“CG 5B Receipts from insurance, indemnity, or compensation for interruption or impairment of business activities

• “When this section applies

  “(1) This section applies when a person receives an amount of insurance, indemnity, or compensation for an interruption or impairment of business activities resulting from an event.

  “Income

  “(2) The part of the insurance, indemnity, or compensation attributable to income that the person would have derived if not for the event is income of the person.

  “Timing of income

  “(3) The income is allocated to the earlier of—

  • “(a) the income year in which the amount is received:

  • “(b) the income year in which the amount is reasonably able to be estimated.

  “Defined in this Act: amount, business, income, income year”.

“CW 1B Treaty of Waitangi claim settlements: rights to take timber

• “When this section applies

  “(1) This section applies when a person's right to take timber (the old right) is extinguished, and new rights (the new rights) to take timber are granted to the person in place of the old right, if––

  • “(a) the sole reason for the new rights replacing the old right is to facilitate a Treaty of Waitangi claim settlement process; and

  • “(b) the rights and obligations of the new rights are equivalent to the old right, ignoring differences that are solely for the reason in paragraph (a).

  “Exempt income

  “(2) An amount under section CB 24(1)(b) (Disposal of timber or right to take timber) for the extinguishing of the old right, or for the granting of the new rights, is exempt income of the relevant person. The amount is not income under that section.

  “Exception

  “(3) Subsection (2) does not apply to an amount to the extent it is compensation paid, for the new rights replacing the old right, to the person who is granted the new rights.

  “Relationship with section DP 9B

  “(4) Section DP 9B (Treaty of Waitangi claim settlements: rights to take timber) deals with the cost of the new rights for the person who is granted them.

  “Defined in this Act: amount, exempt income, income, pay, person, right to take timber”.

“When this section also applies

• “(1B) This section also applies when a foreign investment PIE attributes income to an investor who is, for the calculation period in which the amount is attributed,—

  • “(a) a notified foreign investor other than a person referred to in section HM 55D(6):

  • “(b) a transitional resident who has chosen a prescribed investor rate referred to in schedule 6, table 1, row 10 (Prescribed rates: PIE investments and retirement scheme contributions):

  • “(c) a transitional resident when the calculation period falls in the tax year in which the person becomes or ceases to be a transitional resident:

  • “(d) an investor in the PIE when the calculation period falls in the tax year in which the person either becomes or ceases to be resident in New Zealand.”

• “(c) a person to whom section HM 57B (Prescribed investor rates for new residents) applies chooses not to apply the section to determine their prescribed investor rate for a resident year.”

“Excluded income”.

“Treatment as non-resident passive income

• “(2) Despite subsection (1), an amount paid by a foreign investment PIE to a notified foreign investor in the PIE is not excluded income under this section to the extent to which it is treated under section HM 44B (NRWT calculation option) as non-resident passive income.”

“CZ 23 Insurance or compensation for buildings replaced as revenue account 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 2016–17 income year when the person,—

  • “(a) in or before the current year, receives insurance or other compensation for buildings (the affected property), each of which is revenue account property and, as a result of a Canterbury earthquake as that term is defined in section 4 of the Canterbury Earthquake Recovery Act 2011 is rendered useless for the purpose of deriving income, and demolished or abandoned for later demolition, because of damage to the building or to the neighbourhood of the building; and

  • “(b) in the absence of this section, would have in or before the current year a total amount of income under section CG 6 (Receipts from insurance, indemnity, or compensation for trading stock) from the insurance or compensation for the affected property that exceeds the total amount of deductions under section DB 23 (Cost of revenue account property) for the affected property; and

  • “(c) plans in the current year to acquire property (the replacement property) replacing affected property and meeting the requirements of subsection (4); and

  • “(d) gives written notice to the Commissioner under subsection (6) in relation to the affected property.

  “Suspended recovery income

  “(2) The amount of the excess (the excess recovery) referred to in subsection (1)(a) is not income of the person except to the extent of the amount (the suspended recovery income) remaining after adjustment under subsection (3) that is attributed to an income year by subsection (5).

