 77(2)(b) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 31(2)(a): amended, on 1 April 2011 (applying for the 2011–12 and later income years), by section 77(4)(a) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 31(2)(a): substituted (with effect on 1 April 2008), on 6 October 2009, by section 119(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EE 31(2)(b): amended (with effect on 1 April 2008), on 6 October 2009, by section 119(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EE 31(2)(c): amended, on 1 April 2011 (applying for the 2011–12 and later income years), by section 77(4)(b) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 31(2)(d): added, on 1 April 2011 (applying for the 2011–12 and later income years), by section 77(4)(b) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 31(2)(d): amended, on 1 April 2020, by section 5(1) (and see section 5(4) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
Section EE 31(3A) heading: inserted (with effect on 20 May 2010), on 21 December 2010, by section 49(4) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 31(3A): inserted (with effect on 20 May 2010), on 21 December 2010, by section 49(4) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 31(3A)(b): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 31(3A)(b)(i): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 31(3A)(b)(ii): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 31(3) heading: added (with effect on 20 May 2010), on 28 May 2010, by section 77(3) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 31(3): amended (with effect on 20 May 2010), on 21 December 2010, by section 49(5) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 31(3): added (with effect on 20 May 2010), on 28 May 2010, by section 77(3) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 31(3)(a): amended, on 1 April 2011 (applying for the 2011–12 and later income years), by section 77(4)(c) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 31(3)(b): amended, on 1 April 2011 (applying for the 2011–12 and later income years), by section 77(4)(d) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 31(3)(c): added, on 1 April 2011 (applying for the 2011–12 and later income years), by section 77(4)(d) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 31(3)(c): amended, on 1 April 2020, by section 5(2) (and see section 5(4) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
Section EE 31(4) heading: added (with effect on 20 May 2010), on 21 December 2010, by section 49(6) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 31(4): added (with effect on 20 May 2010), on 21 December 2010, by section 49(6) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 31(4)(a): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 31(4)(b): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 31 list of defined terms building: repealed, on 1 April 2020, by section 5(3)(a) (and see section 5(4) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
Section EE 31 list of defined terms Commissioner: inserted (with effect on 20 May 2010), on 21 December 2010, by section 49(7) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 31 list of defined terms estimated useful life: inserted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 77(5) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 31 list of defined terms residential building: inserted, on 1 April 2020, by section 5(3)(b) (and see section 5(4) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
EE 32 Election in relation to certain depreciable property acquired on or after 1 April 2005
When this section applies
(1)
This section applies when a person acquired an item of depreciable property that is not a building—
(a)
on or after 1 April 2005; and
(b)
before the commencement of the person’s income year corresponding to the 2006–07 tax year.
Election to use economic depreciation rate determined under section EZ 23
(2)
The person may choose to calculate the depreciation loss for the item of depreciable property for income years corresponding to the 2005–06 tax year and later tax years in accordance with the economic rate determined for the kind of item under section EZ 23 (Economic rate for plant or equipment acquired before 1 April 2005 and buildings acquired before 19 May 2005).
Election to be made in return of income
(3)
The person must make an election under subsection (2) in the person’s return of income for the 2005–06 tax year.
Defined in this Act: building, depreciable property, depreciation loss, economic rate, income year, return of income, tax year
Compare: 2004 No 35 s EE 26B
Section EE 32(2): amended (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 24 February 2016, by section 120(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 32 list of defined terms building: inserted (with effect on 30 July 2009), on 28 May 2010, by section 84 of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 32 list of defined terms economic depreciation rate: repealed (with effect on 1 April 2008), on 24 February 2016, by section 120(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 32 list of defined terms economic rate: inserted (with effect on 1 April 2008), on 24 February 2016, by section 120(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EE 33 Annual rate for fixed life intangible property
What this section is about
(1)
This section is about the annual rate that applies to an item of fixed life intangible property, not including—
(a)
an item of excluded depreciable property for which a rate is set in section EZ 15 (Annual rate for excluded depreciable property: 1992–93 tax year):
(ab)
a design registration for which a rate is set in section EE 34B:
(b)
a patent for which a rate is set in section EE 34.
Rate
(2)
The rate is the rate calculated using the formula—
1 ÷ legal life.
Definition of item in formula
(3)
In the formula, legal life is,—
(a)
if section EE 18B or EE 19 apply, the item’s remaining legal life from the start of the income year in which the relevant costs are recognised under the section:
(b)
if sections EE 18B and EE 19 do not apply, the item’s remaining legal life from the time at which a person acquires it.
How rate expressed
(4)
The rate given by the formula is expressed as a decimal and rounded to 2 decimal places, with numbers at the midpoint or greater being rounded up and other numbers being rounded down.
Defined in this Act: acquire, annual rate, design registration, excluded depreciable property, fixed life intangible property, income year, legal life
Compare: 2004 No 35 s EE 27
Section EE 33(1)(ab): inserted (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 121(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 33(3)(a): replaced (with effect on 1 April 2011 and applying for the 2011–12 and later income years), on 24 February 2016, by section 121(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 33(3)(b): amended (with effect on 1 April 2011 and applying for the 2011–12 and later income years), on 24 February 2016, by section 121(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 33 list of defined terms design registration: inserted (with effect on 1 April 2015), on 24 February 2016, by section 121(4) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EE 34 Annual rate for patent granted in 2005–06 or later income year
When this section applies
(1)
This section applies to an item that is a patent when the patent is acquired by a person in their 2005–06 income year or a later income year.
Rate
(2)
The rate is the rate calculated using the formula—
1 ÷ legal life.
Definition of item in formula
(3)
In the formula, legal life is set out in whichever of subsections (4) to (7) applies to the patent.
Fixed life intangible property
(4)
If the patent is an item of fixed life intangible property to which section EE 18B or EE 19 applies, legal life is the patent’s remaining legal life from the start of the income year in which the relevant costs are recognised under the section.
No depreciation loss for patent application
(5)
If sections EE 18B and EE 19 do not apply to the patent and the person has been denied a deduction for an amount of depreciation loss for the patent application, legal life is the patent’s remaining legal life from the time at which the person acquires the patent.
Depreciation loss for patent application
(6)
If sections EE 18B and EE 19 do not apply to the patent, and have not applied to the patent application while the person has owned it, and the person has been allowed a deduction for an amount of depreciation loss for the patent application, legal life is the remaining legal life of the patent application from the start of the income year in which the person acquires the patent application.
When section EE 18B or EE 19 applied to patent application
(7)
If sections EE 18B and EE 19 do not apply to the patent, but have applied to the patent application while the person has owned it, and the person has been allowed a deduction for an amount of depreciation loss for the patent application, legal life is the remaining legal life of the patent application from the start of the income year in which the person acquires the patent.
How rate expressed
(8)
The rate calculated using the formula is expressed as a decimal and rounded to 2 decimal places, with numbers at the midpoint or greater being rounded up and other numbers being rounded down.
Defined in this Act: acquire, amount, deduction, depreciation loss, income year, legal life
Compare: 2004 No 35 s EE 27B
Section EE 34(4): replaced (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 122(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 34(5): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 122(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 34(6): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 122(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 34(7) heading: amended (with effect on 1 April 2015), on 24 February 2016, by section 122(4) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 34(7): amended, on 29 March 2018 (with effect on 1 April 2015), by section 67 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EE 34(7): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 122(5) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EE 34B Annual rate for design registrations
When this section applies
(1)
This section applies to an item that is a design registration (the design).
Rate
(2)
The rate is the rate calculated using the formula—
1 ÷ legal life.
Definition of item in formula
(3)
In the formula, legal life is set out in whichever of subsections (4) to (7) applies to the design.
When section EE 18B or EE 19 applies to design
(4)
If the design is an item to which section EE 18B or EE 19 applies, legal life is the design’s remaining legal life from the start of the income year in which the relevant costs are recognised under the section.
When no depreciation loss for design application
(5)
If sections EE 18B and EE 19 do not apply to the design and the person has been denied a deduction for an amount of depreciation loss for the design’s design registration application (the design application), legal life is the design’s remaining legal life from the first time a cost is recognised for the design under this subpart.
When depreciation loss for design application
(6)
If sections EE 18B and EE 19 do not apply to the design, and have not applied to the design application while the person has owned it, and the person has been allowed a deduction for an amount of depreciation loss for the design application, legal life is the remaining legal life of the design application from the first time a cost is recognised for the application under this subpart.
When section EE 18B or EE 19 applied to design application
(7)
If sections EE 18B and EE 19 do not apply to the design, but have applied to the design application while the person has owned it, and the person has been allowed a deduction for an amount of depreciation loss for the design application, legal life is the remaining legal life of the design application from the first time a cost is recognised for the design under this subpart.
How rate expressed
(8)
The rate calculated using the formula is expressed as a decimal and rounded to 2 decimal places, with numbers at the midpoint or greater being rounded up and other numbers being rounded down.
Defined in this Act: deduction, depreciation loss, design registration, design registration application, income, legal life, own
Section EE 34B: inserted (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 123(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EE 35 Special rate or provisional rate
Rate set for item of depreciable property
(1)
A special rate or a provisional rate is set for an item of depreciable property under sections 91AAG to 91AAJ of the Tax Administration Act 1994.
No special rate for excluded depreciable property or residential building
(2)
A special rate may not be set for an item of excluded depreciable property or a residential building.
No provisional rate for fixed life intangible property or excluded depreciable property
(3)
A provisional rate may not be set for an item of fixed life intangible property or an item of excluded depreciable property.
Exception
(4)
Section FA 11B(7) (Adjustments for certain operating leases) overrides this section.
Defined in this Act: depreciable property, excluded depreciable property, fixed life intangible property, provisional rate, residential building, special rate
Compare: 2004 No 35 s EE 28
Section EE 35(2) heading: substituted (with effect on 20 May 2010), on 28 May 2010, by section 78(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 35(2) heading: amended, on 1 April 2020, by section 6(1) (and see section 6(4) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
Section EE 35(2): substituted (with effect on 20 May 2010), on 28 May 2010, by section 78(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 35(2): amended, on 1 April 2020, by section 6(2) (and see section 6(4) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
Section EE 35(4) heading: inserted, on 1 April 2008, by section 356 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EE 35(4): inserted, on 1 April 2008, by section 356 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EE 35 list of defined terms building: repealed, on 1 April 2020, by section 6(3)(a) (and see section 6(4) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
Section EE 35 list of defined terms residential building: inserted, on 1 April 2020, by section 6(3)(b) (and see section 6(4) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
Section EE 35 list of defined terms special excluded depreciable property: repealed, on 1 April 2020, by section 6(3)(a) (and see section 6(4) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
EE 36 Using economic rate or provisional rate instead of special rate
Allowed to use economic or provisional rate
(1)
A person may depreciate an item to which a special rate applies by applying, instead, the economic rate applicable to the item or a provisional rate applicable to the item. This subsection is overridden by subsection (2).
Not allowed to use economic or provisional rate
(2)
The person must not depreciate the item by applying the economic rate or the provisional rate, if—
(a)
a special rate applies to the item; and
(b)
the special rate is higher than the economic rate; and
(c)
the person applies the special rate to the item for an income year; and
(d)
in a later income year, the item’s market value declines at a rate equal to or greater than the special rate; and
(e)
it is a reasonable conclusion from all the circumstances of the case that the person’s purpose, or 1 of the person’s purposes, in wanting to change from the special rate to the economic rate or the provisional rate for the later income year is to enable the person to defer the deduction that the person is allowed for the amount of depreciation loss for the item’s decline in value.
Defined in this Act: amount, deduction, depreciation loss, economic rate, income year, provisional rate, special rate
Compare: 2004 No 35 s EE 29
Improvements, items of low value, or items no longer used
EE 37 Improvements
When this section applies
(1)
This section applies when a person makes an improvement to an item of depreciable property.
Income year in which improvement made
(2)
In the income year in which the person makes the improvement, the provisions of this subpart apply to the improvement, as if it were a separate item of depreciable property, in the period that—
(a)
starts at the start of the month in which the person first uses the improvement or has it available for use; and
(b)
ends at the end of the income year.
Following income years
(3)
For income years following the income year in which the person makes the improvement,—
(a)
a person who uses the diminishing value method or the straight-line method for the item that was improved may choose to apply subsection (4) or (5):
(ab)
[Repealed](b)
a person who uses the pool method for the item that was improved must apply subsections (6) and (7).
Improvement compulsorily treated as separate item[Repealed]
(3B)
[Repealed]Improvement treated as separate item
(4)
For the purposes of subsection (3)(a), a person may choose to treat the improvement as a separate item of depreciable property.
Improvement treated as part of item
(5)
For the purposes of subsection (3)(a), a person may choose to treat the improvement as part of the item of depreciable property that was improved. They must do 1 of the following for the first income year, after the income year in which they made the improvement, in which they use the improvement or have it available for use:
(a)
if they use the diminishing value method for the item, add the improvement’s adjusted tax value at the start of the income year to the item’s adjusted tax value at the start of the income year:
(b)
if they use the straight-line method for the item,—
(i)
add the improvement’s adjusted tax value at the start of the income year to the item’s adjusted tax value at the start of the income year; and
(ii)
add the improvement’s cost to the item’s cost.
Pool method
(6)
For the purposes of subsection (3)(b), a person who uses the pool method for the item that was improved must treat the improvement as a separate item of depreciable property. If its cost is equal to or less than its maximum pooling value, they must include it in a pool in the first income year, after the income year in which they made the improvement, in which they use the improvement or have it available for use.
Adjustment of pool’s value
(7)
When an improvement is included in a pool under subsection (6),—
(a)
the pool’s adjusted tax value is increased by the improvement’s adjusted tax value on the date it is included in the pool; and
(b)
the improvement’s adjusted tax value at the end of the previous income year is included in starting adjusted tax value in section EE 21(5).
Defined in this Act: adjusted tax value, building, depreciable property, diminishing value method, improvement, income year, maximum pooling value, pool, pool method, straight-line method
Compare: 2004 No 35 s EE 30
Section EE 37(3)(a): replaced, on 1 April 2020, by section 7(1) (and see section 7(4) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
Section EE 37(3)(ab): repealed, on 1 April 2020, by section 7(1) (and see section 7(4) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
Section EE 37(3B) heading: repealed, on 1 April 2020, pursuant to section 7(2) (and see section 7(4) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
Section EE 37(3B): repealed, on 1 April 2020, by section 7(2) (and see section 7(4) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
Section EE 37 list of defined terms building: inserted (with effect on 30 July 2009), on 28 May 2010, by section 84 of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 37 list of defined terms grandparented structure: repealed, on 1 April 2020, by section 7(3) (and see section 7(4) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
Section EE 37 list of defined terms international aircraft: repealed, on 1 April 2020, by section 7(3) (and see section 7(4) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
Section EE 37 list of defined terms New Zealand: repealed, on 1 April 2020, by section 7(3) (and see section 7(4) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
EE 38 Items of low value
When this section applies
(1)
This section applies for an item of property that a person acquires, in an income year, when—
(a)
the total cost for the item is equal to or less than the threshold value given for the item by subsection (2); and
(b)
the person uses the item, or has the item available for use, in the income year; and
(c)
the item would be depreciable property if the person did not deal with it under this section; and
(d)
the item has not been and will not become part of any other property that is depreciable property; and
(e)
the person is denied a deduction for the cost of the item if the person does not deal with the item under this section; and
(f)
the item is one of a group of items, acquired at the same time and from the same supplier, to which the same depreciation rate would apply if they were all treated as items of depreciable property,—
(i)
if subparagraph (ii) does not apply, the total cost for all the items in the group is equal to or less than the threshold value given for the item by subsection (2):
(ii)
if the items generally constitute the person’s trading stock, the total cost for all the items in the group not treated by the person solely as trading stock is equal to or less than the threshold value given for the item by subsection (2).
Threshold value for item
(2)
The threshold value for an item is—
(a)
$200, if the item is acquired before 19 May 2005:
(b)
$500, if the item is acquired on or after 19 May 2005 and before 17 March 2020:
(c)
$5,000, if the item is acquired on or after 17 March 2020 and before 17 March 2021:
(d)
$1,000, if the item is acquired on or after 17 March 2021.
Amount of depreciation loss
(3)
If the person chooses to deal with the item under this section, the amount of depreciation loss that the person has for the item for the income year is the item’s cost.
How election made
(4)
The person makes the election by claiming, in their return of income for the income year for which the election is made, a deduction for the amount of depreciation loss described in subsection (3).
Amount of depreciation recovery income
(5)
If the person disposes in an income year of an item for which they have been allowed a deduction on a claim under subsection (3), the consideration they derive from the disposal is an amount of depreciation recovery income for the income year.
Change of use treated as disposal
(6)
Subsection (7) applies when—
(a)
a person has been allowed a deduction on a claim under subsection (3) for an item; and
(b)
at a later time, the person stops using the item, or having the item available for use, mainly in deriving assessable income or carrying on a business for the purpose of deriving assessable income; and
(c)
the use to which the item is put at the later time is not subject to fringe benefit tax.
Disposal
(7)
The person is treated as having disposed of the item for its market value at the later time.
Increase in specified sum
(8)
The Governor-General may make an Order in Council increasing the sum specified in subsection (1)(a) and (f).
Secondary legislation
(9)
An Order in Council under subsection (8) is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements).
Defined in this Act: acquire, amount, assessable income, business, deduction, depreciable property, depreciation loss, depreciation recovery income, dispose, fringe benefit tax, income year, property, return of income, trading stock
Compare: 2004 No 35 s EE 31
| Legislation Act 2019 requirements for secondary legislation made under this section | ||||
| Publication | PCO must publish it on the legislation website and notify it in the Gazette | LA19 s 69(1)(c) | ||
| Presentation | The Minister must present it to the House of Representatives | LA19 s 114, Sch 1 cl 32(1)(a) | ||
| Disallowance | It may be disallowed by the House of Representatives | LA19 ss 115, 116 | ||
| This note is not part of the Act. | ||||
Section EE 38(2)(b): amended (with effect on 17 March 2020), on 25 March 2020, by section 8(1) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
Section EE 38(2)(c): inserted (with effect on 17 March 2020), on 25 March 2020, by section 8(2) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
Section EE 38(2)(d): inserted (with effect on 17 March 2020), on 25 March 2020, by section 8(2) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
Section EE 38(9) heading: inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
Section EE 38(9): inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
EE 39 Items no longer used
When this section applies
(1)
This section applies when a person in an income year has an item of depreciable property that—
(a)
is no longer used or, because the geothermal energy proving period has ended, becomes unavailable for use under section EE 6(4); and
(b)
is not a building, unless the item meets the requirements of subsection (2); and
(c)
has not been depreciated using the pool method.
Buildings
(2)
This section applies to a building that meets the requirements of subsection (1)(a) and (c) if—
(a)
the building has been irreparably damaged and rendered useless for the purpose of deriving income; and
(b)
the damage occurs—
(i)
in the 2005–06 income year or a later income year:
(ii)
as a result of the extreme climatic conditions that occurred during the month of February 2004 in New Zealand:
(iii)
as a result of the storm event that occurred during the month of July 2004 in the Bay of Plenty area; and
(c)
the damage is caused other than as a result of the action or failure to act of the person, an agent of the person, or an associated person.
Amount of depreciation loss under this section
(3)
The person has an amount of depreciation loss under this section and under no other provision of this subpart.
Circumstances
(4)
The person has an amount of depreciation loss if—
(a)
they no longer use the item in deriving assessable income or carrying on a business for the purpose of deriving assessable income; and
(b)
neither they nor a person associated with them intends to use the item in deriving assessable income or carrying on a business for the purpose of deriving assessable income; and
(c)
the costs of disposing of the item would be more than any consideration they could derive from disposing of it.
Amount
(5)
The amount of depreciation loss is the item’s adjusted tax value at the start of the income year.
Adjusted tax value at end of year
(6)
The item’s adjusted tax value at the end of the income year is zero.
Defined in this Act: adjusted tax value, amount, assessable income, associated person, building, business, depreciable property, depreciation loss, dispose, geothermal energy proving period, income year, pool method
Compare: 2004 No 35 s EE 32
Section EE 39 list of defined terms building: inserted (with effect on 30 July 2009), on 28 May 2010, by section 84 of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Transfers of depreciable property: associated persons and certain amalgamations
EE 40 Transfer of depreciable property on or after 24 September 1997
When this section applies
(1)
This section applies when, on or after 24 September 1997, a person (person A) acquires, directly or indirectly, an item of property from an associated person to whom any of subsections (2) to (6) applies. The income year referred to is the income year of the associated person.
Deduction for depreciation loss allowed in year of acquisition
(2)
The associated person is allowed a deduction for an amount of depreciation loss for the item for the income year in which person A acquires it, or would have been allowed the deduction if section EE 11(1) had not applied, or if the rate for the item was not 0% in the case of a building with a rate of 0%.
Deduction for depreciation loss allowed in year before acquisition
(3)
The associated person was allowed a deduction for an amount of depreciation loss for the income year before that in which person A acquired it, or would have been allowed a deduction if the rate for the item was not 0% in the case of a building with a rate of 0%.
When section DZ 9 applies
(4)
The associated person has been allowed a deduction for the item under section DZ 9 (Premium paid on land leased before 1 April 1993)—
(a)
for the income year in which person A acquired it; or
(b)
for the income year before that in which person A acquired it; or
(c)
would have been allowed a deduction in either income year if they had incurred a cost for the item for which they were denied any other deduction.
If costs incurred for which deduction denied
(5)
The associated person would have been allowed a deduction for an amount of depreciation loss for the item—
(a)
for the income year in which person A acquired it, if they had incurred a cost for the item for which they were denied any other deduction and if section EE 11(1) had not applied; or
(b)
for the income year before that in which person A acquired it, if they had incurred a cost for the item for which they were denied any other deduction.
When section EE 8 applies
(6)
The associated person would have been a person to whom any of subsections (2) to (5) applied, if they had not made an election under section EE 8.
Cost of item to person A
(7)
For the purposes of determining the amount of depreciation loss that person A has, the cost of the item to person A is treated as 1 of the following:
(a)
if section EE 58 applies to set a base value for the item, the lesser of—
(i)
the cost of the item to person A:
(ii)
the item’s market value when the associated person starts to use it, or to have it available for use, for the purpose of deriving assessable income or carrying on a business for the purpose of deriving assessable income; or
(b)
if section EE 58 does not apply, the lesser of—
(i)
the cost of the item to person A:
(ii)
the cost of the item to the associated person.
Exclusions
(8)
Subsection (7) does not apply if—
(a)
the item is not depreciable intangible property, and the Commissioner decides that it is appropriate to use the cost of the item to person A for the purposes of determining the amount of depreciation loss that person A has for the item:
(b)
the cost to person A is income of the associated person, other than under section EE 48(1):
(c)
person A acquires the item on a settlement of relationship property to which section FB 21 (Depreciable property) applies.
Rate
(9)
The annual rate that person A applies to the item must be 1 of the following:
(a)
when person A uses the same depreciation method for the item as that used by the associated person for it, the annual rate must be no more than the annual rate that the associated person applied to it:
(b)
when person A uses a depreciation method for the item that is different from the method the associated person used for it, the annual rate must be no more than a rate equivalent to the rate that the associated person applied to it, as determined by schedule 10 (Straight-line equivalents of diminishing value rates of depreciation).
Statutory change: exception
(9B)
Subsection (9) does not apply when person A may, due to a change of annual rate by a statute, apply an annual rate that is more than the annual rate that the associated person applied.
Fixed life intangible property
(10)
Subsection (9) does not apply to an item of fixed life intangible property whose rate is set in section EE 33.
Relationship with section EE 41 and subpart FC
(11)
This section—
(a)
is overridden by section EE 41:
(b)
does not apply to a bequest of property when subpart FC (Distribution, transmission, and gifts of property) applies to it and the property is disposed of at market value.
Defined in this Act: acquire, amount, annual rate, assessable income, associated person, business, Commissioner, deduction, depreciable intangible property, depreciation loss, depreciation method, fixed life intangible property, income, income year, property, settlement of relationship property
Compare: 2004 No 35 s EE 33
Section EE 40(2): amended (with effect on 1 April 2011), on 30 March 2022, by section 79(1) (and see section 79(3) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EE 40(3): amended (with effect on 1 April 2011), on 30 March 2022, by section 79(2) (and see section 79(3) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EE 40(9B) heading: inserted (with effect on 1 April 2020), on 30 March 2021, by section 35(1) (and see section 35(3) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section EE 40(9B): inserted (with effect on 1 April 2020), on 30 March 2021, by section 35(1) (and see section 35(3) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section EE 40(10): amended (with effect on 1 April 2008), on 30 March 2021, by section 35(2) (and see section 35(4) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
EE 41 Transfer of depreciable property on certain amalgamations on or after 14 May 2002
When this section applies
(1)
This section applies when, on or after 14 May 2002, an amalgamated company acquires, directly or indirectly, an item of property from an amalgamating company, and—
(a)
the amalgamated company’s acquisition of the item is part of an amalgamation that is not a resident’s restricted amalgamation; and
(b)
the amalgamating company is an associated person of the amalgamated company, treating the amalgamating company as existing at the time that the amalgamated company is treated under section FO 11(1)(b) or FO 15(3) (which relate to property passing on certain amalgamations) as having acquired the property from the amalgamating company.
Cost of item to person
(2)
For the purposes of determining the amount of depreciation loss that the amalgamated company has, the cost of the item to it is treated as 1 of the following:
(a)
if section EE 58 applies for the amalgamating company and the item, the lesser of—
(i)
the value given under section FO 11 or FO 15, as applicable; and
(ii)
the item’s market value when the amalgamating company starts to use it, or to have it available for use, for the purpose of deriving assessable income or carrying on a business for the purpose of deriving assessable income; or
(b)
if section EE 58 does not apply for the amalgamating company and the item, the lesser of—
(i)
the value given under section FO 11 or FO 16 (Amortising property), as applicable; and
(ii)
the cost of the item to the amalgamating company.
Exclusions
(3)
Subsection (2) does not apply if—
(a)
the item is not depreciable intangible property, and the Commissioner decides that it is appropriate to use the cost of the item to the amalgamated company for the purposes of determining the amount of depreciation loss that it has for the item:
(b)
the cost to the amalgamated company is income of the amalgamating company, other than under section EE 48(1).
Rate
(4)
The annual rate that the amalgamated company applies to the item must be 1 of the following:
(a)
when the amalgamated company uses the same depreciation method for the item as that used by the amalgamating company for it, the annual rate that the amalgamated company applies to it must be no more than the annual rate that the amalgamating company applied to it:
(b)
when the amalgamated company uses a depreciation method for the item that is different from the method the amalgamating company used for it, the annual rate that the amalgamated company applies to it must be no more than a rate equivalent to the rate that the amalgamating company applied to it, as determined by schedule 10 (Straight-line equivalents of diminishing value rates of depreciation).
Fixed life intangible property
(5)
Subsection (4) does not apply to an item of fixed life intangible property whose rate is set in section EE 33.
Defined in this Act: acquire, amalgamated company, amalgamating company, amalgamation, amount, annual rate, assessable income, business, Commissioner, depreciable intangible property, depreciation loss, depreciation method, fixed life intangible property, income, income year, property, resident’s restricted amalgamation
Compare: 2004 No 35 s EE 34
Section EE 41(2)(b)(i): amended, on 30 March 2017, by section 60 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
EE 42 Transfer of radiocommunications licence right on or after 24 September 1997
When this section applies
(1)
This section applies when, on or after 24 September 1997, the holder of management rights created under the Radiocommunications Act 1989 grants a licence right under that Act to an associated person.
Exclusion
(2)
This section does not apply when the Crown acting by and through the Secretary of Commerce is named as the manager under section 11(1) of the Radiocommunications Act 1989.
Cost of licence right
(3)
For the purposes of determining the amount of depreciation loss that the associated person has, the cost of the licence right to the associated person is treated as zero.
Defined in this Act: amount, associated person, depreciation loss
Compare: 2004 No 35 s EE 35
EE 43 Transfer of depreciable intangible property on or after 1 July 1997
When this section applies
(1)
This section applies when, on or after 1 July 1997, a person (person A) acquires, directly or indirectly, from an associated person an item of depreciable intangible property that—
(a)
was not depreciable property of the associated person because it was not of a kind listed in schedule 14 (Depreciable intangible property) at the time the associated person acquired it; and
(b)
was not an item for whose cost the associated person was allowed a deduction, other than a deduction for an amount of depreciation loss, under a provision of this Act outside this subpart.
No amount of depreciation loss
(2)
Person A does not have an amount of depreciation loss for the item.
Defined in this Act: acquire, amount, associated person, deduction, depreciable intangible property, depreciable property, depreciation loss
Compare: 2004 No 35 s EE 36
Disposals and similar events
EE 44 Application of sections EE 48 to EE 51
When sections apply
(1)
Sections EE 48 to EE 51 apply when a person has consideration from the disposal of an item or from an event involving an item, if—
(a)
the consideration is consideration of a kind described in section EE 45; and
(b)
either—
(i)
the item is an item of a kind described in section EE 46; or
(ii)
the event is an event of a kind described in section EE 47.
Exclusions
(2)
Sections EE 48 to EE 51 do not apply when—
(a)
a person disposes of an item of intangible property as part of an arrangement to replace it with an item of the same kind:
(b)
a person’s patent application has concluded because a patent is granted to the person in relation to the application:
(bb)
a person’s design registration application has concluded because a design registration is granted to the person in relation to the application:
(c)
a person’s geothermal well becomes unavailable for use under section EE 6(4) because the geothermal energy proving period has ended:
(d)
a person receives, for an item of property, an amount of insurance or compensation to which section EZ 23B (Property acquired after depreciable property affected by Canterbury earthquakes) applies.
Defined in this Act: arrangement, consideration, design registration, design registration application, dispose, geothermal energy proving period, geothermal well, property
Compare: 2004 No 35 s EE 37
Section EE 44 heading: amended, on 30 March 2017, by section 61(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EE 44(1): amended, on 30 March 2017, by section 61(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EE 44(1): amended (with effect on 1 April 2008), on 21 December 2010, by section 51 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 44(2): amended, on 29 March 2018 (with effect on 30 March 2017), by section 68 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EE 44(2)(bb): inserted (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 124(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 44(2)(c): amended (with effect on 4 September 2010), on 29 August 2011, by section 24 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EE 44(2)(d): added (with effect on 4 September 2010), on 29 August 2011, by section 24 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EE 44(2)(d): amended (with effect on 4 September 2010), on 30 March 2022, by section 80 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EE 44 list of defined terms design registration: inserted (with effect on 1 April 2015), on 24 February 2016, by section 124(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 44 list of defined terms design registration application: inserted (with effect on 1 April 2015), on 24 February 2016, by section 124(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EE 45 Consideration for purposes of section EE 44
General rule
(1)
For the purposes of section EE 44, the consideration equals the amount that a person derives excluding any GST charged if the person is a registered person, as modified by subsections (3) to (11) minus the amount (the disposal cost) that they incur in deriving that amount, to the extent to which the disposal cost—
(a)
is not allowed as a deduction to the person other than as a deduction for an amount of depreciation loss; and
(b)
is not counted in “the amount that a person derives”
.
GST for disposal costs
(1B)
All amounts deducted or deductible by the person under section 20(3) of the Goods and Services Tax Act 1985 in relation to the disposal cost described in subsection (1) are subtracted from the disposal costs under that subsection.
Consideration may be zero or negative
(2)
For the purposes of section EE 44, the consideration may be zero or a negative amount.
Other than market value
(3)
If the person has consideration that is not the item’s market value, the amount that the person derives is the item’s market value. Three qualifications are—
(a)
if the person makes a taxable supply, “market value”
means the market value minus any GST that would be charged on the supply:
(b)
this subsection does not apply to a transfer under a relationship agreement; and
(c)
this subsection does not apply in a case described in any of subsections (5) to (10).
Relationship with subpart FC
(4)
Subsection (3) does not apply to a disposal of property to which any of sections FC 3 and FC 4 (which relate to the distribution or transmission of property) applies.
Change of use or location of use
(5)
The consideration that a person derives from the event described in section EE 47(2) is the item’s market value. Two qualifications are—
(a)
if the person is a registered person, “market value” means the market value excluding the amount of GST that would have been charged if the market value is treated as being consideration received for a taxable supply by the person:
(b)
this subsection does not apply to a transfer under a relationship agreement.
Loss or theft
(6)
The amount that a person derives from the event described in section EE 47(3) is the amount of insurance, indemnity, or compensation they receive for the loss or theft (amount A). If the person is a registered person, amount A does not include the amount, if any, of GST charged on amount A to the extent to which amount A is treated as being consideration received for a supply of services by the registered person under section 5(13) of the Goods and Services Tax Act 1985.
Unused geothermal well brought into use
(7)
The amount that a person derives from the event described in section EE 47(6) is the amount of the deduction for depreciation loss allowed under section EE 39(4).
Irreparable damage or damage rendering building useless
(8)
The amount that a person derives from the event described in section EE 47(4) is the total of the amount of insurance, indemnity, or compensation, and the amount of proceeds from the disposal, they receive for the affected item (amount A). If the person is a registered person, amount A does not include the amount, if any, of GST charged on amount A to the extent to which amount A is treated as being consideration received for a supply of services by the registered person under section 5(13) of the Goods and Services Tax Act 1985.
Repossession
(9)
The amount that a person derives from the event described in section EE 47(5) is the item’s cost minus the net amount paid. Two qualifications are—
(a)
if the person is a registered person, the “amount that a person derives”
does not include any GST charged on a taxable supply they make:
(b)
“net amount paid”
means the amount paid by the buyer to the seller for the item under the contract minus any amount refunded by the seller to the buyer.
Other items
(10)
The amount that a person derives from the disposal of an item along with any other item, or from the occurrence of an event involving an item that also involves other items, is the item’s market value. Two qualifications are—
(a)
if the person makes a taxable supply, “market value”
means the market value minus any GST that would be charged on the supply:
(b)
this subsection does not apply to a transfer under a relationship agreement.
Item leaving New Zealand permanently
(11)
The amount that a person derives from the event referred to in section EE 47(10) is described in section EZ 21(1) (Sections EE 45 and EE 47: permanent removal: allowance before 1 April 1995).
Item fitted to aircraft or aircraft engine in aircraft engine overhaul
(12)
The amount that the person derives from the event referred to in section EE 47(11) is the adjusted tax value of the item before it is fitted as a replacement piece to an aircraft or aircraft engine as part of the aircraft engine overhaul.
Defined in this Act: adjusted tax value, aircraft engine, aircraft engine overhaul, amount, consideration, deduction, depreciation loss, dispose, geothermal well, GST, GST charged, New Zealand, registered person, relationship agreement, services, taxable supply
Compare: 2004 No 35 s EE 38
Section EE 45(1) heading: substituted (with effect on 1 April 2008), on 21 December 2010, by section 52(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 45(1): substituted (with effect on 1 April 2008), on 21 December 2010, by section 52(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 45(1B) heading: inserted (with effect on 1 April 2008), on 21 December 2010, by section 52(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 45(1B): inserted (with effect on 1 April 2008), on 21 December 2010, by section 52(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 45(2) heading: substituted (with effect on 1 April 2008), on 21 December 2010, by section 52(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 45(2): substituted (with effect on 1 April 2008), on 21 December 2010, by section 52(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 45(3): amended (with effect on 1 April 2008), on 21 December 2010, by section 52(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 45(5)(a): replaced, on 18 March 2019, by section 164 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EE 45(6): amended (with effect on 1 April 2008), on 21 December 2010, by section 52(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 45(7): amended (with effect on 1 April 2008), on 21 December 2010, by section 52(4) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 45(8) heading: substituted (with effect on 4 September 2010), on 29 August 2011, by section 25(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EE 45(8): amended (with effect on 4 September 2010), on 2 November 2012, by section 36(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EE 45(8): amended (with effect on 4 September 2010), on 29 August 2011, by section 25(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EE 45(8): amended (with effect on 1 April 2008), on 21 December 2010, by section 52(5) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 45(9): amended (with effect on 1 April 2008), on 21 December 2010, by section 52(6)(a) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 45(9)(a): amended (with effect on 1 April 2008), on 21 December 2010, by section 52(6)(b) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 45(10): amended (with effect on 1 April 2008), on 21 December 2010, by section 52(7) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 45(11): amended (with effect on 1 April 2008), on 21 December 2010, by section 52(8) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 45(12) heading: inserted, on 1 April 2017, by section 62(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EE 45(12): inserted, on 1 April 2017, by section 62(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EE 45 list of defined terms adjusted tax value: inserted, on 1 April 2017, by section 62(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EE 45 list of defined terms aircraft engine: inserted, on 1 April 2017, by section 62(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EE 45 list of defined terms aircraft engine overhaul: inserted, on 1 April 2017, by section 62(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
EE 46 Items for purposes of section EE 44
Items to which sections EE 48 to EE 52 apply
(1)
For the purposes of section EE 44, an item of property to which sections EE 48 to EE 52 apply is an item of depreciable property that a person owns, including—
(a)
an item for which the person has been allowed a deduction for an amount of depreciation loss they have had under section EE 33; and
(b)
an item to which section CZ 11 (Recovery of deductions for software acquired before 1 April 1993) applies.
Exclusions
(2)
Sections EE 48 to EE 52 do not apply to—
(a)
an item of property that, on the date on which the disposal or the event occurs, is accounted for in a pool; or
(b)
an item of petroleum-related depreciable property; or
(c)
an item of intangible property that is excluded depreciable property, other than software; or
(d)
a land improvement that is excluded depreciable property of a kind for which no deduction for depreciation was allowed under section 108 of the Income Tax Act 1976.
Defined in this Act: amount, deduction, depreciable property, depreciation loss, excluded depreciable property, own, petroleum-related depreciable property, pool, property
Compare: 2004 No 35 s EE 39
EE 47 Events for purposes of section EE 44
Events to which sections EE 48 to EE 51 apply
(1)
For the purposes of section EE 44, this section describes the events to which sections EE 48 to EE 51 apply.
Change of use or location of use
(2)
The first event is the change of use, or change of location of use, of an item of property, as a result of which a person is denied a deduction for an amount of depreciation loss for the item for the next income year. The event is treated as occurring on the first day of the next income year, and includes a change in use of an item for the purposes of the definition of commercial fit-out and a change in the status of a building related to an item for the purposes of that definition.
Event timing for person’s income becoming tax exempt
(2B)
Despite subsection (2), if the event is connected to a person’s income becoming exempt income, the event is treated as occurring immediately before the person’s income becomes exempt.
Loss or theft
(3)
The second event is the loss or theft of an item of property, if the item is not recovered in the income year in which the loss or theft occurs.
Irreparable damage or damage rendering building useless
(4)
The third event is—
(a)
the irreparable damage of an item of property that is not a building; or
(b)
the damage of an item of property that is a building, or of the neighbourhood of the building, causing the building to be—
(i)
useless for the purpose of deriving income; and
(ii)
demolished or abandoned for later demolition.
Repossession
(5)
The fourth event is the seller’s repossession of an item of property to which section EE 3 applies because the buyer wholly or partly fails to pay the consideration. The event is treated as occurring on the date on which the item is repossessed.
Unused geothermal well brought into use
(6)
The fifth event is, for a person’s geothermal well that is unavailable for use under section EE 6(4) because the geothermal energy proving period has ended, is when the person starts to—
(a)
use the well in deriving assessable income or carrying on a business for the purpose of deriving assessable income:
(b)
have the well available for use in deriving assessable income or carrying on a business for the purpose of deriving assessable income.
Statutory acquisition
(7)
The sixth event is the acquisition of an item of property by a person acting under statutory authority.
Cessation of ownership under section EE 4 or EE 5
(8)
The seventh event is the cessation of ownership of a fixture or improvement—
(a)
that a lessee is treated as having under section EE 4(2); or
(b)
that a person is treated as having under section EE 5(3).
Cessation of rights in intangible property
(9)
The eighth event is an occurrence that has the effect that the owner of an item of intangible property is no longer able, and will never be able, to exercise the rights that constitute or are part of the item.
Item leaving New Zealand permanently
(10)
The ninth event is described in section EZ 21(2) (Sections EE 45 and EE 47: permanent removal: allowance before 1 April 1995).
Item fitted to aircraft or aircraft engine in aircraft engine overhaul
(11)
The tenth event is the fitting of an item of property to an aircraft or aircraft engine as a replacement piece as part of an aircraft engine overhaul to which section DW 5 (Aircraft operators: aircraft engines and aircraft engine overhauls) applies.
Defined in this Act: aircraft engine, aircraft engine overhaul, amount, assessable income, business, deduction, depreciation loss, geothermal energy proving period, geothermal well, improvement, income year, lessee, New Zealand, own, pay, property
Compare: 2004 No 35 s EE 40
Section EE 47(1) heading: amended, on 30 March 2017, by section 63(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EE 47(1): amended, on 30 March 2017, by section 63(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EE 47(2): amended, on 1 April 2011 (applying for the 2011–12 and later income years), by section 53(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 47(2B) heading: replaced, on 23 March 2020 (with effect on 28 June 2018), by section 105 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section EE 47(2B): inserted (with effect on 28 June 2018), on 18 March 2019, by section 165 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EE 47(4) heading: substituted (with effect on 4 September 2010), on 29 August 2011, by section 26 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EE 47(4) heading: amended (with effect on 1 April 2020), on 30 March 2022, by section 81(1) (and see section 81(4) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EE 47(4): substituted (with effect on 4 September 2010), on 29 August 2011, by section 26 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EE 47(4)(a): amended (with effect on 1 April 2020), on 30 March 2022, by section 81(2) (and see section 81(4) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EE 47(4)(b): amended (with effect on 1 April 2020), on 30 March 2022, by section 81(3) (and see section 81(4) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EE 47(11) heading: inserted, on 1 April 2017, by section 63(3) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EE 47(11): inserted, on 1 April 2017, by section 63(3) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EE 47 list of defined terms aircraft engine: inserted, on 1 April 2017, by section 63(4) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EE 47 list of defined terms aircraft engine overhaul: inserted, on 1 April 2017, by section 63(4) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
EE 48 Effect of disposal or event
Amount of depreciation recovery income
(1)
For the purposes of section EE 44, if the consideration is more than the item’s adjusted tax value on the date on which the disposal or the event occurs, the lesser of the following amounts is the amount of depreciation recovery income derived by the person:
(a)
the amount by which the consideration is more than the item’s adjusted tax value on the date on which the disposal or the event occurs; and
(b)
the amount given by subsections (1B) and (1C).
Amount for subsection (1)(b)
(1B)
The amount for the purposes of subsection (1)(b) is given by the following formula:
item depreciation loss + CZ 11 item amount + DB 64 item amount.
Definition of items in formula
(1C)
In the formula in subsection (1B),—
(a)
item depreciation loss is the total of the amounts of depreciation loss for which the person has been allowed deductions for the item:
(b)
CZ 11 item amount is the amount of any deduction allowed for the acquisition of the item, for the person, if the item is one to which section CZ 11 (Recovery of deductions for software acquired before 1 April 1993) applies:
(c)
DB 64 item amount is the amount of the capital contribution for the item, for the person, if the item is one to which section DB 64 (Capital contributions) applies.
Amount of depreciation loss
(2)
For the purposes of section EE 44, if the consideration is less than the item’s adjusted tax value on the date on which the disposal or the event occurs, the person has an amount of depreciation loss that is the amount by which the consideration is less than the item’s adjusted tax value on that date.
Income year of depreciation recovery income
(2B)
The person derives the depreciation recovery income in the income year that is the earliest income year in which the consideration can be reasonably estimated.
When subsection (2) does not apply
(3)
Subsection (2) does not apply if the item is a building unless—
(a)
the building has been rendered useless for the purpose of deriving income, and demolished or abandoned for later demolition as a result of damage to the building or of the neighbourhood of the building; and
(b)
[Repealed](c)
the damage is caused—
(i)
by a natural event not under the control of the person, an agent of the person, or an associated person; and
(ii)
other than as a result of the action or failure to act of the person, an agent of the person, or an associated person.
Defined in this Act: acquire, adjusted tax value, amount, building, capital contribution, consideration, deduction, depreciation loss, depreciation recovery income, dispose, income, income year
Compare: 2004 No 35 s EE 41
Section EE 48(1): amended (with effect on 4 September 2010), on 29 August 2011, by section 27(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EE 48(1)(b): substituted (with effect on 20 May 2010), on 28 May 2010, by section 80(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 48(1B) heading: inserted (with effect on 20 May 2010), on 28 May 2010, by section 80(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 48(1B): inserted (with effect on 20 May 2010), on 28 May 2010, by section 80(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 48(1C) heading: inserted (with effect on 20 May 2010), on 28 May 2010, by section 80(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 48(1C): inserted (with effect on 20 May 2010), on 28 May 2010, by section 80(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 48(2): amended (with effect on 4 September 2010), on 29 August 2011, by section 27(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EE 48(2B) heading: inserted (with effect on 4 September 2010), on 29 August 2011, by section 27(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EE 48(2B): inserted (with effect on 4 September 2010), on 29 August 2011, by section 27(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EE 48(3) heading: substituted (with effect on 4 September 2010), on 29 August 2011, by section 27(4) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EE 48(3)(a): substituted (with effect on 4 September 2010), on 29 August 2011, by section 27(5) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EE 48(3)(a): amended (with effect on 1 April 2020), on 30 March 2022, by section 82(1) (and see section 82(2) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EE 48(3)(b): repealed (with effect on 4 September 2010), on 29 August 2011, by section 27(6) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EE 48(3)(c): substituted (with effect on 4 September 2010), on 29 August 2011, by section 27(7) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EE 48 list of defined terms building: inserted (with effect on 30 July 2009), on 28 May 2010, by section 84 of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 48 list of defined terms capital contribution: inserted (with effect on 20 May 2010), on 28 May 2010, by section 80(3) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
EE 49 Amount of depreciation recovery income when item partly used for business
Item to which this section applies
(1)
This section applies to an item of property that—
(a)
is an item to which this section applies, as described in section EE 46; and
(b)
is, at any time during the period the person owns it, dealt with in—
(i)
subpart DE (Motor vehicle expenditure); or
(ii)
any applicable paragraph in section EZ 11 (Amounts of depreciation recovery income and depreciation loss for part business use up to 2004–05 income year); or
(iii)
Depreciation recovery income
(2)
If the consideration referred to in section EE 44 is less than or equal to the cost of the item to the person, the amount of depreciation recovery income that the person has is an amount calculated using the formula in subsection (3).
No depreciation recovery income
(2B)
Despite subsections (1) and (2), there is no depreciation recovery income under this section for a motor vehicle which is dealt with under subpart DE if the person has made an election under section DE 2B(1) (Election to use kilometre rate method or costs method) to use the kilometre rate method described in section DE 12 (Kilometre rate method) for that vehicle.
Formula
(3)
The formula is—
(all deductions ÷ (base value − adjusted tax value))
× amount of depreciation recovery income.
Definition of items in formula
(4)
The items in the formula are defined in subsections (5) to (8).
All deductions
(5)
All deductions is all amounts of depreciation loss for which the person has been allowed a deduction for the item in each of the income years in which the person has owned the item.
Base value
(6)
Base value has the applicable one of the meanings in sections EE 57 to EE 59.
Adjusted tax value
(7)
Adjusted tax value is the item’s adjusted tax value on the date on which the disposal or the event occurs.
Amount of depreciation recovery income
(8)
Amount of depreciation recovery income is the amount described in section EE 48(1)(a).
Defined in this Act: adjusted tax value, amount, business, deduction, depreciation loss, depreciation recovery income, income year, own, property
Compare: 2004 No 35 s EE 42
Section EE 49(2B) heading: inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 80(1) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section EE 49(2B): inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 80(1) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
Section EE 49(8): amended (with effect on 1 April 2008), on 30 March 2017, by section 64(1) (and see section 64(2) and (3)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
EE 50 Amount of depreciation loss when item partly used to produce income
When subsection (2) applies
(1)
Subsection (2) applies when—
(a)
a person has an amount of depreciation loss for an item of depreciable property for an income year, other than an amount arising under section EE 48(2); and
(b)
at a time during the income year, the item is partly used, or partly available for use, by the person—
(i)
in deriving assessable income or carrying on a business for the purpose of deriving assessable income; or
(ii)
in a way that is subject to fringe benefit tax; and
(c)
at the same time, the item is partly used, or is partly available for use, by the person for a use that falls outside both paragraph (b)(i) and (ii); and
(d)
the item is not a motor vehicle to which subpart DE (Motor vehicle expenditure) applies.
Partial use: formula
(2)
The deduction the person is allowed for the amount of depreciation loss must not be more than the amount calculated using the formula—
depreciation loss × qualifying use days ÷ all days.
Definition of items in formula
(3)
In the formula in subsection (2),—
(a)
depreciation loss is the amount of depreciation loss for the income year:
(b)
qualifying use days is the number of days in the income year on which the person owns the item and uses it, or has it available for use, for a use that falls within subsection (1)(b)(i) or (ii):
(c)
all days is the number of days in the income year on which the person owns the item and uses it or has it available for use.
Other units of measurement
(4)
A unit of measurement other than days, whether relating to time, distance, or anything else, is to be used in the formula if it achieves a more appropriate apportionment.
When subsection (6) applies
(5)
Subsection (6) applies when—
(a)
a person has an amount of depreciation loss for an item of depreciable property arising under section EE 48(2); and
(b)
the item was, at any time during the period the person owned it, dealt with in—
(i)
subsection (2); or
(ii)
any applicable paragraph in section EZ 11 (Amounts of depreciation recovery income and depreciation loss for part business use up to 2004–05 income year); and
(c)
the item is not a motor vehicle to which subpart DE applies.
Deduction for depreciation loss: formula
(6)
The deduction the person is allowed for the amount of depreciation loss is calculated using the formula—
disposal depreciation loss × all deductions
÷ (base value − adjusted tax value at date).
Definition of items in formula
(7)
In the formula in subsection (6),—
(a)
disposal depreciation loss is the amount resulting from a calculation made for the item under section EE 48(2):
(b)
all deductions is all amounts of depreciation loss relating to the item for which the person has been allowed a deduction in each of the income years in which the person has owned the item:
(c)
base value has whichever is applicable of the meanings in sections EE 57 to EE 59:
(d)
adjusted tax value at date is the item’s adjusted tax value on the date on which the disposal or event occurs.
When subsection (9) applies
(8)
Subsection (9) applies when—
(a)
a person has an amount of depreciation loss for an item of depreciable property for an income year arising under section EE 48(2); and
(b)
in the income year in which the amount of depreciation loss arises, the person starts to use the item, or have it available for use, for the purpose of deriving assessable income or carrying on a business for the purpose of deriving assessable income; and
(c)
at a time during the income year, the item is partly used, or partly available for use, by the person—
(i)
in deriving assessable income or carrying on a business for the purpose of deriving assessable income; or
(ii)
in a way that is subject to fringe benefit tax; and
(d)
the item is not a motor vehicle to which subpart DE (Motor vehicle expenditure) applies.
Partial use: formula
(9)
The deduction the person is allowed for the amount of depreciation loss is calculated using the formula—
disposal depreciation loss × qualifying use days ÷ all days.
Definition of items in formula
(10)
In the formula in subsection (9),—
(a)
disposal depreciation loss is the amount resulting from a calculation made for the item under section EE 48(2):
(b)
qualifying use days is the number of days in the income year on which the person owns the item and uses it, or has it available for use, for a use that falls within subsection (8)(c)(i) or (ii):
(c)
all days is the number of days in the income year on which the person owns the item and uses it or has it available for use for any purpose.
Other units of measurement
(11)
A unit of measurement other than days, whether relating to time, distance, or anything else, is to be used in the formula if it achieves a more appropriate apportionment.
Defined in this Act: adjusted tax value, amount, assessable income, business, deduction, depreciable property, depreciation loss, fringe benefit tax, income year, motor vehicle, property
Compare: 2004 No 35 s FB 7
EE 51 Amount of depreciation recovery income when lost or stolen items recovered
When this section applies
(1)
This section applies when an item of property to which section EE 47(3) applies—
(a)
is recovered in a later income year; and
(b)
is still owned by the person; and
(c)
is still used or available for use by the person.
Person treated as acquiring item
(2)
The person is treated as having acquired the item, on the date of recovery, for its adjusted tax value at the start of the income year in which it was lost or stolen.
Person treated as deriving income: amount
(3)
The person is treated as deriving an amount of depreciation recovery income equal to the amount of depreciation loss that the person has under section EE 48(2) for which they have been allowed a deduction.
Person treated as deriving income: income year
(4)
The income year in which the person derives the depreciation recovery income is—
(a)
the income year in which the item is lost or stolen, if the person chooses that year; or
(b)
the income year in which the item is recovered, in any other case.
Defined in this Act: adjusted tax value, amount, deduction, depreciation loss, depreciation recovery income, income year, own, property
Compare: 2004 No 35 s EE 43
EE 52 Amount of depreciation recovery income when compensation received
When this section applies
(1)
This section applies when a person receives insurance, indemnity, or compensation for an item of property to which this section applies, as described in section EE 46, other than for an item that is lost, stolen, or irreparably damaged.
Compensation subtracted
(2)
An amount must be subtracted from the item’s adjusted tax value. The amount is the amount by which the insurance, indemnity, or compensation that the person receives is more than the expenditure that the person incurs because of the event for which the person receives the insurance, indemnity, or compensation.
Depreciation recovery income
(3)
If the item’s adjusted tax value becomes negative in an income year through the application of subsection (2), the negative amount is an amount of depreciation recovery income derived by the person in the income year.
Compensation derived when item no longer owned
(4)
If, in the absence of this subsection, the person would derive the amount of insurance, indemnity, or compensation after ceasing to own the item, the person is treated as deriving the amount immediately before the person ceases to own the item.
Defined in this Act: adjusted tax value, amount, depreciation recovery income, income year, property
Compare: 2004 No 35 s EE 44
Section EE 52(4) heading: inserted (with effect on 25 June 2013), on 27 February 2014, by section 49 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EE 52(4): inserted (with effect on 25 June 2013), on 27 February 2014, by section 49 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
EE 53 Unused geothermal well brought into use
When this section applies
(1)
This section applies to a person when an event occurs to which section EE 47(6) applies.
Person treated as acquiring well
(2)
The person is treated as having acquired the geothermal well on the day on which the event occurs for the cost of the well under this subpart before the event occurs.
Defined in this Act: acquire, geothermal well
Compare: 2004 No 35 s EE 44B
Interpretation provisions
EE 54 Cost: GST
When this section applies
(1)
This section applies when an amount of depreciation loss or an amount of depreciation recovery income is calculated by reference to the cost of an item of depreciable property to a person.
Cost reduced: input tax
(2)
The item’s cost is reduced by subtracting the amount, if any, of input tax applying to the supply of the item to the person. This subsection is overridden by subsections (3) and (4).
Deductions from output tax
(3)
The item’s cost is reduced by the amount of any adjustment taken into account in the income year under section 20(3)(e) of the Goods and Services Tax Act 1985.
Adjustments for output tax
(4)
The item’s cost is increased by adding an amount of deductible output tax that the person has for the income year.
Defined in this Act: amount, deductible output tax, depreciable property, depreciation loss, depreciation recovery income, GST, income year, input tax, output tax
Compare: 2004 No 35 s EE 45
Section EE 54(2): amended, on 1 April 2011, by section 54(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 54(3) heading: substituted, on 1 April 2011 (applying to taxable supplies made on or after 1 April 2011), by section 54(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 54(3): substituted, on 1 April 2011 (applying to taxable supplies made on or after 1 April 2011), by section 54(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 54(4) heading: substituted, on 1 April 2011 (applying to taxable supplies made on or after 1 April 2011), by section 54(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 54(4): substituted, on 1 April 2011 (applying to taxable supplies made on or after 1 April 2011), by section 54(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 54 list of defined terms deductible output tax: inserted, on 1 April 2011, by section 54(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EE 54 list of defined terms taxable supply: repealed, on 1 April 2011, by section 54(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Adjusted tax value
EE 55 Meaning of adjusted tax value
Meaning
(1)
Adjusted tax value means,—
(a)
for an item of depreciable property, the amount calculated using the formula in section EE 56:
(b)
for a pool, the total adjusted tax value determined under section EE 21.
Exception
(2)
Section FA 11B(6) (Adjustments for certain operating leases) overrides this section.
Defined in this Act: adjusted tax value, amount, depreciable property, pool
Compare: 2004 No 35 s EE 46
Section EE 55(1) heading: inserted (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EE 55(1)(b): substituted (with effect on 1 April 2008), on 6 October 2009, by section 120(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EE 55(2) heading: inserted, on 1 April 2008, by section 357 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EE 55(2): inserted, on 1 April 2008, by section 357 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EE 56 Formula
Formula
(1)
The formula referred to in section EE 55 is—
base value − total deductions.
Definition of items in formula
(2)
In the formula,—
(a)
base value has the applicable meaning in sections EE 57, EE 58, EE 59, and EZ 22(1) (Base value and total deductions in section EE 56: before 1 April 1995):
(b)
total deductions is defined in section EE 60.
Defined in this Act: deduction
Compare: 2004 No 35 s EE 47
EE 57 Base value in section EE 56 when none of sections EE 58, EE 59, and EZ 22(1) applies
When this section applies
(1)
This section applies when none of sections EE 58, EE 59, and EZ 22(1) (Base value and total deductions in section EE 56: before 1 April 1995) applies.
Base value
(2)
Base value is the cost of the item to the person.
Cost
(3)
In this section, “cost”
is qualified as follows:
(a)
expenditure is excluded from it if it is expenditure for which a person has been allowed a deduction for an amount of depreciation loss they have had under section EE 38(3) or EE 48(2) or the corresponding provision of the Income Tax Act 2004 or the Income Tax Act 1994; and
(b)
expenditure is not excluded from it if it is expenditure for which a person has been allowed a deduction for an amount of depreciation loss they have had under any other provision of this subpart or the corresponding provision of the Income Tax Act 2004 or the Income Tax Act 1994; and
(c)
expenditure is excluded from it if it is expenditure for which a person has been allowed a deduction under any other subpart or the corresponding provision of the Income Tax Act 2004 or the Income Tax Act 1994; and
(cb)
expenditure is included in it if the item is a patent application, a patent, a design registration, a design registration application, plant variety rights, or a resource consent under the Resource Management Act 1991 and the expenditure has given rise under section CG 7B (Disposals or applications after earlier deductions) to a corresponding amount of income relating to the item; and
(d)
expenditure—
(i)
is not excluded from it if it is described in section EZ 22(2)(a); and
(ii)
is excluded from it if it is described in section EZ 22(2)(b) or EZ 23BA(2) (Aircraft acquired before 2017–18 income year: adjusted tax value, base value, reduced; total deductions increased).
Defined in this Act: amount, deduction, depreciation loss, design registration, design registration application
Compare: 2004 No 35 s EE 48
Section EE 57(3)(cb): inserted (with effect on 1 April 2014 and applying for the 2014–15 and later income years), on 30 June 2014, by section 67(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EE 57(3)(cb): amended, on 23 December 2023, by section 6 of the Resource Management (Natural and Built Environment and Spatial Planning Repeal and Interim Fast-track Consenting) Act 2023 (2023 No 68).
Section EE 57(3)(cb): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 125(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 57(3)(d)(ii): amended, on 1 April 2017, by section 65 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EE 57 list of defined terms design registration: inserted (with effect on 1 April 2015), on 24 February 2016, by section 125(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 57 list of defined terms design registration application: inserted (with effect on 1 April 2015), on 24 February 2016, by section 125(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EE 58 Base value in section EE 56 when no previous deduction
When this section applies
(1)
This section applies when all the following apply to the item:
(a)
it is not a building; and
(b)
it is not an item of petroleum-related depreciable property; and
(c)
it is not an item that the person—
(i)
acquired to use or have available for use in deriving assessable income or carrying on a business for the purpose of deriving assessable income; and
(ii)
first used for the purpose of deriving assessable income or carrying on a business for the purpose of deriving assessable income; and
(d)
it has been, since the person acquired it and first used it or had it available for use for any purpose, an item for which the person could not in any income year have been allowed a deduction for an amount of depreciation loss, whether because of the nature of the person’s use of the item or the person’s non-residence or for any other reason; and
(e)
in relation to the 1992–93 income year,—
(i)
it was acquired by the person after the end of that income year; or
(ii)
it was an item described in section EZ 22(3) (Base value and total deductions in section EE 56: before 1 April 1995).
Base value
(2)
Base value is the item’s market value when the person starts to use it, or to have it available for use, for the purpose of deriving assessable income or carrying on a business for the purpose of deriving assessable income, reduced for an item that is an aircraft engine or aircraft by an amount referred to in section EZ 23BA(2) (Aircraft acquired before 2017–18 income year: adjusted tax value, base value, reduced; total deductions increased) for the item.
Defined in this Act: acquire, aircraft engine, amount, assessable income, building, business, deduction, depreciation loss, income year, petroleum-related depreciable property
Compare: 2004 No 35 s EE 49
Section EE 58(2): amended, on 1 April 2017, by section 66(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EE 58 list of defined terms aircraft engine: inserted, on 1 April 2017, by section 66(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EE 58 list of defined terms building: inserted (with effect on 30 July 2009), on 28 May 2010, by section 84 of the Taxation (Budget Measures) Act 2010 (2010 No 27).
EE 59 Base value in section EE 56 when property is petroleum-related depreciable property
When this section applies
(1)
This section applies when the item is an item of petroleum-related depreciable property to which both the following apply:
(a)
section EZ 22(1) (Base value and total deductions in section EE 56: before 1 April 1995) does not apply to it; and
(b)
the person (person A) acquires it from an associated person.
Base value
(2)
Base value is the lesser of—
(a)
the cost of the item to person A; and
(b)
the total of the amounts described in subsections (3) and (4).
First amount for purposes of subsection (2)(b)
(3)
The amount is the cost of the item to—
(a)
the associated person, if the associated person did not acquire the item from either person A or another person associated with person A; or
(b)
whoever owned the item, whether person A or the associated person, at the start of an unbroken chain of ownership made up of person A and 1 or more persons associated with person A.
Second amount for purposes of subsection (2)(b)
(4)
The amount is all expenditure incurred for the item by person A and the associated person or associated persons before the date on which person A acquired the item.
Cost and expenditure
(5)
In this section, “cost”
and “expenditure”
are qualified as follows:
(a)
expenditure is excluded from them if it is expenditure for which a person has been allowed a deduction for an amount of depreciation loss they have had under section EE 38(3) or EE 48(2) or the corresponding provision of the Income Tax Act 2004 or the Income Tax Act 1994; and
(b)
expenditure is not excluded from them if it is expenditure for which a person has been allowed a deduction for an amount of depreciation loss they have had under any other provision of this subpart or the corresponding provision of the Income Tax Act 2004 or the Income Tax Act 1994; and
(c)
expenditure is excluded from them if it is expenditure for which a person is allowed a deduction under any other subpart or the corresponding provision of the Income Tax Act 2004 or the Income Tax Act 1994; and
(d)
expenditure is excluded from them if it is expenditure for which a person would have been allowed a deduction under any other subpart if this Act had applied or the corresponding provision of the Income Tax Act 2004 or the Income Tax Act 1994 if the Act had applied.
Defined in this Act: acquire, amount, associated person, deduction, depreciation loss, own, petroleum-related depreciable property
Compare: 2004 No 35 s EE 50
EE 60 Total deductions in section EE 56
Total deductions
(1)
Total deductions is the total, calculated as at a particular time, of—
(a)
the amount described in subsection (2); and
(b)
the amount described in subsection (3); and
(c)
the amount of a deduction under section EE 25; and
(d)
the total amount of previous deductions under section DB 65 (Allowance for certain commercial buildings).
First amount for purposes of subsection (1)
(2)
The amount is all amounts that 1 or more of the following provisions has required to be subtracted from the item’s adjusted tax value since the start of the 1993–94 income year:
(a)
(b)
section EE 44(2) of the Income Tax Act 2004:
(c)
section EG 19(5) of the Income Tax Act 1994:
(d)
the provision described in section EZ 22(4) (Base value and total deductions in section EE 56: before 1 April 1995); and
(e)
section EZ 23BA(4) (Aircraft acquired before 2017–18 income year: adjusted tax value, base value, reduced; total deductions increased).
Second amount for purposes of subsection (1)
(3)
The amount is all deductions for amounts of depreciation loss, calculated using the method described in subsection (4), that, in the period described in subsection (5),—
(a)
the person was allowed for the item and,—
(i)
if the item is a patent, for the patent application in relation to which the item was granted:
(ib)
if the item is a design registration, for the design registration application in relation to which the item was granted:
(ii)
if the item is a geothermal well that a person acquired under section EE 53(2), for the well before the person acquired it under that section; or
(b)
the person would have been allowed if they had used the item wholly in deriving assessable income or carrying on a business for the purpose of deriving assessable income.
Treatment of assets not available for use
(3B)
Subsection (3)(b) does not apply in relation to an amount of depreciation loss for an item that is not available for use in deriving assessable income or carrying on a business for the purpose of deriving assessable income. However, this exclusion does not apply to an amount of depreciation loss for which the person has a deduction under section EE 39.
Method
(4)
The method is—
(a)
the depreciation method that the person used in each relevant income year; or
(b)
the diminishing value method, if the person did not make deductions for amounts of depreciation loss for the item.
Period
(5)
The period ends with the end of the income year before the income year in which the particular time occurs, and starts with,—
(a)
for an item to which section EE 57 applies,—
(i)
unless subparagraph (ii), (iii), or (iv) applies, the date on which the person acquired the item; or
(ii)
if the item is a geothermal well that a person acquired under section EE 53(2), the earliest date on which the person acquired the well under section EE 6(4) or otherwise; or
(iii)
if the item is a patent and the person acquired the patent application in relation to which the patent was granted, the date on which the person acquired the patent application; or
(iv)
if the item is a design registration and the person acquired the design registration application in relation to which the design registration was granted, the date on which the person acquired the design registration application; or
(b)
for an item to which section EE 58 applies,—
(i)
unless subparagraph (ii) or (iii) applies, the beginning of the month in which the person started to use the item, or to have it available for use for the purpose of deriving assessable income or carrying on a business for the purpose of deriving assessable income; or
(ii)
if the item is a patent and the person acquired the patent application in relation to which the patent was granted, the beginning of the month in which the person acquired the patent application; or
(iii)
if the item is a design registration and the person acquired the design registration application in relation to which the design registration was granted, the beginning of the month in which the person acquired the design registration application; or
(c)
for an item to which section EE 59 applies, the date on which person A or the relevant associated person acquired the item; or
(d)
for an item to which section EZ 22(1) applies, to the item, the end of the 1992–93 income year.
Defined in this Act: acquire, adjusted tax value, amount, assessable income, associated person, business, deduction, depreciation loss, depreciation method, design registration, design registration application, diminishing value method, geothermal well, income year
Compare: 2004 No 35 s EE 51
Section EE 60(1)(d): inserted, on 1 April 2020, by section 9 of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
Section EE 60(2)(d): amended, on 1 April 2017, by section 67(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EE 60(2)(e): inserted, on 1 April 2017, by section 67(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EE 60(2)(e): amended, on 29 March 2018 (with effect on 1 April 2017 and applying for the 2017–18 and later income years), by section 69(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EE 60(3)(a)(ib): inserted (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 126(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 60(3B) heading: replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 17 July 2013, by section 47(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EE 60(3B): inserted (with effect on 1 April 2008), on 7 September 2010 (applying for the 2008–09 and later income years), by section 31(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EE 60(3B): amended (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 17 July 2013, by section 47(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EE 60(5)(a)(i): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 126(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 60(5)(a)(ii): amended (with effect on 1 April 2008), on 2 November 2012, by section 37 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EE 60(5)(a)(iv): inserted (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 126(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 60(5)(b)(i): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 126(4) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 60(5)(b)(iii): inserted (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 126(5) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 60 list of defined terms design registration: inserted (with effect on 1 April 2015), on 24 February 2016, by section 126(6) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 60 list of defined terms design registration application: inserted (with effect on 1 April 2015), on 24 February 2016, by section 126(6) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Definitions
EE 61 Meaning of annual rate
Meaning
(1)
Annual rate means the annual depreciation rate applying to an item of depreciable property that a person owns. The rate is 1 of the rates described in subsections (2) to (5B).
1995–96 income year or later
(2)
The rate is the rate set by section EE 31(2)(a) or (b), or by section EE 31(3)(a), as applicable, if both the following apply to the item:
(a)
the person acquires it in their 1995–96 income year or a later income year; and
(b)
the item is not dealt with in any of subsections (3) to (5).
1995–96 income year or later: international aircraft
(3)
The rate is the rate set by section EE 31(2)(c), or by section EE 31(3)(b), as applicable, if the item is an international aircraft that the person acquires in their 1995–96 income year or a later income year.
1995–1996 income year or later: residential buildings with estimated useful lives of 50 years or more
(3B)
The rate is the rate set by section EE 31(2)(d), or by section EE 31(3)(c), as applicable, if the item is a residential building that—
(a)
has an economic rate or provisional rate of more than 0% due to an estimated useful life of 50 years or more; and
(b)
the person acquires in their 1995–96 income year or a later income year.
Fixed life intangible property
(4)
The rate is the rate set by section EE 33 if both the following apply to the item:
(a)
the item is an item of fixed life intangible property; and
(b)
the item is not an item of excluded depreciable property.
Patents, applications: complete specification before 1 April 2005
(5)
The rate is the rate set by section EE 34 if the item is a patent and section EE 34 applies to the item and the person.
Design registrations, applications
(5B)
The rate is the rate set by section EE 34B if the item is a design registration and section EE 34B applies to the item and the person.
1994–95 income year
(6)
The rate is the rate set by section EZ 13 (Annual rate for item acquired on or after 1 April 1993 and before end of person’s 1994–95 income year) if all the following apply to the item:
(a)
the person acquired it before the end of their 1994–95 income year; and
(b)
the item is not an item of fixed life intangible property; and
(c)
the item is not an item of excluded depreciable property.
Excluded depreciable property
(7)
The rate is the rate set by section EZ 15 (Annual rate for excluded depreciable property: 1992–93 tax year) if the item is an item of excluded depreciable property.
Residential buildings
(7B)
The rate is 0% for all depreciation methods, if the item is a residential building.
Exception
(8)
Section FA 11B(7) (Adjustments for certain operating leases) overrides this section.
Defined in this Act: acquire, annual rate, depreciable property, design registration, economic rate, estimated useful life, excluded depreciable property, fixed life intangible property, income year, international aircraft, own, provisional rate, residential building
Compare: 2004 No 35 s EE 52
Section EE 61(1): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 127(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 61(2): amended (with effect on 20 May 2010), on 28 May 2010, by section 81(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 61(3): amended (with effect on 20 May 2010), on 28 May 2010, by section 81(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 61(3B) heading: inserted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 81(3) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 61(3B) heading: amended, on 1 April 2020, by section 10(1) (and see section 10(5) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
Section EE 61(3B): inserted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 81(3) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 61(3B): amended, on 1 April 2020, by section 10(2) (and see section 10(5) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
Section EE 61(5B) heading: inserted (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 127(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 61(5B): inserted (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 127(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 61(7B) heading: replaced, on 1 April 2020, by section 10(3) (and see section 10(5) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
Section EE 61(7B): replaced, on 1 April 2020, by section 10(3) (and see section 10(5) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
Section EE 61(8) heading: inserted, on 1 April 2008, by section 358 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EE 61(8): inserted, on 1 April 2008, by section 358 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EE 61 list of defined terms building: repealed, on 1 April 2020, by section 10(4)(a) (and see section 10(5) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
Section EE 61 list of defined terms design registration: inserted (with effect on 1 April 2015), on 24 February 2016, by section 127(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 61 list of defined terms economic rate: inserted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 81(5) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 61 list of defined terms estimated useful life: inserted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 81(5) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 61 list of defined terms provisional rate: inserted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 81(5) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 61 list of defined terms residential building: inserted, on 1 April 2020, by section 10(4)(b) (and see section 10(5) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
Section EE 61 list of defined terms special excluded depreciable property: repealed, on 1 April 2020, by section 10(4)(a) (and see section 10(5) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
EE 62 Meaning of depreciable intangible property
Meaning
(1)
Depreciable intangible property means the property listed in schedule 14 (Depreciable intangible property).
Criteria for listing in schedule 14
(2)
For property to be listed in schedule 14, the criteria are as follows:
(a)
it must be intangible; and
(b)
it must have a finite useful life that can be estimated with a reasonable degree of certainty on the date of its acquisition.
Schedule 14 prevails
(3)
Property that is listed in schedule 14 is depreciable intangible property even if the criteria are not met.
Defined in this Act: acquire, depreciable intangible property, property
Compare: 2004 No 35 s EE 53
EE 63 Meaning of estimated useful life
Meaning for item of depreciable property, except for copyright in sound recording
(1)
Estimated useful life, for an item of depreciable property, other than a copyright in a sound recording, means the period over which the item might reasonably be expected to be useful in deriving assessable income or carrying on a business for the purpose of deriving assessable income, taking into account—
(a)
the passage of time, likely wear and tear, exhaustion, and obsolescence; and
(b)
an assumption of normal and reasonable maintenance.
Meaning for copyright in sound recording
(2)
Estimated useful life, for a copyright in a sound recording, means the period from the time at which the copyright might reasonably be expected to be first useful in deriving assessable income until the end of the income year in which it might reasonably be expected that 90% of all the income that will be derived from it has been derived.
Defined in this Act: assessable income, business, depreciable property, estimated useful life, income year, sound recording
Compare: 2004 No 35 s EE 54
EE 64 Meaning of excluded depreciable property
Meaning
(1)
Excluded depreciable property means, for a person,—
(a)
depreciable property for whose acquisition or construction the person entered into a binding contract before 16 December 1991; or
(b)
depreciable property that the person used or had available for use for any purpose whatever within New Zealand, other than as trading stock, before 1 April 1993; or
(c)
depreciable property that is an intangible item that the person used or had available for use before 1 April 1993; or
(d)
depreciable property that is or has been a qualifying asset for the person; or
(e)
depreciable property to the extent to which it is or has been a qualifying improvement for the person.
Exclusion
(2)
Excluded depreciable property does not include property to which both the following apply:
(a)
it existed at the end of the 1992–93 income year; and
(b)
the Commissioner allowed it to be accounted for in that income year using the standard value method, the replacement value method, or the annual revaluation method.
Another exclusion[Repealed]
(3)
[Repealed]Defined in this Act: Commissioner, depreciable property, excluded depreciable property, income year, New Zealand, property, qualifying improvement, qualifying asset, trading stock
Compare: 2004 No 35 s EE 55
Section EE 64(1)(a): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 64(3) heading: repealed, on 1 April 2020, pursuant to section 11(1) (and see section 11(3) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
Section EE 64(3): repealed, on 1 April 2020, by section 11(1) (and see section 11(3) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
Section EE 64 list of defined terms special excluded depreciable property: repealed, on 1 April 2020, by section 11(2) (and see section 11(3) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
EE 65 Meaning of maximum pooling value
Meaning
(1)
Maximum pooling value, for an item of depreciable property, means the greater of—
(a)
$5,000; and
(b)
the value set in a determination issued under section 91AAL of the Tax Administration Act 1994 applying to the item.
Increase in specified sum
(2)
The Governor-General may make an Order in Council increasing the sum specified in subsection (1)(a).
Secondary legislation
(3)
An Order in Council under subsection (2) is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements).
Defined in this Act: depreciable property, maximum pooling value
Compare: 2004 No 35 s EE 56
| Legislation Act 2019 requirements for secondary legislation made under this section | ||||
| Publication | PCO must publish it on the legislation website and notify it in the Gazette | LA19 s 69(1)(c) | ||
| Presentation | The Minister must present it to the House of Representatives | LA19 s 114, Sch 1 cl 32(1)(a) | ||
| Disallowance | It may be disallowed by the House of Representatives | LA19 ss 115, 116 | ||
| This note is not part of the Act. | ||||
Section EE 65(1)(a): the sum specified in this paragraph was increased, on 1 July 2015 (applying for the 2015–16 income year and later income years), by clause 3(1) of the Income Tax (Maximum Pooling Value) Order 2015 (LI 2015/141).
Section EE 65(3) heading: inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
Section EE 65(3): inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
EE 66 Meaning of poolable property
Meaning
(1)
Poolable property, for an income year, means an item of depreciable property that a person owns to which subsections (2) to (4) apply.
Not a building
(2)
The item is not a building.
Maximum pooling value or globo method
(3)
The item—
(a)
is acquired in the income year for a cost equal to or less than its maximum pooling value; or
(b)
was previously accounted for separately but has, as at the start of the income year, an adjusted tax value equal to or less than its maximum pooling value; or
(c)
was accounted for at the end of the 1992–93 income year using, with the Commissioner’s permission, the globo accounting method.
Wholly used or subject to fringe benefit tax
(4)
The item—
(a)
is wholly used or available for use by the person in deriving assessable income or carrying on a business for the purpose of deriving assessable income; or
(b)
to the extent to which it is not wholly used or available for use by the person in deriving assessable income or carrying on a business for the purpose of deriving assessable income, is used in a way that is subject to fringe benefit tax.
Defined in this Act: acquire, adjusted tax value, assessable income, building, business, Commissioner, depreciable property, fringe benefit tax, income year, maximum pooling value, own, poolable property
Compare: 2004 No 35 s EE 57
Section EE 66 list of defined terms building: inserted (with effect on 30 July 2009), on 28 May 2010, by section 84 of the Taxation (Budget Measures) Act 2010 (2010 No 27).
EE 67 Other definitions
In this Act,—
depreciation method means a method described in section EE 12
diminishing value method means the method of calculating an amount of depreciation loss for an item of depreciable property by subtracting, in each income year, a constant percentage of the item’s adjusted tax value from the item’s adjusted tax value
diminishing value rate means the rate that a person using the diminishing value method applies to an item of depreciable property
economic rate means the economic depreciation rate of an item of depreciable property, set under sections EE 27 to EE 30
estimated residual market value means, for an item of depreciable property, its market value at the end of its estimated useful life, estimated reasonably as at the date of acquisition and based on an assumption of normal and reasonable maintenance over its estimated useful life
fixed life intangible property means property that—
(a)
is depreciable intangible property; and
(b)
has a legal life that could reasonably be expected, on the date of the property’s acquisition, to be the same length as the property’s remaining estimated useful life
improvement means an alteration, extension, or repair of an item of depreciable property that increases its capital value
international aircraft means a jet-engined aircraft that a person uses in an income year mainly in regular commercial service to transport passengers between New Zealand and any other place
legal life,—
(a)
for an item to which paragraphs (b) to (d) do not apply, means the number of years, months, and days for which an owner’s interest in an item of intangible property exists under the contract or statute that creates the owner’s interest, assuming that the owner exercises any rights of renewal or extension that are either essentially unconditional or conditional on the payment of predetermined fees:
(b)
for an item that is a patent application, a design registration application, a patent, or a design registration, means the legal life under paragraph (a) that a patent or design registration would have if granted when the relevant application is first lodged:
(bb)
for an item that is industrial artistic copyright, means the number of years, months, and days for which protection against copyright infringement is available as a result of section 75(1)(c) to (e) of the Copyright Act 1994:
(c)
for an item that is plant variety rights, means the total of—
(i)
the legal life that the rights would have under paragraph (a); and
(ii)
the number of whole calendar months during which the person owns the plant variety rights application in relation to which the rights are granted:
(d)
for a person and a right (a land right) that is a leasehold estate, or a licence to use land, means the number of years, months, and days for which the person or an associated person has an owner’s interest in the land right, or in a consecutive or successive land right, under the contract or statute that creates the owner’s interest, determined—
(i)
when the person acquires the owner’s interest; and
(ii)
assuming that the person or associated person exercises rights of renewal, extension, or further grant that are either essentially unconditional or conditional on the payment of predetermined fees
petroleum-related depreciable property means depreciable property that is—
(a)
petroleum drilling rigs; or
(b)
support vessels for offshore petroleum drilling rigs; or
(c)
support vessels for offshore petroleum production platforms
pool means items of depreciable property that a person chooses under section EE 12 to depreciate as a pool using the pool method
pool method means the method of calculating an amount of depreciation loss set out in section EE 21
provisional rate means a provisional rate as described in section EE 35
special excluded depreciable property [Repealed]
special rate means a special rate as described in section EE 35
straight-line method means the method of calculating an amount of depreciation loss for an item of depreciable property by subtracting, in each income year, a constant percentage of the item’s cost, to its owner, from the item’s adjusted tax value
straight-line rate means the rate that a person using the straight-line method applies to an item of depreciable property.
Defined in this Act: acquire, adjusted tax value, amount, building, depreciable intangible property, depreciable property, depreciation loss, depreciation method, design registration, design registration application, diminishing value method, diminishing value rate, economic rate, estimated residual market value, estimated useful life, fixed life intangible property, improvement, income year, industrial artistic copyright, international aircraft, legal life, New Zealand, own, pay, petroleum, petroleum-related depreciable property, plant variety rights, pool, pool method, property, provisional rate, special excluded depreciable property, special rate, straight-line method, straight-line rate
Compare: 2004 No 35 s EE 58
Section EE 67 legal life paragraph (a): amended, on 1 April 2015, by section 68(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EE 67 legal life paragraph (b): replaced (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 128(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 67 legal life paragraph (bb): inserted (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 128(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 67 legal life paragraph (c)(ii): amended, on 1 April 2015, by section 68(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EE 67 legal life paragraph (d): inserted, on 1 April 2015, by section 68(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EE 67 special excluded depreciable property: repealed, on 1 April 2020, by section 12(1) (and see section 12(2) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
Section EE 67 list of defined terms building: inserted (with effect on 30 July 2009), on 28 May 2010, by section 84 of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EE 67 list of defined terms design registration: inserted (with effect on 1 April 2015), on 24 February 2016, by section 128(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 67 list of defined terms design registration application: inserted (with effect on 1 April 2015), on 24 February 2016, by section 128(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 67 list of defined terms industrial artistic copyright: inserted (with effect on 1 April 2015), on 24 February 2016, by section 128(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EE 67 list of defined terms special excluded depreciable property: inserted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 83(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Subpart EF—Taxes and levies
Contents
EF 1 Fringe benefit tax
Fringe benefit tax for which a deduction is allowed may be deducted only in the income year in which the relevant fringe benefits are provided or granted, whether or not the tax actually becomes due and payable in the income year.
Defined in this Act: deduction, fringe benefit tax, income year, pay
Compare: 2004 No 35 s EF 1
EF 2 Employer’s superannuation contribution tax
An amount of employer’s superannuation contribution tax (ESCT) for which a deduction is allowed may be deducted only in the income year in which the employer’s superannuation cash contributions to which the tax relates are made, whether or not the tax actually becomes due and payable in the income year.
Defined in this Act: deduction, employer’s superannuation cash contribution, ESCT, income year, pay
Compare: 2004 No 35 s EF 2
Section EF 2: amended (with effect on 1 April 2008), on 6 October 2009, by section 121(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EF 2 list of defined terms employer’s superannuation cash contribution: inserted (with effect on 1 April 2008), on 6 October 2009, by section 121(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EF 2 list of defined terms employer’s superannuation contribution: repealed (with effect on 1 April 2008), on 6 October 2009, by section 121(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EF 3 Accident compensation levies and premiums
Timing of deduction
(1)
A deduction that an employer or self-employed person is allowed for an Accident Compensation Corporation (ACC) levy or premium is allocated to the income year in which it becomes due and payable, except as provided in subsection (2) or (3).
Earlier income year
(2)
If a deduction for an ACC levy or premium has been allocated to an income year earlier than the income year in which the levy or premium becomes due and payable and, because of the time bar or for another reason, the Commissioner cannot lawfully amend the assessment for the income year, the deduction is allocated to the income year in which it was allowed.
Balance dates between 1 October and 6 April
(3)
If a person’s income year ends on a balance date falling between 1 October and 6 April (both dates inclusive), an ACC levy or premium that is due on a date in schedule 3, part A, column H (Payment of provisional tax and terminal tax) is treated as if it were due and payable on the relevant date in schedule 3, part A, column G for the person’s corresponding income year.
References to dates in schedule 3
(4)
For the purposes of subsection (3), references to the date in schedule 3, part A, columns G and H (which refer to months only and not days) are references to the day in the relevant month that is fixed by the following:
(a)
the definition of instalment date in section YA 1 (Definitions); and
(b)
sections RA 3 (Terminal tax obligations), RC 1(2), and RC 20 to RC 24 (which relate to provisional tax instalments in transitional years).
Meaning of ACC levy or premium
(5)
In this section, ACC levy or premium means any of the following levies, premiums, or penalties:
(a)
the following levy or premium:
(i)
a levy to fund the Work Account under section 168 of the Accident Compensation Act 2001; or
(ii)
an employer’s premium to fund the Employers’ Account under section 281B of the Accident Insurance Act 1998:
(b)
[Repealed](c)
the following levy or premium:
(i)
a levy to fund the Work Account under section 168B or 211 of the Accident Compensation Act 2001; or
(ii)
a premium to fund the Self-Employed Work Account under section 300 of the Accident Insurance Act 1998:
(d)
the following levy or premium:
(i)
a levy to fund the Earners’ Account under section 219(1) of the Accident Compensation Act 2001; or
(ii)
a premium to fund the Earners’ Account under section 283(1) of the Accident Insurance Act 1998:
(e)
an Earners’ Account levy under section 283(2) of the Accident Insurance Act 1998:
(f)
a levy to meet the costs of the Regulator under section 236 of the Accident Insurance Act 1998:
(g)
a contribution to the Insolvent Insurers Fund under section 246 or 247 of the Accident Insurance Act 1998:
(h)
a levy or penalty payable to the Non-Compliers Fund under section 263 of the Accident Insurance Act 1998:
(i)
a base premium under sections 466 to 470 of the Accident Insurance Act 1998.
Defined in this Act: ACC levy or premium, Commissioner, deduction, employer, income year, pay, time bar
Compare: 2004 No 35 s EF 3
Section EF 3(5)(a)(i): amended, on 21 December 2010, by section 189 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EF 3(5)(b): repealed, on 3 March 2010, by section 49 of the Accident Compensation Amendment Act 2010 (2010 No 1).
Section EF 3(5)(c)(i): amended, on 21 December 2010, by section 189 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EF 3(5)(d)(i): amended, on 21 December 2010, by section 189 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EF 3(5)(e): substituted, on 3 March 2010, by section 49 of the Accident Compensation Amendment Act 2010 (2010 No 1).
EF 4 Use of money interest payable by Commissioner
Timing of income
(1)
Income that is interest payable by the Commissioner to a person under Part 7 of the Tax Administration Act 1994 is allocated to the income year in which the Commissioner pays the interest.
Interest paid in same year as liability arises[Repealed]
(2)
[Repealed]Effect of amended assessment[Repealed]
(3)
[Repealed]Amended assessment in same year[Repealed]
(4)
[Repealed]Defined in this Act: Commissioner, income, income year, interest, pay
Compare: 2004 No 35 s EF 4
Section EF 4(1): amended (with effect on 1 April 2011), on 29 August 2011 (applying for the 2011–12 and later income years), by section 28(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 4(2) heading: repealed (with effect on 1 April 2011), on 29 August 2011 (applying for the 2011–12 and later income years), pursuant to section 28(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 4(2): repealed (with effect on 1 April 2011), on 29 August 2011 (applying for the 2011–12 and later income years), by section 28(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 4(3) heading: repealed (with effect on 1 April 2011), on 29 August 2011 (applying for the 2011–12 and later income years), pursuant to section 28(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 4(3): repealed (with effect on 1 April 2011), on 29 August 2011 (applying for the 2011–12 and later income years), by section 28(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 4(4) heading: repealed (with effect on 1 April 2011), on 29 August 2011 (applying for the 2011–12 and later income years), pursuant to section 28(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 4(4): repealed (with effect on 1 April 2011), on 29 August 2011 (applying for the 2011–12 and later income years), by section 28(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 4 list of defined terms assessment: repealed (with effect on 1 April 2011), on 29 August 2011, by section 28(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 4 list of defined terms notice: repealed (with effect on 1 April 2011), on 29 August 2011, by section 28(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 4 list of defined terms tax year: repealed (with effect on 1 April 2011), on 29 August 2011, by section 28(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
EF 5 Use of money interest payable by person
Timing of deduction
(1)
A deduction for interest payable by a person to the Commissioner under Part 7 of the Tax Administration Act 1994 is allocated to the income year in which the person pays the interest.
Assessment made in same year as liability arises[Repealed]
(2)
[Repealed]Effect of amended assessment[Repealed]
(3)
[Repealed]Terminal amended assessment[Repealed]
(4)
[Repealed]Amended assessment in same year[Repealed]
(5)
[Repealed]Defined in this Act: Commissioner, deduction, income year, pay
Compare: 2004 No 35 s EF 5
Section EF 5(1): substituted (with effect on 1 April 2011), on 29 August 2011 (applying for the 2011–12 and later income years), by section 29(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 5(2) heading: repealed (with effect on 1 April 2011), on 29 August 2011 (applying for the 2011–12 and later income years), pursuant to section 29(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 5(2): amended (with effect on 1 April 2008), on 2 November 2012, by section 38 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EF 5(2): repealed (with effect on 1 April 2011), on 29 August 2011 (applying for the 2011–12 and later income years), by section 29(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 5(3) heading: repealed (with effect on 1 April 2011), on 29 August 2011 (applying for the 2011–12 and later income years), pursuant to section 29(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 5(3): repealed (with effect on 1 April 2011), on 29 August 2011 (applying for the 2011–12 and later income years), by section 29(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 5(4) heading: repealed (with effect on 1 April 2011), on 29 August 2011 (applying for the 2011–12 and later income years), pursuant to section 29(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 5(4): repealed (with effect on 1 April 2011), on 29 August 2011 (applying for the 2011–12 and later income years), by section 29(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 5(5) heading: repealed (with effect on 1 April 2011), on 29 August 2011 (applying for the 2011–12 and later income years), pursuant to section 29(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 5(5): repealed (with effect on 1 April 2011), on 29 August 2011 (applying for the 2011–12 and later income years), by section 29(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 5 list of defined terms assessment: repealed (with effect on 1 April 2011), on 29 August 2011, by section 29(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 5 list of defined terms Commissioner: substituted (with effect on 1 April 2011), on 29 August 2011, by section 29(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 5 list of defined terms deduction: substituted (with effect on 1 April 2011), on 29 August 2011, by section 29(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 5 list of defined terms income tax liability: repealed (with effect on 1 April 2011), on 29 August 2011, by section 29(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 5 list of defined terms income year: substituted (with effect on 1 April 2011), on 29 August 2011, by section 29(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 5 list of defined terms interest: repealed (with effect on 1 April 2011), on 29 August 2011, by section 29(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 5 list of defined terms liquidation: repealed (with effect on 1 April 2011), on 29 August 2011, by section 29(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 5 list of defined terms notice: repealed (with effect on 1 April 2011), on 29 August 2011, by section 29(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 5 list of defined terms pay: substituted (with effect on 1 April 2011), on 29 August 2011, by section 29(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EF 5 list of defined terms tax year: repealed (with effect on 1 April 2011), on 29 August 2011, by section 29(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
EF 6 Different tax years
[Repealed]Section EF 6: repealed (with effect on 1 April 2011), on 29 August 2011 (applying for the 2011–12 and later income years), by section 30(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Subpart EG—Recognition of accounting treatment
Contents
EG 1 Election to use balance date used in foreign country
When this section applies
(1)
This section applies when—
(a)
a person has foreign source income or foreign expenditure that is taken into account in determining the income tax, not merely the withholding tax, payable by them in a foreign country or territory; and
(b)
the foreign source income or foreign expenditure has been included in 1 of their income tax returns in the country or territory; and
(c)
the annual income tax balance date that is relevant for them for the income tax return in the country or territory falls in a period that is an income year for them; and
(d)
if the person did not make an election under this section,—
(i)
the foreign source income would be allocated to their previous income year; or
(ii)
the foreign expenditure would be a deduction allocated to the previous income year if the only income of the person were foreign source income to which this section applies.
Election to allocate
(2)
If the person has not already included the foreign source income or foreign expenditure in their return of income for the previous tax year, they may choose to allocate the foreign source income or the foreign expenditure to the income year referred to in subsection (1)(c).
How election made
(3)
The person makes the election by including the foreign source income or foreign expenditure in their return of income for the income year referred to in subsection (1)(c).
What election applies to
(4)
The election applies to all the person’s foreign source income and foreign expenditure to which subsection (1) applies, except for—
(a)
income or expenditure under the financial arrangements rules, unless the Commissioner notifies the person that the election can apply; or
(b)
dividends, unless the Commissioner notifies the person that the election can apply and the person is not a company; or
(c)
attributed controlled foreign company (CFC) income; or
(d)
foreign investment fund (FIF) income or income derived from an attributing interest; or
(e)
in the case of foreign expenditure, foreign expenditure that would be allowed as a deduction if the only income of the person were income to which paragraphs (a) to (d) apply.
Timing of income
(5)
The foreign source income and foreign expenditure to which the election applies is allocated to the income year referred to in subsection (1)(c).
Election treated as continuing
(6)
An election made by a person under subsection (2) applies for the income year referred to in subsection (1)(c) and all later income years, unless—
(a)
the person seeks the Commissioner’s agreement to revoke the election, and the Commissioner notifies them that they may revoke the election; or
(b)
the person’s net income for the relevant income year would be more than $100,000 if their only income in the income year were foreign source income.
Net income of more than $100,000
(7)
If subsection (6)(b) applies,—
(a)
foreign source income and foreign expenditure is allocated to the income year referred to in subsection (1)(c) only if it was derived or incurred in that year; and
(b)
foreign source income and foreign expenditure to which the election would have applied if subsection (6)(b) had not existed is allocated to the previous income year; and
(c)
if necessary, the previous tax year’s return is amended.
Factors considered
(8)
In deciding whether to agree to an election applying to income or expenditure under the financial arrangements rules or dividends, the Commissioner must consider—
(a)
whether the person is likely to incur significant compliance costs if the Commissioner does not agree to the election; and
(b)
the risk to the revenue if the Commissioner agrees to the election; and
(c)
any other factors the Commissioner considers relevant.
Person ceasing to be, or becoming, resident
(9)
If the person ceases to be, or becomes, resident in New Zealand, this section applies in the same way as for other persons except that—
(a)
it does not apply to income or expenditure that is allocated, other than under this section, to a period when the person is not resident in New Zealand; and
(b)
if it allocates foreign source income derived or foreign expenditure incurred while the person is resident in New Zealand to a period after the person has ceased to be resident in New Zealand,—
(i)
the foreign source income is assessable income in the income year in which the foreign source income is allocated under this section, despite section BD 1(5)(c) (Income, exempt income, excluded income, non-residents’ foreign-sourced income, and assessable income); and
(ii)
the foreign expenditure is allowed as a deduction in the income year to which the foreign expenditure is allocated under this section.
Some definitions
(10)
In this section,—
annual income tax balance date includes a date that is substantially equivalent to an annual income tax balance date
foreign expenditure means expenditure that is incurred in deriving foreign source income
foreign source income means income that does not have a source in New Zealand and that is not exempt income.
Defined in this Act: annual income tax balance date, assessable income, attributed CFC income, attributing interest, Commissioner, company, deduction, dividend, exempt income, FIF income, financial arrangements rules, foreign expenditure, foreign source income, income, income tax, income year, net income, notify, pay, resident in New Zealand, return of income, source in New Zealand, tax year
Compare: 2004 No 35 s EG 1
Section EG 1(4)(a): amended, on 2 June 2016, by section 16(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EG 1(4)(b): amended, on 2 June 2016, by section 16(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EG 1(6): amended (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 30 June 2014, by section 69(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EG 1(6)(a): replaced, on 2 June 2016, by section 16(3) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EG 1(10) foreign source income: amended, on 21 December 2010, by section 55(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EG 1 list of defined terms derived from New Zealand: repealed, on 21 December 2010, by section 55(2)(a) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EG 1 list of defined terms notify: inserted, on 2 June 2016, by section 16(4) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EG 1 list of defined terms source in New Zealand: inserted, on 21 December 2010, by section 55(2)(b) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
EG 2 Adjustment for changes to accounting practice
When this section applies
(1)
This section applies in an income year (the year of change) when a person changes from—
(a)
a cash accounting method to an accrual accounting method of calculating their income tax liability; or
(b)
an accrual accounting method to a cash accounting method of calculating their income tax liability.
From cash to accrual accounting method
(2)
If subsection (1)(a) applies,—
(a)
an amount owed to the person on the last day of the income year before the year of change is income of the person in the year of change; and
(b)
an amount owed by the person on the last day of the income year before the year of change is allowed as a deduction in the year of change.
From accrual to cash accounting method
(3)
If subsection (1)(b) applies,—
(a)
an amount equal to the total of all amounts owing by the person in the year of change that have been allowed as a deduction in earlier income years is income of the person in the year of change; and
(b)
an amount equal to the total of all amounts owing to the person in the year of change that have been treated as income of the person in earlier income years is allowed as a deduction in the year of change.
Some definitions
(4)
In this section,—
accrual accounting method means a method of accounting that is regarded as accrual accounting under generally accepted accounting practice
cash accounting method means a method of accounting by which the income tax liability of a person is calculated by reference to cash receipts or outgoings.
Defined in this Act: accrual accounting method, amount, cash accounting method, deduction, generally accepted accounting practice, income, income tax liability, income year
Compare: 2004 No 35 s EG 2
EG 3 Allocation of income, deductions, and tax credits by portfolio tax rate entity
[Repealed]Section EG 3: repealed, on 1 April 2010 (applying for the 2010–11 and later income years), by section 122(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Subpart EH—Income equalisation schemes
Contents
Introductory provisions
EH 1 Income equalisation schemes
Description
(1)
An income equalisation scheme allows a person to reduce their net income for a tax year by making a deposit with the Commissioner for the corresponding income year.
Two schemes
(2)
The 2 income equalisation schemes are—
(a)
the main income equalisation scheme, described in sections EH 3 to EH 36 and EZ 80:
(b)
[Repealed](c)
the thinning operations income equalisation scheme, described in sections EH 63 to EH 79.
Meaning of terms
(3)
Terms used in the 2 schemes are defined as follows:
(a)
terms used specifically in the main income equalisation scheme are defined in sections EH 34 to EH 36:
(b)
[Repealed](c)
terms used specifically in the thinning operations income equalisation scheme are defined in sections EH 78 and EH 79.
Defined in this Act: adverse event income equalisation scheme, Commissioner, corresponding income year, deposit, income, main income equalisation scheme, net income, person, tax year, thinning operations income equalisation scheme
Compare: 2004 No 35 s EH 1
Section EH 1(2) heading: amended, on 18 March 2019, by section 166(1) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EH 1(2): amended (with effect on 18 March 2019), on 26 June 2019, by section 61 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EH 1(2)(a): amended (with effect on 1 April 2017), on 30 March 2021, by section 36(1) (and see section 36(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section EH 1(2)(b): repealed, on 18 March 2019, by section 166(2) (and see section 166(5) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EH 1(3): amended, on 18 March 2019, by section 166(3) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EH 1(3)(b): repealed, on 18 March 2019, by section 166(4) (and see section 166(5) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EH 2 Deposits to be paid into Crown Bank Account
Every deposit a person makes with the Commissioner under a scheme referred to in section EH 1(2)—
(a)
is public money; and
(b)
must be paid into a Crown Bank Account.
Defined in this Act: Commissioner, deposit, pay, person
Section EH 2: replaced, on 30 March 2022, by section 83 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Main income equalisation scheme
Application
EH 3 Persons to whom main income equalisation scheme applies
Meaning of farmer, fisher, and forester for main income equalisation scheme
(1)
The main income equalisation scheme applies to—
(a)
a farmer, which means a person carrying on a farming or agricultural business on land in New Zealand; or
(b)
a fisher, which means a person carrying on a fishing business; or
(c)
a forester, which means a person who—
(i)
derives income from forestry; and
(ii)
is not a company, a public authority, a Maori authority, or an unincorporated body.
Meaning of person for main income equalisation scheme
(2)
In the main income equalisation scheme, person means a farmer, fisher, or forester.
Defined in this Act: business, company, farmer, fisher, fishing business, forester, income from forestry, main income equalisation scheme, Maori authority, New Zealand, person, public authority
Compare: 2004 No 35 s EH 3
Deposits and accounts
EH 4 Main deposit
Deposit for business or forestry
(1)
A person may make a payment to the Commissioner for entry in their main income equalisation account for an accounting year as follows:
(a)
a farmer may make a payment for the farmer’s farming or agricultural business:
(b)
a fisher may make a payment for the fisher’s fishing business:
(c)
a forester may make a payment for the forester’s income from forestry.
Upper limit of deposit
(2)
A person must not make, for an accounting year, deposits that in total are more than their main maximum deposit for the tax year.
Lower limit of deposit
(3)
A person must not make, for an accounting year, a deposit less than the lesser of—
(a)
$200; and
(b)
the difference between—
(i)
the total of the deposits the person has previously made for the accounting year; and
(ii)
the person’s main maximum deposit for the accounting year.
Time of making deposit
(4)
A person makes a deposit for an accounting year by—
(a)
making the deposit during the accounting year; or
(b)
doing both the following:
(i)
making the deposit during the specified period for the accounting year; and
(ii)
at the time of making it, giving the Commissioner notice that the deposit is for the accounting year; or
(c)
doing both the following:
(i)
making the deposit within a time that is after the end of the specified period for the accounting year but that is allowed by the Commissioner in a case or class of cases; and
(ii)
at the time of making it, giving the Commissioner notice that the deposit is for the accounting year.
Limit on making deposit
(5)
If a refund has been made to a person for an accounting year under section EH 13 or EH 15, the person may later make a deposit for that accounting year only if the Commissioner is satisfied, before the deposit is made, that all the refund has been used to develop or expand a farmer’s business, if the person is a farmer, or a fishing business, if the person is a fisher, or the means by which a forester derives income from forestry, if the person is a forester, or has been used for the purpose stated in section EH 15(3)(a) for which the refund was made.
Defined in this Act: accounting year, business, Commissioner, deposit, farmer, fisher, fishing business, forester, income from forestry, main deposit, main income equalisation account, main maximum deposit, notice, pay, person, specified period
Compare: 2004 No 35 s EH 4
Section EH 4(5): amended, on 18 March 2019, by section 167(1) (and see section 167(2) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EH 5 Main income equalisation account
Person’s account
(1)
The Commissioner must keep a main income equalisation account in the name of every person who makes a deposit with the Commissioner.
Deposits in account
(2)
Every deposit a person makes with the Commissioner must be entered in the person’s main income equalisation account.
Amounts in accounts
(3)
The only amounts that may be entered in a person’s main income equalisation account are—
(a)
deposits made by the person with the Commissioner; and
(b)
interest paid under section EH 6.
Amounts not available to others
(4)
Despite section FC 2 (Transfer at market value), amounts entered in a person’s main income equalisation account must not, while they are in the account,—
(a)
be assigned or charged in any way; or
(b)
pass by operation of law to, or into the custody or control of, someone else, except when the person is bankrupt or has been put into liquidation; or
(c)
be assets for the payment of the person’s debts or liabilities, except when the person is bankrupt or has been put into liquidation; or
(d)
be assets for the payment of the debts or liabilities of a dead person’s estate.
Amounts available only for refunds
Defined in this Act: amount, Commissioner, deposit, interest, liquidation, main income equalisation account, pay, person
Compare: 2004 No 35 s EH 5
Section EH 5(5): amended, on 30 March 2021, by section 37 of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Interest
EH 6 Interest on deposits in main income equalisation account
No interest payable
(1)
No interest is payable on a deposit in a main income equalisation account that is refunded within 1 year of the date of deposit.
Interest payable
(2)
Interest is payable on every other deposit in a main income equalisation account.
Period
(3)
Interest is computed with daily rests from the date of acknowledgment of the receipt of the deposit until the date the deposit is refunded.
Date to which accrues
(4)
Interest on a deposit accrues until the earlier of—
(a)
31 March in each year; and
(b)
the date the deposit is refunded.
Added to deposit
(5)
Accrued interest on a deposit is added to the deposit.
Rate
(6)
The interest rate is 3% a year.
Defined in this Act: deposit, interest, main income equalisation account, pay, year
Compare: 2004 No 35 s EH 6
Deduction
EH 7 Deduction of deposit
When this section applies
(1)
This section applies when a person is allowed a deduction under section DQ 1 (Main income equalisation scheme).
Amount of deduction
(2)
The amount of the deduction is the lesser of—
(a)
the total of the person’s deposits for the accounting year; and
(b)
their main maximum deposit for the accounting year.
Timing of deduction
(3)
The person is allowed the deduction in the accounting year.
Defined in this Act: accounting year, amount, corresponding income year, deduction, deposit, main maximum deposit, person
Compare: 2004 No 35 s EH 7
Refunds: automatic
EH 8 Refund of excess deposit
When this section applies
(1)
This section applies when a person’s deposits for an accounting year are more than their main maximum deposit for the accounting year.
Refund
(2)
The Commissioner must refund the excess to the person as soon as practicable after the date the deposit ends.
Defined in this Act: accounting year, Commissioner, date the deposit ends, deposit, main maximum deposit, person
Compare: 2004 No 35 s EH 8
EH 9 Income does not include excess deposit
A refund under section EH 8 is excluded income under section CX 51 (Income equalisation schemes).
Defined in this Act: excluded income
Compare: 2004 No 35 s EH 9
EH 10 Refund at end of 5 years
When this section applies
(1)
This section applies when a deposit is in a person’s main income equalisation account at the end of 5 years after the end of the accounting year for which the deposit was made.
Refund
(2)
The Commissioner must refund the deposit to the person. Section EH 28 overrides this subsection.
Defined in this Act: accounting year, Commissioner, deposit, main income equalisation account, person, year
Compare: 2004 No 35 s EH 10
EH 11 Income when refund given at end of 5 years
A refund under section EH 10 is income, under section CB 27 (Income equalisation schemes), derived by the person and is allocated to the income year in which the refund is given.
Defined in this Act: income, income year, person
Compare: 2004 No 35 s EH 11
Refunds: on application
EH 12 Application for refund by person, trustee of estate, Official Assignee, or liquidator
Who may apply
(1)
The following may apply to the Commissioner for a refund of some or all of the amount in a person’s main income equalisation account:
(a)
the person may apply under section EH 13, EH 15, or EH 17:
(b)
the trustee of the person’s estate may apply under section EH 19:
(c)
the Official Assignee having charge of the person’s estate may apply under section EH 23:
(d)
the liquidator appointed for the person may apply under section EH 25.
Application
(2)
An application for a refund must—
(a)
[Repealed](b)
state the grounds on which it is made; and
(c)
state the amount applied for.
Defined in this Act: amount, apply, Commissioner, liquidation, main income equalisation account, person, trustee
Compare: 2004 No 35 s EH 12
Section EH 12(2)(a): repealed, on 2 June 2016, by section 17(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EH 12 list of defined terms apply: inserted, on 2 June 2016, by section 17(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
EH 13 Refund on application
When this section applies
(1)
Refund
(2)
The Commissioner must refund to the person the amount applied for, to the extent to which it can be made up of 1 or more deposits that have been in the person’s main income equalisation account for at least 1 year before the date the deposit ends. Section EH 28 overrides this subsection.
Defined in this Act: amount, apply, Commissioner, date the deposit ends, deposit, main income equalisation account, person, year
Compare: 2004 No 35 s EH 13
Section EH 13 heading: amended, on 2 June 2016, by section 18(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EH 13(1): amended, on 30 March 2021, by section 38 of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section EH 13 list of defined terms apply: inserted, on 2 June 2016, by section 18(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
EH 14 Income when refund given on application
Year of income
(1)
A refund under section EH 13 is income, under section CB 27 (Income equalisation schemes), derived by the person and is allocated to the income year in which the Commissioner receives the application for the refund.
When year of income may be different
(2)
However, subsection (3) applies instead of subsection (1) if—
(a)
the Commissioner receives the application for a refund in the specified period for an accounting year or, if the Commissioner allows in a case or class of cases, within a longer period; and
(b)
the person chooses in the application that the refund is to be income in the accounting year to which the specified period or the longer period relates.
Different year of income
(3)
The refund is income, under section CB 27, and is allocated to the income year to which the specified period or the longer period relates.
Defined in this Act: accounting year, apply, Commissioner, income, income year, person, specified period
Compare: 2004 No 35 s EH 14
Section EH 14 heading: amended, on 2 June 2016, by section 19(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EH 14 list of defined terms apply: inserted, on 2 June 2016, by section 19(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
EH 15 Refund for development or recovery
Refund for development: application of subsection (2)
(1)
Subsection (2) applies when a person wants a refund of some or all of the amount in their main income equalisation account for either or both of the following purposes:
(a)
to enable them to undertake, immediately after the refund is given, planned development or maintenance work for their farming or agricultural business, fishing business, or forestry operation:
(b)
to enable them to buy, immediately after the refund is given, livestock for use in their farming business, other than livestock replacing livestock disposed of or lost as a result of a self-assessed adverse event.
Refund
(2)
If the Commissioner is satisfied that the person will use the refund for either or both of the purposes, the Commissioner must refund to them the amount applied for, to the extent to which it can be made up of 1 or more deposits that have been in their main income equalisation account for at least 6 months before the date the deposit ends. Section EH 28 overrides this subsection.
Refund for recovery: application of subsection (4)
(3)
Subsection (4) applies when a person wants a refund of some or all of the amount in their main income equalisation account for 1 or more of the following purposes:
(a)
to enable them to buy, immediately after the refund is given, livestock for use in their farming business to replace livestock disposed of or lost as a result of a self-assessed adverse event:
(b)
to avoid them suffering serious hardship:
(c)
to do anything else that the Commissioner determines, in a case or class of cases, is a purpose for which a refund should be given.
Refund
(4)
If the Commissioner is satisfied that the person will use the refund for 1 or more of the purposes, the Commissioner must refund to them the amount applied for, regardless of the length of time it has been in the account. Section EH 28 overrides this subsection.
Defined in this Act: amount, apply, business, Commissioner, date the deposit ends, deposit, fishing business, main income equalisation account, person, self-assessed adverse event
Compare: 2004 No 35 s EH 15
Section EH 15 list of defined terms apply: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
EH 16 Income when refund given for development or recovery
Year of income
(1)
A refund under section EH 15 is income, under section CB 27 (Income equalisation schemes), derived by the person in the income year in which the Commissioner receives the application for the refund.
When year of income may be different
(2)
However, subsection (3) applies instead of subsection (1) if—
(a)
the Commissioner receives the application for a refund in the specified period for an accounting year or, if the Commissioner allows in a case or class of cases, within a longer period; and
(b)
the person chooses in the application that the refund is to be income in the accounting year to which the specified period or the longer period relates.
Different year of income
(3)
The refund is income, under section CB 27, and is allocated to the income year to which the specified period or the longer period relates.
Defined in this Act: accounting year, apply, Commissioner, income, income year, person, specified period
Compare: 2004 No 35 s EH 16
Section EH 16 list of defined terms apply: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
EH 17 Refund on retirement
When this section applies
(1)
This section applies when a farmer or a fisher—
(a)
has a main income equalisation account; and
(b)
is neither a company nor a trustee; and
(c)
retires from the farming or agricultural business or the fishing business.
Refund
(2)
The Commissioner must refund to the person the amount that, on the date the deposit ends, is in their main income equalisation account, regardless of the length of time it has been in the account. Section EH 28 overrides this subsection.
Defined in this Act: amount, business, Commissioner, company, date the deposit ends, farmer, fisher, fishing business, main income equalisation account, person, trustee
Compare: 2004 No 35 s EH 17
EH 18 Income when refund given on retirement, and election to allocate amount to earlier year
Year of income
(1)
A refund under section EH 17 is income, under section CB 27 (Income equalisation schemes), derived by the person in the income year in which they retire.
When year of income may be different
(2)
However, subsection (3) applies instead of subsection (1) if—
(a)
the refund includes a deposit made for an accounting year earlier than the tax year in which the person retires; and
(b)
the person chooses to allocate some or all of the deposit to the earlier accounting year.
Different year of income
(3)
The amount allocated by the person to the earlier accounting year is income, under section CB 27, derived by them in the corresponding income year.
How election made
(4)
A person makes an election under this section by giving the Commissioner notice within 1 of the following times:
(a)
the time within which the person is required to file a return of income for the tax year corresponding to the accounting year in which they retire:
(b)
a further time allowed by the Commissioner in a case or class of cases.
Defined in this Act: accounting year, amount, Commissioner, corresponding income year, deposit, income, income year, notice, person, return of income, tax year
Compare: 2004 No 35 s EH 18
EH 19 Refund on death
When this section applies
(1)
This section applies when a person—
(a)
has a main income equalisation account; and
(b)
dies.
Refund
(2)
Despite section FC 2 (Transfer at market value), the Commissioner must refund to the trustee of the person’s estate the amount that, on the date the deposit ends, is in the person’s main income equalisation account, regardless of the length of time it has been in the account. Section EH 28 overrides this subsection.
Defined in this Act: amount, Commissioner, date the deposit ends, main income equalisation account, person, trustee
Compare: 2004 No 35 s EH 19
EH 20 Income when refund given on death
Year of income
(1)
A refund under section EH 19 is income, under section CB 27 (Income equalisation schemes), derived by the person immediately before their death.
When year of income may be different
(2)
However, section EH 21 or EH 22 applies instead of subsection (1) if the circumstances described in section EH 21(1) or EH 22(1) apply in the person’s case.
Defined in this Act: income, person
Compare: 2004 No 35 s EH 20
EH 21 Income when refund given on death, and election to allocate amount to earlier year
When this section applies
(1)
This section applies when—
(a)
a refund under section EH 19 includes a deposit made for an accounting year earlier than the accounting year in which the person dies; and
(b)
the trustee of the person’s estate chooses to allocate some or all of the deposit to the earlier accounting year.
Different year of income
(2)
The amount allocated by the trustee to the earlier accounting year is income, under section CB 27 (Income equalisation schemes), derived by the person in the corresponding income year.
How election made
(3)
A trustee makes an election under this section by giving the Commissioner notice within 1 of the following times:
(a)
the time within which the trustee is required to file a return of the person’s income for the period to the date of the person’s death:
(b)
a further time allowed by the Commissioner in a case or class of cases.
Defined in this Act: accounting year, amount, Commissioner, corresponding income year, deposit, income, notice, person, return of income, trustee
Compare: 2004 No 35 s EH 21
EH 22 Income when refund given on death, and election to allocate amount to later year or years
When this section applies
(1)
This section applies when—
(a)
the trustee of the person’s estate does not make an election under section EH 21; and
(b)
the trustee chooses to allocate some or all of the amount that is in the person’s main income equalisation account on the date of the person’s death to an accounting year or years after that date.
Accounting year or years referred to in subsection (1)(b)
(2)
The accounting year or years referred to in subsection (1)(b) must be within the earlier of—
(a)
the 3 years after the date of the person’s death; and
(b)
the 5 years after the end of the accounting year for which a deposit or a part of a deposit was made, if the amount that the trustee allocates to a later accounting year or years includes the deposit or part of it.
Allocated amount remains in account
(3)
An amount allocated by the trustee to a later accounting year remains in the person’s main income equalisation account until—
(a)
it is refunded to the trustee in the accounting year to which it is allocated; or
(b)
it is not refunded because of the application of section EH 28.
Different year of income
(4)
An amount allocated by the trustee to a later accounting year is income, under section CB 27 (Income equalisation schemes), derived by the person in the corresponding accounting year.
How election made
(5)
A trustee makes an election under this section by a notice that—
(a)
specifies—
(i)
each amount allocated to a later accounting year; and
(ii)
the accounting year to which each amount is allocated; and
(b)
is given to the Commissioner within 1 of the following times:
(i)
the time within which the trustee is required to file a return of the person’s income for the period to the date of the person’s death:
(ii)
a further time allowed by the Commissioner in a case or class of cases.
Defined in this Act: accounting year, amount, Commissioner, corresponding income year, deposit, income, main income equalisation account, notice, person, return of income, trustee, year
Compare: 2004 No 35 s EH 22
EH 23 Refund on bankruptcy
When this section applies
(1)
This section applies when a person—
(a)
has a main income equalisation account; and
(b)
is bankrupt.
Refund
(2)
The Commissioner must refund to the Official Assignee having charge of the person’s estate the amount that, on the date the deposit ends, is in the person’s main income equalisation account, regardless of the length of time it has been in the account. Section EH 28 overrides this subsection.
Defined in this Act: amount, Commissioner, date the deposit ends, main income equalisation account, person
Compare: 2004 No 35 s EH 23
EH 24 Income when refund given on bankruptcy
A refund under section EH 23 is income, under section CB 27 (Income equalisation schemes), derived by the person immediately before the bankruptcy starts.
Defined in this Act: income, person
Compare: 2004 No 35 s EH 24
EH 25 Refund on liquidation
When this section applies
(1)
This section applies when a person—
(a)
has a main income equalisation account; and
(b)
is put into liquidation.
Refund
(2)
The Commissioner must refund to the liquidator appointed for the person the amount that, on the date the deposit ends, is in the person’s main income equalisation account, regardless of the length of time it has been in the account. Section EH 28 overrides this subsection.
Defined in this Act: amount, Commissioner, date the deposit ends, liquidation, main income equalisation account, person
Compare: 2004 No 35 s EH 25
EH 26 Income when refund given on liquidation
A refund under section EH 25 is income, under section CB 27 (Income equalisation schemes), derived by the person immediately before the liquidation starts.
Defined in this Act: income, liquidation, person
Compare: 2004 No 35 s EH 26
Refunds: general provisions
EH 27 Amendment of assessment
Despite the time bar, the Commissioner may amend an assessment at any time in order to give effect to section EH 18 or EH 21 or EH 22.
Defined in this Act: assessment, Commissioner, time bar
Compare: 2004 No 35 s EH 27
EH 28 Minimum refund
Defined in this Act: Commissioner, date the deposit ends, main income equalisation account, person
Compare: 2004 No 35 s EH 28
EH 29 Deposits from which refunds come
Each refund a person is given is treated as coming from the total amount of their deposits in the order in which the person made the deposits.
Defined in this Act: amount, deposit, person
Compare: 2004 No 35 s EH 29
Tax credit
EH 30 When person entitled to tax credit
A person who is given a refund is entitled to a tax credit if—
(a)
the refund is of the kind and amount described in section EH 31; and
(b)
the person is of the kind described in section EH 32.
Defined in this Act: amount, person
Compare: 2004 No 35 s EH 30
EH 31 Kind and amount of refund that entitles person to tax credit
Kind
(1)
A refund that entitles a person to a tax credit is 1 to which both the following apply:
(a)
(b)
the refund does not come from a deposit made for the accounting year in which the refund is given; if the refund comes in part from a deposit made for the accounting year in which the refund is given and in part from a deposit made for some other accounting year, the refund that entitles the person to a tax credit is the part coming from the deposit for some other accounting year.
Amount
(2)
Once a refund qualifies under subsection (1) as a refund that entitles a person to a tax credit, the amount of the refund is the lesser of the following:
(a)
(b)
the total of the amounts by which the person’s income was reduced in 1 or more earlier accounting years by subtracting the deposit or deposits or parts of deposits from which the refund comes.
Defined in this Act: accounting year, amount, deposit, income, income tax, person, tax credit
Compare: 2004 No 35 s EH 31
EH 32 Kind of person entitled to tax credit
A person in the following circumstances is entitled to a tax credit:
(a)
the person’s income in the accounting year in question includes a refund of the kind described in section EH 31(1) and of the amount described in section EH 31(2); and
(b)
because of the refund, the person’s income tax liability for the tax year corresponding to the accounting year is increased; and
(c)
the amount by which the person’s income tax liability for the corresponding tax year is increased because of the refund (the extra tax) is more than the total of the amounts by which the person’s income tax liability for an earlier tax year or years was decreased because of the subtraction of the deposit or deposits or parts of deposits from which the refund comes (the tax saving).
Defined in this Act: accounting year, amount, deposit, income, income tax, income tax liability, person, tax credit, tax year
Compare: 2004 No 35 s EH 32
EH 33 Amount of tax credit
The amount of a tax credit to which a person is entitled under section EH 30 is the amount by which the extra tax, as described in section EH 32(c), is more than the tax saving, as described in section EH 32(c).
Defined in this Act: amount, income tax, tax credit
Compare: 2004 No 35 s EH 33
Definitions
EH 34 Meaning of income from forestry
Income
(1)
Income from forestry—
(a)
means income derived from either or both of the disposals described in subsection (2) in the circumstances described in subsection (3):
(b)
includes permanent forestry income.
Disposals
(2)
The disposals are—
(a)
the disposal of timber:
(b)
the disposal of a right to cut or remove timber.
Circumstances
(3)
The circumstances are—
(a)
the income is derived by a person who is the owner of land in New Zealand on which timber is grown, not including a person whose interest in the land is that of a licensee; and
(b)
the timber the subject of the disposal is standing or cut or fallen timber in its natural state grown on the land.
Defined in this Act: income, income from forestry, New Zealand, own, permanent forestry income, person, timber
Compare: 2004 No 35 s EH 34
Section EH 34(1): substituted (with effect on 1 April 2008), on 7 December 2009, by section 18(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EH 34(1)(a): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EH 34(1)(b): replaced, on 23 June 2020, by section 279 of the Climate Change Response (Emissions Trading Reform) Amendment Act 2020 (2020 No 22).
Section EH 34(2) heading: replaced (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EH 34(2): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EH 34(2)(a): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EH 34(2)(b): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EH 34(3)(b): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EH 34 list of defined terms permanent forestry income: inserted, on 23 June 2020, by section 279 of the Climate Change Response (Emissions Trading Reform) Amendment Act 2020 (2020 No 22).
Section EH 34 list of defined terms PFSI forestry income: repealed, on 23 June 2020, by section 279 of the Climate Change Response (Emissions Trading Reform) Amendment Act 2020 (2020 No 22).
EH 35 Meaning of main maximum deposit
Meaning
(1)
Main maximum deposit means the maximum deposit that this section says a person may make to their main income equalisation account for an accounting year.
Meaning of amount
(2)
In subsections (3) to (5), amount means an amount calculated without applying—
(a)
any provision, other than section EZ 4B (Cattle destroyed because of Mycoplasma bovis: spreading), allocating income derived or expenditure incurred to an income year other than the corresponding income year in which the income was in fact derived or the expenditure was in fact incurred; or
(b)
any provision of any of the income equalisation schemes referred to in section EH 1(2).
Maximum deposit of farmer
(3)
The maximum deposit that a farmer may make is—
(a)
the amount determined by an Order in Council made under subsection (6); or
(b)
if no order is in force, an amount equal to the net income that the farmer would have in the tax year corresponding to the accounting year if—
(i)
the farmer derived income only from the farming or agricultural business in the accounting year; and
(ii)
[Repealed]Maximum deposit of fisher
(4)
The maximum deposit that a fisher may make is an amount equal to the net income that the fisher would have in the tax year corresponding to the accounting year if the fisher derived income only from the fishing business in the accounting year.
