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Income Tax Act 2007
Income Tax Act 2007
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Income Tax Act 2007
Part F Recharacterisation of certain transactions
Subpart FA—Recharacterisation of certain commercial arrangements
Contents
Introductory provision
FA 1 What this subpart does
This subpart alters the tax treatment of certain commercial arrangements by—
(a)
recharacterising either their nature or that of the amounts derived under the arrangements; and
(b)
providing rules for the treatment of the parties to the arrangement.
Defined in this Act: amount, arrangement, tax
Debentures and shares
FA 2 Recharacterisation of certain debentures
Treatment of debenture and interest
(1)
A profit-related debenture is treated for tax purposes as a share described in paragraph (b) of the definition of share in section YA 1 (Definitions), and the interest payable under the debenture is treated as a dividend.
No deduction
(2)
A company issuing a profit-related debenture is denied a deduction under section DB 10 (Interest or expenditure connected to profit-related debentures) for—
(a)
interest payable under the debenture; or
(b)
expenditure or loss incurred in connection with the debenture; or
(c)
expenditure or loss incurred in borrowing the money secured by or owing under the debenture.
When interest fixed to certain rates or indices[Repealed]
(3)
[Repealed]Profit-related debenture
(4)
A profit-related debenture—
(a)
means a debenture with a rate of interest that is set from time to time by reference to—
(i)
the dividend payable by the company issuing the debenture; or
(ii)
the profits of the company issuing the debenture, however measured:
(b)
does not include a debenture under which the interest payable is determined by a fixed relationship to—
(i)
banking rates; or
(ii)
general commercial rates; or
(iii)
economic, commodity, industrial, or financial indices, but the application of this subparagraph is subject to section FZ 1(3) (Treatment of interest payable under debentures issued before certain date):
(c)
does not include a debenture treated as a share under section FA 2B (Stapled debt securities).
Substituting debenture[Repealed]
(5)
[Repealed]Shares or available subscribed capital in another company[Repealed]
(6)
[Repealed]Amount of debenture[Repealed]
(7)
[Repealed]Terminating provisions
(8)
For the treatment of debentures issued before 8 pm New Zealand standard time on 23 October 1986, see section FZ 1.
Relationship with agency rules
(9)
Section HD 14 (Companies issuing debentures) does not apply to a profit-related debenture described in this section, or to an amount paid or payable under it.
Defined in this Act: amount, available subscribed capital, company, convertible note, debenture, deduction, dividend, interest, liquidation, loss, pay, profit-related debenture, share, shareholder, slice rule, tax
Compare: 2004 No 35 ss FC 1, FC 2
Section FA 2(1): amended, on 1 April 2015 (not applying, for an income year, to a debenture that a person is party to, if the debenture is issued under an arrangement entered into before 22 November 2013; and a binding ruling on the application of section FA 2(5) was issued to the person in relation to the arrangement; and the binding ruling would continue to apply but for the repeal of the substituting debenture rule by the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (the Act); and for the whole of the income year, the total amount and the term of all debentures issued under the arrangement are not more than those disclosed in the application for the binding ruling; and the person makes an irrevocable election in writing, received by the Commissioner on or before 31 July 2014, that the repeal of the substituting debenture rule in the Act does not apply to their debenture), by section 102(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FA 2(2): amended, on 1 April 2015 (not applying, for an income year, to a debenture that a person is party to, if the debenture is issued under an arrangement entered into before 22 November 2013; and a binding ruling on the application of section FA 2(5) was issued to the person in relation to the arrangement; and the binding ruling would continue to apply but for the repeal of the substituting debenture rule by the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (the Act); and for the whole of the income year, the total amount and the term of all debentures issued under the arrangement are not more than those disclosed in the application for the binding ruling; and the person makes an irrevocable election in writing, received by the Commissioner on or before 31 July 2014, that the repeal of the substituting debenture rule in the Act does not apply to their debenture), by section 102(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FA 2(3) heading: repealed (with effect on 1 April 2008), on 6 October 2009, pursuant to section 201(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FA 2(3): repealed (with effect on 1 April 2008), on 6 October 2009, by section 201(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FA 2(4): substituted (with effect on 1 April 2008), on 6 October 2009, by section 201(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FA 2(4)(b)(iii): amended (with effect on 1 April 2008), on 6 October 2009, by section 201(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FA 2(4)(c): added (with effect on 1 April 2008), on 6 October 2009, by section 201(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FA 2(5) heading: repealed, on 1 April 2015 (not applying, for an income year, to a debenture that a person is party to, if the debenture is issued under an arrangement entered into before 22 November 2013; and a binding ruling on the application of section FA 2(5) was issued to the person in relation to the arrangement; and the binding ruling would continue to apply but for the repeal of the substituting debenture rule by the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (the Act); and for the whole of the income year, the total amount and the term of all debentures issued under the arrangement are not more than those disclosed in the application for the binding ruling; and the person makes an irrevocable election in writing, received by the Commissioner on or before 31 July 2014, that the repeal of the substituting debenture rule in the Act does not apply to their debenture), pursuant to section 102(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FA 2(5): repealed, on 1 April 2015 (not applying, for an income year, to a debenture that a person is party to, if the debenture is issued under an arrangement entered into before 22 November 2013; and a binding ruling on the application of section FA 2(5) was issued to the person in relation to the arrangement; and the binding ruling would continue to apply but for the repeal of the substituting debenture rule by the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (the Act); and for the whole of the income year, the total amount and the term of all debentures issued under the arrangement are not more than those disclosed in the application for the binding ruling; and the person makes an irrevocable election in writing, received by the Commissioner on or before 31 July 2014, that the repeal of the substituting debenture rule in the Act does not apply to their debenture), by section 102(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FA 2(6) heading: repealed (with effect on 1 April 2008), on 6 October 2009, pursuant to section 201(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FA 2(6): repealed (with effect on 1 April 2008), on 6 October 2009, by section 201(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FA 2(7) heading: repealed, on 1 April 2015 (not applying, for an income year, to a debenture that a person is party to, if the debenture is issued under an arrangement entered into before 22 November 2013; and a binding ruling on the application of section FA 2(5) was issued to the person in relation to the arrangement; and the binding ruling would continue to apply but for the repeal of the substituting debenture rule by the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (the Act); and for the whole of the income year, the total amount and the term of all debentures issued under the arrangement are not more than those disclosed in the application for the binding ruling; and the person makes an irrevocable election in writing, received by the Commissioner on or before 31 July 2014, that the repeal of the substituting debenture rule in the Act does not apply to their debenture), pursuant to section 102(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FA 2(7): repealed, on 1 April 2015 (not applying, for an income year, to a debenture that a person is party to, if the debenture is issued under an arrangement entered into before 22 November 2013; and a binding ruling on the application of section FA 2(5) was issued to the person in relation to the arrangement; and the binding ruling would continue to apply but for the repeal of the substituting debenture rule by the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (the Act); and for the whole of the income year, the total amount and the term of all debentures issued under the arrangement are not more than those disclosed in the application for the binding ruling; and the person makes an irrevocable election in writing, received by the Commissioner on or before 31 July 2014, that the repeal of the substituting debenture rule in the Act does not apply to their debenture), by section 102(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FA 2 list of defined terms substituting debenture: repealed, on 1 April 2015 (not applying, for an income year, to a debenture that a person is party to, if the debenture is issued under an arrangement entered into before 22 November 2013; and a binding ruling on the application of section FA 2(5) was issued to the person in relation to the arrangement; and the binding ruling would continue to apply but for the repeal of the substituting debenture rule by the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (the Act); and for the whole of the income year, the total amount and the term of all debentures issued under the arrangement are not more than those disclosed in the application for the binding ruling; and the person makes an irrevocable election in writing, received by the Commissioner on or before 31 July 2014, that the repeal of the substituting debenture rule in the Act does not apply to their debenture), by section 102(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
FA 2B Stapled debt securities
When subsection (2) applies
(1)
Subsection (2) applies when—
(a)
a company has issued a debt security; and
(b)
the debt security is stapled to a share in the company or to a share in another company; and
(c)
the share is not a fixed-rate share.
Stapled debt treated as equity
(2)
The stapled debt security is treated as a share issued by the company and—
(a)
interest payable under the stapled debt security is treated as a dividend; and
(b)
section DB 10B (Interest or expenditure connected to stapled debt security) may deny deductions for expenditure or loss related to the security.
Stapled securities aggregated
(3)
A stapled debt security and a share to which it is stapled are treated as a single share for the purposes of applying—
(a)
the definition of non-participating redeemable share in section CD 22(9) (Returns of capital: off-market share cancellations); and
(b)
[Repealed](c)
the definitions, in section YA 1 (Definitions), of—
(i)
fixed-rate foreign equity; and
(ii)
fixed-rate share, except for the purposes of subsection (1)(c).
Meaning of debt security
(4)
In this section, debt security means a financial arrangement if—
(a)
the financial arrangement provides funds to the company; and
(b)
the financial arrangement gives rise to an amount for which the company would have a deduction but for this section; and
(c)
the amount does not arise only from either a movement in a currency exchange rate or a non-contingent fee.
Meaning of stapled
(5)
In this section, a debt security is stapled to a share if—
(a)
the debt security can, or ordinarily can, be disposed of only together with the share; and
(b)
the arrangement that requires the debt security and the share to be disposed of together is an arrangement to which the company that issued the debt security or the company that issued the share is a party.
Exclusion: small company shareholder agreements
(6)
This section does not apply if the debt security is stapled to the share using a shareholder agreement for a company that is not a widely-held company.
Exclusion: stapling before 25 February 2008
(7)
This section does not apply if the debt security was stapled to the share before 25 February 2008.
Defined in this Act: amount, associated person, company, debt security, deduction, dividend, financial arrangement, fixed-rate share, interest, non-contingent fee, share, shareholder agreement, stapled, widely-held company
Section FA 2B: inserted (with effect on 1 April 2008), on 6 October 2009, by section 202(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FA 2B(3)(b): repealed (with effect on 30 June 2009), on 6 October 2009, by section 202(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FA 3 Recharacterisation of certain dividends: recovery of cost of shares held on revenue account
When this section applies
(1)
This section applies to the amount of a dividend derived from shares that are revenue account property of a person when—
(a)
the payment of the dividend realises or recovers the price the person paid for the shares; and
(b)
the payment is made at the person’s control or direction, or is part of a scheme that includes the acquisition of the shares and the payment of the dividend.
Treatment of amount derived
(2)
The dividend is treated as an amount derived on a sale of the shares to the extent to which the actual amount realised by the person on the disposal of the shares is less than the cost to the person of acquiring the shares.
Dividend
(3)
Despite subsection (2), a dividend taken into account under this section remains a dividend derived by the person in the income year.
Defined in this Act: amount, dividend, income year, pay, revenue account property, share
Compare: 2004 No 35 s FC 3
Section FA 3 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).
FA 4 Recharacterisation of shareholder’s base: company reacquiring share
When this section applies
(1)
This section applies to a shareholder in a company in relation to an off-market cancellation of shares by the company under section CD 22 (Returns of capital: off-market share cancellations) when—
(a)
the shareholder holds the share as revenue account property; and
(b)
after the cancellation, they continue to hold some shares of the same class.
When whole amount treated as dividend
(2)
If the whole of the amount that the shareholder receives for the cancellation is treated as a dividend, the following paragraphs apply:
(a)
the shareholder is not regarded as having disposed of the cancelled share, except for the purpose of determining whether they have derived a dividend; and
(b)
the cost to the shareholder of the cancelled share is added to the cost of the shareholder’s remaining shares of the same class under subsection (6).
Below market value of shares
(3)
If subsection (2) does not apply, and the amount paid by the company is less than the market value of the shares at the time when notice is first given of the cancellation either by the shareholder or the company, the following paragraphs apply:
(a)
an amount calculated using the formula in subsection (4) is added to the cost of the shareholder’s remaining shares of the same class under subsection (6); and
(b)
the amount is excluded from the cost of the share being cancelled so that the shareholder is denied a deduction under section DB 25 (Cancellation of shares held as revenue account property) for the amount unless the share is trading stock of the shareholder; and
(c)
sections GC 1 and GC 2 (which relate to the disposal of trading stock for inadequate consideration) does not apply.
Formula
(4)
The formula referred to in subsection (3)(a) is—
share cost − (cost pre-cancellation × amount from cancellation ÷ market value).
Definition of items in formula
(5)
In the formula,—
(a)
share cost is the cost of the cancelled share to the shareholder:
(b)
cost pre-cancellation is the total cost to the shareholder of all their shares of the same class immediately before the cancellation:
(c)
amount from cancellation is the amount derived by the shareholder from the company for the cancellation:
(d)
market value is the total market value of all the shareholder’s shares of the same class immediately before the cancellation.
When subsection (7) applies
(6)
Subsection (7) applies at a time after the cancellation when the cost of the remaining shares is taken into account under subpart EB (Valuation of trading stock (including dealer’s livestock)), or otherwise.
Adding amount to cost of shares
(7)
The amount referred to in subsection (2)(b) or (3)(a) must be fairly divided among, and added to, the cost of the shareholder’s remaining shares of the same class.
Defined in this Act: amount, company, deduction, dividend, market value, notice, off-market cancellation, revenue account property, share, shareholder, shares of the same class, trading stock
Compare: 2004 No 35 s FC 4
Section FA 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 FA 4(2)(b): amended (with effect on 1 April 2008), on 30 March 2017, by section 94(1) (and see section 94(2)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Leases
FA 5 Assets acquired and disposed of after deduction of payments under lease
When this section applies
(1)
This section applies when a person (the lessee)—
(a)
leases, rents, or hires an asset that is—
(i)
plant, machinery, or other equipment; or
(ii)
a motor vehicle; or
(iii)
a temporary building; and
(b)
is allowed a deduction for the rental payments; and
(c)
acquires the asset and later disposes of it; and
(d)
the consideration derived on the disposal is not income of the lessee under a provision of this Act other than this section.
Income
(2)
If the consideration derived by the lessee for the asset is more than the cost of its acquisition, the excess is income of the lessee under section CG 7 (Recoveries after deduction of payments under lease). Subsection (3) overrides this subsection.
Adjustment to income
(3)
If the total amount of the deductions referred to in subsection (1)(b) is less than or equal to the excess, the amount of income under subsection (2) is the total amount of the deductions.
Apportionment
(4)
If the asset is disposed of together with other assets, the total consideration must be apportioned to reflect the respective market values of the assets.
Disposal below market value
(5)
If the asset is disposed of without consideration or for a consideration that is less than market value at the date of disposal, the asset is treated as having been disposed of at its market value.
Associated persons acquiring asset
(6)
Subsection (2) also applies if a person associated with the lessee acquires the asset, whether from the lessee or not, and disposes of it for an amount that is more than the amount paid to acquire it. Association is determined at the time of acquisition by the associated person. The lesser of the excess and the total amount of the lessee’s deductions is treated as income of the lessee.
Transfers on settlement of relationship property
(7)
In this section,—
(a)
subsection (1)(c) does not apply to an acquisition on a settlement of relationship property:
(b)
subsection (5) does not apply to a disposal on a settlement of relationship property.
Defined in this Act: amount, associated person, deduction, income, lease, lessee, market value, pay, settlement of relationship property, temporary building
Compare: 2004 No 35 s FC 5
Finance leases
FA 6 Recharacterisation of amounts derived under finance leases
When a personal property lease asset is leased under a finance lease, the lease is treated as a sale of the lease asset by the lessor to the lessee on the date on which the term of the lease starts, and—
(a)
the lessor is treated as giving a loan to the lessee for the lease asset; and
(b)
the lessee is treated as using the loan to buy the lease asset; and
(c)
subpart EE (Depreciation), the financial arrangements rules, and the other provisions of this Act apply to the arrangement as recharacterised.
Defined in this Act: finance lease, financial arrangements rules, lessee, lessor, loan, personal property lease asset, term of the lease
FA 7 Determining amount of loan
Value to lessor
(1)
For a lessor under a finance lease, the amount of the loan is determined under section EW 32 (Consideration for agreement for sale and purchase of property or services, hire purchase agreement, specified option, or finance lease).
Value to lessee
(2)
For a lessee under a finance lease, the amount of the loan is determined under sections EW 32 and EW 33 (which relate to the value of consideration under the financial arrangements rules).
Defined in this Act: amount, finance lease, lessee, lessor
Compare: 2004 No 35 ss FC 8A(2), (3),OB 1 “consideration”
, “lessee’s acquisition cost”
, “lessor’s disposition value”
FA 8 Deductibility of expenditure under finance lease
Lessee treated as owner
(1)
The lessee under a finance lease is treated as the owner of the personal property lease asset for the purposes of subpart EE (Depreciation).
Lessor not treated as owner
(2)
The lessor under a finance lease is not treated as the owner of the personal property lease asset for the purposes of subpart EE.
Defined in this Act: finance lease, lessee, lessor, personal property lease asset
Compare: 2004 No 35 s FC 8B(1)
FA 9 Treatment when lease ends: lessee acquiring asset
Acquisition treated as sale
(1)
When a lessee under a finance lease acquires the personal property lease asset by the date on which the term of the lease ends, the acquisition is treated as the same sale that is treated as occurring under section FA 6.
When lessee or associated person acquires lease asset and later disposes of it
(2)
If a lessee under a finance lease, or a person associated with them, acquires the lease asset and later disposes of it for an amount that is more than the consideration they paid for it, the excess is income of the lessee under section CC 11 (Lessee acquiring lease asset on expiry of term of lease).
Allocation and association
(3)
For the purposes of subsection (2),—
(a)
the excess is income of the lessee in the income year in which the lessee or associated person disposes of the asset:
(b)
association is determined at the time of acquisition by the associated person.
Exception
(4)
Subsection (2) does not apply if the consideration derived on the disposal is income of the lessee or an associated person under a provision of this Act other than this section.
Payment relating to aircraft engine overhaul
(5)
Expenditure of a person that relates to an aircraft including an unpriced aircraft engine and is deductible under sections DW 5 and DW 6 (which relate to aircraft engine acquisitions and overhauls) is not included in an amount of consideration paid by the person for the aircraft, for the purposes of this section.
Defined in this Act: aircraft engine, amount, associated person, consideration, finance lease, income, income year, lessee, personal property lease asset, term of the lease, unpriced aircraft engine
Compare: 2004 No 35 ss FC 8B(2), FC 8E
Section FA 9(5) heading: inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 95(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FA 9(5): inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 95(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FA 9 list of defined terms aircraft engine: inserted, on 1 April 2017, by section 95(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FA 9 list of defined terms consideration: inserted, on 1 April 2017, by section 95(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FA 9 list of defined terms unpriced aircraft engine: inserted, on 1 April 2017, by section 95(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
FA 10 Treatment when lease ends: lessor acquiring asset
When this section applies
(1)
This section applies when a finance lease ends by the date on which its term ends.
Acquisition by lessor at end of lease
(2)
If the lessee does not acquire the personal property lease asset by the date on which the term of the lease ends, the lessor is treated as having acquired it on that date at its guaranteed residual value. If there is no guaranteed residual value, the consideration is treated as zero. In this section, the consideration is called the notional sale price.
Further sale, assignment, or lease
(3)
Subsections (4) and (5) apply when the lessor sells, assigns, or leases the lease asset to another person under another finance lease on or after the date on which the term of the original lease ends.
When consideration more than notional sale price
(4)
If the consideration is more than the notional sale price,—
(a)
to the extent to which it is paid by the lessor to the lessee under the original finance lease, the notional sale price is increased by the amount of the difference; and
(b)
to the extent to which it is not paid by the lessor to the lessee under the original finance lease, the amount of the difference is income of the lessor under section CC 12 (Lessor acquiring lease asset on expiry of term of lease) in the income year in which the original lease term ends.
When consideration less than notional sale price
(5)
If the consideration is less than the notional sale price, and the lessee is required to pay the amount of the deficit to the lessor, the notional sale price is reduced by that amount.
Acquisition by lessor when lease ends early
(6)
If the lease is terminated before the end of its term and the lessee does not acquire the lease asset, the lessor is treated as acquiring it for an amount calculated using the formula—
outstanding balance − release payment.
Definition of items in formula
(7)
In the formula,—
(a)
outstanding balance is the amount of the outstanding balance of the loan on the date on which the lease is terminated:
(b)
release payment is the amount the lessee paid to be released from their obligations under the lease.
Payment relating to aircraft engine overhaul
(7B)
Expenditure of a person that relates to an aircraft including an unpriced aircraft engine and is deductible for the person under sections DW 5 and DW 6 (which relate to aircraft engine acquisitions and overhauls) is not included in an amount of consideration paid by the person for the aircraft, for the purposes of this section.
Relationship with section EE 45
(8)
Subsections (2) to (6) override section EE 45 (Consideration for purposes of section EE 44).
Defined in this Act: aircraft engine, amount, consideration, finance lease, guaranteed residual value, income, lease, lessee, lessor, loan, notional sale price, outstanding balance, pay, personal property lease asset, term of the lease, unpriced aircraft engine
Compare: 2004 No 35 ss FC 8B(3), FC 8C, FC 8D
Section FA 10(7B) heading: inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 96(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FA 10(7B): inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 96(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FA 10 list of defined terms aircraft engine: inserted, on 1 April 2017, by section 96(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FA 10 list of defined terms consideration: inserted, on 1 April 2017, by section 96(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FA 10 list of defined terms unpriced aircraft engine: inserted, on 1 April 2017, by section 96(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
FA 11 Adjustments for leases that become finance leases
When this section applies
(1)
This section applies when a lease is entered into on or after 20 May 1999 and—
(a)
the lease is a consecutive or a successive lease—
(i)
that is treated as 1 lease under the definition of lease; and
(ii)
with a term of the lease that the lessor and lessee do not contemplate, at the start of the term, will be more than 75% of the personal property lease asset’s estimated useful life; and
(iii)
with a term of the lease that is more than 75% of the asset’s estimated useful life:
(b)
the lease is an operating lease that becomes a finance lease under paragraph (c) of the definition of finance lease.
Adjustment required
(2)
The lessor and lessee must each adjust their income and expenditure calculated for the lease by including an adjustment in a return of income for the tax year corresponding to the income year in which the lease becomes a finance lease.
Amount of adjustment
(3)
The amount of the adjustment is calculated for the relevant person in relation to the period described in subsection (5) using the formula—
finance income − finance expenditure − unadjusted income
+ unadjusted expenditure.
Definition of items in formula
(4)
In the formula,—
(a)
finance income is the income that would have been derived by the person under the lease if the lease were a finance lease for the period:
(b)
finance expenditure is the expenditure that would have been incurred by the person under the lease if the lease were a finance lease for the period:
(c)
unadjusted income is the income derived by the person under the lease:
(d)
unadjusted expenditure is the expenditure incurred by the person under the lease.
Adjustment period
(5)
The period starts on the date on which the lease starts and ends on the last day of the income year in which the lease becomes a finance lease.
Adjustment positive
(6)
If the adjustment is positive, the amount is income of the relevant person under section CH 6 (Adjustments for certain finance and operating leases).
Adjustment negative
(7)
If the adjustment is negative, the amount is a deduction of the relevant person under section DB 51B (Adjustments for leases that become finance leases).
Payment relating to aircraft engine overhaul
(8)
Expenditure of a person that relates to an aircraft including an unpriced aircraft engine and is deductible for the person under sections DW 5 and DW 6 (which relate to aircraft engine acquisitions and overhauls) is not included in an amount of consideration paid by the person for the aircraft, for the purposes of this section.
Defined in this Act: aircraft engine, amount, consideration, estimated useful life, finance lease, income, income year, lease, lessee, lessor, operating lease, personal property lease asset, return of income, tax year, term of the lease, unpriced aircraft engine
Compare: 2004 No 35 s FC 8H
Section FA 11: substituted, on 1 April 2008, by section 406 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section FA 11(8) heading: inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 97(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FA 11(8): inserted, on 1 April 2017 (applying for the 2017–18 and later income years), by section 97(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FA 11 list of defined terms aircraft engine: inserted, on 1 April 2017, by section 97(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FA 11 list of defined terms consideration: inserted, on 1 April 2017, by section 97(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FA 11 list of defined terms unpriced aircraft engine: inserted, on 1 April 2017, by section 97(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
FA 11B Adjustments for certain operating leases
When this section applies
(1)
This section applies when a lease is an operating lease that—
(a)
is entered into on or after 20 May 1999 and before 20 June 2007; and
(b)
is an arrangement, or part of an arrangement that, on 20 June 2007, meets the requirements of paragraph (c)(i) to (iii) of the definition of finance lease; and
(c)
has a term of the lease ending after the end of the income year in which 20 June 2007 falls (the adjustment year); and
(d)
does not meet the requirements of section FA 11(1) before the end of the income year after the adjustment year.
Adjustment required
(2)
The lessor must adjust their income and expenditure calculated for the lease asset by including an adjustment in a return of income for the tax year corresponding to the income year after the adjustment year.
Amount of adjustment
(3)
The amount of the adjustment is calculated using the formula—
total depreciation losses ÷ 6.
Definition of item in formula
(4)
In the formula, total depreciation losses is the total amount of depreciation loss for the lease asset for which the lessor is allowed a deduction in the period that begins with the start of the term of the lease and ends with the end of the adjustment year.
Income
(5)
The amount of the adjustment is income of the lessor under the lease under section CH 6 (Adjustments for certain finance and operating leases) in the income year after the adjustment year.
Adjusted tax value
(6)
The adjusted tax value of the lease asset at the beginning of the income year after the adjustment year is the total of the amount of the adjustment and the adjusted tax value that the lease asset would have in the absence of this section.
Depreciation loss
(7)
For an income year beginning after 20 June 2007 in which the lease is an operating lease, the amount of depreciation loss allowed for the lease asset other than under section EE 48 (Effect of disposal or event) is five-sixths of the amount of depreciation loss that would be allowed for the lease asset in the absence of this subsection.
Defined in this Act: adjusted tax value, amount, arrangement, deduction, depreciation loss, finance lease, income, income year, lease, lessee, lessor, operating lease, return of income, tax year, term of the lease
Compare: 2004 No 35 s FC 8I
Section FA 11B: inserted, on 1 April 2008, by section 406 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Hire purchase agreements
FA 12 Recharacterisation of amounts derived under hire purchase agreements
When a person (the seller) provides personal property other than livestock or bloodstock to another person (the buyer) under a hire purchase agreement, the agreement is treated as a sale by the seller to the buyer on the date on which the term of the agreement starts, and—
(a)
the seller is treated as giving a loan to the buyer for the property; and
(b)
the buyer is treated as using the loan to buy the property; and
(c)
subpart EE (Depreciation), the financial arrangements rules, and the other provisions of this Act apply to the agreement as recharacterised.
Defined in this Act: amount, bloodstock, financial arrangements rules, hire purchase agreement, loan
FA 13 Agreements recharacterised as sale with finance provided
Value to seller
(1)
For a seller under a hire purchase agreement, the amount of the loan is determined under section EW 32 (Consideration for agreement for sale and purchase of property or services, hire purchase agreement, specified option, or finance lease).
Value to buyer
(2)
For a buyer under a hire purchase agreement, the amount to the buyer is determined under sections EW 32 and EW 33 (which relate to the value of consideration under the financial arrangements rules).
Defined in this Act: amount, hire purchase agreement, loan
Compare: 2004 No 35 ss FC 10(1)(a), OB 1 “consideration”
, “lessee’s acquisition cost”
, “lessor’s disposition value”
FA 14 Deductibility of expenditure or loss under hire purchase agreement
Buyer treated as owner
(1)
The buyer in section FA 12 is treated as the owner of the property for the purposes of subpart EE (Depreciation).
Seller not treated as owner
(2)
The seller in section FA 12 is not treated as the owner of the property for the purposes of subpart EE.
Discounted or bad debts
(3)
Subsection (4) applies if the seller takes an amount calculated under section FA 15 into account as the cost of trading stock or in the calculation of their net income for an income year.
No deduction for seller
(4)
The seller is denied a deduction under section DB 14 or DB 31 (which relate to debts sold at a discount and bad debts) for an amount owing under the hire purchase agreement.
Defined in this Act: amount, deduction, hire purchase agreement, income year, net income, trading stock
Compare: 2004 No 35 s FC 10(1)(c), (5)(c)
FA 15 Treatment when agreement ends: seller acquiring property
When this section applies
(1)
This section applies, subject to sections FA 16 and FA 17, when—
(a)
a hire purchase agreement described in section FA 12 ends by the date on which its term ends or after that date; and
(b)
the buyer does not acquire ownership of the property; and
(c)
a person associated with the buyer does not acquire ownership of the property.
Sale of property
(2)
The seller is treated as buying the property from the buyer for an amount equal to the outstanding balance calculated under subsection (3), and the buyer is treated as selling the property to the seller for that amount. The date of the sale is the date the agreement ends.
Outstanding balance
(3)
The outstanding balance is the amount calculated using the formula—
net balance due on termination − buyer’s termination payment
+ seller’s termination payment.
Definition of items in formula
(4)
In the formula,—
(a)
net balance due on termination is the net balance due under the hire purchase agreement on the date the agreement ends less any costs referred to in section 83ZE(2)(a) and (b) of the Credit Contracts and Consumer Finance Act 2003:
(b)
buyer’s termination payment is the sum of the following amounts, as applicable:
(i)
an amount paid by the buyer, or an associated person, to the seller, or an associated person, under the agreement; and
(ii)
an amount paid as a consequence of the ending of the agreement; and
(iii)
an amount required to be taken into account by the buyer under the base price adjustment in section EW 31 (Base price adjustment formula) or in item “a”
of the formula in section EZ 38(1) (Income and expenditure where financial arrangement redeemed or disposed of):
(c)
seller’s termination payment is the sum of the following amounts, as applicable:
(i)
an amount paid by the seller, or an associated person, to the buyer, or an associated person, under the agreement; and
(ii)
an amount paid as a consequence of the ending of the agreement; and
(iii)
an amount required to be taken into account by the buyer under the base price adjustment in section EW 31 or by the seller in item “b”
or “c”
of the formula in section EZ 38(1) or (2).
Base price adjustment
(5)
For the purposes of section EW 31, the outstanding balance is taken into account as the consideration paid by the buyer to the seller under the hire purchase agreement.
Defined in this Act: amount, associated person, hire purchase agreement, outstanding balance
Compare: 2004 No 35 ss FC 10(2), (5)(a), OB 1 “lessee’s outstanding balance”
, “lessor’s outstanding balance”
, “net balance due”
Section FA 15(4)(a): amended, on 6 June 2015, by section 82 of the Credit Contracts and Consumer Finance Amendment Act 2014 (2014 No 33).
FA 16 Treatment when agreement ends: when seller is cash basis person
When this section applies
(1)
This section applies for the purposes of section FA 15 when the seller is a cash basis person.
Reduction
(2)
The amount treated as the seller’s purchase price in section FA 15(2) is reduced by an amount for accrued but unpaid interest on the hire purchase agreement calculated using the formula—
accrual income − income.
Definition of items in formula
(3)
In the formula,—
(a)
accrual income is the amount of income that would have been derived under 1 of the spreading methods for payments under the hire purchase agreement if—
(i)
the seller were not a cash basis person; and
(ii)
section EW 31 (Base price adjustment formula) did not apply to the seller and the agreement in the income year when the agreement ends:
(b)
income is the amount of the seller’s income from payments received under the hire purchase agreement.
Defined in this Act: amount, cash basis person, hire purchase agreement, income, income year, interest, pay, spreading method
Compare: 2004 No 35 s FC 10(3)
FA 17 Treatment when agreement ends: when buyer is cash basis person
When this section applies
(1)
This section applies for the purposes of section FA 15 when the buyer is a cash basis person.
Reduction
(2)
The amount treated as the buyer’s sale price in section FA 15(2) is reduced by an amount for accrued but unpaid interest on the hire purchase agreement calculated using the formula—
prepaid expenditure − expenditure.
Definition of items in formula
(3)
In the formula,—
(a)
prepaid expenditure is the amount of prepaid expenditure that would have been incurred under 1 of the spreading methods for payments under the hire purchase agreement if—
(i)
the buyer were not a cash basis person; and
(ii)
section EW 31 (Base price adjustment formula) did not apply to the buyer and the agreement in the income year when the agreement ends:
(b)
expenditure is the amount of expenditure incurred by the buyer and treated as interest under the hire purchase agreement.
Defined in this Act: amount, cash basis person, hire purchase agreement, income year, interest, pay, prepaid expenditure, spreading method
Compare: 2004 No 35 s FC 10(4)
FA 18 Treatment of amounts paid in income years after agreement ends
When this section applies
(1)
This section applies when an amount that is liable to be paid under a hire purchase agreement is paid in an income year that is later than the income year in which the agreement ends.
Liability under agreement
(2)
If the buyer is liable to pay the amount under the terms of the agreement to the seller, the amount is income of the seller under section CC 13(2) (Amounts paid in income years after hire purchase agreement ends).
Payment after end of agreement
(3)
If the seller pays the amount to the buyer under the agreement and, consequent on the ending of the agreement, the amount was not taken into account, the amount is treated as—
(a)
expenditure incurred by the seller in the income year in which the amount is paid; and
(b)
income of the buyer under section CC 13(3), if they have been allowed a deduction in relation to the property under the agreement in the income year in which the amount is paid.
Associated persons
(4)
In this section, the seller or the buyer includes a person associated with them.
Defined in this Act: amount, associated person, deduction, hire purchase agreement, income, income year, pay
Compare: 2004 No 35 s FC 10(5)(d)–(f)
Subpart FB—Transfers of relationship property
Contents
FB 1 When this subpart applies
This subpart applies when property is transferred on a settlement of relationship property.
Defined in this Act: property, settlement of relationship property
Section FB 1: replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 24 February 2016, by section 161(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
FB 1B Meaning of settlement of relationship property and property
In this subpart,—
(a)
settlement of relationship property means a transaction under a relationship agreement that creates a disposal and acquisition of property between—
(i)
a person who is a party to the relationship agreement or is associated with a party to the agreement:
(ii)
another person who is a party to the relationship agreement or is associated with a party to the agreement:
(b)
property includes a look-through interest for a look-through company.
Defined in this Act: look-through company, look-through interest, property, relationship agreement, settlement of relationship property
Section FB 1B: inserted (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 24 February 2016, by section 162(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FB 1B: replaced (with effect on 1 April 2011 and applying for income years beginning on or after that date), on 24 February 2016, by section 163(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FB 1B(a): replaced, on 24 February 2016, by section 164 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
FB 1C Obligations for periods before and from transfer of property
Obligations relating to period before transfer
(1)
A transferor of property on a settlement of relationship property remains responsible for all tax obligations relating to the property and the period ending immediately before the transfer.
Obligations relating to period from transfer
(2)
In determining the tax obligations relating to property transferred on a settlement of relationship property and the period beginning with the transfer,—
(a)
the transferee is treated as—
(i)
acquiring the property at the cost of the property to the transferor; and
(ii)
acquiring the property on the date on which the transferor acquired the property; and
(iii)
acquiring and holding the property with the status, intention, and purpose of the transferor in relation to the property:
(b)
the transferor is treated as having not owned the property.
Relationship with sections FB 2 to FB 21
(3)
Sections FB 2 to FB 21 override this section.
Defined in this Act: property, settlement of relationship property, tax
Section FB 1C: inserted (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 24 February 2016, by section 165(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
FB 2 Personal property
When this section applies
(1)
This section applies for the purposes of sections CB 4 (Personal property acquired for purpose of disposal) and CB 5 (Business of dealing in personal property) when personal property, or an interest in personal property, is transferred on a settlement of relationship property.
Transfer at cost
(2)
The transfer is treated as a disposal and acquisition of the property for an amount that equals the cost of the property or, as applicable, the interest in the property, to the transferor.
Further disposal treated as dealing
(3)
If, after the transfer, the transferee disposes of the property, they are treated in relation to the disposal as carrying on a business of dealing in the property.
Defined in this Act: amount, business, settlement of relationship property
Compare: 2004 No 35 s FF 4
FB 3A Residential land
When this section applies
(1)
This section applies for the purposes of sections CB 6A, CB 16A, CZ 39, and CZ 40 (which relate to the bright-line test for residential land), and Part D (Deductions) when residential land is transferred on a settlement of relationship property.
Transfer at cost
(2)
The transfer is treated as a disposal and acquisition for an amount that equals the total cost of the residential land to the transferor at the date of transfer.
Date of acquisition
(3)
The transferee is treated as having acquired property in the residential land on the relevant date, for the transferor’s acquisition, in sections CB 6A, and CZ 39.
Defined in this Act: date of transfer, dispose, residential land, settlement of relationship property
Section FB 3A: inserted (with effect on 1 October 2015 and applying to a person’s disposal of residential land if the date that the person first acquires an estate or interest in the residential land is on or after that date), on 16 November 2015, by section 12(1) of the Taxation (Bright-line Test for Residential Land) Act 2015 (2015 No 111).
Section FB 3A(1): amended (with effect on 27 March 2021), on 30 March 2021, by section 61(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FB 3A(1): amended, on 23 March 2020, by section 115(1) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section FB 3A(3): amended (with effect on 27 March 2021), on 30 March 2022, by section 103 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section FB 3A(3): amended (with effect on 27 March 2021), on 30 March 2021, by section 61(2) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
FB 3 Land acquired for certain purposes or under certain conditions
When this section applies
(1)
This section applies for the purposes of sections CB 6 to CB 12, CB 14, CB 17, CB 20, and CB 23 (which relate to the disposal of land) and Part D (Deductions) when land was acquired for a purpose set out in or under the conditions set out in any of those sections, and the land is transferred on a settlement of relationship property.
Transfer at cost
(2)
The transfer is treated as a disposal and acquisition for an amount that equals the total cost of the land to the transferor at the date of transfer.
Date of acquisition
(3)
The transferee is treated as having acquired the land on the date it was acquired by the transferor.
Further disposal
(4)
For the tax consequences if the transferee disposes of the land, see section FB 5.
Defined in this Act: amount, date of transfer, dispose, land, settlement of relationship property, tax
Compare: 2004 No 35 s FF 6(1)(a)
FB 4 Land under scheme for major development or division
When this section applies
(1)
This section applies for the purposes of section CB 13 (Disposal: amount from major development or division and not already in income) and Part D (Deductions) when land is transferred on a settlement of relationship property.
Transfer at market value plus expenditure
(2)
If the transferor has already begun an undertaking or scheme of the kind referred to in section CB 13, the transfer is treated as a disposal by them for an amount that equals the sum of—
(a)
the market value of the land on the date on which they began the undertaking or scheme:
(b)
the expenditure that they have incurred in carrying on the undertaking or scheme before the date of transfer.
Expenditure incurred by transferee
(3)
For the purposes of subsection (2), the transferee is treated as having incurred expenditure in—
(a)
acquiring the land of an amount equal to the market value referred to in subsection (2)(a); and
(b)
carrying on the undertaking or scheme of an amount equal to the expenditure in subsection (2)(b).
When scheme not begun at date of transfer
(4)
If no undertaking or scheme as described in subsection (2) has begun at the date of transfer, the transferee is treated as having acquired the land for an amount that equals the total cost of the land to the transferor at the date of transfer.
Further disposal
(5)
For the tax consequences if the transferee disposes of the land, see section FB 5.
Defined in this Act: amount, date of transfer, dispose, land, market value, settlement of relationship property, tax
Compare: 2004 No 35 s FF 6(1)(b)
FB 5 Disposal of land
When this section applies
(1)
This section applies for the purposes of sections FB 3 and FB 4 when the transferor and the transferee are not associated persons.
Persons treated as associated
(2)
If the transferee disposes of the land, section CB 15 (Transactions between associated persons) applies as if the transferor and the transferee were associated persons.
Land disposed of by mortgagee
(3)
If a mortgagee disposes of land because the transferee defaults under the mortgage, the disposal is treated as a disposal of land.
Defined in this Act: associated person, dispose, land, mortgage
Compare: 2004 No 35 s FF 6(1)(a)(iv), (b)(iv), (2)
FB 6 Timber or right to take timber
When this section applies
(1)
This section applies for the purposes of section CB 24 (Disposal of timber or right to take timber) when timber, or a right to take timber, is transferred on a settlement of relationship property.
Transfer at cost of timber at date of transfer
(2)
The transfer is treated as if—
(a)
it were a disposal and acquisition for consideration; and
(b)
the amount of consideration were equal to the total cost of timber, or the right to take timber, to the transferor at the date of transfer.
Defined in this Act: amount, cost of timber, date of transfer, right to take timber, settlement of relationship property, timber
Compare: 2004 No 35 s FF 7(1), (2)
FB 7 Land with standing timber
When this section applies
(1)
This section applies for the purposes of section CB 25 (Disposal of land with standing timber) when—
(a)
land with standing timber on it is transferred on a settlement of relationship property; and
(b)
the standing timber does not consist of ornamental or incidental trees, as evidenced by a certificate given under section 44C of the Tax Administration Act 1994.
Transfer at cost of timber at date of transfer
(2)
The transfer is treated as if—
(a)
it were a disposal and acquisition for consideration; and
(b)
the amount of consideration were equal to the total cost of timber to the transferor at the date of transfer.
Defined in this Act: amount, cost of timber, date of transfer, land, settlement of relationship property, standing timber, timber
Compare: 2004 No 35 s FF 7(3), (4)
FB 8 Patent applications and patent rights
When this section applies
(1)
This section applies for the purposes of sections CB 30 and DB 38 to DB 40 (which relate to patent applications and patent rights) when a patent application with complete specifications or a patent right is transferred on a settlement of relationship property.
Transfer: part of expenditure or cost of rights
(2)
The transfer is treated as a disposal and acquisition for an amount that equals, as applicable,—
(a)
expenditure referred to in section DB 38 (Patent rights: devising patented inventions) for which the transferor is denied a deduction; or
(b)
the cost of the applications or rights referred to in section DB 39 (Patent rights acquired before 1 April 1993) for which the transferor is denied a deduction.
Defined in this Act: amount, deduction, patent rights, settlement of relationship property
Compare: 2004 No 35 s FF 8
FB 9 Financial arrangements rules
The financial arrangements rules do not apply to a financial arrangement transferred on a settlement of relationship property if the financial arrangement meets the criteria set out in section EW 10(6) (Financial arrangements to which financial arrangements rules apply). For the application of the old financial arrangements rules, see section EZ 45(c) (Application of old financial arrangements rules).
Defined in this Act: financial arrangement, financial arrangements rules, old financial arrangements rules, settlement of relationship property
Compare: 2004 No 35 s FF 2
Section FB 9: amended (with effect on 1 April 2008), on 6 October 2009, by section 203(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FB 10 Continuity provisions: shares and options
When this section applies
(1)
This section applies to modify sections YC 2 to YC 6 (which relate to voting interests and market value interests) for the purposes of the application of the continuity provisions when a share, or option over a share, is transferred on a settlement of relationship property.
Transferee treated as holding share or option
(2)
The transferee is treated as having acquired the share or option on the date it was acquired by the transferor, and to have held it at all times up to the date of transfer.
Defined in this Act: continuity provisions, date of transfer, option, settlement of relationship property, share
Compare: 2004 No 35 s FF 1
FB 10B Look-through companies
When this section applies
(1)
This section applies for the purposes of sections HB 4 to HB 10 (which relate to transfers of interests) when a look-through interest for a look-through company is transferred on a settlement of relationship property.
Transferee treated as holding interest
(2)
The transferee is treated as having acquired the look-through interest on the date it was acquired by the transferor, and to have held it at all times up to the date of transfer.
Defined in this Act: date of transfer, look-through company, look-through interest, settlement of relationship property
Section FB 10B: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 62(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
FB 11 Pension payments to former employees
When this section applies
(1)
This section applies for the purposes of section DC 2 (Pension payments to former employees) when a person is entitled to the payment of a pension from a former employer, and because of a settlement of relationship property, the employer pays some or all of the amount of the pension to another person.
Deduction for employer
(2)
Section DC 2(1) and (2) applies to the amount paid as if it were the payment of a pension to the former employee.
Defined in this Act: amount, deduction, employee, employer, pay, settlement of relationship property
Compare: 2004 No 35 s FF 17(1)
FB 12 Pension payments to former partners
When this section applies
(1)
This section applies for the purposes of section DC 3 (Pension payments to former partners) when a person is entitled to the payment of a pension from a partner in a partnership or from any person, and because of a settlement of relationship property, the partnership, partner, or person pays some or all of the amount of the pension to another person.
Deduction for partner
(2)
Section DC 3 applies to the amount paid as if it were the payment of a pension to the former partner.
Defined in this Act: amount, deduction, partner, partnership, pay, settlement of relationship property
Compare: 2004 No 35 s FF 17(2), (3)
Section FB 12 list of defined terms partner: 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 FB 12 list of defined terms partnership: 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).
FB 13 Trading stock
When this section applies
(1)
This section applies for the purposes of subpart EB (Valuation of trading stock (including dealer’s livestock)) when trading stock is transferred on a settlement of relationship property.
When transferor holds and uses trading stock in business
(2)
If the transferor used trading stock in carrying on a business and held the trading stock at the start of the year of transfer, the transfer is treated as a disposal by the transferor and an acquisition by the transferee for an amount equal to the greater of—
(a)
the value of the trading stock under section EB 3 (Valuation of trading stock) for the transferor at the end of the income year before the year of transfer; or
(b)
the value of the trading stock under section EB 3 for the transferee at the end of the year of transfer.
When transferor acquires and uses trading stock in business
(3)
If the transferor used the trading stock in carrying on a business and acquired the trading stock during the year of transfer, the transfer is treated as a disposal by the transferor and an acquisition by the transferee for an amount equal to the cost of the trading stock to the transferor.
When transferor has not used trading stock in business
(4)
If the transferor did not use the trading stock in the carrying on of a business, the transfer is treated as a disposal by the transferor and acquisition by the transferee for an amount equal to the cost of the trading stock to the transferor.
When transferee disposes of trading stock
(5)
If, after a transfer under subsection (2) or (3), the trading stock was not used by the transferee in the carrying on of a business and they dispose of the trading stock at any time, the disposal is treated as a disposal of trading stock used by the transferee in the carrying on of a business.
Specified livestock in dealing operation
(6)
For the purposes of subsection (2), trading stock does not include specified livestock unless it is used in a dealing operation and sections FB 14 and FB 17 apply.
Relationship with sections GC 1 and GC 2
(7)
This section overrides sections GC 1 and GC 2 (which relate to the disposal of trading stock for inadequate consideration).
Defined in this Act: amount, business, consideration, dispose, income year, settlement of relationship property, specified livestock, trading stock, year of transfer
Compare: 2004 No 35 s FF 13
Section FB 13 list of defined terms dispose: 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).
FB 14 Specified livestock
When this section applies
(1)
This section applies for the purposes of sections EC 6 to EC 26 (which relate to the valuation of specified livestock) when—
(a)
specified livestock is transferred on a settlement of relationship property; and
(b)
the transferor used the livestock in the carrying on of a business other than a business of dealing in livestock, and held the livestock at the start of the year of transfer; and
(c)
the value of the livestock is not determined under the herd scheme, see section FB 15.
Transfer at amount determined under subparts EA and EC
(2)
The transfer is treated as a disposal and acquisition for an amount equal to the value that the transferor determined under subpart EC (Valuation of livestock) and took into account in section EA 1 (Trading stock, livestock, and excepted financial arrangements) at the end of the income year before the year of transfer.
Relationship with sections GC 1 and GC 2
(3)
This section overrides sections GC 1 and GC 2 (which relate to the disposal of trading stock for inadequate consideration).
Defined in this Act: amount, business, herd scheme, income year, settlement of relationship property, specified livestock, year of transfer
Compare: 2004 No 35 s FF 13(1)(a)(i), (3)
FB 15 Specified livestock valued under herd scheme
If specified livestock is transferred on a settlement of relationship property and the specified livestock is valued under the herd scheme by the transferor, then sections EC 4B and EC 4C (which relate to livestock) apply.