  “Effect of purchase of replacement property

  “(3) If the person incurs expenditure (the replacement cost) to acquire replacement property,—

  • “(a) for the purposes of determining the value of the replacement property for section EA 2 (Other revenue account property), the amount of the person's expenditure on the replacement property, to the extent that it is less than or equal to the total amount of the income under section CG 6 for the affected property, is treated as being reduced by an amount calculated by multiplying the replacement cost by the excess recovery and dividing the result by the total amount of deductions under section DB 23 for the affected property; and

  • “(b) the amount of the suspended recovery income immediately before the expenditure is reduced by an amount equal to the reduction of expenditure under paragraph (a) for the purposes of section EA 2.

  “Requirements for replacement property

  “(4) For an item of affected property, replacement property must be a building that is revenue account property—

  • “(a) acquired in or before the person's 2015–16 income year; and

  • “(b) located in greater Christchurch as that term is defined in section 4 of the Canterbury Earthquake Recovery Act 2011.

  “Amount remaining at end of 2015–16 income year or when person changes intentions, is liquidated, or becomes bankrupt

  “(5) The person has an amount of income for the affected property in the current year equal to the amount of suspended recovery income when—

  • “(a) the current year ends, if the current year is the 2015–16 income year:

  • “(b) in the current year, the person decides not to replace the affected property:

  • “(c) in the current year, the person goes into liquidation or becomes bankrupt.

  “Notice of election for affected property

  “(6) A person choosing to rely on this section to suspend in a current year the recognition of suspended recovery income from the insurance for affected property must give written notice to the Commissioner—

  • “(a) by the later of 31 January 2012 and the date on which the return of income is filed for the earliest income year (the estimate year) in which the amount of the insurance for the affected property can be reasonably estimated; 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

  “(7) A notice under subsection (6) must—

  • “(a) describe the affected property; and

  • “(b) give details of replacement property acquired in the current year to replace, in full or in part, the affected property; and

  • “(c) give the cost of the replacement property and the reduction under subsection (3) of that cost for the purposes of section EA 2; and

  • “(d) give the amount, for the affected property, of the income from insurance or compensation remaining suspended under this section at the end of the current year.

  “Relationship to section CG 6

  “(8) This section overrides section CG 6.

  “Defined in this Act: amount, deduction, income, income year, notice, return of income”.

“DB 3B Use of money interest

• “Deduction

  “(1) A person is allowed a deduction for an amount of interest they are liable to pay under Part 7 of the Tax Administration Act 1994.

  “Timing of deduction

  “(2) The deduction is allocated under section EF 5 (Use of money interest payable by person).

  “Link with subpart DA

  “(3) This section supplements the general permission and overrides the capital limitation, the private limitation, and the employment limitation. The other general limitations still apply.

  “Defined in this Act: amount, capital limitation, deduction, employment limitation, general limitation, general permission, private limitation”.

“DB 4B Fees to purchase funds in tax pooling accounts

• “Deduction

  “(1) A person is allowed a deduction for expenditure incurred in purchasing an amount held in a tax pooling account to pay a liability for provisional tax, terminal tax, or an increase in an assessment of tax as described in sections RP 17 to RP 21 (which relate to tax pooling intermediaries).

  “Timing of deduction

  “(2) The deduction is allocated to the income year in which the amount is transferred into the person's tax account by the Commissioner to satisfy the person's obligation to pay the tax.

  “Link with subpart DA

  “(3) This section supplements the general permission and overrides the private limitation, the employment limitation, and the withholding tax limitation. The other general limitations still apply.

  “Defined in this Act: amount, assessment, Commissioner, deduction, employment limitation, general permission, income year, intermediary, pay, private limitation, provisional tax, tax account with the Commissioner, tax pooling account, terminal tax, withholding tax limitation”.

“DB 54B Expenditure incurred by foreign investment PIEs

• “When this section applies

  “(1) This section applies when a foreign investment PIE incurs expenditure or loss in deriving income attributable to a notified foreign investor in the PIE.

  “No deduction

  “(2) The PIE is denied a deduction for the amount of the expenditure or loss.

  “Relationship with section DB 7

  “(3) This section overrides section DB 7 (Interest: most companies need no nexus with income).

  “Link with subpart DA

  “(4) This section overrides the general permission.

  “Defined in this Act: amount, deduction, foreign investment PIE, general permission, income, loss, notified foreign investor”.