Maximum deposit of forester
(5)
The maximum deposit that a forester may make is an amount equal to the net income that the forester would have in the tax year corresponding to the accounting year if the forester derived only income from forestry in the accounting year.
Order in Council relating to farmers
(6)
The Governor-General may make an Order in Council declaring that the maximum deposit a farmer may make for an accounting year or for every accounting year is—
(a)
an amount calculated in the manner specified in the order; or
(b)
an unlimited amount.
Secondary legislation
(7)
An Order in Council under subsection (6) is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements).
Defined in this Act: accounting year, amount, business, corresponding income year, deposit, farmer, fisher, fishing business, forester, income, main income equalisation account, main maximum deposit, net income, income year, pay, person, tax year
Compare: 2004 No 35 s EH 35
| Legislation Act 2019 requirements for secondary legislation made under this section | ||||
| Publication | PCO must publish it on the legislation website and notify it in the Gazette | LA19 s 69(1)(c) | ||
| Presentation | The Minister must present it to the House of Representatives | LA19 s 114, Sch 1 cl 32(1)(a) | ||
| Disallowance | It may be disallowed by the House of Representatives | LA19 ss 115, 116 | ||
| This note is not part of the Act. | ||||
Section EH 35(2)(a): amended (with effect on 1 April 2017), on 30 March 2021, by section 39(1) (and see section 39(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section EH 35(3)(b)(ii): repealed, on 18 March 2019, by section 168(1) (and see section 168(2) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EH 35(7) heading: inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
Section EH 35(7): inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
EH 36 Other definitions
In the main income equalisation scheme,—
date the deposit ends means—
(a)
the date on which the refund is calculated, when section EH 8 applies:
(b)
the date that is 5 years after the end of the accounting year for which the deposit was made, when section EH 10 applies:
(c)
the date on which the Commissioner receives the application for the refund, when section EH 13 or EH 15 applies:
(d)
the date of the person’s retirement, when section EH 17 applies:
(e)
the date of the person’s death, when section EH 19 applies:
(f)
the date on which the Commissioner receives notice of the adjudication, when section EH 23 applies:
(g)
the date on which the Commissioner receives notice of the liquidation, when section EH 25 applies
deposit—
(a)
means a main deposit; and
(b)
includes, for the purposes of sections EH 6(2) to (4), EH 10 to EH 33, and EZ 80(3) and (7)(b), interest that is added to a main deposit under section EH 6(5)
fishing business includes a business of—
(a)
fish farming under a licence issued under the Freshwater Fish Farming Regulations 1983:
(b)
mussel farming:
(c)
rock oyster farming
main deposit means a payment made to the Commissioner under section EH 4(1)
main income equalisation account, for a person, means the account that the Commissioner keeps in the person’s name under section EH 5
specified period, for a person’s tax year, means the shorter of—
(a)
the period of 6 months after the end of the accounting year that corresponds to the tax year; and
(b)
the period from the end of the accounting year that corresponds to the tax year to the date 1 month after the date by which the person must, under section 37 of the Tax Administration Act 1994, file their return of income for the accounting year that corresponds to the tax year.
Defined in this Act: accounting year, apply, business, Commissioner, date the deposit ends, deposit, fishing business, interest, liquidation, main deposit, main income equalisation account, main income equalisation scheme, pay, person, return of income, specified period, tax year, year
Compare: 2004 No 35 s EH 37
Section EH 36 deposit paragraph (b): amended, on 30 March 2021, by section 40 of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section EH 36 list of defined terms apply: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Adverse event income equalisation scheme[Repealed]
Heading: repealed, on 18 March 2019, by section 169(1) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Application[Repealed]
Heading: repealed, on 18 March 2019, by section 169(1) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EH 37 Persons to whom adverse event income equalisation scheme applies
[Repealed]Section EH 37: repealed, on 18 March 2019, by section 169(2) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Deposits and accounts[Repealed]
Heading: repealed, on 18 March 2019, by section 169(2) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EH 38 Adverse event deposit
[Repealed]Section EH 38: repealed, on 18 March 2019, by section 169(3) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EH 39 Adverse event income equalisation account
[Repealed]Section EH 39: repealed, on 18 March 2019, by section 169(3) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Interest[Repealed]
Heading: repealed, on 18 March 2019, by section 169(3) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EH 40 Interest on deposits in adverse event income equalisation account
[Repealed]EH 40: repealed, on 18 March 2019, by section 169(4) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Deduction[Repealed]
Heading: repealed, on 18 March 2019, by section 169(4) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EH 41 Deduction of deposit
[Repealed]Section EH 41: repealed, on 18 March 2019, by section 169(5) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Refunds: automatic[Repealed]
Heading: repealed, on 18 March 2019, by section 169(5) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EH 42 Refund of excess deposit
[Repealed]Section EH 42: repealed, on 18 March 2019, by section 169(6) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EH 43 Income does not include excess deposit
[Repealed]Section EH 43: repealed, on 18 March 2019, by section 169(6) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Refunds: on application[Repealed]
Heading: repealed, on 18 March 2019, by section 169(6) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EH 44 Application for refund by person, trustee of estate, Official Assignee, or liquidator
[Repealed]Section EH 44: repealed, on 18 March 2019, by section 169(7) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EH 45 Refund on application
[Repealed]Section EH 45: repealed, on 18 March 2019, by section 169(7) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EH 46 Income when refund given on application
[Repealed]Section EH 46: repealed, on 18 March 2019, by section 169(7) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EH 47 Refund on retirement
[Repealed]Section EH 47: repealed, on 18 March 2019, by section 169(7) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EH 48 Income when refund given on retirement, and election to allocate amount to earlier year
[Repealed]Section EH 48: repealed, on 18 March 2019, by section 169(7) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EH 49 Refund on death
[Repealed]Section EH 49: repealed, on 18 March 2019, by section 169(7) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EH 50 Income when refund given on death
[Repealed]Section EH 50: repealed, on 18 March 2019, by section 169(7) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EH 51 Income when refund given on death, and election to allocate amount to earlier year
[Repealed]Section EH 51: repealed, on 18 March 2019, by section 169(7) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EH 52 Income when refund given on death, and election to allocate amount to later year or years
[Repealed]Section EH 52: repealed, on 18 March 2019, by section 169(7) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EH 53 Refund on bankruptcy
[Repealed]Section EH 53: repealed, on 18 March 2019, by section 169(7) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EH 54 Income when refund given on bankruptcy
[Repealed]Section EH 54: repealed, on 18 March 2019, by section 169(7) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EH 55 Refund on liquidation
[Repealed]Section EH 55: repealed, on 18 March 2019, by section 169(7) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EH 56 Income when refund given on liquidation
[Repealed]Section EH 56: repealed, on 18 March 2019, by section 169(7) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Refunds: general provisions[Repealed]
Heading: repealed, on 18 March 2019, by section 169(7) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EH 57 Amendment of assessment
[Repealed]Section EH 57: repealed, on 18 March 2019, by section 169(8) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EH 58 Minimum refund
[Repealed]Section EH 58: repealed, on 18 March 2019, by section 169(8) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EH 59 Deposits from which refunds come
[Repealed]Section EH 59: repealed, on 18 March 2019, by section 169(8) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Transfers[Repealed]
Heading: repealed, on 18 March 2019, by section 169(8) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EH 60 Transfer of deposit
[Repealed]Section EH 60: repealed, on 18 March 2019, by section 169(9) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Definitions[Repealed]
Heading: repealed, on 18 March 2019, by section 169(9) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EH 61 Meaning of adverse event maximum deposit
[Repealed]Section EH 61: repealed, on 18 March 2019, by section 169(10) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EH 61(3): amended (with effect on 1 April 2017), on 30 March 2021, by section 41 (and see section 41(3) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
EH 62 Other definitions
[Repealed]Section EH 62: repealed, on 18 March 2019, by section 169(10) (and see section 169(11) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Thinning operations income equalisation scheme
Application
EH 63 Persons to whom thinning operations income equalisation scheme applies
Person described
(1)
The thinning operations income equalisation scheme applies to a company that, in an accounting year,—
(a)
carries on a forestry business on land in New Zealand; and
(b)
derives income from carrying out thinning operations on the land.
Meaning of person for thinning operations income equalisation scheme
(2)
In the thinning operations income equalisation scheme, person means a person described in subsection (1).
Defined in this Act: accounting year, business, company, forestry business, income, New Zealand, person, thinning operations, thinning operations income equalisation scheme
Compare: 2004 No 35 s EH 65
Section EH 63 list of defined terms forestry business: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Deposits and accounts
EH 64 Thinning operations deposit
Deposit for thinning operations
(1)
A person may make a payment to the Commissioner for entry in their thinning operations income equalisation account for an accounting year in which they derive income from carrying out thinning operations.
Upper limit of deposit
(2)
A person must not make, for an accounting year, deposits that in total are more than their thinning operations maximum deposit for the accounting year.
Lower limit of deposit
(3)
A person must not make, for an accounting year, a deposit that is less than the lesser of—
(a)
$200; and
(b)
the difference between the total of all the deposits the person has previously made for the accounting year and their thinning operations maximum deposit for the accounting year.
Time of making deposit
(4)
A person makes a deposit for an accounting year by—
(a)
making the deposit during the accounting year; or
(b)
doing both the following:
(i)
making the deposit during the specified period for the accounting year; and
(ii)
at the time of making it, giving the Commissioner notice that the deposit is for the accounting year; or
(c)
doing both the following:
(i)
making the deposit within a time that is after the end of the specified period for the accounting year but that is allowed by the Commissioner in a case or class of cases; and
(ii)
at the time of making it, giving the Commissioner notice that the deposit is for the accounting year.
Limit on making deposit
(5)
If a refund has been made to a person for an accounting year under section EH 71 or EH 73, the person may later make a deposit for the accounting year only if the Commissioner is satisfied, before the deposit is made, that all the refund has been used to expand or develop the person’s business.
Defined in this Act: accounting year, business, Commissioner, deposit, income, notice, pay, person, specified period, thinning operations, thinning operations deposit, thinning operations income equalisation account, thinning operations maximum deposit
Compare: 2004 No 35 s EH 66
EH 65 Thinning operations income equalisation account
Person’s account
(1)
The Commissioner must keep a thinning operations income equalisation account in the name of every person that makes a deposit with the Commissioner.
Deposits in accounts
(2)
Every deposit a person makes with the Commissioner must be entered in their thinning operations income equalisation account.
Amounts in accounts
(3)
The only amounts that may be entered in a person’s thinning operations income equalisation account are—
(a)
deposits made by the person with the Commissioner; and
(b)
interest paid under section EH 66.
Amounts not available to others
(4)
Despite section FC 2 (Transfer at market value), amounts entered in a person’s thinning operations income equalisation account must not, while they are in the account,—
(a)
be assigned or charged in any way; or
(b)
pass by operation of law to, or into the custody or control of, someone else, except when the person has been put into liquidation; or
(c)
be assets for the payment of the person’s debts or liabilities, except when the person has been put into liquidation.
Amounts available only for refunds
Defined in this Act: amount, Commissioner, deposit, interest, liquidation, pay, person, thinning operations income equalisation account
Compare: 2004 No 35 s EH 67
Interest
EH 66 Interest on deposits in thinning operations income equalisation account
No interest payable
(1)
No interest is payable on a deposit in a thinning operations income equalisation account that is refunded within 1 year of the date of deposit.
Interest payable
(2)
Interest is payable on every other deposit in a thinning operations income equalisation account.
Period
(3)
Interest is computed with daily rests from the date of acknowledgment of the receipt of the deposit until the date the deposit is refunded.
Date to which interest accrues
(4)
Interest on a deposit accrues until the earlier of—
(a)
31 March in each year; and
(b)
the date the deposit is refunded.
Added to deposit
(5)
Accrued interest on a deposit is added to the deposit.
Rate
(6)
The interest rate is 3% a year.
Defined in this Act: deposit, interest, pay, thinning operations income equalisation account, year
Compare: 2004 No 35 s EH 68
Deductions
EH 67 Deduction of deposit
When this section applies
(1)
This section applies when a person is allowed a deduction under section DQ 3 (Thinning operations income equalisation scheme).
Amount of deduction
(2)
The amount of the deduction is the lesser of—
(a)
the total of the person’s deposits for the accounting year; and
(b)
their thinning operations maximum deposit for the accounting year.
Timing of deduction
(3)
The person is allowed the deduction in the accounting year.
Defined in this Act: accounting year, amount, deduction, deposit, person, thinning operations maximum deposit
Compare: 2004 No 35 s EH 69
Refunds: automatic
EH 68 Refund of excess deposit
When this section applies
(1)
This section applies when a person’s deposits for an accounting year are more than their thinning operations maximum deposit for the accounting year.
Refund
(2)
The Commissioner must refund the excess to the person as soon as practicable after the date the deposit ends.
Defined in this Act: accounting year, Commissioner, date the deposit ends, deposit, person, thinning operations maximum deposit
Compare: 2004 No 35 s EH 70
EH 69 Income does not include excess deposit
A refund under section EH 68 is excluded income under section CX 51 (Income equalisation schemes).
Defined in this Act: excluded income
Compare: 2004 No 35 s EH 71
Refunds: on application
EH 70 Application for refund by person or liquidator
Who may apply
(1)
The following may apply to the Commissioner for a refund of some or all of the amount in a person’s thinning operations income equalisation account:
(a)
the person may apply under section EH 71 or EH 73:
(b)
the liquidator appointed for the person may apply under section EH 75.
Application
(2)
An application for a refund must—
(a)
[Repealed](b)
state the grounds on which it is made; and
(c)
state the amount applied for.
Defined in this Act: amount, apply, Commissioner, liquidation, person, thinning operations income equalisation account
Compare: 2004 No 35 s EH 72
Section EH 70(2)(a): repealed, on 2 June 2016, by section 23(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EH 70 list of defined terms apply: inserted, on 2 June 2016, by section 23(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
EH 71 Refund on application
When this section applies
(1)
This section applies when a person wants a refund of some or all of the amount in the person’s thinning operations income equalisation account, and neither section EH 73 nor EH 75 applies.
Refund
(2)
The Commissioner must refund to the person the amount applied for, to the extent to which it can be made up of 1 or more deposits that have been in the person’s thinning operations income equalisation account for at least 1 year before the date the deposit ends.
Defined in this Act: amount, apply, Commissioner, date the deposit ends, deposit, person, thinning operations income equalisation account, year
Compare: 2004 No 35 s EH 73
Section EH 71 heading: amended, on 2 June 2016, by section 24(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EH 71 list of defined terms apply: inserted, on 2 June 2016, by section 24(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
EH 72 Income when refund given on application
Year of income
(1)
A refund under section EH 71 is income, under section CB 27 (Income equalisation schemes), derived by the person in the income year in which the Commissioner receives the application for the refund.
When year of income may be different
(2)
However, subsection (3) applies instead of subsection (1) if—
(a)
the Commissioner receives the application for a refund in the specified period for an accounting year or, if the Commissioner allows in a case or class of cases, within a longer period; and
(b)
the person chooses in the application that the refund is to be income in the accounting year to which the specified period or the longer period relates.
Different year of income
(3)
The refund is income under section CB 27 in the corresponding income year to which the specified period or the longer period relates.
Defined in this Act: accounting year, apply, Commissioner, corresponding income year, income, income year, person, specified period
Compare: 2004 No 35 s EH 74
Section EH 72 heading: amended, on 2 June 2016, by section 25(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EH 72 list of defined terms apply: inserted, on 2 June 2016, by section 25(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
EH 73 Refund for development or recovery
Refund for development: application of subsection (2)
(1)
Subsection (2) applies when a person wants a refund of some or all of the amount in their thinning operations income equalisation account for the purpose of enabling them to undertake, immediately after the refund is given, planned development or maintenance work for their forestry business.
Refund
(2)
If the Commissioner is satisfied that the person will use the refund for the purpose, the Commissioner must refund to them the amount applied for, to the extent to which it can be made up of 1 or more deposits that have been in the person’s thinning operations income equalisation account for at least 6 months before the date the deposit ends.
Refund for recovery: application of subsection (4)
(3)
Subsection (4) applies when a person wants a refund of some or all of the amount in their thinning operations income equalisation account for either or both of the following purposes:
(a)
to avoid them suffering serious hardship:
(b)
to do anything else that the Commissioner determines, in a case or class of cases, is a purpose for which a refund should be given.
Refund
(4)
If the Commissioner is satisfied that the person will use the refund for either or both of the purposes, the Commissioner must refund to them the amount applied for, regardless of the length of time it has been in the account.
Defined in this Act: amount, apply, business, Commissioner, date the deposit ends, deposit, forestry business, person, thinning operations income equalisation account
Compare: 2004 No 35 s EH 75
Section EH 73 list of defined terms apply: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EH 73 list of defined terms forestry business: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
EH 74 Income when refund given for development or recovery
Year of income
(1)
A refund under section EH 73 is income, under section CB 27 (Income equalisation schemes), derived by the person in the income year in which the Commissioner receives the application for the refund.
When year of income may be different
(2)
However, subsection (3) applies instead of subsection (1) if—
(a)
the Commissioner receives the application for a refund in the specified period for an accounting year or, if the Commissioner allows in a case or class of cases, within a longer period; and
(b)
the person chooses in the application that the refund is to be income in the accounting year to which the specified period or the longer period relates.
Different year of income
(3)
The refund is income under section CB 27 derived in the corresponding income year to which the specified period or the longer period relates.
Defined in this Act: accounting year, apply, Commissioner, corresponding income year, income, income year, person, specified period
Compare: 2004 No 35 s EH 76
Section EH 74 list of defined terms apply: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
EH 75 Refund on liquidation
When this section applies
(1)
This section applies when a person—
(a)
has a thinning operations income equalisation account; and
(b)
is put into liquidation.
Refund
(2)
The Commissioner must refund to the liquidator appointed for the person the amount that, on the date the deposit ends, is in the person’s thinning operations income equalisation account on the date, regardless of the length of time it has been in the account.
Defined in this Act: amount, Commissioner, date the deposit ends, liquidation, person, thinning operations income equalisation account
Compare: 2004 No 35 s EH 77
EH 76 Income when refund given on liquidation
A refund under section EH 75 is income, under section CB 27 (Income equalisation schemes), derived by the person immediately before the liquidation starts.
Defined in this Act: income, liquidation, person
Compare: 2004 No 35 s EH 78
Refunds: general provisions, and tax credits
EH 77 Sections of main income equalisation scheme that apply to thinning operations income equalisation scheme
Sections EH 28 to EH 33 apply, with the necessary amendments, to the thinning operations income equalisation scheme.
Defined in this Act: main income equalisation scheme, thinning operations income equalisation scheme
Compare: 2004 No 35 s EH 79
Definitions
EH 78 Meaning of thinning operations maximum deposit
Meaning
(1)
Thinning operations maximum deposit means the maximum deposit that this section says a person may make to their thinning operations income equalisation account for a tax year.
Maximum deposit
(2)
The maximum deposit that a person may make is an amount equal to the income derived by them during the accounting year from carrying out thinning operations on the land on which they carry on their forestry business.
Meaning of amount
(3)
In subsection (2), amount means an amount calculated without applying—
(a)
any provision allocating income derived or expenditure incurred to an income year other than the income year in which the income was in fact derived or the expenditure was in fact incurred:
(b)
any provision of any of the income equalisation schemes referred to in section EH 1(2).
Defined in this Act: accounting year, amount, business, deposit, forestry business, income, income year, person, thinning operations, thinning operations income equalisation account, thinning operations maximum deposit
Compare: 2004 No 35 s EH 80
Section EH 78 list of defined terms forestry business: inserted (with effect on 1 April 2008), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
EH 79 Other definitions
In the thinning operations income equalisation scheme,—
date the deposit ends means—
(a)
the date on which the refund is calculated, when section EH 68 applies:
(b)
the date on which the Commissioner receives the application for the refund, when section EH 71 or EH 73 applies:
(c)
the date on which the Commissioner receives notice of the liquidation, when section EH 75 applies
deposit—
(a)
means a thinning operations deposit; and
(b)
includes, for the purposes of sections EH 66(2) to (4) and EH 70 to EH 77, interest that is added to a thinning operations deposit under section EH 66(5)
specified period, for a person’s tax year, means the shorter of—
(a)
the period of 6 months after the end of the accounting year that corresponds to the tax year; and
(b)
the period from the end of the accounting year that corresponds to the tax year to the date 1 month after the date by which the person must, under section 37 of the Tax Administration Act 1994, file their return of income for the accounting year that corresponds to the tax year
thinning operations means operations in which some trees in an immature stand of trees are felled for the purpose of improving the growth and form of the remaining trees and not for the purpose of permanently breaking the canopy
thinning operations deposit means a payment made to the Commissioner under section EH 64(1)
thinning operations income equalisation account, for a person, means the account that the Commissioner keeps in the person’s name under section EH 65.
Defined in this Act: apply, Commissioner, date the deposit ends, interest, liquidation, pay, person, return of income, specified period, tax year, thinning operations, thinning operations deposit, thinning operations income equalisation account, thinning operations income equalisation scheme
Compare: 2004 No 35 s EH 81
Section EH 79 list of defined terms apply: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Subpart EI—Spreading of specific income
Contents
Farming and forestry
EI 1 Spreading backward of income from timber
When this section applies
(1)
This section applies when a person derives income under section CB 24 (Disposal of timber or right to take timber) or CB 25 (Disposal of land with standing timber).
Timing of income
(2)
The person may allocate the income between the income year in which they derive it and any 1 or more of the previous 3 income years.
Application
(3)
A person who wants to make an allocation under subsection (2) must apply to the Commissioner no later than 1 year after the end of the income year in which they derive the income.
Defined in this Act: apply, Commissioner, income, income year, timber, year
Compare: 2004 No 35 s EI 1
Section EI 1(3): amended, on 2 June 2016, by section 26(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EI 1 list of defined terms apply: inserted, on 2 June 2016, by section 26(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Inflation-indexed instruments
EI 2 Interest from inflation-indexed instruments
When this section applies
(1)
This section applies when—
(a)
an amount of money lent is outstanding at the end of the lender’s current income year; and
(b)
an amount is payable to the lender for the money lent, in a future income year of the lender; and
(c)
the amount payable is determined by a fixed relationship to 1 or more indices of general price inflation in New Zealand; and
(d)
the amount payable that has accrued at the end of the lender’s current income year differs from any amount payable that had accrued—
(i)
at the time the money was lent, if it was lent during the lender’s current income year; or
(ii)
at the end of the lender’s previous income year, if it was lent before the lender’s current income year.
Increase treated as credited
(2)
If the difference is an increase, the increase is treated as having been credited in account and capitalised by the borrower for the benefit of the lender on—
(a)
the day following the day on which the level of the relevant index at the end of the lender’s current income year becomes public knowledge; or
(b)
if the level of the relevant index is not calculated for the end of the lender’s current income year, the last date before the end of the income year for which the level is calculated.
This subsection is overridden by subsection (3).
Increase not treated as credited
(3)
An increase is not treated as having been credited to the extent to which—
(a)
the money lent has been repaid:
(b)
an amount on account of the increase has already been paid to the lender:
(c)
the increase represents a recovery of a decrease in the amount payable over an earlier income year of the lender.
Defined in this Act: amount, income year, interest, money lent, New Zealand, pay
Compare: 2004 No 35 s EI 2
Intellectual property
EI 3 Assigning or granting copyright
When this section applies
(1)
This section applies when a person—
(a)
is the author of a literary, dramatic, musical, or artistic work; and
(b)
made the work over a period of more than 1 year; and
(c)
receives consideration from—
(i)
assigning some or all of the copyright in the work; or
(ii)
granting an interest in the copyright by licence.
Timing of income: lump sum payment
(2)
If some or all of the consideration is a lump sum payment that would be income in 1 tax year, the person may allocate the income equally between the income year in which they receive it and—
(a)
the income year before that income year, if they made the work over a period of 2 years or less; or
(b)
the 2 income years before that income year, if they made the work over a period of more than 2 years.
Timing of income: other payments
(3)
If some or all of the consideration is not a lump sum payment, would be income in 1 tax year, and is received by the person within 2 years after the first publication of the work, the person may allocate the income equally between the income year in which they receive it and the previous income year.
Self-publication
(4)
Subsection (3) applies to income that the person derives from being the publisher of their work.
Application
(5)
The following provisions apply to an allocation for the purposes of subsections (2) and (3):
(a)
for an allocation under subsection (2), the person must apply to the Commissioner no later than 6 years after the end of the income year in which they receive the payment; and
(b)
for an allocation under subsection (3), the person must apply to the Commissioner no later than 8 years after the first publication of the work.
Some definitions
(6)
In this section,—
author includes a joint author
first publication means the first occasion on which the work or a reproduction of it is published, performed, or exhibited
lump sum payment includes an advance on account of royalties.
Defined in this Act: apply, author, Commissioner, first publication, income, income year, lump sum payment, pay, royalty, tax year, year
Compare: 2004 No 35 s EI 3
Section EI 3(5)(a): amended, on 2 June 2016, by section 27(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EI 3(5)(b): amended, on 2 June 2016, by section 27(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EI 3 list of defined terms apply: inserted, on 2 June 2016, by section 27(3) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
EI 4 Spreading income from patent rights
When this section applies
(1)
This section applies when a person derives income under section CB 30 (Disposal of patent applications or patent rights).
Timing of income
(2)
The person may allocate the income equally between the income year in which they derive it and the following 2 income years.
Defined in this Act: income, income year, patent right
Compare: 2004 No 35 s EI 3B
Section EI 4(1): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Land
EI 4B Consideration for agreement to grant, renew, extend, or transfer leasehold estate or licence
When this section applies
(1)
This section applies when a person, in an income year, derives an amount that is income under section CC 1B (Consideration for agreement to grant, renew, extend, or transfer leasehold estate or licence), or incurs an amount of expenditure that is allowed as a deduction under section DB 20B (Consideration for agreement to grant, renew, extend, or transfer leasehold estate or licence), and the amount is incurred or derived—
(a)
in relation to a right (the land right) that is a leasehold estate or a licence to use land; and
(b)
in relation to a period (the spreading period)—
(i)
beginning with the commencement, or a renewal or extension, of the land right; and
(ii)
ending before the earliest following date on which the land right may be terminated, or may expire, if not extended or renewed.
Exception for amount of income under section CC 1 or CG 8
(2)
This section does not apply to an amount that is income under section CC 1 or CG 8 (which relate to income from land or capital contributions).
Timing of income and deductions for land right with spreading period
(3)
If the amount is incurred or derived—
(a)
before the end of the spreading period, the amount is allocated in equal portions to each month that—
(i)
includes part of the spreading period; and
(ii)
ends after the amount is incurred or derived; and
(iii)
is included in an income year ending within 50 years from the beginning of the spreading period; and
(b)
at or after the end of the spreading period, the amount is allocated to the income year in which it is incurred or derived.
Effect for income of person ceasing to have estate in land
(4)
If an amount of income would be allocated to a spreading period of a land right under subsection (3) for a person in the absence of this subsection, the amount is allocated to an income year (the balance year) ending before the end of the spreading period, if—
(a)
at the beginning of the balance year, the person holds the land right, or the estate in land from which the land right is granted; and
(b)
in the balance year, the person ceases to hold the land right, or the estate in land from which the land right is granted; and
(c)
the amount would be allocated under subsection (3) to an income year—
(i)
ending before, or including, the end of the spreading period; and
(ii)
after the balance year.
Effect for deduction of person ceasing to have leasehold estate or licence
(5)
If an amount of a deduction would be allocated to a spreading period of a land right under subsection (3) for a person (the affected person) in the absence of this subsection, the amount is allocated to an income year (the balance year) ending before the end of the spreading period, if—
(a)
at the beginning of the balance year, either or both of the land right and the estate in land from which the land right is granted are held by the affected person or a person associated with the affected person; and
(b)
at the end of the balance year, neither of the land right and the estate in land from which the land right is granted are held by the affected person or a person associated with the affected person; and
(c)
the amount would be allocated under subsection (3) to an income year—
(i)
ending before, or including, the end of the spreading period; and
(ii)
after the balance year.
Effect for deduction of early termination of leasehold estate or licence
(5B)
If an amount of a deduction would be allocated to a spreading period of a land right under subsection (3) for a person (the affected person) in the absence of this subsection, the amount is allocated to an income year (the balance year) ending before the end of the spreading period, if—
(a)
the affected person holds the estate in land from which the land right is granted; and
(b)
the land right is surrendered or terminated in the balance year.
Relationship between subsections
(6)
Subsections (4), (5), and (5B) override subsection (3).
Defined in this Act: amount, associated, deduction, estate, income, income year, land, leasehold estate, own
Section EI 4B: inserted (with effect on 1 April 2013 and applying to an amount that is incurred or derived on or after that date in relation to a lease or licence entered, renewed, extended, or transferred on or after that date), on 17 July 2013, by section 48(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EI 4B(5B) heading: inserted (with effect on 1 April 2013 and applying to an amount that is incurred or derived on or after that date in relation to a lease or licence entered, renewed, extended, or transferred on or after that date), on 30 June 2014, by section 70(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EI 4B(5B): inserted (with effect on 1 April 2013 and applying to an amount that is incurred or derived on or after that date in relation to a lease or licence entered, renewed, extended, or transferred on or after that date), on 30 June 2014, by section 70(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EI 4B(6): replaced (with effect on 1 April 2013 and applying to an amount that is incurred or derived on or after that date in relation to a lease or licence entered, renewed, extended, or transferred on or after that date), on 30 June 2014, by section 70(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
EI 5 Amount paid to lessor for non-compliance with covenant for repair
When this section applies
(1)
This section applies when a lessor receives an amount of income under section CC 2 (Non-compliance with covenant for repair).
Timing of income: if election made
(2)
The lessor may choose to allocate the income between the income year in which they receive the amount and any 1 or more of the following 4 income years.
Timing of income: if election not made
(3)
Any part of the amount that the lessor does not allocate as described in subsection (2) is allocated to the fourth income year following the income year in which they receive the amount.
Notice
(4)
The following provisions apply to an allocation for the purposes of subsection (2):
(a)
the lessor must give a notice to the Commissioner that specifies how the income has been allocated; and
(b)
the lessor must give the notice within the time required to file a return of income for the income year to which the income is allocated or within a longer time if the Commissioner agrees; and
(c)
the lessor must not revoke the election.
Relationship with sections CC 2 and EI 6
(5)
This section overrides section CC 2(2) and is overridden by section EI 6.
Defined in this Act: amount, Commissioner, income, income year, notice, return of income
Compare: 2004 No 35 s EI 4
EI 6 Amount paid for non-compliance: when lessor ceases to own land
When this section applies
(1)
This section applies when a lessor—
(a)
allocates income under section EI 5 to more than 1 income year; and
(b)
ceases to own the land to which the income relates before the end of the third tax year following the tax year in which they receive the income.
Timing of income
(2)
If the lessor has not allocated a part of the income, the part is allocated to the income year in which the lessor ceases to own the land.
Ownership of part of land ceasing
(3)
If the lessor ceases to own part of the land to which the income relates,—
(a)
this section applies to the part of the land that the lessor ceases to own; and
(b)
section EI 5 applies to the part of the land that the lessor continues to own.
Defined in this Act: amount, income, income year, own, tax year
Compare: 2004 No 35 s EI 5
EI 7 Leases: income derived in anticipation
When this section applies
(1)
This section applies when a person derives, in a tax year, income in anticipation from fines, premiums, a payment of goodwill on the grant of a lease, or in another similar way.
Timing of income
(2)
The person may choose to—
(a)
divide the income into 6 equal portions; and
(b)
allocate a portion to the income year in which they derive the amount; and
(c)
similarly allocate a portion to each of the next 5 income years.
Notice
(3)
The following provisions apply to an allocation for the purposes of subsection (2):
(a)
the person must notify the Commissioner of their election:
(b)
the person must give the notice in the tax year following the tax year to which the income year of derivation corresponds:
(c)
the Commissioner may cancel the allocation at any time.
Cancellation of allocation
(4)
If the Commissioner cancels the allocation, the income allocated to the income year in which the cancellation occurs and to future income years is allocated to the income year before the income year in which the cancellation occurs.
Transitional provision: 2015–16 and later income years
(5)
Despite subsection (2), when a person has derived an amount of income to which this section applies before the 2015–16 income year, and all or part of that amount remains unallocated at the start of that income year, the person must—
(a)
if the period of 5 income years after the income year of derivation has expired by the start of the 2015–16 income year, allocate the remaining amount to the 2015–16 income year; or
(b)
if the period of 5 income years after the income year of derivation has not expired before the start of the 2015–16 income year, divide the remaining amount into equal portions based on the number of income years left in the period, and allocate a portion to each of those income years falling after the end of the 2014–15 income year.
Defined in this Act: amount, Commissioner, income, income year, lease, notice, pay, tax year
Compare: 2004 No 35 s EI 6
Section EI 7(2): replaced, on 1 April 2015 (applying for the 2015–16 and later income years), by section 71(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EI 7(3)(a): amended, on 1 April 2015 (applying for the 2015–16 and later income years), by section 71(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EI 7(5) heading: inserted, on 1 April 2015 (applying for the 2015–16 and later income years), by section 71(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EI 7(5): inserted, on 1 April 2015 (applying for the 2015–16 and later income years), by section 71(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EI 7 list of defined terms amount: inserted, on 1 April 2015 (applying for the 2015–16 and later income years), by section 71(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
EI 8 Disposal of land to the Crown
When this section applies
(1)
This section applies when a person derives income from disposing of any of their land to the Crown.
Timing of income
(2)
The person may choose to—
(a)
divide the income into 4 equal portions; and
(b)
allocate a portion to the income year in which they derive the amount; and
(c)
similarly allocate a portion to each of the next 3 income years.
Timing of deduction
(3)
If the person allocates income to 2 or more income years, they must allocate part of any deduction allowed for the cost of the land to the same income years. The part must bear the same proportion to the total deduction as the allocated income bears to the total amount of income.
Application
(4)
The following provisions apply to an allocation for the purposes of subsection (2):
(a)
the person, or another person for them, must apply to the Commissioner:
(b)
the application must be made within 1 year after the end of the tax year in which the person derives the income or within a longer time if the Commissioner agrees:
(c)
the person must arrange to meet all income tax liabilities relating to the income:
(d)
the Commissioner may cancel the allocation at any time.
Cancellation of allocation
(5)
If the Commissioner cancels the allocation,—
(a)
the whole of the income or deduction, as applicable, is allocated to the income year before the income year in which the cancellation occurs:
(b)
the cancellation does not affect income or a deduction that has been allocated to an earlier income year.
Transitional provision: 2015–16 and later income years
(6)
Despite subsection (2), when a person has derived an amount of income to which this section applies before the 2015–16 income year, and all or part of that amount remains unallocated at the start of that income year, the person must—
(a)
if the period of 3 income years after the income year of derivation has expired before the start of the 2015–16 income year, allocate the remaining amount to the 2015–16 income year; or
(b)
if the period of 3 income years after the income year of derivation has not expired before the start of the 2015–16 income year, divide the remaining amount into equal portions based on the number of income years left in the period, and allocate a portion to each of those income years falling after the end of the 2014–15 income year.
Defined in this Act: amount, apply, Commissioner, deduction, income, income tax liability, income year, tax year, year
Compare: 2004 No 35 s EI 7
Section EI 8(2): replaced, on 1 April 2015 (applying for the 2015–16 and later income years), by section 72(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EI 8(4)(a): replaced, on 2 June 2016, by section 28(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EI 8(6) heading: inserted, on 1 April 2015 (applying for the 2015–16 and later income years), by section 72(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EI 8(6): inserted, on 1 April 2015 (applying for the 2015–16 and later income years), by section 72(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EI 8 list of defined terms apply: inserted, on 2 June 2016, by section 28(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Shareholder-employees
EI 9 Matching rule for employment income of shareholder-employee
Matching if company allowed deduction
(1)
If a company is allowed a deduction for expenditure on employment income that is paid or is payable to a shareholder-employee under section CE 1 (Amounts derived in connection with employment), the income is allocated in the way set out in subsections (2) and (3).
Allocation to deduction year unless unexpired
(2)
The income is allocated to the income year to which the deduction allowed to the company is allocated, except for an amount equal to any unexpired portion for the income year of the company’s expenditure under section EA 4 (Deferred payment of employment income).
Allocation when no longer treated as unexpired
(3)
The remaining income is allocated to the income year or years in which the corresponding amount of the company’s expenditure on the income is no longer treated as an unexpired portion.
Defined in this Act: amount, company, deduction, employment income, income year, pay, shareholder-employee
Compare: 2004 No 35 s EI 8
Subpart EJ—Spreading of specific expenditure
Contents
Farming and forestry
EJ 1 Spreading backward of deductions for costs of timber
When this section applies
(1)
This section applies when a person derives income under section CB 24 (Disposal of timber or right to take timber) or CB 25 (Disposal of land with standing timber).
Timing of deduction
(2)
The person must allocate every amount allowed as a deduction for a cost of timber to the income years to which the income is allocated under section EI 1 (Spreading backward of income from timber), and in the same proportions as it is allocated.
Defined in this Act: amount, deduction, income, income year
Compare: 2004 No 35 s EJ 1
EJ 2 Spreading forward of deductions for repairs to fishing boats
When this section applies: generally
(1)
This section applies when a person who carries on a fishing business in New Zealand is allowed a deduction for expenditure incurred in making repairs or alterations required by Part 19 or 21 of the Maritime Rules made under the Maritime Transport Act 1994 to the equipment, hull, or machinery of a fishing boat used wholly for the purposes of the business.
When subsection (3) applies
(2)
Subsection (3) applies when the person does not cease to carry on the business before the end of the fourth tax year following the tax year in which the expenditure is incurred.
Business not ceasing within 4 years
(3)
The person may do 1 of the following to the total amount of expenditure allowed as a deduction:
(a)
deduct it in the income year in which the expenditure is incurred; or
(b)
allocate it to any 1 of the 4 income years following the income year in which the expenditure is incurred, and deduct it in that income year; or
(c)
allocate parts of it over some or all of the 4 income years following the income year in which the expenditure is incurred, and deduct each part allocated in the income year to which it is allocated; or
(d)
deduct it, or any part of it that has not already been deducted, in the fourth income year following the income year in which the expenditure is incurred.
When subsection (5) applies
(4)
Subsection (5) applies when the person ceases to carry on the business before the end of the fourth tax year following the tax year in which the expenditure is incurred.
Business ceasing within 4 years
(5)
The person may do 1 of the following to the total amount of expenditure allowed as a deduction:
(a)
deduct it, or any part of it that has not already been deducted, in the income year in which the person ceases to carry on the business; or
(b)
allocate it, or any part of it that has not already been deducted, equally to the income year in which it is incurred and the following income years in which the person continues to carry on the business.
Some definitions
(6)
In this section,—
fishing boat—
(a)
means a boat registered as a fishing vessel under section 103 of the Fisheries Act 1996; and
(b)
includes a small boat belonging to any boat that is so registered
fishing business means a business of catching or taking fish, including crustaceans and shellfish, for the purposes of sale or exchange.
Defined in this Act: amount, business, deduction, fishing boat, fishing business, income year, New Zealand, tax year
Compare: 2004 No 35 s EJ 2
Section EJ 2(1): amended (with effect on 1 April 2014), on 30 March 2017, by section 68 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EJ 2(1): amended (with effect on 1 April 2008), on 2 November 2012 (applying for the 2008–09 and later income years), by section 39(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EJ 2(6) fishing boat paragraph (a): amended (with effect on 1 April 2008), on 2 November 2012 (applying for the 2008–09 and later income years), by section 39(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EJ 2(6) fishing business: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EJ 3 Spreading forward of fertiliser expenditure
When this section applies
(1)
This section applies when—
(a)
a person carries on a farming or agricultural business on land in New Zealand; and
(b)
the person incurs expenditure in acquiring fertiliser or lime or applying fertiliser or lime to some or all of the land; and
(c)
the expenditure is expenditure for which the person is allowed a deduction.
Timing of deduction: if election made
(2)
The person may choose to allocate the expenditure by allocating some or all of it, in the proportions they choose, to any 1 or more of the 4 income years following the income year in which they incur the expenditure.
Timing of deduction: if election not made
(3)
The person is allowed a deduction in the fourth income year following the income year in which they incur the expenditure for any part of the expenditure—
(a)
for which they do not claim a deduction in the income year in which they incur the expenditure; or
(b)
that they do not allocate under subsection (2).
Timing of deduction: business ceasing within 4 years
(4)
If the person ceases to carry on the business before the end of the fourth income year following the income year in which they incurred the expenditure, they must choose 1 of the following ways to deal with any part of the expenditure that has not so far been deducted:
(a)
the part is to be deducted in the income year in which the person ceases to carry on the business; or
(b)
the part is to be allocated equally to the income year in which they incurred the expenditure and the following income years in which the person carried on the business.
How elections made
(5)
An election under this section is made as follows:
(a)
a person makes an election under subsection (2) by taking a tax position on that basis in their return of income for the income year to which they choose to allocate some or all of the expenditure:
(b)
a person makes an election under subsection (4),—
(i)
paragraph (a), by taking a tax position on that basis in their return of income for the income year in which the person ceases to carry on the business:
(ii)
paragraph (b), by notifying the Commissioner of the allocation within the time within which the person is required to file a return of income for the income year in which the person ceases to carry on the business.
Extension of time: elections under subsection (4)(b)
(5B)
The Commissioner may extend the time limit imposed under subsection (5)(b)(ii) in any case or class of cases.
Personal representative
(6)
An election under subsection (4) may be made by a deceased’s personal representative.
Elections under subsection (2) irrevocable
(7)
An election made under subsection (2) cannot be revoked.
Defined in this Act: business, Commissioner, deduction, income year, New Zealand, notify, return of income, tax position
Compare: 2004 No 35 s EJ 3
Section EJ 3(1)(b): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EJ 3(5) heading: replaced (with effect on 1 April 2020), on 30 March 2021, by section 42(1) (and see section 42(4) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section EJ 3(5): replaced (with effect on 1 April 2020), on 30 March 2021, by section 42(1) (and see section 42(4) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section EJ 3(5B) heading: inserted (with effect on 1 April 2020), on 30 March 2021, by section 42(1) (and see section 42(4) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section EJ 3(5B): inserted (with effect on 1 April 2020), on 30 March 2021, by section 42(1) (and see section 42(4) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section EJ 3(7) heading: inserted (with effect on 1 April 2020), on 30 March 2021, by section 42(2) (and see section 42(4) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section EJ 3(7): inserted (with effect on 1 April 2020), on 30 March 2021, by section 42(2) (and see section 42(4) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section EJ 3 list of defined terms notice: repealed (with effect on 1 April 2020), on 30 March 2021, by section 42(3)(b) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section EJ 3 list of defined terms notify: inserted (with effect on 1 April 2020), on 30 March 2021, by section 42(3)(a) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section EJ 3 list of defined terms tax position: inserted (with effect on 1 April 2020), on 30 March 2021, by section 42(3)(a) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Films
EJ 4 Expenditure incurred in acquiring film rights in feature films
Feature films
(1)
A deduction for expenditure that a person incurs in acquiring a film right is allocated under this section if the film is a feature film and—
(a)
the deduction is allowed under section DS 1 (Acquiring film rights):
(b)
the deduction is allowed under section DS 2 (Film production expenditure) and the film is one for which a large budget film grant is made.
Timing of deduction: retention of film right
(2)
If the person has the film right at the end of an income year, the deduction that is allocated to the income year is the lesser of—
(a)
the greater of—
(i)
an apportioned amount of the deduction, calculated for the income year under subsection (3); and
(ii)
the amount of film income derived in the income year; and
(b)
the remaining deduction.
Calculation of apportioned amount
(3)
The apportioned amount is calculated for the income year using the formula—
(completed months ÷ non-completed months) × deduction.
Definition of items in formula
(4)
In the formula,—
(a)
completed months is the number of months in the income year, including a part of a month, for which the film is completed:
(b)
non-completed months is 24, reduced by the number of complete months in the period that—
(i)
starts on the first day of the month in which the film is completed; and
(ii)
ends on the last day of the income year before the income year referred to in subsection (2):
(c)
deduction is the remaining deduction.
Timing of deduction: disposal of film right
(5)
If the person disposes of the film right during an income year, and does not have a film right in the film at the end of the income year, the remaining deduction is allocated to the income year.
Meaning of remaining deduction
(6)
In this section, remaining deduction means, for an income year, the amount of the deduction for expenditure incurred before the end of the income year that has not been allocated to an earlier income year.
Defined in this Act: amount, completed, deduction, feature film, film, film income, film right, income year, large budget film grant, remaining deduction
Compare: 2004 No 35 s EJ 4
Section EJ 4(1): substituted, on 1 April 2008, by section 360 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EJ 4(1)(b): substituted, on 1 January 2010, by section 123(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EJ 4(1)(b): amended (with effect on 1 January 2010), on 7 September 2010, by section 32(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EJ 4 list of defined terms government screen production payment: repealed (with effect on 1 January 2010), on 7 September 2010, by section 32(2)(a) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EJ 4 list of defined terms large budget film grant: inserted (with effect on 1 January 2010), on 7 September 2010, by section 32(2)(b) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
EJ 5 Expenditure incurred in acquiring film rights in films other than feature films
Films other than feature films
(1)
A deduction for expenditure that a person incurs in acquiring a film right is allocated under this section if the film is not a feature film and—
(a)
the deduction is allowed under section DS 1 (Acquiring film rights):
(b)
the deduction is allowed under section DS 2 (Film production expenditure) and the film is one for which a large budget film grant is made.
Timing of deduction: retention of film right
(2)
If the person has the film right at the end of an income year,—
(a)
the deduction that is allocated to the income year in which the film right is acquired or the film is completed, whichever is later, is—
(i)
50% of the deduction; or
(ii)
if the film income derived in the income year is more than 50% of the deduction, the lesser of the amount of film income and the total amount of the deduction; and
(b)
the deduction that is allocated to the next income year is the remaining deduction.
Timing of deduction: disposal of film right
(3)
If the person disposes of the film right during an income year, and does not have a film right in the film at the end of the income year, the remaining deduction is allocated to the income year.
Meaning of remaining deduction
(4)
In this section, remaining deduction means, for an income year, the amount of the deduction that has not been allocated to an earlier income year.
Defined in this Act: amount, completed, deduction, feature film, film, film income, film right, income year, large budget film grant, remaining deduction
Compare: 2004 No 35 s EJ 5
Section EJ 5(1): substituted, on 1 April 2008, by section 361 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EJ 5(1)(b): substituted, on 1 January 2010, by section 124(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EJ 5(1)(b): amended (with effect on 1 January 2010), on 7 September 2010, by section 33(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EJ 5 list of defined terms government screen production payment: repealed (with effect on 1 January 2010), on 7 September 2010, by section 33(2)(a) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EJ 5 list of defined terms large budget film grant: inserted (with effect on 1 January 2010), on 7 September 2010, by section 33(2)(b) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
EJ 6 Certification of New Zealand films
Certification of New Zealand films
(1)
The New Zealand Film Commission may certify that a film is a New Zealand film, if the Commission is satisfied that the film has, or will on completion have, a significant New Zealand content, as determined under section 18 of the New Zealand Film Commission Act 1978.
Final and provisional certificates
(2)
The certificate issued by the New Zealand Film Commission must be—
(a)
a provisional certificate, if the film is not completed:
(b)
a final certificate, if the film is completed.
Applications for certification of New Zealand films
(3)
An application to the New Zealand Film Commission for a certificate that a film is a New Zealand film must be in writing and must provide the information that the Commission requires.
Notice of certificate to Commissioner
(4)
The New Zealand Film Commission must send a copy of the provisional certificate or the final certificate to the Commissioner immediately after issuing it.
Revocation of certificate
(5)
The New Zealand Film Commission may revoke a provisional certificate or a final certificate if the Commission is satisfied that the certificate should not remain in force, whether because an incorrect statement was made in the provision of information for the purpose of obtaining a certificate or for any other reason.
Effect of revocation
(6)
A revoked certificate is void from the time the certificate was issued.
Notice of revocation to Commissioner
(7)
The New Zealand Film Commission must give notice to the Commissioner immediately after revoking a provisional certificate or a final certificate.
Defined in this Act: Commissioner, completed, film, New Zealand, notice
Compare: 2004 No 35 s EJ 6
EJ 7 Film production expenditure for New Zealand films having no large budget film grant
New Zealand films
(1)
A deduction under section DS 2 (Film production expenditure) for film production expenditure is allocated under this section if—
(a)
the film is not one for which a large budget film grant is made; and
(b)
the film has a final certificate under section EJ 6.
Timing of deduction: up to completion of film
(2)
A deduction for film production expenditure incurred in or before the income year in which the film is completed is allocated to the income year in which the film is completed.
Timing of deduction: after completion of film
(3)
A deduction for film production expenditure incurred after the film is completed is allocated to the income year in which it is incurred.
Defined in this Act: completed, deduction, film, film production expenditure, income year, large budget film grant, New Zealand
Compare: 2004 No 35 s EJ 7
Section EJ 7 heading: amended (with effect on 1 January 2010), on 7 September 2010, by section 34(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EJ 7 heading: amended, on 1 January 2010, by section 125(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EJ 7 heading: amended, on 1 April 2008, by section 362(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EJ 7(1): substituted, on 1 April 2008, by section 362(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EJ 7(1)(a): substituted, on 1 January 2010, by section 125(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EJ 7(1)(a): amended (with effect on 1 January 2010), on 7 September 2010, by section 34(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EJ 7 list of defined terms government screen production payment: repealed (with effect on 1 January 2010), on 7 September 2010, by section 34(3)(a) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EJ 7 list of defined terms large budget film grant: inserted (with effect on 1 January 2010), on 7 September 2010, by section 34(3)(b) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
EJ 8 Film production expenditure for other films having no large budget film grant
Films other than New Zealand films
(1)
A deduction under section DS 2 (Film production expenditure) for film production expenditure is allocated under this section if—
(a)
the film is not one for which a large budget film grant is made; and
(b)
the film does not have a final certificate under section EJ 6.
Timing of deduction: up to completion of film
(2)
If the person has a film right at the end of the income year in which the film is completed, the deduction for film production expenditure incurred in or before the income year is allocated as follows:
(a)
to the income year in which the film is completed,—
(i)
50% of the deduction; or
(ii)
if the film income derived in the income year is more than 50% of the deduction, the lesser of the amount of film income and the total amount of the deduction; and
(b)
to the next income year, the remaining deduction.
Timing of deduction: after completion of film
(3)
If the person has a film right in an income year after the film is completed, a deduction for film production expenditure incurred after the film is completed is allocated to the income year in which it is incurred.
Timing of deduction: disposal of film right
(4)
If the person disposes of a film right in the income year in which the film is completed, and does not have a film right in the film at the end of the income year, the remaining deduction is allocated to the income year.
Meaning of remaining deduction
(5)
In this section, remaining deduction means, for an income year, the amount of the deduction for film production expenditure that has not been allocated to an earlier income year.
Defined in this Act: amount, completed, deduction, film, film income, film production expenditure, film right, income year, large budget film grant, New Zealand, remaining deduction
Compare: 2004 No 35 s EJ 8
Section EJ 8 heading: substituted, on 1 April 2008, by section 363(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EJ 8 heading: amended (with effect on 1 January 2010), on 7 September 2010, by section 35(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EJ 8 heading: amended, on 1 January 2010, by section 126(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EJ 8(1): substituted, on 1 April 2008, by section 363(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EJ 8(1)(a): substituted, on 1 January 2010, by section 126(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EJ 8(1)(a): amended (with effect on 1 January 2010), on 7 September 2010, by section 35(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EJ 8 list of defined terms government screen production payment: repealed (with effect on 1 January 2010), on 7 September 2010, by section 35(3)(a) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EJ 8 list of defined terms large budget film grant: inserted (with effect on 1 January 2010), on 7 September 2010, by section 35(3)(b) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
EJ 9 Avoidance arrangements
The allocation of a deduction under any of sections EJ 4, EJ 5, EJ 7, and EJ 8 may be subject to adjustment under—
(a)
section GB 18 (Arrangements to acquire film rights or incur production expenditure):
(b)
section GB 19 (When film production expenditure payments delayed or contingent).
Defined in this Act: deduction, film production expenditure, film right, pay
Leases
EJ 10 Personal property lease payments
What this section applies to
(1)
This section applies to a lease that—
(a)
is of a personal property lease asset; and
(b)
is not a finance lease; and
(c)
is not a specified lease; and
(d)
is not an operating lease to which section EJ 10B applies.
Payments
(2)
Personal property lease payments are treated as being paid for the term of the lease.
Formula
(3)
The expenditure that the lessee incurs is allocated to income years using the formula—
(part of term ÷ term of the lease) × total of payments.
Definition of items in formula
(4)
In the formula,—
(a)
part of term is the part of the term of the lease that falls within the income year:
(b)
term of the lease has the meaning given in section YA 1 (Definitions):
(c)
total of payments is the total amount of the personal property lease payments.
Defined in this Act: finance lease, income year, lease, lessee, operating lease, pay, personal property lease asset, personal property lease payment, specified lease, term of the lease
Compare: 2004 No 35 s EJ 9
Section EJ 10(1)(d): inserted (with effect on 1 January 2019), on 30 March 2021, by section 43(1) (and see section 43(3) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section EJ 10 list of defined terms operating lease: inserted (with effect on 1 January 2019), on 30 March 2021, by section 43(2) (and see section 43(3) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
EJ 10B IFRS leases
When this section applies
(1)
This section applies in relation to an operating lease of a personal property lease asset (the IFRS lease), if—
(a)
the person, as lessee, uses NZ IFRS 16 in their financial statements for the IFRS lease; and
(b)
the lessor for the IFRS lease is not associated with the person; and
(c)
the person does not sublease the personal property lease asset to another person; and
(d)
the person irrevocably chooses to use this section for the IFRS lease, as evidenced by a return of income made in accordance with this section.
Deduction: de minimis
(2)
If the initial right of use asset under NZ IFRS 16 is $100,000 or less and the remaining term of the IFRS lease under NZ IFRS 16 is 4 years or less initially and immediately after any extension starts, then the person, as lessee for the IFRS lease, is allowed, for an income year, a deduction for a positive amount, and has income for a negative amount, for the total amount recognised by the person through their profit and loss account for the IFRS lease for the income year, if the amount is in accordance with NZ IFRS 16.
Deduction: formula
(3)
If subsection (2) does not apply, then the person, as lessee for the IFRS lease, is allowed, for an income year, a deduction for a positive amount, and has income for a negative amount, for amounts calculated using the formula—
accounting amount − add-back adjustment + impairment and revaluation adjustment − make-good and direct costs adjustment.
Definition of items in formula
(4)
In the formula in subsection (3),—
(a)
accounting amount is the total amount recognised by the person through their profit and loss account for the IFRS lease for the income year, if the amount is in accordance with NZ IFRS 16:
(b)
add-back adjustment is the total amount of the accounting measures in subparagraphs (i) and (ii), used by the person in accordance with IFRS through their profit and loss account for the income year—
(i)
impairment of the lease asset described in paragraph 33 of NZ IFRS 16 arising in the income year:
(ii)
revaluation or impairment of the lease asset described in paragraph 35 of NZ IFRS 16 arising in the income year:
(c)
impairment and revaluation adjustment is the total amount of the add-back adjustment for any income year under paragraph (b) spread proportionally on a daily basis over the remaining income years of the lease term:
(d)
make-good and direct costs adjustment is the total amount of the accounting measures in subparagraphs (i) and (ii), spread proportionally on a daily basis over the remaining income years of the lease term—
(i)
make-good costs for the lease described in paragraph 24(d) of NZ IFRS 16:
(ii)
direct costs for the lease described in paragraph 24(c) of NZ IFRS 16, if the person chooses to apply this subparagraph, as evidenced by a return of income made in accordance with this subparagraph.
Deduction: incurred
(5)
The person, as lessee, is allowed a deduction for the IFRS lease for—
(a)
make-good costs, described in subsection (4)(d)(i), for the income year that they incur the costs:
(b)
direct costs, described in subsection (4)(d)(ii), for the income year that they incur the costs, if they have chosen to apply subsection (4)(d)(ii).
Wash-up: income or deduction
(6)
The person, as lessee, has income for a positive amount, and is allowed a deduction for a negative amount, for the income year in which the IFRS lease ends or does not meet a requirement in subsection (1)(a), (b), or (c), calculated using the formula—
IFRS deductions − IFRS income − expenditure.
Definition of items in formula
(7)
In the formula in subsection (6),—
(a)
IFRS deductions is the total amount deducted for the IFRS lease for all income years, including when the person has not applied this section:
(b)
IFRS income is the total amount of income for the IFRS lease for all income years, including when the person has not applied this section:
(c)
expenditure is the amount of expenditure for the IFRS lease for all income years, ignoring this section.
Transitional deduction: retrospective treatment spread forward
(8)
If the person has applied NZ IFRS 16 retrospectively for the IFRS lease or has not applied this section for the IFRS lease while they have applied NZ IFRS 16 for it, then the person is allowed a deduction for a positive amount and has income for a negative amount, spread in equal proportions over the income year and the following 4 income years, calculated using the formula—
retrospective accounting expenditure − retrospective tax adjustments − previous tax deductions.
Definition of items in formula
(9)
In the formula in subsection (8),—
(a)
retrospective accounting expenditure is the total amount of expenditure or loss recognised under NZ IFRS 16 for the IFRS lease for the income years that the person has applied NZ IFRS 16 retrospectively for the IFRS lease or has not applied this section for the IFRS lease while they have applied NZ IFRS 16 for it, if the amount is in accordance with NZ IFRS 16:
(b)
retrospective tax adjustments is the total amount of adjustments and deductions in subsections (4)(b), (c), and (d) and (5) for the income years that the person has applied NZ IFRS 16 retrospectively for the IFRS lease or has not applied this section for the IFRS lease while they have applied NZ IFRS 16 for it, treating subsections (4)(b), (c), and (d) and (5) as applying for those income years:
(c)
previous tax deductions is the total amount of deductions not in accordance with NZ IFRS 16 and not provided by this section, for the income years that the person has applied NZ IFRS 16 retrospectively for the IFRS lease or has not applied this section for the IFRS lease while they have applied NZ IFRS 16 for it.
Defined in this Act: amount, deduction, income, income year, NZ IFRS 16, operating lease, person, personal property lease asset
Section EJ 10B: inserted (with effect on 1 January 2019), on 30 March 2021, by section 44(1) (and see section 44(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section EJ 10B(6): amended (with effect on 1 January 2019), on 30 March 2022, by section 84(1)(a) (and see section 84(2) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EJ 10B(6): amended (with effect on 1 January 2019), on 30 March 2022, by section 84(1)(b) (and see section 84(2) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
EJ 11 Amount paid by lessee for non-compliance with covenant for repair
When this section applies
(1)
This section applies when a lessee of land is allowed a deduction under section DB 21 (Amounts paid for non-compliance with covenant for repair).
Timing of deduction
(2)
The lessee may choose to allocate some or all of the amount of the deduction to any 1 or more of the 3 income years before the income year in which the amount is paid or recovered. The lessee may make an allocation only to an income year in which they used the land for deriving income.
Effect of allocation
(3)
If the lessee makes an allocation,—
(a)
they are denied a deduction for the allocated amount in the income year in which the amount of the deduction is paid or recovered; and
(b)
they are allowed a deduction for the allocated amount in the income year to which it is allocated.
Notice
(4)
The following provisions apply to an allocation for the purposes of subsection (2):
(a)
the lessee makes the election by giving a notice to the Commissioner that specifies how the amount of the deduction has been allocated; and
(b)
the lessee must give the notice within the time required to file a return of income for the tax year in which the amount was paid or recovered or within a longer time if the Commissioner agrees; and
(c)
the lessee must not revoke the allocation.
Defined in this Act: amount, Commissioner, deduction, income, income year, lessee, notice, return of income, tax year
Compare: 2004 No 35 s EJ 10
Petroleum mining
EJ 12 Petroleum development expenditure: default allocation rule
When this section applies
(1)
This section applies to a petroleum miner’s petroleum development expenditure that relates to petroleum mining developments in a permit area and that is incurred on or after 1 April 2008, when section EJ 12B does not apply to the expenditure.
Default allocation rule
(2)
For the purposes of section DT 5(2)(a) (Petroleum development expenditure), a deduction for the petroleum development expenditure is allocated in equal amounts over a period of 7 income years. The period of 7 years starts with the income year in which the expenditure is incurred.
Relationship with other petroleum mining provisions
(3)
Sections EJ 13 to EJ 16 override subsection (2). Sections DT 7, DT 8, DT 10, DT 11, and DT 16 (which relate to petroleum miners) override this section.
Defined in this Act: amount, deduction, income year, permit area, petroleum development expenditure, petroleum miner, petroleum mining development
Section EJ 12: substituted (with effect on 1 April 2008), on 6 October 2009, by section 127(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EJ 12(3): amended, on 1 April 2018, by section 70(1) (and see section 70(2) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
EJ 12B Petroleum development expenditure: reserve depletion method
When this section applies
(1)
This section applies to a petroleum miner’s petroleum development expenditure that relates to petroleum mining developments in a permit area, when the expenditure is incurred—
(a)
on or after 1 April 2008; and
(b)
an election to apply this section, described in subsection (2), is made for the permit area.
Choice: first year of commercial production and later years
(2)
An election to apply this section may be made by a petroleum miner for a permit area, in a return of income for an income year, only if that income year is the first one in which petroleum is produced in commercial quantities in the permit area. The election is irrevocable, and applies this section to petroleum development expenditure that relates to petroleum mining developments in the relevant permit area for the income year and later income years.
Reserve depletion method expense allocation rule
(3)
For the purposes of section DT 5(2)(b) (Petroleum development expenditure), the deduction allocated to an income year for the petroleum development expenditure that relates to a petroleum mining development in the relevant permit area is the amount calculated using the following formula, if the amount is positive:
(reserve expenditure − previous expenditure)
× reserve depletion for the year ÷ probable reserves.
Definition of items in formula
(4)
The items in the formula are defined in subsections (5) to (8).
Reserve expenditure
(5)
Reserve expenditure is the total petroleum development expenditure that relates to the petroleum mining development for the income year or an earlier income year to which this section applied.
Previous expenditure
(6)
Previous expenditure is the total petroleum development expenditure that relates to the petroleum mining development and that has been allocated to an earlier income year to which this section applied.
Reserve depletion for the year
(7)
Reserve depletion for the year is the amount, expressed in barrels of oil equivalent, of petroleum produced from the petroleum mining development for the income year.
Probable reserves
(8)
Probable reserves is the amount, expressed in barrels of oil equivalent, of the reserves of petroleum for the petroleum mining development that are not yet proven but are estimated, at the beginning of the income year, to have a better than 50% chance of being technically and commercially producible.
Relationship with other petroleum mining provisions
(9)
Sections EJ 13 to EJ 16 override subsection (3). Sections DT 7, DT 8, DT 10, DT 11, and DT 16 (which relate to petroleum miners) override this section.
Defined in this Act: amount, deduction, income year, permit area, petroleum development expenditure, petroleum miner, petroleum mining development
Section EJ 12B: inserted (with effect on 1 April 2008), on 6 October 2009, by section 127(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EJ 12B(9): amended, on 1 April 2018, by section 71(1) (and see section 71(2) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
EJ 13 Permanently ceasing petroleum mining operations
When this section applies
(1)
This section applies when a petroleum miner and each farm-in party to a farm-out arrangement, if any, to which the petroleum miner is a party, permanently ceases petroleum mining operations—
(a)
in a permit area for which the petroleum miner holds a petroleum permit; and
(b)
for which petroleum development expenditure has been incurred.
Amount of deduction for petroleum miner
(2)
The amount of the deduction that the petroleum miner is allowed is the difference between—
(a)
the amount of the deduction allowed for the petroleum miner under section DT 5 (Petroleum development expenditure) and attributable to—
(i)
the permit; or
(ii)
an asset of the kind described in section CT 7(1)(b) or (c) (Meaning of petroleum mining asset) held solely in connection with the permit; and
(b)
any part of the deduction for the petroleum miner allocated to, or treated as allocated to, earlier income years under section EJ 12(2) or EJ 12B(3).
Amount of deduction for farm-in party
(3)
The amount of the deduction that the farm-in party is allowed is the difference between—
(a)
the amount of the deduction allowed for the farm-in party under section DT 14 (Farm-out arrangements) for petroleum development expenditure, and attributable to—
(i)
the permit; or
(ii)
an asset of the kind described in section CT 7(1)(b) or (c) held solely in connection with the permit; and
(b)
any part of the deduction for the farm-in party allocated to, or treated as allocated to, earlier income years under section EJ 12(2) or EJ 12B(3).
Timing of deduction
(4)
For the purposes of section DT 5(2)(c) (Petroleum development expenditure), the deduction is allocated to the income year in which petroleum mining operations permanently cease.
Defined in this Act: amount, deduction, farm-in party, farm-out arrangement, income year, permit area, petroleum development expenditure, petroleum miner, petroleum mining operations, petroleum permit
Section EJ 13: replaced, on 1 April 2018, by section 72(1) (and see section 72(2) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
EJ 13B Dry well drilled
When this section applies
(1)
This section applies when—
(a)
the petroleum miner has petroleum development expenditure for a well, the drilling of which stops in an income year, and, from the time of stopping, the well—
(i)
will never produce petroleum in commercial quantities; and
(ii)
is abandoned; and
(b)
part of a deduction under section DT 5 (Petroleum development expenditure) for the petroleum development expenditure described in paragraph (a) has not been allocated under section EJ 12 or EJ 12B.
Allocation
(2)
The part of the deduction described in subsection (1) is allocated to the income year.
Defined in this Act: amount, deduction, income year, petroleum development expenditure
Section EJ 13B: inserted (with effect on 1 April 2008), on 6 October 2009, by section 129(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EJ 13C Well not producing
When this section applies
(1)
This section applies when—
(a)
the petroleum miner has petroleum development expenditure for a well that, in an income year—
(i)
stops producing petroleum in commercial quantities; and
(ii)
is abandoned; and
(b)
the petroleum miner has elected to apply section EJ 12B for the petroleum development expenditure described in paragraph (a) before the start of the income year; and
(c)
part of a deduction under section DT 5 (Petroleum development expenditure) for the petroleum development expenditure described in paragraphs (a) and (b) has not been allocated under section EJ 12B.
Allocation
(2)
The part of the deduction described in subsection (1) is allocated to the income year.
Defined in this Act: amount, deduction, income year, petroleum development expenditure
Section EJ 13C: inserted (with effect on 1 April 2008), on 6 October 2009, by section 129(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EJ 14 Spreading deduction backwards
[Repealed]Section EJ 14: repealed, on 1 April 2018, by section 73(1) (and see section 73(2) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
EJ 15 Disposal of petroleum mining asset
When this section applies
(1)
This section applies when a petroleum miner disposes of a petroleum mining asset.
Amount, and timing, of deduction
(2)
Part of a deduction under section DT 5 (Petroleum development expenditure) is allocated to the income year in which the miner disposes of the asset. The part is that to which both the following apply:
(a)
it is attributable to the asset; and
(b)
it has not been allocated under section EJ 12 or EJ 12B to the income year in which the miner disposes of the asset or to an earlier income year.
Allocation to more than 1 year
(3)
If the petroleum miner’s income from disposing of the asset is derived in 2 or more income years,—
(a)
the amount of the deduction is allocated among the income years in which the miner derives the income; and
(b)
the amount allocated to each income year bears the same relation to the total amount of the deduction as the income that the miner derives in that income year bears to the total amount of income that the miner derives from the disposal.
Relationship with section EJ 16
(4)
This section is overridden by section EJ 16.
Defined in this Act: amount, deduction, dispose, income, income year, petroleum miner, petroleum mining asset
Compare: 2004 No 35 s EJ 13
Section EJ 15(2)(b): substituted (with effect on 1 April 2008), on 6 October 2009, by section 130(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EJ 16 Disposal of petroleum mining asset to associate
When this section applies
(1)
This section applies when, in an income year, a petroleum miner disposes of a petroleum mining asset to—
(a)
a person associated with the miner:
(b)
a person who holds the asset for the miner:
(c)
a person who holds the asset for a person associated with the miner.
Amount of deduction
(2)
The maximum amount that may be allocated under section EJ 15 to the income year is the amount that would be the net income of the petroleum miner in the income year if their only income were from the disposal.
Defined in this Act: amount, associated person, dispose, income, income year, net income, petroleum miner, petroleum mining asset
Compare: 2004 No 35 s EJ 14
EJ 17 Partnership interests and disposal of part of asset
In sections EJ 12 to EJ 16, unless the context requires otherwise,—
(a)
a partner is treated as having a share or interest in a petroleum permit or other property of a partnership to the extent of their interest in the income of the partnership:
(b)
references to the disposal of an asset apply equally to the disposal of part of an asset.
Defined in this Act: dispose, income, petroleum permit
Compare: 2004 No 35 s EJ 15
EJ 18 Petroleum mining operations outside New Zealand
Sections EJ 12 to EJ 17 and EJ 20 apply with any necessary modifications to a petroleum miner undertaking petroleum mining operations that are, or decommissioning that is,—
(a)
outside New Zealand and undertaken through a branch or a controlled foreign company; and
(b)
substantially the same as the petroleum mining activities governed by sections EJ 12 to EJ 17 and EJ 20.
Defined in this Act: controlled foreign company, decommissioning, New Zealand, petroleum miner, petroleum mining operations
Compare: 2004 No 35 s EJ 16
Section EJ 18: amended, on 1 April 2018, by section 74(1) (and see section 74(4) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EJ 18(b): amended, on 1 April 2018, by section 74(2) (and see section 74(4) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EJ 18 list of defined terms decommissioning: inserted, on 1 April 2018, by section 74(3) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Definitions
EJ 19 Meaning of offshore development
[Repealed]Section EJ 19: repealed (with effect on 1 April 2008), on 6 October 2009, by section 131(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EJ 20 Meaning of petroleum mining development
Meaning
(1)
In sections EJ 12 and EJ 12B, petroleum mining development means a place where 1 or more of the activities described in subsection (2) is carried out.
Activities: inclusions
(2)
The activities are those carried out in connection with—
(a)
developing a permit area for producing petroleum:
(b)
producing petroleum:
(c)
processing, storing, or transmitting petroleum before its dispatch to a buyer, consumer, processor, refinery, or user:
(d)
decommissioning.
Activities: exclusions
(3)
The activities do not include further treatment to which all the following apply:
(a)
it occurs after the well stream has been separated and stabilised into crude oil, condensate, or natural gas; and
(b)
it is done—
(i)
by liquefaction or compression; or
(ii)
for the extraction of constituent products; or
(iii)
for the production of derivative products; and
(c)
it is not treatment at the production facilities.
Defined in this Act: decommissioning, permit area, petroleum
Section EJ 20: substituted (with effect on 1 April 2008), on 6 October 2009, by section 131(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EJ 20(2)(d): amended, on 1 April 2018, by section 75(1) (and see section 75(3) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EJ 20 list of defined terms decommissioning: inserted, on 1 April 2018, by section 75(2)(a) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EJ 20 list of defined terms removal or restoration operations: repealed, on 1 April 2018, by section 75(2)(b) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Mineral mining
Heading: inserted, on 1 April 2014 (applying for the 2014–15 and later income years), by section 50 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
EJ 20B Certain mining expenditure spread over assumed life of mine
When this section applies
(1)
This section applies for the purposes of section DU 6 (Deduction for certain mining expenditure spread over assumed life of mine) when a mineral miner—
(a)
incurs an amount of mining development expenditure or mining exploration expenditure as described in that section; and
(b)
starts to use the mining permit area to derive income; and
(c)
either does not meet the requirements to allow allocation of the expenditure under section EJ 20E or, if they do, they do not choose to allocate the expenditure under that section.
Spreading rule
(2)
The mineral miner is allowed a deduction for an income year that falls within the spreading period referred to in section EJ 20C calculated using the formula—
rate × value.
Definition of items in formula
(3)
The items in the formula are defined in subsections (4) and (5).
Rate
(4)
Rate is—
(a)
the straight-line rate set out in schedule 12, column 2 (Old banded rates of depreciation) that is nearest to the rate calculated for the expenditure using the formula in section EJ 20D(2), if the mineral miner chooses to use the straight-line method:
(b)
the diminishing value rate set out in schedule 12, column 1 that corresponds to the straight-line rate under paragraph (a), if the mineral miner chooses to use the diminishing value method.
Value
(5)
Value is—
(a)
the adjusted tax value of the expenditure, if the mineral miner chooses to use the straight-line method:
(b)
the diminished value of the expenditure for the income year, if the mineral miner chooses to use the diminishing value method.
Allocation to mines
(6)
For the purposes of this section, a mineral miner may allocate expenditure for an income year under this section in relation to a mine rather than in relation to a mining permit area, but only if—
(a)
the mineral miner uses IFRS rules to prepare their financial statements; and
(b)
the allocation is permitted for the purposes of their statements.
Defined in this Act: adjusted tax value, amount, deduction, diminishing value method, diminishing value rate, financial statements, IFRS, mineral miner, mining development expenditure, mining exploration expenditure, permit area, straight-line method, straight-line rate
Section EJ 20B: inserted, on 1 April 2014 (applying for the 2014–15 and later income years), by section 50 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
EJ 20C Length of spreading period
When this section applies
(1)
This section applies for the purposes of section EJ 20B(3) to determine the length of the spreading period for certain mining expenditure of a mineral miner related to a mining permit area.
Start and end dates
(2)
The spreading period is the number of income years that represents the assumed life of the mine referred to in section EJ 20D that comprises the mining permit area,—
(a)
starting from the later of—
(i)
the first day of the income year in which the mineral miner’s commercial production of a listed industrial mineral from the mining permit area starts; or
(ii)
the first day of the income year in which the expenditure is incurred; and
(b)
ending on the last day of the income year in which the expiry of the assumed life of the mine occurs.
Defined in this Act: commercial production, income year, listed industrial mineral, mineral miner, permit area
Section EJ 20C: inserted, on 1 April 2014 (applying for the 2014–15 and later income years), by section 50 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
EJ 20D Measurement of assumed life of mine and application to rate
When this section applies
(1)
This section applies for the purposes of section EJ 20B(4)(a) for the item rate in the formula that determines the amount of the deduction a mineral miner is allowed for an income year that falls in the spreading period described in section EJ 20C.
Formula for straight-line rate
(2)
The formula for the straight-line rate is—
100% ÷ assumed life.
Definition of item in formula
(3)
In the formula, assumed life, for an amount of expenditure and an income year, is the period that is the lesser of the following periods:
(a)
the period that—
(i)
the mineral miner uses for accounting purposes as the amortisation period for the mining permit area; or
(ii)
for a mineral miner that is not required to use an amortisation period for their accounts, the mineral miner estimates is a reasonable period for the commercial production of a listed industrial mineral from the mining permit area; and
(b)
the period that is not more than 25 years from the later of—
(i)
the date on which commercial production from the mining permit area starts; and
(ii)
the date on which the mineral miner incurs the expenditure relating to the mining permit area.
Reassessment of life of mine
(4)
A mineral miner must reassess the assumed life of the mine for the purposes of this section and sections DU 11 (Meaning of mining development expenditure) and EJ 20C. A reassessment must be made at the end of each income year that falls within the period, and applies from the start of the next income year for all remaining income years in the period in relation to all outstanding expenditure for which no deduction has yet been allowed.
Defined in this Act: commercial production, deduction, income year, listed industrial mineral, mineral miner, permit area, straight-line rate
Section EJ 20D: inserted, on 1 April 2014 (applying for the 2014–15 and later income years), by section 50 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EJ 20D(3): replaced (with effect on 1 April 2014 and applying for the 2014–15 and later income years), on 30 June 2014, by section 73(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EJ 20D(4): amended (with effect on 1 April 2014 and applying for the 2014–15 and later income years), by section 73(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
EJ 20E Certain mining expenditure spread on basis of units of production
When this section applies
(1)
This section applies for the purposes of section DU 7 (Deduction for certain mining expenditure spread on basis of units of production) when a mineral miner—
(a)
incurs expenditure described in section DU 6(1)(a) (Deduction for certain mining expenditure spread over assumed life of mine) on or in relation to their mining operations or associated mining operations in a mining permit area; and
(b)
starts to use the permit area to derive income; and
(c)
either—
(i)
uses IFRS rules to prepare their financial statements; or
(ii)
keeps appropriate records that are sufficient to enable the Commissioner to verify the calculations used by the mineral miner; and
(d)
chooses to apply this section in the way described in subsection (2).
Election
(2)
The mineral miner may make an election to apply this section in relation to the permit area in a return of income for an income year that is the first year in which the miner’s commercial production of a listed industrial mineral from the mining permit area starts. The election is irrevocable and applies only to expenditure referred to in subsection (1)(a).
Reserve depletion method
(3)
The deduction for the expenditure incurred by the mineral miner and allocated to an income year is calculated using the formula—
(reserve expenditure − previous expenditure)
× reserve depletion for the year ÷ proven and probable reserves.
Definition of items in formula
(4)
In the formula,—
(a)
reserve expenditure is the total amount of the mineral miner’s expenditure described in section DU 6(1)(a) for the permit area for the income year and earlier income years to which this section applies:
(b)
previous expenditure is the total expenditure for the permit area that has been allocated to an earlier income year to which this section applied:
(c)
reserve depletion for the year is the amount of a listed industrial mineral produced from the permit area for the income year:
(d)
proven and probable reserves is the amount of the proven ore reserves and probable ore reserves of the listed industrial mineral for the permit area as set out in the reserve statement for the area, provided the reserve statement is prepared in accordance with a classification code recognised for the purposes of estimating reserves and resources under the Crown Minerals (Minerals other than Petroleum) Regulations 2007.
Appropriate units of measure
(5)
In subsection (4)(c) and (d), the amount must be expressed in an appropriate unit of measure as set out in the mineral miner’s reserve statement, and must be the same measure used in the formula for the items defined in those paragraphs.
Mines and mining permit areas
(6)
For the purposes of this section, a mineral miner may allocate expenditure for an income year under this section in relation to a mine rather than in relation to a mining permit area, but only if—
(a)
the mineral miner uses IFRS rules to prepare their financial statements; and
(b)
the allocation in relation to the mine is permitted for the purposes of those statements.
Transitional provision for existing mines
(7)
Despite subsection (2), a mineral miner may make an election to apply this section in relation to an existing permit area for the 2014–15 income year. The election is irrevocable and applies to expenditure incurred by the mineral miner in the permit area for the income year and later income years.
Defined in this Act: amount, associated mining operations, commercial production, Commissioner, deduction, financial statements, general permission, IFRS, income, income year, listed industrial mineral, mineral miner, mining operations, permit area, return of income
Section EJ 20E: inserted, on 1 April 2014 (applying for the 2014–15 and later income years), by section 50 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EJ 20E(4)(a): amended (with effect on 1 April 2014 and applying for the 2014–15 and later income years), on 30 June 2014, by section 74(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EJ 20E list of defined terms mining development expenditure: repealed (with effect on 1 April 2014), on 30 June 2014, by section 74(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Superannuation contributions
EJ 21 Contributions to employees’ superannuation schemes
When this section applies
(1)
This section applies when an employer is allowed a deduction for a superannuation contribution to an employee’s superannuation scheme under section DC 7 (Contributions to employees’ superannuation schemes).
Timing of deduction
(2)
The employer may choose to allocate the deduction to the income year for which the contribution was required by the superannuation scheme to be made, or for which the amount of the contribution was calculated taking into account the earnings paid to employees who were members of the scheme during the income year, if the employer makes the contribution within 63 days after the end of the income year.
Election
(3)
The employer must make the election before filing a return of income for the income year or within a longer time if the Commissioner agrees.
Defined in this Act: amount, Commissioner, deduction, employee, employer, income year, return of income, superannuation contribution, superannuation scheme
Compare: 2004 No 35 s EJ 19
Research, development, and resulting market development
EJ 22 Deductions for market development: product of research, development
When this section applies
(1)
This section applies when a person is allowed a deduction for expenditure that is not interest and is incurred—
(a)
on market development for a product that has resulted from expenditure incurred by the person on research or development; and
(b)
before the person begins commercial production or commercial use of the product.
Choice for allocation of deduction
(2)
The person may choose to allocate under section DB 34(7) all or part of the deduction to an income year—
(a)
after the income year in which the person incurs the expenditure; and
(b)
in the way required by section EJ 23.
Defined in this Act: deduction, development, income year, research
Compare: 2004 No 35 s EJ 20
Section EJ 22(1): amended, on 29 March 2018 (with effect on 1 April 2008 and applying for the 2008–09 and later income years), by section 76(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
EJ 23 Allocation of deductions for research, development, and resulting market development
When this section applies
(1)
This section applies when a person has—
(a)
a deduction for expenditure incurred on research or development that the person chooses to allocate under section DB 34(7) (Research or development):
(b)
a deduction for an amount of depreciation loss for an item used for research or development, that the person chooses to allocate under section EE 1(5) (What this subpart does):
(c)
a deduction for expenditure incurred on market development for a product that has resulted from expenditure incurred on research or development that the person chooses to allocate under section EJ 22(2).
Timing of deduction
(2)
The person must allocate the deduction to an income year—
(a)
in which the person derives an amount of income that is assessable income that the person would not have derived but for—
(i)
expenditure that gives rise to a deduction that may be allocated under this section:
(ii)
the use or disposal of an item for which the person has an amount of depreciation loss that may be allocated under this section:
(b)
to which under Part I (Treatment of tax losses) a loss balance is carried forward for the income year in which the expenditure or depreciation loss was incurred.
Minimum amount of deduction allocated to income year
(3)
The person must not allocate to an income year (the current year) an amount of deductions referred to in subsection (1) that is less than the lesser of—
(a)
the amount of assessable income referred to in subsection (2)(a) that the person derives in the current year:
(b)
the amount of the deductions that have not been allocated to an income year before the current year.
Maximum amount of deduction allocated to income year
(4)
The person must not allocate to an income year (the current year) an amount of deductions referred to in subsection (1) that is more than the greater of—
(a)
the amount of assessable income referred to in subsection (2)(a) that the person derives in the current year:
(b)
the amount of the deductions that—
(i)
arise in other income years from which a loss balance may be carried forward under Part I to the current year; and
(ii)
have not been allocated to income years before the current year.
Defined in this Act: amount, assessable income, deduction, depreciation loss, development, income year, loss balance, research
Compare: 2004 No 35 s EJ 21
Aircraft engine overhauls
Heading: inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 69(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
EJ 24 Allocation of expenditure on aircraft engine overhauls
When this section applies
(1)
This section applies when a person is allowed a deduction under section DW 5 or DW 6 (which relate to the acquisition, overhaul, and leasing of aircraft engines) for expenditure incurred in acquiring an aircraft engine or in performing an aircraft engine overhaul of an aircraft engine or under a finance lease involving an aircraft engine.
Allocation of deduction: general rule
(2)
A person who does not make an election under section EJ 25 or EJ 26 must allocate a proportion of the deduction for an acquisition or aircraft engine overhaul to each income year that includes a part of the scheduled overhaul period following the acquisition or aircraft engine overhaul, with the proportion for an income year being equal to the proportion of the scheduled overhaul period that occurs in the income year.
Exception: allocation of deduction when early aircraft engine overhaul
(3)
If the person performs in an income year an aircraft engine overhaul during the scheduled overhaul period relating to the preceding acquisition or aircraft engine overhaul of the aircraft engine, the person must allocate to the income year the part of the deduction for the preceding acquisition or aircraft engine overhaul that would otherwise be allocated under subsection (2) to a later income year.
Exception: allocation of deduction when lease ends
(4)
If the person leases an aircraft engine, or an aircraft including an unpriced aircraft engine, under a lease that ends before the end of the scheduled overhaul period relating to the preceding acquisition or aircraft engine overhaul of the aircraft engine, the person must allocate to the income year in which the lease ends the part of the deduction for the preceding acquisition or aircraft engine overhaul that would otherwise be allocated under subsection (2) to a later income year.
Defined in this Act: aircraft engine, aircraft engine overhaul, associated person, business, deduction, income year, lease, scheduled overhaul period, unpriced aircraft engine
Section EJ 24: inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 69(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
EJ 25 Allocation of expenditure on aircraft engine overhauls: election by IFRS user
Election
(1)
A person may elect to quantify and allocate under this section the amount of a deduction allowed by section DW 5 or DW 6 (which relate to the acquisition, overhaul, and leasing of aircraft engines) in relation to an aircraft or aircraft engine and an income year if—
(a)
the person is a New Zealand resident or holds a valid certificate of registration for the aircraft from the Director of Civil Aviation under the Civil Aviation Act 1990; and
(b)
the person uses IFRS rules to prepare financial statements; and
(c)
the aircraft is treated under the IFRS rules as being owned by the person or is leased by the person under a finance lease.
Adjusted figures from financial statements
(2)
A person who elects to rely on this subsection must quantify and allocate deductions under section DW 5 or DW 6 for an assessment to which the election applies by using the figures relating to aircraft and aircraft engines used in the person’s financial statements and using methods and adjustments agreed with the Commissioner.
Currency of election
(3)
An election under this section applies for each assessment that is made by the person—
(a)
after the person—
(i)
reaches any necessary agreement under subsection (2) with the Commissioner; and
(ii)
notifies the Commissioner of the election when or before making a return based on the elected approach; and
(iii)
is notified that the Commissioner accepts the election, if the Commissioner has previously notified the person under paragraph (d); and
(b)
before the person’s return for an income year for which the person does not meet the requirements of subsection (1); and
(c)
before the person notifies the Commissioner, when or before making a return based on an approach other than the elected approach, that the election is revoked; and
(d)
before the person is notified that the Commissioner will not accept assessments based on the elected approach.
Grounds for Commissioner’s refusal
(4)
The Commissioner may give to the person a notice referred to in subsection (3)(d), or may refuse to give to the person a notice referred to in subsection (3)(a)(iii), if the Commissioner considers that the person has, in making an assessment, departed significantly from an agreement with the Commissioner or from the requirements of the IFRS rules.
Defined in this Act: aircraft engine, Commissioner, deduction, finance lease, financial statements, IFRS, income year, lease, New Zealand resident, notice, notify, return
Section EJ 25: inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 69(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
EJ 26 Allocation of expenditure on aircraft engine overhauls: election by operator of single aircraft
Election
(1)
A person may elect to quantify and allocate under this section the amount of a deduction allowed by section DW 5 or DW 6 (which relate to the acquisition, overhaul, and leasing of aircraft engines) in relation to an aircraft and an income year if—
(a)
no more than 1 aircraft is operated in business by the person and persons who are associated with the person other than by blood relationship; and
(b)
no more than 1 aircraft is operated in a particular business by the person and a person who is associated with the person by blood relationship.
Expenditure on acquisition and overhaul of aircraft engines
(2)
A person who elects to rely on this subsection to the income year must—
(a)
allocate a deduction under section DW 5(2) to the income year of the aircraft engine overhaul to which the deduction relates; and
(b)
treat each aircraft engine as an unpriced aircraft engine for the purposes of section DW 5.
Currency of election
(3)
An election under this section applies for each assessment that is made by the person—
(a)
after the person notifies the Commissioner of the election, when or before making a return based on the approach required by subsection (2); and
(b)
before the person’s return for the third consecutive income year in which the person does not meet the requirements of subsection (1); and
(c)
before the person notifies the Commissioner, when or before making a return based on an approach other than the elected approach, that the election is revoked.
Defined in this Act: aircraft engine, associated person, business, deduction, income year, notice, notify, return, unpriced aircraft engine
Section EJ 26: inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 69(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
EJ 27 Disposal of aircraft engine or aircraft
When this section applies
(1)
This section applies when a person—
(a)
is allowed a deduction under section DW 5 or DZ 22 (which relate to deductions for expenditure on aircraft engine maintenance) in relation to an aircraft engine or an aircraft including an unpriced aircraft engine; and
(b)
disposes of the aircraft engine or aircraft.
Allocation of remaining deductions
(2)
The person must allocate to the income year in which the disposal occurs the part of the deduction under section DW 5 or DZ 22 for the preceding acquisition or aircraft engine overhaul that is not allocated to an earlier income year.
Allocation of consideration
(3)
The person must allocate the consideration derived for the disposal between—
(a)
the aircraft engine or aircraft as an item of depreciable property; and
(b)
the unexpired portion of the scheduled overhaul period for the aircraft engine.
Allocation of consideration by agreement
(4)
The allocation by the person under subsection (3) must be—
(a)
the apportionment agreed with the purchaser; or
(b)
a fair and reasonable apportionment, if there is no agreed apportionment under paragraph (a).
Recovery income
(5)
The person derives from the disposal an amount of income equal to—
(a)
the total amount of deductions under section DW 5 or DZ 22 allowed for the aircraft engine or aircraft and the latest scheduled overhaul period beginning before the disposal, if that amount is less than the amount described in paragraph (b); or
(b)
the amount of consideration allocated under subsection (3) to the unexpired portion of the scheduled overhaul period for the aircraft engine, if paragraph (a) does not apply.
Sections CC 11 and FA 9: consideration paid by lessee for lease asset
(6)
For the purposes of sections CC 11 and FA 9 (which relate to a lessee acquiring a lease asset when a lease ends), the amount of consideration paid by a lessee or an associated person of a lessee to acquire an aircraft engine or aircraft, after the term of a finance lease of the aircraft engine or aircraft, does not include the amount allocated under subsection (3) to the unexpired portion of the scheduled overhaul period for the aircraft engine or aircraft.
Sections CC 12 and FA 10: consideration derived by lessor from disposal of lease asset
(7)
For the purposes of sections CC 12 and FA 10 (which relate to a lessor acquiring a lease asset when a lease ends), the amount of consideration received by the lessor for a disposal of an aircraft engine or aircraft after the term of a finance lease of the aircraft engine or aircraft does not include an amount of consideration allocated under subsection (3) to the unexpired portion of the scheduled overhaul period for the aircraft engine or aircraft.
Defined in this Act: aircraft engine, aircraft engine overhaul, deduction, depreciable year, dispose, finance lease, income, income year, scheduled overhaul period, unpriced aircraft engine
Section EJ 27: inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 69(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Subpart EK—Environmental restoration accounts
Contents
EK 1 Payment to Crown Bank Account
Every payment a person makes to the Commissioner under section EK 2—
(a)
is public money; and
(b)
must be paid into a Crown Bank Account.
Defined in this Act: Commissioner, pay
Section EK 1: replaced, on 30 March 2022, by section 85 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
EK 2 Persons who may make payment to environmental restoration account
A person may make a payment to the Commissioner for entry in the person’s environmental restoration account for an income year if the person—
(a)
carries on a business in New Zealand; and
(b)
expects to incur, for a later income year, expenditure that—
(i)
is not on revenue account property, other than land to which section CB 8 (Disposal: land used for landfill, if notice of election) applies; and
(ii)
is of a kind listed in schedule 19, part B (Expenditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant or making of noise); and
(iii)
is of a kind not listed in schedule 19, part C; and
(c)
makes a provision for such expenditure in financial statements that are—
(i)
prepared for external reporting purposes; and
(ii)
audited by an accountant who is a chartered accountant or has equivalent professional qualifications; and
(iii)
given by the accountant a standard audit opinion, without qualifications on matters relating to the effect of this subpart.
Defined in this Act: business, Commissioner, environmental restoration account, income year, pay, revenue account property
Compare: 2004 No 35 s EK 2
Section EK 2(b)(ii): amended (with effect on 1 April 2018), on 18 March 2019, by section 170 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EK 3 Payments to environmental restoration account
Upper limit of payment
(1)
A person must not make a payment for an income year of more than the person’s maximum payment for the income year.
Lower limit of payment
(2)
A person must not make a payment for an income year of less than $1,000.
Time for making payment
(3)
A payment made after the day that is 6 months after the end of an income year is not made for the income year unless—
(a)
the Commissioner has allowed a longer period for the payment; and
(b)
the payment is made within the period allowed by the Commissioner.
Defined in this Act: Commissioner, income year, maximum payment, pay
Compare: 2004 No 35 s EK 3
EK 4 Environmental restoration account
Person’s account
(1)
The Commissioner must keep an environmental restoration account in the name of every person who makes a payment to the Commissioner under section EK 2.
Payments in account
(2)
Every payment under section EK 2 that a person makes to the Commissioner must be entered in the person’s environmental restoration account.
Amounts in account
(3)
The only amounts that may be entered in a person’s environmental restoration account are—
(a)
payments made by the person to the Commissioner under section EK 2:
(b)
transfers made to the account under subsection (6):
(c)
interest paid under section EK 6.
Amounts not available to others
(4)
An amount entered in a person’s environmental restoration account may not, while in the account,—
(a)
be assigned or charged in any way:
(b)
pass by operation of law to, or into the custody or control of, someone else, except when the person is bankrupt or has been put into liquidation:
(c)
be an asset for the payment of the person’s debts or liabilities, except when the person is bankrupt or has been put into liquidation:
(d)
be an asset for the payment of the debts or liabilities of a dead person’s estate.
Amounts not available except for refunds or transfers
(5)
An amount entered in a person’s environmental restoration account may not be removed from the environmental restoration account except by a refund under section EK 9 or EK 12 or by a transfer under subsection (6).
Transfers of amounts
(6)
An amount may be transferred from the environmental restoration account of a person—
(a)
to an environmental restoration account of a person to whom the amount has been transferred under section EK 15 or EK 16(3)(b):
(b)
to the department that is at the time responsible for administering the Environment Act 1986, if the amount has been transferred under section EK 16(3)(a):
(c)
to an environmental restoration account of an amalgamated company to which the amount has been transferred under section EK 19.
Commissioner may close empty account
(7)
The Commissioner may close an environmental restoration account of a person if the amount in the environmental restoration account is zero.
Defined in this Act: amalgamating company, amount, Commissioner, environmental restoration account, interest, liquidation, pay
Compare: 2004 No 35 s EK 4
EK 5 Details to be provided with payment to environmental restoration account
Notice and details required
(1)
A person making a payment to an environmental restoration account must provide the Commissioner with a notice, in a form prescribed by the Commissioner, giving—
(a)
the name of the person; and
(b)
the income year for which the payment is made; and
(c)
a calculation of the maximum payment for the person and the income year; and
(d)
any additional information that the Commissioner requires.
Time for providing information
(2)
The person must provide the information required by subsection (1) within 2 working days from the day of the payment.
Defined in this Act: Commissioner, environmental restoration account, income year, maximum payment, notice, pay, working day
Compare: 2004 No 35 s EK 5
Section EK 5 list of defined terms notice: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
EK 6 Interest on payments to environmental restoration account
Interest payable
(1)
Interest is payable by the Commissioner on—
(a)
a payment under section EK 2 to an environmental restoration account:
(b)
an amount that is treated under section EK 15, EK 16, or EK 19 as being a payment to an environmental restoration account.
Period
(2)
Interest is computed with daily rests from the day after the date of the payment until the day before the date on which the payment is included in a refund under section EK 12 or in a transfer under section EK 15, EK 16, or EK 19.
Date to which interest accrues
(3)
Interest that has accrued on a payment is payable to the person who has the environmental restoration account on the earlier of—
(a)
31 March in each year:
(b)
the day on which the payment is included in a refund under section EK 12 or in a transfer under section EK 15, EK 16, or EK 19.
Rate
(4)
The interest rate is 3% per year.
Defined in this Act: Commissioner, environmental restoration account, interest, pay, year
Compare: 2004 No 35 s EK 6
EK 7 Deduction for payment
When this section applies
(1)
This section applies when a person is allowed a deduction under section DQ 4 (Environmental restoration accounts scheme) for a payment to their environmental restoration account under section EK 2.
Amount of deduction
(2)
The amount of the deduction is calculated using the formula—
payment ÷ tax rate.
Definition of items in formula
(3)
The items in the formula are defined in subsections (4) and (5).
Payment
(4)
Payment is the lesser of—
(a)
the person’s payment to the Commissioner under section EK 2 for the income year; and
(b)
the person’s maximum payment for the income year.
Tax rate
(5)
Tax rate is the highest rate of income tax on taxable income that—
(a)
is set out in schedule 1 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe benefits); and
(b)
would apply to the person for the tax year if the person had sufficient taxable income.
Timing of deduction
(6)
The person is allowed the deduction for the income year for which the payment is made.
Defined in this Act: Commissioner, deduction, environmental restoration account, income tax, income year, maximum payment, pay, tax year, taxable income
Compare: 2004 No 35 s EK 7
Section EK 7(5)(a): amended, on 1 April 2008, by section 562 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EK 8 Deduction for transfer
When this section applies
(1)
This section applies when a person is allowed a deduction under section DQ 4 (Environmental restoration accounts scheme) for a transfer to their environmental restoration account under section EK 15, EK 16, or EK 19.
Amount of deduction
(2)
The amount of the deduction is calculated using the formula—
transfer ÷ tax rate.
Definition of items in formula
(3)
The items in the formula are defined in subsections (4) and (5).
Transfer
(4)
Transfer is the amount of the transfer to the person’s environmental restoration account that is treated as a payment by the person under section EK 15(3), EK 16, or EK 19.
Tax rate
(5)
Tax rate is the highest rate of income tax on taxable income that—
(a)
is set out in schedule 1 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe benefits); and
(b)
would apply to the person for the tax year if the person had sufficient taxable income.
Timing of deduction
(6)
The person is allowed the deduction for the income year for which the transfer is made.
Defined in this Act: deduction, environmental restoration account, income tax, income year, maximum payment, pay, tax year, taxable income
Compare: 2004 No 35 s EK 8
Section EK 8(5)(a): amended, on 1 April 2008, by section 562 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EK 9 Refund of payment if excess, lacking details
When this section applies
(1)
This section applies when a person’s payment under section EK 2 for an income year is—
(a)
more than the person’s maximum payment for the income year:
(b)
made without providing the details required by section EK 5.
Refund
(2)
As soon as practicable after the date on which the payment is received, the Commissioner must refund to the person—
(a)
the excess, if the payment is more than the person’s maximum payment for the income year:
(b)
the payment, if the payment is described by subsection (1)(b).
No interest payable by Commissioner
(3)
No interest is payable by the Commissioner under section EK 6 on the amount of the payment.
Defined in this Act: Commissioner, income year, interest, maximum payment, pay
Compare: 2004 No 35 s EK 9
EK 10 Certain refunds not income
A refund under section EK 9 is excluded income under section CX 52 (Refund from environmental restoration account).
Defined in this Act: excluded income
Compare: 2004 No 35 s EK 10
EK 11 Application for refund
Who may apply
(1)
A person may apply to the Commissioner for a refund under section EK 12 of an amount in the person’s environmental restoration account if the refund—
(a)
(b)
represents an excess in the person’s environmental restoration account over the maximum account balance for the person’s environmental restoration account for the income year.
Application
(2)
An application for a refund must—
(a)
[Repealed](b)
state the grounds on which the application is made; and
(c)
provide evidence satisfactory to the Commissioner verifying the existence of the grounds; and
(d)
state the amount of the refund that the applicant wants.
Defined in this Act: apply, Commissioner, environmental restoration account, income year
Compare: 2004 No 35 s EK 11
Section EK 11(1)(a): amended (with effect on 1 April 2018), on 18 March 2019, by section 171 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EK 11(2)(a): repealed, on 2 June 2016, by section 29(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EK 11 list of defined terms apply: inserted, on 2 June 2016, by section 29(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
EK 12 Refund if application or excess balance
When this section applies
(1)
This section applies when—
(a)
(b)
the amount in the person’s environmental restoration account is more than the maximum account balance for an income year.
Refund if application made
(2)
The Commissioner must make a refund under this section to a person if—
(a)
the person applies for a refund and has incurred expenditure—
(i)
(ii)
of an amount equal to or greater than the amount given by subsection (3) for the amount of the refund; and
(iii)
after the first date on which the person made to the Commissioner a payment under section EK 2 for entry in the person’s environmental restoration account or a transfer under section EK 15, EK 16, or EK 19 was made to the person’s environmental restoration account:
(b)
the maximum account balance for the latest complete income year for the person’s environmental restoration account is less than the amount in the environmental restoration account at the end of that income year.
Minimum amount of expenditure incurred
(3)
The amount of expenditure incurred that corresponds to the amount of a refund is calculated using the formula—
amount ÷ tax rate.
Definition of items in formula
(4)
In the formula,—
(a)
amount is the amount of the refund:
(b)
tax rate is the highest rate of income tax on taxable income that—
(i)
is set out in schedule 1 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe benefits); and
(ii)
would apply to the person for the tax year if the person had sufficient taxable income.
Amount of refund if expenditure incurred
(5)
If a person is entitled to a refund under subsection (2)(a), the amount that the Commissioner must refund to the person is the smallest of—
(a)
the refund for which the person applies:
(b)
the contents of the person’s environmental restoration account at the time of the refund:
(c)
the refund corresponding to the person’s expenditure that meets the requirements of subsection (2)(a)(i) to (iii).
Amount of refund if maximum account balance decreases
(6)
If a person is entitled to a refund under subsection (2)(b), the amount that the Commissioner must refund is the difference at the end of the latest complete income year between—
(a)
the amount in the person’s environmental restoration account after any transfer under section EK 15, EK 16, or EK 19 for the income year:
(b)
the person’s maximum account balance for the income year.
Relationship with section EK 17
(7)
Section EK 17 overrides subsections (5) and (6).
Defined in this Act: amount, apply, Commissioner, environmental restoration account, income tax, income year, maximum account balance, pay, tax year, taxable income
Compare: 2004 No 35 s EK 12
Section EK 12 heading: amended, on 2 June 2016, by section 30(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EK 12(2) heading: amended, on 2 June 2016, by section 30(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EK 12(2)(a)(i): amended (with effect on 1 April 2018), on 18 March 2019, by section 172 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EK 12(4)(b)(i): amended, on 1 April 2008, by section 562 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EK 12 list of defined terms apply: inserted, on 2 June 2016, by section 30(3) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
EK 13 Income when refund given on application
A refund under section EK 12 is income, of the amount given by section CB 28 (Environmental restoration accounts), derived by the person in the income year in which the person receives the refund.
Defined in this Act: apply, Commissioner, income, income year
Compare: 2004 No 35 s EK 13
Section EK 13 heading: amended, on 2 June 2016, by section 31(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EK 13 list of defined terms apply: inserted, on 2 June 2016, by section 31(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
EK 14 Application for transfer
Who may apply
(1)
A person may apply to the Commissioner for a transfer under section EK 15 from the amount in the person’s environmental restoration account.
Application
(2)
An application for a transfer must—
(a)
[Repealed](b)
state the grounds on which the application is made; and
(c)
state the amount of the transfer that the applicant wants.
Defined in this Act: apply, Commissioner, environmental restoration account
Compare: 2004 No 35 s EK 14
Section EK 14(2)(a): repealed, on 2 June 2016, by section 32(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EK 14 list of defined terms apply: inserted, on 2 June 2016, by section 32(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
EK 15 Transfer on application
When this section applies
(1)
This section applies when—
(a)
a person applies under section EK 14 for a transfer of some or all of the amount in their environmental restoration account to a person who is nominated in the application; and
(b)
the person has transferred to the nominated person the obligations to which the amount relates; and
(c)
none of sections EK 9, EK 12, EK 16, and EK 19 applies.
Transfer if application made
(2)
The Commissioner must make a transfer under this section to an environmental restoration account of the person nominated in the application.
Transfer treated as payment by nominated person
(3)
A transfer under subsection (2) is treated as being a payment by the nominated person to the nominated person’s environmental restoration account if the nominated person satisfies the Commissioner that—
(a)
the obligations to which the transferred amount relates have been transferred to the nominated person; and
(b)
in the absence of the transfer, the nominated person would be entitled to make a payment, of the amount of the transfer, to the nominated person’s environmental restoration account.
Commissioner to reverse transfer if requirements of subsection (3) not met
(4)
If the nominated person does not meet the requirements of subsection (3) in relation to an amount, the Commissioner must transfer the amount to the environmental restoration account of the person who made the application under subsection (1)(a).
Timing of reversal
(5)
The transfer under subsection (4) is treated as taking place at the time of the original transfer under subsection (2).
Defined in this Act: apply, Commissioner, environmental restoration account, pay
Compare: 2004 No 35 s EK 15
Section EK 15 heading: amended, on 2 June 2016, by section 33(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EK 15(2) heading: amended, on 2 June 2016, by section 33(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EK 15 list of defined terms apply: inserted, on 2 June 2016, by section 33(3) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
EK 16 Transfer on death, bankruptcy, or liquidation
When this section applies
(1)
This section applies when a person—
(a)
has an environmental restoration account; and
(b)
does 1 of the following:
(i)
dies:
(ii)
becomes bankrupt:
(iii)
is put into liquidation.
Transfer to other person
(2)
Subsection (3) applies if the Commissioner is notified, by the administrator of the person’s estate, the Official Assignee, or the person’s liquidator, that the obligation to which the balance in the person’s environmental restoration account relates has been transferred to another person.
Transfer by Commissioner
(3)
The Commissioner must transfer the amount referred to in subsection (4) to an environmental restoration account of the person to whom the obligation has been transferred.
Amount of transfer
(4)
The Commissioner must transfer under subsection (3) the amount that is in the person’s environmental restoration account on the date on which—
(a)
the person dies, if subsection (1)(b)(i) applies:
(b)
the person becomes bankrupt, if subsection (1)(b)(ii) applies:
(c)
the person is put into liquidation, if subsection (1)(b)(iii) applies.
Relationship with section EK 17
(5)
Section EK 17 overrides subsection (4).
Transfer treated as payment
(6)
A transfer to the environmental account of a person under subsection (3) is treated as a payment by the person to their environmental account.
Year of income
(7)
The amount of a transfer under this section is income, under section CB 28 (Environmental restoration accounts), derived by the person on the day before the day on which the amount of the transfer is determined under subsection (4).
Defined in this Act: amount, Commissioner, environmental restoration account, income, liquidation, notify, pay
Compare: 2004 No 35 s EK 16
Section EK 16(2): amended, on 2 June 2016, by section 34(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EK 16 list of defined terms notify: inserted, on 2 June 2016, by section 34(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
EK 17 Minimum refund or transfer
Defined in this Act: Commissioner, environmental restoration account
Compare: 2004 No 35 s EK 17
EK 18 Payments from which refunds come
Each refund to a person is treated as coming from the total amount in the person’s environmental restoration account in the order in which the person made the payments into the account.
Defined in this Act: amount, environmental restoration account, pay
Compare: 2004 No 35 s EK 18
EK 19 Environmental restoration account of amalgamating company
If an amalgamating company with an environmental restoration account ends its existence on an amalgamation during an income year,—
(a)
the contents of the environmental restoration account of the amalgamating company are transferred to an environmental restoration account of the amalgamated company on the date of the amalgamation:
(b)
the amalgamated company is treated as having—
(i)
made to the amalgamated company’s environmental restoration account the payments that the amalgamating company made before the amalgamation to the amalgamating company’s environmental restoration account; and
(ii)
made from the amalgamated company’s environmental restoration account the transfers that the amalgamating company made before the amalgamation from the amalgamating company’s environmental restoration account; and
(iii)
received from the amalgamated company’s environmental restoration account the refunds that the amalgamating company received before the amalgamation from the amalgamating company’s environmental restoration account.
Defined in this Act: amalgamated company, amalgamating company, amalgamation, environmental restoration account, income year, pay
Compare: 2004 No 35 s EK 19
EK 20 Environmental restoration account of consolidated group company
Company with environmental restoration account
(1)
A company that is part of a consolidated group may have an environmental restoration account.
Nominated company for group acting on behalf of company
(2)
The nominated company for the consolidated group may act on behalf of the group company under this subpart to—
(a)
make payments, applications, and transfers:
(b)
receive refunds and transfers.
Use of consolidated financial statements for group
(3)
In making payments and applications under this subpart, the nominated company may rely on the audited consolidated financial statements for the consolidated group.
Use of consolidated figures for liabilities anticipated and expenditure incurred
(4)
If the nominated company relies on the audited consolidated financial statements for the consolidated group, the consolidated figures for the anticipated liabilities and incurred expenditure of the consolidated group are attributed to the group companies on the basis of the individual obligations of the companies to incur expenditure of a kind listed in schedule 19, part B (Expenditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant or making of noise) and not in schedule 19, part C.
Defined in this Act: apply, consolidated group, environmental restoration account, nominated company, pay
Compare: 2004 No 35 s EK 20
Section EK 20(4): amended (with effect on 1 April 2018), on 18 March 2019, by section 173 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EK 20 list of defined terms apply: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
EK 21 Notices in electronic format
The Commissioner may require a person to provide a notice under this subpart in an electronic format that the Commissioner prescribes under section 36BC of the Tax Administration Act 1994.
Defined in this Act: Commissioner, electronic format, notice
Compare: 2004 No 35 s EK 21
Section EK 21 list of defined terms notice: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
EK 22 Meaning of maximum payment
Maximum payment
(1)
In this subpart, maximum payment means the maximum payment that under subsection (2) a person may make to the person’s environmental restoration account for an income year.
Amount of maximum payment
(2)
The maximum payment that a person may make for an income year is the lesser of—
(a)
the amount by which the maximum account balance for the income year for the environmental restoration account is more than the amount in the environmental restoration account at the end of the income year:
(b)
the amount, if any, calculated under subsection (3) for the person and the income year.
Maximum payment for first 5 years of environmental restoration funds scheme
(3)
If a person has a maximum account balance for the 2005–06 income year that is more than zero, the amount referred to in subsection (2)(b) for the person and for that income year, and for each of the later income years before the 2010–11 income year, is the amount calculated using the formula—
level increase + (year × 0.2 × initial level) − contents.
Definition of items in formula
(4)
In the formula,—
(a)
level increase is the greater of zero and the amount by which the maximum account balance for the income year is more than the maximum account balance for the 2005–06 income year:
(b)
year is 1 for the 2005–06 income year and increases by 1 for each successive income year to a maximum of 5 for the 2009–10 income year:
(c)
initial level is the maximum account balance for the 2005–06 income year:
(d)
contents is the amount in the environmental restoration account at the end of the income year.
Defined in this Act: amount, business, environmental restoration account, income year, maximum payment, pay
Compare: 2004 No 35 s EK 22
EK 23 Other definitions
Meaning of maximum account balance
(1)
In this subpart, maximum account balance for a person and an income year means—
(a)
if the person does not meet the requirements of section EK 2 for the income year, zero:
(b)
if the person meets the requirements of section EK 2 for the income year, the amount calculated using the formula—
provision × tax rate.
Definition of items in formula
(2)
In the formula,—
(a)
provision is the provision in the person’s financial statements for future expenditure that—
(i)
is of a kind listed in schedule 19, part B (Expenditure in avoiding, remedying, or mitigating detrimental effects of discharge of contaminant or making of noise); and
(ii)
is not of a kind listed in schedule 19, part C:
(b)
tax rate is the highest rate of income tax on taxable income that—
(i)
is set out in schedule 1 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe benefits); and
(ii)
would apply to the person for the tax year if the person had sufficient taxable income.
Meaning of environmental restoration account
(3)
In this subpart, environmental restoration account, for a person, means the account that the Commissioner keeps in the person’s name under section EK 4.
Defined in this Act: business, Commissioner, environmental restoration account, income tax, income year, taxable income
Compare: 2004 No 35 s EK 23
Section EK 23(2)(a)(i): amended (with effect on 1 April 2018), on 18 March 2019, by section 174 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EK 23(2)(b)(i): amended, on 1 April 2008, by section 562 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Subpart EL—Allocation of deductions for excess residential land expenditure
Subpart EL: inserted (with effect on 1 April 2019), on 26 June 2019, by section 62(1) (and see section 62(2) and (3) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Introductory provisions
Heading: inserted (with effect on 1 April 2019), on 26 June 2019, by section 62(1) (and see section 62(2) and (3) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
EL 1 Outline of subpart: general
General outline
(1)
The provisions in this subpart, in general,—
(a)
limit a person’s deductions for expenditure incurred in relation to residential land to income derived from the land; and
(b)
suspend deductions for the excess expenditure for the income year in which the expenditure is incurred; and
(c)
provide that the excess amounts are carried forward to later income years in which the person derives residential income; and
(d)
release the excess amounts on fully-taxed disposals of land.
Allocation rules
(2)
Separate allocation rules apply for—
(a)
residential rental property, see the outline in section EL 2(1) to (6):
(b)
bright-line disposals of residential land, see the outline in section EL 2(7).
Defined in this Act: amount, deduction, dispose, income, income year, residential land, residential rental property
Section EL 1: inserted (with effect on 1 April 2019), on 26 June 2019, by section 62(1) (and see section 62(2) and (3) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
EL 2 Outline of subpart: specific provisions
Residential rental property
(1)
Sections EL 4 to EL 8 apply when a person owns a residential rental property and has expenditure or loss that relates to the property for which they are allowed a deduction. For this purpose, the expenditure does not include an amount that is a cost of revenue account property.
Application by portfolio or on property-by-property basis
(2)
The rules in sections EL 4 to EL 8 apply—
(a)
to a person’s residential portfolio:
(b)
by election, on a property-by-property basis.
Portfolios plus particular properties
(3)
A person may choose to apply the rules on a property-by-property basis for an income year to 1 or more properties while applying the rules on a portfolio basis in relation to other properties owned by them.
Use of amounts
(4)
If a person has excess expenditure under section EL 4, they may use the amount in later income years in which they derive residential income. In certain cases, the amounts are released from the application of the rules.
Exclusions
(5)
The following sections set out the properties to which the deduction allocation rule in section EL 4 does not apply:
(a)
section EL 9: the person’s main home:
(b)
section EL 10: property held by the person on revenue account:
(c)
section EL 11: property held by certain persons and entities:
(d)
section EL 12: property to which subpart DG (Expenditure related to use of certain assets) applies:
(e)
section EL 13: property provided as employee accommodation.
Rules for certain entities
(6)
The following sections modify the general rules in this subpart:
(a)
section EL 14 relating to the continuity rules for companies:
(b)
section EL 15 relating to transfers between companies in wholly-owned groups:
(c)
sections EL 16 to EL 19 relating to deductions for interest expenditure when a person borrows to invest in a residential land-rich entity.
Bright-line disposals of residential land
(7)
Section EL 20 applies when a person sells residential land within the bright-line period and has expenditure that relates to the land for which they are allowed a deduction as a cost of revenue account property. The section also provides for the treatment of the expenditure when the sale is made to an associated person.
Defined in this Act: amount, associated person, company, deduction, employee, income year, interest, loss, own, residential income, residential land, residential land-rich entity, residential portfolio, residential rental property, revenue account property, wholly-owned group of companies
Section EL 2: inserted (with effect on 1 April 2019), on 26 June 2019, by section 62(1) (and see section 62(2) and (3) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EL 2(5): amended (with effect on 1 April 2019), on 30 March 2021, by section 45(1) (and see section 45(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
EL 3 Definitions for this subpart
In this subpart,—
land sales provisions means sections CB 6A to CB 15 and CZ 39 (which relate to amounts derived from disposals of land)
residential income means the following amounts that a person derives for an income year in relation to residential land:
(a)
rental income which is the amount of income the person derives under sections CC 1 to CC 2 (which relate to amounts derived from the use of land) for the income year in relation to their residential portfolio:
(ab)
income which is the amount that the person derives under section CC 3 (Financial arrangements) for the income year in relation to a loan, denominated in a foreign currency, to the extent to which that loan relates to their residential portfolio:
(b)
depreciation recovery income which is the amount that the person derives under section CG 1 (Amount of depreciation recovery income) for the income year in relation to their residential portfolio:
(c)
an amount of net income that the person would have for the corresponding tax year if their only income were income under the land sales provisions from a disposal of property in their residential portfolio:
(d)
an amount of net income that the person would have for the corresponding tax year if their only income were income referred to in paragraphs (a), (b), and (c) in relation to residential land to which section EL 4 does not apply because it is held on revenue account and falls within the exclusion set out in section EL 10
residential land-rich entity means—
(a)
a close company, partnership, or look-through company if more than 50% of its assets by value are residential land, whether the land is owned directly or indirectly, see section EL 19:
(b)
a trustee of a trust whose property includes residential rental property if more than 50% of the trust’s assets by value are residential land, whether the land is owned directly or indirectly, see section EL 19
residential portfolio—
(a)
means 1 or more residential rental properties that a person holds in a portfolio for an income year; and
(b)
includes a residential rental property that the person has included in their portfolio, whether or not they retain ownership of the property, in the period that—
(i)
starts at the beginning of the income year in which they first acquire a residential rental property that is included in their portfolio; and
(ii)
ends on the last day of the income year in which they dispose of the last of the residential rental properties included in their portfolio; and
(c)
does not include a residential rental property in relation to which a person is applying the rules on a property-by-property basis under section EL 6
residential rental property—
(a)
means residential land for which a person who owns the land is allowed a deduction relating to the use or disposal of the land; and
(b)
includes land that, for a time in an income year, is residential land; and
(c)
does not include properties that are excluded from the application of section EL 4 by sections EL 9, EL 10, EL 11, EL 12, and EL 13.
Defined in this Act: acquire, amount, close company, deduction, depreciation recovery income, dispose, income, income year, land sales provisions, look-through company, net income, own, partnership, residential income, residential land, residential land-rich entity, residential portfolio, residential rental property, tax year, trustee
Section EL 3: inserted (with effect on 1 April 2019), on 26 June 2019, by section 62(1) (and see section 62(2) and (3) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EL 3 land sales provisions: amended (with effect on 27 March 2021), on 30 March 2021, by section 46(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section EL 3 residential income paragraph (ab): inserted, on 1 April 2022, by section 86(1) (and see section 86(2) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EL 3 residential income paragraph (d): amended (with effect on 1 April 2019), on 23 March 2020, by section 106(b) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section EL 3 residential rental property paragraph (b): amended (with effect on 1 April 2019), on 30 March 2021, by section 46(2)(a) (and see section 46(3) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section EL 3 residential rental property paragraph (c): inserted (with effect on 1 April 2019), on 30 March 2021, by section 46(2)(b) (and see section 46(3) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Allocation rules for residential rental property
Heading: inserted (with effect on 1 April 2019), on 26 June 2019, by section 62(1) (and see section 62(2) and (3) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
EL 4 Allocation of deductions for loss-making residential rental properties
When this section applies
(1)
This section applies for an income year when a person is allowed a deduction for expenditure or loss incurred in relation to 1 or more properties in their residential portfolio, excluding any amount of a deduction under section DB 23 (Cost of revenue account property).
Limited allocation
(2)
The amount of the deduction that may be allocated to the income year must be no more than the amount of the person’s residential income for the income year. An amount identified as a person’s residential income may be counted only once in making an allocation under this subpart.
Excess amounts carried forward
(3)
To the extent to which the amount of the person’s deduction is more than their residential income, the excess amount is—
(a)
suspended as a deduction for the income year; and
(b)
carried forward to a later income year in which the person derives residential income; and
(c)
added to the amount of the deduction for expenditure or loss referred to in subsection (1) for the later income year.
Relationship with sections EL 5, EL 6, and EL 7
(4)
The application is modified by—
(a)
section EL 6 when a person chooses to apply the rules in this subpart on a property-by-property basis:
(b)
sections EL 5 and EL 7 when a person disposes of their residential portfolio or residential rental property, as applicable.
Defined in this Act: amount, deduction, dispose, income year, loss, residential income, residential portfolio, residential rental property
Section EL 4: inserted (with effect on 1 April 2019), on 26 June 2019, by section 62(1) (and see section 62(2) and (3) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EL 4(2): amended (with effect on 1 April 2019), on 23 March 2020, by section 107 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
EL 5 When residential portfolios sold
When this section applies
(1)
This section applies for an income year (the current income year) when a person—
(a)
disposes of the last of the properties in their residential portfolio; and
(b)
has an unused excess amount under section EL 4(3) relating to their portfolio.
Disposal of fully-taxed portfolio: excess amounts released
(2)
If the person derives income under the land sales provisions for the current income year or for an earlier income year from the disposal of each of the properties in their residential portfolio, any unused excess amount relating to the portfolio is released from the application of the limited allocation rule in section EL 4(2) for the current income year. However, this subsection does not apply in relation to an unused excess amount transferred from another property, see subsections (5) and (6).
Disposal of incompletely-taxed portfolios: excess amounts carried forward
(3)
If the person does not derive income under the land sales provisions for the current income year or for an earlier income year from the disposal of each of the properties in their residential portfolio, any unused excess amount relating to the portfolio—
(a)
is an amount to which section EL 4(3) continues to apply for income years in which the person derives residential income; and
(b)
is treated as a deduction referred to in section EL 4(1) that is transferred to another residential rental property for an income year in which the person derives residential income.
Basis of allocation
(4)
For the purposes of subsection (3)(b), it does not matter whether the allocation of the transferred amount is made on a portfolio basis or on a property-by-property basis.
When subsection (6) applies
(5)
Subsection (6) applies in relation to a disposal described in subsection (2) when—
(a)
an unused excess amount was transferred to the portfolio from another of the person’s properties that was not included in the portfolio; and
(b)
the person did not derive income from the disposal of the other property.
Reduction and transfer to another residential rental property
(6)
An unused excess amount that would otherwise be released under subsection (2) is—
(a)
reduced by an amount equal to the total unused excess amount transferred from the other property; and
(b)
to the extent of the amount transferred, is a deduction referred to in section EL 4(1) that is transferred to another residential rental property for an income year in which the person derives residential income.
Defined in this Act: amount, deduction, dispose, income, income year, land sales provisions, residential income, residential portfolio, residential rental property
Section EL 5: inserted (with effect on 1 April 2019), on 26 June 2019, by section 62(1) (and see section 62(2) and (3) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EL 5(2): amended (with effect on 1 April 2019), on 23 March 2020, by section 108(1) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section EL 5(5) heading: inserted (with effect on 1 April 2019), on 23 March 2020, by section 108(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section EL 5(5): inserted (with effect on 1 April 2019), on 23 March 2020, by section 108(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section EL 5(6) heading: inserted (with effect on 1 April 2019), on 23 March 2020, by section 108(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section EL 5(6): inserted (with effect on 1 April 2019), on 23 March 2020, by section 108(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
EL 6 Choosing to apply rules on property-by-property basis
Choosing other basis for calculation
(1)
For the purposes of section EL 4, and despite the references there and in the definition of residential income in section EL 3 to residential portfolios, a person may choose to determine the amount of the deduction that may be allocated for an income year under section EL 4(2) in relation to a single property (property A), whether or not—
(a)
they own residential rental properties other than property A:
(b)
those other properties are included in a residential portfolio.
Property A: income and expenditure
(2)
For the purposes of section EL 4(3), both the income derived by the person and the expenditure or loss to which the deduction relates must relate solely to property A and to no other property of the person.
Property A: excess amounts carried forward
(3)
An excess amount arising under section EL 4(3) in relation to property A is—
(a)
suspended as a deduction for the income year; and
(b)
carried forward to a later income year in which the person derives residential income from property A; and
(c)
added to the amount of the deduction for expenditure or loss referred to in section EL 4(1) for the later income year.