Defined in this Act: herd scheme, settlement of relationship property, specified livestock
Section FB 15: replaced (with effect on 28 March 2012), on 17 July 2013, by section 55 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section FB 15: amended, on 30 June 2014, by section 103 of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
FB 16 Non-specified livestock
When subsections (2) to (4) apply
(1)
Subsections (2) to (4) apply for the purposes of section EC 31 (Enhanced production) in an income year when—
(a)
non-specified livestock is transferred on a settlement of relationship property; and
(b)
because of the transfer, the transferee starts to derive, or once again derives, income from non-specified livestock.
Transferee not starting to derive income
(2)
The transferee is treated as not starting to derive, or once again deriving income from non-specified livestock. However, the transfer is taken into account in working out whether any later acquisition by the transferee of non-specified livestock means that they start to derive, or once again derive, income from non-specified livestock.
When subsection (4) applies
(3)
Subsection (4) applies when the transferee uses the non-specified livestock in deriving income and was not, before the transfer, deriving income from non-specified livestock.
Livestock being written down to standard value
(4)
If the year of transfer falls in the first or second year of the 3-year period referred to in section EC 31(1)(b), the transferee must apply section EC 31(2) as if they were the transferor and the transfer had not taken place.
Transferee not acquiring land for production
(5)
For the purposes of section EC 31(1)(a)(ii) and (iii), if land is transferred on a settlement of relationship property, the transferee is treated as having acquired the land on the date it was acquired by the transferor.
Defined in this Act: income, income year, land, non-specified livestock, settlement of relationship property, standard value, year of transfer
Compare: 2004 No 35 s FF 10
FB 17 High-priced livestock
When this section applies
(1)
This section applies for the purposes of sections EC 32 to EC 37 (which relate to the valuation of high-priced livestock) when high-priced livestock is transferred on a settlement of relationship property.
Transfer at cost
(2)
The transfer is treated as a disposal and acquisition for an amount equal to the cost of the livestock to the transferor. The transferee is treated as having acquired the livestock on the day it was acquired by the transferor.
Straight-line method of valuation
(3)
In determining the value of the livestock at the end of the year of transfer, the transferee must take into account the amount referred to in subsection (2) reduced by the depreciation percentage of its cost price under section EC 34(2) (General rule). Subsection (4) overrides this subsection.
When diminishing value chosen
(4)
If the transferor had chosen to apply the diminishing value method to the valuation of the livestock, the transferee is treated as also having made that choice, and the reduction is calculated under section EC 34(3). But if the transferor had not chosen to apply the diminishing value method, the transferee may make a choice between the methods set out in section EC 34(2) and (3) only if the livestock was acquired by the transferor in the year of transfer.
Defined in this Act: amount, cost price, depreciation percentage, diminishing value method, dispose, high-priced livestock, settlement of relationship property, straight-line method, year of transfer
Compare: 2004 No 35 s FF 11
Section FB 17 list of defined terms dispose: 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).
FB 18 Bloodstock
When this section applies
(1)
This section applies for the purposes of section EC 41 (Reduction: bloodstock not previously used for breeding in New Zealand) when bloodstock is transferred on a settlement of relationship property.
Use for breeding purposes in New Zealand
(2)
If the bloodstock has been used for breeding purposes in New Zealand by the transferor, then for valuation purposes by the transferee and the amount of reduction applying to the value of an animal, the bloodstock is treated as not having been used for breeding purposes in New Zealand by the transferor.
Defined in this Act: amount, bloodstock, New Zealand, settlement of relationship property
Compare: 2004 No 35 s FF 12
FB 19 Leased assets
When this section applies
(1)
This section applies when—
(a)
a person leases, rents, or hires plant, machinery, or other equipment, including a motor vehicle or a temporary building; and
(b)
they are allowed a deduction in an income year for an amount paid under the agreement to lease, rent, or hire; and
(c)
they acquire the lease asset at any time, or a person associated with them acquires the asset; and
(d)
either they, or the associated person, transfer the asset on a settlement of relationship property.
Income when transferee disposes of asset
(2)
If the transferee disposes of the asset for an amount that is more than the transfer amount, they are treated as deriving income as described in section FA 5 (Assets acquired and disposed of after deduction of payments under lease) in the income year of the disposal of the asset equal to the lesser of—
(a)
the amount by which the amount derived on disposal is more than the transfer amount; or
(b)
the sum of the amounts for which the transferor has been allowed a deduction.
Transfer amount
(3)
In this section, the transfer amount is the amount that equals, as applicable,—
(a)
the adjusted tax value of the asset at the start of the year of transfer; or
(b)
if the asset was acquired by the transferor or the associated person during the year of transfer, the base value of the asset.
Defined in this Act: adjusted tax value, amount, associated person, deduction, income, income year, lease, pay, settlement of relationship property, temporary building, transfer amount, year of transfer
Compare: 2004 No 35 s FF 14
FB 20 Mining assets
[Repealed]Section FB 20: repealed, on 1 April 2014, by section 69 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
FB 21 Depreciable property
When this section applies
(1)
This section applies when a person who is allowed a deduction for an amount of depreciation loss for an item of property transfers the item on a settlement of relationship property.
Persons to whom section does not apply[Repealed]
(2)
[Repealed]Transfer at cost or adjusted tax value
(3)
The transfer is treated as a disposal and acquisition for an amount equal to, as applicable,—
(a)
if the transferor acquired the item in the year of transfer, the cost of the item to them; or
(b)
in any other case, the adjusted tax value of the item measured at the start of the year of transfer.
Treatment of transferee
(4)
In relation to amounts of depreciation loss for the item, the transferee—
(a)
has an amount of depreciation loss for the item from the date of transfer, whether or not the transferor has in fact had an amount of depreciation loss:
(b)
is treated as having had an amount of depreciation loss equal to all amounts of depreciation loss that the transferor had for the item in income years before the year of transfer:
(c)
does not have a greater amount of depreciation loss than that which the transferor would have had if they had kept the item.
When item is building
(5)
If the item is a building, the transferee’s amount of depreciation loss must be determined having regard to the original cost of the building to the transferor.
Activities in year of transfer
(6)
If the item has been acquired, erected, installed, altered, extended, improved, or attached by the transferor in the year of transfer, the item is treated as if it were acquired, erected, installed, altered, extended, improved, or attached by the transferee in the income year.
Conditions applying to item
(7)
For the purposes of determining the rate that applies to the item under section EE 31(2)(b) or EZ 23(4) (which relate to depreciation rates for new assets), if either of the following conditions applied to the item when the transferor acquired or erected it, the condition is treated as applying to the item at the date of transfer:
(a)
the item had not previously been used by a person, or acquired or held by a person for their use; and
(b)
if the item is a building or part of a building, it had not previously been occupied.
Defined in this Act: acquire, adjusted tax value, amount, date of transfer, deduction, depreciable property, depreciation loss, dispose, income year, property, settlement of relationship property, year of transfer
Compare: 2004 No 35 ss FF 15, FF 16
Section FB 21(2) heading: repealed, on 1 April 2014, pursuant to section 70(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section FB 21(2): repealed, on 1 April 2014, by section 70(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section FB 21 list of defined terms property: 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 FB 21 list of defined terms resident mining operator: repealed, on 1 April 2014, by section 70(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Subpart FC—Distribution, transmission, and gifts of property
Contents
Introductory provisions
FC 1 Disposals to which this subpart applies
Types of distributions and gifts
(1)
This subpart provides a value for property that is disposed of under the transactions referred to in section FC 10 and under transactions that are—
(a)
the transfer of a person’s estate to an executor or administrator on the death of the person:
(b)
the transfer of property on a distribution by an executor, administrator, or trustee of a deceased person’s estate to a beneficiary who is beneficially entitled to receive the property under the will or the rules governing intestacy:
(c)
the transfer of property on a distribution by a trustee of a trust to a beneficiary of the trust, unless the distribution is part of an arrangement under which the beneficiary pays an amount for the property that would reasonably be expected to be paid on a disposal at arm’s length:
(d)
the transfer of property on a distribution in kind by a company in a transfer of company value caused by a shareholding in the company under section CD 6 (When is a transfer caused by a shareholding relationship?):
(e)
the transfer of property on the making of a gift:
(f)
the transfer of property on a settlement by the trustee of a trust on the trustee of another trust, if authorised under—
(i)
a trust instrument as a power of advancement or resettlement:
(ii)
section 64 of the Trusts Act 2019 as the payment or application of capital money or other capital assets.
Some definitions
(2)
In this subpart,—
close relative, in relation to a transfer from a person’s estate, means—
(a)
a surviving spouse, civil union partner, or de facto partner of the deceased person:
(b)
a person who is within the second degree of relationship to the deceased person
property includes a look-through interest for a look-through company
tax-base property means—
(a)
revenue account property:
(b)
an attributing interest in a foreign investment fund (FIF):
(c)
a financial arrangement other than an arrangement for which the deceased person, or their trustee, was a cash basis person:
(d)
an item for which a deduction for an amount of depreciation loss arises.
Defined in this Act: amount, attributing interest, cash basis person, company, deduction, de facto partner, depreciation loss, FIF, financial arrangement, look-through company, look-through interest, property, revenue account property, settlement, transfer of company value, trustee
Compare: 2004 No 35 s FI 1
Section FC 1 heading: replaced (with effect on 1 April 2008), on 24 February 2016, by section 166(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FC 1(1): amended, on 30 March 2017, by section 98 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FC 1(1)(c): replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 24 February 2016, by section 166(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FC 1(1)(d): amended, on 23 March 2020, by section 116(1) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section FC 1(1)(f)(ii): replaced, on 30 January 2021, by section 161 of the Trusts Act 2019 (2019 No 38).
Section FC 1(2) property: inserted, on 1 April 2011 (applying for income years beginning on or after 1 April 2011), by section 63(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section FC 1 list of defined terms look-through company: inserted, on 1 April 2011, by section 63(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section FC 1 list of defined terms look-through interest: inserted, on 1 April 2011, by section 63(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section FC 1 list of defined terms property: inserted (with effect on 1 April 2008), on 24 February 2016, by section 166(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FC 1 list of defined terms transfer of company value: inserted, on 23 March 2020, by section 116(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section FC 1 list of defined terms transfer of value: repealed, on 23 March 2020, by section 116(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
FC 2 Transfer at market value
Market value
(1)
The transfer of property in circumstances described in section FC 1(1) is treated as a disposal by the transferor and an acquisition by the transferee at the market value of the item for the transferor. The disposal is treated as occurring on the date of the transaction.
Date of transfer of estate of deceased person
(2)
For property referred to in section FC 1(1)(a), the disposal and acquisition is treated as occurring immediately before the death of the person.
Exceptions to general rule
(3)
Sections ED 2B (Transfers to shareholders by ASX-listed Australian company of shares in subsidiary) and FC 3 to FC 6 and FC 10 override this section.
Relationship with settlements and distributions for trusts
(4)
Subsection (1) does not apply for the purposes of determining whether a transfer of property is—
(a)
a settlement on a trust:
(b)
a distribution from a trust as defined in section HC 14 (Distributions from trusts).
Defined in this Act: dispose, distribution, market value, property, settlement
Compare: 2004 No 35 ss FI 2, FI 3
Section FC 2(1): amended, on 30 March 2017, by section 99(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FC 2(2): substituted (with effect on 1 April 2008), on 6 October 2009, by section 204 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FC 2(3): amended, on 29 March 2018 (with effect on 1 April 2016), by section 94 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section FC 2(3): amended, on 30 March 2017, by section 99(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FC 2(3): amended, on 2 November 2012, by section 67 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section FC 2(4) heading: replaced (with effect on 18 March 2019), on 23 March 2020, by section 117(1) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section FC 2(4): replaced (with effect on 18 March 2019), on 23 March 2020, by section 117(1) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section FC 2 list of defined terms distribution: inserted, on 18 March 2019, by section 192(2) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section FC 2 list of defined terms property: 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 FC 2 list of defined terms settlement: inserted (with effect on 18 March 2019), on 23 March 2020, by section 117(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Exceptions for property transferred on death of person
FC 3 Property transferred to spouse, civil union partner, or de facto partner
When this section applies
(1)
This section applies in the circumstances described in section FC 1(1)(a) or (b) when property is transferred on a person’s death to the surviving spouse, civil union partner, or de facto partner of the deceased person. However, this section does not apply if—
(a)
the property is tax-base property; and
(b)
a person who is not a close relative of the deceased person is beneficially entitled under the will or intestacy to other property that is tax-base property.
Disposal to spouse or partner
(2)
The transfer of property to the surviving spouse, civil union partner, or de facto partner of the deceased person, including any intervening transfer to an executor or administrator, is treated as a transfer of property under a settlement of relationship property under subpart FB (Transfers of relationship property).
Relationship with subject matter
(3)
Section FC 9 overrides this section for certain transfers of residential land.
Defined in this Act: close relative, de facto partner, property, residential land, settlement of relationship property, tax-base property
Compare: 2004 No 35 s FI 4
Section FC 3(3) heading: inserted (with effect on 1 October 2015 and applying to a person’s disposal of residential land if the date that the person first acquires an estate or interest in the residential land is on or after that date), on 16 November 2015, by section 13(1) of the Taxation (Bright-line Test for Residential Land) Act 2015 (2015 No 111).
Section FC 3(3): inserted (with effect on 1 October 2015 and applying to a person’s disposal of residential land if the date that the person first acquires an estate or interest in the residential land is on or after that date), on 16 November 2015, by section 13(1) of the Taxation (Bright-line Test for Residential Land) Act 2015 (2015 No 111).
Section FC 3 list of defined terms property: 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 FC 3 list of defined terms residential land: inserted (with effect on 1 October 2015), on 16 November 2015, by section 13(2) of the Taxation (Bright-line Test for Residential Land) Act 2015 (2015 No 111).
FC 4 Property transferred to charities or to close relatives and others
When this section applies
(1)
This section applies in the circumstances described in section FC 1(1)(b) when tax-base property is transferred on a person’s death if—
(a)
each beneficiary of the deceased person is described in subsection (2); and
(b)
no life interest in the property is created; and
(c)
no trust over the property is created, other than a trust to execute the will and administer the estate; and
(d)
the net income of the estate is distributed as described in subsection (3).
Beneficiaries of deceased
(2)
A beneficiary of the deceased person must be—
(a)
a close relative of the deceased person:
(b)
a person exempt under section CW 41, CW 42, or CW 43 (which relate to exempt income of charities).
Income from estate must be distributed
(3)
While the administration of the estate is continuing, the net income of the estate is distributed to the extent allowed—
(a)
under the will or the rules governing intestacy; and
(b)
by the trustee’s legal obligations.
Transfer subject to subpart FB
(4)
The transfer is treated as a transfer of property on a settlement of relationship property under subpart FB (Transfers of relationship property).
Defined in this Act: close relative, net income, property, settlement of relationship property, tax-base property, trustee
Section FC 4: replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 24 February 2016, by section 167(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FC 4(1): amended (with effect on 6 October 2009), on 24 February 2016, by section 168(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FC 4(4): amended (with effect on 6 October 2009), on 24 February 2016, by section 168(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
FC 5 Land transferred to close relatives
What this section applies to
(1)
This section applies in the circumstances described in section FC 1(1)(a) or (b) when land is transferred on a person’s death to a close relative of the person.
Land
(2)
Sections CB 9 to CB 11 and CB 14 (which relate to the disposal of land) do not apply to the transfer of land, including any intervening transfer to an executor or administrator that, if it had been disposed of by the deceased person, would have resulted in income under any of those sections.
Cost of land
(3)
If the land is transferred to a person who disposes of it within 10 years of its acquisition by the deceased person, and the person derives income under any of sections CB 9 to CB 11 and CB 14, the cost of land to the person is—
(a)
the cost of the land incurred by the deceased person; and
(b)
all other expenditure incurred by the person, the deceased person, or the administrator or executor of the deceased person, as applicable, for which no deduction has been allowed.
Defined in this Act: close relative, deduction, dispose, income, land, year
Compare: 2004 No 35 s FI 7
Section FC 5(3)(b): replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 30 June 2014, by section 104(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
FC 6 Forestry assets transferred to close relatives
What this section applies to
(1)
This section applies in the circumstances described in section FC 1(1)(a) or (b) when forestry assets are transferred on a person’s death to a close relative of the person.
Forestry assets
(2)
A transfer of a forestry asset, including any intervening transfer to an executor or administrator, is treated as a transfer of property on a settlement of relationship property—
(a)
under section FB 6 (Timber or right to take timber), when the forestry asset is timber or a right to take timber:
(b)
under section FB 7 (Land with standing timber), when the forestry asset is standing timber.
Meaning of forestry assets
(3)
In this section, forestry assets means timber, standing timber, or a right to take timber.
Defined in this Act: close relative, forestry assets, right to take timber, settlement of relationship property, standing timber, timber
Compare: 2004 No 35 s FI 6
Section FC 6(2): replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 24 February 2016, by section 169(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
FC 7 Transfer of prepaid property
What this section applies to
(1)
This section applies, in the circumstances described in section FC 1(1)(a) or (b), to a transfer of property on a person’s death for which the deceased person has, in the year of transfer, an unexpired portion of expenditure under section EA 3 (Prepayments).
Unexpired prepayments
(2)
If section EA 3 applies to the property transferred, the property must be valued under section EA 3(4) to (7), as if the date of transfer were the end of an income year.
Defined in this Act: income year, property, year
Compare: 2004 No 35 s FI 8
Section FC 7 list of defined terms property: 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).
FC 8 Transfer of certain financial arrangements
What this section applies to
(1)
This section applies, in the circumstances described in section FC 1(1)(a) or (b), to a transfer of a financial arrangement on a person’s death.
Financial arrangements: cash basis person
(2)
If the deceased person was a cash basis person and the trustee of the deceased person’s estate is a cash basis person under section EW 60(1) (Trustee of deceased’s estate), the property must be valued at cost.
Defined in this Act: cash basis person, financial arrangement, property, trustee
Compare: 2004 No 35 s FI 11
Section FC 8 list of defined terms property: 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).
FC 9 Residential land transferred to executor, administrator, or beneficiary on death of person
What this section applies to
(1)
This section applies in the circumstances described in section FC 1(1)(a) or (b) when residential land is transferred on a person’s death and section FC 5 does not apply.
Residential land
(2)
Section CB 6A and CZ 39 (which relate to the bright-line test for residential land) do not apply to the transfer of the residential land, including any intervening transfer to an executor or administrator (see also: sections CB 6A(2B) and CZ 39(7)).
Cost of residential land
(3)
If the residential land is transferred to a person who disposes of it, and the person derives income, the cost of the land to the person is—
(a)
the cost of the land incurred by the deceased person; and
(b)
all other expenditure incurred by the person, the deceased person, or the administrator or executor of the deceased person, as applicable, for which no deduction has been allowed.
Rollover relief extended
(4)
Despite subsection (3), if the residential land is transferred by a beneficiary of the deceased person on or after 1 April 2022 to a person who is a recipient as described in section FC 9B(a) to (e), and the person disposes of it, sections CB 6A and CZ 39 do not apply to the disposal.
Defined in this Act: deduction, dispose, income, land, person, residential land
Section FC 9: inserted (with effect on 1 October 2015 and applying to a person’s disposal of residential land if the date that the person first acquires an estate or interest in the residential land is on or after that date), on 16 November 2015, by section 15(1) of the Taxation (Bright-line Test for Residential Land) Act 2015 (2015 No 111).
Section FC 9(2): amended, on 1 April 2023, by section 66(1) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section FC 9(2): amended (with effect on 27 March 2021), on 30 March 2021, by section 62 of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FC 9(4) heading: inserted (with effect on 27 March 2021), on 31 March 2023, by section 66(2) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section FC 9(4): inserted (with effect on 27 March 2021), on 31 March 2023, by section 66(2) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Exceptions for residential land transferred to trustees of certain trusts or other entities
Heading: inserted, on 1 April 2022, by section 104 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
FC 9B Residential land: certain transferors
For the purposes of calculating a person’s net income in relation to the disposal of residential land for which they derive an amount of income under section CB 6A or CZ 39 (which relate to residential land), if the person is 1 of the following then they are treated as disposing of the relevant land for the greater of either its cost to them or the consideration they derive for the disposal:
(a)
a person transferring land to a trustee (the recipient), described in section CB 6AB(1) (Residential land transferred in relation to certain family trusts and other capacities), to which that subsection applies:
(b)
a trustee transferring land to an original settlor (also a recipient), described in section CB 6AB(2), to which that subsection applies:
(c)
a person in a different capacity (also a recipient), described in section CB 6AB(4), to which that subsection applies:
(d)
a person transferring land to a Māori trustee (also recipient), described in section CB 6AC(1) (Residential land transferred in relation to certain Māori family trusts), to which that subsection applies:
(e)
a Māori trustee transferring land to an original settlor (also a recipient), described in section CB 6AC(2), to which that subsection applies:
(f)
a transferor transferring land to a recipient, described in section CB 6AE (Certain transfers of residential land included in settlement of claim under the Treaty of Waitangi), to which that section applies.
Defined in this Act: cost, dispose, income, net income, residential land
Section FC 9B: inserted, on 1 April 2022, by section 104 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
FC 9C Residential land: certain recipients
For the purposes of calculating a person’s net income in relation to the disposal of residential land for which they derive an amount of income under section CB 6A or CZ 39 (which relate to residential land), if the person is a recipient of a transfer, as described in section FC 9B(a), (b), (c), (d), or (e), then they are treated as acquiring the relevant land for the greater of either its cost to the person (the transferor) that transferred it to them or the consideration they give the transferor for the land.
Defined in this Act: acquire, cost, dispose, income, net income, residential land
Section FC 9C: inserted, on 1 April 2022, by section 104 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
FC 9D Residential land: certain recipients of Treaty of Waitangi land
For the purposes of calculating a person’s (person A’s) net income in relation to the disposal of residential land for which person A derives an amount of income under section CB 6A or CZ 39 (which relate to residential land), person A is treated as acquiring the land for its market value at the time the land was transferred from the Crown, if person A is the recipient under CB 6AE (Certain transfers of residential land included in settlement of claim under the Treaty of Waitangi).
Defined in this Act: acquire, cost, dispose, income, net income, residential land
Section FC 9D: inserted, on 1 April 2022, by section 104 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Bankruptcy or insolvency of person under Insolvency Act 2006
Heading: inserted, on 30 March 2017, by section 100 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
FC 10 Transfers from person to Official Assignee under Insolvency Act 2006
When this section applies
(1)
This section applies when a person is adjudicated bankrupt under the Insolvency Act 2006 or is subject to a procedure under Part 5 of that Act.
Transfer of revenue account property subject to section EA 1
(2)
If revenue account property of the person that is subject to section EA 1 (Trading stock, livestock, and excepted financial arrangements) vests in the Official Assignee, the transfer is treated as a disposal and acquisition of the property for an amount equal to the market value of the property on the date (the transfer date) on which the person is adjudicated bankrupt or the procedure under Part 5 of the Insolvency Act 2006 is approved by the Court.
Transfer of revenue account property subject to section EA 2
(3)
If revenue account property of the person that is subject to section EA 2 (Other revenue account property) vests in the Official Assignee,—
(a)
the person does not have a deduction under section DB 23 (Cost of revenue account property) for the cost of the revenue account property; and
(b)
the cost of the property for the Official Assignee for the purposes of sections DB 23 and EA 2(2) is treated as being equal to the cost of the property for the person.
Transfer of depreciable property
(4)
If depreciable property of the person vests in the Official Assignee,—
(a)
the person is treated as disposing of the property for an amount equal to the adjusted tax value of the property on the transfer date:
(b)
the Official Assignee is treated as acquiring the property—
(i)
with an acquisition date, base value, and adjusted tax value that are the same as those quantities are for the person immediately before the transfer date; and
(ii)
without incurring an amount of expenditure as consideration for the transfer.
Deductions not already allocated to period before transfer
(5)
Subsection (6) applies if, before the transfer date, the person incurs expenditure relating to property and, by the transfer date, deductions of the person relating to the expenditure (the unallocated deductions) are not allocated to a period ending before the transfer date.
Official Assignee and unallocated deductions
(6)
An amount of unallocated deductions is treated as not being a deduction of the person and as being a deduction of the Official Assignee that relates to property of the Official Assignee and that may be allocated by the Official Assignee—
(a)
to a period beginning on or after the transfer date; and
(b)
in a way that the person could have allocated the deduction but for the adjudication or procedure under the Insolvency Act 2006.
Defined in this Act: adjusted tax value, amount, deduction, depreciable property, revenue account property
Section FC 10: inserted, on 30 March 2017, by section 100 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FC 10 list of defined terms adjusted tax value: inserted, on 29 March 2018 (with effect on 30 March 2017), by section 96 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section FC 10 list of defined terms amount: inserted, on 29 March 2018 (with effect on 30 March 2017), by section 96 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section FC 10 list of defined terms deduction: inserted, on 29 March 2018 (with effect on 30 March 2017), by section 96 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section FC 10 list of defined terms depreciable property: inserted, on 29 March 2018 (with effect on 30 March 2017), by section 96 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section FC 10 list of defined terms revenue account property: inserted, on 29 March 2018 (with effect on 30 March 2017), by section 96 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Subpart FE—Interest apportionment on thin capitalisation
Contents
Introductory provisions
FE 1 What this subpart does
Interest adjustment
(1)
This subpart applies to adjust the effective level of interest deductions for a New Zealand taxpayer by treating the taxpayer as deriving income—
(a)
if the taxpayer is not a foreign-owned bank and the level of debt in New Zealand of the taxpayer’s New Zealand group (identified in sections FE 3 or FE 25 to FE 30) is disproportionately high, either by comparison with the total level of debt worldwide of the taxpayer’s worldwide group (identified in sections FE 31 to FE 32) or, in some situations, by comparison with the level of the taxpayer’s debt in New Zealand arising from debt funding provided by third parties, and the taxpayer—
(i)
is controlled by a single non-resident:
(ii)
is controlled by a non-resident owning body:
(iii)
is controlled by a trustee of a trust, if 50% or more by value of settlements on the trust are from persons who are, or are controlled by, non-residents or non-resident owning bodies and who act in concert:
(iv)
is a person (an outbound entity) with an income interest in a CFC or with an interest in a FIF that satisfies the requirements of section EX 35 (Exemption for FIF resident in Australia) or for which the person uses the attributable FIF income method:
(v)
is a New Zealand entity who controls an outbound entity; and
(b)
if the taxpayer is a foreign-owned bank and the level of equity for the taxpayer’s New Zealand banking group (identified in sections FE 33 to FE 37) is less than the acceptable threshold level.
Structure of subpart
(2)
This subpart sets out—
(a)
the persons to whom the interest apportionment rules may apply:
(b)
the thresholds for the application of the rules:
(c)
the consequences of application of the rules:
(d)
how to calculate the debt percentages of a New Zealand group and a worldwide group:
(e)
how to calculate a reporting bank’s New Zealand equity threshold, net equity, and funding debt:
(f)
how to determine the membership of a New Zealand group, a worldwide group, and a New Zealand banking group:
(g)
how to measure ownership interests in companies for the purposes of this subpart.
Defined in this Act: attributable FIF income method, CFC, FIF, income, income interest, interest, New Zealand, New Zealand banking group, non-resident, non-resident owning body, ownership interest, reporting bank, source in New Zealand, taxpayer, trustee
Compare: 2004 No 35 s FG 1
Section FE 1(1) heading: replaced, on 1 April 2015 (applying for the 2015–16 and later income years), by section 105(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 1(1): replaced, on 1 April 2015 (applying for the 2015–16 and later income years), by section 105(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 1(1)(a)(iii): replaced (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 170(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FE 1 list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 50(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 1 list of defined terms CFC: inserted (with effect on 30 June 2009), on 6 October 2009, by section 206(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 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).
Section FE 1 list of defined terms FIF: inserted (with effect on 1 July 2011), on 7 May 2012, by section 50(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 1 list of defined terms income derived from New Zealand: repealed, on 21 December 2010, by section 64(2)(a) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section FE 1 list of defined terms income interest: inserted (with effect on 30 June 2009), on 6 October 2009, by section 206(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 1 list of defined terms non-resident owning body: inserted, on 1 April 2015, by section 105(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 1 list of defined terms ownership interest: inserted, on 1 April 2015, by section 105(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 1 list of defined terms source in New Zealand: inserted, on 21 December 2010, by section 64(2)(b) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section FE 1 list of defined terms trustee: inserted, on 1 April 2015, by section 105(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
FE 2 When this subpart applies
Persons to whom interest apportionment rules may apply
(1)
The interest apportionment rules in sections FE 6 and FE 7 may apply to the following persons if, at a time in an income year, they are:
(a)
a non-resident who is not a company:
(b)
a non-resident company unless the company is 1 in which—
(i)
a person resident in New Zealand has a direct ownership interest of 50% or more; and
(ii)
no non-resident has a direct ownership interest of 50% or more, when added to any direct ownership interests of all persons associated with them:
(c)
a company that is resident in New Zealand if a non-resident has—
(i)
an ownership interest in the company of 50% or more:
(ii)
control of the company by any other means:
(cb)
a company that is resident in New Zealand if the company has members who make up a non-resident owning body for the company—
(i)
holding total ownership interests in the company of 50% or more, after adjustment to the extent necessary to avoid multiple counting if ownership interests in the company would otherwise be counted more than once:
(ii)
having control of the company by any other means:
(cc)
a company that is resident in New Zealand if a trustee who meets the requirements of paragraph (d) or (db)—
(i)
holds total ownership interests in the company of 50% or more:
(ii)
has control of the company by any other means:
(cd)
the trustee of a trust on which a non-resident makes a settlement in or before the income year and for which 50% or more of the value of settlements made on the trust in or before the income year is from settlements made by the non-resident or by a person who is associated with the non-resident in the income year:
(d)
the trustee of a trust if 50% or more of the value of settlements made on the trust is from settlements made by—
(i)
[Repealed](ii)
a person who is described in paragraphs (a) to (cc) or would be described by this paragraph or paragraph (db) if settlements made by the trustee and powers of appointment or removal held by the trustee were ignored:
(iii)
a group of persons who act in concert, each of whom is described in paragraphs (a) to (cc) or would be described by this paragraph or paragraph (db) if settlements made by the trustee and powers of appointment or removal held by the trustee were ignored:
(db)
the trustee of a trust if a person described in paragraphs (a) to (cc), or would be described by this paragraph or paragraph (d) if settlements made by the trustee and powers of appointment or removal held by the trustee were ignored, has the power to appoint or remove a trustee of the trust other than for the purpose of protecting a security interest:
(e)
a company that is resident in New Zealand and has—
(i)
an income interest in a CFC:
(ii)
an interest in a FIF that satisfies the requirements of section EX 35 (Exemption for interest in FIF resident in Australia):
(iii)
an interest in a FIF for which the person uses the attributable FIF income method:
(f)
a company that is resident in New Zealand and has—
(i)
an ownership interest in a company described in paragraph (e) of 50% or more:
(ii)
control of a company described in paragraph (e) by any other means:
(g)
a natural person, or a trustee of a trust settled by a New Zealand resident, if the natural person or trustee is resident in New Zealand and has—
(i)
an income interest in a CFC:
(ib)
an interest in a FIF that satisfies the requirements of section EX 35:
(ic)
an interest in a FIF for which the person uses the attributable FIF income method:
(ii)
an ownership interest in a company described in paragraph (e) or (f) of 50% or more:
(iii)
control of a company described in paragraph (e) or (f) by any other means.
Non-resident owning bodies
(1B)
For the purposes of this subpart and the definition of non-resident owning body,—
(a)
a non-resident includes a person who meets the requirements of section FE 2(1)(cc), (d), or (db):
(b)
in determining the relationship between the amount of a company’s debt relating to a member and the level of ownership interests in the company relating to the member, the level of each type of ownership interest in the company is considered, despite section FE 39.
Ownership interests
(2)
Ownership interests in a company are determined under sections FE 38 to FE 41.
Treatment of foreign companies
(3)
For the purposes of this section, a company resident in New Zealand is treated as being a non-resident company if it is treated under a double tax agreement as not being resident in New Zealand.
Association between person and non-resident relative for subsection (1)
(4)
A resident of New Zealand and a relative who is a non-resident are not associated persons—
(a)
in relation to a company for the purposes of subsection (1)(b)(ii), if the non-resident does not have a direct or indirect ownership interest in the company.
(b)
[Repealed]New Zealand banking group of Crown-owned registered bank
(5)
If the members of the New Zealand banking group of a registered bank are given by section FE 36B, the interests held by a member of the group for the purposes of subsection (1)(e) and (f) do not include interests held by an associated person who is not a member of the group.
Defined in this Act: associated person, attributable FIF income method, CFC, company, double tax agreement, FIF, income interest, income year, interest, New Zealand, New Zealand banking group, non-complying trust, non-resident, non-resident company, non-resident owning body, ownership interest, relative, resident in New Zealand, settlement, trustee
Compare: 2004 No 35 s FG 2(1), (6), (8)
Section FE 2(1)(cb): inserted, on 1 April 2015 (applying for the 2015–16 and later income years), by section 106(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 2(1)(cb)(i): replaced (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 171(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FE 2(1)(cc): inserted, on 1 April 2015 (applying for the 2015–16 and later income years), by section 106(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 2(1)(cd): inserted (with effect on 1 April 2015), on 30 March 2021, by section 63(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FE 2(1)(d): replaced, on 1 April 2015 (applying for the 2015–16 and later income years), by section 106(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 2(1)(d)(i): repealed (with effect on 1 April 2015), on 30 March 2021, by section 63(2) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FE 2(1)(db): inserted, on 1 April 2015 (applying for the 2015–16 and later income years), by section 106(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 2(1)(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 51(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 2(1)(f): added (with effect on 30 June 2009), on 6 October 2009, by section 207(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 2(1)(g): added (with effect on 30 June 2009), on 6 October 2009, by section 207(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 2(1)(g)(ib): inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 51(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 2(1)(g)(ic): inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 51(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 2(1B) heading: inserted, on 30 March 2017, by section 101(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 FE 2(1B): inserted, on 30 March 2017, by section 101(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 FE 2(1B)(a): amended, on 29 March 2018 (with effect on 30 March 2017), by section 97 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section FE 2(4) heading: replaced (with effect on 1 April 2015), on 30 March 2021, by section 63(3) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FE 2(4): replaced, on 1 April 2015 (applying for the 2015–16 and later income years), by section 106(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 2(4)(b): repealed (with effect on 1 April 2015), on 30 March 2021, by section 63(4) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FE 2(5) 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 51(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 2(5): inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 51(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 2 list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 51(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 2 list of defined terms CFC: inserted (with effect on 30 June 2009), on 6 October 2009, by section 207(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 2 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).
Section FE 2 list of defined terms double tax agreement: inserted, on 30 March 2017, by section 101(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FE 2 list of defined terms FIF: inserted (with effect on 1 July 2011), on 7 May 2012, by section 51(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 2 list of defined terms income interest: inserted (with effect on 30 June 2009), on 6 October 2009, by section 207(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 2 list of defined terms New Zealand banking group: inserted (with effect on 1 July 2009), on 7 May 2012, by section 51(5) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 2 list of defined terms non-resident owning body: inserted, on 1 April 2015, by section 106(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 2 list of defined terms ownership interest: inserted, on 1 April 2015, by section 106(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
FE 3 Interest apportionment for individuals
Natural persons and trustees: inbound, not described in section FE 2(1)(g)
(1)
This subpart applies to a natural person or trustee not described in section FE 2(1)(g) with the following modifications:
(a)
the New Zealand group of a natural person is made up of the person and all associated persons who—
(i)
are resident in New Zealand; or
(ii)
are carrying on business in New Zealand through a fixed establishment in New Zealand; or
(iii)
derive income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable:
(b)
the amount of the total assets of a natural person is calculated excluding the person’s private and domestic assets:
(c)
the New Zealand group of a trustee is made up of the trustee and all companies identified under section FE 27 as being under the control of the trustee, other than a company with a New Zealand parent not determined under section FE 26(4D):
(d)
the worldwide group of a trustee is made up of the trustee’s New Zealand group.
Natural persons and trustees: outbound, described in section FE 2(1)(g)
(2)
This subpart applies to a natural person or trustee described in section FE 2(1)(g) with the following modifications:
(a)
the New Zealand group of the natural person or trustee is made up of the natural person or trustee and all associated persons who are not excess debt outbound companies and are not included in a New Zealand group of an excess debt outbound company, and who—
(i)
are resident in New Zealand; or
(ii)
are carrying on business in New Zealand through a fixed establishment in New Zealand; or
(iii)
derive income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable:
(b)
the worldwide group of the trustee is made up of the trustee and—
(i)
the trustee’s New Zealand group; and
(ii)
all CFCs in which the trustee or a member of the trustee’s New Zealand group has an income interest; and
(iii)
all FIFs in which the trustee or a member of the trustee’s New Zealand group has an interest that meets the requirements of section EX 35 (Exemption for interest in FIF resident in Australia); and
(iv)
all FIFs in which the trustee or a member of the trustee’s New Zealand group has an interest for which the person uses the attributable FIF income method:
(c)
in the calculation of the amount of the natural person’s total assets, private and domestic assets are excluded.
Defined in this Act: attributable FIF income method, amount, associated person, business, CFC, double tax agreement, FIF, fixed establishment, generally accepted accounting practice, group of companies, income, income interest, natural person, New Zealand, New Zealand tax, non-resident, non-resident passive income, resident in New Zealand, source in New Zealand, total group assets, total group debt, trustee
Section FE 3: substituted (with effect on 30 June 2009), on 6 October 2009, by section 208(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 3(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 FE 3(1)(a): amended, on 1 April 2015 (applying for the 2015–16 and later income years), by section 107(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 3(1)(a)(iii): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 52(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 3(1)(b): replaced, on 1 April 2015 (applying for the 2015–16 and later income years), by section 107(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 3(1)(c): replaced, on 1 April 2015 (applying for the 2015–16 and later income years), by section 107(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 3(1)(d): inserted, on 1 April 2015 (applying for the 2015–16 and later income years), by section 107(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 3(2)(a)(iii): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 52(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 3(2)(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 52(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 3(2)(b)(iii): inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 52(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 3(2)(b)(iv): inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 52(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 3 list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 52(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 3 list of defined terms FIF: inserted (with effect on 1 July 2011), on 7 May 2012, by section 52(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 3 list of defined terms income: inserted (with effect on 1 July 2011), on 7 May 2012, by section 52(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 3 list of defined terms New Zealand tax: inserted (with effect on 1 July 2011), on 7 May 2012, by section 52(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 3 list of defined terms non-resident: inserted, on 1 April 2015, by section 107(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 3 list of defined terms non-resident passive income: inserted (with effect on 1 July 2011), on 7 May 2012, by section 52(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
FE 4 Some definitions
Definitions
(1)
In this subpart,—
excess debt entity for an income year is a person who—
(a)
meets the requirements of section FE 2 in the income year; and
(b)
is not, at any time in the income year, a reporting bank for a New Zealand banking group, or part of a New Zealand banking group; and
(c)
is not a natural person
excess debt outbound company for an income year is an excess debt entity that meets the requirements of section FE 2(1)(e) or (f), and none of the requirements of section FE 2(1)(a) to (db)
linked trustee, for a person, is a trustee to whom the person has provided money under a settlement or arrangement
natural person, for an income year, is a natural person who meets the requirements of section FE 2 in the income year
reporting bank for a New Zealand banking group is a person who—
(a)
meets the requirements of section FE 2; and
(b)
is the person determined under section FE 37.
Types of ownership interest[Repealed]
(2)
[Repealed]Defined in this Act: excess debt entity, income year, New Zealand banking group, reporting bank, trustee
Section FE 4(1) heading: inserted, on 1 April 2015, by section 108(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 4(1) excess debt entity paragraph (c): 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 FE 4(1) excess debt outbound company: inserted (with effect on 30 June 2009), on 6 October 2009, by section 209(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 4(1) excess debt outbound company: amended (with effect on 1 April 2015), on 26 June 2019, by section 66 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).
Section FE 4(1) linked trustee: inserted, on 1 April 2015 (applying for the 2015–16 and later income years), by section 108(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 4(1) natural person: replaced, 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 FE 4(1) non-resident owning body: repealed, on 30 March 2017, by section 102(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 FE 4(1) reporting bank: substituted (with effect on 1 April 2008), on 6 October 2009, by section 209(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 4(2) heading: repealed, on 30 March 2017, pursuant to section 102(2) (and see section 5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FE 4(2): repealed, on 30 March 2017, by section 102(2) (and see section 5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FE 4 list of defined terms control interest: repealed (with effect on 1 April 2015), on 24 February 2016, by section 172 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FE 4 list of defined terms natural person: repealed, on 30 March 2017, by section 102(3) (and see section 5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FE 4 list of defined terms New Zealand: repealed, on 30 March 2017, by section 102(3) (and see section 5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FE 4 list of defined terms non-resident: repealed, on 30 March 2017, by section 102(3) (and see section 5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FE 4 list of defined terms non-resident owning body: repealed, on 30 March 2017, by section 102(3) (and see section 5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FE 4 list of defined terms ownership interest: repealed, on 30 March 2017, by section 102(3) (and see section 5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FE 4 list of defined terms registered bank: repealed (with effect on 1 April 2008), on 6 October 2009, by section 209(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 4 list of defined terms widely-held company: repealed, on 30 March 2017, by section 102(3) (and see section 5) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
FE 4B Meaning of public project asset, public project debt, and public project participant debt
Meaning of public project asset
(1)
Public project asset means an interest in an asset in New Zealand—
(a)
arising from a project performed under a contract—
(i)
with the Sovereign in right of New Zealand or a public authority; and
(ii)
for which borrowing by the Crown or public authority is approved by the Minister of Finance under the Public Finance Act 1989 or the Crown Entities Act 2004; and
(iii)
for a period of 10 years or more; and
(iv)
requiring the persons performing the project to provide, upgrade, or create assets in New Zealand and to operate or maintain the assets in New Zealand; and
(v)
requiring that, after completion of the contract, the assets be owned by the Sovereign in right of New Zealand or the public authority; and
(b)
that each person performing the contract is not permitted under the terms of the contract to dispose of within 10 years from the beginning of the project, except to the Sovereign in right of New Zealand or a public authority, as provided by the contract, or to another person performing the project; and
(c)
the income from which has a source in New Zealand for each person performing the contract.
Meaning of public project debt
(2)
Public project debt, for an excess debt entity and a project, means a total amount of debt, each part of which is for a loan to the excess debt entity, that—
(a)
is applied by the excess debt entity to—
(i)
the project to give rise to public project assets or income derived from public project assets:
(ii)
refinance a loan that has been applied in a way satisfying this paragraph; and
(b)
does not provide funds, exceeding a minor or incidental amount, that the excess debt entity lends—
(i)
to a person who is not an associated person performing the project; and
(ii)
for a period that is not a delay in the application of the funds to the project; and
(c)
gives rise to interest expenditure that the excess debt entity incurs in New Zealand.
Meaning of public project participant debt
(3)
Public project participant debt, for an excess debt entity and a project, means an amount of a loan that is—
(a)
public project debt for the project; and
(b)
if the excess debt entity is the sole person performing the contract, is made or refinanced—
(i)
by 1 of the persons (the owners) who holds ownership interests in the excess debt entity; and
(ii)
under an arrangement between the owners with a purpose or effect that each owner provide funding in proportion to the ownership interest in the excess debt entity held by the owner; and
(c)
if the excess debt entity is 1 of the persons performing the contract (the project participants), made or refinanced—
(i)
by 1 of the project participants, or by a person associated with a project participant; and
(ii)
under an arrangement between the project participants with a purpose or effect that each project participant, or a person associated with the project participant, provide funding in proportion to the interest in the project held by the project participant.
Defined in this Act: amount, associated person, company, dispose, excess debt entity, income, interest, loan, New Zealand, non-resident, non-resident owning body, ownership interest, public authority, public project asset, public project debt, public project participant debt, source in New Zealand
Section FE 4B: inserted, on 1 July 2018, by section 19(1) (and see section 19(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Interest apportionment rules
FE 5 Thresholds for application of interest apportionment rules
Threshold for excess debt entity
(1)
An excess debt entity must apportion its interest expenditure for an income year under section FE 6 if,—
(a)
the excess debt entity is none of an excess debt outbound company, an excess debt entity with a worldwide group given by section FE 31D, and a trustee who is described in section FE 2(1)(g), and—
(i)
the debt percentage of its New Zealand group for the income year is more than 60%; and
(ii)
for a company or a trustee, the debt percentage of its New Zealand group for the income year is more than 110% of the debt percentage of the worldwide group; or
(ab)
the excess debt entity has a worldwide group given by section FE 31D, and—
(i)
the debt percentage of its New Zealand group for the income year is more than 60%; and
(ii)
the debt percentage of its New Zealand group for the income year is more than 100% of the debt percentage of the worldwide group; or
(b)
the excess debt entity is an excess debt outbound company, or is a trustee who is described in section FE 2(1)(g), and—
(i)
the debt percentage of its New Zealand group for the income year is more than 75%; and
(ii)
for a company or a trustee, the debt percentage of its New Zealand group for the income year is more than 110% of the debt percentage of the worldwide group.
Exceptions for excess debt outbound companies
(1B)
Despite subsection (1), an excess debt outbound company and a natural person or trustee who is described in section FE 2(1)(g) do not have to apportion interest expenditure for an income year under section FE 6 if, for the income year,—
(a)
a ratio of 90% or greater is obtained by dividing the amount for its New Zealand group of the total group assets measured under section FE 16 and reduced by the total group non-debt liabilities, measured under section FE 16B, by the amount for its worldwide group of the total group assets measured under section FE 18 and reduced by the total group non-debt liabilities, measured under section FE 18:
(ab)
the company or person is eligible to choose, and chooses, under subsection (1BB) to use the threshold test in subsection (1D):
(b)
[Repealed]Eligibility for optional threshold, apportionment method
(1BB)
A company or person referred to in subsection (1B) that would otherwise be required to make an apportionment under section FE 6 may choose instead to be subject to the threshold in subsection (1D) and to the apportionment method in section FE 6B only if—
(a)
for each of the New Zealand group and the worldwide group, the amount (the adjusted net profit) given by subsection (1BC) is greater than zero; and
(b)
for the New Zealand group, the deductions for interest allowed to the group under sections DB 6 to DB 9 (which relate to deductions for interest) exceed the income of the group that is interest; and
(c)
for the worldwide group, treating the members as residents for the purposes of this paragraph, the deductions for interest allowed to the group under sections DB 6 to DB 9 exceed the income of the group that is interest; and
(d)
for the worldwide group, the amount of the total group debt, calculated for the income year as if for the purposes of determining the group’s debt percentage under section FE 12, is equal to or more than 75% of the amount of total group assets, not including goodwill and reduced by total group non-debt liabilities; and
(e)
for the worldwide group, the proportion of the total group debt, calculated as for paragraph (d), for which the lender is not associated with the group under subpart YB (Associated persons) is equal to or more than 80%.
Formula for adjusted net profit
(1BC)
The adjusted net profit for a group is the amount calculated using the formula—
net − attributed + net interest + depreciation + amortisation.
Definition of items in formula
(1BD)
In the formula in subsection (1BC),—
(a)
net is the net profit or loss of the group before tax using generally accepted accounting practice, treating a net loss as a negative amount:
(b)
attributed, for the worldwide group, is zero and, for the New Zealand group, is the income—
(i)
under generally accepted accounting practice from an interest in a FIF or CFC described in section FE 2(1)(e) to (g); and
(ii)
included in the calculation of the item net profit or loss and not included in the calculation of the item net interest:
(c)
net interest is the deductions for interest allowed to the group under sections DB 6 to DB 9 from a financial arrangement providing funds to the group, treating the members as residents for the purpose of calculating this item for a worldwide group, reduced by the income of the group from a financial arrangement on arm’s-length terms providing funds to a person who meets the requirements of section FE 13(3):
(d)
depreciation is the depreciation for the group using generally accepted accounting practice:
(e)
amortisation is the amortisation for the group using generally accepted accounting practice.