“DP 9B Treaty of Waitangi claim settlements: rights to take timber

• “When this section applies

  “(1) This section applies when a person's right to take timber (the old right) has been extinguished, and new rights (the new rights) to take timber are granted to the person in place of the old right, if section CW 1B (Treaty of Waitangi claim settlements: rights to take timber) applied to exempt income for the extinguishing of the old right.

  “Cost of acquiring new rights

  “(2) The person who is granted the new rights is treated, for each new right, as having acquired the new right for a cost equal to the expenditure they incurred in relation to the old right, but only to the extent that the expenditure relates to the land covered by the new right and has not been deducted previously.

  “Defined in this Act: exempt income, land, person, right to take timber”.

• “(4B) Subsection (2) does not apply if the amount of income of the person under section CB 24 would be exempt income under section CW 1B (Treaty of Waitangi claim settlements: rights to take timber) but for section CW 1B(3).”

• “(2) The miner is denied a deduction for the amount that section EJ 16(2) prevents from being allocated to the income year in which the miner disposes of the asset.”

“DZ 19 Attributed CFC loss carried back under section EZ 32C

• For the purposes of subpart DN (Attributed losses from foreign equity), an amount of net loss carried back to an income year under section EZ 32C(12) (Treatment in section EX 20C of currency effects on CFC's borrowing) for a CFC is treated as being an attributed CFC loss from the CFC in the income year.

  “Defined in this Act: attributed CFC loss, CFC, income year, net loss”.

• “(d) a person receives, for an item of property, an amount of insurance to which section EZ 23B (Property acquired after depreciable property affected by Canterbury earthquakes) applies.”

“Irreparable damage or damage rendering building or grandparented structure useless

• “(4) The third event is—

  • “(a) the irreparable damage of an item of property that is not a building or grandparented structure; or

  • “(b) the damage of an item of property that is a building or grandparented structure, or of the neighbourhood of the building or grandparented structure, causing the building or grandparented structure to be—

    • “(i) useless for the purpose of deriving income; and

    • “(ii) demolished or abandoned for later demolition.”

“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.”

• “(a) the building or grandparented structure 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 grandparented structure or of the neighbourhood of the building or grandparented structure; and”.

• “(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.”

• “(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.”

• “(b) the person uses for the other financial arrangement a method that is neither of the following:

  • “(i) the IFRS financial reporting method:

  • “(ii) the method required under Determination G29: Agreements for sale and purchase of property denominated in foreign currency: exchange rate to determine the acquisition price and method for spreading income and expenditure.”

• “(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).”

“Later losses

• “(9B) Later losses is the total amount of adjustments to the accounting period under section EZ 32C (Treatment in section EX 20C of currency effects on CFC's borrowing) for an accounting period and financial arrangements for which that section applies.”

• “(e) attributed PIE income that is included in the attributable CFC amount for the accounting period under section EX 20B(3)(o).”

• “(a) a fixed-rate share:”.

• “(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.”

“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.”

“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 2016–17 income year when the person,—

  • “(a) in or before the current year, receives insurance or compensation for items of depreciable property (the affected property) each of which, as a result of a Canterbury earthquake as that term is defined in section 4 of the Canterbury Earthquake Recovery Act 2011,—

    • “(i) if not a building or grandparented structure, is irreparably damaged; or

    • “(ii) if a building or grandparented structure, is rendered useless for the purpose of deriving income, and demolished or abandoned for later demolition, because of damage to the building or grandparented structure or to the neighbourhood of the building or grandparented structure; and

  • “(b) in the absence of this section, would have in or before the current year, from insurance or compensation for the items of affected property (the affected class) in 1 of the categories referred to in subsection (10)(b), total depreciation recovery income under section EE 48 (Effect of disposal or event) exceeding the total amount for the affected class of depreciation loss, treated as a positive amount, under section EE 48; and

  • “(c) plans in the current year to acquire depreciable property (the replacement property) meeting the requirements of subsection (7); and

  • “(d) gives written notice to the Commissioner under subsection (9)—

    • “(i) specifying the affected property:

    • “(ii) linking, for the purposes of this section, each item of acquired replacement property with an affected class.

  “Depreciation recovery income and suspended recovery income

  “(2) The amount for the affected class of the excess referred to in subsection (1)(b) (the excess recovery) is not depreciation recovery income except to the extent of the amount that—

  • “(a) remains after adjustment under subsection (3) or (6) (the suspended recovery income); and

  • “(b) is attributed to an income year by subsection (7).