Election requirements
(4)
A person makes an election under subsection (1) by taking a tax position on that basis in their return of income for the income year in which the property becomes their residential rental property.
Effect of changes in tax positions
(5)
The election remains in effect for income years in which the person continues to take the tax position but if the person changes their tax position, property A becomes a property included in a residential portfolio.
Transitional rule for property acquired before 2019–20 income year
(6)
For the purposes of subsection (4), for residential rental property held at the start of the 2019–20 income year, the person must make the election referred to in subsection (1) in the return of income for that income year.
Defined in this Act: amount, deduction, income, income year, loss, residential income, residential portfolio, residential rental property, return of income, tax position
Section EL 6: inserted (with effect on 1 April 2019), on 26 June 2019, by section 62(1) (and see section 62(2) and (3) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
EL 7 When property A sold
When this section applies
(1)
This section applies for an income year when a person—
(a)
has chosen to apply the rules in this subpart on a property-by-property basis under section EL 6 to a particular property (property A); and
(b)
disposes of property A, whether or not it is residential rental property for the person at the time of the disposal; and
(c)
has an unused excess amount under section EL 4(3) relating to property A.
Taxed disposal of property A: excess amounts released
(2)
If the person derives income under the land sales provisions from the disposal of property A, any unused excess amount relating to property A is released from the application of the limited allocation rule in section EL 4(2) for the income year. However, this subsection does not apply in relation to an unused excess amount transferred from another property, see subsections (5) and (6).
Non-taxed disposal of property A: excess amounts carried forward
(3)
If the person disposes of property A but does not derive income under the land sales provisions from the disposal, any unused excess amount relating to property A—
(a)
is an amount to which section EL 4(3) continues to apply for income years in which the person derives residential income; and
(b)
is treated as a deduction referred to in section EL 4(1) that is transferred to another residential rental property for an income year in which the person derives residential income.
Basis of allocation
(4)
For the purposes of subsection (3)(b), it does not matter whether the allocation of the transferred amount is made on a portfolio basis or on a property-by-property basis.
When subsection (6) applies
(5)
Subsection (6) applies in relation to a disposal described in subsection (2) when—
(a)
an unused excess amount was transferred to property A from another of the person’s properties; and
(b)
the person did not derive income from the disposal of the other property.
Reduction and transfer to another residential rental property
(6)
An unused excess amount that would otherwise be released under subsection (2) is—
(a)
reduced by an amount equal to the total unused excess amount transferred from the other property; and
(b)
to the extent of the amount transferred, is treated as a deduction referred to in section EL 4(1) that is transferred to another residential rental property for an income year in which the person derives residential income.
Defined in this Act: amount, deduction, dispose, income, income year, land sales provisions, residential income, residential rental property
Section EL 7: inserted (with effect on 1 April 2019), on 26 June 2019, by section 62(1) (and see section 62(2) and (3) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EL 7(2): amended (with effect on 1 April 2019), on 23 March 2020, by section 109(1)(a) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section EL 7(2): amended (with effect on 1 April 2019), on 23 March 2020, by section 109(1)(b) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section EL 7(5) heading: inserted (with effect on 1 April 2019), on 23 March 2020, by section 109(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section EL 7(5): inserted (with effect on 1 April 2019), on 23 March 2020, by section 109(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section EL 7(6) heading: inserted (with effect on 1 April 2019), on 23 March 2020, by section 109(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section EL 7(6): inserted (with effect on 1 April 2019), on 23 March 2020, by section 109(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
EL 8 Treatment of previously transferred amounts on fully-taxed disposals
[Repealed]Section EL 8: repealed (with effect on 1 April 2019), on 23 March 2020, by section 110 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Exclusions from rules
Heading: inserted (with effect on 1 April 2019), on 26 June 2019, by section 62(1) (and see section 62(2) and (3) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
EL 9 Main home exclusion
General rule
(1)
Section EL 4 does not apply to residential land of a person for an income year if more than 50% of the land is used for most of the income year by the person as their main home.
Beneficiaries
(2)
Subsection (1) applies to trust property when—
(a)
more than 50% of the land is used for most of the income year by a beneficiary of the trust as their main home; and
(b)
a principal settlor of the trust does not have a separate main home.
Defined in this Act: income year, principal settlor, residential land
Section EL 9: inserted (with effect on 1 April 2019), on 26 June 2019, by section 62(1) (and see section 62(2) and (3) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
EL 10 Exclusion for land held on revenue account
Land acquired for purposes of business relating to land
(1)
Section EL 4 does not apply to residential land of a person that, when disposed of, will give rise to income of the person under section CB 7 (Disposal: land acquired for purposes of business relating to land).
Income under land sales rules
(2)
Section EL 4 does not apply to residential land of a person that, when disposed of, will give rise to income of the person under the land sales provisions other than section CB 7, regardless of when the disposal occurs.
Notification
(3)
In order for land to be excluded under subsection (2), the person must—
(a)
notify the Commissioner that the land is held on revenue account by the date for filing their return of income for the later of—
(i)
the income year in which they acquire the land:
(ii)
the income year in which the land becomes land that, when disposed of, will give rise to income under the land sales provisions:
(iii)
for land that is held at the start of the 2019–20 income year and is land that, when disposed of, will give rise to income under the land sales provisions, the 2019–20 income year:
(b)
be able to identify separately the deductions relating to the land.
When separate identification not required
(4)
Subsection (3)(b) does not apply to a person if all of their residential land, other than land excluded under subsection (1) and sections EL 9, EL 12, and EL 13,—
(a)
has given rise to income of the person under the land sales provisions:
(b)
will give rise to income under the land sales provisions, regardless of when the disposal occurs, and they have notified the Commissioner as described in subsection (3)(a).
Defined in this Act: acquire, Commissioner, deduction, dispose, income, income year, land sales provisions, notify, residential land
Section EL 10: inserted (with effect on 1 April 2019), on 26 June 2019, by section 62(1) (and see section 62(2) and (3) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
EL 11 Exclusion for property held by certain persons and entities
Section EL 4 does not apply to residential land owned by—
(a)
a company other than a close company:
(b)
a person or entity listed in schedule 36 (Government enterprises).
Defined in this Act: close company, company, residential land
Section EL 11: inserted (with effect on 1 April 2019), on 26 June 2019, by section 62(1) (and see section 62(2) and (3) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
EL 12 Exclusion for mixed-use assets
Section EL 4 does not apply to residential land of a person for an income year when the land is an asset referred to in section DG 3 (Meaning of asset for this subpart).
Defined in this Act: asset, income year, residential land
Section EL 12: inserted (with effect on 1 April 2019), on 26 June 2019, by section 62(1) (and see section 62(2) and (3) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
EL 13 Exclusion for property provided as employee accommodation
Accommodation connected with employment or service
(1)
Section EL 4 does not apply to residential land of a person that is property that a person provides to their employees or other workers for accommodation in connection with their employment or service.
Associated employees or workers
(2)
Subsection (1) does not apply if the employees or other workers are associated with the person, unless it is necessary for the person to provide the accommodation because of the nature or remoteness of a business carried on by them.
Defined in this Act: associated person, business, employee, employment, residential land
Section EL 13: inserted (with effect on 1 April 2019), on 26 June 2019, by section 62(1) (and see section 62(2) and (3) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Application of rules by certain entities
Heading: inserted (with effect on 1 April 2019), on 26 June 2019, by section 62(1) (and see section 62(2) and (3) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
EL 14 Continuity rules for companies
Despite sections EL 4, EL 5, EL 7, and EL 16, a company may not allocate an unused excess amount to a later income year if sections IA 5, IB 3, IP 3, and IP 3B (which relate to tax losses carried forward) would apply to restrict the carrying forward of the amount to the later income year, treating the amount as if it were an unused tax loss component.
Defined in this Act: amount, company, income year, tax loss component
Section EL 14: inserted (with effect on 1 April 2019), on 26 June 2019, by section 62(1) (and see section 62(2) and (3) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EL 14: amended (with effect on 1 April 2020), on 30 March 2022, by section 87 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EL 14: amended (with effect on 1 April 2020), on 30 March 2021, by section 47 of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
EL 15 Transfers between companies in wholly-owned groups
Transferring unused amounts
(1)
If a company (company A) that is part of a wholly-owned group of companies has an unused excess amount under section EL 4(3), EL 5(3), or EL 7(3) for an income year, the company may transfer some or all of the excess amount to another company (company B) in the group.
Company B’s deduction
(2)
The amount transferred is treated as a deduction for expenditure or loss referred to in section EL 4(1) of company B in relation to a residential rental property of company B for an income year in which company B derives residential income.
When transfers made
(3)
The transfer of an excess amount is treated as made when both company A and company B take tax positions on that basis in their returns of income for the relevant income year.
Defined in this Act: amount, company, deduction, income year, residential income, residential rental property, return of income, wholly-owned group of companies
Section EL 15: inserted (with effect on 1 April 2019), on 26 June 2019, by section 62(1) (and see section 62(2) and (3) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EL 15(1): amended (with effect on 1 April 2019), on 23 March 2020, by section 111 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Interposed entities
Heading: inserted (with effect on 1 April 2019), on 26 June 2019, by section 62(1) (and see section 62(2) and (3) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
EL 16 Interests in residential land-rich entities
When this section applies
(1)
This section applies when a person—
(a)
has borrowed money and used it to acquire an interest in an entity that is, for an income year, a residential land-rich entity; and
(b)
has interest expenditure for the income year in relation to the amount borrowed for which they are allowed a deduction.
Excess amounts carried forward
(2)
To the extent to which the portion of the person’s interest expenditure calculated under section EL 17(1) is more than their share of net residential income calculated under section EL 17(3), the excess amount is—
(a)
suspended as a deduction for the income year; and
(b)
carried forward to a later income year in which the entity derives residential income; and
(c)
added to the amount of the interest expenditure referred to in subsection (1)(b) for the later income year.
Modifications
(3)
The application of this section and section EL 17 is modified by section EL 18 when the entity is a partnership or a look-through company.
Defined in this Act: acquire, amount, deduction, income, income year, interest, look-through company, partnership, residential income, residential land, residential land-rich entity
Section EL 16: inserted (with effect on 1 April 2019), on 26 June 2019, by section 62(1) (and see section 62(2) and (3) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EL 16(2)(b): replaced (with effect on 1 April 2019), on 23 March 2020, by section 112 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
EL 17 Calculations for section EL 16
Calculation of interest expenditure
(1)
For the purposes of section EL 16(2), the person’s interest expenditure is calculated using the formula—
applied capital percentage × interest on borrowings.
Definition of items
(2)
In the formula in subsection (1),—
(a)
applied capital percentage is the percentage of the entity’s capital, as at the end of the income year, that it has used to acquire residential rental property:
(b)
interest on borrowings is the amount of expenditure on interest that the person has incurred for the income year in relation to the amount borrowed.
Calculation of share of net residential income
(3)
For the purposes of section EL 16(2), the person’s share of net residential income is calculated using the formula—
person’s interest × entity’s net residential income.
Definition of items
(4)
In the formula in subsection (3),—
(a)
person’s interest is, as applicable,—
(i)
when the entity is a company, the person’s voting interest in the company measured at the end of the income year:
(ii)
when the entity is the trustee of a trust, the value of the person’s interest in residential rental property that is trust property as a percentage of the trust’s assets, measured at the end of the income year:
(b)
entity’s net residential income is the amount of the net income for the corresponding tax year that the entity would have in the absence of section EL 4, if the only income derived by the entity were residential income.
Defined in this Act: acquire, amount, company, income, income year, interest, net income, residential income, residential rental property, tax year, trustee, voting interest
Section EL 17: inserted (with effect on 1 April 2019), on 26 June 2019, by section 62(1) (and see section 62(2) and (3) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
EL 18 Modifications when entities transparent
For the purposes of sections EL 16 and EL 17, if the entity is a partnership or a look-through company,—
(a)
the person’s residential income for the income year from property held by the entity is treated as their share of net residential income under section EL 17(3) unless paragraph (b)(ii) applies to modify the calculation of net residential income:
(b)
when the entity has chosen under section EL 6 to apply the rules in this subpart on a property-by-property basis for a particular property (property A), the formulas in section EL 17 are modified as follows:
(i)
the item applied capital percentage in section EL 17(2)(a) is read as if the residential rental property were property A; and
(ii)
the residential income derived by the person for the income year from property A is treated as their share of net residential income under section EL 17(3).
Defined in this Act: income year, look-through company, partnership, residential income, residential rental property
Section EL 18: inserted (with effect on 1 April 2019), on 26 June 2019, by section 62(1) (and see section 62(2) and (3) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EL 18(a): amended (with effect on 1 April 2019), on 23 March 2020, by section 113 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
EL 19 Valuation of assets
Methods of valuation
(1)
For the purposes of section EL 17 and the definition of residential land-rich entity in section EL 3, an asset of a person or entity is valued at the end of an income year using,—
(a)
for land, including an improvement to land, the amount set out in subsection (2):
(b)
for property with an adjusted tax value, its adjusted tax value:
(c)
for other property, its market value.
Valuation of land
(2)
For the purposes of subsection (1)(a), the value of land is the following amount, as applicable:
(a)
the amount established by the later of—
(i)
the land’s most recent capital value or annual value as set by a local authority; or
(ii)
either the cost of the land on acquisition or, if the transaction involves an associated person, its market value:
(b)
for a leasehold estate in land, the market value of the land which the person may establish through a valuation made by a registered valuer no more than 3 years before the end of the income year.
Defined in this Act: adjusted tax value, amount, associated person, income year, land, leasehold estate, local authority, residential land-rich entity
Section EL 19: inserted (with effect on 1 April 2019), on 26 June 2019, by section 62(1) (and see section 62(2) and (3) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Allocation rules for bright-line disposals of land
Heading: inserted (with effect on 1 April 2019), on 26 June 2019, by section 62(1) (and see section 62(2) and (3) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
EL 20 Allocation of deductions related to bright-line disposals of residential land
When this section applies
(1)
This section applies for an income year when a person—
(a)
(b)
is allowed a deduction under section DB 23 (Cost of revenue account property) in relation to the land.
Limited allocation
(2)
The amount of the deduction that may be allocated to the income year must be no more than the amount calculated using the formula—
bright-line income + net income from land.
Definition of items in formula
(3)
In the formula,—
(a)
(b)
net income from land is the amount of net income that the person would have for the corresponding tax year if their only income were income under sections CB 6 to CB 14 (which relate to amounts derived from the disposals of land).
Excess amounts carried forward
(4)
To the extent to which the amount of the person’s deduction is more than the amount calculated under subsection (2), the excess amount is—
(a)
suspended as a deduction for the income year; and
(b)
carried forward to a later income year in which the person derives—
(i)
income referred to in subsection (1)(a):
(ii)
income under sections CB 6 to CB 14; and
(c)
added to the amount of the deduction referred to in subsection (1)(b) for the later income year.
Disposals to associated persons
(5)
Subsections (6) and (7) apply when a person disposes of land described in subsection (1)(a) to an associated person.
Limited allocation for associated disposals
(6)
Despite subsection (2), the amount of the person’s deduction for the income year of the disposal must be no more than the amount of the bright-line income referred to in subsection (3)(a) that they derive from the disposal.
Expenditure of associated persons
(7)
To the extent to which the amount of the person’s deduction under subsection (6) is more than the bright-line income derived by the person, the excess amount is treated as expenditure of the associated person incurred in acquiring the land.
Defined in this Act: amount, associated person, deduction, dispose, income, income year, net income, residential land, tax year
Section EL 20: inserted (with effect on 1 April 2019), on 26 June 2019, by section 62(1) (and see section 62(2) and (3) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EL 20(1)(a): amended (with effect on 27 March 2021), on 30 March 2021, by section 48(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section EL 20(3)(a): amended (with effect on 27 March 2021), on 30 March 2021, by section 48(2) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Subpart EM—Hedging of currency movements in Australian non-attributing shares and attributing FDR method interests
Subpart EM: inserted, on 17 July 2013, by section 49 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Contents
EM 1 Australian non-attributing shares and attributing FDR method interests
Application of this subpart
(1)
This subpart applies to determine the income and expenditure for a person’s hedges, to the extent to which their hedges have a fair dividend rate hedge portion (see: subsection (2) below, and sections EM 5 to EM 7), and their hedges hedge—
(a)
Australian non-attributing shares for which—
(i)
amounts derived from disposal would be either excluded income of the person under section CX 55 (Proceeds from disposal of investment shares), or the person’s capital receipt; and
(ii)
the person determines the market value for each of a number of periods making up the income year:
(b)
attributing interests in a FIF for which the person—
(i)
calculates FIF income using the fair dividend rate method; and
(ii)
uses section EX 53 (Fair dividend rate periodic method).
Specific rules
(2)
In this subpart,—
(a)
section EM 2 provides rules for who this subpart applies to:
(b)
section EM 3 provides rules for what hedges this subpart applies to:
(c)
section EM 4 provides rules for elections to choose that eligible hedges are subject to this subpart by applying either a hedge-by-hedge method or the portfolio method:
(d)
section EM 5 provides the hedge-by-hedge methods to calculate fair dividend rate hedge portions for a person’s eligible hedges:
(db)
section EM 5B provides the portfolio method to calculate fair dividend rate hedge portions for a person’s eligible hedges:
(e)
section EM 6 provides the calculation to determine the income and expenditure for a person’s fair dividend rate hedge portions:
(f)
section EM 7 provides a quarterly test of the person’s fair dividend rate hedge portions, and provides rules that apply if the value of hedge portions to eligible hedged assets exceeds 1.05, including a rule to not apply this subpart:
(g)
section EM 8 provides some definitions for this subpart.
Relationship with financial arrangements rules
(3)
This subpart, and not subpart EW (Financial arrangements rules), determines a person’s income and expenditure for their fair dividend rate hedge portions. However, subpart EW determines a person’s income and expenditure for the portion of a hedge that is not a fair dividend rate hedge portion.
Defined in this Act: attributing interests, Australian non-attributing shares, eligible hedge, excluded income, fair dividend rate hedge portion, fair dividend rate method, FIF, hedge, income
Section EM 1: inserted, on 17 July 2013, by section 49 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EM 1(1)(b)(ii): replaced, on 1 April 2016, by section 129 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EM 1(2)(c): replaced, on 1 April 2022, by section 88(1) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 1(2)(d): replaced, on 1 April 2022, by section 88(1) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 1(2)(db): inserted, on 1 April 2022, by section 88(1) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 1(3): amended, on 1 April 2022, by section 88(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
EM 2 Who does this subpart apply to?
Who does this subpart apply to?
(1)
This subpart applies to a person if section EM 1 applies to the person, to the extent to which the person—
(a)
(b)
is a separate identifiable fund forming part of a life insurer that holds investment subject to life insurance policies under which benefits are directly linked to the value of the investments held in the fund:
(c)
is a fund that is equivalent to an investor class described in section HM 22(1) (Exceptions for certain funds):
(d)
is a group investment fund, superannuation fund, or unit trust in which—
(i)
20 or more people hold an investor interest, and each person who holds an investor interest has 20% or less of the total investor interests for the fund or trust:
(ii)
a person described in paragraph (a) or (b) (a listed person) or a person whose only income is charitable income (a charitable person) holds an investor interest, and each person who is not a listed person or a charitable person holds an investor interest of 20% or less of the total investor interests for the fund or trust.
Combining people and investor interests
(2)
For the purposes of applying subsection (1)(d)(i) and (ii), if a person is associated with another person, they are treated as 1 person who holds their combined investor interests, if their combined investor interests total 5% or more of the total investor interests for the fund or trust. Subsection (3) overrides this subsection.
Exception to combining people and investor interests
(3)
Subsection (2) does not apply to make 2 associated people into 1 person, or to combine investor interests of 2 associated persons, if 1 of them is a listed person.
Defined in this Act: associated person, exempt income, group investment fund, income, investor class, investor interest, life insurance policies, life insurer, superannuation fund, unit trust
Section EM 2: inserted, on 17 July 2013, by section 49 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
EM 3 What hedges does this subpart apply to?
General rule
(1)
This subpart applies to a person’s hedge (an eligible hedge) if section EM 1 applies to the hedge, and the hedge—
(a)
is a contract to conditionally or unconditionally acquire or dispose of foreign exchange in return for New Zealand currency, or is a swap with one leg denominated in a foreign currency and the other leg denominated in New Zealand currency; and
(b)
is not an option; and
(c)
is not entered into with an associated person; and
(d)
has, under IFRSs, a fair value of zero when it is first entered into or is acquired at its fair value; and
(e)
is subject to an election under section EM 4.
Exception
(2)
Despite subsection (1), this subpart applies and a person’s hedge is an eligible hedge, if section EM 1 applies to the hedge, the person has not chosen to use section EM 5(4) and (5) for the hedge, and the hedge—
(a)
is a contract to conditionally or unconditionally acquire or dispose of any currency in return for any other currency, or is a swap with legs denominated in any currency; and
(b)
meets the requirements of subsection (1)(b) to (e); and
(c)
is entered into only to rebalance currency exposures for the person’s other eligible hedges.
Defined in this Act: associated person, eligible hedge, hedge, IFRS
Section EM 3: inserted, on 17 July 2013, by section 49 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EM 3(1) heading: inserted, on 1 April 2022, by section 89(1) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 3(1)(d): amended, on 1 April 2022, by section 89(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 3(2) heading: inserted, on 1 April 2022, by section 89(3) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 3(2): inserted, on 1 April 2022, by section 89(3) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
EM 4 Elections
Elections
(1)
This subpart applies to a person’s eligible hedges, to the extent to which the hedges have fair dividend rate hedge portions as a result of an election under this section. The portion of a person’s eligible hedge that is not a fair dividend rate hedge portion does not give rise to income or expenditure under this subpart, despite any election under this section for the eligible hedge. To the extent to which this subpart does apply to calculate income and expenditure (see: section EM 6), the fair dividend rate hedge portion does not give rise to income or expenditure under any other subpart of this Act.
Hedge-by-hedge: specific
(2)
A person may choose to use a hedge-by-hedge method under section EM 5 for an eligible hedge, if the election under this subsection is made before the hedge and any hedge of the hedge is first entered into or acquired by the person.
Hedge-by-hedge: general
(3)
A person may choose to use a hedge-by-hedge method under section EM 5 for all eligible hedges if the election under this subsection is made before the hedge and any hedge of the hedge is first entered into or acquired by the person. The choice applies for all eligible hedges post-election.
Specific: effect
(4)
An election under subsection (2) is irrevocable for the life of the relevant hedge, unless the person may choose and does choose, under subsection (6), to use the portfolio method.
General: effect
(5)
An election under subsection (3) may be changed before the relevant hedge and any hedge of the hedge is first entered into or acquired by the person, but is irrevocable for the life of the relevant hedge, unless the person may choose and does choose, under subsection (6), to use the portfolio method.
Portfolio
(6)
A person that uses a unit valuation period, under section EX 53 (Fair dividend rate periodic method), of 1 month or less may choose the portfolio method under section EM 5B.
Portfolio: effect
(7)
An election under subsection (6) is irrevocable for 2 years unless the Commissioner notifies the person that the person may revoke earlier. An election applies for all eligible hedges post-election, but does not have to be made before a relevant hedge is entered into. Also, a new election under subsection (6) cannot be made until 12 months after the end of an old election under subsection (6), unless the Commissioner notifies the person that the person may make a new election earlier.
Defined in this Act: Commissioner, eligible hedge, fair dividend rate hedge portion, income
Section EM 4: replaced, on 1 April 2022, by section 90 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
EM 5 Fair dividend rate hedge portions: hedge-by-hedge methods
Fair dividend rate hedge portions
(1)
This section calculates the maximum fair dividend rate hedge portions for a person’s eligible hedges on a hedge-by-hedge basis under an election provided by section EM 4, or the minimum fair dividend rate hedge portions for hedges that are a hedge of a hedge.
Choice of fair dividend rate hedge portion: cannot be changed[Repealed]
(2)
[Repealed]Choice of methods
(3)
A person may choose to use either the method in subsections (4) and (5), or the method in subsections (9) to (10D), to calculate the maximum or minimum, as the case may be, fair dividend rate hedge portions for all of the person’s eligible hedges when the relevant hedge is first entered into or acquired. They may not choose to use, for example, the method in subsections (4) and (5) for some hedges and the method in subsections (9) to (10D) for other hedges.
First method
(4)
The maximum or minimum, as the case may be, fair dividend rate hedge portion for a person’s eligible hedge (the calculation hedge) is the lesser of 100% and the amount, expressed as a percentage, calculated, using the formula in this subsection, when the hedge is first entered into or acquired. Subsection (8) overrides this subsection. The formula is—
(1.05 × (eligible currency assets + proxied currency assets)
− FDR hedges amount) ÷ calculation hedge amount.
Definition of items in formula
(5)
In the formula in subsection (4), all items are expressed in the calculation currency (see: eligible currency assets), and—
(a)
eligible currency assets is the total market value of,—
(i)
a person’s assets described in section EM 1(1)(a) and (b) that are denominated in the same currency (the calculation currency) that the calculation hedge hedges; and
(ii)
if the person chooses and is a qualifying hedge fund, their interests in assets that are owned by a multi-rate PIE, described in section EM 1(1)(a) and (b), and denominated in the calculation currency:
(b)
proxied currency assets is,—
(i)
unless subparagraph (ii) or (iii) applies, the total market value of a person’s assets described in section EM 1(1)(a) and (b) that are denominated in a currency (the proxied currency) other than the calculation currency, if an eligible hedge that is denominated in the calculation currency acts like hedging for the assets due to a relationship between exchange rate movements in the proxied currency and the calculation currency:
(ii)
zero, if the person has hedges denominated in the proxied currency:
(iii)
zero, if the person has a hedge, denominated in a currency other than the proxied currency or the calculation currency, that acts like hedging for the assets due to a relationship between exchange rate movements in the proxied currency and that other currency:
(c)
FDR hedges amount is the amount of calculation currency hedged by a person’s fair dividend rate hedge portions, but excluding the portion for the calculation hedge:
(d)
calculation hedge amount is the amount of foreign currency that is hedged by the calculation hedge.
Second formula[Repealed]
(6)
[Repealed]Definition of items in formula[Repealed]
(7)
[Repealed]Exception for more than 100% non-eligible currency asset hedges
(8)
If the amount calculated under subsection (4) or (9) is less than zero, then the maximum or minimum, as the case may be, fair dividend rate hedge portion for the relevant calculation hedge is zero.
Second method
(9)
The maximum or minimum, as the case may be, fair dividend rate hedge portion for a person’s eligible hedge (the calculation hedge) is the amount, expressed as a percentage, calculated using the following formula when the hedge is first entered into or acquired:
FDR gross amount × apportioned current hedge amount ÷ calculation hedge amount.
Definition of items in formula
(10)
In the formula in subsection (9), all items are expressed in New Zealand currency, and—
(a)
FDR gross amount is the amount given by subsection (10B):
(b)
apportioned current hedge amount is the amount given by subsection (10D):
(c)
calculation hedge amount is the amount of foreign currency that is hedged by the calculation hedge.
FDR gross amount
(10B)
For the purposes of subsection (10), the FDR gross amount is either—
(a)
zero if the formula in this subsection does not calculate, when the hedge is first entered into or acquired, an amount; or
(b)
the lesser of 1 and the amount calculated using the following formula when the hedge is first entered into or acquired:
(1.05 × eligible currency assets − FDR hedges amount) ÷ apportioned current hedge amount.
Definition of items in FDR gross formula
(10C)
In the formula in subsection (10B)(b), all items are expressed in New Zealand currency, and—
(a)
eligible currency assets is the total market value of a person’s assets described in section EM 1(1)(a) and (b) and, if the person chooses and is a qualifying hedge fund, their interests in assets that are owned by the relevant multi-rate PIE and described in section EM 1(1)(a) and (b):
(b)
FDR hedges amount is the amount of foreign currency hedged by a person’s fair dividend rate hedge portions, but excluding the portion for the calculation hedge:
(c)
apportioned current hedge amount is the amount given by subsection (10D).
Apportioned current hedge amount
(10D)
The apportioned current hedge amount for the purposes of subsections (10) and (10C) is 1 of the following amounts, expressed in New Zealand currency:
(a)
if the calculation hedge is not a hedge of a hedge, or is a hedge of a hedge and paragraph (b) does not apply, the amount is the lesser of the following amounts:
(i)
the amount of foreign currency hedged by the calculation hedge:
(ii)
the amount of foreign currency that is hedged by a person’s hedges including the calculation hedge less the amount of foreign currency that is hedged by a person’s FDR hedge portions excluding the calculation hedge less the total market value of a person’s non-eligible assets, treating a negative result as zero:
(b)
the negative of the amount of foreign currency that is hedged by a person’s FDR hedge portions excluding the calculation hedge, if—
(i)
the calculation hedge is a hedge of a hedge; and
(ii)
the amount of foreign currency that is hedged by a person’s FDR hedge portions excluding the calculation hedge plus the calculation hedge equals less than zero.
Relationship with subject matter
(11)
Section EM 7 overrides this section.
Defined in this Act: eligible hedge, fair dividend rate hedge portion, hedge, income, non-eligible assets
Section EM 5: inserted, on 17 July 2013, by section 49 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EM 5 heading: amended, on 1 April 2022, by section 91(1) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 5(1) heading: replaced, on 1 April 2022, by section 91(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 5(1): replaced, on 1 April 2022, by section 91(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 5(2) heading: repealed, on 1 April 2022, pursuant to section 91(3) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 5(2): repealed, on 1 April 2022, by section 91(3) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 5(3) heading: replaced, on 1 April 2022, by section 91(4) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 5(3): replaced, on 1 April 2022, by section 91(4) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 5(4) heading: amended, on 1 April 2022, by section 91(5) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 5(4): amended, on 1 April 2022, by section 91(6) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 5(4): amended, on 1 April 2022, by section 91(7) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 5(5)(a): replaced, on 1 April 2022, by section 91(8) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 5(6) heading: repealed, on 1 April 2022, pursuant to section 91(9) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 5(6): repealed, on 1 April 2022, by section 91(9) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 5(7) heading: repealed, on 1 April 2022, pursuant to section 91(9) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 5(7): repealed, on 1 April 2022, by section 91(9) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 5(8): replaced, on 1 April 2022, by section 91(10) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 5(9) heading: replaced, on 1 April 2022, by section 91(11) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 5(9): replaced, on 1 April 2022, by section 91(11) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 5(10) heading: replaced, on 1 April 2022, by section 91(11) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 5(10): replaced, on 1 April 2022, by section 91(11) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 5(10B) heading: inserted, on 1 April 2022, by section 91(11) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 5(10B): inserted, on 1 April 2022, by section 91(11) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 5(10C) heading: inserted, on 1 April 2022, by section 91(11) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 5(10C): inserted, on 1 April 2022, by section 91(11) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 5(10D) heading: inserted, on 1 April 2022, by section 91(11) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 5(10D): inserted, on 1 April 2022, by section 91(11) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 5 list of defined terms non-eligible assets: inserted, on 1 April 2022, by section 91(12) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
EM 5B Fair dividend rate hedge portions: portfolio method
Fair dividend rate hedge portions
(1)
This section calculates the fair dividend rate hedge portions for a person’s eligible hedges on a portfolio basis under an election provided by section EM 4.
Lowest amount
(2)
The fair dividend rate hedge portion is the lowest of the amounts described in subsections (4) and (6).
Period calculation
(3)
The fair dividend rate hedge portion is applied for a period of 1 month or less, as chosen by the person, for all of their eligible hedges. The fair dividend rate hedge portion is calculated before the start of the elected period, and the elected period is irrevocable, and is applied for all of their eligible hedges post-election, for the income year.
First formula
(4)
For the purposes of subsection (2), the amount is calculated using formula—
1 − (non-eligible assets ÷ portfolio hedges amount).
Definition of items in formula
(5)
In the formula in subsection (4), all items are expressed in New Zealand currency, and—
(a)
non-eligible assets is the total market value of non-eligible assets:
(b)
portfolio hedges amount is the total amount of foreign currency that is hedged by a person’s hedges.
Second formula
(6)
For the purposes of subsection (2), the amount is calculated using the formula—
(1.05 × eligible assets) ÷ portfolio hedges amount.
Definition of items in formula
(7)
In the formula in subsection (6), all items are expressed in New Zealand currency, and—
(a)
eligible assets is the total market value of assets described in section EM 1(1)(a) and (b) that the person owns directly, and, if the person chooses and is a qualifying hedge fund, their interests in assets that are owned by the relevant multi-rate PIE and described in section EM 1(1)(a) and (b):
(b)
portfolio hedges amount is the total amount of foreign currency that is hedged by a person’s hedges.
Defined in this Act: eligible hedge, fair dividend rate hedge portion, hedge, non-eligible assets, qualifying hedge fund
Section EM 5B: inserted, on 1 April 2022, by section 92 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
EM 6 Income and expenditure for fair dividend rate hedge portions
Using the formula to calculate income and expenditure
(1)
A person uses the formula in subsection (2) for each valuation period described in subsection (3)(b) that this subpart applies to them. A positive amount from the formula is a person’s income for their fair dividend rate hedge portions. A negative amount from the formula is a person’s expenditure for their fair dividend rate hedge portions.
Formula
(2)
The formula for determining a person’s income and expenditure for their fair dividend rate hedge portions is—
(FDR portions’ value + period gain − period loss) × 0.05 × valuation period ÷ days in the year.
Definition of items in formula
(3)
In the formula,—
(a)
FDR portions’ value is the market value of a person’s fair dividend rate hedge portions at the start of a relevant valuation period in New Zealand currency:
(ab)
period gain is the net gain multiplied by the FDR hedge portion for relevant eligible hedges that are entered into and settled within the preceding valuation period:
(ac)
period loss is the net loss multiplied by the FDR hedge portion for relevant eligible hedges that are entered into and settled within the preceding valuation period:
(b)
valuation period is the number of days in whichever of the following periods is relevant:
(i)
the period described in section EM 1(1)(a)(ii):
(ii)
the unit valuation period described in section EX 53 (Fair dividend rate periodic method):
(c)
days in the year is the number of days in the income year in which the relevant period falls.
Defined in this Act: amount, fair dividend rate hedge portion, income, income year
Section EM 6: inserted, on 17 July 2013, by section 49 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EM 6(2) formula: amended, on 1 April 2022, by section 93(1) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 6(3)(ab): inserted, on 1 April 2022, by section 93(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 6(3)(ac): inserted, on 1 April 2022, by section 93(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 6(3)(b)(ii): replaced, on 1 April 2016, by section 130 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EM 7 Quarterly test of fair dividend rate hedge portions
Quarterly FDR hedging ratio
(1)
A person must use the first formula, in subsection (2), on a day (the calculation day) they choose within a quarter of an income year, to calculate their quarterly FDR hedging ratio. The calculation day must be the same day for each quarter within the income year.
First formula
(2)
The formula for calculating the person’s quarterly FDR hedging ratio is—
FDR hedges amount ÷ eligible currency assets.
Definition of items in formula
(3)
In the formula in subsection (2), all items are expressed in New Zealand currency, and—
(a)
FDR hedges amount is the total amount of foreign currency that is hedged by a person’s fair dividend rate hedge portions:
(b)
eligible currency assets is the total market value of a person’s assets described in section EM 1(1)(a) and (b).
Second formula
(4)
If a person’s quarterly FDR hedging ratio for a quarter is greater than 1.05 and subsection (6) does not apply, then, despite section EM 5, the fair dividend rate hedge portion of each eligible hedge, from 5 working days after the calculation day of the quarter, is calculated using the formula—
(0.85 ÷ quarterly FDR hedging ratio) × FDR hedge portion.
Definition of items in second formula
(5)
In the formula in subsection (4),—
(a)
FDR hedge portion is the fair dividend rate hedge portion of the relevant eligible hedge:
(b)
quarterly FDR hedging ratio is the person’s quarterly FDR hedging ratio for the relevant quarter.
Relationship with subject matter
(5B)
This section overrides section EM 5, but does not apply if and to the extent to which section EM 5B applies.
Subpart not applied for over-hedging
(6)
If a person’s quarterly FDR hedging ratio is greater than 1.05 on the calculation day of 2 consecutive quarters, then this subpart will not apply to the person for the next 2 quarters. Subpart EW (Financial arrangements rules) applies.
Defined in this Act: eligible hedge, fair dividend rate hedge portion, hedge, income year, person, quarterly FDR hedging ratio
Section EM 7: inserted, on 17 July 2013, by section 49 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EM 7(1): replaced, on 1 April 2022, by section 94(1) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 7(4): amended, on 1 April 2022, by section 94(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 7(5B) heading: inserted, on 1 April 2022, by section 94(3) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 7(5B): inserted, on 1 April 2022, by section 94(3) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 7(6): amended, on 1 April 2022, by section 94(4) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
EM 8 Some definitions
In this subpart,—
Australian non-attributing shares means a person’s rights in a FIF in an income year if the rights—
(a)
are a share in a company resident in Australia at all times in the year when the person holds a right in the company; and
(b)
are not an attributing interest, because of the application of section EX 31 (Exemption for ASX-listed Australian companies)
eligible hedge means a hedge described in section EM 3
fair dividend rate hedge portion means the percentage portion of the hedging of the foreign currency exchange rate movements in the value of a person’s assets for an eligible hedge under this subpart
hedge—
(a)
means 1 or more related financial arrangements that a person enters into with the sole purpose and net effect of offsetting exposure to foreign currency exchange rate movements in the value of their assets, and hedging is the effect of holding a hedge for that purpose; and
(b)
includes, in a hedge described in paragraph (a), a hedge of that hedge
investor interest means—
(a)
if the relevant entity is a company, a shareholding that gives the holder an entitlement to a distribution of the proceeds from the entity’s investments; or
(b)
if the relevant entity is not a company, an interest that, under the rules of the entity, gives the holder an entitlement to a proportion of the funds available for distribution of the proceeds from the entity’s investments, and that distribution is the same as if the entity were a company and the holder were a shareholder in that company
non-eligible assets—
(a)
means assets that are denominated in a foreign currency and not described in section EM 1(1)(a) and (b); but
(b)
does not include—
(i)
cash assets totalling less than 5% of the total market value of a person’s assets described in section EM 1(1)(a) and (b), or, at the election of the person, foreign cash assets that relate directly to assets described in section EM 1(1)(a) and (b) and to FDR hedge portions:
(ii)
eligible hedges:
(iii)
New Zealand securities listed on a recognised exchange and denominated in a foreign currency to the extent to which the securities are unhedged as to foreign currency
qualifying hedge fund means a person that is an investor in a multi-rate PIE, either directly or indirectly through 1 or more multi-rate PIEs, if and to the extent to which income of the multi-rate PIE from an asset described in section EM 1(1)(a) and (b) is attributed to the person
quarterly FDR hedging ratio means the ratio calculated using the formula in section EM 7(2).
Section EM 8: inserted, on 17 July 2013, by section 49 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EM 8 non-eligible assets: inserted, on 1 April 2022, by section 95 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EM 8 qualifying hedge fund: inserted, on 1 April 2022, by section 95 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Subpart EW—Financial arrangements rules
Contents
Introductory provisions
EW 1 What this subpart does
Financial arrangements rules
(1)
This subpart contains most of the financial arrangements rules.
Meaning of financial arrangements rules
(2)
Financial arrangements rules means—
(a)
the sections in this subpart; and
(b)
sections CC 3 (Financial arrangements), DB 11 to DB 15 (which relate to financial arrangements adjustments), EZ 51 (Transitional adjustment when changing to financial arrangements rules), FB 9 (Financial arrangements rules), GB 21 (Dealing that defeats intention of financial arrangements rules), RA 11 and RA 12 (which relate to adjustments to correct errors); and
(c)
sections 90AA to 90AD of the Tax Administration Act 1994.
Purposes of financial arrangements rules
(3)
The purposes of the financial arrangements rules are—
(a)
to require the parties to a financial arrangement to accrue over the term of the arrangement a fair and reasonable amount of income derived or expenditure incurred under the arrangement, and so to prevent the deferral of income or the advancement of expenditure; and
(b)
to require the parties to a financial arrangement to disregard any distinction between capital and revenue amounts; and
(c)
to require a party to a financial arrangement to calculate a base price adjustment when the rights and obligations of the party under the arrangement cease.
Defined in this Act: amount, financial arrangement, financial arrangements rules, income
Compare: 2004 No 35 s EW 1
EW 2 Relationship of financial arrangements rules with other provisions
Financial arrangements rules override other provisions
(1)
The financial arrangements rules prevail over any other provision in relation to the timing and quantifying of income and expenditure under a financial arrangement to which the financial arrangements rules apply, unless the other provision expressly or by necessary implication requires otherwise.
Interest excluded from certain valuations
(2)
Expenditure under a financial arrangement to which the financial arrangements rules apply is not included in—
(a)
the cost of trading stock for low-turnover traders under subpart EB (Valuation of trading stock (including dealer’s livestock)):
(b)
the cost of livestock under subpart EC (Valuation of livestock):
(c)
the cost of bloodstock under subpart EC:
(d)
the cost of revenue account property:
(e)
the cost of timber:
(f)
the cost of acquiring a film or a film right:
(g)
film production expenditure:
(h)
petroleum development expenditure:
(i)
petroleum exploration expenditure.
Defined in this Act: bloodstock, film, film production expenditure, film right, financial arrangement, financial arrangements rules, income, low-turnover trader, petroleum development expenditure, petroleum exploration expenditure, revenue account property, trading stock
Compare: 2004 No 35 s EW 2
Meaning of financial arrangement and excepted financial arrangement
EW 3 What is a financial arrangement?
Meaning
(1)
Financial arrangement means an arrangement described in any of subsections (2) to (4).
Money received for money provided
(2)
A financial arrangement is an arrangement under which a person receives money in consideration for that person, or another person, providing money to any person—
(a)
at a future time; or
(b)
on the occurrence or non-occurrence of a future event, whether or not the event occurs because notice is given or not given.
Examples of money received for money provided
(3)
Without limiting subsection (2), each of the following is a financial arrangement:
(a)
a debt, including a debt that arises by law:
(b)
a debt instrument:
(c)
the deferral of the payment of some or all of the consideration for an absolute assignment of some or all of a person’s rights under another financial arrangement or under an excepted financial arrangement:
(d)
the deferral of the payment of some or all of the consideration for a legal defeasance releasing a person from some or all of their obligations under another financial arrangement or under an excepted financial arrangement.
Excepted financial arrangement ceasing to be excepted
(4)
For sections EW 7 and EW 8,—
(a)
an excepted financial arrangement that ceases to be an excepted financial arrangement through the operation of section EW 7 is a financial arrangement:
(b)
an excepted financial arrangement that ceases to be an excepted financial arrangement for a party through the operation of section EW 8 is a financial arrangement for the party.
Defined in this Act: consideration, excepted financial arrangement, financial arrangement, legal defeasance, money, notice, pay
Compare: 2004 No 35 s EW 3
Section EW 3 list of defined terms notice: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
EW 4 What is not a financial arrangement?
Absolute assignment
(1)
An absolute assignment of some or all of a person’s rights under another financial arrangement or under an excepted financial arrangement is not a financial arrangement, except to the extent described in section EW 3(3)(c).
Legal defeasance
(2)
A legal defeasance releasing a person from some or all of their obligations under another financial arrangement or under an excepted financial arrangement is not a financial arrangement, except to the extent described in section EW 3(3)(d).
Excepted financial arrangement
(3)
An excepted financial arrangement is not a financial arrangement. The relationship between financial arrangements and excepted financial arrangements is dealt with in section EW 6.
Defined in this Act: excepted financial arrangement, financial arrangement, legal defeasance
Compare: 2004 No 35 s EW 4
EW 5 What is an excepted financial arrangement?
Meaning
(1)
Excepted financial arrangement means an arrangement described in any of subsections (2) to (25). However,—
(a)
an arrangement described in any of subsections (18) to (20) may cease to be an excepted financial arrangement through the operation of section EW 7:
(b)
an arrangement described in any of subsections (21) to (25) may cease to be an excepted financial arrangement for a party who makes an election under section EW 8.
Annuity
(2)
Each of the following is an excepted financial arrangement to the extent to which it is not life financial reinsurance:
(a)
an annuity for a term contingent on human life:
(b)
an annuity for a term not contingent on human life to which section EY 8(2)(c) (Meaning of life insurance) applies.
Bet
(3)
A bet on any of the following is an excepted financial arrangement:
(a)
a race, as defined in section 5(1) of the Racing Industry Act 2020:
(b)
a sporting event under a sports betting system administered under Part 4 of the Racing Industry Act 2020:
(c)
gambling, including a New Zealand lottery, as those terms are defined in section 4(1) of the Gambling Act 2003.
Cryptocurrency
(3BA)
A cryptocurrency is an excepted financial arrangement if the cryptocurrency does not meet the requirements of subsection (3BAB).
Exception: cryptocurrency producing specified returns on purchase price
(3BAB)
A cryptocurrency is not an excepted financial arrangement if a consequence of ownership of the cryptocurrency is that the owner receives or is entitled to receive, during the period of ownership, amounts that are determined—
(a)
by reference to the quantity or value of the cryptocurrency; and
(b)
on a basis that is known by the owner in advance; and
(c)
not by reference to the profits of a business activity.
Emissions unit
(3B)
An emissions unit is an excepted financial arrangement.
Greenhouse gas unit
(3C)
A greenhouse gas unit that is not an emissions unit is an excepted financial arrangement.
Research and development agreement
(3D)
An agreement between a person and another person (the provider) that the provider will provide property or services to the person in consideration for a payment to the provider by a public authority under a research and development growth grant for the benefit of the person is an excepted financial arrangement for the person.
Employment contract
(4)
An employment contract is an excepted financial arrangement.
Farm-out arrangement
(5)
A farm-out arrangement is an excepted financial arrangement.
Group investment fund
(6)
An interest in a group investment fund is an excepted financial arrangement.
Hire purchase: livestock or bloodstock
(7)
A hire purchase agreement for livestock or bloodstock is an excepted financial arrangement.
Insurance contract
(8)
An insurance contract to the extent to which it is not life financial reinsurance is an excepted financial arrangement.
Lease not finance lease
(9)
A lease that is not a finance lease is an excepted financial arrangement.
Loan in New Zealand currency
(10)
A loan to which all the following apply is an excepted financial arrangement for the lender:
(a)
the loan is in New Zealand currency; and
(b)
the loan is interest-free; and
(c)
the loan is repayable on demand.
Partnership or joint venture
(11)
An interest in a partnership or a joint venture is an excepted financial arrangement.
Look-through companies
(11B)
A look-through interest for a look-through company is an excepted financial arrangement.
Assignment and return of emissions units as part of loan
(11C)
An arrangement for the assignment of a pre-1990 forest land emissions unit by the holder to a person who is not an associated person (the lender) and for the later assignment of the same or another New Zealand emissions unit by the lender to the holder, as part of a financial arrangement that is a loan to the holder by the lender, is an excepted financial arrangement that is subject to section EW 52B.
Share-lending arrangement
(12)
A share-lending arrangement is an excepted financial arrangement.
Share or option
(13)
A share, or an option to acquire or to dispose of shares, is an excepted financial arrangement, if the share is acquired, or the person becomes a party to the option, on or after 20 May 1999. This subsection does not apply to a withdrawable share or to an option to acquire or to dispose of withdrawable shares.
Option over cryptocurrency
(13B)
An option to acquire or to dispose of cryptocurrency is an excepted financial arrangement.
Specified preference share
(14)
A specified preference share to which section FZ 1 (Deduction for dividends paid on certain preference shares) of the Income Tax Act 2004 applies is an excepted financial arrangement.
Superannuation
(15)
A membership of a superannuation scheme is an excepted financial arrangement.
Warranty
(16)
A warranty for goods or services is an excepted financial arrangement.
Certain arrangements to which transitional resident is party
(17)
An arrangement to which a transitional resident is a party is an excepted financial arrangement for the transitional resident if—
(a)
no other party to the arrangement is a New Zealand resident; and
(b)
the arrangement is not for a purpose of a business carried on in New Zealand by a party to the arrangement.
Loan in foreign currency: private or domestic purpose
(18)
A loan to which all the following apply is an excepted financial arrangement for the borrower:
(a)
the loan is in foreign currency; and
(b)
the borrower is a cash basis person; and
(c)
the borrower uses the loan for a private or a domestic purpose.
Option: private or domestic purpose
(19)
An option to acquire or dispose of property, other than an interest in a financial arrangement, is an excepted financial arrangement for a person who becomes a party to the option for a private or a domestic purpose.
Private or domestic agreement for the sale and purchase of property or services
(20)
An agreement for the sale and purchase of property or services entered into by a person, or a specified option granted to or by a person, is an excepted financial arrangement for the person if,—
(a)
first,—
(i)
the agreement is entered into by the person for a private or a domestic purpose; or
(ii)
the option is granted to or by the person for a private or a domestic purpose; and
(b)
second, the subject matter of the agreement or option is—
(i)
real property whose purchase price is less than $1,000,000; or
(ii)
any other property whose purchase price is less than $400,000; or
(iii)
services whose purchase price is less than $400,000; and
(c)
third,—
(i)
the agreement requires settlement of the property, or performance of the services, to take place on or before the 365th day after the date on which the agreement is entered into; or
(ii)
the option requires settlement of the property, or performance of the services, if an agreement is entered into as a result of the exercise of the option, to take place on or before the 365th day after the date on which the option is granted.
Agreement for the sale and purchase of property or services
(21)
An agreement for the sale and purchase of property or services is an excepted financial arrangement, except for a party who makes an election under section EW 8, if—
(a)
all a party’s sales or purchases under the agreement are prepaid; and
(b)
for all the party’s agreements under which all sales and purchases are prepaid, the total value of prepayments, on every day in an income year, is $50,000 or less.
Short-term agreement for sale and purchase
(22)
A short-term agreement for sale and purchase is an excepted financial arrangement, except for a party who makes an election under section EW 8.
Short-term option
(23)
A short-term option is an excepted financial arrangement, except for a party who makes an election under section EW 8.
Travellers’ cheques
(24)
Travellers’ cheques are excepted financial arrangements, except for a party who makes an election under section EW 8.
Variable principal debt instrument
(25)
A variable principal debt instrument is an excepted financial arrangement, except for a party who makes an election under section EW 8, if the total value on every day in an income year of all variable principal debt instruments to which a person is a party is $50,000 or less.
Defined in this Act: agreement for the sale and purchase of property or services, arrangement, bloodstock, cash basis person, emissions unit, excepted financial arrangement, farm-out arrangement, finance lease, greenhouse gas unit, group investment fund, hire purchase agreement, income year, insurance contract, lease, life financial reinsurance, look-through company, look-through interest, New Zealand, New Zealand resident, non-resident, pay, property, public authority, share, share-lending arrangement, short-term agreement for sale and purchase, short-term option, superannuation scheme, transitional resident, variable principal debt instrument, withdrawable share
Compare: 2004 No 35 s EW 5
Section EW 5(2): amended, on 1 July 2010, by section 132(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 5(3)(a): amended, on 1 August 2020, by section 129 of the Racing Industry Act 2020 (2020 No 28).
Section EW 5(3)(b): amended, on 1 August 2020, by section 129 of the Racing Industry Act 2020 (2020 No 28).
Section EW 5(3BA) heading: inserted (with effect on 1 January 2009), on 30 March 2022, by section 96(1) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EW 5(3BA): inserted (with effect on 1 January 2009), on 30 March 2022, by section 96(1) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EW 5(3BAB) heading: inserted (with effect on 1 January 2009), on 30 March 2022, by section 96(1) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EW 5(3BAB): inserted (with effect on 1 January 2009), on 30 March 2022, by section 96(1) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EW 5(3B) heading: substituted (with effect on 1 January 2009), on 6 October 2009, by section 132(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 5(3B): substituted (with effect on 1 January 2009), on 6 October 2009, by section 132(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 5(3C) heading: replaced, on 30 November 2020, by section 280 of the Climate Change Response (Emissions Trading Reform) Amendment Act 2020 (2020 No 22).
Section EW 5(3C): replaced, on 30 November 2020, by section 280 of the Climate Change Response (Emissions Trading Reform) Amendment Act 2020 (2020 No 22).
Section EW 5(3D) heading: inserted (with effect on 1 October 2010), on 21 December 2010, by section 56(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EW 5(3D): inserted (with effect on 1 October 2010), on 21 December 2010, by section 56(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EW 5(3D): amended, on 30 March 2017, by section 70 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EW 5(8): amended, on 1 July 2010, by section 132(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 5(11B) heading: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 56(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EW 5(11B): inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 56(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EW 5(11C) heading: inserted (with effect on 1 April 2018), on 26 June 2019, by section 63(1) (and see section 63(2) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EW 5(11C): inserted (with effect on 1 April 2018), on 26 June 2019, by section 63(1) (and see section 63(2) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EW 5(13B) heading: inserted (with effect on 1 January 2009), on 30 March 2022, by section 96(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EW 5(13B): inserted (with effect on 1 January 2009), on 30 March 2022, by section 96(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EW 5 list of defined terms emissions unit: inserted (with effect on 1 January 2009), on 6 October 2009, by section 132(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 5 list of defined terms ETS unit: repealed (with effect on 1 January 2009), on 6 October 2009, by section 132(4)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 5 list of defined terms greenhouse gas unit: inserted, on 30 November 2020, by section 280 of the Climate Change Response (Emissions Trading Reform) Amendment Act 2020 (2020 No 22).
Section EW 5 list of defined terms life financial reinsurance: inserted, on 1 July 2010, by section 132(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 5 list of defined terms look-through company: inserted, on 1 April 2011, by section 56(4) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EW 5 list of defined terms look-through interest: inserted, on 1 April 2011, by section 56(4) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EW 5 list of defined terms non-Kyoto greenhouse gas unit: repealed, on 30 November 2020, by section 280 of the Climate Change Response (Emissions Trading Reform) Amendment Act 2020 (2020 No 22).
Section EW 5 list of defined terms public authority: inserted (with effect on 1 October 2010), on 21 December 2010, by section 56(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
EW 6 Relationship between financial arrangements and excepted financial arrangements
Part of financial arrangement
(1)
An excepted financial arrangement may be part of a financial arrangement.
Income or expenditure under specific excepted financial arrangements
(2)
If an excepted financial arrangement described in any of section EW 5(2) to (16) is part of a financial arrangement, an amount solely attributable to the excepted financial arrangement is not an amount taken into account under the financial arrangements rules.
Income or expenditure under remaining excepted financial arrangements
(3)
If an excepted financial arrangement described in any of section EW 5(17) to (25) is part of a financial arrangement, an amount solely attributable to the excepted financial arrangement is an amount taken into account under the financial arrangements rules.
Binding rulings
(4)
The Commissioner may make a binding ruling under section 91CC(1)(a) of the Tax Administration Act 1994 on how a taxation law applies, or would apply, to a person and an arrangement on whether an amount is solely attributable to an excepted financial arrangement.
Defined in this Act: amount, binding ruling, excepted financial arrangement, financial arrangement, financial arrangements rules, income
Compare: 2004 No 35 s EW 6
Section EW 6(4) heading: inserted, on 18 March 2019, by section 175(1) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EW 6(4): inserted, on 18 March 2019, by section 175(1) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EW 6 list of defined terms binding ruling: inserted, on 18 March 2019, by section 175(2) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EW 7 Change from private or domestic purpose
When this section applies
(1)
This section applies when a person who is a party to an excepted financial arrangement described in any of section EW 5(18) to (20) stops using it for a private or a domestic purpose.
Excepted financial arrangement becomes financial arrangement
(2)
On and after the date on which the person stops using the excepted financial arrangement for a private or a domestic purpose,—
(a)
it ceases to be an excepted financial arrangement for the person; and
(b)
the person becomes a party to a financial arrangement.
Defined in this Act: excepted financial arrangement, financial arrangement
Compare: 2004 No 35 s EW 7
EW 8 Election to treat certain excepted financial arrangements as financial arrangements
Election
(1)
A person may choose to treat as financial arrangements—
(a)
all the excepted financial arrangements to which the person is a party that are described in any of section EW 5(21) to (25), if the expenditure under the agreements satisfies the general permission and is not denied by the general limitation as a deduction for the person:
(b)
any excepted financial arrangement to which the person is a party that is described in section EW 5(10).
Election for class of short-term agreements
(2)
A person may choose to treat as financial arrangements a class of short-term agreements for sale and purchase if the expenditure under the agreements satisfies the general permission and is not denied by a general limitation as a deduction for the person. The person must identify the class by—
(a)
the currency that applies to the agreements:
(b)
the term of the agreements.
How election made
(3)
The person makes an election by returning income derived or expenditure incurred under the chosen arrangements under the financial arrangements rules in their return of income.
How election revoked
(4)
The person revokes the election by giving notice to the Commissioner with their return of income and within the time that the return must be filed under section 37 of the Tax Administration Act 1994.
Effect of revocation
(5)
The revocation applies to excepted financial arrangements the person enters into after the income year in which the notice is given.
Defined in this Act: Commissioner, excepted financial arrangement, financial arrangement, financial arrangements rules, income, income year, notice, return of income, short-term agreement for sale and purchase
Compare: 2004 No 35 s EW 8
Section EW 8 heading: replaced (with effect on 27 September 2012), on 30 June 2014, by section 75(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 8(1) heading: replaced (with effect on 27 September 2012 and applying for a person and an excepted financial arrangement on and after that date, except if the person takes a tax position for the excepted financial arrangement, relying on an election made under section EW 8 as amended by section 50 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 and before its amendment by section 75(2) and (4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014: (i) in a return of income received by the Commissioner before 14 April 2014; (ii) under a determination or binding ruling made by the Commissioner before 14 April 2014; and chooses after 14 April 2014 to continue taking the tax position), on 30 June 2014, by section 75(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 8(1) heading: replaced (with effect on 17 July 2013 and applying for a person and an excepted financial arrangement on and after that date, except if the person takes a tax position for the excepted financial arrangement referred to in section 75(5)(a) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 and chooses under section 75(5)(b) of that Act to continue taking the tax position), on 30 June 2014, by section 75(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 8(1): replaced (with effect on 1 April 2011 and applying for income years beginning on or after that date), on 30 March 2017, by section 71(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EW 8(2) heading: replaced (with effect on 27 September 2012 and applying for a person and an excepted financial arrangement on and after that date, except if the person takes a tax position for the excepted financial arrangement, relying on an election made under section EW 8 as amended by section 50 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 and before its amendment by section 75(2) and (4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014: (i) in a return of income received by the Commissioner before 14 April 2014; (ii) under a determination or binding ruling made by the Commissioner before 14 April 2014; and chooses after 14 April 2014 to continue taking the tax position), on 30 June 2014, by section 75(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 8(2) heading: replaced (with effect on 17 July 2013 and applying for a person and an excepted financial arrangement on and after that date, except if the person takes a tax position for the excepted financial arrangement referred to in section 75(5)(a) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 and chooses under section 75(5)(b) of that Act to continue taking the tax position), on 30 June 2014, by section 75(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 8(2): replaced (with effect on 27 September 2012 and applying for a person and an excepted financial arrangement on and after that date, except if the person takes a tax position for the excepted financial arrangement, relying on an election made under section EW 8 as amended by section 50 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 and before its amendment by section 75(2) and (4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014: (i) in a return of income received by the Commissioner before 14 April 2014; (ii) under a determination or binding ruling made by the Commissioner before 14 April 2014; and chooses after 14 April 2014 to continue taking the tax position), on 30 June 2014, by section 75(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 8(2): replaced (with effect on 17 July 2013 and applying for a person and an excepted financial arrangement on and after that date, except if the person takes a tax position for the excepted financial arrangement referred to in section 75(5)(a) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 and chooses under section 75(5)(b) of that Act to continue taking the tax position), on 30 June 2014, by section 75(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 8(3): amended (with effect on 27 September 2012 and applying for a person and an excepted financial arrangement on and after that date, except if the person takes a tax position for the excepted financial arrangement, relying on an election made under section EW 8 as amended by section 50 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 and before its amendment by section 75(2) and (4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014: (i) in a return of income received by the Commissioner before 14 April 2014; (ii) under a determination or binding ruling made by the Commissioner before 14 April 2014; and chooses after 14 April 2014 to continue taking the tax position), on 30 June 2014, by section 75(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 8(5): amended (with effect on 1 April 2008), on 17 July 2013, by section 50(4) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Application of financial arrangements rules
EW 9 Persons to whom financial arrangements rules apply
Residents
(1)
A person who is a party to a financial arrangement must calculate and allocate income or expenditure under the arrangement for an income year under the financial arrangements rules, if the arrangement is one to which the rules apply under section EW 10. This subsection is overridden by subsection (2).
Non-residents
(2)
Subsection (1) does not apply to a person who is not resident in New Zealand unless the person is described in subsection (3) or (4).
Non-resident with New Zealand fixed establishment
(3)
Subsection (1) applies to a person who is not resident in New Zealand to the extent to which the person is a party to a financial arrangement for the purpose of a business carried on by the person through a fixed establishment in New Zealand.
Non-resident trustee for New Zealand settlor
(4)
Subsection (1) applies to a person who is not resident in New Zealand if—
(a)
the person is a trustee for a settlor who is resident in New Zealand; and
(b)
the person as trustee—
(i)
meets the requirements of section HC 25(2)(a) (Foreign-sourced amounts: non-resident trustees) for the derivation of assessable income from a foreign-sourced amount; and
(ii)
meets the requirements of neither of the exceptions, to section HC 25(2), in section HC 25(3) and (4).
Defined in this Act: financial arrangement, financial arrangements rules, fixed establishment, income, New Zealand, resident in New Zealand, settlor, trustee
Compare: 2004 No 35 s EW 9
Section EW 9(2): replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 24 February 2016, by section 131(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EW 9(4)(b): replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 24 February 2016, by section 131(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EW 9 list of defined terms settlor: inserted, on 24 February 2016, by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EW 10 Financial arrangements to which financial arrangements rules apply
Entered into on or after 20 May 1999
(1)
The financial arrangements rules apply to a financial arrangement that all its parties enter into on or after 20 May 1999.
Existing immediately before 20 May 1999
(2)
The financial arrangements rules apply to a financial arrangement existing immediately before 20 May 1999 to the extent to which a person becomes a party to the arrangement on or after 20 May 1999.
Rollover, extension, or advance on or after 20 May 1999
(3)
The financial arrangements rules apply to a financial arrangement that is rolled over or extended, or under which an advance is made, on or after 20 May 1999, under a binding contract entered into before 20 May 1999.
Binding contract before 20 May 1999
(4)
However, the financial arrangements rules do not apply to a financial arrangement if—
(a)
all its parties enter into it on or after 20 May 1999; and
(b)
they enter into it under a binding contract entered into before 20 May 1999.
Transferred under relationship agreement
(5)
The financial arrangements rules apply to a financial arrangement to which all the following apply, to the extent to which the transferee becomes a party to it:
(a)
the transferor is a party to it before 20 May 1999; and
(b)
it is rolled over or extended, or an advance is made under it, on or after 20 May 1999, under a binding contract entered into before 20 May 1999; and
(c)
it is transferred under a relationship agreement on or after 20 May 1999.
Binding contract before 20 May 1999 and transfer under relationship agreement
(6)
However, the financial arrangements rules do not apply to a financial arrangement if—
(a)
all its parties enter into it on or after 20 May 1999; and
(b)
they enter into it under a binding contract entered into before 20 May 1999; and
(c)
it is transferred under a relationship agreement on or after 20 May 1999.
Defined in this Act: financial arrangement, financial arrangements rules, relationship agreement
Compare: 2004 No 35 s EW 10
EW 11 What financial arrangements rules do not apply to
The financial arrangements rules do not apply to—
(a)
the calculation of resident passive income:
(b)
the calculation of non-resident passive income, other than—
(i)
non-resident financial arrangement income; or
(ii)
income derived under a notional loan under section FG 3 (Notional interest):
(c)
interest paid by the Commissioner under Part 7 of the Tax Administration Act 1994 for an overpayment of income tax:
(d)
interest payable to the Commissioner under Part 7 of the Tax Administration Act 1994 for an underpayment of income tax.
Defined in this Act: Commissioner, financial arrangements rules, income tax, interest, non-resident financial arrangement income, non-resident passive income, pay, resident passive income
Compare: 2004 No 35 s EW 11
Section EW 11(b): replaced, on 30 March 2017, by section 72(1) (and see section 5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EW 11 list of defined terms non-resident financial arrangement income: inserted, on 30 March 2017, by section 72(2) (and see section 5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Calculation and allocation of income and expenditure over financial arrangement’s term
EW 12 When use of spreading method required
A party to a financial arrangement must use 1 of the spreading methods to calculate an amount of income or expenditure under the arrangement for each income year over the arrangement’s term, and to allocate it to the income year, unless section EW 13 applies.
Defined in this Act: amount, financial arrangement, income, income year, spreading method
Compare: 2004 No 35 s EW 12
EW 13 When use of spreading method not required
Base price adjustment year
(1)
A person does not use any of the spreading methods for a financial arrangement in the income year in which section EW 29 requires them to calculate a base price adjustment for it.
Trustee of personal injury compensation trust
(2)
A trustee who holds a financial arrangement in trust to manage compensation paid for personal injury under the Accident Compensation Act 2001, the Accident Insurance Act 1998, any of the former Acts as defined in section 13 of the Accident Insurance Act 1998, the Workers’ Compensation Act 1956, or a court order does not use any of the spreading methods for the financial arrangement if the trustee is a cash basis person.
Cash basis person
(3)
A cash basis person is not required to use any of the spreading methods, but may choose to do so under section EW 61.
Defined in this Act: cash basis person, financial arrangement, income year, pay, spreading method, trustee
Compare: 2004 No 35 s EW 13
Section EW 13(2): substituted, on 1 April 2009, by section 6(1) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
Section EW 13(2): amended, on 29 March 2018 (with effect on 1 April 2009), by section 77 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EW 13(2): amended, on 21 December 2010, by section 189 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
EW 14 What spreading methods do
Description
(1)
The spreading methods are methods of calculating and allocating income and expenditure under a financial arrangement over the arrangement’s term.
Methods
(2)
A spreading method is 1 of the following:
(aa)
a method for IFRS, to which sections EW 15B to EW 15I relate; or
(a)
(e)
a financial reporting method, to which sections EW 21 and EW 23 are relevant; or
(f)
a default method, to which section EW 22 is relevant.
Result
(3)
The amount calculated for and allocated to the income year under a spreading method is—
(a)
income, under section CC 3 (Financial arrangements), derived by the person in the income year; or
(b)
expenditure incurred by the person in the income year.
Binding rulings
(4)
The Commissioner may make a binding ruling under section 91CC(1)(b) of the Tax Administration Act 1994 on the use of a spreading method described in subsection (2)(aa) to (e) for the purposes of sections EW 15E and EW 15I.
Defined in this Act: amount, binding ruling, financial arrangement, income, income year, spreading method
Compare: 2004 No 35 s EW 14
Section EW 14(2)(aa): inserted, on 1 April 2008, by section 364(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 14(2)(e): substituted (with effect on 1 April 2008), on 6 October 2009, by section 133 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 14(4) heading: inserted, on 18 March 2019, by section 176(1) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EW 14(4): inserted, on 18 March 2019, by section 176(1) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EW 14 list of defined terms binding ruling: inserted, on 18 March 2019, by section 176(2) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EW 15 What is included when spreading methods used
Consideration and amounts
(1)
A person using a spreading method must include, for the purpose of calculating and allocating income and expenditure under the financial arrangement,—
(a)
all consideration that has been paid, and all consideration that is or will be payable, to the person for or under the financial arrangement, ignoring—
(i)
non-contingent fees, if the relevant method is not the IFRS financial reporting method in section EW 15D:
(ii)
non-integral fees, if the relevant method is the IFRS financial reporting method in section EW 15D or the modified fair value method in section EW 15G; and
(b)
all consideration that has been paid, and all consideration that is or will be payable, by the person for or under the financial arrangement, ignoring—
(i)
non-contingent fees, if the relevant method is not the IFRS financial reporting method in section EW 15D:
(ii)
non-integral fees, if the relevant method is the IFRS financial reporting method in section EW 15D or the modified fair value method in section EW 15G; and
(c)
all amounts that have been remitted, and all amounts that are to be remitted, by the person under the financial arrangement; and
(d)
all amounts that would have been payable to the person under the financial arrangement if the amounts had not been remitted by law.
Consideration in particular cases
(2)
If any of sections EW 32 to EW 48 applies, the consideration referred to in subsection (1)(a) and (b) is adjusted under the relevant section.
Defined in this Act: amount, consideration, financial arrangement, IFRS, income, non-contingent fee, non-integral fee, pay, spreading method
Compare: 2004 No 35 s EW 15
Section EW 15(1)(a): amended, on 1 April 2008, by section 365(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 15(1)(a)(i): inserted, on 1 April 2008, by section 365(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 15(1)(a)(ii): amended (with effect on 1 April 2008), on 29 August 2011, by section 31(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EW 15(1)(b): amended, on 1 April 2008, by section 365(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 15(1)(b)(i): inserted, on 1 April 2008, by section 365(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 15(1)(b)(ii): amended (with effect on 1 April 2008), on 29 August 2011, by section 31(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EW 15 list of defined terms IFRS: inserted, on 1 April 2008, by section 365(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 15 list of defined terms non-integral fee: inserted, on 1 April 2008, by section 365(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EW 15B Applying IFRSs to financial arrangements
When sections EW 15C to EW 15I apply
(1)
Sections EW 15C to EW 15I apply when a person who is a party to a financial arrangement uses IFRSs to prepare financial statements and to report for financial arrangements.
Certain methods available for use and certain mandatory
(2)
Sections EW 15C to EW 15I set out—
(a)
the methods available to the person to use for calculating and allocating income and expenditure under a financial arrangement:
(b)
the circumstances in which a person must use certain other methods.
Functional currency
(3)
Even if another currency may be used as the functional currency under IFRSs, the methods must be applied using New Zealand dollars.
Financial statements
(4)
Unless the context otherwise requires, references to IFRSs in sections EW 15D to EW 15I are references to IFRS rules used to prepare the person’s financial statements.
Agreed spreading methods for life financial reinsurance
(5)
A life insurer who, in an income year, is a party to a life financial reinsurance contract (the reinsurance contract) and to a deed of settlement under section 6A of the Tax Administration Act 1994 with the Commissioner that meets the requirements of subsection (6), must use the agreed spreading method referred to in subsection (6)(b) for the reinsurance contract and the income year.
Deed of settlement requirements
(6)
The deed of settlement must—
(a)
be entered into by the life insurer and the Commissioner before 1 January 2023; and
(b)
require the life insurer to use for the income year a method (the agreed spreading method) for spreading the income or expenditure under life financial reinsurance that differs from the treatment of life financial reinsurance that would otherwise be required under the IFRS used by the life insurer for the income year.
Defined in this Act: Commissioner, expenditure, financial arrangement, financial statements, IFRS, income, income year, life financial reinsurance, life insurer, reinsurance contract
Compare: 2004 No 35 s EW 15B
Section EW 15B: inserted, on 1 April 2008, by section 366 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 15B(3) heading: added (with effect on 1 April 2008), on 6 October 2009, by section 134 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15B(3): added (with effect on 1 April 2008), on 6 October 2009, by section 134 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15B(4) heading: added (with effect on 1 April 2008), on 6 October 2009, by section 134 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15B(4): added (with effect on 1 April 2008), on 6 October 2009, by section 134 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15B(5) heading: inserted (with effect on 1 January 2023), on 31 March 2023, by section 53(1) (and see section 53(3) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EW 15B(5): inserted (with effect on 1 January 2023), on 31 March 2023, by section 53(1) (and see section 53(3) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EW 15B(6) heading: inserted (with effect on 1 January 2023), on 31 March 2023, by section 53(1) (and see section 53(3) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EW 15B(6): inserted (with effect on 1 January 2023), on 31 March 2023, by section 53(1) (and see section 53(3) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EW 15B list of defined terms Commissioner: inserted (with effect on 1 January 2023), on 31 March 2023, by section 53(2) (and see section 53(3) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EW 15B list of defined terms expenditure: inserted (with effect on 1 January 2023), on 31 March 2023, by section 53(2) (and see section 53(3) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EW 15B list of defined terms income year: inserted (with effect on 1 January 2023), on 31 March 2023, by section 53(2) (and see section 53(3) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EW 15B list of defined terms life financial reinsurance: inserted (with effect on 1 January 2023), on 31 March 2023, by section 53(2) (and see section 53(3) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EW 15B list of defined terms life insurer: inserted (with effect on 1 January 2023), on 31 March 2023, by section 53(2) (and see section 53(3) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EW 15B list of defined terms reinsurance contract: inserted (with effect on 1 January 2023), on 31 March 2023, by section 53(2) (and see section 53(3) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
EW 15C Preparing and reporting methods
Who this section applies to
(1)
A person who uses IFRSs to prepare financial statements and to report for financial arrangements must use 1 of the following methods for the financial arrangement:
(a)
the IFRS financial reporting method in section EW 15D:
(b)
a determination alternative in section EW 15E:
(c)
the expected value method in section EW 15F:
(d)
the modified fair value method in section EW 15G.
Exclusions
(2)
Subsection (1) does not apply in the circumstances set out in sections EW 15H and EW 15I.
Defined in this Act: fair value method, financial arrangement, financial statements, IFRS
Compare: 2004 No 35 s EW 15B(6)
Section EW 15C: inserted, on 1 April 2008, by section 366 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EW 15D IFRS financial reporting method
General IFRS rules
(1)
Under the IFRS financial reporting method, a person must allocate an amount to an income year under IFRS rules modified, as applicable, under subsection (2).
Modifications
(2)
The allocation is modified as follows:
(a)
if the financial arrangement is a financial asset, an amount arising from an impaired credit adjustment under IFRSs is not allocated to an income year. However, when the fair value method is used, adjustments for financial arrangements held by the person are excluded from this paragraph, if the financial arrangements are not derivative instruments and the person’s business includes dealing in those financial arrangements:
(ab)
borrowing costs are not capitalised under NZIAS 23:
(ac)
if the financial arrangement is an interest-free loan, no amount is allocated to equity, equity reserves, other comprehensive income, or profit or loss when the loan is initially entered into, and no interest is allocated subsequent to the initial entry:
(ad)
if the financial arrangement is a loan with a fair value (the loan initial value) when the loan is initially entered into that, because of the loan’s interest rate, is less than the face value (the consideration initial value) at that time, then no amount is allocated to equity, equity reserves, other comprehensive income, or profit or loss, to the extent to which the amount relates solely to the difference, because of interest rates, between the consideration initial value and the loan initial value. Also, no interest is allocated subsequent to the initial entry on account of a movement in the fair value of the loan, to the extent to which the movement relates solely to the difference, because of interest rates, between the consideration initial value and the loan initial value:
(ae)
if the financial arrangement is a foreign ASAP, or is an IFRS designated FX hedge for a foreign ASAP, sections EW 32 and EW 33B apply to value, for IFRS rules, the relevant property or service. Section EW 33B also provides rules for subsequently adjusting the treatment of the relevant hedge:
(b)
even though an amount may be allocated to equity, equity reserves, or other comprehensive income under IFRSs, the amount must be allocated to an income year for tax purposes.
Fair value method not used for certain financial arrangements
(2B)
A person must not use the fair value method for a financial arrangement if—
(a)
the financial arrangement is treated under IFRSs by the person as a hedge of another financial arrangement; and
(b)
the person uses for the other financial arrangement a method that is not the IFRS financial reporting method.
Meaning of impaired credit adjustment
(3)
For the purposes of this section, impaired credit adjustment means—
(a)
for a financial arrangement accounted for under the fair value method, a movement in fair value—
(i)
through a decline in the credit quality of the arrangement; or
(ii)
through an improvement in the credit quality of the arrangement to the extent to which it offsets earlier movements in fair value described in subparagraph (i):
(b)
for a financial arrangement not accounted for under the fair value method, credit impairment adjustments made under IFRSs.
Defined in this Act: amount, derivative instrument, fair value method, foreign ASAP, FX hedge, IFRS, impaired credit adjustment, income year, NZIAS 23, tax
Compare: 2004 No 35 s EW 15C
Section EW 15D: inserted, on 1 April 2008, by section 366 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 15D(2)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 135(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15D(2)(ab): inserted (with effect on 1 April 2008), on 6 October 2009, by section 135(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15D(2)(ac): inserted, on 1 April 2014 (applying for the 2014–15 and later income years), by section 51(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EW 15D(2)(ac): amended (with effect on 1 April 2014), on 24 February 2016, by section 132(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EW 15D(2)(ad): inserted, on 1 April 2014 (applying for the 2014–15 and later income years), by section 51(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EW 15D(2)(ad): amended (with effect on 1 April 2014), on 24 February 2016, by section 132(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EW 15D(2)(ae): inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on 30 June 2014, by section 76(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 15D(2)(b): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 132(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EW 15D(2B) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 135(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15D(2B): inserted (with effect on 1 April 2008), on 6 October 2009, by section 135(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15D(2B)(b): replaced (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on 30 June 2014, by section 76(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 15D(3)(a): replaced (with effect on 1 April 2008), on 31 March 2023, by section 54 of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EW 15D list of defined terms derivative instrument: inserted (with effect on 1 April 2008), on 6 October 2009, by section 135(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15D list of defined terms foreign ASAP: inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on 30 June 2014, by section 76(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 15D list of defined terms FX hedge: inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on 30 June 2014, by section 76(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 15D list of defined terms NZIAS 23: inserted (with effect on 1 April 2008), on 6 October 2009, by section 135(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EW 15E Determination alternatives
When this section applies
(1)
This section applies when—
(a)
a person chooses in a return of income to use a determination alternative to IFRS for a financial arrangement; and
(b)
the method is available under its terms for the person to use; and
(c)
the financial arrangement—
(i)
is not treated under IFRSs by the person as a hedge; or
(ii)
is treated under IFRSs by the person as a hedge of other financial arrangements, for each of which the person does not use the fair value method; or
(iii)
is treated under IFRSs by the person as a hedge of something that is not a financial arrangement.
General IFRS rules
(2)
The person must use 1 of the following methods modified, as applicable, under subsection (3) or (3B):
(aa)
Determination G3: Yield to maturity, but only if the financial arrangement is denominated in New Zealand currency and is not a derivative instrument. When applying Determination G3, Determination G25: Variation in the terms of a financial arrangement must be used:
(a)
Determination G9C: Financial arrangements that are denominated in a currency other than New Zealand dollars: an expected value approach:
(b)
Determination G14B: Forward contracts for foreign exchange and commodities: an expected value approach:
(c)
Determination G27: Swaps:
(d)
a determination made by the Commissioner under section 90AC(1)(bb) of the Tax Administration Act 1994 or a binding ruling made under section 91CC(1)(b) of that Act:
(e)
a method other than those set out in paragraphs (aa) to (d) if the alternative—
(i)
has regard to the purposes of the financial arrangements rules under section EW 1(3); and
(ii)
is for a financial arrangement similar to 1 to which the methods set out in paragraphs (aa) to (d) may apply; and
(iii)
results in the allocation to each income year of amounts that are not materially different from those that would have been allocated using 1 of the methods set out in paragraphs (aa) to (d).
Modifications
(3)
For a determination alternative that is Determination G9C or G14B, the allocation is modified as follows:
(a)
the term forward contract is treated as including a conditional or unconditional agreement to pay or be paid an amount calculated by reference to the price of property or services, without the property being delivered or the services being performed:
(b)
a requirement that all companies in a group of companies to which the person belongs choose to use the determination alternative is treated as met if—
(i)
all companies in the group notify the Commissioner that they choose Determination G9C or G14B on or before the 63rd day after the person entered into the financial arrangement, or a later time as the Commissioner allows; and
(ii)
the financial arrangement is the first financial arrangement of the group for which Determination G9C or G14B may be used.
Modifications
(3B)
For a determination alternative that is Determination G27, the allocation is modified as follows:
(a)
method C must be used, and not methods A, B, or D:
(b)
for method C, if relevant, Determination G9C and not Determination G9A must be used.
Succeeding determinations
(4)
For the purposes of this section, the determinations set out in subsection (2)(a) to (c) include a determination that succeeds the determination.
Defined in this Act: amount, binding ruling, Commissioner, company, derivative instrument, financial arrangement, financial arrangements rules, group of companies, IFRS, income year, New Zealand, notify, pay, return of income
Compare: 2004 No 35 s EW 15D
Section EW 15E: inserted, on 1 April 2008, by section 366 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 15E(1)(c): substituted (with effect on 1 April 2008), on 6 October 2009, by section 136(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15E(1)(c)(ii): amended (with effect on 1 April 2008), on 7 September 2010, by section 36 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EW 15E(1)(c)(iii): added (with effect on 1 April 2008), on 7 September 2010, by section 36 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EW 15E(2): amended (with effect on 1 April 2009), on 6 October 2009, by section 136(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15E(2)(aa): inserted (with effect on 1 April 2008), on 6 October 2009, by section 136(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15E(2)(d): replaced, on 18 March 2019, by section 177(1) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EW 15E(2)(e): amended (with effect on 1 April 2009), on 7 December 2009, by section 19(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EW 15E(2)(e)(ii): amended (with effect on 1 April 2009), on 7 December 2009, by section 19(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EW 15E(2)(e)(iii): amended (with effect on 1 April 2009), on 7 December 2009, by section 19(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EW 15E(3)(b)(i): replaced, on 2 June 2016, by section 35(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EW 15E(3B) heading: inserted (with effect on 1 April 2009), on 6 October 2009, by section 136(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15E(3B): inserted (with effect on 1 April 2009), on 6 October 2009, by section 136(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15E list of defined terms binding ruling: inserted, on 18 March 2019, by section 177(2) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EW 15E list of defined terms Commissioner: inserted, on 2 June 2016, by section 35(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EW 15E list of defined terms derivative instrument: inserted (with effect on 1 April 2009), on 6 October 2009, by section 136(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15E list of defined terms New Zealand: inserted (with effect on 1 April 2009), on 6 October 2009, by section 136(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15E list of defined terms notify: inserted, on 2 June 2016, by section 35(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
EW 15F Expected value method
When this section applies
(1)
This section applies when—
(a)
a person has entered into a financial arrangement in the ordinary course of their business and the person is not in the business of dealing in relation to the financial arrangement; and
(b)
the financial arrangement is denominated in a currency other than New Zealand dollars or is a derivative instrument; and
(bb)
the financial arrangement is not a foreign ASAP; and
(c)
the financial arrangement—
(i)
is not treated under IFRSs by the person as a hedge; or
(ii)
is treated under IFRSs by the person as a hedge of other financial arrangements, for each of which the person does not use the fair value method; or
(iii)
is treated under IFRSs by the person as a hedge of something that is not a financial arrangement; and
(d)
the person and all companies in a group of companies to which the person belongs have chosen to use the expected value method and have notified the Commissioner at the time of filing a return of income.
Exception for some group members and financial arrangements
(1B)
A person who is a member of a group of companies and has notified an election under subsection (1)(d) is not required under this section to use the expected value method for a financial arrangement if—
(a)
the person does not have a business of a substantially similar nature to a business of another company in the group; and
(b)
the financial arrangement is with other parties, of which—
(i)
none are associated with the person or a member of the group; or
(ii)
all are associated with the person and use the method used by the person for the arrangement.
Method chosen
(2)
The person must use a method that—
(a)
has the features of an expected value approach described in Determinations G9C and G14B; and
(b)
allocates a reasonable amount for each income year of the term of the financial arrangement, having regard to the purposes of the financial arrangements rules under section EW 1(3).
Meaning of derivative instrument[Repealed]
(3)
[Repealed]Defined in this Act: amount, associated person, business, Commissioner, company, derivative instrument, financial arrangement, financial arrangements rules, foreign ASAP, group of companies, IFRS, notify, return of income
Compare: 2004 No 35 s EW 15E(1), (2)
Section EW 15F: inserted, on 1 April 2008, by section 366 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 15F(1)(bb): inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on 30 June 2014, by section 77(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 15F(1)(c): substituted (with effect on 1 April 2008), on 6 October 2009, by section 137(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15F(1)(c)(ii): amended (with effect on 1 April 2008), on 7 September 2010, by section 37 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EW 15F(1)(c)(iii): added (with effect on 1 April 2008), on 7 September 2010, by section 37 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EW 15F(1)(d): substituted (with effect on 1 April 2008), on 6 October 2009, by section 137(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15F(1B) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 137(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15F(1B): inserted (with effect on 1 April 2008), on 6 October 2009, by section 137(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15F(3) heading: repealed (with effect on 1 October 2008), on 6 October 2009, pursuant to section 137(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15F(3): repealed (with effect on 1 October 2008), on 6 October 2009, by section 137(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15F list of defined terms associated person: inserted (with effect on 1 April 2008), on 6 October 2009, by section 137(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15F list of defined terms foreign ASAP: inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on 30 June 2014, by section 77(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 15F list of defined terms NZIAS 39: repealed, on 26 June 2019, by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
EW 15G Modified fair value method
When this section applies
(1)
This section applies when—
(a)
a person has entered into a financial arrangement in the ordinary course of their business and the person is not in the business of dealing in relation to the financial arrangement; and
(b)
the financial arrangement is denominated in a currency other than New Zealand dollars or is a derivative instrument; and
(bb)
the financial arrangement is not a foreign ASAP; and
(c)
the financial arrangement—
(i)
is not treated under IFRSs by the person as a hedge; or
(ii)
is treated under IFRSs by the person as a hedge of other financial arrangements, for each of which the person does not use the fair value method; or
(iii)
is treated under IFRSs by the person as a hedge of something that is not a financial arrangement; and
(d)
the person and all companies in a group of companies to which the person belongs have chosen to use the modified fair value method and have notified the Commissioner at the time of filing a return of income.
Exception for some group members and financial arrangements
(1B)
A person who is a member of a group of companies and has notified an election under subsection (1)(d) is not required under this section to use the modified fair value method for a financial arrangement if—
(a)
the person does not have a business of a substantially similar nature to a business of another company in the group; and
(b)
the financial arrangement is with other parties, of which—
(i)
none are associated with the person or a member of the group; or
(ii)
all are associated with the person and use the method used by the person for the arrangement; and
(c)
subsection (3) does not require the person to use the modified fair value for the financial arrangement.
Method chosen
(2)
The person must use the fair value method, modified so that the following are not required to be allocated to an income year:
(a)
an amount allocated by the person to equity, equity reserves, or other comprehensive income under IFRSs for the financial arrangement:
(b)
an amount not allocated by the person to equity, equity reserves, or other comprehensive income under IFRSs for the financial arrangement, if—
(i)
the person and another person (the other person) are members of the same wholly-owned group; and
(ii)
the person and the other person are members of the same group consolidated under IFRSs; and
(iii)
the financial arrangement is related to an arrangement (the other arrangement) of the other person; and
(iv)
the other person does not use the fair value method for the other arrangement; and
(v)
the group consolidated under IFRSs makes an allocation, to equity, equity reserves, or other comprehensive income under IFRSs, corresponding to the amount.
Some financial arrangements with amounts allocated to equity reserves
(3)
A person who is a member of a wholly-owned group and of a group consolidated under IFRSs (the consolidated group) must use the modified fair value method for a financial arrangement if—
(a)
the person or the consolidated group allocates an amount to equity, equity reserves, or other comprehensive income under IFRSs for the financial arrangement; and
(b)
a member of the consolidated group, under subsection (2)(b), does not allocate to the income year an amount for a financial arrangement.
Defined in this Act: amount, business, Commissioner, company, derivative instrument, fair value method, financial arrangement, foreign ASAP, group of companies, IFRS, notify, return of income, wholly-owned group
Compare: 2004 No 35 s EW 15E(1), (3)
Section EW 15G: inserted, on 1 April 2008, by section 366 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 15G(1)(bb): inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on 30 June 2014, by section 78(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 15G(1)(c): substituted (with effect on 1 April 2008), on 6 October 2009, by section 138(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15G(1)(c)(ii): amended (with effect on 1 April 2008), on 7 September 2010, by section 38 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EW 15G(1)(c)(iii): added (with effect on 1 April 2008), on 7 September 2010, by section 38 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EW 15G(1)(d): substituted (with effect on 1 April 2008), on 6 October 2009, by section 138(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15G(1B) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 138(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15G(1B): inserted (with effect on 1 April 2008), on 6 October 2009, by section 138(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15G(2): substituted (with effect on 1 April 2008), on 6 October 2009, by section 138(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15G(2)(a): amended, on 24 February 2016, by section 133(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EW 15G(2)(b): amended, on 24 February 2016, by section 133(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EW 15G(2)(b)(v): amended, on 24 February 2016, by section 133(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EW 15G(3) heading: added (with effect on 1 April 2008), on 6 October 2009, by section 138(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15G(3): added (with effect on 1 April 2008), on 6 October 2009, by section 138(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15G(3)(a): amended, on 24 February 2016, by section 133(4) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EW 15G list of defined terms foreign ASAP: inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on 30 June 2014, by section 78(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 15G list of defined terms wholly-owned group: added (with effect on 1 April 2008), on 6 October 2009, by section 138(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EW 15H Mandatory use of some determinations
Required methods
(1)
Section EW 15C(1) does not apply when any of the following determinations apply to a person and a financial arrangement:
(a)
Determination G5C: Mandatory conversion convertible notes:
(b)
Determination G22: Optional conversion convertible notes denominated in New Zealand dollars convertible at the option of the holder:
(c)
Determination G22A: Optional convertible notes denominated in New Zealand dollars:
(d)
[Repealed](e)
a method other than those set out in paragraphs (a) to (c) if the alternative—
(i)
has regard to the purposes of the financial arrangements rules under section EW 1(3); and
(ii)
is for a financial arrangement similar to 1 to which the methods set out in paragraphs (a) to (c) may apply; and
(iii)
results in the allocation to each income year of amounts that are not materially different from those that would have been allocated using 1 of the methods set out in paragraphs (a) to (c).
Succeeding determinations
(2)
For the purposes of this section, the determinations set out in subsection (1)(a) and (c) include a determination that succeeds the determination.
Defined in this Act: amount, financial arrangement, financial arrangements rules, income year
Compare: 2004 No 35 s EW 15B(3)
Section EW 15H: inserted, on 1 April 2008, by section 366 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 15H(1)(d): repealed (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on 30 June 2014, by section 79(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 15H(1)(e): amended, on 29 March 2018 (with effect on 1 April 2011), by section 78(1) (and see section 78(3) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EW 15H(1)(e)(ii): amended, on 29 March 2018 (with effect on 1 April 2011), by section 78(1) (and see section 78(3) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EW 15H(1)(e)(iii): amended, on 29 March 2018 (with effect on 1 April 2011), by section 78(1) (and see section 78(3) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EW 15H(2): amended, on 29 March 2018 (with effect on 1 April 2011), by section 78(2) (and see section 78(3) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
EW 15I Mandatory use of yield to maturity method for some arrangements
When this section applies
(1)
This section applies and section EW 15C(1) does not apply when—
(a)
a person is not required to use a method under section EW 15H for a financial arrangement; and
(b)
the financial arrangement—
(i)
includes in part an excepted financial arrangement; or
(ii)
is treated by the person or its issuer, all or in part, as an equity instrument under IFRSs; or
(iib)
is, under NZ IFRS 16 and in the person’s financial statements, classified as an operating lease; or
(iii)
is a foreign ASAP that is life financial reinsurance; or
(iv)
is an agreement for the sale and purchase of property or services that is not a foreign ASAP.
Methods
(2)
The person must use 1 of the following methods to allocate an amount to an income year if the method is available under its terms for the person to use:
(a)
the yield to maturity method:
(b)
Determination G26: Variable rate financial arrangements or a determination that succeeds it:
(c)
a determination made by the Commissioner under section 90AC(1)(bb) of the Tax Administration Act 1994 or a binding ruling made under section 91CC(1)(b) of that Act:
(d)
a method other than those set out in paragraphs (a) to (c) if the alternative—
(i)
has regard to the purposes of the financial arrangements rules under section EW 1(3); and
(ii)
is for a financial arrangement similar to 1 to which the methods set out in paragraphs (a) to (c) may apply; and
(iii)
results in the allocation to each income year of amounts that are not materially different from those that would have been allocated using 1 of the methods set out in paragraphs (a) to (c).
Meaning of equity instrument
(3)
For the purposes of this section, equity instrument has the same meaning as in NZIAS 32.
Defined in this Act: agreement for the sale and purchase of property or services, amount, binding ruling, Commissioner, equity instrument, excepted financial arrangement, financial arrangement, financial arrangements rules, foreign ASAP, IFRS, income year, issue, life financial reinsurance, NZ IFRS 16, NZIAS 32
Compare: 2004 No 35 s EW 15B(4)
Section EW 15I: inserted, on 1 April 2008, by section 366 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 15I(1)(b)(iib): inserted (with effect on 1 April 2008), on 6 October 2009, by section 140(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15I(1)(b)(iib): amended (with effect on 1 January 2019), on 30 March 2021, by section 49(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section EW 15I(1)(b)(iii): replaced (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on 30 June 2014, by section 80(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 15I(1)(b)(iv): inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on 30 June 2014, by section 80(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 15I(2)(c): replaced, on 18 March 2019, by section 178(1) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EW 15I list of defined terms binding ruling: inserted, on 18 March 2019, by section 178(2) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EW 15I list of defined terms foreign ASAP: inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on 30 June 2014, by section 80(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 15I list of defined terms life financial reinsurance: inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on 30 June 2014, by section 80(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 15I list of defined terms NZ IFRS 16: inserted (with effect on 1 January 2019), on 30 March 2021, by section 49(2) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section EW 15I list of defined terms NZIAS 17: repealed (with effect on 1 January 2019), on 30 March 2021, by section 49(2) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section EW 15I list of defined terms NZIAS 32: added (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
EW 16 Yield to maturity method or alternative
Who may use yield to maturity method
(1)
A person who is a party to a financial arrangement may use the yield to maturity method, if the person is not required to use a method under section EW 15B.
Who may use alternative
(2)
A person who is a party to a financial arrangement may use an alternative to the yield to maturity method, if the person is not required to use a method under section EW 15B, but may do so only if the alternative—
(a)
has regard to the principles of accrual accounting; and
(b)
conforms with commercially acceptable practice; and
(c)
results in the allocation to each income year of amounts that are not materially different from those that would have been allocated using the yield to maturity method; and
(d)
is also used by the person for financial reporting purposes for financial arrangements that are the same as, or similar to, the arrangements, although section EW 23 may apply if the alternative is not used in this way.
Defined in this Act: amount, financial arrangement, IFRS, income year
Compare: 2004 No 35 s EW 16
Section EW 16(1): amended, on 1 April 2008, by section 367(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 16(2): amended, on 1 April 2008, by section 367(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 16 list of defined terms IFRS: inserted, on 1 April 2008, by section 367(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EW 17 Straight-line method
Who may use straight-line method
(1)
A person who is a party to a financial arrangement may use the straight-line method if—
(a)
the total value of all the financial arrangements to which the person is a party in an income year has been $1,850,000 or less on every day in the income year; and
(b)
the person complies with section EW 25(1); and
(c)
the person is not required to use a method under section EW 15B.
Calculation of total value of financial arrangements
(2)
When calculating total value, the person must—
(a)
include every one of their financial arrangements, whether the financial arrangements rules or the old financial arrangements rules apply to it; and
(b)
use the following values:
(i)
for a fixed principal financial arrangement, its face value:
(ii)
for a variable principal debt instrument, the amount owing by or to the person under the financial arrangement on the relevant day:
(iii)
for a financial arrangement to which the old financial arrangements rules apply, the value determined under those rules.
Increase in specified sum
(3)
The Governor-General may make an Order in Council increasing the sum specified in subsection (1).
Secondary legislation
(4)
An Order in Council under subsection (3) is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements).
Defined in this Act: amount, financial arrangement, financial arrangements rules, fixed principal financial arrangement, IFRS, income year, old financial arrangements rules, variable principal debt instrument
Compare: 2004 No 35 s EW 17
| Legislation Act 2019 requirements for secondary legislation made under this section | ||||
| Publication | PCO must publish it on the legislation website and notify it in the Gazette | LA19 s 69(1)(c) | ||
| Presentation | The Minister must present it to the House of Representatives | LA19 s 114, Sch 1 cl 32(1)(a) | ||
| Disallowance | It may be disallowed by the House of Representatives | LA19 ss 115, 116 | ||
| This note is not part of the Act. | ||||
Section EW 17(1)(a): amended, on 1 April 2009, by section 7(1) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
Section EW 17(1)(b): amended, on 1 April 2008, by section 368(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 17(1)(c): added, on 1 April 2008, by section 368(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 17(4) heading: inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
Section EW 17(4): inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
Section EW 17 list of defined terms IFRS: inserted, on 1 April 2008, by section 368(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EW 18 Market valuation method
Who may use market valuation method
(1)
A person who is a party to a financial arrangement may use, for the arrangement, a market valuation method if—
(a)
either—
(i)
the person’s business includes dealing in financial arrangements of the class to which the arrangement belongs; or
(ii)
the financial arrangement is an exchange-traded option, a forward contract for foreign exchange, or a futures contract; and
(b)
the parties to the financial arrangement are not associated persons; and
(c)
either—
(i)
the Commissioner has approved the market, the method, and the source of information used to determine market values by a determination under section 90AC(1)(c) of the Tax Administration Act 1994; or
(ii)
the person can demonstrate market prices that are reliable; and
(d)
the method conforms with commercially acceptable practice; and
(e)
the person complies with section EW 25(4); and
(f)
the method is also used by the person for financial reporting purposes for financial arrangements that are the same as, or similar to, the arrangements, although section EW 23 may apply if the method is not used in this way; and
(g)
the person is not required to use a method under section EW 15B.
Application of Tax Administration Act 1994
(2)
Section 22A(1) of the Tax Administration Act 1994 applies to a person to whom subsection (1)(c)(ii) applies.
Defined in this Act: associated person, business, Commissioner, financial arrangement, forward contract, futures contract, IFRS
Compare: 2004 No 35 s EW 18
Section EW 18(1)(f): amended, on 1 April 2008, by section 369(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 18(1)(g): added, on 1 April 2008, by section 369(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 18 list of defined terms IFRS: inserted, on 1 April 2008, by section 369(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EW 19 Choice among some spreading methods
A person who is not required to use a method under section EW 15B and who may use the yield to maturity method or an alternative, the straight-line method, or a market valuation method for a financial arrangement may choose to use whichever of those methods the person can use for the arrangement.
Defined in this Act: financial arrangement, IFRS, spreading method
Compare: 2004 No 35 s EW 19
Section EW 19 heading: amended, on 1 April 2008, by section 370(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 19: amended, on 1 April 2008, by section 370(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 19 list of defined terms IFRS: inserted, on 1 April 2008, by section 370(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EW 20 Determination method or alternative
Who may use determination method
(1)
A person who is a party to a financial arrangement may use a determination method, that is, a method in a determination made by the Commissioner under section 90AC(1)(d) of the Tax Administration Act 1994 and applying to the arrangement, if—
(a)
the person cannot use the yield to maturity method or an alternative; and
(b)
the person—
(i)
may not use the straight-line method or a market valuation method; or
(ii)
may use the straight-line method or a market valuation method but chooses not to do so; and
(c)
the person is not required to use a method under section EW 15B.
Who may use alternative
(2)
A person who is a party to a financial arrangement may use an alternative to a determination method, but may do so only if—
(a)
the person cannot use the yield to maturity method or an alternative; and
(b)
the person—
(i)
may not use the straight-line method or a market valuation method; or
(ii)
may use the straight-line method or a market valuation method but chooses not to do so; and
(bb)
the person is not required to use a method under section EW 15B; and
(c)
the alternative has regard to the principles of accrual accounting; and
(d)
the alternative conforms with commercially acceptable practice; and
(e)
the alternative results in the allocation to each income year of amounts that are not materially different from those that would have been allocated using the determination method; and
(f)
the alternative is also used by the person for financial reporting purposes for financial arrangements that are the same as, or similar to, the arrangements although section EW 23 may apply if the alternative is not used in this way.
Defined in this Act: amount, Commissioner, financial arrangement, IFRS
Compare: 2004 No 35 s EW 20
Section EW 20(1)(b)(ii): amended, on 1 April 2008, by section 371(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 20(1)(c): added, on 1 April 2008, by section 371(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 20(2)(bb): inserted, on 1 April 2008, by section 371(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 20 list of defined terms IFRS: inserted, on 1 April 2008, by section 371(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EW 21 Financial reporting method
A person who is a party to a financial arrangement may use a financial reporting method if—
(a)
the person cannot use the yield to maturity method or an alternative; and
(b)
the person—
(i)
may not use the straight-line method or a market valuation method; or
(ii)
may use the straight-line method or a market valuation method but chooses not to do so; and
(c)
the person is not required to use a method under section EW 15B; and
(d)
the Commissioner has not made a determination for the financial arrangement under section 90AC(1)(d) of the Tax Administration Act 1994; and
(e)
the method conforms with commercially acceptable practice; and
(f)
the method is also used by the person for financial reporting purposes for financial arrangements that are the same as, or similar to, the arrangement (although section EW 23 may apply if the method is not used in this way); and
(g)
the method allocates a reasonable amount to each income year over the financial arrangement’s term.
Defined in this Act: amount, Commissioner, financial arrangement, income year
Section EW 21: substituted (with effect on 1 April 2008), on 6 October 2009, by section 141 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EW 22 Default method
A person who is a party to a financial arrangement may use a default method if—
(a)
the person cannot use the yield to maturity method or an alternative; and
(b)
the person—
(i)
may not use the straight-line method or a market valuation method; or
(ii)
may use the straight-line method or a market valuation method but chooses not to do so; and
(c)
the person may not use a determination method or an alternative, or a financial reporting method; and
(d)
[Repealed](e)
the method conforms with commercially acceptable practice; and
(f)
the method allocates a reasonable amount to each income year over the financial arrangement’s term.
Defined in this Act: amount, financial arrangement, income, income year
Compare: 2004 No 35 s EW 22
Section EW 22(c): amended (with effect on 1 April 2008), on 6 October 2009, by section 142 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 22(c): amended, on 1 April 2008, by section 373(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 22(d): repealed, on 1 April 2008, by section 373(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EW 23 Failure to use method for financial reporting purposes
When this section applies
(1)
This section applies when a person would be allowed to use a method but for the fact that the person does not comply with whichever is relevant of sections EW 16(2)(d), EW 18(1)(f), EW 20(2)(f) and EW 21(f).
Person treated as complying
(2)
The person is treated as complying with whichever is relevant of sections EW 16(2)(d), EW 18(1)(f), EW 20(2)(f) and EW 21(f) if the method that the person uses for each financial arrangement—
(a)
is used for the financial arrangement, and each financial arrangement that is the same as, or similar to, the arrangements, for every income year over its term for the purposes of the financial arrangements rules; and
(b)
appropriately reflects the dominant purpose for which the person entered into the financial arrangement; and
(c)
is not used for the purpose of tax avoidance; and
(d)
has been approved for use in circumstances applying to the person by the Commissioner, either by giving notice to the person or by making a determination under section 90AC(1)(f) of the Tax Administration Act 1994.
Qualification on subsection (2)(a)
(3)
A method complies with subsection (2)(a), even if it is a change from a previous method, as long as the Commissioner approves the change in method under the circumstances or conditions specified in a determination under section 90AC(1)(g) of the Tax Administration Act 1994.
IFRS financial reporting
(4)
This section is modified by section EZ 32B (Transitional rule for IFRS reporting).
Defined in this Act: Commissioner, financial arrangement, financial arrangements rules, IFRS, income year, notice, tax avoidance
Compare: 2004 No 35 s EW 23
Section EW 23(1): amended (with effect on 1 April 2008), on 6 October 2009, by section 143(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 23(1): amended, on 1 April 2008, by section 374(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 23(2): amended (with effect on 1 April 2008), on 6 October 2009, by section 143(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 23(2): amended, on 1 April 2008, by section 374(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 23(4) heading: added, on 1 April 2008, by section 374(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 23(4): added, on 1 April 2008, by section 374(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 23 list of defined terms IFRS: inserted, on 1 April 2008, by section 374(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EW 24 Consistency of use of spreading method
Consistency required
(1)
A person must use the same spreading method for financial arrangements that are the same as, or similar to, the arrangements for every income year. This subsection is overridden by subsection (3).
Straight-line method and market valuation method
(2)
Section EW 25 sets out particular consistency requirements for the straight-line method and a market valuation method.
IFRS method
(2B)
Section EW 25B sets out a particular consistency requirement for a method for IFRS preparers.
Change of spreading method
(3)
Sections EW 26 and HM 35(8)(c) (Determining net amounts and taxable amounts) set out the circumstances in which a person may change their spreading method.
Defined in this Act: financial arrangement, IFRS, income year, spreading method
Compare: 2004 No 35 s EW 24
Section EW 24(2B) heading: inserted, on 1 April 2008, by section 375(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 24(2B): inserted, on 1 April 2008, by section 375(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 24(3): amended, on 1 April 2023, by section 55(1) (and see section 55(2) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EW 24 list of defined terms IFRS: inserted, on 1 April 2008, by section 375(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EW 25 Consistency of use of straight-line method and market valuation method
Straight-line method for all financial arrangements
(1)
A person using the straight-line method in an income year for a financial arrangement must use it for all financial arrangements—
(a)
to which the person is a party at the end of the income year; and
(b)
for which the person can use it.
Straight-line method for every income year of term
(2)
A person who starts to use the straight-line method for a financial arrangement must use it over the arrangement’s remaining term until section EW 29 requires them to calculate a base price adjustment for the arrangement, unless section EW 26(1) applies.
Total value may be over $1,850,000
(3)
Subsection (2) applies even if the total value of all the financial arrangements to which the person is a party is over $1,850,000 at any time in the arrangement’s remaining term.
Market valuation method
(4)
A person who starts to use a market valuation method for a financial arrangement must use it over the arrangement’s remaining term until section EW 29 requires them to calculate a base price adjustment for the arrangement, unless section EW 6(1) applies.
Increase in specified sum
(5)
The Governor-General may make an Order in Council under section EW 17(3) increasing the sum specified in subsection (3).
Defined in this Act: financial arrangement, income year
Compare: 2004 No 35 s EW 25
Section EW 25(3) heading: amended, on 1 April 2009, by section 8(1) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
Section EW 25(3): amended, on 1 April 2009, by section 8(2) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
EW 25B Consistency of use of IFRS method
Consistency
(1)
A person who uses a method for IFRS under section EW 15C for a financial arrangement must use the method for—
(a)
the remaining term of the arrangement until section EW 29 requires them to calculate a base price adjustment for the arrangement:
(b)
other financial arrangements that are the same as, or similar to, the arrangement unless a different accounting treatment under IFRSs is used.
Exception
(2)
Despite subsection (1)(a), a person may change a method for IFRS if—
(a)
the new method is available to them to use; and
(b)
the accounting treatment for the financial arrangement under IFRSs is changed in the same income year in which the method is changed for tax purposes.
Spreading method adjustment
(3)
For the purposes of subsection (2), section EW 26(3), (4), and EW 27 apply as if the change in method were a change under section EW 26(2). However, those sections do not apply if the change—
(a)
is from the fair value method; and
(b)
relates to a financial arrangement that is not subject to a creditor workout.
Modification
(4)
Section EZ 52B (Consistency of use of IFRS method: Determination G3 change allowed) modifies subsection (2).
Defined in this Act: creditor workout, fair value method, financial arrangement, IFRS, income year
Compare: 2004 No 35 s EW 25B
Section EW 25B: inserted, on 1 April 2008, by section 376 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 25B(3): amended (with effect on 1 April 2008), on 7 December 2009, by section 20 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EW 25B(3): amended (with effect on 1 April 2008), on 6 October 2009, by section 144(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 25B(3)(a): substituted (with effect on 1 April 2008), on 7 December 2009, by section 20 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EW 25B(3)(b): substituted (with effect on 1 April 2008), on 7 December 2009, by section 20 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EW 25B(4) heading: added (with effect on 1 April 2008), on 6 October 2009, by section 144(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 25B(4): added (with effect on 1 April 2008), on 6 October 2009, by section 144(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 25B list of defined terms creditor workout: inserted (with effect on 1 April 2008), on 6 October 2009, by section 144(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EW 26 Change of spreading method
Requirements for change from straight-line and market value method
(1)
A person may change from the straight-line method or the market value method if they change to a method that is not a method for IFRS under section EW 15B, and the Commissioner has authorised the change and notified the person of the authorisation.
Change of other method
(2)
A person may change from any spreading method to any other method if the Commissioner’s notification under subsection (1) is not required for the change, and they have a sound commercial reason for the change. The advancement, deferral, or reduction of an income tax liability is not a sound commercial reason.
Spreading method adjustment
(3)
When a person changes their spreading method under subsection (2),—
(a)
they must use the formula in section EW 27 to calculate a spreading method adjustment for the income year in which they change the method; and
(b)
their only income or expenditure under the financial arrangement for the income year to which the formula is applied is the spreading method adjustment.
Positive or negative spreading method adjustment
(4)
A spreading method adjustment calculated under section EW 27 is,—
(a)
if positive, income, under section CC 3 (Financial arrangements), derived by the person in the income year for which the calculation is made:
(b)
if negative, expenditure incurred by the person in the income year for which the calculation is made.
Application of Tax Administration Act 1994
(5)
Section 22A(2) of the Tax Administration Act 1994 applies to a person to whom subsection (2) applies.
Exception for fair value method
(6)
Section EW 29(13) applies, and subsections (3) and (4) do not apply, to a financial arrangement, if the person’s change of spreading method involves a change—
(a)
from the fair value method and the financial arrangement is not subject to a creditor workout:
(b)
from the market value method to a method for IFRS under section EW 15B.
Meaning of sound commercial reason
(7)
In this section, sound commercial reason includes—
(a)
starting or stopping the use of IFRSs to prepare financial statements at the same time as starting or stopping the use of a method for IFRS under section EW 15B:
(b)
starting to use a method for IFRS under section EW 15B for a financial arrangement for the first time.
Modification
(8)
Section EZ 52C (Change of spreading method: Determination G22 to Determination G22A) modifies this section.
Defined in this Act: Commissioner, creditor workout, fair value method, financial arrangement, financial statements, IFRS, income, income tax liability, income year, notify, sound commercial reason, spreading method
Compare: 2004 No 35 s EW 26
Section EW 26(1) heading: substituted (with effect on 1 April 2008), on 6 October 2009, by section 145(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 26(1): substituted (with effect on 1 April 2008), on 6 October 2009, by section 145(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 26(1): amended, on 2 June 2016, by section 36(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EW 26(2): amended, on 2 June 2016, by section 36(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EW 26(2): amended (with effect on 1 April 2008), on 6 October 2009, by section 145(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 26(6) heading: added, on 1 April 2008, by section 377(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 26(6): substituted (with effect on 1 April 2008), on 6 October 2009, by section 145(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 26(7) heading: added, on 1 April 2008, by section 377(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 26(7): added, on 1 April 2008, by section 377(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 26(7)(a): substituted (with effect on 1 April 2008), on 6 October 2009, by section 145(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 26(8) heading: added, on 26 September 2010, by section 39 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EW 26(8): added, on 26 September 2010, by section 39 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EW 26 list of defined terms creditor workout: inserted (with effect on 1 April 2008), on 6 October 2009, by section 145(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 26 list of defined terms fair value method: inserted, on 1 April 2008, by section 377(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 26 list of defined terms financial statements: inserted, on 1 April 2008, by section 377(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 26 list of defined terms IFRS: inserted, on 1 April 2008, by section 377(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 26 list of defined terms notify: inserted, on 2 June 2016, by section 36(3) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EW 26 list of defined terms sound commercial reason: inserted, on 1 April 2008, by section 377(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EW 27 Spreading method adjustment formula
Calculation of spreading method adjustment
(1)
A person calculates a spreading method adjustment using the formula in subsection (3).
What formula applies to
(2)
The person must apply the formula to each financial arrangement to which they—
(a)
are a party at the end of the income year in which they change their spreading method; and
(b)
were a party at the end of the previous income year.
Formula
(3)
The formula is—
income (new method) − expenditure (new method)
− income (old method) + expenditure (old method).
Definition of items in formula
(4)
The items in the formula are defined in subsections (5) to (8).
Income (new method)
(5)
Income (new method) is the amount that would have been income derived by the person under the financial arrangement if the new method had been used for the arrangement in the period starting on the date on which the person became a party to the arrangement and ending on the last day of the income year for which the calculation is made.
Expenditure (new method)
(6)
Expenditure (new method) is the amount that would have been expenditure incurred by the person under the financial arrangement if the new method had been used for the arrangement in the period starting on the date on which the person became a party to the arrangement and ending on the last day of the income year for which the calculation is made.
Income (old method)
(7)
Income (old method) is income, under section CC 3 (Financial arrangements), derived by the person under the financial arrangement in earlier income years.
Expenditure (old method)
(8)
Expenditure (old method) is expenditure incurred by the person under the financial arrangement in earlier income years.
Modification
(9)
Section EZ 52C (Change of spreading method: Determination G22 to Determination G22A) modifies this section.
Defined in this Act: amount, financial arrangement, income, income year, spreading method
Compare: 2004 No 35 s EW 27
Section EW 27(9) heading: added, on 26 September 2010, by section 40 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EW 27(9): added, on 26 September 2010, by section 40 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Calculation and allocation of income and expenditure when rights and obligations under financial arrangement cease
EW 28 How base price adjustment calculated
A party to a financial arrangement who must calculate a base price adjustment, as described in sections EW 29 and EW 30, calculates it using the formula in section EW 31.
Defined in this Act: financial arrangement
Compare: 2004 No 35 s EW 28
EW 29 When calculation of base price adjustment required
Ceasing to be New Zealand resident
(1)
A party to a financial arrangement who ceases to be a New Zealand resident must calculate a base price adjustment as at the date of the party’s ceasing to be a New Zealand resident. This subsection is overridden by section EW 30(1) and (2).
Ceasing to be party for purpose of New Zealand business
(2)
A person who is not a New Zealand resident and who is a party to a financial arrangement for the purpose of a business the party carries on through a fixed establishment in New Zealand must calculate a base price adjustment as at the date of the party’s ceasing to be a party to the arrangement for that purpose.
Maturity
(3)
A party to a financial arrangement must calculate a base price adjustment as at the date on which the arrangement matures.
Treated as maturity
(4)
A financial arrangement that has not matured because an amount has not been paid is treated as if it had matured if—
(a)
the amount not paid is immaterial; and
(b)
the arrangement has been structured to avoid the application of section EW 31.
Disposal
(5)
A party to a financial arrangement who disposes of the arrangement must calculate a base price adjustment as at the date of the disposal.
Absolute assignment
(6)
A party to a financial arrangement who makes an absolute assignment of all the party’s rights under the arrangement must calculate a base price adjustment as at the date of the absolute assignment.
Defeasance
(7)
A party to a financial arrangement who makes a legal defeasance of all the party’s obligations under the arrangement must calculate a base price adjustment as at the date of the legal defeasance.
Disposal at discount to associated person
(8)
A party to a financial arrangement that is a debt must calculate a base price adjustment as at the date on which the creditor disposes of the debt to a person associated with the debtor and at a discount in the circumstances described in section EW 43.
Discharge without consideration
(9)
A party to a financial arrangement must calculate a base price adjustment as at the date on which a party to the arrangement is discharged from making all remaining payments under the arrangement without fully adequate consideration.
Operation of law
(10)
A party to a financial arrangement must calculate a base price adjustment as at the date on which a party to the arrangement is released from making all remaining payments under the arrangement under the Insolvency Act 2006 or the Companies Act 1993 or the laws of a country or territory other than New Zealand.
Composition with creditors
(11)
A party to a financial arrangement must calculate a base price adjustment as at the date on which a party to the arrangement is released from making all remaining payments under the arrangement by a deed or agreement of composition with the party’s creditors.
Lapse of time
(12)
A party to a financial arrangement must calculate a base price adjustment as at the date on which all remaining payments under the arrangement become irrecoverable or unenforceable through the lapse of time.
Changing from fair value method
(13)
A party to a financial arrangement must calculate a base price adjustment, for the first income year for which a changed method is used for the financial arrangement, where the change in method is—
(a)
from the fair value method and the financial arrangement is not subject to a creditor workout:
(b)
from the market value method to a method for IFRS under section EW 15B.
Cessation of LTCs and dissolution of partnerships
(14)
A person that is party to a financial arrangement in their capacity as owner or partner of a look-through company or a partnership must calculate a base price adjustment as at the date of disposal of the financial arrangement under section HB 4(3) or (6) or HG 4 (which relate to cessation of LTCs and dissolution of partnerships) if they are also a party in a capacity other than as owner or partner (private capacity). They calculate the base price adjustment under this subsection in their private capacity.
Defined in this Act: amount, associated person, business, consideration, creditor workout, fair value method, financial arrangement, fixed establishment, legal defeasance, look-through company, maturity, New Zealand, New Zealand resident, partner, partnership, pay
Compare: 2004 No 35 s EW 29
Section EW 29(8) heading: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EW 29(8): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EW 29(13) heading: added, on 1 April 2008, by section 378(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 29(13): amended (with effect on 1 April 2008), on 29 August 2011, by section 33 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EW 29(13): substituted (with effect on 1 April 2008), on 6 October 2009, by section 146(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 29(14) heading: inserted, on 29 March 2018 (with effect on 1 April 2011 and applying for income years beginning on or after that date), by section 79(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EW 29(14): inserted, on 29 March 2018 (with effect on 1 April 2011 and applying for income years beginning on or after that date), by section 79(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EW 29 list of defined terms creditor workout: inserted (with effect on 1 April 2008), on 6 October 2009, by section 146(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 29 list of defined terms fair value method: inserted, on 1 April 2008, by section 378(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 29 list of defined terms look-through company: inserted, on 29 March 2018 (with effect on 1 April 2011), by section 79(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EW 29 list of defined terms partner: inserted, on 29 March 2018 (with effect on 1 April 2011), by section 79(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EW 29 list of defined terms partnership: inserted, on 29 March 2018 (with effect on 1 April 2011), by section 79(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
EW 30 When calculation of base price adjustment not required
Cash basis person who ceases to be temporary New Zealand resident
(1)
A cash basis person who ceases to be a New Zealand resident before the first day of the fourth income year following the income year in which they first became a New Zealand resident does not calculate a base price adjustment for a financial arrangement to which they—
(a)
were a party before first becoming a New Zealand resident; and
(b)
are a party on the date on which they cease to be a New Zealand resident.
Other party who ceases to be New Zealand resident
(2)
A party to a financial arrangement who ceases to be a New Zealand resident does not calculate a base price adjustment to the extent to which the arrangement relates to a business the party carries on through a fixed establishment in New Zealand.
Creditor when legal defeasance occurs
(3)
A party who has a right to receive money under a financial arrangement the obligations of which are the subject of a legal defeasance does not calculate a base price adjustment on the date of the defeasance if the defeasance requires another person to meet the remaining obligations of the arrangement.
Debtor when legal defeasance occurs
(4)
A party to a financial arrangement does not calculate a base price adjustment if—
(a)
their obligations under the arrangement are the subject of an absolute legal defeasance; and
(b)
some or all of the consideration for the defeasance is deferred.
Creditor when assignment occurs
(5)
A party to a financial arrangement does not calculate a base price adjustment if—
(a)
their rights under the arrangement are the subject of an absolute assignment; and
(b)
some or all of the consideration for the assignment is deferred.
Defined in this Act: business, cash basis person, consideration, financial arrangement, fixed establishment, income year, legal defeasance, money, New Zealand, New Zealand resident
Compare: 2004 No 35 s EW 30
EW 31 Base price adjustment formula
Calculation of base price adjustment
(1)
A person calculates a base price adjustment using the formula in subsection (5).
When formula applies
(2)
The person calculates the base price adjustment for the income year in which section EW 29 applies to them.
Positive base price adjustment
(3)
A base price adjustment, if positive, is income, under section CC 3 (Financial arrangements), derived by the person in the income year for which the calculation is made. However, it is not income to the extent to which it arises from expenditure incurred by the person under the financial arrangement in earlier income years and for which a deduction was denied in those income years.
Negative base price adjustment
(4)
A base price adjustment, if negative, is expenditure incurred by the person in the income year for which the calculation is made. The person is allowed a deduction for the expenditure under sections DB 6 to DB 8 (which relate to deductions for interest) or, if none of those sections applies, under section DB 11 (Negative base price adjustment).
Formula
(5)
The formula is—
consideration − income + expenditure + amount remitted.
Definition of items in formula
(6)
The items in the formula are defined in subsections (7) to (11).
Consideration
(7)
Consideration is all consideration that has been paid, and all consideration that is or will be payable, to the person for or under the financial arrangement, minus all consideration that has been paid, and all consideration that is or will be payable, by the person for or under the financial arrangement. For the purposes of this subsection, the following are ignored:
(a)
non-contingent fees, if the relevant method is not the IFRS financial reporting method in section EW 15D:
(b)
non-integral fees, if the relevant method is—
(i)
the IFRS financial reporting method in section EW 15D:
(ii)
the modified fair value method in section EW 15G.
Consideration in particular cases
(8)
If any of sections EW 32 to EW 48, or EZ 52D applies, the consideration referred to in subsection (7) is adjusted under the relevant section.
Income
(9)
Income is—
(a)
income derived by the person under the financial arrangement in earlier income years; and
(b)
dividends derived by the person from the release of the obligation to repay the amount lent; and
(c)
income derived under section CF 2(2) and (3) (Remission of specified suspensory loans).
Expenditure
(10)
Expenditure is expenditure incurred by the person under the financial arrangement in earlier income years.
Amount remitted
(11)
Amount remitted—
(a)
is an amount (a remission) that is not included in the consideration paid or payable to the person because it has been remitted—
(i)
by the person; or
(ii)
by law; but
(b)
does not include a remission that is self-remission.
Defined in this Act: amount, consideration, deduction, dividend, fair value method, financial arrangement, IFRS, income, income year, non-contingent fee, non-integral fee, pay, self-remission
Compare: 2004 No 35 s EW 31
Section EW 31(4): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 34(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EW 31(7): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EW 31(7): amended (with effect on 1 April 2008), on 6 October 2009, by section 147(1)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 31(7): amended (with effect on 1 April 2008), on 6 October 2009, by section 147(1)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 31(7): amended, on 1 April 2008, by section 379(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 31(7)(a): substituted (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EW 31(7)(b): replaced, on 29 March 2018 (with effect on 1 April 2008), by section 80(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EW 31(8): amended, on 26 September 2010, by section 41 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EW 31(9)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 147(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 31(11): replaced (with effect on 1 April 2011 and applying for income years beginning on or after that date), on 30 March 2017, by section 73(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EW 31 list of defined terms fair value method: inserted, on 29 March 2018 (with effect on 1 April 2008), by section 80(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EW 31 list of defined terms IFRS: inserted, on 1 April 2008, by section 379(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 31 list of defined terms non-integral fee: inserted, on 1 April 2008, by section 379(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 31 list of defined terms self-remission: inserted (with effect on 1 April 2011), on 30 March 2017, by section 73(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Consideration
Consideration when financial arrangement involves property or services
EW 32 Consideration for agreement for sale and purchase (ASAP) of property or services, hire purchase agreement, specified option, or finance lease
When this section applies
(1)
This section applies when an original party to an agreement for the sale and purchase of property or services, a hire purchase agreement, a specified option, or a finance lease pays or is paid consideration that includes property or services.