Natural persons’ worldwide group total assets
(1C)
For the purposes of subsection (1B)(a), the total group assets and total group non-debt liabilities of a natural person’s worldwide group under section FE 18 are measured on the basis that the natural person is an excess debt entity that has a worldwide group made up of—
(a)
the natural person; and
(b)
the natural person’s New Zealand group; and
(c)
all CFCs in which the natural person or a member of the natural person’s New Zealand group has an income interest; and
(d)
all FIFs in which the natural person or a member of the natural person’s New Zealand group has an interest that meets the requirements of section EX 35 (Exemption for interest in FIF resident in Australia); and
(e)
all FIFs in which the natural person or a member of the natural person’s New Zealand group has an interest for which the natural person or member uses the attributable FIF income method.
Elective threshold for excess debt entity
(1D)
A company or person that chooses to be subject to the threshold test in this subsection must apportion the interest expenditure for the income year under section FE 6B except if the ratio (the interest-income ratio) given by subsection (1E) for the company or person’s New Zealand group is equal to or less than the lesser of—
(a)
110% of the interest-income ratio for the company or person’s worldwide group:
(b)
50%.
Formula for group’s interest-income ratio
(1E)
The interest-income ratio for a group is calculated using the formula—
net interest ÷ adjusted net profit.
Definition of items in formula
(1F)
In the formula in subsection (1E),—
(a)
net interest is the deductions for interest allowed to the group under sections DB 6 to DB 9 from a financial arrangement providing funds to the group, treating the members as residents for the purpose of calculating this item for a worldwide group, reduced by the income of the group from a financial arrangement on arm’s-length terms providing funds to a person who meets the requirements of section FE 13(3):
(b)
adjusted net profit is the amount given for the group by subsection (1BC).
Threshold for reporting bank
(2)
A reporting bank must apportion its interest expenditure for an income year under section FE 7 if—
(a)
the New Zealand net equity of its New Zealand banking group for a tax year is less than its equity threshold; and
(b)
its group funding debt for the corresponding tax year is more than zero.
Threshold for natural person
(3)
A natural person must apportion their interest expenditure for an income year under section FE 6 if,—
(a)
they are not described in section FE 2(1)(g), and the debt percentage of their New Zealand group for the income year is more than 60%; or
(b)
they are described in section FE 2(1)(g), and the debt percentage of their New Zealand group for the income year is more than 75%.
Debt percentages
(4)
The debt percentage of a New Zealand group is calculated under sections FE 14 to FE 16. The debt percentage of a worldwide group is calculated under sections FE 17 and FE 18.
Equity threshold, net equity, group funding debt
(5)
The calculations that a reporting bank must make for the purposes of section FE 7 are set out as follows:
(a)
for the banking group’s equity threshold, see section FE 19:
(b)
for the banking group’s New Zealand net equity, see section FE 21:
(c)
for the banking group’s funding debt, see section FE 23.
Group acting in concert[Repealed]
(6)
[Repealed]Defined in this Act: attributable FIF income method, CFC, company, excess debt entity, excess debt outbound company, group funding debt, income interest, income year, interest, natural person, New Zealand, New Zealand banking group, New Zealand net equity, non-resident passive income, reporting bank, tax year, total group assets, total group non-debt liabilities, trustee
Compare: 2004 No 35 s FG 3
Section FE 5(1): substituted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 87(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section FE 5(1)(a): amended, on 1 July 2018, by section 20(1) (and see section 20(8) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 5(1)(ab): inserted, on 1 July 2018, by section 20(2) (and see section 20(8) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 5(1B) heading: inserted (with effect on 30 June 2009), on 6 October 2009, by section 210(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 5(1B): inserted (with effect on 30 June 2009), on 6 October 2009, by section 210(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 5(1B)(a): replaced, on 1 July 2018, by section 20(3) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 5(1B)(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 53(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 5(1B)(b): repealed (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 53(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 5(1BB) 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 53(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 5(1BB): inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 53(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 5(1BB)(d): amended, on 1 July 2018, by section 20(4) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 5(1BC) 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 53(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 5(1BC): inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 53(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 5(1BD) 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 53(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 5(1BD): inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 53(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 5(1C) heading: inserted (with effect on 30 June 2009), on 6 October 2009, by section 210(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 5(1C): inserted (with effect on 30 June 2009), on 6 October 2009, by section 210(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 5(1C): amended, on 1 July 2018, by section 20(5) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 5(1C)(c): amended (with effect on 1 July 2011), on 23 March 2020, by section 118 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section FE 5(1C)(d): inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 53(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 5(1C)(e): inserted (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 53(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 5(1D) 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 53(5) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 5(1D): inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 53(5) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 5(1E) 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 53(5) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 5(1E): inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 53(5) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 5(1F) 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 53(5) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 5(1F): inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 53(5) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 5(3): substituted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 87(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section FE 5(6) heading: repealed (with effect on 1 July 2018), on 18 March 2019, pursuant to section 193(1) (and see section 193(2) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section FE 5(6): repealed (with effect on 1 July 2018), on 18 March 2019, by section 193(1) (and see section 193(2) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section FE 5 list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 53(6) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 5 list of defined terms CFC: inserted (with effect on 30 June 2009), on 6 October 2009, by section 210(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 5 list of defined terms excess debt outbound company: inserted (with effect on 30 June 2009), on 6 October 2009, by section 210(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 5 list of defined terms income interest: inserted (with effect on 30 June 2009), on 6 October 2009, by section 210(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 5 list of defined terms non-resident passive income: inserted (with effect on 1 July 2011), on 7 May 2012, by section 53(6) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 5 list of defined terms total group assets: inserted (with effect on 30 June 2009), on 6 October 2009, by section 210(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 5 list of defined terms total group non-debt liabilities: inserted, on 1 July 2018, by section 20(7) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
FE 6 Apportionment of interest by excess debt entity
Who this section applies to
(1)
This section applies to an excess debt entity or a natural person if section FE 5 requires the entity or person to apportion their interest expenditure for an income year under this section. A natural person is treated as an excess debt entity for the purposes of this section other than in the item threshold amount.
General formula
(2)
An excess debt entity having a worldwide group that is not given by section FE 31D is treated under section CH 9 (Interest apportionment: excess debt entity) as deriving in the income year an amount of income calculated for the income year using the formula—
(total deduction − mismatch + FRD − adjust) × (total debt − concession) ÷ total debt
× group debt factor.
Items in formula
(3)
In the formula in subsection (2),—
(a)
total deduction is the whole amount of the excess debt entity’s deduction for interest that would be allowed, in the absence of subpart FH (Hybrid and branch mismatches of deductions and income from multi-jurisdictional arrangements), under any of sections DB 6 to DB 8 (which relate to deductions for interest expenditure) less—
(i)
the total amount allowed in relation to interest payable to a company that is a member of the entity’s New Zealand group under sections FE 3 and FE 28, but this does not include an amount referred to in subparagraph (ii); and
(ii)
the total amount allowed in relation to interest payable under a financial arrangement excluded from the total group debt of its New Zealand group under section FE 15:
(aba)
mismatch is the total of amounts denied as deductions in the income year under section FH 3 (Payments under financial instruments producing deduction without income) as unrecognised amounts under section FH 3(2) and as interest under sections FH 7 and FH 11 (which provide for the matching of deductions and income from multi-jurisdictional arrangements):
(ab)
FRD is the total amount of dividends paid by the excess debt entity in relation to fixed-rate foreign equity or fixed-rate shares—
(i)
issued by the entity; and
(ii)
held by a person resident in New Zealand who is not a company that is a member of the entity’s New Zealand group:
(ac)
adjust is—
(i)
zero, if the excess debt entity is not an excess debt outbound company or a natural person or trustee described in section FE 2(1)(g) and is a party to a financial arrangement that is removed under section FE 18(3B) from the measurement of total group debt for the excess debt entity or that is related-party debt for which the lender is not a New Zealand resident and does not carry on a business through a fixed establishment in New Zealand; or
(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:
(b)
total debt is the total amount of the debt of the excess debt entity’s New Zealand group for the income year as calculated under section FE 15, before allowing for a reduction under section FE 13:
(c)
concession is any reduction allowed under section FE 13 in the total group debt of the excess debt entity’s New Zealand group for the income year, averaged when section FE 8(1)(a) or (b) applies:
(cb)
group debt factor is—
(i)
1, if the excess debt entity’s New Zealand group has a debt percentage for the income year equal to zero; or
(ii)
the amount calculated by subtracting from 1 the amount calculated by dividing the threshold amount in paragraph (e) for the excess debt entity by the group debt percentage in paragraph (d) for the excess debt entity:
(d)
group debt percentage is the debt percentage of the excess debt entity’s New Zealand group for the income year:
(e)
threshold amount is, as applicable,—
(i)
if the excess debt entity is none of an excess debt outbound company, an excess debt entity with a worldwide group given by section FE 31D, and a trustee who is described in section FE 2(1)(g), the greater of 60% and 110% of the debt percentage of their worldwide group:
(ii)
if the person is a natural person who is not described in section FE 2(1)(g), 60%:
(iii)
if the excess debt entity is an excess debt outbound company, or is a trustee who is described in section FE 2(1)(g), the greater of 75% and 110% of the debt percentage of their worldwide group:
(iiib)
[Repealed](iv)
if the person is a natural person who is described in section FE 2(1)(g), 75%.
Formula for excess debt entities with worldwide group given by section FE 31D
(3B)
An excess debt entity having a worldwide group that is given by section FE 31D is treated under section CH 9 as deriving in the income year an amount of income that is the greater of zero and the amount calculated for the income year using the formula—
(related interest – mismatch + FRD2) × (total debt – concession) ÷ total debt × group debt comparison factor.
Definition of items in formula
(3C)
In the formula in subsection (3B),—
(a)
related interest is the whole amount of the excess debt entity’s interest, incurred under financial arrangements meeting the requirements of section FE 18(3B) for removal of a financial arrangement from the measurement of total group debt for the entity’s worldwide group, that would be allowed, in the absence of subpart FH, as a deduction under any of sections DB 6 to DB 8 less—
(i)
the total amount of deductions allowed for interest payable to a company that is a member of the entity’s New Zealand group under sections FE 3 and FE 28 and not included in the amount given by subparagraph (ii); and
(ii)
the total amount of deductions allowed for interest payable under a financial arrangement excluded from the total group debt for the entity’s New Zealand group under section FE 15:
(b)
mismatch is the total of amounts denied as deductions in the income year under section FH 3 as unrecognised amounts under section FH 3(2) and as interest under sections FH 7 and FH 11:
(c)
FRD2 is the total amount of dividends paid by the excess debt entity for fixed-rate foreign equity or fixed-rate shares that—
(i)
are issued by the entity; and
(ii)
are held by a person resident in New Zealand who is not a company that is a member of the entity’s New Zealand group; and
(iii)
would be removed under section FE 18(3B) from the measurement of total group debt of the entity’s worldwide group if that provision applied to fixed-rate foreign equity and fixed-rate shares:
(d)
total debt is the total amount of the debt of the excess debt entity’s New Zealand group for the income year as calculated under section FE 15, before allowing for a reduction under section FE 13:
(e)
concession is any reduction allowed under section FE 13 in the total group debt of the excess debt entity’s New Zealand group for the income year, averaged when section FE 8(1)(a) or (b) applies:
(f)
group debt comparison factor is—
(i)
1, if the excess debt entity’s New Zealand group or the excess debt entity’s worldwide group has a debt percentage under section FE 12(3) equal to zero for the income year; or
(ii)
the amount calculated using the formula in subsection (3D), if subparagraph (i) does not apply.
Formula for group debt comparison factor
(3D)
The group debt comparison factor under subsection (3C)(f)(ii) for an excess debt entity and an income year is the amount calculated using the formula—
(New Zealand group debt percentage – threshold amount) ÷ (New Zealand group debt percentage – worldwide group debt percentage).
Definition of item in formula
(3E)
In the formula in subsection (3D), threshold amount is the amount that is the greater of 60% and the debt percentage of the excess debt entity’s worldwide group for the income year.
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) or (3B), be treated as deriving for the income year. The amount of income is not calculated using the formula in subsection (2) or (3B) 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), when added to any other income that the company chooses to treat itself as deriving under subsection (4), must not exceed—
(a)
the total amount of deductions that the company has for interest in the income year, except if paragraph (b) applies; or
(b)
the total amount of the company’s interest, incurred under financial arrangements meeting the requirements of section FE 18(3B), if the excess debt entity has a worldwide group given by section FE 31D.
Defined in this Act: amount, company, deduction, dividend, excess debt entity, excess debt outbound company, financial arrangement, fixed establishment, fixed-rate foreign equity, fixed-rate share, income, income year, interest, natural person, New Zealand, New Zealand resident, pay, related-party debt, resident in New Zealand, total group debt, total worldwide debt, trustee, wholly owned group of companies
Compare: 2004 No 35 s FG 8
Section FE 6(1) heading: substituted (with effect on 30 June 2009), on 6 October 2009, by section 211(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 6(1): substituted (with effect on 30 June 2009), on 6 October 2009, by section 211(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 6(2) heading: replaced, on 30 March 2021, by section 64(1) (and see section 64(11) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FE 6(2): amended, on 30 March 2021, by section 64(2) (and see section 64(11) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FE 6(2) formula: amended (with effect on 1 July 2018), on 30 March 2021, by section 64(3) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FE 6(2) formula: amended, on 1 July 2018, by section 21(1) (and see section 21(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 6(2) formula: amended (with effect on 30 June 2009), on 6 October 2009, by section 211(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 6(3): amended, on 30 March 2021, by section 64(4) (and see section 64(11) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FE 6(3)(a): amended, on 1 July 2018, by section 21(2) (and see section 21(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 6(3)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 211(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 6(3)(a)(i): amended (with effect on 1 April 2008), on 29 August 2011, by section 45(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section FE 6(3)(aba): inserted, on 1 July 2018, by section 21(3) (and see section 21(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 6(3)(ab): inserted (with effect on 30 June 2009), on 6 October 2009, by section 211(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 6(3)(ac): inserted (with effect on 30 June 2009), on 6 October 2009, by section 211(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 6(3)(ac)(i): replaced, on 1 July 2018, by section 21(4) (and see section 21(7) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 6(3)(ac)(i): amended (with effect on 1 July 2018), on 23 March 2020, by section 119(1) (and see section 119(3) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section FE 6(3)(ac)(ii): substituted (with effect on 23 November 2010), on 29 August 2011, by section 45(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section FE 6(3)(ac)(iii): substituted (with effect on 23 November 2010), on 29 August 2011, by section 45(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section FE 6(3)(ac)(iv): substituted (with effect on 23 November 2010), on 29 August 2011, by section 45(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section FE 6(3)(cb): inserted (with effect on 1 July 2018), on 30 March 2021, by section 64(5) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FE 6(3)(e): substituted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 88(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section FE 6(3)(e)(i): replaced, on 1 July 2018, by section 21(5) (and see section 21(8) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 6(3)(e)(iiib): repealed, on 30 March 2021, by section 64(6) (and see section 64(11) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FE 6(3B) heading: inserted, on 30 March 2021, by section 64(7) (and see section 64(11) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FE 6(3B): inserted, on 30 March 2021, by section 64(7) (and see section 64(11) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FE 6(3C) heading: inserted, on 30 March 2021, by section 64(7) (and see section 64(11) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FE 6(3C): inserted, on 30 March 2021, by section 64(7) (and see section 64(11) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FE 6(3D) heading: inserted, on 30 March 2021, by section 64(7) (and see section 64(11) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FE 6(3D): inserted, on 30 March 2021, by section 64(7) (and see section 64(11) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FE 6(3E) heading: inserted, on 30 March 2021, by section 64(7) (and see section 64(11) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FE 6(3E): inserted, on 30 March 2021, by section 64(7) (and see section 64(11) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FE 6(4) heading: added (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 45(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section FE 6(4): added (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 45(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section FE 6(4): amended, on 30 March 2021, by section 64(8) (and see section 64(11) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FE 6(5) heading: added (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 45(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section FE 6(5): replaced, on 30 March 2021, by section 64(9) (and see section 64(11) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FE 6 list of defined terms dividend: inserted, on 30 March 2021, by section 64(10) (and see section 64(11) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FE 6 list of defined terms excess debt outbound company: inserted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 88(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section FE 6 list of defined terms fixed establishment: inserted (with effect on 1 July 2018), on 23 March 2020, by section 119(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section FE 6 list of defined terms fixed-rate foreign equity: inserted (with effect on 30 June 2009), on 6 October 2009, by section 211(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 6 list of defined terms fixed-rate share: inserted (with effect on 30 June 2009), on 6 October 2009, by section 211(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 6 list of defined terms New Zealand resident: inserted (with effect on 1 July 2018), on 23 March 2020, by section 119(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section FE 6 list of defined terms related-party debt: inserted (with effect on 1 July 2018), on 23 March 2020, by section 119(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section FE 6 list of defined terms resident in New Zealand: inserted, on 30 March 2021, by section 64(10) (and see section 64(11) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FE 6 list of defined terms total worldwide debt: inserted, on 30 March 2021, by section 64(10) (and see section 64(11) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FE 6 list of defined terms wholly owned group of companies: added (with effect on 1 April 2008), on 29 August 2011 by section 45(4) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
FE 6B Alternative apportionment of interest by some excess debt entities
Who this section applies to
(1)
This section applies to a company or person that is required by section FE 5(1D) to apportion its interest expenditure for an income year under this section.
Formula
(2)
The company or person is treated under section CH 9 (Interest apportionment: excess debt entity) as deriving from New Zealand in the income year an amount of income calculated for the income year using the formula—
net interest × (NZ group ratio − threshold ratio) ÷ NZ group ratio.
Definition of items in formula
(3)
In the formula,—
(a)
net interest is the deductions for interest allowed to the company or person under sections DB 6 to DB 9 (which relate to deductions for interest) from a financial arrangement providing funds to the company or person, reduced by the income of the company or person from a financial arrangement on arm’s-length terms providing funds to a person who meets the requirements of section FE 13(3):
(b)
NZ group ratio is the interest-income ratio given by section FE 5(1E) for the New Zealand group of the company or person:
(c)
threshold ratio is the lesser of—
(i)
50%:
(ii)
110% of the interest-income ratio given by section FE 5(1E) for the worldwide group of the company or person.
Defined in this Act: company, deduction, income, income year, interest, New Zealand
Section FE 6B: inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 54(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 6B(3)(a): amended (with effect on 1 July 2009), on 2 November 2012, by section 68 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
FE 7 Apportionment of interest by reporting bank
When this section applies
(1)
This section applies to a reporting bank if, at the relevant measurement date referred to in section FE 8(3),—
(a)
the New Zealand net equity of its New Zealand banking group for an income year is less than its equity threshold under section FE 19; and
(b)
its group funding debt for the corresponding tax year is more than zero.
Income
(2)
The reporting bank is treated as deriving an amount of income under section CH 10 (Interest apportionment: reporting bank) calculated using the formula—
amount below threshold × (interest expenditure ÷ group funding debt)
× (days in period ÷ days in year).
Definition of items in formula
(3)
In the formula,—
(a)
amount below threshold is the amount by which the New Zealand net equity for the New Zealand banking group is less than the equity threshold under section FE 19:
(b)
interest expenditure is the financial value for the New Zealand banking group of interest expenditure measured under generally accepted accounting practice that is—
(i)
incurred by a member of the New Zealand banking group in the income year; and
(ii)
incurred other than in relation to a share that contributes to the item total interest in the formula in section FE 23, or is a deduction referred to in the definition of the item interest deductions in that section; and
(iii)
not denied as a deduction under section FH 3 (Payments under financial instruments producing deduction without income) as an unrecognised amount under section FH 3(2) or under section FH 7 or FH 11 (which provide for the matching of deductions and income from multi-jurisdictional arrangements):
(c)
days in period is the number of days in the relevant measurement period:
(d)
group funding debt is the group funding debt for the New Zealand banking group for the corresponding tax year:
(e)
days in year is the number of days in the income year.
Apportionment of income to part-years
(4)
If an amount of income described in subsection (2) must be apportioned under this Act to a part of an income year, the amount of income for a measurement period is attributed to the part of the income year in which the measurement period falls.
Defined in this Act: amount, deduction, financial value, generally accepted accounting practice, group funding debt, income, income year, interest, measurement period, New Zealand, New Zealand banking group, New Zealand net equity, reporting bank, share, tax year
Compare: 2004 No 35 s FG 8B
Section FE 7(3)(b): amended, on 1 July 2018, by section 22(1) (and see section 22(5) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 7(3)(b)(i): amended, on 1 July 2018, by section 22(2) (and see section 22(5) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 7(3)(b)(ii): amended, on 1 July 2018, by section 22(3)(a) (and see section 22(5) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 7(3)(b)(ii): amended, on 1 July 2018, by section 22(3)(b) (and see section 22(5) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 7(3)(b)(iii): inserted, on 1 July 2018, by section 22(4) (and see section 22(5) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
FE 7B Interest on public project debt for certain excess debt entities
Who this section applies to
(1)
This section applies for a project to an excess debt entity that—
(a)
is a person meeting the requirements of section FE 2(1)(b), (c), (e), or (f); and
(b)
has an amount of public project debt for the project; and
(c)
elects to apply the section to the first calculation for the excess debt entity under this subpart that includes the public project debt for the project and to which the section may apply.
Debt percentages for public project debt
(2)
Debt percentages relating to the excess debt entity and the public project debt are determined under this subpart as if—
(a)
the excess debt entity has no debt other than the public project debt for the project, no assets other than the public project assets for the project and assets used in performing the project, and no non-debt liabilities other than non-debt liabilities that relate to the project; and
(b)
the New Zealand group of the excess debt entity is the excess debt entity.
Income
(3)
If the debt percentage of the excess debt entity’s New Zealand group exceeds the threshold debt percentage given by section FE 5(1), the excess debt entity is treated as deriving an amount of income under section CH 10B (Interest apportionment: public project debt) that is calculated, treating the value of a fraction with a zero denominator as being zero, using the formula—
(unrestricted interest × unrestricted excess ÷ unrestricted debt) + (member interest × member excess ÷ member debt).
Definition of items in formula
(4)
In the formula,—
(a)
unrestricted interest is the amount of interest expenditure incurred by the excess debt entity from the amount of public project debt referred to in the item unrestricted debt:
(b)
unrestricted excess is—
(i)
zero, if the amount of public project debt that is not public project participant debt does not exceed the amount (the threshold debt amount) obtained by multiplying the value of the public project assets and assets used in performing the project by the threshold debt percentage given by section FE 5(1) for the excess debt entity’s New Zealand group:
(ii)
the amount of the item unrestricted debt, if the amount of public project debt that is not public project participant debt and not included in the item unrestricted debt equals or exceeds the threshold debt amount:
(iii)
the amount by which the amount of public project debt that is not public project participant debt exceeds the threshold debt amount, if subparagraphs (i) and (ii) do not apply:
(c)
unrestricted debt is the amount of public project debt that is not public project participant debt and for which the creditor has security for repayment that is not restricted to the project:
(d)
member interest is the amount of interest expenditure incurred by the excess debt entity from public project participant debt:
(e)
member excess is—
(i)
zero, if the amount of public project debt does not exceed the threshold debt amount:
(ii)
the amount of public project participant debt, if the amount of public project debt that is not public project participant debt equals or exceeds the threshold debt amount:
(iii)
the amount by which the amount of public project debt exceeds the threshold debt amount, if subparagraphs (i) and (ii) do not apply:
(f)
member debt is the amount of public project participant debt.
Public projects treated separately
(5)
This section applies separately to each project of an excess debt entity for which the excess debt entity has public project debt.
Public project debt, interest, assets, and non-debt liabilities, excluded for other applications
(6)
Public project debt, interest on public project debt, public project assets and other assets, and non-debt liabilities, taken into account in the application of this section to an excess debt entity for a project are excluded from the debt, interest, assets, and non-debt liabilities, of the excess debt entity taken into account in the apportionment of interest expenditure for another project or under another section of this subpart.
Defined in this Act: amount, company, excess debt entity, excess debt outbound company, income, income year, interest, public project asset, public project debt, public project participant debt
Section FE 7B: inserted, on 1 July 2018, by section 23(1) (and see section 23(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
FE 8 Measurement dates
Daily, 3-monthly, or annual basis for excess debt entity
(1)
An excess debt entity must measure the amount of total group debt, total group assets, and total group non-debt liabilities of its New Zealand group for an income year using 1 of the following methods:
(a)
the average amount at the end of each day of the income year; or
(b)
the average amount at the end of each 3-month period in the income year; or
(c)
the amount at the end of the income year.
Different balance dates
(2)
For the purposes of subsection (1), if the members of the entity’s New Zealand group do not have the same balance date, the alternatives in subsection (1) apply as if the entity has the same balance date as that of the New Zealand parent.
Daily, monthly, or quarterly for reporting bank
(3)
A reporting bank must measure both the equity threshold and the net equity of its New Zealand banking group for an income year on 1 of the following dates:
(a)
each day of the income year; or
(b)
the last day of each calendar month of the income year; or
(c)
if the reporting bank does not choose either paragraph (a) or (b), the last day of each quarter of an income year.
Change in identity of reporting bank
(4)
If the identity of the reporting bank changes, the first measurement period for the new reporting bank begins on the day after the last measurement date of the former reporting bank.
Defined in this Act: amount, excess debt entity, income year, New Zealand, New Zealand banking group, quarter, reporting bank, total group assets, total group debt, total group non-debt liabilities
Compare: 2004 No 35 ss FG 4(5), (6), FG 8E
Section FE 8(1): amended, on 1 July 2018, by section 24(1) (and see section 24(3) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 8(4): amended (with effect on 1 April 2008), on 2 November 2012 (applying for the 2008–09 and later income years) by section 69(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section FE 8 list of defined terms total group non-debt liabilities: inserted, on 1 July 2018, by section 24(2) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
FE 9 Elections
Return of income
(1)
An election or choice under this subpart is made by providing a return of income for the relevant income year.
Measurement date
(2)
A choice of measurement date under section FE 8 may be changed after a notice of assessment for an income year is received from the Commissioner.
Control threshold, enlarged New Zealand group
(3)
A choice of control threshold under section FE 27, or an election to include certain other companies in a New Zealand group under section FE 30, is made by providing notice to the Commissioner with the return of income for the relevant income year.
Defined in this Act: assessment, Commissioner, company, income year, New Zealand, notice, return of income
Compare: 2004 No 35 s FG 10
Section FE 9(3): amended (with effect on 1 April 2008), on 30 March 2017, by section 103 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FE 9 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).
Section FE 9 list of defined terms excess debt entity: repealed, on 29 March 2018 (with effect on 30 March 2017), by section 98 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
FE 10 Currency
Calculations
(1)
In this subpart, the following values must be calculated in New Zealand currency:
(a)
an amount of total group debt, an amount of total group assets, and an amount of total group non-debt liabilities of a New Zealand group or of a worldwide group:
(b)
a financial arrangement or risk-weighted exposure.
Currency conversions for excess debt entity
(2)
If the value referred to in subsection (1) is denominated in a foreign currency, an excess debt entity must convert the value to New Zealand currency at—
(a)
the close of trading spot exchange rate for the foreign currency on the relevant measurement date under section FE 8; or
(b)
the forward exchange rate that applies on the first day of the income year for the relevant measurement date under section FE 8.
Currency conversions for reporting bank
(3)
If the value referred to in subsection (1) is denominated in a foreign currency, a reporting bank must convert the value to New Zealand currency at the close of trading spot exchange rate for the foreign currency on the relevant measurement date under section FE 8.
Defined in this Act: amount, close of trading spot exchange rate, excess debt entity, financial arrangement, income year, New Zealand, reporting bank, total group assets, total group debt, total group non-debt liabilities
Compare: 2004 No 35 ss FG 4(7), FG 5(6), FG 7, FG 8I
Section FE 10(1)(a): amended, on 1 July 2018, by section 25(1) (and see section 25(3) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 10 list of defined terms total group non-debt liabilities: amended, on 1 July 2018, by section 25(2) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
FE 11 Disregarded increases or decreases in value
When this section applies
(1)
This section applies when the effect of an increase or decrease in a value on a calculation under this subpart (the affected calculation) is disregarded under section GB 51B (Increases or decreases in value).
Increase or decrease excluded from calculation
(2)
The affected calculation is made excluding the effect of the increase or decrease.
Defined in this Act: income year
Section FE 11: replaced, on 1 July 2018, by section 26(1) (and see section 26(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Calculations
FE 12 Calculation of debt percentages
Requirement for New Zealand group
(1)
An excess debt entity must calculate the debt percentage of its New Zealand group under the rules set out in sections FE 14 to FE 16. A natural person or an excess debt entity must calculate their debt percentage under the rules set out in sections FE 13 to FE 16 and FE 18.
Requirement for worldwide group
(2)
If the debt percentage of the New Zealand group is, as applicable, more than 60% as described in section FE 5(1)(a) or (ab), or more than 75% as described in section FE 5(1)(b), then the entity must calculate the debt percentage of their worldwide group under the rules set out in sections FE 17 and FE 18.
Debt percentage of group
(3)
A group has a debt percentage equal to zero, except if the amount of the item group assets given by subsection (3B)(b) exceeds the amount of the item non-debt liabilities given by subsection (3B)(c), when the group has a debt percentage calculated, on a consolidated basis for an income year or accounting year as applicable, using the formula—
group debt ÷ (group assets – non-debt liabilities).
Definition of items in formula
(3B)
In the formula,—
(a)
group debt is the amount of the total group debt defined in section FE 15 for a New Zealand group and section FE 18 for a worldwide group:
(b)
group assets is the amount of the total group assets defined in section FE 16 for a New Zealand group and section FE 18 for a worldwide group:
(c)
non-debt liabilities is the amount of the total group non-debt liabilities defined in section FE 16B for a New Zealand group and section FE 18 for a worldwide group.
Membership of company’s New Zealand group
(4)
For an excess debt entity that is a company, the New Zealand group is made up of all companies, traced tier by tier, that are identified as within the control threshold of the New Zealand parent, see section FE 27. Section FE 25 provides the process for determining who is a member of a group based on the identification of a New Zealand parent and the establishment of the control threshold.
Membership of company’s worldwide group
(5)
For an excess debt entity that is a company, the worldwide group is made up of all companies included as members of the worldwide group under—
(a)
Natural persons: membership of New Zealand groups
(6)
For a natural person, the membership of the New Zealand group is determined as described in section FE 3(1) and (2), as applicable.
Trustees: membership of New Zealand and worldwide groups
(7)
For a trustee, the memberships of the New Zealand group and the worldwide group are determined as described in section FE 3(1) and (2), as applicable.
Defined in this Act: accounting year, amount, company, excess debt entity, excess debt outbound company, income year, natural person, New Zealand, non-resident, total group assets, total group debt, total group non-debt liabilities, trustee, ultimate parent
Compare: 2004 No 35 ss FG 3, FG 4(1), FG 5(1)
Section FE 12(1): amended (with effect on 1 April 2008), on 29 August 2011 (applying for the 2008–09 and later income years), by section 46(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
Section FE 12(1): amended (with effect on 30 June 2009), on 6 October 2009, by section 212(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 12(2): amended (with effect on 1 July 2018), on 30 March 2021, by section 65(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FE 12(2): amended, on 1 April 2011 (applying for the 2011–12 and later income years), by section 89(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section FE 12(2): amended (with effect on 30 June 2009), on 6 October 2009, by section 212(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 12(3) heading: replaced, on 1 July 2018, by section 27(1) (and see section 27(3) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 12(3): replaced (with effect on 1 July 2018), on 30 March 2021, by section 65(2) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FE 12(3B) heading: inserted, on 1 July 2018, by section 27(1) (and see section 27(3) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 12(3B): inserted, on 1 July 2018, by section 27(1) (and see section 27(3) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 12(5) heading: substituted (with effect on 30 June 2009), on 6 October 2009, by section 212(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 12(5): substituted (with effect on 30 June 2009), on 6 October 2009, by section 212(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 12(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 173(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FE 12(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 173(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FE 12(6) heading: substituted (with effect on 30 June 2009), on 6 October 2009, by section 212(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 12(6): substituted (with effect on 30 June 2009), on 6 October 2009, by section 212(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 12(7) heading: added (with effect on 30 June 2009), on 6 October 2009, by section 212(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 12(7): added (with effect on 30 June 2009), on 6 October 2009, by section 212(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 12 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).
Section FE 12 list of defined terms excess debt outbound company: inserted (with effect on 30 June 2009), on 6 October 2009, by section 212(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 12 list of defined terms total group non-debt liabilities: inserted, on 1 July 2018, by section 27(2) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
FE 12B Calculations for group for test and apportionment using interest-income ratio
Application of rules
(1)
The rules in this section apply to the calculation, for an entity’s New Zealand group or worldwide group, of the following amounts:
(a)
deductions for interest allowed to the group under sections DB 6 to DB 9 (which relate to deductions for interest), for the purposes of section FE 5(1BB):
(b)
the income of the group that is interest, for the purposes of section FE 5(1BB):
(c)
the items in the formula for adjusted net profit in section FE 5(1BC):
(d)
the items in the formula for interest-income ratio in section FE 5(1E).
Generally accepted accounting practice for consolidation
(2)
An amount calculated under these rules for an entity’s group must be calculated under generally accepted accounting practice for the consolidation of companies for the purposes of eliminating intra-group income, expenses, transactions, and balances.
Non-resident member of New Zealand group
(3)
If a member of a New Zealand group is not resident in New Zealand, the amounts for the member are not included in a consolidation except to the extent that the amounts relate to—
(a)
the carrying on of business in New Zealand through a fixed establishment in New Zealand:
(b)
the derivation of income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable.
Defined in this Act: business, deduction, double tax agreement, fixed establishment, generally accepted accounting practice, income, interest, New Zealand, New Zealand tax, non-resident passive income, resident in New Zealand, source in New Zealand
Section FE 12B: inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 55(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 12B(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 55(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 12B list of defined terms non-resident passive income: inserted (with effect on 1 July 2011), on 7 May 2012, by section 55(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
FE 13 Financial arrangements entered into with persons outside group
When this section applies
(1)
This section applies when—
(a)
a person enters into a financial arrangement with another person (person A); and
(b)
the person is a natural person, a member of a natural person’s New Zealand group, an excess debt entity, or a member of an entity’s New Zealand group or worldwide group; and
(c)
in the absence of this section, the financial arrangement would be included in the calculation of the debt percentage of the natural person, excess debt entity, New Zealand group, or worldwide group; and
(d)
the person—
(i)
provides funds to person A under the financial arrangement:
(ii)
is the trustee of a trust with no trust property other than financial arrangements and property incidental to financial arrangements.
Reduction
(2)
In the calculation of the debt percentage of the New Zealand group and a worldwide group, the amount of total group debt and total group assets is reduced by the outstanding balance of the financial arrangement.
Debt percentage of New Zealand group
(3)
In the calculation of the debt percentage of a New Zealand group, the reduction applies if the consideration for the financial arrangement is at arm’s length, and person A is 1 of the following:
(a)
a non-resident who is not carrying on business through a fixed establishment in New Zealand and derives—
(i)
income that does not have a source in New Zealand:
(ii)
income with a source in New Zealand, all of which is non-resident passive income or has relief from New Zealand tax available under a double tax agreement; or
(b)
a person who is not associated with the excess debt entity; or
(c)
a person who is associated with the excess debt entity but—
(i)
is not a member of the New Zealand group; and
(ii)
is a person to whom this subpart may apply under section FE 2.
Debt percentage of worldwide group
(4)
In the calculation of the debt percentage of a worldwide group, the reduction applies if person A is not associated with the excess debt entity.
Defined in this Act: amount, associated person, business, double tax agreement, excess debt entity, financial arrangement, fixed establishment, natural person, New Zealand, non-resident, non-resident passive income, source in New Zealand, total group assets, total group debt, trustee
Compare: 2004 No 35 s FG 6
Section FE 13(1): replaced, on 1 April 2015 (applying for the 2015–16 and later income years), by section 109(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 13(2): amended (with effect on 30 June 2009), on 6 October 2009, by section 213(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 13(3)(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 56(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 13 list of defined terms double tax agreement: inserted (with effect on 30 June 2009), on 6 October 2009, by section 213(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 13 list of defined terms non-resident passive income: inserted (with effect on 1 July 2011), on 7 May 2012, by section 56(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 13 list of defined terms source in New Zealand: inserted (with effect on 30 June 2009), on 6 October 2009, by section 213(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 13 list of defined terms trustee: inserted, on 1 April 2015, by section 109(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Debt percentage of New Zealand group
FE 14 Consolidation of debts and assets
Company calculation
(1)
For an excess debt entity that is a company, the debt percentage of a New Zealand group is calculated under generally accepted accounting practice for the consolidation of companies for the purposes of eliminating intra-group balances by consolidating the debts and assets of the members of the entity’s New Zealand group.
Natural persons’ and trustees’ calculation
(2)
For a natural person and an excess debt entity that is a trustee, the debt percentage of a New Zealand group is calculated under generally accepted accounting practice for the consolidation of companies for the purposes of eliminating intra-group balances by consolidating the debts and assets for the group.
When member not resident
(3)
If a member of a New Zealand group is not resident in New Zealand, the assets and debts of the member are included in a consolidation only to the extent to which the assets and debts are for the group member to—
(a)
carry on business in New Zealand through a fixed establishment in New Zealand:
(b)
derive income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable.
When entity is part of more than 1 group
(3B)
If an entity (the common member) is, under sections FE 3 and FE 26 to FE 29, a member or part of a member of different New Zealand groups, the liabilities and assets of the common member are included under this subpart in the total group debt, total group assets, and total group non-debt liabilities of not more than 1 New Zealand group and in no worldwide group other than the worldwide group determined using that New Zealand group.
Determining New Zealand group for common member’s debts and assets
(3C)
For the purposes of subsection (3B), the debts and assets of the common member referred to in subsection (3B) are included with the debts and assets of the other members of the New Zealand group—
(a)
given by section FE 26, in the absence of section FE 26(2)(bb) and (bc), (3)(d), (4D), and (6), for the common member; or
(b)
if paragraph (a) does not specify 1 New Zealand group, chosen by the excess debt entity to which the interest apportionment rules are being applied for the common member and the excess debt entity.
Determining worldwide group for common member’s debts and assets
(3D)
For the purposes of subsection (3B), the debts and assets of the common member referred to in subsection (3B) are included with the debts and assets of the other members of the worldwide group given by sections FE 31 to FE 36B for the common member and the common member’s New Zealand group under subsection (3C).
Treatment of specified leases and particular interest expenditure
(4)
In this subpart, in the determination of total group debt, total group assets, and total group non-debt liabilities and in the calculation of an amount for which a deduction is denied,—
(a)
a specified lease under section FZ 2 (Effect of specified lease on lessor and lessee) is treated as a financial arrangement that provides funds to the issuer; and
(b)
expenditure incurred by the lessee under a specified lease for which a deduction is allowed under section BD 2 (Deductions) is treated as an amount of interest to which any of sections DB 6 to DB 8 (which relate to deductions for interest expenditure) applies; and
(c)
interest that is allowed as a deduction under either of the following sections is treated as an amount of interest to which any of sections DB 6 to DB 8 applies, if not already allowed under those sections:
(i)
section DP 1(1)(b) (Expenditure of forestry business):
(ii)
section DV 10(1)(a) or (b) (Building societies).
Defined in this Act: amount, associated person, business, company, deduction, double tax agreement, excess debt entity, financial arrangement, fixed establishment, generally accepted accounting practice, interest, issuer, lessee, New Zealand, non-resident passive income, resident in New Zealand, source in New Zealand, specified lease, tax, total group assets, total group debt, total group non-debt liabilities, trustee
Compare: 2004 No 35 ss FG 4(9), (15), (17), FG 9
Section FE 14(2) heading: substituted (with effect on 30 June 2009), on 6 October 2009, by section 214(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 14(2): substituted (with effect on 30 June 2009), on 6 October 2009, by section 214(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 14(3) heading: substituted (with effect on 30 June 2009), on 6 October 2009, by section 214(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 14(3): substituted (with effect on 30 June 2009), on 6 October 2009, by section 214(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 14(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 57(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 14(3B) heading: inserted, on 1 April 2015 (applying for the 2015–16 and later income years), by section 110(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 14(3B): inserted, on 1 April 2015 (applying for the 2015–16 and later income years), by section 110(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 14(3B): amended, on 1 July 2018, by section 28(1)(a) (and see section 28(4) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 14(3B): amended, on 1 July 2018, by section 28(1)(b) (and see section 28(4) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 14(3C) heading: inserted, on 1 April 2015 (applying for the 2015–16 and later income years), by section 110(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 14(3C): inserted, on 1 April 2015 (applying for the 2015–16 and later income years), by section 110(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 14(3D) heading: inserted, on 1 April 2015 (applying for the 2015–16 and later income years), by section 110(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 14(3D): inserted, on 1 April 2015 (applying for the 2015–16 and later income years), by section 110(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 14(4): amended, on 1 July 2018, by section 28(2) (and see section 28(4) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 14 list of defined terms double tax agreement: inserted (with effect on 30 June 2009), on 6 October 2009, by section 214(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 14 list of defined terms non-resident passive income: inserted (with effect on 1 July 2011), on 7 May 2012, by section 57(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 14 list of defined terms source in New Zealand: inserted (with effect on 30 June 2009), on 6 October 2009, by section 214(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 14 list of defined terms tax: inserted (with effect on 1 July 2011), on 7 May 2012, by section 57(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 14 list of defined terms total group non-debt liabilities: inserted, on 1 July 2018, by section 28(3) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
FE 15 Total group debt
Meaning
(1)
In this subpart, for a New Zealand group, total group debt means the sum of the outstanding balances of—
(a)
financial arrangements entered into by a natural person, or an excess debt entity, or another member of the New Zealand group, if the financial arrangement—
(i)
provides funds to the natural person, the entity, or another member of the group; and
(ii)
gives rise to an amount for which the natural person, the entity, or another member of the group, would have a deduction; and
(iii)
the deduction is not denied under section FH 3 (Payments under financial instruments producing deduction without income) as an unrecognised amount under section FH 3(2) or under section FH 7 or FH 11 (which provide for the matching of deductions and income from multi-jurisdictional arrangements):
(b)
fixed-rate foreign equity or fixed-rate shares that are—
(i)
issued by the entity or another member of the New Zealand group; and
(ii)
held by a person resident in New Zealand:
(c)
stapled debt securities—
(i)
issued by the entity or another member of the New Zealand group; and
(ii)
held by a person resident in New Zealand; and
(iii)
stapled to shares other than shares of a company that is a proportional-stapling company.
Exchange rate fluctuations
(2)
Subsection (1)(a)(ii) does not include a deduction for an amount that arises only from movement in currency exchange rates.
Section 90A Tax Administration Act 1994
(3)
For a determination on whether a financial arrangement provides funds, see section 90A of the Tax Administration Act 1994.
Defined in this Act: amount, deduction, excess debt entity, financial arrangement, fixed-rate foreign equity, natural person, New Zealand, proportional-stapling company, resident in New Zealand, stapled, stapled debt security
Compare: 2004 No 35 s FG 4(2)
Section FE 15(1) heading: substituted (with effect on 30 June 2009), on 6 October 2009, by section 215(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 15(1): substituted (with effect on 30 June 2009), on 6 October 2009, by section 215(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 15(1)(a)(ii): amended, on 1 July 2018, by section 29(1) (and see section 29(3) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 15(1)(a)(iii): inserted, on 1 July 2018, by section 29(2) (and see section 29(3) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 15(2) heading: substituted (with effect on 30 June 2009), on 6 October 2009, by section 215(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 15(2): substituted (with effect on 30 June 2009), on 6 October 2009, by section 215(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 15 list of defined terms fixed-rate foreign equity: inserted (with effect on 30 June 2009), on 6 October 2009, by section 215(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 15 list of defined terms proportional-stapling company: inserted (with effect on 1 April 2008), on 6 October 2009, by section 215(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 15 list of defined terms resident in New Zealand: inserted (with effect on 1 April 2008), on 6 October 2009, by section 215(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 15 list of defined terms stapled: inserted (with effect on 1 April 2008), on 6 October 2009, by section 215(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 15 list of defined terms stapled debt security: inserted (with effect on 1 April 2008), on 6 October 2009, by section 215(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FE 16 Total group assets
Meaning
(1)
In this subpart, for a New Zealand group, total group assets for an income year means the total assets of a natural person, or an excess debt entity, or another member of the New Zealand group, measured under the following paragraphs, as applicable or as the person or entity chooses:
(a)
the value of the assets shown in the financial statements of the entity’s New Zealand group; or
(b)
the net current value of the assets; or
(c)
market value, for trading stock that is valued at market value in calculating the person or entity’s income tax liability for the income year, or that of a member of the group; or
(d)
adjusted tax value of a personal property lease asset at the start of the income year, in the case of a specified lease or a finance lease that is not recognised as an asset under generally accepted accounting practice; or
(e)
if allowed under generally accepted accounting practice, a combination of the financial statement values and net current values.
Determining net current value of asset
(1BAA)
For the purpose of subsection (1)(b) and (e), a net current value of an asset must be determined by a valuation of the asset by—
(a)
an independent person who is an expert in the valuation of such assets:
(b)
an employee, or other person associated with the excess debt entity, with experience in the valuation of assets and using a methodology, assumptions, and data, approved by a person qualified to give a valuation of the asset under paragraph (a).
Investments to which subsection (1B) applies
(1BA)
Subsection (1B) applies to an investment—
(a)
of a person (the relevant person) who is—
(i)
the excess debt entity:
(ii)
another member of the New Zealand group; and
(b)
that is an investment—
(i)
in a CFC in which the relevant person has an income interest:
(ii)
in a FIF in which the relevant person has an interest meeting the requirements of section EX 35 (Exemption for interest for FIF resident in Australia) or for which the relevant person uses the attributable FIF income method:
(iii)
of a trustee or natural person in a CFC through an income interest in the CFC of an associated person, if the associated person would be a member of the New Zealand group but for being an excess debt outbound company or being included in the New Zealand group of an excess debt outbound company:
(iv)
of a trustee or natural person in a FIF, through an income interest of an associated person that meets the requirements of subparagraph (ii) for the FIF and the associated person as a relevant person, if the associated person would be a member of the New Zealand group but for being an excess debt outbound company or being included in the New Zealand group of an excess debt outbound company.
CFC investments excluded
(1B)
The value of the total group assets calculated and measured under this section does not include the value of an investment described in subsection (1BA), except—
(a)
to the extent to which—
(i)
the value of the investment represents the outstanding balances of financial arrangements to which section FE 13 applies:
(ii)
the CFC or FIF derives income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable:
(b)
that the value of the total group assets is treated as being $1 if the value would otherwise be zero as a result of this subsection.
When member not resident
(1C)
If the excess debt entity or another member of a New Zealand group is not resident in New Zealand, the assets of the entity or member are included in the calculation and measurement of total group assets under this section only to the extent to which the assets are for the entity or member to—
(a)
carry on business in New Zealand through a fixed establishment in New Zealand:
(b)
derive income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable.
Changes in value excluded if arising from transfers between associated persons
(1D)
The value of the total group assets calculated and measured under this section does not include a change in the value of assets arising from a transfer of the assets or ownership interests between a member of the group and an associated person in or after the 2015–16 income year.
Exception: change equivalent to revaluation or arising from transaction with non-associate
(1E)
A change referred to in subsection (1D) may be included in the value of the total group assets if—
(a)
the change would have been permitted under generally accepted accounting practice in the absence of the transfer:
(b)
the change—
(i)
arises for a company that, with other companies, has its ownership or control acquired by a person (the purchaser) who is not an associated person of the former owner and that is restructured on being included in the purchaser’s group (the group); and
(ii)
includes a change in value for the company’s assets in New Zealand that is a reasonable proportion of the change in value of the group’s total assets.
Generally accepted accounting practice
(2)
The amount of total group assets must be calculated under generally accepted accounting practice, with the exception of the values referred to in subsection (1)(c) or (d).