  “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 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 property.

  “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 affected property for which the person does not use the pool method is—

  • “(a) zero, if the cost of the affected property equals or is less than the person's total expenditure in acquiring, with or before the replacement item, other replacement property linked with the affected property; 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 property exceeds the total expenditure in acquiring, with or before the replacement item, other replacement property linked with the affected property:

    • “(ii) the amount of the expenditure on the replacement item:

  • “(b) excess is the excess recovery for the affected property:

  • “(c) affected cost is the total cost for the person of the affected property.

  “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 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 with or 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; and

    • “(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 property 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) be depreciable property that is not depreciable intangible property; and

  • “(b) be acquired in or before the person's 2015–16 income year; and

  • “(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, grandparented structure, or commercial fit-out.

  “Amount of depreciation recovery income

  “(8) The person has, in an income year for affected property, an amount of depreciation recovery income equal to the amount of suspended recovery income for the affected property—

  • “(a) at the end of the income year, if that year is the 2015–16 income year and neither of paragraphs (b) and (c) apply earlier; or

  • “(b) when in the income year the person decides not to acquire more replacement property, 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

  “(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 give written notice to 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 or grandparented structure 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.

  “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, grandparented structure, income year, liquidation, notice, pool, pool method, return of income, straight-line method”.

“EZ 32C Treatment in section EX 20C of currency effects on CFC's borrowing

• “When this section applies

  “(1) This section applies for a person for an accounting period (the current period) and a CFC when—

  • “(a) the CFC is not an entity that carries on a business of banking or insurance and is not controlled by such an entity; and

  • “(b) the main activity of the CFC in the period described in subsection (9) (the offset period) is borrowing to invest in shares in a foreign company controlled by the CFC; and

  • “(c) the CFC is a party to financial arrangements (the funding arrangements) for each of which—

    • “(i) the financial arrangement is a liability of the CFC providing funds to the CFC; and

    • “(ii) when the financial arrangement is entered, none of the parties to the financial arrangement, the person, and the associated persons, has a reasonable expectation that the CFC will have more income than expenditure under the financial arrangement; and

  • “(d) as a result of changes in currency exchange rates, the CFC has an amount (a loan currency amount) of loss (treated as a negative amount) or gain (treated as a positive amount) from a funding arrangement for the current period; and

  • “(e) the CFC has a loan currency amount from a funding arrangement for an accounting period—

    • “(i) other than the current period; and

    • “(ii) in the offset period for the current period; and

  • “(f) for either accounting period, a loan currency amount is included in the calculation for the funding arrangement of the amount of expenditure that contributes to the item limited funding costs in the formula in section EX 20C(2) (Net attributable CFC income or loss); and

  • “(g) for the relevant accounting period, the contribution of the item limited funding costs to the CFC's net attributable CFC income or net attributable CFC loss is reduced because the item fraction in that formula is less than 1; and

  • “(h) the person chooses in a return of income to have this section apply to the income year corresponding to the accounting period or to an earlier income year.

  “Included loan currency amount for funding arrangement and current period

  “(2) For a funding arrangement having a loan currency amount for an accounting period (the currency movement period) in the offset period that is included in the calculation of an item, other than later losses, in the formula in section EX 20C(2), an amount (the included currency amount) relating to the currency movement period is calculated for the item, the funding arrangement, and the current period using the formula—

  currency contribution × fraction − earlier adjustments.

  “Definition of items in formula

  “(3) In the formula in subsection (2),—

  • “(a) currency contribution is the loan currency amount contributed to the item for the funding arrangement and the currency movement period:

  • “(b) fraction is—

    • “(i) 1, if the loan currency amount is included in the calculation of the item attributable CFC; or

    • “(ii) the value for the funding arrangement and the currency movement period of the item fraction in the formula in section EX 20C(2), to the extent that the loan currency amount is included in the calculation of the item limited funding costs; or

    • “(iii) the fraction of the loan currency amount that is included in the item other deductions, to the extent that the loan currency amount is included in the calculation of that item:

  • “(c) earlier adjustments is the total amount of adjustments (treated as positive amounts) to the included currency amount for the funding arrangement and the currency movement period, each resulting from the application of subsection (7) for an accounting period that is not the current period and is in the offset period.