Value of property or services
(2)
The value of the property or services is determined by applying, as modified by sections EW 33B, EW 33C, EW 33D, and EW 34 (which relate to certain agreements), subsections (2B) to (6) in numerical order until a subsection applies.
IFRS foreign ASAPs
(2B)
If the person uses IFRSs to prepare financial statements or to report for financial arrangements, and the relevant financial arrangement is a foreign ASAP, the value of the property or services is the value under IFRS rules, modified on account of FX hedges as provided by section EW 33B. Section EW 33D applies.
Future or discounted value: foreign ASAPs
(2C)
If the relevant financial arrangement is a foreign ASAP, the value of the property or services is the value of the amounts paid or payable under the foreign ASAP for the property or services, but ignoring amounts that are expressly provided in the agreement as paid or payable on account of the future value, or the discounted value, or a combination of both the future and discounted values, on the rights date, of amounts paid or payable. Section EW 33B may apply in relation to FX hedges, and sections EW 33C and EW 33D apply.
Future or discounted value: foreign ASAPs subject to 12 month ASAP
(2D)
If the relevant financial arrangement is a foreign ASAP that is a 12 month ASAP, the value of the property or services is the future value, or the discounted value, or a combination of both the future and discounted values, on the rights date, of the amounts paid or payable under the 12 month ASAP for the property or services. Section EW 33B may apply in relation to FX hedges, and sections EW 33C and EW 33D apply.
Express value: foreign ASAPs not subject to 12 month ASAP
(2E)
If the relevant financial arrangement is a foreign ASAP that is not a 12 month ASAP, the value of the property or services on the rights date is the value expressly provided in the agreement as paid or payable for the property or services. Section EW 33B may apply in relation to FX hedges, and sections EW 33C and EW 33D apply.
Lowest price
(3)
The value of the property or services is the lowest price the parties would have agreed on for the property or services, on the date the agreement, option, or lease was entered into, if payment had been required in full at the time the first right in the property was transferred or the services provided. Two qualifications are—
(a)
this subsection does not apply to an agreement for the sale and purchase of property or services that is part of another financial arrangement:
(b)
section EW 34 applies if the consideration is in a foreign currency.
Cash price
(4)
The value of the property or services is the cash price of the property or services to which the agreement, option, or lease relates, as determined by section 5 of the Credit Contracts and Consumer Finance Act 2003, if that Act applies to the agreement, option, or lease.
Future or discounted value
(5)
The value of the property or services is the future value, or the discounted value, or a combination of both the future and discounted values, of the amounts paid or payable on the date on which the first right in the property is transferred or the services are provided, as determined by the Commissioner under a determination under section 90AC(1)(i) of the Tax Administration Act 1994.
Determined by Commissioner
(6)
The value of the property or services is the amount determined by the Commissioner when either party to the arrangement applies to the Commissioner for a specific determination or binding ruling under section 91CC(1)(c) of the Tax Administration Act 1994. Both parties must use this amount.
Exclusion
(7)
This section does not apply if the agreement, option, or lease has lapsed or does not proceed.
Relationship with subject matter
(8)
Sections EZ 75 and EZ 76 (which relate to some ASAPs before the 2014–15 income year) override this section.
Defined in this Act: 12 month ASAP, agreement for the sale and purchase of property or services, amount, apply, binding ruling, Commissioner, consideration, finance lease, financial arrangement, foreign ASAP, FX hedge, hire purchase agreement, IFRS, pay, property, right, rights date, specified option
Compare: 2004 No 35 s EW 32
Section EW 32 heading: amended (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on 30 June 2014, by section 81(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 32(2): amended, on 18 March 2019, by section 179(1) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EW 32(2): amended (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on 30 June 2014, by section 81(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 32(2B) heading: inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on 30 June 2014, by section 81(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 32(2B): inserted (with effect on 1 April 2011), on 30 June 2014 (applying for a financial arrangement entered into by a person— (a) in the 2014–15 income year and later income years, unless paragraph (b) applies: (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), by section 81(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 32(2B): amended, on 18 March 2019, by section 179(2) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EW 32(2C) heading: inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on 30 June 2014, by section 81(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 32(2C): inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on 30 June 2014, by section 81(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 32(2C): amended, on 18 March 2019, by section 179(3) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EW 32(2D) heading: inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on 30 June 2014, by section 81(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 32(2D): inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on 30 June 2014, by section 81(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 32(2D): amended, on 18 March 2019, by section 179(4) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EW 32(2E) heading: inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on 30 June 2014, by section 81(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 32(2E): inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on 30 June 2014, by section 81(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 32(2E): amended, on 18 March 2019, by section 179(5) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EW 32(2E): amended, on 18 March 2019, by section 179(6) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EW 32(6): amended, on 18 March 2019, by section 179(7) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EW 32(8) heading: inserted (with effect on 1 April 2008), on 30 June 2014, by section 81(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 32(8): inserted (with effect on 1 April 2008), on 30 June 2014, by section 81(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 32 list of defined terms 12 month ASAP: inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on 30 June 2014, by section 81(5) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 32 list of defined terms apply: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EW 32 list of defined terms binding ruling: inserted, on 18 March 2019, by section 179(8) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EW 32 list of defined terms foreign ASAP: inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on 30 June 2014, by section 81(5) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 32 list of defined terms FX hedge: inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on 30 June 2014, by section 81(5) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 32 list of defined terms IFRS: inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on 30 June 2014, by section 81(5) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 32 list of defined terms rights date: inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on 30 June 2014, by section 81(5) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
EW 33 Consideration for hire purchase agreement or finance lease
When this section applies
(1)
This section applies when a party to a hire purchase agreement or a finance lease pays or is paid consideration for the agreement or lease.
Consideration
(2)
The consideration for a hire purchase agreement or a finance lease includes expenditure or loss incurred by the lessor in preparing and installing the hire purchase asset or personal property lease asset for use to the extent to which it is not taken into account under section EW 32.
Defined in this Act: consideration, finance lease, hire purchase agreement, hire purchase asset, pay, personal property lease asset, lessor
Compare: 2004 No 35 s EW 33
EW 33B Foreign ASAPs: designated FX hedges
When this section applies
(1)
This section applies when, for a person’s financial arrangement, section EW 32(2B) applies, and—
(a)
the financial arrangement is a foreign ASAP that relates to:
(i)
property that is or will be depreciable property or revenue account property; or
(ii)
services, the sale or purchase of which, as relevant for the person, gives rise to assessable income or deductions under this Act outside of the financial arrangements rules; and
(b)
the person holds an IFRS designated FX hedge in relation to the financial arrangement.
When this section applies
(2)
This section applies when, for a person’s financial arrangement, section EW 32(2C), (2D), or (2E) applies, and—
(a)
the financial arrangement is a foreign ASAP that relates to:
(i)
property that is or will be depreciable property or revenue account property; or
(ii)
services, the sale or purchase of which, as relevant for the person, gives rise to assessable income or deductions under this Act outside of the financial arrangements rules; and
(b)
the person notifies the Commissioner that they have made an irrevocable election to apply this section to all financial arrangements for property and services described in paragraph (a)(i) and (ii), at the time of—
(i)
filing a return of income for the income year in which they enter into the financial arrangement; or
(ii)
filing a return of income for an earlier income year; and
(c)
the person holds a non-IFRS designated FX hedge in relation to the financial arrangement.
Value: IFRS
(3)
For a financial arrangement described in subsection (1) the value under section EW 32 of the relevant property or services is modified by the amount attributed under IFRS rules to that value on account of the relevant IFRS designated FX hedge.
Value: non-IFRS
(4)
For a financial arrangement described in subsection (2) the value under section EW 32 of the relevant property or services is modified by the amount that would be the base price adjustment for the relevant non-IFRS designated FX hedge in the absence of this section.
FX hedge amounts attributed to value: No double-counting, no separate spreading or base price adjustment
(5)
When applying a spreading method to, or calculating a base price adjustment for, amounts under an IFRS designated FX hedge or a non-IFRS designated FX hedge, to the extent to which an amount is attributed to the value of the property or services under this section, that amount is excluded from the spreading method or base price adjustment.
Relationship with subject matter
(6)
Sections EZ 75 and EZ 76 (which relate to some ASAPs before the 2014–15 income year) override this section.
Defined in this Act: Commissioner, depreciable property, financial arrangement, foreign ASAP, IFRS, IFRS designated FX hedge, non-IFRS designated FX hedge, notify, revenue account property, spreading method
Section EW 33B: inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on 30 June 2014, by section 82(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 33B(2)(b): replaced, on 2 June 2016, by section 37(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EW 33B list of defined terms Commissioner: inserted, on 2 June 2016, by section 37(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EW 33B list of defined terms notify: inserted, on 2 June 2016, by section 37(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
EW 33C Consideration in foreign currency: some agreements for sale and purchase
When this section applies
(1)
This section applies when the consideration paid or payable under a financial arrangement to which section EW 32(2C), (2D), or (2E) applies is in a foreign currency.
Spot rates
(2)
The spot rate on the date an amount of consideration is paid or payable is used to convert to New Zealand dollars for consideration in a foreign currency.
Spot rates unavailable
(3)
If no spot rate is available for an amount under the financial arrangement, because the amount is deferred into an income year after a person’s current income year and that deferral is for a day after the person is required to file a return of income for the current income year, then the person may use for the amount—
(a)
the spot rate at the end of the current income year; or
(b)
the spot rate on the date an amount of consideration is paid or payable, if it is paid or payable within 93 days of the end of the current income year.
Defined in this Act: amount, consideration, financial arrangement, income year, New Zealand, person, return of income
Section EW 33C: inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on 30 June 2014, by section 82(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 33C(3) heading: inserted (with effect on 1 April 2011), on 24 February 2016, by section 134 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EW 33D Foreign ASAPs: contingencies for business combinations
Assets and liabilities
(1)
For a foreign ASAP, in relation to the sale and purchase of a business combination by way of sale and purchase of the combination’s assets and liabilities, an amount of contingent consideration under the ASAP is credited or debited, as applicable, against goodwill to the extent to which—
(a)
section EW 32(2B) applies to the ASAP and the amount of contingent consideration is realised and has not been accounted for initially:
(b)
section EW 32(2B) applies to the ASAP and the amount of contingent consideration is never realised and the initial accounting for contingent consideration is reversed:
(c)
section EW 32(2C), (2D), or (2E) applies to the ASAP and the amount of contingent consideration is realised and has not been included in the value of the property or services at the rights date:
(d)
section EW 32(2C), (2D), or (2E) applies to the ASAP and the amount of contingent consideration is never realised and the amount included in the value of the property or services at the rights date is reversed.
Shares
(2)
For a foreign ASAP, in relation to the sale and purchase of a business combination by way of sale and purchase of the combination’s shares, an amount of contingent consideration under the ASAP is credited or debited, as applicable, against the shares if—
(a)
section EW 32(2B) applies to the ASAP and the amount of contingent consideration is realised and has not been accounted for initially:
(b)
section EW 32(2B) applies to the ASAP and the amount of contingent consideration is never realised and the initial accounting for contingent consideration is reversed:
(c)
section EW 32(2C), (2D), or (2E) applies to the ASAP and the amount of contingent consideration is realised and has not been included in the value of the property or services at the rights date:
(d)
section EW 32(2C), (2D), or (2E) applies to the ASAP and the amount of contingent consideration is never realised and the amount included in the value of the property or services at the rights date is reversed.
Defined in this Act: amount, foreign ASAP, share
Section EW 33D: inserted, on 18 March 2019, by section 180 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EW 34 Consideration in foreign currency
When this section applies
(1)
This section applies when the consideration payable under a financial arrangement to which section EW 32(3) applies is in a foreign currency.
Lowest price
(2)
The lowest price referred to in section EW 32(3) is the lowest price the parties would have agreed on in the foreign currency, converted into New Zealand dollars using the rate that the original party applying section EW 32(3) selects from the rates in subsection (4). The party may select the rate in subsection (4)(b) only if the period between the date on which the first right in the property is to be transferred and the date on which final payment is to be made is 5 years or less.
Consistent application of rate
(3)
The party must apply the selected rate to the financial arrangement for every income year over its term.
Rates
(4)
The rates are—
(a)
the rate, on the date on which the parties enter into the financial arrangement, available to the party from a New Zealand registered bank for the exchange of New Zealand dollars for the foreign currency for 1 of the following dates:
(i)
the date on which the first right in the property is to be transferred; or
(ii)
if that date is uncertain on the date on which the parties enter into the financial arrangement, the date on which the parties reasonably expect, when entering into the arrangement, that the first right in the property will be transferred; or
(b)
the rate, on the date on which the parties enter into the financial arrangement, available to the party from a New Zealand registered bank for the exchange of New Zealand dollars for the foreign currency for 1 of the following dates:
(i)
the date on which final payment is to be made; or
(ii)
if that date is uncertain on the date on which the parties enter into the financial arrangement, the date on which the parties reasonably expect, when entering into the arrangement, that final payment will be made; or
(c)
an exchange rate approved by the Commissioner for this subsection in the circumstances applicable to the party in a determination under section 90AC(1)(k) of the Tax Administration Act 1994.
Defined in this Act: Commissioner, consideration, financial arrangement, income year, New Zealand, pay, property, registered bank, right, year
Compare: 2004 No 35 s EW 34
EW 35 Value relevant for non-financial arrangements rule
When this section applies
(1)
This section applies when the value of property or services acquired or disposed of under a financial arrangement, or the consideration for it, is relevant in determining a person’s income or deductions under any provision of this Act that is not a financial arrangements rule.
Value
(2)
The person is treated as having acquired or disposed of the property or services for a value determined by applying section EW 32(2).
Defined in this Act: consideration, deduction, financial arrangement, financial arrangements rules, income, property
Compare: 2004 No 35 s EW 35
Section EW 35(1): amended (with effect on 1 April 2008), on 30 June 2014, by section 83(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 35(2): amended (with effect on 1 April 2008), on 30 June 2014, by section 83(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Consideration treated as paid to person
EW 36 Consideration when person exits from rules: accrued entitlement
When this section applies
(1)
This section applies when—
(a)
a person is a party to a financial arrangement; and
(b)
1 of the following situations arises:
(i)
the person ceases to be resident in New Zealand and is not a party to the arrangement for the purpose of a business carried on by them through a fixed establishment in New Zealand; or
(ii)
the person, not resident in New Zealand, ceases to be a party to the arrangement for the purpose of a business carried on by them through a fixed establishment in New Zealand; or
(iii)
the person starts using the arrangement for a private or domestic purpose and so it becomes an excepted financial arrangement described in any of section EW 5(18) to (20); and
(c)
at the time the situation arises, the person has an accrued entitlement to be paid consideration under the arrangement.
Disposal and consideration
(2)
The person is treated as having disposed of their accrued entitlement immediately before the situation arose and as having been paid the market value that the accrued entitlement had at that time.
Defined in this Act: accrued entitlement, business, consideration, excepted financial arrangement, financial arrangement, fixed establishment, New Zealand, pay, resident in New Zealand
Compare: 2004 No 35 s EW 36
EW 37 Consideration when person enters rules: accrued obligation
When this section applies
(1)
This section applies to a person who is a party to a financial arrangement if, when the person has an accrued obligation to pay consideration under the arrangement, 1 or more of the following situations arise:
(a)
the person is a non-resident who becomes a party to the arrangement for the purpose of a business carried on by the person through a fixed establishment in New Zealand:
(b)
the person is a non-resident who—
(i)
becomes a New Zealand resident who is not a transitional resident; and
(ii)
is not, immediately before becoming a New Zealand resident, a party to the arrangement for the purpose of a business carried on by the person through a fixed establishment in New Zealand:
(c)
the person is a transitional resident for whom the arrangement ceases to be an excepted financial arrangement described in section EW 5(17):
(d)
the person is a transitional resident who becomes a New Zealand resident who is not a transitional resident, resulting in the arrangement ceasing to be an excepted financial arrangement described in section EW 5(17):
(e)
the person stops using the arrangement for a private or domestic purpose, resulting in the arrangement ceasing to be an excepted financial arrangement described in any of section EW 5(18) to (20).
Assumption and consideration
(2)
The person is treated as having assumed the accrued obligation immediately after the situation arose and as having been paid the market value that a contract to assume the obligation had at that time.
Defined in this Act: accrued obligation, business, consideration, excepted financial arrangement, financial arrangement, fixed establishment, New Zealand, New Zealand resident, non-resident, pay, transitional resident
Compare: 2004 No 35 s EW 37
EW 38 Consideration when disposal for no, or inadequate, consideration
When this section applies
(1)
This section applies when—
(a)
a person is a party to a financial arrangement; and
(b)
the person has an accrued entitlement under the arrangement; and
(c)
the person disposes of the arrangement; and
(d)
the disposal of the accrued entitlement—
(i)
is not for monetary consideration; or
(ii)
is for a consideration that is less than the market value of the entitlement on the date of the disposal.
Consideration is market value
(2)
The person is treated as having been paid the market value that the accrued entitlement had on the date of the disposal.
Defined in this Act: accrued entitlement, consideration, financial arrangement, pay
Compare: 2004 No 35 s EW 38
EW 39 Consideration affected by unfavourable factors
When this section applies
(1)
This section applies when—
(a)
a person is a party to a financial arrangement; and
(b)
the person has an accrued entitlement under the arrangement; and
(c)
the person disposes of the arrangement; and
(d)
the consideration for the disposal is affected by any of the following factors:
(i)
a decline in the other party’s creditworthiness between the date on which the arrangement was entered into and the date of the disposal; or
(ii)
an increase, between the date on which the arrangement was entered into and the date of the disposal, in the possibility that the other party will not meet an obligation under the arrangement; or
(iii)
the occurrence of an event reducing or cancelling the other party’s obligations under the arrangement.
Exclusion
(2)
This section does not apply when—
(a)
the person’s business includes holding or dealing in financial arrangements of the class disposed of; and
(b)
the parties to the arrangement disposed of are not associated persons.
Consideration is market value
(3)
The person is treated as having been paid the market value that the accrued entitlement had on the date of the disposal, as if the consideration had not been affected by a factor described in subsection (1)(d).
Consideration is market value: self remission[Repealed]
(4)
[Repealed]Defined in this Act: accrued entitlement, associated person, business, consideration, financial arrangement, pay
Compare: 2004 No 35 s EW 40
Section EW 39(4) heading: repealed, on 29 March 2018 (with effect on 1 April 2011 and applying for income years beginning on or after that date), pursuant to section 81(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EW 39(4): repealed, on 29 March 2018 (with effect on 1 April 2011 and applying for income years beginning on or after that date), by section 81(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EW 39 list of defined terms self-remission: repealed, on 29 March 2018 (with effect on 1 April 2011), by section 81(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Consideration treated as paid by person
EW 40 Consideration when person exits from rules: accrued obligation
When this section applies
(1)
This section applies when—
(a)
a person is a party to a financial arrangement; and
(b)
1 of the following situations arises:
(i)
the person ceases to be resident in New Zealand and is not a party to the arrangement for the purpose of a business carried on by them through a fixed establishment in New Zealand; or
(ii)
the person, not resident in New Zealand, ceases to be a party to the arrangement for the purpose of a business carried on by them through a fixed establishment in New Zealand; or
(iii)
the person starts using the arrangement for a private or domestic purpose and so it becomes an excepted financial arrangement described in any of section EW 5(18) to (20); and
(c)
at the time the situation arises, the person has an accrued obligation to pay consideration under the arrangement.
Relief and consideration
(2)
The person is treated as having been relieved of the accrued obligation immediately before the situation arose and as having paid the market value that a contract to assume the obligation had at that time.
Defined in this Act: accrued obligation, business, consideration, excepted financial arrangement, financial arrangement, fixed establishment, New Zealand, pay, resident in New Zealand
Compare: 2004 No 35 s EW 41
EW 41 Consideration when person enters rules: accrued entitlement
When this section applies
(1)
This section applies to a person who is a party to a financial arrangement if, when the person has an accrued entitlement to receive consideration under the arrangement, 1 or more of the following situations arise:
(a)
the person is a non-resident who becomes a party to the arrangement for the purpose of a business carried on by the person through a fixed establishment in New Zealand:
(b)
the person is a non-resident who—
(i)
becomes a New Zealand resident who is not a transitional resident; and
(ii)
is not, immediately before becoming a New Zealand resident, a party to the arrangement for the purpose of a business carried on by the person through a fixed establishment in New Zealand:
(c)
the person is a transitional resident for whom the arrangement ceases to be an excepted financial arrangement described in section EW 5(17):
(d)
the person is a transitional resident who becomes a New Zealand resident who is not a transitional resident, resulting in the arrangement ceasing to be an excepted financial arrangement described in section EW 5(17):
(e)
the person stops using the arrangement for a private or domestic purpose, resulting in the arrangement ceasing to be an excepted financial arrangement described in any of section EW 5(18) to (20).
Acquisition and consideration
(2)
The person is treated as having acquired the accrued entitlement immediately after the situation arose and as having paid the market value that the accrued entitlement had at that time.
Defined in this Act: accrued entitlement, business, consideration, excepted financial arrangement, financial arrangement, fixed establishment, New Zealand, New Zealand resident, non-resident, pay, transitional resident
Compare: 2004 No 35 s EW 42
EW 42 Consideration when acquisition for no, or inadequate, consideration
When this section applies
(1)
This section applies when—
(a)
a person becomes a party to a financial arrangement; and
(b)
the person acquires an entitlement under the arrangement—
(i)
not for monetary consideration; or
(ii)
for a consideration that is less than the market value of the entitlement on the date of the acquisition.
Consideration is market value
(2)
The person is treated as having paid the market value that the entitlement had on the date of the acquisition.
Defined in this Act: consideration, financial arrangement, pay
Compare: 2004 No 35 s EW 43
EW 43 Consideration when debt disposed of at discount to associate of debtor
When this section applies
(1)
This section applies when a creditor disposes of a debt on or after 20 May 1999 to a person associated with the debtor and at a discount.
At a discount
(2)
A creditor disposes of a debt at a discount if the creditor disposes of it for 80% or less of the market value of the debt.
Market value
(3)
The market value of a debt affected by any of the following factors is determined as if its market value were not affected by the factor. The factors are—
(a)
the occurrence of an event reducing or cancelling the debtor’s obligations under the debt; or
(b)
the occurrence of 1 of the following between the date on which the debt was entered into and the date of the disposal:
(i)
a decline in the debtor’s creditworthiness; or
(ii)
an increase in the possibility that the debtor will not meet an obligation under the debt.
Consideration
(4)
The debtor is treated as having paid the creditor the amount that the person associated with the debtor pays the creditor.
Defined in this Act: amount, associated person, consideration, pay
Compare: 2004 No 35 s EW 45
Section EW 43 heading: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EW 43(1): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EW 43(1): amended, on 1 April 2010, by section 21 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EW 43(2): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EW 43 list of defined terms 1988 version provisions: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EW 44 Consideration when debt forgiven for natural love and affection
When this section applies: first case
(1)
This section applies when—
(a)
a person is a debtor; and
(b)
the creditor is a natural person; and
(c)
the creditor forgives the debtor’s debt because of the natural love and affection the creditor has for the debtor.
When this section applies: second case
(2)
This section also applies when—
(a)
a trust is a debtor; and
(b)
the trust was established mainly to benefit 1 or both of the following:
(i)
a natural person for whom the creditor has natural love and affection:
(ii)
an organisation or a trust whose income is exempt under section CW 41 (Charities: non-business income) or CW 42 (Charities: business income); and
(c)
the creditor is a natural person; and
(d)
the creditor forgives the debtor’s debt.
Two points about subsections (1) and (2)
(3)
For the purposes of subsections (1) and (2),—
(a)
the debtor’s debt includes an amount accrued and unpaid at the time of the forgiveness; and
(b)
the means by which the debt is forgiven, whether in a will or otherwise, is immaterial.
Consideration
(4)
The debtor is treated as having paid the debt on the date on which the creditor forgives it.
Defined in this Act: amount, consideration, income, pay
Compare: 2004 No 35 s EW 46
EW 45 Consideration when debtor released from obligation
When this section applies
(1)
This section applies when—
(a)
a person is released from the obligation to pay an amount owing under a financial arrangement; and
(b)
the release occurs under—
(i)
section 304 of the Insolvency Act 2006; or
(ii)
any of the Inland Revenue Acts; or
(iii)
a loan described in subsection (2); or
(iv)
the terms of a loan under the small business cashflow scheme under section 7AA of the Tax Administration Act 1994.
Social assistance suspensory loan
(2)
A loan referred to in subsection (1)(b)(iii) is a loan that—
(a)
is made by a department or instrument of the executive government of New Zealand; and
(b)
provides for the person’s liability to pay to be wholly or partly remitted if they meet conditions intended to promote a social policy objective of the government of New Zealand; and
(c)
is of a class declared by the Governor-General by Order in Council to be a social assistance suspensory loan.
Declaration as social assistance suspensory loan
(3)
The Governor-General may make an Order in Council declaring a class of loan that meets the criteria in subsection (2) to be a social assistance suspensory loan.
Secondary legislation
(3B)
An Order in Council under subsection (3) is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements).
Consideration
(4)
The person is treated as having paid the amount owing on the date on which they are released from the obligation to pay it.
Defined in this Act: amount, consideration, financial arrangement, Inland Revenue Acts, New Zealand, pay, small business cashflow scheme
Compare: 2004 No 35 s EW 47
| Legislation Act 2019 requirements for secondary legislation made under this section | ||||
| Publication | PCO must publish it on the legislation website and notify it in the Gazette | LA19 s 69(1)(c) | ||
| Presentation | The Minister must present it to the House of Representatives | LA19 s 114, Sch 1 cl 32(1)(a) | ||
| Disallowance | It may be disallowed by the House of Representatives | LA19 ss 115, 116 | ||
| This note is not part of the Act. | ||||
Section EW 45(1)(b)(iii): amended, on 30 April 2020, by section 6(1) of the COVID-19 Response (Taxation and Other Regulatory Urgent Measures) Act 2020 (2020 No 10).
Section EW 45(1)(b)(iv): inserted, on 30 April 2020, by section 6(1) of the COVID-19 Response (Taxation and Other Regulatory Urgent Measures) Act 2020 (2020 No 10).
Section EW 45(3B) heading: inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
Section EW 45(3B): inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
Section EW 45 list of defined terms small business cashflow scheme: inserted, on 30 April 2020, by section 6(2) of the COVID-19 Response (Taxation and Other Regulatory Urgent Measures) Act 2020 (2020 No 10).
EW 46 Consideration when debtor released as condition of new start grant
[Repealed]Section EW 46: repealed, on 24 February 2016, by section 135 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EW 46B Consideration when party changes from fair value method
When this section applies
(1)
This section applies when a party to a financial arrangement—
(a)
changes from the fair value method to another method; and
(b)
is required under section EW 29(13) to calculate a base price adjustment at the end of the first income year for which the replacement method is used for the financial arrangement.
Consideration
(2)
The person is treated as having been paid an amount equal to the market value of the financial arrangement at the end of the first income year for which the replacement method is used for the financial arrangement.
Defined in this Act: amount, fair value method, financial arrangement
Compare: 2004 No 35 s EW 48B
Section EW 46B: inserted, on 1 April 2008, by section 380 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 46B(1)(b): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 35(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EW 46B(2): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 35(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
EW 46C Consideration when debt remitted within economic group
When this section applies
(1)
This section applies to the extent to which an amount of debt is remitted and—
(a)
the creditor is a member of the same wholly-owned group of companies as the debtor and—
(i)
the debtor is a New Zealand resident company:
(ii)
the debtor carries on a business in New Zealand through a fixed establishment in New Zealand and the creditor or an associated person cannot deduct, under this Act or a taxation law of a country or territory outside New Zealand, an amount in relation to the remission against income:
(b)
the creditor is a member of the same wholly-owned group of companies as the debtor and, for the debtor, a group of persons who are New Zealand resident companies (the NZ group) hold, before section YC 4 (Look-through rule for corporate shareholders) is applied to the NZ group in relation to their interests,—
(i)
common voting interests that add up to 100%; and
(ii)
if a market value circumstance exists for a company that is part of a group of companies to which the debtor belongs, common market value interests that add up to 100%:
(c)
if the debtor is a company, the creditor is not a member of the same wholly-owned group of companies as the debtor and the creditor has ownership interests or, as applicable, market value interests in the debtor:
(d)
if the debtor is a partnership, the creditor has a partner’s interest in the income of the debtor:
(e)
if the debtor is a look-through company, the creditor has an effective look-through interest in the debtor.
Some points about this section
(2)
For the purposes of this section,—
(a)
the means by which an amount of debt is remitted is immaterial:
(ab)
the debt includes an amount accrued and unpaid at the time of the remission:
(b)
a group of natural persons (the single creditor group) who are creditors or who have interests in the debtor are treated as one creditor holding the total debts and interests of the single creditor group, if each person has natural love and affection for the others. However, a trust may join the single creditor group if—
(i)
the trust was established mainly to benefit a natural person for whom each person of the single creditor group has natural love and affection; and
(ii)
the amount given by dividing the amount of the trust’s debt that is remitted for the debtor by the trust’s proportional ownership ratio is less than the amount given by dividing the amount of the single creditor group’s debt that is remitted for the debtor by the group’s proportional ownership ratio (for example: $100 remitted by the trust ÷ 40% ownership is greater than $100 remitted by the group ÷ 50% ownership, so the trust may not join the group, even if the required natural love and affection exists):
(c)
a group of persons (the single corporate creditor group) that are creditors or that have interests in the debtor are treated as 1 creditor holding the total debts and interests of the single corporate creditor group, if—
(i)
each person is a member of the same wholly-owned group of companies; and
(ii)
the debtor is not a member of the wholly-owned group of companies.
When this section does not apply
(3)
This section does not apply if—
(a)
the creditor and debtor are members of the same wholly-owned group of companies; and
(b)
the creditor is a non-resident; and
(c)
the debt has been held by a person that is not a member of the wholly-owned group of companies.
Consideration: debtor
(4)
The debtor is treated as having paid the amount of debt on the date on which it is remitted,—
(a)
if the relevant debt, creditor, and debtor are described in subsection (1)(a) or (b):
(b)
to the extent to which the proportional debt ratio for the amount equals the proportional ownership ratio.
Consideration: creditor
(5)
The creditor is treated as having been paid the amount of debt on the date on which it is remitted,—
(a)
if the relevant debt, creditor, and debtor are described in subsection (1)(a) or (b):
(b)
to the extent to which the proportional debt ratio for the amount equals the proportional ownership ratio.
Some definitions
(6)
For the purposes of this section,—
nominal shares are shares held by the trustee of an exempt ESS, or employees or former employees of the debtor, if the total of those shares represent voting interests in the debtor that add up to no more than 3%, or, as applicable, market value interests in the company that add up to no more than 3%
proportional debt ratio means, for a creditor and an amount of debt, the percentage that the creditor’s amount bears to the total amounts of debt to which this section applies remitted at the time the creditor’s debt is remitted
proportional ownership ratio means the creditor’s percentage of the ownership interests or, as applicable, market value interests, total partner’s interests, or total effective look-through interests for the debtor, ignoring nominal shares.
Defined in this Act: amount, consideration, employee, exempt ESS, group of persons, income, look-through company, look-through interest, market value interest, New Zealand resident, nominal share, non-resident, partnership, partner’s interests, pay, proportional debt ratio, proportional ownership ratio, share, trustee, voting interest, wholly-owned group of companies
Section EW 46C: inserted (with effect on 1 April 2008), on 30 March 2017, by section 75(1) (and see section 75(2)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EW 46C heading: amended (with effect on 1 April 2008), on 30 March 2022, by section 97(1) (and see section 97(12) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EW 46C(1): amended (with effect on 1 April 2008), on 30 March 2022, by section 97(2) (and see section 97(12) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EW 46C(1)(a): replaced (with effect on 1 April 2019), on 30 March 2022, by section 97(3) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EW 46C(2)(a): amended (with effect on 1 April 2008), on 30 March 2022, by section 97(4) (and see section 97(12) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EW 46C(2)(ab): inserted, on 1 July 2017, by section 76 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EW 46C(2)(ab): amended (with effect on 1 April 2008), on 30 March 2022, by section 97(5) (and see section 97(12) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EW 46C(2)(b)(ii): amended (with effect on 1 April 2008), on 30 March 2022, by section 97(6) (and see section 97(12) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EW 46C(2)(b)(ii): amended (with effect on 1 April 2008), on 30 March 2022, by section 97(7) (and see section 97(12) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EW 46C(2)(b)(ii): amended (with effect on 1 April 2008), on 30 March 2022, by section 97(8) (and see section 97(12) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EW 46C(4): amended (with effect on 1 April 2008), on 30 March 2022, by section 97(9) (and see section 97(12) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EW 46C(4): amended (with effect on 1 April 2008), on 18 March 2019, by section 181(1)(a) (and see section 181(3) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EW 46C(4)(a): amended (with effect on 1 April 2008), on 18 March 2019, by section 181(1)(b) (and see section 181(3) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EW 46C(4)(b): amended (with effect on 1 April 2008), on 18 March 2019, by section 181(1)(c) (and see section 181(3) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EW 46C(5): amended (with effect on 1 April 2008), on 30 March 2022, by section 97(10) (and see section 97(12) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EW 46C(5): amended (with effect on 1 April 2008), on 18 March 2019, by section 181(2)(a) (and see section 181(3) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EW 46C(5)(a): amended (with effect on 1 April 2008), on 18 March 2019, by section 181(2)(b) (and see section 181(3) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EW 46C(5)(b): amended (with effect on 1 April 2008), on 18 March 2019, by section 181(2)(c) (and see section 181(3) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EW 46C(6) nominal shares: amended (with effect on 29 March 2018), on 31 March 2023, by section 56(1) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EW 46C(6) proportional debt ratio: amended (with effect on 1 April 2008), on 30 March 2022, by section 97(11) (and see section 97(12) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EW 46C list of defined terms exempt ESS: inserted (with effect on 29 March 2018), on 31 March 2023, by section 56(2) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
EW 46D Consideration when insolvent company’s debt repaid with consideration received for issuing shares
When this section applies
(1)
This section applies when—
(a)
a company is a debtor; and
(b)
the debtor or a person (person A) associated with the debtor enters into an arrangement with another person (person B); and
(c)
under the arrangement, the debtor or person A issues shares to person B for consideration; and
(d)
the debtor does not satisfy the solvency test set out in section 4 of the Companies Act 1993 at either or both of the following times:
(i)
immediately before the arrangement is entered into:
(ii)
immediately before the issue of the shares; and
(e)
the terms of the arrangement require the debtor or person A to use some or all of the consideration to pay, directly or indirectly, an amount of the debtor’s debt to the creditor; and
(f)
section EW 46C would not apply if the amount of the debtor’s debt is remitted; and
(g)
the debtor or person A uses some or all of the consideration to pay, directly or indirectly, the amount of the debtor’s debt to the creditor.
Consideration
(2)
The debtor or person A, as applicable, is treated as—
(a)
not having paid, directly or indirectly, the amount of the debtor’s debt to the creditor; and
(b)
having made a payment, at the time the shares were issued, of an amount of the debtor’s debt to the creditor equal to the amount calculated using the formula in subsection (3).
Formula
(3)
The formula is—
shares’ market value × repayment ÷ total consideration.
Definition of items in formula
(4)
In the formula,—
(a)
shares’ market value is the market value of the shares issued to person B at the time they were issued:
(b)
repayment is the amount of the debtor’s debt to the creditor that is paid, directly or indirectly, using consideration received for the issue of the shares to person B:
(c)
total consideration is the total amount of consideration paid by person B for the issue of the shares.
Defined in this Act: amount, arrangement, associated person, company, consideration, market value, pay, share
Section EW 46D: inserted, on 1 April 2023, by section 57 of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Consideration when legal defeasance has occurred
EW 47 Legal defeasance
When this section applies
(1)
This section applies when—
(a)
the obligations of a financial arrangement were the subject of a legal defeasance that required another person to meet the remaining obligations of the arrangement; and
(b)
the person who has a right to receive money under the arrangement is now required by section EW 29 to calculate a base price adjustment for it.
Consideration
(2)
The consideration received by the person who has a right to receive money under the arrangement is the total of—
(a)
the amounts received from the original debtor; and
(b)
the amounts received from the person required to meet the remaining obligations.
Defined in this Act: amount, consideration, financial arrangement, legal defeasance, money
Compare: 2004 No 35 s EW 48
Consideration for cessation of LTCs and dissolution of partnerships
Heading: inserted, on 29 March 2018 (with effect on 1 April 2011 and applying for income years beginning on or after that date), by section 82(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
EW 47B Cessation of LTCs and dissolution of partnerships
When this section applies
(1)
This section applies when—
(a)
a person is required to calculate a base price adjustment under section EW 29(14) in their private capacity; and
(b)
the person has an accrued entitlement.
Consideration limited to owner’s interests
(2)
The person is treated as—
(a)
having paid all the consideration paid, or that is or will be payable, by them for or under the relevant financial arrangement, multiplied by the proportion of their owner’s interests or partner’s interests in the financial arrangement in their non-private capacity; and
(b)
having been paid the market value, on the date of disposal, of the accrued entitlement, multiplied by the proportion of their owner’s interests or partner’s interests in the financial arrangement in their non-private capacity.
Defined in this Act: dispose, financial arrangement, owner’s interests, partner, partner’s interests
Section EW 47B: inserted, on 29 March 2018 (with effect on 1 April 2011 and applying for income years beginning on or after that date), by section 82(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Consideration when anti-avoidance provision applies
EW 48 Anti-avoidance provisions
When this section applies
(1)
This section applies when it is necessary to determine the consideration that is paid to or by a person in a case to which any of the following provisions applies:
(a)
section GB 21 (Dealing that defeats intention of financial arrangements rules); or
(b)
section GC 7 (Excess amount payable by person); or
(c)
section GC 8 (Insufficient amount receivable by person); or
(d)
sections GC 20 and GC 21 (which relate to purchase price allocation).
Consideration
(2)
The consideration is the amount determined under the relevant provision.
Defined in this Act: amount, consideration, pay
Compare: 2004 No 35 s EW 49
Section EW 48(1)(c): amended, on 30 March 2021, by section 50(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section EW 48(1)(d): inserted, on 30 March 2021, by section 50(2) (and see section 50(3) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Income and deduction provisions specifically related to financial arrangements
EW 49 Income and deduction when debt disposed of at discount to associate of debtor
When this section applies
(1)
This section applies when a creditor disposes of a debt on or after 20 May 1999 to a person associated with the debtor and at a discount.
At a discount
(2)
A creditor disposes of a debt at a discount if the creditor disposes of it for 80% or less of the market value of the debt.
Market value
(3)
The market value of a debt affected by any of the following factors is determined as if its market value were not affected by the factor. The factors are—
(a)
the occurrence of an event reducing or cancelling the debtor’s obligations under the debt; or
(b)
the occurrence of 1 of the following between the date on which the debt was entered into and the date of the disposal:
(i)
a decline in the debtor’s creditworthiness; or
(ii)
an increase in the possibility that the debtor will not meet an obligation under the debt.
Original debt replaced with interest-free loan
(4)
The associated person is treated as having provided the debtor with an interest-free loan for the amount paid for the debt.
Repayment: income and deduction
(5)
If the debtor later repays the person associated with the debtor more than the amount the associated person paid for the debt, the excess amount paid by the debtor is—
(a)
income, under section CC 3(1) (Financial arrangements), of the person associated with the debtor; and
(b)
a deduction that the debtor is allowed under section DB 13(1) (Repayment of debt in certain circumstances).
Defined in this Act: amount, associated person, deduction, income, pay
Compare: 2004 No 35 s EW 50
Section EW 49 heading: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EW 49(1): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EW 49(1): amended, on 1 April 2010, by section 22 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EW 49(2): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EW 49(5)(b): amended, on 1 April 2017, by section 77 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EW 49 list of defined terms 1988 version provisions: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EW 49B Guarantees for associated persons
When this section applies
(1)
This section applies when a guarantor pays an amount under a guarantee (a guarantee payment) for an associated person’s debt (the debtor) to the debtor’s creditor.
Repayment
(2)
For the debtor, the amount of the guarantee payment is treated as consideration paid or payable by the debtor for the debt.
New debt
(3)
If the guarantor has recourse to the debtor in relation to the guarantee payment, the guarantor is treated as providing the debtor with an interest-free loan for the amount of the guarantee payment.
No consideration paid
(4)
For the guarantor, the guarantee payment is treated as not being consideration paid or payable by the guarantor.
Repayment: income and deduction
(5)
If the debtor later repays the guarantor more than the guarantee payment, the excess paid by the debtor is—
(a)
income, under section CC 3(1) (Financial arrangements), of the guarantor; and
(b)
a deduction that the debtor is allowed under section DB 13(1) (Repayment of debt in certain circumstances).
Defined in this Act: amount, associated person, deduction, income
Section EW 49B: inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 78(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
EW 50 Income when debt forgiven to trustee
When this section applies
(1)
This section applies when—
(a)
a trust is a debtor; and
(b)
the trust was established mainly to benefit 1 or both of the following:
(i)
a natural person for whom the creditor has natural love and affection; or
(ii)
an organisation or a trust whose income is exempt under section CW 41 (Charities: non-business income) or CW 42 (Charities: business income); and
(c)
the creditor is a natural person; and
(d)
the creditor forgives the debtor’s debt; and
(e)
a trustee of the trust makes a distribution, including a distribution of beneficiary income, to a beneficiary; and
(f)
the beneficiary is—
(i)
not a natural person for whom the creditor has natural love and affection; and
(ii)
not an organisation or a trust whose income is exempt under section CW 41 or CW 42; and
(g)
the distribution is made on or after 20 May 1999.
Exclusion
(2)
This section does not apply when—
(a)
a trust (trust A) is a debtor; and
(b)
trust A was established mainly to benefit 1 or both of the following:
(i)
a natural person for whom the creditor has natural love and affection; or
(ii)
an organisation or a trust whose income is exempt under section CW 41 or CW 42; and
(c)
the creditor is a natural person; and
(d)
the creditor forgives the debtor’s debt; and
(e)
a trustee of the trust makes a distribution to another trust (trust B); and
(f)
at the time the distribution is made, trust B is also established mainly to benefit 1 or both of the following:
(i)
a natural person for whom the creditor has natural love and affection; or
(ii)
an organisation or a trust whose income is exempt under section CW 41 or CW 42.
Two points about subsections (1) and (2)
(3)
For the purposes of subsections (1) and (2),—
(a)
the debtor’s debt includes an amount accrued and unpaid at the time of the forgiveness; and
(b)
the means by which the debt is forgiven, whether in a will or otherwise, is immaterial.
Distribution is income of trustee
(4)
The distribution is income of the trustee, under section CC 3(2) (Financial arrangements), to the extent to which it is less than or equal to the total amount of the debts of the trust forgiven to it by the creditor.
Distribution subtracted from total amount forgiven
(5)
The distribution is subtracted from the total amount of the debts of the trust forgiven to it by the creditor as the total amount stands at the time of the distribution.
Timing
(6)
The income is derived by the trustee in the income year in which the distribution is made.
Application of Tax Administration Act 1994
(7)
Section 22B of the Tax Administration Act 1994 applies to a trustee to whom this section applies.
Defined in this Act: amount, beneficiary income, distribution, income, income year, pay, trustee
Compare: 2004 No 35 s EW 51
EW 51 Deduction for security payment
When subsection (2) applies: loss generally
(1)
Subsection (2) applies when a person is allowed a deduction under section DB 14(2) (Security payment).
Amount of deduction
(2)
The person is allowed a deduction no greater than the amount of the security payment.
When subsection (4) applies: share loss
(3)
Subsection (4) applies when a person is allowed a deduction under section DB 14(4).
Amount of deduction
(4)
The person is allowed a deduction no greater than the amount of the security payment.
Defined in this Act: amount, deduction, pay, security payment
Compare: 2004 No 35 s EW 52
Treatment of original share acquired under financial arrangement
EW 52 Share supplier under share-lending arrangement
When this section applies
(1)
This section applies to a person who—
(a)
acquires a share under a financial arrangement (the original financial arrangement); and
(b)
is the share supplier for a share-lending arrangement; and
(c)
disposes of the share to the share user as an original share under the share-lending arrangement.
Treatment of reacquisition of original share
(2)
If the person reacquires the original share under the share-lending arrangement, for the purposes of applying the financial arrangements rules to the original financial arrangement,—
(a)
the person did not dispose of the original share to the share user; and
(b)
the person continued to own the original share until the time that the person reacquired the original share.
Treatment of acquisition of replacement share
(3)
If the person acquires an identical share under the share-lending arrangement, for the purposes of the financial arrangements rules in relation to the original financial arrangement,—
(a)
the identical share is the share that the person acquired under the original financial arrangement; and
(b)
the person continued to own the identical share until the time that the person acquired the replacement share.
Defined in this Act: financial arrangement, financial arrangements rules, identical share, original share, share, share-lending arrangement, share supplier, share user
Compare: 2004 No 35 s EW 52B
EW 52B Excepted financial arrangements involving pre-1990 forest land emissions units
When this section applies
(1)
This section applies to an arrangement that is an excepted financial arrangement under section EW 5(11C) and under which—
(a)
the holder (the unit holder) of a pre-1990 forest land emissions unit (the original unit) is required to make an assignment of the original unit (the security assignment) to a person who is not an associated person (the lender); and
(b)
the lender is required to make a later assignment (the security return) of a New Zealand emissions unit (the returned unit) to the unit holder.
Unit holder treated as continuing to hold pre-1990 forest land emissions unit
(2)
The unit holder is treated as continuing to hold a pre-1990 forest land emissions unit for the period beginning with the day on which the arrangement begins and ending with the day given by subsection (3) for the security assignment, subject to subsections (4) and (5).
Timely security return
(3)
Subsection (4) applies if the security return occurs on or before the day that is the earlier of—
(a)
the day on which the security return is required under the arrangement:
(b)
the day on which the arrangement comes to an end.
Effect of timely security return
(4)
If the unit holder receives a returned unit under the arrangement on or before the day given by subsection (3),—
(a)
the returned unit is treated as being the original unit; and
(b)
the unit holder is treated as continuing to hold the original unit for the period beginning with the day on which the arrangement begins and ending with the day of the security return; and
(c)
the original unit and the returned unit are treated as having a value for the unit holder equal to the cost of the original unit for the unit holder immediately before the arrangement begins; and
(d)
the original unit and the returned unit are treated as having a value for the lender of—
(i)
the cost of the original unit for the unit holder immediately before the arrangement begins, for the security assignment and the security return:
(ii)
zero, for an assignment of the original unit other than the security return.
Effect of failure to make timely security return
(5)
If the unit holder does not receive a returned unit under the arrangement on or before the day given by subsection (3),—
(a)
the original unit is treated as being assigned to the lender on the day of the security assignment; and
(b)
the unit holder is treated as ceasing to hold the original unit from the day of the security assignment; and
(c)
the original unit is treated as having a value for the unit holder and the lender at the time of the security assignment equal to the market value of the original unit for the unit holder immediately before the arrangement begins.
Relationship with section ED 1
(6)
Subsections (4)(c) and (d) and (5)(c) override sections EA 1(4)(c) and ED 1 (which relate to the valuation of excepted financial arrangements).
Defined in this Act: arrangement, associated person, emissions unit, excepted financial arrangement, New Zealand emissions unit, pre-1990 forest land emissions unit
Section EW 52B: inserted (with effect on 1 April 2018), on 26 June 2019, by section 64(1) (and see section 64(2) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
One kind of avoidance
EW 53 Adjustment required
When this section applies
(1)
This section applies when—
(a)
the terms of a financial arrangement give either party, both parties, or an associated person the discretion to decide on an amount payable under the arrangement; and
(b)
it is not generally accepted commercial practice to make financial arrangements containing such terms; and
(c)
a change in the amount brought about by the exercise of the discretion does not reflect changes in commodity, economic, financial, or industrial indices, or in banking or general commercial rates; and
(d)
the effect of the financial arrangement is to defeat the intention of the financial arrangements rules.
Parties to calculate adjustment
(2)
Each person who is a party to the financial arrangement must calculate an adjustment for the income years specified in subsection (3) by following the steps in subsections (4) to (6).
Income years
(3)
The adjustment must be calculated for the following income years:
(a)
until the person ceases to be a party, the fifth income year after the income year in which the parties entered into the financial arrangement and every fifth income year after that; and
(b)
the income year in which the person ceases to be a party.
First step
(4)
The first step the person takes is to calculate income or expenditure under the financial arrangement for each income year using the yield to maturity method in the manner prescribed by the Commissioner in a determination under section 90AC(1)(a) of the Tax Administration Act 1994.
Consideration and amounts to be included at first step
(5)
The person must include the following amounts in the calculation:
(a)
for every income year for which the calculation is made, as described in subsection (3), the consideration and amounts described in section EW 15 for the period starting on the date on which the person became a party to the financial arrangement and ending on the last day of the income year for which the calculation is made; and
(b)
for every fifth income year, as described in subsection (3)(a),—
(i)
an amount equal to the financial arrangement’s market value on the last day of the income year, as if the person had disposed of the arrangement for that amount; or
(ii)
if the financial arrangement has no market value, the amount that might reasonably be expected to be paid on a disposal at arm’s length.
Second step
(6)
The second step the person takes is to calculate the income tax liability for each income year using the income or expenditure calculated under subsections (4) and (5) in substitution for the income or expenditure previously calculated for the financial arrangement for each income year.
Defined in this Act: amount, associated person, Commissioner, consideration, financial arrangement, financial arrangements rules, income, income tax liability, income year, pay, prescribed
Compare: 2004 No 35 s EW 53
Application of financial arrangements rules to cash basis persons
EW 54 Meaning of cash basis person
Who is cash basis person
(1)
A person is a cash basis person for an income year if—
(a)
1 of the following applies in the person’s case for the income year:
(i)
section EW 57(1); or
(ii)
section EW 57(2); and
(b)
section EW 57(3) applies in the person’s case for the income year.
Persons excluded by Commissioner
(2)
A person may be excluded under section EW 59 from being a cash basis person for a class of financial arrangements.
Defined in this Act: cash basis person, financial arrangement, income year
Section EW 54: substituted, on 1 April 2009, by section 9(1) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
EW 55 Effect of being cash basis person
Use of spreading method
(1)
A cash basis person is not required to apply any of the spreading methods to any of their financial arrangements, but may choose to do so under section EW 61.
Calculation of base price adjustment
(2)
The fact that a cash basis person does not use any of the spreading methods for the financial arrangement does not excuse them from the requirement to calculate a base price adjustment when any of section EW 29(1) to (12) applies to them.
Defined in this Act: cash basis person, financial arrangement, spreading method
Compare: 2004 No 35 s EW 55
EW 56 Natural person
[Repealed]Section EW 56: repealed, on 1 April 2009, by section 10(1) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
EW 57 Thresholds
Income and expenditure threshold
(1)
For the purposes of section EW 54(1)(a)(i), this subsection applies if the absolute value of the person’s income and expenditure in the income year under all financial arrangements to which the person is a party is $100,000 or less.
Absolute value threshold
(2)
For the purposes of section EW 54(1)(a)(ii), this subsection applies if, on every day in the income year, the absolute value of all financial arrangements to which the person is a party added together is $1,000,000 or less. The value of each arrangement is,—
(a)
for a fixed principal financial arrangement, its face value:
(b)
for a variable principal debt instrument, the amount owing by or to the person under the financial arrangement:
(c)
for a financial arrangement to which the old financial arrangements rules apply, the value determined under those rules.
Deferral threshold
(3)
For the purposes of section EW 54(1)(b), this subsection applies if the result of applying the formula in subsection (4) to each financial arrangement to which the person is a party at the end of the income year and adding the outcomes together is $40,000 or less.
Formula
(4)
The formula is—
(accrual income − cash basis income)
+ (cash basis expenditure − accrual expenditure).
Definition of items in formula
(5)
The items in the formula are defined in subsections (6) to (9).
Accrual income
(6)
Accrual income is the amount that would have been income derived by the person under the financial arrangement if the person had been required to use a spreading method in the period starting on the date on which they became a party to the arrangement and ending on the last day of the income year for which the calculation is made. It is calculated using 1 of the following methods, as chosen by the person:
(a)
the yield to maturity method, whether or not the person may use it, or has chosen to use it, for their financial arrangement; or
(b)
the straight-line method, whether or not the person may use it, or has chosen to use it, for their financial arrangement; or
(c)
an alternative method approved by the Commissioner.
Cash basis income
(7)
Cash basis income is the amount that would have been income derived by the person under the financial arrangement if the person had been a cash basis person in the period starting on the date on which they became a party to the arrangement and ending on the last day of the income year for which the calculation is made.
Cash basis expenditure
(8)
Cash basis expenditure is the amount that would have been expenditure incurred by the person under the financial arrangement if the person had been a cash basis person in the period starting on the date on which they became a party to the arrangement and ending on the last day of the income year for which the calculation is made.
Accrual expenditure
(9)
Accrual expenditure is the amount that would have been expenditure incurred under the financial arrangement if the person had been required to use a spreading method in the period starting on the date on which they became a party to the arrangement and ending on the last day of the income year for which the calculation is made. It is calculated using 1 of the following methods, as chosen by the person:
(a)
the yield to maturity method, whether or not the person may use it, or has chosen to use it, for their financial arrangement; or
(b)
the straight-line method, whether or not the person may use it, or has chosen to use it, for their financial arrangement; or
(c)
an alternative method approved by the Commissioner.
Increase in specified sums
(10)
The Governor-General may make an Order in Council increasing a sum specified in any of subsections (1) to (3).
Secondary legislation
(11)
An Order in Council under subsection (10) is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements).
Defined in this Act: absolute value, amount, cash basis person, Commissioner, financial arrangement, fixed principal financial arrangement, income, income year, old financial arrangements rules, spreading method, variable principal debt instrument
Compare: 2004 No 35 s EW 57
| Legislation Act 2019 requirements for secondary legislation made under this section | ||||
| Publication | PCO must publish it on the legislation website and notify it in the Gazette | LA19 s 69(1)(c) | ||
| Presentation | The Minister must present it to the House of Representatives | LA19 s 114, Sch 1 cl 32(1)(a) | ||
| Disallowance | It may be disallowed by the House of Representatives | LA19 ss 115, 116 | ||
| This note is not part of the Act. | ||||
Section EW 57(1): amended, on 1 April 2009, by section 11(1) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
Section EW 57(2): amended, on 1 April 2009, by section 11(2) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
Section EW 57(3): amended, on 1 April 2009, by section 11(3) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
Section EW 57(10) heading: added, on 1 April 2009, by section 11(4) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
Section EW 57(10): added, on 1 April 2009, by section 11(4) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
Section EW 57(11) heading: inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
Section EW 57(11): inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
EW 58 Financial arrangements, income, and expenditure relevant to criteria
Inclusions in and exclusions from thresholds
(1)
The calculations required by section EW 57(1) to (3) are done for every financial arrangement to which the person is a party or, as the relevant subsection requires, to income and expenditure under such an arrangement, whether the financial arrangements rules or the old financial arrangements rules apply to the arrangement. Two qualifications are—
(a)
the calculations include an arrangement, or income and expenditure, to which subsection (2) or (3) applies only to the extent of the person’s interest in it, as described in each subsection; and
(b)
the calculations exclude the value of an arrangement, and income and expenditure, in which the person has the interest described in subsection (4) or (5).
Natural person who is partner[Repealed]
(2)
[Repealed]Beneficiary of bare trust
(3)
This subsection applies when the trustee of a bare trust is a party to a financial arrangement. A person who is a beneficiary of the bare trust—
(a)
is treated as a party to the arrangement to the extent of the beneficiary’s share of the beneficial interest in the arrangement; and
(b)
is treated as deriving income or incurring expenditure under the arrangement to the extent of the beneficiary’s share of the beneficial interest in the arrangement.
Beneficiary of trust other than bare trust
(4)
This subsection applies when a person is a beneficiary of a trust, other than a bare trust, whose trustee is a party to a financial arrangement. The following are excluded from the calculations required by section EW 57(1) to (3):
(a)
the value of the arrangement, if it produces trustee income or beneficiary income under the trust rules; and
(b)
income under the arrangement that is trustee income or beneficiary income under the trust rules.
Trustee
(5)
This subsection applies when a person is a party to a financial arrangement as a trustee. The following are excluded from the calculations required by section EW 57(1) to (3):
(a)
the value of the arrangement, if it produces trustee income or beneficiary income under the trust rules; and
(b)
income under the arrangement that is trustee income or beneficiary income under the trust rules; and
(c)
the value of the arrangement, if expenditure is incurred under it; and
(d)
expenditure incurred under the arrangement.
Defined in this Act: beneficiary income, financial arrangement, financial arrangements rules, income, old financial arrangements rules, return of income, trust rules, trustee, trustee income
Compare: 2004 No 35 s EW 58
Section EW 58(1): amended, on 1 April 2009, by section 12(1) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
Section EW 58(2) heading: repealed, on 1 April 2008, by section 13(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
Section EW 58(2): repealed, on 1 April 2008, by section 13(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
Section EW 58(3) heading: substituted, on 1 April 2009, by section 12(2)(a) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
Section EW 58(3): amended, on 1 April 2009, by section 12(2)(b) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
Section EW 58(4) heading: substituted, on 1 April 2009, by section 12(3)(a) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
Section EW 58(4): amended, on 1 April 2009, by section 12(3)(b) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
Section EW 58(5) heading: substituted, on 1 April 2009, by section 12(4)(a) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
Section EW 58(5): amended, on 1 April 2009, by section 12(4)(b) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
EW 59 Exclusion by Commissioner
The Commissioner may treat a person who would otherwise be a cash basis person for a class of financial arrangements as not being a cash basis person for the class if—
(a)
the person, or any other person, has structured and promoted the class to defer an income tax liability:
(b)
the parties to a financial arrangement are associated, and the person’s calculation of income and expenditure under the financial arrangement differs from that used by the associated person.
Defined in this Act: associated person, cash basis person, Commissioner, financial arrangement, income, income tax liability
Section EW 59: substituted, on 1 April 2009, by section 13(1) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
EW 60 Trustee of deceased’s estate
When trustee of estate is cash basis person
(1)
A trustee of a deceased’s estate is a cash basis person for financial arrangements in the estate in the circumstances described in subsection (2) for the period described in subsection (3).
Circumstances
(2)
The circumstances are that, at the time of the deceased’s death,—
(a)
the deceased is a cash basis person; and
(b)
the financial arrangements in the deceased’s estate meet the requirements of section EW 54(1)(a) and (b).
Period
(3)
The period is the income year in which the deceased dies and in each of the 4 following income years. However, if at any time in those 5 income years the financial arrangements in the deceased’s estate cease to meet the requirements of section EW 54(1)(a) and (b), the trustee ceases to be a cash basis person for financial arrangements in the estate and cannot again be a cash basis person for them.
Modifications to be read in
Defined in this Act: cash basis person, financial arrangement, income year, trustee
Compare: 2004 No 35 s EW 60
Section EW 60(2)(b): amended, on 1 April 2009, by section 14(1) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
Section EW 60(3): amended, on 1 April 2009, by section 14(1) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
Section EW 60(4): amended, on 1 April 2009, by section 14(2) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
EW 61 Election to use spreading method
Election of spreading method
(1)
A cash basis person may choose to use a spreading method, unless subsection (2) applies.
Election not allowed
(2)
A cash basis person may not choose to use a spreading method for a financial arrangement in the income year in which section EW 29 requires them to calculate a base price adjustment for the arrangement.
How election made
(3)
The person makes the election by calculating a cash basis adjustment under section EW 62(1).
Effect of election
(4)
The person must use a spreading method for—
(a)
all financial arrangements to which the person is a party at the time of making the election; and
(b)
all financial arrangements the person enters into after the income year in which they make the election.
How election revoked
(5)
The person revokes the election by giving notice to the Commissioner with a return of income and within the time that the return must be filed under section 37 of the Tax Administration Act 1994.
Effect of revocation
(6)
The revocation applies to all financial arrangements the person enters into after the income year in which the notice is given.
Defined in this Act: cash basis person, Commissioner, financial arrangement, income year, notice, return of income, spreading method
Compare: 2004 No 35 s EW 61
EW 62 When and how calculation of cash basis adjustment required
Choosing spreading method
(1)
A cash basis person who chooses to use a spreading method must calculate a cash basis adjustment for the income year in which they choose to use a spreading method as if they had ceased to be a cash basis person.
Person becoming cash basis person
(2)
A person who becomes a cash basis person in an income year must calculate a cash basis adjustment for a financial arrangement to which they—
(a)
are a party at the end of the income year; and
(b)
were a party at the end of the previous income year.
Exclusions
(3)
However,—
(a)
a person who becomes a cash basis person in an income year and who chooses to continue using a spreading method in the income year must not calculate a cash basis adjustment; and
(b)
a person who becomes a cash basis person in an income year must not calculate a cash basis adjustment for a financial arrangement that is already being accounted for on a cash basis.
Person ceasing to be cash basis person
(4)
A person who ceases to be a cash basis person in an income year must calculate a cash basis adjustment for a financial arrangement to which they—
(a)
are a party at the end of the income year; and
(b)
were a party at the end of the previous income year.
Exclusion
(5)
However, a person who ceases to be a cash basis person must not calculate a cash basis adjustment for a financial arrangement that is already subject to a spreading method.
Person not cash basis person if adjustment not made
(6)
A person who would be a cash basis person for a financial arrangement if they calculated a cash basis adjustment for it, and who does not calculate the adjustment, is not a cash basis person for the arrangement.
Cash basis adjustment
(7)
A person calculates a cash basis adjustment using the formula in section EW 63.
Adjustment is income or expenditure
(8)
The only income or expenditure under the financial arrangement for the income year to which the formula is applied is the cash basis adjustment.
Positive or negative cash basis adjustment
(9)
A cash basis adjustment is,—
(a)
if positive, income, under section CC 3(1) (Financial arrangements), derived by the person in the income year for which the calculation is made:
(b)
if negative, expenditure incurred by the person in the income year for which the calculation is made.
Defined in this Act: cash basis person, financial arrangement, income, income year, spreading method
Compare: 2004 No 35 s EW 62
EW 63 Cash basis adjustment formula
Formula
(1)
A person calculates a cash basis adjustment using the formula—
adjusted income − adjusted expenditure − previous income
+ previous expenditure.
Definition of items in formula
(2)
The items in the formula are defined in subsections (3) to (6).
Adjusted income
(3)
Adjusted income is,—
(a)
for a person who becomes a cash basis person, the amount that would have been income derived by the person under the financial arrangement if the person had been a cash basis person in the period starting on the date on which they became a party to the arrangement and ending on the last day of the income year for which the calculation is made; and
(b)
for a person who ceases to be a cash basis person, the amount that would have been income derived by the person under the financial arrangement if the person had been required to use a spreading method in the period starting on the date on which they became a party to the arrangement and ending on the last day of the income year for which the calculation is made.
Adjusted expenditure
(4)
Adjusted expenditure is,—
(a)
for a person who becomes a cash basis person, the amount that would have been expenditure incurred by the person under the financial arrangement if they had been a cash basis person in the period starting on the date on which they became a party to the arrangement and ending on the last day of the income year for which the calculation is made; and
(b)
for a person who ceases to be a cash basis person, the amount that would have been expenditure incurred by the person under the financial arrangement if the person had been required to use a spreading method in the period starting on the date on which they became a party to the arrangement and ending on the last day of the income year for which the calculation is made.
Previous income
(5)
Previous income is income derived by the person under the financial arrangement in earlier income years.
Previous expenditure
(6)
Previous expenditure is expenditure incurred by the person under the financial arrangement in earlier income years.
Defined in this Act: amount, cash basis person, financial arrangement, income, income year, spreading method
Compare: 2004 No 35 s EW 63
Subpart EX—Controlled foreign company and foreign investment fund rules
Contents
Controlled foreign company (CFC) rules
When is a company a controlled foreign company?
EX 1 Meaning of controlled foreign company
Tests of control
(1)
A foreign company is a controlled foreign company (CFC) if any of the following tests is met:
(a)
there is a group of 5 or fewer New Zealand residents whose total control interests in the company are more than 50% in any one of the control interest categories:
(b)
a single New Zealand resident holds a control interest of 40% or more unless at the same time—
(i)
the person’s control interest is less than or equal to a control interest in the same category held by another person; and
(ii)
the other person is not a New Zealand resident; and
(iii)
the other person is not associated with the New Zealand resident:
(c)
there is a group of 5 or fewer New Zealand residents who can control the exercise of the shareholder decision-making rights for the company and, as a result, control the company’s affairs.
Exception
(2)
Even if a test in subsection (1) is met, a foreign company is not a CFC if—
(a)
the foreign company is a foreign PIE equivalent; and
(b)
1 of the New Zealand residents is—
(i)
a portfolio investment entity:
(ii)
an entity that qualifies for PIE status:
(iii)
a life insurance company.
Status applies for whole accounting period
(3)
If any of the tests in subsection (1) is met at any time in a foreign company’s accounting period and the exception in subsection (2) does not apply at the time, the company is treated as a CFC for the whole of the accounting period.
Defined in this Act: accounting period, associated person, CFC, company, control interest, control interest category, foreign company, foreign investment vehicle, life insurance, New Zealand resident, portfolio investment entity, shareholder decision-making right
Compare: 2004 No 35 s EX 1
Section EX 1(1)(b)(i): substituted (with effect on 1 April 2008), on 7 September 2010, by section 42(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EX 1(2): amended, on 1 April 2008, by section 381 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 1(2)(a): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 149(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 1(2)(b)(ii): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 149(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 1 list of defined terms control: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Calculation of person’s control interest
EX 2 Four categories for calculating control interests
Separate categories
(1)
Under section EX 5(1), a direct control interest in a foreign company can arise in each of 4 separate categories of rights.
List of categories
(2)
The 4 categories are—
(a)
shareholding in the foreign company:
(b)
shareholder decision-making rights for the foreign company:
(c)
rights to receive income from the foreign company:
(d)
rights to receive distributions of the company’s net assets.
Detailed calculation rules
(3)
In each category, more detailed calculation rules appear in section EX 5.
Four categories of control interests
(4)
Accordingly, the rules in section EX 3 for calculating control interests by totalling various direct and indirect control interests and associated parties’ interests are applied on a category by category basis, by reference to those categories of direct control interest.
Defined in this Act: associated person, control interest, direct control interest, foreign company, income, shareholder decision-making right
Compare: 2004 No 35 s EX 2
EX 3 Control interest: total of direct, indirect, and associated person interests
Calculation of control interest
(1)
A New Zealand resident’s control interest in a foreign company at any time is the total of the following for the relevant control interest category:
(a)
any direct control interest that the New Zealand resident holds in the company:
(b)
any direct control interests in the company held by persons associated with the New Zealand resident:
(c)
any indirect control interests that the New Zealand resident holds in the company:
(d)
any indirect control interests in the company held by persons associated with the New Zealand resident.
Avoidance arrangements: first kind
(2)
Section GB 7 (Arrangements involving CFC control interests) may apply to treat a control interest as being held by a group of New Zealand residents in equal proportions.
Avoidance arrangements: other kinds
(3)
Any of the following sections may apply to the calculation of a person’s control interest:
(a)
section GB 9 (Temporary disposals of direct control or income interests):
(b)
section GB 10 (Temporary acquisitions of direct control or income interests):
(c)
section GB 11 (Temporary increases in totals for control interest categories):
(d)
section GB 12 (Temporary reductions in totals for control interest categories):
(e)
section GB 13 (When combination of changes reduces income):
(f)
section GB 14 (When combination of changes increases loss).
Defined in this Act: associated person, control interest, direct control interest, foreign company, New Zealand resident
EX 4 Limits to requirement to include associated person interests
Non-resident relatives
(1)
For the purposes of section EX 3, a New Zealand resident is associated with a non-resident relative only if the New Zealand resident holds a direct control interest or indirect control interest in the foreign company.
No double counting
(2)
Despite section EX 3(1)(b) and (d), for the purposes of determining whether a foreign company is a CFC, a direct control interest or indirect control interest may be counted only once.
Defined in this Act: associated person, CFC, control interest, direct control interest, foreign company, New Zealand resident, non-resident, relative
Compare: 2004 No 35 s EX 4
EX 5 Direct control interests
Categories of direct control interests
(1)
A person has a direct control interest in a foreign company at any time if they hold—
(a)
any of the shares in the foreign company:
(b)
any of the shareholder decision-making rights for the company:
(c)
a right to—
(i)
receive any income of the company for the accounting period in which the time falls; or
(ii)
have the income of the company for the accounting period in which the time falls dealt with in their interest or on their behalf:
(d)
a right to—
(i)
receive any of the value of the net assets of the company, if they are distributed; or
(ii)
have the net value of the assets, if they are distributed, dealt with in their interest or on their behalf.
Percentage of total is counted
(2)
The direct control interest in each control interest category is the percentage of the total that the person holds.
Measurement of available subscribed capital
(3)
When the direct control interest in the category in subsection (1)(a) is calculated, the percentage is the total of the available subscribed capital per share calculated under the slice rule of the shares held as a percentage of the total available subscribed capital per share calculated under the slice rule of all shares in the company.
Varying decision-making rights
(4)
When the direct control interest in the category in subsection (1)(b) is calculated, if the percentage varies between the rights described in the different paragraphs of the definition of shareholder decision-making rights in section YA 1 (Definitions), the highest percentage is taken.
Income distribution rights: assumptions
(5)
When the direct control interest in the category in subsection (1)(c) is calculated, it is assumed that—
(a)
the income is distributed on the last day of the accounting period; and
(b)
the person’s entitlement is unchanged during the period; and
(c)
a payment of interest on a debenture subject to section FA 2 (Recharacterisation of certain debentures), FA 2B (Stapled debt securities), or FZ 1 (Treatment of interest payable under debentures issued before certain date) is a distribution of income.
Defined in this Act: accounting period, available subscribed capital, control interest category, direct control interest, foreign company, income, interest, pay, share, shareholder decision-making right, slice rule
Compare: 2004 No 35 s EX 5
Section EX 5(1)(c): replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 30 June 2014, by section 84(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 5(1)(d): replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 30 June 2014, by section 84(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 5(5)(c): amended (with effect on 1 April 2008), on 6 October 2009, by section 150 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 6 Direct control interests include options and similar rights
Entitlement to acquire or extinguish
(1)
For the purposes of section EX 5, a person is treated as holding something if they are entitled to acquire it or extinguish it.
Entitlement arises in various ways
(2)
A person is entitled to acquire or extinguish something if the entitlement is absolute or contingent and whether the entitlement—
(a)
arises under a company’s constitution; or
(b)
arises under the terms of an option; or
(c)
arises under the terms of a convertible note; or
(d)
arises under the terms of any arrangement substantially similar to any of those described in paragraphs (a) to (c); or
(e)
arises in some other way.
Standard security arrangements
(3)
Despite subsections (1) and (2), a person is not treated as being entitled to acquire something if—
(a)
the entitlement arises under a security arrangement; and
(b)
the person acquired the security arrangement in a transaction entered into on an arm’s length basis; and
(c)
the security arrangement’s terms conform to generally accepted commercial practice.
No double counting
(4)
Despite subsections (1) and (2), for the purpose of determining whether a foreign company is a CFC, each of the percentage holdings described in section EX 5 may be counted only once.
Defined in this Act: arrangement, CFC, company, convertible note, direct control interest, foreign company, security arrangement
Compare: 2004 No 35 s EX 6
EX 7 Indirect control interests
How indirect control interests arise
(1)
A person has an indirect control interest in a foreign company to the extent to which the rules in this section attribute to them some or all of the direct control interests held by a CFC in the foreign company.
Attribution of CFC’s direct interests
(2)
A CFC’s direct control interest in another foreign company is attributed under subsections (3) to (11).
Associates
(3)
For the purposes of this section, the CFC is treated as also holding any direct control interests in the foreign company held by persons associated with the CFC.
Attribution to smallest controlling group
(4)
Subsections (6) to (11) apply to attribute the CFC’s direct control interests to the smallest controlling group, to ensure that the attribution exercise does not dilute recognition of a factual chain of control.
Attribution on basis of respective income interests
(5)
If the CFC’s direct control interests are attributed to more than 1 person, the direct control interests are divided in proportion to each group member’s respective income interest in the CFC.
One controlling group
(6)
If there is only 1 group of New Zealand residents whose control interests have caused the CFC to be a CFC under section EX 1, the CFC’s direct control interests are treated as being held by that group.
More than 1 group
(7)
If there is more than 1 group whose control interests have caused the CFC to be a CFC under section EX 1, the CFC’s direct control interests are attributed to the smallest group.
Equal smallest groups
(8)
If there are 2 or more groups that are equally the smallest, and 1 group has the greatest total control interests in the CFC, the attribution is to that group.
Equal smallest groups with equal greatest control interests
(9)
If there are 2 or more smallest groups with equal greatest total control interests in the CFC, the attribution is made in full to each group.
No double counting
(10)
Despite subsection (9), for the purpose of determining whether a foreign company is a CFC, a direct control interest may be counted only once.
Sequential application
(11)
If a foreign company becomes a CFC under this section, this section is then applied to attribute its direct control interests.
Defined in this Act: associated person, CFC, control interest, direct control interest, foreign company, income interest, New Zealand resident
Compare: 2004 No 35 s EX 7
Section EX 7 list of defined terms control: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Calculation of person’s income interest
EX 8 Income interests: total of direct and indirect interests
Calculation of income interest
(1)
A person’s income interest in a CFC at any time is the total of the following:
(a)
any direct income interest that the person holds in the CFC:
(b)
any indirect income interest that the person holds in the CFC.
Avoidance arrangements
(2)
Any of the following sections may apply to the calculation of a person’s income interest:
(a)
section GB 9 (Temporary disposals of direct control or income interests):
(b)
section GB 10 (Temporary acquisitions of direct control or income interests):
(c)
section GB 11 (Temporary increases in totals for control interest categories):
(d)
section GB 12 (Temporary reductions in totals for control interest categories):
(e)
section GB 13 (When combination of changes reduces income):
(f)
section GB 14 (When combination of changes increases loss).
Defined in this Act: CFC, control interest category, direct control interest, direct income interest, income, income interest, indirect income interest
Compare: 2004 No 35 s EX 8
EX 9 Direct income interests
Categories of direct income interest
(1)
A person has a direct income interest in a CFC at any time if they hold—
(a)
any of the shares in the foreign company:
(b)
any of the shareholder decision-making rights for the company:
(c)
a right to—
(i)
receive any income of the company for the accounting period in which the time falls; or
(ii)
have the income of the company for the accounting period in which the time falls dealt with in their interest or on their behalf:
(d)
a right to—
(i)
receive any of the value of the net assets of the company, if they are distributed; or
(ii)
have the net value of the assets, if they are distributed, dealt with in their interest or on their behalf.
Percentage of total is counted
(2)
The person’s direct income interest is the percentage of the total that the person holds.
Varying percentages
(3)
However, if the percentage varies between the different categories, the person’s direct income interest is the highest.
Measurement of available subscribed capital
(4)
When the direct income interest in the category in subsection (1)(a) is calculated, the percentage is the total of the available subscribed capital per share calculated under the slice rule of the shares held as a percentage of the total available subscribed capital per share calculated under the slice rule of all shares in the company.
Varying decision-making rights
(5)
When the direct income interest in the category in subsection (1)(b) is calculated, if the percentage varies between the rights described in the different paragraphs of the definition of shareholder decision-making rights in section YA 1 (Definitions), the highest percentage is taken.
Income distribution rights: assumptions
(6)
When the direct income interest in the category in subsection (1)(c) is calculated, it is assumed that—
(a)
the income is distributed on the last day of the accounting period; and
(b)
the person’s entitlement is unchanged during the period; and
(c)
a payment of interest on a debenture subject to section FA 2 (Recharacterisation of certain debentures), FA 2B (Stapled debt securities), or FZ 1 (Treatment of interest payable under debentures issued before certain date) is a distribution of income.
Defined in this Act: accounting period, available subscribed capital, CFC, debentures, direct income interest, foreign company, income, interest, pay, share, shareholder decision-making right, slice rule
Compare: 2004 No 35 s EX 9
Section EX 9(1)(c): replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 30 June 2014, by section 85(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 9(1)(d): replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 30 June 2014, by section 85(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 9(6)(c): amended (with effect on 1 April 2008), on 6 October 2009, by section 151 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 10 Indirect income interests
Looking through CFCs
(1)
If a person has a direct income interest in a CFC, and the first CFC has a direct income interest in another CFC, the person has an indirect income interest in the other CFC.
Calculation of indirect income interest
(2)
The indirect income interest is calculated by multiplying the person’s direct income interest in the first CFC by the first CFC’s direct income interest in the other CFC.
Chains of CFCs
(3)
If there are 2 or more CFCs in a chain of direct income interests between the person and a CFC, the person has an indirect income interest in the CFC at the end of the chain that is calculated by multiplying all the direct income interests in the chain.
Defined in this Act: CFC, direct income interest, indirect income interest
Compare: 2004 No 35 s EX 10
EX 11 Options and similar rights in certain cases
Increase in income interest
(1)
The rules in this section apply to increase a person’s income interest in a CFC (the first CFC) in some cases.
Entitlement to acquire
(2)
This section applies when the person, or some other person, such as another CFC taken into account when calculating an indirect income interest of the person in the first CFC, has at any time an entitlement (the option) to acquire 1 of the things listed in section EX 9(1) in relation to the first CFC but does not hold it.
Actual holder outside CFC rules attribution
(3)
For this section to apply, the actual holder of the thing subject to the option must not be—
(a)
another CFC:
(b)
a New Zealand resident, unless they are a New Zealand resident whose income interest in the first CFC for the accounting period in question is less than 10% under sections EX 14 to EX 17.
Terms of option indicating economic ownership
(4)
For this section to apply, the option must have 1 of the following features:
(a)
in the absence of this section, the effect of the option would be to defeat the intent and application of subpart CQ (Attributed income from foreign equity) or DN (Attributed losses from foreign equity) or this subpart, taking into account the economic benefit that the person gets as a result of the CFC deriving income:
(b)
the consideration payable for the exercise of the option is less than the market value of the thing acquired at the time of the acquisition:
(c)
the holder of the option (or an associated person) has directly or indirectly funded or assisted the actual holder to acquire or hold the thing subject to the option.
Calculation as if option exercised
(5)
If each requirement for this section to apply is met, the person’s income interest is calculated as if the option holder had exercised the option.
Defined in this Act: accounting period, associated person, CFC, income, income interest, indirect income interest, New Zealand resident, pay
Compare: 2004 No 35 s EX 11
Section EX 11(3)(b): amended, on 1 April 2008, by section 382 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EX 12 Reduction of total income interests
Application of this section
(1)
This section applies when the total income interests for a CFC for an accounting period would be more than 100%, because section EX 9(3) requires the highest percentage to be taken if varying percentage shareholder rights are held.
Proportional reduction
(2)
Each person’s income interest for the period is reduced to the amount calculated using the formula—
income interest before reduction × 100
÷ total income interests before reduction.
Defined in this Act: accounting period, amount, CFC, income interest, shareholder
Compare: 2004 No 35 s EX 12
EX 13 Income interests of partners
[Repealed]Section EX 13: repealed, on 1 April 2008, by section 14(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
Ten percent threshold and variations in income interest level
EX 14 Attribution: 10% threshold, not PIE
Persons with attributed CFC income or loss
(1)
A person has attributed CFC income or loss from a CFC only if the person—
(a)
has an income interest in the CFC of 10% or more for the relevant accounting period; and
(b)
is not a portfolio investment entity.
Portfolio investment entity
(2)
A portfolio investment entity that would have attributed CFC income or loss from a CFC in the absence of subsection (1)(b) has FIF income or loss from the CFC under the FIF rules.
Defined in this Act: accounting period, attributed CFC income, CFC, FIF income, FIF rules, income interest, loss, PIE, portfolio investment entity
Section EX 14: replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 18(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
EX 15 Associates and 10% threshold
Associates included
(1)
Exception
(2)
Despite subsection (1), the income interest of an associate is not counted if the associate is a CFC.
Defined in this Act: accounting period, associated person, CFC, income interest
Compare: 2004 No 35 s EX 15
Section EX 15(1): substituted, on 1 April 2008, by section 383 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 15(1): amended (with effect on 30 June 2009), on 6 October 2009, by section 152(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 15(1): amended (with effect on 1 April 2008), on 6 October 2009, by section 152(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 16 Income interests for certain purposes
When this section applies
(1)
This section applies for the purposes of determining the attributed CFC income or loss of a person for a period if the person holds an income interest in the CFC on a day in the period.
Zero income interest
(2)
For the purposes of calculating the attributed CFC income or loss of a person for a period, the person has an income interest in a CFC of zero on a day in the period if, on the day, the person is—
(a)
a non-resident:
(b)
a transitional resident.
Attribution not prevented
(3)
This section does not override—
(a)
[Repealed](b)
section CQ 2(3) (When attributed CFC income arises), which treats any attributed CFC income as being derived while the person deriving it is a New Zealand resident; or
(c)
section CQ 5(4) (When FIF income arises), which treats any foreign investment fund (FIF) income as being derived while the person deriving it is a New Zealand resident.
Defined in this Act: accounting period, attributed CFC income, CFC, dividend, FIF income, income interest, New Zealand resident, non-resident, transitional resident
Compare: 2004 No 35 s EX 16
Section EX 16(3)(a): repealed, on 24 February 2016, by section 136(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 16 list of defined terms attributed repatriation: repealed, on 24 February 2016, by section 136(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EX 17 Income interest if variations within period
When this section applies
(1)
This section applies when a person’s income interest in a CFC, calculated under sections EX 8 to EX 16, varies between days in a period.
Weighted average
(2)
The person’s income interest for the period is the total of the amounts for the period, each of which is calculated using the formula in subsection (3) for a day in the period.
Formula
(3)
The formula is—
income interest for day ÷ days in period.
Definition of items in formula
(4)
In the formula,—
(a)
income interest for day is—
(i)
the income interest during the day, if the income interest does not vary during the day:
(ii)
the income interest at the start of the day, if the income interest varies during the day:
(b)
days in period is the number of days in the period.
Defined in this Act: CFC, income interest
Compare: 2004 No 35 s EX 17
Calculation of attributed CFC income or loss
EX 18A Scheme for finding person’s attributed CFC income or loss
Formula and rules for calculation
(1)
The attributed CFC income or loss of a person (an interest holder) holding an income interest in a CFC, for the purposes of the general rules in sections CQ 2(1) and DN 2(1)(which relate to attributed CFC income or loss), is found for the CFC and an accounting period from—
(a)
the formula in section EX 18, which uses the interest holder’s income interest and the CFC’s net attributable CFC income or loss determined as described in subsection (2):
(b)
the interest holder’s additional CFC attributed income under section EX 19:
(c)
the reduction in the interest holder’s attributed CFC loss under section EX 20.
Determination of attributed CFC income or loss from attributable CFC amount
(2)
An interest holder with an income interest of a fraction (the fraction) in a CFC with an attributable CFC amount under section EX 20B for an accounting period has under section EX 18, for the CFC and accounting period,—
(a)
attributed CFC income or loss equal to the fraction of the CFC’s net attributable CFC income or loss under sections EX 20C to EX 20E and the rules in sections EX 21 and EX 24 to EX 27, if paragraph (b) does not apply:
(b)
no attributed CFC income or attributed CFC loss, if the CFC is—
(i)
a non-attributing active CFC under section EX 21B, determined as described in subsection (3), for which the interest holder is not affected by an election under section EX 73:
(ii)
a non-attributing Australian CFC under section EX 22.
Non-attributing active CFCs
(3)
Whether a CFC is a non-attributing active CFC is determined under section EX 21B using—
(a)
a test in—
(i)
section EX 21D, if the interest holder does not use a test referred to in subparagraph (ii); or
(ii)
section EX 21E, if the CFC has accounts prepared to a standard meeting the requirements of section EX 21C and the interest holder chooses to use a test in that section based on those accounts; and
(b)
the rules in sections EX 21 and EX 24 to EX 27.
Defined in this Act: accounting period, attributable CFC amount, attributed CFC income, attributed CFC loss, CFC, non-attributing active CFC, non-attributing Australian CFC
Section EX 18A: inserted (with effect on 30 June 2009), on 6 October 2009, by section 153(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 18A(2)(b)(i): amended (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 40(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
EX 18 Formula for calculating attributed CFC income or loss
If a person has attributed CFC income under section CQ 2 (When attributed CFC income arises) or an attributed CFC loss under section DN 2 (When attributed CFC loss arises), the amount of a person’s attributed CFC income or loss from a CFC for an accounting period is calculated using the formula—
person’s income interest for accounting period
× net attributable CFC income or loss of CFC for accounting period.
Defined in this Act: accounting period, amount, attributed CFC income, attributed CFC loss, CFC, income interest, loss, net attributable CFC income
Compare: 2004 No 35 s EX 18
Section EX 18 formula: amended (with effect on 30 June 2009), on 6 October 2009, by section 154(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 18 list of defined terms branch equivalent income: repealed (with effect on 30 June 2009), on 6 October 2009, by section 154(2)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 18 list of defined terms net attributable CFC income: inserted (with effect on 30 June 2009), on 6 October 2009, by section 154(2)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 19 Taxable distribution from non-complying trust
Application of this section
(1)
This section applies when—
(a)
a CFC derives a taxable distribution from a non-complying trust in an accounting period; and
(b)
a person has attributed CFC income or loss from the CFC for the period, or would have if the taxable distribution were included in the CFC’s net attributable CFC income.
Additional attributed CFC income
(2)
The taxable distribution is excluded under section EX 21(32) when calculating the CFC’s net attributable CFC income or loss, and instead the person has additional attributed CFC income.
Calculation of additional attributed CFC income
(3)
The amount of the additional attributed CFC income is calculated using the formula—
person’s income interest in CFC for accounting period × taxable distribution.
Non-complying trust tax rate
(4)
The person is liable for income tax on the additional attributed CFC income at the rate in schedule 1 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe benefits) that applies to amounts under section HC 19 (Taxable distributions from non-complying trusts).
Disclosure restrictions on grey list CFCs[Repealed]
(5)
[Repealed]Defined in this Act: accounting period, amount, attributed CFC income, CFC, income interest, income tax, loss, net attributable CFC income, non-complying trust, taxable distribution
Compare: 2004 No 35 s EX 19
Section EX 19(1)(b): amended (with effect on 30 June 2009), on 6 October 2009, by section 155(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 19(2): amended (with effect on 30 June 2009), on 6 October 2009, by section 155(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 19(4): amended, on 1 April 2008, by section 384 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 19(5) heading: repealed (with effect on 30 June 2009), on 6 October 2009, pursuant to section 155(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 19(5): repealed (with effect on 30 June 2009), on 6 October 2009, by section 155(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 19 list of defined terms branch equivalent income: repealed (with effect on 30 June 2009), on 6 October 2009, by section 155(4)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 19 list of defined terms net attributable CFC income: inserted (with effect on 30 June 2009), on 6 October 2009, by section 155(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 20 Reduction in attributed CFC loss
Application of this section: no economic loss
(1)
This section applies when—
(a)
a person has an amount of attributed CFC loss; and
(b)
the person suffers no, or substantially no, corresponding economic loss, whether because of a call option, a put option, or any other reason.
Application of this section: attributed CFC loss excessive
(2)
This section also applies if—
(a)
a person has an amount of attributed CFC loss; and
(b)
the amount is more than any corresponding economic loss of the person, whether because of the application of the rules for calculating the person’s income interest or for any other reason.
Reduction to economic loss
(3)
The attributed CFC loss is reduced to be equal to the economic loss, if any.
Defined in this Act: amount, attributed CFC loss, income interest
Compare: 2004 No 35 s EX 20
Attributable CFC amount and net attributable CFC income or loss
Heading: inserted (with effect on 30 June 2009), on 6 October 2009, by section 156(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 20B Attributable CFC amount
Attributable CFC amount
(1)
Attributable CFC amount, for an accounting period and a CFC, means the amount calculated under the rules in section EX 21 using the formula—
gross + arrangement − apportioned funding income.
Definition of items in formula
(2)
The items in the formula in subsection (1) are defined in subsections (3) to (4B).
Gross
(3)
Gross is the total amount of income derived in the accounting period by the CFC that is 1 or more of the following:
(a)
a dividend that is paid in relation to rights that are a direct income interest in a foreign company, meet the requirements of neither section EX 34 nor section EX 35, and are excluded from being an attributing interest by—
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(b)
a dividend that is paid by a company resident in New Zealand to the extent to which the dividend is not fully imputed:
(c)
an amount that is not a distribution from an associated non-attributing active CFC and is—
(i)
a deductible foreign equity distribution (the distribution), to the extent to which the distribution is not from, or funded directly or indirectly from, an attributing interest that is an income interest in a FIF meeting the requirements of section EX 59(1):
(ii)
a distribution for fixed-rate foreign equity:
(d)
a royalty of a type referred to in subsection (5):
(e)
rent of a type referred to in subsection (6):
(f)
income from a business of insurance or from being an insurer:
(g)
income from a life insurance policy of a type referred to in subsection (8):
(h)
income from the supply of personal services of a type referred to in subsection (9):
(i)
income from the disposal of revenue account property that is a share, other than a share referred to in subsection (10):
(j)
income from the disposal of revenue account property that is an option to acquire or dispose of a share:
(k)
income from the disposal of revenue account property that is—
(i)
not a share, financial arrangement, or life insurance policy; and
(ii)
used by the CFC with a purpose or effect of giving rise to income of the CFC referred to in another paragraph of this subsection:
(l)
income from a service, other than a telecommunications service, to the extent to which the service is physically performed in New Zealand:
(m)
income from a service relating to the use of equipment to provide a telecommunications service, to the extent to which the equipment is at the time—
(i)
physically located outside any country or territory; and
(ii)
owned by the CFC or by a FIF that is associated with the CFC; and
(iii)
not a mobile telephone handset or a radio receiver and transmitter for a ship or aircraft:
(n)
income from a telecommunications service to the extent to which the service is physically performed in New Zealand and is not described in subsection (11):
(o)
attributed PIE income that, for a CFC, is not excluded income under section CX 56 (Attributed income of certain investors in multi-rate PIEs):
(p)
a dividend that is excluded by section CD 36(2) (Foreign investment fund income) from the effect of section CD 36(1).
Arrangement
(4)
Arrangement is the total for the CFC and the accounting period of amounts of income under section CC 3 (Financial arrangements) for—
(a)
an arrangement that—
(i)
is a financial arrangement, or a short-term agreement for sale and purchase for which the CFC has made an election under section EW 8 (Election to treat certain excepted financial arrangements as financial arrangements); and
(ii)
is not a derivative instrument; and
(iii)
is not referred to in subsection (12):
(b)
a derivative instrument—
(i)
that is held in the course of a business of the CFC for the purpose of dealing with the derivative instrument:
(ii)
that is not entered in the ordinary course of a business of the CFC:
(iii)
to the extent to which the income is from a hedging relationship, of a type referred to in IFRS 9, with income of the CFC referred to in subsection (3) or paragraph (a) or with a transaction producing such income of the CFC.
Apportioned funding income
(4B)
Apportioned funding income is,—
(a)
if the CFC is an entity carrying on a business of banking or insurance or is directly or indirectly controlled by such an entity, zero:
(b)
if paragraph (a) does not apply, the amount calculated using the formula—
funding income × funding fraction × (1 − asset fraction).
Definition of items in formula
(4C)
The items in the formula in subsection (4B)(b) are defined in subsections (4D) to (4F).
Funding income
(4D)
Funding income is the total of the amounts in the accounting period that are included in the items gross and arrangement and relate to a financial arrangement—
(a)
that provides funds for the CFC; and
(b)
for which there is no reasonable expectation, when the CFC enters the financial arrangement or when the terms of the financial arrangement are changed, that the CFC will have from the financial arrangement amounts that would be income for the CFC exceeding in total the amounts that would be deductions for the CFC, during—
(i)
the period in which the CFC is party to the financial arrangement:
(ii)
a period predictable in advance during which the CFC is a party to the financial arrangement.
Funding fraction
(4E)
Funding fraction is the amount given by section EX 20C(6) for the CFC.
Asset fraction
(4F)
Asset fraction is the amount given by section EX 20C(8) for the CFC.
Attributable CFC amount: royalties
(5)
A royalty derived by a CFC is included in an attributable CFC amount under subsection (3)(d) if none of the following are satisfied:
(a)
the CFC is regularly engaged in creating, developing, or adding value to property that produces royalties and the royalty is—
(i)
paid by a person who is not associated with the CFC under section YB 2 (Two companies); and
(ii)
from property that is not linked to New Zealand under subsection (13); and
(iii)
from property that the CFC has created or developed or to which the CFC has added substantial value:
(b)
the CFC is regularly engaged in creating, developing, or adding value to property that produces royalties and the royalty is—
(i)
paid by a person who is associated with the CFC under section YB 2; and
(ii)
from property that is not linked to New Zealand under subsection (13); and
(iii)
from property that the CFC has created or developed, or to which the CFC has added substantial value; and
(iv)
an arm’s length amount determined under section GC 13 (Calculation of arm’s length amounts) for the arrangement between the CFC and the associated person:
(c)
the royalty is—
(i)
paid by a person who would be an associated non-attributing active CFC in the absence of this paragraph and subsections (7)(c) and (12)(a); and
(ii)
from property that is not linked to New Zealand under subsection (13):
(d)
the royalty is—
(i)
paid to the CFC by a person not associated with the CFC under section YB 2, or by a CFC associated with the CFC under section YB 2 that has received a royalty payment from such a person or a royalty payment arising from such a royalty payment; and
(ii)
from property owned by a New Zealand resident who is resident in no other country under all applicable double tax agreements; and
(iii)
from property licensed to the CFC, or to a CFC associated with the CFC under section YB 2, (the licensee) by the New Zealand resident for an arm’s length amount determined under section GC 13 for the arrangement between the licensee and the New Zealand resident.
Attributable CFC amount: rent
(6)
Rent derived by a CFC is included in an attributable CFC amount under subsection (3)(e) if the rent is not of a type referred to in subsection (7) and is from—
(a)
a lease or sublease of land:
(b)
a lease or sublease of personal property:
(c)
a licence to use intangible property:
(d)
a hire or bailment.
Attributable CFC amount: exclusions from rent
(7)
Rent derived by a CFC from a source referred to in subsection (6) is not included in an attributable CFC amount under subsection (3)(e) if the rent is—
(a)
from land in a country or territory with which the CFC has a taxed CFC connection:
(b)
from property other than land, to the extent to which the rent relates to the use of the property in a country or territory referred to in paragraph (a):
(c)
paid by a person who would be an associated non-attributing active CFC in the absence of this paragraph and subsections (5)(c) and (12)(a):
(d)
a payment under a hire purchase agreement:
(e)
a payment under a finance lease:
(f)
a royalty:
(g)
a payment under a licence to use intangible property that—
(i)
is not a royalty; and
(ii)
would not be included in an attributable CFC amount under subsection (5) if treated as a royalty for the purposes of that subsection.
Attributable CFC amount: income from life insurance contract
(8)
Income from a life insurance policy is included in an attributable CFC amount under subsection (3)(g) if the income is not included in a calculation of FIF income or loss and is—
(a)
a distribution, if the life insurance policy is not intended to compensate the CFC for financial losses arising from the death or extended incapacity of a specified employee or member involved in the CFC’s business:
(b)
a distribution that is not intended to compensate the CFC for financial losses arising from the death or extended incapacity of a specified employee or member involved in the CFC’s business, if the life insurance policy is intended to compensate the CFC for such losses:
(c)
income from a disposal of the life insurance policy, if the policy is revenue account property.
Attributable CFC amount: income from personal services
(9)
Income derived by a CFC from the supply of personal services is included in an attributable CFC amount under subsection (3)(h) if the personal services are performed by another person (the working person) and—
(a)
the working person is a New Zealand resident; and
(b)
the personal services are not essential support for a product supplied by the CFC; and
(c)
the working person is associated with the CFC under section YB 3 (Company and person other than company) at the time the services are performed or is a relative, at the beginning of the accounting period, of a person associated with the CFC under section YB 3; and
(d)
80% or more of the CFC’s total income in the accounting period from supplying personal services is derived through personal services meeting the requirements of paragraph (a) performed by working persons meeting the requirements of paragraph (b); and
(e)
to derive the income, the CFC uses a business structure that requires depreciable property having, at the end of the accounting period, a total cost under section GB 28(7) (Interpretation of terms used in section GB 27) less than or equal to the greater of $75,000 and 25% of the CFC’s total income from personal services performed in the accounting period; and
(f)
a person who holds an attributing interest in the CFC files, after the date on which the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 receives the Royal assent, a return of income in which the amount attributed to the working person is determined under this section.
Exclusions from attributable CFC amount: shares
(10)
Income derived by a CFC from the disposal of a share that is revenue account property is not included in an attributable CFC amount under subsection (3)(i) if the CFC’s FIF income or loss from the share in the period ending with the disposal is calculated using—
(a)
the comparative value method:
(b)
the deemed rate of return method:
(c)
the fair dividend rate method:
(d)
the cost method.
Exclusions from attributable CFC amount: telecommunications services in New Zealand
(11)
Income of a CFC from a telecommunications service physically performed in New Zealand is not included in an attributable CFC amount under subsection (3)(n) if—
(a)
the service is the transmission, emission, or reception of information between New Zealand and a country or territory with which the CFC has a taxed CFC connection; and
(b)
the CFC is a network operator under the Telecommunications (Interception Capability and Security) Act 2013 (a network operator), or—
(i)
a group of persons has, for the whole of the CFC’s accounting period, voting interests and, if a market value circumstance exists, market value interests, of more than 50% in the CFC; and
(ii)
the group of persons also has, for the whole of the CFC’s accounting period, voting interests and, if a market value circumstance exists, market value interests, of more than 50% in a network operator; and
(c)
the service is performed by a person, other than the CFC, who—
(i)
is resident in New Zealand, and is resident in no other country under all applicable double tax agreements:
(ii)
has a fixed establishment in New Zealand that is a permanent establishment under all applicable double tax agreements; and
(d)
the service is performed by the person as part of a business in New Zealand of providing telecommunication services in New Zealand—
(i)
carried on through the person’s fixed establishment, if the person is not resident in New Zealand; and
(ii)
from which the person derives assessable income of more than $5,000,000 per annum.
Exclusions from attributable CFC amount: income from financial arrangements other than derivative instruments
(12)
Income of a CFC from a financial arrangement or excepted financial arrangement that is referred to in subsection (4)(a)(i) is not included in an attributable CFC amount under subsection (4)(a) if the financial arrangement or agreement is—
(a)
an agreement by the CFC to lend money to a person who would be an associated non-attributing active CFC in the absence of this paragraph and subsections (5)(c) and (7)(c):
(b)
an agreement for the sale or purchase of property or services or a hire purchase agreement—
(i)
entered in the ordinary course of business by the CFC:
(ii)
for property or services produced or used by the CFC in business.
Royalties: property linked to New Zealand
(13)
Property giving rise to a royalty is linked to New Zealand at a time in an accounting period for the purposes of subsection (5) if the property meets the requirements of subsection (14) at a time in the period—
(a)
beginning—
(i)
at the time the property was created, if the property has not since met the requirements of subsection (15); or
(ii)
from the time the property most recently met the requirements of subsection (15); and
(b)
ending at the time in the accounting period.
Situations creating link with New Zealand
(14)
Property owned by a CFC has a link with New Zealand if the property—
(a)
has been owned by a New Zealand resident:
(b)
has been owned by a non-resident for the purposes of a business carried on in New Zealand through a fixed establishment in New Zealand:
(c)
was created or developed in New Zealand:
(d)
has had substantial value added in New Zealand:
(e)
has been acquired by a person who had a deduction for expenditure or loss incurred in the acquisition:
(f)
is based on knowledge acquired by a person who—
(i)
acquired the knowledge with a purpose or intention of creating the property; and
(ii)
had a deduction for expenditure or loss incurred in the acquisition:
(g)
is created or developed from activities, or from the extension, continuation, development, or completion of activities, if the activities produced knowledge acquired by a person who had a deduction for expenditure or loss incurred in the acquisition.
Situations breaking link with New Zealand
(15)
There is no link between property and New Zealand for a CFC when the property is owned by a non-resident who—
(a)
is not a CFC and is not associated with the CFC; and
(b)
is not associated with a person who has owned the property while it had a link with New Zealand.
Defined in this Act: accounting period, agreement for the sale or purchase of property or services, associated, associated non-attributing active CFC, attributable CFC amount, attributable FIF income method, attributed PIE income, business, CFC, comparative value method, deductible foreign equity distribution, deduction, deemed rate of return method, depreciable property, derivative instrument, dividend, excluded income, exempt income, fair dividend rate method, finance lease, financial arrangement, fixed-rate foreign equity, fully imputed, general insurance, group of persons, hire purchase agreement, IFRS 9, income, insurance contract, interest, land, life insurance, life insurance policy, loan, loss, market value circumstance, market value interest, money lent, New Zealand, New Zealand resident, non-attributing active CFC, non-resident, reinsurance contract, relative, resident in New Zealand, revenue account property, royalty, share, short-term agreement for sale and purchase, taxed CFC connection, telecommunications service, voting interest
Section EX 20B: inserted (with effect on 30 June 2009), on 6 October 2009, by section 156(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 20B(1) formula: replaced (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 86(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 20B(2): amended (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 86(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 20B(3)(a): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 19(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 20B(3)(c): replaced, on 1 April 2023, by section 58(1) (and see section 58(2) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EX 20B(3)(f): replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 41(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20B(3)(m)(ii): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 19(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 20B(3)(n): amended, on 29 August 2011, by section 36(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EX 20B(3)(o): added, on 29 August 2011, by section 36(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EX 20B(3)(p): inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 19(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 20B(4) heading: substituted (with effect on 30 June 2009), on 7 December 2009, by section 23(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EX 20B(4)(b)(iii): amended, on 26 June 2019, by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EX 20B(4)(b)(iii): amended (with effect on 30 June 2009), on 7 December 2009, by section 23(2) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EX 20B(4B) heading: inserted (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 86(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 20B(4B): inserted (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 86(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 20B(4C) heading: inserted (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 86(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 20B(4C): inserted (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 86(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 20B(4D) heading: inserted (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 86(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 20B(4D): inserted (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 86(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 20B(4E) heading: inserted (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 86(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 20B(4E): inserted (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 86(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 20B(4F) heading: inserted (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 86(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 20B(4F): inserted (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 86(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 20B(5)(a)(i): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 157(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 20B(5)(d)(i): replaced (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 19(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 20B(5)(d)(ii): replaced (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 19(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 20B(5)(d)(iii): replaced (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 19(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 20B(7)(a): replaced (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 19(5) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 20B(9)(c): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 157(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 20B(9)(e): amended, on 24 February 2016, by section 137(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 20B(9)(f): inserted, on 24 February 2016, by section 137(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 20B(11)(a): replaced (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 19(6) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 20B(11)(b): substituted (with effect on 30 June 2009), on 7 December 2009, by section 23(3) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EX 20B(11)(b): amended, on 11 May 2014, by section 123 of the Telecommunications (Interception Capability and Security) Act 2013 (2013 No 91).
Section EX 20B(11)(b)(i): amended (with effect on 30 June 2009), on 7 September 2010 (applying for the income years beginning on or after 1 July 2009), by section 43(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EX 20B(11)(c): replaced (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 19(7) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 20B(11)(d): replaced (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 19(7) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 20B list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 19(8) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 20B list of defined terms attributed PIE income: inserted, on 29 August 2011, by section 36(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EX 20B list of defined terms excluded income: inserted, on 29 August 2011, by section 36(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EX 20B list of defined terms group of persons: inserted (with effect on 30 June 2009), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EX 20B list of defined terms IFRS 9: inserted, on 26 June 2019, by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EX 20B list of defined terms market value circumstance: inserted (with effect on 30 June 2009), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EX 20B list of defined terms market value interest: inserted (with effect on 30 June 2009), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EX 20B list of defined terms taxed CFC connection: inserted (with effect on 1 July 2009), on 7 May 2012, by section 19(9) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 20B list of defined terms voting interest: added (with effect on 30 June 2009), on 7 December 2009, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
EX 20C Net attributable CFC income or loss
CFC’s net attributable CFC income or loss
(1)
For the purpose of calculating the attributed CFC income or loss for an accounting period of a person (the interest holder) with an income interest in a CFC,—
(a)
the CFC’s net attributable CFC income for the accounting period is the greater of zero and the amount calculated using the formula in subsection (2):
(b)
the CFC’s net attributable CFC loss for the accounting period is—
(i)
the absolute value of the amount calculated using the formula in subsection (2), if that amount is less than zero:
(ii)
zero, if subparagraph (i) does not apply.
Formula for net attributable CFC income or loss
(2)
The amount of a CFC’s net attributable CFC income or loss for an accounting period is calculated using the rules in section EX 21 and the formula—
attributable CFC − apportioned funding costs − other deductions.
Definition of items in formula
(3)
In the formula in subsection (2),—
(a)
attributable CFC is the CFC’s attributable CFC amount for the accounting period:
(b)
[Repealed](c)
apportioned funding costs is the amount calculated using the formula—
funding costs × funding fraction × cost fraction:
(d)
other deductions is the amount of expenditure and loss incurred in the accounting period by the CFC to the extent to which the expenditure and loss meets the requirements of subsection (13).
Definition of items in formula
(4)
The items in the formula in subsection (3)(c) are defined in subsections (6), (10), and (11).
Funding income[Repealed]
(5)
[Repealed]Funding fraction
(6)
Funding fraction is equal to,—
(a)
if the item funding in subsection (7)(a) is zero, 1; or
(b)
if the item is being used to calculate the item apportioned funding costs and the interest holder chooses to rely on this paragraph, 1; or
(c)
if neither of paragraphs (a) and (b) apply, the amount calculated using the formula—
(funding − group funding) ÷ funding.
Definition of items in formula
(7)
In the formula in subsection (6),—
(a)
funding is the total of amounts, each of which is the outstanding balance for—
(i)
a financial arrangement to which the CFC is a party and which provides funds for the CFC:
(ii)
a fixed rate foreign equity, or share giving a right to a deductible foreign equity distribution, issued by the CFC and held by a company that is a New Zealand resident, a CFC, or a FIF for which the interest holder uses the attributable FIF income method:
(b)
group funding is the lesser of the item funding and the total of amounts, each of which is the outstanding balance for a financial arrangement, a fixed-rate foreign equity, or a share giving a right to a deductible foreign equity distribution,—
(i)
under which the CFC provides funds to another CFC associated with the CFC under section YB 2 (Two companies) or to a FIF for which the interest holder uses the attributable FIF income method and that is associated with the CFC under section YB 2; and
(ii)
that produces for the CFC an amount that is included in the item arrangement under section EX 20B(4) or is a deductible foreign equity distribution or a distribution for fixed-rate foreign equity.
Asset fraction
(8)
Asset fraction is the amount calculated using the formula—
(attributable CFC’s assets − group funding)
÷ (total CFC’s assets − group funding).
Definition of items in formula
(9)
In the formula in subsection (8),—
(a)
attributable CFC’s assets is the total of amounts for the CFC’s assets, each of which is the value of an asset to the extent to which the asset is used for the purpose of deriving an attributable CFC amount and not used for the purpose of deriving an amount that is not an attributable CFC amount:
(b)
group funding is—
(i)
zero, if subparagraph (ii) does not apply; or
(ii)
the amount of the item group funding referred to in subsection (7)(b), if subsection (6)(c) applies for the interest holder and the CFC:
(c)
total CFC’s assets is the total value of the CFC’s assets.
Funding costs
(10)
Funding costs is the total of amounts in the accounting period, each of which—
(a)
would be a deduction of the CFC relating to a financial arrangement to which the CFC is a party and which provides funds for the CFC:
(b)
is a distribution relating to fixed-rate foreign equity or a deductible foreign equity distribution of the CFC, other than a deductible foreign equity distribution (the distribution) to the extent to which the distribution is funded directly or indirectly from an attributing interest that is an income interest in a FIF meeting the requirements of section EX 59(1), and is paid by the CFC to a company resident in New Zealand, to another CFC, or to a FIF for which the interest holder uses the attributable FIF income method.
Cost fraction
(11)
Cost fraction is,—
(a)
if the CFC is not excessively debt funded under section EX 20D, the amount of the item asset fraction referred to in subsection (8); or
(b)
if the CFC is excessively debt funded under section EX 20D, the lesser of—
(i)
the amount of the item asset fraction referred to in subsection (8):
(ii)
the amount calculated under section EX 20D.
Determining debts and assets of CFC
(12)
For the items referred to in subsection (9), the debts and assets of the CFC are determined under sections FE 8 to FE 11 (which contain rules for determining the apportionment of interest) as if the CFC were—
(a)
an excess debt outbound company; and
(b)
the only member of the CFC’s New Zealand group.
Requirements for item other deductions
(13)
Amounts of expenditure or loss contribute to the item other deductions to the extent to which—
(a)
the amounts do not relate to a financial arrangement or share and—
(i)
are incurred for the purpose of deriving an attributable CFC amount; and
(ii)
are not incurred for the purpose of deriving an amount that is not an attributable CFC amount; and
(iii)
correspond to amounts that would be deductions of the CFC after the adjustments that would be made under sections CH 2 and DB 50 (which relate to adjustments for prepayments) if the CFC were a resident:
(b)
the amounts relate to financial arrangements or shares referred to in the definition of the item funding in subsection (7)(a) and exceed in total the amount given by multiplying the items funding costs and funding fraction, used in calculating the item apportioned funding costs under subsection (3)(c):
(c)
the amounts—
(i)
do not relate to financial arrangements that provide funds for the CFC; and
(ii)
relate to financial arrangements referred to in section EX 20B(4).
Defined in this Act: accounting period, attributable CFC amount, CFC, deductible foreign equity distribution, deduction, financial arrangement, fixed-rate foreign equity, generally accepted accounting practice, income interest, interest, loss, net attributable CFC income, net attributable CFC loss, share
Section EX 20C: inserted (with effect on 30 June 2009), on 6 October 2009, by section 156(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 20C(2) formula: replaced (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 87(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 20C(3) heading: replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(3): replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(3)(b): repealed (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 87(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 20C(4) heading: replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(4): replaced (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 87(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 20C(5) heading: repealed (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, pursuant to section 87(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 20C(5): repealed (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 87(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 20C(6) heading: replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(6): replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(7) heading: replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(7): replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(7)(a)(ii): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 2 November 2012, by section 42(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(7)(b): replaced (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 87(5) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 20C(8) heading: replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(8): replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(9) heading: replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(9): replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(9B) heading: repealed (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(9B): repealed (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(10) heading: replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(10): replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(10)(b): amended, on 1 April 2023, by section 59(1) (and see section 59(2) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EX 20C(10)(b): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 2 November 2012, by section 42(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(11) heading: replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(11): replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(12): amended (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(6) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(13) heading: inserted (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(7) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(13): inserted (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 42(7) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20C(13)(a)(iii): replaced, on 1 April 2016 (applying for the 2016–17 and later income years), by section 138(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EX 20D Adjustment of cost fraction for excessively debt funded CFC
When this section applies
(1)
This section applies for the purposes of the item (the CFC’s cost fraction) in section EX 20C(11) to a CFC that is excessively debt funded under subsection (2) in relation to a person (the interest holder) with an income interest in the CFC.
Excessive debt funding
(2)
A CFC is excessively debt funded under this section if—
(a)
the amount (the CFC’s debt-asset ratio) calculated using the formula in subsection (4) is more than 0.75; and
(b)
the amount (the CFC’s relative debt-asset ratio) given by section EX 20E is more than 1.10.
Calculations for CFC
(3)
For the purposes of subsections (4) to (8), the debts and assets of the CFC are determined under sections FE 8 to FE 11 (which contain rules for determining the apportionment of interest) as if the CFC were—
(a)
an excess debt outbound company; and
(b)
the only member of the CFC’s New Zealand group.
Formula for debt-asset ratio of CFC
(4)
The formula for the CFC’s debt-asset ratio referred to in subsection (2)(a) is—
(total CFC’s debts − group funding) ÷ (total CFC’s assets − total CFC’s non-debt liabilities − group funding).
Definition of items in formula
(5)
The items in the formula in subsection (4) are defined in subsections (6) to (8B).
Total CFC’s debts
(6)
Total CFC’s debts is the total amount for the CFC and the accounting period, determined under generally accepted accounting practice, of the outstanding balances of—
(a)
financial arrangements entered by the CFC, each of which—
(i)
provides funds to the CFC; and
(ii)
gives rise to an amount for which the CFC would have a deduction:
(b)
fixed-rate foreign equity that is issued by the CFC and held by a company that is a New Zealand resident, a CFC, or a FIF for which the interest holder uses the attributable FIF income method:
(c)
shares issued by the CFC in relation to which the CFC makes deductible foreign equity distributions to a company that is a New Zealand resident, a CFC, or a FIF for which the interest holder uses the attributable FIF income method.
Group funding
(7)
Group funding is—
(a)
if paragraph (b) does not apply, zero; or
(b)
if the interest holder chooses to rely on this paragraph and the item total CFC’s assets is greater than the item total CFC’s debts, the lesser of the item total CFC’s debts and the total of amounts, each of which is the outstanding balance for a financial arrangement, a fixed-rate foreign equity, or a share giving a right to a deductible foreign equity distribution,—
(i)
under which the CFC provides funds to another CFC associated with the CFC under section YB 2 (Two companies) or to a FIF for which the interest holder uses the attributable FIF income method and that is associated with the CFC under section YB 2; and
(ii)
that produces for the CFC an amount that is included in the item arrangement under section EX 20B(4) or is a deductible foreign equity distribution or a distribution for fixed-rate foreign equity.
Total CFC’s assets
(8)
Total CFC’s assets is the total value of the CFC’s assets determined under generally accepted accounting practice.
Total CFC’s non-debt liabilities
(8B)
Total CFC’s non-debt liabilities is the total value of the CFC’s non-debt liabilities determined under generally accepted accounting practice.
Cost fraction for excessively debt funded CFC
(9)
For a CFC that is excessively debt funded, the item cost fraction for the purposes of this section is the amount calculated using the formula in subsection (10) and determining the debts and assets of a CFC under sections FE 8 to FE 11 as if the CFC were—
(a)
an excess debt outbound company; and
(b)
the only member of the CFC’s New Zealand group.
Formula for cost fraction
(10)
The formula for the CFC’s cost fraction is—
attributable foreign company assets ÷ total foreign company assets.
Definition of items in formula
(11)
The items in the formula in subsection (10) are defined in subsections (12) and (13).
Attributable foreign company assets
(12)
Attributable foreign company assets is the total value of assets, consolidated under generally accepted accounting practice for the accounting period, of all the interest holder’s CFCs and of all the FIFs for which the interest holder uses the attributable FIF income method, to the extent to which each asset is—
(a)
used for the purpose of deriving an attributable CFC amount or an amount that is included in net attributable FIF income or loss; and
(b)
not used for the purpose of deriving an amount other than an amount referred to in paragraph (a).
Total foreign company assets
(13)
Total foreign company assets is the total value of assets, consolidated under generally accepted accounting practice for the accounting period, of all the interest holder’s CFCs and of all the FIFs for which the interest holder uses the attributable FIF income method.
Defined in this Act: accounting period, attributable FIF income method, CFC, deductible foreign equity distribution, deduction, excess debt outbound company, financial arrangement, fixed-rate foreign equity, generally accepted accounting practice, loss, net attributable FIF income, New Zealand resident
Section EX 20D: inserted (with effect on 30 June 2009), on 6 October 2009, by section 156(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 20D heading: amended (with effect on 30 June 2009), on 2 November 2012, by section 43(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20D(1): amended (with effect on 30 June 2009), on 2 November 2012, by section 43(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20D(4) formula: amended, on 1 July 2018, by section 12(1) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section EX 20D(5): amended, on 1 July 2018, by section 12(2) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section EX 20D(6)(b): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 21(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 20D(6)(c): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 21(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 20D(7)(b): replaced (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 88(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 20D(8B) heading: inserted, on 1 July 2018, by section 12(3) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section EX 20D(8B): inserted, on 1 July 2018, by section 12(3) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section EX 20D(9) heading: amended (with effect on 30 June 2009), on 2 November 2012, by section 43(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20D(9): amended (with effect on 30 June 2009), on 2 November 2012, by section 43(4) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20D(10) heading: amended (with effect on 30 June 2009), on 2 November 2012, by section 43(5) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20D(10): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 2 November 2012, by section 43(7) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20D(10): amended (with effect on 30 June 2009), on 2 November 2012, by section 43(6) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 20D(12) heading: replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 21(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 20D(12): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 21(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 20D(13) heading: replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 21(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 20D(13): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 21(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 20D list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 21(5) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 20D list of defined terms generally accepted accounting practice: inserted, on 1 July 2018, by section 12(4) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section EX 20D list of defined terms loss: inserted (with effect on 1 July 2011), on 7 May 2012, by section 21(5) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 20D list of defined terms net attributable FIF income: inserted (with effect on 1 July 2011), on 7 May 2012, by section 21(5) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
EX 20E Relative debt-asset ratio for CFC
What this section does
(1)
This section determines the relative debt-asset ratio of a CFC for the purposes of section EX 20D(2)(b) by determining an amount (the group debt-asset ratio) for the CFC’s group and comparing that amount with the debt-asset ratio of the CFC determined under section EX 20D(4).
Members of CFC’s group and calculations for group
(2)
For the purposes of subsections (3) to (8),—
(a)
the members of a CFC’s group are—
(i)
the CFC:
(ii)
if the interest holder is a company, the members of the worldwide group that the interest holder would have under sections FE 31B, FE 31C, and FE 32 (which relate to the determination of groups) if the interest holder were an excess debt outbound company:
(iii)
if the interest holder is a trustee, the members of the trustee’s worldwide group under section FE 3(1)(b) (Interest apportionment for individuals):
(iv)
if the interest holder is a natural person, the person’s worldwide group referred to in section FE 5(1C)(a) to (c) (Thresholds for application of interest apportionment rules):
(b)
the debts and assets of the CFC’s group are determined under sections FE 8 to FE 11 and FE 18 (Measurement of debts and assets of worldwide group) as if the interest holder, if a company, were an excess debt outbound company.
Formula for CFC’s group debt-asset ratio
(3)
The formula for the CFC’s group debt-asset ratio is—
total group debts ÷ (total group assets − total group non-debt liabilities).
Definition of items in formula
(4)
The items in the formula in subsection (3) are defined in subsections (5), (6), and (6B).
Total group debts
(5)
Total group debts is the total amount, consolidated under generally accepted accounting practice for the CFC’s group and the accounting period, of the outstanding balances of—
(a)
financial arrangements entered by the group’s members, each of which—
(i)
provides funds to a group member; and
(ii)
gives rise to an amount for which a group member would have a deduction:
(b)
fixed-rate foreign equity issued by a member of the group and held by a company that is a New Zealand resident, a CFC, or a FIF for which the interest holder uses the attributable FIF income method:
(c)
equity interests issued by a member of the group in relation to which the member makes deductible foreign equity distributions to a company that is a New Zealand resident, a CFC, or a FIF for which the interest holder uses the attributable FIF income method.
Total group assets
(6)
Total group assets is the total value, consolidated under generally accepted accounting practice for the accounting period, of the assets of the CFC’s group.
Total group non-debt liabilities
(6B)
Total group non-debt liabilities is the total value of the group’s non-debt liabilities determined under generally accepted accounting practice.
Formula for CFC’s relative debt-asset ratio
(7)
The formula for the CFC’s relative debt-asset ratio is—
CFC’s debt-asset ratio ÷ group debt-asset ratio.
Definition of items in formula
(8)
In the formula in subsection (7),—
(a)
CFC’s debt-asset ratio is the CFC’s debt-asset ratio under section EX 20D(4):
(b)
group debt-asset ratio is the CFC’s group debt-asset ratio under subsection (3).
Defined in this Act: accounting period, attributable FIF income method, CFC, deductible foreign equity distribution, deduction, excess debt outbound company, financial arrangement, fixed-rate foreign equity, generally accepted accounting practice, New Zealand resident
Section EX 20E: inserted (with effect on 30 June 2009), on 6 October 2009, by section 156(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 20E(3) formula: amended, on 1 July 2018, by section 13(1) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section EX 20E(4): amended, on 1 July 2018, by section 13(2) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section EX 20E(5)(b): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 22(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 20E(5)(c): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 22(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 20E(6B) heading: inserted, on 1 July 2018, by section 13(3) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section EX 20E(6B): inserted, on 1 July 2018, by section 13(3) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section EX 20E list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 22(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 20E list of defined terms generally accepted accounting practice: inserted, on 1 July 2018, by section 13(4) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Calculation of branch equivalent income or loss[Repealed]
Heading: repealed (with effect on 30 June 2009), on 6 October 2009, by section 160 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 21 Attributable CFC amount and net attributable CFC income or loss: calculation rules
Calculation rules for CFC
(1)
The rules in this section apply for the purposes of—
(a)
calculating the attributable CFC amount for a CFC under section EX 20B:
(b)
calculating the net attributable CFC income or loss for a CFC under section EX 20C:
(c)
determining under section EX 21D whether a CFC is a non-attributing active CFC.
Calculation rules for test group of CFCs
(1B)
For the purpose of determining under section EX 21D whether a member of a group of CFCs is a non-attributing active CFC,—
(a)
the consolidated annual gross income of the group is calculated under the rules in this section; and
(b)
the consolidated attributable CFC amount of the group is calculated under the rules in this section.
CFC treated as New Zealand resident
(2)
The rules in this Act are applied as if the CFC were always a New Zealand resident.
Modifications to rules
(3)
However, the rules in the Act are modified for the purposes of the calculation by the following subsections.
Conversion to New Zealand dollars
(4)
The taxpayer must choose—
(a)
for all the calculations to be done in New Zealand dollars; or
(b)
for all the calculations to be done in the currency of the CFC’s financial accounts; and if the CFC has no financial accounts, the currency used is that of the CFC’s country of residence, the result being then converted into New Zealand dollars at the average of the close of trading spot exchange rates for the 15th day of each complete month that falls in the period.
Consent for change of currency
(5)
Having chosen a currency, the taxpayer must use the same currency for calculating attributable CFC amount and net attributable CFC income or loss attributable to the CFC for each later consecutive accounting period, unless the Commissioner allows the taxpayer to choose again.