Defined in this Act: adjusted tax value, amount, associated person, attributable FIF income method, CFC, company, double tax agreement, excess debt entity, excess debt outbound company, FIF, finance lease, generally accepted accounting practice, income interest, income tax liability, income year, lease, market value, natural person, New Zealand, non-resident passive income, ownership interest, personal property lease asset, source in New Zealand, specified lease, tax, total group assets, trading stock, trustee
Compare: 2004 No 35 s FG 4(3), (4)
Section FE 16(1BAA) heading: inserted, on 1 July 2018, by section 30(1) (and see section 30(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 16(1BAA): inserted, on 1 July 2018, by section 30(1) (and see section 30(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 16(1BA) heading: inserted, on 1 April 2015 (applying for the 2015–16 and later income years), by section 111(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 16(1BA): inserted, on 1 April 2015 (applying for the 2015–16 and later income years), by section 111(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 16(1B) heading: inserted (with effect on 30 June 2009), on 6 October 2009, by section 216(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 16(1B): inserted (with effect on 30 June 2009), on 6 October 2009, by section 216(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 16(1B): amended, on 1 April 2015 (applying for the 2015–16 and later income years), by section 111(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 16(1B)(a)(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 58(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 16(1C) heading: inserted (with effect on 30 June 2009), on 6 October 2009, by section 216(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 16(1C): inserted (with effect on 30 June 2009), on 6 October 2009, by section 216(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 16(1C)(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 58(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 16(1D) heading: inserted, on 1 April 2015 (applying for the 2015–16 and later income years), by section 111(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 16(1D): inserted, on 1 April 2015 (applying for the 2015–16 and later income years), by section 111(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 16(1E) heading: inserted, on 1 April 2015 (applying for the 2015–16 and later income years), by section 111(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 16(1E): inserted, on 1 April 2015 (applying for the 2015–16 and later income years), by section 111(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 16(1E)(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 FE 16 list of defined terms associated person: inserted, on 1 April 2015, by section 111(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 16 list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 58(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 16 list of defined terms CFC: inserted (with effect on 30 June 2009), on 6 October 2009, by section 216(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 16 list of defined terms company: inserted, on 1 April 2015, by section 111(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 16 list of defined terms double tax agreement: inserted (with effect on 30 June 2009), on 6 October 2009, by section 216(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 16 list of defined terms excess debt outbound company: inserted, on 1 April 2015, by section 111(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 16 list of defined terms FIF: inserted (with effect on 1 July 2011), on 7 May 2012, by section 58(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 16 list of defined terms income interest: inserted (with effect on 30 June 2009), on 6 October 2009, by section 216(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 16 list of defined terms non-resident passive income: inserted (with effect on 1 July 2011), on 7 May 2012, by section 58(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 16 list of defined terms ownership interest: inserted, on 1 April 2015, by section 111(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 16 list of defined terms source in New Zealand: inserted (with effect on 30 June 2009), on 6 October 2009, by section 216(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 16 list of defined terms tax: inserted (with effect on 1 July 2011), on 7 May 2012, by section 58(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 16 list of defined terms total group assets: inserted, on 1 April 2015, by section 111(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 16 list of defined terms trustee: inserted, on 1 April 2015, by section 111(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
FE 16B Total group non-debt liabilities
Meaning for New Zealand group
(1)
In this subpart, for a New Zealand group, total group non-debt liabilities for an income year means the total of the outstanding balances of liabilities shown in the financial statements of a natural person, or an excess debt entity, or another member of the New Zealand group, reduced by the total of liabilities shown in the financial statements, each of which is—
(a)
included in the calculation of total group debt under section FE 15:
(b)
under a financial arrangement, other than an agreement for the sale and purchase of property or services, entered into by a company that is a member of the group with a shareholder, if the financial arrangement provides funds to the company and—
(i)
the funding is provided under an arrangement between shareholders and the amount of the funds provided by each shareholder is proportional to the voting interest of each shareholder at the time:
(ii)
the shareholder and associated persons hold 10% or more of the voting interests in the company:
(c)
a share in a company that is a member of the group held by a shareholder, if—
(i)
the share was issued as part of a share issue to shareholders and the number of shares issued to each shareholder was proportional to the voting interest of each shareholder at the time:
(ii)
the shareholder and associated persons hold 10% or more of the voting interests in the company:
(d)
a provision for dividends:
(e)
a deferred liability for tax that a person chooses to include in a reduction under this section if—
(i)
the deferred liability arises from a difference between the value shown in the financial statements of the person for an asset and the amount of depreciation loss remaining available to the person for the asset; and
(ii)
the deferred liability is for an amount of tax that would not arise if the asset were sold for the value shown in the financial statements; and
(iii)
the value shown in the financial statements for the asset is calculated by reference to the amount that the person is allowed as a deduction or depreciation loss for the asset, or on the basis that the asset is non-depreciable or depreciable at a rate of zero.
Meaning for worldwide group
(2)
In this subpart, for a worldwide group, total group non-debt liabilities for an income year means the total of the outstanding balances of liabilities shown in the financial statements of the worldwide group, reduced by the total of liabilities that are included in the total group debt and the total of liabilities under financial arrangements that are removed under section FE 18(3B) from the measurement of total group debt.
Wholly-owned group treated as single shareholder and provider of funds
(3)
If a shareholder is a member of a wholly-owned group,—
(a)
for the purposes of section FE 16B(1)(b)(i) and (c)(i), the wholly-owned group is treated as the shareholder for all shares held by persons who are members of the wholly-owned group; and
(b)
for the purposes of section FE 16B(1)(b), the wholly-owned group is treated as the provider of all the funds that are provided by persons who are members of the wholly-owned group.
Defined in this Act: adjusted tax value, agreement for the sale and purchase of property or services, associated person, company, deduction, depreciation loss, dividend, excess debt entity, financial arrangement, financial statements, income year, share, shareholder, tax, total group debt, total group non-debt liabilities, voting interest, wholly-owned group
Section FE 16B: inserted, on 1 July 2018, by section 31(1) (and see section 31(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 16B(1)(b): amended (with effect on 1 July 2018), on 23 March 2020, by section 120(1) (and see section 120(6) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section FE 16B(1)(b)(i): amended (with effect on 1 July 2018), on 23 March 2020, by section 120(2) (and see section 120(6) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section FE 16B(1)(c)(i): amended (with effect on 1 July 2018), on 23 March 2020, by section 120(3) (and see section 120(6) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section FE 16B(1)(e): amended (with effect on 1 July 2018), on 18 March 2019, by section 194 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section FE 16B(3) heading: inserted (with effect on 1 July 2018), on 23 March 2020, by section 120(4) (and see section 120(6) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section FE 16B(3): inserted (with effect on 1 July 2018), on 23 March 2020, by section 120(4) (and see section 120(6) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section FE 16B list of defined terms wholly-owned group: inserted (with effect on 1 July 2018), on 23 March 2020, by section 120(5) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Debt percentage of worldwide group
FE 17 Consolidation of debts and assets
For an excess debt entity that is a company, the debt percentage of a worldwide group is calculated under generally accepted accounting practice for the consolidation of companies for the purposes of eliminating intra-group balances by consolidating the debts and assets of the members of the entity’s worldwide group using—
(a)
a financial standard used in the country in which the entity’s ultimate non-resident parent company resides, as described in section FE 18(1)(a), if applicable; or
(b)
generally accepted accounting practice.
Defined in this Act: company, excess debt entity, generally accepted accounting practice, non-resident company, ultimate parent
Compare: 2004 No 35 s FG 5(2), (10)
FE 18 Measurement of debts and assets of worldwide group
Standards applying
(1)
The amount of total group debt, the amount of total group assets, and the amount of total group non-debt liabilities of the worldwide group of an excess debt entity are calculated—
(a)
using a standard that is equivalent to generally accepted accounting practice for consistent and non-distorting financial reporting; and
(b)
in accordance with the financial reporting standards of the country where the worldwide group’s consolidated financial accounts are prepared.
Date of measurement
(2)
The amount of total group debt, the amount of total group assets, and the amount of total group non-debt liabilities of the worldwide group of an excess debt entity for an income year are measured using—
(a)
the average amount at the end of each day of the income year; or
(b)
the average amount at the end of each 3-month period in the income year; or
(c)
the amount as at the worldwide group’s balance date that immediately precedes the income year.
Measurement of amounts
(3)
Despite subsection (1), an excess debt entity must measure the amount of total group debt by applying section FE 15 as if—
(a)
section FE 15(1)(a) excluded from the measurement a financial arrangement meeting the requirements of subsection (3B); and
(b)
section FE 15(1)(a)(ii) required the financial arrangement to give rise to an amount that would be allowed as a deduction to the natural person or to the entity, or another group member, if the entity or group member were resident in New Zealand.
Financial arrangements removed from measurement of amounts
(3B)
A financial arrangement is removed from the measurement of total group debt for an excess debt entity that is not an excess debt outbound company if—
(a)
there is a person (the owner) who is not a member of the group and—
(i)
has an ownership interest in a member of the group:
(ii)
is a settlor of a trust having a trustee who is a member of the group; and
(b)
the owner, or an associated person other than a member of the group,—
(i)
is a party to the financial arrangement:
(ii)
guarantees, or provides security for, the performance of obligations under the financial arrangement, if the worldwide group is given by section FE 3(1)(d) or FE 31D:
(iii)
provides, or undertakes to provide, funds for the use of a person who agrees to provide funds under the financial arrangement; and
(c)
the owner—
(i)
has direct ownership interests in a member of the group of 5% or more:
(ii)
has made a settlement on a trust, having a trustee who is a member of the group, of 5% or more of the value of total settlements on the trust; and
(d)
the financial arrangement is not traded on an exchange that would be a recognised exchange if paragraphs (c) to (e) of the definition of recognised exchange referred to financial arrangements as well as to shares and options over shares.
Apportioning residual debt and assets after reduction under section FE 13
(3C)
If the amounts of the total group debt and total group assets are reduced under section FE 13 for the New Zealand group and worldwide group of an excess debt entity, the parts of the reduced amounts that relate to financial arrangements with members of the excess debt entity’s groups and the parts that relate to financial arrangements with persons outside the excess debt entity’s groups are treated as being in the same proportion as the parts of the total group debt and total group assets would be in without the reduction.
Commissioner’s estimate
(4)
If an excess debt entity is unable to calculate the debt percentage of their worldwide group for an income year, they may apply to the Commissioner to estimate the percentage under this subpart. The estimate is then treated as the percentage applying for the purposes of this subpart.
Default percentage
(5)
The debt percentage of the worldwide group of an excess debt entity is treated as,—
(a)
54.5454%, if the excess debt entity is not a trustee and not an excess debt outbound company, or is a trustee who is not described in section FE 2(1)(g), and—
(i)
the entity is unable to calculate the percentage and does not ask the Commissioner to make an estimate under subsection (4):
(ii)
the Commissioner cannot reasonably estimate the debt percentage under subsection (4):
(iii)
all members of the entity’s worldwide group, not including the entity, are resident in New Zealand and the entity’s worldwide group is not determined under either of sections FE 3(1)(d) and FE 31D; or
(b)
68.1818%, if the excess debt entity is an excess debt outbound company, or is a trustee who is described in section FE 2(1)(g), and—
(i)
the entity is unable to calculate the percentage and does not ask the Commissioner to make an estimate under subsection (4):
(ii)
the Commissioner cannot reasonably estimate the debt percentage under subsection (4):
(iii)
no member of the entity’s worldwide group, other than the entity, is not resident in New Zealand.
Defined in this Act: amount, apply, associated person, Commissioner, deduction, excess debt entity, excess debt outbound company, financial arrangement, generally accepted accounting practice, income year, ownership interest, recognised exchange, resident in New Zealand, settlor, total group assets, total group debt, total group non-debt liabilities, trustee
Compare: 2004 No 35 s FG 5(2)–(5), (12), (13)
Section FE 18(1): amended, on 1 July 2018, by section 32(1)(a) (and see section 32(6) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 18(1): amended, on 1 July 2018, by section 32(1)(b) (and see section 32(6) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 18(1): amended (with effect on 30 June 2009), on 6 October 2009, by section 217(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 18(2) heading: substituted (with effect on 30 June 2009), on 6 October 2009, by section 217(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 18(2): substituted (with effect on 30 June 2009), on 6 October 2009, by section 217(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 18(2): amended, on 1 July 2018, by section 32(2) (and see section 32(6) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 18(3) heading: replaced, on 1 April 2015 (applying for the 2015–16 and later income years), by section 112(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 18(3): replaced, on 1 April 2015 (applying for the 2015–16 and later income years), by section 112(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 18(3B) heading: inserted, on 1 April 2015 (applying for the 2015–16 and later income years), by section 112(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 18(3B): inserted, on 1 April 2015 (applying for the 2015–16 and later income years), by section 112(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 18(3B)(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 174(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FE 18(3B)(c): replaced, on 1 July 2018, by section 32(3) (and see section 32(6) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 18(3C) heading: inserted, on 1 July 2018, by section 32(4) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 18(3C): inserted, on 1 July 2018, by section 32(4) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 18(4): amended, on 2 June 2016, by section 45(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section FE 18(4): amended (with effect on 30 June 2009), on 6 October 2009, by section 217(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 18(5): substituted, on 1 April 2011 (applying for the 2011–12 and later income years), by section 90(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
Section FE 18(5)(a)(iii): replaced, on 1 April 2015 (applying for the 2015–16 and later income years), by section 112(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 18 list of defined terms apply: inserted, on 2 June 2016, by section 45(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section FE 18 list of defined terms associated person: inserted, on 1 April 2015, by section 112(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 18 list of defined terms excess debt outbound company: inserted, on 1 April 2015, by section 112(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 18 list of defined terms financial arrangement: inserted, on 1 April 2015, by section 112(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 18 list of defined terms natural person: repealed (with effect on 30 June 2009), on 6 October 2009, by section 217(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 18 list of defined terms ownership interest: inserted, on 1 April 2015, by section 112(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 18 list of defined terms recognised exchange: inserted, on 1 April 2015, by section 112(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 18 list of defined terms settlor: inserted, on 1 April 2015, by section 112(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 18 list of defined terms total group non-debt liabilities: inserted, on 1 July 2018, by section 32(5) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 18 list of defined terms trustee: inserted, on 1 April 2015, by section 112(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
New Zealand banking group
FE 19 Banking group’s equity threshold
Requirement for New Zealand banking group: formula
(1)
A reporting bank must calculate the equity threshold of its New Zealand banking group for a tax year using the formula—
0.06 × (risk-weighted exposures − deductions from equity value).
Definition of items in formula
(2)
In the formula,—
(a)
risk-weighted exposures is the sum of the following values:
(i)
for an asset included in a balance sheet, the regulatory value of the asset:
(ii)
for an exposure not included in a balance sheet, the regulatory value of the exposure:
(iii)
for an amount of goodwill that is not taken into account in adjustment 4: intangible assets in determining the New Zealand net equity of the group under section FE 21, the financial value of the goodwill:
(b)
deductions from equity value is the total amount of the regulatory values of adjustments 1 to 10 referred to in section FE 21.
Assets of fixed establishments
(3)
For the purposes of this section, the assets of a fixed establishment include those treated as assets of the fixed establishment under generally accepted accounting practice.
Defined in this Act: amount, financial value, fixed establishment, generally accepted accounting practice, New Zealand banking group, New Zealand net equity, regulatory value, reporting bank, tax year
Compare: 2004 No 35 s FG 8H
Section FE 19(1) formula: replaced (with effect on 1 April 2012), on 2 November 2012 (applying for measurement dates under section FE 8(3) of the Income Tax Act 2007 for periods beginning on or after 1 April 2012), by section 70(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
FE 20 Financial value and regulatory value
Financial value
(1)
In sections FE 19, and FE 21 to FE 23, the financial value of an item for a New Zealand banking group at a time is the amount recorded for the item in the group’s financial statements that—
(a)
relate to the time; and
(b)
are prepared for external reporting purposes; and
(c)
are consistent with generally accepted accounting practice for the consolidation of a group of companies for the purposes of eliminating intra-group balances.
Regulatory value
(2)
In section FE 19, the regulatory value of an item for a New Zealand banking group at a time is the total risk-weighted value for the item for the purposes of the Capital Adequacy Framework issued by the Reserve Bank of New Zealand acting in the prudential supervision of registered banks under the Banking (Prudential Supervision) Act 1989.
Defined in this Act: amount, financial value, generally accepted accounting practice, group of companies, issue, New Zealand, New Zealand banking group, registered bank, regulatory value
Compare: 2004 No 35 s FG 8F
Section FE 20(2): amended, on 1 July 2022, by section 300(1) of the Reserve Bank of New Zealand Act 2021 (2021 No 31).
FE 21 Banking group’s New Zealand net equity
Formula
(1)
A reporting bank must calculate the New Zealand net equity of its New Zealand banking group for an income year using the formula—
equity value − adjustments 1 to 11.
Definition of items in formula
(2)
The items in the formula are defined in subsections (3) to (14).
Equity value
(3)
Equity value is the total financial value of—
(a)
the shareholders’ equity for the group; and
(b)
the branch equity relating to fixed establishments of the group; and
(c)
any shares issued by a member of the group whose value is not included under paragraph (a) or (b); and
(d)
any financial arrangement that is a loan or provision of funds—
(i)
that is not taken into account in calculating the group’s funding debt for the tax year corresponding to the income year; and
(ii)
that is made by a non-resident who is not a member of the New Zealand banking group or associated with a member of the group; and
(iii)
that is made to a member of the group; and
(iv)
that does not give rise to interest expenditure other than as a result of a fluctuation in the value of a currency of a country relative to the value of a currency of another country; and
(v)
whose value is not included under paragraph (a) or (b); and
(vi)
that does not relate to a supply of goods or services; and
(e)
an instrument specified by the Governor-General by Order in Council under section FE 24 as included in equity value, but excluding an instrument specified under that section as not being an item of equity value; and
(f)
the same proportion of the financial value of any arrangement not included in paragraphs (a) to (e) as the proportion of the total interest expenditure under the arrangement in the income year that is denied as a deduction in the income year under section FH 3 (Payments under financial instruments producing deduction without income) as an unrecognised amount under section FH 3(2) or under section FH 7 or FH 11 (which provide for the matching of deductions and income from multi-jurisdictional arrangements).
Fixed-rate shares
(4)
Adjustment 1 is the financial value of fixed-rate foreign equities or fixed-rate shares that are—
(a)
issued by a member of the group on or after 1 January 2005, or before that date if the measurement period starts on or after 1 January 2010; and
(b)
owned by a person resident in New Zealand; and
(c)
included in equity value under subsection (3).
Stapled debt securities
(4B)
Adjustment 1A is the financial value of stapled debt securities that are—
(a)
owned by a person resident in New Zealand; and
(b)
included in equity value under subsection (3); and
(c)
stapled to shares other than shares of a company that is a proportional-stapling company.
Tax debts
(5)
Adjustment 2 is the financial value of a tax debt that is a financial arrangement—
(a)
included in equity value under subsection (3)(a) to (c); and
(b)
in relation to which a member of the group is allowed a deduction for the corresponding tax year for interest to which any of sections DB 6 to DB 8 (which relate to interest expenditure) applies.
Policyholder liabilities and retained profits
(6)
Adjustment 3 is the financial value of unvested policyholder benefit liabilities and policyholder retained profits included in equity value under subsection (3).
Intangible assets
(7)
Adjustment 4 is the financial value of intangible assets, but does not include the value of—
(a)
the goodwill of a business that is not a banking, financing, leasing, or life insurance business—
(i)
acquired from a person who, at the time of acquisition, is not associated with a member of the group; or
(ii)
relating to an entity that is acquired from a person who is not associated with a member of the group:
(b)
a film or film right:
(c)
property that is depreciable property or is expected to become depreciable property.
Capital gains
(8)
Adjustment 5 is the total amount of capital gain arising for the 2004–05 income year or a later income year from a transfer of an intangible asset between a member of the group and a person who is associated with a member of the group.
Asset revaluation reserves
(9)
Adjustment 6 is the financial value of revaluation reserves included in equity value under subsection (3).
Future tax benefits
(10)
Adjustment 7 is the financial value of net future tax benefits included in equity value under subsection (3) that arise from—
(a)
a tax loss for the tax year corresponding to the income year referred to in subsection (1):
(b)
a loss balance carried forward from an earlier tax year:
(c)
a timing or temporary difference to the extent to which the item giving rise to the difference would contribute to the amount of a tax loss for the tax year corresponding to the income year referred to in subsection (1) if allowed as a deduction.
Prudential deductions
(11)
Adjustment 8 is the financial value of a credit enhancement or advance that is, for the purposes of the Capital Adequacy Framework described in section FE 20(2),—
(a)
a credit enhancement that a member of the group provides to—
(i)
an associated funds management and securitisation scheme of a non-member:
(ii)
an affiliated insurance group that is a non-member when the credit has not been expensed:
(b)
an advance by a member of the group of a capital nature to a connected person who is a non-member.
Offshore assets
(12)
Adjustment 9 is the financial value of shares in a non-resident company that—
(a)
are held by a member or potential member of the group; and
(b)
are not interests in a foreign investment fund (FIF) for which the FIF income or FIF loss is calculated using the comparative value method, the deemed rate of return method, the fair dividend rate method, or the cost method; and
(c)
are not shares in a grey list company that—
(i)
are listed on the official list of a recognised exchange; and
(ii)
are revenue account property; and
(iii)
would not be a sufficient interest in the company if the class of shares were the only class of share issued by the company.
Cross holdings
(13)
Adjustment 10 is the financial value of—
(a)
interests included in equity value under subsection (3) held by a person who—
(i)
is not a member of the group because of an exclusion under section FE 35; and
(ii)
is resident in New Zealand or holds the interest through a fixed establishment in New Zealand:
(b)
shares in or loans (other than on an arm’s length basis) to a person who is not a member of the group because of an exclusion under section FE 35.
Notional offshore investments
(14)
Adjustment 11 is the amount of notional offshore investment for the group for the income year under section FE 22.
Components of adjustment items counted once
(15)
For the purposes of this section, if a component of an item described in adjustments 1 to 10 is a component of 1 or more other adjustment items, the value of the component is counted once only at its highest value.
Defined in this Act: amount, associated person, business, company, comparative value method, cost method, deduction, deemed rate of return method, depreciable property, direct voting interest, dividend, fair dividend rate method, FIF, FIF income, FIF loss, film, film right, financial arrangement, financial value, fixed establishment, fixed-rate share, grey list company, group funding debt, income year, interest, loan, loss balance, measurement period, New Zealand, New Zealand banking group, New Zealand net equity, non-resident, non-resident company, notional offshore investment amount, pay, proportional-stapling company, recognised exchange, reporting bank, resident in New Zealand, revenue account property, share, shareholder, stapled, stapled debt security, tax, tax loss
Compare: 2004 No 35 s FG 8G(1)–(3)
Section FE 21(3)(d)(ii): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 218(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 21(3)(e): amended, on 1 July 2018, by section 33(1) (and see section 33(3) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 21(3)(f): inserted, on 1 July 2018, by section 33(2) (and see section 33(3) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 21(4): amended (with effect on 30 June 2009), on 6 October 2009, by section 218(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 21(4B) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 218(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 21(4B): inserted (with effect on 1 April 2008), on 6 October 2009, by section 218(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 21(7)(a)(i): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 218(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 21(7)(a)(ii): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 218(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 21(8): substituted, on 1 April 2010 (applying for the 2010–11 and later income years), by section 218(8) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 21(12)(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 59(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 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 FE 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 FE 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 FE 21 list of defined terms CTR credit: 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 FE 21 list of defined terms proportional-stapling company: inserted (with effect on 1 April 2008), on 6 October 2009, by section 218(9) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 21 list of defined terms stapled: inserted (with effect on 1 April 2008), on 6 October 2009, by section 218(9) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 21 list of defined terms stapled debt security: inserted (with effect on 1 April 2008), on 6 October 2009, by section 218(9) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FE 22 Notional offshore investment
When this section applies
(1)
This section applies for the purposes of section FE 21(14) to determine an amount of notional offshore investment for a New Zealand banking group for an income year.
Formula
(2)
The amount of notional offshore investment is calculated using the formula—
(foreign tax credits − threshold) × 12
÷ (tax rate × interest rate of return × months).
Definition of items in formula
(3)
In the formula,—
(a)
foreign tax credits is the total amount of foreign tax credits for the tax year corresponding to the income year claimed as a credit against the income tax liability for the tax year of a member of the group or a person excluded from the group under section FE 35 that does not arise from—
(i)
attributed CFC income or from FIF income; or
(ii)
income derived before 1 July 2005.
(b)
threshold is—
(i)
the amount set by the Governor-General by Order in Council as the threshold amount for the purposes of this subsection; or
(ii)
$416,667 multiplied by the number of months beginning on or after 1 July 2005 in the income year that includes that date, if no threshold is set under subparagraph (i); or:
(iii)
$5,000,000 if no threshold amount is set under subparagraph (i) or (ii):
(c)
tax rate is the rate of tax for companies set out in schedule 1, part A, clause 2 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe benefits) for the tax year corresponding to the income year referred to in subsection (1):
(d)
interest rate of return is—
(i)
the percentage amount set by the Governor-General by Order in Council as the interest rate of return for the purposes of this subsection; or
(ii)
7%, if no interest rate of return is set under subparagraph (i):
(e)
months is the number of months beginning on or after 1 July 2005 in the corresponding income year.
Secondary legislation
(4)
An Order in Council under subsection (3)(b)(i) or (d)(i) is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements).
Defined in this Act: amount, attributed CFC income, corresponding income year, FIF income, income, income tax liability, income year, interest, New Zealand banking group, notional offshore investment amount, tax year
Compare: 2004 No 35 s FG 8G(4)
| 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 FE 22(3)(b)(ii): amended (with effect on 1 April 2008), on 30 March 2021, by section 66 of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FE 22(3)(c): amended, on 1 April 2008, by section 562 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section FE 22(4) heading: inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
Section FE 22(4): inserted, on 28 October 2021, by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
FE 23 Banking group’s funding debt
Formula
(1)
A reporting bank must calculate the funding debt of its New Zealand banking group for a tax year using the formula—
(total interest + interest deductions − shares − mismatch) ÷ days in quarter.
Definition of items in formula
(2)
In the formula,—
(a)
total interest is the financial value of the total interest-bearing debt for the group, measured on the last day of a quarter in the reporting bank’s corresponding income year:
(b)
interest deductions is the financial value not included in paragraph (a) of a financial arrangement in relation to which the group has a deduction for interest to which any of sections DB 6 to DB 8 (which relate to interest expenditure) applies, other than as a consequence of a fluctuation in the value of a currency of a country relative to the value of a currency of another country:
(c)
shares is the financial value of shares included in paragraph (a), measured on the last day of a quarter in the reporting bank’s corresponding income year:
(cb)
mismatch is the same proportion of the financial value of a debt or financial arrangement included in paragraph (a) or (b) as the proportion of the total interest expenditure under the debt or financial arrangement in the income year that is denied as a deduction in the income year under section FH 3 (Payments under financial instruments producing deduction without income) as an unrecognised amount under section FH 3(2) or under section FH 7 or FH 11 (which provide for the matching of deductions and income from multi-jurisdictional arrangements):
(d)
days in quarter is the number of days in a quarter in the reporting bank’s corresponding income year.
Defined in this Act: corresponding income year, deduction, financial arrangement, financial value, interest, New Zealand banking group, quarter, reporting bank, share, tax year
Compare: 2004 No 35 s FG 8B(3)
Section FE 23(1) formula: amended, on 1 July 2018, by section 34(1) (and see section 34(3) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FE 23(2)(cb): inserted, on 1 July 2018, by section 34(2) (and see section 34(3) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
FE 24 Regulations
When this section applies
(1)
This section applies for the purposes of sections FE 21 and FE 22.
Specifications
(2)
The Governor-General may, from time to time, by Order in Council—
(a)
specify a type of instrument that is included in equity value under section FE 21(3):
(b)
specify a type of instrument that is not included in equity value under section FE 21(3):
(c)
set, replace, or repeal a figure for a threshold amount for a value of an instrument, or aggregate value of a type of instrument, held by a person or group of persons for the purposes of a specification under paragraph (a) or (b):
(d)
amend or delete a specification under paragraphs (a) to (c):
(e)
set, replace, or repeal a figure for the threshold amount for the purposes of the definition of threshold in section FE 22(3)(b)(i):
(f)
set, replace, or repeal a figure for the definition of interest rate of return in section FE 22(3)(d)(i).
Application or effective date
(3)
An Order in Council under subsection (2) may—
(a)
come into effect on or after 1 July 2005:
(b)
apply for measurement periods and quarters that—
(i)
are in the 2005–06 income year or a later income year; and
(ii)
commence on or after 1 July 2005.
Secondary legislation
(4)
An Order in Council under subsection (2)—
(a)
is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements); and
(b)
commences in accordance with subsection (3), even if it is not yet published.
Defined in this Act: amount, group of persons, income year, interest, measurement period, quarter
Compare: 2004 No 35 s FG 8G(5), (6)
| 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. | ||||
Determining membership of groups
New Zealand group
FE 25 New Zealand group for excess debt entity that is a company or non-resident owning body
Steps to determine membership
(1)
The following steps are used to determine the membership of the New Zealand group of an excess debt entity that is a company or non-resident owning body:
(a)
identifying the New Zealand parent, see section FE 26:
(b)
establishing the companies under the parent’s control, see section FE 27:
(c)
identifying the members of the New Zealand group, see sections FE 28 and FE 29:
(d)
if a non-resident has ownership interests in 2 or more New Zealand groups, establishing whether the groups may be combined into a single New Zealand group, see section FE 30.
Entity as company or non-resident owning body
(2)
Sections FE 26 to FE 30 apply to an excess debt entity that is a company or a non-resident owning body. However, section FE 30 does not apply to an excess debt outbound company.
Defined in this Act: company, excess debt entity, excess debt outbound company, New Zealand, non-resident, ownership interest
Compare: 2004 No 35 s FG 4(10), (11)
Section FE 25 heading: amended, on 1 April 2015, by section 113(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 25(1): amended, on 1 April 2015 (applying for the 2015–16 and later income years), by section 113(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 25(2) heading: amended, on 1 April 2015, by section 113(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 25(2): amended, on 1 April 2015 (applying for the 2015–16 and later income years), by section 113(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 25(2): amended (with effect on 30 June 2009), on 6 October 2009, by section 219(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 25 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).
Section FE 25 list of defined terms excess debt outbound company: inserted (with effect on 30 June 2009), on 6 October 2009, by section 219(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 25 list of defined terms ownership interest: inserted, on 1 April 2015, by section 113(5) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
FE 26 Identifying New Zealand parent
Identifying resident company
(1)
The New Zealand parent of an excess debt entity is the entity identified in whichever is applicable of subsections (2) to (6).
Entity as parent
(2)
The excess debt entity is treated as the New Zealand parent if—
(a)
the entity is not resident in New Zealand; or
(b)
the entity is resident in New Zealand, and—
(i)
a non-resident has a direct ownership interest in the entity of 50% or more, as determined under section FE 39; and
(ii)
no single non-resident who is carrying on business in New Zealand through a fixed establishment in New Zealand or who derives income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable has an ownership interest in the entity of 50% or more; or
(bb)
the entity is resident in New Zealand, and meets the requirements of none of the other paragraphs, and has a non-resident owning body having a direct ownership interest of 50% or more in the entity and not having a member (a tax-return member)—
(i)
carrying on business in New Zealand through a fixed establishment in New Zealand:
(ii)
deriving income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax is unavailable under all relevant double tax agreements; or
(bc)
the entity is a non-resident owning body; or
(c)
the entity is an excess debt outbound company and no single company resident in New Zealand has an ownership interest in the entity of 50% or more.
Top tier New Zealand resident company if not excess debt outbound company
(3)
If subsection (2) does not apply, and the excess debt entity is not an excess debt outbound company, the entity’s New Zealand parent is the company (company A) that meets all the following requirements:
(a)
company A is either—
(i)
resident in New Zealand; or
(ii)
not resident in New Zealand but carrying on business in New Zealand through a fixed establishment in New Zealand; or
(iii)
not resident in New Zealand but deriving income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable; and
(b)
company A has an ownership interest in the entity; and
(c)
if company A is a non-resident, a non-resident has a direct ownership in company A; and
(d)
if company A is resident in New Zealand,—
(i)
a non-resident has a direct ownership interest in company A and ownership interests of 50% or more in the entity and company A; or
(ii)
the requirements of subparagraph (i) are not met and a group of non-residents is a non-resident owning body for the entity and for company A, and has ownership interests of 50% or more in the entity and company A, and no such non-resident owning body for the entity and for company A has a tax-return member; and
(e)
no company that meets the requirements of paragraphs (a) to (d) has a direct ownership interest in company A.
When parent controlled by non-resident
(4)
Despite subsection (3), if the interest apportionment rule in section FE 6 applies to the excess debt entity only through the application of section FE 2(1)(c)(ii), the entity’s New Zealand parent is the company (company B) that meets all the following requirements:
(a)
company B is either—
(i)
resident in New Zealand; or
(ii)
not resident in New Zealand but carrying on business in New Zealand through a fixed establishment in New Zealand; or
(iii)
not resident in New Zealand but deriving income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable; and
(b)
company B has an ownership interest in the entity; and
(c)
if company B is resident in New Zealand, a non-resident, or non-resident owning body, who has control of the entity by any means, has control of company B by any means; and
(d)
no company that meets the requirements of paragraphs (a) to (c) has a direct ownership interest in company B.
Top tier New Zealand resident company for excess debt outbound company
(4B)
If subsection (2) does not apply, and the excess debt entity is an excess debt outbound company, the entity’s New Zealand parent is the company (company C) that meets all the following requirements:
(a)
company C—
(i)
is resident in New Zealand; and
(ii)
has an ownership interest of 50% or more in the entity; and
(b)
no company that meets the requirements of paragraph (a)(i) and (ii) has a direct ownership interest in company C.
Non-resident owning body
(4C)
If subsections (2) to (4B) do not apply and the entity is resident in New Zealand and has a non-resident owning body, the non-resident owning body is the entity’s New Zealand parent if the non-resident owning body has—
(a)
a direct ownership interest of 50% or more in the entity; and
(b)
a tax-return member.
Controlling trustee
(4D)
If an excess debt entity meets the requirements of section FE 2(1)(cc) and the New Zealand parent of the entity cannot be determined in the absence of this subsection and subsection (6), the New Zealand parent of the entity is the trustee referred to in section FE 2(1)(cc).
Tie-breaker
(5)
If more than 1 company is identified as New Zealand parent under subsection (3) or (4), the New Zealand parent is the company that has the highest value in ownership interests calculated by multiplying—
(a)
the total direct ownership interests in company A or company B of non-residents who also have ownership interests in the entity of 50% or more:
(b)
the ownership interests of company A or company B in the entity.
Entity as parent
(6)
If subsection (2) does not apply, and no company meets the requirements of 1 of subsections (3) to (4D), the excess debt entity is treated as the New Zealand parent.
Determining ownership interests in subsections (3) to (4C)
(7)
In subsections (3) to (4C), ownership interests are determined under sections FE 38 to FE 41, but for the purposes of identifying a New Zealand parent,—
(a)
the ownership interests of a person associated with another person are not included with the ownership interests of the other person, except if the persons are associated under paragraph (b):
(b)
a trustee who acts in concert with another trustee is treated as being associated with the other trustee.
Defined in this Act: associated person, business, company, double tax agreement, excess debt entity, excess debt outbound company, fixed establishment, income, interest, New Zealand, non-resident, non-resident company, non-resident owning body, non-resident passive income, ownership interest, resident in New Zealand, source in New Zealand, tax
Compare: 2004 No 35 s FG 4(10)
Section FE 26(2)(b)(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 60(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 26(2)(bb): inserted, on 1 April 2015 (applying for the 2015–16 and later income years), by section 114(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 26(2)(bc): inserted, on 1 April 2015 (applying for the 2015–16 and later income years), by section 114(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 26(2)(c): added (with effect on 30 June 2009), on 6 October 2009, by section 220(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 26(3) heading: substituted (with effect on 30 June 2009), on 6 October 2009, by section 220(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 26(3): amended (with effect on 30 June 2009), on 6 October 2009, by section 220(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 26(3)(a)(ii): amended (with effect on 30 June 2009), on 6 October 2009, by section 220(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 26(3)(a)(iii): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 60(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 26(3)(c): replaced, on 1 April 2015 (applying for the 2015–16 and later income years), by section 114(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 26(3)(d): replaced, on 1 April 2015 (applying for the 2015–16 and later income years), by section 114(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 26(4)(a)(ii): amended (with effect on 30 June 2009), on 6 October 2009, by section 220(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 26(4)(a)(iii): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 60(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 26(4)(c): amended, on 1 April 2015 (applying for the 2015–16 and later income years), by section 114(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 26(4B) heading: inserted (with effect on 30 June 2009), on 6 October 2009, by section 220(7) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 26(4B): inserted (with effect on 30 June 2009), on 6 October 2009, by section 220(7) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 26(4C) heading: inserted, on 1 April 2015 (applying for the 2015–16 and later income years), by section 114(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 26(4C): inserted, on 1 April 2015 (applying for the 2015–16 and later income years), by section 114(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 26(4D) heading: inserted, on 1 April 2015 (applying for the 2015–16 and later income years), by section 114(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 26(4D): inserted, on 1 April 2015 (applying for the 2015–16 and later income years), by section 114(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 26(6): substituted (with effect on 30 June 2009), on 6 October 2009, by section 220(8) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 26(6): amended, on 1 April 2015 (applying for the 2015–16 and later income years), by section 114(5) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 26(7) heading: replaced, on 1 April 2015 (applying for the 2015–16 and later income years), by section 114(6) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 26(7): replaced, on 1 April 2015 (applying for the 2015–16 and later income years), by section 114(6) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 26 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).
Section FE 26 list of defined terms double tax agreement: inserted (with effect on 30 June 2009), on 6 October 2009, by section 220(10) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 26 list of defined terms excess debt outbound company: inserted (with effect on 30 June 2009), on 6 October 2009, by section 220(10) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 26 list of defined terms income: inserted, on 1 April 2015, by section 114(7) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 26 list of defined terms non-resident owning body: inserted, on 1 April 2015, by section 114(7) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 26 list of defined terms non-resident passive income: inserted (with effect on 1 July 2011), on 7 May 2012, by section 60(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 26 list of defined terms ownership interest: inserted, on 1 April 2015, by section 114(7) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 26 list of defined terms source in New Zealand: inserted (with effect on 30 June 2009), on 6 October 2009, by section 220(10) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 26 list of defined terms tax: inserted (with effect on 1 July 2011), on 7 May 2012, by section 60(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
FE 27 Establishing companies under parent’s control
Choosing threshold
(1)
A control threshold that the New Zealand parent of an excess debt entity chooses under this section must apply consistently to all companies that are members of the group.
Percentages
(2)
The New Zealand parent of an excess debt entity may choose as the relevant control threshold a percentage that is either—
(a)
more than 50%; or
(b)
66% or more.
Threshold over 50%
(3)
For a control threshold that is more than 50%, the company or companies treated as controlled by the New Zealand parent are those in which direct ownership interests of more than 50% are held collectively by either or both—
(a)
the New Zealand parent; and
(b)
any other company included in the New Zealand group.
Threshold of 66% or more
(4)
For a control threshold of 66% or more, the companies treated as controlled by the New Zealand parent are those in which direct ownership interests of 66% or more are held collectively by any combination of—
(a)
the New Zealand parent; and
(b)
a non-resident if—
(i)
they have ownership interests of 50% or more in both the entity and the New Zealand parent; and
(ii)
a company included in the New Zealand group as a result of the control percentage would have been included in the group under section FE 28 through the application of the control test in subsection (3), had the control percentage in that subsection been chosen; and
(c)
any other company or companies that are included in the New Zealand group under section FE 28 through the application of any of these paragraphs.
Default threshold of 66%
(5)
If the New Zealand parent does not choose a control threshold under subsection (3) or (4), the control threshold applying to the New Zealand group is 66% or more.
Application to other companies of New Zealand parent
(6)
The control threshold applying for an income year in relation to the entity and its New Zealand parent applies to any company of the New Zealand parent.
Defined in this Act: company, excess debt entity, income year, New Zealand, non-resident, ownership interest
Compare: 2004 No 35 s FG 4(12)–(14B)
Section FE 27 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).
Section FE 27 list of defined terms ownership interest: inserted, on 1 April 2015, by section 116(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
FE 28 Identifying members of New Zealand group
New Zealand parent’s group
(1)
A New Zealand group is made up of an excess debt entity, the entity’s New Zealand parent, and a company—
(a)
that is—
(i)
resident in New Zealand:
(ii)
carrying on a business in New Zealand through a fixed establishment in New Zealand:
(iii)
deriving income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable; and
(b)
that is identified under section FE 27 as being under the control of the New Zealand parent; and
(c)
that is not a member of the New Zealand banking group of a registered bank.
Special rule for some entity’s group
(2)
Despite subsection (1), if the excess debt entity is not an excess debt outbound company and is not a company identified under section FE 27 as being under the control of the New Zealand parent because the threshold is not met, the New Zealand group is made up of the entity and a company—
(a)
that is—
(i)
resident in New Zealand:
(ii)
carrying on a business in New Zealand through a fixed establishment in New Zealand:
(iii)
deriving income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable; and
(b)
that is a company that is not a member of the New Zealand banking group of a registered bank and—
(i)
would be identified under section FE 27 as being under the control of the entity if the entity were treated as the New Zealand parent; or
(ii)
if the entity is identified under section FE 27 as being under the control of another company (company A), would be identified under section FE 27 as under the control of company A if company A were included in the New Zealand group and treated as the New Zealand parent; or
(iii)
would be identified under section FE 27 as under the control of a company (company B) included in the entity’s New Zealand group under subparagraph (ii), if company B were treated as the New Zealand parent.
(iv)
[Repealed]Another special rule for some other entity’s group
(3)
Despite subsection (1), if the excess debt entity is an excess debt outbound company and is not a company identified under section FE 27 as being under the control of the New Zealand parent because the threshold is not met, the entity is included in the New Zealand group for the New Zealand parent if—
(a)
the entity is a company that meets the requirements of subsection (1)(a) and (c); and
(b)
a member of the New Zealand group has a 50% or more ownership interest in the entity.
Defined in this Act: business, company, double tax agreement, excess debt entity, excess debt outbound company, fixed establishment, New Zealand, New Zealand banking group, non-resident passive income, ownership interest, registered bank, resident in New Zealand, source in New Zealand, tax
Section FE 28: substituted (with effect on 30 June 2009), on 6 October 2009, by section 221(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 28(1)(a)(iii): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 61(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 28(2)(a)(iii): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 61(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 28(2)(b): amended (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 24 February 2016, by section 175(4) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FE 28(2)(b): amended (with effect on 1 April 2008), on 24 February 2016, by section 175(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FE 28(2)(b)(iii): amended (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 24 February 2016, by section 175(5) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FE 28(2)(b)(iii): amended (with effect on 1 April 2008), on 24 February 2016, by section 175(2) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FE 28(2)(b)(iv): repealed (with effect on 30 June 2009 and applying for income years beginning on or after 1 July 2009), on 24 February 2016, by section 175(6) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FE 28(2)(b)(iv): repealed (with effect on 1 April 2008), on 24 February 2016, by section 175(3) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FE 28 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).
Section FE 28 list of defined terms non-resident passive income: inserted (with effect on 1 July 2011), on 7 May 2012, by section 61(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 28 list of defined terms ownership interest: inserted, on 1 April 2015, by section 116(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 28 list of defined terms tax: inserted (with effect on 1 July 2011), on 7 May 2012, by section 61(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
FE 29 Combining New Zealand groups owned by natural persons and trustees
When this section applies
(1)
This section applies when a natural person or trustee described in section FE 2(1)(g) has—
(a)
a 50% or more ownership interest in a member of a New Zealand group (group 1) having a member that is an excess debt outbound company; and
(b)
a 50% or more ownership interest in a member of a different New Zealand group (group 2) having a member that is an excess debt outbound company.
Groups combine
(2)
Group 1 and group 2 combine into 1 New Zealand group.
Defined in this Act: excess debt outbound company, New Zealand, ownership interest
Section FE 29: substituted (with effect on 30 June 2009), on 6 October 2009, by section 222(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 29 list of defined terms ownership interest: inserted, on 1 April 2015, by section 116(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
FE 30 Ownership interests in companies outside New Zealand group
When this section applies
(1)
This section applies when—
(a)
a New Zealand group is in existence; and
(b)
a particular excess debt entity (company A) that is not an excess debt outbound company is outside the group; and
(c)
company A is—
(i)
resident in New Zealand:
(ii)
carrying on business in New Zealand through a fixed establishment in New Zealand:
(iii)
deriving income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable; and
(d)
a single non-resident has ownership interests of 50% or more in both—
(i)
the New Zealand group; and
(ii)
company A.
Consistency in group membership
(2)
The New Zealand parent of company A may choose to include the company in the New Zealand group if every company to be included in the enlarged group that is a New Zealand parent in the group makes the same election in relation to all other companies that are not in a New Zealand group with that parent before this section applies.
When company A cannot be part of group
(3)
Despite subsection (2), company A cannot be part of the New Zealand group if—
(a)
another company (company B) that is outside the group has a direct ownership in company A; and
(b)
company B is—
(i)
resident in New Zealand:
(ii)
carrying on business in New Zealand through a fixed establishment in New Zealand:
(iii)
deriving income, other than non-resident passive income, that has a source in New Zealand and for which relief from New Zealand tax under a double tax agreement is unavailable; and
(c)
either—
(i)
a New Zealand parent in the group, after the application of subsection (2), has control of company B under section FE 27(3); or
(ii)
the single non-resident has ownership interests of 50% or more in company B.
Defined in this Act: business, company, double tax agreement, excess debt entity, excess debt outbound company, fixed establishment, New Zealand, non-resident, non-resident passive income, ownership interest, resident in New Zealand, source in New Zealand, tax
Compare: 2004 No 35 s FG 4(14D)
Section FE 30(1)(b): substituted (with effect on 30 June 2009), on 6 October 2009, by section 223(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 30(1)(c): substituted (with effect on 30 June 2009), on 6 October 2009, by section 223(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 30(1)(c)(iii): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 62(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 30(3)(b): substituted (with effect on 30 June 2009), on 6 October 2009, by section 223(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 30(3)(b)(iii): replaced (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 62(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 30 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).
Section FE 30 list of defined terms double tax agreement: inserted (with effect on 30 June 2009), on 6 October 2009, by section 223(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 30 list of defined terms excess debt outbound company: inserted (with effect on 30 June 2009), on 6 October 2009, by section 223(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 30 list of defined terms non-resident passive income: inserted (with effect on 1 July 2011), on 7 May 2012, by section 62(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 30 list of defined terms ownership interest: inserted, on 1 April 2015, by section 116(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FE 30 list of defined terms source in New Zealand: inserted (with effect on 30 June 2009), on 6 October 2009, by section 223(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 30 list of defined terms tax: inserted (with effect on 1 July 2011), on 7 May 2012, by section 62(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Worldwide group
FE 31 Worldwide group for corporate excess debt entity if not excess debt outbound company
Members of worldwide group
(1)
For an income year, for an excess debt entity that is a company and is not an excess debt outbound company, a worldwide group is made up of—
(a)
the entity; and
(b)
the entity’s New Zealand group for the income year; and
(c)
the entity’s worldwide GAAP group, as described in subsection (2); and
(d)
the entity’s ultimate non-resident parent, as described in subsection (3); and
(e)
the ultimate non-resident parent’s worldwide GAAP group, as described in subsection (4); and
(f)
any non-resident that—
(i)
is not a company; and
(ii)
has ownership interests in the entity of 50% or more; and
(g)
any person associated with the non-resident referred to in paragraph (f).