  “Conditions for adjustment of included currency amounts

  “(4) For the current period, subsection (7) applies to decrease included currency amounts that are zero or negative and relate to funding arrangements and currency movement periods in the offset period if, for the offset period and the funding arrangements of the CFC, the total of the included currency amounts—

  • “(a) is greater than zero; and

  • “(b) is greater than the total of the loan currency amounts.

  “Total amount of adjustments for included currency amounts

  “(5) For the current period, subsection (7) decreases included currency amounts referred to in subsection (4) by a total amount (the total current adjustment) equal to the lowest of the following:

  • “(a) the total, for the offset period and the funding arrangements, of the included currency amounts:

  • “(b) the amount obtained for the offset period and the funding arrangements by subtracting the total of the loan currency amounts from the total of the included currency amounts:

  • “(c) the total of the amounts calculated, for each accounting period in the offset period and each funding arrangement, using the formula—

    loan contribution × fraction − earlier adjustments.

  “Definition of items in formula

  “(6) In the formula in subsection (5)(c),—

  • “(a) loan contribution is the amount included in the calculation of an item, other than later losses, in the formula in section EX 20C(2) for the funding arrangement and the accounting period:

  • “(b) fraction is—

    • “(i) 1, if the amount is included in the calculation of the item attributable CFC; or

    • “(ii) the value for the funding arrangement and the accounting period of the item fraction in the formula in section EX 20C(2), to the extent that the amount is included in the calculation of the item limited funding costs; or

    • “(iii) the fraction of the amount that is included in the item other deductions, to the extent that the amount is included in the calculation of that item:

  • “(c) earlier adjustments is the total amount of adjustments (treated as positive amounts) to the amount for the funding arrangement and the accounting period, each resulting from the application of subsection (7) for an accounting period that is not the current period and is in the offset period.

  “Adjustment of included currency amount for funding arrangement and period

  “(7) The amount of the total current adjustment is—

  • “(a) applied first to the current period and then, in the order of earliest to latest, to the other accounting periods in the offset period:

  • “(b) reduced, for each accounting period, by an amount corresponding to the total amount subtracted under paragraph (d) for the accounting period, with the result being the amount (the available current adjustment) available to be applied to the next accounting period referred to in paragraph (a):

  • “(c) applied for funding arrangements having, for an accounting period,—

    • “(i) a negative loan currency amount that contributed an amount of expenditure to the item limited funding costs in the formula in section EX 20C(2); and

    • “(ii) an included currency amount that is negative or zero and from which the loan currency amount can be obtained by subtracting a positive amount (the difference):

  • “(d) applied for each such funding arrangement, for the accounting period, by subtracting from the included currency amount for the funding arrangement an amount calculated using the formula—

    	difference		×		available
    					total differences.

  “Definition of items in formula

  “(8) In the formula in subsection (7)(d),—

  • “(a) difference is the amount of the difference for the funding arrangement and the accounting period:

  • “(b) available is the lesser of the available current adjustment for the accounting period and the total amount of differences for the accounting period:

  • “(c) total differences is the total amount of differences for the accounting period.

  “Requirements for accounting periods in which adjustments made

  “(9) For a current period for a CFC, adjustments may be made under subsection (7) for a funding arrangement and an accounting period if the following requirements are met:

  • “(a) the accounting period is the current period or 1 of the 4 accounting periods immediately before the current period; and

  • “(b) the accounting period begins on or after 1 July 2009; and

  • “(c) the CFC is resident under section YD 3 (Country of residence of foreign companies) in the same country or territory for the period (the continuity period) consisting of the current period, the accounting period, and the accounting periods between the accounting period and the current period; and

  • “(d) a group of persons exists that has, for the CFC and the continuity period,—

    • “(i) voting interests of 49% or more in total; and

    • “(ii) market value interests of 49% or more in total.

  “Amount of adjustment included in item later losses in section EX 20C

  “(10) For the purposes of section EX 20C(9B), the amount of an adjustment under subsection (7) for a CFC's funding arrangement and an accounting period is included in the item later losses for the funding arrangement and the accounting period.