Change for commercial purpose
(6)
The Commissioner may consent to a change under subsection (5) only if satisfied that—
(a)
the taxpayer’s main purpose in changing is a commercial one, and for this purpose, the reducing of tax is not a commercial purpose; and
(b)
the change does not have an effect of defeating the intent and application of subpart CQ (Attributed income from foreign equity) or DN (Attributed losses from foreign equity) or this subpart.
New Zealand currency for financial arrangements
(7)
Despite subsections (4) to (6), New Zealand currency calculations must be used to calculate that part of the attributable CFC amount and net attributable CFC income or loss arising from financial arrangements if—
(a)
the total value of financial arrangements to which the CFC is a party is more than $1,000,000 at any time during the relevant accounting period, applying section EW 17(2)(b) (Straight-line method) to measure the values; or
(b)
the CFC’s total net foreign exchange loss attributable to financial arrangements, calculated under subsections (4) to (6) for the accounting period, is more than $100,000.
Limit to subsection (7)
(8)
Subsection (7) does not apply to a financial arrangement if—
(a)
it is a variable principal debt instrument; and
(b)
all the rights and obligations of all the parties to the financial arrangement are expressed in the currency chosen under subsection (4)(b); and
(c)
no other party to the financial arrangement is associated with the CFC; and
(d)
no person enters into the financial arrangement under an arrangement that has a purpose of defeating the application of subsection (7).
Opening cost base: tangible assets: first period
(9)
If the taxpayer had no attributed CFC income or loss from the CFC for the previous accounting period, the taxpayer must choose whether to measure the cost base at the start of an accounting period of premises, plant, machinery, equipment, and trading stock of the CFC at—
(a)
historical cost minus any accumulated amounts of depreciation loss, or another value used by the CFC as the starting value for the period for income tax calculations in the country in which the CFC is resident, but only if the value is below market value; or
(b)
the starting value that would be used under this Act if the CFC had always been a New Zealand resident.
Opening cost base: tangible assets: later periods
(10)
If the taxpayer had attributed CFC income or loss from the CFC for the previous period, the cost base at the start of an accounting period of premises, plant, machinery, equipment, and trading stock of the CFC is the closing value at the end of the previous period used to calculate the income or loss.
Opening cost base: financial arrangements: first period
(11)
If the taxpayer had no attributed CFC income or loss from the CFC for the previous accounting period, the taxpayer must choose to calculate the consideration under the financial arrangements rules for a financial arrangement at the start of an accounting period, at—
(a)
the market value of the financial arrangement; or
(b)
the absolute value calculated using the formula—
consideration paid to the CFC + expenditure
− consideration paid by the CFC − income.
Definition of items in formula
(12)
In the formula,—
(a)
consideration paid to the CFC is the consideration paid to the CFC for all periods before the accounting period:
(b)
expenditure is expenditure that would have been incurred under the financial arrangements rules for all periods before the accounting period if the CFC had been resident in New Zealand:
(c)
consideration paid by the CFC is the consideration paid by the CFC for all periods before the accounting period:
(d)
income is income that would have been derived under the financial arrangements rules for all periods before the accounting period if the CFC had been resident in New Zealand.
Provisions that do not apply
(13)
The following provisions do not apply:
(a)
the consolidation rules:
(b)
section CB 27 (Income equalisation schemes) and subparts DQ (Income equalisation schemes and environmental restoration accounts schemes) and EH (Income equalisation schemes):
(c)
subpart CQ (Attributed income from foreign equity) or DN (Attributed losses from foreign equity) or this subpart to the extent to which any of the subparts would result in attributed CFC income or attributed CFC loss for the CFC:
(d)
section CW 8 (Money lent to government of New Zealand):
(db)
section CW 9 (Dividend derived from foreign company):
(dc)
section CW 10 (Dividend within New Zealand wholly-owned group:
(e)
section CW 40(1) (Local and regional promotion bodies):
(f)
sections DO 1 (Enhancements to land) and DO 2 (Plantings for erosion, shelter, and water protection purposes):
(g)
sections EW 9 (Persons to whom financial arrangements rules apply) and EW 11(b) (What financial arrangements rules do not apply to):
(h)
subpart FE (Interest apportionment on thin capitalisation):
(i)
section GB 5 (Arrangements involving trust beneficiaries):
(j)
sections IA 2 to IA 9, subparts IB and IC, and sections IP 3 to IP 7, IZ 4, and IZ 5 (which relate to the use of tax losses).
Business treated as if carried on in New Zealand
(14)
The following provisions apply as if the CFC’s business activities were carried on in New Zealand:
(a)
sections CT 1 to CT 3, CT 5 to CT 7, CX 42, CX 43, CZ 8, DT 1 to DT 15, and DT 17 to DT 19 (which relate to petroleum mining):
(b)
sections DO 4 to DO 7, DO 12, DP 1 to DP 3, DP 8, and DP 11 (which relate to farming, aquacultural, and forestry expenditure):
(c)
section EZ 16 (Amount of depreciation loss for plant or machinery additional to section EZ 15 amount):
(d)
the definitions in subpart YA (General definitions) that specifically apply for the purposes of those sections.
Transfer pricing rules
(15)
Sections GC 6 to GC 14 (which relate to transfer pricing arrangements between associated persons) apply only to a transaction that has a purpose or effect of defeating any of the jurisdictional ring-fencing rules for CFC losses and tax credits in—
(a)
section DN 4 (Ring-fencing cap on deduction):
(b)
section IQ 2 (Ring-fencing cap on attributed CFC net losses):
(c)
section IQ 4 (Group companies using attributed CFC net losses):
(d)
sections LK 1 to LK 7 (which relate to foreign tax credits and CFCs).
Dividends
(16)
Dividends that are not part of the CFC’s attributable CFC amount are exempt income of the CFC.
Dividends: exempt income[Repealed]
(17)
[Repealed]Benefits from money advanced
(18)
When section CC 7 (Consideration other than in money) is applied, the borrower is treated as if it carries on a business in New Zealand.
No tainting by association
(19)
Sections CB 9 to CB 13 (which relate to the disposal of land) and CV 1 (Group companies) do not apply to treat an amount derived by the CFC as income merely because of the activities of a person associated with the CFC if the associate is a non-resident.
Crown acquisition of land
(20)
The reference in section EI 8(1) (Disposal of land to the Crown) to the Crown includes any relevant government outside New Zealand.
Amount of depreciation loss recovered
(21)
When sections EE 48 to EE 52 (which relate to disposals and similar events) are applied, the CFC is treated as having had a deduction for an amount of depreciation loss, and to have an adjusted tax value accordingly, if an amount of depreciation loss has been deducted when calculating the CFC’s branch equivalent income or loss for any period and the attributed CFC income or loss of any person.
GST and value-added taxes
(22)
When sections CX 1 (Goods and services tax), DB 2 (Goods and services tax), EE 45 (Consideration for purposes of section EE 44), EE 54 (Cost: GST), and EZ 17 (Additional amount of depreciation loss: between 16 December 1991 and 1 April 1994) are applied, references to output tax, input tax, or goods and services tax (GST) payable include a reference to the equivalent item arising under the value-added tax or other tax rules of a country or territory outside New Zealand if the rules have a similar intent and application to the New Zealand GST rules.
Government grants to businesses
(23)
When section DF 1 (Government grants to businesses) is applied, a reference to the New Zealand government includes a government outside New Zealand but, to the extent to which section DF 1 still does not apply to a grant or subsidy to the CFC from a government, the grant or subsidy is income of the CFC.
Subvention payments
(24)
If an amount is paid as consideration for the transfer of tax losses,—
(a)
it is income if derived by the CFC; and
(b)
it is a deduction if—
(i)
paid by the CFC to a person who is resident in the same country as the CFC and not a non-attributing active CFC; and
(ii)
deductible under the taxation law of that country.
Life insurers
(25)
Subsection (26) applies if—
(a)
the CFC itself carries on the business of providing life insurance; or
(b)
shares in the CFC are held, directly or indirectly, by a foreign company (the parent company, in subsection (26)) that carries on the business of providing life insurance and those shares have to be taken into account under sections EX 8 to EX 13 to calculate the taxpayer’s income interest in the CFC.
Policyholders
(26)
If the test in subsection (25) is met, the net attributable CFC income or loss of the CFC is the amount actuarially determined to be the part of the CFC’s net attributable CFC income or loss to which shareholders, and not policyholders in either the CFC or the parent company, are entitled.
When subsection (26) does not apply
(27)
Despite subsection (25), subsection (26) does not apply if the Commissioner—
(a)
considers that the amount calculated is not a reasonable reflection of the part attributable to shareholders; or
(b)
has requested and not received sufficient information to enable the actuarial calculation to be reviewed.
Mineral mining activities
(28)
Sections CU 1 to CU 9, DU 1 to DU 12, IS 1, and IS 2 (which relate to mineral mining) apply, with any necessary modifications, if the CFC carries on activities outside New Zealand that are substantially the same as the mineral mining activities to which those sections apply.
Petroleum mining activities
(29)
Sections CT 1 to CT 3, CT 5, CX 42, CX 43, CZ 8, DT 1 to DT 15, and DT 17 to DT 19 (which relate to petroleum mining) apply, with any necessary modifications, if the CFC carries on petroleum mining activities outside New Zealand that are substantially the same as the petroleum mining activities to which those sections apply.
Finance leases and specified leases
(30)
A lease entered into by the CFC before the start of the first accounting period in which the CFC is a CFC is neither a finance lease (subject to the financial arrangements rules and sections FA 6 to FA 11, which relate to finance leases), nor a specified lease (subject to sections FZ 2 to FZ 4, which relate to leases).
When subsection (30) does not apply
(31)
Subsection (30) does not apply if another party to the lease is a New Zealand resident, a CFC, or a FIF for which the taxpayer uses the attributable FIF income method.
Taxable distributions from non-complying trust
(32)
If the CFC gets a taxable distribution from a non-complying trust—
(a)
section HC 22 (Use of tax losses to reduce taxable distributions from non-complying trusts) does not apply; and
(b)
the taxable distribution is not taken into account in calculating the CFC’s net attributable CFC income or loss; and
(c)
section EX 19 applies.
CFCs with interest in FIFs
(33)
If the CFC has rights in a FIF,—
(a)
the rights are not prevented from being an attributing interest of the CFC in a FIF merely because the notional New Zealand residence of the CFC under subsection (2) causes section EX 34 to apply; and
(b)
the CFC’s FIF income or loss is not taken into account in calculating the net attributable CFC income; and
(c)
section EX 58 applies.
Transitional treatment of cross-border reinsurance
(34)
Section CZ 12 (General insurance with risk period straddling 1 July 1993) applies as if the reference to New Zealand were a reference to the CFC’s country of residence.
Disclosure restrictions on grey list CFCs[Repealed]
(35)
[Repealed]Defined in this Act: absolute value, accounting period, adjusted tax value, amount, annual gross income, arrangement, associated person, attributable CFC amount, attributable FIF income method, attributed CFC income, attributed CFC loss, attributing interest, branch equivalent loss, business, CFC, close of trading spot exchange rate, Commissioner, consideration, consolidation rules, deduction, depreciation loss, dividend, exempt income, FIF, FIF income, finance lease, financial arrangement, financial arrangements rules, foreign company, GST, GST payable, income, income interest, income tax, income year, input tax, lease, life insurance, loss, mineral, net attributable CFC income, net attributable CFC loss, net income, net loss, New Zealand, New Zealand resident, non-attributing active CFC, non-complying trust, non-resident, output tax, pay, petroleum, request, resident in New Zealand, share, shareholder, specified lease, tax, taxable distribution, trading stock, variable principal debt instrument
Compare: 2004 No 35 s EX 21
Section EX 21 heading: amended (with effect on 30 June 2009), on 6 October 2009, by section 161(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(1) heading: substituted (with effect on 30 June 2009), on 6 October 2009, by section 161(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(1): substituted (with effect on 30 June 2009), on 6 October 2009, by section 161(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(1B) heading: inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(1B): inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(2): substituted (with effect on 30 June 2009), on 6 October 2009, by section 161(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(5): amended (with effect on 30 June 2009), on 6 October 2009, by section 161(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(7): amended (with effect on 30 June 2009), on 6 October 2009, by section 161(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(13)(c): replaced, on 24 February 2016, by section 139(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 21(13)(db): inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(13)(dc): inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(13)(f): amended (with effect on 1 April 2011), on 17 July 2013, by section 51(a) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EX 21(13)(f): amended (with effect on 1 April 2011), on 17 July 2013, by section 51(b) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EX 21(13)(j): amended (with effect on 1 April 2020), on 30 March 2021, by section 51(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section EX 21(14)(a): amended, on 1 April 2018, by section 83(1) (and see section 83(3) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EX 21(15): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 161(8) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(15): amended (with effect on 1 April 2008), on 6 October 2009, by section 161(7) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(16) heading: substituted (with effect on 30 June 2009), on 6 October 2009, by section 161(9) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(16): substituted (with effect on 30 June 2009), on 6 October 2009, by section 161(9) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(17) heading: repealed (with effect on 30 June 2009), on 6 October 2009, by section 161(9) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(17): repealed (with effect on 30 June 2009), on 6 October 2009, by section 161(9) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(24)(b): substituted (with effect on 30 June 2009), on 6 October 2009, by section 161(10) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(26): amended (with effect on 2 November 2012), on 30 March 2021, by section 51(2) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section EX 21(26): amended (with effect on 1 April 2008), on 7 December 2009, by section 26(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EX 21(26): amended (with effect on 30 June 2009), on 6 October 2009, by section 161(11)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(26): amended (with effect on 30 June 2009), on 6 October 2009, by section 161(11)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(28): amended, on 1 April 2014, by section 52 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EX 21(29): amended, on 1 April 2018, by section 83(2) (and see section 83(3) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EX 21(31): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 23(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 21(32)(b): amended (with effect on 30 June 2009), on 6 October 2009, by section 161(12) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(33)(b): amended (with effect on 30 June 2009), on 6 October 2009, by section 161(13) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(35) heading: repealed (with effect on 30 June 2009), on 6 October 2009, pursuant to section 161(14) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21(35): repealed (with effect on 30 June 2009), on 6 October 2009, by section 161(14) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21 list of defined terms 1973 version provisions: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21 list of defined terms 1988 version provisions: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21 list of defined terms 1990 version provisions: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21 list of defined terms annual gross income: inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(16)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21 list of defined terms attributable CFC amount: inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(16)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21 list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 23(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 21 list of defined terms attributed repatriation: repealed, on 24 February 2016, by section 139(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 21 list of defined terms branch equivalent income: repealed (with effect on 30 June 2009), on 6 October 2009, by section 161(16)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21 list of defined terms life insurance rules: repealed (with effect on 2 November 2012), on 30 March 2021, by section 51(3) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section EX 21 list of defined terms net attributable CFC income: inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(16)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21 list of defined terms net attributable CFC loss: inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(16)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21 list of defined terms non-attributing active CFC: inserted (with effect on 30 June 2009), on 6 October 2009, by section 161(16)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21 list of defined terms request: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Non-attributing active CFCs
Heading: inserted (with effect on 30 June 2009), on 6 October 2009, by section 162(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 21B Non-attributing active CFCs
Non-attributing active CFC
(1)
Non-attributing active CFC, for an accounting period and a person (the interest holder), means a CFC—
(a)
for which the interest holder is not affected by an election under section EX 73 for the accounting period; and
(b)
that meets the requirements of subsection (2) or (3), alone or as part of a test group of companies under section EX 21D or EX 21E.
CFC meeting test in section EX 21D or EX 21E
(2)
A CFC is a non-attributing active CFC—
(a)
under section EX 21D, if the CFC meets the requirements of that section and paragraph (b) does not apply:
(b)
under section EX 21E, if—
(i)
the CFC meets the requirements of section EX 21C for the use of an applicable accounting standard in the application of section EX 21E; and
(ii)
the person chooses to use the applicable accounting standard in applying section EX 21E; and
(iii)
the CFC meets the requirements of section EX 21E.
Insurer meeting requirements of determination
(3)
A CFC that is an insurer meeting the requirements of a determination made by the Commissioner under section 91AAQ of the Tax Administration Act 1994 is a non-attributing active CFC.
Single test for each CFC
(4)
In determining whether CFCs are non-attributing active CFCs for an accounting period under a test in section EX 21D or EX 21E, an interest holder must not use the result of a test applied to a test group that includes a CFC if the person, or a member of a wholly-owned group to which the person belongs, uses for the period a result of the same or a different test applied to the CFC, alone or as part of a different test group.
Part-period calculations
(5)
Section EX 21F sets out the requirements for a non-attributing active CFC when an interest holder holds an income interest for only part of an accounting period.
Defined in this Act: accounting period, CFC, group of companies, income interest, non-attributing active CFC
Section EX 21B: inserted (with effect on 30 June 2009), on 6 October 2009, by section 162(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21B(1): replaced (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 44(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 21B(2)(b): amended, on 29 March 2018, by section 84(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EX 21B(2)(b)(i): amended, on 29 March 2018, by section 84(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EX 21B(2)(b)(ii): amended, on 29 March 2018, by section 84(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EX 21B(2)(b)(iii): amended, on 29 March 2018, by section 84(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EX 21B(4) heading: inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 24(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 21B(4): inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 24(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 21B(4): amended (with effect on 1 July 2009), on 30 June 2014, by section 89 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 21B(5) heading: inserted, on 29 March 2018 (with effect on 1 July 2009), by section 84(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EX 21B(5): inserted, on 29 March 2018 (with effect on 1 July 2009), by section 84(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EX 21B list of defined terms group of companies: inserted (with effect on 30 June 2009), on 2 November 2012, by section 44(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 21B list of defined terms income interest: inserted, on 29 March 2018, by section 84(3) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Tests for non-attributing active CFCs
Heading: inserted (with effect on 30 June 2009), on 6 October 2009, by section 162(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 21C Applicable accounting standards for section EX 21E
Applicable accounting standards
(1)
In applying EX 21E to determine whether a CFC is a non-attributing active CFC for a person (the interest holder) with an interest in the CFC, the interest holder may use as an accounting standard (the applicable accounting standard) 1 of the standards given by subsections (2) to (5) and section EZ 32F if section GB 15C (Arrangements related to accounting test for non-attributing active CFC) does not apply.
Generally accepted accounting practice with IFRS for CFC
(2)
The interest holder may use generally accepted accounting practice in New Zealand including IFRSs and the framework for differential reporting for entities applying the New Zealand equivalents to the international financial standards reporting regime (the generally accepted accounting practice with IFRS) for the CFC, if the interest holder or another person has accounts that—
(a)
include the accounts of the CFC; and
(b)
comply with generally accepted accounting practice with IFRS; and
(c)
meet the audit requirements of subsection (8).
Generally accepted accounting practice with IFRS for test group
(3)
The interest holder may use generally accepted accounting practice with IFRS for the CFC’s test group under section EX 21E(2), if the interest holder or another person has accounts that—
(a)
include the accounts of the members of the test group; and
(b)
comply with generally accepted accounting practice with IFRS; and
(c)
meet the audit requirements of subsection (8).
IFRSEs for CFC
(4)
The interest holder may use IFRSEs for the CFC, if the interest holder or another person has accounts that—
(a)
include the accounts of the CFC; and
(b)
comply with the relevant IFRSEs; and
(c)
meet the audit requirements of subsection (8).
IFRSEs for test group
(5)
The interest holder may use IFRSEs for the CFC’s test group under section EX 21E(2), if the interest holder or another person has accounts that—
(a)
include the accounts of the members of the test group; and
(b)
comply with the relevant IFRSEs; and
(c)
meet the audit requirements of subsection (8).
Generally accepted accounting practice without IFRS for CFC[Repealed]
(6)
[Repealed]Generally accepted accounting practice without IFRS for CFC’s test group[Repealed]
(7)
[Repealed]Audit requirements
(8)
Accounts meet the audit requirements of this subsection if they—
(a)
are audited by an accountant who is—
(i)
a chartered accountant or an accountant of equivalent professional standard in the country in which the accounts are prepared; and
(ii)
independent of the CFC and the person; and
(b)
are given an unqualified opinion or an opinion of equivalent standard in the country in which the accounts are prepared.
Compliance with accounting standards
(9)
For the purposes of subsections (2) to (5) and section EZ 32F, accounts are treated as complying with the accounting standard relevant to the subsection if—
(a)
the accounts state that they comply with the accounting standard; and
(b)
the accounts meet the audit requirements of subsection (8); and
(c)
the Commissioner does not have reasonable grounds to suspect—
(i)
fraudulent activity by the interest holder, the CFC, a company in the CFC’s test group, or the auditor:
(ii)
preparation of the accounts with an intent to mislead:
(iii)
incompetence of the auditor.
Defined in this Act: accounting period, annual gross income, associated, attributable CFC amount, CFC, company, generally accepted accounting practice, IFRS, IFRSE, insurer, New Zealand resident, non-attributing active CFC, rent, royalty
Section EX 21C: inserted (with effect on 30 June 2009), on 6 October 2009, by section 162(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21C(1): amended, on 1 April 2014, by section 93(1) of the Financial Reporting (Amendments to Other Enactments) Act 2013 (2013 No 102).
Section EX 21C(6) heading: repealed, on 1 April 2014, pursuant to section 93(2) of the Financial Reporting (Amendments to Other Enactments) Act 2013 (2013 No 102).
Section EX 21C(6): repealed, on 1 April 2014, by section 93(2) of the Financial Reporting (Amendments to Other Enactments) Act 2013 (2013 No 102).
Section EX 21C(7) heading: repealed, on 1 April 2014, pursuant to section 93(2) of the Financial Reporting (Amendments to Other Enactments) Act 2013 (2013 No 102).
Section EX 21C(7): repealed, on 1 April 2014, by section 93(2) of the Financial Reporting (Amendments to Other Enactments) Act 2013 (2013 No 102).
Section EX 21C(9): amended, on 1 April 2014, by section 93(3) of the Financial Reporting (Amendments to Other Enactments) Act 2013 (2013 No 102).
Section EX 21C(9)(c)(i): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 25(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 21C list of defined terms company: inserted (with effect on 1 July 2011), on 7 May 2012, by section 25(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
EX 21D Non-attributing active CFC: default test
CFC as part of test group
(1)
A person (the interest holder) with an interest in a CFC may choose to apply this section for the CFC as a member of a group (a test group) if the group consists of companies—
(a)
each of which is subject to the laws of the same country or territory and—
(i)
has a taxed CFC connection with the country or territory:
(ii)
would be a non-attributing active CFC if not treated as part of a test group and would have a taxed CFC connection with the country or territory in the absence of paragraph (c) of the definition of taxed CFC connection; and
(b)
in each of which an income interest of more than 50% is held by—
(i)
the interest holder:
(ii)
companies that are all members of a wholly-owned group of companies that includes the interest holder; and
(c)
each of which is required to use the same currency under section EX 21(4); and
(d)
that are consolidated for the purposes of this section—
(i)
using like tax treatments for like transactions and for other events in similar circumstances; and
(ii)
eliminating in full all balances, transactions, income, and expenses arising between members of the test group.
CFC as part of test group for part of accounting period
(1B)
An interest holder who acquires, or disposes of, an interest in a CFC (the first CFC) after the beginning of an accounting period may choose to apply this section to group the first CFC with other CFCs as a test group for the accounting period if—
(a)
the CFCs in the test group are all acquired, or all disposed of, in the accounting period by the interest holder or by members (the wholly-owned members) of a wholly-owned group of companies that includes the interest holder; and
(b)
for the period in the accounting period in which the interest holder holds the interest in the first CFC, the interest holder or the wholly-owned members hold an income interest under section EX 17 of more than 50% in the first CFC and in each other CFC in the test group; and
(c)
the interest holder, or the wholly-owned members, own the first CFC and each other CFC in the test group—
(i)
at the beginning of the accounting period; or
(ii)
at the end of the accounting period; and
(d)
the requirements of subsection (1)(a), (c), and (d) are met.
Threshold ratio
(2)
A CFC is a non-attributing active CFC under section EX 21B(2)(a) for an accounting period and a person if the amount calculated under subsection (3) using the formula in subsection (4)—
(a)
is less than 0.05; and
(b)
is not zero under subsection (3)(f).
Application of formula
(3)
In using the formula in subsection (4)—
(a)
each item in the formula is determined—
(i)
for the CFC’s consolidated test group, if the interest holder chooses to apply the formula to the test group; or
(ii)
for the CFC, if subparagraph (i) does not apply; and
(b)
each item in the formula is determined for a test group after amounts included in the item are adjusted to remove amounts corresponding to income interests not held by the interest holder; and
(c)
a reference to a company that is associated is treated as being a reference to a company that is—
(i)
associated with a member of the CFC’s test group, although not a member of the CFC’s test group, if the interest holder chooses to apply the formula to the test group; or
(ii)
associated with the CFC, if subparagraph (i) does not apply; and
(d)
a reference to a company that is in the same group of companies is treated as being a reference to a company that is—
(i)
in the same group of companies as a member of the CFC’s test group, although not a member of the CFC’s test group, if the interest holder chooses to apply the formula to the test group; or
(ii)
in the same group of companies as the CFC, if subparagraph (i) does not apply; and
(e)
a numerator or denominator that is a negative number is treated as being zero; and
(f)
the amount calculated using the formula is zero if the denominator is zero.
Formula
(4)
The amount that determines whether the CFC is a non-attributing active CFC is calculated using the formula—
(attributable − attributable adjustments) ÷ (gross − gross adjustments).
Definition of items in formula
(5)
The items in the formula are defined in subsections (6) to (9).
Attributable
(6)
Attributable is the attributable CFC amount for the accounting period.
Attributable adjustments
(7)
Attributable adjustments is the total of amounts included in the item attributable, in subsection (6), that are—
(a)
if the interest holder chooses that this paragraph apply, income derived from the supply of personal services—
(i)
included in an attributable CFC amount under section EX 20B(3)(h); and
(ii)
not included in an attributable CFC amount under another paragraph of section EX 20B(3) and (4):
(b)
if the interest holder chooses that this paragraph apply, the cost of revenue account property producing an amount (the included amount) included in the attributable CFC amount under section EX 20B(3)(k) to the extent, not exceeding the included amount, to which—
(i)
the cost is treated as a deduction of the CFC in the accounting period; and
(ii)
the deduction exceeds the amount of any income under subpart CH (Adjustments) relating to the deduction.
Gross
(8)
Gross is the annual gross income for the accounting period in the absence of income under subpart CQ (Attributed income from foreign equity).
Gross adjustments
(9)
Gross adjustments is the total of the following amounts for the accounting period:
(a)
the amount of the item “attributable adjustments”
in subsection (7):
(b)
expenditure or loss that is included in the calculation of the attributable CFC amount under section EX 20B:
(c)
income derived from a company that would meet the requirements of subsection (1)(a) to (c) for a member of a test group with the CFC:
(cb)
income that is derived from a fixed establishment by a member of the test group and is not an attributable CFC amount, if the member is included in the test group under subsection (1)(a)(ii):
(d)
income from a supply that meets the requirements of section GB 15B (Supplies affecting default test for non-attributing active CFC).
Defined in this Act: accounting period, annual gross income, associated non-attributing active CFC, attributable CFC amount, CFC, company, fixed establishment, group of companies, income, interest, non-attributing active CFC, resident in New Zealand, royalty, taxed CFC connection, wholly-owned group of companies
Section EX 21D: inserted (with effect on 30 June 2009), on 6 October 2009, by section 162(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21D(1)(a): replaced (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 90(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 21D(1)(b): replaced (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 90(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 21D(1B) heading: inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 24 February 2016, by section 140(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 21D(1B): inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 24 February 2016, by section 140(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 21D(7): amended (with effect on 30 June 2009), on 7 September 2010, by section 44 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EX 21D(7)(b): amended (with effect on 30 June 2009), on 7 December 2009, by section 27(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EX 21D(9)(cb): inserted (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 90(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 21D list of defined terms fixed establishment: inserted (with effect on 30 June 2009), on 30 June 2014, by section 90(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 21D list of defined terms taxed CFC connection: inserted (with effect on 1 July 2009), on 7 May 2012, by section 26(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 21D list of defined terms wholly-owned group companies: inserted (with effect on 30 June 2009), on 30 June 2014, by section 90(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
EX 21E Non-attributing active CFC: test based on accounting standard
Applicable accounting standard
(1)
A person (the interest holder) who chooses to determine under this section whether a CFC is a non-attributing active CFC for the person for an accounting period must use an accounting standard (the applicable accounting standard) permitted by section EX 21C.
CFC as part of test group
(2)
The interest holder may choose to apply this section for the CFC as a member of a group (a test group) if—
(a)
the group consists of companies required under the applicable accounting standard to consolidate, whether or not with companies that are not in the group; and
(b)
each company is subject to the laws of the same country or territory and—
(i)
has a taxed CFC connection with the country or territory:
(ii)
would be a non-attributing active CFC if not treated as part of a test group and would have a taxed CFC connection with the country or territory in the absence of paragraph (c) of the definition of taxed CFC connection; and
(c)
an income interest of more than 50% is held in each company by—
(i)
the interest holder:
(ii)
companies that are all members of a wholly-owned group of companies that includes the interest holder; and
(d)
each company has the same functional currency; and
(e)
there are audited and consolidated financial statements that—
(i)
include the accounts of the companies in the group, whether or not with accounts of companies that are not in the group; and
(ii)
comply with the applicable accounting standard.
CFC as part of test group for part of accounting period
(2B)
An interest holder who acquires, or disposes of, an interest in a CFC (the first CFC) after the beginning of an accounting period may choose to apply this section to group the first CFC with other CFCs as a test group for the accounting period if—
(a)
the CFCs in the test group are all acquired, or all disposed of, in the accounting period by the interest holder or by members (the wholly-owned members) of a wholly-owned group of companies that includes the interest holder; and
(b)
for the period in the accounting period in which the interest holder holds the interest in the first CFC, the interest holder or the wholly-owned members hold an income interest under section EX 17 of more than 50% in the first CFC and in each other CFC in the test group; and
(c)
the interest holder, or the wholly-owned members, own the first CFC and each other CFC in the test group—
(i)
at the beginning of the accounting period; or
(ii)
at the end of the accounting period; and
(d)
the requirements of subsection (2)(a), (b), (d), and (e) are met.
Threshold ratio
(3)
A CFC is a non-attributing active CFC under section EX 21B(2)(b) for an accounting period and an interest holder if, under subsection (4),—
(a)
the amount calculated using the formula in subsection (5) is less than 0.05; and
(b)
[Repealed](c)
the amount calculated using the denominator in the formula in subsection (5) is more than zero.
Application of formula
(4)
In using the formula in subsection (5),—
(a)
each item in the formula is—
(i)
determined under the applicable accounting standard; and
(ii)
adjusted so that no amount is included in the item more than once; and
(b)
each item in the formula is determined—
(i)
from amounts consolidated for the CFC’s test group under the applicable accounting standard, if the interest holder chooses to apply the formula to the test group; or
(ii)
from amounts for the CFC, if subparagraph (i) does not apply; and
(c)
each item in the formula is determined after adjustment of amounts included in the item by removing amounts corresponding to minority interests not held by the interest holder; and
(d)
a reference to a company that is associated is treated as being a reference to a company that is—
(i)
associated with a member of the CFC’s test group, although not a member of the CFC’s test group, if the interest holder chooses to apply the formula to the test group; or
(ii)
associated with the CFC, if subparagraph (i) does not apply; and
(e)
a reference to a company that is in the same group of companies is treated as being a reference to a company that is—
(i)
in the same group of companies as a member of the CFC’s test group, although not a member of the CFC’s test group, if the person chooses to apply the formula to the test group; or
(ii)
in the same group of companies as the CFC, if subparagraph (i) does not apply; and
(f)
amounts determined for a CFC other than as part of a test group are—
(i)
determined in the functional currency of the CFC; and
(ii)
converted between currencies under the applicable accounting standard, but ignoring exchange differences arising on a monetary item that forms part of a net investment of the CFC in a foreign operation; and
(g)
amounts determined for a test group are—
(i)
converted from the functional currency of the CFC to the presentation currency of the consolidated accounts for the test group using the average conversion rate for the accounting period; and
(ii)
otherwise converted between currencies under the applicable accounting standard; and
(h)
a numerator that is a negative number is treated as being zero.
Formula
(5)
The amount that determines whether the CFC is a non-attributing active CFC is calculated using the formula—
(reported passive + added passive − removed passive)
÷ (reported revenue + added revenue − removed revenue)
Definition of items in formula
(6)
The items in the formula are defined in subsections (7) to (12).
Reported passive
(7)
Reported passive is the total amount of—
(a)
income from a dividend:
(b)
income from interest:
(c)
income from a royalty:
(d)
income from rent:
(e)
income, other than rent or interest, from a finance lease or operating lease:
(f)
income or loss from a financial asset, other than a derivative as defined in IFRS 9 or a share that is not revenue account property, in the form of—
(i)
a change in the reported fair value of the asset:
(ii)
a gain or loss on the derecognition, as defined in IFRS 9, of the asset:
(iii)
[Repealed](fb)
a foreign exchange gain or loss on—
(i)
a financial asset other than a derivative as defined in IFRS 9 or a share that is not revenue account property, if subparagraph (ii) does not apply; or
(ii)
a financial asset or financial liability other than a derivative as defined in IFRS 9 or a share that is not revenue account property, for a CFC for which foreign exchange gains and losses from financial assets are not readily distinguishable by an interest holder from foreign exchange gains and losses from financial liabilities:
(g)
income or loss from a derivative instrument, as defined in IFRS 9, and included in the CFC’s statement of income—
(i)
if the instrument is held in the course of a business of the CFC for the purpose of dealing with the derivative instrument:
(ii)
if the instrument is not entered in the ordinary course of a business of the CFC:
(iii)
to the extent to which the income or loss is from a hedging relationship, of a type referred to in IFRS 9, with an amount that would change the numerator of the formula in subsection (5) or with a transaction producing such an amount of income or gain:
(h)
income or gains from a business of insurance, including income or gains from property used to back insurance assets.
Added passive
(8)
Added passive is the total of amounts not included in the item reported passive for the accounting period that are 1 or more of the following:
(a)
income from a life insurance policy that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(g):
(b)
income from the disposal of revenue account property that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(k), if the property is—
(i)
not a share, financial arrangement, or life insurance policy; and
(ii)
used by the CFC in a way giving rise to income or gains that increase the numerator of the formula in subsection (5):
(c)
income from a supply of services performed in New Zealand that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(l):
(d)
income from a supply of telecommunications services that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(m) or (n):
(e)
attributed PIE income that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(o).
Removed passive
(9)
Removed passive is zero if the interest holder does not choose to include an amount for this item or is the total of amounts that are included in the item reported passive or added passive for the accounting period and are in a category included in categories chosen by the interest holder from the following:
(a)
a dividend that is not included in the attributable CFC amount for the accounting period under section EX 20B(3)(a) to (c):
(b)
a royalty that would be included in the attributable CFC amount for the accounting period but for section EX 20B(5)(a) to (d):
(c)
rent that would be included in the attributable CFC amount for the accounting period but for section EX 20B(7)(a) to (c):
(cb)
gain or loss from a financial asset or financial liability that is a financial arrangement or agreement referred to in section EX 20B(12):
(d)
the cost of revenue account property producing an amount (the included amount) included in the attributable CFC amount under section EX 20B(3)(k) to the extent, not exceeding the included amount, to which—
(i)
the cost would be a deduction of the CFC in the accounting period if the CFC were a resident of New Zealand; and
(ii)
the deduction would exceed the amount of any income arising under subpart CH (Adjustments) relating to the deduction.
Reported revenue
(10)
Reported revenue is the total amount that is—
(a)
included under the applicable accounting standard in—
(i)
operating revenue, if the applicable accounting standard is former generally accepted accounting practice without IFRS; or
(ii)
revenue, if subparagraph (i) does not apply:
(ab)
income from rent:
(b)
income, other than rent, from a finance lease or operating lease:
(c)
a gain or loss on a financial asset, other than a derivative as defined in IFRS 9 or a share not on revenue account, in the form of—
(i)
a change in the reported fair value of the asset:
(ii)
a gain or loss on the derecognition, as defined in IFRS 9, of the asset:
(iii)
[Repealed](cb)
a foreign exchange gain or loss on—
(i)
a financial asset other than a derivative as defined in IFRS 9 or a share that is not revenue account property, if subparagraph (ii) does not apply; or
(ii)
a financial asset or financial liability other than a derivative as defined in IFRS 9 or a share that is not revenue account property, for a CFC for which foreign exchange gains and losses from financial assets are not readily distinguishable by an interest holder from foreign exchange gains and losses from financial liabilities:
(d)
a gain or loss from a derivative instrument, as defined in IFRS 9, and included in the CFC’s statement of income—
(i)
if the derivative instrument is held in the course of a business of the CFC for the purpose of dealing with the derivative instrument:
(ii)
if the derivative instrument is not entered in the ordinary course of a business of the CFC:
(iii)
to the extent to which the gain or loss is from a hedging relationship, of a type referred to in IFRS 9, with an amount that would change the denominator of the formula in subsection (5) or with a transaction producing such an amount of income or gain:
(e)
income or a gain from a business of insurance, including from property used to back insurance assets, if the applicable accounting standard is not former generally accepted accounting practice without IFRS.
Added revenue
(11)
Added revenue is zero if the interest holder does not choose to include an amount for this item or is the total of amounts that are not included in the item reported revenue for the accounting period and are either or both of the following:
(a)
income from a life insurance policy that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(g):
(b)
income from the disposal of revenue account property that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(k), if the property is—
(i)
not a share, financial arrangement, or life insurance policy; and
(ii)
used by the CFC in a way giving rise to income or gains that increase the numerator of the formula in subsection (5).
Removed revenue
(12)
Removed revenue is the total of amounts that are included under the applicable accounting standard in the item reported revenue or added revenue for the accounting period and are 1 or more of the following:
(a)
an amount included in the item removed passive under subsection (9)(d):
(b)
a dividend to the extent to which it is included in the item removed passive, under subsection (9)(a):
(c)
income from a supply of personal services that is included in the item reported revenue, and in the attributable CFC amount for the accounting period under section EX 20B(3)(h):
(d)
income or loss from a share that is not revenue account property under this Act in the form of—
(i)
a change in the reported fair value of the share:
(ii)
income or loss on the derecognition, as defined in IFRS 9, of the share:
(iii)
a foreign exchange gain or loss on the share:
(db)
income that is derived from a fixed establishment by a member of the test group and is not an attributable CFC amount, if the member is included in the test group under subsection (2)(b)(ii):
(e)
income derived from another CFC that—
(i)
is subject to the laws of the country or territory under which the CFC is liable to income tax on the CFC’s income because of the CFC’s domicile, residence, place of incorporation, or centre of management; and
(ii)
is liable to tax on its income in that country or territory because of its domicile, residence, place of incorporation, or centre of management; and
(iii)
could be consolidated with the CFC for the purposes of this section if appropriate audited accounts were prepared:
(f)
if the applicable standard is former generally accepted accounting practice without IFRS, income from a liability, other than income derived in the normal course of business from a sale or supply of services, in the form of—
(i)
a reduction in the liability:
(ii)
a gain on the disposal or other derecognition of the liability:
(iii)
a foreign exchange gain on the liability:
(g)
if the applicable standard is former generally accepted accounting practice without IFRS, income from an asset that is not a financial asset under NZIAS 32 and not revenue account property as defined in section YA 1 (Definitions) in the form of—
(i)
an increase in the fair value of the asset:
(ii)
a gain on the disposal of the asset:
(iii)
a foreign exchange gain on the asset.
Compliance with accounting standards
(13)
If accounts meet the requirements of section EX 21C for the relevant accounting standard—
(a)
the accounts are treated as complying with the relevant accounting standard for the purposes of subsection (2):
(b)
amounts drawn from the accounts, or from information that is used to prepare the accounts and is consistent with them, are treated as complying with the relevant accounting standard for the purposes of subsection (4) if the Commissioner does not have reasonable grounds to suspect—
(i)
fraudulent activity by the interest holder, the CFC, a CFC in the CFC’s test group, or the auditor:
(ii)
preparation of the accounts with an intent to mislead:
(iii)
incompetence of the auditor.
Defined in this Act: accounting period, associated non-attributing active CFC, attributable CFC amount, CFC, company, dividend, finance lease, financial arrangement, financial asset, financial liability, fixed establishment, former generally accepted accounting practice without IFRS, group of companies, IFRS, IFRS 9, income, life insurance policy, non-attributing active CFC, operating lease, premium, revenue account property, royalty, taxed CFC connection, wholly-owned group of companies
Section EX 21E: inserted (with effect on 30 June 2009), on 6 October 2009, by section 162(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 21E(2)(b): replaced (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 91(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 21E(2)(c): replaced (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), by section 91(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 21E(2B) heading: inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 24 February 2016, by section 141(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 21E(2B): inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 24 February 2016, by section 141(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 21E(3)(b): repealed (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), by section 91(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 21E(4)(g)(ii): amended (with effect on 30 June 2009), by section 91(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 21E(4)(h): inserted (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), by section 91(5) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 21E(7)(f): amended, on 26 June 2019, by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EX 21E(7)(f)(ii): amended, on 26 June 2019, by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EX 21E(7)(f)(iii): repealed (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), by section 91(6) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 21E(7)(fb): inserted (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), by section 91(7) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 21E(7)(fb)(i): amended, on 26 June 2019, by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EX 21E(7)(fb)(ii): amended, on 26 June 2019, by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EX 21E(7)(g): amended, on 26 June 2019, by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EX 21E(7)(g)(iii): amended, on 26 June 2019, by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EX 21E(7)(g)(iii): amended (with effect on 30 June 2009), on 7 December 2009, by section 28(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EX 21E(8)(e): added, on 29 August 2011, by section 38 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EX 21E(9)(cb): inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 27(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 21E(9)(cb): amended (with effect on 1 July 2009), on 30 June 2014, by section 91(8) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 21E(9)(d): amended (with effect on 30 June 2009), on 7 December 2009, by section 28(2) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EX 21E(10)(a)(i): amended, on 1 April 2014, by section 94(1) of the Financial Reporting (Amendments to Other Enactments) Act 2013 (2013 No 102).
Section EX 21E(10)(ab): inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 27(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 21E(10)(c): amended, on 26 June 2019, by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EX 21E(10)(c)(ii): amended, on 26 June 2019, by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EX 21E(10)(c)(iii): repealed (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), by section 91(9) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 21E(10)(cb): inserted (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), by section 91(10) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 21E(10)(cb)(i): amended, on 26 June 2019, by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EX 21E(10)(cb)(ii): amended, on 26 June 2019, by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EX 21E(10)(d): amended, on 26 June 2019, by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EX 21E(10)(d)(iii): amended, on 26 June 2019, by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EX 21E(10)(d)(iii): amended (with effect on 30 June 2009), on 7 December 2009, by section 28(3) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EX 21E(10)(e): amended, on 1 April 2014, by section 94(2) of the Financial Reporting (Amendments to Other Enactments) Act 2013 (2013 No 102).
Section EX 21E(12)(d)(ii): amended, on 26 June 2019, by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EX 21E(12)(db): inserted (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), by section 91(11) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 21E(12)(f): amended, on 1 April 2014, by section 94(3) of the Financial Reporting (Amendments to Other Enactments) Act 2013 (2013 No 102).
Section EX 21E(12)(g): amended, on 1 April 2014, by section 94(4) of the Financial Reporting (Amendments to Other Enactments) Act 2013 (2013 No 102).
Section EX 21E list of defined terms financial asset: inserted (with effect on 30 June 2009), on 30 June 2014, by section 91(12) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 21E list of defined terms financial liability: inserted (with effect on 30 June 2009), on 30 June 2014, by section 91(12) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 21E list of defined terms fixed establishment: inserted (with effect on 30 June 2009), on 30 June 2014, by section 91(12) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 21E list of defined terms former generally accepted accounting practice without IFRS: inserted, on 1 April 2014, by section 94(5) of the Financial Reporting (Amendments to Other Enactments) Act 2013 (2013 No 102).
Section EX 21E list of defined terms IFRS 9: inserted, on 26 June 2019, by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EX 21E list of defined terms taxed CFC connection: inserted (with effect on 1 July 2009), on 7 May 2012, by section 27(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 21E list of defined terms wholly-owned group of companies: inserted (with effect on 30 June 2009), on 30 June 2014, by section 91(12) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
EX 21F Part-period calculations
When this section applies
(1)
This section applies for the purposes of sections EX 21B, EX 21C, and EX 21E when an interest holder holds an income interest for only part of an accounting period (the part-period).
Requirements
(2)
The interest holder may determine that a CFC is a non-attributing active CFC if—
(a)
the CFC meets the requirements of section EX 21C for the use of applicable accounting standard in the application of section EX 21E; and
(b)
the person chooses to use the applicable accounting standard in EX 21E; and
(c)
the CFC meets the requirements of section EX 21E, having regard to the accounts for the part-period; and
(d)
the person, or a company that is part of the person’s group of companies, holds an income interest in the CFC for the part-period.
Determination for interest holders
(3)
A determination under subsection (2) applies for the interest holder and no other person.
Alternative default method
(4)
If the requirements of subsection (2) are not met, the interest holder must use the default test set out in section EX 21D, applying the test to the full accounting period.
Defined in this Act: accounting period, CFC, company, group of companies, income interest, non-attributing active CFC
Section EX 21F: inserted, on 29 March 2018 (with effect on 1 July 2009), by section 85 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Non-attributing Australian CFCs
Heading: substituted (with effect on 30 June 2009), on 6 October 2009, by section 163(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 22 Non-attributing Australian CFCs
Criteria
(1)
A CFC is a non-attributing Australian CFC for an accounting period if—
(a)
at all times in the accounting period the CFC is—
(i)
resident in Australia; and
(ii)
under Australian law, subject to income tax on its income or treated as part of the head company of a consolidated group subject to income tax on its income; and
(iii)
treated as being resident in Australia under all agreements between the government of Australia and the governments of other countries or territories that would be a double tax agreement if between the government of New Zealand and the government of the other country or territory; and
(b)
the CFC’s liability for income tax has not been reduced by—
(i)
an exemption from income tax for income derived from business activities carried on outside Australia:
(ii)
a special allowance, relief, or exemption with respect to offshore banking units; and
(c)
the CFC—
(i)
is not a unit trust; or
(ii)
is a unit trust that is subject under Australian law to income tax on its income in the same way as a company; or
(iii)
is a unit trust whose units are owned by an entity resident in Australia as described in paragraph (a)(iii), and either the unit holder meets the requirements of paragraph (a)(ii) or the unit trust is treated as part of the head company of a consolidated group subject under Australian law to tax on its income.
No attributed CFC income or loss
(2)
Sections CQ 2(1)(i) (When attributed CFC income arises) and DN 2(1)(i) (When attributed CFC loss arises) provide that no attributed CFC income or attributed CFC loss arises from a non-attributing Australian CFC.
CFCs with interest in FIF: look-through approach
(3)
This section does not prevent FIF income or FIF loss arising under section EX 58 from an interest of a non-attributing Australian CFC in a FIF.
Defined in this Act: accounting period, attributed CFC income, attributed CFC loss, CFC, double tax agreement, FIF, FIF income, FIF loss, income tax, non-attributing Australian CFC, resident in Australia
Section EX 22: substituted (with effect on 30 June 2009), on 6 October 2009, by section 163(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 22(1)(b)(ii): amended (with effect on 1 April 2014), on 30 June 2014, by section 92(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 22(1)(c): replaced, on 29 March 2018 (with effect on 1 April 2014 and applying for income years beginning on or after 1 July 2014), by section 86(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
EX 23 Tax concession grey list CFCs
[Repealed]Section EX 23: repealed (with effect on 30 June 2009), on 6 October 2009, by section 164(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Change of residence of companies
EX 24 Companies moving to or from New Zealand
Companies becoming foreign
(1)
If a company becomes a foreign company, an accounting period of the company starts on the day when the company becomes a foreign company and the former accounting period ends on the previous day.
Companies ceasing to be foreign
(2)
If a foreign company ceases to be a foreign company, an accounting period of the company starts on the day when the company ceases to be a foreign company and the former accounting period ends on the previous day.
Pro-rating
(3)
If subsection (1) or (2) applies to shorten an accounting period of a CFC, a person with attributed CFC income or loss from the CFC for the period may choose to calculate the CFC attributable income or loss of the CFC—
(a)
using the results for the shortened period only; or
(b)
by applying the pro-rating formula in subsection (4) to the results for the unshortened period.
Formula
(4)
The formula for calculating CFC attributable income or loss under subsection (3)(b) is—
unshortened period CFC attributable income or loss
× days in shortened period ÷ days in unshortened period.
Defined in this Act: accounting period, attributed CFC income, CFC, company, foreign company, loss, New Zealand
Compare: 2004 No 35 s EX 25
Section EX 24(3): amended, on 24 February 2016, by section 142(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 24(4): amended, on 24 February 2016, by section 142(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 24(4) formula: amended, on 24 February 2016, by section 142(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 24 list of defined terms branch equivalent income: repealed, on 24 February 2016, by section 142(4) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Change of CFC’s balance date
EX 25 Change of CFC’s balance date
Application of this section
(1)
This section applies when a person—
(a)
has an income interest in a CFC; and
(b)
has calculated attributed CFC income or loss from the CFC on the basis of 1 accounting year (the old accounting year); and
(c)
wants to change to use a different accounting year (the new accounting year) for the calculations.
Change requiring Commissioner’s consent
(2)
The person may make the change only if the Commissioner agrees.
Commissioner’s reasons
(3)
The Commissioner may consider any relevant factors when making the decision, including—
(a)
whether the change is sought because ownership of the CFC has changed:
(b)
whether the change is sought because of taxation or other legal requirements in a country where the CFC is resident or does business:
(c)
whether the change is sought to achieve consistent balance dates in a group of companies:
(d)
whether the change would postpone liability to income tax on attributed CFC income.
No transitional deferral
(4)
If the new accounting year ends in a later income year than the year the old accounting year ends in, and that fact would result in an amount of attributed CFC income being derived in the later income year, the amount is not deferred to the later income year and instead is treated as derived in the previous income year. However, this subsection applies only once, in the year of the transition.
Defined in this Act: accounting year, amount, attributed CFC income, business, CFC, Commissioner, group of companies, income interest, income tax, income year, loss
Compare: 2004 No 35 s EX 26
Section EX 25(1)(b): amended, on 24 February 2016, by section 143(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 25(3)(d): substituted (with effect on 30 June 2009), on 6 October 2009, by section 165(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 25(3)(d): amended, on 24 February 2016, by section 143(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 25(4): amended, on 24 February 2016, by section 143(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 25 list of defined terms attributed repatriation: repealed, on 24 February 2016, by section 143(4) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 25 list of defined terms FDP: repealed (with effect on 30 June 2009), on 6 October 2009, by section 165(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Ownership measurement concession
EX 26 Use of quarterly measurement
Interests held at end of quarter
(1)
In order to simplify the process of calculating a person’s control interest or income interest in a foreign company, the person is treated as holding at all times during a quarter the same interest, including a zero interest, as the interest they hold at the end of the quarter.
Anti-avoidance
(2)
The concession in subsection (1) is overridden by the anti-avoidance rules in sections GB 9 to GB 16 (which relate to arrangements involving CFCs).
Ignoring concession
(3)
A person may choose not to apply the concession in subsection (1) when calculating their attributed CFC income or loss from a foreign company.
Election
(4)
An election under subsection (3)—
(a)
must be in the form required by the Commissioner; and
(b)
is irrevocable; and
(c)
applies in the income year in which it is made and later.
Defined in this Act: attributed CFC income, Commissioner, control interest, foreign company, income interest, income year, loss, quarter
Compare: 2004 No 35 s EX 27
Anti-avoidance rule: stapled stock
EX 27 Anti-avoidance rule: stapled stock
When this section applies
(1)
This section applies when—
(a)
a New Zealand resident holds rights (the stapled rights) that give rise to an income interest or control interest in a foreign company; and
(b)
the rights may, or may ordinarily, be disposed of only together with rights in another company; and
(c)
the other company is a New Zealand resident or a CFC.
Stapled rights held by company
(2)
When each of subparts CQ (Attributed income from foreign equity) and DN (Attributed losses from foreign equity) and this subpart is applied, the stapled rights are held by the other company and not by the person.
Defined in this Act: CFC, company, control interest, foreign company, income interest, New Zealand resident
Compare: 2004 No 35 s EX 28
Foreign investment fund (FIF) rules
What is a foreign investment fund?
EX 28 Meaning of FIF
A foreign investment fund, or FIF, is any of the following
(a)
a foreign company:
(b)
a foreign superannuation scheme:
(c)
an insurer under a life insurance policy, but not if the policy is offered or entered into in New Zealand (in which case the insurer must comply with the rules for life insurers in relation to the policy):
(d)
an entity described in schedule 25, part A (Foreign investment funds).
Defined in this Act: FIF, foreign company, foreign investment fund, foreign superannuation scheme, life insurance policy, offered or entered into in New Zealand
Compare: 2004 No 35 s EX 29
Section EX 28(c): amended (with effect on 2 November 2012), on 30 March 2021, by section 52(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section EX 28 list of defined terms life insurance rules: repealed (with effect on 2 November 2012), on 30 March 2021, by section 52(2) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Attributing interests in FIFs
EX 29 Attributing interests in FIFs
Three categories
(1)
A person has an attributing interest in a FIF if—
(a)
the person holds rights in 1 of the categories of rights described in subsections (2) to (4); and
(b)
none of the exemptions in sections EX 31 to EX 43 applies to those rights.
Category 1: direct income interest in foreign company
(2)
The first category is a direct income interest, as defined in section EX 30, in a foreign company or in an entity described in schedule 25, part A (Foreign investment funds).
Category 2: FIF superannuation interest
(3)
The second category is a FIF superannuation interest, held as a beneficiary or a member.
Category 3: foreign life policy entitlement
(4)
The third category is rights to benefit from a life insurance policy in relation to which a FIF is the insurer.
Contingent rights
(5)
The second and third categories include rights that are contingent or discretionary.
Defined in this Act: attributing interest, direct income interest, FIF, FIF superannuation interest, foreign company, life insurance policy
Compare: 2004 No 35 s EX 30
Section EX 29(1)(b): amended (with effect on 1 April 2008), on 6 October 2009, by section 166 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 29(3) heading: replaced, on 1 April 2014, by section 53(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EX 29(3): replaced, on 1 April 2014, by section 53(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EX 29 list of defined terms FIF superannuation interest: inserted, on 1 April 2014, by section 53(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EX 29 list of defined terms foreign superannuation scheme: repealed, on 1 April 2014, by section 53(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
EX 30 Direct income interests in FIFs
Categories of direct income interest
(1)
A person has a direct income interest in a foreign company at any time if they hold—
(a)
any of the shares in the foreign company:
(b)
any of the shareholder decision-making rights for the company:
(c)
a right to receive, or to apply, any of the income of the company for the accounting period in which the time falls:
(d)
a right to receive, or to apply, any of the value of the net assets of the company, if they are distributed.
Percentage of total
(2)
The person’s direct income interest is the percentage of the total that the person holds.
Varying percentages
(3)
However, if the percentage varies between the different categories, the person’s direct income interest is the highest.
Measurement of available subscribed capital
(4)
When the direct income interest in the category in subsection (1)(a) is calculated, the percentage is the total of the available subscribed capital per share calculated under the slice rule of the shares held as a percentage of the total available subscribed capital per share calculated under the slice rule of all shares in the company.
Varying decision-making rights
(5)
When the direct income interest in the category in subsection (1)(b) is calculated, if the percentage varies between the rights described in the different paragraphs of the definition of shareholder decision-making rights in section YA 1 (Definitions), the highest percentage is taken.
Income distribution rights: assumptions
(6)
When the direct income interest in the category in subsection (1)(c) is calculated, it is assumed that—
(a)
the income is distributed on the last day of the accounting period; and
(b)
the person’s entitlement is unchanged during the period; and
(c)
a payment of interest on a debenture subject to section FA 2 (Recharacterisation of certain debentures) or FA 2B (Stapled debt securities) is a distribution of income.
Meaning of company
(7)
In this section, and in defined terms referred to in this section, company includes an entity listed in schedule 25, part A (Foreign investment funds).
Partnerships
(8)
In this section, if a partnership holds any rights, each partner is treated as holding a share of those rights in proportion to the partner’s interest in the partnership.
Defined in this Act: accounting period, available subscribed capital, company, debenture, direct income interest, FIF, foreign company, income, interest, pay, share, shareholder decision-making right, slice rule
Compare: 2004 No 35 s EX 31
Section EX 30(6)(c): amended (with effect on 1 April 2008), on 6 October 2009, by section 167 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 31 Exemption for ASX-listed Australian companies
Exemption
(1)
A person’s rights in a FIF in an income year are not an attributing interest if—
(a)
the rights are a share; and
(b)
the share is not a share that may not, or ordinarily may not, be disposed of unless together with rights in another company; and
(c)
the FIF is a company that meets the requirements of subsection (2).
ASX-listed Australian company
(2)
The company must—
(a)
at all times in the year when the person holds a right in the company, be resident in Australia; and
(b)
at all times in the year when the person holds a right in the company, not be treated as resident in a country other than Australia under an agreement that—
(i)
is between Australia and that other country; and
(ii)
would be a double tax agreement if negotiated between New Zealand and that other country; and
(c)
be included on the official list of ASX Limited, a market licensee under Chapter 7 of the Corporations Act 2001 (Aust)—
(i)
at the beginning of an income year, if subparagraphs (ii) and (iii) do not apply; or
(ii)
at the earliest date in the income year on which the person owns shares in the company, if the person does not own shares in the company at the beginning of the income year; or
(iii)
at the beginning of the final month of the preceding income year if, in the first month of an income year, the shares are cancelled or transferred under a scheme of arrangement entered into under Part 5.1 of the Corporations Act 2001 (Aust); and
(d)
at all times in the year when the person holds a right in the company, not be an entity described in schedule 25, part B (Foreign investment funds); and
(e)
at all times in the year when the person holds a right in the company, be required under the Income Tax Assessment Act 1997 (Aust) and Income Tax Assessment Act 1936 (Aust) to maintain a franking account.
Defined in this Act: attributing interest, cancellation, company, double tax agreement, FIF, income year, resident in Australia, resident in New Zealand, share, year
Compare: 2004 No 35 s EX 33C
Section EX 31(1) heading: inserted, on 1 April 2008, by section 385(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 31(1): substituted, on 1 April 2008, by section 385(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 31(2) heading: replaced, on 1 April 2017 (applying for the 2017–18 and later income years), by section 38(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EX 31(2): inserted, on 1 April 2008, by section 385(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 31(2)(c): amended, on 1 April 2017 (applying for the 2017–18 and later income years), by section 38(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EX 31(2)(c)(i): amended (with effect on 1 April 2008), on 6 October 2009, by section 168(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 31(2)(c)(ii): replaced, on 24 February 2016, by section 144 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 31(2)(c)(iii): added (with effect on 1 April 2008), on 6 October 2009, by section 168(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 31 list of defined terms cancellation: inserted (with effect on 1 April 2008), on 6 October 2009, by section 168(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 31 list of defined terms direct income interest: repealed, on 1 April 2008, by section 385(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 31 list of defined terms income tax: repealed, on 1 April 2008, by section 385(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EX 32 Exemption for Australian unit trusts with adequate turnover or distributions
Exemption
(1)
A person’s rights in a FIF in an income year are not an attributing interest if—
(a)
the rights are a direct income interest; and
(b)
the FIF is a unit trust; and
(c)
at all times in the year when the person holds a right in the unit trust, the unit trust is resident in Australia; and
(d)
at all times in the year when the person holds a right in the unit trust, the unit trust is not treated as resident in a country other than Australia under an agreement that—
(i)
is between Australia and that other country; and
(ii)
would be a double tax agreement if negotiated between New Zealand and that other country; and
(e)
the unit trust is, at all times in the year, not an entity described in schedule 25, part B (Foreign investment funds); and
(f)
at all times in the year when the unit trust makes a distribution to investors, there is an RWT proxy under section 124ZF of the Tax Administration Act 1994 for the unit trust and payments by the unit trust to the person; and
(g)
for the trust’s accounting year (the trust’s year) that ends in the person’s income year, the unit trust meets—
(i)
the 25% minimum share turnover test in subsection (2):
(ii)
the 70% minimum distribution test in subsection (7).
25% minimum turnover test
(2)
The 25% minimum turnover test requires that, for the trust’s year, the amount of total net realised gains calculated under subsection (3) must be 25% or more of the amount of total net unrealised gains at the end of the year calculated under subsection (5).
Calculation of total net realised gains
(3)
The amount of total net realised gains is calculated using the formula—
total disposal gain − total cost.
Definition of items in formula
(4)
In the formula in subsection (3),—
(a)
total disposal gain is the total of amounts derived from disposal of shares by the unit trust during the trust’s year:
(b)
total cost is the total cost to the unit trust of those shares.
Calculation of total net unrealised gains
(5)
The amount of total net unrealised gains is calculated using the formula—
total profitable shares − total cost.
Definition of items in formula
(6)
In the formula in subsection (5),—
(a)
total profitable shares is the total of the market values of shares of the unit trust that are—
(i)
held at the end of the trust’s year; and
(ii)
have a market value greater than or equal to their cost to the unit trust:
(b)
total cost is the total cost to the unit trust of those shares.
70% minimum distribution test
(7)
The 70% minimum distribution test requires that, for the trust’s year, the total amount of distributions by the unit trust during the trust’s year must be 70% or more of the total distributable gains for the trust’s year calculated under subsection (8).
Calculation of total distributable gains
(8)
The amount of total distributable gains is calculated using the formula—
closing equity + distributions − opening equity − contributions.
Definition of items in formula
(9)
In the formula in subsection (8),—
(a)
closing equity is the amount by which, at the end of the trust’s year, the market value of the unit trust’s assets is more than the market value of the unit trust’s liabilities:
(b)
distributions is the total amount of distributions to investors by the unit trust during the trust’s year:
(c)
opening equity is the amount by which, at the beginning of the trust’s year, the market value of the unit trust’s assets is more than the market value of the unit trust’s liabilities:
(d)
contributions is the total amount of contributions by investors to the unit trust during the trust’s year.
Currency
(10)
The calculations must be done in the currency of the unit trust’s financial accounts.
Defined in this Act: accounting year, attributing interest, company, direct income interest, FIF, income year, resident in Australia, resident in New Zealand, RWT proxy, share, unit trust, year
Compare: 2004 No 35 s EX 33D
Section EX 32: substituted, on 1 April 2008, by section 386 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 32(1)(f): amended, on 18 March 2019, by section 293 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EX 32(9)(d): amended (with effect on 1 April 2008), on 6 October 2009, by section 169(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 33 Exemption for Australian regulated superannuation savings
A person’s rights in a FIF are not an attributing interest if—
(a)
the person is a natural person; and
(b)
the FIF is a foreign superannuation scheme that is—
(i)
an Australian approved deposit fund:
(ii)
an Australian exempt public sector superannuation scheme:
(iii)
an Australian regulated superannuation fund:
(iv)
an Australian retirement savings account.
Defined in this Act: attributing interest, Australian approved deposit fund, Australian exempt public sector superannuation scheme, Australian regulated superannuation fund, Australian retirement savings account, FIF, foreign superannuation scheme
Section EX 33: replaced (with effect on 1 April 2014), on 24 February 2016, by section 145 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EX 34 CFC rules exemption
A person’s rights in a FIF at any time are not an attributing interest if—
(a)
the FIF is a CFC at the time; and
(b)
the person has, under sections EX 14 to EX 17, an income interest of 10% or more in the CFC for the accounting period during which the time falls; and
(c)
the person is not a portfolio investment entity.
Defined in this Act: accounting period, attributing interest, CFC, FIF, income interest, portfolio investment entity
Compare: 2004 No 35 s EX 32
Section EX 34(b): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 28(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 34(b): amended (with effect on 1 April 2008), on 6 October 2009, by section 170 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 34(c): inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 28(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 34 list of defined terms portfolio investment entity: inserted (with effect on 1 July 2011), on 7 May 2012, by section 28(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
EX 35 Exemption for interest in FIF resident in Australia
A person’s rights in a FIF in an income year are not an attributing interest if,—
(a)
for the total period in the year for which the person has rights in the FIF, the item income interest calculated under section EX 50(4) for the person and the FIF is 10% or more; and
(b)
at all times in the year, the FIF is—
(i)
resident in Australia; and
(ii)
under Australian law, subject to income tax on its income or treated as part of the head company of a consolidated group subject to income tax on its income; and
(iii)
treated as being resident in Australia under all agreements between the Government of Australia and the governments of other countries or territories that would be a double tax agreement if between the Government of New Zealand and the government of the other country or territory; and
(c)
the FIF’s liability for income tax for the income year is not reduced by—
(i)
an exemption from income tax for income derived from business activities carried on outside Australia:
(ii)
a special allowance, relief, or exemption with respect to offshore banking units; and
(cb)
the FIF is not a unit trust or is a unit trust subject under Australian law to income tax on its income in the same way as a company; and
(d)
at all times in the year, the person is none of the following:
(i)
a portfolio investment entity:
(ii)
a superannuation scheme:
(iii)
a unit trust:
(iv)
a life insurer:
(v)
a group investment fund.
Defined in this Act: attributing interest, double tax agreement, FIF, group investment fund, income tax, income year, life insurer, portfolio investment entity, resident in Australia, superannuation scheme, unit trust
Section EX 35: replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 29(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 35(a): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 24 February 2016, by section 146(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 35(b)(iii): amended (with effect on 1 April 2014), on 30 June 2014, by section 93(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 35(cb): inserted (with effect on 1 April 2014 and applying for income years beginning on or after 1 July 2014), on 30 June 2014, by section 93(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 35 list of defined terms direct income interest: repealed (with effect on 1 July 2011), on 24 February 2016, by section 146(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EX 36 Venture capital company emigrating to grey list country: 10-year exemption
A person’s rights in a FIF in an income year are not an attributing interest if—
(a)
the rights are a direct income interest; and
(b)
the FIF is a grey list company; and
(c)
the FIF is not an entity described in schedule 25, part B (Foreign investment funds); and
(d)
the person has held shares in the company at all times after a time when—
(i)
the company was resident in New Zealand; and
(ii)
the shares were not listed on a recognised exchange; and
(e)
the company became a grey list company immediately after having, for 12 months or more,—
(i)
carried on business in New Zealand; and
(ii)
had in New Zealand more than 50% of its assets; and
(iii)
had in New Zealand more than 50% of its employees; and
(f)
the year begins less than 10 years after the company became a grey list company; and
(g)
at all times in the year, the company has a fixed establishment in New Zealand; and
(h)
the company through the fixed establishment—
(i)
incurs in the year, expenditure other than interest of at least $1,000,000 or, if less than $1,000,000, at least 25% of the total expenditure, other than interest, incurred by the company in the year; and
(ii)
at all times in the year, engages at least 10 fulltime employees or contractors or, if less than 10, at least 25% of the total number engaged by the company.
Defined in this Act: attributing interest, company, direct income interest, employee, FIF, fixed establishment, grey list company, income year, interest, New Zealand resident, recognised exchange, share, year
Compare: 2004 No 35 s EX 33(3)
Section EX 36(d): amended, on 1 April 2008, by section 387(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 36(e)(i): substituted, on 1 April 2008, by section 387(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 36(h)(i): substituted, on 1 April 2008, by section 387(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 36(h)(ii): substituted, on 1 April 2008, by section 387(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EX 37 Grey list company owning New Zealand venture capital company: 10-year exemption
A person’s rights in a FIF in an income year are not an attributing interest if—
(a)
the rights are a direct income interest; and
(b)
the FIF is a grey list company; and
(c)
the FIF is not an entity described in schedule 25, part B (Foreign investment funds); and
(d)
the person has held shares in the grey list company at all times after a time when the shares were not listed on a recognised exchange; and
(e)
at all times in the year, the grey list company holds more than 50% of the voting interests in a company resident in New Zealand (the resident company) that, for 12 months or more, has—
(i)
carried on a business in New Zealand; and
(ii)
had in New Zealand more than 50% of the resident company’s assets; and
(iii)
had in New Zealand more than 50% of the resident company’s employees; and
(f)
the year begins less than 10 years after the grey list company first held more than 50% of the voting interests in the resident company; and
(g)
the resident company through a fixed establishment in New Zealand—
(i)
incurs in the year expenditure, other than interest, of at least $1,000,000 or, if less than $1,000,000, at least 25% of the total expenditure, other than interest, incurred by the company in the year:
(ii)
at all times in the year, engages at least 10 fulltime employees or contractors or, if less than 10, at least 25% of the total number engaged by the company.
Defined in this Act: attributing interest, company, direct income interest, employee, FIF, fixed establishment, grey list company, income year, interest, New Zealand resident, recognised exchange, share, voting interest, year
Compare: 2004 No 35 s EX 33(4)
Section EX 37(d): substituted, on 1 April 2008, by section 388(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 37(e): substituted, on 1 April 2008, by section 388(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 37(e): amended (with effect on 1 April 2008), on 6 October 2009, by section 171(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 37(f): substituted (with effect on 1 April 2008), on 6 October 2009, by section 171(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 37(g)(i): substituted, on 1 April 2008, by section 388(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 37(g)(ii): substituted, on 1 April 2008, by section 388(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 37 list of defined terms voting interest: inserted (with effect on 1 April 2008), on 6 October 2009, by section 171(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 37B Share in grey list company acquired under venture investment agreement
A person’s rights in a FIF in an income year are not an attributing interest if—
(a)
the FIF is a grey list company; and
(b)
the person first acquires a share or option to buy a share in the company—
(i)
under a venture investment agreement; and
(ii)
at the same time and on the same terms as an acquisition of an interest in the FIF by the Venture Investment Fund or a company owned by the Venture Investment Fund.
Defined in this Act: attributing interest, company, FIF, grey list company, income year, share
Compare: 2004 No 35 s EX 37(4B)
Section EX 37B: inserted, on 1 April 2008, by section 389 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EX 38 Exemptions for employee share schemes
Grey list companies
(1)
A person’s rights in a FIF in an income year are not an attributing interest if—
(a)
the person is a natural person; and
(b)
the rights are a direct income interest; and
(c)
the FIF is a grey list company; and
(d)
the FIF is not an entity described in schedule 25, part B (Foreign investment funds); and
(e)
at the time the person acquires the shares, the FIF—
(i)
employs the person:
(ii)
owns, directly or indirectly, the person’s employer; and
(f)
the person acquires the shares under an employee share scheme; and
(g)
the employee share scheme includes a restriction on the disposal of the shares; and
(h)
at the beginning of the year, the period of the restriction—
(i)
has not expired:
(ii)
has expired for a period of less than 6 months.
Share scheme taxing date
(2)
A person’s rights in a FIF in an income year are not an attributing interest to the extent to which—
(a)
the rights are a direct income interest; and
(b)
section EX 30(1)(c) does not apply; and
(c)
the person acquires the shares or related interests under an employee share scheme; and
(d)
at the beginning of the year, the share scheme taxing date for the shares or related interests has not passed.
Defined in this Act: attributing interest, company, direct income interest, employee share scheme, employer, FIF, grey list company, share, share scheme taxing date, year
Compare: 2004 No 35 s EX 33(5)
Section EX 38 heading: replaced, on 29 September 2018, by section 87(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EX 38(1) heading: inserted, on 29 September 2018, by section 87(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EX 38(1)(f): amended (with effect on 29 September 2018), on 31 March 2023, by section 60 of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EX 38(1)(g): substituted (with effect on 1 April 2008), on 6 October 2009, by section 172 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 38(1)(g): amended, on 29 September 2018, by section 87(4) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EX 38(2) heading: inserted, on 29 September 2018, by section 87(5) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EX 38(2): inserted, on 29 September 2018, by section 87(5) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EX 38 list of defined terms employee share scheme: inserted, on 29 September 2018, by section 87(6)(a) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EX 38 list of defined terms share purchase agreement: repealed, on 29 September 2018, by section 87(6)(b) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EX 38 list of defined terms share scheme taxing date: inserted, on 29 September 2018, by section 87(6)(a) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
EX 39 Terminating exemption for grey list company with numerous New Zealand shareholders
[Repealed]Section EX 39: repealed (with effect on 1 October 2011), on 2 November 2012 (applying for the 2012–13 and later income years), by section 47(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
EX 40 Foreign exchange control exemption
A person’s rights in a FIF are not an attributing interest if and to the extent to which—
(a)
the person is a natural person; and
(b)
the person acquired the rights—
(i)
before first becoming a New Zealand resident; or
(ii)
before exchange controls applying to the person and the interest were imposed by a foreign country; or
(iii)
before 8.00 pm New Zealand Standard Time on 2 July 1992; and
(c)
the exchange controls prevent the person from deriving amounts from the rights, or from disposing of the rights, in New Zealand dollars, or consideration that is readily convertible into New Zealand dollars.
Defined in this Act: amount, attributing interest, FIF, New Zealand, New Zealand resident
Compare: 2004 No 35 s EX 34
EX 41 Income interest of non-resident or transitional resident
Categories 2 and 3
(1)
Subsection (2) applies only to rights described in section EX 29(3) or (4).
Exemption for non-resident or transitional resident
(2)
A person’s rights in a FIF at any time are not an attributing interest if—
(a)
the person is a natural person; and
(b)
the person acquires the rights when a non-resident or transitional resident; and
(c)
at the time, the person is a non-resident or transitional resident.
Defined in this Act: attributing interest, FIF, income year, New Zealand resident, non-resident, transitional resident
Compare: 2004 No 35 s EX 35
EX 42 New resident’s accrued superannuation entitlement exemption
[Repealed]Section EX 42: repealed, on 1 April 2014, by section 55 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
EX 42B Interests in foreign superannuation scheme other than FIF superannuation interests
A person’s right to benefit from a foreign superannuation scheme as a beneficiary or a member is not an attributing interest in the foreign superannuation scheme if the right is not a FIF superannuation interest for the person.
Defined in this Act: attributing interest, FIF superannuation interest, foreign superannuation scheme
Section EX 42B: inserted, on 1 April 2014, by section 56 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
EX 43 Non-resident’s pension or annuity exemption
Exemption
(1)
The rights of a natural person to benefit from a pension or annuity provided by a FIF are not an attributing interest if the requirements of subsections (2) and (3) are met.
Relevant period of non-residence
(2)
The person must have provided the consideration for acquiring the rights—
(a)
when the person was not resident in New Zealand; or
(b)
when the person was resident in New Zealand but in the period ending 3 years after the end of the income year in which they last became a New Zealand resident; or
(c)
when the person was resident in New Zealand but as a result of commuting or transferring their interest in a superannuation fund in anticipation of their ceasing to be a New Zealand resident.
Restricted rights to assign or cash in
(3)
The person’s future benefits must not be able to be assigned, or exchanged for a current receipt of cash, or other property, except—
(a)
if the person is assigning the benefit rights to a spouse under a relationship agreement; or
(b)
at the cost of a substantial decrease in the present value of the benefits.
Elective exclusion of pre-1996–97 rights
(4)
Subsection (1) does not apply if—
(a)
the rights were acquired before the 1996–97 income year; and
(b)
the person chose to treat the rights as an interest in a foreign investment fund for the 1996–97 income year and later income years by complying with the requirements of section CG 15(4) of the Income Tax Act 1994.
Defined in this Act: attributing interest, FIF, foreign investment fund, income year, New Zealand resident, non-resident, relationship agreement, resident in New Zealand, superannuation fund, year
Compare: 2004 No 35 s EX 37
Section EX 43 list of defined terms matrimonial agreement: repealed, on 24 February 2016, by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Calculation of FIF income or loss
EX 44 Five calculation methods
Use of 1 method
(1)
If the tests in section CQ 5 (When FIF income arises) or DN 6 (When FIF loss arises) are met, the amount of a person’s FIF income or loss from an attributing interest is calculated under—
(a)
[Repealed](b)
the attributable FIF income method; or
(c)
the comparative value method; or
(d)
the deemed rate of return method; or
(e)
the fair dividend rate method; or
(f)
the cost method.
Choosing method
(2)
The person must choose which calculation method applies by completing their return of income accordingly, but the choice is limited by sections EX 46, EX 47, EX 47B, EX 48, and EX 62.
Defined in this Act: amount, attributable FIF income method, attributing interest, calculation method, comparative value method, cost method, deemed rate of return method, fair dividend rate method, FIF income, loss, return of income
Compare: 2004 No 35 s EX 38
Section EX 44 heading: amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 31(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 44(1): amended, on 24 February 2016, by section 147(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 44(1)(a): repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 31(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 44(1)(b): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 31(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 44(2): amended, on 1 July 2018, by section 14(1) (and see section 14(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section EX 44 list of defined terms accounting profits method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 31(4)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 44 list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 31(4)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 44 list of defined terms attributing interest: inserted, on 24 February 2016, by section 147(2)(b) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 44 list of defined terms branch equivalent method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 31(4)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 44 list of defined terms fair dividend rate: repealed, on 24 February 2016, by section 147(2)(a) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 44 list of defined terms fair dividend rate method: inserted, on 24 February 2016, by section 147(2)(b) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EX 45 Exclusion of amounts of death benefit
No FIF income
(1)
When this section applies, a person is treated as not deriving FIF income to the extent to which the income arises solely from receiving a death benefit under a life insurance policy.
Application of this section: contract before becoming resident
(2)
This section applies if—
(a)
the person or the deceased (the contracting party), when not a New Zealand resident, entered into a binding contract that gave rise to the benefit; and
(b)
at the time the contract was entered into, the contracting party either had not previously been a New Zealand resident or had not been a resident for at least the previous 10 years; and
(c)
the benefit was not increased by a voluntary action taken after the contracting party became a resident.
Application of this section: pre-1992 contracts
(3)
This section also applies if—
(a)
before 2 July 1992 the person or the contracting party entered into a binding contract giving rise to the benefit; and
(b)
the benefit was not increased by a voluntary action taken on or after 2 July 1992.
Defined in this Act: amount, FIF income, life insurance policy, New Zealand resident, year
Compare: 2004 No 35 s EX 39
EX 46 Limits on choice of calculation methods
Same method for same FIF
(1)
If a person has 2 or more attributing interests in the same FIF for the same period, the person must use the same calculation method for calculating FIF income or loss from each interest in that period, except to the extent to which—
(a)
the interests are of different classes; and
(b)
the choice of method for a class is limited by this section or section EX 47, EX 48, or EX 62.
Accounting profits method[Repealed]
(2)
[Repealed]Attributable FIF income method
(3)
A person may use the attributable FIF income method to calculate FIF income or loss from an attributing interest in a FIF for an accounting period only if the person can provide to the Commissioner, if requested, sufficient information to enable the Commissioner to check the calculations required by section EX 50 and,—
(a)
at all times in the accounting period,—
(i)
the FIF is a company; and
(ii)
the item “income interest”
given by section EX 50(4) for the person and the FIF is 10% or more; and
(iii)
the person is not a portfolio investment entity:
(b)
the FIF is a CFC and the person cannot determine the market value of the attributing interest at the beginning of the accounting period except by independent valuation and neither the person nor a person who has a direct income interest of 10% or more in the FIF is—
(i)
a listed company:
(ii)
a group investment fund:
(iii)
a portfolio investment entity:
(iv)
a superannuation scheme:
(v)
a unit trust:
(vi)
a trustee of a trust with a beneficiary described in 1 or more of subparagraphs (i) to (iv).
Deemed rate of return method: general rule[Repealed]
(4)
[Repealed]Deemed rate of return method
(5)
A person may use the deemed rate of return method to calculate FIF income or loss from an attributing interest in a FIF only if the person is required by section EX 47 to use the deemed rate of return method for the interest.
Comparative value method: shares in foreign companies
(6)
A person may use the comparative value method to calculate FIF income or loss from an attributing interest in a FIF that is a share in a foreign company for an income year only if—
(a)
the person is a natural person:
(b)
the person is the trustee of a trust that—
(i)
has no gifting settlor who is not a natural person or deceased person; and
(ii)
at all times in the income year, is a complying trust for a distribution made at the time; and
(iii)
is, at all times in the income year, mainly for the benefit of a natural person for whom the gifting settlors of the trust have natural love and affection (or had natural love and affection when alive) or is mainly for the benefit of an organisation or trust with income that is exempt income under section CW 41 or CW 42 (which relate to the income of charities); and
(iv)
is not a superannuation scheme:
(c)
[Repealed](d)
the share is a non-ordinary share described in subsection (10):
(e)
the person is the share user of the share under a returning share transfer to which section EX 47B applies.
Fair dividend rate method: shares in foreign companies[Repealed]
(7)
[Repealed]Fair dividend rate method: exemption for shares in foreign companies
(8)
A person must not use the fair dividend rate method to calculate FIF income or loss from an attributing interest in a FIF that is a share in a foreign company for an income year if—
(a)
the share is a non-ordinary share described in subsection (10):
(b)
the person chooses to use the comparative value method for another attributing interest that is a share in a foreign company and for which the person would be allowed, in the absence of this paragraph, to use the fair dividend rate method.
Cost method for shares in foreign companies
(9)
A person may use the cost method to calculate FIF income or loss from an attributing interest in a FIF that is a share in a foreign company only if—
(a)
[Repealed](b)
use of the fair dividend rate method is allowed but is not practical because the person cannot determine the market value of the attributing interest at the start of the income year except by an independent valuation.
Certain non-ordinary shares
(10)
For the purposes of subsections (6)(d) and (8)(a), a non-ordinary share in a foreign company is—
(a)
a fixed-rate share that meets the requirements of the definition of fixed-rate share, paragraph (f)(i) or (f)(iii), or both:
(b)
a non-participating redeemable share:
(c)
an interest in a non-resident holding directly or indirectly assets of which 80% or more by value at a time in the income year—
(i)
consist of fixed-rate foreign equities, or financial arrangements providing funds to a person; and
(ii)
are denominated in New Zealand dollars or are assets having a value in New Zealand dollars that is governed by 1 or more related financial arrangements that remove 80% to 125% of foreign currency risk for the assets and are entered with the sole purpose and net effect of offsetting exposure to foreign currency exchange rate movement in the value of the assets:
(cb)
an interest in a non-resident if—
(i)
the non-resident holds directly or indirectly assets of which 80% or more by value at a time in the income year consist of fixed-rate foreign equities or financial arrangements providing funds to a person ignoring financial arrangements between the non-resident and other members of a group of companies that it is a member of; and
(ii)
the non-resident is not listed on a recognised exchange or is listed on a recognised exchange but is a foreign PIE equivalent, ignoring section HL 10(4) (Further eligibility requirements relating to investments) for the purposes of this subparagraph; and
(iii)
the interest has a value in New Zealand dollars that is governed by 1 or more related financial arrangements that remove 80% to 125% of foreign currency risk for the interest and are entered with the sole purpose and net effect of offsetting exposure to foreign currency exchange rate movement in the value of the interest:
(d)
a share that involves an obligation—
(i)
of another person to provide to the investor, directly or indirectly through an arrangement, an amount that is more than the issue price of the share; and
(ii)
that is non-contingent or subject to a contingency that is sufficiently remote to be immaterial:
(db)
an interest in a non-resident if—
(i)
the non-resident is related to the person holding the interest, or the interest is or is part of a structured arrangement; and
(ii)
the non-resident is not a foreign PIE equivalent; and
(iii)
the non-resident is allowed a deduction against income or an equivalent tax relief, under the taxation law of a country or territory outside New Zealand, for the payment of a dividend arising from the interest:
(e)
a share of a kind that the Commissioner determines under section 91AAO of the Tax Administration Act 1994 to be an interest for which the fair dividend rate method is not available.
Commissioner’s determination overriding subsection (10)(a) to (d)
(11)
Subsection (10)(a) to (d) does not apply to a share if the Commissioner determines under section 91AAO of the Tax Administration Act 1994 that the share is an interest for which the fair dividend rate method is available.
Meaning of gifting settlor
(12)
A gifting settlor, for a trust (the relevant trust), means a person who—
(a)
makes a transfer of value, by disposing of property, to the trustee of—
(i)
the relevant trust:
(ii)
a trust with a trustee who settles property on the relevant trust, directly or through the trustees of other trusts; and
(b)
is not the trustee of a trust.
Defined in this Act: accounting period, accounting profits method, amount, attributable FIF income method, attributing interest, calculation method, Commissioner, company, comparative value method, complying trust, cost method, deemed rate of return method, direct income interest, dividend, exempt income, fair dividend rate method, FIF, FIF income, financial arrangement, fixed-rate foreign equity, fixed-rate share, foreign company, foreign PIE equivalent, generally accepted accounting practice, gifting settlor, grey list company, IFRS 9, income, income year, loss, market value, non-resident, pay, PIE, portfolio investment entity, recognised exchange, related, request, returning share transfer, share, share supplier, share user, shareholder, structured arrangement, superannuation scheme, tax, trustee
Compare: 2004 No 35 s EX 40
Section EX 46(1)(b): replaced, on 30 March 2017, by section 79 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EX 46(2) heading: repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, pursuant to section 32(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 46(2): repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 32(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 46(3) heading: replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 32(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 46(3): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 32(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 46(4) heading: repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, pursuant to section 32(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 46(4): repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 32(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 46(5) heading: replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 32(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 46(5): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 32(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 46(6)(b): substituted, on 1 April 2008, by section 392(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 46(6)(b)(iii): amended (with effect on 1 April 2008), on 6 October 2009, by section 173(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 46(6)(b)(iv): added (with effect on 1 April 2008), on 6 October 2009, by section 173(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 46(6)(c): repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 32(5) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 46(6)(d): substituted (with effect on 1 April 2008), on 6 October 2009, by section 173(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 46(6)(e): inserted, on 1 July 2018, by section 15(1) (and see section 15(4) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section EX 46(7) heading: repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, pursuant to section 32(6) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 46(7): repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 32(6) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 46(8): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 32(7) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 46(8)(a): substituted (with effect on 1 April 2008), on 6 October 2009, by section 173(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 46(9)(a): repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 32(8) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 46(10) heading: substituted (with effect on 1 April 2008), on 6 October 2009, by section 173(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 46(10): amended (with effect on 1 April 2008), on 6 October 2009, by section 173(7) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 46(10)(a): substituted (with effect on 30 June 2009), on 29 August 2011, by section 39(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EX 46(10)(a): amended, on 29 March 2018 (with effect on 30 June 2009), by section 88(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EX 46(10)(c): substituted, on 1 April 2008, by section 392(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 46(10)(c)(i): amended (with effect on 1 April 2009), on 7 December 2009, by section 30 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EX 46(10)(c)(ii): replaced (with effect on 26 June 2019), on 31 March 2023, by section 61(a) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EX 46(10)(cb): inserted (with effect on 1 April 2009), on 6 October 2009, by section 173(9) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 46(10)(cb)(i): amended (with effect on 1 April 2009), on 7 December 2009, by section 30 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EX 46(10)(cb)(ii): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 173(10) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 46(10)(cb)(iii): replaced (with effect on 26 June 2019), on 31 March 2023, by section 61(b) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EX 46(10)(db): inserted, on 1 July 2018, by section 15(2) (and see section 15(4) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section EX 46(11) heading: amended, on 1 April 2008, by section 392(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 46(11): amended (with effect on 1 April 2008), on 30 June 2014, by section 94 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 46(11): amended, on 1 April 2008, by section 392(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 46(12) heading: added, on 1 April 2008, by section 392(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 46(12): added, on 1 April 2008, by section 392(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 46 list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 32(9)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 46 list of defined terms branch equivalent method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 32(9)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 46 list of defined terms dividend: inserted, on 1 July 2018, by section 15(3) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section EX 46 list of defined terms fixed-rate foreign equity: inserted (with effect on 1 January 2009), on 6 October 2009, by section 173(13) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 46 list of defined terms fixed-rate share: inserted, on 29 March 2018 (with effect on 30 June 2009), by section 88(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EX 46 list of defined terms foreign investment vehicle: repealed, on 1 April 2010, by section 173(12)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 46 list of defined terms foreign PIE: repealed (with effect on 1 April 2008), on 6 October 2009, by section 173(11)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 46 list of defined terms foreign PIE equivalent: inserted, on 1 April 2010, by section 173(12)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 46 list of defined terms gifting settlor: inserted, on 24 February 2016, by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 46 list of defined terms IFRS 9: inserted, on 26 June 2019, by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EX 46 list of defined terms non-resident: inserted, on 1 July 2018, by section 15(3) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section EX 46 list of defined terms pay: inserted, on 1 July 2018, by section 15(3) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section EX 46 list of defined terms PIE: inserted, on 1 April 2010, by section 173(12)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 46 list of defined terms related: inserted, on 1 July 2018, by section 15(3) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section EX 46 list of defined terms request: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EX 46 list of defined terms returning share transfer: inserted, on 1 July 2018, by section 15(3) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section EX 46 list of defined terms share supplier: inserted, on 1 July 2018, by section 15(3) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section EX 46 list of defined terms share user: inserted, on 1 July 2018, by section 15(3) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section EX 46 list of defined terms structured arrangement: inserted, on 1 July 2018, by section 15(3) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
EX 47 Method required for certain non-ordinary shares
A person must calculate FIF income or loss for an income year from an attributing interest that is a non-ordinary share described in section EX 46(10) using—
(a)
the comparative value method; or
(b)
the deemed rate of return method, if use of the comparative value method is not practical because the person cannot determine the market value of the attributing interest at the end of the income year.
Defined in this Act: attributing interest, comparative value method, deemed rate of return method, fair dividend rate method, FIF income, FIF loss, income year, market value, share
Section EX 47: substituted (with effect on 1 April 2008), on 6 October 2009, by section 174 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 47B Method required for shares subject to certain returning share transfers
A person must use the comparative value method to calculate FIF income or FIF loss for an income year from an attributing interest that is a share subject to a returning share transfer if—
(a)
the person is the share user; and
(b)
the share supplier is resident in a country or territory outside New Zealand (the foreign jurisdiction); and
(c)
the person is related to the share supplier or the returning share transfer is or is part of a structured arrangement; and
(d)
the taxation law of the foreign jurisdiction treats the share supplier as owning the shares subject to the returning share transfer.
Defined in this Act: attributing interest, comparative value method, FIF income, FIF loss, income year, New Zealand, related, returning share transfer, share, share supplier, share user, structured arrangement
Section EX 47B: inserted, on 1 July 2018, by section 16(1) (and see section 16(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
EX 48 Default calculation method
When this section applies
(1)
This section applies when—
(a)
a person does not choose a calculation method to calculate FIF income or loss from an attributing interest for a period; and
(b)
sections EX 46, EX 47, and EX 62 do not have the effect of requiring a particular calculation method to be used.
Default choice
(2)
The person is treated as having chosen to use, for the period,—
(a)
the fair dividend rate method if it is practical to use it; and
(b)
the cost method if it is not practical to use the fair dividend rate method.
Defined in this Act: attributing interest, calculation method, cost method, direct income interest, fair dividend rate method, FIF income, foreign company, loss
Compare: 2004 No 35 s EX 41
Section EX 48(2) heading: replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 33(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 48(2): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 33(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 48 list of defined terms accounting profits method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 33(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 48 list of defined terms comparative value method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 33(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 48 list of defined terms deemed rate of return method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 33(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
EX 49 Accounting profits method
[Repealed]Section EX 49: repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 34(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
EX 50 Attributable FIF income method
Formula
(1)
If a person is using the attributable FIF income method to calculate FIF income or loss from an attributing interest in a FIF, the total FIF income or loss from all their attributing interests in the FIF for the relevant accounting period is calculated using the formula—
net attributable FIF income or loss × income interest.
Definition of items in formula
(2)
The items in the formula in subsection (1) are defined in subsections (3) and (4).
Net attributable FIF income or loss
(3)
Net attributable FIF income or loss is the amount for the FIF and the accounting period found by applying—
(a)
sections EX 18A to EX 21E, EX 24, and EX 25, as modified by subsection (4B), as if the FIF were a CFC and the person’s attributing interests in the FIF were income interests in the CFC; and
(b)
subsections (5) and (6).
Income interest
(4)
Income interest is the person’s income interest in the FIF for the accounting period. The income interest is calculated under all the following CFC rules, applying as if the FIF were a CFC:
(a)
(b)
sections EX 16 and EX 17:
(c)
Modifications to method of calculating net attributable CFC income or loss
(4B)
The net attributable FIF income or loss of a FIF is calculated as if—
(a)
section EX 20B(5)(c)(i) required that the royalty be paid by a foreign company meeting the requirements of section EX 50(4C):
(b)
section EX 20B(5)(d) were omitted:
(c)
section EX 20B(7)(c) required that the rent be paid by a foreign company meeting the requirements of section EX 50(4C):
(d)
section EX 20B(12)(a) required that the financial arrangement or agreement be an agreement by the CFC to lend money to a foreign company meeting the requirements of section EX 50(4C):
(e)
section EX 21C(2)(a) required—
(i)
the interest holder or other person to have accounts that include the accounts of the CFC, including by proportionate consolidation under NZIAS 31:
(ii)
the interest holder or other person to have accounts that include dividends and net fair value changes in relation to the CFC under IFRS 9, or include amounts recognised under the equity method in NZIAS 28 or NZIAS 31, and the CFC to have accounts that are prepared under United States generally accepted accounting principles and meet the requirements of section EX 21C(8) for accounts prepared under those principles in the United States of America:
(f)
section EX 21C(3)(a) required—
(i)
the interest holder or other person to have accounts that include the accounts of the members of the test group, including by proportionate consolidation under NZIAS 31:
(ii)
the interest holder or other person to have accounts that include dividends and net fair value changes in relation to the members under IFRS 9, or include amounts recognised under the equity method in NZIAS 28 or NZIAS 31, and the members to have accounts that are prepared under United States generally accepted accounting principles and meet the requirements of section EX 21C(8) for accounts prepared under those principles in the United States of America:
(g)
section EX 21C(4)(a) required—
(i)
the interest holder or other person to have accounts that include the accounts of the CFC, including by proportionate consolidation under the IFRSE corresponding to NZIAS 31:
(ii)
the interest holder or other person to have accounts that include dividends and net fair value changes in relation to the CFC under the IFRSE corresponding to IFRS 9, or include amounts recognised under the equity method in the IFRSE corresponding to NZIAS 28 or NZIAS 31, and the CFC to have accounts that are prepared under United States generally accepted accounting principles and meet the requirements of section EX 21C(8) for accounts prepared under those principles in the United States of America:
(h)
section EX 21C(5)(a) required—
(i)
the interest holder or other person to have accounts that include the accounts of the members of the test group, including by proportionate consolidation under the IFRSE corresponding to NZIAS 31:
(ii)
the interest holder or other person to have accounts that include dividends and net fair value changes in relation to the members under the IFRSE corresponding to IFRS 9, or include amounts recognised under the equity method in the IFRSE corresponding to NZIAS 28 or NZIAS 31, and the members to have accounts that are prepared under United States generally accepted accounting principles and meet the requirements of section EX 21C(8) for accounts prepared under those principles in the United States of America:
(i)
section EX 21D(1)(a) required that none of the other companies in the test group be a CFC:
(j)
section EX 21D(1)(b) required that the CFC hold a voting interest of more than 50% in each of the other companies in the test group:
(k)
section EX 21D(3)(b) were omitted:
(l)
section EX 21E(2)(b) required that none of the other companies in the test group be a CFC:
(m)
section EX 21E(2)(c) required that the CFC hold a voting interest of more than 50% in each of the other companies in the test group:
(n)
section EX 21E(2)(d) were omitted:
(o)
section EX 21E(4)(c) were omitted:
(p)
the references in section EX 21E(7)(f) and (g) to “IFRS 9”
were to “whichever is appropriate of IFRS 9, an equivalent IFRSE, and an equivalent standard or principle included in United States generally accepted accounting principles”
:
(q)
section EX 21E(9)(a) required that an amount in the category be a dividend that is—
(i)
not included in the attributable CFC amount for the accounting period under section EX 20B(3)(a) to (c); and
(ii)
paid by a company other than 1 from which the person does not have additional FIF income or loss under subsection (6) because of the application of subsection (7B)(b):
(r)
the references in section EX 21E(10)(c) and (d) to “IFRS 9”
were to “whichever is appropriate of IFRS 9, an equivalent IFRSE, and an equivalent standard or principle included in United States generally accepted accounting principles”
:
(s)
the references in section EX 21E(12)(d) to “IFRS 9”
were to “whichever is appropriate of IFRS 9, an equivalent IFRSE, and an equivalent standard or principle included in United States generally accepted accounting principles”
:
(t)
the reference in section EX 21E(12)(g) to “NZIAS 32”
were a reference to “whichever is appropriate of NZIAS 32, an equivalent IFRSE, and an equivalent standard or principle included in United States generally accepted accounting principles”
.
Requirements for foreign company making payments to FIF
(4C)
A foreign company making payments to a FIF meets the requirements of this subsection if—
(a)
the person uses the attributable FIF income method for the foreign company or would be able to use that method in the absence of section EX 35; and
(b)
the foreign company, if it were a CFC, would be a non-attributing active CFC under section EX 21B(2) in the absence of section EX 20B(5)(c)(i), (7)(c), and (12)(a); and
(c)
a group of persons holds total voting interests of more than 50% in the FIF and in the foreign company; and
(d)
the FIF and the foreign company each have a taxed FIF connection with the same country or territory.
Taxable distributions
(5)
If the FIF derives a taxable distribution from a non-complying trust in the accounting period,—
(a)
the taxable distribution is excluded when calculating the FIF’s net attributable FIF income or loss, due to the combined effect of subsection (1) and section EX 21(32); and
(b)
the person has additional attributed CFC income calculated by multiplying the taxable distribution by the person’s income interest in the FIF; and
(c)
the person is liable for income tax on the additional attributed CFC income at the rate in schedule 1 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe benefits) that applies to amounts under section HC 22 (Use of tax losses to reduce taxable distributions from non-complying trusts).
Calculation of additional FIF income or loss
(6)
If the FIF has an income interest in a foreign company for the accounting period and, as a result, the person has an indirect attributing interest in the foreign company, the person has additional FIF income or loss calculated using the formula—
interest × FIF’s FIF income or loss.
Definition of items in formula
(7)
In the formula in subsection (6),—
(a)
interest is the person’s income interest in the FIF for the period:
(b)
FIF’s FIF income or loss is the FIF’s FIF income or loss for the period from foreign companies in which the person has an indirect attributing interest, calculated under the rules in section EX 58(4) and (5) as if—
(i)
the FIF were the CFC referred to; and
(ii)
the FIF’s interest in the foreign company were an attributing interest, despite any application of section EX 34.
Exception to subsection (6)
(7B)
A person does not have additional FIF income or loss under subsection (6) from a FIF with an interest in a foreign company if—
(a)
the foreign company meets the test for a non-attributing active CFC under section EX 21B(2) and the person—
(i)
[Repealed](ii)
is able to include the foreign company in the same test group as the FIF under section EX 21D or EX 21E:
(b)
the FIF would meet the test for a non-attributing active CFC under section EX 21B(2)(b) if the items added passive and reported revenue under section EX 21E(5), (8), and (10) for the FIF included the amounts given by subsection (7C)(a)—
(i)
relating to the FIF’s interests in each member of a grouping of one or more foreign companies including the foreign company; and
(ii)
reported in the accounts of the FIF, or in the consolidated accounts of the FIF’s test group under section EX 21E.
(c)
[Repealed]Requirements for test under subsection (7B)(b)
(7C)
In determining whether a FIF would meet the requirements of subsection (7B)(b) for an accounting period,—
(a)
the amounts required to be included in the items are—
(i)
amounts recognised in profit and loss under the equity method under whichever is appropriate of NZIAS 28, NZIAS 31, an equivalent IFRSE, and an equivalent standard or principle in the generally accepted accounting principles in the United States of America:
(ii)
amounts recognised in profit or loss under proportionate consolidation under whichever is appropriate of NZIAS 31, an equivalent IFRSE, and an equivalent standard or principle in the generally accepted accounting principles in the United States of America:
(iii)
dividends and net fair value changes recognised in profit or loss in relation to investments accounted for under whichever is appropriate of IFRS 9, an equivalent IFRSE, and an equivalent standard or principle in the generally accepted accounting principles in the United States of America; and
(b)
an interest holder must not use the result of the test applied to the FIF and a foreign company as a member of a grouping of foreign companies if the interest holder uses for the period a result of the test applied to the FIF and a different grouping of foreign companies.
Application of CFC rules tax credit rules
(8)
The rules in sections LK 1 to LK 7 (which relate to tax credits for attributed CFC income) apply to allow the person to claim foreign tax credits but on the basis of the assumptions made in subsection (9). The rules in those sections allow foreign tax credits relating to attributed CFC income but apply a jurisdictional ring-fencing approach to the use of tax credits.
Assumptions in reading tax credit rules
(9)
Sections LK 1 to LK 7 are applied as if—
(a)
the FIF were a CFC; and
(b)
the FIF income of the person from the FIF were attributed CFC income; and
(c)
the person’s income interest, calculated under subsection (4) were their relevant income interest for the purposes of those sections; and
(d)
any relevant person’s FIF income calculated under the attributable FIF income method from a FIF that is resident in the relevant country were attributed CFC income.
Reduction in FIF loss to economic loss
(10)
In the cases described in subsections (11) and (12), the amount of any FIF loss calculated under subsections (1) and (6) is reduced to be equal to the person’s corresponding economic loss, if any.
Application of subsection (10): no economic loss
(11)
Subsection (10) applies if the person suffers no, or substantially no, economic loss corresponding to the FIF loss, whether because of a call option, a put option, or any other reason.
Application of subsection (10): FIF loss excessive
(12)
Subsection (10) also applies if the amount of FIF loss is more than any corresponding economic loss suffered by the person, whether because of the application of the rules for calculating the person’s income interest or any other reason.
Defined in this Act: accounting period, attributable FIF income method, amount, attributed CFC income, attributing interest, CFC, FIF, FIF income, FIF loss, foreign company, IFRS 9, income interest, income tax, indirect attributing interest, loss, net attributable CFC income, net attributable FIF income, non-attributing active CFC, non-complying trust, non-resident, NZIAS 28, NZIAS 31, quarter, tax, taxable distribution, taxed FIF connection, voting interest
Compare: 2004 No 35 s EX 43
Section EX 50 heading: replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 35(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 50(1): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 35(2)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 50(1) formula: amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 35(2)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 50(3) heading: replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 35(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 50(3): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 35(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 50(4B) heading: inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 35(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 50(4B): inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 35(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 50(4B)(e)(ii): amended, on 26 June 2019, by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EX 50(4B)(f)(ii): amended, on 26 June 2019, by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EX 50(4B)(g)(ii): amended, on 26 June 2019, by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EX 50(4B)(h)(ii): amended, on 26 June 2019, by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EX 50(4B)(p): amended, on 26 June 2019, by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EX 50(4B)(r): amended, on 26 June 2019, by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EX 50(4B)(s): amended, on 26 June 2019, by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EX 50(4C) heading: inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 35(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 50(4C): inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 35(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 50(4C)(a): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 17 July 2013, by section 52(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EX 50(5)(a): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 35(5) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 50(5)(c): amended, on 1 April 2008, by section 562 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 50(6): amended (with effect on 1 April 2014 and applying for the 2014–15 and later income years), on 24 February 2016, by section 148(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 50(6): amended (with effect on 1 April 2014 and applying for the 2014–15 and later income years), on 30 June 2014, by section 95(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 50(7)(b): amended (with effect on 1 April 2014 and applying for the 2014–15 and later income years), on 30 June 2014, by section 95(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 50(7B) heading: inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 35(6) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 50(7B): inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 35(6) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 50(7B)(a)(i): repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 2 November 2012, by section 48(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 50(7B)(b): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 2 November 2012, by section 48(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 50(7B)(c): repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 2 November 2012, by section 48(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 50(7C) heading: inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 2 November 2012, by section 48(4) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 50(7C): inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 2 November 2012, by section 48(4) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 50(7C)(a)(iii): amended, on 26 June 2019, by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EX 50(9)(d): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 35(7) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 50 list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 35(8)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 50 list of defined terms branch equivalent income: repealed (with effect on 1 July 2011), on 7 May 2012, by section 35(8)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 50 list of defined terms branch equivalent method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 35(8)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 50 list of defined terms IFRS 9: inserted, on 26 June 2019, by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EX 50 list of defined terms indirect attributing interest: inserted (with effect on 1 April 2014), on 24 February 2016, by section 148(2)(b) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 50 list of defined terms net attributable CFC income: inserted (with effect on 1 July 2011), on 7 May 2012, by section 35(8)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 50 list of defined terms net attributable FIF income: inserted (with effect on 1 July 2011), on 7 May 2012, by section 35(8)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 50 list of defined terms non-attributing active CFC: inserted (with effect on 1 July 2011), on 7 May 2012, by section 35(8)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 50 list of defined terms NZIAS 28: inserted (with effect on 1 July 2011), on 7 May 2012, by section 35(8)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 50 list of defined terms NZIAS 31: inserted (with effect on 1 July 2011), on 7 May 2012, by section 35(8)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 50 list of defined terms NZIAS 39: repealed, on 26 June 2019, by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EX 50 list of defined terms taxed FIF connection: inserted (with effect on 1 April 2014), on 24 February 2016, by section 148(2)(b) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 50 list of defined terms taxed FIF relationship: repealed (with effect on 1 April 2014), on 24 February 2016, by section 148(2)(a) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 50 list of defined terms voting interest: inserted (with effect on 1 July 2011), on 7 May 2012, by section 35(8)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
EX 51 Comparative value method
Formula
(1)
If a person is using the comparative value method to calculate FIF income or loss from an attributing interest in a FIF, the FIF income or loss from that interest for the relevant income year is calculated using the formula—
(closing value + gains) − (opening value + costs).
Definition of items in formula
(2)
The items in the formula are defined in subsections (3) to (6).
Closing value
(3)
Closing value is the market value of the person’s interest in the FIF at the end of the income year. The value is zero if the person has disposed of the interest or is then applying another calculation method to it.
Gains
(4)
Gains is the total of all amounts that the person derives during the income year from holding or disposing of the interest. The amounts include any foreign withholding tax or other amount that the person is allowed as a credit under section LE 1 (Tax credits for imputation credits) or LJ 2 (Tax credits for foreign income tax).
Opening value
(5)
Opening value is the market value of the person’s interest in the FIF at the end of the previous income year, calculated using the exchange rate applying under section EX 57 for that previous year. The value is zero if the person did not hold the interest then or was then applying another calculation method to it.
Costs
(6)
Costs is the total for the income year of—
(a)
all expenditure, if any, that—
(i)
the person incurs in acquiring or increasing the interest:
(ii)
another person incurs on behalf of the person referred to in subparagraph (i) in relation to the interest:
(b)
income tax on the income of the FIF—
(i)
for which the person is liable under the laws of a country or territory outside New Zealand; and
(ii)
paid by the person in the income year.
Losses from some attributing interests not subject to rule
(7)
Subsection (8) applies to a person who calculates under subsection (1) an amount of FIF loss for an attributing interest in a FIF (the affected interest) that is not a non-ordinary share described in section EX 46(10).
No total FIF loss from other attributing interests
(8)
If, in the absence of this subsection, the person would have under subsection (1) a total FIF loss for the income year from all the person’s affected interests, the FIF loss for the income year for the person from each affected interest is reduced to the extent necessary for the total FIF loss from the affected interests to be zero.
Defined in this Act: amount, attributing interest, calculation method, comparative value method, FIF, FIF income, FIF loss, foreign company, foreign withholding tax, income year, loss, market value, pay, tax
Compare: 2004 No 35 s EX 44
Section EX 51(4): amended, on 1 April 2008, by section 393 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 51(5): substituted (with effect on 1 April 2008), on 6 October 2009, by section 176(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 51(6)(a): replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 30 June 2014, by section 96(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 51(7) heading: substituted (with effect on 1 April 2009), on 6 October 2009, by section 176(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 51(7): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 36(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 51(8) heading: substituted (with effect on 1 April 2009), on 6 October 2009, by section 176(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 51(8): substituted (with effect on 1 April 2009), on 6 October 2009, by section 176(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 51 list of defined terms direct income interest: repealed (with effect on 1 July 2011), on 7 May 2012, by section 36(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
EX 52A Fair dividend rate method: use of different forms
When this section applies
(1)
This section applies when a person calculates FIF income from an attributing interest in a FIF for an income year (the current year) under the fair dividend rate method.
When person must use fair dividend rate periodic method
(2)
A person must use the fair dividend rate periodic method under section EX 53 for the attributing interest for the current year if the person—
(a)
is a unit trust or other entity that—
(i)
makes investments for the benefit of other persons (the investors); and
(ii)
assigns each investor an interest in a proportion of the net returns from the investments; and
(iii)
determines the value of each investor’s interests for each of a number of periods making up the income year:
(b)
for the attributing interest, uses the fair dividend rate periodic method for the income year ending before the beginning of the current year and uses the fair dividend rate annual method under section EX 52 for an income year included in the period that is the shortest of—
(i)
the 4-year period ending before the beginning of the current year:
(ii)
the period from the beginning of the income year in which the person acquired the attributing interest and ending before the beginning of the current year:
(iii)
the period from the beginning of the 2015–16 income year and ending before the beginning of the current year.
When person must use fair dividend rate annual method
(3)
A person must use the fair dividend rate annual method for the attributing interest for the current year if the person uses for the attributing interest—
(a)
the fair dividend rate annual method for the income year ending before the beginning of the current year; and
(b)
the fair dividend rate periodic method for an income year included in the period that is the shortest of—
(i)
the 4-year period ending before the beginning of the current year:
(ii)
the period from the beginning of the income year in which the person acquired the attributing interest and ending before the beginning of the current year:
(iii)
the period from the beginning of the 2015–16 income year and ending before the beginning of the current year.
Defined in this Act: attributing interest, fair dividend rate annual method, fair dividend rate method, fair dividend rate periodic method, FIF, FIF income, income year, unit trust
Section EX 52A: inserted, on 1 April 2016 (applying for the 2016–17 and later income years), by section 149(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EX 52 Fair dividend rate annual method
When this section applies
(1)
This section applies when a person—
(a)
calculates FIF income from an attributing interest in a FIF for an income year under the fair dividend rate method; and
(b)
is not required under section EX 52A to use the fair dividend rate periodic method; and
(c)
does not choose under section EX 53 to use the fair dividend rate periodic method.
FIF income
(2)
The person’s total FIF income for the income year from the attributing interests in FIFs (the FDR interests) for which the person uses the fair dividend rate annual method is calculated using the formula in subsection (3).
FIF income formula
(3)
The formula is—
(0.05 × opening value) + quick sale adjustment.
Definition of items in FIF income formula
(4)
The items in the FIF income formula in subsection (3) are defined in subsections (5) to (7).
Opening value
(5)
Opening value is the total of the market values of the FDR interests held by the person at the start of the income year that are not, at the start of the income year, included in a direct income interest of 10% or more in a FIF that, at the start of the income year,—
(a)
meets the requirements of section EX 35(b)(i) to (iii); and
(b)
does not have its liability for income tax reduced by an exemption, allowance, or relief referred to in section EX 35(c)(i) or (ii); and
(c)
is not a unit trust or is a unit trust subject under Australian law to income tax on its income in the same way as a company.
Exclusion for certain managed funds
(5B)
Subsection (5)(b) does not apply if—
(a)
the person is a portfolio investment entity, an entity eligible to be a portfolio investment entity, or a life insurance company; and
(b)
the FIF is a foreign PIE equivalent.
When quick sale adjustment required
(6)
The quick sale adjustment is required, and is not zero, only if the person, in the income year,—
(a)
acquires or increases an FDR interest to which this section applies; and
(b)
later disposes of or reduces the FDR interest.
Quick sale adjustment
(7)
Quick sale adjustment is the lesser of—
(a)
the total of the amounts (the peak holding method amount) calculated for each FDR interest from the shareholding for the FDR interest using the formula in subsection (8):
(b)
the total of the amounts (the quick sale gain amount) calculated for each FDR interest from the shareholding for the FDR interest using the formula in subsection (12), treating a negative total as being zero.
Peak holding method amount formula
(8)
The formula is—
0.05 × peak holding differential × average cost.
Definition of items in formula
(9)
The items in the formula in subsection (8) are defined in subsections (10) and (11).
Peak holding differential
(10)
Peak holding differential is,—
(a)
if no share reorganisation affecting the shareholding for the FDR interest occurs in the income year, the lesser of—
(i)
the difference between the greatest shareholding in the year and the shareholding at the start of the year:
(ii)
the difference between the greatest shareholding in the year and the shareholding at the end of the year; or
(b)
if a share reorganisation affecting the shareholding for the FDR interest occurs in the income year, the amount calculated under section EX 54 for the year.
Average cost
(11)
Average cost is—
(a)
if no share reorganisation occurs in the income year, the total amount of expenditure that the person incurs in acquiring or increasing during the income year the attributing interest in the FIF divided by the total for the year of the shareholding increase in the attributing interest in the FIF for each acquisition or increase; or
(b)
if a share reorganisation occurs in the income year, the amount calculated under section EX 54 for the year.
Quick sale gain amount formula
(12)
The formula, for each acquisition or increase in the attributing interest that is disposed of or reduced in the income year, is—
gain − (interest × average cost).
Definition of items in formula
(13)
In the formula in subsection (12),—
(a)
gain is the total amount that the person derives from holding or disposing of the acquisition or increase:
(b)
interest is the amount of the shareholding acquisition or increase:
(c)
average cost is,—
(i)
if no share reorganisation occurs in the income year, the total amount of expenditure that the person incurs in acquiring or increasing the attributing interest in the FIF divided by the total for the income year of the shareholding increase in the interest for each acquisition or increase; or
(ii)
if a share reorganisation occurs in the income year, the amount calculated under section EX 54 for the year.
LIFO for identifying attributing interests disposed of
(14)
For the purposes of subsection (12), attributing interests in a FIF are treated as being disposed of in the reverse order of their acquisition (last in-first out).
Treatment of transaction under section EX 63 or EX 67
(14B)
For the purposes of subsection (7), if the person is treated as disposing of or acquiring an attributing interest in an income year under section EX 63(5) or EX 67, the disposal or acquisition is ignored.
Treatment of attributing interests subject to returning share transfer
(14C)
For a person using the fair dividend rate annual method to calculate FIF income for an attributing interest in a FIF that is an original share subject to a returning share transfer, the attributing interest is treated as being held by the share supplier, except if—
(a)
the share user is related to the share supplier:
(b)
the returning share transfer is or is part of a structured arrangement.
Meaning of shareholding
(15)
In this section, shareholding means the number of shares or units in an attributing interest.
Defined in this Act: amount, attributing interest, direct income interest, fair dividend rate annual method, fair dividend rate method, fair dividend rate periodic method, FIF, FIF income, foreign PIE equivalent, income year, investor, life insurance, market value, original share, portfolio investment entity, related, returning share transfer, share, share reorganisation, share supplier, share user, shareholding, structured arrangement
Compare: 2004 No 35 ss EX 44B(2), EX 44C
Section EX 52 heading: replaced, on 1 April 2016 (applying for the 2016–17 and later income years), by section 150(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 52(1)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 177(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52(1)(b): replaced, on 1 April 2016 (applying for the 2016–17 and later income years), by section 150(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 52(1)(c): inserted, on 1 April 2016 (applying for the 2016–17 and later income years), by section 150(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 52(2): substituted (with effect on 1 April 2008), on 6 October 2009, by section 177(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52(2): amended, on 1 April 2016 (applying for the 2016–17 and later income years), by section 150(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 52(5): replaced (with effect on 1 July 2014), on 31 March 2023, by section 62(1) (and see section 62(2) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EX 52(5B) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 177(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52(5B): inserted (with effect on 1 April 2008), on 6 October 2009, by section 177(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52(5B)(b): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 177(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52(6): substituted (with effect on 1 April 2008), on 6 October 2009, by section 177(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52(7)(a): substituted (with effect on 1 April 2008), on 6 October 2009, by section 177(7) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52(7)(a): amended, on 1 April 2016 (applying for the 2016–17 and later income years), by section 150(4) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 52(7)(b): substituted (with effect on 1 April 2008), on 6 October 2009, by section 177(7) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52(7)(b): amended, on 1 April 2016 (applying for the 2016–17 and later income years), by section 150(5) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 52(10)(a): amended, on 1 April 2016 (applying for the 2016–17 and later income years), by section 150(6) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 52(10)(b): amended, on 1 April 2016 (applying for the 2016–17 and later income years), by section 150(7) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 52(11)(a): amended, on 1 April 2008, by section 394(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 52(12) formula: amended, on 1 April 2008, by section 394(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 52(13)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 177(8)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52(13)(b): substituted, on 1 April 2008, by section 394(5) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 52(13)(c): substituted (with effect on 1 April 2008), on 29 August 2011 (applying for income years beginning on or after 1 April 2008), by section 40(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EX 52(14B) heading: inserted, on 1 April 2008, by section 394(6) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 52(14B): inserted, on 1 April 2008, by section 394(6) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 52(14C) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 177(9) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52(14C): replaced, on 1 July 2018, by section 17(1) (and see section 17(3) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section EX 52 list of defined terms direct income interest: inserted (with effect on 1 July 2011), on 7 May 2012, by section 37(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 52 list of defined terms fair dividend rate annual method: inserted, on 1 April 2016, by section 150(9) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 52 list of defined terms fair dividend rate periodic method: inserted, on 1 April 2016, by section 150(9) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 52 list of defined terms foreign investment vehicle: repealed, on 1 April 2010, by section 177(11)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52 list of defined terms foreign PIE equivalent: inserted, on 1 April 2010, by section 177(11)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52 list of defined terms life insurance: inserted (with effect on 1 April 2008), on 6 October 2009, by section 177(10) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52 list of defined terms original share: inserted (with effect on 1 April 2008), on 6 October 2009, by section 177(10) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52 list of defined terms portfolio investment entity: inserted (with effect on 1 April 2008), on 6 October 2009, by section 177(10) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52 list of defined terms related: inserted, on 1 July 2018, by section 17(2) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section EX 52 list of defined terms returning share transfer: inserted (with effect on 1 April 2008), on 6 October 2009, by section 177(10) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52 list of defined terms share: inserted (with effect on 1 April 2008), on 6 October 2009, by section 177(10) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52 list of defined terms share supplier: inserted (with effect on 1 April 2008), on 6 October 2009, by section 177(10) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 52 list of defined terms share user: inserted, on 1 July 2018, by section 17(2) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section EX 52 list of defined terms structured arrangement: inserted, on 1 July 2018, by section 17(2) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
EX 53 Fair dividend rate periodic method
When this section applies
(1)
This section applies when a person (the interest holder), who calculates under the fair dividend rate method the FIF income from an attributing interest in a FIF for an income year,—
(a)
is required under section EX 52A to use the fair dividend rate periodic method:
(b)
determines the market value of the attributing interest for each period of a day (the unit valuation period) in the income year and—
(i)
is not required to use the fair dividend rate periodic method; and
(ii)
chooses to use the fair dividend rate periodic method.
When this section applies: second case[Repealed]
(1B)
[Repealed]FIF income
(2)
The total FIF income for the income year of the fund or person (the interest holder) from the attributing interests in FIFs (the FDR interests) for which the fund or person uses the fair dividend rate method is the total of the amounts calculated using the formula in subsection (3) for each unit valuation period.
Formula
(3)
The formula is—
(0.05 × opening value × period ÷ year) + quick sale adjustment.
Definition of items in formula
(4)
The items in the formula in subsection (3) are defined in subsections (5) to (15).
Opening value
(5)
Opening value is the total of the market values of the FDR interests held by the person at the start of the unit valuation period that are not, at the start of the unit valuation period, included in a direct income interest of 10% or more in a FIF that, at the start of the income year,—
(a)
meets the requirements of section EX 35(b)(i) to (iii); and
(b)
does not have its liability for income tax reduced by an exemption, allowance, or relief referred to in section EX 35(c)(i) or (ii); and
(c)
is not a unit trust or is a unit trust subject under Australian law to income tax on its income in the same way as a company.
Exclusion for certain managed funds
(5B)
Subsection (5)(b) does not apply if—
(a)
the interest holder is a portfolio investment entity, an entity eligible to be a portfolio investment entity, or a life insurance company; and
(b)
the FIF is a foreign PIE equivalent.
Period
(6)
Period is the number of days in the unit valuation period.
Year
(7)
Year is the number of days in the income year.
When quick sale adjustment required
(8)
The quick sale adjustment is required, and is not zero, only if the interest holder has a unit valuation period of more than 1 day and, in the unit valuation period,—
(a)
acquires or increases an FDR interest to which this section applies; and
(b)
later disposes of or reduces the FDR interest.
Quick sale adjustment
(9)
Quick sale adjustment is the lesser of—
(a)
the total of the amounts (the peak holding method amount) calculated for each FDR interest using the formula in subsection (10):
(b)
the total of the amounts (the quick sale gain amount) calculated for each FDR interest using the formula in subsection (14), treating a negative total as being zero.
Peak holding method amount formula
(10)
The formula is—
0.05 × peak holding differential × average cost.
Definition of items in formula
(11)
The items in the formula in subsection (10) are defined in subsections (12) and (13).
Peak holding differential
(12)
Peak holding differential is,—
(a)
if no share reorganisation occurs in the unit valuation period, the lesser of—
(i)
the difference between the greatest shareholding in the period and the shareholding at the start of the period:
(ii)
the difference between the greatest shareholding in the period and the shareholding at the end of the period; or
(b)
if a share reorganisation occurs in the period, the amount calculated under section EX 54 for the period.
Average cost
(13)
Average cost is—
(a)
if no share reorganisation occurs in the unit valuation period, the total amount of expenditure that the interest holder incurs in acquiring or increasing during the period the attributing interest in the FIF divided by the total for the period of the shareholding increase in the attributing interest in the FIF for each acquisition or increase; or
(b)
if a share reorganisation occurs in the period, the amount calculated under section EX 54 for the period.
Quick sale gain amount formula
(14)
The formula, for each acquisition or increase in the attributing interest that is disposed of or reduced in the unit valuation period, is—
gain − (interest × average cost).
Definition of items in formula
(15)
In the formula in subsection (14),—
(a)
gain is the total amount that the interest holder derives from holding or disposing of the acquisition or increase:
(b)
interest is the amount of the shareholding acquisition or increase:
(c)
average cost is the total amount of expenditure that the interest holder incurs in acquiring or increasing the attributing interest in the FIF divided by the total for the period of the shareholding increase in the interest for each acquisition or increase.
LIFO for identifying attributing interests disposed of
(16)
For the purposes of subsection (14), attributing interests in a FIF are treated as being disposed of in the reverse order of their acquisition (last in-first out).
Deemed transaction under section EX 67 ignored
(16B)
For the purposes of subsection (9), if the person is treated as disposing of or acquiring an attributing interest in an income year under section EX 67, the disposal or acquisition is ignored.