Worldwide GAAP group
(2)
An excess debt entity’s worldwide GAAP group is made up of all non-residents who are required to be included with the entity in the consolidated financial statements under, as the entity chooses,—
(a)
generally accepted accounting practice; or
(b)
an equivalent standard for consistent and non-distorting financial reporting that is—
(i)
set in the country where the ultimate non-resident parent of the parent, as described in subsection (3), resides; or
(ii)
applied when preparing the consolidated financial statements of the international group of which the entity is part.
Ultimate non-resident parent
(3)
An excess debt entity’s ultimate non-resident parent is the company that meets the following requirements:
(a)
the company has ownership interests in the entity of 50% or more; and
(b)
the company is not excluded from the entity’s worldwide group under section FE 32; and
(c)
no other company has both—
(i)
an ownership interest in the entity of 50% or more:
(ii)
an ownership interest in the company referred to in paragraphs (a) and (b).
Ultimate non-resident parent’s worldwide GAAP group
(4)
The ultimate non-resident parent’s worldwide GAAP group is made up of—
(a)
the ultimate non-resident parent; and
(b)
any non-resident who is required to be included with the ultimate non-resident parent in consolidated group accounts under, as the non-resident parent chooses,—
(i)
the standard referred to in subsection (2)(b)(i), if applicable; or
(ii)
generally accepted accounting practice.
Measuring ownership interests
(5)
In subsection (3), ownership interests are determined under sections FE 38 to FE 41.
Defined in this Act: associated person, company, excess debt entity, excess debt outbound company, generally accepted accounting practice, income year, New Zealand, non-resident, ownership interest, ultimate parent
Compare: 2004 No 35 s FG 5(8)
Section FE 31 heading: substituted (with effect on 30 June 2009), on 6 October 2009, by section 224(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 31(1): amended (with effect on 30 June 2009), on 6 October 2009, by section 224(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 31(1)(a): substituted (with effect on 30 June 2009), on 6 October 2009, by section 224(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 31 list of defined terms excess debt outbound company: inserted (with effect on 30 June 2009), on 6 October 2009, by section 224(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 31 list of defined terms ownership interest: inserted, on 1 April 2015, by section 116(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
FE 31B Worldwide group for excess debt outbound companies
Members of worldwide group
(1)
For an income year, a worldwide group for an excess debt outbound company is made up of—
(a)
the company; and
(b)
the company’s New Zealand group for the income year; and
(c)
the company’s worldwide GAAP group, as described in subsection (2).
Worldwide GAAP group
(2)
An excess debt outbound company’s worldwide GAAP group is made up of all non-residents who are required to be included with the company in consolidated financial statements under generally accepted accounting practice.
Defined in this Act: excess debt outbound company, generally accepted accounting practice, income year, non-resident
Section FE 31B: inserted (with effect on 30 June 2009), on 6 October 2009, by section 225(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FE 31C CFCs in worldwide group for natural persons or trustees described in section FE 2(1)(g)
When this section applies
(1)
This section applies when a natural person or trustee described in section FE 2(1)(g) has—
(a)
a 50% or more ownership interest in an excess debt outbound company that is a member of a worldwide group (worldwide group A); and
(b)
an interest, in an entity not part of the worldwide group A, that is—
(i)
an income interest in a CFC:
(ii)
an interest in a FIF that meets the requirements of section EX 35 (Exemption for interest in FIF resident in Australia):
(iii)
an interest in a FIF for which the natural person or trustee uses the attributable FIF income method.
Transfer
(2)
The CFC is part of the worldwide group A.
Ownership interests
(3)
For the purposes of this section, ownership interests are determined under sections FE 38 to FE 41.
Defined in this Act: attributable FIF income method, CFC, excess debt outbound company, FIF, income interest, New Zealand, non-resident, ownership interest
Section FE 31C: inserted (with effect on 30 June 2009), on 6 October 2009, by section 225(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 31C(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 63(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 31C list of defined terms attributable FIF income method: inserted (with effect on 1 July 2011), on 7 May 2012, by section 63(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 31C list of defined terms FIF: inserted (with effect on 1 July 2011), on 7 May 2012, by section 63(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 31C list of defined terms ownership interest: inserted, on 1 April 2015, by section 116(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
FE 31D Worldwide group for entity controlled by non-resident owning body or trustee
A worldwide group for an excess debt entity is made up of the entity itself and the entity’s New Zealand group if—
(a)
the entity would not meet the requirements of section FE 2 in the absence of section FE 2(1)(cb):
(b)
the entity’s New Zealand parent is identified to be the trustee of the entity by section FE 26(4D).
Defined in this Act: excess debt entity, trustee
Section FE 31D: replaced (with effect on 1 April 2015 and applying for the 2015–16 and later income years), on 24 February 2016, by section 176(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
FE 32 Joint venture parties
What this section applies to
(1)
This section applies to a company (the joint venture company) in a worldwide group under section FE 31 or FE 31B if—
(a)
a person (the excluded joint venturer) holds an ownership interest equal to 50% in the joint venture company; and
(b)
1 other person (the included joint venturer) in the worldwide group holds an ownership interest equal to 50% in the joint venture company; and
(c)
but for the application of this section, the worldwide group includes every person who holds both an ownership interest equal to 50% in the joint venture company and—
(i)
who has an ownership interest in the included joint venturer; or
(ii)
in whom the included joint venture company has an ownership interest.
Exclusion of excluded joint venturer
(2)
The joint venture company may choose to exclude the excluded joint venturer from its worldwide group for an income year, despite sections FE 31 and FE 31B.
Ownership interests
(3)
For the purposes of this section, ownership interests are determined under sections FE 38 to FE 41.
Defined in this Act: company, excess debt entity, income year, ownership interest
Section FE 32: substituted (with effect on 30 June 2009), on 6 October 2009, by section 226(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 32 list of defined terms ownership interest: inserted, on 1 April 2015, by section 116(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
New Zealand banking group
FE 33 New Zealand banking group
The following steps are used to determine the membership of a New Zealand banking group:
(a)
identifying the ultimate parent of a registered bank, see section FE 34:
(b)
determining whether a person may be excluded from a banking group, see section FE 35:
(c)
identifying a person and a fixed establishment as a member of a banking group, see section FE 36.
Defined in this Act: fixed establishment, New Zealand banking group, registered bank, ultimate parent
FE 34 Identifying ultimate parent
Identifying company
(1)
The ultimate parent is the company identified in subsection (2) or (3), as applicable.
Registered bank’s parent
(2)
An ultimate parent of a registered bank is a company—
(a)
that has an ownership interest in the registered bank of 50% or more; and
(b)
in which no other company that has an ownership interest in the registered bank of 50% or more has an ownership interest.
Fixed establishment’s parent
(3)
The ultimate parent of a registered bank’s fixed establishment in New Zealand is the registered bank.
Ownership interests
(4)
For the purposes of this section, ownership interests are determined under sections FE 38 to FE 41.
Defined in this Act: company, fixed establishment, New Zealand, ownership interest, registered bank, ultimate parent
Compare: 2004 No 35 s FG 8C(9), (10)
Section FE 34 list of defined terms ownership interest: inserted, on 1 April 2015, by section 116(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
FE 35 Persons who may be excluded from banking groups
Reporting bank’s exclusions
(1)
A reporting bank may determine the members of its New Zealand banking group by excluding from the group a person or fixed establishment described in subsections (2) to (5).
Life insurance providers
(2)
A reporting bank may choose to exclude from its New Zealand banking group a person or a fixed establishment whose main activity is providing life insurance.
Entity owning life insurer or banker
(3)
A reporting bank may choose to exclude from its New Zealand banking group a person resident in New Zealand—
(a)
who has a voting interest of 100% in a person excluded under subsection (2); and
(b)
whose main activity is not banking, financing, or leasing, or the ownership or control of an entity whose main activity is banking, financing, or leasing.
Resident group company with other activities
(4)
A reporting bank may choose to exclude from its New Zealand banking group a person resident in New Zealand—
(a)
who is required under generally accepted accounting practice to be included in consolidated group accounts with a person or fixed establishment excluded under subsection (2) or (3); and
(b)
whose main activity is not banking, financing, or leasing, or the ownership or control of an entity whose main activity is banking, financing, or leasing.
Fixed establishment with other activities
(5)
A reporting bank may choose to exclude from its New Zealand banking group a fixed establishment of a non-resident if—
(a)
the non-resident has a voting interest of 100% in a person excluded under subsection (2); and
(b)
the fixed establishment has a main activity of financing the person excluded under subsection (2); and
(c)
the main activity of the fixed establishment is not banking, financing, or leasing, or the ownership or control of an entity whose main activity is banking, financing, or leasing.
Defined in this Act: company, fixed establishment, generally accepted accounting practice, life insurance, New Zealand banking group, non-resident, reporting bank, resident in New Zealand, voting interest
Compare: 2004 No 35 s FG 8C(8)
Section FE 35 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).
FE 36 Identifying members of New Zealand banking group in usual case
Entities included in group
(1)
The New Zealand banking group of a registered bank to which section FE 36B does not apply includes the entities described in subsection (2), and may also include the entities described in subsections (3) to (6) if the conditions set out in those subsections are met.
Registered bank or fixed establishment
(2)
The banking group includes—
(a)
the registered bank, if resident in New Zealand:
(b)
the registered bank’s fixed establishment, if the registered bank is not resident in New Zealand.
Resident person in group with registered bank
(3)
A resident person is included in the banking group if—
(a)
the person is part of the same group of companies as the registered bank:
(b)
the following conditions under generally accepted accounting practice are met:
(i)
for a resident registered bank with no non-resident ultimate parent, the consolidated group accounts include both the person and the registered bank, or would include both but for relevant materiality thresholds; or
(ii)
for a non-resident registered bank with no non-resident ultimate parent, the consolidated group accounts would include the person and the registered bank if the bank were resident in New Zealand and the relevant materiality thresholds were met.
Resident in group with non-resident ultimate parent
(4)
A resident is included in the banking group if—
(a)
the person is part of the same group of companies as a non-resident ultimate parent:
(b)
under generally accepted accounting practice, the consolidated group accounts would include the person and the ultimate parent if the ultimate parent were resident in New Zealand and the relevant materiality thresholds were met.
Fixed establishment in group with registered bank
(5)
A fixed establishment in New Zealand of a non-resident is included in the banking group separately from the non-resident if—
(a)
the fixed establishment is part of the same group of companies as a non-resident registered bank with no non-resident ultimate parent:
(b)
under generally accepted accounting practice, the consolidated group accounts would include the fixed establishment and the registered bank if the registered bank were resident in New Zealand and the relevant materiality thresholds were met.
Fixed establishment in group with non-resident ultimate parent
(6)
A fixed establishment in New Zealand of a non-resident is included in the banking group separately from the non-resident if—
(a)
the fixed establishment is part of the same group of companies as a non-resident ultimate parent:
(b)
under generally accepted accounting practice, the consolidated group accounts would include the fixed establishment and the ultimate parent if the ultimate parent were resident in New Zealand and the relevant materiality thresholds were met.
Defined in this Act: fixed establishment, generally accepted accounting practice, group of companies, New Zealand, New Zealand banking group, non-resident, registered bank, resident in New Zealand, ultimate parent
Compare: 2004 No 35 s FG 8C(1), (2), (4)–(7)
Section FE 36 heading: amended (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 64(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 36(1): amended (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 64(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 36(3): substituted (with effect on 1 April 2008), on 6 October 2009, by section 227(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 36(4)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 227(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 36(5)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 227(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FE 36(6)(a): amended (with effect on 1 April 2008), on 6 October 2009, by section 227(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FE 36B Identifying members of New Zealand banking group: Crown-owned, no interest apportionment
Entities included in group
(1)
The New Zealand banking group of a registered bank consists of the entities given by this section if—
(a)
each voting interest in the registered bank is held by—
(i)
the Sovereign in right of New Zealand:
(ii)
a public authority; and
(b)
in the absence of this paragraph and sections EX 15, FE 2(5), FE 38(b) and (d), and FE 41(1), none of the entities that would be part of the banking group under this section would be a person to whom the interest apportionment rules might apply under section FE 2.
Registered bank and person with direct voting interest of 100%
(2)
The banking group includes—
(a)
the registered bank:
(b)
a person with a direct voting interest of 100% in the registered bank.
Resident member of financial reporting group under Financial Reporting Act 2013
(3)
A resident person is included in the banking group if the person,—
(a)
under the Financial Reporting Act 2013, or under section 55 of that Act and the Financial Reporting Act 1993, is a member of the group for which the registered bank is the reporting entity:
(b)
would be a member of the group referred to in paragraph (a) but for the relevant materiality thresholds.
Defined in this Act: direct voting interest, New Zealand, New Zealand banking group, public authority, registered bank, resident in New Zealand, voting interest
Section FE 36B: inserted (with effect on 1 July 2009 and applying for income years beginning on or after that date), on 7 May 2012, by section 65(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FE 36B(1)(a): replaced (with effect on 1 July 2016 and applying for the 2016–17 and later income years), on 30 March 2017, by section 104(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FE 36B(3) heading: amended, on 1 April 2014, by section 96(1) of the Financial Reporting (Amendments to Other Enactments) Act 2013 (2013 No 102).
Section FE 36B(3)(a): replaced, on 1 April 2014, by section 96(2) of the Financial Reporting (Amendments to Other Enactments) Act 2013 (2013 No 102).
Section FE 36B(3)(b): replaced, on 1 April 2014, by section 96(2) of the Financial Reporting (Amendments to Other Enactments) Act 2013 (2013 No 102).
Section FE 36B list of defined terms public authority: inserted (with effect on 1 July 2016), on 30 March 2017, by section 104(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FE 36B list of defined terms resident: 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 FE 36B list of defined terms resident in New Zealand: 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 FE 36B list of defined terms voting interest: inserted (with effect on 1 July 2016), on 30 March 2017, by section 104(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
FE 37 Reporting bank for New Zealand banking group
When subsection (2) applies
(1)
Subsection (2) applies on a day when a New Zealand banking group has either—
(a)
a single registered bank, or
(b)
no registered bank but a fixed establishment of a single registered bank.
Registered bank
(2)
The reporting bank for the day is the registered bank.
When subsection (4) applies
(3)
Subsection (4) applies on a day when a New Zealand banking group has either—
(a)
more than 1 registered bank; or
(b)
no registered bank but fixed establishments of more than 1 registered bank.
Notice or Commissioner’s appointment
(4)
The reporting bank is—
(a)
the registered bank that first notifies the Commissioner of an election to be the reporting bank, if the Commissioner receives the notice within 6 months after the end of the income year in which the day occurs; or
(b)
if paragraph (a) does not apply, the registered bank chosen by the Commissioner.
Defined in this Act: Commissioner, fixed establishment, income year, New Zealand banking group, notice, notify, registered bank, reporting bank
Compare: 2004 No 35 s FG 8D
Section FE 37 list of defined terms notify: inserted, on 2 June 2016, by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Measuring ownership interests in companies
FE 38 Measuring ownership interests in companies
For the purposes of this subpart, a person’s ownership interest in a company is the total of the following percentages:
(a)
any direct ownership interests they hold in the company; and
(b)
any direct ownership interests held in the company by an associated person; and
(c)
any indirect ownership interests they hold in the company; and
(d)
any indirect ownership interests held in the company by an associated person.
Defined in this Act: associated person, company, ownership interest
Compare: 2004 No 35 s FG 2(2)
Section FE 38 list of defined terms ownership interest: inserted, on 1 April 2015, by section 116(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
FE 39 Direct ownership interests
A person’s direct ownership interest in a company referred to in section FE 38 is equal to the highest percentage of shares or rights the person holds in the categories listed in section EX 5(1) (Direct control interests), applying the subsection as if the company were a foreign company.
Defined in this Act: company, foreign company, ownership interest, share
Compare: 2004 No 35 s FG 2(3)
Section FE 39 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).
Section FE 39 list of defined terms ownership interest: inserted, on 1 April 2015, by section 116(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
FE 40 Tiered ownership interests
When this section applies
(1)
This section applies when a person has a direct ownership interest in a company (company A), and that company has an ownership interest in another company (company B).
When ownership interest less than 50%
(2)
If the person’s direct ownership interest in company A is less than 50%, they are treated as holding an indirect ownership interest in company B. The interest is calculated by multiplying the percentage that is the person’s direct ownership interest in company A by the percentage that is company A’s ownership in company B.
When ownership interest more than 50%
(3)
If the person’s direct ownership interest in company A is equal to or more than 50%, they are treated as holding an indirect ownership interest in company B that is equal to company A’s ownership interest in company B.
Defined in this Act: company, ownership interest
Compare: 2004 No 35 s FG 2(4)
Section FE 40 list of defined terms ownership interest: inserted, on 1 April 2015, by section 116(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
FE 41 Treatment of associated persons’ interests
Aggregating ownership interests
(1)
For the purposes of section FE 40, a person’s direct ownership interests include the direct ownership interests of a person associated with them. But if an aggregation of ownership interests results in the same percentage shares or rights in a company being counted more than once, the person’s ownership interest in the company must be adjusted to the extent necessary to avoid multiple counting.
Relative resident in New Zealand
(2)
For the purposes of section FE 38 or FE 40, as applicable, a non-resident who does not have a direct or an indirect ownership interest in a company and a relative resident in New Zealand are not associated persons in relation to the company.
Defined in this Act: associated person, company, New Zealand, non-resident, ownership interest, relative, resident in New Zealand, share
Compare: 2004 No 35 s FG 2(4)–(6)
Section FE 41(1): amended (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 27 February 2014, by section 71(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section FE 41(2): amended (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 27 February 2014, by section 71(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section FE 41 list of defined terms ownership interest: inserted, on 1 April 2015, by section 116(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Subpart FF—Interest apportionment for conduit investment
[Repealed]Subpart FF: repealed (with effect on 30 June 2009), on 6 October 2009, by section 228(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Contents
| [Repealed] | |||
| FF 1 | What this subpart does [Repealed] | ||
| FF 2 | When interest apportionment rule applies [Repealed] | ||
| FF 3 | Steps required to determine treatment of excessive interest expenditure [Repealed] | ||
| [Repealed] | |||
| FF 4 | Threshold for application of interest apportionment rule [Repealed] | ||
| FF 5 | Determination of excess amount of interest expenditure of group [Repealed] | ||
| FF 6 | Conduit tax relief [Repealed] | ||
| FF 7 | Surplus to foreign dividends [Repealed] | ||
| [Repealed] | |||
| FF 8 | Identifying members of foreign groups [Repealed] | ||
| FF 9 | Calculating debt percentage of New Zealand foreign groups [Repealed] | ||
| FF 10 | Calculating debt percentage of consolidated foreign groups [Repealed] | ||
| FF 11 | Changes in foreign group membership [Repealed] | ||
Introductory provisions[Repealed]
Heading: repealed (with effect on 30 June 2009), on 6 October 2009, by section 228(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FF 1 What this subpart does
[Repealed]Section FF 1: repealed (with effect on 30 June 2009), on 6 October 2009, by section 228(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FF 2 When interest apportionment rule applies
[Repealed]Section FF 2: repealed (with effect on 30 June 2009), on 6 October 2009, by section 228(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FF 3 Steps required to determine treatment of excessive interest expenditure
[Repealed]Section FF 3: repealed (with effect on 30 June 2009), on 6 October 2009, by section 228(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Interest apportionment rule[Repealed]
Heading: repealed (with effect on 30 June 2009), on 6 October 2009, by section 228(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FF 4 Threshold for application of interest apportionment rule
[Repealed]Section FF 4: repealed (with effect on 30 June 2009), on 6 October 2009, by section 228(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FF 4(1)(a) (as it read immediately before repeal on 6 October 2009 and applying for the 2008–09 and later income years): amended (with effect on 1 April 2008), on 21 December 2010, by section 65(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
FF 5 Determination of excess amount of interest expenditure of group
[Repealed]Compare: 2004 No 35 s FH 5
Section FF 5: repealed (with effect on 30 June 2009), on 6 October 2009, by section 228(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FF 6 Conduit tax relief
[Repealed]Section FF 6: repealed (with effect on 30 June 2009), on 6 October 2009, by section 228(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FF 7 Surplus to foreign dividends
[Repealed]Section FF 7: repealed (with effect on 30 June 2009), on 6 October 2009, by section 228(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Membership and debt percentages of foreign groups[Repealed]
Heading: repealed (with effect on 30 June 2009), on 6 October 2009, by section 228(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FF 8 Identifying members of foreign groups
[Repealed]Section FF 8: repealed (with effect on 30 June 2009), on 6 October 2009, by section 228(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FF 9 Calculating debt percentage of New Zealand foreign groups
[Repealed]Section FF 9: repealed (with effect on 30 June 2009), on 6 October 2009, by section 228(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FF 10 Calculating debt percentage of consolidated foreign groups
[Repealed]Section FF 10: repealed (with effect on 30 June 2009), on 6 October 2009, by section 228(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FF 11 Changes in foreign group membership
[Repealed]Section FF 11: repealed (with effect on 30 June 2009), on 6 October 2009, by section 228(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Subpart FG—Treatment of notional loans to New Zealand branches of foreign banks
Subpart FG: inserted, on 30 March 2017, by section 105(1) (and see section 105(2)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
FG 1 When this subpart applies
When this subpart applies
(1)
This subpart applies, for the purposes of the NRWT rules and the Stamp and Cheque Duties Act 1971, when—
(a)
an amount is made available by a foreign bank (the bank) to a business carried on in New Zealand through a fixed establishment of the bank in New Zealand (the branch); and
(b)
the transaction is recorded as a loan in the accounting records of the branch for an income year; and
(c)
in calculating its income tax liability for the income year, the branch is allowed a deduction in relation to the amount made available to it, treating—
(i)
the amount made available as an interest-bearing loan; and
(ii)
the amount allowed as a deduction as interest on the loan.
Meaning of foreign bank
(2)
In this subpart, foreign bank means a non-resident that is—
(a)
a registered bank; and
(b)
engaged in business in New Zealand through a fixed establishment in New Zealand.
Defined in this Act: amount, business, deduction, fixed establishment, foreign bank, income tax liability, income year, interest, New Zealand, NRWT rules, registered bank
Section FG 1: inserted, on 30 March 2017, by section 105(1) (and see section 105(2)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
FG 2 Notional loans
Money lent
(1)
The amount that the bank makes available to the branch is a notional loan and, for the purposes of the NRWT rules and the Stamp and Cheque Duties Act 1971, is treated as money lent to the branch by the bank.
Amounts excluded
(2)
The amount of the notional loan does not include an amount provided as funding to the bank under a financial arrangement if NRWT or approved issuer levy is paid, in the absence of this subpart, in relation to interest that—
(a)
is derived under the arrangement; and
(b)
has a source in New Zealand.
Money repaid
(3)
If the branch makes an amount available to the bank as a notional repayment of the amount referred to in subsection (1), recording the transaction in their accounting records for an income year, the amount is treated as a repayment of some or all of the amount of the notional loan.
Defined in this Act: amount, approved issuer, financial arrangement, income year, interest, money lent, NRWT, NRWT rules, pay, source in New Zealand
Section FG 2: inserted, on 30 March 2017, by section 105(1) (and see section 105(2)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FG 2 list of defined terms approved issuer: inserted, on 29 March 2018 (with effect on 30 March 2017), by section 99 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section FG 2 list of defined terms approved issuer levy: repealed, on 29 March 2018 (with effect on 30 March 2017), by section 99 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
FG 3 Notional interest
An amount recorded as an expense in relation to the notional loan in an income year is treated as interest that is non-resident passive income—
(a)
paid by the branch to the bank on the last day of the third month that follows the balance date of the branch; and
(b)
derived in the income year by the bank in relation to the notional loan.
Examples
Foreign Bank Ltd borrows AU$10b outside New Zealand from a variety of lenders and incurs an interest expense of AU$400m. The New Zealand branch of Foreign Bank Ltd is allocated NZ$1b of funding from this pool. An interest expense of NZ$42m is calculated using transfer pricing principles and is recorded in the branch’s financial statements and deducted against the branch’s taxable income from lending to New Zealand residents. The branch does not claim a deduction for any portion of the $AU400m paid by the non-New Zealand part of Foreign Bank. However, Foreign Bank Ltd is treated as making a loan to the branch on which it receives an interest payment of NZ$42m.
Defined in this Act: amount, balance date, deduction, income year, interest, non-resident passive income, pay
Section FG 3: inserted, on 30 March 2017, by section 105(1)(and see section 105(2)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Subpart FH—Hybrid and branch mismatches of deductions and income from multi-jurisdictional arrangements
Subpart FH: inserted, on 1 July 2018, by section 35(1) (and see section 35(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Contents
FH 1 Subpart implements OECD recommendations for domestic law
Background, scheme, and effect of subpart
(1)
This section and section FH 2 are intended to be a guide to the background and general scheme and effect of this subpart.
OECD recommendations
(2)
This subpart implements recommendations, for the domestic law of countries and territories, that are made by the OECD in the hybrid mismatch report and the branch mismatch report (the reports) and are intended to be implemented as rules neutralising certain mismatches—
(a)
arising from arrangements called hybrid mismatch arrangements and branch mismatch arrangements in the reports; and
(b)
between income assessed and deductions against income or equivalent tax relief allowed for parties to international transactions; and
(c)
resulting from differences, between the taxation laws of different countries and territories having rights to tax the parties, in the classification of financial arrangements or the tax treatment of entities or branches.
Recommendations for primary and defensive rules
(3)
If 2 rules are recommended by a report for a situation, the recommended rules are called primary and defensive by the report, which states that the defensive rule should not apply to the situation except if the country or territory in the position to apply the recommended primary rule has not implemented the recommendation.
Implementation of individual recommendations
(4)
In this subpart,—
(a)
section FH 3 implements the primary version of the rule for recommendation 1 of the hybrid mismatch report, called the hybrid financial instrument rule in the report:
(b)
section FH 4 implements the defensive version of the rule for recommendation 1 of the hybrid mismatch report:
(c)
section FH 5 implements the primary version of the rule for recommendation 3 of the hybrid mismatch report, called the disregarded hybrid payments rule in the report, and the rule for recommendation 3 of the branch mismatch report:
(cb)
section FH 5B gives the requirements for an exception to section FH 5:
(d)
section FH 6 implements the defensive version of the rule for recommendation 3 of the hybrid mismatch report, and a defensive version of the rule for recommendation 3 of the branch mismatch report:
(e)
section FH 7 implements recommendation 4 of the hybrid mismatch report, called the reverse hybrid rule in the report, and recommendation 2 of the branch mismatch report:
(f)
section FH 8 implements the primary version of the rule for recommendation 6 of the hybrid mismatch report, called the deductible hybrid payments rule in the report, and the rule for recommendation 4 of the branch mismatch report:
(g)
section FH 9 implements the defensive version of the rule for recommendation 6 of the hybrid mismatch report, and a defensive version of the rule for recommendation 4 of the branch mismatch report:
(h)
section FH 10 implements recommendation 7 of the hybrid mismatch report, called the dual-resident payer rule in the report:
(i)
section FH 11 implements recommendation 8 of the hybrid mismatch report, called the imported mismatch rule in the report, and recommendation 5 of the branch mismatch report.
Additional rules
(5)
In addition to the recommended rules,—
(a)
section FH 12 provides for the setting off, against amounts called surplus assessable income, of amounts called mismatch amounts that arise under several of the sections and, until set off, represent deductions denied or assessable income derived:
(b)
section FH 13 provides for an election, by a borrower under a financial arrangement to which the section applies, that the financial arrangement be treated as a share issued by the borrower to the lender:
(c)
section FH 14 provides for an irrevocable election, by an owner of a hybrid entity, that the hybrid entity be treated as a company.
Definitions
(6)
Section FH 15 contains definitions for the purpose of the Act of some terms used in the reports and of terms used in the Act that differ from terms used in the reports, including—
(a)
“deducting branch”
, which refers to the activities to which the recommendations of the branch mismatch report are intended to apply:
(b)
“mismatch amount”
, which is the amount of a hybrid mismatch or branch mismatch:
(c)
“mismatch situation”
, which is the situation giving rise to a hybrid mismatch or branch mismatch:
(d)
“surplus assessable income”
, which performs the same function as “dual inclusion income” but is defined in a different way.
Variations of recommendations
(7)
Variations of the implementing provisions from details of the recommendations in the report are intended to assist in the implementation and application of the recommendations.
Defined in this Act: arrangement, assessable income, deducting branch, deduction, financial arrangement, hybrid entity, hybrid mismatch report, income, mismatch amount, mismatch situation, share, surplus assessable income
Section FH 1: inserted, on 1 July 2018, by section 35(1) (and see section 35(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FH 1(4)(cb): inserted (with effect on 1 July 2018), on 23 March 2020, by section 121(1) (and see section 121(2) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
FH 2 Order of application of provisions
Order of application for sections disallowing deductions
(1)
If more than 1 provision in this subpart may deny an amount of expenditure or loss as a deduction or identify the amount as a mismatch amount in a situation, the provisions are applied in the order given by the sections, which is—
(a)
(b)
(c)
(d)
(e)
(f)
(g)
Order of application for sections treating receipts as assessable income
(2)
If more than 1 provision in this subpart may identify an amount received as a mismatch amount in a situation, the provisions are applied in the order given by the sections, which is—
(a)
(b)
Defined in this Act: amount, loss
Section FH 2: inserted, on 1 July 2018, by section 35(1) (and see section 35(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
FH 3 Payments under financial instruments producing deduction without income
When this section applies
(1)
This section applies when a person (the payer) is a party to a financial instrument (the payment instrument) under which the person makes a payment and—
(a)
the person incurs in an income year an amount that relates to the payment instrument and does not arise from a fluctuation in the value of a currency; and
(b)
the amount of expenditure incurred in the income year (the incurred amount) relating to the payment instrument is allowed as a deduction for the payer in the absence of this section and sections FH 5 and FH 7 to FH 11; and
(c)
the taxation law of a country or territory outside New Zealand (the payee jurisdiction) treats the payment, when made, as being received by a person or other entity (the payee) in the payee jurisdiction; and
(d)
the payment instrument is or is part of a structured arrangement or the payer is related to the payee when the expenditure is incurred; and
(e)
the tax treatment by the payee jurisdiction of the payment meets the requirements of subsection (2) or (3).
Amount not recognised
(2)
The tax treatment of a payment under the payment instrument meets the requirements of this subsection if—
(a)
no country or territory recognises an amount of the payment (the unrecognised amount) as giving rise to ordinary income of the payee under subsection (9); and
(b)
the unrecognised amount would be recognised by the taxation law of the payee jurisdiction as giving rise to ordinary income of the payee under subsection (9) if the classification of the payment or payment instrument were varied and the payee had the usual tax status for a person or entity of the payee’s class.
Delayed recognition of amount
(3)
The tax treatment of a payment under the payment instrument meets the requirements of this subsection if—
(a)
an amount of the payment is recognised as giving rise to ordinary income of the payee under subsection (9); and
(b)
the amount is recognised with a timing that does not meet the requirements of subsection (6); and
(c)
the duration of the financial instrument, including extensions contemplated by the financial instrument, may be more than 3 years.
Amount of deduction denied
(4)
The payer is denied a deduction for expenditure incurred under the financial instrument equal to the greater of zero and the amount calculated using the formula—
incurred amount × (1 − payee tax ÷ ordinary tax).
Definition of items in formula
(5)
In the formula in subsection (4),—
(a)
incurred amount is the amount of the expenditure incurred by the payer relating to the payment instrument and the payee:
(b)
payee tax is the total of amounts—
(i)
calculated by multiplying the amount of the payment that is recognised by the payee jurisdiction as ordinary income arising from the payment received by the payee with a timing that meets the requirements of subsection (6) by the rate of tax imposed by the taxation law of the payee jurisdiction on the class of income that the payee is recognised as receiving:
(ii)
of income tax imposed by a country or territory outside New Zealand on a person (the CFC payee) other than the payee, on an amount of income corresponding to attributed CFC income relating to the payment and attributed to the CFC payee with a timing that meets the requirements of subsection (6) plus the amount of any credit for withholding tax on the payment taken into account in determining the amount of income tax imposed:
(c)
ordinary tax is the amount calculated by multiplying the amount of the income arising from the payment received by the payee by the rate of tax imposed by the taxation law of the payee jurisdiction on ordinary income under subsection (9) received by the payee.
Timing of recognised income
(6)
The timing of the recognition by a tax jurisdiction of an amount meets the requirements of this subsection if the amount is, or is reasonably expected to be, recognised as being derived—
(a)
over a period of time during which the amount can reasonably be treated as accruing:
(b)
in an accounting period beginning within 24 months of the end of the income year to which a deduction of the payer for the incurred expenditure would be attributed.
Effect of delayed recognition
(7)
If an amount of the payment for which a deduction has been denied under subsection (4) is recognised as income of the payee derived at a time not meeting the requirements of subsection (6), the payer is allowed a deduction, when the amount is recognised, equal to the denied deduction.
Payer deriving income from financial instrument: excluded income
(8)
If a payer that derives income (the affected income) in an income year from a financial instrument would, as a consequence of unrecognised amounts under subsection (2) of payments, be denied by subsection (4) a deduction for a fraction (the affected fraction) of expenditure incurred by the payer in the income year under the financial instrument, an amount of the payer’s affected income, calculated by multiplying the affected income by the affected fraction, is excluded income of the payer.
Ordinary income
(9)
An amount of income is ordinary income under this subsection for a country or territory and a person or entity if the income is—
(a)
taxed by the country or territory at the full marginal rate of the person or other entity for the income from financial instruments; and
(b)
not eligible for an exemption, exclusion, credit, or tax relief, under the laws of the country or territory, other than a credit or tax relief for a withholding tax or similar tax imposed on the amount of the income by the laws of another country or territory.
Defined in this Act: accounting period, amount, CFC, deduction, excluded income, financial instrument, income, income tax, income year, New Zealand, pay, related, structured arrangement, tax
Section FH 3: inserted, on 1 July 2018, by section 35(1) (and see section 35(2) and (3) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FH 3(2)(a): amended (with effect on 1 July 2018), on 30 March 2021, by section 67(1) (and see section 67(3) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FH 3(2)(b): amended (with effect on 1 July 2018), on 30 March 2021, by section 67(2) (and see section 67(3) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FH 3(5)(b)(i): amended (with effect on 1 July 2018), on 18 March 2019, by section 195(1) (and see section 195(2) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
FH 4 Receipts under financial instruments producing deduction without income
When this section applies
(1)
This section applies when a person (the payee) receives a payment under a financial instrument (the payment instrument) of an amount and—
(a)
the payment would not give rise to assessable income of the payee in the absence of this section and section FH 6 or gives rise to assessable income of the payee that would not be allocated to a period meeting the requirements of subsection (7); and
(b)
the taxation law of a country or territory outside New Zealand (the payer jurisdiction) treats the payment as being made under the payment instrument by a person or other entity (the payer); and
(c)
the payer jurisdiction allows the payer or other person or entity to deduct the amount from income or allows an equivalent tax relief for the payment; and
(d)
the payer jurisdiction does not have hybrid mismatch legislation corresponding to section FH 3 and applying to the payment; and
(e)
the payment instrument is or is part of a structured arrangement or the payer is related to the payee when the expenditure is incurred; and
(f)
the payment meets the requirements of subsection (2) or (3).
Amount not recognised
(2)
A payment received by the payee meets the requirements of this subsection if—
(a)
an amount of the payment does not give rise to assessable income of the payee; and
(b)
the amount would give rise to assessable income of the payee if the classification of the payment or payment instrument were varied.
Delayed recognition of amount
(3)
A payment received by the payee under a financial instrument meets the requirements of this subsection if—
(a)
the payment gives rise to assessable income of the payee that, in the absence of this section, would be allocated to a period that does not meet the requirements of subsection (7); and
(b)
the duration of the financial instrument, including extensions contemplated by the financial instrument, may be more than 3 years.
Assessable income
(4)
The payee derives assessable income from the payment—
(a)
equal to the amount that would be assessable income of the payee if the classification of the payment or payment instrument were varied, for a payment meeting the requirements of subsection (2):
(b)
allocated under subsection (6).
Imputation credit not included and not available
(5)
If the payment received by the payee is a replacement payment under a returning share transfer, the amount of an imputation credit attached to the replacement payment is not included in the assessable income under subsection (4) and is not available as a tax credit under section LE 1 (Tax credits for imputation credits).
Timing of derivation under subsection (4)
(6)
The assessable income under subsection (4) is allocated to the income year in which—
(a)
income from the payment would be derived if the classification of the payment or payment instrument were varied, for a payment meeting the requirements of subsection (2):
(b)
the deduction or tax relief referred to in subsection (1)(c) is allowed, for a payment meeting the requirements of subsection (3).
Timing of recognised income
(7)
The period to which an amount of income is allocated meets the requirements of this subsection if the income is, or is reasonably expected to be, derived in an accounting period beginning within 24 months of the end of the accounting period to which a deduction or tax credit of the payer for the incurred expenditure is attributed.
Defined in this Act: accounting period, amount, assessable income, financial instrument, hybrid mismatch legislation, imputation credit, income, income year, pay, related, replacement payment, returning share transfer, structured arrangement, tax credit
Section FH 4: inserted, on 1 July 2018, by section 35(1) (and see section 35(2) and (3) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FH 4(6)(b): amended (with effect on 1 July 2018), on 18 March 2019, by section 196(1) (and see section 196(2) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
FH 5 Payments by New Zealand resident or New Zealand deducting branch producing deduction without income
When this section applies
(1)
This section applies when a person or entity (the payer) incurs an amount of expenditure in an income year relating to a payment to another person and meeting the requirements of subsection (2), or incurs in an income year a charge meeting the requirements of subsection (3), and—
(a)
[Repealed](b)
the amount or charge would be allowed as a deduction in the income year for the payer in the absence of this section and sections FH 7 to FH 11; and
(c)
the taxation law of a country or territory outside New Zealand (the payee jurisdiction)—
(i)
treats the payment or charge as not being received by a person or entity in the payee jurisdiction, because of the tax status of the payer; and
(ii)
would treat the payment or charge as being received by a person or other entity (the payee) in the payee jurisdiction, if the tax status of the payer were different; and
(d)
no country or territory outside New Zealand and the payee jurisdiction imposes tax on the payment or charge under taxation law that includes rules corresponding to the CFC rules and recognises the payment as the equivalent of attributed CFC income of a person in the same control group as the payee.
Expenditure relating to payment made under structured arrangement or to member of payer’s control group
(2)
Expenditure relating to a payment by a payer that is a New Zealand resident, or a New Zealand deducting branch of a non-resident, to a payee meets the requirement of this subsection if—
(a)
the payee is a non-resident who receives the payment other than through a New Zealand deducting branch of the payee; and
(b)
the payment is made under a structured arrangement or, when the expenditure is incurred, the payer is in a control group with the payee or is the same person as the payee; and
(c)
the expenditure is not an amount that is—
(i)
consideration for a supply of goods or services by the payee to the payer meeting the requirements of section FH 5B(1); and
(ii)
excluded from being a mismatch amount by section FH 5B(2).
Charge by non-resident to New Zealand deducting branch
(3)
A charge of an amount meets the requirements of this subsection if the amount—
(a)
is charged by a non-resident to a New Zealand deducting branch of the non-resident; and
(b)
represents amounts, relating to the activities outside New Zealand of the non-resident, allocated to the deducting branch; and
(c)
is not determined by reference to the amount of a payment by the non-resident, or a member of the same control group as the non-resident, to a person other than the non-resident and the members of the control group; and
(d)
exceeds expenditure or loss, incurred by the non-resident or a member of the same control group as the non-resident, that—
(i)
belongs to a category of expenditure or loss equivalent to the category to which the charge belongs; and
(ii)
is the reference by which the amount of the charge is determined.
Mismatch amount
(4)
The payer is denied a deduction for the expenditure or for the amount of the charge that exceeds the expenditure or loss referred to in subsection (3)(d).
Deductions denied for mismatch amounts until offset
(5)
The expenditure or loss for which a deduction is denied under subsection (4) is a mismatch amount from a mismatch situation until the mismatch amount is set off under section FH 12 against surplus assessable income under that section from the mismatch situation.
Defined in this Act: amount, attributed CFC income, CFC, control group, deducting branch, deduction, financial instrument, loss, mismatch amount, New Zealand, New Zealand resident, non-resident, pay, structured arrangement
Section FH 5: inserted, on 1 July 2018, by section 35(1) (and see section 35(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FH 5(1)(a): repealed (with effect on 1 July 2018), on 18 March 2019, by section 197(1) (and see section 197(3) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section FH 5(2)(a): replaced (with effect on 1 July 2018), on 18 March 2019, by section 197(2) (and see section 197(3) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section FH 5(2)(b): amended (with effect on 1 July 2018), on 23 March 2020, by section 122(1) (and see section 122(3) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section FH 5(2)(c): inserted (with effect on 1 July 2018), on 23 March 2020, by section 122(2) (and see section 122(3) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
FH 5B Exception: when payee group not allowed deductions for supplies as prerequisites for payer supplies
When this section applies
(1)
This section applies when expenditure meets the requirements of section FH 5(2)(a) and (b).
Supply to payer depending on supply to payee or group
(2)
For the purposes of section FH 5(2)(c), a supply of goods or services by the person who is the payee for the purposes of that section (the payee) to the person who is the payer for the purposes of that section (the payer) meets the requirements of this subsection if—
(a)
a prerequisite for the supply is a supply of goods or services (the prerequisite group supply) received and paid for by the payee or by a person who is a member of the payee’s control group and is resident in the payee jurisdiction; and
(b)
the prerequisite group supply is made by a person who, at the time of the supply, is in no control group that includes the payee or the payer; and
(c)
the taxation law of the payee jurisdiction allows no deduction from income, and no equivalent tax relief, for an amount (the non-deductible amount) of the payment for the prerequisite group supply because income of the payer is not taxable in the payee jurisdiction; and
(d)
no country or territory outside the payee jurisdiction allows a deduction from income for the non-deductible amount or allows equivalent tax relief for the non-deductible amount.
Expenditure excluded from being mismatch amount
(3)
The amount of the consideration for a supply that meets the requirements of subsection (2) (the payer supply) that is an amount excluded from being a mismatch amount (the excluded amount) and is linked for the purposes of paragraph (a) or subsection (4) to a prerequisite group supply is,—
(a)
if the payer supply is the sole payer supply to the payer by the payee, or by a member of the payee’s control group, that occurs in or before the income year in which the payer supply is made, and the prerequisite group supply is the sole prerequisite group supply for the payer supply, the amount that is the lesser of—
(i)
the amount of the consideration for the payer supply:
(ii)
the non-deductible amount for the prerequisite group supply; or
(b)
if paragraph (a) does not apply, the amount that meets the requirements of subsection (4) for the payer supply and the prerequisite group supply.
More than 1 payer supply and more than 1 prerequisite group supply
(4)
If the requirements of subsection (3)(a) are not met for a payer supply and a prerequisite group supply, the excluded amount for the payer supply, together with excluded amounts for other payer supplies, must meet the following requirements:
(a)
for a payer supply, the total of the excluded amounts linked to prerequisite group supplies must not exceed the consideration for the payer supply; and
(b)
for a prerequisite group supply, the total of the excluded amounts linked to the prerequisite group supply must not exceed the non-deductible amount for the prerequisite group supply; and
(c)
for each payer supply, the excluded amount that is linked to a prerequisite group supply is the maximum amount that, together with other excluded amounts already linked to the prerequisite group supply, meets the requirements of paragraphs (a) and (b), when—
(i)
the excluded amounts for each payer supply are determined for payer supplies in the order in which the payer supplies are made or, for payer supplies made at the same time, in the order chosen by the payer; and
(ii)
the excluded amounts for a payer supply that are linked to prerequisite group supplies are determined in the order in which the prerequisite group supplies are made or, for prerequisite group supplies made at the same time, in the order chosen by the payer.
Defined in this Act: control group, income year, services
Section FH 5B: inserted (with effect on 1 July 2018), on 23 March 2020, by section 123(1) (and see section 123(2) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
FH 6 Receipts from non-resident or foreign deducting branch producing deduction without income
When this section applies
(1)
This section applies when a non-resident, or foreign deducting branch of a New Zealand resident, (the payer) is treated by the taxation law of a country or territory outside New Zealand (the payer jurisdiction) as making a payment in an income year to a person or other entity (the payee) in New Zealand and meeting the requirements of subsection (2), or incurring a charge in the income year meeting the requirements of subsection (3), and—
(a)
the payment or charge would not give rise to assessable income of the payee in the income year in the absence of this section; and
(b)
the payer jurisdiction allows the payer or other person or entity to deduct an amount of the payment or charge against income or allows an equivalent tax relief for the payment; and
(c)
the payer jurisdiction does not have hybrid mismatch legislation corresponding to section FH 5 that applies to the payment or charge and to the payer at any time in the income year; and
(d)
the payment or charge would give rise to assessable income of the payee in the income year if the payer and payee were persons and separate or if the tax status of the payer were different.
Expenditure relating to payment made under structured arrangement or to member of payer’s control group
(2)
Expenditure relating to a payment by a payer that is not a New Zealand resident, or is a foreign deducting branch of a New Zealand resident, to a payee meets the requirement of this subsection if—
(a)
the payee is a New Zealand resident; and
(b)
the payment is made under a structured arrangement or, when the expenditure is incurred, the payer is in a control group with the payee or is the same person as the payee.
Charge by New Zealand resident to a foreign deducting branch
(3)
For the purposes of subsection (1), the amount of a charge treated by the payer jurisdiction as being required by a New Zealand resident from a foreign deducting branch of the New Zealand resident is equal to the amount that—
(a)
represents amounts, relating to the activities of the New Zealand resident in New Zealand, allocated to the deducting branch; and
(b)
is not determined by reference to the amount of a payment by the New Zealand resident, or a member of the same control group as the New Zealand resident, to a person other than the New Zealand resident and the members of the control group; and
(c)
exceeds expenditure or loss incurred by the New Zealand resident, or a member of the same control group as the New Zealand resident, that—
(i)
belongs to a category of expenditure or loss equivalent to the category to which the charge belongs; and
(ii)
is the reference by which the amount of the charge is determined.
Assessable income
(4)
The payee derives assessable income from the payment or charge equal to the greater of zero and the amount that would be assessable income of the payee, if the payer and payee were persons and separate or if the tax status of the payer were different.
Timing of derivation under subsection (4)
(5)
The assessable income under subsection (4) is allocated to the income year in which the payment would be derived if the payer and payee were persons and separate or if the tax status of the payer were different.
Mismatch amounts
(6)
An amount that is treated as assessable income under subsection (4) for a payee and a tax year is a mismatch amount of the payee for the tax year and the mismatch situation until the mismatch amount is set off under section FH 12 against surplus assessable income under that section from the mismatch situation.
New Zealand resident becoming affected
(7)
A mismatch amount under subsection (6) is not available to be carried forward beyond a time (the transition time) if the payer jurisdiction introduces from the transition time hybrid mismatch legislation corresponding to section FH 5 and applying to expenditure of the hybrid entity or foreign resident to which this section applies.
Defined in this Act: amount, arrangement, assessable income, company, control group, deducting branch, deduction, hybrid mismatch legislation, income, mismatch amount, New Zealand, New Zealand resident, non-resident, structured arrangement
Section FH 6: inserted, on 1 July 2018, by section 35(1) (and see section 35(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
FH 7 Payments to person outside New Zealand producing deduction without income
When this section applies
(1)
This section applies when a person (the payer) incurs an amount of expenditure (the incurred amount) in an income year relating to an amount of a payment to a person (the payee) that exists under the law of a country or territory outside New Zealand (the payee jurisdiction) and—
(a)
the incurred amount would be allowed as a deduction for the payer in the absence of this section and sections FH 8 to FH 11; and
(b)
under the taxation law of the payee jurisdiction, the amount is treated as being—
(i)
received by the payee in a country or territory outside the payee jurisdiction:
(ii)
income of a person who is not the payee; and
(bb)
if the amount does not meet the requirements of paragraph (b)(i) and meets the requirements of paragraph (b)(ii) by being treated as the income of a person who is not the payee, the person is in the same control group as the payer or the amount is a payment under a structured arrangement; and
(c)
the payment is made under a structured arrangement or the payer is in the same control group as the payee when the expenditure is incurred; and
(d)
under the taxation law of New Zealand and of the countries and territories outside New Zealand, the amount received by the payee is not subject to taxation as income and is not recognised as CFC attributed income, or the equivalent of attributed CFC income, of a person in the same control group as the payee; and
(e)
if the amount meets the requirements of paragraph (b)(i), an equivalent payment by the payer would have been subject to taxation as income of the payee under the taxation law of the payee jurisdiction if the equivalent payment were treated as being received by the payee in the payee jurisdiction; and
(f)
if the amount meets the requirements of paragraphs (b)(ii) and (bb), an equivalent payment by the payer would have been subject to taxation as income of the person who is treated as deriving the income under the taxation law of the payee jurisdiction if the equivalent payment were treated as being received by the person in the country or territory where that person is resident.