  “Amount of adjustment is expenditure of CFC under funding arrangement

  “(11) For the purposes of section EW 31 (Base price adjustment formula), the amount of an adjustment under subsection (7) for a CFC's funding arrangement and an accounting period is expenditure incurred by the CFC under the funding arrangement in the accounting period to the extent that the included currency amount corresponding to the adjustment is not, in the absence of this subsection, included in expenditure incurred under the funding arrangement in the accounting period.

  “Carrying back loss amounts arising from adjustments

  “(12) If adjustments for a CFC under subsection (7) for an accounting period result in a net loss, or an increase in the net loss, of the person for the corresponding income year, the person—

  • “(a) may use under section DZ 19 (Attributed CFC loss carried back under section EZ 32C) the amount of the net loss, or of the increase, to offset net income—

    • “(i) for an earlier income year in the offset period; and

    • “(ii) that has not previously been offset under this subsection; and

    • “(iii) to the extent given by subsection (13); and

  • “(b) must not use in the corresponding income year the amount of net loss carried back to the earlier income year.

  “Limit on loss amounts carried back

  “(13) The total amount of net loss carried back under subsection (12) to an earlier income year must not exceed the amount, calculated for the earlier income year in the absence of adjustments under subsection (7) and offsets under subsection (12), that is the lesser of—

  • “(a) the net income, or the increase in net income, of the person for the earlier income year produced by including foreign currency amounts in the calculation of net attributable CFC income or loss from CFCs; and

  • “(b) the net income, or the increase in net income, of the person for the earlier income year produced by including net attributable CFC income or loss from funding arrangements of CFCs.

  “No interest if tax payment excessive because of offset under subsection (12)

  “(14) An amount of tax paid by a person for an income year is not overpaid tax for the purposes of Part 7 of the Tax Administration Act 1994 to the extent that the amount—

  • “(a) exceeds the income tax liability of the person for the income year because of the use under subsection (12) of net loss from a later income year to offset net income; and

  • “(b) is paid before the offset occurs.

  “Defined in this Act: accounting period, associated person, attributable CFC amount, CFC, financial arrangement, income year, market value interest, net attributable CFC income, net attributable CFC loss, net income, net loss, return of income, voting interest”.

• “(ii) the amount (the group finance cost) that is the total amount for the New Zealand group found by calculating for each member of the New Zealand group the total amount (the member finance cost) of the items total deduction and FRD for the member, if the group finance cost is $1,000,000 or less and subparagraph (i) does not apply; or

• “(iii) the amount found by multiplying the amount by which $2,000,000 exceeds the group finance cost by the ratio obtained by dividing the member finance cost for the excess debt entity by the group finance cost, if the group finance cost is more than $1,000,000 and less than $2,000,000 and subparagraph (i) does not apply; or

• “(iv) zero, if the group finance cost is $2,000,000 or more and subparagraph (i) does not apply:”.

“Alternative calculation

• “(4) If a company that is in the same wholly-owned group of companies as the excess debt entity has a deduction for interest under any of sections DB 6 to DB 8, the company may choose to be treated as deriving the income that the excess debt entity would otherwise, under subsection (2), be treated as deriving for the income year. The amount of income is not calculated using the formula in subsection (2) but is limited as set out in subsection (5).

“Limitation on election amount

• “(5) The amount of income for which the company may make the election under subsection (4) must not be more than the total amount of deductions that the company has for interest for the income year, having taken into account any other income that the company chooses to treat itself as deriving under subsection (4).”

• “(viii) an amount of income under section CW 4 (Annuities under life insurance policies) or CX 40 (Superannuation fund deriving amount from life insurance policy).”

“Determining investors' prescribed investor rate

• “(13) For the purposes of determining the item rate in subsection (9), the taxable income of the investor does not include an amount that—

  • “(a) arises because their portfolio investor rate is lower than their prescribed investor rate; and

  • “(b) is treated as taxable income because section CX 56 (Portfolio investor allocated income and distributions of income by portfolio investment entities) does not apply.”

• “(ib) section DB 54B (Expenditure incurred by foreign investment PIEs):”.