Treatment of attributing interests subject to returning share transfer
(16C)
For a person using the fair dividend rate annual method to calculate FIF income for an attributing interest in a FIF that is an original share subject to a returning share transfer, the attributing interest is treated as being held by the share supplier, except if—
(a)
the share user is related to the share supplier:
(b)
the returning share transfer is or is part of a structured arrangement.
Meaning of shareholding
(17)
In this section, shareholding means the number of shares or units in an attributing interest.
Defined in this Act: amount, attributing interest, direct income interest, fair dividend rate annual method, fair dividend rate method, fair dividend rate periodic method, FIF, FIF income, foreign PIE equivalent, income year, investor, life insurance, market value, New Zealand, original share, portfolio investment entity, related, returning share transfer, share, share reorganisation, share supplier, share user, shareholding, structured arrangement
Compare: 2004 No 35 ss EX 44B(1), (3), EX 44D
Section EX 53 heading: replaced, on 1 April 2016, by section 151(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 53(1) heading: replaced, on 1 April 2016 (applying for the 2016–17 and later income years), by section 151(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 53(1): replaced, on 1 April 2016 (applying for the 2016–17 and later income years), by section 151(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 53(1B) heading: repealed, on 1 April 2016 (applying for the 2016–17 and later income years), pursuant to section 151(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 53(1B): repealed, on 1 April 2016 (applying for the 2016–17 and later income years), by section 151(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 53(2): substituted (with effect on 1 April 2008), on 6 October 2009, by section 178(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53(5): replaced (with effect on 1 July 2014), on 31 March 2023, by section 63(1) (and see section 63(2) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EX 53(5B) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53(5B): inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53(5B)(b): amended, on 1 April 2010 (applying for the 2010–11 and later income years), by section 178(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53(8): substituted (with effect on 1 April 2008), on 6 October 2009, by section 178(7) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53(9)(a): substituted (with effect on 1 April 2008), on 6 October 2009, by section 178(8) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53(9)(b): substituted (with effect on 1 April 2008), on 6 October 2009, by section 178(8) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53(13)(a): amended, on 1 April 2008, by section 395(7) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 53(14) formula: amended, on 1 April 2008, by section 395(8) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 53(15)(a): substituted, on 1 April 2008, by section 395(9) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 53(15)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 178(9)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53(15)(b): substituted, on 1 April 2008, by section 395(9) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 53(15)(c): amended (with effect on 1 April 2008), on 6 October 2009, by section 178(9)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53(16B) heading: inserted, on 1 April 2008, by section 395(10) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 53(16B): inserted, on 1 April 2008, by section 395(10) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 53(16C) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(10) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53(16C): replaced, on 1 July 2018, by section 18(1) (and see section 18(3) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section EX 53 list of defined terms direct income interest: inserted (with effect on 1 July 2011), on 7 May 2012, by section 38(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 53 list of defined terms fair dividend rate annual method: inserted, on 1 July 2018, by section 18(2) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section EX 53 list of defined terms fair dividend rate periodic method: inserted, on 1 April 2016, by section 151(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 53 list of defined terms foreign investment vehicle: repealed, on 1 April 2010, by section 178(12)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53 list of defined terms foreign PIE equivalent: inserted, on 1 April 2010, by section 178(12)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53 list of defined terms life insurance: inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(11) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53 list of defined terms original share: inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(11) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53 list of defined terms portfolio investment entity: inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(11) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53 list of defined terms related: inserted, on 1 July 2018, by section 18(2) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section EX 53 list of defined terms returning share transfer: inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(11) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53 list of defined terms share: inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(11) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53 list of defined terms share supplier: inserted (with effect on 1 April 2008), on 6 October 2009, by section 178(11) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 53 list of defined terms share user: inserted, on 1 July 2018, by section 18(2) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section EX 53 list of defined terms shareholding: inserted, on 24 February 2016, by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 53 list of defined terms structured arrangement: inserted, on 1 July 2018, by section 18(2) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section EX 53 list of defined terms unit valuation period: repealed, on 24 February 2016, by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EX 54 Fair dividend rate method and cost method: when periods affected by share reorganisations
Relevant items and formulas
(1)
This section provides for the calculation, for an income year or unit valuation period (the affected period) in which a share reorganisation occurs, of the following:
(a)
the item peak holding differential for the purposes of the formulas in sections EX 52(8), EX 53(10), and EX 56(15):
(b)
the item average cost for the purposes of the formulas in sections EX 52(8), EX 52(12), EX 53(10) and EX 56(5) and (15):
(c)
the item increase for the purposes of the formula in section EX 56(5).
Identifying reorganisation periods
(2)
For the purposes of calculating the items for an affected period under this section,—
(a)
the affected period is treated as consisting of periods (the reorganisation periods) that do not overlap:
(b)
a reorganisation period—
(i)
begins with the start of the affected period and immediately before each share reorganisation in the affected period; and
(ii)
ends immediately before each share reorganisation in the affected period and at the end of the affected period.
Identifying equivalent shareholdings
(3)
For the purposes of calculating the items for an affected period under this section,—
(a)
the amount of the attributing interest in the FIF held by the person at any time (the comparison time) in a reorganisation period, is treated as being the amount (the equivalent shareholding) of the attributing interest in the FIF that the person would hold at the end of the affected period if, after the comparison time, the person did not increase or reduce the attributing interest in the FIF except under share reorganisations occurring in the affected period:
(b)
the amount of an acquisition or increase (the acquired shareholding) by the person of the attributing interest in the FIF other than under a share reorganisation is treated as being the amount (the equivalent acquired shareholding) equal to the difference between—
(i)
the equivalent shareholding for the time of the acquisition or increase; and
(ii)
the amount that would be the equivalent shareholding for the time of the acquisition or increase if the person were not to have the acquired shareholding.
Peak holding differential
(4)
The item peak holding differential, for a person and an affected period, is the lesser of the following:
(a)
the difference between the equivalent shareholding that is the greatest for the affected period and the equivalent shareholding at the start of the affected period:
(b)
the difference between the equivalent shareholding that is the greatest for the affected period and the equivalent shareholding at the end of the affected period.
Average cost
(5)
The item average cost, for a person and an affected period, is the total amount of expenditure that the person incurs during the affected period in acquiring or increasing the attributing interest in the FIF divided by the total for the affected period of the equivalent acquired shareholding for each acquisition or increase.
Increase
(6)
The item increase, for a person and an affected period, is the difference between the equivalent shareholding at the start of the affected period and the equivalent shareholding at the start of the period before the affected period.
Defined in this Act: amount, attributing interest, FIF, income year, share reorganisation
Compare: 2004 No 35 s EX 44E
Section EX 54(1)(b): amended (with effect on 1 April 2008), on 29 August 2011 (applying for income years beginning on or after 1 April 2008), by section 41(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EX 54 list of defined terms unit valuation period: repealed, on 24 February 2016, by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EX 55 Deemed rate of return method
Formula changes if interest changes
(1)
If a person is using the deemed rate of return method to calculate FIF income or loss from an attributing interest in a FIF for an income year, the FIF income or loss is calculated—
(a)
by the formula in subsection (3) (the standard formula) if the person has held the interest unchanged throughout the income year; and
(b)
by totalling the amounts calculated by the formula in subsection (5) (the part-year formula) for each part of the income year during which the interest is unchanged, in any other case.
When interest changes
(2)
A person’s attributing interest in a FIF changes during an income year if the person—
(a)
acquires or increases the interest; or
(b)
disposes of or reduces the interest, but merely receiving an annuity payment from the interest is not a disposal or reduction.
Standard formula
(3)
The standard formula is—
opening book value × deemed rate.
Definition of items in standard formula
(4)
In the standard formula,—
(a)
opening book value is the book value of the interest at the end of the previous income year, calculated under subsection (7):
(b)
deemed rate is the rate set by the Governor-General by Order in Council for this section for the relevant income year (see subsection (15)).
Part-year formula
(5)
The part-year formula is—
(opening book value + costs) × deemed rate × days ÷ 365.
Definition of items in part-year formula
(6)
In the part-year formula,—
(a)
opening book value is the book value, if any, of the interest at the end of the period before the part of the income year, calculated under subsection (7):
(b)
costs is the total for the part of the income year of—
(i)
all expenditure, if any, that the person incurs in acquiring or increasing the interest:
(ii)
income tax on the income of the FIF for which the person is liable under the laws of a country or territory outside New Zealand and which is paid by the person in the part of the income year:
(c)
deemed rate is the rate set by the Governor-General by Order in Council for this section for the relevant income year (see subsection (15)):
(d)
days is the number of days in the part of the income year; and for this purpose, an acquisition or increase is treated as occurring at the start of a day, and a disposition or reduction is treated as occurring at the end of a day.
Closing book value formula
(7)
The book value, at the end of an income year or, in a case in which subsection (5) applies, a part of an income year, of an attributing interest of a person in a FIF under the deemed rate of return method is, unless subsection (9) applies, calculated using the formula (the closing book value formula)—
opening book value + costs + deemed income + top-up amounts − gains.
Definition of items in closing book value formula
(8)
In the closing book value formula,—
(a)
opening book value is the book value, if any, of the interest at the end of the previous income year or the part of the income year, calculated under subsection (7):
(b)
costs is the total for the income year or part of the income year of—
(i)
all expenditure, if any, that the person incurs in acquiring or increasing the interest:
(ii)
income tax on the income of the FIF for which the person is liable under the laws of a country or territory outside New Zealand and which is paid by the person in the income year or part of the income year:
(c)
deemed income is the FIF income from the interest for the year or the part of the income year calculated under subsection (3) or (5):
(d)
top-up amounts is amounts, gains from holding or disposing of the interest, that are top-up FIF income in the year under section EX 60 or EX 61:
(e)
gains is the total of all amounts that the person derives during the year or the part of the income year from holding or disposing of the interest; the amounts including any foreign withholding tax or other amount that the person is allowed as a credit under section LE 1 (Tax credits for imputation credits) or LJ 2 (Tax credits for foreign income tax).
Closing book value zero if changing method
(9)
The closing book value is always zero if the person is using a calculation method for the interest different from the deemed rate of return method at the end of the income year or, in a case to which subsection (5) applies, the part of the income year.
Top-up income if deemed rate inadequate
(10)
If the closing book value of a person’s attributing interest in a FIF at the end of an income year or a part of an income year is below zero, the person has additional FIF income equal to the deficit for the relevant income year.
When subsection (10) does not apply
(11)
Subsection (10) does not apply if—
(a)
the person is a natural person; and
(b)
at all times during the income year the total value of the person’s attributing interests in FIFs is $250,000 or less, the value of each interest being—
(i)
its book value, calculated under subsection (7), at the end of the previous income year, if the person held the interest then and used the deemed rate of return method to calculate FIF income for all attributing interests in the previous income year:
(ii)
its market value, in any other case; and
(c)
the deficit in closing book value arises only because the person disposed of some or all of the interest; and
(d)
the gain that the person derived from disposing of the interest or part-interest is not income, or is income only to the extent to which it gives rise to FIF income.
Top-up income if gains more than deemed income
(12)
A person calculating FIF income under the deemed rate of return method can also have additional FIF income under section EX 60.
FIF income reduced on disposal if deemed rate excessive
(13)
If a person has disposed of the whole of an attributing interest in a FIF and the closing book value for the relevant income year or the part of the income year is more than zero, the excess is subtracted when the person’s FIF income under the deemed rate of return method for the income year is calculated.
When subsection (13) does not apply
(14)
Subsection (13) does not apply if—
(a)
the person is a natural person; and
(b)
at all times during the income year the total value of attributing interests in FIFs held by the person is $250,000 or less, the value of each interest being—
(i)
its book value, calculated under subsection (7), at the end of the previous income year, if the person held the interest then and used the deemed rate of return method to calculate FIF income for all attributing interests in the previous income year:
(ii)
its market value, in any other case; and
(c)
the gain that the person derived from disposing of the interest or part-interest is not income, or is income only to the extent to which it gives rise to FIF income.
Secondary legislation
(15)
An Order in Council under subsection (4)(b) or (6)(c) is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements).
Defined in this Act: amount, attributing interest, calculation method, deemed rate of return method, FIF, FIF income, foreign withholding tax, income, income year, loss, market value, pay, tax
Compare: 2004 No 35 s EX 45
| Legislation Act 2019 requirements for secondary legislation made under this section | ||||
| Publication | PCO must publish it on the legislation website and notify it in the Gazette | LA19 s 69(1)(c) | ||
| Presentation | The Minister must present it to the House of Representatives | LA19 s 114, Sch 1 cl 32(1)(a) | ||
| Disallowance | It may be disallowed by the House of Representatives | LA19 ss 115, 116 | ||
| This note is not part of the Act. | ||||
Section EX 55(4)(b): 8.15% is the deemed rate applying for the 2022–23 income year, on 16 June 2023, by clause 3 of the Income Tax (Deemed Rate of Return on Attributing Interests in Foreign Investment Funds, 2022–23 Income Year) Order 2023 (SL 2023/134).
Section EX 55(4)(b): amended, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
Section EX 55(6)(c): 8.15% is the deemed rate applying for the 2022–23 income year, on 16 June 2023, by clause 3 of the Income Tax (Deemed Rate of Return on Attributing Interests in Foreign Investment Funds, 2022–23 Income Year) Order 2023 (SL 2023/134).
Section EX 55(6)(c): amended, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
Section EX 55(8)(e): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 140(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EX 55(15) heading: inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
Section EX 55(15): inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
EX 56 Cost method
Cost method formula
(1)
If a person is using the cost method to calculate FIF income or loss from an attributing interest in a FIF for an income year, the person’s total FIF income from their attributing interests in the FIF for the income year is calculated using the formula—
(0.05 × opening value) + quick sale adjustment.
Definition of items in formula
(2)
The items in the formula in subsection (1) are defined in subsections (3) to (18).
Opening value
(3)
Opening value is the total of the market values of the person’s attributing interests in the FIF, being—
(a)
zero, if the relevant income year is the year in which the person acquires an attributing interest in the FIF; or
(ab)
the amount that is shown as the net asset value of the interest in audited financial statements of the person for the relevant income year made available to the general public, if—
(i)
paragraph (a) does not apply; and
(ii)
the FIF makes available to the general public audited financial statements for its accounting year ending in the relevant income year; and
(iii)
the person chooses that this paragraph applies; or
(ac)
the amount of the cost of the interest, if—
(i)
paragraphs (a) and (ab) do not apply; and
(ii)
the person acquires the interest in the 2005–06 or 2006–07 income year; and
(iii)
the interest was not an attributing interest for the income year before the relevant income year; or.
(b)
the amount of an independent valuation of the market value of the interest at the start of the relevant income year, if paragraphs (a), (ab) and (ac) do not apply and the person holds the interest at the start of the relevant income year, and—
(i)
the interest was not an attributing interest for which the person has FIF income or loss for the income year before the relevant income year:
(ii)
the person chooses to use the amount of the independent valuation and there is a period of at least 4 income years between the start of the relevant income year and their last application of this paragraph to the interest, during which period they used the cost method for the interest for all income years.
(c)
the amount calculated using the formula in subsection (4), if paragraphs (a), (ab), (ac), and (b) do not apply and the person’s shareholding (the current opening shareholding) at the start of the relevant income year is the same as the person’s shareholding (the preceding opening shareholding) at the start of the preceding income year; or
(d)
the amount calculated using the formula in subsection (5), if paragraphs (a), (ab), (ac), and (b) do not apply and the person’s current opening shareholding is more than the preceding opening shareholding; or
(e)
the amount calculated using the formula in subsection (6), if paragraphs (a), (ab), (ac), and (b) do not apply and the person’s current opening shareholding is less than the preceding opening shareholding.
Opening value formula: no shareholding change
(4)
The formula referred to in subsection (3)(c) is—
1.05 × preceding opening.
Opening value formula: shareholding increase
(5)
The formula referred to in subsection (3)(d) is—
1.05 × preceding opening + (increase × average cost).
Opening value formula: shareholding decrease
(6)
The formula referred to in subsection (3)(e) is—
(opening shareholding ÷ preceding shareholding) × 1.05 × preceding opening.
Definition of items in formulas
(7)
The items in the formula in subsections (4) to (6) are defined in subsections (8) to (13).
Preceding opening
(8)
Preceding opening is the opening value for the income year before the relevant income year.
FIF income[Repealed]
(9)
[Repealed]Increase
(10)
Increase is,—
(a)
if no share reorganisation occurs in the preceding income year, the difference between the person’s shareholding at the start of the relevant income year and the person’s shareholding at the start of the preceding income year:
(b)
if a share reorganisation occurs in the preceding income year, the amount calculated under section EX 54 for the preceding income year.
Average cost
(11)
Average cost is,—
(a)
if no share reorganisation occurs in the preceding income year, the total amount of expenditure that the person incurs in acquiring or increasing during the preceding income year the attributing interest in the FIF divided by the total for the preceding income year of the increase in the attributing interest in the FIF for each acquisition or increase; or
(b)
if a share reorganisation occurs in the preceding income year, the amount calculated under section EX 54 for the preceding income year.
Opening shareholding
(12)
Opening shareholding is the amount of the person’s shareholding at the start of the relevant income year.
Preceding shareholding
(13)
Preceding shareholding is the amount of the person’s shareholding at the start of the preceding income year.
When quick sale adjustment required
(14)
The quick sale adjustment is required only if, in the relevant income year, the person disposes of or reduces their attributing interest in the FIF after acquiring it or increasing it. The quick sale adjustment is zero in any other case.
Quick sale adjustment
(15)
Quick sale adjustment is calculated using the formula—
0.05 × peak holding differential × average cost.
Definition of items in formula
(16)
The items in the formula in subsection (15) are defined in subsections (17) and (18).
Peak holding differential
(17)
Peak holding differential is,—
(a)
if no share reorganisation occurs in the relevant income year, the lesser of—
(i)
the difference between the greatest shareholding in the year and the shareholding at the start of the year:
(ii)
the difference between the greatest shareholding in the year and the shareholding at the end of the year; or
(b)
if a share reorganisation occurs in the relevant income year, the amount calculated under section EX 54 for the year.
Average cost
(18)
Average cost is,—
(a)
if no share reorganisation occurs in the relevant income year, the total amount of expenditure that the person incurs in acquiring or increasing during the relevant income year the attributing interest in the FIF divided by the total for the year of the shareholding increase in the attributing interest in the FIF for each acquisition or increase; or
(b)
if a share reorganisation occurs in the relevant income year, the amount calculated under section EX 54 for the year.
Meaning of shareholding
(19)
In this section, shareholding means the number of shares or units in an attributing interest.
Defined in this Act: amount, attributing interest, cost method, FIF, FIF income, FIF loss, income year, market value, New Zealand, share reorganisation, shareholding
Compare: 2004 No 35 s EX 45B
Section EX 56(3)(ab): inserted, on 1 April 2008, by section 396(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 56(3)(ac)(ii): amended (with effect on 1 April 2008), on 6 October 2009, by section 179(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 56(3)(ac)(iii): added (with effect on 1 April 2008), on 6 October 2009, by section 179(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 56(3)(ac): inserted, on 1 April 2008, by section 396(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 56(3)(b): amended, on 1 April 2008, by section 396(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 56(3)(b)(i): amended, on 1 April 2008, by section 396(3) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 56(3)(b)(ii): replaced (with effect on 1 April 2008), on 18 March 2019, by section 182 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EX 56(3)(c): amended, on 1 April 2008, by section 396(4) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 56(3)(d): amended, on 1 April 2008, by section 396(5) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 56(3)(e): amended, on 1 April 2008, by section 396(6) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 56(4) formula: substituted (with effect on 1 April 2008), on 6 October 2009, by section 179(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 56(5) formula: substituted (with effect on 1 April 2008), on 6 October 2009, by section 179(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 56(6) formula: substituted (with effect on 1 April 2008), on 6 October 2009, by section 179(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 56(9) heading: repealed (with effect on 1 April 2008), on 6 October 2009, pursuant to section 179(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 56(9): repealed (with effect on 1 April 2008), on 6 October 2009, by section 179(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 56(11)(a): amended, on 1 April 2008, by section 396(7) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 56(15) formula: substituted (with effect on 1 April 2008), on 6 October 2009, by section 179(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 56(18)(a): amended, on 1 April 2008, by section 396(8) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 56 list of defined terms close of trading spot exchange rate: repealed (with effect on 1 April 2008), on 6 October 2009, by section 179(7) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 56 list of defined terms shareholding: inserted, on 24 February 2016, by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 56 list of defined terms unit valuation period: repealed, on 24 February 2016, by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EX 57 Conversion of foreign currency amounts: most methods
When this section applies
(1)
This section applies when—
(a)
an amount in a foreign currency is the market value of, or is derived from or incurred on, an attributing interest in a FIF that a person has in an income year; and
(b)
the person is using one of the following calculation methods (the relevant method) to calculate their FIF income or loss from the interest for the income year:
(i)
the comparative value method:
(ii)
the fair dividend rate method:
(iii)
the deemed rate of return method:
(iv)
the cost method.
Choosing conversion rates
(2)
The person must choose either that—
(a)
each foreign currency amount in the income year is converted into New Zealand dollars using the exchange rate on the day for which the market value is determined or on which the amount is derived or incurred; or
(b)
all foreign currency amounts in the income year are converted into New Zealand dollars at the average of the close of trading spot exchange rates for the 15th day of each month that falls in the income year.
Election applying method-wide and for future years
(3)
The election by the person must be applied for all attributing interests for which they use the relevant method for the income year and each later income year.
Defined in this Act: amount, attributing interest, calculation method, close of trading spot exchange rate, comparative value method, cost method, deemed rate of return method, fair dividend rate method, FIF income, FIF loss, income year, New Zealand
Compare: 2004 No 35 ss EX 44(7), EX 44C(11), EX 44D(13), EX 45(15), EX 45B(17)
EX 58 Additional FIF income or loss if CFC owns FIF
Application of this section
(1)
This section applies when—
(a)
a person has an income interest of 10% or more in a CFC for an accounting period under sections EX 14 to EX 17; and
(ab)
as a result of an income interest of the CFC in a FIF, the person has an indirect attributing interest in the FIF for the accounting period; and
(b)
FIF income and FIF loss is not taken into account in calculating the net attributable CFC income or loss of the CFC for the period for the person.
Calculation of FIF income or loss
(2)
The person instead has FIF income or loss, for the income year in which the period ends, calculated using the formula—
income interest × CFC’s FIF income or loss.
Definition of items in formula
(3)
In the formula,—
(a)
income interest is the person’s income interest in the CFC for the period under sections EX 8 to EX 13:
(b)
CFC’s FIF income or loss is the CFC’s FIF income or loss for the period, calculated under subsections (4) and (5), from FIFs in which the person has an indirect attributing interest.
Application of FIF rules to choice of method
(4)
The person must—
(a)
choose, under sections EX 44 to EX 48, the calculation method for calculating the CFC’s FIF income or loss; and
(b)
otherwise apply the calculation rules in sections EX 44 to EX 61 to the CFC and the CFC’s interest in the FIF, for the period when the person held the indirect attributing interest; and
(c)
apply the FIF loss ring-fencing rules in section DN 8 (Ring-fencing cap on deduction: attributable FIF income method) to the CFC and the CFC’s interest in the FIF.
Exceptions
(5)
Despite subsection (4), the CFC’s FIF income or loss does not include an amount actuarially determined to be attributable to policyholders in the CFC or another company as a result of applying section EX 21(25) and (26) to the CFC.
Non-attributing Australian CFCs and non-attributing active CFCs
(6)
This section applies regardless of whether the CFC is a non-attributing active CFC under section EX 21B or a non-attributing Australian CFC under section EX 22 for the period.
Exclusion for insurance CFC meeting requirements of determination
(7)
The CFC’s FIF income or loss does not include income from an income interest of less than 10% in a FIF if the CFC meets the requirements of a determination made by the Commissioner under section 91AAQ of the Tax Administration Act 1994.
Defined in this Act: accounting period, amount, attributing interest, calculation method, CFC, company, direct income interest, FIF, FIF income, FIF loss, FIF rules, grey list, income interest, income year, indirect attributing interest, loss
Compare: 2004 No 35 s EX 46
Section EX 58(1)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 180(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 58(1)(ab): replaced (with effect on 1 April 2014 and applying for the 2014–15 and later income years), on 24 February 2016, by section 152(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 58(1)(b): amended, on 24 February 2016, by section 152(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 58(1)(b): amended (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 39(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 58(3)(b): replaced (with effect on 1 April 2014 and applying for the 2014–15 and later income years), by section 97(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 58(4)(b): replaced (with effect on 1 April 2014 and applying for the 2014–15 and later income years), on 24 February 2016, by section 152(4) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 58(4)(b): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 24 February 2016, by section 152(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 58(4)(c): replaced (with effect on 1 April 2014 and applying for the 2014–15 and later income years), by section 97(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 58(5) heading: replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 39(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 58(5): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 2 November 2012, by section 49(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 58(6) heading: replaced, on 24 February 2016, by section 152(5) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 58(6): substituted (with effect on 30 June 2009), on 6 October 2009, by section 180(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 58(6): amended, on 24 February 2016, by section 152(6) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 58(7) heading: added (with effect on 30 June 2009), on 29 August 2011 (applying for income years beginning on or after 1 July 2009), by section 42(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EX 58(7): added (with effect on 30 June 2009), on 29 August 2011 (applying for income years beginning on or after 1 July 2009), by section 42(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EX 58 list of defined terms branch equivalent income: repealed (with effect on 1 July 2009), on 7 May 2012, by section 39(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 58 list of defined terms direct income interest: inserted (with effect on 1 April 2014), on 30 June 2014, by section 97(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EX 58 list of defined terms indirect attributing interest: inserted (with effect on 1 April 2014), on 24 February 2016, by section 152(7) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Relationship with other provisions in Act
EX 59 Codes: comparative value method, deemed rate of return method, fair dividend rate method, and cost method
When this section applies
(1)
This section applies when a person has an attributing interest in a FIF and calculates their FIF income or loss from the interest for a period using—
(a)
the comparative value method:
(b)
the deemed rate of return method:
(c)
the fair dividend rate method:
(d)
the cost method.
Exclusion for interests in FIFs resident in Australia
(1B)
Subsection (1)(c) does not apply if the person’s interest in the company is included, at the beginning of the income year in which the payment is made, in a direct income interest of 10% or more in a FIF that, at the beginning of the income year,—
(a)
meets the requirements of section EX 35(b)(i) to (iii); and
(b)
does not have its liability for income tax reduced by an exemption, allowance, or relief referred to in section EX 35(c)(i) or (ii); and
(c)
is not a unit trust or is a unit trust subject under Australian law to income tax on its income in the same way as a company.
Application of rule for certain managed funds
(1C)
Subsection (1B) does not apply if—
(a)
the person is a portfolio investment entity, an entity eligible to be a portfolio investment entity, or a life insurance company; and
(b)
the FIF is a foreign PIE equivalent.
No income other than FIF income
(2)
An amount, other than FIF income, that is derived in the period from the interest is excluded income under section CX 57B (Amounts derived during periods covered by calculation methods).
Exception to subsection (2): fees rebate
(2B)
An amount derived by the person from the interest is not disregarded under subsection (2) if—
(a)
the amount is a rebate of fees; and
(b)
the person was allowed a deduction for the payment of the fees.
No deductions other than FIF loss
(3)
The person is denied a deduction for any amount incurred in the period on acquiring some or all of the interest, except to the extent to which the amount is taken into account under the relevant calculation method in calculating FIF income or loss for the period.
Application of trading stock rules
(4)
The interest is not trading stock in the period and accordingly subpart EB (Valuation of trading stock (including dealer’s livestock)) does not apply.
Defined in this Act: amount, attributing interest, calculation method, company, comparative value method, cost method, deduction, deemed rate of return method, direct income interest, excluded income, fair dividend rate method, FIF, FIF income, FIF loss, foreign PIE equivalent, income, life insurance, loss, portfolio investment entity, trading stock
Compare: 2004 No 35 s EX 47
Section EX 59(1)(c): substituted (with effect on 1 April 2008), on 6 October 2009, by section 181(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 59(1B) heading: replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 40(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 59(1B): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 40(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 59(1B)(b): amended (with effect on 1 July 2014), on 31 March 2023, by section 64(1) (and see section 64(3) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EX 59(1B)(c): inserted (with effect on 1 July 2014), on 31 March 2023, by section 64(2) (and see section 64(3) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EX 59(1C) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 181(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 59(1C): inserted (with effect on 1 April 2008), on 6 October 2009, by section 181(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 59(1C)(b): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 181(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 59(2): replaced, on 29 March 2018, by section 89(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EX 59(2B) heading: inserted (with effect on 1 April 2009), on 6 October 2009, by section 181(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 59(2B): inserted (with effect on 1 April 2009), on 6 October 2009, by section 181(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 59 list of defined terms company: inserted (with effect on 1 April 2008), on 6 October 2009, by section 181(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 59 list of defined terms direct income interest: inserted (with effect on 1 April 2008), on 6 October 2009, by section 181(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 59 list of defined terms dividend: repealed, on 29 March 2018, by section 89(2)(b) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EX 59 list of defined terms excluded income: inserted, on 29 March 2018, by section 89(2)(a) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EX 59 list of defined terms foreign investment vehicle: repealed, on 1 April 2010, by section 181(6)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 59 list of defined terms foreign PIE equivalent: inserted, on 1 April 2010, by section 181(6)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 59 list of defined terms grey list company: repealed (with effect on 1 July 2011), on 7 May 2012, by section 40(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 59 list of defined terms life insurance: inserted (with effect on 1 April 2008), on 6 October 2009, by section 181(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 59 list of defined terms portfolio investment entity: inserted (with effect on 1 April 2008), on 6 October 2009, by section 181(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 60 Top-up FIF income: deemed rate of return method
When this section applies
(1)
This section applies at any time when a person—
(a)
has an attributing interest in a FIF for a period; and
(b)
is calculating the FIF income or loss from the interest using the deemed rate of return method; and
(c)
derives in the period, from holding or disposing of the interest, an amount that would have been income if section EX 59(2) had not applied.
Formula
(2)
The gain is FIF income to the extent to which the amount calculated using the following formula is positive:
total income gains − total FIF income.
Definition of items in formula
(3)
In the formula,—
(a)
total income gains is the total of amounts, including the amount in question, derived by the person until that time from holding or disposing of the interest that would have been income if section EX 59(2) had not applied:
(b)
total FIF income is the total of FIF income, reduced by the total of any FIF losses, derived by the person from the interest until, and including, the relevant period.
Consequence of partial disposals
(4)
If the person disposes of part of the interest, this section applies to the part disposed of and the part retained as if they were separate interests. If this means that an apportionment is necessary, it must be done on the basis of the respective market values at the time the part interest is disposed of.
Defined in this Act: amount, attributing interest, deemed rate of return method, FIF, FIF income, FIF loss, income, loss, market value
Compare: 2004 No 35 s EX 48
Section EX 60(4) heading: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EX 61 Top-up FIF income: 1 April 1993 uplift interests
When this section applies
(1)
This section applies at any time if a person—
(a)
has an attributing interest in a FIF for a period; and
(b)
held the interest on 2 July 1992; and
(c)
calculated their FIF income from the interest in the period starting on 1 April 1993 under the comparative value method or the deemed rate of return method; and
(d)
was treated as having reacquired the interest on 1 April 1993 for an uplifted cost under section CG 23(1)(d) of the Income Tax Act 1994 or EZ 7 of the Income Tax Act 2004; and
(e)
derives in the period, from holding or disposing of the interest, an amount that would have been income if section EX 59(2) had not applied.
Formula
(2)
The gain is FIF income to the extent to which the amount calculated using the following formula is positive:
total income gains − total FIF income.
Definition of items in formula
(3)
In the formula,—
(a)
total income gains is the total of amounts, including the amount in question, that the person derived until that time from holding or disposing of the interest that would have been income if section EX 59(2) had not applied:
(b)
total FIF income is the total of FIF income, reduced by the total of any FIF losses, that the person derived from the interest until, and including, the relevant period.
Consequence of partial disposals
(4)
If the person disposes of part of the interest, this section applies to the part disposed of and the part retained as if they were separate interests. If this means that an apportionment is necessary, it must be done on the basis of the respective market values at the time the part interest is disposed of.
Defined in this Act: amount, attributing interest, comparative value method, deemed rate of return method, FIF, FIF income, FIF loss, income, market value
Compare: 2004 No 35 s EX 49
Section EX 61(4) heading: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Changing calculation method
EX 62 Limits on changes of method
No change unless allowed
(1)
Once a person uses a particular calculation method to calculate FIF income or loss for an attributing interest in a FIF for a particular period, they must use the same method for interests in the FIF for the next period unless they are allowed to change under subsections (2) to (9).
Change on practical grounds
(2)
The person may change if it is not practical to continue with the same method because—
(a)
[Repealed](b)
in the case of the attributable FIF income method, section EX 46(3)(a) and (b) prevent its continued use or it is impossible to obtain enough information to continue to use it:
(c)
in the case of the comparative value method,—
(i)
section EX 46(6) prevents its continued use:
(ii)
it is impossible to find out the end-of-year market value of the interest:
(d)
[Repealed](e)
in the case of the deemed rate of return method, the person is required by section EX 47 to use the comparative value method:
(f)
in the case of the fair dividend rate method, it is impossible to find out the start-of-year market value of the interest except by an independent valuation:
(g)
in the case of the cost method, section EX 46(9) prevents its continued use.
Choosing to change
(3)
The person may also change by notice to the Commissioner if—
(a)
the notice complies with subsection (4); and
(b)
either—
(i)
the person is a natural person and the $250,000 threshold in subsection (5) is not exceeded; or
(ii)
the change is to, or from, the attributable FIF income method and within subsections (6) and (7).
Notice of election
(4)
The notice of an election to change under subsection (3) must—
(a)
give the reasons for the change; and
(b)
comply with the Commissioner’s notice requirements; and
(c)
be given before the end of the first income year or accounting period for which the change is to take effect, unless the Commissioner agrees to a retrospective notice; and
(d)
in the case of a natural person relying on the $250,000 threshold test in subsection (3)(b)(i), be given before the end of the year or period that is before the one from the end of which the change takes effect.
Natural person: $250,000 threshold
(5)
A natural person may make an election under subsection (3) if the total market value of their attributing interests in FIFs is $250,000 or less at the end of the income year or accounting period before the year or period from the end of which the change takes effect.
Changing to or from the attributable FIF income method
(6)
A person may make an election under subsection (3) to change to or from the attributable FIF income method if—
(a)
[Repealed](b)
this is the first time they have chosen to change to or from the attributable FIF income method for an attributing interest in the FIF, other than a change from the branch equivalent method:
(c)
subsection (7) allows them to make another election.
Repeated changes to or from attributable FIF income method
(7)
A person may change more than once to, or from, the attributable FIF income method if—
(a)
there has been a change in circumstances, such as a significant change in shareholding, that significantly changes their ability to obtain enough information to use the attributable FIF income method; and
(b)
altering their income tax liability is not the principal purpose or effect of the change.
Repeated changes between fair dividend rate method and comparative value method
(8)
A person may change more than once from the fair dividend rate method to the comparative value method and from the comparative value method to the fair dividend rate method if the person is a natural person or the trustee of a trust that—
(a)
has no gifting settlor who is not a natural person or deceased person; and
(b)
at all times in the income year, is a complying trust for a distribution made at the time; and
(c)
is—
(i)
at all times in the income year, mainly for the benefit of a natural person for whom the gifting settlors of the trust have natural love and affection, or had natural love and affection when alive:
(ii)
mainly for the benefit of an organisation or trust with income that is exempt income under section CW 41 or CW 42 (which relate to the income of charities); and
(d)
is not a superannuation scheme.
Change to fair dividend rate method in return for 2008–09, 2009–10 tax year
(9)
A person may change to the fair dividend rate method from the branch equivalent method or the accounting profits method in the person’s return of income for—
(a)
the 2008–09 tax year, if the person has not furnished a return for that tax year before the date on which the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 receives the Royal assent; or
(b)
the 2009–10 tax year, if the person has furnished a return for the 2008–09 tax year before the date on which that Act receives the Royal assent.
Change to fair dividend rate method for first income year beginning on or after 1 July 2011
(10)
A person may change to the fair dividend rate method from the accounting profits method, the branch equivalent method, or the deemed rate of return method in the person’s return of income for the first income year beginning on or after 1 July 2011.
Defined in this Act: accounting period, accounting profits method, attributable FIF income method, attributing interest, branch equivalent method, calculation method, Commissioner, comparative value method, complying trust, cost method, deemed rate of return method, exempt income, fair dividend rate method, FIF, FIF income, gifting settlor, income tax liability, income year, loss, market value, notice, return, return of income, superannuation scheme, tax year, trustee
Compare: 2004 No 35 s EX 50
Section EX 62(1): amended (with effect on 1 April 2008), on 6 October 2009, by section 182(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 62(2)(a): repealed, on 24 February 2016, by section 153(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 62(2)(b): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 41(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 62(2)(b): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 2 November 2012, by section 50(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 62(2)(c): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 41(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 62(2)(d): repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 41(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 62(2)(e): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 41(5) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 62(2)(g): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 41(6) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 62(3)(b)(ii): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 41(7) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 62(6) heading: replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 41(8) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 62(6): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 41(8) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 62(6)(a): repealed, on 24 February 2016, by section 153(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 62(6)(b): amended, on 24 February 2016, by section 153(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 62(7) heading: amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 41(9) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 62(7): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 41(9) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 62(7)(a): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 41(9) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 62(8)(a): substituted, on 1 April 2008, by section 398 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 62(8)(b): substituted, on 1 April 2008, by section 398 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 62(8)(c): substituted, on 1 April 2008, by section 398 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 62(8)(d): substituted, on 1 April 2008, by section 398 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 62(9) heading: added (with effect on 1 April 2008), on 6 October 2009, by section 182(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 62(9): added (with effect on 1 April 2008), on 6 October 2009, by section 182(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 62(10) heading: inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 41(10) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 62(10): inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 41(10) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 62 list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 41(11)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 62 list of defined terms branch equivalent method: inserted, on 24 February 2016, by section 153(4)(b) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 62 list of defined terms gifting settlor: inserted, on 24 February 2016, by section 153(4)(b) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 62 list of defined terms return: inserted (with effect on 1 April 2008), on 6 October 2009, by section 182(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 62 list of defined terms return of income: inserted (with effect on 1 April 2008), on 6 October 2009, by section 182(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 62 list of defined terms settlor: repealed, on 24 February 2016, by section 153(4)(a) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 62 list of defined terms tax year: inserted (with effect on 1 April 2008), on 6 October 2009, by section 182(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EX 63 Consequences of changes in method
Changes between cost-based methods and look-through methods
(1)
Subsection (2) applies if a person holding an attributing interest in a FIF changes the calculation method for calculating FIF income or loss from the interest—
(a)
from 1 of the 4 cost-based calculation methods (the comparative value method, the deemed rate of return method, the fair dividend rate method, or the cost method) to the attributable FIF income method; or
(b)
from a look-through calculation method (the attributable FIF income method or the accounting profits method) to 1 of the 4 cost-based calculation methods.
Treatment as disposal for market value
(2)
The person is treated as having—
(a)
disposed of the interest to an unrelated person immediately before the start of the first accounting period to which the new method applies; and
(b)
reacquired the interest at the start of the period; and
(c)
received for the disposal and paid for the reacquisition an amount equal to the interest’s market value at the time.
Changes from comparative value method or fair dividend rate method to cost method or deemed rate of return method
(3)
If a person holding an attributing interest in a FIF changes from either of the comparative value method and the fair dividend rate method to either of the cost method and the deemed rate of return method for calculating FIF income or loss from the interest, the person is treated as having—
(a)
disposed of the interest to an unrelated person immediately before the start of the first income year to which the new method applies; and
(b)
reacquired the interest at the start of the income year; and
(c)
received for the disposal and paid for the reacquisition an amount equal to the interest’s market value at the time of the disposal.
Changes from cost method or deemed rate of return method to comparative value method or fair dividend rate method
(4)
If a person holding an attributing interest in a FIF changes from either of the cost method or the deemed rate of return method to either of the comparative value method or fair dividend rate method for calculating FIF income or loss from the interest, the person is treated as having—
(a)
disposed of the interest to an unrelated person immediately before the start of the first income year to which the new method applies; and
(b)
reacquired the interest at the start of the income year; and
(c)
received for the disposal and paid for the reacquisition an amount equal to,—
(i)
for a person changing from the cost method, what would have been the interest’s opening value under section EX 56 if the person had applied the cost method for the income year; or
(ii)
for a person changing from the deemed rate of return method, the interest’s closing book value under section EX 55(7) for the preceding income year.
Changes between comparative value method and fair dividend rate method
(5)
If a person holding an attributing interest in a FIF changes from either of the comparative value method and the fair dividend rate method to the other of the comparative value method and the fair dividend rate method for calculating the FIF income or loss from the interest, the person is treated as having—
(a)
disposed of the interest to an unrelated person immediately before the start of the first income year to which the new method applies; and
(b)
reacquired the interest at the start of the income year; and
(c)
received for the disposal and paid for the reacquisition an amount equal to the market value of the interest at the time of the disposal.
Defined in this Act: accounting period, accounting profits method, amount, attributable FIF income method, attributing interest, calculation method, comparative value method, cost method, deemed rate of return method, fair dividend rate method, FIF, FIF income, income year, loss, market value, pay
Compare: 2004 No 35 s EX 51
Section EX 63(1)(a): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 42(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 63(1)(b): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 42(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 63(1)(b): amended, on 24 February 2016, by section 154(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 63(2) heading: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 63(2)(b): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 17 July 2013, by section 53(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EX 63(3)(b): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 17 July 2013, by section 53(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EX 63(4)(b): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 17 July 2013, by section 53(3) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EX 63(5) heading: added, on 1 April 2008, by section 399 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 63(5): added, on 1 April 2008, by section 399 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 63 list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 42(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 63 list of defined terms branch equivalent method: repealed, on 24 February 2016, by section 154(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Cases of entry into and exit from FIF rules
EX 64 Migration of persons holding FIF interests
Leaving New Zealand
(1)
Subsection (2) applies if a person—
(a)
ceases to be resident in New Zealand; and
(b)
holds an attributing interest in a FIF at the time; and
(c)
for the period before the change of residence, calculates FIF income or loss from the interest using—
(i)
the comparative value method:
(ii)
the deemed rate of return method:
(iii)
the fair dividend rate method:
(iv)
the cost method.
Treatment as disposal at market value
(2)
The person is treated as—
(a)
having disposed of the interest immediately before the change of residence for an amount equal to its market value at the time; and
(b)
not holding the interest when not resident in New Zealand, unless they become resident again and subsections (3) and (4) apply.
Coming to New Zealand
(3)
Subsection (4) applies if a person—
(a)
is a non-resident or a transitional resident; and
(b)
becomes a New Zealand resident who is not a transitional resident; and
(c)
holds an attributing interest in a FIF at the time; and
(d)
for the period after the change of residence or status, calculates FIF income or loss from the interest using—
(i)
the comparative value method:
(ii)
the deemed rate of return method:
(iii)
the fair dividend rate method:
(iv)
the cost method.
Treatment as acquisition at market value
(4)
The person is treated as—
(a)
having acquired the interest immediately after the change of residence or status for an amount equal to its market value at the time; and
(b)
not holding it when the person is a transitional resident or not a New Zealand resident, unless they had previously ceased being resident and subsections (1) and (2) applied.
Look-through calculation method: relevance of income interest rules
(5)
Subsection (6) applies if a person—
(a)
ceases to be—
(i)
a New Zealand resident who is not a transitional resident, and becomes a non-resident:
(ii)
a non-resident, and becomes a New Zealand resident who is not a transitional resident:
(iii)
a transitional resident, and becomes a New Zealand resident who is not a transitional resident; and
(b)
holds an attributing interest in a FIF at the time; and
(c)
for the accounting period in which the change occurs, uses the attributable FIF income method to calculate FIF income or loss from the interest.
Income interest rules
(6)
The income interest rule in section EX 16 is relevant to the calculation of the amount of FIF income or loss for the period.
Defined in this Act: accounting period, amount, attributable FIF income method, attributing interest, calculation method, comparative value method, cost method, deemed rate of return method, fair dividend rate method, FIF, FIF income, FIF loss, income interest, loss, market value, New Zealand, New Zealand resident, non-resident, resident in New Zealand, transitional resident
Compare: 2004 No 35 s EX 52
Section EX 64(2) heading: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 64(2)(a): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 64(4) heading: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 64(4)(a): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 64(5)(c): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 43(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 64 list of defined terms accounting profits method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 43(2)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 64 list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 43(2)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 64 list of defined terms branch equivalent method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 43(2)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
EX 65 Changes in application of FIF exemptions
Exemptions ceasing to apply
(1)
Subsections (2) to (4) apply if a person—
(a)
holds rights in 1 of the categories of rights described in section EX 29(2) to (4); and
(b)
either—
(i)
the rights become an attributing interest in a FIF because 1 of the exemptions in sections EX 31 to EX 43 ceases to apply; or
(ii)
the person starts having FIF income or loss from the rights because they incur a cost on an attributing interest in a FIF and exceed the $50,000 threshold in sections CQ 5(1)(d) or (e) (When FIF income arises) and DN 6(1)(d) or (e) (When FIF loss arises).
Market value for cost-based methods
(2)
If the person uses the comparative value method, deemed rate of return method, the fair dividend rate method, or the cost method to calculate FIF income or loss from the rights for the period following the change, the person is treated as having—
(a)
disposed of the rights to an unrelated person immediately before the change; and
(b)
reacquired them immediately after the change; and
(c)
received for the disposal and paid for the reacquisition an amount equal to their market value at the time.
Calculation of reduction in FIF income or loss
(3)
If the change occurs during an accounting period of the FIF and the person uses the attributable FIF income method to calculate FIF income or loss from the rights for that period, the FIF income or loss is reduced by subtracting the amount calculated using the formula—
FIF income or loss × days before change ÷ days in period.
Definition of items in formula
(4)
In the formula in subsection (3),—
(a)
FIF income or loss is the FIF income or loss of the person from the rights for the period before allowing for the reduction:
(b)
days before change is the number of complete days in the period before the change occurs:
(c)
days in period is the number of days in the period.
Exemptions applying
(5)
Subsections (6) to (8) apply if a person—
(a)
holds an attributing interest in a FIF; and
(b)
either—
(i)
the interest ceases to be an attributing interest in a FIF because 1 of the exemptions in sections EX 31 to EX 43 starts to apply; or
(ii)
the person ceases having FIF income or loss from the interest because they dispose of an attributing interest in a FIF and fall below the $50,000 threshold in sections CQ 5(1)(d) or (e) and DN 6(1)(d) or (e).
Market value for cost-based methods
(6)
If the person uses the comparative value method, the deemed rate of return method, fair dividend rate method, or cost method to calculate FIF income or loss from the interest for the period before the change, the person is treated as having—
(a)
disposed of the interest to an unrelated person immediately before the change; and
(b)
reacquired it immediately after the change; and
(c)
received for the disposal and paid for the reacquisition an amount equal to its market value at the time.
Calculation of reduction in FIF income or loss
(7)
If the change occurs during an accounting period of the FIF and the person uses the attributable FIF income method to calculate FIF income or loss from the interest for that period, the FIF income or loss is reduced by subtracting the amount calculated using the formula—
FIF income or loss × days after change ÷ days in period.
Definition of items in formula
(8)
In the formula in subsection (7),—
(a)
FIF income or loss is the FIF income or loss of the person from the interest for the period before allowing for the reduction:
(b)
days after change is the number of complete days in the period after the change occurs:
(c)
days in period is the number of days in the period.
Defined in this Act: accounting period, amount, attributable FIF income method, attributing interest, comparative value method, cost method, deemed rate of return method, fair dividend rate method, FIF, FIF income, loss, market value, pay
Compare: 2004 No 35 s EX 53
Section EX 65(1)(b)(i): amended (with effect on 1 April 2008), on 6 October 2009, by section 183(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 65(2)(c): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 65(3): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 44(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 65(5)(b)(i): amended (with effect on 1 April 2008), on 6 October 2009, by section 183(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 65(6)(c): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 65(7): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 44(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 65 list of defined terms accounting profits method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 44(3)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 65 list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 44(3)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 65 list of defined terms branch equivalent method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 44(3)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
EX 66 Entities emigrating from New Zealand
When this section applies
(1)
This section applies when a person holds rights that become an attributing interest in a FIF because an entity becomes a FIF.
Treatment as disposal and reacquisition
(2)
The person is treated as having—
(a)
disposed of the interest immediately before the change to an unrelated person; and
(b)
reacquired it immediately after the change; and
(c)
received for the disposal and paid for the reacquisition an amount equal to the market value of the interest at the end of the business day on which the change occurred.
Calculation of reduction in FIF income or loss
(3)
If the change occurs during an accounting period of the FIF and the person uses the attributable FIF income method to calculate FIF income or loss from the rights for that period, section EX 24 does not apply and the FIF income or loss is reduced by subtracting the amount calculated using the formula—
FIF income or loss × days before change ÷ days in period.
Definition of items in formula
(4)
In the formula,—
(a)
FIF income or loss is the FIF income or loss of the person from the rights for the period before allowing for the reduction:
(b)
days before change is the number of complete days in the period before the change occurs:
(c)
days in period is the number of days in the period.
Defined in this Act: accounting period, amount, attributable FIF income method, attributing interest, business, FIF, FIF income, loss, market value, New Zealand, pay
Compare: 2004 No 35 s EX 54
Section EX 66(2) heading: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 66(2)(b): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 66(2)(c): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 66(3): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 45(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 66 list of defined terms accounting profits method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 45(2)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 66 list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 45(2)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 66 list of defined terms branch equivalent method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 45(2)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
EX 66B Entities ceasing to be FIFs
When this section applies
(1)
This section applies when a person holds rights that cease to be an attributing interest in a FIF because an entity ceases to be a FIF.
Treatment as disposal and reacquisition
(2)
The person is treated as having,—
(a)
immediately before the change, disposed of the interest to an unrelated person; and
(b)
immediately after the change, reacquired the interest; and
(c)
received for the disposal and paid for the reacquisition an amount equal to the market value of the interest at the end of the business day on which the change occurred.
Calculation of reduction in FIF income or loss
(3)
If the change occurs during an accounting period of the FIF and the person uses the attributable FIF income method to calculate FIF income or FIF loss from the rights for that period, section EX 24 does not apply and the FIF income or FIF loss is reduced by subtracting the amount calculated using the formula—
FIF income or loss × days after change ÷ days in period.
Definition of items in formula
(4)
In the formula,—
(a)
FIF income or loss is the FIF income or FIF loss of the person from the rights for the period before allowing for the reduction:
(b)
days after change is the number of complete days in the period after the change occurs:
(c)
days in period is the number of days in the period.
Defined in this Act: accounting period, amount, attributable FIF income method, attributing interest, FIF, FIF income, FIF loss, market value, pay
Section EX 66B: inserted (with effect on 1 April 2009), on 6 October 2009, by section 184(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EX 66B(2) heading: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 66B(2)(b): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 66B(2)(c): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 66B(3): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 46(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 66B list of defined terms accounting profits method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 46(2)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 66B list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 46(2)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 66B list of defined terms branch equivalent method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 46(2)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
EX 67 FIF rules first applying to interest on or after 1 April 2007
When this section applies
(1)
This section applies when a person has rights in a FIF that—
(a)
for the period ending on a day (the preceding day) are—
(i)
not an attributing interest:
(ii)
an attributing interest for which the person does not have FIF income or loss:
(iii)
rights for which the person is a share supplier in a returning share transfer; and
(b)
for the period beginning on the day (the application day) following the preceding day are an attributing interest for which the person has FIF income or loss.
Treatment as disposal and acquisition
(2)
The person is treated as having—
(a)
disposed of the interest immediately before the application day to an unrelated person; and
(b)
reacquired it immediately at the start of the application day; and
(c)
received for the disposal and paid for the reacquisition an amount equal to the market value of the interest at the time of the disposal.
Payment of tax liability arising from transition
(3)
A person who is liable to pay an amount of income tax (the amount of tax) because of the disposals in an income year, and related acquisitions, treated as occurring under this section—
(a)
may satisfy the liability by paying the Commissioner at least—
(i)
one third of the amount of tax in the income year following the income year in which the disposals are treated as occurring; and
(ii)
one half of the balance of the amount of tax remaining owing after payment made under subparagraph (i), in the second income year following the income year in which the disposals are treated as occurring; and
(iii)
the balance of the amount of tax remaining owing after payments made under subparagraphs (i) and (ii), in the third income year following the income year in which the disposals are treated as occurring:
(b)
is not liable to pay any penalty or interest for which the person would otherwise be liable for an inaccuracy in an estimate, or shortfall in the payment, of provisional tax to the extent to which the inaccuracy or shortfall arises because of the disposals.
Defined in this Act: amount, attributing interest, Commissioner, FIF, FIF income, FIF loss, income tax, income year, loss, market value, New Zealand, pay, tax
Compare: 2004 No 35 s EX 54B
Section EX 67(1) heading: substituted, on 1 April 2008, by section 400(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 67(1): substituted, on 1 April 2008, by section 400(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 67(3): amended, on 1 April 2008, by section 400(2)(a) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 67(3)(a)(i): amended, on 1 April 2008, by section 400(2)(b) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 67(3)(a)(ii): amended, on 1 April 2008, by section 400(2)(c) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 67(3)(a)(iii): amended, on 1 April 2008, by section 400(2)(d) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 67(3)(b): amended, on 1 April 2008, by section 400(2)(e) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
EX 67B Revaluation of inherited interests in grey list companies
When this section applies
(1)
This section applies when—
(a)
a person inherited, before 1 April 2007, an interest in a FIF that was a grey list company when the interest was inherited; and
(b)
the cost of the interest for the person is equal to zero.
Treatment as disposal and reacquisition
(2)
The person is treated as having—
(a)
disposed of the interest immediately before this section applied to the person and the interest; and
(b)
reacquired the interest as soon as this section applied to the person and the interest; and
(c)
received for the disposal and paid for the reacquisition an amount equal to the market value of the interest at the time of the disposal.
Cost of inherited interest for purposes of tax liability
(3)
For determining a tax liability of the person arising from the disposal, the cost of the interest for the person at the time of the inheritance is treated as being the lesser of—
(a)
the market value of the interest at the time of the inheritance:
(b)
the market value of the interest at the time of the disposal.
Payment of tax liability arising from revaluation
(4)
A person who is liable to pay an amount of income tax (the amount of tax) because of a disposal in an income year, and related acquisition, treated as occurring under this section—
(a)
may satisfy the liability by paying to the Commissioner—
(i)
at least one third of the amount of tax in the income year following the income year in which the disposal is treated as occurring; and
(ii)
at least one half of the balance of the amount of tax remaining owing after payment made under subparagraph (i), in the second income year following the income year in which the disposal is treated as occurring; and
(iii)
the balance of the amount of tax remaining owing after payments made under subparagraphs (i) and (ii), in the third income year following the income year in which the disposal is treated as occurring:
(b)
is not liable to pay any penalty or interest for which the person would otherwise be liable for an inaccuracy in an estimate, or shortfall in the payment, of provisional tax to the extent to which the inaccuracy or shortfall arises because of the disposals.
Defined in this Act: amount, Commissioner, dispose, FIF, grey list company, income tax, income year, market value, pay, provisional tax, tax
Section EX 67B: inserted, on 7 May 2012, by section 47 of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Measurement of cost
EX 68 Measurement of cost
When this section applies
(1)
This section applies when the cost of a person’s attributing interest in a FIF is being measured for the purposes of—
(a)
the $50,000 threshold in sections CQ 5(1)(d) or (e) (When FIF income arises) and DN 6(1)(d) or (e) (When FIF loss arises):
(b)
the comparative value method:
(c)
the deemed rate of return method:
(d)
the fair dividend rate method:
(e)
the cost method.
FIFO cost flow identification
(2)
If sections EX 52(14) and EX 53(16) do not apply and it is not possible to specifically identify the cost of the interest because of multiple acquisitions or dispositions or both by the person, the first-in-first-out (the FIFO) method of identifying cost flows is applied.
Definition of items in formula[Repealed]
(3)
[Repealed]Share splits or similar
(4)
If the person acquires the interest as the result of a share split, non-taxable bonus issue, or similar event, and the acquisition is not income for the person, subsections (5) and (6) apply.
Allocation of original cost
(5)
The cost of the interest is a fair allocation, based on market values at the time of the split, of the cost of the original property that is split.
Allocation replacing original cost
(6)
For the income year in which the split occurs and later,—
(a)
the cost allocated to the interest is no longer the cost of the original property that was split; and
(b)
the person is treated as having incurred the allocated cost amount on acquiring the interest when the original property was acquired; and
(c)
the person is treated as not incurring any other cost on the interest merely because the original property ceases to exist.
Non-monetary cost
(7)
If any cost is incurred in kind and not in money, the amount of the cost is equal to the market value of the cost incurred in kind, measured as at the time incurred.
Exclusion of term life insurance element of premiums
(8)
If the interest is rights to benefit under a life insurance policy, the cost of the interest excludes a premium incurred in an earlier income year, or accounting period, to the extent to which the premium relates only to term life insurance for the previous period and does not increase the policy’s surrender value.
Exclusion of holding costs
(9)
The cost of the interest does not include any expenditure under the financial arrangements rules or interest on money borrowed to acquire it, or other holding costs, incurred after its acquisition.
Transitional rule: interests acquired before 1 January 2000
(10)
Subsection (11) applies, for the purposes of the $50,000 threshold in sections CQ 5(1)(d) or (e) and DN 6(1)(d) or (e), if—
(a)
the interest was acquired before 1 January 2000; and
(b)
the person chooses, for the income year for which the relevant paragraph is applied or an earlier income year, that subsection (11) applies to all interests acquired before 1 January 2000.
Cost treated as half 1 April 2007 value
(11)
Despite subsections (1) to (9), the cost of the interest is treated as equal to half the market value of the interest on 1 April 2007.
Optional transitional rule: interests excluded by section EX 39 until 2012–13 income year
(12)
For interests that were acquired by the person before 1 January 2005 and excluded by section EX 39 from being attributing interests until the beginning of the 2012–13 income year, the person may choose to treat the cost of every interest as being the market value of the interest at the beginning of the 2012–13 income year, for the purposes of the $50,000 threshold in sections CQ 5(1)(d) or (e) and DN 6(1)(d) or (e).
Defined in this Act: accounting period, amount, attributing interest, comparative value method, cost method, deemed rate of return method, fair dividend rate method, FIF, financial arrangements rules, income, income year, interest, life insurance, life insurance policy, market value, non-taxable bonus issue, premium, share
Compare: 2004 No 35 s EX 56
Section EX 68(1)(a): amended, on 29 March 2018, by section 258 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EX 68(2) heading: substituted, on 1 April 2008, by section 401 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 68(2): substituted, on 1 April 2008, by section 401 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 68(3) heading: repealed, on 1 April 2008, by section 401 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 68(3): repealed, on 1 April 2008, by section 401 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EX 68(12) heading: inserted (with effect on 1 October 2011), on 2 November 2012 (applying for the 2012–13 and later income years), by section 51(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 68(12): inserted (with effect on 1 October 2011), on 2 November 2012 (applying for the 2012–13 and later income years), by section 51(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Change of FIF’s balance date
EX 69 Change of FIF’s balance date
When this section applies
(1)
This section applies when a person—
(a)
has an attributing interest in a FIF; and
(b)
calculates their FIF income or loss from the FIF using the attributable FIF income method; and
(c)
has calculated FIF income or loss from the FIF on the basis of 1 accounting year (the old accounting year); and
(d)
wants to change to use a different accounting year (the new accounting year) for the calculations.
Commissioner’s consent
(2)
The person may make the change only if the Commissioner agrees.
Commissioner’s reasons
(3)
The Commissioner may take into account any relevant factors when making the decision, including—
(a)
whether the change is sought because ownership of the FIF has changed; and
(b)
whether the change is sought because of taxation or other legal requirements in a country where the FIF is resident or does business; and
(c)
whether the change would postpone liability to income tax on FIF income.
New accounting year
(4)
If the change is approved, the person may use the new accounting year.
Limit on transitional deferral
(5)
If, in order to make the transition, the transitional accounting period is more than 1 year and ends in a later income year than the old accounting year ends in, and that would result in an amount of FIF income being derived in the later income year, subsection (6) applies and section CQ 5(1)(g) (When FIF income arises) does not.
Income pro-rated over whole period
(6)
For the transitional accounting period, the FIF income is divided by the number of days in the period and the resulting amount is FIF income of the person derived on each day in the period.
Defined in this Act: accounting period, accounting year, amount, attributable FIF income method, attributing interest, business, Commissioner, FIF, FIF income, income tax, income year, loss, year
Compare: 2004 No 35 s EX 57
Section EX 69(1)(b): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 48(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 69 list of defined terms accounting profits method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 48(2)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 69 list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 48(2)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 69 list of defined terms branch equivalent method: repealed (with effect on 1 July 2011), on 7 May 2012, by section 48(2)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Market value rules
EX 70 Market value of life policy and superannuation entitlements
When this section applies
(1)
This section applies when, in order to calculate a person’s FIF income or loss, it is necessary to calculate the market value of a person’s rights to benefit under a life insurance policy or as a beneficiary under a superannuation scheme.
Value of life insurance policy
(2)
The market value of rights to benefit under a life insurance policy is equal to their surrender value.
Limit to subsection (2)
(3)
Subsection (2) applies only for the purpose of calculating the cost of a person’s rights to benefit from a life insurance policy under—
(a)
section EX 64(4); and
(b)
Value of superannuation scheme entitlement
(4)
The market value at any time of a person’s rights to benefit under a superannuation scheme is equal to the total of costs incurred up to that time by or for the person on acquiring the rights if—
(a)
it is not reasonably practicable to calculate the actual market value; and
(b)
they have not derived any material gain from the rights up to that time.
Defined in this Act: FIF income, life insurance policy, loss, market value, superannuation scheme
Compare: 2004 No 35 s EX 58
EX 71 Non-market transactions in FIF interests
Section GC 4 (Disposals and acquisitions of FIF attributing interests) applies to acquisitions and dispositions of attributing interests in FIFs when the comparative value method, the deemed rate of return method, the fair dividend rate method, or the cost method is used.
Defined in this Act: attributing interest, comparative value method, cost method, deemed rate of return method, fair dividend rate method, FIF
Compare: 2004 No 35 s EX 59
Commissioner’s default assessment power
EX 72 Commissioner’s default assessment power
When this section applies
(1)
This section applies when—
(a)
a person has failed to disclose their control interest or income interest in a CFC or attributing interest in a FIF, under section 61 of the Tax Administration Act 1994:
(b)
a person has failed to disclose information regarding their control interest or income interest in a CFC or attributing interest in a FIF, requested under section 17 of that Act:
(c)
a person cannot obtain enough information to calculate their attributed CFC income or loss or FIF income or loss for a period.
Commissioner’s power
(2)
The Commissioner may make an assessment of the amount of attributed CFC income or loss or FIF income or loss for the relevant period.
Examples of methods
(3)
Without limiting the Commissioner’s discretion, the assessment may be based on any of the following:
(a)
the accounts of the CFC or FIF for the relevant period prepared for tax authorities, creditors, shareholders, or others:
(b)
the application of a rate of presumed increase of 10% or more, compounded annually, to the CFC’s net attributable CFC income or to the FIF’s net attributable FIF income, for a previous period:
(c)
the application of a rate of presumed increase of 10% or more, compounding annually, to the CFC’s or FIF’s accounting profits as shown in its accounts for a previous period:
(d)
an imputed rate of return on the market value of the interest at the start of the period:
(e)
the actual gains or losses of the person in the period from holding or disposing of the interest:
(f)
the change in the market value of the interest over the period.
Defined in this Act: amount, assessment, attributable FIF income method, attributed CFC income, attributing interest, CFC, Commissioner, control interest, FIF, FIF income, income interest, loss, market value, net attributable CFC income, net attributable FIF income, request, shareholder
Compare: 2004 No 35 s EX 60
Section EX 72(1)(c): replaced (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 49(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 72(2): amended, on 24 February 2016, by section 155 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EX 72(3)(b): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 49(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 72 list of defined terms attributed repatriation: repealed (with effect on 1 July 2011), on 7 May 2012, by section 49(3)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 72 list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 49(3)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 72 list of defined terms branch equivalent income: repealed (with effect on 1 July 2011), on 7 May 2012, by section 49(3)(a) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 72 list of defined terms net attributable CFC income: inserted (with effect on 1 July 2011), on 7 May 2012, by section 49(3)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 72 list of defined terms net attributable FIF income: inserted (with effect on 1 July 2011), on 7 May 2012, by section 49(3)(b) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section EX 72 list of defined terms request: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Election relating to CFC or FIF
Heading: inserted (with effect on 30 June 2009), on 2 November 2012, by section 52(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
EX 73 Election that CFC not non-attributing active CFC or FIF not non-attributing active FIF
Election to have elective attributing CFC
(1)
A person (the interest holder) may elect by notice to the Commissioner for each accounting period of the election, that—
(a)
a CFC of the interest holder, in which the interest holder has an income interest of 10% or more, not be a non-attributing active CFC for the interest holder:
(b)
a FIF of the interest holder, for which the interest holder uses the attributable FIF income method, not be a non-attributing active FIF for the interest holder.
Exception
(2)
The interest holder must not make an election under subsection (1) for a CFC or FIF that is—
(a)
an entity carrying on a business of banking or insurance or is directly or indirectly controlled by such an entity:
(b)
a non-attributing Australian CFC.
Period of election
(3)
An election under subsection (1) is made for all accounting periods—
(a)
for a CFC, ending in the interest holder’s income years beginning on or after 1 July 2009, if the notice—
(i)
specifies that the election is made under this paragraph or for that period; and
(ii)
meets the requirements of subsection (4); or
(b)
for a FIF, ending in the interest holder’s income years beginning on or after 1 July 2011, if the notice—
(i)
specifies that the election is made under this paragraph or for that period; and
(ii)
meets the requirements of subsection (4); or
(c)
beginning in the interest holder’s income years beginning after—
(i)
the date on which the notice is given to the Commissioner; or
(ii)
another date agreed by the Commissioner.
Timing of retrospective election
(4)
A notice of election for a period given by subsection (3)(a) or (b) is not effective unless given to the Commissioner by the later of—
(a)
the end of the interest holder’s income year in which this subsection receives the Royal assent:
(b)
a date allowed by the Commissioner.
Currency of election
(5)
An election under subsection (1) remains effective until the beginning of the earliest income year—
(a)
for which the election is revoked under subsection (6):
(b)
in which the election ceases to be effective under subsection (7).
Revoking election
(6)
The interest holder may revoke an election under subsection (1) if—
(a)
the interest holder gives notice of the revocation to the Commissioner before the beginning of the interest holder’s first income year for which the notice is given; and
(b)
the interest holder satisfies the Commissioner that—
(i)
expenditure or loss of a CFC included, while the election is effective, in net attributable CFC income or loss for the interest holder is extremely unlikely to result after the revocation in an amount that would otherwise have been an attributable CFC amount for the CFC; and
(ii)
the revocation is not made for a purpose or effect of reducing a tax liability; and
(c)
the Commissioner agrees to the revocation.
Expiry of election
(7)
An election by the interest holder under subsection (1) ceases to be effective in an income year if the election is for—
(a)
a CFC that in the income year ceases to be a CFC in which the interest holder has an income interest of 10% or more, except if the CFC becomes at that time a FIF for which the interest holder uses the attributable FIF income method, in which case the election becomes effective as if made for the FIF:
(b)
a FIF that in the income year ceases to be a FIF for which the interest holder uses the attributable FIF income method, except if the FIF becomes at that time a CFC meeting the requirements of subsection (8), in which case the election becomes effective as if made for the CFC:
(c)
a CFC or FIF that in the income year becomes an entity carrying on a business of banking or insurance or becomes directly or indirectly controlled by such an entity:
(d)
a CFC that becomes a non-attributing Australian CFC in the income year.
Requirements for CFC to be affected by FIF election
(8)
For a CFC to be affected under subsection (7)(b) by an election,—
(a)
the interest holder must have an income interest of 10% or more in the CFC; and
(b)
the CFC must not be a non-attributing Australian CFC.
Effect of expiry or revocation of election
(9)
If an election under subsection (1) ceases to be effective for a CFC or FIF,—
(a)
becoming effective for a FIF under subsection (7)(a) because the CFC becomes a FIF for which the interest holder uses the attributable FIF income method, the interest holder may carry forward under section IQ 1B (Losses carried forward to tax year) attributed CFC losses of the CFC to a later tax year as if they were FIF net losses that were attributed from the FIF when the CFC losses were attributed from the CFC:
(b)
becoming effective for a CFC under subsection (7)(b) because the FIF becomes a CFC of the interest holder in which the interest holder has an income interest of 10% or more, the interest holder may carry forward under section IQ 1B the FIF net losses of the FIF as if they were attributed CFC losses that were attributed from the CFC when the FIF losses were attributed from the FIF:
(c)
other than under paragraphs (a) and (b), the interest holder must not carry forward under section IQ 1B an attributed CFC loss from an elective attributing CFC, or a FIF net loss from an elective attributing FIF, to an income year for which the election for the CFC or FIF has ceased to be effective.
Further election
(10)
The interest holder may make a further election under subsection (1) for a period given by subsection (3)(c) after an earlier election ceases to be effective, if—
(a)
the interest holder gives notice of the election to the Commissioner before the beginning of the interest holder’s first income year for which the notice is given; and
(b)
the interest holder satisfies the Commissioner that—
(i)
the expiry of the earlier election was due to an oversight on the part of the interest holder or the CFC or FIF; and
(ii)
the interest holder gave notice of the further election within a reasonable time after the expiry; and
(iii)
the further election has no purpose or effect of allowing the attribution of deductions without the attribution of corresponding income; and
(c)
the Commissioner agrees to the election.
Further election for entity by associate of original interest holder
(11)
An interest holder may not make an election under subsection (1) for a CFC or FIF for which an earlier election by a person associated with the interest holder has ceased to be effective, unless—
(a)
the interest holder gives notice of the proposed election to the Commissioner before the beginning of the interest holder’s first income year for which the election is made; and
(b)
the interest holder satisfies the Commissioner that the proposed election has no purpose or effect of allowing the attribution of deductions without the attribution of corresponding income; and
(c)
the Commissioner agrees to the proposed election.
Form and means of notice to Commissioner
(12)
A notice to the Commissioner under this section must be given in the form and by the means prescribed by the Commissioner.
Defined in this Act: attributable FIF income method, attributed CFC loss, CFC, Commissioner, elective attributing CFC, elective attributing FIF, FIF, income interest, income year, net attributable FIF loss, non-attributing active CFC, non-attributing Australian CFC, notice
Section EX 73: inserted (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 52(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EX 73 list of defined terms non-attributing active FIF: repealed, on 29 March 2018, by section 90 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Subpart EY—Life insurance rules
Contents
Introductory provisions
EY 1 What this subpart does
Two bases
(1)
This subpart provides for the taxation of life insurers on 2 separate bases, the policyholder base and the shareholder base. Sections EY 2 and EY 3 describe the general apportionment of income and deductions between the 2 bases under this Part. Section LA 8B (General rules particular to life insurers) provides some general rules for tax credits relating to the 2 bases. Parts L and O include tax credit rules and memorandum account rules specific to the 2 bases.
Schedular policyholder base income and PIE schedular income
(2)
Section EY 2 uses the assessable income in a life insurer’s policyholder base income, and the life insurer’s policyholder base allowable deductions, to calculate their schedular policyholder base income. A life insurer’s schedular income derived by their life fund PIE that is a multi-rate PIE is excluded from their schedular policyholder base income, along with deductions for that income.
Counting once
(3)
Income and deductions must be apportioned to either the policyholder base or the shareholder base. There is no double-counting.
Defined in this Act: assessable income, deduction, income, life fund PIE, life insurance, life insurer, life reinsurance, memorandum account, multi-rate PIE, policyholder base, policyholder base income, schedular policyholder base income, shareholder base, tax credit
Section EY 1: substituted, on 1 July 2010, by section 185(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 2 Policyholder base
Policyholder base income
(1)
A life insurer has policyholder base income,—
(a)
for savings product policies that are not profit participation policies, under section EY 15:
(b)
for profit participation policies, under section EY 17:
(c)
under section EY 27(4).
Policyholder base allowable deductions
(2)
A life insurer has policyholder base allowable deductions,—
(a)
for savings product policies that are not profit participation policies, under section EY 16:
(ab)
for consideration for services provided to policyholders by the life insurer in administering and managing funds intended for use in meeting future policyholder claims under savings product policies that are not profit participation policies, under section EY 16B:
(b)
for profit participation policies, under section EY 18:
(c)
under section EY 27(4):
(d)
under section EZ 61 (Allowance for cancelled amount: spreading):
(e)
under section LE 2B (Use of remaining credits by life insurer on policyholder base).
Schedular policyholder base income
(3)
A life insurer’s schedular policyholder base income is the amount calculated by subtracting, from the assessable income in the policyholder base income for the income year, the amounts of policyholder base allowable deductions incurred in the income year, or available in the income year under subsection (5) or (5B), in the order in which the amounts are incurred.
Cap on subtracting: ring-fencing policyholder base allowable deductions
(4)
Despite subsection (3), the total amount that is subtracted under subsection (3), including an amount available in the income year under subsection (5) or (5B), is no more than the amount of the assessable income in the life insurer’s policyholder base income for the income year.
Excess allocations: carrying forward and re-instating next year
(5)
An amount of policyholder base allowable deductions that cannot be subtracted under subsection (3) in the current year because of subsection (4) is carried forward to the next income year and treated as policyholder base allowable deductions for that income year.
Transfer of policies with excess policyholder base allowable deductions
(5B)
If a life insurer (the transferor) transfers a life insurance policy to another life insurer (the transferee) in an income year and, immediately before the transfer, the transferor has an amount (the transferred amount) of policyholder base allowable deductions for the life insurance policy and the income year, at the time of the transfer—
(a)
the amount of policyholder base allowable deductions of the transferor for the income year is reduced by the transferred amount; and
(b)
the amount of policyholder base allowable deductions incurred by or available to the transferee in the income year is increased by the transferred amount, which is treated as being incurred by the transferee for the life insurance policy at the time of the transfer.
Exception
(6)
Despite subsections (3) to (5) a life insurer’s schedular income derived by their life fund PIE that is a multi-rate PIE is excluded from their schedular policyholder base income, along with deductions for that income.
Defined in this Act: amount, assessable income, income year, life fund PIE, life insurance, life insurer, multi-rate PIE, policyholder base allowable deduction, policyholder base income, profit participation policy, savings product policy, schedular income, schedular policyholder base income
Section EY 2: substituted, on 1 July 2010, by section 185(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 2(2)(ab): inserted (with effect on 1 April 2015), on 30 March 2017, by section 80(1) (and see section 80(6) and (7)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 2(3): replaced (with effect on 1 April 2016 and applying for the 2016–17 and later income years), on 30 March 2017, by section 80(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 2(4): amended (with effect on 1 April 2016 and applying for the 2016–17 and later income years), on 30 March 2017, by section 80(3) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 2(5): replaced, on 30 March 2017 (applying for income years beginning after this date), by section 80(4) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 2(5B) heading: inserted (with effect on 1 April 2016 and applying for transfers occurring on or after the beginning of the 2016–17 income year), on 30 March 2017, by section 80(5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 2(5B): inserted (with effect on 1 April 2016 and applying for transfers occurring on or after the beginning of the 2016–17 income year), on 30 March 2017, by section 80(5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
EY 3 Shareholder base
Shareholder base income
(1)
A life insurer has shareholder base income,—
(a)
for policies that are not profit participation policies, under section EY 19: see also subsection (3), for reserves:
(ab)
for consideration for services provided to policyholders by the life insurer in administering and managing funds intended for use in meeting future policyholder claims under savings product policies that are not profit participation policies, under section EY 19B:
(b)
for profit participation policies, under sections EY 21, EY 28, and EY 29:
(c)
for annuities, under section EY 31.
Shareholder base allowable deductions
(2)
A life insurer has shareholder base allowable deductions,—
(a)
for policies that are not profit participation policies, under section EY 20: see also subsection (3), for reserves:
(b)
for profit participation policies, under sections EY 22 and EY 28:
(c)
for the period and policies described in section EY 30, under that section:
(d)
for annuities, under section EY 31.
Reserves
(3)
Under sections EY 23 to EY 27, a life insurer calculates reserving amounts for life insurance policies, other than annuities, that have a life risk component and are not profit participation policies. A reserving amount may be income included in their shareholder base income, or a deduction that is included in their shareholder base allowable deduction, as provided by the relevant sections.
Defined in this Act: deduction, life insurance, life insurance policy, life insurer, life risk, profit participation policy, savings product policy, shareholder base allowable deduction, shareholder base income
Section EY 3: substituted, on 1 July 2010, by section 185(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 3(1)(ab): inserted (with effect on 1 April 2015), on 30 March 2017, by section 81(1) (and see section 81(3) and (4)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 3 list of defined terms savings product policy: inserted (with effect on 1 April 2015), on 30 March 2017, by section 81(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
EY 4 Apportionment of income of particular source or nature, and of tax credits
Default basis
(1)
For a class of policies, income of a particular source or nature, and tax credits received, are apportioned between the policyholder base and shareholder base—
(a)
in the same proportion as the policyholder base income relating to the particular source, nature, or credits bears to the life insurer’s total gross gains relating to the particular source, nature, or credits, in the case of the policyholder base:
(b)
in the same proportion as the shareholder base income relating to the particular source, nature, or credits bears to the life insurer’s total gross gains relating to the particular source, nature, or credits, in the case of the shareholder base.
More equitable or reasonable basis
(2)
For a class of policies, the life insurer may use a basis of apportionment that is different from the basis described in subsection (1), if that basis results in an amount, actuarially determined, that is more equitable and reasonable than an amount determined using the basis described in subsection (1).
Defined in this Act: actuarially determined, amount, class of policies, income, life insurer, policyholder base, policyholder base income, shareholder base, shareholder base income, tax credit
Section EY 4: substituted, on 1 July 2010, by section 185(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 5 Part-year tax calculations
Part-year tax calculations
(1)
For their life insurance and for their general insurance contracts outstanding claims reserve, a life insurer does part-year tax calculations, described in subsection (2), if they do not have an early life regime application day and 1 July 2010 is not the first day of their income year.
First year part-year calculations: description
(2)
For calculating their income tax liability for the tax year that corresponds to the income year that includes 1 July 2010, where 1 July 2010 is not the first day of the income year, the life insurer treats references, in the rules for life insurers, to an income year or a tax year as if they are references to 2 separate tax years and corresponding income years (the part-years) within that first tax year, divided by 1 July 2010 (for example: a rule to calculate an amount of policyholder income for an income year under the replaced rules means the calculation is done for the relevant part-year before 1 July 2010. A rule to calculate an opening reserve amount under sections EY 23 to EY 27 at the beginning of an income year under the new rules means the calculation is done on 1 July 2010, at the beginning of the relevant part-year).
Part-year calculations: effect
(3)
The part-year calculations may give rise to income and deductions for the income year, but they do not create any part-year tax return obligations. The 2 part-year calculations compose 1 income tax liability for 1 income year.
Part-year calculations for transfers: application
(3B)
Subsections (3C) to (5) apply where a life insurer (the transferor) transfers life insurance business to another life insurer (the transferee) and sections EY 23 to EY 27 apply to either or both of the transferor and transferee.
Part-year calculations for transfers: when non-resident transferor
(3C)
If sections EY 23 to EY 27 apply to the transferee but not to the transferor, the transferee—
(a)
does the calculations that would be required under this section for the transferor if sections EY 23 to EY 27 applied to the transferor; and
(b)
uses the results of the calculations in the way required under this section for a transferee.
Part-year calculations for transfers
(4)
A transferor to whom sections EY 23 to EY 27 apply does a part-year calculation immediately before the transfer, as described in subsection (2), for each class of policy in the transferred business, but only for their part-year ending on the day the transfer occurs. A transferee to whom sections EY 23 to EY 27 apply also does a part-year calculation for the transferred policies, as described in subsection (2), but only for their part-year starting on the day the transfer occurs. The transferee’s relevant opening part-year reserve amounts under sections EY 23 to EY 27 equal the transferor’s relevant closing part-year reserve amounts immediately before the transfer, and if the life reinsurance associated with a class of policies is not assigned by the transferor to the transferee, those reserve amounts are calculated without subtracting relevant life reinsurance amounts.
Class of policies transferred to insurer
(4B)
If a class of policies (the class) is transferred by a transferor to whom sections EY 23 to EY 27 do not apply to a life insurer (the insurer) to whom sections EY 23 to EY 27 apply, the opening value of the reserve amounts for the class under sections EY 23 to EY 27 for the insurer is the closing value that the reserve amounts would have for the transferor if sections EY 23 to EY 27 applied to the transferor.
Part-year calculations for transfers: effect
(5)
Transferor’s and transferee’s part-year calculations may give rise to income and deductions for the income year, but they do not create any part-year tax return obligations.
Part-year calculations: end of transitional adjustments
(6)
If, for a life insurance policy, the transitional adjustment under section EY 30(7) is calculated for part of an income year, because section EY 30 ceases to apply to the policy before the end of the income year, the life insurer does part-year tax calculations for the policy for the income year, as described in subsection (2), but the income year is divided by the day that section EY 30 ceases to apply. The effect of the part-year calculations is described in subsection (3).
Part-year calculations: end of transitional adjustments[Repealed]
(7)
[Repealed]Defined in this Act: amount, class of policies, deduction, early life regime application day, income, income tax liability, income year, life insurance, life insurance policies, life insurer, life reinsurance, outstanding claims reserve
Section EY 5: substituted, on 1 July 2010, by section 185(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 5(2): amended (with effect on 1 July 2010), on 30 March 2021, by section 53 of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section EY 5(3) heading: amended (with effect on 1 July 2010), on 7 September 2010, by section 45(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 5(3B) heading: inserted, on 1 April 2014, by section 57(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 5(3B): inserted, on 1 April 2014, by section 57(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 5(3C) heading: inserted, on 1 April 2014, by section 57(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 5(3C): inserted, on 1 April 2014, by section 57(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 5(4): amended, on 1 April 2014, by section 57(2)(a) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 5(4): amended, on 1 April 2014, by section 57(2)(b) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 5(4): amended (with effect on 1 July 2010), on 2 November 2012, by section 53(b) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EY 5(4): amended (with effect on 1 July 2010), on 7 September 2010, by section 45(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 5(4B) heading: inserted, on 1 April 2014, by section 57(3) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 5(4B): inserted, on 1 April 2014, by section 57(3) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 5(6) heading: substituted (with effect on 1 July 2010), on 7 September 2010, by section 45(3) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 5(6): substituted (with effect on 1 July 2010), on 7 September 2010, by section 45(3) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 5(7) heading: repealed (with effect on 1 July 2010), on 7 September 2010, by section 45(3) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 5(7): repealed (with effect on 1 July 2010), on 7 September 2010, by section 45(3) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
EY 6 Actuarial advice and guidance
The Commissioner may seek the advice of an actuary on anything that is required to be actuarially determined, or any related matter.
Defined in this Act: actuarially determined, actuary, Commissioner
Section EY 6: substituted, on 1 July 2010, by section 186(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 6: amended, on 1 May 2011, by section 82 of the Financial Markets Authority Act 2011 (2011 No 5).
EY 7 Meaning of claim
Meaning in rules for life insurers
(1)
In the rules for life insurers, claim—
(a)
means the amount that a life insurer is liable to pay under a life insurance policy because the contingency against which the life insured is covered under the policy has occurred; subsections (2) to (5) expand on “the amount that a life insurer is liable to pay”
:
(b)
excludes a payment made by a life insurer on the transfer of some or all of its life insurance business:
(c)
in the expression “claim arising”
, does not have the meaning given to the word “claim”
in paragraph (a) or (b).
Cash and non-cash benefits
(2)
For the purposes of subsection (1)(a), the amount that a life insurer is liable to pay includes—
(a)
a payment on the death of a life insured:
(b)
a payment on maturity:
(c)
a payment of a cash bonus:
(d)
a payment on the surrender of a policy:
(e)
an annuity payment:
(f)
a benefit other than in cash.
Advance or amount in actuarial reserves
(3)
For the purposes of subsection (1)(a), the amount that a life insurer is liable to pay does not include—
(a)
an advance against the security of the policy; or
(b)
a bonus or other discretionary amount added to the actuarial reserves.
Amount before certain subtractions
(4)
For the purposes of subsection (1)(a), the amount that a life insurer is liable to pay means the amount before the subtraction of the following amounts payable to the life insurer:
(a)
an advance against the security of the policy; and
(b)
an unpaid premium for the policy; and
(c)
interest on an amount referred to in paragraph (a) or (b).
Amount zero
(5)
For the purposes of subsection (1)(a), the amount that a life insurer is liable to pay may be zero.
Defined in this Act: actuarial reserves, amount, business, claim, interest, life insurance, life insurance policy, life insured, life insurer, pay, premium
Compare: 2004 No 35 s EY 7
Section EY 7(1) heading: amended (with effect on 1 July 2010), on 30 March 2021, by section 54(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section EY 7(1): amended (with effect on 1 July 2010), on 30 March 2021, by section 54(2) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section EY 7(1)(b): amended, on 1 July 2010, by section 187(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 7 list of defined terms life insurance rules: repealed (with effect on 1 July 2010), on 30 March 2021, by section 54(3) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
EY 8 Meaning of life insurance
Meaning
(1)
Life insurance means insurance under which—
(a)
person A (the life insurer) is liable to provide person B (the policyholder) with a benefit described in subsection (2); and
(b)
the life insurer is entitled to receive consideration in return, either from the policyholder or from some other person.
Benefits
(2)
The benefits are—
(a)
a benefit whose payment is contingent on the death of 1 or more human beings, including an annuity whose term is contingent on human life; or
(b)
a benefit whose payment is contingent on the survival of 1 or more human beings to a date, or an age, specified as part of the insurance, including an annuity whose term is contingent on human life; or
(c)
a benefit that is an annuity whose term is not contingent on human life, if the life insurer enters into the arrangement to provide the annuity as part of their business of providing life insurance.
Exclusion: death benefits provided under accident or medical insurance
(3)
Life insurance does not include accident or medical insurance under which—
(a)
1 or more benefits are payable for the death of the person whose life is insured; and
(b)
all the benefits referred to in paragraph (a) are—
(i)
payable if the death is caused by a specified cause named in the policy; or
(ii)
payable incidentally to the provision of accident or medical benefits, if the death is caused by a specified cause named in the policy.
Exclusion: death benefits provided by superannuation funds
(4)
Life insurance does not include an arrangement in which—
(a)
a superannuation fund is liable to pay, as a benefit to a beneficiary of the fund, a lump sum on—
(i)
the death of 1 or more human beings specified in the trust deed; or
(ii)
the survival of 1 or more human beings specified in the trust deed to a date, or an age, specified in the trust deed; and
(b)
the lump sum is made up of—
(i)
superannuation contributions made by or for the beneficiary; and
(ii)
allocated investment earnings attributable to contributions made by or for the beneficiary; and
(iii)
any other allocation from the profits of the superannuation fund attributable to contributions made by or for the beneficiary.
Defined in this Act: arrangement, business, life insurance, life insurer, pay, superannuation contribution, superannuation fund
Compare: 2004 No 35 s EY 8
EY 9 Meaning of life insurance policy
Life insurance policy means a policy to the extent to which it states the terms under which life insurance is covered.
Defined in this Act: life insurance, life insurance policy
Compare: 2004 No 35 s EY 9
EY 10 Meaning of life insurer
Meaning
(1)
Life insurer means a person carrying on a business of providing life insurance.
Exclusion
(2)
A person carrying on a business of providing life insurance in an income year is treated as not carrying on a business of providing life insurance while the person has full reinsurance.
Exclusion: Lloyd’s of London
(2B)
Except for the reference to life insurer in section EY 8 where Lloyd’s of London is treated as a life insurer, Lloyd’s of London is treated as not being a life insurer in relation to its business of providing life insurance, the premium from which is income of Lloyd’s of London under section CR 3B (Lloyd’s of London: income from life insurance premiums).
Inclusion
(3)
An association of persons, a body of persons, or a trustee is treated as carrying on a business of providing life insurance to the extent to which—
(a)
the association, body, or trustee provides life insurance; and
(b)
the consideration for the provision is something other than natural love and affection.
Parties to policies treated as being unrelated
(4)
Every life insurance policy entered into by the association, body, or trustee as insurer is treated as entered into with an unrelated party, even if the life insurer and the policyholder are, for example,—
(a)
an association and a member of the association; or
(b)
a trustee and a beneficiary of the trust.
Relationship with subpart HE
(5)
Subpart HE (Mutual associations) does not apply to the business of providing life insurance of the association, body, or trustee.
Defined in this Act: business, full reinsurance, income year, life insurance, life insurance policy, life insurer, Lloyd’s of London, premium, trustee
Compare: 2004 No 35 s EY 10
Section EY 10(2B) heading: inserted, on 29 March 2018 (with effect on 1 April 2017 and applying in relation to a life insurance premium that is derived on or after that date by Lloyd’s of London), by section 91(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EY 10(2B): inserted, on 29 March 2018 (with effect on 1 April 2017 and applying in relation to a life insurance premium that is derived on or after that date by Lloyd’s of London), by section 91(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EY 10 list of defined terms Lloyd’s of London: inserted, on 29 March 2018 (with effect on 1 April 2017), by section 91(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section EY 10 list of defined terms premium: inserted, on 29 March 2018 (with effect on 1 April 2017), by section 91(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
EY 11 Superannuation schemes providing life insurance
Benefits treated as life insurance
(1)
The provision by a trustee of a superannuation scheme of a benefit to a member or beneficiary of the scheme is treated as the provision of life insurance if the trustee provides life insurance to any member or beneficiary, unless subsection (2) applies.
Exemption for certain schemes
(2)
A trustee of a superannuation fund is treated as not carrying on the business of life insurance for an income year if the fund meets all the requirements of subsections (3) to (9) for the income year.
Fund must be registered
(3)
At all times in the income year, the fund must be registered as a superannuation scheme or a workplace savings scheme on the register of managed investment schemes (within the meaning of section 6(1) of the Financial Markets Conduct Act 2013).
Trustee cannot be a life insurance company
(4)
At all times in the income year, no trustee of the fund is a company carrying on the business of providing life insurance to which the Life Insurance Act 1908 applies.
Nature of funds
(5)
At all times in the income year, the fund must be 1 of the following kinds:
(a)
a fund established by an employer, or a group of employers who are associated, to provide benefits only to persons who are employees of, or related by employment to, such an employer, or to another associated employer who agrees after the fund’s establishment to make contributions to it:
(b)
a fund constituted under the Government Superannuation Fund Act 1956 that provides benefits only to persons who are employees of, or related by employment to, an employer who agrees or is required to contribute, or on whose behalf contributions are made, to the fund:
(c)
a fund constituted under the National Provident Fund Act 1950, the National Provident Fund Restructuring Act 1990, or the National Provident Fund Restructuring Amendment Act 1997 that has as its trustee the Board of Trustees of the National Provident Fund.
Only certain fund beneficiaries allowed
(6)
At all times in the income year, each beneficiary of the fund must be—
(a)
a natural person that is an employee of or related by employment to an employer of the kind referred to in subsection (5)(a) or (b):
(b)
a natural person that is a beneficiary of the fund, in the case of a fund referred to in subsection (5)(c) (which refers to funds related to the National Provident Fund):
(c)
an employer of members of the fund, to the extent of the employer’s contingent interest in a fund surplus.
Significant employer superannuation contributions required
(7)
At all times in the income year, each employer is required by the trust deed or Act constituting the fund to make or is making, or having made on their behalf, superannuation contributions to provide to a significant extent the fund benefits, except to the extent to which subsection (10) applies.
No avoidance effect
(8)
The fund must not have been established, and must not be being used at any time in the income year, in a way that has the effect of defeating the intent and application of the rules for life insurers.
FMA approval required
(9)
The trustee of the fund must have applied to the FMA for, and the FMA must have granted, approval that the fund is for the income year one that complies with subsections (3) to (8).
Exemptions to requirements of subsection (7)
(10)
Subsection (7) does not apply if—
(a)
the FMA is satisfied that, for the income year, subsection (7) would have been complied with but for the fund assets exceeding the accrued benefits from the fund:
(b)
the fund is one referred to in subsection (5)(c) (which refers to funds related to the National Provident Fund).
Limited superannuation contributions disregarded for subsection (7)
(11)
For the purposes of subsection (7), superannuation contributions that are merely nominal or that only meet the costs of administration and investment management are disregarded.
Notice by FMA
(12)
The FMA must notify the trustee of a superannuation fund as soon as practicable after determining that—
(a)
the fund complies with subsections (3) to (8) for an income year:
(b)
the fund ceases to comply with the subsections for an income year.
Objection against FMA decision
(13)
A person dissatisfied with the FMA’s decision may appeal against the decision to the High Court and has no right of objection under the Tax Administration Act 1994.
(13A)
A decision against which an appeal is lodged under subsection (13) continues in force unless the High Court orders otherwise.
Meaning of related by employment
(14)
In this section, a person is related by employment to an employer if the person is—
(a)
a former employee, in the case of deferred benefits relating to prior employment:
(b)
a relative or dependent of an employee, in the case of benefits arising from the employee’s or former employee’s membership in the fund.
Defined in this Act: apply, associated, company, employee, employer, income year, life insurance, related by employment, relative, superannuation contribution, superannuation fund, superannuation scheme, trustee
Compare: 2004 No 35 s GD 8(1), (3)–(8)
Section EY 11(3): replaced, on 1 December 2014, by section 150 of the Financial Markets (Repeals and Amendments) Act 2013 (2013 No 70).
Section EY 11(5) heading: substituted (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 57(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EY 11(5): substituted (with effect on 1 April 2010), on 21 December 2010 (applying for the 2010–11 and later income years), by section 57(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EY 11(7) heading: amended (with effect on 1 April 2008), on 6 October 2009, by section 188(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 11(7): amended (with effect on 1 April 2008), on 6 October 2009, by section 188(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 11(8): amended (with effect on 2 November 2012), on 30 March 2021, by section 55(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section EY 11(9) heading: amended, on 1 May 2011, by section 85(1) of the Financial Markets Authority Act 2011 (2011 No 5).
Section EY 11(9): amended, on 2 June 2016, by section 39(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EY 11(9): amended, on 1 May 2011, by section 85(1) of the Financial Markets Authority Act 2011 (2011 No 5).
Section EY 11(10)(a): amended, on 1 May 2011, by section 85(1) of the Financial Markets Authority Act 2011 (2011 No 5).
Section EY 11(11) heading: amended (with effect on 1 April 2008), on 6 October 2009, by section 188(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 11(11): amended (with effect on 1 April 2008), on 6 October 2009, by section 188(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 11(12) heading: amended, on 1 May 2011, by section 85(1) of the Financial Markets Authority Act 2011 (2011 No 5).
Section EY 11(12): amended, on 1 May 2011, by section 85(1) of the Financial Markets Authority Act 2011 (2011 No 5).
Section EY 11(13) heading: replaced, on 1 December 2014, by section 150 of the Financial Markets (Repeals and Amendments) Act 2013 (2013 No 70).
Section EY 11(13): replaced, on 1 December 2014, by section 150 of the Financial Markets (Repeals and Amendments) Act 2013 (2013 No 70).
Section EY 11(13A): inserted, on 1 December 2014, by section 150 of the Financial Markets (Repeals and Amendments) Act 2013 (2013 No 70).
Section EY 11 list of defined terms apply: inserted, on 2 June 2016, by section 39(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EY 11 list of defined terms life insurance rules: repealed (with effect on 2 November 2012), on 30 March 2021, by section 55(2) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section EY 11 list of defined terms superannuation contribution: inserted (with effect on 1 April 2008), on 6 October 2009, by section 188(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 12 Meaning of life reinsurance
Meaning
(1)
Life reinsurance—
(a)
means a contract of insurance between a life insurer and another person (person C) under which the life insurer is secured, fully or partially, against a risk by person C:
(b)
does not include a contract that—
(i)
secures against financial risk unless, in the contract, it is incidental to securing against life risk:
(ii)
is, or is part of, a tax avoidance arrangement.
“Fully”
and “partially”
(1B)
The words “fully”
and “partially”
describe the extent to which the life insurer is secured against life risk; they do not describe the term for which the reinsurance is provided.
Full reinsurance
(2)
The life insurer has full reinsurance if all the following apply:
(a)
the life insurer offered or was offered or entered into a life insurance policy or policies,—
(i)
in the case of a life insurer resident in New Zealand, as part of their business of providing life insurance; or
(ii)
in the case of a life insurer not resident in New Zealand, as part of their New Zealand business; and
(b)
the life insurer holds a life reinsurance policy or policies covering every life insurance policy described in paragraph (a); and
(c)
the life insurer is fully secured against liability under the life insurance policy or policies by the life reinsurance policy or policies; and
(d)
the life insurer offered or was offered or entered into the life reinsurance policy or policies in New Zealand.
Partial reinsurance
(3)
The life insurer has partial reinsurance if all the following apply:
(a)
the life insurer—
(i)
holds a life reinsurance policy or policies fully securing them against liability for 1 or some, but not all, of the life insurance policies described in paragraph (b); or
(ii)
holds a life reinsurance policy or policies for all the life insurance policies described in paragraph (b) but only partially securing them against liability; or
(iii)
holds a life reinsurance policy or policies partially securing them against liability for 1 or some, but not all, of the life insurance policies described in paragraph (b); and
(b)
the life insurer offered or was offered or entered into the life insurance policy or policies covered by the life reinsurance policy or policies,—
(i)
in the case of a life insurer resident in New Zealand, as part of their business of providing life insurance; or
(ii)
in the case of a life insurer not resident in New Zealand, as part of their New Zealand business; and
(c)
the life insurer offered or was offered or entered into the life reinsurance policy or policies in New Zealand.
Exclusion: financial arrangements and general insurance
(4)
To the extent to which a contract is a financial arrangement or is insurance that secures a life insurer against liability that arises from insurable events other than death or survival of a human being, that contract is not life reinsurance.
Other definitions
(5)
In this Act,—
life financial reinsurance is a contract that may be life reinsurance under subsection (1)(a), but is not included under subsection (1)(b)
financial risk—
(a)
means risk, whether or not specific to a party to the relevant arrangement relating to risk, that is contingent on a valuation or disposal of financial arrangements, or contingent on profitability or creditworthiness, or contingent on a variable such as future expenditure:
(b)
does not include life risk
life reinsurer means a person in the position of person C.
Relationship with subject matter
(6)
Section EZ 62 (Reinsurance transition: life financial reinsurance may be life reinsurance) overrides this section.
Defined in this Act: business, financial arrangement, financial risk, full reinsurance, life financial reinsurance, life insurance, life insurance policy, life insurer, life reinsurance, life reinsurance policy, life reinsurer, New Zealand business, offered or was offered or entered into, partial reinsurance, resident in New Zealand
Compare: 2004 No 35 s EY 11
Section EY 12(1) heading: substituted, on 1 July 2010, by section 189(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 12(1): substituted, on 1 July 2010, by section 189(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 12(1B) heading: inserted, on 1 July 2010, by section 189(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 12(1B): inserted, on 1 July 2010, by section 189(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 12(4) heading: substituted, on 1 July 2010, by section 189(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 12(4): substituted, on 1 July 2010, by section 189(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 12(5) heading: added, on 1 July 2010, by section 189(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 12(5): added, on 1 July 2010, by section 189(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 12(6) heading: added, on 1 July 2010, by section 189(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 12(6): added, on 1 July 2010, by section 189(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 12 list of defined terms financial arrangement: inserted, on 1 July 2010, by section 189(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 12 list of defined terms financial risk: inserted, on 1 July 2010, by section 189(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 12 list of defined terms life financial reinsurance: inserted, on 1 July 2010, by section 189(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 13 Meaning of life reinsurance policy
Life reinsurance policy means a policy to the extent to which it states the terms under which life reinsurance is covered.
Defined in this Act: life reinsurance, life reinsurance policy
Compare: 2004 No 35 s EY 12
EY 14 Life insurance and life reinsurance: how sections relate
Life insurance definitions
(1)
Sections EY 8 to EY 11 define terms relating to life insurance.
Life reinsurance definitions
(2)
Sections EY 12 and EY 13 define terms relating to life reinsurance.
Life insurance term usually includes life reinsurance term
(3)
A reference in this Act to any of the terms defined in sections EY 8 to EY 11 includes the equivalent term in sections EY 12 and EY 13—for example, life insurer includes life reinsurer—unless the context requires otherwise.
Defined in this Act: life insurance, life insurer, life reinsurance, life reinsurer
Compare: 2004 No 35 s EY 13
Policyholder base
Heading: inserted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Non-participation policies
Heading: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 15 Policyholder base income: non-participation policies
What is included
(1)
For an income year, a life insurer’s income is included as their policyholder base income if it—
(a)
relates to life insurance policies that are savings product policies and not profit participation policies; and
(b)
does not relate to life risk components of premiums and claims; and
(c)
is not a premium, or is a premium relating to income that is treated under subsection (5) as not relating to life risk components of premiums and claims; and
(d)
is included in the amount of policyholder base income calculated under subsection (2) or (4).
Certain income: basis of apportionment
(2)
If an amount of income meets the requirements of subsection (1)(a) to (c), the amount of the income that is policyholder base income is calculated using the formula—
(investment × average surrender value ÷ average savings assets)
+ de minimis amounts.
Definition of items in formula
(3)
In the formula,—
(a)
investment is the amount of income that meets the requirements of subsection (1)(a) to (c), other than income included in the item de minimis amounts:
(b)
average surrender value is, for the savings product policies to which the income relates, the average surrender value of the policies for the income year. The life insurer may determine an equitable and reasonable basis for the measurement of the average:
(c)
average savings assets is, for the savings product policies to which the income relates, the average market value of assets held by the life insurer for the policies for the income year. The life insurer may determine an equitable and reasonable basis for the measurement of the average:
(d)
de minimis amounts is the amount of income meeting the requirements of subsection (1)(a) to (c) that would be treated as relating to life risk components of premiums and life reinsurance claims in the absence of subsection (5).
More equitable or reasonable basis of apportionment
(4)
Despite subsections (2) and (3), for income included in the item investment in the formula in subsection (2), the life insurer may use a basis of apportionment that is different from the one described in subsections (2) and (3), if that basis results in an amount, actuarially determined, that is more equitable and reasonable than an amount determined using the basis described in subsections (2) and (3).
Treatment of de minimis life risk component amounts
(5)
An amount of income relating to a policy that, but for this subsection, is an amount related to the life risk of a premium or life reinsurance claim, is treated as not relating to the relevant life risk component for the purposes of subsection (1), if—
(a)
the life insurer has actuarially determined that the life risk is 1% or less of the premium or life reinsurance claim; and
(b)
chooses to apply this subsection for the policy.
Defined in this Act: actuarially determined, amount, claim, income, income year, life insurance policy, life insurer, life reinsurance, life risk, life risk component, market value, premium, policyholder base income, profit participation policy, savings product policy, shareholder base income, surrender value
Section EY 15: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 15(1): replaced (with effect on 1 July 2010), on 27 February 2014, by section 58(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 15(1)(c): replaced, on 27 February 2014, by section 58(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 15(2): amended (with effect on 1 July 2010), on 27 February 2014, by section 58(3) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 15(2) formula: replaced, on 27 February 2014, by section 58(4) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 15(3)(a): replaced, on 27 February 2014, by section 58(5) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 15(3)(d): inserted, on 27 February 2014, by section 58(6) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 15(4): amended, on 27 February 2014, by section 58(7) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 15(5): amended, on 1 July 2010 (applying for income years beginning on or after 1 July 2010), by section 32(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
EY 16 Policyholder base allowable deductions: non-participation policies
What is included
(1)
For an income year, a life insurer’s deduction is included as their policyholder base allowable deduction if it—
(a)
relates to life insurance policies that are savings product policies and not profit participation policies; and
(b)
relates to income meeting the requirements of section EY 15(1)(a) to (c); and
(c)
is included in the amount of policyholder base allowable deduction calculated under subsection (2).
Basis of apportionment
(2)
If a deduction meets the requirements of subsection (1)(a) and (b), the amount of the deduction that is policyholder base allowable deduction is calculated using the basis for apportionment in—
(a)
section EY 15(2) and (3) with necessary modifications; or
(b)
section EY 15(4) with necessary modifications.
Defined in this Act: deduction, income year, life insurance policy, life insurer, policyholder base allowable deduction, profit participation policy
Section EY 16: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 16(1): replaced (with effect on 1 July 2010), on 27 February 2014, by section 59(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 16(1): amended (with effect on 1 July 2010), on 30 March 2017, by section 82 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 16(2): replaced (with effect on 1 July 2010), on 27 February 2014, by section 59(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 16 list of defined terms premium loading: repealed (with effect on 1 July 2010), on 27 February 2014, by section 59(3) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 16 list of defined terms premium loading formula: repealed (with effect on 1 July 2010), on 27 February 2014, by section 59(3) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 16 list of defined terms policyholder base income: repealed (with effect on 1 July 2010), on 27 February 2014, by section 59(3) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 16 list of defined terms shareholder base allowable deduction: repealed (with effect on 1 July 2010), on 27 February 2014, by section 59(3) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
EY 16B Policyholder base allowable deductions: consideration for investment management services
For an income year and a class of policies that are savings product policies and not profit participation policies, a life insurer has a policyholder base allowable deduction equal to the amount that is—
(a)
credited to the shareholder base in the income year as consideration for services provided to policyholders in administering and managing funds intended for use in meeting future policyholder claims under the policies; and
(b)
not included in the policyholder base allowable deduction under section EY 16.
Defined in this Act: amount, class of policies, income year, life insurer, policyholder base allowable deduction, profit participation policy, savings product policy, shareholder base
Section EY 16B: inserted (with effect on 1 April 2015), on 30 March 2017, by section 83(1) (and see section 83(2) and (3)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Profit participation policies
Heading: inserted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 17 Policyholder base income: profit participation policies
What is included
(1)
For an income year, a life insurer has policyholder base income to the extent to which they have an amount for profit participation policies calculated using the formula—
asset base gross income × (1 − retained earnings average
− future shareholder transfers average) + net transfers.
Definition of items in formula
(2)
In the formula,—
(a)
asset base gross income is the amount of annual gross income that the life insurer would have for the policies’ asset base, if—
(i)
the life insurer is treated as having no assets other than the asset base; and
(ii)
amounts under sections EY 28 and EY 29 are ignored:
(b)
retained earnings average is an actuarially determined amount that is the average of the following 2 proportions:
(i)
the proportion of the value of the policies’ asset base that is attributable to the life insurer’s shareholder’s retained earnings at the end of the year before the income year:
(ii)
the proportion of the value of the policies’ asset base that is attributable to the life insurer’s shareholder’s retained earnings at the end of the income year:
(c)
future shareholder transfers average is an actuarially determined amount that is the average of the following 2 proportions:
(i)
the proportion of the value of the policies’ asset base that is attributable to the value, net of tax and used in the life insurer’s financial accounts, of future transfers to the life insurer’s shareholders for their portions of the future profits that are able to be supported by the supporting asset base at the beginning of the income year:
(ii)
the proportion of the value of the policies’ asset base that is attributable to the value, net of tax and used in the life insurer’s financial accounts, of future transfers to the life insurer’s shareholders for their portions of the future profits that are able to be supported by the supporting asset base at the end of the income year:
(d)
net transfers is the amount transferred to the benefit of policyholders from shareholders in relation to profit participation policies.
Meaning of supporting asset base
(3)
Supporting asset base means the asset base for relevant policies excluding—
(a)
the value of assets supporting the life insurer’s policyholder unvested liabilities:
(b)
the value of assets attributable to the life insurer’s shareholders.
Defined in this Act: actuarially determined, amount, annual gross income, asset base, income year, life insurer, policyholder base income, profit participation policy, supporting asset base
Section EY 17: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 17(2)(b)(i): amended, on 1 July 2010, by section 33(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 17(2)(b)(ii): amended, on 1 July 2010, by section 33(2) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 17(2)(c)(i): amended, on 30 March 2017, by section 84(1) (and see section 84(3) and (4)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 17(2)(c)(i): amended (with effect on 1 July 2010), on 27 February 2014, by section 60(1)(b) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 17(2)(c)(ii): amended, on 30 March 2017, by section 84(2) (and see section 84(3) and (4)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 17(2)(c)(ii): amended (with effect on 1 July 2010), on 27 February 2014, by section 60(1)(b) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 17(2)(d): amended, on 1 July 2010, by section 33(3) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 17(3)(a): amended, on 1 July 2010, by section 33(4) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 17 list of defined terms present value (net): repealed (with effect on 1 July 2010), on 27 February 2014, by section 60(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
EY 18 Policyholder base allowable deductions: profit participation policies
For an income year, a life insurer has policyholder base allowable deductions equal to the amount they would have, for profit participation policies, under the formula in section EY 17(1), if—
(a)
the life insurer is treated as having no assets other than the asset base; and
(b)
the item asset base gross income is treated as being the annual total deduction for the policies’ asset base; and
(c)
the item net transfers is ignored.
Defined in this Act: amount, annual total deduction, asset base, income year, life insurer, policyholder base allowable deduction, profit participation policy
Section EY 18: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 18(b): amended, on 1 July 2010, by section 34(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 18(c): added, on 1 July 2010, by section 34(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Shareholder base
Heading: inserted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Non-participation policies
Heading: inserted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 19 Shareholder base income: non-participation policies
What is included
(1)
For an income year, a life insurer’s income is included as their shareholder base income if it relates to life insurance policies that are not profit participation policies, and it—
(a)
relates to life risk components of premiums and claims, other than for annuities, and is not described in paragraphs (b) to (db):
(b)
relates to fees and commissions:
(c)
relates to the life risk component of life reinsurance claims:
(d)
is income meeting the requirements of section EY 15(1)(a) to (c) that is not included as their policyholder base income under section EY 15:
(db)
is income relating to annuities that would meet the requirements of section EY 15(1)(a) to (c) if the annuities were treated as being savings product policies:
(e)
is not otherwise accounted for in this subpart, for the income year.
Treatment of de minimis life risk component amounts
(2)
An amount of income relating to a policy that, but for this subsection, is an amount related to the life risk of a premium or life reinsurance claim, is treated as not relating to the life risk component for the purposes of subsection (1), if—
(a)
the life insurer has actuarially determined that the life risk is 1% or less of the premium or life reinsurance claim; and
(b)
chooses to apply section EY 15(5) for the policy.
No double-counting
(3)
If an amount is included as shareholder base income under sections EY 23 to EY 27, it is not included under this section.
Defined in this Act: actuarially determined, amount, claim, income year, life insurer, life insurance policy, life reinsurance, life risk, life risk component, policyholder base income, premium, profit participation policy, shareholder base income
Section EY 19: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 19(1)(a): amended (with effect on 1 July 2010), on 27 February 2014, by section 61(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 19(1)(d): amended (with effect on 1 July 2010), on 27 February 2014, by section 61(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 19(1)(db): inserted (with effect on 1 July 2010), on 27 February 2014, by section 61(3) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 19(2): amended, on 1 July 2010 (applying for all income years beginning on or after 1 July 2010), by section 35(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 19(3): amended, on 27 February 2014, by section 61(4) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
EY 19B Shareholder base income: consideration credited for investment management services
For an income year and a class of policies that are savings product policies and not profit participation policies, a life insurer has shareholder base income equal to the amount that is—
(a)
credited to the shareholder base in the income year as consideration for services provided to policyholders in administering and managing funds intended for use in meeting future policyholder claims under the policies; and
(b)
not included in the shareholder base income under section EY 19.
Defined in this Act: amount, class of policies, income year, life insurer, profit participation policy, savings product policy, shareholder base, shareholder base income
Section EY 19B: inserted (with effect on 1 April 2015), on 30 March 2017, by section 85(1) (and see section 85(2) and (3)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
EY 20 Shareholder base allowable deductions: non-participation policies
What is included
(1)
For an income year, a life insurer’s deduction is included as their shareholder base allowable deduction if it relates to life insurance policies that are not profit participation policies, and it—
(a)
relates to life risk components of premiums and claims, other than for annuities, and is not described in paragraphs (b) to (e):
(b)
relates to fees and commissions:
(c)
relates to the life risk component of life reinsurance premiums:
(d)
is a deduction that—
(i)
relates to income that is included in the item investment in the formula in section EY 15(2) or meets the requirements of section EY 19(1)(db); and
(ii)
is not included in the life insurer’s policyholder base allowable deduction under section EY 16:
(e)
is a premium payback amount, and—
(i)
section EY 19 applies or has applied to include the original premium as shareholder base income; and
(ii)
section EY 30(7) does not apply or has not applied to calculate a transitional amount for the original premium:
(f)
is not otherwise accounted for in this subpart, for the income year.
No double-counting
(2)
If an amount is included as shareholder base allowable deduction under sections EY 23 to EY 27, it is not included under this section.
Defined in this Act: amount, claim, deduction, income year, life insurance policy, life insurer, life reinsurance, life risk component, policyholder base allowable deduction, premium, premium payback amount, profit participation policy, shareholder base allowable deduction, shareholder base income
Section EY 20: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 20(1)(d): replaced (with effect on 1 July 2010), on 27 February 2014, by section 62(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 20(2): amended, on 27 February 2014, by section 62(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Profit participation policies
Heading: inserted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 21 Shareholder base income: profit participation policies
What is included
(1)
For an income year, a life insurer has shareholder base income to the extent to which they have an amount for profit participation policies calculated using the formula—
asset base gross income × (retained earnings average
+ future shareholder transfers average) − net transfers.
Definition of items in formula
(2)
In the formula,—
(a)
asset base gross income is the amount of annual gross income that the life insurer would have for the profit participation policies’ asset base, if—
(i)
the life insurer is treated as having no assets other than the asset base; and
(ii)
amounts under sections EY 28 and EY 29 are ignored:
(b)
retained earnings average is an actuarially determined amount that is the average of the following 2 proportions:
(i)
the proportion of the value of the policies’ asset base that is attributable to the life insurer’s shareholder’s retained earnings at the end of the year before the income year:
(ii)
the proportion of the value of the policies’ asset base that is attributable to the life insurer’s shareholder’s retained earnings at the end of the income year:
(c)
future shareholder transfers average is an actuarially determined amount that is the average of the following 2 proportions:
(i)
the proportion of the value of the policies’ asset base that is attributable to the value, net of tax and used in the life insurer’s financial accounts, of future transfers to the life insurer’s shareholders for their portions of the future profits that are able to be supported by the supporting asset base at the beginning of the income year:
(ii)
the proportion of the value of the policies’ asset base that is attributable to the value, net of tax and used in the life insurer’s financial accounts, of future transfers to the life insurer’s shareholders for their portions of the future profits that are able to be supported by the supporting asset base at the end of the income year:
(d)
net transfers is the amount transferred to the benefit of policyholders from shareholders in relation to profit participation policies.
Defined in this Act: actuarially determined, amount, annual gross income, asset base, income, income year, life insurer, profit participation policy, shareholder base income, supporting asset base
Section EY 21: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 21(2)(b)(i): amended, on 1 July 2010, by section 36(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 21(2)(b)(ii): amended, on 1 July 2010, by section 36(2) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 21(2)(c)(i): amended, on 30 March 2017, by section 86(1) (and see section 86(3) and (4)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 21(2)(c)(i): amended (with effect on 1 July 2010), on 27 February 2014, by section 63(1)(b) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 21(2)(c)(ii): amended, on 30 March 2017, by section 86(2) (and see section 86(3) and (4)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 21(2)(c)(ii): amended (with effect on 1 July 2010), on 27 February 2014, by section 63(1)(b) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 21(2)(d): amended, on 1 July 2010, by section 36(3) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 21 list of defined terms present value (net): repealed (with effect on 1 July 2013), on 27 February 2014, by section 63(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
EY 22 Shareholder base allowable deductions: profit participation policies
For an income year, a life insurer has shareholder base allowable deductions equal to the amount they would have, for profit participation policies, under the formula in section EY 21(1) if—
(a)
the life insurer is treated as having no assets other than the asset base; and
(b)
the item asset base gross income is treated as being the annual total deduction for the policies’ asset base; and
(c)
the item net transfers is ignored.
Defined in this Act: amount, annual total deduction, asset base, income year, life insurer, profit participation policy, shareholder base allowable deduction
Section EY 22: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 22(b): amended, on 1 July 2010, by section 37(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 22(c): added, on 1 July 2010, by section 37(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Non-participation policies: reserves
Heading: inserted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 23 Reserving amounts for life insurers: non-participation policies
Reserves
(1)
This section and sections EY 24 to EY 27 apply to calculate, a life insurer’s reserving amounts for life insurance policies, other than annuities, that have a life risk component and that are not profit participation policies.
Actuarial determination
(2)
All reserving amounts must be actuarially determined, for each class of policies that includes life insurance policies to which this section applies.
Positive and negative amounts: shareholder base income or shareholder base allowable deduction
(3)
If a reserving amount calculated under sections EY 24 to EY 27 is a positive amount, the life insurer has that amount as income included in their shareholder base income. If a reserving amount calculated under sections EY 24 to EY 27 is a negative amount, the life insurer has that amount as a deduction included in their shareholder base allowable deductions.
Which reserve can be used when?
(4)
For an income year and a class of policies, a life insurer has a reserving amount described in—
(a)
section EY 24, for outstanding claims reserves (the outstanding claims reserving amount):
(b)
section EY 25, for premium smoothing reserves (the premium smoothing reserving amount) if the life insurer chooses to calculate a premium smoothing reserving amount and the PSR periods for policies in the class of policies begins, continues or ends in the income year:
(c)
section EY 26, for unearned premium reserves (the unearned premium reserving amount), if the life insurer chooses to not calculate a premium smoothing reserving amount:
(d)
section EY 27, for capital guarantee reserves (the capital guarantee reserving amount).
Choice
(5)
Despite subsection (4)(b) and (c), a life insurer may not change between calculating a premium smoothing reserving amount and an unearned premium reserving amount for a class of policies once the premium smoothing reserving amount is used for the class of policies. If a policy in a class of policies does not meet the relevant requirements described in subsection (6), then a life insurer has an unearned premium reserving amount for that class of policy.
Meaning of PSR period
(6)
PSR period means, for an income year and a policy in a class of policies, a period—
(a)
that is a year or more in length; and
(b)
that is the income year or is a period that begins, continues, or ends in the income year and begins or ends in another income year, and
(c)
for which—
(i)
the amounts of the life risk components of premiums payable in the period are level or substantially level:
(ii)
there is a material mismatch between the timing of life risk and the timing of the life risk component of premiums payable in the period.
Defined in this Act: actuarially determined, amount, class of policies, deduction, income year, life insurance policy, life insurer, life risk, life risk component, premium, profit participation policy, PSR period, shareholder base allowable deduction, shareholder base income
Section EY 23: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 23(1): amended, on 30 March 2017 (applying for income years beginning after this date), by section 87(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 23(2): amended, on 30 March 2017, by section 87(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 23(4): amended, on 30 March 2017, by section 87(3) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 23(6): replaced, on 30 March 2017, by section 87(4) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
EY 24 Outstanding claims reserving amount: non-participation policies not annuities
Calculation of reserving amount
(1)
For an income year (the current year), a life insurer has an outstanding claims reserving amount for a class of policies calculated using the formula—
opening outstanding claims reserve − closing outstanding claims reserve.
Definition of items in formula
(2)
In the formula in subsection (1),—
(a)
opening outstanding claims reserve is—
(i)
if subparagraphs (ii), (iii), and (iv) do not apply, the amount of the life insurer’s closing outstanding claims reserve for the class of policies, for the income year before the current year (the prior year); or
(ii)
if the life insurer has no closing outstanding claims reserve for the prior year, the amount that would be the outstanding claims reserve for the class of policies, using subsections (3) and (4) with necessary modifications, calculated at the end of the prior year, but using a basis consistent with the one that the insurer used for tax purposes in that prior year (for example, if liability for claims incurred but not reported was not accounted for, for tax purposes, in the prior year, the opening balance calculation does not take into account liability for claims incurred but not reported); or
(iii)
if the current year is the first year in which the insurer adopts IFRS 17 for accounting, the amount of the insurer’s reserve for outstanding claims liability for the class of policies, calculated at the end of the prior year using the basis the insurer used for tax purposes in that prior year; or
(iv)
if the insurer does not adopt IFRS 17 in the current year and the current year is the first year in which the insurer applies the definition of present value (gross), the amount of the insurer’s reserve for outstanding claims liability for the class of policies, calculated at the end of the prior year using the basis the insurer used for tax purposes in that prior year:
(b)
closing outstanding claims reserve is the amount of the life insurer’s outstanding claims reserve calculated under subsections (3) and (4) for the class of policies at the end of the current year.
Outstanding claims reserve calculation
(3)
A life insurer’s outstanding claims reserve is calculated for the relevant policies using the formula—
life risk claims incurred but not reported + life risk claims reported + risk adjustment.
Definition of items in formula
(4)
In the formula in subsection (3),—
(a)
life risk claims incurred but not reported is the actuarially determined estimate of present values (gross) for the life risk components of claims not yet reported to the life insurer before the end of the current year, but the insured-against event has occurred. The life risk components must take into account the probability of the claims being paid, and future expenses for administering the claims, but the present value (gross) of relevant life reinsurance claims must be subtracted from the total:
(b)
life risk claims reported is the present values (gross) of the life risk components of claims reported but not yet paid. The life risk components must take into account the probability of the claims being paid, and future expenses for administering the claims, but the present values (gross) of relevant life reinsurance claims must be subtracted from the total:
(c)
risk adjustment is the appropriate adjustment for the life risk components of claims described in paragraph (a) or (b), to the extent to which the adjustment is actuarially determined, reflects the uncertainty of the estimates that arise from the use of the relevant best estimate assumptions, and is not already included in the life risk components of the claims.
Determining the present value (gross) of life risk components of claims
(5)
For the purposes of calculating a life insurer’s outstanding claims reserve under this section for a class of policies, present value (gross) for the life risk component of a claim under a life insurance policy or life reinsurance policy that is part of the class means the present value of the life risk component that is included in the outstanding claims reserve of the life insurer, calculated—
(a)
using the discount rates that would be used in calculating the present value, gross of tax, of the life risk component for the purposes of the financial statements of the life insurer; and
(b)
gross of tax; and
(c)
net of GST.