Amount of deduction denied
(2)
The payer is denied a deduction for the incurred amount and, if the payment is made under a financial instrument denominated in the currency of a country or territory other than New Zealand, for amounts arising from a fluctuation in the value of the currency in relation to New Zealand currency.
Defined in this Act: amount, CFC, control group, deduction, financial instrument, income, New Zealand, pay, structured arrangement
Section FH 7: inserted, on 1 July 2018, by section 35(1) (and see section 35(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FH 7(1)(b): replaced (with effect on 1 July 2018), on 30 March 2021, by section 68(1) (and see section 68(3) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FH 7(1)(bb): inserted (with effect on 1 July 2018), on 30 March 2021, by section 68(1) (and see section 68(3) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FH 7(1)(d): amended (with effect on 1 July 2018), on 23 March 2020, by section 124(1) (and see section 124(2) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section FH 7(1)(e): replaced (with effect on 1 July 2018), on 30 March 2021, by section 68(2) (and see section 68(3) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FH 7(1)(f): inserted (with effect on 1 July 2018), on 30 March 2021, by section 68(2) (and see section 68(3) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
FH 8 Expenditure or loss through hybrid entity or foreign deducting branch producing double deduction without double income
When this section applies
(1)
This section applies for a New Zealand resident and an income year when the New Zealand resident is related to a hybrid entity existing under the law of a country or territory outside New Zealand, or has a deducting branch in such a country or territory, and—
(a)
the taxation law of the country or territory allows expenditure or loss of the hybrid entity, or of the New Zealand resident attributed to the deducting branch, in the income year to be set off against income of another person or entity; and
(b)
the income of the other person or entity, other than from a source in New Zealand, is not assessable income.
Deduction denied for expenditure or loss
(2)
The New Zealand resident is denied a deduction for the amount of expenditure or loss incurred for the income year that—
(a)
is attributed to the hybrid entity or deducting branch; and
(b)
would, in the absence of this section and sections FH 9 and FH 10, be allowed as a deduction in the income year corresponding to the tax year.
Mismatch amounts
(3)
A deduction denied under subsection (2) is a mismatch amount from a mismatch situation until the mismatch amount is set off under section FH 12 against surplus assessable income under that section from the mismatch situation.
New Zealand resident becoming affected
(4)
Subsection (5) applies to a person who is a New Zealand resident and becomes liable to be denied deductions under subsection (1) at a time (the transition time) when—
(a)
in a period ending with the transition time (the unaffected period), the person is related to a hybrid entity, or has a deducting branch, that exists under the law of a country or territory outside New Zealand but the person is not liable to be denied deductions under subsections (1) and (2); and
(b)
the taxation law of the country or territory allows expenditure or loss of the hybrid entity, or of the New Zealand resident attributed to the deducting branch, during the unaffected period to be set off against income that is not assessable income and arises at or after the transition time.
Assessable income
(5)
The person derives, at the transition time, assessable income equal to the amount of net loss, calculated for the person and the hybrid entity or deducting branch and the unaffected period as if the person’s income from the hybrid entity or deducting branch were schedular income.
Mismatch amounts
(6)
An amount that is treated as assessable income under subsection (5) for a person and a tax year is a mismatch amount of the person for the tax year and the mismatch situation until the mismatch amount is set off under section FH 12 against surplus assessable income under that section from the mismatch situation.
Defined in this Act: amount, assessable income, deducting branch, deduction, hybrid entity, income, income year, loss, mismatch amount, mismatch situation, New Zealand, New Zealand resident, ring-fenced tax loss, source in New Zealand, surplus assessable income, tax year
Section FH 8: inserted, on 1 July 2018, by section 35(1) (and see section 35(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
FH 9 Expenditure or loss of hybrid entity, or non-resident through deducting branch, producing double deduction without double income
When this section applies
(1)
This section applies when a resident (the foreign resident) in a country or territory outside New Zealand (the foreign jurisdiction) is in the same control group as a hybrid entity resident in New Zealand, or has a deducting branch in New Zealand, if—
(a)
expenditure or loss of the hybrid entity, or of the foreign resident attributed to the deducting branch, would be allowed as a deduction in an income year in the absence of this section and section FH 10; and
(b)
the taxation law of a country or territory outside New Zealand allows expenditure of the hybrid entity or attributed to the deducting branch to be deducted in the income year against income of the foreign resident; and
(c)
the foreign jurisdiction does not have hybrid mismatch legislation corresponding to section FH 8 and applying at any time in the income year to expenditure of the hybrid entity or foreign resident referred to in paragraph (b).
Deductions denied
(2)
The hybrid entity or foreign resident is denied a deduction for the amount of expenditure or loss that—
(a)
is incurred by the hybrid entity or attributed to the deducting branch in the income year corresponding to the tax year; and
(b)
would, in the absence of this section, be allowed as a deduction.
Mismatch amounts
(3)
The amount of a deduction denied under subsection (2) is a mismatch amount for the hybrid entity or foreign resident until the mismatch amount is set off under section FH 12 against surplus assessable income under that section for the hybrid entity or foreign resident.
New Zealand resident becoming affected
(4)
A mismatch amount under subsection (3) is not available to be carried forward beyond a time (the transition time) if the foreign jurisdiction introduces from the transition time hybrid mismatch legislation corresponding to section FH 8 and applying to expenditure of the hybrid entity or foreign resident to which this section applies.
Defined in this Act: amount, control group, deducting branch, deduction, hybrid entity, income, income year, hybrid mismatch legislation, loss, mismatch amount, New Zealand, resident in New Zealand, surplus assessable income, tax year
Section FH 9: inserted, on 1 July 2018, by section 35(1) (and see section 35(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
FH 10 Expenditure or loss of dual resident company producing double deduction without double income
When this section applies
(1)
This section applies for a company that is a New Zealand resident (the dual resident) and under the taxation law of another country or territory outside New Zealand (the dual tax jurisdiction) is liable to income tax in the dual tax jurisdiction through domicile, residence, or place of incorporation.
Deduction denied for expenditure
(2)
The dual resident is denied a deduction for an amount equal to the amount of expenditure that would, in the absence of this section, be allowed as a deduction in the income year reduced by the amount of the expenditure for which the dual tax jurisdiction does not allow a deduction against income or equivalent tax relief because the expenditure is not connected with income that is subject to tax under the taxation law of the jurisdiction.
Mismatch amount
(3)
A deduction that is denied under subsection (2) is a mismatch amount from a mismatch situation until the mismatch amount is set off under section FH 12 against surplus assessable income under that section from the mismatch situation.
Defined in this Act: amount, assessable income, company, deduction, hybrid entity, income, income tax, income year, New Zealand, New Zealand resident, ring-fenced tax loss, tax year
Section FH 10: inserted, on 1 July 2018, by section 35(1) (and see section 35(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FH 10(2): amended (with effect on 1 July 2018), on 18 March 2019, by section 198(1)(a) (and see section 198(2) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section FH 10(2): amended (with effect on 1 July 2018), on 18 March 2019, by section 198(1)(b) (and see section 198(2) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
FH 11 Residents, or non-residents with deducting branches, having expenditure funding overseas hybrid mismatches
When this section applies
(1)
This section applies for a person (the funder) and an income year when the funder is—
(a)
a New Zealand resident who makes a payment (the original payment) to a person in a country or territory outside New Zealand that does not have hybrid mismatch legislation and the original payment meets the requirements of subsection (1B); or
(b)
a deducting branch in New Zealand of a non-resident, who is resident in a country or territory outside New Zealand that does not have legislation having the same effect as this subpart, and who makes a charge to the deducting branch that meets the requirements of subsection (1B).
Requirements for denial of deduction for original payment or charge
(1B)
An original payment or a charge by a funder meets the requirements of this subsection if—
(a)
the original payment or charge provides funds for a payment (the funded payment) from a person or other entity (the payer) in a country or territory outside New Zealand (the payer jurisdiction) to a person or other entity (the payee), in the same or another country or territory outside New Zealand (the payee jurisdiction); and
(b)
the funds are provided to the payer directly, or indirectly through a series of further transactions (the intermediate transaction chain) that are each governed by the tax laws of countries or territories outside New Zealand; and
(c)
for each transaction in an intermediate transaction chain, each country or territory with tax laws that govern the transaction does not have legislation having the same effect as this subpart; and
(d)
a deduction for the original payment, or the charge, would be allowed for the funder in the absence of this section and sections FH 8 to FH 10; and
(e)
the original payment, or the charge, is made under a structured arrangement giving rise to the hybrid mismatch referred to in paragraph (f) or the funder and the payer, when the original payment is incurred or the charge is made, are members of a control group; and
(f)
the funded payment gives rise to a hybrid mismatch; and
(g)
the payee jurisdiction does not have hybrid mismatch legislation.
Deduction denied for expenditure funding hybrid mismatch
(2)
Subject to subsections (5) and (6), the funder is denied a deduction in a tax year for an amount that is given by—
(a)
subsection (3), if the payment is made under a structured arrangement giving rise to the hybrid mismatch; or
(b)
subsection (4), if paragraph (a) does not apply.
Amount denied for payment under structured arrangement
(3)
Under this subsection, the amount of the denial is the lesser of—
(a)
the amount of the deduction that would be allowed for the payment in the absence of this section and sections FH 8 to FH 10:
(b)
the amount of the funded payment that, if hybrid mismatch legislation were applied by the payer jurisdiction, would be disallowed as a deduction against income or equivalent tax relief.
Amount denied for other payment
(4)
Under this subsection, the amount of the denial is the amount of the payment by the funder that can fairly and reasonably be treated as providing, directly or indirectly, funds for an amount of the funded payment that, if hybrid mismatch legislation were applied by the payer jurisdiction, would be disallowed as a deduction against income or equivalent tax relief.
Tracing funding for funded payment, quantifying amount of deduction denied
(5)
Whether a payment or charge by a funder provides funds for a funded payment under subsection (1B)(a) and, if so, the amount under subsection (4) that the funder is denied as a deduction, are determined consistently with the approaches described in chapter 8 of the hybrid mismatch report and chapter 5 of the branch mismatch report.
Deduction allowed in later income year
(6)
A deduction (the denied deduction) that is for a payment or charge that provides funds for a funded payment, and is denied under subsection (2) in the income year in which the payment or charge is incurred, is allowed in a later income year to the extent to which—
(a)
the payer jurisdiction would allow a deduction in the later income year for the funded payment if hybrid mismatch legislation were applied by the payer jurisdiction; and
(b)
the denied deduction meets the requirements of section FH 12(8) to be carried forward to the later income year as a mismatch amount.
Defined in this Act: amount, control group, deducting branch, deduction, hybrid mismatch, hybrid mismatch legislation, hybrid mismatch report, New Zealand, New Zealand resident, non-resident, pay, structured arrangement, tax year
Section FH 11: inserted, on 1 July 2018, by section 35(1) (and see section 35(2) and (4) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FH 11(1) heading: replaced (with effect on 1 July 2018), on 30 March 2022, by section 105(1) (and see section 105(6) and (8) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section FH 11(1): replaced (with effect on 1 July 2018), on 30 March 2022, by section 105(1) (and see section 105(6) and (8) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section FH 11(1B) heading: inserted (with effect on 1 July 2018), on 30 March 2022, by section 105(1) (and see section 105(6) and (8) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section FH 11(1B): inserted (with effect on 1 July 2018), on 30 March 2022, by section 105(1) (and see section 105(6) and (8) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section FH 11(2): amended (with effect on 1 July 2018), on 30 March 2022, by section 105(2) (and see section 105(6) and (8) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section FH 11(4): replaced (with effect on 1 July 2018), on 30 March 2022, by section 105(3) (and see section 105(7) and (8) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section FH 11(5) heading: replaced (with effect on 1 July 2018), on 30 March 2022, by section 105(4) (and see section 105(6) and (8) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section FH 11(5): replaced (with effect on 1 July 2018), on 30 March 2022, by section 105(4) (and see section 105(6) and (8) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section FH 11(6) heading: inserted (with effect on 1 July 2018), on 30 March 2022, by section 105(5) (and see section 105(6) and (8) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section FH 11(6): inserted (with effect on 1 July 2018), on 30 March 2022, by section 105(5) (and see section 105(6) and (8) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
FH 12 Offset of mismatch amounts against surplus assessable income
When this section applies
(1)
This section applies when a person has a mismatch amount under sections FH 5, FH 6, and FH 8 to FH 10 from a mismatch situation for an income year.
Offset against surplus assessable income
(2)
The total of mismatch amounts from the mismatch situation for the income year are set off against the person’s total surplus assessable income from the mismatch situation under subsection (3).
Surplus assessable income
(3)
The person has an amount of surplus assessable income, for the mismatch situation and the income year, equal to the greater of zero and the amount calculated using the formula—
earlier + assessable + deductionless − unrecognised − protected − deductions + status.
Definition of items in formula
(4)
In the formula,—
(a)
earlier is the amount of surplus assessable income for the person from the mismatch situation carried forward to the tax year corresponding to the income year from earlier tax years:
(b)
assessable is the amount of assessable income derived from the mismatch situation by the person in the income year:
(c)
deductionless is zero, except for a person that is a hybrid entity resident in New Zealand and owned by a non-resident, for which it is the amount of income of the hybrid entity that—
(i)
is exempt income under section CW 10 (Dividend within New Zealand wholly-owned group) or excluded income under section CX 60 (Intra-group transactions); and
(ii)
for an owner of the hybrid entity, is income subject to tax under the taxation law of another country or territory without a credit for tax, other than a withholding tax on the dividend, paid by the person paying the dividend:
(d)
unrecognised is the amount of the assessable income of the person from the mismatch situation for the income year that is not subject to tax under the taxation law of the foreign jurisdiction because of the residence of another person, who is not another owner, or because of the source of the income or the tax status of the payer:
(e)
protected is the amount of taxable income for which the income tax liability of the person would equal foreign tax credits under subpart LJ (Tax credits for foreign income tax) allowed for the assessable income from the mismatch situation for the income year:
(f)
deductions is the amount of deductions allowed for expenditure incurred by the person in the income year in deriving assessable income from the mismatch situation, not including expenditure giving rise to mismatch amounts:
(g)
status is the amount of expenditure on a payment by the person to a payee in New Zealand that is a mismatch amount under section FH 9 and that is not allowed to be deducted against income by the tax law of a country or territory outside New Zealand because of the tax status of the person and the payee.
Mismatch receipt set off against surplus assessable income from later tax year
(5)
If a mismatch amount from a mismatch situation for a person is set off under subsection (2) or (10) in the tax year corresponding to an income year against an amount of surplus assessable income of the person from the mismatch situation, the person has a deduction for the income year equal to the amount of the offset.
Mismatch amounts carried forward
(6)
If a mismatch amount from a mismatch situation is not an offset in the tax year corresponding to an income year, the remaining amount is carried forward to the next tax year if it meets the requirements of subsection (8) for that tax year.
Surplus assessable income carried forward
(7)
If an amount of surplus assessable income from a mismatch situation is not an offset under subsection (2) or (10) in an income year,—
(a)
the amount is reduced by the amount of corresponding income, that is recognised and taxed as income arising from the mismatch situation by the taxation law of a foreign country or territory, for which the income tax liability of the person would equal credits, equivalent to foreign tax credits under subpart LJ, allowed by the foreign country or territory for the income from the mismatch situation for the income year; and
(b)
the amount remaining is carried forward to the next income year if it meets the requirements of subsection (8) for that income year.
Continuity requirement for carrying forward amounts
(8)
A mismatch amount, or surplus assessable income, from a mismatch situation may be carried forward to a tax year corresponding to an income year (the carry year) if, for the tax year in which the amount arises (the initial year) and the carry year, a tax loss of the person could be carried forward under Part I (Treatment of tax losses) from the initial year to the carry year in the absence of offsets.
Mismatch amounts under section FH 8(3)
(9)
A mismatch amount under section FH 8(3) that is available to be carried forward from a tax year corresponding to an income year is included as a tax loss component of the New Zealand resident for the next tax year (the release year) if—
(a)
the hybrid entity, or the New Zealand resident with the deducting branch to which the mismatch amount is attributed, ceases to exist before the end of the income year corresponding to the release year; and
(b)
expenditure or loss of the hybrid entity, or of the New Zealand resident attributed to the deducting branch, has not been set off under the taxation law of a country or territory outside New Zealand against income, for the income year in which the mismatch amount arose or for a later income year, that is not assessable income of a person or entity.
Offset of mismatch amount against surplus assessable income of group company
(10)
A company (the offset company) may set off in an income year a mismatch amount from a mismatch situation against surplus assessable income of another company (the group company) from another mismatch situation (the income situation) if—
(a)
the companies are in the same wholly-owned group when the mismatch amount and the surplus assessable income arise; and
(b)
the mismatch amount and the surplus assessable income are available after each of the companies has all offsets permitted for the income year of amounts arising from the mismatch situation in which the company is involved; and
(c)
the offset would be permitted if the offset company were substituted for the group company in the income situation.
Defined in this Act: amount, assessable income, deducting branch, deductions, exempt income, foreign tax, hybrid entity, income year, loss, mismatch amount, mismatch situation, New Zealand resident, non-resident, resident in New Zealand, surplus assessable income, tax, tax loss, tax loss component, tax year, taxable income
Section FH 12: inserted, on 1 July 2018, by section 35(1) (and see section 35(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FH 12(3) formula: amended (with effect on 1 July 2018), on 30 March 2021, by section 69(1) (and see section 69(5) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FH 12(4)(c): amended (with effect on 1 July 2018), on 30 March 2021, by section 69(2) (and see section 69(5) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FH 12(4)(c)(i): amended (with effect on 1 July 2018), on 30 March 2021, by section 69(3) (and see section 69(5) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FH 12(4)(d): amended (with effect on 1 July 2018), on 18 March 2019, by section 199(1) (and see section 199(2) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section FH 12(10): amended (with effect on 1 July 2018), on 30 March 2021, by section 69(4) (and see section 69(5) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
FH 13 Election by borrower under financial arrangement
Who may make election
(1)
A person who is a borrower under a financial arrangement may make an election under this section if a payment by the person to the lender under the financial arrangement would be an unrecognised amount under section FH 3(2) and denied as a deduction under section FH 3.
Treatment of financial arrangement after election
(2)
The result of an election by the person is that, while the person is eligible to make an election, the financial arrangement is, for all purposes of the Act, a share held by the lender in the person.
Notification of election
(3)
The person must notify the Commissioner of the election, specifying the date on which the election is effective, which must be on or after the date of the notice.
Transitional treatment of financial arrangement
(4)
On the date on which the election is effective, the person is treated as—
(a)
paying the lender under the financial arrangement the amount owing under the loan (the repayment amount); and
(b)
receiving the repayment amount, reduced by any withholding tax, from the lender as the subscription for a non-participating redeemable share.
Expiry of election
(5)
When the person ceases to be eligible to make an election for the financial arrangement because a deduction would not be denied under section FH 3 for a payment of interest under the financial arrangement, the person is treated as—
(a)
paying to the lender the amount owing under the loan as a payment for cancellation of a non-participating redeemable share; and
(b)
receiving, as a loan under the financial arrangement, from the lender the amount referred to in paragraph (a), reduced by any withholding tax.
NRWT rules
(6)
The NRWT rules apply to the amount of the payment under subsections (4)(a) and (5)(a).
Defined in this Act: amount, deduction, financial arrangement, loan, non-participating redeemable share, notify, NRWT rules, pay, share
Section FH 13: inserted, on 1 July 2018, by section 35(1) (and see section 35(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
FH 14 Irrevocable election by owner of hybrid entity
Who may make election
(1)
A New Zealand resident (the owner) who has, or is a member of a wholly-owned group that has, all the ownership interests in a hybrid entity may make an election under this section if the hybrid entity—
(a)
is treated by the taxation law of a country or territory outside New Zealand (the foreign jurisdiction) as being resident in the foreign jurisdiction; and
(b)
is wholly owned by the owner or the owner’s wholly-owned group on the date on which the Taxation (Neutralising Base Erosion and Profit Shifting) Bill is introduced.
Treatment of hybrid entity after election
(2)
The result of an election by the owner is that the hybrid entity is, for all purposes of the Act for the owner, a company immediately after the sale referred to in subsection (5)(a)(i) and sections FH 3 to FH 11 do not apply to expenditure incurred, or income derived, by the hybrid entity from the deemed sale.
Notification of election
(3)
The owner must notify the Commissioner of the election before the due date for the return of income for the first income year in which the hybrid mismatch legislation applies to the owner.
When election effective
(4)
The election is effective for the period consisting of the first income year in which the hybrid mismatch legislation applies to an owner and later income years.
Transitional treatment of hybrid entity
(5)
For the period for which the election is effective, the hybrid entity is treated as—
(a)
at the beginning of the period,—
(i)
selling the undertaking of the hybrid entity, as a hybrid entity, at market value; and
(ii)
buying the undertaking as a company (the new subsidiary), in which the owner has ownership interests, that is resident in the foreign jurisdiction; and
(b)
during the period, making as a company each distribution to the owner.
Total available subscribed capital
(6)
The total available subscribed capital of the new subsidiary is the amount by which the market value of the assets acquired by the new subsidiary exceeds the market value of the liabilities assumed by the new subsidiary.
Election irrevocable
(7)
An election under this section for a hybrid entity is irrevocable.
Defined in this Act: available subscribed capital, company, hybrid entity, hybrid mismatch legislation, income year, market value, New Zealand, New Zealand resident, notify, return of income, wholly-owned group
Section FH 14: inserted, on 1 July 2018, by section 35(1) (and see section 35(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FH 14(2): amended (with effect on 1 July 2018), on 23 March 2020, by section 125(1) (and see section 125(3) for application) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section FH 14(5)(a)(i): amended (with effect on 1 July 2018), on 23 March 2020, by section 125(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
FH 15 Definitions
Definitions
(1)
In this Act,—
act together, for 2 persons (the holders) that each have rights or interests (the rights and interests) in a person or other entity and for the ownership or control of the rights and interests, means—
(a)
the holders are associated under section YB 4 (Two relatives):
(b)
a holder typically acts in the way preferred by the other holder, because of the other holder’s preference:
(c)
the holders have entered into an arrangement that has an effect on the value or control of the rights or interests that is more than incidental and does not arise from a restriction on the sale of the rights or interests:
(d)
the actions of the holders relating to the interests are legally controlled, are typically controlled, or are expected to be controlled, by a third person or group of persons (the co-ordinator) that does not meet the requirements of subsection (2):
(e)
the holders and a co-ordinator that does not meet the requirements of subsection (2) enter an arrangement affecting the ownership or control of the rights and interests and having an effect on the value or control of the rights and interests that is more than incidental:
(f)
the holders agree with a co-ordinator that does not meet the requirements of subsection (2) that the co-ordinator can act on behalf of the holders in relation to the rights and interests
branch mismatch report means the report OECD (2017), Neutralising the Effects of Branch Mismatch Arrangements, Action 2: Inclusive Framework on BEPS, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris
control group means a group of persons in which, for each member and each other member,—
(a)
the members are—
(i)
consolidated, or required to be consolidated, for accounting purposes:
(ii)
members of a group of companies for which an applicable financial reporting standard requires the preparation of group financial statements for an accounting period:
(b)
the members are companies that are associated under section YB 2 (Two companies):
(c)
1 of the members is a company and the other person has, or is a member of a group of persons acting together that has,—
(i)
a voting interest in the company of 50% or more, applying the general aggregation rule in section YB 3(3):
(ii)
if a market value circumstance exists for the company, a market value interest in the company of 50% or more, applying the general aggregation rule in section YB 3(3):
(d)
the members are associated under section YB 4 (Two relatives):
(e)
the members are associated under sections YB 5 to YB 11 (which relate to a trustee or settlor of a trust):
(f)
1 of the members is a partnership, or is a limited partnership, and the other member,—
(i)
if the partnership is a limited partnership, is a general partner or is a limited partner that has a partnership share of more than 50% in a right, obligation, or other property, status, or thing of the limited partnership, applying the general aggregation rule in section YB 12(3) (Partnership and partner):
(ii)
if the partnership is not a limited partnership, is a partner that has a partnership share of more than 50% in a right, obligation, or other property, status, or thing of the partnership, applying the general aggregation rule in section YB 12(3):
(g)
1 of the members, or a group consisting of 1 of the members and persons that are related to or act together with that member, effectively controls the other member:
(h)
a person or group of persons, together with persons who are related to or act together with the person or a person in the group, effectively controls each of the 2 members
deducting branch, for a person, means a branch, permanent establishment, or other activity, of the person in a country or territory, such that expenditure or loss attributed by the person to the branch, permanent establishment, or activity is recognised by the tax law of the country or territory as giving rise to a deduction against income of the person or other tax relief
entity means a person, or a relationship that is treated as a person by the tax law of a country or territory outside New Zealand
financial instrument means—
(a)
a financial arrangement:
(b)
a share:
(c)
an annuity:
(d)
a farm-out arrangement:
(e)
a share-lending arrangement:
(f)
a loan in New Zealand currency described in section EW 5(10) (What is an excepted financial arrangement?)
hybrid entity, for 2 countries or territories, means a person or other entity that is—
(a)
recognised in 1 of the countries or territories (the resident jurisdiction) as being a resident of the resident jurisdiction and subject to taxation under the taxation law of the resident jurisdiction; and
(b)
not recognised in the other country or territory (the overseas jurisdiction) as being a person, or other entity, subject to taxation under the taxation law of the overseas jurisdiction in relation to income with a source in the overseas jurisdiction
hybrid mismatch, for a payment in a tax year by a payer in a country or territory (the payer jurisdiction) means an amount of a deduction for the payment that would be denied by the payer jurisdiction if the payer jurisdiction had legislation having an effect corresponding to that of subpart FH
hybrid mismatch legislation means—
(a)
this subpart:
(b)
legislation of a country or territory outside New Zealand having an intended effect corresponding to the effect of this subpart or a provision in this subpart
hybrid mismatch report means the publication OECD (2015), Neutralising the Effects of Hybrid Mismatch Arrangements, Action 2 – 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris
mismatch amount means an amount, arising from a mismatch situation under a provision of this subpart, for which a deduction is denied or assessable income is increased under section FH 5, FH 6, FH 8, FH 9, or FH 10
mismatch situation means a situation in which differences between the taxation law of New Zealand and the taxation law of another country or territory in the tax treatment of entities or deducting branches may give rise to adjustments to deductions or income under sections FH 5, FH 6, FH 8, FH 9, or FH 10
related, for 2 persons, means a relationship under which—
(a)
the 2 persons are companies—
(i)
that are associated under section YB 2 (Two companies):
(ii)
for which a group of persons exists whose total voting interests in each company, determined under section YB 2, are 25% or more:
(iii)
if a market value circumstance exists for either company, for which a group of persons exists whose total market value interests in each company, determined under section YB 2, are 25% or more:
(b)
1 of the persons is a company and the other person is not a company and the 2 persons are associated under section YB 3 (Company and person other than company):
(c)
the 2 persons are associated under section YB 4 (Two relatives):
(d)
the 2 persons are associated under sections YB 5 to YB 11 (which relate to a trustee or settlor of a trust):
(e)
1 of the persons is a limited partnership and the other person is a general partner, or is a limited partner and the 2 persons are associated under section YB 12 (Partnership and partner):
(f)
1 of the persons is a partnership and the other person is a partner and the 2 persons would be associated under section YB 12(2) if the partnership were a limited partnership and the partner were a limited partner:
(g)
1 of the persons, or a group consisting of the person and persons who act together with the person, controls the other person:
(h)
a person or group of persons, together with persons who are related to or act together with the person or a person in the group, controls each of the persons
structured arrangement, for a person, means an arrangement to which the person or a member of the person’s control group is a party—
(a)
for which—
(i)
a transaction under or involving the arrangement has a price that assumes the existence of a hybrid mismatch:
(ii)
the facts or circumstances indicate that the arrangement is intended to rely on or produce a hybrid mismatch; and
(b)
under which the person, or a member of the person’s control group, can reasonably be expected to be aware of—
(i)
a tax benefit for the person that arises from the hybrid mismatch:
(ii)
the existence of the hybrid mismatch
surplus assessable income means an amount, arising from a mismatch situation and determined under section FH 12, against which a mismatch amount from the mismatch situation may be set off under section FH 12.
Exception to test for acting together
(2)
A co-ordinator meets the requirements of this subsection for rights or interests in a person or entity held separately by 2 holders if—
(a)
the co-ordinator manages an investment fund through which 1 of the holders has the holder’s rights or interests in the person or entity; and
(b)
the co-ordinator manages another investment fund through which the other holder has the holder’s rights or interests in the person or entity; and
(c)
the 2 funds do not act together in relation to the rights and interests of the holders.
Defined in this Act: accounting period, act together, arrangement, associated, branch mismatch report, company, control group, deducting branch, financial instrument, general partner, group of companies, hybrid entity, hybrid mismatch, hybrid mismatch legislation, hybrid mismatch report, limited partner, limited partnership, market value circumstance, market value interest, mismatch amount, mismatch situation, partner, partnership, related, relative, structured arrangement, surplus assessable income, voting interest
Section FH 15: inserted, on 1 July 2018, by section 35(1) (and see section 35(2) for application) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Section FH 15(1) hybrid mismatch: replaced (with effect on 1 July 2018), on 30 March 2022, by section 106(1) (and see section 106(3) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section FH 15(1) hybrid mismatch legislation paragraph (b): amended (with effect on 1 July 2018), on 30 March 2022, by section 106(2) (and see section 106(3) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section FH 15(1) mismatch amount: amended (with effect on 1 July 2018), on 18 March 2019, by section 200(1) (and see section 200(3) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section FH 15(1) mismatch situation: amended (with effect on 1 July 2018), on 18 March 2019, by section 200(2) (and see section 200(3) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Subpart FL—Emigration of resident companies
Contents
FL 1 What this subpart does
When this subpart applies
(1)
This subpart applies when a company that is a New Zealand resident (the emigrating company)—
(a)
stops being a New Zealand resident; or
(b)
starts being treated under a double tax agreement as not being a New Zealand resident.
Tax effects
(2)
For tax purposes, the effects on an emigrating company and its shareholders, when an emigrating company becomes non-resident, or if a specified event occurs after an emigrating company starts being treated under a double tax agreement as not being a New Zealand resident, reflect the effects that would have resulted if,—
(a)
immediately before the time of emigration,—
(i)
the emigrating company disposed of its property at market value; and
(ii)
the emigrating company went into liquidation; and
(iii)
the amount available for distribution on liquidation were distributed as dividends to shareholders of the emigrating company to the extent to which the amount is more than the available subscribed capital and any capital gain of the company; and
(b)
at the time of emigration, the emigrating company were reformed as a foreign company with—
(i)
the same ownership and business activities as those of the emigrating company immediately before the time of emigration; and
(ii)
the property of the emigrating company immediately before the time of emigration, acquired at its market value at that time.
Defined in this Act: amount, available subscribed capital, business, company, dividend, double tax agreement, emigrating company, foreign company, liquidation, market value, New Zealand resident, non-resident, shareholder, tax, time of emigration
Compare: 2004 No 35 s FCB 1
Section FL 1(1): replaced (with effect on 30 August 2022), on 31 March 2023, by section 67(1) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section FL 1(2): amended (with effect on 30 August 2022), on 31 March 2023, by section 67(2) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section FL 1 list of defined terms double tax agreement: inserted (with effect on 30 August 2022), on 31 March 2023, by section 67(3) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
FL 2 Treatment of companies that become non-resident and their shareholders
When this section applies
(1)
This section applies in relation to a New Zealand resident company that—
(a)
either—
(i)
is not treated under a double tax agreement as not being a New Zealand resident; or
(ii)
has been treated under a double tax agreement as not being a New Zealand resident since before 30 August 2022; and
(b)
stops being a New Zealand resident.
Treatment of company
(2)
Immediately before the company stops being a New Zealand resident, the company is treated as—
(a)
disposing of its property to a person, and reacquiring the property from the person, for consideration equal to the market value of the property at the time; and
(b)
making a distribution in money as a dividend to its shareholders of an amount that would be available for distribution at the time if the company were treated as going into liquidation.
Treatment of shareholders
(3)
Immediately before the company stops being a New Zealand resident, each shareholder of the company is treated as being paid a distribution in money as a dividend of the amount the shareholder would be entitled to at the time if the company were treated as going into liquidation.
Defined in this Act: amount, company, dividend, double tax agreement, liquidation, market value, New Zealand resident, pay, shareholder
Section FL 2: replaced (with effect on 30 August 2022), on 31 March 2023, by section 68 of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
FL 3 Treatment of companies that start being treated as non-resident and their shareholders
When this section applies
(1)
This section applies in relation to a New Zealand resident company that, on or after 30 August 2022, starts being treated under a double tax agreement (the DTA) as not being a New Zealand resident if, after the company starts being treated under the DTA as not being a New Zealand resident, 1 or more of the following events occur:
(a)
the company takes a tax position in a return of income that is consistent with relief from New Zealand tax being available under the DTA for an amount of income derived by the company on the basis that the company is treated under the DTA as not being a New Zealand resident:
(b)
the company becomes a non-resident:
(c)
the company has been treated under the DTA as not being a New Zealand resident for a continuous period of 2 years starting on the day on which it receives a competent authority determination that it is treated under the DTA as not being a New Zealand resident.
Treatment of company
(2)
Immediately before the company starts being treated under the DTA as not being a New Zealand resident, the company is treated as—
(a)
disposing of its property to a person, and reacquiring the property from the person, for consideration equal to the market value of the property at the time; and
(b)
making a distribution in money as a dividend to its shareholders at the time of an amount that would be available for distribution at the time if the company were treated as going into liquidation.
Treatment of shareholders
(3)
Immediately before the company starts being treated under the DTA as not being a New Zealand resident, each shareholder of the company at the time is treated as being paid a distribution in money as a dividend of the amount the shareholder would be entitled to at the time if the company were treated as going into liquidation.
Timing of income: company
(4)
An amount of income derived by the company from a deemed disposal under subsection (2) is allocated to the income year of the company in which the earliest of the events described in subsection (1)(a) to (c) occurs.
Timing of income: shareholders
(5)
A dividend that a shareholder of the company at the time referred to in subsection (3) is treated as being paid under that subsection is allocated to the income year of the shareholder in which the earliest of the events described in subsection (1)(a) to (c) occurs.
Relationship with section CD 1
(6)
This section overrides section CD 1(2) (Dividend).
Defined in this Act: amount, company, competent authority, dividend, double tax agreement, income, income year, liquidation, market value, New Zealand resident, New Zealand tax, non-resident, pay, return of income, shareholder, tax position
Section FL 3: inserted (with effect on 30 August 2022), on 31 March 2023, by section 69 of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Subpart FM—Consolidated groups of companies
Contents
Introductory provisions
FM 1 What this subpart applies to
This subpart applies to eligible companies that are part of a wholly-owned group of companies that choose to form a consolidated group of companies.
Defined in this Act: company, consolidated group, wholly-owned group
Compare: 2004 No 35 s FD 1
FM 2 Consolidation rules
Purpose
(1)
The consolidation rules are intended to ensure that, unless a provision of this Act expressly provides otherwise or the context requires another result, this Act applies to companies that are part of a consolidated group as if they were a single company, including its treatment for the following purposes:
(a)
to determine whether a tax credit may be used to satisfy the income tax liability of a consolidated group for a tax year:
(b)
when a provision sets a limit or provides a threshold, and its application depends on whether or not something is more or less than the limit or threshold.
Meaning
(2)
The consolidation rules means the following:
(a)
this subpart:
(b)
section GB 38 (When sections GB 35 to GB 37 apply to consolidated groups):
(c)
subpart ID (Use of tax losses by consolidated groups):
(d)
sections LK 8 to LK 11 (which relate to tax credits of consolidated group companies):
(e)
subpart OP (Memorandum accounts of consolidated groups):
(f)
section RC 28 (Provisional tax rules and consolidated groups):
(g)
section 74 of the Tax Administration Act 1994.
Defined in this Act: company, consolidated group, consolidation rules, income tax liability, tax credit, tax year
Compare: 2004 No 35 ss FD 1, OB 1 “consolidation rules”
Section FM 2(2)(g): substituted (with effect on 30 June 2009), on 6 October 2009, by section 229(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FM 3 Liability of consolidated groups and group companies
Taxable income of consolidated group
(1)
For the purposes of calculating the income tax liability for a tax year of a consolidated group under subpart BC (Calculating and satisfying income tax liabilities), the taxable income of a consolidated group for a tax year is the sum of the amounts calculated under subsection (2) for each company in the consolidated group for all or part of the corresponding income year.
Calculation for each company in consolidated group
(2)
Each company that is part of a consolidated group for all or part of an income year must calculate the amount that would be its taxable income under subpart BC, as modified by this section and sections FM 4 to FM 13, for all or part of the income year in which the company is part of the consolidated group.
Returns and assessment by consolidated group
(3)
The nominated company of a consolidated group must—
(a)
provide a single return of income for a tax year for the companies in the consolidated group in the corresponding income year under section 33 of the Tax Administration Act 1994; and
(b)
make an assessment under section 92 of the Tax Administration Act 1994 of the amount of income tax payable by the consolidated group.
No separate returns or assessment (with exception)
(4)
A group company cannot make a separate assessment or return for the tax year unless it is, for part of the corresponding income year, not part of the consolidated group.
Joint and several liability
(5)
Each company that is part of a consolidated group is jointly and severally liable for the amount of income tax assessed for the consolidated group in relation to its taxable income.
Individual liability
(6)
The joint and several liability of each company that is part of a consolidated group is substituted for their individual income tax liability, but only to the extent—
(a)
of the income tax liability of the consolidated group for the period of the income year in which the company is in the consolidated group; and
(b)
to which section FM 37 does not apply.
Withholding and payment obligations of companies
(7)
Each company that is part of a consolidated group is liable to comply with its obligations under the PAYE rules, the FBT rules, the ESCT rules, the RWT rules, and the NRWT rules.
Defined in this Act: amount, assessment, company, consolidated group, corresponding income year, ESCT rules, FBT rules, income tax, income tax liability, income year, nominated company, NRWT rules, pay, PAYE rules, return of income, RWT rules, tax year, taxable income
FM 4 Limiting joint and several liability of group companies
When this section applies
(1)
This section applies before the nominated company of a consolidated group makes an assessment for the consolidated group for a tax year.
Named companies bearing liability
(2)
Despite section FM 3(5), the nominated company may apply to the Commissioner for approval for 1 or more named companies in the consolidated group to bear the consolidated group’s income tax liability for the tax year.
Approval by Commissioner
(3)
The Commissioner must approve an application under subsection (2) unless limiting the liability to the named companies will significantly prejudice the recovery, or likely recovery, of the income tax liability of the consolidated group for the tax year.
Liability limited to named companies
(4)
For a tax year to which an approval referred to in subsection (3) relates,—
(a)
only a named company is liable for the income tax liability of the consolidated group, and if more than 1 company is named, the liability is joint and several:
(b)
section RC 28 (Provisional tax rules and consolidated groups) does not apply to impose on a company other than a named company joint and several liability for provisional tax payable by the consolidated group.
When named companies do not meet obligations
(5)
Despite subsection (4), the joint and several liability of a group company other than a named company is not extinguished to the extent to which—
(a)
a named company does not meet their income tax liability under this section; and
(b)
the Commissioner determines that the income tax liability of the consolidated group that is attributable to the taxable income of a company other than a named company is to be recovered from the other company.
Defined in this Act: apply, assessment, Commissioner, company, consolidated group, income tax liability, nominated company, pay, provisional tax, tax year, taxable income
Compare: 2004 No 35 s HB 1(3)–(5)
Section FM 4(2): amended, on 2 June 2016, by section 46(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section FM 4(3): amended, on 2 June 2016, by section 46(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
Section FM 4 list of defined terms apply: inserted, on 2 June 2016, by section 46(3) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
FM 5 Liability when company leaves consolidated group
Company leaving consolidated group
(1)
If a company leaves a consolidated group, the company’s liability under section FM 3(5) is removed if all the following paragraphs apply:
(a)
if the assessment is made after the later of—
(i)
the date on which the company is treated as leaving the consolidated group; or
(ii)
the date of the event that caused the company to be treated as leaving the consolidated group; and
(b)
the amount assessed is more than an earlier assessment of the consolidated group for the income year; and
(c)
the Commissioner considers that the removal of the liability will not significantly prejudice the recovery, or likely recovery, of the amount of income tax assessed for the income year.
Notifying company and consolidated group
(2)
For the purposes of subsection (1)(c), the Commissioner must notify the company and the consolidated group if the discretion has been exercised.
When subsection (4) applies
(3)
Subsection (4) applies when—
(a)
a company in a consolidated group is treated as deriving an amount of income under section CG 2C or CG 2D (which relate to the treatment of remitted amounts when certain companies are liquidated or leave groups of companies); and
(b)
the company—
(i)
for the purposes of section CG 2C, is company A and is liquidated while still part of the consolidated group:
(ii)
for the purposes of section CG 2D, is either company C or company D, and leaves the consolidated group.
Income of consolidated group
(4)
The amount of income that the company is treated as deriving under section CG 2C or CG 2D, as applicable, is treated as derived by the consolidated group.
Treatment of unpaid liabilities
(5)
In the application of subsection (4), to the extent to which an unpaid liability was previously taken into account in determining whether an amount is income under section CG 2C or CG 2D, the amount is not included in determining income under subsection (2).
Defined in this Act: amount, assessment, Commissioner, company, consolidated group, income, income tax, income year, notify, pay
Compare: 2004 No 35 s HB 1(2)
Section FM 5(1): amended (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 30 June 2014, by section 117(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FM 5(3) heading: inserted (with effect on 22 November 2013), on 30 June 2014, by section 117(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FM 5(3): inserted (with effect on 22 November 2013), on 30 June 2014, by section 117(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FM 5(4) heading: inserted (with effect on 22 November 2013), on 30 June 2014, by section 117(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FM 5(4): inserted (with effect on 22 November 2013), on 30 June 2014, by section 117(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FM 5(5) heading: inserted (with effect on 22 November 2013), on 30 June 2014, by section 117(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FM 5(5): inserted (with effect on 22 November 2013), on 30 June 2014, by section 117(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FM 5 list of defined terms income: inserted, on 30 June 2014, by section 117(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FM 5 list of defined terms pay: inserted, on 30 June 2014, by section 117(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
FM 6 Some general rules for treatment of consolidated groups
References to income, tax losses, tax payable, and credits
(1)
For the purposes of the consolidation rules, the following amounts are determined on the basis of a single assessment:
(a)
income, assessable income, net income, or taxable income of a consolidated group:
(b)
a tax loss component, a tax loss, a loss balance, an attributed CFC net loss, or a FIF net loss of a consolidated group:
(c)
tax payable by a consolidated group:
(d)
a tax credit available to a consolidated group.
Shares
(2)
For the purposes of applying the consolidation rules to particular provisions in this Act, the shares or options over shares of a consolidated group are treated as comprising all the shares or options over shares of the companies in the consolidated group at the relevant time.
Dividends
(3)
A dividend that 1 company that is part of a consolidated group pays to another group company continues to be taken into account for the purposes of—
(a)
the imputation rules:
(b)
[Repealed](c)
sections FM 8(3)(c), GB 38, and OP 3 to OP 50 (which relate to dividends and consolidated groups):
(d)
[Repealed](e)
section 74 of the Tax Administration Act 1994.
International tax rules
(4)
The international tax rules apply, modified as necessary, as if the consolidated group were a single company.
Balance of imputation credit account
(5)
Sections OA 3 (General rules for maintaining memorandum accounts) and YA 2(7) (Meaning of income tax varied) apply for the purposes of section GB 38, subpart OP, and section 74 of the Tax Administration Act 1994 as if the references to the imputation rules were references to sections OP 3 to OP 50.
Defined in this Act: amount, assessable income, assessment, attributed CFC net loss, company, consolidated group, consolidation rules, dividend, FIF net loss, imputation credit account, imputation rules, income, income tax, international tax rules, loss balance, net income, pay, share, tax, tax credit, tax loss, tax loss component, taxable income
Compare: 2004 No 35 ss FD 2, FD 11
Section FM 6(3)(b): repealed (with effect on 30 June 2009), on 6 October 2009, by section 230(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FM 6(3)(c): substituted (with effect on 30 June 2009), on 6 October 2009, by section 230(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FM 6(3)(c): amended, on 1 April 2017, by section 106 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FM 6(3)(c): amended (with effect on 1 July 2012), on 2 November 2012 (applying for income years beginning on or after 1 July 2012), by section 71(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section FM 6(3)(d): repealed, on 1 July 2012 (applying for income years beginning on or after that date), by section 66(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FM 6(3)(e): substituted (with effect on 30 June 2009), on 6 October 2009, by section 230(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FM 6(5) heading: substituted (with effect on 30 June 2009), on 6 October 2009, by section 230(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FM 6(5): substituted (with effect on 30 June 2009), on 6 October 2009, by section 230(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FM 6 list of defined terms FDP account: repealed (with effect on 30 June 2009), on 6 October 2009, by section 230(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FM 6 list of defined terms FDP rules: repealed (with effect on 30 June 2009), on 6 October 2009, by section 230(6) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Calculating taxable income for consolidated group returns
Accounting generally
FM 7 Treatment of amounts derived or expenditure incurred
Sections FM 8 to FM 23 set out the treatment of certain amounts derived or expenditure incurred while a company is part of a consolidated group. The treatment applies to the part of a company’s income year when the company is in the consolidated group.
Defined in this Act: amount, company, consolidated group, income year
Compare: 2004 No 35 s HB 2(1)
Section FM 7: amended, on 1 April 2017, by section 107 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
FM 8 Transactions between group companies: income
When this section applies
(1)
This section applies when a company that is part of a consolidated group derives an amount of income from a transaction or arrangement with another company in the same consolidated group, and the amount would not be income if the consolidated group were 1 company.
Excluded income
(2)
The amount is excluded income of the company under section CX 60 (Intra-group transactions).
Exclusion of certain amounts
(3)
Despite subsection (2), this section does not apply to—
(a)
an amount arising from the disposal of the company’s trading stock; or
(b)
an amount arising under section EW 31 (Base price adjustment formula) from—
(i)
the disposal of a financial arrangement to which the financial arrangements rules apply; or
(ii)
the remission of a financial arrangement to which the financial arrangements rules apply, if the parties were not consolidated group companies for the whole term of the arrangement; or
(c)
a dividend under section CD 4(1) (Transfers of company value generally) between group companies arising from the release of an obligation to repay money lent before the companies are treated under section FM 35 as part of the consolidated group; or
(d)
the amount of a dividend derived by a local authority.