“Outline of provisions related to particular PIEs

• “(2B) Certain PIEs either have special rules related to their activities or are affected by some particular rules. These are set out below:

  • “(a) for a listed PIE, see the following:

    • “(i) section CX 56C (Distributions to investors by listed PIEs):

    • “(ii) section EZ 63 (Disposal and acquisition upon entry):

    • “(iii) section HM 2(3), which relates to listed PIEs becoming multi-rate PIEs:

    • “(iv) section HM 18, which describes how an unlisted company becomes a listed PIE:

    • “(v) section HM 19, which relates to distributions of listed PIEs:

    • “(vi) section HM 21(4), for a transitional provision for investors in listed PIEs:

    • “(vii) section HM 28, for the consequences when a listed PIE does not meet a distributional requirement:

    • “(viii) sections MB 1(5) and MB 11, which relate to family scheme income:

  • “(b) for a life fund PIE, see the following:

    • “(i) section CX 55 (Proceeds from disposal of investment shares):

    • “(ii) section DR 1(2) (Policyholder base allowable deduction of life insurer):

    • “(iii) section EY 1(2) (What this subpart does):

    • “(iv) section EY 2(6) (Policyholder base):

    • “(v) section HM 4, which is about who can be an investor:

    • “(vi) section HM 10, which excludes entities other than life fund PIEs carrying on a business of life insurance:

    • “(vii) section HM 17, for an additional entry rule for PIEs other than life fund PIEs:

    • “(viii) section HM 19, for an additional entry rule for listed PIEs other than life fund PIEs:

    • “(ix) section HM 26, for an exit rule for entities other than life fund PIEs starting a life insurance business:

    • “(x) section OB 35B (ICA debit for transfer from tax pooling account for policyholder base liability):

    • “(xi) section OP 33B (Consolidated ICA debit for transfer from tax pooling account for policyholder base liability):

  • “(c) for a foreign investment PIE, see the following:

    • “(i) section CX 56 (Attributed income of certain investors in multi-rate PIEs):

    • “(ii) section CX 56B (Distributions to investors in multi-rate PIEs):

    • “(iii) section DB 54B (Expenditure incurred by foreign investment PIEs):

    • “(iv) section HM 6B, for the optional look-through treatment of income derived from other PIEs:

    • “(v) section HM 19B, for the particular requirements for foreign investment zero-rate PIEs:

    • “(vi) section HM 19C, for the particular requirements for foreign investment variable-rate PIEs:

    • “(vii) section HM 35C, which is about the determination of the income tax liability of a foreign investment PIE and the calculation of attributed PIE income for a notified foreign investor:

    • “(viii) sections HM 41(4) and HM 44(1B), for restrictions on the calculation method available to foreign investment PIEs:

    • “(ix) section HM 44B, for an additional calculation method for foreign investment PIEs:

    • “(x) section HM 47, which is about the calculation of the tax liability or tax credit of a foreign investment PIE:

    • “(xi) sections HM 55C to HM 55H, for the special requirements for foreign investment PIEs and their investors:

    • “(xii) section HM 71B, for the election mechanism for foreign investment PIEs:

    • “(xiii) schedule 6, tables 1 and 1B, for the prescribed tax rates for certain non-resident investors in foreign investment PIEs and the rates applying to certain sources of income attributed to investors:

    • “(xiv) section 28D of the Tax Administration Act 1994, for the information required from notified foreign investors.”

• “(e) a foreign investment PIE that is either a foreign investment zero-rate PIE or a foreign investment variable-rate PIE.”

“Foreign investment PIEs

• “(4) The provisions of the PIE rules as they relate to multi-rate PIEs apply in the same manner to foreign investment PIEs, unless a provision expressly states otherwise.”

• “(ab) in relation to proceeds of the investments that are attributable to notified foreign investors in a foreign investment PIE, the PIE has a tax liability—

  • “(i) calculated using a tax rate that is appropriate having regard to the income source and investment type; and

  • “(ii) resembling the tax liability of the investor if they were to make the investment directly:”.

• “(a) the investor has no tax liability on income arising from proceeds for which the PIE has a tax liability, unless—

  • “(i) the investor has given the PIE a rate that is lower than the correct rate:

  • “(ii) the investor has been treated by a foreign investment PIE as a notified foreign investor for a period in which they do not in fact meet the requirements of section HM 55D for notified foreign investor status:”.

“HM 6B Optional look-through rules for PIEs

• “When this section applies

  “(1) This section applies when—

  • “(a) a PIE (a retail PIE) derives an amount of attributed PIE income from another PIE (a wholesale PIE); and

  • “(b) the retail PIE has sufficient information about the income derived by the wholesale PIE to enable it to account for the amount and to discharge its tax obligations in relation to the amount.