Defined in this Act: amount, best estimate assumptions, claim, class of policies, GST, IFRS 17, income year, life insurance policy, life insurer, life reinsurance, life reinsurance policy, life risk, life risk component, outstanding claims reserve, present value (gross), tax
Section EY 24: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 24(2)(a)(i): amended (with effect on 1 January 2023), on 31 March 2023, by section 65(1) (and see section 65(9) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EY 24(2)(a)(ii): amended (with effect on 1 January 2023), on 31 March 2023, by section 65(2) (and see section 65(9) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EY 24(2)(a)(ii): amended (with effect on 1 July 2010), on 21 December 2010, by section 58(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EY 24(2)(a)(ii): amended (with effect on 1 July 2010), on 7 September 2010, by section 46(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 24(2)(a)(iii): inserted (with effect on 1 January 2023), on 31 March 2023, by section 65(3) (and see section 65(9) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EY 24(2)(a)(iv): inserted (with effect on 1 January 2023), on 31 March 2023, by section 65(3) (and see section 65(9) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EY 24(3) formula: amended (with effect on 1 January 2023), on 31 March 2023, by section 65(4)(a) (and see section 65(9) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EY 24(3) formula: amended (with effect on 1 January 2023), on 31 March 2023, by section 65(4)(b) (and see section 65(9) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EY 24(4)(a): amended (with effect on 1 January 2023), on 31 March 2023, by section 65(5) (and see section 65(9) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EY 24(4)(c): amended (with effect on 1 January 2023), on 31 March 2023, by section 65(6)(a) (and see section 65(9) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EY 24(4)(c): amended (with effect on 1 January 2023), on 31 March 2023, by section 65(6)(b) (and see section 65(9) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EY 24(5) heading: inserted (with effect on 1 January 2023), on 31 March 2023, by section 65(7) (and see section 65(9) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EY 24(5): inserted (with effect on 1 January 2023), on 31 March 2023, by section 65(7) (and see section 65(9) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EY 24 list of defined terms GST: inserted (with effect on 1 January 2023), on 31 March 2023, by section 65(8) (and see section 65(9) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EY 24 list of defined terms IFRS 17: inserted (with effect on 1 January 2023), on 31 March 2023, by section 65(8) (and see section 65(9) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EY 24 list of defined terms life insurance policy: inserted (with effect on 1 January 2023), on 31 March 2023, by section 65(8) (and see section 65(9) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EY 24 list of defined terms life reinsurance policy: inserted (with effect on 1 January 2023), on 31 March 2023, by section 65(8) (and see section 65(9) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EY 24 list of defined terms mortality profit: repealed, on 24 February 2016, by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EY 24 list of defined terms outstanding claims reserve: inserted (with effect on 1 January 2023), on 31 March 2023, by section 65(8) (and see section 65(9) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section EY 24 list of defined terms tax: inserted (with effect on 1 January 2023), on 31 March 2023, by section 65(8) (and see section 65(9) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
EY 25 Premium smoothing reserving amount: non-participation policies not annuities
Calculation of reserving amount
(1)
For an income year (the current year), a life insurer has a premium smoothing reserving amount for a class of policies, during the policies’ PSR periods, calculated using the formula—
opening premium smoothing reserve − closing premium smoothing reserve.
Definition of items in formula
(2)
In the formula,—
(a)
opening premium smoothing reserve is—
(i)
the amount of the life insurer’s closing premium smoothing reserve for the class of policies, for the income year (the prior year) before the current year; or
(ii)
the amount that would be the premium smoothing reserve for the class of policies, using the principles in subsection (3) with necessary modifications, calculated at the end of the prior year, if the life insurer has no closing premium smoothing reserve for the prior year:
(b)
closing premium smoothing reserve is the amount of the life insurer’s premium smoothing reserve calculated under the principles in subsection (3) for the class of policies, calculated at the end of the current year.
Reserving amount: calculation
(3)
For policies in a class of policies and for PSR periods of the policies, reserving amounts must be calculated using the principles—
(a)
for an income year, the sum of a reserving amount and the life risk component of premiums equals the expected life risk proportion; and
(b)
for PSR periods, the sum of a reserving amount and the life risk component of premiums equals the total life risk component of premiums recognised for financial reporting purposes; and
(c)
the amount in the premium smoothing reserve does not include amounts for policies for which all obligations have ceased.
Best estimate assumptions for PSR
(4)
Closing and opening premium smoothing reserve amounts must be actuarially determined, using best estimate assumptions.
Special grouping rule for the purposes of best estimate assumptions
(5)
For the purposes of determining premium smoothing reserve amounts, life insurance policies may be grouped together if the policies have in common,—
(a)
substantially the same contractual terms and conditions, other than their PSR periods; and
(b)
substantially the same assumptions for pricing their life risk.
Meaning of expected life risk proportion
(6)
In this section, expected life risk proportion means, for life insurance policies in a class of policies and an income year, the proportion of the premiums that fairly reflects the proportion of the life risk and the life risk renewal expenses, for the term of the policy, expected to be borne in the income year and is determined from the corresponding proportions calculated, for each PSR period that begins, continues, or ends in the income year,—
(a)
as at the beginning of the income year or the beginning of the PSR period, whichever is later; and
(b)
assuming that the policies still exist at the end of the income year or the end of the PSR period, whichever is earlier.
Defined in this Act: amount, actuarially determined, best estimate assumptions, class of policies, expected life risk proportion, income year, life insurance policy, life insurer, life risk, life risk component, premium, PSR period
Section EY 25: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 25(2)(a)(ii): amended (with effect on 1 July 2010), on 7 September 2010, by section 47(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 25(3)(a): amended (with effect on 1 July 2010 and applying for the income year including 1 July 2010 and later income years), on 30 March 2017, by section 88(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 25(3) heading: replaced, on 30 March 2017 (applying for income years beginning after this date), by section 88(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 25(3): replaced, on 30 March 2017 (applying for income years beginning after this date), by section 88(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 25(6): replaced, on 30 March 2017 (applying for income years beginning after this date), by section 88(3) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
EY 26 Unearned premium reserving amount: non-participation policies not annuities
Calculation of reserving amount
(1)
For an income year (the current year), a life insurer has an unearned premium reserving amount for a class of policies calculated using the formula—
opening unearned premium reserve − closing unearned premium reserve.
Definition of items in formula
(2)
In the formula,—
(a)
opening unearned premium reserve is—
(i)
the amount of the life insurer’s closing unearned premium reserve for the class of policies, for the income year before the current year; or
(ii)
the amount that would be the unearned premium reserve for the class of policies, using subsection (3) with necessary modifications, calculated at the end of the prior year, if the life insurer has no closing unearned premium reserve for the income year before the current year:
(b)
closing unearned premium reserve is the amount of the life insurer’s unearned premium reserve under subsection (3) for the class of policies, calculated at the end of the current year.
Unearned premium reserve
(3)
A life insurer’s unearned premium reserve is the amount of the premium in the current year or a prior year, for the relevant policies, that relates to life risk components and relevant costs, in income years after the current year, but subtracting relevant life reinsurance premiums.
Defined in this Act: amount, class of policies, income year, life insurer, life reinsurance, life risk component
Section EY 26: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 26(2)(a)(ii): amended (with effect on 1 July 2010), on 7 September 2010, by section 48(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
EY 27 Capital guarantee reserving amount: non-participation policies not annuities
Calculation of reserving amount
(1)
For an income year (the current year), a life insurer has a reserving amount for a class of policies calculated using the formula—
opening capital guarantee reserve − closing capital guarantee reserve.
Definition of items in formula
(2)
In the formula,—
(a)
opening capital guarantee reserve is—
(i)
the amount of the life insurer’s closing capital guarantee reserve for the class of policies, for the income year before the current year; or
(ii)
the amount that would be the capital guarantee reserve for the class of policies, using subsection (3) with necessary modifications, calculated at the end of the income year before the current year, if the life insurer has no closing capital guarantee reserve for the income year before the current year:
(b)
closing capital guarantee reserve is the amount of the life insurer’s capital guarantee reserve under subsection (3) for the class of policies, calculated at the end of the current year.
Capital guarantee reserve
(3)
A life insurer’s capital guarantee reserve is the net amount of credits and debits on account of a risk-linked provision for future obligations in relation to a guarantee, for the class of policies, by the life insurer that capital invested will be returned or that a minimum return on capital will be paid.
Reflex in policyholder base
(4)
For the current year, if the reserving amount under this section is positive, the life insurer has that amount as a deduction included in their policyholder base allowable deductions. For the current year, if the reserving amount under this section is negative, the life insurer has that amount as income included in their policyholder base income.
Reflex in policyholder base: exception
(5)
Despite subsection (4), for the current year, the life insurer does not have that amount as income included in their policyholder base income to the extent to which the amount represents payment on account of lost capital in the policyholder base.
Defined in this Act: amount, class of policies, income year, life insurer, pay, policyholder base, policyholder base allowable deduction, policyholder base income
Section EY 27: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 27(2)(a)(ii): amended (with effect on 1 July 2010), on 7 September 2010, by section 49(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Shareholder base other profit: profit participation policies
Heading: inserted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 28 Shareholder base other profit: profit participation policies that are existing business
Calculation of income
(1)
For an income year, a life insurer has an amount, for profit participation policies that are existing business, that is calculated using the formula—
other profit × gate ÷ (1 + gate).
Definition of items in formula
(2)
In the formula in subsection (1),—
(a)
other profit is the amount calculated for the income year under subsection (4):
(b)
gate is the proportion of a policyholder’s share of profits from the asset base that is used in the formula that calculates a transfer to the benefit of the life insurer’s shareholders from the profits of the asset base, as described in paragraph (a)(iii) of the definition of profit participation policy.
Formula: negative amounts and positive amounts
(3)
If, for an income year, the formula in subsection (1) calculates a positive amount, that amount is included as income in the life insurer’s shareholder base income. If it is a negative amount, then that amount is included as a deduction in the life insurer’s shareholder base allowable deductions.
Other profit
(4)
For the purposes of the item other profit in subsection (2), an amount is calculated, for the income year (the current year) for profit participation policies that are existing business, using the following formula:
(premiums − premiums estimate) − (claims − claims estimate)
− (closing liabilities − estimated closing liabilities).
Definition of items in formula
(5)
In the formula in subsection (4),—
(a)
premiums is the amount of premiums for policies for the current year, but subtracting relevant life reinsurance premiums:
(b)
premiums estimate is the actuarially determined total amount of premiums that the life insurer expected, using best estimate assumptions, to receive in the current year for policies that were in force at the start of the current year or are first entered into in the current year, after subtracting the value, net of tax and used in the life insurer’s financial accounts, of relevant life reinsurance premiums for the current year:
(c)
claims is the amount of claims for the current year, after subtracting relevant life reinsurance claims:
(d)
claims estimate is the actuarially determined total amount of claims that the life insurer expected, using best estimate assumptions, to receive in the current year for policies that were in force at the start of the current year or are first entered into in the current year, after subtracting the value, net of tax and used in the life insurer’s financial accounts, of relevant life reinsurance claims for the current year:
(e)
closing liabilities is the total amount, determined as at the end of the current year for policies that are in force at the end of the current year, of the policy liabilities including benefits that vest by the end of the current year:
(f)
estimated closing liabilities is the total amount, estimated as at the beginning of the current year for policies that are in force at the start of the current year and expected to be in force at the end of the current year, of the policy liabilities including benefits that vest by the end of the current year.
Policy liability
(6)
For the purposes of subsection (5), the policy liability for a policy is an amount that is actuarially determined for the policy using best estimate assumptions and that—
(a)
is the total amount of future claims, future expenditure or loss, and future tax payments, reduced by the amount of future premiums; and
(b)
is obtained using present values that are net of tax and used in the life insurer’s financial accounts and allowing for life reinsurance premiums and life reinsurance claims; and
(c)
does not include bonus declarations that vest after the current year.
Basis of best estimate assumptions in actuarially determining items
(7)
The same best estimate assumptions must be used for actuarially determining amounts under subsections (5) and (6). The assumptions may be appropriate for the start of the year, or for the end of the year, but once the choice is made between start of the year and end of the year, that basis may not be changed.
Meaning of existing business
(8)
For the purposes of this section and section EY 29, existing business means, for a policy, that it is—
(a)
issued on or before 30 June 2009:
(b)
issued after 30 June 2009, if—
(i)
issued on the same substantial and material terms, conditions, and bonus entitlements as profit participation policies that the life insurer issued on or before 30 June 2009, ignoring any annual increase in life insurance cover that is less than 10% or less than annual percentage change in the Consumers Price Index (all groups):
(ii)
issued as the result of conversion rights in a policy issued on or before 30 June 2009:
(c)
the replacement of another policy (the replaced policy) caused by a life insurer being sold, or selling or transferring its rights and obligations under the replaced policy, and—
(i)
the replaced policy was existing business under this subsection; and
(ii)
the replaced policy and the policy have the same substantial and material terms, conditions, and bonus entitlements ignoring any annual increase in life insurance cover that is less than 10% or is less than the annual percentage change in the Consumers Price Index (all groups).
(9)
In this section, Consumers Price Index (all groups) means the Consumers Price Index (all groups) published by Statistics New Zealand or, if that index ceases to be published, any measure certified by the Government Statistician as being equivalent to that index.
Defined in this Act: actuarially determined, amount, best estimate assumptions, claim, existing business, income year, life insurance, life insurance policy, life insurer, life reinsurance, premium, profit participation policy
Section EY 28: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 28(4) formula: amended, on 30 March 2017 (applying for income years beginning on or after this date), by section 89(1)(a) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 28(4) formula: amended, on 30 March 2017 (applying for income years beginning on or after this date), by section 89(1)(b) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 28(5)(b): amended, on 30 March 2017, by section 89(2) (and see section 89(9) and (10)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 28(5)(d): amended, on 30 March 2017, by section 89(3) (and see section 89(9) and (10)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 28(5)(e): replaced, on 30 March 2017 (applying for income years beginning on or after this date), by section 89(4) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 28(5)(f): replaced, on 30 March 2017 (applying for income years beginning on or after this date), by section 89(5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 28(6) heading: replaced, on 30 March 2017 (applying for income years beginning on or after this date), by section 89(6) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 28(6): replaced, on 30 March 2017 (applying for income years beginning on or after this date), by section 89(6) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 28(7): amended, on 30 March 2017 (applying for income years beginning on or after this date), by section 89(7) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 28(8) existing business paragraph (a): amended (with effect on 1 July 2010), on 2 November 2012, by section 54(1)(a) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EY 28(8) existing business paragraph (b)(i): amended, on 1 September 2022, by section 107(1) of the Data and Statistics Act 2022 (2022 No 39).
Section EY 28(8) existing business paragraph (b)(ii): amended (with effect on 1 July 2010), on 2 November 2012, by section 54(1)(b) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EY 28(8) existing business paragraph (c): inserted (with effect on 1 July 2010), on 2 November 2012, by section 54(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EY 28(8) existing business paragraph (c)(ii): amended, on 1 September 2022, by section 107(1) of the Data and Statistics Act 2022 (2022 No 39).
Section EY 28(9): inserted, on 1 September 2022, by section 107(1) of the Data and Statistics Act 2022 (2022 No 39).
Section EY 28 list of defined terms present value (net): repealed, on 30 March 2017, by section 89(8) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
EY 29 Shareholder base other profit: profit participation policies that are new business
Calculation of income
(1)
For an income year, a life insurer has an amount, for profit participation policies that are new business, that is calculated using the formula—
(other profit × gate ÷ (1 + gate)) − previous negative amount.
Definition of items in formula
(2)
In the formula in subsection (1),—
(a)
other profit is the amount calculated for the income year under subsections (5) to (9):
(b)
gate is the proportion of a policyholder’s share of profits from the asset base that is used in the formula that calculates a transfer to the benefit of the life insurer’s shareholders from the profits of the asset base, as described in paragraph (a)(iii) of the definition of profit participation policy:
(c)
previous negative amount is the amount from the previous year described in subsections (3) and (4).
Formula: negative amounts and positive amounts
(3)
If, for an income year, the formula in subsection (1) calculates a positive amount, that amount is included as income in the life insurer’s shareholder base income. If it is a negative amount, then that amount is not included as a deduction in the life insurer’s shareholder base allowable deductions, but see subsection (4).
Negative amounts: carry forward
(4)
The amount by which the amount calculated using the formula in subsection (1) is less than zero is carried forward to the next income year, to be used under this section in the formula as the item previous negative amount in that next year.
Other profit
(5)
For the purposes of the item other profit in subsection (2), an amount is calculated, for the income year (the current year) for profit participation policies that are new business, using the following formula:
(premiums − premiums estimate) − (claims − claims estimate)
− (closing liabilities − estimated closing liabilities).
Definition of items in formula
(6)
In the formula in subsection (5),—
(a)
premiums is the amount of premiums for policies for the current year, but subtracting relevant life reinsurance premiums:
(b)
premiums estimate is the amount of valuation premiums that the life insurer expected, using best estimate assumptions, to receive in the current year for policies that are in force at the start of the current year, or are first entered into in the current year, after subtracting the value, net of tax and used in the life insurer’s financial accounts, of relevant life reinsurance premiums for the current year:
(c)
claims is the amount of claims for the current year, after subtracting relevant life reinsurance claims:
(d)
claims estimate is the actuarially determined amount of claims that the life insurer expected, using best estimate assumptions, to receive in the current year for policies that are in force at the start of the current year, or are first entered into in the current year, ignoring surrenders and after subtracting the value, net of tax and used in the life insurer’s financial accounts, of relevant life reinsurance claims for the current year:
(e)
closing liabilities is the total amount, determined as at the end of the current year for policies that are in force at the end of the current year, of the policy liabilities including benefits that vest by the end of the current year:
(f)
estimated closing liabilities is the total amount, estimated as at the beginning of the current year for policies that are in force at the start of the current year and expected to be in force at the end of the current year, of the policy liabilities including benefits that vest by the end of the current year.
Meaning of valuation premiums
(7)
In this section, valuation premiums means the amount of premiums payable for a policy, actuarially determined by reference to the premium formula used when the policy was first entered into, or, if the premium formula is unavailable, by reference to mortality, expense, and other assumptions applicable to premiums for similar policies at the beginning of the income year in which the policy was first entered into. The valuation premiums must not include any allowance for future bonus declarations or future shareholder profits. The amount of the valuation premium for a policy must not change, unless significant changes to the policy justify changing the valuation premium.
Policy liability
(8)
For the purposes of subsection (6), the policy liability for a policy is an amount that is actuarially determined for the policy using best estimate assumptions and that—
(a)
is the greater of the current surrender value of the policy and the amount that is the total amount of future mortality and maturity claims, future expenditure or loss, and future tax payments, reduced by the amount of future valuation premiums; and
(b)
is obtained using present values that are net of tax and used in the life insurer’s financial accounts and allowing for relevant life reinsurance premiums and relevant life reinsurance claims; and
(c)
does not include bonus declarations that vest after the current year; and
(d)
does not include an allowance for surrenders or the payment of surrender values.
Basis of best estimate assumptions in actuarially determining items
(9)
The same best estimate assumptions must be used for actuarially determining amounts under subsections (6), (7), and (8). The assumptions may be appropriate for the start of the year, or for the end of the year, but once the choice is made between start of the year and end of the year, the assumptions must not be changed.
Meaning of new business
(10)
For the purposes of this section, new business means, for a policy, that it is not existing business under section EY 28.
Defined in this Act: actuarially determined, amount, best estimate assumptions, claim, existing business, income year, life insurance policy, life insurer, life reinsurance, new business, premium, profit participation policy, valuation premiums
Section EY 29: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 29(5) formula: amended, on 30 March 2017 (applying for income years beginning on or after this date), by section 90(1)(a) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 29(5) formula: amended, on 30 March 2017 (applying for income years beginning on or after this date), by section 90(1)(b) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 29(6)(b): amended, on 30 March 2017, by section 90(2) (and see section 90(9) and (10)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 29(6)(d): amended, on 30 March 2017, by section 90(3) (and see section 90(9) and (10)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 29(6)(e): replaced, on 30 March 2017 (applying for income years beginning on or after this date), by section 90(4) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 29(6)(f): replaced, on 30 March 2017 (applying for income years beginning on or after this date), by section 90(5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 29(8) heading: replaced, on 30 March 2017 (applying for income years beginning on or after this date), by section 90(6) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 29(8): replaced, on 30 March 2017 (applying for income years beginning on or after this date), by section 90(6) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 29(9): amended, on 30 March 2017 (applying for income years beginning on or after this date), by section 90(7) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EY 29 list of defined terms present value (net): repealed, on 30 March 2017, by section 90(8) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Transitional adjustments and annuities
Heading: inserted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 30 Transitional adjustments: life risk
When this section applies: treatment of old and new policies
(1)
This section applies to life insurance policies described in subsections (2) to (4). For the purposes of this section, a policy (the new policy) is treated as being issued at the same time as another policy (the old policy) that the new policy replaces, if the replacement is caused by—
(a)
reinstating the old policy after either a lapse in premium payments or cancellation by the insured, if the new policy comes into force within 90 days of the lapse or cancellation, and the life insurer treats the new policy and old policy the same; or
(b)
the life insurer being sold, or the life insurer selling or transferring its rights and obligations under the old policy.
Separation of products into separate policies for purposes of transitional adjustment
(1B)
If a life insurance policy is comprised of 2 or more life insurance product types that are capable of being sold separately, and the life insurance cover amounts for each product type are separately identified in the policy, then each of the product types may be treated as a separate life insurance policy for the purposes of this section.
Life insurance policies
(2)
This section applies to a life insurance policy, excluding an annuity, a multiple life policy through which the life insurer can look to the individual lives covered, credit card repayment insurance, and a workplace group policy, if the policy is issued by the life insurer before the grandparenting start day or if the life insurer receives an application and a deposit in money before the grandparenting start day for the policy which is issued after that day, and—
(a)
the life insurer has no policyholder base income or policyholder base allowable deduction for the policy; and
(b)
the policy meets the relevant requirements for the relevant period described in subsection (5)(a) to (c); and
(c)
the amount of life insurance cover at the finish of a cover review period, or at the finish of any shorter period, if the life insurer chooses to measure within the cover review period, has not increased by more than the greater of 10% and the percentage change in the Consumers Price Index (all groups) for the relevant period, as compared to the amount of life insurance cover at the beginning of the relevant cover review period; and
(d)
no new or replacement individual life is covered for a period beginning after the grandparenting start day.
Multiple life policies
(3)
This section applies to a multiple life policy through which the life insurer can look to either the individual lives covered or a relevant underlying life insurance policy, if the multiple life policy (the policy) is issued by the life insurer before the grandparenting start day or if the life insurer receives an application and a deposit in money before the grandparenting start day for the policy which is issued after that day, and—
(a)
the life insurer has no policyholder base income or policyholder base allowable deduction for the policy; and
(b)
the policy meets the requirements for the period described in subsection (5)(c), or, looking through to the individual lives covered or relevant underlying life insurance policy, to the extent to which the policy meets the requirements for the period described in subsection (5)(a), (b), or (c); and
(c)
to the extent to which, looking through to and in relation to the individual lives covered or relevant underlying policy,—
(i)
the cover was first in place before the grandparenting start day:
(ii)
the multiple life policy is a life reinsurance policy that was first in place before the grandparenting start day; and
(d)
the substantial and material terms and conditions of the policy do not change on or after the grandparenting start day; and
(e)
either—
(i)
to the extent to which, looking through to the individual lives covered, the amount of life insurance cover at the finish of a cover review period, or at the finish of any shorter period if the life insurer chooses to measure within the cover review period, has not increased by more than the greater of 10% and the percentage change in the Consumers Price Index (all groups) for the relevant period, as compared to the amount of life insurance cover at the beginning of the relevant cover review period; or
(ii)
in the case of a policy that is life reinsurance, to the extent to which a relevant underlying life insurance policy is, or would be ignoring section EY 10(2), one that this subsection or subsection (2) applies to.
Credit card repayment insurance and workplace group policies
(4)
This section applies to a credit card repayment insurance and to a workplace group policy, if the policy is issued by the life insurer before the grandparenting start day or if the life insurer receives an application and a deposit in money before the grandparenting start day, and—
(a)
the life insurer has no policyholder base income or policyholder base allowable deduction for the policy; and
(b)
the policy, if it is a credit card repayment insurance, meets the requirements for the period described in subsection (5)(c), or, if it is a workplace group policy, meets the requirements for the period described in subsection (5)(d); and
(c)
[Repealed](d)
the substantial and material terms and conditions of the policy do not change on or after the grandparenting start day.
Requirements and periods for which this section applies
(5)
The following are the requirements and periods for the purposes of subsections (2)(b), (3)(b), and (4)(b), for a policy:
(a)
for a life insurance policy for which only 1 premium is ever payable, or for which the amount of each premium is the same, the period that—
(i)
starts on the grandparenting start day; and
(ii)
finishes on the day that the policy ceases to be in force:
(b)
for a life insurance policy for which the premium is set for a continuous period (the continuous rate period) beginning before the grandparenting start day, and for which there is no increase in the premium during the continuous rate period other than an increase meeting the requirements of subsection (5BA), the period that—
(i)
starts on the grandparenting start day; and
(ii)
ends on the later of the day that is the last day of the continuous rate period and whichever day described in paragraph (c)(i) and (ii) is earlier:
(c)
for a life insurance policy for which the premium may vary each year, the period that starts on the grandparenting start day and ends on the earlier of the following:
(i)
the day that the policy expires:
(ii)
the day that is before the 5 years anniversary of the grandparenting start day:
(d)
for a life insurance policy for which the premium may vary each year, the period that starts on the grandparenting start day and ends on the earlier of the following:
(i)
the day that the policy expires:
(ii)
the day that is before the 3 years anniversary of the grandparenting start day.
Requirements under subsection (5)(b) for premium increase
(5BA)
The requirements referred to in subsection (5)(b) for an increase in the premium under a life insurance policy in a year in the continuous rate period are that—
(a)
the increase is made under an agreement entered into before the grandparenting start day; and
(b)
the increase arises from a policy benefit that produces an increase, under a formula in the agreement, in the sum assured under the policy; and
(c)
the increase in the sum assured under the policy during the year does not exceed the greater of 3% and the percentage change in the Consumers Price Index (all groups) during the period that is the basis for the calculation, under the formula referred to in paragraph (b), of the increase in the sum assured.
When this section does not apply: life insurance cover increase for whole cover review period
(5B)
This section does not apply for a policy for the whole of an income year if a cover review period finishes in the year and, for that cover review period, there has been an increase in the amount of life insurance cover as described in subsection (2)(c) or (3)(e) and the life insurer has not made an election for measuring within the cover review period under those subsections.
When this section does not apply: continuity
(5C)
This section does not apply for a policy for any period after this section has ceased to apply for the policy.
When this section does not apply: once-only opt out
(6)
This section does not apply to a class of policies after the life insurer irrevocably chooses in a notice received by the Commissioner that this section does not apply for the class.
Adjustment
(7)
A life insurer has an amount of shareholder base allowable deduction for a policy calculated using the following formula, to the extent to which this section applies for the relevant income year for the policy—
premiums − total net reserving amounts − (1.2 × expected death strain).
Definition of items in formula
(8)
In the formula,—
(a)
premiums is the life insurer’s total premiums for the income year or part of the income year, as applicable, for the policy, but subtracting relevant life reinsurance premiums:
(b)
total net reserving amounts is the total of reserving amounts for the income year or part of the income year, as applicable, for the policy, under section EY 25 or EY 26 (as applicable), but treating amounts that are shareholder base income as negative amounts, and amounts that are shareholder base allowable deductions as positive amounts:
(c)
expected death strain is the amount calculated under the expected death strain formula (life) in accordance with sections EZ 53 to EZ 60 (which relate to the transitional adjustment for expected death strain) for the income year or part of the income year, as applicable, for the policy.
Negative amounts
(9)
If subsection (7) gives a negative amount for a policy, it is ignored for that policy.
Meaning of cover review period
(10)
Cover review period means—
(a)
the relevant income year, if the life insurer has not chosen a different period under paragraph (b):
(b)
a period of a year that has a starting and anniversary date that the life insurer irrevocably chooses, for a class of policies, in a return of income for the tax year corresponding to the income year in which the grandparenting start day is included.
Meaning of credit card repayment insurance
(11)
Credit card repayment insurance means a life insurance policy, if the benefits of the cover are for the repayment of an outstanding debt balance of a credit card, or life reinsurance to the extent to which it reinsures such a life insurance policy.
Meaning of employer sponsored group policies[Repealed]
(12)
[Repealed]Meaning of grandparenting start day
(13)
Grandparenting start day means—
(a)
1 July 2010, if paragraph (b) does not apply:
(b)
a life insurer’s early life regime application day, if the life insurer irrevocably chooses that day as their grandparenting start day.
Meaning of multiple life policy
(14)
Multiple life policy—
(a)
means a life insurance policy with multiple individuals’ life insurance cover grouped under it, if the group of individuals is identified in the policy:
(b)
does not include—
(i)
a workplace group policy:
(ii)
credit card repayment insurance:
(iii)
life reinsurance to the extent to which it reinsures a workplace group policy or credit card repayment insurance.
Meaning of workplace group policy
(15)
Workplace group policy means a life insurance policy with multiple individuals’ life insurance cover grouped under it, or life reinsurance to the extent to which it reinsures such a life insurance policy, if—
(a)
the individuals under the policy are—
(i)
a group that includes, or consists of, a class of employees of an employer or group of employers, and may include 1 or more of the employers or directors of the employers, and the policy is sponsored by the employers or by the trustees of a superannuation scheme:
(ii)
members of a union registered under the Employment Relations Act 2000 or members of an industry association, and the union or association is the sponsor of the policy:
(iii)
the spouses, civil union partners, and de facto partners of employees or members described in subparagraphs (i) and (ii); and
(b)
in the case of the sponsor being the employer,—
(i)
the employer is required to offer an employee who is a member of the relevant class the opportunity to join the life insurance policy; and
(ii)
the life insurer and the employer have entered an agreement about who pays the premium.
(16)
In this section, Consumers Price Index (all groups) means the Consumers Price Index (all groups) published by Statistics New Zealand or, if that index ceases to be published, any measure certified by the Government Statistician as being equivalent to that index.
Defined in this Act: amount, apply, Commissioner, cover review period, credit card repayment insurance, class of policies, early life regime application day, grandparenting start day, group life master policy, income year, life insurance, life insurance policy, life insurer, life reinsurance, notice, pay, policyholder base allowable deduction, policyholder base income, premium, shareholder base allowable deduction, shareholder base income, workplace group policy, year
Section EY 30: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 30(1)(a): replaced (with effect on 1 July 2010), on 2 November 2012, by section 55(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EY 30(1)(a): replaced (with effect on 1 July 2010), on 2 November 2012, by section 55(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EY 30(1)(b): amended (with effect on 1 July 2010), on 2 November 2012, by section 55(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EY 30(1B) heading: inserted (with effect on 1 July 2010), on 7 September 2010, by section 50(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 30(1B): inserted (with effect on 1 July 2010), on 7 September 2010, by section 50(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 30(2): amended (with effect on 1 July 2010), on 7 September 2010, by section 50(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 30(2): amended, on 1 July 2010, by section 38(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 30(2)(c): substituted (with effect on 1 July 2010), on 7 September 2010, by section 50(3) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 30(2)(c): amended, on 1 September 2022, by section 107(1) of the Data and Statistics Act 2022 (2022 No 39).
Section EY 30(2)(d): added (with effect on 1 July 2010), on 7 September 2010, by section 50(3) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 30(3) heading: substituted (with effect on 1 July 2010), on 7 September 2010, by section 50(4)(a) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 30(3): amended (with effect on 1 July 2010), on 2 November 2012, by section 55(3)(a) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EY 30(3): amended (with effect on 1 July 2010), on 7 September 2010, by section 50(4)(b) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 30(3)(b): amended (with effect on 1 July 2010), on 2 November 2012, by section 55(3)(b) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EY 30(3)(b): amended (with effect on 1 July 2010), on 21 December 2010, by section 59(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EY 30(3)(b): amended (with effect on 1 July 2010), on 7 September 2010, by section 50(4)(c) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 30(3)(b): amended, on 1 July 2010, by section 38(2) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 30(3)(c): replaced (with effect on 1 July 2010), on 2 November 2012, by section 55(4) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EY 30(3)(e): substituted (with effect on 1 July 2010), on 21 December 2010, by section 59(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EY 30(3)(e)(i): amended, on 1 September 2022, by section 107(1) of the Data and Statistics Act 2022 (2022 No 39).
Section EY 30(4) heading: amended, on 1 July 2010, by section 38(3) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 30(4): amended (with effect on 1 July 2010), on 7 September 2010, by section 50(6) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 30(4): amended, on 1 July 2010, by section 38(4) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 30(4)(b): substituted, on 1 July 2010, by section 38(5) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 30(4)(c): repealed, on 1 July 2010, by section 38(5) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 30(5): amended, on 1 July 2010, by section 38(6) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 30(5)(b): replaced (with effect on 1 July 2010), on 26 June 2019, by section 65(1) (and see section 65(4) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EY 30(5)(c)(ii): amended, on 1 July 2010, by section 38(7) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 30(5)(d): added, on 1 July 2010, by section 38(7) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 30(5BA) heading: inserted (with effect on 1 July 2010), on 26 June 2019, by section 65(2) (and see section 65(4) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EY 30(5BA): inserted (with effect on 1 July 2010), on 26 June 2019, by section 65(2) (and see section 65(4) for application) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EY 30(5BA)(c): amended, on 1 September 2022, by section 107(1) of the Data and Statistics Act 2022 (2022 No 39).
Section EY 30(5BA)(c): amended (with effect on 1 July 2010), on 23 March 2020, by section 114(1) (and see section 114(3) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section EY 30(5B) heading: inserted (with effect on 1 July 2010), on 7 September 2010, by section 50(8) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 30(5B): inserted (with effect on 1 July 2010), on 7 September 2010, by section 50(8) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 30(5C) heading: inserted (with effect on 1 July 2010), on 7 September 2010, by section 50(8) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 30(5C): inserted (with effect on 1 July 2010), on 7 September 2010, by section 50(8) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 30(7): amended (with effect on 1 July 2010), on 7 September 2010, by section 50(9) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 30(8)(a): amended (with effect on 1 July 2010), on 7 September 2010, by section 50(10) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 30(8)(b): amended (with effect on 1 July 2010), on 21 December 2010, by section 59(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EY 30(8)(b): amended (with effect on 1 July 2010), on 7 September 2010, by section 50(11) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 30(8)(c): amended (with effect on 1 July 2010), on 7 September 2010, by section 50(12) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 30(11) heading: substituted, on 1 July 2010, by section 38(8) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 30(11): substituted, on 1 July 2010, by section 38(8) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 30(11): amended (with effect on 1 July 2010), on 7 September 2010, by section 50(13) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 30(12) heading: repealed, on 1 July 2010, by section 38(9) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 30(12): repealed, on 1 July 2010, by section 38(9) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 30(14) heading: substituted (with effect on 1 July 2010), on 7 September 2010, by section 50(14) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 30(14): substituted (with effect on 1 July 2010), on 7 September 2010, by section 50(14) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 30(14): amended, on 1 July 2010, by section 38(10) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 30(15) heading: added, on 1 July 2010, by section 38(11) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 30(15): substituted (with effect on 1 July 2010), on 7 September 2010, by section 50(15) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 30(16): inserted, on 1 September 2022, by section 107(1) of the Data and Statistics Act 2022 (2022 No 39).
Section EY 30 list of defined terms apply: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EY 30 list of defined terms employer sponsored group policy: repealed, on 1 July 2010, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 30 list of defined terms life insurance policy: inserted (with effect on 1 July 2010), on 26 June 2019, by section 65(3) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EY 30 list of defined terms notice: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EY 30 list of defined terms pay: inserted (with effect on 1 July 2010), on 7 September 2010, by section 50(16) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EY 30 list of defined terms premium: inserted (with effect on 1 July 2010), on 26 June 2019, by section 65(3) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section EY 30 list of defined terms quarter: repealed (with effect on 1 July 2010), on 23 March 2020, by section 114(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section EY 30 list of defined terms workplace group policy: added, on 1 July 2010, by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EY 30 list of defined terms year: inserted (with effect on 1 July 2010), on 26 June 2019, by section 65(3) of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
EY 31 Annuities
When this section applies
(1)
This section applies when a life insurance policy is an annuity.
Adjustment
(2)
For the income year, a life insurer has an amount calculated for the relevant annuities using the formula—
closing actuarial reserves − (0.99 × expected death strain).
Definition of items in formula
(3)
In the formula,—
(a)
closing actuarial reserves is the life insurer’s closing actuarial reserves (active annuities), calculated in accordance with section EZ 59(2) (Meaning of actuarial reserves):
(b)
expected death strain is the amount calculated under the expected death strain formula (active annuities) in accordance with sections EZ 53 to EZ 60 (which relate to the transitional adjustment for expected death strain) for the income year.
Positive and negative amounts
(4)
If the formula in subsection (2) gives a positive amount, the life insurer has that amount as income included in their shareholder base income. If the formula in subsection (2) gives a negative amount, the life insurer has that amount as a deduction included in their shareholder base allowable deductions.
Defined in this Act: amount, income year, life insurance policy, life insurer, shareholder base allowable deduction, shareholder base income
Section EY 31: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 32 Mortality profit formula: when partial reinsurance exists
[Repealed]Section EY 32: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 33 Mortality profit formula: individual result may be negative only in some cases
[Repealed]Section EY 33: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 34 Mortality profit formula: negative result
[Repealed]Section EY 34: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 35 How discontinuance profit is calculated
[Repealed]Section EY 35: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 36 Discontinuance profit for income year
[Repealed]Section EY 36: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 37 Discontinuance profit formula (existing policies)
[Repealed]Section EY 37: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 38 Discontinuance profit formula (new policies)
[Repealed]Section EY 38: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 39 Discontinuance profit formula (existing policies): when partial reinsurance exists
[Repealed]Section EY 39: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 40 Discontinuance profit formula (new policies): when partial reinsurance exists
[Repealed]Section EY 40: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 41 Discontinuance profit formulas: individual result may never be negative
[Repealed]Section EY 41: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 42 How policyholder income is calculated
[Repealed]Section EY 42: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 43 Policyholder income formula
[Repealed]Section EY 43: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 43B Policyholder income formula: FDR adjustment
[Repealed]Section EY 43B: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 43C Policyholder income formula: PILF adjustment
[Repealed]Section EY 43C: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 44 Policyholder income formula: when partial reinsurance exists
[Repealed]Section EY 44: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 45 Policyholder income formula: when life insurance business transferred
[Repealed]Section EY 45: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 46 Income from disposal of property
[Repealed]Section EY 46: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EY 47 Deductions for disposal of property
[Repealed]Section EY 47: repealed, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Non-resident life insurers
EY 48 Non-resident life insurers with life insurance policies in New Zealand
When this section applies
(1)
This section applies when a life insurer not resident in New Zealand offers or is offered or enters into life insurance policies in New Zealand.
Income having source in New Zealand
(2)
The life insurer’s income from the business of providing life insurance, as determined under this section, is income that has a source in New Zealand.
Shareholder base and policyholder base
(3)
The life insurer’s income and deductions are apportioned between their policyholder base or shareholder base under the provisions of this subpart to the extent to which the income or deductions relate to—
(a)
life insurance policies that the life insurer, as insurer, offered or was offered or entered into in New Zealand:
(b)
life reinsurance policies held by the life insurer that relate exclusively to life insurance policies described in paragraph (a).
Other income
(4)
The life insurer’s income from the business of providing life insurance, other than under the provisions of this subpart, is determined only in relation to the life insurer’s New Zealand business.
Defined in this Act: business, discontinuance profit formula, income, life insurance, life insurance policy, life insurer, life reinsurance policy, mortality profit formula, New Zealand, New Zealand business, non-resident, offered or was offered or entered into, policyholder income formula, premium loading formula, resident in New Zealand, source in New Zealand
Compare: 2004 No 35 s EY 47
Section EY 48(2) heading: substituted, on 21 December 2010, by section 60(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EY 48(2): amended, on 21 December 2010, by section 60(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EY 48(3) heading: substituted, on 1 July 2010, by section 193(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 48(3): substituted, on 1 July 2010, by section 193(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 48(4): amended, on 1 July 2010, by section 193(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 48 list of defined terms derived from New Zealand: repealed, on 21 December 2010, by section 60(3)(a) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section EY 48 list of defined terms source in New Zealand: inserted, on 21 December 2010, by section 60(3)(b) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
EY 49 Non-resident life insurer becoming resident
Non-resident life insurer may apply
(1)
A life insurer not resident in New Zealand may apply to be treated for its New Zealand business as resident in New Zealand on and after the first day of a particular income year.
Application
(2)
The life insurer applies by—
(a)
completing an application specifying the particular income year; and
(b)
giving the application to the Commissioner not less than 20 working days before the start of the particular income year.
Commissioner may grant
(3)
The Commissioner may grant the application.
Company resident in New Zealand
(4)
If the application is granted, the life insurer’s New Zealand business is treated, on and after the first day of the particular income year, as being carried on by a company resident in New Zealand in which the life insurer holds all the issued shares.
Life insurer agent for company
(5)
The life insurer is treated as carrying on its New Zealand business as agent for the company and is liable, as agent for the company, to pay amounts payable to the Commissioner and to provide returns of income and other information required by the Commissioner.
Company and life insurer separate persons
(6)
The life insurer and the company are treated as being separate persons in relation to the life insurer’s New Zealand business.
Defined in this Act: agent, amount, apply, Commissioner, company, income year, life insurer, New Zealand business, non-resident, pay, resident in New Zealand, return of income, share, working day
Compare: 2004 No 35 s EY 48
Section EY 49(2)(a): amended, on 2 June 2016, by section 40(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EY 49 list of defined terms apply: inserted, on 2 June 2016, by section 40(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Subpart EZ—Terminating provisions
Contents
Life insurance
EZ 1 Life insurers acquiring property before 1 April 1988
When this section applies
(1)
This section applies when section DZ 2 (Life insurers acquiring property before 1 April 1988) applies.
Amount of deduction
(2)
The amount of the deduction is calculated using the formula—
(specific liability ÷ total liability) × property sum.
Definition of items in formula
(3)
The items in the formula are defined in subsections (4) to (9).
Specific liability
(4)
Specific liability is the amount in the life insurer’s total liability on the last day of the 1987–88 income year for the following matters covered by the life insurer’s Life Insurance Fund:
(a)
superannuation policies; and
(b)
pre-1983 mortgage repayment insurance policies; and
(c)
annuities that have been granted.
Total liability
(5)
Total liability is the life insurer’s liability for life insurance policies on the last day of the 1987–88 income year.
Property sum
(6)
The property sum is calculated under whichever is relevant of subsections (7) to (9).
Property acquired before last day of 1982–83 income year
(7)
For property acquired on or before the last day of the 1982–83 income year, the property sum is calculated by subtracting the specified base cost for 1983 income year property from the market value of the property on 1 April 1988.
Property acquired after end of 1982–83 income year: not financial arrangement
(8)
For property acquired after the end of the 1982–83 income year that is not a financial arrangement, the property sum is calculated by subtracting the cost price or acquisition value of the property from the market value of the property on 1 April 1988.
Property acquired after end of 1982–83 income year: financial arrangement
(9)
For property acquired after the end of the 1982–83 income year that is a financial arrangement, the property sum is the base price adjustment for the arrangement, calculated as if the arrangement had matured on 1 April 1988 but using the formula in section EW 31 (Base price adjustment formula).
Timing of deduction
(10)
The life insurer is allowed the deduction in the income year in which they dispose of the property.
Defined in this Act: amount, deduction, financial arrangement, income year, Life Insurance Fund, life insurance policy, life insurer, property, specified base cost for 1983 income year property, superannuation policy
Compare: 2004 No 35 s EZ 1
EZ 2 Deductions for disposal of property: 1982–83 and 1989–90 income years
Deduction
(1)
For the purposes of this Act, for property to which both the following apply, the amount of the deduction is the market value of the property on the last day of the 1989–90 income year:
(a)
the property is land or buildings acquired on or before the last day of the 1989–90 income year; and
(b)
the profit from the property’s disposal on or before the last day of the 1989–90 income year, had it been disposed of then at a profit, would have been a capital profit or gain and not a profit on disposal of an investment subject to income tax under section 204 of the Income Tax Act 1976 (as that section was immediately before its repeal and substitution by section 13(1) of the Income Tax Amendment Act (No 2) 1990).
Deduction
(2)
For the purposes of this Act, for property to which both the following apply, the amount of the deduction is the specified base cost for 1983 income year property:
(a)
the property was acquired on or before the last day of the 1982–83 income year; and
(b)
subsection (1) does not apply to the property.
Defined in this Act: amount, deduction, income year, property, specified base cost for 1983 income year property
Compare: 2004 No 35 s EZ 2
Section EZ 2(1) heading: substituted, on 1 July 2010, by section 194(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EZ 2(1): amended, on 1 July 2010, by section 194(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EZ 2(2) heading: substituted, on 1 July 2010, by section 194(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EZ 2(2): amended, on 1 July 2010, by section 194(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Petroleum mining
EZ 3 Petroleum development expenditure from 1 October 1990 to 15 December 1991
Timing of deduction
(1)
Expenditure that is allowed as a deduction under section DZ 3 (Petroleum mining: development expenditure from 1 October 1990 to 15 December 1991) must be deducted in equal amounts over the 10 years starting with the later of—
(a)
the income year in which commercial production starts; and
(b)
the income year in which the expenditure is incurred.
Petroleum mining operations outside New Zealand
(2)
This section applies with any necessary modifications to a petroleum miner who undertakes petroleum mining operations that are—
(a)
outside New Zealand and undertaken through a branch or a controlled foreign company; and
(b)
substantially the same as the petroleum mining activities governed by this Act.
Partnership interests
(3)
For the purposes of this section, a partner is treated as having a share or interest in a petroleum permit or other property of a partnership to the extent of their income interest in the partnership.
Disposal of part of asset
(4)
For the purposes of this section, references to the disposal of an asset apply equally to the disposal of part of an asset.
Defined in this Act: amount, commercial production, controlled foreign company, deduction, dispose, income year, New Zealand, petroleum, petroleum miner, petroleum mining operations, petroleum permit
Compare: 2004 No 35 s EZ 3
Livestock
EZ 4 Valuation of livestock bailed or leased as at 2 September 1992
When this section applies
(1)
This section applies when—
(a)
an owner of livestock valued a class of livestock for the 1991–92 income year under section 86 of the Income Tax Act 1976 (as that section was in force before its repeal by section 21 of the Income Tax Amendment Act (No 2) 1993); and
(b)
either—
(i)
the livestock was, as at 2 September 1992, at the use of a person under a bailment, lease, or other agreement that the owner entered into on or before that date, or was, on or before that date, livestock that was subject to a binding contract to bail or lease the livestock to a person, or otherwise allow them to use the livestock; or
(ii)
the class of livestock was not one that the owner had on hand in the previous income year, but was a class that, as at 2 September 1992, was at the use of a person under a bailment, lease, or other agreement that the owner entered into on or before that date.
Rolling average value
(2)
The owner may value the livestock at a value equal to 70% of the rolling average value of that class of livestock.
When subsection (2) applies
(3)
Subsection (2) applies for the 1992–93 income year and any later income year in which the livestock continues to be bailed, leased, or otherwise used by the person under the bailment, lease, or other agreement.
Number of livestock valued
(4)
The number of specified livestock of a class that may be valued under this section is the number that is the least of—
(a)
the number of livestock of the class bailed, leased, or otherwise used (or, for a binding contract entered into before 2 September 1992 but not yet applying, the number of livestock of that class provided for in the contract); and
(b)
the number of livestock of the class bailed, leased, or otherwise used as at the end of the 1992–93 income year; and
(c)
the lesser of the opening and closing number of stock of the class bailed, leased, or otherwise used in a later income year up to and including the income year in which the livestock is being valued.
Meaning of rolling average value
(5)
In this section, rolling average value, for an income year and a class of specified livestock, means one-third of the sum of the national average market values set for that income year and each of the 2 previous income years for livestock of that class.
Defined in this Act: class, income year, lease, national average market value, rolling average value, specified livestock
Compare: 2004 No 35 s EZ 4
EZ 4B Cattle destroyed because of Mycoplasma bovis: spreading
When this section applies
(1)
This section applies when—
(a)
a person who owns or carries on a business has mixed-age cows on hand at the start of an income year (the cull year) before the 2028–29 income year that they—
(i)
use for breeding in the ordinary course of carrying on the business; and
(ii)
valued under the national standard cost scheme or the cost price method in the previous income year; and
(b)
in the cull year, some or all of the person’s cattle (the destroyed cattle) are destroyed, because of Mycoplasma bovis, pursuant to—
(i)
a power exercised under section 121 of the Biosecurity Act 1993:
(ii)
a direction given under section 122 of that Act; and
(c)
either,—
(i)
if the cull year is before the 2019–20 income year, the number of mixed-age cows valued under the national standard cost scheme or the cost price method that the person has on hand at the end of the income year following the cull year is at least 75% of the number of mixed-age cows valued under the national standard cost scheme or the cost price method that the person had on hand at the start of the cull year; or
(ii)
in any other case, the number of mixed-age cows valued under the national standard cost scheme or the cost price method that the person expects to have on hand at the end of the income year following the cull year is at least 75% of the number of mixed-age cows valued under the national standard cost scheme or the cost price method that the person had on hand at the start of the cull year.
Timing of income
(2)
The person may choose to allocate the amount of income calculated using the formula in subsection (5) equally between the 6 income years following the cull year.
Timing of deduction
(3)
When a person makes an election under subsection (2), part of any deduction that the person is allowed for the value that their livestock valued under subpart EC (Valuation of livestock) had at the end of the income year before the cull year, as calculated under section EC 2 (Valuation of livestock), is allocated equally between the 6 income years following the cull year. The part must reflect the value, as calculated under that section at the end of the income year before the cull year using whichever of the national standard cost scheme or the cost price method the person used in the income year before the cull year, of the same number of each class of livestock to which the amount of income allocated under subsection (2) relates.
Business ceasing
(4)
If the person stops owning or carrying on the business in an income year (the cessation year) before the seventh income year following the cull year, to the extent to which it has not been allocated to income years before the cessation year,—
(a)
the amount of income calculated using the formula in subsection (5) is allocated to the cessation year; and
(b)
the part of any deduction allocated under subsection (3) is allocated to the cessation year.
First formula
(5)
The formula referred to in subsections (2) and (4) is—
Σ(number × (sale proceeds + compensation) ÷ culled stock).
Definition of items in formula
(6)
The items in the formula in subsection (5) are defined in subsections (7) to (11).
Σ
(7)
Σ is the symbol for the summation of the amounts calculated using the formula in the brackets that follow that symbol for each of the following classes of each of the beef cattle and dairy cattle types of livestock:
(a)
rising 1 year heifers:
(b)
rising 2 year heifers:
(c)
mixed-age cows:
(d)
breeding bulls.
Number
(8)
Number, for a class of livestock, is the number that is the lesser of the following 2 numbers, or the first number if they are the same:
(a)
the number that is the greater of zero and the number calculated using the formula in subsection (12):
(b)
the number of livestock of that class that—
(i)
were breeding stock or stock that the person expected to be capable of, and intended to be used for, breeding upon reaching maturity; and
(ii)
the person valued under the national standard cost scheme or the cost price method in the income year before the cull year.
Sale proceeds
(9)
Sale proceeds, for a class of livestock, is the amount of income the person derives as consideration for the disposal of livestock of that class, including their carcasses, that are part of the destroyed cattle.
Compensation
(10)
Compensation, for a class of livestock, is the amount of income the person derives that is compensation to which the person is entitled under section 162A of the Biosecurity Act 1993 and that the person receives by the end of the income year following the cull year, but only to the extent to which that compensation is for—
(a)
any excess of the value of the destroyed cattle that belong to that class used in the calculation of that compensation over the amount of income described in subsection (9) for that class; and
(b)
any excess of the cost of replacement cattle of the same class that the person acquires and intends to be used for breeding over the amount of income that would, in the absence of this paragraph, be described in this subsection.
Culled stock
(11)
Culled stock, for a class of livestock, is the number of livestock of that class that are part of the destroyed cattle.
Second formula
(12)
The formula referred to in subsection (8) is—
valuation method breeding stock + culled stock – opening stock.
Definition of items in second formula
(13)
In the formula in subsection (12), for a class of livestock,—
(a)
valuation method breeding stock is the number of livestock of that class that—
(i)
were breeding stock or stock that the person expected to be capable of, and intended be used for, breeding upon reaching maturity; and
(ii)
the person valued under the national standard cost scheme or the cost price method in the income year before the cull year:
(b)
culled stock is the number of livestock of that class that are part of the destroyed cattle:
(c)
opening stock is the number of livestock of that class that the person had on hand at the start of the cull year.
How elections made
(14)
A person makes an election under subsection (2) by notifying the Commissioner,—
(a)
if the cull year is the 2020–21 income year or an earlier income year, by the date of filing their return of income for the 2020–21 income year; or
(b)
in any other case, by the date of filing their return of income for the cull year.
Elections irrevocable
(15)
An election made under subsection (2) cannot be revoked.
When election treated as never having been made
(16)
A person who makes an election under subsection (2) is treated as never having made the election if the number of mixed-age cows valued under the national standard cost scheme or the cost price method that the person has on hand at the end of the income year following the cull year is less than 75% of the number of mixed-age cows valued under the national standard cost scheme or the cost price method that the person had on hand at the start of the cull year.
Relationship with sections CG 6 and DB 49
(17)
This section overrides sections CG 6 (Receipts from insurance, indemnity, or compensation for trading stock) and DB 49 (Adjustment for opening values of trading stock, livestock, and excepted financial arrangements).
Defined in this Act: amount, business, class, Commissioner, cost price, deduction, income, income year, national standard cost scheme, notify, return of income
Section EZ 4B: inserted (with effect on 1 April 2017), on 30 March 2021, by section 56(1) (and see section 56(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
EZ 5 Reduction: bloodstock not previously used for breeding in New Zealand: pre-1 August 2006
Bloodstock to which this section applies
(1)
This section applies to bloodstock that—
(a)
was not used for breeding in New Zealand before 16 December 1991; and
(b)
before a person (person A) acquired it, was not used for breeding in New Zealand by any other person, unless—
(i)
the other person transferred the bloodstock to person A under a relationship agreement to which section FB 18 (Bloodstock) applies; or
(ii)
the other person and person A were companies in the same wholly-owned group at the time person A acquired the bloodstock from the other person; and
(c)
section EC 39(1) or (2) (First income year in breeding business) applies to,—
(i)
before 1 August 2006; or
(ii)
for an income year ending on or after 1 August 2006, if a requirement of paragraphs (a) to (c) of section EC 39(1) or (2) is first met before 1 August 2006.
Stallion
(2)
For the purposes of sections EC 39 and EC 40 (which relate to bloodstock), the reduction applying to the value of a stallion is 25% of the cost price of the stallion unless person A chooses to value the stallion by the reducing value method.
Stallion valued by reducing value method
(3)
When person A chooses to value the stallion by the reducing value method, the reduction applying to the value of the stallion is 37.5% of its cost price in the first income year and 37.5% of its opening value in each later income year. Person A must give notice to the Commissioner of their election in their return of income for the first income year.
Broodmare when first used before 1 April 2001
(4)
For the purposes of sections EC 39 and EC 40, the reduction applying to the value of a broodmare is calculated using the formula—
1.25 × cost price of broodmare ÷ (15 − age of broodmare).
Definition of item in formula
(5)
In the formula in subsection (4), age of broodmare is—
(a)
12 years of age; or
(b)
the actual age in years, if the broodmare is 11 years of age or less at the end of the income year.
Broodmare when first used on or after 1 April 2001 but before 1 August 2006
(6)
For the purposes of sections EC 39 and EC 40, the reduction applying to the value of a broodmare to which section EC 39(2) applies is calculated using the formula—
1.25 × cost price of broodmare ÷ (11 − age of broodmare).
Definition of item in formula
(7)
In the formula in subsection (6), age of broodmare is—
(a)
8 years of age; or
(b)
the actual age in years, if the broodmare is 7 years of age or less at the end of the income year.
Defined in this Act: bloodstock, broodmare, Commissioner, company, cost price, income year, New Zealand, notice, relationship agreement, return of income, stallion, wholly-owned group, year
Compare: 2004 No 35 s EZ 4B
Section EZ 5(1)(b)(i): amended (with effect on 1 April 2008), on 24 February 2016, by section 156(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EZ 5 list of defined terms matrimonial agreement: repealed (with effect on 1 April 2008), on 24 February 2016, by section 156(2)(a) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EZ 5 list of defined terms relationship agreement: inserted (with effect on 1 April 2008), on 24 February 2016, by section 156(2)(b) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EZ 6 Reduction: broodmare previously used for breeding in New Zealand: pre-1 August 2006
Broodmare to which this section applies
(1)
This section applies to a broodmare that section EC 39(1) or (2) (First income year in breeding business) applies to,—
(a)
before 1 August 2006; or
(b)
for an income year ending on or after 1 August 2006, if a requirement of paragraphs (a) to (c) of section EC 39(1) or (2) is first met before 1 August 2006.
Broodmare when first used before 1 April 2001
(2)
For the purposes of sections EC 39 and EC 40 (which relate to bloodstock), the reduction applying to the value of a broodmare to which section EC 39(1) applies and sections EC 41 (Reduction: bloodstock not previously used for breeding in New Zealand) and EZ 5 do not apply is calculated using the formula—
cost price of broodmare ÷ (15 − age of broodmare).
Definition of item in formula
(3)
In the formula in subsection (2), age of broodmare is—
(a)
12 years of age; or
(b)
the actual age in years, if the broodmare is 11 years of age or less at the end of the income year.
Broodmare when first used on or after 1 April 2001 but before 1 August 2006
(4)
For the purposes of sections EC 39 and EC 40, the reduction applying to the value of a broodmare to which section EC 39(2) applies and sections EC 41 and EZ 5 do not apply is calculated using the formula—
cost price of broodmare ÷ (11 − age of broodmare).
Definition of item in formula
(5)
In the formula in subsection (4), age of broodmare is—
(a)
8 years of age; or
(b)
the actual age in years, if the broodmare is 7 years of age or less at the end of the income year.
Defined in this Act: broodmare, cost price, income year, year
Compare: 2004 No 35 s EZ 4C
EZ 6B National minimum price threshold for 2019 calendar year
The national minimum price threshold for the 2019 calendar year for each class of bloodstock set out in schedule 18C, column 2 (Breeds and classes of bloodstock) is set at—
(a)
$84,000 for standardbred yearling fillies; and
(b)
$119,000 for standardbred yearling colts; and
(c)
$467,000 for thoroughbred yearling fillies; and
(d)
$402,000 for thoroughbred yearling colts.
Defined in this Act: bloodstock, national minimum price threshold
Section EZ 6B: inserted (with effect on 1 January 2019), on 18 March 2019, by section 183 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Patent rights
EZ 7 Acquiring patent rights before 1 April 1993
When this section applies
(1)
This section applies when section DZ 8 (Acquiring patent rights before 1 April 1993) applies.
Amount of deduction
(2)
The amount of the deduction is the expenditure that the person has incurred in acquiring the patent rights.
Amount when patent rights expired or disposed of
(3)
If, before the expiry of the patent rights, the rights have come to an end or have been disposed of, the person is allowed a deduction of an amount that bears to the total sum of the expenditure on the acquisition of the rights the same proportion as the unexpired term of the rights when they came to an end or were disposed of bears to their unexpired term at the date of their acquisition. An amount that the person has otherwise been allowed as a deduction is not included.
Timing of deduction: subsection (2)
(4)
The deduction referred to in subsection (2) is allocated to the income years in relation to which the term of the patent rights that is unexpired at the date of acquisition applies.
Timing of deduction: subsection (3)
(5)
The deduction referred to in subsection (3) is allocated to the income year in which the rights have come to an end or been disposed of.
Defined in this Act: amount, deduction, income year, patent rights
Compare: 2004 No 35 s EZ 5
Section EZ 7 heading: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EZ 7(1): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EZ 7(2): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EZ 7(3): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EZ 7(4): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Leases of land
EZ 8 Premium paid on land leased before 1 April 1993
When this section applies
(1)
This section applies when section DZ 9 (Premium paid on land leased before 1 April 1993) applies.
Amount of deduction
(2)
The amount of the deduction is the premium paid on the grant or renewal of the lease. If person A does not use the land for the whole of a tax year, the amount of the deduction is reduced proportionately.
Amount when lease or renewal granted to another person
(3)
If the lease or the renewal of the lease is granted to another person, the deduction must not be more than the amount of the premium paid by person A on the acquisition of the lease.
Timing of deduction
(4)
The deduction is allocated evenly to the income years in relation to which the term of the lease applies.
Meaning of term of the lease
(5)
In this section, term of the lease, for a lease of indefinite duration, means the minimum period it has to run.
Defined in this Act: amount, deduction, income year, lease, pay, premium, tax year, term of the lease
Compare: 2004 No 35 s EZ 6
Depreciation
EZ 9 Pool method for items accounted for by globo method for 1992–93 income year
If a person chooses the pool method for an item of property of a kind described in section EE 66(3)(c) (Meaning of poolable property), they must also choose to treat as a single pool all such items of property they still own that they accounted for at the end of their 1992–93 income year within the same globo account.
Defined in this Act: income year, pool, pool method
Compare: 2004 No 35 s EZ 8
EZ 10 Pool items accounted for by globo method for 1992–93 income year
Limit on amount of income
(1)
If a person’s pool consists solely of items of depreciable property accounted for at the end of the person’s 1992–93 income year using, with the Commissioner’s permission, the globo accounting method, the amount of income under section EE 22(5)(a) (Cases affecting pool) is no more than the amount calculated using the formula—
depreciation allowed − income.
Definition of items in formula
(2)
In the formula,—
(a)
depreciation allowed is the total of deductions for amounts of depreciation loss that the person has been allowed in all earlier income years for all items in the pool, including amounts allowed before the person’s 1993–94 income year under the globo accounting method:
(b)
income is all amounts of income under section EE 22(5)(a) in all previous income years.
Defined in this Act: amount, Commissioner, depreciable property, depreciation loss, income year, pool
Compare: 2004 No 35 s EZ 9
EZ 11 Amounts of depreciation recovery income and depreciation loss for part business use up to 2004–05 income year
For the purposes of sections EE 49(1)(b)(ii) and EE 50(5)(b)(ii) (which relate to depreciation for partial income-producing use), the item is an item of property to which 1 or more of the following applies:
(a)
the item is, at any time during the period the person owns it, subject to section FB 7 of the Income Tax Act 2004:
(b)
the item is, at any time during the period the person owns it, subject to section EG 2(1)(d) or (e) of the Income Tax Act 1994:
(c)
the item is, at any time during the period the person owns it, subject to section 108A(1)(d) or (e) of the Income Tax Act 1976:
(d)
the item was, in the 1992–93 income year or an earlier income year, an item that the person did not use wholly in deriving assessable income or carrying on a business for the purpose of deriving assessable income and for which, consequently, the person was allowed a smaller deduction for depreciation under section 108 of the Income Tax Act 1976 than they would have been allowed if they had used the item wholly for 1 of those purposes.
Defined in this Act: assessable income, business, income year
Compare: 2004 No 35 s EZ 10
EZ 12 Amount of depreciation loss for item acquired from associated person on or before 23 September 1997
When this section applies
(1)
This section applies when, on or before 23 September 1997, a person (person A) acquires an item from an associated person entitled to a deduction for an amount of depreciation loss for it.
Exclusions
(2)
This section does not apply—
(a)
if the item is acquired under a relationship agreement in circumstances to which section FB 21 (Depreciable property) applies; or
(b)
if the item is listed in schedule 14 (Depreciable intangible property) and the price that person A pays is income of the associated person; or
(c)
if the item is not listed in schedule 14 and the Commissioner is of the opinion that the circumstances are such that a person should be allowed a deduction for an amount of depreciation loss for the item based on the actual price or other consideration given for it.
No greater amount of depreciation loss
(3)
Whether or not the associated person has been allowed a deduction for an amount of depreciation loss, person A does not have a greater amount of depreciation loss for the item than that which the associated person would have had if the associated person had kept the item.
Amount of depreciation loss dealt with under section EE 48
(4)
If the associated person has an amount of depreciation loss that has been dealt with under section EE 48 (Effect of disposal or event), person A has an amount of depreciation loss for the item based on the total of—
(a)
all amounts dealt with under section EE 48; and
(b)
the depreciated value of the item immediately before person A acquired it.
When subsection (6) applies and does not apply
(5)
Subsection (6) applies when, on or before 23 September 1997, the holder of management rights created under the Radiocommunications Act 1989 grants a licence right under that Act to an associated person. However, it does not apply when the Crown acting by and through the Secretary of Commerce is named as the manager under section 11(1) of the Radiocommunications Act 1989.
Licence right price
(6)
The price of the licence right is treated as being zero for the purposes of subpart EE (Depreciation).
Defined in this Act: amount, associated person, Commissioner, depreciation loss, pay, relationship agreement
Compare: 2004 No 35 s EZ 11
EZ 13 Annual rate for item acquired on or after 1 April 1993 and before end of person’s 1994–95 income year
What this section is about
(1)
This section is about the annual rate that applies to an item of depreciable property that a person acquires before the end of their 1994–95 income year (not including fixed life intangible property or excluded depreciable property, for which rates are set in sections EE 33 (Annual rate for fixed life intangible property) and EZ 15 respectively).
Rate
(2)
The rate is—
(a)
the item’s economic rate, if the item is not a residential building that has an economic rate or provisional rate of more than 0% due to an estimated useful life of 50 years or more; or
(b)
the pre-1993 depreciation rate described in section EZ 14, if the person chooses under that section; or
(c)
0%, for a residential building that has an economic rate or provisional rate of more than 0% due to an estimated useful life of 50 years or more.
Defined in this Act: annual rate, depreciable property, economic rate, estimated useful life, excluded depreciable property, fixed life intangible property, income year, provisional rate, residential building
Compare: 2004 No 35 s EZ 12
Section EZ 13(2) heading: substituted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 85(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EZ 13(2): substituted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 85(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EZ 13(2)(a): amended, on 1 April 2020, by section 13(1) (and see section 13(4) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
Section EZ 13(2)(c): amended, on 1 April 2020, by section 13(2) (and see section 13(4) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
Section EZ 13 list of defined terms building: repealed, on 1 April 2020, by section 13(3)(a) (and see section 13(4) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
Section EZ 13 list of defined terms estimated useful life: inserted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 85(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EZ 13 list of defined terms provisional rate: inserted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 85(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EZ 13 list of defined terms residential building: inserted, on 1 April 2020, by section 13(3)(b) (and see section 13(4) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
EZ 14 Pre-1993 depreciation rate
Scope of election
(1)
A person may choose the pre-1993 depreciation rate for all items, or any item, that they acquire before the end of their 1994–95 income year excluding residential buildings that have an economic rate or provisional rate of more than 0% due to an estimated useful life of 50 years or more.
How election made
(2)
The election is made by applying the pre-1993 depreciation rate for the item to the item in the person’s return of income for the income year for which the election is made.
Election unchangeable
(3)
The election must not be changed for the income year for which it is made.
Moving from diminishing value to straight-line and vice versa
(4)
A person who chooses the pre-1993 depreciation rate has the following choices:
(a)
if the rate is a diminishing value rate, the person may instead use the straight-line rate by—
(i)
rounding the diminishing value rate to the nearest rate specified in schedule 10, column 1 (Straight-line equivalents of diminishing value rates of depreciation); and
(ii)
taking the equivalent straight-line rate specified in column 2 of the schedule; or
(b)
if the rate is a straight-line rate, the person may instead use the diminishing value rate by—
(i)
rounding the straight-line rate to the nearest rate specified in schedule 10, column 2; and
(ii)
taking the equivalent diminishing value rate specified in column 1 of the schedule.
Pre-1993 depreciation rate
(5)
The pre-1993 depreciation rate is the rate calculated using the formula—
section 108 rate + section 108A rate + section 113A rate.
Definition of items in formula
(6)
The items in the formula are defined in subsections (7) to (9).
Section 108 rate
(7)
Section 108 rate is the rate of depreciation that the Commissioner allowed persons with a standard balance date to use for the 1992–93 tax year to calculate a deduction for depreciation under section 108 of the Income Tax Act 1976, as in force for the 1992–93 tax year, for property of the same kind as the item.
Section 108A rate
(8)
Section 108A rate is the rate of additional deduction under section 108A of the Income Tax Act 1976, as in force for the 1992–93 tax year, for which the item was eligible for the 1992–93 tax year.
Section 113A rate
(9)
Section 113A rate is the rate of supplementary deduction under section 113A of the Income Tax Act 1976 for which the item was eligible for the 1992–93 tax year.
Defined in this Act: Commissioner, diminishing value rate, economic rate, estimated useful life, income year, provisional rate, residential building, return of income, standard balance date, straight-line rate, tax year
Compare: 2004 No 35 s EZ 13
Section EZ 14(1): amended, on 1 April 2020, by section 14(1) (and see section 14(3) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
Section EZ 14(1): amended, on 1 April 2011 (applying for the 2011–12 and later income years), by section 86(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EZ 14 list of defined terms building: repealed, on 1 April 2020, by section 14(2)(a) (and see section 14(3) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
Section EZ 14 list of defined terms economic rate: inserted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 86(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EZ 14 list of defined terms estimated useful life: inserted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 86(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EZ 14 list of defined terms provisional rate: inserted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 86(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section EZ 14 list of defined terms residential building: inserted, on 1 April 2020, by section 14(2)(b) (and see section 14(3) for application) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
EZ 15 Annual rate for excluded depreciable property: 1992–93 tax year
What this section is about
(1)
This section is about the annual rate that applies to an item of excluded depreciable property.
Rate
(2)
The rate is the section 108 rate, without adding the section 108A rate or the other sections rate. The rates referred to in this subsection are described in subsections (3) to (5).
Section 108 rate
(3)
Section 108 rate means the rate of depreciation that the Commissioner allowed persons with a standard balance date to use for the 1992–93 tax year to calculate a deduction for depreciation under section 108 of the Income Tax Act 1976, as in force for the 1992–93 tax year, for property of the same kind as the item.
Section 108A rate
(4)
Section 108A rate means the rate of additional deduction under section 108A of the Income Tax Act 1976, as in force for the 1992–93 tax year, for which the item was eligible for the 1992–93 tax year.
Other sections rate
(5)
Other sections rate means a rate of additional or supplementary deduction under section 113A or any other provision of the Income Tax Act 1976 for which the item was eligible for the 1992–93 tax year.
Amount of depreciation loss under any other provision
(6)
If a person has an additional amount of depreciation loss for an income year for an item of excluded depreciable property under section EZ 16 or EZ 17 or any other provision of this Act,—
(a)
the rate applicable to the item under subsection (2) may be adjusted to incorporate the additional amount of depreciation loss in a manner prescribed or allowed by the Commissioner; and
(b)
when an adjusted rate is applied to the item, the person does not have a separate amount of depreciation loss for the item under section EZ 16 or EZ 17 or the other provision.
Changing rate
(7)
A person applying the rate in subsection (2) has the following choices:
(a)
if the rate is a diminishing value rate, the person may instead use the straight-line rate by—
(i)
rounding the diminishing value rate to the nearest rate specified in schedule 10, column 1 (Straight-line equivalents of diminishing value rates of depreciation); and
(ii)
taking the equivalent straight-line rate specified in column 2 of the schedule; or
(b)
if the rate is a straight-line rate, the person may instead use the diminishing value rate by—
(i)
rounding the straight-line rate to the nearest rate specified in schedule 10, column 2; and
(ii)
taking the equivalent diminishing value rate specified in column 1 of the schedule.
Defined in this Act: annual rate, Commissioner, depreciation loss, diminishing value rate, excluded depreciable property, prescribed, standard balance date, straight-line rate, tax year
Compare: 2004 No 35 s EZ 14
EZ 16 Amount of depreciation loss for plant or machinery additional to section EZ 15 amount
When this section applies
(1)
This section applies when a person carrying on a business in New Zealand incurs, wholly for the purpose of the business, capital expenditure in acquiring, installing, or extending plant or machinery that—
(a)
is excluded depreciable property; and
(b)
is—
(i)
plant or machinery that is normally in operation for an average of at least 16 hours each working day and is not normally in operation for 24 hours each working day:
(ii)
plant or machinery that is normally in operation for 24 hours each working day.
Exclusions
(2)
This section does not apply to—
(a)
aluminium smelting plant or machinery:
(b)
cars:
(c)
petroleum refining plant or machinery:
(d)
ships, aircraft, or hovercraft:
(e)
plant or machinery for which a deduction by way of a fixed rate was denied under section 108 of the Income Tax Act 1976 for the 1992–93 income year or an earlier relevant income year:
(f)
plant or machinery for which the Commissioner did not prescribe a differential rate for more than 1 shift operation when determining under section 108 of the Income Tax Act 1976 the rate of depreciation for the 1992–93 income year or an earlier relevant income year.
Additional amount of depreciation loss
(3)
The person has an amount of depreciation loss for the plant or machinery under this section in addition to any amounts of depreciation loss that they have for the plant or machinery under section EZ 15.
Relevant income years
(4)
The person has the additional amount of depreciation loss in the first, second, third, fourth, and fifth income years in which the plant or machinery is used in deriving assessable income.
Rate
(5)
The rate of the additional amount of depreciation loss is,—
(a)
for plant or machinery described in subsection (1)(b)(i), 3% of the diminishing value of the plant or machinery in each income year:
(b)
for plant or machinery described in subsection (1)(b)(ii), 6% of the diminishing value of the plant or machinery in each income year.
Defined in this Act: amount, assessable income, business, car, Commissioner, depreciation loss, excluded depreciable property, income year, New Zealand, petroleum, working day
Compare: 2004 No 35 s EZ 15
EZ 17 Additional amount of depreciation loss: between 16 December 1991 and 1 April 1994
When this section applies
(1)
This section applies when a person incurs expenditure of the kind described in subsection (2) in—
(a)
the acquisition or installation of a qualifying asset; or
(b)
the making of a qualifying improvement to an item the person owns.
Expenditure described
(2)
The expenditure is expenditure of a capital nature, excluding any amount of input tax applying to the supply of the qualifying asset or qualifying improvement to the person.
Additional amount of depreciation loss
(3)
The person has an amount of depreciation loss for the asset or item under this section in addition to any amount of depreciation loss they have for it under subpart EE (Depreciation) and section EZ 16. This subsection is overridden by section EE 48(2) (Effect of disposal or event).
Amount
(4)
The additional amount of depreciation loss for an income year is 25% of the lesser of—
(a)
the amount of depreciation loss that the person has under subpart EE and section EZ 16 for the asset or item and for the income year; and
(b)
the amount of depreciation loss that the person would have had under subpart EE and section EZ 16 for the asset or item and the income year had its value been equal to its qualifying capital value.
Defined in this Act: acquire, amount, depreciation loss, income year, qualifying capital value, qualifying asset, qualifying improvement
Compare: 2004 No 35 s EZ 16
EZ 18 Section EZ 17 amount of depreciation loss when items transferred between companies in wholly-owned group before 1 April 1993
When this section applies
(1)
This section applies when, before 1 April 1993, a company in a wholly-owned group of companies disposes of a qualifying asset, or an item to which the company has made a qualifying improvement, to another company in the same wholly-owned group.
Transferee has amount of depreciation loss
(2)
The transferee company has an amount of depreciation loss under section EZ 17 for the period after the disposal as if the transferee company were the same person as the transferor company.
Amount
(3)
The amount of depreciation loss that the transferor company has under section EZ 17 for the asset or item for the income year in which the disposal occurs must be subtracted when the amount of depreciation loss that the transferee company has under section EZ 17 for the income year is calculated.
How definitions affected
(4)
This section applies despite any limitations in the definitions of new asset, New Zealand-new asset, qualifying asset, qualifying capital value, and qualifying improvement as to the identity of the person for whom an asset or item or improvement will be treated as a qualifying asset or qualifying improvement.
Defined in this Act: amount, company, depreciation loss, dispose, income year, new asset, New Zealand-new asset, qualifying asset, qualifying capital value, qualifying improvement, wholly-owned group of companies
Compare: 2004 No 35 s EZ 17
EZ 19 Section EZ 17 amount of depreciation loss when person previously exempt from tax acquires item
When this section applies
(1)
This section applies when a person who has derived nothing but exempt income—
(a)
starts in an income year to derive income that is not exempt income; and
(b)
would have had an amount of depreciation loss under section EZ 17 for an item and an income year if the person had been deriving income that was not exempt income at the time they acquired the item to which section EZ 17 applies or made a qualifying improvement to the item to which section EZ 17 applies.
How qualifying capital value determined
(2)
The item’s qualifying capital value is determined as if the person had had an amount of depreciation loss for the period during which they derived nothing but exempt income.
Defined in this Act: amount, depreciation loss, exempt income, income, income year, qualifying capital value, qualifying improvement
Compare: 2004 No 35 s EZ 18
EZ 20 Adjusted tax value for software acquired before 1 April 1993
What this section applies to
(1)
This section applies to any of the following items for the acquisition of which a person was allowed a deduction before 1 April 1993:
(a)
the copyright in software:
(b)
the right to use the copyright in software:
(c)
the right to use software.
Meaning of adjusted tax value
(2)
The adjusted tax value of the item is its cost to the person minus all deductions that the person was allowed for it.
Defined in this Act: acquire, adjusted tax value
Compare: 2004 No 35 s EZ 19
EZ 21 Sections EE 45 and EE 47: permanent removal: allowance before 1 April 1995
Section EE 45(11)
(1)
For the purposes of section EE 45(11) (Consideration for purposes of section EE 44), the consideration that a person derives from the event described in subsection (2) is the item’s market value. Two qualifications are—
(a)
if the person makes a taxable supply, “market value”
means the market value minus any goods and services tax (GST) that would be charged on the supply; and
(b)
this subsection does not apply to a transfer under a relationship agreement.
Section EE 47(10)
(2)
For the purposes of section EE 47(10) (Events for purposes of section EE 44), the ninth event is the cessation of use in New Zealand, and the taking out of New Zealand for use outside New Zealand, of an item of property for which a first-year allowance has been granted under section 112(1) to (7) of the Income Tax Act 1976, except when the item—
(a)
has been taken out of New Zealand temporarily; and
(b)
will, after its return to New Zealand, be used in or for the purpose of a business in New Zealand.
Defined in this Act: business, GST, New Zealand, relationship agreement, taxable supply
Compare: 2004 No 35 s EZ 20
EZ 22 Base value and total deductions in section EE 56: before 1 April 1995
Base value in section EE 56 when section 108 of the Income Tax Act 1976 applies
(1)
For the purposes of section EE 56 (Formula), this subsection applies when a person could have been allowed a deduction for depreciation for an item under section 108 of the Income Tax Act 1976 for the 1992–93 income year and they have owned the item continuously since the 1992–93 income year. Base value is the amount at which the item was recorded in the person’s accounts for taxation purposes for the 1992–93 income year.
Section EE 57(3)(d)
(2)
For the purposes of section EE 57(3)(d) (Base value in section EE 56 when none of sections EE 58, EE 59, and EZ 22(1) applies),—
(a)
the expenditure is expenditure for which a person has been allowed a deduction for depreciation under any of sections 108 to 108N or section 113A of the Income Tax Act 1976; or
(b)
the expenditure is expenditure for which a person has been allowed a deduction for depreciation under any other provision of the Income Tax Act 1976.
Section EE 58(1)(e)(ii)
(3)
For the purposes of section EE 58(1)(e)(ii) (Base value in section EE 56 when no previous deduction), the item is one for which the person could not have been allowed a depreciation deduction under section 108 of the Income Tax Act 1976 for the 1992–93 income year.
Section EE 60(2)(c)
(4)
For the purposes of section EE 60(2)(c) (Total deductions in section EE 56), the provision is section 117(5) of the Income Tax Act 1976.
Defined in this Act: amount, income year
Compare: 2004 No 35 s EZ 21
EZ 23 Economic rate for plant or equipment acquired before 1 April 2005 and buildings acquired before 19 May 2005
What this section is about
(1)
This section is about setting the economic depreciation rate that applies to items of a kind of depreciable property if—
(a)
the kind of depreciable property is not fixed life intangible property, or excluded depreciable property, for which an economic rate cannot be set; and
(b)
the items are—
(i)
plant or equipment acquired before 1 April 2005:
(ii)
buildings acquired before 19 May 2005:
(iii)
buildings acquired on or after 19 May 2005, as relationship property or from a company in the same wholly-owned group of companies, from a person who applied to the item an economic depreciation rate set under this section or a corresponding provision.
Rate set by Commissioner
(2)
The Commissioner sets the rate from time to time by—
(a)
following the procedure set out in this section; and
(b)
issuing a determination under section 91AAF of the Tax Administration Act 1994.
Procedure for setting economic rate
(3)
To set the diminishing value rate for a kind of item of depreciable property, the Commissioner—
(a)
gets a figure by applying the formula in subsection (4) to items of that kind; and
(b)
rounds the figure up or down to the nearest rate specified in schedule 12, column 1 (Old banded rates of depreciation); and
(c)
sets the same rate for some or all of the kinds of items of depreciable property that are similar to one another, if the Commissioner thinks it is appropriate to do so having regard to—
(i)
the rate calculated for each kind; and
(ii)
the reduction in compliance costs that is likely to be achieved.
Formula
(4)
The formula is—
1 − ((residual value ÷ cost) (1 ÷ estimated useful life)).
Definition of items in formula
(5)
In the formula,—
(a)
residual value is the greater of—
(i)
estimated residual market value, which is defined in section EE 67 (Other definitions):
(ii)
13.5% of cost:
(b)
cost is the cost of items of the kind to which the formula is applied:
(c)
estimated useful life is defined in section EE 63 (Meaning of estimated useful life).
Defined in this Act: Commissioner, depreciable property, diminishing value rate, economic rate, estimated residual market value, estimated useful life, excluded depreciable property, fixed life intangible property
Compare: 2004 No 35 s EZ 21B
EZ 23BA Aircraft acquired before 2017–18 income year: adjusted tax value, base value, reduced; total deductions increased
When this section applies
(1)
This section applies when—
(a)
a person, before the 2017–18 income year, acquires an aircraft engine or an aircraft including an unpriced aircraft engine; and
(b)
the person is required to perform aircraft engine overhauls on the aircraft engine when operating an aircraft; and
(c)
for the purposes of section EE 56 (Formula), the item base value used to calculate the adjusted tax value of the aircraft engine or aircraft for income years before the 2017–18 income year includes an amount corresponding to the cost of an aircraft engine overhaul of the aircraft engine; and
(d)
the person does not make an election under section EJ 26 (Allocation of expenditure on aircraft engine overhauls: election by operator of single aircraft) for the 2017–18 income year.
Base value reduced by cost of overhaul
(2)
The item base value referred to in subsection (1)(c) for the aircraft engine or aircraft is reduced at the beginning of the 2017–18 income year by the included amount referred to in that paragraph.
Adjusted tax value reduced by depreciated cost of overhaul
(3)
The adjusted tax value of the aircraft engine or aircraft is reduced at the beginning of the 2017–18 income year by the proportion of the adjusted tax value that corresponds to the depreciated cost to the person of the aircraft engine overhaul referred to in subsection (1)(c).
Total deductions increased by reduction in base value
(4)
For the purposes of section EE 60, an amount equal to the difference between the reduction required by subsection (2) and the reduction required by subsection (3) is included as a decrease in the item total deductions for the aircraft engine or aircraft.
Fair and reasonable proportion of base value and adjusted tax value
(5)
For the purposes of subsections (2) and (3), the proportion of the base value or adjusted tax value that corresponds to the cost or depreciated cost to the person of the aircraft engine overhaul is the amount that is fair and reasonable, taking into consideration—
(a)
the principles used in determining the amount of a deduction allowed under section DW 5 (Aircraft operators: aircraft engines and aircraft engine overhauls) for an aircraft engine or aircraft in the 2017–18 or a later income year:
(b)
historical figures for the cost of an aircraft engine overhaul as a proportion of the cost of a similar aircraft and engine.
Defined in this Act: adjusted tax value, aircraft engine, aircraft engine overhaul, unpriced aircraft engine
Section EZ 23BA: inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 91(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EZ 23BA(4): replaced, on 29 March 2018 (with effect on 1 April 2017 and applying for the 2017–18 and later income years), by section 92(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
EZ 23B Property acquired after depreciable property affected by Canterbury earthquakes
When this section applies
(1)
This section applies for a person and an income year (the current year) before the 2024–25 income year when the person,—
(a)
in or before the current year, receives insurance or compensation (the earthquake compensation) for items of depreciable property (the affected property), each of which is—
(i)
not depreciable intangible property; and
(ii)
included in 1 of the categories (an affected class) of the person’s depreciable property referred to in subsection (10)(b); and
(iii)
included in an affected class that is not linked with a replacement interest under section EZ 23BB; and
(b)
is entitled to the earthquake compensation because each item of the affected property, as a result of a Canterbury earthquake as that term is defined in section 4 of the Canterbury Earthquake Recovery Act 2011, is affected by—
(i)
damage meeting the requirements of section EE 47(4) (Events for purposes of section EE 44); or
(ii)
a disposal and reacquisition under section EZ 23C or EZ 70; and
(c)
would have, in the absence of this section, from the earthquake compensation for the affected property in the affected class, depreciation recovery income under section EE 48 (Effect of disposal or event) in or before the current year; and
(d)
has a total amount of depreciation loss under section EE 48 for the affected property in the affected class that, treated as a positive amount, is less than the total amount of depreciation recovery income referred to in paragraph (c) by an amount (the excess recovery); and
(e)
plans in the current year to acquire depreciable property (the replacement property) meeting the requirements of subsection (7); and
(f)
notifies the Commissioner under subsection (9)—
(i)
specifying the affected property and affected class; and
(ii)
linking, for the purposes of this section, each item of acquired replacement property with an affected class.
Suspended recovery income
(2)
For an affected class, the amount that may be depreciation recovery income of the person in or after the current year (the suspended recovery income) is the excess recovery that remains at the beginning of the current year after—
(a)
adjustment under subsections (3) and (6) for an earlier income year; and
(b)
attribution to an earlier income year by subsection (8).
Depreciation recovery income
(2B)
The person has an amount of depreciation recovery income for the current year equal to the amount of suspended recovery income that is attributed to the current year by subsection (8).
Effect of acquiring item of replacement property if suspended recovery income from affected property not in pool
(3)
If the person acquires an item of replacement property (the replacement item) and links the replacement item with an affected class of affected property for which the person does not use the pool method, the amount given by subsection (4)—
(a)
is treated as not being included in the amount of the person’s expenditure on the replacement item, for the purposes of determining—
(i)
under section EE 16(4) (Amount resulting from standard calculation) the item value or cost for the replacement item, if the person uses the diminishing value method or straight-line method for the replacement item; or
(ii)
under section EE 22 (Cases affecting pool) the cost of the replacement item, if the person uses the pool method for the replacement item; and
(b)
is a reduction in the amount of the suspended recovery income for the affected class.
Amount of reduction: expenditure on replacement item and suspended recovery income
(4)
The amount of the reduction under subsection (3)(a) or (b) for a replacement item and an affected class of affected property for which the person does not use the pool method is—
(a)
zero, if the cost of the affected class equals or is less than the person’s total expenditure in acquiring, before the replacement item, other replacement property linked with the affected class; or
(b)
the amount calculated using the formula—
limited replacement cost × excess ÷ affected cost.
Definition of items in formula
(5)
In the formula,—
(a)
limited replacement cost is the lesser of the following:
(i)
the amount by which the cost of the affected class exceeds the total expenditure in acquiring, before the replacement item, other replacement property linked with the affected class:
(ii)
the amount of the expenditure on the replacement item:
(b)
excess is the excess recovery for the affected class:
(c)
affected cost is the total cost for the person of the affected class.
Effect of acquiring item of replacement property if suspended recovery income from affected property in pool
(6)
If the person acquires an item of replacement property (the replacement item) and links the replacement item with an affected class of affected property for which the person uses the pool method,—
(a)
the amount of the person’s expenditure on the replacement item is treated as being reduced, by the amount equal to the lesser of the amount of expenditure on the replacement item and the amount of suspended recovery income for the affected property after the acquisition of other replacement property before the replacement item, for the purposes of determining—
(i)
the adjusted tax value of the replacement item, if subparagraphs (ii) or (iii) do not apply; or
(ii)
the cost of the replacement item for the straight-line method, if that method is used to determine depreciation loss for the replacement item; or
(iii)
the adjusted tax value of the pool of the replacement item, if the person uses the pool method for the replacement item; and
(b)
the amount of the suspended recovery income for the affected class is reduced by the amount of the treated reduction under paragraph (a).
Requirements for replacement property
(7)
An item of replacement property for a person must—
(a)
[Repealed](b)
[Repealed](c)
be included in the same category under subsection (10)(b) as the affected class with which the person links the item, if the affected class is described in subsection (10)(b)(i) or (ii); and
(d)
be located in greater Christchurch as that term is defined in section 4 of the Canterbury Earthquake Recovery Act 2011, if the item is a building or commercial fit-out.
Attribution of suspended recovery income to income year: other events
(8)
The person has, in the current year, an amount of depreciation recovery income for an affected class equal to the amount of suspended recovery income for the affected class—
(a)
at the end of the current year, if that year is the 2023–24 income year and neither of paragraphs (b) and (c) apply earlier; or
(b)
when in the current year the person decides not to acquire more replacement property, if neither of paragraphs (a) and (c) apply earlier; or
(c)
when in the current year the person goes into liquidation or becomes bankrupt, if neither of paragraphs (a) and (b) apply earlier.
Notice of election for affected property
(9)
A person choosing to rely on this section to suspend in a current year the recognition of suspended recovery income from the insurance or compensation for affected property must notify the Commissioner—
(a)
for the earliest income year (the estimate year) in which the amount of the insurance or compensation for the affected property can be reasonably estimated, by the later of 31 January 2012 and the date on which the return of income is filed for the estimate year; and
(b)
if the current year is after the estimate year,—
(i)
for each income year between the estimate year and the current year, by the date on which the return of income is filed for that income year; and
(ii)
for the current year, by the date on which the return of income is filed for the current year.
Contents of notice of election
(10)
A notice under subsection (9) must—
(a)
describe the items of affected property; and
(b)
indicate in which of the following categories each item of affected property is included:
(i)
a building not referred to in subparagraph (iii):
(ii)
commercial fit-out not referred to in subparagraph (iii):
(iii)
depreciable property for which the person uses the pool method:
(iv)
depreciable property not referred to in subparagraphs (i) to (iii); and
(c)
give details of each item of replacement property acquired in the current year and the affected class to which the person is linking the item; and
(d)
give the amount of the expenditure on the replacement item and the reduction under subsection (3) or (6) of that expenditure for the purposes of determining adjusted tax value or depreciation loss; and
(e)
give the amount, for the affected class, of the suspended recovery income at the end of the current year.
Disposal of replacement property: reduction in cost treated as depreciation loss
(11)
For the purposes of section EE 48, the amount by which a person’s expenditure on a replacement item is treated as being reduced under subsection (3) or (6) is an amount of depreciation loss for the item for which the person has been allowed a deduction.
Removal of link by election under section EZ 23BB
(11B)
If a person in the current year has an amount of suspended recovery income for an affected class of buildings and has made an election under this section to link replacement property (the linked property) to the affected class and has not incurred expenditure in acquiring the linked property,—
(a)
the person may choose to make an election under section EZ 23BB linking the affected class with replacement property, which may include linked property:
(b)
a consequence of an election referred to in paragraph (a) is that the affected class and the linked property are treated as not being linked under this section for the current year.
Order of acquisition for items acquired at same time
(11C)
If items of replacement property are acquired at the same time and the effect of this section depends on the order in which the items are acquired, the items are treated as being acquired in the order chosen by the person in the first return of income for which the order of acquisition is taken into account.
Relationship to subpart EE
(12)
This section overrides subpart EE (Depreciation).
Defined in this Act: adjusted tax value, amount, assessable income, building, commercial building, commercial fit-out, depreciable intangible property, depreciable property, depreciation loss, depreciation recovery income, income year, liquidation, notice, notify, pool, pool method, return of income, straight-line method
Section EZ 23B: inserted (with effect on 4 September 2010), on 29 August 2011, by section 43 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section EZ 23B(1) heading: replaced (with effect on 4 September 2010), on 27 February 2014, by section 64(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EZ 23B(1): replaced (with effect on 4 September 2010), on 27 February 2014, by section 64(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EZ 23B(1): amended (with effect on 4 September 2010), on 18 March 2019, by section 184(1) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EZ 23B(1)(f): amended, on 2 June 2016, by section 41(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EZ 23B(2) heading: replaced (with effect on 4 September 2010), on 27 February 2014, by section 64(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EZ 23B(2): replaced (with effect on 4 September 2010), on 27 February 2014, by section 64(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EZ 23B(2B) heading: inserted (with effect on 4 September 2010), on 27 February 2014, by section 64(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EZ 23B(2B): inserted (with effect on 4 September 2010), on 27 February 2014, by section 64(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EZ 23B(3): amended (with effect on 4 September 2010), on 27 February 2014, by section 64(2)(a) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EZ 23B(3)(b): amended (with effect on 4 September 2010), on 27 February 2014, by section 64(2)(b) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EZ 23B(4): amended (with effect on 4 September 2010), on 27 February 2014, by section 64(3)(a) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EZ 23B(4)(a): amended (with effect on 4 September 2010), on 27 February 2014, by section 64(3)(b) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EZ 23B(5)(a)(i): amended (with effect on 4 September 2010), on 27 February 2014, by section 64(4) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EZ 23B(5)(b): amended (with effect on 4 September 2010), on 30 June 2014, by section 98(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EZ 23B(5)(c): amended (with effect on 4 September 2010), on 30 June 2014, by section 98(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EZ 23B(6): amended (with effect on 4 September 2010), on 27 February 2014, by section 64(5)(a) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EZ 23B(6)(a): amended (with effect on 4 September 2010), on 27 February 2014, by section 64(5)(b) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EZ 23B(6)(a)(ii): amended (with effect on 4 September 2010), on 27 February 2014, by section 64(5)(c) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EZ 23B(6)(b): amended (with effect on 4 September 2010), on 27 February 2014, by section 64(5)(d) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EZ 23B(7)(a): repealed (with effect on 4 September 2010), on 27 February 2014, by section 64(6) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EZ 23B(7)(b): repealed (with effect on 4 September 2010), on 27 February 2014, by section 64(6) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EZ 23B(7)(d): amended (with effect on 1 April 2020), on 30 March 2022, by section 98(1) (and see section 98(5) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EZ 23B(8) heading: replaced (with effect on 4 September 2010), on 27 February 2014, by section 64(7) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EZ 23B(8): replaced (with effect on 4 September 2010), on 27 February 2014, by section 64(7) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EZ 23B(8)(a): amended (with effect on 4 September 2010), on 18 March 2019, by section 184(2) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EZ 23B(9): amended, on 2 June 2016, by section 41(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EZ 23B(10)(b)(i): amended (with effect on 1 April 2020), on 30 March 2022, by section 98(2) (and see section 98(5) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EZ 23B(11B) heading: inserted (with effect on 4 September 2010), on 27 February 2014, by section 64(8) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EZ 23B(11B): inserted (with effect on 4 September 2010), on 27 February 2014, by section 64(8) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EZ 23B(11B): amended (with effect on 1 April 2020), on 30 March 2022, by section 98(3) (and see section 98(5) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EZ 23B(11C) heading: inserted (with effect on 4 September 2010), on 27 February 2014, by section 64(8) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EZ 23B(11C): inserted (with effect on 4 September 2010), on 27 February 2014, by section 64(8) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EZ 23B list of defined terms grandparented structure: repealed (with effect on 1 April 2020), on 30 March 2022, by section 98(4) (and see section 98(5) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EZ 23B list of defined terms notify: inserted, on 2 June 2016, by section 41(3) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
EZ 23BB Interest in property acquired after depreciable property affected by Canterbury earthquakes
When this section applies
(1)
This section applies for a person and an income year (the current year) before the 2024–25 income year when the person,—
(a)
in or before the current year, receives insurance or compensation (the earthquake compensation) for items of depreciable property (the affected property), each of which is—
(i)
not depreciable intangible property; and
(ii)
not property for which the person uses the pool method; and
(iii)
included in 1 of the categories (an affected class) of the person’s depreciable property referred to in subsection (11)(b); and
(iv)
not linked with replacement property under section EZ 23B or has a link with replacement property that may be removed under section EZ 23B(11B); and
(b)
is entitled to the earthquake compensation because each item of the affected property, as a result of a Canterbury earthquake as that term is defined in section 4 of the Canterbury Earthquake Recovery Act 2011, is affected by—
(i)
damage meeting the requirements of section EE 47(4) (Events for purposes of section EE 44); or
(ii)
a disposal and reacquisition under section EZ 23C or EZ 70; and
(c)
would have, in the absence of this section, from the earthquake compensation for the affected class, depreciation recovery income under section EE 48 (Effect of disposal or event) in or before the current year; and
(d)
has a total amount of depreciation loss under section EE 48 for the affected class that, treated as a positive amount, is less than the total amount of depreciation recovery income referred to in paragraph (c) by an amount (the excess recovery); and
(e)
has in the current year an interest (a replacement interest) in a voting interest in a company (the owning company) having the purpose of acquiring depreciable property (the replacement property) meeting the requirements of subsection (6); and
(f)
holds the voting interest in the owning company or is the settlor of a trust of which the trustee holds the voting interest; and
(g)
notifies the Commissioner under subsection (10).
Suspended recovery income
(2)
For a replacement interest, the amount that may be depreciation recovery income of the person in or after the current year (the suspended recovery income) is the excess recovery, for the affected property with which the replacement interest is linked under subsections (10) and (11), that remains at the beginning of the current year after—
(a)
adjustment under subsections (3), (8), and (9) for an earlier income year; and
(b)
attribution to an earlier income year by subsections (8) to (10).
Effect of acquiring interest in replacement property if suspended recovery income from affected class
(3)
If the person acquires a replacement interest and links the replacement interest with an affected class, the amount calculated using the formula in subsection (4)—
(a)
is an amount of suspended recovery income for the replacement interest; and
(b)
is a reduction in the amount of the depreciation recovery income for the affected class.
Suspended recovery income for replacement interest and reduction of suspended recovery income for affected class
(4)
The amount under subsection (3)(a) and (b) for a replacement interest and affected class is—
(a)
zero, if the cost of the affected property in the affected class equals or is less than the total of the fractional interest values for other replacement interests acquired by the person before the replacement interest; or
(b)
the amount calculated using the formula—
limited replacement cost × excess ÷ affected cost.
Definition of items in formula
(5)
In the formula,—
(a)
limited replacement cost is the lesser of—
(i)
the fractional interest value of the replacement interest:
(ii)
the amount by which the total cost for the person of the affected property in the affected class exceeds the total amount of the fractional interest values of other replacement interests acquired by the person before the replacement interest:
(b)
excess is the excess recovery for the affected class:
(c)
affected cost is the total cost for the person of the affected property in the affected class.
Requirements for replacement property
(6)
An item of replacement property for a person or owning company must—
(a)
be included in the same category under subsection (11)(b) as the affected class with which the person links the item, if the affected class is described in subsection (11)(b)(i) or (ii); and
(b)
be located in greater Christchurch as that term is defined in section 4 of the Canterbury Earthquake Recovery Act 2011, if the item is a building or commercial fit-out.
Depreciation recovery income and suspended recovery income
(7)
The amount of suspended recovery income for a person’s replacement interest is not depreciation recovery income for the person arising from the replacement interest unless it is attributed to an income year by subsections (8) and (9).
Depreciation recovery income: disposal of replacement property by owning company
(8)
If the owning company in which a person has a replacement interest disposes of the replacement property in an income year, and subsection (9) does not apply earlier,—
(a)
the person has, in the income year for the replacement interest, an amount of depreciation recovery income equal to the fractional interest value of the replacement interest calculated under subsection (12); and
(b)
the suspended recovery income for the replacement interest is reduced by the amount referred to in paragraph (a).
Depreciation recovery income: other events
(9)
The person has, in an income year, an amount of depreciation recovery income equal to the suspended recovery income for a replacement interest and affected property, and the suspended recovery income for the replacement interest and affected property is reduced to zero,—
(a)
at the end of the income year, if—
(i)
the income year is the 2023–24 income year; and
(ii)
the owning company does not acquire the replacement property relating to the replacement interest and the affected property before the end of the income year; and
(iii)
neither of paragraphs (b) and (c) apply earlier; or
(b)
when in the income year the person disposes of the replacement interest, if neither of paragraphs (a) and (c) apply earlier; or
(c)
when in the income year the person goes into liquidation or becomes bankrupt, if neither of paragraphs (a) and (b) apply earlier.
Notice of election for affected property
(10)
A person choosing to rely on this section to suspend in a current year the recognition of suspended recovery income from earthquake compensation must give notice under this section, or under section EZ 23B for years before the current year, to the Commissioner—
(a)
for the earliest income year (the estimate year) in which the amount of the earthquake compensation for the affected property can be reasonably estimated, by the later of 31 January 2012 and the date on which the return of income is filed for the estimate year; and
(b)
if the current year is after the estimate year,—
(i)
for each income year between the estimate year and the current year, by the date on which the return of income is filed for that income year; and
(ii)
for the current year, by the date on which the return of income is filed for the current year.
Contents of notice of election
(11)
A notice under subsection (10) for the current year must—
(a)
describe the affected property; and
(b)
indicate in which of the following categories each item of affected property is included:
(i)
a building:
(ii)
commercial fit-out:
(iii)
depreciable property not referred to in subparagraphs (i) and (ii); and
(c)
indicate which items of affected property were linked with replacement property under section EZ 23B before the current year; and
(d)
give details of each item of replacement property in which a replacement interest is held in the current year, and the affected class to which the person is linking the replacement interest; and
(e)
for each replacement interest held in the current year, give the amount of the expenditure by the owning company on the replacement property, the shareholding of the person’s holding entity in the owning company, and the shareholding of the person in, or the fraction of the trust corpus that has been settled by the person on, the person’s holding entity; and
(f)
for each category of replacement property, give the amount of the suspended recovery income at the end of the current year; and
(g)
for each category of replacement property, give the amount of depreciation recovery income for the current year.
Formula for calculating fractional interest value
(12)
For a person with a replacement interest in replacement property, the fractional interest value of the replacement interest for the purposes of this section is the value calculated using the formula—
person’s fractional interest × replacement expenditure.
Definition of items in formula
(13)
In the formula,—
(a)
person’s fractional interest is—
(i)
the voting interest of the person in the owning company; or
(ii)
the fraction calculated by multiplying the voting interest in the owning company held by the trustee of a trust of which the person is a settlor by the fraction of the trust corpus that has been settled by the person:
(b)
replacement expenditure is the amount of the expenditure by the owning company on the replacement property.
Order of acquisition for items acquired at same time
(14)
If items of replacement property are acquired at the same time and the effect of this section depends on the order in which the items are acquired, the items are treated as being acquired in the order chosen by the person in the first return of income for which the order of acquisition is taken into account.
Relationship to subpart EE
(15)
This section overrides subpart EE (Depreciation).
Defined in this Act: adjusted tax value, amount, assessable income, building, commercial building, commercial fit-out, depreciable property, depreciation loss, depreciation recovery income, income year, liquidation, notice, notify, return of income, settlor
Section EZ 23BB: inserted (with effect on 4 September 2010), on 27 February 2014, by section 65 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EZ 23BB(1): amended (with effect on 4 September 2010), on 18 March 2019, by section 185(1) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EZ 23BB(1)(g): amended, on 2 June 2016, by section 42(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EZ 23BB(9)(a)(i): amended (with effect on 4 September 2010), on 18 March 2019, by section 185(2) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EZ 23BB(10): amended, on 2 June 2016, by section 42(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EZ 23BB(11)(b)(i): amended (with effect on 1 April 2020), on 30 March 2022, by section 99(1) (and see section 99(3) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EZ 23BB list of defined terms grandparented structure: repealed (with effect on 1 April 2020), on 30 March 2022, by section 99(2) (and see section 99(3) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EZ 23BB list of defined terms notify: inserted, on 2 June 2016, by section 42(3) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EZ 23BB list of defined terms settlor: inserted, on 24 February 2016, by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EZ 23BC Property acquired after depreciable property affected by Hurunui/Kaikōura earthquakes
When this section applies
(1)
This section applies for a person and an income year (the current year) before the 2019–20 income year when the person,—
(a)
in or before the current year, receives insurance or compensation (the earthquake compensation) for items of depreciable property (the affected property), each of which is—
(i)
not depreciable intangible property; and
(ii)
included in 1 of the categories (an affected class) of the person’s depreciable property referred to in subsection (11)(b); and
(b)
is entitled to the earthquake compensation because each item of the affected property, as a result of a Hurunui/Kaikōura earthquake as that term is defined in section 4 of the Hurunui/Kaikōura Earthquakes Recovery Act 2016, is affected by—
(i)
damage meeting the requirements of section EE 47(4) (Events for purposes of section EE 44); or
(ii)
a disposal and reacquisition under section EZ 78; and
(c)
would have, in the absence of this section, from the earthquake compensation for the affected property in the affected class, depreciation recovery income under section EE 48 (Effect of disposal or event) in or before the current year; and
(d)
has a total amount of depreciation loss under section EE 48 for the affected property in the affected class that, treated as a positive amount, is less than the total amount of depreciation recovery income referred to in paragraph (c) by an amount (the excess recovery); and
(e)
plans in the current year to acquire depreciable property (the replacement property) meeting the requirements of subsection (8); and
(f)
notifies the Commissioner under subsection (10)—
(i)
specifying the affected property and affected class; and
(ii)
linking, for the purposes of this section, each item of acquired replacement property with an affected class.
Suspended recovery income
(2)
For an affected class, the amount that may be depreciation recovery income of the person in or after the current year (the suspended recovery income) is the excess recovery that remains at the beginning of the current year after—
(a)
adjustment under subsections (4) and (7) for an earlier income year; and
(b)
attribution to an earlier income year by subsection (9).
Depreciation recovery income
(3)
The person has an amount of depreciation recovery income for the current year equal to the amount of suspended recovery income that is attributed to the current year by subsection (9).
Effect of acquiring item of replacement property if suspended recovery income from affected property not in pool
(4)
If the person acquires an item of replacement property (the replacement item) and links the replacement item with an affected class of affected property for which the person does not use the pool method, the amount given by subsection (5)—
(a)
is treated as not being included in the amount of the person’s expenditure on the replacement item, for the purposes of determining—
(i)
under section EE 16(4) (Amount resulting from standard calculation) the item value or cost for the replacement item, if the person uses the diminishing value method or straight-line method for the replacement item; or
(ii)
under section EE 22 (Cases affecting pool) the cost of the replacement item, if the person uses the pool method for the replacement item; and
(b)
is a reduction in the amount of the suspended recovery income for the affected class.
Amount of reduction: expenditure on replacement item and suspended recovery income
(5)
The amount of the reduction under subsection (4)(a) or (b) for a replacement item and an affected class of affected property for which the person does not use the pool method is—
(a)
zero, if the cost of the affected class equals or is less than the person’s total expenditure in acquiring, before the replacement item, other replacement property linked with the affected class; or
(b)
the amount calculated using the formula—
limited replacement cost × excess ÷ affected cost.
Definition of items in formula
(6)
In the formula,—
(a)
limited replacement cost is the lesser of—
(i)
the amount by which the cost of the affected class exceeds the total expenditure in acquiring, before the replacement item, other replacement property linked with the affected class:
(ii)
the amount of the expenditure on the replacement item:
(b)
excess is the excess recovery for the affected class:
(c)
affected cost is the total cost for the person of the affected class.
Effect of acquiring item of replacement property if suspended recovery income from affected property in pool
(7)
If the person acquires an item of replacement property (the replacement item) and links the replacement item with an affected class of affected property for which the person uses the pool method,—
(a)
the amount of the person’s expenditure on the replacement item is treated as being reduced, by the amount equal to the lesser of the amount of expenditure on the replacement item and the amount of suspended recovery income for the affected property after the acquisition of other replacement property before the replacement item, for the purposes of determining—
(i)
the adjusted tax value of the replacement item, if subparagraphs (ii) or (iii) do not apply; or
(ii)
the cost of the replacement item for the straight-line method, if that method is used to determine depreciation loss for the replacement item; or
(iii)
the adjusted tax value of the pool of the replacement item, if the person uses the pool method for the replacement item; and
(b)
the amount of the suspended recovery income for the affected class is reduced by the amount of the treated reduction under paragraph (a).
Requirements for replacement property
(8)
An item of replacement property for a person must—
(a)
be included in the same category under subsection (11)(b) as the affected class with which the person links the item, if the affected class is described in subsection (11)(b)(i), (ii), (vii), or (viii); and
(b)
if the item is a building or commercial fit-out, be located in an earthquake-affected area, as that term is defined in section 4 of the Hurunui/Kaikōura Earthquakes Recovery Act 2016, relating to—
(i)
the Canterbury Regional Council (Environment Canterbury), the Hurunui District Council, the Kaikoura District Council, or the Marlborough District Council, if the affected property is located in an earthquake-affected area relating to 1 of those councils; or
(ii)
the Wellington City Council, the Hutt City Council, or the Wellington Regional Council (Greater Wellington), if the affected property is located in an earthquake-affected area relating to 1 of those councils.
Attribution of suspended recovery income to income year: other events
(9)
The person has, in the current year, an amount of depreciation recovery income for an affected class equal to the amount of suspended recovery income for the affected class—
(a)
at the end of the current year, if that year is the 2021–22 income year and neither of paragraphs (b) and (c) apply earlier; or
(b)
when in the current year the person decides not to acquire more replacement property, if neither of paragraphs (a) and (c) apply earlier; or
(c)
when in the current year the person goes into liquidation or becomes bankrupt, if neither of paragraphs (a) and (b) apply earlier.
Notice of election for affected property
(10)
A person choosing to rely on this section to suspend in a current year the recognition of suspended recovery income from the insurance or compensation for affected property must notify the Commissioner—
(a)
for the earliest income year (the estimate year) in which the amount of the insurance or compensation for the affected property can be reasonably estimated, by the later of 31 January 2018 and the date on which the return of income is filed for the estimate year; and
(b)
if the current year is after the estimate year,—
(i)
for each income year between the estimate year and the current year, by the date on which the return of income is filed for that income year; and
(ii)
for the current year, by the date on which the return of income is filed for the current year.
Contents of notice of election
(11)
A notice under subsection (10) must—
(a)
describe the items of affected property; and
(b)
indicate in which of the following categories each item of affected property is included:
(i)
a building not referred to in subparagraphs (iii) and (iv):
(ii)
commercial fit-out not referred to in subparagraphs (v) and (vi):
(iii)
buildings for which the person uses the pool method and that are located in an earthquake-affected area, as that term is defined in section 4 of the Hurunui/Kaikōura Earthquakes Recovery Act 2016, (the earthquake-affected area) relating to the Canterbury Regional Council (Environment Canterbury), the Hurunui District Council, the Kaikoura District Council, or the Marlborough District Council:
(iv)
buildings for which the person uses the pool method and that are located in an earthquake-affected area relating to the Wellington City Council, the Hutt City Council, or the Wellington Regional Council (Greater Wellington):
(v)
commercial fit-outs for which the person uses the pool method and that are located in an earthquake-affected area relating to the Canterbury Regional Council (Environment Canterbury), the Hurunui District Council, the Kaikoura District Council, or the Marlborough District Council:
(vi)
commercial fit-outs for which the person uses the pool method and that are located in an earthquake-affected area relating to the Wellington City Council, the Hutt City Council, or the Wellington Regional Council (Greater Wellington):
(vii)
depreciable property for which the person uses the pool method, other than a building or commercial fit-out:
(viii)
depreciable property not referred to in subparagraphs (i) to (vii); and
(c)
give details of each item of replacement property acquired in the current year and the affected class to which the person is linking the item; and
(d)
give the amount of the expenditure on the replacement item and the reduction under subsection (4) or (7) of that expenditure for the purposes of determining adjusted tax value or depreciation loss; and
(e)
give the amount, for each affected class, of the suspended recovery income at the end of the current year.
Disposal of replacement property: reduction in cost treated as depreciation loss
(12)
For the purposes of section EE 48, the amount by which a person’s expenditure on a replacement item is treated as being reduced under subsection (4) or (7) is an amount of depreciation loss for the item for which the person has been allowed a deduction.
Order of acquisition for items acquired at same time
(13)
If items of replacement property are acquired at the same time and the effect of this section depends on the order in which the items are acquired, the items are treated as being acquired in the order chosen by the person in the first return of income for which the order of acquisition is taken into account.
Relationship to subpart EE
(14)
This section overrides subpart EE (Depreciation).
Defined in this Act: adjusted tax value, amount, building, commercial fit-out, depreciable intangible property, depreciable property, depreciation loss, depreciation recovery income, diminishing value method, income year, liquidation, notice, notify, pool, pool method, return of income, straight-line method
Section EZ 23BC: inserted, on 30 March 2017 (applying for the 2015–16 and later income years), by section 92(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section EZ 23BC(8)(b): amended (with effect on 1 April 2020), on 30 March 2022, by section 100(1) (and see section 100(7) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EZ 23BC(11)(b)(i): amended (with effect on 1 April 2020), on 30 March 2022, by section 100(2) (and see section 100(7) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EZ 23BC(11)(b)(iii): amended (with effect on 1 April 2020), on 30 March 2022, by section 100(3) (and see section 100(7) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EZ 23BC(11)(b)(iv): amended (with effect on 1 April 2020), on 30 March 2022, by section 100(4) (and see section 100(7) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EZ 23BC(11)(b)(vii): amended (with effect on 1 April 2020), on 30 March 2022, by section 100(5) (and see section 100(7) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section EZ 23BC list of defined terms grandparented structure: repealed (with effect on 1 April 2020), on 30 March 2022, by section 100(6) (and see section 100(7) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
EZ 23BD Loss on disposal of grandparented structure
(1)
Despite section EE 48(3), subsection (2) of that section applies if the item is a grandparented structure.
(2)
In this section, grandparented structure means, for a person, any item on the following list, if the person acquired the item, or entered into a binding contract for the purchase or construction of the item, on or before 30 July 2009:
(a)
barns, including barns (drying):
(b)
carparks (buildings):
(c)
chemical works:
(d)
fertiliser works:
(e)
powder drying buildings:
(f)
site huts.
Defined in this Act: grandparented structure
Section EZ 23BD: inserted (with effect on 1 April 2020), on 30 March 2022, by section 101(1) (and see section 101(2) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
EZ 23C Insurance for Canterbury earthquake damage of property: treatment as disposal and reacquisition
[Repealed]Section EZ 23C: repealed, on 1 April 2016 (applying for the 2016–17 and later income years), by section 66(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
EZ 23D Insurance for Canterbury earthquake damage of property: limit on depreciation recovery income
[Repealed]Section EZ 23D: repealed, on 1 April 2016 (applying for the 2016–17 and later income years), by section 66(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
EZ 23E Item treated as available for use if access restricted due to Canterbury earthquake
[Repealed]Section EZ 23E: repealed, on 1 April 2016 (applying for the 2016–17 and later income years), by section 66(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
EZ 23F Insurance for Canterbury earthquake damage causing disposal: optional timing rule for income, deductions
[Repealed]Section EZ 23F: repealed, on 1 April 2016 (applying for the 2016–17 and later income years), by section 66(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
EZ 23G Insurance for repairs of Canterbury earthquake damage: optional timing rule for income, deductions
[Repealed]Section EZ 23G: repealed, on 1 April 2016 (applying for the 2016–17 and later income years), by section 66(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Definitions
EZ 24 Meaning of new asset
Meaning
(1)
New asset means an item of property that a person owns to which subsections (2) to (4) apply and to which subsection (5) does not apply.
Acquisition date
(2)
The item is—
(a)
acquired by the person in the period starting on 16 December 1991 and ending with the close of 31 March 1993, other than under a binding contract that they entered into before 16 December 1991; or
(b)
acquired by the person in the period starting on 1 April 1993 and ending with the close of 31 March 1994, under a binding contract that they entered into in the period starting on 16 December 1991 and ending with the close of 31 March 1993; or
(c)
one to which all the following apply:
(i)
it was acquired by the person before 16 December 1991 as trading stock; and
(ii)
it was used by the person as a capital item for the first time in the period starting on 16 December 1991 and ending with the close of 31 March 1993; and
(iii)
it qualified for a deduction for depreciation under section 108 of the Income Tax Act 1976 in the period starting on 16 December 1991 and ending with the close of 31 March 1993.
Used before 1 April 1994
(3)
The item is used by the person before 1 April 1994.
Not used by anyone previously
(4)
The item is—
(a)
not acquired by any other person before the date on which the person acquired it; and
(b)
not used by any other person before the date on which the person acquired it; and
(c)
not held for use by any other person before the date on which the person acquired it; and
(d)
not an item or part of an item that qualified for a deduction for depreciation under the Income Tax Act 1976 for a period before the date on which the person acquired it.
Exclusion
(5)
A constructed item that a person owns is not a new asset if—
(a)
its construction started before 16 December 1991 (but this paragraph does not apply to the extent to which the item is trading stock to which subsection (2)(c) applies); or
(b)
its construction started on or after 16 December 1991 under a binding contract that the person entered into before 16 December 1991; or
(c)
its construction was not completed before 1 April 1994; or
(d)
the item was not first used by the person before 1 April 1994.
Defined in this Act: acquire, new asset, trading stock
Compare: 2004 No 35 s EZ 22
EZ 25 Meaning of New Zealand-new asset
Meaning
(1)
New Zealand-new asset means an item of property that a person owns to which subsections (2) to (5) apply.
Not new
(2)
The item is not a new asset.
Date of acquisition
(3)
The item is—
(a)
acquired by the person in the period starting on 16 December 1991 and ending with the close of 31 March 1993, other than under a binding contract that they entered into before 16 December 1991; or
(b)
acquired by the person in the period starting on 1 April 1993 and ending with the close of 31 March 1994, under a binding contract that they entered into in the period starting on 16 December 1991 and ending with the close of 31 March 1993; or
(c)
one to which all the following apply:
(i)
it was acquired by the person before 16 December 1991 as trading stock; and
(ii)
it was used by the person as a capital item for the first time in the period starting on 16 December 1991 and ending with the close of 31 March 1993; and
(iii)
it qualified for a deduction for depreciation under section 108 of the Income Tax Act 1976 in the period starting on 16 December 1991 and ending with the close of 31 March 1993.
Used before 1 April 1994
(4)
The item is used by the person before 1 April 1994.
Not used
(5)
The item is—
(a)
not used in New Zealand before the date on which the person acquired it; and
(b)
not an item or part of an item that qualified for a deduction for depreciation under the Income Tax Act 1976 for a period before the date on which the person acquired it.
Defined in this Act: acquire, new asset, New Zealand, New Zealand-new asset, trading stock
Compare: 2004 No 35 s EZ 23
EZ 26 Meaning of qualifying capital value
Meaning
(1)
Qualifying capital value means, for an income year,—
(a)
for a qualifying asset that a person owns, the amount calculated for the income year using the formula in subsection (2); or
(b)
for an item that a person owns that is not a qualifying asset but to which they have made a qualifying improvement, the amount calculated for the income year using the formula in subsection (7).
Formula
(2)
The formula referred to in subsection (1)(a) is—
(acquisition cost + improvement cost) − item’s depreciation.
Definition of items in formula
(3)
The items in the formula in subsection (2) are defined in subsections (4) to (6).
Acquisition cost
(4)
Acquisition cost is the amount of capital expenditure the person incurs in acquiring the asset or item. In the case of a constructed item, the amount of capital expenditure is reduced by the amount of capital expenditure the person incurs on the construction on or after 1 April 1993, other than under a binding contract that the person entered into before 1 April 1993.
Improvement cost
(5)
Improvement cost is the amount of capital expenditure, if any, the person incurs in making a qualifying improvement to the asset or item.
Item’s depreciation
(6)
Item’s depreciation is the amount of depreciation loss for which the person has been allowed a deduction for the qualifying capital value of the asset or item in earlier income years, not including an amount of depreciation loss calculated using the straight-line method.
Formula
(7)
The formula referred to in subsection (1)(b) is—
capital expenditure − improvement’s depreciation.
Definition of items in formula
(8)
The items in the formula in subsection (7) are defined in subsections (9) and (10).
Capital expenditure
(9)
Capital expenditure is the amount of capital expenditure the person incurs for the improvement.
Improvement’s depreciation
(10)
Improvement’s depreciation is the amount of depreciation loss for which the person has been allowed a deduction for the qualifying capital value of the improvement in earlier income years, not including an amount of depreciation loss calculated using the straight-line method.
Defined in this Act: acquire, amount, depreciation loss, income year, qualifying asset, qualifying capital value, qualifying improvement, straight-line method
Compare: 2004 No 35 s EZ 24
EZ 27 Meaning of qualifying improvement
Meaning
(1)
Qualifying improvement, for a person’s income year, means an improvement of an item that the person owns, if all the following apply:
(a)
the person incurred the expenditure on the improvement—
(i)
in the period starting on 16 December 1991 and ending with the close of 31 March 1993, other than under a binding contract they entered into before 16 December 1991; or
(ii)
in the period starting on 1 April 1993 and ending with the close of 31 March 1994, under a binding contract they entered into in the period starting on 16 December 1991 and ending with the close of 31 March 1993; and
(b)
the person used the item in its improved form before 1 April 1994; and
(c)
the person is allowed a deduction for depreciation under the Income Tax Act 1976 for the improvement for the income year.
Exclusions
(2)
Qualifying improvement does not include—
(a)
an improvement to a building; or
(b)
an improvement requiring construction, if—
(i)
the construction started before 16 December 1991; or
(ii)
the construction started on or after 16 December 1991 under a binding contract that the person entered into before 16 December 1991; or
(iii)
the construction was not completed before 1 April 1994; or
(iv)
the improvement was not first used by the person before 1 April 1994.
Defined in this Act: income year, qualifying improvement
Compare: 2004 No 35 s EZ 25
EZ 28 Meaning of qualifying asset
Qualifying asset means—
(a)
a new asset, other than a building, that a person owns in an income year and for which they are allowed a deduction for depreciation under the Income Tax Act 1976 for the income year; or
(b)
a New Zealand-new asset, other than a building or a car, that a person owns in an income year and for which they are allowed a deduction for depreciation under the Income Tax Act 1976 for the income year.
Defined in this Act: car, income year, new asset, New Zealand-new asset, qualifying asset
Compare: 2004 No 35 s EZ 26
Accident insurance
EZ 29 Private insurers under Accident Insurance Act 1998
When this section applies
(1)
This section applies when an insurer, as defined in paragraph (a) of the definition of insurer in section 13 of the Accident Insurance Act 1998, has a reserve in a tax year to cover the following, all of which relate to events covered by the Accident Insurance Act 1998 occurring before the end of the tax year:
(a)
claims that have been made with the insurer but have not been settled before the end of the tax year; and
(b)
claims that are expected to be made with the insurer in relation to events that the insurer knows about; and
(c)
an estimate of claims that have not been reported to the insurer in relation to events that the insurer does not know about.