Defined in this Act: amount, arrangement, company, consolidated group, dividend, excluded income, financial arrangement, financial arrangements rules, income, money lent, pay, trading stock
Compare: 2004 No 35 s HB 2(1)(a)
Section FM 8(3)(b)(ii): amended (with effect on 1 April 2008), on 2 November 2012 (applying for the 2008–09 and later income years, except for a tax position that is inconsistent with subsection (1) and is taken in a tax return filed before 14 September 2011), by section 72(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
Section FM 8(3)(c): amended, on 23 March 2020, by section 126 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section FM 8(3)(c): amended, on 1 April 2019, by section 100(1) (and see section 100(2) for application) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section FM 8(3)(d): replaced, on 1 April 2022, by section 107(1) (and see section 107(2) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
FM 9 Amounts that are company’s income
When this section applies
(1)
This section applies when a company that is part of a consolidated group derives an amount that would not be income of the company in the absence of this section, but would be income of the consolidated group if it were 1 company either—
(a)
because of a purpose for which an item of property was acquired; or
(b)
because a connection exists between the amount and the carrying on of a business by another consolidated group company; or
(c)
for some other reason.
Income
(2)
The amount is income of the company under section CV 2 (Consolidated groups: income of company in group).
Relationship with sections CB 15C and CB 15D
(3)
This section is overridden by sections CB 15C(2) and CB 15D(2) (which apply to bodies linked or associated with a local authority or companies in the same wholly-owned group as Kāinga Ora–Homes and Communities).
Defined in this Act: amount, business, company, consolidated group, income
Compare: 2004 No 35 s HB 2(1)(e)
Section FM 9(3) heading: replaced (with effect on 1 July 2017), on 18 March 2019, by section 201 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section FM 9(3): replaced (with effect on 1 July 2017), on 18 March 2019, by section 201 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section FM 9(3): amended (with effect on 1 October 2019), on 23 March 2020, by section 190 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
FM 10 Expenditure: intra-group transactions
When this section applies
(1)
This section applies when—
(a)
a company incurs expenditure or loss, or has an amount of depreciation loss, in a tax year or part of a tax year in which it is part of a consolidated group; and
(b)
the company incurs the expenditure or loss through a payment or disposal to, or a transaction or arrangement with, another consolidated group company.
No deduction (with exception)
(2)
If a deduction would not be allowed for the expenditure or loss if the consolidated group were 1 company, the company is denied a deduction under section DV 16 (Consolidated groups: intra-group transactions) unless the exceptions in section DV 16(2)(a) or (b) apply.
Defined in this Act: amount, arrangement, company, consolidated group, deduction, depreciation loss, loss, tax year
Compare: 2004 No 35 s HB 2(1)(b)
FM 11 Expenditure: nexus with income derivation
When this section applies
(1)
This section applies when a company incurs expenditure or loss or has an amount of depreciation loss in a tax year or part of a tax year in which it is part of a consolidated group that—
(a)
is not expenditure or loss to which section FM 10 applies; and
(b)
would not be allowed as a deduction to the company in the absence of this section.
Deduction
(2)
The company is allowed a deduction for the amount under section DV 17 (Consolidated groups: expenditure or loss incurred by group companies) if the consolidated group would be allowed a deduction for the amount, treating the group as if it were 1 company, because of a connection between—
(a)
the incurring of the expenditure or loss or amount of depreciation loss; and
(b)
the deriving of assessable or excluded income, or the carrying on of a business by another company in the consolidated group.
Defined in this Act: amount, assessable income, business, company, consolidated group, deduction, depreciation loss, excluded income, loss, tax year
Compare: 2004 No 35 s HB 2(1)(c)
Section FM 11 list of defined terms excluded income: 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 FM 11 list of defined terms excluded income loss: 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 FM 11 list of defined terms loss: 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).
FM 12 Expenditure when deduction would be denied to consolidated group
When this section applies
(1)
This section applies when a company incurs expenditure or loss or an amount of depreciation loss in a tax year or part of a tax year in which it is part of a consolidated group that—
(a)
is not expenditure or loss to which section FM 10 applies; and
(b)
would be allowed as a deduction to that company in the absence of this section.
No deduction (with exception)
(2)
The company is denied a deduction for an amount under section DV 17 (Consolidated groups: expenditure or loss incurred by group companies) if the deduction would be denied to the consolidated group, treating the group as if it were 1 company, except to the extent to which the expenditure or loss or amount of depreciation loss is interest on money that the company has borrowed from a person that is not part of the consolidated group, and the company—
(a)
is allowed a deduction under section DB 7 (Interest: most companies need no nexus with income) or DB 8 (Interest: money borrowed to acquire shares in group companies):
(b)
would be allowed a deduction under section DB 7 or DB 8 because the company is treated as having used the money borrowed, to the extent of the actual acquisition cost, to acquire certain shares when, through interposed intra-group borrowings, the money borrowed was in fact used by another group company in acquiring the shares.
Defined in this Act: amount, company, consolidated group, deduction, depreciation loss, interest, loss, share, tax year
Compare: 2004 No 35 s HB 2(1)(d)
Section FM 12(2): amended (with effect on 1 April 2008), on 7 September 2010 (applying for the 2008–09 and later income years), by section 52(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
FM 13 Capital expenditure
When this section applies
(1)
This section applies when a company that is part of a consolidated group incurs expenditure or loss that would, treating the consolidated group as if it were 1 company, be taken into account in determining the cost of property but would not otherwise be taken into account in the absence of this section.
Amount taken into account
(2)
The expenditure or loss is taken into account in determining the cost of property of companies in the consolidated group.
Defined in this Act: company, consolidated group, loss
Compare: 2004 No 35 s HB 2(2)
FM 14 Part-year financial statements
When this section applies
(1)
This section applies in an income year when—
(a)
a company joins or leaves a consolidated group during the income year; or
(b)
a consolidated group is formed or ends its existence during the income year.
Who must provide statements
(2)
The following returns of income for the tax year must include part-year financial statements under sections FM 38(5) and FM 40(4):
(a)
by the company when the financial statements relate to a period in which the company is not in the consolidated group:
(b)
by the consolidated group when the financial statements relate to a period in which the company is in the consolidated group:
(c)
by another consolidated group when the financial statements relate to a period in which the company is in another consolidated group.
Detailed statements
(3)
The part-year financial statements must determine, as applicable, the annual gross income, annual total deductions, income tax liability, or tax loss of the company in a fair and reasonable way. For this purpose the relevant part of the income year is treated as a complete income year.
Defined in this Act: annual gross income, annual total deduction, company, consolidated group, income tax liability, income year, return of income, tax loss, tax year
Compare: 2004 No 35 s FD 9
Accounting for particular property
FM 15 Amortising property and revenue account property
When this section applies
(1)
This section applies—
(a)
when property is transferred from a company (company A) to another company (company B) and both companies are in the same consolidated group at the time the transfer takes place, and the property transferred is—
(i)
amortising property; or
(ii)
revenue account property, but not trading stock or a financial arrangement to which the financial arrangements rules apply; and
(b)
to determine the income and deductions on a later disposal of property, or in relation to the depreciation or amortisation of the acquisition cost of the property under this Act.
Acquisition by company B
(2)
Company B is treated as acquiring the property on the date it was acquired by company A for the amount set out in subsections (3) to (5).
Acquisition by company B
(2B)
For the purposes of sections CB 6A and CZ 39 (which relate to residential land), in relation to property that is land, company B is treated as having the same bright-line acquisition date as company A for that land.
Whole pool
(3)
When the property forms the whole of a pool of property that is depreciated by company A under sections EE 20 to EE 24 (which relate to depreciation loss calculated under the pool method), the amount in subsection (2) is the adjusted tax value of the pool immediately before the property is transferred to company B.
Part pool
(4)
When the property forms only part of a pool of property that is depreciated by company A under sections EE 20 to EE 24, the amount in subsection (2) is the lesser of—
(a)
the market value of the property transferred to company B; and
(b)
the adjusted tax value of the whole of the pool immediately before the property is transferred to company B.
Not pool property
(5)
If subsections (3) and (4) do not apply, the amount in subsection (2) is the sum of the following amounts of expenditure incurred by company A before the property is transferred to company B for which no deduction has been allowed other than by the depreciation or amortisation of the acquisition cost of the property under section EE 1, EZ 7, or EZ 8 (which relate to depreciation), or another amortisation provision of this Act:
(a)
the original acquisition cost of the property:
(b)
expenditure incurred—
(i)
in acquiring or improving the property; or
(ii)
in securing or improving company A’s legal rights to the property.
When subsection (7) applies
(6)
Subsection (7) applies—
(a)
for the purposes of sections EE 46 to EE 52 (which relate to disposals and depreciation recovery income); and
(b)
to property referred to in subsection (1)(b) other than pooled property; and
(c)
in relation to an amount of depreciation loss or amortisation of acquisition cost up to the time the property is transferred from company A to company B.
Pre-transfer deductions for depreciation loss and amortisation
(7)
Company B is treated as allowed the pre-transfer deductions that company A is allowed for amounts of depreciation loss under section EZ 7 or EZ 8, or for an amount of expenditure or loss under another amortisation provision of this Act.
Exception for Kāinga Ora–Homes and Communities and consolidated group
(8)
Subsections (1) to (7) do not apply to Kāinga Ora–Homes and Communities or a company in the same consolidated group as Kāinga Ora–Homes and Communities.
Defined in this Act: acquire, adjusted tax value, amortising property, amount, bright-line acquisition date, company, consolidated group, deduction, depreciation loss, financial arrangement, financial arrangements rules, income, Kāinga Ora–Homes and Communities, land, market value, other amortisation provision, pool, revenue account property, trading stock
Compare: 2004 No 35 s FD 10(1), (2)
Section FM 15(2B) heading: inserted (with effect on 1 April 2019), on 30 March 2022, by section 108(1) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section FM 15(2B): inserted (with effect on 1 April 2019), on 30 March 2022, by section 108(1) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section FM 15(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 FM 15(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 242(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FM 15(8) heading: inserted (with effect on 1 July 2017), on 18 March 2019, by section 202 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section FM 15(8) heading: amended (with effect on 1 October 2019), on 23 March 2020, by section 190 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section FM 15(8): inserted (with effect on 1 July 2017), on 18 March 2019, by section 202 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section FM 15(8): amended (with effect on 1 October 2019), on 23 March 2020, by section 190 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section FM 15 list of defined terms bright-line acquisition date: inserted (with effect on 1 April 2019), on 30 March 2022, by section 108(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Section FM 15 list of defined terms Kāinga Ora–Homes and Communities: inserted (with effect on 1 October 2019), on 23 March 2020, by section 190 of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).
Section FM 15 list of defined terms land: inserted (with effect on 1 April 2019), on 30 March 2022, by section 108(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
FM 16 Land or business: certain farming or forestry expenditure
When this section applies
(1)
This section applies in an income year when 2 companies (company A and company B) are in the same consolidated group for the whole of the income year, and—
(a)
company A transfers land to company B, and company B holds the land for the remainder of the income year; or
(b)
company A stops carrying on a business, and company B carries on the business for the remainder of the income year.
Deductions for certain farming and forestry expenditure
(2)
Company A is allowed a deduction under sections DO 4 to DO 6, and DO 12 (which relate to farming and aquaculture expenditure), or DP 3 (Improvements to forestry land) after the transfer or cessation of the business as if the transfer or cessation did not occur.
Defined in this Act: business, company, consolidated group, deduction, income year, land
Compare: 2004 No 35 s FD 10(3)
FM 17 Trading stock
When this section applies
(1)
This section applies in an income year in which a company (company A) transfers identifiable trading stock to another company (company B) when—
(a)
company A and company B are in the same consolidated group at the time of the transfer; and
(b)
company A and company B choose to value the trading stock under subpart EB (Valuation of trading stock (including dealer’s livestock)) or at the cost to company A, as applicable; and
(c)
the nominated company of the consolidated group notifies the Commissioner within the time for providing the consolidated group’s return of income, or a later time if the Commissioner agrees.
Trading stock held at start of income year
(2)
If company A held the trading stock at the start of the income year, the consideration for the transfer is the value of the trading stock at the start of the income year determined under subpart EB.
Trading stock acquired
(3)
If subsection (2) does not apply, the consideration for the transfer is the cost of the trading stock to company A.
Defined in this Act: Commissioner, company, consolidated group, income year, nominated company, notify, return of income, trading stock
Compare: 2004 No 35 s FD 10(5)
FM 18 Financial arrangements: transfer from company A to company B
When this section applies
(1)
This section applies in an income year in which a company (company A) transfers a financial arrangement to which the financial arrangements rules apply to another company (company B) when—
(a)
company A and company B are in the same consolidated group for the whole of the income year; and
(b)
the method of calculating income and expenditure from the financial arrangement does not change after the transfer, and the consolidated group’s return of income is made on that basis; and
(c)
neither company A nor company B is entitled to use under sections IA 4, IA 5, and IB 3 (which relate to the use of loss balances by companies) a loss balance carried forward unless subpart ID (Use of tax losses by consolidated groups) applies.
Treatment of companies
(2)
In the year of transfer and in later income years,—
(a)
company A is treated as if it had never been a party to the financial arrangement, and section EW 31 (Base price adjustment formula) does not apply:
(b)
company B is treated as if it had taken all the actions that company A undertook before the transfer in entering into the financial arrangement, incurring expenditure and deriving income, and providing its return of income in relation to the financial arrangement.
Relationship with sections EW 38 and GB 21
(3)
This section overrides sections EW 38 (Consideration when disposal for no, or inadequate, consideration) and GB 21 (Dealing that defeats intention of financial arrangements rules).
Defined in this Act: company, consolidated group, financial arrangement, financial arrangements rules, income, income year, loss balance, return of income
Compare: 2004 No 35 s FD 10(4), (4A)
Section FM 18(1)(c): amended (with effect on 1 April 2020), on 30 March 2021, by section 70(1) (and see section 70(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
FM 19 Financial arrangements: transfer for fair and reasonable consideration
When this section applies
(1)
This section applies in an income year in which a company (company A) transfers a financial arrangement to another company (company B) when—
(a)
company A and company B are in the same consolidated group at the time of the transfer; and
(b)
section FM 18 does not apply to the transfer; and
(c)
the method of calculating income and expenditure from the financial arrangement does not change after the transfer, and the consolidated group’s return is made on this basis.
Consideration for transfer
(2)
In calculating the base price adjustment, company A’s consideration for the transfer is a fair and reasonable amount of the income that would have been derived, or the expenditure that would have been incurred, by company A in the year of transfer if the transfer had not taken place.
Relationship with sections EW 38 and GB 21
(3)
This section overrides sections EW 38 (Consideration when disposal for no, or inadequate, consideration) and GB 21 (Dealing that defeats intention of financial arrangements rules).
Defined in this Act: amount, company, consolidated group, financial arrangement, income, income year, return of income
Compare: 2004 No 35 s FD 10(4), (4B)
FM 20 Financial arrangements: transfer at market value
When this section applies
(1)
This section applies in an income year in which a company (company A) transfers a financial arrangement to another company (company B) when—
(a)
company A and company B are in the same consolidated group at the time of the transfer; and
(b)
neither section FM 18 nor FM 19 applies to the transfer.
Consideration for transfer
(2)
The consideration for the transfer is the market value of the financial arrangement on the date of the transfer.
Relationship with sections EW 38 and GB 21
(3)
This section overrides sections EW 38 (Consideration when disposal for no, or inadequate, consideration) and GB 21 (Dealing that defeats intention of financial arrangements rules).
Defined in this Act: company, consolidated group, financial arrangement, income year
Compare: 2004 No 35 s FD 10(4), (4C)
FM 21 Property transfers when companies leave consolidated groups
When this section applies
(1)
This section applies to the extent to which a transfer of property has not previously been taken into account in the calculation of a consolidated group’s taxable income under sections FM 8 to FM 13, or FM 15 to FM 20 and FM 23 when—
(a)
a company leaves a consolidated group, but not through liquidation; and
(b)
the company holds property that has at any time been transferred between companies in the same consolidated group; and
(c)
sections FM 15, or FM 17 to FM 20 applied to the transfer of the property.
Disposal and acquisition at market value
(2)
The company is treated as disposing of the property immediately before it leaves the consolidated group to a person not associated with it, and reacquiring it at that time at its market value.
Market value at time of transfer
(3)
If the item of property is part of or is absorbed into some other property, or its market value cannot be separately identified, the company is treated as disposing of and reacquiring the property at its market value at the time of the transfer under the relevant provision referred to in subsection (1)(c). If the property is transferred more than once, the time of disposal and reacquisition is the date of the latest transfer at which its market value can be determined.
Defined in this Act: associated person, company, consolidated group, liquidation, market value, taxable income
Compare: 2004 No 35 s FD 10(6), (7)
FM 22 Arrangements to avoid consolidation rules
When this section applies
(1)
This section applies when—
(a)
a company joins a consolidated group and at the time holds property that it later transfers to another group company; and
(b)
sections FM 15 or FM 17 to FM 20 would otherwise apply to the transfer of the property; and
(c)
after the transfer the company leaves the consolidated group, whether by liquidation or otherwise.
Arrangement to defeat consolidation rules
(2)
If, in undertaking the activities, it could reasonably be concluded that the company was involved in an arrangement that had a purpose or effect of defeating the intent and application of the consolidation rules, the relevant provision does not apply to the transfer.
Defined in this Act: arrangement, company, consolidated group, consolidation rules, liquidation
Compare: 2004 No 35 s FD 10(9)
FM 23 Arrangements for disposal of shares
When this section applies
(1)
This section applies when—
(a)
2 companies (company A and company B) are in the same consolidated group; and
(b)
the value of company A’s net assets have been reduced as a result of a dividend, distribution, payment, arrangement, or transaction between company A and company B at the time the dividend is paid or the distribution, payment, arrangement, or transaction is made; and
(c)
another company (company C) disposes of shares in company A for consideration that is less than the amount that would have been received in an arm’s length transaction had the reduction in the value of company A’s net assets not occurred; and
(d)
if the disposal were by way of sale, the consideration from the sale would be included in company C’s income, other than income taken into account under section FM 3.
Arm’s length transaction on disposal of shares
(2)
The disposal is treated as if it were a sale at arm’s length.
Income
(3)
The amount that would have been received in an arm’s length transaction is income of company C under section CV 3 (Consolidated groups: arrangement for disposal of shares).
Timing
(4)
The time at which the consideration for the sale at arm’s length is determined is before the reduction in the value of company A’s net assets.
Relationship with sections FM 8 and FM 11
(5)
Subsection (2) does not apply to an amount of income taken into account under section FM 8 or FM 11.
Defined in this Act: amount, arrangement, company, consolidated group, dividend, income, pay, share
Compare: 2004 No 35 s FD 10(8)
Treatment of foreign dividends[Repealed]
Heading: repealed (with effect on 1 April 2009), on 6 October 2009, pursuant to section 231(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FM 24 General treatment of foreign dividends
[Repealed]Section FM 24: repealed (with effect on 1 April 2009), on 6 October 2009, by section 231(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FM 25 Reduction in payments for foreign dividends
[Repealed]Section FM 25: repealed (with effect on 1 April 2009), on 6 October 2009, by section 231(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FM 26 Using tax losses to pay FDP
[Repealed]Section FM 26: repealed (with effect on 1 April 2009), on 6 October 2009, by section 231(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FM 27 Refunds of FDP
[Repealed]Section FM 27: repealed, on 1 April 2017, by section 109 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
FM 28 Refund when consolidated group has loss
[Repealed]Section FM 28: repealed, on 1 April 2017, by section 110 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
FM 29 Treatment of credit balance in consolidated group’s FDP account
[Repealed]Section FM 29: repealed, on 1 April 2017, by section 111 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
FM 30 Application of certain provisions to consolidated groups
When subsections (2) and (3) apply[Repealed]
(1)
[Repealed]Credit and debit balances[Repealed]
(2)
[Repealed]Section OC 20: life insurance credit balance[Repealed]
(3)
[Repealed]Section OC 27: FDP credits[Repealed]
(4)
[Repealed]Sections OC 30 to OC 32, and others: liability for payments and penalties[Repealed]
(5)
[Repealed]Section RA 19: amalgamations
(6)
Section RA 19 (Refunds of excess amounts or when amounts mistakenly paid) applies, modified as necessary, from the time of amalgamation when a consolidated group ends its existence on a resident’s restricted amalgamation that involves all companies in the consolidated group, whether or not with a company outside the consolidated group, in relation to tax paid by the consolidated group as if it and the amalgamated company were a single company.
Sections 30 and 68 of Tax Administration Act 1994: FDP accounts[Repealed]
(7)
[Repealed]Defined in this Act: amalgamated company, amalgamation, company, consolidated group, pay, resident’s restricted amalgamation, tax
Compare: 2004 No 35 ss NH 4(9), NH 6(1), (2), (5), (7)
Section FM 30(1) heading: repealed, on 30 March 2017, pursuant to section 112(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FM 30(1): repealed, on 30 March 2017, by section 112(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FM 30(2) heading: repealed, on 30 March 2017, pursuant to section 112(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FM 30(2): repealed, on 30 March 2017, by section 112(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FM 30(3) heading: repealed, on 30 March 2017, pursuant to section 112(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FM 30(3): repealed, on 30 March 2017, by section 112(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FM 30(4) heading: repealed, on 1 April 2017, pursuant to section 113(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FM 30(4): repealed, on 1 April 2017, by section 113(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FM 30(5) heading: repealed, on 1 April 2017, pursuant to section 113(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FM 30(5): repealed, on 1 April 2017, by section 113(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FM 30(7) heading: repealed, on 1 April 2017, pursuant to section 113(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FM 30(7): repealed, on 1 April 2017, by section 113(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FM 30 list of defined terms FDP account: repealed, on 1 April 2017, by section 113(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FM 30 list of defined terms FDP penalty tax: repealed, on 1 April 2017, by section 113(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FM 30 list of defined terms FDPA company: repealed, on 1 April 2017, by section 113(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FM 30 list of defined terms foreign dividend: repealed, on 1 April 2017, by section 113(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FM 30 list of defined terms further FDP: repealed, on 1 April 2017, by section 113(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FM 30 list of defined terms nominated company: repealed, on 29 March 2018 (with effect on 30 March 2017), by section 101 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section FM 30 list of defined terms policyholder credit account: repealed, on 30 March 2017, by section 112(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Membership of consolidated groups
Eligibility and restrictions
FM 31 Eligibility rules
When company eligible
(1)
A company is eligible to form, join, and continue as part of a consolidated group at a particular time if, at the time,—
(a)
it is resident in New Zealand; and
(b)
[Repealed](c)
it is not a company that derives only exempt income, except exempt income under sections CW 9 and CW 10 (which relate to income from equity); and
(d)
it is incorporated in New Zealand or carrying on a business in New Zealand through a fixed establishment; and
(e)
[Repealed](eb)
it is a member of the same wholly-owned group of companies as the other members of the consolidated group; and
(f)
when subsection (2) or (4) applies, it meets the relevant conditions; and
(g)
subsection (6) does not apply to it.
Restriction when company of certain type
(2)
Despite subsection (1), if a company that is part of a consolidated group is 1 of the following types of company, all companies in the consolidated group at the time must be the same type as that company:
(a)
a qualifying company:
(b)
a mineral miner that is a company.
Grandparented consolidated companies
(3)
The requirements of subsection (1)(d) and (e) do not apply to determine whether a grandparented consolidated company—
(a)
is eligible to form or join a consolidated group:
(b)
continues as part of the consolidated group.
Non-standard balance date
(4)
Despite subsection (1), if a company that is part of a consolidated group has a non-standard balance date, all companies in the consolidated group at the time must have the same non-standard balance date.
LAQCs[Repealed]
(5)
[Repealed]Anti-avoidance measure
(6)
A company is not eligible to be part of a consolidated group if, for a purpose of enabling a company to be part of a consolidated group so as to defeat the intent and application of the consolidation rules, the company’s shares—
(a)
are subject to an arrangement, or to a series of related or connected arrangements; or
(b)
have rights attaching to them extinguished or altered directly or indirectly by any means.
Defined in this Act: arrangement, business, company, consolidated group, consolidation rules, exempt income, fixed establishment, grandparented consolidated company, income, mineral miner, New Zealand, non-standard balance date, qualifying company, resident in New Zealand, share, wholly-owned group of companies
Compare: 2004 No 35 ss FD 3(b)–(e), OB 1 “eligible company”
Section FM 31(1): substituted (with effect on 1 April 2008), on 6 October 2009, by section 232(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FM 31(1)(b): repealed (with effect on 15 March 2017), on 31 March 2023, by section 70(1) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section FM 31(1)(c): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 67(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FM 31(1)(e): repealed (with effect on 15 March 2017), on 31 March 2023, by section 70(1) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section FM 31(1)(eb): inserted (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 27 February 2014, by section 72(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section FM 31(1)(g): amended, on 17 July 2013, by section 56 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section FM 31(2)(b): replaced, on 1 April 2014, by section 72(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section FM 31(3): substituted (with effect on 1 April 2008), on 6 October 2009, by section 232(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FM 31(5) heading: repealed, on 17 July 2013, pursuant to section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section FM 31(5): repealed, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section FM 31 list of defined terms foreign company: repealed (with effect on 15 March 2017), on 31 March 2023, by section 70(2) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section FM 31 list of defined terms income tax: repealed (with effect on 15 March 2017), on 31 March 2023, by section 70(2) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section FM 31 list of defined terms LAQC: repealed, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section FM 31 list of defined terms mineral miner: inserted, on 1 April 2014, by section 72(3)(a) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section FM 31 list of defined terms mining company: repealed, on 1 April 2014, by section 72(3)(b) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section FM 31 list of defined terms wholly-owned group of companies: inserted (with effect on 1 April 2008), on 27 February 2014, by section 72(4) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
FM 32 Restriction on membership of consolidated groups
A company is not eligible to be in more than 1 consolidated group at a particular time. If circumstances arise in which a company would, apart from this section, be treated at a particular time as in more than 1 consolidated group, then—
(a)
the company is treated as in the consolidated group of which it was first part; or
(b)
if the company is in 2 or more consolidated groups simultaneously, the Commissioner may specify its consolidated group, having regard to all the circumstances of the case.
Defined in this Act: Commissioner, company, consolidated group
Compare: 2004 No 35 s FD 5
FM 33 When membership is reduced
A consolidated group continues to exist if the number of group companies is reduced to 1 company, but if the consolidated group has no company at any time, the consolidated group no longer exists.
Defined in this Act: company, consolidated group
Compare: 2004 No 35 s FD 8(9)
Nominated companies
FM 34 Nominated companies
Group company at the time
(1)
The nominated company of a consolidated group at any time must be in the consolidated group at the time.
Agent
(2)
For the purposes of this Act and the Tax Administration Act 1994, a nominated company of a consolidated group is, at a time, the agent of the consolidated group and of each company that is in the consolidated group at the time.
Changing nominated company
(3)
A nominated company may notify the Commissioner that it is, at a particular date, no longer to continue as the agent for the consolidated group, and that another company is to become the nominated company for the consolidated group.
When notice takes effect
(4)
A notice referred to in subsection (3) takes effect—
(a)
on the date the Commissioner receives the notice; or
(b)
on a later date set out in the notice.
Replacing nominated company
(5)
If the nominated company of a consolidated group is liquidated, the other companies in the consolidated group may choose a replacement. The replacement company—
(a)
becomes the nominated company of the consolidated group from the date of liquidation; and
(b)
must notify the Commissioner of its selection as nominated company within 20 working days after the date of liquidation, or a longer period if the Commissioner agrees.
Defined in this Act: agent, Commissioner, company, consolidated group, liquidation, nominated company, notice, notify, working day
Forming, joining, or leaving consolidated groups
FM 35 Forming consolidated group
Election
(1)
Two or more companies may choose to form a consolidated group of companies if the companies are, at the time,—
(a)
a wholly-owned group of companies; and
(b)
eligible under section FM 31.
Notifying Commissioner
(2)
The Commissioner must be notified of an election under subsection (1). For the purposes of section FM 3(5), the notice must state that each company that is part of the consolidated group acknowledges their joint and several liability for the amount of income tax assessed for the consolidated group.
Nominated company
(3)
A notice under subsection (2) must nominate 1 of the companies in the consolidated group as its agent. The company is called the nominated company.
Defined in this Act: agent, amount, assessment, Commissioner, company, consolidated group, income tax, nominated company, notice, notify, wholly-owned group
Compare: 2004 No 35 ss FD 3(a), FD 4(1), (2)
FM 36 Joining existing consolidated group
When this section applies
(1)
This section applies when 2 or more companies have formed a consolidated group and the consolidated group has not ended its existence.
Eligible for and entitled to membership
(2)
If a company is eligible under section FM 31, it may choose to join the consolidated group by notifying the Commissioner.
Joint and several liability
(3)
The company providing the notification referred to in subsection (2) must agree in the notice to be jointly and severally liable under section FM 3(5) for income tax payable by the consolidated group.
Defined in this Act: Commissioner, company, consolidated group, income tax, notice, notify, pay
Compare: 2004 No 35 s FD 7(1), (2)
Section FM 36(2): amended, on 29 March 2018 (with effect on 1 April 2008), by section 102 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
FM 37 Leaving consolidated group
A company leaves a consolidated group if—
(a)
it chooses to leave the consolidated group and notifies the Commissioner of its election, see section FM 39; or
(b)
it no longer meets the eligibility criteria set out in section FM 31, see section FM 40; or
(c)
when it is not a nominated company, it is not eligible to continue as part of the same consolidated group as the nominated company, see section FM 40; or
(d)
it is part of a consolidated group that no longer has a nominated company, see section FM 41.
Defined in this Act: Commissioner, company, consolidated group, nominated company, notify
Compare: 2004 No 35 s FD 8(1)
Section FM 37(c): amended, on 29 March 2018 (with effect on 1 April 2008), by section 103 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
When membership starts and stops
FM 38 Notice requirements on forming or joining consolidated group
When this section applies
(1)
This section applies when—
(a)
2 or more companies choose to form a consolidated group under section FM 35; or
(b)
a company chooses to join an existing consolidated group under section FM 36.
Condition
(2)
Despite subsection (1), this section applies only if a company forming or joining a consolidated group remains eligible to be in the consolidated group either at the start of the relevant income year or for the notice period, as applicable.
Setting out income year in notice
(3)
For a notice given to the Commissioner within the notice period in an income year, the company may provide that the election applies for the income year. The company is treated as in the consolidated group from the start of the income year.
When notice does not specify income year
(4)
If the notice referred to in subsection (3) does not specify an income year, the company is treated as in the consolidated group from the start of the income year following that in which the Commissioner receives the notice.
Setting out entitlement date in notice
(5)
Despite subsections (3) and (4), if a company becomes eligible to join a consolidated group during an income year, and the notice is given to the Commissioner within the notice period, the company may provide that the election applies from the date they first became entitled to make an election. The company is treated as in the consolidated group from that date, and part-year financial statements under section FM 14 are required.
Notice period
(6)
In this section, notice period means 1 of the following:
(a)
63 working days after the start of an income year; or
(b)
if the company joining, or the companies forming, the consolidated group in the income year are incorporated or formed in the same income year, 63 working days after the latest incorporation or formation; or
(c)
if the company or companies become entitled to make an election during an income year, 63 working days from the date they first became entitled; or
(d)
an extended period if the Commissioner agrees that the notice could not reasonably have been provided within the 63-day period.
Anti-avoidance measure
(7)
Subsection (5) does not apply if it would be reasonable to conclude that an arrangement has been entered into for a purpose of enabling the company to meet the requirements of the subsection so as to defeat the intent and application of the consolidation rules.
Defined in this Act: arrangement, Commissioner, company, consolidated group, consolidation rules, income year, notice, notice period, working day
Compare: 2004 No 35 ss FD 4(3)–(8), FD 7(3)–(8)
Section FM 38(2): amended, on 29 March 2018 (with effect on 1 April 2008), by section 104 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
FM 39 Choosing to leave consolidated group
When this section applies
(1)
This section applies when a company chooses to leave a consolidated group and notifies the Commissioner of its election.
Deferring leaving date
(2)
When the company notifies the Commissioner of its election, it may defer the date on which it leaves the consolidated group to the first day of the next income year. However, unless subsections (3) and (4) apply, if the company does not defer the leaving date, it is treated as no longer in the consolidated group from the start of the income year in which the Commissioner receives the notice.
First income year: deferral
(3)
Despite subsection (2), if a company leaves a consolidated group in the same income year in which it joins the group, and defers the leaving date in the notice, it is treated as leaving the consolidated group from the start of the income year after the income year in which the Commissioner receives the notice. Sections FM 40 and FM 41 override this subsection.
First income year: no deferral
(4)
Despite subsection (2), if a company leaves a consolidated group in the same income year in which it joins the consolidated group, and does not defer the leaving date in the notice, it is treated as leaving the consolidated group on the date it joined the group.
Defined in this Act: Commissioner, company, consolidated group, income year, notice, notify
Compare: 2004 No 35 s FD 8(2)
Section FM 39(3): 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).
FM 40 Losing eligibility to be part of consolidated group
When this section applies
(1)
This section applies when a company is no longer eligible to be part of a consolidated group or, if it is not the nominated company, when it is not eligible to continue as part of the same consolidated group as the nominated company.
Effective date
(2)
Unless subsections (3) or (4) apply, the company is treated as leaving the consolidated group from the start of the income year in which the relevant event occurs, making it no longer—
(a)
eligible to be part of the consolidated group; or
(b)
if it is not the nominated company, eligible to continue as part of the same consolidated group as the nominated company.
First income year
(3)
Despite subsection (2), if a company becomes no longer eligible to be in the consolidated group in the same income year in which it joined the group, the company is treated as leaving the consolidated group on the day it joined the group.
Notifying date
(4)
Despite subsections (2) and (3), the company may notify the Commissioner that it is leaving the consolidated group from the date on which its eligibility ended. For the notice to be effective, the company must—
(a)
provide the notice within 20 working days after the date on which the company’s eligibility ended, although the Commissioner may agree to extend this period if it is reasonable to do so in the circumstances; and
(b)
provide part-year financial statements under section FM 14.
Anti-avoidance measure
(5)
A notice under this section is not valid if it is made in connection with an arrangement entered into for a purpose of enabling the company to leave a consolidated group so as to defeat the intent and application of the consolidation rules. When this subsection applies, the company is treated as leaving the consolidated group at the beginning of the tax year in which its eligibility or entitlement ended.
Defined in this Act: arrangement, Commissioner, company, consolidated group, consolidation rules, income year, nominated company, notice, notify, tax year, working day
Compare: 2004 No 35 s FD 8(3), (4), (6), (7)
Section FM 40 heading: amended, on 29 March 2018 (with effect on 1 April 2008), by section 105(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section FM 40(1): amended, on 29 March 2018 (with effect on 1 April 2008), by section 105(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section FM 40(2)(b): amended, on 29 March 2018 (with effect on 1 April 2008), by section 105(3) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section FM 40(3): amended, on 29 March 2018 (with effect on 1 April 2008), by section 105(4) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section FM 40(4): amended (with effect on 1 April 2008), on 18 March 2019, by section 203 of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
Section FM 40(4)(a): amended, on 29 March 2018 (with effect on 1 April 2008), by section 105(5) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section FM 40(5): amended (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 27 February 2014, by section 74(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section FM 40 list of defined terms tax year: inserted (with effect on 1 April 2008), on 27 February 2014, by section 74(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
FM 41 No nominated company
If, during an income year, no nominated company exists for a consolidated group and no company that is part of the consolidated group is notified as a replacement under section FM 34(3), all companies in the consolidated group are treated as having left the consolidated group with effect from the start of the income year. Section FM 34(5) overrides this section.
Defined in this Act: company, consolidated group, income year, nominated company, notify
Compare: 2004 No 35 s FD 8(5)
FM 42 When company liquidated
If a company is no longer part of a consolidated group because it has been liquidated,—
(a)
the company is not treated as leaving the consolidated group from the start of the income year of the liquidation under sections FM 39 and FM 40:
(b)
part-year financial statements are not required under section FM 40(4)(b).
Defined in this Act: company, consolidated group, income year, liquidation
Compare: 2004 No 35 s FD 8(8)
Subpart FN—Imputation groups of companies
Contents
FN 1 When this subpart applies
This subpart applies when 2 or more companies that are part of a wholly-owned group of companies form an imputation group to enable a company in the imputation group to pay an imputed dividend when another company in the imputation group has a credit for New Zealand tax paid.
Defined in this Act: company, dividend, imputation group, New Zealand tax, pay, wholly-owned group of companies
FN 2 Imputation rules
The imputation rules means the following:
(a)
this subpart:
(b)
section CD 15 (Tax credits linked to dividends):
(c)
sections GB 34 to GB 37 (which relate to tax avoidance and imputation):
(d)
subparts LE and LF, and sections LO 1 to LO 3 (which relate to tax credits):
(e)
subpart OB (Imputation credit accounts (ICA)):
(f)
sections OP 1 to OP 50 (which relate to imputation credits and consolidated groups):
(g)
subpart OZ (Terminating provisions):
(h)
sections RM 13 to RM 17, RM 32, and RZ 6 (which relate to limits on refunds):
(i)
section YA 2(7)(b) (Meaning of income tax varied):
Defined in this Act: imputation rules
Compare: 2004 No 35 s OB 1 “imputation rules”
Section FN 2(i): amended (with effect on 1 April 2008), on 6 October 2009, by section 233 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FN 3 Liabilities of companies in imputation group
A company that is part of an imputation group is jointly and severally liable for further income tax, civil penalties, and interest under Part 7 of the Tax Administration Act 1994 arising from the operation of the imputation credit account of the imputation group.
Defined in this Act: company, further income tax, imputation credit account, imputation group
Compare: 2004 No 35 s FDA 4
FN 4 Eligibility rules
When company eligible
(1)
A company is eligible to be part of an imputation group at a particular time if, at the time,—
(a)
it is resident in New Zealand or resident in Australia; and
(b)
it is part of the same wholly-owned group of companies; and
(c)
it is not treated under a double tax agreement as resident in a country other than New Zealand or Australia, as applicable, for the purposes of taxation in the relevant country; and
(d)
it is required to maintain an imputation credit account (see sections OB 1 and OB 2); and
(e)
if it is a company that is part of a consolidated group, it meets the criteria set out in subsection (2); and
(f)
if it is a qualifying company or a mining company, it meets the condition set out in subsection (3); and
(g)
subsection (5) does not apply to it.
Consolidated group companies
(2)
A company that is part of a consolidated group is eligible to be part of an imputation group at a particular time if, at the time,—
(a)
all companies in the consolidated group meet the criteria set out in subsection (1) and are part of or would be part of the imputation group; and
(b)
for an imputation group that includes or will include companies from more than 1 consolidated group, the companies in the consolidated groups are part of a single wholly-owned group of companies from the earliest date on which a credit arose and remains uncancelled in the imputation credit account of a consolidated group or an imputation group, all of whose members are, or would be, in the imputation group.
Restriction when company of certain type
(3)
Despite subsections (1) and (2), if a company that is part of an imputation group is 1 of the following types of company, all companies in the imputation group at the time must be the same type as that company:
(a)
a qualifying company; or
(b)
a mineral miner that is a company.
LAQCs[Repealed]
(4)
[Repealed]Anti-avoidance measure
(5)
A company is not eligible to be part of an imputation group if, for a purpose of enabling a company to be part of an imputation group so as to defeat the intent and application of the imputation rules, the company’s shares—
(a)
are subject to an arrangement or to a series of related or connected arrangements; or
(b)
have rights attaching to them extinguished or altered, either directly or indirectly, by any means.
Defined in this Act: arrangement, company, consolidated group, double tax agreement, imputation credit account, imputation group, imputation rules, mineral miner, New Zealand, qualifying company, resident in Australia, resident in New Zealand, wholly-owned group
Compare: 2004 No 35 s FDA 1
Section FN 4(1)(d): replaced (with effect on 15 March 2017), on 31 March 2023, by section 71 of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
Section FN 4(1)(g): amended, on 17 July 2013, by section 57 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section FN 4(2)(a): amended, on 29 March 2018 (with effect on 1 April 2008), by section 106 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section FN 4(3)(b): replaced, on 1 April 2014, by section 73(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section FN 4(4) heading: repealed, on 17 July 2013, pursuant to section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section FN 4(4): repealed, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section FN 4 list of defined terms LAQC: repealed, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section FN 4 list of defined terms mineral miner: inserted, on 1 April 2014, by section 73(3)(a) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section FN 4 list of defined terms mining company: repealed, on 1 April 2014, by section 73(3)(b) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
FN 5 Imputation groups with reduced numbers
An imputation group continues to exist if the number of group companies is reduced to 1 company, but if an imputation group has no company at any time, the imputation group no longer exists.
Defined in this Act: company, imputation group
Compare: 2004 No 35 s FDA 3(2), (4)
FN 6 Nominated companies
Group company at the time
(1)
The nominated company of an imputation group at any time must be part of the imputation group at the time.
Trans-Tasman imputation groups
(2)
For a trans-Tasman imputation group, the nominated company—
(a)
must not be an Australian imputation credit account (ICA) company:
(b)
is the nominated company for the resident imputation subgroup associated with the trans-Tasman imputation group.
Agent
(3)
For the purposes of the imputation rules, a nominated company is, at a time, the agent of the imputation group and of each company that is part of the imputation group at the time.
Changing nominated company
(4)
A nominated company may notify the Commissioner that it is, at a particular date, no longer to continue as the agent for the imputation group, and that another company is to become the nominated company.
When notice takes effect
(5)
A notice under subsection (4) has effect 30 days after the date on which the Commissioner receives it.
Replacing nominated company
(6)
If a nominated company of an imputation group is liquidated, the other companies in the imputation group may choose a replacement. The replacement company—
(a)
becomes the nominated company from the date of the liquidation, on complying with paragraph (b); and
(b)
must notify the Commissioner of its selection as nominated company within 30 days after the date of the liquidation, or by a later date if the Commissioner agrees.
Defined in this Act: agent, Australian ICA company, Commissioner, company, imputation group, liquidation, nominated company, notice, notify, resident imputation subgroup, trans-Tasman imputation group
FN 7 Forming imputation groups
Election
(1)
Two or more companies may choose to form an imputation group of companies if the companies are, at the time,—
(a)
a wholly-owned group of companies; and
(b)
eligible under section FN 4.
Notifying Commissioner
(2)
The Commissioner must be notified of an election under subsection (1).
Nominated company
(3)
A notice under subsection (2) must nominate 1 of the companies in the imputation group as its agent for the purposes of the imputation rules. In this subpart, the company is called the nominated company.
Consolidated group companies
(4)
A nominated company of a consolidated group may notify the Commissioner that, having met the eligibility criteria in section FN 4, all the group companies have chosen—
(a)
to form an imputation group with eligible companies that are not part of the consolidated group; or
(b)
to join an existing imputation group.
Effective date
(5)
A notice under subsection (1) or (4) has effect from the start of the tax year in which the Commissioner receives the notice.
Defined in this Act: agent, Commissioner, company, consolidated group, imputation group, imputation rules, nominated company, notice, notify, tax year, wholly-owned group
Compare: 2004 No 35 s FDA 2
FN 8 Trans-Tasman imputation groups and resident imputation subgroups
Trans-Tasman imputation group
(1)
If at least 1 company in an imputation group is an Australian ICA company, and at least 1 company in the imputation group is not an Australian ICA company, the imputation group is a trans-Tasman imputation group.
Resident imputation subgroup
(2)
A company in a trans-Tasman imputation group that is not an Australian ICA company is treated as a resident imputation subgroup of the trans-Tasman imputation group and is associated with that group.
Single company
(3)
A resident imputation subgroup continues while a company in the trans-Tasman imputation group that is not an Australian ICA company remains in existence.
Defined in this Act: Australian ICA company, Commissioner, company, imputation group, notify, resident imputation subgroup, trans-Tasman imputation group
Compare: 2004 No 35 ss FDA 3(1), (3), OB 1 “resident imputation subgroup”
, “trans-Tasman imputation group”
Section FN 8(2): substituted (with effect on 1 April 2008), on 6 October 2009, by section 234(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FN 8(3) heading: substituted (with effect on 1 April 2008), on 6 October 2009, by section 234(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FN 8(3): substituted (with effect on 1 April 2008), on 6 October 2009, by section 234(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FN 9 Joining existing imputation group
Generally
(1)
A company that is eligible under section FN 4(1) may join an imputation group by notifying the Commissioner.
Consolidated groups
(2)
If the companies that are part of a consolidated group are eligible under section FN 4(2), the nominated company of the consolidated group may notify the Commissioner that all the companies in the consolidated group are to join an imputation group.
Joint and several liability
(3)
The companies referred to in subsections (1) and (2) must agree in the notice to be jointly and severally liable under section FN 3 for any further income tax, civil penalties, and interest under Part 7 of the Tax Administration Act 1994 arising from the operation of the imputation credit account of the imputation group.
Effective date
(4)
A notice under subsection (1) has effect from the start of the tax year in which the Commissioner receives the notice.
Defined in this Act: Commissioner, company, consolidated group, further income tax, imputation credit account, imputation group, nominated company, notice, notify, tax year
Compare: 2004 No 35 ss FDA 2(1)–(3), (5), FDA 4
Section FN 9(2): 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).
FN 10 When membership of imputation group ends
A company stops being part of an imputation group if—
(a)
the company chooses to leave the imputation group and notifies the Commissioner, see section FN 11; or
(b)
the company no longer meets the eligibility criteria set out in section FN 4, see section FN 12; or
(c)
the company is not a nominated company and is no longer entitled to be part of the same imputation group as the nominated company, see section FN 12; or
(d)
the company is in an imputation group that no longer has a nominated company, see section FN 13.
Defined in this Act: Commissioner, company, imputation group, nominated company, notify
Compare: 2004 No 35 s FDA 6(1)
FN 11 Company choosing to leave imputation group
When this section applies
(1)
This section applies when a company chooses to leave an imputation group and notifies the Commissioner of its election.
Effective date
(2)
When the company notifies the Commissioner of its election, it may set out in the notice a date from which it is no longer to be treated as part of the imputation group. However, unless subsection (3) applies, if the company does not set out a date in the notice, it is treated as no longer part of the imputation group from the start of the tax year in which the Commissioner receives the notice.
First tax year
(3)
Despite subsection (2), if a company leaves an imputation group in the same tax year in which it joined the imputation group, it is treated as leaving the imputation group on the date when it became part of the imputation group, and not from the start of the tax year.
Defined in this Act: Commissioner, company, imputation group, notice, notify, tax year
Compare: 2004 No 35 s FDA 6(2)
FN 12 Company no longer eligible or entitled to membership
When this section applies
(1)
This section applies when a company is no longer eligible to be part of an imputation group or, if it is not the nominated company, when it is no longer entitled to be part of the same imputation group as the nominated company.
Effective date
(2)
Unless subsections (3) or (4) apply, the company is treated as no longer part of the imputation group from the start of the tax year in which the relevant event occurs, making it no longer—
(a)
eligible to be part of the imputation group; or
(b)
if it is not the nominated company, entitled to be part of the same imputation group as the nominated company.
Notifying date
(3)
Despite subsection (2), the company may notify the Commissioner that it is no longer to be treated as part of the imputation group from the date on which its eligibility or its entitlement ended. The company must provide the notice within 30 days after the date on which the company’s eligibility or entitlement ended, although the Commissioner may agree to extend this period if it is reasonable to do so in the circumstances.
First tax year
(4)
Despite subsections (2) and (3), if a company leaves an imputation group in the same tax year in which it became part of the imputation group, the company is treated as leaving the group on the date when it became part of the imputation group, and not at the start of the tax year.
Anti-avoidance measure
(5)
A notice under this section is not valid if it is made in connection with an arrangement entered into for a purpose of enabling the company to leave an imputation group so as to defeat the intent and application of the imputation rules. When this subsection applies, the company is treated as leaving the imputation group at the beginning of the tax year in which its eligibility or entitlement ended.
Defined in this Act: arrangement, Commissioner, company, imputation group, imputation rules, nominated company, notice, notify, tax year
Compare: 2004 No 35 s FDA 6(3), (4), (7), (8)
Section FN 12(5): amended (with effect on 1 April 2008 and applying for the 2008–09 and later income years), on 27 February 2014, by section 75(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
FN 13 Imputation group with no nominated company
If, during a tax year, no nominated company exists for an imputation group and no replacement is made under section FN 6(6), all companies in the imputation group are treated as having left the imputation group with effect from the start of the tax year.