  “Look-through treatment

  “(2) The retail PIE may choose to apply a look-through approach to the amount, treating the amount as if it were not received by the wholesale PIE but derived directly from the person who paid the amount to the wholesale PIE.

  “Foreign investment PIEs

  “(3) When a retail PIE that is a foreign investment variable-rate PIE derives an amount allowable under section HM 55G from a wholesale PIE that meets the requirements of section HM 19B(1), the retail PIE may treat the amount as a foreign-sourced amount.

  “Defined in this Act: amount, attributed PIE income, foreign investment variable-rate PIE, foreign investment zero-rate PIE, foreign-sourced amount, income, pay, PIE”.

“Foreign investment zero-rate PIEs

• “(2) Section HM 19B(2) modifies this section.”

“Foreign investment zero-rate PIEs

• “(2) Section HM 19B(2) overrides this section.”

“Foreign investment variable-rate PIEs

• “(3) Section HM 19C(1) overrides subsection (1)(a).”

• “(ix) an amount of income under section CW 4 (Annuities under life insurance policies) or CX 40 (Superannuation fund deriving amount from life insurance policy).”

“Foreign investment zero-rate PIEs

• “(2) Section HM 19B(2) overrides this section.”

“Foreign investment variable-rate PIEs

• “(3) Section HM 19C(2) overrides subsection (1)(a) and (b)(v).”

“Certain investments of foreign investment PIEs

• “(6) Despite the exclusion in subsection (1)(a) and (c), if a foreign investment variable-rate PIE has an investment in a land investment company resident in New Zealand or in an entity that qualifies for PIE status, the investment must––

  • “(a) carry voting interests in the company or entity, as applicable, of no more than 20%; or

  • “(b) have a market value of no more than 20% of all interests in the entity, if the entity is a unit trust.

“Exceeding threshold

• “(7) Section HM 55H(4) and (5) apply in the case of a breach of subsection (6).”

“HM 19B Modified rules for foreign investment zero-rate PIEs

• “Income

  “(1) Despite section HM 12, the income derived by a foreign investment zero-rate PIE must consist of no amount other than—

  • “(a) a foreign-sourced amount:

  • “(b) an amount allowable under section HM 55G, as measured under section HM 55H.

  “Residence

  “(2) A foreign investment zero-rate PIE is resident in New Zealand for the purposes of section HM 8 if it—

  • “(a) is a unit trust to which the Unit Trusts Act 1960 applies; and

  • “(b) has a trustee who is resident in New Zealand.

  “Defined in this Act: amount, foreign investment zero-rate PIE, foreign- sourced amount, income, resident in New Zealand, trustee, unit trust”.

“HM 19C Modified rules for foreign investment variable-rate PIEs

• “Investment types

  “(1) Despite section HM 11(a) and (d), no investment of a foreign investment variable-rate PIE may include an interest in land in New Zealand or a right or option in relation to land in New Zealand.

  “Income sources

  “(2) Despite section HM 12(a) and (b)(v), the income derived by a foreign investment variable-rate PIE must not include an amount derived from—

  • “(a) an interest in land in New Zealand:

  • “(b) the disposal of an interest in land in New Zealand.

  “Defined in this Act: amount, foreign investment variable-rate PIE, interest, land, New Zealand”.

• “(1) The rule for a minimum number of investors in section HM 14(1) does not apply if—

  • “(a) an investor class of the entity includes at least 1 investor listed in schedule 29, part A (Portfolio investment entities: listed investors):

  • “(b) the only income that the investor derives is exempt income under section CW 41 or CW 42 (which relate to charities).”

• “(2) The rule for maximum investor interests in section HM 15(1) does not apply if the investor is—

  • “(a) listed in schedule 29, part A or B:

  • “(b) a person whose only income is exempt income under section CW 41 or CW 42.”

“Foreign investment PIEs

• “(1B) For the provisions relating to the treatment of notified foreign investors in foreign investment PIEs, see sections HM 2(4), HM 33, HM 35C, HM 44B, HM 47(2B), (4), and (6), HM 51, HM 53, HM 55C to HM 55H, HM 60, HM 61(2), HM 64(4), and HM 65(5).”