Adjustment to deduction
(2)
When the closing value of the reserve for a tax year is more than the opening value, the deduction that the insurer is allowed is adjusted by an amount equal to the amount calculated using the formula—
closing value − opening value.
Adjustment to income
(3)
When the opening value of the reserve for a tax year is more than the closing value, the income of the insurer is adjusted by an amount equal to the amount calculated using the formula—
opening value − closing value.
Amount
(4)
The reserve at the end of the tax year is—
(a)
an amount calculated by an actuary applying subsection (5) and adopted by the insurer for financial reporting purposes; or
(b)
if no such amount has been calculated, an amount determined by the Commissioner, who may seek the advice of an actuary in determining it.
Calculation or determination of reserve
(5)
A person calculating or determining the amount of a reserve under subsection (4) must ensure that the amount has regard to—
(a)
generally accepted accounting practice; and
(b)
generally accepted actuarial practice; and
(c)
the present value of expected future payments.
Link with subpart DA
(6)
This section supplements the general permission. The general limitations still apply.
Defined in this Act: actuary, amount, Commissioner, deduction, general limitation, general permission, generally accepted accounting practice, pay, supplement, tax year
Compare: 2004 No 35 s EZ 27
Section EZ 29(4)(b): amended, on 1 May 2011, by section 82 of the Financial Markets Authority Act 2011 (2011 No 5).
EZ 30 Base premium for 1998–99 premium year under Accident Insurance Act 1998
Discount payment date
(1)
An amount of base premium for the 1998–99 premium year that is paid on or before the discount payment date is treated as expenditure in the tax year in which the discount payment date falls if the discount payment date is before the date on the invoice that specifies when payment is due. This subsection overrides section EF 3(1) (Accident compensation levies and premiums).
Monthly instalment plan
(2)
Interest payable on a base premium for the 1998–99 premium year under a monthly instalment plan is treated as being payable on the date that the interest is applied under regulation 8 of the Accident Insurance (Payment of Base Premiums) Regulations 1999.
Some definitions
(3)
In this section, base premium for the 1998–99 premium year, discount payment date, and monthly instalment plan have the meanings given to them in the Accident Insurance (Payment of Base Premiums) Regulations 1999.
Defined in this Act: amount, base premium for the 1998–99 premium year, discount payment date, interest, monthly instalment plan, pay, tax year
Compare: 2004 No 35 s EZ 28
Controlled foreign company and foreign investment fund rules
EZ 31 Disclosure restrictions on grey list CFCs before 2011–12
[Repealed]Section EZ 31: repealed (with effect on 30 June 2009), on 6 October 2009, by section 195(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EZ 32 Terminating exemption for grey list FIF investing in Australasian listed equities
[Repealed]Section EZ 32: repealed, on 2 November 2012, by section 62 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
EZ 32B Transitional rule for IFRS reporting
[Repealed]Section EZ 32B: repealed (with effect on 1 April 2008), on 6 October 2009, by section 196 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EZ 32C Treatment in section EX 20C of currency effects on CFC’s borrowing
[Repealed]Section EZ 32C: repealed (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 63(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
EZ 32D Value of asset fraction: CFC with excessive debt funding and loan entered before 21 June 2012
When this section applies
(1)
This section applies when a CFC is excessively debt funded under section EX 20D (Adjustment of cost fraction for excessively debt funded CFC) and entered before 21 June 2012 a financial arrangement (an old funding arrangement) that provides funds for the CFC.
(2)
The amount of the item apportioned funding income for the CFC is the sum of—
(a)
an amount calculated using the formula in section EX 20B(4B)(b) (Net attributable CFC income or loss) with—
(i)
a value for the item funding income that is the amount of funding income relating to the old funding arrangements of the CFC; and
(ii)
a value for the item asset fraction that is the amount of the item cost fraction calculated under section EX 20D(10):
(b)
an amount calculated using the formula in section EX 20B(4B)(b) with a value for the item funding income that is the amount of funding income relating to financial arrangements of the CFC that are not old funding arrangements.
Relationship with section EX 20B
(3)
This section overrides section EX 20B(4B)(b).
Defined in this Act: CFC, financial arrangement
Section EZ 32D: inserted (with effect on 30 June 2009), on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 64(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EZ 32D(2)(a): amended (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 99(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EZ 32D(2)(b): amended (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 30 June 2014, by section 99(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EZ 32D(3) heading: amended (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), by section 99(2)(a) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EZ 32D(3): amended (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), by section 99(2)(b) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
EZ 32E Change in section EX 20B for income of CFC insurer: interest on terminal tax
When section applies
(1)
This section applies when a person has a liability for terminal tax (the resulting liability)—
(a)
for an income year beginning on or after 1 July 2009; and
(b)
relating to a return of income provided to the Commissioner before the date on which the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (the amending Act) receives the Royal assent; and
(c)
that the person would not have but for the replacement by the amending Act of section EX 20B(3)(f) (Attributable CFC amount) coming into force on 1 July 2009.
No liability for interest for period
(2)
The person is not liable to pay interest under Part 7 of the Tax Administration Act 1994 in relation to the resulting liability for the period beginning with 1 July 2009 and ending on the later of—
(a)
30 June 2012:
(b)
a date fixed by the Commissioner for the payment of the resulting liability.
Relationship with Tax Administration Act 1994
(3)
This section overrides Part 7 of the Tax Administration Act 1994.
Defined in this Act: Commissioner, income year, return of income, terminal tax
Section EZ 32E: inserted (with effect on 30 June 2009) on 2 November 2012 (applying for income years beginning on or after 1 July 2009), by section 65(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section EZ 32E list of defined terms tax position: repealed, on 24 February 2016, by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EZ 32F Applicable accounting standard for section EX 21E: former generally accepted accounting practice without IFRS
When this section applies
(1)
This section applies when—
(a)
a person (the interest holder) with an interest in a CFC is applying section EX 21E (Non-attributing active CFC: Test based on accounting standard) for an accounting period to determine whether the CFC is a non-attributing active CFC for the person; and
(b)
section GB 15C (Arrangements related to accounting test for non-attributing active CFC) does not apply.
Former generally accepted accounting practice without IFRS for CFC
(2)
The interest holder may use former generally accepted accounting practice without IFRS for the CFC and the accounting period if the interest holder or another person is a company resident in New Zealand that—
(a)
has no revenue under former Financial Reporting Standard 34 and former Financial Reporting Standard 35; and
(b)
is an issuer under section 4 of the former Financial Reporting Act in neither of the current and preceding accounting periods; and
(c)
is not required by section 19 of the former Financial Reporting Act to file its accounts with the Registrar of Companies; and
(d)
is not a large company under section 19A(1)(b) of the former Financial Reporting Act; and
(e)
does not have accounts that are prepared and audited under generally accepted accounting practice with IFRS; and
(f)
is not a subsidiary of a company having accounts that—
(i)
include the accounts of the subsidiary; and
(ii)
are prepared and audited, or required to be prepared, under generally accepted accounting practice with IFRS; and
(g)
has accounts that—
(i)
include the accounts of the CFC; and
(ii)
comply with former generally accepted accounting practice without IFRS; and
(iii)
meet the audit requirements of section EX 21C(8).
Former generally accepted accounting practice without IFRS for CFC’s test group
(3)
The interest holder may use former generally accepted accounting practice without IFRS for the CFC’s test group under section EX 21D(1) (Non-attributing active CFC: default test) if the interest holder or another person is a company resident in New Zealand that—
(a)
has no revenue under former Financial Reporting Standard 34 and former Financial Reporting Standard 35; and
(b)
is an issuer under section 4 of the former Financial Reporting Act in neither of the current and preceding accounting periods; and
(c)
is not required by section 19 of the former Financial Reporting Act to file its accounts with the Registrar of Companies; and
(d)
is not a large company under section 19A(1)(b) of the former Financial Reporting Act; and
(e)
does not have accounts that are prepared and audited under generally accepted accounting practice with IFRS; and
(f)
is not a subsidiary of a company having accounts that—
(i)
include the accounts of the subsidiary; and
(ii)
are prepared and audited, or required to be prepared, under generally accepted accounting practice with IFRS; and
(g)
has accounts that—
(i)
include the accounts of the members of the CFC’s test group; and
(ii)
comply with former generally accepted accounting practice without IFRS; and
(iii)
meet the audit requirements of section EX 21C(8).
Terms relating to generally accepted accounting practice before repeal of Financial Reporting Act 1993
(4)
In this section and section EX 21E,—
former Financial Reporting Act means the Financial Reporting Act 1993—
(a)
as it was before being repealed under the Financial Reporting Act 2013; and
(b)
treated as if it applied to resident companies for the purposes of this section and section EX 21E
former Financial Reporting Standard 34 means the Financial Reporting Standard 34 issued under the former Financial Reporting Act as the standard was before the repeal of the Financial Reporting Act 1993 under the Financial Reporting Act 2013
former Financial Reporting Standard 35 means the Financial Reporting Standard 35 issued under the former Financial Reporting Act as the standard was before the repeal of the Financial Reporting Act 1993 under the Financial Reporting Act 2013
former financial reporting standards without IFRS means the financial reporting standards, other than IFRSs, approved or issued under the former Financial Reporting Act 1993 as the standards were before the repeal of the Financial Reporting Act 1993 under the Financial Reporting Act 2013
former generally accepted accounting practice without IFRS means the generally accepted accounting practice in New Zealand,—
(a)
as the practice was before the repeal of the Financial Reporting Act 1993 under the Financial Reporting Act 2013; and
(b)
for persons who under the former Financial Reporting Act are not required to use IFRS but are required to comply with the former financial reporting standards without IFRS
generally accepted accounting practice with IFRS means the generally accepted accounting practice in New Zealand including IFRSs and the framework for differential reporting for entities applying the New Zealand equivalents to the international financial standards reporting regime.
Defined in this Act: accounting period, CFC, company, former Financial Reporting Act, former Financial Reporting Standard 34, former Financial Reporting Standard 35, former financial reporting standards without IFRS, former generally accepted accounting practice without IFRS, generally accepted accounting practice, generally accepted accounting practice with IFRS, IFRS, non-attributing active CFC, resident in New Zealand
Section EZ 32F: inserted, on 1 April 2014, by section 95 of the Financial Reporting (Amendments to Other Enactments) Act 2013 (2013 No 102).
EZ 32G Person deriving pension from foreign superannuation scheme and returning as income before 1 April 2014
When this section applies
(1)
This section applies when a person has, before 1 April 2014, an interest in a foreign superannuation scheme and—
(a)
the interest would be an attributing interest in the absence of this provision; and
(b)
on and after 1 April 2014, the interest is not a FIF superannuation interest; and
(c)
the person—
(i)
does not, before 1 April 2014, derive from the foreign superannuation scheme a payment that is a withdrawal:
(ii)
derives payments, each of which is a pension, from the foreign superannuation scheme before 1 April 2014 and includes each payment in a return of income, for the income year of the payment, that is received by the Commissioner by the due date for the return of income.
No FIF income or loss from interest
(2)
The person is treated as having no FIF income or loss from the interest for the period before 1 April 2014.
Defined in this Act: attributing interest, Commissioner, FIF income, FIF superannuation interest, foreign superannuation scheme, income year, loss, return of income
Section EZ 32G: inserted (with effect on 1 April 2014), on 24 February 2016, by section 157 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Old financial arrangements rules
EZ 33 Application of old financial arrangements rules
The old financial arrangements rules apply to financial arrangements entered into on or after the implementation date and before 20 May 1999.
Compare: 2004 No 35 s EZ 30
EZ 34 Election to apply financial arrangements rules in subpart EW
Despite section EZ 33, a person may elect to apply the financial arrangements rules by calculating a transitional adjustment under section EZ 51.
Compare: 2004 No 35 s EZ 31
EZ 35 Accruals in relation to income and expenditure in respect of financial arrangements
(1)
For the purpose of calculating the amount deemed to be income or expenditure of any person under subsections (2) to (7), regard must be had to,—
(a)
if the person is a holder in relation to the financial arrangement,—
(i)
the amount of all consideration paid and to be paid to the person in relation to the financial arrangement; and
(ii)
any amount remitted and to be remitted by the person in relation to the financial arrangement; and
(iii)
the acquisition price of the financial arrangement in relation to the person; and
(b)
if the person is an issuer in relation to the financial arrangement,—
(i)
the amount of all consideration paid and to be paid by the person in relation to the financial arrangement; and
(ii)
the acquisition price of the financial arrangement in relation to the person.
(2)
Subject to this section, where any person is a holder or an issuer of a financial arrangement, the amount that is deemed to be income or expenditure of that person in respect of the financial arrangement in any income year is an amount calculated using the yield to maturity method so as to result in the allocation to each income year of an amount that is fair and reasonable, and such amount so allocated to each income year is income deemed to be derived by or expenditure deemed to be incurred by the person in respect of the financial arrangement in the income year:
provided that the Commissioner must accept an alternative method to the yield to maturity method, that has regard to the principles of accrual accounting, and—
(a)
conforms with commercially acceptable practice; and
(b)
except to the extent that the Commissioner may otherwise allow under subsection (8), is adopted by the person and is or will be consistently applied in respect of all such financial arrangements for financial reporting purposes; and
(c)
results in the allocation to each income year of amounts that are not materially different from amounts that would be calculated but for this proviso.
(3)
Notwithstanding subsection (2), but subject to the other provisions of this section, where in any income year the total value of all financial arrangements of which a person is a holder or an issuer has on no day within that income year exceeded $1,500,000 or such greater amount as the Governor-General may by Order in Council declare for the purposes of this section,—
(a)
the person may calculate income or expenditure for that income year in respect of those financial arrangements by using the straight-line method so as to result in the allocation to that income year and subsequent income years of amounts that are fair and reasonable in respect of those arrangements; and
(b)
where the straight-line method is used under paragraph (a), that method must be used by the person in respect of all financial arrangements of which the person was the holder or issuer during that income year; and
(c)
where the person has in accordance with this subsection calculated income or expenditure using the straight-line method in respect of a financial arrangement for any income year, the person must, unless the Commissioner notifies them that they are otherwise authorised, continue to use that method in respect of that financial arrangement for any subsequent income year, until the maturity, remittance, sale, or other transfer of the arrangement, notwithstanding that the total value of all financial arrangements of which the person is holder or issuer may at any time in any such subsequent income year exceed $1,500,000 or such other amount as may be declared for the purposes of this section,—
and any amount calculated in respect of a financial arrangement in accordance with this subsection is income deemed to be derived by or expenditure deemed to be incurred by the person in respect of the financial arrangement for the relevant income year.
(3B)
An Order in Council under subsection (3) is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements).
(4)
For the purposes of subsection (3), a person must take into account financial arrangements to which subpart EW applies.
(5)
For the purposes of subsection (3),—
(a)
the value of any financial arrangement to be taken into account in determining whether the total value of all financial arrangements of which a person is the holder or issuer on any day exceeds $1,500,000 or such other amount as may be declared for the purposes of this section is,—
(i)
in the case of a fixed principal financial arrangement, the nominal or face value of the arrangement; and
(ii)
in the case of a variable principal debt instrument, the amount owing by or to the person under the arrangement on the relevant day; and
(iii)
in the case of a financial arrangement to which subpart EW applies, the value determined under that subpart; and
(b)
in the first income year for which income or expenditure is calculated under subsection (3) in respect of a financial arrangement that—
(i)
was acquired or issued by the person in a previous income year; and
(ii)
continues to be held or issued by the person at the end of the first income year for which income or expenditure is calculated under subsection (3),—
the amount of income or expenditure of the person in respect of that financial arrangement for that first income year is an amount calculated in accordance with the following formula:
a − b − c + d
where—
- a
is the sum of all amounts that would have been income derived by the person in respect of the financial arrangement if the straight-line method referred to in subsection (3) had been applied to the financial arrangement from the date it was acquired or issued by the person until the end of that first income year
- b
is the sum of all amounts that would have been expenditure incurred by the person in respect of the financial arrangement if the straight-line method referred to in subsection (3) had been applied to the financial arrangement from the date it was acquired or issued by the person until the end of that first income year
- c
is the sum of all amounts of income deemed to have been derived by the person in respect of the financial arrangement before the commencement of that first income year
- d
is the sum of all amounts deemed to have been expenditure incurred by the person in respect of the financial arrangement before the commencement of that first income year;—
and any amount so calculated is, if a positive amount, deemed to be income derived by the person in that first income year and, if a negative amount, deemed to be expenditure incurred by the person in that first income year.
(6)
Where it is not possible to calculate an amount to be deemed to be income or expenditure in respect of a financial arrangement using the yield to maturity method as provided for in subsection (2) or (in a case to which subsection (3) applies) the straight-line method as provided for in subsection (3), the amount that is deemed to be income or expenditure of the person in any income year is an amount calculated by the person—
(a)
using the method, if any, prescribed by the Commissioner for the financial arrangement in a determination made under section 90(1)(c) of the Tax Administration Act 1994:
provided that the Commissioner must accept an alternative method to the method prescribed in any such determination that has regard to the principles of accrual accounting, and—
(i)
conforms with commercially acceptable practice; and
(ii)
except to the extent that the Commissioner may otherwise allow under subsection (8), is adopted by the person and is or will be consistently applied in respect of all such financial arrangements for financial reporting purposes; and
(iii)
results in the allocation to each income year of amounts that are not materially different from the amounts that would be calculated, but for this proviso; and
(b)
in the absence of any such determination, by applying a method that meets the requirements of subparagraphs (i) and (ii) of the proviso to paragraph (a) and that results in the allocation to each income year of an amount that, having regard to the tenor of subsection (2), is fair and reasonable;—
and such amount of income or expenditure so allocated to each income year is income deemed to be derived or, as the case may be, expenditure deemed to be incurred by the person in the income year.
(7)
Notwithstanding subsections (2) and (6), the Commissioner must accept an alternative method for calculating the amount to be deemed to be income or expenditure of the person, in respect of a financial arrangement, to the methods provided for under subsections (2) and (6), if the alternative method has regard to market valuation, and—
(a)
conforms with commercially acceptable practice; and
(b)
except to the extent that the Commissioner may otherwise allow under subsection (8), is adopted by the person and is or will be consistently applied in respect of all such financial arrangements for financial reporting purposes; and
(c)
either—
(i)
the business of the person comprises dealing in such financial arrangements; or
(ii)
the financial arrangement is a forward or future contract for foreign exchange, or a futures contract; and
(d)
the market, the method, and the source of the information used to determine the market values have been approved by the Commissioner under a determination issued under section 90(1)(e) of the Tax Administration Act 1994; and
(e)
the person and any other person who is a holder (where the person is an issuer) or an issuer (where the person is a holder) of the financial arrangement are not associated persons;—
and such amount of income or expenditure so calculated is income deemed to be derived or, as the case may be, expenditure deemed to be incurred by the person in respect of the financial arrangement in the income year:
provided that where income or expenditure in respect of a financial arrangement has been calculated by a person under this subsection, income or expenditure in respect of that financial arrangement must, except as otherwise allowed under subsection (8), continue to be calculated on that basis by that person until the maturity, remittance, sale, or other transfer of the arrangement.
(8)
Where a method of calculating income or expenditure in respect of a financial arrangement fails to meet the requirements of paragraph (b) of the proviso to subsection (2) or subparagraph (ii) of the proviso to subsection (6)(a) or (7)(b) by virtue of the fact that the method is not or will not be consistently applied by a person in respect of all such financial arrangements for financial reporting purposes, that method is nevertheless deemed to meet the relevant one of those provisions where the method—
(a)
appropriately reflects the dominant purpose for which the person acquired or issued the financial arrangement (or each such arrangement); and
(b)
has been and will be consistently applied by the person in respect of the particular financial arrangement (or each such financial arrangement) for the purposes of the old financial arrangements rules for every income year during its term (except to the extent that the Commissioner approves or may approve a change in method under the circumstances or conditions specified in a determination under section 90(1)(f) of the Tax Administration Act 1994); and
(c)
is not adopted for purposes that include the purpose of tax avoidance; and
(d)
has been approved by the Commissioner for adoption in the circumstances applicable to the taxpayer either by notice to the taxpayer or in a determination issued under section 90 of the Tax Administration Act 1994.
(9)
Subsections (2) to (7) do not apply—
(a)
to a cash basis holder; or
(b)
in relation to a financial arrangement and a person, in any income year where section EZ 38 applies to that person and to that financial arrangement; or
(c)
in relation to a financial arrangement where—
(i)
the financial arrangement is held by a trustee upon trust for the management of compensation paid for personal injury where that compensation is paid under the Workers Compensation Act 1956 or the Accident Compensation Act 1972 or the Accident Compensation Act 1982 or the Accident Rehabilitation and Compensation Insurance Act 1992 or the Accident Compensation Act 2001 or an order of court; and
(ii)
the trustee is, or if it were a natural person would be, a cash basis holder in respect of the financial arrangement.
(10)
For the purposes of this section, the Commissioner may determine whether and to what extent any issuer or class of issuers is not required to comply with this section in relation to expenditure incurred or income derived in respect of any class of financial arrangements, having regard to—
(a)
the nature and amount of the expenditure incurred or income derived by the issuer or class of issuers in respect of financial arrangements of that class; and
(b)
the costs of the issuer or class of issuers in complying with this section in relation to the class of financial arrangements; and
(c)
whether, in respect of that issuer or class of issuers and that class of financial arrangements, the application of the discretion given to the Commissioner under this subsection would result in a material difference in the amount of deductions or income allocated to any income year, in relation to the amount that would have been allocated had the discretion not been exercised.
(11)
The Commissioner may at any time cancel any determination made in respect of any person or class of persons under subsection (10).
Compare: 2004 No 35 s EZ 32
| Legislation Act 2019 requirements for secondary legislation made under this section | ||||
| Publication | PCO must publish it on the legislation website and notify it in the Gazette | LA19 s 69(1)(c) | ||
| Presentation | The Minister must present it to the House of Representatives | LA19 s 114, Sch 1 cl 32(1)(a) | ||
| Disallowance | It may be disallowed by the House of Representatives | LA19 ss 115, 116 | ||
| This note is not part of the Act. | ||||
Section EZ 35(3)(c): amended, on 2 June 2016, by section 43 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EZ 35(3B): inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
Section EZ 35(9)(c)(i): amended, on 21 December 2010, by section 189 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
EZ 36 Excepted financial arrangement that is part of financial arrangement
The amount of the income deemed to be derived or the expenditure deemed to be incurred by a person in respect of a financial arrangement under the old financial arrangements rules does not include the amount of any income, gain or loss, or expenditure, that is solely attributable to an excepted financial arrangement that is part of the financial arrangement.
Compare: 2004 No 35 s EZ 33
EZ 37 Cash basis holder
(1)
Subject to this section, a natural person is a cash basis holder in respect of financial arrangements held by that person in any income year, where—
(a)
either—
(i)
the income derived by that person in that income year in respect of those financial arrangements, calculated in accordance with subpart EW or section EZ 35 or EZ 38, as the case may be, does not exceed $70,000 (or such greater amount as the Governor-General may by Order in Council declare (see subsection (10))); or
(ii)
the total value of financial arrangements held by the person in the income year does not exceed at any time in the income year $600,000 (or such greater amount as the Governor-General may by Order in Council declare (see subsection (10))), the value in respect of each financial arrangement being,—
(A)
in the case of a fixed principal financial arrangement, the greater of the acquisition price of the arrangement or the nominal or face value of the arrangement; and
(B)
in the case of a variable principal debt instrument, the amount of money owing to the person according to the arrangement; and
(C)
in the case of a financial arrangement to which subpart EW applies, the value determined under that subpart; and
(b)
the difference between the following amounts does not exceed $20,000 (or such greater amount as the Governor-General may by Order in Council declare (see subsection (10))):
(i)
the amount of income that would be calculated by the person for the income year—
(A)
using, at the option of the person, either the yield to maturity method or the straight-line method referred to in section EZ 35(3) (regardless of whether or not the person is entitled or has opted to use that method) or in accordance with subpart EW, as the case may be, or, where it is not possible to calculate an amount of income or expenditure in respect of the financial arrangements by using either of those methods, an alternative method approved by the Commissioner; and
(B)
under either section EW 31 or EZ 38—
in respect of financial arrangements held by the person at the end of the income year; and
(ii)
the amount of income that would be calculated by the person for the income year in respect of financial arrangements held by the person at the end of the income year if the person were a cash basis holder.
(2)
For the purposes of subsection (1), a person must take into account financial arrangements to which subpart EW applies.
(3)
Notwithstanding anything in subsection (1), the Commissioner may,—
(a)
where the Commissioner is satisfied, having regard to the tenor of section EZ 35(2), that treatment of a class of financial arrangements other than under section EZ 35 results in a fair and reasonable allocation of income or expenditure among income years, deem natural persons to be cash basis holders in respect of such financial arrangements; and
(b)
where the Commissioner is satisfied that a class of financial arrangements has been structured and promoted with the objective of postponing any liability to income tax which would have arisen had those financial arrangements not been so structured, deem natural persons not to be cash basis holders in respect of such financial arrangements.
(4)
In any income year where a person who was a cash basis holder in the previous income year ceases to be a cash basis holder, the person must take into account, in calculating income or deductions for the income year, an accruals basis adjustment, in respect of every financial arrangement (other than arrangements that are already dealt with according to section EZ 35 or in respect of which the Commissioner has exercised the discretion given under subsection (3)(a)) acquired in a previous income year and held by the person at the end of the income year equal to an amount calculated in accordance with the following formula:
a − b − c + d
where—
- a
is the sum of all amounts which would have been income derived by the person in respect of the financial arrangement from the date it was acquired to the end of the income year if the person had not been a cash basis holder at any time during that period
- b
is the sum of all amounts that would have been deductions of the person in respect of the financial arrangement from the date the financial arrangement was acquired to the end of the income year if the person had not been a cash basis holder at any time during the period
- c
is the sum of all amounts of income of the person in respect of the financial arrangement since it was acquired to the end of the previous income year
- d
is the sum of all amounts that have been deductions of the person in respect of the financial arrangement since it was acquired to the end of the previous income year;—
and the person must not take into account in the income year any other amount in respect of any such financial arrangement except those calculated under the accruals basis adjustment.
(5)
In any income year where a person who was not a cash basis holder in the previous income year becomes a cash basis holder, that person may take into account, in calculating income or deductions for the income year, a cash basis adjustment, in respect of every financial arrangement (other than arrangements already treated on a cash basis) acquired in a previous income year and held by the person at the end of the income year, equal to an amount calculated in accordance with the following formula:
a − b − c + d
where—
- a
is the sum of all amounts which would have been income derived by the person in respect of the financial arrangement from the date it was acquired to the end of the income year if the person had been a cash basis holder in respect of the financial arrangement for the whole of that period
- b
is the sum of all amounts which would have been deductions of the person in respect of the financial arrangement from the date the financial arrangement was acquired to the end of the income year if the person had been a cash basis holder in respect of the financial arrangement for the whole of the period
- c
is the sum of all amounts treated as income of the person in respect of the financial arrangement since it was acquired to the end of the previous income year
- d
is the sum of all amounts that have been deductions of the person in respect of the financial arrangement since it was acquired to the end of the previous income year;—
and, where the cash basis adjustment has been taken into account, the person must not take into account any other amount in respect of any such financial arrangement in the income year except those calculated under the cash basis adjustment:
provided that the person is deemed not to be a cash basis holder in relation to any financial arrangement in respect of which the person does not take into account a cash basis adjustment.
(6)
The amount of the accruals basis adjustment or the cash basis adjustment in respect of any financial arrangement and any income year is,—
(a)
where it is a positive amount, income deemed to be derived by the holder in the income year; and
(b)
where it is a negative amount, deemed to be a deduction of the holder in the income year.
(7)
For the purposes of subsection (1), but subject to subsections (8) and (9),—
(a)
all income in respect of financial arrangements that is trustee income or beneficiary income under the trust rules is disregarded, as is the value of all such financial arrangements producing such income; and
(b)
no person who holds such financial arrangements is a cash basis holder in relation to such financial arrangements.
(8)
Subsection (7) does not apply to financial arrangements held on a bare trust, or to income in respect of such financial arrangements, and the financial arrangements held and the income derived by the trustees is treated as being held or, as the case may be, derived by a beneficiary of the trust to the extent of the beneficiary’s share of the beneficial interest in the financial arrangement.
(9)
Where a deceased person was at the time of his or her death a cash basis holder,—
(a)
nothing in subsection (7) or in any requirement under this section that a cash basis holder be a natural person, in respect of the income year in which the death occurred and in each of the 4 immediately succeeding income years, applies to prevent the trustee of the estate of the deceased person from being a cash basis holder for the purposes of this Act in respect of financial arrangements issued or held by the estate, where the estate would otherwise qualify as a cash basis holder under this section; but
(b)
if at any time during those income years the estate ceases to so otherwise qualify as a cash basis holder, it does not again qualify to become a cash basis holder by operation of paragraph (a);—
and for the purposes of subsections (4) and (5), any trustee of an estate who is a cash basis holder under this subsection is deemed to be the same person as the deceased cash basis holder.
(10)
An Order in Council under subsection (1) is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements).
(10)
[Repealed]Compare: 2004 No 35 s EZ 34
| Legislation Act 2019 requirements for secondary legislation made under this section | ||||
| Publication | PCO must publish it on the legislation website and notify it in the Gazette | LA19 s 69(1)(c) | ||
| Presentation | The Minister must present it to the House of Representatives | LA19 s 114, Sch 1 cl 32(1)(a) | ||
| Disallowance | It may be disallowed by the House of Representatives | LA19 ss 115, 116 | ||
| This note is not part of the Act. | ||||
Section EZ 37(1)(a)(i): amended, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
Section EZ 37(1)(a)(ii): amended, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
Section EZ 37(1)(b): amended, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
Section EZ 37(10): inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
Section EZ 37(10): repealed, on 1 April 2008, by section 15(1) of the Taxation (Limited Partnerships) Act 2008 (2008 No 2).
EZ 38 Income and expenditure where financial arrangement redeemed or disposed of
(1)
Subject to subsection (2), where, in relation to any person, a financial arrangement matures or is remitted (other than by way of being written off as a bad debt), sold, or otherwise transferred by the person in any income year, the amount of the base price adjustment in relation to that income year, that person, and that financial arrangement is an amount calculated in accordance with the following formula:
a − (b + c)
where—
- a
is,—
(i)
in the case of a holder, the sum of—
(A)
the amount of all consideration that has been paid, and all further consideration that has or will become payable, to the person; and
(B)
any amounts that have been remitted by the person and that are not included in subsubparagraph (A):
(ii)
in the case of an issuer, the sum of—
(A)
the amount of all consideration that has been paid, and all further consideration that has or will become payable, by the person; and
(B)
the amount paid by the person associated with the issuer if the issuer is the debtor of a debt to which section EZ 41 applies—
in relation to the financial arrangement
- b
is the acquisition price of the financial arrangement in relation to the person
- c
is,—
(i)
in the case of a holder, all amounts that are income derived, less the aggregate of amounts of expenditure deemed to be incurred under section EZ 35 or EZ 42 or deemed to be a deduction under section EZ 37 by the person in respect of the financial arrangement in all previous income years since the acquisition of the financial arrangement; and
(ii)
in the case of an issuer, all amounts of expenditure incurred in respect of the financial arrangement in all previous income years since the issue of the financial arrangement, less the aggregate of—
(A)
all amounts that are income deemed to be derived under section EZ 35 or EZ 37 or EZ 42 by the person in respect of the financial arrangement in all previous income years since the issue of the financial arrangement; and
(B)
all amounts that are dividends derived by the person from the release of the obligation to repay the amount lent; and
(C)
all amounts that are income of the person under section CF 2 in respect of the financial arrangement.
(2)
Where, in relation to a financial arrangement, a person is a cash basis holder, and the financial arrangement matures or is remitted (other than by way of being written off as a bad debt), sold, or otherwise transferred by that person in any income year, the amount of the cash base price adjustment in relation to that income year, that person, and that financial arrangement is an amount calculated in accordance with the following formula:
a − (b + c)
where—
- a
is the sum of all consideration derived in respect of the financial arrangement by the person, and amounts remitted by the person
- b
is the acquisition price of the financial arrangement
- c
is the sum of all amounts that are income derived by the person, less the aggregate of amounts of expenditure deemed to be incurred under sections EZ 35 and EZ 42 or deemed to be a deduction under section EZ 37.
(3)
Subject to subsection (5), the amount of the base price adjustment in relation to any financial arrangement and any income year is,—
(a)
in relation to a holder,—
(i)
where it is a positive amount, deemed to be income derived by the holder in the income year; and
(ii)
where it is a negative amount, deemed to be a deduction of the holder in the income year:
(b)
in relation to an issuer,—
(i)
where it is a positive amount, deemed to be expenditure incurred by the issuer in the income year; and
(ii)
where it is a negative amount, deemed to be income derived by the issuer in the income year.
(4)
Subject to subsection (5), the amount of the cash base price adjustment in relation to any financial arrangement and any income year is,—
(a)
where it is a positive amount, deemed to be income derived by the cash basis holder in the income year; and
(b)
where it is a negative amount, deemed to be a deduction of the cash basis holder in the income year.
(5)
Notwithstanding anything in section EZ 50(3), where a financial arrangement is sold or otherwise transferred by a person for a consideration influenced by—
(a)
a decline in the creditworthiness of the issuer between the date of acquisition of the financial arrangement by the holder and the date of sale or other transfer; or
(b)
an increase in the possibility that the issuer may fail to meet any obligations under the financial arrangement between the date of acquisition of the financial arrangement by the holder and the date of sale or other transfer; or
(c)
the occurrence of any event reducing or cancelling the obligations of an issuer under the financial arrangement,—
all amounts that would have been received but for the factors listed above are deemed, in calculating the base price adjustment or cash base price adjustment, to have become payable to the holder:
provided that this subsection does not apply where the business of the holder comprises holding or dealing in financial arrangements of that class, and the issuer of the financial arrangement and the holder are not associated persons.
(6)
Where—
(a)
a person has been released from the obligation to make payment of an amount—
(i)
under a financial arrangement by operation of section 304 of the Insolvency Act 2006; or
(ii)
under any of the Inland Revenue Acts (and whether the relief arises through remission, waiver, or cancellation); or
(iii)
under a social assistance suspensory loan by virtue of that person satisfying the conditions referred to in subsection (8)(c)(ii); and
(b)
that amount would, but for this subsection, be taken into account in determining the income derived by or expenditure incurred by that person under the old financial arrangements rules,—
that amount is, for the purpose of determining the income derived by or expenditure incurred by that person, and notwithstanding the old financial arrangements rules (other than this subsection), deemed to have been paid under that financial arrangement when the obligation to make payment has been so released.
(7)
Notwithstanding anything in this Act, where and to the extent that a person (in this subsection called the surety) suffers expenditure or a loss under a security arrangement and the expenditure or loss, in whole or in part, is due to—
(a)
the actions of; or
(b)
the occurrence, or failure to occur, of an event that was potentially or actually subject to the influence of—
the surety or any person with whom the surety was, during the term of the security arrangement, an associated person, no deduction is allowed to the surety or any person in relation to the expenditure or loss.
(8)
In this section,—
(a)
the expression holder, in relation to a financial arrangement, includes a person who ceases to be a holder of the financial arrangement as provided in subsection (1) or (2); and
(b)
the expression issuer, in relation to a financial arrangement, includes a person who ceases to be an issuer of the financial arrangement as provided in subsection (1); and
(c)
the expression social assistance suspensory loan means a loan—
(i)
made by a department or instrument of the Executive Government of New Zealand; and
(ii)
under whose terms the issuer’s liability may be remitted in whole or in part if the issuer satisfies conditions intended to promote a social policy objective of the Government of New Zealand; and
(iii)
of a kind that is declared by the Governor-General by Order in Council to be a social assistance suspensory loan; and
(d)
a financial arrangement is deemed to be remitted where—
(i)
the issuer has been discharged from making all remaining payments under that financial arrangement without fully adequate consideration; or
(ii)
the issuer has been released from making all remaining payments under that financial arrangement by the operation of the Insolvency Act 2006 or the Companies Act 1993 or the laws of any country or territory other than New Zealand, or by any deed or agreement of composition with its creditors; or
(iii)
all of the remaining payments under the financial arrangement have become irrecoverable or unenforceable by action through the lapse of time; or
(iv)
the financial arrangement is a debt that is disposed of at a discount to a person associated with the debtor under the circumstances described in section EZ 41; and
(e)
where a person ceases to be a New Zealand resident any financial arrangement in relation to which that person is an issuer or a holder is deemed, in relation to the person, to have been transferred for its market value at that date.
(9)
An Order in Council under subsection (8)(c)(iii) is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements).
Compare: 2004 No 35 s EZ 35
| Legislation Act 2019 requirements for secondary legislation made under this section | ||||
| Publication | PCO must publish it on the legislation website and notify it in the Gazette | LA19 s 69(1)(c) | ||
| Presentation | The Minister must present it to the House of Representatives | LA19 s 114, Sch 1 cl 32(1)(a) | ||
| Disallowance | It may be disallowed by the House of Representatives | LA19 ss 115, 116 | ||
| This note is not part of the Act. | ||||
Section EZ 38(6)(a)(iii): amended (with effect on 1 April 2008), on 6 October 2009, by section 197(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EZ 38(8)(d)(ii): amended, on 5 December 2013, by section 14 of the Companies Amendment Act 2013 (2013 No 111).
Section EZ 38(8)(d)(iv): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EZ 38(9): inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
EZ 39 Forgiveness of debt
(1)
In determining the income or expenditure under the base price adjustment in section EZ 38, an amount owing under a debt, including an amount accrued and unpaid at the time of the forgiveness, is treated as paid when forgiven under the old financial arrangements rules if—
(a)
the creditor is a natural person who forgives the debt, whether in a will or otherwise, because of the natural love and affection the creditor has for the debtor; or
(b)
the creditor is a natural person who forgives the debt owing by a trust, whether in a will or otherwise, and the trust was established primarily to benefit—
(i)
a natural person for whom the creditor has natural love and affection; or
(ii)
an organisation or a trust whose income is exempt under section CW 41 or CW 42; or
(iii)
a natural person that meets paragraph (b)(i) and an organisation or a trust that meets paragraph (b)(ii).
(2)
Subsection (3) applies when a trustee makes a distribution, including a distribution of beneficiary income, to a beneficiary that is neither—
(a)
a natural person for whom the creditor has natural love and affection; nor
(b)
an organisation or a trust whose income is exempt under section CW 41 or CW 42.
(3)
Subsection (4) does not apply when a trustee of a trust (trust A) to which subsection (1)(b) applies makes a distribution to another trust (trust B) if—
(a)
trust B is a trust described in subparagraph (i), (ii), or (iii) of subsection (1)(b); and
(b)
subsection (1)(b) would apply to trust B if, at the time the distribution is made, the creditor of trust A were a creditor of trust B, and the creditor had forgiven a debt owing by trust B.
(4)
A distribution to the beneficiary is income derived by the trustee—
(a)
in the income year in which the distribution is made; and
(b)
to the extent that the distribution is less than or equal to the total amount of debts forgiven by the creditor.
(5)
If subsection (4) applies, the income derived by the trustee is not income for the purposes of the beneficiary income definition.
(6)
For the purposes of subsection (4), the total amount of debts forgiven by the creditor is reduced by the amount of each distribution that is income derived by the trustee.
(7)
Subsection (4) applies to a distribution made on or after 20 May 1999.
Compare: 2004 No 35 s EZ 36
EZ 40 Accrued income written off
(1)
A deduction is allowed to a person for an amount written off by the person as a bad debt in respect of a financial arrangement where and to the extent that—
(a)
the person derives income in respect of the financial arrangement under any of sections EZ 35, EZ 37(4), EZ 38, and EZ 42; and
(b)
the amount written off is attributable to that income.
(2)
A deduction is allowed to a person for an amount written off by the person as a bad debt in respect of a financial arrangement (not being an amount allowed as a deduction under subsection (1)) where—
(a)
the person—
(i)
carries on a business which comprises holding or dealing in such financial arrangements; and
(ii)
is not associated with the person owing the amount written off; or
(b)
the financial arrangement is a trade credit and the person carries on a business of dealing in the goods or services for which the trade credit is a debt.
(3)
Where a person receives a security payment in relation to a loss and a deduction is denied to the person for the loss other than under this subsection, the person is allowed a deduction for the loss no greater than the amount of the security payment.
(4)
A deduction for bad debts is allowed under this section only where the requirements of section DB 31(1) and (5) have been met.
(5)
A deduction for a share loss (within the meaning of section DB 24) is allowed under subsection (3) only where the requirements of section DB 24 have been met.
Compare: 2004 No 35 s EZ 37
EZ 41 Disposal of debt to associate of debtor
(1)
This section applies to a financial arrangement that is a debt which is disposed of at a discount to a person associated with the debtor on or after 20 May 1999.
(2)
A creditor is treated as having disposed of a debt at a discount if the debt is disposed of to a person associated under the 1988 version provisions with the debtor for 80% or less of the market value of the debt.
(3)
Subsection (4) applies to a debt that is disposed of if its market value was influenced by—
(a)
the decline in the original debtor’s creditworthiness between the date the debt was entered into and the date of disposal; or
(b)
an increase in the possibility that the original debtor would not pay an amount owing under the debt between the date the debt was entered into and the date of disposal; or
(c)
an event that occurred which reduced or cancelled the original debtor’s obligations under the debt.
(4)
For the purposes of subsection (2), a debt’s market value is determined as if its market value were not influenced by a factor listed in subsection (3)(a) to (c).
(5)
If a debt is disposed of at a discount to a person associated with the debtor, the associated person is treated as having provided the debtor with an interest free loan for the amount paid for the debt.
(6)
If the debtor subsequently repays the person associated with the debtor more than the amount the associated person paid for the debt, the excess amount paid by the debtor is—
(a)
a deduction to the debtor; and
(b)
income of the person associated with the debtor.
Compare: 2004 No 35 s EZ 38
Section EZ 41 heading: amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EZ 41(1): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EZ 41(2): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EZ 41(3): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EZ 41(3)(a): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EZ 41(3)(b): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EZ 41(5): amended (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EZ 42 Post facto adjustment
(1)
A financial arrangement is subject to the provisions of this section where—
(a)
any of the amount or amounts payable under the financial arrangement are determined in the terms of the financial arrangement, as to whole or part, at the discretion of either the issuer or the holder, or both of them, or at the discretion of any other person where either the issuer or the holder and the other person are associated persons; and
(b)
the change in the amount or amounts payable under the financial arrangement upon the exercise of a discretion as provided for in paragraph (a) does not reflect changes in economic, commodity, industrial, or financial indices or banking or general commercial rates; and
(c)
the making of such financial arrangements is not generally accepted commercial practice; and
(d)
the effect of the arrangement is to defeat the intent and application of the old financial arrangements rules.
(2)
Where a financial arrangement is subject to the provisions of this section, both the holder and the issuer of the financial arrangement are required to calculate a post facto adjustment in respect of the following income years:
(a)
the income year in which the person ceases to be a holder or an issuer, as the case may be, in respect of the financial arrangement; and
(b)
where the person has not ceased to be a holder or an issuer of the financial arrangement at the end of the fifth income year following the income year of its issue or acquisition by the person, in that fifth income year; and
(c)
until the person ceases to be an issuer or a holder in respect of the financial arrangement, in every fifth income year succeeding the income year in which the post facto adjustment was last required to be made under this section.
(3)
In order to calculate the post facto adjustment, a person must,—
(a)
having regard to all amounts specified in section EZ 35(1) which have been paid or are payable, in respect of the financial arrangement, since acquisition or issue of the financial arrangement by the person to the end of the income year in which the post facto adjustment applies, calculate amounts of income or expenditure under the arrangement for each income year using the yield to maturity method as prescribed in a determination made by the Commissioner for the purposes of section EZ 35(2):
provided that where the post facto adjustment is made at a time determined by subsection (2)(b) or (c), the person is, for the purpose of the post facto adjustment calculation, deemed to have transferred the financial arrangement for an amount equal to its market value on the last day of the income year; and
(b)
recalculate the income tax liability for each income year using the amounts of income or expenditure calculated under paragraph (a) in substitution for the amounts of income or expenditure previously calculated in respect of the financial arrangement for each income year.
(4)
Where a person has been required to calculate the post facto adjustment, the person is required to make a special return in respect of the post facto adjustment in the form required by the Commissioner, no later than the time at which that person is required to file an annual return for the income year in which the post facto adjustment is made.
(5)
Despite the time bar, the Commissioner must amend the person’s assessment for the income years to which the post facto adjustment relates in accordance with the alterations to that income or expenditure as calculated by the post facto adjustment.
Compare: 2004 No 35 s EZ 39
EZ 43 Variable principal debt instruments
For the purposes of the old financial arrangements rules, where a person is a party to a variable principal debt instrument on the implementation date, the person is deemed to have acquired or, as the case may be, issued it on that day for a consideration equal to the amount of money that would be payable to the holder on that day if the amount or amounts payable under the financial arrangement were due and payable on that day.
Compare: 2004 No 35 s EZ 40
EZ 44 Relationship with rest of Act
(1)
Notwithstanding any other provision in this Act, income or expenditure in an income year in respect of a financial arrangement under the old financial arrangements rules is calculated under those rules.
(2)
Expenditure incurred under the old financial arrangements rules is not included in—
(a)
the cost of trading stock, for small taxpayers:
(b)
the cost of revenue account property:
(c)
the cost of livestock:
(d)
the cost of bloodstock:
(e)
the cost of acquiring a film or a film right:
(f)
film production expenditure:
(g)
the cost of timber:
(h)
petroleum exploration expenditure or petroleum development expenditure.
(3)
Where—
(a)
property is transferred under a financial arrangement; and
(b)
the property or the consideration given for the property is relevant under any provision of this Act other than the old financial arrangements rules for the purpose of determining any amount of income or deduction of a person,—
the property is treated for the purpose of that provision as having been transferred under the financial arrangement for an amount equal to the acquisition price of the property.
Compare: 2004 No 35 s EZ 41
EZ 45 Application of old financial arrangements rules
The old financial arrangements rules do not apply—
(a)
in relation to a person and a financial arrangement, where the financial arrangement was issued or acquired by the person before the implementation date for the financial arrangement; or
(b)
in relation to a financial arrangement, where the issue, in the case of an issuer, or acquisition, in the case of a holder, of the financial arrangement is under a binding contract in existence before the implementation date in relation to that financial arrangement:
provided that this paragraph does not apply in relation to a rollover, extension, or advance provided for before the implementation date in relation to the financial arrangement where the rollover, extension, or advance occurs on or after 1 April 1990; or
(c)
in relation to a person and a financial arrangement, where the person acquired the financial arrangement in accordance with a relationship agreement and the transferor, in relation to the financial arrangement, was a person to whom paragraph (a) or (b) applied; or
(d)
in relation to a financial arrangement, where the issue, in the case of an issuer, or acquisition, in the case of a holder, of the financial arrangement is under and in terms of a rollover, extension, or advance provided for before the implementation date in relation to the financial arrangement and the rollover, extension, or advance occurs before 1 April 1990; or
(e)
to the determination of—
(i)
income of or expenditure incurred by a person not resident in New Zealand in relation to a financial arrangement where and to the extent that the financial arrangement does not relate to a business carried on by that person through a fixed establishment in New Zealand; or
(ii)
non-resident passive income; or
(f)
in relation to a financial arrangement to the extent that the income or expenditure incurred by a person in respect of the financial arrangement consists of interest payable to or by the Commissioner under Part 7 of the Tax Administration Act 1994, being interest payable in relation to the income tax liability of the taxpayer in respect of the 1994–95 income year or any subsequent income year.
Compare: 2004 No 35 s EZ 42
EZ 46 Election to treat short term trade credit as financial arrangement
(1)
For the purposes of the old financial arrangements rules, a taxpayer may elect by notice given in accordance with subsection (2) to treat short term trade credits specified in subsection (4) as financial arrangements.
(2)
Notice of an election under subsection (1) in relation to an income year must be given to the Commissioner within the time within which a vendor or a purchaser is required under section 37 of the Tax Administration Act 1994 to furnish a return of income for the income year to which the election is to apply.
(3)
An election by the taxpayer under subsection (1) may be revoked by notice given to the Commissioner during any income year and the revocation applies only to short term trade credits created on or after the commencement of the subsequent income year.
(4)
An election under subsection (1) may be made in respect of—
(a)
all short term trade credits of the taxpayer; or
(b)
1 or more classes of short term trade credits of the taxpayer that the taxpayer defines by reference either—
(i)
to the particular currency in which the short term trade credit is denominated; or
(ii)
to the term of the short term trade credit; or
(iii)
to both the term and the particular currency in which the short term trade credit is denominated.
Compare: 2004 No 35 s EZ 43
EZ 47 Election to continue to treat certain excepted financial arrangements as financial arrangements
(1)
A person may elect to continue to treat all excepted financial arrangements under any of paragraphs (p), (q), (r), (s), (t), (u), and (v) of the definition of excepted financial arrangement as financial arrangements if the person is a holder or an issuer of an arrangement that was entered into on or after the person’s last balance date and before 20 May 1999.
(2)
A person elects to treat their excepted financial arrangements as financial arrangements by returning income derived and expenditure incurred from the elected arrangements under the old financial arrangements rules in their return of income.
(3)
A financial arrangement that is an excepted financial arrangement under any of paragraphs (p), (q), (r), (s), (t), (u), and (v) of the definition of excepted financial arrangement is not an excepted financial arrangement for the holder or issuer who elects to treat it as a financial arrangement under subsection (1).
Compare: 2004 No 35 s EZ 44
EZ 48 Definitions
For the purposes of the old financial arrangements rules, each of the following terms has the meaning given to it, despite any other meaning given to the term in section YA 1 for any other purpose and unless the context otherwise requires:
acquisition price,—
(a)
in relation to a financial arrangement and a holder of the financial arrangement, means an amount calculated in accordance with the following formula:
y − z
where—
- y
is the core acquisition price of the financial arrangement
- z
is the smaller of—
(i)
the amount of consideration provided in relation to the financial arrangement by the holder that is not contingent on the implementation of the financial arrangement; and
(ii)
an amount equal to 2% of the core acquisition price of the financial arrangement; and
(b)
in relation to a financial arrangement and an issuer of the financial arrangement, means an amount calculated in accordance with the following formula:
y + z
where—
- y
is the core acquisition price of the financial arrangement
- z
is the smaller of—
(i)
the amount of consideration provided in relation to the financial arrangement by the issuer that is not contingent on the implementation of the financial arrangement; and
(ii)
an amount equal to 2% of the core acquisition price of the financial arrangement
agreement for the sale and purchase of property, in relation to a person, means a financial arrangement that is an agreement (whether conditional or unconditional) entered into by the person to purchase or otherwise acquire or sell or otherwise dispose of property; but does not include an option, a specified option, or a futures contract
amount of all consideration, in the definition of core acquisition price, in relation to a person and to an agreement for the sale and purchase of property or a specified option, where all or part of the consideration provided to the holder is property, means the aggregate of the amount calculated in respect of that property in the manner provided in subparagraph (i) or (ii) of item “w”
in paragraph (c) of the definition of core acquisition price and any consideration provided to the holder in relation to the financial arrangement, other than the property provided to the holder
core acquisition price, in relation to a financial arrangement, means,—
(a)
where section EZ 50 applies, the amount determined under that section; and
(b)
where the financial arrangement is a trade credit, an amount calculated in accordance with the following formula:
u + v
where—
- u
is—
(i)
the cash price of the goods or services to which the trade credit relates (referred to in this item and item
“v”
as the specified goods or services), as determined by section 5 of the Credit Contracts and Consumer Finance Act 2003; or(ii)
if subparagraph (i) is not applicable, the lowest price at which the specified goods or services could be purchased under a short term trade credit; or
(iii)
if subparagraphs (i) and (ii) are not applicable, the discounted value of the amounts payable for the specified goods or services, as determined under a determination made by the Commissioner under section 90(1)(h) of the Tax Administration Act 1994
- v
is,—
(i)
in relation to a holder of the financial arrangement, the amount of all consideration provided by the holder in relation to the financial arrangement, other than the specified goods or services; or
(ii)
in relation to an issuer of the financial arrangement, the amount of all consideration provided to the issuer in relation to the financial arrangement, other than the specified goods or services; and
(c)
where the financial arrangement is an agreement for the sale and purchase of property (not being an agreement for the sale and purchase of property that has lapsed or otherwise does not proceed) or a specified option (not being a specified option that has lapsed or otherwise does not proceed), an amount calculated in accordance with the following formula:
w + x
where—
- w
is—
(i)
the lowest price (determined in accordance with section EZ 49, if the consideration payable under the relevant financial arrangement is denominated in a foreign currency) that the parties would have agreed upon for the property that is the subject of the agreement for the sale and purchase of property or the specified option (referred to in this item and item
“x”
as the specified property) at the time at which the agreement for the sale and purchase of property was entered into or the specified option was granted on the basis of payment in full at the time at which the first right in the specified property is to be transferred; or(ii)
if subparagraph (i) is not applicable, the discounted value of the amounts payable for the specified property as determined under a determination made by the Commissioner under section 90(1)(h) of the Tax Administration Act 1994
- x
is,—
(i)
in relation to the holder of the financial arrangement, the amount of all consideration provided by the holder in relation to the financial arrangement other than the specified property; or
(ii)
in relation to an issuer of the financial arrangement, the amount of all consideration provided to the issuer in relation to the financial arrangement other than the specified property; and
(d)
where the financial arrangement is a hire purchase agreement and the holder is the first holder in relation to the hire purchase agreement, either—
(i)
an amount calculated in accordance with the following formula:
a + b + c
where—
- a
is—
(A)
the cash price of the hire purchase asset (as cash price is defined in section 5 of the Credit Contracts and Consumer Finance Act 2003); or
(B)
if subsubparagraph (A) of this item is not applicable, the lowest price at which the hire purchase asset could be purchased under a short term trade credit at the time of commencement of the hire purchase agreement
- b
is the amount of all expenditure or loss incurred by the holder in preparing and installing the hire purchase asset for use to the extent to which any such expenditure or loss is not taken into account in determining the amount of item
“a”
- c
is,—
(A)
in relation to the holder, the amount of all consideration provided by the holder in relation to the hire purchase agreement, other than the hire purchase asset and the expenditure or loss referred to in item
“b”
; or(B)
in relation to the issuer, the amount of all consideration provided to the issuer in relation to the hire purchase agreement, other than the hire purchase asset and the expenditure or loss referred to in item
“b”
; or
(ii)
if subparagraph (i) is not applicable, or if either the holder or the issuer in relation to the hire purchase agreement applies to the Commissioner for a specific determination, an amount calculated in accordance with the following formula:
d + e
where—
- d
is—
(A)
the discounted value of all hire purchase payments payable under the hire purchase agreement, as determined under a determination made by the Commissioner under section 90(1)(i) of the Tax Administration Act 1994; or
(B)
where either the holder or the issuer in relation to the hire purchase agreement applies to the Commissioner for a specific determination, an amount determined by the Commissioner in relation to that application (and the amount so determined applies for both the holder and the issuer to the exclusion of any determination made in respect of that hire purchase agreement under subsubparagraph (A) of this item)
- e
is,—
(A)
in relation to the holder, the amount of all consideration provided by the holder in relation to the hire purchase agreement, other than the hire purchase asset and any expenditure or loss incurred by the holder in preparing and installing the hire purchase asset for use; or
(B)
in relation to the issuer, the amount of all consideration provided to the issuer in relation to the hire purchase agreement, other than the hire purchase asset and any expenditure or loss incurred by the holder in preparing and installing the hire purchase asset for use; and
(e)
where none of paragraphs (a) to (d) applies to a financial arrangement,—
(i)
in relation to a holder of the financial arrangement, the value of all consideration provided by the holder in relation to the financial arrangement; or
(ii)
in relation to an issuer of the financial arrangement, the value of all consideration provided to the issuer in relation to the financial arrangement
excepted financial arrangement, other than an arrangement listed in paragraphs (p), (q), (r), (s), (t), (u), and (v) that a taxpayer has treated as a financial arrangement in a return of income already filed, means any of the following arrangements
(a)
an annuity for a term contingent upon human life or an annuity for a term not contingent on human life to which section EY 8(2)(c) applies:
(b)
an insurance contract or membership of a superannuation scheme:
(c)
a debenture to which section FA 2 applies:
(d)
a short term trade credit, unless the purchaser or vendor has elected in accordance with section EZ 46 to treat the short term trade credit as a financial arrangement to which the old financial arrangements rules apply:
(e)
a specified preference share to which section FZ 1 of the Income Tax Act 2004 applies:
(f)
in relation to a holder or an issuer, shares, other than withdrawable shares, or an option to buy shares, other than withdrawable shares, where those shares were or that option was acquired or issued by the person before 8.00 pm New Zealand Standard Time on 18 June 1987:
(g)
in relation to a holder or an issuer, shares, other than withdrawable shares, or an option to acquire or to sell or otherwise dispose of shares, other than withdrawable shares, where those shares were or that option was acquired or issued by the person after 8.00 pm New Zealand Standard Time on 18 June 1987:
(h)
a lease:
(i)
a bet on any—
(i)
race, as defined in section 5(1) of the Racing Industry Act 2020; or
(ii)
sporting event under a sports-betting system administered under Part 4 of the Racing Industry Act 2020; or
(iii)
gambling, including a New Zealand lottery, as those terms are defined in section 4(1) of the Gambling Act 2003:
(j)
in relation to an issuer or a holder, an option to acquire or to sell or otherwise dispose of property (other than an interest in a financial arrangement) where the option was issued or acquired by the person after 8.00 pm New Zealand Standard Time on 18 June 1987 for private or domestic purposes only:
(k)
a short term agreement for the sale and purchase of property:
(l)
a short term option:
(m)
a private or domestic agreement for the sale and purchase of property:
(n)
a farm-out arrangement:
(o)
a hire purchase agreement, as defined in section YA 1, but including an agreement that would be a hire purchase agreement but for the exclusion in paragraph (f) of the definition of that term, entered into before 1 April 1993, or any assignment of such an agreement:
(p)
a loan that is interest free, repayable on demand, and denominated in New Zealand dollars, for the lender of the loan only:
(q)
an employment contract:
(r)
an interest in a group investment fund:
(s)
an interest in a partnership or a joint venture:
(t)
travellers’ cheques:
(u)
a warranty for goods or services:
(v)
a hire purchase agreement for livestock or bloodstock entered into on or after 1 April 1993
financial arrangement means—
(a)
any debt or debt instrument; and
(b)
any arrangement (whether or not such arrangement includes an arrangement that is a debt or debt instrument, or an excepted financial arrangement) whereby a person obtains money in consideration for a promise by any person to provide money to any person at some future time or times, or upon the occurrence or non-occurrence of some future event or events (including the giving of, or failure to give, notice); and
(c)
any arrangement which is of a substantially similar nature (including, without restricting the generality of the preceding provisions of this subparagraph, sell-back and buy-back arrangements, debt defeasances, and assignments of income);—
but does not include any excepted financial arrangement that is not part of a financial arrangement
fixed principal financial arrangement means any financial arrangement other than a variable principal debt instrument
forward contract, in the definitions of holder and implementation date, includes, but is not limited to, a forward contract for—
(a)
foreign exchange:
(b)
commodities:
(c)
financial arrangements:
(d)
excepted financial arrangements;—
but does not include an agreement for the sale and purchase of property or a specified option
holder—
(a)
means,—
(i)
in relation to—
(A)
an agreement for the sale and purchase of property; or
(B)
a forward contract or a futures contract,—
a person who is a vendor in relation to the financial arrangement:
(ii)
in relation to an option to purchase or otherwise acquire property, a person who is a grantor of the option:
(iii)
in relation to an option to sell or otherwise dispose of property, a person who is a grantee of the option:
(iv)
in relation to a hire purchase agreement, the lessor:
(v)
in relation to any other financial arrangement, a person who, if the amount or amounts payable under the financial arrangement were due and payable at that time, would be entitled to receive, or would receive a pecuniary benefit from, payment of the amount or amounts so payable or any part of them;—
and hold has a corresponding meaning; and
(b)
is further defined in section EZ 38(8) for the purposes of that section
implementation date means,—
(a)
in the case of—
(i)
forward or future contracts, including, but not limited to, contracts for—
(A)
foreign exchange:
(B)
commodities:
(C)
financial arrangements:
(D)
excepted financial arrangements; and
(ii)
futures contracts; and
(iii)
trade credits; and
(iv)
annuities; and
(v)
agreements for the sale and purchase of property; and
(vi)
convertible notes,—
8.00 pm New Zealand Standard Time on 23 October 1986; and
(b)
in the case of debt defeasances and assignments of income, 20 December 1986; and
(c)
in the case of variable principal debt instruments, 1 April 1987; and
(d)
in the case of a financial arrangement under which—
(i)
the monetary obligations of the parties are expressed in New Zealand currency; and
(ii)
it is contemplated that the holder may, upon demand or call, require the return of sums advanced to the issuer; and
(iii)
it is not contemplated that the holder may advance further sums to the issuer upon demand or call under the financial arrangement,—
1 April 1987; and
(e)
in every other case, 8.30 pm New Zealand Standard Time on 31 July 1986
issuer,—
(a)
in relation to a financial arrangement at any time, means a person who is a party to the financial arrangement and is not a holder in relation to the financial arrangement; and
(b)
is further defined in section EZ 38(8) for the purposes of that section
maturity, in relation to a financial arrangement, means the date on which the last payment contingent upon the financial arrangement is made, and matures has a corresponding meaning:
provided that where a financial arrangement has not matured and where the amount which has not been paid is immaterial and the financial arrangement has been structured to avoid the application of section EZ 38, the financial arrangement is deemed to have matured
money, in paragraph (b) of the definition of financial arrangement and in the definition of security payment, includes money’s worth, whether or not convertible into money, and the right to money, including the deferral or cancellation of any obligation to pay money whether in whole or in part
private or domestic agreement for the sale and purchase of property, in the definition of excepted financial arrangement, in relation to any person, means an agreement for the sale and purchase of property or a specified option where—
(a)
the agreement was entered into by that person or the specified option was granted to or by that person for private or domestic purposes; and
(b)
the subject-matter of the agreement or specified option is—
(i)
real property, the purchase price of which is less than $750,000; or
(ii)
any other property, the purchase price of which is less than $250,000; and
(c)
settlement is required to take place within 365 days after the day on which the agreement was entered into or the specified option granted
property,—
(a)
in the definition of specified base cost for 1983 income year property and in the life insurance rules, includes any real or personal property; and
(b)
in paragraph (a) of the definition of holder and paragraph (c) of the definition of lease and in the definitions of agreement for the sale and purchase of property, amount of all consideration, core acquisition price, excepted financial arrangement, private or domestic agreement for the sale and purchase of property, right in the specified property, short term agreement for the sale and purchase of property, short term option, and specified option, means—
(i)
any capital asset that is not foreign exchange or a financial arrangement; and
(ii)
trading stock; and
(iii)
consumable aids; and
(iv)
property to be purchased or otherwise acquired or sold or otherwise disposed of for private or domestic purposes only
right in the specified property, in the definition of core acquisition price, means—
(a)
the right to possession of the property; or
(b)
the right to any income or the right to control or influence the disposition of income derived from the property; or
(c)
the right, directly or indirectly, to exercise, or to influence any other person in the exercise of, any decision-making in respect of the property; or
(d)
any other right of a substantially similar nature:
provided that the mere right to enforce any agreement for the sale and purchase of property or any specified option does not of itself constitute a right in the specified property
secured arrangement, in the definitions of security arrangement and security payment, means an arrangement against which the failure to perform is secured by a financial arrangement
security arrangement, in the definition of security payment, means a financial arrangement that secures the holder against failure of any person to perform their obligations under a secured arrangement
security payment means money received by the holder of a security arrangement to the extent that the money is received in relation to a loss incurred due to the failure of performance of the secured arrangement and the value of the money is income of the holder
short term agreement for the sale and purchase of property means an agreement for the sale and purchase of property where—
(a)
the property is real property and settlement is required to take place within 93 days of the day on which the agreement was entered into; or
(b)
the property is not real property and settlement is required to take place within 63 days of the day on which the agreement was entered into
short-term option, in the definition of excepted financial arrangement, means a specified option where—
(a)
the subject-matter of the option is real property and settlement is required to take place within 93 days of the day on which the option was granted; or
(b)
the subject-matter of the option is not real property and settlement is required to take place within 63 days of the day on which the option was granted
short term trade credit, in the definitions of core acquisition price, excepted financial arrangement, and trade credit, means any debt for goods or services where payment is required by the vendor—
(a)
within 63 days after the supply of the goods or services; or
(b)
because the supply of the goods or services is continuous and the vendor renders periodic invoices for the goods or services, within 63 days after the date of an invoice rendered for those goods or services
social assistance suspensory loan is defined in section EZ 38(8)(c) for the purposes of that section
specified option means an option to purchase or otherwise acquire or sell or otherwise dispose of property, and the agreement for the sale and purchase of property, if any, entered into as a result of the exercise of the option is deemed to be part of the option
trade credit, in the definitions of core acquisition price and implementation date, means any debt for goods or services, but does not include a short term trade credit
trading stock, in paragraph (b) of the definition of property, means—
(a)
any thing acquired for the purposes of manufacture, sale, or exchange:
(b)
livestock:
(c)
any other real or personal property where the business of the person by whom it is sold or disposed of comprises dealing in such property or the property was acquired by the person for the purpose of sale or other disposal:
(d)
any land, any amount derived from the sale or other disposal of which would be income to which any of sections CB 6 to CB 23 applies:
(e)
anything in respect of which expenditure is incurred and which, if possession were taken, would fall within any of paragraphs (a) to (d);—
but does not include any financial arrangement
variable principal debt instrument means a bank deposit account or other financial arrangement where it is contemplated that the holder may—
(a)
advance further sums to the issuer; or
(b)
where the rights and obligations of the person under the financial arrangement are expressed in a currency other than New Zealand currency, require the return of sums advanced to the issuer—
in either case upon demand or call, and where all such sums form part of that bank deposit account or other instrument.
Compare: 2004 No 35 s EZ 45
Section EZ 48 excepted financial arrangement paragraph (i)(i): amended, on 1 August 2020, by section 129 of the Racing Industry Act 2020 (2020 No 28).
Section EZ 48 excepted financial arrangement paragraph (i)(ii): amended, on 1 August 2020, by section 129 of the Racing Industry Act 2020 (2020 No 28).
EZ 49 Determination of core acquisition price where consideration for property denominated in foreign currency
(1)
For the purposes of paragraph (c) of the definition of core acquisition price in section EZ 48, if the consideration payable under the relevant financial arrangement for the specified property is denominated in a foreign currency, the lowest price referred to in that paragraph must be the lowest price the parties would have agreed upon in that foreign currency converted into New Zealand dollars using, at the option of the taxpayer,—
(a)
the rate, on the day on which the financial arrangement was entered into (in this section referred to as the contract date), available to the taxpayer from a New Zealand registered bank for the exchange of New Zealand dollars for that foreign currency on the day on which the first right in the specified property is to be transferred (in this section referred to as the rights date); or
(b)
if the period between the rights date and the day on which final payment is to be made under the financial arrangement (in this section referred to as the settlement date) is not greater than 5 years, the rate, on the contract date, available to the taxpayer from a New Zealand registered bank for the exchange of New Zealand dollars for that foreign currency on the settlement date; or
(c)
an exchange rate approved by the Commissioner for adoption under this subsection in the circumstances applicable to the taxpayer in a determination issued under section 90(1)(k) of the Tax Administration Act 1994.
(2)
The rate adopted by a taxpayer in relation to a financial arrangement under subsection (1) must be consistently applied by that taxpayer in respect of that particular financial arrangement for the purposes of the old financial arrangements rules for every income year during its term.
(3)
If the terms of the financial arrangement referred to in subsection (1) are such that the actual rights date is uncertain as at the contract date, then the rights date is for the purposes of subsection (1) the date on which it is reasonably expected by the parties at the time of entering into the financial arrangement that the first right in the specified property will be transferred.
(4)
If the terms of the financial arrangement referred to in subsection (1) are such that the actual settlement date is uncertain as at the contract date, then the settlement date is for the purposes of subsection (1) the date on which it is reasonably expected by the parties at the time of entering into the financial arrangement that final payment will be made.
Compare: 2004 No 35 s EZ 46
EZ 50 Rules for non-market transactions
(1)
Where the Commissioner, having regard to any connection between the parties to the issue or transfer of a financial arrangement and to any other relevant circumstances, is satisfied that the parties were dealing with each other in relation to the issue or transfer in a manner that has the effect of defeating the intent and application of the old financial arrangements rules, the Commissioner may, under section EZ 35 or EZ 37 or EZ 38 or EZ 42, deem the consideration for the issue or transfer to be equal to the consideration that might reasonably be expected for the issue or transfer if the parties to the issue or transfer were independent parties dealing at arm’s length with each other in relation to the issue or transfer.
(2)
If at any time a person not resident in New Zealand—
(a)
commences to hold, whether temporarily or otherwise, a financial arrangement, for the purposes of a business carried on through a fixed establishment in New Zealand, the person is deemed to have acquired the financial arrangement at that time; or
(b)
ceases to hold, whether temporarily or otherwise, a financial arrangement for the purposes of a business carried on through a fixed establishment in New Zealand, the person is deemed to have disposed of the financial arrangement at that time; or
(c)
being a holder or an issuer of a financial arrangement, becomes a New Zealand resident, the person is deemed to acquire or to issue the financial arrangement at the time at which the person becomes a New Zealand resident;—
and that acquisition or that disposal is deemed to have been made for a consideration equal to the consideration that might reasonably be expected for the acquisition or disposal if the acquisition or disposal had been made at arm’s length.
(3)
A financial arrangement is treated as having been sold and purchased or transferred and realised at its market value on the date of its sale or transfer if the sale or transfer, including a transfer by way of distribution to shareholders, is not for consideration in money or is for a consideration that is less than the market value of the financial arrangement.
(4)
The market value of a financial arrangement is the market value for both seller and purchaser or transferor and transferee.
Compare: 2004 No 35 s EZ 47
EZ 51 Transitional adjustment when changing to financial arrangements rules
(1)
A person may elect to apply the financial arrangements rules to a financial arrangement to which the old financial arrangements rules apply.
(2)
A person who makes an election must apply the financial arrangements rules to all financial arrangements to which the person is a holder or an issuer.
(3)
Despite subsections (1) and (2), a person must apply section EZ 38 if that section applies to a financial arrangement in the income year in which the election is made.
(4)
Once an election is made, the financial arrangement is subject to the financial arrangements rules and is treated in the same way as a financial arrangement that was entered into on or after 20 May 1999.
(5)
A person who makes an election must calculate a transitional adjustment for the income year of election and return the resulting income or expenditure.
(6)
The transitional adjustment is calculated using the formula—
income (financial arrangements rules)
− expenditure (financial arrangements rules)
− income (old financial arrangements rules)
+ expenditure (old financial arrangements rules)
where—
income (financial arrangements rules) is the total amount of income that would be derived by the person from the financial arrangement if the financial arrangements rules were applied to the financial arrangement for the period beginning on the date the person acquires the arrangement and ending on the last day of the income year in which this calculation is made
expenditure (financial arrangements rules) is the total amount of expenditure that would be incurred by the person under the financial arrangement if the financial arrangements rules were applied to the financial arrangement for the period beginning on the date the person acquires the arrangement and ending on the last day of the income year in which this calculation is made
income (old financial arrangements rules) is the total amount of income of the person from the financial arrangement in all income years before the income year in which this calculation is made
expenditure (old financial arrangements rules) is the total amount of expenditure incurred by the person under the financial arrangement in all income years before the income year in which this calculation is made.
(7)
The result of the transitional adjustment is,—
(a)
if a positive amount, income derived by the person in the income year; and
(b)
if a negative amount, expenditure incurred by the person in the income year.
(8)
In the income year in which the transitional adjustment is made to a financial arrangement, a person must take into account only the income derived or the expenditure incurred as a result of the adjustment for the financial arrangement.
(9)
Despite subsections (2) to (8), a person is treated as transferring a financial arrangement at market value at the end of the income year of election and must calculate a base price adjustment under section EZ 38 if—
(a)
the financial arrangement is an arrangement to which the old financial arrangements rules apply; and
(b)
the financial arrangement were entered into on or after 20 May 1999 and would not have been subject to the financial arrangements rules; and
(c)
the person elects to apply the financial arrangements rules to a financial arrangement to which the old financial arrangements rules apply.
Compare: 2004 No 35 s EZ 48
EZ 52 References to new rules include old rules
(1)
Subsection (2) applies if—
(a)
the old financial arrangement rules apply to a financial arrangement (old financial arrangement); and
(b)
a taxation law in this Act (rewritten law) refers only to, or applies only to, a financial arrangement to which the financial arrangements rules apply; and
(c)
the rewritten law is in neither subpart EW nor sections EZ 33 to EZ 51; and
(d)
the rewritten law corresponds to and replaces, with or without amendments, a taxation law that applied to the old financial arrangement before 20 May 1999.
(2)
The rewritten law applies to the old financial arrangement as if the rewritten law referred to, or applied to, a financial arrangement to which the old financial arrangements rules apply.
(3)
Subsection (2) does not apply to—
(a)
a definition, or parts of a definition, in section YA 1 if that definition or part refers to section EZ 48; or
(b)
section GB 21, because the former taxation law to which it corresponds has been re-enacted as section EZ 50.
(4)
Section FM 8(3)(b)(ii) applies to a financial arrangement to which the old financial arrangements rules apply as if—
(a)
the reference to section EW 31 were to section EZ 38; and
(b)
the words “financial arrangements rules”
read “old financial arrangements rules”
.
Compare: 2004 No 35 s EZ 49
EZ 52B Consistency of use of IFRS method: Determination G3 change allowed
When this section applies
(1)
This section applies to a financial arrangement of a person—
(a)
for the 2009–10 income year, unless paragraph (b) or (c) applies:
(b)
for the 2008–09 or the 2009–10 income year (a retrospective year) if—
(i)
the financial arrangement is subject to a creditor workout in a retrospective year; and
(ii)
the person notifies the Commissioner of their election to apply this section to the financial arrangement for a retrospective year:
(c)
for an income year after the 2009–10 income year, if—
(i)
the financial arrangement is subject to a creditor workout in the relevant income year; and
(ii)
the person notifies the Commissioner of their election to apply this section to the financial arrangement for the relevant income year before the last day for filing a return of income for that income year.
Exception modified
(2)
For the purposes of the exception in section EW 25B(2) (Consistency of use of IFRS method), the person may change a method for IFRS for the financial arrangement if—
(a)
the method they change to or from is Determination G3 under section EW 15E(2)(aa) (Determination alternatives) or an alternative to Determination G3 under section EW 15E(2)(e) (What is included when spreading methods used); and
(b)
that method is available to them to use.
Defined in this Act: creditor workout, financial arrangement, IFRS, income year, notify
Section EZ 52B: added (with effect on 1 April 2008), on 6 October 2009, by section 198 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EZ 52B(1)(b)(ii): amended, on 2 June 2016, by section 44(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EZ 52B(1)(c)(ii): amended, on 2 June 2016, by section 44(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section EZ 52B(2)(a): amended (with effect on 1 April 2008), on 7 December 2009, by section 40 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
Section EZ 52B list of defined terms notify: inserted, on 2 June 2016, by section 44(3) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
EZ 52C Change of spreading method: Determination G22 to Determination G22A
How and when this section applies
(1)
This section does not alter or affect a person’s tax position in relation to Determination G22: Optional convertible notes denominated in New Zealand dollars convertible at the option of the holder or the person’s litigation of their tax position in relation to Determination G22. It does not alter or affect the Commissioner’s assessment of, or litigation of, that tax position. It applies after Determination G22 has applied for a person’s financial arrangement, and only if, for the financial arrangement,—
(a)
Determination G22A: Optional convertible notes denominated in New Zealand dollars did not apply while Determination G22 applied, because of the application of section 90AE of the Tax Administration Act 1994, or the application of Determination G22A, clause 3(1)(b); and
(b)
Determination G22A starts applying immediately after—
(i)
section 90AE of the Tax Administration Act 1994 stops applying; or
(ii)
Determination G22A, clause 3(1)(b) stops applying.
Spreading method adjustment
(2)
Despite sections EW 26 and EW 27 (which relate to changes of spreading method), the person must not calculate a spreading method adjustment under section EW 27 for the change of spreading method, for the financial arrangement, from Determination G22 to Determination G22A.
Part years under Determinations instead of spreading method adjustment
(3)
In the income year in which subsection (2) applies, for the financial arrangement, Determination G22 applies for the part-year before the change to Determination G22A, and Determination G22A applies for the part-year after the change from Determination G22.
Defined in this Act: amount, assessment, financial arrangement, spreading method, tax position
Section EZ 52C: inserted, on 26 September 2010, by section 51 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EZ 52C list of defined terms tax position: inserted, on 24 February 2016, by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EZ 52D Base price adjustment: financial arrangements to which Determination G22 and Determination G22A applied
How and when this section applies
(1)
This section does not alter or affect a person’s tax position in relation to Determination G22 or the person’s litigation of their tax position in relation to Determination G22. It does not alter or affect the Commissioner’s assessment of, or litigation of, that tax position. It applies after Determination G22 has applied for a person’s financial arrangement, and only if, for the financial arrangement,—
(a)
section EZ 52C applied; and
(b)
Determination G22A applies when the person is required to calculate a base price adjustment for the financial arrangement.
Consideration adjustment
(2)
For the financial arrangement, the consideration referred to in section EW 31(7) (Base price adjustment formula) is adjusted in accordance with subsections (3) to (6).
Issuer
(3)
If the person is the issuer of the financial arrangement, an amount calculated under subsections (5) and (6) is added to all consideration that has been paid, and all consideration that is or will be payable, by the issuer for or under the financial arrangement.
Holder
(4)
If the person is a holder of the financial arrangement, an amount, referrable to the person’s holding, calculated under subsections (5) and (6) is added to all consideration that has been paid, and all consideration that is or will be payable, to the holder for or under the financial arrangement.
Calculation
(5)
For the purposes of subsections (3) and (4) the amount is calculated using the following formula:
X − Z.
Definition of items in formula
(6)
In the formula,—
(a)
X is, for the financial arrangement, an amount equal to the item s in Determination G22, clause 6(1), if that item were calculated in accordance with that Determination at the time immediately before the change of spreading method described in section EZ 52C(2):
(b)
Z is, for the financial arrangement, an amount equal to the item s in Determination G22, clause 6(1), if that item were calculated in accordance with that Determination at the time when it first applied.
Defined in this Act: amount, consideration, financial arrangement, tax position
Section EZ 52D: inserted, on 26 September 2010, by section 51 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EZ 52D list of defined terms tax position: inserted, on 24 February 2016, by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Life insurance transitional adjustment: expected death strain
Heading: inserted, on 1 July 2010, by section 199(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Expected death strain formulas
Heading: inserted, on 1 July 2010, by section 199(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EZ 53 How expected death strain is calculated
Calculation of expected death strain: steps
(1)
For an income year, the life insurer calculates their expected death strain by following these steps:
(a)
first, use the relevant expected death strain formula to calculate an amount for each life insured under each life insurance policy existing at the start of the income year (see: subsections (2) and (3) for guidance on the relevant expected death strain formula):
(b)
second, for each such life insurance policy, add together the amounts for the lives insured under it:
(c)
third, add together the totals reached under paragraph (b).
Expected death strain formula (life)
(2)
Section EZ 54(1) sets out the expected death strain formula (life). This is the formula a life insurer uses for an income year, to calculate an amount for a life insured under a life insurance policy, except to the extent to which an annuity is being paid under the policy at some time in the income year.
Expected death strain formula (active annuities)
(3)
Section EZ 54(2) sets out the expected death strain formula (active annuities). This is the formula a life insurer uses for an income year, to calculate an amount for a life insured under a life insurance policy, to the extent to which an annuity is being paid under the policy at some time in the income year.
Defined in this Act: business, income year, life insurance, life insurance policy, life insured, life insurer, pay
Section EZ 53: inserted, on 1 July 2010, by section 199(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EZ 54 Expected death strain formulas
Expected death strain formula (life)
(1)
The expected death strain formula (life) is—
claim probability × (opening sum assured − opening actuarial reserves).
Expected death strain formula (active annuities)
(2)
The expected death strain formula (active annuities) is—
claim probability × opening actuarial reserves.
Definition of items in formulas
(3)
The items in the formulas are defined in subsections (4) to (6).
Claim probability
(4)
Claim probability is the probability of a claim arising under the policy for the life insured’s death in the income year. It is determined at the start of the income year using the same mortality assumptions as are used to calculate the life insurer’s actuarial reserves at the start of the income year. It is expressed as a decimal. Variations to claim probability are in sections EZ 55(2) and EZ 57(2).
Opening sum assured
(5)
Opening sum assured is the claim that would be payable under the policy for the life insured’s death in the income year or, if no such claim would be payable, the claim that would be payable under the policy for the life insured’s survival to the relevant date or age specified in the policy. It is determined at the start of the income year. It may be zero. Variations to opening sum assured are in sections EZ 56(2), EZ 57(3), and EZ 58(2).
Opening actuarial reserves
(6)
Opening actuarial reserves is the amount in the life insurer’s actuarial reserves for the life insured under the policy. It is determined at the start of the income year.
Defined in this Act: actuarial reserves, amount, claim, income year, life insured, life insurer, pay
Section EZ 54: inserted, on 1 July 2010, by section 199(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EZ 55 Expected death strain formulas: option when more than 1 life insured
When this section applies
(1)
This section applies when a life insurance policy covers more than 1 life insured.
Claim probability
(2)
In using the relevant expected death strain formula, the life insurer may use as claim probability a common factor for all the lives insured under the policy.
Features of common factor
(3)
The common factor must be a reasonable approximation of the average probability of a claim arising under the policy for each life insured’s death in the income year. It must be weighted as necessary to take account of—
(a)
differing claims for individual lives insured under the policy; and
(b)
differing amounts in the life insurer’s actuarial reserves for individual lives insured under the policy.
Defined in this Act: actuarial reserves, amount, claim, income year, life insurance policy, life insured, life insurer
Section EZ 55: inserted, on 1 July 2010, by section 199(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EZ 56 Expected death strain formula (life): when annuity payable on death
When this section applies
(1)
This section applies when, and to the extent to which, a life insurance policy provides for the payment of an annuity the start of which is contingent on the life insured’s death.
Opening sum assured
(2)
In using the expected death strain formula (life), the life insurer uses as opening sum assured the present value (net) of the annuity. The present value (net) is determined—
(a)
at the start of the income year; and
(b)
on the assumption that the life insured died at the start of the income year; and
(c)
using the same assumptions and bases of calculation as are used to calculate the life insurer’s actuarial reserves for the income year.
Defined in this Act: actuarial reserves, income year, life insurance policy, life insured, life insurer, pay, present value (net)
Section EZ 56: inserted, on 1 July 2010, by section 199(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EZ 56 list of defined terms pay: inserted, on 24 February 2016, by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EZ 56 list of defined terms payment: repealed, on 24 February 2016, by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EZ 57 Expected death strain formulas: when annuity payable on survival to date or age specified in policy
When this section applies
(1)
This section applies when, and to the extent to which, a life insurance policy provides for the payment of an annuity the start of which is contingent on the life insured’s survival to the relevant date or age specified in the policy.
Claim probability
(2)
In using the relevant expected death strain formula, the life insurer must use claim probability as defined in section EZ 54(4), without regard to the fact that the payment of the annuity is not contingent on the life insured’s death.
Opening sum assured
(3)
In using the expected death strain formula (life), the life insurer must use as opening sum assured the present value (net) of the annuity. The present value (net) is determined—
(a)
at the relevant date or age specified in the policy; and
(b)
on the assumption that the life insured survived to the date or age; and
(c)
using the same assumptions and bases of calculation as are used to calculate the life insurer’s actuarial reserves for the income year.
Defined in this Act: actuarial reserves, income year, life insurance policy, life insured, life insurer, pay, present value (net)
Section EZ 57: inserted, on 1 July 2010, by section 199(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EZ 57 list of defined terms payment: repealed, on 24 February 2016, by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EZ 58 Expected death strain formula (life): when partial reinsurance exists
When this section applies
(1)
This section applies when a life insurer has partial life reinsurance.
Opening sum assured
(2)
In using the expected death strain formula (life), the life insurer must reduce opening sum assured by the claim receivable by the life insurer under the life reinsurance policy for the contingency against which the life insured is covered under the life insurance policy.
Defined in this Act: claim, life insurance policy, life insured, life insurer, life reinsurance policy, partial reinsurance
Section EZ 58: inserted, on 1 July 2010, by section 199(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Actuarial reserves
Heading: inserted, on 1 July 2010, by section 199(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EZ 59 Meaning of actuarial reserves
Actuarial reserves generally
(1)
For the purposes of sections EZ 53 to EZ 58, actuarial reserves means a life insurer’s reserves as calculated under section EZ 60.
Closing actuarial reserves for annuities
(2)
For the purposes of the item closing actuarial reserves in section EY 31(3) (Annuities), closing actuarial reserves (active annuities) means a life insurer’s opening actuarial reserves under section EZ 54(6) for a life insurance policy, to the extent to which an annuity is being paid under the policy where the life insured dies in the income year for which the formula in section EY 31 is applied. Where the life insured survives to the end of that income year, the closing actuarial reserves (active annuities) is zero.
Link between actuarial reserves and life insurer
(3)
Actuarial reserves, for a life insurer at any time, means the life insurer’s actuarial reserves at that time.
Defined in this Act: actuarial reserves, life insurance policy, life insurer
Section EZ 59: inserted, on 1 July 2010, by section 199(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EZ 60 Actuarial reserves: calculation
Calculation by actuary
(1)
The life insurer’s actuarial reserves must be actuarially determined.
All reserves or 1 or more amounts
(2)
The actuary may calculate—
(a)
the actuarial reserves for all the life insurance policies for which the life insurer is the insurer; or
(b)
the amount in the life insurer’s actuarial reserves for 1 or more life insurance policies for which the life insurer is the insurer.
Interest, mortality, and other assumptions and bases of calculation
(3)
The actuary must do the calculation using interest, mortality, and other assumptions and bases of calculation that—
(a)
are based on the same principles as those used in the actuarial advice on which the following are calculated:
(i)
the level of surplus funds available to the life insurer for allotment or payment to shareholders or policyholders; or
(ii)
the level of surplus funds available to the life insurer, if a superannuation scheme, for allotment to objects of the scheme other than the object of providing for members’ benefits; and
(b)
are likely to produce a reasonable estimation of the future experience of the life insurer in relation to life insurance policies of which the life insurer is the insurer, having regard to the past experience of the life insurer in relation to life insurance policies of which the life insurer was the insurer; and
(c)
conform with commercially acceptable practice.
Reserves for policy never negative
(4)
The amount in the actuarial reserves for a life insurance policy must never be negative.
Reserves for all policies never less than total of surrender values
(5)
The actuarial reserves at any time must not be less than the total of the surrender values of all the life insurance policies they cover at that time.
Reserves for policies same at end of one, and start of next, income year
(6)
The amount in the actuarial reserves for life insurance policies at the start of an income year is the same as the amount in the actuarial reserves for the life insurance policies at the end of the previous income year.
Effect of partial reinsurance
(7)
The actuarial reserves of a life insurer who has partial life reinsurance must be reduced by an amount that the actuary responsible for actuarial control of the life insurer considers appropriate having regard to the nature of the life reinsurance policies.
Defined in this Act: actuarial reserves, actuary, amount, income year, life insurance policy, life insurer, life reinsurance policy, partial reinsurance, pay, shareholder, superannuation scheme
Section EZ 60: inserted, on 1 July 2010, by section 199(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EZ 60 list of defined terms pay: inserted, on 24 February 2016, by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EZ 60 list of defined terms payment: repealed, on 24 February 2016, by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Entry to new life insurance regime: transitional and miscellaneous provisions
Heading: inserted, on 1 July 2010, by section 199(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EZ 61 Allowance for cancelled amount: spreading
Policyholder base allowable deduction
(1)
For an income year that includes 1 July 2010 and later income years, a life insurer may choose, by a notice received by the Commissioner on or before the last day for furnishing a return of income for the relevant income year or within such further time as the Commissioner may allow, that an amount (the deduction amount) is included as their policyholder base allowable deduction for the income year, if—
(a)
the life insurer has no taxable income, other than in relation to its policyholder base, for the tax year corresponding to the income year, and no taxable income, other than in relation to its policyholder base, for every earlier tax year going back to, and including, the tax year that corresponds with the income year that includes 1 July 2010; and
(b)
the deduction amount is stated in the notice and it is equal to or less than the least of the following:
(i)
the available tax loss for the tax year that corresponds with the income year, before applying this section; and
(ii)
the available concession amount for the income year, described in subsection (2); and
(iii)
the amount that would be the life insurer’s schedular policyholder base income for the income year, before applying this section for the year.
Available concession amount
(2)
For the purposes of subsection (1), the available concession amount for the income year is a positive amount calculated using the formula—
base concession amount − used.
Definition of items in formula
(3)
In the formula,—
(a)
base concession amount is the lesser of the following:
(i)
the cancelled amount described in section IT 1 (Cancellation of life insurer’s policyholder net losses); and
(ii)
the amount of available tax loss for the tax year that corresponds with the income year that includes 1 July 2010, before applying this section for the year:
(b)
used is the total amount of policyholder base allowable deductions that have arisen under this section for income years before the income year.
Defined in this Act: amount, Commissioner, income year, life insurer, net loss, policyholder base, policyholder base allowable deduction, return of income, schedular policyholder base income, tax loss, tax year, taxable income
Section EZ 61: inserted, on 1 July 2010, by section 199(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EZ 62 Reinsurance transition: life financial reinsurance may be life reinsurance
(1)
If a life contract that is entered into before a life insurer’s reinsurance grandparenting start day would be a contract for life financial reinsurance but for this section, then it is treated as life reinsurance, instead of life financial reinsurance, for the period starting on the reinsurance grandparenting start day, and ending on the earlier of,—
(a)
the last day of the term of the contract, as that term is stated in the contract before the reinsurance grandparenting start day; and
(b)
the day 5 years after the reinsurance grandparenting start day.
Meaning of reinsurance grandparenting start day
(2)
Reinsurance grandparenting start day means—
(a)
1 July 2010, if the life insurer does not have an early life regime application day; or
(b)
a life insurer’s early life regime application day, if the life insurer has an early life regime application day.
Defined in this Act: early life regime application day, income year, life financial reinsurance, life insurer, life reinsurance, reinsurance grandparenting start day
Section EZ 62: inserted, on 1 July 2010, by section 199(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
EZ 63 Disposal and acquisition upon entry
When this section applies
(1)
This section applies for a life insurer immediately before a day (the application day) that is—
(a)
1 July 2010, if the life insurer does not have an early life regime application day; or
(b)
their early life regime application day, if the life insurer does have an early life regime application day.
Disposal and acquisition upon entry
(2)
Immediately before the application day, all of the property of a life insurer that supports actuarial reserves for the purposes of the policyholder income formula in section EY 43 (Policyholder income formula) is treated as disposed of, for market value consideration, to a third person, and immediately re-acquired from that person for the same consideration.
Exclusion
(3)
Property that is an interest in a PIE that is not a listed PIE is excluded from the disposal and re-acquisition described in subsection (2).
Defined in this Act: actuarial reserves, amount, dispose, early life regime application day, income year, life insurer, listed PIE, market value, PIE
Section EZ 63: added, on 30 June 2010, by section 200 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EZ 63 list of defined terms portfolio-listed company: repealed (with effect on 30 June 2010), on 2 November 2012, by section 66 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Restructuring under New Zealand Railways Corporation Restructuring Act 1990
Heading: inserted (with effect on 31 December 2012), on 17 July 2013, by section 54 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
EZ 64 New Zealand Railways Corporation restructure: purpose and initial amounts for tax purposes
Purpose
(1)
The purpose of this section, sections CW 65, EZ 65 to EZ 67, and YC 18C (which relate to the New Zealand Railways Corporation restructure) is to ensure that the Railways vesting gives rise to no tax consequences other than those necessary to account for the vesting of the Railways assets and liabilities from a public authority to a state enterprise. The treatments of KiwiRail Holdings Limited, New Zealand Railways Corporation, and associated companies in those sections also applies for the purposes of the Tax Administration Act 1994.
Depreciation
(2)
For a Railways asset that is depreciable property, KiwiRail Holdings Limited calculates, on and after 31 December 2012, depreciation recovery income and deductions for amounts of depreciation loss as if KiwiRail Holdings Limited had acquired the asset on 31 December 2012 for the amount recorded in a schedule prepared by KiwiRail Holdings Limited for the purposes of this section.
Financial arrangements: consideration
(3)
KiwiRail Holdings Limited is treated as—
(a)
paying an amount of consideration, for a Railways asset that is a financial arrangement, equal to the amount recorded in KiwiRail Holdings Limited’s financial accounts for that arrangement on 31 December 2012:
(b)
being paid an amount of consideration, for a Railways liability that is a financial arrangement, equal to the amount recorded in KiwiRail Holdings Limited’s financial accounts for that arrangement on 31 December 2012.
Financial arrangements: overrides
(4)
Sections EW 38, EW 42, and GB 21 (which relate to financial arrangements) do not apply for the Railways vesting.
Defined in this Act: amount, assessable income, associate, company, consideration, depreciation loss, depreciable property, depreciation recovery income, financial arrangement, pay, public authority, Railways assets and liabilities, Railways vesting, state enterprise
Section EZ 64: inserted (with effect on 31 December 2012), on 17 July 2013, by section 54 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
EZ 65 Expenditure or loss incurred, and amounts derived
Expenditure or loss incurred, and amounts derived
(1)
KiwiRail Holdings Limited and New Zealand Railways Corporation are treated as the same person for the period prior to and including 31 December 2012 for the purpose of determining the following:
(a)
whether a deduction is allowed for an amount of expenditure or loss incurred by KiwiRail Holdings Limited in connection with the Railways assets or liabilities:
(b)
the amount of any deduction of KiwiRail Holdings Limited in connection with the Railways assets or liabilities:
(c)
whether an amount derived by KiwiRail Holdings Limited in connection with the Railways assets or liabilities is income:
(d)
the amount of any income of KiwiRail Holdings Limited in connection with the Railways assets or liabilities.
Treatment of New Zealand Railways Corporation
(2)
For the purposes of subsection (1), New Zealand Railways Corporation is treated as if it was a company that was not a public authority.
Defined in this Act: amount, company, deduction, income, public authority, Railways assets and liabilities
Section EZ 65: inserted (with effect on 31 December 2012), on 17 July 2013, by section 54 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
EZ 66 Prepayments
Deduction
(1)
KiwiRail Holdings Limited has, for the 2012–13 income year, a deduction under section DB 50 (Adjustment for prepayments) for an unexpired portion that is connected with a Railways asset or liability, as described in subsection (2).
Unexpired portion
(2)
For the purposes of subsection (1), the unexpired portion is the unexpired portion that New Zealand Railways Corporation would have had by applying section EA 3(4) to (7) (Prepayments) on 30 December 2012 to an amount of expenditure incurred by New Zealand Railways Corporation in connection with a Railways asset or liability, treating—
(a)
30 December 2012 as the end of an income year; and
(b)
New Zealand Railways Corporation as a taxpayer with a deduction for the expenditure, if that expenditure is described in section EA 3(1).
Future application of section EA 3
(3)
For the 2012–13 income year and later income years, section EA 3 applies to KiwiRail Holdings Limited as if it had been allowed a deduction for expenditure to which subsection (1) applies.
Defined in this Act: deduction, income year, Railways asset, Railways liability, taxpayer
Section EZ 66: inserted (with effect on 31 December 2012), on 17 July 2013, by section 54 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
EZ 67 Leased assets
Allocation of expenditure
(1)
KiwiRail Holdings Limited calculates, for the 2012–13 income year, an expenditure allocation under section EJ 10 (Personal property lease payments) for a personal property lease payment that is connected with a Railways asset or liability as if 31 December were the start of the 2012–13 income year.
Future application of section EJ 10
(2)
For the 2013–14 income year and later income years, section EJ 10 applies to KiwiRail Holdings Limited as if, for the period up to and including 31 December 2012, New Zealand Railways Corporation and KiwiRail Holdings Limited were the same person.
Defined in this Act: deduction, income year, personal property lease payment, Railways assets and liabilities
Section EZ 67: inserted (with effect on 31 December 2012), on 17 July 2013, by section 54 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
EZ 68 Definitions
asset—
(a)
means property of any kind, whether or not situated in New Zealand, whether tangible or intangible, real or personal, corporeal or incorporeal, and whether or not subject to rights; and
(b)
includes—
(i)
land, including legal and equitable rights of occupation of land or buildings:
(ii)
buildings, vehicles, plant equipment, machinery, fixtures and fittings, and legal and equitable rights in them:
(iii)
choses in action and money:
(iv)
legal and equitable rights of any kind, and applications, objections, submissions, and appeals in respect of those rights:
(v)
intellectual property and applications pending for intellectual property:
(vi)
goodwill, and any business undertaking
legal and equitable rights includes all rights, powers, privileges, interests, leases, licences, approvals, consents, designations, permissions, dispensations, authorisations, benefits, defences, immunities, claims, and equities of any kind, whether arising from, accruing under, created or evidenced by, or the subject of, an instrument or otherwise, and whether liquidated or unliquidated, actual, contingent, or prospective
liabilities means liabilities, debts, charges, duties, and obligations of every description, whether present or future, actual or contingent, and whether payable or to be observed or performed in New Zealand or elsewhere
Railways assets and liabilities means assets and liabilities, or parts of assets and liabilities, as the case may be, specified in an Order in Council made under the New Zealand Railways Corporation Restructuring Act 1990, and Railways assets and Railways liabilities have corresponding meanings
Railways vesting means the vesting of the Railways assets and liabilities in KiwiRail Holdings Limited on 31 December 2012 in accordance with the New Zealand Railways Corporation Restructuring Act 1990.
Defined in this Act: apply, asset, land, legal and equitable rights, liabilities, New Zealand, Railways assets and liabilities, Railways vesting
Section EZ 68: inserted (with effect on 31 December 2012), on 17 July 2013, by section 54 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section EZ 68 list of defined terms apply: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
IFRS financial reporting method
Heading: inserted, on 1 April 2014 (applying for the 2014–15 and later income years), by section 67 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
EZ 69 IFRS financial reporting method: interest-free and low-interest loans
When this section applies
(1)
This section applies when—
(a)
section EW 15D(2)(ac) or (ad) (IFRS financial reporting method) modifies an IFRS rule so that the person does not allocate interest for a financial arrangement for the 2014–15 income year; and
(b)
the person has allocated, for the financial arrangement for the 2013–14 income year, an amount that the person would not be allowed to allocate if section EW 15D(2)(ac) and (ad) applied for the 2013–14 income year.
Change of spreading method
(2)
The change from the allocation treatment described in subsection (1)(b) (the old method) to the non-allocation treatment described in subsection (1)(a) (the new method) is treated as a change for the 2014–15 income year under section EW 26(2). Sections EW 26(3), (4) and EW 27 apply accordingly, but section EW 26(6) does not apply.
Defined in this Act: financial arrangement, IFRS, income year
Section EZ 69: inserted, on 1 April 2014 (applying for the 2014–15 and later income years), by section 67(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
EZ 69B IFRS financial reporting method: equity or other comprehensive income
When this section applies
(1)
This section applies when—
(a)
section EW 15D(2)(b) (IFRS financial reporting method) modifies an IFRS rule so that the person must allocate an amount of equity or other comprehensive income for a financial arrangement to the 2015–16 income year for tax purposes; and
(b)
the person does not allocate, for the financial arrangement, an amount of equity or other comprehensive income to the 2014–15 income year that the person would be required to allocate if the requirement referred to in paragraph (a) applied for the 2014–15 income year.
Change of spreading method
(2)
The change from the non-allocation treatment described in subsection (1)(b) to the allocation treatment described in subsection (1)(a) is treated as a change of spreading method for the 2015–16 income year under section EW 26(2) (Change of spreading method). Sections EW 26(3) and (4) and EW 27 (Spreading method adjustment formula) apply accordingly, but section EW 26(6) does not apply.
Defined in this Act: financial arrangement, IFRS, income year
Section EZ 69B: inserted (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 158(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Damage from Canterbury earthquakes
Heading: inserted, on 1 April 2016 (applying for the 2016–17 and later income years), by section 68(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
EZ 70 Insurance for Canterbury earthquake damage of property: treatment as disposal and reacquisition
When this section applies
(1)
This section applies for a person and an item of depreciable property and an income year before the 2024–25 income year when—
(a)
the item is damaged by a Canterbury earthquake as that term is defined in section 4 of the Canterbury Earthquake Recovery Act 2011; and
(b)
the person is entitled to an amount of insurance or compensation for the damage to the item; and
(c)
the item is assessed by the payer of the insurance or compensation (the insurer) as uneconomic to repair; and
(d)
the damage does not meet the requirements of section EE 47(4) (Events for purposes of section EE 44).
Treatment as disposal and reacquisition of item
(2)
The person is treated as, on the date of the Canterbury earthquake,—
(a)
disposing of the item for the amount of insurance or compensation; and
(b)
reacquiring the item for zero consideration.
Relationship with section EE 52
(3)
This section overrides section EE 52 (Amount of depreciation recovery income when compensation received).
Defined in this Act: amount, depreciable property, income year
Section EZ 70: inserted, on 1 April 2016 (applying for the 2016–17 and later income years), by section 68(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EZ 70 heading: amended, on 1 April 2016, by section 159(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section EZ 70(1): amended (with effect on 1 April 2016), on 18 March 2019, by section 186 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EZ 70(2) heading: amended, on 1 April 2016, by section 159(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EZ 71 Insurance for Canterbury earthquake damage of property: limit on depreciation recovery income
When this section applies
(1)
This section applies for a person and an item of depreciable property and an income year before the 2024–25 income year when—
(a)
the item is damaged by a Canterbury earthquake as that term is defined in section 4 of the Canterbury Earthquake Recovery Act 2011; and
(b)
the person is entitled to an amount of insurance or compensation for the damage to the item; and
(c)
the damage does not meet the requirements of section EE 47(4) (Events for purposes of section EE 44); and
(d)
section EZ 70 does not apply for the item.
Limit on depreciation recovery income under section EE 52
(2)
If the person would derive depreciation recovery income under section EE 52 (Amount of depreciation recovery income when compensation received) in an income year for the item in the absence of this section, the person derives in the income year an amount of depreciation recovery income equal to the lesser of—
(a)
the amount of depreciation recovery income under section EE 52 that the person would derive in the income year for the item in the absence of this section:
(b)
the total of the amounts of depreciation loss for which the person has been allowed deductions for the item.
Relationship with section EE 52
(3)
This section overrides section EE 52.
Defined in this Act: amount, deduction, depreciable property, depreciation loss, depreciation recovery income, income year
Section EZ 71: inserted, on 1 April 2016 (applying for the 2016–17 and later income years), by section 68(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EZ 71(1): amended (with effect on 1 April 2016), on 18 March 2019, by section 187 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EZ 72 Item treated as available for use if access restricted due to Canterbury earthquake
An item of depreciable property is treated for an income year as being available for use while access to the item is affected by a restriction imposed due to the effects of a Canterbury earthquake (as defined in section 4 of the Canterbury Earthquake Recovery Act 2011), if—
(a)
the item was used or available for use immediately before the restriction was imposed; and
(b)
the item would be used or available for use in the absence of the restriction; and
(c)
the income year is the 2023–24 or an earlier income year.
Defined in this Act: depreciable property, income year
Section EZ 72: inserted, on 1 April 2016 (applying for the 2016–17 and later income years), by section 68(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EZ 72(c): amended (with effect on 1 April 2016), on 18 March 2019, by section 188 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EZ 73 Insurance for Canterbury earthquake damage causing disposal: optional timing rule for income, deductions
When this section applies
(1)
This section applies for a person and an item of depreciable property when—
(a)
the item is damaged by a Canterbury earthquake as that term is defined in section 4 of the Canterbury Earthquake Recovery Act 2011; and
(b)
the damage—
(i)
results in the item being affected by a disposal and reacquisition under section EZ 70; or
(ii)
meets the requirements of section EE 47(4) (Events for purposes of section EE 44); and
(c)
the person is entitled to an amount of insurance or compensation for the damage to the item; and
(d)
the person chooses to apply this section for all items of depreciable property meeting the requirements of paragraphs (a) to (c).
Attribution of income from insurance and disposal
(2)
If the amount of insurance or compensation for the damage (the insurance receipt) is derived or able to be reasonably estimated before the end of the 2023–24 income year, the person’s income from the insurance receipt and the consideration derived from the disposal of the item is attributed to the earlier of—
(a)
the 2023–24 income year:
(b)
the first income year in which—
(i)
the amount of the cost of disposing of the item (the disposal cost) is or has been incurred or able to be reasonably estimated; and
(ii)
the insurance receipt is or has been derived or able to be reasonably estimated; and
(iii)
the consideration from the disposal of the item is or has been derived or able to be reasonably estimated.
Attribution of deductions
(3)
If the disposal cost is incurred or able to be reasonably estimated before the end of the 2023–24 income year, the person’s deductions for the disposal cost and for depreciation loss under section EE 48 (Effect of disposal or event) are attributed to the earlier of—
(a)
the 2023–24 income year:
(b)
the first income year in which—
(i)
the disposal cost is or has been incurred or able to be reasonably estimated; and
(ii)
the insurance receipt is or has been derived or able to be reasonably estimated; and
(iii)
the consideration from the disposal of the item is or has been derived or able to be reasonably estimated.
Relationship with other sections
(4)
This section overrides sections EE 1, EE 22, and EE 48 (which state when depreciation loss and depreciation recovery income arise) in relation to the timing of the person’s—
(a)
income from the insurance receipt and consideration from the disposal of the item:
(b)
deductions for the disposal cost and depreciation loss.
Defined in this Act: amount, deduction, income, income year
Section EZ 73: inserted, on 1 April 2016 (applying for the 2016–17 and later income years), by section 68(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EZ 73(2): amended (with effect on 1 April 2016), on 18 March 2019, by section 189 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EZ 73(2)(a): amended (with effect on 1 April 2016), on 18 March 2019, by section 189 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EZ 73(3): amended (with effect on 1 April 2016), on 18 March 2019, by section 189 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EZ 73(3)(a): amended (with effect on 1 April 2016), on 18 March 2019, by section 189 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EZ 73 list of defined terms grandparented structure: repealed (with effect on 1 April 2016), on 30 March 2022, by section 102 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
EZ 74 Insurance for repairs of Canterbury earthquake damage: optional timing rule for income, deductions
When this section applies
(1)
This section applies for a person and an item of depreciable property when—
(a)
the item is damaged by a Canterbury earthquake as that term is defined in section 4 of the Canterbury Earthquake Recovery Act 2011; and
(b)
the damage—
(i)
does not result in the item being subject to a disposal and reacquisition under section EZ 70; and
(ii)
does not meet the requirements of section EE 47(4) (Events for purposes of section EE 44); and
(c)
the person is entitled to an amount of insurance or compensation for the damage to the item; and
(d)
the person chooses to apply this section for all items of depreciable property meeting the requirements of paragraphs (a) to (c).
Attribution of income from insurance
(2)
If the amount of insurance or compensation for the damage (the insurance receipt) is derived or able to be reasonably estimated before the end of the 2023–24 income year, the person’s income from the insurance receipt is attributed to the earlier of—
(a)
the 2023–24 income year:
(b)
the first income year in which—
(i)
the amount of expenditure for total repair of the damage (the repair cost) is or has been incurred or able to be reasonably estimated; and
(ii)
the insurance receipt is or has been derived or able to be reasonably estimated.
Attribution of deductions for repairs
(3)
If the repair cost is incurred or able to be reasonably estimated before the end of the 2023–24 income year, the person’s deductions for the repair cost are attributed to the earlier of—
(a)
the 2023–24 income year:
(b)
the first income year in which—
(i)
the repair cost is or has been incurred or able to be reasonably estimated; and
(ii)
the insurance receipt is or has been derived or able to be reasonably estimated.
Relationship with other sections
(4)
This section overrides sections CG 4, EE 22, and EE 52 (which provide for receipts of insurance or indemnity payments) in relation to the timing of the person’s—
(a)
income from the insurance receipt:
(b)
deductions for the repair cost.
Defined in this Act: amount, deduction, income, income year
Section EZ 74: inserted, on 1 April 2016 (applying for the 2016–17 and later income years), by section 68(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EZ 74(2): amended (with effect on 1 April 2016), on 18 March 2019, by section 190 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EZ 74(2)(a): amended (with effect on 1 April 2016), on 18 March 2019, by section 190 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EZ 74(3): amended (with effect on 1 April 2016), on 18 March 2019, by section 190 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EZ 74(3)(a): amended (with effect on 1 April 2016), on 18 March 2019, by section 190 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
EZ 75 Consideration for property or services: IFRS foreign ASAPs before 2014–15 income year
When this section applies
(1)
This section applies when a person uses IFRSs to prepare financial statements and to report for financial arrangements, and—
(a)
the person has a financial arrangement that is a foreign ASAP (the financial arrangement) for which section EW 32 (Consideration for agreement for sale and purchase (ASAP) of property or services, hire purchase agreement, specified option, or finance lease) applies to value the relevant property or services; and
(b)
the person enters into the financial arrangement before the end of the 2013–14 income year; and
(c)
for the financial arrangement, the person has filed returns of income in accordance with this section for the 2013–14 income year and every earlier income year.
Treatment
(2)
The person, applying sections 81 and 82 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 as if in force, may—
(a)
treat sections EW 32 and EW 33B (Foreign ASAPs: designated FX hedges) as applying to the financial arrangement for the 2013–14 income year and every earlier income year; or
(b)
treat section EW 32 as applying, but excluding section EW 33B. The value of the relevant property or services under IFRS rules is modified by excluding an amount attributed under IFRS rules from the value on account of FX hedges.
Treatment: modification for spot rate revaluation
(3)
Despite subsection (2), a treatment under that subsection may be modified to allow the addition and subtraction, from the value of the property or services, of amounts arising from spot rate revaluation of payments already made at the time the property or services are recognised under IFRS rules.
Defined in this Act: amount, financial arrangement, foreign ASAP, FX hedge, IFRS, income year
Section EZ 75: inserted (with effect on 1 April 2008), on 30 June 2014, by section 100 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
EZ 76 Consideration for property or services: non-IFRS foreign ASAPs before 2014–15 income year
When this section applies
(1)
This section applies when a person does not use IFRSs to prepare financial statements and to report for financial arrangements, and—
(a)
the person has a financial arrangement that is a foreign ASAP (the financial arrangement) for which section EW 32 (Consideration for agreement for sale and purchase (ASAP) of property or services, hire purchase agreement, specified option, or finance lease) applies to value the relevant property or services; and
(b)
the person enters into the financial arrangement before the end of the 2013–14 income year; and
(c)
for the financial arrangement, the person has filed returns of income in accordance with this section for the 2013–14 income year and every earlier income year.
Treatment
(2)
The person, applying sections 81 and 82 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 as if in force, may treat sections EW 32 and EW 33C (which relate to certain financial arrangements) as applying to the financial arrangement for the 2013–14 income year and every earlier income year. Section EW 33B (Foreign ASAPs: designated FX hedges) is excluded.
Defined in this Act: amount, financial arrangement, foreign ASAP, FX hedge, IFRS, income year
Section EZ 76: inserted (with effect on 1 April 2008), on 30 June 2014, by section 100 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EZ 76(1)(a): amended, on 24 February 2016, by section 160 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
EZ 77 Substituting debentures repeal: transitional rules
When this section applies
(1)
This section applies if a person has a substituting debenture when the application of section 102 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (the repealing Act) repeals section FA 2(5) and a financial arrangement arises.
Substituting debenture: last day
(2)
On 31 March 2015—
(a)
the substituting debenture is treated as cancelled; and
(b)
an amount equal to the debenture’s outstanding principal and outstanding accrued interest is treated as paid to the holder, for the cancellation, by the debenture’s issuer.
Financial arrangement: first day
(3)
On 1 April 2015, the debenture’s issuer and holder are treated as entering into the financial arrangement on the same terms and conditions as the debenture described in subsection (2), except that the amount of principal treated as advanced to the issuer is an amount equal to the amount described in subsection (2)(b).
Subsections (2) and (3) modified
(4)
If the repeal of section FA 2(5) arises because a debenture that a person is party to fails to meet a requirement described in section 102(5) of the repealing Act, then—
(a)
subsection (2) is modified to apply on the last day of the tax year immediately before the tax year that corresponds to the income year in which the failure to meet a requirement occurs; and
(b)
subsection (3) is modified to apply on the first day of the tax year that corresponds to the income year in which the failure to meet a requirement occurs.
Continuity
(5)
A change in voting interest or market value interest that arises from the application of section 102 of the repealing Act is ignored for the purposes of the continuity provisions.
Defined in this Act: consideration, continuity provisions, financial arrangement, financial arrangements rules, income year, market value interest, substituting debenture, voting interest
Section EZ 77: inserted, on 30 June 2014, by section 101 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Damage from Hurunui/Kaikōura earthquakes
Heading: inserted, on 30 March 2017 (applying for the 2015–16 and later income years), by section 93(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
EZ 78 Insurance for Hurunui/Kaikōura earthquake damage of property: treatment as disposal and reacquisition
When this section applies
(1)
This section applies for a person and an item of depreciable property when—
(a)
the item is damaged by a Hurunui/Kaikōura earthquake as that term is defined in section 4 of the Hurunui/Kaikōura Earthquakes Recovery Act 2016 (the Hurunui/Kaikōura earthquake); and
(b)
the person is entitled to an amount of insurance or compensation for the damage to the item; and
(c)
the item is assessed by the payer of the insurance or compensation as uneconomic to repair; and
(d)
the damage does not meet the requirements of section EE 47(4) (Events for purposes of section EE 44).
Treatment as disposal and reacquisition of item
(2)
The person is treated as, on the date of the Hurunui/Kaikōura earthquake,—
(a)
disposing of the item for the amount of insurance or compensation; and
(b)
reacquiring the item for zero consideration.
Relationship with section EE 52
(3)
This section overrides section EE 52 (Amount of depreciation recovery income when compensation received).
Defined in this Act: amount, depreciable property, income year
Section EZ 78: inserted, on 30 March 2017 (applying for the 2015–16 and later income years), by section 93(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
EZ 79 Insurance for Hurunui/Kaikōura earthquake damage of property: limit on depreciation recovery income
When this section applies
(1)
This section applies for a person and an item of depreciable property when—
(a)
the item is damaged by a Hurunui/Kaikōura earthquake as that term is defined in section 4 of the Hurunui/Kaikōura Earthquakes Recovery Act 2016; and
(b)
the person is entitled to an amount of insurance or compensation for the damage to the item; and
(c)
the damage does not meet the requirements of section EE 47(4) (Events for purposes of section EE 44); and
(d)
section EZ 78 does not apply for the item.
Limit on depreciation recovery income under section EE 52
(2)
If the person would derive depreciation recovery income under section EE 52 (Amount of depreciation recovery income when compensation received) in an income year for the item in the absence of this section, the person derives in the income year an amount of depreciation recovery income equal to the lesser of—
(a)
the amount of depreciation recovery income under section EE 52 that the person would derive in the income year for the item in the absence of this section:
(b)
the total of the amounts of depreciation loss for which the person has been allowed deductions for the item.
Relationship with section EE 52
(3)
This section overrides section EE 52.
Defined in this Act: amount, deduction, depreciable property, depreciation loss, depreciation recovery income, income year
Section EZ 79: inserted, on 30 March 2017 (applying for the 2015–16 and later income years), by section 93(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Income equalisation schemes
Heading: inserted (with effect on 1 April 2017), on 30 March 2021, by section 57(1) (and see section 57(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
EZ 80 Refund of excess deposit in main income equalisation account as consequence of election under section EZ 4B
When this section applies
(1)
This section applies when—
(a)
a person makes an election under section EZ 4B(2) (Cattle destroyed because of Mycoplasma bovis: spreading); and
(b)
as a consequence of the election, the person’s deposits for an accounting year, less the amount of any refund made to the person for the accounting year under section EH 8 (Refund of excess deposit), are more than their main maximum deposit for the accounting year.
Refund
(2)
The Commissioner must refund the excess to the person from deposits the person made for the accounting year—
(a)
to the extent to which, at the time the election is made, the person has sufficient deposits made for the accounting year in their main income equalisation account to enable the Commissioner to do so; and
(b)
as soon as practicable after the election is made.
Treatment of interest
(3)
The amount of the refund must include any interest payable under section EH 6 (Interest on deposits in main income equalisation account) on a deposit from which the excess must be refunded.
When subsection (5) applies
(4)
Subsection (5) applies when the Commissioner is unable to refund the full amount of the excess to the person from deposits the person made for the accounting year because some or all of those deposits (the refunded deposits) have already been refunded to the person under section EH 13 or EH 15 (which relate to refunds from main income equalisation accounts).
Treatment of certain deposits
(5)
The earliest of the refunded deposits to have been refunded, to the extent necessary to make up the shortfall, are treated as—
(a)
not having been refunded under section EH 13 or EH 15, as applicable; and
(b)
having been refunded under this section.
Income when refund given
(6)
A refund under this section is,—
(a)
to the extent to which the refund is interest payable under section EH 6, income under section CZ 37(1) (Income equalisation schemes); and
(b)
to the extent to which the refund is not interest payable under section EH 6, excluded income under section CZ 37(2).
Modified application of section EH 6
(7)
Section EH 6 applies to a deposit that forms all or part of the excess, other than a deposit that has been refunded before the election is made, with the following modifications:
(a)
interest is computed with daily rests from the date of acknowledgment of the receipt of the deposit until the date the election is made:
(b)
interest on the deposit accrues until the earlier of—
(i)
31 March in each year; and
(ii)
the date the election is made.
Relationship with section EH 8
(8)
This section overrides section EH 8.
Defined in this Act: accounting year, amount, Commissioner, deposit, excluded income, income, interest, main income equalisation account, main maximum deposit, pay, year
Section EZ 80: inserted (with effect on 1 April 2017), on 30 March 2021, by section 57(1) (and see section 57(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
EZ 81 Refund of excess deposit in adverse event income equalisation account as consequence of election under section EZ 4B
When this section applies
(1)
This section applies when—
(a)
a person makes an election under section EZ 4B(2) (Cattle destroyed because of Mycoplasma bovis: spreading); and
(b)
as a consequence of the election, the person’s adverse event deposits for an accounting year ignoring section EH 60 (Transfer of deposit), less the amount of any refund made to the person for the accounting year under section EH 42 (Refund of excess deposit), are more than their adverse event maximum deposit for the accounting year.
Refund
(2)
The Commissioner must refund the excess to the person from deposits the person made for the accounting year—
(a)
to the extent to which, at the time the election is made, the person has sufficient deposits made for the accounting year in their main income equalisation account to enable the Commissioner to do so; and
(b)
as soon as practicable after the election is made.
Treatment of interest
(3)
The amount of the refund must include any interest payable under sections EH 6 and EH 40 (which relate to interest on deposits in income equalisation accounts) on a deposit from which the excess must be refunded.
When subsection (5) applies
(4)
Subsection (5) applies when the Commissioner is unable to refund the full amount of the excess to the person from deposits the person made for the accounting year because some or all of those deposits (the refunded deposits) have already been refunded to the person under section EH 13, EH 15, or EH 45 (which relate to refunds from income equalisation accounts).
Treatment of certain deposits
(5)
The earliest of the refunded deposits to have been refunded, to the extent necessary to make up the shortfall, are treated as—
(a)
not having been refunded under section EH 13, EH 15, or EH 45, as applicable; and
(b)
having been refunded under this section.
Income when refund given
(6)
A refund under this section is,—
(a)
to the extent to which the refund is interest payable under section EH 6 or EH 40, income under section CZ 37(1) (Income equalisation schemes); and
(b)
to the extent to which the refund is not interest payable under section EH 6 or EH 40, excluded income under section CZ 37(2).
Modified application of section EH 6
(7)
Section EH 6 applies to a deposit that forms all or part of the excess, other than a deposit that has been refunded before the election is made, with the following modifications:
(a)
interest is computed with daily rests from the date on which the deposit was transferred to the main income equalisation account until the date the election is made:
(b)
interest on the deposit accrues until the earlier of—
(i)
31 March in each year; and
(ii)
the date the election is made.
Relationship with section EH 42
(8)
This section overrides section EH 42.
Some definitions
(9)
In this section,—
adverse event deposit has the meaning given in section EH 62 (Other definitions)
deposit—
(a)
means an adverse event deposit; and
(b)
includes an adverse event deposit that has been transferred to a main income equalisation account under section EH 60 or EZ 82; and
(c)
includes, for the purposes of subsections (3) and (7)(a) and (b), interest that is added to a deposit, as defined in paragraphs (a) and (b), under section EH 6(5) or EH 40(4)
main income equalisation account has the meaning given in section EH 36 (Other definitions).
Defined in this Act: accounting year, adverse event deposit, adverse event maximum deposit, amount, Commissioner, deposit, excluded income, income, interest, main income equalisation account, pay, year
Section EZ 81: inserted (with effect on 1 April 2017), on 30 March 2021, by section 57(1) (and see section 57(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section EZ 81(9) deposit paragraph (b): amended (with effect on 18 March 2019), on 30 March 2021, by section 60 of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Adverse event income equalisation accounts[Repealed]
Heading: repealed (with effect on 18 March 2019), on 30 March 2021, by section 58 of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
EZ 82 Transfers of deposits when adverse event income equalisation accounts abolished
When this section applies
(1)
This section applies when a person has an adverse event income equalisation account (the adverse event account) at the end of the income year (the repeal year) in which the repeal of section EH 39 (Adverse event income equalisation account) comes into force.
Main income equalisation account
(2)
If the person does not have a main income equalisation account (the main account) at the end of the repeal year, the Commissioner must open such an account in the name of the person at the beginning of the following year.
Balance in adverse event account credited to person’s main account
(3)
An amount equal to the balance in the person’s adverse event account is debited to the person’s adverse event account at the end of the repeal year and credited to the person’s main account at the beginning of the following year.
Relationship with sections DQ 1 and EH 4
(4)
A credit to the person’s main account under subsection (3) is a deposit that is not subject to section EH 4 (Main deposit) and the person is not allowed a deduction under section DQ 1 (Main income equalisation scheme) for the deposit.
Defined in this Act: adverse event income equalisation account, Commissioner, deduction, income year, main income equalisation account
Section EZ 82: inserted, as section EZ 80, on 18 March 2019, by section 191 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section EZ 82: renumbered (with effect on 18 March 2019), on 30 March 2021, by section 59 of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
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Versions
Income Tax Act 2007
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