Defined in this Act: company, imputation group, nominated company, tax year
Compare: 2004 No 35 s FDA 6(5)
FN 14 Effect of liquidation of company
If a company is no longer part of an imputation group because it is liquidated, sections FN 11 and FN 12 do not apply to treat the company as leaving the imputation group from the start of the income year in which the liquidation occurred.
Defined in this Act: company, imputation group, income year, liquidation
Compare: 2004 No 35 s FDA 6(9)
Subpart FO—Amalgamation of companies
Contents
Introductory provisions
FO 1 What this subpart does
This subpart sets out the rules that provide for some tax consequences when companies amalgamate. In general, the rules provide roll-over relief when a resident’s restricted amalgamation occurs.
Defined in this Act: amalgamation, company, resident’s restricted amalgamation, tax
Compare: 2004 No 35 s FE 1(1)(a), (b)
FO 2 Amalgamation rules
The amalgamation rules means the following:
(a)
this subpart:
(b)
sections CD 35, CD 43(24) and (25), and CD 44(8) (which relate to the treatment of dividends):
(c)
sections DB 8(3) to (5), DV 14 and DV 15 (which relate to the treatment of deductions when an amalgamating company ends its existence on a resident’s restricted amalgamation):
(d)
sections IA 9, IE 2 to IE 5, and IQ 1 (which relate to tax losses):
(e)
sections LK 12 to LK 15 (which relate to tax credits):
(f)
sections OA 9, OB 24, OB 53 (which relate to memorandum accounts):
(g)
sections RA 20, RC 33, RD 46, and RD 49 (which relate to tax payments):
(h)
sections 75 and 76 of the Tax Administration Act 1994.
Defined in this Act: amalgamation rules
Compare: 2004 No 35 s FE 1(2)
Section FO 2(b): amended (with effect on 1 April 2008), on 30 March 2022, by section 109 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
FO 3 Resident’s restricted amalgamations
What is a resident’s restricted amalgamation?
(1)
In the amalgamation rules, an amalgamation is a resident’s restricted amalgamation if, at the time of the amalgamation, each of the amalgamating companies and the amalgamated company—
(a)
is resident in New Zealand; and
(b)
is not treated under, and for the purposes of, a double tax agreement as resident in another country; and
(c)
is not a company that derives only exempt income, except income exempt under sections CW 9 and CW 10 (which relate to income from equity); and
(d)
if the amalgamated company is a qualifying company, it meets the condition in subsection (2); and
(e)
[Repealed]Qualifying companies
(2)
If the amalgamated company is a qualifying company immediately after the amalgamation, each of the amalgamating companies must be a qualifying company at the time of the amalgamation.
LAQCs[Repealed]
(3)
[Repealed]Companies deriving exempt income
(4)
For the purposes of subsection (1)(c), a company that derives only exempt income includes a local authority that is not a council-controlled organisation.
Companies opting out
(5)
Even if they meet the requirements of subsection (1), the companies may choose that the amalgamation will not be treated as a resident’s restricted amalgamation by notifying the Commissioner in the way set out in section 75 of the Tax Administration Act 1994.
Defined in this Act: amalgamated company, amalgamating company, amalgamation, amalgamation rules, Commissioner, company, council-controlled organisation, double tax agreement, exempt income, local authority, New Zealand, notify, qualifying company, resident in New Zealand, resident’s restricted amalgamation
Compare: 2004 No 35 s OB 1 “qualifying amalgamation”
Section FO 3(1)(c): amended (with effect on 1 July 2011 and applying for income years beginning on or after that date), on 7 May 2012, by section 68(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
Section FO 3(1)(e): repealed, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section FO 3(3) heading: repealed, on 17 July 2013, pursuant to section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section FO 3(3): repealed, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
Section FO 3 list of defined terms LAQC: repealed, on 17 July 2013, by section 172 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
FO 4 Rights and obligations of amalgamated companies
When this section applies
(1)
This section applies when an amalgamating company ends its existence on amalgamation.
Amalgamated company assuming rights, obligations, and liabilities
(2)
For the tax year corresponding to the income year of amalgamation and all earlier tax years, the amalgamated company, under section 225 of the Companies Act 1993, or under this section in the case of an amalgamation of building societies,—
(a)
must comply with the obligations of the amalgamating company under the Inland Revenue Acts; and
(b)
must meet the liabilities of the amalgamating company under the Inland Revenue Acts; and
(c)
is entitled to the rights, powers, and privileges of the amalgamating company under the Inland Revenue Acts.
Relationship with Companies Act 1993
(3)
The amalgamation rules apply despite anything to the contrary in section 225(d) of the Companies Act 1993.
Defined in this Act: amalgamated company, amalgamating company, amalgamation, amalgamation rules, income year, Inland Revenue Acts, tax year
Compare: 2004 No 35 ss FE 1(1)(c), FE 8
Section FO 4(2): amended, on 5 December 2013, by section 14 of the Companies Amendment Act 2013 (2013 No 111).
Section FO 4(2): amended (with effect on 30 September 2010), on 29 August 2011, by section 47 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
FO 5 Amalgamations and remitted liabilities
Treatment of liabilities generally
(1)
Sections CG 2, CG 2C (which relate to remitted amounts) and DB 47 (Payments for remitted amounts) do not apply merely because an amalgamated company succeeds to a liability of an amalgamating company on an amalgamation.
Treatment of liabilities on liquidation
(2)
Despite subsection (1), when an amalgamating company to which section CG 2C applies has liabilities that are required to be assumed under section FO 4(2)(b), section CG 2C applies—
(a)
to the amalgamated company as if it were company A; and
(b)
in the same way to the amalgamated company that is an amalgamating company in a subsequent amalgamation; and
(c)
from the date of the amalgamation or a subsequent amalgamation to the date on which the liabilities are met.
Defined in this Act: amalgamated company, amalgamating company, amalgamation, amount
Compare: 2004 No 35 s FE 9
Section FO 5(1) heading: inserted (with effect on 22 November 2013), on 30 June 2014, by section 118(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FO 5(1): amended (with effect on 22 November 2013), on 30 June 2014, by section 118(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FO 5(2) heading: inserted (with effect on 22 November 2014), on 30 June 2014, by section 118(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section FO 5(2): inserted (with effect on 22 November 2014), on 30 June 2014, by section 118(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Treatment of shares, income, expenditure, and bad debts
FO 6 Cancellation of shares
If an amalgamating company (company A) holds shares in another amalgamating company (company B), and the shares are cancelled on the amalgamation, company A is treated as having disposed of the shares in company B immediately before the amalgamation for an amount equal to the cost of the shares to company A.
Defined in this Act: amalgamating company, amalgamation, cancellation, share
Compare: 2004 No 35 s FE 2
FO 7 Income derived after amalgamation
When this section applies
(1)
This section applies when an amalgamating company ends its existence on amalgamation, and an amount is derived by the amalgamated company after the amalgamation as a result of something that the amalgamating company did or did not do.
Income of amalgamated company
(2)
The amount is income of the amalgamated company under section CV 4 (Amalgamated companies: amount derived after amalgamation) if it would have been income of the amalgamating company but for the amalgamation.
Defined in this Act: amalgamated company, amalgamating company, amalgamation, amount, income
Compare: 2004 No 35 s FE 4(b)
FO 8 Bad debts and expenditure or loss on resident’s restricted amalgamation
When this section applies
(1)
This section applies when an amalgamating company ends its existence on a resident’s restricted amalgamation, and the amalgamated company at any time—
(a)
writes off as bad the amount of a debt that it acquires from the amalgamating company at the time of the amalgamation; or
(b)
incurs an amount of expenditure or loss, including an amount of depreciation loss, as a result of something that the amalgamating company did or did not do.
Deduction of amalgamated company
(2)
The amalgamated company is allowed a deduction under section DV 15(2) (Amalgamated companies: property passing on resident’s restricted amalgamation) for the amount if—
(a)
the amalgamating company would have been allowed the deduction but for the amalgamation; and
(b)
the amalgamated company is not otherwise allowed the deduction.
Defined in this Act: amalgamated company, amalgamating company, amount, deduction, depreciation loss, loss, resident’s restricted amalgamation
Compare: 2004 No 35 s FE 3
FO 9 Unexpired portion of prepaid expenditure
If an amalgamating company ends its existence on amalgamation, the unexpired portion under section EA 3 (Prepayments) of an amount of expenditure of the amalgamating company for the income year of amalgamation is treated as the amalgamated company’s unexpired amount of the expenditure.
Defined in this Act: amalgamated company, amalgamating company, amalgamation, amount, income year, prepaid expenditure
Compare: 2004 No 35 s FE 4(a)
Property passing to amalgamated company on amalgamation
FO 10 When property passes on resident’s restricted amalgamation
When this section applies
(1)
This section applies when property belonging to an amalgamating company becomes the property of the amalgamated company on a resident’s restricted amalgamation.
What this section does not apply to
(2)
Despite subsection (1), this section—
(a)
does not apply to property that is a financial arrangement, see sections FO 12 to FO 15:
(b)
Property passing
(3)
The amalgamating company is treated as having disposed of the property immediately before the amalgamation. The passing of ownership is treated as a disposal of the property by the amalgamating company and an acquisition of the property by the amalgamated company.
Timing and consideration
(4)
Unless subsections (5) or (6) apply, the amalgamated company is treated as having acquired the property on the date on which the amalgamating company acquired it for an amount that is the sum of—
(a)
the price paid for the property; and
(b)
any expenditure incurred in acquiring or improving the property; and
(c)
any expenditure incurred in securing or improving the amalgamating company’s legal rights to the property.
Trading stock
(5)
If the property is trading stock for both the amalgamating company and the amalgamated company, the consideration for the disposal and acquisition is taken as the value of the trading stock to the amalgamating company determined under subpart EB (Valuation of trading stock (including dealer’s livestock)) at the time of the amalgamation.
Revenue account property
(6)
If the property is revenue account property of the amalgamating company but not revenue account property of the amalgamated company, the consideration for the disposal and acquisition is taken as the market value of the property at the time of the amalgamation. But this subsection does not apply to land that is revenue account property merely because of the 5-year bright-line test, the 10-year bright-line test, or the 10-year rule in any of sections CB 6A, CB 9 to CB 11, CB 14, and CZ 39 (which relate to the disposal of land), in which case section FO 17(3) may apply.
Depreciation loss
(7)
An amalgamating company is allowed a deduction under section DV 15(3) (Amalgamated companies: property passing on resident’s restricted amalgamation) for an amount of depreciation loss for property transferred to the amalgamated company for the period beginning on the first day of the income year of amalgamation and ending on the day before the date of the amalgamation.
Defined in this Act: amalgamated company, amalgamating company, amortising property, amount, deduction, financial arrangement, income year, land, market value, resident’s restricted amalgamation, revenue account property, trading stock
Compare: 2004 No 35 ss FE 6(1)–(3B), FE 6A
Section FO 10(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 FO 10(6): amended (with effect on 27 March 2021), on 30 March 2021, by section 71 of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FO 10(6): amended (with effect on 1 October 2015 and applying to a person’s disposal of residential land if the date that the person first acquires an estate or interest in the residential land is on or after that date), on 16 November 2015, by section 16(1) of the Taxation (Bright-line Test for Residential Land) Act 2015 (2015 No 111).
FO 11 When property passes on amalgamation other than resident’s restricted amalgamation
Disposal and acquisition
(1)
If property belonging to an amalgamating company becomes the property of the amalgamated company on an amalgamation that is not a resident’s restricted amalgamation,—
(a)
the amalgamating company is treated as having disposed of the property for an amount equal to the market value of the property at the time of the amalgamation; and
(b)
the amalgamated company is treated as having acquired the property at that market value.
Relationship with section EE 41
(2)
Section EE 41 (Transfer of depreciable property on certain amalgamations on or after 14 May 2002) overrides this section for the purposes of determining the cost of an item to an amalgamated company, unless the context requires otherwise.
Defined in this Act: amalgamated company, amalgamating company, amalgamation, amount, market value, resident’s restricted amalgamation
Compare: 2004 No 35 s FE 5
FO 12 Financial arrangements: resident’s restricted amalgamation, companies in wholly-owned group
When this section applies
(1)
This section applies, despite sections EW 42 and GB 21 (which relate to non-market transfers of financial arrangements) in an income year in which the obligations that an amalgamating company has under a financial arrangement pass to the amalgamated company on a resident’s restricted amalgamation when,—
(a)
the financial arrangements rules apply to the financial arrangement; and
(b)
for the whole of the income year before the amalgamation, the amalgamating company and the amalgamated company were part of the same wholly-owned group of companies; and
(c)
the method of calculating income and expenditure from the financial arrangement does not change after the amalgamation, and the amalgamated company’s return of income for the corresponding tax year is made on this basis; and
(d)
sections IA 3 to IA 6 and subparts IB and ID (which relate to tax losses of companies and consolidated groups) do not apply to allow the amalgamating company to carry a loss balance forward from an earlier tax year for use in the tax year corresponding to the income year except if section IE 2 (Treatment of tax losses by amalgamating company) allows all tax losses included in the loss balance, and arising from earlier tax years, to be attributed to the amalgamated company as a tax loss.
Amalgamated company’s election
(2)
The amalgamated company may choose to apply subsections (3) and (4) in their return of income for the corresponding tax year.
Treatment of amalgamating company
(3)
The amalgamating company is treated as if it had never been party to the financial arrangement. Section EW 31 (Base price adjustment formula) does not apply, in relation to the transfer of the financial arrangement or the obligations under it.
Treatment of amalgamated company
(4)
The amalgamated company is treated as if it had taken the place of the amalgamating company in relation to the financial arrangement in terms of—
(a)
the date the company entered into the arrangement; and
(b)
the consideration paid; and
(c)
the income derived; and
(d)
the expenditure incurred; and
(e)
the returns of income provided.
Defined in this Act: amalgamated company, amalgamating company, consideration, corresponding income year, financial arrangement, financial arrangements rules, income, income year, loss balance, resident’s restricted amalgamation, return of income, tax loss, tax year, wholly-owned group of companies
Compare: 2004 No 35 ss FE 6(5), (6), FE 7(1)(a), (2)
Section FO 12(1)(d): amended (with effect on 1 April 2020), on 30 March 2021, by section 72(1) (and see section 72(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FO 12(1)(d): amended (with effect on 1 April 2008 and applying for the 2008–09 and later tax years), on 30 March 2017, by section 114(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FO 12 list of defined terms consolidated group: 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).
FO 13 Financial arrangements: resident’s restricted amalgamation, calculation method unchanged
When this section applies
(1)
This section applies, despite sections EW 42 and GB 21 (which relate to non-market transfers of financial arrangements) in an income year in which the obligations that an amalgamating company has under a financial arrangement pass to the amalgamated company on a resident’s restricted amalgamation when—
(a)
the method of calculating income and expenditure from the financial arrangement does not change after the amalgamation; and
(b)
section FO 12 does not apply.
Disposal and acquisition
(2)
The amalgamating company is treated as having disposed of the financial arrangement for consideration, and the amalgamated company is treated as having acquired the financial arrangement for that consideration.
Base price adjustment and income or expenditure
(3)
For the income year of the amalgamation,—
(a)
the amalgamating company must calculate a base price adjustment under section EW 31 (Base price adjustment formula) as modified by subsection (4); and
(b)
the amalgamated company has an amount of income or expenditure determined under subsection (5).
Base price adjustment for amalgamating company
(4)
For the income year of the amalgamation, the consideration for the disposal and acquisition of the financial arrangement is an amount that results in the base price adjustment for the amalgamating company under section EW 31 representing for the amalgamating company an allocation that is fair and reasonable, as between the amalgamating company and the amalgamated company, of the income or expenditure relating to the financial arrangement that the amalgamating company would have derived or incurred in the income year if the amalgamation had not taken place.
Income or expenditure of amalgamated company
(5)
For the income year of the amalgamation, the amalgamated company has an amount of income or expenditure that represents for the amalgamated company an allocation that is fair and reasonable, as between the amalgamating company and the amalgamated company, of the income or expenditure relating to the financial arrangement that the amalgamating company would have derived or incurred in the income year if the amalgamation had not taken place.
Defined in this Act: amalgamated company, amalgamating company, amalgamation, consideration, dispose, financial arrangement, income, income year, resident’s restricted amalgamation
Compare: 2004 No 35 ss FE 6(5), (7), FE 7(1)(b), (3)
Section FO 13(2) heading: replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years, but not applying for a person and a financial arrangement if the person has taken a tax position for the financial arrangement relying on this section in the absence of the amendment made by section 178(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016; and for the 2008–09 or a later income year; and in a tax return filed before 26 February 2015), on 24 February 2016, by section 178(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FO 13(2): replaced (with effect on 1 April 2008 and applying for the 2008–09 and later income years, but not applying for a person and a financial arrangement if the person has taken a tax position for the financial arrangement relying on this section in the absence of the amendment made by section 178(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016; and for the 2008–09 or a later income year; and in a tax return filed before 26 February 2015), on 24 February 2016, by section 178(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FO 13(3) heading: inserted (with effect on 1 April 2008 and applying for the 2008–09 and later income years, but not applying for a person and a financial arrangement if the person has taken a tax position for the financial arrangement relying on this section in the absence of the amendment made by section 178(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016; and for the 2008–09 or a later income year; and in a tax return filed before 26 February 2015), on 24 February 2016, by section 178(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FO 13(3): inserted (with effect on 1 April 2008 and applying for the 2008–09 and later income years, but not applying for a person and a financial arrangement if the person has taken a tax position for the financial arrangement relying on this section in the absence of the amendment made by section 178(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016; and for the 2008–09 or a later income year; and in a tax return filed before 26 February 2015), on 24 February 2016, by section 178(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FO 13(4) heading: inserted (with effect on 1 April 2008 and applying for the 2008–09 and later income years, but not applying for a person and a financial arrangement if the person has taken a tax position for the financial arrangement relying on this section in the absence of the amendment made by section 178(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016; and for the 2008–09 or a later income year; and in a tax return filed before 26 February 2015), on 24 February 2016, by section 178(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FO 13(4): inserted (with effect on 1 April 2008 and applying for the 2008–09 and later income years, but not applying for a person and a financial arrangement if the person has taken a tax position for the financial arrangement relying on this section in the absence of the amendment made by section 178(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016; and for the 2008–09 or a later income year; and in a tax return filed before 26 February 2015), on 24 February 2016, by section 178(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FO 13(5) heading: inserted (with effect on 1 April 2008 and applying for the 2008–09 and later income years, but not applying for a person and a financial arrangement if the person has taken a tax position for the financial arrangement relying on this section in the absence of the amendment made by section 178(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016; and for the 2008–09 or a later income year; and in a tax return filed before 26 February 2015), on 24 February 2016, by section 178(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
Section FO 13(5): inserted (with effect on 1 April 2008 and applying for the 2008–09 and later income years, but not applying for a person and a financial arrangement if the person has taken a tax position for the financial arrangement relying on this section in the absence of the amendment made by section 178(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016; and for the 2008–09 or a later income year; and in a tax return filed before 26 February 2015), on 24 February 2016, by section 178(1) of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).
FO 14 Financial arrangements: resident’s restricted amalgamation, other cases
When this section applies
(1)
This section applies in an income year in which a financial arrangement belonging to an amalgamating company passes to the amalgamated company on a resident’s restricted amalgamation when sections FO 12 and FO 13 do not apply.
Market value
(2)
The amalgamating company is treated as having disposed of the financial arrangement. The consideration for the disposal is the market value of the financial arrangement on the date the amalgamated company acquires it.
Defined in this Act: amalgamated company, amalgamating company, consideration, financial arrangement, income year, market value, resident’s restricted amalgamation
Compare: 2004 No 35 ss FE 6(5), (8), FE 7(1)(b), (4)
FO 15 Financial arrangements: amalgamation other than resident’s restricted amalgamation
When this section applies
(1)
This section applies when an obligation that an amalgamating company has in relation to a financial arrangement passes to the amalgamated company on an amalgamation that is not a resident’s restricted amalgamation.
Market value for amalgamating company
(2)
The amalgamating company is treated as having disposed of the financial arrangement or relieved itself of the obligations immediately before the amalgamation. The consideration for the disposal is the market price for assuming the obligations at the time of the amalgamation.
Market value for amalgamated company
(3)
The amalgamated company is treated as having acquired the financial arrangement or assumed the obligations immediately after the amalgamation. The consideration for the acquisition is the market value of the property at the time of the amalgamation.
Defined in this Act: amalgamated company, amalgamating company, amalgamation, consideration, financial arrangement, market value, resident’s restricted amalgamation
Compare: 2004 No 35 s FE 5
FO 16 Amortising property
When this section applies
(1)
This section applies in an income year in which amortising property belonging to an amalgamating company passes to the amalgamated company on a resident’s restricted amalgamation. The passing of ownership is treated as a disposal of the property by the amalgamating company and an acquisition by the amalgamated company.
Treatment of amalgamating company
(1B)
The amalgamating company is treated as neither deriving income nor having a deduction under sections EE 24 to EE 53 (which relate to disposals of depreciable property) as a result of the deemed disposal.
Value: all pool property
(2)
If the amortising property forms the whole of a pool of property of the amalgamating company that is depreciated under sections EE 20 to EE 24 (which relate to depreciation under the pool method), the consideration for the disposal and acquisition is taken as the adjusted tax value of the pool immediately before the amalgamation.
Value: part pool property
(3)
If the amortising property forms part of a pool of property of the amalgamating company that is depreciated under sections EE 20 to EE 24, the consideration for the disposal and acquisition is taken as the lesser of—
(a)
the market value of the property; or
(b)
the adjusted tax value of the pool immediately before the amalgamation.
Deductions for depreciation loss
(4)
If the amortising property is other than pool property of the amalgamating company, the amalgamated company is treated as having been allowed the deduction that the amalgamating company would have had for an amount of depreciation loss, or a deduction under any other amortisation provision of this Act, relating to the property.
Defined in this Act: acquire, adjusted tax value, amalgamated company, amalgamating company, amortising property, amount, deduction, depreciation loss, dispose, income year, market value, other amortisation provision, pool, resident’s restricted amalgamation
Compare: 2004 No 35 s FE 6(1), (4)
Section FO 16(1B) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 235(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section FO 16(1B): inserted (with effect on 1 April 2008), on 6 October 2009, by section 235(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
FO 17 Land
When this section applies
(1)
This section applies when land belonging to an amalgamating company passes to the amalgamated company on a resident’s restricted amalgamation.
Disposal at market value
(2)
The amalgamating company is treated as having disposed of the land to the amalgamated company at the market value of the land at the date of the amalgamation if—
(a)
the land is not revenue account property of the amalgamating company, and the disposal of the land would give rise to income for the amalgamated company under any of sections CB 6A to CB 14, and CZ 39 (which relate to the disposal of land):
(b)
the land is revenue account property of the amalgamating company but not merely because of the 5-year bright-line test, the 10-year bright-line test, or the 10-year rule in any of sections CB 6A, CB 9 to CB 11, CB 14, and CZ 39, and the land is, or may be, revenue account property of the amalgamated company because of the 5-year bright-line test, the 10-year bright-line test, or the 10-year rule in any of sections CB 6A, CB 9 to CB 11, CB 14, and CZ 39.
Disposal of land within 5-year bright-line test or 10-year rule
(3)
If the land is, or may be, revenue account property of the amalgamating company because of the 5-year bright-line test, the 10-year bright-line test, or the 10-year rule in any of sections CB 6A, CB 9 to CB 11, CB 14, and CZ 39, and the amalgamated company disposes of the land within the relevant 5-year or 10-year period after the amalgamating company acquired it, an amount derived from the disposal is income of the amalgamated company under whichever is applicable of sections CB 6A to CB 14, and CZ 39.
Defined in this Act: amalgamated company, amalgamating company, amount, income, land, resident’s restricted amalgamation, revenue account property
Compare: 2004 No 35 s FE 6(3A), (3B)
Section FO 17(2) heading: replaced (with effect on 1 October 2015), on 16 November 2015, by section 17 of the Taxation (Bright-line Test for Residential Land) Act 2015 (2015 No 111).
Section FO 17(2): replaced (with effect on 1 October 2015), on 16 November 2015, by section 17 of the Taxation (Bright-line Test for Residential Land) Act 2015 (2015 No 111).
Section FO 17(2)(a): amended (with effect on 27 March 2021), on 30 March 2021, by section 73(1) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FO 17(2)(b): amended (with effect on 27 March 2021), on 30 March 2021, by section 73(2) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FO 17(3) heading: replaced (with effect on 1 October 2015), on 16 November 2015, by section 17 of the Taxation (Bright-line Test for Residential Land) Act 2015 (2015 No 111).
Section FO 17(3) heading: amended, on 29 March 2018 (applying to a person’s disposal of residential land if the date that the person first acquires an estate or interest in the residential land is on or after that date), by section 108(1)(b) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Section FO 17(3): replaced (with effect on 1 October 2015), on 16 November 2015, by section 17 of the Taxation (Bright-line Test for Residential Land) Act 2015 (2015 No 111).
Section FO 17(3): amended (with effect on 27 March 2021), on 30 March 2021, by section 73(3)(a) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FO 17(3): amended (with effect on 27 March 2021), on 30 March 2021, by section 73(3)(b) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FO 17(3): amended, on 29 March 2018 (applying to a person’s disposal of residential land if the date that the person first acquires an estate or interest in the residential land is on or after that date), by section 108(1)(c) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
Treatment of financial arrangements between amalgamating companies
FO 18 When amalgamating companies are parties to financial arrangement
When this section applies
(1)
This section applies when amalgamating companies are parties to a financial arrangement that exists on the date of the amalgamation of the companies and section FO 21 does not apply.
Financial arrangement discharged
(2)
The financial arrangement is, for the purposes of section EW 31 (Base price adjustment formula), treated as having been discharged immediately before the amalgamation. The consideration for the discharge is as follows:
(a)
on a resident’s restricted amalgamation,—
(i)
if the amalgamating company is solvent, the consideration is the accrued balance for the financial arrangement:
(ii)
if the amalgamating company is insolvent but is likely to be able to meet its obligations under the financial arrangement, the consideration is the accrued balance for the financial arrangement:
(iii)
if the amalgamating company is insolvent and is unlikely to be able to meet its obligations under the financial arrangement, the consideration is the market value of the financial arrangement on the date of the amalgamation:
(b)
on an amalgamation other than a resident’s restricted amalgamation, the consideration is the market value of the financial arrangement on the date of the amalgamation.
When subsection (4) applies
(3)
Subsection (4) applies when an amalgamating company that is the borrower under the financial arrangement—
(a)
is solvent; or
(b)
is insolvent but is likely to be able to meet its obligations under the financial arrangement.
No remission
(4)
The other party to the financial arrangement is not regarded as remitting an amount in excess of the consideration treated as paid for the discharge under subsection (2)(a)(i) or (ii) or (b), as applicable, merely by virtue of the discharge.
When subsection (6) applies
(5)
Subsection (6) applies when an amalgamating company that is the borrower under the financial arrangement is insolvent and is unlikely to meet its financial obligations under the financial arrangement.
Market value treated as paid
(6)
For the purposes of section EW 31, the financial arrangement is treated as discharged immediately before the amalgamation and the market value of the financial arrangement is treated as being paid by the amalgamating company to the other party to the financial arrangement.
Amount remitted
(7)
For the purposes of subsection (6), the other party to the financial arrangement is treated as having remitted an amount equal to the excess over market value of the outstanding accrued balance for the financial arrangement, see section FO 20.
Defined in this Act: amalgamated company, amalgamating company, amalgamation, amount, company, consideration, financial arrangement, market value, pay, resident’s restricted amalgamation
Compare: 2004 No 35 s FE 10(1)–(5), (6)(c)
Section FO 18(1) heading: replaced, on 1 April 2017, by section 115 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FO 18(1): replaced, on 1 April 2017, by section 115 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FO 18(2) heading: substituted (with effect on 1 April 2008), on 21 December 2010 (applying for the 2008–09 and later income years), by section 66(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section FO 18(2): substituted (with effect on 1 April 2008), on 21 December 2010 (applying for the 2008–09 and later income years), by section 66(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section FO 18(3) heading: substituted (with effect on 1 April 2008), on 21 December 2010 (applying for the 2008–09 and later income years), by section 66(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section FO 18(3): substituted (with effect on 1 April 2008), on 21 December 2010 (applying for the 2008–09 and later income years), by section 66(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section FO 18(4) heading: substituted (with effect on 1 April 2008), on 21 December 2010 (applying for the 2008–09 and later income years), by section 66(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section FO 18(4): substituted (with effect on 1 April 2008), on 21 December 2010 (applying for the 2008–09 and later income years), by section 66(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section FO 18(5) heading: added (with effect on 1 April 2008), on 21 December 2010 (applying for the 2008–09 and later income years), by section 66(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section FO 18(5): added (with effect on 1 April 2008), on 21 December 2010 (applying for the 2008–09 and later income years), by section 66(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section FO 18(6) heading: added (with effect on 1 April 2008), on 21 December 2010 (applying for the 2008–09 and later income years), by section 66(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section FO 18(6): added (with effect on 1 April 2008), on 21 December 2010 (applying for the 2008–09 and later income years), by section 66(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section FO 18(7) heading: added (with effect on 1 April 2008), on 21 December 2010 (applying for the 2008–09 and later income years), by section 66(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section FO 18(7): added (with effect on 1 April 2008), on 21 December 2010 (applying for the 2008–09 and later income years), by section 66(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
Section FO 18 list of defined terms pay: inserted (with effect on 1 April 2008), on 21 December 2010, by section 66(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
FO 19 Calculation of outstanding accrued balance: consideration for discharge
Formula
(1)
In section FO 18(2)(a), the outstanding accrued balance is calculated using the formula—
consideration + prior expenditure + expenditure accrued in year
− income accrued in year − consideration paid.
Definition of items in formula
(2)
In the formula,—
(a)
consideration is the consideration paid to the amalgamating company under the financial arrangement:
(b)
prior expenditure is the expenditure that the amalgamating company incurs less the income that it derives from the financial arrangement calculated under either a spreading method or section EW 53 (Adjustment required) in all income years other than the current income year from the time the financial arrangement was entered into:
(c)
expenditure accrued in year is the expenditure that the amalgamating company accrues from the financial arrangement for the period from the first day of the income year in which the amalgamation occurs to the date of the amalgamation, calculated either—
(i)
if the amalgamating company was party to the financial arrangement in an earlier income year, using the spreading method it used to calculate income and expenditure under the financial arrangement in the income year; or
(ii)
using a spreading method that the amalgamating company chooses, if the method could have been used if the income year had ended immediately before the amalgamation:
(d)
income accrued in year is the income that the amalgamating company accrues from the financial arrangement for the period described in paragraph (c) and calculated as described in that paragraph:
(e)
consideration paid is the consideration that the amalgamating company pays for the financial arrangement before the date of the amalgamation.
Defined in this Act: amalgamating company, amalgamation, consideration, financial arrangement, income, income year, pay, spreading method
Compare: 2004 No 35 s FE 10(6)(a)
FO 20 Calculation of outstanding accrued balance: amounts remitted
Formula
(1)
In section FO 18(7), the outstanding accrued balance is calculated using the formula—
consideration + prior income + income accrued in year
− expenditure accrued in year − consideration paid.
Definition of items in formula
(2)
In the formula,—
(a)
consideration is the consideration paid by the party under the financial arrangement:
(b)
prior income is the income that the party derives less the expenditure that it incurs under the financial arrangement calculated under either a spreading method or section EW 53 (Adjustment required) in all income years other than the current income year from the time the financial arrangement was entered into:
(c)
income accrued in year is the income that the party accrues from the financial arrangement for the period from the first day of the income year in which the amalgamation occurs to the date of the amalgamation, calculated either—
(i)
using the spreading method used to calculate income and expenditure under the financial arrangement in the income year, if the party was a party to the financial arrangement in an earlier income year; or
(ii)
using a spreading method that the party chooses, if the method could have been used if the income year had ended immediately before the amalgamation:
(d)
expenditure accrued in year is the expenditure that the party accrues under the financial arrangement for the period described in paragraph (c) and calculated as described in that paragraph:
(e)
consideration paid is the consideration paid to the party under the financial arrangement before the date of the amalgamation.
Defined in this Act: amalgamation, consideration, financial arrangement, income, income year, spreading method
Compare: 2004 No 35 s FE 10(6)(b)
Section FO 20(1): amended, on 30 March 2017, by section 116 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
FO 21 When amalgamating companies are parties to financial arrangements: economic groups
When this section applies
(1)
This section applies when—
(a)
amalgamating companies are parties to a financial arrangement that exists on the date of the amalgamation; and
(b)
section EW 46C(1)(a) or (b) (Consideration when debt remitted within economic group) applies to the amalgamating companies as creditor and debtor for the financial arrangement; and
(c)
section EW 46C(3) does not apply.
Consideration: debtor
(2)
The debtor is treated as having paid the amount of the financial arrangement on the date of the amalgamation.
Consideration: creditor
(3)
The creditor is treated as having been paid the amount of the financial arrangement on the date of the amalgamation.
Defined in this Act: amalgamating company, amalgamation, amount, financial arrangement, pay
Section FO 21: inserted, on 1 April 2017, by section 117 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Section FO 21(1)(b): amended (with effect on 1 April 2008), on 30 March 2022, by section 110 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
Subpart FZ—Terminating provisions
Contents
Debentures
FZ 1 Treatment of interest payable under debentures issued before certain date
When this section applies
(1)
This section applies for the purposes of section FA 2 (Recharacterisation of certain debentures).
Profit-related debentures
(2)
A debenture issued before 8 pm New Zealand standard time on 23 October 1986 is a profit-related debenture if the rate of interest may be determined by reference to the dividend payable by the company issuing the debenture or in any other manner.
Fixed rates of interest
(3)
Section FA 2(2) applies to a profit-related debenture issued before 8 pm New Zealand standard time on 23 October 1986.
Defined in this Act: company, debenture, dividend, interest, pay, profit-related debenture
Compare: 2004 No 35 s FC 1
Section FZ 1(3): amended (with effect on 1 April 2008), on 6 October 2009, by section 236 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Leases
FZ 2 Effect of specified lease on lessor and lessee
Lease treated as sale
(1)
The leasing of a personal property lease asset under a specified lease is treated as a sale of the asset, made at the start of the term of the lease, by the lessor to the lessee. The lessee is treated as having incurred, through the sale, capital expenditure of an amount equal to the cost price of the asset.
Loan applied to finance acquisition of asset
(2)
A lessor under a specified lease is treated as having advanced to the lessee a loan of an amount equal to the cost price of the personal property lease asset. The lessee is treated as having applied the loan in the financing of the acquisition of the asset.
No deduction
(3)
A lessor under a specified lease is denied a deduction under section DZ 14(2) (Deductions under specified leases) for an amount of depreciation loss for the personal property lease asset.
Asset sold to lessor
(4)
At the end of the term of a specified lease, if the personal property lease asset is not acquired by the lessee under the terms of the lease or in the exercise of an option under the lease, the asset is treated as sold at the end of the term of the lease to the lessor for—
(a)
an amount equal to the guaranteed residual value, if any, set out for the asset in the lease; or
(b)
if no guaranteed residual value is set out in the lease, no consideration.
Treatment when lease terminated
(5)
If a specified lease is terminated before the term of the lease ends, whether by cancellation, surrender, or otherwise,—
(a)
the personal property lease asset relating to the lease is treated as sold on the date of the termination to the lessor by the lessee at a price equal to the amount by which the amount of the outstanding balance, at the time of termination, of a loan advance by the lessor to the lessee is more than the amount or the sum of the amounts payable by the lessee to the lessor in consideration for the release by the lessor of the lessee from the obligations of the lessee under the lease:
(b)
despite paragraph (a), if, in relation to the amount of the outstanding balance and the amount or the sum of the amounts payable by the lessee to the lessor, no excess arises, the asset is treated as having been sold for no consideration:
(c)
if the value of the consideration payable by the lessee to the lessor in relation to the termination is more than the amount of the outstanding balance, at the time of termination, of a loan advanced by the lessor to the lessee, an amount equal to the amount of the excess is treated as income derived by the lessor in the income year in which the lease is terminated.
Subsequent sale, assignment, or lease
(6)
If, on or after the end of the term of a specified lease, the personal property lease asset relating to the lease is sold, assigned, or leased under a specified lease by the lessor to another person, and the value of the consideration on the sale, assignment, or lease—
(a)
is more than the amount determined for the first specified lease under subsection (4), the amount determined is increased by a further amount that is equal to the part, if any, of the excess paid by the lessor to the lessee:
(b)
is less than the amount determined for the first specified lease under subsection (4)(a), and the lessee is required to make a further payment to the lessor equal to the difference between the guaranteed residual value for the lease value, and the value of the consideration, the amount determined is reduced by the amount of the further payment.
Consideration more than amount determined under subsection (4)
(7)
Despite subsection (6), if the value of the consideration on the sale, assignment, or lease is more than the amount determined under subsection (4), the part, if any, of the excess that is not paid to the lessee is treated as income under section CZ 20 (Disposal of personal property lease asset under specified lease).
Associated persons
(8)
If the lessee under a specified lease, or another person who is associated with the lessee, at any time acquires the personal property lease asset, and disposes of the asset, and the value of the consideration for the disposal is more than the value of the consideration for which the lessee or other person acquired it, an amount equal to the excess is income under section CZ 20.
Meaning of outstanding balance
(9)
In this section, and in section FZ 3, outstanding balance means the amount calculated using the formula—
loans advanced + interest payable − instalments.
Definition of items in formula
(10)
In the formula,—
(a)
loans advanced is the total amount of all loans advanced under the lease by the lessor for the period—
(i)
starting on the date that the lease started; and
(ii)
ending on the date immediately before the start of the instalment period:
(b)
interest payable is the total amount of interest payable for each loan for the period—
(i)
starting on the date that the lease started; and
(ii)
ending on the date immediately before the start of the instalment period:
(c)
instalments is the total amount of all instalments paid by the lessee in the period—
(i)
starting on the date that the lease started; and
(ii)
ending on the date immediately before the start of the instalment period.
Defined in this Act: amount, associated person, cost price, deduction, depreciation loss, guaranteed residual value, income, income year, instalment, lessee, lessor, loan, outstanding balance, pay, personal property lease asset, specified lease, term of the lease
Compare: 2004 No 35 s FC 6(2)–(8)
FZ 3 Income of lessor under specified lease
Interest
(1)
The income of a lessor derived under a specified lease is treated as interest.
Treatment of amount derived
(2)
The amount of interest derived under subsection (1) is treated as—
(a)
during the term of the lease, derived during the initial period and each instalment period, an amount that is calculated either,—
(i)
on the outstanding balance for the initial period, and each instalment period, at such a rate and in such a manner that the aggregate of all of the amounts so calculated is equal to the amount first mentioned in paragraph (b); or
(ii)
for the initial period and each instalment period, under such other method commonly applied in commercial usage as, having regard to the term of the lease and to the frequency of the personal property lease payments, results in the allocation to that initial period and to each instalment period of an amount that is fair and reasonable and results in the sum of all amounts so allocated being equal to the amount first mentioned in paragraph (b):
(b)
in relation to the term of the lease, an amount that is equal to the sum of the personal property lease payments under the specified lease and the amount of the guaranteed residual value, if any, under the specified lease, reduced by the cost price of the personal property lease asset.
Calculation for income year
(3)
The interest derived by a lessor is, for an income year, treated as an amount equal to the sum of the amounts calculated under subsection (2)(a) as calculated for the initial period, if any, and each instalment period that ends in the income year.
Some definitions
(4)
In this section,—
initial period means the period—
(a)
starting on the date of the start of a lease; and
(b)
ending just before the start of the instalment period that follows the start of the lease
instalment period means the period—
(a)
starting on the day on which an instalment is payable; and
(b)
ending with the day just before the day on which the next instalment is payable.
Defined in this Act: amount, guaranteed residual value, income, income year, initial period, instalment, instalment period, interest, lessor, outstanding balance, pay, personal property lease asset, personal property lease payment, specified lease, term of the lease
Compare: 2004 No 35 s FC 7
FZ 4 Deductions under specified leases
A lessee under a specified lease is denied a deduction for expenditure incurred by them under the lease except to the extent described in section DZ 14(3) (Deductions under specified leases).
Defined in this Act: deduction, lessee, specified lease
Compare: 2004 No 35 s FC 8
Relationship property
FZ 5 Commercial bills
When this section applies
(1)
This section applies for the purposes of section CZ 6 (Commercial bills before 31 July 1986) when a commercial bill is transferred under a settlement of relationship property.
Transfer at cost
(2)
The transfer is treated as a disposal by the transferor and an acquisition by the transferee for an amount that equals the cost of the bill to the transferor.
Defined in this Act: amount, commercial bill, settlement of relationship property
Compare: 2004 No 35 s FF 5
Estate property
FZ 6 Transitional valuation rule for estate property
What this section applies to
(1)
This section applies to property transferred under section FC 1(1)(a) (Disposals to which this subpart applies) either on a person’s death or on a distribution by an executor, administrator, or trustee of an estate, if—
(a)
the death or distribution occurred before 1 October 2005; and
(b)
in the tax year in which the property passes, all beneficiaries of the deceased person are resident in New Zealand, and no income of a beneficiary is exempt income under section CW 43 (Charitable bequests).
Market value or value under settlement of relationship property
(2)
The valuation of the transferred property for tax purposes for the corresponding income year in which the death or distribution occurred is measured as a transfer occurring immediately before the death of the person, or at the date of distribution, as applicable, at—
(a)
market value; or
(b)
a value under subpart FB (Transfers of relationship property) for property of the type; or
(c)
a value under subsection (4).
Returns of income
(3)
For the purposes of providing a return of income for the deceased person, beneficiary, and estate, a value determined under subsection (2) is treated as correct.
Requirements of other provisions
(4)
Despite subsection (3), if this Act, the Income Tax Act 2004, or Income Tax Act 1994, requires the use of a market value for an item of property, that value must be used in the return of income.
Defined in this Act: corresponding income year, exempt income, income, market value, New Zealand, property, resident in New Zealand, return of income, tax year, trustee
Compare: 2004 No 35 ss FI 9, FI 10
Section FZ 6(1): amended, on 30 March 2017, by section 118 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
Earthquake-affected group property
Heading: inserted (with effect on 4 September 2010), on 2 November 2012 (applying for income years ending after 4 September 2010 and before the 2016–17 income year), by section 73(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
FZ 7 Valuation of group assets: insurance proceeds from Canterbury earthquake
When this section applies
(1)
This section applies for the purposes of sections FE 16 (Total group assets) and FE 18 (Measurement of debts and assets of worldwide group) and a person if—
(a)
an asset of the person’s New Zealand group is damaged as a result of a Canterbury earthquake, as that term is defined in section 4 of the Canterbury Earthquake Recovery Act 2011; and
(b)
the asset is impaired or derecognised, under generally accepted accounting practice as a result of the damage; and
(c)
insurance for the damage is recognised at a later date under generally accepted accounting practice.
Optional treatment of insurance
(2)
The person may choose to include an amount of the insurance, corresponding to the amount of the impairment or the derecognised value of the asset, in the value of the total group assets of the person’s New Zealand group during the period—
(a)
beginning with the impairment or derecognition of the asset; and
(b)
ending before the earlier of—
(i)
the recognition of the amount of insurance:
(ii)
the beginning of the 2019–20 income year.
Corresponding treatment for worldwide group
(3)
If a person includes an amount under subsection (2) in the value of the total group assets of the person’s New Zealand group for a period, the person must include the amount in the value of the total group assets of the person’s worldwide group for the period.
Notice to Commissioner
(4)
A person choosing to apply subsection (2) for an income year must give to the Commissioner—
(a)
notice that the person has applied this section for the income year; and
(b)
the amount of income that would arise under section CH 9 (Interest apportionment: excess debt entity) for the income year in the absence of this section; and
(c)
the amount of income that arises under section CH 9 for the income year after the application of this section; and
(d)
further information required by the Commissioner.
Form and timing of notice
(5)
The information required by subsection (4) must be given—
(a)
in the form and by the means prescribed by the Commissioner; and
(b)
no later than the later of 30 November 2012 and the day by which the person is required to make a return of income for the corresponding tax year.
Defined in this Act: Commissioner, generally accepted accounting practice, income year, notice, return of income, total group assets
Section FZ 7: replaced (with effect on 4 September 2010), on 27 February 2014, by section 76 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section FZ 7 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).
Interest apportionment rules
Heading: inserted, on 1 July 2018, by section 36 of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
FZ 8 Transition period for amendments to interest apportionment rules
What this section does
(1)
This section gives the effect, for an excess debt entity meeting the requirements of subsection (2), of the amendments (the affected amendments) to section FE 5 (Thresholds for application of interest apportionment rules) made by section 20(1), (2), and (6) of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 and to section FE 6 (Apportionment of interest by excess debt entity) made by section 21(5) and (6) of that Act.
Requirements for section to apply
(2)
An excess debt entity meets the requirements of this subsection if, using the method of calculating debt percentages as amended by the provisions referred to in subsection (1),—
(a)
the excess debt entity is a company described in section FE 2(1)(cb) (When this subpart applies) or is controlled by a group of persons that act in concert and are each described in section FE 2(a) to (db); and
(b)
the debt percentage of the excess debt entity’s New Zealand group is greater than 60% on the date given by subsection (5) (the transition date); and
(c)
the debt percentage of the excess debt entity’s New Zealand group on the transition date is greater than 100% of the debt percentage of the excess debt entity’s worldwide group on the transition date.
Transition period
(3)
For an excess debt entity meeting the requirements of subsection (2), the affected amendments apply as varied by subsection (4) for a period of 5 income years (the transition period) consisting of the first income year beginning on or after 1 July 2018 and the 4 following income years.
Method and threshold values for calculations
(4)
For the period from the transition date to the end of the transition period, in determining whether the excess debt entity is required to apportion its interest expenditure under subpart FE (Interest apportionment on thin capitalisation) and in determining the apportionment of the excess debt entity’s interest expenditure under section FE 6,—
(a)
the method of calculating debt percentages is applied as amended; and
(b)
the threshold value for the debt percentage of the excess debt entity’s New Zealand group for the income year is 60%; and
(c)
the threshold value for the ratio of the debt percentage of the excess debt entity’s New Zealand group for the income year to the debt percentage of the excess debt entity’s worldwide group is the lesser of 110% and the corresponding ratio calculated for the transition date.
Transition date
(5)
For the purposes of this section, the transition date is whichever the excess debt entity elects, in a return of income for the first income year beginning on or after 1 July 2018, of—
(a)
the date (the introduction date) on which the Taxation (Neutralising Base Erosion and Profit Shifting) Bill is introduced:
(b)
the date that is the last measurement date under section FE 8 (Measurement dates) preceding the introduction date.
Defined in this Act: company, excess debt entity, income year, return of income
Section FZ 8: inserted, on 1 July 2018, by section 36 of the Taxation (Neutralising Base Erosion and Profit Shifting) Act 2018 (2018 No 16).
Trading stock
Heading: inserted (with effect on 17 March 2020), on 30 March 2021, by section 74 of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
FZ 9 Transfers of trading stock to non-associates, donee organisations, or public authorities
Section FC 2(1) (Transfer at market value) does not apply to a transfer of property if—
(a)
the property is trading stock of the transferor; and
(b)
the transferee—
(i)
is not associated with the transferor; or
(ii)
is associated with the transferor, but is a donee organisation or a public authority; and
(c)
the transfer is made in—
(i)
the period that begins on 17 March 2020 and ends on 31 March 2024; or
(ii)
a period specified by an Order in Council made under section 225ABA of the Tax Administration Act 1994.
Defined in this Act: associated, donee organisation, property, public authority, trading stock
Section FZ 9: inserted (with effect on 17 March 2020), on 30 March 2021, by section 74 of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
Section FZ 9(c)(i): amended, on 1 April 2023, by section 72 of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
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Versions
Income Tax Act 2007
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